Chit Chat Stocks - Lawrence Hamtil: Boring Businesses & Exciting Returns

Episode Date: November 24, 2020

This week Ryan and Brett discuss what industries will be around for the long haul with Lawrence Hamtil. Among these industries, the three highlight tobacco, airports, and trash collection services. Before the interview, your hosts share their favorite stories from the week. After the interview you'll find out who's in hot water, buy-sell-hold and anecdotal evidence. As always enjoy today's episode. Find Lawrence's Blog Posts: https://fortunefinancialadvisors.com/blog/author/lawrence-hamtil/page/3/ Visit Lawrence on Twitter: https://twitter.com/lhamtil?s=20 Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Watch this episode on YouTube: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ/ Follow Chit Chat Money on Twitter: https://twitter.com/chitchatmoney Visit our website to see more from your hosts Ryan and Brett: https://www.chitchatmoney.com 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 november 24th today we have an interview with lawrence hamtill not a traditional interview we usually talk growth names but not with lawrence we had some uh less sexy businesses but it was a good discussion and they're all i mean these are industries that have absolutely crushed the market you're talking defense uh tobacco a little bit waste management. Not something people get excited about, but I mean, it's all about the returns. And these type of businesses have a phenomenal track record, strong moats, almost the ultimate competitive advantages. Yeah. And before we get to that, we have a word from our partners, which is 7investing. Oh, and I forgot to tell you, Brett, that we got a whole

bunch of new signups. Perfect. That's actually fantastic. You guys are helping yourselves by partnering with you know these great investors you're helping us a bit and i mean if you look at it you can get you know our code ccm to get ten dollars off your first month at seven investing try it out i mean simon just tweeted today that he's the lead advisor you know that he's the guy that started up with the other guys there they his his recommendation in november actually already went up a hundred percent now that's that's a bit quick but i mean it just shows that they're really smart over there yeah and i mean i don't i'm not usually a fan of peer pressure but if everyone else is doing it it's probably best that you as a listener if you haven't done it that you

do it as well so it's code ccm um and then we have our stories for the week before the interview so what are you talking about yeah i'm talking about uh online marketplace wish they went public i know you're going to talk about airbnb that's something we like a little bit more this is kind of something i have an example of maybe an s1 that there's a couple red flags and ipo that you may want to avoid okay and yeah so i guess i have the airbnb s1 as well and then we have current state of FinTwit, hot water, buy, sell, hold, and our anecdotal evidence. Let's go. Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investment. As a quick reminder, Chit Chat

Money is a CCM Media Group podcast. Ryan and Brett are not financial advisors. Anything discussed on Chitchat Money by Ryan or Brett or any other podcast guest is not formal advice or a recommendation. Now, please enjoy this episode. Okay, welcome in. I'm talking Airbnb. So they filed their S1 this week. And just generally, it was kind of what we already expected. This is one of those companies that even though not all the numbers were out there, it's talked

about a lot. So people kind of knew how the business was doing. generally any big surprises from you or everything we kind of expected right um yeah i mean 2019 and 2020 were negatively affected by covid yeah and so you saw that in the numbers but leading up to it it looked like a really good business i'll get into the sum of the numbers then revenue for the last nine months was two and a half billion down 32 percent from the year prior um a lot of that is linked to covid obviously um the years prior to covid revenue was growing at 42 percent and then 31%. In 2018, they were almost break even on a net income basis, but obviously

2019, they fell towards the end. They were losing a lot of money because of all the bookings that got canceled. And then gross bookings for the month of September, so the latest month before they filed the S-1 was down 23% year over year. So they're still not out of the turmoil yet. They're still down from the business they once were, but it has since recovered a little bit. The growth daily rate, which is basically the average daily price being paid for a place, actually went up 18% year over year to $127. As far as balance sheet goes, they had $4.5 billion in cash and cash equivalents, $3 billion in working capital, $3.2 billion in some convertible preferred stock and they did some of that this march correct they had a high rate on that they

didn't really get a good deal but they had to get to liquidity just because they're worried about the business you know in march and april was down like 50 60 percent and they uh some of the other numbers that they had they have more than 4 million hosts on the platform they have more than 70 gross margins nights and experiences booked was 329 million for 2019 that's an impressive number. They actually generated $500 million in free cash flow in 2018. So 2018 was sort of the last year you got to see what their business really looks like when it's thriving. And it was a good looking business. Growing revenues 40%, free cash flow margins, I'm guessing somewhere between 20%, somewhere in there. Gross margins above 70%. It was a good

business at that time. The CEO, Brian Chesky, owns 15% of the company. So still a lot of inside ownership there. Just generally, what did you think of the numbers? No surprises, positive or negative. I guess one thing I was looking for is the longer term stays, and those have grown quite a bit relative to the other ones, which I think people may expect and are looking for just because of the work from home trend. There's going to be people with more availability to be those digital nomads as people say where you know move month to month or stay a few months in one spot so i did like that longer term stay number um you know the balance sheet is okay you know even pre-ipo i think they're going to want to bulk that up though because once everything recovers they're going

to want to reinvest as travel you know hopefully accelerates coming out of the vaccine but yeah i mean i guess another thing i thought about was you know 2018 they generated that free cash flow but in 2019 they also talked about how they were going to invest in a lot of new businesses i think they were going to have a premium membership they were going to launch some sort of travel partnerships uh with people with like a credit card and things like that and they were also doing the experiences they were doing a business travel initiative there was like six to twelve things that got ramped back so the reason that 2019 didn't have the peak free cash flow for them is that they invested heavily into some a ton of new initiatives and then in 2020 obviously it was covid and they

weren't going to be cash flow positive anyways but they've had to pull those back and hopefully 2021 2022 they start they reinvest in those new um things they can hopefully you know i mean maybe increase margins or just increase the take rate they get on this business do you think covid will end up being a net positive for them uh in the long run i don't know i think it did help them shed a lot of bloat they ended up firing a lot of people which i know sucks but at the same time if They figure out, wow, we can run this business with 75% of the workforce we were, and we can maybe be a little more frugal. I think sometimes it helps to get like a slap in the face when you're a VC-ran company and you have funding at will. Yeah, they haven't had an easy ride, yeah.

And then you say, well, when shit hits the fan, it's not as easy. So I think this kind of keeps them in check. I don't know. Maybe I'm just thinking of it as like a CEO. Yeah, I guess competitively there's – so versus Booking.com or things like that, Expedia, they maybe didn't get any competitive advantages over this. They're probably in the same boat, you know, lower capital spend just because they're the platform, but they're going to have the demand, you know, give and take just with what the economy is doing. But, you know, hotels, a lot of places with hard assets, they may have an advantage over just because that cash – there's just a lot more liabilities with those type of businesses. although you know there's also the thinking that you know hotels can standardize things they can

make them cleaner from covid um i don't know it i used to like airbnb's business a lot there have been some current concerns brought up with me just because of the review system seems to be something that's uh sort of like amazon you can't trust it that well and then that some places they have a higher rate of places not fulfilling what they say than you might think yeah agreed and it i mean i haven't always had the best airbnb experiences actually i've had pretty bad ones so it's like i don't know i don't want that to sway my investing opinion but um i know there's been some horror stories out there so what kind of valuation would you think in this market environment assuming nothing changes 30 billion dollars 35 i don't know this could be lower like

as far as the actual valuation i don't know but like a multiple if we're looking at some a top line multiple probably 10 or less actually yeah i mean they've they've gone through a painful period and i guess maybe if you like the business long term this might be you might be fortunate that they're going public now yeah that i agree because they were going to go public in march they were planning that in february and then uh well it makes sense that it didn't then yeah uh what do you have okay another s1 um it's kind of s1 crazy right now i think a lot of companies are trying to get out before the new year um the market seems to be accepting a lot of new capital there's actually there's probably there's a lot of money waiting i think to be put to work uh so

these companies are like all right perfect time you know the market's going to be out there to support us even if we're losing money an example of that is online marketplace wish uh the cnbc headline said slow growth and steady losses not really great introduction to the company uh company was founded in 2010 so about 10 years old now and is an online discount marketplace they want to go for people that can't afford that 119 dollars for prime each year not sure how big that market is uh because prime is really worth it and also if wish can do that and still provide free shipping where you know it makes sense on a cost sensitive basis versus prime i wonder how low their margins are going to be a couple of numbers 32 sales growth so far this year seems

pretty bad to me for an e-commerce platform where you know it's not like an apparel company or someone you know who actually got hit i know our biggest example of that is stitch fix where the demand for wish products you know electronics used items stuff you can use in your home i mean that's gone up a ton just things that people can still buy i mean target and walmart's digital sales are off through the roof right look what happened to etsy this year yeah and wish saw nothing of the sort so that's probably not a good look and what so wish is just basically offering like anything and everything for cheaper is that that's kind of i mean i didn't read through the whole s1 but that's kind of what they pitched i'm sure there's some nuances um yeah that's it they

lost 176 million dollars so far in 2020 operating cash flow positive but that came mostly from accrued liabilities and stock-based compensation which as we know don't take into effect the true cash flow of a business the true free cash flow i should say operating cash flows gap does this feel totally uninvestable to you and what valuation um assuming or sorry what revenue multiple would you peg this business at we don't have many margin numbers here but you know assuming the margins are going to be low it doesn't sound very investable based off your analysis of the s1 And the businesses that saw – that were supposed to see a benefit from the pandemic and didn't concern me. And the businesses that – on the flip side, if they were supposed to struggle and they were still resilient, that's a great sign.

This – they should have done better I'd imagine. But I don't know. I have no idea what some of these businesses will get in the public markets. I guess I would say the valuation multiples, if it's above a sales ratio of one, you may be. Just be like, listen, top line growth, e-commerce, marketplace. Isn't Amazon supposed to be the online discount marketplace? And isn't Walmart also starting their own competitor right now with Walmart Plus? Aren't those supposed to be the discounted places?

This is the double discount. Is this supposed to be the dollar store of the internet or something like that? imagine i mean amazon already is like one of the cheapest places yeah and yeah i mean imagine thinking like for a business idea like i think we should we should just go for what amazon's doing go cheaper lose more money yeah and we don't have any money but come on like that's one of the worst things i don't know it's a bad concept and they have some rather tough competition yeah i mean there could be some things i'm you know i didn't read the whole s1 so if you're someone that's long uh wish you know let us know or you think there's some bullish indicators there i would love to

chat about it but this seems something to me um that i am staying away okay current state of fin twit i like i had very little um oh crypto twitter's back in full effect right nice to see that um congrats to all those bitcoin longs that have been long since 2017 has the utility of the product increase since then or here's my here's my problem with bitcoin there's going to be a lot of people if it succeeds there's going to be a lot of people that are right and they have no reason why yeah they have no clue why they were right like what's the point of being right on investment if you had no idea why i mean yeah i mean if i guess you make more money sure but it's like it's it's all it's the tulip mania it feels i don't know it bears a passing resemblance

Two things that I see is that, one, people can compare the Google Trends data from 2017, and it's ticked up a little bit here, but it's nowhere near the Google Trends data from that period. And they're like, look, we still got room to run just because of that. That makes no sense. And also, I think a lot of people miss – they talk about this where they go, all right, well, things are moving well for Bitcoin. They just look at the price. It's kind of a stock price growth thing. And I just always think, well, isn't this just a low float play where there's so much demand for the product and the supply is limited? But in reality, people, you know, I guess it's a really complicated topic, but hasn't, you know, that's the whole thing, right?

Isn't the utility of Bitcoin, I mean, what actually is, you know, happening with that? Are people paying for things in Bitcoin? That's my biggest gripe with Bitcoin is the number one changer, like the biggest, the only thing that really impacts it is the price. And the float, the float. However, if the price rises, all of a sudden everyone thinks it's more viable. Yeah. And it's, I don't know, there's just, I've seen very little discussions around it that I think have true merit. I guess the frictionless or the removal of friction that Beth Kandig presented to us was.

No, that makes sense. If it actually happened, though, there's no evidence over the last five years that this has occurred, right? You know what I mean? Like, it would be great if we could do transfers of money instantly for small fees. And I know people do do that in a tiny capacity with Bitcoin. But it seems like the momentum is just not going anywhere. I don't know. it it's like if jerome powell whispers the word it moves up 20 that doesn't seem like something

i'm investing yeah it doesn't seem like something i'd want to be in either okay all right is that what do you have uh i got two here first one uh thanks since it's thanksgiving week it'll be two days till thanksgiving um and i guess maybe hopefully people aren't getting into large gatherings but uh there was some i don't know what it is high yield larry made this nice and on account haven't heard them before but they said overheard at thanksgiving the wall street edition are these things you think you could expect uh you know maybe your uncle says or someone i sold out of all my stocks in march uh what is this finance me me you know like a meme who is this elon musk fella uh how much does a bitcoin cost or can he get your cousin jeffrey a job

on wall street uh those are things i think a lot of people are going to be hearing either on zoom this year or um and just in general i mean missing the uh that's kind of the worst part about thanksgiving is the random discussions you know there's no heated family debates well people whenever you're in finance and i guess we technically have jobs in that now that aren't this you know low level podcast uh or you know not low level you know emerging mark we're an emerging fund right isn't that the category if we have an s1 the emerging fund uh we we have history of losses and we may not ever come to profitability large risk factors yeah the uh no no there's always the since we write you know for the motley fool a bit now the there's always like people are

question so what stock should i uh what things you know what names i'm like well i always say well there's a lot of demand right now for like ev stocks i think i might stay away oh so evs you know i should get into that i don't like like throw out some names for me i can't do that i always that's like my biggest pet peeve is like what's a name you like or what's a ticker you like it's like dude that's just like look we gotta yeah we gotta start a little you know let's buy some index funds maybe we go through what a balance sheet is and we'll see if you like this Here's a name I like, The Intelligent Investor. Go read it.

It might help. Maybe Random Walk Down Wall Street? Yeah, so Random Walk is good to start. Sets your expectations low. All right, I got one more. This one, I liked this tweet because there's been a lot of people out here talking about how Buffett missed tech. And they're like, dude, he just didn't get that. He didn't get how software at high margins and stuff like that.

He didn't really get it. And then this one guy, he had a nice thread. I'll just read the first one he said. uh it kind of exemplifies what i think we're at in the cycle right now for certain parts of the market um he said we've reached the point in the cycle where the brains trust of fin twit confidently declare buffett the most successful and experienced investor that has ever lived that's a fact has missed out on tech simply because he doesn't understand concepts like unit economics and operating leverage you know like when he invested in coca-cola and walmart

he probably didn't get operating leverage right or unit economics yeah i just don't there's nothing lower than like a few anon accounts on twitter like discussing why buffett just doesn't understand something i'm like you know he he's the goat he is like what he says becomes truth in the world of investing yeah and he's not we don't we don't have an edge up on him yeah and also he's playing a different game um than us so i don't know why people seem to think that that's true it's like why didn't he buy virgin galactic i don't know because it would be immaterial even if it did really well also yeah they're like dude why isn't he buying this business that has 70 gross margins has a history of negative 30 operating margins has 10 competitors coming after these high gross

margins and is trading at a price to sales ratio of 17 but don't worry it's had 40 top line growth the last three years yeah sorry i know i hate to complain we talk about this every week but i mean november has been a very speculative month yeah no i agree i mean any time i don't know why it's my first impulse whenever markets are doing well to like to be like oh it's a bubble it is i i'm afraid like 30 years from now i'm gonna be like the bubble truther that everyone's like bro he's been wrong for 30 years no there's no okay look you just gotta look at it on a business business case because there's no way a company you know you can't have 110 operating margins and that's the only way some of these companies trading at these sales ratios will ever you know

could return capital to shareholders um okay that's enough of that we get to go to the second half yeah quick break but uh we have our interview with lawrence first right so uh what was your favorite part uh i like talking about the defense industry i know it's a unique one um talking about the contracts with the governments how you know they are relying on one customer even though you know they are super reliable um how the m&a worked i like that part a lot learning about that yeah i mean i don't have any specifics because we did this interview what was it four days ago or something like that but it was a lot of fun and i remember walking away from it thinking uh it was stimulating yeah yeah gotta look at look at some yeah look at some of the 10ks in these industries um you

don't need to have all your eggs in the software basket that's for sure cox panoramic wi-fi includes advanced security to help protect all your connected devices you'll get real-time alerts oh 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 today we are welcomed by lawrence hamptill he's an investment advisor at fortune financial in overland park kansas am i getting all that right that's correct yep okay so i thought a good way

to start this interview would just be your background how did you get started in the world of investing? So my interest in investing began in high school. I'm 38, so this would have been probably 20, 21 years ago. I had a teacher in high school who was an economics guy and he had us do a lot of investment projects and teach us about the economy and so forth. And I remember I did a investment project on Boeing in terms of like forecasts and things like that and it piqued my interest I never thought it would lead to a career but a few years later I ended up working for a small investment planning firm and just kind of went from there so I've evolved definitely over the past couple of decades but I would say it started in high school just doing

some routine digging and seeing how companies work, what separates companies in different industries and, and, you know, kind of seeing the evolution of the market and the economy over the past 20 or so years. And from a lot of your content, it seems that you're into less sexy industries. They're not as appealing to most investors. What was sort of your draw towards that um were you did you feel like it was more inefficient or something well uh i think oftentimes you're influenced by the people that you read a lot of and growing up uh in the early stages of my career around 2002 2003 i read a lot of david dreamin uh ken fisher some of these guys and and Drewman in particular, he's a famous contrarian, and he wrote a lot about, especially keep in mind this is coming out of the dot-com boom and bust, and so a lot of these industries were out of favor, things like railroads, tobacco, and so forth.

they were definitely overlooked. Defense was another one that was overlooked in the 90s after the Cold War. And these guys are saying, you know, these industries still have a lot of earning potential. They have tremendous competitive advantages. And, you know, these other sexy stocks, they're too popular, they're too expensive. And of course, you know, they were proved right over the subsequent years. So I would say probably David Drieman is my biggest influence as far as looking at sort of unloved industries, which is, and it's kind of funny that they're unloved because a lot of these have been around for decades

and they've proven their worth over long periods of time. But I guess in some ways, maybe they don't grow fast enough or they just don't have the appeal to attract a lot of capital at times. Yeah, and then one thing you write about a lot is durable moats. We're gonna have a couple of questions on that.

what is the difference between what you would call a durable moat and then a standard competitive advantage? Because I know that word gets thrown out a lot, but a lot, you know, maybe 80, 90% of what people call competitive advantages may not actually be true ones. So what's the difference between a durable one and then one that can be eroded over time? Well, I think of, I focus a lot of my thinking building portfolios for retirees, and they don't have a lot of risk tolerance, so to speak, and so we're looking at portfolios that we can build that we know that the components will provide them with potential upside over long periods of time, and so I look at things in particular, consumer staples and things that have been around for a while and have proven their

durability. And I think, what are some things that those companies exhibit that don't exist maybe in some other industries? And, you know, I've mentioned as examples, industries with what I think are durable modes, tobacco, railroads, airports, specialty chemicals, trash collection. And these are things that, for various reasons, are going to be with us for, you know, decades ahead. If you think of airports and how people travel, there's not much substitution possibility there. You've got to get from A to B, and you've got to use the facilities there when you travel. So I think what are these companies and industries that are least susceptible to disruption? And to me, if you think about it and you think what can possibly go wrong, what can disrupt this business over the next 10 or 20 years, you start to think, okay, there are actually probably pretty few industries that have durable moats that will be doing the same thing 10, 20 years from now that they're doing now.

right and how do you balance sort of the durability so how long they can stay around for versus their ability to also grow because I mean I'm sure there's businesses that can stick around but not really grow in that time do you balance the growth aspect as well yeah I mean you have to um you can't just maintain your uh existing share and and uh consumer base and and really expect to to thrive um you know railroads are kind of an interesting example i posted to my twitter feed excerpts from an interview with uh the gentleman who was running a bnsf for warren buffett and he talks about, well, nobody's building a new railroad, but there is the potential for competition from autonomous battery-powered trucks that could platoon and take share away from railroads. And

you have all of these things that even five or 10 years ago seemed unimaginable, but they're potential threats. And so incumbents can't just rely on being insulated against competition from new technologies they have to be thinking how can we get more from from less in terms of stringing more rail cars together or using these new technologies to our own advantage and not just sitting idly by you know so it's important for companies just not to sit on their laurels but to continue to think ahead and and grow as much as possible within their markets but also think down the line? And how can they continue to capture the change and dynamics of the economy and so forth? Right. And I guess one other question on that is, do you weigh things like

the way they return capital to shareholders, like dividends versus buybacks versus reinvesting in the business versus, you know, reinvesting in new industries to try to keep out any new competition? You certainly want to see reasonable capital management on the part of the companies and and their and how they go about that I mean capital allocation I should say acquisitions are good a lot of them are value destroying some of them are necessary it really depends on the industry though and things like tobacco they they tend to return most of it via dividends but that's just because they generate a lot of cash and and have very little competition and they can't

do advertising so there's really not a lot of reason for them to reinvest back in the business, although there's a big exception of Philip Morris that spent billions of dollars sort of disrupting themselves with the heat not burn tobacco. You look at a lot of the railroads that have been buying back shares with their increase in free cash flow and so forth and being selective there. But, you know, on the other hand, they also have to spend money on keeping their infrastructure, right? So, you know, you don't want them to be too short-sighted in terms of paying their investors here and now when they do have to spend a lot of money just keeping their competitive advantage and their infrastructure in place. Right. And then one thing you talk about

is that regulation can kind of help keep out competition. It raises costs. You know, there's regulatory hurdles, as people call it. Do you think, though, on the flip side, does high regulation ever cap potential upside is that anything you worry about i think it really kind of depends on the industry again um you know you look at the specialty chemical space and uh with let's say um sort of uh explosive chemicals or dangerous substances and regulation definitely keeps out some of the competition in those spaces but it also is a tax on doing business. And so there is a balance there

between kind of protecting your market share, but also keeping your profits down, so to speak. So yeah, it really does vary. And of course, even in the railroad space and so forth, you got to have a good relationship with your overseers and make sure that you're keeping them happy. The last thing you want, of course, is for the regulators to be unhappy and clamp down on you. So, yeah, it's a double-edged sword for sure.

They can be your best friend and your worst enemy, so to speak. And we're going to dive into two specific industries, but the first one is going to be defense. And what besides like the capital investment makes the defense sector so hard to disrupt? Because we rarely see big startups or startups come up in the defense area. Well, it's kind of an interesting thing. So if you look at some of the industries that have really been sort of turned upside down by competition over the past few decades, You could look at steel, for example, and that was something that eventually got outsourced to foreign competitors, Korea, China, and so forth. If you look at the defense industry for national security reasons, there's no chance that the government's going to invite the Chinese or the Koreans to do anything and build warplanes for them in that respect.

Then you've got security clearances for the workers and contracts that are not even public because of national security concerns. And if you wanted to start a new defense firm, the intangible assets that you don't have are so hard to acquire in terms of these things, the security clearances. And it's not just for the guys who are designing, but even the people who are, you know, nuts and bolts type stuff, doing the welding, whatever. You have to have whole workforces that are cleared. Those things, they all add up to a tremendous advantage for the incumbent firms. And the defense spending of the federal government has been kind of like a socialism in the sense that they have been distributing profits, trying to keep all of these companies around because they know they need that infrastructure in place. And having that sort of relationship with the Pentagon and so forth, it's just very hard to disrupt those established relationships. And we've seen over the past, I think it's probably around 30 years now, a ton of consolidation into, I believe, five big, you know, defense companies. Does the M&A and the consolidation, does that matter at all to success? Or is that just kind of a correlation for how well the industry is done?

Well, I think it's a product of a few things. For the most part, a lot of the recent consolidation came after the end of the Cold War, when there was not as much demand on the part of the federal government to keep building new weapon systems. And so you saw McDonnell Douglas go away and Grumman merged with Northrop. I should say McDonnell Douglas didn't go away. I believe they merged with Boeing. There was a tremendous amount of consolidation, and now it's just a handful of companies. And it certainly benefited them in the sense that they now control pretty much everything with sort of an oligopoly. And they know that they're going to be the first ones to get called for a new contract. But, excuse me, I think it really matters for their pricing power and their ability to, you know, command the space. The growth is really going to be dictated by the defense budgets and how much Congress is willing to spend, you know, what their plans are going forward. So it's a slightly different dynamic there.

Okay. And then I guess you just mentioned the, you know, the plans for the government contracts. Is the reliance on these contracts a concern at all? Or is it on a net basis? Is it a positive because, you know, they have those locked in relationships with the one customer? well i i can see where you might people might think that it would be sort of a downside to have one big customer you know in any other business you you probably wouldn't want to have so much of your eggs in one basket but i spoke with a gentleman who is a subcontractor in the defense industry and he told me something that i never forgot which is that the government always pays their bills on time. And I thought about that, and it's true. I mean, they can print money, they can issue debt, and it's something that's always going to be prioritized because of what's at stake there. And so I think in this case, it really is more positive than negative to have

the federal government as your primary customer. If the federal government is your primary customer, is there sort of a limit on your ability to raise prices as a producer um yeah to some extent i mean you never want to um be at the uh receiving end of a like a congressional inquiry for you know did you raise costs on purpose or were you charging two thousand dollars for a hammer those sorts of things. You know, I'm not sure how big of a problem that really is, because I think in some cases, there's such an established relationship there between the military commanders and the executives that I think they probably know pretty well what's a fair price, what value they're getting, what they're asking from the companies. And also,

So the government knows the sacrifices the companies are making in terms of being secret and committing to one customer and so forth. So if you read Ben Rich's book, Skunk Works, that goes into great detail about all of these development programs over time with Stealth Fighter and the SR-71 and really does a good job of talking about these managerial decisions and the economics of the business. And yeah, it's it's kind of a fascinating dynamic that you really don't see in a lot of other industries there. Right. And then one more question about defense and then we'll get on to waste management. I think some people get bogged down in that they only have one customer, the U.S. government. Do they work with, you know, just, you know, U.S. allies like Europe, Israel and things like that? Or are they limited to just the United States? Well, yeah. I mean, eventually, once they get cleared, they can sell to other countries. I think a lot of European countries are using the F-35, for example. I believe Australia as well, once they go through the Pentagon review process.

But those countries spend so little, relatively speaking, on their defense budgets that I wouldn't say they're incidental, but they're nothing compared to what the U.S. government spends relative to its budget. So, yeah, I guess we're technically not being correct if we say that the U.S. government is the main customer, but certainly they're the driving force behind the innovation. And then these smaller countries will sign on and say, well, we don't have the capacity to design those ourselves. We'll put in an order for a few planes or whatever. But, yeah, I mean, it just depends on the, you know, clearance and so forth. there's probably not going to be any countries buying a B-2 bomber, but they'll probably buy a few F-35s because the current plans that they have are 20 and 30 year old designs and are probably now obsolete. Does the political party that's in charge end up impacting these businesses at all

just because of the budgets that are set? Historically, no. It seems like every four years the multiples on these firms compress a little bit because of political fears especially when it's a democrat who's who's taking taking the lead in the polls that's just a perception but i don't think that's i don't think that's a reality when you look historically especially in the aerospace segment a lot of these companies they've proven that they can they can do well no matter who's in the White House. And I think because so many communities depend on defense spending and the national security questions and so forth, it always ends up getting prioritized. No politician really wants to go up for election or re-election and be

perceived as soft on national security. You can debate whether or not that's a worthwhile thing in this environment but that's just how it has worked in the past and i see no reason why it should change okay let's move to the waste management industry and that's not just i don't most people probably think of the waste management company but there's more beyond that there's landfills garbage uh i'm sorry incinerators whatever it is uh trans cycling yeah cycling um so what what do you find so appealing about the landfill business specifically Well, the waste management industry as a whole, it's again, what you've noticed about these industries that we've talked about is they tend to be dominated by a few large players.

And that's because the cost of doing business has sort of weeded out a lot of the smaller players. And when you look at trash collection and so forth and the landfills, environmental concerns. It really lends itself to insulating these incumbent players against new competition as they continue to take share and so forth. The landfills are in particular interesting. You need to have a lot of clearance and licenses and so forth and meet environmental concerns to operate them no small company really has access to that sort of thing so it's it's not the the most profitable industry in terms of margins and so forth but it's something that you're really going

to have dominated by a few big players that can afford to bear these regulatory burdens and so forth um go ahead oh sorry uh the i was gonna say it's a it's it's a business that seems like startups and you know i mean silicon valley boston seattle europe they're not like well you guys you know what we want to get into is garbage like that's not something that's going on right yeah right i think because there's a tremendous amount of infrastructure that that needs to be in place to operate these things. You have to have the expertise of dealing with the regulators. There's a lot of upfront costs and so forth. What you see in the business and the industry is that a lot of the bigger players simply roll up the smaller ones

uh and just kind of grow by acquisition and they take on these routes and so forth with the the contracts with the corporations municipalities and and so forth i just don't think that there's really much um uh much desire on the part of these startups to try to take that on you know it's And it's, like I said, it's a good industry in terms of the economics for these reasons. It's not super profitable. I mean, you're not attacking 40% profit margins. Then you'd have all of the upfront costs. I mean, you would have so many sunk costs, I think, just trying to get it.

It just wouldn't be worth your while. Right. Okay. And then I think people get confused on what actually these companies, you know, who their partners are. I mean, who are the customers they're trying to get these contracts for? And then what is a typical contract duration? Is it all with, you know, local towns and things like that?

So you have a variety of contracts with the municipalities, which I believe are generally like three to seven years or so. Then you have the companies, I believe that around three years, don't quote me on that. I'm just kind of going off of memory there. But they tend to be several years in duration. Municipalities are a little bit longer. I believe Waste Management posts this on their website, which is out there for people to look. I think because of those contracts, they have very low turnover.

You know, there's a lot of sort of switching costs involved. So I would think that it's very rare for these contracts not to get renewed or to be displaced by a competitor, so to speak. So it's a little different from region to region. I'm sure different states have different regulations for each. California probably has much stricter regulations than somewhere in the middle of the country. But generally, you know, you're looking at contracts of several years and so forth. Do the costs get passed through to the individual, like, households for a region? Is that something that happens?

Yeah. So, I mean, that's kind of an interesting question because what you're seeing now with people working from home and not at their offices is that the collection volume, as I understand it, has really picked up in neighborhoods because people are staying home longer. They're generating more trash at home. So a lot of these companies are seeking to raise costs because those contracts were based on an assumption

that each week you might have one bin full of trash. Well, now it's two. So they've got to figure out how to account for that. So it's a little something that I think it's – those trends, of course, are – I don't necessarily believe that people are going to be working from home and generating that much trash for the duration of the contract. But, yes, they are looking to pass that cost on to the end consumer for sure because they've got to keep those routes profitable. Go ahead, Ryan. I'm going to hit on the next question here, but for the company side, how do they grow customers? Do they have to lobby to these local governments to be like, hey, can we get this area?

I mean, is it like this long sales process or is it just like, hey, we collect trash better than that company? Can we do it? You know, I'm not 100% sure about that. What I do know, though, is that I think the biggest trend has just been acquiring the smaller players and then rolling up routes that way. So if you had like Overland Park, Kansas, for example, and you had kind of a local company that was pretty much doing the trash collection. And so a company like Waste Management or Republic Services or whoever comes along and they'll just buy that up and then paint Waste Management on the trucks and take over the operations. I think that's been the proven way that they've grown generally is just by rolling up the smaller players and taking share that way. There are some obvious antitrust concerns there eventually, because, you know, they don't like to have so much power in just a few players, but they find creative ways to divest some assets and things like that to appease the regulators.

Do you have any more? No, I was just going to say, I'm hearing about this unit economics, low churn, you know, recurring. If this is a software business, someone might slap a 20-time sales multiple on this thing, right? Yeah, exactly. You know, I don't know. It's funny because ESG is a big thing now, and I don't know if you could see it in defense companies, tobacco, and things like that, that the multiples are definitely down, even though the businesses seem to be doing okay. I don't know where trash collection falls in that. I mean, they have the recycling biz, but that's not anywhere near where the trash collection business is. i would be curious to know uh how uh and maybe i'll look that up when we're done how esg rates trash collection because you're certainly trying to help the environment keep the communities clean but on the other hand landfills are not popular and and uh things like that so you know to your

question software kind of gets away with that because nobody perceives any uh there's no negative perception so to speak right that trash collection oh you're like oh that's that's terrible you're yeah no you're just uh putting junk in the ground and there might be some like esg based funds like etfs and stuff like that that uh create a lot of flows into those companies as well so it can be impactful on the stock price i think so definitely in the short to near term i mean you have pressure to divest and and uh institutions that are not uh they're they're definitely moving more towards esg compliance and things like that so you know they probably will be dumping their shares if they're not allowed to hold them there are mandates now for a lot of

these big institutions i think in the long run it kind of evens out there has to be a buyer for a reseller right but you know as these these uh concerns kind of take hold and seize the imagination i think it will lead to um you know some multiple compression and some of these out of favor industries okay uh we're gonna hit our wrap-up questions then uh first one what is one financial saying that you disagree with i would say and i've written about this before on my blog which is out there for people to to check out if they want. I'm not sure that I disagree with it but I'll be kind of the devil's advocate and I'm not entirely convinced that American investors

have to have a global portfolio. I've run the numbers for a lot of decades. There hasn't been a lot of value add in terms of absolute returns or even risk adjusted returns investing in say a generic global portfolio versus say like the S&P 500. Now it looks like hindsight bias. I understand that. Even when you look at the decade from 2000 to 2009 or so when foreign stocks outperformed, you could argue a lot of that was currency related and index composition related and things like that. And I think Jack Bogle, the godfather of index investing would probably agree with me. You know, the U.S. market is so deep, so diverse. You have so many

publicly traded companies across the spectrum. I mean, in most countries, you have very narrow markets, very static industries. Here, we're talking about being able to invest directly in waste collection and defense and things like that, which is probably difficult in other markets where you're just going to be stuck with a handful of opportunities that are investable. So I would say that I lean more towards the skeptic side in terms of the traditional or the conventional wisdom of having to invest abroad to have a fully diversified portfolio. I think that's an oversimplification and the data at this point really don't seem to support it too much in my view right that's interesting and you could also um i think you may have mentioned but the fact

that u.s companies actually you know they have tons of business internationally now everyone's investing well not everyone every big tech company is investing in india currently you might not have exposure to china but at least the rest of the world i mean you got a lot of exposure there through just those u.s companies correct that's correct and you you see for example in europe the headline index msci europe or footsie what have you um those same firms are the same ones that were pretty much dominant in it for you know the previous decades whereas in the u.s you have this dynamic of um sort of creative destruction that the top companies are always turning every few years and uh in europe's case you have a in germany i think it's it's only the the market cap

of the equity market to gdp is only about 0.6 but a lot of that's because they have a much bigger private market a lot of these small and middle firms are closely held they probably want to stay private because their family operated things like that so you're left with a lot of the banks and these old institutions that they don't change very much. Like I said, they're static industries. And they're not, Germany is not the best example because they do have a lot of, you know, export-driven companies, but in Spain, Portugal,

other countries, that's mostly these domestic-oriented banks, utilities, telecoms, things like that. They're anything but global for the most part. Okay, we're going to wrap up with the last question here. What is one piece of advice you would give for anyone starting a career in investing? Make connections. You know, a lot of it is not what you know, but whom you know. And I think that it's definitely something that if you knock on enough doors, you have

coffee with enough people, you know, you get your name out there, you meet people in different It depends on what you what type of career you want to have. I mean, there's a lot of different ways to work in finance, you could work with individuals like I do, you can work for an institution, a bank, whatever. but having a and with social media and things like that it's it's very easy to establish connections to meet people from a kind of a big picture of of the industry and start to drill down on really what interests you but I would say that a lot of the success that I've enjoyed if there's been any success at all has really just been talking with a lot of people keeping an open mind and then on the other hand when people approach me being respectful of those people and answering their questions and that usually comes back to

help you later on down the line so you'll never regret having too many contacts or colleagues or friends or whatever in the industry that you're interested in it's it's maybe not the most academic advice but it's definitely good in terms of helping you grow and and interact with people and build those relationships so you're saying yeah you got to get on twitter if you're in the if you're trying to get into investing or finance right well it's definitely a tool that i was skeptic uh skeptical of because you see most of the celebrity tweets but you also realize that in some ways it's like a real-time message board or forum for people with similar interests and the ability to kind of group those interests and share ideas especially as it relates to

investing and and stock particular ideas yeah i mean it's um it's it's paid off in terms of the people that i've met and the research and it's you think of yourself as as kind of an island initially. And when you open up to Twitter or all of these other communities, you know, suddenly you're open up to all these other ideas. That's not to say that there isn't a lot of junk out there. But, you know, if you can filter it out and find what you're looking for, then the potential is really there. Yeah, the mute button, you got to be a little heavy handed with that, right? Yeah, exactly. Yeah, it's all about how you curate it and so forth. But I've learned a tremendous amount from people that I've interacted with. And there's no way that any one person can learn

all there is about different industries. So sometimes, like I said, it's, I forget who said it, but wisdom is not necessarily storing all the knowledge, it's knowing where to find it. So knowing who knows what about which company or which industry, you can always hit questions there And, and it helps from a, you know, a big picture point of view. Okay. Well, that's all the questions we have. Thank you for joining us. What's your, what's your blog called? So any listeners can find it. You can find my, my blog at fortunefinancialadvisors.com. There's a, there's a link to the blog there.

I haven't been writing as much, been trying to do more deeper dives, but there've, there've been a few over the past couple of months. And you can find me on Twitter at Lhamptill, L-H-A, M as in Mary, T as in Tom, I-L. All right. Yeah. And you had some good stuff on there about barbell investing. So maybe we'll have to get you back on and talk about that because that was really interesting. I can talk your ear off on that for sure.

It's perfect. Thank you, Lawrence. All right. Thanks, guys. Have a good evening. Okay. Welcome back in. Thanks again to Lawrence Hamptill for joining us.

Next, we have hot water. I have two. I've got two as well. Go ahead. I'm going to go first. I'm sorry if I took yours. I know I might have, but Robinhood is in hot water once again. You saw my tweet then.

I know. There was a few people that tweeted this out. Yeah, it was a popular one. Vlad Tenev, the co-CEO of Robinhood, said in an interview with Jim Cramer that Robinhood users acted as a stabilizing force during the volatility and crash in March. I said hot water, J-PAL. Okay, listen. it's viciously buying the dip is not a stabilizing force just because they bought when other people sold doesn't mean that the data actually supports that robin hood traders with 10 bucks from their

parents is like propping up the economy yes are you no look dude i i have lost so much respect for vlad tenev and the other guy yeah this is just they're just hype they're just hyping up their business it's just all user growth it's all stuff like that they're trying to make these robinhood investors seem sophisticated which i think is a bad thing to tell them that they are uh but yeah they're trying to assume i mean he's like no look look at royal caribbean look how many users bought when it fell it's like that they could still lose out on this and you're yes you're just like gassing them up i mean yeah the uh no it definitely wasn't the fed uh backstopping on those bond yields when yields skyrocketed like 11 percent when there was a liquidity crisis

looming in march it wasn't that when they said no all bonds are good we're going to fulfill this we're going to start buying bond ets although they never really did they're going to start buying high yielding debt it wasn't that no no it was the robin hood traders the the hundred thousand that ended up buying airline stocks and the g j ets the jets etf or hertz or hertz yeah it was definitely them i mean just i don't know all i want them to do is release one figure the the median amount of uh of cash held in an account or assets in or how about just yeah or guarantee it is less than a thousand dollars yeah the or just they release the user numbers which have been skyrocketing but along with that let's get a total aum because i don't think it's

sniffing uh it's probably sniffing 10 billion dollars maybe yeah yeah probably you know how much schwab has you know how much vanguard has and uh sorry excuse me blackrock they have over five trillion dollars and they're valued at possibly like only five to eight times as much as what robin hood's valued at it's it is super hypocritical and the fact is like the reason he's cheering these people on like from the sideline is because he benefits every time you trade yeah like he's not doing it because he thinks your behavior is actually going to help you yes like he's like keep it up guys like we're doing great order flow love it love it love it okay all right uh second one for me the old economy is in hot water no don't say you might have stolen mine

a business trying to make money off of a mansions full of tiktok influencers has officially gone public through a former chinese health care company um sorry i stole mine again but this will be fun to talk about okay so basically these houses operate as a management company and take the clubhouse media group or something like that right yeah so if you think about it like these influencers these tiktok influencers make money on sponsors and if you give them a place to live almost like an incubator you're taking a cut of their revenue for rent essentially yeah and so anyway the tong g healthcare company uh which is incorporated in las vegas was incorporated by a chinese hospital had no assets in 2019 so they bought this company it's like a reverse

merger it's basically a spack where this uh this new clubhouse clubhouse media group yeah uh becomes public and i couldn't think of a business i care about less i mean dude it's also it's a penny stock right away i mean whatever on that uh guess what one of the houses is called um you're gonna you might like actually cringe so much you're you'll you might like shrivel up and die they're called it's called cold house for the boys that i mean i actually like i whatever i know no it's fine these people are probably making money but i'm gonna give you there was a nice tweet from ian borthwick that i think got that on everyone's radar uh let's look at the january through july balance sheet here actually sorry income statement revenue ninety

five thousand dollars that's cost of sales ninety thousand dollars gross profit five thousand dollars right ninety five thousand minus ninety thousand can you guess what the expenses were how much yeah oh god i don't know five hundred grand nine hundred seventy four thousand dollars so operating loss is negative $969,000. But, I mean, is that just the cost of the house? I don't know. Expenses were, look, revenue was

$950,000. Or, sorry, $95,000. Is it $95,000? Expenses were more than 10 times that. This is what he said. It's from a tweet. Could be wrong, but that's a terrible business,

right? Yeah, it just... But, God, I can't imagine that these – how are these guys being backed and put into houses for generating $5,000 in income? Are you sure it wasn't $5 million? Let me look at – let's look at what they're trading at. No, it's definitely that low. No one – I mean, look, the tweet was – I think the tweet was right. Okay, well, anyway, I'll try to find a market.

Imagine waking up every day in that house being like, all right what tick tock can we do to like get more money out of our sponsors yeah that's what their life consists of i don't know i hate to degrade their you know because i love my fin talk but yeah oh the company the health care company guess what its market cap is right now uh million dollars 412 million dollars it's trading it's there's no way it was 95 000 in revenue though it could be it had to be virgin galactic dude i don't think it's 95 million on one house right now it's trading at literally a gazillion times gross profit that doesn't make any sense i mean it's up 100 today okay i think that this might be this might be the example of i'll bet you they

are i'll bet you the tiktok influencers are like advertising this on tiktok like go buy this yeah this i mean this could be and vlad tenev is like come come trade it right here no this could be that uh something that goes in the history books for this mini you know spac bubble that we're in right now yeah okay uh buy sell hold uh the theme this week is s1s from this week so airbnb roblox and affirm airbnb roblox affirm i didn't look at affirm so i'm gonna pass hold on that roblox i'm buying airbnb i'm selling i guess i'll just sell you gotta hold airbnb i'll hold airbnb you gotta sell the one you don't know yeah so i don't know i would hold yeah i'd say buy roblox hold airbnb and sell a firm i just haven't looked at a firm might be a good business i think it's tied to

peloton right yeah i think it is true yeah i saw ryan reeves uh have a nice tweet about how a firm is tied to a lot of peloton revenue or sorry a firm's revenue is tied to pelotons um the roblox i've been reading through the s1 probably do a pitch here i think we're gonna go over and deep dive on thursday for them with ian i think so um i think it's got a great business model strong moat i don't know okay lots of lots of like their anecdotal evidence um i'll go first i don't know how i waited so long to watch breaking bad but damn that is a really good show what season are you on now currently binging season two episode six that's heating up i know i just looked i got like 35 hours ahead of me of great content so looking forward to it um secondly i've been

listening to all the berkshire shareholder meetings since 1994 in podcast form and they're like four hours each podcast but on apple podcast right yeah it's on apple podcast i've only gotten to 1997 but they are really really good and there's like weird audio blips where you can't hear people sometimes but the nuggets that you get from charlie and warren are i mean those two they're like the greatest team of all time yeah it's kind of like if uh it's kind of like if gosh i'm trying to do a sports analogy it's like if you had i don't know like michael jordan and magic johnson on the same team that's not the best example or maybe like it's just charlie was ruthless and he was very uh he is blunt yeah i mean he was very honest uh but it makes for great

content he'd be great on a podcast monger young monger would be dominating the fin toy podcast universe right now oh yeah and i think maybe the i mean right now the 98 99 2000 shareholder meetings might be a fantastic until let's do for the current environment i mean i got like hundreds of hours ahead of me so it's probably gonna take me years to listen to this whole thing but it's really good i recommend if anyone has the time go listen to it that would easily replace I would have bought that for probably $100. Do they make it for free? Because they're doing quite well.

They don't need that influx of cash. I would replace that for my degree. Yeah, it's definitely – I don't want to say don't listen to it in class, but, I mean, it's usually – it would usually be better, I'd agree. All right, what do you have? Okay, I guess I'll start with this one, just a quick one. um is tesla back to being i know we uh we haven't brought it up for a while so i thought a little funny thing here is you know is it back to being um like the the stock that goes up 10 every day

for no reason it's unshortable that's oh it is because here's i okay another tidbit from the uh berkshire meetings that i found was warren said identifying frauds i'm not commenting necessarily on tesla but identifying frauds and identifying overvalued businesses is easy yeah shorting them is not yeah and they've tried it we've we've even tried i've learned that the hard way you can be right in the long term but you're gonna you can still lose all your money yeah okay and then the reason i brought that up is this is a morgan stanley so one of the most reputable investment banks out there you know 100 years old probably pay people high six figures to do stuff like this analyst notes things like that this is their note morgan stanley go all in on tesla quote

it's expensive on what we know but cheap on what we don't these are the people these are the people that are supposed to be like the experts are you kidding me so is every company i mean if it becomes the biggest company like if it becomes an aws if they just throw one of those on their business they're gonna be in good yeah they're gonna it's i i don't know we don't know what it could be so add another billion i don't know what that clubhouse media group could be so i can buy it any price price doesn't matter okay uh all right last one we'll hand it on a high note here this seemed like a good idea you may have seen this uh i think this could be a great way to get things going in 2021 you pay everyone 1500 to get the vaccine works two folds one everyone gets the

vaccine two it is a stimulus check and you know that's gonna help save lives gotta help people financially gonna get more people to get the vaccine and the 400 billion dollars will pay for itself because of the economic boost yeah my i talked with this uh with my dad family chat uh sounds good in theory but anyone with like underlying conditions that can't get the vaccine for whatever reason are they're what they don't get they don't get their pay uh oh i mean that is a loophole no plan is perfect but i think this one i mean if they're anti-vaxxers by choice yeah maybe they don't deserve their pay but if they're anti-vaxxers by default or by medical condition uh you know maybe it doesn't work okay well you know it's

like an it's like anything you can do an exception you can apply for if you you know you still get the 1500 if you can't get the vaccine here's the other thing anti-vaxxers don't i don't understand the big gripe about them if you get the vaccine and they don't who cares like well no no that's not true because uh we've seen that with measles there's actually a measles outbreak in portland or it could have been smallpox one of those diseases that were eradicated a long time ago because if enough don't get the vaccine now i'm saying this is someone that doesn't know much i mean it's okay if you buy out but whatever the uh look the like if enough people don't get it there's a there's a chance of that even kids that are immunized to get like these things it's all

about getting that you know herd immunity type deal um so it does matter huh interesting yeah i guess you know learn something new every day uh is that gonna do it that yeah that's all man all right uh once again code ccm join the herd and uh yes we are not financial advisors anything we say or discuss here on chit chat money is not formal advice or recommendation i think you guys know where to reach us by this point, but email us chitchatmoneypodcast at gmail.com. Find us on Twitter. Thank you guys for listening. We'll see you next week. Thanks for watching!