Chit Chat Stocks - Long Bitcoin, Short MicroStrategy

Starting point is 00:00:00 head back to the streets and FX is the drop a snowfall saga watch Wanda Bell and Leon Simmons fight to reinvent themselves in 90s Los Angeles where the fallout from the crack epidemic fuels the rise of West Coast rap ambition loyalty and survival collide as everyone risks everything to build something lasting and FX is the drop a snowfall saga streaming September 9th on Hulu on Disney plus click or tap the banner to sign up now Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any

Starting point is 00:00:50 other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome to Chit Chat Stocks. This is our weekly investing power hour, and we've got a lot on the slate today. Lots of news in the financial world. We're going to be talking about the Trump Media IPO, or SPAC, which has, I'll just say it right out of the gate, a ludicrous valuation. We're going to talk about who is really winning in AI, because it might surprise you. And Brett's got a bunch of other fun items, and he's maybe going to talk through a little bit of his watch list as well and who he has on there. But before we kick things off, I should say we go live every Thursday at 9.30 on the West Coast, 12.30 Eastern Standard Time on YouTube.

Starting point is 00:01:49 If you want to check them out, you can ask questions there. It's always fun to get a little interaction with the audience. and we repost them on Sundays and we have our newsletter as well, which is totally free. So if for any reason you feel compelled to sign up to another newsletter, the Chit Chat Stocks sub stack is a great one to have. And like I said, totally free. So with that said, before we get into things, I want to talk about our friends, our sponsor, the all-in-one investing platform, public.com. They recently launched options trading. And this is your final reminder that you can get a rebate of 18 cents on every contract

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Starting point is 00:03:05 This is paid for by public investing. You must activate your options account by March 31st for revenue share. Options are not suitable for all investors and carry significant risk. Full disclosures are in the podcast description. U.S. members only. Brett, what do you want to talk about this week? Well, I have some interesting tidbits. If the watch list is not as exciting, I am going to talk about the SBF sentencing, which for anyone that didn't know, happened right before we recorded, lucky enough.

Starting point is 00:03:36 And we're going to talk about a fund going long Bitcoin, but short microstrategy. And what looks like potentially a very interesting arbitrage trade. So that's on the docket this week, along with some classic AI stuff. All right. Well, I think maybe the most exciting thing to start with would be the Trump media IPO slash SPAC. And so I'll maybe kick things off here. But this was, have you looked at this at all? a little but i don't necessarily know what the business does at all uh maybe it doesn't do much

Starting point is 00:04:19 it seemed to me like it's a bit of a meme stock cryptocurrency type deal where it's betting off of vibes but why don't you get into the details yeah that is pretty much exactly what it is the uh and typically when i hear about these things i kind of just i don't know there's always something else coming out in the world of finance that is like a bit of a meme and not really actionable from my point of view my perspective i'm not trying to really short anything so all i really do is look for stocks that i want to own and typically these things just purely on a cursory glance i say absolutely not so however this time i found this hilarious probably one of the best parody buy ratings i've ever seen uh it's like for anyone that doesn't know

Starting point is 00:05:15 analysts at big investment banks they write it's it's kind of like the same blueprint every time but they do like a buy initiation or a buy signal by uh buy rating kind of thing and then they give reasoning for why and financial times alphaville which is i don't know if it's like always parody but it's sort of parody financial media yeah i think it's more analysis opinion maybe yeah yeah they wrote a fake buy rating on this and it has just some of the funniest language i've seen and i'll go through some of that but to give a little bit of a background here on what actually happened. For those that don't know, Donald Trump, the former president of the United States, has a company that built Truth Social, which is a social media platform.

Starting point is 00:06:12 And it isn't very big. So the financials came out. And I guess I should also mention that Donald Trump himself is not actually the CEO. He's the chairman of the board. So he's not running the company but he is for all intents and purposes the face of it uh well they joined the public markets via a special purpose acquisition corp i think the spack originally the shell was called digital world acquisition corp and they are they've now switched to i think the ticker is tmtg um or no sorry it's djt for donald trump um and if you go through the financials i will i will pitch them to you brett and you tell me what you'd pay for this uh so over the last nine months three million dollars in revenue primarily i believe it's almost all from advertising

Starting point is 00:07:08 and that was just to reiterate three million not with a b so that is small just in terms of like public companies in general full year that full year that's nine months okay well hey just nine And it's growing. It is growing. It's quite the acceleration, but it's also going into election time. So as you'd expect, advertising revenue is kind of jumping on that platform. But $3.4 million in nine months. Operating losses, they're spending about $7 million on research and development, another $6 million on general and administrative expenses. So they're losing about $10 million through their operations. However, and this is the part I found kind of funny, they are spending on that $3 million in revenue over the last nine months. They are spending $38 million on interest expense. Really? Ooh.

Starting point is 00:08:08 Which, for anyone that's followed Trump's financial career, his history, he has used debt in the past and been not afraid of high interest rates. So I guess it isn't too surprising. um i'm curious what the structure is on that who's giving him who who he's paying the interest rate or the interest to um but basically losing 50 million dollars over the last nine months in in netting or net losses but so i guess what would you pay for that yeah i think negative amount i paid not to own it i think if someone said you had to pay me or like okay i had to give a hundred dollars and i could either own this obviously it's you know it's a limited liability i can't like lose money more than i put in but

Starting point is 00:09:05 the the value of this thing at this moment doesn't seem very high and have you talked about where the stock is trading at right now so it went public this week the market cap of Trump Media and Technology Group is $8.4 billion. That is just over 2,000 times price to sales. I think that is the most expensive stock I've personally ever seen, and it's not particularly close. There are maybe some pre-revenue SPACs that got caught a bit as well, but for a business that's actually generated revenue, that is the most expensive multiple or valuation I think I've ever seen. Would you call this pre-revenue though? I guess they've been operating for a little bit here. This is not really, no, it's not pre-revenue.

Starting point is 00:10:04 The business has been out for a while. I just tried to look up the stock price, although Google comes up with Dow Jones if you search it, but I did come up with an article from the Wall Street Journal, why it's so hard to know what Donald Trump's DJT stock is worth. Yeah, it's really hard to figure out how much it's worth, guys. This seems like just an ultimate meme stock. It seems like the ability to, because when you look at these crypto traders, they come up with these names for things sometimes they're quite offensive um i guess not all the times but the point of making them is that the whole thing is just the name is nonsensical you know shiba coin dogecoin all that stuff and they wanted to create some weird little narrative online

Starting point is 00:10:58 and i think with this one it's similar where you don't have to you know it's on the public markets And it's all a narrative. It's all a trading sardine. And I think these people that love trading crypto, love trading single-day options, all that stuff that's been popular the last few years, you can see why this one has turned into quite the meme stock. yeah and i'm gonna go i'm gonna read a part of this uh fake buy rating from alphaville that was posted and it's it's pretty hilarious so i said uh we had someone that said fake alias just joined and said came in and just heard 2000 price to sales lol yeah that's a great way to it's back yeah um yeah and for anyone that is just listening to the podcast if you want to join the youtube you can ask us questions we'll talk about really whatever you ask as long as it's investment related okay so here's a little snippet there's basically four uh

Starting point is 00:12:04 the the title of the by rainy is you can handle the truth in reference to truth social um and then there's four like elements to his thesis and it's like i said it's satire but this last one is new paradigms and meme to politics. So it says Trump media has reported $3.3 million in revenue between the first quarter of 2023 and the third quarter of 2023 was generated exclusively from advertising on truth. Social, a social media website that appears to have only one active user scaling this opportunity to match Twitter's December, 2022 active user count of 368 million indicates annual revenue exceeding 1.2 billion basically he's saying that it appears trump himself might be the only active user and based on the current advertising spend to user ratio

Starting point is 00:12:57 if it grows there's some promise there that's a valuable user you gotta say that is and you know what people will laugh about this especially in the financial community and it deserves some laughs But if you're like a fund trying to raise money, this guy knows how to do it. He can raise money with the best of them. And here's my other question. If – for someone who is buying this, do you think they think about it basically as a donation to Trump? Or do you think that it's more people that think it will go up? Yeah.

Starting point is 00:13:39 And I'm fascinated to follow the story from all the ways that, okay, there's just a lot of capital that's been pumped into this thing, like how it's going to be used for campaign contributions, all that stuff. I want to know where the money is flowing and stuff. It's just going to be fascinating to see how it all plays out, the legal battles, all that stuff. But I guess that's less of an investing strategy for this company at this moment. It's pure meme stock.

Starting point is 00:14:06 the one company it reminds me of is Tilray back in the cannabis bubble when traders wanted to get it up to a price to sales ratio of 420, which was, if you look back at that time, people were saying that the markets were nonsensical. There was a lot of just nonsense going around in the cannabis bubble that was in 2018 and if you told them what things would be like in 2024 you would say i i don't know if they would believe you and i guess it comes back to you know we're going to talk about shorting overpriced stocks later in this episode or potentially overpriced stocks i should say and it's quite dangerous because what do you do with this thing can you i don't even know if you can short it at this point yeah i would guess well here's another snippet from uh

Starting point is 00:15:03 that uh that fake report he said okay let me see this uh some 60 percent of trump media shares are held by a single nwi who has never previously had documentary evidence of great wealth this creates a substantial disincentive of to value crystallization of the holding here's the part that i find funny additionally a percentage of the stock is shorted by parties colloquially known as trump haters while these parties represent a risk to the sentiment-based investment case they may become much less vocal after november 5th if you get our drift yeah yeah this the ultimate battleground stock are you yeah i can't wait for people to really misunderstand how stocks work and stuff like that when because this is going to be talked about in the broader news

Starting point is 00:15:49 are you surprised trump didn't do this earlier it just seems like it felt like the perfect to me it felt like the perfect way for him to raise money if that was the goal and especially during like the bubble of well i guess it was kind of bad timing because it was after the election but yeah i think back then i'm guessing they didn't need the money now they do yeah that's true it just feels like a it makes it so accessible for people to donate to them i just thought it would have been an easy way for them to do it it's tricky though true right it's not necessarily a charity yeah we have a comment here i wonder if all future candidates are going to use these shell companies i don't you know to raise campaign funds

Starting point is 00:16:43 there is technically a business here yeah there is yeah so it's not like they're just like i don't know it's not like they're just well they kind of are but it's not like they're offering nothing there is some sort of a business here and it's a like it would in any other universe be a micro cap social media business but it's what i'm saying is you have to have something to offer i think oh maybe you don't but i think yeah it's like the south sea bubble a venture with great promise that you need to invest in exactly what was it gonna say should we talk about our uh our old friend sam bankman freed yeah let me get to my topics thank you for everyone that's joining in and get a lot of comments oh i was gonna finish things off if

Starting point is 00:17:37 you were the sec you were just sitting here looking at that thing djt and going oh man why do we have to deal with this why is this why is this exist for us because that is just who wants to touch that you're i would i would i'd probably quit honestly i have no way of touching that thing no and it is gonna be a just probably political i think it might be underreported on but we'll see maybe it turns into be nothing okay i think it is i'll tell you what the i was trying to follow the sec filings and it was very confusing uh part of that's just because of it being a spack but it It's very convoluted and difficult to follow.

Starting point is 00:18:30 Yeah, someone's going to figure it out. It's not going to be me. Everyone's just going to read what they wrote and go, okay, I understand it now. Someone needs to simplify what's happening. All right, let's move to the next thing. We have, and I mean, this has been a fantastic week for news. I didn't even know Sam Bankman Freed was getting sentenced today,

Starting point is 00:18:48 but I found that out, I think, two days ago. It was kind of flying under the radar. and i had the topic as a tracker because right when we were preparing our notes it was unclear when he was going to get his sentencing and then there was a nice little live tweet from the i think press reporter from the city of new york i'll actually log put this right in the chat here uh for anyone wants to check that out on the replay and i think what was going on today is the final arguments for the sentencing so they're going to decide you know whether it was 10 20 life sentence stuff like that and you got both sides of the legal defense including spf

Starting point is 00:19:31 himself giving their case and i think this is spf's um lawyer giving this take to the judge and so think about this is in a this is in a courtroom and they're trying to make their case of how much uh this person should go to prison for and this is what the person said and i'm reading this verbatim he's an awkward math nerd he's into veganism he has an off-the-chart intellect he is a beautiful puzzle he can parse words better than a talmudic scholar he was a billionaire unconcerned about material possessions what are that that's a i don't even know what i just read i don't know what that is yeah i love how people throw like veganism in there too like it makes it that much more quirky i know that's that's me too i don't

Starting point is 00:20:31 that has nothing to do with my personality it's like no you know it's uh but my favorite was he's a beautiful puzzle like what what is this some romance novel like this is like i don't know um maybe michael lewis fed it in there which i think that book now needs quite a few um isn't sad that michael lewis now to me to me it doesn't feel like he went from hero to zero for me i used to think like wow what a financial writer what a financial journalist and i'm looking a little more skeptically at all of his reporting one the high frequency trading like scandal he tried to report i kind of think that's a nothing burger to the blind side people and we don't have to go into a mike lewis thing turned out to be bad

Starting point is 00:21:22 people the blind side i don't know i think that's up in the air just to be clear it's up in the air but i i don't know i read the the reporting and i guess if you had to land one way they seem like they didn't treat the guy well um and then like moneyball and stuff that's not it didn't even work that well like the athletics were terrible now they have to move to vegas but that's besides the point let's get back to spf the judge decided to sentence him for 25 years which seemed pretty standard to me and we already saw some crazy takes out there ryan we had some person saying no names that it is shocking that he got 25 years when ftx recovered 100 of the customer's assets and then someone this is when you just don't tweet or you just kind of retweet the news or

Starting point is 00:22:13 retweet people because you can come up with something that you may look back and say that was that was a terrible take but there was a reply to this tweet that said if i tried to shoot you and i missed do i still go to prison i think that exemplifies it it's like it's kind of funny so what are your thoughts here i feel like they recover 100 of assets i think so i think part of it was anthropic they invest in anthropic and anthropics absolutely moaning oh interesting and i think that's so jeff bezos may have bailed out pft or not pft uh spf spf because i believe anthropic didn't they get the investment from amazon that like shot up the valuation which shoots up uh the ownership stake from spf yeah so that's amazon but bezos is

Starting point is 00:23:06 investing in perplexity you gotta get your ai startups straight there's a billion of them and they're all apparently worth 50 billion dollars but well bezos specifically but bezos through his ownership in Amazon. It's just one way or the other. Okay. So 25 years, I don't know. Maybe it seems suitable. I think what happened here is just gross misconduct and lapse of a complete dereliction of responsibility, just an unwillingness to recognize how important what he was doing was and how many people relied on him um how many people had money and what he was doing so yeah i think he hurt a lot of people in the process so uh to me yeah there's i think obviously some time in jail seems suitable yeah for sure for sure and what's interesting

Starting point is 00:24:10 is that during his speech today and i'm just reading the transcript but it seemed like he didn't really have remorse he was trying to argue that there was recovering of assets he was like it was temporary illiquidity and he was like sir my expected value to society is still positive it's like dude you already got convicted like this is like the the sociopathic behavior is is interesting to see live and i guess you know it's disappointing that uh he's going to be behind bars but maybe he'll be like another um let's say ambitious individual without trying to get any legal trouble here billy mcfarland over at uh what is that called firefest who from prison tried to start a podcast did you hear about this and then he got he got

Starting point is 00:25:07 sent into like the hole or something because he was trying to use the prison phone to record a to record a podcast from prison yeah you gotta hand it to billy billy's way more effort in than we are to record the podcast mcfarland is much more whimsical and i think enjoyable to watch well he knows that he's a bit of a meme yeah exactly i don't think spf necessarily recognizes that the and you know spf in another career maybe no one would look at him as a meme people would think like oh he's a bright guy maybe a little strange but uh generally bright he just i think too many people told him he was this brilliant wonderful everything he's doing is right beautiful puzzle even if he's committing crimes the expected value maybe if he donates the money

Starting point is 00:26:02 from crimes to charity it's okay the what's weird is that he just donated him to both political parties and it's like that's not that's like a negative expected value man that's like a great way to win clout though i guess that's true that's true maybe in reality he just wanted to get crypto legalized but okay i want to go to another topic yeah i want to talk about this This is maybe a little more actionable here in terms of investment, trying to create your – trying to build a portfolio around it. So who is really winning in AI? This – I found this absolutely fascinating. With all the AI startups, everything going on, all the, dare I say, extreme valuations for some of these AI startups.

Starting point is 00:26:50 here's a a tweet from a guy named peter his at is literally just peter it says kind of wild that one of the companies with the most revenue from generative ai is a consultancy accenture this quarter for the second quarter fiscal 2024 says generative ai new bookings of over 600 million dollars in the quarter for a total of 1.1 billion through the first half of the fiscal year that is more revenue than a lot of the generative ai businesses so the the company that's winning in generative ai is accenture and i'm guessing a lot of the other consultants as well good business that's a good business right there i believe the stock is a hundred beggar i also believe it's terry's one of terry smith's favorites right when we covered um or that could have been someone else

Starting point is 00:27:41 that we've been looking at as a super investor. Either way, yeah. Oh, no, it's not a 100-bagger. It went public in 1998, stocks up 1,700%. Still pretty good. I'm sure there might be, yeah, there's probably, I'm missing the total return there. Talk for a second,

Starting point is 00:27:55 because I'm going to pull up Accenture here on FinChat to show some people some charts. Okay, so what I'm looking at here, I guess my first thought is, with all of these giant numbers, with either spending or revenue, I guess one spending, one person's spending is another person's revenue is where is the roi because i see

Starting point is 00:28:16 and i think it was an example of one of these firms was either mckinsey mckinsey ernst and young you know eccentric i guess could be tossed in there where you have i think it was like 10 000 purchases of microsoft co-pilot yeah at a big discount but those were you know the the labeled price is 30 a month for this thing so you're spending even if it's you know bought down to like 10 a month you're spending all of this money on thing out ai tools and i i don't know what the end game is here at this point i guess accenture and some of these other consultancy and contract work businesses are extremely good at taking what's popular, building a sellable product around it, and getting a lot of companies, if they're like,

Starting point is 00:29:15 hey, we need an AI strategy. They're going to the chief marketing officer. They're going to the chief product officer. And they're saying, look, we can help build this for you. They're very good at that. It's a great business. But my thought is, what's the actual ROI going to be here because as we sit and ryan's using you know some beautiful charts here from our good friends at fin chat as we sit here the amount i'm not seeing like the actual use cases in the real yet outside of the existing big tech players yeah i don't think i've been working at a large company enough to maybe or maybe even a smaller company long enough to know like the role of consultants like how valuable they can be i guess

Starting point is 00:30:05 if you view it as like service work in some degree like temporary services where i guess for example like maybe you could like hire a recruiter or something if you're a smaller company you can't do it yourself. I'm sure there's the role. It's very important in certain places, but I just don't understand how within a quarter, a company that's been around for however long could all of a sudden become AI experts and start charging for consulting fees on that, that what they just hired all the AI experts in the world within a quarter. And now they're generating $600 million in bookings. That's. Oh yeah. I, I, I have no doubt that Accenture and all these other companies are extremely good at playing the consulting and the contract and

Starting point is 00:30:55 the services game. They've shown that time and time again. But my gripe is just with the companies that I might own in my portfolio that are paying consultants to try to build these AI tools and then using these AI products that are extremely expensive. We have a comment here. Don't worry, guys. Match Group is able to buy 100 chat GPT licenses, so the revenue is definitely coming. Yeah, the revenue is coming for chat GPT. I can never say that right. And this is actually, I would say, a perfect example of what I would be worried about is you have a company like Match Group buying into the hype. They're buying these chat GPT licenses. They're probably going to spend relatively a good amount of money on this overall AI strategy.

Starting point is 00:31:43 and then if they if we look three years later you better get a darn good roi on that spend or else they're going to say look we're going to scrap this we got to cut this they're going to cut it and that's where the ai spend is coming from today is these enterprise clients saying yeah we're willing to spend 10 50 100 million dollars on ai tools and yeah accenture is winning in that right now and i'm i have no doubt that they they pivoted many times before they have all these different things that they're willing to offer their corporate clients i've no doubt they'll be fine but from an ai sense i just worry that they're that part specifically is a little bit of a bubble head back to the streets and fx is the drop

Starting point is 00:32:32 a snowfall soccer watch wanda bell and leon simmons fight to reinvent themselves in 90s los angeles where the fallout from the crack epidemic fuels the rise of west coast rap ambition loyalty and survival collide as everyone risks everything to build something lasting and fx is the drop a snowfall saga streaming september 9th on hulu on disney plus click or tap the banner to sign up now yeah i agree the one other you mentioned another winner in ai i will open up Anthropic, I guess, is related to this. So we saw this week that Amazon has decided to invest $2.75 billion more in the AI startup Anthropic, competitor to OpenAI. And they're doing it in the way that all these companies are these days without actually acquiring the company,

Starting point is 00:33:27 but giving them a boatload of money and taking a huge minority stake. And they mentioned here that with these big cloud providers let me so where is it here okay yeah here's the quote as part of the collaboration between the two companies anthropic has been using amazon's custom chips to build and deploy ai software amazon has added anthropics technology into its cloud business offerings allowing companies to create their own ai applications after amazon's initial investment anthropic which had used both google and amazon's cloud services said it would used Amazon's cloud for the majority of its workloads.

Starting point is 00:34:05 I think if you own any exposure to the cloud companies, you have plenty of exposure to AI. Because AWS seems so well-positioned, especially with the custom chip business. I mean, who outside of Azure and Google Cloud can compete with them anymore

Starting point is 00:34:21 in the West? And Google itself is competing in AI, so no one wants to go to them. I don't know. The relationship between Anthropic and Amazon just feels a little strange to me. We'll give you, I think it's more than $4 billion now, to rely

Starting point is 00:34:43 exclusively on AWS to give us revenue and also use our chips. So it's like we're giving you money to give back to ourselves and then maybe we can deploy some of your features, applications to aws developers or whatever so that they can because they do have yeah like if there's some and i think i'm probably maybe simplifying this too much but they said what's it called what's aws thing code whisperer i think is what it's called where it's like helping people helping developers kind of automate some some of their processes so speed up coding yeah like giving

Starting point is 00:35:28 them recommendations which as a non-developer i would think that would be valuable but i'm really not sure so it's like you when you're sending that email in gmail and they every once in a while they'll fill it out for you with their recommendation or whatever for what to say i think it's basically that but for development that would be my simple guess uh which seems like it would be very useful yeah i think so and i think this relationship is extremely similar to OpenAI and Microsoft because they're doing something where they're basically not acquiring them, but acquiring them because any acquisition these days is just impossible for these big tech companies to make. So I wonder if there's going to be a regulatory crackdown using these loopholes

Starting point is 00:36:14 because they seem to be quite aggressive with them. But I think you mentioned the consulting businesses being a winner in AI. Accenture is just booming with this revenue. I think the cloud businesses as well even if there's a temporary bubble in spending over the long term it's pretty easy to see through the chip development through the expanding capacity further economies of scale how these cloud providers are going to just expand their moats to how would you even think about competing with these three companies today gcp azure yeah and or and maybe add an oracle you have some niche players in there too but you know who said they would uh trump media group remember that remember that what was it the the prospectus for digital world acquisition

Starting point is 00:37:06 corp and they said like this is our target and it said like here's truth social here are the companies here are the companies and it had all the logos of all the cloud providers it's like we'll we'll take all these markets yeah well the cloud the cloud providers are too woke ryan so And I mean, they do have the power to cut off a lot of business potentially, but that's because it's really difficult to replicate what they've built. So it's hard to replace that, that leverage. Although we did talk about FinChat there. So I want to give a shout out and a little message for anybody who doesn't use a research terminal. I do recommend checking out FinChat. They're doing two weeks free right now. So you sign up, you get FinChat Pro for free for two weeks, and you can at least test it out and see how valuable it is. I know in my experience, I was a little reluctant to pay for anything.

Starting point is 00:38:05 And then I realized the time that it actually saved me in doing all the research and how quickly I can develop at least some cursory understanding of a business. It's all there and they're building out a lot of the additional functionality to do research on the companies. They've got all the conference call transcripts and all the earnings releases and everything within the actual company page. So I recommend checking it out. Just go sign up. You get two weeks of FinChat Pro for free and you can figure out whether or not you really like it. And if you do, you can use our code FinChat.io slash chitchat. That is FinChat.io slash chitchat. You get 25% off. We got a lot of questions on boston omaha here did you we got another and we got a question from tyler saying

Starting point is 00:38:49 why do people like boston omaha so much that is another i think for a lot of the same reason that we like nelmet it's a conglomerate in nebraska and you can draw some parallels to another successful conglomerate based in nebraska for anyone who doesn't know what i'm referring to it is berkshire hathaway are we and especially when we there's some family relationship to warren buffett i think he's like the nephew or something great nephew i think well yeah since buffett sold great nephew all right yeah and the stock hasn't done well but to be fair it could be very cheap right now i think i'm trying to hold up very quickly i think it's trading below book value which could be interesting given that they're honestly have some they have some stuff in there

Starting point is 00:39:44 that probably shouldn't even be valid at book value yeah 0.9 book 0.9 times book now we haven't looked at the earnings i can say pretty confidently that ryan hasn't either but let me just read them out for you. Kind of give a first glance here, maybe just go through the top line numbers. We have for fiscal year ending December 31st, 2023, billboard rentals, $43 million in revenue versus $39 million in 2022. Broadband services, $35 million versus $28.6 million in 2022. Premiums On insurance, about $14 million versus $10.6 in 2022. Insurance commissions, about flat. Investment income, $2 million.

Starting point is 00:40:33 I mean, they have a lot of depreciation and amortization, which leads to a stated net loss. Total equity, one up. So book value went up from $514 million to $600 million. it's tough because they're they're investing so much into fiber i think that's a complicated industry you can i think one of the reasons why boston homa is down is because you can look at the share prices of chart of charter people are worried about broadband at the moment did you take a look at the sky harbor position like i mean not the position but have you looked that business at all i saw i believe i looked at it late last year and saw that they were making

Starting point is 00:41:21 progress but it's still fairly early stage so that could be interesting it's just like okay if they're not generating a lot of cash flow yet which they aren't and they might be getting good returns on that investment because they're putting so much into fiber if they're not buying back a ton of stock, if they're not seeing huge growth from their Sky Harbor position. I don't know if anyone should expect the stock to go up

Starting point is 00:41:52 just because your sum of the parts is higher. So, yeah. Hear me out. What do you think of this? The Adam Peterson is on the board of Nelnet. What do you think of Nelnet acquiring Boston Omaha? A little merger and then we just take out our communications again.

Starting point is 00:42:17 I think that wouldn't make sense because they're just two entirely different businesses trying to build up two – well, not two, but each one is building up separate business muscles where Boston Omaha doesn't really focus on financials. And Nelnut's essentially like a bank and they have a totally different process there. So the only thing that overlaps would be the Allo Communications position, which is a fiber position. But Nelnut only owns about half of that now. So that would also not make sense because they're not operating that business unit anymore. So, yeah, I don't think a merger makes sense. Talk about this long Bitcoin short micro strategy thing. Okay. Yeah. Well, let's get into some fun stuff here. So for anyone that doesn't know,

Starting point is 00:43:10 Bitcoin has been mooning. Let me actually just check the price here. I think it's above 70K. Bitcoin, come on, Google. I thought you were supposed to be good at AI. Oh, shit. It's in Costa Rica. Whatever. It's close to all-time high. I think it's above 70 000 it's in the costa rica currency either way we have a i would call spicy report out today from karestale capital group i would say they have big um they're being bold about saying something uh like a lewd term there and they said in a tweet with an attached report good morning everyone do you think that was a little it said just gm do you think that was a little tease at the the bitcoin people we're short micro strategy and long bitcoin report available at carisdale

Starting point is 00:44:03 capital blah blah blah crypto trades often get carried away and micro strategy is no exception the bitcoin price implied in micro strategy shares is now over 177 000 usd and unjustifiable two point times 2.5 times ish the spot price of bitcoin and they go on to say that uh people have this logic there's a reason to own micro strategy because there's no management fees on the bitcoin holdings that they're really smart with taking out equity and stuff like that to buy shares at the right time excuse me not shares uh bitcoins and they i mean for one the fee thing doesn't make any sense anymore because the bitcoin etfs have very very low fees and two, and here's a quote from them, but we find this logic very flawed. Leverage cuts both

Starting point is 00:44:59 ways. And while MicroStrategy has succeeded in increasing the amount of Bitcoin held, the impact of massive dilution has also kept the amount of Bitcoin per share virtually unchanged in recent years. So they're not, I think what you're saying there is that this should, or excuse me, what they are saying there is that really this should just be a price betting on Bitcoin. So there's not extra value actually being created. And again, given the high premium of MicroStrategy of their Bitcoin holdings, I guess, maybe for context for people that don't know what MicroStrategy is, it's essentially a company that was a niche software business that took on a bunch of debt, bought a bunch of Bitcoin. When the price of Bitcoin went up,

Starting point is 00:45:47 They sold stock to buy more Bitcoin. They're essentially a Bitcoin holding company now. And the fact that they're trading at 2.5 times the quote unquote net asset value of their Bitcoin is why Carisdale is going to go short micro strategy, long Bitcoin. Apparently, it's not that hard to get a short position in micro strategy. You don't have to pay insane borrow costs, all that. Although I'm not a shorting expert, I kind of just asked around on that one. it's interesting this it's it's already working today bitcoin's up and micro strategy is down 10 percent what could go wrong here do you like this trade um because i feel like it's not that risky if it's small enough position yeah but couldn't you just do the short

Starting point is 00:46:37 micro strategy without the long bitcoin well here's the thing what if bitcoin doubles ah yeah then micro strategy could still have a little yeah i like it i think it's an interesting it's definitely spicy for a professional i wouldn't don't do this for an individual we're not doing this do not do this uh definitely have some experience before you do this but makes a little bit of sense to me it's probably dangerous probably a little risky but small position size say it's an interesting way to play especially if you have the s&p at 28 29 times earnings a lot of stuff seems overvalued or premium valuation yeah like where does this go wrong well maybe there's just like irrational fans for micro

Starting point is 00:47:36 strategy that are willing to bid it up it's kind of like what was it the uh hempton quote like it's like shooting fish in a shorting at this time it's like shooting fish in a barrel and every time every once in a while they shoot back that's true they can go to five times the bitcoin value if there's some sort of short squeeze or yeah talk about your watch list a little bit i've got some background noise here so i'm going to be a listener for a little bit to not destroy the audio for everyone yeah i can't hear it too much but i know that it's a lot easier to hear background noise when you had the headphones on yeah let me we actually had let me hit the listener questions first before i've been tossing out some stuff on twitter slash x to try to get some questions

Starting point is 00:48:23 before we record now some one of these people is on here already but let me hit these first and then maybe we'll go to the watch list after first one is i think this is an interesting one probably one that's impossible for anyone to answer, but it's fun to discuss. How do you identify value stocks versus a value trap? Said PayPal, Chegg, Match, Intel, or any others you wish to highlight as examples? Well, I would say that we are not experts in avoiding value traps because we lost some money in Match Group. But I think in general, and you're never going to be entirely right on any, if you're kind of a value stock trying to fade, be a contrarian investor type person, you're not going to get 100% bets right. But I thought about this before we recorded

Starting point is 00:49:11 because I saw this question. I think my answer would be, you're going to see the stock fall for some reason. It has to fall for some reason. Usually there's a narrative out there. For example, we just mentioned Charter. There's a narrative that they're not going to grow their subs again. There's a narrative that there's oversaturation, inflationary costs. I'm not an expert on the industry, but generally there's those and probably some others as well. If you're going to buy the dip on charter, you're making a bet that the narrative is wrong over the long term, but the short-term headwinds are not. For whatever reason, there's going to be a reversal and the key performance indicators and you have to have some sort of conviction when everyone is

Starting point is 00:49:59 saying that it's not like what everyone's saying it's going to keep continuing in the bad direction that's going to reverse i mean you mentioned paypal here i'm one that kind of thinks it's a value trap there's a lot of reasons people don't like it you have things like the high fees foreign currency stuff the competition from all these players if you have a bet that if you think that that's either overblown or you have conviction that the new management team is going to fix things or whatever it is that the growth is going to get back on track then it that makes it the difference between you know a value trap and an actual good value play, but there's such a fine line because value traps and stocks that are actually great

Starting point is 00:50:50 value, they look, they both don't look great. There's always a reason the stock's going to be down. Yeah, this is such a tough one to answer because there's a very fine line between the two. And the reality is if something is down 60% or 70%, there's probably some – every once in a while, I think, oh, Mr. Markets in a pouty mood and they're pricing this wrong. And then the other part of me is like, no, there's actually like 40 really brilliant analysts that have better data than me and have a sense that this thing is going the wrong direction. So I kind of teeter in between those. Because if it's down more than 60%, usually that means there's been some erosion in a certain key performance indicator for that business, most likely. So for PayPal, for example, the take rate just continues to shrink. And I think there's going to be continued pressure on that.

Starting point is 00:51:50 Now, part of that's because they've had success with Braintree, which is just a lower take rate business in general. But I think they're also just getting hit from all sides competition-wise. So I'm kind of in a tough spot. For value traps versus value plays, I try to focus a ton on the competitive set. What are the trends going on in the industry and where do I think they're positioned relative to their peers? for paypal i'd be worried for chegg i think there's just been so much pushback from the actual education community on chegg that they're fighting an uphill battle i haven't really looked that closely at it in a long time but i remember seeing that right plus ai um i don't think the answer is a huge buyback program if that's the company's default like if if you're not seeing improvement in the kpis that really matter but they're announcing giant buybacks that's usually

Starting point is 00:52:56 the recipe for continued underperformance because they're having to invest more and more into the business and just buying back like i like a buyback but i like it on a business it's growing a lot more so it feels like sometimes it's that meme of the guy where there's like that huge water tank and he just slaps on the like that tape and it's like right right terrible business fundamentals like buyback program that'll solve it and yeah it's really not the answer yeah yeah exactly and i would add here is that there's going to be a couple of reasons or maybe just one reason that stock a stock is going down a lot and most people because you can't cover every company most people are going to read that narrative and go oh yeah that makes sense

Starting point is 00:53:49 that's why it's down but if you're someone that follows the company closely if you're someone that believes that you understand it and that you know how this industry perhaps works and again 99% of people are not going to be as like if you research an industry 99% of people aren't going to be as in tune with industry as you are and if you believe that the the narrative doesn't match up with what the actual reality then there's an opportunity there but it's a dangerous game okay other any other questions from the yeah we have one more and this wasn't from the chat we had one on the watch list which we can hit next but here's what i thought would be interesting is what, and I guess relates to the watch list actually. So, okay. Yeah. We can double it up

Starting point is 00:54:37 here from Tyler. I think joins almost every week. So appreciate it, Tyler. I think it would be interesting to see you guys discuss what traits that your best and worst investments had, and then talk about some stocks from your watch list that fit those criteria. Yeah. I guess that inspired me to build the watch list. So I, again, have had a little bit of time to think on this. so I'll go first. Then Ryan can go. The traits of the good performing investments have been they were cheap, like optically cheap, or on a one-year forward basis, or maybe even one to two-year forward basis, you could get a line of sight to it being cheap, meaning 10 times earnings, 12 times earnings, even cheaper, something like that. Where we got into trouble is finding stocks

Starting point is 00:55:25 that were high quality, or finding businesses that were high quality, or even just decently high quality, but overpaying. I don't even, I can never find any correlation between even at this moment, like, what we would identify as good or bad management teams, which, again, is very qualitative, or maybe not something you can bet on, or find any insights on in the near term i still think it's you know you want high integrity management teams but the ones that did well is when we thought we found a high quality business that you know has the various everyone defines a high quality business i think slightly different but pairing it with a reasonable valuation and when i look at my watch list the ones that i think excite me is to try to yes okay

Starting point is 00:56:16 I have 10, 12, actually maybe closer to 20 interesting businesses right now that I'm following, but having – forcing the discipline of saying, look, do not buy this unless you think you can trade at, I don't know, 12 times earnings, 15 times earnings, maybe one to two years in the future. Yeah. Yeah. Just thinking about the characteristics of the worst investments I've ever made, a lot of them were me believing that the margins could really expand. When you've got a business where it feels like if things go right, there could be tons of operating leverage, those can work. And I'm sure when they do work, they work out really well. But those are the ones I've been burnt on the most because the operating leverage just never really came. And it's a business that – or a management team that was maybe a little fixed in their ways and was – just didn't really prioritize profitability in the short run. Now, that's changed a little bit.

Starting point is 00:57:28 Like the one I'm thinking of is really Spotify. Well, isn't that just – we bought a – because we – I don't know what the actual numbers were, but when we bought it at a dirt cheap price to gross profit, I think it's been a fantastic performer since the beginning of 2023. Sure. Yeah, but since my cost basis from a long time ago, what did I do wrong on those investments? I think I was assuming margins would expand quicker than they did. There's been some expansion. And then obviously overpaying. Yeah, we overpaid.

Starting point is 00:58:09 And a lot of that overpaying was because I thought margins would expand quickly and we wouldn't be overpaying. So I was wrong there. The other thing, and this isn't really a characteristic of the worst investment – well, not the worst business, but I doubled down on losers. And that's just a trait for disaster in terms of portfolio management. Yeah. Head back to the streets and FX is the drop, a snowfall saga. Watch Wanda Bell and Leon Simmons fight to reinvent themselves in 90s Los Angeles, where the fallout from the crack epidemic fuels the rise of West Coast rap. Ambition, loyalty, and survival collide as everyone risks everything to build something lasting and FX is the drop.

Starting point is 00:58:57 a snowfall saga streaming September 9th on Hulu on Disney plus click or tap the banner to sign up now. If you're going to have like, if we're going to try this approach of buying a basket of stocks that I think will perform, perform well, your winners should cover any losers unless you redeploy money from the winners into the losers.

Starting point is 00:59:25 and that's kind of what i did so i think i've learned my lesson there and what's the what's the saying from john hempton losers by losers i think that's someone else but yeah i thought i think it might have been john hempton but no he's stealing that from i believe bald tutor jones but maybe not someone there's like a something from the 80s where someone someone had that on their Well, yeah, that was probably my biggest flaw. In the investments that have been the most successful for me, which to be honest, there aren't that many. There are a couple. I think Spouts Farmer's Market was successful.

Starting point is 01:00:07 Nelnut. Dropbox was successful. Nelnut's been moderately successful. Those were, like Brett said, ones where even if the business doesn't do that well, you can still see a path to a good return. And so it's like the upside is just cherries on top. Like if the business does turn things around, like with Sprouts, for us it was as long as this business continues to generate cash at the level it is, it's going to be able to buy back a big chunk of its stock and the business actually improved. So you weren't paying for the good results. The good results were cherries on top, which was nice.

Starting point is 01:00:49 Yeah. And let me look at some other ones that did well. Amazon, Alphabet, now Spotify from 2023 after we kind of exited and then came back in after doing a little bit of a tax write-off. I guess that doesn't matter for this discussion. wicks would be in there again after doing a tax write-off uh the i think all those varyingly have decent high qualities there but the fact that we when we bought them at undemanding prices is when you have the margin of safety and the outcome is a lot easier to you don't have to have five things to go right to make money in the next one two three years

Starting point is 01:01:35 even if your thesis hasn't changed in the long-term revenue growth and unit economics of the business. I've had someone here, you go. I'll also say, it's not chance that this coincides with a bad valuation, but it was for a lot of the businesses where we bought at the right time,

Starting point is 01:01:57 it was people had given up on the management team. People had given up on the company. there was just a general horrible sentiment around the company i mean with amazon it was and it's kind of funny to look back on it now but it's like are they they're not going to be profitable delivering they're not going to be profitable with deliveries with e-commerce and it's like they have shown you that they can do it and it was this temporary swing and we actually sat through and we looked at basically why are they unprofitable and i remember we looked at okay they double filled rolls because of covid they bought up capacity too quickly and then

Starting point is 01:02:37 weren't using it as much they uh shipping was twice as costly fuels twice as costly ground transportation twice as costly and they all those things were something that we kind of thought could be temporary. And it ended up kind of helping us get comfortable buying a position. And so, yeah, I think when the narrative is, man, this company sucks, or man, they're doing everything wrong, it's the most uncomfortable time to buy. But those have proved to be the right times to buy for, in my experience, investing. All right. Now let's go to, as we close out here, looking at my watch list today, I do have some more idiosyncratic ones on here that might not be fully included but someone was asking

Starting point is 01:03:26 hey what are you you know you're looking at your current watch list what do the characteristics of stuff that has performed well in the past you know make up of your current watch list and maybe why are those included or is there anything we can learn there so i'm going to read through everything on here first uh just going through i think the order i added them american express Visa, Philip Morris International, Sprouts Farmers Market, Airbnb, Nintendo, Amazon, Alphabet, Harbor Diversified, Spotify, Autodesk, IAC, Nelnet, Coupang, Match Group, Adyen, and Ally Financial. Forgot to add them.

Starting point is 01:04:03 Now, I think Harbor Diversified, Microcap, don't need to talk about them. Coupang, or excuse me, Nelnet, IAC, conglomerates, don't think they're included. But when I look at two companies that fortunately haven't owned yet, but we were looking at owning in late 2023, but then we had the fund closed down, is American Express and Adyen. and i think again we didn't i didn't actually get to have the returns here which is unfortunate you know but i think we're getting better at we'd followed american express for a while we'd followed adian for even longer and when those got to much more reasonable prices in late 2023, they've done, look, and we were still confident in the long-term business prospects. They have done quite well. I mean, it's just been six months now, but I think

Starting point is 01:05:03 American Express up 48%, Adyen up over 100%. I mean, those are a little bit unpredictable for such good short-term performance, but I think those are good examples of what i'm trying to look at in the future and that's fingers crossed not guaranteed to be right hopefully what i'm seeing in coupon and match group at the moment yeah it also helps when they have built-in inflation hedges well american express is a and add-in and add-in are both nice both both nice businesses um and i would say nintendo i don't own today but given where the stocks trading now and how yeah it's gone down a little bit um from a recent run either way if i get some cash coming in i might add to them as well ally um ally is another good example again

Starting point is 01:05:57 unfortunately we don't know right now um it's funny that you know we would be doing absolutely incredible uh in in early 2020 24 but that's that's all right you want out there we go i don't known ally but hey at least one of us can make some money from it we waited for a while on that one it was a little bit hairier we wanted a pretty big discount from when we'd buy and then when we saw their competitive positioning stay strong the the kpis we're watching we're still doing well besides some short-term headwinds from the macro environment and we said look you can buy this thing at 0.6 0.7 times book value should generate 10 roes for a bank once they normalized at least probably higher i mean that was a good risk reward i think and now someone

Starting point is 01:06:48 like ryan is uh is benefiting from that 100 we have been going for 64 minutes though so uh 50 i'm seeing 58 on uh the recording on youtube live it says started streaming 65 minutes ago but i'm i'm seeing yeah well when we recorded on the riverside i have a little counter here I would have two minutes left, but maybe, maybe not. I don't know. Maybe that's off. That'd be weird if that's off. Anyways, anything else? No, I think we covered all our bases. The, uh, it'll be fun to watch what happens with the Trump media group.

Starting point is 01:07:25 And I like when you ask for topics, but before the show, it helps. We can open with those next time. Yeah, that's true. I think I'll, cause not everyone joins right away. Um, yeah i'll try to do it from twitter next i'm even doing some of those posts that you can do now on youtube as well for the people that don't follow on twitter next not the not the elon fans i would guess but do you want to do the disclosure or should i uh i'm forgetting it so i'll let you do it okay i'll give the these things we say every time if you like the show follow us on either youtube spotify or apple podcast that's where all the shows will be released give us a five star

Starting point is 01:08:08 review on Spotify or Apple Podcasts. If you listen to a full episode, we're hopefully giving you some value, either in entertainment or research, or maybe a mix of both. And the way to support us the best way through and through is to just give us a review on Apple or Spotify. Follow our show on Twitter. Follow us on Substacks. You can get updates through the newsletter. Now to the disclosure, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you everyone who joined us live on the Investing Power Hour, and we'll see you next week.

Starting point is 01:09:07 head back to the streets and fx is the drop a snowfall saga watch wanda bell and leon simmons fight to reinvent themselves in 90s los angeles where the fallout from the crack epidemic fuels the rise of west coast rap ambition loyalty and survival collide as everyone risks everything to build something lasting and fx is the drop a snowfall saga streaming september 9th on hulu on disney plus click or tap the banner to sign up now Thanks for watching!

Chit Chat Stocks - Long Bitcoin, Short MicroStrategy

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