Chit Chat Stocks - MicroStrategy Madness; Buffett's New Buy + 13F Season; Are We In a Stock Market Bubble? (DPZ, MSTR, ABNB, PCOR, ASML + More)

Episode Date: November 24, 2024

The Investing Power Hour is live-streamed every Wednesday on the Chit Chat Stocks Podcast YouTube channel at 1:30 PM EST. This week we discussed: (04:26) Tech Earnings and Market Sentiment (11:15) Regulatory Challenges for Big Tech (17:26) Insights from 13F Filings (23:21) Buffett's Cash Management and Future Strategies (29:15) NMI Holdings and Investment Strategies (33:50) Understanding Earnings Multiples (35:19) Navigating Frothy Markets (36:17) The Streaming Wars: A Closer Look (44:32) Market Valuations and Portfolio Adjustments (47:49) MicroStrategy's Bitcoin Strategy (57:10) Small Cap of the Week: Potbelly Corporation ***************************************************** Subscribe to our YouTube channel: https://www.youtube.com/@ChitChatStocks  Follow us on Twitter/X: ⁠https://twitter.com/chitchatstocks  Follow us on Substack: ⁠https://chitchatstocks.substack.com/  ********************************************************************* Sign-up for a bond account at Public.com/chitchatstocks  A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this account are used to purchase 10 investment-grade and high-yield bonds. The 6.9% yield is the average annualized yield to maturity (YTM) across all ten bonds in the Bond Account, before fees, as of 8/28/2024. A bond’s yield is a function of its market price, which can fluctuate; therefore a bond’s YTM is “locked in” when the bond is purchased. Your yield at time of purchase may be different from the yield shown here. The “locked in” YTM is not guaranteed; you may receive less than the YTM of the bonds in the Bond Account if you sell any of the bonds before maturity, or if the issuer calls or defaults on the bond. Public Investing charges a markup on each bond trade. See our Fee Schedule.  Bond Accounts are not recommendations of individual bonds or default allocations. The bonds in the Bond Account have not been selected based on your needs or risk profile. You should evaluate each bond before investing in a Bond Account.  The bonds in your Bond Account will not be rebalanced and allocations will not be updated, except for Corporate Actions. Fractional Bonds also carry additional risks including that they are only available on Public and cannot be transferred to other brokerages. Read more about the risks associated with fixed income and fractional bonds. See Bond Account Disclosures to learn more. ********************************************************************* FinChat.io is The Complete Stock Research Platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠https://finchat.io/chitchat  ********************************************************************* Sign up for YellowBrick Investing to track the best investing pitches across the internet: joinyellowbrick.com/chitchat ********************************************************************... Learn more about your ad choices. Visit megaphone.fm/adchoices

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 other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome to Chit Chat Stocks. This is another episode of our weekly Power Hour. I am one of your hosts, Ryan Henderson, and I am joined, as always, by Brett Schaefer. I will apologize to anyone that likes to listen to us live on YouTube, because we typically do these on Wednesdays. Brett and I have been experiencing some adverse weather conditions over here in the Seattle area,

which has uh removed power from a lot of the areas that we're at so recording a different spot today nonetheless we uh we have kind of a perfect record when it comes to producing these shows on time so we're going to make sure that this gets out on the podcast player at the right time we have plenty of news in financial markets to go over the bubble is back i think we can officially declare. We are at the point now where it feels a little frothy. So we're going to discuss maybe where we maybe see some opportunities in frothy markets and actually discuss some of the froth itself. Brett's got quite the segment on microstrategy, which has been just an insane whirlwind to follow. But I guess I will let you talk a little bit here, Brett. How are you?

and uh what are you excited to talk about on this episode well do we want to talk in video earnings i feel like those are covered way too much that's seemed like the the test to end all tests i even had people outside of the investing world asking me you know hey what do you think's gonna happen today well i know as much as you but maybe we could talk about those the numbers are impressive Either way, not sure we have any sort of hot take on the stock, but I do have, I don't know about any hot takes, but I think MicroStrategy is an extremely interesting company, to put it lightly, at the moment, especially as Bitcoin is approaching 100,000. Yeah.

And to kind of touch on those NVIDIA numbers, yes, impressive numbers, no doubt about it. data center revenue is just seems to relentlessly explode higher um but i in in terms of a sentiment gauge i run i post on the finch at twitter account and as soon as nvidia earnings popped up i posted a picture of the data center revenue and within probably five minutes there was hundreds of likes and retweets of people just saying we did it we beat beat estimates no idea no context on the quarter and it was just the stock was down after hours because it wasn't enough of a beat i guess and people were like it makes no sense that this is down look at the revenue exploding higher it's like just like very i don't know i just saw a very simple thinking of

we beat stock down this this is just the beginning i'm like there's no way there really is no way that this is just the beginning like it we've got to be at least an inning five at least in terms of like the market cap uh because it's just it just really at some point the size really starts to matter i imagine um doesn't seem to be yet but at some point it has to we'll see um the one thing i do know, and I know this isn't some crazy idea, but if revenue growth slows down, the stock is going to fall. That's all I know. It's a revenue growth story. If it keeps happening, hey, you might be right. You might make a ton of money. And this could be the first company to a $10 trillion market cap. Who knows? True. That's very true.

What I do know is that I don't know much about that company. All right. We're going to talk Now we can put NVIDIA earnings in the title. What? I said, but now we can put NVIDIA earnings in the title. Yeah, yeah, I guess. Yeah, we talked about them a little bit, you know, a little tease. I'm not sure we have much to say besides that. But before we get started into any of our segments, do you want to talk about our sponsor

for today's episode? Sure thing. Heads up, folks. Interest rates are falling, but you can still lock in a 6% or higher yield with a bond account at public.com. It's a pretty big deal because when rates drop, so can the interest you earn on your investment. A bond account allows you to lock in a 6% or higher yield with a diversified portfolio of high yield and investment-grade corporate bonds. So while other people are watching their returns shrink, you can sit back with regular interest payments.

But you might want to act fast because your yield is not locked in until you invest. The good news, it only takes a couple of minutes to sign up at public.com. lock in a six percent or higher yield with a bond account only at public.com forward slash chit chat stocks where do we want to start big tech breakup is it happening are we officially there uh yeah maybe i think we could talk about google chrome yeah the alphabet stuff whatever you want to do let's go through well also 13f season which i know So I don't think you like talking about 13Fs because people tend to just blindly follow investors into some of the positions. But I do find that if you're able to go through some of them, I do think there's sometimes fun signal, especially with stocks that investors have held for a long time where they increase the position substantially.

And I went through and found a couple of those, which I think are kind of exciting. But yeah, I guess we can talk through Google Chrome first here. I honestly only kind of read the headlines for this, but basically, I guess the Department of Justice is wanting Google to sell off its Chrome browser. It looks like you have a little more details here. Do you want to go through some of it? Yeah, here's some quotes. Let me just read them off for you.

So hopefully, it says, trying to reconnect my internet. Hopefully, it's strong. I don't know. this power outage stuff is kind of throwing things for a loop this week but i think with the podcast recording it hopefully should be fine but we'll see let me read these quotes and i think the internet's gonna try to connect again but all right the justice department on wednesday said google should have to sell off its popular chrome browser as part of a court ordered fix to its monopolization of the online search market government lawyers said competition can only

be restored if Google separates its search engine from products it has built to access the internet, such as Google Chrome and its Android mobile operating system. Chrome controls about two thirds of the global browser market. And it goes on, the Justice Department also requested that Google be prevented from giving preferential access to its search engine on devices that use its android mobile operating system if google violated that rule in the future it would have to divest itself of android as well as under the government's proposal did you pick that up ryan that says the internet speed's going in and out here so i don't know if you got all that no i i pretty much got none of it to be honest can you hear me okay

yeah i can hear you now um but essentially the quotes i read and for anyone listening to the podcast it will show up should be fine on the recording but they want to divest or excuse me the department of justice wants google to divest from its chrome browser and they the reason they want to do that is because they believe it's anti-competitive it's pretty simple they say that if google search has such a dominant market share position you know they're not allowed to make this the default stuff and they also want google to stop making their payments to apple and other hardware makers so yeah we'll see if it actually happens what do you think does this end up first of all do you see this actually happening and do you think it has any adverse

impact on google i have no clue if it'll happen uh i mean does anyone know but will have any impact on the business i think it probably will be overrated any impact on the business yeah that makes sense is everyone at all because of it yeah i was surprised to see that um i don't know why maybe they think it's unlikely maybe the smart investors that know about this legal stuff think it's unlikely that it's actually going to go through but if it does that payment's not going to get replaced maybe apple comes up with its own search engine but that's a lot of money to be spent and that's a big risk so i'm not sure and it's about 15% of their earnings power, 20% of their earnings power. So I don't know. I don't know

why Apple stock's not down. I think Google has less of a risk here or excuse me, just Alphabet in general, because you should look at, I think, market share on desktops as an example for what could happen to Alphabet if they lose their quote unquote anti-competitive position. I know Google Chrome is extremely popular on desktops as well. But you have to look at their number one competitor, Microsoft Bing, which is owned by the same company that runs Windows, which has a large market share among desktop laptops, you know, personal computing devices. And Google's market share on that is still 80%. So will they get a little bit of hit? Probably. But it's, I'm not sure that it's going to kill the business.

I mean, killing the business would be extremely unlikely. Yeah. Don't think it's going to kill either business. You know, I think it may have less of an effect on both businesses than people estimate. Apple, yeah, you're not going to get the guaranteed payments, but you'll probably still get, if it turns into a bidding war or some sort of a competitive, something more competitive, I think you're probably going to still get big fees from someone, whoever ends up being the engine there. And I would assume that Google is kind of the winning engine, even if it becomes a competition between them and Bing.

But let's shift gears a little bit. I want to talk 13 Fs because investors all over the world are reporting their holdings or reported their holdings last week. Some of the best investors, if you want to call them that, Warren Buffett, Stan Druckenmiller, some of our favorites out there, Chuck Ackrey, Norbert Liu, investors we've studied on this show a number of times and done episodes on, they all reported. And I'm going to go through some of the ones that I found the most – some of the buys that I found the most interesting. I will say this is also the time of the year when – or the time of quarter when investors love a little confirmation bias. Anytime you have a holding where an investor has added to that holding or bought it as well, it makes you feel pretty good. And I will say Stan Druckenmiller, one of the best investors of all time, added a little bit to Philip Morris. So he must be listening to our podcast because we've spoken about them on the show a number of times, really, because I've talked about them probably too much on the show.

But I'm going to go through some of the most interesting buys. And I actually did a little thread. I'm all over the threads these days with six different buys, like single stocks that were purchased by an investor that I thought were actually fascinating. So Stan Druckenmiller, first one. 15% of his portfolio is now Natera. I'm not really sure what this company is. He basically doubled his stake in the company. And so it was already one of his biggest positions. Now it's 15% of his portfolio. So he's really sizing up. It's a DNA testing company from what I understand. So maybe it'll encourage a little bit of looking, a little bit of digging here. It seems like it might be out of our wheelhouse or at least out

of my wheelhouse in terms of what I typically look for. But nevertheless, I think when you see Stan Druckenmiller go heavy into something, it's hard not to turn your head or pay attention. Second one I'll mention here, and I'm going to go through all six because the internet's been a little choppy. So it's easier if we talk a little bit at length and then let the other person speak. I'm going to go through all six and then Brett, you can tell me if there's any that really catch your eye. So number two, these are in absolutely no particular order. Chuck Ackrey, it's really not Chuck Ackrey anymore. I think it's pretty much run by whoever his successor was, I'm blanking on his name, but Ackrey Capital Management. I think they've had probably a fair amount of redemptions

would be my guess because they are kind of slowly reducing the positions they have in most of their stocks. So all in all, it looks like they're selling a lot of stocks, but they're really not. They're probably doing it pretty equally across the portfolio. But one stock that actually they ended up buying, they tripled their position in Airbnb, which at no point this quarter did I look at airbnb and think this stock is really cheap so they're doing a potentially you could say elevated valuation and they're really increasing the size of that stake so kind of it doesn't surprise me i've always seen them as i've always thought this would honestly be like kind of a good fit in their portfolio in terms of just the other companies that are in there where a lot of them

are richly valued but they're really they're willing to wait and have very long-term horizons And maybe it's an approach I should adopt myself. Third one, though, Dev Kantasaria. Now, Dev Kantasaria, I can't remember the fund name, but he runs a very selective fund. There's only one, two, three, four. There's only eight companies, might be nine, in his entire portfolio. And he doesn't trade much. And actually, this is probably one of the investors I like to follow the most, because

if anything happens, it kind of means something. Doubled his stake in ASML this quarter, which maybe we can talk about this a little more at length at the end of the show. ASML kind of in a fascinating spot right now, big drawdown, and it's warranted given some of the industry headwinds that they're experiencing. There's just kind of a big drop in billings because even though you're seeing this AI super cycle, a lot of the semiconductor companies are opting to stick with the equipment they have instead of buying the new machinery. And so you've seen this drop in bookings. I think if you zoom out 10 years, you're probably going to be fine buying ASML here. But number four, this one, actually, we talked about this. What was it last week? Bill Ackman 5x'd his stake in Brookfield and Nike. Now, I don't think he can go activist on Nike, really, because if I'm not mistaken, Phil Knight still owns like the lion's share of that company by a mile. But if there's any room for activist involvement or if we thought there was any chance he was going to get more involved, it certainly seems to be the case because it is now – Nike is 11% of his portfolio now, at least his US equity or his US holdings. he owns just over 1% of the company, Brookfield, he owns 2% of Brookfield,

which I would have thought Brookfield was a little larger. And he really increased the size of that stake as well. It's kind of interesting. He has a history or he has a bit of a past working with Brookfield asset management. So I'm curious if there's any sort of tie-ins there that he has with maybe the management team. And then the last two, which I find kind of fascinating, named Pat Dorsey, someone we've looked at before, who's very good at qualifying moats and analyzing competitive advantages, but a massive stake, not a massive stake, but it's a new position at 10% of his portfolio in Applovin, which has already aged well because their quarterly report, I think the stock has basically doubled since the report. Then the last one, Dennis Hong,

who, I think it's an investor we've both kind of looked at a number of times, liked his portfolio, liked the holdings that were in there. But Procore increased his position basically fivefold. That's a stock we've looked at as well. So he's got a software heavy portfolio and he's kind of buying big on Procore. Anything that stands out to you here, Brett? I will say that the most important differentiator when looking at a 13F and how quote unquote actionable the insight could be is how active the investor is. So an Ackman or an Acree capital management, or what was the other one? Valley Forge. They don't trade nearly as much. Now I know Ackman's a little more active than those two, but those would be much more interesting to me. So the ASML investment,

which i think makes a ton of sense for valley forge uh just given their history and then airbnb also makes a ton of sense for akri because they love marketplaces and yeah i guess i'll just leave it at that so those two interest me i mean procore as well i think a little bit but ackman not not really i i don't care about that one drunken miller i don't care about that one i think in In all honesty, the most money I've made from 13 apps is using them in titles to get bonuses on Motley Fool articles, which they do extremely well on that. People love reading about it. So I think that's where the most money is to be made.

Yeah, I've never understood blindly following investors. And we saw this this quarter, Berkshire made dominoes, initiated a new position in dominoes. And it's like 0.2% of Berkshire's equity holdings. And the next day, Domino's was up like 8% the morning after. So people are just following in. Keep in mind, Berkshire bought Ulta, a new stake in Ulta last quarter. And the same thing happened. They got rid of the entire position this quarter, which is kind of an anomaly for Berkshire, if I'm not mistaken.

I don't think they're usually in and out that quickly. Not too much. I think they're not afraid to test stuff, throw stuff around. But once they stick with something over a couple of years, they try to make it a quote-unquote never-sell position. And I also think this is likely the lieutenants, as they like to be called, or maybe they don't like to call themselves that, as people call them. But, yeah, Domino's is not material for Buffett's equity portfolio, which I guess after the Apple sales, maybe, I don't know the exact size of it. but it's still huge. And Domino's is less than a billion dollar position. That's probably more for what the lieutenants would be doing that are managing a 10, 20, 30 billion dollar portfolio.

On the other hand, though, they do own three and a half percent of the stock already. So it means that this isn't really a starter position for the company because their, you know, quote unquote, full position for a tiny company is usually around 10 percent, maybe higher, maybe slightly higher if they get that regulatory approval so they're not too far away from that i can see why people get excited that buffett owns dominoes but i'm not necessarily sure why you would think that anything's changed that much from a competitive moat or position like that you know you know already that he likes the franchising model and he likes durable food and restaurant brands so did you already not know that about dominoes i'm not sure like if that is something that's

attractive to you in their international expansion i don't think you needed buffett to hold your hand there no and i think we've talked about dominoes here and it's actually really it kind of follows that economies what is it scale economy shared where they have a real cost advantage over a lot of other competitors or pizza makers and they're able to pass that through pass through those costs savings to customers in the form of lower price pizzas. And it's really helped them expand the business globally. The yeah,

I don't, I don't understand following them in here. The other thing I was thinking about is for, for like investors like Buffett, every position, every new position has to start as a startup position. Cause you can't buy enough stock in one day to make it like true, a reasonable position uh and at least relative to their other holdings so you can if you're

starting everything as a starter position by the end or by the end of the quarter you could have an idea that all right this is a startup position for us and we've been accumulating shares and it's just a not really a business or maybe we were wrong about our thesis or we learned something that we didn't like and yada, yada, yada. So yeah, wouldn't blindly follow him in here. The one that does stand out to me out of this list is Procore with Dennis Hong.

I like Dennis Hong, Shaw Spring Partners. I think he does a really good job. Now, I also liked him when we held match group and that didn't work out so well for us, but that's nevertheless, I do like his analysis. The – with Procore, they've been struggling because the construction industry is slowing down because of just overall industry concerns and budget constraints at a lot of the biggest GCs and that's hurt them. But what I'm seeing is that they're investing and making the right platform improvements throughout this, which seems to be why people are liking them right now, because they're going to be better off when the industry kind of improves a little bit. I don't know.

What are your thoughts on Procore? Seems interesting. Yeah. I checked out the stock price. I guess that's really all I did in preparation for this show. But it could be one. I think we checked them out in 2021, and we're really following them. and he kind of said, eh, it's probably overvalued.

We wait for a few years and see what happens. Well, a few years has happened, and here we are. So it could be a good time to do an update. We have a few questions on Buffett and his cash raises. Tyler says in the chat here, for anyone that doesn't know, we do these live on YouTube, typically Wednesdays at 1.30 p.m. Eastern time, but we have this major power outage in the Seattle area, so we're doing it Thursday today.

If you want to join, you can ask questions there. you can ask questions i always do a little uh tweet about it on twitter where you can ask questions there and a little note i have started the sub stack newsletter uh group chat thing it's called chat where it's basically if you are a free subscriber to the newsletter we can have sort of a um it's not too private but it's a basically a conversation among people that follow us so you don't get all the spam and stuff on twitter and i think that's a good way and i'm going to start doing that, asking for questions for the show on there as well. So if you want questions and you want them answered, ask in those three spots. But here's what they asked. Do you guys have any

thoughts on Buffett's sales and cash raises? Do you guys think Berkshire should just pay out a dividend and the public securities after Buffett leaves the operating businesses separated from the public securities might make more sense? So there's a couple of questions there. Let's separate out the cash raising first and the special dividend. I think it is interesting that he is selling stock now. I don't think it's necessarily market timing. It's more of, well, Apple's not really a growth company anymore and it's trading at 37 times earnings. So I don't want this weighing down our portfolio and I'd rather own treasuries over that. And second, he's not seeing these opportunities at the moment, especially with his size. So they want to raise

cash. And hey, look, it's not necessarily that he's saying, I'm raising over $300 billion in cash because I think the market's about to drop. He's saying, okay, I don't have any good ideas above my hurdle rate of cash, which is a 4.5%, something like that, annual yield. And I'm going to sit in that and be patient. But on the special dividend front, then I'll let you go ryan i think it would be interesting if they decided to pay out a huge special dividend in some sort of will after buffett passes away whenever that occurs one one last grand dividend uh yeah like a 200 billion i don't know how much they would need for the insurance reserves but eventually we could probably pump this thing up to 300 billion

400 billion dollar special dividend that would be quite the interesting and those are tax-free i I think it wouldn't be the worst move in the world, I think. I don't know. On the flip side of things, it would be frustrating for Buffett, who's been pretty anti-dividends his whole life, or his whole time running Berkshire, I should say. Not anti-getting dividends, but anti-issuing them, which I guess makes sense if you're thinking about you're investing in Berkshire typically for Buffett's capital allocation skills and you're wanting him to pay out a dividend to you. wouldn't you want him to have the excess cash whatever um but he's accumulating this cash i think i agree with you likely because he isn't finding any great opportunities but at the same time if something does happen he has all this cash to really take advantage of it that's when

people are clamoring for the special dividend uh then he if he's if he pays one giant special dividend maybe he doesn't get the opportunity to take advantage of any sort of huge downturn which he's done a good job of in the past um so i don't know i kind of say stick with the strategy he's followed his whole life what about when he passed away yeah i yeah i don't know he's setting them up to fail unless he lets them do a reset well with 300 with more and more of his berkshire's total assets moving into cash it's kind of giving them a blank slate yeah it's true yeah um i guess it kind of depends on how you measure their success but if they're around for 40 years and berkshire tends to trade around fair valuation most of the time um i think it's it's kind of giving them a

link slate i'd be fine with that uh i think todd combs and ted weschler are probably better capital allocators than most of the berkshire shareholders um i think i'd be fine with them having the big cash balance ready to deploy it i think they should have a special dividend you're just too big you need to reset and be smaller yeah i guess but they're so limited in what they can do anyways right now and i guess if you distribute all the cash maybe you can still have a you can make a meaningful impact with certain new investments but the operating businesses for them are still big enough at this point that they spit off a lot of cash flow each year. For them to make any investment that makes a real difference, Todd or Ted, I'm talking about here, it's just going to

be hard. They're never going to reset to Buffett in the 90s. They're not going to get that reset where they can have a totally fresh benchmark, even with this massive special dividend because the operating businesses are too big at this point. Yeah, that's true. They'd have to separate those out as well, which would just be a whole big split up, which would defeat the purpose of having the combination of insurance cashflow coming in versus the capital allocation. We don't need to do a whole Buffett pod. We had a few questions. We had one note here in the chat that says, good, great job on the NMI pod. That was one that came out yesterday. That was a podcast interview with Fabio from Capital Mindset on a company we had literally never heard of before,

NMI Holdings. And it's a fascinating mortgage insurer. And I'm sure people hear that and they go, is that really a sexy stock? I'd rather own NVIDIA and Palantir. Well, it's growing pretty quickly and it's actually quite the growth story in market share taker. But we did have one question from Substack that says, what are our opinions on NMI Holdings? And I got to say, I like it quite a lot. I think I like it better than the home builders, given the regulatory stuff and the less capital intensity, but there's also the insurance risk and stuff like that. But I got to say, it seems fairly cheap. Obviously, I haven't done my due diligence, but I trust Fabio. He's been on the show plenty of times, and I liked his pitch a lot. I think it's something that

if you have any interest in that sector, it'd be something fascinating to take a look at. Yeah, I agree. And it is – I really do – I trust Fabio and I think he does really good work. But I had that same knee-jerk reaction that a lot of people probably do when they see NMI Holdings. First of all, is it the Peter Lynch test a boring name? Is he the one that had like – if it's got a really boring name, he likes that? NMI Holdings, I can't – that's very vague and boring. um no i mean after the pitch and it was a really good pitch even i had the knee-jerk reaction of like insurance you know not much is going to happen but i've got a discussion question for us today which is markets feel frothy where do you hide i think this is the kind of thing where finding a boring business like this where the industry is very resilient it seems like a decent place to be if there's access in the market yeah i think so as well

i also think of the i don't know if it's a saying but it's something i kind of think about is hide in tobacco and go away stuff like that you know it's paying like a six percent dividend yield you feel like it's not a high grower but it can maybe do better than treasury yields over a couple year period this is one that makes sense as well it's almost one of those where psychologically everyone thinks it's so boring. There's not any major updates every quarter. It's not a management team that's yelling that everyone should invest in them. And they're not going to be a hyper grower, but you can perhaps earn slightly above market returns for a very long time. And if that's 12%, 13% returns over a 10, 15 year period, well, I think everyone's going to be quite happy

if you're owning that. And the thesis makes a lot of sense. And one thing that I think stands out when looking at one of those stocks is you look at all these large cap stocks in the United States, large cap growth, all these companies, and it's just 30 times earnings, 35 times earnings, Nvidia, 60 times earnings. Now that one might be deserved given that absurdly strong growth rate. But look at NMI Holdings, PE of eight. That is just a much easier starting point for me. Especially if it's something I can understand better than NVIDIA or anything AI related. Yeah, I worry. I have so many.

I know this is kind of weird because we haven't been investing that long, but I have a lot of scars of multiple compression from when we started really being vocal about our investments kind of in the 2020, 2021 time period where businesses that did well. And actually over four years, generated positive returns. The multiple compression was just really, really, really hampered returns. So yeah, I kind of move away. And when I hear – I know trailing earnings multiples can be misleading. But I think it's, like you said, an easier starting point for me to hear a PE of 8 relative to a PE of 60. even like kind of regardless of the business it just makes me feel a little more comfort there i do want to talk about uh i want to get to that discussion question which we kind of alluded to

here but before we do one more word from our presenting sponsor for today's episode public heads up folks interest rates are falling but you can still lock in a six percent or higher yield with a diversified portfolio of high yield investment grade corporate bonds on public.com you might want to act fast because your yield isn't locked in until the time of purchase lock in a six percent or higher yield with a bond account only at public.com forward slash chit chat stocks okay looks like i'm uh solo at the moment if you're listening to the podcast brett's internet has been a little spotty throughout um and so he's off at the moment so i'm gonna maybe do a little bit of monologue in here and i since i have i've got the discussion

question which I want to talk to Brett about, which is where do we hide when markets feel frothy? Because I'm starting to get a little bit of that 2021 time period, that feeling that you had, which is ultimately what I ended up doing is kind of capitulating and buying stocks at multiples I felt a little uncomfortable with. Don't want to do that again. So we're going to talk through some of the assets or securities that we can kind of look at. But the other topic i do want to talk about is the streaming wars the streaming wars yeah oh brett's back so i know i'm talking the internet i'm talking streaming wars yeah um okay keep going and then i want to ask you about where we can hide um during frothy markets but disney reported earnings

last week they were fine which also all-time bob eiger move here which for those people that don't know i haven't been listening to the show for a while we're a little bit of bob eiger haters um just kind of a big ego and he he left disney in a bit of shambles and then blamed his successor for ruining disney and then came back and was like don't worry i'll save us that's like you were here for 20 years i don't think these problems just showed up when your successor took over um anyway he's back they're now looking for a successor again um and he gave 2026 guidance like really positive 2026 guidance he's going to be gone by that time so the stock jumped on 2026 guidance which isn't that not is that not just like the all-time bob eiger move let the

stock rip while he's still around on these optimistic 2026 projections and then not be there when the uh when someone's got to actually earn that money so uh anyway that's not what the whole topic's about streaming wars disney plus i don't think actually grew subscribers um looking in total disney plus grew subscribers but a lot of that was from hot star this because the core service is kind of meddling um but over the last two years disney's quarter prompted me to do a little bit of research here so over the last two years netflix has added 60 million subscribers so it's gone from 223 million total paying subs to 283 million and i know what you're thinking oh they cracked down on password sharing got a whole bunch

of easy lower priced subscribers no it's not the case average revenue per user is up in all markets except for a pack so like actually the average revenue per paying subscriber is growing these are legitimate subs 60 million paid subs have been added over the last two years let me go through some of the services the some of netflix's competing services uh disney plus hbo which is measured by warner brothers dtc subscribers paramount plus hulu peacock and ESPN plus combined over the last two years have added 63 million. So Netflix has almost grown by as much as the entire category. And they're one of the only real profitable operations. Now that excludes YouTube because they don't break out their subscribers or YouTube TV,

I should say. It excludes Apple TV, also don't break up their subscribers and excludes Prime Video. I would venture to bet that all those services, except for YouTube TV, they're probably losing money so either way the whole point here is that can we call the streaming wars over like can we just say netflix won the streaming wars at this point yeah it is interesting and sorry for anyone that i guess no one really watches so if you were just watching ryan monologue you didn't notice that i hopped in and out of the stream and that's because the internet connection broke for 30 seconds but yeah let me answer your question here are the streaming wars over yes in the sense that it was framed five to ten years ago where it's

netflix versus hbo versus disney versus warner brothers discovery which i guess were separate companies a while ago versus paramount versus nbc universal and netflix has clearly won that battle but i think the future streaming wars are and we'll see what these legacy companies do because clearly disney still has quality assets and they can play a different game because they are not just in the streaming video business but i think the competition is going to be between netflix youtube even a little spotify because that's still you know consumption hours and they have a lot of consumption hours maybe not necessarily on tv but in time spent and also in a smaller extent amazon and apple i mean ryan's given a little uh shrug there but spotify's hours spent

on if you know i mean the amount of the billions upon billions of hours on spotify every single year isn't something is hours not spent watching disney services or netflix i would think unless someone's listening to a podcast or music while watching a tv show which i think is a bit chaotic but still yeah yeah i'm kind of talking mostly the ctv market but yeah you could if that's the case i mean the war the consumption wars or the content wars all over spotify yeah you include them there as well but to me you've got the netflix has gotten to the point where they've got this scale advantage their revenue is they're generating so much more revenue than everyone else that they can spend more on content while still seeing huge margin inflections they can spend

more on content every year than all their competitors not combined but then each one let's say they can spend 20 billion dollars they're still going to grow revenue uh and grow operating margins quicker than all the other businesses i mean netflix is netflix has gained 60 million subscribers when the entire category excluding youtube and apple and amazon has gained 63 million while operating margins went from, I don't know, 10% to 30%. It just feels like they are completely in the driver's seat. Yeah, I think so. The only concern is YouTube because yes, today both are gaining share, but if you want head-to-head YouTube versus Netflix, consumption is growing quicker at YouTube, which over the long-term if that continues

is a slight concern for netflix but obviously it doesn't doesn't kill their business model last thing on netflix here ryan got a question here that says did you guys have any comments on netflix's live streamed events seems like they're on the offensive while also showing huge operating leverage this can't help but have margins expand yeah you talked you just talked about that part at the end there but the live event stuff well it's maybe a good thing they tested out with kind of a freak enter not freak but sham entertainment event uh because they have these christmas day games coming up and they could get true brand uh reputation damage if the nfl games aren't streaming uh correctly and have that same lagging issue which uh someone asked about

that and i kind of thought that maybe we got the netflix tech for this episode uh for this live stream but yeah it's not good if you can't watch something like that but it seems like they do have the ability to play offense because they can pick and choose because their existing business model is doing fine but a lot of the other companies need the live sports to stay relevant yeah for yeah they need them like peacock for example if they didn't have the rights to the english premier league i imagine subscribers would be half what they are maybe less um you might be overrating how much how important english premier league is in the united states but uh it definitely doesn't hurt yeah i guess that's true but i suspect there are millions of

subscribers that you know pay for specifically that i don't know if peacock has that much recurring exclusive content that is you know uh built by them that uh people are willing to subscribe to on a regular basis but i do want to ask you this question because i was telling the listeners while i was monologuing there for a second i'm getting that same feeling i had in 2021 where it's like you're seeing pockets of excess bitcoin for example it just it seems like you absolute euphoria with bitcoin almost to 100 000 there is so much excitement uh everywhere i look valuations are like you said 30 times earnings 35 times earnings it's hard to make the math work and what happened in 2021 to some degree i ended up paying for paying more for

companies than i would have liked so i don't want to do the same thing this time around are you making any changes now to your portfolio where are you looking when it feels like equities across the board are at elevated valuations okay yeah i think i can answer that but can i do a tease and say i think we are a little bit late on the mid-rule sponsors if you want to talk about those first and then i can answer that question i did i mentioned public already again But the Yellow Brick, I've got the small cap of the week coming up by Yellow Brick. For those that don't know, Yellow Brick is an awesome place to find high-quality stock pitches. Look up joinyellowbrick.com.

Look up any ticker. I guarantee you're going to find a snippet from a hedge fund letter, a sub-stack write-up, podcasts. Our pitches are included in there as well. You can just find a high-quality write-up. It just really helps get up to speed on companies. So I recommend checking it out. But the other one, we use it every single day here. It's FinChat.

I work there. It's a wonderful platform. You can get all your financial data in one place. And they are running an exclusive or I should say a limited time only Black Friday sale for 25% off starting on Wednesday. When will this be uploaded? This will be Sunday. So it's starting on Wednesday. There will be a 25% off sale on FinChat using our code.

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So if you were thinking about it, if you're on the fence, it could be a good time to take advantage of it. Yeah. So you asked about whether I'm making any changes to my portfolio specifically because the market is frothy. I don't think so. At least I haven't been consciously, I guess. I think it's more of just not participating in stuff I feel is dangerous. I have some stocks that have gotten a little more expensive. And I guess that's a good thing because they've gone up. You know, it's, it's, it's working, but it's working maybe a little bit too quickly where you get a bit either suspicious or a bit cautious. And one of those would be like remitly.

It's not, it's nothing like one of those ones that has gone up three, 400%. I think it's kind of 50%, but still when you get that feeling along with that, I think you can get, and this, I had a tweet about it earlier this week that did surprisingly well about the FOMO you get, even if like your portfolio is doing fine. it's not like my portfolio is doing terrible this year, but even if it's doing fine and you see a lot of other stocks, a lot of other people up 100%, 200% in a year, you get that FOMO and you have to understand that that's natural and try to resist it. Do you want to talk though? We're talking bubbles here. What I'm calling, I guess madness may be a little bit too negative. We can

let people come up to their own opinions but micro strategies aggressive bitcoin strategy have you been keeping up with this no not at all what do you think about the term bitcoin yield that michael saylor the ceo likes to promote you don't just the term i know you don't know what it is yet uh that could mean absolutely anything i i you you say bitcoin yield and i have zero idea what that means at first it made me think of those old defy things that promise 20 annual payment yield and people are like oh this is great you gotta get on this block fi when it's clearly if you're getting paid 20 a year well there's a lot of risk well let's go through what happened the MicroStrategy because this is getting to be one of the biggest companies in the world.

As we're recording this, MicroStrategy has a market cap of $87 billion. For those that aren't playing at home, they have, or sorry, once play along at home, they changed their entire business model in 2020 and decided to take the cash on their balance sheet, buy Bitcoin, and then also take out debt and sell stock and buy bitcoin now the majority of their intrinsic value as you might say is in their bitcoin holdings because they have a software business and it's still around but it generates i think around either 100 million dollars in revenue a quarter or a year something like that so so pretty small relative to you know this market cap um and now with this 87 billion market cap which i should say surpassed the stock price of wow as we're recording this it's down 17

today geez that's crazy well okay either way it's still higher than its dot-com bubble highs which i think is telling um given the froth here but it's trading at three times its bitcoin holdings So you can buy MicroStrategy, which I never really understood about this company, is you're betting that it's going to stay at above its net asset value of Bitcoin, and then it's going to be able to sell more shares and then buy Bitcoin at a cheaper price because it can sell, you know, say $3, get $3 and then buy $1 Bitcoin on its balance sheet. The math like somewhat works, but it also doesn't if you buy at the super high price and plan to hold on to it.

I also think what is maybe interesting is a loose term here. They're doing what they're calling a 21 and 21 strategy, which, get this, they're raising and planning to raise $21 billion in debt and $21 billion in new equity through an at the money offering to, you'll never guess it, buy Bitcoin. And lastly, I mentioned that Bitcoin yields stuff. now the way they describe it is how much the company is increasing its bitcoin per share number every year so it's able to do this because since its stock is trading well above its net asset value of bitcoin it's able to sell stock and then buy bitcoin at a quote-unquote discount

and the pitch is that this is creating shareholder value it might be creating shareholder value for those that own this thing in 2017 but if you're buying today i don't know if that's necessarily creating value what do you think here ryan you in are you in you in on this uh i'm not in uh why would anyone own if you're bullish on bitcoin there's no reason to own this and not bitcoin like just by bitcoin oh i agree the other thing i have a proposal all board members and executives of micro strategy are only allowed to take and hold their salary in bitcoin because they're probably making a pretty penny right now so they have to be paid in a bitcoin and they're not allowed to sell that salary to sell any of that

income for four or five years because they're so bullish yeah i like how all this stuff is still priced in fiat as they like to say with a negative connotation they go yeah it's priced in fiat but uh yeah and they're i assume they're all paid a pretty penny in fiat yeah exactly well i would like them to try to get paid in bitcoin because you technically can't um i know there's the famous football player who disappointingly is a seattle seahawks legend uh who claims to have gotten paid in Bitcoin, but in reality, you got paid in dollars and then it got converted to Bitcoin. I can get paid in sandwiches. If you want to describe it like that, I can get paid in dollars and convert them to Subway sandwiches. But let me look at this other thing here, Ryan,

to maybe get the temperature on the broad market. This is an announcement on November 20th. So yesterday as we're recording this, MicroStrategy announces the pricing of its offering of 2.6 billion dollars fiat aggregate principal amount of its zero percent convertible senior notes due 2029 let me say that again 2.6 billion dollars zero percent interest rate due in 2029 who i want to know who's financing this maybe it's in the way lower down here but that who wants to hold that debt i mean are we crazy block fi but yeah block five's back that's a good one that's a good one we're running we need we need to do your uh small cap of the week and i'm not i have no idea whether we're doing an hour here but i think if you want to ask about the temperature of the market

that basically sums up my thoughts there it's hot yeah no doubt about it but you know what doesn't make sense to me when you look back at 2020 part of the reason the temperature of the market was so hot is because people had more money than they needed like they had money to just throw at random stocks like people were say cash savings rich honestly they i mean they were getting the stimulus checks rates were lower people had more money more borrowing uh to throw into equity. So it made sense. That doesn't, like, I don't think that's the case right now. So kind of just seems weird that it's happening, whatever. It's macro and don't want to bore people with that. Yes. Anything to add? We're going to close out with that small

cap of the week, but we have one final question that relates to this. Why do you guys think IPOs haven't occurred despite the frothy market? I think I can answer that. First, these companies are looking for 2020 and 2021 valuations when they go public, which is just not reasonable. And second, I think a lot of the startups from the post-Grade A financial crisis through kind of the COVID 2021 period are not that good of businesses. A lot of them were just funded by VCs that don't care about business models, I guess. That's my hunch, is that a lot of these businesses are worse than people think. And there's really not that many that could survive in the public markets.

Like if you're a VC and you go, hey, maybe we take a risk, go public. But given your income statement, I think this thing might fall 95% if some things don't go our way. I don't know. You can keep that. Keep marking up your returns. And hey, you earn that 1% to 2% management fee and everyone goes to the beach. Yeah.

And you know what? They're also looking for a guinea pig, and I think they might be getting one. I've heard that there's a big IPO. Someone filed an S1 last week. Klarna. One of the biggest. Klarna? Klarna.

There was another one too. Buy now, pay later. There was one more. I can't remember what it was. But if those two have successful IPOs, I could see this kind of unloading again and seeing the market open back up. But I want to talk about a less sexy company or less sexy market, if you will. Sandwich shops. The small cap of the week presented by Yellow Brick Investing is Potbelly Corporation.

Question for you before we get into this. Have you ever ate at Potbelly? I have not, but I've seen them. I don't think I've actually stepped inside one, but I've definitely seen them around. I have. Pretty good sandwiches, actually. All right. Better than if I remember correctly, are we getting long this because Jersey Mike's is going to get ruined by Blackstone? Because I was going to ask you, is it is I'm assuming Jersey Mike's is a little better because that seems to be a very high quality sandwich. But what are your thoughts? I honestly don't remember. I remember being kind of similar.

Okay, that's good. In terms of like. Better than Subway. You've probably seen that. Yeah. Yes. But Potbelly, for anyone that doesn't know, fast casual restaurant chain that sells sandwiches, salads, soups, and other lunch-focused items.

They have 435 system-wide shops, 435 stores. That's more than Kava. Just to give a little taste of Kava's valuation, they have – so Potbelly has a market cap before no 300 million dollars kava has these are very different businesses so it doesn't matter i think kava has a valuation of like 10 billion am i can you check on that less shops i think oh kava is higher but i think it's 20 16.6 billion dollar market cap okay yeah so similar size storefront wise obviously very different economics very different differently run business but But 80% of those shops are company-operated.

They're in the process. Basically, a new CEO came in, a new CFO and CEO came in around 2020, sort of right during the crisis, COVID crisis, which was a huge deal for them because less people were coming into the stores. And they've done a really good job turning around this business. From what I understand, basically, this was a company with 400 stores, but it was still being run like a small business. Like it had not been – there hadn't been like corporate practices created so that franchisees could like easily be onboarded. It was just very disparate, like piecing to – kind of putting Band-Aids over problems. Kind of similar to Portillo's. Short temporary fixes.

A little family run. Yeah, a bit is what it sounded like. Um, and so Bob Wright, I believe his name came in and he, he seems to be a pretty solid operator and he's done a good job improving this business and improving a lot of the actual operations and really driving value and a good experience at the stores. Um, and I listened to an interview he did, but there was like a restaurant specific podcast and he talked about some of the specific changes that they made, which was like reshaping the menu entirely.

They didn't necessarily bring down price, but they added more meat to their sandwiches, trying to increase the actual value. They said it seemed to work. And we've seen that out of some of the comp sales numbers. They've since declined this quarter, but it's still been pretty good. They're re-franchising some of their stores, but they're really trying to shift this business

to a franchise model. And they built out a lot of the systems needed for franchisees to quickly onboard and set up a shop. I haven't done enough digging here, but it seems like, okay, they were earning like $15 million in operating income at the peak before COVID. COVID happened. Obviously, they weren't earning any money. The business model has shifted a little bit and now they're earning still $15 million trailing 12 months, but it's growing really quickly and it feels like it's a more sustainable earning stream and more

sustainable growth as well so 30 times ev to operating income so it's expensive but i think they're really kind of under earning here um 450 million dollars enterprise value any interest here yeah definitely if you look at that market cap and ev i would be interested in seeing and maybe you didn't have this number but like system-wide shop sales but you know not what they're getting in from the franchise, but the system-wide shop sales, I like to see what they're trading at versus that. I'm sure they give out that number, but I guess we might not be able to pull it up right away. Are you talking like AUVs? Yeah, or AUV of a store or just, you know, AUV times total store or whatever you would get. Perhaps we could have that number pulled up from

somewhere like FinChat, but that would give me an indication of kind of what the potential is from an earnings power perspective. The one thing, I think I looked at this company maybe two years ago the one thing that just holds me back and maybe i just need to do more digging is are they is it that good of a brand like is there room for them in jersey mics and subway and maybe but i i just don't know how say compared to kava which has a differentiated model i think given their cuisine that not very very few people or excuse me a lot of people would be say afraid to go into sandwich shops it's i think hard to differentiate over the long term that'd be the one thing that concerns me but the price here makes sense if they're franchising out a lot

of their stores i think that makes sense to make it more capital light clean up the debt and then if they bring on this new ceo or they have brought in this new ceo i don't don't know exactly when they joined that could be a good combination there could be some potential here yeah but hey is it is it chipotle level like a brand no because my thinking is that jersey mike's might be the chipotle and this is the q doba something like that and there's a reason jersey mike's is worth eight billion dollars according to that blackstone buyout and this is worth 500 million the other thing that's a little bizarre i don't know if this is an advantage or a disadvantage but typically a sandwich chain with 400 locations would either be really regionalized or maybe

super regionalized where it's like in all in california or all in like the west coast this is all over the country like it started in chicago but they have like one one or two shops in certain cities four shops here and it's like on the west coast east coast south in chicago midwest it's all over they are able to service those stores well with their current distribution system is what the ceo said like they're able they've had to get creative with their distribution so they're able to run them properly but it's like there's no way that's optimized like there's no way that's the most efficient wouldn't you rather kind of see them really hone in on specific markets yeah that is disappointing to hear uh and that's something you can't really solve quickly so i would i would

wish that if they're going to have some growth plan to focus on a certain market and then get saturated there and then move on somewhere else that seems to be something that works really really well with restaurants and grocery stores and food brands and when people do the opposite like this that's when you run into trouble yeah yeah on the one hand maybe it's like means there's less risk of them the brand not translating but it seems weird that they've been able to be profitable while having this like non-regionalized strategy i mean anyway i might do a little more digging i don't love restaurant turnarounds so probably not gonna be in my wheelhouse or end up in my portfolio but if anything really excites me maybe i'll

end up pitching it on the podcast at some point all right yeah and it could be one where i could see this given this is something we can understand kind of graduate from that small cap of the week to a full podcast research episode, which we're recording with Ryan to come out next week, I believe, but either sometime in your feed in the near future, a company that I don't want to spoil it, and we have talked about it before,

but a little tease could be the next Constellation Software without putting its expectations too high, which that is, it's a similar model as a roll-up strategy in a niche industry. Let's put it like that. whether it's going to be a hunter beggar. Well, we'll let Ryan determine the potential of that. But I think we're going long here. So I'm going to close things out. Apologies to anyone for this internet stuff. Sometimes we can't control it, but we're going to try to do as best as we can

to make sure we have a stable internet connection. I know it doesn't really affect the podcast that much, but we do like doing these live on YouTube and hope we can provide the best service as possible. Thank you to our advertisers, public.com, FinChat, Yellow Brick Investing. If you like investing. Check out those links in the show notes and sign up for any of those services. It helps us out if you do. Here's a disclosure. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guest 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, once again, and we'll see you next week.

We'll be right back.