Chit Chat Stocks - Moody's: An Impenetrable Moat? (Ticker: MCO) with Joe Kowaleski

Episode Date: December 29, 2022

Moody's Corporation (Ticker: MCO) is an integrated risk assessment firm that operates through two segments: Moody's Investors Service and Moody's Analytics. Listen as Brett and Ryan ask questions about the company, its business model, and valuation. Enjoy the show! ***************************** Interested in becoming a member of 7investing? Subscribe with code “MONEY” and get $100 off your annual subscription for life: https://7investing.com/checkout/ ***************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney  Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Interested to see more of Joe's work? Check out their Twitter here: https://twitter.com/InvestingWJoe?s=20&t=jlU7hh_Bv9YsEOcOwjqw4A Contact us: [e-mail] Timestamps Moody's | (4:25) Management | (23:27) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our Thursday deep dive episode where we interview an analyst on a single stock. And today we're talking with Joe Kowalewski on maybe one of the most durable businesses of all time, which is Moody's Corp. It's also, I believe, Warren Buffett's second largest pure equity holding. Let me confirm that while you were talking. But this episode was a lot of fun. We go through different elements of the business model. there's more than meets the eye. We talk about why it's so competitively advantaged and why it's so hard to displace. He talks a lot about the important history and it's just generally a lot

of fun. I think we see eye to eye with Joe and a lot of his investing philosophy and stick around towards the end too, because we talk more about lessons that you can draw as kind of a young investor that's trying to not only uh you know grow in this but actually maximize returns uh over the long term did you have any highlights yeah one uh it is buffett's eighth largest position which still pretty large uh two percent of the portfolio but they own a large chunk over berkshire hathaway and they've owned it the first quarter owned if whale wisdom can be trusted is 2001 so they're long-term shareholders but highlights from the interview yeah we talked about the moat we talked about the pricing power we talked about the expansion into some other

things and we talked about why they've been so durable and the government regulation plus brand on how that makes them so solidified as an oligopoly with s&p uh and fitch let's talk about our sponsors for the show though seven investing they are presenting sponsor and our friends and They have seven recommendations, seven stock recommendations every month. We should say, because this will be coming out, I believe, December 22nd. So you might be listening to this at a later date. Our code, money, it's $100 off the annual, expires on January 1, 2023. So you've only got a limited time to use it if you want to.

Do you want to talk about what people would get with 7investing? Yeah. So with 7investing, it's in the name. you get seven stock recommendations each month and it's not just a recommendation it is also good research there's a lot of fact-based stuff even if out of the seven stocks they pick you don't end up buying any of them it's great to learn they have some good information they do a ton of research for that on top of that they do analyst calls on each of their uh picks where all the advisors get together talk debate the pick uh so if you want to go more in depth you

get that they get best buy now portfolio that might not be the exact name but they do you know Best Buys Now. Yeah, I think that's the name where they rate some stuff strong buy or hold versus their existing portfolio of 200 different research reports. On top of that, they have analysis articles, podcasts, tons of information, and they're very, very accessible. If you want to actually talk with the advisors live, it's extremely easy if you sign up for the service.

So use code money, get $100 off your annual subscription for life. Great thing to do to start during this bear market as we go into 2023 and beyond. And I believe it's on these episodes where we have the interview with the founder, Simon Erickson, at the end. If you want to stick around and listen to that for more information on the business. But remember, code is money at checkout. And without further ado, here's our interview with Joe Kowalewski. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff

on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Welcome in. Today, we are joined by now two-time guest. He's been on before, Joe Kowalewski. I hope I'm saying the name right. He writes his own Substack. It's called Investing with Joe and then .substack.com.

I believe it's all free too, right? At least at the moment, I don't want to make any false promises. yes all good we're talking about moody's but he recently had a write-up on there so if you want to pair pair this audio recording with his his write-up feel free um but joe that this is your first time on the show on your own um maybe give some background on i guess your investing career for for people that are maybe in the same shoes as you what how'd you get into this to begin with Yeah. So I started in college writing for Seeking Alpha. I just, you know, probably a lot of your guests just had a love for investing. And I started there and I met my previous boss on there and I worked for, we were in the retail investment management space. So we had a small

ETF and it was pretty, you know, it was pretty, we could go wherever we weren't, you know, tied to one theme. It was just find the best high quality businesses. So I did that for three years and learned a lot. And, uh, hopefully I'll share a little bit today about, you know, one particular business I learned a lot about. Okay. And that company is Moody's. I'm guessing that's one that a lot of investors are familiar with, but, um, how'd you, or do you remember when you first came across it as an investment? Yeah. So when I, when I first started following it closely, actually, um, I'm, I'm a huge fan of Dev Cantasara and, uh, Valley Forge Capital management do you guys know you're familiar with him yeah yeah his his style to me is very pure

it's it's very you know what i think every long only you know sort of red intelligent investor you know person kind of wants to kind of wants to be so he is a very you know concentrated portfolio he's only got about nine or ten stocks so i try to you know stay up on everything that he's doing he's only 13 f i really care to read even though things don't really change a lot from quarter to quarter. But Moody's was a big position of his. I kind of followed everything. And with the investing of Joe Substack, I kind of wanted to start with something that was really, really concise and sort of just the highest quality business possible. And Moody's was definitely at the top of the list at the time. All right. And this is a very old business.

I think it's important to provide some history of where it got to where it is today and why Is it the industry standard for, I don't want to spoil it, the business segments that they're in? Yeah, so it's the sort of the gold standard because John Moody, the founder of Moody's, was the pioneer, really, of bond ratings. And I think you can sort of think about Moody's in the early days, like the Sears catalog. Like the Moody's, you know, is sort of the place to go to get your information on stocks and bonds. And so it was really a long time. It was the catalog. And, you know, Moody's was the first. And then about 20 years later, you had standards and then you had Poor's. And, of course, those two merged and now are S&P Global. And then you had Fitch Ratings.

And by the time you got to the 1920s, Moody's was really rating, you know, all sorts of everything, every type of bond. And, you know, Moody's is older than the SEC, but the two have really been sort of intertwined throughout their whole history. If you go back to when the SEC was started in the 1930s, banks were required to hold investment-grade securities. It was looser then, but it was investment-grade based on these manuals. Of course, there was only a handful of manuals, which were Moody's and S&P and Fitch. By the time you got to the 1970s, it became a little more ingrained. got the title it's a nationally recognized statistical rating organization and um the first

sort of really um serious requirement was broker dealers had to be you know their capital requirements were based on ratings by you know one of these three businesses so really for the history of moody's it's kind of been written into you know u.s regulation and really since the 1970s the the ratings business hasn't changed i mean pre then like i said it was a catalog beforehand and then you know the 70s is when it started charging issuers because they had you know sort of problem you know if you have a manual and it's just out there you know everybody can copy it or whatever and send it all around so moody's figured out hey you know our people were getting our stuff for free so we're going to charge the actual issuers that are you know issuing debt to uh

you know instead of instead of the old model do you there was a you had a really cool quote in your moody's write-up do you want to share that yeah that's let me see thomas friedman uh essentially he compared you know moody's in the u.s to the the two superpowers and uh you know it's even uh you know like credit score personal credit scores credit's really everything for a business i mean you probably see that now with i don't know the cryptocurrency exchanges came to mind right like they have no credit nobody wants to bail them out because they're worthless right Like your credit is everything. So if you figure, you know, companies getting downgraded their bonds, it's really destructive of them to pay higher interest rates. And so, yeah, it's really neat to think of Moody's in that regard.

All right. Let's let's talk about the different operating segments, because it's most known, I think, for the credit ratings component. but there's some other elements to the business as well. Why don't you talk about each of those and then maybe the economics of each also? Yeah, so like I said, ratings is the main business. It's about 60%. The rate it's been hitting hard lately by macro stuff, but in general, it's about 60% of the business.

It's more transaction-based. So issuers, your company or your municipality or your financial institution, and you're issuing debt And Moody's will charge you per, you know, per issuance. And then the 40% of the business is Moody's Analytics. And they stopped breaking that out for the quick on the rating segment. They kind of break that out a little bit more.

They, you know, they break out each sort of segment. They go the analytics business. They used to break it out between, I think it was like enterprise risk management and one other segment. Now it's just called Moody's Analytics. And that's more of a SaaS, you know, base model. it's definitely been more resilient it's you know still growing in the downturn who's who's kind of the typical customer from moody's analytics um it's mostly like financial

institutions uh any sort of any sort of debt buyer any you know large mostly debt because that's their that's their proprietary data right is you know the bond so that's yeah Okay, that makes sense. Are those the only two? Yeah, two segments. And then if you look at S&P Global, that's sort of the difference between them. Their rating business is only 25%.

And then they just had this big merger. So that's why I focused on Moody's a little bit more because the ratings business is a little cleaner and that's 60% of their business. Whereas you look at S&P now, this big merger, it's only 25% of the business. Right. And I'm assuming the margins are high.

I believe I've seen it thrown around the pay half somewhere, and correct me if I'm wrong, 60% or so profit margins. And we all know that this business is extremely asset-light, but what other costs? Is it mainly employees? Do they have to procure data? Something along the lines, where are all the costs coming from? Yeah, it's mostly, it's very asset-light, all mostly employees. I don't think Moody's gave an exact number. I know S&P on their last earnings call said 60% of their call space is employees. And I'm assuming the rest is just infrastructure and data sourcing and that sort of thing. Gotcha.

So the operating leverage on this, as probably people can see from the long-term charts of their margins, is quite strong. Let's talk about the remote, though. I think this is the most important thing for a business like Moody's. How strong is the competitive advantage and where does it come from? Yeah, like I said, it comes from all the government regulation. I see that question comes up on Twitter all the time. I see people, oh, this business or I think one of you guys might have been talking about the other day. You know, what's the most moody business there is? And, you know, even even the big tech companies, there's nothing promising that, you know, Apple's going to exist in 100 years or Google's going to exist or Amazon or any of them.

Whereas when you have a company that's written into government law, and then Moody's had a pretty disastrous 2008 scenario where their models were just completely wrong on everything housing-related. And so you go through that and you think, well, something's going to happen here. There's going to be an opportunity for somebody else, or this is going to get cleaned up. And there was there was some little things, I think, with their business. You can look, they have more employees now than they did then. So it's a little less efficient. So maybe there's some more compliance. But really, there was there was just no there was no effect from from, you know, a disaster

situation for them. And, you know, 100 years from now, you know, a lot of things are going to change. You know, if you think about 100 years ago, Moody's was founded, how different the world was. And, you know, you can see the technology we'd be using 100 years from now are different. But I think the bond rating will largely be the same and Moody's will be at the center of it. Has anyone tried to compete with them besides we do know there's S&P and Fitch? Has there been anyone that's actually tried to compete and had any sort of success or say the last 50 years?

No, there's I mean, there's seven other, I believe, businesses that are classified as nationally recognized statistical rating organizations. But yeah, I think Morningstar might be one. That's probably the only one you've heard of. The other ones, nothing, no traction. I think Moody's and S&P have about 90% market share. Gotcha. And has that stayed, you might not have the data in front of you, but has that market share been stable over the last however many years?

Yeah, there was stats from, actually, I think it was, I mean, even higher. I think there was stats post great financial crisis. I think if you add Fitch in there, it was like 97%. And then they did the same study a couple of years ago and it was like still 97%. So yeah, they've been really dominant. I think they do say S&P is a little bigger. If you look at like third party data stuff,

they say S&P is a little bigger than Moody's. But if you just look at top line revenue, they're about the same size. So I mean, you're getting really the same business between Moody's and S&P ratings. And is it just the, if a company came to, let's say, the Ryan and Brett Credit Ratings Agency to get their bonds rated, is it just the fact that no one would buy them? And our reputation isn't out there for decades? Yeah, I mean, the first thing you'd have to go through is go through the government and somehow get the proper classification so that your ratings would mean anything.

And then, yeah, I do think the second part of it is just the network effects, right? When you think of it as a risk model, the risk model is going to get stronger the more ratings that you do. So I'd imagine, too, that there's – and then there's, of course, some of the stuff that people just keep using it. But I think the risk model part of it is important where it gets better over time. And the more companies that get rated, the more accurate it gets. how's the current rate regime impacting moody's business and then what sort of impact do you think it'll have on them moving forward yeah it's it's been rough i mean people people sort of joke about you know everything being like a low interest rate trade

and you know moody's did benefit from you know low interest rates i mean when interest rates are low there's more people in the debt market so the way the way that the business frames it sort of you know you use debt to grow your business you have a couple options you can use cash you can use equity you can use debt and uh in the current environment when rates are going up you know debt obviously becomes a lot less attractive and you see sort of companies you know stop spending so moody says you know the two big things for them is either the rates start to come down so costs come down to borrow or the second thing is economic growth accelerates and over the past year you've you've seen the opposite happen, you know, where, you know, economic growth rates are slowing and

then rates are rising. So at some point, though, I mean, if you're going to you're going to see growth accelerate and probably rates come down, too. So that's the point when you start to see, you know, the higher quality issuers come in. So your bigger companies and then sort of the smaller companies, the junk bonds are sort of last. Everybody kind of follows the higher the higher quality issuers have the municipalities or governments continued to issue at sort of a similar rate or is that still come down to that is a great question i am not i'm not too sure um i feel like the infrastructure bill could help a bit i know that's not going to be a huge driver for them but it could help you know right it's definitely it's definitely held up uh on the last

call they did mention you know what sort of will have the biggest rebound they did say corporate because corporate has slowed i imagine the government business has been more resilient i'm not too sure on you know well government i mean government's usually very inefficient so i'm not too sure they're sitting and looking at the slowdown being like oh let's you know let's stop this for a while i don't think there is they don't have they don't really have shareholders to answer to i mean they have the american public but the american public just you know like you know spending and that's why politicians want to spend but i don't i imagine it's more yeah it's definitely more resilient okay so you talked about the cyclical part uh in your write-up

but you mentioned that over the long term debt issuance has been a secular grower over say the last century plus this might be a dumb question for listeners that are more astute financially but why does debt issuance go up decade after decade? And can you maybe playing devil's advocate find any, is there any reason that would change? Yeah. So I guess in simplest term, the best way to think about it is if you think about John Moody, you know, in 1900 and what, what sort of companies was he doing ratings for, right?

Back then it was like the railroad boom, right? Like technology, the internet over the last 20 years is what the railroads were, you know late 1800s early 1900s so if you think about you know the size of those companies i think u.s steel was the first billion dollar company you know that was i don't know maybe 100 years ago and now we have uh multiple companies that are trillions of dollars so that's sort of you know just general economic growth and you know even you can look at you know what were the top i know there's always stats about the top 10 largest companies in the sp500 how they changed you know 30 years ago, they're completely different from now. And that's the good thing, you know,

if you own a stock like Moody's, trying to find things that are really high level tailwinds. And so it doesn't really matter, you know, I mean, everybody, you know, if you guess now, everybody thinks Apple is going to be in the top, you know, 10 stocks or whatever, 30 years from now, and Google and all those companies we talked about, but even if they aren't, you know, whoever the top 10 are, Moody's is going to be rating their debt. So this is, again, part of the owning 100-year business is part of it. How do they price? I mean, I guess, what's their pricing model?

Is it just a flat fee? Is it a commission on the amount or on how much debt is being issued? Yeah, it is based on debt issuance. I think their cheapest ones are a few thousand dollars. And then their biggest ones for big companies are millions of dollars. uh there was i have a quote in the or a you know piece in the sub stack right up there was an article somebody on twitter posted from like the 70s and uh and there it was like they're at their take rate on debt issuance was you know one basis point and i think now uh last year they're up to

like seven basis points too so there's definitely you know you talk about the high level tailwinds you're getting from all this growth and then you're you know you have a government regulated oligopoly call it that can kind of keep raising that take over time. Makes sense. What about, I guess, the push into ESG? I know we talked about this briefly before we started, but what are your thoughts on their push into that? And then do you think, or do they have any expansion plans into other business segments? Yeah, so they talked about on the last earnings call, it's tough. The analytic stuff is really tough to analyze because it's so sort of diverse.

They have a ton of different products. And like one product they have, most of this is acquisition. One is like a climate risk model. So if you think about insurance companies, you know, they're always trying to analyze, well, like, where's the flood zone at? Where's the wildfires happen at? And so they're very acquisitive in this. And, you know, sometimes it can be better for Moody's to sort of be able to cross-sell.

So we'll see what happens with the ESG stuff. I think for now, it's sort of a good cross-sell opportunity. Like I said, they'll buy things, you know, so they sort of establish better relationships with certain customers. And then they have this kind of big suite, sort of your typical, you know, mature software business type model. I'm not sure there's anything special with some of the ESG and risk modeling stuff. Okay. And you mentioned the price increases.

I think one thing anyone worried about Moody's would possibly think that they've maybe increased prices too quickly because you mentioned the one basis point versus the seven today. Do you believe this can continue? Is there any reason they can't get to 10, 12 basis points over the next couple of decades? No, I don't think I think they can. I mean, you know, going from one to seven in 50 years, you know, there was a lot more relative growth there than there probably will be over, you know, the next 50. But I do think, you know, it's still a very, very small portion of, you know, of their total debt issuance. So, yeah, the 10 to 12, you know, 15 bips over decades, I don't think is far-fetched at all. what uh what do you think of management and uh their capital allocation strategy so far

yeah so that's one part like i said that that's mostly the analytics the ratings business is so good it's been the same for 50 years so it's hard to mess up um that if you listen to their conferences uh that they emphasize a lot on the analytics side it's really tough and they do spend a lot of money. It's more than I would like to see. I just had a write-up today on Visa and Visa is much more capital efficient, also very high margin business. But Moody's, it's something to pay attention to. You know, you don't want your free cash flow being spent on junk. I mean, you see that, you know, a lot of companies now, I mean, Facebook comes to example, right? Like they're outburning, you know, but I don't think Moody's, I mean, I don't think they'll ever get to that

that sort of level, but you definitely, you definitely want to be cautious and suspicious of acquisitions and try to pick up as many nuggets as you can and follow up closely. But yeah, there's, there's still a lot, you know, there's still a lot to learn there because there's a lot of different, a lot of different products. Now is their management team, uh, have they had a lot of executive turnover or has their current, you know, CEO, whoever been there for a long time? Yeah. Rob Falber is the CEO. He's been there for about 20 years. He took over CEO I think he's only been CEO for two years or so, but it definitely seems homegrown. I think a business like Moody's isn't like, you know, a software business where it's more like, oh, you find a guy that did this industry really well before.

It does seem to be very, you know, executives working their way up. Okay. Now, oh, do I need to follow on that? Do you think anyone could run this business? is this like that what do they call it ham sandwich hey this is one of his largest holdings i think or maybe top 10 so yeah to be honest yeah i mean it's tough to say i mean that's i know it's tongue-in-cheek right not everybody can run it i mean it would be the the ratings business is i mean you could probably screw it up if you want to i think there's a lot of businesses you know

like you could you could get on somebody's bad side like at the sec and that that wouldn't be good but i you know the people that they're hiring you know they're going to be pretty reasonable with it i think it's you know it's pretty hard to mess up right the political stuff has to stay a bit nuanced you got to be good at that stuff uh let's talk the actual stock valuation uh we're sitting here i believe and correct me if i'm wrong i'm looking at koi finn market or enterprise value is about 60 billion dollars as of this recording what needs to happen you know for this to be a good investment. Can they return to their historical margins? And I guess what sort of earnings multiples or earnings multiple are they trading at currently? Yeah, I think though,

you know, you've seen margins compressed, like you talked about earlier, there's a lot of operating leverage in the business. So I think as the ratings comes back, I think their free cash flow margins are, you know, around 30% plus. And I think you'll see that again, it might take a little time for the issuance to come back. The stock where it's at now, it's not a pound the table buy. I would say it's a little bit expensive. I'm looking for 25 times free cash flow, sort of the range where I think it's reasonable. It is cyclical. So that's kind of the hardest thing to value because you don't really know you know it's very durable so it's going to get a durable multiple you know but then on the other hand it's cyclical so you don't know exactly how

much cash you're receiving like this year i mean i think free cash flow they're supposed to do you know a billion to 1.2 billion so now on that if you you know it's cyclically depressed of course but i think it's trading at about 45 times so i mean that's a you know depressed multiple but it's still a little bit expensive. Again, I think it's a hundred year business. So it's one that there is a price that you definitely want to be buying at. And I think it's just, you know, you kind of have to sort of watch it and be, you know, it's a little more trader-y, right? Like you got to be a little more conscious of, okay, let me buy a little bit and then, you know, sort of watch and see where things go. Is the fact that it hasn't fallen as much as

the credit ratings have? Is that a testament to just investors knowing the resiliency of the business? Yeah, I think that's definitely part of it. A lot of people, you look back at some of the valuations during the great financial crisis. I can't imagine. I think it was Chuck Ockray or somebody was buying these businesses then. I imagine if we were to roll the clock back 15 years it looked pretty bleak for them i bet nobody was like oh they're going to be completely unscathed you know their margins are going to be 30 plus free cash flow you know 10 years from now so yeah i yeah yeah all right um i guess this is an important question because it sounds like this is kind of unbreakable of a business like that's the narrative right

Yeah. How would this not succeed? How about a two-part question? How would an investment in Moody's go poorly, let's say five, 10 years out from now? And then how would Moody's ever fail? So I think the biggest negative, and you would have to be very bearish on the US economy, I think you would say debt has peaked. So 2021 was peak global debt. We're not going to have more issuance. That is really the bear case for Moody's. But again, that's very, very macro. uh and as far as you know the company breaking you know maybe there's some other rating agency that can come up i mean there's there's a lot of startups out there that are kind of doing the same thing you know in tech like somebody somebody should try right why not why not go out and try to get your uh nrsro uh license from the government and see what happens but other than

that i really it's it's really macro i mean in a situation like that where you see like global deleveraging i mean it's going to get you know the multiple is going to get a haircut and you know rating the business might have peaked right but i think you have to be so bearish that if you really believe that like you shouldn't own any stocks like you should own i don't know you should go buy land or buy something or be short something you know so moody's i think over 100 years is just I mean 100 years is a long time but I think over over the long run you know should just kind of squeak out better than the S&P 500 and I think that's all the goal for I mean personally I mean I've lost a lot of money I think everybody's you know a lot of people have done terrible this year

and that's really the goal is just to get a little bit better return over decades that's what Buffett did I think that's the right way to do it and I think Moody's if that's what your goal is is definitely a good opportunity to look into now do you think just a quick follow-up there do you think an advantage for moody's is that the business and the industry is so boring yes yes i mean it never gets that's part of the reason it never gets you know super expensive right like when you get people that are really excited to own things i don't think anybody's really excited to own moody's so that gives you that gives you definitely better entry points I think if you're, if you're thinking about, so, so even like I said, you know,

we're looking at it right now, it does look expensive, but I don't think it's ever, you know, but super bubbly and crazy and that sort of thing. I think it's down to the NASDAQ this year. All right. Well, that interview went kind of quick. So maybe, let's talk a little bit more about I guess your investing. What, I assume you own Moody's. What's the sub, yeah. Tell us about the sub stack.

What are you running over there too? It goes along with that. yeah so today i just i just posted one on visa um i'll back i'll backtrack so i did moody's first the second one was meta facebook it was called the journey from uh facebook to meta i really think that's a good title for it i wanted to summarize you know where i look my last place of work that was our biggest position for most of it and you know it's tough because when you say oh like zuckerberg just you know blowing all this money on the metaverse and all it's like that's not why we bought it in the first reason. I mean, maybe there's some people that bought it like that, but really, if you think about three years ago, Facebook was amazing, right? If you think

about buying anything on the internet, e-commerce is growing faster than retail and you're looking for where's the best funnel to own. And at the time it was Facebook and they had the best ad targeting. And it's really amazing. I mean, as an investor, you got to take responsibility for your mistakes and you want to be really honest with yourself and you know you look back and of course there was like warning signs along the way what facebook was going to become but in the beginning that the thesis changed so fast and when when you look back and it's like oh it's three years it wasn't that fast but when you're when you're owning it you're following it every day it's it was fast it didn't seem like it was like oh you trust management team they're really

responsible. And then you look back and you're like, wow, how fast, you know, they change really fast. And now all of a sudden they were doing a buyback program and they spent $50 billion buying the stock, you know, at $300 and now it's at a hundred dollars. And it's like, how did that happen? And some of it is to the environment. I mean, I always think about, you know, people were buying pictures of rocks for a million dollars and, you know, I own some expensive stocks. I'm like, oh, I'm not the idiot that's buying the rock pictures. I'm fine. You know, my stocks are a little bit expensive, you know, if they go down 25%, like whatever, you know what I mean?

But then you look and you look at Facebook and it's like, well, the management team also bought into the bubble. So then they started investing your money where you didn't really want your money. And then all of a sudden your stock that you thought was a good investment is now 70, 75% off the highs. And that's just been, it's a really humbling experience. And, you know, I wish more people would share, you know, their, their, uh, because yeah it is it's it's really you know you got to make mistakes it's like anything if you if

you want to be good at it i mean you know you got to make mistakes and that was one mistake that i made and and learned from and i wanted to so with the sub stack i kind of wanted to share you know that whole that whole journey you know of sort of understanding that and you know hopefully hopefully somebody can get some lessons out of it i i think a lot of brett and i have talked about that ourselves too is i'm seeing a lot of that meme where it's that person with the champagne bottle and he's popping it on like the podium and then they zoom out and he's on whatever fifth place or he's the lowest there we're like everyone's taking victory laps because more people have because other people have lost money but you know most most of us haven't won most of us are not

shorting or in energy so yeah but that's a good pitch investing with joe freeze we'll link in the show notes make sure to check it out i'll just say if you could draw a lesson away from meta specifically to apply to your investing philosophy moving forward is there anything i know it's kind of a one-off case but no i mean i honestly like i mentioned in the beginning the valley forge guys it really is looking for something businesses that are just like unstoppable and the valley forge guys are pretty you know conservative and i mean moody's is like rock solid but i think you know especially for younger investors that have another 40 years of their career left i do think it's in looking for the businesses i don't think you're going to find another moody's or

another visa but i do think there are businesses that are have signs of being having similar competitive positioning that can be around for a long time. Adyen is one, Adyen, Adyen, where it's like very low, lowest cost provider. So there might be a sub stack right up on that coming out. But I do think there's ways to find businesses that are more, you know, growthy, that have more growth left in them. I mean, the Visa and the Moody's tailwinds are sort of understood, but I think it's taking that really base level of conservatism, which is kind of what I was going for with investing

with Joe is starting at the things that are the true things. So Moody's, Visa, and then kind of venturing and seeing like, well, what are businesses that are a little bit further up on their S-curve that kind of have similar characteristics? So that's sort of where I'm aiming for. All right. Well, I think that's all the questions we have. You mentioned the sub stack and we'll link to it. What are some other places that people could get a hold of you or keep up with your work? Yeah, primarily Twitter. My handle is investingwjoe. And then like you said, the sub stack. So yeah, DMs are open and I feel free and always happy to chat stocks with anybody. Perfect. All right. Well, that is going to do it. We want to remind listeners that Brett and I are

not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital. So clients may have positions in the securities discussed in this podcast. Thank you all for listening. Thank you, Joe, again, for coming on the show and we will see you guys next time. Hey, Simon, we wanted to ask you a few questions about Seven Investing so listeners could get an idea of what they're getting. What inspired you to start the company and what exactly is of investing. Well, hey, Ryan, thanks again for having me. From years of working in the investing industry, it was inspired by conversations with people that would just always have kind of the

same negative perception of the stock market, right? It's too hard, or I don't have time for this, for this to stack against me. And those conversations kind of led me to say, hey, we need to create a site that actually does inspire people to say, you can take control of your financial future. You can invest in stocks. You can find good stocks to buy and hold for long periods of time. And at the end of the day, too, we know that everybody is different. We don't believe that there is one stock that fits for everyone, right? Maybe you're a dividend loving, paycheck cashing income investor that might want an option that's going to be a lower risk dividend paying stock, especially right now with the economy being what it is. And then other people might

say, hey, I'm ready to hold on for 20 or 30 years. I want to take some swings for the fences. let's go after those high growth opportunities. And so I said, you know, this would be something that would be even more fun, rather than just doing educational and by myself. I said, what if I brought together a team of seven advisors, all with a diverse background and a diverse perspective of the stock market, so we could uncover more stones and look at a bunch of different stocks with a bunch of different investing styles and a whole bunch of different industries. And so 7investing is kind of the genesis of all of those that we started in March of 2020. And we said, let's look at a whole bunch of different stocks. Let's do the legwork of the

analysis. And let's present our seven favorite actionable ideas every month for investors to choose from. And let's start the conversation about which of these stocks is right for you and which one might be the right fit for your portfolio, knowing that investing is a very personal thing. All right. If you are a subscriber of 7investing, what do you get? Can you give an overview of what subscribers get? On the very first of every month, Brett, we release our seven new recommendations. So we are coming up on October 1st here, at least in the recording of this. And on October 1st, we'll release seven recommendation reports. Some of them will be low risk. Some of them will be high risk. Some of them will be biotech. Some of them will be

financial services, we run the full gamut. And as a member, you get immediate access to all of the new reports. But you also get access to all of our old recommendations as well. We track all of them in real time on our scorecard at 7investing.com slash recommendations. And we also provide company updates on all of those previous recommendations as well. We check in on how things are going. And sometimes we even see red flags that we think people should be aware of. There's risks for any opportunity at the time that you recommend it. And sometimes it's really needed for investors to kind of understand the risk and reward relationship. And then the last part of it is in addition to issuing new recommendations and providing updates on them is we know that

this is a long-term journey. We know that investing is something that we want to take years, if not decades, to accomplish whatever we want to get to as the end goal. And so we always, every month, make it a point to be very available for our subscribers to ask us questions. We have a members-only call right in the middle of every single month. We have a community discussion forum that we have available 24-7 to not only talk to our advisors, but also other investors. I think that's one of the key differentiators for 7investing is that we know this is a long-term journey. We know it's a very personal thing. We know they're going to have questions along the way. We don't want to just broadcast stock picks and disappear.

We want to be here with you throughout this entire journey. And you mentioned, so seven recommendations each month. Sometimes those might be repeats, but obviously there's a lot of companies now in the 7investing universe. So how do members get a grasp on the advisor's conviction around certain ideas? Like which ones do they have a way of knowing whether advisors like certain ones more? That's the most common question we've gotten actually since we started is what's your favorite ideas right now? We've done the diligence on almost 200 unique companies now and put them on the scorecard.

And people would say, hey, this is too much to keep up with. How do I even know where to start? And so we've kind of evolved as a company. One thing that we've started doing is best buys every month. Each advisor gets to pick any of their or another advisor's previous recommendations and put the flag on it that says, this is my best buy for October. And we publish those for subscribers. The other thing that we've started doing is issuing conviction ratings on companies that

are also right there on the scorecard. So if you see a previous recommendation, we go everything from potential sell, which is the most negative flag we can put on a stock, to strong buy, which is the most positive bullish flag that we can mark things with. And you can filter through all of those to really quickly see, here's some of our favorite opportunities. And we've taken this even one step further now, Ryan, which is we've created a strong buy portfolio, where every quarter now, we've gone ahead and self-selected as a team through

pretty methodical process, our 20 favorite ideas, our 20 highest scoring companies that we've collectively come up with, our favorites of the entire scorecard. And we put these into what we're calling a strong buy portfolio that we publish each quarter. Also available as an added benefit for no extra charge for seven investing members. All right, last question here. What does it cost to become a seven investing subscriber? And as we'll talk about, or we have talked about before, if you're a listener, use code MONEY to get $100 off your annual subscription. That's right. We do have a monthly option. You can come in and check out the entire scorecard for a month just to see what you're looking at for $49 a month. But our most popular plan is

actually the annual option because it's at a discount to that. In fact, we've got a discount on the discount, like you mentioned, Brett. $399 for the year is our annual option price. But if you use MONEY, the Chit Chat MONEY promo code, it's down to $300. So you're basically getting the subscription for half price, if you sign up for the annual offer with that promo code, that does not expire after the first year. As long as you remain an active subscriber, you get to lock in that $100 off a year benefit. All right. Well, as he mentioned, use that code money. Thanks for joining us, Simon. Thanks very much for having me.