Chit Chat Stocks - Musk TikTok Takeover? Analyzing Cheap Alcohol Stocks; Meta's New Layoff; Ackman's Latest Antics

Starting point is 00:00:00 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 hours i am one of your hosts ryan henderson and i am joined as always by brett schaefer we've got a lot of news on the docket this week kind of uh news is starting to pick up again right before earning season we've got a layoff announcement from a company that is already doing quite well

Starting point is 00:00:56 but nevertheless they are trying to cut low performers we'll talk about that we've got a little bit of a starbucks news not really it's kind of just a progress monitor i guess for our new ceo brian nickel there we have a certain cohort of companies trading at their lowest valuations ever which i'll talk about and see if we can see if you're interested at all brett And then we've also got a CEO, I guess, resignation, we could call it, and a bunch of other news items. But I guess I should introduce you, Brett. Welcome in. How are things before earnings season heats up?

Starting point is 00:01:37 Yeah, excited to talk. We talked a little Delta last week. Thought that was a good indicator for the consumer economy. I saw that the banks reported this morning or last night. they seem to all report at the same time. And I can never really tell why. It's not really my, I don't like looking at the big banks. Plenty of people do. I'm more of a smaller financials guy as Ryan is as well. But seems like, hey, everyone's happy with that report. Inflation is fine. It's not a thing anymore. And we're chugging along with it. We got small cap of the week. We got

Starting point is 00:02:12 what I'm calling Brett's bubble watch, which I think I have a fun anecdote that Ryan is either going to laugh at or shake his head, maybe both, but excited to get started. Before we do that, I want to mention our friends at Public. If you're serious about investing, you need to know about public.com. That is where you can invest in everything, stocks, options, bonds, crypto. They even have some of the highest yields in the industry, like the bond accounts, 6% or higher yield that remains locked in even if the Fed cuts rates. What sets Public apart is how they give you the tools you need to make informed investment decisions. They're built in AI tool called Alpha. It doesn't just tell you if an asset is moving,

Starting point is 00:02:52 it tells you why the asset is moving. So you can actually understand what's driving your portfolio's performance. Public is a FINRA registered SIPC insured US-based company with a customer support team that actually cares. Bottom line, your investments deserve a platform that takes them as seriously as you do. Fund your account in five minutes or less at public.com slash chitchat stocks and get up to $10,000 when you transfer your old portfolio. That's public.com slash chitchat stocks paid for by public investing. Full disclosures in the podcast description. Brett, where do you want to kick things off? Well, it seems like all my news items are something around just conflict, pettiness in the executive suites. Maybe, maybe this,

Starting point is 00:03:42 this is something that's fun that'll maybe get people into the show the tiktok ban why don't we do that first that seems to be the most exciting one that people are the most interested in and as always no matter what sort of thing is going on of course elon musk is part of it oh of course the uh yeah do you want i guess for anyone that is not keeping up with the tiktok tiktok ban where are we at i know there was a decision to a decision to force them i guess to sell off their business and then there was an appeal process is that concluded now well i don't know the exact timeline from you know the lawyer and law and the court stuff but i do know some stuff i've read from you know sources in the chinese communist party what the companies

Starting point is 00:04:37 decided to do, what the U.S. government and the Supreme Court has decided. And essentially, for anyone that doesn't know, the TikTok divest and shutdown law is set to take effect on January 19th. So honestly, I think this is when it comes out, when this show comes out on Sunday. That's the last day. So it looks like TikTok is not going to divest itself from its Chinese parent company. And if we look at the odds that the TikTok ban law will go through on the betting markets, I think it's called Kalshi, the one that is really popular with election betting and random betting stuff, the odds have soared to about 75% now. So it's not a cinch.

Starting point is 00:05:21 So there's still some uncertainty here, but it looks like it's much more likely than people thought a month ago. However, and I thought this was quite interesting, reports are coming out that China is now considering selling to a trusted U.S. person. Here's a quote. Chinese officials facing a looming U.S. TikTok ban have internally discussed options, including the possibility of allowing a trusted non-Chinese party such as Elon Musk to invest in or take control of TikTok's U.S. operations. People familiar with the discussion said, second quote, the Chinese government hasn't communicated with ByteDance about the contingency plans it has considered, the people said. Beijing wouldn't order ByteDance to sell the app to a specific investor, but it has a key role to play in the discussions because China's export controls require government approval for the sale of domestically developed algorithms for recommending content to foreign entities. That last quote is a bit damning, but I know we don't talk about political and that type of stuff on here.

Starting point is 00:06:28 So let people decide for themselves on that one. I think the Musk thing is interesting. And do you – he seems to be – have good relationships with like every leader worldwide. Is that his competitive advantage is just becoming friends with every single president, dictator, whoever around the globe? Yeah, I guess. um i mean he didn't seem to have very good relations with the past well the current administration in the united states but it's uh yeah i wonder why he's a trusted advisor or a trusted person to the chinese government um but maybe it's because he's uh moving a lot of his

Starting point is 00:07:10 production abroad so it is yeah it's kind of i kind of hope he doesn't get tiktok but whatever i guess if he does it doesn't really affect me i don't use tiktok um the i also saw that mr beast was thinking about trying to make a bid i know he's got a lot of money but he definitely doesn't have that much money no it would be uh like he runs it financed by other people he said all the youtubers i would like every single youtube prankster and all these the the crazy channels too they should just join together as kind of a not a gofundme what were those called um kickstarter they should basically do a kickstarter and buy it out take all the audiences over yeah he posted uh he's like should i buy tiktok which yes you're right he does not

Starting point is 00:08:05 have well he probably does not have the funds to do that on his own but uh he said shortly after posting that he got a bunch of messages from people that could afford to help finance that acquisition and said he would they would be they'd love to be a part of it um either way it just i don't know i kind of hope it dies a bit like dies off maybe that's like i just don't really see the value and it would be very good for snap meta and google if this ceased to exist in the u.s yeah that's fair i know that's the obvious beneficiaries here let's there's not really much else to talk about this we'll see what happens but i want your hot take and i'll give out my own too will we actually get the tiktok i know it's not technically

Starting point is 00:09:07 a ban but perhaps the divest and shut down law will it go through without any changes here what are your thoughts yeah it seems quite likely i i would suspect that it goes through it's it isn't it isn't a ban i guess uh but it is a ban yeah so um yeah i think it's gonna go through not a ban a forced sale that's in consultant speak yes yeah well first divestiture yeah forced divestiture all right we have some questions in the chat for anyone that doesn't know we do these live on youtube every wednesday well about say 98 of the time on wednesdays at 1 30 p.m eastern time on youtube so you can ask us questions there let's see let's say this layoff one from when you hit the meta one um how do you think the ccp will react to the tiktok man will they

Starting point is 00:10:05 punish american companies in china such as tesla or apple i think elon might be trying to curry favor to not have that happen i i'm not sure what the punishment would be because almost every u.s company is already punished they're not able to operate so especially any communications company and it's almost like evening the the playing field if you think of it that way yeah let's uh let's shift gears a bit here the uh do we want to talk about the layoffs sure meta getting more efficient i think eventually once these ai things scale up right they're just gonna uh fire everyone and the only person working there is going to be zuckerberg that's probably the end goal it is it's interesting because they margins are really strong relative to what they were two years ago

Starting point is 00:11:02 before the change in ad tracking and when they were really deploying a lot of capital to the metaverse, they still are, but they've seen operating efficiencies elsewhere throughout the business that have helped margins expand. And yet, basically, there was an announcement this week that Meta is planning to cut its lowest performers, which equates to, I guess, 5% of the workforce.

Starting point is 00:11:28 um this i'm curious like what do you think of zuckerberg here it feels like and and this is not us championing or uh i guess cheering for any sort of layoffs but he seems to be hyper focused on efficiency, I guess, at the moment. And it sounds like maybe he saw some benefits from the last layoff. So for context, the workforce is still 17% smaller than their peak, I guess, roughly two years ago when they had, I think it dropped from around 80,000 something to 70,000, uh, employees, they're going to cut another 5%. I don't know thoughts on Zuckerberg here. Obviously shareholders have been relatively happy about this news, but, uh, any thoughts? I don't know if I have any thoughts on Zuckerberg, but I don't know if this

Starting point is 00:12:34 lay off if it's a workforce workforce reduction based on merit or what do they say the worst performers of the company are going to get laid off is that even news i thought amazon did this every year i thought netflix did this every year good good that meta's taking it up it seems to be the best way especially with a large company where a lot of you know when you're hiring a lot of it you might get some people that aren't qualified slipping through the cracks, right? If you find that there is someone that's not doing really any work, and I've seen this anecdotally across a couple of times, especially someone that lives in an area with a lot of tech workers, you have people working three or four remote jobs. Like, yeah, let's get rid of those people. I have no

Starting point is 00:13:23 sympathy for them. Of course, on an individual level, if you're a hard worker and stuff like that yeah it sucks to get laid off but this seems to be a good way to run a company you maybe not five percent every year but shouldn't you be looking at you know it's not a big family shouldn't you be looking at some of your worst performers and saying well you're not cutting it you got to go find work somewhere else yeah and it does i mean there's i guess at any any company of this exercise has to basically fight against slowing down, like bureaucracy, letting that creep into the company, making it, you know, having all these different chains of command where it's hard to really innovate because you're reporting to someone who's reporting to someone, yada, yada,

Starting point is 00:14:10 yada. And I think this is probably one way to do it to keep people incentivized or I guess working hard and not just kind of relaxing their job. I guess the announcement was that they want, apparently Zuckerberg wants to be quicker about cutting the lowest performers. Not really sure what exactly that means. More Amazon style. Cause I think they regularly do it. Yeah. And that's why a lot of people don't necessarily like working at Amazon, but hey, it's worked well for them. I guess it's a high stress environment. We have a question in the comments. Should Google lay off 5% of their workforce. Maybe, I don't know. I actually, I'd say probably if they have the same issue of just like 10 to 20% of the workforce doing nothing. Yeah. And if that was prevalent

Starting point is 00:15:01 across every Silicon Valley company, they probably have that as well. And Zuckerberg and other ones like Spotify CEO, Daniel, like has talked about this too, is saying they, when they got smaller, they actually were more productive holistically, not even on a per person basis, but entirely. So I think there was just a, maybe a decade long period of falling asleep at the wheel from a hiring perspective. And now they're actually focusing on getting a good ROIC and not just having a bunch of your workforce sitting around doing nothing all day. Yeah.

Starting point is 00:15:37 I mean, it makes sense. Like I said, we're not rooting for layoffs in any capacity, but it sucks if you work at a company where there are so many layers to actually creating – like getting products to market and it just adds friction in the process. There is a point where like, obviously, when you're smaller, you add people, it adds capacity, it adds your ability to kind of release new products, it helps, you know, to bring on new talented employees. At this size, it probably slows things down to just have one layer of command after the other. I would be surprised if – I guess I wouldn't be surprised if the product velocity at Spotify and Meta and a lot of these other companies that have conducted the layoffs have dropped at all as a part of this. Now, when you look out – I was looking across basically all the big tech companies that conducted sort of broad-based layoffs. Shopify, Spotify, Meta, Amazon I think did a big one in 2022. Salesforce did a big one.

Starting point is 00:16:52 The improvement to operating margins is very obvious and it's easy to quantify. You can just look at the operating margins. Salesforce in particular is like the starkest contrast of all. Um, but I wonder if there'll be some long-term effects in terms of product velocity that ultimately, uh, hurt the business. Cause right now it doesn't seem like there's been a much of a negative impact. I don't think so. I don't think so.

Starting point is 00:17:24 They got a lot of people there. I know people that do nothing, literally nothing at these places. Like there, you know what I mean? When I say do nothing, I'm being literal. They organize – they need people to organize the people. No, I'm talking about engineers. Products, you know, they don't do – This is – yeah, hearing stories like that, watching as we've kind of gotten older, we've probably seen more people that work in companies like this that are at that size.

Starting point is 00:18:03 It gives me a better appreciation for the innovator's dilemma. Like the – when there's a smaller company hyper-focused on a certain product, that's a huge advantage over working at some giant company. And then everyone always says, why can't – oh, why can't Adobe or why can't whatever just replicate this? They have the resources. it's like you don't just get the free you don't get the freedom to go out and just explore whatever projects you want you basically are just like at the whim of of the person ahead of you pretty much all the way through the organization so it makes sense why companies can scale up fast especially today yep all right we have a question in the chat thoughts on zuck saying that meta

Starting point is 00:18:54 expects to have ai coding at mid-level engineer levels i think just saying like you know they're they're helping out a lot with that and then the follow-up to that question could this cause a general decrease in the hiring rates of big tech if the average engineer can put out twice as much code using ai than big tech might need half as many employees i think that could be directionally right and it could be a reason or i think the thesis that the employee levels at these companies could stagnate um could be right i think they're maybe it's not cut in half but directionally correct yeah everything i have seen and obviously brett and i don't really live in this world like we're not writing code ourselves but everything i have seen from management commentary

Starting point is 00:19:44 is that they're looking for like they're looking for ai to help leverage their existing workforce Like they're trying to implement AI into the organization to make their developers more efficient, not to outright replace them. And I would – I think we're probably a long ways away from AI just outright replacing development teams. Yeah, that becomes kind of a loop that I don't know philosophically how that works out. But yeah, I think – look, these companies are getting more efficient. medic cutting its workforce, maybe it's a good thing. Maybe it's not. Obviously, if the people get laid off, that's not, you know, we feel for them. I would not want to get laid off. But if, again, as I mentioned, a bunch of people at your company are doing nothing,

Starting point is 00:20:35 well, I don't have that much sympathy for you. Let's change things up, Ryan, and hit this segment earlier. The small cap of the week, we usually save this for the end of the episode, but let's kind of invert it uh what is your small cap of the week how did you find it and yeah it looks like an interesting one uh kind of reading your notes here yeah my small cap of the week presented by yellow brick investing we should always add that in there sort of the tagline for small cap of the week for anyone that doesn't know i give this disclosure every time we do the power hour but yellow brick investing is one of the best stock pitches best stock pitch aggregators across the internet. So it pulls in stock pitches from podcasts, hedge fund letters, blogs,

Starting point is 00:21:22 all into one place, one feed. So you can sort through and just basically read through a bunch of stock pitches. What I found on there was Vida Coco. So this actually had a write-up recently from Vida Coco. I found this one in a hedge fund letter on Yellowbrick. And so here's a quote from that letter. It says Vita Cocoa is the leading coconut water brand in the world. While this niche category has relatively low household penetration today, it is slowly growing as the product benefits from increased awareness, availability, and acceptance as an alternative to sugary sports beverages. The company's supply chain is an important competitive differentiator. It has secured long-term supply agreements with a network of factories across six countries that process

Starting point is 00:22:11 coconut flesh into food and other products, allowing Vita Coco to obtain their coconut water that typically would be disposed of as a waste by-product. So it's market share taker from Gatorade, Powerade, and the other sports beverages. Yeah. And anecdotally, I've seen a lot of, I've seen this brand around a lot more and I've seen athletes kind of drinking it after a workout. It's kind of nice for recovery, I guess. So by athletes, you mean 28-year-old dudes trying to fight a hangover? No, I'm just joking. That's both of their target audiences, I'm guessing. I actually – yeah, I guess I've heard it's helpful for hydration on hangovers too. But yeah, there were – they have family that are in college athletics and they seem to swear by Vita Coco. So, and so I guess it's kind of a nice recovery drink.

Starting point is 00:23:15 If you look at the financials, Brett, maybe you can pull up this picture here for anyone that's watching. Vitacoco has grown its revenue at about 12% annually since 2019. So over the last five years, it's up 75%. Their operating income has gone from 14 million to 75 million. So a much faster growth rate there. There was actually – there was recently an announcement. Yes, Brett's sharing the chart here from our friends at FinChat.

Starting point is 00:23:47 Very easy to pull up financials on any company. There was recently an announcement that Costco was going to sever ties with Vitacoco. I think it was just kind of – it wasn't anything wrong with Vitacoco. I think it's kind of just their standard operating playbook to not be super lenient on any one product. But then during one of the recent conference calls, management said, since our last update, Costco requested we continue our partnership. We now expect to continue supplying a significant portion of their private label coconut water needs, a decision that we believe is reflective of their valuing – of them valuing our supply chain for its outstanding reliability and quality. Yeah, I wouldn't read too much into the Costco stuff because as someone who has a good friend that works in CPG products, Costco is such a shrewd negotiator and has so much leverage that people make no money on these deals, on Costco deals. At least a lot of companies are making just absolutely terrible margins on their Costco sell through.

Starting point is 00:24:53 And I imagine a lot of people treat – a lot of the CPG brands probably treat Costco almost like marketing in a way where it's hopefully like you're making just a little bit of money, but it's raising your brand notoriety substantially. So they're back in the Costco stores. Apparently – here's a snippet. Our friend Alex Morris runs the TSOH Investment Research Substack. And he's written about Vita Coco a number of times. And in his initial write-up, he describes kind of the story as to how the company got started. He says, Vita Coco's story began in 2003 when co-founders Michael Kirban and Ira Laron – sorry if I'm saying those wrong – stumbled upon a market opportunity. While coconut water was a widely available consumer packaged goods offering in countries like Brazil, it was a nascent market in the US.

Starting point is 00:25:50 Here's in quotes. It says, we estimate that the coconut water category in the U.S. was under $10 million when we launched in 2004. Over time, as demand in the U.S. started to materialize, the founders moved to solidify their supply chain. This led them to the Philippines, where they approached the largest producers of food-grade coconut products. When they inquired about purchasing coconut water, the suppliers literally laughed at them. From the perspective of these companies, the water they desired was nothing more than a byproduct of their production process for other coconut products. Curbon and Leron, the founders, made them an offer in exchange for an investment to help procure certain production equipment. They wanted a long-term exclusive supply agreement for their coconut water.

Starting point is 00:26:33 So I guess my first step with this company is probably going to be to look into the supply chain more and see if that's really a big competitive differentiator between them and some of these other coconut water brands. If it is, I think this could have quite a long runway for growth. The current EV to EBIT is around 23 times. I mentioned that they've grown double digits pretty consistently for the last four or five years. Any interest in this one? A bit, but I just worry that the coconut water category is going to steadily grow and it's just going to be hyper-competitive. I'm not a regular drinker of coconut water, but I essentially just look at it and make sure it just is one of those natural ones with just coconut water, just coconut water and salt or whatever they put in there. And not some of the preservative things.

Starting point is 00:27:29 I don't care necessarily about the brand. Yeah. I don't know if this is going to turn into, like, could this be an early day Celsius? Maybe. But I think it could also go the way of like these oat milk type companies where it's just become hyper commoditized. and it's so competitive that no one's able to really command any solid margins. I agree. I think – yeah, it's dependent on the supply chain advantage that they claim to have.

Starting point is 00:28:06 So maybe I'll do a little more digging in there. But I guess the last two small cap of the weeks have been pretty – I'd say they're probably at the top of the list in terms of, I guess, compounder potential for some of the small caps we've looked at i agree yeah last week if anyone wants to check that out we should have a time stamp in the show notes that you can just click right through to that segment it was on raspberry pi a small computer motherboard company that has grown quite quickly and is dominant among educational departments anything else you want to talk about with our friends at yellow brick before we get on or do you read the full ad there

Starting point is 00:28:47 I mentioned them briefly, but if you are interested, it's literally just free stock pitches from all over the internet pulled into one place. If you go to joinyellowbrick.com slash chitchat, you can get a discount on any paid plans. They've got some nice paid benefits over there as well. So it's kind of a freemium model. Joinyellowbrick.com slash chitchat will get you that discount. All right. And, yeah, we had that screenshot from the chart at our friends at FinChat. You know that well enough.

Starting point is 00:29:22 You can get a 15% discount if you use our link in the show notes. So, yeah, check them out as well. We see plenty of people signing up with our link. All right. Do you want to do Bubble Watch? Let's do it. This should be quick. This is anecdotes from a roommate and friend of friends.

Starting point is 00:29:43 We've seen the crypto meme coins. I think they're back. I don't even look at these things. But I had a roommate that made $12,000 after depositing $10 into a meme coin and got lucky and sold at the top. And you know what? Good for him. No, hey. But the mentality is, apparently, and this is what I've been told by this guy,

Starting point is 00:30:12 the super cycle is coming because of the trump administration and i'm confused on this last part the ai agents that are going to be starting to trade i'm not sure how that thesis connects here but in regards to bubble watch the enthusiasm for risk continues i also don't have a friend of a friend that made a hundred thousand dollars on these meme coins but i haven't confirmed that that was correct. The $12,000 I can confirm is correct. This is just from depositing $10 into a joke, joke coin. I think risk on is still here. And people are anticipating high risk to work in 2025. I don't see many talking about downside right now. It's almost like when I kind of thought a micro strategy do you remember about a month or two ago when people started defending michael

Starting point is 00:31:11 saylor's strategy and say well this might work that was the top my favorite part was people saying like advisor types being like people actually don't understand this this is a very complex bitcoin strategy journal thing yeah that's like the top this is actually a very simple strategy is just buying bitcoin on leverage it's essentially um the the i guess congrats to your friend i i sometimes almost get wary of like oh it's building a gambling addict yeah yeah telling success stories of uh crypto especially meme coin like money being made because i don't want to encourage it uh because there is serious downside and my suspicion is that those friends will not stop after they've uh made some money the addiction is now built in well i can parlay this

Starting point is 00:32:13 into uh millions of dollars yeah it's like the vegas high rollers uh yeah oh 100 i have not seen a single person that i know that has made a ton of money in crypto or whatever um say oh i'm done i'm done i'm quitting they just say no no just wait for the next super cycle i'm not sure talk about the bitcoin strategic reserve it's a lot of stuff i don't technically i don't understand i'm not sure they do either but hey twelve thousand dollars it's not you know nothing to sneeze at i was very shocked to hear that number you know what's a bit sad in all this is you've got let's say you're a talented developer engineer whatever and you have a promising idea to build a product that could help the world in some way whatever that is you commit years of effort to

Starting point is 00:33:09 building that product maybe you get some consumer adoption you have mild business success and then you look at cases like this where someone launches something called fart coin and makes a billion and a half in market cap of that coin whatever i i worry that this is like there's an influx of talent going the wrong direction towards something that provides no material good to society whatsoever oh yeah i agree i agree watch out when you say no material good there's going to be a lot of people uh trying to defend it which i've still we've been doing this for a while now and have not heard a good argument yet if you have a good argument send it my way i doubt it's going to work but i do agree with you seems like there's a lot of resources computing power and electricity

Starting point is 00:34:00 going into crypto and ai girlfriends so it's call me not optimistic on that yeah yeah all right there's our uh bubble watch complaining about crypto segment do we want to talk about the spirits companies yeah sure yes spirit not spirit airlines but alcoholic spirits i think this is interesting and i'm sure you saw it but our friend at best anchor stocks also had a good write-up on these uh a free one he has a premium newsletter but this was a free article talking about these companies go check that out for a lot of detail you can read about yeah so for context there was an art there was a graph that was circulated this week i'm not sure who it was from that basically showed gen z spending on alcohol relative to other generations and it's like

Starting point is 00:34:58 a fraction of the other generations now part of that might be because they just have lower capital to spend relative to some of those older generations but it was a concerning chart and basically the i think consensus here is that young people don't drink anymore it seems like and the valuations of some of the largest hard alcohol or spirits producers so diagio brown foreman per node ricard i also probably could have done the kui chao mutai chinese company here but it's china's kind of that's its own business it's kind of it's not a conglomerate i don't believe plus it's in china so it's kind of distorted and it's only i believe for chinese consumers but the They all trade at record decade-low valuations on a forward EV to EBIT basis.

Starting point is 00:35:59 So Diageo trades at – it looks like – It's about 15, right? They're all about 15. 15 times. Well, except this RI one is 13. Yeah. Perinode Ricard trades at 13 times. What do they own?

Starting point is 00:36:14 I'm not sure. We haven't gotten that far yet. I can take a look. A lot of these have just like literally some like 30-brand portfolio of different hard alcohols that are on the shelves. The advantages here for a lot of these companies are there's some distribution advantages. You've already got the scale and you're able to supply a lot of the stores and get your beverages in front of a lot of consumers that way. And then on top of it, there are certain alcohols that are not easy to produce. Tequila, you have to have – it's probably getting easier, but there's geographic specifics for these. Scotch, I think you have to age for like 15 years. Only in Scotland.

Starting point is 00:37:03 Yeah. Cognac, I think is like you have to have a certain grape from a very small area in France. Oh, yeah. They're all – I mean Kentucky bourbon, Kentucky, Irish whiskey, Irish champagne, Champagne France. Yeah. Yeah. It's – there are some advantages to being a skilled player here. How much – do you have any interest in these companies and do you buy the sort of thesis that alcohol consumption is in terminal decline? i do have interest i have thought about this a bit this week after seeing some of these takes the chart that was showed online about gen z consumption was a bit misleading for one gen z is age 13 to 28 so you know most of them are underage uh second when you're younger you're spending a lot more money on cheaper alcohol versus as you get into the 30s 40s and 50s you might be spending um 10 to 20 dollars per drink on a nicer drink while when you're younger it might

Starting point is 00:38:11 be a dollar for a 30 you know per per capita of drink if you kind of get what i'm saying not per capita but per unit of volume of drinking and i kind of thought yeah i can see alcohol consumption going down a bit but is it going to be eliminated from society no no i'm a health conscious person and i still feel socially the need to have it in certain you know parties or whatever and if you're going to a bar to watch a game maybe you just pick up a non-alcoholic one um that would still be you know uh giving money to these companies and here is a chart from our friend, the Latin American correspondent, as I call him, Ian Bezek. Did you see this chart, Ryan? I did. So it basically bottomed in the 90s.

Starting point is 00:39:08 Yes. So this is, for anyone that can't see it, it is per capita ethanol consumption from spirits by region. So it's spirits drinking, which is not beer or wine. And it goes from 1977 to 2022. so it's just per capita spending so this isn't volume this is dollars spent and it goes from about one gallons of ethanol or wait no it's consumption excuse me it's not dollar spent it's just consumption and it went from about 1.1 gallons maybe 1 to 1.1 gallons uh in 1977 in 1997 it bottomed and this is really for all regions across the united states it bottomed about 0.6 to 0.7 and now it's returned to one to 1.1 in 2023 i think a lot of this has to do with the shift from beer to spirits but this is very contradictory to the message that alcohol

Starting point is 00:40:09 is toast here's my question to you do you think alcoholic brands have the same brand loyalty as tobacco brands, for example? We were thinking alike there. No, but I think they still have decent brand loyalty and I think the distribution matters. Because when you go to a bar or you go to a grocery store, you're not going to be searching around. And let's say, what's one?

Starting point is 00:40:39 Jack Daniels. That's a good example. You see Jack Daniels, you know what it tastes like. You know, it's not going to break the budget. Are you going to try something else? No, I think it's more of a Coca-Cola type loyalty as opposed to a tobacco loyalty where you only, you know, with cigarettes, it's so rock solid because there's one that you use and you never switch. But I think with whiskey, with spirits, you know, not just whiskey, it's more of like a soda or a pop or whatever you call it for wherever you're living. you might drink coca-cola most of the time but you might also drink a little pepsi sometimes a

Starting point is 00:41:19 little sprite uh what are some other sodas out there orange fanta dr pepper it's not like you're against those but you kind of have your favorites yeah i agree with that take i'm looking at the so you mentioned perinode ricard i'm looking through their portfolio here i gotta put my birthday in in order to look at the website uh okay they've got absolute vodka um okay halibut glenlivet i might be mispronouncing that jameson it's they have 200 plus brands so i think it's just another one of the conglomerates that have a lot of well-known brands so jameson would be big and absolute would be big as well kalua there's there's quite a bit of i think names that would be recognizable um yeah

Starting point is 00:42:13 i guess we talked about diageo a while back didn't like management yeah i wasn't particularly fond of management either but the i remember being concerned that some of the they had acquired some celebrity's brand i'm blanking on it but he had a tequila brand and all of a sudden this kind of became more and more popular for celebrities george clooney yeah celebrities were more and more trying to get into this and i had some concerns that the they could become like household brands with kind of modern distribution and having distribution partners and tequila farms are like you don't have to spend years cultivating at your own they can now you can just like go to a tequila farm and get the agave or whatever

Starting point is 00:43:10 the product is that's needed i should say agave farms not tequila farms um i had some concerns But I think kind of after spending a year on that take, I don't think they're going to make a huge dent in the overall premium alcohol consumption category. I think George Clooney's is – Casamigos is probably more of an anomaly here. I agree. I mean if you go to a bar or you go to a grocery store, are you noticing a huge turnover in the amount – in the different inventory you see? Not really. would you feel more comfortable buying spirits companies or beer companies spirits spirits i agree with the trend that people are going away from beer

Starting point is 00:43:57 and two spirits and i think that will stick okay especially if the per capita volume consumption goes down for overall alcohol with gen z and millennials which i think it is and you have the risk from the GLP-1s, the ozempics of the world that can decrease alcohol consumption, which again, it's a good thing. You don't want the heavy users. You don't want the people drinking 10 to 15 beers a day drinking those, but that's a huge volume loss for the beer companies. I think people switch to more expensive, higher quality spirits, have one cocktail versus five beers. I think that trend is here to stay. Okay. Before we move on, I want to talk about a new sponsor here for Chitchat Stocks. It's Blue Chippers Club. Blue Chippers Club was

Starting point is 00:44:44 recently started by two friends of ours with the goal of building a tight-knit community of stock-focused investors. Inside the community, everyone gets to share and break down their portfolios. You can pitch stocks. You can receive feedback. Usually, I'll post some of our post-show notes in there as well to get some feedback or thoughts from anyone else that owns a certain stock. I really do love this idea and it's why we're promoting it here on the show. In fact, we are in this community ourselves and enjoy how much value we get from collaborating with some of the other investors. If you're interested in joining, head on over to bluechippersclub.com and hit apply. Right now, it is completely free to join. That's

Starting point is 00:45:26 bluechippersclub.com. The link will be in the description. Do we have any other sponsors you want to hit? Do you want to talk about public again before we hit some of these final segments of this week's episode? Yep. We mentioned them a little bit earlier, but if you are serious about investing, you need to know about public.com. That is where you can invest in everything. Stop stocks, options, bonds, crypto. You can even earn some of the highest yields in the industry, like the 6% or higher yield. You can lock in with a bond account. Public is a FINRA registered SIPC insured platform that takes your investments as seriously as you do. Fund your account in five

Starting point is 00:46:03 minutes or less at public.com slash chitchatstocks and get up to $10,000 when you transfer your old portfolio. That's public.com slash chitchatstocks, paid for by public investing, full disclosures in the podcast description. Now, during that ad read, I mentioned that you can buy anything on public.com, stocks, bonds, options, and crypto. I know we just spent quite a bit of time complaining about crypto i will say i've got no issue with people being able to buy it would you that's fair well i just don't want to build gambling annex probably not good like i think people should have the right to do sports betting but i've seen the major downsides of making it essentially a free-for-all in a lot of places uh run on your phone with those do you want to talk

Starting point is 00:46:52 about bill ackman's latest antics ryan did you see any of this we had plenty of questions on this a lot of people wanted us to discuss it which ones two we got two we got fannie mae and freddie mac and uh he is building warren buffett's new company with howard hughes holdings and a 1.5 management fee yeah okay did not see the 1.5 management fee the it doesn't make a whole lot of sense to me it's okay the fanny man freddie mack gives some context he basically just wrote a stock pitch that those are going to benefit from the new administration and it's going to they're going to get privatized again yeah the pitch go ahead you want me to go through uh what what happened all right so the general as we call him as i like to call him and other people like to call him

Starting point is 00:47:52 keeps pumping out these ideas. As Ryan mentioned, he wants the government to bring Fannie Mae and Freddie Mac out of conservatorship during the Trump presidency. You might be asking, what the heck does Fannie Mae do? And I'm going to trust the AI overview here on Google. Fannie Mae is a government-sponsored enterprise, GSE, if you see that acronym, that's what it means, that buys mortgages from lenders to make them available for other loans. This helps to ensure that affordable mortgages are available to homebuyers and renters. So again, they buy mortgages from lenders to make them available for other loans. I think they're packaging stuff up. They create mortgage-backed securities. They juice and grease the wheels of the housing market. So

Starting point is 00:48:33 what does Ackman have to do with any of this? Well, he holds FMCC stock. I forget. I think that's probably Fannie Mae, which is now up 405% in the last three months to $6.42. And he believes in his long post that it can IPO at over $30. So, spoiler alert, Ackman wants to make money on this and he believes for the good of his own heart that this company should be taken out of conservatorship. It might be a good idea, who knows, and it could benefit all parties, but I find it curious that he's going to benefit financially quite well from this. People People gave pitches and were asking, hey, should I buy this? Should I follow Ackman into this? Be a bit cautious with this one is my recommendation. We don't know what's going to happen. You don't control what the government's going to do. There's a lot of uncertainty here. That's all I'll say. Yeah. There's two things. First of all, do your own work. Don't follow Ackman into anything. And the reason I say that is because with – it seems more and more with his pitches and really anything he's doing within – what's it called? Pershing Square.

Starting point is 00:50:02 there's always a hint of truth and then there's some some element that's very self-serving where where he can benefit like in a different way than you can so for example him trying to this one and a half percent management fee that you're talking about uh i mean would buffett do that the modern day berkshire that takes a one and a half percent fee That's not – the whole point of Berkshire was that you benefit in the same way Buffett does as a shareholder. You're a true partner. So I don't know. I just – more and more he feels disingenuous to me, and I think it's a little frustrating.

Starting point is 00:50:44 And sometimes I really would just like to have him own something, be quiet about it, and do well that way. Don't need to pump your books. Yeah, I agree. For context, so listeners can understand, this is the second thing that Ryan's talking about, the 1.5% management fee. Pershing Square, his hedge fund is offering to buy out Howard Hughes Holdings, ticker HHH. First, he's offering to buy out the company at $85 a share, but investors are not happy because this is a discount to the company's own estimate of $118 in intrinsic value on, I think it's all a landholding company, so they give an estimate on the property value

Starting point is 00:51:25 of $118 per share. And second, as Ryan mentioned, some of these shares will be traded publicly after the buyout, but they have a 1.5% management fee. Discussed Boyer Value had a letter to the board of directors that really does not like this offer. Here's a quote. Pershing Squares plan to charge a 1.5% annual management fee based on market capitalization, which Mr. Ackman likened to Berkshire Hathaway's holding company model introduces a cost burden that contrasts sharply with Warren Buffett's approach to corporate governance. This raises significant concerns about the alignment of interest between Pershing Square and Howard Hughes Holdings minority shareholders. Yeah, we go back and if you can find any evidence of Warren

Starting point is 00:52:11 Buffett ever charging a 1.5% management fee, let me know because I don't think he ever has. No, and certainly not – like we're not talking about the Berkshire Fund. Well, I guess it wasn't the Berkshire Fund, the Buffett Partnerships. Yeah, there was a fee when he ran the Buffett Partnerships. But Berkshire Hathaway, unless I don't know my Berkshire history, I don't remember them taking a management fee. If it's a holding company, they own it. They get the cash flow. They don't need an extra management fee on top. i agree i agree ackman's antics he's up to he's up to something he's always up to something he's tweeting i think with the fannie mae one he might want a government handout but who knows maybe it was a good thesis and he's just trying to let it materialize although it's been flat for like 10 years um i guess not after the last three months but speaking of buffett ryan there was a good tweet from a guy, I think it's a guy, Red Shirt Research. Good follow on Twitter. I think the handle is R-E-D and then shirt and then E-T. You can find him on there. Pretty good tweet about

Starting point is 00:53:24 Buffett's 1991 letter and a key investing mental model that he found. I really like this. It's the difference between an economic franchise and an organization that is just a good business. and Buffett's three criteria. I find these very unique and there's specific words in here that I think are important. First, a product or service people need or desire. Two, no close substitutes in the customer's minds. And three, freedom to raise prices without regulation. So I like the fact that Buffett's talking about the desire part. And I also like how it's not like just a close substitute, but it has to be within the customer's mind. If you get what I'm saying, I think that's an important little addition on there that makes a business, some businesses even better than

Starting point is 00:54:16 others. Like a good example of that would be Microsoft Excel, where there are substitutes out there. And I kind of will make the argument to people, why not use Google Sheets, but in their minds, they can't, they can't switch. And then the third one with freedom to raise prices without regulation i like that other qualifying uh factor it has to be without regulation you can raise prices as high as you want no one's gonna stop and step in your way what do you think yeah after seeing this i thought i should read uh the buffett letters again because i read them right when i was starting i didn't really understand much and i feel like now could be a good time to go back yeah it's so evergreen like a lot of this stuff i'm sure that there's a lot from the

Starting point is 00:54:59 letters that are specific to the performance of the businesses that year but yeah it's never it's never a bad time to go back and read them and i do think people people always recommend reading the buffett letters early on and it it's helpful but i think i'd have a greater appreciation for how eloquently he puts things uh today going back and reading them yeah i think it's more for as you're trying to become a quote unquote expert investor it's definitely not for beginners it'll honestly dissuade you same with the what's the book the intelligent investor no do not read that as your first thing just to there's plenty of that that should be in your immediate thing and honestly can i do you think that people should read the intelligent investor today

Starting point is 00:55:50 maybe just one of the chapters the mr market one i haven't yeah maybe the mr market one's like a useful illustration uh i think it's fun to read for like financial history to things see how like things have kind of evolved and like what was important back then and i guess i think it's been iterated on a couple times but no i mean i have no inclination to go reread it i try to comment you guys don't like railroad bonds yeah about 100 pages of railroad bonds in that book i yeah it's uh no it's just if you read that as a beginner you're probably going to be quite confused and maybe like discouraged yeah discouraged yeah pushed away from wanting to invest we've got a couple

Starting point is 00:56:44 minutes left here brett what is this iac news that old flame of ours i know well mainly mine i know it's a company i used to have i used to be infatuated with but luckily not anymore uh i think it's been over a year since we are or i have owned shares they got you in that some of the parts some of the parts yeah uh we're they always say we're a good company at building brands we help brands recover and we spin them out and they do so well and it's like do they uh but okay here's the news the ceo and the quote-unquote heir apparent to barry diller joey levin is leaving iac i will say there's there's just so much executive and investor pettiness this this week I don't know why. Maybe just to start 2025, people are saying, I'm out with the old and with the new. We're changing things up. Who knows? But here's the news. IAC is spinning out Angie, that fantastic business that they've built, making Joey Levin the executive chairman of Angie, and he is leaving the CEO role at IAC.

Starting point is 00:57:59 Here's a quote from Barry Diller, who is essentially, I think, still controlling IAC for the most part. I want to know, Ryan, if you detect a tone from this. I might not read the whole thing here. Quote, Joey Levin has wanted a store of his own for some time, and the spinoff of Angie affords him this opportunity. Do you think that? That doesn't... I don't know. maybe he was supposed to be he had a 10-year contract and was supposed to be the one that

Starting point is 00:58:34 took over the iac holding company model this doesn't really match what they said like literally a year ago or three or five years ago what i have found in reading a lot of executive departure type of memos language in conference calls stuff like that there is always some level unless it's like founder retirement there's always some level of disagreement or conflict like spinning and they'll always spin it as a positive oh there's you know they're stepping away because they got a better opportunity oh they want to pursue something independently on their own it feels like they they don't like this they don't you they they usually it's usually way more just boilerplate like consultant speak this feels how often yeah but no one no one ever says

Starting point is 00:59:33 you know they're stepping away because we thought they did a poor job no i know exactly but they don't say the ceo is one of the store of his own for some time and this will afford him his opportunity that feels very petty and saying like look here you go good luck you like angie good luck good luck yeah goodbye what if they if it wasn't angie would you would it seem petty if uh if they were giving him a firing i guess sorry what'd you say if they were giving him turo or i'm trying to think of any business in there that's actually someone would really want to run uh well turo they can't i mean that's minority stick but yeah do you have any interest in iac here no you got barry diller 82 years old gonna gonna take this over no way i've got no

Starting point is 01:00:26 interest even yeah what do they have that's left uh carry.com those websites a few other things i haven't kept track in a while maybe they bought something else it's like if if buffett fired all the era parents at berkshire hathaway and they had nothing but the shoe company and textile mill stuff like they still had some they didn't have good businesses they had bad businesses it's like okay i'm betting on a really old guy to start from scratch i'm sorry i don't care how good his track record is no thanks yeah a friend of ours former i guess co-host or recurring guest on the show ian gray i remember like four years ago we looked at iac when they were spinning off vimeo and he said something that seemed simple but like now it's aged really well he's we were

Starting point is 01:01:26 talking about is anyone interested in it after we did our analysis on iac is anyone interested in the business he said i kind of don't really like any of the operating companies that are left and that take has aged really well and all the companies they spun off haven't done well either match group still upped in on them still trading at 32 a share luckily when we sold it wasn't the bottom i know that it doesn't really matter but psychologically that would have definitely hurt me vimeo has done terribly yeah not great not great ryan what did they what was the conglomerate they shipped off really early expedia expedia uh home shopping network maybe i think expedia maybe trip advisor it's kind of confusing you have to kind of you have to look at the history

Starting point is 01:02:14 expedia has done okay their headquarters in seattle is an atrocity of wasted spending but companies it's good business it's up just under 700 percent over the last 20 years Not bad. Not bad. Not great. Not bad. Yeah, it's probably a market outperformer. Yeah, pretty good business. Is that their only victory? Yeah, we'll see the match turnaround. They buy back enough stock.

Starting point is 01:02:50 Yeah. I have no interest in IAC. There's nothing left that I like in it. And having the CEO, an 82-year-old CEO, come back to try to salvage things, that doesn't entice me. Okay, final question before we get out of here. Assuming valuation is kind of right around book value or something, or kind of right around one time's intrinsic value. You're forced to put 10% of your holdings, 10% of your invested assets into one stock. IAC or Boston, Omaha?

Starting point is 01:03:30 Boston, Omaha. Even though I think it's just really become sort of like way more polarizing and culty of a shareholder base than I would have expected. um i think i would rather have adam peterson than uh i'd rather have adam peterson than 82 year old barry diller trying to work with assets that seem to be in a bit of a decline yeah billboards seem better some of those assets seem better but we're both very i guess cautious about boston home i think i think it might be able to work from here but i think using that question illustrates the unattractiveness of iac at the moment all right i think that's going to do it ryan anything else before we get out of here today i think that's going to do it that's

Starting point is 01:04:23 pretty much everything thank you everyone for tuning in we've got some fun interviews coming up on this show i need to research a stock i've got some in mind but i haven't settled on one so if anyone has any stocks that they absolutely love at the moment feel free to dm me on twitter and i'll try to take a look uh but yeah we've got a little tease here nvidia show which will be fun to do and a little bit of a buffett and munger discussion as well yep and perhaps a super investor discussion on mike barry and for those that like the stocks that i research a mexican Airport coming down the line. Hopefully that can be informative and help people learn about the business. All right, let's hit the disclosure. We are not financial advisors. Anything we say

Starting point is 01:05:14 on Chit Chat Stocks 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 for tuning in once again, and we'll see you next week. We'll see you next time.

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