Chit Chat Stocks - Potential Boeing Bankruptcy? Geico Turns on Buffett; Visa Has a Debit Card Monopoly (BA, V, BRK, LVMH)

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 our weekly power hour episode. I am one of your hosts, Ryan Henderson, and I am joined as always by the one and only Brett Schaefer. On these episodes, we go live once a week on YouTube at 10.30 a.m. Pacific time, 1.30 p.m. Eastern time on Wednesdays, typically. And we talk all things financial markets, any developments in the

Starting point is 00:00:57 investing world that have happened in the last week. We take listener questions, listener recommendations. I've got my small cap of the week, and we'll usually go through a number of other items. Anything we found interesting that pertains to investing, we will discuss. But let me throw things to you. Brett, how are you? What do you have on the docket today? Yeah, no earnings. So we've got a little smorgasbord of stuff. There was a fun interview at the micro cap club podcast i guess interviewing someone who took a hundred thousand dollars to a hundred million dollars with their mini family office well it's not too many anymore there's a may i call it interesting takedown of todd combs on a reddit post over at geico which i think will

Starting point is 00:01:44 be fun and then spotify did you know has hit 300 a share all time high excuse me 380 a share all time high we're going to talk about that our favorite uh psychological long that we actually haven't made money on it but have sounded quite bullish from the entire time and then a little china bailout coming in so really big smorgasbord not too much earnings but hopefully we'll have some fun questions. And yeah, Ryan, why don't you kick things off and talk about our sponsor? Yeah. If you want to earn a 6.9% yield for the next four years or more, you need to check out the bond account at public.com. It's a new way to invest in a diversified portfolio of bonds and receive monthly interest payments. The best part, if you act now, you can potentially lock in a 6.9%

Starting point is 00:02:39 yield, even as rates fall. It only takes a couple of minutes to get started, but you have to act fast. If you want to take advantage of some of the highest bond yields in years, discover how you can lock in a 6.9% yield until 2028 with the new bond account only at public.com forward slash chitchat stocks. All right. Where do we want to start today? Visa versus America. Should we talk about that? Yeah. Visa versus Walmart and all the other merchants and the United States government and the Chinese government and basically every other government in the world, do you think they're going to win? Now, that's a little bit of an exaggeration.

Starting point is 00:03:19 But Ryan, what happened to Visa this week? I think the stock's down 5%, maybe even more. I don't really check, but wow. Price is not seen since like a month ago. Yeah, wow. By the dip, I'm in. All right, what happened? Why is the stock falling?

Starting point is 00:03:36 The U.S. Department of Justice, DOJ, plans to, actually already did file a lawsuit maybe they announced that they're planning they're filing a lawsuit against visa alleging that it has illegally monopolized the country's debit card market it says this is a part of this was like a department of justice blog i guess they have a blog now according to the complaint more than 60 percent of debit card transactions in the united States run on Visa's debit network, allowing it to charge over $7 billion in fees each year for processing those transactions. That was a part of the complaint.

Starting point is 00:04:18 The thing I find funny about this is the only people that read this are politicians or investors. So investors read that and they're just licking their lips. It's like, oh yeah, there you go. Nice. but it's like supposed to be like damning like they have seven billion dollars in fees it's like that's great anyways um it they allege that visa illegally maintains its monopoly power by insulating itself from competition great uh for example visa wields its dominance enormous scale and centrality to the debit ecosystem to impose a web of exclusionary agreements on merchants and

Starting point is 00:05:00 banks so the only part here is that there's like exclusionary agreements the the the rest of it was like basically an investment thesis it was like first off they should put them on join yellow brick yeah exactly is seven billion dollars that much uh seven billion dollars a year 60 percent of debit card transactions and making sure they all run absolutely flawlessly and giving back all the money if it goes wrong, for the three times it goes wrong. Let's go back to the old system where everybody releases their own cards and it takes like a million years for banks to talk to each other. Let's start writing checks at the grocery counter.

Starting point is 00:05:48 Let's start paying cash, having to store loose change everywhere. I mean, basically just on the loose change that's lost, I bet that money gets made up by all the consumers around there. And let's not talk about the fact that, well, almost all of the benefits come back to the consumer. And it's really the merchants that are paying for everything here because you get those points on your credit card if you're smart about it or the debit cards. um so yeah i agree with you excuse me that the exclusionary agreements depends what um those are the if those go away you could definitely see those getting ruled as illegal but that doesn't destroy visa's entire business i think they probably did that because they wanted to strengthen their moat and if those go away maybe the moat is weakened slightly but i don't think it would be

Starting point is 00:06:39 very, how would I say, logical. I don't think you could argue that it would be a weak moat business. I would still argue that it would have quite a wide moat. Yeah, for sure. I think that one reason the American consumer is generally speaking so resilient relative to other markets they spend so much i know everyone else has this too but for the longest time paying for anything has been absolutely frictionless because of people like visa and it's i don't know it's very very easy to do business when you just plug into visa's ecosystem it benefits merchants it benefits consumers it certainly benefits banks because they don't have to do all that communication themselves anymore uh which is huge that was a major cost for banks

Starting point is 00:07:36 anyways uh let's move on i'd be surprised if anything materializes from this if this drops a lot because this i'm in uh i would love to own visa at the right price but the same price as it was like two or three weeks ago it's not really that enticing to me yeah that is true i was gonna say ryan price has gone down to a very cheap uh air quotes there 28.8 price to earnings. Don't know if that's really what I'm looking for, especially for such a mature business. Dividend yield 0.77%.

Starting point is 00:08:12 I guess the payout ratio is only 22%. Yeah, yeah, you know. I don't know why I would buy something that grows this slow at 29 times earnings, but if you're going to buy anything that's an expensive mega cap for the durability i i think visa would be i don't know like i guess i can't tell you that's a terrible idea because i think your money would be your wealth would be uh how do you even say it like maintained over the long term but i just

Starting point is 00:08:52 don't know how strong forward returns are from here similar to an airmez um and that leads to another question we have underperformed yeah exactly and it was another question we have here from pds says about to watch your lvmh video from a couple months back i think that may have been a year ago but time flies it's all right happens to the best of us price has fallen a lot since then have either of you looked at it since i believe it is quite close to fair value at the moment yeah i haven't looked at it closely but i guess i assume the stock has been down because of the the weak chinese consumer and that's an important market for them so maybe we take a look ron what do you think sure i'll actually go through this real quick i i did a little thread and it really

Starting point is 00:09:39 hasn't gotten much interest but i think it's actually pretty interesting in my opinion so and lvmh is a part of it so i'll go through this and i'll let you kind of talk about what you think is the most interesting so the current 10-year u.s treasury yield can you guess do you know What off the top of your head? Four. Yeah, 3.78 roughly. I went and just looked up companies that have a free cash flow yield above the current 10-year treasury yield. And there's a lot of companies and there's some high-quality ones on the list too.

Starting point is 00:10:14 I will go through some of them and you tell me which of these entices you. Intercontinental Exchange has a higher free cash flow yield, which operates the New York Stock Exchange. Accenture, I know you love consultants. I mean, it's been a pretty good business. They have a higher free cash flow yield. Applied Materials, I was surprised to see that one has a higher free cash flow yield because they have been really a growth business over the last decade, 12% revenue CAGR. There's some large companies really with higher free cash flow yields lvmh has a free cash flow yield of 4.2 percent yeah i'm seeing an ed to ebit of 15.5 yeah so maybe that cash flow yield is understating the earnings yeah look it looks

Starting point is 00:11:09 like one of the cheapest multiples in years least cheapest going back to right before the pandemic i kind of changed this chart here for those on the shared screen i mean maybe even the cheapest of the last 10 years hey you know maybe you know it could be a good opportunity not sure not sure exactly what do you think 4.2 free cash flow yield versus treasuries i would i mean i would certainly take lvmh over treasuries the i think it is much better suited to grow um and it's run by a competent management team the chinese exposure is not great but it's not the entire business and i think at this point with where the valuation has come down

Starting point is 00:11:59 and the numbers that have come out of china they're really in a consumer depressionary period i just read an article we'll get to it later the estimate for wealth destroyed by the property bubble collapse is $18 trillion, estimated to be $60,000 per household. So I think that's maybe priced in and more. And even if you think the Chinese economy is going to get even worse, which who knows, we don't have boots on the ground over there, that the pricing power alone from some of these luxury brands, especially the leather goods that LVMH owns and dominates, that can lead to revenue growth for years and years and years to come. Yeah, we got a comment here that says, SBC, stock-based compensation, distorts free cash

Starting point is 00:12:50 flow yield though. True. But most of these companies have – companies on the list that I've mentioned here have very little stock-based compensation, I believe. I actually didn't check, but I assume they did. And I went and just looked at the earnings yield versus the free cash flow yield, and there's pretty good conversion for most of these. It's fairly similar okay fifth one this one might surprise you home depot has a higher free cash flow yield 4.3 percent yeah how's that stock been doing it seems like it's the has the housing freeze hurt them yeah big time just a lot of well interest rates more so than anything else right which caused the housing freeze i'm assuming is that kind of what you're yeah yeah and projects like

Starting point is 00:13:37 people used to pay for like big housing projects with loans um so they put those on the back burners while interest rates rose so it's not only just like less people moving houses but less people doing renovations on their existing homes um sixth one here deer and company john deer 4.5 free cash flow yield that's six one sorry seventh one this one probably excites me the most actually and it seems to be just like perennially underrated no one ever seems to care about it and it's been an incredible performer united rentals the industrial like equipment rental business anytime you go to a construction site just look at all the equipment you're going to see united rentals on it 4.7 free cash flow yield has grown revenue at 11 over the last 10

Starting point is 00:14:33 years annually um i don't know i i find it a pretty attractive business last one here booking holdings theirs is a little their free cash flow yield's a little overstated because um they're they have like the benefit of all the cash coming in early and they don't actually have to pay out the hosts for a while so it's it's a 5.5 percent free cash flow yield but i think the earnings yield is around the US treasury 10 years. So still fairly cheap. Any of those excite you the most? I'm trying to remember exactly what the numbers were. John Deere is interesting. We had an interview with Leandro from Best Anchor Stocks, runs a nice service over there, does high quality work. He actually gave out the John Deere research report for free as

Starting point is 00:15:26 sort of a free trial for people to test out his work. So you can actually, you can go read that yourselves, I think, or maybe he just get, yeah, yeah. So that one interested me after his report, which go listen to that interview. It was high quality. I think LVMH as well. Although I worry a bit about the succession planning versus someone like Hermes or a Ferrari, because a lot of the value here is because of the capital allocation and from what i've read bernard arnault is doing some sort of it's almost like the show succession where he's making all of his children compete and i find that a bit uncertain and maybe you know does that get you excited i am not sure he's going to leave eventually i think there's some risk in that and the company's already so

Starting point is 00:16:21 large i i think a lot of the past value has been thanks to the capital allocation i think you could get good returns from here without any huge acquisitions that perform well my concern would be they try to implement the same capital allocation playbook and they are not bernard arnault they struggle with it yeah or they destroy value we'll see we'll see yeah i think that's an interesting one at 15 times earnings some of that risk is probably priced in famous last words but i think again similar to visa like over the long term even though the pe is much higher an ev to ebit of 15 for lvm edge given the pricing power i think it will be very hard to lose money unless you get a terrible manager that comes in over a 10 to 15 year period yeah i agree okay

Starting point is 00:17:18 i want to talk about boeing because i've developed a hot take yeah i think you're gonna like it the that union is uh not budging not budging whatsoever for anyone that doesn't know boeing's having a union strike at the moment first one since 2008 For context, coming into this, Boeing was struggling. They were having difficulties getting back up to capacity in terms of delivering airplanes, a number of different supply chain slowdowns for the company, and obviously some high-profile crashes that led to more FCC involvement. FCC, is that the right? Is that the aviation group? Whatever the governing body is there. So they were losing money a lot over the last couple of years. They raised a ton of money during COVID. However, at this point, they've got basically $10 billion in debt due by 2026. They've rolled some of this probably at higher interest rates today.

Starting point is 00:18:23 I imagine right now with the union strike, some analysts estimate they're losing $500 million a week. Some analysts estimate it's up to a billion. They have, I believe it was like $7 billion in cash right now on the balance sheet. So I just don't see – let's say they make some huge concessions to the union, which they already have, 30% bump in pay, and it was rejected. their cost structure is higher. They still have all the supply chain slowdowns. They've been furloughing existing employees. I don't know what they do.

Starting point is 00:19:07 I don't know how they pay off that debt in time other than rolling it at potentially higher and higher rates. So my bold take is that by 2027, they will either default on their debts or some of their debts or get some form of a bailout by the U.S. government. I think the bailout would look like rolling their debt. It would be like the whole U.S. government promises investment banks

Starting point is 00:19:37 a certain return or something like that, but the investment banks have to get the money, so it doesn't look like a bailout. I think they did that in 2008. I could see that happening. Welcome to the club, Ryan. I think they're going to lose a loose situation. If they give these raises, their cash flow is going to get absurdly bad. And if they don't give these raises, the cash flow is going to

Starting point is 00:20:05 stay absurdly bad. I want to share a chart here of their quarterly cash flow. There's just no way for them to come out on top here. I guess the problem is that they can't let go of too many people for one because of the union and two they need them to make the planes if you look at the cash flow it's been this was before the strike four billion dollar burn uh second quarter four billion dollar burn q1 uh q4 last year they had positive cash flow but then pretty you know not too positive i guess right and that was right before the alaska stuff wasn't the alaska airlines incident at the start of this year i believe so yeah so after that like cash that was estimated that was one of the also introduced a lot of the slowdowns from more fcc involvement because there

Starting point is 00:20:59 was like that faa sorry not fcc faa the uh there was the whole like there's not enough checks not enough procedures there was like basically they determined that they needed more sort of uh involvement um yeah i mean yeah clearly they do they're just they broke their culture throughout the whole company you have the executive team started it but it comes down to the people building the planes as well it seems like they just have corporate rot across the entire commercial business and it has not been fixed now obviously the the onus comes with the leadership but the machinists were the ones building these planes and i would think that they would perhaps think that they were part of the problem as well because yeah that screw didn't

Starting point is 00:21:55 get loose uh because of some executive in chicago even if the culture started with them so it's a The part that concerns me, and part of why I think you want to use some sort of a bailout here, this is not the kind of company that you want fighting to avoid bankruptcy. It's not the kind of company you want cutting costs in trying to pinch every penny. you want the resources there the support to make sure everything can be you know like all the checks are there so i think someone will step in question for you if you're a bowling share bowing shareholder what's the bull case sell today no uh seriously that's the most bullish case what that's how i feel but what would be like i just don't see there isn't one there isn't one the defense isn't doing well they just fired the um the head person there so it's not like that

Starting point is 00:23:01 can save them and it wasn't big enough anyways the commercial side is i guess you're going to say that the bold case is the commercial side recovers but that's been the case ever since the deadly incidents in what was it 2018 or 2019 i don't know how it gets back to like because again they have the union so they can't just fire all these people but again the union's asking for the pay raises and the only way to make these pay raises work is if they have less workers or they're going to have to sell to the airlines at much higher cost and then it's just going to lead to i guess inflation on ticket prices but how do you coordinate all that i don't know what you do here it's damned if you do damned if you don't i think i've said that like twice

Starting point is 00:23:50 already yeah this is i mean it's going to lead to higher ticket prices really no matter what that's true yeah capacity is going to those capacity will be constrained they're not going to be able to meet all the orders for a while chances are if you're flying anywhere there's going to be some ticket inflation over the next at least year or so or well maybe not now but like in a year or so i would say it takes a while to trickle i mean it's probably already been happening i would assume because there's already been the production slowdown we'll see we'll see i guess i don't have the data around that and it's probably different for different flights and stuff so hard to compile all that data but yeah bowing screwed uh don't touch that stock

Starting point is 00:24:34 and i don't know if i've seen a worse upside down upside versus downside scenario like this is the opposite of what you want from a risk reward when investing especially a larger company where we've talked about it time and time again if we're going to invest in some sort of large cap company we want there to be a lot of margin of safety and a good amount of upside which means like a chance to go up by three four five x over a 10 to 15 year period this is almost the opposite where you have a good chance that your equity goes to zero and what's the upside maybe 2x over 15 years something like that that's the part that surprises me is it it's not trading like it's in a dire situation let me now it has basically just grinded down basically two percent every day for like the last

Starting point is 00:25:24 six months uh one month it's down 12 six months 20 year to date down 40 percent uh yeah it feels about right five years down 60 i'd love to see the difficulties you can't really value it on any sort of earnings metric at this point because it's so lumpy right now uh maybe they have to sell the defense division and get that cash and basically they're not going to be able to sell it for a good multiple right now because that division is also struggling according to that i mean you don't fire the head of that division when it's firing on all cylinders but maybe that's a way to do it or spinning out gets get that cash back and dump dump that division don't know don't know yeah i don't see any world

Starting point is 00:26:21 where it isn't like external financing which is which will has to come from the government yeah so because if you're an investment bank you're not really like unless you get certain conditions it's really hard to like underwrite this or give them any like anything that isn't like a 15 interest rate which is just gonna be worse anyways yeah all right you want to talk reddit and todd combs sure yeah it was i i honestly did not hear about this until you put it in the notes really i haven't been spending too much time on twitter have you i i have not so todd combs he's a fraud well this is what a anonymous employee says on the reddit geico page this is what the page says again on you know employees are typically negative i guess if a

Starting point is 00:27:20 company is doing bad no matter whose fault it is but this is what it says todd combs give a reminder who todd combs is for everyone oh yeah yeah of course i guess not everyone knows who that is so So someone who was hired by Berkshire Hathaway, hired by Warren Buffett himself to become one of his lieutenants, kind of one of the next people that's going to take over the company, potentially got a big investment portfolio and also has become, I don't know what year it was, but it's been at least a little while now. he became the new CEO of Geico. And Geico, for those who don't know, is a Berkshire Hathaway subsidiary, part of their insurance operation. So this is what it says. Todd Combs has ruined what was once spectacular. Here's his resume. Took away profit sharing, eliminated nearly 50% of the associates, took away good health care, eliminated all board members except for someone named last name Pierce. Don't know who that is. Doubled executive pay for his external hires,

Starting point is 00:28:18 mostly Capital One plus the far left activist group, including the former White House spokesman and Boeing Max mouthpiece. Hey, back to Boeing. There we go. Provided an average 1% raise for employees while top executives received an average 100% plus deferred bonuses. Yeah, that one's tough. Took away college scholarships, eliminated sales bonus and holiday gathering stuff, removed utensils from all lunch areas all right come on let's not do that one that's just gonna make people mad and not save you any money hides from anyone and only emails about layoffs or lack of transparency while remaining hidden do they know he's a part-time ceo he's got an investment portfolio to run guys uh and that's it yeah so people not too happy and the first comment

Starting point is 00:29:04 had can i say this they called warren uh i feel like we have to defend his honor here uh do you uh let's just say it was it is a play on the word oracle that starts with wh the yeah it's yeah this is not this is yeah this is a little concerning actually it's to me todd combs the the thing that like bothers me is that todd combs really is an analyst He's an investor more so than anything else. I don't know if he is a CEO. I mean he is literally, but I don't know if that's what he's best suited to do. He was a great insurance analyst.

Starting point is 00:29:56 He was a great financials analyst. That's why Buffett was so drawn to him. He did a great job running his fund. From what I understand, he did a phenomenal job. He's done a phenomenal job investing under Berkshire as well. i've heard that he's under one okay i guess there's it's a little hard to decipher what was his and what was not the but running an entire insurance company just feels very different and it's definitely sorry not something you can do part-time especially one of the biggest

Starting point is 00:30:34 insurance companies in the world i agree i agree look okay here is what also feels a bit iffy i'll say it doesn't it's not something that condemns the person but he claims to read 12 hours a day that's a bit much buffett said five to six hours and that's kind of the max i would feel uh he manages a 20 billion dollar stock portfolio which is the estimate while i would say underperforming for 14 years according to again that's also an estimate uh and then he runs geico as a side gig and they've been getting crushed by progressive for years now is he overrated i think perhaps did buffett get swindled here ryan maybe yeah it's certainly possible ajit jain's also selling a lot of his stake

Starting point is 00:31:31 i did see that connect the dots right now this would be a major bummer if the succession planning did not go according to plan or didn't go well yeah all right uh let's see other stuff on buffett any thoughts on buffett selling apple and bank of america as well as ajit jain selling half his stake i mean a jeep selling is not the best uh thing i would think that you'd want someone like that to keep their stake but that's the problem when you don't pay any sort of dividend or even a special dividend is if someone needs the money or wants to diversify it's really hard to get out of that um we have a question here and it looks like ryan's gone dark sorry i'm here which which is the most damning from todd combs lists which which from

Starting point is 00:32:24 here makes you think like oh this that's a little concerning uh i mean from the utensils right the utensils from the lunch area yeah combined with giving executives a lot of hundred percent raises or defer bonuses while giving employees only 1% raises while working. It's almost the combination of all of these, because it's one thing if he's in the office grinding with them saying, look, guys, we're struggling, but we got to catch up with Progressive. There's a lot of things that they're doing better than us right now. And hey, I'm here with you. But when that is happening he's almost an absentee ceo he's taking utensils away from the lunchroom and then giving every all the executives bonuses that does not smell right but on the whole i think the claim

Starting point is 00:33:17 of 12 hours of reading a day is my least favorite because you're just trying to be that's a little chamathi you know it's look i have always thought it was a red flag when anyone tells you how much they read if if you have if you really read a ton it'll be apparent and you don't need to tell people like if if the goal is for to i don't know to make a good impression and have people think you're smart i don't know do you need to tell them how how many hours you read a day yeah or just giving out that number just to brag to be fair we don't know the context that buffett won about reading 500 pages a day is famous and maybe someone was asking him that so who knows but any thoughts on buffett's selling apple and bank of america do you have any or you want me to

Starting point is 00:34:09 go apple i've kind of thought about this a bit and i don't know if it's that the valuation just simply got that stretched or he just wanted less exposure because they was getting up to an insane percentage of his portfolio i think and i heard uh this on the focus compounding i believe he is selling because he doesn't want the successor to start out with a huge what i would call valuation handicap where you start out with apple trading at 34 times earnings with no growth yes if he was maybe 70 years old and was thinking of being around for a while longer he would keep it but he doesn't want that bogey to be there and people saying well the successor is underperformed and it's like i don't know because he they would have that there and look it just makes financial

Starting point is 00:35:10 sense to sell i mean it's not growing and we've talked about this time and time again it's had 34 times earnings and it's not growing i mean what do you want it's not going to do that well yeah i do think the selling is probably done the only reason i say that don't say that because the ending share count that they had at the end of when they filed the 13f was a very round number it was 400 million shares to the dot it seems like they sold to a very precise amount i if you're just like in the process of selling off i don't think you would end with that much exactly that's pretty deep in the tea leaves ryan i mean come on like it's here they have their trader guy right uh that buffett talks about maybe he just tells them five million today or whatever the

Starting point is 00:36:01 number is one million today and then it's kind of then they talk to their bank and do it that way could be could be i just thought it was a very like oddly like they don't really the only other company that they have done that with is they have 400 million shares of coca-cola they haven't touched that position in a long time i don't think bubba cares about round numbers i know but it might just be like drop it down to the share count let's leave it yeah and then the other thing is the filings are at the end of a day so i'm guessing he's not selling saying sell 5 million 600,000 and 37 he's saying all right so 4 million of these a day i know it just seems like a weird place to what's on like he cut it he cut it basically exactly in half yeah that's true

Starting point is 00:36:52 it seems like maybe he's just like let's just drop it in half reduce the exposure for our successor i don't know i could be reading too much into the tea leaves that's true but he it just coincides like not coincides it it's against what he said before of like owning it for the long haul no intention to sell like if he just sold out of it after saying all that it would really surprise me like sold out of it entirely i'd be surprised I wouldn't. He usually sells things. When he starts selling a big position, he usually sells out of it entirely.

Starting point is 00:37:33 Yeah. I did do a 2013 holdings for Buffett versus today. Wells Fargo then. There is not that much overlap. The top holdings are quite different. Wasn't Wells Fargo number one? Let me check right now. 2013 ending portfolio for Buffett was Wells Fargo number one, Coca-Cola number two.

Starting point is 00:38:02 I guess American Express is up there as well. IBM was the fourth vision. The tech play. Procter & Gamble, ExxonMobil, Walmart. Those I don't think are in the portfolio today. You know what I looked up? Chuck Ackrey, his top holdings 2017 versus today, so seven years ago. eight of the top 12 holdings are the exact same you know what ryan i don't think they've

Starting point is 00:38:27 outperformed the market what i believe i've seen enough i'd have to look i don't know if i have access to the morningstar data but after fees i think they've underperformed really yeah i actually think they haven't since inception what i'm because am american tower's like been their been a large holding for a while and it's been incredible. Look at American Tower stock. Okay, I will. Last five years flat.

Starting point is 00:39:00 Only up 8%. Total return last 20 years. Wow, not as good as I thought, actually. Oh, that's because it was pre.com. post the dot com destruction it's a hundred bagger but yeah i can't remember when he started i i just remember seeing the data once don't don't quote me on it i guess we could we could maybe look it up but i don't know how to do it live why don't you before we get on to the next

Starting point is 00:39:36 topic uh talk about our friends again public.com and that wonderful bond account that they've started out, which I should say, anyone that wants to lock in yield, I know everyone's getting scared of lowering interest rates. I mean, they launched this thing at the absolute perfect time. Yeah, seriously. So if you want to earn a 6.9% yield for the next four years or more, you need to check out the bond account at public.com. It's a new way to invest in a diversified portfolio of bonds and receive monthly interest payments. The best part, if you act now, you could potentially lock in a 6.9% yield until 2028. That's the new bond account only at public.com forward slash chitchat stocks.

Starting point is 00:40:19 Yeah, it really is a wonderful product. They got a lot for individual investors. Speaking on AMT, and I'll let you get your small cap of the week, but we have a question here. Well, basically two questions. Hello, any updated thoughts on GoGo's competitive advantage against Starlink?

Starting point is 00:40:37 And then second, a thought, not a question. American Tower seems like such an obvious loser to Starlink. So I mean, maybe the hit in the first one, GoGo is working on, as I've talked about through that podcast I did earlier this year, they have the exclusive license for the United States and I think also a little bit of Canada. So essentially North America, but again, US is the most important market there for a air to ground signal spectrum. So that does not change no matter how big Starlink gets, because as you're flying over the United States, especially over a big city, you have the exclusive spectrum where Starlink, you are sharing it with a bunch of consumers or anyone who's using Starlink.

Starting point is 00:41:29 So there's a chance for throttling down speeds, where with GoGo, once they upgrade to this 5G stuff, it should be a much, much better experience for the business aviation customers. And second, there's other things that I talk about again throughout that episode with the manufacturing advantage, the OEMs, how they have this stuff locked in to these planes, and how it's much, much harder to upgrade just given all the regulations around aviation stuff. and putting things in your, you know, cockpit, on the plane, whatever. Now, the key is they have to actually get this 5G product out there. And we'll see. It's happening soon. And then they also have the competition that's going to, or excuse me, the partnership with OneWeb that should have an equivalent product to Starlink.

Starting point is 00:42:15 So outside the U.S., they'll have an equivalent product to Starlink. And then given the manufacturing and OEM advantage, that should hopefully lead them to retain customers although you know starlink and other competitors are going to take some as the big satellite providers did with the big gulfstream jets a while ago but then within the united states i'd say when you have when you have that combination of the one web low earth orbit satellites and their air to ground uh what you might call it stuff within this niche of the business aviation market i think they'll do just fine and i like it at the price it is now uh we have a comment here that says not only starlink

Starting point is 00:43:00 but all coming competitors not sure who that is referring to but what do you think about the american tower i guess this isn't our expertise if you're gonna ask me about american tower versus starlink i have no comments here's all i know is that starlink is growing quickly it seems to have a very great product market fit and there are multiple copycats coming onto the market and that should scare someone like an american tower anyone connected to the legacy telecommunications and wireless stuff all right yeah i whatever you just said i'm i agree it's just i don't know the market at all okay all right but yeah i really don't okay i came across a pretty insane

Starting point is 00:43:51 chart the other day you want to see this sure share that screen all right shoot i gotta go it takes a while to create it so i'm just gonna go i posted it and i thought it was just mind-blowing that this is possible sorry if you can hear my scrolling going on here okay here you are the company is zoom zoom communications not zoom info but the zoom video one correct the covid favorite do you see this chart yes i see two one line going up one line going down what are the what are the lines since the first quarter of 2019 so this is pre covid zoom's revenue is up 1069 percent its stock is down four and a half percent is it how insane is it that covid may not have helped this company yeah did they over 10x revenue for

Starting point is 00:45:01 them and they are worse off for it that is wild do you think the competition was invigorated by the 300 400 revenue growth they saw and that caused them to to lose because at the end of the day it was a bit of a commodity product yeah and i will say their product has not improved nearly as well there's a reason we don't use them anymore 100 yeah i mean the competition coming for them obviously concerned because if you look at the business today it's really still or the stock i should say i don't think it's that crazy attractive i mean yes it can be sticky if you have a whole company that uses zoom but there are a lot of alternatives. Their net revenue retention rate with enterprise customers is

Starting point is 00:46:02 below 100%. So they're losing revenue with enterprise customers. I think the competition is part of it. I think that they hired a ton to support the growth and are having a hard time resizing the company for what it should be um yeah maybe growth exponential growth in a short time period is kind of the kiss of death hey remember we've talked about that peter lynch episode he's right about a lot of things there's a reason he's done well he said he gets scared when a company has not erratic but a huge acceleration in revenue growth and are growing at, say, 50% plus from a revenue perspective because it can lead to so much uncertainty around, all right, we're growing so quickly, it's hard to manage.

Starting point is 00:46:52 And he'd much rather have durable 20% growth than erratic 50% growth because it leads to so much uncertainty. I'm going to share a chart that says someone else is currently sharing, but you're not, Ryan. Stop my share. Well, it's from our friends at FinChat. As I say, go check them out. One of our advertising partners, thinchat.io slash chitchat.

Starting point is 00:47:14 Get a 15% off any paid plans. There's tons of products on there. I didn't even know they had like the estimates page. Looks quite beautiful now. But it's a free cash flow per share. And if we look at annually, I'm going to just move it to annually. It's gone up and up and up and up. Free cash flow per share, $5.50 over the last 12 months.

Starting point is 00:47:37 I'm sure some of that's SBC, but it's on a per share basis. So we're trying to mitigate that a little bit. Current share price, $68, Ryan. It's getting cheaper. Sorry, repeat it. Repeat the free cash flow per share. $5.50 per share. Yeah, but it's been at like 20 times free cash flow for three years.

Starting point is 00:47:59 I know. I don't get it. Yeah, the stock price compensation is a real concern. so i would i would definitely factor that in but for cash flow per share it does to some degree the look at it pre-covid though basically zero and they're worse off isn't that mind-blowing it is it's uh there were a couple companies like that alibaba obviously for the other reasons uh no i think i'm i'm still you know no no i'm not optimistic at all whatsoever on them now they're finally cheap how crazy is it that munger monisha pabrai guy spear so many people

Starting point is 00:48:49 are in alibaba yeah the one thing i never understood buff or munger when he was talking about alibaba he was talking about how big of a mistake it was he was like i well i just i don't know how i just forgot they were still a retailer that's not why you lost money like everyone soured on the chinese market because like it's risky to invest there like that's it's not because they're a retailer i agree it's perhaps also because people got nervous because the ceo got locked up and disappeared yeah i mean revenue i think for them was up like 1400 percent over the last decade the stock's down 30 it's not an issue with the fundamentals yeah it's also perhaps an issue that people see the housing depression 18 trillion dollars in wealth lost 60 000 per

Starting point is 00:49:47 household yeah you know the consumer in china is doing terribly and there's a reason like people are bearish on that but whatever monger hey i think anything after the age of 90 we give him a pass look and he was 99 when he said that yeah that's true and he was still sharp i can't i can't disparage him anyway sharp for his age i'd say he talked oh you got to put that guy in two and a half speed after the age of 90 that was a rough those annual meetings yeah remember when we went to the annual meeting and we that we were there for the three question in the morning session one and we were all of us were on the verge of sleeping yeah i will it first of all i honestly probably preferred watching those actually almost like football

Starting point is 00:50:40 it's long you almost prefer to be like in the comfort of your own home and i do think they were not as sharp that year like the year after i watched and they seemed quicker with their answers so it's just a rough year the uh jerry cokes before the meeting yeah i suppose i need more caffeine um all right do you want to do my small cap of the week sure okay the company and i will say this is the small cap of the week presented to you by Yellow Brick Investing. It is one of the greatest aggregators of stock pitches on the internet. It is a modern value investors club. It's pulling stuff from blogs, fund letters, Twitter, all over the internet and pulling them into one place to get high quality stock write-ups. If anyone ever recommends a stock to

Starting point is 00:51:31 you, look up the ticker on Join Yellow Brick. I'm sure you will find a write-up. It's very easy. it's it's just a wonderful wonderful place what is the link that people can go check it out at join yellowbrick.com slash chit chat if you want a paid plan you'll get a discount there and that gives you more timely write-ups and some other benefits as well uh let's go to this week's small cup of the week sound hound ai does that name give you the ick it gives me yeah but it tells me that it's probably going to get some good bonuses in motley fool so i think there were a lot of this company before yeah i i believe that there were a lot of motley fool articles when i looked at the company um sound hound has developed a portfolio of ai technologies that deal with

Starting point is 00:52:24 voice applications five guys and papa john's for example have signed up as customers to use soundhounds voice recognition and natural language processing software to reduce costs and improve the phone ordering experience hondi and dodge have also signed deals to incorporate the technology into their vehicles so drivers can chat with their cars about directions messages and maintenance issues the company's main product is houndify which offers a suite of tools to help brands built conversational voice assistants basically um so interesting technology from the sound of it um nvidia invested 3.7 million dollars in the company earlier this year which seems to have given them sort of a investors seem to have latched onto it because of that i i do think

Starting point is 00:53:14 the technology is promising revenue growth has been really solid i don't know if you can pull it up, Brett, because I don't want to type while I'm talking here. But it's recently public, so not too much data to go through. But in 2019, they had $7.7 million in revenue. Last 12 months, they have $55.5 million. So 10x in revenue almost over the last, call it five years. operating income though they have basically negative 120 operating margins which is a real bummer slightly improving but yeah i'm probably just not going to touch this trades at like 20 times sales if i'm not mistaken yeah 32 times sales so it's not really up my alley Um, anything with these, anything like this, I know they have a lot of patents, so maybe it insulates them a bit, but you have to have a lot of confidence that there isn't going to be someone else that can replicate this technology, that those patents are really going to hold up and insulate them from competition because you're paying 30 times sales.

Starting point is 00:54:30 a you have to believe that there's the addressable market for customers to come out and want this it's not just some short-term blip in terms of ai hype like tons of more customers are going to want it it can't be replicated by someone else and there's operating leverage so far i have no sense whether or not that is the case my gut tells me someone else can do this and maybe it's a monetized market yeah i mean yeah this is i think this is obviously commodity look i was looking as up as you're talking going google cloud blog going from repeated orders to a side of ai speed wendy's is reinventing the drive-through this is just stay far away from this thing's 30 times sales no profits ai company like they're going after the hot market again the lesson from all

Starting point is 00:55:21 the bubbles is you don't go for the hot stocks, especially the ones that have whatever it is in the name. And yeah, where's the defensibility here? Like, okay, they, you mentioned the tech is cool. And I, it is like, I can't make it, we can't make that. But Google can, and OpenAI can, and a lot of other companies can. And there's no defensibility here, especially because Google, at least according to this blog post, has the cloud that is probably, I'm guessing SoundCloud and AI is probably running a Google cloud as well. They have the cloud infrastructure to bundle this together and that gives them defensibility. You mentioned that they got a funding round from NVIDIA. All this money just goes to NVIDIA and then all the money, it's so

Starting point is 00:56:12 circular, so many of these deals where you get paid money from NVIDIA, you get paid money from the cloud providers and then you just filter back into well nvidia and the cloud providers i wouldn't really i mean we got an interview recorded with some of the uh with what's their channel called chip stock investor the rosa lilos i think i'm saying that correctly interview coming out next week some semiconductor experts and i'm not going to pretend to be an expert in that market but there are some potentially interesting companies there nvidia all the others that have done quite well over the longterm, but in the AI space, nothing besides the hyperscalers makes any sense to me. I mean, anyone making a thesis on soundhound AI, you have to remember

Starting point is 00:56:57 the fundamentals matter, price matters, profitability matters, and defensibility of your business position matters. All right. That was a bit of a rant, but you go, right? And it's easy to look at the revenue growth and be attracted to it. You know, almost a 10X in five years. That sounds great. But from 2022 to 2023, they added what looks like pretty much $15 million in revenue. So they added $15 million in revenue and it costs them, they lost $106 million. So it costs them $106 million to do it. Pretty much any company, really, even a concept. If you spend more than $100 million, you can probably get some revenue for it you know just wine and dine your customers spend

Starting point is 00:57:46 millions trying to attract them and then be like just use us for your voice assistant on one part of the website so that we can add your logo to our website that's not yeah i just don't you first of all it's got to be really sticky i don't know if it is and they're still hemorrhaging money so i would be pretty concerned here yeah this is one we don't short don't recommend shorting i know some people don't like it think it's evil it's not you should go read up on that it's it's not causing any harm to the economy uh this is one where the ai bubble turns or again i shouldn't claim that we are an ai bubble if it's a bubble and it turns this seems like a perfect short candidate. Absolutely. All right. We're running up on time. Any closing thoughts, anything you

Starting point is 00:58:36 want to talk about? Yeah. I mean, we got a few minutes here. I feel like I didn't get to any of my stuff. I felt like I couldn't talk much today. I don't know why, but I have some short one on China. I'm going to show you this wall street journal article this morning. I called it the Chinese trifecta. Uh, they are Ryan printing roughly $70 billion or the central Bank is loaning $70 billion to investment funds, brokers, and insurers to buy China stocks as a part of an effort to lift the country's ailing stock market and is putting up a little bit less than that to finance share buybacks by listed companies. Talk about circular. What's crazy about it is they're worried about consumer spending and then they go well actually let's

Starting point is 00:59:28 convince more people to store their money in assets and then do buybacks i don't understand that one second thing you know it's funny this could work what so you know what's funny this could work i guess people see the stocks going up they get a lot more external money money from across the borders on investments because they want to be a part of it yeah but you kind of ruin the central bank's debt balance sheet. And I think, honestly, you risk foreign currency devaluation. But there's also another stat I saw that I mentioned before. Barclays estimates that the property crunch since 2021 has incinerated some $18 trillion in household wealth, equivalent to around $60,000 per family. I mean, that is just in China. This is just China. Is that worse

Starting point is 01:00:14 than the great financial crisis? I guess we're not over there. It didn't affect the United States too much that feels just absolutely gut-wrenching second or third i don't know if it's worse 60 60 000 a household you know i would assume most homes lost 50 of their value in gfc so if we're assuming that the average home was like call it 200 000 back then it's probably a little maybe a little better than the gfc yeah i guess maybe on a per capita basis but not only the country is larger so like per household sixty thousand dollars that's a billion and a half people that's a lot but yeah i agree i guess yeah you could be right there another thing i saw in the same article is that they are struggling to spend more on viable

Starting point is 01:01:03 infrastructure projects so they're trying to borrow money to to to do more infrastructure projects which is what got them in trouble in the first place and then again as usual um an economist one of the head economists for the government complained about the economic policies of the government and said xi jinping is old so now he is nowhere to be seen and he's probably locked up somewhere on a mountainside that's gonna inspire confidence for foreign capital right yeah those are always discouraging tales the uh hits i i just i'm glad that we stuck with just don't invest in china philosophy it's too hard there are a lot of companies that looked attractive that look attractive alibaba i mean on face value it looks incredible but you're just

Starting point is 01:01:59 really never going to touch that cash flow which ultimately is the name of the game for shareholders Whether it's receiving it through a dividend or share buybacks, any sort of capital returns to shareholders, I am skeptical that'll happen, even though the government just sounds like may have given them money to do so. Well, mainland is different than an ADR that you own of a Cayman Islands corporation. Yeah. All right. We have a question before we head out. Did you guys ever look at Duolingo? Any thoughts on their future earnings potential?

Starting point is 01:02:32 I think the stock might be up because of a product launch. I guess this is a little bit of a, I know there's, the company's done so well. And maybe this is because I just personally churned from the product. It's a great product, but I think people get lazy with stuff like this. And I think there is a risk of AI disruption. I know that's just a cop-out these days, but it's a language app, and the whole disruption thing here is large language models. I don't know if I would buy this thing, especially at a $12 million market cap right now. I'd probably be more comfortable – well, I haven't looked at the valuation, but I'd be more comfortable around the durability of the business.

Starting point is 01:03:20 The only difficulty is there have been so many times where we've seen language apps go in and out of favor. So – or not even apps, but just like – it's almost kind of like the fitness world where fitness trends, language learning trends like Rosetta Stone was the thing when we were younger. They just come and go. So that's the only thing that's kind of scaring me away. But there's a lot of momentum in this business. i would imagine that the customer acquisition costs are really low for duolingo it's very well known among most consumers dominates within that niche of like the apps for language learning from my read from when we researched the episode i don't know if we did it ourselves or maybe we

Starting point is 01:04:05 interviewed brad freeman at the stock market nerd on it because i know he follows them really closely definitely go check out his work if you want to keep up more closely on the name because we don't know it that well but my read was really great founder was super smart had a great team was innovating quickly and just built a better product than everyone else yeah let me share my screen here this is monthly active users pretty good can't even tell kovats there yeah you really can't it's impressive and they only make like yes churn is probably high but like nine percent i think of their customers turn into paying users and those make like the majority of

Starting point is 01:04:51 the profits for this business yeah paying subscribers is eight million out of 104 million monthly active users yeah so hey i can understand the bear case i can also understand the bull case I know we're going long here, but I have one shout out to make because I think all the listeners will enjoy this. It's more of a shout out to another podcast. I know we're talking about a potential competitor, but we all have, you know, love for the other investing small media companies out there. And while this one's much bigger than ours, but it's the Micro Cap Club podcast. I think it is basic conversations with Ian Castle, maybe others, but he's the founder of Micro Cap Club. And I think they just started uploading into their feed recently, but they did a podcast with Jason Hirschman, individual investor who took his small businesses cash flow that he took from, I think he inherited a family business to get from about a hundred million or excuse me, a hundred thousand dollars and turned it into a nine figure family office, which is a hundred million dollars.

Starting point is 01:05:52 So quite well. And he actually started out in the Motley Fool discussion board. So he kind of did it as himself. He invested in MasterCard, invested in Expel. And he said, here's two interesting things I can close things out with. Quote, we are spending more time in Sweden where we are finding higher quality microcaps. So maybe, hey, he's got his eye on the ball. Maybe Sweden's a place to look and they just invested in hape group i feel like we got too many smart people in this one that we might have to take a position but again everyone as always do your own research yeah i should revisit hape it just feels a little everyone seems into it at the moment i know that's what scares me but everyone was into expel and it's still still done well that's just what i

Starting point is 01:06:41 can feel like. And for anyone that doesn't know, we've done shows on HAPE with various interviews. I think we've done two, or maybe one was focused solely on them, but another was just a variety of different nicotine stocks. And if you want to check out any write-ups, definitely go on Yellowbrick. But we're going way longer than usual today. Let me hit the disclosure and we'll kick things out of here. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast may have held them in the past may buy sell or hold them in the future thank you everyone for tuning in these go live on youtube at 10 30 p.m pacific or excuse me 10 30 a.m pacific

Starting point is 01:07:21 time 1 30 p.m eastern time on wednesdays you can come join us or listen to the replays wherever you get your podcast thank you everyone once again and we'll see you next time We'll be right back.

Chit Chat Stocks - Potential Boeing Bankruptcy? Geico Turns on Buffett; Visa Has a Debit Card Monopoly (BA, V, BRK, LVMH)

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