Chit Chat Stocks - Power Hour #3: Elon Tries to Buy Twitter, Jassy's First Annual Letter

Episode Date: April 16, 2022

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Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. This episode is brought to you by La Quinta by Wyndham.

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Book your stay at LQ.com. All right, we are live. This is the CCM Investing Power Hour. This is a show where we don't, well, the big rule is we have no topics going in. So that's the only rule, no preparation. This is a new format we're doing. This is the third real episode, so we're still getting the feelers out here, but I'm joined

with Ryan Henderson, as always. Ryan, how are you doing today? I'm doing good. I just realized I need to charge my computer here, so why don't you move to Ian. All right, Ian. Yeah, we'll let Ryan deal with that, plug in a bit. Ian, how are you doing? You're on a call today.

You might not be able to share what it was, but it sounds like you may have had a busy morning. Yeah, a little bit of a busy morning, but excited to be on now. Excited to talk to the market. we got a closed market today so you know i know why are we why is it closed for good friday that doesn't i thought i didn't know that that was that big like is that just kind of a legacy thing i guess so i didn't i didn't remember that either until you know i was i had some options that were coming due and they were coming due on a thursday instead of a friday so i was like oh i guess it

must be must be good friday those degenerate trades behind yeah exactly um all right well we got no one watching as usual but hopefully when well we should say for because the majority of people here are listening on the podcast we do this live on youtube every 10 a.m pacific time on fridays 10 a.m pacific 1 p.m eastern so if you want to join uh there's usually no one watching right now we're kind of just recording it live and then have everyone listen back later but if you want to we'll have the chat going maybe see some comments could be fun but also it'll always be recorded as usual but that's just a good way to ask

us questions yeah oh Ian you sent a note here flip to gallery view yes alright we're still working things out gallery there we go all better alright any topics today like any we're not supposed to become prepared with topics

I know but anything you guys have been reading this week I read or I started reading so there was the Buffett interview with Charlie Rose that came out which was like it felt like it was kind of like this just like uh unannounced drop like there was no press around it i just like saw it on someone's twitter feed and i was like oh okay i started watching that and he recommended the book trillion dollar triage um

which is basically like a historical account of it's really well written so far from what i've read uh it's a like a historical account of the march 2020 basically financial response or the the fed's response and i have a newfound respect for jay powell that's what buffett said he had some high praise for the man uh and i think a lot of like you know yeah the gold bug uh type followers of buffett while you know i i respect all of you guys it seems like he may have a different opinion of the guy powell that a lot of people use as a scapegoat which seem do you guys think it's strange and i guess kind of it's on the same target that jay powell gets used as a scapegoat like for a lot of the i don't know just a lot of things in the economy in the financial

world it's it's all from from so far what i've read it seems like the fed chair is always the easiest person to point your finger at and the uh jay powell's i don't know if there's anyone that's more mutually respected by both sides of the aisle from like what i'm reading obviously there's going to be people that are like you're not you know you're not citing this isn't our way to do it from whatever political side of the aisle you're on but everyone's kind of like intimidated by like they know they don't know more than him and there's kind of this just mutual respect among everyone for powell like what he says goes kind of thing yeah that sounds reminds me of uh benjamin strong back from the the starting of the fed although he was the new

york fed governor um that let me pull that quote here you had a quote here i got i got a quote let me go to the marked pages i would do that i'm using the amazon kindle for the first time so is it a better product yeah it's like the same that has the the underlying things that people highlight i kind of like that but it's kind of like telling me what's important so it's it feels strange yeah have you ever seen that yes i have i used to be a big kindle user back in the day actually so the uh the the first few chapters are like pretty good it kind of talks about like powell's upbringing and then like why the fed was started and sort of how it's evolved and uh it talks about how it's supposed to be independent but all throughout history there's

basically been presidential overreach to like have it there the way they want and it shows just how hard of a position Fed chair can really be. And so there's one example where President Johnson, I think in the 60s, basically the Fed chair was not acting the way he wanted. And it said, Johnson had already asked his attorney general whether language in the Federal Reserve Act that allowed the president to fire a governor for cause gave him grounds to dismiss Martin. Martin was the Fed chair at the time. The answer was no. He said, alone in the president's living room, Johnson let Martin have it. He says in quotes, you took advantage of me. And I just want you to know that's a despicable thing to do. Johnson advanced on Martin, pushed him around the room

and shouted in his face, boys are dying in Vietnam and Bill Martin doesn't care. So it's like- Yeah, high pressure. And they also talked about the calls that Trump would give to Powell. And it was like- And the tweets, right? And the tweets, right? The ominous tweets, yeah. And he's basically just got to be, I mean, it would almost, I'd almost, you either have, like you either are intimidated into doing it, like what the president wants, or I would think that you'd almost have like an adverse reaction to be like, I'm not going to let you tell me what to do and you're going to take like the opposite action. but Powell's been able to essentially like just stick to his guns on whatever the data he's being fed is. And anyway,

the book gives me, I see why Buffett has so much praise and respect for Powell. All right. Recommended reading. I think that could be good. We'll probably have to maybe we'll have to finish the books. Maybe, I don't know,

then we can talk about it maybe a few weeks from now, probably after the, the Berkshire animal meeting, which if anyone's listening, we, us three will be there. Brad, I know Brad always joins the show a lot for the not so deep guys. I don't believe he is going, but us three will be there. So if I don't know, DM us on Twitter or email us, some previous guests will be there as well. Lots of them. I know we don't have any famous guests or anything,

but lots of, if you're an investor and you like, you know, there's a few, there's a few, but any of the you know, any investors that you want to meet or stuff like that. And if you just want to talk with us, that'd be great. We'd love to meet anyone. We're thinking about setting up a Spotify bowls booth for all. So we can like pass out flyers with the both thesis for Spotify. Yeah.

That, that, that, that'd be great. We need to, we need to get that stock, that stock up. All right. That's a joke, but in all seriousness, we got a little comment here. So thank you for the Caesar conception conception, the one person watching. Thank you. uh musk twitter poison pill drama was the comment so i think you guys want to we should talk about that for at least a little bit i think a lot of people want to hear about that but i know it's

covered on basically every financial news thing so any thoughts on that it seems like normal craziness i don't know ian you you haven't had a chance to speak what do you think yeah i'll just throw in my two cents so i think it's the typical craziness right there's always some some story going around with it's funny because there's always some story going around with twitter or tesla or elon musk and this has all three of them right so um i think i don't know i i'll just for full disclosure um earlier this week i bought an in the money call option that expires this summer basically and my my thinking behind it was it was kind of a degenerate option play and it's a meaningless amount of money basically but um but i thought you know i don't

think this drama is over um i think there's because it was right after he bought his you know his nine percent or announced his nine percent stake and um right after that uh they said he wasn't going to be on the board of director or he declined being on the board of directors and i thought there's something else going on here and i didn't really know what it would be but i thought i'm gonna go ahead and put something out there well sure enough then you know the next day two days later we got the announcement of the the quote-unquote offer from elon um i don't know where it goes from here i think there's uh i don't know i it's i think it's gonna be a fun story to follow just because it's kind of crazy and at least right now elon has

so much money that he can kind of do whatever he wants to do to some extent um at least that's That's what it seems like. And I don't know about that. Yeah. Yeah. We'll see. There's, there's, I don't think I'll, for the same reason that I opened that option a couple or a couple of days ago, um, I think it's going to be the case going forward that there's more to this story. There's going to be more to come and it's going to be something interesting to watch. I don't know what's going to happen, right?

Like I don't think Elon Musk is going to take Twitter private. That seems unlikely, but to say the least, um, yeah, but I think there's going to be some more fireworks over the next couple of weeks what about you guys i don't i don't have a super i don't really have an insightful take on it and i'm not actually sure what the poison pill or the anti-takeover provisions like specifically entail and like what that prohibits i can explain that quickly i read a little tiny bit on that it's basically so if you do a tender offer um for an acquisition you don't need board approval you just need shareholder approval but if there's a poison pill provision it can force

the board to have to approve something even if it's a tender offer so the poison pill makes basically makes it so you need board approval for an acquisition even though in the law of the united states there's technically a way to bypass that and go like as a shareholder only one but if you have the poison pill you can't do that so say elon musk could get shareholder approval and buy it out if they have the poison pill you would then need to get the board's approval as well okay the well it sounds like it hasn't quite gone according to plan i don't know if musk had a plan going into this but i would imagine he did um and it sounds like it kind of hasn't gone his way uh it to me and maybe this is like the cynical view but to me it feels like a way

for him to sell more tesla potentially like to to sort of make that net worth that is currently illiquid and and sort of just paper net worth more real more tangible is by saying like well i have to sell it in order to in order to save free speech like that's why i'm that's why i'm selling my shares so don't you know and then maybe it doesn't look so bad on the sale like you you have to have a reason last time it was tax purposes even though which even though now he bought he used those proceeds to buy twitter stock right like he used them obviously it wasn't tax purposes but now it's like well i'm saving free speech so that's the only reason i'm selling and it kind of gives him a way out also it's a perfect pump and dump like it's wonderful

it's like also it might not be a dump though because it could be a pump and then someone else buys them out for a higher bid say sixty dollars a share or something like that that would be a success story in my like that's the only that's the way i see this being successful for all parties ian ian includes who's gonna who's gonna do who's gonna do that oh there's a lot of liquidity out there you know kkr i don't know thomas bravo kkr said there was like a fake headline that i know but i was not gonna do it why not i don't know kkr probably won't but this I don't think they have the size to do it. They could.

Apparently, Thomas Bravo wanted to. I mean, they would get more people to finance it together. You know, there'd be a lead investor. Like an LBO, right? Yeah, something like that. I'm talking a bit over my skis, but the... I think the only company... I feel like the only companies that can really do it are big tech.

Oh, and all cash. And all cash. Yeah. uh i mean i don't think anyone has any interest in doing it except for a take private deal but if you take if you take them private at 60 a share i don't know maybe ian you have any other thoughts about the company private yeah you probably do because then you can actually try to experiment with stuff you know instead of like you can experiment with more different monetization strategies subscriptions or whatever i feel like that's the best route

because they need to dig because the stock like people are afraid when it's public about you know short-term quarterly targets and they said they're doing that stuff no not really they're not i mean they're they're dipping they're dipping their toe into these subscription things i would say they set up these targets for daus or whatever they call them for 2023 they have to hit them or basically they set these targets they set these advertising targets and all that stuff and they don't really have any leeway to, and especially with the activist investors, to take big experiments like, say, charging someone, I don't know, doing experiments with subscriptions, like real, real subscriptions, not those add-ons, if you're going to do it. I mean, that would be the benefit

of going private. This episode is brought to you by KPMG. As a business leader, how can you innovate, build trust, and move forward in a digital era. KPMG can help by bringing together the right talent and technologies, generating insights that spark opportunities. To explore their thinking, visit reed.kpmg.us slash opportunities. It's not a very, I wouldn't be, I wouldn't really want to be the owner that takes the private. Oh, well, I think that's the, i think that's the problem is that i don't know who is taking twitter private for 40 billion dollars except it would have to be i think some sort of situation like musk where it's someone who sees this grand vision because this isn't something that you can take private i don't think

and just really jack up the profitability there's a lot of execution that is here it's not like you're gonna take twitter private and just cut a bunch of costs and then all of a sudden it's super profitable business um like it needs some cost cut probably but i don't think it's like a prime candidate for for an lbo or something like that um for those reasons like you're gonna want the the story with twitter is hey it's under monetized if we add these other features and we do these other these other things then we can grow revenue and eventually you know then we'll become more profitable because we're gonna better monetize the platform but that doesn't seem like the traditional thing that people typically take these companies private for especially if

you're going to, if it's going to be in the ballpark of $40 billion. So I think it comes down to, it's got to be some sort of strategic buyer probably with something, someone, you know, like you were talking about big tech or, you know, PayPal was rumored to be interested in Pinterest. Like, I don't know, there there's, there's a number of companies out there that could buy something like this. And even, I don't know, like there's, you could, it's all the typical names, right it's the big tech names you throw in you throw in paypal you throw in uh maybe even like a sales force or something and i don't know why they would do it but who knows there's oracle right you kind of throw in all those names and you say maybe there's someone there who's willing to

willing to buy it and any consumer play right but then you get into an even smaller universe because a lot of the big tech stuff is going to have regulatory burdens to try and actually make this happen and so like i don't think like facebook can't buy twitter um microsoft probably has trouble buying twitter i assume apple has trouble buying twitter because of regulatory reasons they and they would never do that yeah right and they want to do it and so you know you start getting into a pretty narrow universe of the companies that have the wherewithal to buy twitter and the companies that have that won't have like intense regulatory scrutiny and buying twitter yeah and it it's immediately because it's such a political um because it has such a big

influence on elections the platform you whoever the buyer is it's immediately like all right what's their political orientation that's like the first thought like how does this impact the next election and so i i think there would be a ton of pushback for anyone in big tech to be a buyer um i just don't see it's such a hard company to own that's why they need someone is to take it private because you have to experiment with stuff that might not work and you have to have a permanent owner that you can't be worried about the stock falling 90 all right we have a comment here about elliot management that is at that does that another wrinkle that they are the activists they also have a private equity firm they're just kind of a giant hedge fund investment you know

and for anyone who's unfamiliar with elliot they have maybe one of the best the the founder paul singer is like known for his litigation prowess and being able to basically win deals in the courtroom he at one point was like at one point seized a ship from the argentinian government if i'm not mistaken yeah that's right so they were they were suing for so argentina defaulted on their debt and they owned some of the debts the distressed debt and they were suing to get payment um but they decided to seize a yacht or not a yacht a uh military as collateral yeah and they were they were all that i guess it worked out well i don't know how much that military ship was worth and you know returning cash to share uh your investors but that's i

guess another a story for another time but yeah that does add another wrinkle i don't know i mean they're not probably big enough to do it on their own but they could be influential in what happens because they have the board seats all that good stuff where they can drive the direction of where things go because they're looking i think to make you know the activists i think they've been around for two years or more now like they're looking for a way to get returns off of their twitter investment is a sizable one and it has done very very poorly so musk honestly could be that avenue to get them out yeah i don't know if they like in my mind i'm picturing this like like singer and elliot management headbutting with musk but if anything i think musk is like something they've

been looking for like a way out and ultimately they're i don't think they're as long-term of holders is maybe they are at the end of the day they're activist investors so it's like they don't want to be a private owner that i don't think they have that much uh sentimental twitter doesn't have a lot of sentimental value to them yeah uh yeah they need and that's the thing finding a private owner for twitter you need to find someone that's not worried about three to five year cash flows like a typical pe firm or something like that you need to find something some entity or person that is really worried about like keeping the value of twitter culturally in line or intact plus making it a viable business whatever that means i mean it's

a viable business right now but they just have you know bad it's just been a bad stock but making it more like they're not cared they don't care if it's worth i don't know 100 billion dollars 10 years from now or if it's worth the same they kind of just want to own it for yeah economically because you want you know you don't want it to just turn 40 billion dollars into zero but some of it is just to keep it and that brings it back to the political stuff which opens up a whole another topic that i really don't know much about but any other anything else guys on that any i i don't there is something that concerns me about musk owning a significant media outlet and it's not like it's it's not just like a newspaper you know like this is sort of the

modern day like all it's all it's all the newspapers blended into one yeah i don't know if that's i don't know i have some i have some reservations that are maybe more like personal reservations about that but i don't know if he's like the biggest free speech advocate as as he climbs well he does shut down i mean as people who have followed the tesla story uh as a lot of people have he does you know if someone's negative to him he does act a little bit like uh i don't want to say i don't want to use the word authoritarian but like he acts very very harshly when someone's critical of him and it's pretty brutal sometimes some of the stories you hear which does not like you said like i agree that that for someone to own twitter that i don't

i don't like that at all also because i post negative about tesla i might i might get banned yeah that was ruined the tesla q uh whatever cash tag will be gone what if he like everyone's making all these theories that yeah what if everyone's making all these theories like us right here we're kind of going through all these different things and we really have no idea but what if at the end someone's like so why'd you buy and he's like and they're like so what do you want to do elon while you're here he's like well first on my list i mean i have this list of twitter accounts that use the tesla q hashtag can we just know where tesla charts go yeah um all right i have another thing that i was reading this morning and that is andy jassy's first letter to

shareholders as the CEO of Amazon. Did you guys read that at all? I did not. I have not gotten a chance to read it. It's on my list though. So I'm going to have to read it right after this. What was the highlights? I am pretty sure I saw Andy Jassy out of Dick's burgers in Seattle. So make it that way. You will. He's a guy, he's a man of the people. Adjust your portfolios accordingly. Yeah. He did have, he did have the black escalade, right? So.

yeah the blast black escalade his driver like opened the door for him and i i and so i'm assuming this is andy jassy i i think it was because i thought i knew his face uh and he ordered two meals at dick's burgers gave one to a homeless guy and then got back in the escalade it's like driver opened the door for him it was it was it was quite the sight to see nice and i I've met, I golfed with someone that worked as like a vice president at Amazon that said two things. I remember that advertised the advertising business could double overnight, which I was like, all right, that's interesting.

And two, he said, Andy Jassy was the smartest guy he's ever met. So, you know, pretty bullish scuttlebutt for us, but the, the letter, there was a few things in it. You're friends with Bezos, right? Right. Yeah. So you're very close with him. So is he, is he smarter than Bezos?

Yeah. second question is that a test is jassy as the successor a testament to bezos like is that an extra notch on his whatever rankings as a top ceo of all time does successor matter in that yes definitely if jassy succeeds over this decade yeah yeah 100 but here's here's the two things i remember um one they said they're investing 10 billion dollars into project kuiper uh which spelled k-u-i-p-e-r don't know if i'm pronouncing it right which is a starlink competitor which is kind of interesting and two they talked about uh so i don't know we can have some thoughts on that maybe what was the number what was the number 10 billion into project kuiper so that's a pretty

sizable number. And the second one was a thought on... Basically, they were describing how the fulfillment centers, they weren't able to make it ready for COVID overnight. They were ready over a 20-year period of investment. And if they hadn't made those 20-year periods of investment in efficiency, they would have collapsed during COVID. So it's kind of interesting how that, I don't know, business expertise when applied and compounded can be quite an advantage over the long-term. They said that originally, or I think maybe they said like 20 years ago or something like that, a package would arrive at a fulfillment center and it would take on average 18 hours to leave. But now that is down to two hours. And then they also, okay, I have another

one about AWS, but maybe we'll talk about, I don't know, Project Kuiper or the fulfillment centers first any thoughts guys i think um on the fulfillment centers i think that's just been i don't know i think it's amazon has done a lot of the boring stuff right right over the years and just being able to to execute and continually get better and cut down on time of delivery and it doesn't seem like the things that are it's not real flashy it's not the type of stuff that you you post the the um press releases on and post them on twitter and say oh look at this and you know but it's they just get it right and they continually get better and i think um both bezos and i think jassy is following in these footsteps of being um very detail oriented and very focused

on on just getting incrementally better every day so you know i think that's that's been one of the big big things and there's uh big successes of amazon it's just those fulfillment centers have been really great i think that yeah they might be the best systems company in the world like physical systems well even i would even say like i think aws is an example of that that was started as this internal system for themselves and exactly that hey we're going to build this great system And then it becomes actually, uh, uh, very, you know, maybe the most important part of their business. And Jassy built that he was in charge since the beginning.

And part of, yeah, the reading through, what was the book? Uh, the, it was at the everything store. Maybe it was the second book that that guy, uh, that author released about Amazon, the, I don't know, maybe it's just like the problem solving nature of Amazon or the, the two pizza teams but they their internal processes for finding a way to streamline like the little nitty-gritty details at every fulfillment center it it seems like that like it doesn't seem like a structural advantage at the start but now they've developed so many systems over the years that it's like impossible to compete with yeah especially in the united states because it's such

a tough geographical area to do e-commerce it's like maybe not the toughest in the world maybe honestly probably tougher than china because china's on one coast like and it's in way bigger cities like well maybe canada's tougher but i don't know it feels like united states is really hard for e-commerce but the other uh topic they talked about was aws of course and he mentioned that yeah like the same thing they continually try to get better and better for their customers and he said it's more than just computer or whatever, all that good stuff. I don't know about the IT.

But one thing I do know about is they talked about in 20, I think it's over the last five years, they've started designing their own custom chips for AWS to help reduce costs for their customers. And they said the first, okay. So they have three of them out and I can't remember what the order was, but one of them brought costs down from say,

using intels or amds processors for the data data centers slash you know cloud computing centers down 40 so costs were down 40 for compute for customers and then the one they just released i think it's called the gravitron 3 or graviton 3. um that brought it down a further 25 so down 40 then down 25 kind of like a uh maybe like a sas stock but the uh that, I don't know, that just seems huge like for their customers and that vertical integration, like it seems impossible for any sort of startup to compete with, let alone someone like IBM, Oracle.

I don't know. I guess we have no, we're not experts on IT or cloud at all, but I just found that really impressive. If you had to bet on Amazon's Kuiper, is that am i getting that right or starlink i think i know brett's answer but who's who's the winner there i think it's hard to tell because starlink has that advantage of being a part of the right because they already they're the the rocket launch company already so maybe they have more of an advantage but i wait so starlink's a part of spacex no yeah yeah and kuiper's a part

of Amazon, but it's not associated with Blue Origin. Blue Origin is its own separate company. Blue Origin's not even made to be profitable, really. It's just Bezos, almost like a charity thing. That launches himself into space.

Yeah, it's like his own charity. I mean, it's not really charity. I shouldn't say it like that. It's more of a... I'm going to give a billion dollars to this a year to... It's more of a scientific thing. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real-time alerts.

Oh, like this one, so you don't have to worry about malware. Or when your kid downloads a song from a shady link. And now all your computer can play is... Red color, red color, where are you? All blocked, thanks to advanced security, included with Cox Panoramic Wi-Fi. advanced security must be enabled in the panoramic wi-fi app restrictions apply can i ask you guys a question about amazon just since both you guys have kind of been from the seattle area and this may be a question about microsoft too but what is what has amazon meant

to the seattle area like is it is it um noticeable like do you know man there's a lot of amazon employees around here or wow this is this area is really developed or there's been a lot of wealth creative because of Amazon is, is Amazon a topic among a lot of people about like, whoa, this was a big deal here. Yeah. I'd say it was maybe bigger a few years back. It was a hot toddler with taxes a few years back. Yeah. Once they've had, once they kind of developed, what was it? HQ2 in DC. Am I getting that right? Uh, Virginia. Yeah. DC area. i think well i think uh if i'm not mistaken amazon kind of doesn't want to be purely

associated with just the seattle area anymore like the workforce component and i think a lot of a lot of that was maybe bezos and top management butting heads with sort of the local regulators although i think those local local regulators might be gone now or the local government officials um it also isn't um because it's not seattle's so big in terms of like big corporations being here so boeing and microsoft and probably blanking on a few starbucks following more headquarters down here cost always more bones more influential because i think the key people forget about amazon is majority of their workers aren't in seattle because it's at warehouses but we have boeing manufacturing and that is way more important

just on a day-by-day person-by-person basis i mean amazon they build a lot of buildings in downtown seattle they got a giant campus kind of area there but besides that i mean microsoft's way more influential in their little area it's not microsoft's basically got a city yeah and yeah and amazon yeah like microsoft has a real campus kind of like a silicon valley one amazon's strange it's in the middle of downtown seattle it's just a few buildings it's not the same as i don't think it's the same influence as people might expect um but i mean that's i mean i don't know i guess maybe they they've definitely driven you know the wealth up for sure just because of all their home prices and home prices all that stuff but besides that not i don't think anything

special except for the ability for us to see all Bezos and Jassy out on the town or some, and talk to some employees on the golf course. No, that's interesting. I just, you know, I've grown up in Phoenix for most of my life. And so, um, and I'm about to move up to the Bay area, but in, in Phoenix, there's not really, I don't know. There's some, there's some big companies around and some companies have some headquarters and even, um, you know, there's, there's a lot of industry going on,

but there's, there's been nothing of the magnitude of something like, you know, Amazon or Microsoft or even Costco, Boeing. Um, there's, there aren't things like that that just have big footprints here. Carvana. Aren't they headquartered down there? I think they're down there. We've got Carvana, we've got a Sprouts farmer's market. So, you know, maybe we got some, we got some, uh, things moving up. Cold Stone Creamery.

Hey, the Carvana headquarters. I saw it once. it is right next to the asu campus arizona state campus and that to me makes it uninvestable that's why they're right next to the arizona state come on that's not but but wait just a second there brett arizona state university is number one in innovation and so um they are the number one university in innovation in the country mit and harvard that's what all the billboards say and so okay okay um so they're they're just getting right next to where all the innovative students are so they can hire them immediately out of asu yeah like they're like you need to get to the the that's what they always say a company needs to be either by the northeast ones

like mit or whatever um and then like bay area ones like berkeley or stanford and they're smaller ones like university of washington or austin or ut austin or some other ones across the country uh but carvana chooses yeah let's do asu i think we want to party a bit at uh okay no it's about the innovation it's not about there i feel like asu does have some oh yeah underrated academic uh like achievement slash like a good a good sort of graduating class of yeah it has an honors it has an honors college there that's really popular and one of the um one of the better honors colleges in the in the west is what they say but yeah that's not serious about avoiding carvana because of that but it was a slight like why'd you choose that i mean there's plenty other areas

in phoenix to go to hey here's the thing though that facility is probably what three times the price in seattle so really keeping uh keeping that uh general and administrative down yeah that's true that's true um you know maybe maybe but that carvana still seems to be hemorrhaging money from what i see from the short sellers on twitter i don't know enough about them all i've soon as their headquarters and they got what is it that giant like like car elevator you know what i'm talking about yeah no those are then those are their old things they were car vending machines that was their old model yeah this definitely got good unit economics all right we got a comment here any opinion on the long-term potential of ui path i don't have any i don't

think anyone here has any uh we don't own it i don't think that's the one seven investing automation right yeah yeah it's uh not robotics automation but well like robotics not in the sense of like hardware but like digital robots where it's like software just soft like solving like uh mundane paths for workforces i would check out simon investing they covered it pretty well um they have some good reports out on it i think we did a uh we did not so deep dive or something like a long time ago when they yeah we did it last year i mean we cover the basics of the business there but if i remember we were like yeah like this is kind of out of our circle of competence but it it definitely was interesting like if a lot of enterprises take it up

all right any other topics i mean this week was crowded just by the musk stuff it was it's the start it was the start of earning season and seemed like no one even cared just because of the yo i must stuff just bank earnings or what uh taiwan semiconductor I didn't have a chance to look. I just glanced at their report. Their revenue grew like 35%, which makes sense because of the semi-shortage. What do you guys think about heading into earnings this year? I think it's, at least from what I've been reading, there's just wildly different opinions on what it's going to look like, especially for the big tech names. and you know there's always a little bit of that right people always have different opinions but it does feel like there's so much stuff going on right now between you've got these high inflation numbers and you've got some questions about obviously the geopolitical stuff going on you've

got questions about supply chain still and but at the same time there's you know the economy is somewhat like has recovered from the pandemic and so it's just this weird kind of crossroads where um we're headed into a summer where people are you know hopefully going to be traveling more um i don't know what do you guys kind of think of the the general landscape right now i think the market will fluctuate yeah and that's something jp morgan said when he was asked for like his expertise on what's going to happen uh no i swear every quarter i think like you know what this is the quarter where the market recognizes the value of all the stocks i own and then it's like it's always just a split bag of like some stocks down five percent some stocks up that's

like all right yeah well let me let me follow up on that like what do you think i think you know we're all long-term investors here right we buy stuff and plan to hold it for a while um i think i probably find to hold it even longer than you guys in some cases but um so like earning season is has always been weird for me because it's like i do care about what's going on with companies i want to check in with them. But I don't know if I've ever actually sold a company based on a single earnings report. I'm trying to think if I would have to think about that more, but I don't think it's happened. It's been like a cumulative effect of a couple of quarters of bad results and stuff. So how do you guys approach earnings season as you're analyzing your portfolio, as you're looking

your holdings um are there things that you go into earnings season going like oh man if this happens then we're gonna we're gonna get out of this stock or you know if this happens we're gonna really double down on our position or how do you guys kind of go about that i don't think we've ever uh i don't think i've ever sold a stock purely on one quarters earnings especially something like the longer term or like something we go into with like a long longer term mindset if there's something where and we rarely do this but if there's something where there's like a certain catalyst or maybe it's like our our time frame is slightly different a deep value investment really yeah yeah like something where we are expecting a big in a big moment to happen to kind of like

dictate what's going to occur for the rest of the for the business going forward maybe that'll change the way we think about a company but i don't know usually we just there's a few metrics that we kind of look for for each business that's a little different or a few metrics that i look for um and i just kind of see the progress on those and then i also try to i care more about management's commentary on like the conference call then and having them miss any one individual number like yeah i try to i try to understand the tone of management and and get a grasp on what they're thinking the business that way even though it's like i don't know sometimes management teams kind of color

their conference calls a little better than maybe the business performing under the hood but Yeah, that's, I think one thing is reading every conference call. Can I still trust management? Usually it's like, yeah, I definitely can. But sometimes you might try to pick up on some things where are they hiding something that I, you know, like, are they not, is there something I saw in the report that I thought was maybe a little bit concerning? And are they not talking about it because they're trying to hide or downplay it or something like that? But back on the deciding on buying and selling, I mean, there's times where we've bought the day after an earnings report, not a new position, but saying like whatever situation, the stock could be up or down, but say like, no, something happened. Like this company is in a way better position now at a better price. It's time to add to our position. but I selling the day after an earnings report is probably a mistake because you probably see something negative. The stock may have dropped a ton or popped a ton and you're like, Oh,

it's time to get out. But I think it can be kind of emotional, but it can be emotion driven if you decide to sell like the day after a report. So I think like giving that room to breathe is always, is always smart. But I think there definitely could be an earnings report. I mean, some, one of some companies, like luckily it hasn't happened to, to us or me, or I don't think it's happened to you guys, where a company just has a terrible earnings report and you can tell that something just totally fell apart. I mean, you probably sell, but I usually think it's good to wait and sleep on it or maybe take a week off because

usually after the earnings report, there's not going to be some other material information that's going to drive the stock up or down, whatever, more. And if you're worried about just that five percent or so that could be just normal volatility i don't know it's kind of worth it to just let it sit after an earnings report because deciding to sell i you can get a little rash if you do yeah i think all my best all my best decisions have been made by like like digesting information for a while whether it's buy or sell like sometimes i'll we'll do like a show on a stock or something like we'll look at it and i'll get like that feeling like oh this is this is you know like a great business to buy or whatever and then two weeks later if i've kind of sat on it

like maybe i'm not as enthusiastic and so i like to wait and just kind of like process the information even though i'm maybe not getting anything else but like spotify is a perfect example like the joe rogan debacle was like that was the only thing in the news for like two weeks and i really didn't know what to think of it and then like two weeks later it's basically gone and no one talked about it so it's like sometimes just giving it time and and it had no bearings on the the user count like no one cared so it was like just giving it a time usually that stuff will kind of boil over and then the earnings maybe if there was like a management like a man like a bit an important player left that's probably the only time that i would like immediately sell something what about

when you guys are opening here's another mechanics question but what about when you guys are going to start a position or add to something do you do you take into account um whether it's an earnings report or maybe i don't know i think i know the answer to technical analysis but um on an earnings report do you like it seems like it always happens to me i'm like oh man i really want to buy this business you know this seems like a great great stock ready to buy it and then i like look out and the earnings report is in like a week and a half and i'm like oh oh yeah do i do i buy it now do i wait for this next earnings report do i split it i tend to when i'm thinking straight i tend to split it and i'll just say hey i like the business this earnings report isn't any you know like i'm

gonna own this i'm hoping to own this for years and years and so i'll just buy a little bit you know i'll buy half of it now and half of it after the report or i'll buy all of it now but um i don't know do you guys have any rules of thumb that you use for that well i don't have any hard rule like either way the the one thing i have learned that even if you do like an insane amount of work before you buy something like you've done basically all the checks like you you you know the business like to the core better than like people in the business do which usually doesn't matter like usually it's just a few metrics that'll ultimately drive the business or a few things that'll drive the business over time you'll learn more while you own the company

like it's just the business evolves like yeah and so that's usually why i think like don't don't have your startup position be what you would consider your full position in the end um and give yourself kind of a little room to potentially add especially if you're like right before sort of a important earnings period or something like that yeah yeah i don't know me and ryan debate this but i kind of fall in a little slightly different of just i don't know if you're confident just buy it all that you want that you want you know i mean obviously don't buy you know be rational you're not buffett don't buy a 50 position of your portfolio but yeah i kind of just fall i caught on like the timing stuff and the earning stuff i kind of

just fall into the camp that that's unknowable what the stock's going to do after the report just i don't know just take the position if you go up 20 after the report if you go down 20 stock price is impossible to predict over a year-long period this also becomes sort of a question around cash management where it's like personal situations matter for these like if you know that you have a stream of income where you can kind of invest it and you can always be fully invested because you're going to have the cash coming in then then yeah i'd say like whatever take the position it's not that big of a deal but if you have sort of a fixed amount of cash or you're not sure whether or not you'll have additional income or a meaningful amount of

additional income coming in then maybe i say like keep a little buffer to potentially have yeah yeah it's there's no right or wrong way i don't think there's a right or wrong way to go about it everyone it's really up to your own psychology i think which is hard to know until you do it so you might make a mistake and say like all right i did it this way but that's actually not something i'm comfortable with all right i'm going to switch it and do it a different way just on whatever portfolio management cash management position sizing whatever but you have to like do it before you learn what you're comfortable with so it's kind of like a it's a trial and error process but i think it's pretty important because over time learning what

you're comfortable with is going to make it so you're sustainable over whatever time period you have most people it's to a certain age for retirement or not even retirement just savings for their family and stuff like that if you want to last forever you got to be able to do something you're psychologically comfortable with. Do you think you guys have become more risk tolerant or risk averse since you started investing? That's a good question. I was actually just thinking about this the other day a little bit. And I think in some ways, I'm going to cheat and say both, but I think there's been, there's been, you know, I've had a couple of stocks that have gone down the 80% or 90%.

Right. And that's never fun, but I've also been able to live through that as part of that's because like you were talking about, I've got steady income coming in. I don't need the money for years and years to come. I've got a diversified portfolio, all those types of things. And so I think in some ways I've become more, uh, risk tolerant in many of the, uh, like in, in, in the stocks that I'm willing to invest in and in terms of individual investing decisions, I've become more risk, risk tolerant. And I was already like fairly, um, risk, risk tolerant to start with, but I've, I'm not, that doesn't scare me in individual decisions, but I think I've found myself getting a little bit more risk averse, um, in terms of portfolio

construction. Um, and for me, that takes the, you know, I think my top 10 positions are something like 60% of my portfolio. So still fairly concentrated, but I've got about 45 positions in my portfolio. So, um, that's kind of one way where I can reduce the risk. Um, you know, have a little bit more, uh, kind of, uh, uh, more market type portfolio. Um, and I think I haven't, like, I haven't really, like no one would look at my portfolio and go, Oh man, this guy's really risk averse. But I think I have realized, okay, at some point here, whether it's, you know, 20 years down the line, 30 years down the line, 40 years down the line, once I go from growth mode to more, um,

living off of this, this nest egg mode that I will, there'll definitely be a transition for me where I, where I get a little bit more focused on, on yield and more focused on, um, just, you know, earning, whether it's through dividends or whether it's just through a high free cash flow yield companies focusing on, um, that type of stuff. but when am I going to see Ian with 50% in bonds ever? Yeah. I don't know. It depends on, yeah. If yields go off, right.

If we, if we start getting four, four or 5% tips, then, um, then I'll be all over that. That's another question. How, that's another question. How, uh, at what rate would you consider buying, having like a meaningful percentage of your wealth and bonds? 10%. No, it depends on what inflation is too.

Yeah, I guess it's true. Yeah, if I could... Right, it depends on inflation. I think, yeah, the opportunity cost, all those things. I think if you started getting up to 5%, 6% yields on treasuries, then

it would be like, okay, I really have to consider that. When it's sitting around 2% or 3%, that's not enough for me to do it. But But if you start to get in, I don't think I would go completely into treasuries. But if you're getting 5% to 6% treasuries and inflation wasn't ridiculous, that may never happen again. But if that was the case, I think I would be tempted to... It's happening right now, Ian.

Yeah. Yeah, I'd be tempted to at least make it a portion of the portfolio. But the thing is, we don't know what the opportunity universe for stocks will be if yields are a lot higher. so like what if the opportunity seems so much better kind of like the 1980 type time period bro have you become more risk averse or tolerant yeah i was thinking about when he was talking uh i think when i was starting out i didn't really know what risk was so i think it's hard to quantify but now i don't think i still don't think i do i don't i mean risk is just kind of something you got to think about like what risk you're comfortable with taking so i think i'm more

risk tolerant in position sizing if it's something i have extreme confidence in and i'm very risk tolerant in a stock in sizing a position and if it drops 70 i it doesn't affect me too bad it affects me but it doesn't affect me too bad anymore but risk averse on the business on businesses okay so when you say confidence in do you mean business confidence just purely like 10 years from now the business will still be around no doubt my mom yeah or is it more quantitative margin of safety uh i don't think margin of safety can be quantified except in extreme certain certain extreme situations where something's trading at a super deep value situation so scenarios yeah so i think i'm pretty risk averse on the business side

where i just want a quality business but i'm from the stock side i'm extremely risk tolerant like i don't know if you guys kind of get what i mean there yeah i think that was a good way to put it I would think that I'm, I would think that I've grown more risk averse, but if I like, when I first started, I mean, when I first started, I kind of took like, I played as conservative as I could because I was afraid that I was like too naive, which ended up being the right move. It was all pretty much ETFs and index funds. And now I look at it and today in my personal Roth, I have one stock that's like, and my Roth isn't, most of the money I have is tied up in the fund, but my personal Roth, I have one stock that's like 50% and I would have never felt comfortable doing that three, four years ago.

I think part of that is just because I hope that I'm going to make more money over my life and so i know that it's like not a huge proportion of my future earnings like my current worth so i know that i can take bigger risks like take bigger leaps um but i still you know i've still never moved into options you know i never like i've never turned it into like a like gambling it's always felt very which is like still when i think about like the general universe of investors I would say it's still probably pretty risk averse. Yeah. And yeah, it depends how you define investor.

A lot of people are, you know, traders. So yeah, I don't know. It's tough to, it's so hard to quantify. There's so many different risks out there. It's, it's kind of, it's tough. There's so much, so many variables at play. Okay. So if you, if you had to, if you could pick, you had to, you could only have one stock.

I'm not saying that you have to name the stock. You can only have one stock for the next 10 years in your portfolio. What are you primarily looking for? Just durability? Like it's going to be there in 10 years? I'm looking for a monopoly in a durable industry or a conglomerate with a lot of diversified business interests. One of those two. That's cheating.

So no conglomerates? No conglomerates. Ex-conglomerates, I'm looking for a monopoly or a duopoly or whatever in a durable industry, trading at a reasonable price, which, you know, is crazy cliche. Right. That's what I was going to say. Probably something that's, you know, got a decent, decent free cash flow yield on it. So you're not at risk of just getting hammered on valuation. But then, yeah, durable industry, durable business in a good industry. would it be a did would you venture into the digital world or would you prefer physical yeah i'd be fine in the digital world i think i'd probably only go digital i think i'd probably i think i might stick to like physical just because it like there's certain companies that i think are like are the upside is probably not as good but there's certain companies that i

am more confident won't change or where maybe it's an industry that won't attract as much capital like i don't think in 10 years someone's going to completely supplant costco i think it's very difficult to do even if the world changes a ton yeah but their margins could get i mean their costs could get out of whack because of macroeconomic factors i want to take there's no terminal risk uh yeah well non saying zero is probably there's minimal minimal there's less trauma risk than the potential I would think

like there's some there's some risks with almost any digital business in my mind that they will that they could disappear yeah

but like they're there I want it yeah but on the flip side I want to take as little macroeconomic risk as possible, which basically to me just means inflation or, you know, every business is taking inflation risk, but there's energy, shipping, logistics

risk. I want to take as little of that as possible. So that's what leans me towards digital. Yeah, I could see that. All right, Ian, you have anything? We're wrapping up. We're on five minutes late. We usually try to go 10 to 11, but we're at

11.05 here. We started about 10.05. anything else guys before we close i have one question that i've kind of been thinking about lately um and it's with it it and i swear people probably say this every time but i do you guys think that the largest companies in the world today will let's let's take maybe the top three which are what microsoft apple and amazon or google at this point google i think Because Amazon's stock's been pretty flat. Do you think those three will still be in the top five in 10 years? Base rates say no.

10 years? Okay, 10 years. 10 years isn't that bad. But I would also say, and this is probably what they say every time, that the top three businesses have never been this competitively advantaged. The largest three businesses have never been this competitively advantaged or this high of quality? I would say yes, as long as I get to combine the value

if they get broken up. Okay, I like that. 10 years isn't too long on those kind of charts where usually the turnover is pretty stark on like a 20 or 30, more like a 30 to 50 year time period. It's very, very stark. I would probably lean towards them still being one of the large, you know, some of the largest,

And if you look at those charts from each decade, there's quite a bit of turnover every time. And I would not, I don't know, betting against that just because these ones look good. Like, yeah, they look good. That's why they're the biggest. I don't know. Capitalism, maybe I would hope they're different just because that means capitalism is working correctly. But it doesn't mean they have to shrink. It's just that there could be some other companies that are larger.

Who knows? Who knows? It's a fun question though. Should we wrap this thing up? Yeah, let's wrap things up. We have the disclosure at the beginning. We'll have the disclosure in the notes. Remember, I just want to say this every time.

None of this is financial advice. Do not take anything we say here as a recommendation. We actually, I forget everything really that we talk about immediately after. I actually was trying to think, but that's going to do it. Thank you all for listening. Watch it on YouTube.

If you're listening to the show or listen on the podcast, whatever. We'll see you guys next time. you