Chit Chat Stocks - Roaring Kitty is BACK (maybe?); Executive Turmoil At Boston Omaha; Is Google Winning The AI War? (BOC, GOOG)

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 today we've got our power hour episode and we are joined by well i should introduce myself here i'm one of your hosts ryan henderson and i'm joined by brett schaefer as always but we have a special guest recurring guest i believe you've been on the i don't even know how many times you've been on the show but we are joined by jason hall host of the

Starting point is 00:00:54 Investing Unscripted podcast. Jason, how are you this morning? I'm good. I want to say too, I appreciate you calling me a special guest. I'm more of an adequate guest, I think probably. But yeah, I've been on a lot of times and I'm always, always happy to come on. It's a lot of fun. Nice. Yes. Well, we've got plenty of topics for this week and we've got a big announcement from a company that you follow very closely. So I'm excited to dig into that. But before we get started, I want to talk about one of our friends. I'm going to let you in on a little secret to chat listeners. You know how much you hate fees on options trading. You know how these fees can be as high as a dollar per contract. Public.com has just launched a first of its kind options

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Starting point is 00:02:18 podcast description us members only let's get right into things i i think we should start with the boston omaha news is that okay with you brett that's good with me yeah i added it in there i especially added in there because i know jason has followed the company for a long time and yeah huge news who wants to who wants to take it should i read the summary of what happened yeah brett you give the basics and then we'll we'll cue in jason for his expert take yeah i don't know how much he likes you called of a expert over and over but i agree with you all right let's just read some quotes from the press release let's get this clear special expert yeah we're all just uh uh as your show says doing it in unscripted manner

Starting point is 00:03:05 all right that's right let's read the press release so boston omaha announced that alex rosek co-ceo and co-chair has left the company effective as of may 9th so now which was the day which was the day after or the day before the day before the release came out yeah and they said to pursue new entrepreneurial opportunities adam peterson will continue to lead the company as chair and ceo other quote here boston omaha is committed to focusing on our goals of expanding margins in our existing businesses reinvesting cash flows into profitable business opportunities expanding our investments and billboards surety insurance and fiber to the home as has been the case since boston omaha was founded allocating capital to its best and highest use within our

Starting point is 00:03:53 opportunity set will be the guiding principle um one thing jason do you think you could turn your mic up a tad i think you're a little quieter than ryan there maybe a couple notches honestly How's that? Is that better? Maybe I'm just shouting. Is that good? No, I think, yeah, Ryan does talk a little loud, but we'll try to make it. How's that? Is that better? Let me get my mic a little higher. Yeah, yeah, maybe get the mic there. All right. All right. I think we're good. I read the quote there. Jason, you'd followed this company or have followed this company. We'll let you give your thoughts first. Yeah. So just for anybody that's not real familiar with Boston, Omaha,

Starting point is 00:04:29 The basic thesis here is you've got two young, heavily skin-in-the-game investors. These guys were in their 30s when they founded the company. It's been about nine years ago since, I believe, Boston Omaha went public. Co-CEOs, the idea is skilled capital allocators building out these operating subsidiaries that they have, surety insurance, which is like if you've ever had a skilled tradesperson come in your home and you want something that's bonded, right? So they're insured against like theft or damage or that kind of stuff. That's what surety insurance is.

Starting point is 00:05:03 They have a billboards business. And more recently, they've started a fiber optic cable business as well. The idea has been that they were going to allocate capital in one of two ways, right? They were going to take these core businesses and grow them, right? Allocate capital to expand them, buy more billboards, acquire more insurance agencies, move into more neighborhoods, mostly like new build neighborhoods with their fiber business, but also go out there and shop for other opportunities. If you think about some of their successes, their big wins, DreamFinder Homes, right? They led that company public.

Starting point is 00:05:37 They were a large pre-public market investor. They completely exited that position some time ago. The stocks actually continued to run higher, but they sold, they made a lot of money. They wanted that money to go after other things like starting up the fiber business, right? um um sky harbor is a company that they were a pre-ipo investor in that's done really well they still have a position there um in that business um so again that's the idea is it's like the the whole baby berkshire right so that's kind of you know that gets thrown around there's lots of those companies and oh by the way um alex rozek happens to be um the the great nephew of of um of warren buffett right so yo this is really the next berkshire hathaway right well

Starting point is 00:06:28 apparently not because that guy's out the door um questions at this point i keep going i'll i'll intervene here yeah i think we actually have uh i should say first uh i keep track of the comments on the live stream we do have your co-host and investing up scripted jeff giving you some trash talk in the comments dear god 1789 called and they want their hairstyle back which i gotta say it's fine it's not bad that's not a bad touche touche jeff jeff go go back to work um ruining america's youth okay let's on alex on alex rosek yes what did you think of did you ever have any shaky feelings about either of them prior to this announcement so i think the bottom line is if you look at if you look at the results of the business

Starting point is 00:07:24 besides a couple of big wins in public markets you look at the operating results they haven't been great right um the economic returns of the operating businesses haven't been good they they generate a little bit of positive cashflow. They just reported Q1. They just dropped that release yesterday, I believe, maybe the day before, but generally report operating losses. Now, part of it too, you can say, well, they're scaling up, right? So they're adding a lot of capital assets. So there's depreciation costs that are growing maybe faster than they can scale those assets. You can kind of make that argument. But the economic returns just haven't been good. Again, except for a couple of those big hits. And my position has been involving on

Starting point is 00:08:08 this. I own some Boston, Omaha. It's a relatively small position. It's less than 2% of my cost basis. So it's not that big. I think this is a good time for investors just to kind of stop and think when you have this kind of change. Because my initial thought had been, so Rosex out, the economic returns haven't been good, maybe this is good because now you have the entrepreneur leaving, right? That's like Peterson was commented that he's an entrepreneur, that Rosex is an entrepreneur at heart. Really, if you start looking at the business, those are actually the things that have done well. The things that Peterson is saying, we're going to double down and we're going to focus on our core businesses, allocate capital from cash flows back into those

Starting point is 00:08:54 core businesses and focus there that's good because they haven't done well but they haven't done well right so i again i've kind of struggled with this and i think it's one of those things where i get it why rozak has left and why peterson has remained because rozak again seems to be the one that's the creative that's out there he's a hunter right he's looking for those opportunities and it seems like peterson's maybe more the farmer where he's kind of taking care of the existing assets and trying to optimize them to generate as much yield and results as you can from them. So now here's his opportunity to do it, right? And for Rosek, it made sense to leave because, well, the operating business wasn't generating maybe the cash flows that

Starting point is 00:09:43 Rosek would want to see. And then from a market value, it's consistently over the past year or traded for a discount to book value, which means your equity is not a premium asset to do like secondary offerings to raise capital. Interest rates have gone up. So debt yield is not maybe that's maybe not the best way when you're not a AAA rated business to get capital, right? So all of a sudden, it's not an attractive asset for the hunter to use as a leverage tool. um and then the reality the other reality too is thinking about peterson um they both owned a similar amount of like the non-trade the super the super voting non-trading shares they had a similar amount peterson owned like uh three-tenths of a percent more like they basically were 50 50

Starting point is 00:10:32 there but peterson also owns a lot of the common float so his economic interest in the business was actually a lot larger than Rosex. So that was another thing that I'm sure came into play is that the person with the bigger stake in the business and plus also wants to focus on what the core business is, is the one that wants to stay. It doesn't make sense for Rosex to stay if this is not his style of investing and the assets are not going to support what he wants to do. So here we are yeah i think uh a couple things there i will say one i can understand why the stock's done what it's done like there's no reason for any investor that's not maybe even analysts maybe even someone's a little short term to say why should the stock be higher because as you said the operating

Starting point is 00:11:18 performance of these businesses well not terrible there's nothing to get excited about at this moment second i can understand people pitching it today as sort of a turnaround play as you mentioned it is fairly cheap, but I can also, and I read your newsletter, I believe it was the investing unscripted one you guys do, where you said that you have to be at least a little bit concerned for yourself and try to look a little introspectively about moving the goalpost. Do you maybe want to talk about that? Because I thought this is a perfect situation for that. Yeah, I think that's the case, certainly for existing investors. And we always do that when we have a business that we've taken a stake in, it's human nature. We're going to defend

Starting point is 00:12:06 like our turf, right? And if something fundamentally changes with the business, it's impossible to be objective and say, okay, that's a bad move. We're almost always going to be inclined to defend whatever has changed because we're invested in it, right? And that's how humans are wired to do it. So there's a ton. I've seen a ton on Twitter over the past week since the announcement came out that, oh yeah, Rosek really wasn't very good anyway. Peterson's the better capital allocator. This is a stronger business. This is good news. BS, guys. You're just saying that. You don't know. Yeah. Right. We don't know. Ryan, you've got something. Jump in, bud. Okay. So I do have – well, we went to a Boston Omaha shareholder meeting and I kind of got the sense throughout that meeting, just little, I don't know, social cues where sometimes Rozek would speak on subjects and you'd see Peterson almost visibly kind of get, I don't know, nervous in a way.

Starting point is 00:13:13 like he didn't want rosek to speak on certain topics and i and i at first i didn't read that much was this last year's meeting no this was before three three years ago so it was a while back lots happened since then yeah but i didn't read too much into it it did feel a little weird it didn't feel like they were necessarily best friends um then they did get a huge pay package at one point which seemed a little weird for two ceos that own a lot of the business And then this was probably the thing that irked me the most. There have been a lot of articles written that say Warren Buffett's grandnephew is the next big thing. And some of that is stuff he can't control, right?

Starting point is 00:13:57 I mean, if someone wants to write that because the information is out there, that's fine. But there was – here's an article from – that Sky Harbor Group reposted. Business Insider, Warren Buffett's great nephew, appears to share the billionaire's investor's taste in business appetite for acquisitions. He could have prevented Sky Harbor Group from reposting. Alex Rosek is on the board at Sky Harbor and Boston Omaha chose to ask him to remain on Sky Harbor's board as the Boston Omaha representative. So that was probably his idea, I would say. I don't know if it is necessarily his idea to repost it, but he could have easily – oh, to stay on Sky Harbor? No, his idea – like Sky Harbor was his idea.

Starting point is 00:14:48 Oh, no doubt about it. Like that investment, I'm sure. I'm sure it was – yeah. But what I'm looking at here is them essentially making a press release about his association with Warren Buffett, which to me, it kind of felt like he liked the press he was getting from it. Maybe it was bringing them extra investors because they thought there was some gene in the Buffett family that allowed them to be superior capital allocators. Maybe there is. But I don't like when I see that kind of thing. And it felt like there were some red flags here that we could have detected.

Starting point is 00:15:29 I try to not read too much into that because there's – certainly there's the case that he knew about it and – wholeheartedly supported it or knew it was happening and didn't do anything to stop it. But there's also a possibility that he found out when a PR person forwarded to his email, like two hours later, and he called somebody up and he's like, what the F are you guys doing? We don't know. Right. So I try not to read too much of that, but I think the bigger thing for invest investors like to think about is like,

Starting point is 00:16:00 and one thing to like to kind of lean into like the, like believing the press part, but maybe also just realizing, Hey, hey, as a company, Boston Omaha, we need to do a better job of talking to the investing public because they don't do calls. They don't even pre-announce. They don't say, we're going to release earnings on May 15th. They just drop the press release and the 10Q when they release it. I mean, so it's almost like they're trying to portray themselves as being like a Berkshire Because Berkshire does the same thing, right? They just release their earnings and they just do it. They don't hold calls or that kind of stuff. Interestingly enough, over the past four or five months, Roszak has been more actively talking to the investing public. A colleague and a friend of ours, Matt Frankel, was fortunate enough to have a couple of conversations with him and he's got a pretty big stake in the business. Um, so, so there's, there's clearly like, and I think this is the big thing.

Starting point is 00:17:01 There's clearly been some sort of a divergence, um, of, of approach, right? I think it's the capital allocation number one, and then one a, there may be, have been some divergence of how do we need to present our company to the investing public, um, to, to kind of have some influence on the narrative around our business. Right. And it seems like that's been the biggest divergence, honestly, was the capital side because of everything that's happened with interest rates, probably more than anything, and the discount to book for the stock combined with the operating results not being great enough to really give them the highest credit rating to get the best rates on debt. I mean, they closed their asset management business earlier this year, right? So it was pretty clear outside capital was becoming less and less of a focus, and that's definitely going to affect somebody like Rozek, who is more the hunter, I think, broadly.

Starting point is 00:17:59 I know you guys need to move on here pretty quick, but just the last thing I want to say, anybody that's looking at this as a deep value play, I think we should be careful. I think it's probably undervalued just based on the quality. They're good assets. They're decent. But here's the one thing that can unplug it. What's the market cap today? $500 million, $600 million? I'll get that for you right now.

Starting point is 00:18:22 Okay. Yeah. Pull that up. On FinChat. $431 million. Okay. Yeah. It has come down.

Starting point is 00:18:29 Just below $14 million. So $182 million in Goodwill on the books. $182 million in Goodwill. So you add that back in and you add that to the market cap and bring it up. And then all of a sudden you get closer to like a 10% premium to book value, right? Right. So the market's clearly saying, we think you've overpaid for some stuff, right? So, I mean, they're cash flowing assets though.

Starting point is 00:19:00 So I don't think they're going to have to liquidate any of them. So you start carrying the value out over long term, it's probably below fair value. But that's my last thing. Don't have to rush into this as some deep value play and the stock's going to pop quickly at some point. Yeah. Okay. Final question.

Starting point is 00:19:22 Okay. I'll answer it too. I'll ask both of you guys. Does the last year of events with Boston Omaha make you more confident as the company being a never sell in your portfolio or less confident? Less confident to neutral. There's a part of it that makes me potentially more confident because it does clarify. exactly what they're going to do, and you have one voice coming from the CEO seat who's laser

Starting point is 00:19:47 focused on the thing that is the detriment. But we don't know if the assets are the right quality, and we don't know that he is the right leader to be focused on allocating capital in that area to find out. Ask me that question again in a year. All right, Ryan. So this is actually funny. I came away from that shareholder meeting that we went to thinking I kind of preferred Adam Peterson. I was also pretty happy when he was added to the Nelnet board. And it did kind of feel to me like Rosek was maybe the more promotional one, if we want to call it that. And I remember sitting down, I went and got lunch with John Rotonti and Tim Byers, and we talked about Boston Omaha. And I said, I kind of got, I kind of have a bad feeling about them. Like there were some red flags. It was whether it was the social cues between Rosek and Peterson, the pay package that they got. I remember one of the answers he gave about the allo communications business at the shareholder meeting was a little concerning too. He's like, this is the perfect business. The only thing

Starting point is 00:21:00 holding us back is like he said, we have wonderful margins on it. The only thing holding us back is just the labor shortage right now. And I'm like, okay, why don't you just maybe contract the margins a bit and add some labor or pay your labor more. But there was just a bunch of little flag little yellow flags if we want to call them that and i said and we sold our shares or i sold my shares and i didn't really want to be a part of it so and tim said whatever that feeling is where you kind of maybe there's some sort of distrust there he said really trust that feeling because that's the stuff like that gut feel matters a lot and i thought it was kind of prescient i thought it was a really good point from him that if you start to get that tiny gut

Starting point is 00:21:45 feeling that something's off, it's worth paying attention to. Yeah. And even if it's not off, I guess this is a broader lesson for everyone. Even if everything was fine, there's a lot of pitches out there you can swing at. So I think it's better to be extra safe and you can have some false positives there, but it helps you make sure that the real positives don't blow up your portfolio if you go crazy into a company like say boston omaha at 40 and now it's at 14 and it's a bit of an uncertain situation that's not really where you want to be i'll answer i guess i'm i'm less confident slightly i do agree with ryan that i think peterson is pretty sharp so i don't and the stock's cheap here, but the confusion, the seems to be disorganization from the, the, the

Starting point is 00:22:40 company, um, it just doesn't inspire confidence from me that I should trust this executive team, you know, even the whole team running this company to generate value for me. Last question on this. So I guess we didn't even mention this. Rosex shares were purchased by the company, right? Yeah. Would you characterize this as a fallout between the managers, Jason? TBD. I don't know. I don't know. I agree with Brett. I don't know if fallout is the right way. I mean, sure, to a certain degree. But I think that assumes a certain amount of emotion. Um, so I'm sure to some degree, yes, but I think the reality is just that, that structurally, uh, Boston Omaha is not going to support somebody that wants to use outside capital as a growth engine for acquisitions, right?

Starting point is 00:23:38 It's just, it's, it's not the right tool for that anymore. So it made sense for Rosek to move on. All right, let's hit another topic. this one i think would be fun although it might have just been a flash in the pan uh roaring kitty is back the meme stocks are back or we're back for a couple days here i'll get into some of the numbers we can kind of look at what the actual performance is um i will say this became news i'd say even outside of the investing world i saw quite a few people talking about it and messaging me about it but let me go through what happened in case anyone didn't notice uh the roaring kitty

Starting point is 00:24:16 account on Twitter has resurfaced. It hadn't tweeted in over three years, but then just started posting video clip highlights that seemed to insinuate that it was time to get the band back together, which he didn't directly say, all right, it's time to buy GameStop, but that I think a lot of people could understand what he was trying to infer there. And I guess as I wrote this, It said the stock was up 150% in the last few trading days, but it's down, what, 30% today? So let me see what it is now in the last five days. Only up 67%, not really much of a meme pump there. Down 31% since Monday, Friday, I guess, Friday, I guess.

Starting point is 00:25:00 Now, I guess the question is, why is he doing this? Is it even him? Is this, you know, just a pump and dump? And I guess what's interesting is someone tweeted about this. There was a case that went to trial of, I'm not going to read this full quote that I took out, but apparently there were these, the security fraud charges brought on by the SEC and federal prosecutors about a group of pump and dumpers. they use Twitter, Discord, and a podcast to pump penny stocks. The defendants were online nicknames Mr. Zach Morris and Mystic Mac and the stock Sniper. And the podcast was titled Pennies Going in Raw, which I've got to say, those are, I guess, some aggressive names for all the companies. So the SEC complaint, there are these people that had Lamborghinis. They were saying things like,

Starting point is 00:25:51 we're going to pump up money into these penny stocks for the followers. But then in their private chats, they were saying, we're robbing these effing idiots of all their money. So you would think, hey, these guys are going to jail, right? But according to a judge in Texas back in March, so just two months ago, the judge ruled that these were not pump and dubs for a strange reason that they were not directly selling stock to the people that they were convincing to buy these penny stocks. So the pumpers, I think they're free. I don't know what kind of charges they had against him i don't know anything about this specific situation but it seems like if you're roaring kitty maybe you looked at this and said well hey why don't i give it a shot i'm kind

Starting point is 00:26:37 of the law has me covered now but one question i have too as you guys go into this is this even roaring kitty ryan maybe you go first here's the thing that's kind of interesting couldn't those if you if they pumped up the stock those the three people in that case couldn't they may have sorry i phrased that word may have may they have been the ones that were selling directly to them like we just don't know who the buyer and sellers were in a liquid market right like there's a certain amount of shares that are available for sale they could have been the one selling those directly yeah the judges it's not direct right it's going through an intermediary so yeah yeah yeah but still i mean this that's a fun question it is is it is it

Starting point is 00:27:25 roaring kitty yeah i don't give a damn i think that's my because it's fun either way it's fun either way and okay here's the interesting thing that i remember reading this from matt levine memes are difficult to interpret from the law like from a legal perspective some guy posting someone leaning forward in a chair if he owns gamestop prior to that is that him pumping it he knows what it'll it doesn't matter it doesn't matter right it doesn't matter and ryan i encourage everybody to sign up for that the money stuff newsletter and start listening to their podcast i don't i mean don't listen to it instead of investing unscripted or chit chat stocks but if you have room for another podcast third third on your list yeah there you go there you go

Starting point is 00:28:15 Um, that's, that's exactly it. So, so I'm not a lawyer. I've never even played one on TV. Um, but I, here's what I do know about this particular bit of law. You know, this is why penny stock newsletters are legal, but boiler rooms are not. Okay. Because a penny penny stock, the, I don't want to get into politics here. Um, but, but the federal, the way the government views its role, and I think it makes sense when it comes to law and regulation. is that the government doesn't have an obligation to protect people from harming themselves, but it does have an obligation to protect other people from harming them, right? In other words, a boiler room, when you're actively forcing, not forcing, but when you're aggressively calling and actively selling pump and dump stocks, right? That you know that you bought at a lower price, you know the asset is useless, And then you sell it at a higher price to somebody to exit the position and make a profit, even though, you know, you're selling them garbage, right? That is, that is pump and dump, right?

Starting point is 00:29:23 So using social media to get idiots to do dumb things because they don't know better. Is it bad? Is it unethical? Sure. Is it potentially some other sort of security fraud? maybe depending on the specifics but it's not necessarily a pump and dump from the perspective of how that has been legally classified right i think that's the important thing to remember i do think if you are judging your financial decisions off of a meme on twitter there may be an element

Starting point is 00:29:55 of natural selection going on here you probably deserve to lose money um maybe it's the best tuition you'll ever pay in investing and you'll learn not to do stupid things like that and you'll find you guys or or us or some other reputable source of information to help you actually figure out how to do it well right yeah it seems like tuition endlessly though and never learned anything which is quite quite unfortunate um in their defense not the government's job to fix they are crushing some of my returns so far this year if you're a gamestop shareholder so far yeah it seems like it did help a little bit yeah i say my takeaway is people don't okay it seemed to me like there was more like buzz around the anticipation of the return of the meme stocks

Starting point is 00:30:43 when in fact it didn't really work this time maybe this will you know maybe this will uh i don't know look bad in a week if it goes into overdrive but it seems like there was just no one actually cares this time. It was kind of like, oh, it's back. I mean, these tweets were getting like 20,000 retweets, at least some of them, or at least the first one. And yeah, it seems like look, the stock's not even up 100%. So it didn't really work as well. I mean, last time, what was it up like 5,000% within a few weeks. And then the second thing is, I think Ryan talked about gut feel. This, it feels like a time in the market where people should be a bit defensive just in general like defensive in your portfolio allocation

Starting point is 00:31:33 yeah and okay last time this happened i remember thinking there were pockets of excess in the market right the gamestop craze amc kind of certain businesses were extremely overvalued But I kept looking at the market overall and thinking it doesn't affect the big indexes. It doesn't affect the market at all. But I think those little pockets of excess, it should be more of a tell in terms of my internal barometer of where I think the market's at. When we see things like this, where it kind of reaches extreme levels of people punting or gambling, whatever you want to say, maybe it should be a little bit of a cautionary signal. Three thoughts here to close this one out. There are always pockets of excess.

Starting point is 00:32:34 The market is far more healthy and normal now than it was when this was happening back in 2021. people have, and this is tied to that one, people actually have stuff to do now, right? And this is the last one. Besides having fun with it and water cooler conversation and on awesome live streams and podcasts, we should all just ignore the hell out of this. And it should not affect how we invest in any way

Starting point is 00:33:00 besides as a cautionary tale that we share with people that are maybe trying to find their footing. I think that's probably the right takeaway. Yeah, that is a good takeaway. I don't, like I've said, I think three times already, I don't think anyone really cares this time and neither should any of the listeners and neither should we. All right, Ryan, we're halfway through the show.

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Starting point is 00:35:21 for by public investing options are not suitable for all investors and carry significant risk full disclosures in the podcast description us members only moving on brett any topics that you wanted to discuss this week yeah do you guys want to talk the i called it ai update uh but we got uh i guess it seemed like dueling a little bit of dueling banjos we had open ai say that they're going to do an announcement right around the google io event and we just got a lot of of new products launched uh as the ai what is it called uh wars maybe we i think we can call it the ai wars they continue and it seems like well there's just a lot more i mean if anyone thought it was a bubble at this time last year they you know just think of all the researchers that are

Starting point is 00:36:15 going into this so let me maybe give for the listeners some overview because not i saw a lot of the techie type people on twitter watching this stuff but i'm sure not everyone watched these live streams so we had both alphabet and open ai put out new product announcements first open ai came out with what they called chat gpt4 omni which they're calling chat gpt4o for short first stuff i gotta say i never i haven't tried this product but the name not good guys we need some revisions there that's a little bit weird too many letters too many letters too many i don't know really what's going on but apparently they upgraded it to make it more conversational and like a voice assistant but one that's much more smart so you can talk to it more in a conversational

Starting point is 00:36:57 tone use image capture to explain things and then it'll come back to you in almost real time and talk to you either through you know messaging on a screen or voice or give you an image or something like that and then it can also do real-time language translation um with this one i guess does this excite you guys at all is this some i one thing when i follow open ai is they're very good at you know getting their people to understand their product um is out there but since the launch of chat gbt3 i don't know if anything has excited me that's that's come out of them i don't know what would you guys what do you guys think of this and i should also say i guess the day after this the chief scientist one of the poor leaders of the

Starting point is 00:37:45 company announced that they were leaving so maybe i know we got two ai experts here on the call but ryan maybe uh you want to start sure uh first of all i found it kind of funny that this huge announcement this chat gpt four point uh it's kind of a weird oh um anyway these new these new updates were overshadowed by a guy that posted a meme um it seems like in the news more people paid attention to the game stop stuff that day but i thought some of this was cool for anyone that didn't see it there's a basically live translator which just to be clear google has had that for a while so i don't know why everyone's treating it like this is revolutionary but chat GPT is rolling out a live translator that allows you to basically speak into it.

Starting point is 00:38:38 It can interpret it, change it, and it's supposed to help with language barriers. Most important part, Ryan. It sounds like Scarlett Johansson. Yeah, it is weird how seductive they're making it, but yeah, they seem to be inspired by the movie Her, which is like a dystopian way that technology goes down the wrong path. And I was like, guys, I don't know if you should be inspired by this, but sorry. continue ryan anyways uh duolingo stock actually kind of collapsed a bit on this news which i it kind of reminds me right now of in i think it was around like 2015 time period basically

Starting point is 00:39:19 anything amazon announced a whole bunch of stocks in that industry would sell off remember that it was like we're entering we're opening a grocery store and then target would like tank 10 it kind of feels like opportunity for target yeah it feels similar in this case where people think ai is going to crush all these businesses in the short term but i would be surprised if it really impacted duolingo's usage yeah i don't know i don't know there are use cases there are use cases where i think ai will do a good job replacing certain businesses customer support is probably the biggest one. So if you have a customer support type business like that Polish company, Text, which I could be wrong on this. I imagine it's a big threat there. And

Starting point is 00:40:07 it's probably why the stock trades kind of cheaply relative to other software companies. Yeah. I was going to say that over the long term, technology is disinflationary, right? We know that because it improves efficiency so much. And I do think when it comes to language software, Honestly, I put language software and like the physical fitness industry in the same bucket is these things that we get really excited about that generally are crappy investments because they're niches. Right. And we think the TAM is everybody on the planet and it's not right because the addressable market is always much, much smaller. And I do think if we look into the future decades, the idea of needing to learn a new language is going to disappear because we're going to have an AI in our pocket and in our ear that's going to translate it in real time conversationally, right? And then we're going to speak back to the other person and they're going to hear, we're going to speak English and it's going to translate into French or German or whatever. And they're going to hear it in that native language conversationally, right?

Starting point is 00:41:08 I really believe that is the future and people are going to learn new languages because it's interesting, not because they, they need to be able to do it. Right. Um, but definitely in the near term, I think like those dislocations can be opportunities. Um, I have a question for both of you guys though. Um, this is something we had Simon Erickson from seven investing on our podcast a few weeks ago. Um, and, and he, I asked him the question and I kind of, I knew what his answer was

Starting point is 00:41:36 going to be, and I've kind of been thinking that way, is it AI bubble or something else? And he said inflection point. And I think largely, I agree with the caveat that there are always bubbles within every inflection point, right? Because there's no doubt the dot-com period in the late nineties, we were in an inflection point where so many things were moving to the internet, but we were way over hedging how quickly it was going to be and how valuable those businesses were going to be. So we're seeing that too. So I'm curious, what do you think about that? Yeah, it's funny. I will say on the internet example, all those people that were called just, oh, you're so crazy for being this optimistic about it. They were right, but just 15 years later.

Starting point is 00:42:17 Right, right. Yeah, I think it can be both. Which when you're an investor and you're right 15 years early, you're wrong, right? Right, yeah, yeah, exactly. Especially if the stock is priced like it's going to be right tomorrow, you're almost certainly going to be underperforming the broader market. So I will say I think it's likely going to be a bubble or turn into a bubble, but also be an inflection point. I'm not exactly sure, just given the fact that I'm not an expert at all on this AI stuff, how revolutionary it's going to be or what fields that are. But it feels like there's a lot of meat on the bone here compared to, say, the voice assistant hype of the past, which I never really understood. that kind of flopped uh you know the metaverse was i don't want to say obvious in hindsight not

Starting point is 00:43:05 gonna take off a year from now when we barely have been able to get vr goggles to work without people throwing up but it seems like there's some yeah meat on the bone here and i do not know i guess whether we're in a bubble right now i'd say probably but it might not matter over the long term it'll still work i i would trust someone who's followed us more closely and played it exactly perfectly, at least so far, which would be the investor we covered recently. So he's on top of mind here, Stan Drunkenmiller, said that he was worried about kind of overheating in the short term with a lot of the AI related stocks. That's why he trimmed his NVIDIA position, which I guess I was the deadline yesterday. Maybe I can, I'm actually going to look up

Starting point is 00:43:49 how much he trimmed it. But Ryan, what are your thoughts? I don't really have any particularly insightful take here. I think it can be both and it probably is both over exuberance in the short term, but certainly a useful technology in the long run and probably will have a massive impact on the world over the next decade or two. But probably a lot of money will be lost in the process from investors. I want to also – there was this question that we didn't get to last week. So I want to make sure we address this and it's on the topic of Stanford. Yeah, we're on – well, let's hit the other part of the segment here with Google's announcements. So we have, I guess, the day after, I believe, for the OpenAI event, which has got to be tough if you're a startup. And then Google's just like, we're competing with you.

Starting point is 00:44:44 We have, we can spend $10 million on this event. It's irrelevant to our bottom line. And we're just going to be, I don't know, that would just, that would just be a tough position to be in where you announce something and Google's like, no, we're going to do a product announcement the day after and just crush you. But here are some of the things that they announced at the event. They are embedding Gemini, which is their AI product, similar to the chat GPT type stuff into google photos android youtube google drive google search gmail and maps essentially everything

Starting point is 00:45:13 to hopefully improve those products the next generation of their tpus which is their ai computer chips i guess would be the layman terms to call them that that's about all i know about them but they're coming out and the key is they have 4.7 times so basically five times a performance boost from the prior generation which is an advantage they have versus any other competitor that, you know, they could either have these TPUs or sell them on the cloud. They came out with an updated Pixel phone and Pixel tablet with AI-embedded stuff. It looks like they copied OpenAI's video generator, and this part, which I think was underrated, was announced at a different time.

Starting point is 00:45:52 This seems mildly useful to me. Quote, in a paper published in Nature, we introduce AlphaFold3, a revolutionary model that can predict the structure and interaction of all of life's molecules with unprecedented accuracy and i'm missing a lot too i probably about half the things in here the question i have is is there a single company in the world that can compete with alphabet in ai because i i honestly think they're in such an advantaged position in what way just distribution holistically they have the computer chips that they've spent a decade on that is way at advantage they have the best ai research team that's way ahead of i mean there's not a single company that could

Starting point is 00:46:35 could have come up with this protein and molecule prediction thing they have the largest distribution of users of like okay they can basically say we come up with this ai product and we can immediately get it to every single person in the world through multiple touch points google photos android youtube google drive google search gmail and maps there's i mean some companies have part of this right on the distribution part meta has that on the cloud part microsoft has that but they don't have it on the chips they've been way behind on that i don't think any company has the combination here i disagree i think microsoft as an investor they have a much clearer path to monetizing it alphabet is positioned to continue collecting data to grow it um to potentially make it better

Starting point is 00:47:29 but I don't know that it really creates value when you're selling ads, right? I don't know that it's an incremental boost to the bottom line like it is for Microsoft where they can go to large enterprises and talk about building AI into their existing tools for eventually a premium price because it helps those enterprises become more productive. So that's my one question there. And I have a sleeper for you guys. I have a sleeper. apple and the reason i'm saying here here's what no let me tell you why let me tell you why

Starting point is 00:48:05 who had the first smartphone was it was not apple not apple not apple no it was palm right or am i wrong yeah the palm and then the blackberry was dominant right um who had who had the first mp3 player wasn't no clue we're too young for that well i mean that's kind of that's kind of the point right um apple has this history of almost never being the first mover but they're really damn good at perfecting it and i think we're sleeping on their ability to develop um because they're probably working on a lot of things about um for ai that we don't know about that they have not brought to market because they don't move fast and break things in public. Right. So I think we're sleeping on Apple a little bit to potentially do a lot more with AI

Starting point is 00:49:01 than maybe we're giving them credit for right now. Yeah, I can, I can buy that argument. I understand that in the past they've done this where the research is tight knit. They don't pronounce stuff. They wait until it's really polished. I would say, has that changed with the vision pro i don't know uh i would worry about that maybe a little bit although that's obviously just one product but i think and yeah they have their product announcements i think they do one in june right and then one in september if i'm remembering correctly yeah that's that's about right if that is underwhelming this year and they don't come out with anything i would say they're clearly behind yeah i'm not gonna argue that even a little bit but i i guess we don't

Starting point is 00:49:45 know yet so i guess yeah that is fair maybe they're under the radar uh for a reason because they always stay under the radar that is a good point um let me just look at okay i guess i gotta i'm gonna use this as a way to toss in a advertisement for our friends at finchat but i think it'll be a fun one i have the kpi i'm gonna load it up here the kpi of google's or excuse me, Alphabet's Google Cloud revenue. Now it's gone from $4 billion in December 2017 to $35 billion over the last 12 months. If you look at quarterly, it's basically just climbed, climbed, climbed. There's really no slowdown except for that one period at the end of 2022 when all of the clouds slow down. 36% growth rate on the revenue side and margins are

Starting point is 00:50:37 finally trying starting to show up i it feels like with they have the chips here they have their internal development where someone like deep mind can get a huge amount of spend there and hopefully eventually get some good returns it feels to me like google google cloud i i don't i just it's hard for me to imagine it not being 100 billion dollar business one day given the fact that they can outsource or not outsource, sell to third parties, a lot of the AI tools they develop, they can control this as well. And with the TPUs, along with NVIDIA, they have the cheapest option for a lot of these people that are searching for AI spending. And I guess that what's funny enough is, you know, one of the AI companies is one of our sponsors,

Starting point is 00:51:30 FinChat. So let me just talk about them. I guess I don't have the show notes. Ryan has a leaf blower We're going in the background. So he's on mute right now. But basically, if you can see those charts, if you're on YouTube or Spotify watching the video, you have all these fantastic KPIs that they make for you, for all these companies. And it saves me just researching for the show, researching stocks for my own app. So I mean, we just did a show on Portillo's and the KPIs they make there save me so much time for my own research. And it helps me become a better investor. It helps me be more efficient and it can give so many useful insights, plus a lot more they have their AI co-pilot that they're working on as well. So go ahead and check them

Starting point is 00:52:08 out. The link will be in the show notes. Use our link and you can get a 15% discount on any premium plan. Go try it out though. You can try it out for free. So it is a freemium model. And if you sign up for the premium plan, you help out us a lot as well. Paid plan, just to be clear. Paid plan, premium plan, professional plan, whatever they're called. Either way, if you sign up, I don't think you'll regret it, and it helps us out a lot. All right. We got about 10 minutes left, I would say. Let's look at –

Starting point is 00:52:40 Let me chime in. Ryan, you had that question from last time. Yeah, and I apologize in advance because there's a leaf blower right outside my building. There's a chance he starts to just make a lot of noise here in a second. So I'm going to try to answer this as quickly as I can, say my piece, and I'll pass it to you guys. Firm Returns asked us this question, I believe, last week, and we're getting to this now. He says, do you think it's possible to make a bet on a single stock like the famous currency bet discussed in Wednesday's podcast? By this, I mean two times levering your whole portfolio because

Starting point is 00:53:09 you perceive the downside to be so low. What he is referring to is Stan Druckenmiller's currency bet. The answer here is no. I think that would be incredibly irresponsible and a bad idea. The reason I say that, the perceived returns were so low in Stan Druckenmiller and George Soros' case because there were no other sellers of the pound. The Bank of England had to buy from them. So there was literally like pretty much guaranteed really low downside. With any stock in any liquid market, it's probably unlikely that you're going to have something that illiquid where the downside is for sure that low so no i'd never recommend two times levering on any individual stock unless you have some way of guaranteeing low downside that's my answer thoughts i yeah

Starting point is 00:54:05 2x levered yeah of course for a stock probably wouldn't want that but i'd say for me let's say you've been following berkshire hathaway a long time and it's 40 years ago and it's in the 90s they're in such a good position. They have shown that they have a phenomenal track record. You're confident in the management team, you're blah, blah, blah. Everything checks the box. And it's a diversified conglomerate. I would not, if someone said I'm making that 50% of my portfolio, I don't think that's a crazy idea, but that is a unique situation. I also don't think it's crazy when in the David Gardner approach, something becomes a large position in your portfolio, where I think he's mentioned times before Netflix turned from a small position,

Starting point is 00:54:49 it was his huge winner, biggest winner he's ever had. And it turned into a large position just because he hasn't sold it. I don't mind that approach either. But for a stock, say, like a Netflix back in the day, if you were going to make that anything more than, I don't know, if you're going to make that 50% of your portfolio, that is taking on too much risk, because the downside of Netflix back in the day was high. And yes, it did work out because there's a lot to that history, but there was a lot of risk there.

Starting point is 00:55:21 So I think the downside is what's important for me in differentiating whether you should size a position and not be uncomfortable with it. Two observations. The biggest losses investors end up incurring are almost always the sure bets. it's almost always like the, there's this little niche, there's this opportunity, there's this thing and it's, it's never a sure thing. Right. And secondly, this is the second observation.

Starting point is 00:55:57 It's one thing to make a big bet long on an asset that goes to zero where you lose a hundred percent of, of that investment. But when you start factoring in leverage and you start dabbling and things you don't really understand the mechanics of, like foreign currency markets and futures on commodities, that's when you can end up losing everything and owing somebody money, right? You can not just go to zero, but you can go negative, right? We're talking about, that's what Warren Buffett has called some of these different, like, what do they call them? The mortgage-backed securities, like these different security

Starting point is 00:56:40 things, financial weapons of mass destruction. Because when you invest in things that are complex that you don't understand, and then you compound the risk with leverage, you're not just shooting yourself in the foot, you're sawing your leg off, right? So I just really want to encourage people, don't invest in things that you don't understand that somebody tells you is a sure thing. Here's the other thing. even if you were right like even if it was this it's going to work out type investment you know for sure you've done all the research in the world first of all the future is always uncertain so there's a chance that you could be wrong but let's say you were for sure right you also once

Starting point is 00:57:22 you introduce leverage have to be right on the timing because it doesn't matter if you're right in 15 years or 10 years, you have certain interest expenses that you have to pay that are not waiting 10 or 15 years. So it just, it reduces your time horizon and it significantly enhances the risk beyond just potentially owing money. You also have, you not only have to be right, but you have to have the timing right, which in equity investing is there's so many factors that could impact the result in the short run that have nothing to do with the performance of the business. You're throwing all of your advantages as an individual investor out the window. Exactly.

Starting point is 00:58:05 I agree. All right. Firm Returns had another question on Disney and Warner Brothers discovery earrings. I'm going to say apologies to our friend and loyal listener because we'll probably save that for another time. But I did tweet out, did anyone have any questions? And I think this is a good one to close it out on. cardio capital says in a frothy market with high valuations across the board

Starting point is 00:58:27 uh he says okay across the broad market where do you feel like the greatest pockets of opportunity currently lie anyone want to go home builders ryan is on the home builder train i understand hey we did do a podcast on them i believe around two months ago people should go check that that one out. Jason, any sector of the market that looks interesting to you? Yeah. Just to put up something different, I'll say banks. There's still a lot of banks that are trading, especially moving away from the big four and looking at some of the larger non-too-big-to-fail banks and some of the regional banks and some of the online banks too. Access Financial, I think, just people are missing the boat there. And Live Oak Bank shares, massive, massive fan of.

Starting point is 00:59:18 it's almost like thinking about the commodities and some of the short-term things. You have to be long, like multiple year long because of the cyclical risk. But I think they're great underappreciated assets right now and a lot of them are cheap. Yeah, you could have one times book value, 10 times earnings,

Starting point is 00:59:38 and they've had historically 10% plus ROEs return on equity, which is a good recipe for a bank to do well. Yeah. What about you? Pretty simple from there. For me, I think small, I wouldn't call it small cap value, but maybe just small. I know some of them I ripped recently, but I think this is a good time to check out Value Investors Club to look at some smaller pitches because I've seen a lot of stuff that looks, you know, not everything's gonna, gonna, I don't know, look, look sexy to me. But there just seems to be more opportunities there where I'm like, okay, this could make sense. The numbers could work here, whereas opposed to I look at the Magnificent Seven and I go, a lot's got to go right here. Where what's interesting is 18 months ago, it was almost the opposite with stuff like Amazon and Alphabet. But I was like, it's hard for me to argue I should go anywhere besides those two when they're trading at, I mean, Amazon wasn't trading at 15 times earnings, but you kind of look forward and say, you know, if the margins do anything, we could be at 15 times earnings. um and you look at that and you're like okay this is seems like a low risk given their competitive

Starting point is 01:01:01 advantages versus the potential returns we get at these low valuations of the last probably the lowest they had been at of the last 15 years but today i think it's the opposite where it's a perfect time to look at some either beaten down or small cap value type stuff or anything smaller that's getting under followed because it seems to me and jason you you do work for the molly fool as well i like to use that as an indicator where the trending stuff there is all large it's all big mega cap and it's all nvidia it's all ai and as much as i appreciate getting bonuses writing those articles it shows to me that the opportunity might lie somewhere else at the moment when you're trying to make find a new stock for your port a lot of times it's not where anybody's

Starting point is 01:01:48 looking i agree with that i will say this though just real quick so amazon trades for less than 20 times operating cash flows right now there's a lot of yeah i guess there's a lot of cap it's coming down it's coming down but yeah it's true it's true that is but the other thing with their capex is it's we've talked about this on the show before if they're improved or if they're raising their capex it's for the aws side of things which i think makes up about 50 of their capex yeah it's forward it's because they see the demand coming so they're just doing it in advance right yeah yeah yeah and i would be worried a little bit about um similar to the fiber overbuilds of the dot-com bubble i would be worried about an ai overbuild for these cloud providers because

Starting point is 01:02:34 they all seem to have i think there's zero downside right now and just build build build to build, but who knows? I'm no cloud expert. All right. We're on the hour and two minute mark here. Jason, appreciate you joining us today. Why don't you tell all the listeners, I know we only have a few people joining live right now, but there will be a lot more listeners on the actual show when it comes out on Sunday mornings. Tell us anything you want about Investing Unscripted and what you and Jeff do over there. Yeah. So we'll start there. Investing Unscripted podcast. You can find us wherever you get your podcasts, Investing Unscripted. We do a newsletter too, investingunscripted.com.

Starting point is 01:03:10 We drop a newsletter every Sunday. Just thoughts from either Jeff or myself, completely free of charge. We also release our transcripts on Wednesdays when the podcast comes out. We have lots of links in the transcript. So if you're looking for stuff that we talked about, it makes it easier to find your links. We also recently, because we don't talk a lot about individual stocks on the show. It's like one of the differences between chitchat stocks and what we do, a lot more mindset stuff. we decided to start up a savvy trader portfolio and really like kind of build our own portfolio

Starting point is 01:03:39 working together create a separate space to talk stocks and to talk process um that's easy to find at savvy trader.com forward slash investing unscripted you want to check that out um you got to pay for that so there's that um that's basically it you can find me on twitter you find these guys you'll find me in the comments so makes it pretty easy yeah i'm loading up the show list i did have this one download already three things to know before before buying your first or next stock i think it's a good combination of you know you you've been doing this for a long time and jeff has only started i think five or so years ago we're investing in individual stocks right you're you're if someone's just getting started and you think some of the stuff we cover

Starting point is 01:04:23 on chit chat stocks sometimes we like we don't try to go through the basis of everything this is a perfect show where you get back to the basics. You learn the concepts of buying individual stocks. And there's just a lot of stuff that you can learn of. And a lot of the same feelings, I think, a lot of investors have when they're first starting out that you guys talk about. And it can be a great sounding board. And you guys do a ton of listeners submitted questions too to help with that, right? Yeah. About once a month, we do a mailbag. We're pretty active on social media too. Always enjoy doing that. And we also do a live stream once a month as well too. Beautiful. Beautiful. All right. So go check those guys out. Maybe I

Starting point is 01:05:05 can just hit the disclosure this time. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, Jason, or any podcast guests may hold securities discussed in this podcast, may have held them in the past and may buy, sell, or hold them in the future. Thank you everyone who tuned in on the live stream. We have a few that ask questions, but they're always good. That is at 9.30 a.m. Pacific time and 12.30 p.m. Eastern time every Thursday on the Chit Chat Stocks YouTube channel. If you want to join live and ask questions, you can do that, but you can also listen to the replays on YouTube, Spotify, Apple Podcasts, wherever you get your podcasts. Thank you, everyone, and we'll see you next time.

Chit Chat Stocks - Roaring Kitty is BACK (maybe?); Executive Turmoil At Boston Omaha; Is Google Winning The AI War? (BOC, GOOG)

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