Chit Chat Stocks - Twitter Spaces vs. Clubhouse

Episode Date: February 16, 2021

Brett and Ryan discuss their favorite stories from the week. Ryan discusses TurboTax's troubled past and Brett talks about Clubhouse vs. Twitter and the Bumble IPO. Tune in to the second half of the episode for this week's hot water, buy-sell-hold, and anecdotal evidence. Enjoy the show! Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Subscribe to our YouTube channel: https://www.youtube.com/c/ChitChatMoney Follow us on Twitter: https://twitter.com/chitchatmoney Visit our website to see more from your hosts Ryan and Brett: https://www.chitchatmoney.com Email us: [e-mail] Timestamps Stories | (3:22) Fintwit | (32:35) Hot Water | (37:07) Buy-Sell-Hold | (45:43) Anecdotal Evidence | (47:12) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. Today is Tuesday, February 16th. We don't have an interview today and we're kind of trying to maybe tune it or pull it back a little bit on the interviews. I feel like recently we've been going after interviews and then coming up with questions. We want more relevant interviews, stuff where we really have questions that we want to ask and they have the answers. So we just might have less interviews. Is that a good way of explaining it? Yeah, we're not trying to fill every week with an interview. It's just a little commoditized now. Yeah, it's not that the interviews we had were bad. I mean, I thought all the ones we had in January were great. But, yeah, it is commoditized.

We can't compete with the big dogs out there, like invest like the best. And we thought we'd focus on stuff that makes sense for our show. We're hoping to do better with the topics, you know, put some more research into those for the first half of the show. So, but yeah, I mean, nothing much will change, but just don't expect an interview every week. Yeah. All right. And then what are you talking about for your story this week? You have like three.

I got three. Yeah. I guess this is part of the reason we're going to try to mix it up, expand this a little longer this week. I have Clubhouse and Twitter Spaces. So Clubhouse has been a big growth company. I guess it's a huge startup unicorn now. The Bumble IPO, which I thought would be a fun discussion.

And then Howard Marks and Joe Greenblatt had an interview on Real Vision. I bit the bullet and I re-subscribed to Real Vision. I do that probably three times a year. Yeah, so I don't know. But whatever. Back to you, Rao Pao. Rao Pao. But yeah, those are my stories.

What about you? I'm talking about TurboTax's dirty past. I came across a pretty good article. It was from a while back, but I came across it this week and thought it was pretty fascinating. And then I have some good – I think I have one pretty solid hot water. And then we got buy, sell, hold, anecdotal evidence, current state of FinTwitch. Yeah, let's go. Wait, what?

Oh, wait. We're going to talk about set investing. Right. They're going to get their new analyst hopefully sometime soon. We don't know who it is. We don't have any inside info there, but we're excited. We just talked with them on their set investing podcast. Yeah.

Feel free to go listen to that. Go listen to that. Yeah, if you want any insight into how we kind of run our fund. But, yeah, I mean, what are we going to talk about the promo code? CCM, get $10 off your first month. Help us out. Help 7investing out. Help yourself out with the research.

Anything else? I just checked the email where every time someone subscribes using our code, we get an email. It's just rolling in. They're working hard for us. Sorry, you guys are working hard for us. And, again, look, their research is fantastic for anyone that's looking to invest in individual stocks but doesn't do it as a full-time job. Great to have a – yeah, we don't want to belabor it. Yeah. All right. Here you go.

Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Welcome in. I'm going to kick things off talking about TurboTax's Dirty Pass. So, the article I found this week was written by Justin Elliott and Paul Keel from ProPublica.

It's not something I'm familiar with. Is Justin Elliott the guy that's doing the WeWork book or is that a different guy? I'm not sure. I mean, this thing was well-written. So, I assume he does a lot more writing than just like this one article. But it was an older article. I think it was from 2019. It really highlights some of Intuit's scummy business practices, which I didn't quite know existed. And so here's a quote that I found. From the beginning, Intuit recognized that its success depended on two parallel missions,

stoking innovation in Silicon Valley while stifling it in Washington. So, essentially, the government has been trying to make easy tax filing free to everyone for a long time now. Really? Wow. And Intuit has been spending a lot of money to send lobbyists to stop that. And so, one of the primary things that's been hindering the government from creating a free tax filing system is they had a 2003 free file program that the tax filing parties. so Intuit, and then there's other tax companies as well. Kind of like H&R Block, right? Yeah, and then so them

and the government kind of came to this agreement and it was, we will have free online filing for low-income taxpayers if the IRS won't create its own government-run system. So they were like, we will keep it free for low-income so long as

you guys keep our business afloat. One catch was that Intuit apparently added code to the free file landing page that hid it from google and other search engines which made it harder to find which is i mean this is true i looked it up it's not super easily apparent if you're low income um and yeah so it just felt a little hidden they also went into some of the predatory practices on something they called fud fud which i think is basically that's funny because it's the the whatever people call short

sellers fear unsecurity and doubt or whatever no uncertainty and doubt sorry yeah that's what it is, is people are fear, like they fear that they're going to get something wrong. They're uncertain. And so then TurboTax has certain pricing strategies that kind of feed on that. And so in 2018, Intuit almost actually enshrined the fee file, the free file program in law forever. So between H&R Block, Intuit, and some of the other tax prep companies, they almost kept this law they almost put it in law forever that this is how the system would work um however pro publica published this research and it brought about a bunch of backlash and to the best of my knowledge nothing that the law never got filed or passed um and so yeah it just kind of opened

my eyes to the fact that this maybe should be a free thing for individuals yeah yeah i mean don't you think the tax filing system's a little outdated? Yeah. Look, I'm going to speak on individuals, right? And I'm no expert on tax filing, but if you're just, I guess, a standard person who has a few sources of income, probably one main income and a house, I mean, it's got to be so much easier because everyone's very cookie cutter in that sense. Where say you're a middle class family uh you have whatever a hundred thousand in income maybe lower and then you have some investments on the side and you own some home equity i don't know that's got to be free and the thing it's not that you know intuit can't be a business or something and make money

but the time it'll free up from people like the return on time spent would just be phenomenal because people spend way too much time doing their taxes right yeah and that is the other thing is the irs said they could introduce a product where it is simple easy to use or they could even give like predicted uh like tax return file like statement so they know what you based it off last year and they can basically go ahead and give you the same sort of criteria um but turbo tax has spent so much money lobbying that it's kind of uh kept government away from doing anything and and lobbying in itself isn't bad but i mean you know i guess why doesn't the government just give them like a gracious buyout oh like that solve everything like a uh yeah yeah

buy out the shareholders or whatever because i guess people are worried about it would be unfair to intuit as a business but it's like well it would be a lot better for the country as a whole because into its into its big claim is they're like well if the government were the ones that were uh telling you how to file taxes it'd be a big conflict of interest well aren't they all i mean uh i mean what that doesn't make any sense because the government's the one that's doing it anyways right i mean there's yeah they're saying in the long run they're gonna do whatever they can to get you to pay more because they're giving you sort of the advice whereas turbo tax is trying to they i mean they market themselves as the friend of the taxpayer right where it's like

we're helping you pay less right they had all those super bowl commercials where it's like actually you can get a deduction off this and this they they're basically saying the government won't help you with that yeah they are good at marketing i'll give them that i i don't know it seems to me that the balance of having turbo tax is a middleman making people pay keeping all this confusion uh yeah i mean that's not a terrible thing but for individuals just it's not necessarily paying turbo tax that doesn't probably cripple people's finances or anything like that but it's just the time wasted that's the huge deal it would improve people's lives just in general yeah is it ever a concern for you if companies spend weight like spend a whole bunch of money

lobbying like as a percentage of their sales or something like that yeah uh because it feels like i don't know it seems like they can't they can't protect the business by their innovation so they have to insulate it by lobbying yeah i don't think it's something we it's something it doesn't make it unownable because we do own altria who spends tons of money tons of money on lobbying for their own businesses but it is something to watch because for a business like intuit if it's relying on this government um i mean the government tech big tech spends a whole bunch of money lobbying too it's not but as a percentage of revenue might be a tiny bit lower it doesn't make a bad business per se but it's just something that you have to track with the business like

into it for sure yeah anyway i just thought it was worth sort of airing that all right coming right around on tax season here uh yeah we just had a discussion about it so all right uh what do you have okay yeah the clubhouse and twitter spaces uh if you don't know what clubhouse is it's a new social network where users can listen to conversations between anyone in audio form very similar to a podcast but it's more of like a uh you start up a conversation room and people can come listen into a live thing it's like a conference call which doesn't i don't think that entices many listeners here but you know when the rooms close and that's what they call these things they disappear although they are you know using chinese servers which is a little strange and

they're getting people's contacts um which i thought was a little again a little strange but It's not stopping anyone, but growth has been phenomenal for the company. I think they're valued at over a billion dollars now, and they're less than a year old. And they've gotten growth from having Elon Musk go on and Kanye West and a bunch of other big names. I think Zuckerberg was on for a bit. Vlad Tenev. Vlad Tenev was on there. Yeah, and it's invite only right now, and it's only on iOS, so it's kind of creating that classic FOMO effect that social apps have.

But the real discussion I wanted to have was Twitter. They're coming in with launching Spaces, which is basically a copycat, but it's going to be embedded into the Twitter feed. And then Facebook is apparently launching something soon. Do we think Twitter has a chance to succeed here? I think Spaces could work. Yeah. That would be better than Fleets, that's for sure. Yeah, Fleets was a flop.

But how many times now are you seeing people post like clubhouse clips on Twitter? It just makes it feel like they could bring that in-house. maybe even an acquisition of clubhouse if spaces ends up sucking but we've seen how their acquisitions go with vine yeah yeah i don't know it seems like it's not hard to replicate so i don't know why they would acquire them for especially when it's over a billion dollars now but yeah they definitely could i mean if you look at i was just thinking like for our show there's definitely something you can do with that i see a lot of traction on it i see a lot of people trying to get interested in it i don't i'm always a slow adopter of anything social media oriented so

i don't know maybe we could merge into that do ccm spaces yeah i mean i was i was thinking yeah for us for finance it definitely there's definitely a not a there's a what would you what do you call it uh product market fit i do hate using that term but there is that you know with fin twit um what do you think about like other parts of twitter though it's hard to say i mean maybe sports could work stuff like that but yeah i mean i could see almost like the gaming market where you have people that like uh you're you're like commentating what's going on so like a big cat or barstool someone from barstool is watching a game you could like listen in on their spaces listen to what they have to say yeah because i think it works for a lot of mark like a different

a lot of different markets yeah i guess that is interesting because there are the live streams for the sports companies like to do this a lot or the sports media companies excuse me they like to do live streams during the game to try to replace the broadcast but it's really hard to like integrate because you're watching it on the tv and usually it's like live on instagram or periscope and that doesn't really mesh well this could maybe mesh better if it was audio only yeah potentially um okay what do you think though on one concern i had though is like how do you make this a business you know what i mean like what are your thoughts on that yeah i mean imagine listening to a conference call and then hearing like a 15 second ad that seems a little strange but

i don't know is this an ad based business i don't know i don't know the uh where would you fit the ads and maybe it's like in between or you're forced to listen to it like before joining the room you might be forced to listen to it but they said they're trying to do tipping which would be kind of similar to a twitch model where you can maybe subscribe to people or do a you know not a i don't know kind of interesting yeah tipping is interesting maybe um like exclusive clubhouses or exclusive spaces where you have to like pay to enter them so like i'm sure people would pay 99 cents to listen to kanye and elon talk yeah um so i mean maybe something like that yeah i always get worried though when a platform like this is built on a the growth is built on a celebrity

presence because that to me doesn't seem sustainable yeah it's usually a bad sign okay and then i had the last thing i thought the most interesting was was strategy gave out a free article on this which i loved uh still don't subscribe to that uh we're broke over here but they discussed how these you know ubiquitous easy to do audio conversations will maybe replace casual podcasts so leaving the premium shows to someone like spotify or apple i guess the video analogy is the difference between an ad support of tiktok and youtube versus like netflix and hbo do you agree that there could be this separation between the casual audio on something like clubhouse or twitter spaces and then the premium stuff sitting on something like spotify

yeah yeah potentially it it's uh i don't know it's hard to like call podcast the radio now yeah but it feels a little bit like that uh i don't know maybe if i mean because clubhouse and spaces are they kind of interactive kind of yeah yeah you can raise you raise your hand and stuff and i i bet they're i mean they're just getting started i bet you can do a lot more with that but the thing is when they the thing i don't get about those is that when they're recorded or sorry they aren't recorded when they're done they're gone i i don't know if that's the best way to do it i think it would be interesting for us to record a live show on twitter spaces but also have it recorded and then embedded into like spotify people said the same thing about like

snapchat with pictures yeah okay yeah that's true that's true maybe maybe it makes it more of like a you gotta be there kind of thing yeah maybe it works but yeah i i'm surprised that you can't just like record them and upload them as a podcast yeah they could replace i don't know there's a lot of ways they could go with this i do think twitter has because the thing or the thing about twitter is that it replaced kind of like the blogs being it's separated blog bloggers from being just they're all on these one websites but then the ones that actually made it were the ones that scaled and uh went to subscription excuse me so then they didn't scale they went premium to subscription those are the ones that survived because ad supported blogs didn't really work

but then everyone else kind of migrated to twitter and just kind of did the casual blogging it feels like that's what this pod this what clubhouse or these audio chat rooms could be versus if blogs are kind of like podcasts this could kind of take from that in the same way i wonder if spotify would have better success with a product like this than twitter something where it's a little more social a little more interactive type podcast situation because people have always said like just put the conference calls for like companies on spotify which would be nice yeah i've always that form of audio like a little make it a little more social yeah it's been confusing to me how there hasn't been comments on a podcast with spotify or any

sort of social interaction like that even liking stuff or creating a playlist of podcasts maybe you can do that now uh but yeah i mean that could be something they do but social hasn't been spotify's best forte it hasn't been their forte at all you know yeah i would worry about this and it just doesn't work that well yeah who knows i don't know all right bumble ipo yeah so Stock jumped. It IPO'd last week. Stock jumped to $15.7 billion valuation, which puts them north of 30X sales. Three weeks ago, we did a deep dive on them and all three of us, and that's me, you, and Ian said that we'd be interested at a sub $5 billion valuation, which looks like we're going to be waiting a while potentially to look back into this thing, but I have to gloat. I did

predict the highest valuation of $12 billion, so still wrong, but I have to say I take the trophy there uh but i don't know if this yeah i mean if this thing had ipo'd in 2016 or 2017 its valuation would be half of what it is right now less definitely less i have it probably less than five because match group was trading at way less of a valuation we still think match group whatever is like deserves a premium valuation but it was trading at a sales ratio of way less than that yeah and i mean the business itself comes with its own risks like it feels like everything's priced to perfection and even okay if this thing is like a best case scenario and it does well it's priced like it's going to and there's still like business risks assessed with it like i don't

know i don't is it so is this just an example of why we have kind of said all right we're not touching ipos for a long time right now or something has to change yeah i just don't understand the yeah it's weird like i think anytime you look at an ipo if you're an investor i think you should ask if this thing ipo'd four years ago what would i pay for it because right now it's absurd like that is 15 billion for this business 16 billion is a valuation i can't get around yeah i just can't got my head around that and i think it is smart to do without looking at whatever the rumors are without looking at all that stuff put what the valuation you think it should go out at yeah and then what would you pay for it yeah put that down and then look at it and

if it's a lot different either a you're wrong or b it's not something you want to own i think the worst thing you can do is say all right this is what i'd pay for it and then it goes out and then you try to justify its new valuation don't do that it's you know you set your price beforehand i think it's the best way to go about it and sometimes and other times it's likely not going to happen right now but sometimes you put your valuation prediction or whatever you put you know before anything actually comes out and then it gets priced a lot lower and that's when you say all right maybe in the next right when the lockup period ends or something uh i'll be interested in this thing yeah i mean it's just so yeah i just avoid ipos yeah i think our rule of thumb is wait

till the lock-up period ends or end and wait for a 10k yeah that's kind of what you do all right but another thing with bumble is the management so there's a lot of anecdotes out there about uh especially the ceo and there's a lot of rumors and stuff about you know the past and tumultuous stuff does that concern you at all when looking at something like bumble yeah and it's like i get into all of it there have been articles written and like she had sort of a fallout at tinder but you know it could have been on the other side as well like there should could have been some faults there but um it does feel like the business was kind of developed out of spite uh and i wouldn't have cared if it felt like she'd uh she had kind of moved past it but there

was a lot of like hints in the s1 back at tinder like uh like kind of bashing them which felt like I don't know it felt targeted as like an anti-match group kind of thing which seemed like she isn't as focused on her own company as she is on competitors which is usually a bad sign it's classic the classic Bezos quote like we focus on the customer first we worry about competitors but we don't focus on competitors I'm sure I'm paraphrasing that I think a big concern with management if there's evidence that management is exaggerating any part of their life or saying something that wasn't really necessarily true you're talking about like the the co-founder stuff yeah the co you know what there's a few different things out there that indicates to me

okay well what else are they exaggerating yeah it kind of just opens up a can of worms or i'm like all right well what are they not being true there's also the age thing though which is like i think younger younger executives are a little more braggadocious like true true just because they feel like that's the way they got to prove something yeah i mean even daniel lank was kind of like that he definitely definitely so it's like and as they age i'm sure that kind of goes away but yeah there there was a few red flags okay and then the last topic i had was the howard marks joe greenblatt interview did you watch i watched the first 30 minutes um i probably should have kept going but the uh i resubbed this real vision for this uh i'm gonna say i will be a i'm gonna

just pay for it screw it i'm gonna just gonna pay for how much is that 15 a month uh less it's 200 bucks for a year is that less than 15 a month i think so yeah 12 times 15 oh it's no it's a little more but yeah just bit the bullet i mean yeah i i'm just gonna be done i can pay for it why don't just go in and it's not it's not worth in my opinion it is not worth subscribing every single month it's worth subscribing when you see something you want because they advertise it i mean they're i had it for a while and it's like they go through month and a half two month periods where there's nothing that i want to see it's all like crypto or gold talk yeah i wish yeah i do wish i'd go to a separate one that's like five bucks and it's only like the you know

macro stuff. A little bit of macro, but value investing as well. But yeah, but that's not what this is about. So Howard Marks and Joe Greenblatt, if you don't know, they've been around in investing for about 50 years each. So there's like a century worth of experience between them. They did do some macro talk, which we don't really need to talk about because it's always just talking in circles. But here are the kind of the two biggest takeaways and discussion points I had. First one, they talked about when you're uncertain about interest rates or more uncertain because there's always a little bit of uncertainty with interest rates or like GDP or government spending, kind of a period right now.

As an investor, they typically try to lean towards a higher margin of safety. Do you think that's a good framework? Yeah. I mean, I think you should always lean towards a higher margin of safety, but especially when you don't understand something, but it feels like there's always a level of uncertainty. Well, it's just on a scale. Like when you're more uncertain, like a time like now, there's definitely more uncertainty.

I know whatever Drunken Miller called it, the wildest cocktail he's seen since, you know, he's been around for 40 years or whatever. Yeah, I think the uncertainty is around. For them, the big uncertainty was around rates reverting, right? Yeah, they said it was hard to predict where rates would be. Yeah. And that does impact valuations. I did like Howard Marks' statement where he's like, if you can comfortably predict that interest rates will stay where they're at or continue to drop, then yeah, valuations are fine. But you can't predict that.

Yeah, and Greenblatt was – I think he said he assumes it's a 6% hurdle rate at most points. That was his thing. He just kind of does that to be super conservative. Yeah, but there is the thing where you don't want to be too conservative. Yeah, because then you're missing a lot of opportunities. Yeah. Maybe there's a good rule of thumb, like 2% above. Yeah, something like that. Or, yeah, because you don't, I don't know. There's too many variables where it's hard to predict over like a four-year period or something. There's so many different things that can go into what would keep interest rates either low or cause them to rise. And it's just hard to predict. But the thing is, if you buy businesses at a valuation where you don't rely on interest rates, that's kind of what we kind of, you know, that's how we try to look at it. That's what we try.

And people are always like, well, just assume like the normalized rate. And it's like what is – you have to go back 20 years to find like a normalized rate above 5%, right? Yeah. Well, the thing is rates – yeah, it's tough because one, there's not enough data behind it. And two, there's been a two, three century trend, long-term trend of interest rates kind of going lower. yeah but during those times it's kind of been like a sign you saw it a wave where it kind of goes up and down up and down up and down right however we're kind of at the bottom now so it's tough to evaluate but it's you honestly like the way i look at it is one we'll just invest where

it doesn't matter that's kind of i mean and some people might think that's naive but if you can't control it i mean if you're always focused on interest rates it'd be pretty hard to have an incredible track record well you i'd say we're not smart enough like a drunken miller or something like that there's guys that are smart enough to do that like even even buffett was wrong about it all the time and he he even said it like he's like my record in guessing like forecasting macro stuff is terrible and i he's like and i think i'm pretty good at it but yeah the thing though i think the only thing you got to worry about right now is what the leverage of someone's balance sheet that's the only thing you got to worry about yeah if you're relying on keeping a low interest rate

to fund a company's operations i would maybe be hesitant and i mean a lot of the businesses i own now or we own uh are starting to take on some of those convertibles or starting to refi or not necessarily convertible but low low interest long-term debt but these are the companies what's strange is that these are the companies that generate cash so that's a little different you know what i mean i think that's honestly smart yeah we've discussed this because like if a company does generate cash and you get a 10 per 10 year bond at less than a three percent interest payment to me that seems smart if you think that the cash flows are reliable yeah and you always but like how far can that go because people always start to stretch the at&t stretch that

band for a long time yes yeah no that is and now you've got like an ultra leveraged balance sheet yeah no yeah some you gotta track um i don't know all right the second topic they had uh they said you know sometimes or i guess the saying if everyone knows the saying is like the most dangerous words in investing or this time it's different uh but they were talking about how sometimes it is different and how the person that talked about that who was templeton i think it's john templeton was said that you know 20 of the time it is different but they marx and greenblatt were talking about how in the 21st century maybe it's different like 40 of the time do you agree or disagree with that or does it not matter well i think the focus was sort of centered around

margin expansion within the companies, right? And it also talked about a lot of the companies that were operating at a loss, their CapEx doesn't necessarily get recorded as CapEx. Like buying Spotify, buying Megaphone. Like some of the acquisitions aren't always recorded. It's not. Well, no, in that case, it's recorded as Goodwill,

but it's weird that if they invested in their own, it might not be. Right. netflix with new original movies stuff like that it's not that's not property plant and equipment so it maybe isn't recorded as capital expenditures but those are the investments people are making now and so sometimes we'll see those operating losses that aren't super indicative of the actual profitability of the business but and it's just less costly some of the businesses like the digital native you know there's just less spend on labor so i think that part is a little different

and it's interesting because the long-term trend has been that profits are about six percent gosh what is it um i don't want to get this wrong so just if i'm getting the metric wrong it's either like six percent of gdp or six percent of revenue or something uh where you know in aggregate companies are about we're at about six percent and that has transitioned up to 12 as you might expect over the digital transition over the last few decades. The only thing is, is that sustainable or workers just going to ask for more of a salary? Because that means that more of it is distributed to the shareholders. That's a tough question to ask. But I think the easier thing to look at is for something like with that intangible assets, where when I was trying to do Activision

Blizzard's return on invested capital numbers, one, they had some goodwill in there, right? So So, it makes it kind of relevant from their acquisitions. From what acquisition? The King? The King and then smaller ones. I think they have like $9 billion in Goodwill, which that makes sense, right? But I was looking like each year they spent about a billion dollars on like content costs and R&D, whatever that would be. So, that's not put – that's going through the income statement and it's not put down as assets, which might – to me, it feels like companies like that, their return on invested capital numbers are inflated.

while it'd still be good it feels like they're missing some of that capital contribution it is weird yeah i mean i recommend going and reading the mobison paper which kind of says like pull out some of that r&d spend um i mean it is so weird to me the r&d is an operating expense yeah because isn't that an investment almost always i mean at least 50 percent of the time that's got to be an investment yeah i think that's a good rule of thumb but again the one thing you can look at it's just free cash flow that kind of you know gets everything down to just cash um yeah all right well i thought it was a good interview people should probably watch i don't know definitely i'd recommend watching it yeah yeah and i think that one might have been

free no that's why i subscribed are you sure because i was watching it no i mean for what maybe i have a you may not subscribe and i don't know yeah that could be it but it could i think of my free trial periods are gone i don't know all right uh current state of finn twit i didn't have much because most of it got dumped into hot water and stuff but uh your lockup period is over tesla and bitcoin and now you can say them in conjunction with one another so uh how got anything to say well i think uh that there's the one anonymous account on twitter that said, I think it's Nick, the guy, the rent-free

guy. He's a good follow on Fintwit. He was like, they're all Dogecoins to me. That was kind of his tweet. I think that's kind of my framework for Bitcoin that people should probably if anyone asks, kind of it. They're all just fairy dust. As someone who is

not an advocate for Tesla, as someone who's not an advocate for Bitcoin, combining them together and putting all the risks in one basket, I don't want much easier for you i don't want people to lose money i don't i'm not voting for people to lose money but i think it's a little risky for companies i saw a really good i think it was like a meme on it where there's a guy tight roping but tight walking a tight rope between like two skyscrapers on one side it was global reserve currency and another on another it was like meme stock

and it was bitcoin walking in the middle like that seems like a pretty fitting yeah yeah and it's true it's like everything that i don't know about computers and everything i don't know about finance or economics baked into one baked into one well i think but here's the thing and maybe this is my naivete around bitcoin but what what structural difference is there other than adoption between bitcoin and dogecoin well i think there's some security is there but again not being naive i don't know i don't know but i think the way that anyone should look at it is that the narratives are colliding and now it's all the both these companies are not one of them's not a company it's just uh cryptocurrency it's just uh it's all based on narrative and the

narrative could go on forever but it is all based on narrative yeah but could yeah i mean i think The question is, is the narrative self-fulfilling at any point? That's the trillion-dollar question right there. I mean, Tesla's kind of making it self-fulfilling if they can equity raise constantly. They could, but the return on invested capital is still zero. All right. Do you have anything for Current State of FinTwit? Yeah.

One thing. A lot of talk this week, I think, on Twitter. I don't know what spurred this, but there's a lot of talk about investing psychology, especially around the tendency to not want to average up. Have you dealt with this in the past or how have you done that and how hard do you think it is? Yeah. Like I think everyone, whether or not they want to think about it, price anchors. And so I think the best thing you can do is when you buy stock in any company is to put the multiple down that you bought it at. that's interesting yeah like write it down whatever you purchased at just make sure instead

of saying i bought the stock at blank say i bought it at blank times earnings right yeah that's that's good because that way you know like you might be averaging up in price but you might be averaging down in the multiple so i think that's just the best fix for individual investors i think yeah you should just but also you have to keep in like there might be a reason the multiples lower or higher because the change of the margins on some of the businesses so yeah the i think you just have to go into it knowing that you're going to have the bias towards thinking that when the price is higher it's not a buy but you just have to know that and then kind of think all right i'm going to be biased towards thinking a higher price doesn't mean it's a good choice and just try to fight that

as much as you can yeah and and the other thing is like if you focus less on the price and you focus more on the business you'll realize as it goes along where they're sort of at in their life cycle because if you're paying more and more attention to the business and maybe it was cheaper two years ago but there was more risk with the business model then and there's less risk now it might still be a better bet and you might have to average up but it might be safer that way yep yeah oh agreed there agreed nothing else to add all right we're gonna hit a quick break and Then afterward, we've got hot water, bicell hold, and anecdotal evidence.

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Red color, red color, where are you? Ah, 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 welcome back in next up we're going to hit hot water you want to go first i have two okay uh i have three uh i i don't know i'll go i'll go go ahead okay uh match group and bumble uh because there is officially now a dating app exclusively for tesla owners called tesla dating.co or something you're going to be joining this anytime soon and it's like it's for some reason it actually doesn't surprise me i don't

know no it makes a little it makes sense it makes sense uh there could be one for peloton owners too i think that one makes more sense because the tesla yeah there's not really a identity with the tesla brand outside of tesla it's just kind of like your identity is tesla but with like peloton it's like your identity is staying fit and healthy and stuff like that i think that one makes sense this one let's be i mean there's not enough users but yeah what do you any other thoughts on that gosh well let's assume 50 of tesla owners are married and what's the total tam there yeah like yeah a million users it's i think less maybe i don't know i don't know if there will be that many uh the majority of people that i know that own teslas are guys so i it might be a little

That might be an unfortunate dating app. Yeah. I don't think I'd have much success there. All right. Keep going. What's your second one? Okay, Buffett. We don't need to say who it was because, again, we got to stay with the principles.

Don't criticize people individually. But there is another person out there claiming that they are the next Buffett. Okay. And that is a red flag, right? Are we on the same page there? Yeah. The one thing Buffett would never say is that he's the next Buffett. he would never say something like that he would never claim he is the next big thing that's what

made him buffett so saying you're the next buffett it's kind of i don't know people can call you the next one it is yeah i mean uh it's not i mean i say just say no it's not gonna it's not gonna end well i i will put my chips in the middle and say that whatever this thing that's going on right now will end poorly when people are good at what they do they tell everyone when people are great at what they do people tell them that is good that is rule of thumb so just remember that keep that in mind yeah all right number three what do you have three uh oh actually i have four sorry page break this one will be short the notion the note-taking app its web domain was hosted in somalia and they had problems renewing it uh so they couldn't get the new donate domain going

hopefully we don't have that problem with our two websites uh i thought the uh the classic dad joke is i could do the you know the one where uh i am the captain now stuff i've always yeah i've always found uh i've always found that fascinating that like people forget to renew those domains because if you do it not the right business you can make a lot of money uh yeah what are the people made i would love to be a domain pirate you know one of the people that's just like hunting for domains that was a big thing back in the 90s i believe you could sell i believe mcdonald's sold for mcdonald's.com or whatever sold for five million or something like that you make some money but uh i think the easy money's been made as they say with domains all right uh you got a

fourth yeah fourth one so yield is in hot water because we are getting an insane amount of convertible offerings right now as we talked about earlier on the show just some examples Peloton just did $875 million in convertible notes at 0% interest due in 2026. Smile Direct Club did $650 million, which is a lot for them. What did they do again? Like Invisalign. Right. But direct-to-consumer, I think.

They did a 0% note due in 2026. Again, 0% interest on convertible note due in 2026. Marriott just did 0% due in 2026. fubo which a company that just hemorrhages money got 350 million in a convertible note to 2026 at a three percent interest rate which i think is very low uh two questions here is this smart from the growth companies and is it smart for the creditors to be doing convertibles yeah from the growth companies yes i think it's clearly smart yeah yeah uh from the creditors I don't know.

It seems a little risky. I guess each of those businesses is a little different. Fubo is creditors I might raise my eyebrow at, but I don't know. Peloton seems reasonable, but I guess, you know. You have the option to get stock, though, so. Yeah, but doesn't it have to meet a certain price? Yeah. Well, I mean, yeah, it obviously has to meet a certain price,

but wasn't there like a specific sort of rule that was in Pelotons? I didn't look that up, no. I don't know. I don't know. Anyway. Either way. Like I said, there's a lot of companies raising cheap debt right now. I would – yeah, I don't know why people are not –

It's not necessarily a bad thing. No. If you're in a growth – if you're a growth company like Peloton, I mean, clearly that's smart. If you're worried about debt as a whole in the system, maybe that's a concern. But on an individual level, if you're looking at a company, I mean, it seems like a smart move to do. Yeah. All right. my hot water for the week my first one is sports betting so this is kind of old news but i forgot

to mention it last week so you remember that streaker from the super bowl yes so apparently there was a bet on bovada uh which is like a sports betting site uh about whether or not someone would streak uh so it was plus 750 odds so uh i'm not really 7.5 yeah i'm not great with But if you bet $1,000, you get $7,500. Yeah, you can 7X your money pretty much when getting the VIG in there. Okay. So this guy, the guy that streaked, bet $40,000 before the game. And it cost him $500 to pay bail.

He got paid out about $300K net. Is this the downside of sports betting that bettors could potentially try to influence results? Well, I think that's no different than any parts of the business world. but that's a good story are you sure it's true yeah it was confirmed true and yeah i mean this guy he said he's paying off his parents mortgage smart i mean credit to him smart move but he sounded also a bit like a scumbag from the rest of it it's he's like friends with a guy that does this regularly he did it in like the world cup final he had people someone do it so he was like wearing that pink thing you might have seen uh yeah that's like an advertisement for this guy's

business it's like a youtube thing where it goes and streaks at games yeah i can't wait for him to launch a cryptocurrency anyway uh pay-to-play video games is also in hot water this is a little more serious um so rocket league players can buy a ford f-150 inside the game so like that they can use that car do you know how rocket league works it's kind of like the rock soccer with cars so the company or the game is owned by epic games so i'm wondering uh and this is in conjunction with ford's new rollout uh and they'll also be having they had an ad component to it as well do you think this is where the world of gaming is heading where you're having sort of these interactive ads or sponsorship deals could be part of it yeah for sure because nike uh marvel

they've done stuff with epic games now where they're in the fortnight world yeah it just yeah it'll be part of it i don't think it's going to take away from anything else though no but i mean does that kind of uh boost sort of the gaming revenue in your mind over the next decade yeah it's definitely going to be a big growth part of that i think you can lock whatever however they monetize it partnerships with icons and digital it's doesn't make sense to me but uh you know what digital stuff yeah that i mean that's going to be a huge part of i think you can really lock that in as being a huge part of the growth in the video game industry over the next 10 years and it's even that's just more incentive to move away from pay to play right like

yes that's how i mean that's how you monetize the free-to-play stuff that's the reason the in-game purchases in general i guess you know yeah all right uh buy sell hold the theme this week is uh i'm sticking with gaming so all right unity epic games and roblox because we just talked about epic games um get all two of those are private obviously but get all of them for 50 times sales hey some of those i mean they're great businesses one of them is uh priced pretty well in the public markets that is true are we going to assume a similar valuation around 40 to 50 whatever you know just focus yeah focus on the business which businesses would you this is a better hold uh i mean they're all good businesses seems like i'd probably

it's interesting i think i'd rather own unity maybe and then hold epic games because those whoever yeah i think they're a little more reliable like i think their success is a little safer than roblox because there there is always the risk that roblox is the minecraft 10 years later that is that is the risk yeah roblox definitely has more risk but since i think they have higher upside potentially because it's not just the back end uh they're consumer facing so yeah it's tough to say but i think i'd yeah i'd rank them as you know if they're all at similar valuations i i don't know maybe unity one they all kind of mesh together it's definitely not investment advice but i mean you gotta love all three of those yeah yeah agreed all right uh

anecdotal evidence um i have two oh i have three oh wow okay i'll go first uh so you might have this one as well but we started reading the spotify play this week i know i did um pretty good book i'm blanking on who wrote it i'm forgetting the name swedish journalist yeah uh but good book i'm enjoying it and i'm starting to see a different side of daniel eck a little bit of a party boy also uh uh martin lorenzen was basically erlich bachman i know i know sean parker was basically erlich bachman but so was martin lorenzen they had two erlich bachmans on stuff yeah like the guys with just the money that were like come in and interrupt meetings oh lorenzen was yeah something he was something yeah good book yeah i mean if you're

interested in spotify probably read that get the whole background of the culture of the company it's evolved it was definitely a shaky company they almost failed a few times oh definitely for sure uh they had a huge headwind from apple and the record labels the record labels i think the big takeaway from that and i'm biased because we're spotify shareholders but the biggest takeaways that the labels are just so stingy and grumpy and like little like trolls living under a cave i don't know well and it's also proof that they're like preserving their once great business model as hard as they can but the other thing is it's kind of a testament to spotify's product and how much better it was than everything else because you think about beats music and all those

other things that were launched rdo or whatever rhapsody pandora rhapsody pandora i mean it trounced them all in the end and it did not always have the best relationships like apple did with the labels yeah they i mean they've probably evolved to have great relationships with the labels now or i'd assume so or it's more of a frenemies type deal but do you think the key was the freemium it's kind of how they framed it i i think the key was the freemium model yeah yeah and the user interface um it sounds like the the experience of the streaming experience and the actual tech was far superior to some of the competitors um and then they really they really hyped up that like oh gosh what's his name there was like the one developer that they brought

in oh from apple lewd ludwig oh i brought in some soda stone the other names are very confusing those all swedish guys but yeah but he like ran the whole thing he developed literally the entire back end yeah in the early days i forget who that was yeah there was a good there was a good programmer and then also the people that came up with discover weekly that was huge uh the people in new york yeah yeah that was that was huge that was huge all right uh second one is the roses feature on hinge so you've been using it uh briefly i mean you only get the only one a week yeah i think this does totally change where totally changes the direction that some of the dating apps can go because so i'll try to describe it for anyone that is not using the dating apps

is basically, typically, the way you have it is you scroll through profiles and it's like a binary decision. So, it's either yes or no, yes or no, over and over. This is different. You get to sort of screen multiple pages kind of at the same time and then pick one and send a rose. So, it's a little more catalog approach instead of like just the binary decisions over and over. So, it's a lot like instagram for dating and then you just if you wanted to spend if you wanted to do more than one rose a week or whatever then you have to pay money so it's like instagram for dating and then you just buy yeah if you want more than one chance to shoot your shot and the roses are supposed to be like premium likes and i think the key was something like hinge and why it'll probably work

there but again we're talking our book uh a lot this show the uh the thing with hinges there's more information about the person on the profile which is why the rose thing because it's more relationship focus so that is probably why it could work there really well yeah and yeah it seems like if they were moving to social if they were trying to go more social component and less just swipe left or right like if they were trying to move towards social media i think this is the way to do it potentially yeah and they just bought this company which is my anecdotal evidence is that your last one yeah you want to okay i'll just transition to the this was going to be my last one but we've had a week to sit on the match acquisition of hyperconnect what are your thoughts

uh from what i initially saw i like it a lot but i don't quite understand the product entirely no yeah the product's still good yeah something to get used to i guess i wrote something for the mildly fool on it so i did have to do a little more research so they have one part of it that is a basically i mean it's like a non-gross chat roulette uh where you can meet people worldwide That one seems weird, but it is the biggest part of the business. And then there's one called Hakuna Live, which is more of a video broadcasting thing, which seems a bit similar to Clubhouse to me. So we'll see how that kind of fits into the social network part of it. But it's interesting how they're trying to go into social and merging that with dating potential.

The potentials for that seem interesting, although I don't know how much of a business case there is for that. But it looks like they got hyperconnected at a decent valuation. it's they say that they they believe they can get them up to similar operating margins and they got them for eight times trailing sales uh so that's not a steal but i mean yeah they're growing quickly i don't mind the price they paid i don't understand the obsession with video there has been like a maybe it's less american maybe it's more international where that market is but like my inclination is not to facetime someone on a dating app yeah yeah but maybe that's well maybe because it's not good enough maybe it's not good enough right now that's probably their

thought but that is the risk there is a risk that they're going to be wasting a bunch of capital trying to put in a bunch of investments into video when it's not actually you know users don't want it that much yeah okay but they're doing what was it 200 million in revenue yeah 200 million revenue trailing they're thinking they're going to get to 300 million this year with hakuna live which is only at 10 million uh users uh so that one's growing really rapidly uh it seems like it's pretty easy to monetize that one with the broadcasting teams and stuff like that it also gets them an entrance into south korea uh but yeah all right next okay uh let's see so facebook is thinking of making a smart watch there's rumors of that are you in or out i'll

give a little context here so josh wolf who's one of our favorite followers on fintwit and is a big reason i subscribe to real efficient to be honest uh he alluded to being more than just an apple watch and he knows this because the v his vc firm was the lead investor in control labs labs which got bought out by facebook and was a touch and movement device connected to your um thought it's like a computing device connected to your thoughts where you can kind of control control product he had yeah do you think the potential with that being connected to a watch i think that could be pretty cool if it's real yeah that would obviously be massive um but i just like my natural instinct is to say like that's not going to work at first with uh just because you're able to like change

the temperature with your hand being away from the thermometer or whatever the i don't know you You've got the teams at Oculus, you've got the teams at their control labs. I've honestly, I've never liked Facebook's hardware. Yeah, that's true. That is a problem. But Oculus seems good now, so who knows? Not to mention Facebook's brand makes new product launches so hard. Yeah.

That's why the Portal is the best product, but it's, I mean, I don't think that those products really have much of a... The thought of something Facebook-related being that close to you for that long concerns people. Yeah. I would honestly, like, I think I would be comfortable doing it if it's that cool and useful. Okay. But I don't think a lot of people are. Yeah. Yeah.

It's interesting to see where they come out with. All right. Fun one to end with is anecdotal evidence. So there's a crypto mogul, as they call him. Again, I don't want to say who it is, who bet on meme investing. Feels like a very bad time step. I'm going to read some quotes here to close out the show for the current market moment. So he said, quote, Elon Musk is not only a company CEO, but he is also the representative of this kind of meme culture and the representative of this kind of new generation movement.

In the future, these kind of community driven trends require company CEOs to be more engaged with the community, with their fan base. Agree or disagree? No. No. Okay. Here's another quote. Speaking the same time, same week, Elon Musk announced he put $1.5 billion worth of Tesla's incorporated cash in Bitcoin.

Sun said that a new type of internet-driven investing would benefit, sorry, I said his name, it doesn't matter who it is, would benefit cryptocurrencies as well as shares of companies that are able to understand and latch onto, quote, meme culture. It feels so, it's just insane, isn't it? Isn't it insane? I feel like I'm living in a dream. I think people are getting the wrong idea. These companies sell things other than their stock.

Their goal is not to just raise more and more cash. Like some of them are cash flow generative. Some of them have real businesses where they sell actual products, not just stock. And so you don't like the appeal. If you want fans, you should appeal to customers, not appeal to investors. Yeah. Well, the thing is, yeah, it can be helpful to have a narrative that was very helpful to Amazon and Netflix, right? They kept their shareholders with a decade-long time horizon, but they have viable business models.

It took a while to flesh out these business models. It just feels that article to me, I felt like I was living in a whole new world. Also, I'm not a fan of the term crypto mogul yet. I'm not ready for that. yeah you mean scam artist i don't know i'm i think next week i'm gonna do some research on block five because i was looking at block five and that stuff it looks insane someone correct me if i'm wrong but i don't know how you're lending out money on on coins that are that volatile but we'll see i might do some research on it all right that's gonna do it uh we want

to remind our listeners that we are general partners at arch capital and we might hold positions and anything discussed on the podcast. We're also not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. Thank you guys for listening. We'll see you next time. Don't you wish you could just hit skip on the worst parts of your life. You know, the same way you can skip an ad. I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently that's how I roll. So bundle up and come along for the bumpy ride.

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