Motley Fool Hidden Gems Investing - Facing Our Investing Fears

Episode Date: October 5, 2026

Motley Fool Hidden Gems Investing helps kick off spooky October with an episode that injects a dose of optimism into investor fears. Specifically, there are fears regarding Anthropic’s risk factors in its S-1, but Jon, Matt, and Rachel remind listeners of past risks that didn’t come to fruition with some great long-term investments. The episode then moves into what is driving the Fear and Greed Index lower before ending with a discussion of where higher bond yields can actually be a good thing. Jon Quast, Matt Frankel, and Rachel Warren discuss: -Risks from S-1 filings for Amazon, Alphabet, and Meta Platforms -Anthropic’s unusual risk factor section -What’s driving the Fear and Greed Index lower -Three stocks that have dropped that are worth buying -When higher bond yields can help investors Companies discussed: Anthropic, Amazon (AMZN), Alphabet (GOOG)(GOOGL), Meta Platforms (META), Dream Finders Home (DFH), Brookfield (BN), Shopify (SHOP), Realty Income (O), Eli Lilly (LLY), Regeneron Pharmaceuticals (REGN) Host: Jon Quast Guests: Matt Frankel, Rachel Warren Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Facing our fears with the stock market, Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm your host today, John Quast. I am joined by Rachel Warren and Matt Frankel. We're kicking off this spooky October with an episode filled with investor fears. We're going to be talking about bond yields and stocks that are plummeting. But first, we want to talk about risk factors. You know, every publicly traded company does include risk factors,

in their filings, and that includes the S-1 filing. This is a filing that companies release right before they go public on the stock market, and we got one from Anthropic that was a little bit over the top as far as the risk goes normally. We don't have the full document, but the leaked version that is out there says that its technology poses a catastrophic or existential risk to humanity potentially. that's quite a doomsday scenario. And that actually gave us a question from our mailbag that was worth considering here at the top. This comes from a listener named Patrick,

given the recent S-1 filing from Anthropic and how it paints a rather bleak picture of the risks for AI. I was wondering if we could have a little fun and dig into a few S-1s from 10, 15, or 20 years ago. Maybe look at the S-1s from Google, Amazon, or even MongoDB to see if they've been able to execute or come up against the risks that they've out line and how they've navigated it. We're going to bite on this. We're going to take a stroll

down memory lane with some old S-1s. We're going to not talk about MongoDB today, but let's talk about S-1 risks from Amazon, alphabet, and meta. You know, if you invested in any of these at IPO, you're doing quite well today. So, Matt, kick us off here with Amazon and it's S-1 risks. Yeah, I mean, Amazon's a great example of one that did list some scary risk factors. And the question said 10, 15, or 20 years, really aging myself, because I remember Amazon's S-1, and it was 30 years ago, almost 30 years ago. It happened in 96 or 97, I think 97. But it warned of better-funded rivals,

and it specifically named Barnes & Noble in Borders. It also listed capacity constraints, system failures, risk factors, but solving those problems created what would eventually become AWS. So they're perhaps the best example of how a company navigated some, quote, scary risk factors

and really kind of used it their advantage. It's almost hilarious to consider Barnes and Noble as an existential threat to Amazon now in hindsight, but indeed at the time, it was a little bit like how is Amazon going to come up against this huge and powerful company Barnes and Nobles? It was able to do it. It's kind of similar, Rachel, with Google and Microsoft, you know, Microsoft having that distribution and Google saying, hey, maybe they're going to be able to prevent us from growing in search. Yeah, I mean, it is kind of funny to think about now when we look at how much these companies have grown into the giants they are today. But, you know, this sort of often boring section of the S-1, not so much

an Anthropics case, the risk factor section. It can't obviously as an investor tell you a lot about the business, help you really form your own risk thesis and buy assessment of a particular company. Now, you know, there's a key point to be made here. There's obviously a fundamental difference between alphabet warning, you know, 20 plus years ago that Microsoft might crush a search engine and Anthropics warning. And it's filing that an autonomous AI model could pose an actual, quote, existential risk to humanity. But the kind of key takeaway here is back in the day, Alphabet or Google's core risk was structural. You know, they were a single revenue engine at the time, kind of at the mercy of desktop operating systems controlled by their rivals. And so, you know, a lot of

The concern at that point was this idea that Yahoo, Microsoft could destroy Google, of course, that in fact was anything but the case. I do think what we see in the at least leaked version of Anthropics S-1 filing, it is a different story, but you can certainly look back at time at a lot of, you know, fearmongering around past S-1s that never, in fact, came to fruition. Yeah, I can remember a time when I didn't see how Google was going to displace Ask Jeeves. and I've certainly been proven wrong there. Matt, close us out here with meta. Of course, it wasn't called meta when it went public.

It was called Facebook back then. Yeah, John, I think you and I are the ones old enough to have actually used Ask Jeeves. I used web crawler and Likos as well, if you remember either of those. But yeah, so meta's another example. It was known as just Facebook at the time of its S-1. And the biggest concern from investors and from the company itself was being able to monetize mobile. At the time, smartphones were still relatively new. Facebook's S-1, don't quote me specifically on this, I think it was 2011.

But at the time, like, you know, the iPhone had only been out for a few years. Smartphones weren't what they were today. At the time, Facebook generated virtually all of its revenue from desktop ads. Its S-1 specifically disclosed, quote, that it had no meaningful revenue from mobile. And there was no clear strategy or pathway to changing that at the time on a small screen for example, there's really no room for a desktop style ad like they were using for the most part of the time. But by 2019, not even today, by 2019, mobile made up 94% of META's ad revenue. And it fixed the problem in a few ways. I mean, number one, the most obvious one,

META put ads in the news feed, directly in the news feed, not just sidebar ads. So they looked like posts. I remember being really annoyed at that at first, but it was a genius business strategy. And so they got far more attention. In late 2012, shortly after it went public, meta launched ads that let developers pay people to download their apps. Really great way to track what advertisers were getting for their money. Demand for that was handily exceeded expectations. So the results came pretty quickly.

This is from TechCrunch. I found an article in 2014 that put mobile at more than 50% of ad revenue by the end of 2013. And that was only about a year and a half after the IPO. So with Amazon and meta, the key theme here is turning your worst business threats into your growth opportunities. And that's kind of a rare quality that you can look for. I don't know. I don't know how you turn an existential threat to humanity into a growth opportunity.

But I don't know. Maybe they could figure out ways to help regulate the industry, keep it safe, and grow that way. You know, what this reminds me of, I believe it's author Morgan. Howzel who says, everything worth doing in life has less than a 100% chance of success. There are risks in any business, but as we're pointing out, I mean, these great investment opportunities, you have to be able to kind of see through these clouds, as Molly Full co-founder, co-founder David Gardner puts it, clouds you can see through. There are clouds, but you've got to see the sunshine on the other side. But of course, it's not all sunshine and roses, Rachel.

There are real things to consider. We shouldn't be dismissive of the S-1 risk. factor sections. No, quite the opposite, in fact. I mean, if anything, an S-1, I mean, it's a great tool as an individual investor. It highlights vulnerabilities, often at a company's, you know, weakest point, often before they've built a protective moat. You know, of course, in Google's case, they navigated commercial threats by aggressively at the time, developing Chrome and Android to control its own destiny come quite a long way since then. That moat, specifically within the AI space for the frontier labs, for anthropic, specific is still actively developing, as is the regulatory landscape. So that creates, I would say,

an element of uncertainty that is a little bit differentiated here. Yeah, I mean, of course there are some that don't overcome their risk. It's really important to mention that. We're not saying that every risk is an opportunity. Think of WeWork, for example, if you remember that company, it's S1, which was originally filed in 2019. It showed $47 billion in lease liabilities, which were backed by nothing but short-term memberships. They called it out as a risk factor. and it turned out to be a little too much for a risk factor. I want to close out here talking about Anthropic. We certainly don't want to be dismissive of its risk section either.

And Rachel, you kind of had some interesting observations about the risk factor that we know of. Obviously, we don't have the full complete filing yet that is publicly available, but what we know so far. Yeah, I mean, there was a lot to go over there. But the thing that was very noticeable was that Anthropics spent about 80 pages strictly on risk factors compared to just around 48 pages explaining its actual business operations, essentially dedicating nearly twice as much as one real estate to explaining how the world might end as to how they're planning to justify a targeted $2 trillion valuation. And Anthropics also introducing it somewhat unusual founder LLC model, essentially where the

seven co-founders will be pooling class F shares to lock down 50.1% of the total voting power. So it's effectively asking the markets for a historical amount of capital, while insulating leaders from a lot of the market forces there. So still a lot to come out. Obviously, we have to see what the actual S-1 looks like. But I think that there are a lot of very justifiable questions that investors have and will continue to as we move forward. Well, we'll certainly keep an eye on it when it finally does release to the public.

After the break, we're going to be talking about fear and greed. You're listening to Motley Fool, Hidden Gems, investing. New from Nespresso. blend wellness into your coffee routine with the coffee plus range infused with functional benefits. Choose the coffee you love with added B vitamins, like coffee plus B12 to help support immune function, and coffee plus B6 to keep your day moving. Or go with the flow and choose ginseng delight. Our new double espresso with ginseng extract.

Whatever lies ahead, don't change your morning. Let your morning change you. Discover coffee plus on espresso.com. reaching your audience on Spotify with display ads is easy. Use your existing creative and launch your first campaign in minutes with Spotify Ads Manager. Welcome back to Motley Fool, Hidden Gems Investing. So there's a thing out there called the Fear and Greed Index from CNN. And what is so interesting is that as we've kicked off October, this is the third trading day,

and it's the third straight day that it is marking fear in the stock market. Now, this index tracks a variety of factors, which is kind of interesting in how it ascertains that investors are fearful. One of the things that it's looking at, for example, is the options. Are they bullish, bearish, et cetera? They're more bearish now than bullish. So that's kind of an interesting data point. But the two weakest factors right now in the index are the stock price strength and stock price breadth. Basically, there are more stocks making new lows than stock.

stocks making new highs, which is kind of counterintuitive with the market at an all-time high or near an all-time high. But that's actually what's happening. We're also seeing a concentration in volume among stocks that are going down more than stocks that are going up. So what that tells us is there's actually a decent amount of pessimism in the market with a lot of the optimism concentrated in just a few names. So I thought this would be a good chance to talk about some stocks that are actually making some new lows here. You know, Warren Buffett talks about buying when others are fearful. Others are fearful.

Stocks are hitting some lows. What are some stocks, guys, that you would be buying? And Matt, we're going to let you go first here. Yeah, so first of all, fear alone isn't a reason to buy. It's also important to really put into perspective whether a stock's price fell just because there's, you know, because of market sentiment or because there's something wrong with the business. And I'll call out one that I'm not necessarily suggesting. run out and buy, and that's a home builder I own called DreamFinder's Homes. And I bought more in full

disclosure, but it's not just down because of fear in the market. It's down because its earnings per share have been more than halved over the past year. It's because margins are under pressure. It's because the housing market is generally terrible right now. I could probably think of a worse word to describe the housing market. So I bought more, but that's a stock that's cheap for a very rational reason. Another one, on the other hand, think of a company like Brookfield Corporation, ticker symbol BN, the giant asset manager, it's down 20% over the past year, just reached a new 52-week low. It's distributable earnings, which are not gap earnings, is kind of like their form of adjusted earnings, was up 15% year-over-year in the latest quarter. Its fee-bearing capital grew

by 19% year-over-year, which is a great indicator of future revenue. And it's raising money at a faster pace than ever. This is a case where the business continues to grow, but the stock's price is down because of fear in the market. There are some real risks with Brookfield, don't get me wrong, but the company at 15 times earnings, that creates pretty impressive risk-reward dynamics. Yeah, and certainly a name that not everyone in our listening audience maybe have heard of, and they love ideas, so we like to give ideas, and Rachel, we'll pass it to you here. What's another idea that you have. Yeah, I think Shopify is a great example of a business that has been sold off a bit, particularly early this year. The stock's down still about 8% from a year ago. Certainly,

the business went through quite a lot of volatility share price-wise earlier in the year. The stock bottomed out under $100 a share. Now it's trading around $150 a share. I'm a long-term holder of Shopify. And I think a lot of this has been around the concerns of how commerce and agentic commerce is going to disrupt the e-commerce space broadly. And of course, Shopify with its platform that helps, you know, merchants around the world is sort of the epitome of, I think, that fear that we're seeing. But again, you know, the point that Matt makes, looking for businesses where the growth story is still there, you know, this is not about buying a business because the share price has dipped or the valuation looks low compared to a year ago. Obviously, that can be

a favorable thing as a long-term investor. You want to make sure, you know, are the cash flows there, is the profitability there, is the growth story still holding? I think that's very much the case in the case of Shopify. I mean, they're really doing an exceptional job of continuing to monetize agentic commerce, building that into their platform. They're seeing tremendous growth with shop pay. And again, a lot of those AI innovations are actually driving their profitability and cash flow. So I think that's a great example of a business that the market's been a little hard on, but in my view, the business thesis still holds. Maybe a nice hidden aspect of Shopify that people haven't considered, just how AI really does kind of help these smaller shops as opposed

to large marketplace aggregators. Matt, close us out here with another little bit off the beaten path stock to talk about, but this is an interesting one. Yeah, I love the Shopify call, by the way. That's one that I bought when I was being greedy when everyone was fearful of the, you know, the, the 2022 bear market and it's paid off very, very well. But another one I was going to talk about is a real estate investment trust called Realty Income. Ticker symbol is just O. It's the largest real estate stock I have. It reached a 52-week low recently, primarily because it's so sensitive to interest rates. Real estate stocks in particular are very rate sensitive. They rely on borrowed money more than most companies, so borrowing costs are higher. The value of commercial properties is really

derived by comparing the expected return to the risk-free rate, which I don't want to turn this into economics 101, but the bottom line is that real estate stocks are very, very interest rate sensitive. The business is doing great. They own a little under 16,000 properties now, mostly freestanding retail that's recession resistant. They have some data center properties. They have a joint venture with Digital Realty Trust that's kind of new. They have a few other property types. Industrials are a focus of theirs. It could be a great time with some of these reeds to lock in a great yield on cost, meaning the yield on what you're paying for shares. These are great long-term investments.

This is a big, I'm in my 40s, and this is a big component of my retirement strategy. And right now, realty incomes paying over 6%, which is historically kind of rare for the stock. So it could be a good time to take a look at some of these real estate investment trusts. Well, thanks for those ideas. After the break, we're going to look at some bond yields and what it means for investors. You're listening to Motley Fool Hidden Gems investing. New from Nespresso. Blend wellness into your coffee routine with a cost.

Coffee Plus range, infused with functional benefits. Choose the coffee you love with added B vitamins, like coffee plus B12 to help support immune function and coffee plus B6 to keep your day moving. Or go with the flow and choose ginseng delight. Our new double espresso with ginseng extract. Whatever lies ahead, don't change your morning. Let your morning change you. Discover coffee plus on espresso.com.

Welcome back to Motley Fool, Hidden Gems Investing. You know, we did take a question from our mailbag at the top, but I want to put in a plug. If you have a question for anyone on our show, you can send those in at Podcasts at Fool.com. We would love to take it if it's a foolish question, if it's short enough to read, and you remember that we don't give personalized investing advice, but that email is Podcasts at Fool.com. Podcasts at Fool.com. Now, we want to close off here with a topic that Matt brought to the table regarding bond yields. And bond yields, especially sovereign bond yields, are surging.

I saw in the news this morning that Japan's bonds are hitting an all-time high yield. But in the U.S., they're hitting high yields as well. This is typically seen as a not good thing for the economy, but we want to flip this around on its head and we want to talk about maybe where the benefit lies for some companies. Rachel, we're going to go with you first. Yeah, I kind of want to talk a little bit about all sides of this. So when you hear that the 10-year Treasury yield is hitting its highest level since 2002, so 20 plus years, that means the underlying price of government bonds is falling. So yields and bond prices, they move in opposite directions.

So that means investors are aggressively selling off bonds for a few reasons. Now, we're still seeing a lot of resilience in the economy and the labor market that actually pushes out expectations in some cases for rate cuts. And obviously, we've seen that to be the case recently. Now, obviously, persistent inflation triggers like oil prices due to the continuing. geopolitical friction in the Middle East are also keeping, I think, a lot of inflation fears alive. There's also a supply and demand imbalance. Now, the U.S. national debt's approaching about $40 trillion. We've got a federal budget deficit at around 6% of GDP. So the government is flooding the market with a historic supply of new treasury bonds. And at the same time, big tech companies

are issuing massive amounts of private corporate debt to fund the AI data center. So there's a lot of debt entering the market. That means that buyers can demand a much higher return. That is what is forcing yields to multi-decade peaks. Now, as a consumer, obviously, if the 10-year Treasury is spiking in this way, that's a benchmark for consumer and corporate borrowing costs. That has an impact. It can have a drag on the everyday economy. It pushes U.S. mortgage rates up. It also pinches the federal budget. Now, on the flip side of that, there are, of course, many businesses that are cash-rich corporate compounders where higher yields are actually a competitive edge, if you will. So the smaller companies might struggle with the high interest rates, but very

cash-rich businesses that are actually parking their capital cushions directly into treasuries or thriving. And that is the case across a lot of industries. I'll name a couple in an industry I follow very closely, which is healthcare. You think of companies like Eli Lilly, companies like Regeneron. These are very heavily invested in treasuries. These are also very cash-rich, and they will, over the long run, probably benefit from what we're seeing right now. Yeah. I mean, Rachel did a really good job of covering the causes and the negatives. I love how I brought this and Rachel got stuck with the boring economics 101 of bonds here. So, you know, the 10 years at 5.2, right before we were recording the 30 years around, you know, 5.5%.

That's the highest in more than two decades. And there are some serious concerns, not just for the stock market, but, I mean, right now the U.S. pays over a trillion dollars in annual interest on its debt. And rising rates make this worse. And of course, this is bad for many industries. Don't think this is a good thing for your portfolio. You know, home builders, I already mentioned one, real estate investment trusts, any growth stocks with really long runways to profitability. I'm not talking about the NVIDIAs that are making money hand over FIS,

but some of these like NeoCloud companies that are losing money and things like that could be, you know, under pressure. And the fact that there is a 5.5% yielding risk-free alternative for investors, it just creates general downward pressure on the market. But there are some good things to mention here. So, I mean, for one thing, yields driven by strong growth, which is what this is, I mean, it's a lot of the AI investment and bonds related to that that are driving rates up.

Some areas of the market can win. Rachel correctly mentioned cash-rich businesses. Hers were healthcare, but I would actually add to that by pivoting to the insurance companies. They have a lot of other people's money they get to invest. And they invest their flow primarily in fixed income instruments. Berkshire Hathways at its core in insurance business, but it invests in stocks. But it also has $365 billion of cash that's mainly invested in short-term treasuries.

I just wrote an article on Fool.com how the Fed essentially gave Berkshire a billion-dollar raise by raising rates. And banks. Banks generally benefit in terms of their margins when the yield curve steepens, meaning that the longer dated bonds start paying significantly more than the shorter dated bonds. There's my economics 101 for the day. But there are winners and losers

in general. Rising rates are a downward catalyst on the market, but not all parts of the market are the same. Well, and I think it's just good to end on that little dose of optimism because we do believe in optimism here at the Fool. And so thank you for that. As always, people on the program

may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks for our producer Dan Boyd and the rest of the Motley Fool team for Matt, Rachel and myself. Thank you so much for listening to our show today and we will see you again next time.