Motley Fool Hidden Gems Investing - How to Be Less Emotional About Stocks

Episode Date: March 14, 2022

It's nice (among other things) to see that even investing legends like Warren Buffett face skepticism from shareholders. (0:20) Jason Moser discusses: - A Berkshire-Hathaway shareholder proposal to have Buffett be replaced as chairman - Focusing on numbers instead of a company's story - Comcast getting into live sports in a bigger way - The "sports media rights" bubble remaining firmly intact (16:25) Entrepreneur and investor Moiz Ali understands Shopify both as a shareholder and a customer. He talks with Motley Fool senior analyst Yasser El-Shimy about Shopify's data insights and subscription platform, the bull case for the company, and more. Stocks discussed: BRK, TDOC, DOCU, AAPL, CMCSA, SHOP Host: Chris Hill Guests: Jason Moser,  Yasser El-Shimy, Moiz Ali Producer: Ricky Mulvey Engineers: Rick Engdahl, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. Attention sports fans who are also investors, if you've been waiting for the sports media bubble to burst, you're going to have to wait a bit longer. Details on that and a lot more coming up right now. I'm Chris Hill, joined by Motley Fool Senior Analyst, Jason Moser. Thanks for being here. Jason Moser. Hey, thanks for having me. We've also got a closer look at Shopify coming up later in the show, and we're going to dip into the Fool mailbag. I just want to start real quick with your reaction to this story involving Berkshire Hathaway. They've got the annual meeting coming in late

April. There are some shareholder proposals on the table and Berkshire Hathaway has come out and their official position on all four of them is asking for shareholders to vote no. The one that caught my attention was someone is proposing that Warren Buffett be replaced as chairman of the board. I get that he's 91 and I get that he's also the CEO, but I saw this, Jason, I just thought, oh, come on. Really? This isn't working anymore? Warren Buffett being chairman of the board, that's not working for you? Yeah, we're doing this now. These shareholder proposals to me are always, I find them honestly more entertaining than anything else. Sometimes I guess there's merit, but that's the nice part about being an investor,

is you can voice your concern. If it's something that really matters to enough people, you can at least get it on the docket for discussion. I do get from the perspective of, anytime you have a business where the chairman is the CEO, and the CEO is the chairman, and that's very frequent, that's something we see all the time. I mean, in an ideal world, yeah, I'd like to see separation of powers. I mean, it's nice to see the CEO not necessarily be the chairman. I mean, look at Amazon, for example, now, right? That obviously for the longest time was just Jeff Bezos running the show, but now with Andy Jassy stepping in as the CEO and Bezos on the board, that's a little bit of a different setup there. I understand the perspective of the division of power.

By the same token, it does feel like this is at least worth mentioning. I want to state this because it matters, I think. I went through the most recent Berkshire Hathaway shareholder letters and the numbers are pretty darn impressive. If you look at the per share market value of Berkshire Hathaway. And you look at 1965 through 2021, the compounded annual gain of the per-share market value of Berkshire Hathaway is 20.1% versus the market's 10.5%. So, pretty impressive. I think we would all agree that the shareholders have definitely won. Here's another pretty impressive No. 2 though, Chris. If you look at the overall gain from 1964 to 2021, Berkshire Hathaway is up 3,641,613% compared to the market's 30,209%. Listen, man, he may be getting

up there in age, but there are two things in play here. Number one, his track record is, I don't think anybody can match that. I'm sure maybe there's someone out there could come up with something, but that's a difficult track record to match. Furthermore, they've now addressed succession. They've addressed succession with Greg Abel will step in to fill that CEO role when the time comes. I believe, if I'm not mistaken, Buffett's son will be taking over the role on the board when he's unable to fulfill that duty as well. To me, I look at those types of shareholder issues, those types of things that shareholders bring to the table. Just look at some of the data, use some of your common sense there.

To me, it seems like, hey, thanks for bringing it up, but no, I certainly understand why Berkshire is encouraging shareholders to vote no on that one. Our e-mail address is podcast.fool.com. Got a question from Cole LaVoy who writes, I'm a college student. I started listening to your podcast six months ago and I've been investing for two years. Recently, I've been bullish in a more emotional than evidence-based way with a company called Teladoc Health. I'm wondering how you deal with stocks that draw you in maybe more than you should. Thank you for that, Cole. Two things strike me about this, Jason. One is, I think we've all been there. I think we've all been there as investors where at some point

we realize, I think I've got an emotional attachment to this company and this stock that probably is more significant than just going through the numbers. And two, to Cole's point, he mentions he's been investing for two years. It doesn't take that long. When I read this question, I thought, wait a minute, when did this happen to me? And it was about the same time. I had only been investing for a couple of years and I just got a little too attached to a stock. And I thought, no, I might not be thinking about this the right way. So, he's asking about Teladoc Health, but this could be a question about any stock out there. How do you, sort of, put your emotions in perspective when it comes to investing?

Yeah. I mean, I think that's a difficult thing to do, I will say. I think that it gets easier the longer that you do it. So, first and foremost, Cole, thanks for the question. I mean, at two years in, you are not alone. This is something that's very common. We have all been there. I mean, it is a good lesson to learn as a young investor to not get sucked in by the story, because that's where emotions can really take over. And I'll use an example here. I mean, I've been there in one stock where I really kind of let my emotions take over rational thinking. In a way, a company called HireOne back in the day, and this was a company that was focused on essentially giving students a way to get their student aid disbursement checks more quickly,

and then also giving them, creating a banking relationship, like a student banking relationship, so that students, ultimately, they were able to get that student aid distributed more quickly, but that they also had a banking relationship formed at a younger age. Now, this was back well before Square and PayPal and Venmo and all that stuff. So, it was a bit more of a novel concept at the time. We weren't doing all of our banking online, or at least so app-based as we are doing now. But at the time, it just seemed like such a neat story. It was founder-led. I really liked what they were doing. It seemed like they were focused on financial literacy. I even interviewed the founders and the CEO of the business. The more I became familiar with the

story, the more the story took priority over the actual numbers. As I followed the business and as the business continued to perform or rather underperform, it became clear that while the story was really neat, the numbers just weren't really supporting it. I think that's where you really need to be able to actually pay attention to the business and make sure that the business is still performing well. I think Teladoc is a good example. I'm going to use a different company just because I think it's a little bit of a cleaner example, simply because it doesn't involve a big acquisition. But I think the point really still is the same here. If you look at DocuSign, and I made this point over the weekend, DocuSign is essentially round-tripped.

If you go back just right pre-pandemic, DocuSign was one of those pandemic darlings that just took off to the moon. I think we all knew that the price was becoming a little bit detached from the fundamentals of the business, but so it goes. That is going to happen. But if If you look two years ago versus today, it's pretty fascinating to see. If you look at just two years ago, DocuSign chalked up revenue for their fourth quarter of $275 million and $974 million for the full year. Pretty good. You fast-forward two years, they just reported their fourth quarter results here two years

later. For that same quarter, two years later, they reported $581 million in revenue. For the full year, $2.1 billion in revenue. Now, it doesn't take a genius to look at this and say, wow, this is objectively a much stronger business. They've grown by leaps and bounds, they have added tens of thousands of users to their user base. It's objectively a much stronger business today than it was two years ago, yet the price essentially today is the same as it was then. And so, it all just goes to show you that oftentimes, and this is something that I always try to remind myself, the market rarely operates on our timeline. And that's one of the reasons why we take that longer view, because the market just doesn't typically operate on

our timeline. And in the near-term, the market just isn't rational. And I think that really goes back to that quote that you've heard. I think this was coined by Ben Graham back in the day, but you hear Jeff Bezos use it all the time, essentially saying that in the near-term, the market is a voting machine, but in the long-term, it's a weighing machine. You're dealing with the psychology in the near-term versus the fundamentals of the business in the long-term. You want to focus on those businesses that are ultimately getting heavier or growing. Teladoc, I think, fits the same mold. DocuSign is a cleaner example because they don't have that big acquisition of Livongo like Teladoc has. But again, you could look at Teladoc

today and you could say, you know what? Fundamentally, this is a much stronger business today than it was two years ago, and yet the price is where it is. I mean, we're in the throes of a bear market here, right? I mean, we are in the throes of a really, really difficult market stretch here, and that is something that we all have to deal with, and virtually no company is immune to this. But I think typically when you get emotional, take a step back and try to focus on the fundamentals of the business. Look at the numbers over stretches of time and try to determine, is this business stronger today than it was a year ago, two years ago? If you can come up with an objectively clear answer there, then I think it makes it a lot

easier to eliminate those emotions and keep focused on the forest as opposed to trees. Last week, it was Apple. Today, The Wall Street Journal is reporting that Comcast is getting close to a deal with Major League Baseball to stream a package of baseball games on Sundays. The two thoughts I had when I saw this were, where was the sports bubble popping? I've been promised this for about seven years now. The sports media rights bubble is going to pop soon. No, apparently it's not. But more significantly, Jason, congratulations to those who predicted that the streaming services would be going both feet in to live sports. I shouldn't put it both feet in because this is Comcast and Apple

sort of dipping their toes in the water with Major League Baseball, but unless it completely flops, they're probably going headfirst after this. Yeah, I'd imagine so. I mean, I think that the main reason that sports media bubble hasn't popped is because the landscape is just so much different today than it was just a few years ago. And that, as you mentioned, is really due to all of the streaming apps that exist today that just didn't exist even just a few years back. And so, Peacock, I think, is a good example here. Peacock, as we know, the Comcast offering, kind of that NBC-style streaming service, three different tiers, free. They have one where you pay $4.99 a month and you get some ads, and then you have one where you pay $9.99 a month and you

get almost no ads or very few ads. I think it's important to understand why Peacock exists for Comcast in the first place to understand why they're doing this. And ultimately, Peacock is an advertising play first and foremost. I mean, they have stated that a number of times as management views Peacock as ultimately it's an acquisition tool, but really first and foremost a way for them to continue selling that advertising space and ultimately benefiting from that advertising. When you look at probably, what, a decade ago when we were talking nonstop about Netflix and cord-cutting, and this was the way of the future, and this is how people are going to get their content going forward. Cable is in trouble. The big question that

stood out to a lot of us is, yeah, that's fine. I get that to an extent, but what about sports? What about news? What about people who are looking for linear television? Sports has to be linear. It's not necessarily that on-demand style that so many of the streaming offerings give us? I think this is the answer today. Sports, that demand, that's why we're seeing so many of these streaming services pop up, whether it's Peacock or whether it's Hulu Live or YouTube's live offering. We're seeing more and more of these offerings to be able to fill that void. Honestly, you have to wonder now, is this something that Netflix won't consider in the future? Because they are at least staying open-minded. I'm not

saying they will sling ads, but they're hopefully staying open-minded to the possibility down the road, as management noted recently. And so, to me, this makes a lot of sense. Major League Baseball, I know a lot of people find it boring. I mean, it's not the most exciting thing in the world, 162 games over the course of a season, that doesn't mean they all really mean a whole heck of a lot. And you probably midway through the season, oftentimes, you get a pretty good idea of what's going to be worth watching and what's not going to be worth watching. But the fact of the matter is that MLB is still growing. It grows $10.7 billion in revenue in 2019, that was up from $10.3 billion the previous year. But if you go even to 2015, it was $8.2 billion. It is growing.

I think as long as Major League Baseball continues to grow, then we're going to see folks out there clamoring for that offering. Frankly, when you look at Major League Baseball, that is just an advertiser's dream. There is so much dead air to fill through the course of one baseball game. So, I certainly get why Peacock would be interested in this. They're getting exclusive games that you can only get through Peacock. So, I think it'll be something that serves potentially as a nice little acquisition tool for them over the course of this coming year. Absolutely, a lot of opportunity for brand awareness out there. And yeah, you wonder how far baseball has to go, but I mean, it's America's pastime. The only real concern I would have there though,

is that you look at these studies and it tells us that in the sporting world, and this is not just baseball, by the way, this is something you're seeing writ large through the sporting entertainment landscape, the viewers are getting older. Now, this study back from 2016 tells the tale and this disparity has only grown over time, but from 2000 to 2016, the average age of the Major League Baseball viewer went from 52 years old to 57 years old. I think the big nut to crack for a lot of these leagues is trying to figure out, okay, where do we reach these younger audiences? Maybe we continue to see more deals inked with social media companies, whether it's Snapchat or Twitter or Facebook or Meta or whatever you want to call it. But all in all,

yeah, it feels like the sport entertainment landscape is poised to continue growing because there are so many different channels out there claiming for their content. Jason Moser, thanks for being here. Thank you. One way to better understand a business is to listen to what customers have to say. Moiz Ali is an investor and entrepreneur who knows Shopify from multiple perspectives. He's a shareholder, but he's also used Shopify for several of his e-commerce brands. He recently talked with Motley Fool senior analyst Yasser El-Shimi about his criticisms of Shopify's data insights and subscription platform, and the one way Shopify could act

a bit more like Apple, but Yasser kicked off the conversation on a more positive note. Yasser El- You have an investment portfolio of about 50 companies, one of those is a company we'll discuss today, Shopify. was your bull thesis for investing in Shopify when you first bought shares in the company? You know, I've been an investor in Shopify for many years now, and I've probably doubled down multiple times during my investment horizon with Shopify. I'm a big fan of the product. I've started multiple e-commerce businesses. A few of those e-commerce businesses have been on Shopify. It's an incredible product. And it's really the only solution for SMBs right now who

want to build genuine and robust e-commerce products or e-commerce stores. And so, I'm a big fan of Shopify, user of Shopify, and I've been an investor for probably half a decade at this point, maybe longer. Wow, that's incredible. But now that you mentioned competition, companies have been trying to come into the game a little bit to take away from Shopify's market share. We see Block, BigCommerce, maybe even Wix trying to nibble at the heels there. Do you have any thoughts on what Shopify might be doing differently from those companies? Or do you think Shopify's ecosystem is replicable by other players here? Shopify is such a moat. I guess Shopify has two things. One is they have an ecosystem that's

robust, and that's a genuine moat against other competitors. So, if you want a developer, there's plenty of developers that have worked with Shopify systems before. There's plenty of apps that exist in the Shopify marketplace or in the Shopify app store. And so, Shopify has a huge advantage when it comes to those types of resources. They've been around a lot longer. A lot of stores have been built on Shopify, and those stores have built up an ecosystem. So, Shopify is robust there. I think all of the other players, their functionality is so far behind Shopify that they're not genuine alternatives to Shopify's ecosystem. I think the second issue is the switching costs. It's not like any store that's on Shopify would

realistically switch off of Shopify to BigCommerce or Wix or Square. The switching costs from one of these e-commerce platforms to another is so massive. It's such a massive undertaking. I know that I've done it in the past, that once you have someone and their business is working on the platform, it's virtually impossible for another platform to win that business. So, it's not like Wix or Square could create a sales team and go after Shopify stores. Those stores are on Shopify, and their businesses will exist on Shopify for a really long period of time. Now, you have recently written a Twitter thread that went viral, if I may say so myself, and you started it with this statement, Shopify's mission may be to, quote, arm the rebels,

but it is giving us muskets in a war that is increasingly being fought with machine guns. Can you elaborate on that? Yeah, sure. You know, Shopify is head and shoulders above BigCommerce, Wix, and Square when it comes to supporting SMBs. They do things that all of those SMBs still fail to do. As a result, everyone still uses Shopify for e-commerce. But Shopify hasn't really improved its platform in the last five years.

For instance, five years ago, brands could just rely on really cheap Facebook ads and really cheap digital advertising to drive traffic to those stores and build a successful small business that generated $2 million in revenue and $250,000 in EBITDA. That has become much harder today because digital advertising has become much more intense. iOS changes that have disrupted Facebook's ability to target. There are all these new headwinds in e-commerce. Shopify could have adopted their platform over the past five years in order to improve their platform and arm the rebels. So a few of the things that I mentioned in that Twitter thread was Shopify analytics. As stores get larger and as stores are no longer able to buy cheap digital advertising,

they've got to become better with the ads that they've got, and they've got to do a better job with retention. Shopify analytics are really, really terrible. They sort of say, here's your revenue for today, here's how much of that revenue came from returning customers, and that's about it. And so there are other great platforms right now that exist, like Triple Whale, for instance, that have done a good job plugging up the holes that Shopify has. But Shopify needs to improve its genuine internal analytics so that every e-commerce entrepreneur can benefit, not just those that use Triple Whale. Can you give us some specific examples of analytical tools? Yeah, absolutely. So for instance, retention. I'm an investor in a lot of e-commerce businesses,

And a lot of e-commerce entrepreneurs don't understand what retention and returning customer rate. They'll, they'll look at their revenue today and they'll be like, okay, we did a hundred dollars of revenue today. $30 of that revenue came from returning customers. So we have a 30% repeat purchase rate. That's not the way you should look at it. You should sort of look at it as, okay, it's March, 2022. How many of my customers from March, 2021. So in the past, you know, a year ago, how many customers that I acquired in March, 2021 have purchased my product again. That's how you look at retention. You sort of say, how many, you look at it on a cohort basis. How many people who purchased a year ago made another purchase? Shopify doesn't

enable you to look at retention that way. They only look at it as the, okay, 30, you know, you got $30 of revenue from customers that you've acquired in the past. You have a 30% repeat purchase rate. That $30 is meaningless. You know, did the customers that I bought or, you know, acquired it in March, 2021 did 70% of them repeat, in which case I've got a great business did 5% of them repeat, in which case I've got a struggling business. Like that's that type of information really arms the rebels. They're just giving us muskets in a world that's being fought with 21st century technology. One of the things you mentioned in your Twitter thread is that Shopify does not provide adequate subscription support to its merchants. Can you please tell

our listeners, you know, what kind of Shopify subscription support you kind of would like to see? Sure. And let me provide a little bit of context here. So I started a company called Native, which is a deodorant business. We were, we, you know, at one point we're on Shopify or Native is on Shopify today. We use Shopify. Shopify did not have its own native, for lack of a better term, subscription service. So you had to use an app and the app we use is called Recharge. And for a long time, Recharge was sort of the only player in the game. They were the only guys who really supported subscriptions. Now there's a bunch of smaller players that are trying to do a good job here. The reality is the subscription service within Shopify

is absolutely horrible. Recharge's checkout used to take you to another checkout page. It was really long and complicated. Recharge's analytics are awful. Recharge's prices are awful. If you looked at NPS scores, recharges NPS scores would be the equivalent of Comcast NPS scores. Nobody wants to do business with them, but everybody has to because they're the only ballgame in town and you need to have subscriptions supported by Shopify. And so it boggles the mind as to why Shopify has not yet created its own native subscription platform. So many Shopify merchants use it. So many Shopify merchants are disappointed by it. It really is incumbent on Shopify to build that type of software. There are businesses, I remember Ritual.com is this

amazing multivitamin business built in LA. They were on Shopify. They were a subscription-only business. At some point, they got to a size where they're like, look, Recharge isn't able to support this size of the business. Shopify doesn't provide us the tools to be able to do this ourselves. We're going to leave the Shopify platform and move to our own platform because we need more customization than Shopify and Recharge allow us. And so I think it really behooves Shopify to build its own subscription app and make it native to the Shopify platform and support it with its own engineering resources instead of having such a critical element of so many businesses rely on an app that everybody hates. Now, I know that Toby had thanked you for the Twitter thread. Do you see any evidence of Shopify taking the critique seriously and actually taking steps to rectify the situation or not yet? You know, the Twitter thread is, I don't know, maybe less than 30 days old. So I think it's

too early to tell there. And I recognize that Shopify is in a really difficult spot In the same way that Apple was, which is, you want to foster a really robust developer community, including app developers that make apps that live on the Shopify platform and Shopify app store. And you don't necessarily want to kill your developers by releasing the services or releasing the products that they offer as apps themselves. So Shopify is in a really tough position in that they're like, look, we want this robust developer community. but we also, but we also need to build things ourselves to make them, to make Shopify a better platform. And so I think that they're like, you know, in the past they've sort of been hesitant to step on the toes of their developer community and been like, you know what, the subscriptions are being led by developers that are third-party apps. And that's perfectly fine. The problem is

in order to make an amazing platform, you sort of need to do things natively at some point, you know, Apple at one point didn't have a flashlight app. You had to have, you had to download an app or pay for it in order to have a flashlight. And Apple's like, this is crazy. We can't do this. We need to build this natively into the iPhone. And it was done. And all the Apple App Store companies that were making flashlight apps went out of business because it was natively supported by Apple. Shopify needs to do that. They need to start stepping on more toes of app developers because they need to make their platform better. And if they don't, they're going to struggle. And there will finally be room, or there may be room for a third-party

competitor to finally compete with Shopify. I was just about to say, speaking of Apple, as important as it is to have a vibrant app store, the value that's created by vertical integration cannot be understated or overstated in this case. It's just a better experience for consumers. It's a better experience for the product. It drives more value for the company overall so um so yeah i think i think you're definitely on the right track here um one thing you know since we're talking about apple we know that there has um they have recently kind of clamped down on uh on app platform companies like meta and others uh you know with the recent changes in in tracking and targeting uh for advertisement to what extent do you see this

as a potential threat to Shopify's business model? Um, you know, I don't see it as a threat to Shopify's business model. So I guess Shopify's business model can be improved in so many ways. They can start eating some of the software that their, their, their app community has and internalize that revenue and sort of let, instead of letting it be externalized to these third-party apps, you know, when native was on, like when I was running native, we paid more to recharge, which is stunning to me than we did to Shopify in monthly app fees. So, you know, Shopify's business model can start to internalize that revenue. It can raise prices. There's plenty of things that Shopify can do to stabilize its own business model. I think the real question

comes down to the merchants, the Shopify merchants, which is, Shopify merchants in the past have been dependent on Facebook and Instagram ads in order to buy traffic. The amazing thing about selling products on Amazon is Amazon gets so many monthly searches and monthly page hits that you don't really have to buy your own traffic to Amazon. You may just have to buy the traffic within Amazon. On a Shopify store, no one's going to your Shopify store unless you're advertising it in some way or another. Generally, Facebook has been that advertising platform for Shopify businesses. It's getting tougher out there. I think that's going to make it tougher for Shopify stores to do well, which goes back to my original point, which is, as digital traffic becomes harder

to get and becomes more expensive, it behooves the merchant to do a better job with the traffic that they are purchasing from Facebook and Pinterest and Snap and TikTok. And as a result, Shopify needs to enable those merchants to do that. And it can do that with better tools like better analytics, better Shopify subscription apps. I still think Facebook has a huge role to play when it comes to the Shopify community. By far and away, it's still the best advertising platform. It's the only like, you know, Pinterest is great. You can spend $3,000 a day successfully on Pinterest, uh, on virtually any e-commerce business, but you cannot spend $30,000 a day on Facebook. You can spend $30,000 a day successfully. Maybe in the past you could

have spent $60,000 and now you can only spend 30 or 40 or 50, but nobody else has the scale and targeting that Facebook does. Despite the fact that they took a real, you know, body blow when it came to iOS 14.5. Moaz, thank you so much for spending your time with us today and for sharing your insights on Shopify. Thanks so much for having me. Really appreciate it. As always, people on the program may have interest in the stocks they talk about.

The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow. you Thank you.