Motley Fool Hidden Gems Investing - Unexpected Inflation, More Acquisitions, VC Mindset

Episode Date: August 29, 2022

We're live from FoolFest 2022 and we've got highlights from the day so far! (0:21) Bill Mann discusses: - How the cost of power is putting English pubs in danger - The specific type of acquisition he expects to see more of - Deals in today's market - Takeaways from an interview with venture capital investor Jenny Abramson, founder of Rethink Impact Stocks mentioned: GOOG, GOOGL, CRM, DPZ, DIS Host: Chris Hill Guest: Bill Mann Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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I want Comet dead. Starring Tom Hardy, Pierce Brosnan, and Helen Mirren. Do I have to do everything myself? You want more? I'll give you more! Mobland, new season hits September 18th on Paramount+. Live from Fool Fest, Motley Fool Money starts now. I'm Chris Hill coming to you from the Grand Hyatt Hotel in Washington, D.C., downtown. And I'm very happy to be joined by

Motley Fool senior analyst Bill Mann and several hundred of our closest friends. And they're making some noise i feel like we are like one of those booze trying to sell credit cards at the airport hey can i interest you in yeah hopefully we're we're gonna be slightly more enticing for the dozens of listeners uh than the folks trying to hopefully not losing one or two as we go so uh as i've been hyping this event for weeks on the podcast uh it is it is officially day two of fool fest we started sunday evening with a reception um we are halfway through the day had a great amount of programming. And I wanted to hit some of the highlights of what, because I know some of the people listening are Motley Fool members. Maybe they've been watching it over the

live stream. Maybe they're going to consume it later at their own pace. But for folks who aren't members, I thought it'd be good to provide a few highlights of some of the things we've been talking about on the main stage. And let's start with the opening panel, which was you, me, and Maria Gallagher, really trying to lay the foundation of helping folks make sense of the market. And one of the things we talked about was inflation. And it's one of the reasons I love having you on this podcast and just in venues like this as well, because you almost always surprise me with something. And you made a point about inflation. And I'll just tell you right now, and then I'll let you make the point for folks listening.

You made a point about inflation, and the first thought that went through my head was, holy cow. And the second thought I had was, there's no doubt in my mind that this is true. Oh, you didn't go with Bill's probably making this up? No, I know one of our colleagues, who will remain unnamed, did think you were making it up. But when you said it, I was like, yeah, I'm sure this is true. But this is something about inflation, in all seriousness, that has real-world consequences.

Yeah, and we are actually talking about an institution that is near and dear to both of our hearts, which is bars. Yes. Yeah. And about 70% of all of the pubs in England are believed to be at risk of going bankrupt due to the rise in costs, especially energy costs, but across the board, that they don't have the pricing power to keep up with just untrammeled cost increases that they are dealing with. And, you know, Chris, some of it, one of the things that we talked about on the panel is that some of it is actually a bit of catch up. We have gone a decade without inflation. And because of that, inflation seems like a complete crisis now. But there are actually places where inflation is causing problems that are, you know, that may, you know, they may be foundational for certain types of companies. Well, and the obvious example when it comes to power and energy is the cost of gasoline in America.

And that hits anyone who drives a car at the pump. Certainly, that's gotten better over time. But this sort of illustrates small businesses in particular are dealing with power issues and inflation rising. I want to get to one other point. Maria Gallagher made this point, and you chimed in as well. just the idea that in the stock market, you both expect us to see a lot more acquisitions over the next six to 12 months. And as you pointed out, you think there's a very particular way that these acquisitions are going to come about. My favorite types of acquisitions, and I do

think that we're going to see a lot of them going forward simply because prices have come down so much for companies across the board. The companies that we would consider to be great, have not necessarily been spared from the real pain in the stock market, but you're going to see the companies that are really, truly building something for the future go out and start acquiring now, and they're going to do it with cash. I think that that is a way that really shows confidence on behalf of the management of the acquiring company, That they're using a currency that we all, they really, really need to have. And when I see that from companies, I think this is a company with some real confidence.

Although you also used an example that I think is something we're going to see as well. And the example you used was Starbucks. Yeah. But the larger point you were making was, look, there are companies that are going to gain a competitive advantage over the next 12 months or so simply by keeping business going as usual. And the way they will gain an advantage is their smaller competitors are not going to be able to keep up. They're going to lose market share because of their decreasing ability to compete. Yeah. It's not even smaller competitors. You just think about ones that are less well-capitalized. So we use the Starbucks example on stage, but think about Domino's Pizza, for example, where it has an absolute focus on their cost structure.

They have a wonderful balance sheet. And the restaurant industry, I don't know if you know this, but it's hard, right? And razor-thin margins, and you are looking at the more powerful companies, the better capitalized companies having a true advantage because the economy is hard, because there isn't money being thrown at their weaker competitors now. So, yeah, I really do expect to see some real consolidation in certain segments of the economy. We always talk about the market, but really, the market is representative of the economy itself. Andy Cross, the chief investment officer at The Motley Fool, led a discussion with some of the folks on the investing team

about deals in the market today. One of the examples that they highlighted was Alphabet, sort of laying out the case that when you look at Alphabet- I'm going to call them Google. You and me both. This is a business that represents a nice opportunity today. I know you were not a part of that panel, but I'm sure there are businesses that you look at and you think, boy, if you're asking me to name something that looks like a nice opportunity, this is what Yeah. I mean, Salesforce is another. If you think about the SaaS companies, a lot of them have been set up. You could almost call them SaaS apps, software as a service. And so some of the very likely purchasers of companies like that, Alphabet once again, Salesforce.com, I think you're going to see an awful lot of this. And I think you may see some consolidation in the retail segment as well, where you have companies with cost structures that are just completely out of whack, just throwing their hands up and moving and joining a better capitalized competitor.

I know you were not in the room for this conversation, but I want to spot you up with something that Jenny Abramson said. She is a venture capitalist, started a VC firm called Rethink Impact. Olin Douglas from Motley Fool Ventures interviewed her on stage. Great conversation. She had a stat that kind of blew my mind, which was, I'm paraphrasing, but she said, we look at 600 deals a year, and we pick four or five. The rigor of that process is impressive, to say the least. Are there analogies there? Can you draw a line for individual investors as well? Because that's where my brain immediately went, where I just thought, wait, as an individual investor, should I be researching hundreds of stocks and really only pulling the trigger four

or five times. Um, I, I don't have that kind of time, but, um, but, but, um, just in terms of that number, like you're nodding. As I said that, like that syncs up for you. Like, yeah, that's if you're in the VC game, that's really what it should be like. Sure. Now, uh, I'm not going to speak for Jenny Abramson, but I will say when she says 600 companies, probably let's just throw a number out there, 200 of them. They got to the front page and said, this isn't for us, right? which you can do with stocks all the time and you can probably intuitively do it. The last time you went and put gas in your car, you went to an Exxon, let's say, and you know that Exxon is a publicly traded company, but there's either an interest or a non-interest for you. So we kind of actually do

this all the time. I think what becomes powerful for people is when they become intentional about it, right? Wherever you are, just asking yourself the question, hey, I'm interested in this product or I'm interested in this service. I wonder who provides it. I wonder where this is coming from, because this seems like the kind of thing where I might be interested and there may be an investing case. So what she's talking about is a formalized process. And for individual investors, formalizing your process just a little bit will help you broaden your horizons before we get in line to get some lunch because i'm hungry um if you could share a little bit of the color uh for for folks who have not been to one of these events you and i were talking earlier uh this is the first in-person

event we've had in three years it's so great uh to to be with members uh some of them it's their first time here. Others, they're absolutely familiar faces to us. Um, uh, but I was saying to you, the thing that always happens to me at these events has not happened yet, but I expect it will maybe later today at the, at the post, uh, event reception. You leave your key in the room. Is that it? Yeah. Every time for me, every hotel. Um, no, it's, it's someone pitching me a stock, which I love. I love that. You know, it just shows the, the curiosity that members have the active minds, and I love the, hey, did you ever think about, have you thought about taking a look at this?

Yeah, I love it as well, and just to show how powerful it is, remember, one of the greatest investments that has ever come across the pipe at the Motley Fool was Marvel, and that was pitched to us at one of these events by a member. A member walked up to David Gardner and said, have you ever looked at Marvel, which is now part of Disney? So this happens all the time. And I think this is a really powerful thing about these types of events where you can get together and you have people who are thinking about the market in different ways. They have different interests. They have different types of expertise. So, yes, absolutely, positively, everyone who is a Motley Fool member and everyone who is listening to this radio show should know that that interaction is actually a really, really powerful advantage for us. So I hope everyone gets a chance to come to a Fool Fest at some point because it is a wonderful, wonderful event.

Also, just great to meet people who have traveled from across the country. Just hearing about flights, driving, literally all over the continental United States. I'd just be glad to be let out of my basement. Bill Mann, always great talking to you. Thanks for being here. Thanks, Chris. 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.

I'm Chris Hill. Thanks for listening. We'll see you tomorrow. Thanks for watching!