A (3:11)

I think it could be auto stored in ChatGPT, but you just tell it.

B (3:15)

Can you communicate with it with a sentence and say, hey, why don't you buy, can you buy this, what have you and then it goes and does it for you or do you still have to go through a step by step process?

A (3:27)

I'm not sure. That was not displayed in the demo. The demo was something like show me a bunch of options for ceramic bowls from that are less than $100 that are for my friend, whatever. And then it give, gives you options, you click on it takes you to a checkout page, you pay.

B (3:47)

So we're done now with Gemini.

A (3:50)

Yeah. Does it, does it redirect you to a separate website?

B (3:56)

Well, maybe, but you can get all these listings. Like I'm looking at upgrading my laptop for work and I've been doing a bunch of comparisons. I said, hey, with these classifications, you know, size, I want a bigger one, blah blah blah. It gives me the listing. So I'm not sure what sort of innovation this is, but maybe it's the fact that it's through Shopify payments, I'm not sure. Again, I saw people saying this was going to kill Amazon. I think if the shopping experience is what mattered, Amazon would be, it would have been dead a long time ago. It is much, much more difficult I think at least to search on Amazon versus maybe even through Google or probably like the Shopify application or even through social media. But Amazon has the delivery network and I think the follow up question I would always ask my AI, whatever one you're using here, ChatGPT, Gemini or any others is how can I get this delivered the fastest? And then he goes, well if you use Amazon, it'll get delivered the fastest. Okay, boom, I'll have it tomorrow instead of in two weeks.

A (4:59)

Yeah, I can't imagine that people are like, well now that I can buy it through ChatGPT instead of searching it on Google, I'll gladly take a one month delivery time instead of having it by tonight. So I think anyone that believes this is going to disrupt Amazon doesn't necessarily, necessarily Understand that the competitive advantage that Amazon has, which is entirely in its broad selection and delivery.

B (5:27)

So we're forgetting about Rufus.

A (5:30)

Andrew, I guess.

B (5:33)

No, this Rufus, that's. I'm being somewhat joking but you can already do this on Amazon with their hilariously named bot called Rufus.

A (5:46)

Yeah, I don't think much of this. I think this is two companies that love press releases doing a partnership together that makes things maybe a little easier at the margins but it's not that different than having them redirect you to a Shopify website. Like the user experience is not really that different other than maybe you're saving a click or two so it can populate ideas for you. But I believe it was already able to do that to begin with. So I don't think this is a bad thing for any of the people announcing the partnership OpenAI, Shopify or Etsy, but I would not blow this out of proportions. Yes, this could become a viable avenue for more e commerce in the future. Like more. Maybe there's more commerce done through AI chat interfaces but it doesn't actually change the chain of companies in that process. Like it's still. You're still going to go to a Shopify site even if it's embedded within chat GPT, you're still going to use the Visa payment Rails, you're still going to use a Shopify, whatever their Shopify tracking app is and if you want quick delivery, it doesn't matter, you're going to Amazon. So yeah, I don't think there's that much to talk about here. I guess it's a positive if you're an Etsy or a Shopify shareholder.

B (7:25)

Yeah, it can't be a negative but who knows? All right, let's talk Nike. They are good holdover stock for the in betweens for the earnings season they reported this week. I'm looking at the stock right now of six and a half percent today. Ryan coming off a bit from the lows, it's actually up 15% in the last six months. We're at about $74 and if we look at the lows in the spring of this year it was getting close to $50. So what happened? Take us through the earnings and then we can talk about how it affects my psychological long in Lululemon. Right. We can use the transitive property there. But yeah, go through the numbers and what stood out to you in the report.

A (8:10)

Yeah, any positive response in the stock price must have been from commentary on the call or something like that around basically strategic moves because the results were Definitely nothing to write home about. So.

B (8:25)

Well, expectations stocks down a ton from all time.

A (8:29)

Yeah, I mean the expectations were horrendous and the results were slightly better than those horrendous expectations. But in a vacuum you look at these results and say constant currency revenue growth was minus 1% for Nike. They have not grown virtually at all in five years. Apparel, footwear, both struggling from a competitive standpoint and footwear specifically, they are losing share to on running, they're losing share to Hokas who both continue to just chug along and grow every quarter. And then on top of it, they reported their last 12 months is the worst gross margin that they have had in 20 years because they have had to discount all of their inventory heavily in order to sell through it. Which raises some questions about brand impairment. Like Nike is seen. I think Nike is seen as a premium brand maybe because of the years and kind of heritage they've built around athletic premium apparel, but also because it's been fairly expensive. So what do you think of it as the price drops? I don't know if it impairs it as much as everyone thinks. I, I still think if I can get Nike 25 off compared to normal prices, I'll take it. I still like the brand, but there is some questions about brand impairment. So all this is to say apparel in general is struggling a bit. So we've seen this with Lululemon. So it's not like Nike's isolated footwear. They are losing share and that's something to watch and monitor. But they are still the 500 pound gorilla in the room when it comes to footwear. Like even if you combine Hoka and on running, they don't come close to Nike's footwear revenue. But they there needs to be a turnaround at some point, especially in the margins like the gross margin pressure is what's leading to has led to the stock selling off so sharply. My question to you, I guess is is there anything that would get you interested in owning Nike or is this another prime example that never invest in apparel is a good principle to have?

B (10:53)

I think it would be very tough to get me to want to invest in Nike giving its size given its existing market share and given its exposure to China where you're seeing local brands do quite well over there. And I have no read on whether Nike is going to make a comeback there or if they're going to go to zero in that market because of these other ones. I think it's called Anta, maybe some other ones. Again, I don't know much at all. Lululemon does interest me because it's one, cheaper than Nike, I believe, on earnings ratios and two, much smaller. I think I can get a little bit of a better read on that. They're not totally dying in the United states and that's 70% of their business. Well, United States and Canada. So compared to Lululemon, no interest whatsoever in Nike. Too big. You know, you kind of look at it and go, well, how does this stock go up 10x for me over the next 20 years? It's kind of tough. Market cap's already $100 billion. You already have so much market share. You have a lot of competition in the apparel space. It's not going to be a winner take all area. And it takes strong brand management. I think it's an easy pass for investors.

A (12:07)

Yeah, I couldn't agree more. And this is a company that has missed its targets for more than a decade. Like if you go back to their old investor presentations, they threw out all these lofty growth assumptions and they got a premium for it. And it's like no one ever held their feet to the fire because they missed those every single time. And our friend Alex Morris does a lot of good writing on Nike, covers them really well. And he talked about it.

B (12:35)

The name, the. What's the name of his service? Probably people Science of hitting TSOH Investment. Sorry, Investment Research Service. Yeah, the.

A (12:45)

Yeah, they've been chronic underperformers of their own expectations. And I, I agree with you. Like, if you are banking on an apparel turnaround, I think the probability of an apparel turnaround is similar for Lululemon and Nike. Like all the. If, if growth is going to start coming, I think it's going to happen for both would be my expectations. I don't see why one is significantly better positioned than the other. I think they're both kind of similar. Premium athleisure wear.

B (13:18)

Well, the one thing you could argue is that Nike has much more exposure to footwear and Lululemon is much more exposure to premium athleisure clothing. That's the only difference. But besides that. Yeah, I agree.

A (13:31)

Right now I might take apparel between those two categories because it seems like footwear Nike's really struggling. But my point is both of those seem like a somewhat risky bet. You're banking that this is not the beginning of a downtrend and sort of the erosion of their market position. But if I'm going to make that bet, I would much rather do it at 8 times EBITDA, which is what Lululemon trades at then 30 times EBIT which is what Nike trades at. So like you're not getting paid for the risk in my opinion on Nike I agree.

B (14:10)

Okay. Do we Want to Talk E.A. ackman's shareholder letters or the Texas Stock Exchange?

A (14:21)

I thought the Texas Stock Exchange stuff was pretty interesting. Let's save Bill Ackman and maybe some of the other headlines for after our never Sell discussion. Do you want to go through the Texas Stock Exchange news?

B (14:34)

Yeah, I think the general can wait. Texas Stock Exchange, it's going to be called txse. I think they're supposed to call it Texi, which I'm going to veto that. We're not going to be calling it that. The Texas Stock Exchange makes sense. I wrote down that this looks like a moat test for the New York Stock Exchange and Nasdaq. Here's a quote from the their press release. The Texas Stock Exchange received approval from the securities and Exchange Commission Tuesday to operate as an exchange paving the way for the Texas Stock Exchange to start listing shares next year. Hand up. I did not know this was a thing. Apparently it's happening in Dallas and they were inspired by quote unquote onerous regulations at the New York Stock Exchange and Nasdaq. I don't know if that can be if I. They're being honest there because there's a whole trend of just Chinese fake companies getting listed on the Nasdaq and if they can get listed, pump and dump their shares and get out, which happens quite frequently. Are we sure that there's onerous regulations to get legitimate companies from the United States onto the Nasdaq? But I guess that's a whole nother topic. The first approval. Sorry, this was the first approval for a national securities exchange in decades which kind of shows the moat from the New York Stock Exchange at Nasdaq that they have had. There is backing here from the Texas Stock Exchange, from blackrock, Schwab and Citadel. Here's a final quote I have. Texas Stock Exchange will launch trading as well as ETP and corporate listings in 2026. Over the long run, Texas Stock Exchange's mission is to reverse the decades long decline in the number of US public companies by reducing the burden of going and staying public while maintaining some of the highest quantitative standards in the industry. As an investor I like that. More. More stocks out there the better. Better for the show too. We can talk about more companies that are publicly traded now. What do you think here about if you were a New York Stock Exchange shareholder, Nasdaq shareholder, whatever respective companies they're under. Would you be concerned at all here? Because I look at this backing blackrock, Charles Schwab and Citadel, and if they weren't there, maybe I wouldn't care. But those are three huge players in the industry that could kind of get momentum going for a third player in this duopoly.

A (17:02)

I don't know if I'd be a seller. If I were owner of the New York Stock Exchange or Intercontinental exchanges, the parent company, I wouldn't be that worried yet. I certainly want to be discarding shares of a, an operation that's withstood 100 years of operations. But I like this. We actually talked about this a year ago, Brett. I'm pretty sure on the show when they announced that they were going to try to build these efforts, an approval.

B (17:34)

Well, my memory is not serving me well there.

A (17:37)

The if it leads to more companies coming public, I'm okay with it. I have heard before a lot of companies complain about the requirements to list on the NASDAQ and the nyc. I just took a quick look and there are like, obviously there's listing fees. So those can be expensive depending on the size of the company. Not only there's an initial listing fee, but then there's like the annual recurring listing fees, which if you follow the New York Stock Exchange business model, you'll see that in their KPI reporting.

B (18:12)

But apparently good business.

A (18:13)

To me, the big one is they're pushing certain corporate governance standards on all the companies. So I think this might stuff a little esg. You have to have a compensation committee.

B (18:30)

Ah, stuff like that.

A (18:32)

So I imagine you're probably not the biggest fan of that. We've talked about the pointlessness of compensation committees.

B (18:40)

Let's get rid of that requirement. That just seems to be a scam for the compensation committee companies. If. Yeah, if there's no requirements and say all the stuff that no one cares about on the proxy statement, such as esg, and frankly, as an investor standpoint, that diversity stuff that some people, I don't know if they require that. But then also these compensation committee things, maybe that is for the best and maybe it'll convince New York Stock Exchange and NASDAQ to lighten the load on stuff that doesn't really matter from a public company standpoint. What we do care about is just that your accounting is legit. That's it. Right. Do we care about anything else?

A (19:18)

No, that's the big one. But it's just my question is, is it really the exchange's role to enforce that, to enforce all this stuff like if they pay their fees and they're in good standing with the governing body for accounting. So the SEC and the right why am I blanking on the organization that collects my taxes? The irs. The irs. I was thinking Ira the yeah. I mean if they're in good standing there I just don't see why it's the exchanges role. But I'm looking at I asked Chachi Chat GPT why do companies think there's such onerous requirements and there is just a ton of stuff to be compliant with all of the NASDAQ and NYC's thresholds. There's also financial thresholds so a lot of smaller companies just simply can't do it or it's too costly to be on there. So I'm for this. I hope it works out. But I would say prove it. Let's wait and see.

B (20:34)

The mode test is probably going to work out fine. All they got to do is just not be so onerous with these requirements. And then why would anyone want to list on the Texas Stock Exchange? Also you can list on in multiple places. So I still think trading will be centered on New York. I mean yeah, it's been around since 1790. I think the New York Stock Exchange and Nasdaq is much newer. But I think the New York Stock Exchange is going to be around for at least a couple more decades. It's not going to kill their business.

A (21:07)

If you are a regular listener to chitchat stocks, then you've probably heard us talk about Interactive Brokers. Here are four reasons that Interactive Brokers is better than other brokerage platforms. Number one, they've got it all. Stocks, bonds, ETFs, options, crypto, you name it. 160 markets, 36 countries, 28 currencies. They are the absolute best platform for global investors. Number two, best in class pricing. They have zero commissions on US listed stocks and ETFs and they offer margin rates up to 53% lower than the industry. Number three, you can ditch the separate High Yield Cash account. Interactive Brokers offers up to 3.83% interest on cash held in your investment account. And lastly, number four, news. Stay in the know on your portfolio. IBKR offers news and research from over 60 industry leading sources including Reuters, Dow Jones and Morningstar. Head on over to ibkr.com restrictions apply. Interactive Brokers is a member of SIPC. This will be a good moat test though. You've got phenomenal backing. Black, Black Rock, Schwab, Citadel. I can't think of a better name brand backing to have if you're launching a stock exchange. Not to mention the probably insane liquidity that they are willing to throw at it. So yeah, if you're. If you're a holder or a shareholder of ICE Intercontinental Exchange, ICE is the ticker. And this ends up being absolutely nothing and not putting a dent in the business. I think you should feel even more comfortable owning those shares. Let's talk never sell our never sell companies. How do we want to do this? Do we want to do it as a draft?

B (22:58)

We can or we can basically do our rankings. If it's just from our existing holdings there will be some slight overlap but I think coming up with a ranking or just a list of companies that are never sell stocks. What exactly? Before we get going let's talk about why we're doing this, what an ever sell stock is and how it's helpful for us. The philosophy as an investor.

A (23:25)

Yeah. This actually forced me to think about it forced me to look at my portfolio and there are certain companies that just in the back of my mind I never think about selling. I'm kind of unless the Stock goes up like 100x or whatever or 10x in a year or something in in really short order it's unlikely that I'm even going to look at.

B (23:51)

Enters the Shopify Palantir zone.

A (23:53)

Right.

B (23:53)

It's essentially how I think about it.

A (23:55)

Yeah. The. So I had to ask like why do I think that way? And basically the answer that I came down to is it has nothing to do with the type of business that they're in. It has nothing to do with the size of the company. So I think never sell companies come in all sorts of shapes and sizes. You could have a trillion dollar market cap world leader in E commerce. You could have a Canadian vertical market software serial acquirer. I think people know who I'm talking about. Or you could have a small cap student lending company. There isn't any one type of business for me that determines whether or not the stock is a never sell. The theme that all the companies have in my mind that end up being never sells is that management treats it as a never sell. So oftentimes that requires the company to be founder led. But when the person running the company has no intention of making money fast or hitting short term hurdles, they end up making choices for the business that they think will help shareholders the most over the long run. And that's where I want the alignment and I don't want to be trading in and out of that kind of thing because if they are Thinking ultra long term, if they think of themselves as never sell shareholders, I feel a lot more comfortable calling that an ever sell as well. It's when my time frame is mismatched with management's time frame that I, it doesn't qualify, it doesn't end up in the never sell camp for me. What do you, what do you think is sort of your criteria?

B (25:43)

I think that makes sense. It's when you're uncomfortable with their time horizon that that can make you uncomfortable as a shareholder. If you have that alignment, you can have that comfort quarter over quarter over quarter, not really worry about where the stock is trading at. I think I could sum it up in two criteria for myself. One, management and culture, which just top, not management and culture from an investor standpoint, from the fact that they think long term, do rational capital allocation, all the things that you'd care about. And then second is a wide moat business. Those are the two things. As long as there's a wide moat, whatever it is, I can be confident in the durability and holding through whatever market cycles gets thrown our way.

A (26:29)

I, I think I could, I'm going to talk about a company here that's on my never sell list that I would not describe as a wide moat. So wide moat helps. But I, I could end up calling a company and never sell, even if it doesn't qualify necessarily as a wide moat. But.

B (26:47)

Okay, well, let's, let's go through our existing holdings again. These have to be ones that we actually own. Although there could be some others on the watch list that we might buy at the right price. Let's go through our never sell. I think if we just list them, I, I don't even know if I rank, I could rank these. They're kind of just all in the same category.

A (27:06)

Let's alternate. Let's alternate.

B (27:08)

Okay, let's just alternate one by one. Just choose them. I think, think I have three. Well, I think I got four. I have four from my existing holdings.

A (27:17)

Okay, go first because I got three.

B (27:19)

Okay, first up, we're just going to go from the bottom of this, bottom of this fiscal AI dashboard to the top Nintendo. Even though I said I'm going to sell at the end of this year at 30, I think that's just probably, probably a trim. And that's kind of just a prediction we made for our annual predictions episode. It is a culture and management that thinks long term, some may say too long term when they get impatient with what the company is doing. And I believe it's a wide Mo business in entertainment they nurture their brands they don't over saturate their content out there. They are have been the premier video game player especially for family friendly content for a long long time. If you have any sort of bullishness on Disney you should be bullish on Nintendo and their durability because I think they are much much more durable and have all the characteristics for a never sell business. For someone that can go look I'm gonna buy this, I'm not gonna think about it for 40 years and I'm gonna be fairly confident the result will be.

A (28:28)

So that one kind of surprises me not I agree it is a management team that thinks insanely long term. They've been around for more than a century now and they care so much more I would think about preserving their brands than maximizing profits. The only thing that would maybe not qualify us and never sell for me is that it's still fairly event driven in terms of like product events or drive certain moments for the company and financial results. So I I could see myself the stock trading wildly around certain events and and that leading to potentially a sale decision for me. I'll go with my number one although I do think that's a good pick. My number one is Coupang. They are the E commerce leader in South Korea and I think they're hoping to become the E commerce leader in Taiwan as well. The founder Bom Kim has significant insider ownership. I think it's around 70% or more of the voting power. I should probably double check that. But he, he runs this company. It's his company. He is bought in for the long term and seems to make decisions based on maximizing value for the business five, ten years down the road as opposed to maximizing value today. And you see that really with the capex investment and the infrastructure investment much like Amazon 201520 years ago and even still today where they continued to they were relentlessly focused on how do we serve the customers as best we can. And Bomb Kim has unapologetically copied that mantra and he actually talks about being looking up to Bezos and trying to copy his model and be customer obsessed. So I like them. They continue to make investments today that could hurt margins in the short term but will benefit lifetime value of their customers over the long run.

B (30:46)

Okay, that's a good one. I own it as well. I guess I didn't put it on my list but skitty put on there too. I could easily include in my never sell portfolio. My second one is going to be interactive brokers We've done, I think one, maybe multiple research report episodes and newsletters on this one. I bought it earlier this year. So go check out that research report if you want full details on the business model and all that good stuff. They do have the founder, the insider ownership with the founder, Thomas Petterfi. It's actually a great profile of him on Colossus. I think it's called Colossus Review, his free profile. It's really great and it goes through basically his life and his philosophy around business management. Although he has passed off the day to day management to a current CEO named Milan Gallic. And there's some funny stuff within the Hench interview where people compared IBKR to Costco with the scaled economy shared model. They lower the cost for all the customers and they try to really just keep things as efficient, bare bones on the back end as possible to drive costs lower, make it a better product for their professional investor base and even individuals like ourselves. And then they can have those lower costs, it leads to better profit margins and they can reinvest into even more technical cost savings. But when he was asked about that, he actually, and I guess he's older and also an immigrant, so maybe he, and he's also very rich, so he hasn't, you know, lived the middle class American life. But he didn't seem to know what Costco was, which was hilarious. And he said, yeah, I've never been to a Costco and I don't read business books. So he just kind of passed it off like, yeah, I don't really care. So Costco, that's kind of insane that.

A (32:36)

He doesn't know what Costco is.

B (32:38)

He's a strange guy. And it takes that eccentricity to become one of the first electronic market makers, come up with Interactive Brokers and create a business that is so automated and efficient in the brokerage space that you have better profit margins than Visa and MasterCard. It was also interesting and we do love Interactive Brokers as a sponsor is he said he has gone. His new goal is because they want to expand their user base is he's now in charge of marketing and he says he's tackled that. So that's who we're technically dealing with when getting new podcast sponsors, which I thought was kind of funny, cool but also a bit intimidating given that he's kind of an intimidating man.

A (33:21)

Well, he's welcome to join the podcast whenever he wants, whatever he wants.

B (33:25)

You can promote IBKR all day to our thousands of listeners. But when I look at IBKR, its valuation today PE is 36, definitely not on trough earnings because if anything we're on peak earnings if this is the bubble that some people think we're in. If not it's 100% a bull market and that, you know, that helps their trading and their revenue. But I don't really care because I know they're going to deal with the market cycle perfectly fine. They're going to come out strong on the other side and as they keep gaining users they should grow over the long term. I'm comfortable with never selling this. I think the only way I would sell is if the PE got to 100, 200 maybe I would trim. But I just see no reason why I need to sell this. It's an incredible business. I think it's one that's going to stand the test of time and can be an easy durable winner in your portfolio for if you have a decade 10 to 20 year time horizon.

A (34:31)

Yeah, this is a good example of actually seeing the never sell in practice because would you buy if I quoted you that earnings multiple on potentially peak earnings today?

B (34:44)

Probably not, definitely not. But I bought it 40 in the spring, but now we're at 70.

A (34:50)

You're nowhere near selling. So it kind of goes to show that it belongs in that camp. Okay. And the other thing I want to follow up on there is they are a company that has continuously driven down cost and or driven down costs for the customer. So driven down prices. It is actually so rare that you find a company that their true intention is to drive down their price. Like people as investors we talk about the examples all the time and how it's so beneficial and Amazon's done it, Costco's done it. IBK are like very successful companies have focused on driving down price but those are so rare relative to most companies out there. And I would, I challenge someone to give me an example. There probably are some out there. But give me an example of a company who has made it their mission to drive down price that is not founder led that it's a mercenary CEO who's come in and said all right, we're going to do as much as we can to drive down price. I, I don't think there's a lot of examples like that. So that leads me to my second company who intentionally drives down price wise. I wise for me is probably in the never sell camp once again huge insider ownership. They constantly, they talk about trying to take cross border transfer fees to zero percent. They, they really want their fees to be nothing. They, their mantra is money Without Borders. That's pretty rare and that's why they've been able to drive such significant user adoption. My only concern is that maybe something happens in the corporate culture or I just haven't owned the business for a long time since they, I mean, they haven't been public that long either. So it's. There's still room for them to surprise me in a negative way, which would maybe lead to me selling.

B (36:51)

But we can call it a future never sell candidate. I like this choice Founder seems to do the same thing. There are people that compare IDK and Wise a lot and I kind of agree.

A (37:03)

Yeah, the founder treats this like a never sell, which makes it that much easier for me to treat it like a never sell. But yeah, I'll leave it at wise.

B (37:10)

The Europeans, they got longer time horizons sometimes than the Americans.

A (37:14)

Yes, they do. All right, what is your third company?

B (37:19)

All right, I'll do this one for my third and I think I'll say the last one for either one that I know you're also going to pick, but I think listeners kind of know if they've been a longtime listener of the show. Both. Well, my largest holding, my third one, and again, it's one that some people do not like. It is Airbnb founder led. Founder mission led. We talk about the eccentricities of the founder, Brian Chesky, and how that can be good and bad in regards to wasteful spending, but he says he's going to be at Airbnb for the long haul. I think they have a long term plan to become a can't miss travel, lodging and perhaps experiences platform. Although that's a TBD there. But either way, I think this is a wide moat business with management with a long term time horizon. And if Airbnb stock went up to what you would call a bubble PE ratio, however you define that, I don't think I would consider selling whatsoever. And except for trimming on that sleep number percentage of the portfolio that David Gardner talked about with us.

A (38:28)

Yeah, this one I would also call an ever sell, but for a little bit of different reasons than some of my other companies. For Airbnb, I think the upside potential is so high that it's almost like a hedge against my own stupidity of I don't want any risk of this becoming a 50 bag or whatever. And I sold early because I got fed up with stock based compensation or whatever. So it's almost like I have the never sells that I really appreciate management and culture. And then I have the never sells of the upside is so High. Just don't touch it, don't look at it because you're just going to get in your own way. That's probably where this qualifies for me.

B (39:14)

Yep, yep. All right. What's your last one?

A (39:18)

Last one for me, I think this is the one you knew I'd be talking about. And it doesn't have a moat, I don't think seeing as it's basically culture.

B (39:26)

Moat culture.

A (39:28)

It's a culture mount. The company is Nelnet. We've been, this might be the longest I've held any company actually. They're, they're one of the first companies that I still own that I found. I think the original person that brought it to us was Jim Gillies, an investor we both really admire. And this is sort of an oxymoron, but a mini conglomerate where they've got small cap.

B (39:56)

We'll call it small cap.

A (39:57)

It's a small cap, should be large.

B (40:00)

Once if the value got unlocked.

A (40:03)

Sure, yeah, that's, that's the goal now they, they own a student lending operation both on the servicing side as well as the. They don't originate anymore, but it's a big student loan portfolio that they continue to reap the cash flow from and then they're diversifying that into a variety of businesses. Probably the most notable being their Nelnet business services which is, or I believe that's their, their naming for it. But it's basically education software which does seem to be quite sticky and it generates a good amount of income each year. But it's not like I'm not in love with the company for the business specifically. I just really like management's capital allocation skills and the way that they treat shareholders. So they've grown book value per share I think at around 16% annually over the last almost 20 years now. And they constantly understate the value of the assets on their balance sheet. They constantly make investments that masquerade profitability because they don't care about maximizing profits in the short term and often they don't maximize profits in the short term.

B (41:14)

Well stated profits. Yeah, they, they like to avoid taxes legally.

A (41:19)

Yes.

B (41:19)

John Malone style. And that can make the earnings look worse when in reality they're generating significant value for shareholders. Yeah, it's one of those long term, long term time horizon, capital allocation, track record, skin in the game. Everyone stays at the company for a long time. Midwest too. You're not, you're not in San Francisco, Louisiana, Miami or New York.

A (41:41)

I think that's how they're not Getting the Midwest premium though that some other companies seem to get, that's all right there.

B (41:47)

They've reduced. Let's actually find it quick on Fiscal AI and see what they've reduced their shares outstanding at for the last like 15 years, whatever the number is, because I would rather have them trade at a consistent discount to the sum of their parts because they're just going to take that shares outstanding down with all their excess cash flow. Let's look at their shares outstanding.54 million in December of 2005, which is right around the time of their IPO.36 million today, down on average 2% a year, which might not seem like a lot, but they're paying dividends and reinvesting at an insanely high rate. All the excess earnings they're generating from their financial services, all the stuff that Ryan already talked about, we've talked about before on the show and that's a cumulative change of negative 33% from 2005 to today. I mean that really can add up to long term returns if they can do the same or even slightly better over the next 20 years. That's how you turn a company from a 10 bagger into eventual 100 bagger. All right folks, before we move on, we need to tell you where we get our financial data. Fiscal AI Fiscal AI is the complete stock research platform for fundamental investors. I use the platform pretty much every single day. You'll see the charts on our podcast and you'll see it in our newsletter. This is our one stop shop for stock research. They've got up to 20 years of financial data on all companies globally, including company specific segment and KPI data. That means Amazon AWS revenue, SoFi's total members, Google's paid clicks, growth and literally millions of more data points. They've also got earnings call transcripts, ownership data, company specific research reports and much more. If you want complete financial data at your fingertips, then you need to check out fiscal AI. And if you use our link, fiscal AI chitchat, you will get 15 off any paid plan. Again, that is fiscal AI slash chitchat. The link will be in the show notes.

A (43:51)

Yeah, and it's one of those where the chairman, I believe he's still the chairman Michael Dunlap, who is still involved from what I can tell, he's not the CEO and running the day to day but he's still involved on some of the capital allocation. I believe it's. He has made it sort of his life's work and his life's project and he treats shareholders Fairly. And like you said, you get comfort in knowing that if this were to sell off, like let's say you buy it at a valuation that you think is fair. Maybe it's not dirt cheap but it's fair. If this does sell off, they will capitalize on it. When you have a management team that thinks long term they're going to capitalize on a poor valuation, they're not going to oh, I'm going to jump ship and go to the next company that can give me a nice signing bonus. So yeah, those are my three coupon wise and Nelnet, did you have any honorable mentions that weren't talked about yet?

B (44:47)

Well, I would have had Nelnet as well. I was thinking of putting the Mexican airport in there, but never. Maybe 2048 is the never sell. I love when people always say well what happens in 2048 when their contract ends and I go I don't care, I'm going to be 60 years old. I think that covers it though. Those are ones my never sell. Speaking of though, chairman and companies that should be in my never sell portfolio. If I wasn't stupid and got rid of the position a stock that we owned 10 bagger ago and didn't appreciate the gains. Spotify Ryan Daniel Ek, the founder is officially stepping down as CEO, moving to chairman and bringing in the co presidents Gustav Soderstrom and Alex Nordstrom as the CO CEOs. I guess this is essentially formally formalizing what has already been happening since 2023. They were really in charge of the day to day. He was in charge of broad strategy and capital allocation. It's kind of similar. You know, you look at Nelnet seems like that is what's happening. You look at ibkr, that's what's happening. You look at even Nintendo with Shigeru Miyamoto. They who was kind of the founding of all the brands, the founding developer of all the brands at Nintendo who is kind of moving to where he thinks he's needed within the company. From a broad strategy perspective it seems like these never sell companies have some sort of founder like character or manager that can kind of evolve with the business and properly set up the leadership for what the business needs to keep succeeding. But when we look at Spotify here, I mean you put a discussion question down is this bad for Spotify shareholders? I think it's kind of a nothing. Burger stock was down a bit but it's still pretty much 10 beggar from the lows in 2022.

A (46:44)

Yeah, the stock did sell off a bit on the news but it seems a little bizarre to me. I don't think he's been crazy involved in the operations lately and he in reading his book and kind of learning more about him over the last few years, it feels like he's kind of moved on maybe a little bit mentally from wanting to manage the operations of Spotify. I'm sure he's still cares a lot about it and cares about the strategic direction.

B (47:17)

But yeah, he just had a good interview with David Senra on a new conversational founders episode and did seem like he didn't care about, you know, building the Spotify interface anymore. But there are certain things that are important for their long term strategy that he, he wants to have input on and he's just caring about capital allocation now. He said that he's really embraced investing and try to learn and learn from Munger and Buffett but I hope that's changed over the last three years because capital allocation, their post IPO period from 2070 to 2021 to 2022, their operating expense discipline is had a little bit to be desired but hey, maybe they've changed and they're more efficient for the better.

A (48:01)

Yeah, I think sometimes a severe bear market will teach and help about cash flow.

B (48:07)

So. So are you up?

A (48:09)

Yeah, let's shift gears. There were some questions in the chat. I don't know if you want to take any of those but if not, let's talk about the largest take private deal of all time, Electronic Arts first.

B (48:22)

Yeah, why don't we hit this Kuiper one? It was an interesting question. I think that person's waiting. Thank you Gene for asking this. Do you think Project Kuiper will become a substantial part of Amazon's business? Given the fact that Amazon is doing 700 billion in revenue? I don't think so. But if they can successfully integrate it into Amazon Prime, I think there's a huge opportunity for them to upsell this. It's quite the risky endeavor. They're Investing I think $10 billion into the project and they seem to be significantly behind Starlink. You also have fixed wireless competition, obviously the fiber to the home competitors, all the stuff within Internet. I'm not sure exactly how it's going to work. I mean you even have, you know the company AST Space Mobile that we had an interview on. There's so many players in this space. I think for Amazon, if you're investing in this company, don't base anything off of Kuiper. If it works and it helps with the business and it Helps with pricing power with prime, maybe that's a nice cherry on top. But I want to think about it as a potential bull case. Ryan, you're a shareholder. Do you think about it any differently?

A (49:32)

No, when I think about my position in Amazon I give little thought to Project Kuiper, honestly. But you make a good point which is anytime they, they're making tons of progress in a bunch of small divisions within their company that are never in isolation, most likely going to contribute a ton to the top line or even the bottom line. But what they do is all these small bets, all these small improvements, they bundle it into prime and make it super compelling for customers and that's I imagine what they would do here as well potentially. So if they do that and all of a sudden you can get Internet service included once again, I, I think of all the business lines for Amazon, which they have some phenomenal businesses. I think that subscription revenue line will grow double digits for more than 10 years.

B (50:37)

It can grow steadily for a long time. And this was under reported. They are doing a Netflix style password sharing crackdown which I think could have quite the success given that I'm a not using, I'm part of a, an account that is not using it properly.

A (50:58)

Yeah, I think just about everyone is. I am a third derivative moocher off Amazon Prime. I think if I'm using that right, there are so much prime password sharing like that has just gone neglected. So good for them. If they can implement that correctly I they will have probably 50 user growth. If they, if they did it today over the next year would be my suspicion.

B (51:29)

Yeah, that's fair. All right, other question before we get to EA and then Ackman's letters thoughts on Portillo's after the interview. Yeah, if you wanted to or if you didn't see this week actually today as we're recording this, we released a podcast with Steven, aka Unemployed valued BGen. He has a good substack and he had a long pitch on Open Door which I thought was interesting from a value investor's perspective. But we talked a little bit about Portillo's company that has been a dog for me and why he is bullish on them now. I think after the interview it gave some fresh perspective on why even though I'm getting psychologically hit or emotionally hit by a 50% drawdown in an investment he makes, it kind of just gives some fresh perspective on okay look, the stock is cheap and if you look at these metrics, blank, blank, blank, it is cheap for a restaurant and it should do well from here if they can just not have horrendous comp store sales going forward. I like the pitch and I think it may be a little more bullish as he came in kind of with some fresh eyes on it.

A (52:40)

Yeah. I gotta admit, after that conversation, I felt compelled to take a startup position. I still haven't, but I would say that's fine.

B (52:49)

I got a little FOMO on that value stock. All right, let's talk EA buyout. Yeah. Yeah.

A (52:54)

I'll say this. I love, and this is probably a bad investing habit that I have, but when people I know that have followed a company really, really closely for a long time, if I'm able to get a lower cost basis than them, it like I like doing that.

B (53:10)

Even though I take advantage that I. I bought at 12, it's at 6.

A (53:13)

Yeah. But I have no, like, I don't have nearly the knowledge on the company or the conviction. But just the fact that I can be like, oh, my cost basis is half of yours feels kind of good.

B (53:24)

Exactly. Exactly. All right, let's talk Electronic Arts buyouts. An old flame of ours that didn't do well. And even I'll say with this buyout still underperformed from 2020 and 2021 compared to the NASDAQ and the S&P 500. But this is a $55 billion deal. It's funded by Saudi Arabia's PIF, Silver Lake and Affinity Partners. It's the largest levered buyout ever. Majority of the $36 billion in equity for the deal is coming from Saudi Arabia. It's a 25% premium to EA share price. Deal is $210 cash. Now we look at EA. Their stock is up 40,000% since 1989 when they went public, making it around a 400 bagger in 35 to 36 years. We look at why they did that. Good businesses with tailwinds generally win out at the end of the day, even if they make a ton, and I mean a ton of. Of horrendous acquisitions over that time period. However, it seems like in the video game business, the console business, especially those tailwinds, have stalled in recent years. EA has generated only over $2 billion in free cash flow once in a fiscal year and in the last six fiscal years. So going from their last one ended In March of 2025, going back to March 2020, they generated cumulative free cash flow in six years of $10.5 billion. So would undiscounted at that rate, what would it be about 6 times 5, 30 to 30 something odd years for them to get their cash flow back. Now there's debt, you know, however you're financing it, whatever numbers are putting in there does I just look at this and I think was this a good price to pay? I think Andrew Wilson and the executive team made a great deal similar to Bobby Kotick at Activision Blizzard to get out at a Premium.

A (55:27)

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A (56:23)

Learn more@WhatsApp.com yeah, I agree. I throw EA in the too hard pile because I think a gaming and console gaming and not even console gaming, you can really throw it in with. Gaming overall has gotten so competitive. I mean it's been competitive for a long time but the barriers to development have come down quite a bit. So it feels like it's become more competitive in the last 10 years. The other part is I, there is no community of customers that will give you bigger backlash if you decide to take the private equity approach to running this company than gamers. Gamers will just protest like it's, there's no tomorrow. I, I think they got a good deal. I feel like EA is kind of in no man's land where they obviously have great franchises but they've just haven't done a great job nurturing them. And it's one of those things where you, I would have assumed that FIFA and the FC brand over the last 10 years, I think, wow, that's got to be what a great asset to own. But it just hasn't shown up in the numbers.

B (57:46)

Yeah. In 10 years a little bit. But most of the growth was from like the 2014 to 2017 period. The last six, seven, eight years. It's, it's not there's. Not been much. What's funny though. What's funny though is that apparently the Saudi crown prince is a large gamer, which I think is hilarious. And I know that he was just thinking, God, if I could just own this thing, I'll fix FIFA, I'll fix Madden. I don't think it's happening, man, but you know, good luck.

A (58:19)

Yeah, I wonder, I mean, Saudi Arabia has invested a ton of in soccer and football and I wonder how much of it had to do with affinity for the soccer slash football franchise that EA has, which is the by far the biggest.

B (58:37)

And I will also invested. Piff has invested a lot in video games. So I guess this combination made sense. They're into sports, they're into video games. Let's invest in the largest sports video game company.

A (58:48)

Yeah, I still still goes in the too hard pile because I.

B (58:53)

It's so bad. Yeah.

A (58:55)

Wouldn't you have thought that there would just be massive margin expansion over the last 10 years they've gone from like CDs to pure digital distribution and so much more of their revenue now comes from live services in the ultimate team franchise. It. I. It just blows my mind that cash flow's basically gone nowhere for seven or eight years anyway. Yeah, let's. Any other topics we want to hit before we sign?

B (59:23)

After letters, we got five minutes or so. Why don't you. This is your time. Why don't you take us through it?

A (59:29)

Yeah, I read Ackman's recent shareholder letter. I think it came out in August.

B (59:34)

Which is on Twitter though. 10,000.

A (59:37)

What's that?

B (59:39)

He does usually one a day on Twitter.

A (59:42)

Yeah, it's true. He. Regardless of what you think of Bill Ackman and there's a lot to. Well, I'm sorry, but there is a lot to dislike Bill Ackman, if you're listening because sometimes you get.

B (59:59)

You can't. That's true.

A (60:01)

Anyone that doesn't know what we're referring to, he basically went on Twitter and gave a whole bunch of military advice to people in government and you just kind of. It's one of those things where you get really good in one subject of life and you think it applies everywhere. And I think he maybe took that too far. But he does write a good letter. And I will say if you are an analyst or you're someone wanting to become a professional investor and you want to learn how to write a good pitch, read Ackman's letters because he does a really good job condensing his thoughts and condensing a ton of information into just a few paragraphs for each of his companies. I'll go through his largest positions first and we can talk about maybe, since we're running a little low on time, which companies you want to actually discuss. And I've got quotes from him on all of them.

B (60:52)

So.

A (60:53)

Largest position is Uber. Second is Brookfield. Third is Universal Music Group. Fourth is Google. Five Restaurant brands International, which is like Taco Bell and Tim Hortons. Six is Amazon. Honestly, kind of.

B (61:09)

Is it not Taco Bell, but it's Burger King, I think Burger King, Young brands, you're right.

A (61:15)

Yeah. It's very similar logos. The two companies, anyways. 7. Howard Hughes Corp. 8. Nike. 9. Chipotle and 10. Hilton Nike and Chipotle. He's got some struggling brands as of late in there as well. Any of these that you want to dig into a little bit?

B (61:36)

I'd say either Universal Music Group or Chipotle. Does he. Is he buying more Chipotle because he bought after the salmonella thing? Kind of just held it for a long time. Yeah. Either of those seem interesting? Everything else.

A (61:53)

All right, let me read you a quote from him on Chipotle. So here I'll just read this whole thing. While some of the. Basically, he. He mentions the same store struggles, same store sales have struggled lately. He says while some of this same store sales weakness is clearly due to overall soft consumer spending in restaurants, as evident in the performance of competitor brands, which he is right about. We've talked about that a lot. The onus is on management to adapt to the current environment and better communicate Chipotle's phenomenal customer value proposition. We fully expect Chipotle to return to its historical growth trajectory once execution improves and macro headwinds. Moderate. Do you agree? Do you think there is still a really strong customer value proposition at Chipotle?

B (62:43)

Personally, no, but I'm not everyone. I think it's possible that this is all macro and they'll get their thing, their. Their comp sales will figure themselves out. But they're much more saturated in the United States than I think the company is giving itself credit for. How many people outside of any decently sized metro area can just say I can get Chipotle fairly easily. Yeah. Doesn't get me too excited. The stock, I think. Are we down to a PE of 30? Because if so, that's dirt cheap for Chipotle. It is much, much closer than it used to be.

A (63:26)

I'm not sure on the valuation. It does. I think 10, $15 for a breedable.

B (63:35)

It's fine.

A (63:35)

Still A reasonable. Yeah, it's still a compelling value proposition, but I think the quality has come down. Maybe that's just my personal experience. Although we've seen reports.

B (63:46)

I was really on this. I've been saying this for five years, so I'm not. I didn't short it. It wouldn't have been a good short over that time, but. All right, PE trailing PE 35 forward. PE according to fiscal AI's consistent consensus. Whatever. Bringing the consensus on onto the platform. 30. Nah. What gets you excited about that?

A (64:11)

That's gonna be a pass for me.

B (64:13)

Yeah. What do you think is the portfolio as a whole?

A (64:18)

I think it's gonna get probably close to the market. I mean, a big chunk of this is in Amazon, Google, Brookfield, Uber. I mean, part of it is his portfolio is so large that he has to stick to large companies.

B (64:34)

Oh, I don't think this is going to track the market.

A (64:37)

You don't think so?

B (64:39)

No, I mean, it's 10 companies, basically.

A (64:43)

There are. There. There's more. Well, yeah, there is a few more, but there is. Yeah, you're probably right. I like parts of it. He seems to love restaurant concepts and retail more than I do, but, yeah, I. I don't. He's not the first manager that I like to read letters from, even though he does do a good job of talking about controversial stocks and boiling it down to a few key points. But I don't know. I think the portfolio is a little boring. Honestly, I do. The one thing I think is exciting is he has been right about Uber and he's. He owns it in size.

B (65:32)

What. What's the fun called again?

A (65:35)

Pershing Square.

B (65:36)

Pershing Square. Okay. Well, yeah, I mean, track record has been solid.

A (65:42)

Here's. Here's a quote that I'll give you from his. His thoughts on Uber. He says. So he talks about basically the threat of automated vehicles and AVs. So he says, and this kind of. I think a lot of people forget that there's been other AV players that are apparently well developed in other countries as well, so he says. Recent Mobility announcements include new and expanded partnerships with AV Ride, Baidu, Lucid, May Mobility Momenta, Neuro, Pony, AI Wave, We Ride and Waymo. He says over time, we believe that the. That additional data will further demonstrate that partnering with Uber allows AV players to scale faster than they could on their own, while maximizing the unit economics of their vehicles. I think that's a fair take. And my. My belief is that, yes, even in an AV future where a couple companies dominate, a lot of people still go through Uber. They have more active customers in five years than they do today.

B (66:52)

Yeah, it's possible. I'm not making that bet, though. No. Thank you.

A (67:01)

Dara's done a good job turning the ship around.

B (67:03)

That's fine. Profitability wise, that is fine. Hey, look. But for the general, it's his largest position and looks like almost 20% of the portfolio. $3 billion worth of Uber shares. Stone. Well, so far. And I'm sure he knows that. Him and his team know the business better than I do.

A (67:23)

Yeah. All right, I think we're running up on time here. We've gone a little long. I can wrap things up here. Anything else you want to add before we sign off?

B (67:31)

I don't think so. Thank you to the listeners.

A (67:33)

Thank you, listeners.

B (67:35)

Come ask us questions. Yeah, come ask us questions. Every week we do these live, but recordings are out Friday mornings.

A (67:43)

That's right. And thank you, sponsors as well. Port Cyto, Fiscal AI and Interactive Brokers. Let's hit the disclosure. Thank you, everyone, for tuning in. Brett and I are not financial advisors. Anything we say or discuss here on Chitchat Stocks is not formal advice or recommendation. We may buy, sell, or hold any securities discussed on this podcast. Thank you, everyone, for tuning in, and we'll see you next time. Sam.