← Chit Chat Stocks
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- [00:00]
Brett Schaefer
Foreign.
- [00:05]
Ryan Henderson
Welcome to Chitchat Stocks.
- [00:07]
Brett Schaefer
On this show, host Ryan Henderson and Brett Shafer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is.
- [00:15]
Ryan Henderson
A CCM Media Group podcast.
- [00:17]
Brett Schaefer
Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is.
- [00:22]
Ryan Henderson
Not formal advice or recommendation.
- [00:24]
Brett Schaefer
Now please enjoy this episode. Welcome to the Chit Chat Stocks podcast, a podcast to help you find your next great investment. My name is Bret Schaefer and I'm joined as always by Ryan Henderson. Today we are pre recording our first Ask Us Anything podcast in place of this week's Power Hour. We are not doing this live, we are pre recording it. So we're not going to have any live questions asked from the audience. The questions for this episode of are not generally about just stocks we follow, but mainly longer term themes, philosophy, broad market themes, and even a bit on our personal lives and daily work habits. We asked people to give us questions over on our newsletter Substack Chat and we got some fun ones. We're going to go through what I think are most pertinent to maybe some ones at the end that we might not get to, including who is going to win the English Premier League. I thought that was a fun joke, one that someone put in there. We might answer that or not. But for anyone who wants to ask questions on future shows, you should sign up for our newsletter on Substack. The link is going to be in the show notes and before we begin, I haven't mentioned this in a while. If you are a new listener or if you are a long time listener and you haven't given us a five star review on either Apple Podcast or Spotify, that is the easiest way to support support the episode. We keep these podcasts completely free. They're advertising supported and if you can give us a five star review that is the number one way to give back. We're gonna get into the first question but I'll let Ryan do any introduction. Ryan, are you ready for our first Ask Us Anything?
- [02:12]
Ryan Henderson
Yes I am. There were some really good questions in here and some that I think are very relevant to the markets we're in today day and I I'm excited to get started with this first one because it feels like we've been all over the place on AI and I do think by the time this comes out we will have had our interview with Reheard Jar which I thought was an exceptional interview and everyone should go give it a listen. But I have some changed thoughts on the AI space. So with that why don't we go ahead and get started?
- [02:46]
Brett Schaefer
Yeah. And I guess we do a little bit of ask us anything during the weekly power hours, but these ones are a little bit, I wouldn't say easier to answer, but we can prepare more since we get the questions in advance. I can write down some notes and write down some notes. The first question, and it's one that a lot of people wanted to talk about. Here it goes. What do you guys think an unwind or blow up of the AI trade would look like? Which company blows up first and what would be some leading indicators of a blow up? I think I can go first with some notes. Maybe Ryan can interject. I guess I have a little bit of notes here right now. I think enough people believe that enough people believe or that everyone else believes that a few trillion dollars in AI infrastructure spending is going to have positive roi. Everyone thinks, all right, it's a classic, the music is playing, you got a dance situation. And with only tens of billions in AI software spending right now from end markets, the trillions of dollars in spending for the infrastructure I think has a disconnect between cost and demand. And I think eventually, unless we see a miracle where there's hundreds of billions in revenue from these AI startups that come within the next few years, which honestly I don't think is out of the question, but I think is unlikely, eventually we get to like the telecom bubble of the 2000s. And I think the similarities are quite stark. Before I get into kind of the different categories of AI stocks that I think are more risky versus less risky for people to own. Ryan, do you have any general thoughts on what a potential AI bubble is looking like? And I guess that's a leading question. Do you think it's a bubble?
- [04:33]
Ryan Henderson
Yeah, I think it's a very. I honestly think it's pretty straightforward. Like when you look at historical bubbles, this goes back to that Bezos quote of industrial bubbles versus financial bubbles. Industrial bubbles. It's overestimate the impact in the short term, underestimate it in the long term. I see no reason why this is any different. And you're getting the spending of that, of that overestimation in the short term, most likely, in my opinion. And there will be companies, I've kind of triaged them into three different sort of cohorts of companies. Same with you, actually. Where they will be better off in the long run still probably get impacted on the stock price in a blow up. There will be companies that get devastated and go bankrupt and there will be companies that I'm kind of unsure on that are heavy spenders and they're going to have maybe a rough five to 10 years. That's my sort of I guess forecast. I do think we're probably in an overspending period and, and sort of a bubble if we want to call it that. In terms of leading indicators it's for me what would show a leading indicator of maybe we're at peak or maybe the demand isn't what we thought it would be is a moderation in the capex growth of the hyperscalers. That's the only really like trackable leading indicator that I can think of. If you start to see the commentary, pull back on some of the cap estimations from Meta, Amazon, Microsoft, Google. Not only does that maybe say from their perspective we're not seeing the demand or the end market usage that we thought but it also means the companies like the core weaves of the world that are basically a function of excess demand and too tight of supply, they, they will be even more impacted by the big tech companies pulling back on capex because that's them saying okay, we don't need as much as we thought, we have more supply than we think. So that to me is probably the thing I track the most. I do it literally every quarter. I look at basically the capex of the four combined companies being Meta, Microsoft, Amazon, Google.
- [07:01]
Brett Schaefer
Yeah, I had a tough time and I think it's a really hard question because if you know exactly what the leading indicator is going to be, you could have a very good time shorting these companies. I think it could come up in a few different areas. Ryan could be right on that, that capital expenditures area. I also think it could be, or at least has to be at least focused a little bit on open AI and it's planned $1 trillion in invest infrastructure spending. You know, if it does not hit its revenue targets, if we do not, if it, it isn't growing like they project it's going to grow in like 10x revenue and all that good stuff. You know that's going to lead to lower demand from and go through the largest market caps in the world and we can just see that this is the entire stock market today or close to it. Nvidia, amd, Broadcom, Qualcomm, tsmc, ASML are all going to see lower demand and that's going to reflect in their stock prices and that's going to lead to lower spending. As Ryan mentioned, the infrastructure players, Amazon, Microsoft, Google Cloud and eventually again we're going to Talk about what happened in the telecom bubble. People realized that they built up enough supply for too many years. I mean it might not be as large as the telecom boom where they built like 15 years of supply for Internet growth instead of two what they thought and it did grow into that. It was just slower than they they believed at the time or what the projections were saying. The market rationalized and every debt laden company went out of business and Cisco was down 90%. I think I'll go through my three categories. I put it a little bit differently but I think it's similar to what Ryan had first I have and this is the ones I would avoid being longs whatsoever are the levered players which means ones that are taking a lot of debt to build out infrastructure or a lot of debt to do their business. I mean could I put OpenAI in here? Sure. But they are private so I'm going to keep it to public markets only. I think this is the core weaves of of the world. Cor weave is probably the quintessential player here. Maybe Oracle eventually although they have a bunch of other business lines. You know these are stocks that are taking on massive amounts of debt in order to build an AI infrastructure and if the bottom falls out of AI demand they could easily go to zero. Now the other ones I have are pure plays with healthy balance sheets. This would be an Nvidia of the world I think if and again this is. This has happened to this company before. So don't think this is a hot take because people look at Nvidia today up a thousand percent in the last three years or whatever the number is maybe even higher market cap $4.5 trillion. They think it's invincible. The stock could easily go down 80% if the bottom falls out of the AI market. What's funny is if you bought in 2022 or 2023 you're probably still up but that's not going to be fun to go through. And then the other one I have here is what makes this a little bit different than the dot com bubble is the diversified players. I guess this is would honestly be similar to Microsoft in the dot com bubble because they had you know, one of the best business models or intel during the dot com bubble. But these are companies like Amazon or Alphabet. They could see a huge drop in earnings and falling stock prices if the AI bubble pops. But their businesses will be just fine. Their balance sheets are okay and their stock prices will probably hold up better than most. Although I would rather wait to buy on the Other side. Ryan, agree or disagree on on any of those thoughts?
- [10:32]
Ryan Henderson
Yeah, I agree. I'll go really quickly through mine. The, the, the three categories for me, basically I think this would look, if there was sort of a AI blowup so to speak. I think it would look a lot like the dot com bubble. I actually think you can draw a lot of dot com telecom bubble and, and I think you can draw a lot of similarities there. So my three categories of companies are number one, the bullshitters. So pardon my language if there's kids in the car, but these are the modern equivalent of the Pets.com or the.com companies where there's just, they were really not providing any underlying value to customers. That to me is like the quantum computing stocks of the world that are just get catching a bid.
- [11:18]
Brett Schaefer
Yeah, we can include those in there. Yes, that's nice. That's talking my short book right there.
- [11:23]
Ryan Henderson
Exactly. The second one here, I just call it the Heavy Spenders. This is where I'm probably the most confused because you have a lot of businesses where they have just incredible core business lines. Amazon, Meta, Google, I mean these are, they are going to generate cash flow for decades no matter what. So they have, they afford themselves the ability to overspend and maybe make mistakes and maybe it hurts margins over the next five years or so as they depreciate these data centers or they sell off assets, stuff like that. But in the long run they're still going to be fine businesses. You'll just get a worse return. There's also in that, in that segment of the heavy spenders there are companies like CoreWeaves and we use CoreWeave as sort of the poster child here because they're renting GPUs and, and they are, their entire business model is a byproduct of excess demand which is frail in my opinion. It seems like a frail business model. There are other companies like Core Weave that do something similar. Those companies I think are going to basically be screwed, but they're also heavy spenders. And then the third one here for me is legitimate businesses. So you mentioned Nvidia. The other examples would be companies like Amphenol, companies like Comfort Systems. Those are basically like suppliers to the data center space that are seeing a huge boom in, in their financials because customers are demand their services and they're going to have more cash on the balance sheet. They can reinvest. They're going to be better off in the long run because this happened. But in the short run they could still get crushed. I think of these as like the Amazons of the dot com bubble. Nvidia sort of being the Amazon, I think in this case, where in the long run this did help them, this, this will have helped them. If we look out 30 years from now, we look back, you're going to say, okay, that was a defining moment for them where they came into relevance and were better off because of it. But at the same time you could easily see the multiple compress. You could, you could easily see more than 50% drawdowns.
- [13:41]
Brett Schaefer
Okay, I'll close out with this. And I recommend everyone read this recent research report by a investment fund. I think it's an investment fund called Sparkline Capital on managing through the AI AI bubble. As an investor Sparkline, they had some really great data. It's like a 15 page essay. They believe that investors should get away from AI infrastructure now and into AI beneficiaries. What companies are those? I think there really are numerous amounts ones out there. You have ones that'll benefit as platforms for better customer experiences and less costly customer support. For me in my portfolio, you know, companies like Airbnb and Remitly came to mind as, okay, we can save a ton of money and improve our platform with AI services if, if they do it correctly or you have startups like our sponsor, such as fiscal AI that should benefit. You know, they're not spending billions upon billions, I mean trillions of dollars on capital expenditures. But similar to the Netflixes and the Facebooks of the world in the early 2000s, they can benefit from a ton of data centers out there that are going to be cheaper and cheaper and cheaper. And if we look, and I guess this is also related to that statistically or on average historically, industries or sectors or groups of stocks that go from capital light to capital heavy and make that transition underperform the market or just do poorly in general. If you look at the Magnificent Seven stocks, they've gone from Cabex as a percentage of revenue of 4% back, back in 2012 to 15% today. It makes me a bit nervous and I guess this was reflected in my own portfolio and Ryan's as well. He's still. We're both severely underweight. The Magnificent Seven just makes me nervous owning them going forward of what that ROIC is going to be. All right, that was. I put that one first because that one's going to take. That question is going took a long time to answer. I knew it was going to turn into a discussion. The next few here are probably going to be two to three minutes Each Ryan, should we move to number two? Unless you have any closing thoughts on the AI bubble?
- [15:50]
Ryan Henderson
No, let's do it. What is one stock you missed and regret?
- [15:54]
Brett Schaefer
Before we move on, we want to talk about our friends at Interactive Brokers. Interactive Brokers is our favorite brokerage platform. They make it easy to buy stocks, ETFs, options, futures, currencies, bonds and more, all from a single unified platform. And Interactive Brokers allows you to maximize your returns by minimizing your costs. They offer zero commissions on U.S. stocks and low commissions on international securities. And they don't cut corners either. Interactive Brokers, one of a kind. Smart routing technology gets you the lowest price possible in 36 countries and 28 different currencies. Interactive Brokers is our home for stock trading and we wouldn't go anywhere else. If you're getting serious about investing, it's time to upgrade to a broker you can trust. Head on over to ibkr.com restrictions apply. Interactive Brokers is a member of the of SIPC. All right, I cheated here and put two. Two different categories. I'll go quickly. First, American Express. This one I was patting the table on in late 2023 or excuse me, late October of 2023. Stock was at $150 or below. I believe PE was like 13. We were winding down, if anyone doesn't know, we had a small investment fund. We were winding down our investment fund. We took a couple months to get our money back into our personal portfolios that we had, you know, all of our invested assets in the fund. I didn't buy. Today we're at $362 a share for plus dividends for American Express compared to $150 in October of 2023. And I missed a great opportunity to hop on a never sell train. The second one I will mention is Rocket Lab. I was fairly bullish on the company. Under $5 a share. You can listen to our podcasts or interviews with Simon Erickson to docu that document this. I thought it was a decent risk reward and a promising growth stock that they executed quite well in the space flight market. But you know, they're still highly unprofitable and it's space flight. It's very difficult to try to build the next the second coming of SpaceX. I think I had a psychological block of not wanting to make tiny 1 to 2% positions and highly speculative names if I thought the price was right. I wanted, you know, 10 to 15 rock solid companies with wide moats and that's it. Well Today, I don't know if you follow Rocket Lab, Ryan, and you're surprised by this. The Stock is at $66 a share. Is it vastly overpriced today? Probably, almost definitely. But it could have been a perfect rule breaker stock for my portfolio and I very, I regret missing it.
- [18:23]
Ryan Henderson
Okay. For me the two would be. And obviously stocks that I regret and that I missed. My mind automatically goes to the companies that are up like you know, 50x or 100x, like Carvana at the bottom you could say.
- [18:40]
Brett Schaefer
But those Nvidia.
- [18:42]
Ryan Henderson
Yeah, yeah, those were realistically not going to be in my portfolio. Like I, I care about them now because the price has appreciated so much. But it's. I would say both of those were either too high up the risk profile or out in Nvidia's case, outside my circle of competence. But for me, the two that were right in my wheelhouse that I missed were one, Uber. It was a business. I understood they were making clear progress towards improving their profitability. I listened to a bunch of interviews with Dara, listen to a bunch of conference calls and I thought he was taking the company in the right direction. Seemed like a bright guy. But I think ultimately I just, I let so much of the I guess narrative around the excess spending at Uber and what they were like as a private company where they were just like hemorrhaging money at whatever cost they wanted because they were the darling of the venture capital world. I think I let that scare me out of this and think, oh, that culture is not just going to go away because they got a new CEO, but we've seen it. I mean they have really truly improve the P L. The second one here and the one that always. These are the ones that bother. Bother me the most because people come on as podcast guests and pitch these ideas, they serve them to us on a platter. And this is Interactive Brokers. So I do own them now. But in on January 12th of 2023, Louise Sanchez, who I highly recommend going checking out LVs advisory. He does fantastic work. He came on the podcast and pitched Interactive Brokers. The Stock is up 259% since it's been less than three years. And I understood the business. The writing was on the wall for them to see a revenue inflection because you were going to see they were going to be a beneficiary of interest rates and it was also at like trough trading commissions because this was. It's hard to, it's hard to remember this. It feels weird to say this but beginning of 2023 was world was ending. Yeah, yeah. This was like the bottom and and people were soured on the markets.
- [21:00]
Brett Schaefer
Recession guaranteed. If you remember that every CEO at the time was talking on conference calls, they go, well our business is struggling because we're in a recession. And then the recession never materialized. Kind of showed who was the pretenders or the excuse makers as executives.
- [21:15]
Ryan Henderson
Yeah. And Louise gave a very like reasonable pitch for it. Conservative estimates. I remember listening to it and thinking I, I should own this. And for whatever reason I didn't own it. I will say Louise has a fantastic record coming on our podcast as well. He also did a podcast on medpace I think like a year ago and the stock is double.
- [21:36]
Brett Schaefer
Less than a year ago. Yeah, earlier this year. And I'll say I atoned for my sin and bought some interactive brokers earlier this year, but not it's not up 250% for me. All right, third question. What is the biggest trend excluding AI that you are bullish on from an investment perspective? I'll go first. I'm very bullish on a continued trend of Neobank steadily taking market share from the legacy players. Am I long sofi? No, not right now. I think it's a slightly expensive stock but it's on my watch list. And am I saying like the big players, you know, it's JP Morgan, bank of America, Citigroup, Wells Fargo is short because of this. Probably not. Maybe Citi and Wells Fargo, I'm not sure. They seem to be less well run than bank of America and JP Morgan and they're highly diversified and people know them much better than I do. But I still think and you can see the numbers slowly inflecting, you're going to see continued stealing from online banks like SoFi. It could even ally bank. You'd even include Amex, American Express here in the mix. Basically anyone with low physical footprint and high yield savings accounts. I think there's a huge Runway. If you look at the customer and consumer deposits on bank of America's balance sheet, JP Morgan Chase's balance sheet, it's huge. And I think they're slowly going to. Unless they reverse course and just match those deposit rates, they're slowly going to seed share because physical branches and ATMs for young people are completely irrelevant and they're going to slowly age into older and older cohorts.
- [23:13]
Ryan Henderson
Yeah. For me the biggest trend that I am bullish on would be the shift to digital remittances. So one, remittances in general I think will continue to Grow. So cross border payments. I think even though we're kind of at like a political period in which people are talking a lot about like having a strong independent country, I think.
- [23:38]
Brett Schaefer
We'Re having a hiccup in the United States on, on this trend. Yeah, but hey, that's just one country. There's man, there's not many other out there.
- [23:45]
Ryan Henderson
Yeah. I just think in a world of remote work and working from anywhere, it's just more likely that you're going to see people move across borders at a higher frequency than they used to, which means they're probably going to be sending more money across borders and more likely to do so digitally because like still a huge portion of cash transfer, a huge portion of remittances today are still cash transfers. I cannot imagine that there's more cash transfers a decade from now. It makes so much sense in the world for someone to open their phone, download an app, connect their bank account, send it at a lower cost, faster, and have the infrastructure set up on the receiving end to have various forms of acceptance so it could get picked up in cash, but it doesn't need to be funded with cash. That to me just makes all the sense in the world. And I guess my portfolio, two of my largest positions are digital remittance providers, remitly and wise. So that my portfolio reflects my belief in this trend.
- [24:53]
Brett Schaefer
All right, question number four. And I guess I didn't put who asked all these questions but thank you to everyone who asked them and taking the time. Question number four. What stocks do you think the market has bafflingly wrong, can't speak, one bullish, one bearish that you don't understand. So this is one where you know, if you're long, you think the market doesn't understand what's going on. But you know what the short thesis is. For instance, you just mentioned remittely, I know what those people are saying are headwinds and why they're not bullish on the stock, why I think it's undervalued and I just disagree with them. But one where I just don't understand it or one where I don't understand it the opposite direction where I might be short. I think there are a lot of stocks out there that the market is way too bullish on at the moment and I don't really understand why. And you can just look at my again, short book. That is about 10% of my overall portfolio. These are Apple, Tesla, Palantir, the Quantum Players, EVTOL stocks. Do you know what EVTOL is Ryan Electric.
- [25:55]
Ryan Henderson
Vertical takeoff.
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Brett Schaefer
Yeah. Yeah. They're going to revolutionize travel. And they're all trading at a $15 billion market cap with zero revenue. There's nuclear companies that might be the most egregious of all. They kind of compete for it. You name it. Those ones, I just think there's a lot of ridiculousness out there and those are just trading on names and not trading on fundamentals. On the long side, though, and this is one, I think the stock is undervalued and I can't really figure out why is Airbnb. I do not get the hate for a company. They're trading at a reasonable earnings multiple. Buying back stock. They have a clear margin expansion potential and a clear path to steadily grow revenue. Their geographical diversification, I'm surprised it is not trading at 40 or 50 times earnings. And that's why it's one of my largest positions.
- [26:44]
Ryan Henderson
Yeah. Airbnb. I agree with you. It seems like people just have a bad airbnb experience as a customer and then they're like, I don't believe in the stock from here.
- [26:54]
Brett Schaefer
It's true.
- [26:55]
Ryan Henderson
It's just not really the way. I mean, they are seeing increasing bookings, so I see that continuing on the long side for me, I probably would have said Google if you asked me six months ago, because people hated them or thought they were going to get crushed by AI and they. I don't know. I just disagreed.
- [27:16]
Brett Schaefer
How are you feeling about the anthropic deal? Got to be nice as a shareholder.
- [27:21]
Ryan Henderson
I didn't see this.
- [27:23]
Brett Schaefer
They have a deal for anthropic spending. Probably. Talk about on the Power Hour, which we're going to record tomorrow. That'll actually come out before this episode is released. But they are doing a deal deal worth tens of billions of dollars over multiple years with Google Cloud to. I don't know if it's Secure or utilize 1 million TPUs tensor processing units for training and inference. So that's not bad for Google Cloud that's doing about 50 billion in ARR. Could be a nice little growth driver.
- [27:55]
Ryan Henderson
Yeah. I mean there's so many. It's like, you think about that and it's probably not even going to move the needle for them. Maybe in revenue, it's almost Not a rounding area. Not a rounding area.
- [28:08]
Brett Schaefer
Yes. But for the cloud, it'll be relevant.
- [28:12]
Ryan Henderson
They are just. Yeah, they're in a perfect spot for AI and they were. They were in a perfect spot six months ago. Their. Their just latest iteration of the model was a Little better than the earlier versions Gemini. And all of a sudden the narrative changed. I wrote down Philip Morris here, the long side that I'm more bullish than other people, but I don't know if that the valuation's changed a lot. It's like doubled over the last couple years. So.
- [28:41]
Brett Schaefer
Hey, stocks below 150 again.
- [28:44]
Ryan Henderson
Yeah, this is one I'll talk briefly about Philip Morris because for decades, I think for decades they've had volume declines, they've been fighting volume declines. They're finally at an inflection point where I think pretty much every year from here on out for the foreseeable future, they are going to have volumes grow and they still have all the positive characteristics of the tobacco business in terms of pricing, power, competitive advantage, scale, the hard, hard to market for competitors. These are huge advantages and it's very profitable to build these things. When you think about like a sin pouch, it's a very pro, you know, cost five cents to make, sell it for a dollar type of thing. I think they have all those advantages and they're actually going to have volume declines as well, so. Or volume increases as well. So I suspect a double digit, double digit earnings growth is reasonable. From here the we.
- [29:45]
Brett Schaefer
Let me add it on Phil Morris International we had. This is a late entry to the AMA that relates to Phil Morris International. What level of let's say EV to EBIT do you think Philip Morris International becomes attractive again? Now you're not allowed to look it up beforehand, but I'm gonna look at what they're trading at now and if it's above, if it's below that, then maybe, maybe you have to buy.
- [30:09]
Ryan Henderson
Yeah, I actually I should know what they trade at. I would say EV2 and you're talking trailing.
- [30:17]
Brett Schaefer
Trailing, trailing.
- [30:18]
Ryan Henderson
Sure.
- [30:18]
Brett Schaefer
Yeah. Below.
- [30:23]
Ryan Henderson
14 times. I would probably buy.
- [30:28]
Brett Schaefer
Okay. I think it's already position for me. Then you would add more. I think we're not there yet. I want to say given what the stock is trading at today, we're at about 16 because I remember being at 17 yesterday. All right, I clicked the wrong button but you. It's loading. You keep talking while Go to your. Go to your ones that you don't understand.
- [30:48]
Ryan Henderson
The other one. For me, the only reason I hesitated to put this one in here is because I can see it. I can understand why people are bearish on it. But Adobe, to me you see so many headlines of like oh, a film studio used AI to make a certain whatever component of a movie. Every single case with those. It's like that Was the idea genesis or that was the genesis for the. Whatever. They built something using AI video technology and then they edit it in Adobe's products. And we are. I get the narrative of you don't need Adobe as much anymore because there are AI solutions. I promise you if you want to build a photo or you want to edit a photo, you're going to have a much easier time in photoshop than asking ChatGPT or any of the video or photo models to do it. Like I've, I've tried it and I've been very let down by the results. Maybe I'm not good at like saying the right queries or whatever. I do think there's a competitive risk with Canva and Figma. I think they've done a really good job carving out a competitive advantage and being sort of a more entry level solution for people starting in the creative world. But you look at it, I don't think enterprises are selling their seats, I don't think they're selling their Adobe licenses. So to me I think they're going to probably continue to grow revenue. On the short side, I don't really short, so I don't spend a lot of time thinking about this. But I think there are just a whole bunch of businesses that people buy without even looking. Like Apple, for example is just such a large component of a lot of retirees portfolios, they probably don't even know it. They sometimes just spend too much time on their iPhone, like I'm going to buy more Apple shares. I think there's a lot of ownership of companies like that where they don't actually track the results. And my guess is that growth just won't be as high as people think and you get sort of a mediocre return.
- [33:03]
Brett Schaefer
Okay, Philip Morris International, 19 times trailing EV to EBIT. So we're not there yet, but getting cheaper. I'm saying $130 a share is where my gut tells me I'd add I.
- [33:18]
Ryan Henderson
Still have a good return from here. But yeah, it's. Where would I add? Probably around there as well. All right, what do you write down for your thesis? When you buy a stock, do you Follow any precise KPIs?
- [33:32]
Brett Schaefer
Let's start with the last one. Yes, on the KPIs. If this is not some novel idea I have many famous investors use this philosophy. When you're after you own a stock, there's generally about 2 to 4 KPIs or numbers you want to look at each quarter order to track your thesis. For example, if we look at Airbnb, I want to track total supply on the market, I want to track nights and experiences booked and I want to track total gross booking value value through their platform. If those ones look those numbers look good, I think everything else will take care of itself unless management decides to just waste money, which they might tend to do. And the best way to do that again I'll plug Our sponsor is Fiscal AI. That was one of the genesis, I would say, of starting that business is to get those into easily available formats, build that data out for people and there's almost every company I have unless it's maybe a deep value net net. There are KPIs I'm tracking quarter after quarter that is going to say all right, well is this looking good? Okay, then I'm just going to keep holding regardless of valuation. Are they looking bad? All right, maybe the business is not forming how I thought. But if I'm making a thesis or writing down my thesis, usually I try to put down at least a couple of short paragraphs. I want to answer three different questions. One, do I trust management? Two, does the business have a wide or emerging moat? And then an addendum there, will it get wider over the next five years? So mode analysis? And then third, is the stock cheap? They're fairly open ended, but those are the three questions I want to answer to put something in my portfolio.
- [35:16]
Ryan Henderson
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- [38:53]
Brett Schaefer
And even if you're not writing Full research articles for yourself. And it does take time for any, for any listener here. Just write a couple of sentences. If you're buying a stock, just write a couple of sentences on why. You'll have, you know, date it. Say what, say what the date is. And then if you sell a stock, write a couple of reasons why and then figure out where you're good or bad at analyzing stocks. You'll, you know, that's what we've learned over the last five to ten years. All right, this is the type of stocks we're good at identifying. These are the type of areas that we made mistakes and maybe we should focus on what we've been good at going forward.
- [39:31]
Ryan Henderson
Yeah, I believe there's a lot of validity in. Once you can succinctly write your entire thesis in less than a page, you know it very well. So work on trying to get to like a one pager because you can talk through a hour long podcast and still understand less than being able to condense it into a single page. Because really, in the end your investment outcome is going to be dictated by usually just a few factors. For a business, it doesn't require typically an hour long podcast, even though we do them to describe, that can help.
- [40:10]
Brett Schaefer
That can help you understand it. I think it's nice like if we do the long discussion on a podcast or do the full research and then afterwards if you're going to end up buying or not, you just put the one pager down as to why. All right, sixth question. What are your thoughts on over leverage in the crypto space, causing speculators to get zeroed on days where equity markets are only down 3%? Yes, on Coinbase, I guess you can go 50x leverage now. I will say I'm glad this has nothing to do with my life. Speculators can speculate. Eventually if they're on 20 times leverage, 20 times margin, 50 times times margins, they're going to run out of capital. I wouldn't invest in any of these companies associated with it, such as a Coinbase, but it doesn't really matter to me. I'm much more focused on stuff that could happen in the real world, impact the real world, impact my portfolio, or bring about buying opportunities such as the forming and popping of the potential AI bubble. That's why I want to focus on that so much because it could actually impact a large set of my own portfolio, could impact the broad market. And if the AI bubble pops, there could be buying opportunities in the wreckage. Yeah, I don't care how much do we talk about crypto these days. Zero. It's not even on our radar.
- [41:35]
Ryan Henderson
Yeah, I appreciate the question, but my answer was the same. I don't think about it much at all. This is probably bad to say, but there's a part of me that anytime I see these posts where people are like, I lost my whole portfolio today and it was something leveraged in crypto, there is a part of me that I don't want to say I'm happy to see it, but I think it provides a cautionary tale and necessary caution to investors entering the world today. Because there is a horrendous amount of money today like the I still. We are seven years, whatever, 10 years away from the last crypto bubble and the utility hasn't changed. It's more accepted now just purely because the price is higher. And so I just think there's a horrendous amount of money that's poured into crypto that is providing no value to society. So yes, I think sometimes these incredibly risky securities, if you want to call them that are like I sometimes am somewhat satisfied when they blow up.
- [42:42]
Brett Schaefer
Yeah, just for any listener, never, never, never go on huge amounts of margin. Never probably don't go on any. But you just please do not go 20 times margin if a broker unethically lets you do that. Okay, seventh question. This one I guess is focused on me, but maybe Ryan can give some perspective as a non shareholder. I wanted to talk about this one because the stock is down a lot. Someone asked updated thoughts on Portillo's. I still hold stock remains cheap. I think the market cap is $400 million and yes, they have some debt but $400 million versus a hundred million dollars in operating income. Very, very cheap. I worry about a take under a of bunch bit. They have a good management team and I think an improving management team with the board of directors in there that have changed. You have Chipotle people, Domino's people and they have a good brand. I think they have a good set of activists in the mix to help them stay focused on creating value for shareholders. Restaurant stocks can't catch a bid whatsoever. And I'm not really worried about it. They have good cash flow. Balance sheet can be cleaned up if they want to with leaseback deals. And did you know Ryan, they are now trading below book value. It is officially a net net. I would listen to our interview with Value Investing Degen. We did about 30 minutes specifically on Portillas. I think that kind of sums up where I'm at with the stock. I'M not adding to my position. I'm going to keep letting it ride, and I reserve the right to sell if the business keeps deteriorating. But the way I look at it is I have 10 to 15 stocks in my portfolio. A couple are going to be losers. That's fine. I'm just going to hold on to the ones that, with their emerging competitive advantages, turn into huge winners over the long term.
- [44:33]
Ryan Henderson
Yeah, nothing for me there. I don't own Portillo's, although I do think it's a really compelling setup. I don't know what's holding me back at the moment, but I could see.
- [44:42]
Brett Schaefer
This toss in a little bit. Yeah, look at, look at your least favorite. Make it, make it a small position.
- [44:47]
Ryan Henderson
Okay. What percentage of time each day is spent working at. And this is a question about our personal lives, our day job, researching stocks for work, managing the podcast newsletter, Researching stocks for your own portfolio. Maybe I'll go first here. For those that don't know, I work at Fiscal AI, one of our sponsors. That is my day job. I spend the majority of my day working for Fiscal AI, and by majority, I'd probably say around eight hours a day.
- [45:18]
Brett Schaefer
Ryan is on the nine to five grind.
- [45:21]
Ryan Henderson
Yeah, yeah, roughly. I mean, it's usually not that structured, but the, the great thing for me is that the work overlaps. And I think this is the same for you where a lot of the work I'm doing from Physical AI is looking at the platform, trying to find unique data points to share to get the word out there about the data that we've got on the, on the website. And I'm looking through earnings reports, I'm looking through conference calls. All of that feeds into my podcast research as well, and even my maintenance coverage for the stocks I own. Managing the podcast is probably like one to two hours a day, but it's kind of dependent on the day because we have certain release dates and stuff like that. And then I usually, in terms of like researching stocks, I would say I spend about 30 minutes to an hour each night just reading through newsletters, maybe conference calls, anything that I am interested by. And then probably most of my time is spent on the weekends, Saturday, Sunday mornings. Any deep dive work I do is typically weekends.
- [46:32]
Brett Schaefer
Okay, let me go to mine. I guess I can go through like the structure of the day, but I don't think people actually care about that. They don't want to know our morning routines. Right, Ryan? Let's see. I do about two. I write for the Motley fool for my other job, which Pays a lot of the personal bills. Two to three hours of writing at the Motley fool each day. I'd say three to four hours of either stock research, financial media reading, business research that overlaps for all sorts of things like the Motley fool because I do stock analysis articles for them. So that overlaps for the day job, overlaps for the personal portfolio, of course, and overlaps with the podcast. They all intermingle. And that was really the genesis of our podcast is we said, well, we're researching these stocks. We don't see many good at the time stock research podcasts out there. Well, let's just do it ourselves. And I'd say probably spend about again, it relates to the reading of stocks and the researching of stocks. So I'd say I probably spend about two hours a day of work on the podcast, which can vary. Again, there's like the deep dive research, all that good stuff. And there's maybe some busy work for the podcast that averages about 30 minutes each day. But we've gotten very efficient with that over time. This is show notes, editing, publishing, social media work. That's about it. And yeah, I guess we've just gotten over the years as DIYers, if you want to call it that, with no outside help on managing the show. That's about how it goes.
- [48:11]
Ryan Henderson
All right, question number nine, because I know we've, we've got a few more to get to here. What is the vision with Nelnet? I'll let you go first here.
- [48:21]
Brett Schaefer
All right. Well, they're the future Berkshire Hathaway, right? I'm only slightly kidding there. They've had pretty good performance. I'd say the underlying fundamentals are outperforming what the stock has. Even though they just traded at a new all time high, which I was quite happy about, they are still ultra cheap. I believe even though the price to book value is again at an all time high, they're going to benefit from lower interest rates. The headwinds in 2023 are going to turn into tailwind in 2026. I could really see that if they wanted to, let's say do some financial engineering, make some value creation by selling their huddle stake or trying to just materialize value that is on their balance sheet or through companies they own. They could get the stock to $200 and we're at 130 today. I don't think they're going to do that. They don't really care about value creation in the short term. They just care about long term fundamental value. But you see a business that is growing. It's book value plus dividends at what, 16, 17, 18% per share for the last 20 years. And there are things they are doing to purposefully decrease their book value, to not pay taxes and stuff like that, you know, legally, of course. And I think their intrinsic value per share has increased by 20% a year, if not higher. And like to stay on that train for, for the long term. And the vision with Nelnet is I never sell and then pass it. I just keep it in my family and pass it on for generations. That would be the long term goal. It's around after I, after I pass away.
- [50:04]
Ryan Henderson
Yeah. That's the beauty of a position with Nelnet is you're. There's less volatility and you really do trust management. I really do trust management. And they got a great track record. I think in the long run you probably get, let's say the s and P500 does 10% a year over the next 30, hopefully with Nelnet you're getting 13 to 15% a year. And because they are finding good reinvestment opportunities in their own businesses, but also taking, buying other businesses as they come along or making interactive investments as they find them, they've got, you look at a company like Airbnb, there's probably this grand vision for what the business is going to be. I don't think Nelnet operates that way. They are constantly on the lookout for new investment opportunities and they are providing capital to their, their own businesses where they see fit. But I think they kind of take it day by day and just buy, buy attractive investments as they come along, assuming that they fit within the circle of competence. They talk about that all the time and I think probably their venture into solar construction was actually sort of a scar for them that maybe tightened their focus on circle of competence because I think they even said that they ventured out a little bit with that.
- [51:25]
Brett Schaefer
Hey, you make mistakes, but they're not going to throw money after bad. They're done with it now.
- [51:31]
Ryan Henderson
Yeah, it's honestly one that's as complicated as the businesses. When you read the 10k, it's very easy to own because management writes a good letter every year. And other than that you're just kind of monitoring the progress of their existing businesses and maybe any sort of acquisitions that they make.
- [51:48]
Brett Schaefer
Okay, question 10. What are your favorite investing channels on YouTube or Spotify or what have you? Ryan, I'll let you go first.
- [52:00]
Ryan Henderson
Yeah, I don't watch a ton ofFinance on YouTube, honestly. For me it just I think I kind of prefer long form podcast format that or reading as well. For YouTube though if I had to pick one channel, I like the Plain Bagel He's Canadian guy. It's a big page but it's more like explanations of topics and kind of riffing on some of the stuff you see in financial media. So it's more for entertainment purposes as opposed to pure stock research. And then for podcasts, I guess I'll list up a few I listen to the Yet Another Value Podcast. Sometimes Business Brew Acquired, sometimes invest like the best, but probably not quite as much as I used to. And then I would say I spend the most time probably reading newsletters. So a couple I would recommend are Ian's Insider Corner, TSOH Investment Research Service, Asian Century Stocks, trying to think of them. Any others? Brett, feel free to chime in here and add any.
- [53:12]
Brett Schaefer
Yeah, I guess to kick off on newsletters I have a few as well. Mostly Barred Ideas, Liberty's Highlights and then our friends at Investing for Beginners Slash Value Spotlight. I also like reading the Wall Street Journal I guess as a nice newspaper of choice. But if we're looking at YouTube channel slash podcast Value After Hours Odd Lots Acquired Asymmetric Investing Investing Unscripted Wall Street Wildlife, Best Anchor Stocks, Best Anchor Stocks I think some of those are also newsletters too. So it kind of overlaps a lot of the friends and people we respect on finance, Twitter, and just the online investing community.
- [53:49]
Ryan Henderson
Something I will recommend to everyone is, and this is what we've done is basically get an email that is dedicated to investment research. Maybe it doesn't need to be solely for that reason, but have one where it's not a cluttered inbox and it can be focused on investment research. And so we basically do that. You and I have a shared email where we've signed up for a whole bunch of different newsletters, some free, some paid, and that way you can just go through at night and you've automatically got three, four new things to read every weeknight or whatever and it's just a nice way to have it all funneled into one place.
- [54:30]
Brett Schaefer
Yeah, I am less organized on that than I should be, but I think that is a good tip. Okay, next question. Would you be opposed to a quick viewer provided pitch on your weekly Power Hour podcast? I've already seen some super interesting names brought up in these group messages. As a highlight, please join the Substack Group chat. You get the free newsletter as long along with the it's just a nice chat it's kind of a. You don't have all the spam from Twitter and the distractions and all that. It's just focused on our podcast and the stocks that we like to talk about. But the person's asking here is we. It would be more interesting to hear a more fleshed out pitch from listeners. I think. Yes, we could definitely do something like this in written form. We'd have to sift through some. Obviously we can't promise if you write in a quick elevator pitch that we're going to read it on the show. So we can maybe if we figure out the tech, do it in voicemail form where someone pre records something and they post it on there. But I don't know what the benefit of that is versus reading it. I guess it'd be fun to have almost like a caller in, I guess have a different voice out there. I like it. It's kind of like shaking down someone else's thesis. You get a quick pitch on them. I think we've done something like this with Apple podcast reviews before, but we could do it along those lines. I'm definitely open to the idea and could discuss it on in the substack chat what the best way listeners would like us to do that for.
- [55:58]
Ryan Henderson
Yeah, I would definitely be up for like listener call in type of things. There's a couple reasons that I would want it that way. For starters, a call in. We can listen before and that way Brett and I can prepare some actual thoughts and do some research on the company to kind of follow on top of whatever the. The voicemail says. That way we're actually prepared as opposed to just saying, oh yeah, maybe that's a good idea and then basically having no content for it. However, if you're envisioning us like having people on the podcast, there are complications recording wise that we probably wouldn't do that format unless we are.
- [56:37]
Brett Schaefer
Yeah, we're not having to come on live. Yeah, sorry guys.
- [56:40]
Ryan Henderson
But call ins or written pitches I would definitely be up for.
- [56:45]
Brett Schaefer
All right, next one. Do you vibes invest? I'll give a short answer here. I'd say sometimes I'd say only if you believe your anecdotes can be meaningful. It's something that maybe you're looking at that could go mainstream or something like that. It's not like I'm gonna look at, I don't know, women's apparel and think I have some sort of great take there. But for nicotine pouches and Zyn, when we invested in that company, three or four Years ago, I thought I could have some meaningful anecdotes there. And a lot of the thesis was, look, I just have a feeling that these are going to take off in the United States.
- [57:27]
Ryan Henderson
Yeah, I agree, it's not. You don't ever want to buy purely based on Vibe, but I think Vibes can be a great leading indicator. Or we used to have a segment around this basically called anecdotal evidence. I kind of think of that as similar to Vibes investing, where you're seeing stuff in the real world and it's potentially helping lead you to investment decisions. It kind of reminds me of when we first started this, the podcast we had Jason Moser on, and he was like our first big guest. And he said something that actually today still sticks with me. But he, he just said, investing is just really about understanding the world around you. And I think it sounds so simple. But you can make a lot of money just doing exactly that, being perceptive to what's around you. What are people spending money on, Spending time on. It can be misleading at times, I think, especially in the apparel space. We talk about that often, where it's like, oh, everyone's going to Lululemon, or, oh, no one's going to Lululemon anymore.
- [58:30]
Brett Schaefer
Yeah, you see like 200 people a day. There's 400, 300 something million people in this country. So you're, you're not, you're not the whole, you're not the entire market, or.
- [58:39]
Ryan Henderson
Like, oh, I went to Chipotle and it was packed. It's like, well, you know, that doesn't, doesn't mean anything. There's quite a few stores. But yes, I think it can be a helpful indicator, especially if you just, just pay attention to your own habits. I think Zen was an example where we were successful with that. For me, a recent example where it was kind of Vibes based was Google, where it felt like everyone was talking about AI was sort of killing search. And I just kind of sat down and thought, basically, I am spending probably six hours a day or more on Google assets in some capacity, whether That's Google Drive, YouTube, Docs, Google Search. I'm. I'm spending a lot of time on there. So that was kind of more started as an anecdotal evidence, but then you kind of verify with the numbers as well.
- [59:34]
Brett Schaefer
Yep. Take the anecdote, back it up with the data. Those can be some good investing opportunities. Okay, 14. How did we meet? Ryan, do you want to. Who wants to take this one?
- [59:48]
Ryan Henderson
Sure. I can start. Brett and I Met in college. We were both kickers for the Washington State University football team.
- [59:58]
Brett Schaefer
Rip it back 12.
- [60:00]
Ryan Henderson
Yes. Way back when. And if you have ever watched a practice, you'll see there's a group of people that are on the side that don't really seem to be doing a whole lot, maybe stretching or swinging their legs. That would be the special teams unit. So Brett and I had plenty of time, plenty of free time, and we started talking about investing, and I guess it kind of went from there. Is that a fair description?
- [60:27]
Brett Schaefer
I'd say so, yeah. It was during the height of one of the First Crypto Bubbles, 2017, and there was a lot of talk in the locker room about that. And I think inspired actually learning more about this stuff, I guess. I had opened a brokerage account slightly before that, but I think it might have inspired you to start getting into it. And we opened brokerage accounts, started investing, and realized, hey, there aren't that many podcasts out there. We've. We're listening to Motley Fool Money, maybe a couple of others. I think at the time, invest like the best masters in business. Trying to learn more from that. But we thought, hey, there could be someone with some young guys trying to learn from themselves. And it just progressed from there. Started out very badly. We actually don't have. Actually wonder what the first one in the historical archive is. Probably 2020, where before that we just decided to delete all of them, but they were recorded and put out there, and we just steadily marched on to where we are today.
- [61:24]
Ryan Henderson
Yeah, those first few episodes were rough. And if you're thinking maybe I'll go back and listen to them, we have deleted them. So you.
- [61:31]
Brett Schaefer
Yeah, sorry, you're not allowed to.
- [61:34]
Ryan Henderson
No. Yeah. The other part of it is we wanted it to be. I think we really wanted it to be, like, funny in the early days. And then we kind of realized, I mean, maybe we're kind of funny to a certain niche, but I think we realized that, like, finance just isn't that funny of a topic in general.
- [61:52]
Brett Schaefer
No, it can be. I think it can be. We found a good balance, but it can't be in the entire thing. I mean, there is. I think there's some hilarious things out there, but more just for the finance nerds.
- [62:03]
Ryan Henderson
Yeah, you. You missed question 12 here, Brett, do we want to go back to this one? Oh, what are your professional goals? You want to kick things off?
- [62:13]
Brett Schaefer
Yeah. So I'd say mine would be generally doing the podcast and newsletter full time, becoming financially independent from that. I guess I like Working at the Motley fool, but. Or not working there, writing there as a contractor. But to be honest, I'd like to do the podcasting newsletter full time, turn into a small business or a full time small business and start making investments myself. Maybe by getting into a different small business one day. I don't, I don't know. But for the time being, I mean, a lot of people talk about that type of stuff and never actually do it, but for the time being, the core professional goal is to keep building the podcast and the newsletter.
- [63:00]
Ryan Henderson
Yeah, for me, I love doing the podcast. I also like, I work at Fiscal AI, one of our sponsors, and I enjoy that work as well. And I think fiscally I will. I think it's doing something pretty unique in the financial data space and I want to continue to be a part of that. So I don't really have any inclination to stop doing that anytime soon. But it would be nice to continue to grow the podcast. And I would say more so than just the financial benefits of growing the podcast, I think there is really some value to building community around it where some of the best investments, investment opportunities that I have ever been a part of or been pitched have been on the podcast. We invite really smart guests and we get access to intelligent guests because we have the podcast. So it's a great idea funnel for us. And then we also get tons of great feedback. We've met plenty of people through the podcast, we've met listeners in different cities and yeah, it's kind of fun to build community around it. So I guess just continuing to grow both of those and then, yeah, maybe one day some sort of a small business. I know Brett and I kicked around the idea of a driving range, but.
- [64:15]
Brett Schaefer
We gotta look at whether it's actually a good business or not. But that would be a fun one. And there's some other fun ones out there that I think could be interesting to own. But for the time being, we gotta make the podcast and newsletter sustainable first. Not, not that it's not profitable, but more full time incomes. Okay, last question and I'm not gonna be able to answer this one seriously, since I don't really watch. But someone asked and Ryan does watch, so maybe you can answer better. Who is going to win the Premier League this season?
- [64:52]
Ryan Henderson
Yeah, as the foremost experts, we. It's gonna, gonna be Bournemouth. No, that's my, that's my dark horse. But I think realistically, I'll go with the Arsenal.
- [65:11]
Brett Schaefer
Okay. I'm going to go with Leeds United because that's some people associated with that team, but I think that's also another dark horse. Okay, well this has been a fun ama. Thank you everyone for listening. We're going to get back to the regularly scheduled power hours stock research reports episode interviews. We have had a lot of fun interviews late Nathan. We're going to keep trying to do those covering some super investors. After this one, we're going to have Chris Hone not on the podcast, unfortunately, but we're going to be studying why he has been so successful as an investor and just tons of other fun good stuff. So let's kick things or Sorry we had to close things out with the disclosure. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan I or any podcast guests may hold securities discussed in this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you everyone once again and we'll see you next time.