B (3:07)

So you purposefully gave us a misleading number. Got it.

A (3:10)

Well, listen, that's really funny. That's really funny.

B (3:18)

So tell, tell us more about a couple of these other small businesses that you created.

A (3:24)

So another one is just, it's a luxury food business and it's ran by very small staff of only just a small handful of people. And it's really just an import export business to where we get a good deal on the main product we sell. I like to just keep that part private, but we cross sell it to other partners in the country and we also sell it under our own brand. And I just really like the business because we're not really in the food business. We're in the marketing business of just selling a high margin food product. And there's just not many of those. Most food is like, I run away from it because it's just food is like scary for an investor at least. But this kind of food is like, for example, like another product that maybe it would be comparable to is like truffles. Like truffles are a very expensive product that like holds their margin and like you gotta, you know, you gotta like keep them at a certain temperature and, and whatnot. So another business that's, that's another business. We also have like a loans business where we, we used to do all kinds of loans for, from, you know, hard money, short term loans to, we would help that business a little bit. Died. But during the Biden era when they were trying to pay off everyone's, you know, student loans, we had, we played a lot like in that, in that game, but that business really died down. So the loans business is probably our smallest business. Not probably it is our smallest business, but those are like the three businesses. And just throughout time I, you know, pulled money out of those businesses and bought real estate, which is, you know, what I also told you before we started the podcast. And then I was Also, you know, I think it's important to just tell your viewers that about my personality, where I don't love a lot of stuff, like if you take me golfing, I don't really care if you take me fishing, I find it to be really boring. But when I really like something, like I really like chess, for example, I have to be an expert at it. And it's actually really hard to be an expert at chess because it's unfair how good everyone else is and they humble you like crazy. But one thing like that for me was the stock market. And when I found it, it was just like, you know, like, come to papa, like kind of thing where it was just like, like I saw my thing and that was like 20 years ago. And from the minute I really got into it, it was just kind of like a, just a love of first sight. Like I knew I had to do it. Like I didn't pick, picked me, if that makes sense.

B (6:00)

Yeah, yeah. And I mean, one of the reasons why I was curious to talk to you is because you do post a lot on Twitter. You share a lot of your thoughts on a lot of different stocks. You seem to talk about a different stock every day, which not many people are able to do, you know, to research that many and all that. So it also, it seems like as you're describing your story, you're very much a self taught investor, which I also find to be interesting because that means you're, you're kind of inherently going to have like a variant perspective on a lot of different things. So maybe if we could kind of get started here, why don't you tell us a little bit about what kind of investor you are.

A (6:37)

Sure. And so when I started, and actually your question is like dead on, because almost no one that I come across, very few, maybe just a small handful out of 100, have an adequate investment strategy. And even when they have one, like I was just talking to a friend of mine, like there's so many ways you can invest. Like for example, there's day traders and all they want to do is buy something for a dollar and sell it for a dol on 3 cents. And if they can make that 3 cents today, they're happy, they're doing backflips. There's other guys who, whatever, they only do bankruptcies or they only invest in Chinese stocks or whatever it may have. Right. But there has to be like an optimal strategy. And my strategy is just to own really good assets. And I'm not talking about stocks, I'm talking About assets. There's all kinds of assets. Like, for example, my wife's friend, she has a collection of Hermes bags That's probably worth $1 million. And, you know, she. She, like, she looks at them and she photographs them and Instagrams them, but at the same time, she paid, I don't know, maybe three or four hundred thousand for her collection, but now it's worth a million. So it's like, now is it as good as Microsoft? Like, you know, let's. Let's be real here. But I just want to buy good assets and own good assets. And that's kind of what my investment strategy is about. And, you know, like, do you know who Phil Fisher is? I mean, I'm sure you do, but Phil Fisher is. He wrote this book called Common Stocks and Oncoming Profits. And I read that book a lot because there was just. Wasn't the. Also the investment information back then, like, 15, 20 years ago that's available now? Like, there's so much more information. You could so, like, learn so much easily. So I would reread his book, and he had this one line in his book that just. It hit me, you know, and he said, if a business has been sensibly purchased, the appropriate time to sell it is almost never. And if you buy a great asset with that mindset, all you really need to do is make one good buying decision. The more decisions you force yourself to make, the bigger Runway you give yourself to make a mistake where just buying one. That's why, like, Buffett talks about the punch card, right? If you. And actually, I'm writing this book, which I'm pretty sure you know about, but there's a whole chapter in it called Punch card investing. If you really slow down and think, and if the way to really make big money is to compound your money at a high rate for a long time, that's just how you know, that's just simple math. You have to understand compounding. But if you do, that's just, you know, it's like this, like the sky being blue. That's how it works. So if you buy a great asset, you really just need to get out of its way and let it compound for you. So that is. That's kind of my philosophy.

B (9:34)

Yeah. And I think the idea of punch card investing, you know, when Warren Buffett talks about it, it's pretty interesting because it's also kind of alluding to basically opportunity cost and this idea that you're kind of hitting on, on making fewer decisions. I find that when you are more cognizant of what your opportunity costs are. It's kind of easier to let better decisions kind of fall from that.

A (9:58)

You know, it's. It's interesting. And, you know, you could dissect all these topics to the, you know, 87° of PI, but, you know, at the end of the day, like, I think Buffett's maybe two letters ago, something like that, he wrote this really interesting shareholder, and he said that of all the decisions that he made, of all the investments, and, you know, a lot of them were good. There's only, like, I don't remember how many, but, like, a very small handful that move the needle, maybe like seven or eight. So in other words, it came down to, like, over 60 years. Once every five years, he really, you know, got his elephant gun and hit, like, the Coca Cola or the apple or whatever it is. And the analogy I give on top of that is, let's just like, look, I live in San Francisco, and real estate here is crazy. It's just so expensive, and the whole market's, like, insane. But if me and you were just going to be partners, and I said, hey, let's go 50, 50 each, and we go and find this great rental property that we're going to. We're going to buy for, like, a million, our payment is going to be, I'm just going to use simple numbers. 5,000amonth, and we're going to get 6,000amonth in rent, and then we're going to make a thousand bucks and split it. 50, 50, 500 each. Is it possible? Yeah, it's possible. And that would be a really good buy just based on the way the real estate market works. But for you to find that deal is going to be, like, I don't know, a year and a half of, like, consistent effort. So where I'm getting at is if you're going to own something amazing, you can't just own something amazing and to buy it at a reasonable price for all the things to work. And it's like, you just don't get that every day. That's why you can't ask a question, like, what stocks did you buy this week or this month? If you get one or two. Great. And I mean great. I don't mean average buying opportunities in a year. You should do a backflip because public markets are tough.

B (11:44)

So I almost wonder if sometimes we take the wrong lesson from when Buffett talks about how just a few investments were the outsized returns for him, because I don't think he would have always have known ahead of time which few that those investments were going to be. And so if we concentrate in our portfolio too much then, then the byproduct of that could be that we're not missing these, these potential investments. If that makes sense, what I'm trying to get at.

A (12:11)

Well yeah, and of course it makes sense but you know, that's life and I don't have all the answers to everything, you know, how much stuff I missed on and, and even worse, the worst thing isn't missing on something because you know, if you tell me about something you miss, miss on that I never own. Like okay fine, but it's when you buy it and then you hold it and then you do something stupid and you end up selling it. Like Axon was one of those for me. ISRG was another one. But that was kind of a different situation. But, and, and you know this other bank called Axos Tickers. Ax, have you ever heard of it?

B (12:46)

No, I haven't heard of that one.

A (12:47)

It's a fascinating little company. If I may, I'll just tell you Tours. It was actually the first online bank ever and its name was bank of Internet. And the ticker was BofI B O F I Bank of Internet. And they kept growing and growing and growing and I started investing in them and it was like I don't know, 100 million dollar bank or something like that in San Diego. And I made pretty good money on that. I probably like tripled or maybe a little more of my money. But then they changed their name to Axos because it was just giving them like the association with the name of bank of Internet wasn't a good association for them.

B (13:27)

I'm curious, you mentioned Axon and a mistake with Axon. What was your mistake there?

A (13:32)

You know I just. So I bought Axon when it was probably, I don't know, two point something billion dollar company. Which is just shows you I guess how stupid that decision is and what it cost me. Right? Like, and I sold it maybe at around I don't know, five point something billion. Like I'm more than like a little double my money. And it just had. Well first of all I was young and inexperienced and much stupider all those years ago than I am now. But they just had a few slower quarters and other companies were just growing a lot more and you know they did such a good job of expanding their products versus back then they just pretty much had tasers and they had this thing called evidence.com. they did a really good job. And like, like for example, CrowdStrike did a really good job of just expanding into new, you know, things to cross sell and now they have like drones and all. Like I, I can't even recognize the company. They have so many products. They have like, it almost looks like, almost like Stripe or something. Like they have so many products to sell to, you know, cops and whatnot. So I didn't see, I didn't foresee that. And it was a lot of hardware back then. Like the, the software was a much smaller piece of the pie and it was mostly a hardware company of selling. What do you call the electric guns? Tasers.

B (14:59)

Tasers.

A (14:59)

Yeah, Tasers. So it was mostly a Taser company. In fact, before Axon, the stock ticker was actually Taser and the name of the company was Taser International.

B (15:09)

Right. So, so what was the mistake though? Was it that you didn't appreciate innovation at that time? Because there wasn't a lot of history before, you know, they had, I don't

A (15:19)

know, I don't know exactly what the mistake was. The mistake was just, you know, there's another thing that I should, we should say before answering your question. There was only two people at the time who did this. It was Elon Musk and I, I forget the CEO's name of Exxon, but, but him.

B (15:33)

Rick Smith.

A (15:34)

Rick Smith, exactly. And they had a completely performance based compensation package which by the way, both of them hit both Musk and risk. Smith got paid, but they had a zero salary and everything was based on how they were performed. So that's one of the things that really attracted me to Axon because that was just like, no one does that, right? The CEOs just get paid like millions of dollars and it's just like what it is. But they said, no, don't pay me, I want it all in rewards. So that was really cool. And what the mistake was, I don't know, they kind of just slowed the growth for a couple quarters again like the, the, the software was still a small piece and I just kind of looked at other businesses and my position wasn't huge at the time, you know, in relation to it. So I sold it and invested in the Mercado Libres of the world that were, you know, and really frankly still are like my favorite ideas.

B (16:29)

Yeah, and we'll definitely talk more about Meli there. But I, I'm just curious because you, you said it was a mistake, but to me, if you go back, I don't know, what, what year did you sell it exactly? Maybe it was like 20, 18.

A (16:44)

Yeah. 14, 16, something like right at that

B (16:49)

point they didn't have a lot of evidence and.

A (16:51)

Well, yeah, moving out beyond evidence dot com.

B (16:54)

Yeah. Right. So it was primarily just a hardware company and so you would have had to really assume a lot of things would have gone right from them at that point in time.

A (17:03)

Yeah. You know this guy I really like, Monish Pabrai. Actually, like I've met him before. He's a real, he's a really nice guy and I've donated some money to his foundation, which I recommend. Whatever, you guys can look into it and if it's really interesting, he does amazing stuff. But he talks about this stuff kind of called like spawners, you know, like businesses that. Have you ever heard of this? Have you ever heard that again where, you know, like businesses could start here and end up way over there? And I just didn't see that in Axon. But you know, like looking back at it, it's just when you have, when all the stars are aligned, like the CEOs on your team, everything's working, you should just sit and wait. And my mistake was really what probably the vast majority of everyone's mistake was, it was just a lack of temperament of not being able to sit and wait. Because the appropriate thing is most of the time in a good business is to sit and wait. Look at Oracle nowadays and you could argue whatever, like it's investing such a. It was like a, I don't know, a 40 to 80 billion dollar company was stuck at like 60 billion for forever, you know what I mean? And, and what's it valued at now? Like probably close, I don't follow it, but I don't know what, 600, $800 billion, something like that.

B (18:22)

But wouldn't you? Because at least in the case of Axon, you know, right now it's still sold off, I don't know, 40%, 50%, but it still trades at like 11 times sales, something like that. What I'm trying to get at is how much of this is. I didn't see them being able to improve the way they improve the business versus like then valuation kind of really got out of hand and caught a bid. And it kind of touches back to where we were talking a little bit, where we were thinking about, you know, that comment Warren Buffett made words just a few of my big investments were the most important ones. But could you really know beforehand whether or not they were really going to be that good? And could you have confidence in it?

A (18:57)

I mean, you're asking me there's this guy on X who asked me questions like that, he like backs you the corner. He's like, God, answer me. No, it's a great question. I'm just kidding. But I think a lot of it, and I'm probably gonna get killed for saying this is, it's almost like your belief and vision in the company. You know what I mean? No, to answer your question, to like predict it, it's really hard to even to predict anything, man. Like to predict tomorrow's weather is difficult. You can't predict any of this stuff. It's really hard. Could you have predicted that Oracle would do what it just like has done and or you know, like these companies that just the Walmart would be a trillion dollar company. Could you have predicted that 10 years ago that'd be pretty hard to do. So no, I don't think you could perfectly predict it. But I also feel like if you've like. I really like what Axon was doing. Like I said, I really like the CEO. I really liked all the incentives. I like the business. I think it's really hard to come to. You know, you sell the sfpd, you know, you get them into Exxon. Can't just come there with Drew's solution. Like it doesn't work like that. So they had like a really good moat. And I just really didn't appreciate also just as a businessman, I didn't appreciate how they'd be able to raise prices and cross sell services. I viewed it more of like hardware, you know, tasers with like a little software. And I just completely didn't see how it could morph into, you know what it has morphed into. It's been, it's like amazing. So I don't know if that answered your question, but that's my.

B (20:23)

Yeah, I'll stop attacking you there. But on Mercado Libre, because you mentioned that one, I know that's a company you're very bullish on and you have a lot of thoughts on E commerce and all that. So can you maybe share a little bit about your thoughts on Meli and then maybe also how large you would size something like that in your portfolio?

A (20:43)

Sure. So Melle is a very special company to me. A lot of people don't know this, but I actually saw the Meli management when they were students at Stanford and Meli was actually Marco Galperin's thesis at Stanford. And then he went to a bunch of Silicon Valley VCs and eBay and they invested and he started Meli. And so I Just had a lot of kind of insight into it when it was a startup and foolishly I didn't invest back then. I didn't even get the opportunity to. But I knew what it was and I knew who the people was and I just really admire them. Like, you know, you could look at someone and like you could look at Kobe Bryant or at least I can. And I could tell he has an amazing work ethic. He's just like the horse I'd want to go bet on. Like, he just has it and these guys had it and together, they stuck together over like the first 20 years of the company. Now the company, I think is 25 years old or so, but the first 20 years of the company, what they, they were the most, closest, least turnover management team in all of business. Now it's big business. But even back then, like their management team was still roughly the same. Like Pedro left to D Local and you know, a few guys and you know, he, he picked his hand picked successor in Ari, the new guy being the CEO, but he, listen, he picked like a young stud that's 40 years old that's going to be there for the next, you know, 20 years. This is, this isn't going to be like Verizon where they get a new CEO every two years anyway. So, so what I'm saying at this company, Meli has something that's very unique and special. And it is my opinion, but it's also like a fact of life. There's just certain companies that will go the extra mile, do the extra. It's a discipline in their culture. And I guess, you know, I tell my friend this story where, you know who Tom Murphy was. He ran Cap City's ABC and he was Warren Buffett's favorite manager. And there's a story that Buffett and Charlie used to tell about Tom Murphy where this employee of his goes, we want to buy a Christmas. Can we get a Christmas tree for the office? And he says, go buy it with your own money. And then like when Buffett and Munger heard that they bought more stock. And I'm not saying that these guys are frugal and won't buy a Christmas tree for their employees. I don't think that that's going on at Mellie. But I think that everything in that company, from investor relations to the way they treat their employees, to how much everyone cares, it's elite, it's Apple. Like so a lot of these metrics are a little bit unquantifiable. Like you can't just open an income statement and see something like that. But that's just something that I know and I have observed over, well, almost two decades now. So Melle has these trades that aren't really talked about and it's this elite ism, I guess you can say. They've also, for the first 20 years, the competition that they've went against. And pretty much every single time it was a David versus Goliath story. They were never the one that was, that was big. They were always a small guy and they literally put everyone in the graveyard around circles, around everyone. And the amazing thing is literally pretty much from day one, aside from, I believe the year was maybe 2018ish, where they went from the ebay model to the Amazon model of carrying inventory. Aside from that, you know, that transition, they've been profitable for like I don't know, 23 or 22 out of the 25 years. And like I said, that's, that's incredible, you know, to achieve something like that.

B (24:21)

And when did you first get involved in Mercado Libre and how did you size it?

A (24:27)

Well, I think the first investment I made in MercadoLibre was maybe 20, early 2000s. And I found it more through, by knowing, like I said through Stanford and knowing those guys. And it was really. See Mercado Libre was the ebay of Latin America. And I would read these articles about how it's compared to. And then it finally started trading like on the Nasdaq and I started buying it. And the very first time I bought it, like I don't know, maybe about five or ten thousand dollars worth, not much. But since that day that I've bought it, I've never sold it, not once. And I've bought a lot more. And it's kind of funny because my first purchases, you know, like if you look at your lots, it's like an incredible gain. But my overall purchase is not an incredible, is like not nearly as good because I just kept, you know, like there's a saying that that's very interesting and not a lot of just not talked about enough with investors. One of the most powerful moves in investing is buying a stock on its way up. Like if you think about a company like Mercado Libre or Costco or really Amazon, when in the last 10 years has it really been okay, fine, actually Amazon's a bad example because it went through a bad five year stretch of like no returns. But generally speaking, like a good business like Hermes or Costco or whatever it is, when was it really A mistake buying in the last 10 years, you know, like it just keeps producing. So yeah, so I just, I just kept buying Mercado Libre and, and what it is today is just, it still has that elitism for sure, but it's transforming into something that's really, I, I can't, I can't even really put it into words because it started as an ebay like marketplace and they literally like people didn't, they had no trust because the region never saw online commerce in that fashion. There was no good logistics on how to get you products. So in the beginning they actually like, they would actually the product would be sent to MercadoLibre and Mercado Libre resend the product. That's how they ensure that their first customers got them. There was no payment network so they literally had to build Pago. And it was built out of a necessity to support an ebay like marketplace. But what it just transformed to makes Axon look like a dressers recital. Right. It's, you know, I was just talking to my friend Dimitri and there's, I think he mentioned there's like 4 million small merchants that literally just depend on MercadoLibre for their, you know, for their like for their family to eat.

B (27:10)

Sure. So it sounds like a lot of kind of your thesis on Mercado Libre. You, you say this word elitism. A lot of it's very qualitative. Your trust in the management, the kind of pattern recognition you've seen when people like Warren Buffett have talked about great investments with Tom Murphy, kind of a similar sort of cost discipline and the way that the business is run, it seems like that kind of is where you get a lot of your confidence and in investing. What about, let's say, you know, Sea Limited decides to enter Brazil now all of a sudden they're, you know, by at least order volume now the biggest player there. I don't know if there's an easy sort of metaphor you're relying on or are you just continuing to kind of trust management the way you were before or how does your analysis change in that scenario?

A (27:58)

What I've learned, and I'll give you a more general answer first. Look, there's gonna be all kinds of things that happen. There's gonna be all kinds of competition. And nowadays, yes, he's a very formidable competitor. They're very strong. They have a brilliant manager. By the way, I just, just, just really quickly. Forest Lee, I think the guy's name is. Am I right? Yeah. When they went through their bad stretch and he basically came out and said, I'm not getting paid until whatever. The ship goes back on track. And he did. I thought that was incredible. Who does that? Like the guy from Exxon, Rick Smith, and like Elon, like, maybe one or two other guys that I'm not thinking about right now. But anyway, first of all, they've just been competing with, you know, all kinds of competition for the last 25 years, including Amazon and everyone else under the sun. So that's not anything new. Capitalism is brutal and anything can happen. But just because Sea or anyone else or Amazon is coming into Brazil, it's. It doesn't really mean anything you expect them to. And I just think the positioning of Mercado Libre and what they've built, what they are, is just like Google is like a verb that's stuck in your head and perhaps maybe Uber is too. Well, in Latin America, that's what Mercado Libre is. There's also a lot of much smaller transactions. Like, let's say that the average transaction in Amazon is. I don't know what this is, but I'm sure you've bought plenty of crap on Amazon for $30 like that. That's a pretty good price point where. And Mercado, you know, in these developing markets in Southeast Asia too, you might be buying something that costs like $7 with like average order. So it's really expensive to, you know, to make a profit there. But what Mercado Libre has done so beautifully is they could get you into their store and then they can make money off of Pago, which is they control, because all the. The transactions are happening through Pago. Now, in Pago, they could have offered a loan to the merchant selling you the product and also to you, the buyer. So there's two more areas of credit then the seller could have been advertising. So what I'm getting at is they have this beautiful flywheel, and if they. They have a way of using the flywheel to enhance the overall contribution margin to the product that C or no other competitor really has, because no one has the finance app and the logistics of the marketplace all tied together. See, and I don't want to, you know, like, when you talk about something or talk about something else, like in the way I am, I don't hate. See, I think that, sure, it's incredible. However, just the way that their model is, it's set up and that's just the way life is. They're taking profit from a gaming business and they're, you know, subsidizing a retail Business, which is cool. Like they're using the cash flow from one to subsidize the other. But it doesn't have that flywheel effect that Meli has just naturally through the way its business is built. With Pago envious ads and marketplace.

B (31:00)

Sure. Wouldn't you, though expect that the economics of Brazil have deteriorated since Sea Limited entered that market?

A (31:10)

Well, they definitely have deteriorated, but that's life. And if you really think about it, you can, you can analyze this stuff under a microscope and you wouldn't be wrong. All the points you're making are very smart and very valid and they're factual. However, if you more step back, like, for example, I've held Netflix for, I don't know, a little under 15 years. Right. There were all these kind of like, I'll call them pain points along the way. There was a big pain point when it fell from like maybe 60 billion to like maybe 45. And then it fell from like 95 to 70. If you really think about Mercado Libre and like, what they're doing, like, what can this look like in 10 years? I don't think it's unrealistic in the future. And I'm not saying this is going to happen in year six at, you know, August 22nd, it's 4pm but for them to have like hundreds of billions of dollars like in sales in the future, it's just like, I think there's a very high likelihood of it happening. I think there's a more chance of it happening than it not happening. And when you look at it from like that point of kind of like destination analysis, I guess I would say the fact that like margin deteriorated a little bit in Brazil or the like C came in or Grab came in or Alibaba or whatever it is, it's not really like it's a big deal, but it's not really that big a deal in the grand scheme of things.

B (32:37)

Yeah, yeah. I'm just, I'm also just pushing back to push back.

A (32:42)

Well, you should be.

B (32:43)

Yeah. And, but so I'm going to keep doing it then. If you look at, let's say Amazon in North America, it's really the most profitable E commerce operation of any business. It's something like, I estimate maybe you know, 8% of EBIT to GMV margin. So that's not on revenue, but on GMV. They're making, you know, 8 cents per dollar GMV. And a lot of that is advertising. But a lot of that too is just because of the unique nature of the US Market, very high average incomes. They had a long start. They don't really have a direct competitor the same way. You know, it looks like some of these other markets have. So you have United States on one end where it's very profitable. Then on the other end you have a market like China, which is also a pretty developed E commerce market. And you have players like Alibaba, JD.com, pinduoduo, you have Douyin, Bytedance. So a lot of different players. And the economics of that market is more like 2%, let's say. And so you have a big swing factor between the two. And I think, you know, the question I'm trying to get at is where does South America fall in between, you know, 2% EBITDA's GMV to 8% EBITDA's GMV?

A (33:52)

Well, you're not going to like my answer because I don't know, like I like to say my magic eight ball ran out of batteries this morning. I don't know. Clearly, clearly it would be crazy to assume it would do better than America. Right. China is, you know, like in investing we like to do these cold, like black and white compared, like America. And China is comparing almost like an oil company to a health care company. Like it's just such a totally different thing. Their whole economy is all about small, you know, profit and huge volume. Where our economy is more different, where it's more about small volume and large profit. Right. So, and because of the, the just the way that it is over there, like just the cop. The competition is huge, but the amount of people is huge. So you can't compare like a billion people to 300 million people. It's just with a completely different bracket. But anyway, that doesn't answer your question. I digress too much. I think that first of all, both Amazon and Mercado Libre's the metric you said doesn't really work great because their margins and their earning power is depressed a lot on purpose.

B (35:17)

Like Amazon, but at maturity. But you could, you could. I'm trying to ask like in a steady state, kind of at maturity, I know you're not going to have an exact number, but just kind of, is it closer?

A (35:26)

Well, I think that Amazon could probably be 10. And let's just say Mercado Libre is five. Would that be also bad? No, I think that would be killer. And you know, could I be off by 2% either way? Sure, who knows?

B (35:41)

Yeah, yeah. And it's not like you necessarily need 5% for that to work as an investment. I'M just wondering to what extent when you do have a competitor like Sea that is very price competitive, they are willing to cut on price to offer subsidies and they have gained a massive amount of scale. I mean if you rewind four or five years ago, I was working at Capta Group at the time and I remember everyone having these conversations about how unprofitable Sea Limited's Brazil operation was and this was never going to become a profitable operation and they're just wasting money. Yes, the point you made just all being subsidized and they did it. They did it and they're bigger now by order volume than Mercado Libre. And I certainly don't see that as a good development for Meli. And then it kind of changes the argument to well, you know, can it, can the market support multiple competitors? And at what economics?

A (36:35)

Well, unfortunately I don't have a good answer for that. We're gonna have to wait and see. And I think anyone who tells that's funny, no pun intended.

B (36:45)

I was just about to get you for that. That was awful.

A (36:51)

I don't know, anything can happen like can see come in and you know, listen, you could be this boxer that's 49 and 0 and get knocked out in your 50th fight. You never know. Look what happened to me health wise. My life changed, you know, in less than half a snap of a finger. And you know, I broke my pelvis in six places and now I'm like dealing with it. So you just don't know what's going to happen in life is the point I'm trying to make. And we're going to need to see but based for. I trust the people doing it. I respect them highly. I've been with them for a very long time, you know, for like a third of my life. And the fact that they compete is just the fact that they compete. We're just going to need to live and see what happens. But I think over time, even if there is competition, this business is going to be much, much bigger and much more efficient than it is today.

B (37:46)

I like Mercado Libre too. And I hear you on the flywheel being stronger and all that. I just can't think of many examples where such an underdog really was able to gain so much, you know, market share in a profitable operation so quickly. It was surprising, certainly for me.

A (38:02)

Yeah, it's, it's, it's, it's really quite remarkable. And you know what, like that's what I meant by that in a way. What I mean by that elitism, where even if you did it completely unprofitably and you got here, that would be a miraculous accomplishment of like herculean effort. But they always did it with such a discipline where they've always had, like, smart capital allocation. Like, can you imagine coming to your investor base and saying, like, in 2018, I believe the year was saying, okay, look, I'm ebay, okay? And like, starting tomorrow, we're just gonna turn our whole business around and become Amazon. Like, we're gonna build these warehouses. The shipping services here suck. So we're just gonna deliver them ourselves. Maybe perhaps like JD in China. Like, if you heard that as an investor, you'd lose it. You know what I mean?

B (38:53)

Well, funny enough, that's exactly what Bom Kim did, who's the founder of Coupang. They were ready to go IPO the business. And right before ipo, he said, this isn't a product that people love, and I only want to build a service that people love. And so he decided to pull the IPO instead. He raised a round from Softbank and they went into building a logistics network in fulfillment instead.

A (39:17)

I didn't know that. I never studied Coupang, but I know what it is. It's the same idea in Korea. Yeah, it's pretty crazy. You know, I was talking to my friend the other day, just one more thing. I also. I don't remember what year this was. I think it was 2016 or ish. There, like the. They were still, you know, not really. Well, they were. I don't remember what they were doing exactly their business model, but doesn't matter. Brazil had a trucker strike. And every single trucker in Brazil just literally like, got out of their truck and they said, we're not driving until, like, our demands are met. And like the stock fell, I think like 20% that day. And I just sat through all that. And my point isn't that I'm, you know, that I deserve some award for sitting through, like, when the market panicked or whatever. My point is, is that when you own a business, especially for a long period of time, you're going to go through all kinds of stuff. Like all kinds of different stuff is going to happen to you. You're not just going to get this, like, smooth path. You're going to get a very rocky road. But if you bet on the right people with the right model, and you're going to do quite well investing in good businesses as a whole. It doesn't mean that your business can get disrupted. I'm just Saying as a whole.

B (40:26)

Right. So when you're talking about kind of as a whole, and, you know, obviously some things go against you. So how many stocks would you want to own or do you own?

A (40:36)

I. I've never really owned more than 10 stocks. One of my problems is, is like, for example, I have a 4,401K that I just put money into, and I wish I could have just put it all into Mercado Libre at a hundred dollars or something and never looked back. But, you know, as money comes in. Recently I've been buying, like, a few stocks for my mom. I bought her some MasterCard and, you know, it's declining quite a bit and some Visa. So I own those stocks. Yes, but I don't really own them in my main positions. I don't know, five or six, like, big positions I own. I also really like this company called delocal that maybe we could talk about if you'd be interested.

B (41:14)

Yeah, I would. So just real quick, though. So you own about six stocks right now. Is MercadoLibre the biggest of that? Yeah, my biggest holding is Mercado Libre with 25%, 30%.

A (41:26)

Yeah, something like that.

B (41:27)

Okay, and then your second biggest.

A (41:31)

Well, I don't want to get into all that.

B (41:33)

Okay.

A (41:34)

But, you know, it's no secret that, you know, I. Yeah, I mean, I just posted about stocks I've owned. I mean, Netflix, I own a pretty big position. Netflix, I own a big position in zlocal, and I own a couple big positions that you don't know about because I never told anyone.

B (41:47)

Okay.

A (41:49)

And then, you know, I own a couple of smaller things that are, like, less exciting. Like, I got a bonus for transferring brokerages. They offered me, like, a couple hundred thousand dollars to transfer, and what do I care if I press the button in Robinhood or Webull? So we will gave me a couple hundred grand, so. So I use them now, but they gave me a bonus and I bought some Celsius stock. And it's not really something that I usually buy, but it was kind of attractive because it was trading at, like, 20 bucks a share at the time of when I got my bonus. And it's funny because you probably know that, like, Monster is one of the most successful stocks of all time. Chris Mayer wrote about it in his book 100 Baggers. If your audience hasn't read that book, they should.

B (42:35)

Oh, he was on the podcast.

A (42:37)

Oh, yeah, yeah.

B (42:38)

A couple weeks ago.

A (42:38)

Yeah, yeah, he was. He's an interesting guy. But in his book, he talks about Monster and He talks about these hundred baggers and Monster was one of the best hundred baggers ever. I might, I might get this wrong, but I believe it became 100 bagger in like 14 years. And that's like insane. It's basically. I don't, I might be wrong in my mouth, but it's probably like 30% compounding for 14 years, which is just like crazy. So the Celsius kind of, you know, you know, put two and two together here of where I'm going. But I've been watching a company and it's kind of interesting because it's actually controlled by this like billionaire Asian woman and she hired this guy to be her CEO, but she kind of, she's like the ventriloquist that like controls them, pushes all the buttons or whatever. But it's interesting what they're doing. They're buying up these brands and Celsius is not really a drinks company. It's, it's even though they just bought their first facility where they're going to be making drinks. So they're actually, this is like their first step into being a drinks company. They're actually just a marketing company. All they want to do is put on like, like Red Bull. If you like a Red Bull. Like, we just, we just had them coming to San Francisco and they had these race cars everywhere. You probably saw it like on Instagram, it was going crazy. But Red Bull doesn't touch. And Celsius and Monster, they don't touch. The, the beveraging, that's all outsourced to co packers and, and shipped. So their whole thing is just marketing. But we'll see what happens with that. It's just kind of an interesting little thing. But it went up a lot. It like doubled. Now it's. I haven't checked in a while, but now it might be up, I don't know, 15 or 20%.

B (44:17)

I, I think that's called house money bias where you make different decisions with money you get for free than you would your own money.

A (44:24)

Yeah, I should probably stop screwing around and just buy more mercadolibre and stop being stupid.

B (44:30)

Well, I mean, I don't know that I've heard too often of a couple hundred thousand dollars brokerage bonus, so pretty good bonus there. You did want to talk a little bit about D Local though.

A (44:41)

Yeah, it's just, you know, I rarely like, look at a company that just kind of checks all the boxes for me. And I'm also like a big person on trust and a lot of. And what I mean by trust is I don't mean that I'm going to get screwed over, even though that's possible. Just a lot of managers are like, if you really take a 10 year period and you say everything they said at every con, like everything they promised and which boxes actually get checked off, you might be quite surprised by just if you took a sample of 20 companies out of the S&P 500, you might be quite surprised by like what you hear. There's just not a lot of people that do, like, what they're gonna say they're gonna do. And the guy that's running it, and the way I found out about it was the CFO at Meli for 12 years, who I invested alongside with, who I've met before and so on. His name is Pedro Arndt and he became the CEO of delocal. And that's how I even, you know, got there. So it already started off with not some CEO that, that I have to go learn about. You know, just if you tell me who the CEO of like Rubrik is, I mean, I know his name is like Vipul something, but I don't know a thing about him. Right. This is a guy that I've been with for 12 years, who I trust and who was bred and also in that culture of elitism at Meli. And he basically built Mercado Pago. That was his kind of thing that he ran. So where I'm going at is it has a manager I really like. And the second thing that I really like about this company is just the economic model. Meaning that every dollar that flows through the, through the economic model just makes it like, like Visa has an incredible economic model because every dollar that, you know that they do in payment volume, they make crazy margin on. Right. They just reported Visa and MasterCard. They're both doing the same thing. It's just, it's insane. Just what they take from every. It's just like unfair. And this, this company has that. Although it has this nuance that like, it's kind of like the elephant in the room. The more volume they get, the better rate they give. So that makes their margins look bad.

B (46:55)

Yep.

A (46:56)

But what they're gonna. It's very much like Axon and CrowdStrike where they're gonna get a big merchant on their platform and they have so many ways to, to expand that merchant. I'm assuming that your audio that. I mean, you know what D Local

B (47:11)

does and you might want to explain it for the audience.

A (47:14)

Okay, yeah. Because I feel like maybe that's so what Delocal does is it takes the world's largest global merchants and then allows them to conduct commerce in, in what's called the Global South. And if you kind of take the world map and cut it in half horizontally, you know what's left at the bottom there? Latin America, Southeast Asia, Africa. So they have, I believe, 44 markets now with one API. So if you're a Netflix and you want to collect payments in Egypt, Nigeria, Malaysia and, you know, Brazil, this company would be perfect for you in the sense that you would just plug it into your system once and then you can go into 44 markets and you can conduct all kinds of unique transactions from accepting payments. And most of these payments are not done through credit cards. They're done through APMs, which are alternative payment methods. And there's all kinds of other complexity because if you're Netflix and you've collected a payment in India, and in India the most popular way to pay is something called upi. That's like their wallet, I guess you would call it. So if you collected the rupee, well, Netflix is in Milpitas and who knows where they want that money. They might want that money in their London office because they're creating a cinema there or whatever it is. So what I'm saying is delocal not only lets you capture the transaction from the UPI end user, it also helps the company facilitate that money with foreign exchange and everything, regardless of where you want it to go in the world.

B (48:55)

I feel like I've heard Stripe explained similarly in the past. So what is it they're doing differently?

A (49:01)

So Stripe and Adyen are, the way that they're able to offer such a good and low cost service is pretty much by vertical integration. They're doing the acquiring and the issuing together. Okay. And that works very well in Western markets, meaning the Global north, the opposite of the Global south. Because the vast majority of stripes transactions are done through credit cards. And sure there's credit card fraud, but right now, like if you pulled out your credit card to buy some 30 item online like on a Shopify store, she's going to go through like. And the worst that'll happen is you'll get texted a code and then it'll go through the second time you try and it'll say, we're very sorry, Mr. Cohen, for, you know, protecting you. But that's not the way it works in the Global South. It's completely fragmented. The payments are completely different. Regulations are completely different. Most people don't have credit. So credit cards are a tiny portion of the, of the payment mix. And it's just very, very difficult for, for a company like Meta, for example, that's a customer of Delocal to go to Argentina, to India, to Egypt. The regulations are constantly changing, the taxes are constantly changing. Some of these countries have taxes by neighborhoods, by jurisdictions. They're constantly changing. So I'm not saying it's Brazil. I don't have all this, you know, memorized off the top of my head. But if you're like, for example, I'm just going to translate it into the state. Well the state's saying like, like if you buy in California you have to pay a 13% state tax. Right. But if for example, like in Nevada there is no tax and like in another state it might be 5%. So you know, to have just obviously that's a very kind of like dummy example, but that's just one of the plethora of million things that it would just be really hard for a global merchant to deal with that globally, where you could plug into D Local and just have 44 markets, you know, just with one API. And what delocal is going to do and what they already started doing is. Well, first of all, when Pedro got there it was amazing because it was also a company like Mercado Libre that's always been profitable. They've never not made money because their economic model is so good. And they were only like a 7 year old company and went public and it was just like insane growth. And it was kind of ran by this guy who was good but he was only like maybe 25 or something. His name was Sebastian Cavan. K something. Anyway, and they got Pedro and he got there like two years ago and he's like holy moly, like you guys are doing some of this stuff on like Google sheets, you know. And it was just crazy when he got there. So he really had to invest in the company, hire enough people and kind of set up that foundation for growth. So they have like a two year capex cycle where he's. And that capex cycle now is really exciting. It's coming to an end. So now all the metrics like the, the revenue, the profit and the gross profit should all be growing faster than capex, than expenses. So it's going to be a really crazy dynamic because obviously it's going to just bleed cash flow.

B (52:16)

Yeah, it all makes sense. It's just a little surprising to me that like Stripe doesn't do this or someone else doesn't do this.

A (52:23)

It's very Hard for them to do this because their, their business is not set up to do this. Even though it's like easy to argue that, you know, like, yeah, they can just come in and do it because their whole business is, is formulated in a way where you do the acquiring and the issuing in a credit card market. The complexity and the fragmentation of these markets makes it very difficult. And I think that unless it would probably be easier for Stripe to buy Delocal than to go to each one of those markets and do it yourself. It's not like going into Canada and doing it like Canada is very developed in, very easy. Like you, you're just gonna, like, you're just gonna get payments accepted and it's gonna be like you're 99 of your payments are just gonna get like accepted. Okay, 98. But that's not the way it works in Peru and it's completely different in Nigeria. In fact, like, I just saw this great interview. I forget the guy's name. I wish I could shout him out, but I'm sorry for forgetting your name, but you did a great interview. He interviewed the CEO and one of the things that I wish he had asked, they're in the middle of this acquisition buying a company called Aza Finance. And are you aware of this or.

B (53:34)

I'm not.

A (53:35)

Okay, cool. Well, Aza Finance is basically, it was started by this woman and this is just totally my guess. It hasn't been disclosed, but I think they probably paid like 150 million for it. But we don't know. They're like in the asylum period and they're like in 14 African countries. And I don't think that they have much sales. Like, I mean, they have like good sales for her, which is maybe, I don't know, 20 million or something like that. But I think that what he's gonna do is he's just gonna, like, he bought these rails and he's gonna bring them to the biggest merchants in the world. The, the, the Netflixes, the Spotify's, the, you know, the bookings, the Googles. And I just think that they can, you know, where they can go in and licenses and get licenses, business on their own. Like, I think Africa's tough. It's a really tough. I mean, I'm not an expert in African fintech, don't get me wrong. But I don't think it's so easy to just go to like Mombasa and like, like just figure out all that infrastructure. So I think that he bought Africa and I think he's going to explode when, when he just gives those rails to, when he puts the largest merchants in the world on those rails. That's just my opinion.

B (54:44)

Yeah. Yeah. And so it sounds like a lot of times when you're looking for investment, it's starting first with the manager because in the case of Mer Mercado Libre, you know, you saw the management team at Stanford, then you saw Pedro aren't, you know, ended up at D Local. That's how you were attracted to that opportunity. Is that right?

A (55:01)

Well, of course. Because I think that's a no brainer. Because if, when we started this whole convo today, you asked me like, what is my philosophy? And I told you, you're basically marrying a company, right. If you're going to own it for 20 years, is that not really like marriage? Like, like it is, that's actually longer than like probably the majority of marriages. So it's hugely important who you're going to, who you're going to marry. You can't just marry, you know, like the, the, the. Remember that guy who had the company, I think it was called Nikola, like the hydrogen car, whatever it was. You can't just go marry a guy like that. Like it's not going to end well. So. Yeah. And you know, to, to make that one great. Yes. You got to go through a lot of discipline, no's, and you got to say no to a lot of people to find that one, you know, kind of spouse that's, that's, you know, that's going to work. That's worth it.

B (55:56)

And so is one of those potential spouses, Bill McDermott of ServiceNow, because I saw you tweeting a little bit about them.

A (56:04)

Yeah. So I bought some ServiceNow. It's a company I've always admired. I just, I think it's, they just, you know, it's really important to look at the business model of a business and I don't think a lot of of that is done. What's the way like it's like looked at. It's like, okay, revenue growth is 30, like the EBITDA margin is X and like the free cash flow is this and the enterprise value is that and it trades at 30 times earnings and earnings are going to grow at 18. Like that's just like, like the basic breakdown. But if you look at like the basic business model and I'm gonna really dumb it down to like, you know, kind of like a stupid answer. But if you're a big enterprise, like okay, Home Depot, for example, or you know, something like that, you Know how many employees they have, like, what happens when their phone breaks? The Home Depot phone. Like, that's a huge problem in a company like Home Depot because not one phone breaks today. Or not one guy forgets his email password or gets hacked or they have a country of employees, literally. And where I'm going with this is all of that stuff runs on ServiceNow. And it's not so easy for a company like Home Depot to just rip out all of these systems because, like, anthropic or there might be, like, a good AI or some alternative. Their whole country, like, staff runs on this stuff already. And you could say the same thing about Salesforce, but this is even more deep, deeply embedded. You know what I mean? It's like the operating system of a large enterprise. And once that's put in and your massive enterprise literally, like, runs on it. This is the same way Mercado Libre, those merchants that are selling papayas that are the 4 million that we talked about earlier. Or it's the same thing. You just can't rip that out. Everyone knew that. Like, look at their retention. It's almost. It's like 98% forever. No one leaves. Like, you can't. And it's obvious why you can't. And the problem was it never really traded at a reasonable price. Like, it was always like Costco. Like, the Costco just trades because everyone knows it's great. However, there are, like, some cracks starting to show and, you know, maybe the market overreacted a little. And I just feel like it's one of those businesses where I. I didn't put a huge amount of money into it because I just don't have enough cash to be huge in comparison to, like, a stock I've owned for 15 years or something like that. It's grow a lot. Like, I don't just have, like, millions of dollars sitting around. I wish I did. That's where you need to marry a richer spouse.

B (58:41)

We'll put that in.

A (58:42)

Yeah. But I just felt like it's a reasonable price to own something for like, the next 10 years that I think can. Can have a reasonable return, perhaps even better than reasonable. And we'll just kind of have to see what happens. I've always admired it. I've always wanted to own it. Obviously, the guy, he's kind of a nut. You know, he goes there with his sunglasses and he kind of looks like this, like, I don't know, Botox model or something. But, you know, the proof is in the pudding, lady. Just look at what he's done. The only knock I'll say is the stock based compensation. But in that regard, like, listen, it's a Silicon Valley company that's operated at an elite level. And if you're not going to give like the stock based compensation hall pass to him, who the hell are you going to give it to?

B (59:31)

How do you think about valuation?

A (59:35)

Well, valuation and all of it. Not just valuation, but just the whole appraisal of the business. Because a lot of stuff can go into like for example, Mercado Libre's elitism. Should that be considered? Like if you say it's trading at 10 times earnings, does that include that elitism or not? How do you put that into the valuation? So what I'm trying to say is it's part art and part science. And if you're going to buy something to own for like 10 years, the valuation is important. But it's less important, you know, than it is if you're going to buy something for like a year or maybe two years or something like that. Obviously you want to pay less and the better your return will be. But the way I think about it is I just say, look, let's just go with Mercado libre. Like it's $90 billion, like approximately, right? Or am I totally off?

B (60:25)

Yeah, that's right. I think 95 right now.

A (60:27)

Okay, 100 billion. Okay, let's just make it simple. I also don't like in investing. Like I see these people, they're like, no, it's 3.89687. Like I don't count like that, you know, 95 billion and 100. I'm paying $100 billion. They're under monetized. They're growing really fast. What is their growth? Probably like 40%.

B (60:47)

I want to say 33.

A (60:49)

30 to 40%. It was.

B (60:52)

No, you're right, it was 40%.

A (60:58)

Okay, I'm just messing with you. Yeah. So they're growing like 40 now. How long can they grow 40 for? Like, probably not that long. And like you could give yourself like a margin of safety or aggressive or whatever it is that you want it to be. But I just feel like this company is gonna, is probably gonna make like, can. Yeah, its margins are down now because investing. But for them to say that that dynamic didn't exist, they could probably make $2 billion. Just. I don't, I'm not looking at their financials, but like ish, you know, so you're getting asked to pay like 50 times earnings, essentially, right? 2 times 50. You get 100 billion for a company that's growing like 30 to 40% that just, it has this elitism that, you know, and everything that I already described to you, I don't want to repeat it, but it has, you know, all that in it for me. So that alone is worth like a very big impact on the valuation in a positive way that's unaccounted for. So I think that paying $100 billion for Mercado Libre is very reasonable. And also when I look at it, less from the valuation question that you asked me, but more of like, okay, like in five to 10 years, what can this thing look like? Listen, they have like half a billion people in that region. All of them pretty much have cell phones. All of them are going to have kids in the next, you know, 20, 25 years. There's going to be a lot more kids with cell phones that are all coming online. Less and less of those kids are going to go to the bodega or to target or the target of where it is. They're all going to be on their phone, they're all going to press a button and some robot in some fashion is going to bring it to you and whoever has that positioning of the mind. But in this case, you also need the infrastructure, because if you have the positioning but you don't have the infrastructure, it doesn't really work. You know what I mean? And I just think that having all that 100 billion is like really cheap.

B (62:53)

Have you done that math of what you think it could look like in 5 years, 10 years, or however you want to look at it?

A (62:59)

I don't even really think about it. Like, it would just be funny. I would probably be totally off, first of all, because it's just hard to predict. It's also like, you know, I really like stoicism and that's. Do you know anything about stoicism? There's a great book I recommend for you and everyone else, one of the best books I ever read. It's called the Guide to the Good Life. And it, it basically just talks about this guy named Epictetus who was like a key stoic. And he didn't focus on stuff that he didn't he couldn't control. And it led him to live a much happier life. And like, yeah, like you could, you could model out Mercado Libre and like, let's say it goes 3 to 6x like over that time. Like I think both of those can be like realistic. Obviously 6X. It would have to be like a 600 billion dollar company and like it's very aggressive, you know, or let's say two and a half to like five, like something like that. Now it can also fail, don't get me wrong, that, or, or it could go nowhere. Like, and you know what? Like, lots of stocks stay range bound. Like Amazon and Tesla stayed rangebound for like five years. And they're, Amazon and Tesla, they're like amazing in quotes, right? But when you consider just what they're doing, what they're building, the efficiency of, of what's going to come out of it as it scales. Right. Because that network, the more that goes through it, the, you know, the more margin they're pulling out of every order through, you know, through efficiency of scale plus you get the payments equal. See, like the actual retail. Now MercadoLibre has always thought about it as a retail business, but retail is really kind of secondary. It's all about Pago. Because when a person is shopping outside of the Mercado Libre ecosystem, when they're paying the electricity bill, they're doing it with Pago. It's kind of like WeChat. In China, everything is done through WeChat. So this financial super app of two, half a billion, you know, a billion people, you can alone argue that that's worth more than $100 billion. Just like over the long run, as long as it just kind of keeps scaling.

B (65:09)

So if, if you were going to say, you know, right now it's a 90 billion, $95 billion, we're rounding to 100. So let's say, you know, for you to get to 300 billion in enterprise value, conservatively, I don't know how conservative is, but we'll just say a 30 times multiple in the future.

A (65:26)

Literally. Read my mind. I said, I said it should probably trade at 30. Sure.

B (65:30)

And so we need to get though about $10 billion in earnings. So that is, you know, doable from, from where they are for sure. Especially if you consider how they're over investing right now, or investing, I should say right now. And that's weighing on the margin, but that's still, you know, a significant amount of growth. But that, that's kind of the math that I would want to do and have confidence in. And I know you're talking about Epictetus, you know, control what you can control, nothing else matters. And all of that. Or maybe that's a Marcus Aurelius quote, but I do think that you can still throw some numbers out there and decide what you're confident.

A (66:02)

Well, for sure, you should always look at the numbers. First you can't just say, you know, Epictetus or Marcus Aurelius or the Easter Bunny. Like that's crazy. I just again, these businesses, including Amazon, Amazon is still way under monetized. Like hugely Amazon could show much bigger profits and probably okay, like you can't just do it like FICO did and go crazy where like their management just decided to, you know what I mean, like go like just raise prices in honestly just a stupid way. But anyway, different story. But I think that Amazon could not even affect its growth and monetize stronger and just show better profits because as soon as they monetize it's all falls to the bottom line, right? Same thing with Mercado Libre. And I understand that they have to battle it out with see and they're still growing and that's not what they're going to do. So when you say 10 billion you have to in that equation somewhere down the line. And that's kind of more difficult but perhaps more difficult question, but maybe it's even easier to answer. When will their margins change? Right. If they're under monetized like in 5 years their margins could change. And if today they're making say 2 billion and you need them to get to 10 billion in five years, yeah, it is a 5X. But since you started from an under monetized base, it's not really a 5x because when that monetization engine turns on it might be a 3 or 4X.

B (67:33)

Right? Because right now I think they said it was five to six points of margin was depressed because of expenses. And they're, you know, I'm talking about

A (67:42)

even if you don't take those five to, to six points, presume that got taken out, I still think it's under monetized. Like they could charge more for so many things. They could charge higher take rate, they could charge more for and they will. Plus AI is gonna, is entering all these things in these kinds of enterprises and they're just going to make it more efficient. So they're, that's also going to affect their margin. So my point isn't that this is all going to happen tomorrow in one year. These are like huge long term things. But when you're talking about the scale that they're talking about, every fraction of a percent is like a huge deal. It could translate into like hundreds of millions if not billions of dollars.

B (68:20)

Yep, no, understood.

A (68:22)

All I'm trying to say is that like if they raise, if they raise all prices across the board, meaning their take rate by half a percent. Like everyone's going to stuck and they're going to cry and complain, but they're going to pay half a percent more. But like what it actually does to the economics of the the business is like pretty crazy because that half of a percent pretty much just falls straight to the bottom line.

B (68:41)

There is that. And I think they could get away with that. I think they have less room to push on that given that C is in that market with them. I mean they're in Argentina and Mexico as well, but that doesn't. It's a different scenario than where Amazon can, you know, take that, take rate up and say who else are you going to go to?

A (68:59)

Well, sure. And I'm not just talking about doing it today and I'm not talking about doing it overnight. I don't think even if you're a goal was to raise prices, I'm saying take rates across the board by half a percent. I think to just do it tomorrow is ludicrous. You could just do it in whatever 5% increments. All I'm trying to say is, is that even if C was there or wasn't there, these models of like sharing their economies of scale, particularly the stage where Mellie is now, it's still very under monetized and eventually with the competition of Seer or anyone else, they can both grow. These markets are huge. And both of their revenues, like yeah, there's a lot of narrative that like C is doing more and like Meli has what. What are the revenues right now? I just don't remember off top of my head. But they're small is what my point is. Like they're not even 50 billion. Right. And neither is C. And these markets are going to be enormous. Like in the future. Whoever is the C and Melly kind of the. The equal ecosystems of commerce and payments and this stuff, whoever's going to control those, those are going to be hundreds of billions of dollars. Like what do you think? Do you agree? Do you think that the like the dominant E commerce company in Brazil will do 100 billion in revenue in the future?

B (70:23)

Well, I guess it depends when the future is, but that definitely sounds directionally correct to me. As you continue to get more Internet penetration, more commerce would go online and all that. I do maybe I wonder a little bit more than you about the economics of that gmv, but I know what this valuation, you could probably just assume a lower EBIT as a percent of GMV and just see how that math works and assume it is just a permanently more competitive market. Which is what I would want to do. The real concern I actually have with Mercado Libre, which we haven't talked about, it's really just right now the lending spreads are very high and you know, you're talking about 20% plus net interest margin after losses. That figure they give. I don't understand how you can have that sort of sustainable lending spread as the markets continue to mature. I think eventually you go through a credit event, people figure out it's either bad, it's not as bad as they want, and more lenders enter that market because that's just a lot of profits to be, to be making for competition to not bring that down.

A (71:27)

Yeah, it's really funny you say that. And that's why like lending is lending and it's lending and honestly I kind of hate it. But I've. I've been asked for years, like even before I joined X, like, what do I think of Mercado Pago getting into this? It's called Mercado Credito. That's actually what it's called. And that's kind of like that double edged sword that's the opportunity is crazy because. Well, first of all, why here in the west, in the global north, everyone has credit. Like I'm sure you have two or three credit cards and I have like more and I have like hundreds of thousand dollars in credit right now that I can just go have a party with if I wanted to. People there don't have credit and this is like a new product that's like for the first time in their life they're getting it. That's. That's just quite. It's like not having ever having a credit card. And there's this new product called a credit card. You're like, holy, I have a credit card. You know what I mean? So that's a really big dynamic and you're absolutely right. But where Melli has an incredible advantage is their marketplace seduced all these people to download Pago and now they're disabled. Like if you're a new competitor, how do you get that person into your app? You have to go advertise to them. They have to download it. Then you to have to, you know, make them an offer and so on. Where with Mellie is just a part of the overall ecosystem is just.

B (72:55)

I think, I think if you're competing on interest rates though, and you're getting a personal loan and one is 10 points lower than the other, then that, that'll incentivize you.

A (73:03)

Well, of course, but these are loans and they compete on price. So you know, I don't think that one is going to be like that much lower. I think they're all roughly going to be about the same, especially as, you know, the market gets more mature and bigger. But, and yeah, like listen, if, if MERCADO Libre is 4% and you're 3%, they're going to borrow from you. Like it doesn't take a genius to figure that out. But also how do you give much lower rates than Mercado Libre? It's hard. But Mercado Libre has a third advantage. That's like my friend says that I'm a genius for always saying this, even though I don't think it's a genius. I just think it's kind of like basic common knowledge. They're not do. Mercado Libre has like 20 years, let's call it, of insane data on you. Just like Amazon and that is so underappreciated. Like what Amazon knows about you is crazy. And Google too and like Facebook and just what these companies know about you. Drew Cohen. So Meli isn't just lending money to you because like you have a cool podcast, like they know so much about you and what they know is gold. They see how you shop, where you ship, all that stuff.

B (74:11)

No, I understand all that. My contention I guess is that for, you know, historical reasons, whatever it is, a lot of traditional banks never lent to a lot of Latin Americans. So it's very underbanked and maybe this is a 10, 20 year arc on this, but eventually they're going to get banked and eventually they're going to be over banked. And in that scenario I don't think you can assume, you know, a 20% interest margin spread.

A (74:39)

And it's hard, it's going to be way before then that you can't assume that. But you know, like John Maynard Keynes says, in the long run we're all dead. You know what I'm saying? Who knows? Like listen, right now, yeah, like sometime in the future there will be over banked and there will be probably no longer a developing economy. You know, they're probably going to develop, develop a lot and be like a modern day economy. And, and in some ways they have an advantage because they're so disadvantaged that they don't have to go through some of the periods that like say America went through. They could just leapfrog it. But when you really like step back and look at it kind of for what it is, there's just such a green field of opportunity for These guys, there's so many more people to bring on to there onto the marketplace. I'm talking about, talking about. And the marketplace is just once you buy something and you get some trust, they pull you into the ecosystem and no one else there has the advantages of the ecosystem. Like, I don't see how you live in Latin America without Pago. Like, it's kind of like living here without your credit card. You just do everything through Pago. When you go to the movies, that's how you pay. You know what I'm saying? And no one has. People can compete with them, C can compete with them. They're a very tough competitor. There's going to be banks that come in and offer all kinds of products and, you know, some will steal them away. But at the end of the day, they have the best and widest ecosystem, just like Amazon has here. They have the marketplace and the delivery and the trust from so many people that I just don't see how you go backwards on it. I see it just growing so much. And then they have again, you know, it's probably the third time saying it, but they have that elitism of their business. They have a management team that's superb.

B (76:33)

Yep. Yeah, no, I hear all that. And I've made the mistake in the past of seeing a risk, even though it could be very far out, because I don't know when that economy will develop. But I do think eventually you're going to see a lot of competition on the lending spreads and it'll be the same thing too. By the way, for Sea Limited, they also are getting pretty good spreads on that. And it just seems like that we're in a period where a lot of these companies are over earning and maybe that happens for a decade. But, you know, eventually there's going to be enough credit profiles, you know, built out on enough users that you're getting more competitive lending rates for sure.

A (77:10)

But is the mother in Peru going to stop buying diapers on Mercado Libre?

B (77:16)

No, no, it's not, you know, it doesn't kill, you know.

A (77:19)

No, but that's kind of what I'm saying. It's all a big flywheel. And you're absolutely right. I mean, how much credit can you have? Like, you don't need 20 credit cards. Yeah, so you're absolutely right. And also, again, I don't have all the answers. We're just going to need to wait and see. But overall, if you just asked me, like, listen, what do you think of Mercado Libre? I think they have A very, very bright future over the next five to 10 years. And we're just going to need to sit here and watch and observe how they execute and kind of what happens. Who knows, maybe you'll see will, you know, kick their head into the ground.

B (77:50)

Are, Are there any others? So we talked about Mercado Libre D local service. Now, are there any other stocks? Top of mind that. Actually, why don't we talk about a stock that you dislike, that you think more people should dislike because they're missing something about it.

A (78:05)

I'll tell you really quickly about a stock I like. And I don't think that you need to look too much into. I think the Constellation software is attractive.

B (78:12)

I think I've heard of that one.

A (78:15)

I just think it's attractive here. But we don't have to go into stock.

B (78:18)

Well, I've talked a lot about Constellation Software.

A (78:21)

Oh, you have?

B (78:21)

Oh, yeah, yeah, yeah.

A (78:23)

Oh, I didn't know that. Well, you have good taste in businesses. What can I. Yeah, I guess you have good taste in businesses and good taste in guests. And guests invited me on here.

B (78:32)

I guess so.

A (78:33)

I'm joking. Stocks that I don't like. You know, how could someone have liked Carvana when it was like, at whatever, like under a dollar or something like that? It's just a total piece of garbage, right? And then, you know, you open your big fat mouth, but you don't like it, and then it goes to whatever, $300 or something like that. So sometimes the stocks that are the most ugliest ones can pull the biggest kind of rabbit out of the hat. But, you know, there's no need to like or dislike a stock. I, I more just dislike certain things. And there are certain things like why do you need to. Why do you want to own this business? And why do you want to travel that path? Like, if you're just going to get into like what you said, like credit, banking, lending, all that stuff, that's all a difficult business inherently. It doesn't mean that you can't make a lot of money or that you're going to lose money or any of that. You might make of money a lot. Lot. But my point is, is that you're automatically going into a business that takes a lot of assumptions and predictions because if I give you money, even though you're wonderful and you have a great podcast, I am not 100% sure there's a less than a 100% chance that you're going to pay me back for sure. Just off the bat. Who knows what's going to happen to you, you might run away. Like, I don't know. That's an automatically much more difficult in business than just black and white example. Costco, like they just have a better model. So there's just certain models that I don't like that I stay away from even if there's good opportunity there. For example, like I said, financing in the sense of banking. I don't like insurance. Why is insurance difficult? Because you're charging for something today and I get that you get to keep the float and that's nice. But you're not Warren Buffett and you're not going to be investing in a company that has a Warren Buffett. So he's not going to be able to invest that float. You know, like it's not going to be near. So. So comparing Buffett to whatever your insurance is silly. Like it's just a dumb comparison. But you're pricing for a risk today. Like for example, my, my surgery that I just went through, I was just thinking it probably costs like 800,000 to $1 million. And my health insurance was like two and a half thousand a month and I paid that for. So maybe I paid a couple hundred thousand into it and now they're losing a couple hundred thousand on me as my point. But how are they going to measure all that? I got into like a freak scooter accident. So inherently that's a much difficult, much more difficult business model than Costco. Same thing with like the oil and gas business. It's just, it has difficult dynamics. So there aren't like stocks that I hate because you could have a stupid stock that's priced at a dollar and it could go to like 30 for no reason. In fact, someone on X showed me this company Build a Bear, which is like dumbest idea ever. Like you get some bear and I don't know, like you get some emotional attachment or something crazy like that. But the stock went from like not whatever 20x and like I don't like some short period of time, like a year or two, which is like insane. So I don't really like or dislike stocks. I also just, I also think there's a lot of good businesses, but there's not that many elite ones. And the elite ones usually don't sell for a good price. Cause everyone knows they're elite. So yeah, it just kind of goes back to that Warren Buffett thing of really great, great ideas at a good price are rare. And according to him, it's like once every five years. I'd like to be a little more optimistic and hopefully find one or two or three every year. Like, I think if you could find three superb ideas, like, I hear this all the time. Oh, my God, I invested in whatever. And I said, okay, well, how much did you buy? And he said, it's a 1% position. Like, that's not really like. Like, if you got Apple, if you got offered Apple tomorrow at a trillion dollar valuation, what percentage of your net with you, of your net worth would you invest in it?

B (82:20)

Pretty high amount.

A (82:21)

Well, a pretty high amount would be a goddamn right answer. Right. It would be crazy not to. But that would be like, what's my favorite word? A generational idea. Like getting some stock for 85 that's worth 90 is not like a generational idea.

B (82:38)

Yeah. And it's interesting because I think it's something that's more common with newer investors. Because I did the same thing when I only looked at, if you rewind, like eight years ago, a couple stocks, then whatever I looked at when it seemed a little attractive, I had no bearing to know how attractive it truly was. But then you turn through several hundred more stocks, and then you start to get a sense of when something actually is attractive or not. I think it's just very hard when. Because I was just talking to Columbia Business School before this, and they were doing these pitches on Adobe, and, you know, all of them were trying to judge, just looking off of Adobe, you know, is it a buy? Is it not a buy? And all that. And, you know, I looked at Adobe stock, too, and I think what helped me understand what I thought about Adobe stock the most kind of ironically, was just looking at more other stocks and realizing, you know, what seemed like a more attractive opportunity, what was easier for me to understand when does it just get, you know, too hard pile. And I think there's something to the fact that the more kind of stocks you look at, the easier it becomes for you to kind of gauge what is a really good opportunity or not.

A (83:44)

And the other thing I'll add, you're absolutely right, Drew. And the other thing that I will add to this is not like, way not by, like, miles. Not enough people put things into the two hard pile because they're an expert in canned soup and aerospace and bubble gum and bubble burgers and health care and oil. And, like, you just can't do that. And you just also have to look at the fact, again, there's so many ways to skin a cat and so many ways to invest. But if your goal is to really make a Tremendous purchase. That, that's serious that you're going to invest that. Okay, let's say on a conservative side, 10% and maybe on a aggressive side, 20 to 30% of like your money into it. I'm not telling you to do that. Like you need to know what doing you're, what you're doing. I'm definitely not giving anyone that advice. But if you know what you're doing, that's kind of what you should be doing. Because when a great opportunity comes up like getting Apple at a trillion, you better bring your, you know, shovel and leave your teaspoon at home.

B (84:41)

Yep.

A (84:42)

But again, you're playing in a public market. It's like a public park or a public sandbox. And like the people there aren't stupid. Yeah. If you look at any company in the s and P 500 and the elite, look at their like 52 week trading range in my trade between like say 90 and like maybe 140, which is like a crazy range. But you don't just don't get that many tremendous opportunities to buy stocks. And then I'll use this example and yeah, actually like I was totally wrong. I thought that Google was screwed around the time Chad GPT came out, which was recently like it was basically at these lows of maybe like 150 a share or so if I recall correctly. And now like Google has done what it's done and it's tremendous and I was totally wrong and like whatever, the Twitter sphere killed me and et cetera. But if you got to buy Google at whatever it was, 150, so that was maybe say 2 trillion, like ish, you should just pardon my French, sit on your ass and just own it for like indefinitely. Like why would you sell Google at this point? Because, because its earnings got to say like 40 times earning instead of 30 times earnings. Like that would just be a foolish reason to sell it. So if you got a chance to buy something great at like a really smart price and it's a good business like Google, I don't see a reason to sell it like really ever.

B (85:59)

Yeah, that where I'm kind of coming to on that is it's helpful to look at a lot of stocks and businesses to, to force kind of having an opportunity cost in your portfolio. I think that because if you're just looking in isolation, do I own Google or not at this multiple, it becomes a little tricky. Whereas if you have something, you know, maybe it's D local for you or whatever stock it is, where now you're saying Would I rather own this or that? I think it makes that decision a lot cleaner and less theoretical.

A (86:25)

Well, of course. And there's another thing. Like I was actually kind of planning, you know, when we started this, I told you, don't tell me anything in advance. Just shoot off the cuff. And that's what we've done this whole, I guess interview or podcast or whatever. But yeah, you know, there's people. My mother in law is like that, she loves Zillow and like she'll find some property and wherever the hell and she'll open and she's oh my God, look at these three bedrooms in this fireplace. And I like 10Ks. Like if you just give me a business, whatever, Johnson and Johnson. I've. I mean I looked at it, whatever a trillion years ago and you just gave it to me and put it right here in front of me. I'd open a 10k and it would just be interesting. Like I don't want it. Like it's interesting. Like how band aids sell. Like that's cool to me. So when you say you look at a lot of businesses, I just automatically do that. Like I love hearing about some company especially I've never heard before and just reading about it. And because it's a business, it's monopoly to me. You know what I mean? And you could just look at it and you get all these opportunities. You could buy the railroad, you could buy Vermont. But once in a while you get. What's the good one? Broadway, I think it's called. Or Park Place or something like, like the blue ones.

B (87:35)

Oh yeah, I have not played, I think it's called.

A (87:38)

Anyway, look, there's only so much real estate like on fifth Avenue, right in New York. And once in a while you get a fifth Avenue kind of thing and like, like I'll give you a great subs. I'm bedridden for my surgery and whatnot. And I was just looking at. I just watched his documentary on Mar A Lago and Trump wanted to buy Mar A Lago for like 30 million and they wouldn't sell it to him. And he kind of went away and, and there was some kind of crisis and he ended up buying it for 5 million and then he paid like another few more million for all the expensive furniture or whatnot. But that was just a tremendous buy is what I'm trying to say. He bought an elite asset for a great price and then he runs it in cash flows because he turned it into. And I don't care if you like Trump or not. It's just. I'm talking about the asset part of it. Like, the UFC was another one, but very different. Like, is actually right about. In my book. Look, these guys bought the UFC for 2 million and sold it for 4 billion.

B (88:31)

Right.

A (88:31)

You are the Fertitta brothers. I actually know a lot about it, but we're getting like, way off topic. But what I'm saying is in the respect of Google and also to your point. Absolutely. I love looking at all kinds of businesses from consumer staples to, you name it. But ultimately, if you in life get your get a good chance to get your hands on a great asset at a fair price, just do backflips that you got that opportunity and you were smart enough to seize it, and then just sit there and wait. And that's just kind of what I've done in my life with, in terms of investing, and it's worked well for me.

B (89:06)

Yeah. And I think that makes sense. I think the. The one pushback. And maybe this is just something you accept as kind of being a risk of this, which is that, you know, Warren Buffett owned Coke at 70 times earnings, something like that, and he wish he sold that at that point. And, you know, the. The return from that point has not been great. And so, you know, holding a stock at a very high price where it had a bad return for 25 years is, to me, there's still something more you could do in your investment philosophy.

A (89:36)

And I have two examples for you. During COVID when everything went crazy, like, crazy high, I really almost sold all my stocks, like 100 of them. And I didn't, and I regretted it. It took me like, then they fell, like, hugely. My whole portfolio lost maybe like two thirds of its value or so. And it brings me back to that Phil Fisher quote. If. And I'm gonna like, edit his quote in my way. If an asset has been sensibly purchased, the appropriate time to sell it is almost never. And that almost, I think, is that hall pass, I guess. Yeah. Listen, like, sometimes you get a crazy bubble, like, you're too young. But if you were in the Bay Area, just in the stock market, like in 2000, I think one, the year was just when a tech bubble went crazy. It was absolutely insane. Insane. The intel just got there, got back to its high. Like, I don't know, a week ago or something like that. Maybe two weeks, like now is what I'm trying to say. And that took like, what, 25 years. So, yeah, you're absolutely right. Like, if Mercado Libre traded at like, 300 times, I guess. I guess. Look, I'm a Tesla bull, but I guess you could use Tesla as an example and say that it has no business trading at the valuation trading analysis like a 300 times earnings. But if, like every single stock in the market was showing that based on the experience that I have and based on me not acting, I would sell all my stocks, like if I could redo Covid again based on the knowledge and experience I have now. But listen, you're not getting too many Covids in your life and most likely your stock is not going to go from 300, from 30 to 300 times earnings, is going to go from 30 to 44 times earnings. And that's a completely different question. And in that scenario, and I'm about to say this and maybe get killed, but in that scenario, nine out of 10 times, based on my experience, the best thing to do is just to do nothing and write out the volatility and let the intrinsic value of your business compound underneath it. Because if you just understand that the turtle wins this race, you'll probably get a much better result than paying taxes, getting the money, having to find another idea and forcing yourself to make more decisions and giving your chance to screw up.

B (92:04)

Yeah, all that makes sense. Especially, you know, we've been not talking about the tax aspect, but that's a big one. And I think the other kind of way I would frame this is just saying when you get a Godfather offer,

A (92:16)

that's kind of what the Godfather offers.

B (92:18)

That means really, it's an offer you can't refuse. Right. And so it should be something that you don't have to think about though. And I don't, I don't know that I've ever quite gotten that. I thought I had it with Apple a few times and then I trimmed it a little bit and I continue to hold it. But by and large, I think I kind of realized that still wasn't quite there, even though I've trimmed a good amount of my Apple since then. But that's mostly because there's just other stuff I'd rather own, which is why I kind of like this idea of having these other sort of stocks compete for your capital. I think that that helps kind of keep you a little bit more honest, otherwise, you know, in isolation.

A (92:53)

But then you're paying taxes.

B (92:55)

You are. Yeah. And so you have to take that into consideration.

A (93:00)

And listen, you're a smart guy and it's all case by case and there's no right or wrong answer. But basically, my advice Especially to your viewers and really to anyone or listeners. I guess you would say if you get a generational opportunity to own something great, mostly sit on your butt and cheerlead the fact that you own an incredible asset and try to own it forever. That's a much better advice than you seeing another opportunity. Unless you really know what you're doing. And you're really skilled in all this stuff, which, Drew, I'm sure you are, but most people aren't and they're not interested in it. So if you bought something and it's good, you should more, more or less own it. Barring an extreme situation that I just described, at least that's my advice.

B (93:51)

Yeah, yeah. And different investors are going to have different opinions on that. But that is very much kind of a Munger opinion to that where he'd say, yep, I'd still own Costco at 60 times earnings, 70 times, whatever.

A (94:03)

And I would say I'm very influenced by him. I'm a big fan of Munger. I think that he's smart. And I'm a big fan of like Nick Sleep, who's very like Monger esque. I like that whole mentality of, you know, like there's this guy, Jim Simons, I guess he recently passed away and he was a genius math. I. My brain doesn't work like that. I don't know how to count PI and multiply by, you know, Greek numeral fractions. I'm a lot more like kind of monger where you look at the people, you look at the whole opportunity. You get yourself a. You know, there's this good Russian word. It basically means like a vision of what it's going to look like in the future. You know, you kind of think about it like, hey, what can this look like in the future? Like, is this guy honorable? What am I paying versus what am I getting? You know, what price versus value am I getting? And if those kind of numbers all check out, you know, and say, what's the most I paid for it? Like, everything has a price. Even talent here, as great as it is, has a price. It's possible for any company to be overvalued and undervalued. That's just a fact of life. So anyway, very Mungeresque, where you just kind of put all the cards face up on a table, you weigh them out and you either do it or you don't do it.

B (95:17)

Yeah, all right, well, I think that could be a great place to land unless you have any last kind of investing thoughts you want to share.

A (95:26)

No, I don't have any big investing thoughts I want to share. We talked for a long time. I'm actually, I'm getting a little bit tired. I can't sit for so long. But I want to thank you for it was really nice chatting with you and meeting you. And thank you for, you know, inviting me on your podcast. I hope I've, I've lived up to some of your expectations. I don't want to be the worst guest you ever had, but I've never done a podcast, so this is, you know, my first time doing it. And again, thanks a lot. Keep up the good work.

B (95:51)

Well, thank you so much for coming on this podcast. And until next time,