First 12 Hours on a Stock, 13-Fs, NKE/SBUX/ULTA, and Questions from X

Summary

Ulta Beauty (ULTA): Viewed as attractively valued with solid margins and long-term returns, but faces evolving competition from influencer marketing and social commerce dynamics.
Nike (NKE): Extensive discussion on its Direct to Consumer pivot, potential channel conflict with retailers, and a reasonable multiple amid strategic recalibration.
Starbucks (SBUX): CEO change and strategic pivot highlighted; core brand strength remains, but competition and price sensitivity pose near-term risks.
Sirius XM (SIRI) / Liberty SiriusXM (LSXMK): Strong free cash flow and tracking-stock discount noted, balanced against secular headwinds from Spotify/podcasts and aging demographics in Satellite Radio.
Carvana (CVNA): High-risk, high-reward turnaround framed around survival, leverage, and improving unit economics after extreme volatility.
OTC Markets (OTCM): Favorable versus the broader market due to steady, capital-light cash flows, though cyclical softness in small-cap/OTC activity weighs on growth.
Market Valuation: Shiller PE and Mag 7 concentration suggest subdued forward returns; breadth and leadership shifts may not prevent a more challenging 5–10-year outcome.
Meal Kits: Category analysis (e.g., HelloFresh) underscored churn, promo-driven trials, and marketing intensity, questioning durability versus simple convenience alternatives.

Transcript

welcome welcome welcome how's everybody doing hope you are doing well my name is Andrew with Focus compounding on air live with Jeff Ganon Jeff how's it going today it's going very well Andrew how's it going with you it's going great we hope it's going great with everybody else as well if this is the first time you're tuning in with us thank you so much for joining us be sure to check out all of our content that we push out into the investing Universe the best way to do that is to follow me on X formerly known as Twitter at Focus compound if you want to get access to investment R from jef going all the way back to 2005 go to our website focus compound.com and of course if you're interested in learning about our Money Management Services you can reach out to me at andreid Focus compounding tocom all the information is in the description below if you have a question that you would like for us to go over on the podcast uh email to me at Android Focus comp.com I'm going to like insert that ad like three or four times throughout the podcast we don't take any advertisements on this right but if I were to turn it on through Spotify or YouTube um well I guess we do have some YouTube ads on so that's not completely we say yeah it will say on the podcast side of things if I wanted to turn the ads on for our uh long list of our backlog they would just insert ads throughout it you know but our only advertisement is going to be just send in a question help keep the content going uh let us know what's on your mind and we will bring it up on the podcast so email it in Andrew Focus compon .c so Jee I want to show you this I came across this last week this piece of content that I thought was uh interesting to look at I call it historical art and this says unsustainable values large cap companies with price or earnings ratios over 100 and of course this is from the do era it says that uh this was actually from March 22nd 2000 um pretty interesting the thing that stood out to me that's just crazy you know I was talking about Nvidia being super overvalued and and everything and you know it probably is right but when you compare it to what some of these other stocks look like I mean Yahoo at 623 times earnings I mean that's just insane right I mean do any of these names uh do you recognize any of them obviously you talk about Cisco a lot on here I'm sure you recognize Oracle there's a few of them though uh like JDS unase not familiar with that Nell Network not familiar with that but every other one I would say uh what do you think about that it is remarkable how high the PE was even 10 years later for some of them uhhuh um now some of them also had growth slow a lot from what they expected you know both those things happen so like Cisco became not a Growth Company it was a growth company for maybe another 10 years and then after that not really a big grower um yeah there was there was certainly a lot more in the very big cap things back then we've talked a little bit about that about how there was a real disconnect with the big cap ones being so expensive and there was actually a lot of value in in small cap and all sorts of other old economy things back then so it was definitely a large company and Technology media Telecom type bubble yeah you know I look at this and I see Yahoo right and I instantly think of Mark cubin why do I think of Mark cubin because obviously he owned I think he still owned some of the Dallas Mavericks he's on Twitter a lot always tweeting about a lot of different things seems to be into the whole sensationalism um sort of stuff and I think about you know Yahoo purchased his company broadcast.com or broadcast. whatever it was uh and they used their stock to buy the company now what he did was brilliant was he collared it off so he hedged it away right but you talk about a lottery ticket and of of course you started the business and everything so it's not complete luck but a company that's trading at 623 times earnings uh buying you and then I guess you know I don't know being smart enough I mean I guess you you got to say he was smart because there's a lot of people that lost a lot uh during the Doom era right um it's crazy that's got to be like the biggest I don't know just craziness and it's funny cuz I saw a snowflake uh or an article about snowflake recently that said that they purchased a company for a billion dollars when they were only doing $1 million in ARR it's crazy when you hear about valuations like that you know it's insane yeah we talked about uh Ted Turner I think and we've also talked about John Malone and they both sold their companies um you know sort of around that period and did not get out the way that Mark Cuban did but they were kind of locked up because they agreed to be on the board and everything thing and couldn't do that which John Malone said was a mistake right he'll never put himself in that position where he's locked up without having control of the outcome mhm crazy crazy crazy anyway so uh we keep over 13fs a lot of 13 FS came out some things that stood out to uh people I have data Roma pulled up right here but someone did summarize uh some different changes of course Warren Buffett was the first one on here uh you saw that he sold down his Apple steak um one thing that stood out to me was Ulta as somebody purchased now this is a retailer so we'll in the size of it we'll go by it not being Buffet um let's see Ulta beauty right here but company that has no debt 12 and a half times earnings EV to free cash flow 16.6 times uh looks really good when you do like a snap judgment on this stock so curious just to hear your thoughts let's get your own snap judgment on Ulta beauty and who do you think it was is this a Ted or a Todd position oh that's a good question I hadn't really thought about that um it it sounds on the face of it I guess a bit more like a a Ted than a Todd um but I don't know I'm not really sure actually um it's close enough that it I can't rule out either one mhm um what do you think I would say probably Ted yeah yeah cuz Todd tends to focus more on Insurance Financial stuff like that yeah um and we know Ted's bought some retail things before [Music] um so it one thing that stood out to me is this is such a small position I don't know if you have it there for Berkshire as a percentage of their portfolio but the actual value of how much they own we're talking um if you look at the dollar column there how big all their purchases are yeah so what does that say 266 million yeah and what percentage type position does it show that as 10 basis points on the entire portfolio I mean it's way down the portfolio and they have to buy a few hundred million so that gives you some idea of the size issues that they have this isn't a small company right it's is what's the market cap on 15 billion right 15 billion yeah yeah I also don't know a lot about um what's happening with online with the uh you know Tik Tok Instagram all those sorts of things and the influence that it's having on on beauty products um that's something that I really don't know a lot about but it's certainly happening it's kind of like competing with Kylie Jenner I remember when she sold that her brand right I remember reading like a Forbes article that she had 15 employees or just nothing um and it sold for whatever like a billion dollars or something crazy like that you know that's the power of like influencer marketing you see so I do think that's going to be a trend for like Coca-Cola all of these Legacy businesses that have been around for a long time they're going to have to compete differently because you have guys like Mr Beast doing his own Mr you know feas ofal or Logan Paul doing his own energy drink all these celebrities that have these huge followings they could just post a tweet or post it on Instagram or whatever and do that for free and millions of their followers will support them and and want you know their products it's incredible that way yeah now I wouldn't worry about if you're selling if you're a legacy chocolate bar or soda or something like that but for um anxiety driven things so for things that have to do with let's say exercise all right let's say beauty um luxury products are you talking like anxiety like as in self-image social anxiety comparing yourself to other people yeah that's what I think that social media is very good at um and so it's very important and that kind kind of thing has always been very important anyway for um luxury Brands right we may not know what a particular watch is or handbag or whatever but some famous person being photographed with it is worth a lot of money to those companies and now you have the same sorts of things in in other in other things um like I said that that are apparent in people's appearance is what I mean really either how they um yeah Ulta looks like it's let's see it's down year to date but I kind of like it here at this level 12 and a half times earnings um gross margins are pretty stable it looks like I mean this stock for a long time was I mean like crushed it what's the long-term Returns on this sucker it's got to be pretty good I imagine right so let's go to the performance you could look up fiveyear well you have it right up here 10-year K gear 14.88% 5year 3% uh Total return has just been incredible um yeah and with a uh end point there that's not very expensive right what do we see 8 times e or something a very normal sort of price at the end so that's through growth in the earnings obviously yeah interesting what else stood out to you on Buffett's uh 13f that came out I mean it's funny you think about 266 million right and I know pushing Square Bill akman had a a similar size actually position in Nike it was like 200 something million and I was wondering I mean who knows maybe they just started buying Ulta and that's why it showed up being tiny maybe they've been buying since or whatever right that's why these things are um I don't know I don't want to say noise but it's a good place to look for Value but you just can't put too much stock in it because who knows right there's there is definitely a lag but someone like Buffett and and persing people that make such few trades or Investments it could be a good place to to start right oh no everyone at Burkshire it's a good one to look at because they're likely to hold it for a while they may reverse themselves on some things just like Bill I see people talking about like dck and Miller and David teer and those guys 13 NS and I'm like those things probably change so much who knows right especially if the Stock's volatile or if there's any macro overlay of what they're doing you know um yeah I wouldn't say that like Michael bur or something is the best one for looking at their positions you know Berkshire is much better that way and what is a small position for them could be the it has maybe it has to be small for you you could make it a big one if you wanted to there's no limit to how much Ulta you can buy if it's a$1 15 billion company but there's there's some limit to them without affecting the price you know so they may only be able to buy a few hundred million a quarter or something yeah speaking of Michael bur it's going in on Asia right Alibaba Buu jd.com yeah I also wonder what things we're not seeing in his portfolio that's the other thing same just like different and stuff like that and all that you don't know if they're yeah hedged in different ways versus the entire Market or something yeah mhm yeah cuz look at David terer everyone freaked out because he has sold down a bunch of his tech stocks okay yeah which are the biggest ones yeah so when you go to data Roma and you look at this weekly do you look at like the top buys what do you look at uh Insider trades definitely and then also um yeah so those that you see down at the bottom on the left yeah definitely look at those and then also I would look at um particular ones that I think are good for more concentrated and longer term investors um so I think on the list that we have recently here you know your Warren buffets Glenn Greenberg Lee Lou um what else is there uh you know so there might not be a lot of things changing but when it does change it might be interesting if it's a stock you haven't really thought about in a while or don't know um those are definitely interesting ones yep so for people that may not focus on like these Mega cap stocks is it for you just uh you know a a way of looking at what industries you should look at maybe and find companies in the smaller cap space that could be true it depends on what kind of investor they are so you know if Glenn Greenberg or uh um Bill Miller or um you know uh there's probably a few other ones was suddenly buying into some particular industry that would be really interesting um you know because they're the kind of people who might like Buffett did say buy a bunch of Airlines or railroads or whatever at the same time they're the kind of people who might do an analysis of that industry and think the future might be different from the past so that would be that would definitely be something to look at um you know if someone buys a big giant you could look if you should buy a small one if they buy an insurance company you could look if you could buy a smaller one you can also buy the same ones that they do too um there's nothing wrong with buying the big companies there the the portfolios where they aggregate them isn't as interesting because they have so many different super investors on a list like this and so it's more of a consensus you know this is just what a lot of hedge funds and things own you know MH so somebody had wrote into us and this ties into looking at a company like Alto we could use that as an example uh asking if we can go over our first 12 hours on a stock and what that typically looks like and then ask if we could provide a method for a snap judgment uh to determine if it's worth a deeper dive so basically the email was asking what our first 12 hours look like if you could take us through that whole process and then if there's a method uh like where do your eyes go for when you do a snap judgment on a stock and decide yeah yeah it's worth taking a look at yeah that's really hard because I think my Approach is very different from most people's that way in terms of it's not standardized at all in terms of um thinking about a stock a certain way and duplicating that research for each stock um it's really going to depend on what are the key questions to have about something and deciding that early on of you know what don't I know and how harmful can that be to me um and and so like I brought up immediately the things that I might not know about about Ulta and so that would be a big issue about understanding it and having to research that particular um things about what's changing in that yeah what's changing in the marketing right through social media and through influencers and what effect that's having on people and how the consumer behavior is changing and that's going to be very important for specialty retail obviously um for other things it could be so this is something that's not very cyclical but it's a societal shift right but for something that's more cyclical If instead of being Ulta beauty it was sleep number or something then it would be okay what's the cyclicality of that or or Home Depot if it was some giant stock or something you know um where are we in the cycle and what does that look like and that would be more of a concern is this purely a cyclical thing or is this a societal thing or is this a competitive position of this company versus others um it would usually be researching other companies that I think are similar to this one um um at the same time and comparing them and seeing how it's doing kind of competitively to isolate those things that we see in recent Trends right because it's pretty easy to have the long-term I mean a huge part of it is the long-term record that could be 80% of your research on a good business could be the longterm record uh 80% of your your ultimate decision but it's not going to be 80% of the time you spend on the company so the rest of the time will be saying okay well what's going to make the future different from the past um so I would be less concerned if you had these prices 12 times earnings or something on something that was you know Cola or candy or something but I would be much more concerned if it is something like this where I'd say okay well do other people see something that I don't and I'm predicting that for future because there are some things that are actually changing with customer Behavior marketing things like that and so that's where I would be um focused on here uh I would certainly read the um I mean a large part of the first 12 hours I guess would be reading the proxy the 10K and the 10 q and I would do that for every company always uh no I I would probably read the um 10K first and then the 10 q and then the proxy um and then I would probably see if there's an investor presentation and earnings transcripts after having read the proxy at you know having gone through all three of those things so that won't be 12 hours but it could be six um that could be spent doing that not sure 10K is the best place to start because it's the least promotional uh it's scrutinized a lot by lawyers and the SEC and generally it's less Pro promotional I mean you go and uh look at an investor presentation and that is way more promotional I would say um so so I guess it's good to take people through your mind so like with Ulta right and I doubt you've read a 10K uh for Ulta recently but when you talk about like social media and marketing and stuff like that is I guess your worry or your key question that you want to think about and research more on is that just people being able to go direct to Consumer and cutting out the retail aspect of it sort of like what H what happened with Amazon or what um no yeah I mean I I guess that could be a potential issue but that's not really what I'm thinking of what I'm thinking of is more um starting with one what are the trends in it versus other things are we potentially in a period that it's unusually high for some period of time that I'm seeing there so is some of the growth because of things that were happening that aren't going to be happening in the future that's one potential thing so like for instance um covid right people coming out of covid um you could have unusual um purchasing of uh um of high public visibility things suddenly uh the same way you could have a change in ticket sales to uh Live Events or something right people were locked down for Co they weren't able to do those things it could cause a jump in results for a period of time pull forward demand you know all those sorts of things so you'd be very worried about that what you don't want to do is buy at like an all-time high in terms of profits or something that actually includes things have been pulled forward so you think that it's doing particularly well and it's going to now um do worse after that it's easier if you have something that's at a cyclical low or that isn't favorable in terms of the societal Trend lately because then you can say okay well then I can look forward and I'm not putting a high multiple on something that this is not a high multiple on this stock but I'm not saying oh the results are good and um uh know that they're not likely to be a top for it right [Music] um and then the other thing is yeah changes in consumer behavior um and then you'd have to research kind of what they sell versus what others sell and and how they do that and how Diversified it is and and all of those sorts of things um and that would be things that would be in the 10K but also investor presentations would be helpful with that and transcripts would be helpful a lot of that kind of stuff is more product mix and uh degree of diversification in different things versus competitors that's kind of why you read the investor presentation and especially transcripts because a lot of times there's not enough detail on that in the 10K mhm I like listening to or reading the transcripts of uh two or three competitors just to hear what everyone is saying a lot of times the same analyst will be on the call if they're covering the industry but it's a good way just to get a good grasp on the narrative the industry um you learn a lot about the companies uh through doing that and then you could see who's doing you know maybe a different strategy or who's playing their hand better than uh the other and you could quickly kind of figure that out but it's a good way to learn about an industry it's just two to three different companies four different companies right so for the overview for this one what does it say for the business description basically operates as a specialty Beauty retailer in the United States the company offers branded and private label beauty products including Cosmetics fragrance Hair Care skincare bath and body products professional hair products and Salon styling tools through it Ulta Beauty Stores shop in shops ala.com website and it's mobile applications yeah so even then you know there there are other companies that you could obviously find as peers I'm sure there's sites online that try to generate publicly traded peers but there's also some things that might be somewhat peers that aren't publicly traded I think Sephora is owned by lvmh maybe um I think and then um and then they have Partnerships with certain uh retailers where they're you know kind of storing store or attach them or something but I think that's right and so it wouldn't give you a lot of detail on that and then um Sally Beauty is not really a a very I guess it's a comfor part of it yeah so I think about it Sally like being hair like you're going to get your hair cut like that sort of stuff like okay I guess stuff I think of it as yeah like what you would Supply to salons and people running their own business that way initially and then I think it sells to the General Public like as a result of that but I don't know if that's exactly the history of that company but that's kind of always how I thought of it as like salon supply yeahh um so and then you just have to do a lot of scuttle button talking to people and figuring things out that way to see what the differences are especially retail is Pretty Tough usually and then especially retail in an area that I don't understand anything about is really really tough so yeah MH it's tough when you have to judge the societal Trends too right mhm I mean compare that to I guess Coca-Cola or different companies I don't know it is tough especially with fashion right yeah stuff I mean that's why I mentioned Ted I guess because he had bought uh into uh department store when it was a tough time for them and and everything and so I'm sure a lot of that was Capital allocation everything but it was also having to evaluate some of those Trends and and how bad that would get and whether some things would stabilize that way um but it it's hard it's the comparison I always give is like look you know at one time Best Buy and Bed Bath and Beyond were both category killers in similar positions one of them went on to be perfectly fine as a stock in a business and one of them did not and it isn't always that easy when you're first starting that period to know which way Trends are going um because people are pretty down on on Best Buy future there so whatever happened to Circuit City Circuit City went out of business it actually liquidated in a chapter 7y I think instead of chapter 11 yeah they were public yeah around the time of the financial crisis I guess um they would have been similar to borders you know um I think that they I honestly think that they ended up in bankruptcy where they liquidated they didn't just um get sold to structure wow yeah I think so crazy crazy well I H did a call for questions we haven't dedicated a a Q&A podcast uh in quite some time um so got to watch your that we could spend some time going over this obviously if people have more in-depth questions they could email them uh to me at Andrea Focus compound.com again that's Android focus.com uh someone asked curious about your views on Nike and Ulta okay so interesting we just went over at Ulta uh Nike had I'm not that bullish on Nike I think we've talked about this right okay why is I don't know if we've talked about it have we I told you million in stock so I think Nike's pivoting but a couple companies did something that I think the stock market liked that I didn't love that much which is they got really enamored with during Co with going direct right so oh we're going to be able to sell all of our stuff direct and Nike of course has these what are they call are they sneakerheads what do we call these people who collect all the things yeah yeah okay so they have some super customers you know some whales and stuff and um and then they have selling all sorts of things to the people buy a lot fewer shoes right and other products too they sell tons of apparel and all that but Nike Under Armour a few others as the um Sporting's Goods stores and some of the the more Sporting Goods than um than Footwear but but still you know that too um these retailers whether they're Mall based or not uh had some of them went under right and and uh that hurt sales for some of them and then with Co and everything you had this big opportunity to go direct and that was a big exciting thing for them and I think they pushed it way too far um and I think the the stock was even doing well while they were pushing it too far and I don't think that was a good strategy long term for them um so I think you can really overdo it with that with going direct these things are helped out a lot by being sold through different channels and your job is to advertise them and create a lot of demand for it but that doesn't mean that you necessarily want to cut everyone out and do that and then you hurt a lot of your relationships that way and you know um I that's kind of thing since 2020 that's been my issue with Nike the direction they were going and what they talked about that way I wasn't as enamored with but I'm sure that you know it it certainly worked for results for a period of time but I just don't you could take that to 20% of your business from zero but I don't know that you want to take it to 100% of your business you know price or earnings about 22 times e free cash flow 18 times uh 10 year meeting margins on EIT about 13 times e to sales 2.3 three times um margins gross margins have been declining over the past 10 years but pretty stable still I would say um yeah I don't know it's interesting place to look I mean the stocks on some of them are pretty wild like what happened to Adidas at one point with how pessimistic people get and then remember how pessimistic people were on Under Armor yeah they had a lot of problems yeah do you think Nike will still be a main brand 100 years from now it could be sure there's no reason why it can't be see what I got on Nike t-shirt yeah got it so you are a little bit pessimistic on Nike you're not bullish no I don't I haven't heard their recent comments on it I think that their comments are that they uh are not going to over go too far with that anymore but I mean I just saw a lot of things like Foot Locker terrible Nike great you know and I I just think it it went too far with people's ideas about how that would happen um you know and what the brand is um I mean they're not really a retailer and there are some things and Foot Locker is a good example where look they're selling so much Nike compared to everything else there then what does it really matter what are you really getting there but you are getting something of being able to sell different things I mean the Best Buy thing this is a thing with Roku and Best Buy where I kind of disagree with some other people Best Buy is critical to all the major tech companies because it's a neutral place that will sell all of your things and they can't sell each other's stuff and so the idea that you can just go direct um and the same thing with with like where I mentioned Roku um the one thing that it has going forward versus any of these Tech things that people think oh they're going to use an Amazon fire thing or Google Android will be running on this uh Smart TV I have or whatever well yeah but you might want to put something on top of that because in terms of advertising and all that and the different things that you're going to have on the um on on your um video viewing platform whatever it is at home you probably don't want it to be controlled by one company because other companies aren't going to play well with them so there can be an advantage that way we talk about that in movies with Sony not having a streaming thing and others having streaming things it creates conflicts of interest and there's a reason why you separate the retail function from the the brand function in many cases uh where you have that now for some super luxury Brands like the like lbmh some of the brands they own then you can have boutiques in a few PL you know in 100 boutiques around the world sell all your stuff and you don't necessarily have to sell that much through department stores and everything but uh I don't I think you could go too far with that and I think they may have and I think just in general people are have gone too far with liking this idea of going all this way direct when it it's a different thing that you do versus what you have in retail people like to have a few different choices when they buy something that's always a plus for them mhm well said uh let's see is buying a company losing money that has never made money but expects to break even soon always a speculation I mean I guess it's speculation but like Buffett would say you know in all investing is speculating right because you know all that matters is the future even when you're talking about things like balance sheet they could do something very stupid with their balance sheet or they could do something very smart so you're speculating on Capital allocation and and all of that so that there's always a speculation no matter what when you're investing and even though we look at all these past historical things there's always the the forward-looking things so I don't know that it's always just an unintelligent gamble or something it could be an intelligent gamble an intelligence speculation and I think that's fine and I think um with some companies now they could be reporting Gap losses that and have a future that looks good um because the underlying economics are good which if they don't make money on like a product economics thing it's kind of tough um one that's a good example of this for me always have been carvana because that's the most borderline kind of example the product economics were sufficient early on to say okay they're improving over time and at some scale they can make money doing this but it's really iffy um you know and as opposed to like an Amazon or something in the early days Amazon actually looked pretty good A little while before they started showing profits so you could have seen under the hood and liked what you're were seeing there carvana you know it it's not like movie pass or something it had a business model that made sense if it was big enough um but it didn't require pivot to something else but it also was you know not as amazing as the stock price was usually reflecting so remember that movie pass we would talk and you I don't know how this is going to work as a business but as a customer I'll use it mhm and did yeah and then whatever happened to that did not work out huh no and they came back in some other form where I think they like use your data they track your eyes or something they do something to like take information on people and sell it that's their new business model when they came back wow crazy yeah year to dat carvana the returns I mean it's $150 stock wasn't this just like close to single digits recently if you if you can speculate something that people expect to file for bankruptcy doesn't file for bankruptcy you can make a lot of money yeah that would be the best inside information someone could have is not like even that there's going to be a merger or something but that I've heard they're going to restructure I heard they're going to not need to file or whatever that if you can predict that then there's some of these companies before where I'm like gosh you just put like a tiny position on but it goes up you know 100 times well the stock was pretty cheap versus like its balance sheet size now not and like it had a lot of Li total assets had a lot of liabilities and a lot of assets so you know you're you're it's a super leverage bet in a lot of car inventory at that bottom point there I mean we're talking let's say end of 2022 beginning 2023 a $5 stock but I'm sure that there are some people that were lending to them that were concerned about oh whether they would get 100 cents in the dollar okay yeah yeah so I said maybe you don't put 20% of your portfolio in it but where you're like the unit economics can make sense you know there's something here someone could be interested in this business I don't know they also did shift some things so you know this has happened with a few companies where the other issue was when you were looking at it um there could be a concern that how much do they how worried are they about what's happening and are they just being optimistic for the public and actually they're going to try to make sure that they are financially healthy here and they're going to slow down the amount of growth they had if you look um probably quarterly or something in the quick FS we can see see like it it they were growing with results getting worse basically you know what I mean so part of the fear when I'm talking about concerns about bankruptcy and everything it's not a good sign when you're rapidly growing into not great economic uh results you know what I mean so they were not necessarily focused on uh survival or you couldn't be sure that they would be you'd have to take their their word for it you know what I mean um if earlier in Co let's see where was there do we have like Revenue growth I mean I guess what I was thinking is more like okay so balance sheet if you go to balance sheet I guess we could see the growth in some of the items there was quite large um we'll probably have to go annually but if you go back to co period they had a real explosion in um inventories at a time that wasn't uh great to be doing that in terms of the financial results they were getting when we look at the margins and everything so but you know but it's not like just a service business or something then it has a lot of like I said a lot of assets and everything so what is the market cap on the company now 16.6 billion right so when we look at that low stock price it was pretty that's a very low stock price versus the balance sheet you know so that is a very very leverage bet at that point and that's why you can go up a lot that's something useful people can do like just calculate what are current assets what is the total balance sheet in a per share base and that gives you some idea of like the leverage in the business if this survives you know um and because then it has to recover to much higher levels I know people mostly focus on Book value but could go the other way Lumber Liquidators what was once called that now it's called LL flooring Holdings um they filed for bankruptcy uh recently um so and I believe somebody tried had an offer out to buy the stock at like a fire the company at like4 or5 something like that that they turned I don't remember Lumber liquid his whole history but didn't they have an issue with where they were sourcing some of their product from so I think Whitney Tilson had something against them there's something with from alide in the flooring or something like that there's some weird Shenanigans going on yeah okay yeah um I feel like there was a TV thing done on them at one point yeah like 60 Minutes 60 minutes okay yeah yeah yeah is that weird when a short seller takes something to 60 Minutes I don't know but I mean if look if there's the your floor your floor is causing cancer or has Trace Amounts of whatever or high amounts or whatever of stuff that could be dangerous uh yeah I guess that's that's like Prime TV for 60 minutes or whoever it was that took it but it was one of those shows 60 Minutes the middle of their show has historically been a um like they end with something nice usually like some interview or something but they have um whistleblowers short sellers Etc you know that's their big thing is uh kind of investigative reporting there yeah yeah I forget who it was yeah it was 60 minutes I'm looking up right now yeah interesting uh okay let's see next question overall opinion on valuation of the market spy X mag 7 much more reasonable so take out mag 7 uh will broadening out be enough to sustain a rally if leaders are not leading question mark If breath plus mag seven leads Market gets more expensive from here yeah I I don't know I don't have a prediction on it the the Market's very expensive you know we could look at the Schiller PE um it's really expensive and you know rates may go down in the future but rates are not at levels that are you know when we look at everything that happened before say 1996 where you have all that period before that we're not talking about rates that are way out of line with much of that plenty of times in that period so that's no longer a argument for it so we're in a phase where we have to say we're different from what things were in the 1900s and um in the 2000s and maybe we are um got a Shiller PE up 35 times um he's saying if you take out mag s it's much more reasonable is it going to be broadening out what's going to you know happen I could see forward returns uh in the market just being not so favorable I would say over the next five to 10 years yeah I mean I I guess things did I mean if you took things out in 1999 would they have been a lot cheaper I mean you just had that right it told you what it was outside of the top however many stocks right um so so I I think that that did happen in in uh the 2000 bubble that basically the biggest leading companies then trailed companies after that um so it kind of did broaden out and stuff but it broadened out in a decline for the overall Market that was pretty big MH what do you think about Buffett's buy of Siri this is a fascinating one right so Siri now they aren't actually buying serious right they the stock that that Burk has been buying forever is the one that's going to be folded in the tracking stock but let's look at yeah so it's been tightening I believe I have trouble remembering the Ticker on the other one it's liberty serus XM so it be lsxmk is that right you'd have to plotted against it for the last year or something okay yeah that if you could get that one plotted against it um for the last year you can see what I'm mean okay so that's a year okay that's that's good so in theory these two stocks one's the tracking stock and one is the actual um stock uh serus explain the tracking stop uh stock oh it's impossible to explain it's a piece of paper that says that it's related to something that whatever and then they eventually just fold it into the real company and so the tracking stocks Never Last Forever he's gotten rid of most all the tracking stocks basically over time there's almost no tracking stocks left in the United States you know um but certainly the idea would be you know in of a merger or whatever then you would get your value for it so think of it like a different class of stock or something like that it's not exactly um but it's meant to track another stock but there's going to be differences in how much people own of each one the the float of it the um also just things like you know people know what Serius XM ticker symbol SII is and the other thing they don't know and some people will pick one or the other based on that um and then it's just too complicated they might feel like I don't trust this person or whatever for whatever reasons it tracking stocks often trade at a discount to what they're supposed to be tracking um so these two stocks for a while there should have been the idea that they're going to be folded in together and so they should have quickly move to the same level um the correct ratio between the two that was announced in the investor presentations and all that and then from then on um they should basically track each other and instead you've seen that sometimes there's a wider or narrower or Gap um so part of it is arbitrage of buying that and we should be careful because obviously that doesn't mean that someone could be shorting the other thing on the other side um I think that the stock itself is kind of interesting and so we could look at Sirus from that perspective but just keep in mind that there's often been a much cheaper way to get the stock which is to buy this other stock that we just said what is the ticker of the other stock we said it is okay don't have it's like LS lsxmk okay so if you were to buy that for much of the past year at least um it would be a cheaper way because uh then when the the stock the tracking stock is eliminated the shares that you would get of Sirius would mean that you had hadn't effectively bought the price at a lower price than what was trading at that day and sometimes it's been kind of significant um I mean at one there might have been a day where it's a 40% discount or something like really significant um yeah so uh so I believe berkshire's always been buying that one do you have the data rum one have they ever bought Sirius uh maybe they have but presumably what they want because they've been buying so much is a lot of serus but what I think they had been buying is yeah there you go which one is up top yeah so Liberty okay yeah here you go lsxmk Liberty serus X series C okay and then they do have Sirius that they've just bought for the first time now right is that right or no have they ever no I thought I saw maybe not okay okay so obviously you could and if they wanted to yeah added 62% right and the logic behind that would be now if the price is closed more and depending on the volume in the two and everything it might be perfectly fine to be buying that now like if I was buying the two just just classes of stock where I was buying one sometimes you might end up with multiple classes that's happened to me where I've owned some two different classes of stock in the same company because on some days it just made sense that there was a discount and it made sense to buy the cheaper one and then on other days it the other stock was cheaper or was just there was basically no difference and so you bought it turning point Brands like that at one point was it yeah or I thought so so like you know Berkshire it's very tight the relationship usually but it would make sense that there's no reason why you would buy uh you know because a shares Berkshire can be converted into B shares but not the other way around so it would always make sense to buy a shares if you had enough money to do it um anytime that there's not really much of any gap between them but if there's a meaningful Gap then it could make sense to just go ahead and buy the B shares right away you know um and so certainly at some point I I bought a bunch of B shares or something there was more of a discount and it made sense but that doesn't mean that I would never buy an ashare um so that could be why they did it um let's see um they added to both at the same time yeah is that right now much more uh to C they up I don't know what it was last how much C do they have now 376 million and how much of the other one do they have 1.5 billion and they only added a tiny bit was the percentage that they added to that one 7% okay so they're obviously buying more serious um stock re in the last quarter and if we look back at the chart that's probably that's probably what the change is for is just price cuz look um could that be right Siri is this one down here yeah yeah it could be let's click well we're out of date though so like three months is going to help us right we need like six months to see what the real period is for here cuz when would they actually been doing the buying I'm not sure but it it's just that it might have made sense we don't know the exact dates they were doing the buying I guess on that I mean we might have want of the two um I guess tracking stock we won because if it doesn't have voting sh then it's not tracked for SEC purposes but uh anyway we we'd have to look but it could just be that on those days it made sense it it they've always wanted exposure I assume to just serus at the end of the day when this is all over and it's collapsed together I don't think it's an Arbitrage thing where they're shorting one and buying the other um that's always been the one in like Barons or whatever that talks you about that oh you can make guaranteed money by doing this this Arbitrage but the other way of it is just saying well I want serus what's the best way to buy that historically for a while now at least a year or two um It's Made much more sense to buy the tracking stock than to buy Sirus so there's no reason to buy Sirus um even if you wanted serious stock at the end of the day it's not the security you would actually buy so that's probably why the change is they'd been buying can you check how long they've been buying the other one for because that gives you an idea of how far back if you click on data Roma on that actual stock on Siri or the other one the other one track stock yeah so they've been very long time yeah yeah going back to2 of 2016 is when they started and they doubled it around what's that 2020 did they start doing it is that the big increase MH yeah and they do and Berkshire does own a bunch of different John Malone companies right yeah different Liberty stuff yeah mhm mhm and do they own anything else isn't called Liberty lilac group a Liberty Media corpse series they also Charter which is effectively also John Malone yeah uhhuh uhhuh Char they bought throughout the Malone Empire there and it's very the Malone Empire who's that Ted Turner at one point uh what is it that one Atlanta Braves Holdings yeah yeah that was Ted Turner at one point that was a but that's a tracking stalker spun out from uh Li from Liberty company because they had what Atlanta Braves in Formula 1 look at this Liberty lilac Group C so many yeah I me small position but still yeah so we can look at Sirius just as a business you know uh but just understand that they bought different stocks throughout the Jalan Empire and so it may have to do with the fact that the price was more attractive on a particular stock at a particular time um and then volume concerns because they're such a big buyer too they they wouldn't be able to buy the the smallest float ones mhm so 11.6 billion market cap 20.5 billion Enterprise Value so this thing has a bunch of debt uh price to earnings nine times uh Eevee to sales 2.3 Eevee to evida 7.7 Eevee to free cash flow uh 17 yeah the really attractive things are the big free cash flow the free cash flow generation is huge compared to reported results so even things like iida could be underestimating that I believe they said that they're going to launch a few satellites in the next few years but then after that they're capx would drop down a huge amount you know so it'll their Free casle Will plummet in years where they do a satellite launch I think but in other years it would be lumpy but in other years I think it'll be a lot lower is what they've said but I'm not following the situation closely this a very big company it's not really the kind of thing we normally buy they used to buy back way more stock like at like 2014 onward and then they stopped in 2021 too much yeah too much dead I think but um because if we look there they went to doing what did they do they did dividends they did a big special dividend I think right two years ago yeah mhm okay 2022 so I mean on the stock that would have been well the stock today is probably a lot cheaper but on today's stock or something it's like a 10% dividend or something in one go so that's big um and then the business 10% dividend 10% dividend but the stock Falls 51% got it mhm the issue with the business right so it's very predictable like cash FL from operations is a good one to look at here if you're seeing that on your screen very very predictable this is the kind of thing you'd want to put a lot of debt on when you have that much cash flow from operations year after year after year um very stable like even stable compared to other parts of the business that might look more volatile on a reported basis and that's what really matters obviously the actual cash at the end of the day and then maybe taking out the capex if you really need to do it for paying your debt but cash from operations is really how you pay your debt um the the problem is sort of age for them right so the company started out let's say 20 years ago or something meaning that it would sign up people who were 40y old men you know uh those are radio listeners and they have a lot of different music channels and on some talk channels and all that but that's clear that that's who it was I don't think that they're bringing in the same number of 40-year old men now which is meaning that their average age is going to you know for that first cohort is 6 6ye old men now and so that's kind of a problem you know um that's not a problem from an advertising perspective or something because it's a pay service but it is a problem from the perspective of like not having scale issues where you have operating leverage walk working the uh wrong way if you start to have declining subscriber counts which is their issue is declining subscriber counts it's not like the not having the ability to raise the price a little so I don't know have you used um Sirius XM before you certainly rented cars or bought a car that probably had it on it for some period of time just during the trial periods that's it yeah yeah yeah but my dad uses it religiously so every time I get in the car with him CNBC is going and I know that's coming from SiriusXM so mhm yeah it doesn't have a lot of churn for people who are already subscribers and have been for a long time it has for the initial blooth guy Spotify and podcast that's it that's their problem right so if those people never were radio listener the difference I think I don't even listen to radio in the car I mean I did when I you know obviously at one point in my life but now just Bluetooth Spotify went from ox cord to you know Bluetooth just Spotify and podcast that's it right but those are basically the same thing so Spotify you're going to listen to a bunch of music that you would then listen to a music channel to hear so I mean they're they're direct um alternatives to each other and I think it is a uh my concern with it would be is it a societal thing between those people who grew up listening to radio not just grew up but listen to radio while they were of a driving age basically for a period of time whether that was driving to work or something is probably the key thing were they driving to work and listening to radio and had that habit at one time and now are reg generationally shifted to it so even though they might talk about with the ages that I just did oh our Target is middle-aged men or whatever okay is it really middle-aged men or is it a say baby boomer Gen X you know especially um generational thing and then sub Gen X are they really getting enough people and if it's a generational thing rather than an age thing that's a big problem yeah okay let's see assuming we only have value line to work with do you have a preferred method to determine an insurance company's float image for reference oh no that's pretty hard to do it first of all determining insurance companies float everyone will get a different calculation um I think even where you see the history of burer hathway I think Jacob McDon wrote some things about that and trying to calculate it whether versus how Buffett said it in those years and other things you're not going to get the exact same number um you can get some idea though basically on the investment leverage so do they have Investments per share here I can't read that that's too small for me basically but near the top do they have anything from that at um I'm Progressive if you look at the right hand side of what those things are um I'm looking right now let's see premiums earn per share Investments per share $815 okay so if you look across that line if you know what their investment policy is and what is being included in Progressive in uh how value line is doing that and here's the tricky part of how value line chooses to do that because you have the same issue sometimes with value line with operating earnings and what they mean by that exactly with like EBA do or something so sometimes there's a little weirdness with how valine does things with certain cash flow things you have to be careful if you look at their list of like highest cash flow per share stocks and things some of them are totally legitimate and some are a little more questionable um and here you have the same thing is whether they're including everything if there's not violent shifts in that in then it probably is pretty accurate and ultimately that's kind of what you need to know more so than even what their float theoretically is is what's their float that they're actually willing to use um and then that gives you an idea um and then usually you break it into two buckets where you look at the underwriting results and you look at these Investments but they're you're basically going to be financing the Investments with um with your float there I mean it depends on the company but let's say Burkshire over their entire history or something ultimately they're going to be their their cash and their fixed income stuff is often going to be the amount of their float really and their stocks are going to be more their Equity it's not a perfect way of describing it but it kind of is so it's not like they're they're they're not really financing their um it's not always as simple as people think in terms of uh believing that Berkshire stock portfolio is really financed with their liabilities that they have instead it makes more sense to think that they cover all their liabilities with their cash and their bonds and then they're able to invest the equity of the insurance companies as if in stocks right and then for many other insurance companies you're going to invest everything that you have in in Ms which is going to exceed your float there um but so value line the best thing would be Investments per share but you have to figure out what that means by comparing it to actual balance sheets from Progressive and uh the biggest issue for Progressive is probably how they treat cash versus Investments because a bunch of their portfolio is quite short term or something so some of it might like right now say Buffett decides he wants all three-month treasuries or something well 3 months treasuries yield more than 30 year so that could be an investment we're all saying that's like he's sitting on cash but look what would you invest in it's the highest yielding government security that he has laying around right there that could be his way of investing right now so you have that problem on the short end of the curve yeah and so if they say that's cash and then the 30e is an investment then you have a bit issue somebody asked more about valuations of Max 7 we already talked about that so we going on to the next one if you own a very cheap stock like BDL that has no catalysts and have an opportunity to sell that position and replace with something equally cheap but with a catalyst is jef's experience that it's worth doing yes but it's also my experience that you're usually wrong when you think that not about the Catalyst part that might be fine but when you sell something that you understand you know you've owned a while or whatever um and think that something else is cheaper that's newer to you you have to be very careful about that usually your judgments about something that's new to you are not as good as your judgments about something that you're quite familiar with for owning for a long period of time so that's where I would be cautious um but yeah I agree with that I I don't see a problem with doing that at all I've certainly sold things that are cheap but don't have a catalyst to buy something that's cheap and does have a catalyst would some of parts be a good way to Value an anity business for example take the fee income the business collects value it and then add it in the net asset value mainly us treasuries and investment grade Corp bonds or am I missing something here um so I guess the main question would some of the parts be a good way to Value an annuity business income the business and then I mean I I am not very good at valuing an annuity business um and it's hard for me from that question to know that I understand the question fully I guess we could read the second part for example take the fee income the business collects value it and then add in the net asset value mainly us treasuries and investment grade corporate bonds so I think he's taking the assets and then he's also putting a multiple on the income yeah I I don't know I'm a little worried about that I have to see the specific uh stock okay uh what is your view on Geographic differences in multiples he says uh let's see comp business in Europe cheaper than in United States China cheaper than Europe Etc fundamentals vers float argument and investment cases based on relisting elsewhere and multiple Arbitrage yeah I think that's really good to compare companies in different um countries because often they are quite comparable and what matters is really just the the cap allocation who's running it right and um than what the industry is like in that country now in some countries the industry is not as good or or as competitive or you can't have as much um uh how do I put it so Progressive is a better insurance company because Progressive is achieving what it's achieving in the United States which is a tougher market for insurance if you had the same thing in another Market you should be worried that someone could come in and really do a number on them um uh you know we talked about like uh your supermarkets in the United States I would feel better about supermarket in the United States than than a UK Supermarket because the industry wasn't as as competitive you know so there are differences in some places that way about okay is this just are they earning good returns here because it's not as competitive and someone could come in and make it more competitive um but yes I I would say I use that all the time and you'd be surprised sometimes their their entire industries were the United States UK Japan their comps they have very similar business results and yet the eidon multiples are very different and I don't know if it was in the education of a valley investor and gu spear wrote about it or monish poai did um but they had said the first thing they do when they find a company here that they like is they will go look and see if they could find a comp overseas or somewhere else just because the multiple difference yeah I would I'd say that's a great thing to look for um yeah next question have your views on portfolio concentration change at all is the amount of money you manage and in particular the amount of other people's money you manage has increased um yeah I I think you know so we do a fund and we do manage accounts I think manage accounts yeah that's true definitely that it changes the concentration things uh that's not necessarily the amount of money I guess it's certain technical things about it not just technical but so people can see what it is that they're buying and selling right then you have complication in terms of maybe fewer things that you could buy sometimes just for there's some things that are kind of off limits more because maybe it would complicate tax things or it would do whatever you know we do do things in different currencies so we don't shy away from that um but you're probably going to end up with a more conventional more Diversified portfolio in something like manag accounts than you are in in the fund um so I guess the process of doing that I don't know what do you think about that that more Diversified yeah M so I mean we're still very heavily concentrated and and idiosyncratic and stuff for managed accounts versus any other people normally but it's less it's not exactly the way that I would run my own money that that's true um in part because you have I guess it's flows more both for the fund and manage accounts I would say it's that with your own money um you don't necessarily have to make decisions worrying about the timing of things whereas timing becomes an issue just in terms of always needing to be able to put money into something or take money out you know you can't be as sporadic so the Buffett approach which is great of just doing nothing and then buying a ton of apple and then doing nothing and selling half of it is great but it doesn't work as well when you have um clients generally and it even for a fund if that's as concentrated as he was in apple that would present problems if he kept bringing in money or having money going out or whatever right but he had a stable permanent form of capital so it's the flows I think more than anything mhm thoughts on Farm Equipment dealerships question mark I see most have been taken private opportunistically mostly by management you said example Serv us uh Rocky Mount dealerships I see only one publicly traded now thoughts on this I don't know the industry yeah I just don't know the industry so I can't say me neither uh if you knew for certain then an elite business were to grow earnings for the next 10 years to about 10 times current would you still be unwilling to pay a 50 times multiple no no definitely not if you had that certainty right if you knew it yeah I mean look the the thing here's the thing um the problem that I often have with paying that kind of multiple right is that it's you can be very certain about the growth in an industry or the number of people who will need it or the number of units sold or something but you don't necessarily know who will dominate that industry and whether it'll be highly profitable so it gets back to Buffet things about cars and Airlines it's it's not that we can't predict that 10 years from now there'll be a lot more um product sold to be used in AI things the question is would we correctly identify Nvidia versus uh any other company that it could be right we can for now certainly but in but it would be hard to predict that Ford would be overtaken by GM or something in the early days you would have said oh Ford is dominant I mean Ford certainly was dominant the way that Nvidia is dominant and then that went away you know um so you be right Ford's dominant now and 10 years later they'll be selling a lot more cars but does Ford lose a lot of market share in that time and that's fine if your multiple is low but the problem is that you often have a the same stock has a lot of uncertainty about future changes in market share and the the price um the closest is something like when we talked about like Celsius or something those are the ones that are the closest they're very small very small percentage of the overall market then it's a question of whether that brand takes off and there's not all that much harm that others can do to them um but then they get to a point where it's big and it's different it's different that way but I also wrote up something on Boston beer many years ago that's similar so things like Celsius Boston beer if they're growing much earlier in their history let's go back 15 years or something with Boston beer but and maybe five years or whenever we're talking about Celsius almost 5 years whatever it was if we go back that far those are the kinds of things that I could be interested in at even a high multiple um you know there was a period where this is many many years ago but I didn't buy Netflix but I did say look if I was a uh running some studio or something I would want to the first thing I'd want to do is sell a lot of my shares to take over Netflix at the price that it was at it was at a much lower price and so it it was an undervalued company definitely um because you could see the the future of of that to get to where it is now there seemed to be no doubt that it would get to saturation that people would have it now they might use other services but I wasn't afraid anymore that people would use other services and then not Netflix um so I I don't have a problem like if you're launching something and you have a small number of subscribers but I feel confident that you'll eventually get into basically everyone who wants a streaming service which is my feeling with Netflix in the United States then yeah and the what brands that we said there an emerging entirely new like Market you know that's tougher so like when Netflix first made the switch from doing physical DVDs to introducing the idea of streaming and everything no that would be less so you know that I would be able to make that choice um I always love to see how much they still make from that because they do still make like a 100 million last time I checked really yeah from DVDs see if I can find it yeah here you go DVD revenues let's see what was it yeah 82 million is that it yeah 82 million yeah down 145 million so it's down 43% yeah so like a smaller fish in a larger Pond or the Netflix thing is that it's just so it was so simple in that you know ultimately at the end of the day for people once it was streaming instead of DVD rental it's just like TV we can pretend that it's some high technology company and stuff but what it is is a cable TV service right and so I know what an HBO is or what a Disney channel is or whatever and so Netflix will be that and it turned into that completely because then it started doing advertising everything so you're not afraid of that and so at that point it would be fine it's not actually radically changing at that point um but when you're trying to convince people to send DVDs to have DDS sent to them in the mail send DVDs back and doing all that will every grandma and stuff ever do that I don't know but they'll be happy to sit there if you put this preload the Netflix on the thing that they're getting everything and Netflix has got into a situation where it was like that likewise if you know that it's just a question of getting in more and more places for a beer company or for an energy drink company it's just about okay will more and more places carry this product that's already selling in the places that it's at then I'd be interested but honestly like even you know why we mention the Nvidia things and stuff is that's just so far outside of what I could do because it's just so much change happening in it so it it actually to me is not that certain that it will H that there's a lot of appetite for it right now yeah but who will be the leader and will there be changes ever in terms of what what people prefer and everything I don't know that the first place company will be the first place company 10 years from now and I don't know that there'll be profits in the industry or that there'll be so much competition so who are the investors Jeff Ganon respects the most and who is most overrated in his book I don't think I'm gonna say who's most overrated um no I mean the the one that I respect most is Buffett right uh especially in the ways that the parts that other people don't emulate right Buffett got rid of his apple right and everyone shocked I don't know that people were shocked but whatever it was but he said when he was selling another stock I forget how long ago they said oh is this a trim or whatever he said well you know we don't trim' so everyone wants to slowly go into the position right and everyone wants to slowly go out of the position and trade around it even the Buffett fans you know and everyone does not want to sit on a ton of cash and then do a big whatever like he does they don't want to completely shift to i s never bought a railroad in my life and now I'm going to buy uh you know make it one of my biggest deals ever or I've been telling people forever airlines are terrible and then I bought them you know so like the airlines thing did not work out for him right Solomon Brothers was a disaster too and both of these weren't as bad as they could have been um but a lot of people after making public statements about those things would just not do it he tried to still think rationally about what made sense and was willing to say I'm going to buy it I mean of all the industries he talked about I think Airlines were the industry he said the most negative things about and yet he was willing to consider buying them them so I think that that's very interesting that he's willing to look at things and try to reframe them um you know he has principles that he sticks to but then everything else he's flexible on instead you know on on Rules and Things and so a lot of other people are either not very sticking to their principles their entire career or they stick both to their principles and all their rules of thumb no matter what happens and what changes with the market so yeah definitely buff it that way somebody asked uh if you could take it a step further with this Nike and Ulta and pick one for each Buy sell hold Nike Ulta Starbucks so so Starbucks got a new CEO this week which was CEO which is a bad sign like like it might work out great but the history of agreeing to incredible payday to steal someone away from another company and all these like accommodations these usually end in disaster yeah what he's going to have a an office and a assistant in was it Huntington Beach or somewhere in California I forget where yeah yeah moved Chipotle's headquarters too yeah yeah I mean I don't know him so he could be a genius and everything I think acman recruited him before because that was definitely an acman recruitment to Chipotle to chipot I said Chipotle to Chipotle um and uh yeah so I thought that was interesting and Chipotle stock was down a good amount on that news and Starbucks stock was up a big amount on that news I'm a big fan of Starbucks as a place to go for coffee um they are just about everywhere they have a good app Traina Trenta size iced coffee yeah yeah I didn't realize I could do that till you ordered it for me I would always aent iced coffee and then you actually ordered me a iced coffee recently like oh wow that's right I'll just get a trena people areer for my caffeine intake uh if they're concerned about yours they should be more concerned about mine probably I'm concerned about yours that's say lot concerned about mine yes I think it calms you down actually so it's good okay um yeah I don't know I'm not no I'm not uh that optimistic about the long-term future for Starbucks just because now there's so much room for people to come and compete in different ways with it you know um I think that it's overall a really good business I'm very impressed with how it's been run over the years and how much it's stuck to what it does most companies at least you know I don't know what it's like outside the United States very well at all but inside the United States you know although they've tried lots of different things they've done a very good job of sticking to what they do best and improving that over time because everything shifted I mean now they're doing tons of things through drive-thru and mobile things and the whole point of the company at first was this place to hang out and like a lounge you know and it's completely the opposite of that now and yet they've um operationally been very consistent so they haven't jumped on every little Trend that everyone else has been doing um but they're the big giant company and the industry hasn't grown over time that they've been in it and now everyone else will come at them with differentiating themselves in some way from it right you'll have your Dutch Brothers and your uh what other things I don't know that the McDonald's thing will ever take off but your different drink things competing with it um I mean I I don't know what their latest problems are except for you know resistance on price you know I mean it's a it is a habit and so it has this danger that people are going to realize that it's a place where you can economize or basically cut out entirely um you know one reason why people used to have their you know folders giant tub of it that they would have at home or s or whatever back then whatever Brands were Cofe so good um is cuz it's so much cheaper to do it at home yeah and even though they could say well on a black coffee look it's not that much it's not like we have this huge difference on that no the most basic thing that you can make at home versus the most basic thing you can buy out someplace okay they're not if you do the math on it it's not some huge difference over month what you're paying at all but the they sell you a bunch of other stuff when you're there so what's happening to people is what's the average ticket actually turning into it's you know they're spending 10 or $15 on a cake pop and uh upgraded drink and stuff instead of what they would at home which would be you know they'd have almost no cost beyond the uh coffee there so favorite word by the way cake pop cake pop yeah oh yeah Daddy cake pop cake pop won't stop till he gets one so you know gota do what you got to do yeah what's their I mean their same store sales haven't been good lately basically it's the answer and I don't I mean when we adjust in the United States for real sales and stuff it's it's not that amazing obviously I think recently um what uh Buy sell hold Nike Ulta Starbucks well what's the price on Starbucks we are at 26 times earnings but 3.3 times eeve to sales 2.9 times price to sales so it is kind of more expensive out of out of the bunch I think right because Nike is 21 times oh 2.4 2.3 times Ulta is definitely the cheapest uh it would be hold hold hold I mean Ulta is the most appealing from the perspective if you want to make money the other two I don't think I'd suggest to people to sell Nike or Starbucks if they owned it if it's like a threeyear play I feel like I'm going Ulta to buy but if this is like 10 15 years it's got to be Starbucks or Nike in my opinion I mean would you say the Starbucks and Nike are in the top let's say 30 ions images whatever that Americans know okay then why would Nik I think that's my point well yeah I think I'm saying if you're going to make the the best irr over like 3 to 5 years I think Ulta has the potential to do that but if you're holding 10 15 years Nike or or Starbucks yeah I won't even say that Ulta won't do better over time or anything but I I would be hesitant to tell people to it's hard to replace something that has special uh place in people's minds so unless it's very expensive or they're going to do something really dumb and even you know whatever the recent results were they seem certainly Starbucks is making a huge pivot um that can be bad sometimes so we'll see when it happens everyone's excited because they think the pivot will be good but pivot is bad as often as it's good so sometimes that's a good time to exit is when everyone's excited about the new Direction um question views on incorporating momentum into buy or sell strategy empirical data shows it would likely improve a value Investor's returns has Jeff considered using it in some way especially to avoid value traps I have not considered using it in any way um I do think that if there was something that momentum would add to that yes what he's saying there is that uh value and momentum would be good together as compared to some other things that we could that it could be paired up with so I don't know that momentum will be helpful for everybody but yeah it would be helpful in the case of um value things yeah it's just an issue of I mean this is the issue of the uh how do you wrap your mind around it here and this is what I was talking about with Buffett what are we doing if we're saying that we buy stocks that go up in price and then how does that fit with the rest of the value approach um value is an approach that makes sense to me regardless of what would happen with the market this is something that that the approach that we use would make sense with the idea that it's durable in all sorts of different Market environments momentum the question is like is this just empirically something that has worked and then should I just incorporate anything that is empirically worked you know I wonder if he's referring to business momentum well I I think he's probably referring to stock momentum but yeah we certainly incorporate ideas about business momentum deeper in the business all the time when when making decisions about stuff um to the best that we can I think that's critically important I think that that's what you want to have when you're doing things with value stuff um or just in general it's the most undervalued part of it is how things are going to get better for the company that doesn't you know the good company that becomes great or the lousy company that is now things are getting better um it's pretty easy for humans and computers to see looking at the past what the situation was but it's harder for them to then look ahead and say oh look at supply and demand going forward or something you know um yeah would you ever invest in REITs or utilities how would you value them I don't know I don't think I've H it's not technically true but I I've not invested in those things unless um it was like a special situation basically I I've never invested in a regulated utility for its like dividend or predictable results and I've never invested in a re for like it's its dividend but I have invested in things that produce power um but aren't you know uh utility effectively um not the way that it's meant here and uh I've invested in things that were like in a liquidate or something but that's about it so any particular insights on CEOs operating outside the headquartered City and the impact on company performance for example Starbucks CEO allowing to operate remotely people are yeah hung up on that yeah that's often not a good sign but it's fine it's a sign that you are desperate so it's kind of like if you you think from the company's perspective or from the CEO you know what it's similar to is um uh Dr Doom is going to now be played by someone who played a different character before was big with the um the studio right so it's saying what it is a sign of is that they need a savior right and so that's why and so they have this belief about that and that's usually wrong that you overblow in your mind how effective this person can be in doing what they need to do but it's possible I mean there's certainly plenty of cases where someone was brought in and it was a key thing that they were brought in and they did great stuff but how many times was that someone that was kind of brought in and and given all this and famous I mean Steve Jobs they did it with and that worked right so Steve Jobs was brought back as a savior for that company and treated that way certainly and it worked out so um I wonder if it's different when it was his it was his baby at one point that he started you know yep there was a little little bit of that with um Jamie Diamond yeah uh when he went to um was it was it called bank one at the time do you remember what it was called M so pre the merger with Chas yeah so there was a bit of that too so it has it's happened before and those were successful second careers for people so it's possible uh Steve Jobs technically I guess was employed in stuff but not a company that was making any money right right and um you talking about next yeah that was his company yeah but it wasn't doing anything I don't think it was doing as well as Apple but they were making I think well Apple was about to go out of business so I mean it wasn't doing well but I mean there was no need to steal him away from I don't think anyone but Apple wanted to steal him yeah he he wouldn't have been in demand anywhere else um yeah I I don't know stealing from an actual other company that they're already working at I don't know why do you think Steve when you read the accounts of like his time at Pixar it seemed like he was almost a different Steve Jobs with Pixar than he was with apple do you think that's just because Apple like the level of passion was different where it seemed like at Pixar he was much more let them take the driver's seat you know trust people more not be crazy and then Apple people always talk about you could look at him the wrong way or he could look at you the wrong way in a the elevator and you'll be packing your stuff up what do you think that is I think that's why I mean I think that Buffett left people for other for running businesses completely alone but if they tried to touch his stock portfolio they'd be out the door so I think it just he had felt complete ownership over it as an extension of himself and not Pixar let's see next question how do you discern which businesses in an inventory heavy industry are the most well-run I would say how many times they're turning over their inventory you could tell uh well run you could do like a gross profit to the net tangible assets that's like that yeah right so one thing is you could plot it if you like doing that kind of stuff you can see visually so often in Industries there's going to be a you're going to say that theoretically what's grouped in the industry are not really the exact same business model and so there's going to be tend to be more of a relationship than you expect in terms of higher gross profits on items that turn slower and lower gross profits on items that turn faster which is predicted by the idea that in in capitalism and stuff you're competing on returns on Capital not on on like margins or sales or something um so you have to compare them that way I see so many things written up where they're like this company has higher margins this company yeah but it doesn't have higher turns or this company has higher turns yeah but it doesn't have higher margins so what you just said about gross profit to net tangible assets and all that is is really good um yeah the hard thing is of course getting ahead of it so that you don't get in and a point out which they're making a mistake about something else if you ever know that they're going to take a lot of inventory out and you can predict that ahead of time boy does that get you good results because that is something the market highly highly highly overlooks they're not great the market is pretty bad about understanding how receivables and inventory work yeah are fears of national debt widely overblown considering that Nvidia gained 3% of it since the August 5th open uh yeah as long as people take are willing to be paid off in in shes of Nvidia and you don't have a problem yeah yeah I think they're uh I think it's uh underappreciated how much deficits uh in the national debt could really harm the country's future I mean the issue with perceptions of the national debt and Nvidia are related in we talked about like the George Soros type stuff in some previous podcasts whereas like reflexivity and all that my problem with these are if there's something that can go on for a really long time then people can be unaware of the risks that are happening there so you could pile up a huge amount of debt and not have a problem for a long period of time anyone can do it a company can do it an individual household can do it a government can do it and it won't affect how it's run up until the point where you decide to do something about it right and maybe someone forces you to decide to do something about you decide it yourself but there's no ill effects for a period of time just like there's no ill effects to a stock getting wildly overpriced until someone says oh I think this is over price starts selling it and then it changes um it's harder to fix the problem the bigger the problem gets and so what you end up doing is more frightening when the problem is several times bigger but you don't feel that until you know the time where it's the um day of judgment on that stuff where someone decides oh we have to do something about this problem but if you have a credit card with a $10,000 limit and you start at zero it's only when you get to 9500 that it starts to feel like pain you know what's your view on the Auto industry given the depressed valuation especially for the OEM in Europe yeah I it's an industry I don't know much about and feel like I don't understand well and everything but that is true some of it looks very cheap to me but have you looked into deer and Company it is Big moot company I'm struggling to read the balance sheet because of its Financial segment yeah I would appreciate if you could touch on that that's all I can touch on it's mainly a finance company in terms of how it actually makes money which is fine that's fine I mean that's that's how some companies make money and everything but I'm just yeah that you know I mean when people talk about Kmart as some sort of car dealer or something no Kmart is there has car dealerships to create loans you know mhm how should you analyze defense stocks that's a great question and I don't know the answer to that one either um they I mean a lot of them are highly highly Diversified so it doesn't necessarily matter all that much so what countries are they in what countries do those countries have relationships with what projects have they worked on historically how much do each of those things add up to and so just an idea of what that looks like to the overall budget the truth is like a giant defense company isn't necessarily all that harder I mean people feel like I can't analyze it but can you analyze a big mutual fund company you know asset manager can you analyze a big um uh Ad Agency can you you know like we get into these companies where yeah you don't know everything about every little part of it but there's most of the projects aren't adding up to that much and there's only going to be five people that they're going to go to to five firms are going to go to to say would you like to bid on the next project or something you know what I mean so if you have an entrenched position in the military of France or the UK or the United States or whatever there's only a that do and then you can it's not that hard to estimate how much percent of their GDP they're going to use on Military things so yeah I don't you know I don't think it's all that different than Aerospace for being able to figure it out to be honest you know Aerospace is more Winner Takes all um for some of it but yeah but a highly concentrated one would be tough if you're telling me that they're making all their money from a couple um contracts or something mhm uh somebody asked for your take on hellofresh quick take or otherwise you'll have to give more your take because I don't think I understand the the I'm not the person for the service and stuff right so I don't have a take on the business itself but as a customer I I liked it actually except for the POR were a it was a little too tiny for me you know I I have a big appetite but it was nice uh sending the exact ingredient ingredient to use to your house so you're not wasting ingredients and stuff like that you get to pick your meals and whatnot um but I turn it off I don't know why I did I think just I don't know if I just didn't want to pay the price or what but yeah so my my problem with these generally is it falls in the category to me I think of the be careful because if you have something that you're trying to get a recurring you know whatever sort of thing going it's better to play to people's worst instincts rather than their best right okay like you know what I mean um some someone that's selling um scotch and cigarettes and stuff as opposed to weight loss things I'm going to be thinking that that's more a long-term business model here I just worried about the churn and the marketing all the time with any of these things you know of how much you have to do because I I just wonder if everyone will trial it there's always an appeal to something that you haven't tried before but does everyone try everything one time and then you know move on how many people have actually used like four different services for a period of time and you know that's what I mean so that's why I was asking if you could just talk like Factor meals you know yeah but the difference is like Factor comes already uh made for you so you just pop it in a microwave whereas hello fresh they send you all the ingredients and you just cook it yourself right but what I I guess what I'm cons concerned about is like let's say Factor right yeah they send a direct mail thing to you and it has a QR code on it or something and a you can save money the only reason I'm peing interest is cuz I got a discount for like 50 bucks for five meals for a week or something like that yeah and my concern with that is does that as a marketing thing my thought would be that will work if you've never heard of factor or if you've vaguely heard of it but not tried it right but is that working to get you to try it one time and if they send you that later after you've already been a customer and stuff it doesn't work but the problem with that is as long as there's new entrance are you always interested in the new thing that's always my problem with with weight loss related things diet exercise all those I mean that's all even things that aren't there to make money I do wonder if people are like here's the latest new thing in this you know which doesn't necessar make the most sense why would the best thing be the latest thing why would we have just come up with the best diet this last month or something they've just discovered it they've just discovered the best way to exercise or diet or something probably not probably based on principles that they knew decades ago you know what I mean why would the best service be something just now we're not thinking oh we've just invented something better than Starbucks this week you've got to try it you know um so that's the kind of downside thing to it for me with that always is the marketing part of it um and the appeal of the other ones is like I said with the the the vice type things is that people may not like it and may keep doing it but um I think it's harder to send something in the mail and say try this and um I don't know there's just a feeling that people are like I should be doing this or something and then here's something I can try and try it but then is the same factors that were involved last time with why you didn't stick with that one and then how much does it cost and everything so I mean I got a pro what was it uh tavala I had that's a product that you can buy and it does meals and it's like a little microwave oven type thing right I I kept the equipment and just canceled the service over time and love the equipment but never Ed the product and it's probably sort of a razor and blade type business so I don't know if I was a highly profitable customer for them h this thing TOA yeah yeah the actual equipment was pretty useful yeah oh interesting MH interesting but that wasn't why I got the equipment in the first place it was just for for um to use with it and then I was like oh this is actually really useful for me just making other stuff in it so but you can also just buy from Hamilton Beach brands or something you know like uh yeah go to Walmart Styles and pick up right probably something that's similar or whatever yeah but uh what are your thoughts on over-the-counter markets so I guess maybe because the stock's down a bunch and the ORS recently right and earnings been very flat I would say in terms of Revenue and down in terms of earnings a little bit I mean we're not talking about huge this isn't a business that has huge up or down years normally MH yeah so call it down from 60 bucks to $47 we have coup questions on this okay the last time the stock was even meaningfully going up was like late 2021 or something I mean it's been barely goes up to although it hadn't gone down much and now it's going down you know yeah it's not a super cheap stock so you always have that problem of where's the floor on it when people decide that they don't like it you have any update thoughts on it on the business I like it a lot better than the market I mean you're buying something at what is it free cash flow is often very comparable or better than earnings and you're talking about earnings being only you know 20 times or something yeah I would like to buy something like that um cyclically it's not great time for it in the market obviously um with the businesses that they're in so that's not doing so great I mean we talked about that like all the speculation right now seems to be mag seven or big things there doesn't seem to be a highly speculative environment around tiny things and foreign things and OTC market says nothing in big us companies basically so it has zero exposure to all the speculative stuff that's going on now so they're kind of i' say in a cyclically low period for speculation but yeah what you like it more than the market over the next handful of years and in part because of the price I mean if it was 1.5 times more expensive then I might feel the two are more comparable but this is you know for very for something that has you know doesn't really require capital and in most years grows a bit in nominal terms all the time with the ability to pay that all out to you 20 times is not crazy I'm not you know 20 times is a lot to pay for some asset heavy thing that has to reinvest it all but for something where that's all the free cash flow and everything I mean you can only get in bonds something like that and you have no upside you get a little bit more I mean in trunk bonds you get a few hundred basis points more but you you really can't lock in something to own forever a long duration you know let me own this thing as if it's a 30-year Bond or something and get really good upside Beyond just like getting paid this amount out now they don't literally pay it out I mean they do some BuyBacks and dividends in some ways um but and and the BuyBacks really just offset the the um delution they're not really much in the way of BuyBacks but you know in terms of their so the cash could sit on the balance sheet but their cash flow is basically giving you a yield like you could get as good as you could get in long-term investment bonds and then you have upside beyond that with the idea that they might grow each year there's not that many years where they shrank if we go to the overview they've only had a few years where they've actually declined right in terms of um they I guess they reported maybe they've declined a little bit I mean what do they have in terms of an actual down year there and how big is it that you can find are you referring to earnings or Revenue well both I was refering yeah but the earnings is trickier because it does depend a little bit on what we're seeing but let's start with earnings I guess okay well earning I mean the only you've had you haven't had any Revenue uh year-over-year declines but you have had earnings declines uh 2019 right and then 2023 but that's basically it okay so let's go with operating profit from in the year where they declined what how did it go from the year before to that year uh okay so the year that it declined was 2019 operating profit in 2017 went from 18 million to 20 million and then fell another 2 million uh or 2 million in 2019 down to 18 back was two years before yeah mhm and then this most recent time they had that happen again and we don't know when they would be back to the level they were at before I guess yeah in 2023 yep so you know it you like when there's a decline maybe you lose a year of progress you know you lose two years of progress so it fits and starts but you know I mean there's some banks like this and and some other companies like this but anything that doesn't really need additional capital and every 3 years or so is going to be a bit better in terms of their earnings over time if it's priced just at the levels like bonds are priced at in terms of free cash flow yield here I think it's attractive yeah I think that that's attractive now if growth went to nothing it wouldn't really be attractive you know but as long as there's some growth you don't need a lot and like we saw here the growth was like 10% or something over the last 10 years I don't know that they'll be able to duplicate that but um that's a lot for something that your your free that your multiple on is only 20 or something something right now so mhm got it cool that is a great place to stop I want to thank everybody so much for sending in those questions on Twitter follow me on Twitter or x uh if you want to be on the lookout for next time I will do that but if you want to send me a more in-depth question that we will put in the presentation and pull it up on the screen you can email it to me at Andrew Focus comp.com I thank every so much for tuning in with the both of us on the podcast here today make sure you hit the Subscribe button wherever you're listening or watching us so you will be notified every time we upload a podcast um and reach out to me if you're interested in learning about our Money Management Services Andre Focus compound.com I thank you everybody so much and we will see you in the next podcast take care

First 12 Hours on a Stock, 13-Fs, NKE/SBUX/ULTA, and Questions from X

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