Investing Unscripted Podcast 88: January 2024 Mailbag

Your questions. Our answers. Mostly Jason's answers.

Investing Unscripted Podcast 88: January 2024 Mailbag

Note: Transcripts are edited for clarity. We may earn commissions from some links. Thanks for the scratch. 

Investing Unscripted is presented by Public. Public.com has just launched its new high-yield cash account, offering an industry-leading 5.1% APY. 

No fees, no subscription, and no minimums or maximums. That means you can grow your cash with 5.1% interest with no strings attached—it’s as simple as that.

Again. That’s 5.1% interest, with no fees. 5.1% interest, with no subscription. 5.1% interest, with no minimums or maximums. 5.1% interest, with up to $5M FDIC insurance. Just 5.1% interest. Straight up. No strings attached.

Sign up today at public.com/investingunscripted  

A High-Yield Cash Account is a secondary brokerage account with Public Investing. Funds from this account are automatically deposited into partner banks where they earn a variable interest and are eligible for FDIC insurance. Neither Public Investing nor any of its affiliates is a bank. US only. Learn more at https://public.com/disclosures/high-yield-account 

Jason Hall: [00:00:00] Hey, everybody. Welcome back to Investing Unscripted, where we ask the hard questions about investing. I'm Jason Hall, joined as usual by the voice of the people, Jeff Santoro. Jeff, how are you, buddy?

Jeff Santoro: I am doing well. How are you, sir? 

Jason Hall: I'm good. It's been a hectic day with the weather. A lot of people on the eastern seaboard of the U. S. have said that over the past couple days. 

I said it on our prior podcast, too. This winter has been something so far. Turned into a snow day. Wasn't expecting it. It was a snow afternoon. 

Jeff Santoro: Yeah, we had a snow day here in New Jersey as well, so I'll take it. It's nice to have a, it's nice to have an unexpected day off here and there, and it gives us a chance to sit here and record our podcast.

Jason Hall: There you go. 

All right. So this is a fun one. This is one where we're answering the hard questions about investing. It is our January mailbag. Thanks to everybody that sent us questions. We have a lot of questions. We may not get to them all, we have so many. We'll get to as many as we can and any that we don't, we'll definitely answer in February.

But before that, Jeff, you got some housekeeping. 

Jeff Santoro: I do. Thank you. 

And [00:01:00] even before we get to the housekeeping, for anyone listening, we do a mailbag every month, so if at any point you have a question, just go ahead and send it to us. You can DM it to us, you can hit us up on Twitter, you can email us, any social media account you can reply to and we'll see it.

We just keep them over the course of the month so we have them for when we record the, the episode. So you don't necessarily have to wait for an announcement, you can send them at any time. 

Jason Hall: If you're, if you're a person that does the transcripts and you're reading this transcript right now, You can reply to the transcript with your question. You don't even have to go to some other thing to do it. You can comment on the transcripts. Email at [email protected] and all of our socials. So, yeah, like Jeff said. 

Jeff Santoro: Anytime you think of it, whatever is easiest, go ahead and send us the question. 

Housekeeping, real quick. You can find us on all of the social media accounts. Search for, usually it'll be InvestingUnscripted, except on Twitter, where it is @InvestingPod

You can email us [email protected]. Check out our YouTube channel. Subscribe to our newsletter

And as always, we really do appreciate people giving us [00:02:00] reviews and ratings on the podcast apps. We got another one this week on Apple Podcasts from cdhammons, who says, "really enjoyed the show. Illustrates how there is no one right way to invest. Very helpful and entertaining. Thanks, guys." 

So thank you for that review. And we hope that if you're listening and you enjoy this, you'll take a few seconds to give us a review as well, because it helps people find the show.

All right, Jason, we got a bunch of questions here. Let's dive right in. 

The first one came from Facebook from Gabriella, and I believe, you know, Gabriella a little bit. 

And her question is, how or where to start. 

Jason Hall: Yeah. And I wanted to talk about this one because without giving too much info about Gabriela. Gabriela is a friend of a very close friend of mine.

Gabriela is European. From a European country, works on sailing vessels abroad. Owned her own business for a period of time before she started doing that. So Jeff, I thought it was really interesting because it's like the, it's like a perfect example of [00:03:00] like a perfect storm of all of the hardest things when it comes to figuring out how to invest, right?

You don't have an employer that's giving you a pension or some sort of an employee match to a retirement account. Most of the good easy to access popular financial advice that's out there is based in the u. s. There's tons of it. There's tons of it in the UK, too. 

It can get a little harder to find it for like in the mass media, right, if you're on a sailing vessel somewhere in the pacific and you're doing a web search, you're probably going to get all the SEO stuff is going to be heavily based on the things that are the most popular, right? 

So it can make it really hard to figure it out. And what I wanted to say is that anybody out there that's international, a lot of the things that we talk about are really US centric.

A lot of times, most places do. Most countries do have. Some similar kind of tax advantaged accounts, access to good stock markets, whether it's the major markets in Europe or access to U S markets as well. Those things still exist. They're still there. 

You still have fee only [00:04:00] financial advisors and wealth planners that can help you. One of the thing that's come out of the pandemic, I think is really valuable is that we went through that period of time where everything had to happen remotely. And now it means that for the Gabrielas of the world that live in a small country in Europe, and they're somewhere in the South Pacific on a sailboat, they actually don't have to try to figure out how to get back to their home country to meet in person with somebody.

It's easier to do virtual appointments and meet with people and find it. So I would suggest start with your, in your locality, find a fee only service providers. Pay the money. You're going to get unbiased advice, and they're going to point you in the right direction. And then once you have a direction, then it's going to get a lot easier.

But before, before you even do that, though, take Jeff's advice about investing. The best day to start is today. Even if you're not investing the money now, set the money aside, right? Do it now, right? I think that's really important. 

Jeff Santoro: Yeah, I mean, the international thing and being located in different places on different days, depending on what you're doing, does make it more difficult.

I would say I agree with [00:05:00] you in the sense of finding someone in whatever locality you call home, who's a fee only advisor and can give you unbiased advice that's right for you is always the best place to start.

I would say there's another, when it comes to just learning about the companies you might invest in, like if we're going to take the investing angle, obviously our podcast and YouTube channel are wonderful places to start. There's two other sources I just wanted to give a quick plug to and this will really apply to anyone. 

So for just basic financial information and personal finance, I'm a big fan of the How to Money podcast. It's another one that I found early on in my investing journey, and I think it's a a good place to start if you're looking for really basic personal finance more than investing sort of advice. 

Jason Hall: And also information about beer. 

Jeff Santoro: Yes. Yes. They talk about beer on every episode. And then, last week we just had Andrew and Dave on from the Investing for Beginners podcast (link to our appearance). So for some more [00:06:00] beginner focused investing specific information, I would point you towards that podcast because some things are going to be universal. What is a price to earnings ratio is going to be the same no matter where you are, so, I mean, how it works anyway. So those are two sources.

Alright, let's move on to the next one here, Jason.

So this is from a friend of the show, Ken, who sent this to us on Twitter. I'll read it and then you can kick us off with your thoughts. 

" I know that cash can be addictive for Jason. What about the act of building cash? I just trimmed a bunch of stocks today and it's like a drug. I have such a high from it and I need to hide my phone after sending this message. It's like all the extra purchases at low points hit my targets and I keep going back for more stocks to trim. My hands are shaking too much to write in my journal. 

Have either of you guys experienced this? Thankfully, I've had a selling plan for a while and I'm executing on it. Otherwise, I might get too crazy with it."

So I think there's a little bit of hyperbole here with Ken, but I think it's a really good question because it brings [00:07:00] into the equation how your emotions can impact the decisions that you make. 

Jason Hall: I don't know. I kind of picture Ken right now, like he's got his arms crossed and he's like kind of rubbing his forearms a little bit, like maybe feeling for those injection shots, those injection spots. 

Jeff Santoro: Like a drug addict who needs a hit.

Jason Hall: Yeah, and I don't mean to be flip about that.

But like, I really did, but I could, I can very much relate, as anybody that's listening to me talk about this knows. And I think it's one of those things that, this is where having a framework is important. 

Because you build structures into your process to create friction and make it harder to make those like short sighted decisions.

But I think you also think about, understanding what your goals are, when those goals are and understanding what are the right assets to own based on your longterm and short, short term goals. And then again, building a framework around having processes that can keep you from short circuiting it yourself.

And that's why one of the reasons why, you know, when we've talked about it, I've recently- for a long time, like 5 percent was the maximum amount of cash that I would keep in my [00:08:00] portfolio because of self inflicted wounds.

The past 14 years. Most of the past 14 years, cash was your enemy if you wanted to grow your wealth over the longterm.

That started to change and I've started to get older. So now I've increased it to 10 percent because you can get more yield on cash. And I'm getting closer to some of those financial goals where I need to protect spending value in the next few years, versus trying to grow that wealth over the longterm. 

So again, I think if there's ever a time where like you really want- I hate, I generally hate rules when it comes to investing because often they get in the way. And if you just, they become dogma. And, and that's how people end up calling other people witches and setting them on fire, right? You need to be able to have things in your life to help you think through things to make the right decision, not just tell you what to do. 

But when it comes to like, you build your process, you know what your goals are, you know when they are, you figure out like an amount of cash or a percentage of your portfolio in cash that makes sense. [00:09:00] And then that's all, for me, it's like, I almost have to make that a rule.

What about you, Jeff? 

Jeff Santoro: Well, I think having rules is okay with almost like with exceptions to rules. So for example, I like the idea of having rules around amount of cash you want to hold. Ken referenced in his question that he's had a selling plan for a while and now he's executing on it. So that's great. So he's not blindly selling. He's going into this with a plan and he's executing on it. 

And then I think where you want to have some flexibility with those rules, and where a framework might be better, is if something drastic happens in the market. So your rule might be X percent of your portfolio in cash, or you have a selling plan, but then if some huge black swan event happens next week and the market drops 30 percent in three days, maybe you throw your rules out the window and you have more framework kind of thinking.

But in terms of like normal course of business, I have no problem with rules around things like this. 

The other thing I would say that came to mind as I read the question is something you've said to me a lot when [00:10:00] I either am thinking about selling something or I've sold something and you say, well, what are you going to do with the cash?

Jason Hall: What are you going to do with the proceeds? Right. 

Jeff Santoro: And I've been bad about being a journaler myself and writing down my thinking and my reasoning and my mindset when I make a decision. So I can't sit here and say that this is something everyone should do because I don't do it.

But I do like the idea of when you're feeling very emotional about something, write down What you're feeling. And also if you do make a decision, why you made it. 

Because I think what's more important than maybe what to do right now in Ken's situation is remembering what decisions he made related to it, so that if they are good ones he can reflect back on that. And if they are bad ones he can reflect back on that. Because you'll forget, two, three, four, six, twelve months down the road. Why did I sell that stock, and what did I buy, and was that purchase or was that the other purchase?

So I do think keeping track of the decisions you make makes a lot of [00:11:00] sense, especially if when you're having this emotional response that can describe. So those are some of the things that came to mind as I read the question. 

Jason Hall: Yeah. Last thought on this too, and this is like a rhetorical question and for the Kens out there in the world, it's a good question to ask yourself. Because sometimes it's really easy to justify selling a stock. 

Because you like, you feel the urge to raise more cash. And a lot of times that urge to raise more cash is because you feel like the market's frothy. You're, you don't even realize you're doing it and you think you're a long term investor and like you do all the things. And then you're trying to time the market and you don't even realize that's what you're doing. It's easy to talk yourself into doing short sighted things simply because of that. 

So again, back to that, kind of that rules based thing with cash. That's why I think it makes it harder for you to like justify selling a stock. Just because you're raising cash because you think the market's expensive or you're expecting a correction or whatever.

So I think that's important. Ask yourself are you selling because something's changed with the business? Are you selling because you've reached a financial [00:12:00] goal and this is the stock you've decided to sell because you need to generate the cash for the proceeds? Or is there something else and you're just letting the tail wag the dog to justify raising cash so you can get that little that hit that next little... 

Jeff Santoro: Yeah, no, those are all really good things to consider.

All right, next question comes from Colin on Twitter. 

" How have you decided or calculated your magic number, dollar amount, when you can choose to pull the plug?" 

So I'm assuming he means on investing or maybe working, but basically I'm interpreting this as how did you go about calculating the amount of money you need to be able to retire, or go do what you want to do.

That's how I'm interpreting it. So what are your thoughts? 

Jason Hall: Let's let's think about this a couple of different ways. 

So, for most people, I think the magic number is when can you retire, right? When can you do that big thing? 

And that's, I think the harder one for people because you need to figure out an income number that your portfolio can generate over a sustained period of time. It's very different than like the magic number for paying for kids college. [00:13:00] That's pretty easy.

You know it's going to cost $35, 000 a year for tuition, right? And you've committed to pay tuition for your kids. It's their job to get a part time job to pay for their apartment or whatever, right? Whatever that number is, it's an easy round number and it's an easy number of years, right? You know it's four to six years depending on how lazy and dumb your kid is, right? So that's the reality. 

And when it comes to retirement, it can be harder. Cause you're, again, how much are you going to be getting, like Jeff, I know a lot of people that work in public education do have some sort of a pension. Not as many as used to, but, so there's a pension number. A lot of people have that. 

Can you count on Social Security? I think broadly the answer is yes. 

How much is healthcare going to cost? What's your insurance going to look like for that? You get to 65 and you can get Medicaid- or Medicare, but doesn't cover for everything, right? What else have you built up? How much additional costs are you going to have to build in that you're not spending for healthcare now, that you're going to have to spend for that?

So I think what you have to do is you have to try to figure out what is a [00:14:00] minimum amount of income you're going to need to generate, right? 

You figure that out. Like that number $5, 000 a month, right? Is this is what it's going to cost. 

Let's go, okay. Well, I know I'm going to get $1, 500 a month from Social Security. That's the round number you're going to get. Okay. So now I need $3, 500. Like that's, that's what I need to generate. 

And again, just be very conservative with those numbers. Okay. So what size of a portfolio, would I need to be able to generate $3, 500 a month, $3, 500 times 12 figured out, what's that $40, 000 a year, $42, 000 a year.

Roughly, let's say it's 42, 000 a year. I could do the math, but it's more fun to get it wrong and let somebody tweet at us and tell us we got it wrong. 

Jeff Santoro: Tell us in the comments that Jason messed up the math. 

Jason Hall: Let's say it's $42,000 a year, right? That's your pension, your Social Security money, all that kind of stuff.

That's what you need, your portfolio to generate. And then this is where you start working backwards with things like the 5 percent rule, right? The 5 percent rule is, says your first year that you're distributing money from your investing accounts, you take [00:15:00] out 5 percent and then every year you increase it based on increased cost of living, generally inflation, right?

That's two to 3 percent a year most years. We saw a couple of years ago was 8%, right? 

So the idea is you figure out that, and the idea is that the 5 percent rule is this is the steady state that your portfolio could generate sustainably for 30 years, right? You know, it's going to cover that for 30 years, you're not going to run out of money.

I think that's kind of a starting point, what you do. 

Jeff, how do you think about it? 

Jeff Santoro: So what bugs me about trying to figure this out is how many variables there are. 

So I've never done it. And for a couple of reasons. 

One is, you did mention, I'm lucky enough to work in a profession that does have a pension. I'm far enough along in my career that I'm reasonably certain, not assured, that I'll have it for as long as I need it. I mean, things can always change. 

I also, as I've written about in the newsletter and as I've talked about on the podcast, was a little bit behind the eight ball as recently as the last five to [00:16:00] seven years in terms of the amount I didn't save when I was younger. 

So my mindset has just been let me just save as much as I possibly can afford to save and still live my life, because I know I'm playing catch up and I still have a lot of time before I really need to worry about it. That's just my personal situation. 

But I kind of like the idea of aiming for a percentage of my income and then just either trying to hold it there or increase it over time versus worrying about a number. Because I feel like that's just a lot more easy to wrap your head around. 

And the number I've heard bandied about the most often by people who know more about this than I do, is around 15 percent. If you can save 15 percent of your income over the course of your career you'll be fine, is the one sentence version of what I've heard a lot of smart people say. 

So in my mind I'm more about can I get, can I stay at that 15%? Can I maybe bump it to 16 or 18 percent over time? Can I get to 20 percent and not sacrifice any quality of living? And then[00:17:00] just hope that over time it, the number takes care of itself.

If I really did want to have a number though, and I probably will do this sooner rather than later just for a number of reasons. But I would certainly do this if I were within, let's say five or ten years of when I thought I might want to retire, is pay a professional to tell me.

We've already mentioned fee only financial advisors once, and I think that's the perfect reason to sit down with one at various points. I think it's probably something worth doing in your 20s, and then again in your 30s, and then again in your 40s, and then again in your 50s.. Because things change, and the predictions about the future might change, and these withdrawal rules have changed over time depending on who you talk to. So there's no magic way to do it.

I'm more along the lines of a percentage of my income and sort of let it work itself out over time. But if someone wants a solid number, I would say sit down with a professional and try to get as close as you can. There are some free calculators out there. I don't, I can't vouch for how accurate or great any [00:18:00] of them are specifically, but that's another way you could go as a first step.

Jason Hall: I've heard Robert Brokamp repeat this number and others that have put out there that kind of makes sense. And that's, once you actually kind of get close to retirement, typically around 80 percent of your pre retirement income is about what you're probably going to need to spend because that's basically your income minus what you're contributing to retirement and Social Security. 

And like you start backing out all of those dollars that go towards Social Security and pension (retirement savings) and costs like that, and that's probably what you're going to be spending at least in your first few years of retirement. 

And then what you spend will, like for like travel and entertainment, that kind of stuff will go down as you get older, just cause you don't, you can't get out and move as much the older you get. It's harder. But you'll spend more on healthcare, so it washes out a little bit.

So that's just another way to think about it, but I know Collin is similar age to us, younger kids, that kind of thing. So when you're at this point, you're still measuring it in decades, it's definitely harder to like spitball that number. There's [00:19:00] no doubt about that. 

Jeff Santoro: Yeah, for sure. All right. 

Next question comes from another long time loyal listener in front of the show, Seena, who sent us this message on Twitter. "What does a big gap between trailing and forward earnings or price to earnings imply? If I understand correctly, it's an indication of future projected metrics by the company. And or analysts." 

So what do you think about that one, Jason? 

Jason Hall: So as a starting point for PE, when you see a forward PE metric on YCharts or Yahoo Finance or Koyfin or whatever your platform of choice is, that's consensus analyst estimates. Wall Street analysts that cover the stock that have given publicly stated, here's their estimate for 2024 earnings for a company. 

Also it's adjusted. It's non-GAAP, right? So for example, Wells Fargo just reported or not Wells Fargo, but Citi just reported a $1.16 per share loss in the fourth quarter, their last quarter. Their adjusted earnings was like 80 cents a share, right? That's a massive [00:20:00] swing from a big loss to a gain. 

So it's an adjusted Wall Street analyst consensus estimate. So it's Wall Street's best guess, right? So you got to keep that grain of salt when you're looking at forward guidance. I have to think about the company, the industry they're in, how predictable their earnings are, how consistent they've been over time, and how good analysts have been at setting their expectations for those companies. 

There's a lot of variables that come into play. It's hugely different from one company and industry to the next, whether it's a trustworthy metric to begin with. 

So, with all of that said, to answer the question is, what does it imply? A couple of things, right? So, if you look at the, if the forward is a ton lower than last year's, maybe last year was a bad year or they took some charges, right? And you're looking at, trailing earnings, you're looking at GAAP earnings. You're not looking at adjusted earnings, right? And maybe the company is really highly valued on a trailing basis.

Maybe they had a bad year or they took charges or whatever. And the expectation is that their forward guidance is that [00:21:00] things are going to normalize. But the market saying, well, you know what? There's also going to be some, the GAAP earnings aren't going to be as good as the adjusted earnings. So we're not going to value the company based on real expenses that you're just adjusting out. So it could be that. 

It also could be like, home builders, for example. There was a period of time when home builders forward PE ratios, and they still are to a certain extent we're crazy cheap. Coming out of last year, last year wasn't great for home builders because interest rates skyrocketed and they'd already sold their inventory the couple of years before. So the market is expecting that, despite the, so Wall Street is expecting that their earnings are going to bounce back, but investors maybe aren't so quick to run into that stock.

So there's questions about something going on. Maybe it's a macro thing that could under undermine the results, right? Again, if it's the trailing is higher than the forward, somebody has concerns about their ability to either deliver or there's a bunch of adjusted stuff in that [00:22:00] forward number. Because then you're comparing GAAP to adjusted. 

Now, if it's the other way around, the trailing is really low and the forwards really high, maybe it's a cyclical company in a cyclical industry, like a steelmaker that had a gangbusters last year. And the guidance going forward is that earnings are going to fall. And maybe the price hasn't really come down based on that because the market's not ready to move on because maybe the market thinks that it's going to be a better year than expected. 

Jeff Santoro: Yeah, you know a lot more about how to think of these metrics than I do, but a couple things that I think about. One is, anytime you're basing anything on analyst estimates, I don't know, you said you have to take that with a small grain of salt. I think that's a big grain of salt. 

Jason Hall: The tequila and the lime too, is what you're saying? 

Jeff Santoro: Yeah. Like, I don't know, just, it doesn't seem like they're always that accurate. 

And the second thing I would say is, the price to earnings ratio is two things. It's price and it's earnings. You've talked a lot about earnings. 

But there's also the price thing. And what these forward ratios can never take into [00:23:00] consideration is a big unexpected event. So I would imagine a lot of the forward looking PE ratios as late as December of 2019 or January of 2020 were probably not factoring in the market dropping 30 percent in a few weeks, right?

So I don't get too caught up in forward versus, I don't really look at forward earnings at all, honestly just 'cause there's just too many variables. It's predicting the future to some degree. 

But I think you covered the differences between the two. I just wanted to add how I, how I think about it.

Jason Hall: Well, no, they could be useful. But you're exactly right. You definitely have to caveat. 

There's one more thing I wanna say that I think's really important to this. Because again, you're looking at adjusted numbers. This is one of the big reasons Jeff, and I've talked about this a lot. But it's one of the big reasons that I think looking at cash flows is so important. Whether it's companies that maybe haven't reached GAAP profitability yet or companies where you can have these big write ups and write downs of, I mentioned banks like, right? They're taking, we saw a [00:24:00] bunch of banks are starting to take more loss provisions, loan loss provisions. That's just a ledger move, right? It's not an actual cash move until they either take the , if they take the loss right then, but they bolstered the balance sheets to do it. 

We saw like, when the pandemic first happened, like we saw all the big banks took like tens and tens of billions of dollars of loss provisions. A few quarters later, after all the stimulus was done and we kind of worked through the first scary part of it and the economy bounced back, they pushed it back onto the other side. So, cash flows tell you the true story of what's actually happening right now, not non cash things that are getting moved around.

So following cash flows can be really useful when it comes to this. 

Jeff Santoro: Yeah, that's another, I'm glad you said that cause that was another thing I was thinking earlier, which is if you watch results from companies long enough, you will see weird quarters where a company that's always been profitable all of a sudden has a net loss out of nowhere and it looks like, oh no, the sky is falling. But it turns out no, they just had to take a huge write off because of this one time event or, you know, a restructuring [00:25:00] charge.

Sometimes it's just because they laid people off and there's expense to lay people off or they're divesting part of the business or they had a- it happened to Amazon once where they had a huge net loss, but it was, most of it was because they had a huge stake in Rivian and Rivian stock tanked, right?

Jason Hall: Have to mark to market if you have equity investments, right? 

Jeff Santoro: Right. So there's all these, you know, accounting reasons why sometimes a net loss is the way it is. So there's more to it. You can't just look at a-

The 

Jason Hall: Berkshire (Hathaway) portfolio is a perfect example of that. I mean, cause if there's a, it's a heavily volatile quarter, they'll have to mark to market. Like think about the hundreds of billions of dollars to have an Apple alone. We love it when there's a good quarter, and then we say ignore it when the quarter is bad. But you average it out over the long term is 

Jeff Santoro: really what you have to do. 

Right. All right. Next question. Also from Colin. He sent us two. We broke them up a little bit. So here's Colin's second question also sent to us on Twitter.

He wants our thoughts on "the advice that you're young and you can take a lot more risk because you have time to recover. He feels like this advice is B. S. If you're young and start early [00:26:00] enough, you can actually-

Jason Hall: He did not type BS. 

Jeff Santoro: No, I'm, I'm keeping it clean for families. 

" If you're young and start early enough, you can actually take lower risk and make a lot of money and get to the finish line quicker. You don't need to be buying the next Amazon or high flyer speculative companies in small caps, but only if you start early, say 18 to 25 years old."

Jason Hall: What do you think about this?

Jeff Santoro: I, the first thing that popped into my head was, I think it depends how you define risk. And we've talked about this, we've talked about this before, where a lot of people think risk is how often a stock's going to go up or down or how drastically a stock's going to go up and down.

But you can also think of risk as complete financial ruin, or you can think of risk as not having enough to retire because you were so conservatively invested over the course of 40 years and you lose out to inflation. So I think that's what it comes down to. 

To me I think the where Colin really needs to take his thinking, in my opinion, is more about, there's not one way to invest [00:27:00] successfully. 

So I think if you're in your teens or 20s and you just don't feel comfortable being super risk- on with your investments, you don't want to own a lot of small caps and speculative companies. Buy an index fund, maybe even buy an index fund that tracks bonds. Or keep some extra money in cash and get CDs if interest rates are there.

And if you do that with some stock investment, it could just be index funds over the course of 40 years, you'll probably be fine. Not financial advice.

And so I think that's appropriate for some people. I've talked about it before, my wife and I have very different risk tolerance levels to the point where she's almost entirely in index funds.

The only stock she owns is really the one from her company that she gets as part of her compensation plan. And she's fine, like we're comparably where we need to be, like where we are for our age, like we're both, I'm a little bit more risky in terms of what I invest in than she is, and we're both doing okay.

So I think there's more than one way to do it. But to me, it's about your definition of risk more [00:28:00] than it is about the other parts of the question. 

Jason Hall: Yeah, you nailed it. 

I'm gonna give a multi part answer to this because it's me. But also because I've gotten to know Colin a little bit and like, I sensed like the vibe of this question, and also know his investing style a little bit. 

And and I think he's, he's spot on in a couple of ways because number one, like there's the, here's the answer that I'm going to give all the bros out there that FOMO, YOLO, stupid ideas, right? Because, and they justify it by saying, well, I'm young. This is the time to take risk. 

Yeah. Well, you know what? It's also risky to jump off a bridge. The point is that getting back to stocks going up and down is a form of risk. David Gardner's definition of risk is the best definition of risk I've ever heard. I don't know where David got it from, but it is the probability of a permanent loss of capital, okay. 

That is not volatility, which is stocks going up and down. 

Jeff Santoro: Yeah. I want to pause on that. Because I love that you said that the whole idea that you can justify stupidity by [00:29:00] saying I'm young and have time.

Because if you put your life savings into some, not real cryptocurrency and it goes to zero, it's staying there. It's not 30 years and then tripling in 40 years from now. Like, it's staying there. 

That's totally different than saying to yourself, I'm going to put 1 percent of my portfolio in, I don't know, let's just pick a company we've talked about a lot. Lemonade. because I think it'll revolutionize insurance over, you know, over the next 20 years. And then if it doesn't, you've lost 1%. 

So that's a totally different, that's where you're taking advantage of time and being risky in a younger age. I wouldn't say do that if you're three years away from retiring. That's totally different than just making a stupid investment. 

Jason Hall: I mean, if it's 1 percent of your portfolio, you can do it when you're three years away from retiring too.

Jeff Santoro: I get it. All right. Yes. But I'm saying you, you have a lot more time to try to see if that's going to work out if you do that when you're 22, then if you do it when you're 62. 

Jason Hall: Right. That's the key. Right. And I think, but I think the core, the most important part of this [00:30:00] is where the financial advisory military complex, I'm going to call them that. Like they lead so many investors astray. Because the industry has conflated volatility with risk for as long as there's been financial advisors, right? 

They give you the little quiz and they ask you the questions and people are just afraid of their portfolios going up and down, they stick them in garbage bond funds, right?

Remember, this is what happened to you, Jeff. This is what happened to you. You've talked about this before. You had a conversation when you started your teaching job and that you were concerned about risk and they just stuck you in junk instead of even trying to explain that in the short term, volatility is a risk. If you're risking assets that you may need in the short term, yes, volatility absolutely becomes risk then. Because permanent loss of capital, if the market does what it does to the downside when you need to sell and you liquidate, that is a permanent loss of that capital, right?

But if you [00:31:00] stretch that out over 10 years, the risk of permanent loss of capital in a diversified portfolio of stocks goes down substantially. Goes down substantially.

So I think the most important thing is again, to think about what are you buying, how risky is that individual asset based on the definition of risk as a probability of a permanent loss of capital, what percentage of your contributions, portfolio, however you want to define it, are you risking in that assets. And then kind of work backwards from there.

But I do think like the middle ground of avoiding going into the garbage bond funds at 25, and avoiding going all in on crypto, penny stocks, all the junk that's out there, like right in between, there's a balance where you can do some of both, right? You have a little bit in bonds. 10 percent of your portfolio or whatever. You have 10 percent you're putting in like some of the crazy risky stuff [00:32:00] because you might hit something big.

And then you've got 80 percent that you're well diversified equities. The market's going to reward you over the long term. 

And then there's like, you have to figure out, that's the bell curve, right? You have to figure out which end of the bell curve do you naturally lean more towards and you're going to be fine.

Jeff Santoro: And the nice thing is there's so many easy, low, like passive ways to do this. So for example, you could just buy a target date fund and contribute to that over 40 years. Now it might be, some people say those are a little bit too conservative, but if you just truly want to set it and forget it and don't even want to think about bonds versus stocks versus other asset classes, that's one way to go and-

Jason Hall: Put 80 percent of your portfolio into that and take the other 20 percent and go have fun with it or just buy your concentrated things that you want to own right? 

Jeff Santoro: Right. And in that sense, to the question, to Colin's question, if you did have that 20% that you are going to go have fun with, to use your words, you could buy dividend stocks, you could [00:33:00] buy stocks that you are fairly confident are not going to go bankrupt, go to zero. They may not beat the market. They might. But they're probably not going to lose your money, you know. Like you can be conservative, quote unquote, with that little bit of money, if that's your risk profile, again. But I think it's about over the very long term, just holding on to those, collect dividends, like there's ways to do it.

And there's plenty of, again, just going back to the fee only financial advisor. That's something else you could talk to a professional about. Like, here's what I want to do. I want to be. Low risk as you do, as I define it and help me find the right thing. So there's a lot of different paths to get there.

Jason Hall: Before we take Andrew's question, I want to posit this. Kind of, let's take a little side road here.

I want to posit that if somebody took that approach. And they put 90 percent of their, that's the way a lot of people do it anyway, you have to, because your 401k and your spouse's 401k. Like that's where the most of your money is going. And then your kids, 529s or whatever. Like you only left over with a small percentage of your disposable income that you can actually actively choose what you're doing with it.[00:34:00] 

But I would posit that somebody that let 90 percent of their money go to funds that did all the work for them. And then the 10 percent they managed, if they spent a decade being dedicated and focused on a specific strategy or specific type of investment. After 10 years, if they like consistently really worked at it and learned and improved. After 10 years, I bet they could beat the market with that 10 percent that they invested consistently going forward. It just takes time. 

Jeff Santoro: And time and interest. You know, I just feel like there's a very small percentage of people for whom that's going to be of interest. 

And I think for most people, if they want, it's either going to be 100 percent in a set it and forget it. Or it's going to be 90 in a conservative set it and forget it and 10 in a little bit more aggressive set it and forget it. But I think index funds, ETFs, target date funds are the place where most people should be because they simply have no interest in or time or desire to learn anything beyond that.

And I think that's fine. 

Jason Hall: Yeah, I agree. And most people are going to honestly, they're going to generate [00:35:00] more wealth. They're going to create more money on the margins of the other stuff anyway. Right? 

Like maximizing the kind of account you put it in, making sure you're increasing it every year till you get to the max, right? Doing all of those little things that aren't which stocks you pick generate more dollars, I think, for more people, than making the right stock picks anyway. 

Jeff Santoro: All right. We have a kind of long one here from Andrew, so I might shorten it a bit just to keep it a little more easy to listen to. 

"I started listening to the show midway through 2023 and have been hooked ever since.-

Jason Hall: "So that was great. Yeah, that's it. That's the end.

Jeff Santoro: For context, I have been investing for five plus years now and picking individual companies for most of that time. So I'm not brand new to it, but definitely not a seasoned vet either. Each year that passes brings more learnings and more refinement to my process for evaluating companies.

Here's the question. One thing that's on front of my mind right now is the concept of multi listings. A few companies I'm currently looking into appear to be listed on a U. S. based exchange and an international exchange. [00:36:00] I was hoping you guys could give your thoughts on how to think about that when it comes to valuation."

So that's the first part of the question. And then he gives an example. "One example is VTMX, which is on the New York stock exchange and appears to also be listed in Mexico. The market cap is much different. I think I can explain that with the currency rate differences, but the yield being different is throwing me for a loop.

Any advice on how to handle multi listing situation would be great."

Then here's the most entertaining part. 

Jason Hall: Yes. 

Jeff Santoro: "On a totally unrelated note, Jeff, maybe you could teach Jason how to properly pronounce the word mature. It gets me every time he talks about debt."

So I say mature like it has a CH in it. I just assume it's, it's like a wrong way to say it because I'm from New Jersey. How do you say it, Jason? 

Jason Hall: You're probably saying it the correct way, because that's the way most people say it. But I learned by reading, and the word is spelled M A T U R E, so that is mature. Mature. 

Jeff Santoro: So I would like to say, I want to ask the audience to chime in. 

Jason Hall: That's, that's fine, but Andrew, you're really being [00:37:00] immature, I just want to say that.

Jeff Santoro: All right, let's get to, let's get to the question. So first, let's talk about the differences. Or let's talk about the intricacies of a company that is listed both in the U. S. and internationally, because there's a few different ways that can happen. 

Jason Hall: There's a lot. There's a lot of companies that are that way.

Shopify. Canadian company, listed on the Toronto Exchange, listed on the U. S. A lot of Canadian companies, so you start getting, like, miners. Gold miners, that kind of thing that are Toronto, they're Canadian based companies are on the Toronto exchange and the U S exchange. But then your have European companies and Asian and mentioned a company in Mexico as an example.

I think generally there are three things you want to kind of solve for, because when it comes to like valuation, they're usually going to be really close. There are exceptions. 

And the exceptions can be in the case of volume. So a lot of times if a stock is not traded on a US exchange or trades, the US exchange is not, its domestic exchange. It's got a home market based in the country that it's in, and maybe it trades on the US pink sheets right over the counter. A lot of [00:38:00] times those are very, very illiquid. Maybe a few thousand shares change hands a day.

And in those cases you always want to be thoughtful about doing something like use a limit order so you don't end up paying 20 percent more because you throw that market order out there and you know what, it's there for people to see, it's just a market order.

And somebody is going to be like, well, you know what, just somebody's computer, it's somebody's high frequency trader and they're sitting on 10, 000 of those shares. They're going to sell them to you for 25 percent over book, right? They're just, they're boom, just like that. You're going to get nailed with a higher fee.

So use limit orders. Sometimes it might even take days to like fully fill that order. So I think that's really important.

If you're a U S based investor, sometimes the pink sheets are advantageous because maybe your broker doesn't allow you to buy on the international exchange. Or maybe the trading fees like 40 bucks, right? So you have to think about that. Of course, you're trading liquidity for fees and that sort of thing. 

There's also some tax implications. I'm not going to get into the details there, but [00:39:00] sometimes taxes on things like dividends can come into play based on buying on a U. S. exchange. Generally you want to try to buy what are they called? ADFs. 

Jeff Santoro: ADRs as I was going to ask you about. 

Jason Hall: ADRs. Yeah. So, American depository receipts. There's a U S based entity, usually a bank that holds the actual stocks and they're considered the sponsor, I guess is the best way to describe it. So those usually they're highly liquid, usually. You can buy them on US exchanges. It makes it a little bit easier. You don't have to deal with buying them on an international exchange. Make sure you're only trading with exchanges open, like little things like that. 

Generally what you're going to see a difference in like valuation or yields and that kind of thing, a lot of times are going to be just quirks of foreign exchange. Sometimes like Yahoo finance might show the yield in dollars, even though the stock's traded in pesos. And so it throws the yield percentages off. Generally those things are a wash. You do need to understand if you're investing in a company like that international company, and there is a [00:40:00] dividend, what is the tax you're going to potentially paying on that dividend?

Is there trade agreement in place between the U. S. and this country that they're domiciled in? To make sure you don't deal with double taxation or paying a lot more tax than you might expect. So those are a few things you want to think about. 

Jeff Santoro: Yeah, the way I think about it is The ideal situation is that the company is just listed on a U. S. exchange. Like, use Shopify as an example. It's on the New York Stock Exchange. It's not an ADR. So like, in my mind, that's the ideal.

Below that would be ADR, or you're at a brokerage that has access to international markets, and you have to look into extra fees, like you said, and maybe tax implications. And I would say, or pink sheets, and the downside of the pink sheets is the liquidity, but if it's a, if it's a company that's listed internationally on a major exchange, and on the US pink sheets, You don't have to worry as much as I understand it about lack of disclosure about financials.

Like if something's only on the U. S. pink sheets, they don't have to put up as rigorous financial information as in the U. [00:41:00] S. is like something. 

Jason Hall: If a company is listed on a U. S. exchange, they have to provide audited financials that are, that are to GAAP, right? . To U. S. 

Jeff Santoro: But they don't if they're on the pink sheets.

Jason Hall: Correct. Right. 

Jeff Santoro: So what I'm saying is if it's a international company, like let's say it's on the Toronto stock exchange and also has- 

Jason Hall: You don't have to worry about it if it's a German company, if it's French.

Jeff Santoro: Right. That's what I'm saying. 

Jason Hall: They have really good financial regulation, right? So you don't have to worry about it. Mexico, really good financial regulation in place, right? Not, definitely not the case everywhere, right? And I think that's your main point. 

Jeff Santoro: Cool. All right. Next question. This came from Instagram. Our first Instagram question I think ever. So good job. This comes from cunningproject who writes, "looking at your bottom two performing holdings overall. Do you double down? Hold or sell? Mine are Peloton and PayPal. Life is rough."

So, interesting question, but cunningproject did not share what he or she would do [00:42:00] with the bottom two. He just said what they were. 

So I'll start. My bottom two based on performance are Outset Medical which we've talked about a whole ton on this podcast because it was in my portfolio last year in the contest, and Twilio.

Both are down between 70 and 80 percent for me, I would say I would definitely not double down. To me, that implies because it's down, I am blindly backing up the truck and that's not how I invest at all. 

I also don't think I want to sell either of them. I am in the ballpark of, I will likely add to both of these at some point. I just have to decide when, and how much. I still think Outset has a bright future and it's just had a rough couple of years. It's a larger position than Twilio is in my account, so I'm a little slower to add to it. 

Twilio I think has the potential to have either, it has already, or it's going to continue to turn the corner towards profitability. They just changed CEOs, which is interesting. The founder [00:43:00] CEO who started the company is now out and someone who's been with the company for a long time is now the CEO. So I'm curious to see if this accelerates the pace at which they put the pedal down on profitability. So I'll be watching that for the next couple of quarters.

So I might want to wait a quarter or two with Twilio to see if there's any appreciable difference in results with the new management in place. I'm definitely not selling either of these and I think I will add, it's just a matter of when.

What about you, Jason? What are the bottom two performing holdings in your portfolio?

Jason Hall: So, I'm gonna, I'm gonna pretend Nikola doesn't exist. I took a very small position in Nikola. This is back before all the fraud stuff came out. It was a very, very small position. I actually sold most of it at a gain. The stock kind of YOLOed, like during the pandemic. And then I've been sitting, I just kind of sat on the rest of it.

Fifteen shares, I mean it's very, it's tiny. So let's pretend that one doesn't exist. 

And then we're going to take the next two are 23andMe Holdings, and [00:44:00] CuriosityStream. They're both down more than 93% at this point. 

23andMe , I continue to really be interested in what they have, but it doesn't feel like they've been able to monetize it worth a darn. 

Jeff Santoro: I forgot they were even a publicly traded company until just now. 

Jason Hall: There you go. It also feels like a little bit of like they've, like the moment of these genetic tests has come and gone. And like they haven't been the sweeping thing that we expected. And I mean, they still have some deals out there, right? And have all this massive amount of data. 

Jeff Santoro: It feels like someone should, would buy them just for the data. Like that's what I-

Jason Hall: Maybe that's what happens. Like they went public via SPAC. It's another one of those. So it's just, it just, it hasn't, hasn't turned out.

So absolutely not. Because it's almost like the Twitter of genetic testing companies in a way. It's like Twitter was the platform that nobody could ever figure out how to monetize. And it feels like that's what's happening with 23andMe. 

So, again, it was a really small bet that I made and it just, definitely not going to water that weed.

And then CuriosityStream is the next one here. Down 93%. Same thing. This is a penny stock at this point. [00:45:00] 50 cents a share. The idea is that we were going to see a proliferation of more streaming companies. Have a really interesting niche that they do with fact based programming

 they landed a deal with Amazon where they're like a Prime channel and it's like a few bucks a month. It's not very expensive. But it's a few bucks a month, so you don't generate much revenue from it. And the balance sheet's kind of a mess. Hendrix, I can't remember his first name, but the founder of CuriosityStream was, he founded Food Network, I believe some of the, or Discovery. Founded Discovery 40 years ago. So thought maybe this was like a guy that was going to be able to show the way to do it. 

Kind of like, sounds like Tellurian, maybe Jeff, right? We had the guy that built LNG and we thought he was going to do it again with Tellurian. It hasn't happened. And we have the guy that like showed like the way to make money with like cable niche cable content. We figured he could do the same thing with CuriosityStream. 

And now, so don't water the weeds. That's the lesson. 

Jeff Santoro: So what you're thinking for not selling them? Is it simply it's not worth it if there are like, or [00:46:00] is it because I'm thinking to myself even let's just say both of them got acquired and let's say both of them got acquired at a 100 percent premium to their current price, which would never happen, they'd still be down for you.

I'm not telling you to sell. I'm just curious what you're- because I know you've sold other things that have been, losers in your portfolio. So I'm just curious.

And since we're talking about it, what has kept these two in your portfolio? 

Jason Hall: They're, their tuition, Jeff, they're tuition.

They're, they're the money that I pay for my financial education. And they're, they sit right there and they stare at me every time I invert my portfolio and look at my smallest positions, which are inexorably my biggest losers.

I see them and it reminds me: Don't buy bad businesses that are good ideas.

Jeff Santoro: I really like that idea of, I've heard other people say this too. Like they will always keep one share of anything just to remind themselves that they made that mistake and I kind of like that. As I've trimmed my portfolio because I like having less companies, I do realize that [00:47:00] I've allowed myself to forget about some of my mistakes.

So part of my not hard and fast 2024 resolution, but part of the reason I'm trying not to sell anything this year, seeing if I can go a whole year without selling is part is partly because of that. Just staring at my mistakes over and over again might help them sink in. All right, cool. All right, we have one more question.

This one is. An interesting one, it comes from Eric on LinkedIn, who writes to me, "Jeff, can you send a bag of cash to me?" So Eric, 

Jason Hall: I like, I like Eric's thinking. 

Jeff Santoro: So Eric is a friend of mine from college. He saw my, I reposted one of our mailbag things on LinkedIn and that was his response. That was his question for our mailbag.

So no, Eric, I'm not going to send a bag of cash to you, but I'll probably see you soon. 

Jason Hall: He did not ask will you send a bag of cash to him? He asked, can you send a bag? 

Jeff Santoro: That's a fair point. So let me rephrase my answer. Eric. Yes, I can. Like I [00:48:00] am physically capable of sending you a bag of cash. However, I will not be doing that.

Jason Hall: So that's that's hard. Love it. Got a hard truth. Got a hard truth for you, Eric. Got a hard truth for you. 

Jeff Santoro: That's right. No bag of cash coming your way. 

Okay, so that brings us to the end of the mailbag. We are going to take a short break and come back and have a conversation about something I've been thinking about recently. As it relates to a quote I heard on a podcast.

We'll be right back. 

Jason Hall: Hey, Jeff. So you heard a thing on a podcast. 

Jeff Santoro: So I am a fan of the two remaining Motley Fool podcasts. So one is Motley Fool Money. And the other is David Gardner's Rule Breaker Investing. And I was listening to Rule Breaker Investing. And I've heard David Gardner, who is one of the co founders of The Motley Fool, I've heard him say this several times, but it hit differently this time.

So he was making the point that he's made before, which is that only dips wait for dips. And what he's basically saying is, only dips [00:49:00] or dippy people will wait for a company to dip before buying it. And I heard him say that he used to say dips wait for dips, but he rephrased it to point out that sometimes if you're just taking advantage of a dip, that's not a bad thing. But his main point is you should not, or in his opinion, you should not either buy part of a company and then wait for a dip to add to it, or you shouldn't just wait in general because the, his thinking is you may never get that opportunity, or if you do, you may have missed out on multi bagger returns while you were waiting.

And it also reminded me of there's data out there. At least I've heard people say this. I've not seen it myself, so grain of salt here. There's data out there saying buying one time at the point at which you make the decision, leads to better returns than dollar cost averaging into things. So it just got me thinking about the idea of, because I've been talking recently about the idea of getting away from weekly buying and trying to buy in thirds. [00:50:00] And I've always tried to buy more of the stocks I own at better valuation points. 

But we've had this crazy run over the past couple months. And I'm looking at the top, I don't know, half of my portfolio, and almost everything in there is now on almost any valuation metric I can find more expensive than where I bought it. But I'm watching 70 percent gains, 80 percent gains, 110 percent gains, 130 percent gains, and I'm saying to myself, this is great, but what if I just bought six months ago, or two months ago, or a week?

You know, I, so I wanted to talk through it, not for an incredible, incredibly long period of time, but I wanted your thoughts on that. So here's my, well, let me, let me finish. And then I want to hear your thoughts. Here's my interpretation or the way I think I could implement. 

Jason Hall: You made that sound like I was interrupting you.

For the record, I was not interrupting Jeff. 

Jeff Santoro: See, but you're interrupting right now. 

Jason Hall: And I interrupt you all the time. 

Jeff Santoro: So here's my, here's the way I think I could actually implement this thinking if I wanted [00:51:00] to, which is, assuming I make a smart decision at the buying point that I'm not overpaying for a company, if I made the commitment to say, I'm going to buy a third today, I'm going to buy a third two months from now, and I'm going to buy a third four months from now, mostly come hell or high water.

So committing to buying those other two thirds, unless there is some absolutely ridiculous event that, I don't know, that the stock quadruples in two months or something crazy like that. But most times, even over six months, you're not going to see this incredible, crazy change of price.

Because one of the things that I heard David Gardner say was you should commit and just buy it on those other two dates, no matter what. Don't anchor to the price.

So I think if you make a correct first purchase, that makes sense, right? So if your first purchase is completely overvalued, Maybe not. I don't know. I don't know that I completely agree with him. It's worked for him, [00:52:00] but it's also worked for him over a period of time when we were in a different environment than we are now.

So I wanted to get your thoughts. 

Jason Hall: So yeah, I've got a lot of thoughts about this and it's, and I really want to challenge myself to try to be condensed with my response.

As a starting point I broadly agree with David. I think most investors over time are better off averaging up than averaging down. But also I think there's a little bit of trying to combine maybe two incompatible investing styles.

I think that's really important because if you think about David's history and his track record, it's finding some incredible multi bagger huge winners, looking for transformative companies along the way, and finding best of breed. And like, one of his signals has always been like, if a stock looks overvalued, right? That's like one of his tenets is if a stock looks overvalued, but like all their other things, like their growth rates are really high and all that, the things are doing really good. They're taking market share, they're growing, and the stock looks really overvalued. It's like, you know, [00:53:00] that's actually kind of a signal to him. That's a buy signal. 

And I think a lot of times though, the problem is that people- I'm going to use Starbucks as an example, because there's been moments where, and Netflix is another good one, right? If we go from like 2010 through 2019, right? Just use kind of a clean period. Those stocks were basically always expensive for those periods of time.

And they did enormous, you could have bought just about any period of time over that, and they would have done really, really well. It was very rare that the market gave investors deeply discounted opportunities to buy those cohort of companies. And the point is that it's incompatible to buy those sorts of businesses that are still early in the growth phase, still like really super compounding high growth businesses, and try and get like a below market average PE just to use.

Like, you're trying to combine like David's rule breaker style of investing with being a value investor, right? Where you're looking to buy deeply discounted with some margin of safety, a business that [00:54:00] generates steady cash flows that you can predict out over a period of time. They're just not compatible, right? So I think that's the biggest thing is if you're investing in David's style companies, you can't use a deep value strategy because you're rarely going to get any opportunities to ever buy. 

Jeff Santoro: And, he's also said he takes a venture capital view on investing where you make a lot of bets and a lot of them will not work out, but the ones that do pull up your whole portfolio.

Jason Hall: He also buys like one or two times a year. 

Jeff Santoro: Yeah. And I think the other piece of it that I think about too is, it goes back to the episode we did Is Being a Lazy Investor Better. Because I do think the types of companies I've seen him gravitate towards in hindsight, granted, are these mega brands that are no brainer investments now.

The one that everyone points to is Amazon, and it's him buying Amazon in 1997, I don't think is [00:55:00] the impressive thing. It's never selling it as it dropped- 

Jason Hall: A hundred percent.

Jeff Santoro: -as it dropped 90% before it was what it is now. It dropped 90% when it was still a nascent company and he held it. And I think that's his superpower, is just holding forever. Like I, yeah, it feels like, or at least the way he presents, like he never, ever sells.

So I think, and there's that timeline piece of it too, where if I'm going to make three buy decisions on a small company and then hold it for 35 or 40 years or 20 years or 25 years, there's a better chance that's going to work out then. If I'm doing that with a mature late stage company too. So you're right, it is a lot tied to the types of companies that he's going after.

But it did get me thinking about, I don't know, the line. I keep saying I want to learn more about valuation, and not make the mistakes of 2021. But I do think there's a big difference between blindly and obviously overpaying for something, [00:56:00] right? And just overpaying for something.

Jason Hall: That's it. Because here's the bottom line. And I'll use like a CrowdStrike three years ago as an example. But just about every metric Crowdstrike three or four years ago, let's say 2019, like before the pandemic, was more expensive than it is today, like across the board, across the board. 

But you weren't buying it based just on valuation. You were buying it based on could they execute in this massive, massive addressable cyber security market and take market share. And build this platform that had all of the moat things that we think that it could have. And if they execute, it's going to work out and you're going to do well as an investor, even though it was an expensive stock when you bought it, right?

If you didn't make money, it wasn't going to be because it was expensive. It was going to be because they didn't execute. And I think that's really the core of David's style of investing. It's like you take that approach that's based on, like you said, it's the, like the venture capital approach and you're taking those big swings.

And the market potential is so big for these companies. If they accomplish even some of the things you're hoping they can do, you're [00:57:00] probably going to do okay. And you're not going to lose money because it was overvalued. It's because they didn't do well. 

2021 is an example of the opposite of that, where they could do everything right, but it can take a very long time if ever for you to make money because you paid way too much, right? Way too much. 

Jeff Santoro: Yeah, because you can go back and you can pick any success, you know, multi bagger return company and find points at which it traded for what people were would have considered to be overvalued, but probably not to the point that things were in 2021. Some of these younger, you know, SaaS companies that got caught up in all the hype.

Jason Hall: So can I poke a little bit of hindsight bias holes in David's thing too? I want to do this. 

Jeff Santoro: I mean, he's, I doubt he's going to listen. So go ahead. 

Jason Hall: Yeah, maybe somebody will tell him Starbucks stock has fallen by 20 percent on average since 2000 about once a year, Netflix like 12 times over the past 17 or 18 years. This is like [00:58:00] heading through like 2021 before this big drop we've seen. 

Mercado Libre. Like I can't even count how many times it's fallen more than 20 percent from its high. And most of the time it was close to 30 percent or more. So even these kinds of companies do give you opportunities.

Here's the thing. They still, even after they fell 20, 50%, they still looked really expensive. 

Jeff Santoro: Well, but here's the other thing too. So let's say you buy it at point X. It goes up 100%, and then it drops 20%, and then you buy it again then. Yeah. You still left gains on the table. That's, that, that's really what I'm kind of getting at. Is if you just wait. You might get a better valuation a year, maybe even just a couple of months later because the market goes down or something. Or two or three years later. But what did you give up in the meantime? Like, I guess that's, that's more of my question. 

Jason Hall: I think the best answer for that question is how proven is the company? How high is your conviction? And their ability, it depends on the company to continue to execute. And how much capital are you willing to risk based on your conviction and the [00:59:00] price of the business today against the market share or the size of the market that they're trying to take? That's the answer, I think.

Jeff Santoro: Yeah, it, I think it absolutely depends on the type of company it is. Just based on size of company, I don't know that I would apply this to Apple, right? 

Jason Hall: Like, yeah, no, Apple is, this is a company where this is becoming, its traditional value based investing way. You think about it's a very large mature company. This isn't a company that's going to have five X in the next 10 years. They're not going to five X in the next 10 years. But it's a $3 trillion company trading for 30 times earnings. 

Jeff Santoro: Most likely not. 

Jason Hall: Say that again? 

Jeff Santoro: Most likely not going to. 

Jason Hall: No, they're not going to, Jeff. This is my podcast too. I can say definitively. 

Jeff Santoro: All right.

So, thank you for talking through that. That, I just was, it was interesting. I wanted to kick that one around. 

Jason Hall: Yeah. That's a good one. That's a good one. It's important to understand your strategy and what you're trying to do and invest accordingly. 

All right. We've taken a lot of these people's time. We should let them go home. 

Jeff Santoro: Well, hopefully they are home [01:00:00] or heading there in the car maybe. Anyway, wrap us up. 

Jason Hall: Yeah. Wherever you want to be. People just, just remember, be where your feet are. That's the best, it's the best thing I can tell you. 

Okay, as always, we love to give our answers to these hard questions about investing, personal finance, picking stocks, finding a strategy that makes sense to help you generate wealth for yourself and your family. But you got to figure the answers out for yourself. It is up to you. You can do it. I believe in you.

All right, Jeff, we'll see you next 

time. 

Jeff Santoro: See you next time.

Join the conversation

or to participate.