Investing Unscripted Podcast 93: February 2024 Mailbag

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Jason Hall: Hey everybody. Welcome back to another episode of Investing Unscripted, where we ask and answer the hard [00:01:00] questions about investing and finance. I'm Jason Hall. I'm here with my good friend, Jeff Santoro, the voice of the people. 

We are indeed answering the questions this week.

Jeff Santoro: We are, it is a, it is mailbag week and we got a bunch. So happy to dig into all of them. 

Yeah, 

Jason Hall: it's going to be, it's going to be a good show, we're recording this in advance, probably a week and a half or so before it comes out. So just a heads up that we answered these questions a long time ago. Things may have, have changed a little bit. But not much, not much.

Jeff Santoro: I think a lot of these are timeless questions, so hopefully that's the advice is evergreen. 

That's true. I like it.

Before we get into the mailbag here, just another plug for people to give us ratings and reviews on the podcast app. We really appreciate that. And check out our newsletter, InvestingUnscripted.com. You get a newsletter every Sunday, you get a transcript of the show when it drops. We'd like to see that subscriber count grow just like the podcast subscriber count has grown. If you haven't subscribed to that, do that. That's all I got for today. We can dive right in here. 

Jason Hall: Let's do it. First question. 

Jeff Santoro: All right. First question [00:02:00] is from Colin on Twitter. Colin says, yep, it's me again. Colin is a frequent mailbag submitter. Mailbag question. What do you, or how do you handle a situation when you think that a stock or ETF you own is going to sink due to valuation run up? The run up of the semiconductor space is giving me an itchy trigger finger.

One, do you guys stop adding and watch? Two, DCA and try not to look. Or three, sell out and put the money aside and try to hop back in. Classic market timing, he says in parentheses. 

That's a good question because I think a lot of stocks and ETFs right now are feeling like they are up because of a valuation run up and not necessarily because of the business.

How do you handle that situation? 

Jason Hall: Yeah poorly at times. I think this is, this is a good answer. 

Jeff Santoro: Thank you for the question. 

Jason Hall: There you go. Yeah. Next question. No, it's the first, it's interesting that when I first read the question on Twitter, when he DMed it to us, my first thought [00:03:00] is, there's a little bit of answer in all of the things that he put out there, right?

Even though, yeah, it does smack a market timing a little bit . Depending on your situation and what you're trying to do, you know, any of those things may make sense. Like if you have seen just such an extreme run up in valuation and you look at the returns that you've earned, and your timeframe of needing to leverage those returns into money, maybe selling makes sense.

I think generally by and large, if you're, I'm not calling out you Colin. Directionally I'm calling out all of the Colins, which includes me sometimes. 

If you're trying to call a top and trying to time your way into it, you might get lucky, but you're not going to be good, right? It's going to be luck. And everybody, Jeff, everybody right now, especially new investors is still very recency biased to what we've gone through over the past couple of years, where you think of every all time high as a bubble. Like we saw at the beginning of 2022. And for the tech market, really October, [00:04:00] 2021 was the peak. 

So I will tell you this. As an investor that started really, actively picking stocks before, during, and after the global financial crisis, the next couple of years after that felt like, every new high felt like- and it was like 2011 before we got to a high. But like it constantly felt like another sell off was around the corner. 

The market climbs, they call it a wall of worry for a reason, right? Because you're always waiting for that next shoe to drop.

Jeff Santoro: I appreciate you finishing your sentence as I had a mouthful of tea, so I could not respond. 

Jason Hall: I specifically stopped talking when I noticed your mug 45 degree upwards angle. And I decided right then to stop talking. 

Jeff Santoro: I agree with what you said. All of these could be correct, so to speak, answers.

The thing that jumped out to me with this question was one, I think this is where that "knowing your goals" framework can be really helpful. And so I think that's the first thing. And the second thing is, [00:05:00] I think some of it depends on the kind of investor you want to be. And this is part of what I've been trying to figure out about myself over the last couple of years, because there's part of me as I learn more and feel like I understand valuation more, who wants to be the smart guy who says, Oh, this is only up because of valuation. I'm going to sell it and I'll buy it again when the valuation is better.

And there are perfectly good reasons to do this. I think there are some investors that we both admire who operate this way. I read a newsletter or article by Aswath Damodaran just this past week where he said he was selling his Nvidia stake because it got in his mind overvalued. Now he knows, he's forgotten more about valuation that I'll ever know. But here's someone who- 

When you 

Jason Hall: teach a valuation course at Columbia, probably know a little bit about this topic.

Jeff Santoro: But here's someone who knows what the correct price is, or at least thinks, and is deciding to sell when it exceeds that, and buy it when it's below it.

And I think that's one, that's a [00:06:00] fine strategy. But then I also, the other part of me thinks about, that seems like a lot of work. You have to be right. And if you're young enough that you have decades ahead of you, I see the other side of just hold it. Maybe not add to it when you think it's gotten up to be a crazy peak. 

But I think of it this way, let's say you hold that stock or ETF for 10 years and it's up 900%, right? Let's just pick a nice fat return you got out of this stock and it drops. It gets cut in half. It's still up a lot of percents for you. And, and it's going to continue to go back up once it corrects. 

I think it feels a little more painful and hard to sit with when you only own the stock a couple years or a few months and it's, and it was up 15 percent and then drops 50. That's a whole different calculus. 

And I think when you've already held something for a decade or more, and it's gone up several hundred percent and it drops even by 50 or 60 percent is you can stomach it a little more because it's still in the green. So I think that plays into it [00:07:00] too. So I think it depends on your goals, how far away you are from those goals and the kind of investor you want to be.

Jason Hall: I think valuation should definitely be a bucket you're checking as part of your evaluation process when you're buying.

When you're selling for me, I'm far less likely to sell on valuation. Because again, it ties into exactly what you're talking about. Knowing yourself, knowing your goals, knowing where you are in your cadence of, of your investing career. 

Because selling a stock that looks a little bit overvalued today, that you intend to hold because the business is doing really well. And the addressable markets really big and what they're going to do over the next 10 years. A lot of times that selling it because it's a growth stock and it's expensive and you're selling it today is dumb, right?

It's another thing if you're following a very rigorous valuation based value investing strategy where you bought a stock that was at a cheap multiple and you bought it expecting to see multiple expansion, making the stock more valuable and you sell it at a higher [00:08:00] valuation and you move on to your next opportunity, right?

That's different.

So I always see growth investors that are growth on the way up. And then they turn into value investors at some point because they're afraid, right? 

Yeah. 

Jeff Santoro: Yeah. So it's, again, it's know your goals and know who you want to be like, know the kind of investor that you think you 

are. 

Jason Hall: Yeah. Yeah. Yeah. And I do think like maybe taking like a hybrid approach to, you know, Colin had a couple of examples of like, you know, maybe just kind of sit on it and, and, and stop adding and watch. Or do you, do you hold your nose or hold your breath and keep buying? 

I think maybe the smart approach is just for most people is if it's bothering you, if it's keeping you up at night, if you're logging into your portfolio to see what's going on, like if you're spending an outsized amount of time trying to figure out what's going to happen, maybe you have to sell just for your quality of life. But maybe just not keeping buying and taking a break is the is the better approach. 

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All right. Let's move on to the next question here. This one is from Ryan on Twitter and Ryan says, Hey guys, first off, love the podcast. The dynamic and banter between you two is fantastic. 

Well, thank you, Ryan, for lying to us. 

It's so interesting to hear about investing from the perspective of someone like Jeff, who's newer to investing like I am and someone who has been investing for longer, like Jason. I have a situation that might be an interesting topic for you guys to discuss about how to get over the psychological hurdle of selling something that keeps going up, also known as FOMO. 

My wife has company stock that she has acquired through bonuses and quarterly purchases she's made of that stock at a discounted rate. She works for one of the Mag 7 companies, and we've felt relatively safe leaving it to grow with the goal of using the money to finish our basement. We are now to the point where we want to start work on the basement this fall, so it's time to start considering selling the shares. I know the responsible thing [00:11:00] to do would be to sell and hold in a high yield savings account since we plan on using it in the near term.

However, the stock has been on a fantastic run over the last year and change. And I am struggling with selling it when it's going up so much faster than it would in a high yield account. Are there any frameworks or strategies you guys can suggest that might help?

Great question. 

Jason Hall: So we know. We know it's the magnificent six because Tesla hasn't been doing so great lately. So she probably doesn't want the Tesla, right? 

Jeff Santoro: I'm going to spend the rest of the mailbag trying to figure out exactly what company this is. 

Just to sleuth it out. Yeah. Yeah. No, that's, that's pretty funny. And we, we know it's probably, we know it's probably not Nvidia because they wouldn't let her sell the stock. No, I'm kidding. No, I, I love this question. And the reason I love this question is because Ryan already knows the right answer. The right 

answer. 

Yeah. 

Jason Hall: I mean, this is just, this is basic asset allocation here.

This is basic risk management 101. And stocks are the great asset for creating long term wealth. They're the great asset for destroying short term value, right? 

If you don't believe me and you think these can keep running, go look at 2022. 2023, [00:12:00] wonderful. And by and large, 2024 has also been wonderful for the Mag 6. 

2021 was a great big pile of dog crap for these stocks, Jeff. It was bad. Yeah, it was bad. 

So I think the simple thing and my framework, this is, we've talked a little bit about it with cash, right? It's very rare for me to have like true rules with how I manage my investments and portfolio. It's more of guidelines and frameworks make you think, but sometimes you need something to tell you what to do. 

And when it comes with permanent loss of capital, risking money that you need, and that money isn't money now, it's a volatile asset, you have a rule. And for me, that rule is, if it's something that I'm going to spend the money on in the next couple of years, it's cash or something that is very cash like. Because the market will destroy your expectations.

Jeff Santoro: I don't want to step over the line of financial advice, but I have a similar situation to this where we got a little money through an inheritance recently. And I put it straight into a savings account because I [00:13:00] want to use it to pay for my son's college. And he's a sophomore and I would be lying if I didn't look at that dollar amount sitting in that account and say to myself I wish that was in the Mag 7 stocks or you know, some some other stock that is currently going up.

But I absolutely know how I would feel If I was getting ready to pay that first college tuition check, and that was 20, 30, 40 percent less than it is right now.

So I think you're right, Jason. I think Ryan knows the answer here. 

And I guess the framework I would use is play the scenario out in your head, that that amount is 50 percent what it is today. How would you feel? Can you still do the basement? Can you do a crappier job on the basement? Will your significant other want to leave you? You know, like you have to kind of, how would you feel in that situation? And that might answer the question for you.

The only caveat I would give, the only sort of, maybe this scratches the itch, is do you sell most of it, put it in cash, and [00:14:00] leave a little bit that you could live without if you don't need it for the, you know, like something like that. Like 90 percent of it and then take 10 percent and leave it and if you lose that 10 percent in terms of what you need for the basement, you can make it by. Like, that'd be the only sort of way to get your cake and eat it too.

But I think if it were me, I would, I'd put that money in a high yield savings account. And I'd be thankful that I could get 5%. And not 0 percent like you would have two years ago. 

Here's 

Jason Hall: a good mental exercise. Take that same stock, that same company that your, that your wife works for, that same stock. And I want you to go back and I want you to look at how did it do from February 2022 through the end of 2022. Just go take a look. And if it's the stock that I think it is, it's probably, it probably lost 40 percent of its value over that period. 

The best of the Mag 7 fell 24 percent during that period. You know, past performance is no guarantee of future results.

Jeff Santoro: There you go. All right. Next question.

This comes from a Twitter user Gorsk4023. I think [00:15:00] I'm saying that g O R S K. So here's the question. Wondering if you can talk about how you consider possible FOMO. Which is fear of missing out, if anyone doesn't know. Is it FOMO if I'm really considering Enphase, for example, because you and some other people I think are smarter than you like it?

No, that's borrowed conviction. 

It's borrowed conviction, not FOMO. 

Jason Hall: Borrowed conviction is feeding your fear of missing out. I think it depends. I think maybe, Some, right? There's a ton of, of cognitive biases that come into play here and a ton of emotional things that are driving it.

 Maybe it's not because fear again, fear and greed. Those are the two base emotions that are driving every decision you make about your portfolio. This could just be greed. You see the stock is way down. 

But also it's up too, it's way down from the all time highs, but it's bounced a ton since earnings because management, CEO said they think the bottom is coming in the first quarter. So the stock rocketed up.

So maybe there's greed. It's like, I don't want to wait. I want to get, get in now. So fear of missing out, which I also think is mislabeled as fear of [00:16:00] missing out. Sometimes it's the greed of missing out too. So maybe so, maybe 

 I think when you go through that, I think what you have to do. This is what I do anyway. I've been doing this long enough that by and large, you know, I've pretty much knocked everybody off their pedestal. They've fallen off. I don't have a whole lot of false idols anymore , that I deeply admire and I just want to do everything that they do. 

I have to make the idea of my own.

 It's okay to start off borrowing it, but then you have to figure out how it's your own. And part of that is poking holes and understanding the risks. Jeff, I'm going to tell you a risk for Enphase that I've recently come up with in my own head. 

You and I recently have been talking more about electric vehicles. And I've talked about it before on the show. I'm an Enphase customer. I've got the micro inverters in their app and battery storage. 

And I've been thinking about the battery stores that we have, and I would like a little bit more if we have a sustained power outage and if we have a blizzard, right? Solar panels don't work very well when they're under two feet of snow. So thinking about having multiple days of power.

You and I started talking about EVs and chargers, home chargers. And I did some research [00:17:00] on Enphase because they have a bi directional charger coming up out, which means it can take power from an EV battery and use it to power the home or send back to the grid.

And I started thinking, well, so the battery in an EV is like five times, three to five times the size of the battery in a home. Why, if I can get a car, an EV that has multidirectional charging, why would I spend $10 grand to expand my battery backup in my home? 

Why wouldn't I think about that as $10, 000 towards buying an EV, right, that has this capability? And I've come to the realization that one of Enphase's best businesses right now, batteries, the attach rates really high and it's super valuable to them. It's a kind of a, there's a threat to their own success there, right?

As more EVs roll out and they have this bi directional charger and this whole ecosystem. Are people just going to buy less batteries and use their EVs more for the backup?

Jeff Santoro: I think that's probably a very niche situation, but- 

Oh, [00:18:00] very much. 

Jason Hall: But, but again, just to just, it's the, to prove the point that it's 

Jeff Santoro: an example of making the idea of your own.

Yeah, exactly. Now I was thinking a similar thing. Like I struggle with this too, sometimes where, especially if it's a company I've already had on my radar or on my watch list. And actually Enphase is a company that I have had on my watch list. I've just been, I haven't researched it enough to sort of make, make a, make a purchase.

And I absolutely, because it's been on my radar, if all of a sudden, everyone I respect was talking about it. And people that I think are smarter than, you know, like he said, I would be a little bit more like, hmm, maybe I should, maybe I should have bought, maybe I should buy some. 

I don't know, this is my current thinking, and since this podcast is my financial therapy, I'll say it out loud. I'm becoming a fan of the idea of taking a, a starter position, whatever that means to you, so that you can, like you said, start out with maybe borrowed conviction, or maybe because it is a little bit of, greed or FOMO. But then don't go any further until you truly understand the why.

Yeah. That, that might be [00:19:00] a way to scratch that itch. 

Jason Hall: We get lots of comments on our YouTube videos. And my favorite ones are people that come to poke holes in, in a thesis or an idea. Because it tells me that they're probably really good investors because they're thinking beyond just confirmation bias, right? And there's, well, here's the problems that I see. Here's the holes in the thesis. 

So do that. Tell me, tell me where I'm wrong on a stock.

Jeff Santoro: Yeah, agreed. All right. Next question is from Seena. We got a couple from Seena, so we'll, we'll try to spread them out. 

A couple dozen. 

A couple dozen. Yeah. Seena was a good friend. We asked him if he had any questions. We were like one or two short and he gave us like seven. Well, we'll see if we get to all of them.

All right. But this is, this was a good one because of, he, he was asking in in the context of Micro Strategies, right? Is that the name of the company that's skyrocketing right now as we're recording this on February 16th? And his question is what do you do when a stock goes parabolic in your portfolio?

Jason Hall: Be glad that I bought it.

Really. Honestly like I think that's important. Because, well, you you have more wealth than you did before. And then I [00:20:00] always want to try to figure out why. Honestly, I've gotten a little bit to a point where I don't, I don't race to the ticker feeds on Yahoo finance or whatever anymore to figure it out. Unless I have some professional reason, maybe I want to write about it or make a video about it because it's something I'm really interested in that I know a lot of people are interested in.

But if it's just something that's in my portfolio, sometimes I'd be like, okay, I'll look tomorrow, you know, 

And it's honestly kind of good, let's go back to that first question that we got, from Colin, like thinking about the big run up and valuation. I always try to think about it within the framework of what is my end goal? What is my end expectation with this? Just because it went parabolic for some bonkers reason today doesn't mean that I need to do anything right?

Sometimes we feel like when the market does something weird, we feel like we have to react in some way and be nimble and ready. Sometimes we just need to be like, Oh, that's cool. Weirdos. And then move on.

So yeah. What do you think? 

Jeff Santoro: I agree with that. I, I think it depends how you want to define parabolic, because that could mean something [00:21:00] like NVIDIA's long run over the past year now. You know, you could, I guess, view that and say it's parabolic. I think the stock he's talking about- 

That's fair. Yeah, that's fair. 

And the one he's talking about in this case has gone up a lot quicker, like a lot higher and a lot quicker than even 

Jason Hall: that. 

You tainted my brain when you mentioned microstrategy. I was thinking a short term thing. So.

Jeff Santoro: I think that's part of it. But also, yeah, I, if it's a company you own for the reasons of holding for a long time to build your wealth over decades, then I think you do have to just kind of be happy it happened and move on. And keep an eye on it. Because sometimes those quick, quick parabolic jumps reverse themselves fairly quickly. There's like a pocket of exuberance. And then all of a sudden over the next weeks or months, it sort of comes back to where it was. 

I think that's one of the more fascinating things. Sometimes you lose track of like you, you go back and look at a company and it's, it's year to date, it's up 6%. But you, you go and you're like, Oh yeah, that popped like 30 percent after earnings at one time. And it just sort of trickled his way back down. Or even sometimes the other way, it dropped 30 percent after earnings and it sort of built his way back [00:22:00] up. 

So I think if it's a long term hold in your portfolio, you be, you celebrate and don't get too excited cause it could reverse and you move on. That's my take.

All right. Here's one that I had for you, Jason, I'm adding to our mail bag, because I think this happens every single time there's a stock split. People think they're getting more stock. 

So today I saw that Old Dominion Freight Lines, which is a company I own, is doing a two for one stock split at the end of March. So I figured this would be a good chance to just take a quick second, talk about what a stock split is, what it actually means for shareholders. Cause it always, almost always results in some sort of stock pop, which I never will understand. 

And then also I had another question, because actually this is one I don't fully understand. I understand it conceptually, but not the reasons why. And that's why companies sometimes do reverse stock splits. I know typically that means things are not going well, but I wanted a little bit more detail on that. 

So let's talk about regular stock splits, then dive into reverse stock splits.

[00:23:00] So since I know a little bit about regular ones, I'll start and then you can talk about the other one. So the best analogy for a stock split I've ever heard is you have a pizza, you have a quarter of it right now, and then they take the same pizza and they slice it into eighths. And now you have. Two eighths, you still have a quarter of the pizza. It doesn't change your ownership of the company at all, right? You have twice as many pieces, but those are half as large. 

But I, even people who are like experienced investors, I overhear sometimes say like, oh, I'm getting, I'm getting twice as much stock. 

Like, yes, you are, but it's also worth as much, right? So just the quick skinny thing is it doesn't give you any more of the company than you already had. That's the important 

Jason Hall: takeaway. 

 I think it is worth talking about why, why do companies do it? And historically they've done it if a stock, the dollar value of the stock has gotten to a size where it makes it harder to buy. That's gone away to a certain extent because trading fees don't-

Jeff Santoro: Fractional shares. 

Jason Hall: [00:24:00] Fractional shares, 

Jeff Santoro: right?

That's that's a relic of when you had to buy 100 stocks and 100 stock lots. Like that's the or- 

Jason Hall: That's where it really starts. Yeah, that's where it goes back. You'd have to do that. But there's more too. Like another thing too, is like, especially with like tech companies where equity- 

Jeff Santoro: Stock based compensation. It's easier to get stock options when it's smaller. 

Jason Hall: Yeah. Yeah. So that's that's part of it too. Cause the stock, the dollar value of the stock gets so big, it gets harder when you're paying out smaller bonuses. So that's part of it too. And it does, it just, it's, it's the, the psychological part of it too.

You know, if a stock is a thousand dollars and they do a 10 for one split, people are more interested. Retail investors are more interested in the stock that's a hundred than a stock that's a thousand because it feels more approachable. Even though it doesn't matter because you could buy a hundred dollars on Fidelity or Ameritrade or whoever your brokerage is.

Yeah. And it's also, I think there are still some brokerages where you can't do fractional shares on everything. So for some people, it's true. It's still could matter, you know. 

Berkshire a shares, for example, I don't know of any brokerage that [00:25:00] supports fractional trading on the. The, the big, the big Berkshires, the A shares.

Oh, I never even looked, yeah. Yeah. And a lot of that is because there's just no liquidity in those shares, they don't, not enough trade hands that it makes sense for the brokers to do it, right? Because somebody has to hold the shares to be able to offer the fractional shares, so that's that now.

So a reverse stock split, it's the worst name because it's not a reverse split. You're stitching them back together, basically. 

Jeff Santoro: We got to come up with a better name for that. 

Jason Hall: It's the Frankenstein stock split, right? Because you're, that's what you're doing. You're taking say 10 shares. I own 100 shares of a company and they do a one for 10. Now I own 10 shares, right? So my, my equity ownership hasn't changed. The number of shares that I own has changed, but it's the same percentage of shares of the company. And you're right as a general rule, companies are doing this because they're in trouble with the New York stock exchange or the NASDAQ or whatever market they trade on because the stock [00:26:00] price has fallen, usually below a dollar. And well, they, part of their rules require stock prices to be above a dollar.

So they do these stock splits to get back in the good graces of the exchange that they, that they trade on. So they can't, so they can avoid being delisted. But it also gets the stock price high enough for institutional buyers and things like that, that, you know, they have rules about not owning penny stocks.

And sometimes, okay businesses just go through tough periods and management makes dumb decisions and the stock price falls a lot. But there's a path forward and they do that just to get the price back up and the businesses can actually be okay.

But yeah, reverse stock splits are almost, almost never ever because of good things going on at the business.

Jeff Santoro: Yeah, it's funny like stock splits are typically have nothing to do with the business either. You don't split your stock because it's going well. You don't split your stock because it's not going well. I guess, I guess it does. 

Jason Hall: I mean I would say that it doesn't mean it's going well, because it [00:27:00] has to grow because things have gone well.

Jeff Santoro: Yeah. Yeah. Yeah. Yeah. All right. So let's move on. We have another one from, we're now in the Seena part of the show. I like this one because it's pertinent, but it also, you could replace AI in this question with just about any fad or, or, or hot thing.

So when, when the market is obsessed with AI, does it make sense to just buy where the hype focus is not? 

Jason Hall: I love this question and maybe not for the reason you think that I do. I think it's really interesting that AI is the thing.

Two things can be true at the same time. There is certainly a bubble. There's a bunch of crap companies that are using AI to market their businesses to investors and not actually market their business to their customers. And they're not like leaders in AI stuff. And there's a lot of other companies too that are mentioning AI because they like kind of feel like they have to be talking more about AI.

But at the same time, we are at this absolute seminal moment with AI. I did a video today, Jeff, I recorded a video [00:28:00] about Shopify went through their, earnings presentation. 

And it's really, honestly, it's the first time since last quarter. I've really done any deep thinking about the company. We had a listener ask for a take on it. And one of the things they highlighted is some things they're doing with artificial intelligence, like using it, if they want like a good description of a product, like they just describe some things about the product. And then the AI that Shopify is offering writes a really neat description, like a good description, and then they can edit it from there.

But like, it's just in, you know, you and I, some of the tools we use has AI built in it to help like jumpstart the creative process with things like writing a description for a podcast, for example. 

And they talked about how they're rolling out text based image generation for their merchants to use. Merchants is what Shopify calls the retailers that use the platform, for their merchants to be able to create images for marketing and that sort of thing.

So there's a ton of companies that AI is being mentioned in kind of marginal fringe ways, [00:29:00] but the things that AI is going to unlock in terms of productivity gains and more empowerment for small and medium sized businesses, I don't really know if we really are, we might be underestimating it, to be honest with you.

Yeah. You know what I mean? So like, I think you just have to be discerning and definitely apply a critical eye. 

Jeff Santoro: Agreed. I, unlike 3D printing, unlike the metaverse, this to me feels like something that's actually real. Just like the internet was very real when it came around. There was a lot of crap that came along with it.

Yeah. And what's interesting to me is I bet more companies than we're even aware of were doing things with AI. Whether you wanted to call it AI or whether you wanted to call it machine learning, back before AI kind of blew up with chat GPT, right? 

A lot of companies were using that stuff anyway. I mean, even as simple as like Apple giving you the suggested word in your text messages, or Google doing auto filling your Google searches. I mean, those two [00:30:00] things have been around for quite a while now. And that's, those are just two very well known examples. 

 I think about lemonade insurance company, they were using AI chatbots to do people's claims. So I think when you say- 

Jason Hall: There's a software company that does like real estate management software that apartment communities owners might use, and they have an AI chatbot that they've had for years that people that are interested in seeing, or maybe tenants have a problem. They can text and the chat bot like is really good at like giving the right response based on the input. 

And it's this, like it started as this niche thing where there's like 200 things that people are probably going to be asking. So it's easy to build a chat bot that can answer those things, right?

But now we're talking about Shopify with thousands of retailers and sellers that are its customers with potentially millions of products, right? It's remarkable. 

Jeff Santoro: To me, I think maybe I'm just jaded by big tech. [00:31:00] But it feels to me like the big winners in AI are going to be the big tech companies. Because there will be startups, there will be smaller companies that will come around. It's gonna be hard to figure out who's legit. Some of them will get swallowed up by the big tech companies anyway.

I think we're going to get to a point where every company is using AI to the point where no one talks about it anymore. It would be like if someone came on a press release and bragged about the fact that they have Microsoft Excel. I was just not, I think that's where it's going to get to. 

Yeah. So yeah, to me, I don't, I wouldn't stay away from it. I also don't know that I would buy any company right now with that being the primary thesis. To me, it's like a reason to own a company, not the reason to own a company. Unless something like, unless like open AI went, went public. That might be the only reason to buy it. I don't know. 

 I think it's going to be really important, but I, I'm trying not to let myself get too carried away. Because if it ends up going the road of the internet, you know, remember the dot com was in 2000. And it took a while for the [00:32:00] internet to become the thing we know it as now. Where it's in your pocket and you can do everything you want. I mean, that was a while. It wasn't like 2001, you know, like it took several years to kind of shake out. So that's how I, I think about that. 

Jason Hall: I just want to say this to Jeff directionally thinking beyond AI and thinking about hype, right? Broadly. The thing. Do you remember the room temperature superconductor?

Jeff Santoro: No.

Jason Hall: You don't remember this. This was the big thing last year? That supposedly there was this lab in South Korea, I believe, that had developed a room temperature superconductor and it was going to fundamentally alter so many industries. Energy and telecommunications, that all of these things are going to be affected.

And it was nothing, nothing. But it got me thinking a little bit about Chris Hill mentioned PIIGS and the Greek money disaster, right? The thing that was going on there. That there's, there's, there's something every damn year that is like the hype train. Every year there's something that's the hype train. 

And I think broadly you just ignore it. I don't think you, I think the either end of the pendulum that, that [00:33:00] bell curve, either getting caught up in chasing it or running the other way are productive. I don't think either one is productive. 

Jeff Santoro: Yeah. I also think with almost all of these things by the time you and I or anyone listening to this figures it out a lot of it's priced in. 

Jason Hall: Yeah, you're the bag holder if you act at this point. 

Jeff Santoro: All right, here's another one from a listener named Seena. We know 

Jason Hall: it's Seena. 

Jeff Santoro: Oh Seena. Okay different. Yeah, not Seena. Maybe we should just let him plan our shows cuz these are all really good questions. Here's one for you.

Jason Hall: You're hired Seena. 

Jeff Santoro: How much does market cap factor into your portfolio allocation or investing thinking? 

Jason Hall: Jeff, you answer first.

Jeff Santoro: I used to think about this a lot and for some, I don't even know why I don't think about it as much. And again, maybe it comes back to the fact that some of the most impressive gains I've seen over the past couple of years have been from the largest companies in the world. 

But I totally understand and probably still believe that if you have high conviction in a mega cap and high conviction in a micro cap, you can make the [00:34:00] argument that the micro cap is the place to put your money because it just has a better chance of doubling or tripling or quadrupling. 

Jason Hall: It probably has a small position in a much larger addressable market, right? 

Jeff Santoro: I don't know that it's ever a super determining factor to me. I talk a lot about tie breaking factors. Sometimes, something like that could be a last consideration if I'm back and forth between two companies I want to buy or something like that. I might lean towards the smaller one. 

And I think it depends on the type of the size of the company. So for example, a super large retailer is probably not gonna quadruple in the near term. A very small one could. You know what I mean? Just because it's, I think the law of large numbers applies a little bit differently to some of these tech companies than it does to old school companies like a retailer or an industrial or something like that. 

So those are my initial thoughts. What about you?

Jason Hall: How much does market cap factor into my allocation and thinking? The short, probably most accurate answer is probably too much if I'm being honest, Jeff. I've talked about this a ton, how [00:35:00] by and large, like the Mag 7 Nvidia I own, I've owned Apple before, I've owned Microsoft, but it's been years. Haven't been interested in Amazon in a long time.

I haven't rode those winners over the past 12 or 15 years. Because I've gravitated towards smaller companies, like the smaller market cap, big addressable market looking for fast growth of those businesses. And it's, I've made it harder for myself.

I will say this though. I think a lot of investors, because again, I don't own any index funds, so the only exposure I have to those companies is direct ownership. 

So yourself, Jeff, the majority of your equity exposure is in index funds. So you've already owned a lot of those. Yeah. Yeah. Well all the large cap stocks, because the S and P 500, that's, that's your portfolio. 

So I think for most individual investors who have a lot of exposure through index funds, maybe shying away from those large cap companies makes more sense. If you're looking to get different or better returns.

So I think that's important. But what I have come to learn is that again, [00:36:00] we just talked about artificial intelligence. Microsoft, I think is so well positioned there, that as big as that company is, I've probably been underestimating Microsoft's growth, growth potential from here. 

Jeff Santoro: Yeah, I agree with that.

All right. Last one, then we'll wrap things up here. This one is from S H it's from S S. S H listener. S H. Okay, Jason, this is for you. 

So since you've been at this longer, maybe this happened to you a while back. When I started actively investing, it was with a much smaller amount and therefore a 3 percent position was pretty tiny in terms of dollars.

As I've shifted more funds from the passive part of my portfolio into the active part, the dollars get bigger for the same percentage. And I think that's kind of messing with my head. If you had this happen, when was it in your journey and do you have any advice? 

Jason Hall: Jeff, you and I have actually talked about this relatively recently. It is it is a real thing. It certainly is. And, I think that's one of the reasons why [00:37:00] using percentages of your portfolio as a cost basis and also as the value is really, really useful. 

Because it reminds you, like I'll use Kinsale Capital as an example. From a cost basis perspective, it's less than 1%. I haven't looked at it today. I heard the stock went up a ton after earnings, Jeff. But it was well over 3 percent of my portfolio. 1 percent cost basis. 3%. That's a big winner, right? But it's also a good reminder that, David Gardner has taught so many of us, you know, investing in your winners. That you can always go back and you can add more, even in a big winner, it can continue to win for you.

So yes, and one of the things that I have done because of that is even though I always look to have that percentage of my cost basis in a stock, I would still have a dollar number in my head is like, okay, this is going to be my first investment amount. And frankly, you know, after this many years and getting to a pretty sizable portfolio at this [00:38:00] point, that starting number I've, I've had to get uncomfortable.

And this really was happening 2018, 2019. And I got lucky because in 2020 with the opportunities, I was putting bigger numbers than I would have felt comfortable doing in years before as my starting and opening positions in a stock. 

But again, just that reality too, that like that bigger number, as the number gets more meaningful, then you still think about it as a percentage of your wealth. And like, it's the implications if things go bad, when you think about it as a percentage of your wealth versus a whole number, it gets a little more comfortable, right? You just have to adjust. 

Jeff Santoro: Yeah. I know he addressed this question to you, but it's something I think about a lot too, because I've always viewed the percentage as, it's the percentage of my entire combined investing portfolio. my net worth, my net worth. So not including my house invested wealth, right? I invested and it's me and my wife, right?

So [00:39:00] I, so because of that, and this is not a brag about the size of my portfolio or anything like that, but 1% of our invested wealth is if I look at it as, as, as a dollar amount, like would I go out and spend this on Amazon? No, it's a lot of money. 

But if I think of it as 1% of the money I have to retire on, if it went to zero, I would be okay. But it's that disconnect between nominal amounts, amounts of money that I use in my regular spending life versus 1 percent of my wealth. 

Jason Hall: That's such a good way to put it, Jeff, because that, like that, you, you put guardrails on both sides when you do that, right? You, you, you, you say. You're no longer thinking about how many grocery carts full of groceries is this that you'll lose, right?

And then you say, well, but it's, against my wealth, what I have created so far and what I intend to create, it's whatever the impact is, right? 

Jeff Santoro: And I think a way that helped me [00:40:00] understand it better is to look at because I never think about the money that comes out of my paycheck automatically and goes into my You know, passive part of my portfolio.

Never think about it. Couldn't. I mean, I know around the dollar amount just because it's a percentage of my salary. But when you go back and look and say to yourself like, oh wow, over the last year, this is the dollar amount I've put. I didn't do anything. I didn't think about it. But it, you, it, you start to realize like as you, as your salary increases and as you hopefully make more money over the course of your working life, all those numbers start to go up.

And then you say like, Oh, well it's really not any different than that. You know, I think for me it's not so much the total amount. It's how many little purchases does it take me to get there, right? So if I get to 1 percent buying 10 times, that's a lot easier to stomach than if I get to 1 percent buying three times, right?

 But in the end it's one pretty still the same 1 percent same dollar amount 1 percent of my invested wealth. So those are some ways I've sort of helped tried to wrap my head around it. Like oh this happens automatically anyway. [00:41:00] I I can be I can be the automatic.

I can do it myself. 

Jason Hall: No, I like that because again, it does make you put it within the greater context of where you are in life, right? And, and income and wealth and all of those sorts of things. I think there's another thing too that I would suggest to SH and others going through this too, is don't let it paralyze you, right?

Because you apply the context that Jeff's talking about. It can help you kind of work through it. 

And also I think it helps you make better decisions. Because you're not thinking, oh, it's only a couple hundred bucks. I can YOLO this, right? And you buy something dumb. This is a couple thousand dollars. I need to make a good decision here, right?

And if that paralyzes you-

Jeff Santoro: And I'm evidence of that. I'm evidence of that. I've told you this. 

Jason Hall: This is exactly what you've gone through with your process. 

Jeff Santoro: As soon as I stopped buying weekly and told myself I'm going to build up and try to buy in larger chunks I've bought like twice. 

Jason Hall: Yeah. 

Jeff Santoro: I'm like completely paralyzed. Because I'm like, I was, I was like, Oh, this is hundreds of dollars. [00:42:00] I can be a little less discerning versus thousands of dollars. And now all of a sudden I'm like, okay, hold on. I need to, I need to think about this. 

So I get it. It's S H I've been there. And I, I, there's those, those are just the ways I've, I've tried to get myself over that hump. 

Jason Hall: All right, Jeff, is that it?

Jeff Santoro: That's it. 

Jason Hall: That's it. Thanks to uh, Seena. S H, Jeff for that great question. Really appreciate it. Ryan, who else? Colin. 

Jeff Santoro: Ken. No, not Ken. He wasn't on this one. Where were you, Ken? Come on. And then also is Gorsk, Gorsk 40 23, whoever that 

Jason Hall: is. 

So yeah, great questions each and every one. Thank you for giving us the opportunity to answer them.

I'm going to ask this. We do the transcript investingunscripted.Com. I would love to have other people weigh in with their thoughts on any of these. We open up the comments on that. Go sign up for it. When the transcript comes out, when this comes out and weigh in. Let's, let's chat about this.

Jeff, another thing Chris Hill talked about is that this is kind of a one way communication device. It's mostly just me and you and sure on social people interact [00:43:00] with us. And that's usually enough, but we like hearing from, from our listeners.

So weigh in, if you have thoughts.

We did it. 

Jeff Santoro: We did it. 

Jason Hall: Thanks for the great questions again, everybody. As always, we give our answers. We love giving our answers. Don't listen to our answers. Come up with your own answers for these hard investing questions. You can do it. I believe in you. All right, Jeff, we'll see you next time. 

Jeff Santoro: See you next time. 

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