Smattering Podcast 61: July Mailbag and Special Announcement!

Note: All transcripts are edited.

[00:00:00] Jason Hall: Hey everybody. Welcome back to The Smattering, where we asked the hard questions about investing. This is Jason Hall, joined by my good friend, the voice of the people, Jeff Santoro. Jeff. Hey buddy.

[00:00:14] Jeff Santoro: Hey. Hey. How are you sir?

[00:00:16] Jason Hall: I'm good. It's , mailbag week. It's been a couple months, I guess, since we did a mailbag.

[00:00:21] Jason Hall: So we're gonna do a mailbag.

[00:00:23] Jeff Santoro: Yeah, it's been a while. we usually wait till we have two or three good questions and then we'll put out a call to get a few more just to kind of fill out the hour and, We got some good ones for this week and, we're looking forward to answering them, having some conversations.

[00:00:36] Jeff Santoro: I like the way they take us in different directions, you know, we always try to answer the question, but then we riff a little bit and it, I think makes a good conversation. Before we do that though, just some quick housekeeping. Still begging and pleading for likes and ratings and reviews on the podcast apps that would really help the show get in front of more people.

[00:00:54] Jeff Santoro: So if you could take literally four seconds outta your life and give us some stars and maybe even take a [00:01:00] little longer and write a little review on Apple Podcasts. We would really appreciate it. Also, don't forget, we got a newsletter now. You can check that out and subscribe. You get the transcript on Saturday, you get a newsletter where Jason and I write something that we feel like writing about every week. This is the fourth week of that coming up, I believe. So we're still getting that rolling. So if you're interested in that, check that out and stick around for the second half of this episode. Cause we have an exciting announcement that we're going to announce as soon as we're done doing the mailbag.

[00:01:31] Jason Hall: Yeah, that's right. So, like I said, it's been, it's been a while since we did a mailbag and, you know, we have, we've got some questions that we've had for a while. We've got a, like a text group of some friends of the show and people that we know professionally that had some questions that they wanted us to answer as well.

[00:01:46] Jason Hall: So we've got a pretty good group of questions, Jeff, so I'm gonna dive right in here with the first one. This is from our good friend , Colin Roy, who's, great friend of the show. His is really engaged and has had a lot of questions for us in the past, and I really like his [00:02:00] question here. First que- he actually had a couple questions.

[00:02:03] Jason Hall: So the first one, Where do you think capital is scarce right now? I like this question a ton because this is really useful to, useful maybe isn't the right word. But when you think about capital, right? This is large investors, private equity venture funds. People funding startup businesses, all that kind of thing.

[00:02:34] Jason Hall: Banks where they're lending, like all of those things. Companies that are going public, secondary offerings, like all of those are capital, right? People that are looking for capital, businesses that are looking for capital or capital providers. So this is a fun, fun question. Jeff, you want me to start this one off, or do you Uh, okay.

[00:02:56] Jason Hall: So the first thing that came to mind when I read this, [00:03:00] is, and this is something that I follow pretty closely, , particularly having, you know, followed Silicon Valley Bank and, , followed the tech tech market for a number of years. I can tell you where capital is extremely scarce right now. And that's venture capital, right?

[00:03:16] Jason Hall: Essentially everything that happened with the collapse of Silicon Valley Bank, the knock on effects that took out signature , and then of course, ended up leading to the failure of First Republic is because capital is very, very scarce if you're a startup, particularly a high tech startup right now.

[00:03:35] Jason Hall: Last year was a bad year this year. I'm not sure if it's gonna be worse, probably won't be worse. Like more deals will probably get funded this year, but maybe the total dollars is not gonna be as high, and certainly not at the kind of valuations that we've seen. So that's definitely an area where capital is super, super duper scarce. [00:04:00]

[00:04:00] Jeff Santoro: And that, I mean, it, you can tell me if I'm wrong, what my understanding is that what venture capital's doing and what private equity is doing actually does have a lot of an impact on what happens in the public markets. Oh yeah. Right. So one of the big sort of things that was a, a big trend back in 2020 and 2021 was just tons of companies coming to the public markets, some of them way too early in their cycles. And you're seeing the results of that now where, you know, they're not, they weren't profitable when they came to the public markets. They're still not profitable. They're struggling to, to stay alive.

[00:04:34] Jeff Santoro: And, you know, in a, in a normal quote unquote environment prior to this bubble we saw after the pandemic, those companies might have stayed private for another 6, 7, 8 years, right? Or you know, two or three years, whatever. But they wouldn't have come public when they did.

[00:04:49] Jeff Santoro: So, you know, I like to think about these questions through the lens of what it can mean to individual investors and to me what private equity and what venture capital is doing or not doing [00:05:00] does have a, an impact on us as public market investors.

[00:05:04] Jason Hall: Yeah, I just, Jeff, I wanna kinda walk through a little bit about what you were saying and kind of how I think about it because, we know the interest rate environment has changed substantially over the past year. But just to really kind of hammer it home, again, these are levels of interest rates we haven't seen in 16, 17 years. It's pretty stark what's changed.

[00:05:28] Jason Hall: And really you go back to 2010, 2011, 2012. People have talked about it a lot, but I, I just, I don't, I don't think people really maybe understand the repercussions of that ultra low, not just the 2020, 2021 period, but 2012 through really 2018.

[00:05:49] Jason Hall: You know, 2019 the Fed started raising rates a little bit before Covid, right? So there was already a plan in place to start bringing rates back up closer to like historical levels from that ultra [00:06:00] low rate environment that we had been in for almost a decade. And one of the things that happens when you see those protracted periods of low rates is you see money creep outta fixed income and into equity, right? So fixed income is debt, right? You get a fixed return, right? It's a clear return. It's the yield that you get, and then you get your money back when at the end of the term for that bond or whatever the debt is, right? Equity, you, you own, you own a stake in the, in the enterprise.

[00:06:36] Jason Hall: So you take on ownership risk, right? The business fails, everybody else gets paid before you do. The business struggles, you lose money because it's not worth what you paid, right? All of those things come into play. So you saw this massive risking on. And a lot of money flow to venture capital. These venture capital outfits, that they're not just, they're not just investing their [00:07:00] own capital. They're investing other people's capital too. Right. They act as asset managers. That was actually one of the things that, um, Silicon Valley. Bank did one of SVB Financial's businesses was bundling that together. So what we've seen is not just money running away from tech, but money running to a more certain yield.

[00:07:23] Jason Hall: Right? So that's a big part of it. And so the threshold for risk. Has changed, right, with, with rising interest rates, because if you can get that, that minimum, if you can meet your minimum hurdle rate for return in treasuries, you're gonna own 30 day treasuries. You're not gonna, you're not gonna in invest in a money burning startup.

[00:07:46] Jason Hall: But one of the things that changed over that decade period was that a lot more ideas got funded maybe than necessarily made sense as [00:08:00] businesses. Lots of great products got funded that didn't necessarily have the legs to stand on their own, but there was a lot more money that would flow into them, right?

[00:08:10] Jason Hall: So again, you think about the valuations of what Facebook went public for now, Meta, it's Meta now, what it went public for versus what Amazon.com. Amazon.com was a few hundred million dollars right when it went public versus tens of billions for for Meta back when it was Facebook.

[00:08:26] Jason Hall: So a lot of things have changed in that regard. And, and I think you're gonna see venture capital is still gonna fund those, those moonshots, right? The ideas before they're profitable with the idea is to get them profitable. Then you go public, right? You get them to a critical mass and then you go public.

[00:08:51] Jason Hall: Facebook was one of those. It was basically already at the point of profitability. But so many of those companies that have gone public over the past, eight to 10 [00:09:00] years were not, they weren't profitable. They were burning cash. Like all of those things we talked about. And venture capital has pulled back largely because there's no appetite from investors that were coming to the VC shops to say, hey, we wanna participate in this. That money's just gone away.

[00:09:17] Jason Hall: So that's, that's, that's the reality. Now, the flip side of it is private equity. So private equity and vc, a lot of people don't understand what the differences is as venture capital. You're investing in these, it's venture startups, you're investing in the startups.

[00:09:31] Jason Hall: Private equity is just the acquisition of businesses, right? You're buying, maybe you're taking a public company and you're buying it and taking it private. Maybe you're just buying a business that's already private, right? It's just equity and private companies is really what it is.

[00:09:46] Jason Hall: And what you've seen, is more and more private equity are seeing opportunities for those great products that are not good businesses that are over a barrel at this point, right? They need a [00:10:00] buyer because they're running outta money because VC's not there for the you know, they're not gonna do a down round. There's no appetite for a secondary on the stock market. And if they can get a little bit of a premium to private equity and let the business get taken private, and then they can bundle. You know, some like four get four or five good software products that can work together and you can actually make a company out of them. And that's what Private Equity's doing right now with, with a lot of these, a lot of these businesses.

[00:10:30] Jason Hall: I've got one more for you, Jeff. I've got one more for you. An area where they're a capital is about to get very scarce and is already scarce to some extent, but is about to get scarce. Commercial real estate, offices particular.

[00:10:46] Jason Hall: We keep hearing about the bubble, right? The refinance bubble that's coming. You got a lot of real estate out there, a lot of offices that they've got debt that's, that's coming, that's, that's about to [00:11:00] mature, right? These are not the, the way most of the financing happens for commercial real estate.

[00:11:04] Jason Hall: It's not like your mortgage where it's amortized and you, you make a, you take out a 15 year mortgage and 15 years it's up and you've, you own it. These are interest only loans that they take on. So you have to refinance the entire principle at the end of, at the end of the term. And interest rates have gone up and property values have gone down, right? So a lot of these are basically upside down.

[00:11:25] Jeff Santoro: So, yeah. And then, you know, the thing that I think is still kind of shaking out, but will probably never go back to the way it was before the pandemic is, working at work versus working from home. It was never gonna be all work from home like some people thought was gonna happen after the pandemic.

[00:11:42] Jeff Santoro: But you're right, I don't know the real estate space very well, but I listen to a lot of podcasts and read a lot of articles about it. And the thing I've gleaned is the point you just brought up where basically when leases end and debt needs to be rolled over, and you have lower, lower property values, higher interest rates, like what's gonna happen to, uh, [00:12:00] all these buildings that weren't being utilized like they were back in 2019 and earlier Anyway.

[00:12:05] Jeff Santoro: So, you know, it brings up all these other conversations about like, do you start seeing office buildings converted into other things, but that, that's not as easy. It's more easily said than done in some cases. Like you can't just turn an office building into an apartment necessarily, right, because of the way the different buildings were built and all that kind of stuff. So I agree that's another place where we're gonna see some, where we see some scarce capital.

[00:12:25] Jeff Santoro: All right. Colin had a second part to his question. So I have some thoughts on this one. Maybe I'll kick it off and then you can jump in. So Colin says, thoughts on dipping your toes in a sector by buying an ETF? I started buying CYBR, which is a cybersecurity ETF. I know next to nothing about cybersecurity, but I know it would be stupid to not have exposure in the sector. So I think, I mean, personally, I don't do this, but I've thought about doing it because as I've learned more and more about investing, there's not, I don't think anything I think it's a good [00:13:00] idea actually. If there's a sector that you put into like your too hard bucket or I, you just don't wanna predict who's gonna be the winner in it, I think buying an ETF in that sector is actually a really good idea, either forever or until you learn more.

[00:13:15] Jeff Santoro: So for example, cybersecurity is one, but an area that's just hard to invest in is like biotechs, right? Because so much of a biotech's future is binary. They're either gonna get their drug FDA approved or they're not. And you're sort of just guessing whether the stock you bought is part of a company, you know, for a company that's gonna make it. So yeah, I don't think I have a, a problem with it. I think it's a good strategy actually.

[00:13:39] Jeff Santoro: The one thing I would say though is do a little research on what's in the ETF and like what the top holdings are. So I just Googled the one that Colin wrote to us about, and I also just found a couple others. So just as an example, the top few, uh, stocks in this CYBR ETF [00:14:00] are companies that I know you and I are familiar with. Pretty big names in the cybersecurity space. Zscaler, Okta, CrowdStrike, Palo Alto Networks, Booz Allen Hamilton, which is not one I think often comes to mind when you think cybersecurity. Fortinet. , and so that's the top five or six in order in that etf, but I found another one.

[00:14:19] Jeff Santoro: It's a, it's one by, it's an iShares etf. The ticker is, IHAK and that has a totally different top 10, right? So their number one holding is Palo Alto Networks Then Science Applications International, which I've never heard of. CACI International, Fortinet, Booz Allen Hamilton. So I won't read all of 'em, but you get the idea. Each ETF's gonna have a different top 10 list, different weightings.

[00:14:45] Jeff Santoro: So I would just say do a little research because the, the downside of an e ETF is you might get some junk thrown in there, along with some of the big names. Maybe one of them is a diamond in the rough, so you don't know. So that's my take on it. What do you think, Jason? Yeah,

[00:14:58] Jason Hall: I'll largely agree. I think, I [00:15:00] think, you know, first of all, I think probably more investors should be using ETFs broadly.

[00:15:05] Jason Hall: Let me rephrase that. I think more people who are buying stocks, Should probably be using ETFs broadly. Um, they're just really useful and they can, like number one, obviously like the S&P 500 index and, you know, total stock market index. And some of those are great ways just to get market exposure without having to do all the hard work. But yeah, I, I love the idea for these big secular growth, large tailwind areas like cybersecurity, I think they can be compelling. And you hit the high notes, right? Look in the prospectus, look at the top holdings, right? They're required to report their holdings.

[00:15:43] Jason Hall: And yeah, this is a good example, like the CYBR. This one, just so people know, this trades on the Toronto Exchange and of course, our good friend Colin in Canada, so makes sense for him for a lot of reasons to buy something , that's traded on the Toronto Exchange.

[00:15:58] Jason Hall: Again, you wanna know, what it holds, but [00:16:00] you also need to know how much you're paying for it. In this case, this is one that the expense ratio is 0.4%, and what that means is every year they're gonna take 0.4% of the assets. That's the cut, that's the take that the asset manager takes to run it. And that's, I mean, that, that's a little on the higher side. But that's not atypical for some of these specialized ETFs. They do tend to take a little bit higher expense ratio.

[00:16:26] Jason Hall: For example, like most of the, like the, the iShares and the Fidelity and Vanguard's S&P 500 index fund, you're talking about like 0.1% or less, right? So we're talking like a dime, a dime for every hundred dollars you invest in 'em. Like the, just incredibly low, low, low rates versus 40 cents for every, um, $10 you invest in this case, and it doesn't sound like much money, but over, you know, 20 or 30 years, that expense ratio can add up.

[00:16:55] Jason Hall: So at least know what it is. And, and you, if you're gonna pay a premium expense ratio, [00:17:00] you need to be investing in it because you're expecting to get alpha. In other words, alpha meaning better performance than the index. Right. The S&P 500. That's why you would be buying this is is to get that.

[00:17:12] Jeff Santoro: Another way you could go to that end, if you really wanna start looking at expense ratios and things like that, you could find a broader tech technology ETF that might have a lower expense ratio cuz it's not so niche, but might have a few cybersecurity companies in the top 10 or 20 holdings, right? You'll also get things like Apple and Microsoft and Nvidia and things like that, but that could get you a little bit of exposure with maybe a lower expense ratio, maybe a little more diversification. So it's just another thing to think about.

[00:17:39] Jason Hall: Yeah, and I mean, this particular fund, it's like 70% in the top 10 holdings, right? And they're like the names you mentioned Zscaler, CrowdStrike, Fortinet. Actually, I like the Booz Allen Hamilton. I'm, I just, people might be like, what is that? It's, they're basically a defense contractor that really focuses on technology and cybersecurity. Right? So, so really, you, you know they're gonna get paid, you know where their money's coming [00:18:00] from, and, and, and they're gonna, they're gonna make money.

[00:18:02] Jason Hall: So I like that. Okay. What's next?

[00:18:05] Jason Hall: All right, so we got a

[00:18:07] Jeff Santoro: message from Hulk Li on Twitter, I believe. And Hulk says, love your podcast. Learned a lot from it recently. I'm interested in Peloton, and I have a question about this company. I noticed the financial fundamentals of this company have been improving over several consecutive quarters since the appointment of the new CEO. Based on your experience, how do you, how would you evaluate the performance of the new CEO?

[00:18:29] Jeff Santoro: So, for anyone who hasn't been following, Pelotons founder and CEO stepped down more than a year ago at this point. They brought in Barry McCarthy who, uh, where, where did he come from? Jason, do you remember what his background was?

[00:18:43] Jeff Santoro: He came from another company. I'll look it up or Jason will look it up while I'm talking and basically came in to fix the company. Like fix the fundamentals, get it back on, track it. Spotify, maybe? Yeah, maybe. Um, and. I haven't looked at the actual financial results in detail since I [00:19:00] sold my shares probably more than a year ago at this point. But I know that things have been getting better.

[00:19:06] Jeff Santoro: Peloton always had a strong brand. Rabid excited users. Some of those metrics continued to do well, even as the company had larger financial trouble, like their churn rate's still really, really low. People stick, you know, people stay once they are members.

[00:19:24] Jeff Santoro: Um, they just got a little bit too over their skis in terms of being trying to be a hardware company when the strength is really in their app and in their software and in their instructors.

[00:19:32] Jeff Santoro: So I think under McCarthy, they've gotten a lot of the financial stuff heading in the right direction. They've kind of pivoted to be more of a app first you know, software workout anywhere with our app kind of company. It just anecdotally I started, we have a Peloton bike and I just started using the app recently for some non bike stuff and I was, I haven't used it maybe in six or seven months, and I was shocked at like how much [00:20:00] new and different things there are, like now they have like a gym, something about a gym, gym mode or something where you can just listen on headphones like as if you were in the gym. So you don't have to be tethered to like a screen or your phone, like looking at something and it just gives you audio cues, is my understanding.

[00:20:14] Jeff Santoro: So, I don't know, it seems to me like they're doing, he's doing the right thing. It's gonna take probably some more time to really get it back on track, but if they can get the fundamentals heading in the right direction, keep the the users and the growing and happy and that, you know, it trades it now a much more reasonable valuation, like there's really no reason it, it's, it couldn't be a good, a good investment from here, now that all of the crazy, you know, value, you know, run up that we saw in 2020 and 21 is behind us. Um, so I think he's done a good job just sort of. You know, from my not deep dive into the financials quarter to quarter, what do, have you looked at it any closer than that, Jason?

[00:20:52] Jason Hall: No, and I probably never will. No, I'm, I'm kidding.

[00:20:56] Jeff Santoro: He's not kidding.

[00:20:57] Jason Hall: No, I've, like, I've actually, I have, I've read, I've, I [00:21:00] do actually read the releases, because, So many people are interested in it. And I, and I know it's one that you're interested in, and our friend Travis Hoium has, he talked about it on the show when he came on his Asymmetric Investing.

[00:21:10] Jason Hall: And he talked about exactly what you're talking about, that, you know, they're, they're moving away from the hardware, the cyclical part of the business, getting their cost structure, getting their cost structure kind of in a better place where they're like their lower expenses. Or like where their fixed expenses are lower and starting to benefit, like from like internet economics instead of like cyclical manufacturing economics.

[00:21:35] Jason Hall: So I like those things. I really do. The one observation that I have is that I just, I don't understand what is the potential addressable market. Like, how big is it really? And you know, again, you're, I think the biggest competition for what they're trying to do now is gonna be Apple. I think it really is.

[00:21:49] Jason Hall: You're not really, you're not competing against, like they always tried to say they're competing against the gyms. And now you're competing against Apple. Which has, which has made a concerted effort to make fitness a big part of their [00:22:00] ecosystem. And, and that is a, man, I, I don't know if that's a company I wanna compete with.

[00:22:05] Jason Hall: Can they be the Pepsi to, to Apple's Coke in this? Maybe. But again, it's- is the market share really gonna be more like Tab, right? Do you, yeah. Like, well, how many people actually get that reference to Tab?

[00:22:18] Jeff Santoro: I think it is hard. I that's a really good point. I mean, I, I just recently, I subscribed to Apple's apple Plus or Apple one subscription because between me and my son's Apple Music, subscriptions and our, the cloud storage stuff, it made sense to just subscribe to their bundle, which is why Apple does as well as it does. But with that came the Apple Fitness subscription, which I don't use, I don't plan to use, but I did click on it to see what it was about, and it looks exactly like Peloton. I mean, it's, if they have a studio, they have engaging instructors. And one thing I, I do wonder, Jason, I don't know, this is just me speculating is when the contract comes up for some of these Peloton stars [00:23:00] and, does one of 'em go to Peloton and go, Hey, listen, Apple is gonna pay me X to go do their fitness thing you know?

[00:23:08] Jeff Santoro: And then can Peloton compete? You know, does this become like free agency in, in sports where, you know, Apple's just gonna pay the big names from Peloton to come over to their app. So that'll be interesting to watch. But if they can keep. That part of it. Sustained. You know, maybe they do have a first mover advantage there.

[00:23:24] Jeff Santoro: To Hulk Li's point, I do think the CEO's done just about as well as you could have hoped, considering what he inherited.

[00:23:32] Jason Hall: Yeah. That's hard to argue with. That really is. But, but I think, here's the last thing I'll say about it is I think you have to be careful when evaluating any business and seeing a CEO come in and the turnaround start to be good and start to work and mistaking, Hey, a CEO's doing a good job for, oh, hey, this is a good stock to buy. It's not always the same thing, right? So you just have to be mindful. Mindful of that.

[00:23:57] Jeff Santoro: All right, let's, uh, let's jump to one of the ones [00:24:00] that we got from our, our good friend Travis, actually.

[00:24:04] Jason Hall: What did Travis have to say for us?

[00:24:06] Jeff Santoro: So his question was, has the AI bubble popped? And I-.

[00:24:10] Jason Hall: That's the most lawyer question in the world, because he asked the question that he knows the answer to.

[00:24:15] Jeff Santoro: Well, I, so I actually think this is interesting because, I might have said this on a previous episode. But I'll say it again cuz I, I wanna know like what you think about it and you can tell me if you think this is a completely crazy way of thinking about it. I don't think the AI bubble quote, end quote is a bubble in the sense that like the crypto bubble was, or 3D printing was. Like, I do think AI is gonna be a thing and I think we're gonna see more and more of it in our lives.

[00:24:43] Jeff Santoro: So in that sense, I don't know if it has popped or, I don't know how to answer that question in that sense. I don't think this is a fad like some of the other bubble things have been. However-

[00:24:53] Jason Hall: it's like the internet bubble, right? And again, I don't wanna draw exact correlation because it's a thing that there was massive [00:25:00] early association from investors, investors were trying to get in early. They ran stuff way up, they got way ahead of valuations. They bought a bunch of junk that said AI that was junk and not AI. And you could, you can replace internet or dot com with AI in this conversation. And then the internet stuff. Here we are, we, this podcast exists because of the internet, right. But it's 20 years later.

[00:25:25] Jeff Santoro: But yeah, no, that's all true. And that's sort of where I'm, where I'm getting at from like a, like a first look at it kind of standpoint. But then here's the other thing, like AI I think is becoming a catchall phrase for a bunch of really different things.

[00:25:40] Jeff Santoro: AI has been happening in all of our lives for years and it's been working in the background and we, and in ways we probably aren't even cognizant of because they're so normal now. Auto correct. Autofill on Google, your Spotify playlist, that's all aI and machine learning and things like that. But then all of a sudden, a, a [00:26:00] large language model thing like ChatGPT comes, becomes a public facing thing and every, and, and then that's where I think the bubble has come.

[00:26:08] Jeff Santoro: And I, I think that, I don't know that the mania around it has really gone away yet. I'm curious to see as we enter earning season at the end of next week, how much CEOs try to shoehorn AI into their press releases again, now that we're three months after they, they did that the last time.

[00:26:26] Jeff Santoro: So I don't know if it's popped necessarily. I, I still think people are gonna try to say, and cause I still get press releases in my mailbox, in my inbox from companies that I, you know, I'm on mailing lists for, just a random company you'd never think of just putting out a press release about how AI is changing, you know, making their business better.

[00:26:44] Jeff Santoro: So, I don't know, I don't think it's popped yet. I think maybe it's not gonna pop, it's just gonna kind of slowly deflate and maybe we're starting to see some of that. But do think it's different than some of the other bubbles we've seen.

[00:26:56] Jason Hall: I think instead of thinking about this in terms of bubbles, I need to think, we need to think [00:27:00] about this in terms of the hype cycle, I think is a better, because again, the term bubble, we apply that to things that were there was, it was empty, right? It was full of air. There wasn't anything of value there.

[00:27:10] Jason Hall: And I don't- I agree with you wholeheartedly that that's not the truth with ai, right? And AI is going to potentially over the next century, Could be the most powerful influence on humanity. and I think it's, I think it's likely that artificial intelligence writ large, is gonna be the thing that fundamentally affects more people's lives over the next century than anything else. Maybe everything else combined. Even climate change. Right. I think that that's not too-

[00:27:36] Jeff Santoro: I don't disagree. I just think we were heading in that direction whether or not ChatGPT came out, I guess is my point.

[00:27:43] Jason Hall: The, exactly, and that's the point that I wanted to make is really, you go back to the spring and the, when people say ai, now the average person says ai, they mean generative ai. They mean these large language model based, learning like ChatGPT, and, um, [00:28:00] what's the one that Alphabet's doing? Bard, I believe.

[00:28:03] Jason Hall: So the, those are, that's what people mean. They don't think about all of the other things that are, that are, that AI is doing, right.

[00:28:11] Jason Hall: Facial recognition, like all the stuff that's been going on, for two decades that AI is behind because this is ai that sounds, that feels more like a person. I think that's the big thing because it can talk to you, it can write back to you, right? And you can feel like you're engaging and interacting with it.

[00:28:29] Jason Hall: And essentially all of the other AI that we've dealt with is, it feels impersonal and it's a machine, or it's something that's invading our privacy or it's, However it was built. Maybe there's biases that were built into it that make it not work well. Like for example, like facial recognition being really crap when it comes to people with brown skin. Little things like that that are, that they, it just, it seems like there's, that's maybe that's the transcendent moment we're having is that this is the AI that feels more like [00:29:00] intelligence, right? And not the robots coming for us.

[00:29:05] Jeff Santoro: Yeah. Yeah. I'm, I'm very interested to see. With this next earnings cycle, not only how many times it gets mentioned in press releases and earnings reports, but are there any companies that put results out or have guidance that's really obviously driven by something related to ai? Like for example, when Nvidia.

[00:29:24] Jason Hall: So you mean any companies that are not Nvidia or Taiwan Semiconductor?

[00:29:28] Jeff Santoro: Or even Nvidia. Again, like I, I'm just curious to see if we see any big pops in a stock price that's something that's directly related to, to like a legit use of ai. Like, does that happen again and, you know, I, I don't know. Maybe that'll give us an indication to whether. We're still in that hype cycle, like you know, you were saying.

[00:29:46] Jason Hall: Well here, here's some hype for you. Nvidia. So we're recording this on August 10th.

[00:29:51] Jeff Santoro: July 10th.

[00:29:51] Jason Hall: Nvidia closed with a, excuse me, July 10th. Thank you. Thank you. Where did that?

[00:29:55] Jeff Santoro: This is coming to you from the future!

[00:29:59] Jason Hall: [00:30:00] Brought to you by ChatGPT. Um, Nvidia stock still trades for a trillion dollar market cap. I don't wanna say that's obscene, but I think that is a massively forward looking valuation because do I think this is a trillion dollar company?

[00:30:12] Jason Hall: Yeah, absolutely. At some point in the future. I think it's gonna, it's gonna, it's gonna earn that valuation at some point in the future. I just don't know how far in the future it's certainly gonna be, not August 10th.

[00:30:23] Jeff Santoro: Yeah, I'm curious. Like, you know, they, they were guiding for 11, I think $11 billion in revenue in q2. I'm curious if that comes in at like 10 or 10.5 or nine. Does the stock drop 15%? I'm curious to see. Because it's priced for perfection right now. So they have a, they have to, they have a high bar to get over.

[00:30:44] Jason Hall: We got another, we got another, um, one that, that I think is particularly relevant right now because I think a lot of people that found our podcast and engaged with us, It happens on Twitter.

[00:30:55] Jeff Santoro: Yeah. And I think this was from our friend Seena. I think he's the one who proposed this one, so I wanna give [00:31:00] him a shout out. Um, and I love this because it's, it gives, it gives me a chance to talk about my massive mistake of choosing Meta for the un- portfolio in our competition. The question is, will-

[00:31:11] Jason Hall: you're, you're just bringing it up before I do.

[00:31:13] Jeff Santoro: Well, yeah, I figured that that's the right thing. I should say after or right before I remind everyone that I won q2. Okay, moving on. Um, the question is, will Threads be good for Meta? And I think it absolutely will be because anything they can do to monetize and or draw attention back to the reason we all know this business to begin with, which is their family of apps and away from the pile of cash they're setting on fire to try to make the metaverse work, I think is smart for the company. So that, that, that's that's my hot take on that.

[00:31:51] Jason Hall: So I think a couple of things. I think the number one is Meta has had a decade to do this [00:32:00] right, and hasn't done it over the past decade for some pretty clear reasons. And the, the two reasons that are the most obvious and I think are 95% of the reason they didn't is number one, Twitter already existed, right? And as we've learned through Meta's growth from Facebook to the business now with that, like you said, the family of apps is, it's become that family of apps by acquiring them, right?

[00:32:23] Jason Hall: Buying really good platforms. They tried to do something that was better than Instagram and it was terrible. They tried to do, and they ended up acquiring Instagram. They tried to do something better than Snapchat. That was pretty awful, and they canned it, right, and they stopped trying to chase Snapchat's business.

[00:32:39] Jason Hall: They never really made a serious effort before now to go after Twitter's business because Twitter already existed. That's reason one.

[00:32:47] Jason Hall: Reason 1a of those two reasons is this a pretty crappy, low return business. Twitter struggled forever to monetize the platform, right? That was always the problem. And the [00:33:00] reason Elon Musk was even able to get an offer out there that the board would accept was it was a terrible public company.

[00:33:09] Jason Hall: It was a low return business. They really struggled to make money. The whole advertising model wasn't good. They could never figure out a good way to make money with a paid platform. And Musk bought the business and has absolutely gutted it, right? Has absolutely eviscerated the business, hollowed it out from the inside, and it got to a point where the business was so weak, then it became a clear opportunity.

[00:33:32] Jason Hall: Even though this is a low margin business, again, it gets, you know, what it gets back to, to me, Jeff, is what we were talking about what's happened with startups over the past. 10 or 12 years is great product, not a great business. Meta is a great place for a great product to live, right?

[00:33:52] Jason Hall: Because you can leverage resources across multiple platforms. You have one accounting department, right? You have, you know, one, [00:34:00] one department that can deal with all of your different regulatory issues in different areas, right? You don't have to take all that expense on one business. You can pass it across half a dozen different apps.

[00:34:10] Jason Hall: And now it makes sense because Twitter is so weak right now from a business perspective, from a technology, from like the having smart people. I'm gonna share a little something here, just a little inside, a little inside baseball. Our episode, on fighting chimps and picking stocks, I decided I wanted to test something. I wanted to promote it on Twitter.

[00:34:33] Jason Hall: Twitter actually failed to promote it. Like I did a five day promotion. Not gonna say the dollar amount. They never actually like, were able to promote it and like if you look in the app where we, you see that kind of stuff, it shows like they promoted it, but it's literally all 0% and $0 and then there's a button I can click, promote it again, like it's, this is clearly you're going after a business [00:35:00] that's in a position of weakness right now.

[00:35:02] Jason Hall: And, but here's the last thing, last thing. I know I'm rambling here, but last thing about this, will Threads be good for Meta is, is indetermined because humans are lazy and Twitter still exists. And generally we see all of the noisy stuff, all of like the, the, it's almost always a really loud minority. And I don't like, I don't know if Twitter is really, is weak from like a user experience as we really think it is. Like there was the stuff about seeing 300 tweets and like all of that kind of stuff. I think that stuff doesn't affect 99% of users. I just, I don't think it does. So I don't, I don't know if it's gonna be good for Meta or not.

[00:35:43] Jeff Santoro: Here's where I think they actually. As much as I don't wanna see meta do well cause it's a business I happen to just personally dislike immensely. I think they have a lot going for them. So first of all, their acquisition costs are virtually zero because all you have to do [00:36:00] is use your Instagram account, which billions of people have one click a few buttons and boom, you're on Threads.

[00:36:05] Jeff Santoro: So, As someone who has set up a Post account and set up a Blue Sky account to try to like see if there's any life after Twitter. I was like, do I really want two more accounts? So, so like anyone who feels that way, he is like, well, I already have these accounts. Like this isn't anything new that, you know.

[00:36:23] Jeff Santoro: I know there's like data privacy issues, but if you have a Facebook and an Instagram account, guess what? They have all that data already anyway, so

[00:36:30] Jason Hall: it's like the network, this is the network effect benefits kicking in.

[00:36:32] Jeff Santoro: So, so that's the first thing they have going for them. Virtually no acquisition costs. Second of all, I, I don't even know if they need to monetize it like, or, or monetize it much because again, it's part, it's not like Twitter is its own thing is Twitter had to monetize Twitter, cuz Twitter was only Twitter. They could probably burn a little bit of money on Threads for a long time and kind of have it just be part of you know, part of the, part of their business that is in the [00:37:00] red while everything else is in the black.

[00:37:01] Jason Hall: Almost like the loss leader, right? Just it's, it's there to be part of the network and engage.

[00:37:04] Jeff Santoro: And honestly, if you engagement, you can make the argument that

[00:37:06] Jason Hall: they know how to monetize stuff, Jeff. They know how to, right? And if you're number one, you don't fire all of your engineers that handle like the, the code for when somebody says, I wanna give you some money to promote something where that breaks for five days and you can't take their money.

[00:37:21] Jeff Santoro: But here's, but here's the, and here's the last thing I'll say. you know, Musk is all about free speech and, and not, you know, telling anyone they can't say anything. And that's some people's cup-

[00:37:32] Jason Hall: his, his free speech.

[00:37:34] Jeff Santoro: Regardless. It's some people's cup of tea, right? Some people like that aspect of what he's changed about Twitter, right? But for everyone who doesn't and still wants some level of moderation, you know, Facebook has taken a different approach in that way.

[00:37:47] Jeff Santoro: Right? And I'm not saying one's better than the other, but I think that's gonna offer an alternative to people who might have stayed at Twitter and not really liked some of those changes to go over to Facebook and, and kind [00:38:00] of see how they do it. So, it'll be interesting to see.

[00:38:02] Jeff Santoro: It's a good question. I don't, I personally don't care cause I'm, I don't plan on ever buying meta. Um, but I, I, if I were, if I had to guess I'd say this, this has a good chance of working out, working out well for them.

[00:38:16] Jason Hall: Even if it's wildly successful- this is my last point on this one. Even if it's wildly successful. It's not gonna be a big enough profit driver to move the needle.

[00:38:25] Jeff Santoro: Agreed. But it could be. If it is wildly successful, it's probably the nail on the coffin of what was a really big competitor. So, yep. All, so to close out the first part of the show, we got a message from someone that I think we, we wanted to share because I, I think it speaks to, you know, what, what we're hoping all people who listen to our podcasts are able to do, uh, we're not gonna give the name of this person only because there's some numbers in here that we're not sure this person would want us to share.

[00:38:57] Jason Hall: Yeah, we got, we got it in a DM to the show account.

[00:38:59] Jeff Santoro: Well, why don't you [00:39:00] read it, read it, Jason, and then we'll, we'll talk about it.

[00:39:02] Jason Hall: You, you know who you are. Thank you for sending us this message. It just said, just wanted to drop a line to thank you guys for educating us home gamers. I first became acquainted with investing in March, 2020 when the Pandemic drop happened. Sound familiar Jeff? A lot of people. A lot of people, this is when they really started, either they found investing for the first time or found their conviction to get committed to it.

[00:39:26] Jason Hall: So that was really good. And, uh, what this person says, that's when they subscribed to the Motley Fool again, something has sound familiar to a lot of people listening to us right now. Pulled $15,000 out of savings account and bought per the plan. I started focusing on increasing my percentage invested from W2 wages. Increased from my 1099 consulting business. So this is somebody, both their, their payroll to their 401k and their side, their side hustle. That's fantastic. To further fuel that fire, three years, $15,000 to [00:40:00] $225,000, wife and I combined.

[00:40:04] Jason Hall: That ,that's a win. That's a win. Again, you know who you are that sent this to us. You celebrate this success. You, own this, own this. You, you did this, you did this. Did you get help along the way? We all do. Every one of us does. But beat your chest, have a cocktail, hug your spouse. Fantastic. Good on you. Good on you.

[00:40:27] Jason Hall: And for anybody, anybody that's listening to this, that maybe, maybe they started investing in October of 2021, right? Maybe early 2022. Maybe you're looking at yours and you're like, well, I started at 225 and now I'm down to 15. No, it's not that. Not that, you know, my point is you're looking at maybe not these great results. You can do it. You absolutely can do it.

[00:40:55] Jason Hall: Don't get so caught up in the one part of the cycle. This is a person that [00:41:00] invested through that same downturn too, Jeff, but they were fortunate that they started in the middle of a, a deeply down market, right? So yeah. Don't give up. Keep, keep doing it. Keep doing it.

[00:41:13] Jeff Santoro: Yeah. The thing that jumps out to me as someone who went through a little bit of a similar trajectory, and at least in terms of my individual stock buying life, I mean, I've said before, I've been, you know, investing in my retirement account since I started working and so that's where I don't really consider myself to be a new investor. And I lived through the great financial crisis in terms of seeing how my investment account, you know, went down a lot for a few years and then came back. So I've seen kind of both sides of a couple different cycles now.

[00:41:43] Jeff Santoro: But the, the thing that I think I like to come back to a lot is the best day to start investing is today, and the second best day is tomorrow. Right? so you, you have to start somewhere and you have to stick with it, and you have to do it through all types of markets because it, [00:42:00] it's just the time in the market that makes the biggest difference.

[00:42:04] Jeff Santoro: You know, you can, I'm not, I don't have them, the stats in front of me, but you can Google this and find all these different charts and data that shows you that starting at 19 is better than starting at 29 is better than starting at 39 is better than starting at 49. So whether it was March of 20, whether it was November of 21, may, whether it was April of 22, starting is the most important thing and sticking with it is the second most important thing.

[00:42:31] Jason Hall: Absolutely. All right, so again, thank you for that wonderful, wonderful message. Jeff, let's take a little break.

[00:42:42] Jason Hall: Okay everybody, welcome back from that little break there. Again, thanks for all those great questions. If you have more questions that you want us to answer in a future episode of our mailbag, please go ahead and send them to us. DM the show, send 'em to our Twitters. You can find all that in the show notes, show email address accounts in there too. If you prefer to email, please get those to us. [00:43:00] All right, what are we gonna, what do we got? What do we got lined up here for Our, our, our, our B block? Jeff.

[00:43:04] Jeff Santoro: So we have a little announcement we'd like to make, for we, you've been tweeting about this, uh, kind of teasing it for the last couple, couple weeks. But we are planning an an in-person event, with some of our closest investing friends in Washington DC in August.

[00:43:21] Jason Hall: And, Lou Whiteman.

[00:43:22] Jeff Santoro: And Lou Whiteman. Yes. Our closest investing friends and Lou Whiteman. Um, now we'll see if he actually listens. We, we will see. Don't no one tell Lou. We wanna see if he listens to, to hear what we just said.

[00:43:34] Jeff Santoro: So Jason, why don't you give the details on this event and then we'll, we'll chat about it.

[00:43:38] Jason Hall: Yeah, so I'm, I'm extremely excited, excited about this, and I'm gonna, I'm not gonna lie, I'm a little, I've got a little bit of trepidation because this is the first time we've done something like this.

[00:43:46] Jason Hall: But it's called Money Collaborative. So you'll be able to go to moneycollaborative.com to register for this, so I wanna share that as well. Our good friend Travis Hoium set up something for folks to be able to register and to [00:44:00] pay.

[00:44:00] Jason Hall: And like I said, this is an in-person event. A group of us we're gonna be in Alexandria, and we decided this was an excellent opportunity to host something for our listeners, for people that subscribe to like, Lou Whiteman's, um, for people that just subscribe to Fits and Starts, Lou's blog that he does. Asymmetric Investing, of course, Travis Hoium. Tyler's gonna be there. Tyler Crowe, who does a lot of the stock videos with me that folks see on our YouTube channel. And Matthew Frankel, CFP, Matt, who's, who's been on our show, has a great YouTube channel. he's also gonna be there.

[00:44:35] Jason Hall: So what we're looking to do is from two to six on August 18th, that's a Friday. It's gonna be at Lost Boy Cider in Alexandria. It's in Old Town Alexandria.

[00:44:47] Jason Hall: We're gonna be doing some different conversations based on what some of these great guests are, are experts in. So, Matt Frankel, for example, is gonna come on and he's gonna talk about [00:45:00] personal finance, real estate, different topics that he knows, Travis is gonna focus on helping talk about how he finds asymmetric opportunities.

[00:45:09] Jason Hall: Uh, Tyler Crowe is maybe one of the best people I know at finding huge winners that are just completely overlooked, and he's gonna talk a little bit about that. My guess is that Lou probably is just going to show up and then tell us he doesn't wanna talk because he has the superpower of saying no to things he doesn't want to do.

[00:45:27] Jason Hall: Um, one of my favorite things that we're doing, and I'm really excited about this, we're gonna record an episode of The Smattering. We're gonna do it live. Um, so that's gonna be a lot of fun. Part of that I'm hoping for our b block is, we could take some questions from people that are there, take them live, and make that part of the show. So I'm super excited about that.

[00:45:48] Jason Hall: So again, the events on August 18th. if you book before August 13th, you book by August 13th, that's a hundred dollars. If there's any spaces left over, they're gonna be $150 until, until it's [00:46:00] sold out. If anybody books after the 13th, it's limited to 50 spaces. So if you're able to go, please book now.

[00:46:06] Jason Hall: Again, we'll have some info on the show notes. You can click, , to, to find it's moneycollaborative.com the website. Really, really excited about. I think it's gonna be a lot of fun.

[00:46:15] Jeff Santoro: Yeah. I'm looking forward to this. You know, it'll be really fun to do a live version of the podcast. In fact, you know, it'll be cool to do it in front of an audience, but honestly, it'll be the first time you and I have ever done a podcast in the same room.

[00:46:27] Jeff Santoro: So that'll be, that'll be kind of fun for us too. Um, but, you know, having gotten to know Matt, Travis, Tyler, and Lou over the past couple years has been really helpful in my investing life. You know, we're lucky we can shoot these guys a text message whenever we have a question or wanna kick an idea around, and we get a combination of really good insight and, and get getting made fun of, which is what you'd expect from a text thread of middle aged dudes who are, friends, but I, I, you know, they're also [00:47:00] some of the nicest people, you're really ever gonna meet.

[00:47:02] Jeff Santoro: So if anyone's in the, in the area, in the DC, Alexandria, Virginia area wanna come down, I think this will be a really fun event with some really great people. Who are just nice, humble. You know, regular investors who just like to help people.

[00:47:16] Jason Hall: We're gonna, we'll have food there too. It's gonna be, it's a four hour event. There'll be a cocktail hour at the end. One of the other things I wanna point out, and I think this is really useful, cause Jeff, you've talked about it. Most of us, like in our regular lives, our day-to-day lives, we don't have a lot of people that are passionate about investing in the same way we are.

[00:47:31] Jason Hall: And I think the opportunity to meet other, just regular people that are passionate about investing at an event like this can also be extremely, extremely valuable too, so not just the half dozen of us that you're gonna show up to listen to and to talk to, but look around the people sitting next to you at the tables too. I think there'll be a, a great opportunity to meet some amazing people. So hope to see everybody there.

[00:47:55] Jason Hall: All right, Jeff. We have once again done the thing that we do. We [00:48:00] did it. Okay. Friends, as always, we'd love to give our answers these hard investing questions, but it is up to you to get your own answer.

[00:48:10] Jason Hall: You can do it. I believe in you. All right, we'll see you next time, Jeff.

[00:48:15] Jeff Santoro: See you next time.