The Smattering Podcast 67: Is Being a Lazy Stock Picker Better?

​[00:00:00] Jason Hall: Hey everybody. Welcome back to The Smattering where we ask the hard questions about investing. I am Jason Hall joined as usual by my good friend, the voice of the people, Jeff, "don't call me Giuseppe" Santoro.

Hey buddy, how you doing?

[00:00:17] Jeff Santoro: I'm good. How are you?

[00:00:18] Jason Hall: I'm good. I'm good. So we're just going to leave that there as an inside joke that nobody knows, except for the people that know. That's right. Yeah. Yeah. How you been?

[00:00:26] Jeff Santoro: I'm all right. A little under the weather, so I apologize in advance if I sound a little congested, but took some medicine and I am ready to go. I'm excited about this episode.

[00:00:35] Jason Hall: T. H. Thank you. Thank you for that. All right. So we got a fun episode planned. We are, Jeff, I think this is, so the title: Is Being a Lazy Stock Picker Better?

[00:00:47] Jeff Santoro: Yeah. Yeah. And this- so we spent this weekend hanging out with some of our colleagues, which was a lot of fun. We all met up, and as you can imagine when a bunch of people who [00:01:00] are interested in investing and stock picking get together, we spent hours just BSing about investing in stock picking. And one of the conversations we had sparked an idea in my mind for an episode and that is do basically what you know, the title says it all, right? Is being a lazy stock investor or a stock picker better?

But to sort of give it a little bit more background, I sometimes wonder if we meaning you and I and anyone who listens to this podcast, who is interested in investing beyond just the very, very basics, like people who actually keep spreadsheets or notes and read SEC filings and press releases and jot down what they're thinking and have a journal. I wonder sometimes if we, if we do more than we need to, so that was the genesis of the idea here.

[00:01:53] Jason Hall: Well, and I think to a certain extent, this one, it's interesting that the conversation you were talking about talking about, I actually wasn't present when you had the [00:02:00] conversation. I was talking to some other people.

[00:02:01] Jeff Santoro: Which is why it was great. It was probably the best conversation I had the whole weekend.

[00:02:06] Jason Hall: Right, right. Largely because I wasn't part of it. That means the math checks out. I can understand. So, but it really, the idea, as we talked about it after the fact, it resonated with me because I think in a way, I think a lot of people are going to know where I'm going to fall on this conversation, but it's certainly, if you, if you look at how my, my investing career, meaning my actual progression as an individual investor, picking my own stocks, managing my own portfolio as it has evolved over time. I've certainly learned some lessons about this.

And I think it goes. More beyond just how you define better. So if we're defining better by your, your results or other aspects of maybe how can it be better? That's really what I want to explore.

[00:02:50] Jeff Santoro: Yeah. So let me kick it off by giving like a thought experiment place to start the conversation.

So let's just say you were a total vibes [00:03:00] investor. And here's what I mean by that. You built a portfolio of whatever, 25, 30, 35 stocks. And largely, the choices of what's in your portfolio were based on very simple, I think this company will be around and doing great things for a really long time. I wonder how you would do versus the market without looking at cash flows and earnings per share and revenue growth.

And I mean, long term, I'm talking buy it in your twenties and hold it through your retirement years. So for, for, so, so for example. Now, this is easy to do with hindsight bias because I'm going to name some really big winners.

If you bought Apple because you just figured people love these products and it's a brand everyone knows, I think it's going to be better going forward and then held it for, for three or four decades or same thing with Netflix or [00:04:00] Amazon or Chipotle or Starbucks.

And I'm just sticking with like big, well known consumer brands that everyone has heard of for everyone in this country has heard of. I wonder if, how that would turn out.

Now, that's not what I'm going to do. I'm not going to change my investing style, but as a starting point, Jason, as like a way to kick off the conversation, that's kind of the, the, where I was coming from with this. Like, I feel like you could do okay with, with some caveats, but just generally, so what do you think?

[00:04:29] Jason Hall: So, a couple things like, the, the first thing, you were talking about the idea of long term, and I'll, I'll reference back to our conversation that we had with Brian Withers. It's been six months or so ago. I think it was earlier this year we had that conversation. I encourage people that didn't hear to go back because Brian was able to transition from being in the corporate world, working the corporate job to a kind of semi retired, right? Where he was working more part time and living out off of his portfolio and kind of pursuing [00:05:00] the life that he wanted, wanted to.

But one of the things he talked about that was so powerful for him was like his, the, the fundamental transition to what longterm really means. And it's, it's not five years, right? It's, it's a decade plus and really thinking about it.

[00:05:17] Jeff Santoro: Yeah. That episode was from back in January, just if anyone wants to, to check it out, it was number 36 in our series.

[00:05:24] Jason Hall: So you think about that, that aspect of it. I think that's really, really important. But one of the things that I always like to do when we go through these kinds of thought experiments and we, and we try to apply some sort of look back and say, okay, does this test out, does it hold up. And I think there's certainly somewhat anecdotally, but also some longterm research that says this is, this is probably the case that being one of those investors that you find a company, you invest in it and you [00:06:00] hold it does pay off.

I know that one piece of data that has proven out is like the idea of dollar cost averaging versus just investing, just buying a position in that company and then holding dollar cost averaging actually doesn't do as well. The obvious problem there is that most people. And their twenties, thirties, forties, and sometimes even their fifties, that's really not a choice. Right? Right. You don't, you don't have the, the sum to, to buy a whole position because a full position at 35 is very different than a full position at 55. Right?

So, so with that caveat we do know that having a slower, more methodical buying process and a longer holding process certainly, certainly works.

[00:06:43] Jeff Santoro: Wait, I want to pause on that real quick, because just in terms of going back to the point about what long term really means, that's another realization I had being fortunate enough to spend a whole weekend talking with other investors, which was so much of what we talked about, [00:07:00] not on purpose, but if I look back on the last few days, was really about the last three or four years.

Like almost every conversation we had was framed around what's happened the last couple years. Now, every once in a while, someone would be like back in the great financial crisis or 10 years ago or 15 years ago, or when I started investing, but just the natural gravity of recency bias always pulled us back to the last three or four years.

And in the scheme of your investing lifetime, that is a millisecond. That's such a small amount of time. So I think it just, it was another realization I had this weekend. That's very relevant to this conversation I think.

[00:07:40] Jason Hall: Yeah, I think the recent recency bias part of it, even, even more broadly for people is, is a bigger issue because we always frame things around very recent terms.

So I was listening to another podcast that was looking at the Magnificent Seven which is the biggest, the seven largest stocks in the, [00:08:00] in the S&P, right? The, these giants that have all had great years. And, and I kept hearing things like trades that are reasonable valuation against its peers, trades at a decent multiple compared to what it's, in whatever period of time, like very recent period of time ago.

And it's like, that has nothing to do with anything if I'm looking to deploy capital, right? Those are not real numbers. Those are not objectively useful numbers. So, I will end that rant and go back to my review of of the idea of data about this idea of being a very, very active investor versus just being kind of lazy about it.

And I, I think one of the things that also kind of, points back to it is the, the inexistent study. I'm gonna, I'm gonna talk about the inexistent study. So this is one that we've referenced on this show and I decided to do a little bit more research into it.

And that is [00:09:00] this supposed study that I think it was Fidelity that did around a decade ago that the evidence was pretty clear that people that died their investing accounts did better than, than the average or people who actively traded. And Jeff, of course, what I've learned since then is it looks like it looks like that study never really, really happened.

[00:09:29] Jeff Santoro: Well, we can't we certainly can't find it anywhere and I'm we're both guilty of having referenced it on this podcast So that's our bad. But we could find several articles that referenced the person who first referenced it, but not the actual article or research report that is actually.

So who knows? Maybe it does exist and we can't find it, but it appears like that might be urban legend, but it's directionally correct if I had to guess.

[00:09:59] Jason Hall: Yeah, well, and [00:10:00] there is, there's other-

[00:10:00] Jeff Santoro: There's other, there's other data too.

[00:10:03] Jason Hall: Yeah. There's a study, that the Berkeley did in the Journal of Finance. Now it's 24 years old at this point. It was published in April of 2000 that did look back over a pretty significant period of time during the nine during the early nineties. So really before the dot com run up in the early nineties that did show that people who actively trade or trade more than average tend to do worse.

Jeff, here's the caveat. Back then- this is something we've talked about on the show. We're in this golden age of being a retail individual investor, because you don't pay trading fees. You can buy $5 of a stock. You don't have to buy a certain number of shares. Like it's simply lower costs and easier and more accessible, right. Then it's ever, then it's ever been.

And one of the things that the ,that the that the Berkeley study called out was the impact of things like [00:11:00] trading fees and commissions on returns, right? Because if you had a $10 trading fee, you pay the $10 to buy it. Then you pay the $10 again to sell, right? So that is a substantial weight on, on returns.

[00:11:14] Jeff Santoro: That's true. So that's something that's definitely different from a study that's 24 years old. However, the one thing that does exist now and existed then and will likely exist forever is paying taxes on all those transactions. Well, not the buys, obviously, but the sales. So if you're an active trader in a brokerage account or taxable account, you do have to consider the impact of taxes to when you sell.

[00:11:38] Jason Hall: Yeah. And for, for, for the vast majority of Americans, if you make gains, , if you make gains on a stock and you sell it within a year, it's taxed at your highest marginal rate, right? It's the, it essentially taxes, the last dollar that you earn. So , that can be substantial depending on what you, what you earned.

I'm going to, I want to reference the Dalbar study too, Jeff. Because the, so, so [00:12:00] Dalbar, they're actually headquartered in Massachusetts. I might try to see if I can get them to have a conversation with us at some point.

But their QA, QAIB, the quantitative analysis of investor behavior. The 2023 version of the report that looks back at 2022 came out and like, this is the thing that jumped out at me is the S&P 500 generated- this was from 1993 through the end of 2022, 9.65% in annualized returns. It's the S&P 500. So that's roughly the market's average, right? I mean, over, over the longterm is between, you know, that nine, 10% range. So. Pretty average period, period of time. Now the average. Now, if you look at the average, like S&P 500 fund, they generate a little bit less than that, right? Because of fees, right? Generally, the fees is about whatever their, their underperformance tends to be.

Now, the average equity fund investor. This is the average person that invested in, in an equity fund. They could have captured roughly the market's [00:13:00] returns, minus a little bit for fees, 6.81% versus 9.65%.

And you might think, well, that's only like 3% less. No, that's 30% lower returns. That is enormous. Enormous. And the data is overwhelming that to underperform something like that, it's because you're being too active, you know, you're piling in when everything's on the news and it's the hot topic and it's the watercolor, watercooler conversation, right?

That's the, the evidence is overwhelming that that's. That's the driver behind that,

 So let, let me ask you this, Jeff. So thinking about that, what do you think? Again, we, again, we were, I think we're both kind of laying out the evidence that we think being active and doing too much is, is clearly not a great way to do it, but we haven't really talked about the idea of being the lazy stock picker that much.

[00:13:55] Jeff Santoro: So, well, the thing, the thing that I think about when you, when we talk about [00:14:00] active stock picking and, and if we just even set aside the data that we just went through just from like a logical standpoint, this is how I think about it.

Of all the people who are active traders, I would guess this is a guess, but I would guess that very few of them are what I would consider to be very informed, knowledgeable investors. My sense is, wow, there are some super qualified, smart people with finance degrees-

[00:14:28] Jason Hall: When you say that you're talking about regular individual investors.

[00:14:30] Jeff Santoro: Regular people. Because I know, like just so, this is my anecdotal reason. Everyone I talked to who has any interest in investing in stocks is usually, the conversation usually goes, some, whatever they say, referencing stocks is almost entirely always around the idea of buy this because of this short term reason or I sold that because of this short term reason. It's it. No one is ever like, oh man, I bought apple in 1993 and I'm never selling that. It's never ever that. Yeah. And [00:15:00] that's my little world of people who don't really care about investing and are just sort of your regular old Joe people.

And I my sense is they're the ones who are doing the majority of this trading in and out from a standpoint of not really understanding all the stuff we're talking about. I'm not blaming them or casting aspersions. I'm just saying that my guess is the people who do the most trading are the people who probably should do the least.

[00:15:25] Jason Hall: Yeah, no, I think I think that's that's fair.

Just to kind of build build on that is the professional traders. And you think about like quant funds, right? That have massive IT budgets and, they're using AI and they're using algos that are reading S. E. C. filings and press releases and looking for key phrases or words or they're, they're actually seeing they know what the bids are. And they can tell which way the wind is blowing with a stock, whether there's more buy- there's more, [00:16:00] retail is pushing more to buy or pushing more to sell. So they can get ahead of that. . And, and they can and they can profit right in ways that us regular old Joe's just simply can't do it.

And there's another, there's another group of professional traders, right? This is what they do that can make money trading. But again, that's, it's what they do for a job or a profession.

[00:16:24] Jeff Santoro: Right. And right. But that's not us. And that's not most people listening. Like that's-

[00:16:27] Jason Hall: Yeah, no, exactly. And I think that's the key point.

I really wanted to emphasize that is that there are certainly outfits out there that are making plenty of money in trades. The sad thing about it is that it's those of us kind of the retail investors trying to trade. You know what we are? We're the bag holders.

[00:16:46] Jeff Santoro: Well, that's the thing. The whole idea of like the game, you know, we're all playing different games. Like that's a common thing you hear around stock investing. And the whole point is that you and I and most people listening, if we try to play the trading game are [00:17:00] going up against professionals. Like if you put me in the batter's box of a major league baseball game, I'm going to strike out, probably wet my pants. Which has nothing to do with the baseball game. (laughs)

But if you let me, but if I'm going to pick long term stocks against other long term stock pickers, or maybe if I'm going to pick long term stocks against other short term stock pickers or traders, like maybe that's where I get my competitive advantage. So like, that's the other piece of it too is, you know, you're, you're always going to lose to the algos I think if you're going to play that short term.

[00:17:34] Jason Hall: No, I mean, there's no, there's no doubt about it. And again, getting back to that playing, playing your game, I think is the really the key thing about it.

And let's, let's talk, let's get back to the, kind of the idea of, of being a lazy stock picker. You talked a little bit about thinking about the idea of just, you know, again, cherry picking. So well, you know, this Apple company looks, seems like they're pretty good. A lot of people like that, that iPhone, maybe I should buy some of this, and this is like 2009 or [00:18:00] 2010 or whatever. That's obviously worked out really well. We could give a million other examples.

But what would, what would you like- cause here's the thing. Like you gotta have a framework for any sort of investment process. Right. So, yeah.

[00:18:19] Jeff Santoro: So like, I don't think this can really work exactly like I explained it in real life. Because again, I'm using an enormous amount of hindsight bias. I don't think it was as intuitive in 2005 to look at Netflix and say, they're going to have 250 million streaming subscribers in, in 15 years. You know, like, I don't think it's as easy to, to say everyone that was so obvious back in the moment.

[00:18:47] Jason Hall: So let me, let me say that again. So that was Disney.

[00:18:50] Jeff Santoro: No, Netflix. Netflix. Yeah. Did I say Netflix? I hope I did.

[00:18:54] Jason Hall: Yeah. Okay. No, I think you did say Netflix. No, that's, that's the thing to go through the transition that they went [00:19:00] through.

And then here's another thing I like to think about Disney. If, if somebody had have told you, I don't know, say in 2018, that Disney would have some of its most profitable parks and entertainment years ever (in 2023) and have a streaming network that's one of the largest in the world. And the stock has massively underperformed the market, right? Would they have believed that either?

[00:19:28] Jeff Santoro: Yeah, so it's not a it's not a perfect thing and it really wasn't meant to be a suggestion obviously. But more of a starter starter conversation. And then you know, the other side of it too is, if you do it with a pretty established company and then hold for 30 years I think that's a little bit of a more, there's a higher chance that works out than if you do it with like a company that's small and just IPO.

And I'll give you two quick examples I think at any point along its history you could have probably bought Walmart [00:20:00] and been okay in the very long term. You know, because it's been just maybe not every you know, maybe not the day at IPO. But like you wouldn't have known how good it was gonna be back then or something But it's been around for a long time. I think you could have bought it a year ago, five years ago, 10 years ago, 15 years ago, and been okay.

One that is on my mind a lot because my son uses it constantly is Roblox. So I could sit here and go, Oh, Roblox is going to be the future of gaming and buy it and hold it for 40 years. And I could, and someone on a podcast 40 years from now could be using that as the example like we did with Apple and Netflix and such.

But it's also still a relatively new, young company. A lot can change. Trends can change. Gaming is fickle. Kids have different interests. It could get acquired. So there, there are some caveats. Another caveat I think I'd have to put in here, and this go, this to your point about needing a framework I think is really important.

Why you decide or why you have a certain company on [00:21:00] your radar to do this lazy stock picking, I think matters. So if you had never heard of NVIDIA until the last month, and you and you saw it skyrocket and said, people are going to use chips forever. I'm buying NVIDIA and I'm holding it for 50 years. It might still work out because 50 years is a really long time, but you're also buying NVIDIA at something like 100 times sales.

Whereas if you just knew the chip industry was important, and you took advantage of the fact that NVIDIA was down to an all time low and bought NVIDIA for that same reason, I think that's a very different thing. So I think there are some caveats, but I do, I do like the idea of just being a little less data intensive.

[00:21:51] Jason Hall: Yeah, no, I think that's I think that's fair. I really do.

[00:21:53] Jeff Santoro: Okay, so Jason, I have a question for you. It's a thought experiment. Let's say you have to be a lazy stock [00:22:00] picker from now on. What is the least amount of work you could do, and still feel comfortable making a stock pick.

[00:22:08] Jason Hall: Yeah. So I think, and we'll talk a little bit about this more. I have to answer your question, but like, I think the idea of being a lazy stock picker is like the, the idea of it and the actual process of being it are very, very different. Because I think it's really easier to be an app, to be active.

Because we have evolved and we are wired to feel like we need to do something, right? And the inverse is true when it comes to investing success. So, I, I think as a starting point, you have to be very, very disciplined and have a process around really thinking about valuation, because if you're going to be buying less often, it's far more important that you pay a good [00:23:00] price because if your dollar cost averaging, and again, dollar cost averaging makes the most sense for the most people because you're not, you're not starting off with a bunch of money, right?

You get a little bit every pay period, right? You get a little bit every month, every quarter, right? If you're using dividends, reinvest, whatever your process looks like. So you have a little some, sometimes you just have to be willing to pay a little bit higher of a multiple. Knowing that eventually you're going to get the perfect price, right? If you just stick with your process and also knowing that sitting on the sidelines forever is, is not, sometimes it's worth paying a little bit of a premium versus sitting on a bunch of cash, right?

So, so I think that's the first thing is you just have to be really, really disciplined and your process has to start with, sure, there's a lot of great companies and you can find great companies. But not making the mistake of just buying it because it's a great company.

And I want to use Walmart as an example, all right? So if you bought Walmart in 96, [00:24:00] I'm just going to use that as an example. Beginning, beginning of 96 first trading day of 1996. Since then the stock's generated just about 11.9% in total returns.

It's pretty good right? Now that compares to the S&P over the same period, about 9.4% total returns. So you think 9.4 versus 11.9. That's a little bit better.

[00:24:23] Jeff Santoro: Are you talking annualized returns? Not total-

[00:24:25] Jason Hall: Annualized returns. Yeah, annualized returns. 9.4 for the market 11.9 for Walmart doesn't seem like it's a lot better.

It's worth twice as much gains. Just that little difference in returns is worth twice as much in gains.

Now I'm going to fast forward. I want to fast forward to 2000. Everything was overvalued in 2000, right? And we had 9/11 happened the next year, and we went into recession and a long war and a lot of tough things were going on.[00:25:00]

You could have bought Walmart in 2000, 2001, 2002, 2003, 2004, 2005, any of those years. And your returns since have been reasonably less than the market, like pretty, pretty good amount of underperformance over those years. It wasn't until 2006 that if you bought Walmart, you started to get closer to the market's levels or better in returns.

So the point is, you really- it's, I think if you're going to be this kind of investor, you really have to make sure you're paying a reasonable price.

[00:25:37] Jeff Santoro: Yeah. And I totally agree with that. And this is why I would never like actually advocate for this strategy, but let me just play devil's advocate real quick.

If you did this with 50 stocks, you could probably, or maybe you could, I shouldn't say probably I want to, I want to just throw it out there as another thought [00:26:00] experiment. I wonder if you could still do okay. Because for every Walmart, that was slightly below the market over the next 20 years. Maybe you caught a, pick the stock, that beat the market over that point in time.

Now if you're buying at the very peak of a huge bubble, you're probably going to be out of luck overall.

[00:26:21] Jason Hall: It doesn't matter what you're buying.

[00:26:23] Jeff Santoro: But no, that's a really good point. I, I'm glad you, you put some data around it because I, I don't want to just, we're assuming a lot of things and wondering a lot of things in this conversation, which I think are worth thinking about, but they're certainly not recommendations or... Saying anything you should do.

I think for me, if I were to actually try to do this, I would still look at a decent amount of data, but not in a super in depth kind of way. And this is, this is another reason I've thought of this before, because it sort of lines up with my basic process of keeping track of the companies I [00:27:00] own.

Which is every quarter, I fill out my little spreadsheet of the data I track and I look at trends. I look at year over year. I look at compound annual growth rate for the things I track because that tends to smooth out some of the bumpiness.

I'll give you an example because I'm actually thinking about writing an article about this. Etsy. I've been looking at Etsy a lot. It, over the last couple years, you would say looks like everything is slowing down. Like things are ticking up very slowly or staying flat. But if you back out to like 2019 and look at it smoothed out using compound annual growth rate, almost every metric is up 20, 30, 40%. Again, come, you know, spread out over that time.

So there's two

[00:27:45] Jason Hall: ways-

They grabbed so much growth in 2020,

2021.

[00:27:48] Jeff Santoro: Right. So they pulled an incredible amount forward really quick. And there's a very big difference between seeing a line that goes straight, shoots up, and then goes straight again. That's a different [00:28:00] mindset than everything going, up incrementally, in a nice little orderly line.

And so I, I think like one of the things I do when I look at a stock like Etsy, when I'm making a decision about adding to that position or possibly selling it or hold or holding. I'm looking at not only how it's been doing lately, but I'm also looking at, well, am I being fair? Because again, three years is a really short amount of time.

If Etsy 10X's from here, we're all going to look back and go, man, we should have seen that those three, couple years as just being weird pandemic-ness that had to shake out. It took longer than we thought.

So that's another, I think, so I would, I would still look at a lot of the same data I look at. But maybe I would end up trusting my gut a little bit more and say to myself, and I don't consider Etsy to be in this category, but I'll continue with that analogy. I think Etsy is going to be the premier place to go for bespoke gifts 30 years from now still. [00:29:00] And therefore I'm going to buy it now and I'm never going to sell it.

[00:29:04] Jason Hall: Well, I think- I'm not, I don't think I'm really pushing back so much as I want to circle back to part of that. In a way to make sure people that are listening, understand it the way I think you mean it.

And that's, so there's one way to take what you were saying and say, and, and you're meaning to be that, focusing on the longterm trend is the key. And it almost sounds like sometimes you're maybe ignoring what's going on right now.

[00:29:40] Jeff Santoro: Yeah, because in the scenario I just laid out, I'm still looking at some information. I'm still coming up with a thesis based around something more than just Vibes and Mojo, or Twitter emojis, to make that decision.

I could be wrong, I could be right, but at least I'm choosing it in that way, [00:30:00] and not because... It popped 30% after earnings and my whole Twitter feed is like, Etsy is a buy and I'm like, I need to buy it right now because it's doing so well. Like that's a very different, you know, even if I still think it's going to be great in 30 years, if I buy it because of that, I think that's a different. So I would need the-

[00:30:16] Jason Hall: You're letting emotion take the wheel. . And you're not stepping back to try to be as objective as you can.

Jeff Santoro: So my version of lazy would still need to incorporate some level of a framework that I currently use or, or would want to use and can't just be entirely based on I like the company or I shop there a lot, so it's going to go up, like that. So I think that's where I would maybe equivocate a little bit.

Jason Hall: Yeah. And just to kind of add to that, cause I do want to push back a little bit, because I think one of the things you have to be careful about is, is yeah, it's important to contextualize the, the, the longer term picture. To think about the trajectory of the business, but I think it's also really important, especially with the, the Etsy, [00:31:00] social media, SaaS, like product and service it's easy to turn off and easy to turn on companies, because ,their trajectories can whip saw really fast, is to not let those, to not let our bullish bias cause us to gravitate towards the metric that looks the sexiest and say, well, revenue was only up 2% year over year this quarter, and users in their largest most profitable market was flat, but CAGR is 40% over the past five years because then that's like, well, yeah, but that's all their growth, right? They're only growing at 2% now, right?

[00:31:45] Jeff Santoro: And I'm not, I'm not putting Etsy in that bucket. Like-

[00:31:48] Jason Hall: Of course, again, it's a hypothetical. I think I want to, I want to emphasize that. But the bigger point I want to emphasize is it's one of those sorts of things where. If you're going to be that lazy investor, if you're, [00:32:00] if you're going to be that, I'm only going to buy half a dozen times a year. I really want to have that, that easy process. You're, you, you have to do everything you can to push back against the natural biases that we all have. Which is to seek the things that confirm what we want to be true, ? I think that's the big thing.

[00:32:23] Jeff Santoro: Yeah, and I would just, just one, one more quick thing, just using Etsy as the example. The reason I pointed out the CAGR thing versus how it's done more recently is that the stock's down 29% over the past 12 months. So obviously the market, it sees weakness. To me, the reason I look at other things is to see if the market is being short term and missing something in the long term.

[00:32:43] Jason Hall: So here's another question I have for you.

And this is something I just thought of that I think might be, I'm going to invert this. I'm going to kind of Munger this a little bit. And I was talking about the importance of discipline and having a process and making sure you get the price, right. And maybe the [00:33:00] ideal lazy investor, Jeff, is a hybrid of a couple things that we've talked about.

Maybe more your style but also taking that list of 50 stocks. And you can do it now, like you can do it this way. And you buy some of all 50 of them once a month, whatever the price, like whatever the price, right? I mean, that's the ultimate laziness, right? And all you're doing is a few times a year. You're going back and you're reading the annual report for all those companies you own, right?

You read four a month. ? And that's all you do. And you decide, okay, I don't want to own this company anymore. Or it's fine, I'll check it again next year. And it's what you're talking about, about, finding those best of breed. And then you just throw a little bit of money at them, every year. And that's, that's all you do.

[00:33:51] Jeff Santoro: It's almost like a 50 stock index fund. Yeah. In that sense. Because when you, when you invest in an index fund or in your retirement account and target date fund, whatever, it's [00:34:00] just every two weeks it buys everything in that fund and that's it. So like, I mean the real answer to this whole podcast is buy an index fund.

[00:34:10] Jason Hall: I don't think it is. I don't like, I mean, yeah, if you want to, if you want to invest and do nothing, right, that's, that's what you do. Yeah, that's what you do. But I do think so.

[00:34:21] Jeff Santoro: Let me ask you this, because you, you, you mentioned Munger. So this, this got me thinking to some degree, could you say that Buffett and Munger and Berkshire Hathaway are lazy investors?

[00:34:35] Jason Hall: No, they're absolutely not. Right? So they're, they're lazy when it comes to the actual buying and selling.

[00:34:43] Jeff Santoro: But they're kind of doing exactly what we're talking about. They have, they're going really deep I know I'm not saying that like-

[00:34:49] Jason Hall: No, I think I think this is a good one This is a good one because like some degree-

[00:34:52] Jeff Santoro: They have the criteria they're looking for. They do that work and then they're just like, okay, when it gets here, I'll buy it. Yeah. And I [00:35:00] mean, I'm simplifying it-

[00:35:01] Jason Hall: But there's, there's two ways to think about it. Right. So the idea of being a lazy stock picker versus being a lazy investor, I think are very, very different things. So right.

A lazy investor. They should probably buy index funds or they should have their list of stocks from Stock Advisor, 7Investing, or Alex Morris's newsletter, whatever it may be, right. That there, somebody else is doing the work and then they're just buying them or they're buying the index fund. But I think being, being a lazy stock picker, like I want to use that Warren Buffett quote, this is from one of the annual letters he said, but "Benign neglect bordering on sloth remains the hallmark of our investment process," and it's utter and complete bullshit.

If you just read that because it sounds like a bunch of guys doing absolutely nothing but watching their, their, their, their, their stock prices go up.

[00:35:46] Jeff Santoro: But I, so, but here's another way I would maybe, I mean, I was being a little flippant when I said they were lazy stock investors, but they are, I would, I would certainly say they don't overthink it because-

Jason Hall: That's [00:36:00] fair.

Jason Hall: Right? Because like, it seems like they have, they've I mean, I'm sure it's evolved over time, but essentially they have a pretty set criteria of things they look for. We talked about this with John Rotonti on, when we had him on several months ago, basically saying they have these criteria and they don't buy it unless it's within that criteria.

So in that sense, they're not lazy, right? Because they're doing all the work to make sure that the company's at that criteria. And I'm sure there's a lot of qualitative stuff too. Do we like the CEO? Are they trustworthy? All those things. You can't put a number on that. But when it comes down to it, they don't overthink it.

They, they have their, they have their sort of criteria and their framework and they stick with it. At least that's what it seems like to me.

[00:36:41] Jason Hall: Well, and here's the difference between the Buffetts and the Mungers and the, the, the other successful investors out there. That are, they're, they're-

Here's the thing that they do broadly that's very different than what most investors do. I guarantee that the [00:37:00] majority of people listening to this podcast that own individual stocks that like the idea of buying stocks, look at their portfolio and look how much the stock prices have moved up or down from where they bought or last time they looked or some other metric on a fairly regular basis.

And I promise you, Warren Buffett ain't logging into their brokerage account to look at how much has Apple stock moved in the past six weeks.

Jeff Santoro: Right.

Jason Hall: What these hyper successful investors spend their time doing is learning about companies, reading annual reports, looking for clues, tightening up that list of stocks to buy. And when they're looking at the price today, it's because they have capital to deploy and they're trying to get the price that they want to pay, right?

[00:37:53] Jeff Santoro: Yeah, I agree with that. I think that's probably true.

All right, let me ask you this And if you want to think [00:38:00] for a minute, I have I can go first but do you have any examples of stocks right now that you think could be quote unquote lazy?

[00:38:10] Jason Hall: Yeah, meaning you look at it and you're like, oh, this is, this is good. This is like, I just need to buy this and then just kind of leave it alone.

[00:38:16] Jeff Santoro: And yeah, cause I have two in mind that one that I think you and I talked about a couple months ago and one that I talked a lot about this weekend with our friends that we were hanging out with. But I'm curious if you have any or if you want me to give you one first.

[00:38:31] Jason Hall: I have a few. You, I want you to go first. Cause I want to kind of, I want to, I want to, I want to just figure out which two I want to do. And I've got more than two is the problem.

[00:38:40] Jeff Santoro: All right. I'll start with Disney. So Disney is the one that We talked a lot about this past weekend. I mean, I'm talking, we probably debated Disney alone for over an hour and we got really into the weeds, right? We were, this is, this is the opposite of what we're talking about on this, on this episode, but my sort of takeaway from the conversation, and this is where my [00:39:00] mind was, I think even heading into it, had I really thought to articulate it is.

Disney's one of those companies in my mind right now because it's so beat down that just feels like with everything they have historically that's gone for them and could potentially be going for them and I'm going to talk about that in a second It feels like one of those lazy picks. So the parks have been a huge driver for the, for the business I believe they will continue to be. Streaming has been a mixed bag, started right at the beginning of the pandemic, what probably should have been a cash burn, a few years of figuring it out ended up being the exact opposite. Well, the cash burn was there, but because of when it launched, it went up. Instead of down in a lot of ways. And I think that made everyone think like, Oh, this is the moneymaker forever. Meanwhile, they were still burning cash on content and all that kind [00:40:00] of stuff.

So it just got weird. It happened in a weird time. Like so much happened to Disney at once. There was a pandemic, they launched a streaming service, the parks closed, the CEO left. And again, that whole idea of the last three years.

Jason Hall: I heard he came back.

Jeff Santoro: He did come back. All right. There were two CEO transitions, if you want to put it that way.

But to me, just looking at like vibes and being lazy and also knowing that it's near an all time low, I think, in terms of price. I just don't see how it doesn't do fine from here if you, if I hold it till I, till my grandkids inherit my portfolio.

Now I'll say that with one quick caveat and then I'll turn it over to you. If you look back from right now, over the past 5, 10, 20 years, It hasn't done great. So, so, you know, I, I fully understand that, but it's just thinking about everything we talked about today and, and, and picking a company that everybody is familiar with. That one jumps out to me as [00:41:00] a lazy pick.

All right, your turn. You have to give one.

[00:41:05] Jason Hall: See, it's really hard to just give, to just give one.

[00:41:08] Jeff Santoro: You can never follow the rules.

[00:41:10] Jason Hall: No, I know I would probably Mercado Libre.

[00:41:14] Jeff Santoro: Interesting.

[00:41:15] Jason Hall: Yeah. Even though I think there's an argument that maybe it's a little bit, a little bit expensive. If you think about the trajectory of global commerce. You think about the opportunities for different parts of the world to continue to emerge and for GDP to grow and for more people to join the middle class. Latin America is very, very, very interesting to me. You think about trade with China and other parts of Southeast Asia where you have the U S that is clearly looking to transition more of its exposure away from China and the [00:42:00] opportunities that that's created for now.

 But you think about everything that's happened with money moving from paper currency and checks to digital transactions and so much of the world already.

There are few companies that have a headstart and a major part of the, the, the global growth economy than MercadoLibre with their payments, right? And you think about their e-commerce lead is, is enormous. It's absolutely enormous. And it just, it seems like one of those, man, I'm just, I'm just going to buy some, you know what?

And, and I'm going to let them do their thing for the next 10 or 20 or 30 years. And it's probably going to look really, really good from now.

[00:42:41] Jeff Santoro: Yeah. I think I would agree with that.

All right, here's one for you. And you can tell me what you think about this. And I have an even simpler thing for this.

Target, right? Here's my lazy, no numbers behind it thing. Everyone I know goes to Target. Everyone I [00:43:00] know spends more money at Target than they want to when they go.

And then stock has been hammered because of inventory issues that they've largely fixed.

[00:43:11] Jason Hall: Well, and, and perception of some social issues with the company with, we won't even get into that.

[00:43:18] Jeff Santoro: But in terms of like big, huge stock drops, that inventory thing really took a, took a-

[00:43:23] Jason Hall: Oh, no doubt. No doubt. No doubt.

Yeah. I would say my only pushback with Target would be, and I haven't, I haven't peeled the numbers back is, and again, it's a recency bias thing. So I'm not sure if I'm over hedging to it. Is like their e-commerce numbers are down. It's like, I, I'm not sure how much of their e-commerce numbers that they actually give the stores credit for versus like actual e-commerce sales because of where the goods are picked up by the customer and that kind of thing.

That was one thing that did concern me a little bit in the near term. But again, I do think, I think you're probably spot on. You, [00:44:00] you look back 10 or 20 years ago and the things that have happened to Amazon to, to Target over the past three to five quarters, they don't matter. Nobody remembers them. Right?

[00:44:13] Jeff Santoro: Right. So do you have one more?

[00:44:15] Jason Hall: I do. I do. That's why I haven't talked about a long time. Texas Instruments.

Jeff Santoro: Oh, interesting.

Jason Hall: Because, again, it's one nobody really thinks about. It's back to like...

[00:44:23] Jeff Santoro: The world needs dumb chips. Yeah, they do. That's my one sentence dummy thesis for that company.

[00:44:28] Jason Hall: That's it. Those basic analog chips, and this is the company that has the entire, they're like one of only a bare few handful of like completely vertically integrated semiconductor companies. And I mean, like the whole thing. You go on their website to buy semiconductors to make whatever your product is. They do all of the manufacturing.

They're just, and the stock trades for like 20 times earnings and 21 times operating cashflow, dividend yields, like 3%. Like you look at all of those metrics and you [00:45:00] look back over the past 10 years, this is getting a really, really important company for a cheap price. And, and they just, they just do good and they make a lot of money.

[00:45:13] Jeff Santoro: All right. So as we wrap up here, what's your, what's your final take on this whole fun little thought experiment on being a lazy stock picker?

[00:45:24] Jason Hall: I think it depends on how you define being lazy, right? So if you define being a lazy stock picker, as you really want to minimize the amount of work you do, and you want to have the best margin of error for doing good, you have to be one of those pick 50 stocks, buy a little bit of them all the time. And make sure wherever you're getting your stock information from is vetted and has a track record of delivering good ideas, or at least that you're reading the reports, right?

You're reading those annual reports and you know what you're you're not buying them because they're on [00:46:00] some message board somewhere. I think that's it.

But if you want to be like the, Buffett's kind of lazy investor. The laziness there is, is how often you're actually transacting, you're going to do a lot of work. And the work, the meaningful work you do is deep research, right? And then you're only trading on a very limited basis because you have enormous amounts of discipline to pay the price that you want to pay.

What about you?

[00:46:31] Jeff Santoro: So, as we've talked through it, the thing that popped into my head was you could almost think of trusting your gut as a proxy for what we're talking about.

And maybe that's another thing we can explore in another episode. You know, how much should you trust your gut when you're investing in a company? And I-

[00:46:53] Jason Hall: You know, what your guts are full of.

 Jeff Santoro: Tell me.

Jason Hall: You know, what guts are full of? [00:47:00] Guts are full of shit. So we'll talk about trusting your gut or another episode because there's different ways to define that too.

[00:47:09] Jeff Santoro: But that's essentially what this is to some degree, right? My my little take on on Disney and Target is my gut feeling that they're gonna be strong, you know, just as relevant and strong companies 30 years from now as they are now, right? So I wonder like I think that's my final takeaway is that I don't know that I would abandon my process. I think I'm still gonna look at all the numbers and nerd out on it, but that's because I like it, too. But I think I might want to give my gut a little bit more credit. Or pay a little more attention to it In some of my decisions.

I don't know. That's kind of how I think about it.

[00:47:46] Jason Hall: Zooming out. I think maybe that's how I think about it. Zooming out. I like it. All right, let's

[00:47:50] Jeff Santoro: take a break. What do you say?

Sounds good.

[00:47:52] Jason Hall: Hey, everybody. Welcome back here to the second part of our show. And we're going to, Jeff, this is one where I think we're going to, I don't want to say we're going to [00:48:00] tip- tip toe around it because we're not going to tiptoe it. But the topic for the B segment is how do you think about companies and social issues?

[00:48:10] Jeff Santoro: So, we, well, this is another conversation I had this weekend, and it's, it's appropriate since I mentioned Disney and Target over the, in the, in the A section here. This is an interesting thing that I don't really know the answer to, so we're going to do our best to not give our takes on any of the political or controversial issues.

[00:48:30] Jason Hall: This isn't, this isn't a taking social sides show or politics or anything like that, but the, Jeff, the reality is that every day in our life we face situations where we think about where we stand on social issues or politics and they frame our point of view about a lot of things. And we do know that history is also pretty clear that pretty much any kind of bias, whatever it is, [00:49:00] political bias social leanings things, environmental policy. They can, they can lead us down value destructing ways to invest our resources.

[00:49:12] Jeff Santoro: Yeah, I think you have to, I think the challenge is that if you own a company that does something, makes a decision, takes a stand, or doesn't take a stand. And the result of that decision or action or inaction is tangible loss of shareholder value. Revenue decreases, earnings decrease, margins compress.

I think as a shareholder, you need to make a decision about how you feel about that. So if company X does thing Y that destroys shareholder value, but you're in favor of it, you're in favor of thing Y, that's a very different situation than company [00:50:00] X does thing Y and you're against thing Y and it destroys shareholder value.

You know, so I think one of the things I think about is-

[00:50:09] Jason Hall: I want to, let me, let me jump in real quick because I want to. So, are you, are you saying you support that particular thing for a social reason or because of a business reason?

[00:50:24] Jeff Santoro: I guess this is the way I would frame it. If a company does something that I agree with socially, takes a stand I'm in favor of, and it costs the business in some way, I'm usually okay with that because I think they're doing the right thing.

Now, I wish companies were a little bit more out up front and didn't try to play both sides of the fence on these issues. But they don't, they try to walk things back and talk carefully. I just wish they'd come out and be like, listen, this is what we did. If you don't like it, piss off.

That's not going to happen. And I do, I do hold on to companies that make choices. I agree with, and [00:51:00] I've bailed on companies that do things. I don't agree with. So I think now here's what I don't do. I don't begrudge anyone else for doing the opposite. And this, this also goes back to our old conversation about sin stocks.

You know, you know, there's the whole, like the company has decided to take a stance on something and there's like, should you buy a cigarette companies? Like those are two sort of different things, but I think they're the same side of the different side of the same coin, which is each investor needs to make their own decision about when to buy or sell or hold on when companies do those things.

But I also think it's not anyone's business, how anyone else handles that, I guess, is the way I would look at it.

[00:51:44] Jason Hall: Yeah, this is one of those that can definitely be, there's a lot of right ways to approach it. And there's a lot of kind of dumb ways to approach it too, I think is the key.

And I think one of the things that I see that happens sometimes is this is like everything when it [00:52:00] comes to investing in emotions and our own built in biases. It's so easy to let Things that are in the animal spirits or the news of the moment lead us down the path to making an emotional decision with an investment.

And I want to use Target as an example. You mentioned that before, right? So we know Target has some pretty substantial LGBTQ initiatives and they kind of got caught up in the anti woke movement over the past year because of some products that they were featuring in their stores that some people found offensive and whether, whether it was really a big issue or whether it was just something that the personal, the personal personality politics movement was able to kind of latch on to.

You know, I'm not here to make it, make a judgment on that because frankly, I wasn't paying that much attention to, you know, to what was being said. But it gets back to your point that the company it was a company that felt like they they were [00:53:00] supporting a group until they weren't. Because a group that was against that movement got angry and there was a backlash.

And it's it's interesting too because you look at Nike I want to use as an example because this is a company that has had has never run from controversy when it comes to messaging in their, in their ads. And, you know, we can think about you got to remind me his name, the, the football player, the Colin Kaepernick, right. Colin Kaepernick. That's just one of a, of a long history of of things they've things and, and acts they featured in their ad campaign that were very controversial.

And I mean, Nike's a dominant company, right. They have absolutely is, we saw the Under Armour was going to, you know, They were gonna be the next you know, they were gonna be the next Nike and man, they stumbled along the way. And, and Nike has just remained absolutely dominant in every category that it participates in, despite their approach [00:54:00] sometimes to social issues with their marketing.

So it seems like sometimes there, it, you know, it can go in different directions. So to me, the, the thing that I think that's, if, if you're investing to make money, you should be investing to make money. And if you're investing, you should be investing to make money. And it's, it's so hard to really truly divorce yourself from investments tied to businesses or to leaders that may have different social may have different social agendas than you do personally.

[00:54:33] Jeff Santoro: And the other thing I think that's relevant to the conversation is we hear about these things when they become big news, and there's a lot of a lot written and said about them. I guarantee you if you went company by company, and started interviewing the CEO, the CFO, the CTO of each company about their stance on issues you care about, you're going to find that many of them agree with you, [00:55:00] and many of them don't.

[00:55:01] Jason Hall: Yeah, and many of them are going to lie. They're going to say absolutely nothing, for good reason. Because, you know, to paraphrase Michael Jordan, Republicans and Democrats buy shoes. Right? Right. And when you're in that position, particularly in this heightened, heightened environment that we're in, you have to find a way to not alienate some potential portion of your customer base.

[00:55:27] Jeff Santoro: But I think it also comes down to you, you and me and everyone listening has to make that decision for themselves. In the same way that you make the decision about investing in industries that you may disagree with.

You know, so if because there's two sides to that coin too, you know, like the whole I'll never, I think smoking is abhorrent and I would never own a tobacco company is one side. And the other side is, I think smoking is abhorrent. I'm going to own tobacco companies because they make a lot [00:56:00] of money. And then I'm going to take those returns and dividends and whatever. And I'm going to go donate to Greenpeace. I'm just picking a random, you know what I mean? Like there's, there's two sides of that too.

[00:56:12] Jason Hall: I didn't know Greenpeace was working on lung cancer, but we'll roll with it.

[00:56:15] Jeff Santoro: I was just thinking in environmental, I don't know. It's a bad example.

Jason Hall: Well, terrible example. We're still going to roll with it.

Jeff Santoro: We'll leave it in. But but you get the idea though. I mean, the whole idea of taking, taking the money that you make and go do something good with it and maybe offset it, offset the bad in your view.

So I, I, I think it was worth talking about because it's been in the news a lot lately and I do think it comes down to the whole invest to make money, but also invest in companies you want to root for. That's the other kind of side of this too, that I think is, but I don't know, there's no answer to this.

We're not here to give that answer, but I just seen the-

[00:56:51] Jason Hall: To me, I was just gonna say, I think that the bigger answer for most people is if you spend all of your time letting every little aspect of your, of your personal beliefs and, and, and [00:57:00] biases and politics and whatever it may be, creep into your investing process you're, you're never going to, you're going to spend more time crossing out perfectly good companies for personal reasons, and maybe I shouldn't say good companies, crossing out the best opportunities to profit for, for, for personal reasons, while simultaneously investing in companies that are led by people that have very, very different views of the world than you do, and you just don't know it yet, right? And I think that's exactly it.

And you know, it's one thing to vote with your wallet and your actions is another thing to do the best you can as an investor for your family and your future and your legacy to make, to make the world better. However you think the world needs to look.

[00:57:44] Jeff Santoro: I think that's the bottom line for me. That you can sell a company who does something you disagree with all the power to you. That's what makes a market. But I think you can't be naive to think that the money you're going to use from that sale, the company [00:58:00] you're going to buy with that cash could be doing the exact same thing and you just have the exact same views or same stances and you just don't know it yet. So I think that's, that's how I would sum it up.

[00:58:12] Jason Hall: It is a pluralistic society. Make money from people that you hate and businesses that you abhor. All right, Jeff. We did it, buddy.

[00:58:23] Jeff Santoro: We did it.

[00:58:24] Jason Hall: Okay, friends. As always, we like to give our answers to these questions. Sometimes they're dumb. Jeff's example of Greenpeace and tobacco stocks. Nonetheless, it is always up to you to find your answers to these hard investing questions.

You can do it. I believe in you. All right, Jeff. We'll see you next time.

[00:58:42] Jeff Santoro: See you next time.

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