The Smattering Podcast Episode 80. How Well Do You Know Your Stocks?

The Smattering Podcast Episode 80. How Well Do You Know Your Stocks?

Note: Transcripts are edited, but due to time constraints this one may be edited rather poorly. Our apologies. We may earn commissions from some links. Thanks for the scratch.

Jason Hall: Hey everybody. Happy Smatterday. Hope you had a happy Thanksgiving. Welcome back to The Smattering where we ask the hard questions about investing. I'm Jason Hall joined by the voice of the people, the one and only Jeff Santoro. Hey, Jeff. 

Jeff Santoro: Hey, hey. Happy happy Saturday after Thanksgiving, friend saturday after thanksgiving.

Jason Hall: Smatter day after Thanksgiving. How was your Thanksgiving? Guess what? You can't answer that because you haven't had 

Jeff Santoro: it yet, right? I'm gonna predict that. It was great and it was, you know, had some Turkey, had some pie. Got to see family. How was, how was yours? . 

Jason Hall: I'm gonna predict that. It's also wonderful for similar reasons.

Yeah. Plus seafood. 

Jeff Santoro: Ooh, so nice. Yeah. Pretty excited. All right. All 

Jason Hall: right. Pretty excited. I've already seen photos of some fish that my cousin and his son have caught, so pretty excited about it. Cool. All right. What are we doing 

Jeff Santoro: this week? Well, we're going to we're going to talk about how well, how we're going to answer the question, how well should you know your stocks?[00:01:00] 

We've been kicking this around for a while. I think it's a little bit of an out, out shoot of the conversation last week where I'm. Thinking about changing my strategy and that's got me thinking about how I, how much I learn about stocks and things like that. So I think we've got some interesting questions to ask each other and see where our heads are on this topic.

Before we do that, a couple of quick housekeeping things, a friendly reminder that we have a newsletter that we would love for you to subscribe to. You can get it in the show notes. You can go to TheSmattering.net. Get your email address on there. You get the transcript of the show when it drops, you get a Saturday newsletter with our random thoughts.

And when we do our next live podcast, which will be Friday, December 1st, it will be that newsletter that we use to distribute the link for that. So three good reasons to subscribe. And I also want to just thank those who've given us reviews and ratings on the podcast apps and ask that more people do the same helps people find the show.

Helps grow the audience, which makes the show better for all of us. [00:02:00] So with those things being said, let's dive right in here, Jason. So I have a question. I'm going to kick things off here, ask you the question, and then I'll share my thoughts. So I'm thinking about how well you know your stocks, but I want to start with what you do when you find a new idea.

So maybe this isn't a stock yet. How well do you get to know a company before you make an initial buy? What does that look like for your process? It 

Jason Hall: varies, and I touched a little bit on this. We got a question last week in the mailbag that, addressed the same thing. And, my land speed record is 0 percent invested to a full position in just a few hours.

And that's very rare, right? But in general, a new company... Pops up on my, on my radar. If it's a business that I don't really know anything about, or I don't really particularly know the industry very well. [00:03:00] I'm going to take my time, , because you need to understand, I prefer to understand the dynamics of the industry, like the profits that an industry generates.

Like think about the automotive industry, for example, it's terribly unprofitable. Profitable. And then you look at software, Microsoft is massively profitable, right? You have industries that are very cyclical and capital intensive. You have industries that are not as cyclical. You have industries that are capital light, whereas all of those factors come into play.

And, as a bare minimum, I want to understand like, what's the playing field. Like, what do all of those things look like? I want to have some idea of who is. This company, who are they, who are they competing against? Who's winning right now? Who's dominant? Is this a disruptor or they already the stalwart, ?

Have they already taken the market? Now they're the, the rule maker. So I really want to try to understand a lot of those things. Understand, who's running the [00:04:00] business or they're deeply invested founders, or do we have caretaker CEOs because the company's been around for a long time, like.

Coca Cola, for example, you know, you don't companies way too old to have founders involved anymore. That'd be creepy. But then you have newer companies with, the founders who are deeply invested and are still driving it and they created the culture and, , all of those things. You want to start getting a feel for all of those things.

And the further away you are from understanding the business or its industry, the longer it should take, right? And the more patient you should be with yourself to build that basic foundation of knowledge. 

Jeff Santoro: Yeah, I, I really like that as a, a comprehensive list of things that I think are very important to know.

I guess where I would. I don't want to say disagree with you, but I, the way I think of it a little differently is because even if I change my strategy, like I've talked about and written about, I think I'm still going to have some level of starter position as my [00:05:00] process. Yeah. Because I agree. I agree. I just know if I don't own it, I won't track it and keep, pay attention to it.

So I think I, I don't want to rehash everything I said last week and wrote about last week. But I do think when I answer the question for myself in terms of what are the things I want to know right away, to me, I look at probably revenue growth, like historical, ? Where, where has it been up until today?

So I look at revenue growth margins, both gross margins and operating margins. I look at profitability and cashflow. Like those are the four kind of big ticket financial statement items that I take a look at to see trends, to see. What their kind of profile is, and that's sometimes all I need in terms of just taking a starter position.

 Having said all that, I will say there is one more thing I either use. I usually have some level of confirmation bias as well, so it's usually a company that someone I know and respect either owns or. [00:06:00] Is bullish on, or it's a recommendation in a, in a service I pay for something like that. Some other level of me outsourcing some of that, , basic work.

There are very few things I've bought completely on my own research because I'm just so paranoid that I'm missing something completely obvious to like a professional. But in terms of me just getting in, in a starter position, I, I, I keep it to some of the high level, easily found stuff that can be reported in an sec filing.

Thank you. 

Jason Hall: It's one thing you brought there, I think it's interesting that in terms of thinking about my evolution as, as an investor, , coming up on, I don't know, I guess really 14 or 15 years since I really made like a full commitment to deep dive into this was like 2008 somewhere on there, 2007, 2008, 2009 was like the transitionary period of really, really getting into it.

And it. Of course, for the bulk of that period I was paying somebody else for my stock [00:07:00] picks. I was a member of a couple of the Motley Fool's premium newsletters. Wasn't doing, I just was working a regular job. Wasn't doing any work in, in finance, just starting like the same journey that you're on now.

. You're a lot further along three years into your journey than I was three years into mine, I want to say. But I was, I was, and I'm not going to say borrowing conviction. I was buying conviction. You know, I was, you know, paying for, for stock picks from some folks that had one hell of a good track record.

And so you're paying for that conviction and building your own conviction on top of it over time. And, I've transitioned to doing less and less. Now of course I do a lot of work for the same people I was paying for the stock picks for before. And I do a lot more research on my own now and less looking through the recommendations there.

And that's been an interesting shift. But one thing that hasn't changed is you're talking about. People that you respect and [00:08:00] trust that you get a lot of good ideas from that's remained, certainly the case for me. I'm just doing a little bit more it's trust, but verify a little bit more.

I just, I don't tend to buy conviction or borrow conviction to the same level that I used to. Just my evolution. 

Jeff Santoro: Yeah, and I I think that makes total sense It's easy to forget for someone in your position or even to a smaller degree my position because we do spend either Our full time or part time of jobs, you know Kind of thinking a lot and writing about and talking about this kind of stuff But for the average person who's just interested in investing but works a full time job and doesn't have the time or interest to really dive in mm hmm I think that's a completely normal way to get in.

Get into it, you know, you can go the completely index fund not do any individual stocks and be completely passive about it And then you can sort of step your way towards doing all of your own work And I think anywhere in that continuum can work. [00:09:00] Yeah, if you go about it in a smart way the only other thing I'll I'll add before maybe we move on to the next question is my other kind of filter is if whether or not you hate it because if you if you hate the stock I It's a bicycle for me, at 

Jason Hall: least in the short term, if nothing more than just maybe doing some swing trading.

. Yeah. I think that's true. I want to add one thing to this before we move to the next one, Jeff, because it's a question that strangely it didn't make our outline, but I think maybe is what are the like the most important things. To know when to follow, I think you hit on them, revenue margin profiles, cash flow profiles, like those three things, if you only followed three things, and those were the three things that you followed for a company, and you acted based on whether the company was able to grow those things over time.

You would probably be a pretty good investor, frankly, because they are so central to whether or not a company [00:10:00] makes money over time. If the stock does well, it's probably because the company grew its cash flows and its revenues over the longterm. 

Jeff Santoro: Yeah. I, you just said something that made me, I want to get your thoughts on this.

When I was like way newer and just. But I was new experienced enough to know that I should be reading 10 K's and 10 Q's and looking at financial statements and thinking about, okay, revenue was this a year ago, and it's this now and gross margin was this a year ago, and this now and thinking, Okay, what does that mean?

Why did this change? What are the reasons for this? I was very Much married to the idea that anything that's not gap accounting should be ignored because it was so it's so easy for for everything else to just be, massaged the way the company wants it to be massaged and presented than the way the company wants it to be presented.

And I remember at the time saying something along those lines to you and you pointed out to me, well, free cash flow is a non gap, [00:11:00] uh, metric. So I, I was like, okay, so I, there has to be a little bit of a wiggle room because I do think. Free cash flow is important and then I kind of swung the other way where I, I can see the reasons why in certain circumstances adjusted numbers can Show you the strength of the business.

So for example, if you're stripping out stock based compensation and showing me growth I understand that you can't ignore stock based compensation. It, it is a thing, but it also does give a clearer indication of the business trajectory when you take that away. Right. So I've, I've sort of landed in this middle ground where I kind of like the adjusted numbers, but you do have to do extra work.

You can't just, Hear them say it and be like, Oh, it's heading in the right direction because you, because you can adjust for anything. So that's why I think my, my initial thing of like those four kind of big buckets of the gap accounting is probably a good place to start. And then you have to kind of dig in a [00:12:00] little deeper to get the nuance of the adjusted numbers.

Jason Hall: Yeah, I agree. And I think that kind of that middle path makes sense because any piece of information that gives you more context about the companies. Ability to execute and to grow, it's grow its earnings and cash flows over time, build stronger economic modes is useful. You can't rely on either one or the other.

I mean, like, if you invest in real estate, if you invest in REITs. The most important single number for you to follow is a non gap number. It's FFO funds from operations. You take gap earnings and you back out real estate related depreciation. That's a, it's a real thing, but real estate generally gains in value over time, unless it's an office building and it's SIRSA 2020 to 2024, right?

But no, seriously, they, they, they generally gains in value. So you back that. Specific caught that expense out, but you have to know what the adjustments are and are they relevant? ? I think that's the main thing. And whether or not that number is [00:13:00] moving you towards a better understanding of the business or management moving you towards their compensation understanding of the business that helps the stock go up and helps them make more money.

Jeff Santoro: So, all right, let me ask you this. Is there, is there something that yeah. Other people pay a lot of attention to when it comes to how well, you know, a stock that you think is overrated.

Jason Hall: You know, it's funny. This is one that we put on the outline that I've really struggled to come up with any one particular thing. It, it might be, honestly, it might be stock based compensation. It might be. 

Jeff Santoro: Okay. That's interesting. Yeah, because. I, so I, I kind of agree with you, but I'll, I'll say why after you explain it.

Jason Hall: Because it's, yes, it's, it's real and it takes a real impact and, but I feel like it's the sort of metric that it, now it's, yes, to a certain extent it's become egregious, [00:14:00] particularly With tech companies, tech startups, right? Because the idea is that you want to pay equity incentive when you're incubating the company, you know, you use that to keep good talent.

You also don't have 

Jeff Santoro: a lot of cash when you start. That's another reason for doing cash 

Jason Hall: for things that right. People that will only take cash for, you know, you 

Jeff Santoro: can't buy the stuff to make your widget using stock based compensation. So you need cash for certain things, right? Yeah, 

Jason Hall: exactly. So, but, but again, the idea is it's supposed to be a risk reward trade where you get.

, maybe you're not making a big salary, but you know, you're, you're going to be the, the, the janitor that became a millionaire, right. Kind of thing where it's the upside is what you're investing is what you're doing and that's just carried over, . Into the, the reality of investing in, in most tech companies now, and it gets so much heat and light and focus that I think what gets lost is the, the biggest [00:15:00] winners are still going to be the biggest winners.

Stock based compensation or no. And as these companies get more mature, yeah, they'll start buying back stock finally. Yeah. And they're going to be buying back the stock and they're going to be paying a hell of a lot more to buy that stock back. But guess what? If they're having to pay a hell of a lot more to buy the stock back, the stock went up a hell of a lot.

. And you won. . And you won. So I think it gets too much. I think it's become a preoccupation, particularly for a certain subset of investors who are heavily value focused and are maybe ignoring the bigger picture for some of these still potentially transformative tech companies out there. 

Jeff Santoro: I totally agree.

What's your reason? I, I, I almost exactly what you said. I think it, it's like everything else we talk about where it depends. And it's never a black or white issue, right? So you can't just say company X issues, stock based compensation, and therefore is a bad investment. And you can't say company Y does not issue any, and therefore it is great.[00:16:00] 

The devil's in the details. And it's also, it's something you have to watch over time and think about in context, you know? So for example, let's say you're following a company from its very early stages. It's a, it's an IPO, it's unprofitable, it's cash burning. And there's a lot of stock based compensation.

You keep an eye on it, and you hope that as they generate positive cash flow and they turn profitable over time, that the impact of that stock based compensation as a percentage of revenue or however you want to think of it starts to dissipate over time. If it doesn't, if they're a mature, you know, 10 15 year company, profitable, burning cash, and still...

Shareholders are being diluted. You know, you can look at the, the diluted average shares each quarter and you can put it on a spreadsheet if you want, or just keep track of it and see if it's going up or going down. One thing I like to do again, big spreadsheet nerd here is I keep track every quarter of [00:17:00] every company's share count and I do some, you know, formulas in the spreadsheet that will tell me things like revenue and also free cashflow.

Per share. So it will do the math of that number divided by the shares. And what's interesting is sometimes you'll see a company where stock based compensation is growing at a five to six percent CAGR over five or six years, right? So spread out the growth and it's five or six percent a year.

Earnings per share or, or, or free cashflow per share is still going up at a CAGR of 40 percent. . That doesn't worry me as much. Yeah. As, as a company where all of their growth, you know, free cashflow per, per share is even, but it's because of the stock based compensation is eating all that growth, right?

So I, you have to kind of, to look into it, but I think overall, I agree with you. It gets too much heat, um, without any context. Here's mine that I, that I think is [00:18:00] sometimes overrated founder led businesses. Yeah. Yeah. I get it. I, I think there's even data that supports that founder led businesses do better.

But again, it's a sometimes thing for me for two reasons. One, in some cases, if not a lot of cases, the skill set to get a successful company up and running is different than the skill set to keep it running at scale. Yeah. Yeah. And I. I just feel like sometimes founders can be the reason a company has been successful up to that point, but also the reason it has not become more successful.

I think there's this nexus point where sometimes that's the case. I also think if you just, if you either grow the minor league talent in your organization well, or just bring in talented people who have industry background, I don't see why a non founder can't. [00:19:00] Do great. I mean, there's really obvious huge examples out there like Tim Cook, you know, like the way the Apple has gone since he took over is ridiculous.

Right. And everyone thought when Steve Jobs passed away that it would be this, you know, negative thing for Apple. And right. Tragic as that is, the company itself has done fine. So it wasn't the 

Jason Hall: beginning of the end for Apple. Correct. 

Jeff Santoro: Correct. So I don't know. I just, I, again, I see sometimes people get.

Blinded by the founder thing. And they're like, Oh, it's founder led business founder led business. And it's like, here's my take on it. It's not profitable ever. 

Jason Hall: Yeah. Here's, here's my take on it. It's just like with stock based compensation. We have some, some investors who are like tilting at windmill. Like that's their windmill.

Right? Stock based compensation. That's the cloud that they're the old man that shouting at and founder based business is like, it's the touchstone of like confirmation bias of why to buy. Like it's just, it's another bullshit reason to buy that company [00:20:00] that may or may not be good. And. We do, we, I will tell you, there are hundreds of times that I've mentioned that as a positive without any context of whether or not it was actually a positive for the business at all.

So, 

Jeff Santoro: yeah, it to me, it's, I think of it. This is an imperfect analogy, but I'll use it anyway, because it's, it's my podcast our podcast, but I can do what I want. So I feel like it's a tiebreaker thing for me, something like the founder led business, I view as like a tiebreaking factor. So if I'm.

Researching a company and I'm looking at all the things I said, I like to look at, I'm really thinking about the pros and cons and the bull in the bear case, things like whether it's founder led to me is like one of those things where it's like, if I'm really on the fence and it is, maybe I say to myself, okay, I can see how that's a positive and it tells me in that direction, or maybe if it's not found, you know, so to me, it's [00:21:00] like, it's down the chain of.

The hierarchy of things I look at in terms of it being a factor. All right, let's flip the script, Jason. What is something that about knowing your stocks that you acknowledge is important? You just have historically not paid that much attention to it, but you think you probably should. 

Jason Hall: So, it's a, this is kind of a version of that.

It's, it's moats. And it's something that I've always paid attention to, but I think I've been fast and loose with what I've considered a moat in the past. So, if you think about a moat, the idea of an economic moat. To crib Warren Buffett is that it is a, it's a, it's a durable competitive advantage, right?

It's something that transcends the people that are running the company that is going to hold, right. It's going to hold up, right? Again, durability is the key and I'll use, I've, I've talked a lot about the [00:22:00] yield codes before, like the renewable energy Power companies that run the wind and the solar farms and sell the power on these long term contracts.

I've talked about how, like some of the competitive advantages for the industry or like the, the, the length of the contracts that they have, like these are 20 year contracts and they're going to sell the power and they have these escalators built in every year to raise the prices. And how, like, that is like the source of steady, predictable, long term cash flows.

That's true within a vacuum of an interest rate environment that's normal, not massively volatile because the other side of their balance sheet from the assets is the debt that they've taken on to acquire those assets. And when your cost of capital to service that debt goes up massively. Those cash flows are going to be affected by your interest expense, right?

So you, it's really thinking through when you find something that, when I find something, I say, okay, well, this is the moat, [00:23:00] okay, well, what are the things that can undermine the moat, right? And really thinking hard about, about those. I can, I can do better. I know I can do better because I haven't done as well.

There's that that I, that I know that I could for myself or for the people that for some stupid reason, listen to me. 

Jeff Santoro: I. I had two listed. Moats was one of them. I think I think of it a little differently. I tend to think too anecdotally when it comes to moats for businesses that are consumer facing. So for example, one of my worst investments has been, was Peloton.

And I probably, because I knew so many people in my little life that Used it. I probably over inflated any sort of competitive advantage that it had in my mind, Yeah, and I and I know better but I was just I was looking at it from my Suburban middle aged white dude [00:24:00] view of all my wife's friends are on the Peloton But that's a very specific subset of people, you know, so yeah the one the other one I wrote down was Executive incentive structure.

So I don't, I don't, I don't look at the proxy statement hardly at all. Partially cause I don't really know why I never did to begin with. I don't know if it's like a, just a blind spot for me, or I just, it's a little, sometimes it can be a little confusing to wrap your head around. Like the incentive structures aren't always listed very.

You know in an easy to understand manner, but why would I want to do that? Well, that's I think that's part of the the point Yeah And I have to give credit to some of our investing friends that I've you know been listening to like, Ryan and Brett over at chitchat money they do a great job in their podcast of Talking about incentive structures of the management teams of the companies they're looking at and I got teased on, on our text thread by Tyler Crow about the same about not looking at the [00:25:00] proxy statement, but I do think it's something I should probably pay more attention to because when you think when you hear about the most egregious examples, , like a company being incentivized by some very easily manipulated metric like a KPI for that specific company or even revenue growth, you know, like, so for example, if an incentive is built around revenue growth, you could just acquire every company.

You, you can, because that will increase your revenue, but it might destroy the rest of the business. You know? So, it, you know, those are extreme examples and, you know, not every, not every questionable incentive structure I think is necessarily a, a, a bad scenario for the, for the business. But that's one that I, I think I want to.

Start spending a little bit more time thinking about, especially if I'm going to be taking bigger swings and investing a little more money in some individual stocks. 

Jason Hall: Jeff, this, this, this takes me back to April [00:26:00] 22nd, 2023. I recommend you go back there with me sometime and listen to The Smattering podcast episode 49.

Are your goals the same as your incentives? Very 

Jeff Santoro: well. Placed plug for our own podcast. Yeah, 

Jason Hall: if you subscribe if you subscribe to our Newsletter and you get the transcript, there'll be a link right there. You can just click right on the link Hey you that's reading the transcript that's reading these words.

This is getting really meta for you right now, isn't it? Yeah, I'm 

Jeff Santoro: talking to you. You've come to the podcast more recently. You may not have gone back to episode 49. So this is a good 

Jason Hall: a good reminds episode 80. We're doing Jeff. That's right. 

Jeff Santoro: Yeah episode 80. next question. Is it possible to know a company too well? 

Jason Hall: Yeah. I think absolutely. I think this is particularly true if you work in industries because it's not just necessarily like your knowledge of the business.

Yeah, it's funny [00:27:00] because when this, when you first put this question on the outline, my very first nanosecond after reading it was like, no. And then immediately after that, I was like, yeah, I think you absolutely can. A couple of examples, I think if somebody works in an industry.

There's a lot of like specialized knowledge that can be really useful, but there's also a massive amount of bias that can come along with that, right? This is the industry, you know, best, this is your chosen profession. You know, the ins and outs. How could you possibly be so foolish as to you're you're, you're good.

You're, you're not risking. You're not taking on too much risk here. You know what you're doing. And you probably have a lot of bias that's maybe blinding you too. And you're so focused on just what you know about the business and the industry that you might be missing the bigger picture. And I think that's, that can be the case.

I think the other part of it too, is that chances are the companies that you know the best. I know this has been the case for me, the ones that I love the most, the ones that have also done really, really well for me, and you start [00:28:00] looking for, you know, for, for confirming data. A lot of looking for confirming data, and I think I've said this on the podcast before, I know I said this in a conversation recently with you, um, I don't care how many reasons you have.

That something can go right, you have a hundred reasons why it's going to be a winner, why it's going to go right. All it takes is one thing to go wrong. All it takes is one thing. And sometimes Being so hyper focused on knowing a company perfectly unless you're looking specifically for for points of failure You're looking for reasons to be wrong.

I think it can be too much. 

Jeff Santoro: I agree I think for me the biggest issue with knowing company really well is the sunk cost fallacy. Yeah Oh, yeah, if you've spent hours of your life taking notes on earnings calls and reading transcripts and reading 10 K's and 10 Q's and you watch [00:29:00] Interviews with the CEO on YouTube and, , if you've done all that, you've spent an enormous amount of time investing in this company and now something has been presented to you that could make you sell it and maybe never buy it again, you're, you're just throwing away hours and hours and hours of work.

And I think that's very dangerous. I think that could keep you in a stock longer than maybe you should simply because you're like, I've invested so much time in this. I think the other thing too, there's so much information in. SEC filings, transcripts earnings releases, that is just not material. , a lot of it is fluff language, a lot of it is spin, a lot of it is, Just stuff that has to be in there, like my favorite example is the, the mind disclosure in every single sec filing, you know, like that's in there for probably some obscure reason, but you obviously don't need to worry about the mining issues related [00:30:00] to, we'll 

Jason Hall: do an episode about that disclosure later.

It actually has a really interesting history, 

Jeff Santoro: but I mean, you get my gist and like, even, even other things like, I think, I guess what I'm getting at is the more you know the company, the more you might end up spending too much attention on things that don't really matter. Because if you think about it, any company that's around for any length of time is going to have bumps along the way.

And you could look at this random paragraph here about their financing and say to yourself, Oh, this is a, , this is a big problem. I've, I've spent so much, you know, I know so much about this. And it could just be like, no, it was just. They had a rough quarter, you know, like, I don't know. I just, I really think it's the sunk cost thing, , cause I've actually, I've felt that way.

Like there's companies that I've grown to like and, and, and be confident in because I know them so well. And then I start to think like, am I being blinded because of that? And, and should I, should I cut this one loose? So I think I want to, I 

Jason Hall: want to re summarize my answer here to be kind of clear. I think 

Jeff Santoro: it was terrible the first [00:31:00] time.

So yeah, yeah, 

Jason Hall: it probably was yours was just as 

Jeff Santoro: bad. I'm not going to cut that out though. Good. 

Jason Hall: Don't the, the in general, absolutely not more knowledge is better. Right. I want to be clear there, but there are some very specific instances that it can be problematic. And I think over time, like if you, if like, if you condense all of like, When, when you learn it down, like the shorter period of time that you learn more, probably the more dangerous it is.

If you're talking about a knowledge basis, you build up over five or 10 years about a company, that's the healthy way to do it because then you're more likely to see the opportunities and to see the 

Jeff Santoro: risks. Yeah. I, I would echo that too. I'm not saying. Don't learn about your companies, but I do think there's a limit to it All right.

Is it okay to own a stock? You don't know. Well, 

Jason Hall: this is a very very personal Individual this is like this is exemplary of the you know, we can give our answers, but you have to find your [00:32:00] own answers, right? So give me your answer 

Jeff Santoro: do yeah To own a stock. You don't know. Well, 

Jason Hall: it's far less. Okay for me than it used to be Except 

Jeff Santoro: for when it isn't, wow, that is the most Jason Hall answer I've ever heard.

I just 

Jason Hall: walked in a complete circle right around the question, didn't I? You 

Jeff Santoro: just, it's the, the BS is just flowing from your mouth. All right, go ahead. Explain yourself. Oh, no, that's all I'm going to say. 

Jason Hall: Okay, cool. I'm really not going to say anymore. No, I'm kidding. It's so in, in general, I, I, again, we talked about depending on where you are in your investing journey and how much of your.

Your, your research or outsourcing. I think it varies. And for, for me generally, because I do, I've spent 15 years doing this and I've studied so many companies and I. I know industries pretty well the, the exception is if a company shows up and this is where I'm going to be a little bit hypocritical of one of my opening [00:33:00] statements earlier in the show about new companies and new industries.

And I think it's more important to really take the time to be slow there. If somebody that I deeply trust comes to me with a company that I just don't really know very well, but, but they have a certain level of conviction that's obvious. I will be more likely to invest before I know as much as that I'm, as I might typically want to know before I do.

So that to me is kind of the rare exception. But when I do it, I'm still doing it with a tacit understanding that I'm owning it, right? I'm not, I can't blame Bob, ? Because I didn't do enough due diligence on my own. It's still my fault. I still have to own it. But if it does well, I also need to acknowledge that I listened to Bob 

Jeff Santoro: and I got lucky.

I totally agree. I think anyone who is a member of a service or pay, subscribes to a newsletter, , free or paid, if you're getting, if you're just seeing a ticker, and 15 seconds later clicking the buy button, [00:34:00] I don't think that's ever okay. Honestly, like, I really do think you should have A base level understanding of what it, what the company 

Jason Hall: does.

It's not okay for Jeff. It's okay for anybody that thinks it's okay for themselves. Okay, fine. 

Jeff Santoro: But, but 

Jason Hall: here's my, if you're going to hit the buy button because they said buy, you need to also make your sell decisions based on what they're also recommending. Yeah. Yeah. And you also have to have an understanding of what they're.

Value proposition is, is this a trading newsletter where they're just proposing trades or is it a long term business focused value, whatever, right? You need to understand what is the value prop of whatever you're signed up for. If you're going to follow their advice. 

Jeff Santoro: Yes, I would agree with all that. I, I was just saying that for me personally.

Yeah, . This is not investing advice I would want to at least Know a few things and it could be as simple as what I started the top of the show with in terms of cash Look [00:35:00] at yeah, or it could just be Revenue. Yeah, or it could be I Even if simple as like, oh, it's Netflix and I know what Netflix is and does you know, like something very basic?

Yeah, and I agree with you, but you also can't go blame The person who told you that if it doesn't go well, because you're not doing any, any effort on your end. Here's right. Here's where I want to take it in a slightly different direction. I've thought about this a lot recently because I've stated that the thing I'm trying to get better at is understanding and thinking about valuation.

So right now what I've noticed is I'm outsourcing. I'm borrowing a lot of valuation conviction. So I don't, I no longer buy a company because I hear someone tell me about it. But I do think a lot about, again, people I trust who really do understand valuation better than I do what they think about a company in terms of how, how overvalued or undervalued [00:36:00] it might be.

So like, I'm still at the level of borrowing some conviction there. So I think in that sense, it's a thing about a stock I don't know as well yet. Bye. I hope that me being conscious of the fact that I'm doing that makes it a little bit better, but that's where I am. I am with that one. All right. So to wrap up, there are a little conversation here.

Let's, let's do a little bit of introspection about our own history as investors here. What's the biggest mistake you've made in your portfolio that's related to knowledge or understanding the company or, or, or not understanding the company. 

Jason Hall: So I'm gonna. I'm going to put a spin on this, and I'm going to answer, I'm not going to answer your question.

Jeff Santoro: You're going to answer the question you want to answer, not the one I asked 

Jason Hall: you? Yeah, kind of. I kind of am. And this is a case of having the, having the knowledge and not applying the knowledge. [00:37:00] And a lot of hindsight bias here. I'm not going to deny that. But if you look at, I keep a spreadsheet, and I track every buy that I made.

Right, I keep that, I keep that sheet. And if you look at the period from, like, Really, basically all of 2021, if we're being honest with, with ourselves, and I am being honest with myself right now, like the vast majority of those investments, those individual investments lost money, lost money. I knew the market was expensive.

I knew I was buying expensive stocks. I Was ignoring it. I was simply ignoring that information. And again, the interest rate environment has changed, we know everything has changed, we've talked about it ad nauseum. But I think it's so important that you put knowledge to work, and I didn't. [00:38:00] I was caught up in the bye bye bye mentality, hold long enough and you're gonna be fine, and not having enough discipline to, to, to be patient and to be more methodical, 

Jeff Santoro: right?

Yeah, I mean, I'm guilty of the same thing, I, I didn't, I have a little bit more of an excuse, because... I was newer than you were. The thing I keep thinking about when it comes to, I think about 2021 also, I think what's easy to forget is. Every single day, pretty much you would open your brokerage statement and it was up, not like 0.3%, like 1, 2, 3, 5 per, I mean, it was ridiculous for a while there.

And I think to your point about all those individual purchases from 2021, if you look at them now being in the red, true. But if you. sold all of them at the end of 2021, they probably all would have been winners for, you know what I mean? Like it's, it's only because you [00:39:00] held them that, and it is all hindsight bias, but I think that's a good maybe macro way of answering the question.

So I don't know if I have a great example only because I've only been buying individual stocks for just shy of four years. So I think it's hard to say something has been a mistake yet. But I would, if I had to pick one, I would say definitely Peloton, which I already talked about earlier. Because I, I knew the, I think I knew the company well.

I think I did all the normal due diligence, but I let that bias of knowing it well. And my anecdotal bias completely, I just ignored. the obvious signs that, that things weren't, you know, going to work out. Like, so for example, one of the things that I remember being very bullish on at the moment that I don't think I would have been if it happened now, it's like a learning thing for me, was there was a point when Peloton bought this company called Precor, which was like the exercise bike in the, in [00:40:00] the hotel.

Well, they, they make like 

Jason Hall: gym equipment, like commercial gym equipment. 

Jeff Santoro: And I remember being like, this is great. They'll Pelotons will be in every hotel and then people will like, try them and they'll want to go buy and buy a Peloton. And, you know, I, I think now I probably would have been a little more skeptical of that a couple of years later with, with more learning under my belt.

But I just let my Pelotons going to take over the world sort of bullish view blind me from what was. Probably should have been a more obvious, you know, misstep for the company. So I think I would have to pick that as my individual, but I, I did the same thing as you did. I bought all through 2021. So, all right.

So looking at your biggest winners. How, like the biggest winning stocks in your portfolio, how well did you know them when you first invested in them? 

Jason Hall: Yeah, this is such, I think this is such a cogent question that I'm hope, hoping maybe can be really helpful for [00:41:00] a lot of people. The reality is that my, my biggest winner, my best investment ever in terms of dollars, the size of the size of this.

The percentage basis, my initial investments have been huge winners. I've added to it. It was Mercado Libre. I didn't, I do a rounding error from nothing about this company. When I first bought it, David Gardner recommended it, you know, and okay. I think he's pretty good. He's pretty good at this. So I think it was back in 2014.

I made my first investments in Mercado Libre. It's like up 14, 14 bagger. I'Ve added to it substantially. I've spent more, I've bought more dollars worth of cost basis and shares than I did back then. But the shares that I bought back then are worth more than the shares I have now because it's been such a huge winner.

And now I know Mercado Libre very, very, very well. I think it's a perfect example of like the organic growth of your knowledge over time [00:42:00] of a business example. And my conviction is still incredibly, incredibly high in that business. 

Jeff Santoro: So I have a couple examples from, from my portfolio. So I'll start with the one that I probably knew the least about and kind of still know the least about.

This is like, goes back to the question, like, is it okay to own a stock that you don't understand? So I own a company called Arista networks, which I don't talk about much. It's one of my biggest winners. I bought it for exactly the same reason as you bought Mercado Libre. It was a, it was a recommendation in Stock Advisor when I was a member.

And I know basically what they do. They make switches and routers that all of the big tech companies use. Like that's the one sentence example of what they do. I don't know anything else about it to this day. It, it's It's a tech company that I just struggled to wrap my head around because I don't work in that industry.

And they're 10 K, 10 Q press releases are a lot of jargon about specific routers and specific switches and [00:43:00] all these acronyms. And I don't understand them. I think the reason I still have it in my portfolio is because it's been a winner. Yeah. If I'm being a hundred percent honest, if it was down 30, 40, 50 percent after all these years, I probably would have been like, I don't understand this company.

I'm going to sell it. An example of one that I think I knew Decently well, when I first bought it is NVIDIA and that is my biggest winner on a percentage and a dollar basis. I don't know it like someone like Nick Rosolillo knows it, , who we've had on another episode. People can go check out two episodes.

We've had Nick on in the past year to talk about semiconductors, but I had a basic idea. Like I know what semiconductors are. I know the industries they are in. I know what they, what kind of, what, where they play in the semiconductor space. And then the other winner I've had, that I think I know even better, because it's a pretty simple business, is Celsius Holdings, which is an energy drink company because it doesn't really take a rocket scientist to understand what they do.

They make [00:44:00] energy drinks, and they food scientist. I mean, they do claim that they have a lot of , peer reviewed studies about the efficacy of their drinks, so I guess I could learn more on the science end of things. But that's one that I think I do understand pretty well, and, and it has been a winner for me.

So, like, that's three examples. Like, one I didn't know at all, one I kind of knew, and one I think I knew pretty well, all when I made my first I want to, I want to, 

Jason Hall: Put in a plug for Nick. So it was episode 55 back in June and I think back in February or March episode 41. Now that was episode 41. I actually, Nick interviewed me for his channel, chip stock investing on Twitter, on YouTube.

Check him out. He's 

Jeff Santoro: wonderful. Yeah. Wonderful. It's also one of our, not that one, but the one where we add them on as a guest is also one of our, I think top 10 most listened to episodes. So it's, it's really. For good reasons. Yeah. For good reasons. 

Jason Hall: How about the same question, only for biggest losers? 

Jeff Santoro: So I'm [00:45:00] trying to think of a loser that I bought that I also didn't understand when I bought it.

It's hard to remember those because I've, because I've sold them. I'll give, I'll give a general example. So there was a whole bunch of tiny biotech companies that I bought because there were recommendations in a service that I was a subscriber to. So that I. I didn't really understand beyond this company makes drugs that do this, and I'm glad I did that.

And it was also, by the way, like in 2021. So everything went down. And I'm glad I did that because I learned I don't want to be a biotech investor from that, because what I found was, so when you're looking at very early stage biotech companies. It's sort of actually a simple exercise. You have to understand where their drugs are in the development cycle, and you have to understand if they're going to run out of money.

That's kind [00:46:00] of it because they don't have any drugs commercially available. Their only revenue is usually, uh, grant money or funding from the government or maybe a collaboration with like a Pfizer or something like that, where they, you know, they have some income from there, but it's really, it's really just a cash burn while they try to develop drugs.

So all you're relying on in that case is The science and they release a lot of information here, with charts and graphs, and I am not a scientist, so it, I look at these things and I'm like, I, all these terms and, and, , things that a scientist would look at, especially one that does lab work and completely understand it and be like, Oh yes, this looks good, this looks bad.

And it just makes my brain hurt. So I've had a lot of those kind of small pre revenue biotech companies. Go down 60, 70, 80%. And I don't know whether I should hold them or not. Like one of them could be the next huge biotech firm or they could not. And I have no [00:47:00] way of knowing because I don't know enough about the science and I bought them just because someone said to buy them.

So just kind of like you did earlier, thinking of like a group of, a group of companies or a sector or something like that, like I learned a lot about that, that industry investing in those tiny pre revenue biotechs. What about you? Asana. Interesting. 

Jason Hall: Yeah. If, I mean, it's, you know, enterprise, like workflow management kind of stuff.

Like I know, I know that, but I still don't really understand their monetization model very well. And they have like the beachhead strategy with the free product, which we actually use. And then trying to, what's that? I thought you said something, heard a weird squeaky sound. But I mean, I kind of fell in love with, here it goes.

You 

Jeff Santoro: ready? Mm hmm. Founder led company, 

Jason Hall: [00:48:00] right? No founder, CEO, billionaire, Facebook billionaire. I believe. It's a good, it's an interesting product. It's a good product. And like a lot of those kinds of products can get really great margins, but I'm just afraid it's probably one of those that's like, maybe you just need to be part of Salesforce or something like, you know what I mean?

It's like, yeah, for me, it 

Jeff Santoro: doesn't just get acquired for me. The knowledge gap with a company like that for me is less about. How it's monetized and things like that and it's more about I don't know why it's any better than like let's just say monday. com Which I know is one of their 

Jason Hall: motives. Are you saying the moats are questionable?

Yes. 

Jeff Santoro: Yes, you know And I also don't know how how sticky it is, you know I guess if you're used to using that kind of specific workflow and then it changes that's annoying but I don't know it That's that for me again because it I don't work in an industry where those types of products are used. [00:49:00] You know, like I, I work in, in education, like we don't have fancy things like Asana.

It's like we are, we are email and, you know, Excel. Like that's kind of, it's kind of it you know, we have software and stuff, but it's very specific and, and completely different than something like that. It's not a huge enterprise usually. So. To me, that's, that's the knowledge gap for, for companies like that.

All right. Let's take a break, Jeff. All right. Stick around. Cause when we come back, we're going to do a cheesy and cliche Thanksgiving themed end of the show.

Hey Jeff, 

Jason Hall: let me, let me be the first to welcome to, to let me be the first to wish you a happy, thanks for nothing giving. 

Jeff Santoro: I'm glad that we're starting a new. Holiday celebration with this Saturday's podcast the thanks for nothing giving where we are going to take a fun do a fun take on Thanksgiving and we are going to do some thanks for nothings.

So why don't you kick us off, [00:50:00] Jason, give us the thanks for nothing. Yeah, 

Jason Hall: so it's you know, I appreciate the idea of gratitude and it's kind of a principle that you know I've tried to build more and more of my life around to be centered and to Be a better father help me be a better investor be a better partner Be a better co host with Jeff damn it.

Sometimes, you know, what you know, it's really cathartic is saying hey Asana You're still burning cash I don't think you have any motes and you're down 63 percent in my portfolio. Thanks for nothing, Asana. I feel better, Jeff. It's a little better. So stupid. So happy thanks for nothing, giving Dustin Moskovitz.

Jeff Santoro: All right. I have one for you. Thanks for nothing, inflation. Here I am just trying to learn how to be an investor. Everything's going fine. [00:51:00] All of a sudden, you show up, and that makes interest rates go up, and everything I learned about investing in those first couple months is now different. So thanks for nothing, inflation.

Yeah, that's a good one. 

Jason Hall: That's a good 

Jeff Santoro: one. How about,

Jason Hall: how about Boston Omaha with their co CEOs? 

Jeff Santoro: Oh, that's a good one. I wish I had thought of that. Go ahead. 

Jason Hall: Yeah. You know, I, I really appreciate... That you're telling basically nobody anything of use about what's going on with your business that's now selling for a 25 percent discount to book value. And then I've lost 22 percent of my investment on so far.

So, Co CEOs. Of one of my, what's the word, I don't want to use, I don't want to say favorite here. Hater ate? Hater ate? Can you say 

Jeff Santoro: hater ate? Formerly favorite. Let's save a little. Formerly favorites. 

Jason Hall: Yeah. Once in [00:52:00] future. Hopefully favorites. Thanks for nothing. Thanks for nothing, Boston Omaha. 

Jeff Santoro: All right. Last one.

Okay. This is too silly to carry on for too long. Thanks for nothing, Disney. My kids love what you do. My kids love Star Wars. They love Marvel. They watch Disney Plus every single day. You have some of the best IP on the planet, and you cannot get out of your own way. And... I bought some Disney stock early on and I figured I bought it both for myself and I bought it for my kids thinking this is the perfect investment.

It'll, it'll grow slowly over time. It'll be rock solid. My kids will enjoy having it because they'll think back on all those great Disney memories as a kid. And you just, you can't, you can't figure out how to have a succession succession plan for your CEO. You can't figure out how to, how to do Disney plus without burning cash.

It's finally got the parks back. Back in order, but I don't know overall. [00:53:00] I just have to say thanks for nothing Disney. Thanks for 

Jason Hall: nothing. Thanks for Disney You know what? You've proved Disney. You've proved that you can find another way to take money away from your customers. 

Jeff Santoro: That's right Also, thanks for nothing with the higher prices at the parks You know like you'd think if you're gonna make that so expensive to go it would trickle down to me the shareholder But it hasn't so thanks for nothing.

All right friends 

Jason Hall: I have a request. Find us on Twitter. Find us on Instagram. Find us on TikTok. Find us wherever you find stuff. We're there. And share your thanks for nothing givings with us too. Be sure to hashtag thanks for nothing giving and 

Jeff Santoro: find us on threads. Let's not forget threads. I just signed up for threads and we have a show account there.

So Thank That's right. Hit us up there as well. Threads by Instagram. Find us. Hit us up. Hashtag thanks for nothing. 

Jason Hall: Hashtag thanks for nothing. Hash, no what? No, no. Hashtag thanks for nothing giving.[00:54:00] 

Jeff Santoro: Okay, how about both? Okay, we can do 

Jason Hall: that. Why not both? Why not both? Jeff, 

Jeff Santoro: we did it, buddy. We did it. 

Jason Hall: And wishing everybody a great.

Remainder of your holiday weekend, wherever you're listening, whenever you're listening to this, if you're not in the U S I just hope you have like a regular old normal day or whatever. 

As always, Jeff and I love to give our answers to these hard investor questions, share our thanks for nothing givings with you. But it's up to you to answer your questions and have your own thanks for nothings. I believe in you. You can do it. 

All right, Jeff, we'll see you next time. 

Jeff Santoro: See you next time. 

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