1 00:00:00,040 --> 00:00:02,040 Welcome back everyone. Today on the Joseph Carlson 2 00:00:02,040 --> 00:00:05,200 Show, Barons releases their list of their ten favorite stocks for 3 00:00:05,200 --> 00:00:07,440 2024. I'll be going over each one of 4 00:00:07,440 --> 00:00:10,080 these stocks, their thesis, and giving a quick review. 5 00:00:10,120 --> 00:00:13,640 Apple, shockingly, has pulled their Apple Watches from the 6 00:00:13,640 --> 00:00:15,520 market. They're not selling them anymore 7 00:00:15,520 --> 00:00:18,040 because of a patent dispute. This has caused the company 8 00:00:18,040 --> 00:00:21,320 stock price to go down 1.2% on a Green Day. 9 00:00:21,640 --> 00:00:23,600 We're going to be looking at this news and how it impacts 10 00:00:23,600 --> 00:00:25,680 Apple. The CEO of Costco went on for an 11 00:00:25,680 --> 00:00:27,800 interview. He gave insights into why Costco 12 00:00:27,800 --> 00:00:30,280 is doing so well. What they have is their core 13 00:00:30,280 --> 00:00:33,720 values as a company and what he sees in terms of future growth 14 00:00:33,720 --> 00:00:35,480 for this company with the new CEO. 15 00:00:35,480 --> 00:00:38,280 So we're going to be taking a look at this interview and then 16 00:00:38,280 --> 00:00:40,520 we have some news from the regulatory environment. 17 00:00:40,560 --> 00:00:45,120 The Adobe and Figma merger has been called off $20 billion. 18 00:00:45,120 --> 00:00:48,960 Acquisition is ending because of regulatory scrutiny. 19 00:00:49,400 --> 00:00:52,080 This environment has become more difficult for big acquisitions 20 00:00:52,080 --> 00:00:53,600 like this. So we're going to be looking at 21 00:00:53,600 --> 00:00:56,080 how this effects Adobe and other companies. 22 00:00:56,200 --> 00:00:59,200 And then in the headline news we have the former Nicholas CEO, 23 00:00:59,200 --> 00:01:01,120 Trevor Milton. Remember him? 24 00:01:01,120 --> 00:01:04,599 The guy that pretended his truck was driving along the road when 25 00:01:04,599 --> 00:01:06,160 really it was rolling down a hill? 26 00:01:06,480 --> 00:01:10,120 Well, he is now facing sentencing for his conviction of 27 00:01:10,120 --> 00:01:12,360 misleading investors. We're going to be looking at 28 00:01:12,360 --> 00:01:15,360 what they're trying to seek in terms of sentencing and how this 29 00:01:15,360 --> 00:01:17,160 will likely play out. So we have a lot to get to. 30 00:01:17,160 --> 00:01:19,720 Let's go ahead and start off with a quick portfolio update. 31 00:01:19,760 --> 00:01:21,760 This is my passive income portfolio. 32 00:01:21,760 --> 00:01:24,880 It's my personal investment account that I share publicly 33 00:01:24,880 --> 00:01:27,200 every single week. So you go to see transparently 34 00:01:27,600 --> 00:01:29,680 how this does on a week by week basis. 35 00:01:29,920 --> 00:01:33,840 If I make money, if I lose money and each individual stock as 36 00:01:33,840 --> 00:01:36,640 well, I show the results of every single stock I invest in 37 00:01:36,640 --> 00:01:39,840 and I run a very concentrated portfolio with only eleven 38 00:01:39,840 --> 00:01:42,040 position. I'm buying compounding machines, 39 00:01:42,040 --> 00:01:44,760 Companies that are incredibly powerful with their Moat and the 40 00:01:44,760 --> 00:01:47,280 industries that they're in, they have pricing power. 41 00:01:47,640 --> 00:01:50,600 They can raise prices above the rate of inflation every single 42 00:01:50,600 --> 00:01:52,320 year. So these are economically 43 00:01:52,320 --> 00:01:55,520 powerful, highly free cash flow, positive, fast growing 44 00:01:55,520 --> 00:01:57,200 companies. Now I'm doing something a bit 45 00:01:57,200 --> 00:01:58,720 different than what Barons is doing. 46 00:01:58,880 --> 00:02:01,560 I hold these companies for a multi year basis. 47 00:02:01,640 --> 00:02:05,040 In fact, as of today my average holding period for My Portfolio 48 00:02:05,040 --> 00:02:07,760 is 30 months. 30 months is a decent amount of time. 49 00:02:07,760 --> 00:02:10,520 For the history of this portfolio, 30 months is 3 times 50 00:02:10,520 --> 00:02:13,280 as long as the average investor and it's around twice as long as 51 00:02:13,280 --> 00:02:15,640 the average mutual fund. So the investment philosophy 52 00:02:15,640 --> 00:02:18,120 here is very simple. I buy highly concentrated 53 00:02:18,120 --> 00:02:20,960 positions into high quality companies and I hold them as 54 00:02:20,960 --> 00:02:24,520 long as they stay high quality companies, I'll sell them if 55 00:02:24,520 --> 00:02:26,360 their fundamentals start to erode. 56 00:02:26,400 --> 00:02:29,600 So what I'm doing as an investor is quite a bit different than 57 00:02:29,600 --> 00:02:32,960 what Barons is doing. What Barons does is they pick 10 58 00:02:32,960 --> 00:02:35,960 stocks at the beginning of each year that they think will have a 59 00:02:35,960 --> 00:02:38,640 particularly good year that year. 60 00:02:38,720 --> 00:02:41,520 So every year it's starting with a completely clean slate. 61 00:02:41,800 --> 00:02:44,200 They don't really care about holding companies on a multi 62 00:02:44,200 --> 00:02:47,280 year basis. The Barron's 2023 portfolio has 63 00:02:47,280 --> 00:02:52,840 so far returned 31% beating out the S&P 5 hundreds, 24.5%. 64 00:02:52,840 --> 00:02:55,120 So their strategy has worked well in 2023. 65 00:02:55,440 --> 00:02:59,200 In fact, the 31% returns that they have are very similar to 66 00:02:59,200 --> 00:03:01,600 mine. I'm right around 31% as well. 67 00:03:01,600 --> 00:03:03,760 So historically this strategy has worked for them. 68 00:03:03,760 --> 00:03:06,000 Now let's go ahead and take a look at what their logic is 69 00:03:06,000 --> 00:03:09,120 behind these selections. First up, they have Alibaba. 70 00:03:09,200 --> 00:03:11,920 It is one of the cheapest tech oriented companies in the world 71 00:03:12,160 --> 00:03:15,920 by a long shot. After dropping 18% in 2023, 72 00:03:15,920 --> 00:03:19,000 Alibaba's US listed shares are trading for just eight times 73 00:03:19,000 --> 00:03:21,600 projected earnings. Now we can check out Alibaba in 74 00:03:21,600 --> 00:03:23,520 Qualtrum. This website, by the way, is 75 00:03:23,520 --> 00:03:26,320 included as part of the Patreon membership, but we can see that 76 00:03:26,320 --> 00:03:29,480 they're correct. It's currently down around 19.4% 77 00:03:29,480 --> 00:03:34,880 year to date and the PE ratio is 7.42, super cheap for a company 78 00:03:34,880 --> 00:03:36,920 that has this type of growth potential. 79 00:03:37,360 --> 00:03:40,560 This is where investors are concerned about it being a value 80 00:03:40,560 --> 00:03:42,800 trap. Keep in mind the Alibaba has 81 00:03:42,800 --> 00:03:45,840 been a disaster of a holding for the past five years. 82 00:03:46,000 --> 00:03:49,280 On a five year basis it's down 46%. 83 00:03:49,560 --> 00:03:51,960 From its highs it's down around 80%. 84 00:03:52,240 --> 00:03:55,520 So this company has really crushed value investors looking 85 00:03:55,520 --> 00:03:58,240 to buy the discount for a long period of time. 86 00:03:58,560 --> 00:04:02,600 They say with that decline, the stock at a recent $72 is back 87 00:04:02,600 --> 00:04:05,880 where it stood following its 2014 initial public offering. 88 00:04:06,280 --> 00:04:10,200 Despite A tenfold rise in revenue and a fivefold increase 89 00:04:10,200 --> 00:04:13,800 in earnings, its market cap is less than 15% of its closest 90 00:04:13,800 --> 00:04:16,480 American pair, which is Amazon.com. 91 00:04:16,480 --> 00:04:18,760 Now this is where my view would diverge with Barron's. 92 00:04:18,839 --> 00:04:21,680 I agree the company's cheap. I agree that it probably 93 00:04:21,680 --> 00:04:25,400 deserves to be worth a bit more, But calling it basically 94 00:04:25,400 --> 00:04:28,600 comparable to Amazon I think is a little bit misleading. 95 00:04:28,640 --> 00:04:31,040 Amazon's cloud business is much bigger than Alibaba's. 96 00:04:31,360 --> 00:04:33,760 Amazon's advertising business is much bigger. 97 00:04:33,840 --> 00:04:36,480 And most importantly, Amazon resides in a country where the 98 00:04:36,480 --> 00:04:39,360 government views private enterprise much more favorably. 99 00:04:39,400 --> 00:04:41,880 So I understand the investment thesis here, but my biggest 100 00:04:41,880 --> 00:04:45,000 concern for Alibaba is where the company's headquartered. 101 00:04:45,000 --> 00:04:47,320 Now moving on to their number two pick is a company that I 102 00:04:47,320 --> 00:04:50,000 fully agree with and I'm fully invested in. 103 00:04:50,320 --> 00:04:53,760 Alphabet could be the best bet amongst the Magnificent 7. 104 00:04:54,040 --> 00:04:56,760 It's expected to grow as fast as Microsoft, with its earnings 105 00:04:56,760 --> 00:05:00,160 forecast to be up 15%, and it's three times as quickly as 106 00:05:00,160 --> 00:05:03,440 Apple's 5% growth. So Alphabet's expected to grow 107 00:05:03,440 --> 00:05:07,640 faster than Microsoft and Apple. Yet its stock trades for just 20 108 00:05:07,640 --> 00:05:11,800 times earnings, a discount to both Microsoft and Apple's 30 109 00:05:11,800 --> 00:05:14,480 times, despite gaining 50% this year. 110 00:05:14,480 --> 00:05:17,680 Right now, Alphabet stock is trading lower because of a lot 111 00:05:17,680 --> 00:05:19,960 of potential threats. Investors have been worried 112 00:05:19,960 --> 00:05:22,160 about the slowing growth in Alphabet's cloud computing 113 00:05:22,160 --> 00:05:25,240 division, the threat that artificial intelligence poses on 114 00:05:25,240 --> 00:05:27,880 the search business, and antitrust scrutiny. 115 00:05:27,880 --> 00:05:30,920 And this is absolutely true. I agree with their assessment 116 00:05:30,920 --> 00:05:33,560 here, but I also agree with their statement here that this 117 00:05:33,560 --> 00:05:36,760 looks manageable. I think a lot of these concerns 118 00:05:36,760 --> 00:05:40,040 come and go over the years. When you study the history of 119 00:05:40,040 --> 00:05:44,160 companies and you look back, there's almost always something 120 00:05:44,160 --> 00:05:46,720 that seems very real and very concerning. 121 00:05:46,840 --> 00:05:49,320 And one of the most difficult things with good companies is 122 00:05:49,320 --> 00:05:52,560 staying invested in them, not getting scared out of them. 123 00:05:52,680 --> 00:05:55,360 As for antitrust issues, they may not go anywhere, and 124 00:05:55,360 --> 00:05:57,880 Alphabet might be worth more broken up anyway. 125 00:05:58,480 --> 00:06:01,080 Now I think that this looks at one part of this a little bit 126 00:06:01,080 --> 00:06:04,240 favorably. We know the Alphabet just lost a 127 00:06:04,240 --> 00:06:08,000 case against Epic, so these antitrust issues are going 128 00:06:08,000 --> 00:06:10,120 somewhere. We know that the loss to Epic 129 00:06:10,120 --> 00:06:13,000 Games is going to hurt Alphabet's bottom line with 130 00:06:13,000 --> 00:06:15,480 their App Store revenue. They're going to have less 131 00:06:15,480 --> 00:06:18,400 revenue be transacted through their payment processor. 132 00:06:18,680 --> 00:06:21,160 So that's something that's going to gradually eat away at their 133 00:06:21,160 --> 00:06:22,760 bottom line. But they're still going to 134 00:06:22,760 --> 00:06:26,080 outgrow that loss in revenue. Google's a company that despite 135 00:06:26,080 --> 00:06:29,160 all the headline risk and regulatory risk, I still view it 136 00:06:29,160 --> 00:06:32,000 very favorably, Esecially because a company is trading at 137 00:06:32,000 --> 00:06:35,440 such a low E ratio and a high free cash flow yield. 138 00:06:35,440 --> 00:06:39,080 Even adjusting out their stock based com, the valuation is low 139 00:06:39,400 --> 00:06:41,680 and they own some incredibly good assets with their search, 140 00:06:41,680 --> 00:06:44,720 cloud and YouTube business. So Alphabet's a company that I 141 00:06:44,720 --> 00:06:47,360 agree with Barrons on. Next up we have Barrack's gold. 142 00:06:47,440 --> 00:06:49,760 Gold mining stocks haven't been able to keep up with gold 143 00:06:49,760 --> 00:06:52,880 prices, but this year may be the year that changes for Barrick. 144 00:06:52,880 --> 00:06:55,960 Gold gold miners are thought of as leverage plays on the metal, 145 00:06:56,120 --> 00:07:00,160 yet Barrack's shares are up just 3% this year while gold is up 146 00:07:00,160 --> 00:07:02,680 more than 10%. Barrack has several things going 147 00:07:02,680 --> 00:07:03,960 for it. The company has some of the 148 00:07:03,960 --> 00:07:07,120 world's best mines in spots like Nevada and the Dominican 149 00:07:07,120 --> 00:07:09,920 Republic, and it's the top gold producer in Africa. 150 00:07:10,080 --> 00:07:13,080 It aims to boost its unique output, mostly gold and some 151 00:07:13,080 --> 00:07:16,000 copper, by 30% by the end of the decade. 152 00:07:16,080 --> 00:07:18,640 Barrick Gold seems like an OK bet, but it's not the type of 153 00:07:18,640 --> 00:07:20,400 company I'd like in My Portfolio. 154 00:07:20,680 --> 00:07:23,240 Even though it trades at a low valuation, I would rate this 155 00:07:23,240 --> 00:07:26,520 company as highly unpredictable. We can look at the stock price 156 00:07:26,520 --> 00:07:29,120 over the past five years. It's all over the place, 157 00:07:29,120 --> 00:07:31,800 bouncing up and down with high amounts of volatility only 158 00:07:31,800 --> 00:07:34,560 returning 37% over the last half of a decade. 159 00:07:35,000 --> 00:07:38,800 In the past ten years, it's also only returned 7%, again 160 00:07:38,800 --> 00:07:41,200 highlighting the extreme volatility of this company. 161 00:07:41,400 --> 00:07:43,960 And if we look at any type of chart of their financial 162 00:07:43,960 --> 00:07:47,760 history, you can see the highly cyclical nature of gold 163 00:07:47,760 --> 00:07:50,400 companies. They go up and down and I think 164 00:07:50,400 --> 00:07:53,840 it's very difficult to predict. In my opinion, I'd rather buy 165 00:07:53,840 --> 00:07:57,320 the company that's selling gold bars and making $100 million in 166 00:07:57,320 --> 00:08:00,640 revenue in a single quarter. I'd rather just buy Costco. 167 00:08:00,640 --> 00:08:02,640 So Barrick Gold for me is one that I'd skip. 168 00:08:02,640 --> 00:08:04,560 And #4 we have Berkshire Hathaway. 169 00:08:04,560 --> 00:08:06,760 It's interesting to see that one show up on the list. 170 00:08:07,040 --> 00:08:10,120 They see the case for Berkshire starts with the CEO Buffett of 171 00:08:10,120 --> 00:08:14,000 what he calls a Fort Knox balance sheet with over $150 172 00:08:14,000 --> 00:08:17,200 billion in cash, or about 20% of the company's market value. 173 00:08:17,600 --> 00:08:20,600 Earnings are growing too with Berkshire's after tax operating 174 00:08:20,600 --> 00:08:24,040 profits up nearly 20% so far in 2023. 175 00:08:24,440 --> 00:08:28,000 They could also hit $40 billion in operating profits this year 176 00:08:28,240 --> 00:08:32,120 powered by high interest income on Berkshire's cash and strong 177 00:08:32,120 --> 00:08:35,640 insurance underwriting results, helped by a turn around at 178 00:08:35,640 --> 00:08:38,159 GEICO. Berkshire's equity portfolio led 179 00:08:38,159 --> 00:08:40,840 by Apple is also having a great year and this is one that I 180 00:08:40,840 --> 00:08:42,960 fully agree with. I think that Berkshire is doing 181 00:08:42,960 --> 00:08:44,320 great. They are basically 182 00:08:44,320 --> 00:08:46,480 indestructible with the amount of cash that they have. 183 00:08:46,480 --> 00:08:49,560 Their revenue continues to go up on a steady trend quarter over 184 00:08:49,560 --> 00:08:52,200 quarter, year over year. It's truly remarkable how much 185 00:08:52,200 --> 00:08:55,640 cash flow this company produces. Berkshire is a powerhouse 186 00:08:55,640 --> 00:08:58,720 company and it's likely still going to outperform the market 187 00:08:58,720 --> 00:09:02,360 over the next couple of years. Now #5, we have Bio N Tech. 188 00:09:02,440 --> 00:09:05,800 It's a COVID-19 vaccine maker that's been crushed this year. 189 00:09:05,920 --> 00:09:09,480 Unlike so many cash burning biotechs, Bio N Tech is expected 190 00:09:09,480 --> 00:09:13,720 to remain profitable in 2024 and the company's oncology focused 191 00:09:13,720 --> 00:09:16,760 pipeline could prove more promising than some investors 192 00:09:16,760 --> 00:09:19,040 believe. Bio N Tech has oodles of cash, 193 00:09:19,040 --> 00:09:22,800 more than 18 billion, that's nearly 3/4 of its current market 194 00:09:22,800 --> 00:09:26,360 value and $25 billion. Investors effectively are paying 195 00:09:26,360 --> 00:09:30,560 just $7 billion for its COVID franchise and drug pipeline. 196 00:09:30,600 --> 00:09:32,400 So that's basically the investment case with this 197 00:09:32,400 --> 00:09:35,080 company. The market cap is currently $24 198 00:09:35,080 --> 00:09:37,120 billion. And if we look at their cash and 199 00:09:37,120 --> 00:09:40,880 debt, they have almost no debt with $16 billion in cash. 200 00:09:40,960 --> 00:09:43,600 So this company could do a lot with that cash balance, 201 00:09:43,600 --> 00:09:47,320 including aggressive buybacks, buying back the shares, raising 202 00:09:47,320 --> 00:09:49,320 their earnings per share. Now, I never invest in 203 00:09:49,320 --> 00:09:51,720 pharmaceutical companies. Again, I believe they're too 204 00:09:51,720 --> 00:09:53,480 volatile. They're not compounders. 205 00:09:53,720 --> 00:09:55,280 They have too much regulatory risk. 206 00:09:55,400 --> 00:09:58,200 But I think that in that realm, this is a pretty good bet. 207 00:09:58,200 --> 00:10:00,240 They have such an incredible balance sheet that it brings a 208 00:10:00,240 --> 00:10:03,360 lot of stability to the company. Number six, we have an oil 209 00:10:03,360 --> 00:10:05,960 company with Chevron. Some of the Sheen came off 210 00:10:05,960 --> 00:10:10,080 Chevron in 2023, but the company remains one of the best run big 211 00:10:10,080 --> 00:10:12,320 energy companies in the world. There's analysts saying that 212 00:10:12,320 --> 00:10:15,600 Chevron trades at a 15% discount to its average cash flow 213 00:10:15,600 --> 00:10:19,320 multiple and should have a total yield, dividends plus buy back 214 00:10:19,640 --> 00:10:23,360 of around 12%. A combined 12% yield is massive. 215 00:10:23,360 --> 00:10:26,160 So I can see why this is attracting value investors. 216 00:10:26,280 --> 00:10:28,960 This is another example of the type of investing strategy I 217 00:10:28,960 --> 00:10:31,600 don't do. It is true that oil could have 218 00:10:31,600 --> 00:10:35,080 some huge run in 2024. I don't doubt that that's a 219 00:10:35,080 --> 00:10:37,560 possibility. But even with these cheap 220 00:10:37,560 --> 00:10:40,280 valuation metrics, when we look at the overall history of the 221 00:10:40,280 --> 00:10:42,960 company, it's down big time in the one year. 222 00:10:43,160 --> 00:10:45,800 It's only up 39% over the past five years. 223 00:10:46,200 --> 00:10:50,360 In the past decade it's up 21%, not including the dividends. 224 00:10:50,480 --> 00:10:53,480 So this is another company that you cannot count on the compound 225 00:10:53,480 --> 00:10:57,320 year after year buying the dip on a volatile company can work 226 00:10:57,320 --> 00:10:59,680 and maybe it will in 2024 for barons. 227 00:10:59,880 --> 00:11:02,520 But I think overall it's again far too unpredictable. 228 00:11:02,600 --> 00:11:05,800 In #7 we have Hertz. Hertz high profile move into 229 00:11:05,800 --> 00:11:09,000 electric vehicles has proven a bust, but the stock looks cheap 230 00:11:09,000 --> 00:11:11,280 enough to be a winner in 2024. Now they say. 231 00:11:11,280 --> 00:11:15,240 To put it simply, Hertz big bet on E VS about 11% of its fleet 232 00:11:15,320 --> 00:11:18,640 against an estimated 2% for its rivals went bad. 233 00:11:18,920 --> 00:11:23,160 Repair cost for its Tesla heavy fleet are high and Hertz is 234 00:11:23,160 --> 00:11:26,000 getting less than it had projected when the cars are sold 235 00:11:26,280 --> 00:11:29,200 due to deep price cuts. Customers aren't keen on the 236 00:11:29,200 --> 00:11:33,040 cars either due to charging and range issues, so this isn't a 237 00:11:33,040 --> 00:11:35,640 jab at Tesla, but this is just the reality. 238 00:11:35,840 --> 00:11:39,520 Hertz did this big partnership with Tesla vehicles and it has 239 00:11:39,520 --> 00:11:41,040 not worked out with the business. 240 00:11:41,280 --> 00:11:44,160 As we know, Tesla has done a ton of price cuts throughout the 241 00:11:44,160 --> 00:11:47,080 year on their vehicles that's devalued, all the ones that were 242 00:11:47,080 --> 00:11:49,120 previously purchased. And then they also have a lot of 243 00:11:49,120 --> 00:11:51,200 customers that probably aren't familiar with EVs. 244 00:11:51,560 --> 00:11:53,800 They probably have issues with the charging and we know that 245 00:11:53,800 --> 00:11:56,800 Teslas do have very expensive repair costs. 246 00:11:56,800 --> 00:11:59,280 OA lot of this stacked U together to be a bad move for 247 00:11:59,280 --> 00:12:00,960 Hertz. Now they mentioned that this 248 00:12:00,960 --> 00:12:04,520 industry, the rental car industry, is an oligopoly with 249 00:12:04,520 --> 00:12:08,000 over 90% of the US market controlled by enterprises Avis 250 00:12:08,000 --> 00:12:10,040 and Hertz. And even with cuts in their 251 00:12:10,040 --> 00:12:14,160 earnings estimates, Hertz trades at 8.6 times Ford earnings. 252 00:12:14,200 --> 00:12:16,480 There's analysts saying that Hertz is overwhelmingly 253 00:12:16,480 --> 00:12:18,400 attractive for patient investors. 254 00:12:18,440 --> 00:12:20,960 This is a very compelling investment thesis. 255 00:12:20,960 --> 00:12:24,800 This is one I actually like. Now, granted, I'll never invest 256 00:12:24,840 --> 00:12:27,800 in car companies. I'm not investing in Tesla, I'm 257 00:12:27,800 --> 00:12:30,480 not investing in Ford, I'm not investing in Rivian. 258 00:12:30,680 --> 00:12:33,720 I'm not investing in any car company and I'm unlikely to 259 00:12:33,720 --> 00:12:36,560 invest in Hertz or any other company that directly deals with 260 00:12:36,560 --> 00:12:38,680 them. I think the auto industry has a 261 00:12:38,680 --> 00:12:41,520 lot of those traits that I don't like to see in companies. 262 00:12:41,840 --> 00:12:44,320 The cyclicality and the unpredictability. 263 00:12:44,320 --> 00:12:46,400 When we take a quick glance at the fundamentals of this 264 00:12:46,400 --> 00:12:49,000 company, we can see that the revenue is not growing at a 265 00:12:49,000 --> 00:12:50,880 steady clip. It's basically flat. 266 00:12:51,000 --> 00:12:54,320 The free cash flows look decent if the graph was flipped upside 267 00:12:54,320 --> 00:12:57,520 down, but unfortunately they lose in cash flows every single 268 00:12:57,520 --> 00:13:00,000 year and even their balance sheet doesn't look good with a 269 00:13:00,000 --> 00:13:03,080 lot of leverage in the business. The only thing that I do find 270 00:13:03,080 --> 00:13:05,960 attractive about Hertz is the oligopoly position. 271 00:13:06,160 --> 00:13:09,120 I like companies that are in monopolies, but there are some 272 00:13:09,120 --> 00:13:11,440 monopolies that are much better than others. 273 00:13:11,720 --> 00:13:15,480 Monopolies in the airlines or in the car rental industry are not 274 00:13:15,480 --> 00:13:18,800 monopolies I want to own. So this one for me is a pass. 275 00:13:18,840 --> 00:13:20,360 Now this next one is very interesting. 276 00:13:20,360 --> 00:13:23,480 They say Madison Square Garden is pick #8. 277 00:13:23,840 --> 00:13:27,280 MSG Sports owns two of the most valuable professional teams in 278 00:13:27,280 --> 00:13:29,720 their sports the New York Knicks and the Rangers. 279 00:13:30,120 --> 00:13:33,720 According to estimates, the Knicks and Rangers are worth 7.4 280 00:13:33,720 --> 00:13:36,680 billion and 2.4 billion respectively. 281 00:13:37,000 --> 00:13:40,440 But the companies current market value is just 4.2 billion plus 282 00:13:40,440 --> 00:13:43,920 some 300 million in net debt. It is worth less than half of 283 00:13:43,920 --> 00:13:46,760 that. The stock now trades at 173 and 284 00:13:46,760 --> 00:13:48,840 it's below where it stood five years ago. 285 00:13:48,840 --> 00:13:51,480 So what Barons has done here with their Madison Square Garden 286 00:13:51,480 --> 00:13:54,280 pick is called a sum of the parts valuation. 287 00:13:54,480 --> 00:13:57,680 Some of the parts means you break down all the various parts 288 00:13:57,680 --> 00:14:01,200 of a company and you independently value each aspect 289 00:14:01,200 --> 00:14:03,320 of the company. Then you arrive at a full 290 00:14:03,320 --> 00:14:05,280 valuation and compare it with a market cap. 291 00:14:05,640 --> 00:14:08,440 If your sum of the parts is worth more than the market cap, 292 00:14:08,800 --> 00:14:10,920 you can say then that the company's undervalued. 293 00:14:11,040 --> 00:14:14,080 Now I like some of the parts valuations, but I also think 294 00:14:14,080 --> 00:14:17,000 there needs to be the caveat that companies aren't some of 295 00:14:17,000 --> 00:14:19,440 the parts. They are an entire company. 296 00:14:19,680 --> 00:14:22,040 They are combined with all of their assets. 297 00:14:22,320 --> 00:14:26,240 So everything boils down to a couple true metrics, The amount 298 00:14:26,240 --> 00:14:29,160 of cash flow the overall company generates, the amount of 299 00:14:29,160 --> 00:14:32,000 earnings the overall company generates, and the consistency 300 00:14:32,000 --> 00:14:35,240 and growth of those metrics. Now they argue that when you do 301 00:14:35,240 --> 00:14:38,320 this sum of the parts valuation, that makes the company too 302 00:14:38,320 --> 00:14:40,120 cheap. Even after factoring in the 303 00:14:40,120 --> 00:14:43,400 quote Dolan discount, a reference to the controlling 304 00:14:43,400 --> 00:14:46,120 Dolan family, the market is assigning a pretty punitive 305 00:14:46,120 --> 00:14:48,280 Dolan discount to these trophy assets. 306 00:14:48,320 --> 00:14:50,760 So they're arguing that the reason the company trades at 307 00:14:50,760 --> 00:14:54,440 such a cheap valuation is because this one private family 308 00:14:54,440 --> 00:14:56,960 owns such a massive portion of the company. 309 00:14:56,960 --> 00:14:58,560 They basically control the future. 310 00:14:58,800 --> 00:15:02,160 It's not really controlled by the shareholders, but even 311 00:15:02,160 --> 00:15:04,960 though it exists as a red flag, the company still may be 312 00:15:04,960 --> 00:15:07,160 undervalued. They say that the company is 313 00:15:07,160 --> 00:15:09,920 worth up to $300.00 per share today. 314 00:15:09,920 --> 00:15:13,200 He says the company should sell a minority stake in the Knicks 315 00:15:13,200 --> 00:15:16,080 and Rangers, buy back a lot of stock, and pay a regular 316 00:15:16,080 --> 00:15:18,200 dividend. The ultimate payoff would be a 317 00:15:18,280 --> 00:15:21,240 sale of the entire company, and there probably isn't much 318 00:15:21,240 --> 00:15:24,440 downside given the discount to the asset value. 319 00:15:24,520 --> 00:15:26,840 So they view Madison Square Garden as being deeply 320 00:15:26,840 --> 00:15:29,720 undervalued because of this qualitative problem with the 321 00:15:29,720 --> 00:15:32,640 ownership structure. But even after factoring that 322 00:15:32,640 --> 00:15:35,720 in, they believe the company's worth $300.00 which is roughly 323 00:15:35,720 --> 00:15:38,360 double the price it currently trades at and because of the 324 00:15:38,360 --> 00:15:40,880 deep value that it trades at already, they don't believe 325 00:15:40,880 --> 00:15:42,520 there's a lot of long term downside. 326 00:15:42,560 --> 00:15:44,760 Of course this doesn't meet my characteristics for an 327 00:15:44,760 --> 00:15:47,640 investment, but based on the value oriented investments 328 00:15:47,640 --> 00:15:49,920 they're doing, I think this is one of the best. 329 00:15:50,120 --> 00:15:53,200 The company does have prized assets that are worth a lot of 330 00:15:53,200 --> 00:15:56,680 money and if they found any way to break out that value or sell 331 00:15:56,680 --> 00:15:58,880 it off, investors are going to make a lot of money in this 332 00:15:58,880 --> 00:16:01,320 company. And #9, we have PepsiCo. 333 00:16:01,400 --> 00:16:04,080 I sold PepsiCo late last year and early this year. 334 00:16:04,400 --> 00:16:07,200 I really liked the company. I think PepsiCo is a genuine 335 00:16:07,200 --> 00:16:10,720 compounder, a great company, a strong franchise of brands, and 336 00:16:10,720 --> 00:16:12,400 I think it's going to do well in the long term. 337 00:16:12,400 --> 00:16:15,680 The ozempic effect and flagging investor interest in traditional 338 00:16:15,680 --> 00:16:19,320 consumer staples have weighed on PepsiCo stock this year, but the 339 00:16:19,320 --> 00:16:22,640 impact of the weight loss drugs on Pepsico's snack food and 340 00:16:22,640 --> 00:16:24,760 beverage franchise will likely be minimal. 341 00:16:24,760 --> 00:16:27,680 Though named for a soft drink, Pepsi has the best in class 342 00:16:27,680 --> 00:16:31,400 snack food franchise in Frito Lay, maker of Doritos, Cheetos 343 00:16:31,400 --> 00:16:34,200 and lay potato chips. Frito Lay generated more than 344 00:16:34,200 --> 00:16:37,680 half the company's profits, making Pepsi less dependent on 345 00:16:37,680 --> 00:16:40,480 sugary soda than Coca-Cola. They believe the fear of 346 00:16:40,480 --> 00:16:43,040 Ozempic's a little bit overblown and the company's going to have 347 00:16:43,040 --> 00:16:46,000 a great year next year. And like I mentioned here, 348 00:16:46,040 --> 00:16:49,720 PepsiCo is a great company. They say quote Pepsi is one of 349 00:16:49,720 --> 00:16:52,400 the most durable businesses in our coverage. 350 00:16:52,760 --> 00:16:56,360 Durable meaning they have a long standing Moat and a great growth 351 00:16:56,360 --> 00:17:00,600 path ahead with Pepsi trading at its twenty PE ratio, almost 3% 352 00:17:00,600 --> 00:17:03,280 free cash flow yield paying a 3% dividend. 353 00:17:03,560 --> 00:17:06,200 I do think that this is a company that might have a decent 354 00:17:06,200 --> 00:17:09,319 2024 and has relatively little downside. 355 00:17:09,319 --> 00:17:11,800 I don't own the stock right now, but this is a pick that I can 356 00:17:11,800 --> 00:17:15,599 get behind. I like PepsiCo for 2024 and #10. 357 00:17:15,599 --> 00:17:18,079 We have U-Haul Holdings. They say that there are few 358 00:17:18,240 --> 00:17:21,480 businesses with a stronger competitive position than U-Haul 359 00:17:21,480 --> 00:17:24,760 Holdings, which dominates the Do it yourself moving business with 360 00:17:24,760 --> 00:17:28,280 its nationwide fleet of trucks. This is a company that I have 361 00:17:28,280 --> 00:17:30,760 not looked into much and I didn't realize their dominance. 362 00:17:31,080 --> 00:17:34,440 U Haul's rivals, including Penske and Budget, are a 363 00:17:34,440 --> 00:17:37,520 fraction of its size. It's the ultimate network effect 364 00:17:37,520 --> 00:17:41,440 business given its 23,000 locations around the US and 365 00:17:41,440 --> 00:17:44,560 Canada and nearly 200,000 rental trucks. 366 00:17:44,960 --> 00:17:48,240 The $12 billion company has steadily built a sizable self 367 00:17:48,240 --> 00:17:51,920 storage business that now ranks third in the industry and it 368 00:17:51,920 --> 00:17:55,280 could be worth 8 billion alone based on comparable companies. 369 00:17:55,440 --> 00:17:56,920 I'm a bit surprised to hear that. 370 00:17:56,920 --> 00:17:59,240 But when I think about it, almost everybody that I know 371 00:17:59,240 --> 00:18:02,200 that moves does use U-Haul. Those are the ones that I always 372 00:18:02,200 --> 00:18:05,680 see and I did not realize how big their self storage business 373 00:18:05,680 --> 00:18:08,640 is, but that's incredible that it could be valued alone at $8 374 00:18:08,640 --> 00:18:10,760 billion. I like the fact that the company 375 00:18:10,760 --> 00:18:13,920 has a monopoly on the moving business and I like the fact 376 00:18:13,920 --> 00:18:16,000 that they're building out this self storage business. 377 00:18:16,240 --> 00:18:18,200 Those are two very profitable businesses. 378 00:18:18,240 --> 00:18:21,120 So in terms of U-Haul Holdings so far, I like what I see when 379 00:18:21,120 --> 00:18:23,160 we look over all 10 picks from Barron's. 380 00:18:23,160 --> 00:18:25,680 I like what they're doing with the strategy that they've 381 00:18:25,680 --> 00:18:27,680 outlined. They are buying some of the 382 00:18:27,680 --> 00:18:30,680 better picks when it comes to value oriented investing, 383 00:18:30,920 --> 00:18:34,320 meaning buying companies that are at low PE ratios, high free 384 00:18:34,320 --> 00:18:36,640 cash flow yields. These companies for the most 385 00:18:36,640 --> 00:18:41,040 part have been crushed in 2023 and are looking for a good 2024. 386 00:18:41,520 --> 00:18:44,440 Now I will say again that this is not my investing strategy. 387 00:18:44,680 --> 00:18:48,520 In essence, what Barron's is doing is sacrificing quality and 388 00:18:48,520 --> 00:18:51,880 predictability for valuation. That's a trade off I have 389 00:18:51,880 --> 00:18:54,600 decided I'm no longer making. I'm much more in line with 390 00:18:54,600 --> 00:18:57,480 Buffett's thinking of it's better to buy a wonderful 391 00:18:57,480 --> 00:19:00,560 company at a fair price than a fair company at a wonderful 392 00:19:00,560 --> 00:19:02,600 price. As for me, I'm going to continue 393 00:19:02,600 --> 00:19:05,600 trying to find those wonderful companies at fair prices. 394 00:19:05,600 --> 00:19:08,680 Now moving on, we have to mention Costco yet another time. 395 00:19:08,680 --> 00:19:11,720 I know we've been talking about Costco a lot recently, but the 396 00:19:11,720 --> 00:19:16,120 stock is up another 3% today after being up 3% a day ago. 397 00:19:16,360 --> 00:19:19,280 It's incredible the run this stock has gone on. 398 00:19:19,520 --> 00:19:22,640 It's now getting close to $700.00 per share. 399 00:19:22,720 --> 00:19:27,280 Costco's valuation has expanded up to a 42 Ford PE ratio. 400 00:19:27,360 --> 00:19:30,640 Costco is now up nearly 50% year to date. 401 00:19:30,920 --> 00:19:34,520 This is an incredible run with a huge breakout at the end of the 402 00:19:34,520 --> 00:19:36,040 year. Now, I'm not sure the reason 403 00:19:36,040 --> 00:19:39,440 that Costco's up over 3% today. Maybe investors are excited 404 00:19:39,440 --> 00:19:41,680 about the special dividend. Maybe it's the Santa Claus 405 00:19:41,680 --> 00:19:44,920 Rally, or maybe it's because the CEO went on to CNBC and talked 406 00:19:44,920 --> 00:19:47,200 about the company. Let's go ahead and dive into 407 00:19:47,200 --> 00:19:49,560 that interview and see if he says anything revealing. 408 00:19:49,840 --> 00:19:53,120 The first thing that he's asked about is the culture of Costco 409 00:19:53,280 --> 00:19:56,240 and how this company became the most profitable physical 410 00:19:56,240 --> 00:19:59,520 retailer and the one that pays their employees the most. 411 00:20:00,080 --> 00:20:03,000 Well, you know, that's been the culture of the company since the 412 00:20:03,000 --> 00:20:06,760 day one, the first day that we opened up our first building. 413 00:20:07,360 --> 00:20:10,880 And you know, you're only as good as everybody around you. 414 00:20:11,200 --> 00:20:13,200 We don't want to turn a lot of employees. 415 00:20:13,760 --> 00:20:16,480 People deserve to have good wages and good benefits. 416 00:20:16,800 --> 00:20:19,040 And as I said, we're not a margin business. 417 00:20:19,720 --> 00:20:22,840 We just want to sell a lot of stuff and that's what we do. 418 00:20:24,240 --> 00:20:26,600 I can't explain about everybody else. 419 00:20:26,840 --> 00:20:29,040 I can only say that it works for Costco. 420 00:20:29,280 --> 00:20:30,840 That's the way we run our business. 421 00:20:30,840 --> 00:20:34,040 That's the way we'll always run our business and it seems to 422 00:20:34,040 --> 00:20:36,480 work for us. He defines the incredibly 423 00:20:36,480 --> 00:20:40,120 complex and sophisticated and nuanced business model of Costco 424 00:20:40,400 --> 00:20:44,680 very clearly as we like to sell a lot of stuff and that's worked 425 00:20:44,680 --> 00:20:46,880 out well for us. I think that summarizes the 426 00:20:46,880 --> 00:20:50,240 business model really well. Costco does sell a lot of stuff. 427 00:20:50,360 --> 00:20:52,920 The next thing Craig mentions is obviously he's not going to be 428 00:20:52,920 --> 00:20:56,040 the CEO for much longer. They have a replacement and he 429 00:20:56,040 --> 00:20:58,520 mentions where this replacement came from. 430 00:20:58,560 --> 00:21:03,200 In terms of Ron, Ron's been with the company for 40 plus years. 431 00:21:03,720 --> 00:21:05,600 He's been in every position in the company. 432 00:21:05,600 --> 00:21:09,880 He's ran real estate, he's ran buying, he's ran operations, 433 00:21:10,120 --> 00:21:12,080 he's been president the last two years. 434 00:21:12,360 --> 00:21:15,720 He will take the company further in the future. 435 00:21:16,120 --> 00:21:18,880 Now he highlights the experience there, which that is great in 436 00:21:18,880 --> 00:21:21,320 and of itself, but more importantly to the future of 437 00:21:21,320 --> 00:21:23,920 Costco is the culture of the company and the focus on the 438 00:21:23,920 --> 00:21:26,640 long term. A lot of companies are way more 439 00:21:26,640 --> 00:21:29,880 focused on the short term. In fact, a lot of companies 440 00:21:29,880 --> 00:21:33,320 would hire an outside executive that would be some corporate 441 00:21:33,320 --> 00:21:36,720 suit that would come in, look at the financials of Costco and 442 00:21:36,720 --> 00:21:39,520 look at all the ways that they could squeeze out more money 443 00:21:39,520 --> 00:21:42,320 from the customers that immediately start raising the 444 00:21:42,320 --> 00:21:45,360 prices on the membership that immediately start charging more 445 00:21:45,360 --> 00:21:47,400 for their merchandise for their services. 446 00:21:47,720 --> 00:21:51,400 They would bump up the earnings in the short term and hit huge 447 00:21:51,400 --> 00:21:54,320 earnings per share numbers so that they can get their bonuses 448 00:21:54,480 --> 00:21:57,000 and over their tenure. They'll make a lot of money by 449 00:21:57,000 --> 00:22:00,360 hitting short term metrics, hire after five years and go along 450 00:22:00,360 --> 00:22:03,880 their way and not have to worry about the long term consequences 451 00:22:04,120 --> 00:22:07,800 that they set the company on. That is the worst case scenario 452 00:22:07,800 --> 00:22:11,000 for a company like Costco, having someone come in short 453 00:22:11,000 --> 00:22:14,760 term, raise prices, bump up profitability, make a lot of 454 00:22:14,760 --> 00:22:17,880 money and leave because it sets the company on a different 455 00:22:17,880 --> 00:22:20,320 culture. The fact that Costco is able to 456 00:22:20,320 --> 00:22:24,240 hire within people that have been at the company for 40 years 457 00:22:24,240 --> 00:22:27,720 and know all of the core values sets them up for long term 458 00:22:27,720 --> 00:22:30,680 success. The new CEO knows the business 459 00:22:30,680 --> 00:22:33,200 inside and out. He knows that it's a low margin 460 00:22:33,200 --> 00:22:36,320 business where everything they do is to offer the most value to 461 00:22:36,320 --> 00:22:40,440 the customer, keeping margins low, keeping prices low, keeping 462 00:22:40,440 --> 00:22:44,600 customers satisfied. And that inverse thinking of not 463 00:22:44,600 --> 00:22:48,160 focusing on short term quarterly metrics is what leads to a 464 00:22:48,160 --> 00:22:50,880 highly profitable company in the long run. 465 00:22:50,960 --> 00:22:55,080 OI see Costcos deep bench of talented individuals that have 466 00:22:55,080 --> 00:22:58,160 been with the company for a long period of time has a huge 467 00:22:58,160 --> 00:23:01,720 advantage of Costco over many other corporations in America 468 00:23:01,760 --> 00:23:03,000 now. He's also asked about some of 469 00:23:03,000 --> 00:23:06,080 the seemingly random things that Costco sells like their gold 470 00:23:06,080 --> 00:23:08,400 bars that they sold $100 million worth. 471 00:23:08,480 --> 00:23:10,440 Where does Costco come up with these ideas? 472 00:23:10,440 --> 00:23:12,360 Is it AI? Yeah, I wouldn't use. 473 00:23:12,440 --> 00:23:16,640 To go too far on artificial intelligence with us, we just we 474 00:23:16,640 --> 00:23:19,720 have creative buyers. Yes, you can see we sold a lot 475 00:23:19,720 --> 00:23:22,360 of gold. We've got a great buying group. 476 00:23:22,360 --> 00:23:25,560 We always want to make ourselves separate ourselves and be a 477 00:23:25,560 --> 00:23:27,440 little bit different from everybody else. 478 00:23:27,640 --> 00:23:32,000 That's why you pay a membership and we always turn merchandise. 479 00:23:32,000 --> 00:23:34,640 We're always looking for something exciting that we can 480 00:23:34,640 --> 00:23:37,200 create a value for. As you know, at one time we had 481 00:23:37,200 --> 00:23:42,360 caskets, we sold all sorts of great crazy things and it seems 482 00:23:42,360 --> 00:23:44,160 to work for us. I think he's spot. 483 00:23:44,160 --> 00:23:47,280 On here, a lot of people visit Costco every week or every month 484 00:23:47,280 --> 00:23:50,000 because they want to see what new crazy things Costco has. 485 00:23:50,640 --> 00:23:53,400 And a lot of the merchandise that Costco gets is designed 486 00:23:53,400 --> 00:23:57,040 specifically for Costco by their suppliers and manufacturers. 487 00:23:57,320 --> 00:23:59,800 They cultivate these great relationships that are long 488 00:23:59,800 --> 00:24:03,320 standing and the manufacturers love creating Costco items. 489 00:24:03,360 --> 00:24:06,240 The next thing he mentions is the stock price of the company. 490 00:24:06,600 --> 00:24:08,720 You know we. Do well for the company. 491 00:24:08,720 --> 00:24:11,560 We're going to continue to reward our shareholders, reward 492 00:24:11,560 --> 00:24:15,080 our employees and as you can tell the stock is also 493 00:24:15,080 --> 00:24:19,880 appreciated relatively well over the last actually four years. 494 00:24:19,880 --> 00:24:24,240 Since then we went public I think in, I want to say 495 00:24:24,240 --> 00:24:28,400 19851986. So we've grown compounded about 496 00:24:28,400 --> 00:24:31,880 1718% a year. So the stock's done well. 497 00:24:32,240 --> 00:24:34,600 We continue to generate a lot of cash. 498 00:24:35,160 --> 00:24:39,240 We, we don't do a lot with our cash other than open up more 499 00:24:39,240 --> 00:24:42,000 Costcos and give it back to our shareholders. 500 00:24:42,000 --> 00:24:45,760 So that's the way we run the business and to the extent that 501 00:24:46,360 --> 00:24:48,440 if we can reward our shareholders, we will continue 502 00:24:48,440 --> 00:24:50,000 to do so. He again talks. 503 00:24:50,000 --> 00:24:53,280 About this in a leisurely fashion like this is easy to 504 00:24:53,280 --> 00:24:57,040 accomplish. A 17% compound annual growth 505 00:24:57,040 --> 00:24:59,960 rate for over 40 years is insanely impressive. 506 00:25:00,200 --> 00:25:02,560 This is one of the best performing companies in the 507 00:25:02,560 --> 00:25:06,240 world over the past 40 years. So Costco has a recipe that 508 00:25:06,240 --> 00:25:08,240 works. And most importantly, he 509 00:25:08,240 --> 00:25:10,160 mentions that they're keeping that recipe. 510 00:25:10,600 --> 00:25:14,320 Notice how he says we just open up new warehouses and return the 511 00:25:14,320 --> 00:25:16,640 excess cash back to the shareholders. 512 00:25:16,720 --> 00:25:19,320 Their predictable use of cash flow going into their core 513 00:25:19,320 --> 00:25:22,920 business is what sustains their incredibly high returns over a 514 00:25:22,920 --> 00:25:25,240 long period of time. Costco has one of the most 515 00:25:25,240 --> 00:25:28,800 consistently high returns on capital employed of any company 516 00:25:28,800 --> 00:25:31,440 I do analysis on. The stock price is up like crazy 517 00:25:31,440 --> 00:25:34,000 over the past month, so maybe we'll have a bit of a pullback. 518 00:25:34,000 --> 00:25:36,920 I'm sure we will at some point, but this is one that I'm going 519 00:25:36,920 --> 00:25:38,200 to hang on to. Moving on. 520 00:25:38,200 --> 00:25:39,640 We have some big news about Apple. 521 00:25:39,640 --> 00:25:41,960 This is one of my larger holdings and one of my biggest 522 00:25:41,960 --> 00:25:45,960 gainers with $27,000 in gains. Apple is down a little bit today 523 00:25:45,960 --> 00:25:48,560 because the company announced that it is no longer selling its 524 00:25:48,560 --> 00:25:51,080 Apple Watch. They had a pull the Apple Watch 525 00:25:51,080 --> 00:25:53,040 from the market because of a dispute. 526 00:25:53,120 --> 00:25:55,520 The Wall Street Journal reports that Apple is halting sales of 527 00:25:55,520 --> 00:25:58,280 the smart watch in the coming days as a company prepares to 528 00:25:58,280 --> 00:26:02,000 comply with AUS import ban stemming from Federal Trade 529 00:26:02,000 --> 00:26:05,720 ruling over blood oxygen sensors on some versions of the device. 530 00:26:06,040 --> 00:26:09,240 The October ruling gave the Biden administration 60 days to 531 00:26:09,240 --> 00:26:12,160 review the decision, in which the US International Trade 532 00:26:12,160 --> 00:26:15,440 Commission found that Apple violated patents in most new 533 00:26:15,440 --> 00:26:17,560 models of the Apple Watch since 2020. 534 00:26:17,640 --> 00:26:20,840 That seems a little surprising for a company like Apple. 535 00:26:21,120 --> 00:26:24,640 This is one that would carefully inspect every existing patent 536 00:26:24,640 --> 00:26:27,640 before they release any device, so I was a little bit surprised 537 00:26:27,640 --> 00:26:29,600 to read that they violated patents. 538 00:26:29,760 --> 00:26:32,520 The patent dispute is between Apple and Massimo, and it's been 539 00:26:32,520 --> 00:26:35,840 thorny over the past few years. Massimo is well known for its 540 00:26:35,840 --> 00:26:39,080 Pulse oximeter. Massimo filed 2 separate cases, 541 00:26:39,080 --> 00:26:41,760 one with the US District Court and Central District of 542 00:26:41,760 --> 00:26:45,520 California, and a second with the ITC, claiming that Apple 543 00:26:45,520 --> 00:26:47,840 infringed on its pulse oximetry tech. 544 00:26:47,880 --> 00:26:50,640 This particular import ban is the result of the latter. 545 00:26:50,640 --> 00:26:53,440 I've highlighted many times that the reason I don't invest in 546 00:26:53,440 --> 00:26:56,560 pharmaceutical companies is because of the regulatory 547 00:26:56,560 --> 00:26:58,440 environment. It's incredibly difficult to 548 00:26:58,440 --> 00:27:01,440 bring a new drug to market. It's incredibly risky with the 549 00:27:01,440 --> 00:27:04,440 amount of lawsuits or recalls that can happen with 550 00:27:04,440 --> 00:27:07,240 pharmaceutical companies. So it makes sense that as Apple 551 00:27:07,240 --> 00:27:09,480 ventures into healthcare, they're going to run into these 552 00:27:09,480 --> 00:27:12,280 regulatory disputes. I don't believe this is a long 553 00:27:12,280 --> 00:27:15,040 term problem for the stock. This seems like a temporary 554 00:27:15,040 --> 00:27:17,240 issue now. We also got some breaking news 555 00:27:17,240 --> 00:27:20,920 that Adobe and Figma call off their $20 billion acquisition 556 00:27:21,240 --> 00:27:24,840 because of regulatory scrutiny. When I look at this, there's two 557 00:27:24,840 --> 00:27:27,720 ways to interpret it. The first one is the view that 558 00:27:27,720 --> 00:27:30,760 this deal was overpriced to begin with and Adobe is better 559 00:27:30,760 --> 00:27:33,920 off not doing it, instead returning that $20 billion to 560 00:27:33,920 --> 00:27:36,840 investors. I think that's one take and I do 561 00:27:36,840 --> 00:27:39,320 believe that that's probably better in the short term. 562 00:27:39,520 --> 00:27:42,160 But in my long term view of Adobe, I think it was better 563 00:27:42,160 --> 00:27:45,240 that they own Figma. What it does when they own Figma 564 00:27:45,240 --> 00:27:48,120 is they both get the extra revenue and the earnings that 565 00:27:48,120 --> 00:27:50,240 Figma is generating as a profitable company. 566 00:27:50,520 --> 00:27:53,400 But more importantly, they rule out a major competitor. 567 00:27:53,760 --> 00:27:57,800 Figma is growing like a weed. The company is taking over 568 00:27:57,800 --> 00:28:00,760 design studios and Adobe is having too much trouble 569 00:28:00,760 --> 00:28:03,480 competing with them. So even in the case that it 570 00:28:03,480 --> 00:28:06,080 seems like an expensive acquisition, we've known 571 00:28:06,080 --> 00:28:09,240 repeatedly throughout history that acquisitions look expensive 572 00:28:09,240 --> 00:28:11,640 in the short term. And in many cases they turn out 573 00:28:11,640 --> 00:28:14,560 to be wonderful acquisitions. You can look at the case of 574 00:28:14,560 --> 00:28:18,000 Instagram or YouTube or many other companies that these big 575 00:28:18,000 --> 00:28:20,320 tech companies have paid billions of dollars for. 576 00:28:20,320 --> 00:28:24,040 So I view this overall as a negative for the long term of 577 00:28:24,040 --> 00:28:26,520 Adobe. I think they're now set to face 578 00:28:26,520 --> 00:28:28,720 a very real competitor with Figma. 579 00:28:28,840 --> 00:28:31,440 Now finally, we have Trevor Milton receiving sentencing. 580 00:28:31,440 --> 00:28:36,160 Today, a judge sentenced Trevor Milton to four years in prison 581 00:28:36,160 --> 00:28:38,000 for defrauding investors in Nikola. 582 00:28:38,520 --> 00:28:41,160 Now, right off the bat, my initial reaction without reading 583 00:28:41,160 --> 00:28:44,320 any more of this, that seems a bit light. 584 00:28:44,600 --> 00:28:47,200 Four years in prison for the level of fraud that he 585 00:28:47,200 --> 00:28:50,680 committed, I was expecting. In fact, my prediction was going 586 00:28:50,680 --> 00:28:53,280 to be somewhere in the range of 7 to 8 years. 587 00:28:53,560 --> 00:28:56,000 That's what I was expecting. So he got roughly half of what I 588 00:28:56,000 --> 00:28:58,280 thought he would get. Now he's 41 years old. 589 00:28:58,280 --> 00:29:00,480 He was convicted on several fraud charges. 590 00:29:00,480 --> 00:29:02,960 Last year. Witness testified that he lied 591 00:29:02,960 --> 00:29:06,120 to ordinary investors about nearly every aspect of Nikola. 592 00:29:06,560 --> 00:29:09,880 This is true. He intentionally deceived the 593 00:29:09,880 --> 00:29:13,680 investor by lying about nearly every aspect of the company, 594 00:29:13,680 --> 00:29:15,920 Milton said. The company's 0 emission Truck 595 00:29:15,920 --> 00:29:18,040 prototype was drivable when it wasn't. 596 00:29:18,200 --> 00:29:20,920 He said Nikola was equipped to produce the necessary hydrogen 597 00:29:20,920 --> 00:29:23,960 to power the trucks when it wasn't, and he boasted that the 598 00:29:23,960 --> 00:29:27,440 company had a long list of sales orders, many to companies that 599 00:29:27,440 --> 00:29:29,400 didn't exist. They don't mention it in this 600 00:29:29,400 --> 00:29:32,920 little list here, but his most ridiculous con was setting up an 601 00:29:32,920 --> 00:29:36,280 entire promo of one of the trucks driving when it really 602 00:29:36,280 --> 00:29:38,360 wasn't. So why was he given such a small 603 00:29:38,360 --> 00:29:39,840 sentence? Only four years? 604 00:29:39,840 --> 00:29:43,360 For these crimes, sentencing and fraud cases can depend heavily 605 00:29:43,360 --> 00:29:45,480 on how much financial loss a defendant caused. 606 00:29:45,680 --> 00:29:48,800 In Milton's case, U.S. District Judge Edgardo Ramos was 607 00:29:48,800 --> 00:29:51,800 sorting through three very different calculations, as well 608 00:29:51,800 --> 00:29:54,840 as philosophical questions about how long is appropriate for 609 00:29:54,840 --> 00:29:57,040 first time offenders to spend behind bars. 610 00:29:57,080 --> 00:30:00,240 Prosecutors pegged the total loss caused by Milton at more 611 00:30:00,240 --> 00:30:04,240 than 660 million, which under federal sentencing guidelines 612 00:30:04,240 --> 00:30:08,000 could mean 60 years in prison. They conceded that 60 years was 613 00:30:08,000 --> 00:30:11,200 too long, but pushed for 11 years, akin to what Theronos 614 00:30:11,200 --> 00:30:14,520 founder Elizabeth Holm received a year ago for a deception about 615 00:30:14,520 --> 00:30:16,480 the blood testing company's technology. 616 00:30:16,800 --> 00:30:19,240 In the case of Holmes, I actually thought 11 years was 617 00:30:19,240 --> 00:30:21,000 appropriate. I didn't think it was way 618 00:30:21,000 --> 00:30:23,960 overboard, putting her in jail for 20 years or 30 years because 619 00:30:23,960 --> 00:30:26,360 of what she did. But it also wasn't a slap on the 620 00:30:26,360 --> 00:30:28,920 hand where it's two or three years plus you get off early 621 00:30:28,920 --> 00:30:32,080 with good behavior. So 11 years seemed fair for 622 00:30:32,080 --> 00:30:35,120 Elizabeth Holmes. Four years for Milton so far 623 00:30:35,120 --> 00:30:37,560 does not seem fair. So the prosecutors pegged the 624 00:30:37,560 --> 00:30:40,400 total loss by Milton at over $600 million. 625 00:30:40,720 --> 00:30:44,720 But the probation officials estimated that Milton caused 125 626 00:30:44,720 --> 00:30:48,640 million in losses, substantially less by the probation officials, 627 00:30:48,680 --> 00:30:51,600 the amount Nicola paid to settle an investigation by the Security 628 00:30:51,600 --> 00:30:54,600 and Exchange Commission while neither confirming nor denying 629 00:30:54,600 --> 00:30:57,200 wrongdoing. That still translates under the 630 00:30:57,200 --> 00:31:01,240 sentencing guidelines, to 17 1/2 years, though they also 631 00:31:01,240 --> 00:31:05,600 recommended 11 years. So the prosecutors and the 632 00:31:05,600 --> 00:31:09,800 probation officials both recommended 11 year sentencing 633 00:31:10,040 --> 00:31:12,800 and in either case the guidelines were much more so. 634 00:31:12,840 --> 00:31:14,960 This is way below the recommended amount. 635 00:31:15,080 --> 00:31:17,560 Milton's lawyers, in keeping with their go big spirit of 636 00:31:17,560 --> 00:31:21,200 their client, said $0.00 was a more reasonable number and asked 637 00:31:21,200 --> 00:31:23,520 the judge for no prison time at all. 638 00:31:23,600 --> 00:31:26,840 I think Milton's defense team, his lawyers should be ashamed of 639 00:31:26,840 --> 00:31:29,160 themselves. Do they have no integrity 640 00:31:29,160 --> 00:31:31,440 whatsoever? I realize that lawyers goals are 641 00:31:31,440 --> 00:31:34,760 to protect their clients and Milton does deserve an honest 642 00:31:34,760 --> 00:31:36,880 defense. But standing there next to this 643 00:31:36,880 --> 00:31:39,480 convicted criminal that intentionally duped investors 644 00:31:39,760 --> 00:31:44,480 and saying that he did $0.00 in damage and he deserves no prison 645 00:31:44,480 --> 00:31:47,200 time at all. Literally no punishment 646 00:31:47,200 --> 00:31:50,200 whatsoever. Not even a slap on the hand for 647 00:31:50,200 --> 00:31:51,960 intentionally deceiving investors. 648 00:31:52,200 --> 00:31:54,400 That is shameful from these defense attorneys. 649 00:31:54,800 --> 00:31:56,800 The fact that they can stand there and say that with a 650 00:31:56,800 --> 00:31:59,880 straight face is ridiculous. The defense attorney said that 651 00:31:59,880 --> 00:32:03,760 there is not a shred of evidence from the trial or from Trevor's 652 00:32:03,760 --> 00:32:07,400 personal life that he was motivated by spite, nastiness, 653 00:32:07,480 --> 00:32:11,000 ill will or cruelty. Trevor Milton built himself a 654 00:32:11,000 --> 00:32:15,920 mega mansion worth $32 million. He was getting rich by tricking 655 00:32:15,920 --> 00:32:17,680 other people. That is fraud. 656 00:32:17,760 --> 00:32:20,760 This is again another ridiculous statement from the defense 657 00:32:20,760 --> 00:32:23,600 attorneys. Trevor Milton may not have been 658 00:32:23,600 --> 00:32:27,480 motivated by spite or nastiness or cruelty, but he was certainly 659 00:32:27,480 --> 00:32:30,800 motivated by monies, like many criminals are. 660 00:32:31,080 --> 00:32:34,680 He was motivated by having an enormous mansion and hundreds of 661 00:32:34,680 --> 00:32:38,560 millions of dollars, and he got that money by tricking people. 662 00:32:38,800 --> 00:32:41,080 That is called fraud. That is a crime. 663 00:32:41,480 --> 00:32:44,360 They are suggesting with a straight face, that he should 664 00:32:44,360 --> 00:32:46,640 face no penalty for such behavior. 665 00:32:46,800 --> 00:32:49,560 Now, Milton's lawyers also argued that media coverage for 666 00:32:49,560 --> 00:32:52,080 his trial, including the Wall Street Journal podcast series, 667 00:32:52,240 --> 00:32:54,280 will punish Trevor for the rest of his life. 668 00:32:54,720 --> 00:32:56,400 In that one part, they are accurate. 669 00:32:56,400 --> 00:32:58,080 He's received a lot of bad publicity. 670 00:32:58,240 --> 00:33:00,760 His name is tarnished. His life is never going to be 671 00:33:00,760 --> 00:33:03,280 the same. Everyone that searches his name, 672 00:33:03,280 --> 00:33:06,800 all of his children, his family, everyone that knows him will 673 00:33:06,800 --> 00:33:09,440 know him. For a con man, someone that took 674 00:33:09,440 --> 00:33:11,800 money from someone else, and that's something that he's not 675 00:33:11,800 --> 00:33:13,120 going to be able to repair himself. 676 00:33:13,120 --> 00:33:15,760 There's a lot of information to take in with every case, and I 677 00:33:15,760 --> 00:33:19,000 think that the judge put honest effort into breaking this down 678 00:33:19,000 --> 00:33:21,520 and coming up to an appropriate sentencing. 679 00:33:21,920 --> 00:33:24,520 But I agree that this is a bit on the low side. 680 00:33:24,520 --> 00:33:27,040 I think he should have got 7 plus years. 681 00:33:27,280 --> 00:33:30,600 Sentencing him for four years for this shows that you can try 682 00:33:30,600 --> 00:33:32,360 to calm people. You can try to become an 683 00:33:32,360 --> 00:33:35,640 overnight billionaire and if you get caught you only spend a few 684 00:33:35,640 --> 00:33:37,400 years in jail. And I don't believe that's the 685 00:33:37,400 --> 00:33:39,160 message we want to send to others now. 686 00:33:39,160 --> 00:33:41,480 That's going to be it for this episode I hope you enjoyed. 687 00:33:41,480 --> 00:33:43,960 If you want to see more exclusive content, you can check 688 00:33:43,960 --> 00:33:45,880 out the Patreon and the pin comment below. 689 00:33:46,160 --> 00:33:49,120 If you want to try out Qualtrum, you can do so with a free trial. 690 00:33:49,120 --> 00:33:51,200 It is included with the Patreon membership. 691 00:33:51,600 --> 00:33:53,200 Other than that, I'll see you in the next one.