Welcome everyone. We are back and I've came back
to the destruction of tech companies, that's been the news
over the past month, we have my portfolio, I'll be giving an
update on it. This is called the story fund.
It is a, an aggressive growth Center portfolio where I invest
mostly in technology companies and cloud computing companies.
So, we'll see how that's doing and what the damage is right
now, we also have a lot of other news going on right now that I
want to comment on. We have j-pal testifying before
Congress saying that the economy no longer needs stimulus, so So
he's telling us that we're going backwards.
Now, we're not giving stimulus for kind of taking it away.
We have Goldman Sachs David costin saying that tech
companies, like, the ones in my portfolio are the most
disconnected group of stocks from the rest of the market.
Meaning, he thinks that they might still be the most
overvalued disconnected companies in the market, I'll be
sharing my thoughts on that, and we'll be watching that
interview. We have the news that cloud
companies, like the ones that I'm invested in in this
portfolio have been getting slaughtered Over the past two
months and I'll comment on that as well as the valuations of
where they sit right now, we also have news that Charlie
Munger this this guy, Charlie. Munger just not only doubled
down he kind of tripled down on Ali, Baba buying another 300,000
shares, and I'll share some thoughts on that and my updated
opinion on Ali. Baba.
And last, but not least, Taco Bell has came out with a
subscription service and I have to go over this as well because
when a company like Taco Bell comes out with a subscription
service. Service, well, that catches my
attention. So I'll be going over that as
well. So obviously we have a ton to
get into today. Let's go ahead and Jump Right In
And if you're new here, make sure to subscribe, hit the
little bell icon also. I think the thumbs up, think
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well. All of that is completely free.
Now, I also do things a little bit different than most other
YouTubers. Might be a bit of a surprise,
but we have transparency here. I don't only talk about
investments in companies and get my opinion on them, but I put my
money where my mouth is. So I Make investments in these
companies, I track them week by week and I display the results
of it on YouTube live every single week.
So if you want to see how this plays out all throughout 2022,
and how this portfolio does, I'm going to show it whether it
turns out good or bad, if it turns out bad, then I'll admit
defeat, but I'll display the results either way.
Now let's go ahead and just do a quick overview of this
portfolio. The story fund is centered
around buying high quality companies that are typically
Tech folks. Focus but not necessarily
overall. I consider them to be
world-class compounding companies with a very long
Runway of growth. So I'm not looking at this and
underwriting these companies for a three-month bump and price.
These aren't cigarette butt companies, right?
I'm not trying to extract immediate value out of them.
I'm trying to establish large positions in companies that I
think have characteristics of will compound for long durations
of time. And when I go through that, I
look at companies that I think are often really simple.
Obvious buys. Those are sometimes I think the
best companies to own Google. Being one of them, people use
Google products every single day thousands of times a day, right?
We're on them all the time. Whether it's Gmail or Google
search or Google Maps or YouTube, you know, Google Cloud
all their business stuff. That's one of my top Holdings.
It's in fact right now my top performing individual holding
Netflix is another one. This is more of a contrarian
bet. A lot of people think that
Netflix is widely overvalued. It's highly volatile, it's a
highly. Disputed stock.
I don't get as many people agreeing with me on Netflix is
Google. But I'm investing heavily in
this company as well. And I have many videos on
Netflix if you want to see my thesis on that overall.
But overall every company in this portfolio has a long
duration and I think they'll compound for a long duration of
time. So having said that, let's go
ahead and look at the return. So far of this Tech, kind of
cloud computing. Technology Center portfolio with
the S&P 500. This is what it Like the S&P 500
is in red and the story fund my portfolios in blue.
And this is what it looks like overall.
Now you can see that we were doing okay, in fact we're kind
of outperforming the S&P 500 about two or three months back
and then my portfolio fell a little bit off a cliff here,
just started to trade down incredibly quickly and it even
started to trade down lower and lower.
Right here is where it hit the low point.
This is at the end of the year, in fact, right at the beginning
of the year. Ear and then right now it's
traded up a little bit. So at nine point three, six
percent returns overall since Inception and the S&P 500 is at
22 percent returns. So given the past two months,
I've given up a lot of the gains that I've made and traded down.
And this correlates really heavily with the overall cloud
computing and technology companies.
So this isn't something where it's very specific to.
The companies that I picked, this is something where it's
been kind of, in line with this in, Higher indices overall.
Now, to give this all context, I want to look at this chart here.
This is a graph of the Enterprise Value to next. 12
months Revenue, multiples of cloud computing, companies in
particular. So this show is sense, around
2015, is the beginning of this chart to current day.
This shows, the actual Revenue, multiple of these type of
companies of cloud computing companies, which are kind of the
companies that I have in my portfolio.
They're mostly cloud computing companies in this chart,
correlates heavily with my performance.
So let's go ahead and take a look at this before. 2020, the
Enterprise Value to next, 12 months Revenue, multiple of
these type of companies averaged around 11, it was right around
10 or 11. That's what they were trading
at. That was kind of the normalized
basis that they traded around an eleven times.
Next 12 months Revenue, multiple, look what happened?
After the pandemic, like many of the technology stocks, they
traded up incredibly high at one point.
The median was At 20, 20 times next 12 months Revenue, so they
went up around 100 percent of where they were on a multiple
basis. Then right after that, they
traded down to around a 16 times, multiple still elevated
from where they historically. Our, but look what happened.
Just recently right here. This is over.
Just the past couple of months, the median multiple was at a 16
times revenue and it traded from a 16 x down to an 11 times in an
order of two months. From a 16 times, multiple to an
11. Times multiple.
Now where does where does that leave us now?
Right? Now, the eleven times multiple
is around the median of where it was pre-pandemic.
This is around the same. Multiple, in fact, it's almost
the exact same of where these companies traded at
pre-pandemic. So you have to ask yourself this
question, were these companies? A goodbye pre-pandemic right at
that multiple before, they had the huge run-up, and positive
investor sentiment where they an excellent by then or were they
just okay. That's up to you to decide.
But either way, the valuation of cloud computing companies has
improved dramatically as the prices have fallen.
Now, they are at a normalized pre-pandemic.
Multiple that stayed for three years before that.
And so I feel better buying these companies at this 11 times
multiple than paying way up at a 16 times or 20 times multiple.
I've tried to buy them at as best prices as I could
throughout this last year but it's honestly been pretty
difficult. Most of them have been at pretty
stretched multiples and now they've traded down dramatically
this drop in in multiple with the overall industry.
Also correlates with the drop in price in my portfolio.
You can see that correlation right here.
It started at the exact same time.
So I'm not saying these companies are all undervalued
right now and I wouldn't make that conclusion.
I am saying though that they are trading at a more normalized
valuation than where they were, can it continue to drop further
to a, you know, a seven times multiple or a six times?
Multiple sure. They could drop further but that
would just mean that they're trading undervalued compared to
their historic. So I think at this point, I feel
better buying these companies. Then I did over the past year
in, this is where things get really challenging as an
investor. This is where the real test
comes in. Do you have the right stomach?
The right temperament the right emotional control to be able to
do this. Type of investing is very
specific to one type of company or one type of sector.
If you wait for your sector to trade down and valuation.
Like tech companies are doing right now and then as they're
trading down, you think, man. I'm getting discouraged.
Judge and emotionally. I want to exit out of this
sector and I want to go into financials or energy or whatever
is doing well right now and trading up, you probably don't
have the right stomach or the right emotional control to be
doing this type of investing. That makes it very difficult to
make any type of gains. If you try to trade out a
sectors that are doing poorly, in to ones that have already had
a great run up, that's not the way to be doing this.
What you should be doing is as a sector, you like trades down and
value. That's when you want to buy more
of that sector. So it's Cloud companies are
trading down and tech companies are selling off.
That's actually a better time to be buying in to those type of
companies. For example, in 2020, one of the
last groups of stocks to actually recover where
financials everyone at the time hated financials.
They thought it was going to be a repeat of 2009, where
financials had to be bailed out and they're in a lot of trouble.
I looked through the financial statements, that JP Morgan and
different banks and I realized they were all fine.
So, as sentiment was terrible with these type of stocks With
financials, I bought in heavily to j.p.
Morgan and it's since been, one of my best trades.
I bought into this company. One sentiment was at Peak fair
and concern over this company. And now it's one that everyone
wants to own. So you actually want to be
buying into companies trading down not selling out of them and
buying into companies that are already traded way up.
And over the past month I can see sentiment turning so
negative towards tech companies. We have articles like this
saying, Cloud stocks are off to a brutal start to 2022 as
investors Sour on pandemics top performers.
But most of these Cloud companies are not pandemic
stocks so they're putting them in a basket.
Like these are just pandemic companies and they'll go away
when the pandemic is over. That's nonsense.
Look at Netflix. People watch Netflix before the
pandemic, it's not a pandemic stock.
Look at Adobe. Did people only start using that
during the pandemic. Look at Salesforce.
That is a company that will flourish after the pandemic.
We also have news out today that Goldman's David cost and says
The tech disconnect is the single greatest mispricing in US
Stocks. So he says that these companies
are still widely disconnected and now I want to go in and
listen to him explain this. All right, so here's a clip from
this interview with David costin.
Who is the chief us Equity strategist at Goldman Sachs you
plays a huge role and he explains he explains why these
companies were re-rated. And why he thinks that tech
companies are still widely disconnected from the rest of
the markets. So let's go ahead and listen to
this. Now very specifically the single
greatest Mispricing in the US Equity Market is between
companies that have high expected Revenue growth but low
or negative margins. On the other hand, high-growth
companies with positive or very significantly positive profit.
Margins, that Gap is adjusted dramatically in the last year.
Put some numbers numbers around that high growth Low-margin
stocks traded at 16 times Enterprise value of sales,
February of 2021, you know, 11 months later, they're trading at
seven times. So a huge derating that took
place much of that took place in the last month or so we just
looked at that chart illustrating the median, the
median valuation and that's basically what he's saying here
and largely that because as rates, increase the valuation
where the value of that future, cash flows are Somewhat Less in
a higher rate environment and that's a big issue.
And so that the gap between those two and say is the single
biggest topic of conversation with clients, you've had a huge
derating of the fast expected Revenue, growth companies that
have low margins and argument is probably that there's more to go
in that Readjustment. The relationship between these
two categories. These two, buckets of stocks are
quite still pretty close to one another and probably should be
Wider neck. So he says that there, still
might be room to go with this re-rating but they still might
trade a little bit lower. So I realized there's people,
like David costin of Goldman Sachs.
And, you know, people like Ray dalio, that are kind of looking
at them. Macroeconomics, they're looking
at interest rates and they're doing these overall median
valuations of different Industries and sectors.
And they're giving projections based on that and that's a fine
way to invest. I don't, I don't think that's a
problem. If you want to invest that way
and base it off of macroeconomics, that's The way
that I'm looking at this portfolio, whether the FED does
three. Interest rates are for interest
rates, has zero effect on my investments, in terms of which
one's I'm making in, which companies that I plan on buying,
when I look at my portfolio, my investment in Google is not
based off of interest rates as nothing to do with the
macroeconomics. It's based off of the future
growth. I think YouTube will have and
Google cloud, and their Suite of products, right Android as well.
So I'm what's called a bottom-up investor.
I'm investing with the Accompany the leadership and the overall
growth projection. I have for that company and then
I think over time that will defeat or beat out all the
macroeconomic stuff. I think that stuff can play a
short term role but over time, if these companies grow
substantially they grow their revenue.
They grow their profit margin, they grow their client base and
they grow their moat and overall, they're just bigger
more profitable companies in the future.
I think that regardless of whether interest rates are 3% or
2% or 5%, they'll come out on top.
In the end. So that's the way that I'm
looking at this. Despite all the macro news that
you're hearing right now, that's constantly in the news.
Now, moving on, I have to mention the news about, of
course, Charlie Munger and his recent, by until Ali Baba.
He doubled down on the stock and buy doubled down the math.
Checks out, the he increased his position by 99.3 2%.
Now, if I was Charlie, I would have update just a bit to get
that. Nice round 100 percent increase
but regardless he increased it by roughly.
Let's say 100. Scent.
So he literally doubled down on the stock.
This is another, you know, somewhat, shocking, thing to
some people. Why would he buy this stock?
When there's so much negative sentiment and news?
And, you know, there's all these concerns about it.
But anybody that's actually followed Charlie, Munger and
studied about him, his personality and his life would
know that this is nothing out of the ordinary.
When a fantastic world-class, fast-growing company that has a
wide moat like Ali, Baba continues to grow and flourish
overall and the price plummets 60%.
And he's already Wash on this company, he's not going to let
some news articles, scare him out of this holding.
So in my opinion, this isn't surprising.
It's in line with Charlie, Munger his entire history, his
character. What would have been surprising
to me? What would have actually?
Shocked me is not him doubling down.
It would be him selling out. That would be concerning then,
I'd think. Wow, he's really lost his mind.
He waited till a stock went down. 60% that he loved.
He got scared out of it and then he sold at a low, you know,
probably foreseeably. Hello.
So That would have been the shocking thing.
This buying more shares of a great company as it goes down.
In value is not shocking. Another thing I'd like to say
about Ali Baba and the concerns about the Chinese government and
investing with or in or alongside the Chinese
government. A lot of people have wax poetic
about how much disdain they have for the Chinese government.
And like I've said, many times, I love the u.s.
I think it's the best country in the world.
I have an American flag right there.
I'm as patriotic as it gets, but you have to be completely.
Blind. If you think that the u.s. is
economy is completely separate and not invested in an alongside
China, both of our countries need each other.
Both of us are heavily invested in each other's.
Economies we can look at someone who's here, this is widely known
that Tesla. One of the most, you know,
exciting Investments of our of our generation is heavily
invested in China. They spent two billion dollars
on a giga Factory in China. Elon Musk went there met with
their Oil and invested two billion dollars in building up
factories in China. That's a huge investment in
China. There's no other way around it.
That's a bigger investment than the one that Charlie munger's
making and total nominal terms. It's a much more substantial
investment, its multiple speaker and they also have rumors that
Tesla is working on a second Factory in China.
This is a huge growth path for Tesla.
Look at the overall Revenue that comes from China for Tesla, they
say now that Tesla's Sales have grown to nearly half the size of
the company's Us sales. So take the entire sales at
Tesla has in the u.s. their biggest Market chop that in
half. And that's how much they now
make from China. This is critical to Teslas
growth. They would not be hitting any of
their analyst, expectations, their revenue growth numbers,
their margin numbers. If they didn't have China,
they're invested in. They are heavily reliant on at
China at this point and I'm not picking on Tesla, they're not
the only one. We have Disney Disney is trying
to grow in China as As much as they can, they have a park there
that was their most ambitious park, ever.
One of the biggest ones I've ever built, they've tried to get
Disney plus there with little success, they're trying to
Market their movies, their, and their merch there.
This is a big potential growth path for Disney that they're
still seeing resistance. To we have Starbucks.
Look at the growth of Starbucks locations in China over the past
15 years. Since 2005.
It's now reached 4700 locations Starbucks is Is a partial
Chinese investment. If you're investing in
Starbucks, you're investing partially in China.
Then we can even look at Costco. Costco, of course, only has like
one location out of their 800 or so that's in China right now.
So they're not really reliant on China at this point but they're
looking at it as a potential growth path that US market for
Costco's is getting somewhat saturated.
They're looking for different areas to expand and China.
For sure is going to be one of them.
They're looking at opening up another four locations total.
In China rapidly multiplying the amount of stores they have in
China. So Costco's also going to be
heavily invested in China. And this isn't cherry-picking, I
could go through so many companies in the S&P. 500 US
based companies that have big investments in China and are at
least partially reliant on their cooperation, their government
and their revenues right there market.
So when I look at Charlie Munger and him being bullish on a
Chinese company. People act like this is so
different than what Tesla's doing and I don't see the huge
distinction. Here, I think it's different to
some extent because you're not reliant on the vi e structure if
that's your major concern, but if your overall concern is being
any W somewhat reliant on the Chinese economy or having to
deal with their government at all.
Well, if you're invested in any of these companies, you're doing
the same thing. The distinction is very small
between giving your money to a company where the executive is,
then investing in China and you directly investing in China,
either way, your money is being invested in China.
So overall, I think a lot of the Comments.
They act like it's so crazy that Charlie Munger would put money
into Ali. Baba.
I think they're unwarranted unless you're really avoiding
any type of company that has any exposure to Ali Baba.
Because overall many of them do and what he's doing.
I don't think is all that crazy. Now, having said all of that,
just because Charlie munger's investing in Ali Baba.
Does that mean it's a sure bet there's no chance of losing
money. Everyone should sell everything
they own and invest all of their money and Ali.
Baba, no, not even. Charlie Munger is doing that.
He doesn't have anywhere close to the majority of his In Ali,
Baba, I would never be comfortable selling all of my
assets and putting it in this one company.
I've said that many times I have very low exposure to it.
It's a smaller bet in my portfolio, I put ten thousand
dollars in it and that's where I'm keeping it and so far.
I'm in the red but it's starting to trade up a little bit over
the past month. And that's kind of where I'm
keeping this holding. I would never recommend putting
a huge amount of money in one single company, especially one,
that's more, volatile like Ali, Baba and Charlie Munger doesn't
No either he could be wrong. This could be a losing bet and
he understands that he probably looks at.
This is just a good bet on a company where the reward is
asymmetric, there's more chance of upside than downside, but
that doesn't mean there's no chance of down sights.
So overall, when I look at this company, I still am very
positive on it. I think has a higher likelihood
of making money than losing it, but there's always the chance of
this trade, still going south overall.
So keep that in mind when you're following bigwigs like Charlie
Munger look at his overall exposure.
And don't just buy into a company like this because
someone like, Charlie Munger is now moving on from that.
Last but not least, I have to comment on the news that Taco
Bell has launched its first ever Taco Subscription Service
Nationwide tacos as a service as they call it in the industry,
they say hello to the Taco lovers pass.
So let's go ahead and read into this.
This is from The Newsroom of Taco Bell itself, right from the
source. Let's go ahead and Jump Right In
now. Taco Bell is doing doing the
most to kick-off, 2022, then virtually any company.
I would add with the Nationwide debut of the taco lovers pass a
digital Taco subscription service that takes value to the
next level and is sure to satisfy any Taco craving.
Now that is some bold claims they want to satisfy any Taco,
craving with this subscription service available starting
today. Exclusively on the Taco Bell,
tap the taco lovers pass allows fans to redeem one of Iconic
tacos a day for 30 consecutive days at participating, u.s.
locations all for the price of $10.
And I'm sure that a strict says that it's subject to change,
right? But right now, it's ten dollars.
So let's go ahead and break this down what this means for the
future of Taco Bell. First of all, is this a
surprise? No, this isn't a surprise and I
hate to say I told you so, but I've been telling you.
So for a while, every single company, possible imaginable.
L will eventually try to initiate or include some type of
subscription service because like I've mentioned, Many Times
subscription services are the Holy Grail of business models.
Nothing beats them. I've never came across a
business model that is overall, just better economically than
subscription services. So there's some companies that
are are Naturally Fit for subscription services and those
are SAS companies software as a service.
That's been proven to be a fantastic model for those type
of companies. But now we're starting to see
Subscription Services Venture into all different type of
companies that normally you wouldn't see fit with a
subscription service, but they will try nonetheless, whether
it's Taco Bell Netflix or adobe. We're going to see every company
left, right, and Center try to become a subscription company.
We seen the transition with apple over the past five years.
It's gone from a hardware seller of selling these devices.
Can now selling Apple TV plus selling Apple Fitness selling
its Apple music subscription selling iCloud.
They're Um everything they can to sell you as many
subscriptions as possible, because inscriptions are King,
Microsoft is way ahead of the game on this.
Since around 2014. They've been moving primarily to
subscription-based and now that's the entire basis of their
company. Netflix is the other one.
Doing this, of course, spotify's the other one, doing this, we
have companies like Amazon with Amazon Prime doing this.
We have Google with YouTube premium.
Having this be a big push into subscriptions, not just adds.
So every company is trying to become a Company and it comes at
no surprise that even food companies are doing this as
well. The taco subscription is just
one of the first ones and if I have to be honest I think the
Taco Bell is probably doing the smart thing here, they're
experimenting, they're trying different things and this just
might be a big push to wear lots of companies start doing this.
If Taco Bell's able to make this work as a profitable model that
actually Spurs more business and more repeat customers.
You'll see every other food chain, try the same thing in
various Us Fashions and forms until they get the model down.
Let's go ahead and look at the actual value here.
When we break down this particular subscription, they
say that it's ten dollars for 30 consecutive days of any Taco.
I don't actually think this is necessarily that great eval you.
And I can see how this works out in Taco Bell's benefit.
First of all, just on a, an overall case, I think, if you
look at it from a basis of $10 to buy 30 tacos, that's okay
value. But it's still not that Seen
right? That's nothing like crazy.
You're spending $10 to buy 30 tacos, that might be a better
value than what they cost on an individual basis.
But in a bulk order, I don't think that's too crazy but then
when you break it down even further you can't get more than
one a day. Well college, students want to
eat more than one taco if they go to lunch.
So every time you visit, Taco Bell your ten dollars for the
month is only going to buy you one taco and then you're going
to be spending more money on drinks and more tacos.
On top of that. So they're going to get It more
business out of you because of the subscription.
This is kind of like a buy-in to go to Taco Bell for lunch every
single day, so they're going to get way more Taco sold out of
this than the 30 a month and likely students aren't going to
be going or whoever's buying. This is not going to be going
every single day without fail. They're gonna have some days
that they miss. So overall, I don't think this
is the best value. I actually think that it works
out in the benefit of Taco Bell a lot, but I think it's an
interesting play from Taco Bell and it doesn't surprise me at
all. We're going to see more of this
stuff. The future.
Now that is all for this episode.
I hope you enjoyed. Make sure to subscribe to the
channel, hit the Bell icon, and I'll catch you in the next one.