1 00:00:00,040 --> 00:00:02,480 Welcome back everyone. We have a very exciting episode 2 00:00:02,480 --> 00:00:05,320 to get into today. So much news to talk about and 3 00:00:05,320 --> 00:00:07,600 we have a market that is in decline. 4 00:00:07,600 --> 00:00:10,560 Stocks are going down. The SP500 is down big today. 5 00:00:10,560 --> 00:00:13,080 The NASDAQ is down big. The Dow Jones is down big. 6 00:00:13,120 --> 00:00:15,240 All of them are down around 1 1/2 percent. 7 00:00:15,240 --> 00:00:18,400 The Fair and Greed Index, which tracks investor sentiment has 8 00:00:18,400 --> 00:00:21,400 moved firmly into the extreme fair category. 9 00:00:21,600 --> 00:00:23,880 This is where we get investors really concerned about the 10 00:00:23,880 --> 00:00:27,920 future selling out of stocks as the 10 year treasury moves up 11 00:00:28,040 --> 00:00:31,830 and up and up, it puts weight on all other financial assets. 12 00:00:32,070 --> 00:00:35,750 This is the opportunity cost, It's the discount rate when 13 00:00:35,750 --> 00:00:37,350 you're running discounted cash flows. 14 00:00:37,590 --> 00:00:40,390 So a lot of investors are looking at this as when this 15 00:00:40,390 --> 00:00:43,550 goes up, stocks go down. But at the Joseph Carlson Show, 16 00:00:43,830 --> 00:00:46,950 we're not afraid, and I'm not afraid with any company in My 17 00:00:46,950 --> 00:00:49,320 Portfolio. In fact, I've done an entire 18 00:00:49,320 --> 00:00:52,680 review of every single stock I own, every individual one. 19 00:00:52,720 --> 00:00:55,560 And I want to give you a brief synopsis of each of those and 20 00:00:55,560 --> 00:00:58,760 why I'm not afraid with this sell off now, we also have a ton 21 00:00:58,760 --> 00:01:00,960 of news to get to. The billionaire investor Bill 22 00:01:00,960 --> 00:01:03,960 Ackman went on to Cnbc's Delivering Alpha over the 23 00:01:03,960 --> 00:01:06,920 weekend and he had a lot to share on a lot of different 24 00:01:06,920 --> 00:01:08,520 subjects. I thought things that he was 25 00:01:08,520 --> 00:01:11,840 saying about his selling out of Netflix and going into Google, 26 00:01:12,080 --> 00:01:14,240 things he was saying about changes in the economy and 27 00:01:14,240 --> 00:01:17,570 interest rates, and he also has a bet on the 10 year treasury. 28 00:01:17,890 --> 00:01:21,170 All of this was interesting, but Bill Ackman, I think out of 29 00:01:21,170 --> 00:01:24,650 everything he shared, the most interesting was what he said was 30 00:01:24,650 --> 00:01:28,730 the dynamic changes happening overall in the economy and in 31 00:01:28,730 --> 00:01:31,170 the stock market. You know, our view is really 32 00:01:31,170 --> 00:01:34,090 that we're in a different world, and, you know, the world sort of 33 00:01:34,090 --> 00:01:36,930 changes gradually, he says. We're in a different world now 34 00:01:36,930 --> 00:01:38,370 than what we were in two years ago. 35 00:01:38,660 --> 00:01:40,940 We're going to dive into what he means by that statement. 36 00:01:40,940 --> 00:01:43,340 And then finally, one of the companies that I recently bought 37 00:01:43,340 --> 00:01:45,940 into is Chipotle. Well, I've been saying for a 38 00:01:45,940 --> 00:01:48,820 while, and this was my initial thesis, was that Chipotle is 39 00:01:48,820 --> 00:01:52,660 going to be an automated company, an AI driven robotic 40 00:01:52,660 --> 00:01:56,540 technology company that happens to serve burritos. 41 00:01:56,780 --> 00:02:00,420 That was my investing thesis. A lot of people scoffed at this, 42 00:02:00,420 --> 00:02:03,580 but now we have a new press release showing the progress 43 00:02:03,580 --> 00:02:06,260 that Chipotle's making in these automated burritos. 44 00:02:06,500 --> 00:02:08,539 We're going to be looking at this more in depth in this 45 00:02:08,539 --> 00:02:10,180 episode. Now before we jump into My 46 00:02:10,180 --> 00:02:13,100 Portfolio, just a friendly reminder, today is the third day 47 00:02:13,100 --> 00:02:16,820 of the month, which means if you join the Patreon today, you'll 48 00:02:16,820 --> 00:02:20,500 get access to qualtrim.com for the entire month for free. 49 00:02:20,500 --> 00:02:23,620 You get a month long free trial. This is the website that allows 50 00:02:23,620 --> 00:02:26,180 you to type in a ticker symbol like meta for example. 51 00:02:26,340 --> 00:02:28,740 You can see all the fundamental data, you can see all the 52 00:02:28,940 --> 00:02:32,230 financial statements, news articles, you can track watch 53 00:02:32,230 --> 00:02:34,070 lists, you can input your portfolio. 54 00:02:34,270 --> 00:02:37,150 It has a lot of capabilities and we're constantly expanding the 55 00:02:37,150 --> 00:02:39,590 capabilities. If you want to trial this, you 56 00:02:39,590 --> 00:02:43,430 can trial it today for the entire month for free. 57 00:02:43,630 --> 00:02:46,750 There's no risk, it's cancel anytime and it's only $10 a 58 00:02:46,750 --> 00:02:48,230 month. And there's a link in the pink 59 00:02:48,230 --> 00:02:49,670 comment below. You can try it out. 60 00:02:49,670 --> 00:02:52,150 I think you'll love it. Now just today My Portfolio is 61 00:02:52,150 --> 00:02:55,470 down over 1%. It's down 1.48%, which is 62 00:02:55,470 --> 00:02:58,840 another $7000. This can be a bit spooky when 63 00:02:58,840 --> 00:03:00,800 you're first investing, especially if you have a large 64 00:03:00,800 --> 00:03:04,120 amount of capital invested to see it fluctuate and change 65 00:03:04,120 --> 00:03:06,880 around this much. Overall, the portfolio is still 66 00:03:06,880 --> 00:03:10,600 in the green, so we're on a good track overall, but we have given 67 00:03:10,600 --> 00:03:13,600 up a substantial amount of gains in the past one month. 68 00:03:13,600 --> 00:03:18,360 My Portfolio is down at 33,000 dollars, 6.49%. 69 00:03:18,520 --> 00:03:20,440 That's a decent amount of capital. 70 00:03:20,480 --> 00:03:22,160 And this isn't just My Portfolio. 71 00:03:22,160 --> 00:03:24,320 The overall market is going down as well. 72 00:03:24,720 --> 00:03:28,040 Today it's down over 1 1/2% and it's continued to trade down 73 00:03:28,040 --> 00:03:30,880 over the past month. In the past month, the S&P 500 74 00:03:30,880 --> 00:03:33,800 is down 6.16%. Year to date, it's still up a 75 00:03:33,800 --> 00:03:37,560 little over 10%, which is also basically in line with My 76 00:03:37,560 --> 00:03:39,600 Portfolio. If I toggle year to date, I'm up 77 00:03:39,600 --> 00:03:43,080 10.41%. My performance so far this year 78 00:03:43,080 --> 00:03:45,680 is almost identical to the S&P 500. 79 00:03:46,000 --> 00:03:50,120 Now last year in 2022, my performance of this portfolio 80 00:03:50,120 --> 00:03:54,650 was around 16% in the negative, so I was down 16%. 81 00:03:54,930 --> 00:04:01,010 The S&P 500 was down around 18%, so we outperformed it by 2%. 82 00:04:01,170 --> 00:04:03,770 We're down slightly less, which is meaningful. 83 00:04:03,850 --> 00:04:06,970 So last year, the passive income portfolio slightly outperformed 84 00:04:06,970 --> 00:04:09,610 the S&P 500. This year it's matching it. 85 00:04:09,850 --> 00:04:12,970 And my goal of course is not to just match it, but to beat the 86 00:04:12,970 --> 00:04:16,130 S&P 500. Beating it by a 2% annualized 87 00:04:16,130 --> 00:04:20,250 return means over double the money in the next 20 years. 88 00:04:20,529 --> 00:04:23,810 It literally double s your return in total over a 20 year 89 00:04:23,810 --> 00:04:26,570 period, which of course is a meaningful difference in your 90 00:04:26,570 --> 00:04:29,290 retirement. So if I can outperform it by a 91 00:04:29,290 --> 00:04:32,490 couple percentage points each year, that will accumulate to 92 00:04:32,490 --> 00:04:35,370 massive amounts of money. Now when I look at the sell off 93 00:04:35,370 --> 00:04:38,970 that's happening over the past month, I have no concerns with 94 00:04:38,970 --> 00:04:42,610 any of my individual companies. I recently went through over the 95 00:04:42,610 --> 00:04:46,850 weekend and looked at how each company of mine is doing and I 96 00:04:46,850 --> 00:04:49,730 have no concerns about them. They're all doing fantastic. 97 00:04:50,070 --> 00:04:52,550 I can go through from top to bottom and give you a quick 98 00:04:52,550 --> 00:04:55,030 synopsis. SMP Global this year will have 99 00:04:55,030 --> 00:04:58,670 the highest cash flows they've ever had, $4.3 billion. 100 00:04:58,950 --> 00:05:02,430 And the company's ecstatic about the prospects of AI and the 101 00:05:02,430 --> 00:05:05,870 growing dependence on market data, something that they serve 102 00:05:05,870 --> 00:05:08,570 to their customers. This company's in the best shape 103 00:05:08,570 --> 00:05:10,930 they've ever been. Master Card's network continues 104 00:05:10,930 --> 00:05:14,330 to expand across the globe while raising prices and while adding 105 00:05:14,330 --> 00:05:17,170 value add services. They have many things outside of 106 00:05:17,170 --> 00:05:19,570 their card network that they continue to build and Master 107 00:05:19,570 --> 00:05:23,130 Card is gaining market share against Visa every single year 108 00:05:23,130 --> 00:05:25,330 In Europe. They're doing a fantastic job in 109 00:05:25,330 --> 00:05:28,380 growing their market share and the company continues to grow at 110 00:05:28,380 --> 00:05:31,300 double digits. VG continues to collect 100% of 111 00:05:31,300 --> 00:05:34,540 rents while growing their portfolio while growing a FFO 112 00:05:34,540 --> 00:05:37,100 per share while getting their debt in better shape. 113 00:05:37,500 --> 00:05:40,460 Every single definable metric of this company's moving in the 114 00:05:40,460 --> 00:05:43,580 right direction, yet the stock price has moved down sizably. 115 00:05:43,660 --> 00:05:46,500 Microsoft is busy growing their subscription revenue while 116 00:05:46,500 --> 00:05:49,340 intertwining AI into every single thing they develop. 117 00:05:49,700 --> 00:05:51,780 The company's in the best shape they've ever been in. 118 00:05:51,780 --> 00:05:55,020 Costco's the only company My Portfolio that's actually gained 119 00:05:55,020 --> 00:05:57,330 over the past month. Let's go ahead and filter this 120 00:05:57,330 --> 00:06:01,170 by the past one month. This company's up 4% over the 121 00:06:01,170 --> 00:06:03,770 past month while the markets down 6%. 122 00:06:03,850 --> 00:06:06,610 Costco recently posted their earnings, they beat on the top 123 00:06:06,610 --> 00:06:09,970 and bottom line, and they proved once again why they're a growing 124 00:06:09,970 --> 00:06:13,210 cash flow machine. Apple was mocked for coming out 125 00:06:13,210 --> 00:06:15,770 with a phone that was very similar to previous year's 126 00:06:15,770 --> 00:06:18,530 versions, but Apple's doing what Apple does best. 127 00:06:18,610 --> 00:06:21,170 They come out with good devices, and although there's no 128 00:06:21,170 --> 00:06:24,130 spectacular change in this year's version to previous 129 00:06:24,130 --> 00:06:27,130 years, this nice iterative improvement is enough to keep 130 00:06:27,130 --> 00:06:29,570 their very loyal customer base happy. 131 00:06:29,890 --> 00:06:32,490 I continue to believe that Apple has one of the biggest moats in 132 00:06:32,490 --> 00:06:34,610 the market. Intuit, to most investors, is 133 00:06:34,610 --> 00:06:37,290 one of the most boring and mundane companies in the market. 134 00:06:37,530 --> 00:06:40,370 I see it differently. Intuit is quietly performing a 135 00:06:40,370 --> 00:06:43,750 full frontal software assault, developing finance software in 136 00:06:43,750 --> 00:06:46,470 five different verticals, competing fiercely with smaller 137 00:06:46,470 --> 00:06:49,590 firms and integrating AI into all of their products into it 138 00:06:49,590 --> 00:06:52,070 will also have record high cash flows this year. 139 00:06:52,070 --> 00:06:54,710 Texas Roadhouse is running the same old business they've always 140 00:06:54,710 --> 00:06:58,070 had except they're taking market share from Darden Restaurant, 141 00:06:58,070 --> 00:07:01,590 Chili's and Cracker Barrel. They have a better recipe, they 142 00:07:01,590 --> 00:07:03,990 have better value proposition, they have a better environment 143 00:07:03,990 --> 00:07:06,230 in the restaurant and they have better management. 144 00:07:06,470 --> 00:07:09,740 So as they continue to out execute their competitors, they 145 00:07:09,740 --> 00:07:11,420 continue to grow to all time highs. 146 00:07:11,540 --> 00:07:14,460 Chipotle continues to open up new restaurants every single day 147 00:07:14,460 --> 00:07:16,380 without skipping a beat. And they're continuing to 148 00:07:16,380 --> 00:07:19,700 increase margins by integrating robotics into their business. 149 00:07:19,700 --> 00:07:22,860 Finally, we have Canadian Pacific and Union Pacific, the 2 150 00:07:22,860 --> 00:07:25,020 railroad freight companies. Both of these companies are 151 00:07:25,020 --> 00:07:27,220 improving efficiencies and cash flows. 152 00:07:27,300 --> 00:07:29,900 Now that's what I see when I look at each of my companies on 153 00:07:29,900 --> 00:07:33,500 an individual basis, even though the market might play games with 154 00:07:33,500 --> 00:07:35,460 your head. And when we filter by the one 155 00:07:35,460 --> 00:07:39,730 month, it's down almost 7%, almost every single company 156 00:07:39,730 --> 00:07:42,290 aside from Costco's in the red over the past month. 157 00:07:42,650 --> 00:07:45,650 This can be difficult and it can pressure you into believing 158 00:07:45,650 --> 00:07:48,170 things you shouldn't. When I carefully inspect the 159 00:07:48,170 --> 00:07:51,250 fundamentals of every single company, I come to the same 160 00:07:51,250 --> 00:07:53,850 conclusion. These are great businesses that 161 00:07:53,850 --> 00:07:56,810 are not struggling, that are in fact moving in a very positive 162 00:07:56,810 --> 00:07:58,730 direction. They're growing their earnings 163 00:07:58,730 --> 00:08:01,690 per share, their free cash flow per share and their market 164 00:08:01,690 --> 00:08:03,490 share. These are companies that have 165 00:08:03,490 --> 00:08:07,030 incredible leaders that want the companies to grow, and each of 166 00:08:07,030 --> 00:08:10,190 these companies have a relatively strong brand value or 167 00:08:10,190 --> 00:08:13,430 very dominant market position. In no case could I find a 168 00:08:13,430 --> 00:08:16,750 company in My Portfolio that I was genuinely worried about. 169 00:08:17,070 --> 00:08:19,390 There's none that I'm really concerned about the longterm 170 00:08:19,390 --> 00:08:21,990 future. So when I look at this, even 171 00:08:21,990 --> 00:08:24,710 though they're trading down temporarily over the past month, 172 00:08:25,030 --> 00:08:28,910 I have no concerns over their longterm trajectory right now. 173 00:08:29,430 --> 00:08:32,870 Now, if you're in a situation where you have a portfolio and a 174 00:08:32,870 --> 00:08:35,390 number of your companies are moving in the wrong direction, 175 00:08:35,429 --> 00:08:38,429 fundamentally speaking, their earnings per share declining, 176 00:08:38,429 --> 00:08:41,230 their cash flows are going down, the leadership's a mess. 177 00:08:41,590 --> 00:08:43,909 That's a different case and a different scenario. 178 00:08:43,950 --> 00:08:46,110 That's not what I'm dealing with right here. 179 00:08:46,470 --> 00:08:49,350 And in most cases, when I hold companies and their 180 00:08:49,350 --> 00:08:52,710 fundamentals, the actual company goes in the wrong direction. 181 00:08:53,150 --> 00:08:56,070 I typically sell those and move on to better companies. 182 00:08:56,460 --> 00:09:01,020 I try to have an Allstar team where every single player, every 183 00:09:01,020 --> 00:09:05,060 player on the team is an Allstar, all contributing as 184 00:09:05,060 --> 00:09:07,700 best they can. There is no room for B Terr 185 00:09:07,700 --> 00:09:09,580 players. There is no room for the D 186 00:09:09,580 --> 00:09:11,660 league. I have 11 companies on this team 187 00:09:11,700 --> 00:09:13,820 and there's no tolerance for companies with poor 188 00:09:13,820 --> 00:09:16,260 fundamentals. So as soon as a company starts 189 00:09:16,260 --> 00:09:19,220 moving in the wrong direction, fundamentally speaking, and I 190 00:09:19,220 --> 00:09:22,140 don't have any reason to believe it will improve, that's a 191 00:09:22,140 --> 00:09:24,420 company that I'm going to sell and buy a new one. 192 00:09:24,960 --> 00:09:27,360 But as of now, I have no intention of selling any of 193 00:09:27,360 --> 00:09:29,200 these companies. I believe they're Allstar 194 00:09:29,200 --> 00:09:31,000 players. Now moving on, let's jump into 195 00:09:31,000 --> 00:09:33,880 this interview with Bill Ackman. He went on to Cnbc's Delivering 196 00:09:33,880 --> 00:09:35,560 Alpha. He had a long format to 197 00:09:35,560 --> 00:09:37,280 interview. And I want to highlight just a 198 00:09:37,280 --> 00:09:39,720 couple portions of this that I think are the most meaningful. 199 00:09:40,000 --> 00:09:44,560 First of all is Bill Ackman's view on the overall macro. 200 00:09:44,760 --> 00:09:47,000 And if you're not familiar with Bill Ackman, I think he's a 201 00:09:47,000 --> 00:09:49,240 great investor. He's actually beat the market 202 00:09:49,440 --> 00:09:51,880 for two decades, which is something a lot of hedge fund 203 00:09:51,880 --> 00:09:55,890 managers can't claim. And he doesn't only do really 204 00:09:55,890 --> 00:09:58,130 good fundamental analysis on different companies. 205 00:09:58,130 --> 00:10:00,890 So he does deep dives on companies like Lowe's or Netflix 206 00:10:00,890 --> 00:10:03,010 or Google. He comes out with great research 207 00:10:03,010 --> 00:10:05,890 on these companies, which I always love reading from him and 208 00:10:05,890 --> 00:10:08,650 his team. But he's also a macro guy. 209 00:10:08,810 --> 00:10:10,850 He's a lot more of a macro guy than I am. 210 00:10:11,090 --> 00:10:15,010 And by that I mean he will place bets on the overall market going 211 00:10:15,010 --> 00:10:17,170 down or up. He'll place short bets. 212 00:10:17,170 --> 00:10:19,610 He'll short different instruments as part of a hedge. 213 00:10:19,970 --> 00:10:22,890 And he does this type of macro strategy that I don't 214 00:10:22,890 --> 00:10:24,890 participate in. But even though I don't 215 00:10:24,890 --> 00:10:28,530 participate directly in macro strategies, I like observing his 216 00:10:28,530 --> 00:10:31,770 thoughts from the sideline and a way to gauge where I think the 217 00:10:31,770 --> 00:10:34,610 economy might go or what type of bets he's making. 218 00:10:34,980 --> 00:10:37,260 And he talks about one of these macro bets here. 219 00:10:37,460 --> 00:10:40,460 Here's how he views both the federal funds rate and 220 00:10:40,460 --> 00:10:42,380 inflation. You know, again, my view is 221 00:10:42,380 --> 00:10:44,780 inflation, or the kind of the house view is inflation is going 222 00:10:44,780 --> 00:10:46,460 to be persistently higher. Oh, you are the house. 223 00:10:46,620 --> 00:10:50,100 But I guess I control the door on the way in. 224 00:10:50,380 --> 00:10:52,700 His first macro view is that inflation is going to be 225 00:10:52,700 --> 00:10:55,420 persistently higher than what our recent memory is. 226 00:10:55,780 --> 00:10:59,860 If you're around my age, in your late 20s or early 30s, your view 227 00:10:59,860 --> 00:11:02,700 of inflation is that it's always seemingly low. 228 00:11:02,940 --> 00:11:07,710 In fact, the Fed had a difficult time getting inflation up to 2%. 229 00:11:07,910 --> 00:11:10,230 They're always concerned about getting it up to 2%. 230 00:11:10,550 --> 00:11:13,070 Now they want to get inflation down to 2%. 231 00:11:13,390 --> 00:11:15,790 And Bill Ackman believes it's going to be difficult to get 232 00:11:15,790 --> 00:11:19,390 inflation back down to 2%. It's going to be persistently 233 00:11:19,390 --> 00:11:24,470 higher at 4% or 5%. Now, this is Bill Ackman's view, 234 00:11:24,790 --> 00:11:28,310 and there's one notable person that disagrees with him on this 235 00:11:28,310 --> 00:11:31,270 view. That is the CEO of Costco. 236 00:11:31,310 --> 00:11:34,010 Costco just had their earnings report a few days ago and even 237 00:11:34,010 --> 00:11:36,290 though Costco's earnings report's not the most exciting, 238 00:11:36,490 --> 00:11:39,210 I still read through the report and I read through the earnings 239 00:11:39,210 --> 00:11:41,090 call transcript. And one part that caught my 240 00:11:41,090 --> 00:11:43,530 attention was Costco's view on inflation. 241 00:11:44,010 --> 00:11:46,970 Costco doesn't believe inflation is going up, they believe it's 242 00:11:46,970 --> 00:11:50,610 going down, they said quote. Lastly, a couple of comments 243 00:11:50,610 --> 00:11:54,610 regarding inflation. Most recently in Q3 of 2023, we 244 00:11:54,610 --> 00:11:58,050 had estimated that our year over year inflation was in the three 245 00:11:58,050 --> 00:12:02,480 to 4% range. Our estimate for Q4 inflation is 246 00:12:02,480 --> 00:12:06,760 in the 1 to 2% range and it's actually trended downward during 247 00:12:06,760 --> 00:12:09,080 the quarter. So hopefully these inflation 248 00:12:09,080 --> 00:12:12,440 trends will continue. We'll have to see Costco saying 249 00:12:12,440 --> 00:12:17,960 that their inflation estimate for Q4 of this year is 1 to 2%. 250 00:12:18,520 --> 00:12:20,880 Now that really caught my attention here. 251 00:12:20,880 --> 00:12:23,560 We're hearing that inflation is going to be persistently higher 252 00:12:23,560 --> 00:12:26,560 by Bill Ackman, but Costco's saying it's going to be below 253 00:12:26,560 --> 00:12:28,960 2%. So there is some disagreement on 254 00:12:28,960 --> 00:12:30,560 this topic. Bill Ackman's view that 255 00:12:30,560 --> 00:12:32,920 inflation is going to be persistently higher, leading to 256 00:12:32,920 --> 00:12:36,000 higher interest rates, higher Fed funds rate, higher ten year 257 00:12:36,000 --> 00:12:39,920 Treasury or Costco's view that inflation's headed downwards. 258 00:12:39,960 --> 00:12:42,240 But now Bill Ackman moves on to explain that we're in an 259 00:12:42,240 --> 00:12:45,760 entirely different environment, and investors might still be 260 00:12:45,760 --> 00:12:48,240 anchored to an environment that no longer exists. 261 00:12:49,260 --> 00:12:52,300 You know our our view is really that we're in a different world 262 00:12:52,380 --> 00:12:56,300 and you know the world sort of changes gradually and and you 263 00:12:56,300 --> 00:12:59,100 have a generation of people are used to rates you know for 264 00:12:59,100 --> 00:13:01,740 sounding like a high interest rate and and it's you know on a 265 00:13:01,740 --> 00:13:04,540 historical basis it's extremely low rate of interest. 266 00:13:04,540 --> 00:13:07,860 So I I would not be shocked to see you know 30 year rates well 267 00:13:07,860 --> 00:13:11,620 you know well into the you know through the five barrier and you 268 00:13:11,620 --> 00:13:14,660 could see 10 the 10 year approach approach 5. 269 00:13:15,340 --> 00:13:18,060 Jamie, that can happen in the very short term like like 270 00:13:18,060 --> 00:13:21,620 literally weeks, huge move in the last number of weeks. 271 00:13:21,620 --> 00:13:24,860 And I think a lot of that is investors kind of rethinking. 272 00:13:25,100 --> 00:13:27,180 You know what's interesting about the 30 year treasury is 273 00:13:27,180 --> 00:13:31,020 people reflexively buy it whenever they, you know, because 274 00:13:31,020 --> 00:13:33,780 they've made money doing it in advance of a recession. 275 00:13:33,780 --> 00:13:36,460 But it's really not an instrument you should use to 276 00:13:36,460 --> 00:13:38,940 speculate on the short term economy. 277 00:13:38,940 --> 00:13:41,740 It's it's a fixed price contract with the US government for 30 278 00:13:41,740 --> 00:13:44,650 years. And reflects really structural 279 00:13:44,730 --> 00:13:47,370 forces and I think the structural forces have changed. 280 00:13:47,690 --> 00:13:50,730 Bill Ackman's view is that the 10 year treasury will continue 281 00:13:50,730 --> 00:13:52,970 to go up. He is short the 10 year 282 00:13:52,970 --> 00:13:55,290 treasury. So he's putting money behind his 283 00:13:55,290 --> 00:13:57,890 words which I appreciate. This isn't just a call from the 284 00:13:57,890 --> 00:13:59,610 sidelines. He actually has a bet that the 285 00:13:59,610 --> 00:14:02,610 10 year treasury yield will continue to increase and so far 286 00:14:02,610 --> 00:14:04,770 Bill Ackman is feeling pretty smart right now. 287 00:14:04,770 --> 00:14:07,930 He looks pretty smart right now. The 10 year treasury is 288 00:14:07,930 --> 00:14:10,090 increasing almost every single day. 289 00:14:10,400 --> 00:14:12,680 He said that it could go up substantially in the coming 290 00:14:12,680 --> 00:14:16,000 weeks and it has gone up substantially in the past month 291 00:14:16,000 --> 00:14:18,320 where he's been short the 10 year treasury. 292 00:14:18,640 --> 00:14:22,600 So this has been a macro call from Bill Ackman and one of many 293 00:14:22,600 --> 00:14:24,920 that's been successful over the past three years. 294 00:14:24,920 --> 00:14:27,360 Bill Ackman has nailed the macro calls. 295 00:14:27,520 --> 00:14:30,360 He's really been successful in them and this 10 year Treasury 296 00:14:30,360 --> 00:14:33,520 bet that he continues to hold continues to play out. 297 00:14:33,520 --> 00:14:36,240 And his arguments for the 10 year treasury moving up is a 298 00:14:36,240 --> 00:14:39,090 solid argument. It's not just the fact that 299 00:14:39,090 --> 00:14:42,090 inflation is difficult to get under control that's one 300 00:14:42,090 --> 00:14:43,930 influence over the 10 year treasury. 301 00:14:44,290 --> 00:14:46,970 But he also says that China's selling our debt. 302 00:14:47,050 --> 00:14:50,330 If foreign countries like China that used to be massive buyers 303 00:14:50,330 --> 00:14:53,490 of our debt are now selling, that's another downward pressure 304 00:14:53,490 --> 00:14:56,330 on the 10 year treasury, causing the yield to go up. 305 00:14:56,330 --> 00:14:59,050 But while Bill Ackman is shorting the 10 year Treasury, 306 00:14:59,410 --> 00:15:02,890 he's also long a number of stocks, including ones like 307 00:15:03,090 --> 00:15:06,170 Google, ones like Universal Music Group, ones like Burger 308 00:15:06,170 --> 00:15:08,890 King with quality restaurant brands, the majority of his 309 00:15:08,890 --> 00:15:10,970 portfolios, and long positions on stocks. 310 00:15:10,970 --> 00:15:13,010 And he explains how this makes sense. 311 00:15:13,130 --> 00:15:14,770 Now, how could you have a positive view of stocks? 312 00:15:14,770 --> 00:15:16,650 If you think that that's the outcome for bonds. 313 00:15:16,970 --> 00:15:21,730 Yields because if you own high quality, key is owning 314 00:15:21,730 --> 00:15:23,010 businesses that have pricing power. 315 00:15:23,930 --> 00:15:26,970 Businesses that can do well in a world of, and by the way, many 316 00:15:26,970 --> 00:15:29,370 businesses can do well in a world of 3% inflation. 317 00:15:29,850 --> 00:15:32,450 The key is it's hard to manage a business in a world where 318 00:15:32,450 --> 00:15:36,370 inflation is volatile or or inflation is 8% or, you know, 319 00:15:36,370 --> 00:15:39,530 the kind of crazy numbers. But many, many businesses can do 320 00:15:39,530 --> 00:15:41,650 very well in a world of 3% inflation. 321 00:15:41,650 --> 00:15:44,810 And the kind of companies we own, they're very much like 322 00:15:44,810 --> 00:15:47,810 royalties, you know, So we own Universal Music, which is a 323 00:15:47,810 --> 00:15:50,210 royalty on listening to music. If there's playing music playing 324 00:15:50,210 --> 00:15:53,010 out there, Universal is getting a fraction of a penny for every 325 00:15:53,010 --> 00:15:55,450 song. You know that's being streamed. 326 00:15:56,850 --> 00:16:00,770 Google, Google's a royalty if you will, on people advertising, 327 00:16:00,970 --> 00:16:03,490 you know on the web, right, or or on YouTube. 328 00:16:03,810 --> 00:16:07,130 Restaurant Brands is a royalty on people eating at Burger King 329 00:16:07,130 --> 00:16:09,690 or any of their various concepts. 330 00:16:10,130 --> 00:16:12,970 Hilton is a a continuing, you know, royalty on people staying 331 00:16:12,970 --> 00:16:16,730 in hotels and and and eating and drinking and going to events. 332 00:16:17,010 --> 00:16:19,850 The beauty of these kinds of businesses is. 333 00:16:20,380 --> 00:16:23,300 You know actually inflation is ultimately their friend, right, 334 00:16:23,300 --> 00:16:25,460 as long as they can keep their costs, as long as their costs 335 00:16:25,460 --> 00:16:28,300 don't inflate as quickly as their as the revenues and I 336 00:16:28,300 --> 00:16:31,780 think the nature of those. So, so I feel comfortable owning 337 00:16:31,780 --> 00:16:35,260 those kinds of businesses even if inflation remains high. 338 00:16:35,260 --> 00:16:38,460 And it's interesting that even though stock prices have traded 339 00:16:38,460 --> 00:16:41,420 down over the past month, even though he has a view that the 10 340 00:16:41,420 --> 00:16:44,470 year treasury is going up and inflation will remain high, even 341 00:16:44,470 --> 00:16:47,550 with all of these traditionally extremely negative views on 342 00:16:47,550 --> 00:16:50,430 stocks, he is not concerned whatsoever about his individual 343 00:16:50,430 --> 00:16:53,310 holdings because he understands the type of companies he owns 344 00:16:53,710 --> 00:16:57,670 and he calls them companies where inflation is their friend. 345 00:16:57,870 --> 00:17:00,310 Another way of saying that is that they're a hedge against 346 00:17:00,310 --> 00:17:02,550 inflation. These companies don't have a 347 00:17:02,550 --> 00:17:06,069 problem when inflation is high. Consider the fact that inflation 348 00:17:06,069 --> 00:17:09,589 means the prices of goods and products go up overtime. 349 00:17:09,990 --> 00:17:11,829 Costco sells those goods or products. 350 00:17:11,990 --> 00:17:15,650 Costco simply passes along those inflationary prices onto their 351 00:17:15,650 --> 00:17:19,130 customer and continue to shave off a little bit on the top with 352 00:17:19,130 --> 00:17:22,290 their membership fee. Inflation will not impact 353 00:17:22,290 --> 00:17:25,089 Costco's business in any meaningful way, and that's the 354 00:17:25,089 --> 00:17:28,250 same with each type of company. Blackman describes them as 355 00:17:28,250 --> 00:17:31,450 royalties on different markets, meaning that if those markets 356 00:17:31,450 --> 00:17:34,650 become more expensive, the royalty fee will go up. 357 00:17:34,650 --> 00:17:38,490 And P Global has a royalty fee over data feeds and rating debt. 358 00:17:38,850 --> 00:17:40,570 As those markets grow, they grow. 359 00:17:40,570 --> 00:17:43,250 As a consequence, MasterCard is one of the most literal hedges 360 00:17:43,250 --> 00:17:45,770 against inflation because inflation means higher priced 361 00:17:45,770 --> 00:17:49,210 goods and services and MasterCard charges a percentage 362 00:17:49,210 --> 00:17:52,050 fee. If inflation raised up to 10%, 363 00:17:52,290 --> 00:17:55,610 MasterCard would earn an incremental 10% revenue. 364 00:17:55,610 --> 00:17:59,490 Intuit is also a royalty fee on small businesses and tax 365 00:17:59,490 --> 00:18:01,690 preparation and personal finance. 366 00:18:01,730 --> 00:18:03,570 So I again agree with Bill Ackman here. 367 00:18:03,870 --> 00:18:06,630 He focuses on the type of businesses he owns, ones that 368 00:18:06,630 --> 00:18:09,950 can inflate the price of their products faster than they can 369 00:18:09,950 --> 00:18:12,950 inflate their input costs. Those are businesses that 370 00:18:12,950 --> 00:18:14,670 naturally do well with inflation. 371 00:18:14,670 --> 00:18:17,910 They're friends with inflation. The type of businesses to avoid 372 00:18:18,190 --> 00:18:22,150 are ones that have high variable input costs, and their products 373 00:18:22,150 --> 00:18:24,630 and services that they have are very fixed. 374 00:18:24,910 --> 00:18:27,470 Those ones are much more difficult to deal with in these 375 00:18:27,470 --> 00:18:30,400 type of environments, and typically they'll underperform. 376 00:18:30,560 --> 00:18:34,480 Owning those kinds of businesses even if inflation remains high 377 00:18:34,480 --> 00:18:39,160 and and also again historically if you think about you know what 378 00:18:39,160 --> 00:18:41,320 is the value of business, the present value of the cash you 379 00:18:41,320 --> 00:18:43,640 can take out of it over its life discounted back an appropriate 380 00:18:43,640 --> 00:18:45,640 interest rate. We were not discounting 381 00:18:45,640 --> 00:18:49,840 businesses back using 2% as an appropriate of interest. 382 00:18:49,840 --> 00:18:53,120 So we've historically, you know our discount rate we've used you 383 00:18:53,120 --> 00:18:56,960 know just rough measure is more like 10%, nine percent, you know 384 00:18:56,960 --> 00:18:59,480 numbers which. Discount the uncertainty 385 00:18:59,480 --> 00:19:00,880 inherent of investing in equities. 386 00:19:01,000 --> 00:19:03,640 What he describes there is a margin of safety. 387 00:19:03,640 --> 00:19:05,600 I view margin of safety in two ways. 388 00:19:05,600 --> 00:19:07,840 There's the business model where you have to have a business 389 00:19:07,840 --> 00:19:10,240 model that's resilient, that can go through different 390 00:19:10,240 --> 00:19:11,960 environments. And then there's a margin of 391 00:19:11,960 --> 00:19:15,280 safety also with the price you pay for the asset you're buying. 392 00:19:15,640 --> 00:19:18,640 In both of those cases, you have to have a margin of safety. 393 00:19:18,800 --> 00:19:22,160 Now next we move on to the subject of Bill Ackman selling 394 00:19:22,160 --> 00:19:24,360 out of Netflix and buying Google. 395 00:19:24,870 --> 00:19:26,990 Now. In terms of disclaimers here, I 396 00:19:26,990 --> 00:19:31,150 own both a large position in Google and a large position in 397 00:19:31,150 --> 00:19:33,390 Netflix. I think both of these companies 398 00:19:33,430 --> 00:19:36,510 are incredibly powerful companies that have great 399 00:19:36,510 --> 00:19:38,750 business models that have very bright futures. 400 00:19:38,990 --> 00:19:41,790 Bill Ackman had bought into Netflix on a big dip. 401 00:19:41,910 --> 00:19:45,390 It had already sold off a lot and the problem was they were 402 00:19:45,390 --> 00:19:47,430 losing subscribers for a couple quarters. 403 00:19:47,510 --> 00:19:49,190 So I'll put a timeline of events here. 404 00:19:49,470 --> 00:19:53,270 He bought into the company around $360.00 per share. 405 00:19:53,650 --> 00:19:57,890 And this was early 2022 after the first report where Netflix 406 00:19:57,890 --> 00:20:00,450 really dropped. And then he held the company for 407 00:20:00,450 --> 00:20:02,970 three months. Netflix had that second earnings 408 00:20:02,970 --> 00:20:04,930 report, which was another disappointing one. 409 00:20:05,090 --> 00:20:09,210 They lost even more subscribers, the stock dropped another 20% 410 00:20:09,450 --> 00:20:12,130 and then Ackman immediately sold out of his holding. 411 00:20:12,570 --> 00:20:17,290 That's the timeline now. A lot of investors overhyped how 412 00:20:17,290 --> 00:20:19,690 bad this earnings report, and I believe Bill Ackman does the 413 00:20:19,690 --> 00:20:23,170 same thing here. These substantial declines in 414 00:20:23,170 --> 00:20:28,410 stock price were the result of a combined loss of 1.5 million 415 00:20:28,410 --> 00:20:32,690 subscribers 1.5. Now to put this in perspective 416 00:20:32,690 --> 00:20:35,130 because the numbers get a little bit hazy here and a lot of 417 00:20:35,130 --> 00:20:38,010 people again exaggerate the failure of Netflix here. 418 00:20:38,450 --> 00:20:43,330 This massive sell off of 70% decline combined was the result 419 00:20:43,610 --> 00:20:47,050 of 1.5 million subscribers, which if you look at that in 420 00:20:47,050 --> 00:20:50,090 comparison to their overall subscriber base at the time of 421 00:20:50,090 --> 00:20:54,650 the sell off was only .6% of their total subscribers. 422 00:20:55,090 --> 00:21:00,450 So this entire massive 70% sell off in Netflix was because of 423 00:21:00,450 --> 00:21:03,690 losing a little over half a percent of their customer base 424 00:21:03,930 --> 00:21:06,170 in two quarters. That was it. 425 00:21:06,570 --> 00:21:09,330 So Ackman looked at this is a very negative thing. 426 00:21:09,330 --> 00:21:11,090 He was very concerned about the company. 427 00:21:11,410 --> 00:21:14,790 I held Netflix at the same time period and when I was looking at 428 00:21:14,790 --> 00:21:18,070 the data and the fact that they are only losing a tiny amount of 429 00:21:18,070 --> 00:21:21,390 subscribers overall and less than 1% of their total 430 00:21:21,390 --> 00:21:23,910 subscriber base, I didn't consider it to be as big of a 431 00:21:23,910 --> 00:21:25,830 problem. I thought this was a temporary 432 00:21:25,830 --> 00:21:28,510 pull forward and demand for Netflix because they just got 433 00:21:28,510 --> 00:21:31,270 out of COVID and gained 20 million subscribers in a single 434 00:21:31,270 --> 00:21:33,230 quarter. So it made sense that they'd 435 00:21:33,230 --> 00:21:37,910 lose a little bit of subscribers in the coming years and .6% out 436 00:21:38,190 --> 00:21:42,040 of 220 million is not enough for me to get concerned about. 437 00:21:42,040 --> 00:21:44,720 But Bill Ackman became very concerned at this time period 438 00:21:44,720 --> 00:21:46,280 along with the rest of the market. 439 00:21:46,600 --> 00:21:49,480 It was almost like there is no price too low for Netflix. 440 00:21:49,760 --> 00:21:54,800 He sold out of the company near rock bottom, losing $300 million 441 00:21:54,800 --> 00:21:58,560 in a three month period and Harris's explanation of why he 442 00:21:58,560 --> 00:22:00,840 sold. Once they announced basically a 443 00:22:00,840 --> 00:22:04,720 different strategy, it became a much more disparate outcome. 444 00:22:04,840 --> 00:22:06,480 We still thought they would be successful, wrote a little 445 00:22:06,480 --> 00:22:08,440 letter to our investors. Look, we think Netflix is going 446 00:22:08,440 --> 00:22:09,560 to be a great investment overtime. 447 00:22:10,080 --> 00:22:13,480 But in terms of do we want it to be one of eight things we own or 448 00:22:13,480 --> 00:22:17,480 one of 10 things we own, No, because the it's kind of the the 449 00:22:17,480 --> 00:22:21,400 range of outcomes as a result of the sort of change in strategy 450 00:22:21,400 --> 00:22:25,200 going to an advertising model etcetera and predicting the 451 00:22:25,200 --> 00:22:28,520 probability that of the success of that was a different kind of 452 00:22:28,520 --> 00:22:31,800 hurdle for us to climb. So it's sort of the facts change 453 00:22:31,800 --> 00:22:34,200 in a meaningful way became a different kind of investment. 454 00:22:34,520 --> 00:22:37,800 We have whatever 1670% of our capital and. 455 00:22:38,370 --> 00:22:40,770 And Google, you know these are businesses we feel very 456 00:22:40,770 --> 00:22:43,010 comfortable. We can sleep at night and have a 457 00:22:43,010 --> 00:22:45,170 very high confidence level what they look like over a long 458 00:22:45,170 --> 00:22:47,370 period of time. The business doesn't meet those 459 00:22:47,370 --> 00:22:50,090 threshold characteristics or something about the business 460 00:22:50,090 --> 00:22:53,610 changes where we, you know, misunderstood the predictability 461 00:22:53,610 --> 00:22:55,330 of business. We're happy to sell and find 462 00:22:55,330 --> 00:22:57,130 something else to do and basically we took the Netflix, 463 00:22:57,770 --> 00:23:00,170 you know, losses, but the capital if you will. 464 00:23:00,590 --> 00:23:02,990 And we invested in Google, and it was a good decision. 465 00:23:03,190 --> 00:23:05,910 I think Bill Ackman's a very smart guy, and he's also very 466 00:23:05,910 --> 00:23:09,710 good at explaining mistakes in a way where it seems like he never 467 00:23:09,710 --> 00:23:13,390 made a mistake in reality here. The way that I see this, and 468 00:23:13,390 --> 00:23:15,990 this is, of course with a great deal of respect for Bill Ackman. 469 00:23:15,990 --> 00:23:17,670 I think he's a fantastic investor. 470 00:23:17,950 --> 00:23:20,390 But I consider this a simple mistake. 471 00:23:20,430 --> 00:23:22,510 Let's go ahead and review just one of his arguments here. 472 00:23:22,510 --> 00:23:25,510 He says that Netflix became more unpredictable as a company 473 00:23:25,710 --> 00:23:28,350 because they were introducing their advertising model. 474 00:23:28,840 --> 00:23:31,800 I don't buy this excuse at all and I think this is a little bit 475 00:23:31,800 --> 00:23:36,360 of a a reverse explanation, A rationalization for selling out 476 00:23:36,360 --> 00:23:40,320 of Netflix at a low. In reality, adding on an ad tier 477 00:23:40,320 --> 00:23:43,320 to an existing streaming business is highly predictable 478 00:23:43,560 --> 00:23:46,840 and this move has been proven out by every competitor, both 479 00:23:46,840 --> 00:23:49,880 Paramount, Warner Brothers, Discovery and Disney. 480 00:23:50,120 --> 00:23:52,320 All of them have proven that this model successful. 481 00:23:52,520 --> 00:23:55,280 So I don't see any reason that Netflix could not implement this 482 00:23:55,280 --> 00:23:57,800 model successfully as well. I don't believe that it 483 00:23:57,800 --> 00:24:00,560 increases the riskiness of the business at all, and I don't 484 00:24:00,560 --> 00:24:02,920 believe that Bill Ackman even believes it does. 485 00:24:02,960 --> 00:24:05,320 I think he's sold out of the company because of the big fares 486 00:24:05,320 --> 00:24:08,040 of them continuing to lose subscribers, and now he's trying 487 00:24:08,040 --> 00:24:11,840 to explain that it's really Netflix's decisions and changing 488 00:24:11,840 --> 00:24:14,480 business models. And another thing I'll mention 489 00:24:14,480 --> 00:24:18,520 here, he sold out of Netflix, apparently because Netflix had 490 00:24:18,600 --> 00:24:22,330 changes in their business model. But then he bought Google, which 491 00:24:22,330 --> 00:24:25,930 is arguably having far more fundamental changes in their 492 00:24:25,930 --> 00:24:28,490 core business than Netflix. Google's dealing with huge 493 00:24:28,490 --> 00:24:31,490 changes in their core search engine with the implementation 494 00:24:31,490 --> 00:24:35,730 of Chatchi, BT and AI, which has a lot of variables that could 495 00:24:35,730 --> 00:24:38,890 change the core business of Google in a far more meaningful 496 00:24:38,890 --> 00:24:42,330 way than an ad tear will change the business fundamentals of 497 00:24:42,330 --> 00:24:45,050 Netflix. So I don't buy this decision at 498 00:24:45,050 --> 00:24:46,970 all. I think Blackmon simply got 499 00:24:46,970 --> 00:24:49,970 concerned because Netflix stock was in freefall, They were 500 00:24:49,970 --> 00:24:54,090 losing drivers and he decided to cut his losses and move on to a 501 00:24:54,090 --> 00:24:58,210 bigger blue chip company that's more optically safe, which is 502 00:24:58,210 --> 00:25:00,050 Google. The argument that it was a 503 00:25:00,050 --> 00:25:02,770 change in business fundamentals I think is a bit of nice 504 00:25:02,770 --> 00:25:06,010 explanation along the way. You can even try to argue that 505 00:25:06,050 --> 00:25:07,890 Google was at a better valuation. 506 00:25:07,930 --> 00:25:10,210 But again, if we go back to the time where Bill Ackman sold 507 00:25:10,250 --> 00:25:15,920 Netflix at $215 per share, Netflix was at a 17 Ford P/E 508 00:25:15,920 --> 00:25:20,000 ratio that was an astoundingly cheap valuation for that 509 00:25:20,000 --> 00:25:22,480 company. Netflix, at the time that Bill 510 00:25:22,480 --> 00:25:26,320 Ackman sold, traded at a far cheaper valuation than Google. 511 00:25:26,600 --> 00:25:29,560 So even the valuation argument doesn't add up. 512 00:25:29,760 --> 00:25:31,960 Now he goes on to say that it wasn't a mistake. 513 00:25:31,960 --> 00:25:34,520 It was a good move. He didn't make any mistake here, 514 00:25:34,760 --> 00:25:37,320 and I also would take a little bit of disagreement with that. 515 00:25:37,760 --> 00:25:41,280 You can judge the outcome of decisions by the simple data by 516 00:25:41,280 --> 00:25:43,640 the facts of the decision. Netflix was a company he 517 00:25:43,640 --> 00:25:46,320 recently bought into at a much higher valuation because he 518 00:25:46,320 --> 00:25:48,160 viewed the company's future favorably. 519 00:25:48,360 --> 00:25:50,920 The company traded down dramatically, the valuation 520 00:25:50,920 --> 00:25:54,160 improved dramatically, and he sold at a tremendous loss. 521 00:25:54,400 --> 00:25:58,080 And then subsequently selling at almost the bottom of Netflix. 522 00:25:58,280 --> 00:26:02,200 The company's up 76% from the time he sold, outperforming 523 00:26:02,240 --> 00:26:05,690 every company in his portfolio, every single one in Pershing 524 00:26:05,690 --> 00:26:08,210 Square Capital, including his new buy into Google. 525 00:26:08,290 --> 00:26:12,010 Even during his lowest points into Google, it's only up 43% by 526 00:26:12,010 --> 00:26:15,130 comparison. So to judge this as a good move 527 00:26:15,170 --> 00:26:18,930 and not being a mistake, I think is looking very favorably on 528 00:26:18,930 --> 00:26:21,450 Bill Ackman. I say this with great respect to 529 00:26:21,450 --> 00:26:23,210 Bill Ackman. I think he's a fantastic 530 00:26:23,210 --> 00:26:26,410 investor, but even fantastic investors make mistakes from 531 00:26:26,410 --> 00:26:28,370 time to time. They make mistakes in their 532 00:26:28,370 --> 00:26:31,050 portfolio holdings and their fundamental analysis. 533 00:26:31,430 --> 00:26:34,550 Or they might accidentally sell on a low because things get 534 00:26:34,550 --> 00:26:37,030 really murky and a little bit less clear with the holding. 535 00:26:37,390 --> 00:26:40,230 And I think this is a case of Bill Ackman making a simple 536 00:26:40,230 --> 00:26:42,390 mistake. Does making a mistake mean he's 537 00:26:42,390 --> 00:26:44,270 not a good investor? Of course not. 538 00:26:44,550 --> 00:26:47,590 Again, every great investor makes mistakes all the time. 539 00:26:47,910 --> 00:26:51,500 I've made mistakes in My Portfolio, so making mistakes in 540 00:26:51,500 --> 00:26:54,340 a holding is not a bad thing. It happens from time to time. 541 00:26:54,420 --> 00:26:56,980 But overall, when I go back and look at this debate in 542 00:26:56,980 --> 00:27:00,100 hindsight, him selling out of Netflix to buy Google and 543 00:27:00,100 --> 00:27:02,020 whether or not that was the right decision or the wrong 544 00:27:02,020 --> 00:27:06,060 decision, the truth is that both of the companies did fantastic 545 00:27:06,380 --> 00:27:10,500 from that point in time. Netflix has had a 75% return, 546 00:27:10,700 --> 00:27:14,260 Google has had a 47% return. Both of them are high quality 547 00:27:14,260 --> 00:27:17,790 companies and the thing that Bill Ackman emphasizes here is 548 00:27:17,790 --> 00:27:20,590 despite the fact that he moved from Netflix to Google, he 549 00:27:20,590 --> 00:27:23,710 believes that both companies will do fantastic over time. 550 00:27:24,070 --> 00:27:27,230 And this is the emphasis on the screening process. 551 00:27:27,470 --> 00:27:30,550 He has an intense, rigorous screening process for every 552 00:27:30,550 --> 00:27:33,230 company that initially makes it into his portfolio. 553 00:27:33,590 --> 00:27:36,230 If you have a good screening process and you identify good 554 00:27:36,230 --> 00:27:39,030 quality companies, odds are they're going to do well over 555 00:27:39,030 --> 00:27:40,830 time. Now moving on, we get to 1 556 00:27:40,830 --> 00:27:43,710 company that's new in My Portfolio, which is Chipotle. 557 00:27:43,990 --> 00:27:46,910 I really like this company and I like the stock. 558 00:27:47,320 --> 00:27:50,600 The company's led by a really enthusiastic CEO that really 559 00:27:50,600 --> 00:27:53,480 wants to make the best food for a large quantity of people. 560 00:27:53,840 --> 00:27:57,120 Chipotle with their Mexican Grill sells food that I think is 561 00:27:57,120 --> 00:28:00,080 attractive to lots of people from lots of different cultures. 562 00:28:00,320 --> 00:28:02,240 I think it will have international success. 563 00:28:02,640 --> 00:28:04,440 I really like the fundamentals of the company. 564 00:28:04,440 --> 00:28:06,560 It has fast growing revenue and EBITDA. 565 00:28:06,840 --> 00:28:10,080 It's a free cash flow monster with substantially growing free 566 00:28:10,080 --> 00:28:12,360 cash flows and earnings per share. 567 00:28:12,640 --> 00:28:15,710 The company doesn't pay a dividend, but it does buybacks. 568 00:28:15,710 --> 00:28:17,950 So it's using its free cash flow to buy back shares. 569 00:28:18,230 --> 00:28:20,470 And I believe it will be a dividend payer in the future 570 00:28:20,590 --> 00:28:23,150 because of its enormous amounts of free cash flow. 571 00:28:23,510 --> 00:28:26,830 They also run a very unleveraged balance sheet where the only 572 00:28:26,830 --> 00:28:29,990 obligations they have are a small amount of capital leases 573 00:28:29,990 --> 00:28:33,430 for renting their restaurants and it has largely organic 574 00:28:33,430 --> 00:28:35,270 growth. They continue to open up new 575 00:28:35,270 --> 00:28:37,870 restaurants every day and they continue to improve their cost 576 00:28:37,870 --> 00:28:40,350 structure. One of the biggest concerns 577 00:28:40,390 --> 00:28:43,670 about a company like this is the cost structure and the unit 578 00:28:43,670 --> 00:28:48,010 economics, specifically with the employees of the company. 579 00:28:48,170 --> 00:28:51,130 When you have to train staff, you have to hire new employees. 580 00:28:51,130 --> 00:28:54,010 You have to always be worried about employee turnover. 581 00:28:54,170 --> 00:28:56,210 Every year you're hiring new additional employees. 582 00:28:56,450 --> 00:28:58,810 You're saying goodbye to other ones that have moved on to 583 00:28:58,810 --> 00:29:01,450 bigger and better things. You're training new employees. 584 00:29:01,650 --> 00:29:04,130 Some of them are hardworking individuals that do a really 585 00:29:04,130 --> 00:29:06,490 good job. Some of them, not so much. 586 00:29:07,000 --> 00:29:10,720 The difference in employee means differences in quality of food 587 00:29:10,880 --> 00:29:13,760 preparation and consistency for the customer. 588 00:29:13,880 --> 00:29:16,760 Well, Chipotle recently announced that they have a new 589 00:29:16,760 --> 00:29:20,720 machine that's going to help with consistency, specifically 590 00:29:20,720 --> 00:29:23,680 on the make line for burritos and Taco bowls. 591 00:29:23,760 --> 00:29:26,400 The new machine that they're announcing is called Hyphen, and 592 00:29:26,400 --> 00:29:29,880 it's in testing right now. This thing works by creating 593 00:29:29,880 --> 00:29:33,520 bowls and salads in an automated system that moves the entrees 594 00:29:33,520 --> 00:29:36,250 through the bottom make line, where the ingredients for the 595 00:29:36,250 --> 00:29:38,850 order are dispensed automatically in tandem. 596 00:29:39,130 --> 00:29:41,770 A Chipotle team member can leverage the top make line and 597 00:29:41,770 --> 00:29:44,610 create burritos, tacos, quesadillas and kids' meals for 598 00:29:44,610 --> 00:29:47,970 the same digital order. Simply, someone puts in an order 599 00:29:48,210 --> 00:29:51,810 on Chipotle App or chipotle.com or thirdparty platforms like 600 00:29:51,810 --> 00:29:55,010 DoorDash. If the order includes a bowler 601 00:29:55,010 --> 00:29:58,490 salad, those entrees would be routed to Hyphen's automated 602 00:29:58,490 --> 00:30:00,870 system. The bowls traverse along that 603 00:30:00,870 --> 00:30:04,110 bottom make line, they position themselves under the specific 604 00:30:04,110 --> 00:30:06,870 ingredient containers, and the intelligent dispenser 605 00:30:06,870 --> 00:30:09,630 dynamically portions each ingredient into the bowl. 606 00:30:09,990 --> 00:30:13,750 This way you get a completely consistent proportion every 607 00:30:13,750 --> 00:30:15,790 single time. And there you have the order 608 00:30:15,790 --> 00:30:19,390 completed, ready to be placed in their designated pickup area. 609 00:30:19,470 --> 00:30:21,870 Now, right now, I want to emphasize that without any of 610 00:30:21,870 --> 00:30:24,390 this stuff, without a digital make line or any of these 611 00:30:24,390 --> 00:30:28,790 robotics, Chipotle already has fantastic unit economics. 612 00:30:29,200 --> 00:30:31,480 Their payback period is insanely fast. 613 00:30:31,760 --> 00:30:35,040 They have investment unit economics similar to Starbucks. 614 00:30:35,320 --> 00:30:37,560 That's right. Now with the investments into 615 00:30:37,560 --> 00:30:39,720 robotics, they have the potential to improve this 616 00:30:39,720 --> 00:30:41,640 significantly. Consider the fact that around 617 00:30:41,640 --> 00:30:43,840 50% of Chipotle sales are digital. 618 00:30:44,240 --> 00:30:48,240 Of that, 65% of the Chipotle digital sales are orders for the 619 00:30:48,240 --> 00:30:52,880 burrito or salads. So this is around 25 to 30% of 620 00:30:52,880 --> 00:30:55,360 all orders. That's what the digital make 621 00:30:55,360 --> 00:31:00,080 line could make and proving the efficiency of 30% of your 622 00:31:00,080 --> 00:31:04,480 overall revenue is massive. This would not be a small little 623 00:31:04,480 --> 00:31:06,800 incremental improvement. This would be a massive 624 00:31:06,800 --> 00:31:08,880 improvement to their overall efficiency. 625 00:31:09,080 --> 00:31:11,400 Chipotle already has the market share within the US. 626 00:31:11,400 --> 00:31:13,960 They have smaller competitors like Kaaba that are way behind 627 00:31:13,960 --> 00:31:15,360 them. But I think with their 628 00:31:15,360 --> 00:31:18,800 substantial market share, their brand name, their digital market 629 00:31:18,800 --> 00:31:22,400 share, the potential for them to become these highly efficient 630 00:31:22,400 --> 00:31:25,440 boxes that you go into and get a perfectly made burrito every 631 00:31:25,440 --> 00:31:28,470 time is going to be something that happens in the future. 632 00:31:28,870 --> 00:31:31,630 So in terms of my investment into it, I see this as one more 633 00:31:31,630 --> 00:31:33,590 reason that I'm going to hold this company. 634 00:31:33,750 --> 00:31:35,030 So that's all the news for today. 635 00:31:35,030 --> 00:31:37,270 If you want more exclusive content or access to 636 00:31:37,270 --> 00:31:39,950 qualtrum.com, make sure to check out the Patreon. 637 00:31:40,150 --> 00:31:42,030 Now is the time to do it with the free trial. 638 00:31:42,310 --> 00:31:43,910 Other than that, I'll see you in the next one.