1 00:00:00,000 --> 00:00:01,300 Welcome, everyone, thanks for joining. 2 00:00:01,300 --> 00:00:05,200 We're going to be talking today again about Bill Ackman. 3 00:00:05,200 --> 00:00:08,400 I know we've been talking a lot about Bill Ackman, and I 4 00:00:08,400 --> 00:00:12,200 recently did a video on how to pick stocks, like Bill Ackman. 5 00:00:12,200 --> 00:00:16,200 What I did in that video is I reverse engineered his stock 6 00:00:16,200 --> 00:00:19,800 picking method by looking at commonalities and common traits 7 00:00:19,800 --> 00:00:21,500 and all the companies that he invests in. 8 00:00:21,500 --> 00:00:24,100 All the ones that he buys and sells have many things in common 9 00:00:24,100 --> 00:00:26,900 and that was mostly focused on the fundamentals. 10 00:00:26,900 --> 00:00:29,800 So the things like the ibadah, the free cash. 11 00:00:30,000 --> 00:00:32,600 Low, the share BuyBacks. That dividend is the earnings 12 00:00:32,600 --> 00:00:34,600 per share growth, so on and so forth. 13 00:00:34,700 --> 00:00:37,400 I looked at commonalities. So if you want to see kind of a 14 00:00:37,400 --> 00:00:40,500 precursor to this video, you can go back and watch that one. 15 00:00:40,500 --> 00:00:44,100 I'll link it in the description, but this video is a follow-up on 16 00:00:44,100 --> 00:00:47,400 that one because a lot of people had a common criticism. 17 00:00:47,400 --> 00:00:49,800 They said Joseph, it's good that you're looking at all the 18 00:00:49,800 --> 00:00:52,200 commonalities in the fundamentals, like the ibadah 19 00:00:52,200 --> 00:00:54,600 and free cash flow. But you know, that Bill Ackman 20 00:00:54,600 --> 00:00:56,400 is doing much more research than that. 21 00:00:56,600 --> 00:00:59,200 He's not just looking at some fundamentals and buying the 22 00:00:59,200 --> 00:01:01,400 companies. He understands the business. 23 00:01:01,400 --> 00:01:05,099 He has a whole research team. So we want to see inside of his 24 00:01:05,099 --> 00:01:07,200 head. What is he thinking about when 25 00:01:07,200 --> 00:01:10,000 he's buying these companies? What is he really considering 26 00:01:10,200 --> 00:01:12,500 qualitatively with these companies? 27 00:01:12,800 --> 00:01:15,500 So that's what we're going to be diving into in this episode. 28 00:01:15,700 --> 00:01:18,200 We're going to be expanding across that first video from the 29 00:01:18,200 --> 00:01:22,000 fundamentals and going more into the qualitative side and to what 30 00:01:22,000 --> 00:01:24,500 these companies actually are. Luckily for us. 31 00:01:24,800 --> 00:01:27,800 Bill Ackman just recently released the Pershing Square 32 00:01:27,800 --> 00:01:32,200 Holdings, 2021 annual, Art. And in this, he gives very 33 00:01:32,200 --> 00:01:35,500 in-depth breakdowns and descriptions of specifically 34 00:01:35,500 --> 00:01:37,900 what he values in the companies that he's holding. 35 00:01:38,300 --> 00:01:40,500 So he's sharing a lot of valuable Insight hair. 36 00:01:40,600 --> 00:01:42,900 I read through some of it and I was pretty Blown Away by the 37 00:01:42,900 --> 00:01:45,900 insights that he shares openly. So I want to go through this 38 00:01:45,900 --> 00:01:48,600 dissect a little bit and see what we can learn together 39 00:01:48,600 --> 00:01:51,800 because you might be asking, why am I paying so much attention to 40 00:01:51,800 --> 00:01:54,300 Bill Ackman? Well, frankly, you know, 41 00:01:54,400 --> 00:01:56,600 opinions vary, you may not like the guy. 42 00:01:56,600 --> 00:01:59,000 You may not like his personality, or CNBC 43 00:01:59,000 --> 00:02:02,100 appearances. Or as vocal, opinions on 44 00:02:02,100 --> 00:02:05,000 different subjects, like Ukraine or whatever, I get that some 45 00:02:05,000 --> 00:02:08,100 people don't like his personality, but the performance 46 00:02:08,100 --> 00:02:11,700 speaks for itself, Bill Ackman is an incredibly good investor. 47 00:02:11,700 --> 00:02:14,800 He's one of the best investors alive, the numbers show that if 48 00:02:14,800 --> 00:02:18,600 you look at his performance of his fund, this is net of fees. 49 00:02:19,000 --> 00:02:22,900 Meaning factoring in the 20% performance fees that he charges 50 00:02:23,200 --> 00:02:26,100 plus. The 16% out performance fees, he 51 00:02:26,100 --> 00:02:29,800 charges massive fees in this fund and net of the fees. 52 00:02:30,000 --> 00:02:32,700 He's still destroying the S&P 500. 53 00:02:32,700 --> 00:02:34,400 Look at this performance overall. 54 00:02:34,400 --> 00:02:37,700 These two lines are his performance, that's his fund. 55 00:02:37,900 --> 00:02:41,300 And then you look at the S&P 500 below four hundred and eighty, 56 00:02:41,300 --> 00:02:45,700 four percent Returns versus 1670 percent. 57 00:02:45,700 --> 00:02:48,500 Net of fees that is outperformance to look at it 58 00:02:48,500 --> 00:02:51,600 another way. He's returned 17.1 percent 59 00:02:51,600 --> 00:02:54,900 annualized since Inception. Again, that's net of fees 60 00:02:55,100 --> 00:02:58,900 compared to the S&P 500's, 10% annualized, and that's not 61 00:02:58,900 --> 00:03:00,900 counting in any type of Expense ratio. 62 00:03:00,900 --> 00:03:04,100 So he has blown away, the S&P 500, the results speak for 63 00:03:04,100 --> 00:03:07,600 themselves, and I do think that he shares valuable advice in 64 00:03:07,600 --> 00:03:10,000 this letter. So we have a lot to jump into. 65 00:03:10,000 --> 00:03:12,000 Let's go ahead and get to it. So let's go ahead and start off. 66 00:03:12,000 --> 00:03:14,400 First of all with kind of the framework of how Bill Ackman 67 00:03:14,400 --> 00:03:17,200 views all the macro events going on. 68 00:03:17,200 --> 00:03:20,700 So how he views this through the lens of an investor? 69 00:03:20,900 --> 00:03:24,500 We have the war with Ukraine. He says the war in Ukraine is a 70 00:03:24,500 --> 00:03:27,300 tragedy watching. Innocent people died due to the 71 00:03:27,300 --> 00:03:29,800 political and geographical objectives of 1. 72 00:03:30,000 --> 00:03:33,100 And is something one would hope would have never occurred. 73 00:03:33,200 --> 00:03:34,800 I think most people can agree with that. 74 00:03:35,000 --> 00:03:37,400 Ukraine is putting up a fierce fight and much of the western 75 00:03:37,400 --> 00:03:39,900 world is helping with aggressive, sanctions, military 76 00:03:39,900 --> 00:03:42,300 equipment, and funding. But we need to do more Russia 77 00:03:42,300 --> 00:03:44,900 has horrific actions must be made to be extraordinarily 78 00:03:45,000 --> 00:03:49,600 expensive and punishing for its military and its economy so that 79 00:03:49,600 --> 00:03:53,500 we deter and hopefully eliminate such aggression destruction and 80 00:03:53,500 --> 00:03:56,600 loss of life in the future. So that's a little bit of his 81 00:03:56,600 --> 00:03:59,800 political view on the circumstances in Ukraine. 82 00:03:59,900 --> 00:04:03,900 With Russia, he is he's very much involved in that if you 83 00:04:03,900 --> 00:04:06,000 follow his Twitter, he's constantly tweeting stuff in 84 00:04:06,000 --> 00:04:08,500 support of Ukraine so that's a little bit of politics, that's 85 00:04:08,500 --> 00:04:11,000 where he stands on the issue. He says the economic 86 00:04:11,000 --> 00:04:14,600 implications of the war are significant in amplifying 87 00:04:14,600 --> 00:04:18,800 inflation and energy, Agriculture and other goods, and 88 00:04:18,800 --> 00:04:21,800 services and tempering, the risk appetites of investors and 89 00:04:21,800 --> 00:04:24,700 corporations. The prospects of high inflation 90 00:04:24,800 --> 00:04:27,700 deteriorating growth and the potential for the US and Global 91 00:04:27,700 --> 00:04:29,800 recession have increased significantly. 92 00:04:30,000 --> 00:04:33,800 Russia has become an investable. I think that's obvious. 93 00:04:33,800 --> 00:04:37,200 Now, China is not far behind due to their Crackdown on 94 00:04:37,200 --> 00:04:39,200 corporations and high-profile CEOs. 95 00:04:39,200 --> 00:04:42,800 It's a reason to Ali Baba took a huge nose, dive and their tactic 96 00:04:42,800 --> 00:04:47,700 approval of Russia's actions. So China is more on the side of 97 00:04:47,700 --> 00:04:50,800 Russia than the u.s. US companies were already in the 98 00:04:50,800 --> 00:04:53,900 process of restoring and nearshoring their supply chains, 99 00:04:53,900 --> 00:04:56,700 which will accelerate due to the increasing geo, geo, political 100 00:04:56,700 --> 00:04:59,700 and certainty. D globalization is inherently 101 00:04:59,700 --> 00:05:01,700 inflationary. Missionary risk premium should 102 00:05:01,700 --> 00:05:05,500 also continue to rise. So he's setting a bit of the 103 00:05:05,500 --> 00:05:08,900 backdrop. We have War inflation, Rising 104 00:05:08,900 --> 00:05:11,600 tensions with the biggest economic power in the world 105 00:05:11,600 --> 00:05:13,100 besides us, which is China, right? 106 00:05:13,100 --> 00:05:16,500 The biggest Growing Power and then obviously Russia has 107 00:05:16,500 --> 00:05:19,800 completely on investable at this point seems like a bad time to 108 00:05:19,800 --> 00:05:22,900 be investing. Now he says why then you might 109 00:05:22,900 --> 00:05:25,100 ask do, we remain fully invested. 110 00:05:25,100 --> 00:05:27,800 So Bill Ackman is fully invested right now. 111 00:05:27,800 --> 00:05:31,200 Despite all those major headwinds And economic factors 112 00:05:31,400 --> 00:05:33,700 and he outlines two reasons why he says first. 113 00:05:34,000 --> 00:05:36,700 We believe that the business is we own have substantial pricing 114 00:05:36,700 --> 00:05:39,200 power, that's a big thing. They always look for pricing 115 00:05:39,200 --> 00:05:41,400 power. That is the ability to adjust 116 00:05:41,400 --> 00:05:45,400 prices upward without losing customers to competitors and 117 00:05:45,400 --> 00:05:47,900 they also outline. The second thing here, we 118 00:05:47,900 --> 00:05:50,100 believe that are hedges will likely generate substantial 119 00:05:50,100 --> 00:05:52,300 liquidity, that will enable us to take advantage of 120 00:05:52,300 --> 00:05:55,400 opportunities in the event of substantial Market, declines. 121 00:05:55,700 --> 00:05:58,800 So this is something that Pershing Square does and Bill 122 00:05:58,800 --> 00:06:01,400 Ackman routinely does. Let's so far, I've done. 123 00:06:01,400 --> 00:06:04,100 None of. I haven't Minik this Approach at 124 00:06:04,100 --> 00:06:06,500 all. He has Hedges with his portfolio 125 00:06:06,500 --> 00:06:10,000 and like a hedge fund. You should probably try to have 126 00:06:10,000 --> 00:06:12,600 Hedges and protect the downside. That something that investors 127 00:06:12,600 --> 00:06:14,900 are paying them a hefty fee to do. 128 00:06:14,900 --> 00:06:17,800 But this is something that I just don't feel great at. 129 00:06:17,800 --> 00:06:21,300 I don't feel like I understand Hedges and the risk reward and 130 00:06:21,300 --> 00:06:24,500 and kind of how they work. So that's an area that I want to 131 00:06:24,500 --> 00:06:28,000 learn about is how to hedge my portfolio and take advantage of 132 00:06:28,000 --> 00:06:30,300 Market declines. So that is something that I'm 133 00:06:30,300 --> 00:06:33,700 actively learning about and studying, maybe I'll Implement 134 00:06:33,700 --> 00:06:37,200 hedges in my portfolio in the future, but right now I'm just 135 00:06:37,200 --> 00:06:41,300 100% long, I have no Hedges on my portfolio and he says that we 136 00:06:41,300 --> 00:06:44,200 believe that hedging is a better alternative to keeping funds in 137 00:06:44,200 --> 00:06:45,900 cash. While one is waiting for 138 00:06:45,900 --> 00:06:48,600 opportunities, particularly because High interest rates 139 00:06:48,600 --> 00:06:52,000 caused inflation of the purchasing power, and cash to 140 00:06:52,000 --> 00:06:56,300 decline rapidly, which is obvious with inflation at six or 141 00:06:56,300 --> 00:06:58,700 seven percent. Maybe it will go higher, maybe 142 00:06:58,700 --> 00:07:01,200 lower your cash. Is getting eaten up by that 143 00:07:01,200 --> 00:07:03,400 either way. Cash is not a good thing to hold 144 00:07:03,400 --> 00:07:05,200 right now. Now he goes on saying the 145 00:07:05,200 --> 00:07:08,200 industries and businesses in which we have invested in our 146 00:07:08,200 --> 00:07:11,500 highly attractive and well, positioned to withstand negative 147 00:07:11,500 --> 00:07:16,200 externalities negative. Externalities is a fancy way of 148 00:07:16,200 --> 00:07:21,800 saying, outside forces of macro events and wars and competitors 149 00:07:22,000 --> 00:07:26,000 will be withstood by these companies, that is a way that 150 00:07:26,500 --> 00:07:29,900 Buffett defines having a moat, a big body of water. 151 00:07:30,100 --> 00:07:32,400 Around the castle that fends off competitors. 152 00:07:32,400 --> 00:07:34,200 Right? Well, this is another way of 153 00:07:34,200 --> 00:07:39,100 saying, not only competitors but also macro events Wars inflation 154 00:07:39,100 --> 00:07:44,100 and so on, they can withstand negative externalities about 30% 155 00:07:44,100 --> 00:07:46,800 of our Equity. Portfolio is invested in music 156 00:07:46,800 --> 00:07:49,700 and video streaming umg and Netflix. 157 00:07:49,800 --> 00:07:53,800 That's video streaming of Music. 26% is in restaurants and 158 00:07:53,800 --> 00:07:56,600 restaurant franchising, Chipotle, restaurant Brands and 159 00:07:56,600 --> 00:07:59,900 Domino's 15% in a home improvement retailer, you want? 160 00:08:00,000 --> 00:08:04,200 With lows, I currently have Home Depot my dividend portfolio, 10% 161 00:08:04,200 --> 00:08:07,300 in real estate in states with substantial in migration. 162 00:08:07,600 --> 00:08:09,800 That's the Howard Hughes company he highlights here. 163 00:08:10,000 --> 00:08:13,200 That is a real estate company that Pershing Square has, and in 164 00:08:13,200 --> 00:08:16,100 Residential, Mortgages Fannie, Mae and Freddie Mac, 10% in 165 00:08:16,100 --> 00:08:18,800 hotel. Franchises, which is Hilton and 166 00:08:18,800 --> 00:08:22,100 8% in railroad, which is Canadian Pacific. 167 00:08:22,100 --> 00:08:23,900 So, that's a new holding to the portfolio. 168 00:08:24,000 --> 00:08:26,200 We expect the each of these companies will grow their 169 00:08:26,200 --> 00:08:29,500 revenues and profitability is over the long term regardless of 170 00:08:29,500 --> 00:08:31,700 recent events. And the various other challenges 171 00:08:31,700 --> 00:08:35,000 that the world will face over the short intermediate and 172 00:08:35,000 --> 00:08:38,299 long-term. So Bill Ackman is a long-term 173 00:08:38,299 --> 00:08:41,600 investor. He holds companies for 3 years 5 174 00:08:41,600 --> 00:08:45,000 years, sometimes longer be still continues to see value. 175 00:08:45,100 --> 00:08:46,500 He'll hold companies for five years. 176 00:08:46,500 --> 00:08:49,500 Plus what I like about Bill Ackman, when I compare them with 177 00:08:49,500 --> 00:08:54,000 investors, like Arc invest with Cathy wood is although she's had 178 00:08:54,000 --> 00:08:57,000 good returns. I see her trading every single 179 00:08:57,000 --> 00:09:00,200 day with the emails. I get the email updates and 180 00:09:00,200 --> 00:09:01,700 they're just trading in and out of stocks. 181 00:09:01,700 --> 00:09:04,300 Every two seconds, there's dozens of them being sold and 182 00:09:04,300 --> 00:09:07,000 being bought every two seconds. Now compare that with Bill 183 00:09:07,000 --> 00:09:09,800 Ackman, and he's not buying and selling companies every single 184 00:09:09,800 --> 00:09:11,900 day, he waits until they get to good prices. 185 00:09:12,100 --> 00:09:14,200 He buys in, then he holds them long-term. 186 00:09:14,300 --> 00:09:16,200 Now, this next paragraph, I think is interesting. 187 00:09:16,200 --> 00:09:19,900 He goes on to highlight why? He prefers investing in North 188 00:09:19,900 --> 00:09:22,300 America, in the US over the rest of the world. 189 00:09:22,300 --> 00:09:25,700 He explains why he says, while effectively all businesses are 190 00:09:25,700 --> 00:09:29,200 exposed to the global economy, we have chosen to invest close 191 00:09:29,200 --> 00:09:32,400 to home. Our portfolio is North American 192 00:09:32,400 --> 00:09:35,800 Centric with most to all of our company's profits generated in 193 00:09:35,808 --> 00:09:38,500 North America. While the US has its share as a 194 00:09:38,500 --> 00:09:41,400 problems, including a highly litigious business environment, 195 00:09:41,700 --> 00:09:45,000 a complex, regulatory regimen, and political disharmony and 196 00:09:45,000 --> 00:09:48,200 divisiveness. We believe these factors are 197 00:09:48,200 --> 00:09:51,400 substantially outweighed by illegal regimen. 198 00:09:51,400 --> 00:09:54,300 Where the rule of law is generally respected more. 199 00:09:54,300 --> 00:09:57,800 So in most of the other places of the world, limited 200 00:09:57,800 --> 00:10:01,700 corruption, a world-class, Ian defense and a corporate and 201 00:10:01,700 --> 00:10:05,400 Capital Market environment. Where capitalism can flourish we 202 00:10:05,400 --> 00:10:08,500 believe that these attractive attributes will increase in 203 00:10:08,500 --> 00:10:11,200 importance to investors in light of recent events. 204 00:10:11,600 --> 00:10:14,000 Much of the same way the world is d. 205 00:10:14,000 --> 00:10:16,800 Globalizing d. Globalization appears to be 206 00:10:16,800 --> 00:10:21,000 coming to the capital markets. So I think that in terms of 207 00:10:21,000 --> 00:10:24,200 macro events Bill Ackman is not anywhere close to investing in 208 00:10:24,200 --> 00:10:27,700 10 Center Ali, Baba or JD. He does even seem to want to 209 00:10:27,708 --> 00:10:32,000 invest outside of the US at all. I think with the globalization, 210 00:10:32,300 --> 00:10:35,700 he sees more opportunity in the u.s. than anywhere else, and he 211 00:10:35,700 --> 00:10:37,100 spells it out pretty clearly here. 212 00:10:37,100 --> 00:10:40,300 Obviously, with my investment in Ali, Baba, just tanking month, 213 00:10:40,300 --> 00:10:43,300 after month, primarily due to concerns about the government. 214 00:10:43,300 --> 00:10:45,800 I can see his point here. It doesn't really matter how 215 00:10:45,800 --> 00:10:49,200 good your companies are or how good their free cash flow is or 216 00:10:49,200 --> 00:10:51,800 so on and so forth. If investors can't trust the 217 00:10:51,800 --> 00:10:54,700 government, they'll never give it the multiple or the market 218 00:10:54,700 --> 00:10:57,100 cap, or the valuation that it deserves. 219 00:10:57,200 --> 00:10:59,500 If it was a US company, they will give it that. 220 00:11:00,000 --> 00:11:02,800 In that market cap. So, in hindsight, I agree with 221 00:11:02,800 --> 00:11:05,900 him, I'm not making any new investments in the China. 222 00:11:06,100 --> 00:11:08,800 I still have my Ali Baba holding and I'm still holding on to it, 223 00:11:09,000 --> 00:11:11,900 but I'm limiting my exposure outside of the US for the same 224 00:11:12,100 --> 00:11:15,100 aforementioned reasons. And this next paragraph is where 225 00:11:15,100 --> 00:11:18,400 he just really lays out the type of things he looks for. 226 00:11:18,400 --> 00:11:21,000 And this is again, many of the type of things that we 227 00:11:21,000 --> 00:11:23,000 identified. When we did a reverse 228 00:11:23,200 --> 00:11:26,600 deconstruction of his portfolio, we reverse engineered it. 229 00:11:26,700 --> 00:11:30,400 He said, we expect our portfolio companies to continue to Pound 230 00:11:30,400 --> 00:11:33,500 their intrinsic values at even higher rates than before due to 231 00:11:33,500 --> 00:11:35,900 their current reduced valuations. 232 00:11:36,100 --> 00:11:38,700 We believe that all of our portfolio companies will 233 00:11:38,700 --> 00:11:42,000 generate long-term durable growth due to their dominant 234 00:11:42,000 --> 00:11:44,400 Market positions. Substantial, free, cash flow, 235 00:11:44,400 --> 00:11:48,200 generation High Returns on Capital, pricing power and 236 00:11:48,200 --> 00:11:50,400 strong balance sheets. Furthermore, and this is 237 00:11:50,400 --> 00:11:52,600 something specifically that I pointed out. 238 00:11:52,600 --> 00:11:55,500 Most of our companies, use their free cash flow to repurchase 239 00:11:55,500 --> 00:11:58,400 their own shares. So our portfolio companies and 240 00:11:58,400 --> 00:12:02,000 their shareholders are The long-term beneficiaries of their 241 00:12:02,000 --> 00:12:05,400 recently reduced stock prices because again, as the stock 242 00:12:05,400 --> 00:12:08,600 price goes down the share repurchases, carry a lot more 243 00:12:08,600 --> 00:12:10,400 weight. While most investment managers 244 00:12:10,400 --> 00:12:13,000 prefer to report consistent growing returns to their 245 00:12:13,000 --> 00:12:15,400 investors. We prefer to have intermediate 246 00:12:15,400 --> 00:12:18,900 periods of downward volatility as a create opportunities to 247 00:12:18,900 --> 00:12:22,200 plant, the seeds for greater long-term out performance. 248 00:12:22,500 --> 00:12:25,300 And I definitely think that that's not just investor speak. 249 00:12:25,300 --> 00:12:27,200 I really think that he likes these type of periods. 250 00:12:27,400 --> 00:12:29,600 You'll probably be doing a lot of buying into these type of 251 00:12:30,000 --> 00:12:32,500 He's with this pullback so that's kind of him setting. 252 00:12:32,500 --> 00:12:34,500 The foundation of a thought process overall. 253 00:12:34,700 --> 00:12:37,400 Now we're going to start jumping into individual companies. 254 00:12:37,700 --> 00:12:40,500 Let's start off with Netflix before I look at what Bill 255 00:12:40,500 --> 00:12:42,800 Ackman says. With Netflix in full disclosure, 256 00:12:43,200 --> 00:12:45,600 it is one of my largest positions and I'm currently 257 00:12:45,600 --> 00:12:49,200 weigh down on this company. So I'm well in the red on it. 258 00:12:49,200 --> 00:12:51,900 And that's my fault for buying it at a higher price. 259 00:12:51,900 --> 00:12:55,100 I acknowledge that. But I remain very bullish on 260 00:12:55,100 --> 00:12:57,500 this company. I've talked extensively about 261 00:12:57,500 --> 00:12:59,800 the many attributes that I like of Netflix, did I? 262 00:12:59,900 --> 00:13:01,600 It will be a long term, compounder. 263 00:13:01,700 --> 00:13:04,900 I think a lot of the challenges they're facing the issues are 264 00:13:04,900 --> 00:13:07,300 going through will be very short-lived. 265 00:13:07,300 --> 00:13:10,400 So, even after this company, fell substantially in price 266 00:13:10,400 --> 00:13:14,000 because of one bad quarter, their forecast was pretty bad. 267 00:13:14,500 --> 00:13:16,600 I continued to buy more of the company. 268 00:13:16,600 --> 00:13:20,100 I kind of doubled down on it. I increase my position after the 269 00:13:20,100 --> 00:13:21,900 decline. Now, having said that, let's go 270 00:13:21,900 --> 00:13:23,400 ahead and look at what Bill Ackman says. 271 00:13:23,700 --> 00:13:26,500 He says, we have long admired, Netflix and had initially 272 00:13:26,500 --> 00:13:29,300 research and analyze the company as part of our investment, due 273 00:13:29,300 --> 00:13:32,700 diligence. On umg, we then updated and 274 00:13:32,700 --> 00:13:35,800 completed our work January. When the stock price decline, 275 00:13:35,800 --> 00:13:39,700 due to disappointing subscriber, guidance much like umg, we 276 00:13:39,700 --> 00:13:41,900 believe that Netflix is well positioned. 277 00:13:41,900 --> 00:13:45,700 As a leading beneficiary of the long-term secular growth and 278 00:13:45,700 --> 00:13:48,500 streaming a high quality business overseen, by a 279 00:13:48,508 --> 00:13:51,400 world-class management. Team Netflix established 280 00:13:51,400 --> 00:13:53,800 subscription video streaming when it launched its service 281 00:13:53,800 --> 00:13:57,100 back in 2007 and over the subsequent 15 years, it has 282 00:13:57,100 --> 00:14:02,100 achieved global scale with 22 million paid subscribers today 283 00:14:02,100 --> 00:14:06,500 in more than 190 countries. So Netflix already has massive 284 00:14:06,500 --> 00:14:08,700 global scale. The next thing he says is a 285 00:14:08,700 --> 00:14:11,400 highly debated point. A lot of people think that 286 00:14:11,400 --> 00:14:14,300 Netflix is growth has kind of tapped out there. 287 00:14:14,300 --> 00:14:17,900 Total addressable Market has already been addressed. 288 00:14:18,000 --> 00:14:21,100 This is where Bill Ackman and I agree and we differ from a lot 289 00:14:21,100 --> 00:14:23,700 of other people here. He says, despite its large 290 00:14:23,700 --> 00:14:27,900 scale, Netflix is still in the early stages of capitalizing on 291 00:14:27,900 --> 00:14:31,300 the decade-long secular growth. In streaming video and 292 00:14:31,300 --> 00:14:34,400 correspondingly. The decline in linear pay-tv 293 00:14:34,700 --> 00:14:38,600 current subscribers amount to less than a quarter of today's 294 00:14:38,600 --> 00:14:43,500 estimated total addressable Market of 800 to 900 million 295 00:14:43,500 --> 00:14:46,100 households. That have either fixed Broadband 296 00:14:46,100 --> 00:14:49,500 access or subscribe to pay TV excluding China. 297 00:14:50,000 --> 00:14:53,900 So even without China without Russia Bill Ackman sees 298 00:14:53,900 --> 00:14:57,500 potentially 800 to 900 million households. 299 00:14:57,500 --> 00:14:59,700 Subscribe to Netflix and again right now. 300 00:14:59,900 --> 00:15:02,900 Are at 222. So they are less than a quarter 301 00:15:02,900 --> 00:15:04,600 of the way there. And again, that's how I view 302 00:15:04,600 --> 00:15:06,400 this company. I think we're in the early 303 00:15:06,400 --> 00:15:09,000 Innings a streaming as well. He goes on to actually Define 304 00:15:09,000 --> 00:15:10,700 the value proposition of Netflix. 305 00:15:11,000 --> 00:15:13,900 So recently we've had a lot of people complain, that Netflix is 306 00:15:13,900 --> 00:15:15,700 Raising prices. They complain. 307 00:15:15,700 --> 00:15:18,800 That Netflix is going to start charging for sharing sharing 308 00:15:18,800 --> 00:15:22,100 passwords in the u.s. to people outside of your household. 309 00:15:22,300 --> 00:15:24,400 There's a lot of people that I think have somewhat valid 310 00:15:24,400 --> 00:15:27,100 complaints, but consider the value proposition. 311 00:15:27,100 --> 00:15:28,500 You're actually getting with Netflix. 312 00:15:28,700 --> 00:15:31,900 He says it Netflix. For his consumers on demand 313 00:15:31,900 --> 00:15:35,700 commercial-free bin, jabal content with ubiquitous access 314 00:15:36,000 --> 00:15:39,200 at a price point. That is Approximately 80% less 315 00:15:39,200 --> 00:15:43,600 expensive than average pay TV package in the u.s. so it's 80% 316 00:15:43,600 --> 00:15:45,600 less expensive than your cable package. 317 00:15:45,600 --> 00:15:48,100 A Netflix subscription is one of the lowest cost forms of 318 00:15:48,100 --> 00:15:51,600 high-value entertainment with cost per hour of Engagement of 319 00:15:51,600 --> 00:15:54,700 about 30 cents. The company is vastly superior 320 00:15:54,700 --> 00:15:58,100 value proposition relative to pay TV and other forms of 321 00:15:58,100 --> 00:16:01,800 entertainment should drive. Substantial pricing power, and 322 00:16:01,800 --> 00:16:04,300 meaningfully increase its penetration across, its 323 00:16:04,300 --> 00:16:07,600 addressable Market over time. So he's basically saying that 324 00:16:07,600 --> 00:16:11,400 Netflix still offers incredibly good value, especially compared 325 00:16:11,400 --> 00:16:13,700 to cable television. The value proposition is 326 00:16:13,700 --> 00:16:15,900 dramatically better and the total addressable Market 327 00:16:15,900 --> 00:16:19,200 continues to grow as the internet and connected devices 328 00:16:19,400 --> 00:16:23,000 become more ubiquitous. Now, he goes on to explain how 329 00:16:23,000 --> 00:16:27,300 well positioned Netflix's in terms of their competition. 330 00:16:27,300 --> 00:16:30,200 We hear about all the competition coming, any Planes 331 00:16:30,200 --> 00:16:32,200 by Netflix, might be better position to handle this 332 00:16:32,200 --> 00:16:35,200 competition than investors are giving it credit for. 333 00:16:35,400 --> 00:16:38,100 He says, Netflix as well position as a dominant market 334 00:16:38,100 --> 00:16:41,600 leader, was several advantages, relative to existing Legacy 335 00:16:41,600 --> 00:16:44,600 Media and Covenants and large capitalization technology 336 00:16:44,600 --> 00:16:48,400 entrance. So the big bad cable companies 337 00:16:48,500 --> 00:16:52,100 with Deep Pockets, and these large media companies that are 338 00:16:52,108 --> 00:16:55,400 now going into streaming. They form a competitive 339 00:16:55,400 --> 00:16:58,400 challenge for Netflix, but Bill Ackman, doesn't think that 340 00:16:58,400 --> 00:17:01,000 that's Doom and Gloom for He thinks that they can handle this 341 00:17:01,000 --> 00:17:02,800 challenge. He says, the company has a 342 00:17:02,808 --> 00:17:05,000 diverse library of content for everyone. 343 00:17:05,400 --> 00:17:08,300 That is replenished at a much faster rate than competitors. 344 00:17:08,500 --> 00:17:13,300 It releases 150 to 200 original content episodes per month. 150 345 00:17:13,300 --> 00:17:17,599 to 200 more than the volume release by Prime video Hulu 346 00:17:17,700 --> 00:17:21,900 Disney and HBO Max combined Netflix is industry-leading. 347 00:17:21,900 --> 00:17:25,099 Subscriber base has enabled the company to establish a very 348 00:17:25,099 --> 00:17:27,900 profitable business while spending more on original 349 00:17:27,900 --> 00:17:31,700 content than the competitors. That is Netflix's flywheel in 350 00:17:31,700 --> 00:17:34,500 action, as the pay TV, cord-cutting accelerates in 351 00:17:34,500 --> 00:17:37,600 mature markets, we believe there will be consumer appetite to 352 00:17:37,600 --> 00:17:41,400 subscribe to multiple streaming services at a time in the u.s. 353 00:17:41,400 --> 00:17:43,400 we estimate that. The wallet share released from 354 00:17:43,700 --> 00:17:47,100 the declining linear pay TV subscriptions which are priced 355 00:17:47,100 --> 00:17:49,500 at approximately eighty dollars per month. 356 00:17:49,500 --> 00:17:53,700 Can easily sustain a streaming bundle of 325 streaming services 357 00:17:53,700 --> 00:17:57,000 per household, which are typically priced around 10 to 15 358 00:17:57,000 --> 00:17:59,700 dollars per month. Offering a significantly better. 359 00:17:59,800 --> 00:18:01,800 Customer experience. So the way that he thinks about 360 00:18:01,800 --> 00:18:04,300 this is pretty simple. Most households have been 361 00:18:04,300 --> 00:18:07,600 spending somewhere around 80 dollars per month on their cable 362 00:18:07,600 --> 00:18:09,700 TV. So if they get rid of the cable 363 00:18:09,700 --> 00:18:12,600 TV and they move over to streaming if they're doing the 364 00:18:12,600 --> 00:18:14,900 cord cutting they'll think of it as well. 365 00:18:14,900 --> 00:18:17,300 I'm spending $15 a month on Netflix. 366 00:18:17,600 --> 00:18:21,500 I can add on Disney Plus for like 8 bucks a month I can add 367 00:18:21,500 --> 00:18:25,600 on HBO Max for 15 bucks a month, I can add on Discovery or Warner 368 00:18:25,600 --> 00:18:28,600 Media or whatever Showtime right? 369 00:18:28,700 --> 00:18:31,700 I have all these subscriptions. Services and even together, they 370 00:18:31,700 --> 00:18:34,400 don't even add up to 80 bucks. I'm still saving money. 371 00:18:34,400 --> 00:18:37,400 And the Assumption here is I think a safe assumption is that 372 00:18:37,400 --> 00:18:39,700 among the three to five streaming services? 373 00:18:39,700 --> 00:18:43,000 The average household will have Netflix is probably going to be 374 00:18:43,000 --> 00:18:45,200 one of them. It'll probably be one of the 375 00:18:45,200 --> 00:18:47,100 streaming services you continue to have. 376 00:18:47,200 --> 00:18:50,100 So this is just part of his thoughts on Netflix. 377 00:18:50,400 --> 00:18:54,000 So of course Bill Ackman doesn't just look at PE ratios, he 378 00:18:54,000 --> 00:18:55,600 doesn't just look at the free cash flow. 379 00:18:55,800 --> 00:18:59,100 You does in-depth analysis on every company that invests in 380 00:18:59,300 --> 00:19:01,200 and that's something that I've been trying to promote the 381 00:19:01,208 --> 00:19:04,700 people for a long time. You're buying a company with a 382 00:19:04,700 --> 00:19:07,600 business model and products and employees and Leadership. 383 00:19:07,700 --> 00:19:10,400 You're not just buying charts and graphs, right? 384 00:19:10,600 --> 00:19:13,000 You can look at the charts and graphs but you have to plug it 385 00:19:13,000 --> 00:19:16,200 into the company and when you put those together that makes 386 00:19:16,200 --> 00:19:18,000 it. So you can form a well-rounded 387 00:19:18,000 --> 00:19:20,000 story. You actually have an entire 388 00:19:20,000 --> 00:19:22,700 investment thesis there. So this is what Bill Ackman is 389 00:19:22,700 --> 00:19:25,000 doing. He has all the numbers, he has 390 00:19:25,000 --> 00:19:28,100 all the qualitative research, he puts that together to create an 391 00:19:28,100 --> 00:19:31,100 investment thesis. Along with Netflix, he goes on 392 00:19:31,100 --> 00:19:33,800 to show some of the unique qualities of this company. 393 00:19:33,900 --> 00:19:36,900 He goes on to say that Netflix has the lowest churn rate by a 394 00:19:36,900 --> 00:19:38,800 wide margin among streaming services. 395 00:19:38,900 --> 00:19:41,900 That means people don't cancel Netflix all that often. 396 00:19:42,300 --> 00:19:44,800 They cancel other streaming services, much more frequently, 397 00:19:45,300 --> 00:19:48,700 highlighting its core position as an anchor, a utility like 398 00:19:48,700 --> 00:19:52,700 service of any streaming bundle. Netflix is retention in the u.s. 399 00:19:52,900 --> 00:19:56,600 its most competitive market. Has remained consistently stable 400 00:19:56,800 --> 00:20:00,100 at an industry high levels, despite the launch of Of several 401 00:20:00,100 --> 00:20:02,500 new competitors. And this is what management of 402 00:20:02,500 --> 00:20:05,300 Netflix has been trying to highlight look, we have tons of 403 00:20:05,300 --> 00:20:08,300 competitors now and people aren't canceling Netflix here. 404 00:20:08,300 --> 00:20:11,800 That is a very positive thing. They're not signing up quite as 405 00:20:11,800 --> 00:20:14,900 fast in the rest of the world, but the churn rate remains very 406 00:20:14,900 --> 00:20:17,800 low in the u.s. Now, the international markets 407 00:20:17,800 --> 00:20:20,500 are the earlier stage growth markets where Netflix has an 408 00:20:20,500 --> 00:20:24,500 even more formidable first mover advantage and a significant 409 00:20:24,500 --> 00:20:28,400 competitive position in local language content, only Netflix 410 00:20:28,400 --> 00:20:32,000 has unique and proven track. Record of elevating Regional 411 00:20:32,000 --> 00:20:36,300 Productions, like squid game, Casa de papel Lupin to a global 412 00:20:36,300 --> 00:20:39,300 cultural Zeitgeist. So they're the only ones that 413 00:20:39,308 --> 00:20:42,700 have been able to do that. So far, other companies, like, 414 00:20:42,708 --> 00:20:45,200 Disney can really only Market what they make in the u.s. to 415 00:20:45,200 --> 00:20:48,100 the rest of the world. But Netflix is creating things 416 00:20:48,100 --> 00:20:50,900 outside of the US and marketing, it all over the place. 417 00:20:50,900 --> 00:20:54,100 And that is something that has so far been unique to Netflix, 418 00:20:54,100 --> 00:20:57,500 as Netflix is business, has achieved scale its operating 419 00:20:57,500 --> 00:20:59,300 profit margins. Have increased from 4%. 420 00:20:59,700 --> 00:21:05,700 Point four percent in 2016 to 21% in 2021, over the last five 421 00:21:05,700 --> 00:21:08,800 years, Netflix has held content spend per subscriber constant. 422 00:21:08,800 --> 00:21:13,800 Despite growing overall content spend by 23% per annuum. 423 00:21:13,800 --> 00:21:17,800 So they have spent twenty three percent per year, more on 424 00:21:17,800 --> 00:21:21,300 content at the same time. The company has increased prices 425 00:21:21,300 --> 00:21:25,200 by 7%, annually, resulting in a dramatically improved, 426 00:21:25,200 --> 00:21:28,500 subscriber unit economic. So a lot of people are upset by 427 00:21:28,500 --> 00:21:31,900 these seven percent. Increases but they are getting a 428 00:21:31,900 --> 00:21:36,300 23% increase in content spend. So the proposition actually 429 00:21:36,300 --> 00:21:39,100 improves, he says, from the customers perspective, Netflix 430 00:21:39,100 --> 00:21:42,800 is value proposition has become better each year as the growth 431 00:21:42,800 --> 00:21:45,500 in the volume of new high-quality content has 432 00:21:45,500 --> 00:21:47,500 comfortably exceeded price increases. 433 00:21:47,800 --> 00:21:50,800 We believe that the combination of continued subscriber growth. 434 00:21:50,900 --> 00:21:54,200 And pricing power will allow the company to leverage its growing 435 00:21:54,200 --> 00:21:58,300 content, spend over an even larger future subscriber base, 436 00:21:58,500 --> 00:22:01,900 which will drive Anshel future margin expansion and provide 437 00:22:01,900 --> 00:22:04,200 better value. Proposition to its subscribers 438 00:22:04,200 --> 00:22:06,700 each year. That's a continuation of the 439 00:22:06,700 --> 00:22:08,300 flywheel that we've talked about. 440 00:22:08,300 --> 00:22:10,100 And this is where he finishes up on Netflix. 441 00:22:10,300 --> 00:22:13,700 He highlights the price coming down while every fundamental of 442 00:22:13,700 --> 00:22:17,300 Netflix is basically improving. He says the opportunity to 443 00:22:17,300 --> 00:22:18,900 acquire Netflix at an attractive. 444 00:22:18,900 --> 00:22:21,800 Valuation emerged as investor concerns over Management's, 445 00:22:22,000 --> 00:22:25,500 short-term guidance exacerbated by recent Market volatility. 446 00:22:25,900 --> 00:22:29,100 It led to substantial declines in the company's share price. 447 00:22:30,000 --> 00:22:34,200 A 47% increase in Revenue. Approximately eight hundred 448 00:22:34,200 --> 00:22:38,100 basis points in margin expansion and a vastly improved free cash 449 00:22:38,100 --> 00:22:41,300 flow profile over the last two years as of March twenty. 450 00:22:41,300 --> 00:22:44,600 Second twenty twenty-two Netflix is share prices down 451 00:22:44,600 --> 00:22:48,700 approximately 45%. So all these fundamentals 452 00:22:48,800 --> 00:22:53,300 improve dramatically but Netflix is stock price Falls 45% from 453 00:22:53,300 --> 00:22:55,400 its recent highs and its trading below. 454 00:22:55,600 --> 00:22:58,800 Its February twenty twenty P, pandemic, share price, that's 455 00:22:58,800 --> 00:23:00,200 pretty incredible. And I think Think that's, of 456 00:23:00,200 --> 00:23:02,600 course why he jumped in, although we expect some 457 00:23:02,600 --> 00:23:05,200 near-term variability, in the company's quarterly growth and 458 00:23:05,200 --> 00:23:07,600 profitability. We are confident in Netflix's 459 00:23:07,600 --> 00:23:10,300 long-term Outlook over the next decade we estimate. 460 00:23:10,300 --> 00:23:12,700 The company can achieve double-digit, annual revenue, 461 00:23:12,700 --> 00:23:16,500 growth significantly expanding its operating profit margins and 462 00:23:16,500 --> 00:23:18,500 grow. Its earnings per share by more 463 00:23:18,500 --> 00:23:24,500 than 20% per year. 20 % EPS growth for over 10 years. 464 00:23:24,700 --> 00:23:28,400 Moreover, the company is now cash flow positive which over 465 00:23:28,400 --> 00:23:31,800 time will enable capital. Turn through share BuyBacks, he 466 00:23:31,800 --> 00:23:35,200 loves the share Buybacks. In the coming years, we believe 467 00:23:35,200 --> 00:23:37,300 Netflix is current valuation represents. 468 00:23:37,300 --> 00:23:40,800 A meaningful discount to intrinsic value for a business 469 00:23:40,800 --> 00:23:43,500 of its quality and exceptional growth potential. 470 00:23:43,600 --> 00:23:46,300 So that is Bill ackman's, commentary on Netflix and I 471 00:23:46,308 --> 00:23:49,500 think that fits very well with the Bill Ackman checklist. 472 00:23:49,600 --> 00:23:51,700 He looks for brand value pricing power. 473 00:23:51,700 --> 00:23:54,200 He looks for margin expansion, a company that will eventually 474 00:23:54,200 --> 00:23:57,300 become very free, cash flow positive and do Buybacks in the 475 00:23:57,300 --> 00:23:59,600 coming years. He looks for good leadership. 476 00:23:59,700 --> 00:24:02,100 If you look for a company with a wide moat that can fend off 477 00:24:02,100 --> 00:24:05,400 competitors, he highlighted qualitatively, all of those 478 00:24:05,400 --> 00:24:09,000 things in this description. So, of course, Bill Ackman, 479 00:24:09,000 --> 00:24:11,400 looks at both the numbers and he looks at the qualities of the 480 00:24:11,408 --> 00:24:14,100 company and I think that Netflix does make sense in his 481 00:24:14,100 --> 00:24:15,700 portfolio. Now, the next one that I'll 482 00:24:15,700 --> 00:24:17,800 highlight is Canadian Pacific Railway. 483 00:24:18,000 --> 00:24:20,900 This is a brand new investment in Bill ackman's portfolio. 484 00:24:21,300 --> 00:24:23,900 And at first, I really didn't know how this one fit in. 485 00:24:23,900 --> 00:24:25,400 I was a little bit confused by it. 486 00:24:25,600 --> 00:24:28,100 I thought maybe this is like a Commodities play. 487 00:24:28,600 --> 00:24:31,800 He's investing in companies. Like Netflix and Domino's and 488 00:24:31,800 --> 00:24:34,900 then a railway seemed quite random, but it does highlight in 489 00:24:34,900 --> 00:24:37,800 one of the paragraphs here. I think the core reason why he's 490 00:24:37,800 --> 00:24:40,400 investing in this company. He says Canadian Pacific has 491 00:24:40,400 --> 00:24:42,900 been the fastest growing North American class. 492 00:24:42,900 --> 00:24:47,000 One railroad with an average organic growth rate of 6 percent 493 00:24:47,000 --> 00:24:49,900 over the last five years in December Canadian. 494 00:24:49,900 --> 00:24:53,700 Pacific closed the acquisition of Kansas City Southern which we 495 00:24:53,700 --> 00:24:57,300 believe will be a transformation on value-creating transaction. 496 00:24:57,500 --> 00:25:01,100 I think this is the primary reason the Acquisition of KCs 497 00:25:01,100 --> 00:25:04,500 positions Canadian Pacific to be the only North American rail, 498 00:25:04,500 --> 00:25:07,100 right. Railroad with a direct route 499 00:25:07,100 --> 00:25:10,600 from Canada to Mexico and it will result in significant 500 00:25:10,600 --> 00:25:14,500 revenue and cost. Synergies KCs is rail network is 501 00:25:14,500 --> 00:25:16,900 at the center of the North American rail system. 502 00:25:17,100 --> 00:25:19,900 Linking Mexico to Major markets in the midwest. 503 00:25:19,900 --> 00:25:24,600 The southeast regions of the United States, the see pkcs 504 00:25:24,600 --> 00:25:28,000 combination will connect six of the seven largest metro regions 505 00:25:28,200 --> 00:25:32,000 in North America, in Direct route and offer unparalleled 506 00:25:32,000 --> 00:25:35,000 speed and service for customers Canadian Pacific. 507 00:25:35,000 --> 00:25:39,000 Currently owns KCs through a voting trust which entitles 508 00:25:39,000 --> 00:25:42,200 Canadian Pacific to full economic ownership of the 509 00:25:42,208 --> 00:25:45,400 company but does not permit Canadian Pacific to take 510 00:25:45,400 --> 00:25:48,900 operational control of the railroad until it receives 511 00:25:48,900 --> 00:25:52,900 regulatory, approval of which pending merger application. 512 00:25:53,200 --> 00:25:56,400 We expect this approval to occur by the end of the year. 513 00:25:57,000 --> 00:25:59,600 I think this is the big reason he sees this acquisition. 514 00:25:59,700 --> 00:26:02,800 Position as having all sorts of synergies, and he thinks that 515 00:26:02,800 --> 00:26:04,800 this will create a better value proposition. 516 00:26:04,800 --> 00:26:08,800 So I think that this event is why he decided to jump back into 517 00:26:08,800 --> 00:26:10,800 it, but it does highlight one other thing. 518 00:26:11,100 --> 00:26:13,600 And this is another thing that I tried to highlight that Bill 519 00:26:13,600 --> 00:26:17,400 Ackman, always, does he buys companies when they trade down 520 00:26:17,700 --> 00:26:19,900 below their historical valuation. 521 00:26:20,100 --> 00:26:23,100 He says Canadian Pacific's years have recently traded at a 522 00:26:23,100 --> 00:26:28,100 discounted valuation relative to history and its peers. 523 00:26:28,400 --> 00:26:32,300 When companies become Discounted relative to their long-term 524 00:26:32,300 --> 00:26:35,300 history and their companies that he likes that he thinks has good 525 00:26:35,300 --> 00:26:37,000 qualities. That's the time that he 526 00:26:37,000 --> 00:26:39,500 typically jumps in on him. So when I looked at this 527 00:26:39,500 --> 00:26:43,300 overall, I see it as one, good thing happening to this company 528 00:26:43,500 --> 00:26:44,600 that he thinks will have a lot of good. 529 00:26:44,600 --> 00:26:48,700 Synergies on top of a company. That is well insulated from lots 530 00:26:48,700 --> 00:26:51,300 of competitors and threats because it's a railway, it's 531 00:26:51,300 --> 00:26:54,700 more like a utility company. Plus, it's trading at a discount 532 00:26:54,700 --> 00:26:57,500 and all those factors. I think make it attractive for 533 00:26:57,500 --> 00:26:58,900 an investment for Bill. Ackman. 534 00:26:59,000 --> 00:27:01,000 Now the last one. I want to highlight is another 535 00:27:01,000 --> 00:27:04,100 new investment in a company that I'm currently invested in, which 536 00:27:04,100 --> 00:27:07,500 is Domino's Bill Ackman, recently purchased Domino's 537 00:27:07,800 --> 00:27:12,100 right around here, and it traded up like crazy, right? 538 00:27:12,100 --> 00:27:15,200 It went up 50 percent, then it traded right back down. 539 00:27:15,500 --> 00:27:18,900 And since it traded down so much, I had this company on my 540 00:27:18,900 --> 00:27:21,000 radar for a while, I wanted in on it. 541 00:27:21,200 --> 00:27:24,700 And now it's traded down to just around like eight ten percent 542 00:27:24,700 --> 00:27:27,400 from his buy-in. And I decided to take the jump 543 00:27:27,400 --> 00:27:29,500 into this company with my passive income. 544 00:27:29,700 --> 00:27:31,500 Portfolio. So that's a dividend portfolio. 545 00:27:31,700 --> 00:27:34,500 Domino's fits really well into that portfolio. 546 00:27:34,800 --> 00:27:37,700 But that's kind of the story with dominoes so far with Bill 547 00:27:37,700 --> 00:27:39,400 Ackman. He says, that our investment in 548 00:27:39,408 --> 00:27:42,900 dominoes was off to a strong. Start with shares up, over 50% 549 00:27:42,900 --> 00:27:45,600 from when we made our investment, in March, through 550 00:27:45,600 --> 00:27:49,300 the end of 2021 driven by robust, operating results. 551 00:27:49,600 --> 00:27:53,300 And a late year Omicron driven rally at the stay-at-home stocks 552 00:27:53,800 --> 00:27:57,100 most of these gains disappeared in the first few months of this 553 00:27:57,100 --> 00:27:59,600 year with Domino stock price declining 29. 554 00:28:00,000 --> 00:28:02,700 Percent through the end of March, 22nd. 555 00:28:02,800 --> 00:28:05,800 In addition to the broad Market sell-off especially in higher 556 00:28:05,800 --> 00:28:08,000 growth companies. We believe that their recent 557 00:28:08,000 --> 00:28:11,500 stock price weakness is attributable to an ongoing 558 00:28:11,500 --> 00:28:14,700 slowdown in same store sales growth that begin in. 559 00:28:14,700 --> 00:28:18,700 The third quarter of 2021, Domino's has a long history of 560 00:28:18,700 --> 00:28:21,900 defying the Skeptics and outperforming following brief 561 00:28:21,900 --> 00:28:25,000 periods of weakness and we believe that this time is no 562 00:28:25,000 --> 00:28:27,000 different. So the big problem with Domino's 563 00:28:27,000 --> 00:28:29,100 was slowing same store sales growth. 564 00:28:29,100 --> 00:28:31,300 That's what investors became concerned about. 565 00:28:31,400 --> 00:28:34,700 He says, the recent deceleration is driven primarily by driver 566 00:28:34,700 --> 00:28:38,400 shortages due to the current state of the US Labor Market, 567 00:28:38,500 --> 00:28:41,500 which is acutely, impacting the delivery business, that 568 00:28:41,500 --> 00:28:44,800 comprises two thirds of sales. While driver shortages have led 569 00:28:44,800 --> 00:28:47,300 to shorten hours and customer service challenges at many 570 00:28:47,300 --> 00:28:50,100 locations. The company is taking corrective 571 00:28:50,100 --> 00:28:53,900 action by conducting a full assessment of the driver labor 572 00:28:53,900 --> 00:28:57,300 market, launching new hiring and Training Systems and eliminating 573 00:28:57,300 --> 00:29:02,200 time-consuming in-store tasks So basically, Domino's is on top of 574 00:29:02,200 --> 00:29:04,800 this, they know that driver shortage is a challenge. 575 00:29:04,800 --> 00:29:06,600 They're taking all sorts of action to fix this. 576 00:29:06,700 --> 00:29:09,700 He says it in light of high inflation and labor food costs 577 00:29:09,700 --> 00:29:10,600 Domino's. Recently. 578 00:29:10,600 --> 00:29:13,400 Refresh its core mix-and-match delivery offers by raising the 579 00:29:13,400 --> 00:29:18,100 price point from 599 2699 and adding new products to the 580 00:29:18,100 --> 00:29:20,400 offer. Now he says, we estimate that 581 00:29:20,400 --> 00:29:24,600 this one dollar increase will be a several percentage Point, 582 00:29:24,600 --> 00:29:27,200 Tailwind to same store sales growth. 583 00:29:27,400 --> 00:29:31,500 So just increasing these items from 89 2699, when you're 584 00:29:31,500 --> 00:29:34,400 selling this, much stuff will increase the same store, sales 585 00:29:34,400 --> 00:29:37,300 growth, by several percentage points, without taking into 586 00:29:37,300 --> 00:29:40,900 account, any positive benefit to ticket that Domino's has 587 00:29:40,900 --> 00:29:43,700 historically seen from new product additions. 588 00:29:44,100 --> 00:29:46,200 This is the first time, the company has ever increased the 589 00:29:46,200 --> 00:29:49,600 prices on this offering and over 12 years. 590 00:29:50,100 --> 00:29:52,900 And we continue to believe that Domino's customer value 591 00:29:52,900 --> 00:29:56,600 proposition remains exceptional product Innovation and peak 592 00:29:56,600 --> 00:29:59,500 level of advertising funds and the return of key promotion. 593 00:29:59,700 --> 00:30:02,500 Should provide additional Tailwinds to sales growth. 594 00:30:02,500 --> 00:30:05,100 So Bill Ackman believes that Domino's traded down in price 595 00:30:05,100 --> 00:30:08,600 because same store sales slow down but he thinks it will be 596 00:30:08,600 --> 00:30:11,000 very short-lived. He thinks that Domino's is going 597 00:30:11,000 --> 00:30:13,700 to re-accelerate, same store sales, right back to where 598 00:30:13,700 --> 00:30:16,400 they've been for the past 12 years, and this will be a 599 00:30:16,400 --> 00:30:18,400 short-lived blip again. This is another point where I 600 00:30:18,408 --> 00:30:20,300 agree with them. I think it's a great company. 601 00:30:20,600 --> 00:30:23,200 That's attractively valued. He says, Domino's, currently 602 00:30:23,200 --> 00:30:27,000 trades at a mid 20s, multiple of four turnings a compelling 603 00:30:27,000 --> 00:30:29,500 valuation, given its leading position. 604 00:30:29,600 --> 00:30:31,400 Ian in the quick service restaurant. 605 00:30:31,400 --> 00:30:34,700 Pizza category enabled by its own Crown Jewel. 606 00:30:34,700 --> 00:30:37,700 That delivery infrastructure. That is something that really no 607 00:30:37,700 --> 00:30:40,100 other company. I know of no other quick service 608 00:30:40,100 --> 00:30:43,100 restaurant has quite like dominoes the high certainty 609 00:30:43,100 --> 00:30:46,800 nature of the business and its mid to high-teens long term 610 00:30:46,800 --> 00:30:49,100 earnings growth. We are pleased that the company 611 00:30:49,100 --> 00:30:52,100 is taking advantage of its depressed share price by 612 00:30:52,100 --> 00:30:54,900 continuing to repurchase shares consistent with its 613 00:30:54,900 --> 00:30:57,400 long-standing policy of returning excess cash to 614 00:30:57,400 --> 00:30:59,000 shareholders. And of course that's something 615 00:30:59,000 --> 00:31:01,600 that Domino's They do massive amount of share BuyBacks. 616 00:31:01,600 --> 00:31:05,100 So as the price Falls, you know, dominoes themselves is a big 617 00:31:05,100 --> 00:31:07,200 buyer of the company so that's all I'm going to highlight from 618 00:31:07,200 --> 00:31:09,500 this letter but I think that paints a more well-rounded 619 00:31:09,500 --> 00:31:12,200 picture. So you have part 1 of how Bill 620 00:31:12,200 --> 00:31:14,600 Ackman. Pick stocks, the fundamentals, 621 00:31:14,600 --> 00:31:17,300 the share BuyBacks, the dividends it trading below, 622 00:31:17,300 --> 00:31:20,300 historical valuation, but this gives you a view of more of the 623 00:31:20,308 --> 00:31:23,000 qualitative aspects. He really does deep dive 624 00:31:23,000 --> 00:31:26,100 Research into every single company so that he understands 625 00:31:26,100 --> 00:31:28,900 the business inside and out and I think that's what you have to 626 00:31:28,900 --> 00:31:30,400 do. If you're Investing large 627 00:31:30,400 --> 00:31:32,100 amounts into individual companies. 628 00:31:32,200 --> 00:31:34,800 You need to know what you own. So I'm going to be following 629 00:31:34,800 --> 00:31:36,300 Bill Ackman. I'll continue to look at his 630 00:31:36,300 --> 00:31:39,100 portfolio as well as many other great investors and you learn 631 00:31:39,100 --> 00:31:41,000 about more of that hair. So, I hope you enjoy it. 632 00:31:41,100 --> 00:31:41,900 I'll see you in the next one.