Welcome back. Everyone.
Today on the Joseph Carlson show on a TV interview.
We have Seth klarman. This guy is a highly respected
investor that's beat the market for a long period of time.
He's considered a super investor he manages a portfolio of over
five billion dollars. Well, he just did an interview
today where he declared that we're in quote, an everything
bubble. What isn't everything bubble?
How does it impact us as investors?
And what can we do about it? We're going to be discussing
that in this episode. As we look through this
interview, now we have another big headline.
Here, there was an internal Court Document, which you can
only get these through court documents and through lawsuits.
But this one revealed an internal goal that the CEO of
Microsoft, had Sachin Adele has set a goal of 500 billion
dollars in revenue for Microsoft by 2030.
That was their personal Insight goal for the company.
Now, 2030 is about 7 years away and growing the revenue to that
amount has certain implications on the free cash flow.
The free cash flow per share the earnings growth, the yield of
the company, the amount of BuyBacks, we can infer a lot of
valuation based on that goal, if it became reality.
So, I went through and did all the math.
Assuming such an Adela is correct with his goal.
What is Microsoft going to be worth in 2030?
Now, we also have some news coming out of Vegas.
One of the owners of one of the best properties in Vegas, which
is the Bellagio. This is one of the few casinos
that Vici does not own in Vegas. Well, there's a rumor going,
Going around that Blackstone. The current owner of this
property is Fielding offers to sell 50% of their stake.
There's a chance that Vici could end up buying this and in
typical Vegas fashion. I'm going to give the odds that
Vici ends up with this property. And then in a surprising turn of
events. We have a follow-up video.
Remember our guy here that's in the pool.
He has a nice watch, He's flashing all the AmEx cards and
he's explaining how to do fraud, basically, organizing a business
for the sole purpose of taking, Credit.
And then using that credit to personally enrich himself at the
expense of the bank's. Well, in a surprise turn of
events are guy here, has a response.
He actually listen to the criticism.
He saw it, blow up a little bit on social media, and he has a
follow-up video. So we're going to be looking up
as follow-up response here and seeing what he has to say.
So as always, we have a jam-packed episode, a lot to
cover, a lot of news to go through as well as a portfolio
update. So let's go ahead and get
started. Now, the headline news of the
day is that Seth klarman who is Is a highly respected investor a
super investor. He has a track record of beating
the market. So he's one of the few that's
actually created Alpha for his shareholders, for his investors
alongside of him. So he has a lot of clout what he
says, has a lot of weight to it and he went on to CNBC today and
said that he believes we're in and everything bubble.
Now I must admit my first initial reaction when I hear the
term everything bubble and when I hair very smart, super
investors predicting Bubbles is two-tone out a little bit to
kind of just zone out because everything.
Bubbles are predicted all the time.
The everything bubble is so common that it's now an entry in
Wikipedia where it has an extensive definition going
through the impact of how everything seems to be
overvalued or inflated all at the same time.
So that's my bias on this as soon as I hear this, I'm a
little bit skeptical. I'm a little bit reluctant to
believe it, but since Seth klarman has so much clout and
such a strong History of outperformance.
I want to give him the benefit of the doubt.
So even though we have a formal definition of what the
everything bubble is, I want to take a look at what he defines
as the everything bubble and how we can escape it.
The first thing is, we've been in an everything bubble.
I think that a lot of money has flowed into virtually
everything. Historically, low interest
rates, even zero rates, have precipitated that bubble.
You've also had a lot of changes in the business World technology
has Accelerated, if anything and you seem disruption of all kinds
of businesses which creates challenges and opportunities for
investors. So that's another thing.
Some asset classes have become increasingly popular, private
credit has had it had a day in the sun.
You've had speculation during that bubble in all kinds of
things from crypto to meme, stocks to spax.
In a way that I think and the book has some important
reminders for people about the dangers of speculation and the
importance of remembering what kind of environment you're in.
Now he listed off a number of things.
Of course we have the meme stocks we have the specs we have
a lot of speculation in the market.
He notes that we had record low interest rates for a long period
of time. Over the past decade.
We also have a lot of money flowing into everything as he
says it investors are just buying everything everywhere,
causing the everything bubble. So in Seth, klarman is mind the
past decade of performance, in the stock market is more of a
bubble than a deserved reward for investors carefully
imprudently making Investments. He thinks it's a result of all
this monetary policy. All this loose buying from
investors and a lot of speculation at the same time.
So that's Seth. Klarman is definition of what's
happened over the past 12 years, the everything bubble has been
fueled by all of these factors and he seems very reluctant to
be bullish on the market. In fact, he seems just the
opposite. Do you seems very concerned very
conservative, almost defensive, with everything that he says.
Now he does go on to share his input and advice for investors
today. This won't be the permanent
condition but we don't know what conditions we will experience.
So I think every investor has that challenge that you have to
look at the moment you're in and say, which part of this is real,
which part of this may be enduring and which part of this
may look completely different as soon as tomorrow.
And how do I position myself? Cleaning somewhat of a
longer-term perspective because I think trying to trade
day-to-day is not a game. Anybody really is well equipped
to win. Look at the world today and see
what's real and not real, how things are going to be shaped
over the next five to ten years and position our portfolios in a
long term structure based on how we believe things will really
turn out avoid the crazes, the memes the things that are short
term in nature. Now next he goes on to give a
definition I really love. They asked him about what a
value investor. He is and he breaks down the
false distinction between value and growth.
Academic definition of value is by the stock that's cheapest by
the numbers but I don't think that's what Graham and Dodd
wanted. In fact, it's clear that they
were talking about earnings power and the growth
possibilities in a business even if they're hard to determine.
And so, I think value has to be determined for every company.
The way I think about the market is not that they were growth
stocks and value stocks. But rather that all stock May
hold value, but that all stocks also could potentially be
overvalued. So you have to have a mechanism,
a rubric for figuring out. The value of different kinds of
assets, different, kinds of businesses, and then figure out
which ones are trading particularly mispriced.
So growth is encompassed in value.
It's part of the scope of value, just like this starting yield or
the starting multiple is part of value.
Now, Seth continues on with the idea that value and growth
should not be separated and you talk specifically about the type
of company. These investors should be
focused on in a world that's changing as fast as this one.
It's really important to think about not just what are the
earnings today. The earnings today may not be
here tomorrow they may be disrupted.
The business may be gone or they may be 50 or 100 percent more.
So I think investors need to take into account.
What are the longer term prospects for a business?
I think investors have become vastly more sophisticated these
days than in Graham and Dodd Sera in terms of thinking about
what causes a business to be. Resilient to competitive
threats. Also Warren Buffett.
I showed all of us, the value of growth that he thinks hard about
some of the highest quality businesses in the world, but
only buys them when they're at attractive prices.
So he also notes, Warren Buffett's.
Advice of buying the best companies in the world.
The highest quality ones, and trying to snag them for the best
prices possible. Now, as this interview continues
on, I noticed it. Seth klarman is far more
cautious, less enthusiastic about the future than other.
Stirs like Warren Buffett. He seems to always have this
posture, giving warnings and giving doubt instead of giving
optimism, but even as he's more cautious and reluctant to give a
lot of optimism, he still has a lot of Hope for investors today.
One of the questions that he's asked is if he thinks the market
has become too efficient, this is something that a lot of
Scholars would come up with its say that the market is so
efficient now that you can't possibly Beat It.
Here's what he has to say about the subject.
There's a question in my mind about once a month.
That becomes more efficient, whether it actually does have
the likelihood of becoming less efficient afterwards.
So for sure there's more money in public markets.
Things have become somewhat more efficient, but I also see a
short term orientation. That tells me that it's
possible. Some pricing is actually become
less efficient. I think when you look at meta,
the stocks been all over the place in a reasonably short
period of time, Trey it falling to under 100 then Rising back up
to almost 300. Literally months apart for a
large well-established company like think everybody can
analyze. So I think that there are
opportunities you know it's meta.
As a prime example of a company that's not been efficiently
traded. The stock price is literally all
over the place going from $100 to $300 to $200 and this is a
large cap well-established company with Legions of
analysts, covering the stock and even a stock like that is not
being efficiently traded on the stock market.
So he does have hope for Today, he does believe that there still
opportunities for investors to find excess value.
But again, as I watch these interviews, I take some of the
things with a grain of salt, even from great investors like
Seth klarman the prediction that were in and everything bubble.
For example is one, that's very, very difficult to get accurately
and he's also made some predictions like this in the
past. Here's an article from Business
Insider May 19th. 2010 was the published date and the title of
this article is Seth Carmen stocks will have zero returns
for a decade. He was predicting at the time
that companies really wouldn't do well.
He said, quote, given the recent run-up in stocks, I'd be worried
that we'd have another 10 years of zero returns again, this is
in 2010. He says, quote, I am more
worried about the world broadly than I've ever been in my whole
career. He said that stocks have quote,
rallied enormously and they're quite unattractive.
These are all quotes as Seth klarman is from 2010 having the
same Posture back then that he does today giving heed giving
warning giving concerned about the market and macroeconomics,
but it's prediction of a flat market for 10 years.
Really didn't work out since he made those claims in 2010.
The stock market is up over three hundred percent, including
dividends the investor that sold out of the market or became
overly concerned missed out on a huge opportunity cost with the
equity markets Rising higher and higher.
So maybe his called today is correct.
Maybe this is all a big bubble but one thing I noticed about
people, predicting Doom, Gloom is a typically predicted every
ten years and the market typically continues to trudge
forward going upwards year after year and between listening to
Seth klarman or the thoughts of Warren Buffett on this subject.
I'd rather follow Buffett who remains very positive on the US
Stock Market. Now, I have some other big news
here. There was a recent court, filing
that revealed an internal goal that the CEO of Microsoft is
Sachin. Adela has for the revenue growth
of the company by 2030 500 billion.
Four trillion dollars in 2030 and he says that that's a growth
rate of at least 10% per year. Now from this goal, if Microsoft
was able to meet it, we can draw some conclusions.
What such an Adele I did here is he basically gave a little bit
of evaluation framework to work off of.
So what I wanted to do was add this to my list of valuations.
In my last episode, I went through and did relative
valuation from my portfolio to spy, and I added in such an
Adele has valuation in So Soft. We have it right here.
Starting yield of 1.9%, we're going to look at the growth rate
and the implied share price in 2030.
Now, the first thing that we can do is look at Microsoft's cash,
flow conversion from their revenue.
So, right now, Microsoft has revenue of around 198 billion
dollars, that was 2022, and they successfully converted, 200
billion dollars of Revenue and 265 billion dollars of free cash
flow. We do a little math there and
divide the number, by the number we come.
With the percentage of 32%, that sounds correct. 65 is roughly,
one-third of 200. So, we know that Microsoft right
now has a free cash flow conversion of around 32%.
In this is a company that already has very high margins,
so I don't expect that this free cash flow conversion, will
really go up all that much over. The next 10 years, it could
there's a chance it could, if they cut back on capex.
But just to be conservative, let's take this number.
Now, at the end of twenty Thirty, the goal is to have five
hundred billion dollars of Revenue. 32% of 500 billion is
160 billion. So this is the total amount of
free cash flow, that Microsoft would produce in 2030, if they
meet this goal and if they keep the same free cash flow
conversion. Now, when we take that 160
billion and we look at the current market cap today that
gives us a free cash flow. Yield on 2030s cash flows at
around six point six percent that is the free cash flow yield
on 2030s projected, cash flows. Now Microsoft Typically does not
trade at a 6.6 percent free cash flow yield what cash flow yield
it will trade at is Up For Debate but based on the quality
of the company the Diversified product offering the reoccurring
subscription, the high margin and the incredible credit
worthiness. I believe that Microsoft will
trade around two-and-a-half to three percent free cash flow
yield. So let's just assume for a
minute here that the company trades at roughly three point,
three percent free cash flow yield just To make the math,
very simple. That means that the stock price
in 2030 would be $662. It would be a double from where
it is today. A double 17 years is about a 10%
return, so that seems very reasonable.
But we also have to keep in mind that the free cash flow growing
is not the only thing that gives shareholder returns.
There's a couple more things that may help out shareholders,
total returns, Microsoft pays, a growing dividend for the past 10
years. It's grown at around 11 percent
per year. This dividend should About a
little bit with the total returns.
Another thing that may help out with Microsoft is the shares
outstanding going down over time, they do a round, one
percent of share BuyBacks per year.
So based on these assumptions, we could see around a 12 percent
Total return for the next seven years.
If we have the dividends being paid the share BuyBacks and the
free cash flow generation. That's consistent with Sachin
Adele's projections but also remember, this is an internal
goal of Sachin Adela not a guarantee.
Now moving on we have some big news here that I'm a little it
excited about I have to admit even though we don't know
exactly how this is going to turn out black stone which is
Major investment. Firm is said to way offers for a
stake in the Bellagio Casino in Las Vegas.
Now if you're not too familiar with Vegas, you're familiar with
Bellagio. It is the most iconic place in
all of Vegas. It's one of the main
centerpieces of the Las Vegas Strip and it has the iconic
fountains there in literally dozens of TV show.
Dozens of movies, anytime they do a shot of Vegas or a montage
of Vegas. You're gonna see the Bellagio
Fountains and they are pretty incredible in person.
These things are like jets that shoot, hundreds of feet in the
air and their choreographed with music.
It's a pretty cool event, the Bellagio in and of itself, I
think, is one of the best properties in Vegas because of
the iconic nature of it, because of, where it's located, it's
such a ritzy, high-end place in Vegas, an amazing property.
But now we have black Tone looking to exit out half of
their steak, which they just bought a couple years ago.
Let's go ahead and take a look at the specifics of what we
know. Now they say that Blackstone has
Fielding offers for half of its interest in the real estate of
the Bellagio Hotel in Las Vegas. A property purchased almost four
years ago at a price of four point two five billion dollars.
So they just bought the thing a couple of years ago for four
point two five billion now they're looking to sell half of
their Equity stake. Now, a lot of people might
wonder right off the bat. What is black stone?
Motivations. Why are they trying to dump
their Equity? Stake in this property?
That's a complicated question. Big firms.
Like Blackstone are always looking to raise Equity to raise
capital from different sources in any way that they can.
They see different opportunities.
They'll look for raising Capital to buy those different
opportunities. If they have clients that are
withdrawing money or big partners that are withdrawing
money, they need to raise Capital to provide that that
money to their Partners. There's a lot of reasons that
investors. Has including large firms, like
Blackstone cell. So, just the fact that they're
selling the property is not a red flag.
To me, this doesn't cause me any concern whatsoever.
Bellagio is packed, the prices are high.
The Bellagio is right front and center of the Formula One event
happening soon. The tickets for this are
astronomical, the four-day raise ticket is only 2827 per person
for the better package, the one that includes.
Hospitality access is 11,000 247 per person for three days.
That is the prices. These things are going for.
So the Blasio's doing just find the demand, is there the hotel
selling out all of its rooms every single night?
And especially for special events why is Blackstone selling
this property? There could be a thousand
different reasons, but we know for sure that the Bellagio being
in trouble is not one of them. Another thing that Blackstone
has done is they're selling real estate across there.
Entire portfolio, exiting out of warehouses and Industrial
properties. So this is more of a
macroeconomic positioning of their portfolio than anything
specific to the Bellagio. In my opinion, I think this is a
mistake from Blackstone, even though the overall commercial
real estate properties may be having trouble.
The Bellagio and casinos are an entirely different breed with
different tenants, with different demand.
So this is not something that I'm concerned about in terms of
the property itself. Now, they Here that the Bellagio
is one of the top performing, resorts, in the city's famous
strip, it's operated under a long-term lease by MGM.
Resorts International traffic to Las Vegas hotels has remained
strong even as other real estate sectors such as malls and
office-based have weekend traffic in Vegas, continues to
be strong. I'm projecting that.
It will be strong over the next couple of years.
The only thing that could really put a damper in that is a very
bad recession and it doesn't look like we're getting that
just now. So we know that the properties
up Up for sale. And this is a good property who
are the potential buyers of this property?
While one of those is a large holding in my portfolio in the
real estate category. I only have one holding, which
remains Vici, one of my long-term compounding positions,
a company that I think has phenomenal assets located across
the u.s. and even some International like in Canada,
but Vici owns a majority of iconic locations, iconic real
estate in Vegas, those are their Jules owning the Venetian owning
The Mirage owning. So many MGM properties Caesars
and all of their properties Vici owns a ton of Vegas, real
estate. And I know for a fact that this
company is incredibly bullish, on Vegas.
They would like to own the entire strip if they could and
one of the properties that Ed Pitonyak, the CEO of Vici has
specifically outlined as an incredible property in Vegas.
That he would love to own is the Bellagio.
He's pointed at that one. Quickly and he was saddened that
blacks don't got to it before he could.
So I think it's incredibly likely that Vici is on the
phone, trying to work out a deal, that makes sense for the
shareholder. And I believe that.
If they can have it, make sense. If they can get it for a price
where it's a creative to a ffo, I think the cheese going to buy
this thing. I think there's a very high
probability of it. I would give the odds right now
around 60%. I think that's the chance that
Vici ends up buying this, they're one of the few REITs
with the scale with the balance sheet, with the credibility, to
be able to own it. They're one of the few weeks
that has the expertise, the management that has dealt with
these type of properties, and they're one of the ones that has
the willingness to take on this big of a purchase.
So I think a lot of the stars have aligned for Vici to buy
this property. Now, there are other contenders
there's other companies that could own this one of them is
realty income Corp realty. Income Corp is long known for
being the monthly dividend pair. It's a company that It owns a
lot of real estate that house is stuff like Home Depot Lowe's.
They own a lot of investment grade real estate, but they've
shown a willingness to even change their business model, and
follow VG into these entertainment, Casino, and
Resort properties realty. Income Corp recently, purchased
with a leaseback sale. The Encore Boston Harbor from
win. This is a massive property that
they bought for 1.7 billion. So this shows a validation of
what VG's doing and it also Rose and also shows that there's
other companies wising up wanting to get in on these
deals. So VG's a potential buyer.
We also have realty income Corp which I could see making this
deal as well. If they really fought for it.
I think they could make the deal and then there's other
investment firms that are large enough to be buying this steak.
So there is a chance that Vici doesn't end up with this
property. If they get outbid by someone,
to the extent that they can't make money.
Or if black stone is trying to get prices that Vici really
doesn't want to pay that could Be one reason why?
But I think there's a good chance they make a deal.
They're in a good position to do so.
And I believe, they'll really want this property.
So we'll have to see how things turn out either way.
It's an exciting time to be a Vici shareholder.
Now, in a rare turn of events, we have a follow-up to one of
the tick tocks that we goofed on.
In our last episode, we just made a fun video reacting to it.
Because sometimes people have a tendency in some rare cases to
say, some goofy things on Tick, Tock and especially when it
comes to Financial. Ice or business advice Tick-Tock
has some of the best. The best looks at what people
view as Financial advice. In this case, it was this
individual. I don't know his name, but he's
giving advice of basically how to spin up a business.
Create a business license. Take out a bunch of credit cards
and credit lines, use those credit cards to buy things like
expensive watches, sell them to pawn shops and then declare
bankruptcy with your business. And he acted as though this is
something where you're not personally liable because you
have a business license. It's not under your personal
name. Obviously, there's numerous
reasons of why this wouldn't work, why you would be
prosecuted why this is basically fraud, so on, and so forth.
Now, with this original Tick-Tock, I didn't know if he
was being serious here or not, I couldn't quite tell, but he
really gives no indication that he's joking.
He is somewhat serious throughout the entire thing.
Now, this Tick-Tock blew up online.
He got a huge response and a lot of people concluded.
As I did that, he's basically describing fraud hair.
Telling people to follow him on instructions on how to commit
this fraud. But here we have is response as
a follow-up. But funniest part about this
whole video is how many you guys thought I was being serious?
You have to be stupid to believe that you can open a brand-new
business, get American Express and be able to spend a hundred
thousand dollars without any history in a business or any of
that kind of, I was trolling another Tick.
Tock, we do. I saw a y'all blew it up, like,
I knew what happened, and I was confident for all this for other
for all this, but there's no proof for me for anything
because it was all complete bullshit.
It was all a joke, all along after being told that this was
fraud over and over again. He now has this follow-up video
saying, this was this is all a joke is just a prank bro.
I was just pretending this wasn't me being serious at all.
Now it's impossible to tell if he really was joking in the
first Tick-Tock or if this is an attempt to save himself and just
explain that it was a joke because he got called a fraud, a
lot of times. But either way, One thing I know
from ample social media experience in doing YouTube for
a while, is if you're joking about something, especially
something is important is explaining how to commit fraud.
You may want to explain clearly that it's a joke somewhere,
maybe in a follow-up comment under the video, maybe make it a
little bit more sarcastic. So people can clearly tell it's
a joke because the first Tick Tock leaves a little bit to the
imagination, and there's always some cases of being
misinterpreted, but there we have it.
It was just a prank. All of you are fools for
believing him in the first one. Now, that's it for this episode.
I hope you enjoyed. I'll have more content out this
week, so make sure you subscribe to the channel turn on the Bell
icon. So you get notifications and
I'll see you in the next one. All of you are fools for
believing him in the first one. Now, that's it for this episode.
I hope you enjoyed. I'll have more content out this
week, so make sure you subscribe to the channel turn on the Bell
icon. So you get notifications and
I'll see you in the next one.