1 00:00:00,100 --> 00:00:02,500 Welcome back, everyone. Today on the Joseph, Carlson 2 00:00:02,500 --> 00:00:05,300 show the inflation report came in for September and it was 3 00:00:05,300 --> 00:00:07,700 worse than expected. Despite that the market 4 00:00:07,700 --> 00:00:10,100 continues to trade up words. We also have the news that 5 00:00:10,100 --> 00:00:13,000 PepsiCo reported their earnings. It's better than expected. 6 00:00:13,100 --> 00:00:16,000 They beat on both the revenue and the EPs and they raised 7 00:00:16,000 --> 00:00:19,300 their full-year guidance. So there's no earnings recession 8 00:00:19,400 --> 00:00:23,700 for Pepsi Co but despite this there's a lot of people upset at 9 00:00:23,700 --> 00:00:25,800 Pepsi, they're upset at the company. 10 00:00:26,000 --> 00:00:28,500 So we're going to discuss why people are upset at Pepsi. 11 00:00:28,500 --> 00:00:31,300 Microsoft is launching a new Product called designer. 12 00:00:31,500 --> 00:00:34,700 It's the answer to the highly valued at startup canva. 13 00:00:34,700 --> 00:00:36,900 This is Microsoft doing what they do. 14 00:00:36,900 --> 00:00:41,000 Best the Microsoft bundle, a juggernaut that crushes. 15 00:00:41,000 --> 00:00:45,000 Any company in its wake, I'll explain why Microsoft continues 16 00:00:45,000 --> 00:00:48,900 to win with inferior products. And then finally, we have the 17 00:00:48,900 --> 00:00:52,600 big question that's being tossed around is value investing 18 00:00:52,600 --> 00:00:55,900 officially dead. Well, David Einhorn, a once 19 00:00:55,900 --> 00:00:59,700 legendary successful value. Investor is saying yes it is. 20 00:01:00,500 --> 00:01:03,200 Relating to Value investing. I don't I don't know that it 21 00:01:03,200 --> 00:01:05,400 ever comes back. He's not only saying that it's 22 00:01:05,400 --> 00:01:07,900 dead but he's saying that he doesn't think it's ever going to 23 00:01:07,908 --> 00:01:11,000 return and will decide whether or not value investing is dead 24 00:01:11,100 --> 00:01:13,300 and if it is dead, if it's going to come back. 25 00:01:13,300 --> 00:01:16,200 So we have a lot of news to jump into before we get to that. 26 00:01:16,200 --> 00:01:18,000 We have to do the portfolio update. 27 00:01:18,100 --> 00:01:20,900 As you know we're transparent are actually show what I'm doing 28 00:01:20,900 --> 00:01:23,400 with my portfolio, which is something I've done since the 29 00:01:23,408 --> 00:01:27,400 beginning in an effort to change the financial industry for the 30 00:01:27,400 --> 00:01:30,800 better to have more transparency across the Bored in this 31 00:01:30,800 --> 00:01:32,400 channel. I show you what I'm doing with 32 00:01:32,400 --> 00:01:34,100 my money. I don't tell you what to do with 33 00:01:34,100 --> 00:01:36,900 yours now. I focus on investing in high 34 00:01:36,900 --> 00:01:39,400 quality dividend-paying companies that they also have 35 00:01:39,400 --> 00:01:41,600 strong compounding characteristics. 36 00:01:41,900 --> 00:01:44,500 So these are companies that I think are all whether companies 37 00:01:44,700 --> 00:01:47,500 they can stand up in any environment, they can grow their 38 00:01:47,500 --> 00:01:49,400 earnings in almost any environment. 39 00:01:49,600 --> 00:01:51,800 That's the major Focus here now, and I looked through my 40 00:01:51,800 --> 00:01:53,600 portfolio. There's a lot of companies that 41 00:01:53,600 --> 00:01:56,300 I've been buying into, but there's one that I put the most 42 00:01:56,300 --> 00:01:59,700 money into recently, and it's actually a smaller company. 43 00:02:00,000 --> 00:02:02,600 Texas Roadhouse. This restaurant company is the 44 00:02:02,600 --> 00:02:04,700 one that I've poured, the most cash into. 45 00:02:05,100 --> 00:02:08,300 Right now, I'm in the green by forty five hundred dollars on it 46 00:02:08,600 --> 00:02:12,300 and that's after recently buying into it really heavily this year 47 00:02:12,600 --> 00:02:14,500 and I just want to highlight a couple things about this 48 00:02:14,500 --> 00:02:16,500 company. Texas Roadhouse is a company 49 00:02:16,500 --> 00:02:19,700 that has fresh cut steaks. They have a butcher and every 50 00:02:19,700 --> 00:02:22,100 single restaurant which is different than a company, like 51 00:02:22,100 --> 00:02:25,500 Applebee's or Chili's and Texas Roadhouse, you have a butcher 52 00:02:25,800 --> 00:02:29,200 cutting the steak every single day before you eat it, and they 53 00:02:29,200 --> 00:02:32,300 have a Sure, that hand makes their roles every single day. 54 00:02:32,500 --> 00:02:35,900 Most of the food is fresh at the restaurant with a strong focus 55 00:02:35,900 --> 00:02:38,700 on quality, which is different than a lot of other competing 56 00:02:38,700 --> 00:02:41,200 restaurants. And while doing that they try to 57 00:02:41,200 --> 00:02:45,900 keep costs low as possible while having extremely extremely good 58 00:02:45,900 --> 00:02:48,300 cost structure. So this company qualitatively is 59 00:02:48,300 --> 00:02:50,900 one that I like they focus on the experience, they focus on 60 00:02:50,900 --> 00:02:54,200 the quality of their food and they really try to pay attention 61 00:02:54,200 --> 00:02:57,800 to Consumer feedback to any type of trend going on so that 62 00:02:57,800 --> 00:03:00,500 they're on top of it. But while focusing on, Qualities 63 00:03:00,500 --> 00:03:02,100 in the experience at the restaurant. 64 00:03:02,100 --> 00:03:05,000 I've also outlined this company is one that I consider to be a 65 00:03:05,000 --> 00:03:07,300 very good. Compounder, it has strong 66 00:03:07,300 --> 00:03:10,000 franchise durability. They have brand value, the 67 00:03:10,000 --> 00:03:13,300 company as I purchased it had over four percent free cash flow 68 00:03:13,300 --> 00:03:14,900 yield with growing free cash flows. 69 00:03:15,000 --> 00:03:18,100 They have no outstanding long-term debt currently. 70 00:03:18,100 --> 00:03:20,700 They have more cash than debt which is very unique in the 71 00:03:20,700 --> 00:03:23,900 restaurant industry, they return Capital to the shareholder, both 72 00:03:23,900 --> 00:03:27,400 by a growing dividend, that's compounding over 17 percent on 73 00:03:27,400 --> 00:03:30,000 an annualized basis, and they return Capital to the 74 00:03:30,000 --> 00:03:32,600 shareholder by doing BuyBacks, which they've accelerated in 75 00:03:32,600 --> 00:03:35,900 recent years buying back three percent of their market cap just 76 00:03:35,900 --> 00:03:38,300 over the past year. And most importantly, this is a 77 00:03:38,300 --> 00:03:41,900 restaurant company that actually earns consistently High Returns 78 00:03:41,900 --> 00:03:45,700 on Capital employed in the range of 16 to 19 percent and while 79 00:03:45,700 --> 00:03:48,100 they're able to accomplish all of this, the compounding and 80 00:03:48,100 --> 00:03:51,100 their earnings per share has also been incredibly fast at a 81 00:03:51,100 --> 00:03:55,400 15% rate over the past 10 years and in just the past two years, 82 00:03:55,400 --> 00:03:58,800 annualized 20% per year. So they also are showing 83 00:03:58,800 --> 00:04:02,500 predictably strong Growth and this company in this market that 84 00:04:02,500 --> 00:04:04,700 we're in right now where everybody's selling out a 85 00:04:04,700 --> 00:04:08,500 different companies has actually sold down to at one point a 17 86 00:04:08,500 --> 00:04:11,900 forward P/E ratio which I think is incredibly cheap for it. 87 00:04:11,900 --> 00:04:14,000 Now, it's recently started to trade back up. 88 00:04:14,200 --> 00:04:16,000 In fact. Year-to-date Texas Roadhouse is 89 00:04:16,000 --> 00:04:18,500 up 5%. So I'm no longer buying the 90 00:04:18,500 --> 00:04:22,200 company even though I want to because it's just going up too 91 00:04:22,200 --> 00:04:24,600 high and there's too many other options to buy right now. 92 00:04:24,700 --> 00:04:27,800 So this company is one of my bigger bets, I put thirty five 93 00:04:27,800 --> 00:04:31,000 thousand dollars into a six. Billion-dollar company. 94 00:04:31,000 --> 00:04:33,700 But overall, this is an example of the type of company. 95 00:04:33,700 --> 00:04:36,800 I'm looking for now, another one of my portfolio in the consumer 96 00:04:36,800 --> 00:04:40,200 category that recently reported earnings is PepsiCo. 97 00:04:40,300 --> 00:04:42,900 This is the reason it's nice to own a company like PepsiCo 98 00:04:42,900 --> 00:04:46,800 during a very uncertain Market cycle the earnings per share of 99 00:04:46,800 --> 00:04:48,800 PepsiCo were better than expected. 100 00:04:49,000 --> 00:04:52,100 So they beat on their EPs and they also beat on their revenue 101 00:04:52,100 --> 00:04:55,000 expectations. And they also raised their 102 00:04:55,000 --> 00:04:58,600 full-year guidance from 10% to 12%. 103 00:04:58,800 --> 00:05:01,800 So they beat on They beat on revenue and they raised guidance 104 00:05:02,000 --> 00:05:04,400 overall. A very strong earnings report 105 00:05:04,400 --> 00:05:08,000 that caused the stock to bump up 4% and then the next day it's up 106 00:05:08,000 --> 00:05:11,300 to percent right now. PepsiCo is only down two 107 00:05:11,300 --> 00:05:13,900 percent, year-to-date not counting dividends it's 108 00:05:13,900 --> 00:05:16,800 basically flat year-to-date when you count in the dividend even 109 00:05:16,800 --> 00:05:19,000 though the broader markets down 20 plus percent. 110 00:05:19,000 --> 00:05:22,200 And the big thing that led to this outstanding performance by 111 00:05:22,200 --> 00:05:26,000 PepsiCo is one main factor. One big thing. 112 00:05:26,200 --> 00:05:29,900 It's the top of the list of the compounder checklist the The 113 00:05:29,907 --> 00:05:32,500 brand value. This is the reason why franchise 114 00:05:32,500 --> 00:05:36,300 durability, the brand value is number one on that compounder 115 00:05:36,300 --> 00:05:39,000 checklist. In fact, it's funny to listen to 116 00:05:39,000 --> 00:05:42,300 the CFO of PepsiCo, come on to CNBC and explain. 117 00:05:42,800 --> 00:05:45,100 Yeah. Basically, we sold the same 118 00:05:45,100 --> 00:05:48,500 amount of stuff but because we have such good brand value, we 119 00:05:48,500 --> 00:05:50,200 can just price things whatever we want. 120 00:05:50,300 --> 00:05:52,100 People can't give up our products. 121 00:05:52,500 --> 00:05:56,300 Now the CFO the executive there doesn't explain it quite like 122 00:05:56,300 --> 00:05:58,400 that, but listen to what he actually says. 123 00:05:58,400 --> 00:06:00,900 He basically says Of such good products. 124 00:06:00,900 --> 00:06:02,900 We can charge whatever the heck we want. 125 00:06:02,900 --> 00:06:06,500 We saw Revenue growth of about 16 percent that includes the 126 00:06:06,500 --> 00:06:11,300 higher prices volumes, or units that we sell were up just a bit 127 00:06:11,300 --> 00:06:14,900 on on the quarter. So passed along a bit of 128 00:06:14,900 --> 00:06:17,500 inflation. Obviously, our commodity costs 129 00:06:17,500 --> 00:06:22,200 are up even more and as a result gross margins were down a bit, 130 00:06:22,400 --> 00:06:24,600 but then we manage the balance of the cost structure. 131 00:06:24,600 --> 00:06:26,200 Pretty tightly. So operating margins were 132 00:06:26,200 --> 00:06:29,700 actually up about 30 basis points so it's a combination of 133 00:06:29,800 --> 00:06:32,900 Of look, we're we invested in Our Brands where we're actually 134 00:06:32,900 --> 00:06:35,700 seeing good consumer response, despite the fact that we've had 135 00:06:35,700 --> 00:06:38,500 to increase prices and we've got our cost structure and under 136 00:06:38,500 --> 00:06:41,300 control very well. So, we delivered a superior 137 00:06:41,300 --> 00:06:43,500 result. He says, yeah, you know, we sold 138 00:06:43,500 --> 00:06:46,500 a little bit more items but basically, we just increase 139 00:06:46,500 --> 00:06:49,900 prices and consumers, Love Our Brands and they'll pay whatever 140 00:06:49,900 --> 00:06:52,100 we charge them, that's brand value. 141 00:06:52,200 --> 00:06:55,700 Now, I know from an economic standpoint when you're reading 142 00:06:55,800 --> 00:06:59,300 headline news of high inflation and then you're seeing companies 143 00:06:59,300 --> 00:07:02,000 like Pepsi No, charge, basically, whatever they want to 144 00:07:02,000 --> 00:07:05,000 offset the effects of inflation that can be upsetting, and 145 00:07:05,000 --> 00:07:07,500 there's many people that are upset by this, they're saying 146 00:07:07,700 --> 00:07:11,300 pepsico's, the problem there, the their big meanie charging 147 00:07:11,300 --> 00:07:13,700 more for these items. But look, I don't control 148 00:07:13,700 --> 00:07:15,200 inflation. I'm not controlling these 149 00:07:15,200 --> 00:07:17,200 factors. What I'm doing is outlining 150 00:07:17,200 --> 00:07:20,700 Investments That might do well during times of inflation. 151 00:07:20,800 --> 00:07:23,500 Specifically Investments have good brand value, that leads to 152 00:07:23,500 --> 00:07:26,100 immense pricing power. PepsiCo is one of those 153 00:07:26,100 --> 00:07:29,700 companies whether you like it or not, they are a company. 154 00:07:29,800 --> 00:07:32,900 That can raise prices and the consumers will continue to buy 155 00:07:32,900 --> 00:07:35,400 their products. When consumers go to the grocery 156 00:07:35,400 --> 00:07:38,400 stores and they're looking for Quaker Oatmeal, they're going to 157 00:07:38,400 --> 00:07:40,400 buy Quaker Oatmeal. They're not going to switch it 158 00:07:40,400 --> 00:07:43,400 to some different brand. That usually is not what happens 159 00:07:43,500 --> 00:07:46,000 when consumers go and they want to get their Ruffles, they're 160 00:07:46,000 --> 00:07:48,200 going to buy Ruffles when they go on, they want to get their 161 00:07:48,200 --> 00:07:51,800 Pepsi, they're going to buy. Pepsi it takes more than a 17 162 00:07:51,800 --> 00:07:55,300 percent price hike to sway consumers from their favorite 163 00:07:55,300 --> 00:07:58,500 Brands to some off brand that they don't really trust and the 164 00:07:58,500 --> 00:08:01,300 truth of the matter is, most, Companies most companies in the 165 00:08:01,300 --> 00:08:05,500 market right now do not have pricing power like PepsiCo. 166 00:08:05,700 --> 00:08:09,200 Most of them cannot pull off what Pepsi's doing if they raise 167 00:08:09,200 --> 00:08:11,700 their prices, too much consumers, do I end up going to 168 00:08:11,700 --> 00:08:14,600 different products. So this stands out as a unique 169 00:08:14,600 --> 00:08:18,300 company that uniquely thrives in this type of environment and a 170 00:08:18,300 --> 00:08:20,200 huge part of that is their brand value. 171 00:08:20,300 --> 00:08:22,200 Now, as we go through this earnings season, we're going to 172 00:08:22,200 --> 00:08:23,800 see how a lot of these companies do. 173 00:08:24,100 --> 00:08:27,800 And I really don't expect all of them in my portfolio to do, as 174 00:08:27,800 --> 00:08:30,700 well as Pepsi did this company. Is very unique. 175 00:08:30,700 --> 00:08:33,600 In fact, Church & Dwight. As one of these consumer, staple 176 00:08:33,600 --> 00:08:36,500 companies is struggling a lot more than Pepsi. 177 00:08:36,600 --> 00:08:39,200 They don't have quite the same brand value as Pepsi. 178 00:08:39,400 --> 00:08:41,700 A lot of their products are more commoditized products. 179 00:08:42,000 --> 00:08:45,200 And this one has lowered guidance around three times this 180 00:08:45,200 --> 00:08:47,900 year. So not every company, can pull 181 00:08:47,900 --> 00:08:50,300 off what this one's doing. It's a pretty incredible thing 182 00:08:50,300 --> 00:08:51,800 they're able to do. Now, moving on from my 183 00:08:51,800 --> 00:08:54,700 portfolio. We also have predictions from 184 00:08:54,700 --> 00:08:57,300 Big All-Star investors, like David Einhorn. 185 00:08:57,600 --> 00:09:01,500 This guy used to be a legend Now, run into trouble for the 186 00:09:01,500 --> 00:09:05,000 past decade, in fact, he hasn't done so well, during this growth 187 00:09:05,000 --> 00:09:09,900 bull market in 2018, there were headlines of him losing 34% in 188 00:09:09,908 --> 00:09:11,800 his fund. There's similar headlines in 189 00:09:11,800 --> 00:09:15,900 2019 and so on, and so forth, he has many times where he's been 190 00:09:15,900 --> 00:09:19,300 struggling, over the past decade and now he's gone on the record 191 00:09:19,300 --> 00:09:23,200 saying, value investing is dead. So we have this interview of him 192 00:09:23,200 --> 00:09:25,500 saying value. Investing is dead and just a 193 00:09:25,500 --> 00:09:28,200 mention, just something I'll throw in before we get into this 194 00:09:28,200 --> 00:09:31,200 interview, is that we also had A recent tweet soon after this 195 00:09:31,200 --> 00:09:34,000 interview came out from none. Other than Michael burry and 196 00:09:34,000 --> 00:09:37,800 Michael burry said I get the sense that in 2002. 197 00:09:38,000 --> 00:09:41,100 There were more value hedge funds than there are value 198 00:09:41,100 --> 00:09:46,200 investors today just to repeat that burry says 20 years ago, 199 00:09:46,400 --> 00:09:49,700 there were more value investing hedge funds than there are 200 00:09:49,700 --> 00:09:52,200 individual value investors alive today. 201 00:09:52,300 --> 00:09:54,500 So Barry is basically saying the same thing. 202 00:09:54,500 --> 00:09:56,800 He thinks that value investing is dead. 203 00:09:56,800 --> 00:09:59,000 So let's go ahead and look at this interview from Einhorn and 204 00:09:59,000 --> 00:10:01,800 see the City made because not only does he say that value 205 00:10:01,800 --> 00:10:04,100 investing stead, he actually goes through and defines. 206 00:10:04,100 --> 00:10:07,300 What value investing even is, you know, there have been 207 00:10:07,300 --> 00:10:10,700 serious changes to the market structure and pretty much. 208 00:10:10,700 --> 00:10:13,200 Most of the value investors have been put out of business. 209 00:10:13,200 --> 00:10:15,800 Now, right off the bat he says most value investors have gone 210 00:10:15,800 --> 00:10:19,000 out of business. Basically the the art of value 211 00:10:19,000 --> 00:10:22,500 investing is going extinct and David Einhorn is one of these 212 00:10:22,500 --> 00:10:26,400 dinosaurs that survived the Ice Age so far. 213 00:10:26,800 --> 00:10:29,600 But the big problem I have with David einhorn's. 214 00:10:29,800 --> 00:10:34,400 In his interview hair is his definition of what value 215 00:10:34,400 --> 00:10:37,400 investing is. Listen to how he defines. 216 00:10:37,400 --> 00:10:39,200 What value investing actually is. 217 00:10:40,000 --> 00:10:43,800 So if value investing is trying to do security analysis, think 218 00:10:43,800 --> 00:10:46,700 about what companies are worth, think about why they might be 219 00:10:46,700 --> 00:10:50,000 Miss valued or misunderstood and then do valuation analysis. 220 00:10:50,000 --> 00:10:52,300 That tells you, that, that in fact is true. 221 00:10:52,500 --> 00:10:56,000 There's just very few of us left, that's David einhorn's, 222 00:10:56,000 --> 00:10:58,800 definition value, investing doing analysis, finding 223 00:10:58,800 --> 00:11:01,800 companies that are under Eyelid and waiting for other investors 224 00:11:01,800 --> 00:11:03,700 to re-rate, the multiple of those companies. 225 00:11:03,700 --> 00:11:06,800 And he goes on to explain how big of a factor, the re-rating 226 00:11:06,800 --> 00:11:10,300 of multiples are to his investing thesis, it used to be, 227 00:11:10,300 --> 00:11:12,900 we could buy something at a reasonably low multiple, 228 00:11:12,900 --> 00:11:14,800 whatever. We thought that was think that 229 00:11:14,800 --> 00:11:17,800 the company would do somewhat better benefit from it being 230 00:11:17,800 --> 00:11:20,600 somewhat better and realize the other investors would see what 231 00:11:20,600 --> 00:11:23,000 we saw. Six months later a year later 232 00:11:23,300 --> 00:11:27,200 and and would rewrite the shares to so you could buy something 11 233 00:11:27,200 --> 00:11:30,200 times earnings and maybe they would earn 10% Want more. 234 00:11:30,200 --> 00:11:33,300 But you get another three points on the multiple and you make 50 235 00:11:33,300 --> 00:11:36,700 percent over two or three years that isn't happening anymore 236 00:11:36,700 --> 00:11:40,200 because there's nobody to notice what actually happens at these 237 00:11:40,200 --> 00:11:43,100 companies. So we have to be the other side 238 00:11:43,100 --> 00:11:45,300 of that is is nobody knows what anything is worth. 239 00:11:45,500 --> 00:11:48,600 So there's an enormous number of companies that are dramatically 240 00:11:48,600 --> 00:11:51,500 Miss valued in ways that we haven't seen before. 241 00:11:51,700 --> 00:11:54,200 So, as well, as before, we might pay eight times or nine times, 242 00:11:54,200 --> 00:11:57,300 or 12 times would seem like, well multiples, but now we can 243 00:11:57,300 --> 00:11:59,300 buy a lot of those same companies that three times 244 00:11:59,300 --> 00:12:01,200 earnings. Four times earnings and if 245 00:12:01,208 --> 00:12:05,000 they're buying back 10 or 15 or 20 or 40 percent of their stock 246 00:12:05,000 --> 00:12:08,000 in some cases eventually we're going to have to get paid by the 247 00:12:08,000 --> 00:12:11,700 company as opposed to having other investors figure out what 248 00:12:11,700 --> 00:12:15,100 we thought we figured out before this value, investing to him was 249 00:12:15,100 --> 00:12:18,600 going in and sifting through very low multiple companies that 250 00:12:18,600 --> 00:12:21,700 were trading under the multiple that they truly deserved and 251 00:12:21,700 --> 00:12:25,400 then you buy in them and you wait for other investors to buy 252 00:12:25,400 --> 00:12:28,700 the same companies, raising the multiple higher and higher what 253 00:12:28,700 --> 00:12:31,500 he's doing here. There is a no true Scotsman 254 00:12:31,500 --> 00:12:33,700 argument. He's acting as though his 255 00:12:33,700 --> 00:12:36,900 version of value investing is the only version in existence 256 00:12:37,100 --> 00:12:38,800 and everyone doing something else. 257 00:12:38,900 --> 00:12:41,700 It's all algorithmic based and nobody else really knows what 258 00:12:41,700 --> 00:12:43,400 anything is worth. They all don't know what they're 259 00:12:43,400 --> 00:12:46,400 doing, but that's not correct. There are incredible value 260 00:12:46,400 --> 00:12:49,200 investors that have done well over the past 10 years. 261 00:12:49,400 --> 00:12:51,900 They just didn't do what you did David. 262 00:12:51,900 --> 00:12:53,500 They did a different version of it. 263 00:12:53,500 --> 00:12:56,400 Here's an interview with someone that I consider an incredible 264 00:12:56,400 --> 00:12:58,800 value. Investor named Harry Smith, this 265 00:12:58,800 --> 00:13:02,400 interview was in, 2014. So we're looking back, nearly a 266 00:13:02,408 --> 00:13:07,500 decade ago and Carrie Smith is a specifically about the specific 267 00:13:07,500 --> 00:13:10,300 type of value. Investing that David Einhorn 268 00:13:10,500 --> 00:13:13,400 considers, the only true value investing listen to Terry 269 00:13:13,400 --> 00:13:15,800 Smith's reaction to this. By one of the things that some 270 00:13:15,800 --> 00:13:18,700 value fund managers, say is the way, they're, they're able to 271 00:13:18,700 --> 00:13:22,900 make returns for you as by buying significantly cheaper 272 00:13:22,900 --> 00:13:25,100 stocks. And waiting for that re-rating, 273 00:13:25,200 --> 00:13:27,500 that is exactly the type of value. 274 00:13:27,500 --> 00:13:30,300 Investing that David Einhorn is talking about, Buying cheap 275 00:13:30,300 --> 00:13:32,000 stocks waiting around for re-rating. 276 00:13:32,200 --> 00:13:34,200 Is there a risk? Then with your strategy that 277 00:13:34,200 --> 00:13:36,800 you're paying over the odds, at the, these stocks are expensive. 278 00:13:37,000 --> 00:13:38,700 Yeah, you're right. That's how some value for 279 00:13:38,700 --> 00:13:41,200 managers seek to do it. I have to say, looking at the 280 00:13:41,200 --> 00:13:43,200 average results. So you just read, not very many 281 00:13:43,200 --> 00:13:45,300 of them seem to manage to achieve our performance with 282 00:13:45,300 --> 00:13:46,800 that. And one of the problems with 283 00:13:46,800 --> 00:13:49,700 that strategy is this. If you buy your poor company 284 00:13:49,700 --> 00:13:52,400 apart from the fact that it does destroy value wash you. 285 00:13:52,400 --> 00:13:56,100 Wait, if you get the timing roughly right, yeah, it'll make 286 00:13:56,100 --> 00:13:58,500 some value for you, it'll create it will create some performance 287 00:13:58,500 --> 00:14:00,200 for you. The problem is And you have to 288 00:14:00,200 --> 00:14:02,600 go find another one. Whereas with our companies if we 289 00:14:02,600 --> 00:14:05,000 select them right, we never have to go and find a new company. 290 00:14:05,000 --> 00:14:08,900 We can sit there not deal and as a result cut down the costs of 291 00:14:08,900 --> 00:14:10,800 running the portfolio, so it's Terry Smith. 292 00:14:10,800 --> 00:14:13,200 They're not a true value investor is he not wanting to 293 00:14:13,200 --> 00:14:15,000 buy a dollar for less than a dollar? 294 00:14:15,300 --> 00:14:17,900 Of course not. His goal is to buy companies 295 00:14:17,900 --> 00:14:21,400 that actually generate value. They create value every day they 296 00:14:21,400 --> 00:14:25,100 get high returns and make value for the investor. 297 00:14:25,200 --> 00:14:27,700 I think that's a very reasonable definition of value. 298 00:14:27,700 --> 00:14:31,700 Investing buying into companies. He's that generate consistent 299 00:14:31,700 --> 00:14:34,500 value for the investors. And again, this interview was in 300 00:14:34,500 --> 00:14:39,000 2014 Carrie Smith. Unlike David Einhorn since this 301 00:14:39,000 --> 00:14:40,700 interview is actually beat the market. 302 00:14:40,700 --> 00:14:43,900 He's actually out performed which has been difficult to do. 303 00:14:44,200 --> 00:14:47,700 Most value investing hedge funds have not accomplished that and 304 00:14:47,700 --> 00:14:51,400 Terry Smith goes on to explain that doing the game, that David 305 00:14:51,400 --> 00:14:54,000 einhorn's doing trying to buy cheap companies, that will 306 00:14:54,000 --> 00:14:55,500 eventually get re rated by other. 307 00:14:55,500 --> 00:14:59,500 Investors is relying on other investors and not relying on the 308 00:14:59,700 --> 00:15:03,300 Penny, you're putting the fate of your fund and the hands of 309 00:15:03,300 --> 00:15:05,600 other investors. One of the things that we really 310 00:15:05,600 --> 00:15:09,600 bad as investors is judging the outcome of differential rates of 311 00:15:09,600 --> 00:15:12,000 compounding. If you have 1,000 pounds that 312 00:15:12,000 --> 00:15:14,600 you invest for 30 years. So an investment lifetime, I 313 00:15:14,600 --> 00:15:17,600 would say roughly and you invested at 10% you'd have 314 00:15:17,600 --> 00:15:20,800 17,000 pounds at the end. If you invested at just two and 315 00:15:20,800 --> 00:15:24,000 a half percent more, 12-mile percent you have 34,000 pounds 316 00:15:24,000 --> 00:15:27,300 and twice as much. If you invested at 50% only 5%, 317 00:15:27,300 --> 00:15:29,500 more have sixty, eight thousand pounds, four times. 318 00:15:29,700 --> 00:15:31,600 As much the secret to, the companies we own. 319 00:15:31,700 --> 00:15:34,800 If there is a secret is that they actually compound in value 320 00:15:34,800 --> 00:15:37,300 more consistently in the market as a whole over long periods of 321 00:15:37,300 --> 00:15:39,000 time. Not because they grow faster 322 00:15:39,300 --> 00:15:40,900 because they don't really have a downturn. 323 00:15:41,100 --> 00:15:43,500 The companies aren't the fastest growing, but the fact that they 324 00:15:43,500 --> 00:15:46,700 never had a downturn really helps with the compounding and 325 00:15:46,700 --> 00:15:50,100 one of the biggest Holdings and Terry Smith's fund is Pepsi 326 00:15:50,200 --> 00:15:51,800 which surprise surprise, guess what? 327 00:15:51,800 --> 00:15:54,700 Company is not going through a downturn right now? 328 00:15:54,900 --> 00:15:58,300 Pepsi there is no bear market for Pepsi there's no recession 329 00:15:58,300 --> 00:16:00,100 for Pepsi. So even though this Doesn't grow 330 00:16:00,100 --> 00:16:02,000 so fast. The fact that it never has the 331 00:16:02,008 --> 00:16:04,500 downturns really helps with a compounding. 332 00:16:04,600 --> 00:16:07,500 So, when you look at portfolios like David Einhorn, I don't 333 00:16:07,500 --> 00:16:10,600 think that this is the only definition of value investing. 334 00:16:10,600 --> 00:16:13,200 I think there's other methods of doing it and investors that have 335 00:16:13,200 --> 00:16:15,700 convinced themselves that the only method of value investing 336 00:16:15,700 --> 00:16:18,200 is buying very low, P/E companies that don't have any 337 00:16:18,200 --> 00:16:20,700 strong compounding characteristics and hopefully 338 00:16:20,700 --> 00:16:23,400 the marquetry rates them. At a higher multiple, I think is 339 00:16:23,400 --> 00:16:25,300 a losing strategy. I think they'll continue to 340 00:16:25,308 --> 00:16:27,400 struggle, like they have for the past decade. 341 00:16:27,400 --> 00:16:29,900 Now, moving on, we have some news from soft. 342 00:16:29,900 --> 00:16:32,000 Just a disclaimer. Microsoft is one of my biggest 343 00:16:32,000 --> 00:16:34,300 positions. I'm very bullish on this company 344 00:16:34,300 --> 00:16:36,900 and I've recently been buying more and more of it as it's been 345 00:16:36,900 --> 00:16:38,800 going through this market sell-off. 346 00:16:38,800 --> 00:16:41,300 Now, the headline here is that Microsoft is launching designer, 347 00:16:41,600 --> 00:16:44,600 its answer to the highly valued startup canva. 348 00:16:44,600 --> 00:16:47,700 Now, if you're not familiar with canva, it's like figma where 349 00:16:47,700 --> 00:16:50,200 it's one of these browser designed tools that you can 350 00:16:50,200 --> 00:16:53,400 collaborate, and designers can get in and work together to 351 00:16:53,400 --> 00:16:55,600 build different interfaces like you see, right here. 352 00:16:55,600 --> 00:16:59,100 Now, the first thing that I'll say, I knew this before even 353 00:16:59,100 --> 00:17:00,900 reading it. To the article, I knew right 354 00:17:00,900 --> 00:17:03,100 away that Microsoft would make it free. 355 00:17:03,400 --> 00:17:06,099 No doubt in my mind that they would make this free. 356 00:17:06,200 --> 00:17:08,000 Because this is how Microsoft Works. 357 00:17:08,300 --> 00:17:12,099 This Is How They will bully and crush, canva even with an 358 00:17:12,099 --> 00:17:14,200 inferior product. And I think it's important for 359 00:17:14,200 --> 00:17:17,099 investors to understand the mechanics of how Microsoft 360 00:17:17,099 --> 00:17:20,000 dominates from the article. They say, Microsoft is launching 361 00:17:20,000 --> 00:17:23,500 a simple Graphics designer app called designer that will be 362 00:17:23,508 --> 00:17:27,000 available for free as part of the office, productivity 363 00:17:27,000 --> 00:17:29,900 software subscription. The company said when Today, 364 00:17:30,100 --> 00:17:31,900 that is the killing sentence there. 365 00:17:32,100 --> 00:17:35,600 If you're an executive at camba, you should be concerned. 366 00:17:35,600 --> 00:17:38,600 You should be frightened and very worried because Microsoft 367 00:17:38,600 --> 00:17:40,400 has done this time and time again. 368 00:17:40,500 --> 00:17:43,300 And it works every single time. Remember, the time when slack 369 00:17:43,300 --> 00:17:46,800 took out a full-page ad in the New York Times to welcome, the 370 00:17:46,800 --> 00:17:50,600 new competitor Microsoft and for slack to say, we're confident in 371 00:17:50,608 --> 00:17:53,400 our product, we're ready for the challenge to go head-to-head 372 00:17:53,400 --> 00:17:55,700 with Microsoft. Microsoft still is gaining 373 00:17:55,700 --> 00:17:59,500 market share over slack every single day, even with the help. 374 00:17:59,700 --> 00:18:03,400 From Salesforce slack. Can't compete with Microsoft 375 00:18:03,400 --> 00:18:05,800 teams. Even though slack is a better 376 00:18:05,800 --> 00:18:10,200 product than Microsoft teams and that is because of the bundle. 377 00:18:10,300 --> 00:18:13,400 That's the tool that Microsoft wields is they have the bundle 378 00:18:13,600 --> 00:18:15,300 other companies don't have the bundle. 379 00:18:15,300 --> 00:18:18,800 See, here's a situation. Canva decided to make itself. 380 00:18:18,800 --> 00:18:21,700 As a competitive threat to Microsoft, they're going after 381 00:18:21,700 --> 00:18:25,600 core parts of the office suite, it introduced an alternative to 382 00:18:25,600 --> 00:18:29,200 PowerPoint slide development in 2021 and it's September it 383 00:18:29,200 --> 00:18:31,400 brought out. Out a tool to edit documents 384 00:18:31,500 --> 00:18:34,200 challenging word. Now, if your Microsoft and you 385 00:18:34,200 --> 00:18:37,700 see this little company canva starting to build out your core 386 00:18:37,700 --> 00:18:40,000 office suite. That's going to raise some red 387 00:18:40,000 --> 00:18:41,600 flags. That's going to mean that there 388 00:18:41,600 --> 00:18:43,600 a problem that needs to be dealt with. 389 00:18:43,900 --> 00:18:46,400 And luckily for Microsoft, they're usually good at 390 00:18:46,400 --> 00:18:48,400 protecting their core office suite. 391 00:18:48,800 --> 00:18:53,200 They say now that canva has 55,000 paid teams using its 392 00:18:53,200 --> 00:18:56,800 software, including Amazon, FedEx, PepsiCo, Pfizer and 393 00:18:56,800 --> 00:18:59,500 Salesforce. So this is a competitive threat. 394 00:18:59,600 --> 00:19:02,100 Microsoft and Microsoft is now responding. 395 00:19:02,100 --> 00:19:06,000 Now, the problem for canva is what Microsoft can do is build 396 00:19:06,000 --> 00:19:10,000 out a copycat of canva. Include it in the Microsoft 397 00:19:10,000 --> 00:19:14,200 bundle, make it for free and then CEOs of companies will have 398 00:19:14,200 --> 00:19:18,700 a very difficult time saying yeah, I want to pay for canva on 399 00:19:18,700 --> 00:19:22,300 top of having Microsoft designer included in a bundle that I'm 400 00:19:22,300 --> 00:19:25,800 already paying for see that's the big tool that Microsoft 401 00:19:25,800 --> 00:19:29,500 wields any time they build out a new product they include it as 402 00:19:29,500 --> 00:19:31,000 part. Part of the bundle, they make it 403 00:19:31,000 --> 00:19:34,500 for free and then over time they increase the price of the bundle 404 00:19:34,800 --> 00:19:38,200 but it makes it difficult for any company to buy anything. 405 00:19:38,300 --> 00:19:40,900 In addition to something they have for free in the bundle. 406 00:19:41,000 --> 00:19:44,200 Satya Nadella says, no company is better positioned than 407 00:19:44,200 --> 00:19:47,300 Microsoft to help organizations deliver on their digital 408 00:19:47,300 --> 00:19:49,700 imperative. So that they can do more with 409 00:19:49,700 --> 00:19:51,300 less. What Sachin Adele is really 410 00:19:51,300 --> 00:19:54,800 doing is saying, no company has a strong of a bundle as 411 00:19:54,800 --> 00:19:57,400 Microsoft. And so many companies and can 412 00:19:57,600 --> 00:20:01,500 out value proposition other, He's by continually including 413 00:20:01,500 --> 00:20:04,100 other free products in the bundle by throwing more and more 414 00:20:04,100 --> 00:20:07,000 free products in the bundle. It just makes it impossible for 415 00:20:07,000 --> 00:20:09,500 other companies to compete. So it'll be interesting to see 416 00:20:09,500 --> 00:20:11,900 how this pans out. And my opinion, I think 417 00:20:11,900 --> 00:20:14,900 Microsoft will do exactly what they've done for the past 20 418 00:20:14,900 --> 00:20:16,600 years. The value proposition of the 419 00:20:16,600 --> 00:20:18,300 massive bundle. They already have with 420 00:20:18,300 --> 00:20:21,900 consumers, will make it very difficult for canva to gain any 421 00:20:21,900 --> 00:20:23,700 serious market share against Microsoft. 422 00:20:23,700 --> 00:20:24,900 So that's all the news for today. 423 00:20:24,900 --> 00:20:28,100 And again, it's crazy to see the reaction of the market. 424 00:20:28,200 --> 00:20:31,300 It's truly unpredictable. Giftable nobody going in today 425 00:20:31,300 --> 00:20:33,900 would have predicted that inflation would be hotter than 426 00:20:33,900 --> 00:20:36,000 expected. And the Market's reaction would 427 00:20:36,000 --> 00:20:38,600 be to go in the green by two and a half percent. 428 00:20:38,600 --> 00:20:41,500 Nobody can say that they were smart enough or they had great 429 00:20:41,500 --> 00:20:43,400 enough insight to have this prediction. 430 00:20:43,600 --> 00:20:46,200 And this is just another example of why it's so incredibly 431 00:20:46,200 --> 00:20:48,100 difficult to predict the short-term. 432 00:20:48,200 --> 00:20:50,100 That's all for now. Hope you enjoyed and I'll see 433 00:20:50,100 --> 00:20:50,800 you in the next one.