1 00:00:00,000 --> 00:00:02,200 Welcome back, everyone. Today on the Joseph, Carlson 2 00:00:02,200 --> 00:00:04,600 show. The S&P 500 is off to a great 3 00:00:04,600 --> 00:00:06,900 start in the year. And it's recently just hit a 4 00:00:06,900 --> 00:00:08,900 rough patch, and we're headed back down. 5 00:00:08,900 --> 00:00:12,900 And it feels like we're right back in 2020 to the market is 6 00:00:12,900 --> 00:00:16,800 still difficult and that is the theme of today's episode. 7 00:00:17,100 --> 00:00:20,200 The stock market is difficult, and it's not getting easier. 8 00:00:20,300 --> 00:00:23,100 This is something that Howard marks just went on to Bloomberg 9 00:00:23,100 --> 00:00:27,000 and he explained what he called a sea change, a profound and 10 00:00:27,000 --> 00:00:29,800 fundamental change in the way that investors have to think 11 00:00:29,800 --> 00:00:31,200 about. About investing because 12 00:00:31,200 --> 00:00:34,600 investing is no longer easy. So, we're going to be going over 13 00:00:34,600 --> 00:00:37,500 the sea change and what we can do with our portfolios to better 14 00:00:37,500 --> 00:00:40,000 prepare for the likely future ahead of us. 15 00:00:40,100 --> 00:00:42,600 Now, we also have some unfortunate news, layoffs are 16 00:00:42,600 --> 00:00:45,300 never fun and big Tech is announcing a lot of them. 17 00:00:45,300 --> 00:00:48,700 Microsoft announced 10,000 workers are going to be laid off 18 00:00:48,700 --> 00:00:51,000 and this comes right. After Amazon announced, the 19 00:00:51,000 --> 00:00:54,900 18,000 workers are going to be laid off 30,000 employees 20 00:00:54,900 --> 00:00:57,900 between just two companies and there seems to be more layoffs 21 00:00:57,900 --> 00:01:01,100 every single day and then lastly we have Amazing news here. 22 00:01:01,200 --> 00:01:04,900 This Disney executive, he made eight million dollars in less 23 00:01:04,900 --> 00:01:07,700 than four months of work will be going into this story. 24 00:01:07,700 --> 00:01:11,500 What this executive did to earn this money and the broader theme 25 00:01:11,500 --> 00:01:14,800 of Executives, pay executives are finally starting to take 26 00:01:14,800 --> 00:01:17,700 lower and lower compensation? So as always, we are lot to get 27 00:01:17,700 --> 00:01:20,100 to in this episode. Let's go ahead and jump in right 28 00:01:20,100 --> 00:01:22,000 after a quick message from today's sponsor. 29 00:01:22,000 --> 00:01:23,600 The sponsor of today's video is M1. 30 00:01:23,600 --> 00:01:26,600 Finance I started using them on finance literally five years 31 00:01:26,600 --> 00:01:29,800 ago, back in 2017. I uploaded my first. 32 00:01:29,900 --> 00:01:33,100 YouTube video in 2019. So I've been using this platform 33 00:01:33,100 --> 00:01:35,300 for years even before ever doing YouTube. 34 00:01:35,300 --> 00:01:37,500 The reason that I've been using em on finance for so long is 35 00:01:37,500 --> 00:01:40,000 because I love their products and one Finance offers, an 36 00:01:40,000 --> 00:01:41,800 ecosystem of tools to manage your wealth. 37 00:01:41,800 --> 00:01:44,300 We have M1 invest here which I use for my dividend growth 38 00:01:44,300 --> 00:01:47,100 portfolio and will also allows you to use margin and their 39 00:01:47,100 --> 00:01:49,500 margin rate is one of the lowest in the industry. 40 00:01:49,500 --> 00:01:53,100 I'm able to borrow over 140,000 dollars based off my passive 41 00:01:53,100 --> 00:01:55,000 income portfolio. And one also has a checking 42 00:01:55,000 --> 00:01:57,200 account where I keep my emergency savings and coming 43 00:01:57,200 --> 00:01:58,900 soon. I'm on finance is offering a 44 00:01:58,900 --> 00:02:02,300 high yield savings. They 4.5% annual percentage 45 00:02:02,300 --> 00:02:05,200 yield available to M1 Plus members and the best part is 46 00:02:05,200 --> 00:02:08,100 both the checking account and the saving account are FDIC 47 00:02:08,100 --> 00:02:09,699 insured. So if you haven't already tried 48 00:02:09,699 --> 00:02:12,000 out M on finance right now, they're offering both rewards 49 00:02:12,000 --> 00:02:15,000 for new signups and transfers of accounts based on the amount 50 00:02:15,000 --> 00:02:17,500 that you're transferring, go ahead and sign up using the link 51 00:02:17,500 --> 00:02:19,300 in the description below. Now, let's go ahead and get 52 00:02:19,300 --> 00:02:20,600 started. If you're new to the channel, 53 00:02:20,600 --> 00:02:24,100 this is my personal portfolio. I share it every single week on 54 00:02:24,100 --> 00:02:26,000 YouTube, with complete transparency. 55 00:02:26,300 --> 00:02:29,600 So far this year, it's up to point 86 percent. 56 00:02:29,600 --> 00:02:32,400 It's Come down a little bit as a markets traded down. 57 00:02:32,400 --> 00:02:35,400 Now in this portfolio, I focus on buying high-quality 58 00:02:35,400 --> 00:02:38,700 compounding companies that I think are very resilient. 59 00:02:38,700 --> 00:02:40,800 They have Financial characteristics that are much 60 00:02:40,800 --> 00:02:43,500 better than the average company. They have high, margins, High 61 00:02:43,500 --> 00:02:46,400 profitability ratios. They have low leverage, they 62 00:02:46,400 --> 00:02:49,000 have low amounts of cyclic. Ality, these are true, 63 00:02:49,000 --> 00:02:52,400 Compounders the companies that are monopolistic or oligopolies. 64 00:02:52,400 --> 00:02:54,800 They're highly entrenched in the markets, they compete in. 65 00:02:55,200 --> 00:02:58,400 I've been building up position and Company after company that 66 00:02:58,400 --> 00:03:01,000 meet these very high. And herds, I'm investing in 67 00:03:01,008 --> 00:03:03,600 companies at very predictable and reliable growth. 68 00:03:03,600 --> 00:03:07,100 So, when I look at my portfolio overall, even though most 69 00:03:07,100 --> 00:03:10,800 investors are concerned by the day-to-day swings of the market, 70 00:03:10,800 --> 00:03:13,900 and most investors get very excited when the market goes up, 71 00:03:13,900 --> 00:03:16,900 and to become very discouraged and sad when the market comes 72 00:03:16,900 --> 00:03:19,600 down, we don't do that at the Joseph, Carlson show. 73 00:03:19,600 --> 00:03:21,700 We don't get excited. When the market goes up and we 74 00:03:21,700 --> 00:03:23,900 don't become sad. When the market goes down, we 75 00:03:23,900 --> 00:03:26,900 keep investing in compounding companies and let these 76 00:03:26,900 --> 00:03:29,200 companies grow their free cash flows and earnings. 77 00:03:29,200 --> 00:03:32,400 Now, what's Happened this year so far has been pretty 78 00:03:32,400 --> 00:03:35,200 interesting. The market has raced up towards 79 00:03:35,200 --> 00:03:38,200 the beginning of this year and investors were feeling good. 80 00:03:38,200 --> 00:03:42,600 This lifted investors Spirits. It was a new year 2023 and we 81 00:03:42,608 --> 00:03:46,300 are already up 5% then the market did what it has done 82 00:03:46,300 --> 00:03:48,800 before. It went right back down, down 83 00:03:48,800 --> 00:03:51,800 two and a half percent, giving up the majority of games this 84 00:03:51,800 --> 00:03:53,800 year. And that's where the predictions 85 00:03:53,800 --> 00:03:56,700 of Howard marks come into play. Howard marks, is the founder of 86 00:03:56,700 --> 00:03:59,500 Oaktree capital and he's known for his extensive memos. 87 00:04:00,000 --> 00:04:02,300 Recently came out and said that, what he believes is happening 88 00:04:02,300 --> 00:04:04,400 right now, is called a sea change. 89 00:04:04,400 --> 00:04:07,600 A profound, a notable change in the investing fundamentals, and 90 00:04:07,600 --> 00:04:10,900 what Howard marks starts off with is how investing used to be 91 00:04:11,100 --> 00:04:15,600 from 2009, to 2012 t.i. These things produced, what I 92 00:04:15,600 --> 00:04:19,800 would call was an easy environment in the economy and 93 00:04:19,800 --> 00:04:22,200 the markets. It was, we had the longest 94 00:04:22,200 --> 00:04:24,900 economic recovery in history. It was easy to make money, 95 00:04:24,900 --> 00:04:26,700 right? We had low cost, Capital was 96 00:04:26,700 --> 00:04:29,700 easy to make a profit. We had very few default. 97 00:04:29,900 --> 00:04:32,800 And bankruptcy, it was easy to stay in business who was easy to 98 00:04:32,800 --> 00:04:36,000 access Capital. Everything was easy at that 99 00:04:36,000 --> 00:04:40,100 time, the entire setup was easy for investors and the results 100 00:04:40,100 --> 00:04:43,100 show that to be the case, look at the stock chart of the S&P 101 00:04:43,100 --> 00:04:48,200 500 from 2009 to 2012 any, it's basically a money printer every 102 00:04:48,200 --> 00:04:51,400 single year, just more and more games, you didn't really have to 103 00:04:51,400 --> 00:04:53,700 time the market. You could just buy in at any 104 00:04:53,700 --> 00:04:56,800 point and soon enough you'd be in the green and if you just 105 00:04:56,800 --> 00:04:59,500 held through some minor volatility, you would continue 106 00:04:59,500 --> 00:05:03,200 to make Money from 2009 to 2012. He could only be described as 107 00:05:03,200 --> 00:05:05,000 easy. Everything in terms of 108 00:05:05,000 --> 00:05:09,200 investing, the entire atmosphere Was Made Easy for investors for 109 00:05:09,200 --> 00:05:12,200 the majority of this time. Interest rates were Rock Bottom. 110 00:05:12,300 --> 00:05:14,000 They went down to basically nothing. 111 00:05:14,000 --> 00:05:17,000 The cost of capital, the cost of taking out debt was incredibly 112 00:05:17,000 --> 00:05:18,800 low. The Fed was also an ally of the 113 00:05:18,800 --> 00:05:21,000 market, their balance sheet, grew substantially, as they're 114 00:05:21,000 --> 00:05:24,300 doing quantitative, easing, making things easy for the 115 00:05:24,300 --> 00:05:26,900 investor and this is the big fundamental shift that Howard 116 00:05:26,900 --> 00:05:28,900 marks is pointing out that many investors. 117 00:05:28,900 --> 00:05:32,100 Still don't realize Sighs things were not only easy during that 118 00:05:32,100 --> 00:05:34,700 time, period, they were unnaturally easy. 119 00:05:34,800 --> 00:05:36,600 Everything was easy at that time. 120 00:05:36,800 --> 00:05:41,300 And in the last year, of course, with the appearance of the of 121 00:05:41,300 --> 00:05:45,600 the inflation and the increasing of rates to try to Stamp Out the 122 00:05:45,600 --> 00:05:47,500 inflation things have gotten harder. 123 00:05:48,200 --> 00:05:50,800 I imagine people today saying, well, what are we going back to 124 00:05:50,800 --> 00:05:52,800 normal? Like it was five, six, seven 125 00:05:52,800 --> 00:05:55,100 years ago. And, and the important thing to 126 00:05:55,100 --> 00:05:57,000 know is that, that wasn't normal, right? 127 00:05:57,000 --> 00:06:01,100 That was the easiest the best of times and I, My own belief is 128 00:06:01,100 --> 00:06:04,700 we're not going back there. We're now in an environment of 129 00:06:04,700 --> 00:06:07,900 more normal and right circumstances. 130 00:06:08,000 --> 00:06:09,900 And we're going to roughly stay this way. 131 00:06:10,000 --> 00:06:13,400 We're not going back to the way things were in the prior decade 132 00:06:13,500 --> 00:06:16,700 and the investors that are still thinking back to the good times 133 00:06:16,900 --> 00:06:20,100 Still Holding Onto hope that we just have to suffer through some 134 00:06:20,100 --> 00:06:23,400 minor volatility until the market starts racing back. 135 00:06:23,400 --> 00:06:26,600 Like, the way it was, they're mistaken and they're not paying 136 00:06:26,600 --> 00:06:29,700 attention to the sea change to the profound. 137 00:06:29,800 --> 00:06:33,300 I'll change that's already taken place in the market this special 138 00:06:33,300 --> 00:06:35,800 time period between 2009 and 2012. 139 00:06:35,800 --> 00:06:40,000 She wasn't only easy but it was unusual and it's unlikely to be 140 00:06:40,000 --> 00:06:42,700 repeated. We are unlikely to go back to 141 00:06:42,700 --> 00:06:45,400 this time period. And unfortunately when I look at 142 00:06:45,400 --> 00:06:48,200 the demographics of my channel, when I look at the actual people 143 00:06:48,200 --> 00:06:51,700 viewing this information, the majority of you are in an age 144 00:06:51,700 --> 00:06:55,600 where that's really the only time period that we know most of 145 00:06:55,600 --> 00:07:00,000 us started investing after 2009 and I think the big problem I 146 00:07:00,000 --> 00:07:03,100 see with so many investment portfolios is there, gauged 147 00:07:03,100 --> 00:07:06,600 around a time period that's unlikely to be repeated and the 148 00:07:06,600 --> 00:07:10,000 market has taught a lot of very bad lessons, over the past 149 00:07:10,000 --> 00:07:12,600 couple of years, one of the bad lessons that the markets taught 150 00:07:12,600 --> 00:07:15,300 us over the past couple of years is that it's a legitimate 151 00:07:15,300 --> 00:07:18,100 business model to sell something for less than the cost of making 152 00:07:18,100 --> 00:07:20,700 it Uber is a perfect example of this. 153 00:07:20,900 --> 00:07:23,700 This company is the quintessential company that 154 00:07:23,700 --> 00:07:26,900 sells something for less than the cost of making it any time. 155 00:07:26,900 --> 00:07:29,000 A company. Does this business model of 156 00:07:29,000 --> 00:07:32,300 taking a product Act marking it down losing money on every sale. 157 00:07:32,500 --> 00:07:35,500 Of course, they grow Revenue, that's common in all of them. 158 00:07:35,700 --> 00:07:39,100 Uber grew its Revenue but what it doesn't have is any type of 159 00:07:39,100 --> 00:07:42,100 profit, snowy betta. No free cash flow and no 160 00:07:42,100 --> 00:07:44,600 earnings, this company is unprofitable. 161 00:07:44,600 --> 00:07:47,700 These were the type of companies and investors flocked to over 162 00:07:47,700 --> 00:07:51,200 the past five years with high amounts of liquidity, in with an 163 00:07:51,200 --> 00:07:54,000 easy investing environment. But that was a wrong lesson that 164 00:07:54,000 --> 00:07:56,700 we learned in reality selling something for less than the cost 165 00:07:56,700 --> 00:07:58,600 of making. It is not a legitimate business 166 00:07:58,600 --> 00:08:02,700 model and The company can turn a profit someday down. 167 00:08:02,700 --> 00:08:06,200 The road is not a legitimate investing strategy companies. 168 00:08:06,200 --> 00:08:09,500 Like, uber are not going to give investors good returns buboes, 169 00:08:09,500 --> 00:08:12,400 another company that does this. It sells a product for less than 170 00:08:12,400 --> 00:08:15,200 the cost of making it. That's why it has explosive 171 00:08:15,200 --> 00:08:17,200 Revenue growth. It's great that they're taking 172 00:08:17,200 --> 00:08:20,000 in lots of Revenue, but they're not actually making any money. 173 00:08:20,000 --> 00:08:21,400 And this is where the market taught us. 174 00:08:21,400 --> 00:08:24,400 A lot of bad lessons that these companies were worth a lot of 175 00:08:24,400 --> 00:08:27,800 money, because someday down the road, they had turn a profit in 176 00:08:27,800 --> 00:08:29,700 the meantime, they can just scale. 177 00:08:29,800 --> 00:08:32,299 Land scale and scale, look at the price. 178 00:08:32,299 --> 00:08:35,000 This company went up to $60 per share. 179 00:08:35,000 --> 00:08:38,000 It's no longer at $60, a share, it currently trades at less than 180 00:08:38,000 --> 00:08:41,799 $2 a share selling a product or service for less than the cost 181 00:08:41,799 --> 00:08:44,000 of making. It is not a legitimate business 182 00:08:44,000 --> 00:08:46,300 strategy. The go to excuse for buying 183 00:08:46,300 --> 00:08:48,600 unprofitable. Companies is Amazon. 184 00:08:48,800 --> 00:08:52,400 This is the go-to example of a company that's been unprofitable 185 00:08:52,400 --> 00:08:55,800 for decade after decade, but has still given investors great 186 00:08:55,800 --> 00:08:58,100 returns. Now it is true that Amazon has 187 00:08:58,100 --> 00:09:00,900 given phenomenal returns over the Last 20 years but we're 188 00:09:00,900 --> 00:09:03,800 investors get this wrong as an Amazon has actually been free 189 00:09:03,800 --> 00:09:07,200 cash flow positive. It's been profitable for over 20 190 00:09:07,200 --> 00:09:12,100 years since almost the very beginning after 2001 every 191 00:09:12,100 --> 00:09:16,400 single year up until 2021 has been free, cash flow positive. 192 00:09:16,700 --> 00:09:21,200 So ironically, as investors site Amazon as the go-to, excuse for 193 00:09:21,200 --> 00:09:24,500 buying unprofitable companies, they're citing a company that 194 00:09:24,500 --> 00:09:27,100 has been profitable for 20 years straight. 195 00:09:27,200 --> 00:09:30,400 All of big Tech has been highly profitable for a A long period 196 00:09:30,400 --> 00:09:32,800 of time. Microsoft's profits, go all the 197 00:09:32,808 --> 00:09:36,200 way back to 1989. Google was highly profitable 198 00:09:36,300 --> 00:09:38,600 right from the beginning from 2002. 199 00:09:38,600 --> 00:09:41,800 The company was printing cash and it's scaled its business. 200 00:09:41,800 --> 00:09:44,700 While being profitable, Apple has been a highly profitable 201 00:09:44,700 --> 00:09:48,700 company ever since 2004, ever since then it was Off to the 202 00:09:48,700 --> 00:09:51,400 Races. Good companies make profits and 203 00:09:51,400 --> 00:09:53,700 they usually make them right from the start. 204 00:09:53,900 --> 00:09:56,600 Bad companies are ones that always promised profits in the 205 00:09:56,600 --> 00:09:58,700 future. They dilute shareholders and 206 00:09:58,700 --> 00:10:01,600 they never generate Any amounts of meaningful profits. 207 00:10:01,600 --> 00:10:03,300 So we need to update our thought process. 208 00:10:03,300 --> 00:10:06,000 A lot of the lessons. We've learned over the past five 209 00:10:06,000 --> 00:10:08,700 to 10 years have been very bad lessons. 210 00:10:09,000 --> 00:10:12,500 Unprofitable companies are not good companies, they're not good 211 00:10:12,500 --> 00:10:14,400 Investments. And if they are good 212 00:10:14,400 --> 00:10:17,800 Investments, you can simply wait until they become profitable. 213 00:10:17,800 --> 00:10:21,300 Part of the reason that my portfolio has held up relatively 214 00:10:21,300 --> 00:10:24,200 well during this massive sell-off is because I'm only 215 00:10:24,200 --> 00:10:27,300 focusing on highly profitable companies companies that have 216 00:10:27,300 --> 00:10:29,700 high margins in a high Returns on Capital employed. 217 00:10:29,800 --> 00:10:31,200 Lloyd. And of course, the problem is 218 00:10:31,200 --> 00:10:34,300 during this time period that all these bad lessons were taught, 219 00:10:34,300 --> 00:10:37,700 many investors are still anchored during that time period 220 00:10:37,700 --> 00:10:40,400 they still have their thoughts and their investing strategy 221 00:10:40,600 --> 00:10:43,600 centered around a time period that doesn't exist anymore but 222 00:10:43,600 --> 00:10:46,200 this change has already happened and investors that don't update 223 00:10:46,200 --> 00:10:48,700 their thought process are going to get hurt right? 224 00:10:48,700 --> 00:10:52,900 Well that's what a sea change. Is is a complete transformation, 225 00:10:54,000 --> 00:10:57,800 not just a minor cyclical fluctuation. 226 00:10:58,000 --> 00:11:01,900 So I you know look I think Did the business world? 227 00:11:01,900 --> 00:11:03,700 The economic world is not supposed to be easy. 228 00:11:03,700 --> 00:11:05,900 It's not supposed to easy to make money, right? 229 00:11:06,300 --> 00:11:09,600 It's not supposed to be easy for companies with bad business. 230 00:11:09,600 --> 00:11:12,800 Models to stay in business as it has been for the last 14 years, 231 00:11:12,800 --> 00:11:15,600 right? So, I think we go back to a 232 00:11:15,608 --> 00:11:18,100 period in which we have moderate interest rates. 233 00:11:18,300 --> 00:11:21,700 We have moderate availability of capital, we have a moderate, 234 00:11:22,300 --> 00:11:26,900 default rate, and so forth. All of which will feel much less 235 00:11:27,100 --> 00:11:29,600 accommodative I think than the last 14 years. 236 00:11:29,700 --> 00:11:31,900 Sing the things will feel much less accommodating over the 237 00:11:31,900 --> 00:11:34,800 upcoming years, is financial jargon for saying that investing 238 00:11:34,800 --> 00:11:37,600 is going to get much harder. The reason I'm taking These 239 00:11:37,600 --> 00:11:39,300 Warnings. So seriously is because I think 240 00:11:39,300 --> 00:11:43,000 that Howard marks is accurate. I think this is a sea change 241 00:11:43,000 --> 00:11:46,000 that's already happened and whether investors want to admit 242 00:11:46,000 --> 00:11:49,100 it or not, the environment that we're going into is much more 243 00:11:49,100 --> 00:11:51,500 normalized. Much more difficult than what we 244 00:11:51,500 --> 00:11:54,900 had over the past decade, and I think that if investors still 245 00:11:54,900 --> 00:11:58,500 try to employ the same crummy investment strategy they did 246 00:11:58,500 --> 00:12:02,600 before, it's Li not going to work investors that are focusing 247 00:12:02,600 --> 00:12:05,800 on companies with incredibly weak fundamentals that try to 248 00:12:06,000 --> 00:12:08,400 bolster their stock price through various tricks. 249 00:12:08,700 --> 00:12:12,100 It's simply not going to work. Another bad lesson that the past 250 00:12:12,100 --> 00:12:16,100 10 years have taught us is that stock-based compensation really 251 00:12:16,100 --> 00:12:17,900 isn't money. It's fake money. 252 00:12:18,000 --> 00:12:20,500 It doesn't really count. You have a company like uber, 253 00:12:20,500 --> 00:12:24,600 for example, that it posted a couple quarters of positive free 254 00:12:24,600 --> 00:12:26,100 cash flow. That's really great. 255 00:12:26,100 --> 00:12:28,200 That companies actually making money right now. 256 00:12:28,500 --> 00:12:31,400 Well, not really if you Factor in stock-based compensation. 257 00:12:31,400 --> 00:12:32,900 This is what the chart looks like. 258 00:12:33,000 --> 00:12:35,600 Even today, the company still not profitable. 259 00:12:35,900 --> 00:12:38,200 Unless, of course, you treat stock. 260 00:12:38,200 --> 00:12:41,600 Like it's not real money. This 482 million dollars. 261 00:12:41,600 --> 00:12:44,900 They pay their employees that's just Monopoly money, right? 262 00:12:45,000 --> 00:12:47,100 Well, that's the way these companies want you to view it. 263 00:12:47,100 --> 00:12:49,300 They try to hide this from the report. 264 00:12:49,400 --> 00:12:51,800 They try to pretend like this isn't real money. 265 00:12:52,000 --> 00:12:55,500 And this is something that is a bad lesson of the past, and many 266 00:12:55,500 --> 00:12:57,700 investors are still believing this nonsense. 267 00:12:57,700 --> 00:13:00,200 The companies that I'm investing in are ones that generate Real 268 00:13:00,200 --> 00:13:02,200 profits. Even when you factor in stock 269 00:13:02,200 --> 00:13:04,700 based compound, think the strategy that investors should 270 00:13:04,700 --> 00:13:08,200 employ, is hope for the best, but prepare for the worst and 271 00:13:08,200 --> 00:13:10,700 unfortunately, what a lot of investors are doing right now, 272 00:13:11,000 --> 00:13:14,900 is hoping for the best and preparing for the best rates are 273 00:13:14,900 --> 00:13:18,500 roughly where they can stay except that. 274 00:13:18,500 --> 00:13:20,500 I think it's important to recognize that. 275 00:13:20,500 --> 00:13:25,700 The the debate today is being dominated by people who are 276 00:13:25,700 --> 00:13:29,200 optimistic by people who think that the recession won't be too 277 00:13:29,200 --> 00:13:32,700 bad. Yeah, won't be too long that the 278 00:13:32,800 --> 00:13:37,900 inflation will give way and that the FED will be able to turn 279 00:13:38,100 --> 00:13:43,100 accommodative right soonish. Are you optimistic, not on that 280 00:13:43,100 --> 00:13:45,500 subject sitting around with a portfolio? 281 00:13:45,500 --> 00:13:48,800 Full of bad, business models, bad companies that are highly 282 00:13:48,800 --> 00:13:52,600 diluted and unprofitable and then hoping that the FED will 283 00:13:52,600 --> 00:13:55,600 turn around and that the FED will become accommodative and 284 00:13:55,600 --> 00:13:58,400 that the FED will bail out. Your portfolio is not a 285 00:13:58,408 --> 00:14:01,500 legitimate investing. Energy Ivan calling this out for 286 00:14:01,500 --> 00:14:04,700 over a year and I'll continue to call it out investors that 287 00:14:04,700 --> 00:14:08,000 continue down this path are going to continue to get hurt 288 00:14:08,200 --> 00:14:11,700 and these little bumps of Hope once in a while these little 289 00:14:11,700 --> 00:14:14,300 mini rallies along the way, they're not going to be 290 00:14:14,300 --> 00:14:16,400 sustained because fundamentally a bad. 291 00:14:16,400 --> 00:14:18,400 Business model is a bad business model. 292 00:14:18,400 --> 00:14:20,900 I compile different watch lists of companies that I think meet 293 00:14:20,900 --> 00:14:22,800 certain criteria is for investment. 294 00:14:22,800 --> 00:14:25,500 High profitability organic growth low amounts of 295 00:14:25,500 --> 00:14:29,000 stock-based compensation. Good pricing power world-class 296 00:14:29,000 --> 00:14:32,400 companies that I think we'll do well over the next 10 years and 297 00:14:32,400 --> 00:14:34,800 one of the things I notice, when I go through different 298 00:14:34,800 --> 00:14:38,300 companies, is how many of them are built upon unsustainable 299 00:14:38,300 --> 00:14:41,500 business, practices that are entirely reliant on low, 300 00:14:41,500 --> 00:14:44,500 interest rates, some companies have to pay for growth. 301 00:14:44,500 --> 00:14:47,900 So aggressively that they spend nearly all of their revenue on 302 00:14:47,900 --> 00:14:50,200 growth. Monday.com, for example, a 303 00:14:50,200 --> 00:14:53,700 company that's basically a task manager or to-do list for 304 00:14:53,700 --> 00:14:56,400 different teams. This company did 308 million 305 00:14:56,400 --> 00:15:01,500 dollars in revenue and 2021 308. Million this company, spent over 306 00:15:01,500 --> 00:15:07,100 that same year 268 million on marketing and sales 268 out of 307 00:15:07,100 --> 00:15:09,000 308. That means that this company 308 00:15:09,000 --> 00:15:12,400 spent eighty seven percent of their total revenue on marketing 309 00:15:12,400 --> 00:15:14,400 and sales. In that entire year. 310 00:15:14,500 --> 00:15:17,500 It's reliant on an aggressive sales team to grow the company 311 00:15:17,500 --> 00:15:19,900 at all. There's no organic growth and 312 00:15:19,900 --> 00:15:22,500 there are so many companies in the market with very poor 313 00:15:22,500 --> 00:15:24,800 business models that are being exposed. 314 00:15:24,800 --> 00:15:26,400 Their stock prices are getting crashed. 315 00:15:26,400 --> 00:15:28,800 Investors are learning hard lessons that they don't have to 316 00:15:28,800 --> 00:15:30,200 learn through experience. Perience. 317 00:15:30,200 --> 00:15:32,900 So I'm not going to tell you how to form your own portfolio or 318 00:15:32,900 --> 00:15:35,300 what investments to make your investment decisions are your 319 00:15:35,300 --> 00:15:38,000 own, but I can share with you what I'm doing with my 320 00:15:38,000 --> 00:15:40,700 investments. I think the economy is slowing 321 00:15:40,700 --> 00:15:43,000 down. The FED is pushing the brakes on 322 00:15:43,000 --> 00:15:46,000 the economy, hard with an economic slowdown. 323 00:15:46,000 --> 00:15:49,000 It's more difficult to find companies that can actually turn 324 00:15:49,000 --> 00:15:53,300 a profit and finding companies that turn a profit will become 325 00:15:53,300 --> 00:15:56,300 prized, possessions companies that are actually highly 326 00:15:56,300 --> 00:15:59,600 profitable, will become more value, relative to all the 327 00:15:59,700 --> 00:16:03,100 Swaths of companies that get exposed for being the bad 328 00:16:03,100 --> 00:16:05,100 companies that they are. So when I look at the 329 00:16:05,100 --> 00:16:07,700 probabilities of the future and see that things are slowing 330 00:16:07,700 --> 00:16:11,500 down, I'm tightening up my portfolio into companies that I 331 00:16:11,500 --> 00:16:14,200 think can turn out earnings growth and free cash flow 332 00:16:14,200 --> 00:16:16,600 growth. Consistently over the next 10 333 00:16:16,600 --> 00:16:17,800 years. Some companies that I've 334 00:16:17,800 --> 00:16:20,700 highlighted before that are recent purchases of mine are two 335 00:16:20,700 --> 00:16:22,300 of them in the financial category. 336 00:16:22,300 --> 00:16:24,900 I bought into SP Global and MasterCard. 337 00:16:25,200 --> 00:16:27,800 Now I can't say whether I bought the absolute low on these 338 00:16:27,800 --> 00:16:30,500 companies, they might dip down Other than what they already 339 00:16:30,500 --> 00:16:32,800 are. But I feel very good about these 340 00:16:32,800 --> 00:16:36,000 purchases for very specific reasons between MasterCard and 341 00:16:36,000 --> 00:16:37,800 Visa. They form an oligopoly of 342 00:16:37,800 --> 00:16:39,600 payment rails. They're highly entrenched 343 00:16:39,600 --> 00:16:42,000 businesses unlikely to be disrupted. 344 00:16:42,100 --> 00:16:44,800 And even though these companies are incredibly high-quality 345 00:16:44,800 --> 00:16:48,400 monopolistic and have long-term pricing power, they trade at a 346 00:16:48,400 --> 00:16:51,200 28 forward. P/E, MasterCards expected to 347 00:16:51,208 --> 00:16:53,900 grow earnings at a rate of 15 percent for the next three 348 00:16:53,900 --> 00:16:55,800 years. And when I do analysis on this 349 00:16:55,800 --> 00:16:58,600 company, I strongly believe it'll be able to grow its free 350 00:16:58,600 --> 00:17:01,600 cash flow per share. At a mid teens rate for the next 351 00:17:01,600 --> 00:17:02,900 decade. It's already done. 352 00:17:02,900 --> 00:17:05,900 So, for the past 10 years and I see no reason, it won't be able 353 00:17:05,900 --> 00:17:08,500 to do so for the next 10 years, SP Global's. 354 00:17:08,500 --> 00:17:10,700 Another company that I think matches a lot of these 355 00:17:10,700 --> 00:17:13,300 qualities. It has a decades-long Runway of 356 00:17:13,300 --> 00:17:17,000 pricing power organic growth, low Capital intensity, and I 357 00:17:17,000 --> 00:17:19,700 think that it looks artificially expensive right now, because of 358 00:17:19,700 --> 00:17:22,500 its trailing metrics, the free cash flow yield over the 359 00:17:22,500 --> 00:17:26,300 trailing. 12 months is only 2% which makes a company seem a 360 00:17:26,308 --> 00:17:28,500 little expensive. But when I actually average out 361 00:17:28,500 --> 00:17:31,100 the free cash flow yield, Over the past three years. 362 00:17:31,100 --> 00:17:33,500 I see a company that's much cheaper than what it looks like 363 00:17:33,500 --> 00:17:35,500 right now. So I think this company is much 364 00:17:35,500 --> 00:17:38,200 cheaper than it looks on paper. In the meantime it is a 365 00:17:38,208 --> 00:17:41,600 high-quality compounder with incredibly good pricing power, a 366 00:17:41,600 --> 00:17:43,900 long Runway of growth and another company that I believe 367 00:17:43,900 --> 00:17:47,500 can grow its free cash flow per share at a rate above 10% for 368 00:17:47,500 --> 00:17:49,500 the next decade. So my view is, even though 369 00:17:49,500 --> 00:17:52,500 investing has gotten more difficult and the future, looks 370 00:17:52,500 --> 00:17:55,000 like a tougher road ahead than the previous decade. 371 00:17:55,300 --> 00:17:57,400 I think it actually is a time of opportunity. 372 00:17:57,500 --> 00:18:01,200 A timer companies are separated From the bad, good companies 373 00:18:01,200 --> 00:18:04,300 will get rewarded, bad companies will get further punished the 374 00:18:04,300 --> 00:18:07,200 investors that continue to buy bad companies, ones that are 375 00:18:07,200 --> 00:18:10,300 unprofitable with highly diluted business models, poor cost 376 00:18:10,300 --> 00:18:13,400 structures, High marketing costs, and inorganic growth. 377 00:18:13,500 --> 00:18:16,500 All I can see is best of luck because I think you'll need it. 378 00:18:16,600 --> 00:18:17,900 Now. Moving on, we have some news, 379 00:18:17,900 --> 00:18:21,500 that's always unfortunate sometimes necessary, but always 380 00:18:21,500 --> 00:18:24,400 unfortunate the hair which is people are losing their jobs. 381 00:18:24,400 --> 00:18:28,800 We have layoffs being announced by Microsoft 10,000 so far and 382 00:18:28,800 --> 00:18:31,000 my prediction. Uh, is this number will go up 383 00:18:31,000 --> 00:18:33,200 over time. And the case of Microsoft, a 384 00:18:33,200 --> 00:18:36,200 software executive, chief executive Satya, Nadella wrote 385 00:18:36,200 --> 00:18:39,000 that the layoffs would happen before the end of March and 386 00:18:39,000 --> 00:18:42,000 effect, less than 5% of the company worldwide. 387 00:18:42,400 --> 00:18:45,900 So 10,000 is a massive number but then they cite a small 388 00:18:45,900 --> 00:18:48,700 percentage 5% of the company. When we put that into 389 00:18:48,700 --> 00:18:54,100 perspective this is what it looks like from 2021 to 2022, 390 00:18:54,300 --> 00:18:58,300 Microsoft added, 40,000 employees and looking at it from 391 00:18:58,300 --> 00:19:00,900 this perspective. It doesn't Seem quite as severe. 392 00:19:01,100 --> 00:19:05,200 But in total numbers 10,000 is still a ton of people in a blog 393 00:19:05,200 --> 00:19:07,400 post to employees. Mr. Nadella pointed out, the 394 00:19:07,400 --> 00:19:10,400 shaky economy telling employees that companies globally have 395 00:19:10,400 --> 00:19:13,900 begun quote to exercise caution as some parts of the world are 396 00:19:13,900 --> 00:19:16,100 in recession. He added that the company would 397 00:19:16,100 --> 00:19:19,400 be taking a 1.2 billion dollar charge and it's soon to be 398 00:19:19,400 --> 00:19:21,800 announced earnings related to Severance costs. 399 00:19:22,100 --> 00:19:24,100 So just laying off, all of these employees is actually an 400 00:19:24,100 --> 00:19:26,900 expensive Endeavor to do for a company like Microsoft. 401 00:19:26,900 --> 00:19:29,500 And the real truth here is, is that these companies simply 402 00:19:29,600 --> 00:19:32,700 please / hired that's the bottom line they projected out too much 403 00:19:32,700 --> 00:19:35,200 future growth and now they're starting to trim back. 404 00:19:35,200 --> 00:19:37,700 There's other companies that haven't really been acting all 405 00:19:37,700 --> 00:19:39,900 that prudent. Recently, we have Disney as an 406 00:19:39,900 --> 00:19:42,600 example here. Disney had an executive that 407 00:19:42,600 --> 00:19:46,000 worked at their company for less than four months and took in 408 00:19:46,000 --> 00:19:49,000 eight million dollars in compensation or about 119 409 00:19:49,000 --> 00:19:51,200 thousand, five hundred and five per day. 410 00:19:51,500 --> 00:19:54,500 According to the calculations based on a proxy statement that 411 00:19:54,500 --> 00:19:57,300 Disney filed Tuesday. And that's not even all of it. 412 00:19:57,300 --> 00:19:59,800 When the payouts associated, with this termination agree, Are 413 00:19:59,800 --> 00:20:03,600 taken into account that per day, figure jumps to one hundred and 414 00:20:03,600 --> 00:20:05,700 Seventy-Six thousand dollars per day. 415 00:20:06,100 --> 00:20:10,100 Disney also paid Morel about 500,000 to move his family to 416 00:20:10,100 --> 00:20:13,600 Los Angeles from London and another 500,000 to move away 417 00:20:13,600 --> 00:20:16,700 when he lost his job. So another million dollars in 418 00:20:16,700 --> 00:20:20,700 moving expenses. Now, I don't know about you, but 419 00:20:20,700 --> 00:20:24,900 I've moved locations a couple times throughout my life and I 420 00:20:24,900 --> 00:20:26,700 don't remember it. Costing, five hundred thousand 421 00:20:26,700 --> 00:20:27,900 dollars. I think it was a little bit 422 00:20:27,900 --> 00:20:29,500 cheaper, is it really that expensive? 423 00:20:29,600 --> 00:20:31,900 Rusev to fly from Los Angeles to London. 424 00:20:32,000 --> 00:20:36,000 I know, plane tickets have gone up, but 500,000 to move, one 425 00:20:36,000 --> 00:20:39,400 way, and then 500,000 to move back, seems a little high to me. 426 00:20:39,500 --> 00:20:42,300 Now, of course, after he left the company, Disney bought the 427 00:20:42,300 --> 00:20:44,900 4.5 million Southern California home. 428 00:20:45,100 --> 00:20:47,200 That mr. Morel had purchased, according 429 00:20:47,200 --> 00:20:49,400 to the Disney filings. So apparently Disney's in the 430 00:20:49,400 --> 00:20:52,700 real estate business of buying private residential homes of 431 00:20:52,700 --> 00:20:55,100 their Executives. When the board members moved 432 00:20:55,100 --> 00:20:58,600 back home and they get fired, Disney will pay 4.5 million 433 00:20:58,600 --> 00:21:02,200 dollars for their It's actually breathtaking how self-serving 434 00:21:02,200 --> 00:21:04,200 some companies are with their Executives and their 435 00:21:04,200 --> 00:21:07,200 compensation packages and I personally glad that there's 436 00:21:07,200 --> 00:21:10,400 some investors that will try to step in and be a strong 437 00:21:10,400 --> 00:21:12,800 scrutinizing. Critical force on the board. 438 00:21:13,100 --> 00:21:15,800 I hope that Nelson Peltz does get his board seat. 439 00:21:15,800 --> 00:21:17,200 I know a lot of you are confused of. 440 00:21:17,200 --> 00:21:19,900 I still hold Disney. Why I have it in my portfolio 441 00:21:20,300 --> 00:21:22,600 right now? I think the company even with 442 00:21:22,600 --> 00:21:25,600 the mistakes, the leadership and board is making has such 443 00:21:25,600 --> 00:21:29,100 incredibly valuable assets. So even though the management is 444 00:21:29,100 --> 00:21:31,600 not Changing the company in a way that I would want. 445 00:21:31,700 --> 00:21:34,400 I still think the company's undervalued relative to its 446 00:21:34,400 --> 00:21:36,400 future outlook. That's all for now, I'll see you 447 00:21:36,400 --> 00:21:36,900 in the next one.