1 00:00:00,120 --> 00:00:03,160 Recently on my secondary YouTube channel called Joseph Carlson 2 00:00:03,160 --> 00:00:06,600 After Hours, I came out with a two-part video series where I 3 00:00:06,600 --> 00:00:10,080 reviewed the portfolios of legendary investors, Super 4 00:00:10,080 --> 00:00:13,600 investors and these videos got quite a bit of views, over 5 00:00:13,600 --> 00:00:17,400 100,000 views combined for videos that are 40 minutes long. 6 00:00:17,640 --> 00:00:20,120 That's a lot of views for that length of a video. 7 00:00:20,240 --> 00:00:22,720 I think the reason that people love this type of video is 8 00:00:22,720 --> 00:00:25,600 because you get to see an inside look of what these type of 9 00:00:25,600 --> 00:00:28,380 investors are doing, what's potentially going through their 10 00:00:28,380 --> 00:00:30,540 mind as they're buying these different companies. 11 00:00:30,620 --> 00:00:33,740 And on the list of investors I reviewed, we had people like 12 00:00:33,740 --> 00:00:37,940 Terry Smith, Chuck Akri, we had Bill Ackman, Bill Gates, we had 13 00:00:37,940 --> 00:00:41,420 Warren Buffett and so on and so forth, all of the legendary 14 00:00:41,420 --> 00:00:43,780 investors. Now, I'm no super investor. 15 00:00:43,780 --> 00:00:46,460 I'm not managing hundreds of millions or billions of dollars, 16 00:00:46,460 --> 00:00:49,820 but I do have a portfolio of my own that I do manage and I've 17 00:00:49,820 --> 00:00:52,660 been able to learn quite a bit from these type of investors 18 00:00:52,700 --> 00:00:55,550 over the years studying their habits, seeing what type of 19 00:00:55,550 --> 00:00:57,750 companies they look for and what type of qualities. 20 00:00:58,190 --> 00:01:01,750 And what I would like to do is do the same type of review but 21 00:01:01,750 --> 00:01:05,630 for My Portfolio, an indepth critical review of the companies 22 00:01:05,630 --> 00:01:08,590 that I own and an explanation of why I own them. 23 00:01:08,590 --> 00:01:10,430 So we're going to be going through every single holding in 24 00:01:10,430 --> 00:01:13,230 My Portfolio and I'll be explaining the thesis behind 25 00:01:13,230 --> 00:01:14,870 each of them. So we have a lot to get to. 26 00:01:14,870 --> 00:01:16,110 Let's go ahead and jump right in. 27 00:01:16,150 --> 00:01:18,510 One thing that I decided to do when I was looking at My 28 00:01:18,510 --> 00:01:21,550 Portfolio was an idea that I got from Terry Smith. 29 00:01:21,590 --> 00:01:25,230 Terry Smith runs a portfolio called the Fund Smith Portfolio 30 00:01:25,270 --> 00:01:28,190 and every year he releases an annual letter giving an update 31 00:01:28,190 --> 00:01:30,550 to the investors and Fund Smith. Of course he gives out the 32 00:01:30,550 --> 00:01:33,390 returns, which he's had very strong returns for a good period 33 00:01:33,390 --> 00:01:34,790 of time. But there's one part of this 34 00:01:34,790 --> 00:01:37,590 report that I think is really cool, something that I see 35 00:01:37,590 --> 00:01:39,310 that's pretty unique to Terry Smith. 36 00:01:39,350 --> 00:01:41,910 He created this table called the Look through table. 37 00:01:41,910 --> 00:01:44,830 What he did was he looked at each company, he weighted them 38 00:01:44,830 --> 00:01:48,670 for the entire portfolio and then he compares his portfolio 39 00:01:48,710 --> 00:01:51,590 weighted towards the entire S&P 500. 40 00:01:52,090 --> 00:01:56,090 That way it's as if his portfolio is like an index being 41 00:01:56,090 --> 00:01:59,570 compared against the S&P 500 index and you get to see these 42 00:01:59,570 --> 00:02:02,610 averages overtime. Now Terry Smith did this for a 43 00:02:02,610 --> 00:02:05,540 lot of profitability metrics, but I wanted to do the same 44 00:02:05,540 --> 00:02:07,740 thing. I created the Joseph Carlson 45 00:02:07,780 --> 00:02:10,100 look through table. I compared every single one of 46 00:02:10,100 --> 00:02:13,300 my companies on a weighted average compared against the 47 00:02:13,340 --> 00:02:15,260 SP500. But instead of doing it on 48 00:02:15,260 --> 00:02:18,260 profitability metrics, I did it on the growth rate and the 49 00:02:18,260 --> 00:02:21,780 valuation of My Portfolio. So the average growth rate of 50 00:02:21,780 --> 00:02:25,500 the free cash flow per share over the past five years, that's 51 00:02:25,500 --> 00:02:27,820 what you see in this column. Then we have that compared 52 00:02:27,820 --> 00:02:32,090 against the SP500S average. I was able to find this number 53 00:02:32,290 --> 00:02:34,730 through access to someone that had a Bloomberg Terminal. 54 00:02:34,930 --> 00:02:37,090 So that's as accurate as I could find. 55 00:02:37,090 --> 00:02:39,410 Now we also have the free cash flow yield of everyone of my 56 00:02:39,410 --> 00:02:42,290 companies, the average weighted of it compared against the 57 00:02:42,330 --> 00:02:45,370 SP500S and I've done the same for the five year earnings per 58 00:02:45,370 --> 00:02:48,690 share growth and the Ford P/E. So this gives us a bit of an 59 00:02:48,690 --> 00:02:52,530 overview of how My Portfolio in terms of growth rate and 60 00:02:52,530 --> 00:02:55,770 valuation stacks up against the benchmark index. 61 00:02:55,810 --> 00:02:58,290 Now before we jump into the first one here, which is SP 62 00:02:58,290 --> 00:03:02,520 Global, I want to share one important note what I recommend 63 00:03:02,520 --> 00:03:05,720 for every individual investor. If you're getting started out 64 00:03:05,720 --> 00:03:09,680 investing, I would first recommend to buy an index fund, 65 00:03:09,840 --> 00:03:12,600 specifically an ETF that tracks an index fund. 66 00:03:12,960 --> 00:03:16,360 The S&P 500 is an incredibly good ETF. 67 00:03:16,400 --> 00:03:19,960 It is very difficult to beat and you should only try to 68 00:03:19,960 --> 00:03:22,800 outperform it if you've been investing for a good amount of 69 00:03:22,800 --> 00:03:25,960 time and if you're willing to take on that additional risk of 70 00:03:25,960 --> 00:03:30,090 outperforming the S&P 500 for the majority of people, having 71 00:03:30,090 --> 00:03:33,610 the majority of your portfolio and a broadly diversified index 72 00:03:33,610 --> 00:03:37,330 fund is a very good route to go. And then if you see some 73 00:03:37,330 --> 00:03:40,690 companies individually that you think are particularly good buys 74 00:03:40,690 --> 00:03:44,250 at different points in time, you can add that to your portfolio 75 00:03:44,250 --> 00:03:47,290 with the ETF as well. That hybrid strategy works 76 00:03:47,290 --> 00:03:50,090 really well. The reason that I do a full 77 00:03:50,090 --> 00:03:53,430 portfolio of individual stocks is because I'm looking at this 78 00:03:53,430 --> 00:03:56,230 stuff all day. I spend a lot more time than the 79 00:03:56,230 --> 00:03:58,310 average person. But with that said, let's go 80 00:03:58,310 --> 00:04:01,270 ahead and jump in with my largest holding here, which is 81 00:04:01,270 --> 00:04:04,630 SP Global. This one makes up currently 15% 82 00:04:04,630 --> 00:04:06,590 of the portfolio in My Portfolio. 83 00:04:06,590 --> 00:04:09,590 I have SP Global in the financial category, but that 84 00:04:09,590 --> 00:04:11,990 category may not be entirely accurate. 85 00:04:12,230 --> 00:04:15,430 It's true that SP Global deals with the world of finance in a 86 00:04:15,430 --> 00:04:19,470 huge way, but really what this company is, is a data company. 87 00:04:19,470 --> 00:04:22,350 It's a tech company. A lot of people don't view this 88 00:04:22,350 --> 00:04:25,470 company as a high tech data company because it's been around 89 00:04:25,470 --> 00:04:28,310 for a long period of time. And I think it's a big mistake 90 00:04:28,310 --> 00:04:31,110 to assume that companies that have been around for a long 91 00:04:31,110 --> 00:04:34,910 period of time aren't using Cuttingedge technology and data. 92 00:04:34,910 --> 00:04:37,550 The first thing that I think is important to note is the various 93 00:04:37,550 --> 00:04:40,190 businesses that S&P Global operates in. 94 00:04:40,430 --> 00:04:43,110 This is straight from their website and this is a breakdown 95 00:04:43,110 --> 00:04:45,830 of the products they sell. The first one that they're most 96 00:04:45,830 --> 00:04:48,310 notable for is the ratings business. 97 00:04:48,740 --> 00:04:52,380 You think back in 2009 how the rating agencies got it wrong. 98 00:04:52,700 --> 00:04:55,860 That was S&P Global and Moody. They got the credit ratings for 99 00:04:55,860 --> 00:04:57,540 mortgage-backed securities incorrect. 100 00:04:57,620 --> 00:04:59,820 But while a lot of people vaguely know them, for the 101 00:04:59,820 --> 00:05:02,820 mortgage-backed securities, these companies rate a lot of 102 00:05:02,820 --> 00:05:05,620 different products. If any large institution wants 103 00:05:05,620 --> 00:05:08,500 to invest in a fund or a specific company, they will 104 00:05:08,500 --> 00:05:11,220 typically need a credit rating for that business. 105 00:05:11,380 --> 00:05:13,980 Almost all of them have requirements for ratings 106 00:05:13,980 --> 00:05:17,630 associated with businesses. For example, if Walmart wanted 107 00:05:17,630 --> 00:05:21,350 to buy a private company, they would request that Moody's or 108 00:05:21,350 --> 00:05:25,790 SMP Global give that company a rating in terms of its ESG, its 109 00:05:25,790 --> 00:05:29,430 governance, and its credibility before making that investment. 110 00:05:29,430 --> 00:05:32,710 It is a requirement for the huge majority of large institutions. 111 00:05:33,030 --> 00:05:36,670 So these ratings play a critical role in the functioning of the 112 00:05:36,670 --> 00:05:38,950 markets. If you're bullish on the credit 113 00:05:38,950 --> 00:05:41,670 markets growing overtime, you're bullish on ratings. 114 00:05:41,750 --> 00:05:45,150 The second part of S&P Global's business is the largest portion 115 00:05:45,150 --> 00:05:47,550 of the business. They are a data company 116 00:05:47,550 --> 00:05:51,470 providing data about market indices and financials and 117 00:05:51,470 --> 00:05:53,790 markets in general. They have a product called the 118 00:05:53,790 --> 00:05:57,750 S&P Capital IQ Pro. Now this works similar to a 119 00:05:57,790 --> 00:05:59,790 Bloomberg Terminal. It's something that large 120 00:05:59,790 --> 00:06:02,270 institutions can pay for and they get access to 10s of 121 00:06:02,270 --> 00:06:05,520 thousands of data points. They also license this data. 122 00:06:05,520 --> 00:06:07,560 They sell it in bulk. They have tons of different 123 00:06:07,560 --> 00:06:11,160 customers using this data. The majority of large websites 124 00:06:11,160 --> 00:06:15,840 you see providing you data, like Yahoo Finance, are using SMP 125 00:06:15,840 --> 00:06:18,640 Global. They are totally reliant on SMP 126 00:06:18,640 --> 00:06:20,560 Global. The reason that SMP Global is so 127 00:06:20,560 --> 00:06:23,520 big in this data category is they have by far the most 128 00:06:23,520 --> 00:06:26,840 reliable, most validated data of any provider. 129 00:06:27,040 --> 00:06:29,560 They're the only one with a guarantee that the data is 130 00:06:29,560 --> 00:06:32,320 correct and they will literally pay you if you find flaws in 131 00:06:32,320 --> 00:06:34,390 their data. So if you're bullish on the 132 00:06:34,430 --> 00:06:38,390 overall trends of data becoming important in markets of more and 133 00:06:38,390 --> 00:06:41,470 more people wanting financial data, you're bullish on this 134 00:06:41,470 --> 00:06:45,070 aspect of S&P Global. S&P Global's third business is 135 00:06:45,070 --> 00:06:50,270 the S&P Global Indices business. They also own the name S&P and 136 00:06:50,270 --> 00:06:52,670 the Dow Jones Indexes that come along with it. 137 00:06:52,750 --> 00:06:57,110 So popular ETF's like Schwab that have S CHD that one's based 138 00:06:57,110 --> 00:06:59,830 on the Dow Jones Dividend 100 Index. 139 00:07:00,030 --> 00:07:04,250 That is an S&P Global Index, meaning everyone that invests in 140 00:07:04,250 --> 00:07:07,970 SCHD is paying a tiny bit of capital to SP Global. 141 00:07:08,330 --> 00:07:11,650 Everyone that invests in the SP500 is paying a tiny bit of 142 00:07:11,650 --> 00:07:14,490 capital to SP Global. Now the next business that SP 143 00:07:14,490 --> 00:07:18,210 Global has is providing indepth detail about commodities. 144 00:07:18,250 --> 00:07:19,930 They call this the Platts business. 145 00:07:20,210 --> 00:07:23,650 They include markets like oil, natural gas, LNG, electric, 146 00:07:23,650 --> 00:07:26,610 power, coal, shipping, petrochemicals, metal, 147 00:07:26,610 --> 00:07:28,690 agricultural. Now commodities in and of 148 00:07:28,690 --> 00:07:32,250 themselves are very volatile, but the business that S&P Global 149 00:07:32,250 --> 00:07:36,090 has, which is providing data and information and pricing about 150 00:07:36,090 --> 00:07:39,890 commodities is far less volatile than the commodities themselves. 151 00:07:39,890 --> 00:07:42,370 This is another stream of a growing market of data and 152 00:07:42,370 --> 00:07:44,770 licensing that they generate every single year. 153 00:07:44,770 --> 00:07:47,250 What this amounts to is a business of markets. 154 00:07:47,250 --> 00:07:50,770 And P Global focuses beginning to end on markets and their 155 00:07:50,770 --> 00:07:53,370 diversified business. High margins and consistent 156 00:07:53,370 --> 00:07:56,520 growth make this the perfect combination for me. 157 00:07:56,600 --> 00:07:58,880 I really like the outlook of this company. 158 00:07:58,880 --> 00:08:02,080 I like the secular growth trends and I like the fact that I think 159 00:08:02,080 --> 00:08:04,040 that it's very resilient. This is going to be a very 160 00:08:04,040 --> 00:08:06,000 difficult one for others to compete with. 161 00:08:06,080 --> 00:08:08,520 Now looking past the qualities of the company, we can look at 162 00:08:08,520 --> 00:08:11,760 some of the fundamentals here. SMB Global is a rare company 163 00:08:11,760 --> 00:08:14,800 that looks like it's a lot more expensive than it actually is. 164 00:08:15,120 --> 00:08:19,760 The free cash flow yield right now is 2.46% if you factor in 165 00:08:19,760 --> 00:08:22,960 stock based comp and that looks pretty expensive. 166 00:08:23,280 --> 00:08:26,600 But on the spreadsheet here, I have the free cash flow yield at 167 00:08:26,600 --> 00:08:29,680 3.4%. So why is there a discrepancy 168 00:08:29,680 --> 00:08:32,919 between what Qualtram is saying and what the spreadsheet is 169 00:08:32,919 --> 00:08:35,200 saying? The reason why is because S&P 170 00:08:35,200 --> 00:08:37,840 Global recently just went through a major acquisition 171 00:08:38,000 --> 00:08:40,840 which is throwing off these trailing numbers a little bit. 172 00:08:41,200 --> 00:08:44,240 And if we look at it on an annual basis, they are guiding 173 00:08:44,240 --> 00:08:48,360 for $4.3 billion in free cash flow in 2023. 174 00:08:48,640 --> 00:08:53,280 So it'll be right around here a huge upwards movement in their 175 00:08:53,280 --> 00:08:56,520 free cash flow. And if you factor in $4.3 176 00:08:56,520 --> 00:09:01,640 billion in free cash flow for a market cap of 124 billion, 177 00:09:01,720 --> 00:09:04,600 that's where you get the free cash flow yield of 3.4%. 178 00:09:04,720 --> 00:09:08,800 And a free cash flow yield of 3.4% doesn't seem all that bad, 179 00:09:08,800 --> 00:09:12,720 especially because right now the S&P 500 has a free cash flow 180 00:09:12,720 --> 00:09:15,800 yield of 3.6%. So it's right there, almost in 181 00:09:15,800 --> 00:09:18,800 line with the S&P 500 and terms of valuation. 182 00:09:18,920 --> 00:09:22,480 But when I look at S&P Global, I ask my itself, can this company 183 00:09:22,480 --> 00:09:25,760 grow its free cash flow faster than the SP500? 184 00:09:25,840 --> 00:09:27,880 I think the answer to that is yes. 185 00:09:27,880 --> 00:09:31,080 I think the company will grow free cash flow per share on a 186 00:09:31,080 --> 00:09:34,720 much faster and more consistent basis than the SP500. 187 00:09:34,720 --> 00:09:36,800 Now, there's always a chance something could go wrong with 188 00:09:36,800 --> 00:09:39,640 any business, but this is 1 where I believe the risk reward 189 00:09:39,680 --> 00:09:41,800 is really good. Now my second largest position 190 00:09:41,800 --> 00:09:45,440 currently is MasterCard at a 13% weighting of my overall 191 00:09:45,440 --> 00:09:48,400 portfolio and you might notice some similarities here. 192 00:09:48,750 --> 00:09:51,430 Master Card is another very old company. 193 00:09:51,550 --> 00:09:54,990 It was founded in the 1960s and I believe that makes investors 194 00:09:54,990 --> 00:09:57,310 view it with a different light. It may not have the same 195 00:09:57,310 --> 00:10:00,590 attention paid to it as newer companies like PayPal and Block, 196 00:10:00,630 --> 00:10:03,830 but I believe Master Card and Visa for that matter are 197 00:10:03,830 --> 00:10:06,270 superior businesses. Looking at Master Cards 198 00:10:06,270 --> 00:10:09,510 financials, it's easy to tell that this is a superior business 199 00:10:09,510 --> 00:10:12,350 to almost every other company in the market and every bit of 200 00:10:12,350 --> 00:10:16,510 economics shows the same thing. Growing EBITDA, growing earnings 201 00:10:16,510 --> 00:10:19,790 per share, growing net income, All of these are growing above 202 00:10:19,790 --> 00:10:23,190 10% per year, which is incredibly strong growth for 203 00:10:23,190 --> 00:10:26,630 such a long period of time. The free cash flow mimics the 204 00:10:26,630 --> 00:10:29,350 rest of the financials as well, but the free cash flow is 205 00:10:29,350 --> 00:10:33,270 growing even faster because of their incredibly high free cash 206 00:10:33,270 --> 00:10:36,150 flow conversion. Out of the revenue this company 207 00:10:36,150 --> 00:10:39,310 generates, roughly half of that goes to free cash flow. 208 00:10:39,430 --> 00:10:42,430 Because of the efficiency of this business, they can 209 00:10:42,430 --> 00:10:45,710 continually reinvest back into their company through buybacks, 210 00:10:45,910 --> 00:10:49,670 growing their earnings per share faster and growing their free 211 00:10:49,670 --> 00:10:55,070 cash flow on a per share at a much faster rate, 17% over the 212 00:10:55,070 --> 00:10:57,790 past decade and then it's not slowing down. 213 00:10:57,790 --> 00:11:02,430 The past two years, it's 26%. In the past one year it's 19%. 214 00:11:02,910 --> 00:11:06,310 That is astronomically high. This is higher than most tech 215 00:11:06,310 --> 00:11:09,710 startups are growing their free cash flow on a per share basis. 216 00:11:09,750 --> 00:11:12,510 So yes, MasterCard does trade at a little bit of a premium, a 217 00:11:12,510 --> 00:11:14,670 lower free cash flow yield than the market. 218 00:11:14,990 --> 00:11:17,230 The free cash flow yield is 2.7%. 219 00:11:17,310 --> 00:11:20,630 But the growth rate of these cash flows has also been double. 220 00:11:20,630 --> 00:11:25,410 The markets average 17% against 8% and I believe that this 221 00:11:25,410 --> 00:11:28,570 growth rate is sustainable for at least the next five years. 222 00:11:28,610 --> 00:11:31,290 So I still believe that MasterCard is undervalued 223 00:11:31,290 --> 00:11:34,210 compared against the SP500. Now the third largest holding in 224 00:11:34,210 --> 00:11:36,970 My Portfolio is Vici with an 11% waiting. 225 00:11:37,250 --> 00:11:40,820 Vici is the only company in my real estate category and this 226 00:11:40,820 --> 00:11:43,980 one's been beat up this year. Investors have been selling out 227 00:11:43,980 --> 00:11:46,900 of Reit's generally speaking because there's a lot of fare 228 00:11:46,900 --> 00:11:48,460 currently surrounding real estate. 229 00:11:48,540 --> 00:11:51,900 We see article after article comparing real estate back to 230 00:11:51,900 --> 00:11:54,580 2009. Institutions are positioning 231 00:11:54,580 --> 00:11:57,580 less and less money in Reit's this year compared to the past 232 00:11:57,580 --> 00:11:59,580 10 years. So we see some selling going on 233 00:11:59,580 --> 00:12:01,940 with Vici and other real estate investment trusts. 234 00:12:02,020 --> 00:12:05,980 Vici has collected 100% of rents from every tenant since 235 00:12:05,980 --> 00:12:08,940 inception of the company. So even though this company's 236 00:12:08,940 --> 00:12:12,260 price trades around frequently, the amount of cash flow that it 237 00:12:12,260 --> 00:12:15,940 generates has been incredibly consistent and growing at a 238 00:12:15,940 --> 00:12:18,700 decent pace. Since the start, the average 239 00:12:18,700 --> 00:12:22,580 annual increase in dividends has averaged around 8 to 9%, and 240 00:12:22,580 --> 00:12:24,540 I've projected that into the future. 241 00:12:24,540 --> 00:12:27,140 When I was originally looking at investing in Vici, I put 242 00:12:27,140 --> 00:12:30,740 together some assumptions of my real downside over the next 10 243 00:12:30,740 --> 00:12:32,700 years and the upside with the business. 244 00:12:32,980 --> 00:12:36,020 Here's a table that I threw together that shows, based on 245 00:12:36,020 --> 00:12:38,660 the amount of shares that I've purchased and the price that 246 00:12:38,660 --> 00:12:41,300 I've paid for them, the amount of money that I'm getting every 247 00:12:41,300 --> 00:12:44,260 single year in dividends. And then I make the assumption 248 00:12:44,260 --> 00:12:46,540 that they'll be able to increase the amount of dividends they pay 249 00:12:46,740 --> 00:12:50,540 by around 8% per year. Now that seems a little lofty, 250 00:12:50,540 --> 00:12:52,300 but I really believe they can do this. 251 00:12:52,640 --> 00:12:54,920 This is what the management is guiding for. 252 00:12:55,160 --> 00:12:59,040 And VG does have large rent increases baked into their 253 00:12:59,040 --> 00:13:01,480 contracts. The rental increases make up for 254 00:13:01,480 --> 00:13:04,200 a good portion of that annual dividend increase. 255 00:13:04,200 --> 00:13:06,480 With any new additional properties purchased, they can 256 00:13:06,480 --> 00:13:08,920 make up for the remainder of it. Now based on the amount that I 257 00:13:08,920 --> 00:13:12,560 invested and the price I bought this company, if they grow their 258 00:13:12,560 --> 00:13:18,680 dividends 8% per year, I will be paid back in full in 2034. 259 00:13:18,720 --> 00:13:22,510 So year 10, that's when I get paid back in full and that also 260 00:13:22,510 --> 00:13:25,230 assumes no reinvestment of dividends. 261 00:13:25,590 --> 00:13:28,750 If I reinvested the dividends back into the company, the 262 00:13:28,750 --> 00:13:31,190 payback would be significantly sooner. 263 00:13:31,190 --> 00:13:34,510 Now the dividend is only one way that Vici will give returns. 264 00:13:34,830 --> 00:13:38,350 They're aiming for 12% compound annual returns, which if they 265 00:13:38,350 --> 00:13:42,510 accomplish that 12% annualized return, my payback period goes 266 00:13:42,510 --> 00:13:46,110 from 10 years to around 5:00 to 7:00, which is a very attractive 267 00:13:46,110 --> 00:13:47,990 return. Now since Reit's don't really 268 00:13:47,990 --> 00:13:51,350 have free cash flow like a normal company, the way that I 269 00:13:51,350 --> 00:13:54,590 judge the free cash flow was the AFFO of the company. 270 00:13:54,870 --> 00:13:58,630 So the five year free cash flow per share growth of Vici is 271 00:13:58,630 --> 00:14:02,350 really the five year AFFO per share growth of the company 272 00:14:02,510 --> 00:14:06,590 which so far has been 12%. That is very fast for a levered 273 00:14:06,590 --> 00:14:09,590 business like Vici. Then we have the free cash flow 274 00:14:09,590 --> 00:14:13,510 yield of Vici. I took this by taking the A FFO 275 00:14:13,550 --> 00:14:16,590 and dividing it by the total market cap of the company. 276 00:14:16,790 --> 00:14:19,230 And since this company sits at such an incredibly low 277 00:14:19,230 --> 00:14:24,350 valuation, the a FFO yield of the company is 7%, nearly double 278 00:14:24,350 --> 00:14:27,670 what the market is. So I still think that Vici is an 279 00:14:27,670 --> 00:14:31,170 attractive investment. It sits at a very low valuation. 280 00:14:31,170 --> 00:14:33,290 It has very reasonable growth assumptions. 281 00:14:33,290 --> 00:14:35,690 I feel that I have lower downside with this company 282 00:14:35,690 --> 00:14:38,050 because it offers real cash flow to investors. 283 00:14:38,410 --> 00:14:41,050 But I think investors in Vici are going to need to be patient. 284 00:14:41,290 --> 00:14:44,690 If interest rates keep rising making treasury bills more 285 00:14:44,690 --> 00:14:47,850 attractive, that's going to put downward pressure on Vici's 286 00:14:47,850 --> 00:14:50,490 stock overtime. The cash flows of Vici will win 287 00:14:50,490 --> 00:14:51,770 out. The next two companies in My 288 00:14:51,770 --> 00:14:53,810 Portfolio are Microsoft and Apple. 289 00:14:53,890 --> 00:14:58,130 These two big tech juggernauts each take up roughly 10% each. 290 00:14:58,510 --> 00:15:01,390 So that's a combined 20% into each of these companies. 291 00:15:01,870 --> 00:15:04,510 Now the interesting thing is what you hear about Apple 292 00:15:04,510 --> 00:15:07,150 continually is that the company's not growing. 293 00:15:07,150 --> 00:15:10,550 It's too big, it's too bloated, They can't really grow past 294 00:15:10,550 --> 00:15:13,510 their current size. I heard those same type of 295 00:15:13,510 --> 00:15:16,670 things being talked about when Apple first hit a trillion 296 00:15:16,670 --> 00:15:20,270 dollar market cap and Apple went to two trillion much faster than 297 00:15:20,270 --> 00:15:23,790 it went to the first trillion. The growth has been phenomenal 298 00:15:23,790 --> 00:15:27,230 for Apple and if we look at the five year compound annual growth 299 00:15:27,230 --> 00:15:31,190 rate of Apple, it is one of the highest in my entire portfolio 300 00:15:31,190 --> 00:15:35,190 over the past five years, an astounding 23% free cash flow 301 00:15:35,190 --> 00:15:37,630 per share growth. When I look at Apple, it almost 302 00:15:37,630 --> 00:15:40,990 seems impossible for a company to grow that quickly, but that 303 00:15:40,990 --> 00:15:44,310 is what the numbers show. The free cash flow per share has 304 00:15:44,350 --> 00:15:48,190 exploded to the upside by a combination of the company being 305 00:15:48,190 --> 00:15:51,630 at historically low valuations, having tremendous amounts of 306 00:15:51,630 --> 00:15:54,670 free cash flow and doing a tremendous amount of buybacks as 307 00:15:54,670 --> 00:15:57,410 well. Apple loves to buy back as many 308 00:15:57,410 --> 00:16:00,370 shares as they can. So as the shares outstanding go 309 00:16:00,370 --> 00:16:03,850 down continually, the amount of free cash flow per share and 310 00:16:03,850 --> 00:16:05,930 earnings per share continue to grow. 311 00:16:05,930 --> 00:16:08,930 Now even to this day, when I look at Apple and the valuation 312 00:16:08,930 --> 00:16:12,170 it trades at, people say it's a little bit overvalued. 313 00:16:12,170 --> 00:16:15,290 The company trades at a higher P/E ratio than the rest of the 314 00:16:15,290 --> 00:16:18,930 market and that's true. It's at a 25 compared to the 315 00:16:18,930 --> 00:16:22,810 markets 20, but it's also growing in earnings much faster 316 00:16:22,810 --> 00:16:25,270 than the market. It's also growing its free cash 317 00:16:25,270 --> 00:16:26,750 flow much faster than the market. 318 00:16:27,110 --> 00:16:30,550 And in terms of the free cash flow yield, Apple is identical 319 00:16:30,550 --> 00:16:33,070 to the market currently. So whether or not you think this 320 00:16:33,070 --> 00:16:35,950 company can continue to grow as a judgment you'll have to make. 321 00:16:35,950 --> 00:16:38,350 What I believe is that Apple continues to have the strongest 322 00:16:38,350 --> 00:16:41,110 smoke in the market. I think the company has a grasp 323 00:16:41,150 --> 00:16:44,310 on the high end consumer of Western Civilization. 324 00:16:44,350 --> 00:16:46,990 I think they're in one of the most enviable positions now with 325 00:16:46,990 --> 00:16:49,430 Microsoft. This one is very simple. 326 00:16:49,470 --> 00:16:52,150 Microsoft has been one of the easiest plays in the market for 327 00:16:52,150 --> 00:16:54,550 the past 10 years. It's continually one of the most 328 00:16:54,550 --> 00:16:57,910 reliable tech companies. Over 80% of the revenue they 329 00:16:57,910 --> 00:17:01,390 earn is subscription based. So this is a company that right 330 00:17:01,390 --> 00:17:03,750 now trades out a lofty valuation. 331 00:17:04,069 --> 00:17:07,430 I'm not buying into Microsoft right now, but based on the 332 00:17:07,430 --> 00:17:09,750 fundamentals, it's one that I continue to hold. 333 00:17:09,829 --> 00:17:12,710 I still continue to believe that Microsoft and Apple will 334 00:17:12,710 --> 00:17:15,760 outperform the market over the next 5 to 10 years, and I 335 00:17:15,760 --> 00:17:18,400 believe that most investors selling them today because of 336 00:17:18,400 --> 00:17:21,400 one reason or another are going to regret that eventually. 337 00:17:21,680 --> 00:17:25,440 They still have incredible moats and unless that market position 338 00:17:25,440 --> 00:17:28,840 changes of them having this significant of a Moat, I'm not 339 00:17:28,840 --> 00:17:30,840 selling now. The six biggest holding in My 340 00:17:30,840 --> 00:17:34,320 Portfolio with a 9% waiting is Costco. 341 00:17:34,360 --> 00:17:37,710 This is a surprisingly large holding for My Portfolio, and 342 00:17:37,710 --> 00:17:40,990 notably, I haven't been purchasing Costco at all 343 00:17:40,990 --> 00:17:42,670 recently. In fact, I haven't bought this 344 00:17:42,670 --> 00:17:45,110 company for quite some time. It just seems like it's always 345 00:17:45,110 --> 00:17:48,310 hanging around in My Portfolio doing its thing on its own, but 346 00:17:48,310 --> 00:17:51,830 the returns have been attractive for my Costco investment. 347 00:17:52,070 --> 00:17:55,510 I'm up currently over $10,000 on the company and this is a 348 00:17:55,510 --> 00:17:58,390 company that I've been in love with for a long period of time. 349 00:17:58,830 --> 00:18:02,910 Costco is a fantastic company. They treat their customers well, 350 00:18:02,910 --> 00:18:05,870 they treat their employees well, they treat their community well. 351 00:18:06,030 --> 00:18:09,590 They offer substantial value to every party involved in every 352 00:18:09,590 --> 00:18:11,790 transaction. I believe they have the most 353 00:18:11,790 --> 00:18:14,670 loyal shoppers of any retailer. There's people that talk about 354 00:18:14,670 --> 00:18:18,150 the virtues of Dollar General and Target and Ulta and all 355 00:18:18,150 --> 00:18:21,110 different retailers. But every time I do analysis on 356 00:18:21,110 --> 00:18:23,550 one or the other, I come back to Costco. 357 00:18:23,630 --> 00:18:25,910 I believe it is superior to other retailers. 358 00:18:26,030 --> 00:18:29,230 And there are specific reasons that Costco is superior. 359 00:18:29,230 --> 00:18:32,190 Reason #1. Costco is a subscription 360 00:18:32,190 --> 00:18:34,470 business model. When you look at the revenue of 361 00:18:34,470 --> 00:18:37,150 Costco, you can see it over time and it's growing. 362 00:18:37,470 --> 00:18:39,830 And the revenue has everything included. 363 00:18:39,830 --> 00:18:42,950 You have every bit of grocery, you have all the hard goods they 364 00:18:42,950 --> 00:18:45,350 sell, you have their tire services. 365 00:18:45,630 --> 00:18:48,310 You have everything that Costco does which combines the revenue, 366 00:18:48,760 --> 00:18:51,160 but there's a very important part of their revenue which is 367 00:18:51,160 --> 00:18:54,440 their membership subscription. When you shop at Costco, you 368 00:18:54,440 --> 00:18:57,160 have to have a membership. That membership brings in 369 00:18:57,160 --> 00:19:00,720 stability to their earnings. The way that Costco prices 370 00:19:00,720 --> 00:19:04,360 everything is they basically run their warehouse at break even 371 00:19:04,640 --> 00:19:07,800 and then they make the money, the real earnings on their 372 00:19:07,840 --> 00:19:10,400 subscription service. So Costco really is a 373 00:19:10,400 --> 00:19:14,040 subscription economic model in the venue of retail. 374 00:19:14,200 --> 00:19:15,760 That's the avenue they're doing it. 375 00:19:16,120 --> 00:19:18,480 But this brings in a very different business model than 376 00:19:18,480 --> 00:19:21,400 the likes of Target or even Walmart that are not 377 00:19:21,400 --> 00:19:23,640 subscription based. And those companies are far more 378 00:19:23,640 --> 00:19:26,320 reliant on the fluctuating price of grocery. 379 00:19:26,680 --> 00:19:29,840 Costco's not reliant on the fluctuating price of grocery. 380 00:19:29,840 --> 00:19:33,120 That stability and lack of volatility is a result of their 381 00:19:33,120 --> 00:19:34,880 membership model. Another thing that I've been 382 00:19:34,880 --> 00:19:37,920 highlighting with Costco compared to other retailers is 383 00:19:37,920 --> 00:19:41,640 this growing trend of blatant theft in different retailers. 384 00:19:42,070 --> 00:19:44,950 We have many of them in lots of different places now where it's 385 00:19:44,950 --> 00:19:48,790 becoming commonplace to run into a grocery store, fill your cart 386 00:19:48,790 --> 00:19:51,710 with whatever you want and leave not paying for it. 387 00:19:52,070 --> 00:19:55,150 Crime is becoming rampant and there's even organized crime 388 00:19:55,150 --> 00:19:57,790 taking place. Target on their earnings call 389 00:19:58,030 --> 00:20:03,190 said that organized crime has gone up 120% over the past year. 390 00:20:03,630 --> 00:20:07,230 That's the increase in theft. They are now expected to lose 391 00:20:07,230 --> 00:20:10,670 over $1.3 billion in theft that year. 392 00:20:11,120 --> 00:20:14,920 That's what targets dealing with $1.3 billion in theft is a 393 00:20:14,920 --> 00:20:18,000 massive amount of targets. Bottom line, that's money that 394 00:20:18,000 --> 00:20:21,040 could be dividend back to the investor, but instead that's 395 00:20:21,040 --> 00:20:24,400 going into the hands of thieves. Costco, on the other hand, said 396 00:20:24,400 --> 00:20:27,800 that in their earnings call, at least the most recent one, that 397 00:20:27,800 --> 00:20:31,000 they have seen no increase in shrinkage or another term for 398 00:20:31,000 --> 00:20:33,490 theft. In fact, it's remained very 399 00:20:33,490 --> 00:20:35,490 stable throughout the entire past year. 400 00:20:35,650 --> 00:20:38,570 They own privately all of the land in which they build on that 401 00:20:38,570 --> 00:20:41,810 gives them extra rights and lots of different jurisdictions in 402 00:20:41,810 --> 00:20:44,370 their warehouses which are privately owned and membership 403 00:20:44,370 --> 00:20:46,370 based. It's more difficult to get in 404 00:20:46,370 --> 00:20:49,010 and start shopping. The items in Costco are bulkier, 405 00:20:49,010 --> 00:20:52,090 more difficult to sneak out, and there's only one entrance and 406 00:20:52,090 --> 00:20:54,250 one exit with every receipt being checked. 407 00:20:54,570 --> 00:20:57,290 So even though there is theft that takes place in every 408 00:20:57,290 --> 00:21:00,630 retailer across the world, including Costco, the rates of 409 00:21:00,630 --> 00:21:03,350 theft are much lower at Costco than other retailers. 410 00:21:03,430 --> 00:21:06,110 And then finally, another thing that I think is worth mentioning 411 00:21:06,110 --> 00:21:09,870 when comparing Costco to other retailers or other companies is 412 00:21:09,870 --> 00:21:11,990 the success they've had internationally. 413 00:21:12,390 --> 00:21:15,670 A lot of companies have failed going to Canada from the US 414 00:21:15,670 --> 00:21:18,950 They're going to Europe from the US Target struggled with this 415 00:21:18,950 --> 00:21:20,830 and other retailers have struggled with this. 416 00:21:21,190 --> 00:21:24,790 Costco really hasn't. So far they've had widespread 417 00:21:24,790 --> 00:21:28,680 success spreading across the world and they have 25 new 418 00:21:28,680 --> 00:21:31,080 location openings every single year. 419 00:21:31,440 --> 00:21:34,800 When I map this out and forecasted the future, assuming 420 00:21:34,800 --> 00:21:38,680 that they open up 25 additional locations, a flat amount every 421 00:21:38,680 --> 00:21:42,400 single year and they grow their same store sales 7% per year, 422 00:21:42,400 --> 00:21:46,040 which is completely in line with their longterm history, We get 423 00:21:46,040 --> 00:21:48,400 substantial growth over the next 10 years. 424 00:21:48,680 --> 00:21:53,080 The revenues go from 231 billion to 589 billion. 425 00:21:53,520 --> 00:21:56,520 That is over doubling of the revenue not including their 426 00:21:56,520 --> 00:21:58,760 subscriptions. With this type of economic 427 00:21:58,760 --> 00:22:02,000 growth and outlook, I believe it justifies the current valuation. 428 00:22:02,000 --> 00:22:03,840 So even though Costco is continually one of those 429 00:22:03,840 --> 00:22:06,080 companies that optically looks more expensive than its 430 00:22:06,080 --> 00:22:09,760 competitors, there's a lot of nuance and context and reason 431 00:22:09,880 --> 00:22:12,560 why Costco trades at a higher valuation than something like 432 00:22:12,560 --> 00:22:15,240 Dollar General. The reason why is it's a Better 433 00:22:15,240 --> 00:22:17,440 Business with a more predictable growth path. 434 00:22:17,480 --> 00:22:20,880 Now in #7, we have Texas Roadhouse making up 9% of the 435 00:22:20,880 --> 00:22:23,280 portfolio. Texas Roadhouse is another 436 00:22:23,280 --> 00:22:27,040 company that I really enjoy, the actual company, what they do, 437 00:22:27,040 --> 00:22:30,040 how they treat people and what they do for their communities. 438 00:22:30,040 --> 00:22:33,320 I think this is just another well-rounded great company. 439 00:22:33,320 --> 00:22:35,840 When I look at the restaurant industry, which I've been 440 00:22:35,840 --> 00:22:38,840 studying and looking at for a long period of time, I look at 441 00:22:38,840 --> 00:22:42,240 all the competitors to Texas Roadhouse and I see a lot of 442 00:22:42,240 --> 00:22:45,040 them falling off. They're just not doing that 443 00:22:45,040 --> 00:22:46,600 well. We have Cracker Barrel, for 444 00:22:46,600 --> 00:22:48,840 example. We look at Cracker Barrels 445 00:22:48,880 --> 00:22:53,610 revenue over the past 10 years, it's been growing at a snail's 446 00:22:53,610 --> 00:22:59,490 pace, 2.14% per year, which is around or below the level of 447 00:22:59,490 --> 00:23:02,890 inflation, meaning that Cracker Barrels growth is essentially 448 00:23:02,890 --> 00:23:04,970 stopped. It's really not growing anymore. 449 00:23:05,410 --> 00:23:08,810 And this means that other companies are taking market 450 00:23:08,810 --> 00:23:10,610 share. Texas Roadhouse, on the other 451 00:23:10,610 --> 00:23:14,250 hand, I think has been on top of consumer behavior, on pricing, 452 00:23:14,250 --> 00:23:17,970 on value, on atmosphere, on theming in their restaurant and 453 00:23:17,970 --> 00:23:20,980 everything. Altogether, the company offers a 454 00:23:20,980 --> 00:23:23,580 very good value proposition for the customer. 455 00:23:23,740 --> 00:23:26,820 And that value proposition and the attractiveness this company 456 00:23:26,820 --> 00:23:30,380 has from customers has been shown in their operating metrics 457 00:23:30,380 --> 00:23:33,700 over the past decade. They're not growing at 2% like 458 00:23:33,700 --> 00:23:36,100 Cracker Barrel. They're taking market share and 459 00:23:36,100 --> 00:23:39,380 growing at 12% revenue year over year. 460 00:23:39,660 --> 00:23:42,500 In the past five years, it's been closer to 13%. 461 00:23:42,580 --> 00:23:45,380 With that growth, they have a high amount of profitability 462 00:23:45,380 --> 00:23:47,260 given the industry that they operate in. 463 00:23:47,670 --> 00:23:50,110 They have best in class operating metrics. 464 00:23:50,310 --> 00:23:53,630 The free cash flow has grown substantially and the free cash 465 00:23:53,630 --> 00:23:55,750 flow per share is growing because they're also doing 466 00:23:55,750 --> 00:23:57,750 buybacks while paying a dividend. 467 00:23:57,790 --> 00:24:00,510 Texas Roadhouse for me is a very simple investment. 468 00:24:00,790 --> 00:24:02,270 It's beating out the competitors. 469 00:24:02,270 --> 00:24:04,030 It has a better recipe for success. 470 00:24:04,230 --> 00:24:06,830 It's grown historically faster than the S&P 500. 471 00:24:07,030 --> 00:24:09,950 When I purchased the company, it was at a better valuation. 472 00:24:10,070 --> 00:24:13,190 Right now, it's slightly more expensive than the S&P 500 while 473 00:24:13,190 --> 00:24:16,500 growing at a much faster rate. And in terms of earnings per 474 00:24:16,500 --> 00:24:20,540 share, it actually matches the price of the S&P 500 while 475 00:24:20,540 --> 00:24:22,580 having significantly faster growth. 476 00:24:22,620 --> 00:24:25,540 I've also looked at underwriting different scenarios for Texas 477 00:24:25,540 --> 00:24:29,060 Roadhouse with their unit growth and their unit economics per 478 00:24:29,060 --> 00:24:31,260 location. I mapped out that they would 479 00:24:31,260 --> 00:24:34,380 grow their new locations by 4% year over year. 480 00:24:34,780 --> 00:24:37,540 That's a pretty reasonable conservative growth rate in 481 00:24:37,540 --> 00:24:39,860 locations. That means that in 10 years 482 00:24:39,860 --> 00:24:44,700 they'll go from their current 709 locations to 1048 and 483 00:24:44,700 --> 00:24:46,900 they've already estimated that they're going to grow 484 00:24:46,940 --> 00:24:52,220 continually at that 4% rate. Now if we have 7% same store 485 00:24:52,220 --> 00:24:54,980 sales, which they've been beating consistently year after 486 00:24:54,980 --> 00:24:57,660 year, that means that the revenue will roughly triple over 487 00:24:57,660 --> 00:25:01,930 the next 10 years going from 4.7 billion to 13.8 billion. 488 00:25:01,970 --> 00:25:04,650 Put simply, I believe this company is going to generate a 489 00:25:04,650 --> 00:25:08,290 much higher amount of free cash flow and earnings per share over 490 00:25:08,290 --> 00:25:10,930 the next 10 years. Now a #8 in My Portfolio, we 491 00:25:10,930 --> 00:25:14,650 have Intuit, which is still at a very meaningful holding size, 8% 492 00:25:14,650 --> 00:25:17,370 of the overall portfolio. When I look at Intuit, I see a 493 00:25:17,370 --> 00:25:21,050 highly diversified high quality tech growth company. 494 00:25:21,450 --> 00:25:24,290 This one I think is often overlooked by retail investors 495 00:25:24,530 --> 00:25:27,450 because the segments that they operate in are not exciting. 496 00:25:27,960 --> 00:25:29,920 But if you're an investor, you shouldn't be looking for 497 00:25:29,920 --> 00:25:32,800 excitement, you should be looking for reliable, stable 498 00:25:32,800 --> 00:25:34,560 growth for a long runway of time. 499 00:25:34,560 --> 00:25:37,360 They have been dominant in the position of tax for a long 500 00:25:37,360 --> 00:25:39,440 period of time. They've been dominant in the 501 00:25:39,440 --> 00:25:42,040 position of small business accounting and they're growing 502 00:25:42,040 --> 00:25:43,960 into different customer management tools. 503 00:25:43,960 --> 00:25:47,120 For smaller businesses, Intuit is going to grow their free cash 504 00:25:47,120 --> 00:25:51,240 flow per share at roughly 15% or more over the next five years. 505 00:25:51,600 --> 00:25:54,240 I also think that they're going to have above market earnings 506 00:25:54,240 --> 00:25:56,560 per share growth. And no, I'm not concerned about 507 00:25:56,560 --> 00:25:59,480 the government created tax software for those users. 508 00:25:59,480 --> 00:26:02,600 Intuit already has a free version of tax software. 509 00:26:02,880 --> 00:26:06,080 Many people use it already and that's not something that's ever 510 00:26:06,080 --> 00:26:09,280 been a real threat to them. Now #9 and 10, we have two 511 00:26:09,280 --> 00:26:13,280 railroad companies, Canadian Pacific and Union Pacific, a 5% 512 00:26:13,280 --> 00:26:16,120 waiting and 4% waiting. Both of these companies are very 513 00:26:16,120 --> 00:26:18,720 similar in their risk factors and economic model. 514 00:26:19,090 --> 00:26:21,570 What we can see is they're different by their growth rates. 515 00:26:21,770 --> 00:26:25,290 Canadian Pacific has higher operating margins across the 516 00:26:25,290 --> 00:26:28,010 board. It's had better execution and 517 00:26:28,010 --> 00:26:30,930 therefore it's grown its free cash flow per share at a much 518 00:26:30,930 --> 00:26:33,130 faster rate. Both of these, however, trade at 519 00:26:33,130 --> 00:26:35,970 an attractive valuation compared against the SP500. 520 00:26:36,050 --> 00:26:38,930 Railroads really haven't had too much of a bid this year. 521 00:26:38,970 --> 00:26:41,370 They've been underperformers because so many people are 522 00:26:41,370 --> 00:26:44,050 concerned about the growing chance of recession and the 523 00:26:44,050 --> 00:26:46,610 downward pressure that would have on these companies 524 00:26:46,610 --> 00:26:48,210 earnings. Now I believe these companies 525 00:26:48,210 --> 00:26:50,970 will generate meaningful profits for a long period of time. 526 00:26:51,130 --> 00:26:53,530 So I'm not too concerned about an upcoming recession. 527 00:26:53,610 --> 00:26:56,690 Both of these companies are what I would describe as bulletproof. 528 00:26:56,770 --> 00:26:59,050 They're near impossible to compete with and they have very 529 00:26:59,050 --> 00:27:02,450 good economic models. Now finally holding #11, which 530 00:27:02,450 --> 00:27:05,450 is the most recent one to the portfolio, we have Chipotle. 531 00:27:05,490 --> 00:27:08,450 This one is at a 4% waiting. I have Chipotle in the 532 00:27:08,450 --> 00:27:10,770 restaurant category with Texas Roadhouse. 533 00:27:11,220 --> 00:27:14,580 Now one thing I'll mention is Chipotle is in the red right now 534 00:27:14,580 --> 00:27:18,660 by around 7% or $1000 for $20,000 position. 535 00:27:19,100 --> 00:27:22,420 And this is something that I don't find surprising at all. 536 00:27:22,820 --> 00:27:26,220 I don't know of many companies, especially restaurants that I 537 00:27:26,220 --> 00:27:29,220 initially buy into that are instantly in the green. 538 00:27:29,460 --> 00:27:33,260 In fact, almost everyone that I buy is in the red at some point. 539 00:27:33,580 --> 00:27:35,740 This was the same with Starbucks. 540 00:27:35,900 --> 00:27:38,790 I bought Starbucks, it went into the red, and then it went 541 00:27:38,790 --> 00:27:41,470 heavily into the green and I sold it at a profit. 542 00:27:41,750 --> 00:27:43,470 This was the same with Texas Roadhouse. 543 00:27:43,710 --> 00:27:46,150 When I originally bought Texas Roadhouse, it quickly went in 544 00:27:46,150 --> 00:27:48,630 the red. Over enough time it went heavily 545 00:27:48,630 --> 00:27:50,590 in the green and it's been an out performer. 546 00:27:50,630 --> 00:27:53,630 So I'm not concerned about the immediate trading After opening 547 00:27:53,630 --> 00:27:56,150 a new position. I expect that Chipotle could 548 00:27:56,150 --> 00:27:59,790 trade further in the red if we get more gloomy economic news, 549 00:27:59,910 --> 00:28:03,390 but Chipotle is a great company. It has incredibly good. 550 00:28:03,390 --> 00:28:06,950 In fact, it has almost the best unit economics out of the entire 551 00:28:06,950 --> 00:28:10,500 restaurant industry. It's very strong on a per unit 552 00:28:10,500 --> 00:28:12,460 basis. When I mapped out the next 10 553 00:28:12,460 --> 00:28:14,860 years of Chipotle in this scenario, I looked at the 554 00:28:14,860 --> 00:28:17,380 restaurant openings they can have every single year. 555 00:28:17,740 --> 00:28:22,100 Chipotle is targeting opening up 8% new restaurants every year 556 00:28:22,220 --> 00:28:24,260 over the next 10 years. That brings them from their 557 00:28:24,260 --> 00:28:28,860 current 3450 restaurants to 7450. 558 00:28:29,320 --> 00:28:32,200 So the restaurants are roughly doubling, which is in line with 559 00:28:32,200 --> 00:28:35,240 management's own expectations. Now, if they grow their same 560 00:28:35,240 --> 00:28:38,800 restaurant sales by roughly 7% per year, which is very 561 00:28:38,800 --> 00:28:41,920 conservative, very reasonable, that means that the company 562 00:28:41,920 --> 00:28:45,240 could quadruple their revenue over the next 10 years. 563 00:28:45,360 --> 00:28:48,240 Now, what exactly would Chipotle be worth if their revenue 564 00:28:48,240 --> 00:28:49,920 quadrupled over the next 10 years? 565 00:28:50,320 --> 00:28:53,160 Less difficult to say. How much free cash flow would 566 00:28:53,160 --> 00:28:56,440 they generate if their revenue quadrupled over the next 10 567 00:28:56,440 --> 00:28:59,230 years? Again, estimates will vary, but 568 00:28:59,230 --> 00:29:01,750 what I can say is I believe it will be worth significantly more 569 00:29:01,750 --> 00:29:04,030 than it is today. Now that makes up my entire 570 00:29:04,030 --> 00:29:06,710 portfolio. That is why I own these 571 00:29:06,710 --> 00:29:09,630 companies. It's not because I am timing the 572 00:29:09,630 --> 00:29:12,630 market or I think they're going to have some upswing in the 573 00:29:12,630 --> 00:29:14,870 coming months. The reason I hold each and 574 00:29:14,870 --> 00:29:17,630 everyone of these companies is I believe they're going to be much 575 00:29:17,630 --> 00:29:21,070 more profitable on a per share basis with both their earnings 576 00:29:21,070 --> 00:29:24,150 power and their free cash flow. That profitability will 577 00:29:24,150 --> 00:29:27,010 translate into gains. And whether or not the market 578 00:29:27,010 --> 00:29:29,370 goes up or down, it doesn't really matter. 579 00:29:29,570 --> 00:29:32,570 What matters is I hang on to these companies and let them 580 00:29:32,570 --> 00:29:34,730 compound into the foreseeable future. 581 00:29:35,210 --> 00:29:38,490 Now when we stack up My Portfolio against the benchmark 582 00:29:38,490 --> 00:29:42,250 average, which is always the S&P 500 that is the standard that 583 00:29:42,250 --> 00:29:45,890 essentially every money manager uses, we can see how this looks 584 00:29:45,890 --> 00:29:49,690 together. My Portfolio in combination has 585 00:29:49,690 --> 00:29:52,770 an average weighted compound annual growth rate of the free 586 00:29:52,770 --> 00:29:57,900 cash flow per share of 17%. That is over double the average 587 00:29:57,900 --> 00:30:00,700 of the SP500. So when people say that My 588 00:30:00,700 --> 00:30:03,900 Portfolio is full of expensive companies or ones that are 589 00:30:03,900 --> 00:30:07,220 trading a little bit higher, you got to put that in context. 590 00:30:07,340 --> 00:30:10,100 If the companies are growing their economic value at a 591 00:30:10,100 --> 00:30:13,340 substantially higher rate than the benchmark average, then you 592 00:30:13,340 --> 00:30:16,020 should expect the valuations to be slightly higher. 593 00:30:16,060 --> 00:30:19,180 Now in this case, that's not actually what's happening here. 594 00:30:19,550 --> 00:30:22,510 When we look at my weighted average free cash flow yield of 595 00:30:22,510 --> 00:30:24,870 every one of my companies and when we compare that against the 596 00:30:24,870 --> 00:30:29,590 free cash flow yield of the S&P 500, My Portfolio is slightly, 597 00:30:29,750 --> 00:30:33,910 slightly more expensive on a yield basis than the S&P 500. 598 00:30:33,910 --> 00:30:37,870 And in my opinion, when I put these two numbers together, I 599 00:30:37,870 --> 00:30:40,750 would rather take the portfolio that's a slightly higher 600 00:30:40,750 --> 00:30:43,990 valuation but growing at a much more rapid pace. 601 00:30:44,620 --> 00:30:48,100 The assumption here is if you believe that the S&P 500 will 602 00:30:48,100 --> 00:30:51,820 outperform My Portfolio, the growth rate of My Portfolio 603 00:30:51,820 --> 00:30:54,900 would have to slow down dramatically and the growth rate 604 00:30:54,900 --> 00:30:57,380 of the S&P 500 would have to speed up. 605 00:30:57,420 --> 00:31:00,260 That would make me underperform. But I don't believe that that's 606 00:31:00,260 --> 00:31:02,140 going to happen. Then we look at the earnings 607 00:31:02,140 --> 00:31:06,420 basis, the earnings of the S&P 500 have grown anywhere from 8 608 00:31:06,500 --> 00:31:10,540 to 12% over the past 30 years. In the past five years, it's 609 00:31:10,540 --> 00:31:13,660 actually been very strong earnings growth around 12%. 610 00:31:14,230 --> 00:31:17,910 But My Portfolio in combination weighted for each holding is 611 00:31:17,910 --> 00:31:20,590 around 17%. So it's still growing its 612 00:31:20,590 --> 00:31:24,550 earnings at a much faster rate. Those extra percentages really 613 00:31:24,550 --> 00:31:28,310 do compound earnings really fast over a longer period of time. 614 00:31:28,390 --> 00:31:31,190 Again, the assumption you would have to make so that I don't 615 00:31:31,190 --> 00:31:35,790 outperform the SP500 is that My Portfolio slows down its 616 00:31:35,790 --> 00:31:39,110 earnings growth dramatically. That is the big risk with 617 00:31:39,110 --> 00:31:42,470 investing in these companies. If their earnings growth slows 618 00:31:42,470 --> 00:31:46,690 down or their free cash flow per share growth slows down, then I 619 00:31:46,690 --> 00:31:51,330 will underperform the SP500. But if My Portfolio continues to 620 00:31:51,330 --> 00:31:54,810 grow both its earnings and its free cash flow per share at a 621 00:31:54,810 --> 00:31:58,530 rate relatively higher than the SP500, it's only a matter of 622 00:31:58,530 --> 00:32:01,850 time until this basket of stocks outperforms the broader market. 623 00:32:01,930 --> 00:32:04,970 Now, of course, I can't say with certainty that I'll outperform. 624 00:32:05,210 --> 00:32:07,810 There's no way of knowing the future and it's anyone's best 625 00:32:07,810 --> 00:32:10,010 guess, but I do have a couple advantages here. 626 00:32:10,480 --> 00:32:13,560 The first advantage is that I don't have any type of expense 627 00:32:13,560 --> 00:32:15,640 ratio. Most hedge funds that 628 00:32:15,640 --> 00:32:19,320 underperform the market largely do so because they charge a lot 629 00:32:19,320 --> 00:32:21,640 of fees. There's no fees with investing 630 00:32:21,640 --> 00:32:24,880 in these companies. I'm paying no transactional fees 631 00:32:24,880 --> 00:32:26,440 and I'm paying no hedge fund fees. 632 00:32:26,720 --> 00:32:30,120 This is my own portfolio, so the gains that I make are pure 633 00:32:30,120 --> 00:32:32,640 gains. The next advantage I have is a 634 00:32:32,640 --> 00:32:36,120 very long holding period. I'm not managing anyone else's 635 00:32:36,120 --> 00:32:38,400 money, so I'm not pressured to sell any company. 636 00:32:38,770 --> 00:32:41,530 I can simply hold these companies for five to 10 years 637 00:32:41,890 --> 00:32:44,730 and only trade them out for a different company if I believe 638 00:32:44,730 --> 00:32:46,170 it's a more compelling investment. 639 00:32:46,170 --> 00:32:49,650 So the lack of fees associated with this portfolio and the long 640 00:32:49,650 --> 00:32:53,010 holding time I believe gives me a distinct advantage that many 641 00:32:53,010 --> 00:32:55,210 fund managers, for example, don't have. 642 00:32:55,290 --> 00:32:58,370 But either way, whether I outperform or underperform, I 643 00:32:58,370 --> 00:33:00,770 think it will do fine. And the important thing here is 644 00:33:00,770 --> 00:33:03,650 sticking to the strategy. Where investors really get in 645 00:33:03,650 --> 00:33:06,890 trouble and really underperform is paying attention to all the 646 00:33:06,890 --> 00:33:10,060 doomsday news and letting that determine and influence their 647 00:33:10,060 --> 00:33:12,340 investing strategy. So whether you're investing in 648 00:33:12,340 --> 00:33:15,580 individual stocks or ETF's, be sure to stick to whatever 649 00:33:15,580 --> 00:33:19,100 strategy you've laid out and don't let gloomy news or scary 650 00:33:19,100 --> 00:33:22,420 news convince you otherwise. Now that's a full overview of My 651 00:33:22,420 --> 00:33:24,500 Portfolio. If you want additional content, 652 00:33:24,740 --> 00:33:25,980 be sure to check out the Patreon. 653 00:33:26,300 --> 00:33:27,900 Other than that, I'll see you in the next one.