1 00:00:00,040 --> 00:00:01,960 Welcome back everyone. Today on the Joseph Carlson 2 00:00:01,960 --> 00:00:04,360 Show, Elon Musk released his new chat bot. 3 00:00:04,440 --> 00:00:07,080 It's called Grok. Grok is a funny chat bot. 4 00:00:07,160 --> 00:00:10,080 It gives you answers, but it does it in a comical way. 5 00:00:10,080 --> 00:00:13,000 It's not so uptight like the other chat bots. 6 00:00:13,000 --> 00:00:16,160 Now, despite Elon Musk's best efforts, Grok was not able to 7 00:00:16,160 --> 00:00:21,760 distract users from Open AI Day. Open AI Day with Sam Altman 8 00:00:21,800 --> 00:00:24,880 happened Monday and it's all anyone can talk about. 9 00:00:25,120 --> 00:00:28,800 The reason why is because it was a pretty incredible meeting. 10 00:00:29,320 --> 00:00:32,560 This was no normal tech company giving a quarterly update. 11 00:00:32,960 --> 00:00:35,520 This is one of the most innovative, if not the most 12 00:00:35,520 --> 00:00:37,720 innovative company in the world right now. 13 00:00:38,040 --> 00:00:41,640 Giving an incredible update. Sam Altman took a simplistic 14 00:00:41,640 --> 00:00:45,400 dark stage similar to the early Apple events, and he went by 15 00:00:45,400 --> 00:00:48,520 step by step on how they're improving this product. 16 00:00:48,920 --> 00:00:51,960 And there's six different major components that were improved. 17 00:00:51,960 --> 00:00:54,600 These improvements are major iterations on the power of its 18 00:00:54,720 --> 00:00:58,040 AI, and this has major implications on different 19 00:00:58,040 --> 00:01:00,040 companies. For example, part of this is 20 00:01:00,040 --> 00:01:02,480 what they call the AI startup Doomsday. 21 00:01:02,800 --> 00:01:05,560 Part of the feature release here is going to destroy a lot of 22 00:01:05,560 --> 00:01:07,960 startup companies. This has major implications on 23 00:01:07,960 --> 00:01:11,000 agents in the agent business. They announced an entire App 24 00:01:11,000 --> 00:01:13,760 Store and this is overall being referred to as the Extinction 25 00:01:13,760 --> 00:01:16,880 event for other companies. In fact, after this event, it 26 00:01:16,880 --> 00:01:19,960 became clear that Open AI is so far ahead of the competition 27 00:01:20,400 --> 00:01:23,600 that it may really be running away with the AI game still be 28 00:01:23,600 --> 00:01:26,880 diving in and breaking down The key takeaways of this meeting, 29 00:01:26,880 --> 00:01:29,560 the ownership stake that Microsoft has and how they stand 30 00:01:29,560 --> 00:01:32,480 a benefit and implications. This has on the stock because 31 00:01:32,480 --> 00:01:35,160 Microsoft is having one of its best days ever. 32 00:01:35,200 --> 00:01:36,760 Now, of course, we have some other news to get to. 33 00:01:37,040 --> 00:01:40,080 Vegas is having its Formula One event right around the corner, 34 00:01:40,360 --> 00:01:42,360 but it's not all good news for Vegas. 35 00:01:42,360 --> 00:01:45,400 In fact, a lot of people are now saying that it's no longer a 36 00:01:45,400 --> 00:01:48,240 good time to visit Vegas in October and November leading up 37 00:01:48,240 --> 00:01:51,240 to the event because of how much disruption it causes. 38 00:01:51,880 --> 00:01:54,680 There is construction everywhere across the Strip. 39 00:01:54,680 --> 00:01:57,160 So as an investor on the Vegas Strip, I want to see how 40 00:01:57,160 --> 00:01:59,800 destructive this is and what it really means for the future of 41 00:01:59,800 --> 00:02:01,200 this event. And then we also have the 42 00:02:01,200 --> 00:02:05,440 elephant in the room, the S&P 500, the NASDAQ are up again for 43 00:02:05,440 --> 00:02:08,639 the longest winning streak since November 2021. 44 00:02:09,000 --> 00:02:12,720 The market continues to rise, but it's typically rising around 45 00:02:12,720 --> 00:02:15,200 7 different companies. In fact, if you were to remove 46 00:02:15,200 --> 00:02:18,840 the Magnificent 7 from the index, it would be completely 47 00:02:18,840 --> 00:02:20,440 flat this year. So what does this mean for 48 00:02:20,440 --> 00:02:23,160 investors when such a small amount of companies make up for 49 00:02:23,160 --> 00:02:25,280 so much gains? So obviously we have a lot to 50 00:02:25,280 --> 00:02:26,640 get to. Let's go ahead and start off 51 00:02:26,640 --> 00:02:29,160 with a portfolio update. What you're looking at is the 52 00:02:29,160 --> 00:02:32,680 passive income portfolio. It is my primary and my personal 53 00:02:32,680 --> 00:02:35,040 investment account. The reason that I show it so 54 00:02:35,040 --> 00:02:38,720 publicly, I show the gains and the losses week by week, 55 00:02:38,720 --> 00:02:42,040 completely transparent, is to offer level of transparency and 56 00:02:42,040 --> 00:02:44,040 insight that other Youtubers won't. 57 00:02:44,360 --> 00:02:47,960 When you look at your portfolio and the returns of it, it's easy 58 00:02:47,960 --> 00:02:50,840 to keep that secret. Because if you keep it secret 59 00:02:50,920 --> 00:02:54,640 and you do poorly, you can still pretend like you're a guru, Like 60 00:02:54,640 --> 00:02:56,960 you know everything. Like you know exactly what 61 00:02:56,960 --> 00:03:00,760 you're doing when you put it all out there, both the gains and 62 00:03:00,760 --> 00:03:03,720 the losses, and your all time performance since the very 63 00:03:03,720 --> 00:03:05,840 beginning. That means that you have 64 00:03:05,840 --> 00:03:08,400 accountability, and accountability makes things a 65 00:03:08,400 --> 00:03:10,640 lot more real. So the reason that I do this is 66 00:03:10,640 --> 00:03:13,160 both for transparency and accountability. 67 00:03:13,160 --> 00:03:15,360 It's to give you an inside look at real investing. 68 00:03:15,360 --> 00:03:17,840 If you value this level of transparency and want to follow 69 00:03:17,840 --> 00:03:21,040 along for continued updates, you can do so by subscribing to the 70 00:03:21,040 --> 00:03:23,640 channel, liking the video, and ringing the bell below the 71 00:03:23,640 --> 00:03:25,280 video. That'll give you a notification 72 00:03:25,280 --> 00:03:27,880 every time I do an update. Now my investing strategy hasn't 73 00:03:27,880 --> 00:03:29,600 changed. I'm still buying exceedingly 74 00:03:29,600 --> 00:03:32,280 high quality companies and investing in concentrated 75 00:03:32,280 --> 00:03:35,360 positions and in total I only have 11 holdings. 76 00:03:35,520 --> 00:03:38,400 So every single one of those eleven are important. 77 00:03:38,440 --> 00:03:40,920 I review every single one of them every single week. 78 00:03:40,920 --> 00:03:43,120 Now you may notice something a little bit different about this 79 00:03:43,120 --> 00:03:45,000 portfolio. There's a new holding down here 80 00:03:45,000 --> 00:03:48,360 called SCOV. This is an ETF full of short 81 00:03:48,360 --> 00:03:51,040 term U.S. Treasuries zero to three month 82 00:03:51,040 --> 00:03:55,680 treasury bills. Now I have around $15,600 in 83 00:03:55,680 --> 00:03:59,080 this right now. I don't call it invested because 84 00:03:59,080 --> 00:04:02,480 this is not an investment. I'm not putting my money here 85 00:04:02,640 --> 00:04:04,320 and considering it an investment. 86 00:04:04,320 --> 00:04:07,720 This is a cash position and that's how it should be viewed. 87 00:04:08,040 --> 00:04:11,920 S Gov is an ETF of short term treasuries, which means that you 88 00:04:11,920 --> 00:04:14,080 have really no risk. In fact, you have the same 89 00:04:14,080 --> 00:04:15,680 amount of risk that you do with cash. 90 00:04:16,040 --> 00:04:18,600 It's short term, so there's no duration risk, there's no 91 00:04:18,600 --> 00:04:21,440 interest rate risk and it's U.S. government, so there's no 92 00:04:21,440 --> 00:04:24,720 repayment risk on both sides. You really have no risk with 93 00:04:24,720 --> 00:04:27,240 this. It is a cash position and in 94 00:04:27,240 --> 00:04:31,240 fact when companies have cash or cash equivalents, this is what 95 00:04:31,240 --> 00:04:33,760 they refer to as cash equivalents, short term 96 00:04:33,760 --> 00:04:35,520 treasuries. Now the reason that I move my 97 00:04:35,520 --> 00:04:39,440 cash out of the brokerage cash balance into that holding was 98 00:04:39,440 --> 00:04:42,320 because when it sits right here, it just doesn't earn any 99 00:04:42,320 --> 00:04:46,960 interest and that's a bummer. 0% interest is not fun down here. 100 00:04:46,960 --> 00:04:50,240 This earns around 5.5% interest right now. 101 00:04:50,240 --> 00:04:54,400 So I'm actually making something with my cash now. 5% returns in 102 00:04:54,400 --> 00:04:57,840 my opinion is horrible. That's not a good return. 103 00:04:57,840 --> 00:05:01,600 It's not something to aspire to. We shouldn't be proud of a 5% 104 00:05:01,600 --> 00:05:03,960 return, but it's still better than nothing. 105 00:05:03,960 --> 00:05:06,560 So as long as I have cash waiting to be put into a 106 00:05:06,560 --> 00:05:10,600 company, I'd rather have it earn at least 5% over nothing. 107 00:05:10,600 --> 00:05:12,800 So again, I don't view this as an investment. 108 00:05:12,800 --> 00:05:15,800 I don't view it as a holding. This is my cash position. 109 00:05:15,800 --> 00:05:18,560 Other than that, My Portfolio has remained largely the same. 110 00:05:18,560 --> 00:05:20,920 I have the same investments, I've been buying more of them 111 00:05:21,040 --> 00:05:23,720 and I've watched these companies compound to all new highs. 112 00:05:23,720 --> 00:05:26,080 And one of the companies that I've continued to hold, I've not 113 00:05:26,080 --> 00:05:31,080 sold a share is Microsoft. This one is now a $15,000 gain 114 00:05:31,200 --> 00:05:35,320 position, $58,000 total. This is a stock that's now up 115 00:05:35,320 --> 00:05:38,520 50% year to date. Now even though it's a hold, it 116 00:05:38,520 --> 00:05:41,840 continues to grow as part of My Portfolio because of the gains, 117 00:05:42,040 --> 00:05:44,720 the company's making up a bigger and bigger percentage of my 118 00:05:44,720 --> 00:05:48,080 overall portfolio, outperforming a lot of my other companies. 119 00:05:48,360 --> 00:05:50,560 And I like to keep up with what's going on with this 120 00:05:50,560 --> 00:05:53,080 company. One of the biggest extensions of 121 00:05:53,080 --> 00:05:56,360 Microsoft right now is it's AI endeavours. 122 00:05:56,360 --> 00:05:58,560 And there's a lot of excitement around AI. 123 00:05:58,560 --> 00:06:01,560 One of the neat developments in the world of AI this week was 124 00:06:01,560 --> 00:06:04,560 Elon Musk finally announcing his new AI chat bot. 125 00:06:05,000 --> 00:06:07,240 We've been knowing that Elon Musk wanted to get into this 126 00:06:07,240 --> 00:06:10,000 category. I think he was a bit jealous. 127 00:06:10,240 --> 00:06:13,640 He was a little Jelly that you had Open AI all of a sudden 128 00:06:13,640 --> 00:06:16,960 partner with Microsoft. After all, he helped found Open 129 00:06:17,040 --> 00:06:20,560 AI, so seeing that be taken by Microsoft I think was something 130 00:06:20,560 --> 00:06:23,440 that he didn't love to see. And then seeing Google with Bard 131 00:06:23,440 --> 00:06:25,040 and all these other AI companies. 132 00:06:25,360 --> 00:06:28,080 I don't think Elon Musk is the type of person that likes seeing 133 00:06:28,080 --> 00:06:31,720 all the attention go away from him with other companies that 134 00:06:31,720 --> 00:06:34,920 have cool technology. So I think he launched his AI 135 00:06:34,920 --> 00:06:39,040 chat bot as part of regaining the supremacy of being the tech 136 00:06:39,040 --> 00:06:42,000 guy having the attention. The problem is, he's a bit 137 00:06:42,000 --> 00:06:44,320 behind in this game. So what he's done to 138 00:06:44,320 --> 00:06:47,960 differentiate his AI chat bot is personality. 139 00:06:48,320 --> 00:06:51,080 That's the single biggest differentiating feature, 140 00:06:51,480 --> 00:06:54,440 personality. His AI chat bot is sassy. 141 00:06:54,440 --> 00:06:57,560 It's a little bit more crude, in fact, it can be outright vulgar, 142 00:06:57,920 --> 00:07:01,440 and it's more sarcastic. It just has more personality all 143 00:07:01,440 --> 00:07:03,200 around. And Elon Musk has been 144 00:07:03,200 --> 00:07:07,760 highlighting the personality of his AI bot on X in fact, right, 145 00:07:07,760 --> 00:07:10,240 Harry says. How can I tell if I have crabs? 146 00:07:10,280 --> 00:07:13,320 The AI bot answers the question in a very medical way. 147 00:07:13,680 --> 00:07:16,760 Not much personality there with the straightforward question. 148 00:07:16,760 --> 00:07:20,120 But then he adds in be more vulgar, and the AI chat bot 149 00:07:20,120 --> 00:07:22,240 gives a more vulgar answer to the question. 150 00:07:22,240 --> 00:07:25,360 Something that ChatGPT or Bard won't do, and I have to give 151 00:07:25,360 --> 00:07:28,480 credit where credit is due. He's already way behind in the 152 00:07:28,480 --> 00:07:31,360 AI game he's trying to play catch up with these chat bots. 153 00:07:31,560 --> 00:07:34,480 He's working with less resources, but he's already came 154 00:07:34,480 --> 00:07:36,640 out with a chat bot that's pretty good. 155 00:07:36,840 --> 00:07:40,200 It has the basic answers you'd want, and he's found a way to 156 00:07:40,200 --> 00:07:42,720 make it distinct from the competition, which is something 157 00:07:42,720 --> 00:07:44,440 that he desperately needed to do. 158 00:07:44,880 --> 00:07:48,320 It's pretty incredible how quickly he got a product out and 159 00:07:48,320 --> 00:07:51,200 made it have a unique offering. So I'm actually really impressed 160 00:07:51,200 --> 00:07:53,400 with what he did here, and I think getting this product to 161 00:07:53,400 --> 00:07:57,640 market so fast is incredible. Now having said that, Grok is 162 00:07:57,640 --> 00:08:01,160 nowhere close to Open AI, and what Sam Altman's trying to do 163 00:08:01,160 --> 00:08:03,560 with Open AI has become abundantly clear. 164 00:08:03,760 --> 00:08:07,120 He is taking the first mover's advantage that they have this 165 00:08:07,120 --> 00:08:10,160 great initial lead and they're transitioning that into a 166 00:08:10,160 --> 00:08:13,040 sustainable competitive advantage, making it virtually 167 00:08:13,040 --> 00:08:15,880 impossible for any other AI company to catch up. 168 00:08:15,960 --> 00:08:17,960 And we'll go through the details of how they're doing that. 169 00:08:17,960 --> 00:08:20,160 The first thing that they're doing is making other startup AI 170 00:08:20,160 --> 00:08:22,880 companies irrelevant and putting them out of business. 171 00:08:22,920 --> 00:08:26,120 For instance, Open AI announced changes allowing developers to 172 00:08:26,120 --> 00:08:29,880 retrieve proprietary information like domain specific data or 173 00:08:29,880 --> 00:08:32,640 product descriptions from outside of its models. 174 00:08:33,080 --> 00:08:36,039 That means that they no longer have to convert the information 175 00:08:36,039 --> 00:08:38,799 to a format that AI models can understand to store them in 176 00:08:38,799 --> 00:08:42,600 vector databases like Pine Cone and Weviate. 177 00:08:42,720 --> 00:08:45,920 So now Open AI has the capability of these two AI 178 00:08:45,920 --> 00:08:48,040 start-ups, making them irrelevant. 179 00:08:48,160 --> 00:08:51,040 They're also giving the developers access to Open A is 180 00:08:51,040 --> 00:08:55,400 top text to speech AI model for less than 20% of the cost of the 181 00:08:55,400 --> 00:08:58,280 popular alternative. So this other company that's 182 00:08:58,280 --> 00:09:02,120 text to speech is now way more expensive than Open AI. 183 00:09:02,560 --> 00:09:04,720 Again this is going to put so much pressure on them. 184 00:09:04,760 --> 00:09:07,320 How are they going to compete against a company that's out 185 00:09:07,320 --> 00:09:10,440 pricing them? To this extent, Open AI took aim 186 00:09:10,520 --> 00:09:13,680 at a list of startups on Y Combinator startup list. 187 00:09:13,680 --> 00:09:17,360 Open AI has better products that match the product set at cheaper 188 00:09:17,360 --> 00:09:19,960 prices. This is doomsday for other AI 189 00:09:19,960 --> 00:09:22,440 startups. They also took aim at agents and 190 00:09:22,440 --> 00:09:24,840 assistants. The assistance API allows 191 00:09:24,840 --> 00:09:27,560 developers to build agent like experiences within their 192 00:09:27,560 --> 00:09:31,040 applications. This new API takes aim at 193 00:09:31,040 --> 00:09:34,280 companies like Langchain that market themselves today is 194 00:09:34,280 --> 00:09:38,000 connecting pieces for these AI powered applications so they 195 00:09:38,000 --> 00:09:40,800 have yet more companies that they're making irrelevant. 196 00:09:41,200 --> 00:09:43,040 Do you see the common thread here? 197 00:09:43,120 --> 00:09:46,760 This is consolidation. This is what happens to winners. 198 00:09:46,800 --> 00:09:49,480 They consolidate lots of different companies that end up 199 00:09:49,480 --> 00:09:52,800 losing, and that's where you get very top heavy companies. 200 00:09:52,920 --> 00:09:56,080 Their scope of products is encompassing basically every 201 00:09:56,080 --> 00:09:59,160 other smaller AI company. Their product feature set is 202 00:09:59,160 --> 00:10:01,960 growing much faster than other companies, and the advancements 203 00:10:01,960 --> 00:10:05,160 in their technology is becoming absurdly powerful right now. 204 00:10:05,240 --> 00:10:07,640 On top of all of that, one of the most significant things 205 00:10:07,640 --> 00:10:10,760 they're doing to ensure their competitive advantage to build a 206 00:10:10,760 --> 00:10:13,440 Moat around themselves is the App Store. 207 00:10:13,720 --> 00:10:17,720 As we know, having an App Store with a lot of developers, it 208 00:10:17,720 --> 00:10:20,200 creates a very powerful Moat for a company. 209 00:10:20,520 --> 00:10:22,720 This was the initial Moat of Apple. 210 00:10:23,040 --> 00:10:25,600 They had the App Store, they had all the developers on it. 211 00:10:25,600 --> 00:10:27,760 They made great apps, which enriched the customer 212 00:10:27,760 --> 00:10:30,400 experience. We have here open a eyes App 213 00:10:30,400 --> 00:10:33,040 Store moment. Paid users of ChatGPT can now 214 00:10:33,040 --> 00:10:37,160 build their own custom chat bots and share them publicly in a GPT 215 00:10:37,160 --> 00:10:38,560 store. And they also mentioned there's 216 00:10:38,560 --> 00:10:40,360 going to be a revenue sharing program. 217 00:10:40,360 --> 00:10:42,760 The other things this company announced are also great 218 00:10:42,760 --> 00:10:44,920 features. In fact, one of them is a little 219 00:10:44,920 --> 00:10:47,560 bit of a side feature, but it gives customers more incentive 220 00:10:47,720 --> 00:10:51,600 to use them over competitors. If you use an AI bot to do 221 00:10:51,600 --> 00:10:54,160 anything with your company, you may be concerned about 222 00:10:54,160 --> 00:10:56,800 liability. If that bot generates content 223 00:10:56,800 --> 00:10:59,760 that is copyrighted, that could put you in potential legal 224 00:10:59,760 --> 00:11:02,760 trouble. So Open AI said that we'll cover 225 00:11:02,760 --> 00:11:07,160 the bill if you ever get sued for copyrighted content from our 226 00:11:07,160 --> 00:11:10,480 system, anything that happens will cover the bill, and they 227 00:11:10,480 --> 00:11:12,640 can do that. They can cover anyone's legal 228 00:11:12,640 --> 00:11:15,360 bill because they're backed by a very large company. 229 00:11:15,360 --> 00:11:19,120 Most AI startup companies don't have Microsoft as a backer, and 230 00:11:19,120 --> 00:11:21,720 without Microsoft's pocketbook, they can't guarantee that 231 00:11:21,720 --> 00:11:23,520 they'll back any copyright claims. 232 00:11:23,600 --> 00:11:26,000 So this is another unique advantage that this company has. 233 00:11:26,000 --> 00:11:29,040 And then finally, in an effort to grow that App Store and get 234 00:11:29,040 --> 00:11:31,560 more customers on their platform, they're out pricing 235 00:11:31,560 --> 00:11:33,240 their major competitors specifically. 236 00:11:33,240 --> 00:11:35,440 Anthropic. They announced a number of price 237 00:11:35,440 --> 00:11:38,480 cuts across different products. I believe that's going to put a 238 00:11:38,480 --> 00:11:42,000 lot of pressure on Anthropic. Overall, the stuff that Sam 239 00:11:42,000 --> 00:11:45,040 Altman talked about in the presentation he put on in this 240 00:11:45,040 --> 00:11:47,560 meeting was objectively impressive. 241 00:11:47,560 --> 00:11:51,360 In fact, I would consider this one of, if not the most 242 00:11:51,400 --> 00:11:54,240 innovative presentations I've ever seen. 243 00:11:54,680 --> 00:11:57,880 These are truly ground breaking technologies that are going to 244 00:11:57,880 --> 00:12:01,400 change the world, being revealed by a single person on a small 245 00:12:01,400 --> 00:12:04,840 stage, and it does remind me of the early days of ale. 246 00:12:04,920 --> 00:12:07,520 And this is not just some niche product that tech nerds like. 247 00:12:07,520 --> 00:12:10,480 This is going to be added in to virtually everything we do. 248 00:12:10,800 --> 00:12:16,920 In less than a year, Open AI has hit 100 million weekly users and 249 00:12:16,920 --> 00:12:19,400 over 2 million developers that are currently building on the 250 00:12:19,400 --> 00:12:22,160 company's API. This is insanely fast growth. 251 00:12:22,280 --> 00:12:25,840 I look at Microsoft and again, I'm just wowed by either their 252 00:12:25,840 --> 00:12:28,560 genius or luck in investing in this company. 253 00:12:28,640 --> 00:12:31,640 Whoever had the foresight to make that investment should get 254 00:12:31,640 --> 00:12:35,240 a raise at Microsoft. Microsoft invested $10 billion 255 00:12:35,240 --> 00:12:37,920 into the company, raising their stake to 49%. 256 00:12:38,240 --> 00:12:40,560 So they own roughly half of Open AI. 257 00:12:40,800 --> 00:12:44,160 And when this investment was first reported, it got keywords 258 00:12:44,160 --> 00:12:47,600 like a buzzy AI tool. Yeah, just a buzzy tool. 259 00:12:47,600 --> 00:12:50,040 Something that's exciting but doesn't really have real 260 00:12:50,040 --> 00:12:51,560 numbers. Well, not anymore. 261 00:12:51,560 --> 00:12:54,880 Open AI is not just a buzzy tool, it's now generating over 262 00:12:54,880 --> 00:13:00,560 $1.3 billion this year already. Now, all of this seems great for 263 00:13:00,560 --> 00:13:03,040 Open AI. The company's way ahead of the 264 00:13:03,040 --> 00:13:05,520 competition. They have better AI technology 265 00:13:05,520 --> 00:13:08,680 than anyone else, and they're building out a substantial Moat 266 00:13:08,680 --> 00:13:10,880 to give themselves a competitive advantage. 267 00:13:11,440 --> 00:13:14,200 But that's great for them. What does that mean for 268 00:13:14,200 --> 00:13:15,880 Microsoft? And what does that mean for us 269 00:13:15,880 --> 00:13:18,400 investing in Microsoft? How much can we actually stand 270 00:13:18,400 --> 00:13:20,120 to benefit from this relationship? 271 00:13:20,120 --> 00:13:23,640 The partnership started in 2016. That's when Microsoft became 272 00:13:23,640 --> 00:13:26,240 first interested and formed a partnership with them. 273 00:13:26,560 --> 00:13:29,800 They strengthened it in 2019, and they also, importantly, 274 00:13:29,800 --> 00:13:33,440 transitioned Open AI from a nonprofit to a hybrid model 275 00:13:33,800 --> 00:13:37,640 where the L called Open AIL would be in charge of 276 00:13:37,640 --> 00:13:41,160 commercializing the products developed by Open AI Research 277 00:13:41,160 --> 00:13:43,080 Lab. Microsoft has since placed more 278 00:13:43,080 --> 00:13:45,960 money in the partnership, enabling them to develop its 279 00:13:45,960 --> 00:13:49,760 Microsoft Azure AI, a supercomputing technology. 280 00:13:49,840 --> 00:13:52,720 This is the infrastructure for training ChatGPT models. 281 00:13:52,800 --> 00:13:56,080 Microsoft is integrating Open AI's models and technology into 282 00:13:56,080 --> 00:13:59,760 basically all of their products. GitHub, Copilot, the entire 283 00:13:59,760 --> 00:14:03,440 office suite being everything, all of it's going to have 284 00:14:03,440 --> 00:14:06,960 integration with Open AI. So they are using this small 285 00:14:06,960 --> 00:14:10,000 company that they made this small investment in to 286 00:14:10,000 --> 00:14:13,320 dramatically improve every aspect of their entire offering. 287 00:14:13,400 --> 00:14:15,520 They also benefit with a lot of insights and learning. 288 00:14:15,880 --> 00:14:19,400 Simply put, their learning how to build AI supercomputers to 289 00:14:19,400 --> 00:14:22,440 support the computation intensive task required by large 290 00:14:22,440 --> 00:14:24,520 models. This helps bolster Microsoft 291 00:14:24,520 --> 00:14:28,320 ahead of the competition being the leader in AII believe that 292 00:14:28,320 --> 00:14:31,840 right now Microsoft is the leader in AI because of this 293 00:14:31,840 --> 00:14:35,840 relationship with Open AI, they happen to partner with the best 294 00:14:35,840 --> 00:14:38,560 company in the industry. Now there's other important 295 00:14:38,560 --> 00:14:40,960 players and I don't want to discount what Google's doing. 296 00:14:41,160 --> 00:14:43,160 I think they're making incredible progress and they've 297 00:14:43,160 --> 00:14:45,440 positioned themselves to be highly competitive. 298 00:14:45,840 --> 00:14:48,920 But their product set, their future and the number of users 299 00:14:48,920 --> 00:14:51,680 in AI is not at the same range of Microsoft. 300 00:14:51,720 --> 00:14:54,960 Now when I look at Microsoft as an investment, the company in 301 00:14:54,960 --> 00:14:57,280 terms of fundamentals has never been stronger. 302 00:14:57,520 --> 00:15:00,360 It is the strongest fundamentally that Microsoft has 303 00:15:00,360 --> 00:15:03,320 ever been in its entire history. It has the strongest market 304 00:15:03,320 --> 00:15:07,120 position, the most resilient cash flows and its position for 305 00:15:07,120 --> 00:15:09,120 future growth. Everything that you'd want to 306 00:15:09,120 --> 00:15:12,240 see with an investment. But in terms of valuation, 307 00:15:12,360 --> 00:15:14,720 there's many times where Microsoft is trading at a much 308 00:15:14,720 --> 00:15:17,760 better valuation. Right now it's not at a deep 309 00:15:17,760 --> 00:15:19,600 discount. And what I look for in 310 00:15:19,600 --> 00:15:23,320 investments are high quality stocks that are dislocated. 311 00:15:23,320 --> 00:15:26,680 That is what the investor Mark Mahaney refers to as DHQ's 312 00:15:27,000 --> 00:15:30,120 dislocated high quality stocks. That's a stock that's high 313 00:15:30,120 --> 00:15:32,720 quality, that's gone through a correction, it's gone down 314 00:15:32,720 --> 00:15:35,680 2030%. That is when you buy a very high 315 00:15:35,680 --> 00:15:38,160 quality stock. And that's exactly what happened 316 00:15:38,200 --> 00:15:40,920 one year ago. If we zoom into one year ago, 317 00:15:40,960 --> 00:15:43,920 Microsoft is up 60% over the past year. 318 00:15:44,240 --> 00:15:48,080 In fact, it was trading at a price of around 2:20 to 2:30. 319 00:15:48,480 --> 00:15:51,600 This was a dislocation. Microsoft had sold off. 320 00:15:51,760 --> 00:15:53,240 It had given up a bunch of games. 321 00:15:53,240 --> 00:15:56,280 It was going through a huge correction and during this time 322 00:15:56,280 --> 00:16:00,240 period, in fact right here at $230 per share, I came out with 323 00:16:00,240 --> 00:16:05,000 a video called I'm Buying hair. Microsoft was at $230 per share 324 00:16:05,240 --> 00:16:08,680 and I said it was undervalued at $300.00 per share. 325 00:16:08,760 --> 00:16:12,600 And I argued that Microsoft fair value was $350.00 per share. 326 00:16:12,920 --> 00:16:15,480 And again, at that time, trading at 2:30. 327 00:16:15,840 --> 00:16:19,040 That seemed improbable. It seemed a little crazy, but I 328 00:16:19,040 --> 00:16:21,400 believe strongly that it was an incredibly strong fundamental 329 00:16:21,400 --> 00:16:25,480 company at a dislocation. So if we're looking for DHQS 330 00:16:25,480 --> 00:16:29,400 dislocated, high quality stocks, Microsoft really isn't one right 331 00:16:29,400 --> 00:16:31,600 now. It's a high quality stock, but 332 00:16:31,600 --> 00:16:33,840 it's not dislocated from its valuation. 333 00:16:34,120 --> 00:16:37,520 It's trading at a very low free cash flow yield, which means 334 00:16:37,520 --> 00:16:41,000 that it's at a high valuation. It's trading at a very high PE 335 00:16:41,000 --> 00:16:43,640 ratio, again, trading at a high multiple. 336 00:16:43,720 --> 00:16:47,160 It's a high quality company, but I don't see any dislocation with 337 00:16:47,160 --> 00:16:49,240 the price. So for right now, I'll consider 338 00:16:49,240 --> 00:16:51,320 it a hold and look for other opportunities. 339 00:16:51,480 --> 00:16:53,600 Now moving on, we have some news about Vici. 340 00:16:53,600 --> 00:16:55,840 Vici of course being my only real estate holding. 341 00:16:55,840 --> 00:16:57,800 It's a great holding. It just pays out a dividend 342 00:16:57,800 --> 00:17:00,880 every quarter, a really big dividend and they own a lot of 343 00:17:00,880 --> 00:17:04,319 real estate on the Vegas Strip. As we know, Vegas is undergoing 344 00:17:04,319 --> 00:17:07,000 construction to make way for the Formula One race. 345 00:17:07,000 --> 00:17:09,960 This is a highly anticipated race, and conceptually this 346 00:17:09,960 --> 00:17:13,640 seems really cool. It's advertised as basically the 347 00:17:13,640 --> 00:17:17,319 Formula One cars racing down the street of the Vegas Strip. 348 00:17:17,599 --> 00:17:21,359 So you see all these iconic, incredible buildings behind the 349 00:17:21,359 --> 00:17:23,680 cars racing down the street. And this reminds me of those 350 00:17:23,680 --> 00:17:25,960 racing games you play at the nickel arcade where you're 351 00:17:25,960 --> 00:17:28,840 racing down the street of this super busy city. 352 00:17:29,080 --> 00:17:31,280 Because the background looks spectacular. 353 00:17:31,640 --> 00:17:33,360 This is what they're doing in real life. 354 00:17:33,760 --> 00:17:36,160 Conceptually, this seems awesome, but in all 355 00:17:36,160 --> 00:17:38,840 practicality, it's running into a couple of snags. 356 00:17:38,840 --> 00:17:41,840 For visitors and locals, the construction has made navigating 357 00:17:41,840 --> 00:17:43,800 the city and exercise impatience. 358 00:17:44,080 --> 00:17:47,520 Driving or walking from one resort to another can take much 359 00:17:47,520 --> 00:17:50,320 longer than usual. Many visitors are complaining 360 00:17:50,320 --> 00:17:53,400 that the construction has ruined views of popular attractions. 361 00:17:54,000 --> 00:17:57,360 Now, if this was any other street, maybe in the world 362 00:17:57,640 --> 00:18:00,760 except for the Strip, this really wouldn't be that much of 363 00:18:00,760 --> 00:18:03,760 a problem. What street is so important that 364 00:18:03,760 --> 00:18:06,600 people don't want their views blocked that people don't want 365 00:18:06,600 --> 00:18:09,840 to walk a little bit extra? Well, there's some busy streets 366 00:18:09,840 --> 00:18:13,440 in the US, but literally none of them in the entire world are as 367 00:18:13,440 --> 00:18:16,760 busy as this trip. This is the most economically 368 00:18:16,760 --> 00:18:19,880 productive St. in the entire world, and you're making 369 00:18:19,880 --> 00:18:22,760 visitors, People that have spent a lot of money to fly out to 370 00:18:22,760 --> 00:18:26,720 Vegas, to have a good time to go to events and conventions, to go 371 00:18:26,720 --> 00:18:28,520 party, to do whatever they want to do. 372 00:18:29,000 --> 00:18:31,840 Now they're being obstructed from enjoying themselves on 373 00:18:31,840 --> 00:18:35,640 their vacation of the most vacation spot in America. 374 00:18:35,760 --> 00:18:39,600 Repeat visitors and locals worry that obstruction will become an 375 00:18:39,600 --> 00:18:42,320 annual fall happening, especially since many of the 376 00:18:42,320 --> 00:18:44,760 structures built on the race are temporary. 377 00:18:45,000 --> 00:18:47,680 Las Vegas and F1 have agreement that they allow the race to 378 00:18:47,680 --> 00:18:51,760 happen annually for at least two and as maybe as nine years. 379 00:18:51,880 --> 00:18:54,560 Some regular visitors are rethinking their future travel 380 00:18:54,560 --> 00:18:56,200 plans Now. You may think people are just 381 00:18:56,200 --> 00:18:58,880 being a little uptight or it can't really be that bad. 382 00:18:59,280 --> 00:19:02,640 Let me tell you, I went and visited in person just a month 383 00:19:02,640 --> 00:19:05,640 ago and it's bad. Here's a video I took right next 384 00:19:05,640 --> 00:19:08,840 to the Bellagio. This is the Bellagio iconic 385 00:19:08,840 --> 00:19:11,480 fountains and right there you have construction right on the 386 00:19:11,480 --> 00:19:14,880 Bellagio fountains. Now again, this was over a month 387 00:19:14,880 --> 00:19:18,040 in advance of the event. So the Bellagio fountains and 388 00:19:18,040 --> 00:19:22,160 the iconic view you get there is obstructed from this event for 389 00:19:22,160 --> 00:19:25,160 around 2 1/2 to three months before the event. 390 00:19:25,480 --> 00:19:28,520 And this is a three day event. Not only is the view obstructed, 391 00:19:28,520 --> 00:19:31,360 but you literally can't even walk in front of the fountains. 392 00:19:31,440 --> 00:19:34,240 They blocked off the entire sidewalk, so if you want to go 393 00:19:34,240 --> 00:19:36,480 past this part of the strip, you have to walk through the 394 00:19:36,480 --> 00:19:39,680 Bellagio making a walk a lot longer than usual. 395 00:19:39,680 --> 00:19:42,200 And as you can see, all the fencing and scaffolding and 396 00:19:42,200 --> 00:19:45,160 cranes obstruct all the views of the buildings around. 397 00:19:45,280 --> 00:19:47,880 So for months leading up to the event, you have disruption to 398 00:19:47,880 --> 00:19:50,200 the visitors. Formula One also actively is 399 00:19:50,200 --> 00:19:52,840 blocking the view of anywhere else but a paid seat. 400 00:19:53,360 --> 00:19:55,720 And I told you the next part they were going to do was 401 00:19:55,720 --> 00:19:58,560 basically like a fence here with a cover over the top because 402 00:19:58,560 --> 00:20:00,480 people were saying, oh, people are just going to stand up here 403 00:20:00,480 --> 00:20:02,400 and look over lots of this. Is to prevent. 404 00:20:03,040 --> 00:20:04,920 Remember I mentioned they're going to have lights so they 405 00:20:04,920 --> 00:20:07,360 reflect off this film so people can't see. 406 00:20:07,640 --> 00:20:09,320 The light's going to reflect. You're not going to be able to 407 00:20:09,320 --> 00:20:11,120 see out. Well, here's your lights. 408 00:20:11,440 --> 00:20:14,800 They're putting up fencing and lights to reflect off of the 409 00:20:14,800 --> 00:20:17,640 screen, so you cannot see the race unless you pay. 410 00:20:17,640 --> 00:20:20,320 And this of course looks ugly and messy to any visitors that 411 00:20:20,320 --> 00:20:22,800 are not here for the event. I think it'll be interesting to 412 00:20:22,800 --> 00:20:25,440 see what type of revenue this generates and what they decide 413 00:20:25,440 --> 00:20:27,680 to do going forward. And I would not be surprised to 414 00:20:27,680 --> 00:20:30,800 see if Vegas no longer decided to do this because of the 415 00:20:30,800 --> 00:20:32,960 massive disruptions. Now moving on, there's an 416 00:20:32,960 --> 00:20:35,680 important phenomenon that's been happening in the stock market 417 00:20:35,680 --> 00:20:39,000 that I think needs to be pointed out, and that is that a few 418 00:20:39,000 --> 00:20:42,840 companies typically make up for the big majority of gains of the 419 00:20:42,840 --> 00:20:45,720 entire index. To illustrate this, let's go 420 00:20:45,720 --> 00:20:48,360 ahead and take a look at two different ETFs. 421 00:20:48,560 --> 00:20:51,000 The first one we have here is the S&P 500. 422 00:20:51,240 --> 00:20:53,960 It's up roughly 15% year to date. 423 00:20:54,600 --> 00:20:57,840 Now that's not anything amazing, but that's a pretty good gain 424 00:20:57,880 --> 00:21:01,480 for the entire year, 15%. There's nothing wrong with that. 425 00:21:01,880 --> 00:21:06,800 Now the S&P 500 is a market cap weighted ETF, meaning the bigger 426 00:21:06,800 --> 00:21:09,720 the company and market cap, it has a proportionately higher 427 00:21:09,720 --> 00:21:12,240 weighting in the ETF. So the biggest companies like 428 00:21:12,240 --> 00:21:16,960 Apple, Microsoft, Tesla, NVIDIA, Amazon, Google, Meta with their 429 00:21:16,960 --> 00:21:19,880 big market caps, they make up a big part of this ETF. 430 00:21:19,880 --> 00:21:23,240 The other ETF we'll look at is called the equal weighted S&P 431 00:21:23,240 --> 00:21:25,560 500. This is all the same companies 432 00:21:25,560 --> 00:21:29,640 in the S&P 500, but instead of weighting them by market cap and 433 00:21:29,640 --> 00:21:32,480 weighting the bigger companies with a bigger weighting, they're 434 00:21:32,480 --> 00:21:35,000 all equal weighting and they're rebalanced as such. 435 00:21:35,120 --> 00:21:38,560 Now an equal weighting ETF is literally flat on the year. 436 00:21:38,560 --> 00:21:41,960 It's down .6% and again the market cap weighted one is up 437 00:21:41,960 --> 00:21:43,600 15%. And the reason why? 438 00:21:43,600 --> 00:21:46,400 It's pretty simple. The handful of large companies 439 00:21:46,400 --> 00:21:49,480 have outperformed the other companies in the index in 440 00:21:49,480 --> 00:21:52,440 aggregate. Companies like NVIDIA, Apple, 441 00:21:52,440 --> 00:21:56,400 Microsoft, Google, Amazon, Tesla, they've all done 442 00:21:56,400 --> 00:21:59,840 incredible this year and the rest of the index has not 443 00:21:59,840 --> 00:22:02,440 performed as well. Now if we consider why the S&P 444 00:22:02,440 --> 00:22:05,800 500 market cap weighted is doing so well, there's a few things to 445 00:22:05,800 --> 00:22:09,160 consider. First of all, the S&P 500 is 446 00:22:09,160 --> 00:22:12,280 difficult to beat. Anyone that says it's easy 447 00:22:12,280 --> 00:22:14,200 doesn't really know what they're talking about. 448 00:22:14,640 --> 00:22:18,360 It is not easy to beat it on a consistent 3 year rolling basis 449 00:22:18,560 --> 00:22:20,520 where you're always outperforming SPY. 450 00:22:20,880 --> 00:22:23,840 That is incredibly difficult and I'm sure that you've heard most 451 00:22:23,840 --> 00:22:26,600 fund managers who are professionals cannot do that, 452 00:22:26,680 --> 00:22:28,760 and I believe there's specific reasons why. 453 00:22:28,800 --> 00:22:32,440 One example is the S&P 500 makes different choices than a lot of 454 00:22:32,440 --> 00:22:36,280 value investors. For example, the S&P 500 gives a 455 00:22:36,280 --> 00:22:40,000 greater weighting to companies that are doing well, meaning 456 00:22:40,000 --> 00:22:43,320 that they feed the winners. They lean into the companies 457 00:22:43,320 --> 00:22:46,000 that are outperforming. They buy more of the companies 458 00:22:46,000 --> 00:22:49,280 that have momentum, that have progress, that have higher cash 459 00:22:49,280 --> 00:22:52,160 flows and higher market cap. They weight these companies in 460 00:22:52,160 --> 00:22:54,680 greater proportion value. Investors like to do the 461 00:22:54,680 --> 00:22:56,680 opposite. They look at their winners and 462 00:22:56,680 --> 00:22:59,160 they say, you know what, I'm going to sell these companies. 463 00:22:59,400 --> 00:23:02,360 I'm going to sell off Microsoft and Apple because these 464 00:23:02,360 --> 00:23:04,840 companies have already done so well and they must be 465 00:23:04,840 --> 00:23:07,600 overvalued. So value investors sell off 466 00:23:07,600 --> 00:23:10,480 their big winners and they reinvest that money into the 467 00:23:10,480 --> 00:23:12,280 losers. They buy the companies that are 468 00:23:12,280 --> 00:23:15,400 struggling, they buy them in disproportionately high levels. 469 00:23:15,640 --> 00:23:17,480 They add more and more to their losers. 470 00:23:17,600 --> 00:23:20,320 They dollar cost average down on losing positions. 471 00:23:20,560 --> 00:23:23,600 They do this in the name of buying value, buying the 472 00:23:23,600 --> 00:23:25,600 companies that nobody else wants to buy. 473 00:23:25,600 --> 00:23:28,680 And while sometimes that can work out all right, if there's a 474 00:23:28,680 --> 00:23:32,040 true recovery in the company you're buying, in many cases 475 00:23:32,040 --> 00:23:34,200 focusing on the companies that are doing poorly is the 476 00:23:34,240 --> 00:23:36,960 opposite, the opposite of what we should be doing. 477 00:23:37,320 --> 00:23:40,240 Peter Lynch talks about watering the weeds and trimming the 478 00:23:40,240 --> 00:23:42,080 flowers. That's what a lot of value 479 00:23:42,080 --> 00:23:44,280 investors do. They buy the companies that are 480 00:23:44,280 --> 00:23:46,720 struggling and they continue to struggle further. 481 00:23:46,720 --> 00:23:49,560 Meanwhile, the ETF that's beating all the value investors, 482 00:23:49,560 --> 00:23:53,040 outperforming all the hedge fund managers, outperforming everyone 483 00:23:53,040 --> 00:23:56,760 else, is buying all the winners, adding more and more to big 484 00:23:56,800 --> 00:23:59,000 winning positions. Now, I'm not suggesting we 485 00:23:59,000 --> 00:24:02,400 ignore valuation or we only add the companies that go up, but I 486 00:24:02,400 --> 00:24:04,200 am suggesting that value investors have a little 487 00:24:04,200 --> 00:24:05,880 introspection with their strategy. 488 00:24:05,880 --> 00:24:09,120 When I invest, I am focusing on companies that I believe are 489 00:24:09,120 --> 00:24:11,000 strong winners. These are companies that have 490 00:24:11,000 --> 00:24:12,920 been strong winners for a long period of time. 491 00:24:13,240 --> 00:24:17,240 Because what I've observed is that the S&P 500 is difficult to 492 00:24:17,240 --> 00:24:20,520 beat for a reason. It puts greater emphasis on 493 00:24:20,520 --> 00:24:23,760 companies that are doing well, and it sells out of the ones 494 00:24:23,760 --> 00:24:26,200 that are doing poorly. If a company starts to 495 00:24:26,200 --> 00:24:30,160 underperform, if it starts to have its fundamentals erode, the 496 00:24:30,360 --> 00:24:33,400 500 puts it as a lower and lower weighting. 497 00:24:33,720 --> 00:24:35,880 It doesn't double down into a bad company. 498 00:24:36,240 --> 00:24:38,640 It doesn't try to get back even with the company. 499 00:24:38,720 --> 00:24:41,840 And if the company does bad enough, the S&P 500 literally 500 00:24:41,840 --> 00:24:44,440 sells out of it. It gets rid of it completely and 501 00:24:44,440 --> 00:24:46,640 replaces it with a newer, promising company. 502 00:24:46,640 --> 00:24:48,480 So I think there's something we can take from this. 503 00:24:48,680 --> 00:24:51,840 One of the biggest temptations in investing is to sell out of 504 00:24:51,840 --> 00:24:54,640 high quality companies in the name of valuations. 505 00:24:54,720 --> 00:24:57,520 Sometimes that can work, but that is not the strategy of the 506 00:24:57,520 --> 00:25:02,040 S&P 500, and the S&P 500 has a history of very good returns. 507 00:25:02,080 --> 00:25:04,560 That's all for this episode. If you want extra content, make 508 00:25:04,560 --> 00:25:06,240 sure to check out the Patreon link below.