Welcome back everyone. We have so much to get into in
this episode of the Joseph Carlson show as you know I made
some changes to the portfolio, the beginning of this year.
I'm basically trying to up the quality of my companies.
I'm trying to trim down on some of the fat and make it so that
every company, my portfolio are really top performers.
Now, what I want to do is actually just do an update, see
what's going on. Year-to-date we're up five point
nine, six percent so far year today, that's 22,000 and we're
going to go By sector by sector and category by category and
just see how these companies are doing and why they're performing
the way they are this year. Then of course, we have some
economic news u.s. GDP came out at two point nine
percent growth is moderating in the US.
Corporate layoffs are spreading Beyond just big Tech into the
entire corporate world and we have some earnings reports
Union. Pacific released their earnings.
Microsoft released their earnings MasterCard released
their earnings. These are all large Holdings in
my portfolio and we're going to be going through all Of these
earnings reports and see how these companies are doing.
And then finally, we have an update on all of those
tick-tocks of a day in the life of a LinkedIn employee or a
Google employee. Now, employees or rather X
employees are making videos of a day in the life of being laid
off from Google. I kid, you not.
This is the new trend, they're making videos about their story
of being laid off. So as always, we have a lot to
get to in this episode. Let's go ahead and start off
with a portfolio update. We gained thousands of new
subscribers. Subscribers in the Joseph
Carlson show every single month so if you're one of the new ones
here welcome we do something a little bit different here.
The most channels we show our actual money, we show it.
Invested we show it transparently with every single
thing that we're buying. Every single thing that we're
selling. I not only show what I'm buying
and selling but I also show what I make mistakes when I have
Investments that don't turn out. Well, one of my worst
Investments right now is Disney. I'm losing money on this
company. So there's a level of
transparency here that you don't get Many other places.
But what I want to do in this video is give an update on the
performance of my portfolio. Year-to-date, we're looking at
the passive income account and what I'll say is this 393
thousand dollars that is real money and that makes up my
largest investment vehicle by far.
I have another smaller Tech portfolio but that one is much
smaller than this portfolio. Four hundred thousand dollars is
a ton of money to me. The only thing that even comes
close is my equity in my house where I live.
Liv and I don't really consider that an investment in the same
way I do the passive income portfolio so this is a
meaningful amount of money. And the goal here is to compound
my portfolio as much as possible.
Frankly, I want to beat the S&P 500 and I want to Beat It by a
large degree over the next 10 years.
In terms of keeping track of progress, I really started
paying attention to it and 2022 and 2022.
The passive income account was down sixteen point, two, two
percent, and that's with dividends being included.
So, with dividends reinvested, we were Sixteen point two, two
percent time-weighted Returns the S&P 500 went down. 18.1 4%
the same year with dividends reinvested so we barely out
performed it in 2022. And that's partially because of
how well, Texas Roadhouse and view cheated.
So a couple Holdings held it up last year, but this isn't the
type of outperformance that I'm wanting.
I don't want to beat the S&P 500 by just a couple percentage.
I'd like to make the Gap much wider over the coming years.
And so, what I want to do is go over my plan for doing that.
If I flip over to a year to date so far were up 6.2 one percent.
The S&P 500 is up, five point seven, seven percent.
So we're basically matching it right now and some of my
companies are performing a little bit better than others.
If we stay on the year-to-date metric here, we can go sector by
sector but we go into the tech category.
I have two companies in this category apple and Microsoft
Apples Up 14% Microsoft is lagging.
The market up only two and a half percent.
I think that Microsoft Right now is heavily undervalued based off
the quality of the company and its future growth prospects.
And I say that, after seeing their last earnings, that were a
bit disappointing to investors. If we look at Microsoft's latest
numbers, they are a little bit lower than last year, the
earnings were down 11% year-over-year.
The ibadah was a little bit lower, that's a little bit
concerning, even the top line, revenue had an incredible
deceleration. It only grew at two percent two
percent year over year. But most of all I think the The
most concerning thing is in the cash flow of the company, the
cash flows plummeted. Look at this last quarter.
Doesn't that put it in perspective?
There the cash flows, like a third of what it was the prior
quarters. Now, over the full year, it was
a pretty good year for Microsoft in 2022 but the fourth-quarter
shows a strong deceleration. Then in addition to all these
slowing Trends with this quarter, we have the CEO of the
company Sachin, Adela he goes on the earnings call and he
basically does everything in his power.
To torpedo the company's stock price.
He talks about how everything slowing down and the company's
going to basically take a break for the next two years that Tech
spending. Slowing down the economy,
slowing down, every time someone talks to him about something
exciting. He basically pores cold water on
it. So he was not enthusiastic in
this earnings report. Now there's something that I
want to mention that I think is an often missed point, but I
think it's very important in regards to CEOs, like such an
Adela talking In negatively about his own company saying
that that growth is slowing. That competition is coming that
they're struggling through the times.
Let me put it this way, once you're the CEO of a company that
is monopolistic and Incredibly powerful.
It's as if you get invited to a secret Club, a secret Club of
CEOs of monopolistic companies and they highlight the rules,
right? When you enter in the club they
say, rule one. Being part of a monopolistic
company is you do not talk about the monopolistic nature of your
company. Rule, two is to not break.
Rule 1, do not talk about the monopolistic nature of your
company. You have to tell the public that
you're a company, that faces lots of competition.
You don't have a Stranglehold on the market.
You are struggling. You're just hanging in there.
That's what you do as the CEO of a monopolistic company.
So with that, in mind, your We're going to hear a CEO like
such an adult, come out and say, Microsoft, basically, controls
everything in the corporate world.
We have all of the most important applications, we Face
minimal competition that we can. Frankly, just by, if they ever
actually threatened us and all things are running as normal, we
basically don't have to do much to maintain our Monopoly.
He's never going to come out and say that you have to read that
between the lines. Tim Cook will never come out and
say that iOS is a monopoly, he'll never come out and say
that even though it kind of is Is you're never gonna have the
CEO of MasterCard which is clearly monopolistic and they
own a duopoly with Visa. The CEO of MasterCard is never
going to come out and say look we control the payment rails.
Everything flows through us, we have a natural monopoly.
People, use our products, we have incredibly little
competition and anyone that tries to go around us, instead
of through US does to their own detriment.
He will never say that. The CEOs of monopolistic
companies are often the ones that talk mostly about all the
challenges. Changes.
They face they talk about all the problems of company has all
the competition they face and they do so because they know
publicly that's what's best to highlight.
Because in many cases the main challenge these companies face
is legislation the government coming in and breaking up their
natural monopolies. Now on the contrary many cases
the CEO's that talked about their company being a monopoly
and facing no competition and they can't even see competition
with a telescope are in many cases, the companies that faced
the most Competition. So a lot of this is completely
in verse to what you would suspect as an investor, when
you're listening to earnings calls and you're listening to
companies, talk about their own company, the ones that are the
most confident in their Market position are the ones that need
to speak. The least amount about how
powerful their business model. Is the companies that have the
least powerful Market positions are the ones that have to
convince investors. They have to talk openly about
how powerful of a company they are.
So keep that in mind when you're listening to earnings reports.
Either way, a lot of investors, don't get this subject and what
such a Nadella did speaking down about Microsoft had the effect
of throwing cold water on the earnings report.
And I don't think that that paints an accurate picture for a
company of this quality. The main thing that I'll mention
about Microsoft's report is even though things are decelerate in
a little bit, they're slowing down the core products.
The most profitable products in the most meaningful ones are
still going really well. The server products, and Cloud
services, they increased Revenue by 20%.
All of their server products still grew at a twenty percent
rate, the Azure business, their primary cloud service.
Revenue growth was 31% and that's with currency being
adjusted. If you held constant currency,
which basically means if you took out foreign exchange rates,
it grew at 38%, that's an astounding level of growth for
Azure. So, their core products are not
decelerate in that much, that is still very strong growth.
'The so my opinion, even though this is a slow down this
quarter, I think we can exercise a little patience here because I
don't think this slowdown is going to last forever.
The core businesses of Microsoft are still doing really well.
A lot of the things that slow down where their Hardware Sales
things that I don't think are as critical for the core business
for Microsoft. Now, moving on, we're still
looking at the year-to-date performance here.
I want to go into the financial category.
This is another one that I've built up heavily this year, SP
Global and MasterCard. If you haven't studied these
businesses, Is I recommend doing so because the more that I look
into them the deeper, I dive the more I like these companies they
fit basically. Every characteristic I look for
in a compounder they have pricing power real pricing power
where they raise prices for 10 years straight and they don't
lose customers. As a consequence, they have
almost no capex requirements. So these companies are
incredibly Capital efficient. They have pricing power their
monopolistic. They're highly entrenched
businesses that I think, will grow their earnings per share.
Air and free cash flow per share at a rate far exceeding.
The S&P 500 over the next 10 years.
I truly believe these companies will trounce the S&P 500 over
the next 10 years. MasterCard, just reported their
earnings and it was basically in line with expectations, which is
exactly what I'm looking for. The CEO had commentary, that's a
little bit different than what we're seeing in the economic
reports. He says that the economy overall
is pretty resilient that consumers are holding up and he
speaks about travel. He said, quote as we look at the
broader economy, We see the continued recovery of
cross-border travel with volumes up 59 percent versus a year ago,
and we're encouraged by Asia opening up further, while macro
economic and geopolitical uncertainty persists, consumer
spending has been remarkably resilient.
We are well prepared to adjust our investment profile quickly
if needed. That's another thing that being
Capital, light allows you the company has a ton of
flexibility. One more thing that I'd
highlight from this earnings report is their return of
capital to shareholders because MasterCard is such an
efficiently ran business. What they're essentially able to
do is reinvest very little back into their business and return
all of their massive amounts of profits back to the investors,
MasterCard, repurchased, 7.4 million shares at a cost of two
point, four billion dollars and paid four hundred and seventy
three million dollars in dividends if the stock price
ever dips for a company like this, you know, that they're
buying back, the shares aggressively, they will work on
getting that stock. Back up through share
repurchases, MasterCard is such an officially ran business that
aside from some type of horrible disruption to their core
business model. I think the company will
continue to compound, it's free cash flow per share at 15
percent over the next 10 years. And in terms of core risks to
the business model, I believe the biggest one is government
intervention. Now again we're still looking at
year-to-date here and we're going on to the next category
which is consumer. This is a category that I have
not been adding to this year. In fact, all I've done in In
this category so far is trim different positions.
I've trimmed my Nike position by a pretty substantial amount.
I really like Nike as a stock and a company, I think it's
phenomenally. Well ran the metrics are
incredible. The profitability ratios are
incredible. The balance sheet is solid,
there is nothing wrong with this business.
But this stock price is just hard for me to wrap my head
around no matter which way I looked at it.
The stock is just expensive. It trades at a 36 Ford PE ratio
the free cash. Close at like 1 percent right
now, I've even ran through different discounted cash flow
metrics based on different assumptions.
Oh, no matter what way I look at the company, I keep coming to
the conclusion that it's just a bit expensive.
I thought it was time to take some gains and move the money to
other companies that I think, present, a better risk reward in
the restaurant category. Again, this is just year to date
on these companies. I'm up and total over 6,000 on
Texas, Roadhouse and 3,000 on Starbucks and I've not been
buying or selling either of these companies.
I've simply been holding them I'm very bullish on Texas
Roadhouse. I still think this company is
going to widely outperform the market, over the next couple of
years, especially if demand stays relatively strong for
restaurant spending. So we'll see how this one does
the earnings reports. Next month, I'll give an update
on it, but my assumption is it's going to be out growing a lot of
growth companies. I think Texas Roadhouse will be
outgrowing the majority of big Tech once again after the
restaurant category we have my real estate holdings.
These are real estate investment trusts I only hold one company
right now which is Vici so far up, 6.8% year-to-date.
This is a very large holding of mine and I have not bought any
or sold any this year and I don't plan on trimming.
This holding any time soon. I'm still incredibly bullish on
beachy, although the company employs leverage because it's a
real estate company, it has baked in pricing power, every
single year they have contractual agreements to raise
prices above the rate of inflation.
So right there, we have the pricing power question solved
and we also have a growing Oh, that aspect, because they
continue to buy new properties. So, overall, I still like the
valuation of the company, I still like the dividend
payments, I like the growth prospects.
And then last but not least the category, that's performed.
The worst this year is the Industrials, which are actually
in the red this year down 1.5 percent year-to-date.
I don't normally love industrial Investments and the reason that
I don't love them is because of their incredibly high amounts of
capex. They require a ton of capital to
run these This is lots of reinvestment back into the
business year over year over year, for example, Union
Pacific, and Canadian Pacific. The average capex that they have
to spend proportionate to their revenue is around 15% per year.
When you look at a company like Mastercard, or VISA or SP
Global, it's less than a percent per year.
So, these companies, spend a fortune in capex, they have lots
of heavy Investments, they have to make back into their
business. The reason why I still invest in
these companies Knees. Despite them having high capex
is because of their monopolistic Market structure.
The fact that they're highly entrenched and I think they face
very little competition and chance of disruption.
I thought the earnings report was fine, it was nothing,
amazing, the market, didn't seem to like it that much.
The stock was down a couple percentage afterwards, but for
the full year of 2020 to the company grew Revenue by 8%,
which I think is good for Union Pacific because they struggle
with that top line, revenue growth and their operating
income was up six percent. Now, what I actually, At the
market didn't like, the most was comments, that the CEO made soon
after the earnings release. He went on to CNBC and he spoke
about the overall economy. Yeah, so unlike say, the past
three or four years, you've got this Dynamic of the FED raising
interest rates very rapidly, which ultimately will destroy
demand across markets and you've got consumers that have been
telling us for quite some time that they're concerned.
But they've been flush with cash.
Mostly about transfer payments from the government, but also
from a very hot jobs market. So you put those two together
and it does appear, that consumers are starting to pull
in their horns. On Goods, consumption.
They're still consuming at a high rate on experiences and
travel and entertainment and it's just not clear yet.
Exactly what the impacts going to be of the FED interest rate
increases. Although clearly, you can see
early Innings, it's having an impact on things like housing.
You see the commonality here another CEO of a company that's
widely considered an oligopoly and has entrenched Market
position is not talking glowingly about the future, he's
saying that things are a little bit less predictable.
We have some employment issues and he's highlighting all the
challenges but he can't highlight the strengths of his
company. The CEO is not going to come out
and say we Face very little competition.
So we can continue to employ pricing power.
We can raise prices because our customers unfortunately can't
really go to anyone else. Yes, you simply not going to say
that. Now, if I go back to the
earnings release, I want to jump to what I actually consider to
be the most important thing to me.
This is what I'm looking for here.
The 2023 guidance, what they outline here is full.
You're operating ratio Improvement, so they're saying
that margins are going to go up there.
Operating efficiency is going to go up and that is the story of
the railroads becoming more and more efficient every single day.
Then we have that next, very difficult thing that I look for
in companies pricing power. The ability to raise the price
of your product, above the rate of inflation for 10 years,
straight without losing customers to competition, they
outline that they're expecting to price dollars in excess of
inflation dollars. So they're raising their prices
in excess of inflation and they state that openly why are they
able to do that? Because their railroads and
their customers frankly don't have many other options and then
in terms of capital allocation like I outlined they spend a
significant amount of their revenue.
On capex. And this case they're aiming for
less than 15%. That's a lot of money spent on
capex. This is a downside of the
company but overall I really liked the fact that they pay a
dividend with a low payout ratio.
And then everything else goes back to share repurchases, which
they repurchased over four percent of the shares
outstanding over the past year. So, even though the railroads
haven't surge like the rest of the market this year so far, I'm
still very bullish on them. And I'm still buying these
companies. I'll be adding to these
positions. And as long as they lack the
rest of the market. So this is what the portfolio
looks like. Year-to-date you can let me know
what you think of it. If you agree with my byes, if
you disagree, I'd be interested to know and I'm happy with the
performance year to date as well as all time.
I think we're headed in the right direction.
Now let's go ahead and move on to some news.
We have the headline news that u.s.
GDP Rose 2.9 percent in the fourth quarter and there's a lot
of different takes on this news like most economic data, you can
look at it positively or negatively.
Lee, I'll give you the basic argument for each side.
The argument that the Wall Street Journal makes and what
most economists are making right now, is that this news really
isn't as good as it. Seems the overall economy
slowing down and we're coming out of an environment.
That was really easy going into environment.
That's really difficult. They say the fourth quarter,
capped a year of economic slowdown in part reflecting a
return to a more normal pace of growth after output surge amid
business, re-openings fiscal stimulus and waning pandemic in
2021. All right, so Just got done with
our pockets, being filled with money and being locked up in our
homes. And finally, we are able to
spend that money. We're able to travel.
So naturally, the economy is rebounding a little bit but then
they go on to highlight that the economic output grew one percent
in the fourth quarter of 2022 compared with a year earlier
down from five point seven, percent growth in 2021 and 2.6
percent growth in 2019. So overall the longer-term
trends are that the economy is slowing.
It's actually moderating and Pace.
Whether you look at that as a good or bad thing is up to you,
in my opinion, I actually think that this is a good thing.
If we have an overheating economy, that would be basically
an invitation to the FED to raise interest rates
dramatically more. So, I think the economic growth
actually, moderating is a good thing in terms of the feds
interactions, and then the other bit of news is the layoffs, this
is the more sad news. I really don't enjoy, seeing
people get laid off from work even when it's Justified from,
Company even when it's responsible move by the
employer, it's still not a fun thing to see people losing their
livelihood, losing their income stream.
That's basically like a worst nightmare for anybody.
That depends on that income stream and that's part of the
reason building this channel is trying to help people find a
different way to find passive income.
The ability to at least survive without your primary job with
enough effort and time we can get to a point where we're not
totally reliant on our primary income but layoffs have been
picking up. Up and they started off with the
biggest companies that are the trendsetters once big Tech does
anything, everyone else follows. That's the way these things
work. A lot of companies simply
modeled their covid policies. After big Tech if big Tech was
working for home, all the other companies would work from home.
If big Tech required wearing masks in the office, other
company said, you had to wear masks in the office other
companies, basically copied their HR policies and their
corporate policies and now other companies have the leeway to do
layoffs. Because big Tech has done
layoffs. So this is a concerning trend of
rising layoffs. In, in my opinion, I think this
is gonna continue. I think a lot of these companies
that did a big round of layoffs are going to be doing another
round of layoffs. When you look at the
fundamentals of them, many of them hired.
So many more employees than the fundamentals of the companies
justify. And I think we're going to see a
pretty big reversion over the next year.
Now on the subject of layoffs with these companies like
Google, one of the things that I've been highlighting over the
past year are these videos of a day in the life.
Life of a Google employee. And the reason I've been
highlighting this is because I think they're so incredibly
revealing of the problems with the culture of these companies,
you can even see from watching any of these videos basically
all they're doing or at least all they're showing here is
eating tons of good food hanging around and doing minimal.
Work it to the office at around 6, a.m. to beat the traffic and
just get a nice workout and around 7:00.
A.m. I'm getting ready to the locker
room. Getting breakfast at this really
cute. Cafe at ADM.
Got some Crepes iced Americano, which is so.
And at around eight, Twenty Eight got to work.
I usually get a snack at around 10 a.m.
And today, I forgot a charging cable.
So I went to the vending machine to get one and 11:30 is usually,
when I eat lunch, I got a whole hodgepodge of things including
pizza and this is the view that I like to eat with at 12:00, I
guess some more caffeine and just spend the afternoon doing
some more work. I like to do stress at the end
of the day. And today I booked a massage
appointment. So I have it for an hour and
then go home at 5:30. These are the type of videos
that we've looked at. And I've repeatedly said, I
don't think these videos are a good idea.
I think they represent the company poorly.
It's bad PR for the company because it makes it look like
the employees. There are wasting money and
resources and I think if employees are going to make
these videos, they should focus more on the work that they do.
What do they actually do at work?
I think that'd be very interesting to see, I'm sure
they do. Lots of high-level things things
that are very important highlight.
Some of that stuff, it would look a lot better to people that
are watching this on the sidelines.
Now, this employee hair gets to the end of this day in the life
of video. And then she has an important
update for us at 5:30 Big Life Update.
Got laid off yesterday. So, that's the end of that.
And now we're seeing more and more of these videos.
Pop up of people getting laid off from Co.
I started off with a cinnamon Galaxy churro and so she gets
laid off from Google and heads to Disneyland for the day.
Now, what she said here was correct as far as I can tell,
there was no performance-based layoffs at Google.
Lots of people that had very high marks got laid off.
Lots of people that were tenured that worked at Google for a long
period of time, got laid off and the CEO of Google.
Sundar pichai, is taking a lot of heat right now for the way.
At this happened. In fact, Google just recently
held a town hall where they described it as animated because
there's a lot of very frustrated employees and in this case I
actually agree with many of the employees complaints in the town
hall. Sundar pichai.
Is taking a lot of heat and a lot of different accusations and
questions and he tries to justify the reason that they
over hired and he tries to explain why Google over hired
and this is an explanation that I just don't understand.
Pichai said that 20:21 marked quote, one of the Longest years
we've ever had in the history of the company.
With 41 percent Revenue growth Google increased headcount to
match that expansion and pichai said that the company was
assuming growth would persist. Now, first of all, did Sundar,
pichai really believe? That growth would continue at a
rate of forty one percent for a company, the size of Google
because I have a very difficult time believing that any
reasonable person would believe that growth would?
Would persist at anywhere close to this level that there would
be no reversion to the mean, I'm not Sundar pichai.
I'm not as knowledgeable as him, I'm not as smart as him but I've
highlighted many times of my channel, the anomaly of growth
they had in 2021 and how that was likely not going to continue
when things like that happen. There's almost always a
reversion. So surely Sundar pichai knew
that this growth was not going to persist and him saying that
he hired thirty thousand extra employees on the assumptions,
growth would just continue In perpetuity I think is a little
bit upsetting, I don't buy that excuse at all but that was the
decision that was made in that context.
We made a set of decisions that might have been right?
If the trends continued again if the trends continued if Google
kept growing at 40%, if YouTube Revenue kept growing at 40% per
year, there's no way these Trends were continuing at that
rate of speed aside from that. There's another problem.
I have with Sundar pichai, is assumptions here.
He says, you have to remember that if If the trends had
continued and we had not hired to keep Pace, we would have
fallen behind in many areas of the company.
Now this part I'm a little bit baffled at as well.
I don't understand it. Google is a highly scalable
business with a ton of operating leverage with an extremely
efficient Core Business in Search and YouTube, the
properties that they own are not like Amazon's they don't have to
hire warehouse workers. They're not like Union Pacific.
They don't have to lay Railway to grow their business.
Their company, that is incredibly efficient, Google
searches one of the best highest margins most efficient
businesses on Earth. So I have a difficult time
understanding, why they would have fallen behind if they
didn't hire, as many employees. So I think a lot of this is the
fault of a management. And I think it's something that
a lot of the bigger tech companies did Amazon over hired
as well, Microsoft, probably over hired in parts of their
company. But Google I think was the one
that did this to the most extreme now for those of you
that might accuse me A of having hindsight bias and saying
everything's 20/20 in hindsight. I wasn't just saying this.
In hindsight, I have videos mid last year over six months ago,
questioning why the company was still hiring.
So many employees, this has been an ongoing problem that I've
highlighted time and time again with Google.
And they say, in terms of the employees, that was laid off.
There was a lot of things considered their skillset, how
crucial, their role Buzz, their experience, their relationships,
their performance, so on and so forth.
So there is no one Saying that determined it, I think a lot of
it just came down to where they could cut costs the most.
Now, the last thing that I want to mention is a note from
Morningstar, and I want to give Morningstar an award hair for
this note, the award that I'll give them is being latest to the
game. The latest one to figure
something out that the last person to actually figure out
the obvious, they have apple here, which they currently give
a three star rating. And then just recently, they
decided to upgrade Apple from a narrow economic moat to a wide
economic. Anomic mode and they've raised
the fair value to $150. So, there you have it from
Morningstar. They finally acknowledge the
obvious and I thought we should take some time and appreciate
them for doing that. Now, that's all for this
episode. I hope you enjoyed and I'll see
you in the next one. Anomic mode and they've raised
the fair value to $150. So, there you have it from
Morningstar. They finally acknowledge the
obvious and I thought we should take some time and appreciate
them for doing that. Now, that's all for this
episode. I hope you enjoyed and I'll see
you in the next one.