1 00:00:00,240 --> 00:00:02,240 Welcome back, everyone. Today on the Joseph Carlson 2 00:00:02,240 --> 00:00:05,600 Show, we have a topic to cover that's been discussed a number 3 00:00:05,600 --> 00:00:07,560 of times. We know that the markets are 4 00:00:07,560 --> 00:00:09,760 being carried by a handful of companies. 5 00:00:10,040 --> 00:00:14,240 We can call it Big Tech, the Magnificent 7, Fang stocks, 6 00:00:14,400 --> 00:00:17,200 whatever you want to call it it, it's a handful of companies that 7 00:00:17,200 --> 00:00:20,800 drive the total stock market returns higher and higher. 8 00:00:21,280 --> 00:00:24,000 In a way, there's been articles highlighting over and over again 9 00:00:24,240 --> 00:00:27,200 that the entire performance of the stock market hangs in the 10 00:00:27,200 --> 00:00:28,880 balance from these few companies. 11 00:00:29,440 --> 00:00:33,800 And against all odds, these few companies tend to continue to 12 00:00:33,800 --> 00:00:36,920 outperform over and over again every single year. 13 00:00:37,040 --> 00:00:38,720 It's almost become routine at this point. 14 00:00:38,800 --> 00:00:42,160 Big tech stocks continue to outperform, but investors are 15 00:00:42,160 --> 00:00:44,680 skeptical. They find reasons to avoid these 16 00:00:44,680 --> 00:00:47,040 companies. In most cases, they do so at 17 00:00:47,040 --> 00:00:49,640 their own peril. We have articles like this from 18 00:00:49,640 --> 00:00:53,400 today just from Barron saying Amazon and the Mac 7 are falling 19 00:00:53,400 --> 00:00:55,160 again. It's not time to buy. 20 00:00:55,240 --> 00:00:58,760 Portfolio manager says there are many fund managers, active 21 00:00:58,760 --> 00:01:02,080 investors that say to avoid big tech companies, that you're not 22 00:01:02,080 --> 00:01:05,360 going to get alpha investing in companies that everyone knows 23 00:01:05,360 --> 00:01:07,320 about and everyone has done analysis on. 24 00:01:07,600 --> 00:01:10,480 After all, you're working with the same data as everyone else. 25 00:01:10,680 --> 00:01:13,800 How can you have outperformance? That's the arguments have been 26 00:01:13,800 --> 00:01:17,080 made for a decade and I'm here to say that they are once again 27 00:01:17,240 --> 00:01:20,040 wrong. I believe that Big Tech still 28 00:01:20,040 --> 00:01:23,720 today remains undervalued and still has a high potential to 29 00:01:23,720 --> 00:01:25,600 outperform over a long term basis. 30 00:01:25,680 --> 00:01:28,680 And I think it's time that we revisit the argument of why Big 31 00:01:28,680 --> 00:01:33,840 Tech has this tendency to always perpetually be undervalued, even 32 00:01:33,840 --> 00:01:36,280 when investors are looking at it, even when analysts are 33 00:01:36,280 --> 00:01:38,360 covering it. These companies tend to be 34 00:01:38,360 --> 00:01:40,400 undervalued for long periods of time. 35 00:01:40,680 --> 00:01:43,320 They tend to drive markets higher and higher for long 36 00:01:43,320 --> 00:01:45,240 periods of time. And this all comes down to a 37 00:01:45,240 --> 00:01:48,720 very specific set of reasons causing the systemic and 38 00:01:48,720 --> 00:01:50,840 perpetual undervaluation of big tech. 39 00:01:51,360 --> 00:01:54,040 So we're going to be going over why these companies are still 40 00:01:54,320 --> 00:01:56,960 likely undervalued today. Now, of course, we have some 41 00:01:56,960 --> 00:01:59,800 other news to get to. Waymo is on the move. 42 00:01:59,920 --> 00:02:01,760 This is a company owned by Google. 43 00:02:01,760 --> 00:02:04,560 I've been talking about it more and more recently because 44 00:02:04,560 --> 00:02:06,360 frankly, I'm getting more excited about what they're 45 00:02:06,360 --> 00:02:08,600 doing. I think that Waymo, it's just 46 00:02:08,600 --> 00:02:10,720 incredible what they're accomplishing and I think it 47 00:02:10,720 --> 00:02:12,120 needs to be paid more attention to. 48 00:02:12,600 --> 00:02:14,120 Now. Barron's has an entire write up 49 00:02:14,480 --> 00:02:17,200 saying that the way that Waymo is working with other companies, 50 00:02:17,200 --> 00:02:20,800 specifically Uber, is good for both these companies, that it 51 00:02:20,800 --> 00:02:23,520 will benefit Uber and it's going to benefit Waymo as well. 52 00:02:23,520 --> 00:02:26,720 They say that Uber is a buy right now, even with Waymo 53 00:02:26,720 --> 00:02:29,240 expanding and Waymo continues to expand. 54 00:02:29,520 --> 00:02:32,240 The next stop is in Washington DC. 55 00:02:32,320 --> 00:02:36,760 Waymo just announced that they have plans in 2026, next year to 56 00:02:36,760 --> 00:02:39,640 have paid robo taxi rides in Washington, DC. 57 00:02:39,920 --> 00:02:42,120 So they're on the move, continuing to expand. 58 00:02:42,360 --> 00:02:44,800 This time they're going to be driving around right in in front 59 00:02:44,800 --> 00:02:46,920 of the White House. Now, as Google's Waymo continues 60 00:02:46,920 --> 00:02:50,560 to expand without much attention paid to it or celebration, it 61 00:02:50,560 --> 00:02:53,680 goes to this overall theme of Google being underestimated by 62 00:02:53,680 --> 00:02:55,800 investors, and we see more news of that. 63 00:02:56,000 --> 00:02:59,520 In fact, on the betting website Polymarket, there is a bet of 64 00:02:59,520 --> 00:03:03,360 which company would release the best AI model by the end of 65 00:03:03,360 --> 00:03:05,440 March. That was a real bet and we had 66 00:03:05,440 --> 00:03:06,240 the contenders. Here. 67 00:03:06,520 --> 00:03:10,000 We have companies like xai, DeepSeek, Open AI, Anthropic, 68 00:03:10,000 --> 00:03:13,400 Alibaba, Meta and Google. For the majority of the month, 69 00:03:13,400 --> 00:03:16,080 Google was near the bottom, right next to DeepSeek. 70 00:03:16,080 --> 00:03:19,400 XAI was towards the top. Open AI was well above Google. 71 00:03:19,680 --> 00:03:22,960 And then you see the change as Google just released a new 72 00:03:22,960 --> 00:03:24,800 model. Now that Google just recently 73 00:03:24,800 --> 00:03:28,120 released their latest AI model, it outperformed all the others. 74 00:03:28,120 --> 00:03:30,040 We'll be looking at the benchmarks and what this one 75 00:03:30,040 --> 00:03:31,920 means. But now the odds of Google 76 00:03:31,920 --> 00:03:36,560 winning have bumped up to 95% chance, and that is up from .7% 77 00:03:36,560 --> 00:03:39,480 just a couple days ago. This is the continued story of 78 00:03:39,480 --> 00:03:41,840 Google being underestimated. So we'll be looking at how 79 00:03:41,840 --> 00:03:43,840 impressive their latest AI model is. 80 00:03:43,880 --> 00:03:45,960 We have an update from Amazon that they're finding all 81 00:03:45,960 --> 00:03:48,280 different ways to benefit from generative AI. 82 00:03:48,600 --> 00:03:51,480 We'll be taking a look at some of the specific ways that Amazon 83 00:03:51,480 --> 00:03:54,600 is benefiting from AI and in one way that they're competing 84 00:03:54,800 --> 00:03:56,800 directly with Google. And we have a story that 85 00:03:56,800 --> 00:04:00,080 Berkshire Hathaway employee wins $1 million in the Warren 86 00:04:00,080 --> 00:04:01,840 Buffett's March Madness bracket challenge. 87 00:04:01,840 --> 00:04:03,920 We'll be going over this story and whether or not it's a good 88 00:04:03,920 --> 00:04:05,760 idea for companies to do stuff like this. 89 00:04:05,840 --> 00:04:08,120 Now we start today by talking about this whole idea of these 90 00:04:08,200 --> 00:04:11,560 systemic or perpetual undervaluation of big tech, 91 00:04:11,880 --> 00:04:14,640 meaning that these big companies, companies like Apple 92 00:04:14,640 --> 00:04:17,880 and Microsoft and Amazon and Google and Meta, the five 93 00:04:17,880 --> 00:04:20,680 biggest companies in the world, these ones that have been around 94 00:04:20,680 --> 00:04:23,400 for a long period of time and everyone knows about, everyone's 95 00:04:23,400 --> 00:04:25,760 seen, everyone's done some analysis on them. 96 00:04:26,080 --> 00:04:29,560 They remain undervalued and that seems counter intuitive. 97 00:04:30,240 --> 00:04:33,040 It seems as though if these companies are so popular and 98 00:04:33,040 --> 00:04:35,760 there's so many analysts talking about them, there's so many 99 00:04:35,760 --> 00:04:38,760 people on CNBC chatting about these companies, that they 100 00:04:38,760 --> 00:04:42,000 couldn't be undervalued. They'd be priced to perfection, 101 00:04:42,360 --> 00:04:44,840 that the analysts would be able to forecast the future growth 102 00:04:44,840 --> 00:04:46,920 and they'd be accurately priced as such. 103 00:04:47,400 --> 00:04:49,120 But that's been disproven over time. 104 00:04:49,520 --> 00:04:52,320 In fact, these companies have outperformed the broader market 105 00:04:52,600 --> 00:04:55,240 for over a decade by a massive extent. 106 00:04:55,680 --> 00:04:57,320 They haven't had marginal outperformance. 107 00:04:57,320 --> 00:04:59,040 They've had massive outperformance. 108 00:04:59,480 --> 00:05:01,840 They've continued to be the biggest companies in the world 109 00:05:01,840 --> 00:05:04,120 year after year. They've continued to push the 110 00:05:04,120 --> 00:05:07,120 indices, the S&P 500 up more and more. 111 00:05:07,120 --> 00:05:10,520 As a whole, part of My Portfolio and part of my investing 112 00:05:10,520 --> 00:05:14,360 strategy and the reason that My Portfolio has done so well is in 113 00:05:14,360 --> 00:05:17,360 part simply because of Big tech. For example, if I look at My 114 00:05:17,360 --> 00:05:21,040 Portfolio, the passive income one, we have decent gains here, 115 00:05:21,040 --> 00:05:23,320 especially for the amount of time that I've had this capital 116 00:05:23,320 --> 00:05:28,160 invested, most of it after 2020, it's made significant gains. 117 00:05:28,160 --> 00:05:31,280 And that's in large part by investing in big tech. 118 00:05:31,680 --> 00:05:34,960 I overweighted those companies. I made them a much larger 119 00:05:34,960 --> 00:05:37,720 portion of My Portfolio. Now if we look at big tech 120 00:05:37,720 --> 00:05:41,280 currently, I have a couple holdings here that are large 121 00:05:41,280 --> 00:05:44,240 positions invested in big tech. One of them is Microsoft. 122 00:05:44,520 --> 00:05:48,560 I have $63,000 in Microsoft. That's a $21,000 game. 123 00:05:49,040 --> 00:05:52,520 I just bought into Google, $46,000 in this portfolio. 124 00:05:52,560 --> 00:05:53,920 This one's a rather new position. 125 00:05:53,920 --> 00:05:57,560 It's currently down $1000, but Apple is another key performer 126 00:05:57,560 --> 00:06:00,480 in My Portfolio. Over the past six years, Apple 127 00:06:00,480 --> 00:06:02,160 was one of the first companies that I bought. 128 00:06:02,160 --> 00:06:05,280 I continue to overweight it as a bigger percentage than the S&P 129 00:06:05,280 --> 00:06:08,000 500. Apple performed incredibly well, 130 00:06:08,240 --> 00:06:13,360 giving me $33,000 of gains, 246% money weighted return over that 131 00:06:13,360 --> 00:06:15,800 time period. Apple was first bought at a 132 00:06:15,800 --> 00:06:19,400 share price adjusted for stock splits at around $40. 133 00:06:19,400 --> 00:06:22,200 In My Portfolio now, it trades above 200. 134 00:06:22,600 --> 00:06:25,800 So this has been an incredible performer in the passive income 135 00:06:25,800 --> 00:06:27,840 portfolio. Now, Big Tech isn't the only 136 00:06:27,840 --> 00:06:29,640 companies that I've done well on over the years. 137 00:06:29,640 --> 00:06:32,040 I've had some other random bets that have done quite well, 138 00:06:32,040 --> 00:06:34,160 specifically Costco and Texas Roadhouse. 139 00:06:34,400 --> 00:06:36,240 Those ones have helped out the gains a lot. 140 00:06:36,560 --> 00:06:39,560 But a lot of the easiest bets and the easiest money I've made 141 00:06:39,840 --> 00:06:41,800 is by simply buying more Big tech. 142 00:06:41,880 --> 00:06:44,880 In the story fund, we can see a similar thing happen at one 143 00:06:44,880 --> 00:06:47,440 point in time. This is basically a big tech 144 00:06:47,440 --> 00:06:49,640 portfolio. A lot of people criticize this 145 00:06:49,640 --> 00:06:53,200 portfolio for being unoriginal. Well, it's not that smart to 146 00:06:53,200 --> 00:06:55,720 just invest in big tech. Anyone can do that. 147 00:06:56,160 --> 00:06:58,480 Well, that's true. The goal in investing is not to 148 00:06:58,480 --> 00:07:00,720 be the smartest one in the room, it's to make money. 149 00:07:00,960 --> 00:07:04,120 Investing in big tech doesn't make you look unique or uniquely 150 00:07:04,120 --> 00:07:06,080 smart, but they make a lot of money. 151 00:07:06,400 --> 00:07:09,960 When I look at Amazon as my largest position, this one's up 152 00:07:09,960 --> 00:07:12,200 an incredible amount over just the past couple of years. 153 00:07:12,440 --> 00:07:16,280 Even when I bought Amazon high before the big drop, buying more 154 00:07:16,280 --> 00:07:19,120 of it during the dip and letting it compound and grow brought it 155 00:07:19,120 --> 00:07:21,080 from deep in the red back into the green. 156 00:07:21,360 --> 00:07:24,480 We have 20, $7000 of gains in Amazon alone. 157 00:07:24,840 --> 00:07:27,520 The next one that isn't technically big tech, but I 158 00:07:27,520 --> 00:07:30,680 throw it in because it's a large aggregation platform. 159 00:07:30,920 --> 00:07:34,480 It's a company that used to be a Fang stock is Netflix. 160 00:07:34,840 --> 00:07:38,080 This one has been discounted now it's been thrown out of the big 161 00:07:38,080 --> 00:07:41,600 tech label, but I still consider Netflix to be a big tech like 162 00:07:41,600 --> 00:07:43,400 company. It is massive. 163 00:07:43,400 --> 00:07:45,520 They have hundreds of millions of paid subscribers. 164 00:07:45,840 --> 00:07:48,880 Netflix has been a substantial winner with the majority of my 165 00:07:48,880 --> 00:07:52,920 value in this company being gains $55,000 of gains in this 166 00:07:52,920 --> 00:07:55,400 one alone. I have another $42,000 of 167 00:07:55,400 --> 00:07:58,680 Google, but this position is $13,000 in the green. 168 00:07:59,000 --> 00:08:02,880 So another big tech company in the portfolio outperforming the 169 00:08:02,880 --> 00:08:05,600 indices. Then we have Microsoft, another 170 00:08:05,600 --> 00:08:10,280 company that's outperformed both the S&P 500 and the QQQ, $19,000 171 00:08:10,280 --> 00:08:13,160 of Microsoft stock, another $7000 in the green. 172 00:08:13,360 --> 00:08:15,720 At the beginning of every month, I release a report that goes 173 00:08:15,720 --> 00:08:18,280 over every position, the current value, the current gains, the 174 00:08:18,280 --> 00:08:21,280 current weighting in the portfolio for both the passive 175 00:08:21,280 --> 00:08:23,120 income portfolio and the story fund. 176 00:08:23,280 --> 00:08:25,360 It even mentions a little bit of history of companies that I've 177 00:08:25,360 --> 00:08:28,800 sold, and it has my overall performance and time weighted 178 00:08:28,800 --> 00:08:31,200 returns from the beginning of 2022. 179 00:08:31,240 --> 00:08:33,760 This is before all the volatility in the big drop in 180 00:08:33,760 --> 00:08:35,679 the market. Since then, both these 181 00:08:35,679 --> 00:08:39,200 portfolios have done really well, outperforming both the S&P 182 00:08:39,200 --> 00:08:42,360 500 and the QQQ. The Story Fund in particular has 183 00:08:42,360 --> 00:08:45,440 had excellent performance, mostly due to Netflix. 184 00:08:45,440 --> 00:08:48,240 In most cases, when investors outperform, they like to make it 185 00:08:48,240 --> 00:08:51,320 sound like they did something complicated, like they achieved 186 00:08:51,320 --> 00:08:55,040 some great feat in investing, when in reality, I didn't do 187 00:08:55,040 --> 00:08:58,200 anything complicated. I put most of my money in the 188 00:08:58,200 --> 00:09:00,600 group of companies I consider to be the highest quality in the 189 00:09:00,600 --> 00:09:04,360 world, large aggregation platforms, ones that are nearly 190 00:09:04,360 --> 00:09:07,120 unstoppable, ones that have moats that are so big they seem 191 00:09:07,120 --> 00:09:09,240 nearly indestructible. I put the majority of my 192 00:09:09,240 --> 00:09:12,160 invested capital into these companies that everyone's 193 00:09:12,160 --> 00:09:14,760 looking at and they outperformed, and I believe it's 194 00:09:14,760 --> 00:09:17,560 likely to happen again. The basis of these few companies 195 00:09:17,560 --> 00:09:20,520 continuing to outperform the broader market is based on the 196 00:09:20,520 --> 00:09:22,960 fact that investors continue to make the same mistakes. 197 00:09:22,960 --> 00:09:25,800 They've always at the same reasons they're not investing in 198 00:09:25,800 --> 00:09:29,120 big tech or overweighting these positions are the same reasons 199 00:09:29,120 --> 00:09:32,480 they didn't five years ago. I can even list out the reasons 200 00:09:32,480 --> 00:09:35,040 I've heard them over and over again over the past 10 years. 201 00:09:35,040 --> 00:09:37,360 Because so many analysts cover them, they're already fully 202 00:09:37,360 --> 00:09:39,200 priced. This is an argument that's been 203 00:09:39,200 --> 00:09:42,240 made for years. Big tech has by far the most 204 00:09:42,240 --> 00:09:45,440 analyst coverage, therefore making them the most efficiently 205 00:09:45,440 --> 00:09:47,440 and accurately priced companies in the world. 206 00:09:47,760 --> 00:09:49,640 This has been proven wrong time and time again. 207 00:09:50,200 --> 00:09:53,000 They'll be disrupted by smaller, more nimble companies. 208 00:09:53,480 --> 00:09:56,520 This is the Kathy Wood arc. Investment, disruptive 209 00:09:56,520 --> 00:09:59,320 innovation. Big tech are old and slow 210 00:09:59,320 --> 00:10:01,520 moving, so they're going to be disrupted by smaller, more 211 00:10:01,520 --> 00:10:03,760 nimble companies. That's been proven wrong over 212 00:10:03,760 --> 00:10:06,040 the past five years. They've gotten too big. 213 00:10:06,280 --> 00:10:08,280 The laws of large numbers will kick in. 214 00:10:08,760 --> 00:10:11,080 That's just the general idea that these companies are already 215 00:10:11,080 --> 00:10:13,160 so big, how can they continue to grow bigger? 216 00:10:13,640 --> 00:10:15,800 That's another idea that's been proven wrong as they've grown 217 00:10:15,960 --> 00:10:18,800 substantially bigger than when people first started making that 218 00:10:18,800 --> 00:10:21,000 argument. The world is a large place and 219 00:10:21,000 --> 00:10:23,600 the Internet is a very efficient way to grow a business. 220 00:10:23,600 --> 00:10:26,160 Past performance is not an indicator of future performance. 221 00:10:26,160 --> 00:10:28,600 While that's true, and we should never invest in a company purely 222 00:10:28,600 --> 00:10:31,640 based off past performance, quality of a business is an 223 00:10:31,640 --> 00:10:34,480 indicator of future performance, and big tech companies keep 224 00:10:34,480 --> 00:10:35,800 getting higher and higher quality. 225 00:10:36,440 --> 00:10:38,640 They're more expensive now than they've ever been. 226 00:10:38,920 --> 00:10:41,160 This is another argument that's been brought up time and time 227 00:10:41,160 --> 00:10:44,560 again, but big tech has a way of growing earnings much faster 228 00:10:44,560 --> 00:10:46,640 than people predict. So while they're seemingly 229 00:10:46,640 --> 00:10:50,120 expensive in the short term, over any long term stretch they 230 00:10:50,120 --> 00:10:53,320 turn out to be cheap. Every single argument against 231 00:10:53,320 --> 00:10:56,720 investing in big tech time and time again has fallen apart. 232 00:10:56,720 --> 00:10:59,400 It's crumbled, and that's because of some specific 233 00:10:59,400 --> 00:11:02,320 mechanisms that work with big tech and big tech only. 234 00:11:02,360 --> 00:11:05,200 The argument is on the basis that these large companies have 235 00:11:05,200 --> 00:11:08,200 something other companies don't. They're large aggregation 236 00:11:08,200 --> 00:11:10,360 platforms. They're naturally growing 237 00:11:10,360 --> 00:11:12,640 monopolies, and they'll eventually get bigger and 238 00:11:12,640 --> 00:11:14,800 bigger, even bigger than people expect. 239 00:11:15,240 --> 00:11:17,400 Big tech in the emergence of the Internet era. 240 00:11:17,400 --> 00:11:21,080 Aggregators and platforms require a fundamental rethink in 241 00:11:21,080 --> 00:11:23,200 how we structure our investment portfolio. 242 00:11:23,520 --> 00:11:26,880 We are in the early stages of this fundamental rethink, which 243 00:11:26,880 --> 00:11:29,960 has caused shares of the most successful aggregator platforms, 244 00:11:30,200 --> 00:11:33,200 IE Big Tech, to be continually undervalued. 245 00:11:33,560 --> 00:11:36,800 Although they are the most well researched stocks, the systemic 246 00:11:36,800 --> 00:11:39,640 undervaluation will likely persist and only gradually 247 00:11:39,640 --> 00:11:42,680 reduce overtime as these companies mature and investors 248 00:11:42,680 --> 00:11:45,120 better understand the new market landscape. 249 00:11:45,440 --> 00:11:48,200 The current supply demand imbalance of Big Tech shares 250 00:11:48,440 --> 00:11:51,640 provides a significant opportunity for unconstrained 251 00:11:51,640 --> 00:11:54,080 investors, meaning that investors that don't work for 252 00:11:54,080 --> 00:11:57,440 institutions and have to order their portfolio in a specific 253 00:11:57,440 --> 00:11:59,360 way. So individual investors like you 254 00:11:59,360 --> 00:12:02,120 and me, they have the ability to invest in whatever we want, 255 00:12:02,120 --> 00:12:04,960 whatever percentage we want, have a big advantage over 256 00:12:04,960 --> 00:12:07,960 institutional investors. He says that a portfolio 257 00:12:07,960 --> 00:12:11,800 compatible with this new reality should be more concentrated with 258 00:12:11,800 --> 00:12:15,680 a larger maximum position size. Many foundational practices of 259 00:12:15,680 --> 00:12:19,080 how investors structure their portfolio today were primarily 260 00:12:19,080 --> 00:12:22,280 built on data and realities of the pre Internet world, where 261 00:12:22,280 --> 00:12:25,720 Internet enabled aggregators and platforms did not yet exist. 262 00:12:26,120 --> 00:12:30,720 For example, the SEC rule that places a soft cap of 5% on the 263 00:12:30,720 --> 00:12:33,960 maximum position size of a diversified mutual fund came out 264 00:12:33,960 --> 00:12:38,920 in 1940, while modern portfolio theory was introduced in 1952. 265 00:12:39,360 --> 00:12:41,920 The corporate competitive landscape back then was also 266 00:12:41,920 --> 00:12:44,640 more intense, and without the Internet, the largest companies 267 00:12:44,640 --> 00:12:47,880 in a given industry weren't able to aggregate demand in the same 268 00:12:47,880 --> 00:12:49,920 extent current aggregators are able to. 269 00:12:49,960 --> 00:12:52,240 The first argument addressed here is that you need to have a 270 00:12:52,240 --> 00:12:55,520 well diversified portfolio. Now, most investors agree that 271 00:12:55,520 --> 00:12:58,480 diversification is a good thing. But the definition of 272 00:12:58,480 --> 00:13:00,880 diversification has changed over time. 273 00:13:01,320 --> 00:13:05,920 In the 1940's, the definition of a diversified portfolio was no 274 00:13:05,920 --> 00:13:09,440 company in your portfolio has a greater than 5% weighting. 275 00:13:09,840 --> 00:13:13,680 That means that you simply have at least 20 companies, at least 276 00:13:13,680 --> 00:13:16,320 20 companies of equal weighting, or less than 5%. 277 00:13:16,600 --> 00:13:18,720 In most cases, you invest in hundreds and hundreds of 278 00:13:18,720 --> 00:13:22,480 companies with no big, large concentrated position sizes. 279 00:13:22,480 --> 00:13:25,320 But overtime, especially with the Internet, the dynamics have 280 00:13:25,320 --> 00:13:27,520 changed. There's fewer companies that 281 00:13:27,520 --> 00:13:30,720 take a bigger portion of the overall industry because the 282 00:13:30,720 --> 00:13:33,920 Internet has an aggregation effect and the Internet allows 283 00:13:33,920 --> 00:13:37,040 scaling across the entire globe with relative ease. 284 00:13:37,400 --> 00:13:41,080 So these companies can take a bigger aggregation and they can 285 00:13:41,080 --> 00:13:43,800 grow much faster pace for a longer period of time. 286 00:13:44,120 --> 00:13:47,160 Therefore, meaning to have a properly diversified portfolio, 287 00:13:47,440 --> 00:13:50,600 you should concentrate into these aggregators to a larger 288 00:13:50,600 --> 00:13:52,760 extent. It seems counterintuitive, but 289 00:13:52,760 --> 00:13:55,480 this is the argument that he made a couple years ago, which I 290 00:13:55,480 --> 00:13:57,840 fully agree with. To elaborate on this point, in 291 00:13:57,840 --> 00:14:00,520 the Internet era the companies who became the dominant 292 00:14:00,520 --> 00:14:03,560 aggregators or platforms have vastly different competitive 293 00:14:03,560 --> 00:14:07,120 risk profiles than industry leaders of the pre Internet era. 294 00:14:07,560 --> 00:14:10,400 Even when there is more than one successful aggregator in an 295 00:14:10,400 --> 00:14:14,240 industry, for example video on demand, they don't always 296 00:14:14,240 --> 00:14:17,880 directly compete head to head but rather offer complimentary 297 00:14:17,880 --> 00:14:20,400 products and or focus on fulfilling different demands. 298 00:14:20,680 --> 00:14:24,280 Netflix and Disney. Disney's not a direct competitor 299 00:14:24,280 --> 00:14:26,760 to Netflix. They do compete. 300 00:14:26,760 --> 00:14:29,760 They have some overlap. They both compete in family, 301 00:14:29,880 --> 00:14:32,720 family friendly shows, but there's a lot of content on 302 00:14:32,720 --> 00:14:34,480 Netflix you simply can't get on Disney. 303 00:14:34,560 --> 00:14:37,480 As a result, the concentration risk is not nearly as high as 304 00:14:37,480 --> 00:14:40,400 history would suggest when taking a larger position in a 305 00:14:40,400 --> 00:14:43,360 winning aggregate platform. Due to this now altered 306 00:14:43,360 --> 00:14:46,760 competitive reality for these dominant companies, valuation 307 00:14:46,760 --> 00:14:50,080 risk is often more considerable than company specific risk. 308 00:14:50,120 --> 00:14:52,840 However, the relative and absolute valuation risk of big 309 00:14:52,840 --> 00:14:55,480 tech is quite low. The Internet continues to cause 310 00:14:55,480 --> 00:14:58,240 this ongoing effect of aggregation, and that's a very 311 00:14:58,240 --> 00:15:00,760 important word in investing and may be the most important 312 00:15:00,760 --> 00:15:03,520 attribute of a company. Aggregation is when things 313 00:15:03,520 --> 00:15:06,920 naturally gravitate towards the market leader, where one company 314 00:15:06,920 --> 00:15:10,760 wins the majority of market demand and it's impossible to go 315 00:15:10,760 --> 00:15:12,560 around or circumvent that company. 316 00:15:12,640 --> 00:15:15,080 For Amazon, they're the aggregator in many different 317 00:15:15,080 --> 00:15:17,120 industries, but especially online retail. 318 00:15:17,440 --> 00:15:20,320 It's very difficult to sell a product online while avoiding 319 00:15:20,400 --> 00:15:22,760 Amazon. You have Booking Holdings in the 320 00:15:22,760 --> 00:15:25,760 aggregation of vacation rentals in Europe. 321 00:15:26,120 --> 00:15:28,240 They've aggregated demand. It's very difficult to 322 00:15:28,240 --> 00:15:30,400 circumvent them. You have companies like Netflix 323 00:15:30,400 --> 00:15:32,360 that have aggregated a lot of streaming demand. 324 00:15:32,600 --> 00:15:34,880 It's difficult to get your comedy special seen by a lot of 325 00:15:34,880 --> 00:15:37,800 people if it's not on Netflix. You have YouTube and the 326 00:15:37,800 --> 00:15:40,440 aggregation of online do It yourself media. 327 00:15:40,520 --> 00:15:42,800 You have Uber and the aggregation of ride sharing. 328 00:15:42,800 --> 00:15:45,040 You have Meta and the aggregation of social media. 329 00:15:45,040 --> 00:15:47,120 You have Apple and the aggregation of all 330 00:15:47,120 --> 00:15:50,280 communications going through singular devices and so on and 331 00:15:50,280 --> 00:15:52,640 so forth. Every large scaled winner is an 332 00:15:52,640 --> 00:15:55,840 aggregate platform and these companies can aggregate demand 333 00:15:55,840 --> 00:15:58,920 to a massive extent. It is a natural monopoly 334 00:15:58,920 --> 00:16:01,560 increasing recently, the market is moving towards having fewer, 335 00:16:01,560 --> 00:16:03,800 larger and more durable quality companies. 336 00:16:04,200 --> 00:16:06,960 So how one structures their portfolio should take that 337 00:16:06,960 --> 00:16:10,160 reality into account. For example, the advertising 338 00:16:10,160 --> 00:16:13,800 market evolved from thousands of then wide Moat TV stations, 339 00:16:14,000 --> 00:16:18,040 radio stations and newspapers globally to now with over half 340 00:16:18,040 --> 00:16:21,360 of the demand aggregated just by Google, Facebook and Amazon 341 00:16:21,360 --> 00:16:23,480 alone. The Internet generally shifts 342 00:16:23,480 --> 00:16:26,680 demand from companies operating in the middle of the pack to a 343 00:16:26,680 --> 00:16:30,520 few truly scaled winners. One should not be underexposed 344 00:16:30,600 --> 00:16:33,440 to these winners when asked why these companies are perpetually 345 00:16:33,440 --> 00:16:35,320 undervalued. Part of the reason why is 346 00:16:35,320 --> 00:16:38,000 because we have these fewer globally dominant aggregate 347 00:16:38,000 --> 00:16:41,560 platforms that aggregate all the demand in these incredibly 348 00:16:41,560 --> 00:16:44,200 important industries. They generate enormous amounts 349 00:16:44,200 --> 00:16:47,000 of excess profits, but they're only in the hands of a few 350 00:16:47,000 --> 00:16:49,040 companies. So investors naturally are 351 00:16:49,040 --> 00:16:52,480 hesitant to have their portfolios resemble this new 352 00:16:52,480 --> 00:16:55,400 reality that the majority of your money should be in these 353 00:16:55,400 --> 00:16:58,080 few great companies. Most investors want to take the 354 00:16:58,080 --> 00:17:01,600 more conservative approach, the more risk averse approach of 355 00:17:01,600 --> 00:17:04,599 instead of investing most of their capital in these great 356 00:17:04,599 --> 00:17:08,640 companies, they diversify in the name of lowering risk in their 357 00:17:08,640 --> 00:17:10,839 portfolio. But they may actually be 358 00:17:10,839 --> 00:17:13,920 increasing risk by under exposing themselves to the best 359 00:17:13,920 --> 00:17:17,480 companies in the world, the most risk adverse, the best business 360 00:17:17,480 --> 00:17:19,720 models, the biggest aggregate platforms. 361 00:17:20,160 --> 00:17:22,359 And this is part of the reason that these companies could 362 00:17:22,359 --> 00:17:26,359 remain undervalued all the time is investors are unwilling to 363 00:17:26,359 --> 00:17:29,360 invest in them at the extent they deserve to be invested in. 364 00:17:29,640 --> 00:17:32,960 Therefore, they don't have the supply demand economics of a 365 00:17:32,960 --> 00:17:35,120 normal company. Given how market participants 366 00:17:35,120 --> 00:17:38,280 currently behave, a significant portion of the future demand for 367 00:17:38,280 --> 00:17:41,120 big tech shares may come from retail investors. 368 00:17:41,360 --> 00:17:44,480 This cohort of dollars is increasingly going to skew more 369 00:17:44,480 --> 00:17:46,320 conservative. Nonetheless, the incremental 370 00:17:46,320 --> 00:17:49,680 retail demand will come from two sources, those who already own 371 00:17:49,680 --> 00:17:52,320 it and they want to own more big tech, and those who don't 372 00:17:52,320 --> 00:17:54,480 currently own it. The more mature big tech 373 00:17:54,480 --> 00:17:57,440 becomes, the broader the appeal of the shares. 374 00:17:57,680 --> 00:18:01,120 More specifically, the stronger appeal to the more conservative 375 00:18:01,120 --> 00:18:04,280 investors who hold a lot of the incremental demand. 376 00:18:04,560 --> 00:18:08,560 Microsoft and Apple are on the more mature and less undervalued 377 00:18:08,560 --> 00:18:12,200 side, while Amazon and Facebook are on the less mature, more 378 00:18:12,200 --> 00:18:15,120 undervalued side and Google is somewhat in the middle. 379 00:18:15,520 --> 00:18:18,840 Things that help broaden the appeal of shares include capital 380 00:18:18,840 --> 00:18:22,240 efficiency, stable and increasing earnings, dividends, 381 00:18:22,440 --> 00:18:25,400 the volatility of the core business, limited capital, 382 00:18:25,400 --> 00:18:27,360 commitment to moon shot investments. 383 00:18:27,800 --> 00:18:31,400 So this is the qualities of a more mature company, one that's 384 00:18:31,400 --> 00:18:34,720 a bit safer. As big tech moves more and more 385 00:18:34,960 --> 00:18:39,000 to this type of situation, they bring in another entire cohort 386 00:18:39,000 --> 00:18:41,560 of investor. All the conservative investors 387 00:18:41,560 --> 00:18:44,040 start piling in. All the dividend investors start 388 00:18:44,040 --> 00:18:46,320 buying the stock. All the ones just looking for 389 00:18:46,320 --> 00:18:49,520 the more Coca-Cola like companies start to pile in. 390 00:18:49,880 --> 00:18:51,320 And that's what's happened to Apple. 391 00:18:51,600 --> 00:18:54,400 Part of the reason that Apple is such a great investment and it's 392 00:18:54,400 --> 00:18:57,920 done so well, even though the growth has slown, is because of 393 00:18:57,920 --> 00:19:00,360 these reasons. It's now a capital efficient 394 00:19:00,360 --> 00:19:02,760 business with stable growing earnings, has a growing 395 00:19:02,760 --> 00:19:04,680 dividend. The volatility of the core 396 00:19:04,680 --> 00:19:08,440 business is very low and it has limited capital to moon shot 397 00:19:08,440 --> 00:19:10,400 investments. They're only doing stuff that's 398 00:19:10,400 --> 00:19:13,840 mostly tried and true. So Apple has attracted every 399 00:19:13,840 --> 00:19:16,360 cohort of investor. So Apple has brought in the 400 00:19:16,360 --> 00:19:18,840 appeal of their shares. Their shares now have maximum 401 00:19:18,840 --> 00:19:21,800 demand from investors. Now Apple is on the more mature 402 00:19:21,800 --> 00:19:24,480 side and it's less undervalued than the rest of big tech. 403 00:19:24,800 --> 00:19:27,880 But these other companies, specifically Amazon, remain on 404 00:19:27,880 --> 00:19:31,280 the more immature side side. Amazon does not appeal to every 405 00:19:31,280 --> 00:19:33,480 type of investor. They don't pay a dividend, 406 00:19:33,480 --> 00:19:36,000 they're not doing buybacks. They're not doing many things 407 00:19:36,000 --> 00:19:38,280 that attract a large cohort of investor. 408 00:19:38,680 --> 00:19:42,440 Amazon most clearly exemplifies the above mentioned supply 409 00:19:42,440 --> 00:19:44,480 demand imbalance of a company's shares. 410 00:19:44,880 --> 00:19:47,760 On the demand side, Amazon does little to appeal to more 411 00:19:47,760 --> 00:19:50,800 conservative investors. Current accounting earnings are 412 00:19:50,800 --> 00:19:54,000 small compared to the company's true earnings potential, which 413 00:19:54,040 --> 00:19:57,360 in conservative investors minds cast doubts about the ultimate 414 00:19:57,360 --> 00:19:59,240 degree of long term profit potential. 415 00:19:59,560 --> 00:20:03,040 So Amazon understates their current profit potential 416 00:20:03,320 --> 00:20:07,600 dramatically by doing continued huge investments into CapEx and 417 00:20:07,600 --> 00:20:10,240 building out new things. That doesn't appeal to the 418 00:20:10,240 --> 00:20:12,880 conservative investor. They want companies like Apple 419 00:20:12,880 --> 00:20:15,400 that are producing profits. Today, Amazon continues to 420 00:20:15,400 --> 00:20:17,840 invest heavily in its core business as well as various 421 00:20:17,840 --> 00:20:19,880 moonshots. So investors that are 422 00:20:19,880 --> 00:20:23,280 conservative, looking for stable profit growth over time don't 423 00:20:23,280 --> 00:20:25,560 care about these moon shot bets. They don't want to invest in 424 00:20:25,560 --> 00:20:27,080 companies that have this type of risk. 425 00:20:27,080 --> 00:20:29,800 The company provides zero financial or other disclosures 426 00:20:29,800 --> 00:20:33,480 regarding moon shot investments. Amazon is very opaque of what 427 00:20:33,480 --> 00:20:35,120 they're doing with their research and development. 428 00:20:35,360 --> 00:20:37,200 They don't give you much insight at all. 429 00:20:37,400 --> 00:20:41,200 And what those $70 billion per year is being spent on Amazon 430 00:20:41,200 --> 00:20:43,120 pays no dividend. That's another thing where 431 00:20:43,120 --> 00:20:46,080 they're not trying to attract investors through their capital 432 00:20:46,080 --> 00:20:48,480 allocation. If Amazon wanted to broaden the 433 00:20:48,480 --> 00:20:51,320 appeal, if they wanted to make their company more attractive to 434 00:20:51,320 --> 00:20:54,880 every cohort of investor, they'd basically do everything the 435 00:20:54,880 --> 00:20:57,680 opposite of what they're doing today and look more similar to 436 00:20:57,680 --> 00:21:00,560 Apple on the supply side. Amazon is the only big tech 437 00:21:00,560 --> 00:21:03,720 company that doesn't engage in buybacks today, so they're not 438 00:21:03,720 --> 00:21:07,120 trying to woo investors in by lowering the share count to 439 00:21:07,120 --> 00:21:09,600 making it so that other investors that are nervous about 440 00:21:09,600 --> 00:21:12,440 the company can exit without the stock price going down. 441 00:21:12,920 --> 00:21:15,360 Buybacks are a massive thing that investors look for. 442 00:21:15,720 --> 00:21:18,200 Amazon does none of it. This large imbalance likely 443 00:21:18,200 --> 00:21:20,800 makes Amazon the most undervalued big tech company 444 00:21:20,800 --> 00:21:23,320 today. Now prices have moved around a 445 00:21:23,320 --> 00:21:26,080 little bit. Amazon has come U in share price 446 00:21:26,560 --> 00:21:28,920 but overall the argument remains the same. 447 00:21:29,280 --> 00:21:32,680 Amazon is not nearly priced to the full extent it will be over 448 00:21:32,680 --> 00:21:37,200 time as it matures and becomes a more Coca-Cola like company as 449 00:21:37,200 --> 00:21:40,560 it includes more investors from more cohorts, more investors 450 00:21:40,560 --> 00:21:43,400 from the dividend growth category, more investors from 451 00:21:43,400 --> 00:21:46,840 the buyback category, more investors looking for the stable 452 00:21:46,840 --> 00:21:48,880 earnings growth and free cash flow per share growth. 453 00:21:49,000 --> 00:21:51,080 All the investors that are looking for a more stable, 454 00:21:51,080 --> 00:21:54,560 mature company will come to Amazon over time pushing up the 455 00:21:54,560 --> 00:21:56,640 share price, but it's not there yet. 456 00:21:56,720 --> 00:21:59,800 So this company, very similarly to Google and Meta remains 457 00:21:59,840 --> 00:22:02,480 undervalued. Now moving on, speaking about 458 00:22:02,480 --> 00:22:05,520 aggregation platforms, this is a story from Barron's that's 459 00:22:05,520 --> 00:22:09,040 bullish on Uber. And Uber of course is a massive 460 00:22:09,040 --> 00:22:11,000 aggregation platforms of ride sharing. 461 00:22:11,320 --> 00:22:14,360 Part of the success of Uber is dependent on whether or not they 462 00:22:14,360 --> 00:22:18,000 can keep those sticky dynamics of a network effect. 463 00:22:18,320 --> 00:22:21,040 Now Barron's is overall very bullish on Uber. 464 00:22:21,040 --> 00:22:23,280 They think the stock is a buy like many other people right 465 00:22:23,280 --> 00:22:25,600 now, and I find their argument for it pretty compelling. 466 00:22:26,120 --> 00:22:29,000 They say shares of the ride sharing company have been stuck 467 00:22:29,000 --> 00:22:32,080 in neutral since October when Tesla announced that production 468 00:22:32,080 --> 00:22:35,320 of its first robo taxi that would begin in 2026. 469 00:22:35,800 --> 00:22:38,880 Now this is where two different groups of investors are being 470 00:22:38,880 --> 00:22:41,640 separated. Many Tesla investors don't like 471 00:22:41,640 --> 00:22:44,080 Uber. Many Uber investors don't invest 472 00:22:44,200 --> 00:22:46,560 in Tesla and you see the dynamic here. 473 00:22:46,600 --> 00:22:49,600 Now there are some investors that are invested in both, but I 474 00:22:49,600 --> 00:22:51,200 think those are few and far between. 475 00:22:51,520 --> 00:22:54,320 In most cases, investors are betting on one of these two 476 00:22:54,320 --> 00:22:57,120 outcomes. Either Uber keeps its network 477 00:22:57,120 --> 00:23:00,760 effects, it remains a large aggregate platform, or Tesla 478 00:23:00,760 --> 00:23:02,720 disrupts it. That's one of the two outcomes 479 00:23:02,720 --> 00:23:04,600 that Tesla investors believes will happen. 480 00:23:04,600 --> 00:23:07,520 Now this dynamic of companies like Tesla saying that they're 481 00:23:07,520 --> 00:23:10,880 going to control the world with robotaxi and people like Kathy 482 00:23:10,880 --> 00:23:13,920 Wood saying it's going to 10X in five years, all these people 483 00:23:13,920 --> 00:23:17,680 believing it's going to scale super fast into every market has 484 00:23:17,680 --> 00:23:20,120 created a bit of uncertainty with Uber. 485 00:23:20,520 --> 00:23:23,080 Investors are in a in a bit of skepticism. 486 00:23:23,640 --> 00:23:26,680 Uber is being treated as though it's just an uncertain future. 487 00:23:26,680 --> 00:23:30,080 And some of that is true not just from Tesla, but you also 488 00:23:30,080 --> 00:23:33,840 have Wemo, which is proven, tested, and working in multiple 489 00:23:33,840 --> 00:23:35,880 markets. They're expanding from market to 490 00:23:35,880 --> 00:23:38,320 market with their autonomous vehicle business. 491 00:23:38,720 --> 00:23:42,960 Waymo's already accepting 200,000 paid rides per week, so 492 00:23:42,960 --> 00:23:46,000 that is a real tested business that could become a competitor 493 00:23:46,000 --> 00:23:48,840 to Uber. Now they don't believe that's an 494 00:23:48,840 --> 00:23:50,320 issue. The ride sharing issues are 495 00:23:50,320 --> 00:23:52,760 overblown. Uber could be seen as a partner, 496 00:23:52,760 --> 00:23:54,600 not a victim of autonomous vehicles. 497 00:23:55,000 --> 00:23:58,520 The company already works with Waymo in Atlanta and Austin, TX, 498 00:23:59,000 --> 00:24:01,520 and could join up with it in other cities as well. 499 00:24:01,800 --> 00:24:07,160 What's more, Uber's app is more than 171,000,000 phones and its 500 00:24:07,160 --> 00:24:10,560 businesses, which also include food delivery and advertising, 501 00:24:10,560 --> 00:24:13,360 are well diversified beyond providing cars to passengers. 502 00:24:13,800 --> 00:24:16,880 With the stocks valuation cut in half over the past year, now 503 00:24:16,880 --> 00:24:19,040 looks like the time to buy. They mentioned that the 504 00:24:19,040 --> 00:24:22,640 valuation for Uber has been cut in half over the past year. 505 00:24:22,880 --> 00:24:25,360 That seems a little extreme. But if we bring up Uber here on 506 00:24:25,360 --> 00:24:28,520 Qualtrim, which by the way, you get access to this website if 507 00:24:28,520 --> 00:24:31,640 you join the Patreon, but if we look at the valuation of Uber 508 00:24:31,640 --> 00:24:34,600 over time, we can easily see this on the valuation chart. 509 00:24:34,960 --> 00:24:36,880 We'll look at it on the free cash flow basis. 510 00:24:37,080 --> 00:24:41,480 The free cash flow yield of Uber one year ago was 2%, just about 511 00:24:41,480 --> 00:24:44,720 two point 1%. In early 2024, it moved up to 512 00:24:44,720 --> 00:24:47,560 2.7%. Now as this number goes up, the 513 00:24:47,560 --> 00:24:50,240 company becomes cheaper on a free cash flow basis. 514 00:24:50,840 --> 00:24:54,800 Today it's at a 4.4%. So the valuation of Uber has 515 00:24:54,800 --> 00:24:57,080 been cut in half over the past year. 516 00:24:57,200 --> 00:25:00,640 And other Tesla bulls are now even starting to give a little 517 00:25:00,640 --> 00:25:04,200 bit of leeway to the idea that Uber still could be successful. 518 00:25:04,480 --> 00:25:06,680 Dan Ives being one of them, quote. 519 00:25:06,680 --> 00:25:09,680 You have the possibility that the autonomous debate starts to 520 00:25:09,680 --> 00:25:12,560 swing in their favor. Now he's not saying that they 521 00:25:12,560 --> 00:25:15,720 will be the ultimate winner or that Tesla won't do well, but 522 00:25:15,720 --> 00:25:18,520 there is arguments now being made that Uber may have a more 523 00:25:18,520 --> 00:25:20,600 resilient business than people expect. 524 00:25:20,720 --> 00:25:23,520 Now Uber does have more grandiose plans with their app. 525 00:25:23,840 --> 00:25:26,800 They don't just want to be a ride hailing platform. 526 00:25:27,080 --> 00:25:30,720 They want to be a one stop shop for rides, food and booking 527 00:25:30,720 --> 00:25:32,320 travel. So they want to become 528 00:25:32,320 --> 00:25:35,480 competitors to Expedia or Booking Holdings. 529 00:25:35,920 --> 00:25:39,480 Now there's even rumors of of Uber potentially buying or 530 00:25:39,480 --> 00:25:42,600 acquiring Expedia Group. This is a company that the CEO 531 00:25:42,600 --> 00:25:46,360 of Uber was the former CEO of, so he knows the business really 532 00:25:46,360 --> 00:25:48,400 well. But either way, if Uber does get 533 00:25:48,400 --> 00:25:51,360 into travel, that expands their total addressable market even 534 00:25:51,360 --> 00:25:53,040 more. And remember, they have a lot of 535 00:25:53,040 --> 00:25:56,880 people already using their app. This is a company that exhibits 536 00:25:56,920 --> 00:25:59,560 a lot of the traits of an aggregate platform. 537 00:25:59,720 --> 00:26:02,240 So many users already using their application that they can 538 00:26:02,240 --> 00:26:05,160 continue to aggregate demand, They can continue to expand in 539 00:26:05,160 --> 00:26:07,320 different verticals. And this is part of what makes 540 00:26:07,320 --> 00:26:08,920 Uber such a compelling investment. 541 00:26:08,920 --> 00:26:11,720 But this is one that I consider myself more close to buying than 542 00:26:11,720 --> 00:26:13,720 other companies. Now finally, we get to another 543 00:26:13,720 --> 00:26:16,120 piece of funny news here. I thought this was amusing. 544 00:26:16,560 --> 00:26:19,840 There is the website Polymarket where you can bet on just about 545 00:26:19,840 --> 00:26:21,200 anything. You can create a bet for 546 00:26:21,200 --> 00:26:22,920 anything. And then people can wager and 547 00:26:23,080 --> 00:26:26,160 embed against each other. And this bet was which company 548 00:26:26,440 --> 00:26:29,040 will have the best AI model at the end of March. 549 00:26:29,520 --> 00:26:34,720 And you can see the odds over time, XAI, Open AI, DeepSeek and 550 00:26:34,720 --> 00:26:39,360 Google, Google's right there close to the very bottom at 5% 551 00:26:39,400 --> 00:26:42,000 for the majority of the time. Not many people betting on 552 00:26:42,000 --> 00:26:44,800 Google, They're always just betting on XAI and Open AI. 553 00:26:45,240 --> 00:26:48,240 DeepSeek is also below Google. I don't think anybody expects 554 00:26:48,240 --> 00:26:50,080 DeepSeek to make another model this quick. 555 00:26:50,600 --> 00:26:52,480 But regardless, we have Google there at the bottom. 556 00:26:52,920 --> 00:26:57,160 And then immediately it bumps up to 95% as they released a new 557 00:26:57,160 --> 00:27:00,240 model. The model is called Gemini 2.5. 558 00:27:00,720 --> 00:27:04,160 Now, this goes along with the greater theme that I've argued 559 00:27:04,160 --> 00:27:06,720 before that Google just doesn't get credit for what they're 560 00:27:06,720 --> 00:27:08,640 doing. Just think about their business. 561 00:27:08,640 --> 00:27:10,720 They rarely get credit for what they're actually doing. 562 00:27:11,160 --> 00:27:15,040 They have Waymo, which is a an autonomous robotaxi network 563 00:27:15,040 --> 00:27:18,600 accepting 200,000 rides per week, expanding to different 564 00:27:18,600 --> 00:27:22,320 cities over time, constantly expanding, and all people talk 565 00:27:22,320 --> 00:27:25,600 about with robotaxis is Tesla. Very few people actually 566 00:27:25,600 --> 00:27:29,400 mentioned Waymo when they're doing the very thing that Tesla 567 00:27:29,400 --> 00:27:31,400 investors are wanting Tesla to do. 568 00:27:31,840 --> 00:27:35,200 There's all these little caveats and you know, differences that 569 00:27:35,200 --> 00:27:38,520 Tesla will scale faster and Tesla has better manufacturing 570 00:27:38,520 --> 00:27:41,080 and whatnot. But right now we have 1 company 571 00:27:41,080 --> 00:27:45,120 proving to the market with real paid rides that ride sharing 572 00:27:45,120 --> 00:27:46,840 works. And they're doing it and 573 00:27:46,840 --> 00:27:49,480 expanding rather rapidly. They've grown the amount of 574 00:27:49,480 --> 00:27:52,680 rides, paid rides by 20 times in the past two years. 575 00:27:53,080 --> 00:27:55,880 So they're scaling rather fast, but yet it's a side note with 576 00:27:55,880 --> 00:27:58,080 Google. Then you have the AI battle. 577 00:27:58,560 --> 00:28:03,480 You always have the AI companies mention X AI, you have Chachi 578 00:28:03,480 --> 00:28:06,720 PT, you have Amazon, you have basically every other company. 579 00:28:07,080 --> 00:28:10,080 And then Google's kind of thrown into the mix when Google has 580 00:28:10,080 --> 00:28:13,120 been leading this race of having the best models for a long 581 00:28:13,120 --> 00:28:17,400 period of time, even before Gemini 2.5, Google has had an 582 00:28:17,400 --> 00:28:20,720 incredibly strong model with Gemini 2 point O better than 583 00:28:20,720 --> 00:28:23,240 most. But Google's inability to market 584 00:28:23,240 --> 00:28:26,000 this and the crate buzz and excitement like other companies 585 00:28:26,280 --> 00:28:28,840 means that they're continually under appreciated. 586 00:28:29,440 --> 00:28:31,880 Now we look at the the new announcement of this new model 587 00:28:32,000 --> 00:28:35,160 and it is incredible, they say. Today we're announcing Gemini 588 00:28:35,160 --> 00:28:37,360 2.5, our most intelligent AI model. 589 00:28:37,800 --> 00:28:41,720 Our first 2.5 release is an experimental version of 2.5 Pro, 590 00:28:41,840 --> 00:28:45,400 which is a state-of-the-art on a wide range of benchmarks and 591 00:28:45,400 --> 00:28:50,120 debuts as the number one LMA or LM Arena by significant margin. 592 00:28:50,640 --> 00:28:54,720 That is a test where they basically have users blind taste 593 00:28:54,720 --> 00:28:55,960 test. They just look at all the 594 00:28:55,960 --> 00:28:59,120 different models and they assess which one is giving them by far 595 00:28:59,120 --> 00:29:01,640 the best answers. So it's a blind test. 596 00:29:01,640 --> 00:29:04,360 They don't know which AI model they're being presented with. 597 00:29:04,720 --> 00:29:09,040 They rank all of them, and it ranked #1 users like this 598 00:29:09,040 --> 00:29:11,560 model's results and the answers above any other. 599 00:29:11,560 --> 00:29:15,000 Gemini 2.5 models are thinking models capable of reasoning 600 00:29:15,000 --> 00:29:17,840 through their thoughts before responding, resulting in 601 00:29:17,840 --> 00:29:20,000 enhanced performance and improved accuracy. 602 00:29:20,080 --> 00:29:23,400 In the field of AIA, system's capacity for reasoning refers to 603 00:29:23,400 --> 00:29:26,640 more than just classification and prediction refers to its 604 00:29:26,640 --> 00:29:30,000 ability to analyze information, draw logical conclusions, 605 00:29:30,240 --> 00:29:33,200 incorporate context and nuance, and make informed decisions. 606 00:29:33,480 --> 00:29:36,200 For a long time, we've explored ways of making AI smarter, more 607 00:29:36,280 --> 00:29:39,160 capable and reasoning and through techniques like 608 00:29:39,160 --> 00:29:41,560 reinforcement learning and chain of thought prompting. 609 00:29:41,800 --> 00:29:44,480 Building on this, we've recently introduced our first thinking 610 00:29:44,480 --> 00:29:48,840 model, Gemini 2 point O flash. Thinking now again, this one got 611 00:29:48,840 --> 00:29:52,840 little acknowledgement. Everyone focused on DeepSeek 612 00:29:53,040 --> 00:29:56,440 because it came from a China, It came kind of out of left field, 613 00:29:56,560 --> 00:29:58,800 but Gemini 2 point O was actually ranked higher than 614 00:29:58,800 --> 00:30:01,560 DeepSeek on both benchmarks that it was ranked on. 615 00:30:02,080 --> 00:30:04,960 Now with Gemini 2.5, we've achieved a new level of 616 00:30:04,960 --> 00:30:07,720 performance by combining a significantly enhanced base 617 00:30:07,720 --> 00:30:09,720 model with improved post training. 618 00:30:10,000 --> 00:30:12,400 Going forward, we're building these thinking capabilities 619 00:30:12,400 --> 00:30:15,640 directly into all of our models so they can handle more complex 620 00:30:15,640 --> 00:30:19,680 problems and support even more capable context aware agents. 621 00:30:19,880 --> 00:30:21,840 Now they show the three different benchmarks that they 622 00:30:21,840 --> 00:30:26,160 use on reasoning and knowledge. It ranks above all the others by 623 00:30:26,160 --> 00:30:28,600 a pretty high margin. In the science category, it 624 00:30:28,600 --> 00:30:30,400 again outranks all the other models. 625 00:30:30,480 --> 00:30:34,080 Open AI is the closest and in mathematics it again outranks 626 00:30:34,080 --> 00:30:36,440 all the other models. Opening Eye is slightly below 627 00:30:36,440 --> 00:30:38,680 and they actually show here how you can make this dinosaur 628 00:30:38,680 --> 00:30:41,720 jumping game, This little game you can make with a single 629 00:30:41,720 --> 00:30:45,000 prompt in 45 seconds. Here they're they're they're 630 00:30:45,000 --> 00:30:49,760 showing it being made. Run it. 631 00:30:49,880 --> 00:30:52,000 It's speeding through the process here. 632 00:30:52,000 --> 00:30:58,640 We're at like 67 seconds to create this, copy the code, put 633 00:30:58,640 --> 00:31:01,400 it into an editor that can run it, and you have yourself a 634 00:31:01,400 --> 00:31:03,200 game. So that's how coding has 635 00:31:03,200 --> 00:31:06,120 developed with these new models. It's getting to the extremes Now 636 00:31:06,120 --> 00:31:08,760 moving on, Speaking of AI, we also have the companies that are 637 00:31:08,760 --> 00:31:11,640 not just creating new models, but the ones that can implement 638 00:31:11,640 --> 00:31:15,320 artificial intelligence in the most profitable way possible, 639 00:31:15,440 --> 00:31:18,120 that can create new experiences and new advantages for their 640 00:31:18,120 --> 00:31:20,800 business. I've argued that Amazon, with 641 00:31:20,800 --> 00:31:24,120 how vast their business is, with how much optionality it has 642 00:31:24,440 --> 00:31:27,920 baked into the company, there are so many different ways that 643 00:31:27,920 --> 00:31:30,960 Amazon can benefit from artificial intelligence, ways 644 00:31:30,960 --> 00:31:32,560 that we can't even think of right now. 645 00:31:32,640 --> 00:31:35,640 Amazon, in an effort to infuse generative artificial 646 00:31:35,640 --> 00:31:38,640 intelligence across a wider spot of its e-commerce universe, 647 00:31:38,920 --> 00:31:41,920 recently began testing a shopping assistant and health 648 00:31:41,920 --> 00:31:44,240 focused chatbot with a subset of users. 649 00:31:44,840 --> 00:31:47,960 AI has become a major area of investment across Amazon, 650 00:31:48,200 --> 00:31:51,040 including in retail, cloud computing device and healthcare 651 00:31:51,040 --> 00:31:53,200 businesses. Within the retail business, 652 00:31:53,200 --> 00:31:56,360 Amazon has already launched a shopping chat bot and AI 653 00:31:56,360 --> 00:31:58,840 assistant for sellers and AI shopping guides. 654 00:31:59,200 --> 00:32:02,680 On top of that, they're using AI to summarize reviews to help 655 00:32:02,680 --> 00:32:05,400 create descriptions. It's just part of everything. 656 00:32:05,720 --> 00:32:08,800 Every part of Amazon is going to be made better by artificial 657 00:32:08,800 --> 00:32:10,840 intelligence. The new services Amazon is 658 00:32:10,840 --> 00:32:13,840 testing appeared on its app or website in recent weeks. 659 00:32:14,240 --> 00:32:16,880 An Amazon spokesperson confirmed that the features are being 660 00:32:16,880 --> 00:32:18,800 tested in beta with some customers. 661 00:32:19,200 --> 00:32:22,920 The shopping tool, called Interests AI, prompts users to 662 00:32:22,920 --> 00:32:26,720 describe Interest using their own words, and then it generates 663 00:32:26,760 --> 00:32:30,000 a curated selection of products. The Amazon spokesperson said 664 00:32:30,000 --> 00:32:32,840 that Interest uses the large language models to translate 665 00:32:32,840 --> 00:32:36,520 everyday words or phrases into queries and attributes that 666 00:32:36,520 --> 00:32:38,760 traditional search engines can turn into product 667 00:32:38,760 --> 00:32:40,720 recommendations. They're making this feature 668 00:32:40,720 --> 00:32:43,560 available in the US soon, Andy Jasia stressed. 669 00:32:43,560 --> 00:32:46,040 They're literally really using over 1000 different ways to 670 00:32:46,040 --> 00:32:49,880 implement generative AI into the business across AI applications. 671 00:32:50,000 --> 00:32:53,040 One of them is in the cloud offering a chat bot called Q and 672 00:32:53,040 --> 00:32:54,440 Commerce. The company has rolled out a 673 00:32:54,440 --> 00:32:57,400 service for consumers as well as its millions of third party 674 00:32:57,400 --> 00:32:59,720 sellers. Amazon is also exploring ways to 675 00:32:59,720 --> 00:33:02,440 use artificial intelligence that can address medical needs. 676 00:33:02,440 --> 00:33:05,720 The company is testing a chat bot on its website on a mobile 677 00:33:05,720 --> 00:33:09,320 app called Health AI, which can answer health and Wellness 678 00:33:09,320 --> 00:33:13,320 questions, provide common care options for healthcare needs and 679 00:33:13,320 --> 00:33:15,480 suggest products. And they have clinically 680 00:33:15,480 --> 00:33:19,040 verified badges denoting that it's been reviewed by AUS based 681 00:33:19,040 --> 00:33:22,240 license clinician. So this is not just pulling up 682 00:33:22,240 --> 00:33:24,680 random data. The real responses here will be 683 00:33:24,680 --> 00:33:26,720 verified. Amazon already announced Alexa 684 00:33:26,720 --> 00:33:29,120 Plus, which is included with the Prime membership, which makes 685 00:33:29,120 --> 00:33:32,240 the Alexa devices far smarter. They're now infused with 686 00:33:32,240 --> 00:33:35,200 artificial intelligence. This is something where I think 687 00:33:35,200 --> 00:33:36,880 we're just scratching the surface. 688 00:33:36,880 --> 00:33:39,840 I really think with a company like Amazon, we're just getting 689 00:33:39,840 --> 00:33:42,480 started with their implementations of artificial 690 00:33:42,480 --> 00:33:44,520 intelligence. I can't tell you how it's going 691 00:33:44,520 --> 00:33:46,600 to change the business. I don't know all the ways 692 00:33:46,600 --> 00:33:49,720 they're going to implement AI across all their verticals, all 693 00:33:49,720 --> 00:33:51,840 the various things that Amazon does and competes with. 694 00:33:52,000 --> 00:33:54,880 But there's more than 1000 ways that Amazon's going to benefit 695 00:33:54,960 --> 00:33:57,120 from AI. We don't know about what those 696 00:33:57,120 --> 00:33:59,240 are right now, but we're going to find out over time. 697 00:33:59,840 --> 00:34:03,960 Now finally, we get to this news where we have Berkshire Hathaway 698 00:34:03,960 --> 00:34:06,200 doing this is a little bit of a employee. 699 00:34:06,600 --> 00:34:08,400 I think it's just a fun thing for employees. 700 00:34:08,960 --> 00:34:12,320 Berkshire Hathaway employee wins $1 million in the Warren 701 00:34:12,320 --> 00:34:15,440 Buffett's March Madness bracket challenge This is the first time 702 00:34:15,440 --> 00:34:18,800 in nearly 10 years a Berkshire Hathaway employee claimed Warren 703 00:34:18,800 --> 00:34:22,920 Buffett's 1,000,000 grand prize for his company's NCAA bracket 704 00:34:22,920 --> 00:34:25,120 contest. This anonymous employee from the 705 00:34:25,120 --> 00:34:28,080 aviation training company Flight Safety International, it's a 706 00:34:28,080 --> 00:34:32,000 subsidiary of Berkshire, won the annual internal bracket contest 707 00:34:32,000 --> 00:34:36,280 after correctly calling 31 of 32 games in the first round of the 708 00:34:36,280 --> 00:34:39,040 men's basketball tournament. This is by far one of the the 709 00:34:39,040 --> 00:34:40,760 coolest things I've seen a company do. 710 00:34:41,239 --> 00:34:43,960 Give out $1,000,000 to a random employee. 711 00:34:44,040 --> 00:34:47,280 Not entirely random, but one that fills out the NCAA bracket 712 00:34:47,480 --> 00:34:50,280 competition correctly. It'd just be a fun thing. 713 00:34:50,280 --> 00:34:53,120 Wouldn't that be insane in the company you work for being able 714 00:34:53,120 --> 00:34:55,800 to fill that out and have a chance of winning $1,000,000? 715 00:34:56,360 --> 00:34:58,280 There's no downside and you're not gambling. 716 00:34:58,280 --> 00:35:01,360 You don't lose anything if if you don't win, but you get to 717 00:35:01,360 --> 00:35:04,280 see potentially someone in the company that's been working 718 00:35:04,280 --> 00:35:07,680 their normal job doing the same thing everyday, have their life 719 00:35:07,680 --> 00:35:10,480 randomly change from filling this out correctly. 720 00:35:10,560 --> 00:35:13,720 I think this is something just fun and more companies should do 721 00:35:13,720 --> 00:35:15,080 it. And even the people that were 722 00:35:15,080 --> 00:35:19,480 runners up, the 11 that won $100,000, that's also a life 723 00:35:19,480 --> 00:35:21,920 changing amount of money. I mean, that really is, is such 724 00:35:21,920 --> 00:35:25,480 a cool thing to have happen. So Warren Buffett does it again. 725 00:35:25,600 --> 00:35:27,600 One of the cooler things the company's done that I've seen 726 00:35:27,600 --> 00:35:30,280 over the past the past year. That's going to be it for this 727 00:35:30,280 --> 00:35:31,720 episode. Hope you enjoyed. 728 00:35:31,960 --> 00:35:32,680 See you in the next one.