The Continuing Education of an Investor with The Science of Hitting | 7investing
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TSOH_Podcast

The Continuing Education of an Investor with The Science of Hitting

Advisor: Matthew Cochrane

The Science of Hitting (TSOH) moonlights as an investment columnist for GuruFocus where he has now penned more than 700 articles over the past nine years. While doing so he has also built up a loyal following on Twitter where he can be found dishing out investment quotes and thoughtful takes on the market and stocks. In an exclusive interview, TSOH sat down with 7investing Lead Advisor Matthew Cochrane to discuss his investment style, process, and the bull theses for some of his largest positions.

Before the interview gets to any of that, however, TSOH shares how during college he drove from the University of Florida to Berkshire Hathaway‘s annual meeting in Omaha, NE. Of course, being a broke college student, he resorted to pulling over for sleep in Walmart parking lots along the way rather than stopping at hotels! After attending the meeting, he left for the return trip home the same day.


The conversation quickly turned to stocks, when TSOH talks about how his thesis for Microsoft (NASDAQ:MSFT) has changed since starting a position almost a decade ago. When he first took a position, Microsoft was a cheap stock with a slowing business (Windows). Now it sports a $1.6 trillion market cap and a much richer valuation, but TSOH believes it still has plenty of exciting growth opportunities ahead of it.

The Walt Disney Company (NYSE:DIS) is a company facing a major crisis for its world-class amusement parks and delicately balancing cord-cutting concerns with its ESPN properties, but has a streaming platform that has surpassed all expectations in its first year.

Yelp (NYSE:YELP) is a turnaround play for a recovering economy, though TSOH is already wondering if much of the good news has already been priced in.

Finally, the host and guest continued their friendly debate about how up-and-coming fintech companies might take market share away from legacy banks, and which classes of banks were most at risk of disruption.

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Interview Timestamps:

0:00 – Introduction

1:15 – TSOH’s background

4:51 – TSOH’s investing style process

14:08 – Microsoft

23:49 – Disney

37:09 – Streaming and investing

44:33 – Are FinTech’s going to take market share from the banks?

1:03 – Stocks on TSOH’s watch list

 

Matt Cochrane

Greetings, fellow investors. I’m Matthew Cochrane, a lead advisor at 7investing, where it is our mission to empower you to invest in your future. We do that by providing monthly stock recommendations to our premium members and educational content that is freely available to everyone. Listeners, today I’m very excited to introduce “The Science of Hitting,” one of my favorite investment columnist who has now written more than 700 articles on Gurufocus over the past nine years, is one of the most informative follows on fintwit where he can be found at TSOH_investing, and hosts The Science of Hitting podcast, on major podcast players everywhere.  Science, welcome to the show.

TSOH

Thanks for having me, Matt.

Matt Cochrane

Happy to have you. Happy to have you.  Science, why don’t you just start off by telling us how you first got into investing?

TSOH

Yeah, so my background when I was going off to college, I had no idea what I wanted to do. My my dad was a plumber, or is a plumber. So I went to school for building construction, and I did that for a few semesters and quickly realized that that was not going to be the route I wanted to go down. So around that time, I can’t remember how, but I stumbled across the the Berkshire shareholder letters and some other of the Warren Buffett and Charlie Munger writings and speeches and things like that. So a buddy and I got  hooked, and about a year later, I want to say him and I hopped in a car from, we were going to school, University of Florida in Gainesville, we hopped in a car and drove to Omaha for the annual meeting, which I think was about 20 hours each way, something like that. And, you know, we we were broke college kids. So we slept in Walmart parking lots. And as I remember, we went to the meeting for you know, we went to the meeting for five hours, got in the car and just drove back, I’m pretty sure. So that was a… it was a big investment to go for the five hour meeting that they did not release the tapes on back in the day. So you kind of had to go.  So anyways, I’ve been kind of hooked ever since. And I also started a small business when I was in school, it was essentially like StubHub, but it was for there was a different classification for student tickets to college game. So it was kind of a site specifically for that. So that never worked out. But it was, you know, as it started my like finance and business fascination, which I’ve, I am no longer close to being a recent college grad. So it’s a fascination I’ve had for a good amount of time now.

Matt Cochrane

Sure.  And for our listeners who aren’t familiar with you, how would you describe your investment style and process?

TSOH

So my style tends to be long term focused, which you know, lends itself to higher quality businesses, strong balance sheets, you know, be invested being invested with managers that I that I trust and want to be partner with for the long term. So that would get this things like skin in the game being compensated based on metrics that I think are reasonable, etc. And, you know, if you look at my portfolio that kind of bears itself out, my largest holdings are Microsoft and Berkshire, I’ve owned both of them for close to 10 years now. And they’re about 30% of my portfolio, those two names, so, you know, pretty concentrated. And if you look at the next handful of names, it gets north of 50% pretty quick, and those names as well. All except for one I’ve owned for multiple years. So and how that lends itself in my process, you know, as I as I look at new ideas, and try to find opportunities, I do my best to exclusively start with business quality, which, you know, probably the easiest way to think about that would be “if I look 5 to 10 years down the road, how confident am I that, you know, earnings per share, free cash flow, per share metrics, like that, will be meaningfully higher than they are today.” And to the extent that’s not true, obviously, that would imply some sort of, you know, significant capital return instead. So those are the kind of things I’m looking at. And I’m looking for businesses that I can buy and own and I am not trying to guess re-ratings or anything like that. I want businesses that if the market closed for the next year or five years, I’d be just fine owning them.

Matt Cochrane

Sure, sure. Now that’s great. Let’s let’s start off on some higher level questions, and then we’ll work our way down to some companies.

TSOH

Okay.

Matt Cochrane

The first thing like I want to ask you about is a Warren Buffett famously said, “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” So obviously growth and quality is integral to even Buffett’s process. and talking to you and I know you learn from Buffett and like, just talking to you like I know you get that too. But growth investors can’t ignore valuations and value investors can’t ignore quality. How do you weigh a company’s valuation to its growth and economic moat when studying it? You know, this is like my biggest struggle. So I asked like a lot of our guests this question just so I can like have a better time like when get my own process?

TSOH

Yeah, that’s a huge struggle for me as well. I think this is you know, a lot of this comes down to the to the art of investing and obviously we’re impacted by the fact that we kind of lived through the cycles, which cycle kind of sounds like a short term thing. But cycles are very long when you’re actually living through them. So it makes it difficult to kind of balance those two. I think my good buddy Bill Brewster tweeted something once, I think it’s spot on. He said “traditional value investors understand the role of price mitigating left tail risks, traditional growth, investors understand the ability of the right tail to be longer than traditional value investors appreciate the marriage of those two concepts of Nirvana, which is very hard to do.” I think that’s spot on. And, you know, to kind of rephrase your Buffett quote, as I approach it, I try to focus on finding those great businesses first and foremost. And from there, you know, with anything, it comes down to opportunity costs, to the extent I’m, you know, sacrificing on business quality, I need to see a meaningful improvement in terms of the valuation- the price I’m being asked to pay. But you know, for me, in my experience, the mistakes have been, when I put too much weight on the price component, as opposed to focusing on business quality, management, quality, etc. So, I mean, there’s a lot of truth in the idea that, you know, high quality businesses and good managers can kind of work their work their way out of high valuation, but of course, even that has limits.

Matt Cochrane

Sure, sure. And, and we’ll, we’ll get to some of those limits. When we talk about some of the companies you hold in your portfolio, how do you how do you weigh, like the, the long term buy and hold philosophy or #neversell? Like, as some people put it on Twitter, versus like a buy low/sell high, you know, kind of process?

TSOH

Yeah, I mean, kind of like the last question for me, it’s, it’s very much gray, it’s not black or white, it’s, it’s, it’s really hard to say, and I try to do what I can to maintain that long term focus. And again, to the extent I’m, to the extent I’m in a very high quality business that I think has a long runway and has really good management, a strong balance sheet, which is, you know, we’ll talk about Microsoft here in a second, I’m sure. But that’s kind of a good example of hitting all those, hitting all those checkboxes. In those kinds of situations, I do what I can to be to be very slow to say, “okay, this is expensive on whatever metric I’m going to get out now,” as opposed to a situation where it’d be, you know, a much more traditional kind of value investment where you’re, you know, it’s at 90 cents on the dollar, you’re getting out because that asset is marked fairly, that’s much harder to say, for certain types of assets. So when I think I have really good managers running a good business with structural tail winds, I tend to let those run a little bit further. So I don’t know if that’s, I don’t know if that’s theoretically correct. But I think in practice that’s effective for me, or what I’m most comfortable doing.

Matt Cochrane

Sure. So you brought up Microsoft. So let’s talk about Microsoft. This is a holding we both share. It’s a it’s a larger percentage of my portfolio too – I’m not quite as large.  How, first of all, how long have you held Microsoft? It’s been it’s, you’ve held it longer than me, I think.

TSOH

Yeah, I bought it in 2011. When I joked to somebody else on a pod the other day that an article I wrote at the time was called “Microsoft Price for Failure.” So I can, that tells you is a little bit of a different world in 2011.

Matt Cochrane

Yes, absolutely.

TSOH

This is very much a traditional value investment back in the day. So we’re in a different world now. But yeah, that’s I got invested back in 2011. And I’ve owned it ever since.

Matt Cochrane

So you’ve owned it for 10 years. Over time, has your thesis for owning it evolved?

TSOH

Yeah, it has. I mean, it really started as a, this is an incredibly cheap business price for a lot to go wrong. And even then, as I thought about it, I remember sitting down and basically working out how quickly does Windows have to go away for this price to make sense? Because I mean, that was part of the thesis at the time, people thought that it was the end of the PC.

Matt Cochrane

It was a melting ice cube.

TSOH

Exactly, because of things like iPads or phones. And, you know, it’s funny, in hindsight. Certainly those new computing platforms have certainly had an impact on the amount of time that people spend on their PCs. But I don’t know about you, I’m on a computer right now. So it turns out there’s they’re still selling computers. So that was good for Microsoft. But yeah, so early on, that was that was a lot of it. And then as time went by, you know, you got into the the 2013 2014 period where Satya Nadella became CEO. And I think that period was kind of instructive before for me because I saw how the conversation around that hiring was framed. And it was interesting because I remember very vividly that the idea of them hiring an insider was widely perceived as it would be a failure if they did it. And instead, the frontrunner at the time was Alan Mulally, who was the CEO at Ford, or former CEO at Ford. And I remember, as a lot of that was happening, as I started reading more into Satya Nadella and thinking about who he was and the experience that he had. And even the stories that people who had worked with him said, it just seemed to me that the idea that he was inherently a bad pick because he was a Microsoft lifer was just kind of silly. And I think that was kind of my, one of my early experiences with this idea of price really influencing that influencing narratives and kind of leading to just kind of like faulty conclusions, or people not really doing the work on something. And I think you see that with names all the time, as people invest in something and it doesn’t work out, they lose a lot of money for themselves or for clients, you know, certain companies can kind of fall in the buckets where they just will not be looked at anymore, because there’s no chance someone would buy it again, it’s just too painful. Or people just have certain perceptions about it. So anyways, I think Microsoft was really in that spot. You know, 6/7/8 years ago, then over time as Satya Nadella proved to be a good leader and a visionary in terms of where they needed to go technologically and with some of their products. Then the cloud came and, you know, obviously today, it’s it’s a company that’s returned a pretty significant growth and has some good structural talents for the long term. And so yeah, it’s a it’s a very different story. But how did I manage to hold the whole full time?  Well, one, I have trimmed at times, to be clear, not too much lately. But I think I really started appreciating the last handful of years, that idea I mentioned before, which is, as opposed to getting locked into this idea that now because it’s at 2 (or) 3 times earnings, and previously it was at 12 times earnings, that it’s now overvalued, I just started to think that maybe that’s not right, the right way to think about it, they really do have a 5, 10, 20, or even longer horizon have reinvesting into a good business where they have a good position, and they have a good balance sheet. Maybe that’s the wrong way to think about it. Just look at something like the PE.

Matt Cochrane

Sure. No, I agree with you. But if your first article at the time was ‘Priced for Failure,” if you wrote an article now it’d probably priced for success. Or maybe even price for perfection. Maybe not quite that much. But it is certainly a lot of good news is priced in now, there. And I’ve read your articles. I can’t honestly say if I’ve read your most recent articles on Microsoft, I have read your articles in the past though on Microsoft, and I know you’re thinking about the valuation. What are your thoughts on Microsoft’s valuation now? I mean, now it’s close to 30 times earnings or over 30 times earnings probably.

TSOH

Yeah. Over. Yeah. So I think I wrote one in February, which was called “When is Microsoft to sell?” And I did not know COVID was coming. But I think in hindsight, it turns out, I wrote that in at the exact top for the S&P 500, for the pre COVID correction or whatever, you know, 30%, or whatever it was, so that was well timed. You know, in that article, and I walked through the idea of greatness is obviously important, high quality businesses are very important. But I also, I also put a lot of weight in the fact that the future is inherently unpredictable. And Microsoft is a perfect example of that. It was the company in 2000 that needed to be broken up and was going to take over the world. And then as we were just discussing, 10 years later, it was a dinosaur who couldn’t do anything right. And people thought it was basically dead in a lot of ways. Now jump forward 10 years again, and it’s, it’s this great business that you know, is viewed much more similar to how it was viewed in 2000. So I think I try to balance the idea that you don’t want to let go of a great business because it has a PE that’s 10%, 20% higher than an average business might. But at the same time, I’m not comfortable saying that I know where this will be in 20 years. So how I try to balance that is I think about what realistic expectations look like, you know, five or 10 years down the road, then I try to think about what a reasonable premium would be for a great business versus an average business. Is that a 10%? Higher PE? No, I think that’s too… I think that’s too low. Do I think the PE should be two or three times higher than an average business? I think that’s probably a little too aggressive. That’s that requires me to have too many thoughts about what the world looks like in 2040 or something like that.

Matt Cochrane

Sure.

TSOH

So as I ran that math in February, and I don’t remember off the top my head, I think I got to a range of I thought a price where it made sense to maybe consider trimming was somewhere around I think I might have been right 190 to 230, somewhere in that range. And obviously, since then, you know, results have came in. Obviously, as you’re discounting back those cash flows, if you move a year into the future, whatever that price is going to move up by, you know, call it roughly 10%, something like that. So, yeah, I think we’ve been close to where that is. And I’d say the only other considerations for me are, what are my opportunity costs? I’m not someone who I’ve kind of moved away from the idea of holding a bunch of cash, or at least holding a very large pile of cash. So for me, it would require the ability to find something else that I thought was more attractive, which obviously may become more difficult as if the market is running as it is currently. So that might impact my decision. And then the other thing I would think about would be tax considerations. So obviously, I’d be willing to pay taxes at a certain point. But I would have to obviously be compensated for the fact that I’m going to take that hit. So those are the things I think about. And if it moves up another 10 or 20% from here, then that’d be a very real possibility that considered trimming.

Matt Cochrane

Sure, sure. So you were talking about Nadella earlier, and I remember when he when he took over too, and I remember them talking about the Ford CEO as a possibility. I don’t know if at the time I realized he was the front runner or not. Or how much of that is just like reading history and thinking I knew it at the time, either. Um, but like, what I, what I do remember was like, or what appreciated, I think I got it to Microsoft, maybe 2016. And regret, I was looking at 2015 and regretted not pulling the trigger then. But like, I remember, like they were Nadella was even changing, like Microsoft’s motto from like, you know, it was still based on all Windows, like a computer in every house or Windows in every house, it was something like that. And just like updating he had so much work to do. Um, and we talked about your thesis changing on Microsoft over the last decade, which I mean, as it as it should. Right now, what do you think is their biggest opportunity going forward?

Matt Cochrane

I’m sorry, you’d like to talk about $1.6 trillion market cap. And what I know what I get a lot and I hold, Microsoft is not the only big tech name I hold. While they’re so big, how much more can they grow? And I always think like, well, the opportunities ahead of them represent like, I do, I think they can still grow. I don’t think that’s a, I think that’s I think I can make that like confidently like there’s still room for growth here. Whether they capitalize on that or not, is another question. But like, so for you what, though? What is their biggest opportunity you think they have going forward?

TSOH

So I think, you know, Nadella is using it uses example, lately, the idea that tech spends a percentage of GDP will double over the next I think he said the next decade. And it’s kind of this idea that at a very high level, Microsoft is a company that’s going to help the digitisation of, I mean, this is very proud, obviously. But everything it’s going to be enterprises, it’s going to be SMBs, it’s going to be governments, it’s going to be individuals. I mean, they’re playing into that trend in a big way. So as you as you, you know, try to nail it down and quantify it. They have what they call their commercial cloud businesses, which includes what would people traditionally think of as the cloud things like Azure, but then it includes office 365, and their SAS offerings, etc. So commercial cloud was about a $20 billion run rate in revenues at the end of fiscal 17. And the most recent quarter, it was north of $60 billion run rate. So it’s been growing very significantly, obviously, we’re talking about very big numbers now too. But in the last quarter, it still grew 31%, year over year. So that just gives you a sense for I mean, this is already a huge business, if you’re gonna lump them all together, and it’s still growing at a very rapid rate. So I guess, part of the opportunity to be continuing to grow in that, you know, Goldman puts out this quarterly cloud commentary. And their most recent estimate was that cloud penetration of, you know, the addressable it market, which job is obviously there’s a lot of assumptions in here. But by their math, cloud penetration of the, the potential enterprise adoption of these solutions is that a mid teens percentage, so it, it potentially has room to become, you know, call it five to six times larger than it is today. And obviously it spend overtime can also grow. So as I think about the results that Microsoft’s actually reported, I think about some data points like that. And I also think about their position and where they sit relative to competitors, like Amazon or Google, or smaller players like slack or zoom. I just continue to believe that Microsoft continues to be very well positioned in terms of go to market in terms of not competing with the people they’re trying to sell to in a way that some of those people might be And I just think with the right leadership that they’re in as good a position to win as anybody. And, frankly, for me, I don’t think they just have, you know, a decent guy in charge, I think they have probably the one of the handful of best people in the world possibly running this company right now.

Matt Cochrane

He really is, he really is. Yes.

TSOH

But quantifying that with any specificity, as you know, is it’s incredibly difficult. And you can get, you can get caught playing this game of how big is the TAM? Really, obviously, I think it spend is, is a very, very, very large market. But it’s difficult for me to say, if that 30% growth rate is going to be 10% in three years, if it’s still gonna be, you know, 20% or 25%.

Matt Cochrane

Sure, of course, of course, it’s like, it just feels like a to me like, for the last several years, it was all about Azure, and what they were doing and AI and things like that. And whenever kings even came up, it was like, I mean, that’s not gonna move the needle, like, you know, I just thought to myself, like people talked about it sometimes. But I just thought, I mean, maybe it’s relevant to like a discussion of like slack and its competition. But I didn’t think it was relevant to my thesis for Microsoft. And yet, even that, I mean, granted, COVID has been a huge tailwind for teams. But I mean, last quarter, I mean, they were talking about 100 and 15 million daily active users on teams, you know, it’s like becoming a platform effect with meetings and chat and collaboration, all integrated into it. And, you know, even things like that are becoming like, well, maybe this does move the needle now.

TSOH

Yeah, that gets to the point of, you know, one of the things that people who are, you know, more tech focused and have a good understanding of blogs, products and things like that, they’ll say, teams is an inferior product relative to slack. And that that may very well be true, I think you need to look at the opposite, you need to flip that and realize what that means in terms of Microsoft’s penetration and enterprises and SMBs. And their ability to sell, you know, these offerings, like e three and E five, this office suite of products and what they can you think about what they can truly do for a CIO, when they go talk to Pepsi or somebody like that, their ability to offer very compelling product that meets so many needs, is, again, with the right leadership and with the ability to keep getting better over time, it puts them in a really good spot to to, again, help digitize the world,

Matt Cochrane

100% 100%, like I, Microsoft is in the great position, I think, where they don’t have to be the best product for things like this, because of their distribution. And they’re, like you said the relationships with the CIO, their pricing power. So they’re in this great position where they can throw a lot of money out of something. And I think they are like where maybe in years past teams did not get the attention. it deserved. And now it is, but like they’re in that position where they don’t have I, I don’t think they have to have the best product because of their position and dominance in the market overall. And as long as it’s good enough, then I think that might just be all they need.

TSOH

Yeah, I think Ben Thompson’s written about this, it’s kind of the idea that as a discrete product, one might not be as good as something else. But when you think about them in terms of the integration, I think Pete means both from a user perspective, and in terms of I would think also how it’s sold essentially, or what it what it means for the person buying and how much pain it can remove from their life. And obviously, things like bundle economics, etc. But yeah, I think it’s there’s a reason why Microsoft has been so successful. And I think a lot of those a lot of those tail winds are still in place.

Matt Cochrane

Yeah, absolutely. Absolutely. So moving on. I think another company you own is Disney. Yeah, that correct. Okay. Uh, likewise, likewise, I’m also long Disney. How long have you been a shareholder for?

TSOH

So I owned Fox for a few years prior to the, you know, obviously, you know, Disney acquired the majority of 21st Century Fox. So I owned Fox for a few years before that. And then when the deal happened, I took all shares.

Matt Cochrane

Okay, and so now, what is your you own Fox? you inherited Disney shares? What’s your thesis for holding on to the Disney shares?

TSOH

It’s kind of funny in some ways. I think in hindsight, my Fox thesis, which turned out okay, may have actually been wrong. A lot of was predicated on the RSS, which is the regional sports networks. And I think, I think I actually was wrong thesis. It was also partly due to the strength of Fox News, which I think that part is proven to be correct. But yeah, the RSM thesis probably was not correct. So I got bailed out to a certain extent. But yeah, in terms of Disney, I think. Um, you know, I took a lot from uygurs book, Bob Iger, the former CEO. And I think the thing from his book are the two things from his book that really stood out to me was when he spoke about when he went to the park opening, I think it was in Hong Kong. It was one of the International parks and He went to the Main Street parade. And he saw that this is back in 2003 2004. somewhere in that range, he saw that the characters coming down the street, none of the Disney characters were from the past 10 years, the parade was full of characters like Woody from Toy Story and a bunch of Pixar characters because Disney had a deal at the time with Pixar. And he came to the realization that Disney’s animation, and their ability to create best in class IP had been lost to a certain extent, and that this was truly the lifeblood of the company. And he went to the board and told them essentially, listen, we have to do this deal. And as we know, in hindsight, that deal did happen. And subsequently, they bought Star Wars or Lucasfilm. And they bought Marvel as well. So for me, that five stocks as well, which is, you know, slightly different, it’s not as clean of a play in my mind. But those three,

Matt Cochrane

But you’re right, you’re right. But it still came with a lot of IP, though,

TSOH

Definitely, definitely. And we’ll see what they can do with it over time. Hopefully, they can, you know, really, really get those work. And but, so Disney’s IP, as a result of those three deals is, as far as I can see, by far the best entertainment programming assets in the world. So, as they went to market with a DTC offering, obviously, they relied heavily on those assets. And, you know, we’re a year in now they have 74 million global paid subs, when they launched their Disney when they announced their DTC offerings, they said, maybe we’ll have 60 to 90 million in five years. So they they hit the midpoint of that, after 12 months, as opposed to after five years. And that speaks to a lot of things. It speaks to distribution. And it speaks to good consumer facing technology and stuff like that. But it also speaks to those brands. And I got,

Matt Cochrane

I just because hey, what’s amazing about that, like Disney+ a success, so far, it hasn’t even launched or it just now is launching, I think like actually this week, like in markets like Mexico, Brazil, Argentina, Chile, like so it’s not even truly global yet, you know, and they already reached that goal that they had set for the five year mark, it really is incredible I think

TSOH

If I have the numbers, right, or if I have the markets, right, which I think I do, the markets are launching this week, 400 million people live in those markets. So to your point, I mean, this is right there in there in like 20 to 25 markets right now, which obviously, it’s a lot of big markets like the US and India, but there, there’s plenty more to come. So this has been a fantastic start. It’s been significantly better than anybody anticipated. And I think it speaks to that reality of what they bring to the table. Now much like Microsoft that still requires good leadership, they need to keep producing good content they need to nurture and grow these brands over time. I think the other part a big part of Disney that really attracts me to as a long term business to own is the fact that I think their ability to monetize IP is unrivaled as well. And this is something Bob Iger spoke to this in an interview with Barron’s, I think it was in early 2019. He talked about basically competing with Comcast on the bid for those Fox assets. And he alluded to the idea that at the end of the day, they can bid more for certain IP than other people can because of the fact that they have ways to you know, they have a better mousetrap no pun intended. Right. So well. Yeah.

Matt Cochrane

I mean, so I mean, to your point, there’s an old Walt Disney diagram out there somewhere where talks about like, their flywheel and how, okay, they have, like, you know, Mickey Mouse, you know, it’s, he’s in a movie, and he’s at the park and when people go to the park, it makes them want to watch the Mickey Mouse cartoons more and, and then they sell the products with everything, you know, that Mickey Mouse is on. And it truly is a flywheel that, that no one else can match. Like, no one else has that kind of like the the theme parks and the the distribution and the movies. Like it’s, I agree with you, it truly is incredible. Um, how do you think they have managed with COVID and their parks?

TSOH

I mean, it’s been very difficult, you know, they, they’ve since reopened in Orlando in Florida, and actually actually went there a few months ago with I have a niece a young, nice, and she’s a big fan of Disney. So we go, my sister forces me to go at least once a year. And in my mind, I think it was probably the best experience I’ve ever had in the parks because it was not nearly as busy as it usually is. They were doing a great job with social distancing wearing masks, they were strict. So, you know, I think they showed that they can open the parks again, while still doing what they need to do from a from a safety perspective. So I think they there’s a path back to something that resembles you know, normalcy, especially as we get a vaccine or hopefully get vaccines. You know, places like California or are more difficult and I don’t live there. So I don’t I don’t pretend to know what life is like in California, but apparently we’re doing things a little bit different here. And I’m in Georgia and you’re in Florida, we’re doing things a little bit different. But eventually, I think that all gets resolved.

Matt Cochrane

Yeah. I mean, they definitely, uh, they specifically called out California in the conference call thing. They were like, quote unquote, extremely disappointed, you know, with with the state of things there. Um, and then I guess so last like ESPN, like, how do you think like, this is my, this is my like the parks in COVID. I mean, that’s like a, like you said, it’s a temporary thing, you can see the light at the end of the tunnel. I don’t know exactly when it’s going to happen. But I’m fairly confident at some point, things will be, quote unquote, normal. Again, ESPN is my biggest concern as a shareholder, you know, it’s a large part of their profits. cord cutting is a very real trend. Um, you know, and I think they have to navigate this carefully, you know, like they said, I mean, I think they just said on their most recent conference call that like 93 of the top 100 programs on TV are still sports. There’s obviously still an audience for that. But is this like a is this like, Is this an instance of a melting ice cube, we’re slowly going away? I’m a father of four, I can say that a three out of my four are casual sports fans at best. With like, fair interest, you know, and one out of four, he’s into it. He’s all in. But but but it does seem like the younger generation, and they have more entertainment options than I ever had. Growing up, like, how do you, how do you see ESPN’s future?

TSOH

I, that’s a fantastic place to start. Because I start with it. First, from a sports discussion on ESPN discussion. And to the point you just made, we’ve entered a different world where, you know, obviously, you could have put a DVD and your DVD player 10 years ago, whatever it was, but if you just turn on the TV and wanted to watch something easily, you might have been, you got to sit down at 8:30 on Tuesday to watch the Big Bang Theory or something. And with that came eight minutes of commercials, and it sucked relative to what you can do today, where you just turn on Netflix, and you can watch five episodes of..

Matt Cochrane

It really did. It sucks so bad. And yet we didn’t know at the time. Because it was just it was it is what it is. If you wanted to watch Seinfeld, you had to be there Thursday night at nine o’clock, or else you missed it. Right. And you know, like, for other shows, I guess Seinfeld is not that important to miss an episode as far as the storyline goes. But if you’re into a show with a storyline, you you have to be there there was you could hook up a VCR to set up the record. I mean, it was such like, it was the worst, it was the worst.

TSOH

So now it’s so easy. And you know, the breath and quantity of content is insane. So I think it’s a fair point that sports have more competition than they ever have before. And I’m a big sports fan, myself and I there’s times where previously I would watch sports where now i say i’m just going to watch something on Netflix or on Disney plus, or what on Hulu, whatever. So I think that’s a very real part of this discussion. And I think we’ve seen as sports have come back out of the back of COVID. Now granted, a lot of places bars are closed. There’s no fans, or a limited number of fans and a lot of events. So I think that takes something away from, you know, the communal aspect of these of these things. But I think there is a real risk that to your point and with your children, there might be a smaller audience going forward than there had been in the past. As it relates to ESPN specifically. I think in a lot of ways, some of these conversations have to remain on a relative basis, meaning that ESPN position in some ways has to be thought about relative to CBS, this position, or Fox’s position, or mbcs position. And you know, a lot of these companies are moving in different directions, they have different constraints in terms of their financial position or what their core business is doing. Disney from my perspective is unique in the sense that they have ESPN, which is still a widely distributed channel. And it’s very clear what the product is obviously. And it’s you know, there’s still despite the pay TV declines that we’ve seen so far, they’re still roughly you know, 80 million pay TV subs, whatever the number is, and depending on who you ask, you always get a different number, but it’s somewhere around there. They still have a very clear value proposition what they’re doing. They also have ABC, which is the broadcast network that has very significant distribution. And then now they have ESPN plus as well which has 10 million subs and you know for someone like the UFC or Major League Soccer, that is trying to build an audience, potentially an audience that doesn’t have pay TV like a younger generation. There may be some way to use these different assets. Collectively that can be suitable for them. And, you know, thinking about the competitors, I think about someone like Comcast, they’re using some of their marquee rights, like the EPL, which is English soccer. They’re using that to try to stand up peacock, which is a streaming platform. But in order to do that they have to pull content from NBC Sports. So, you know, we’ll see what that means in terms of their pricing power, we’ll see what that means in terms of their income state and their ability to keep spending money, I think what you’ll find is that when the NFL renewals come around, it seems like everybody’s going to bid very aggressively to at least keep the the properties that they have currently. My question is going to be what does that mean for some of the other sports rights they have? Do they need to step away? Or can they only, you know, they might not be able to be nearly as much as they did previously. And if you don’t have direct to consumer assets, you know, NFL might be great for Fox, but some of the other programming that that could work for ESPN Plus, they don’t have a platform like that. So they, they have to think about it a bit differently. And then they said as such, when it when it related to Sunday ticket, they said this, this doesn’t really work for our business at this time, because we’re, we’re just a linear distributor at this point. So I think there’s a lot of discussions there that are not totally fleshed out. And I don’t think it’s it’s certainly not all roses for ESPN or Disney. But I think they have some opportunities going forward, that are murky, but are not talked about too often. And I wrote an article two years ago called the future of ESPN plus. And you know, in that article, I said this is going to take years to play out. But there’s an opportunity for them to build a sports offering that is very attractive for the true sports fan, which we’ll see how many of those we have. Certainly something like gambling will potentially help with with absolutely shark shark. Oh, we’ll see. But yeah, like, like you, I’m certainly up in the air on it. And it’s it’s not so clear that it’s going to work out. But I think there is an opportunity that does actually work out pretty well.

Matt Cochrane

Right, right. Um, I apologize for jumping around. Because I know we already talked about Disney+, however, like what do you what, what is what should be the strategy for Disney plus going forward? I guess how much new content? Does Disney plus need to continue to be considered a almost a default streaming option in people’s homes? Like, the Mandalorian is obviously a big hit. And I know they’re planning a lot more launches. Are they going to be on the same carousel though that Netflix is avoid either, like Netflix? Turns out, it seems like 100 new shows every week. Um, you know, in, like, almost my biggest complaint with Netflix is like I spend like half an hour browsing, like when I’m in between shows like, what if I finish the show? I’m like, I don’t know what to do now. And what what is Disney plus have to do? Or how much money are they going to have to spend on new content, ah, to to stay where they are. And to continue to gain subscribers.

TSOH

Here’s this is where I think it gets really interesting for Disney over the next handful years now that they’ve kind of proven that they can get adoption of their streaming services, which is single market like the US where they’ve really gone out and sold this bundle is how they’ve gone to market because by the way they’ve priced it, which is it’s Disney plus it’s Hulu, which is more of a general entertainment offering, it’s more of a true Netflix competitor, even though Netflix obviously done really better. And then it’s ESPN plus, which is kind of a different discussion. But anyway.

Matt Cochrane  

The numbers were up to 36 million, which is a 28% increase year over year. So it’s not like it’s not nothing. And then the question would be what engagement looks like relative to Netflix. And that’s where you might find that.

TSOH  

I don’t I don’t have the numbers on my head. But to your point Netflix is it seems quite clear that for a large, large part of the market, it’s the default it’s replaced, clicking on the TV and finding something to watch tonight. So I think Disney has to be honest with itself about what it wants to be and what brands fill what roles. So to your point, I think Disney plus can be something where there’s really high quality programming from those handful of key brands. And it’s, you know, one or two things a month potentially it might be a show for Marvel and here’s the Pixar movie that came out in theaters last month. Now it’s it’s direct to consumer, it’s right to Disney+, you know, two months after it was in theaters, something like that. So I think they can they can do just fine with a limited quantity, very high quality content strategy. As you talk about Hulu. Well, to me that’s much closer to what Netflix is and it’s more of a you know, linear TV bundle kind of replacement where you’re meeting, you’re doing a bunch of different jobs in terms of what entertainment programming you offer. And it might be things like, you know, It’s Always Sunny or Seinfeld or shows like that that are very different than what Mandalorian will be. So, as of right now, those apps are separate. I think someone like Dan Loeb and his letter alluded to the idea that he thinks that it makes sense to collapse those, collapses into a single offering. My question would be how you do that intelligently, and make sure that the brands that we’ve already discussed, retain their position as being you know, the highest quality.

Matt Cochrane  

That’s a tough question for me. Yeah, I don’t know how I feel about it. This is what I’ll say, again, as a father of four, it’s really nice to say like, hey, Saturday morning, when you guys wake up, you can put on Disney+, and watch whatever you want. Because I know, there’s nothing that a too objectionable. And, you know, you have concerns about them, like opening up Netflix. And even though there’s like, plenty of great offerings on Netflix, that’s appropriate for all my children. There’s also inappropriate things that might say recently watch, because I watched it the night before. And I don’t want them to be like tempted to click on those things if I’m not around. I guess like, it’s very easy as a parent to just be like, yeah, go into Disney+, and I don’t care. I don’t care. I watch a Star Wars movie on a Saturday morning. I mean, I’m getting that as an example. Because like, Saturday morning, I tend to sleep in more than some of my kids. And but like, they’ll, they’ll get up and they’ll watch whatever, you know, on Disney+, and I don’t care. I don’t care what they watch. Or it’s just nice to say, yeah, you can watch whatever you want on Disney+, and they know they can open that app. And once you start integrating that, like, again, it can work, of course, but it’s like it’s as a parent, it’s just like, there’s increasingly more things that are really readily available, like a click away. That was not a click away when I was growing up that I might not want like my little kids, especially to see. And it’s nice to have an app where it’s like, you don’t have to worry about that. Hmm.

TSOH  

I’ll give you an example. On the other side of that argument for me, on my computer, I have my Disney+ login setup. So if I go to Disney+, it just works. But Hulu is a desktop application for some reason, because it’s probably built on different, you know, legacy architecture or something. Well, the logins are not the same. So I go to log in on Hulu, I don’t know it anymore, and I need to reset the password. You know what that means? It means I close it. And I go to Netflix, right? on the TV that we have well on X1, Hulu is built in X1, which is Comcast TV platform, right? But Disney+ is not. It’s funny that a lot of these conversations come back to content. But I think in a lot of ways, it’s the things you’re talking about. And what I’m talking about is they need, Disney really needs to focus on continuing to do better in terms of distribution. And in terms of making it very easy for the consumer to use their product, which is this is one of the things where I think Netflix has shown that they are a clear front runner. And granted, they spent a ton of money on technology and in a bunch of areas that are not content spend. So I like you, I think I’m a bit torn and whether or not it actually makes sense to collapse these all into one app. And if you do that, is there a different tile for Hulu or something where like rental protected or, you know, you can do it a bunch of different ways. I don’t have strong opinions on those. But what I do know is that they need to figure out distribution they need to figure out, you know, kind of like Common Core tech architecture. So things have the same sort of feel and kind of work together in a certain sort of way. That’s where I think they need to make sure that they really continue to improve.

Matt Cochrane  

Netflix really is better. And it feels like it shouldn’t be that hard to get where Netflix is but it must be because amazon prime can’t do it. You know, Disney has not done it yet. And Netflix, it just is it really is.

TSOH  

I mean, I’m a Comcast shareholder, so I have no reason to talk bad about them. Peacock on X1 is the app is nowhere near as good as Netflix on X1 and the Netflix voice integration on X1 remote is probably the best user experience you can have on it on a TV, it works perfectly, and it’ll go exactly to the show you asked for. And I mean, kudos to both of them for working together. But Comcast needs to make sure that their first party apps work just as well.

Matt Cochrane  

Right, right. Yeah, absolutely. Absolutely. All right. So we talked about a holding for the long term, which we both agree on. We’ve talked about Microsoft and Disney – we both are bullish and shareholders. So let’s talk about something we disagree on. So, uh, recently have the last couple months ago we were both on Chit Chat Money together and we kind of started a conversation on a big bank. I don’t know how to frame it right? But I would guess maybe legacy banks versus up and coming FinTech companies. Um, and I guess I kind of want to talk with you like more just like, double click on that conversation, just what will the future of banks look like over the next decade? Are FinTech’s gonna take market share from the banks or not? Let me just say what I think. And then you just tell me where I’m wrong.

TSOH

Perfect.

Matt Cochrane  

Um, I think that big banks will be largely fine. I think they have the resources to make a like, especially in the case of JP Morgan, Chase, and Bank of America, they’ve made great apps where you can do a lot of great things. I think they have great digital offerings. And I think those kinds of banks will be fine. I think, small banks, and when I say small banks, I mean, like small banks, like my parents live in a rural South Carolina community, and their town doesn’t even have a stoplight. And the next town over is the big town, because it has like a CVS and a couple restaurants. And it has one bank. And it’s like a one branch bank. And I think a bank, like that serving a community like that can also survive. Because that if you have a banking need in our community, a like that’s, that’s where you go. However, I think the regional banks in between are what is going to be in trouble. And now, I will say there’s a lot of third party offerings where they can go for technology help. And I think that actually might be an interesting space to look into. However, I don’t think at the end of the day, they’re going to have the resources to fight. Or to can you to innovate as fast as a FinTech at the squares, the paper towels that are coming up, that I believe will take market share. And I think that’s the kind of why you’re seeing consolidation, ah, you know, like, last year, we had a, BB and T merged with with sun and to form truist. And just today, today, like it was like, What great timing for our conversation. But um, PNC bought BBVA for $11.6 billion. And I think you’re probably gonna see more consolidation like that. And granted, I get that helps them with like branch density and things like that, or branch efficiency, like they can close a lot of branches and still be in the same geographical areas. It makes a lot of sense on that level. I also think, though, it gives them more resources to continue to compete with these digital offerings that the fintechs are bringing to the market. Ah, what did I get wrong?

TSOH  

Not much, I don’t think, I think I, I basically agree with that. I think that yeah, some of the, basically, some of the mid size banks need to find a way to keep getting larger, so they can scale their tech expense and be best in class in that regard, as I think about, I think about the big three as being JPM, Bank of America, and Wells Fargo just in terms of deposit share in the United States.

Matt Cochrane  

You don’t put Citi up there with them?

TSOH  

You could, but they’re just not as big as a consumer franchise in the US. So anyways, those three have over the past 10 years, their deposit shares increased in the US. So I think that gives you a sense for, you know, along the lines of what you’re saying the big banks have been winning at the expense of the not big banks. And I would assume a large part of that is that technology advantage that you’re referring to? You know, I think part of where this gets interesting, and where I think if my thesis ultimately has holes in it outside of nim compression, which is you know, what they earn on the spread. So banks from an income statement perspective, which is kind of a secondary discussion, this whole idea of what will deposit shares do over the next one to 20 years, even though they’ve done well, in terms of deposits, they’ve been hit very hard by the fact that names have continued to compress.

Matt Cochrane  

So like it just so if you don’t know, that’s just the net interest margin, which is like, basically, if you’re a bank, and you are, a consumer comes to you and opens up a savings account, and they put $1,000 in it as a bank, you might be paying 1% to them, but interest rates, but you’re taking that money for say a mortgage, and you’re lending it out at a three and a half percent interest rate. So like if you’re not familiar that that Nam because the interest rates come down, it’s getting narrower and narrower for banks, they’re not making as much profit on these deposits as they used to.

TSOH  

And so yeah, so what happened to them it was like you were saying previously it was they lent at the 5 and they paid me the one the 1% well as of rates of common, they’ve paid me considerably less. So now I’m getting, you know, point one or 15 basis points, whatever it may be. So that compressed 85 Bips but the five compress the 3%. So what they’re earning from 200 bips versus the 85 bips that compression on what they’re paying. So yeah, NIMS have come in pretty significantly. So as part of the conversation I, I think to your point, since we last spoke, I dug in more on kind of some of these digital banks, which are more from a deposit perspective than maybe you know, Squares and some other things like that. But you look at someone like Ally Bank has gone from zero to, I think they’re at about 125 billion in deposits now – largely retail deposits. And it’s an online only bank with no branches. So there is some validity to this idea that that will meet a need for certain people, especially if they have the ability to offer higher interest rates, which obviously matters more to some people than it does for others. Maybe look at the market share data. Ally has presented numbers, which is as good of data as I can find that suggests like these digitally, digital only type banks in terms of retail deposits have maybe gone from about 6% of the market a decade ago to about 10% today, which is certainly meaningful growth. As it relates to those biggest banks, I think what you saw happen was a lot of that share, maybe not directly, but it was offset by the growth that they had from, you know, beating out some of those midsize and smaller banks. So long story short, if you look at someone likeJPM, I think in some cases, they’re actually they’re adding branches, because they they’re, they’re finding ways to do that they think is intelligent. And all these banks, over time will have to balance all their can consumer focus points, whether it’s having the best app or having branches will want them and will use them. So, you know, I’m not entirely entirely sure that there’s reason to believe that did a prop deposit franchise, part of the bank thesis has certainly been broken yet, or even is truly under threat. At the same time, if rates continue to compress, at some point, you’re going to be in a weird place where you’re gonna have a business, it’s not very good. And it’s not too clear to me how you get out of that unless you start doing things like charging directly for checking accounts or, you know, finding ways to do things with fees, which, which may have already been regulated away between, you know, like some of the regulation, we have the financial crisis. So it could be an industry that, you know, like any kind of commodity type business, if, if what you’re getting on what you sell, is, is is less lucrative than it used to be, that might just be a very difficult spot to be in, it’s kind of like an energy company. So, I don’t think we necessarily disagree on a lot of this stuff. I think it’s just that you might have better insight to and to how companies like square are going to take their position to debt. Yeah, I think of something like the Cash App.

Matt Cochrane  

Sure.

TSOH  

I see what it is now. It’s not entirely clear to me what that becomes, and in some ways, even what that what is it becoming a replacement for the extent I use it for payments. I guess in some ways, it’s kind of replacing a credit card where I’m paid rewards. And the idea would be that I either receive better rewards or it’s a more intuitive, you know, better user experience, those lines.

Matt Cochrane  

So this is what I would say about cash app. And I think, probably the same thing about PayPal, or Venmo. Even like, a couple years ago, Cash App was just a peer to peer payments, platform it you know, it wasn’t anything else. And then over time, they added, oh, here’s a debit card. And you can have rewards when you shop at Square sellers, which is neat. Because PayPal and Square both offer a two sided network, like they’re with consumers, and they’re with merchants. So I think they won, I think both of them are going to be able to leverage that. So Cash App, they added the debit card. And so they and they offered rewards when you shop at Square sellers. And then they also started offering other rewards just with other merchants. And then they added a you can buy cryptocurrency on our app. So now you can buy and sell cryptocurrency on our app. And then they added a you can buy stocks on our app commission free. And I just think like, I mean, the trend is like they’re just adding more and more capabilities. And what I would say to you is kind of like what we were just talking about streaming platforms where what’s my Hulu password on I got to go to Disney plus to watch this. So it’s kind of like the same thing. So I guess the thesis would be like if this continues, like I just see a young, very digitally digital savvy consumer wants to control everything on one super app, like all their finances on one super app, where they have their a debit or credit card tied to which like demo has both a debit and credit card. I think cash app just has the debit card. They have a peer to peer payments, they have, they can pay up merchants, like with the Cash App or with Venmo or with PayPal. And they can buy stocks on it. They can buy cryptocurrency on it. And I think the next to me, the way it’s going is pretty soon it’ll be direct deposits, you know, you can have your, your money direct deposited into it. And already, if you have Cash App, and your employer uses Square as their payment system, like they can instantly give you money for your for your paycheck. And, uh, you know, where I see that as like, as attractive, and then the Square seller uses Square payroll, and the Square payroll pays the Cash App. And I see that like, I just see it like, that’s to me. It doesn’t work out that way. I don’t think it breaks the thesis by any means. However, I believe there’s this possible future where say, we’re talking about cash and square, we’re just like, they’re just taking over this entire system, JP Morgan Chase, let’s just take them and I like JP Morgan, I used to own shares. I don’t anymore because I got tired of banks. But to me, it’s like a great thing. Bank of America, too. I’m not gonna say anything bad about JPMorgan, Chase or Bank of America. I don’t own shares. It’s not for me, but I think they’re fine companies. But JP Morgan has had point of sales with merchants for forever. And, and they, you know, a few years ago, they’re trying to make chase pay a thing, you know, never once was it like, hey, if your employer and you use our point of sales, are we going to pay you on chase pay, if you have a JP Morgan checking account, and it’ll be instant, and it’ll be better. Do you know who Sean Emory is?

TSOH  

It sounds familiar. Who is that?

Matt Cochrane  

He’s on Twitter, uh, he, he manages money out of Miami, we interviewed him a little bit ago. And he leans more towards FinTech than banks. And the way he said it is big banks can invest in technology, or invest in innovation, but they’re not building it. And I just feel like these players, the PayPal’s and the Squares, they’re just going always going to be ahead. But as the nature of the beast, almost, they’re just, they’re just going to be added legacy players. Now, I still think the chases the Bank of America, they’ll have time to play catch up. Like it’s not like, they need to roll out these innovations, like the next month after square does it, you know, no, no, they, they have a couple years to do it, and a few years to do it before it becomes a big thing. And I think they they will eventually get around to it. However, while that’s taking place, while they’re playing catch up, I just think that as more younger consumers become employees and enter the workforce, not even millennials, Gen Z. I think these will be very attractive offerings where they can rule their whole financial lives with an app on their phone, that’s very intuitive and easy to understand. And I just, I just think like, there’s a better than I think there’s a good possibility like that’s like these fintechs like that, like Cash App like PayPal, take a lot of market share, going down the path they’re going.

TSOH  

I think that’s all very fair. And I think this is this is actually a really good conversation, because I think it ties into everything that we’ve discussed so far, which gets the idea of banks like any other business, I think their competitive position in terms of deposits is very, very, very strong. And banks in general, you don’t really lose deposit share, to a certain extent, it’s a very sticky business that said, No, business is great. Or very, very, very few businesses are great and will remain. So if they do not operate efficiently and get better over time.

Matt Cochrane  

So to your point, it’s it’s a pain to change your direct deposit information, to go to your employer, like a few years ago, this is when I was I mean, this goes back maybe six, seven years, when I was really getting starting to take my finances and investing more seriously. And there was like some offer $500 or something to change your direct deposit account. And if you make all these thresholds, they’ll give you $500 at the end of six months, and I’m like we’re gonna do this. And I’m never doing that again. Like, you know, it’s like you go to your employer, you have to change that, you have to change all your information online, like all your accounts that you’re paying into, you know, that changes your utility. It’s the worst that forget one thing, like your electric bill to be paid that month because you forgot to switch it over or write whatever you’re trying to manage it as you’re transitioning. You have this awkward transition phase where you know, well the money’s not into my new account yet and but I still have some money in my old account. So with this bill that’s coming up, what account do I pay it from? It’s horrible. It’s horrible. And so to your point, it really is a sticky business.

TSOH  

Right? Now that said, you know, I’ve seen, I think it was time, which is, you know, one of these kind of high tech startups, that part of their part of their pitch, and part of the appeal the offering was, I’m gonna butcher this now. But they essentially could pay you two days early, something like that. It was something in terms of how you could get paid, right? A little bit quicker than you do from a traditional bank. And they essentially asked the CEO about it. And he said, we can just check this data against federal federally available information. We’re not this isn’t any sort of risk. We know these people are getting paid. Now just an example of is that something that a big bank couldn’t copy? No But they need to do a better job of finding out what are the selling points for some of these competitive offerings? Are we truly losing a position that we have here that could potentially hurt us over a long periods of time? And yeah, admittedly, they, they probably need to do better on those fronts. Now, as we discussed at the start, from an investment perspective, some of this comes down to valuation, some some of this comes down to you know, as you were just mentioning, some of this business is really sticky. So what is the real risk here? What does this look like in 2025, or 2030? I think so far, a lot of it has been an nim story, and has been an earnings power story. And then obviously, you get sideswiped by a pandemic, which is unlike anything we’ve ever seen before. And it really makes people wonder, what are we dealing with here in terms of reserves, and what kind of losses will the banks under, etc. So banks always have that component of it to the business, but I certainly don’t think it’s out of the woods. And I look at something like ally. And I wonder, it’s a little bit different than some of the squares and things like that. But I look at it. And as I think I go, is this comparable to Geico competing with State Farm or Allstate in the sense that ally can go to market and fight for deposits against legacy competitors in a way that they might have a structural advantage in the sense that a Wells Fargo might not be able to change in certain ways. And again, they went from zero to 125 billion in a decade, which is obviously meaningful growth. So I’m not positive, I continue to look at him and learn and talking to someone like yourself, as helped me in that regard. And, you know, as always, with these discussions as part of a portfolio, and part of the consideration is, how can I invest in an idea that I believe in but put myself in a position to not get hurt too badly from wrong, sir?

Matt Cochrane  

Sure.

TSOH  

I think it’s also a big part of managing a portfolio and being an investor.

Matt Cochrane  

Absolutely, absolutely. Ah, just like so. wrapping it up. Ah, and I, to be fair, I didn’t, I didn’t. I didn’t tell you, I was gonna ask you this. But like, I just saw some of your recent articles, like so. What stock in your portfolio or on your watch list? Are you very interested in that you can share that you feel is is too hated by the market, that sentiment is too much against, but you’re, but you’re interested or a shareholder of?

TSOH  

Well, if you’d asked me a couple weeks ago, I would have said Yelp, but they got I mean, this vaccine news is obviously very well appreciated by the market. I think it was a company that strategy was, you know, Yelp is, it’s really been just a consumer review platform. And in my mind, even since they’d gone public, it was never really clear how this was going to become a sustainable business that can make money. And I think in the last handful of years, you’ve seen them change their go to market strategy. And there were some signs that it was really working at the start of the year with some of the monthly data they revealed. And then obviously, COVID happened, and that was absolutely terrible for them. So the stock got crushed. And I thought it got to a level it’s pretty cheap. But now they reported one decent quarter, and really, that people responded well to the vaccine news. So I don’t think it’s as cheap as it was. Outside of that, I’m trying to think.

Matt Cochrane  

Are they at risk of being disintermediated though by like, Google?

TSOH

I mean, potentially, part of it’s gonna be it’s gonna be it’s funny for all these things, a lot of it comes down to, they need to take their ability to focus like a Netflix or Spotify would, and really continue to improve the product example be now they’ve had a lot of success in home and local, they’ve partly done that by building out offerings, like request a quote where you can, you know, you can send a local plumber, you can send them hey, here’s a picture of my toilet and my sink. I don’t really know what the problem is. Here’s a description of what I think of the problem is, you can send that out to a plumber. When you do that, Yelp will say, “hey, here’s three other plumbers in your area that have high reviews. Do you want to send it to them as well?” So you know, you can see how as the product moves past kind of the traditional this restaurant view, something that Google can copy relatively easily. As you move down the funnel and get closer to what the consumer is really looking for, which is solution to their problem, there could potentially be opportunities there. So that’s still unproven. And it’s a small business at this point. But yeah, it certainly has Google risk. And that’s been, you know, part of the consideration for a long time. Besides that, I’m trying to think.

Matt Cochrane  

I that that that works. That was good. That was good.

TSOH  

Yeah, that’s a long way of saying I don’t really see anything that I can buy right now. It’s particularly cheap, but I hope to find something eventually.

Matt Cochrane  

Definitely. Let’s wrap up our conversation there. Science, where can people find you if they’re interested in following you?

TSOH  

Easiest place to go is probably on Twitter, TSOH_investing. And then I write on Guru Focus.

Matt Cochrane  

And I will definitely link that in the piece accompany the podcast episode if you’re interested. So there’s 7investing.com for link to all of Sciences articles. They’re definitely very good. He writes regularly. But Signs of Hitting ladies and gentlemen, thank you so much for coming on today and discussing investing with us. Again, I’m Matthew Cochran, Lead Advisor with 7investing and we’re here to empower you to invest in your future. Have a great day, everyone.

 

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