5 Stock Market Mistakes That Can Leave You Broke
May 24, 2021
The stock market doesn’t have to be hard but it’s easy to make mistakes. People listen to the wrong advice, believe in things that just aren’t true, or fall into all sorts of traps. Steve Symington joins Dan Kline on 7investing Now to help you avoid some of the worst investing mistakes that are made every day. In addition, we’ll look at the big Virgin Galactic news and talk with David VanAmbrug about the state of the travel industry.
Virgin Galatic (NYSE: SPCE)
Apple (NASDAQ: AAPL)
DraftKings Inc (NASDAQ: DKNG)
Southwest (NYSE: LUV)
Macy’s (NYSE: M)
Kohl’s (NYSE: KSS)
Dick’s Sporting Goods Inc (NYSE: DKS)
Dillards (NYSE: DDS)
Sam Bailey 0:13
Welcome to 7investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.
Dan Kline 0:23
Good afternoon 7investors and welcome to the Monday edition of seven investing now. My name of course is Daniel Brooks Kline. I’m joining you live from Davenport, Florida. And I am of course being joined by Steve Symington. Steve, how was your weekend?
Steve Symington 0:37
It was good. Rained all weekend, I guess, which is a little bit of a bummer. Nut other than that great, everything’s gonna be super green in a few days. So I’m pleased.
Dan Kline 0:46
The weekend was glorious here in West Palm Beach. I’m not in West Palm Beach at the moment. But that’s where I was this weekend. It was really, really nice weather went to the pool multiple times had a very good time. Learned about 10 minutes before the show that we closed on our condo. So I am once again a homeowner, which for like, four days I wasn’t. Yeah, we’re going to be using it for the first time on Friday. And then we will figure out who’s going to manage it as a rental for us. And we’ll be in and out of the resort lifestyle for the foreseeable future. So I’m very excited about that.
We are going to talk about five stock market mistakes that can leave you broke. That’s where we’re going off the top, then we’re going to talk for what we’re watching about Virgin Galactic (NYSE: SPCE). Virgin Galactic went a little insane over the weekend, we’re going to talk about this a little bit. Short term news doesn’t really matter. But if you hit a milestone that kind of de risks a company. It’s something Maxx Chatsko talks a lot about. So we’re going to talk about Virgin Galactic. And then I’m going to have on David VanAmburg, he is the managing director of the American Customer Satisfaction Index and we talked about how people feel about the travel industry. It was a very strange year for the travel industry and people responded accordingly. And of course, we will take your questions and comments.
But Steve, five stock market mistakes that can leave you broke, we see these all the time, I’m gonna throw them out there, I’m gonna let you comment, don’t buy based on short term news, we’re seeing so much action in the market where some dumb thing happens. And people are going crazy up, down, sell. It’s exhausting to me. Your thoughts?
Steve Symington 2:25
Trading around earnings is a big thing that people do. And a lot of people trading around, you know, we’ll talk about this later but the Virgin Galactic flight when you’re, you know, people buying options that expire today or on Friday, there’s a lot of risk there. However people might try and say, you know, these are calculated risks. It’s very, very risky, and a big reason that we prefer to invest for the long term because you trade it on short term news. And, you know, sometimes that that plays out. Sometimes it’s massively disappointing, you know, especially around earnings, you have companies, especially this quarter, so many businesses released fantastic quarterly earnings reports and the stock sold off anyway. So there’s no guarantees, it’s it’s sort of a lottery ticket, so to speak. And, and we prefer not tocreate binary outcomes for ourselves and becomes much more predictable when you extend your timeframe.
Dan Kline 3:21
Earnings reports and calls, they tell a story. They’re not end results. So a lot of people see okay, this was up 7% and analysts thought it should go up 8%. Who are these analysts? Where are these opinions from? What you want to be watching in an earnings report is what did the company say it was going to do? And did it get there? Now that might be esoteric that might not be specifically we said we’re gonna have 4% sales growth. It might be a retailer who says we’re going to grow women’s apparel sales. Well, if they mentioned that in q1, and then in q2, they don’t mention it. And someone asked a question, and they don’t answer it. That’s a problem. If they say, yeah, we saw, you know, a slow start, but the second six weeks of the quarter were up 9%. And that’s obviously using numbers the way you want to use numbers. But that’s what you watch, you start to watch how the story unfolds.
You don’t look at any sequential sales because you know, let’s take Apple (NASDAQ: AAPL). Apple might have an incredibly good iPhone quarter because a new phone came out or a new color or something that might make sales like particularly lumpy or look strange. We’ve seen this with Netflix and with with Disney plus, these are both streaming services that pulled a lot of people in early and then maybe didn’t have as good a follow up quarter. That doesn’t matter. It is a long term tale. Steve, I’ll come back to you in a second. We would love your questions and comments if I’m coming off as a bat out of hell today. It’s because I’m very excited. This has been weeks months of super stressed. I’m gonna actually record something about how you buy a home in a seller’s market at some point this week because it was not an easy process. Steve, your thoughts on item one here.
Steve Symington 5:00
So maybe one more thing before we move on to item two, I will say that’s not to say that you don’t necessarily take advantage of short term like negative catalysts or, you know, things to add to your position like there are stocks that I’ve added to in recent weeks, because they were pummeled, in my view, unnecessarily. And, and it was sort of these unjustifiable declines. And sometimes we’ll, we’ll take advantage of those with the intention of buying and holding for the long term, that’s the big thing is extend your timeframes. I’m not taking advantage of short term news, in order to, you know, turn around and sell it a week later. That’s, that’s kind of a big thing. You know, so sometimes, I’ll say, you know, what, this stock has been pounded, and it shouldn’t have been, and I’ll take advantage of that just to add a little to my position, or maybe open a starter position or something like that. And yes, I take advantage of that stuff. Sometimes.
Dan Kline 5:54
I’ve done some of that, in the past few weeks, I’ve also bought some shares, and some companies, I don’t necessarily know, or, I personally would argue, maybe I don’t want to buy, because you guys have been so compelling. And it’s like, you know, maybe I should just own a share to have this in case it’s really. So I can at least feel like I was a little bit of the party, I feel like five to 10% of my portfolio is just like a hedge against me not being always you know, right, which is silly. But when you’re part of a team as strong as ours, there are things that I previously maybe didn’t believe in, that maybe you guys haven’t convinced me 100%, but you’ve convinced me enough that I want to own it.
But stock market Mistake number two, don’t take market advice from sources you haven’t vetted. And I’m going to specifically call out Twitter, we talked about some big name, people, I’m not going to call any of them out, specifically by name, but some really big names have a lot of followers that are bouncing around they’re all over the place. I don’t give specific stock market advice on Twitter, I might tell you that I don’t like something. But I don’t talk about what I bought, I may occasionally talk about what I own, if it’s something really, really obvious. But Steve, your thoughts here?
Steve Symington 7:04
You know, I’ll I’ll sometimes talk about you know, I added to my May recommendation or something like that, and you’ll get a little bit of that. But yeah, there’s there’s a lot of people with a lot of followers, sometimes on just social media in general, who’ve made some decent calls, but you also dive in and you know, sometimes you see the researches is subpar. And you’re like ‘oh boy’ and you know, you kind of call into question the rest of the research and see whether everything’s really filled. But yeah, you want to stick with vetted sources, people with a long track record, preferably of beating the market. And you know, that’s not to say ours at 7Investing is particularly long, considering we just launched in March 2020. But each of us individually have our own long individual track records of outpacing the market and picking market beating stocks for years and years and years. So, I mean, I hate to pat ourselves on the back too much. But just be careful. And don’t blindly take advice without really digging in and doing your own due diligence.
Dan Kline 8:13
Steve’s arms are much longer than mine. So he’s better at patting himself on the back Barry Horowitz style that I am, that is an 80s wrestling reference for anyone watching, I look at it this way. We’re very transparent about who we are. If you go to our website, if you go to 7investing.com, you see our bias, you see where we used to work and and you get a sense of who trained us. We all worked at The Motley Fool, I worked at the Boston Globe, I worked at Microsoft under some some very, very financially savvy people and got really, really good training. And I think we’re very, very clear about that. We have two PhDs in our team, Simon has an MBA, I have none of those things, you know, but that said, I have a journalist background, which isn’t typical of people who are picking stocks. So my research ability is probably stronger.
There are some great follows out there on Twitter. Our friends, Brian Feroldi and Brian Stoffel are both incredibly transparent about how they pick stocks. So if you watch them walk through their process, and you agree with their process, well, that might be a viable reason to buy into one of their stocks that is very different than, you know, stock Guru 75 going on and being like, I love this to the moon. You know, that’s even when it sounds like analysis, you don’t necessarily know what their goal is. Maybe they’re trying to push it in a different direction than you actually think they’re going. That’s part of why we reserve our actual picks for our members where they can get all the background all the justification.
Number three here, this is one that drives me nuts, Steve, don’t buy a SPAC or an IPO just because of the shiny new thing. We get asked this all the time, like oh, I just heard that this SPAC is gonna be this company that I don’t know anything about I want to be in on day one. That is generally a terrible decision. Your thoughts, Steve
Steve Symington 10:04
Yeah, some things that you know, not all that glitters is gold, right? And in, there’s a lot of very shiny, glittery IPOs and SPACs out there that people want to dive right into, because they’ve seen stories where it’s worked in previous cases. And, you know, I prefer to generally give it at least a few months, preferably a few quarters, I have recommended couple companies on my own, you know, my own group of recommendations at 7Investing, that were recently, very recently, IPO companies, but it was only because I had strong conviction in the business and I’d done my own due diligence, I’ve read the entire S-1 a couple of times. And, you know, it’s something that you need to do your research and you need to really understand things, you know, like the lockup expirations digging out who owns the stock the company’s plans for your monetization. If they’re kind of pre revenue or pre profits, you want to understand their long term story and you want as much information as possible before you make that decision.
Dan Kline 11:04
Yeah, and look, we have had some recommendations that were new spax or IPOs. And those are generally companies with a somewhat public track record, even though they weren’t public companies. The example I’ll give and it’s a very concrete one. I know a lot of people get mad at me for not liking this company. But when DraftKings (NASDAQ: DKNG) went public, they basically had like four pages of information. There wasn’t real financials they actually had a warning in there that they could run out of money, which they later were able to rescind. There was no reason to not wait a quarter or two.
DanielKern79 has a great comment if you want to share it. Sam Bailey, it took me too long to realize that money that many on Twitter use investing and trading interchangeably. Yeah, it’s important to know what someone’s mindset is, you know, we’re going to talk about Virgin Galactic later, and some very big name traders, or investors or whatever you want to call them have been public about their owning, if they’re selling it, they’re buying it, nothing’s changed. This is a company that if you believe in it, now, if the rocket had blown up on Saturday, that would have been a negative, you know, milestone that would have set you back and maybe would be reason to leave. So far, this is a company that’s meeting its goals, I’m not entirely sure why you would sell, you know, and I don’t want to, I don’t want to poke holes at Cathie Wood. She’s obviously incredibly smarter than I am. But it feels weird to me to be entering and exiting a position when really nothing different has happened. I am a big fan of just waiting a couple of quarters.
Steve, this one is one I talk about all the time number four here be skeptical of conventional wisdom. Conventional wisdom and investing is not always right. Your opinions here?
Steve Symington 12:46
Yeah. I would also argue that conventional wisdom when it comes to old school valuation techniques is not necessarily correct anymore. You know, a lot of people still want to rely, you know, they find P/E ratios and they’re like, that is the be all end all have you know, and you know, price to sales and, you know, enterprise value to trailing 12 month revenue and forward revenue. There’s all these different ways you can value stocks, and it really depends on the business, you need to do a lot of analysis on a case by case basis and determine what valuation metrics are appropriate, when a business is expensive, but not expensive.
But you also see industries you know, you mentioned Cannabis Stocks, you know, for example. Right when they came out and a lot of people lost a lot of money and 3d printing back in you know, was was kind of one of those things where a lot of people lost a lot of money but still holds long term promise. Trends and people saying this is the next big thing isn’t always necessarily true and conventional wisdom in a lot of senses in investing can get you in trouble.
Dan Kline 13:55
So you bring up cannabis and the conventional wisdom was cannabis is the next big thing, throw money at anything in cannabis. Well, that shows not really understanding how easy it is to grow cannabis. And that the reality is to make money in this space, you’re going to need branding and you’re gonna need to be differentiated. There has to be something more there. And very few companies have succeeded in doing that. You’re going to see that in sports betting.
Again, I want to bring up DraftKings again. But at least DraftKings has some differentiators. They have some big deals, they have the daily sports that at least make it something different than just another betting platform. That being said, nothing they’re doing is proprietary. So I’m not so sure that there’s going to be big winners in this space when you’re going to be able to gamble on ESPN or on any of the casino apps or probably at your 7-Eleven and all sorts of other places depending upon where you live and I’ll throw one more out. Conventional wisdom says that brick and mortar retail is dead. Well tell that to Walmart, tell that to target tell that to Costco, Dick’s Sporting Goods, Dollar General, Five below. I can go on for quite a while. Just because Sears and JC Penney are really bad at running their businesses does not mean that the sector is dead. Is there a big change? Absolutely. We’re moving towards an omni channel model. But it’s really, really lazy to follow these conventional wisdom thoughts. Rahul_Gauti, we’re going to take your question at the end of this segment, Steve, anything else you want to say on conventional wisdom here?
Steve Symington 14:30
No, I was gonna say I can address Rahul’s question as well. But let’s do that once we’re done.
Dan Kline 15:25
Let’s take that at the end. Number five. This is one of my favorites. Because I suffer from this I, I am as I said, a journalist by trade. So I’m taught to see both sides of things. And it’s Don’t let understanding the bear cause you to not act. My script say is not act but it’s not act. And it’s one of those things where I could take the best company in the world and find a scenario like what if zombies invade like that? That could be anything right? And you end up not buying it? And I think that’s a mistake. Any company has risk. Obviously, the higher upside means higher risk. Steve, have you fallen victim to this one?
Steve Symington 16:03
Just I mean, is it funny that when you say don’t let understanding the bear cause you to not act. First thing I think is like black bears, get big, scare him away grizzly bears probably protect your vitals, you know, Montana thing right there. But yeah, I mean, I’ve fallen into that as well, where where you don’t you don’t understand that case. And you’re sort of stunned into inaction or sort of indecision causes inaction and don’t be afraid to really dive in and fully understand the business. Or find people that that do, you know, like we were talking about earlier, you know, not taking market advice from sources you haven’t vetted. Find people that you trust, who understand these stocks, ask us questions about certain things. And and we’ll, we’ll be happy to give you our thoughts on social media sometimes. Yag us, you know, you can email us firstname.lastname@example.org if you have questions about investing processes or our service. But yeah, I mean, that’s, that’s just something that a lot of people fall victim to.
Dan Kline 17:10
And of course, we’re happy to take your questions live on this show. And that that is what we’re gonna do with Rahul_Gauti right now. Rea lly good question. I’m getting lots of great questions. We don’t take all of them, of course, but I really appreciate this one. Sam, if you want to throw it up, that would be great. “I’m always unsure what to make of the price targets set by analysts. How to view them?” Throw them away, don’t care, absolutely meaningless people creating noise. That’s not how you invest in a company if you’re in it for the long term. Now, what you want to do and we do this in our investing theses, is we sit down and we look we Okay, where is this company? Now? All right, it’s doing a billion a year, can it get to 2 billion? Yep, can it get to 100 billion, and we figured that out and really, you know, have our reason why it’s gonna get there. Price targets and this artificial tool that’s, you know, a way to to generate churn when you’re a brokerage or an analyst and right I place zero value in it. Steve, your thoughts?
Steve Symington 18:05
So actually, if you go to 7investing.com and you find our frequently asked questions, this is one of them. And people say why doesn’t 7Investing assign price targets? And we actually have a frequently asked question article that I wrote a few last year says Why doesn’t 7Investing inside price targets because price targets depend heavily on valuation models and valuation models vary widely based on the inputs, you can change a couple things and come to a drastically different price target, which is why you find 12 month price targets, which is kind of what we’ve become accustomed to seeing that, you know, for any given company can be like this analyst thinks it’s worth $20 a share. And this one thinks it’s worth $71 a share that, you know, or Tesla 0 to 4000, right, a couple of years ago.
These these price models are are they vary widely, but we focus at 7Investing on issuing evergreen recommendations, businesses that are strong and continuing to work toward a bigger picture view of the markets that they’re trying to tackle. So we don’t assign price targets we buy, we hold for the long term, and that’s how you realize the massive gains. And you know, we’re looking for 10 baggers 100 baggers over the course of years, right. And we want businesses that will generate life changing wealth, and that’s what we look for over periods of years, not days, not weeks, not quarters. We look for years. So we mostly ignore price targets and and we just look at the progress of the underlying business because over time, their share price and the changes in it tend to reflect progress in the business.
Dan Kline 19:49
Stock investor asks us a question here, which is actually something we’ve been talking about internally when we started, 7Investing Twitter spaces hosted by Dan Kline. So we might do some Twitter spaces. I can’t say I love the format. I participated in some happy to do them, but they tend to be good for monologues and we tend to be a company more about conversation. That being said, we’re talking about a lot of things do we want to do more calls just for our members? Do we want to participate in more spaces. So I think you’ll see more of us in different formats. Like I mentioned earlier, I’m gonna record a video later about how you buy a house in this really difficult market, because I think there’s a lot of terrible information out there. Here’s one to throw out writing the nice letter to the seller, they’re not going to get super excited about your letter if somebody else offered 20 grand more like so we will talk about stuff like that. We’re going to try all sorts of different things that we’re going to take one more comment here, Steve, I’ll let you read this one because I can’t quite see the name in front of me.
Steve Symington 20:52
Bonojzk says, For high risk growth stocks, what is your strategy to build up a position? I tend to like to buy high risk growth stocks, you know, I find a valuation that I deem acceptable relative to its long term potential. And I’ll usually buy it in chunks over the course of several months. And, you know, sometimes several quarters, I’ll add to positions that I’ve owned for years, you know, years later, but I usually try and start by investing in thirds or quarters. So if you know, say, I’ve got, you know, 1000 bucks or something, for example, I might just open a very small position to start and just add to that over time, and, you know, generally what tends to happen is, is if the stock climbs, at least you’re partially participating in those early gains, and if it pulls back pretty hard, at least, you can also add to them at lower prices, dollar cost averaging, because again, we’re buying for years. And very rarely does waiting a month or two, make a huge difference relative to your long term returns. A lot of times what you see in the first several quarters, or even first couple of years of owning an investment is these look like blips in the long term radar because you have charts that do this, eventually, with the best investments. So I buy in chunks Dan what do you think about that?
Dan Kline 22:14
Yeah, and I’ll give a concrete example about what we’re going to talk about next. So we’re gonna talk about Virgin Galactic. I bought a little Virgin Galactic today. Why did I do that? Well, it’s not actually a stock I believe in in the short term. I think their space tourism model. They can Gussy it up as adult space camp. It’s a limited model. That said, I think the travel model is ultimately a really strong one the ability to get from like New York to Sydney and I don’t know like an hour whatever it is, and you know, we can go have lunch with Anirban and be home by the end of the day, like it would cost like $30,000.
That sounds like a viable business to me and having a successful test flight to me derisked to the company to the point that I felt okay throwing a couple hundred bucks at it it’s not a big position but it’s one that that people on our team that my good friend and former colleague Emily Flippen and I have done so many shows on where she was an advocate for it and I was sort of pushing against it that I’m not sure I see them getting there. But I think where they could get to if they do get there it’s gonna make what they’re worth now look ridiculous. So owning a little bit of it is going to be very, very valuable.
I feel the same way about very you know about the Maxx Chatsko stocks, the Manisha Samy stocks, the Dana Abramovitz stocks that are in my portfolio, hey, these are not businesses that I understand anything but the end goal, but if they get to that end goal like wow, like this company cured lung cancer, like that’s probably really, really valuable. We would like more of your questions and comments. We will get to them later in the show if they come in. But Steve, we had a milestone for Virgin Galactic. What happened this weekend?
Steve Symington 23:52
Finally, you know and i for in the interest of full disclosure, I’m bullish on Virgin Galactic I have a pretty substantial position but Virgin Galactic finally took flight for the first time in two years from and also for the first time from spaceport America, New Mexico. Another first This was the first of four planned test flights for this summer. So that’s a series that will include I think the third of the fourth test flights will include flying Sir Richard Branson, the company’s founder to space or the edge of space really, in order to demonstrate the in flight experience for both existing reservation holders at 600 future astronauts who paid an average of $250,000 for these flights, and they’ve got 1000 people signed up and another 7000 have expressed interest already some pretty decent demand for these people, but they want to demonstrate the in flight experience using Richard Branson later this summer before they can begin commercial operations hopefully in 2022.
So this was actually a revenue generating flight. Very small amount of revenue from NASA payload for some scientific experiments they had on board And it actually accomplished several kind of crucial things for Virgin Galactic. First we have to keep in mind this was a redo of a flight they first attempted in December of last year, which they aborted because of electromagnetic interference issues, EMI issues, from some recently upgraded computers on board that actually caused a computer to reset and prevented the ignition of the rocket and they basically just glided back down to the spaceport then this flight first demonstrated the successful mitigation of those EMI issues, it also tested upgraded horizontal stabilizers and flight controls.
Now, if you compare it to the old, some previous flights they did a couple of years ago from a different port. It was a much more stable flight. So that was really encouraging that all that played out well. I mentioned the revenue generating payload that they had on board. And they also collected data. This is maybe the most crucial thing from this flight, some data for the final two of 29 total FAA verification reports that are required to receive a commercial reusable spacecraft operator’s license that is required for them to assume commercial operations in 2022. So given their big drop on the heels of prior delays, you know, the shares were down pretty big. I think from there, February highs down like 70%. So pretty wild. Shares were understandably rallying today, I think last I looked, they’re up about 20%. And they were up more than 20% in the two days leading up to the flight because they only just confirmed this on Thursday. But it’s been a pretty wild ride for Virgin Galactic shareholders. And I think it’s a, it’s going to be really volatile in the next several months as well, because they say they want to do all these flights by the end of the summer, before fall.
Dan Kline 26:43
So how far away are they from? Are they gonna fly every week? Are they gonna fly multiple times a week? Like how far to getting through that backlog of customers generating some real revenue and moving into the next phases of their business?
Steve Symington 26:57
Yeah. So Michael Colglazier, the CEO who is a former Disney executive, right, they brought him on, which says a lot about sort of their intentions for the entertainment and experience aspect of things. He was on CNBC this morning. And he said, basically, it’ll take maybe a few weeks, if that, to process all the data and make sure they’re good for next flight. And probably we’re looking at, you know, several weeks at the latest between their next flight, and a lot of people are speculating that they’re going to fly Branson on the third flight in July, his birthday is on July 18, I think so that would be kind of an ideal time to do it. Right. And so probably look at a couple more flights, by the end of July.
And they said there’s a fourth flight is with the Italian Air Force, actually. So it’s got some astronaut training. Apparently, each of these, these Italian Air Force members have paid $600,000 a piece for these flights to do astronaut training and some microgravity research, and they said that one will be late summer, early fall, and then they will reopen ticket sales reservations. And it remains to be seen what the price will be for those whether it be higher, probably higher, or at least the same as the first people but my guess is higher at first, and then bring the cost of that down over time so that they can, you know, disrupt long haul flights and such that’s kind of the big thing after they they get through this sort of backlog of people who want to become astronauts actually exceed that, and experience weightlessness and see the Earth from space and pretty slick business and, and there, there’s a pretty substantial bull case for the markets that they could disrupt In my opinion, over the long term, but they’ve got a lot of work to do.
Dan Kline 28:42
Hopefully that Italian Air Force news means that astronaut gelato is being developed at the same time ice cream since the 70s. I would enjoy some delicious smaller portion, astronaut gelato. I am kidding a little bit. But Steve, this is still a very risky company, right? Because they could get six months in and everything going well. You’re always kind of one accident away from total disaster. And maybe not maybe not an end. But you know, we’ve certainly seen it with airlines with Cruise Lines, where if there is a high profile failure, even if it’s not resulting in death, that that shakes a lot of confidence. So this is not an easy road.
Steve Symington 29:19
No, it’s it’s not. But I would say the results of the test flight which basically went as perfectly as they could possibly have hoped. They’ve said that everything is absolutely amazing. They’re going to have a couple month period at the end of this year. They said just for kind of maintenance and prep before they can hopefully assume commercial operations. And yes, you know, we have, I wouldn’t say totally binary events, but each of these test flights needs to go well. And and there’s going to be some risk and a lot of volatility. I consider this a very high risk stock if I was rating it, and it’s it’s one that I own and I’m one that I’m hanging on to and I’m excited to see where it goes. But really high risk really high potential. So there we have it.
Dan Kline 30:04
We’re going to keep you up to date on Virgin Galactic as things go along. We’re happy to take more of your questions and comments. If you’d like to become a member of 7Investing, we’re getting close to the first of the month, the first of the month is when our new pics come out, I’m actually pitching my stock today. These takes so long now we produce such an elaborate video for our members that we have to split it up over two sessions. So I’m pitching a company that I think you’re all going to be excited about. And if you want to find out what it is you of course have to be a member that’s $17 a month $170 a year that gives you two free months access to our member calls access to our new member calls so you can learn everything there is to know about the service access to an amazing array of content you’d be shocked by how much content the seven of us produce.
We even have some surprises of some people that aren’t on the traditional 7investing teams are working on some content we’ve brought in some guests before we’ll continue to do it. 7investing.com/subscribe. We’re gonna pivot here a little bit I am very pleased to bring on David VanAmburg. He is the managing director of the American Customer Satisfaction Index. We talk most quarters I’ve done a lot of shows with David. But this one is really interesting. A lot of people are talking about investing in the travel industry. And I think this will give you some insight as to where you can go feel free as this interview is happening to throw your questions up. And I’m happy to grab them as we finish the show. Sam Bailey if you want to hit that video, it would be very very appreciated.
Welcome back to 7investing Now always weird to throw it to myself. I think I might be in a different location taping this than I am doing the show you’re seeing this as part of. But I am joined today a regular guest on the program. David Ben ombre, he is the managing director. I get that title wrong all the time. He’s the managing director of the American Customer Satisfaction Index. David, welcome to the program.
David VanAmburg 31:56
Thank you. I didn’t know you get it wrong. You can call me director or manager
Dan Kline 32:00
I called you executive director more than once. Is that better? Is that a promotion?
David VanAmburg 32:06
And I’ll tell my ownership that Dan Kline is calling me executive director now. So that’s my title.
Dan Kline 32:13
It’s funny, I come from the editorial world. And like titles can be very vague like at one publication a senior editors very important that the other executive editor is a put out to pasture title at some it’s an important title. So I always try to be really careful with titles but we’re going to talk about your recent study on travel, specifically, airlines and hotels. And let me ask you the question. Most of the viewers know that I’ve traveled a bit and I’ll tell a little travel story in a second. But have you traveled since the pandemic gotten on a plane stayed in a hotel?
David VanAmburg 32:47
That’s a very good question. got on a plane? No, absolutely not. I have not flown since like, I think a year ago, January or something like that. It was a couple months before the pandemic. Stayed in a hotel? I think that’s no as well. But now I can’t remember Oh, no, no, that is not true. We did drive we drove our kids up to Mackinac Island, which is a resort area in northern Michigan where the Mackinac Bridge is at the Straits of Mackinac, ah, and that was last August, we stayed at a very nice resort up there, you know, we drove up, did the whole masking and social distancing, and all that good stuff while we were there. But yes, we did take a nice vacation up there and stayed in a hotel.
Dan Kline 33:25
I’ve traveled a bit. And the only reason I’m sharing this is is I talked about it on the air, but I’ve been on a plane. And the numbers for airlines were up. The numbers for hotels were down, and I’m going to just set this off by saying is, most airlines had to become more like Southwest (NYSE: LUV) during the pandemic. And Southwest is your perennial leader here, they’re the only airline I would ever choose to fly. But during the pandemic, all the airlines had to have liberal cancellation policies. And I think that made up for it’s not that much fun to wear a mask for five hours and to only have you know, water that I think there were four beverages on the flight I was on. And the person next to you maybe doesn’t understand how it works and takes their mask off to order. And you’re not supposed to do that like, so there was a little more stress on airlines. But the rules are a lot better hotels, the situation wasn’t necessarily great. You know, I stayed at places that had no room service, you’d have to go pick it up, I stayed at places where you know, the pool was very limited or where the bar you could only sit in like a plexiglass booth and you certainly didn’t get that communal experience of just being with other travelers. So just wanted to give that context for these results. But with airlines, what did you see overall?
David VanAmburg 34:37
Yeah, and that in that context is exactly right on down in both in both cases. And we’ll talk about airlines being up a little and hotels actually tanking pretty badly. And all for the reasons that you described. Now to be fair to airlines. They have been inching up a little bit over the past three or four years, you know, kind of a point every year, so We don’t want to beat on them too much in the sense of Oh, they did better this year, or just over this past year as a result of the pandemic. And it’s just because of the pandemic, they have been going up a little bit year on year. But this this past year, even more so. And you’re absolutely right, there’s really two, there’s two factors.
One, airlines had to be very accommodating. You know, you needed to change if you needed to cancel bank those miles for later or bank the money that you spent for a later flight, etc. very accommodating. And obviously, passengers appreciate that. And then the only other metric out of all the things we measure, you know, how how do you like the beverage service? How do you like the How did you feel about how your baggage was handled, or, you know, the onboarding process and the D planning process? The only other metric in the entire study that actually improved was seat comfort? Makes sense, right? Because those of you who flew and I haven’t had, you know, the experience yet, although now by the time I do, it won’t be a thing anymore. You didn’t have anybody in the middle seat, right? That was everyone’s dream. I mean, everyone wishes that could just always be that way when we fly. Nobody likes to be elbow to elbow with people.
So the fact that we were able to kind of be at least one seat empty in between everyone while they’re flying. It makes it a little better experience. And and the airlines got that that little boost. Now is that going to hang on, I doubt it. Because we’re going to go back to being packed into planes. Again, as soon as it’s a, you know, as soon as it’s safe to do so. Which means it’s going to take a lot longer to get on the plane a lot longer to get off the plane a lot less comfortable and stuffier. And all those things while we’re you know, sitting on them for hours. But you know, there was a little halo effect there.
Dan Kline 36:51
Yeah, my Southwest flights to Vegas, three of the four legs, I had to stop each way. were entirely full, I had one leg where there was one open seat on the plane, and I must have looked intimidating or something because it was next to me. And I actually don’t care that much because I’m just kind of eyes for it. If I’m on Southwest, I’m working. Or I’m watching television, it’s generally it doesn’t really matter me I just don’t want to talk to whoever’s next to me like it’s fine if we have a conversation, but I’m not going to entertain you for five and a half hours. Like that’s kind of what I do for a living it’s a little much so airlines Southwest has been the premier leader Southwest treats its customers markedly better. Their basic policies allow you to change bags fly free, their their flight attendants are nice, like did did these results actually show that there’s some benefit in putting customers first?
David VanAmburg 37:41
Yeah, absolutely. I mean, Southwest has been the model forever. I mean, we’ve been doing this since 1994. So we’re a little over a quarter century in now and and Southwest is perennially either all alone at the top or maybe tied with one other airline that you know has a has a boost from one year to the next. But Southwest is getting it right year in year out with a basic strategy that says we know what people who have to fly whether they whether it’s for business or you know for pleasure, but you still have to fly to get there because nobody wants to drive 10 hours to go to Disneyland we know what they want most and we know what’s most important to them right which is getting on the plane as quickly and efficiently as possible and getting off as quickly and as efficiently as possible and making changes when they need to and you know not worrying so much about seating and just trying to keep the basic comforts established and consistent.
And they’ve done a really really good job with that they just don’t mess around with a lot of other stuff which is what some of the legacy airlines have you know tried years and years and years and they can keep their prices down but they don’t go overboard like your true budget airlines that really dropped their prices but also well you know, they say you get what ou pay for. If you get almost nothing you can pay almost nothing for it.
Dan Kline 39:09
Let’s talk about that because we talked about it last year when this report came out but I’ve flown Spirit and Frontier a couple of times usually to trade shows when there was simply no affordable option and they hate you they make a point of hating you. But I actually think are they using like a no frills Costco strategy where it’s the more uncomfortable they can make it the more value you think you’re getting so actually like treating people well would would be like bad for their business. Are they using like a negative customer service strategy?
David VanAmburg 39:40
I’m not sure if they’re actually using I’m not sure if it’s inadvertent or by design? It definitely the outcome is there right i mean you You definitely feel like you know we got you there alive and that’s what you paid for and you literally paid for nothing else except you made it to your destination. And that’s about it for especially for Spirit and Frontier. To the extent that they’re trying to engender that type of negative feeling that I couldn’t say,
Dan Kline 40:12
I’ll argue that Frontier is because they have a pamphlet where they’re proud of they’ve taken padding out of the seat to lower their cost for gas, the plane is lighter. And they brag that they don’t have Wi Fi, Wi Fi is a profit center, you should make money on Wi Fi. So it’s a very strange, like, look how cheap we are. And I get it to a point because when you’re looking to fly on those airlines, I can see it. But I actually sort of factored those out from your results. If you do that you get sort of like an average industry score of like, somewhere in the 76s. Where does that fall compared to other industries?
David VanAmburg 40:50
It’s actually on the higher end these days, the the National ACSI has been declining the last about three years, and it’s around 73 to 74. Now, so overall, airlines are actually a little better than average. I mean, they’re not going to be at a level of say, automobiles or cell phones or some of these other, you know, cool manufactured gadgets and big ticket items that we buy. But as far as services go, I’m actually not too bad. Not too bad these days.
Dan Kline 41:18
So I don’t want to belabor hotels, because the numbers were abysmal. But is there anything you see in trending from the hotels that wasn’t necessarily related to the pandemic?
David VanAmburg 41:30
No, I think everything because the the big drops we saw were all of the things that you know, matter to people most when they’re at a hotel, all of the amenities, things like pools and gems, many of which have just been shuttered. Even if you could stay at the hotel, you know, you weren’t allowed to use a gym, you weren’t allowed to use a pool, etc. Not so much now, but I’m talking about earlier days of the pandemic last summer, for example, restaurants, you know, many of them just shuttered or you could only have takeout.
You mentioned the bar, you know, my wife and I go on trips, we love to just go meet people just go hang out and have a couple drinks and just start talking and hearing and telling stories about what we’re doing while we’re here. And what are you doing while you’re here and so on. And you just can’t do that. Right? So a lot of the drop in hotels was related to, and I think we talked about this another time. You know, you nobody likes to fly, at least I don’t know anybody. I’ve flown, however many million miles and I don’t personally know anybody who says I love to get on a plane.
Dan Kline 42:45
There’s one exception there. Anybody who has a newborn at home is thrilled to fly the peace and quiet of getting to be on an airplane when my son was, you know, zero to six was absolutely delightful.
David VanAmburg 42:56
Sure. But generally speaking, it’s a thing we do, because we need to get from A to B, it’s not, there’s not a pleasure in the flying itself, right. But the hotel is the opposite experience where you know, we’ve gotten from A to B, and now we want to do the fun things while we’re at B, and you don’t get to do them, because of you know, what’s going on out there, which is, you know, awful and understandable. But I think that’s that’s why the hotels have taken a hit. They’ve really tanked. But by the same token, I think once we are really out of this and we return to whatever normal is it’s an aberration, we’re going to see that rebound. And it’s going to be as if it didn’t happen.
Dan Kline 43:43
Final question here. Do you think either hotels or airlines have learned something from this? Because I think maybe airlines maybe a little have learned to treat customers a little bit better. But maybe I’m wrong there.
David VanAmburg 43:56
Yeah. I mean, it’ll be interesting to see coming out of this if airlines have, you know, picked up some things that could be beneficial in the long term. Long term. We’ve talked about so many industries that have had to pivot during the pandemic, various restaurants that will now be able to say to themselves, hey, there’s no reason why we can’t continue to do some business this way. Because this is really cool. And a lot of folks that couldn’t get a reservation to dine in, they’re still happy to get delivery now through Doordash. And we’re selling more food that way, and so on.
So I think there’s going to be a lot of industries that will learn a lot from this in terms of just how they can do things more efficiently, do things more satisfying, or, you know, more beneficial Airlines maybe will learn some things from that. Hotels, I think hotels are just desperate to just get back to delivering exactly how they were delivering and we’re going to see people a lot more satisfied with them when they can do so.
Dan Kline 44:58
I actually think with hotels that you might see hotels that offer experiences have a bigger bump. I’m in Orlando, Florida right now and the resorts that are operating at mostly normal, they’re not fully normal, there’s still some distancing, there’s still maybe some capacity limits, they are selling out. I talked to you off-air that we’re buying a property at a resort and because it’s kind of an isolated place with a lot of pools and ability to spread out it’s been very very heavily booked whereas maybe the less features hotels, they might have to add pools and who knows what other things. Complete aside there, I’m sorry to step on your —
David VanAmburg 45:36
It’s valid Dan because the ACSI data showed that your budget hotels didn’t take the hit in the first place. That big drop wasn’t really because the budget hotels, the Motel 6’s and all of those sort of lower end hotels that are all about your Spirit and Frontiers of hotels, right? Because there wasn’t that much to give up. I mean, when there is no bar when there is no breakfast other than maybe a buffet with some cold coffee and a Danish there wasn’t as much to miss. The JW Marriott’s of the world right that’s where you go to really have a luxurious time and you couldn’t really do much there except sleep in your bed. That’s where I think you’re right you’re gonna see that boost for them because people are excited to get back to those kinds of of hotels and and enjoy the things that they are used to enjoying there.
Dan Kline 46:32
David VanAmburg. Executive Director, you are not the executive director. You don’t
David VanAmburg 46:36
Just keep using it!
Dan Kline 46:37
You are the managing director of the American Customer Satisfaction Index. Thank you for doing this.
David VanAmburg 46:42
Always a pleasure, Dan.
Dan Kline 46:45
Steve Symington. We are back weirdly, when I taped that I did not realize I will be back here in Davenport, Florida. So I’m in the same kind of white void with a small Joshua Tree picture above me. But I won’t be here that much longer, because this is our current vacation home not the new one I’ve referred to a few times throughout the show, which hopefully I’ll be able to set up a more interesting background. Steve, you’re going to travel a little bit this summer. Are you expecting things to be pretty much normal? Because they are here in Florida?
Steve Symington 47:19
Maybe I mean, it depends on where we go. I mean, first trip we’re heading down toward Arizona, you know, going to check out the Grand Canyon and hit Vegas a little bit on the way back that I expect to be mostly normal. We currently have planned a trip for to Mexico for later this summer. But that kind of remains to be seen because it’s the Playa Del Carmen area, Cancun. And so they’re struggling a little bit with, with cases and, and vaccine schedules and stuff. So that remains to be seen. But I think it really depends on where you where you end up going. So we’re a little bit worried about that potential tripping put off, but it’ll be nothing new compared to what’s happened over the last year anyway, so.
Dan Kline 48:01
I’ll be sending Steve some of those brochures they have at every Vegas casino about not abandoning your kids. And sadly, in almost every Vegas casino you do see kids just like sadly waiting on the periphery. Folks, don’t do that. That is a terrible, terrible look. That’s our public service announcement for the day. Sam Bailey, we’re up on the top rope. We are primed. Let’s hit our finisher. Which retailer is the best chance at long term success? Macy’s (NYSE: M) at 16.9%, Kohl’s (NYSE: KSS) at 21.3% Dick’s Sporting Goods (NYSE: DKS) at 55.8% overwhelming winner. Dillards (NYSE: DDS) at 6%. People I think you got this one right. Dick’s Sporting Goods. The reason I asked this question is this is a surprising winner.
This is a company whose results have been pretty good every quarter that’s also innovating. I’m gonna use the term relentless innovation a lot because it’s really where you need to be in in retail. And Dick’s have multiple formats that are really interesting one that has like, you know, practice fields and other things. And I actually think experiential is going to be really, really big for Dick’s I know this isn’t your space Steve, any comments you’d like to make on this one?
Steve Symington 49:08
I think they got it right, too. And that’s what I voted for. I will say I was I’m kind of like pleasantly surprised in the meantime, with the Kohl’s-Amazon returns partnership actually successfully driving some traffic to their stores, and I actually did an Amazon return yesterday at Kohl’s and they threw me a 15% coupon and I’m like, maybe I’ll use this to come back. But again, it’s one of those things where, you know, I think Dick’s Sporting Goods, the nature of their products, is really just primed for success. And they’ve been doing some really interesting things to draw people to their location. So yeah, I think Dick’s Sporting Goods is the correct answer if there is one here.
Dan Kline 49:49
I like Kohl’s but I question everything they’ve done. If they were going to partner with Amazon, they should partner with Amazon and having Amazon owned and operated brands. There’s all sorts of interesting Amazon merchandise. That nobody has ever seen that nobody buys. So I think that would be a mutually beneficial partnership. I do love what they’re doing. You know, with Sephora, I think that has some some real potential. So there are some good moves. But none of these are clear cut, except for Dick’s. All the three others could really all, you know, go under, I know dillards balance sheet is really, really strong and made a very good quarter, I would argue to anybody – kind of throw out this quarter like, this was kind of a rebound of ‘Oh my God, I need pants,’ where a lot of people were buying things, and there was there was stimulus money there. I don’t think this is a typical retail quarter.
With that being said, we’ve reached the end of the program. If you’d like to get in touch with us, that is email@example.com. That’s questions about the site. Questions about the service, it’s usually Steve answering the questions. Sometimes we get some really interesting questions that get thrown out to the team. They might even become content on this show. If you’d like to interact with us on social media. We are @7Investing, and we are very active on Twitter. We’d love to hear from you. I’ll be back Wednesday with Simon Erickson and maybe Maxx Chatsko as well. And then a special show Friday with Anirban Mahanti. It’s going to be a weird mix of taped and live and you won’t know where anything is. I might be in like six different places while we do it. Thank you, Sam Bailey. For Steve Symington. I am Dan Kline. We will see you on Wednesday.
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