Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
Our 7investing advisor team describes the importance of mission statements in their research process. We also play a game of "Bullish or Bearish" to solicit their thoughts about a variety of relevant topics.
February 25, 2021 – By Simon Erickson
Many businesses exist not just to create profits, but to serve a higher-level purpose.
A company’s mission statement lays out the ambitions it ultimately wants to achieve. It typically describes a desired improvement to the status quo: whether that be making life easier for customers, innovating with new technologies, or even seeking a bigger-picture societal impact.
The mission statement can also influence how the business itself operates. It often serves as the conscience that steers acquisition or capital allocation decisions. It can set a unified company culture that impacts hiring, and can and even can be a guide for specific projects. Examples of famous mission statements include Alphabet’s quest “to organize the world’s information and to make it universally accessible and useful” or Chipotle’s goal “to provide food with integrity.”
We recently put some deeper thought into what role these mission statements should play in our objective investing research. Are there specific things within them — either good or bad — that we should pay closer attention to when searching for stock market opportunities?
In this month’s 7investing Team Podcast, our advisors describe how mission statements influence their investing research. We also provide a few companies whose mission statements are particularly compelling.
And in the second segment of our podcast, we play a game of “Bullish or Bearish”. Each advisor shares their thoughts about recent developments in an investing space they closely follow.
00:00 – Introduction to mission statements and their role in investing
15:00 – “Bullish or Bearish”: Simon solicits thoughts from each advisor on a recent development
Simon Erickson 0:00
Hello, everyone, and welcome to this episode of our 7investing podcast. I’m 7investing founder and CEO Simon Erickson, joined by my team of 7investing Lead Advisors. We’ve been speaking this last month about the importance of mission statements on setting the tone for an entire organization, and we’ll be discussing as a group what we think about how mission statements play a role in our investing research. Steve Symington, let me start with you on this question. You know, we always are looking at finding the markets best opportunities in the stock market. How do you how do mission statements play a role in your investing research process?
Steve Symington 0:46
Well you know, the first thing that came to mind was the fact that one of our guiding principles at 7investing is to buy companies not tickers. And that’s to say that we recognize buying a stock represents taking an ownership stake in a real business with real products, and we strive to invest in good companies that are run by people we also consider to be good company. And so in that sense, reading a company’s mission statement is a fantastic starting point for investors to determine whether the management being good company actually holds true, because when it does, all too often, we recognize that that tends to result in outsized gains for investors, of course, coupled with a compelling business model. So I think the mission statement is important, but it also needs to be backed up by action. It just can’t be lip service. So there needs to be some sort of semblance that the company is making tangible progress toward accomplishing its mission. Even if that might be years down the road, we want to see that there’s actual effort. And it’s not just something they’re saying, rather than here’s some pretty words to entice people. We need to know what’s actually happening.
Simon Erickson 2:05
That’s perfect, Steve. And, you know, a couple of us have actually given some examples of companies that we think are opportunities because they aren’t just offering lip service – they’re actually backing it up with with performance. You brought up the company Lemonade. What is it that appeals to you with Lemonade as a company, and their mission statement?
Steve Symington 2:24
So it’s kind of funny to me, because it feels like a lot of people have approached Lemonade with a lot of skepticism. There’s a lot of flowery language, like in their S-1 when they went public. They talk about all these buzzwords – talking about purely being built on a digital substrate with artificial intelligence and behavioral neural economics at their foundation. And Lemonade is really interesting, because they have taken significant steps to actually fulfill their mission statement, which is to transform insurance from a necessary evil into a social good. And to that end, Lemonade actually took an extraordinary step when they were forming the company to become a certified B Corporation, a public benefit corporation. Which the process for certifying yourself as a B Corp really is really rigorous, and it requires they meet certain standards of social and environmental performance, accountability and transparency. So just that they were able to form themselves that way in the first place is really telling In my opinion, and also the fact that they have a unique business model, as an insurer, they take a flat fee of customers premiums to ensure they can actually pay claims and build their business. And then if there’s anything left over at the end of the year, from the portion of premiums outside of that flat fee, they donate it through their annual give back program, to prevetted charities selected by customers. So pretty slick little program. Again, some people have been skeptical because they say, “oh, there was only $1 million they gave to the through the give back,” which I think it was like $1.1 million. It was like 1.5% of their revenue last year they ended up giving back. But they also sort of forget conveniently that a few years ago, their very first give back was only $50,000. And so it’s it’s sort of skyrocketing that sense. I think it will only continue to do so. And the fruits of their scale should really yield some incredible results over the long term. But I think it’s company that people can feel good about investing in, and that’s kind of why they stood out to me.
Simon Erickson 4:41
That fruits of their scale – how appropriate for a company named Lemonade – actually putting its money where its mouth is. Great one, Steve. Ticker on that $LMND. Maxx Chatsko, you had a similar message in your perspective this month. You said that making the mission statement is easy, but the execution piece of it is actually very difficult.
Maxx Chatsko 4:59
Yes. Similar to what Steve said, I focus more on that just not having investors be led astray by some a nice sentence or two was stuffed with a bunch of keywords. Maybe it’s just the markets that I cover, right in, you know, early stage drug development, or industrial biotech or renewable energy. But I’ve found over the years a lot of companies, when you don’t have much business, you don’t have revenue and earnings, they tend to lean a little bit more heavily on their mission statement. I’ve also observed some companies tend to change their mission statements maybe every year or more frequently. And to me, if a company doesn’t know what its mission ought to be, then why should I pay attention to it? Right? So yeah, it’s definitely important for investors to remember that ya mission statement is nice to have, and it can definitely help you identify businesses that are trying to make an impact. But you also have to remember that execution and accountability are really what matters. So is a company executing is it making progress both as a business and also within its mission statement. I mean, that’s way more important to me than, again, just stuffing a bunch of key words into a sentence and it sounds real great. And a lot of companies never lived up to it.
Simon Erickson 6:11
Fair point. Now I remember vividly Long Island Iced Tea putting blockchain into the name of its company and then it’s the valuation takes off. You’re saying it’s, it’s good to have a healthy dose of skepticism, especially for kind of markets that are still developing out there.
Maxx Chatsko 6:25
Yeah. And Manisha, I just published a podcast about this right? The balance – optimism with objectivity. So it’s great to be using the blockchain. There’s real value there. But maybe Long Island Iced Tea isn’t the best blockchain investment.
Simon Erickson 6:39
Fair enough. Maxx. Manisha? Maxx just mentioned that you guys filmed a podcast recently on this. Your perspective this month was entitled “The Importance of Mission Statements in Healthcare.” How does this impact your research?
Manisha Samy 6:51
Sure. So I also primarily focus on drug development diagnostic companies, and when I’m researching a company that’s the first thing I go to, because most of these companies have the weirdest names, So you have no idea what they’re doing. So I don’t want to dive right into the technology and not know, is it a therapeutics company is a diagnostics company? Is it a hardware tools company? Somewhere in between? So I just go to the mission statement first to understand, “okay, first, therapeutics, diagnostics.” And then I dive into technology, and at the very least, it also tells me – some mission statements, for example, are very specific – where it’s we want to transform skin cancer. So then I know they’re very specific, very focused, and very niche market. And then there might be other companies where they where they’re saying, we want to transform the lives of rare diseases. So I know they are a company focused on rare diseases and some mission statements to just talk about the actual product they’re using, or the tool they’re using to deliver what they are trying to do, whether it’s in therapeutics or diagnostics. So that’s very important to me, just to see and understand what I’m diving into before I even start going through their S1, or reading through their technology or science or pipeline. But also, it tells me a lot about their culture, I think it’s very easy to determine by their mission statement, are they you know, very narrow focus short term gains? Or are they focusing on culture? And are they patient centric? I think that’s really important to me. I think there’s a lot of people in health care, for example, or a lot of companies in healthcare, where they’re just trying to make money. And I feel like those companies don’t tend to do well in the long term. Or if they don’t know what they’re doing. It’s also easy to tell. And if they don’t have some sort of focus, it’s hard for me to take them seriously. So it’s an important starting point for me.
Simon Erickson 8:57
Yeah, it sounds like it really helps to frame the conversation define the company that you’re looking at. You mentioned Intellia is a company that that you kind of thought had a really, really good mission statement.
Manisha Samy 9:06
Yeah. So they have an entire page, but they have at the very top, just a one liner, saying they’re transforming the lives of patients through potentially curative and again, I know max hates the word curative, but they did say potentially curative, curative treatments with a single single dose paradigm art to that effect. And then they continue on talking about exactly how they are trying to go about it. And then they not all companies do this. But they talk about their core values. And that’s something that was very interesting to me. I showed me that the management team really cared about internal culture. I feel like the culture you create comes from management top down. If scientists are not motivated, it’s very hard. They probably won’t retain their scientists and it’s hard to develop a good product. If the internal Culture isn’t supportive of their employees.
Simon Erickson 10:03
Yeah, thanks very much Manisha ticker on that one in T LA for Intellia. Dan Kline Maxx says that there should be a healthy dose of skepticism for kind of early markets that haven’t developed Manisha says it helps to frame what kind of business it is she’s looking at. You kind of took a measured approach to the two of those right? Were mission statements are important. But we shouldn’t confuse that with what the business itself is actually doing. Yeah. So
Dan Kline 10:24
For a very small team, like us, a mission statement is really easy to manage and understand and stay focused, it becomes a guiding principle. So you told me like your small team within Google was really focused on the mission statement, I would believe that, but when you look at a big company, yeah, the CEO is probably focused on the mission statement. But Joe, the Vice President is focused on getting his next promotion, and somebody else is focused on doing good. So it means something to me. But I do think it’s marketing, once you get to a certain size that, you know, it’s always day one. And Amazon is an excuse to treat workers badly like and to maintain a, you know, an endless startup environment where no where everyone works too hard and never rest. And I understand what it means that the, the underlying ideas are never going to rest on our laurels because company, you know, Amazon could become IBM or worse, could become GE, like I get that thinking. But the way it’s practiced is only partly that part of it is to justify that you’re sort of going to always work in this startup environment, which is crushing. So you know, it’s I have very mixed feelings about mission statements.
Simon Erickson 11:29
Yeah, and tell me about Chipotle he was one example you brought up in yours too. Food with integrity is the mission statement. But that kind of distracts at times, maybe Chipotle is focused on serving burritos in the most efficient, it hurts them.
Dan Kline 11:41
So when they had their E. coli scare, if they hadn’t been telling you how great they were, that would have been a non story. There have been fingers found in food and fast food restaurants. And it wasn’t a big issue, because they didn’t spend a lot of time. So I’m not saying you don’t have behind the scenes of food with integrity message. But if your messages Wow, our burritos are tasty. And the secondary part is hey, we locally sourced and we do that and we do things right. That shouldn’t be your core message. When I watch a Chipotle a commercial. They’re like telling me about the farm the pig came from. I’m thinking like, maybe my burrito should be warm. Like you know, that’d be nice. Like I I see their failings, so I get the mission. But food with integrity isn’t their mission, Brian Nicol who came from Taco Bell, His goal is to sell more tacos. Like it isn’t to save the world. And I understand the founders truly believe that. And they’re going to honor that commitment. But that’s not the business focus of Kapolei, the biggest business focus is to add more units sell more, sell more stuff, and make more money. And I wish they were a little bit more honest about it.
Simon Erickson 12:46
Yeah, makes a lot of sense, Dan, and thank you for the heads up, I’m gonna be checking my hamburgers next time I go out to the fast food. A little more skeptical on that one.
Dan Kline 12:54
Look for fingers.
Simon Erickson 12:55
Duly noted. You know, some great points from all of these. My final perspective on this is that I think that, for me, a mission statement really sets the tone for the organization. I think that it kind of defines how management makes decisions, whether that be for capital allocation for expansion, or how it handles difficult situations. And one that I was recently impressed with was with was with CloudFlare take on that Ne t is a company that kind of powers a lot of the internet gets sites up and running communities, things like this protects them from you know, cybersecurity attacks and various other things. It’s kind of the inner workings of the internet. But you know, we saw a couple of years ago, some problems with with a community called h Chen, which was promoting hate crimes, and cloudfare meatfly, excuse me, CloudFlare made the decision to shut down that customer, they said we’re gonna pull the plug in, and we don’t appreciate what they’re doing. And we do not think this is making for a better internet. Now that costs them money, there was a financial impact from walking away from a customer. And there was perhaps some brand damage from people that didn’t like that decision that they made. But they still stuck to their guns, they were guided by that mission statement. And there was a business outcome that came from that. So I think that combining all of those together, we’ve seen some different perspectives on on how mission statements impact healthcare, how they impact, you know, fast growing newer industries, how they sometimes might cloud the business operations of a business, and then also how they’re kind of helping companies steer what they want to be when they grow up, whether that be, you know, eliminate changing the structure of it’s very business itself, or how they’re actually making their decisions. So that’s mission statements. And the first part of the segment I’m going to now change gears and do something I love to do, which is put my team entirely on the spot with a game called bullish or bearish. This is something where I’ve taken a lot of the content that they’ve written about in the past month. And you can follow that too, because all of this is publicly available content. And I’m going to ask them how they feel about the certain topic and question if they are a fan of that they think that this is something that will positively impact whatever the question is that’s bullish. If they’re not a fan, they think that it goes the other direction that’s bearish. Team. Are you ready for me to put you on the spot with this game, knowing that you have not seen any of these questions in advance? Sure. Yes, we are. The enthusiasm is very clear Maxx Chatsko. I’m going to start with you on this one at seven Maxx Chatsko. By the way, with two x’s on Twitter, if you would like to follow Max’s conversations out there, Maxx, you recently pointed out that the US power sector has 40% lower emissions in 2020, than it did in 2005. So it’s making really good strides on a couple of different things. It is retiring coal plants, it is investing in natural gas plants, and it is investing also in renewable energy. I think it’s safe to say that renewable energy is a safe, bold bet. We’re seeing the numbers on that one. And I think that it’s safe also to say that coal is a bear bet because they are retiring those my bullish or bearish question for you is how do you see natural gas, the middle of those three, evolving for power production over the next 10 years? This is something that takes off you’re super bullish on or a more more measured approach on the growth rate for that one?
Maxx Chatsko 16:37
Huh, well, thanks for reading my Twitter, at least somebody does. I would say natural gas is probably maxed out in terms of its share of the power mix in the United States. I would also say it’s going to play a very large role for the foreseeable future for the 10 years, next 10 years, for sure. I would say much longer than that for decades. What a lot of people miss is that, you know, renewable energy potential is dictated by geography. So when California has a lot of solar, or Texas has a lot of wind, that’s great. And that’s because they have geographies that allow for that, but you can’t copy that and put it in where I live in Pennsylvania, we don’t have very much renewable energy potential here in the Pittsburgh region. But we do have a lot of natural gas. You know, if Pennsylvania was its own country, I think would rank like in the top five for total natural gas. So, you know, on a national level, I think it’s maxed out, but there’s still gonna be regions and pockets where natural gas is very important. That’s probably true for Texas as well. So I think we’re rather you know, we’re going to see coal get phased out and retired probably much faster than you would expect. Natural gas is going to hold down the, you know, the rest of that and maybe take some market share away from coal. But yeah, we’re gonna see wind and especially solar in the next decade, take off via natural gas is still going to be a very important part of the power mix and a very low cost source of electricity.
Simon Erickson 18:01
So it’s still important but not super bullish. Like we saw the unbridled enthusiasm four or five years ago or so. Correct. Okay, great, Maxx maxed out with a two x’s on natural gas. Dan Kline, I’m going to come to you next, @worstideas7 on Twitter for anyone who watches to follow Dan’s commentary. Also, the host of our live stream show seven investing. Now, Dan, you and I recently talked on that show about Disney, which I know you have a lot of love for Disney out there. It’s so impressive that they’ve already hit 95 million subscribers for Disney +. Blew away expectations. A lot of early adopters who already love Disney, like you and I did signing up for the service. But they’ve also set a pretty aggressive goal of getting 260 total million subscribers for Disney + by 2024. Dan, that’s only three years away. And I think a lot of the low hanging fruit maybe has already been picked, bullish or bearish on Disney hitting that projection by 2024.
Dan Kline 19:00
Now I’m bullish on it. They have so much of the world left to go. So if you were saying just the US, are they going to add another 100 million subscribers? No, probably not. But they’re only in a small handful of countries. And Disney has exposure in India where they could grow massively like basically, it’s not out of the question that China could be a market for Disney, they’ve done some business there with certain films. So that’s about the Netflix number. I don’t see why Disney couldn’t get there and the price point is so low. And you’re gonna see a lot of content that would have been theatrical releases, and up on Disney plus you’re seeing it with its Rayleigh and the last dragon right now where it’s at that premium tier, you could pay a little extra, or you could just wait a month and get it for free. Or maybe it’s a couple of months. I think you’re gonna see some strategic use of some pretty big movies, maybe in just specific markets to move that needle. But with the opening price wherever it comes in, in your market 699-790-9899 those are really no numbers and if you have Kids, you’re gonna get Disney and think how many kids were likely produced during this pandemic? All of those homes are going to get Disney in three or four years.
Simon Erickson 20:07
Yes, fair point then and following up on that is Disney leveraging its existing Movie Line, and its existing brands and IP internationally as a developing new shows to appeal to those markets, or or yes to both?
Dan Kline 20:20
Well, for the most part, Disney is a global company. Now that doesn’t mean there won’t be specific releases on on certain products they own that there won’t be localized versions of things like but not anywhere near to the extent that Netflix does. Like a new Star Wars release is a big deal in almost any country in the world. That’s true with Pixar, that’s true of Disney classic animation. So they own IP that sort of transcends nations. Now, that doesn’t mean that they’re not going to do original content for India or for Australia or for wherever they happen to be. But it’s going to be very targeted and much, much less money at least much less money spent than what Netflix is doing.
Simon Erickson 21:02
And duly noted, okay bullish on Disney hitting 260 million subscribers by 2024. Thanks very much, Dan, Manisha Samy, I’m going to come to you Next, we have talked a lot about genetic testing in the last couple of months. I know you’re a big fan of this. But not all genetic tests are the same. Clinical genetic testing, which is clinically actionable by hospitals is very different than some of the more direct to consumer genetic tests that you can buy and purchase and take directly at your home. In fact, 23andme recently launched back in October 23andme plus creative name for that, of course, that for $29 a year, you can get access to 10 different reports that are based upon your genome, what drugs you’ll respond to, in certain ways, if you might be more susceptible to heart attacks or migrants or various other things. But again, we know that this is genotyping. This is not clinical grade genetic testing. So are you bullish or bearish on 23andme plus as a program over the next couple of years?
Manisha Samy 22:01
That is a very easy question. For me, I am extremely bearish. And the reason is, if they’re continuing to not innovate on their platform, they’re still using microarrays, there is no way that you can actually have a clinical grade test, you won’t be able to use their brand, they’re also not investing in their reporting system. genetic tests are hard to read. So unless they in house genetic counselors, which we do not have enough of, if a patient can’t just take the report, go to their physician and tell them, hey, do you actually run tests on me? And actually, that would cause more healthcare expenditure over time, because people won’t know what to do with the report. So I think it’s almost it’s irresponsible to give these reports out. And if it’s not clinical grade, I think a lot of people they say, Oh, you know, you’re at risk, got some sort of heart disease. People don’t know exactly what to do, do he is it? It is? Is it preventative care? Do they change your lifestyle? Maybe they’ll do that. But most likely, they’ll take it to their physician. And physicians are already overwhelmed with the number of patients they see. And if they if they’re not experts at reading these tests, I just don’t see how it’s going to be valuable. And actually, what you’re seeing more and more with 23andme is they’re actually pivoting in trying to work with biopharmaceutical companies and pharma. And I think it’s because they realized they don’t have the right capabilities, especially they at one point, they claimed that they’re going towards or using long read sequencing, but they made no steps to actually do that. So I’m very bearish on kind of their future potential.
Simon Erickson 23:54
Yeah, makes sense. Like there’s really shouldn’t be a place for those tests in the hospital because you really want to make sure you’re looking at the right data. Bigger Picture, though direct to consumer. genetic tests have kind of made a splash in recent years, you can buy wine that is customized for your particular DNA. What do you think about the DNA, the direct to consumer DNA market as evolving as an entertainment or consumer retail play rather than a medically actionable one?
Manisha Samy 24:21
You know, I think a lot of people have fun with that. I know I have a number of friends who actually have taken the based on my DNA, what mine preference would I have? It was a lot for most or mostly for fun. I think those tests that talk about your genealogy and your ancestry and whatnot, it could still be useful if people are curious. So I think that will be here to stay. I doubt their accuracy. I don’t know if you can actually look at your DNA and you know, give a preference list especially since then the question of nature versus nurture. It’s not just your DNA. There’s there’s environmental factors.
Simon Erickson 25:07
Yeah, great points. Thanks very much. Nisha. Manisha Twitter handle is m Sami underscore seven, spelled the same as Miss Amy underscore seven for anyone who might want to know exactly how to spell that and see if I’ll come to you last. Last but not least at seven investing Steve CPU and I recently chatted with our partners at crypto EQ, about coin basis upcoming direct listing. And one of the topics we discussed in this which which by the way, this is something that will be available for seven investing subscribers, going forward every month is conversations about the developments taking place. But we kind of looked at what this would mean for equity holders that wanted to buy the stock of Coinbase once it comes public here at the end of the month or early next month. And this is a brokerage, where you can buy cryptocurrencies, just like you might use Charles Schwab to buy equities, you could buy Coinbase to buy bitcoin and other crypto. Now the interesting thing here, Steve, is that we went out to the store and when we first covered it, it looked like the valuation was going to come public at around $50 billion, which is about half of Charles Schwab’s overall valuation right now, which has taken decades to build. Now according to the NASDAQ private markets, that valuation could be as high as $100 billion. So my bullish or bearish for you is let’s split the difference is coin basis valuation above or below $75 billion, one year from now?
Steve Symington 26:35
Oh, goodness sakes, that’s it. I’ll all say above. I think that’s where it ends up. I think it’s above 75 billion. That would be you know, assuming it drops, I think this is going to be a bonkers direct listing. And that 100 billion dollar estimate was only issued like a day or so ago. Right. It was yesterday, I think I saw. So yeah, I think it’s above 75 billion be just given the tailwinds that the crypto in general despite the recent craziness, and you got Bitcoin seemingly crashing and everything I think with all the the tailwinds that the industry has enjoyed and the the validation it seeing with so many larger companies stepping in and buying Bitcoin in particular, as part of their balance sheet. I think that just serves as validation for the crypto space in general. And I think Coinbase serves as a key beneficiary of that. So we’ll go above 75 billion a year from now.
Simon Erickson 27:41
Yeah. And do you think that they continue to leverage those enterprise relationships? I think you, you kind of answered my follow up question, beat me to the punch, but you think that it becomes more than just commissions that they’re charging to retail investors over time?
Steve Symington 27:53
Yeah, I think it does. I think there’s a lot of ways for them to, to leverage it instead of just charging, you know, transaction fees on purchases and stuff. There’s a lot more to this story. And I think, yeah, I think Coinbase Coinbase is an interesting way to play it. I’m not convinced yet that I want to buy it. You know, once it’s eventually public, but you know, hey, minds can be changed. So so we’ll see. I think it’s gonna be it’ll be something that will dominate headlines for some time going forward. And
Simon Erickson 28:24
I think a lot more people are going to be paying attention. Great. And well, thanks very much to you. Just to recap all of those. Steve is bullish on Coinbase over $75 billion. Manisha is bearish on 23andme plus for direct to consumers. Dan is very bullish on Disney hitting 260 million subscribers by 2024. And we are maxed out on natural gas in the United States from Maxx Chatsko. Thank you for the entire team for entertaining my interest in spotting you up with questions that are totally off the cuff just for the amusement of our podcast listeners. And thank you for everyone for tuning in to this podcast as we talk about mission statements and how they play a role in our investing research. Thanks again for tuning in. We’re here to empower you to invest in your future. We are 7investing
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