Meet Our Newest Lead Advisor!
March 26, 2021
We’ve got a huge announcement to kick off the show. Simon Erickson will be joining Dan Kline to introduce our newest lead advisor. After that, our new advisor, Simon, and Dan will be talking about why the current stock market situation isn’t comparable to the 90s stock bubble. Yes, there are a lot of highly-valued tech stocks, but that does not tell the whole story. And, to close the show, we’ll be sharing some of the best investment advice we have ever received.
Samantha 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 0:24
Well, happy day 7-investors. Good afternoon, and welcome to 7investing Now. My name, of course is Daniel Brooks climb. I’m the host of the program. I’m being joined today by Simon Erickson. But this is not this is not a regular show. We’re not we’re not doing the regular lead story what we’re watching homestretch, we’ve got something very special up top. After we get through the something special, we’re going to talk about why the market right now isn’t the same as the nineties.com bubble, then we’re going to talk the best investment advice we’ve ever gotten. But first, Simon It is time, we have a giant announcement. So let me turn the show right over to you, Karl. Thanks
Simon Erickson 1:00
Thanks very much, Dan stop such exciting news to announcer this morning. And first to frame this, we set the bar really, really high here at seven investing, right, we want to go out and we want to find the most innovative companies that are available in the stock market. And to do that requires a really technical person that’s really cutting edge and in front of what else is going on out there in the market. And then on top of that, we’re holding ourselves accountable, right, we’re putting our feet to the fire, where we’re transparently reporting our returns in real time, at seven investing comm slash recommendations all the time, you can see how our pics are doing.
We’re not just be hiding behind the winners, we’re showing every pic out there for everybody to look at. And in addition to being innovative, and being credible, we also want to be very helpful. And we want to go out there and have live stream conversations like this that are really interactive so that we can help and empower people to be better investors. And so with all those kind of in mind, right, you know, if we really wanted to find the right person, and the person that I’m about to introduce, it’s just checks every one of those boxes so perfectly, being innovative, being technical being ahead of the curve, and being very helpful. And so it’s with great pleasure. Go ahead, Dan. Go ahead. Yeah.
Dan Kline 2:10
So I just want to say before I let you take this and disappear into the background for a few minutes here, when you made this announcement to the team, it was jaw dropping, I literally think there was like silence for 90 seconds because we were so impressed. Now. One of the games we all play is trying to figure out who the person is going to be. This is not someone anyone that was on any of our radars because we thought it was an impossible get this is someone many of us were aware of going into this with that seven times of the reveal.
Simon Erickson 2:38
This is a huge win for 7investing for our subscribers and so it gives me great joy to announce that we are expanding our team today. And as a new lead advisor for 7investing, I would like to welcome Anirban Mahati. Anirban welcome to 7investing
Anirban Mahanti 2:56
Thank you. Thank you very much. And you guys have been too kind you know, in the way you describe me, I appreciate those kind words and excited delighted to be here to help 7investing, the team and of course, our subscribers. And I’ll point out one thing very quickly. I was a subscriber until I got my free sub.
Simon Erickson 3:22
I think our first week in here but you were early subscribers 7investing.
Anirban Mahanti 3:25
I was a big a fan of Simon, the work you do we go a long way. And yeah, I like what you guys were doing. And I was a subscriber I was a paid subscriber. So
Simon Erickson 3:38
So an added perk of being an advisor is you actually get a free subscription. Now we’ll include that as part of everything. But the first thing I’m going to point out is that it’s bright and sunny out here in Texas, but uh, where you’re calling in from it’s actually the very early morning and it’s dark outside still tell us a little bit about what it’s like living in Sydney, Australia.
Anirban Mahanti 3:58
Oh, yeah, yes, you’re right. So you know, the background on my life. It’s a little dark. And I’ve got a light shining the bright light here, but it’s 3am in the morning, right now in Sydney, Australia. Australia is a beautiful country. But those people who haven’t visited I would once once the borders test people consider put Australia on the bucket list of places to visit. We are more than kangaroos and koalas beautiful beaches, lots of great food, you know, in many ways is not much different from being say the US it’s a modern democracy. Sort of, you know, maybe similar history going back in time, like you know, 200 plus years and great place to live. Great weather all year almost all year round, except for when it gets really hot. And with some of climate playing havoc, it’s been you know, we’ve got some flood it’s like that but other than that, it’s a fantastic place to live.
Simon Erickson 4:58
Well today. First of all, For most, and I really looking forward to bring your international perspective to this team. And you’re about, I’d like to actually point out that you’ve got a really extensive resume it really a technical background, something that includes being at the getting a PhD in computer science from the University of Saskatchewan, you actually spent some time as an assistant professor at the India Institute of Technology out of Delhi.
You also were a research director at MIKTA, down in Australia, which is one of Australia’s largest research institutions, and also the research director and a portfolio manager at The Motley Fool down in Australia as well. And so my first question is, we’re introducing you to our 7investing audiences with such a technical background. Oh, and on top of that, I know that you’ve also gotten more than 70 research papers, that you’ve co authored, and have actually been peer reviewed by people all over the world, such an incredible background you have on your bond. How is this influenced you as an investor?
Anirban Mahanti 5:53
Oh, that’s a great question. So you know, when I was doing my PhD, I might be giving away my age here. But when I was doing my PhD in the, in the 2000s, in Saskatchewan, we were working on video streaming, sort of pros, right? This is if you think about the time that right, this, this was before, everybody was watching YouTube, YouTube did not exist at that point. And, you know, Netflix was probably, you know, still in the DVD mailing phase. So we were working on these protocols that allowed for what we call scalable streaming, which is essentially, how do you stream to large number of people at the same time with minimal latencies, which is lag, and, you know, seamless on the internet, which at that time would not mean that easy, because the internet was not the internet that we have today.
And so what what I’ve seen is one of the things that I’ve seen, is technology at, at universities leading edge, you know, publishing, peer reviewed, and top conferences, and journals, and so on support, they tend to be at least about five years ahead of what you see, that comes out of the industry. But, and, and I’ve seen that many times, and I saw that, you know, happen. I’ve seen protocols that people have developed, which you know, is an Apple, for example, have you included in their technologies, I’ve seen, you know, I was using machine learning, in when I was an assistant professor at Calgary for a lot of work, including, you know, looking at network traffic that’s going to our gateway and trying to figure out what what the traffic is without actually looking at the data, right.
So looking at traffic signatures, which is what a lot of, you know, cyber scary companies today are, for example, doing malware detection, to see these things, these technologies are getting applied. And, you know, that sort of made me think, Well, you know, I could actually take some of those skills that I have learned over time and things I have depression, and actually apply that to my own investing in a serious form. And that’s what made me actually, you know, make the jump. So, you know, I became more and more focused on tech investing. Much later, around 2000 kids, after about 10 years of doing research, I became focused on trying to, you know, utilize that to my own advantage.
And then later on after doing that, for some number of years, I thought, well, it’s a great idea to try to take that and become a professional investor, because you can spend more time doing investing, and the journey from startups for industry research labs, or industry research labs, to startups to you know, how companies get acquired by, you know, big companies acquired startups, that ecosystem, right, and if you look at the ecosystem, can be a serious edge in terms of, you know, investing what I call invest in bleeding edge companies, companies that are, you know, ahead of even the innovation curve, right, and not leading with leading edge companies. So that’s what I sort of tried to do and utilize some of my background, to look at it.
Simon Erickson 8:51
I think I think it’s so important to Nirvana. You know, it just we always talked about the S curves. And if you get in early, you know, there’s an early majority that finds those companies, even when they’re still academic, maybe they’re still in kind of research phase. But if you see those quantum leaps that industries are changing, that’s what’s disrupting everything out there. And I think that you have really got such a great viewpoint of that such a technical perspective, such a research perspective on how things are changing. In fact, you and I, we go back several years, we worked together for several years.
And I still remember a long time ago having a dinner with you at a conference. And we chatted about how different Tesla was approaching self driving and autonomous driving. And that was very true. And I mean, that’s something that wasn’t really being talked about, at least in the headlines of the news at the time. I’m really looking forward to bringing those perspective of perspectives are yours to seven investing. And so let me let me ask that as my next question, then you know, it’s such a technical backgrounds influenced you as an investor. How would you self described yourself as an investor you said, you’re looking for bleeding edge companies right at the forefront of innovation risk on Are we ready to take some risk out there and find some small cap companies or what kind of companies are you looking for?
Anirban Mahanti 10:00
That’s a great question, Simon. Before I even talk about that, one of the things I know one of the things that you actually have been doing right for a long time is going to these trade trade shows, right? And that’s, again, a great place for ideas, right? You know, you, you find things that are happening on the ground, and then you can discover things. So I mean, there’s so many ways which we can find cool ideas. My approach is, I’m very agnostic in terms of market cap, I really actually don’t care about market cap, because typically, they tend to be, you know, mid cap, early stage large cap, for example, you know, because companies have established themselves, they’ve got some revenue.
But most of the market participants, you know, the broker reports a lot out there, and they’re at least not talking about things that are relevant, right. And Tesla’s is a great example. Right? It might be mega cap right now, but people still don’t get what’s happening with self driving, for example, right? There’s a lot of there’s a lot of misunderstanding of what’s going on. Right. And that’s just, for example, this general belief that everybody can have self driving. Right? And the thing is that anybody may have self driving. But how is that self driving is exactly like saying every phone is going to be a smartphone, but they’re actually basically two vendors for the smartphone operating systems today, right?
Not even a third vendors, basically two vendors, right to the Apple, which provides his own phones or androids. Right. So it could be like, you know, I think, you know, everybody is going to have self driving, but which, which are the companies that are going to bring those technologies to the forefront is what matters. So in terms of what, what I do is I try to find companies before they sort of hit mainstream, as I said, there are so these are bleeding edge, I call them bleeding edge, because these are using technology and novel ways to solve important problems. And one of the key things I look for, is it. Is it a legacy industry that can be disrupted? Those are actually my favorite ones.
Because, you know, if you think about legacy industry, one of the things that happens, and you just talked about this S curve adoption thing, but one of the things that happened in the legacy industry is the legs would have a hard time actually switching over to the new thing, because it’s going to disrupt their existing business model. Right? Right up all the way from how they’re set up to how they actually do business to work. That is incredibly hard to do.
That’s what gives opportunities to startups and new ideas. Right. So that’s one, you know, that’s a very, very, you know, ripe area to harvest, harvesting, there are lots of things, you know, a lot of the software companies actually fall in that in that category as well. The other one really, is to find completely in areas that, you know, are starting to evolve, right? So a great example might be if it was something like teladoc an example, right? I mean, telehealth, telehealth isn’t new, right? I mean, telehealth, if you think about, you know, in academic literature has been talked about for agents, what, sometimes you just need a bunch of things to fall together in the right place for the technology to take off.
So those those really create completely new opportunities, right. I mean, it’s not the net telehealth is going to take away operations from existing it may, but I mean, it is creating an all new way of expanding and providing health care, and those tend to be again, you know, just think of it that’s basically like looking at a company and say, ecommerce is going to become a big deal, right? I mean, e commerce really is changing the way, you know, people buy and sell things. Right. So I think I think those are sort of two things I try to focus on. That doesn’t mean that I wouldn’t pick a company that I think is a nice value and stuff like that. But my bread and butter is really here. That’s what I focus on those two sub ideas. Yeah,
Simon Erickson 13:51
fantastic. I make sure everyone grabs a nice cup of coffee and is highly caffeinated was it when an earbuds talking about kind of these companies in the early adoption curve? You know, we’ve mentioned e commerce, we mentioned Tesla, we mentioned teladoc. All of these are embracing innovation. One last question before I want to open it back up to all of us to talk about technology companies as a whole is an earbud. Even though you’re based down in Sydney, you know, living in Australia, I know that things are a little bit different in the terms of the stock market down there than the United States. But what types of companies are you looking for? Are you looking for Australian companies? Are you looking for American based companies, international companies, a little bit of everything, what should we expect from you?
Anirban Mahanti 14:28
Yeah, so like, you know, of course, I was looking at struggling companies, because I was primarily focused on the FX as an investor, though, for the for as long as I could remember, my portfolio has essentially been 9% International. Right. And there’s, there’s a reason behind it. And I think it’s very important actually for for investors to realize one is that most of the best companies in the world would list a few different there are like three or four exchanges they’re going to list on right so the best Australian company in software for example Atlassian is is listed overseas that’s how the capital markets work right you know companies will go where the money is because eventually that’s what you’re looking for right so there’s a there’s a market leader so so most of the time i’m looking for you know personally invested in companies are listed either in nyc in new york stock exchange or the nasdaq in terms of companies headquarters i really actually don’t care where they’re headquartered largely most companies these days if they have any substantive value or international inform right i mean let’s use apple as an example majority of our revenues come from outside the united states and most ipod in the states it’s it’s it’s you know almost like just like we live in a global world every company is actually go so at least every company that is worth investigating should be global allies you know they’re basically leaving large masses of opportunity you know just giving up on it rightly so so i think you know i’m looking for global companies sometimes i’ll find interesting things in you know from emerging economies because it’s especially interesting to the emerging economies but yeah i tend to mostly focus on tech at least with the tech bent so that’s how i at least events that and that’s what i’m looking to bring forward here at 7investing.
Simon Erickson 16:25
We’re really looking forward to it as well An and your first recommendation will actually be available for subscribers on April 1 i think you know this is kind of the only chance i get to welcome you as the very first day to the team but oh my gosh i can’t tell you how excited we are to have you join 7investing just your technical background you have coupled with your love of sharing the love of investing with people and just the mission that we have empowering others really a great person to chat with over the years and i couldn’t be more excited to have you on the team so welcome thank you simon
Dan Kline 16:58
And of course Anirban if you turn around you’ll find that Simon hass flown the entire 7 nvesting team no no he is not
Simon Erickson 17:06
well for sure
Dan Kline 17:08
We look forward to when we can all be together but so let’s recap a little bit this makes 7investing international it doesn’t mean we weren’t investing in great companies and picking great companies all around the world but one of the things i like most about this team Simon we can go we can go through the six of us a little bit as as our promo here is that we all bring something different to the table you talked Anirban about sort of researching these early stage tech companies bleeding edge as you call it and to do that you have to understand the market to to look at what Youtube was going to be back when the internet was dial up and it took like 10 minutes to download a photo like you have to be on the edge of that well i’m on the edge of that when it comes to retail and cord cutting and some other spaces Maxx Chatsko is on the edge of it when it comes to biotech Simon Erickson why don’t you go through the rest of the team as we talk about all the great things you get as a member of seven investing
Simon Erickson 18:03
i think so it’s a great point dan that we’re not all looking at the same types of companies we want to we want to lay out as we always say at the buffet of options whether that’s retail companies like you just mentioned biotech companies artificial intelligence companies like a nirvana was talking about earlier Steve Symington is looking at a lot of software companies as well my pick this next month is a cloud computing company and we’ve kind of got everything kind of in Matt Cochrane of course looking at a lot of you know finance companies banking companies things like this we kind of offer a whole bunch of options every single month and the first of the month is when we publish our recommendations and we talk about those throughout the month through our subscriber calls through our team calls where you actually see behind the curtain of us kind of you know hammering it out and looking at all of the good and the bad things with each one of these recommendations trying to be as thorough as we possibly can for those reports and then can continue to follow along everyone’s investing journey over the long term to so it’s not just a recommendation reports that publishes on the first this is a long term journey because we think that the power of investing is compounding wealth over long periods of time
Dan Kline 19:04
And of course if you’d like to be a member for $17 a month or $170 a year you can sign up at seven investing.com slash subscribe this is a really great time to do it because you’re about to get our new picks now you also get access to all our past picks all of our past members only content all sorts of great stuff and now of course you get our sixth lead advisor Simon i will point out we have six lead advisors we are 7investing let’s just say big things are coming ahead as we say that let’s get to the top story today it’s a why today’s market is not the nineties.com bubble we hear this a lot people see highly valued tech companies and they go oh nineties.com bubble Anirban i’ll let you do the honors of go first but i lived through the 90s tech bubble i actually was editorial director at uproar calm a top 25 company top 25 website In 1998, so you aged yourself a little bit there, I’m still the oldest person on the team, I was through the nineties.com bubble and got to see a company with incredible amounts of pageviews, we had a billion page view goal one month at a time where most people weren’t online. And we hit it, you know, we didn’t have revenue, there was no revenue, and there was enormous technology cost Anirban, why is this not like the 90s tech bubble?
Anirban Mahanti 20:29
You know, we could go on and on for like, you know, several hours, right. And we will, this is one of those raging debates right now. Oh, Dan, the interesting thing is that one of the things I like about them is I had no money that that time to invest. So you know, if you have no money, you can lose no money. That’s a good position to be in sometimes. So Well, one of the things is, I think, a big common chart people like pulling out, they’ll pull out a chart of say, P/E ratios, that goes back, you know, to pre 1999, and it’ll we’ll look, you’ll see that, you know, the P e ratio, go up, and then post 2000. And then you know, sort of is going up, and it seems like it is, you know, hitting the P/E ratios of like, early 2000s, or something like that.
Or you could do a graph of the price to sales ratio, to something that looks very similar. And I think you know, what I call it it’s like, that’s basically first level thinking, right? That’s like, okay, I pulled a couple of Darwin’s got a nice graph. And here is it and I made my case. And, as with statistics, right, you can, statistics can be made to lie, by improper usage all the time. This is, I think, I personally feel that’s the case. And the reason behind that would be if you if you think about it, and then you just alluded to that, right? There was no revenues, many companies at that time, there was like a.com. And
Dan Kline 21:53
You can’t have there was no, “P” part of the equation. I talked about this before. But we did a promotion for Ford, for the new focus when we were in Uproar, and we changed our bingo game to focus pretty dumb promotion, frankly, but they paid us $50,000. And it cost us like $80,000, to build it and serve it. It was it was all a shell game. And and really, and we’ll let Simon weigh in here. That’s what’s different now, right, Simon, besides we’ll talk technology cost, the revenue picture is very, very different here.
Simon Erickson 22:24
The fundamentals of any company is the exhaust of how the car is being driven. Right, whether we’re talking earnings, cash flows, revenues, it’s all downstream of the decisions that are being made up front. And the business model in the.com was advertising pageviews, like you just mentioned, which is great, when times are great. But then what happens in that dries up and you have zero revenue, all of a sudden bad news. And I think that today, I mean, look at the tech companies that are out there, they kind of all figured out this is not sustainable, to just only rely on advertising, we need to have a subscription product to lock in retention rates, through our, you know, high retention rates with customers. And so it’s a much more reliable denominator, we’re looking at a price to sales price to cash flows, or whatever fundamental you want to look at. And what does Wall Street love?
What does institutional money love, it loves predictability. It loves to know you’ve got 90% plus retention rates and X number of remaining performance obligations already lined up from happy customers. And so in my opinion, is exactly what a nirvan just said, which is it’s it is not the same climate for the technology world today that we saw 20 years ago, I don’t think it’s fair to make those side by side side comparisons to the.com bubble bust, which was based entirely at least primarily on advertising.
Dan Kline 23:39
No, it’s not. And when you look at say some of the highly valued let’s let’s pick teladoc, a company we were sort of talking about a minute ago, you might argue that post pandemic teladoc growth is going to slow, it might not earn its valuation for for a few years, that could be true a zoom, that could be true with other things, but they’re not going to go to zero, you’re not going to see this like and when you really looked at some of the most powerful, you know, 90s most popular sites, there simply was no path to profitability. And part of that was due to server costs.
The cloud means that have right now if the semmen investing website is flooded with 10 million people who want to learn about our new advisor. We already have the software and the things in the cloud to deal with that and it just happens as opposed to back in the 90s. I would get beeped literally beat on a beeper that our servers were going down in a team of people in a room full of computers would have to deal with it. And it was very, very expensive. That’s different. Now I I worked on a website A while back a few years ago, where I think it was DJ Khaled or somebody, somebody fairly famous, someone like that tweeted out one of our stories and like a site that got 100,000 pages a week was getting like 100,000 pages every five minutes. And with things like CloudFlare you have and the cloud in general, you have the ability to deal with that. But there are other factors at play here too. So I’m going to go Back to Anirban. how do cash, cheap cash and inflation play a role in this? That’s definitely something that, you know, we’re seeing tiny little inflation hands, and the market will be down 400 points, how do they play a role here?
Anirban Mahanti 25:13
Yeah, I think that’s a good point. Like, I mean, basically, you value companies traditionally, right as to the discounted sum of the future cash, cash, future cash flows, right. And the discount rate, typically some function of, you know, the cost cost of capital. And so if, you know, some function of the, the risk free rate, right, I mean, so, but the important, I think that a very high level, right, the risk that all the fedrick was what 6%, or something from the.com crisis, it’s like zero now. So it might go to 1%, maybe, we don’t know, maybe it goes to 2%. It’s 2% is not the same thing is the difference there, right. And currently, it’s like 1.25, or between 0.25, or whatever it is, like, basically, I call it zero, the rates are zero.
So I mean, money is cheap. There’s a funny thing, though, that can happen with cheap money, right? cheap money. Actually, one of the things that Simon talked about is the productivity of software companies, a lot of the tech companies actually do not need capital. Right. And I call this capitalism without capital, right? Even if you think about today, back, that’s a fantastic book actually for, for people to read it, there’s a book recommendation to that free on 7investing Now. Capital will change your mind about how you think about companies.
Back in the day, Microsoft had to, you know, sell CDs, with software loaded on it today, it just puts it on the table, put it on the web for you to download, it just basically automatically download is all running on the servers, right? And the servers are infinitely cheaper than probably actually make your CDs and printing the CD. So that’s the other thing with with cheap capital, there’s a funny side to cheap capital, which is cheap capital actually makes it easy for substandard business to survive longer. That is the upper part of cheap capital, right? where many of the great companies that good companies do not need hit capital.
But those companies which need cheap capital, can actually invest like crazy for future, you know, essentially, future growth is Cost of Goods very low. I think that’s the that’s the important thing to realize. I think those are the key key differences. So you know, the business models and in terms of like, just cost of capital, the inflation that we talked about, right? I personally feel this again, I don’t I’m not an economist, but I personally feel a couple of things. If you if you think about what software is doing software is increasing productivity and reducing cost of doing work, right? You don’t need an accountant today, you you know, you need a bookkeeper, technically, your bookkeeping is actually all done online, you still need an accountant. And, you know, if you think about what something like, reducing cost of delivering medicine, right? constant getting things is going down, well, then how does inflation happen? Right? You know, there’s only so much you can buy and so much, you know, coffee, you can drink it. So food you can eat, you can’t consume more, and you can even consume more, but the cost is not going up. Because cost of delivering things is actually going down, coupled that with with globalization, right, we basically buy things at the cheapest location, and the location changes, right?
If China was cheap, then it goes to China, China is no longer tube goes to Vietnam, right, you know, quality importation of deflation is very hard, I think to get inflation, right. I mean, the third point would be that you could get some, I guess wage growth happening. If, and that’s probably gonna happen at the at the, at the higher end of things, right. You know, if you want to hire more automation engineers, and those are in short supply, then the cost of those people actually go up. But, you know, is, you know, effective, I just think like, you know, you’re gonna have short term inflation, because of all this money that has been printed. And, you know, the reopening trade, and people are gonna be, you know, there is some pent up demand, but I sustained inflation to be really hard. So, I don’t know.
Dan Kline 29:10
It’s 230 in the morning in Australia, how much coffee you can drink to the test? Simon, do you have a comment before
Simon Erickson 29:16
I do? Amazing, by the way, everybody nearby met, it’s three in the morning, and you still have that kind of insight. So early is impressive. Just to chime in on what you said about the DCF. So discounted cash flow analysis, that was kind of always the right answer for what a company’s valuation is worth. Right. This goes back to Warren Buffett, before that, Ben Graham, you know, all of the kind of the teachings of value investors have find out what is the right discount rate, discount back all of the free cash flows, take out your debt that you have on the on the balance sheet right now. And that’s the value for equity holders.
That is what your stock is worth. But it’s always wrong. The number is always wrong. You can have 40 tabs open, it’s never going to be right because all the inputs are so sensitive, right? Tell me what the interest rate is going to be five years from now and I’ll tell you it’s not going to be right there’s there’s no one To predict that far into the future. And so I think that the interesting discussion for this today in today’s environment, especially for technology companies, if you mentioned on your bond that are deflationary by nature, is maybe there’s less of an emphasis on the DCS, or the weighted average cost of capital versus the return on invested capital that we’ve gotten.
So used to institutional investing and throwing up price targets. And you know, this is what the value per share should quote unquote, be worth. I think that we’re much more right now. And much more interesting perspective is how quickly can this land and expand model in the technology world is going through the digital transformation catch on? Because we’re subscription based, and everyone wants to get as many users as you can possibly pile onto their platform? How quickly can you scale and capture revenue from that? And that’s what you see with all the tech companies, right? How many people can get in?
How many can you give it to paying subscribers, it’s much more interesting, the comparison between the the acquisition cost of new paying subscribers to the lifetime value of those subscribers over time, across the board, any technology company, right, unless you’re building oil rigs out in the middle of the ocean, which have, you know, set cash flows and production volumes and such like that. I mean, in a technology world, we’re paying premium valuations, as the price to sales continues to climb, because companies are all kind of adopting that land and expand. And so my final thoughts on this is, this is why you see so much volatility in the market, but also why you there’s really no ceilings.
And we talked about s curves, or there’s no ceilings on big tech companies, and how large they can become, you’re starting to see Microsoft and IBM trying to go open source, right GitHub, Red Hat, whatever it might be, you want to get as many users plugged in as possible. There’s a reason we’re not doing proprietary software. And this is a new era of technology, which is kind of exciting. For tech investors like we’re like we are for innovation. And for companies that are investing ahead of the curve, because you can really get tax returns that are not being accounted for in those price targets and a lot of those institutional price models.
Dan Kline 32:01
So we’d love your questions and comments, Simon, of course says we can’t predict future interest rates, I’m guessing that means you’re not talking to my friend Zoltan the Magnificent. Or our seventh, you know, he’s one of those guys lives in the plastic box gives you your future, I feel he could do it. But I, I totally respect as CEO, you’re not going to go in that direction. If you’re watching this, wherever you’re watching this, if you type in questions and comments, we see a ton of welcome to Anirban. And we really appreciate that we’re gonna work on pronouncing your name correctly, we both both been doing it wrong for quite a while, we’re gonna finish up with one last question that we’re gonna throw it out to our friend in Australia. Do you think people are making a mistake? shifting investments into so called recovery plays?
Anirban Mahanti 32:47
Oh, that’s a that’s a really good one. So it depends, right? I mean, I give this example of like setting up, right. When booking.com was sold off in March of 2020. Yes, probably was sold out for the right reason, because you didn’t have good visibility, what’s going to happen in the future. But you know, but but as soon as you knew the critics were there, you know, you’re going to have, you know, some sort of treatment, vaccination.
That is a play to have, at that point, right. At this point, if it is fully valued? Well, I mean, you know, what’s the point of actually going to a fully valued company, right. And again, I’m not, I’m just using it as an example, not saying that booking.com is fully valued, but I think that’s what I’ve been, like, a lot of the recovery place, or the economy is going to open up, retail is going to open up, and I’m going to go and people are going to buy in those beaten down retailers, but the stock price of those companies are no longer beaten up, right, they are really, really expensive.
Or you could buy airlines, like I mean, you know, or, you know, or or oil companies like I mean, are we going to really consume that much more oil. Right, you know, that’s, that’s I feel is is the issue and people I think volunteer, actually, I love volatility, because it what it to me, it means couple of a the market is saying it gives me real volatility, because it tells you the market is seen as not insane. And the other thing is gives, you know, people who have regular cash flow and opportunity invest REITs I mean, you get to buy things on the cheaper there.
So, I think the time to play recovery plays was has has actually sort of long passed, if you needed that six months ago, you’d actually be sitting on a handy, you know, the experience of the world and booking all the work and all you know, like they were actually on discount. I don’t know whether this discount gap has has shrunk. With tech, I’d say that no Tech has pulled back assignment has said right, you know, the pullback hadn’t come back. But the growth runways have not changed. And in many ways, here’s the thing, right? If the economy is opening up, if the recovery is gonna play out, then digital transformations of companies actually accelerate not decelerate right. So I don’t know. Like, I mean, it seems to me that detection continue seeing market share happening and being taken by these companies. So I continue to hold a lot of tech stocks. I believe that over the long term and volatility To me, it looks not too bad.
Dan Kline 35:21
Two companies couple of notes here, DanielKern79. That is a big question. Sam Bailey, if you could write that down, we will answer that on another show. Anirban and I are going to tape a couple of times a week. So he doesn’t have to appear live at three in the morning, he’ll be on our team calls he’ll be on when it’s special. He’ll be a regular presence on 7investing Now. But it will likely be in taped segments.
One of the cool things we can do here on the platform we use is we can tape things and that’s going to become more evident when we get back to a more normal world and start going to trade shows and get in front of CEOs and opinion makers and just all sorts of people. I will say on the recovery stocks. The one thing I’m looking for is companies that were good companies before the pandemic where opportunity opened up because of the pandemic. There’s one that I’m right on the cusp about.
You mentioned airlines, I would say no to every airline except Southwest. And I would argue that Southwest is incredibly well run. they handled the pandemic really well. They ordered 107 37 maxes today, because they are expanding into more airports, they are taking advantage of the fact that their peers who had lost money repeatedly Southwest has only lost money one year and that was due to the pandemic. They’re able to expand and go into different places that is going to benefit them. I’m not entirely sure that makes them investable only because we’re definitely going to get that boom of we’re open, go visit grandma, go to Disneyworld go to Las Vegas. But that might be a three month thing. That’s not necessarily like one of the things we talk about in retail is people overvalue holiday sales. There was a year a couple years ago where JC Penney had a surprisingly good holiday.
And you know why it had a surprisingly good holiday because stuff sold out other places. And at the end people like I cried, I better go to JC Penney, that doesn’t change the long term vector for JC Penney, unless you went into the store and went, Wow, it’s awesome. Now, I would argue with Southwest that if you were flying other airlines, there’s a pretty good chance that you’re going to get on a Southwest flight. And you might not like the seating policy if you don’t understand it. But you’re going to love that you could change your ticket without losing money. You’re gonna love how sort of easy everything is how nice they are to you. You know how the built in television, which is not a physical TV, it’s on your device, so many things going for it. I do think that is going to be a factor. We appreciate so many of you tuning in to watch this big announcement. We’re gonna see if what we’re watching for tonight, chime in with just one more comment.
Simon Erickson 37:46
I think this is one of my favorite things about the structure of our team. It is kind of all of this is blending together right now. Right? Like, like you mentioned, and I know you have a background in retail, right? the operations of you ran a retail location in the past. And like this, is this kind of like one on one for retail of like, how do you treat your consumers and loyalty and efficiency and all those things we just mentioned about it in terms of in terms of Southwest but how many other companies would not be called tech companies 10 years ago, that suddenly our tech companies today, right like like zoom video communications, we use Zoom on a daily basis. Zoom is not a tech company.
It has a handful of patents, maybe five at tops, you know the encoding and decoding of the video. It’s not it’s commercially available stuff. It’s just got an audience that it’s making super happy because it’s customer focused. peloton sells bicycles, you know that the stationary treadmills now too, I mean, this is not a super complex organization. But it’s got that user base, it’s figuring out the loyalty. It’s figuring out the community. I mean, stuff that we called retail a couple of years ago is now a tech company today that’s getting the highest valuations in the market. I guess the only point I wanted to kind of chime in with on that is a lot of this is blending together. And it kind of takes a lot of different ways to think about these types of companies.
Dan Kline 39:00
Yeah, and it’s one of the reasons I’m most excited Anirban is joining us is because it’s all these different perspectives, like you mentioned, yeah, I spent two years running a gigantic toy store. And that gives you a lot of perspectives on the holidays. Because what was my goal during the holidays as the general manager, my goal was one to make sure we had products to sell, we had to replenish on a daily basis and finding sales channels to do that was not always easy. You had to plan six months ahead for say Lego, you had to plan a year ahead and adjust as you went.
The other thing I considered really important was when a new face walked into the store, not my loyal customer who shopped there every week or shop there for every occasion, a new person walked into the store, I had to make a connection with that customer. So if we’re looking at at Southwest or Royal Caribbean or any of the well run companies that were recovery plays before the pandemic, what’s the experience going to be like when you when they have that opportunity to capture a customer.
So the fact that a Southwest flight attendant is going to be attentive is going to, you know, take care of your unaccompanied minor or help you deal with whatever problem you have. You’re going to that, you know, they’ll bring back the airline magazine and you could read, they probably won’t, but pretending they did, you can read those stories in the front of Southwest Airlines about like, you know, flight attendants going to like incredible lens to help consumers.
That’s what businesses are based on. So if I show up with a JC Penney, and they do something spectacular, like maybe I go to a Nordstrom and I noticed, oh, my god, there’s a Warby Parker here, I’ve always wanted to try on 100 glasses, not just the five, they’d mail me, which would infuriate them, because they have to disinfect every one now, but let’s pretend that I did. That might be a transformative experience, we’re seeing massive shifts and how things operate. I shared with the team today, Nike is pulling out of even more stores to go direct to consumer, you’re seeing big shifts, and all of us have touched that from different angles. not going to belabor this. But it is absolutely exciting as we see how this team is coming together. So let’s hit the homestretch here. And what I’d like each of you guys to share is the best investing advice you’ve ever received. Simon, I’ll let you go first on this one.
Simon Erickson 41:06
Yeah, real quick on this one. First, first boss out of college, I think was in my 20s in direct sales. So flying around a lot of those airlines we talked about, and then shaking hands and racking up frequent flyer miles. But his advice was, was save relentlessly as quickly as you possibly can. That’s, that’s tough. When you’re 23 years old, right? He also said, Go out and enjoy your 20s, you’re never gonna get to be 23 again, but what an opportunity to put some money aside, even at a young age and let it compound for decades, your future self will, will thank you for doing that. So start as early as you possibly can.
Dan Kline 41:40
I’m gonna go next, and then I’ll let Anirban close it out. So I’m gonna say one really important thing I’m changing from what I put in the document, live below your means. And I think this is really a tough one. Because my wife and I have owned something like 13 houses, I think we moved every year, for the first 10 years, we were married, largely because housing values were going up before we had a kid, that meant you could sell your house, make the money move to someplace where the schools didn’t matter, and still be affordable.
When we had a kid that changed a little bit, I have a 17 year old son. Now so. But that being said, if you can clearly afford where you live, we always did it. If one of us lost our job, could we still pay our mortgage and still get by. And if we could do that, that gives us a lot of excess cash. And that covers our mistakes that not only leaves money to invest, but that covers the fact that I am maybe bought two or three more computers that I needed to during the pandemic or, you know, I tend to travel impulsively, and you know, I gamble usually well, but not always, well, you know, so if you live below your means you have money to save, you have money to invest, you also have money for opportunity we’re seeing during the pandemic, you know, hey, you want to book a 10 day cruise to Alaska for 2023? Well, geez, we really want that booking. So normally, it’s $6,000. Now it’s $1,200. Well, $1,200 is a million if you don’t have $1,200. But if you do have 1200, that’s an opportunity.
We saw at the beginning of the pandemic, people buying up vacation homes, because they were sort of at an all time low in value, that’s no longer true. But if you have money, that gives you opportunity, and we’re gonna see that play out in all sorts of different ways, but to bring us home, we will take it to our newest lead advisor. That is, of course Anirban.
Anirban Mahanti 43:22
Thank you. So actually, it’s gonna be hard to talk those two, because those two are actually probably foundational, and foundationally, the four mistakes to save, and, you know, spend less, right? Well, I’m going to actually go a different route to a slightly different route, which is not really an investment. But something that I learned from my computer science, this is a quote from George box, which is all models are wrong. On this, some models are useful. And I find this incredibly useful for investing because you know, there’s a lot of false precision in in investing, you know, you talk about price targets, Simon talked about people will give, you know, this is the valuation I think of this company today. But that’s false precision, because you can’t know the future, right? And knowing the future, there’s so many variables out there.
So what you want to do is, your model is only good if it actually gives you good insights. Right? So you want to focus on on an understanding the business and you want to focus on sort of the, the forest of the trees. And that really, really helps you invest because then you can take a holistic approach to investing and you know, you don’t have you don’t get caught up overwhelmed by this material less than, you know, the the fair value is 55. And it’s today it’s 54. So I’m not going to buy and that causes a lot of pain to people. So yeah, it’s I try to stay away from all the false positions as a company, I think it’s good. It’s going to be many times its size today. That’s good enough for me, and I’ll take the volatility along the way.
Dan Kline 44:49
Yeah, I don’t believe in any hard and fast rules. And what’s interesting is that you bring a heavily research intensive approach. I start with I’ll call it almost a touchy feely approach like a company impacts me. And then I look and see whether it’s a good company. And sometimes it is. Sometimes you’re like, oh, like Chipotle is an awesome company, Starbucks great company. Others you might look at and go like, Oh, good product, maybe maybe not as good as good a company. And we all do it different ways. But I will say, we’re all flexible.
We’ve all made multiple purchases recommended by other people on the team. And that might be the number one thing I can say that speaks to us that we are all professional investors that are buying things that other members of the team have pitched at our team calls. With that being said, we’re nearing the end of the show, Sam Bailey, we are heading up to the top rope, it is time to hit our finisher, which 2021 IPO or planned IPO will be the most valuable in 2031. It was really close between coin base and Roblox. I actually think that’s probably correct. I don’t know which of them it’s going to be. I don’t think it’s going to be instacart I think it’s going to be very difficult to make money with delivery and people are going to be a little more upset about the markup and RobinHood, I’m not going there. Simon Erickson, you are welcome to chime in,
Simon Erickson 46:08
not Robin Hood I vote not see is the right answer for this. And I would probably go with Coinbase I just think this is a new field, you know, cryptocurrencies we partner with our with our partner crypto aq for a lot of the analysis on that, but just to see them now. And the momentum that they have in their IPO, it’s not just conditions, you know, they’ve got them kind of got a business side of this where they’re getting enterprises on to blockchains as well. I think we’re at the early innings of this, even at the valuation that we’re talking about today. I think there’s plenty room for growth. I bought Coinbase.
Dan Kline 46:38
And this is a perfect example where being a good business doesn’t make you a good investment. I used instacart, three times this weekend because I was busy. I was prepping things I was finishing my recommend all sorts of stuff. So I had food I had alcohol I had who knows what delivered via instacart. But I know I’m paying extra. I know it’s stupid, because I live less than a mile from all those stores. And I know I probably forget something and end up going to the store, which I did. I went to Whole Foods at about five o’clock yesterday. So it’s a great product. It’s not necessarily going to be a high growth investable business. But Anriban, we will give you the final word on this topic as we close out 7investing now.
Anirban Mahanti 47:17
You know, I’m a big fan of crowd sourced opinion here. So I’m not going to actually even digress from what the crowd is saying. The crowd says coin base that I’m going to stick with Coinbase although you know, Roblox is an interesting choice as well. But yeah, I have actually nothing to add to what has been added already. So I think I’m going to stick with the wisdom of the crowds. Yeah.
Dan Kline 47:40
Simon before we close out here, not everyone has been watching the whole show. And if you haven’t been watching the whole show, what elsewere you doing now? just just just, we understand you have busy lives. We appreciate you subscribing to the show, whether it’s watching it at 7investing.com/livestrram, or downloading it as a podcast from every place podcasts are available, watching it on YouTube, through our Twitter handles, wherever it might be. We very much appreciate that. But Simon we highlighted the show with introducing our newest lead advisor, why don’t you sort of do that again, just to bring it all home for anyone who tuned in late.
Simon Erickson 48:13
Oh, I’m so excited to do this. I can do this 10 more times this every time I’m still stoked to announce our newest advisor on the team. Anirban Mahanti has just joined the 7investing group as the lead advisor, follow him at @7AMahanti. If we can throw that maybe perhaps up on the screen. If not, you see it right there on his title. There we go perfect. follow him on Twitter, we’re going to be sharing a lot of his thoughts, a very technical background that a nirvan has from years running research institutions. Just an incredible investor, also a great personal friend of mine, I couldn’t be more excited to welcome him to the 7investing team here today.
Dan Kline 48:50
With that we’re basically at the end of the program if you’d like to get in touch with us if you have questions about being a member, your membership or any of the advisors, you if you want to suggest a place I should go once the world opens up. You can email us at firstname.lastname@example.org, usually Steve Symington, answering those but he does send them out in our slack to the entire team. We are now more than ever a 24/7 team because I went to bed at like 10:30 last night. And I got up at like one and I looked at my phone and they’re like 900 Slack messages because we’re now of course, in an awful lot of time zones.
And if you want to interact with us online, we were all we share a lot of polls we share a lot of thoughts. I try to be silly, at least every third or fourth post. You can reach us we’re @7investing on Twitter. That’s a good way to find all our personal handles as well of course we keep things you know, serious on the at seven investing handle, my personal handle might get a little fun and goofy, from time to time. We appreciate everyone watching. We were really excited about this. There was not a lot of sleep on the 7investing team this weekend. And oh boy boy, is there more to come. We absolutely say so. Seven investing.com slash subscribe join us be there before April 1 to see our next set of picks but for Anirban for Simon for Sam Bailey behind the glass. Thank you. We will see you Wednesday. No show on Friday. It’s Good Friday. Bye
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