A Deep Dive Into the Housing Market | 7investing
7investing

A Deep Dive Into the Housing Market

April 23, 2021

The pandemic combined with low interest rates have caused some major upheaval in the housing market. Housing prices have been skyrocketing in many markets and availability has been scarce. Can that continue? Are we in a bubble? Simon Erickson and Matt Cochrane join Dan Kline to break down the housing market on the Friday edition of 7investing Now.

 

Transcript

Dan Kline

For viewers who are just tuning in, my name is Daniel Brooks Kline, you are watching 7investing Now I’m being joined by Matt Cochrane and Simon Erickson. We’re gonna talk about the housing market. We are also going to talk about the sort of unofficial, we haven’t heard President Joe Biden’s official capital gains tax plan, but markets tanked yesterday because of rumors of his plan. And then we’re going to talk about whether we really have to consider regulating the use of AI, AI is a little bit scary. Think of like when you get the speeding ticket in the mail that you didn’t know you got, it’s like $80 bucks, because you like kinda went through a red light. AI could be dramatically worse. Matt Cochrane, how are you?

 

Matt Cochrane  

I’m doing all right, Dan, getting ready for the weekend.

 

Dan Kline  

Simon Erickson going to share a little bit of a personal story here, but it’s very hot here in Florida, and it’s very dry inside. So I’ve been getting spontaneous nosebleeds, which is really, really not pleasant. So if anyone knows a cure for nosebleeds, share that in the comments, we of course, would like to take your questions and comments. Simon, what is going on in the city of Houston? We’re going to talk about that as a real estate market. But in general, there’s a lot of people moving there, right?

 

Simon Erickson  

There is yeah, Houston, Austin, it seems like all around Texas, I just had a conversation about people moving to Waco, it seems like a lot of parts of Texas are getting a few more residents these days.

 

Dan Kline

And good for Waco getting over what it’s most known for. So that is absolutely that’s a little bit like moving to, you know, Tehran or like someplace like the reputation is not great, but we’re gonna do a deep dive into the housing market when I say that, what do I mean, at the end of 2020. Home prices were about 15% higher than a year earlier. A lot of that was pandemic driven. And the growth is widespread. About 88% of metropolitan regions, home prices have experienced double digit price growth. We’re going to talk about our personal stories on this, but I want to get into some of the numbers. And of course, mortgage rates are near historic lows. They’ve been hovering there for a long time. Basically, mortgage companies have had to pick and choose who they process like especially in terms of refinances. There’s been quite a big line. I know one of you, I don’t know which one because there’s no note the show, wanted to talk about mortgage origination so Matt or Simon, whoever grabbed that feel free to jump in.

 

Matt Cochrane  

Yeah, no, it just, it just shows you that like people are, they’re out buying houses. And I mean, there’s we actually have a chart for that just like mortgage originations have just exploded in the last year. They’re at like a, I don’t know if it’s an all time high, but it’s certainly a 10 year high. Sam do we have that chart that we can put up? But like, and there’s two huge, like, demographic trends behind that. And there’s a big overlap actually, between these trends. The first one is like there’s Hispanic homeowner households has risen by more than 700,000 in 2020, to nearly 9 million. That’s according to Census Bureau data compiled by the National Association of Hispanic Real Estate Professionals. That gain marked the biggest one year increase in data on Hispanic home ownership going back more than two decades.

 

And so why is that growing while their buying power continues to grow, Hispanic buying power continues to grow as individuals enter their early 30’s. The most typical years for first time homebuyers and Hispanics in the US have a median age of 30 in 2019, which was about 14 years younger than the median age for non-Hispanic white Americans. So while his Hispanics make up about 18% of the country’s population, they account for more than half of the country’s home ownership growth in the decades leading up to the pandemic. And that growth is expected to continue the Urban Institute projected that between 2020 and 2040, 70% of net new homeowner households will be Hispanic. Well, and if you look at if you if you listen to like their ages, well that’s Millennial, that’s the Millennial age, right? That’s the Millennial demographic. And so the Hispanic population has a huge Millennial population within it. And Millennials are buying houses between the ages of 25 and 29. that age group, they’re increasingly buying their first homes and 30 to 34 year olds are doing so even at higher rates. In 2019 Millennials accounted for half of all home loans and that stayed above the 50% mark through the first month of 2020. Some studies state that America’s largest generation, the Millennials could account for as many as 15 million home purchases in the next decade. That’s a lot.

 

Dan Kline  

That’s a lot is putting it mildly so we lost Sam Bailey for a bit there. So I promise you there was a graphic, it was very pretty Matt put a lot of work into it, but we will have to show it on another show. We are seeing Millennials buy more houses, we are seeing the Hispanic population buy more houses. But Simon we’re also seeing a population shift. And that’s at least partly driven by the pandemic that’s happening there in Houston, where your internet is scotch tape and, you know, soup cans put together. Why don’t you talk a little bit about what some of the factors are that are driving a change in where people live and higher prices in many, many markets?

 

Simon Erickson  

Yeah, absolutely, Dan, and great points that Matt made also about the long term trends, the demographic trends, you know, Hispanics buying houses, Millennials, buying houses. I mean, the housing market as a whole is just this giant relationship between the supply curve and the demand curve, right? You can only build new houses so quickly, and you’ve got existing homes that are out there. And so when you’ve got more buyers that are starting to buy homes that pushes up the prices, which is exactly what we’re seeing right now. And so in addition to what you just said, and to your question, Dan, is we have a migration of jobs too, and this was kind of accelerated by COVID, which is moving people out of San Francisco and into Austin. And that’s what we’ve been seeing here, you know, so closely in Texas, is you’ve got Tesla moving out there, you’ve got a lot of the tech companies that want to be in Austin, people that are coming from San Francisco, think this is amazing, because you can now buy a much larger house for less money. But we’re also starting to see that into other markets as well. Miami, Florida is seeing the same thing. A lot of places in the south, we’re certainly experiencing the same thing in Houston. But another one of those long term demographic shifts is with, with the with technology, jobs, kind of shifting to other parts of the country.

 

Dan Kline  

Yeah, we’re seeing more jobs become portable. And I know that as someone who’s worked from home for the best part of like, seven years, a couple years, and I looked around and went, why exactly do I live in Connecticut, where it’s cold and uncomfortable? And that’s when I turned to my wife and I said, Do you really like your job, like, maybe we should move, and we started looking at what we could buy and for what we were spending in Connecticut, we could buy the condo, we’re in the process of selling, it was a downtown condo, walking distance, everything we could live in a sort of small city, which was always a dream of mine, tons of restaurants, tons of bars, things to do, and the lifestyle appealed. Back then not many people had that option. Now an increasing amount of people are having that option.

 

We’re also seeing a, let’s call it a premature shift to the suburbs, people tend to shift to the suburbs as they retire, or as they have kids that sort of no longer want to sleep in a drawer in their New York apartment. We saw those people during the pandemic go, I don’t want to live in New York City and spend five grand a month for a two bedroom while I’ll go live in Jersey City or someplace that’s you know, or Connecticut or wherever it is. We’re seeing those multiple types of migrations. Some of it is job driven. Some of it is lifestyle driven. I’ll throw this to Simon. Simon, do you think this is a long term trend or that many companies are going to realize that they actually want workers to be back in the office at some point? And maybe, maybe this doesn’t become this whole work wherever you want revolution we’ve had for the past year?

 

Simon Erickson  

No, I think those are long term trends. Dan, I think that it is definitely a migration of jobs to being remote. I think that some of that comes back, that is no doubt in my mind, a long term trends developing and the demographic trends that Matt talked about too are also long term trends. If I could spend a moment to speak about some of the short term impacts to the housing market as well, I think that both of those are even more accelerated by COVID. And by of course, interest rates. Matt mentioned Millennials and Millennials are buying houses. Yes, of course, that’s a long term trend that people are getting older and buying homes and having families.

 

But in addition to that when you’re getting loans that are sometimes 2.5% or 3%, for a home, yeah, you take advantage of that when the money is cheap. And I just read a study a couple of days ago, that was showing that Millennials in particular now have a very, very high savings rate due to COVID.

 

And in fact, maybe we can try another chart here. We got a lot of charts for this on Sam. But if you can show up the Federal Reserve data that shows the personal savings rate, there it is perfect, Over the last, what is that 20 years or so, you can see we typically have people saving about 5% of the income that they make in any given year. Right. And the left hand side of this chart that they’re looking at how that’s kind of just inched up in 2010, 2015. And then, of course, the spike from COVID. We’ve had some periods of COVID there that people were saving 30% of their paychecks, just because they had nothing to spend it on. You couldn’t go out and do anything. And that’s settled down, Dan, but we’re still seeing it above 10%.

 

Thanks very much, Sam for the chart. There’s part of that is is especially Millennials that say hey, I don’t know what to do with my money. I’m sitting on a lot of cash right now. 57% of Millennials say they have more than $10,000 in their bank account right now compared to 41% a year ago. And so where do you put it to use? You go after real estate which is at historically low interest rates.

 

Dan Kline  

There’s only so much you can spend on Grubhub there are only so many dumb purchases you can make on Amazon. I don’t think we’re playing up enough in the overall housing market, the incredible benefit of low mortgages. So Sam if you want to share that chart, I will share that when we bought our first house. My mortgage rate was roughly 8% when we bought our most recent house, our mortgage was like 3.75%. And now, Matt, you can see this better than I can met where our mortgage rates coming out right about now?

 

Matt Cochrane  

They’re almost right at 3%. And that’s like, I mean, that’s just at a low from. I mean, like you said, Dan, like, I mean, when my parents bought a house in the 80’s, I mean, the mortgage rate was probably in double digits, you know, and even the last 10 years, while interest rates have been very low, we’re at a like, you know, this last year, we’ve seen a new 10 year low. So even amongst this period of historically low interest rates, we’re still at a new all time low.

 

Dan Kline  

So we’re gonna see some long term shifts that in a minute, we’re gonna bring in Sam Bailey, because we’re going to talk about Millennial home buying with someone who is a Millennial. But the one shift that I think that gets overplayed, and Simon, I’ll get your opinion on this, because you live in a tech city. There’s been a lot of talk. And of course, we’ll take your questions and comments, we see them piling up a little bit. There’s been a lot of talk about sort of like the death of New York City and Seattle and San Francisco. And here’s the reality, available apartments for sale in New York hit like a 10 year high, it was still only like 22,000 apartments. Yes, it is easier to rent an apartment in New York and rates are down.

 

But you have to put that in perspective, when my brother lived in New York in a one bedroom, that was $5,000 a month, he is now living in London, in a much nicer two bedroom for less than that. So New York, Seattle, San Francisco were very, very expensive. And there’s some pullback, but it’s not like you’re gonna walk into New York and buy a, you know, two bedroom on the Upper West Side for $400,000, you’re gonna spend maybe $780,000 instead of $800,000. These aren’t giant collapses, and all the reasons people wanted to live in those cities.

 

You’re not seeing tech companies pull out of Seattle, they may move some workers to Austin, they may open in, you know, the greater DC area or Microsoft has people in Boston, you might see a spread out, you’re seeing Miami offices, and that makes sense to learn more talent, but I don’t think you’re going to see the leadership of big companies pull out of these cities. I don’t think you’re going to see you know, the financial services industries that are based in New York, I don’t think you’re going to see them leave New York.

 

Now, might some of them move some offices to Stamford, Connecticut, or White Plains? Yeah, that’s been happening. So I do think you’re gonna see a spread out. Simon, you talked about how in Houston, you expect to get some business. When people get fed up with the traffic in Austin, I feel the same way here in West Palm. I think they are building office space, a top tier office space, multiple buildings, and way above market apartments, you’re not building $600,000 two-bedroom apartments, because you think the existing populace is going to buy it. You think there will be some shifts Simon, which of these shifts are permanent? And which are sort of being overplayed?

 

Simon Erickson  

Man, what a great question. I mean, we kind of think migration like you remember, remember the the shale boom of the kind of you know, North Dakota and South Dakota, where just everybody was flooding into those areas because the price of natural gas was going up. So they’re all the energy companies were sending people out and paying them $200,000 to $300,000 to go out there. And it was just a spike that was not sustainable. It did not last, it’s the commodity price, it was cyclical. The question here is, if people are moving from San Francisco to other areas, those going remote doesn’t just mean going remote anywhere, right? That’s a big jump to go from, from San Francisco to Topeka, Kansas, or Oklahoma City.

 

But if there is a surrounding ecosystem, so to speak, you know, you’ve got accelerators, you’ve got access to financial capital, if you’ve got, you know, angel investors, people that want you know, like minded tech people, it’s kind of cities are trying to create these innovation hubs, which we’re very aware of here in Houston. And I know that from living in Austin, Austin is exactly the same way where you try to attract those jobs, you try to attract those people. But you also put a lot of money into supporting entrepreneurs and kind of starting that same startup mentality.

 

And so I think that you’re right Dan, that this isn’t just happening where people are migrating all across the world, you’re starting to start seeing these hubs kind of popping up. They might not have been thought of as tech, entrepreneurial cities like Houston or Miami might have been thought of differently 20 years ago than today. But I do think that there’s going to be a lot more attention to local governments and kind of the surrounding ecosystem that’s supporting entrepreneurs and startups because all of that bubbles up in terms of housing in terms of the community.

 

Dan Kline  

You also need physical infrastructure. So besides housing, you need internet. And so there are opportunities there. We’re already seeing T-Mobile take advantage. T-Mobile is going into underserved internet markets and putting in 5G. Now, that probably doesn’t mean downtown Houston, but if you’ve ever been to Houston, it is a sprawling metropolitan area that frankly, so is Orlando or West Palm Beach. There are lots of places you could live as a tech worker adjacent to those cities that are underserved when it comes to internet. So you’re gonna see opportunities, you know, do I I think the Comcast’s of the world, and not too bag on them, are necessarily going to take advantage. No. But I do think T-Mobile has been very proactive in identifying areas. They’ve really expanded into rural New Hampshire. Why? Because people who work in Boston might have moved to rural New Hampshire because houses are cheaper. And if you only have to go in two days a week, that hour long commute, which turns into two hours, because Boston is a terrible traffic city becomes much more viable.

 

So when people are looking at investing plays here, yes, there are some home builders you can buy there, obviously, some suppliers, but you can also look at who’s going to take advantage of gaining new customers. And if you look at companies that have gained the most new customers consistently, it’s been T-Mobile, I’ll joke a little bit. There’s a massive opportunity for Domino’s and Chipotle and Starbucks because I’ve driven around Texas. And when you drive around Texas, you actually see them serial constructing look-alike towns, and then you drive four miles down. And you’ll see roughly the same town and it’ll have this similar town center with a grocery store, a Starbucks a Chipotle, a whatever, you’re going to see a population shift that adds opportunity. Now, does that mean suburban stores that served office buildings might close? Yes, you’ll see, you know a little bit of that shakeout.

 

But I want to talk personal experiences on the home market and bring Sam Bailey in. So all of us, I’ve bought something like 18 homes in the past, like 20 years, and I’m in the process, I just sold my condo, and I’m trying, or haven’t sold it, we’re under contract, and I’m desperately trying to buy a resort property. And we literally made an over-offering price bid that we don’t expect to be accepted. So we have a cash bid above what they’re asking, and we don’t expect to get it. But Sam, you’ve only lived in your house for a few years. And you’re looking at the situation of, Oh my God, I could sell my house for dramatically more than I paid for it. But there is a drawback to that. Right?

 

Sam Bailey  

Well, that’s we were saying we could sell our house make an enormous profit. But where do we go, we can make this have all this extra money in the bank and be homeless. So that kind of defeats the purpose of, you know, having a pretty flush savings account.

 

Dan Kline  

And that is, so Sam’s house is worth roughly what $200,000 more than you paid for it.

 

Sam Bailey

Yes.

 

Dan Kline

And that difference could buy you a perfectly nice home in many parts of the country. The problem is you have physical ties to where you are. So as we see this market shakeout there are going to be people who can take advantage like you’re seeing some some smaller states or some states with less population, offer tax incentives, or sometimes flat out payouts for people to come live there. Go live in Vermont, and we’ll give you $12,000.  I don’t think that’s still in existence. But that was a program early on in the pandemic. Matt, I’ll come back to you here. Is there anything else you’re seeing? And then we’ll take some of the questions and comments. And Sam, feel free to stick around if you’d like?

 

Matt Cochrane  

Well, the only thing I would say Dan is you always have this this perfect storm driving up housing prices, you have long term trends, like demographic trends, where Millennials are buying their first homes, you have short term catalysts like COVID, where people wanted to move out of the city and have a house with a backyard during like stay at home orders and things like that. You have low interest rates, another short term catalyst, and you also have like a lower housing supply out of the great financial crisis, home builders have not ramped up their their home builder, the number of new homes being built for almost a decade. So you have like a lower number of homes like new homes being built than you might have had historically. So you have this like almost this perfect storm like so our homes an inflated asset? I don’t know. Like I mean, with the low interest rates, people can afford more, more home for the same monthly payments. And there’s a lot of you know it at the end of the day, it’s gonna be a supply and demand question. I don’t know that I don’t think they can go up like this forever, obviously. But like, you know, I don’t think it’s a it’s a bubble by any means.

 

Dan Kline  

And here’s the bet you’re making. So it’s a bubble in some markets. The example I’ll give is a mutual friend of ours is looking to buy a very high end home in the Orlando area. And they’re priced double at what they were a year ago, because there’s so much interest and at a certain price point, it almost doesn’t matter to people. So that is a bubble that could pop. The bet Sam would be taking and Sam this is why I wanted you back on. You could in theory, sell your house and rent, maybe live someplace less nice, less comfortable. If you believe that two or three years from now the Houston market is going to burst and you can buy back in. That’s essentially what my wife and I are doing. But we’re doing it with the idea that our geography once we don’t have a kid in school doesn’t matter as much so I could move anywhere within like an hour radius of her office. And that gives me the ability to move to markets that are less expensive. If you’re stuck to one market with kids in school, you have to bet that that market is going to tank and Simon I do not expect that Houston is not going to be a long term climb. Do you agree?

 

Simon Erickson  

Oh, go ahead, Sam. I’ll chime in too, but go ahead.

 

Sam Bailey  

I don’t know what I missed already. But Simon and I were talking about this before the show that some of these tech companies don’t want to go to Austin anymore. And they’re coming to Houston. So I don’t know if we’d be able to buy back in. So we’re just going to hold tight and hope that that’s the right decision.

 

Dan Kline  

Yeah, I think

 

Simon Erickson  

The biggest winner is if you want to retire, right? If you’ve if you’ve had a house in the city, and you’ve been commuting for 20 years, and you say, Gosh, my house is worth $200,000 or $300,000 more than I paid for it. And you know, we’re gonna put that money right into retirement and I don’t really want to go back to work when they start sending me back to the office. Again, that’s the best case scenario. Maybe that has an impact on the labor markets. We’ll see.

 

Dan Kline  

I also think we’re gonna see some new innovation here. We’re gonna take Mike [name not known] question on lumber after I finish here. But one of the buildings that’s built near me, it’s actually at the base of that high speed train we were talking before, it’s literally on top of the station. And it’s tiny apartments and tiny apartments had generally been something that sells for vacationers, or low income housing. These are very expensive, like $2,000 a month, you know, 300 square foot apartments, based around the idea of that there’s communal space, there’s a pool, there’s a clubhouse, and that younger people might live there, because most of their living is going to occur outside. It’s, you know, the house is like, it’s kind of like your room on a cruise ship, like, yeah, you go there to change and take a shower. It’s not really that important.

 

I think you might also see and I’ve talked about this before, some co-living spaces with the idea that you might live two hours outside of San Francisco or Seattle. And frankly, two hours outside of Seattle is like six miles when you look at the commute. And you might live in a house that’s still crazy expensive, still $800,000 for three bedroom, but three or four days a week, you might sleep at sort of a modified hotel where you have like a sleep bunk and everything else is shared space. There’s obviously legal concerns there and, and lots of things you have to do.

 

But I do think you’re gonna see some shifts. You might even see some companies operate commuter flights where you know, Monday morning, you get on a plane in the Las Vegas area and fly into LA or San Francisco or wherever, work there for the week, because it’s much more affordable to live in the Las Vegas area, you can buy a really nice house for a couple hundred thousand dollars, you can’t buy a really nice shoe box for that in San Francisco. So I think we’re gonna see big changes.

 

But there are some other pressures on the housing market. Sam, if you want to bring up Mike [name not known] comment on lumber, we are happy to take that.  “Lumber prices are up 230% in the last year, fixed costs for building an 1800 square foot house cost $20,000 to $25,000 more now than a year ago”. Matt, you’re going to talk about this. I’ll say I have first hand experience on this. I used to buy wooden planks for scaffolding when I worked in my family business. And I would have to constantly negotiate, you know, with with my aunt who was essentially the bank who runs the company, when prices were low, could I buy some and just sit on it because when prices were high, they could double and you’re still renting it at the same rate. But Matt, what’s your take on how this is impacting the housing market?

 

Matt Cochrane  

No, it’s absolutely right. I mean, there’s not too much to add. I mean, like lumber prices are absolutely up. A lot of commodity prices are up in the last year. Now a lot of those are coming off of like we’re coming off lows, but I mean, like there’s no doubt like lumber prices are up a lot. There’s a meme the other day going around on on like some Twitter accounts like you know, where there was a picture of a guy going down the highway with a truck loaded up with lumber. And the caption was I passed a billionaire today on the way to work, you know, lumber prices are just an extraordinary amount over the last year, there’s no doubt there’s no doubt like building costs like that will absolutely. You know, we’re talking we already talked about home builders building less homes, well, you know that those kinds of things are going to make home builders, like more reluctant to like really ramp up their inventory in schedule two, because they’re going to be investing a lot of money right now in these kinds of supplies to build houses. So all these things like will definitely pressure the market

 

Dan Kline  

Matt, a lot of houses here in Florida are built with cinder blocks. In fact, I think anything new of a certain in most areas has to be built with cinder blocks. That doesn’t mean there’s no lumber but there’s significantly less lumber than a house in say, Massachusetts, do you think we’re going to see, you know, new building materials and sort of added innovation in that area?

 

Matt Cochrane  

I have no idea. Possibly, possibly. I really don’t know. It’s it’s definitely possible, like cinder blocks and concrete really all I know, I’ve lived in South Florida almost my entire life. But like so, so who knows?

 

Dan Kline  

I don’t know. I actually think you’re going to see an increase in modular homes. I don’t mean modular homes like mobile homes. I mean, a home built in a factory that gets put on a foundation that becomes something permanent. I want to take Max Lucas’s first comment and then Simon, I’ll let you pick a comment to take as we close up here.  “In my town of 300,000 in Washington state, we saw our housing inventory which had stayed steady at 1500 for over the past 10 years, and is now at 150 homes available down 90%”. Yeah, this has been happening all over the country, especially places that have infrastructure that are nice places to live. Prices in, say, like, you know, the major cities in the Carolinas have gone up dramatically, because you’ve got a combination of decent weather and low prices. Simon, I see a lot of comments. So feel free to tee up whichever one you’d like.

 

Simon Erickson  

Well, maybe one from Mike, you know, Mike’s got some great comments on the site. And the one that I like is is one that he says, “People might want to buy a new house, but will eventually be priced out housing looks like an inflated asset”. Yeah. So I mean, like, what is the long term or short term trend, if people are moving to different cities, and businesses are moving to different cities, I think my, my sneaky play on this as an investor might be Airbnb. And I say that because as someone who traveled basically every month for four years to conferences and to businesses to speak, and get interviews. Unless you were wanting to pay $600 for a courtyard Marriott, just to be close to the conference dinner, you had to stay at Airbnb. And people were super excited to have guests that were trustable, you know, pay them for those nights. Yeah, because it helped them offset their own costs, too. So we’re seeing inflated housing prices and kind of new pockets of people moving, I kind of think this distributed Airbnb model might have kind of some interesting implications for that.

 

Dan Kline  

You’re also seeing a lot of investor money, buy homes that previously would have been owner occupied, and they’re putting them on the long term rental market. We’ve gone through this before, but where I’m living now, basically, if a unit comes up, it has three or four offers sight unseen, you know, and that’s not typical in rentals. So we there were places where we wanted at least four bedrooms, where we couldn’t see a four bedroom unit, we would literally just have to make an offer based on a floor plan and some pictures. And we weren’t willing to do that. So it was really tricky to find a place to live. You know, right now, there’s plenty of one and two bedrooms. But when you get into three and four bedrooms, it’s very difficult because you did have an influx of people which may not be permanent from New York who wanted to live in Florida during the pandemic, and the prices here and I’m paying $2,500 a month for a four bedroom 2200 square foot house with a pool and a luxury gym. In New York. That’s a studio.

 

So you know, the prices seem very, very low, hard to know. And from an investing point of view, I’m not so sure I’m buying a four bedroom house as a rental in an area that, West Palm is not a touristy area. So that might be a different play in say, Orlando or someplace where you could Airbnb it, or you you could you know, rent it to a Snowbird, seasonally. So I do think people should be careful with their investment.

 

We’ve got a couple of comments about inflation, “inflation is a risk”. And Matt, I know you want to talk about this. But I don’t view inflation is that much of a risk. If you’re buying a home that you intend to live in for the long term, if you’re buying a home to flip it, inflation is a risk if you’re buying a home for three to five years, absolutely short term market conditions. But if you’re buying a home to live in, you know to raise your family, I’m not so sure you really want to factor in because as much as you have to think about prices, you also have to think in what value did I get on this home? Did I raise my kids here? Did we enjoy the backyard? You know, did Matt’s kids play in the pool? Whatever it is, but Matt, I know you want to comment on this one as well.

 

Matt Cochrane  

Yeah, absolutely. So like, what I would say is it’s like actually, I think like buying a home on a long mortgage at a low interest rate is a terrific hedge against inflation. If you’re really worried about inflation, and trying to predict the inflation is above my paygrade, I do see reasons why there are concerns for inflation. I don’t know if those reasons are going to come to fruition, because there’s a lot of like factors at play there. But if you are concerned about inflation, I actually think again, borrowing a lot of money to buy a fixed asset, at a very low interest rate is a terrific hedge in 30 years, the monthly payment you’re paying on your house, if inflation becomes a big thing, that payment’s gonna seem very, very, very small, and in your home value will have gone up because of inflation. So I’m buying a home, if you’re worried about inflation, I think is a terrific hedge.

 

Dan Kline  

I’m an aggressive home buyer and seller, my wife and I literally moved buying and selling the first 11 years we live together and we’ve done it four or five times. And the idea was I would look at the market, I would see that we could sell our house at a significant premium. And that either unlocked a nicer place to live for us or put some cash in our pocket. So that’s kind of what we’re doing now we’re selling out at a pretty significant premium on what we paid about 50% higher than we paid and then we’re going to buy an income producing property and in theory, use that money that we produce to, at some point, buy back in when the market where we live has come down and our needs become more flexible in a year or two when my son is no longer in school. I want to close out I’ll give Simon a chance to to make one more comment.

 

Simon Erickson  

Dan, I just wanted to ask, did you say that you bought 18 houses into 20 years? Did I hear that correctly?

 

Dan Kline  

I think that’s roughly. I think that’s roughly the number if you count. We owned a vacation property in West Palm before we lived here. We also currently own a manufactured home in the Orlando area that we will sell, once we buy the place where we’re looking. Yeah, and Simon, I am kind of day trading houses.

 

Simon Erickson  

Impressive. That’s impressive.

 

Dan Kline  

You know, when you look at an asset, we only got burned once we in 2008, we needed a nicer place, we bought it. And the builder paid our mortgage for four months. And it took us the full four months to sell our existing place because the housing market crashed. We didn’t take a bath, but it wasn’t great. And when sold our house in Connecticut to move here. If we’d sold it about three months later, we probably would have done about $30,000 better the market really, you know, caught on fire. But we sold our vacation property here that we paid $80,000 for which we sold for I want to say $113,000. So we made up a lot of what we did, but I do look at you know what is in my hand, how many chips do I have to put on the table. And if I can turn it into some cash, or in this case, the vacation property we’re looking at, we’re gonna own fully so it’s kind of a hedge against retirement or things going wrong. But Simon Erickson, I will give you the last word before we move to What We’re Watching.

 

Simon Erickson  

No great points, I don’t actually have anything else to add. I think we hit the high notes. This is a trend you got to keep an eye on for what’s long term and what’s short term and play accordingly.

 

Dan Kline  

Before we get to What We’re Watching so what I spent most of yesterday and and part of today doing is writing up my recommendation for next month, what we do our core product here at 7investing is our seven highest conviction stock picks, which you can buy for $17 a month. But why don’t you do that? Why would you not pay $170 a year and get two months for free. This is a you know, this is a hamburger helper price for a filet mignon at Morton’s you know, or, or the or the bone-in-filet at, at the Steakhouse I ate at in South Carolina whose names are escaping me, which is the best steak I’ve ever had. So you’re getting tremendous value here. So we all do a write up, we have already recorded our pitch sessions where we spend 20 minutes to a half hour explaining to our fellow lead advisors why we’re picking this.

 

And I’ll note that Simon came at me pretty hard this month with questions about my stock because it is a fairly risky pick. And it’s not that it’s not a company, you know, everyone believes in long term. But there are things that could go wrong. So you get to see the bull case, and the bear case. So this isn’t just Hey, buy this stock. This is this is why we’re buying the stock. This is why it’s important to us. I will say that there are stocks I’d never heard of that I now want to own. There are a couple of stocks that I already owned because of 7investing advisors. But Simon, how do people get a 7investing subscription if they’d like to sign up?

 

Simon Erickson  

Yep, Dan, and I know you still love me, and I still love you. Even when I ask tough questions in our team calls like that, as we encourage all of our advisors to do

 

Dan Kline  

I think that’s the point actually, and I’m looking forward to the month where I really believe in my pick, and someone changes my mind or point something out that I didn’t see. And it is possible that we would say, you know what, I’m not gonna make that. You know, what, I’ll re-rec something I picked before or my idea, you know, 2A maybe seems better now, that’s not what happened. I had good answers for what Simon was asking. But it also made me change how I wrote it up, because when I wrote it up, I wanted to clearly address the risk and concerns for this company. So we all make each other better. And I think that’s one of the most exciting things about 7investing and honestly, our community makes us better too because you asked us so many great questions on this live show and on Twitter.

 

Matt Cochrane  

[joking] Dan, the conviction you showed in JC Penney’s turnaround. I just couldn’t believe it?

 

Simon Erickson  

Yeah, some good questions too. I gotta say, Matt, you win the award, I think for tough questions on those calls as well.

 

Dan Kline

So if you would like to subscribe, that is www.7investing.com/subscribe, I promise you it is worth it. Everyone is happy. It is a wonderful community, you get access to our members only calls, you get access to the new member call where we walk you through how the system works. We are constantly evolving and improving the process. We’ve been taking sections from 7investing Now, putting the video up starting at that section, and giving you a full edited transcript. We actually have an operations team that’s editing those transcripts. And thank you guys for doing that. That’s just another way that maybe you missed the show and don’t have time to listen to it. But you really want to hear our talk on the capital gains tax, whatever it is, it’s available on our site, as well as tons of members-only exclusive, but Matt.

 

Simon Erickson

If I could Dan, just chime in a moment on this too. Because something you said just a second ago, is something that’s very true, which is that we’re giving you the Lexus for the Toyota price. Right? And then we’ve got two people on the team that have run services before and we kind of know that we’re pricing ourselves purposely at below market rates at what we could be charging because we want to democratize investing, we want people to be more actionable and involved in the stock market and taking control of their future finances.

 

And I think that the other part that goes along with that is exactly what you said, which is not just, we’re not just throwing out tickers out there and saying, Oh, you know, here’s, here’s five ideas today and five ideas tomorrow. I mean, we really do some very thorough research that goes into those reports.

 

And then my favorite part, which is something you mentioned, is the subscriber call we do every month, where we say, hey, here is our recommendation, we are alive in front of our subscribers and saying, Let us show you our conviction. And let us answer these questions you have about these stocks. That’s not something that I’ve seen that you get in other places, I really think it shows the conviction we have in this team. And the incredible thorough analysis that goes in every one of these picks. The testimonials we’ve received have been fantastic. And I’m really, really proud of everything that we’re doing.

 

Dan Kline  

And we all put in a lot of effort to narrow down our picks. We’re all following tons and tons of companies, people will throw us ideas and we’ll see them and we’ll be you know, absolutely intrigued. I know, there’s more than one app on my phone. You know, because it’s a company I was thinking about picking and in some cases didn’t actually have a good experience, which is why I didn’t pick said company, which I won’t mention.

 

But let’s segue to What We’re Watching. President Biden wants to increase the capital gains tax that’s sort of came out as a rumor yesterday, the planned increase would would be to essentially the income tax rate, but only for people making over a million dollars a year. Matt, this sent markets tumbling yesterday, can you first to sort of explain what capital gains is and then explain sort of why this happened yesterday?

 

Matt Cochrane  

Sure. Yeah, absolutely. So a capital gains tax is just a tax on the growth and the value of your investments incurred. So like whenever, and it’s only it’s only it’s not charged for when, when gains are unrealized meaning like when you hold an asset, like it can go up for forever, and you’ll never be charged a capital gains tax for that. It’s only charged when you when you sell that asset. So for like stocks, like um, you know, if you you hold a stock X for 100% gain, and you sell, you’re taxed on those gains. Now, what Biden is proposing is for, like you said, Dan, is for income earners that earn more than $1 million a year, and they’re proposing to raise the rate from about 24% to about 44%. So it is a substantial gain?

 

You know, like really only only two things I would add, Dan, so like, Look, first of all, look, whether this is good, like a good thing for incoming inequality, or, or raising money for infrastructure or anything like that, I’m gonna stay out of that. That’s like above my paygrade. It’s just questions that, you know, everybody can come to their own conclusions, though. The one question I do want to focus on is, is this good for stocks? And look the answer to that? And it’s, I think it’s okay to say the answer is no, I think all too often, government policies, and politicians get way too much credit, whether good or bad for the stock market, but one lever they can pull is tax rates. And when taxes go up on the selling of an asset class, like stocks, you can expect that to be a headwind, for for that asset class.

 

But like, the second thing I want to add is like, should that change your investment strategy? You know, even if, even if that does affect you, even if you do fall in that income range, which obviously won’t be for most people. But if you do fall in that asset class, like if you do fall in that income range, should that shrink your investment strategy? Absolutely. We should change everything? No, of course not. You should still be looking for companies with competitive advantages and growing markets at decent valuations and hold for the long term.

 

Dan Kline  

I also expect and again, this is not an official plan, this was sort of floated out there. I feel like this is a trial balloon to see sort of what the public pushback is. And what people are missing is that if you are a multi-millionaire, you have options. You don’t have to invest in the stock market, you can do other things with your money. Keeping that money out of the market, Matt, that’s not good for Joe little guy. Right. And I’ll include myself in that that list. We want sort of as much money put into the market as possible within reason.

 

Matt Cochrane  

Yeah, absolutely. Yeah, absolutely. And like, you know, I’ve I do wish the political class would like, would recognize, like make a bigger recognition, for like short term capital gains, taxes and long term gains. You know, like, today on Twitter, I forget who but somebody suggested, like, you know, how about no capital gains taxes for, for for assets held over five years? You know, I would love to see like, more thinking like that more encouragement, more incentivizing for for long term holding of stocks or any asset really, but like, you know, and more of like, you know, for for day traders and things like that, like, that’s more speculative market and not an investing market. Um, you know, I wish there was more of a distinction made, you know, but, but yeah,

 

Dan Kline  

I think it’s part of the reason 7investing exists, and I’m going to bring Simon into this. Most people in Congress are wealthy and when you’re wealthy, I think you think the stock market is something only wealthy people can use. And here’s the reality, the average person has exposure to the stock market in their 401(k). I don’t know the percentage of Americans who have a 401(k). But it’s reasonably high.

 

Matt Cochrane  

And pensions and pensions

 

Dan Kline  

And pensions. But what we’re doing here at 7investing, is we’re telling, you know, I talked about this a couple weeks ago, I met with a 17 year old, who has a very small amount of money, but he’s going to steadily invest in the market, we want to tell anybody that they can be in the market, and they can take advantage of these gains. And we also want to tell them that we hope they can become a millionaire because of it. I am pretty sure raising the capital gains tax on long term capital gains disincentivizes people from going into the market, and that can have a catastrophic, you know, effect Simon. If you take $100 a month and put it in a savings account, or a CD, or lots of, a bond, your returns are going to be abysmal, even at historic highs, they are going to underperform the market. So how do we get government, and Simon I’m gonna let you answer this impossible question, because there’s no answer for it. How do you get government to understand that we should be encouraging the stock market as a way to create wealth, not just something for the wealthy?

 

Simon Erickson  

Well, I think it comes back to Matt’s point that he made that the there’s evolution and innovation and how people are saving money, you know, we from the 401(k) plan that was launched, and then you had the Roth IRA in 1997. You know, there were there has been regulations that have encouraged people to save money to pre-tax or after-tax in to taking care of yourself later in life. And that gives you not only the burden, which some people see it as a burden, I see it as an opportunity to break away from, you know, the small chart that says, here’s your four options, you can invest your company’s 401(k) plan, now you can go out and actually buy individual stocks, and you’ve got access to so much more information to your point Dan, that is why 7investing exists. And so maybe we don’t let the tail wag the dog on this one, you know, tax rates are going to be what tax rates are going to be, I think bigger picture when you’re thinking about this over decades, you want to be investing in the stock market, you want to be more actionable in taking control of your financial future.

 

Dan Kline  

Joyce Hi. I’m gonna I’m gonna take your comment as “meaning all politicians, they understand, but they don’t care”. I actually don’t think that’s true. I think we saw this with the internet hearings. You know, when when Facebook and the other tech companies came in and spoke to Congress, I think you’re largely speaking to old people. And I’m not sure you know, we had that litmus test for a million years, when we’d ask presidential candidates the price of a gallon of milk. I’m not so sure the average person in Congress understands what a family making $80,000 a year is doing, what they’re investing, and that they could be making money in the stock market. And that, you know, if the government cared or understood investing, it would be taught in schools, and it’s not there is not basic financial literacy taught in most schools in this country. So I do think it’s a whole, Matt Cochrane, you wanted to chime in?

 

Matt Cochrane  

Yeah. And to your point, Dan, about like the middle class, like being being invested in the stock market, like, you know, you’ll you’ll only see those statistics that show like, you know, the top 2% of, you know, net worth individuals own, like, 80% of the stock market or things like that. And, of course, right. I mean, like Jeff Bezos alone owns about, like, approximately 80 gazillion dollars worth of Amazon stock, you know, Bill Gates owns a gazillion dollars, you know, of Microsoft stock still, you know, Warren Buffett owns a gazillion dollars of Berkshire Hathaway stock. And it takes a lot. I mean, it takes like, hundreds of 1000’s, or maybe even millions of, you know, middle class investors to even match one of those. Right.

 

But as far as like a percentage of the middle classes net worth, like is in the stock market. It is there. Like I mean, I work at a municipality, where everybody’s into the pension plan, that pension plan is invested 60% into the stock market, you know, 401(k)’s are huge. I mean, so, so those kinds of stats, I think, like it get thrown around too much and taken out of context. And, you know, they don’t tell the story that like, that’s true, because people like that alone will like throw off that that that average, but the middle class is definitely 100% invested in the stock market.

 

Dan Kline  

And I think it’s important to remember and I’ll sort of take the last word here, though, we’re going to take a couple of comments from Ravi Shah, Sam. So one, one functional one, one about this, but when the government is doing anything, it’s a negotiation. We have we have a two-party government. So the President is leaking out that this is what he wants. There could be pushback, and that pushback may be well, we won’t have an increase in the capital gains tax, but we will revert income tax rates, which affects short term capital gains. And so this is likely a negotiating ploy. I actually don’t see this as a serious political play. You might see people over a million dollars, the rate tweaks up a few points or, you know, even then it becomes very difficult because like, Okay, this year, I only made $900,000, I’ll sell a whole bunch of stocks. And there’s ways to engineer your income. So it doesn’t look like you made a million dollars that year, we don’t want to add that layer of complexity to these transactions.

 

So I really do think you’re going to probably see an attempt to revert some of the previous tax cuts on very, very high income earners. I doubt this is going to go through. But remember, the stock market often reacts very, very harshly to very minor short term news, the possibility a politician might try to do something is not actually a news story. It’s the beginning of a new story. And that’s kind of what this is here.

 

We’re going to talk in a minute about AI. But before we do that functional question from Ravi Shah, “as members, are we supposed to get emails when subscriber calls happen?” Yes, we do send out emails. We don’t over email you we only send out what is it Simon, maybe at max two emails a week.

 

Simon Erickson  

You can actually opt into more of those if you want. And Ravi, thank you for this question. We do the week-of the subscriber call, we send out an invitation for everyone who’s currently subscribed to 7investing, you do have to opt in in your profile if you want to receive our emails. But as long as that’s checked, and you’re opted in, you will get an invitation for basically the third Friday of every month. That’s when we host our subscriber calls.

 

Dan Kline

So if you’re a member and you are not getting those invitations, shoot us an email at info@7investing.com and Steve Symington will absolutely take care of that. But let’s take Ravi’s second comment to close out this topic. If you can bring it up Sam Bailey, “The more you sell, the more taxes you pay. So I would think government would care more about short term capital gains tax than long term”, Matt, am I correct in saying short term capital gains is just income?

 

Matt Cochrane  

Yeah, I think I think that’s Yeah, basically, I think that’s correct. Yes.

 

Dan Kline  

So I do think you might see tweaks to the income tax rates. And I actually think it’s a great thing, if you disincentivize short term selling if you if you make it so people hold stocks, one, they’re going to consider them more carefully, you’re not going to get this, you know, retail mania buying that we’ve seen, you’re actually going to see more people seek out good companies and buy and hold them. Stability is actually really good for the stock market.

 

But we’re running out of time. So I want to pivot here, Simon, we’re getting into the future. We’re not quite in that Tom Cruise movie where magic people can tell us when there’s going to be a murder by facial recognition,

 

Simon Erickson

Minority Report, right?

 

Yes, Minority Report, we are getting into a time where AI and facial recognition are getting a little bit scary. Why don’t you comment there?

 

Simon Erickson  

Yeah, this is great. So we just saw the EU kind of propose a Bill that would start being a broader definition of how AI, which is artificial intelligence, should be regulated. And this is a really, really long Bill. But one of them that stands out as kind of the bedrocks of it is facial recognition. How could and how should facial recognition be regulated? And so we’ve started to get in the era now a Facebook can recognize that I’ve got a picture of you, Dan, and Matt, with me. And then it automatically says, oh, there’s Dan. And there’s Matt in the background, and it automatically wants to tag you. And we think this is kind of fun. I’m friends with these people on Facebook.

 

But then what if we have cameras set up around cities? That is also recognizing me, Dan and Matt in a certain area? If we’re all sitting at a Starbucks, is it okay for Starbucks to have that data without our consent of it, recognizing our pictures and saying, hey, I want to give you coupons because we saw you were at Starbucks, picked up from a camera like this, or even a step further say that there was a riot going on in that block where the Starbucks we were. And now all of a sudden those cameras saw that you me and Matt were all in the middle of that Riot. And it puts it on a list of a watchlist because these people were in the place of the riot, I mean, things like this, there’s not a whole lot of definition about how that data, first of all can be shared and used, And then secondly, how AI and machine learning can be manipulating that. This is very, very, very, very important. Dan, it’s interesting to see the EU starting to take the first steps on this.

 

Dan Kline  

This is a real slippery slope because I would argue Simon that an opt in basis, that Starbucks example is awesome. So if I walk into the mall, and while I’m in the mall, I turn on “Send me mall offers” as I walk by stores or incentivize me, you know, so maybe the movie theater could go wow, the one o’clock showing we’ve sold no tickets, I’m going to lower the price compared to the five o’clock showing. Or a restaurant could say hey, if you get here by 5:15pm, and it’s Florida, so 5:15pm is actually late for dinner for many people. But if you get here by 4:30pm, we will give you a free appetizer. I think there’s some great marketing on an opt-in basis.  From a criminal basis. And Matt, if you want to weigh in on this, I think it’s awesome when you’re watching law and order and they use like a you know, a neighborhood camera as a street cam, you know, to identify where the murderer was or where the rapist was. I’m not so sure. I want them to identify If I were the guy who didn’t pay his parking ticket is I think there is a, a line. And Simon, how do we decide what that line is? Is it capital crimes? Is it you know, crimes you could go to jail for more than X amount of years? Is it violent crimes? It’s a really tricky decision. Right?

 

Simon Erickson  

Yeah, it sure is. Go ahead, Matt, if you want to chime in for the law enforcement question,

 

Matt Cochrane  

Ah, well, no, I mean, it’s a it’s a weighty question, right. I mean, on one hand, you want to put criminals away. On the on the other hand, like that’s the same, you know, even even worse than parking tickets, how about you’re just had a peaceful protest. But you know, you’re identified being in that crowd, and you’re punished by your employer, or, you know, there’s a public backlash, and people start tagging you on social media and you know, cancel culture, you know, and cancel you on social media or whatever? It’s a very tricky question. I don’t have I don’t I don’t know if I have the answers. But there’s, there’s a lot of thought that needs to be put into it, for sure.

 

Dan Kline  

Yeah. And there’s also like, some social aspect of it. Like, what if Simon pops up as being at a BTS concert without his daughter? And then it’s like, oh, like, should Simon go on a watch list? Like that’s a little bit. So there is some Minority Report pre-emptive layers, this is not a discussion we are going to solve today, this is actually going to be one of the principal discussions, I think of the next decade, because we are going to get into that sci-fi space of where it becomes pretty tricky to commit a crime because everything is on camera, you have that in parts of the world, China famous for that. And there, there might be. Simon I’ll let you wait a second, there will be implied consent, when you go to say the Olympics, it’s going to be right on your ticket that you agree that your image could be used, and that that happens in any sporting event now, it’s really the public streets and public places. If I’m sitting outside a Starbucks, what’s the legality there? But Simon, this was your topic? I’ll give you the last word.

 

Simon Erickson  

I think that is the most important part, Dan, is that this is going to be a very, very difficult question that is going to be addressed for probably the next decade. And I think my final word on this is that the internet, and actually just technology in general is still a layer beneath the government. When you think about this, we always talk about the internet as though it’s a universal concept. And it’s not, you know, regulations and censorship in China are very, very different than the United States. We saw GDPR with the EU a couple of years ago, saying, hey, if you do not comply with GDPR, there’s going to be a 4% royalty, that you’re going to have to pay to us. And so everybody immediately complied to that, this is the next evolution of that.

 

But again, AI is is overarching facial recognition could be anywhere if we’re traveling to China, do we give implicit consent for China who is very open for police to be using facial recognition and cameras around city centers? Are we then playing by those rules? Yes, we are. Because that’s the government of the country that we’re in at the point. And that’s very different than Europe.

 

And so when we talk about things like innovation, and pace of innovation, and who’s out who’s got the greatest technology in the world, I mean, things like this play a really, really big factor. It’s a tough question to answer depending on which side of this you tend to favor but it’s it’s gonna be contentious and a lot of controversy with this from coming up.

 

Dan Kline  

This of course, is why I never leave the house without a full on Boba Fett helmet. No, I’m teasing a little bit because the balance between privacy and safety is very different for people and there’s no right answer. And from a law enforcement point of view, of course, you want to be able to get every you know significant criminal easily, but there is a cost for that. So we’re gonna see technology like just like we have radar detectors, we’re probably gonna see someone invent facial obscurers and, you know, we’re, we’re also living in a society now we’re wearing a mask in public is acceptable. I mean, if you walked into a convenience store in a in a kerchief around your neck that wasn’t allowed in a 7-Eleven, you know, a year ago and now it’s not only allowed, it’s absolutely encouraged.

 

Steve Symington shares as sort of a technical note, if you are a member or just someone who emails us at info@7investing.com, be sure to add us to your safe senders because it is possible you have an overzealous spam filter. Here’s what I’ll also say if you email us and we do not respond within 24 hours, hit us up on Twitter @7investing, it means we didn’t get your email, or you asked an impossible to answer a question, but for the most part.

 

Matt Cochrane  

Or somebody check in on Steve, and make sure he’s okay.

 

Simon Erickson  

Yeah, bears in Montana, true.

 

Dan Kline  

Steve checks most of our email, he is not the only person with access to that account. So we do still answer it in the rare time where Steve is out wrestling bears are hunting mountain lions or whatever it passes for fun in Montana. We are near the end of the show. I recorded an interview with Anirban Mahanti on how he handles his family’s finances. It’s illuminating. It touches on some discussions. It’s probably one you should watch with your kids. And we are going to air that on Monday’s show this show just spiraled out of control.

 

This wasn’t, we were going to talk about airlines and play on Anirban’s interview. We didn’t talk about either of those things because we let what you want to talk about dictate what’s going to happen. And this seemed much higher need to talk about the housing market, and the capital gains tax.

 

But Sam Bailey, let’s climb up on the top rope and hit our finisher. “Which company has improved its long term business prospects the most during the pandemic?”, you picked Chipotle, and that is Chipotle reported this week and their digital numbers were incredible. I actually think they were going to do what they were doing. Anyway, I actually think the answer here is Walmart. I think this forced Walmart to speed up curbside pickup, which customers really like. It forced them to sort of prove they could do grocery well, which is a business that will drive sales for them.

 

But I’m not necessarily right Simon Erickson, which one would it be for you?

 

Simon Erickson  

I would have voted maybe Starbucks. But I defer to you, because you are the retail guru, Dan.

 

Dan Kline  

Yeah, I actually think Starbucks didn’t change their business that much because they were already doing delivery. they’ve gained a little bit of optionality in terms of curbside pickup and, and making the drive thru a little bit easier. But Starbucks had already built that in. So I think they’ve shown an amazing resilience in the fact that our entire commute pattern has changed. And Starbucks sales have recovered, and their dining rooms are still not open in most places.

 

But I don’t think actually that much changed. I actually think Starbucks and McDonald’s were two companies that were way ahead of the curve, in terms of dealing with a pandemic. Now was that because they thought a pandemic was coming? No, it was because Starbucks constantly from an operational point of view goes, how do we do things better? How do we make this more convenient for our customers? It’s like in some stores, mobile order and pay is handled at the same place regular orders are in some stores, there’s like a separate counter for it. They constantly tweak their operations to make the experience good. And I will argue that that is not something Dunkin Donuts or Panera does. I would say the experience at both of those is meaningfully less good. Because they’re not making those efforts. They don’t put customers first.

 

Matt, do you want to weigh in on this topic?

 

Matt Cochrane  

Yeah, I think the stock is too expensive, but Chipotle, I don’t think, I don’t know if any restaurant was better prepared to have like such a sanitized like and you know, a sanitized like kitchen and a digitized sales channel too like through their app and through like “Chipotlanes” that they’re introducing in a lot of their stores. So I think like the pandemic was perfectly timed for Chipotle.

 

Dan Kline  

I’m a little bit biased because I’ve been through the “Chipotlanes” twice. And it’s a dreadful experience, it’s you have to order on your phone they don’t take orders like the way a traditional drive thru does. And like half the customers don’t know that so they get to the front and place an order and then they have to like direct them to go to the pickup area. And every order is put in the same sealed brown bag and they have to hunt through all the orders.

 

I think it’s a lot like Walmart and two day shipping. They will get there they’re not there yet. I think the execution at Chipotle has a long way to go. I do love what they did making the quesadilla app-order-only and by the way if you go into a Chipotle and you order quesadilla they’re gonna take the order but they are encouraging app-orders-only so I think all these companies are coming out of the pandemic stronger but I would lean towards Walmart but you did not agree, you voted Chipotle

 

And that brings us to the end of this edition of 7investing Now did not intend to go quite this long. But your questions a great topic made it that long Of course if you want to get a hold of us you can reach us at info@7investing.com that has questions about your membership, questions about the various things we do maybe you’re thinking about joining have questions about you know what you get for that whatever it is info@7investing.com.

 

And if you want to interact with us if you want to help us by telling your friends about this show and all the great things we do at 7investing, why don’t you retweet some of the things we post @7investing? I think there are hundreds of 1000’s of potential investors or people who are trading and not investing that would profit from listening to our podcast, watching 7investing Now and of course joining but that doesn’t have to be the first step.

 

So you know, we feel like there’s a nation of 7investors out there people who are giant fans of the show 1000’s of you watch this program, listen to our podcast, get the word out and share it with your friends because you’ll be helping them it is the best present you can give them.

 

With that, I am Dan Klein for Sam Bailey, who joined us today. For Simon Erickson, for Matt Cochrane. Thank you for watching 7investing Now. We will see you Monday.

 

 

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