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As an investor, you can invest internationally in two ways. First, you can buy global companies not based in the United States which target their home and other markets. In addition to that, you can also buy shares in American companies looking to grow their business internationally -- something that has traditionally been easier to talk about than actually do. Simon Erickson joins Dan Kline for a thorough discussion of investing internationally, including risks and where many companies go wrong, on the Sept. 24 edition of “7investing Now.”
September 23, 2021
As an investor, you can invest internationally in two ways. First, you can buy global companies not based in the United States which target their home and other markets. In addition to that, you can also buy shares in American companies looking to grow their business internationally — something that has traditionally been easier to talk about than actually do. Simon Erickson joins Dan Kline for a thorough discussion of investing internationally, including risks and where many companies go wrong, on the Sept. 24 edition of “7investing Now.”
Sam Bailey 0:14 Welcome to 7investing Now, a show that teaches you had to take a long term view on investing by better understanding what’s happening in the market now.
Dan Kline 0:22 Good afternoon 7investors. Good morning, good evening, because you might not be here you might not be here in the US, you’re not on the eastern time zone. That is going to be the theme of today’s show. Welcome to 7investing. Now. My name, of course, is Daniel Brooks Kline. I’m being joined today by Simon Erickson and Simon, we’re going to talk about a topic that you set up a little bit. We’re going to talk about investing internationally. And there’s a couple of ways to do that.
We’ll get to that in a second. After that, we’re going to talk a little thing I shared on Twitter about sort of how people reacted to the market this week. I don’t know if anyone noticed, cuz today is kind of a normal day today’s like a dial up 10 down 10 down 10 sort of day, that’s kind of relaxing after this like whipsaw of a week, where it looked like we were heading towards a market crash, or at least a lot of people were talking about that. And then all of a sudden, we’re actually up for the week based on yesterday. So we’re gonna talk about how we deal with that, as long-term investors. Before we do that, Simon Hello, good morning. It’s noon, they’re in Texas.
Simon Erickson 1:25 Good morning. Yokoso. Bienvenido Hello. Any language that you like.
Dan Kline 1:31 I listened to a podcast that called out every person listening by name, it was like 40 minutes before they got to the to the actual content, we won’t do that. But we would love your questions and comments. Recently, we got a lot of people viewing not a ton of you interacting, we would love to have some interaction. But if you just want to listen, if you just want to watch, we fully understand that more of you are back at work than we were a few months ago.
And of course, if you miss part of the show, these are available on our website. And pretty much every place podcasts or video streams are available. So Simon, there are two ways you can invest internationally, you can buy a company based outside the US that’s expanding in other parts of the world. Or you can invest in companies that are based. Excuse me, the first one was inside the US, the second one is outside the US. So basically, there’s the inside angle, and we’re going to talk about Starbucks and Amazon. And there’s the global pure plays – a company that starts in another country that doesn’t necessarily have its core sights set on the United States. Can you give me your overview, your 10,000 square foot your 10,000 foot? I always say square foot because I’m so real estate driven. That is not correct. But how do you approach international investing in your investing world?
Simon Erickson 2:46 Yeah, you know, investing world perfect pun Dan, I love that one. Like you said, there’s kind of two ways to do it. And I think that we’ll talk about the latter way on a separate show, which is actually investing in pure plays that are based in other countries. Today, we’re going to take the angle of if you’re an American-based company, there’s a lot of opportunity to start setting up shop in the rest of the world. And as investors, we like that, that seems optimistic, right?
You want to see your company go out and say, hey, we’ve got an opportunity United States, it’s this big, we’ve got an international opportunity, that’s 20 times as big. But I also want to point out that for investors, it’s not that easy to just go out and say, Hey, we’re gonna replicate exactly what we’ve done in America, and it’s necessarily going to work everywhere else in the world. There’s a lot of challenges. And I want to talk about several of those on today’s show, not only the companies that have done it really well, but some that have really kind of struggled with this in the past, and maybe kind of an in-between story as well.
Dan Kline 3:40 I’d actually argue that more have struggled than have succeeded. So we talked a lot in planning the show that this is not easy to do, there are more stumbles than there are successes, but it’s often part of the bull case for a stock, we go, Hey, this company is great. Even companies that I’m a fan of that have no global presence, I will often say something like, well, when they finished their U.S. expansion, they could still go grow globally. That’s not as easy to do, as you might think, right? Why is this so difficult?
Simon Erickson 4:09 Well, it’s just hard to completely replicate your strategy, when you’ve got a completely different country with a completely different set of government regulations and a completely different consumer culture. It’s not just so easy to say, hey, this worked here. So we’re going to do exactly the same thing. And it’s necessarily going to work somewhere else, you have to be adaptive. I think this is kind of the softer side of embed of investing, more of the qualitative part. Really the leadership and you look at the decisions that they’re making. And I think that one company, if we want to start off with this one, Dan, that I’d like to have you chat about, is Starbucks because we know that Starbucks has done very well in China.
Dan Kline 4:43 Yeah, so Starbucks has both used what it knows from the US, but also adapted to the local market. So what do I mean when I say use what it knows? Well, people want good service, no matter where you are, there’s no country, even countries that are famous for not delivering good service where people like you know what I want, I want to wait in line for a really long time and I want it to be slow. And when I get to the front of the line, I want them to not have what I want. And then when I order something else, I want them to make it wrong. like nobody wants that. And Starbucks is really good at execution.
They also understand how to drive customers using digital. And China, which is not the case in every Starbucks market. China’s a heavy digital market. So they’re able to say, Okay, what works in our app in the US is likely going to work in the app in China. That doesn’t mean they don’t adapt that. Then here’s the second piece, they adapt to the local market. But Simon, how many cups per capita of coffee do you think America – and we’re not first. We are well below Finland, Germany, Italy and Brazil. But what do you think is our coffee consumption, per capita. And I believe it’s cups per week. But But I may be wrong. It doesn’t really matter what the metric is. The graphic I’m looking at is not specific on that.
Simon Erickson 5:59 Well, here in the Erickson household, I’m probably pushing 600 cups per year. So I don’t know where that would level out for the averages. 200 cups a year.
Dan Kline 6:08 So yeah, it’s about 4.1 a week. So yes, that would that would average out to a little over 200. China is at 0.1. Coffee is not culturally, something that’s part of the Chinese experience. Now, what does Starbucks have to do? First of all, it has to get people excited about coffee. But you can’t just do that you can’t open up a store and say, okay, we sell something you don’t know. And we want you to come in.
So the Starbucks in China have a much more robust tea menu than the ones in the US do. Now, the US ones have gone back and forth with being tea heavy, and not being too heavy. They obviously owned Teavana. But basically, they went in and said, we’re going to give you this lineup of beverages with a Starbucks twist that are familiar to you. And while you’re here, we’re going to do things like have coffee sampling, they have a partnership with WeChat, a Chinese native app, where you can send your friend a cup of coffee.
So basically, I’ve never had coffee, or I’ve rarely had coffee, and I go in and say this coffee stuff is great. Like I bet Simon would like coffee, he drinks like 40 cups of tea a day, like that’s really inefficient. So I could send you a cup or a gift certificate. It’s a local market strategy, but it’s not overly different from what they’re doing on a global menu. Starbucks actually adapts its menu for every place they work. So I’ve talked a lot about how I travel to the Bahamas a lot. When you go to the Starbucks in the Bahamas, there’s a lot of guava on the menu. That’s not a flavor that Americans traditionally use. In China, there’s things like bean paste, and we don’t put a lot of jellies. I mean, we’re all familiar with boba tea, which is tapioca and tea.
A lot of beverages in China have, let’s call them, I don’t know if the word is solids because they’re more like Jello’s or squishies than they are solids. But let’s call them more solid bits that most Americans would put in their drinks. There’s a lot of drinks. And then sometimes they’ll specifically introduce something in China that they think they’ll like. And the promotion will be that it’s sort of an American idea. So this is a company that adapts to the market. But at their core, they’re actually doing very much what they do in the US. And basically, I call it an affordable luxury. And in China, they’re targeting the middle class.
CEO Kevin Johnson actually had a great quote, if you want to share that, JT, this is from my friends over at QSR magazine. I don’t know if they did this interview or just pulled the quote from somewhere. But my friend oddly named Danny Klein is the editorial director there. So giving him credit that that’s where I found it. No Western company or brand is better positioned to evolve with the rapidly expanding Chinese middle class and we continue to mindfully evolve a coffee culture in China with a reward be healthy, long term profitable growth for decades to come. Simon any idea how many Starbucks they intend to have in China, or how many they open each day in the non-pandemic world?
Simon Erickson 8:59 Let’s go with through 30,000 store potential in China for Starbucks.
Dan Kline 9:04 It’s less than that. So they’re only targeting 6000 restaurants across 230 cities by the end of 2022. That’s not the end of the growth. But the end of the growth probably looks like something like 10,000
Simon Erickson 9:19 I whiffed on that one. I did so good on the cups of coffee per year, I whipped on the total opportunity in China.
Dan Kline 9:23 I actually think the total opportunity is probably somewhere closer to you. But the Chinese middle class has to expand. But if you’re American and wonderful comment by Maxx Chatsko, which Yes, Simon is probably over 600 cups of coffee a year. I am exactly at like well maybe like 400 there occasionally days I have two. But I’m almost always one cup of coffee a day and sadly, sometimes decaf. But in China just like the US. They want it to be a bit of a status symbol to carry around a Starbucks coffee. Now in the US. It’s not a status symbol, but it’s definitely cooler to have a Starbucks cup in your hand than a McDonald’s coffee or a 7-11. Coffee. It’s definitely a different statement if you’re in New York to have one of those like, you know, Greek diner cups of coffee.
Dan Kline 10:09 So it means something to have a Starbucks coffee, and they’ve really gone into the local communities. This is actually mirroring their strategy in the US. And I promise I’ll wrap up in a second here. What they do in China is they donate to the community. They make sure their employees come from the community, and that they’re supporting causes that are relevant to the people who work in their stores. They’re also doing things like opening processing plants, they did that in 2018. There’s a Starbucks roastery, I believe in Shanghai, which is just a massive palace to coffee. If you’ve never tried coffee, that is a really good way to find what you might like.
So it’s a different strategy, it accepts that they’re going to be changes that they’re going to do things differently local, but it is largely a version of their American strategy. And just like in the US, they have an enormous amount of competition. And I would argue that a rising tide raises all boats that Starbucks does not care that I get my coffee at Starbucks during the week and my coffee at a very lovely Swedish place where I can have a leisurely breakfast on Saturday or Sunday. Simon, any thoughts on Starbucks before we move on here?
Simon Erickson 11:17 The affordable indulgence is such a big one for me, Dan, I mean, that whole story, I think you nailed it. You know, people want convenience. They want Starbucks to be involved in the community. But also it’s not just another coffee house. If you remember Luckin Coffee, before it had financial fraud and you know, accounting issues that really took its toll on equity holders. A lot of people were saying, Hey, this is a much cheaper coffee chain. Isn’t this just going to displace Starbucks because everyone’s going to go to Luckin instead of Starbucks. But I think that’s missing the bigger picture of what Starbucks is wanting to be, which is kind of that step above that premium brand, that affordable indulgence, like you just mentioned.
Dan Kline 11:51 Yeah, it’s not just coffee. And there’s obviously people to whom McDonald’s speaks to because of price point or Dunkin donut speaks to because they grew up in New England. But for the most part, Starbucks is the coffeehouse entry for a lot of people. And are there snobs that only go to fancy coffee houses? Absolutely. But look, I will point out that I was a login bear, along with our dear friend Emily flipping from Well, before there was financial fraud. We did many, many shows, talking about this. And here’s what I said. Luckin is doing a wonderful job training Starbucks customers, because their business model was giving away free cups of coffee so you like coffee. That is a bit like giving you a flight on Spirit Airlines to see if like getting to a different place is great. And then you realize, well wait, I could have a comfortable flight on any other airline.
So I actually feel like the login model was flawed. Now that said, there are lots of Starbucks rivals. But I do think there’s a place for them. Because the ubiquity of Starbucks makes it easy. Look, if I’m in an airport, and I see a Starbucks versus a chain I’ve never heard of that. Or like a coffee leaf in tea or like something that I know. or a Peet’s. Or something that I know isn’t quite as good. Chances are you’re going with the familiar. That’s been the logic in the US like, Starbucks has actually created a new era of coffeehouse culture. Like in the 1980s, when I was in an early High School in the late 80s. Coffee houses were a thing. They had ratty couches, they had poet slams, and live music, and Starbucks kind of killed off that first wave.
And now there’s a whole new wave of these like, we’re better than Starbucks, our barista is an artist and we pay them 90 grand a year. If you walk around Seattle, there are a lot of those. But Simon, we’re gonna move on momentarily and talk a little bit about Facebook’s efforts in India. But again, I’ll give you one more chance. If you’d like to close out on Starbucks. And of course, any of you if you’d like to comment, we would happily take those questions and comments.
Simon Erickson 13:47 You nailed it, Dan, I have nothing else to add just the community piece of it in the affordable indulgence.
Dan Kline 13:52 So here’s the bad news. Starbucks isn’t typical. This is not normally how it goes. Most US companies when they enter, not just China, but really any market tend to struggle. And Simon you had some examples about one you wanted to talk about that’s really a struggle, and one that’s kind of in the middle. Why don’t you run with the ball a little bit here?
Simon Erickson 14:14 Well, and this is kind of more of a conversation to that I’d like to have anybody chime in that’s watching the show. I would love this to be interactive. But I do think that one we should talk about is Facebook. Just because Facebook is a completely different game than a lot of other companies like a Starbucks, you know, Starbucks is at the end of the day, selling a cup of coffee.
We’ve talked a lot about oil companies too, and how they negotiate the terms of drilling oil or mining minerals out of the ground and other countries and bring it back to the United States. But it’s really interesting when you see something like Facebook, which is entirely digital, and it’s a social network trying to adapt to local cultures. And also avoid stepping on landmines along the way as it’s going more and more internationally.
And I think that maybe Something we should point out with the bear case here. And maybe it’s the bear case, maybe it’s a very, very much a bull case. But Facebook every time it’s deploying capital is playing the long term game. Right, Dan? Oculus $2 billion acquisition, I was back in 2014. Here we are seven years later, we’re finally starting to see some progress with AR and VR. WhatsApp $20 billion. Also back in 2014. I mean, that is still a very minimal contributor to Facebook’s top line, its results. And now we’ve seen Facebook putting a lot of work and a lot of money into capital expenditures on the continent of Africa.
Dan Kline 15:34 But let me ask Simon, is it even fair to judge Facebook’s results in Africa? Because aren’t they really just like, almost like laying, you know, groundwork and building infrastructure? And I know like, they’ve done things like work with phone developers to make sure there’s phones that are essentially Facebook phones, like you remember, when AOL was the internet? Like, that’s kind of what Facebook is, for many people in Africa. Not entirely, because it’s not a closed universe. But Facebook is, you know, when you’re on 2g, internet, Facebook is kind of there. So are we looking at something that’s still 5-10 years away?
Simon Erickson 16:08 Absolutely. In fact, it’s not the groundwork, it’s the ocean work. Facebook is right in the middle of a project right now where they’re laying down 37,000 kilometers of deep sea cable for high speed internet all the way around the continent of Africa, right. And they’re hoping this is going to support not only their initiative of getting everyone in the world free access to the internet. But of course, they’ve got a personal interest in it as well. They want, and this is in collaboration with MTN group and also several of China’s telecom companies. But they want to get people in Africa setup so they can have Facebook pages, and then actually the do the transactions on mobile devices while still having access to Facebook. And it’s a noble ambition, right? Africa, excuse me, has got 1.2 billion people on it, Apple’s probably got about 1.2 billion people.
Dan Kline 16:54 And Apple’s rumored to buy every container.
Simon Erickson 16:59 But you know, you look at a project of that magnitude, I think that when we look at that, as investors, we say, okay, great, billion people in Africa, we can certainly see the case for why Facebook wants to do something like this. But first of all, that Internet’s not even going to be available until 2023-2024 at the earliest. And I think that, to take the bearish side of this, there is a lot of political landmines in this. If Facebook, if it’s just going to set up shop in Africa and give a social network for everybody. It’s gonna have to swallow a tough pill to swallow here and say, hey, there’s gonna be a lot of collateral damage done from things like this.
We saw Myanmar, right. This was where Facebook had the military spreading misinformation that led to a genocide of people. We’ve seen Facebook being used for human trafficking in the Middle East, and even in Ethiopia, even within Africa before they flipped the switch to turn on a lot of us wireless. The military has been spreading misinformation to push its own agenda and parts of eastern Africa right now. And as an investor, you see the optimism, you see the bull case, you see the opportunity for Facebook, but it’s got a lot of other things it’s really going to have to address before we can just jump into a continent.
Dan Kline 18:08 Well, isn’t this the challenge for Facebook globally, including the US. so if you’re say a financial services provider, you might be used for nefarious purposes, money laundering, buying things you shouldn’t buy, I don’t know, like giving kids ice cream, they shouldn’t be eating, I’m trying to pick something innocuous there. But that all happens kind of behind the scenes. If your Facebook, which culturally in the US can’t figure out where the line is, and I don’t blame them. I don’t want to be the person deciding what’s an okay post and what isn’t?
That’s, that is a very difficult job to have. But how do you then do that in a country, even if you hire native people, it is a lot right to understand the culture and like, there are lines that in the US may not matter. And this is something that’s hurt Disney in China as well. Where there’s a line in the US, that’s totally okay. We’re like an innocuous joke becomes like this movie can’t play here. Like, isn’t Facebook, like, it seems almost impossible.
Simon Erickson 19:05 Really, really challenging, right? Like, not only is the cost of the infrastructure gonna cost several billions of dollars – just to lay cable across the continent of Africa. And then on top of that, you know, all the base stations, everything else that are required to get everybody connected. But then you’ve got several several multiples of that are trying to figure out how do you how do you try to control something like this on a continent where you’re not based, where you’re at the whim of several different countries, each with their own governments. You don’t want to just let Facebook to become a megaphone for government propaganda that can lead to harm for people out there.
Facebook’s going to have to do a lot of things that they’re going to try to control what it wants to be, which is an enabler of commerce across the continent. And I guess my only point in this is I love that Facebook is ambitious. I love that you’ve got a CEO like Mark Zuckerberg, that’s thinking big and thinking globally. That can be incredibly, very, very good for investors. But you’ve got to kind of step back when you look at something of that of that scope. Think like your question, Dan, how long is this going to take? The first question we posed? How much is this going to take? And then thirdly, how much control can we really have over things getting completely out of control? And then what is Facebook’s response to something like that going to be?
Dan Kline 20:14 Let me close this part of this topic out with one other comment. We’ve talked about risks before and this has happened in China. Do we worry a little bit about like, hey, Facebook builds this infrastructure and then some of the countries they’re operating in just say, hey, that’s ours now, because we’ve seen this it hasn’t happened in a significant way in my investing life, but it has happened historically, where you know, China just goes alright, like now we own all the whatever they are, it’s like we own all the Arby’s and good for you, like take all the Arby’s that’s fine. Sorry, had to get an Arby’s dig in there.
Simon Erickson 20:47 I disagree on Arby’s Dan.
Dan Kline 20:48 I know. I’ll take your Ferb? I promise I’ll buy your real roast beef sandwich someday. But that being said, Do you worry about this with Facebook? There are a lot of different governments. We can’t pretend that Africa is one country it doesn’t. It is a whole bunch of different countries. I should know that number. I apologize.
Simon Erickson 21:02 You know, it’s coming. You know, this is coming, right? This is exactly what’s going on with US and China right now, you know, who owns the infrastructure? Okay, we’ve got everything connected to the cloud, who’s going to have the data centers, but then how are you going to control those? How are you going to regulate the cybersecurity for those who owns that data? I mean, this is multiply that times times 50 times when you’re working with several different countries in Africa, those negotiations are going to get really, really tricky. And I think that almost certainly it’s going to be a challenge.
Dan Kline 21:29 We’re going to stick with this topic, but I wanted to take a comment from Bwave 79. Yep. Starbucks is one of my largest holdings, they seem to sell coffee and experience and continue to tailor to customers. Yeah, they work really hard to make sure the customer is happy. And, you know, they set out to be a third place. And I think, you know, they invented that term, more or less, maybe they didn’t, maybe they stole it from somewhere. But Starbucks, for me has absolutely been that. I’m when we’re done with this, I’m in at three o’clock today, I’m going down to a Starbucks to meet with a couple of members who happen to be in town, because it makes more sense than having them in my house, though they are people I’ve met before. So I wouldn’t be worried about that.
Dan Kline 22:08 Of course, all our members are lovely and are welcome to come over. But that being said, that is a brand advantage. And I’m not so sure that’s easy to duplicate. So bringing that to other countries, especially countries where maybe home internet isn’t as good. And again, take it back to the Bahamas, the internet’s pretty lousy, it’s 3g at best. So Starbucks is really a lovely place to work compared to even your hotel, or wherever you might be staying.
And I think that’s going to be important. As you see the company, obviously, how they’ve expanded around the world is varied. They use a franchise model in some countries, and China has been a company-owned model, we are going to keep looking at that. But Simon, are there other factors that make it challenging for companies to to operate abroad? We’ve touched on some of these, but let’s sort of use this as a launching point to our next company.
Simon Erickson 22:59 Oh, goodness, are we talking about consumer culture in China, and we talked about military in different countries and the challenges facing Facebook, I’m gonna go 5050 on this one day, and this one’s up to the audience to be the jury on whether this is a bullish or a bearish opportunity. And I want to talk about Amazon in India, because India as a country, you know, democracy, very progressive in so many different ways. Digital payments, it’s really pushing for its populace to stop using cash and start using digital payments.
And as you see, you know, our very own JT Street is showing – this is Amazon India. This is actually already out in the in the country, you can buy things in India, Amazon’s got the marketplace up and running. It’s got Amazon Web Services out there. Amazon has actually put over $7 billion to work in India. And in addition to that, it’s planning on having more than 10,000 electric vehicles for delivery vans by 2025. And more than 100,000 by 2040. A plan to create a million jobs in India by 2025. And many more than that, over the long term. So it seems like there’s a lot of optimism and a lot of opportunity for Amazon in India, Dan,
Dan Kline 24:04 But Simon, are they fighting resistance to big American company comes in and stomps on the locals because there was resistance to Amazon here. Even though I would argue that they’ve been a platform for as many small businesses as they’ve been a challenger. What’s the sort of and again, you can’t generalize the attitude of people in India, it’s a very large country. But what’s your take on sort of the overall reception here?
Simon Erickson 24:28 Politically, India wants to protect its small mom and pop retailers. It has a lot of small merchants that are really, really worried about Amazon coming in lowering prices on everything and putting them out of business. As you mentioned, Dan, that’s not just something that would happen in India. Amazon, and Walmart, for that matter, any large retailer, that’s a threat of putting the mom and pop shops out of business. And so one of the responses that India has had to Amazon, as well as any other ecommerce marketplace in the country, is that the marketplace itself has to just be the middleman between buyers and sellers, right. It’s the sellers that have to own the inventory.
The marketplace cannot own the inventory, they cannot determine prices. And they can’t have algorithms that influence how products from different sellers are listed on its platform. Of course, this is something that’s very sensitive for Amazon, who’s collected as much data as it possibly can and is selling its own Amazon, you know, branded products in the United States. It’s not going to have as many of the opportunities that it has here in this country as it does in India, because it’s gonna have to comply by the regulator’s who’ve got kind of a watchful eye on it so far.
Dan Kline 25:33 And at some point, the rules like that become self-defeating, because like if I can’t use an algorithm, am my listing them alphabetically, like am I becoming AAA, you know, iPhone batteries or iPhone chargers? Because I want to be at the top of the listings, like, I don’t know, this seems to me like, like, Is this an opportunity worth pursuing for Amazon? Which is really the same question we just asked for Facebook.
Simon Erickson 25:58 It’s, it’s a challenge, I think it’s worth it for Amazon. I think, as an investor overall, I liked seeing Amazon get into India, but I think there are going to be some headaches down the road. One example was several years ago, there were large telecom companies, right, AT&T and Verizon and Vodafone, were setting up the telecommunications infrastructure in India. And they put all the capital expenditures to work, just like we talked about Facebook building out the internet in Africa, AT&T did the same thing in India. And then India, just kind of, after they did that, they flipped the switch and they set up shop, they said, Hey, we’re going to start increasing the rates and you’re gonna have to pay for Spectrum rights. And also for licensing fees, they just said, Hey, this is the cost of doing business in the country now.
And that kind of sent AT&T and Verizon back to the drawing board on figuring out what how profitable this is going to be versus how profitable they thought it was gonna be, when they had everybody crunching the numbers and doing the spreadsheets. And so you’ve got to accept that uncertainty of setting up shop, even in a democracy that’s very progressive, things can change very, very quickly. And as businesses, you kind of have to have a margin of safety built-in whenever you do something like this.
Dan Kline 27:05 So Simon, this is a topic we are going to come to more often. I’d love to get Anirban on talking about this as well. But let me ask you one more question here. If you’re as big as Facebook, as big as Amazon is big as Disney do, you simply have to pursue these opportunities, because at some point, you’re not going to grow. And obviously, Disney’s a little different because if you finish a movie, there’s not a significant added expense. I mean, there’s obviously marketing, but it’s not the same cost to roll it out to 17 new markets, or the or any of the things it’s doing. But for Facebook, for Starbucks, there are real costs here. But do they simply have to do this in order to maintain growth?
Simon Erickson 27:45 Yes, it’s you have to go after large markets, if you want to move the needle as a large company like this, and I come from a background in the energy industry, then I spent several years working for a very large energy company. And of course, a lot of negotiation overseas, with governments, with trade ministers to foreign ministers, things like this.
And there’s a reason that those large organizations, so those large energy companies have got such large public affairs and government relations groups, right, This is- when you’re talking about you’ve got to go out and you’ve got to go after a big market to move the needle. There’s a lot of costs, a lot of thinking that has to go into that it does not happen automatically. And that’s the kind of a takeaway that I want to leave investors with, for this segment of the show is, it’s not so easy, even for large companies that have, you know, dedicated groups to figuring this out. Going internationally is a lot of opportunity, but never, ever think that it’s easy.
Dan Kline 28:37 Yeah. And I think, look, I am a fairly global person, my brother lives in England, I have friends all around the world that I’ve met at various places. And during the pandemic, I was talking to some of those friends while we’re all stuck at home, and just the cultural differences that you maybe don’t think about when you’re just talking about music, or movies, or whatever it is. When you’re all stuck at home and a pandemic, and you’re looking at how society is dealing with everything from like, Can I go to the grocery store, to what’s our healthcare policy going to be? You start to realize that global attitudes are not easily defined.
Dan Kline 29:10 And, you know, again, we talked about at the beginning, something that might seem like a throwaway line to an American might be culturally insensitive in another market, and that’s something that’s very difficult to navigate. We’ve got a bunch of good comments. I want to get to those. Before we segue to our last topic, we’ll go with Max Lucas, we’ll take these in order. Max Lucas says, if the Indian government is worried about Amazon hurting small businesses, then does that help Shopify? I’ll let you take this.
Simon Erickson 29:39 I mean, you got you got Flipkart right too, which is kind of a big, big player in India, which Walmart bought. It was $16 billion or something acquisition I can’t remember off the top of my head of how big is it? You know, it’s gonna help the big players help. It’ll help obviously a company like a Shopify that’s working with smaller vendors for an opportunity like that one. I think the biggest winner probably is going to be the payment processors. The Square’s of the world, maybe the papers of the world, maybe there’s going to, you know, be – what’s the one in India? It’s escaping me right now, is it?
Dan Kline 30:09 I don’t know, off the top of my head. But I fully agree that the it’s a lot easier for payment processing to go global, as complicated as it is, but they’re already dealing with, what is it like 17,000 US tax jurisdictions, like they’re really used to dealing with intricacy. But as complicated as it is, the laws tend to be more specific when it comes to just numbers as opposed to just like, you know, dealing with with cultural issues. I’ll let you wrap up here, Simon?
Simon Erickson 30:38 Yeah, great point. I mean, like, you’ve got the government who’s going out and saying, hey, we’ll install for your, for your shop that you have, whatever it is you’re selling. We’ll give you credit so that you can install things for digital payments. India at the bigger picture wants to minimize fraud, wants to minimize, you know, people not reporting transactions to the government, they can tax and things like that. So they’re saying, hey, we’ll set all this up for you, we’ll pay the bill for it, you just install it. That’s great for a company like that that’s doing the processing of those payments.
Dan Kline 31:04 Yeah, I think it’s really interesting that we have a global economy on like a macro level. But on a local level, we really don’t. I talked we talked a little bit before the show about when I worked for Microsoft and had colleagues in India, sometimes it was cheaper for me to buy them things like Levi’s and send them to them than it was for them to buy them locally. Those are the types of things that I actually think the Shopify to the world are going to help us figure out with supply chain, and logistics. I think there’s a lot of opportunity, but it’s going to be lumpy. If you look at any of these companies, they are going to struggle. Let’s take Bwave79 comment, and then we will I’d rather see Amazon absorb or acquire an Indian company that does similar services. I think they were in play for Flipkart. But I’m not so sure that there are enough companies at scale, that would matter for it. I mean, Amazon probably bought 15 companies in India you haven’t heard of because you know, that do little things. any insight here, Simon?
Simon Erickson 32:02 Yeah, I mean, just a huge opportunity. I like this one I’d like to comment from if I can pivot just a bit to the comment from Daniel Kern, the second one there about how he’s saying that there’s a lot of developing nations that there’s kind of, this is how business gets done. A lot of American companies are definitely not going to agree to that kind of, you know, bribes and things like that, or the nature of setting up shop there. There’s not going to do that stuff. And so that, of course, is another obstacle for them.
Dan Kline 32:29 No, American companies would never do that. Sorry for being skeptical here. But I feel like there’s a division at Facebook. That’s probably unfair. And my, my college roommate just started a job at Facebook. I won’t say his name so he doesn’t get fired.
Before we hit the homestretch and talk a little bit about this crazy week in the market. I want to talk about 7investing in something new we’re doing. So are you not a 7investing member? First of all, what are you doing? You get our seven highest conviction stock picks each month, you get seven different, incredibly talented investors, people who do their homework, who live and breathe this stuff. I can’t tell you the amount of times it’s like Saturday at four where we start a conversation with someone sending a picture of like themselves at the beach, and then all of a sudden, it’s like a conversation about drilling for oil that goes on for 90 minutes and talks through.
Dan Kline 33:18 We really live this stuff. I’ve talked about it a lot. We enjoy each other’s company that matters a lot. And I think no matter what type of investor you are, you can look at us and say hey, I really like what Simon has to say about international companies. But Wow, Anirban lives in Australia. Anirban’s lived all over the world. And I really want to hear his opinion or Boy, you know, Maxx Chatsko go. I really like his piece. He did an amazing piece this week that we talked about a little bit on a show, I think was Monday show where he looked at biotech companies that reach $100 billion in valuation, which is basically like running into a brick wall. Like once you get there, like we’ve talked about, like companies hitting the end of their thesis that might actually like sort of, sort of be an example where that applies. And the only example where it wasn’t true was Johnson and Johnson.
But Johnson & Johnson gets more than 50% of its revenue not from drugs. So it’s really more of an outlier. But that’s just the kind of thing you learn when you’re a 7investing member and if you’re not and you’d like to be, you can use use the code NOW that is N-O-W. If you do that you get $10 off your monthly subscription or $10 off an annual subscription so if you go to 7investing.com/subscribe, you can pay $49 a month or $399 a year and as I always say this that is the deal like I’m not great at math but that’s at least two months free Simon you started the company. Anything else you want to add about.
Simon Erickson 34:47 Four months by my math Dad, you know if you’re getting $200 off of the annual subscription, that’s a 33% discount. The annual option I think is probably the deal of the century right there. I just to add to what you said I mean, knowledge compounds right And that’s the reason why we’ve got such a diverse team here that is looking at all pockets of the market. You mentioned Maxx and Dana, you know, they’re looking at a lot of Life Sciences companies, healthcare companies, I know that you look at a lot of entertainment, retail companies. Matt’s looking at financial services, Steve and Anirban look a lot of computing companies and AI companies. I’ve been really obsessed with the semiconductor space lately. So that’s been taking up my attention.
But what we’re trying to do is not only say, Okay, here’s some stock picks for you to consider, but to say, hey, based on everything we’ve been reading throughout the entire month, year, 5 years, 10 years, this is the company that’s best positioned to take advantage of whatever it is we’re seeing reports or comprehensive reports. It’s not just stock tickers we’re shooting out there. It’s kind of condensing and distilling down a whole lot of information.
Dan Kline 35:43 Yeah, and I’ll close with saying, by virtue of our different backgrounds of our different ages, some of us have kids, some of us don’t. All the different experience we’re bringing, we had a conversation on Slack today. And I won’t tell what it is, because I think it’s actually something we can make content. But where a bunch of us said one thing, and then Maxx came in and say, Hey, wait a minute, like that’s not right. Like, that’s not how I see it.
And there was a bit of good natured sparring. And even if you don’t agree, hearing someone who strongly has a different opinion that you respect, makes you better, you have to defend your opinion better, you have to think about the other side. And we do that with all our picks. We, when we record our PowerPoint presentations, our deep dive live videos, everyone can ask questions, and someone might come in with a question that you never even considered.
And sometimes we have to get back, we have to write an update or something because maybe we don’t know the answer. But we make each other better. And we’d love for you to be part of that. We’d love to make your investing life better.
But let’s move into the homestretch here because I don’t know if any of you noticed, but this was a high news week on the stock market. And one of the things I like to do is say, like, hey, when things are scary, we’re going to hold your hand. And this is what I asked on Twitter today. And I asked the whole team, what lessons can we take away from this down and up week in the stock market, I say down and up instead of up and down, because it went down first, and then it went up. And I have no idea where the market is now it was flat when we started but if you told me it was down 400 or up 400. I would not in any way think you were lying to me. But Simon, you actually responded right away with pretty much what I said and sort of, and that’s Don’t overreact to headlines. Do you care to expound a little bit here?
Simon Erickson 37:26 Yeah, I mean, to me, the story of the week, this week was really all about China. And you know, its real estate developers being $300 billion in debt. And I think that the headlines really frame this as though this happened last week, and that China’s economy was about to collapse, just like the recession that we well, I shouldn’t say collapse, but the challenges we faced in 2008, with our own great recession in the United States. Certainly it is a concern, Dan, I just think that it was a bit of an overreaction. Because this has been something that’s been ongoing for a decade, China is certainly aware that it’s got ghost cities that it’s developing, and it’s going to have to grow into those but I don’t think that that this just blows up this week. And we saw a lot of volatility in the market because of a lot of those stories.
Dan Kline 38:10 Yeah, ghost cities are not as cool as you’d think they were. I always pictured like a Scooby Doo episode, but it’s really just full cities that they don’t have a population ready to go in. And I agree, we’ve lived in – for many years we’ve been a hair-trigger where like some rumor comes out that something that won’t actually matter that much in the economy might happen and the market goes up 1000 or down 1000 It’s a lot of overreaction, but I think some of that is just powered by how easy it is to make a trade right now. Like you don’t have to call a broker you don’t have to pay a fee and the one thing I’ll caution you on this is ne very careful if you’re trying to time the market. We talked about this on Wednesday’s show if you think wow I’ll sell out of this stock in order to buy back in later.
Historically that generally does not work out for you. Let’s go to Joe Mooney’s comment a lot of you commented but we just cherry-picked some of them so JT if you want to bring that up it would appreciate it. There’s always a vocal minority calling for a crash. I joke about this go on CNBC talking that there’s going to be a crash and eventually you’re the guy who predicted the crash so I’m in your thoughts here.
Simon Erickson 39:15 Yeah, it’s interesting. I mean, like, like we just said, you know, the crash is a big word. I will say that there are a lot of institutional investors that are taking money off the table in China right now. You see a lot of them say – SoftBank saying hey, we don’t know what’s going on over there with regulations. I mean, they’re not investing in China with new positions right now. A lot of other American institutional investors doing the same thing. So there is impacts and stuff like that. That puts a lot of pressure on prices, Dan?
Dan Kline 39:38 Yeah, absolutely. We’re gonna take two comments from our own. First Maxx Chatsco go in the live chat if you want to take that one JT. Dan nailed it on Monday. I’m gonna toot my own horn a little bit. That doesn’t happen that often on Monday show by saying that the markets would probably bounce back in a few days. I took the opposite view, but now I own some Arby’s. We are not going to Arby’s. Yeah, that’s like losing a bet not winning a bet. That being said, I wasn’t basing that based on any market knowledge. I was basing that on what the pandemic has been like when we’ve had these very quick call them crashes and corrections, because you really have to look and we go back to 2008 when the market crashed, and there was a fundamental underlying economic reason, it wasn’t just noise. So just because someone comes out and says, Hey, if we have a government shutdown, it’s gonna mean irreparable harm to the American people history has shown that’s not true.
We’ve had government shutdowns. So you actually have to not just have a supposition, you have to have a real reason or else some minor good news will tick things back up so again, I don’t want to downplay how sort of frightening these things can be.
But remember that markets respond to news and news isn’t always responsible. News doesn’t always – we saw this whole wave of Evergrande stories, we covered Evergrande on Monday and Wednesday shows there are some some some free articles on 7investing calm about this pulled from those shows. Were on Monday the psycho is Evergrande to the end of the world, it’s gonna crash it’s gonna pull down all these markets. And then Tuesday there was as we were preparing Wednesday show there were a whole bunch of Wait, maybe Evergreen, it’s not that bad. And if it fails, wait a minute. It’s not just a financial Institute. It actually owns all this stuff. So like when you own a bunch of stuff, like maybe people get 90 cents on the dollar, but they don’t get zero but I wanted you to comment Simon on, on Matt Cochrane’s comment here. This was on Twitter as well. If you want to share it, JT, keep calm and carry on. And if this week scared, you stop checking your portfolio.
Simon Erickson 41:40 Yeah, I mean, how about that? How do I take that the angle I guess I can put on that as a 90% of the market’s trading is done algorithmically right now. Right? How is anybody still doing day trading? Because you’re gonna lose. The AI has got a lot more information, a lot more data points about what’s going to happen in the next five seconds of this stock or the next five minutes or the next you know, day. This is a very challenging game to play. And so when you worry about the market being up this many points on a certain day, but then it comes back down the next day. It’s kind of those inner days, do they really matter? Do we really care if we’re investing money in the stock market for the next five years? I don’t, I don’t, I don’t care if the market is up one day and down the next if you’re if you’re a high-speed trader or a day trader that’s really interested in those intraday swings. You care about that stuff as a long-term investor it doesn’t bother me.
Dan Kline 42:27 That sounds exhausting. That sounds like betting on baseball pitch by pitch like, like, this one’s gonna be a strike to the outside. Like, I don’t want to do that, no matter how good I think I am at predicting baseball or predicting stocks. We’ve seen the markets not great at interpreting results. We talked about this a lot with retail, we’re like, companies are way bigger than they were two years ago. But they didn’t grow as much as they did during the pandemic, because the market conditions changed. And the market goes ugh, this company is it’s like well, but they still had what would have been amazing comp growth on top of really good numbers. The market sorts that out eventually, it doesn’t sort that out in the short term. If you have any last questions and comments, feel free to get them in. But we’re gonna take one more from Mark Simon. And he says volatility is not risk, but rather the typical trend of long-term significant rewards. Amen. Simon.
Simon Erickson 43:21 Yeah, volatility versus a great discussion. volatility is movements that are shorter term, the ups and downs of stock prices, if you want to call it that risk, is the permanent impairment of capital, are you permanently gonna lose your money from this? A lot of times you kind of hear these sayings buy low, sell high, you know, and stop losses to only lock in a 10% gain. That’s all related to volatility. But risk is really more of you know, longer-term. Is this company getting displaced by its competitors? Is it it? Is it stepping on landmines in the country where it operates? I mean, that’s the stuff we should be really considering, as long as we’re looking a couple of years out instead of a couple of minutes.
Dan Kline 43:54 Yeah, absolutely. I’ve talked a lot about how stop losses can often sell you out of a great company. And then when you go to buy back in, it’s actually higher than where you were. Glen Cramer says down markets are opportunities to invest. Thank you for that. Glen is a very regular viewer of the program and a supporter. So we really, really appreciate that Simon. We’re gonna go to our finisher in a second but before we do that, we’re going to digress a little bit. So I’m a Patriots fan. You are a Saints fan, one o’clock on Sunday, I’d love to fly out and watch the game with you. But right now that’s not the easiest thing to do in the world. And you have other obligations at home that maybe I don’t have with an older child.
But that being said, I’m going to propose something I will take no spread no anything the game’s in Foxborough. Remember that. I was wondering if it was Yeah, it is so you know slight advantage to me. But I will say I will propose a bet. One piece of the seven investing swag of your choice. No swag available yet, but maybe something we thought about and certainly we can make our own as you can tell from the shirt I’m wearing. I’m not good at pointing to the logo there, and my mug and other things like that. So one piece of seven investing swag to the loser straight-up bet. I will take the Patriots over the saints your thoughts here.
Simon Erickson 45:11 You got it. Dan, you’re on now we’re talking about volatility. My Jameis Winston’s got volatility is it going to be week one or week two Jameis that we see here on week three, but your go for the saints and I’ll take your bet.
Dan Kline 45:22 And Simon with that the Jets have just thrown their third interception of the weekend and the game has not even started yet. With that. Let us climb up on the top rope and hit our finisher. Do you expect the travel industry to recover by the holiday season? 69% of us thought no. 30% said yes. That does not add up to 100%. I guess it does. I didn’t see the point .8%. Simon, your thoughts on this? I have very very strong thoughts on this. But I’ll let you go first.
Simon Erickson 45:52: What’s the word recover mean in this? I hate to be too detail-oriented, Dan, but are we saying recovered a back like it used to be before pandemic?
Dan Kline 46:01 Yeah, and I mean, specifically, are people going home for Thanksgiving and Christmas and traveling on the level they are? And I’d argue No, but it’s not this disaster that people think it is. I actually think it’s more curtailed by lack of available flights than it is curtailed by people not wanting to go places. Like we’re being careful. But people are still visiting us here in Florida, you know, which is you know, people are still going I you know, I’m gonna go see my mom at some point, I just saw that there were new, you could fly from West Palm to New Haven, Connecticut, which is a very, very small, very small airports, frankly, inexpensively Well, that’s a really easy way to go home and see my the Connecticut part of my family.
So I actually think we’re heading towards a recovery. And people often talk about business travel. And Simon you know my angle on this, like, sure there’s going to be less fly in for like an afternoon meeting. But there’s also going to be more we’re a fully remote company. Let’s fly everybody to tell your ride or Vegas or Orlando for retreat. I don’t think trade shows are gonna get hurt at all. In fact, I think like we’ll have a rebound year in 2022. I brought this up and I’ll give you the last word here is that I think people really overplay how much we’re all going to stay at home and have Zoom meetings. I don’t think that’s going to be the way we go going forward.
Simon Erickson 47:23: Yeah, the investor in me is is kind of intrigued by the advertising that’s taking place right now there was a number I just saw that it was for, I believe it was for July might have been for August, but travel-related digital advertising was up more than 400% year over year. That shouldn’t be too surprising, Dan, it was the middle of COVID last year but still to see that all hotels, all the airlines are ready for people to traveling and can be interesting. It’s better today than it was a year ago.
Dan Kline 47:48: Book your winter travel now if it’s travel you have to do if you’re, you know in good health and can travel safely. Things like cruises or even Disney vacations are very inexpensive compared to what they normally would be. So we had a real period where everything got very expensive, flights got very expensive. They’ve come back to Earth since then, no pun intended since the Delta variant. But even if you’re going to cancel it, look at something like a Southwest where you can keep your credit. I don’t know how many credits I rolled forward during the pandemic, but I think I told you at one point I could fly the whole team wherever because it was like 1000s of dollars worth of trips.
Or at least you know my place in Orlando. I am not going to share Robert De cartes comment because it’s a it’s it’s mildly profane, but yes, go patriots and my mother suggest that people come visit me. Yeah, if anyone wants to visit Orlando, I’ve got a very empty vacation property. This has been an exciting episode. That’s been perhaps the most fun episode I have had doing this because this is a really, really interesting topic that is going to come up often again, Big thanks to JT street who worked behind the scenes like something like showing the Amazon. We’ve never done that before. The background you can see behind us, that’s new. You don’t see all the work that goes on behind the scenes, JT is always sending us ideas and it is very appreciated. Simon.
Simon Erickson 49:11: And part two, Dan, let’s follow up on this and take the other angle. Full circle back to the beginning of the program where we’re going to talk about pure plays that are based in other countries that could be opportunities for American investors. We’ll put out a tweet on our @7investing Twitter page
Dan Kline 49:28 I would love to do that and I know it’s difficult. I’d love to get Anirban, maybe Steve on that one as well. So we’ll have to work that out because obviously we’re heading up on the first of the month and everyone’s schedule gets a little tight as we get towards releasing our new picks. If you’d like to get in touch with us you can email us at firstname.lastname@example.org. If you happen to be in the West Palm Beach area and want to have coffee with me, send us an email at info@investing calm I am always happy to do that. If I say where I’m gonna be And you happen to be there generally happy to do that. Usually info at 7investing.com has questions about your membership, questions about joining the service. Questions about how to find something that you just know is on the site and you’re having trouble figuring out we are constantly working to engineer and improve the site.
If you’d like to interact with us on social media, and why wouldn’t you were delightful. It is @7investing, that is the number 7 investing. We also ask that if you see imposters of any of us on Twitter, please report those. We are apparently the most popular people on earth, too. We’ve each had like seven or eight parody, not parody accounts like people trying to take our identities and then sell you like crypto scams. So we don’t have multiple accounts we all each have one 7investing account. I hate saying this out loud, but it’s happened enough times for Simon Erickson, for Sam Bailey who puts some of the show together behind the scenes for JT Street, who as I said before, did wonderful work for all of you watching have a wonderful weekend. We will see you on Monday.
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