Buy Now, Pay Later (BNPL)  has been quickly growing in popularity. Offered by a number of companies and credit card providers, BNPL allows customers to split up payments into multiple installments, often without an interest charge. Amazon has offered BNPL through its branded credit card, but it has never offered it its broader U.S. customer base. That will change as the online giant has partnered with one of the BNPL leaders, Affirm, to roll out the popular payment method “broadly” to is U.S. customers. We’ll break down the deal and what it means for Amazon, Affirm, and the broader payment market live at 1 p.m. on 7investing Now.

Transcript

Sam Bailey  0:07: Welcome to 7Investing Now. A show that teaches you how to take a long-term view on investing by better understanding what’s happening in the market now.

Dan Kline  0:17:  Good afternoon 7Investors and welcome to the Monday edition of 7Investing Now coming to you live at 1 pm. So if you’re looking for us to 12 we’re not there. Please tell your friends live at 1 pm Monday, Wednesday and Friday. My name of course is Daniel Brooks Kline. I’m the host of the program, at least for part of the program today. And I am being joined by Simon Erickson. Simon, did you get any weather over there in Houston, Texas?

Simon Erickson  0:42: We remain dry. Thank goodness Dan. I like our new time here. I’ve got an extra hour of caffeine in me now too so I’m ready for the show.

Dan Kline  0:49: I have an extra hour of nervous pacing. We’re going to talk about the Amazon deal with Affirm. This is a really big buy now pay later deal. But before we do that, we referenced whether they’re just a little bit of a shout-out to any of our friends, viewers in the New Orleans area. I’ve been through a couple of really large hurricanes and some blizzards. We’ve all experienced weather but our hearts go out. You know our thoughts are with you. We know this was a very, very significant weather event.

But for those of you who are here in watching, we’re going to talk about Amazon‘s (NASDAQ: AMZN) just announced this news broke on Friday, I believe with Affirm (NASDAQ: AFRM) to offer buy now pay later. Affirm’s buy now pay later checkout option will be available to certain Amazon customers. They haven’t said who so I’m assuming not me in the US starting Friday with a broader rollout in the coming months. That’s the vaguest of details probably because they don’t know what the tech ask is going to be there. The partnership will let Amazon customers split purchases of $50 or more into smaller monthly installments. Friday’s partnership is the latest sign of the booming installment lending space.

We have seen this happen absolutely everywhere. As younger consumers move towards these alternative lines of credit. Part of that is the credit card act i want to say of 2020, but I might get the year wrong – did make it harder for kids in college to get credit cards unless their parents are involved. Remember, Simon when we went to college, when pretty much like in your like opening day package, there were like four credit card offers you had no income. That’s not a thing anymore. So this does fill a market need. But I want to get the big picture first. And of course, we would love your questions and comments. So feel free to keep those going. But what does this deal mean Simon for Amazon and Affirm?

Simon Erickson  2:33: Well, first of all, for Affirm shareholders that you’re up between 40 to 45% today for your stock holdings. So congratulations. But Dan, let me actually bring this back in engaging way to start the conversation, which is if you’re a retailer of any retail location out there, right, you’ve got a bookstore, you’ve got a toy store, you’ve got electronics store, whatever it is, what is the most important piece of hardware in your, excuse me, in your entire store in terms of your business?

Dan Kline  3:00: That’s probably your point of sale system.

Simon Erickson  3:02: Correct. It’s the cash register, where you’re actually doing the the final, ringing up everybody’s credit cards, taking payments, whatever it might be. That’s always the most important. And now that we’ve transitioned that so much of sales to the internet, the equivalent of the cash register is the all-important checkout page. For anybody who has an e-commerce shop or anyone who’s doing business on the internet, the most important part is when you’re actually collecting payments from people. And so now we have a new option rather than just paying in cash, rather than just paying with check. Rather than paying with a credit card. There’s this new trend called buy now pay later, which is taking the world by storm. It’s very different than what credit cards are offering today. And any retailers out there, including Amazon that have an e commerce shop are really eager to get this as an option to attract people into their online stores.

Dan Kline  3:54: Yeah, it’s a it’s sort of works like layaway did. Back when I ran the toy store here was our layaway. You came up to me with an expensive item, say like an RC car that you wanted to buy for your kid at Christmas. And I’d say okay, it’s $500 and you give me 50. And I put a sign on it like a post-it note, put it in a closet, and you came back and made payments. And the problem is often you didn’t. In this case buy now pay later is very automated. So you go to Amazon and maybe my son wants $100 sweatshirt, that shouldn’t be a thing, but it absolutely is. And he’s working. So he says okay, I’ll buy now pay later, and they’ll charge him $20 there. And then whether it’s weekly or monthly, it can vary. They will charge him going forward. So is that basically how Affirm works and, Simon, How does Affirm make money?

Simon Erickson  4:40: It is. So the younger generation is very untrusting of credit card companies Dan, and they’re very untrusting of banks. You know, last year alone, there was $120 billion in interest paid to credit card companies. A lot of that was an APR of 20% or higher. There was another $15 billion that was collected for unexpected fees. Late fees are stuff that wasn’t transparently disclosed. And so what Affirm basically does, it says, Yes, we are going to charge you interest if you want to take out a loan in installments and pay it back over time. But we’re also going to be completely transparent of what you’re paying back over time. There’s no late fees, because we’re deducting it directly from your bank account, you have to be pre-approved to actually get access to Affirm’s installment plans. It’s basically a much more transparent way that is full disclosure upfront for anybody who wants to pay over time, rather than entirely upfront.

And so this is becoming a checkout option. If you buy something on Shopify or other merchants. Now, Amazon, you’ll have a choice in the checkout page of Do you want to pay with credit card? Do you want to pay with PayPal? Or do you want to actually use Affirm. And Affirm is very selective on who it’s offering, like you mentioned Dan, that option, too. It’s not just going out there and say, Hey, everybody use Affirm. It’s saying, Hey, we think this is a credit-worthy buyer, and we’re gonna offer an installment program for them called buy now pay later.

Dan Kline  5:58: Now, they’re not using FICO scores. They are using a little bit of a prove-it model. So what do I mean by that? So they say, Okay, I see Simon’s purchase record. And I see that he did an $80. Buy Now pay later, and he paid it off. So they might then extend to you sort of let’s call it an increase in credit limit. Am I remembering correctly from our discussion on Upstart? That that’s how there’s so that’s not the company’s name. The I’m sorry, the one we talked about that was just purchased.

Simon Erickson  6:26: Afterpay.

Dan Kline  6:27: Afterpay, too many company names after pay. That’s how it works, right? This is sort of and I love this a trust building model, where if you borrow 10 bucks from me and pay me back, I’m much more likely to loan you $100 down the line.

Simon Erickson  6:40: This is the secret sauce of buy now, pay later. This is the most, one of the most important parts that we have to consider as investors in this trend, right? It’s not just okay, they’ve got a credit score of this, we think they’re going to pay back the loan will make the loan available for them. Affirm is using more than 80 alternative data points to evaluate any creditors creditworthiness. So if you are interested in using Affirm for buy now pay later, it’s checking a bunch of traditional things, Dan, like you mentioned. Did you pay back your previous credit cards on time? Did you pay your utilities on time. But also some more exotic things as well. It’s scraping through social media feeds to try to figure out what your job is right now and how long you’ve been there. Are you are you happily employed? Are you switching careers every two months, I mean, things like this, that traditional lenders are not looking at.

And Max Levchin, who, by the way, we can talk about him a little bit later in the program. He’s kind of the brains behind all of these alternative data points. And the algorithms that will ultimately judge Hey, is this person going to pay back the loans or not? Because a really big part of this is Affirm is taking on the risk of those future payments from the merchants, this is not a credit card company that’s taking those anymore. It’s Affirm that’s holding those loans on their balance sheet. So they’ve got to be right. And they’re going to have a much lower delinquent loan rate than the industry averages for other payment options out there. pretty ingenious how they’re doing it.

Dan Kline  8:01: But this is also sort of the Planet Fitness model, where Planet Fitness doesn’t even take your credit card, they actually take your bank account info. So it is you don’t end up ending your membership simply because it’s three years later, and your credit card has expired. So they are directly connected to a payment source in their case, it doesn’t have to be a bank account, it can be a credit card linked to your Amazon or your Shopify account, or, or whatever it would be. So I would assume that when you’re talking, whether it’s a six week or a six month loan, that your default rates go down a lot when it’s directly tied to a payment source.

Simon Erickson  8:36: There’s a there’s a two-sided network on this right. And so then I apologize and getting back to your question you asked me five minutes ago, how does Affirm actually make its money? Uh, yes, it is collecting interest payments that are tied to the length of the loan and the amount that the item you’re wanting to purchase or items that you’re purchasing total up to. So you’re charging an interest rate. And sometimes it’s as high as 20%, depending on on the type of loan or the duration, but a lot of times it’s single digits or even in the teens.

The other side of it is for the the use of its platform. It’s charging merchants typically between 3 and 6% of the total, the total payment that was made for each one of the transactions just for Affirm to take on the risk and make it available for retailers. And so in addition to all the algorithms that it’s figuring out who’s going to pay back their loans, it’s also using some really neat machine learning to personalize the vendors that it represents. So Dan, another example just to make this real say that you sign up for Affirm and it sees that you went out and you bought a life size Stormtrooper from Star Wars, right?

Dan Kline  9:38: It’s funny you mentioned that because I’ve sent my picture pic my wife pictures once of a life size Boba Fett and told her I bought it which I did not of course, because I like it.

Simon Erickson  9:46: I tried to come up with the most ridiculous ridiculous Disney themed example that I could for this one. But now Affirm says okay, maybe Dan likes doesn’t maybe Dan would like to travel to Disneyland sometime. So in your Affirm app and might say hey, Dan, you know, we can actually give you an installment plan for you to book a flight through Expedia to go to Disneyland. Are you interested in this. And of course, this is a big one for Expedia, because that’s another payment for a flight that it might not have had. Otherwise, it’s a big win for you. Because you can say, hey, Affirm kind of knows my interest. And it’s lifting the overall revenue and lift from a lot of those other vendors and retailers.

Dan Kline  10:19: And we are seeing this model not necessarily Affirm. But in the travel industry. I know that every time I go to book a cruise, it offers you the option of splitting up those payments over time using a third party. And actually, the fees are very light, if not non existent. Because I’m guessing, because that those companies are taking on the risk, the travel company, the cruise lines in these case, are giving them a kickback. Sort of like if you book through a travel agent, the travel agent makes money that doesn’t cost you more.

So this is one of those things where if I do Affirm through Amazon, is Affirm then going to send to me, hey, do you want to download our app, because if you have their app, they can make offers for you. If you don’t have their app, you might get offered increasingly large limits or deals on Amazon, but you won’t necessarily be able to like you know, go buy a Peloton using your Affirm account.

Simon Erickson  11:14: Correct, you have to be approved, you have to be approved by Affirm in order to use Affirm as a buy now pay later option. And just like we said, this is kind of a long term story of developing trust, especially with tech savvy, younger generation and keeping them satisfied so they’re going to use this more and more often. They say if you if you show me the fees upfront, and I know exactly what I’m getting into, and I’m not going to get hit with these ridiculous interest rates or these ridiculous late fees later on, I want to use Affirm for my future payments.

And right now, Dan, one metric that’s really interesting is the NPS score, the net promoter score for Affirm with the customers who have already signed up with it 78. That’s right up there with Apple and Tesla that’s extremely high when you consider other financial services, companies and banks, which are typically at the bottom of the list because the fees are getting charged. Affirm is really winning over a lot of consumers.

Dan Kline  12:03: Yeah, it’s also a guaranteed repayment from your point of view, as opposed to a credit card where you know, your refrigerator breaks, you buy it on a credit card, and then something else goes wrong, and you’re making minimum payments, and you’re endlessly in that interest loop. This is call it a short term pain. And even if you have to make some sacrifices, you might literally go like, are we gonna go to dinner at Applebee’s tonight. Nah, let’s not do that. Because that $40 can be our Affirm payment. Now it’s worth pointing out as far as I know, you don’t have to apply. They are, Affirm is basically popping up as a choice. If a firm through its dragnet, let’s call it decides you are creditworthy of this. So this is not like a credit card where you actually have to fill something out. Am I getting that right?

Simon Erickson  12:45: It is Dan and kind of what they’re referring to this is responsible lending. Right, Affirm’s bigger picture they’re trying to accomplish as people who shouldn’t be taking out credit, not taking out credit. So many credit card companies were just preying on people that couldn’t pay back, right, they rack up more and more interest payments that got higher and higher every month. If you couldn’t pay it back, you’d hit late fees, you get all these other fees like it was unfortunately the people that couldn’t pay it back that were fueling the revenues and the profits of these large companies.

Affirm is saying, Hey, we don’t want to be making loans to those people. We want to have this as a responsible lending option for people who are going to pay it back. And we’re going to be very selective about who we use, who we actually approved for those kinds of things in a completely alternative way to doing FICO scores. And so it sounds obvious. It’s actually very, very hard to do.

We talked about Max Levchin a little while ago, Max Levchin was the Chief Technology Officer of PayPal. And oh my gosh, what an amazing story with this guy. I mean, Ukrainian born computer programmer, both of his parents were educators, he was kind of writing computer algorithms at a young age gets displaced by the Chernobyl nuclear accident. Moves out to a farm where he has no access to a computer comes back memorizes everything that he wants to program, puts it back in and gets tapped as the CTO of PayPal, who becomes the leader globally in total payment volume for digital sites. And so Levchin, in his times at PayPal, he spent so much time developing the algorithms to detect the outliers.

Right, PayPal had problems with fraud from day one of bots that were trying to make payments, you know, to email addresses that he said, No, no, that’s not a real person. Let’s flag that one. Now, he’s brought all of that to Affirm and says, Hey, Affirm, I don’t think that that is a real person, or I don’t think that’s the person we should be listening to, or, hey, let’s really refine and then re refine and then we refine again, the algorithms that are kind of judging the creditworthiness. I mean, this is going to be what’s going to make Affirm successful in this space. Not all by now, pay later, providers are the same. I have my money on Affirm as being the one that succeeds in this space.

Dan Kline  14:44: I think there’ll be multiple winners in this space, but I would bet on on Affirm, that is not an official recommendation. That is just sort of a gut opinion. I want to throwback in a second to sort of disrupting credit cards but let me throw something else here that I think Affirm is going to disrupt I mentioned refrigerator breaks. Well having to buy a refrigerator because you need a refrigerator is very different than buying a speedboat because you have a credit card.

That is a ridiculous example or whatever and a new 65 inch television. Affirm will have the ability to disrupt the store credit card. What does that mean? Well, Home Depot has a much lower standard for giving you a credit card than say Visa does. Not in every case. But a lot of cases store credit cards have traditionally been the lowest rung of the starting your credit journey ladder. But that comes with very, very, very high fees, like you’re going to be paying in the 20s. If Affirm knows you has that history, they can absolutely, you know, decide in certain cases where they’re going to, you know, to loan money.

Paul, I am not even going to try to pronounce your last name, I apologize, I’m too far away to see it. Afterpay doesn’t charge interest to customers, just a percentage to retailers. And Affirm often doesn’t as well, I think Afterpay has been more vocal about not doing it. But it wouldn’t shock me if in some cases they do in the future. And Affirm is largely not done it but is more vocal about the fact that they’re that they do do it that it’s a tool in their arsenal. And obviously, this is going to depend on actuarial tables, and things like just like your credit card, if you are a higher risk person, you are probably going to pay a higher rate. It is very likely that they use some sort of terms like that. Simon I’m gonna let you jump in, and then we will happily get to the credit card questions here.

Simon Erickson  16:31: I mean, if you’re an investor in this space, the relationships and the partnerships or everything, right? There’s going to be questions of you know, who’s teamed up with Apple for installments, you know, who’s teaming up with? Now, Amazon’s working with the firm, a firm before is already working with Shopify, who took an 8% equity stake in the company last year, and gets a small kickback for each one of them that is placed on the Affirm platform. I mean, there are only so many really, really big game changers out there, those three are three of them in the world of e commerce.

We’re going to talk a little bit more about this in the second segment of this program. Dan, when we talk with you about the state of retail today. But Affirm’s got a really, really nice head start. I think that Levchin being on board got them access to a lot of capital. Equity right now is only about five, four or 5% of the total capital that they require for the loans that they’re giving out for the people that want to do, they pay in installments, right? Affirm is taking on the risk, they’ve got to pay the merchants for the goods that are actually bought

Dan Kline  17:28: This is a very capital intensive business. That’s part of why they have to roll out slowly on Amazon. Because if they roll this out, and people really love it, all of a sudden, they have a need for cash, cash comes with a cost. They have to make more than it’s costing them to borrow. But this is also a data driven business. So let’s say they’ve loaned to you Simon five times. And you’ve always paid it back, no problem, no misses, no bank account hiccups, none of that. Well, they might decide Geez, let’s loan to Simon seven times nine times. They’re going to be a lot of people like you and I that just want to use this even though we don’t need to use this.

There are definitely times where I’ve had an unexpected purchase, like Oh God, I need a new computer monitor it’s 400 bucks, or whatever it is, I don’t want to spend 400 bucks, and you go Oh, I can split it up in installments. American Express lets me do that. I can go in after the fact to a certain amount of payments a month on my pay it all at once American Express Platinum card and say hey, can you just split that up over six months and and there’s no interest charge for it. Amazon has been doing that for credit card customers. So this is not completely new ground for Amazon. The way by now pay later has worked on Amazon, if you have their card linked has worked a lot like Affirm here.

But I want to talk about credit cards and we see your questions and comments. We are going to take those at the end of the segment. So if you have other specific questions or comments about this space, please get them in and ask us or if you want to say nice things about the new timeslot feel free to do that as well. 7Investing Now Monday, Wednesday and Friday live at 1pm eastern time. But are we seeing a shift away from credit cards? Or is this just sort of another tool in the payment arsenal that also is appealing to less creditworthy younger people?

Simon Erickson  19:08: It’s not the credit card killer, Dan. I think that there is still definitely a place for this people want to get points, you know that they can use it Marriott because their credit card is is set up so that they can have loyalty rewards that are attached to them. But I do think that it’s a new option for people who are doing business primarily online rather than the point of sale machines where you’re swiping or inserting your credit card all the time.

That is very appealing, you know, and then back to the point of personalizing the deals. I think that’s a huge part of it, too is as Affirm learns more and more about who’s going to repay in installments and who you want to actually be loaning money to imagine those vendors like the example we just gave of Disney kind of influencing the Expedia trip. Would Expedia no through a firm that you’re the type of person that likes to make those type of purchases, and that you’re going to pay it back? And would you give 10% off of an offer for a flight to somebody like Dan that you want to do business with. I mean, I think that the there’s a lot of insights in the data in the transaction data that can be learned from this. And it’s going to kind of compound over time. So I think that’s that’s definitely playing to Affirm’s long term advantage.

Dan Kline  20:10: So Simon, you had a note in here that the credit card industry needs to be more transparent. And that’s absolutely true. Though, I do think that has happened. I have a number of credit cards that are very upfront about what it is. And I’ve talked a lot about this a lot. I use credit cards for everything. But I pay my bills on almost a micro basis, like I buy something, and then I might go in that night and pay the bill, because I’m trying to maximize rewards credits. I don’t think that’s how most people do it. But you said that millennials don’t trust banks. That part I’ll accept and don’t even want to carry credit cards. That part? I’m not sure I buy.

Simon Erickson  20:45: This Generation Z, not technically millennials actually.

Dan Kline  20:49: So do you think that’s largely because they have credit card debt? Is it because they have college loan debt? And maybe credit cards aren’t viable for them? And also, they they don’t have they’re not creditworthy? Because they already come into it with with another set of debt?

Simon Erickson  21:03: Both Yeah. I mean, your parents telling you, Hey, stay away from credit card debt. You know, you don’t want to be racking up credit card debt, I’ve probably abused some knowledge over the years as well. Like you said, are they are they the people that the credit card companies want anymore? Now, they’re already burdened with student loan debt, or aren’t making a ton of income right now, maybe the credit card companies, as they’ve cleaned up their own practices aren’t actually offering them to them in the first place.

Dan Kline  21:26: They’re not allowed to offer them. And that and that’s been really important. So I want to share a chart here from from our friends over at Statista, they are not our friends, they are a public service. I’m sure they’re very nice. But by now pay later has grown exponentially. Simon, if you want to dig into the numbers, I’m sure you can see this better than I can.

Simon Erickson  21:42: Yeah, surely what you were looking at over $100 billion, estimated in the next four years from the base of like $30 billion today. I mean, this kind of this is kind of a bigger trend that I think we should be keeping an eye on as investors. And when you see something like that with the exponential growth, like you mentioned, look at 2019 Dan to 2020. I mean, this is a concept a couple of years ago.

Dan Kline  22:00: This is really, really quick growth. This is also a crowded space. PayPal, Plarna, MasterCard, and fi serve. American Express offers this in a fashion because you still have to qualify for the credit card. Citi, same thing JPMorgan Chase, same thing. And then you’ve got square which which bought afterpay, which makes it a major player, Apple is planning to launch installment lending in a partnership with with Goldman Sachs. You mentioned Disney. Disney already does this with its annual passes if you live in Florida. You can 0% finance, so you don’t have to write a $700 check, which obviously not a lot of people would be willing to do.

Maxx Chatsko, our very own Maxx Chatsko tip for millennials. Student loans actually help your credit by increasing your length of credit earlier in life. And your payment history. Yeah, that’s important. I remember when I went to college, I got a co signed credit card with my parents to start building my credit history that doesn’t actually help that much because it’s more tied to my parents.

But yeah, having some basic loans. And look, you are seeing services now that look at things like did you pay your Netflix bill and actually report those Experian does that they will report that to the credit bureaus, which will help that’s what the Experian boost is, is you pay the money. So you can input different things to show sort of alternative creditworthiness, which is relevant in an age where buying a house is not all that acceptable. Simon, obviously there’s going to be losers here. But is this like credit cards where there’s room for five, six, even maybe more than that winners?

Simon Erickson  23:34: To be determined Dan. You know, if you have a checkout page, you don’t want to have five or six different options for buy now pay later on, then you want to have one, you want to have either Affirm, or you want to have Afterpay or you know, whatever whatever it might be, you don’t need to have multiple options. I think that the other part that we haven’t really talked about yet is the international opportunity. We’ve talked a lot about this in terms of you know how we’re buying things online here in the United States, there’s a huge opportunity for developing markets where people don’t have credit scores, or there’s not a whole lot of transaction history because they’ve been paying in cash.

And so what is an opportunity to find those people who are creditworthy, but just don’t fit into the checkboxes of the current system? And how can you actually loan them money so that they can go on and expand their own retail operations too? I think that in my mind, there’s a handful of winners, I’m not sure it’s as high as five or six, I kind of think there’s like three or four personally.

Dan Kline  24:24: Yeah, I think there’s gonna be a lot of sub winners, though, like, this is a interesting way for American Express to sort of not be a traditional credit card. American Express does have traditional pay later credit cards, but their core business has always been this you sort of have no limit, but you pay at the end of the month. Their ability to see my credit history of Wow, Dan’s always paid his bills, maybe who uses Amex more, if we extend him these terms. I think there will be some winners like that and some other things like whoever works with Apple will be a winner, just because they’re working with Apple and Apple products are expensive. So that’s Goldman Sachs. They may have one client, but they’re gonna be a winner in this space. I want to take –

Simon Erickson  25:03: That’s a huge one Dan in reputation is everything right Goldman Sachs. What was it describes the vampire squid that was sucking people’s faces off. Terrible, terrible analogy for the company. Now they want to be the teddy bear that builds trust with consumers. And so they’ve got Marcus is going for consumer financing. It’s a crowded space to be interesting to see who pulls it away as the leaders in this one

Dan Kline  25:13: And Apple doesn’t partner lightly. So that is quite a vote of confidence. I want to bring up [NAME NOT LEGIBLE] comment because I don’t think we fully addressed it. And he has any impact on Shopify, Square with the Amazon Affirm deal. I don’t think this changes anything between Shopify and Amazon. It may be, you know, takes a tiny bit of momentum from the sort of Shopify marketplace and people who because they offer that maybe would look for products there. But I think both of these companies have just, they’re not really competing, even though they’re incredibly competitive, if that makes any sense, Simon feel free.

Simon Erickson  26:01: Yeah, and two different different sides of air rights and Shopify. And then we said Square is actually competitor to Affirm now we because of its partners, because of its acquisition of Afterpay. Whereas Shopify is a partner with Affirm because they are offering a firm as an option on their platform with the vendors itself on Shopify, and they have an equity stake in the company too. So it’ll be it’d be interesting to see, like we said, as this progresses.

Dan Kline  26:23: So let me throw out the question we always ask about Amazon. Amazon is pretty famous for sucking your data dry and then leaving you by the side of the road. Is that going to happen here? Could Amazon just use this to see if this is something that customers want, and then launch its own buy now pay later or bring in other partners there? I don’t think exclusivity has been explicitly guaranteed in any of the public parts of this deal. We’ve seen.

Simon Erickson  26:49: Oh my gosh, you’ve got to think Dan, and in some of the closed door meetings, there was kind of ease looks right of like scratching your head saying, Ah, what is Amazon gonna use with all of our data? Are they gonna they’re gonna have their own buy now pay later solution later on. There was no reveal of the financial terms, if any, in this partnership with Amazon and Affirm it seems. Like from what I can see so far is just Amazon, allowing Affirm to be an option for it, rather than Amazon taking an equity stake rather than Amazon, you know, having some kind of financial interest in this. That kind of makes you wonder what Amazon’s long term game is for this Dan. I wouldn’t personally be surprised to see them try something like that in the future.

Dan Kline  27:29: Yeah, if I’m Affirm, I’d be trying to make a deal for Amazon to take an equity stake, I would think that would be your best protection. Now, what we don’t know and it’s very clear is there’s lots of things in deals, you know, there might be trigger points in this where Amazon has the right to buy 5% at a certain price or, you know, probably a pre exploding valuation price, because obviously, this is has gone up quite a bit. This is going to be a topic we talk about a lot. This is a developing method of payment. It’s one that’s going to come up we talked about the financial space. So this is not the last you’ve heard of this.

But we’re gonna segue in a minute to talk about the current status quo of retail. But before we do that, I want to do two things first. There were a couple of comments JT first from Martha Berry West about the new time. Love the new time, I was missing some of it while driving home at noon, a real fan of the show a a personal friend, not someone I knew, but someone I’ve met through doing this, that is a joy, glad to have her following us. And there’s another great comment on there. If you want to share that. I like the new time too. It used to cut into my dog’s midday walk time that she started giving me the side eye every time she heard Dan’s voice. I am a friend to man and animal. I do not want to anger your dog. But Simon The second thing I wanted you to talk about, and we have a graphic for this is our brand new report from our very own Anirban Mahanti. Why don’t you tell the people about this special free report or SFR? as it’s known in the industry?

Simon Erickson  28:52: Yeah, thanks, JT for putting this up. You know, this is kind of something we announced on Twitter a couple of days ago. We also announced to our 7Investing subscribers always get free access to these reports. But Dan, why are we doing this? It seems like there’s a ton of research and a ton of reports that are out there. But we say that as investors, we really, really, really want to get into the nitty-gritty of some of the innovative trends that are taking place out there. And we’re not just going to go out there and say, Hey, this is a $5 trillion market opportunity buy this company now. And we’re not just going to say, hey, there’s 100 companies, maybe you can buy these 10 of them, you know, good luck. We’re really doing some deep research on these month-long plus research report research that’s going into influencing these reports.

And Anirban, you know, with his recent SFR that he wrote on zero trust. It goes back to the PhD that he did on network packets being sent along the internet, right. This is kind of early days of Netflix. It’s then gone on to influence kind of machine learning that was used for cybersecurity. And we started talking about we said Anirban. Everyone’s talking about zero trust right now. Biden administration is saying the companies need to adopt zero trust in their own cybersecurity infrastructure because too many hacks going on. Too many colonial pipeline hacks out there. There’s now blockchains and Bitcoin that’s ransomware that’s going out there. What does all of this mean? And who’s the front runners to benefit from it.

That’s exactly what Anirban has done, I really recommend everybody download his reports directly on 7Investing.com. It’s technical, it’s deep, it’s in the weeds, I apologize for that, it’s going to take a cup of coffee, maybe two to get through it. But this is what we wanted to do, Dan, we didn’t want to just have a high-level 10,000 foot report. We wanted to get into the nitty-gritty, and really try to make sense of what’s going on. And honestly find the best investment opportunities. And we’re going to do this every month, Dan, we’re going to have more and more of these special reports that are very, very technical, because we want to showcase innovation for 7Investing members and the people that come to our website, very first and foremost. So years down the line, you can say, Hey, I remember hearing about that on 7Investing.com, and I read the special report that they put out.

Dan Kline  30:51: Yeah, and just very briefly, because we talked about me doing one today. And it really forces you to bear your process. Because you asked me about an industry where I think the big winners are really obvious. But some of the other players that are winners are not ones you would realize are winning, because they’re not necessarily the most popular. They’re not necessarily the most downloaded or the most whatever. They are financially giant winners because of what’s going on. So I think you get to see sort of a lot of the process of seven people and sometimes outside side people who really put their lives into this. Like I don’t just wake up in the morning and like read an earnings report. I’ve spent the last 15 years ameshed in those industries and reading and that builds, that gives you the understanding. I’m really excited about these reports. If you’re a member, you already get access. If you’re not a member, all you do is give us an email address. If you’re a member Simon, where are they they’re under research on the site right in the general place.

Simon Erickson  31:51: That’s right. And they show up as a special as a special report under the research tab in the email address you see right here on the side of the link right here that you can sign up for today, like you mentioned, and in exchange for your email address, we’ll send you the report. A disclaimer as well that we are not going to be sending you 10 other offers every day to email. We take email etiquette very, very seriously. This is only to sign up to see the report. And then join on your own terms. If you’re interested in 7Investing, we respect everybody’s email inbox privacy, but we really think we have a lot to offer with these.

Dan Kline  32:21: If you would like to become a member go to seven investing.com slash subscribe where you have two options, you could spend $49 a month or and this is the deal, folks, you could spend $399 a year for access. That’s two-plus months free, you get our picks, and the first of the month is coming up. So you get each of our highest conviction stock picks. And I’ve lamented this Simon and this morning that I have a handful of stocks, I really wish were picks, but they’ve never been my highest conviction pick in a month. And that really says you’re getting the best of the best. You also get access to our members-only calls you get access to our new member calls in your first month. All sorts of special members only features.

Let’s get back to the program. And as we do that, we would love your questions and comments. But as I did last week with Anirban, I am going to turn around and hand at the hosting duties over to Simon occasionally we cover something or it’s in my field. And it’s weird to ask myself questions. So we’re gonna hand this over for Simon to be the host for a little while here.

Simon Erickson  33:23: 180 degrees shift here, Dan, but you know, we talked about Amazon and Affirm in the first part of the program. I talked a little bit about what kind of what that’s going to mean company by company. But bringing us to the higher level for me, Dan, I mean, what is the buy now pay later and the deals like this are what does this kind of tell us about what’s going on in retail today?

Dan Kline  33:39: So it shows us that most retailers be they online, be they in stores, not all retailers because there are going to be outliers, like say a Five Below or a Marshall’s where they can have just certain experiences. But almost all major retailers are going to have to give consumers exactly what they want, how they want it when they want it. We saw this first with omnichannel. What is omnichannel? Omnichannel is this mix of buy online pay in store, buy it in the store, have it delivered to home, have it delivered to your home but drive it over in your car to return it sort of whatever you want.

So we always had that sort of trite saying the customer is always right. That’s actually more true now that I worked retail that’s never that’s not actually true. Like the customer is often wrong and usually you have handed them something that details what they’re getting wrong when it’s like we had policies on certain things at the toy store like no returns directly through us on model car and RC cars not we didn’t want to take them we just couldn’t you had to go through the manufacturer. We handed that to you on a piece of paper so we didn’t have to deal with it later. But now wherever a retailer can bend over and help the customer and really do what they want, they’re trying to do that. We’ve seen Walmart, Amazon, Target, Best Buy, Dick’s people like that really be leaders in this. So I think that’s really been the Number one lesson, we’ve learned that you constantly have to say, what does my customer want? How do I give it to them? That’s exactly what Amazon is doing here with Affirm.

Simon Erickson  35:10: So okay, Dan. So that’s a great point, you pointed out to some leaders that, you know, have done well, with this retail has changed a lot in the last decade. Do you think that there’s anything that we can consistently see as a towel or a mark of a retailer who set to succeed further in the future?

Dan Kline  35:25: Yeah, absolutely. And I think Amazon led the way with this and, and it took Walmart and Target a while to catch up, and certainly other players, but you have to constantly be thinking about what’s next. It’s not really about what’s now. So you know, Amazon is working on probably five things we’ve never thought of. When they announced, same-day delivery, they didn’t announce that we’re gonna have same-day delivery in nine months. They’re like, hey, in select areas, we have same-day delivery. We see my Walmart pushing the boundaries with go local. It’s a new third-party delivery service, which Anirban and I talked about, on a show next week, our last week. We saw Dick’s Sporting Goods, which is a really surprise winner. They’re trying out like a whole bunch of different formats and owned and operated brands. And Target has been really, really innovative.

So you know, this applies in restaurants as well. You know, there’s a few that can sit back and just kind of wait, but for the most part, you know, you have to be at the cutting edge. So, of course, there’s exceptions. If you’re Costco and your membership-driven, you can wait until you see if customers really want it. And if it’s, you know, become something they really use at Amazon or Walmart or Target, and then go Okay, we’ll offer some limited version of this to meet but that’s kind of the exception. You are probably not going to go to your local grocery chain, if they don’t offer curbside pickup or home delivery, because you want those things. So this has become a much more customer-centric business.

And look, it was easy. In the old days, when everyone had to come to you to have a life we smile and we’re nice. Like that’s kind of how Publix the grocery chain here works. But hitting all these other like wait, you want like delivery via a rowboat at four in the morning, like, Alright, I guess like we’ll hire a rowboat guy. I’m teasing a little bit. But that’s sort of what’s draw, you know, what, what I look for. And if it’s not that I look for what makes this business model unique. You can have unique business models, I throw it Five Below. A Five Below is not going to spend a lot of money on like, you know, delivery, because the whole purpose is driving you to the store. But they will keep an eye on it and make sure like, okay, like we have to have some sort of website and maybe we’ll you know, we’ll start to offer our best of or grab bag who knows what it is. So good companies just like good investors are constantly challenging themselves.

Simon Erickson  37:39: So it’s a good point that consumers are becoming a little more demanding or what they want out of retailers. We you mentioned a couple of them. They’re the two-day shipping Of course, it’s kind of the table stakes now, for anybody doing business online that Amazon kind of pioneered go local. Like you mentioned, that was another one we just talked about buy now pay later. What are some of the new trends that you’re seeing out there, Dan? What is it that people are asking for right now who’s taking advantage of that?

Dan Kline  38:03: So I think store within a store. Now Best Buy (NYSE: BBY) was kind of quietly the secret leader of this. That part of their turnaround not all of it was going to like Verizon and Comcast and nationally, Microsoft and Apple and saying, Hey, would you put a nice little store in our area where if I go to Best Buy and I just want to look at Apple, I don’t have to like sift through all the laptops. I can just go right to the Apple or right to the Microsoft section. And that makes these kind of like the new department stores. Where are we seeing this? Well Target with Disney. I’ve been in a Target (NYSE: TGT) that has a Disney Store and it’s a really, really good experience. Target with Ulta beauty now those two brands are really complementary, but we’re seeing it as as sort of a prop up for some less successful retail brands.

Kohl’s (NYSE: KSS) partnered with Sephora. Well, if you’re a Sephora customer, you might then go to Kohl’s and maybe after your makeup done, you buy a new shirt or whatever it is. We’re seeing even struggling rate retailers, Nordstrom (NYSE: JWN) partnered with Total. Well what is total? Total is a really, really expensive exercise system. It’s $3500 something like that, you’re probably not going to buy a total without looking at it.

You’re also seeing brands like Untuckit’, Warby Parker, Third Love, Casper Mattress – we’re in the really early days of this just kind of being everywhere. And as a consumer, you know, if I go to Target, I am much more likely to go because like wait, there’s a Starbucks in my Target. Like I in fact, I have to go to Target later today. And I’m excited because it means I can get a green tea and I don’t have to make one myself. So I think you’re going to see an expansion of this because if I’m a digital-first brand, let’s think Warby Parker there’s a there’s a Warby Parker downtown in Alexandria, Virginia that I used to walk by all the time. But if that were be Parker was in my Target, I would probably be a Warby Parker customer, and it would certainly be a driver to get me to Target. Targets done this with pop-up shops as well. Walmart’s been really good at like hey, it’s tax season, there’s an H&R Block and your Walmart well that’s really good for everyone involved.

And right now not in every case, but in the old the mall made sense for these locations. And before the pandemic, you were seeing a sort of explosion of digital native retailers popping up in malls. You’re not going to see that disappear. Your A list malls, your top tier Simon and Brookfield malls are still going to have standalone Peloton and Tesla stores and, and Untuckit’s and Third Loves and Casper. But in a lot of cases, it’s going to be a much more cost effective deal for that company to go into JCPenney or Macy’s or whatever it is. And that’s kind of good for everybody. I mean, the the Amazon returned counter in Kohl’s is an example of this. And it’s all about efficiency.

Like if I have to return an Amazon package, wouldn’t it be nice to also buy those socks I’ve been putting off buying. You know, some people like to shop some people don’t. But I know that like if you put a Peloton store in a Macy’s, I might be like, oh go play with a Peloton for half an hour while my wife looks for outfit. Sorry to be stereotypical there because I spent way more time than my wife does. If I’m in a Macy’s looking for clothes. So it’s one of those things where, you know, absolutely I think this is going to grow. And I think we’ve learned that brick and mortar is really, really important. But the expense of opening your own store, staffing it doing all those pieces might not be worth it.

So you might see a future for say, a JC Penney as almost like a mini mall within the mall because you know, Simon Properties owns Brooks Brothers and some other brands, I’m forgetting which ones. Lucky Jeans would be another one that they could in theory, if that store is not in that mall, they could say, hey, let’s have a Brooks Brothers section in our JC Penney. Is that an overlapping customer? Not exactly but well I buy my suit and shirt like they sell belts, they sell socks, they sell, you know, generic dress shirts that maybe are way less expensive than a Brooks Brothers dress shirt. So I think there’s a lot of like, give the customers as much as you possibly can. And there’s a point you push that too far where you dilute your own brand. You know, McDonald’s salads turned out to not be necessary. But for the most part, I think this is an absolutely exciting, growing trend. And there’s a lot of players here.

Simon Erickson  42:08: So this is interesting, Dan, so rather than Simon Property Group who owns the malls and doesn’t really care who fills in the spots, because it doesn’t have any vacancies, it’s just charging people for the space there. You’re saying that large retailers like Target can set up shops within the shop and be much more selective about who they’re partnering with and who they’re offering because it might be complementary to what they’re selling to.

Dan Kline  42:28: Yeah, absolutely. So like, you know, you talk about Target and you look at the Disney Store. Well the one I’ve been in is near my condo that’s near Disney. So obviously a lot of the people there are in a Disney mindset. So I would expect that most Targets in Florida will have this partnership. Ulta beauty and Target are both sort of discount brands with a high level of cache, like, like someone who’s a little snooty, might shop at Target, but probably won’t shop at Walmart, and they would probably shop at Ulta beauty but maybe not a Target beauty section. So this really gives more.

And this isn’t a store within a store. But one of the Targets near me, the one that has the Disney Store, has a really nice liquor store with local beer and it really feels like it’s like a you know, a well-thought-out local liquor store. Now that makes sense. Because I’m in Target already maybe you know, I’m in a tourist area, so I’m probably buying alcohol or, you know. So you’re gonna see a lot more of that and generic things like Target optical, those might exist for a price point. But I think it’s much more likely that you see like a Warby Parker, or even like a standard optical, you know, something that’s similar to Target, but has a more, you know, a bigger footprint has more brand recognition, you know, you’re googling it.

Nobody’s Googling cheap glasses. They’re googling, you know, standard optical or they’re googling Warby Parker and Warby Parker has worked really hard to like mail you five frames, but that’s a tricky method of doing it compared to walking into a store, you know, and trying on 40 pairs of frames, you know, in front of my wife or son who will tell me which ones look good at me, hopefully not playing a prank on me.

Simon Erickson  44:03: Yours look nice, by the way.

Dan Kline  44:07: Yeah, it’s funny, Warby Parker’s are all rounded. And I’ve never been able, I love the durability aspect that you can’t break them. But none of their styles are flattering on me. So yeah, I think this is going to be a growing trend. It is important to point out that JT shared, we are not doing that segment. We’re gonna push that we pushed it like three times. But the segment on what’s changed since the pandemic, we will probably do that on Friday show with as much of the team as possible. Simon, back to you here.

Simon Erickson  44:32: Yeah. And then I’m going a bit off-script here. But I do know that you talked about this on market focus a couple of weeks ago is speaking of Simon Property Group. What’s happening with all of these malls that have been built all around the country? I mean, are they distribution centers now in the future or are they going to still keep the cornerstone you know, Targets and there’s what happens to all the malls across.

Dan Kline  44:51: So there’s multiple tiers of mall. You’re A list Simon mall, the nice mall in your community is going to adapt. You might see it might lose Dillards are a JC Penney or whatever it is that might become a distribution center or a skating rink or a gym or even a grocery store or a hotel or a co-work. But those top-tier malls still draw audience. It’s important to remember that the highest mall traffic at a list malls has happened during the pandemic, like it’s happened actually pretty recently, we’ve hit all-time highs. So people still go to the mall. The question is, what are they doing at the mall and how do we maximize that experience? So are we going to see things like of community event spaces and, and charity drives and theater performances? And, and so yeah, you’re gonna see a lot more that are destination eating experiences. Like we are still figuring out what that mix looks like.

We’re okay, like your JC Penney closes is half of it going to be condos and half of its going to be like a community pool? Like that’s actually a model that was proposed for one of our malls here. Now, your second and third tier malls are going to be disasters. I often joke like the mall you go to that has like a local restaurant. That’s not a famous local restaurant in the food court. That mall is in trouble. If 50% of the stores in your mall are kiosks that sell cell phone supplies, that mall is in trouble. Those are going to become Amazon distribution centers, they’re going to become Shopify warehouses. I’ll surface somewhere on Twitter, we covered this in a show.

So your really good mall and your outdoor top-tier outlet malls are absolutely thriving. The one near us, it’s about a half-mile from my house, which is a Simon mall. If a store closes, it’s almost always because the corporate chain is closed. And the what’s coming next sign goes up almost instantly. It probably has like a 97% occupancy rate. Why is that? It’s an outdoor mall. And in the current climate, pretty much everyone feels comfortable being outdoors. Obviously, it’s very, very hot here. My son and I went yesterday, we did not stay very long, because it was unbelievably uncomfortable. But there are mall models that work, but certainly at the edges and some of the strip malls are going to consolidate. You know, some of these malls that lost their toys r us to their Circuit City, there can only be so many pop up Halloween stores. So some of those are going to have to be you know, bulldozed. But we do have a bit of a housing shortage. So you know, certainly here in West Palm Beach, you are seeing like our old Macy’s is becoming a condo building. Some of our retail shopping just became a Class A office building, I don’t think is quite done yet. And it’s 100% rented. So we are in a shift, we do have too many stores. But remember, you do have like Amazon launching 1000s of grocery stores like there is some demand, you do have expanding retail businesses. So you know, retail is not a simple picture the way people always want to always want to paint it.

Simon Erickson  47:44: It is definitely dynamic. I’ve got two more questions for you Dan. I’m enjoying By the way, the switch of roles here. It’s kind of fun being the host of questions that have changed.

Dan Kline  47:52: So have I because it’s so often I want to say more than I have time to say so I’m glad. Thank you for letting me do this a little bit.

Simon Erickson  47:58: Absolutely. And Scott, we’re gonna get to your question too. We want to make sure we get some time to address the questions that you’re asking in the chat as well. But Dan, two more for you. My first one is holiday quarter is always important for retailers. COVID was a weird week, a year, a weird year last year, what are you expecting for the holiday quarter and 2021.

Dan Kline  48:14: So overall spending, I expect to be up. The National Retail Federation last I looked agreed with me. But that being said, what we actually buy may very heavily depend on availability. And it may depend on what we bought. So maybe I would have gotten my son a new laptop for Christmas or Hanukkah, wherever, whatever we’re calling the holiday. We’re a little bit of both in our house. But I bought him a new laptop at the beginning of the pandemic. My wife also got a new laptop. I upgraded. So maybe I’ll get my son concert tickets or a trip next summer or maybe it’s clothing. Some things like appliances are in relatively short supply. And a lot of people upgraded their refrigerator freezer to store more whatever during the pandemic. Televisions, which are traditionally a giant driver during the Black Friday season may cost a lot more because they are dependent on chips.

So I’ve talked about that last year, I bought a you know sub $300 65 inch television. I think those deals are going to be rare or nonexistent. But I think you might see really good pricing on experiences. I’ve talked about travel a lot. But if you’d like to book a cruise for next summer, it’s generally really inexpensive right now after it being expensive for a while because the industry just wants to fill up those slots and they’re they’re not willing to sort of hold out and say Geez, let’s charge more. That might not be true at Disney because Disney has a 50th anniversary. So there’s a big driver. They’re sort of like no matter what the market conditions are.

So I think you’re gonna see people buy stuff, but they may buy more necessities maybe in the reopening and going back to work, a lot of people have to replenish their wardrobes. We didn’t all stay tip-top shape during the pandemic, so maybe you need to buy some, you know, slightly bigger clothes or slightly smaller clothes if you were someone who used it. But so I’m confident in spending, I think there’s we’re in a really good place with employment. I know if you’re unemployed, it doesn’t feel like that. But overall, nationally, there are more job openings. And there are people looking for jobs.

We’ve seen wages rise at at least the lowest level of the economy, not necessarily at other levels of the economy. So there’s a lot of things. But we are looping a very strange year, we might see a lot of families where their big Christmas gift is a car because they haven’t been able to find the car. And if we hopefully have some pickup of chip production, it’s not going to be low end, you know, Kia Sportage is it’s going to be Ford F 150s, and high margin, more expensive cars, but at some point, you cannot put off buying a car. So Christmas, you know, if you need to get somewhere in your car doesn’t work. At some point. It’s not worth fixing at almost any cost. So I’m very excited for the holiday season. But I think making any specific predictions like you know, I wrote something about Peloton this week and like, I sort of expect it to be a good holiday season for Peloton. But if it wasn’t, I wouldn’t be shocked either. So, you know, there’s a lot more wildcards than there normally are here.

Simon Erickson  51:18: And a great point too, about the anticipation of prices going up for anything that’s got semiconductor chips in it. We just saw a Taiwan Semiconductor the world’s largest provider of semiconductors across the globe, increasing prices by 10 to 20%, you can almost certainly guarantee that there’s going to manifest as price increases for consumer electronic devices. One last question for you, Dan, is I know that you know a lot about retail, what’s a couple things that as investors we should be keeping an eye on right now.

Dan Kline  51:43: So stop watching earning report stories, because they’re generally not getting it right. The second line of multiple retailers reports use the term two years stack to talk about their results. What does that mean? It means that if you’re a grocery store, or Costco or Walmart or Target, you got an exceptional amount of sales because of the pandemic. Those weren’t necessarily high-margin sales, but they’re not duplicatable. People are eating out more, they can go farther to grocery stores. So what those companies are saying is, hey, yeah, we might be down year over year, but look how much up we are over two years ago. And that’s like judging it as a marathon not as just looking at a short piece of the race.

I talked about this on Friday show that if I run really hard in the marathon, and then crawl over the finish line, but still win, I won. And I know that’s an entirely apt analogy, because the retailer’s never get to keep stop running. But it doesn’t matter if say Netflix to pick a non-retail example, says we’re going to add 100 million subscribers this year, and that’s 92 million in the first quarter and then beats it gets to 110 million, but it looks wonky. Because a lot of the numbers were front-loaded. That’s what you need to do.

When you look at retail right now you need to dial out and go Okay, are these companies achieving their five-year plan or they’re at least their you know, their three year goals? Not what did they do quarter over quarter. I’ve talked a lot about this. You know, in my family business, if I made a big retail sale, we put that with an asterisk because it wasn’t necessarily duplicatable year, over a year. Simon, I know we have some questions on here. We wanted to get to as we run out of time.

Simon Erickson  53:23: I’m handing it back to you, Dan. It’s been fun being the host, but I actually like it when you’re the host much more.

Dan Kline  53:27: Alright, I thank you for letting me do that. I, we’re gonna share Scott Eisenberg’s question. And he says, I’m always worried in the back of my mind that the market will crash or go down a lot. How do you prepare for such a possibility, both mentally and also in your investment? Simon, I will let you take that one.

Simon Erickson  53:42: That’s a great question. You know, I think that the first thing I might respond to that is how do you define the market? Right? If we’re looking at the largest 2000 companies, and that’s the mark, that’s a lot different than if we’re looking at the S&P 500. The reason I say that is the S&P 500 is becoming more and more dominated by the largest tech companies of America, right? Just look at Apple, you just look at Facebook, you just look at the kind of face, you know, the largest companies that are out there, they’re becoming a larger and larger weighting of the S&P 500. So the s&p 500 returns is more and more mimicking those large tech companies rather than like the retail companies Dan was describing, rather than the banks rather than the healthcare companies that are out there. It’s interesting how we define the market more and more these days.

I don’t think that, you know, aside from normal volatility, I don’t see a whole lot of huge, long-term risk landmines at those larger companies. There’s still a digital transformation underway. Anything that’s consumer-facing, which is why we always like to talk to Dan so much about retail 70% of America’s GDP is on the consumer. I mean, all of that is really important. It seems like it’s a pretty good time for the consumer right now, as Dan mentioned, lots of job openings economy is coming along pretty healthily, still very low-interest rates.

I think that it’s sometimes as investors, we overthink the question of when is the right time to buy the dip or, you know, do We need to get into the very, very bottom, what if it drops five or 10% from here. And the reality of it is if you’re thinking in a five term, five-year time horizon, and you’re not just putting all of your money in at one single moment in time, it’s okay to add as stocks fall, it’s okay to add a stocks rise thinking long term because really, the market is always forward-looking, it doesn’t matter what the previous price of the S&P was fine.

Dan Kline  55:26: I don’t want to be glib here, but markets crash. And during this current pandemic-driven stretch, they’ve crashed and recovered in very quick times. But if you’re a long-term investor, and you own good companies you believe in, it doesn’t matter if something. You know Chipotle, a great example, they had their scandal, the stock crashed, but fundamentally, a really good company. Just took a long time to convince the market of that. That is going to happen.

You know, Microsoft crashed more than 40, maybe even 50% with Windows eight, which was a product well ahead of its time, that was actually a good idea. You know, that just didn’t work at the time. So I try and this has happened to a couple of my companies in the past few weeks, where short term news caused double digit stock drops, and I just look and go, Wait, that doesn’t change anything I think about that company. I understand when you see the market down 20% 30% and your stocks get hit. It’s scary.

But I want to close out with one more question from Amjad. And thank you Daniel Delgado, we appreciate that that information but if you want to pull the Amjad on one up. Zoom working from home a lot of weakness lately, thoughts on earnings after market closed? I’m just gonna jump in quickly. You’re gonna have one sentence on this. Sure. In the short term, I’m concerned about Zoom. In the long term Zoom will catch up to its valuation. This is a a product that has become a default for a lot of people. Simon, give you the last word here.

Simon Erickson  56:53: No, I agree. I agree with you Dan. Take long-term on that one.

Dan Kline  56:57: So we are going we are rapidly running out of time. We appreciate how many of you played along today. But we are going to hit our finisher. If you want to put that up on the screen JT. Which sectors are investors getting the most wrong. 28.3% said cannabis 33.2 said cryptocurrency 18.1 said electric vehicles 20% said oil and energy. On the first three Simon I think a lot of people are getting it wrong, and that they’re chasing any player not the best player. There are winners and all of those spaces. But it is really different in buying say Tesla or buying Nikola. The rivian valuation stories are kind of what what what spurred this question from me.

Simon Erickson  57:39: Yeah, totally. I mean, there’s so much froth and electric vehicles and batteries right now. The expectations are completely out of touch with reality. That’s that’s probably a good vote. Cryptocurrency is still misunderstood too. Blockchains are really getting a lot of enterprise adoption. That’s not just the current price, you see a Bitcoin? I think that that’s kind of masking what’s really going on with the industry. So both of those, I think are pretty good options.

Dan Kline  58:02: Yeah, I’ll say about all of these with the exception of oil and energy, which would be more Maxx Chatsko to talk about, is that really look for quality companies. And certainly cannabis is a space I cover a little and it’s one where everyone thought, oh my god, there’s going to be more legalization and they didn’t realize it’s really easy to grow cannabis, it’s really hard to build a brand. So you know, if you’re just opening a farm and that’s your business or sort of a generic dispensary. But we’ve also seen say like med men get ahead of itself expand way too quickly and run out of money and not work. So these are really tricky spaces I’ll throw in sports betting and streaming as well as spaces where like just announcing you’re adding sports betting might like cause your stock to jump 15%. Be a little bit wary with that.

This has been a fun one o’clock show The only negative being our day is closer to over and there’s still a lot to do. But if you’d like to get in touch with us, it is info@7investing.com. That is for emails about your membership questions about what it’s like to be a member. Anything you know, maybe you’re having trouble finding something on the sites questions like that. If you’d like to interact with us we are @7Investing, feel free to tag us if you’re a member share out your referral code tag us with that. Somebody asked a really thoughtful question today and tagged me and I had a really good time answering it so you want to pull me into your discussion. Feel free to do that. You will have a podcast and want to have one of us on? Ask on @7Investing we are usually very, very agreeable at least at least I am. The whole team is usually willing to do that. I’ve been on like high school kids podcast with with just a few people because you want to encourage that next generation of person so I am going off a little bit here. We are absolutely out of time JT Street behind the scenes. Thank you for doing this. Simon Erickson I am Dan Kline. We will see you again on Wednesday.