Costco Earnings and Why the Market Is Punishing Great Companies
March 5, 2021
Investors and the market can sometimes have a very strange reaction to success. Instead of valuing the numbers a company has just reported, investors may hold those numbers against the company. It’s a case of “sure, these are great,” but can you do it again? Is that how investors should be looking at companies? Matt Cochrane and Simon Erickson will answer that question and share some amazing stocks that can currently be bought at bargain prices.
Samantha Bailey 0:16
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 0:26
Good afternoon 7investors and welcome to the Friday edition of 7investing Now. Let me just say first, my name is Daniel Brooks Klein. I’m the host of the program, but we are here because it’s been a sea of red. It’s been a scary couple of days. And you know what we’re not here at 7investing? And I’m joined today by Simon Erickson and Matt Cochrane. We are not worried. We see this and we say sure- do we wish this happened a week ago so we got our March picks got better numbers? Yeah, absolutely. But here’s the reality. The companies that are great companies are still great companies, even if inflation picks up a point or whatever it is. That’s going to be the theme of today’s episode. So we want your questions about the market, about what’s going on, we’re going to look at some really great companies that have absolutely taken a dive in historical perspective. But before we do that, Matt, welcome to the program. But Simon, it is our first birthday we’re celebrating year one of yinvesting all month long. There are party hats, there are those little sundaes they give you at McDonald’s on the other half the lid we only get that part. There’s orange drink everywhere. Make your own pizza, all the birthday things are happening. But Simon, why don’t you talk a little bit about what we’ve accomplished in our first year because it’s unbelievable.
Simon Erickson 1:43
Well, how about the best birthday present of all for long term stock investors do a lot of bargains in the market to be buying right now. Right? 7investing mugs are on sale, we can have stocks that we want to buy on sale, we are really excited that we’re doing business already in 88 different countries around the world. In one year 7investing is making an impact and empowering people to invest in their future, think long term so that when things like this happen, when the markets selling off, and everyone’s going crazy, we want to reframe the conversation say, “hey, this is actually the perfect opportunity for a long term investor to buy the positions you’ve been wanting to buy for a long time.” And so we’re still full steam ahead. You know, we’re one year in now. And we would love to hear how we’re helping you to accomplish our mission. We want to hear your 7investing story want to hear how 7investing has helped you in your investing journey along the way. And so anybody who shares that with us either on this program on @7investing on Twitter, at email@example.com or any other way that you’d get a hold of us, we’d love to hear your story. I’m going to enter you into a contest where we’re going to be giving away one of seven free annual subscriptions to 7investing. So really excited to be here for a year and even more excited about the future ones.
Dan Kline 2:57
Sam, if you want to share Matt’s cell phone number and home address. Just kidding there. We’re really excited. And of course, Matt, you have that list of 88 countries that you’re going to read off?
Matt Cochrane 3:10
All in alphabetical order.
Dan Kline 3:13
We appreciate so many of you. And look, if you’re not a member, I kind of think that after watching this show today, you might understand a little bit more about the sense of calm the long term view we bring to the market. So Sam, let’s share it now if you want to join us it is 7investing.com/subscribe. It’s easy. It’s $17 a month, it’s $170 a year- that’s two months for free. You can pick which two months if you want to longer…. but no, it doesn’t matter. It’s just $170 a year or $17 a month. But our top story today we’re going to talk about very quickly Costco earnings. And then we’re going to talk about why the market is punishing great companies. Matt, I thought the Costco numbers were stellar if you want to go through them quickly.
Matt Cochrane 3:59
Yeah, absolutely. No, it was a great quarter for Costco and Costco. I mean, just one of those great all time retailers. But yeah, the stock fell after the retailer reported its quarterly earnings because it was below quote unquote, Wall Street expectations and that was doing parked like higher wages amid the pandemic. Enter to 14 a share, which results up slightly from 210 a share last year, but sales was up 15% total total comparable sales rose 13%. ecommerce sales were up 76% I think that was like the big number. You know, the average transaction size was up the US and Canadian renewal membership rate, which is like a very important number was came in at 91%. So just really good numbers all around Dan.
Dan Kline 4:46
These are stunning numbers. And I think it’s important. We’re going to talk about metrics over a whole bunch of companies. But when you look at a Costco, all those sales numbers are nice because they show an engaged user. But here’s the reality, the number that matters is the membership number 91% renewal rate ticked up point 1%. So in a pandemic, they’ve proven to still be useful to their members. In some cases, that’s that’s mobile. In some cases, that’s curbside pickup, in a lot of cases, it’s still people going to stores, which had they’ve done a good job with distancing and lines in the parking lot and all the other things. So Costco has kept engaged with its members. And what do you look at when you look at Costco, in a non pandemic, you look at warehouse openings there, they slowed down building warehouses during the pandemic, for obvious reasons, because you can’t sign up members and do some of the hype, things you would do. But they are adding customers, they added about a half million customers, and they added a few 100,000 to their executive membership. Costco makes most of its profit from those membership dollars, their sales are not actually that relevant as long as they manage their inventory. So it would be bad if Costco was sitting on a billion dollars worth of inventory, it didn’t sell. That’s not the case. They’re moving merchandise. Well, they’re engaged with their customers, and analysts, which is a vague blob of people that don’t sit in front of Costco and look at the size of you know, what people are buying, or how many people are enter. These are people throwing darts at a dartboard that really, I don’t have a ton of respect for that whole space. They’re guessing it profits. This makes no sense. They did better than a year ago during a pandemic, which is, I think, absolutely unbelievable. minesh. David, we see your questions. We’re gonna get to questions later on in the segment. But Simon, one of the things we talked about here is a lot of really strong companies, we’re going to go through a few are being sold at a bargain. Can you speak to the idea that stocks sometimes trade based on sentiment right now, the markets just down? And that’s kind of going to pull most votes down? You want to speak to that a little bit?
Simon Erickson 6:49
Yeah, absolutely. And just to chime in a little bit with Costco, too. I think you nailed it, Dan about talking about the loyalty programs. They’ve got the executive program that costs $120 a year, but you get 2%, cash back from Costco, three and 4%. cashback on gas and other things you purchase. So that adds up quickly.
Dan Kline 7:07
You’re actually, you’re confusing the executive program with the credit card.
Simon Erickson 7:11
So I’m sorry,
Dan Kline 7:12
The credit card gives you the 234 which you could layer on top of the executive membership, which costs 120 versus 60, for a regular one gives you 2% back on nearly every purchase up to $1,000. So if you’re a regular Costco customer, it’s very simple math to determine whether that’s a good deal for you, for most families, it would be a good deal. Let’s pivot a little bit here because I don’t want to belabor Costco. Costco is one of my favorite elephant up a hill companies. But we’ll show some graphs later, where if you look at Costco, it just eventually tricks up their big dividend payer. But we want to talk about whether the market is punishing good companies for their success and Maxx Daniel, see your questions. I promise we will get to questions at the end of this segment. Matt, you want to just throw it Home Depot is one of those companies. That’s just they’re killing it. And the market is not responding that way. You want to go through some numbers, maybe share some graphics?
Matt Cochrane 8:07
Yeah, well, actually, we don’t have graphics for Home Depot. But the numbers weren’t great for this company. You know, in in q4, the Home Improvement giant saw sales rise to $32 billion. That’s a 25% increase year over year, earnings per share was up to 265. That’s a 16% increase year over year. So we just saw strong result, strong results across all the companies, categories, and regions. That’s 19 of the company’s us regions in Mexico and Canada, they all posted double digit, comparable sales, growth, and local currency. All merchandising departments, also double digit a comparable sales growth on the number of quarterly customer transactions. That was up almost 13% a year, the average receipt grew 10% year over year. And for the full year, the total sales per square foot rose to $544. That’s the highest number that company’s ever put up in their history. So in other words across every region category, and basically metric Home Depot just had had this bear year, um, you know, the numbers gave the company covenants to authorize a 10% hike and its dividend, you know, giving it about a 2.5% dividend yield right now at its current price, it might actually be higher now, considering the sell off we had the last couple days. But you know, so the quarter was great. And yeah, it’s sold off. Now, you know, again, I don’t know what the stock price is at this exact second. But you know, it’s down more than 10%. I think about 15%. From its highs after reporting a stellar quarter, just a stellar quarter. And right now it’s p e ratio is under it’s like five year p e ratio average. So you’re actually combined the company at a cheaper valuation than you think for the most of the last five years. So the company is doing great and the stock price is struggling a little bit but it’s another example of just one of those great companies that That you can almost kind of get on a sale not, of course, doesn’t mean the company can’t get cheaper or, or that it might not underperform for a little bit longer. But it is, it’s an example of a great company doing great.
Dan Kline 10:12
So Matt, one of the concerns here, and I find it ridiculous because it’s been thrown out in a lot of good retail companies is the pandemic is going to end. So for a quarter or two, we’re going to pay less attention to our homes, we’re not going to spend as much on DIY projects, I’ll throw out and tell me if I’m wrong, that that doesn’t change the fact that eventually my roofs gonna wear out or a Windows gonna break or whatever it is, or your washing machine is gonna go. So there might be like a squishy quarter or two, but that doesn’t. Am I missing something? If this doesn’t change the business trajectory of Home Depot?
Matt Cochrane 10:42
No, absolutely not. And the average home, the average age of the homes in the US continues to get hired to is like, and they even mentioned this on the conference call. But like, I totally, this absolutely rings true in my own life, you fix something up in your house, like you paint one bedroom, and you’re like, Wow, now the other bedroom looks crappy by comparison. So we need to paint that bedroom too. Or you fix up your back deck. And you’re like, Well, now, now this needs to be done. It kind of just built once you fix up one area of your house, the other, you know, you want to do the rest of your house. And that’s not going to change. I looked they did say that. There’s a little economic uncertainty right now. And if the economy reopens up, maybe people spend a little more on travel than they did what they did last year, for sure. And maybe a little less this year. So they said like, Look, we’re not really too sure about guidance. If if demand continues, like as it has, like for the beginning of the quarter we’re in now, they expect to see, like flat to slightly up comps this year. But that’s like, but that’s after 20% comps. So I mean, like if you normalize that over a two year, like for a two year growth rate, it’s outstanding growth. So yeah, there’s a little there’s a little uncertainty about this year’s comparable sales. But like, in the long term, nothing has changed about this trajectory of this great company.
Dan Kline 12:01
So Simon, as we get to some of the other companies on the list here, one of the things I wanted to talk about, we’re gonna take the discussion a little bit out of order. And guys, there are some graphics, if you want to call for any of those at any points, but comps. So if you have an abnormal comp, so you’re up 20%, because there’s increased demand, there are some benefits to that. That means you’ve captured more customers, you’ve increased your retention rate with your existing customers, there’s overall goodwill, but realistically, those conditions may not exist next year. So if they’re flat or even down a little Shouldn’t you really be looking at where they were in 2019 not where they were in a pandemic driven 2020 I’ve talked about this a lot when I worked for my family business, and we made some crazy special multi million dollar low margin sale. We didn’t put that into our financials, it was an asterisk on our financials, because it was not necessarily repeatable. Our company’s not doing enough to explain this, or we just so stuck with how we look at things that we’re going to talk about same store comps, no matter what matters.
Simon Erickson 13:01
I think it’s the latter of those two, Dan, I think we do spend a lot of time on the top line sales and the comps and we really should be looking at more at the bottom line of the profitability to the business. We just mentioned Costco how important memberships are. We just talked about Home Depot when Matt said that yeah, it’s it’s gonna be the operating profit and the absolute terms that I think it’s most important for investors, right, because we’ve got some changes that have happened from COVID people are buying groceries, you know, online, picking them up in store, you know, Home Depot has got an omni channel where people are ordering things online just picking up rather than having them stocked on the shelves. But at the end of the day does that does that matter to the business as long as it can adapt to the new way that consumers want to buy things? Maybe not. And if cops changed, it was a really, really good copier. Because people are buying more groceries and things from retailers than they were from going in store that might not matter as long as you’re boosting operating profit in the long term. And I’ve seen both Costco and Home Depot, their operating profit line looks fantastic even as they’ve adapted to a crazy year that we’ve had.
Dan Kline 13:56
You’re also gonna see costs fall there’s literally added just employee bonuses and things because of the pandemic. But there’s also extra cleaning, there’s logistical hurdles, it simply takes longer to do things when you’re keeping employees six feet apart. And we talked about a Home Depot if I’m not using my house I’m somewhere and if I’m somewhere there’s a decent chance that whoever works on somewhere is buying their stuff from Home Depot. So you’re right, I might not wear out my office and have to repaint it every 18 months with I’m not spending all my time at home but if I’m spending it in an Airbnb, eventually that Airbnb, so if you look at Home Depot where their demand comes from, may change and that that brings us to the next one here dominoes. dominoes will bring you a pizza at a public beach, you know with their pinpoint location thing. So we might not eat as much Domino’s Pizza at home, but their numbers are absolutely stellar. And they have our information. They can send us a pizza and it’s really easy to do once you once you’ve given them your credit card and your info. Let’s talk a little bit about their numbers and why you think that’s sort of An amazing bargain right now.
Matt Cochrane 15:01
Yeah, absolutely. And this is we do have a couple of graphics for Domino’s. And same if you can throw up the first one, just over the last year, Domino’s has actually underperformed the market by about by about 30 percentage points, which is pretty, pretty stunning. Um, you know, it’s down about 25% from its 52, week high. But the company itself is performing great like the same store sales. It’s had same store sales growth of 11 and a half percent for the year, international same store sales growth of four and a half percent. And so that is that fourth quarter it marked 100 and eighth consecutive quarter of international same store sales growth, and the 39th consecutive quarter of us same store sales growth. So this is like not a new phenomenon for them to be growing. There’s their same store sales, it’s grown their their store count, added 624 locations in 2020. It’s APS for the year was up 30% in 2020. You know, so the board has authorized a $1 billion share repurchase program, and it raised the dividend by 20%. So look, I mean, you know, again, an example of a company clicking on all cylinders, and yet the valuation of Domino’s because of its recent, like underperformance of the market now is cheaper than its average. And we have a graphic for that too, Sam, if you could throw that up. So like, you know, over the last five years, its p e ratio is about 35. And right now you can get it you know, it’s down about its B ratio is about down about 25% from its five year average. It doesn’t mean again, it doesn’t mean like maybe the stock was too expensive for the last five years, but like this is the company doing great. And you can get it at a nice discount from its historical average. At least its recent historical average. And, and everything in the company’s numbers has been great.
Dan Kline 16:52
Consistently profitable, consistent growth, never miss a quarter adding scores steadily. They understand their business. Now, Matt, I might be biased here. You know, I’m not a big fan of Domino’s Pizza. You know, partially I went to high school with the noid. So you know, that’s absolutely. That’s a joke. Credit.
Matt Cochrane 17:09
That ages you so much.
Dan Kline 17:15
Matt, you have you have a bunch of kids. Yeah, post pandemic, when you’re allowed to go out? Does your demand for Domino’s decrease when it becomes easier? Or is it still just a regular go to inexpensive food source for a bunch of people?
Matt Cochrane 17:29
Now look. Domino’s is about as much about good pizza as McDonald’s is about a good cheeseburger. Like it really sells convenience and affordability. And so someone in like, for me, I have four kids. If I if I want like a cheap fast dinner, my wife is working, I’m working. You know, it’s hard for us to make dinner every single night. But we can’t like just go out and eat, you know, at a nice restaurant because buying six meals at a restaurant adds up pretty quickly. dominoes hits the mark every single time. You know. And it sounds like you said convenience like you’re at a park you’re throwing a party, you know, it has like their their hot locations, which you can just, you don’t need an exact address. If you got pavilion number five at a local city park or something, you can just put that in and they deliver right to so it’s about speed. It’s about convenience. It’s about cheap food. And and that’s a winning formula. You know, that’s a proven winning formula.
Dan Kline 18:28
They’re like three months away from being able to deliver to you in a plane. Like this is a company that understands its customers. And look, the pizza tracker is something they own. We’ve talked a lot about the failure of third party delivery. Domino’s does first party delivery, and they’ve made it work through volume. So this is just a fine tune a business model. And you know, have they done great with added products? No, their sandwiches are worse than their pizza, their pasta bowls are an atrocity. But that said they could eventually figure out other food and other ways.
Matt Cochrane 19:00
They might, they might. But like, to your point, Dan, they basically pioneered the food delivery movement like 60 years ago, when they like their their first locations were near college campuses. And they couldn’t afford to open like a big pizzeria where people come down and sit. So it was just all carry out. And they said, well, we’ll just we’ll take the pizza to the dorm rooms. So you want to talk about data like these other like third party delivery services can have, they’ve had Domino’s has 60 years of data, you know, they’ve had a lot of time to like not only collect data, but also for trial and error of how delivery works and how it doesn’t work. And they’ve done it profitably for a very long time. So they know how this business works.
Dan Kline 19:42
So I talked Costco and all the things that we just talked about with with Home Depot and Domino’s apply to Costco trading well off its its 52 week high. All the metrics are good. The only negative you could say is that they weren’t quite as profitable as like maybe they would have been if they didn’t have to spend a lot of money on extra salary and math. In my opinion, they’re also sitting on so much cash that had the pandemic not happen, they have a history of doing special dividends, very weighty special dividends, it seems very likely to me that when the optics are good, and we no longer have a pandemic, that they will pay out another special dividend can’t predict when. But if you buy Costco stock and hold it for three years, I’d be willing to stake a lot on the fact that that that would happen. This is a company that doesn’t have to innovate, they can go very slowly and watch what works in the market. They were very slow to digital. And they moved to digital when their customers said, Hey, here’s some of the things we see elsewhere, that and we’d like those, they can adjust on a month by month basis, because they have a rolling membership. So if they see like when they raise prices, and they saw that they didn’t lose 1% of their membership on a rolling basis. Okay, they knew that that price increase was going to be just fine with their customers. These are all good companies. Simon, you’re the mayor mccheese in our world, you did not put a company down on the list. But there was one you was there. One, you want to talk about that.
Simon Erickson 21:04
Same internationally to Dan, you know, the one that I was looking at too, was Mercado Libre, right, which is not as familiar for retailers in the United States. But this is an e commerce provider in South America in Latin America. Fantastic growth, fantastic growth and payments, fantastic growth in gross merchandise volume, top line revenue sales, everything looks fantastic. It’s still down 25% over this last month. So back to the last comment that we made earlier in the program of are we selling off good companies because of this correction? I think we are. And I think that the other the other comment I would make on this is that as long term investors, we need to adapt how we look at companies, right? I mean, we spend so much time talking about revenue growth, and same store sales and number of locations that they’ve built around the country. When in reality, the game is changing. You know, Costco is now delivering groceries and for pickup, Domino’s is really easily delivering your orders. No matter where you place on your phones out there. Home Depot has gone omni channel, we can pick things up without going through the stores. I mean, I think at the end of the day, we don’t just look at those same top line metrics anymore. As long term investor strategies take time. And we look for the companies that are executing well, and absolute operating margin dollars is a metric that I would love to watch for all of these retailers.
Dan Kline 22:12
In about 60 seconds, we’re going to go through your questions. After that we’ve got two really interesting things, we’re going to talk about the space raced, and see limited in what we’re watching. And if there’s time left, we’ve got a really great segment on how you should balance your portfolio. Don’t know if we’re gonna have time to get to that, but we’re going to try to but before we do that, Sam Bailey, why don’t you share the first Costco graphic that Matt took the time to make? So I don’t want to just skip it. Matt, why don’t you explain what we’re looking at here?
Matt Cochrane 22:40
Well, yeah, so you just think of winners of the pandemic, um, you know, in Costco is one of those companies that you think of, I mean, just people were not eating out, they were buying more groceries and things like that. We just already talked about Costco is great numbers, but yet it’s underperformed the market over the last year. And yet so what that means is like its valuation now is below its like recent historical average. So it’s saying if you throw that up, like you can just see that, like, Costco is like, because of its outperformance over the last year, and, but it has not performed as well as the market. Like it’s just it’s trading below its average p e ratio from the last, you know, three to five years. So it’s just, uh, it’s really it’s just a it does again, it doesn’t mean maybe it was too expensive the last five years, you know, maybe that you could make a case for that, I guess. But it’s a great company. It’s performing great right now. And it’s trading below its recent historical average, it just needs to, that might be an opportunity worth exploring for investors.
Dan Kline 23:37
Sam Bailey, we’re gonna take these questions in order. But let me sum up the seven investing philosophy, identify good companies, buy them and hold them for the long term. You cannot look at Costco, I don’t even think you could figure out a bear case for Costco, like your bear case would literally have to be that drones get so good. And no one ever wants to leave the house. And it doesn’t make any sense because people like going to Costco and they like saving money. So if they don’t want to go to Costco, they could still be a member and save money. The same things apply for Domino’s. Matt and I go to a pizza place, maybe every couple of months, that is near where he lives and not that near where I live. And it’s about four times the price of dominance. For Matt to take his family there would be a big night out, you know, whereas for just the two of us it’s not that big a deal. So that is the metric they’re working with like they have somehow cornered the market on good enough and convenient. Home Depot serves a need. They know the volume, the logistics, all of that, but let’s get to your questions. Let’s take minesh grammies question first. Hi All I’m a newish investor, a new member and investor. I’ve seen my portfolio dive over the last two weeks. I’m not worried panicking. But what real practical steps can I take to help ground me? Watch this show? We’re here for you. I haven’t sold. I’m going to do some buying Simon, your thoughts here.
Simon Erickson 25:00
Well, Sam, I’m going to cue you up for a couple of graphics too, because I think that this plays right into that great question. Mahesh, thanks for asking this. But the first of these is kind of, if we can throw that up, it’s this it’s a, this is kind of what investors want the stock market to do, right? If you see the returns of your stocks and the y axis, and then time on the x axis, this is what we cite psychologically one our portfolio to do, we wanted to just go up in a straight line, like you saw there. But in reality, here’s the graphic of what the s&p looks like, right? Look at those recessions, firstname.lastname@example.org, bust for, you know, 20 2300 2400, down to 1200. And then also the recession of 2008 2009. I mean, you’ve got to go through some pain, to be grounded in with reality. But then if you look at the long term returns, if you zoom out for 30 years, or even 10 years, you see that the stock market is a great compounder of wealth. And so if this helps some perspective, Mahesh, you know, of seeing the portfolio dive or the last two weeks, it hurts, there’s no doubt it stings. When you look and you see all that rain, you’re like, Oh my gosh, I’m losing all this money. But unless you’re cashing out your account right at the bottom, does it matter to you, if it goes up in a straight line, or if it goes up and then down and then back up again. And that’s why we preach long term investing. That’s why seven investing is buy and hold all the positions we’re making on our scorecard, because we think it zoom out a little bit, it’s gonna be just fine and don’t don’t have the emotional grief. Don’t worry about the the ups and downs over the weeks and months.
Matt Cochrane 26:20
And Simon just real quick, too. We did a whole show about that. Last Friday, if you’re interested in checking it out. It’s on YouTube, where I think every advisor from our team was was on it, talking about just how to like mentally prepare and prepare yourself for a market crash.
Dan Kline 26:34
We would love for you to be subscribers to our YouTube channel. You can get this as an audio podcast or a live stream videocast, which I will throw out a nice comment from Daniel Delgado. He says, I love the Live podcast every Friday. We actually do this every Monday, Wednesday and Friday. And then of course, we do a reported more traditional podcast longer form interviews on Tuesday and Thursday. Valuable info is always your top notch team. I’m a new subscriber Welcome to the seven investing family. You guys have so much to offer. We are so honored that you want us to be here for you. This is like look, you just broke up with your girlfriend, you want to pick who you’re going to go and talk to and get comfort from and you’ve chosen us. And obviously in this case, it’s the stock market. It’s a little scary. We are happy to be here. Our friend Maxx Lucas says has costcos revenue from gas come back, I was shocked to find that 10% of their revenue came from gas pre pandemic, they don’t report those numbers. And I haven’t read the entire earnings call to see if they were asked about it. Here’s the thing, it doesn’t matter. I’m gonna say no, it hasn’t because we’re not driving as much. gas is a break even proposition for Costco, they have gas. So you go to Costco. So it feels like it is a great member value. If you live near Costco, they have almost always the least expensive gas. So I’m sure we’re filling up less often. But that doesn’t make the value any less. And it doesn’t sort of affect their bottom line. It’s sort of like people are really excited when samples can come back. But I don’t think that’s really a business bottom line decision for Costco. Great question. Maxx, we appreciate it. Robert Glenn says Costco is an excellent company. Yes, they are. And and then we’ve got one more from going in order. So apologies to taking the same person twice. But Daniel Delgado says, Apple had a big quarter keeps falling, it was falling before this NASDAQ correction, why? I think we all know know why. But Matt, why don’t you jump in on that one.
Matt Cochrane 28:29
So actually say this, and it might be in the minority among us. But like a lot, Apple had a terrific run the last few years, I mean, a terrific run. A lot of that was was based on valuation though. So like its valuation, like really jumped up, its organic revenue growth has slowed down, especially compared to the other big tech companies. And so now you’re seeing a bit of a pullback, you know, like, again, going back to the Simon stock chart that he showed, like, you know, we want investors, we want our investments to just go, you know, straight up into the right. And so often, you know, they they they zig and zag on their way up into the right. And I think that’s what you’re just having right now in Apple. I don’t think it’s anything to be concerned about, like as far as the the long term prospects for the company. But I would say probably the price was probably a little ahead of itself. And now you’re seeing a pullback.
Dan Kline 29:16
I’ll actually go further in. I think Apple reported the best quarter of numbers I’ve ever seen a company report and not that I look at every report of every company, partially because they showed they’re trying to diversify from the iPhone, and their service revenue lines have grown consistently. They were up 10% in every category, but when a company lays out a blueprint, they say we want to grow this area of our business and they do it. That to me is laudable. I do think Apple is going to take a while to go from 2 trillion to 3 trillion, but I think healthcare is going to give them that opportunity to get to three quilotoa and Simon, feel free to jump in here.
Simon Erickson 29:53
Has to be has to be healthcare. That has to be the next horizon for Apple. There’s no doubt about it, especially with that growing line item of services. And the iPhone has kind of hit peak, you know, you can keep making more expensive iPhones and some people will buy them, but we’re kind of plateauing on that. It has to be healthcare. And that’s why Apple is going all in on the privacy aspect of this. They want to say, Hey, we have protected your privacy, trust Apple as we go into wearables and healthcare, because that’s where devices are getting more and more consumer facing, right. It’s not just the hospitals and doctors that have access to patient data anymore. That’s democratizing Apple wants to be in this market.
Dan Kline 30:28
My Apple watch is as much my boss as Simon is. The advocate told me to do work, the Apple Watch can tell me it’s nine o’clock at night, you haven’t walked enough? Go out and take a walk.
Simon Erickson 30:38
That’s where I am telling you to do work. Dan is on your watch. It has my voice for programmed, right?
Dan Kline 30:46
So Tim Patch asked a question, nobody can answer. How long will this dip slash correction last? What’s a good entry point from March’s picks. A good entry point is now. Whatever, unless something has irrationally gone up 10,000% or made some crazy move, when we make a march one pick, we’re not saying run out and buy it March 1, we’re saying this is our highest conviction pick right now.
So if you didn’t buy our picks on March 1, well, you’re gonna get a little bit of a bonus because some of them have gone down. But here’s the reality. I am not the least bit worried about any one of my picks in the long term. Now, obviously, not every pick is going to be a hit, especially when you get into the risky space. But overall, when you’re identifying good companies, when you’re doing the homework, we’re doing entry points aren’t that important? Simon, feel free to elaborate?
Simon Erickson 31:36
Absolutely. I completely agree with what Dan said, there’s two ways to approach this, right. You’re either finding great companies that find a pretty good entry point, or you find companies that aren’t as great and you’re just like, you’re just obsessing over what the current price target is, right? We’ve gotten so used to this world of saying, Oh, well, we think that this company is worth $100 a share because of estimates that go into an Excel spreadsheet model. But we don’t really know about the fundamental competitive advantages. We don’t know about the management, there might be some sketchy things going on. People want to buy bargains that seemed like they’re out of whack with their 12 month price target. But again, those are just based upon inputs that a lot of times are built off DCF models or other quantitative models built by by professional institutional analysts. Our perspective has always been at seven investing, tried to break that mold of saying, oh, I’ve got to get at this price target. Or as the mentioned, you know, that that Tim said, Here’s what’s the good entry point, good companies will continue to unlock value for you as a shareholder over the long term, as they build out and win with their strategies. Apple’s acquisition of Kiva is a great example of that. I don’t have a whole lot of time to go through that detail. But look for the right companies hold them for the long term, because fundamental growth is going to power the long term returns of companies for decades, instead of just months.
Dan Kline 32:52
It’s really important to look at the groundwork. You mentioned Amazon and Kiva, when that when that deal was made. That was kind of like what they spent $800 million on a robot company and I pictured that episode of The Simpsons where Mr. Burns brings in all robots, and it goes terribly wrong and the robots start committing suicide. But you know, that being said, that deal when you first looked at it, you went what, and now when you look at the capacity, the automated robots working alongside human, well project that out to Walmart, Walmart has 170,000, people filling delivery and curbside pickup orders. I’ve seen the technology at trade shows back when you could go to trade shows to automate that easily. That’s just a question of time. So that becomes more efficient, more people can be served. We have three more questions here. We might take more, but I see three. I’m gonna give one from assignment. You’re gonna read Matt, the one from Doris and Renee corral. I’m gonna take that one. And then Joey Kay’s question is going to go to Matt. So minesh says, also, you know, as stocks are on sale, how do you decide which ones to top up? adding two winners is difficult when there are no winners at the moment. They’re not winning today, there’s still plenty of stocks in our portfolio that are up hundreds of percents or at least 20. And dozens or whatever it is, Simon How do you decide where to buy?
Simon Erickson 34:08
Wow, what a great question. I mentioned Mahesh I wish we could like hang out and you know, have a zoom call where we have a couple beers and talk about this one. Because this is this is exactly what we do. And we’d like to nerd out on as professional analysts on a monthly basis is when is the right time to buy the right company? A lot of times as we’ve seen, Dan, in recent months, we went back to the well and bought companies that were selling at all time highs, right? They were not bargains in the market. It wasn’t like it was a sell off that made us want to buy them. We just said hey, the market is changing in a way that’s really going to favor this company. This this AI company, the cybersecurity company, whatever it might be. We weren’t as concerned about the valuations and then being on sale as seeing Oh, wow. They’re really getting some momentum out there and people adopting their products. And so to answer the question, I would say you know, add to your winners, don’t be afraid to buy companies that are All Time highs. And if you are, if you’re happy to hold them and you’re, you’re comfortable with the valuation, you don’t think it’s gotten completely out of hand. Don’t be afraid to buy, quote unquote expensive stocks, there’s are a lot of times the best winners in the entire market.
Dan Kline 35:15
I don’t change my buying habits all that much. But I will say that when things are like this, if I look at something that you know, I’ve always been on the fence on Domino’s, it’s a great business, I can’t get around the fact that I don’t personally like the pizza. But now I look at it. And it’s a lot more palatable at, you know, at 20% off or whatever the numbers are. And I’m not saying that’s what I’m going to buy. Because there there are definitely some other ideas on my list. But I always have one or two things in my watch list. And we’ll come back to watch list in a minute. But Matt, if you want to share the question from Doris and Renee, I will answer that one.
Matt Cochrane 35:48
Sure. With some states opening up more, isn’t that going to cause a major shift back regarding online and delivery based businesses?
Dan Kline 35:56
No. So here’s so at the peak of the pandemic, online retail, including grocery at the peak was 20%. So 80% of shopping was still taking place in store, some of that’s going to be curbside pickup. So I do think we’re gonna see the acceleration from 2019, like 13%, online ordering to where like 16 17% becomes the norm, and maybe in a year or two, it gets to 20. I actually don’t think it’s going to climb that much higher than that. Because in some ways, it’s not super efficient. So if you look at something like third party food delivery, it’s more expensive. I use instacart. I used it twice this week, because I was busy. I know I’m spending more for everything I buy the convenience was worth it for me, until we have major technological changes that that sort of make delivery very efficient, it’s still going to be better in most cases to go to a store. So I think we’ll see a slight acceleration, we’ll see much more hybrid shopping where Yep, I bought it online. And I go to Home Depot and I pick it up and that we talked about this earlier in our slack that there’s going to be some shift in Okay, well, I’ve already paid for that. So Home Depot maybe needs less checkout people and more person to go to the back to get my order ready. That’s really just a shift in labor and there’ll be some sort of squishy costs as that happens as they figure out what that looks like. It’s one of the things I love about Costco Simon asked me about you know, Costco and distribution centers. Costco is warehouses are actually warehouses. So like I’m picking orders, so as the person who’s filling that that curbside pickup or that delivery order, and they’ve kept their delivery very, very tight with quantities and what they’re willing to deliver and made it very very efficient. Amazon’s gotten really good at this with AI Amazon could no not Simon but someone like Simon in his neighborhood is gonna order a razor and T Wednesday at three o’clock and they literally know that and package that up and have cut that time out of their system. Everybody else is playing catch up but it’s going to get there that is a great question. I don’t think there’s going to be a massive shift. Joey k asked will throw this one to Matt this week is an example of why watch lists are so important important for stocks you don’t want to be on watch list in other cases finally pulled the trigger yesterday and today on a bunch of buys that took a second to uh to fit in there. I’ve wanted to I’ve wanted to make after being pretty inactive year to date so far. Yeah, a lot of people do wait for situations like this, Matt, your thought here?
Matt Cochrane 38:23
No. Same thing. Actually, Joey. Like besides adding to my recommendations, which I always already own, when I make them I add to them after I make the recommendation to to get myself a little skin in the game. But other than those buys I have not bought this year until yesterday. So I’m starting to like and this morning I bought a little more so I think it’s a good you should always have watchlist, you should always have stocks like that you that you want to add to or start a position in but you’re not maybe you’re concerned a little about the price or you just want to learn more about it. And times like these make that a real good opportunity. Just remember you don’t have to go all in at once. You can just do it a little at a time, you know, especially in today’s age, where we have $0 commission fees on our brokerages you know, that can be like a double edged sword like especially because it encourages trading. But But if you use it to your advantage, you can just add a little at a time and so times like this, you know you can buy like let’s say you’re looking at at one of the companies we’re talking about like Costco, you buy a little today and if it goes down next week, you can buy a little more you know, you just dollar cost average your way in. But yes, you should definitely have a watch list and stocks you’re watching. Absolutely.
Dan Kline 39:29
We’ve got a few more questions. We’re going to take very quickly here and then we’re going to move to what we’re watching. We’re going to try to get the whole show in. We very much appreciate how engaged all of you are Joyce Hein says all pizza is good. Some is better. That is not true. Just go and get a Red Baron pizza and tell me all pizza is good. Go Oh,
Simon Erickson 39:48
I love Red Baron Dan
Matt Cochrane 39:51
Dan Kline 39:57
Oh my Gosh. Girbran 1218 Yes. What is the significance of the Google Ads story on the media advertisement space? So I’m going to actually throw this too. We covered this on Wednesday’s show. Simon, I was going to head into our promo. So let’s say Gibron wants to find exactly where we talked about this. And I think was Wednesday show might have been Monday show, he can go to our site, and how can he find it? There’s a really awesome tool we’ve just unleashed on 7nvesting.com.
Simon Erickson 40:27
Well to it for one, if you wanted to look just at the live stream, just seven investing.com slash live stream. But we’ve even built a more interactive search bar powered by Yext, which I really enjoy working with this company to help you find exactly what you want to look for search abroad, if you wanted to type in Google ads, media advertising space, might bring you up to Steve talking about this story with with Dan earlier in the week. And so check out our site seven investing.com. Right at the very top, you’re going to see that same search bar, you’ve gotten used to a Google that’s a great way to find all of our information as quickly as possible.
Dan Kline 40:58
So when this show ends, Sam Bailey takes the raw transcript from the show and uploads it to something to something we call otter. Otter goes through and processes everything. And then I go in and I take a look pretty quickly. These aren’t perfect transcripts, think of them as like earning call transcripts where you are going to see some errors. But I go in and make sure the company names are right that the data points are there that they’re sort of readable, and usually within three or four hours of this show ending that’s going to become searchable content on our site. Today’s episode is not going to get fully done until Saturday because I’m traveling a little bit this afternoon, it takes a couple hours for it to to process. But that being said, this makes the seven investing site so much more valuable, because you could go Geez, I know they talked about you know this type of earnings, this company’s earnings, I just don’t remember when you go in and you type blankety blank earnings and not only as a member, are you going to get all the places we’ve talked about it for free? You might get an update. If it was a pic, you might get a think piece on one of us. We mentioned it, it’s taken something that wasn’t great search is not great on most websites. And it’s still a work in progress, but it’s making it off. It is a powerful, powerful tool. So we are absolutely happy with our friends at Yext you’re watching seven investing now we are moving to what we’re watching and Simon the space race is on I am putting my helmet on getting my laser gun I am ready to go. But that’s not the story we’re talking about today. Why don’t you fill us in?
Simon Erickson 42:26
It is that’s exactly it then we’re gonna shoot you never space we’re gonna film our next episode live we got Satellite Internet there, it’s gonna be back down. Make sure you the window seats, we can see the view of what you got from Earth.
Matt Cochrane 42:37
Dan’s next promo video is going to be great.
Simon Erickson 42:40
I’m looking forward to this.
Dan Kline 42:41
You can’t get good internet in a Vegas hotel or on a cruise ship. I am a little concerned about the space internet capability.
Simon Erickson 42:47
We’re gonna work on it for you, Dan, we’re gonna make this happen. The story I’m actually really interested in is rocket lab is going to be coming public now, through a SPAC a lot of other space economy companies are coming public right now. And this is why this is on my radar cue pun intended, Matt Cochrane that’s as good as I can do to combat your banking jokes that you’ve had earlier this year.
Matt Cochrane 43:09
Simon? How did dinosaurs pay their bills?
Simon Erickson 43:15
Oh, goodness, here we go. How did how do they met
Matt Cochrane 43:17
With Tyrannosaurus checks.
Simon Erickson 43:20
On the spot humor from our very own Matt Cochrane.
Dan Kline 43:24
Simon, we had a pretty big development this week. So I watched it. We had a successful launch a successful landing, and then a less than successful post landing. But reusable rockets are you want to say here, I’m gonna say almost here because it’s pretty cool. If I’m on a plane, and I get off and it waits 15 minutes to blow up. But it did still blow up. So but where are we? What’s sort of this next? development in the space race?
Simon Erickson 43:51
Yeah, and remember, it has to be perfect for this. I mean, safety and reliability are everything. And Ilan knows that even when he’s publicly showing these things. He’s saying, Hey, we this is the percentage chance we have a failure. The thing that I’m really interested in rocket lab, which is shout out to my friend, Nick, for putting this on my radar, once again, this this week, but I think it’s really interesting to see the infrastructure taking place for the space race, right, the limiting factor for businesses to get out into outer space was that they just didn’t have access to watch their satellites. They had all sorts of neat things they wanted to do. They had satellites with sensors that they could monitor things in outer space, but it’s just so darn expensive and so difficult to get the payload attached one of the other manifolds of something that was actually going to outer space, and now SpaceX has got a spaceport that they can launch from. And this new company rocket lab has got a spaceport in New Zealand, that is FAA cleared to launch every 72 hours. So every three days you can have a payload rideshare with something that’s going out of space, you can actually start putting things out of space and building businesses around it. The costs have come down tremendously. This is incredibly interesting for me as an investor.
Dan Kline 44:56
So Simon does this mean if Matt wants to shoot Max’s laptop up into space just to screw with him that that’s becoming cost effective. Like I’m joking a little bit but…
Simon Erickson 45:06
You can book it on the website. You can actually request a booking directly online. We can put Maxx’s laptop on the next payload that’s going up there.
Matt Cochrane 45:15
What about sending Maxx to space?
Dan Kline 45:20
Giving kid my kid the greatest excuse ever. My homework is in space. We could actually go with it. Is there something investors should be doing here? So like everyone’s so excited about space, and they’re buying one ETF and a couple of other companies, but what are sort of the plays in this area?
Simon Erickson 45:38
So there’s a lot of companies that are announcing SPACs like why is momentous space and ASD and science inspira Global, global, who all have different business models? Why are they all doing this SPAC rather than just going public in a traditional IPO? And to answer your question, with that question is efficiency is everything right capital efficiency of how you’re raising money through a SPAC versus going IPO really matters, operating efficiency? And how can you get the costs as low as possible, while still maintaining a pristine safety record? Everything? The point is, we’ve got a lot of options right now, I still feel like it’s kind of like the Wild West, it’s hard to discern, without any kind of operating data or history, which companies are rising to the, you know, the top dogs in this industry. But it’s it’s definitely worth paying attention to Dan, I’m very intrigued as an individual investor to have options that aren’t just Lockheed Martin, you know, are the big defense contractors to choose from.
Dan Kline 46:34
There’s also a lot of risk here. So SpaceX, which is an Elon Musk company, which has not gone through the SPAC route, but probably will, you have it here is valued at 74 billion, their core product at the moment, is blanketing the sky with satellites to deliver internet. And my friend lon Seidman who I’ve done, done his show, at least once. He talked about how he set this up with his brother in a kind of remote area. And it was really good internet at a really affordable price. And I’d argue that’s great. But in three years, the growth of 5g makes that almost unnecessary. So there is a lot of risk involved in this space. There’s a race to space tourism, and sort of these these hyper fast flights. And I think there’s a lot of opportunity there, Simon, but this is very, very risky territory, I’ll give you the last word.
Simon Erickson 47:20
There it is very risky. And there’s there’s strange competitive advantages you wouldn’t expect to think about, right? Like, you know, when we’re talking about tech companies, or retailers, they all have their own, you know, niche of metrics you look for in the space race, you’re looking for things like orbital inclination, so you can have the optimal you know, spin around the, the planets or you know, what is spectrum for satellites look like in outer space and who has those kinds of rights. I mean, things like that are traditionally land grabs or that you would want to be near consumers. For for Earthbound businesses, this is a completely different space that we’re exploring now. It’s it’s a really fascinating way. And as you kind of think, at the end of the day, how are these businesses actually going to be profitable? Considering how capital intensive they are? It’s something I’m actually pretty excited about.
Dan Kline 48:08
We are long term investors here at seven investing, if you are looking at investing in space, don’t expect it to happen quickly. And I would argue if you buy any of these SPACs don’t look at them, like really just like check in once a quarter to see if they’re they’re hitting their goals or doing what they’re say they’re going to do the daily price of something that depends on goals that are three to 10 years out is really not a meaningful metric. It’s a it’s kind of like tuning into an NBA game, you know, three minutes in and going oh, well, the Celtics are winning tend to to At this rate, they will win 480 like that’s not how it works. So you really need to change your your perspective. We’re going to do mats what we’re watching, we are going to skip in the homestretch we were going to do how to balance your portfolio. That’s a question we got via email that deserves more time than we have for today. So on Mondays show, we will look at sort of not just is our portfolio while stocks does it include real estate? Does it include gold? It doesn’t include Beanie Babies. You know, Matt’s got a whole roomful of Cabbage Patch Kids I keep telling him to sell that as a big mistake. No, we’re gonna look at I’m being silly here. We’re gonna look at on Monday how to do that not to give it you know, the time it deserves. But Matt, you want to talk about see limited full year earnings? Why don’t you explain what this company is first and then go into the earnings a bit?
Matt Cochrane 49:25
Yeah, of course. It’s actually it’s based out of Singapore and it’s a company’s name is C. And you just think of that as a Southeast Asia and it’s quickly becoming a digital powerhouse in that corner of the world with three fast growing segments poised to capture upside and some of today’s I like most exciting industries, that includes video games, mobile commerce and digital payments. And one of the keys to see success is its focus on mobile first platforms. So cs garena is a global game developer all will take the first second first is a digital entertainment. And garena is a global game developer and publisher with a significant presence in Southeast Asia and Latin America to actually ended 2020. For the second year in a row, it’s game free fire was the most downloaded mobile game in the world across Google Play and iOS. According to App Annie, it was also the highest grossing mobile game in Latin America and Southeast Southeast Asia last year, and its revenue growth in its digital entertainment segment was up 72% in 2020, to $693 million. Its second segment e commerce. That’s like shopee is its e commerce platform. And it connects buyers and sellers, supported by like integrated payment, logistics fulfillment, and other value added services. And its revenue and that segment was up 178%. year over year to $842 million is gross orders on that platform totaled 1 billion for the first time ever last year. And that’s an increase of about 135% over 2019. And both in Southeast Asia and in Taiwan shopee ranked first in the shopping category by average monthly active users total time spent on an app and the downloads for the fourth quarter. And for the full year. It’s also the third most downloaded app globally, and the shopping category for the full year of 2020.
Dan Kline 51:26
So these numbers are incredible. And this is a company that’s using the revenue from its successful game to build out its financial platform and a financial platform games eventually tire out no matter how it could this could be a perennial that people play, but eventually it will peak out. Matt is their biggest sort of path, you know, barrier to success, who they compete with, they come up against some really big companies, right?
Matt Cochrane 51:49
Yeah, absolutely. But they um, in that corner of the world, there’s a lot of companies coming up like I fact, I think there’s going to be a SPAC for pindot, like you, which is a Peter Thiel backed company that does a lot of like e commerce too, because they’re in different because Sea is in different segments, they come up against a lot of competition, but like, but one of the keys to success, like I like already said it’s their focus on mobile, and not only just mobile, but like their their game like free fire, for instance, it’s purposely not built to like the the highest quality graphics that you know, you might be able to find, because it’s because they know and a lot of the parts of the world where they’re where their their customers are located, they might not have the best internet connection, they might not have, like, you know, the latest iPhone, either. So a lot of it’s like built for Android phones, which is like, the largest platform in the world, you know, for mobile devices. And it’s like, and it’s just it they they purposely, like scale it down a bit. And, you know, they also besides e commerce and digital entertainment, they’re also financial services. So like Sea money is like their, their e wallet services is like payment processing, credit related digital financial offerings and other financial products, products. And that’s marketed and branded in different Southeast Asian markets. And it can be Air Pay or Shopee pay or Shopee pay later and other brands. And while still the smallest of Sea’s business segments by a large margin, the mobile wallet platform so more than $2.9 billion in total payment volume, and more than 23 point 2 million quarterly active users and sees fourth quarter. So they’re just using that video game money. They’re funding all these other things. These are huge markets in this part of the world. Yes, there’s competition. But this is not a winner takes all space.
Dan Kline 53:35
We’ve got about eight minutes left, we’re gonna sneak in the finisher at the end, but I wanted to take as many of your questions as we can. Daniel Delgado asks, hello 7investing team. Any stocks that were recommended in the past that would be great stocks during this pullback period. I know both of you wanted to talk to this. It can be tricky. We’re making seven pics a month. A couple of them are sometimes redirects. But it is hard. You’re sitting there with your $500 or $10,000 whatever the number is, and you want to get in on this sort of downmarket. Where do you go? Simon, you can go first there.
Simon Erickson 54:08
Yeah, I mean, we we have a subscriber call where we actually talk about our previous recommendations on the third Friday of the month. So March, this would be the what is that helped me I did 19th Daniel, I think I think is the third Friday of March that nobody really talked yet. We’re gonna be talking about all of our previous recommendations Daniel, and you’re more than willing for any subscribers to to attend that and ask us directly. You know, what stocks Do you like right now? We actually give our most intriguing pick across everyone on the team, Dan and Matt myself and everyone that’s an advisor is going to say hey, this is the one that’s most intriguing on the entire scorecard right now. sell off included. So that’s my that’s my take on that. I mean, Dan, Matt, anything you want to add or?
Dan Kline 54:49
Yeah, my pick last month as my most intriguing wasn’t one of mine. And I don’t think it’s ever been one of mine. I’m sorry, Matt. I stepped on you there.
Matt Cochrane 54:58
Not at all. Not at all. Now that that’s a great point. And yeah, the subscriber call, we all give our best record. We also offer company updates on our site, you know, for pass recommendations every month. And if there’s any, like, there’s some companies that are small caps, they don’t, they’re not in the news a lot. There’s not too many things noteworthy. But at the end of every year, like in December, we did all of our rec for the past year, a review and update and what we thought of the company, you know, and how it had done since we had recommended it. So even if we don’t hit it on a monthly company update, no matter what we hit all our recommendations at the end of the year.
Dan Kline 55:31
We’re gonna take one more question from will there is a great question from Cheyenne, Sam, or whoever’s watching back at any of our homes if somebody could just screenshot that so we can answer it on on the next episode. Really, so many great questions today. But will says love seven investing a little off topic? But can you talk about what paths or actions one would take for a career similar to what you do I researching investing ideas for a living, so I’ll go first. But we’re all going to talk about this because we all took different paths. So my background is journalism. I came up and I learned the skills of reporting and researching and managing a newsroom and hitting deadlines. And then I ended up in the financial space, I worked for Microsoft, where I was curating business news on the msn money up done by robots now not done well used to be done amazingly well. And I would spend my entire day with Bloomberg on in the background and seeing all the news wires and trying to figure out what stories were the most compelling. Working with, of course, what worked in terms of readership what worked in terms of my bosses not being mad, then I became very, very interested, it was lucky to get a job writing about stocks, where I learned that you can’t really understand these things. If you don’t put in your hundreds of hours, like the person who has a surface opinion on cord cutting doesn’t have the nine years I’ve spent studying that industry can’t pull up. Well, this is the mistake Costco made five years ago on this thing they did or here is their history of raising prices, there’s so much knowledge you need to build. So if you’re young, and you want to get into this, you really just have to start doing it. So many of our friends Alan Sokoloff, with his cruising altitude newsletter, I’m going to have him on again next week to talk about millennial investing our buddies at chit chat money who are affiliates who are younger guys, who just threw themselves into doing the work and there is no replacement for just learning these companies. I am not a fan of like these places that just take people and like now you’re an analyst, like analysis builds up over time, it’s not just knowing how to read a report, it’s really like a mix of being in the field and doing it and getting there. But Simon, your path was a little different than mine.
Simon Erickson 57:38
Yeah, and all of ours are different from each other. We’re very diverse team with different backgrounds. Who are I would encourage you, if you want to get into investing, first of all, thank you. We, like Dan mentioned want to partner with people that want to share that same mission we have of empowering people to invest. So send us an email, if you’re interested in joining our partner network. We think this is very important. If you watch you personally do more research, like Dan also mentioned, I would recommend opening up the 10 K, that’s the annual report and start looking at segment information of a business that’s where they break out the different segments and how they do the reporting where they’re making their money from basically, and then look at the definitive proxy to that’s the D f 14 a statement. That is really where you can kind of look at executive compensation and, and how they get paid and what metrics they’re looking to achieve. I mean, putting those two pieces together kind of gives you the the story of of what a business is trying to do on the long term. And that’s the kind of investing that we really like to do. Both of those are on sec. gov website. If you want to look at any financial statements that have to be reported.
Matt Cochrane 58:46
Well, I took the traditional path, I was a police officer. Isn’t that how most people get in the financial industry? But seriously, like what everyone’s saying, like, start, you start doing the work, start putting it on Twitter, start a free substack you know, and send it to your friends and family respond to us with with questions or comments in Twitter, or feedback or like saying, Well, what about this, um, you know that that’s basically how you started, I don’t think it’s ever been easier to get into the industry with with pools, like with social media, and things like that. So you know, but but, but just start, just start where you are and see where it takes you.
Dan Kline 59:25
So I’ll throw out one last piece of advice, be willing to get better. And let me give an example. So when Matt came to, to my orbit, he was a brilliant analyst. He knew the stocks. He was not a professional writer by trade. So I met Matt and I was working with the MSN ends of the world and USA Today. And I said to Matt, hey, can we work a little bit on your writing so I can send it to these people because you’re writing articles that they would like, and Matt went, oh my God, that’s great. And we worked together. That’s kind of how we first became friends. I think 99 out of 100 people that I went to and said that when yeah whatever and blew me off. Those people don’t advance. So I don’t care what you’re good at what you’re not good at, be open to working with people and really learning. I used to work with one of our former editors, where he would just live edit my piece, and he would go through and be like, yeah, you could be tighter here. You could do this there. You could do that there. And it made me go, Oh, wait a minute. I’m good. But why not strive to be great. And I think that’s something that in the investing space, you can always learn more. You can always learn from someone else. But Sam Bailey, we’re running out of time. Let’s hit our finisher. This one. Oh boy. This one absolutely stunned me which chain is the best fast food breakfast? Overwhelmingly, you said McDonald’s folks. Have you been to Wendy’s? The Wendy’s breakfast? It’s like it looks like food, whereas the McDonald’s breakfast it’s look I like a mcgriddle or an Egg McMuffin. I’d even either Chris sandwich if I happen to be at Burger King. I think this is might be the most gratifyingly wrong poll and a lot of people said chick fil a and some said Starbucks. I didn’t include either of those because I think they’re a clear step above Simon I know these aren’t regular stop for you. But am I right? People are getting this one wrong.
Simon Erickson 1:01:05
I would I would choose Chick Fil A over any of those.
Matt Cochrane 1:01:12
Chick Fil A, but choices is 100%. McDonald’s I don’t know what you’re talking about. They don’t even know Wendy’s had breakfast. So the answer to your question is have I been to Wendy’s for breakfast is no I have not. I don’t know what their breakfast food looks like. I don’t know when the last time is I stepped into a Wendy’s, but McDonald’s Egg McMuffin. It’s a classic come on.
Dan Kline 1:01:32
Wendy’s launched breakfast roughly the day the pandemic started like so. So but the breakfast Baconator which includes both bacon and sausage,
Simon Erickson 1:01:45
you’re making this up?
Dan Kline 1:01:46
I am not. They also have a Frostychino, which is a cappuccino with frosty in it, which is not a healthy choice, but is also a good choice.
Matt Cochrane 1:01:57
Taco Bell does talk about breakfast like where’s Dunkin?
Dan Kline 1:02:01
Taco bell does have breakfast and again, we’ll do one where we talk about Dunkin, Starbucks, Chick Fil A, that’s a good poll as well. But I think you need to compare like things. It’s also important to note that Twitter only lets you have four choices. I don’t know why that’s the case. But you can’t have a none of the above like, hey, look, I appreciate all the people’s like, I never eat fast food. Yeah, you do. Person who would like a moment of weakness in an airport or whatever isn’t eating a, you know, a mcgriddle or
Matt Cochrane 1:02:29
In this temple? You think I would put that into this temple?
Dan Kline 1:02:35
Or that Burger King sandwich that was like 1100 calories, it was called like the lumberjack or something. So with that we are out of time. We really appreciate that. In this difficult week. You sat here with us and heard some perspective that that you recognize that we’re not in this for the short term. I’ve talked about this for weeks, that if a company I pick goes up 20% but nothing’s changed. I don’t care. I want to see the what the company does after the new news happens after we see, hey, Dan believes you know this was going to happen. And then it happens. That’s when I start to worry about the company and be excited about it. So it’s a frightening day. It’s been a frightening week, but your long term investors We will be back on Monday. If you want to get in touch with us. It is @7investing on Twitter. We are very active on Twitter. We are growing by leaps and bounds on twitter. Simon Erickson’s account also growing by leaps and bounds on Twitter. My not as much so if you’re not following me on Twitter, you should. I’m the only one who’s ever silly. So you should do that. That being said, if you want to email us emails can be about questions about our service questions about you know, your membership or you’d like to be a member. That is email@example.com. We’ve even gone a couple of minutes over today but I think it was important. I am Dan Kline. For Matt Cochrane, for Simon Erickson, for Sam Bailey. We will see you Monday at noon.
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