Is it Safe to Invest in China?
July 7, 2021
The Chinese government has shut down new registrations for Didi, a ride-sharing app that just had an IPO on the New York Stock Exchange. This was the biggest IPO since Alibaba in 2014 and the government’s move has investors questioning whether more regulation will be coming for other publicly-traded stocks that are based in China. Maxx Chatsko and Steve Symington join Dan Kline on the July 7 edition of “7investing Now” to figure out what this means for the long-term prospects of investing in China.
Samantha Bailey 0:14
Welcome to 7investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.
Dan Kline 0:24
Good afternoon 7investors. Good morning depending on where you are in the world. Good evening if you’re watching us in England or I have no idea what time it is in Australia that changes it seems. My name is Daniel Brooks Klein. This is 7investing Now. I am the host of the program. I am being joined today by Steve Symington and Maxx Chatsko. Guys, if you’ve noticed, I’m even tanner than usual. Perhaps redder than usual. I spent the weekend on the first Royal Caribbean ship to leave US waters in 16 months. I’m not going to talk a lot about the trip. If you have questions about it. Feel free to ask, but I will say it felt joyous like did I cry multiple times? Yes, absolutely. I did. Was I alone in that? Will I’ve cried tonight being at a live semi sporting event. I’m taking my son to a pro wrestling show tonight. Will I cry that being around an audience? Yeah, probably. It’s been a tough 15 months. But uh, it was a wonderful experience. And I know probably none of them are watching because they are working now. But my salute to the crew to people who put up with multiple months of being alone on a ship and quarantines and just all of the stuff they had to go through. So I could go have three days of fun and hang out on a private island. Maxx, what did you do for the Fourth of July?
Maxx Chatsko 1:37
I did absolutely nothing. I just, you know, shot off a bunch of rockets, terrifying all the cats and dogs in the neighborhood? No, no, I just went to a family cookout.
Dan Kline 1:45
Yeah, we have here in West Palm Beach. It’s not quite as bad as in Orlando. But uh, basically sounds like you live in a war zone. In Orlando from dark until I one in the morning, you get like professional quality fireworks between all and maybe not so much this year. But between all the seats, the theme parks, you can’t necessarily get a great view of all of them. But basically, my sky was lit up and there was no point of trying to go to bed two years ago when I was there. Steve, I you were at you were actually blowing things up, right?
Steve Symington 2:13
Yes, it was it was well contained. We my brother had a little black powder cannon that we were playing with and and we were just shooting out bread. So that wasn’t a big deal, but plenty of fireworks and I was surprised pleasantly that our surrounding neighbors as visiting my folks in Kalispell and Montana in our surrounding neighbors kind of went bonkers to with the fireworks. So we were up several hours after we were done just watching everything around us. So
Maxx Chatsko 2:41
Gotta keep the bears away somehow, you know.
Dan Kline 2:44
Do not try this at home, folks. There are better ways to make toast than exploding into space. I will say I got to see fireworks shot off from the private island. And that was kind of cool. But it was nothing special. But the coolest thing was all of the ships that are at sea now most of which are crew only, were all out there and lit up and it was really just the only time I’ve ever seen you know that many, you know gigantic city sie ships that close together.
But that’s not what we’re going to talk about today. First of all, we would like your questions, we would like your comments. I will remind you right now at the top of the show today is July 7. Today is the last day if you are not a 7Investing member to lock in our current prices for life. As of July 8, being a subscriber to 7Investing will cost you $49 a month or $399 a year if you go to 7investing.com/subscribe, you can lock in our original pricing. We’re gonna remind you this a couple of times we appreciate how many of you who’ve joined how many new people we have watching this program are probably listening to this program after the fact because it’s still the summer and while it is somewhat rainy here in Florida we have been hit by by tropical storms. What’s the hurricane so but Tropical Storm Elsa. Can’t imagine Disney is too thrilled with that choice of name. I’m waiting to see if when they get past F and get to G if we’ll get tropical storm or hurricane Goofy. I think that is a that is absolutely in the cards.
We would love your questions and comments if you want to talk about our lead topic, which is is it safe to invest in China? We’d love your comments. We’d love your questions. If you want to talk about anything else. We’re happy to have that too. We’re going to talk a little later in the show about some small and midsize businesses that had a security breach. And then Maxx is going to talk about the business impact of what’s happening with the COVID the COVID variants. So we’re gonna talk at first Steve about and Steve is going to be mostly Steve I think there’s more Steve’s area than Maxx’s but you are welcome to weigh in Maxx.
Shares in ride hailing giant DiDi Chuxing (NYSE: DIDI) punished as much as 25%. Think of this as the Uber of China, though those are lazy comparisons, but this is sort of what it is. It’s about a week after it went public. The fall came after China the country announced late Friday that new users would not be able to download the app while it conducts a cybersecurity review of the company. DiDi was advised by Chinese regulators, regulators to postpone its US listing and review its network security several weeks before it went public. Steve, let’s start with the big question here. Does that mean the company knew this was coming and did not disclose it?
Steve Symington 5:16
Sort of kinda, you know, there was apparently a vague disclosure in the prospectus the IPO perspective. So there was that, but I would be kind of amazed given the trend of ambulance chasers that, you know, file lawsuits simply because of stock declines for no reason, if we didn’t see some some pretty significant class action lawsuit action already with this company, but it will be able to argue I think that it’s sort of new, but maybe it didn’t release to the full extent the threat that it may be temporarily shut down by Chinese authorities.
Dan Kline 5:52
Steve, this isn’t a one off. We saw this with with TikTok on the US end as well. But we, we’ve seen this with, with all sorts of other companies. Does this make risking in any Chinese investing in any Chinese company kind of risky? I mean, I, it’s too risky. For me, I’m not gonna, I’m not gonna invest in a company that if it runs afoul of its government has no legal recourse if the government decides to shut it down. Did you have any exposure?
Steve Symington 6:18
No, I, I’ve got a small position in JD.com (NASDAQ: JD) they’re another ecommerce sort of an Amazon-esque company over there. If I do invest in Chinese companies, it’s going to be in the larger companies that are kind of taking leadership position, but even then, you know, we’ve seen some, some issues with Jack Ma, you know, it’s like, where’d he go? Is he dead? You know, and, and, you know, so it’s, it seems nobody’s safe. I wouldn’t say this makes them any more risky than they already were. And these are, unfortunately, the realities of investing in in companies where geopolitical tensions are an issue and in that something that you really need to keep in mind when when you’re exploring to us, international opportunities. But you know, to other people, you know, that for for Chinese investors, obviously, that’s that’s a risk as well, because anybody who has invested in this company you know, they took a 25% haircut on news they, they realistically couldn’t have expected. So it’s, it’s a tough go. And these are things you need to keep in mind.
Dan Kline 7:26
I think it was actually pretty clear in the perspective, the prospectus that this was possible. I also think that any responsible investor would fully understand that there’s risk here. Now, if you own Starbucks (NASDAQ: SBUX), you have exposure to potential Chinese regulation. That said foreign companies doing business in China – we saw this with Disney (NYSE: DIS). The Chinese government didn’t like how the new Mulan portrayed the Chinese and it didn’t make any money there and and that’s relatively minor when you’re Disney, it would not be minor with Starbucks. Now, obviously, your Starbucks and your Tesla’s have a lot of protection, because there’s a Chinese middle class that’s, that’s very into those brands. And China needs that investment. So they’re not eager to say, okay, we’re gonna nationalize all the Starbucks and Haha, you’re out of luck, because that’s the end of international investment in China. So I don’t expect that to happen.
But there is a lot of risk with these. And I think you have to understand fundamentally, and I’ll point out, I did a regular show on China, at our at my former employer with an expert in that market. So I am by no means an expert, but I’ve been exposed to someone who for a lot of weeks about how people think there, and the government is everything. So when the US if the Biden administration decides to say, okay, Twitter, we’re gonna impose some regulations, you are no longer allowed to take political ads. tweets can only be 172 characters, and you must use the pirate ghost emoji and every third tweet. Like those sound ridiculous. So Twitter has legal recourse to go fight that. In China, there’s no such thing as legal recourse, and that’s hard for Americans to understand. But you have an authoritarian government. And that comes with a level of risk. I would love your questions and comments on this. Maxx, do you have anything you want to weigh in before we before we move on to the the kind of final question here?
Maxx Chatsko 9:20
You know, I mean, I’ve been wary of China for a while. I think we’re starting to see that and, you know, both investing directly in China, so things within China like DiDi, and then also anything that’s spanning, you know, US China relations. I don’t see this being a very good decade for that. And, you know, even before the election, I was trying to remind people, it doesn’t matter who wins the election. This stuff’s going south this decade. I think it’s going to heat up a little bit with the Olympics in Beijing and 2022. That could get really nasty in terms of are country’s going to boycott? Are there gonna be protests as this that the other thing. What about advertisers? Many things could get pretty ugly there.
And I kind of disagree. I mean, I agree with you with, you know, China has to be careful, they don’t want to, you know, like not they want to mess up foreign investment in the country. But I do think they’re going to take a tougher stance on American companies and international companies. And they can increasingly do that, because they have home grown, you know, coffee companies and electric vehicle makers. We’ve seen Tesla actually come in increased scrutiny just recently there. So for companies even like a Tesla, that’s very dependent, or has a large chunk of its growth coming from China, that would make me pretty nervous. So I think there is a pretty big risk there for even, you know, the blue chip companies, you know, American companies that are operating there. So just something to keep in mind.
Dan Kline 10:49
Yeah, and it’s important to remember that there is no separation between company in government. So it’s one thing if you’re a Starbucks user in China, you might be perfectly willing for the government to know your coffee habits or how you take your tea or whatever it is. You might not want the government to fully know how you’re using your vehicle. Of course, you can’t avoid that you’re buying a car from somebody if you if you have a vehicle. So there is probably more protection for say, a Starbucks than there is for the typical company. But Steve, we saw some transparency issues, and I hate to bring up Luckin Coffee because a lot of people got burned by that. And Luckin Coffee was a financial scandal. And I would argue that we’ve seen financial scandals with US companies, we saw one with it with a German company, which I’m forgetting the name of very recently. And I actually never thought Luckin Coffee was a good investment. In my opinion, Luckin Coffee trained you to drink coffee. So you would then go to Starbucks, it was like training wheels that created a customer for someone else. But in general, even in the sort of bigger, more established companies. Steve, should we worry about a lack of transparency?
Steve Symington 11:57
No, I think I will say that with with the larger companies that have been around for a while, that’s much less of an issue. I think transparency is not an issue. I think some of them are even frustrated with sort of how hamstrung they are by their own government. You know, we saw that with the Ant Group IPO. Right? And, and, you know, that was coming from Jack Ma and Alibaba and those guys, but I think, you know, I would argue that Luckin Coffee had some red flags anyway. And I agree, I didn’t I never thought it was a great business. And, you know, it’s, the margins were suspect, we’ll say.
But it I don’t think with, with established companies, we need to worry so much about the transparency. But if you know, there’s another new kid on the block who’s growing like gangbusters, and, you know, I would maybe kind of tilt my head at that. And something like this, this DiDi issue is, is causing me to raise my eyebrows a little harder at it at any potential success stories coming out of China. And, and the other thing I’ll mention is that there is a, there’s, there are a lot of other great places to put money to work. This isn’t going to prevent me from looking at Chinese companies, but it will cause me to put more scrutiny on them. And I have a lot of options outside of China to invest right now. There is no shortage. And, you know, I’m perfectly content, you know, investing in something that doesn’t have that same risk.
Dan Kline 13:26
Yeah, I will say I am crossing off my list anything in China, that is financial transaction based. I think there’s simply, there’s simply too much you don’t want to be in a Chinese banking stock. You don’t want to be in a Chinese loan stock, whatever it is. And I agree, I just think they’re safer, better places. There’s lots of opportunity for growth.
We know a lot of you are watching, in fact, more of you’re watching that are normally watching, and we don’t see any questions or comments. This is an interactive program. So for new viewers here, what we do at 7Investing Now is we look at what’s happening now. And we get to the long term investing perspective. So look, I’m not Jim Cramer, I’m not going to get a scream and tell you something’s down 12%. So buy it now. We don’t actually think that’s all important. Buy good companies and hold on to them for a very long time.
We don’t usually do a lot of commercials do it during the show. But Maxx, you made a graphic to illustrate how much you get as a 7Investing subscriber and why that’s such a good value and why you’d be crazy if you’re watching the show right now and can lock in the original pricing forever as long as you stay an active member forever. And we’re not jerks if your credit card gets declined. We’ll call you and give you or send you an email and give you a chance to to stay an active member. We’re not looking to get you we want to reward the people who signed up. So Sam Bailey if you want to share that graphic and Maxx you can talk us through here.
Maxx Chatsko 14:47
Oh man, I hate that I get credit for making graphics. We all we all do a lot of things behind the scenes. We’re a small company. So yeah.
Dan Kline 14:53
Maxx does most of those mostly graphics. No, just Just kidding.
Maxx Chatsko 14:58
We’ve made a lot of progress. Since we’ve launched. We added me importantly, I think that’s not on here. But that’s, you know, the most important thing. And but look, we cover a lot of different areas of the market now. We have a lot of specific domain competence we didn’t have at launch. You still get Matt’s dad jokes, unfortunately. But we’ve had a lot of things deep dive videos, if you’re a member, you know what those are. We now have once a month member only calls, we give you our most intriguing ideas on the scorecard meaning, you know, any past recommendations we made, maybe the price has gone up, maybe the price has gone down, maybe there’s just de risked for some reason. And we’ll let you know about that. So as you can see there, today is the last day to lock in the launch prices, if you’re an active member. So you sign up today or any time before that you’ll be locked in for life as long as you remain an active member, everyone else if you’re new, and you sign up after tomorrow to pay a little bit more.
Dan Kline 15:50
And I see some comments on our Twitter that are not coming through to the live feed. So that might explain some of it. We use a program called Restream. And it is a really good program and it’s not 100% reliable, but feel free as we move on to throw in your questions and comments. And if you would like to become a subscriber, that is 7investing.com/subscribe, we make it very easy. If you want to watch this live stream. It’s 7investing.com/livestream, we do not make things confusing. We are a customer friendly company. We try to make it that way. Steve spends a lot of time answering email. I spend an enormous amount of time interacting with people on Twitter, I very much appreciate that.
We will take Rahul’s comments before we segue into the next segment here. Agree on crossing it off lots of risk anytime a company’s app can be taken off the App Store and more. There’s risk of that in the US as well. It’s also important to note that Apple has a lot of power. And the US government does have a lot of power. We saw a forced Tiktok sale because the US president probably I was gonna guess wasn’t doing a lot on TikTok. I can’t picture our former president doing like a dance on TikTok. But because it was a Chinese company that was very quickly put into a tough position. Steve, you want to comment on this one?
Steve Symington 17:09
Now? Yeah, it’s, I wouldn’t say I would cross it off permanently. But it is going to weigh on my decisions to to invest in a Chinese company, if there’s a risk, and I can find an alternative that is just as attractive without those risks. So yeah, and I would argue that while that risk does exist in the US, it would be greater over there. This is this is sort of one of the things that obviously caught people off guard, it’s like, Wait a second, that that can happen. And it’s almost like you read through the risks section of an IPO prospectus and you think Yeah, yeah, yeah, they’re just saying that because they have to, and it’s like, no, this seems far fetched, but then it turns out not to be so. Yeah, that’s what I would add.
Dan Kline 17:50
David Strauss, great question, we will take it in between what we’re watching segments. We’re gonna move to what we’re watching. So if you’re new to this program, on most shows, not every show we changed the format up, but on most shows, we let each of the guests appearing on the show bring a topic, sometimes I bring a topic if there’s something in my space. But in this case, Steve, you call these massive ransomware attacks underscores the importance of cybersecurity. Can you explain what ransomware is before you get into what actually happened here?
Steve Symington 18:20
Yeah, so let’s let’s take this, this latest situation, for example, they’re up to 15. I think it was between 800 and 1500 small, medium sized businesses that a dozen countries that were struck by ransomware attack from Russia linked hackers. Now, this is similar to the solar winds thing that shut down the oil pipeline. What’s happening in this case is they they hijacked a software tool from a an IT outsourcing company called Cassia. And that software tool was sort of hijacked and on the systems of these various small and medium sized businesses, it encrypts every single stinking file on your computer, all of them and then displays a message and says, hey, we’ve got your files, if you want a back pass, you know, they they’re basically asking all of these businesses collectively to pay them like as much as $70 million. And they’re talking about Yeah, we’ll bring it down to 50 million if that’s all right with you guys, you know.
But ransomware is literally just that they take your files, they encrypt them, and they say if you want to back pay this much for the tool, and it’s funny because the solar winds hack, they gave him the tool and it still didn’t work. And they ended up having to use backup systems to bring up everything back in line. And then you know, there was some recourse because they want a payment in Bitcoin and the government ended up collecting a lot of that money back they traced it back to bad password storage habits by the hackers which was sort of ironic in itself, but yeah.
Dan Kline 19:50
That’s why your password hacker one is not the way to go.
Steve Symington 19:54
Dan Kline 19:56
What the White House is involved here, so obviously on one end are governed should be working to protect us. But let’s talk about this from an investing point of view. There are some companies that you should be a customer of, if you’re a smaller midsize business, we should probably be a customer or maybe we are, I don’t know, you would know more than I do. Have some of these companies, where can you put your money if you want to invest in stopping this type of attack?
Steve Symington 20:18
Right, there’s, and this this really underscores the importance of cybersecurity companies in today’s world as its increasingly digitized, but, but from our perspective, obviously, it underscores the importance of identifying and potentially investing in cybersecurity companies and, and you know, you’re thinking things like CrowdStrike (NASDAQ: CRWD) Falcon platform, which specifically has mechanisms in place to prevent ransomware attacks. Or, you know, CloudFlare Okta, Ping identity, all these companies that sort of prevent cybersecurity tax from happening are proving increasingly important. And if you actually look at these companies, as a group, their stocks have climbed even as some of the other high growth stocks have pulled back in recent days, and and people are realizing maybe we should be putting money to work here. And so yeah, there’s, those are some of the great companies I think people should be considering.
Dan Kline 21:13
Is this the case of while those companies might not be impregnable? If you’re a hacker, you’re just gonna go after the low hanging fruit, like it’s kind of like putting, you know, getting ADT and their security might not be great, but just the fact that it you have it, they’re going to rob the guy next to you that doesn’t, and the guy next to me, doesn’t rob him. Yeah, and his stuff looks nicer than mine. Now.
Steve Symington 21:35
A lot of criminals in general are lazy, however industrious they are with being creative, I guess, in their criminality, but cybersecurity is no different than I would argue, maybe even more extreme. I was a computer scientist by trade, a software engineer, we like to take the – we as computer scientists, in general, not criminals in computer science. Like to take the easy path, right? And and if you can subvert a software tool and allow the IT company to put your put you onto someone’s system, then all the better, obviously. You know, you’d hate to hack into systems individually. And that’s part of the way that they’ve actually been able to, it’s kind of a genius, actually, it’s a one to many kind of style attack. And super frustrating, obviously, but they’re able to, in fact, up to 1500 people, 1500 businesses, small and medium sized businesses in a dozen countries. And it was sort of a lazy way to get into these systems, but also something that could have been prevented if these small medium sized businesses were also customers of someone like CrowdStrike, implementing Endpoint Protection, being able to pick up things like this as part of that tool. So yeah, kind of a kind of a tough go. But yeah, it’s, it’s something you should be become a customer of. So
Dan Kline 22:54
If you own a business, be skeptical. If you are an individual, make sure you have good password security. I know it can be tricky. Use a third party platform, you know, make sure you’re on you’re using products that have good encryption. Look, we had our Netflix hacks, hacked once, we have no idea how it had a pretty complicated password. And Netflix was really great about it. Other places, Twitter can be very, very difficult. Yeah, if your account gets hacked, go ahead Steve.
Steve Symington 23:22
What was interesting about and when I mentioned lazy password security, on the part of the hackers for the Solar Winds thing. It was actually the FBI traced it back to a bitcoin wallet, the passwords for which were stored on a server that was relatively unsecure. So they’re able to step in and be like, and you’re like, this is this is ours now. And it was pretty impressive on the FBI as part to basically follow the money and and encouraging to that, and actually that caused a crash in Bitcoin prices, because people were concerned about, Oh, my God, that government can take my Bitcoin. Well, that’s a good thing if you’re a criminal, and trying to pursue criminal activities. And it wasn’t necessarily a problem with the inherent insecurity of Bitcoins blockchain. It was a problem with the way that they stored their passwords for the Bitcoin wallet. And again, yeah, password. So if you have a server and you’re performing criminal activity, and you’re storing your Bitcoin wallet, passwords on the server, maybe do a better job of security against the FBI.
Dan Kline 24:23
And that was was our segment advice for criminals. We are now going to be moving on to some of your questions and comments before we talk a little COVID-19 vaccine. We’re going to take two similar comments, Steve, I’m gonna ask you to read these because your vision is better than mine. I could see amazingly at a distance it was really nice to be on a beach without glasses for the first time in my entire life, no glasses, no contacts, but I can’t read all that well on a screen at this distance. So we’re going to take the David Straus comment and then we’ll speak about that a little and then we’ll follow up with Andrew Connolly’s comment. Yeah,
Steve Symington 24:57
David says any thoughts on politicians or the spouses of Politicians buying stock in individual companies looks to be legal but is it ethical? Yes, maybe and no, respectively to that question. Don’t they know more about the contracts? Yes, and no, I think they’re walking a very fine line of legality. And it’s tough because the people we would expect to hold people accountable for this sort of thing are also some of the people who are doing these sketchy things. So I would say, probably legal but not ethical. If they’re walking that line. It is make no mistake illegal to place insider trades based on information that is not publicly known. And that’s, that’s, it’s definitely illegal, and the SEC is probably like whoop, rubbernecking over there. So I’d be surprised, we didn’t see some enforcement action.
Dan Kline 25:46
But there can be a lot of gray area on that, we’ll get to Andrew Connelly’s comment in a second. So I’m gonna say and, Maxx, I’ll let you weigh in here too. Vehemently. If you are an elected official, your holding should have to be in a blind trust that you don’t control. You give up the ability, in my opinion, to make investments because even if you know something subtle, and I often know subtle things about the sports world, because of my brother, who is a big time sports executive, and to avoid any conflict of interest, I would never invest in any company that would benefit from that.
So if I knew say, and I’m making this up, if I knew that the NFL was going to be open to taking Monday Night Football and putting it on Amazon, that’s not true. I just made that up just no headlines here aggregators. I, if I knew that, well, it might make me buy Amazon, even though that’s not necessarily insider information, or it’s speculative. Or if the government has access to that all the time. You know, you could be on a panel that oversees the FCC and know that a change in internet or cable regulation is coming. It is terrible, even subtle trade regulations and tariffs can have actionable things. So you should not be able to buy individual stocks. Maxx, I’ll let you weigh in, and then we’ll take Andrews comments on this,
Maxx Chatsko 27:03
I would agree with you 100%. They should have to be in a blind trust, you shouldn’t have access to that you shouldn’t be able to like buy or sell, you know, positions in individual companies. I mean, you’re making laws for the country. you’re interacting with lobbyists. I mean, unfortunately, a lot of corporate money in politics in the United States. It just it very much is unethical, in my opinion.
Dan Kline 27:25
Yeah, my preference is you should you should be able to own like ETFs that track entire indexes. So like you could own a NASDAQ ETF. You could have you know, someone else manage your portfolio in a blind way that you are not informed of anything except returns. Various presidents have done that in the past. And I’m sure many members of Congress do things like that. It’s an unethical swamp in a lot of cases. But there are also lots of people who are playing by the rules. I just wanted to add Andrews comment. And if you want to read that one, Steve, the first one not the second one.
Steve Symington 27:56
He said didn’t a bunch of senators and representatives sell ahead of the Rona really taking hold off. So I guess it was public knowledge definitely had a better understanding. Yeah, we did kind of touch on that through but selling ahead of the Rona, bonus points for that.
Maxx Chatsko 28:10
Well, they had like, they had like security briefings on it beforehand. And they were told it was going to be more serious. And then they sold there actually wasn’t investigation.
Dan Kline 28:18
They sold like their Delta airline stock, like..
Maxx Chatsko 28:21
That was pretty suspect. suspicious, but um, and there was an investigation. That’s the thing. That’s what makes people upset, right? I mean it when certain groups of people get to play by different rules. And that’s all I’ll say about that before we get into that subject. But that does make people very upset and they are the right to be I mean, there’s no accountability that makes a lot of people upset.
Dan Kline 28:42
If you join 7Investing, you get to play by different rules. Now, that’s not Insider, we don’t have any insider info. What we do have is incredibly well researched, long term, buy and hold stock picks. So I don’t know anything about biotech. It’s not an area I guess I know a lot more than I did, you know, eight months ago. But that’s Maxx’s area. That’s Dana’s area of expertise. And I buy Maxx’s pick every month as a way of diversifying my portfolio. Most people I would argue, don’t know anything about retailer or think they know things and they’re wrong. I’m a meshed in that space. I spent four years buying commodities. I spent two years running a giant store. I grew up in a family business and understand every aspect of importing and all the other things. That’s not the type of depth you get in most investing services.
So when you are a member and you get our seven picks every month, you’re getting each of our individual highest conviction pick and the amount of conversation that goes on behind the scenes between all of us. You know, I had a very long discussion yesterday with Matt Cochrane about a pick we both might make. Obviously, we will make separate picks but a pick that’s on the radar for both of us. So I’ll throw it out one more time. If you want to lock in our pricing You have until midnight that is 7investing.com/subscribe. The last time I say at this show, that’ll be the last time you hear this particular pitch. But for those of you who have joined, we thank you, it has been a wild run from zero to 60,55? If we’re going 100, but we are going very quickly and appreciate you making that happen.
Maxx, we’re gonna pivot a little we’re gonna, you’re what we’re watching, and it’s what do COVID variants mean for business? And let me give a little bit of color here. So we talked at the top of the show how I went on a cruise and I talked a lot on this show about how much I like to travel. And if you get in a plane, you still have to wear a mask and on the cruise ship, Florida does not allow you to ask, Are you vaccinated? So literally, when I checked in, they asked, Do you have any documents you’d like to show us? And some people did not know they were being asked to show their vaccination and got shunted into the line where if you choose to not prove vaccination, you have to get tested at your own expense. So then they’d have to come back in line when they realize what they missed. And while I was on board in certain areas, I had to wear a mask. And that’s going to go away in August, it looks like so we’re seeing a lot of precaution. And that makes sense. You’re in a closed environment. There were lots of venues on board that were vaccinated only that I could take my mask off outside. You didn’t have to wear a mask unless you want to. Oh, you were unvaccinated in a crowd. But Maxx, we’re hearing a lot about the Delta variant and a lot of irresponsible headlines. So why don’t you get to the science of what we’re looking at right now?
Maxx Chatsko 31:23
Yeah. So it’s actually funny, because you brought this up yesterday, internally, right? There’s a headline, maybe Matt did I don’t know. We don’t want to give Matt credit. We’ll say Dan. So there’s a headline, I think, maybe the Wall Street Journal said, Hey, you know, the Pfizer BioNTech vaccine is less effective against the Delta variant. But then if you went to some other news sites, maybe the New York Times they said they had a headline and said, Hey, the Pfizer BioNTech vaccine remains effective against the Delta variant. They’re both citing the same exact study and data. So a lot of times, it just comes down to the author’s writing that and how they interpret the percentages in the studies.
So there was a study in Israel, where, you know, they most people in Israel had the BioNTech vaccine, right, the Pfizer vaccine. And then they had an outbreak, quote, outbreak in Israel, right, relative to their population size. And most of the cases were of the Delta variant. So depending on a look at that, they said, Well, people who were vaccinated still got sick. But we saw the same rates of people avoiding hospitalization or death. So depending on how you read that, is it, is it effective, is it not effective, I’ll take having a cold for a few days, and the sniffles over going to the hospital getting put on a ventilator 10 times out of 10. So I would say all these vaccines are going to be very effective. And we’re gonna see a lot of headlines like this, for all of the vaccines for all of the variants for years, probably right? Is it effective, is it not? The reality is, all of these are going to give your body a very high baseline of protection, and your body will be able to do the rest. So if you do get sick, which is still possible with any of the vaccines, you know, you’re going to be sick and not like deathly ill or require a hospitalization. So that’s the really the important thing here.
Dan Kline 33:15
And let me give you some perspective as a journalist since I was 19. As someone who wrote the headlines at daily newspapers. The goal of a headline is to get you to read the story, and thereby expose you to advertising or drag you into if it was a physical newspaper so you you go to the second part of the story, and you see the ads inside. So headlines are often semi intentionally misleading.
And what happens here and I’ll give an example. So there were two positives on the cruise ship that my buddy is currently on as a crew member. And they went into a two week lockdown, because that’s what the methods say. What wasn’t reported is the people, those positives were onboarding crew that were caught in the protocol. So it wasn’t like, passengers were there and people got sick. And they caught them because they started you know, Rudy, go bear style coughing, and no, the protocols worked. We have procedures in place to identify in a lot of industries, whether you’re sick, there’s a lot of testing and a lot of spaces. There’s a lot of, you know, contact tracing and things like that. But a newspaper is not going to run the headline or a website. Protocol works, nothing to worry about because that’s not going to get clicks. So I do think so Maxx, I’ve also read to that if if I’m vaccinated, which I am, nobody has to volunteer their status, but I’ve talked about it on this show. And then I get it after that. I’m even less likely to get to get severely sick. So I have that sniffles or bad cold or whatever it is, or even a more serious case, like like my, like, people in my family have had where, you know, where they ended up sort of, you know, in bed for a couple of weeks. Even if I get it that bad. I’m that almost like super immune. Right?
Maxx Chatsko 34:58
Yeah, I wouldn’t advocate trying to get it if you’re vaccinated, right?
Dan Kline 35:01
No chicken pox parties? That’s a bad idea,
Maxx Chatsko 35:04
Right. But yes, you’re right. So all the vaccines are going to give you a very high level of base protection. And you know, you’re still might get sick this winter or next winter, whatever it might be. And if you do, then your immune systems gonna be crushing it, you’re gonna have pretty good immunity against a lot of different variants, future variants as well, because your body is going to have more memory to more of the, you know, possible mutations of the spike protein. So again, I wouldn’t advocate it. But if you have the vaccine, and then you get sick, you’re going to be crushing it in terms of, you know, protection against a lot of Corona viruses, and certainly these related strains.
Dan Kline 35:41
Yeah, and I have to say, certainly, I would have been in a rush to get vaccinated anyway, because as we’ve established, I’d like to travel. But having Maxx on here and really talking about how these things work, any fears I might have had, have absolutely disappeared. You know, and it’s a tough thing to talk to friends. I have some friends that that are, are hesitant for reasons that have been widely debunked, but they’re, they’re afraid to get their kids vaccinated. They’re afraid to have vaccinated people around there, and I get it like I’ve seen those headlines.
But I think it’s really important to seek out credible news sources to find, you know, real doctors. You know, don’t get your news from partisan news sources. And I know people would say that like CNN is partisan. Nope. Dr. Sanjay Gupta, you could trust the doctor on the Today Show. I don’t know who that is the doctor on Good Morning America, the doctor on whatever CBS calls, it’s morning show, listen to those people or seek out advice from your own doctor, because I’m going to tell you, it’s really fun to travel and be out again and to see people and I very much, you know, look forward to seeing all of you on my various stops. I’ll, be in Vegas soon. I’ll be another cruises. I am happy to see all of you.
We are going to pivot into our our homestretch. This segment. For those of you who are new to the show, and there is still time, if you want to ask us questions or comments. We will take a couple more at the end. If there are any there. We are happy if you want to get those in. But our question here, I’m gonna let Maxx answer it first is what’s your biggest red flag when it comes to investing in a company?
Maxx Chatsko 37:15
Specifically, when it comes to drug developers, pre commercial drug developers, some that I might be interested in or might be on my watch list, you know, I observed them for you know, months, quarters years. Sometimes when they have data releases, they really like sugarcoat it and only tell you good stuff. Or sometimes they’re very vague. I saw a press release, I won’t name the company within the last couple of weeks. And all they said was, hey, we saw good signs of safety and efficacy, were going to keep going. And they didn’t actually report any numbers. It was just like, well, I like that. Yeah, I’ve never seen that ever. And like the market didn’t really know what to do. The stock actually went up by double digits. And it was just like, all right, I don’t know, this is a, there’s a there’s a way to do this. When it comes to drug development and clinical trials, there’s a reason that it’s rigorous. There’s a reason you report the numbers so nobody else can digest it, you know, and have like an independent review. And sometimes companies will just like pick and cherry pick certain parts of the study. And so that’s always a red flag to me, I tend to that’s like, Alright, wiping this one off the list kind of event.
Dan Kline 38:23
Steve, what is your big red flag and then I will share mine here.
Steve Symington 38:26
Oh, man, I think I’m gonna guess what yours is, but we’ll see if I’m right. And but one of my biggest red flags is untrustworthy management. Now, there’s a lot of ways to determine whether that’s the case, but I need to be able to trust the track records and honesty of the executive leadership. And, that’s something that, you know, there are some qualitative things to watch, you know, as well as, you know, quantitative like, measurements.
But, you know, is there is there executive compensation so exorbitant and dilutive, you know, that that’s kind of tough because there are some great businesses that management is maybe paying themselves too much. But also just the way they they treat the people around them. And, and kind of their, their track record of delivering on you know, just just being honest, good people, right. One of our core principles of 7Investing is that we want to invest in companies led by people that we would consider to be good company, right? And, and that’s, that’s big. If you can’t trust the people at the top, it’s really hard for me to trust that the rest of the business is going to prove to be a decent investment.
Dan Kline 39:39
And, Steve, I’ll let you guess, what did you think mine was gonna be?
Steve Symington 39:41
The way they treat their customers? Is that?
Dan Kline 39:44
Yeah, so management is high on my list, too. I actually think it’s very rare that I will invest in a company where I don’t feel like I’d want to work for that CEO. There are some exceptions. You know, I think, you know, recently, former Amazon CEO, Jeff Bezos might be an exception there. I have lots of friends who work there, I don’t think I want to work there. I have a very close friend who’s about to go to work at Facebook, and I don’t think I’d want to go to work at Facebook. But when you work at a company that big, it probably depends more who your individual bosses than it necessarily does the personality of the leader, though, I look at sort of the, quote, work ethic Bezos has, and I don’t see a lot of lifework balance. And that to me is I want happy employees say, Steve jump in.
Steve Symington 40:30
You know, to be fair, he stepped away from his responsibilities at Amazon to focus on Blue Origin. So that’s, that’s a, that’s kind of no longer a thing, even though he owns a big chunk.
Dan Kline 40:40
So so I’ll push back there, because the media has reported Jeff Bezos steps down. Jeff Bezos stepped up. He’s the executive chairman of Amazon. He is still essentially the boss of the CEO. So I do think there will be some changes, I don’t think there’s going to be big cultural changes. You know, my pushback, I am very negative on the it’s always day one.
I understand the like, never stop evolving, never stopped, like thinking like a startup. But I’ve worked at startups, and you can only go pedal to the metal for so long. It’s really cool when you’re pushing to a launch date, and you’re staying up all night. And look, we you guys did it here I hadn’t quite joined yet, Maxx hadn’t quite joined yet. That’s fun a couple of times a year to get a project off the ground. If that’s your day to day. That’s not fun. And it’s not sustainable. And it’s not good for your business. Obviously, it’s worked for Amazon, but it’s worked at the cost of a lot of people.
But yeah, for me, it’s customer service. I’m doing an interview Thursday, with the American Customer Satisfaction Index about their latest survey. And to me, if I deal with a company that doesn’t like doing business way that doesn’t like making it easy for me to solve things. That’s a problem. You know, I’ve talked a lot about not liking Comcast (NASDAQ: CMCSA), it’s because Comcast doesn’t want to help me, they still treat me like a monopoly. Whereas, you know, it was a little over the top while I was on the cruise ship and how thankful the crew was. And I know it was a training, you know, I know they were trained to welcome people back and to be very over the top with it. On the other hand, I knew some of the crew members, and many of them were genuinely happy to be back because they’ve been not working for 15 months. And this is the start.
But I want a company that thinks about it, you know. TMobile (NASDAQ: TMUS) they’re not perfect. I’ve had problems in their stores, but they’re actively addressing the problem of customer service. So now when you call, the person who picks up the phone knows what your problem is, if you’ve already logged it. I think it’s an area that’s tough to always get right. My favorite restaurant in Connecticut, my first meal, there was a bad experience, there was a bug in one of our meals. And we didn’t go back four months after that, because it wasn’t handled all that well. We never had even close to a negative customer service experience after that. So I’m gonna give you a couple of shots. But yeah, that’s absolutely it.
It has been a fun show. We thank so many of you for watching. We are nearing the end here. We’re gonna hit our finisher. This is a question that Maxx, threw out to me. In 2020 electric vehicles accounted for 2% share of new vehicle sales in the US. What will the market share be in 2030? 23.9 said 10%, 30.8 said 20%, 21.1 said 30%, 24.2 said 40% or more. It’s a pretty tightly bunched I’ve got a different answer, but I’ll throw Maxx first on this one.
Maxx Chatsko 43:29
So I actually think it tells him 30, it’s going to be the share of electric vehicles of new vehicle sales is going to be well over 50%. In the United States, I think it’s going to accelerate pretty quickly. And we can look at other countries like in Europe, for instance, as soon as they make, you know, like some government support or tax credits for individuals who purchase vehicles, infrastructure is only going to get better, you know, between now and the next 10 years. I think and most automakers are already transitioning to full electric lineups. Really, by 2030 I think it’s going to be overwhelmingly The only vehicles you can purchase will be electric vehicles.
Dan Kline 44:09
Steve, your thoughts here?
Steve Symington 44:12
They’ve got the that’s exactly how I would have been the 40% or more category and to clarify, you know, that’s this is market shares a percent of electric vehicles for new vehicle sales at that time. Yeah, I think well over 50% is a pretty safe bet. Maybe not the percent of the vehicles on the road. But yes, as percent of new vehicle sold. I think you’re right.
Maxx Chatsko 44:33
It’s going to take time to transition the fleet. So like all the cars on the road to the average car, I think that you’re the age has actually gone up the average vehicle on the road in the US is like 12 years old or something maybe a little older now. So it will take time even once it you know, if tomorrow we had all new vehicle sales were electric. It might take us till the end of the decade to get rid of all the gasoline powered cars on the road right just by the nature of how you know fleet turnover work. So Yeah, that’s absolutely correct. But for for new vehicle sales, pretty soon, you’re going to start seeing more and more and more electric vehicles everywhere you go, all the major brands. So that’s, that’s really good news as well.
Dan Kline 45:11
So Maxx, let me throw out a follow up here. So I never buy a new vehicle, I always buy used vehicles, because it’s such a price savings. I also never spend more than $12,000 on a car. At what point Am I going to be able to buy a reasonable electric vehicle that’s semi reliable for $12,000 or less? Because to me, I’m not getting one until until that’s where it hits. Because spending more than that for a car seems ridiculous to me.
Maxx Chatsko 45:38
Yeah, I mean, those costs are coming down, it’s kind of close to parity, I don’t think there’s really too much of a, it’s not like, you know, the original Model S Tesla, when it was like more of a luxury vehicle, right, we’re gonna see more and more entry level vehicles that are electric. Maybe their range might not be that great, but we’re gonna see advancements in battery technology too. But we did like retool a lot of manufacturing facilities, you know, in the US in Mexico, where we make them. So it’s gonna take a little bit of time, but that’s, I don’t think it’s gonna be an issue. And really, I mean, electric vehicles could actually be priced lower than a lot of internal combustion engine vehicles eventually. And pretty soon, I think, like maybe by the middle of the decade, certainly by the back half of the decade. So I think that arguments kind of fade away. It’s kind of analogous to, like renewable energy. Remember, like in the in, like 2010 people would be like, Oh, it’s so expensive. It’s never gonna work? Well, right now, it’s the cheapest sources of electricity in most parts of the country is solar and wind. So that didn’t really work out so well did it?
Dan Kline 46:35
Yeah. And I’m also willing to factor into price and I did a little bit of my current car, that I won’t be spending as much money on the fuel for the car. So there is there is some incremental electric cost if you’re, you’re fueling up at home, but in driving a hybrid that now gets, you know, ridiculously good mileage. And again, I drove a Nissan Versa. So it wasn’t like I was driving like an Expedition or something that got, you know, 11 miles a gallon, I was getting 38 miles a gallon in the old car. But the difference was one, my new car is a 12 point something gallon tank, and my old car had a 10. And my new car gets 55 to more miles per gallon, depending how I drive. That is appreciably different. In between times, I get guests. I drove back and forth to Miami for the cruise. And I’m gonna drive back and forth to Miami tonight. And tonight and tomorrow, and I’m not going to get gas until I get home in West Palm Beach tomorrow, because we’re then driving to the Orlando area on Thursday.
We appreciate so many of you watching. We’re gonna take one last comment, Steve, you wanted to have one. You can see it better. I will let you take a stab at pronouncing your name.
Steve Symington 47:40
Yeah, we’ll add Andrew Connelly second comment after this. VJ we’ll call them says any thoughts on how the VIE review can affect foreign investors who want to invest in China. Just rewind to the beginning of the stream. We touched on that. And when he when he says VIE review, he’s talking about very variable interest entities, I believe is the acronym. And that’s basically the way that most Chinese US listed Chinese companies are formed. So yes, they’re they’re increasingly putting more scrutiny on big tech. We talked about that the beginning of the livestream. So just rewind this livestream, check out our comments at the beginning. A comment from Andrew Connelly, my favorite participant Dan piers over his glasses to read these comments.
Dan Kline 48:23
Yeah, it’s, it’s a real challenge. So it’s funny since I had the laser surgery I went from so it only corrected my far vision. But they told me it would correct my closing vision somewhat because it fixes imperfections in the eye. Before the surgery I could not see my phone with without my glasses on. Now I can actually clumsily answer a text message. But I sit pretty far away from my computer in order to not be gigantic on the screen here. So I’m like really a weird distance and restream the product we’re on does not allow us to have a second feed up. So there’s no easy way for me to like put it on my second monitor. I’m pointing to my second monitor was actually on the floor right now. But But I have an arm here that that has a second monitor.
We know viewing choices that that there there is a variable interest in what we’re doing at any time. And we appreciate that so many of you have chosen to watch 7Investing Now. Please tell your friends get the word out about subscribing to 7Investing. Tell people there is this amazing, free show they could be watching to learn about long term investing. And look, if we had 1000s more people watching the show that doesn’t cost us any more money. It is great for us. So we would love to have this. You know, look, I want to be bigger than CNBC and I don’t see way we shouldn’t be because Maxx isn’t yelling about what to do in the mid day or like whatever dumb advice you are getting on those platforms.
If you’d like to get in touch with us. That is almost always Steve I’ve offered he hasn’t shared the login info with me. That is email@example.com. If you want to barbecue recipes if you want to know about bear repellent ask Steve about the Geico commercial where people are scared of Yogi Bear even though he’s wearing a jaunty hat and a tie. That doesn’t make any sense to me, but if you have questions about your membership questions about joining the service questions about our website, send those to firstname.lastname@example.org.
If you want to interact with us, tag us @7investing, ask us questions, all of us can see that account, different ones of us run it and respond to it at all sorts of times. Our private Twitter’s are usually under us. So you are welcome to interact there. I share a lot of fun and funny stuff that I’m looking for comments. Maxx and Steve tend to be a little more data driven or factor in than I am. I put out a lot of polls, and I shared one that was great. What device in the last 20 years has made the most impact of your life. I should have said what device that was created in the past 20 years. Because a lot. A lot of people said the iPhone, but a lot of people said like plumbing, air conditioning. So I didn’t phrase that one well. That got like 1000s and 1000s of interaction. Steve, welcome to jump in here.
Steve Symington 51:04
Is Google a device or Facebook and device? It’s weird to think like that they were less than 20 years ago. Isn’t that bizarre?
Dan Kline 51:12
It’s also weird to think that there was like a four year period where my answer would have been AOL. That the internet was and you guys are too young to remember this. But I’m saying like 1990 to maybe well, maybe like 1993 to 1996 like somewhere in there. I might be getting a little bit wrong. AOL was the internet, it was your email. It’s how you got sports. It’s how you got financial information. And you very rarely jumped off of that. And that changed almost overnight. So look, my Blackberry was the most important device to me. I used to write, you know, like, like book chapters on my Blackberry. And now that seems absolutely foreign. Maxx grew up I’m sure like Maxx doesn’t even remember a world without streaming services, let alone Let it go let alone a world without phones. I remember like having to pull over to find a payphone because somebody..
Maxx Chatsko 52:04
I used payphones before it actually, I used to subscribe as a kid to Sports Illustrated. And every once in a while they would throw in like the newest AOL disc like CD and you’d have to like plug in a new computer to upgrade your your I got AOL 9.1. Now let’s watch out guys.
Steve Symington 52:22
My kids didn’t believe me that Netflix used to actually send DVDs to your house. And they saw a corded phone in a Papa John’s the other day. I think it was a Papa Murphy’s or whatever. They’re like, what’s that? Like? What’s that thing hanging? I was like, Oh my word you’re so like, it’s just so weird. They don’t know a world without cell phones. So anyway,
Dan Kline 52:43
if you want to tune into Friday’s show, we’ll be giving out the phone number for Maxx’s Sports Illustrated football phone. He’s kept it operating all of these years now. That is of course a joke. We thank you for watching. I’ll be back Friday with Simon Erickson and Matt Cochrane, no idea what we’re talking about. So if you have some ideas, feel free to hit us up @7investing on Twitter. Thank you for watching. Thank you for subscribing. Welcome back from the Fourth of July. We will see you on Friday.
Amazon & Facebook Earnings, Plus Intel, AMD and the Fight for AI
It has been a very busy earnings season and a lot of big tech companies have followed the same pattern -- report good, even great, numbers, then warn that the next quarter...
Apple, Microsoft, Starbucks, and Tesla Earnings
Tesla kicked off earnings season with some strong numbers despite having to manage supply chain issues related to the chip shortage. Apple followed that with some blockbuster...
5 Questions About the Delta Variant, the Economy, and the Stock Market
The pandemic has come roaring back as the Delta variant of COVID-19 has led to a big increase in people being infected and hospitalizations in U.S. states with low...