11 trillion is now invested in index funds, up from $2 trillion a decade ago. And as of 2019, more money is invested in passive funds than in active funds in the United States. That creates both problems and opportunities for people investing in individual stocks. Simon Erickson, Matt Cochrane, and Steve Symington join Dan Kline to talk about passive investing as well as President Biden’s green jobs plan, the market’s very first public-traded quantum computing company, and comments made by JPMorgan Chase CEO Jamie Dimon’s annual letter to shareholders.

Transcript

Sam Bailey  

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  

Good afternoon 7investors and welcome to the Friday edition of 7investing Now. My name of course is Daniel Brooks Klein. I’m the host of the program. I am live in West Palm Beach. I am joined by Matt Cochrane, who is a little south of me in Florida. Steve Symington, who’s wherever Montana is, I’m not entirely sure. Apologies to my elementary school teachers. It’s somewhere near Canada, or like, we’re Santa lives. I’m not I’m not entirely sure. And of course, Simon Erickson, who is in the lawless state of Texas. Simon, welcome to the program. We have some special announcements to make today. We are going to reveal the winner of our big contest that we had for our anniversary. We’re not going to do this till after our top story, and our top story is, of course, is passive investing, that’s ETFs and index funds. So you probably have some of these in your 401k. Are they bad for the stock market? But before we do that, why don’t you explain what we did to honor our first anniversary here at 7investing?

Simon Erickson  

Sure. Yeah. Thanks very much, Dan. Yeah, 7investing just turned one on March 1 2021. And we had a celebration throughout the entire month, where we said our mission is to empower you to invest in your future. And we invited everybody to say, how have we empowered you? What does 7investing mean to you? Please tell us your story about how you found us, and how we’re helping you. We received a lot of testimonials from people, and we randomly selected seven winners for a free annual subscription to  7investing. We’ll announce those on the program later today.

Dan Kline  

Steve did a Tik Toc video to to the 90s hit, “I’ve got the power”. But of course it’s not eligible. One of the things we get as employees here as people who work here is of course access to our our service. It’s hard to do our job if we didn’t would be a little bit strange if we didn’t, but let’s get the show started. So let me give a quick rundown. This is a really busy show. At the top, we’re going to talk about passive investing. That’s ETFs and index funds. Are they bad for the market? Then what we’re watching Steve is going to talk about President Biden’s Green Jobs Plan. Simon is going to introduce us to the markets very first publicly traded quantum computing company. I know what some of those words mean, but not all of them. And Matt, of course, is going to give us his favorite ice cream places in southern Florida. No, Matt is going to talk about JP Morgan CEO –

Matt Cochrane  

Only the top 20 though And it goes into, like affecting the rankings was how close they are to my home.

Dan Kline 

To get to 20 in South Florida, you’d have to include like the McDonald’s Mcflurry, we do not have good ice cream for a warm climate.

Matt Cochrane  

That is number 14.

Dan Kline  

For the most part. I know there’s some of that. But he’s going to talk about JP Morgan Chase CEO Jamie Dimon and his annual letter to shareholders. Then of course, in the homestretch, we’re going to talk about how we exit a position that was sponsored by a comment someone shared with us on Twitter. And if you have questions and comments, we will take those as well. So it is very, very busy. So let’s get to it is passive investing ETFs and index funds bad for the stock market? Simon, why don’t you kick this off and sort of explain something? I didn’t know that as of 2019, there’s actually more passive money in the market than there is active money by active money. I mean, individuals and fun and sometimes, you know, money managers going in and buying individual stocks, rather than buying ETFs, which are baskets of stocks, more or less.

Simon Erickson  

Yeah, that’s right then and what we mean, kind of like you said, passive versus active investing, right? Are you an active investor? That’s actually making trades, picking stocks and buying them individually? Are you putting your money wrapped up into an ETF or a mutual fund that’s making those decisions for you, that tends to buy large baskets of stocks. And as you alluded to, Dan, we’ve now seen that passive funds these these passive vehicles for investment, now have more assets under management than actually actively traded stocks do in the United States. That’s having some impacts to the market. A lot of people call this dumb money, it really just means that kind of baskets of stocks move in tandem together, and introduces a lot of noise, which actually has some interesting implications for individual investors like us.

Dan Kline  

Steve, let’s get your 10,000 foot view on this. Before we go into some of the nitty gritty I will point out, there’s $11 trillion passively invested in the market, which is the same number it would take to get me to visit Steve in the winter. So see if your thoughts on it. Yes, in passive investing which a lot.

Steve Symington  

So, passive aggressive, passive, and I want to say passive aggressive, passive investing, you know, it might actually be degrading, you know, some of the the advantage of individual investors because what we see is massive amounts of cash kind of moving, as Simon mentioned earlier, and a lot of different sort of similar stocks and similar baskets moving in tandem with one another. So, it’s harder as individual investors and a stock pickers to find businesses that will materially outperform the rest of the market. So that’s kind of the idea is, is how, you know, passive investing the so called dumb money, so to speak, is creating issues for stock pickers who are actually trying to create alpha, really, and yeah, that’s a legitimate worry. And, you know, we you can kind of argue that there is cause for concern, but it’s not sort of this yet a such a broad sweeping concern that I think that it’s impossible to beat the market. And that’s something we’ve sort of proven with, you know, our individual track records and our track record as a team. So far, it’s seven investing is it is possible to beat the market, but it definitely gets harder when you have so much money moving in tandem.

Dan Kline  

So I’m gonna liken this to horse racing. I’m gonna go back to Simon in a minute as planned in our script here, Matt Cochrane, if you ever bet the ponies – have you ever gone to the track?

Matt Cochrane  

I’ve not I’ve never been to the track. So no.

Dan Kline  

So when you go to the track, how people bet is what creates the odds somebody is feeding back. So be careful with your speakers there. But it is one of those cases where if a horse has a great name, and the example I’ll give is I was at the Belmont, which is in New York one year, there was a horse named Captain Messi named after Mark Messi. And it was a bad horse that had like three legs and a limp like it was not that its jockey weighed 400 pounds, this horse wasn’t going to win, but a ton of money went on it and it became a favorite. That can happen in the market, we saw that with with the GameStop craze. That’s active money. But if there’s so much passive money in a stock, that actually makes it harder for active money to sort of push stocks in the right direction, or sometimes the wrong direction. But Simon, how is this impacting the market right now? Is it just increasing volatility and noise? Or is it? Or is it having real impact?

Simon Erickson  

It’s herd mentality, Dan. And you know, if we kind of take a step back and go back in time and look at how money has moved and changed over the last several decades, right 1978 comes out with a 401k plan. And this is a defensive investments a passive investment for the most part, because you have these giant funds that are helping people invest for their retirement, right, we’re moving away from pensions, which were defined benefits to defined contributions, the 401k. And we put it in these giant funds that would kind of track along the entire market. By the way, I have a bit of trivia for Archie here on the show. And anyone who’s watching, do you know what the largest mutual fund in America is right now?

Dan Kline  

I don’t have the teachers edition. So I don’t actually know the answer to this one.

Steve Symington  

I’d say maybe the Vanguard S&P 500 index.

Simon Erickson  

And that is correct. This is the Vanguard total stock market. You know, Steve, you get the gold star today for picking that it has $1.1 trillion of assets. And it’s spread over 3000 different positions. That is the entire market, you’re buying the entire market with that. And there’s now a trillion dollars of assets that just flowing with something so broad based like that. And then you look at also other, you know, innovations in investing his Roth IRA in 1997, this was also a defensive one, you kind of save for your retirement, you did not want to take risk. But then in just the last decade or so we’ve seen kind of more of a rise in algorithmic trading that is in sub sectors of the market, Dan, so rather than going out and blasting 3000 positions me what we might go out and find an ETF that’s just based on space economy, on retail on financials, whatever it might be. So you’ve got these sub pockets that move in tandem, that could still be 10s of billions of dollars of assets. And so I guess my key takeaway from this is this is kind of evolved from a retirement Park and forget about it for 30 years kind of vehicle that we’ve seen, it was very defensive in nature to more offensive playing offense, investors looking for pockets of the market they want to invest in, but it’s still herd mentality. It’s still grouping a basket of stocks together rather than individual companies.

Dan Kline  

So I’ll make a silly comment and then a serious one, I sent you guys a photo of my new license plate because it’s in a 7investing license plate holder. That being said, my license starts with QQQ, which is a popular NASDAQ ETF. So I feel like given what I do for a living that my license plate is inadvertently sending the wrong message because of I didn’t get to pick it. If you see me out there, I was going to share this on social media. And then I thought that maybe having my license out there, my license plate out there and social media wasn’t a great idea. But Simon and Steve, we’re gonna get back to you in a second. I know that I don’t consider my retirement accounts, my 401k, specifically, totally passive, because I look at what’s being bought. And I know that I have exposure to some things I’d like to own individually, but I don’t I have significant Amazon exposure, for example, in my 401k. So I consider that owning Amazon. I know most people don’t dig into the holdings of what they have. But is this mostly just people saving for retirement that are that are sort of setting it and forgetting it?

Simon Erickson  

Steve, you want to go ahead? I have an answer. But please take the time.

Dan Kline  

I was throwing it to you, Simon. But Steve, you can go.

Steve Symington

I’d say yes. And no. I mean, that’s a lot of it. But, you know, I think there’s a lot more young money going into the stock market, kind of as people have more disposable income and realize that it’s a fantastic wealth generation tool. But I don’t have a particularly informed prepared opinion on that. Simon, what do you think

Simon Erickson  

Yeah, I mean, Dan, it was very highly structured by employers for so many years, right? For those watching to program that were investing 20 years ago, you remember just the charts that we show the one year, five year and 10 year return of your five options you have to put into your 401k plan. I mean, it wasn’t going out. And most people weren’t looking at, you know, the this perspective, the summaries the constituents in those in those funds. But now you’ve got so much access to information, you can go through and read annual reports, you can kind of look at individual equities, and be much more selective about exactly the companies you want to invest in. I think that investing as a whole is continuing to evolve to evolve. And even though we’re seeing the rise of these passive funds grow larger and larger in absolute terms, it’s also a greater and greater opportunity for companies like ours and individual investors that now have access to more information to make even better informed decisions.

Dan Kline  

Absolutely. The more information you have, the more you know. And that’s why one of the things I push when I explained 7investing, and I spoke to some 17 year olds yesterday in a sort of socially distant setting. And they were really into some really weird stock areas. And what I kind of said was, start with what you know, and the reason for that they were talking about lithium mining in, you know, like, I don’t I don’t even remember where but like South Africa or something. And it’s like no, look around your world and figure out what you know, because you’ve been following that business. Part of what we bring here is whether it’s a company we’ve experienced, or companies we’ve just been following for decades, is historically you build up that wealth of information. And now it’s easier because the technology is great. Like we’re partnered with why charts and why charts put so much information at the at the tip of your fingertips. We’re going to take your questions and comments if they’re not related to this. We’re going to do it in the second half of the show, sort of after what we’re watching, but I wanted to take a comment on the first one from Mike feet. Sam Bailey and Matt Cochrane, if you wouldn’t mind reading that comment out loud.

Matt Cochrane  

Yeah, absolutely. Bill Ackman discussed this issue back in 2016, suggesting there is a bubble in indexing the argument. If everyone becomes a passive indexer, then the returns of the major indexes will start to lag in a major way as the stocks in the index become overcrowded and overpriced. And then can I just follow up on that comment?

Dan Kline

You can.

Matt Cochrane  

So like Michael Burry, said that actually the same thing, and like I want to say 2019 maybe but he says like, you know, passive indexing, passive investing, it just kind of like ruins price discovery, because there’s no more price discovery people just like essentially, like, even as they put away money in retirement, they’re essentially just blindly putting money into like, you know, if it’s the s&p 500 index you’re blindly putting money into 500 names. Right. And so that you’re ruining, like price discovery, and that this will you know Michael Burry from you know, he was the investor featured in The Big Short Movie who got the 2008/2009 financial crisis famously right. But he said the same thing, that it was like ruining price discovery, and that like it would eventually cause a bubble.

Dan Kline  

Based on my height and efforts at the gym. I’m going for the name Big Short. Simon, is the retail investing craze. And I it’s a weird thing to talk about, but there’s a lot of new money, dumb money for the most part in the market. Is that offsetting some of this though, I’m not entirely sure the Reddit investors are buying, you know, shares of Starbucks and Microsoft or, you know, other heavily owned companies.

Simon Erickson  

It’s herd mentality that we need to be aware of Dan and I think it favors the the investors like us that want to do our homework and see if this seems reasonable or not, right. Like when you see a company that misses a quarterly earnings report by one penny on earnings per share, and then the stock sells off 17 20% crashes, that’s not normal. That’s algorithmic trading that’s got billions of dollars behind it that just is saying, Oh, that’s a mess. We’re selling off. individual investors can take opportunities like that to buy To great positions that sell up for the wrong reasons, it works. The other way to say there’s a ton of money flooding into premature technology that isn’t ready for mainstream, it isn’t commercialized yet, we start to see bubbles, you’re locked into some of those bubbles. If you’re buying into the ETF that has a basket of those stocks, if you’re selecting individual companies, you don’t have that same kind of exposure. So I think net net, this is actually a kind of an exciting, good time for those that are willing to uncover some more stones and do some more homework.

Dan Kline  

I want to speak to the comment from So Fly Marketing, because it kind of brings up a point, we’re not saying don’t invest in your 401k. Sam, if you want to bring that one up happy to share it with the audience. My 401k doesn’t let me pick individual stocks, I only put it enough to get my employer match because at least that’s guaranteed 100% investment. Absolutely. So what you want to do in your 401k is use the tools it gives you to match your investing style, your age, there’s only so much you can customize in your 401k. I am a company to myself, so I have a little bit of control over my 401k. But it’s still only what’s available in the tool that you know, in the payroll company I use that has the 401k you can only pick so much. But company matches are free money. So I don’t care how well you think you’re going to do in the stock market. If you have a 5% match, and you put the money in the amount you’re allowed to put in that is a guaranteed return on top of it, you know, whatever you get. So even if you just perform with the market, so it’s about 9% a year on average, and you got an extra 5% that’s gonna push you into some really strong returns, and they’re guaranteed you don’t want to give that up. So yes, this could be a problem. But it’s not a problem because of the $6,000 a year you’re putting into your 401k. Simon Erickson, let me give you the last word before we move to what we’re watching.

Simon Erickson  

I think the biggest overall win for investors from this entire trend, Dan has been the reduction of fees. It used to be standard that hedge fund managers are making two or 3% of the assets under management just as a management fee. It used to be when you were trading stocks, you sometimes had to pay commissions, if you remember way used to be 20 $50 just to buy a stock. Now we’re not even talking about any commissions at all, for buying individual equities. And all that information to kind of use to be behind the curtain is now available for people that are interested to take advantage of. And so when you’re paying lower fees, you’re paying two or 3% lower fees you’re getting, by definition, a two or 3% better return on your on your results. And now that you have access to buy and sell securities at an individual level, this is going to return that this is going to be a net win for individual investors because you’re getting better returns. That’s the biggest innovation of all. And when we look at the kind of higher level of how capital is moving around out there,

Dan Kline  

No fee trading has changed my investing style because back when I had either sometimes your account would give you X amount of free trades per year. So you’d have to think about “okay, like I’m going to buy the stock and I’m not going to buy one share a week for the next 10 weeks, I’m going to have to wait 10 weeks until I have the money to buy 10 shares – that affects your cost averaging, that affects your buying price. It shouldn’t matter in the long term. But it matters from like a psych point of view. Like I know I have a couple of stocks that are 7investing recommendations of mine that I own, from before we invested in them. And some of them I go off, I can only have had that at the point I bought it it’s up, you know, 80% in my portfolio, but it’s only up 22% in the 7nvesting portfolio because we bought it at a different time. So we’ve created that sort of rhythm, which makes sense for 7investing members. And with that, Simon, let us reveal our contest winners. And let’s tell the people what they’ve won. Matt, when you become a member of 7investing, you get our monthly picks, we each make our highest conviction stock pick each month, the six of us soon to be seven of us, I think we can we can tease that that we may have something coming down the pike on that front. I won’t say any more because I’m not entirely sure what I’m allowed to say. But Simon Feel free to say more if you want. You also get access to our members only calls. What’s awesome about the members only calls is one we all were a members only jackets and we talk about I got a visible laugh that’s never happened. And we talked about your questions on our past picks. So a lot of people want us to update our picks. And we do that through through subscriber only updates in text. But we also do that on our calls. We also do the new member call, we sort of talk you through how the service works, what our thinking is what our rhythm is. It’s ever changing. It gets ever better. I know I’m working on doing a big update, like a paragraph on every stock I’ve picked plus some that I’ve picked up that were team picks or picks from people who are no longer with us by no longer with us. I mean they work elsewhere, not that they’ve died. But Simon, who are the winners of a free one year membership to seven investing and remind the people why they’re winning.

Simon Erickson  

Yeah, that’s right, Dan. So like like we said we had a kind of a contest throughout the entire month of March. We promised to randomly select From the submissions that we got, we now got a huge number of people that told us that they love seven investing. So thank you for sharing the story. Let’s see Sam Bailey, do we have a chart or graphic? There it is, perfect. Here are seven winners. Winners that will be reaching out to you via email that has submitted testimonials about how 7investing has empowered them to invest in their future. Thank you to each one of these winners, we’ll be sending you the details of your of your 12 month free subscription to 7investing, we really appreciate everybody for kind of sharing their story. This was really powerful, I think for everybody on the team to see the impact we’re making out there really made me very proud of what our company is doing.

Dan Kline  

And if you’re watching 7investing now right now, and you’re not a member, first of all, what are you doing? Second of all, you can join us for $49 a month, or $399 a year. This is the biggest bargain in investing services. I actually sat down with my aunt who has significant money in the market. And she told me I’ve told this story before she said “why are you charging so little?, and the reality we could charge way more. The reality is we want to make the market something for everybody, the 17 year olds I was talking to yesterday, we want to make that be something that they can invest. I don’t care if they’re investing $10 a month. We want them to understand that you don’t have to chase the next GameStop or other you know, fundamentally bad investment that you should own good companies hold them for forever. We will talk about what forever means in the homestretch of today’s show. But Sam and Sam Bailey is our Director of Marketing, we should point that out. She is also the woman behind the glass who runs this show from a technical point. Sam, show the people how they could subscribe. That is of course, 7investing.com/subscribe, we would love to have you next week is the third week of the month we’re going to have our new member call our subscriber calls so it’s a great time to join, you’ll get access to last month’s pics, and every month pics and not just the pics, we have a scorecard that shows every stock we’ve ever bought. And we actually do purchase the stock at the at the time we release it at the end of market on the first of the month. So you can see all our winners. They’re mostly winners and the occasional ones that haven’t done some well, full transparency, but we are crushing the market overall. Let us move to what we’re watching. Steve, you wanted to talk about President Biden’s green jobs plan. This isn’t like jobs on golf course or courses are in you know solariums, this is an overarching green jobs plan. Take it away, right.

Steve Symington  

So in Biden unveiled his green infrastructure plan last week, he’s calling it the American jobs plan. And it’s aimed at improving country’s infrastructure and transitioning to greener energy over the next eight years or so. The cost is steep, about 2.2 5 trillion is what he’s proposing over the next eight years. And there’s a lot in there from the it’s over 600 billion allocated to transportation, that’s roads, bridges, public transit, waterways, airports, electric vehicles, 400 billion toward home care services and workers 300 billion for manufacturing, a lot of that’s in the semiconductor and medical manufacturing faces housing, water infrastructure schools 100 billion toward providing every American access to affordable broadband internet, there is a lot in here. But there’s countless ways to really take advantage of this as investors. And we’ve actually wrote about this just prior to the election, several months ago, in some of our kind of advisor perspectives articles, you can find some winners from a Biden presidency if you go search the Yext toolbar on our website. And but I think some of the most interesting ways to play this are electric vehicles and some of the green energy plays. And there’s a lot in there, you know, like 500,000, electric vehicle chargers, they want to encourage there’s they want to have stipends and credits for Americans to buy more electric vehicles. And it’s not just, you know, the Tesla’s of the world that you can play this there, there are several ways and I think you should stay tuned for for maybe some of us to start talking about ways that you might take advantage of that.

Dan Kline

Let me give some process talk and a word of warning here. So process wise, this, some version of this is actually likely to pass through Congress because for I’m not gonna get into the technical reasons, but they’re allowed to use something called reconciliation, which lets them pass it with a bare minimum, they don’t need 60 senate votes, it is possible that in manufacturing driven states, you get some Republican votes. But historically, that has not been how our Congress has worked without without getting political. But this is very likely to, in some form, probably slightly slimmed down, but in some form to pass but I would also say, when you’re investing in companies in the green space, do it because you fundamentally believe in the company. And this is the hot fudge on the Sunday don’t do what a lot of investors did when Biden was elected and they went, Oh, I’m going to invest in cannabis because of course, the Democratic Congress is going to well They’re not going to there, that’s not a Biden priority, it’s not something they’re going to touch upon. So you want to look at electric vehicle companies that will see their growth accelerate. Because of this. And whenever it is solar, you need to look at fully understanding the full company. But Steve, there’s a specific focus here on electric vehicles. I know I drive a hybrid Does anyone else in the team drive an electric vehicle, I do it to feel better about, you know, myself, you know, compared to other people, but Do any of you have a electric vehicle or a hybrid vehicle?

Simon Erickson

No, but I am seriously considering picking one up in the next several years, I’ll have a young driver coming up in about a year and a half here. And then several years down the road, you know, I’ve got a 10 year old as well, who’s going to be driving and he’s actually disabled. And I hope that, you know, he’ll be able to drive properly, but I will really take a lot of comfort knowing that, that there is potentially some self driving vehicle technology that’s advancing pretty rapidly that might kind of help that. And a lot of that has to do with say, that company like Tesla and their, their leadership there, but I’m excited that that, you know, the 500,000 charges, like people talk about the charging infrastructure being an issue, they’re concerned, they won’t be able to get where they want to go, you can get pretty much anywhere you want to go. But the charger infrastructure is going to look a lot more like the gas station infrastructure in the next decade or so here. And, you know, we’ll also see V’s transitioning school buses, federal fleet vehicles. That’s just the way it’s going. And like it or not, that’s it’s going to happen so

Dan Kline

We see your questions and comments. We will get to them after what we’re watching before we hit the homestretch. Let’s segue to match topic here. Matt, you want to talk about JP Morgan Chase CEO, jamie diamond, he released his annual letter to shareholders. What were the highlights here?

Matt Cochrane

Yeah, you know, in his letter is always one of the better highlights of the year. I think it always contains, like key insights on the economy, the stock market, the financial industry, and of course, JPMorgan Chase, one of the largest banks in America itself. But the two cons I’d like to specifically focus on today, however, prepainted Diamond’s remarks on FinTech versus big banks, and the first one he said was that the regulatory landscape gives an unfair advantage to FinTech over big banks. And Sam, I think we have this graphic but like he included in his letter, and he just like listed everything that was like, you know, like basically the regulations of banks face and the lessor to the much lesser extent like the one that the FinTech companies face. You know, for instance, banks have higher capital requirements and much more extensive liquidity requirements, which means they can’t lend out all the deposits, they take in deposits that banks must be FDIC insured. This cost JPMorgan $12 billion over the last 10 years, you know, there are heavy regulations around how banks can use their customers data, and are under a lot of like KYC, which is know your customer, and AML, which is anti money laundering requirements. And he goes, when I make a list like this, I know I won’t be accused of complaining about bank regulations, but I’m simply laying out the facts for our shareholders and trying to assess the competitive landscape going forward. And then his second comment, thanks, Sam, for that a, FinTech is here to stay, you know, banks must invest heavily in tech. He goes, importantly, big tech, and he he lists, Amazon, apple, Facebook, Google. And as I said, Now, I’d include Walmart is here to their strengths are extraordinary, with ubiquitous platforms and endless data. At a minimum, they will embed all payment systems within their ecosystems, and create a marketplace of bank products and services. That’s the end quote, I, you know, and he, he goes on, you know, so it’s not time to it’s but it’s even with all that, though. So the regulations, landscapes, which heavily favors FinTech companies, and like, just how banks are being targeted by big tech with really deep pockets, and these very nimble FinTech companies, you know, I still don’t think it’s a time to cut out count out big banks as investments. Um,

Dan Kline  

let me jump in here, Matt. Yeah, there’s also and I jumped in, because you made a graphic about this one as well. But I want to make sure we get to big banks also have a lot of advantages. They have some, some disadvantages. They’re not as nimble, they don’t have the tech where with all of you know, an Amazon or other giant companies that are that are in this space or Apple, certainly which is in the space, but there are some major advantages that a JPMorgan has, right?

Matt Cochrane

Absolutely. Like it’s, it’s, you know, it has branches all around the country, which is strike, still a great customer acquisition tool. And I think like you’re seeing this like, it’s the same, it’s the same story that’s being played out in retail, right then like, where, like, a lot of the brick and mortar retailers, like found out that their store footprint was actually a big advantage and how, like, on online only retailers like Amazon are trying to find that infrastructure across the country. You know, but like so JP Morgan invested 5 billion in technology $5 billion in technology last year, and that’s gonna increase to six to seven billion dollars this year, they have 41 million active mobile users. They built data centers around the world, which basically created their own private cloud, which is going to make it a lot more efficient. And listen to this like so in his last conference call, this is what he says he goes, you have a tremendous amount of AI being used in asset and wealth management and trading and commercial banking. It’s literally the tip of the iceberg. Whatever we say today, 10 years from now, it will be probably 50 times more than we’re doing today. And I would spend anything to get it done faster so that he knows where the landscape is going and he is committed to it. You know, Bank of America is another big bank that really seems to get the importance of investing heavily in tech. A bank of america has 31 million mobile active users. There are now 17 point 2 million Erica users that’s Bank of America has virtual finance personal assistant, which is actually a pretty robust platform. And that’s up 67% year over year, digital channels now make up 45% of bank of america sales zelle volume for Bank of America users grew 80% year over year. So again, like these companies are investing heavily in tech. And you know, it shows up in stock returns to say I think we have this graphic like where like it compares like the big this is Bank of America and JP Morgan’s returns over the last five years. They they rival you know, the qq Q’s like the NASDAQ ETS, like total return to bank of america actually beat it. And JP Morgan is right behind it. So, uh, you know, again, big bass, you know, a lot of banks have their hands tied behind their backs when they’re going up against these FinTech companies. But it’s not time to count all of them out yet. And specifically, I think JP Morgan, Chase and Bank of America are two very well positioned banks going forward.

Dan Kline  

I use Erica, like I use all AI systems, I endlessly type give me a person, because invariably, whatever you’re trying to do, is not like this technology has come a long way I joke is there are some things that can help you if you need to know how to say, like, do a wire transfer. And it’s a very clear, concise thing, it can do it. If there’s any nuance, and I’m not picking on Bank of America, this is true of every AI views. If there is any nuance to what you’re trying to do, it is not capable of getting it. And it is maddening. Because it will refer you to things that are in no way related to what you’re doing. I’m a big fan of automated help, it should be much easier to get a real person. I think that is a big failure. And that’s something that T Mobile does really well is giving you a real person that actually knows your issue. And there’s there are lessons to be learned there. We’re going to talk about Simon’s what we’re watching. But before we do that, at first, William says hello from Poland. This is a global show, and Portland,

Simon Erickson  

Portland

Dan Kline  

Portland is also very exciting. And I was gonna use this to illustrate how this show is going to come to you from different places over the course of the next year. So in June, I’ll be speaking at an event with our friends at Money Show and we’re going to do this show live from there I’ll be there you guys won’t be there. But you know, we might have a guest on who’s actually in the room with me with of course all the appropriate social distancing. I’m gonna be doing the show from the Bahamas. This summer I’m going to be doing the show from Cozumel Mexico this summer Max chesco and I in February I’m going to be doing the show from I don’t know where cruise destinations so we’re going to do shows and I’m telling you this because we’ll put it out on social media and if you happen to be where I am we hope with all safety protocols in place that you come out and watch the show or say hello I promise there will be coffee I will you know I will by the first round of drinks to people who come out Simon before we get to your what we’re watching we actually had a question that we don’t want to save till later in the show because we have a partnership that deals with this one Sam barely if you want to share the cryptocurrency comment Simon take it away.

Simon Erickson  

Yeah, well first of all, if anyone remembers the game where in the world is common San Diego we’re recreating that where in the world is Dan Klein gonna appear on our seven investing now show I think that’s gonna be pretty exciting. I thank you for Damon or demand however you’d like to pronounce this. Hi, everyone, please bring someone who can talk about cryptocurrency. I’m so glad you asked. That’s such a great question. Because right after this conversation, Steve and I are going to be having a conversation with our partners at crypto EQ. We talk with our with our advisors there about what’s going on in cryptocurrency markets and what will that mean for the equity markets? And so Steve on tap for today we’re going to talk about coin bases coming in direct listing what that will mean, we just saw cryptocurrencies past $2 trillion in total assets. What is that going to mean? And then we’re talking about things like d phi and chain link and some of these really emerging trends that are happening and what those are going to mean as well. So we did we do that as exclusive content. We put it for seven investing subscribers on the 15th of every month, but I think it’s a really informed opinion that we formed a partnership with crypto EQ to figure out what’s really going on What’s the impact it’s gonna have on us for stockholders,

Dan Kline

Grant87 is watching in the UK. I’m glad you bring this up. Because that is another location, we’re going to be doing live shows. I’ve talked about this a little bit, but my brother is a chief Commercial Officer for the Tottenham hotspurs. In the Premier League. He started that job in that during this summer, like in order during this month, really, with the pandemic raging, as soon as it’s easy and safe for me to go to the UK, we will absolutely be doing some shows likely from the Tottenham Hotspur Stadium, which by then might have a name because that’s my brother’s job is to get a name on that stadium. But Simon, we are going to talk about the markets, the stock market’s very first publicly traded quantum computing company, I’d like you to talk about that company. But before that, could you also talk about what quantum computing is?

Simon Erickson  

Yeah, this is something I’ve been excited about for a couple of years. And it’s kind of exciting to see the very first way to play it in the public markets by buying a stock that is quantum computing, quantum computing is not a faster traditional computer, it’s a completely different architecture that can solve problems that traditional computers could not. And so Steve Simonton knows, as well as any of us how we’ve kind of built over the past couple of decades, silicon chips with transistors that are based on binary data, right? It’s either zero or one, there’s no middle section, it’s either on or off. And we use that to do tons of data operations, multiplication, it creates rendering for video graphics, all the cool stuff that we’ve done using CPUs, GPUs, and every other PDU that’s out there is a processing unit, a quantum computer is is based upon a quantum bit, we call this a qubit, which is very different than the bits of zeros and ones that we’ve gotten used to in traditional computers. And because that has much more of a wave function, rather than just on or off in the binary notation we’ve gotten used to, it can solve extremely, extremely complex variables. So Dan, did he ever use Goal Seek with Excel?

Dan Kline  

Do you remember that? Oh, dear god, yes, but not not I’m not good at excel in any fashion. But absolutely

Simon Erickson  

Goal Seek if you’re not sure, Matt and Steve, remember this as well, you know, you try to go out and specify an output changing the inputs, it go up and down a couple of times, then it would say, okay, we’ve optimized what the input needs to be to get that certain output, take gold seek and put it on steroids, where you can now have millions of inputs run through a quantum computer to have a very, very specific output. And so who is using this DHL is using quantum computers for commercial logistics across the entire globe? Samsung is using this for the material science and design of superconducting materials. And a lot of biotech companies are looking at this for modeling out protein folding. And molecules is a developing new drugs. So again, it’s things that have tons and tons of inputs cannot realistically be solved by traditional computers, because it would take them far too long. now have the opportunity to start doing these with quantum computers. Very exciting field.

Dan Kline  

And Simon This is a very early stage company, right? Like they’re going public via spec, which means we don’t have a ton of info, but their revenue is pretty small, given their their impending valuation.

Simon Erickson  

Yeah, so I on cue is a company that’s merging with dny Technology Group via spec special purpose acquisition company. That means you have a bunch of money that goes to a publicly traded shell with a privately traded company like ion Q, they merged together, all of a sudden you have a publicly traded operating company, Dan, to put into context, what you just said, I and Q Did $1 million of revenue last year, and is being valued already at $2 billion in this back after merger. Now by my math, that means they’re selling by about 2000 times sales. This is really, really expensive to pay for a stock like that. Quantum Computing for most companies is still a science experiment that will not even have a use for quantum computer expected until the year 2025 or later, we’re starting to see a lot of hype, there’s going to be a lot of research still required in this field. But it’s kind of neat to at least see some options available for investors.

Dan Kline  

That assignment is this making you rethink these valuations the seven investing SPAC if you can have multiples of you know, 200 times that that feels like, like, really anything shoots back, you should back your paper route to your part time job.

Simon Erickson  

Oh, you’re gonna see a bubble form almost certainly in this field, Dan. I mean, like when you see 2000 times sales for an unproven technology that isn’t even really commercial yet. And plus, on top of there’s so many different types of quantum computing technologies, right? You still got MIT academic researchers looking at ion trapping, looking at optics for quantum computers, quantum and kneelers. I mean, there’s not a generally agreed upon consensus of which is going to be the most efficient for cubits cubits stability. What’s going to happen though, is we’re going to pay close attention to this to show which does show the most amount of technical product promise, and then which is actually showing the progress with the cloud. computing providers who are eager to tap into this, because right now the companies like Google like Microsoft, like Amazon, they’re all using cloud computing and giving you access to GPUs to CPUs to FPGAs. Pick your processor that you want for the application that you have. And by the way, if you’ve got a really, really complicated application and you need the quantum computer, you’re going to be charged a huge premium for access to it, that people will be glad to pay it if the problems are hard enough.

Dan Kline

Every PDU except Pepe lepew. New Space Jam, we’re going to answer some of your questions at in the homestretch In our next segment. Matt, Simon. Steve, sorry. If you if you guys could mark down which ones you want to answer in the private chat? That would be great, because we’re not going to have time for all of them. If we don’t get to your question. It is not because we don’t like you. We love each and every one of you, is because sometimes we’re not prepared to talk about that topic. It might be something we’re considering as an active recommendation. It might be something we’re doing a whole other show on. So we get to as many questions and comments as we possibly can. But we’re gonna go around the room now for the homestretch. When do you exit a stock? This question comes from Carlos, USA, on Twitter, and we’re very active on Twitter at seven investing, we always appreciate your questions for the show. Matt Cochran, I will start with you. When do you exit a stock?

Matt Cochrane  

Well, so we whenever you buy a stock, you should have a thesis for it as in like, why do I Why do I think this stock is going to do well? What Why am I buying it? Well, you know, obviously, you always buy stock, because you believe it’s going to go up in value, or it’s going to pay you enough dividends, you know, it’s going to be a good investment for you. Why do you believe that you should have a thesis going into every single stock? Now, the crucial question is, or the crucial element is you have to give that company enough time for that thesis to play out in so often, many investors, they just basically cut and run at the first sign of trouble. That is often a mistake. Don’t mistake price volatility, or price fluctuations. For like your thesis not playing out. However, after giving it after giving a company ample time to play out its thesis, if it’s not working out, if for whatever, like there’s been new disruptive technology in the space, there’s new competitors, or it’s just not executing well, then that’s when you consider it’s time to cut and run and time to sell the stock.

Dan Kline  

Simon Erickson, what can you add here on when you sell a stock?

Simon Erickson  

Yeah, I mean, I agree with what Matt said bad performance, write it, figure out what matters and why you’re buying the stock, not just earnings per share, not just stock price, but like, what, what is this company? How does this company make its money? And what is it? What is it doing? I mean, operational performance and companies that aren’t cutting it. I mean, maybe one example recently is companies that have traditionally served on premise software that have not transitioned well to the cloud, when it’s very clear that workloads are moving to the cloud. I mean, that’s bad performance for a company that should be getting ahead of that trend. That would be kind of just maybe one example, that I would consider a company that’s missing out on a bigger opportunity, bad performance operationally.

Dan Kline

One of the other areas when you sell is if something changes in the company. So like, if you bought, you know, I’ll give a silly example, but you invested in restaurant brands International, because you love the popeyes chicken sandwich. And if Popeyes then decides it’s not going to sell chicken anymore, then that might be a big change for how you want to invest in that company. I know that’s a silly one. Popeyes isn’t going to pivot away from chicken. But companies can make decisions where you don’t like their new direction. And it fundamentally changes your thesis. I’ll give Steve, the last word on this. And then Matt Cochrane we will go to you, you can tee up that comment and add your own question to Simon on it.  Steve, Simon

Steve Symington  

As far as exit strategies go, and not really a strategy, but my buy thesis generally has to be broken. You know, I have to lose faith that the reason I bought the stock in the first place, really all of the above that we’ve talked about already, that the reason I bought in the first place no longer exists. Sometimes that can happen suddenly. And you know, those are the easier cases, you know, with management fraud, where you completely lose faith in management or, you know, weird accounting issues or something. You know, that basically the company is a legitimate that shouldn’t happen. If you really do your homework and you really deeply understand a business. But we’ve all been kind of surprised before the bankruptcies things like that, that are very sudden. But yeah, the harder one is just kind of figuring out for extended periods of time. That you know, of your, your thesis no longer holds and you’ve lost faith that they can execute. And sometimes it’s disruptive new technologies, like Matt mentioned, sometimes it’s just, you know what, it’s time to To cut bait on this stock and you’re stuck trying to reel it in, and that that’s the, that’s the hardest decision to make and really a case by case basis. So there’s no you’ll notice that there’s no specific like, if my stock goes up 100% I’m selling like we don’t do that here. And we’re looking for bigger long term gains. So So keep in mind, this isn’t based on price action, or candlesticks, or technical analysis or anything like that. It’s all about the quality of the business.

Dan Kline  

Buy good companies and hold them for ever by forever. We mean, until your thesis plays out until you reach your goal. So it’s time to retire or buy a house or send your kid to college, you might want to exit some of your positions to pay for those things. That’s why you invested in the first place you were of course, watching seven investing now. I am Dan Klein, I’m being joined by Matt Cochran, Steve Simon, Simon, Eric’s and we are taking your questions. This is an interactive program. It is not just interactive in that you can comment live. You can also comment to us on Twitter, that is at seven that is the number seven investing on Twitter. And we’re there all the time, we had an explosion in Twitter fans, I’ll thank our friend Brian for oldy, who mentioned us as one of his favorite podcasts. And I know my Twitter went crazy, as did the seven investing. So we appreciate that if you want to tweet out this show, tweet out, you know, your affiliate code. If you’re a member, we appreciate that. But Matt Cochrane, you wanted to tee up a question in the queue on Google and add a little bit to it for Simon to answer why don’t you go ahead and do that now?

Simon Erickson  

Yeah, for for Simon or Steve. I don’t know who would be better. But it’s from an investor easy. I think I’m saying that right. He goes, isn’t Google also a big play in quantum computing space, their computer I broken processing barrier? The only thing I would add to that, again, either Simon or Steve, what about Microsoft to I know, they’re doing stuff in quantum computing. But for layman like me, sometimes it’s hard to like discern like, is this? Like, Is this real? Or is this just more like a PR push show? So let’s say you, um,

Steve Symington  

I’d love to take this the so I know Microsoft has been working for a long time on quantum computing technology, and that the trick is to make this broadly useful. Technology. And that’s, that’s really difficult. So in Google’s case, the the, what he refers to when he’s saying their computer broken the processing barrier. Google, I think it was like last year, they claimed quantum supremacy, right where their quantum computer had achieved a task that was virtually impossible for even traditional supercomputers to to achieve they, they completed some super complex equation, computation rather in like 200 seconds. And, and the same calculation, I think, would have taken like 10,000 years for even the world’s most powerful supercomputers to finish. So that was, it was really interesting. But it was a very, very limited in scope application. It wasn’t useful, really, in the real world. They’re just saying, hey, our computer did something supercomputers couldn’t. And what’s interesting about say the company that Simon recommended is it’s kind of the first like pure play quantum computing company out there. So Google and Microsoft and and some other big computing giants definitely have their toes dipped in quantum computing waters. And I think Google had a follow up experiment where they kind of scaled down it’s like 12 cubits or something. To solve, like a chemistry equation, that would be more useful, but it’s very, very specialized right now. And the real breakthroughs are going to come when they can make this broadly accessible and to be able to handle whatever kinds of amazing problems they want to throw at it. Like today’s traditional supercomputers or even just personal computers, which would have been considered super computers. 40 years ago, right.

Dan Kline  

My first my first computer had a tape drive, like literally a cassette tape. That’s like, you could like play Space Invaders and type coming to theaters June 2024. Avengers, quantum supremacy. No, that’s probably not going to happen. But but that quantum supremacy feels like a really ominous term. I’m not sure I like that one.

Simon Erickson  

It’s, it’s hard to write because I mean, so often, I mean, for years, again, for, from my perspective, from like, a lay person’s perspective. You know, for years, you hear about AI and all you heard about IBM Watson and how great IBM Watson played Jeopardy and it being champions are like, wow, this is gonna be like the big big thing. And it wasn’t, you know, and it’s just hard sometimes to discern like some like silly little things like these tech companies can like train their computers to do and like, what’s going to be really useful and what’s, what’s not. That’s the question, man, I mean, like quantum computing race right now. It’s kind of like the the Olympics for swimming. You know, you kind of had everybody that was incrementally shaving a half second off each other’s time. And all of a sudden, the quantum computer called Michael Phelps jumps into the pool and just obliterates everybody. He’s just so much better. faster by several seconds. I mean, we’re going to talk for quite a few more years about who’s got the most number of stable cubits IBM’s in on this Google’s and on this Microsoft’s own this, everybody’s claiming quantum advantage. Every qubit has error associated with it. And so you really need to error correct to make a quantum computer useful for commercial applications. And to do that, we might still be making these incremental steps for a couple of years. But the real game changer is going to be when you actually can error correct. With completely different architecture than what’s even available out there. I am Chad has been around for decades, right? Honeywell is working on something I bet you know, there are companies that are looking 10 years in the future already VC funded, that could completely put all of that irrelevant. So I think to answer your question, there’s a lot of PR and hype in it right now. But there’s going to be a pardon the pun Quantum Leap that happens here the next couple of years in this field.

Dan Kline

NBC bring back quantum leap. That was my favorite show of all time, Robby shot, we appreciate you stopping by and saying hello, we always like when we get fun comments. I’m going to take one from Andrew H and then we’re going to take a question on AI that Steve is going to answer. Andrew h says if you pick two or three sector ETFs for the next five to 10 years, what themes would you go with cloud FinTech? For example? I don’t think this way I’m gonna I’m gonna feel this one myself. Like, when you invest in an ETF, you are almost always also getting exposure to companies you don’t want to own. So I’m not a big fan of the chase the next big thing sector way of thinking, like, Are there good companies in cloud computing? Absolutely. Are there a lot of them? probably true. But are there good companies in retail, or cannabis or other spaces where if you buy an ETF, you’re going to get a lot of drag that you probably don’t want, what we do here at seven investing is investing in individual stocks, we do the homework, we give you our picks, and you can create sort of your own ETF by buying multiple things in an area that you’re intrigued in. If anyone else wants to weigh in on this, please feel to jump in. I’m not bagging on ETFs or investing this way. But anytime I look at an ETF holdings, there’s always like two things that jump out of like a you know, it’s like, it’s like you get the meal and it has like one ingredient on it. You don’t want it ruins everything. I kind of feel that way about ETFs I’m getting a lot of head nodding. So I’m gonna address everyone agrees with me. It’s tough, Dan. I mean, like so

Simon Erickson  

Many ETFs they need to have something quantitative to track for the allocations, right? There’s an algorithm that is waiting the ETFs constituents based on something they can look at a number it can look at. And most the time it’s market cap, right? So some of these ETFs are just over allocating to the largest companies. As an individual investor, you don’t have to do that you can go out and say, hey, I want the 17th largest position in this ETF because I think that’s the hidden winner from this trend. Sometimes a lot of that is kind of lost when you just do everything algorithmically.

Dan Kline  

Yeah, and especially in emerging spaces, like you know, if you look at you know, space, or cannabis or places that are really emerging, a lot of companies are going to fail and you don’t necessarily want exposure to companies that you can look at and go the only path to success here is a major change in the law or an acquisition that is not really where you want your money to be. We’re gonna take one more question here. Steve, I will let you introduce the question as I’m not sure if you want to take the whole thing or just parts of it

Steve Symington  

Sure. And then of course display it’s it’s from Jay he up about love Steve’s thought on AI been watching since before the IPO about when it was under 100. And again, today, news seems good dropping pricings over emotional and missing something. Now, when he talks about AI, he’s talking about C three.ai. This is an artificial intelligence stock and people who follow me know that I’m interested in that space and I like that stock I own it. And I agree it’s its latest quarterly results are really solid, but this is post IPO volatility and a combination of steep valuations and the really steep pullback in so called real or growth stocks, SAS stocks relative to reopening plays, so I don’t think you’re missing anything here and it’s a really interesting company. So most certainly,

Dan Kline  

It has been a marathon. We appreciate so many of you watching. I’m going to say it again. Tune in for Monday’s show. There’s going to be something special on Monday show. It is not one you want to miss but Sam Bailey let’s tee up our finisher we are up in the top row ready to drop an elbow here. Which of these is the best investment? Well, you got it sort of right for only 4.7% said dish. This is a terrible investment. satellite television is being supplanted by over the top internet driven television. There’s very few people who still need a satellite dish so satellites used to be marketed based on this is the alternative to cable a way to not have to pay a traditional cable company. at&t wasted a whole lot of money buying DirecTV about an hour before This whole trend took hold. I’m teasing a little bit about the timing. But I would not invest in either of those. My personal choice here by far is T Mobile. We talked about them a little bit at the top of the show, T Mobile going into internet T Mobile betting heavily on having a good customer experience. That to me, now I don’t own T Mobile. And here’s why. It’s an endless infrastructure investment. Like the second 5g is rolled out, people gonna start talking about six G, and then holographic seven G or whatever it is. So I look at the sort of like, way the company has to invest. And that does scare me off because right now they are incredibly well run. They had john this year as their CEO. They had sort of his Lieutenant Mike Seaver it took over. It’s a different style, but he’s done a really good job. I’m not so sure that that run can continue. And to succeed in this space, you absolutely need to execute incredibly well, Matt Cochran, Simon Erikson, Steve Symington, and do we’d like to weigh in, is there any comments?

Simon Erickson  

I’ll weigh in like so. I mean, T Mobile is a great company. But as a PE ratio of about 50. You can get Verizon for about a p rate, PE ratio of about 13 comes with a four and a half percent dividend yield. So I’ll take the reason for this poll.

Steve Symington  

I think they kind of serve different purposes, really, you know, T Mobile sort of being treated like a grill stock for the reasons you, you. You mentioned earlier, and I think that’s part of the reason why the markets, sort of demanding a premium or providing a premium valuation for it. But yeah, Verizon is more of a steady, steady play that pays a pretty healthy dividend. And I think maybe it’s two different kinds of investors who pursue them.

Dan Kline  

I have one major rule when it comes to investing, I don’t invest in companies that treat their customers poorly. Verizon and AT&T do not treat you well, I would argue that both of them are sinking ships, great dividends. But T Mobile is growing by over a million customers every quarter. And they’ve done that for like six or seven years, I forget the actual number that’s not counting the sprint addition. That’s their organic normal growth. So again, this is not a space I particularly want to be invested in. But if you had to pick one, I’m always curious to take sort of the temperature of the market. We appreciate so many of you voting in that poll. And guys, that finishes up this episode of seven investing. Now this ends our week. We all of course, Simon, don’t give another plug for the podcast, you’re taping after this because we’re not done. We’re just done live.

Simon Erickson  

We’re chatting with CryptoEQ. Steve, and I’ll be talking with our advisors about some impacts of crypto currencies, on the public equity markets. And then on Monday, like he said, Dan, we got some pretty big news to reveal on 7investing now. I’m excited about that as well.

Dan Kline

If you would like to get a hold of us, that is very easy. info@7investing.com is our email address. Usually Steve answering that that’s questions about your membership questions. You’re thinking about joining, you know, you have some sort of process question. It’s not really a place to say like, Hey, could you look into this stock. If you want to interact with us or throw out some ideas, you can do that at @7investing on Twitter. We are very active at twitter. We really appreciate if you’re watching the show and you’re enjoying it. Tell people you’re watching the show and you’re enjoying it because we want to help as many people as possible and that’s what we’re doing. We’re empowering people to invest in their future. So this is this is the end of our show today, but we’ll be back Monday. I’m Dan Klein, for Matt, for Steve, for Simon. We’ll see you Monday.