In this conversation, 7investing Lead Advisor Matthew Cochrane sits down with Ryan Krueger, the co-founder and CEO of Freedom Day Solutions, a family-owned and operated financial advisory firm located in Houston. Krueger believes that there are countless and confusing ways to plan for retirement. Even at their best, a withdrawal rate based on a projected return is a guess, sometimes based on just a little more than hopes and prayers.

Krueger thinks there’s a better way to plan for retirement, built around a portfolio of assets that pay income to the investor. Investors then realize their “Freedom Day” is when the cash flow coming in exceeds their costs (needs and wants) going out. To help investors reach this goal, Krueger has launched the Freedom Day Dividend ETF (NYSE:MBOX). The MBOX ticker is a tip of the hat to dividend checks that used to hit investors’ mailboxes at regular intervals when invested in quality companies that paid dividends.

The Freedom Day ETF is designed, as Krueger explains, to give investors growth of income, not growth or income. Krueger believes the ETF can accumulate a stable of quality companies that pay a rising dividend while avoiding many of the common pitfalls often associated with income investing, namely:

1. Not investing in companies with the highest yields;

2. Avoiding companies that nominally raise their dividends every year to please income investors;

3. Not investing in companies with unsustainable payout ratios.

Along the way, Cochrane and Krueger discuss several of MBOX’s holdings, including EOG Resources (NYSE:EOG), Domino’s Pizza (NYSE:DPZ), Broadcom (NASDAQ:AVGO), and Tractor Supply Co (NASDAQ:TSCO).

Krueger can be found on Twitter @RyanKruegerROI and you can find more information on his advisory firm (and excellent blog) at freedomdaysolutions.com. For more information on the Freedom Day Dividend ETF, you can visit freedomdaydividend.com.

Transcript

Matt Cochrane

Greetings, fellow investors. I’m Matthew Cochrane, a lead advisor at 7investing, where it is our mission to empower you to invest in your future. We do that by providing monthly stock recommendations to our premium members and educational content that is freely available to everyone. Listeners, today I am very excited to introduce Ryan Krueger.  Krueger is the Co-Founder and CEO of Freedom Day Solutions (www.freedomdaysolutions.com), a family owned and operated financial advisory firm out of Houston, Texas. He writes excellent blog posts on a site that I always enjoy. He wrote a chapter in the book “How I Invest My Money”, and he’s also starting an ETF ticker symbol, MBOX (NYSE: MBOX), and we’re going to talk about that a lot today. He’s one of the most entertaining and informative follows on FinTwit. But more than that, he’s just going to be one of the most nicest and most genuine people you’re going to find on Twitter. And he can be found at @RyanKruegerROI, where you can find him posting on everything from gratitude and sliced bread patents, to dividends and disruptive technology. Ryan, welcome to the show.

Ryan Kreuger

Wow, that was the kindest intro from one of my favorite people. Thank you, I’m thrilled to be here.

Matt Cochrane

Well, thank you for joining us, and for those who don’t know, like, I enjoy my interactions on Twitter very much. And I enjoy everyone who who DM’s me and comments on my posts. And I love the back and forth. But there’s maybe two or three people who from Twitter who I consider real life friends. And Ryan, you’re one of those people. So I’m, I’m thrilled to have you on today.

Ryan Kreuger

Well, you and I and our relationship’s are a great example of the what’s good out there. And if you live in a world of abundance, and I’m look, I’m a digital dinosaur. I will never forget walking back in after my intern asked me to post something on Twitter for the first time. And this is only a couple years ago. Right? I had to ask it what is a notification. I and somebody had taken one of the blog posts and shared it. And all of a sudden I had a lot of new friends but but a very few, like you just said, who there’s a true interaction back and forth. And I’ve never had, and I maybe I’m an oddball, but I’ve never had a bad experience. So for all the negative, I guess you can find that if you want it to, but I have nothing but positive experience and sharing. And I am in this relationship I owe to that. So I’m grateful.

Matt Cochrane

Yeah, absolutely, absolutely. Ryan, how about we just start. Tell us about your career. I know you started on Wall Street. But your story about how you got from New York to Houston is very interesting. So why don’t you just share that if you don’t mind.

Ryan Kreuger

Well, I interviewed somebody 15 minutes ago just before jumping on here, and I made my confession and my fondest wish for her, or anybody, is that they will never have to use a resume again. And that comes from a very bias point of view. Matt, I never, a little bar room trivia on me, I never produced I never had a resume. So with zero other interests out of school, I was a rabid stock market nerd from junior high on, that’s what I wanted to do and figure out. I was immediately told we have zero interest in hiring somebody without a network or with no experience out of college. So I was refused the interview. And so I never had the need to produce a resume. But I wrote what I call my, to this day, a hail mary letter. Not advice, doesn’t always work, but in case it helps anybody out there at least be a little more relentless. I just simply asked if I could come and visit with anybody at the office. And I very politely was able, thankfully, to a kind gentleman there, able to do that and I never left.  And I agreed to start at the minimum, start in the mailroom.

And I spent the next 14 years at what was then the largest global bank brokerage, I was on the professional money management side very early on. So I was able to research stocks, manage the discretionary portfolio, so thankfully, and a lot of luck, to not have to go through a whole bunch of different jobs and mazes. And that’s not for everybody. I think a lot of folks will benefit from a host of different experiences. For me portfolio management was what I wanted to do. And thankfully, I was able to learn a lot early on. And then in 2006 launched our own firm and left, and that’s where I still sit to this day. And now we’re super excited and fortunate for the next phase to be able to open up a couple of offices outside of just Houston and turn this into a national brand.

Matt Cochrane

Excellent, excellent. So now tell us about this new ETF the symbol is MBOX. And I’m sure you can tell us with the significance of that ticker symbol. But like tell us like, yeah, just give us your, why the need for another ETF? And like what are you? What’s the philosophy underlining it? And how did it get its name?

Ryan Kreuger

Great question as you always do straight to the heart. And if people are, are always surrounded by your politeness, I will add the directness of your question there is absolutely no need for another ETF, let me be clear, there are too many of them. I am my entire career of 25 years, we’ve never launched a product, we’ve never owned an outside product or fund a fund to fund any of these complicated solutions of any kind. So the answer to your question, I had zero desire to join in that complexity or confusion.

But because of the advisory side of our practice, and because of humbly learning for all those years, what good old fashioned families, investors biggest need was, I think there was a problem to solve. So I wanted to solve a problem, not create a product. And in our opinion, that is going to be an increasing need for, rather than another growth ETF or income ETF or allocation or more confusion and more questions. I think people are going to need growth of income, not more choices for growth or income.

So to answer your other question, MBOX is our polite tip of the cap to the folks who made this possible that hired us over the last several years to give them good old fashioned mailbox money as we call it down here in Texas. And that concept, needs to be more universally understood. And yeah, it’s simple, and it’s old fashioned. But you know what some simple and old fashioned things stick around for pretty good reasons, and the name of it is “Freedom Day Dividend”, which means a lot to us, because we want to completely turn upside down this notion of retirement planning, and a date and an asset number. Rather, the day when income to that mailbox is in excess of invoices going out. So that is our definition of Freedom Day. And I do think it’s achievable, because I’ve seen it.

Matt Cochrane

Excellent. Excellent. And so let’s talk about your philosophy for a little bit. Because, you, I’ve heard you before, and I mean, I like I’ve read your material, and I followed you. But for those who are not familiar with you, like, why is that so important? Why, like, Why? Why is getting those, those more figurative checks in the mailbox is like more important than like, a growing portfolio or things like that, like, why do you consider that so important?

Ryan Kreuger

Well, I never think, and I think this is a mistake for a lot of investors and portfolio managers, certainly, in the business of selling investments. And that’s not what either one of us do. We’re sharing ideas, but this should never be about what I think, or my prediction, or my belief system or my bias. I happen, the answer to that question happens to be as a result of simply learning.

So for 25 years, I’ve had the opportunity to manage aggressive growth portfolios, I’ve had the opportunity to manage a long-short hedge fund with the most complicated options futures. I’ve, touched and seen and done it all. And, thankfully, all successfully. And I don’t say that to brag, because I closed some of those down. The reason is that simplicity was the Holy Grail. In my opinion, there’s one metric that has stood the time for 200 years. And I just learned, I kept digging, and there’s nothing in the world wrong with, and why do you think I listen and follow you, I want some growth assets. The need, we fill, and the biggest problem for the most number of people that I think is hardest to solve, though, is rising income streams where you don’t continue to have to speculate and grow assets more and more and then one day, and then the real problem out there, I think for financial planners is going to be I think this withdrawal rate from growing assets is in significant trouble over the next 40 years.

And we’ve had tailwinds at our back from a bond market and fixed income for those plans that we’re not going to have over the next 40 years. And I’m also biased by learning and humble to know that stocks don’t always go up either. I mean, the day I got married to the probably the biggest secret of my success, the most important either one of our plans, as I always say is who we marry. The day I got married, the stock market was exactly where it started 12 years later. So the big, big answer to your question is, what if people are counting on, and they’re not in the net accumulation aggressively saving, and it doesn’t matter, I’ve got all the time in the world, at some point, whether it be near halftime of somebody’s life or when they eventually want to be reunited with their money, they’re going to need the ability to generate free cash flow.

And if that’s one of the simplest and best ways to look at a company, why not look at an investment account and demand that of your own plan? The same way we know works for companies. And I don’t think enough investors are asking themselves that question, where’s my free cash flow?

Matt Cochrane

Right, right. So like, I mean, and to your point about like getting married, and then like, 12 years later, the stock market was the same place, like so at the depths of the 2008-2009 crisis, if you’re retiring, you know, then and you have seen this, like huge drawdown in your portfolio. But oftentimes, those companies if they’re paying dividends that they did not see, you know, if you’re just, if you’re living off the income from those dividends, you’re, you’re doing just fine.

Ryan Kreuger

Yeah, that chart that I keep on the corner of my desk for a lot of different reasons. And next to one of my many favorite trading quotes is, “no matter how elegant the design, occasionally check the results”. And that lesson is, no, the stock market doesn’t always go up. And there are a lot longer periods of time than most bulls or bears like to really think about, that it goes nowhere. And I think that’s the most unasked question. It’s not a prediction, by the way, it’s just a real, it’s the math that we need to solve for. So over that period of time, one of many different stocks hiding in plain sight, that, you know, for all the correct concerns about no active manager being able to outperform an index, the S&P (500) being the most popular one, I just hit that, you know, very serious and valid concern right off the bat is, rather than promising any sort of track record to make a prediction, I would just look at the parent company of that index, S&P Global, that raised its own dividend every single year, during that period where the S&P that everybody was staring at, did nothing, let alone periods where it goes down a lot. There’s a lot of investors that aren’t even familiar with the parent company itself. So do I believe in passive investing? Absolutely. I want to own the whole store.

Matt Cochrane

Right, right. Right, right. So a lot of times growth investors, they criticize stocks that pay dividends, like saying that companies that pay dividends, they don’t have other ways to invest their money, implying that stocks that pay dividends, like their growth days are over. Like how would you respond to that?

Ryan Kreuger

I was one of those. Matt, I think that’s a valid concern. And I think there are a lot of companies where that is absolutely correct. And the real, the work where we started rolling up our sleeves to start separating companies no different than you do on the growth side, is which companies are aggressively growing their dividend and yet there are companies that are making more cash than they can put to work. They are investing, so I want to look at R&D. Are they reinvesting? Are they aggressively adding future growth? Are they paying down debt or buying back shares and they still have enough left over to reward stakeholders? I think it’s a valid concern. That’s why there’s so many dividend companies I want nothing to do with, but the best clue I’ve ever found, in all of those metrics and we still use three dozen to score every one of the stocks, is if you’re increasing that dividend consistently.

That shows me two things, improvement in a company and how they think of and treat stakeholders. Which yeah, it’s an old fashioned idea anymore, but I actually think now more than ever, when there’s a lot of questions about what is real in investing. Never before have those questions been crazier than right now in my career. A dividend is real, I can hold in my hand for over 200 years, that matters a lot to people that some of them don’t want to ask all these questions about the stock market and that is a simplifying clue unlike any I have found.

Matt Cochrane

You know, one of the, when I was early on and making several mistakes in investing, one of one of the mistakes I made at a certain point after getting burned by like story stocks and things like that is I was like looking at dividends. I thought this is way easier than like trying to find out like what the next big stock is. I’ll just pick the stocks with the highest dividend yields, like that’s that’s easy, right? So the stocks paying 8%, just mark it down, I got 8% returns like going into perpetuity. Um, why is that not a good strategy? Why can’t investors just pick like the stocks with the highest dividend yields?

Ryan Kreuger

There’s a lot of reasons, one of the simplest way to describe it, I call it my Don Vito Corleone discipline, what have I done to earn such generosity, those yields, no different than a lot of other businesses, if you think about it, if they are the ones flipping the signs on the side of the street, try to attract your attention. I’d rather find the store or the restaurant right behind them that isn’t advertising and has a line out that there’s high yields that are not growing, are one, they’re not very exciting. And you’re right, and there’s not a lot of potential. Oftentimes, they’re the biggest red flag for underlying issues, they may be funding that dividend with debt, not growth at all. And that’s one of the ways that we would separate, and I think even some of the very popular dividend strategies, the most popular of all being the Aristocrats and the Dividend Kings, that one of the many reasons that we launched this ETF is I think there’s a better way, some of those traditions of just keeping the dividend for the sake of selling customers that story.

If you just pull back even a little bit of the curtain and do the math, if that dividend is growing from debt, not operating revenues, that’s a problem. If there’s no free cash flow, and they’re sending you free cash flow, that dividend is not sustainable. So we look at not just the payout ratio, which is a popular measure from earnings. But we would much rather find the payout ratio from free cash, which is a little harder stress test on a dividend. And we want plenty of cushion to not just support the dividend, but that it grows.

And one of the most misleading parts, another secret hiding in plain sight, Matt, is for you know, one of my favorite charts as you take a popular dividend yield of 4%. And a very boring, only 2% dividend that’s growing faster and show the crossover point, we’re actually getting more as a stakeholder in your hand, I sent you one of those, I was like, you end up with more money from a company that was only yielding 2%, over 10 years than one that was consistently yielding higher. And that’s very confusing to a lot of folks unless they follow the very simple mailbox math of the actual dividend payments held in your hand. And you can make more money from a low yielder, if it’s growing faster.

Matt Cochrane

Totally. You brought up payout ratio, explain what that is for, investors or people who might not be familiar with that, like what is that?

Ryan Kreuger

Well, so you know, in a lot of these simple online services that folks, and some of your subscribers are more sophisticated than a lot of analysts I left behind on Wall Street, I really do mean that sincerely. I mean, they’re gonna be able to find easily, you know, payout ratio. And typically, and traditionally, that’s from earnings. So I want to be real clear here. And so and so you could see, frankly, some of these big yielding companies, they may have a 500% payout ratio. That’s a problem, that means they’re paying out five times in a dividend of what they have in earned income. So if it’s 50% payout ratio, then they’re paying out a dividend that is very well supported, right, they have $2 of income, and they’re only paying out $1. That’s a 50% earnings payout.

What I do that takes a little bit more, that’s not quite as readily available as I just want to make it from free cash flow. So the same math if $2 in free cash flow is coming in, and if they’re paying out $1 free cash flow, that would be a 50% payout from free cash. And if you have an aggressive growing dividend, and a low payout ratio, you have a really good clue of future potential, especially if it keeps growing for more increases. And that’s where the real magic of mailbox math occurs. Future increases of dividend, not just the current yield. Does that answer your question on payout?

Matt Cochrane

Yeah, no, absolutely, absolutely.

Ryan Kreuger

That’s one of the best, easiest red flags to look for. There’s plenty of very popular widely held companies, some of them, some of the biggest holdings and some of these dividend ETFs that have unsustainable payout ratios, they will be cut.

Matt Cochrane

And that’s, that is you were striking out like one of the the heart of like my biggest criticism of the Dividend Aristocrat like strategy or the Dividend King, like which are just companies that have paid like a rising or have raised their dividend for 25 straight years or 50 straight years, is that a lot of times when you look at those lists, you’ll see some of those companies, and you’re like, that company seems like it’s kind of struggling now and instead of just blindly buying it, you know, if you look at like some of those raises over the last several years, they’ll like raise it, they’ll give it a nominal raise. So that, they raised it by one, one cent this year and or two cents the next year, or something like that. When really like, they’re just trying to like, like, they feel the need to keep that that strategy going because they want these investors in their company, but at the same time, like they would the business would be much better served by even, one just stop raising their dividend or you know, two like even cutting their dividend to invest in like other areas that they need to

Ryan Kreuger

That’s a great clue that you just hit on the head, if you see a 1% or even less than 1% dividend pay raise, you should immediately know that’s for show. And, and that starts to pull the curtain back on on one of our bigger differences I suppose with a lot of the professional community, talking about how wide is the moat, and some of these traditional companies that have a big advantage, and they’ve always had a great company. And they have a big advantage, they have a big dividend that is less interesting to me than the direction of the moat. So a big dividend or a big company that is no longer growing. You know, the thing about moats is they can spring a leak to and you can start to see that the numbers.

And I just, I just watched the math, I don’t try to predict futures of businesses, but you can start to see erosion in moats. And I’m much more interested in a lower yielding dividend with a big increase than I am a fat dividend and a big moat, with as you just said, a very tiny increase just to keep the tradition alive. That comparison, right there is a giant difference. And the other thing about big moats, is they attract crowds, whether it be competition, that won’t allow it to continue, or investors have crowded into that moat, and they’ve bid up shares, and they’re too expensive. So I’m much more interested in the direction of the moat than the size of the moat.

Matt Cochrane

Absolutely, absolutely. Let’s, let’s talk about some of your holdings in the ETF. And just looking at like your top holdings. Can’t help but notice your your first holding is EOG Resources (NYSE: EOG), which is an energy company. So is this just like a Texas guy who likes energy? Or what’s the story here? What Why is EOG the top holding in your portfolio?

Ryan Kreuger

Well, so and I don’t have a cowboy hat. I’ve never worked in a field, I’ve actually offended many, many of my oil buddies down here in Texas, I didn’t own energy companies for over a decade, it was very clear that there was a secular decline and a lot of problems. And as we just talked about a lot of the math would made it really clear, especially on some of the big ones that they were feeling, whether it be dividends or growth projects with debt, and their operating revenues weren’t there and there was a lot of problems.

But no different than obvious advantages, problems can get really crowded too. And it became so obvious that in my 25 year career, I’ve never seen an industry with such obvious questions and issues. At the same time because of ESG, literally forcing institutional shareholders to sell. Whether it was the worst time in the bottom or not put that aside, but forced selling should be just as curious as everybody knows about bubbles and how they inflate from buying without questions. Well, if you’re selling without questions too, at the very least I pulled up my chair with a sharp pencil and reexamined some of the businesses.

So to answer your question, this was not a bet and we’ve made it our largest position. I think anybody’s largest position, if they’re doing this on their own should be the result of an output, not an input. So the portfolio starts balanced. And the fact that you’re seeing right out of the gates, that it’s a little bit larger than others. And you’re correct. Currently, I think that and I’m just, if none of my predictions that I’m about to share or curiosities work at all, the math still suggests that there’s some really, really good free cash flow, dividend growth stories, sitting right under our noses that we’ve completely ignored and energy went down to something like 2% of the S&P 500. And literally given up for dead.

I wonder, and one of our projects in the next several years, I think it’s going to be very surprising if some of these dirtiest companies. By the way, they’re not all bad, and they’re not all run by evil capitalists. Who might know better than the rest where the problems are to fix. I don’t think ESG has all the answers and I do think there will be some old fashioned dirty companies that could be part of the solution. So, look, I like you, I have a bunch of kids, I’m more interested in anybody in this planet, being the safest, healthiest, happiest place for many generations to come. I’m just not eliminating from consideration that we know exactly who the problem solvers are going to be. And I have an open mind. And the math says, we’d get paid pretty well solve some of these problems.

Matt Cochrane

Sure, and I agree with you, me, and those energy companies have definitely been beaten up in recent years. I think the first company we ever talked about Ryan, on Twitter, and I think this is how we met, but we were talking about Domino’s Pizza (NYSE: DPZ). You know, and like, I think it was a comment that I put that it’s the only place I can get dinner for my entire family for for about $20 bucks. And then you were showing me your your Noid souvenir or memorabilia that you’ve got on eBay before we started recording, but like, so let’s talk about Domino’s.

Ryan Kreuger

Well, as a as is often the case, and one of the reasons we collide and a lot of fun rabbit holes. And that was actually a historically successful growth stock for many years, that is a phenomenal success story. And the rabbit hole I happen to be on, believe it or not, was just the history of the founder. And how you and me are going to make sure our kids have uncomfortable summer jobs like he grew up doing and what in the world has changed between that generation. And that story, and his story that I humbly shared and learn from. Again, this wasn’t a stock recommendation or pick, it was me learning and along the way. And that’s just the, if we happen to be able to figure out some places to invest or that opens up another door to another rabbit hole. I just happen to find that research so much fun. And I think that’s what makes your group so special too, you can genuinely capture the excitement, the optimism, this can be a lot of fun, the work. And that’s a wildly underrated business idea, by the way in any industry. So Domino’s and I love that heritage, that culture. I think something like 95% out of all the franchise owners start out as delivery guys.

Matt Cochrane

Yeah, yeah. They start off in store, yeah.

Ryan Kreuger

And they became such an unbelievable turnaround story, which was the reason I shared that. I mean, they were universally voted, this was many years ago, as the absolute worst pizza. And they not only dug in and said how can we improve this, they literally rented out billboard space in Time Square showing they were the worst and tracking their progress. Humility is a secret ingredient. And that caught my attention. The growth did but then when they started turning into a free cash flow generating machine, this is a good example of, I mean, you’re not cherry picking one of the better yielding stocks and the holdings we have it’s one of the lower yielding. But when you’re growing your dividend at 15% or 20% a year, your dividend in five years or 10 years could be higher than that big utility or higher yielding stock is today that never grows. So that only 1% or 2%, the math is quite clear. You could have a 5% dividend in a few years or more. I mean, we have, and you probably do to some of these great growth stocks, if you just, if the stock goes nowhere, if the stock market stopped going up, I mean, you can have double digit your dividend yield for the rest of your life and growing. That’s appealing and overlooked math. That’s why we call it the mailbox math.

Matt Cochrane

And it was such a great story like, I was actually listening to this this podcast series on Domino’s and like their history. And so like in 2007-2008 they were already kind of struggling, consumers weren’t liking their pizza and there was like, a very early on like social media scandal they were involved with because two of their workers recorded a video of them like doing like, horrible disgusting things to a pizza. And like the story is like that pizza actually never was delivered. Like these workers were just making like a prank video. Like, it was like blowing their nose in the pizza or something, you know, stuff like that. And so like online, like people were like, well, the comments on like that video were just brutal. I mean, just completely brutal. Like, this probably just tastes like any of their other pizza’s that go out and things like that. And that’s when they knew they they really had to change things and like, you have to give them credit for that marketing campaign. Just how they were like, like they would hunt down customers who left them really negative reviews, and like say, try our new pizza, you know.

Ryan Kreuger

He was a servant leader, the guy who gets a lot of credit for that, Patty Doyle, I mean he started out with that post started out, like he was a busboy. And it’s how you take care of people. He didn’t start out as a CEO. And it was also a post to inspire folks and to give permission maybe to young investors or young workers that are sitting around with a bunch of empty pizza boxes, trying to figure out the next great idea. And it might be the empty cardboard box right next to you

Matt Cochrane

Right, right. Yeah, for sure. For sure. For sure, yeah. But it’s a great story. I mean, even today, like in your neck of the woods, they’re experimenting with autonomous delivery, like pizzas like with like this robot with like a pizza warmer in it. And they’re like, they’re delivering pizzas that way, but you know, they never. What I love about that company is they’re never afraid to experiment with things like that. And some of them are probably more gimmicky than practical. But I love the experimentation that they do with just like different delivery techniques in their app, they have zero click app, which, before we moved a few years ago, my wife would use where she knew exactly where in her commute, to hit this button, so that when she passed by the store, she knew the pizzas would be ready. And it’s just like, you save your preferred order from your preferred store and just click the app and it starts a timer. And when the timer goes down, it just automatically orders your, your saved order, you know, and she knew exactly where on the highway to hit that. And she wouldn’t have to look at it again. And know she could just stop on the stop out at the nearest store when she was coming home. And the pizzas would be ready.

Ryan Kreuger

It really turned into a technology and efficiency marvel more than a pizza recipe that worked. And some of the best advice I’ve ever gotten as a business operator is give me an execution guy or gal over an idea guy or gal any day because they’re very, very low supply.

Matt Cochrane

Absolutely, absolutely. Um, another store. Another company you hold is Broadcom (NASDAQ: AVGO), which is a technology company. But it’s often overlooked, you know, and it’s like kind of like one of those sneaky semiconductor companies that you don’t hear much about, but has delivered great returns for shareholders over the years.

Ryan Kreuger

Well, this happens to be a story near and dear to my heart. But I’m loyal to no background. And I think it’s a great example of companies that can change. And I’m just interested in the math, but the fact that I go a little bit ways back and it’s a good example, I’m sitting in 1999, early in my career, literally on the edge of the pin about to pop the technology bubble. I could have only known this in hindsight, obviously I didn’t there that day when I’m in my fancy Wall Street suit trying to impress a new client completely oblivious at that time. I didn’t, I’m a Texas kids, I didn’t know what Buck’s Restaurant was sitting there in Woodside where all of these companies that we now read books about were formed or a lot of them, the Tesla prototype was in the parking lot. All of these different internet companies were on napkins all around these tables.

And I’ll never forget this the morning because the humility that I was sitting with is a lesson I’ve still learned, something you and I have in common and it is absolutely a good, a good piece of any investors playbook. That guy that day said I’ve had enough. I know I need to diversify, I know I need to balance. I was fortunate to be recommended, because I knew other things besides technology, which is all he was surrounded by. And he had just sold his company to Broadcom. And that was at the height before they all crashed. And that day, the largest private real estate transaction right up the hill, consummated in what we now knew and looking back was I was that was the day that that particular bubble started to burst.

And had I been a believer in technology or semiconductors, or dug my heels in and just studied an industry or stayed biased in any way over that period of time, I’m not sitting here with you today. Instead just having an open mind and being curious and many, many, many years later. That same company appearing through some of our quantitative screens that just push us candidates, that this math is changing, this business might be changing before people recognize it and they turned into a cash flow generating machine, recently qualifying on one of our stock tournaments that we hold when these tickers stop moving around on Saturday mornings when I get a couple of quiet hours. You know, it was a, it was a five tool prospect as I like to say, when it exceeded expectations bottom line, top line, raised guidance and yet was still cheaper than the market and outperforming their sector identifying possibly an uncrowded and still misunderstood story and they’re not alone.

But to answer your question that was that’s one that I was I smiled at when I saw come through the tournament 18 years later that I got to reunite. And I think more than the stock, it should be a lesson to anybody that that active management has a lot of upside, and open mind, and the fact that companies change, as long as you have strict sell disciplines. That’s the best of active management that things change. And you should have buy disciplines too.

Matt Cochrane

And let’s talk about one more of your holdings. And that’s, we actually talked about this today on our show, was Tractor Supply (NASDAQ: TSCO). And you told me before we started recording, they didn’t close one store for one day during the pandemic, is that true?

Ryan Kreuger

That’s true, to the best of my knowledge. And we did have it confirmed, I wasn’t at every one of those stores. I do have a house full of pets and people. And we do serve a lot of gentlemen farmers, that is funny, the folks that worked their tails off to get off the farm, down here in the south. And when I have a few bucks, their fondest wish, is to get the heck out of the city and to go buy a little farm. And that rural movement in some parts of the country, I guess might still be chuckled at. But if you look at the migration patterns, and if you study the U-Haul indicators like we do, it’s real.

And I don’t like to ascribe any extra credit or even feel comfortable talking about these, these pandemic stories and what was pulled ahead or pulled forward. I think some of these facts that were in place and desires that were in place, the fact that they may have been accelerated and more people found out about all these people moving to the country, you certainly may have made it a more popular story. But this was underway for a lot of good reasons. And I’m here in Houston, and, you know, several million of my closest friends and mosquitoes in this swamp, there’s a lot of good reasons that people like to get into rural, less crowded spaces. And these stores are doing phenomenally well, serving folks with some of the simplest of needs. And that was, I think they have a lot of room to go still too. I think open spaces and migration patterns in this country over the rest of our lifetimes is going to be fascinating, and they won’t be the only ones to benefit from it.

But you need to start drawing circles around, you know, not just the big bank in the city. But who’s the only bank out here? Those businesses, and a lot of them we drive right by, as you said, and you know, when you when you got to be stuck in one of those. Actually, I shouldn’t say stuck. I don’t know if one of your family members listening, but whatever the event was, the family, the wedding, keep your eyes open.

Matt Cochrane

Right? Well, so I was at a niece’s wedding in Killen, Alabama, which is in the northwest corner of the state as best as I understand the geography. And so it was a lot of driving off the interstate, you know, and it’s a place we wouldn’t have gone to visit normally. But you know what, we had a great time. And then after the wedding, we went to Lake Guntersville, which is also in northern Alabama. And again, a place we would have never, ever gone to like if it wasn’t for this wedding. And yet again, like we had a fantastic time.

And so like but driving back, so you’ll be interested in this. So driving back, we went through all the country roads and things like that, and you start to see these stores that like aren’t in my local area. But you’ll be interested in this Ryan so there’s a 2018 Gallup poll that asked, where Americans would like to live. 27% more than any other category said they want to live in a rural area. And only 15% of Americans actually live in a rural area. So not only was it the most popular answer it was also the biggest gap of people who want to live in a rural area and the people who you know, who want to live but like who actually live. And now with remote work it’s not just people retiring now and like saying like I can go live in a rural area now. It’s also like people like saying like I can take a little bit of less salary and still earn an income and I’m gonna move like you know, I can sell my expensive house in the city or the suburbs and move out to like the the country and buy a house for a lot less and you know and live a better life and life I want to live.

And so Tractor Supply, I mean, for those who don’t know, it sells like agricultural supplies, like you know people move on a country they won’t have a chicken coop and they will need chicken feed in and the supplies to build a chicken coop. And so it sells all those things then it sells like tools and things like that. And Polen Capital, one of my favorite money manager groups that I like to follow, they have this concept called a “moat attack”. And so they say you can never really know a company’s moat until it’s been attacked by a competitor and withstood the attack. So they bring up a few examples. One of the examples they brought up before is that Home Depot (NYSE: HD) tried to make, tried to launch a concept that’s similar to Tractor Supply, about a decade or so ago. And it failed utterly, utterly failed, Home Depot abandoned it after a year or two and, and Tractor Supply has done a marvelous job, not only rewarding shareholders, but obviously, really fulfilling this underserved need.

Ryan Kreuger

And, I think it’s if you’re in a big city, or are not familiar with these drives. It’s also one of my favorite opportunities in the stock market, when you find them. It’s a misleading name.

Matt Cochrane

That’s what I said on my call today. So we’re talking about that today, because they have a horrible name.

Ryan Kreuger

So anybody especially stuck in a city or an apartment, that you may have changed your buying and behavior habits over the last year? Did your pet? So they happen to have a gigantic pet business, you know, another misleading name we were talking about earlier. So Smuckers (NYSE: SJM) is secretly a giant pet food beneficiary. A lot of folks not only took better care of your pets last year, but they have more of them than ever before. And I think there is a common slow secular theme of the beauty of simplicity. And when you are walking your dog out in the country. And things are slowing down a little bit, which is golly, harder than ever to do. But I think I think you bring up a good point. I mean, that’s how, believe it or not, I’m the worst retail analyst in the world. I don’t shop I don’t know anything. So again, the numbers have to come. But Best Buy (NYSE: BBY) was another one, if Amazon (NASDAQ: AMZN) can’t kill Best Buy. That’s when, all this sounds like wait, they should have been in, if anybody should have been in the crosshairs. And Tractor Supply is another great example. I mean, the Walmart’s (NYSE: WMT) the big boxes, those specialty niches and room to expand.

Matt Cochrane

Yeah, absolutely. Absolutely. So Ryan, let’s end on this. When we first started talking, I think it came up that you are a father of five, is that correct? Yes. And you’re, I think you’re the only one on Twitter, then that has more kids than I do. So I’m a father of four.

Ryan Kreuger

And we all said, there’s there’s no different level of crazy from 3, 4, or 5. So you’re there’s no difference between the two of us, four and five. There’s, no we are full zone defense. There’s no difference.

Matt Cochrane

Well, what’s that? There’s like an old joke. Like when you have one kid, you can double tee them. And when you have two kids, you can play man on man defense. When you have three kids, you play, you play zone coverage. And we have more than three kids. It’s just prevent, you just try not to give up any of the big things.

Ryan Kreuger

And hey, no joke. And you we’ve swapped stories about this too. And I share them when I can. They’re some of my favorite little analysts too. And I don’t say that cutely. I say that when something and especially with teenagers, that something’s annoying me, like video games did five years ago, I’m gonna dive down that rabbit hole. I’m going to figure out what’s going on here. And so what I’ve done is make sure that they have to also make a few of their own selections. And sometimes you can end up making more money with your kids, then you try to do for them.

Matt Cochrane

Right, right. So it’s that old. It’s like that Peter Lynch, like Peter Lynch used to say, like to know what stores he wants invested, he’d just take his wife and daughters to the mall. And see what stores.

Ryan Kreuger

That’s right. I remember now it’s just follow them to the couch and see what they’re doing.

Matt Cochrane

Right, or what apps they have on their phone? Or Yeah, what apps they spend the most time with? Or what they’re playing? For sure. For sure. So, like this is kind of what I was going to ask you like, how, how do you teach your kids about investing? This is something I’ve asked a lot of people and so it’s something I think a lot of listeners are very interested in. You know, I grew up my parents, were great parents, but they didn’t know anything about money. And so like I learned at a much later age than I would have liked about investing and, saving things away. So how do you teach your kids about money and investing?

Ryan Kreuger

I love talking about this with you all the time and I’ve learned as much and think that you’re a heck of a father and person too. That’s probably what I like most about you. The fact that we spend the rest of our waking hours down some of the same rabbit holes doesn’t hurt either. But I think you know that the chapter of that book, and he probably had the hardest time doing the sketch for me, Carl Richards, the great artist, I think one of the best lessons.

Matt Cochrane

And that book again, “How I Invest My Money”,

Ryan Kreuger

The sketches, and I’ll make, if you want to give one to your listener, or in a listener, I will share one for your group. If you want to do some sort of contest of the best kid investment idea, however you want to do that. My my job as a dad is I want to make sure this should not be about the investing or the stock picks. So the sketch for me is the, it’s the work that’s more important than the investing. And I think, too many parents are skipping that step. I know they are as investors. So the best way we can do this is at the supper table, and talk about this stuff. That’s number one. So my favorite game there is of all the different great ideas and what I need to learn and stay young. And like video games we talked about. My favorite question at any age is, “Will you try to name”, there’s five of them there, everybody’s got to “name one business that will still be in the same business when you are in my chair as a dad”. That’s a harder question than even most professional money managers would like to believe if they really think about it.

There’s far fewer of those than there are game changing ideas, the game “unchangers”, as I call them. But then the harder sweaty or gritty way. I like to teach him that we’re doing this week. So I’ll get back to you on how well it’s worked. It may be a miserable failure. Who knows? But I said, I’m gonna back you. Not on a stock idea, but we’re going to do a power washing company and we walk through the math of buying the equipment, and the payback. And this isn’t, you know, when we when we do lemonade stands in my family, it ain’t the revenues are the earnings? No, no, there’s a cost of goods sold. We’re gonna give some away, keep some, but we’re gonna walk through the whole actual business. I think hard work is the secret missing ingredient for more kids than when we were kids, because all it’s going to do is make investing even more appealing the idea that, wait a minute, I can get paid while I sleep now. I want to get back to the dinner table and listen to that old man talk about stocks because now I know how hard it was to get that dollar.

Matt Cochrane

Right dollars are not easy to come by. For sure. For sure. Well, that’s a great way to end it. Thank you so much, Ryan. If listeners are interested in learning more about you, where can they find you?

Ryan Kreuger

The same place you and I hang out, as you mentioned earlier, Twitter @RyanKruegerROI. And by the way, that ROI is not their tradition. That’s my tip of the cat. we flipped Wall Street’s version of ROI, which is what’s in it for them return on investment and keeping assets. That’s my polite way of saying this should be turned upside down income, then opportunity and what is the reason to invest? That’s what that ROI means. Freedom Day Solutions is our website (www.freedomdaysolutions.com) and I appreciate, I’m very grateful that you asked about the ETF that’s Freedom Day Dividend (www.freedomdaydividend.com) symbol MBOX and my personal biggest account so you know where I will be after this and before we talked and what I’m working for. So it’s an honor to share that with you and I’m happy to answer any questions.

Matt Cochrane

Well, thank you again so much for joining us.