The term stay-at-home stocks did not exist before the pandemic, but it’s an area of heavy debate now that we continue to move into different phases of the pandemic. Many investors whether companies like Zoom and Peloton will see growth slowdown or even stop. Anirban Mahanti joins Dan Kline on “7investing Now” to look at some of the biggest questions facing these stocks. In addition, we share some of our biggest investing mistakes and examine some that you shared with us.

Transcript

Sam Bailey  0:09  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.

Daniel Kline  0:24  Good afternoon and welcome to the Wednesday, September 15. edition of 7Investing Now. I go a little slow on that, because we are taping this in advance. My name, of course is Daniel Brooks Kline. I’m being joined in the wee hours of the Australian morning by Anirban Mahanti. Anirban, you are still under lockdown, right? Are there like military guys like right outside your door making sure you don’t like get a delivery?

Anirban Mahanti  0:46  No. guys out here in this part of where I live. But yeah, it’s a pretty strict lockdown. You can go out, get your groceries and you can go and do your exercise. But pretty much everything else is is closed. Yeah, you can go to McDonald’s. Actually McDonald’s is doing a roaring business, is what I have noticed the drive-thru is really busy.

Daniel Kline  1:10  We had something really similar here. And I’ve talked about this before, we’re like our Starbucks were backed up 45-50 minutes. Some of our places that didn’t have drive throughs are trying to do curbside. And it was very tricky. But that is only sort of what we’re going to talk about today. We’re going to do, we’re going to start with talking about five questions on stay-at-home stocks. And then we’re gonna talk about some of the worst investing mistakes we’ve made, and some of the worst investing mistakes you’ve made.

So let’s get right at it. I have five questions. And I’m going to throw them at you one at a time. I may weigh in. But this may just be you. So Zoom (NASDAQ: ZM) showed slowing growth in its most recent quarter, do you expect to see companies driven by the pandemic come back to Earth? I know that’s a bit of a loaded question.

Anirban Mahanti  1:44  Zoom specifically might have slowing growth, one of the things I like to remind people is, let’s say in the pandemic you did 100% growth. And then post-pandemic, when you’re lapping the pandemic quarter or quarters, you did 30% growth, what we need to remember is that it’s that 30% growth is on top of that 100% growth, right? It is still growth. And in normalized world, that would still be huge.

So Zoom’s particular results actually look pretty good to me. Great free cash flow. I think the question for Zoom in particular might be what is the future? Right? I mean, what does the future look like? How many zoom phones do they sell? How many more zoom seats to sell and things like that. But in general, I think if you’re in a secular growth area, I am not. I mean, yes, there’s some valuation push, pull back and things like that, that might be there. But if you’re growing on top of big growth numbers, it’s okay. So I don’t know, it looks okay to me, I understand that the stock has pulled back.

Daniel Kline  2:56  Yeah, I fully agree. We’ve seen a lot of this in the retail space where the companies have made a point of saying, hey, look, on a two-year basis, here’s our growth. So you might be upset that last quarter, we posted 54% growth, but we posted 18% growth this quarter. And that’s not normal in retail if like, if the average company says hey, we’re up 4% year over year, that’s actually really big in traditional retail. So I think it’s gonna take Zoom a while to maybe catch up to its valuation. And I think there might be periods where some of these stocks feel expensive.

But if you have a long-term view, Zooms a category leader, I’m not worried about Microsoft, there’s going to be room for a couple of winners. I think Zoom is going to be one of those winners. Let’s move on to question number two here.

And that’s are people going to go back to gyms in a post-pandemic world? What will this mean for Peloton (NASDAQ: PTON) and the overall expensive home workout trend? I asked this partially because I’m curious if it’s different in Australia than what I’m seeing here. I know your gyms are probably not open. So you’re using supposition more than anything else.

Anirban Mahanti  3:57  So like you know, so I have a different take on this one. W bought a spin bike, a cross trainer, and a bench and some you know dumbbells during the pandemic. Pretty much for us I think we are not going to a gym ever right and we did not buy Peloton because it was more expensive. So we bought what’s it called Logitech or Nordic whatever they make, you know, beautiful looking equipment as well just because half the price, really?

So the thing here is that if people have really bought gym equipment, and they actually plan to use it, well, it’s a building mini gym at home, why would they want to go to the gym, especially now that you can you know get fitness classes whether you’re using Apple fitness or using peloton or something like that.

So I think that’s one of those things where I think that if there has been a trend and the trend continues, that’s actually a negative for physical gym. But it’s also not good for people selling hardware because how many times are you going to sell the hardware. You can sell the hardware only one or two times, right?

Daniel Kline  5:03  Well Peloton is arguably a subscription business driven by its hardware base. I will say one question here were you are regular gym person before the pandemic? That’s not a comment on your physical condition.

Anirban Mahanti  5:18  So no, no, not a regulatory person. So for me actually, that time convenience of having things at home is a big deal. So I would have no it’s done, it’s maybe not the right demographic.

Daniel Kline  5:31  So I was a, it’s weird to say regular gym goer because the gym was in my building in my previous building the gym was closed for much of the pandemic. And I bought a lot of inexpensive gym equipment that added up to expensive. So I should have just bought some expensive gym equipment, and it really had had the right thing.

But I’m going to push back a little bit, I actually think that your person who was going to a Planet Fitness when safety concerns are gone, he isn’t going to care about that $10 or $20 a month and is going to like going to the gym even if it’s once a week when they used to go three or four times a week, unless your home gym and the gym where I live is the equivalent of a Planet Fitness. So while I have a membership for travel, it’s not something I need to use at home.

I think you’re going to see people keep those memberships and the people who are members of a high end gym. Yes, a small amount of them might not go back you know to an Equinox or an LA Fitness which is like a mid level gym like a $40 a month gym Equinox might be $100 they might not go back because they have this peloton community. But if you join an Equinox some of that is social standing. Some of that is where you live in a city like New York or even if you have a peloton you don’t have a ton of room for other things.

So I actually think Peloton is going to do well. And Planet Fitness is going to do well. I mentioned Planet Fitness because they’re public, I actually don’t think we’ve seen a big trend, except the gyms are gonna get what they want, which is you to join and not use the gym as much, which is actually like, arguably the business model for some of these

We’re gonna go to question number three here, will streaming permanently disrupt the traditional movie business? I was at a movie theater for the first time in a long time this weekend. But I wasn’t actually watching a movie i was i was watching a pay-per-view event with my son but will streaming permanently disrupt the movie business?

Anirban Mahanti  7:22  So this one depends on what you think is a disruption. I mean, this disruption has been happening for over a decade. Right? I mean, there’s you know, there is movie business, I guess, you know, the the window for release, and then you know, having stuff on streaming, the time lag has actually decreased over time. There’s money to be made here. Here’s my take on this is certain movies are made for the cinemas.

And if you don’t want to see a high octane drama spectacle thing, even if you’ve got the biggest screen on TV, and the best sound system at home. It’s not the same thing. I think there is a room for that. But if you want to watch small, you know, Adam Sandler comedy

Daniel Kline  8:14  Can we put “comedy” in quotes?

Anirban Mahanti  8:17  Okay, Adam Sandler comedy, then that’s best seen on Netflix. I mean, I think there’s room for both. And I think there’s more room for content. And I think the other thing I’ll first say for streaming is streaming is actually great for long content, right. So like, shows, it’s fantastic for series, and things like that a lot of new storytelling ideas are possible.

So I think I think they can both live. How many theaters or cinema halls survive? What’s the economics there? And anyways, in the cinema world, you make more of popcorn and cold drink, then you actually probably do off the seats, right?

Daniel Kline  8:56  Yeah, no you do. And the problem is, we probably have about 80% too many screens. And people talk about alternate uses for screens. But let me throw out what I what happened with me this weekend, my son and I, my son wanted to watch the non WWE pro wrestling event. And it was $60 to order it at home, or $25 to watch it at a place called the studio movie grill where we could order food and it was fairly pleasant. It was near a vacation home It was a fun experience. And my son wanted to watch it with other people. There were maybe five other people in the entire theater and they were not necessarily the people you want it to be watching an event with.

That being said though, if there were three of us, the economics wouldn’t have made more sense. So if I had a friend who wanted to come or a second kid, well then it would have just been cheaper to watch it at home and frankly, as a 47 year old man who had to sit in a theater from 7PM to Midnight, I would have greatly preferred ordering in some food and watching it at home and being able to go to bed right when it was over instead of having a 10-minute drive.

I don’t think there’s a lot of reason to go to the theater. I am a blockbuster movie fan more so than most. But I watched Suicide Squad on my TV because it was free on HBO Max. Shang-Chi, the latest Avengers movie, we will probably go see it in the theater this weekend. But that’s going to be the exception and not the rule. So do I think there’s a place for blockbusters? Yes, absolutely.

But I think you hit it. You nailed it when you talked about shows because I think some of what would have been arthouse movies are now actually becoming short-run shows we have one now with Martin Short Steve Martin and Selena Gomez on Hulu, I think it’s called a murder in the building. And there are three people who like a true crime podcast and they discover a murder in their building. And it’s an eight or 10 episode series that would have been an arthouse movie, it’s better served by being a series, it has time to build, it doesn’t have to, you don’t have to spend 100 million to make it. You don’t have to do 100 million in business. I think there’s a lot of potential there.

But I do think we’re also seeing just an endless amount of like Hallmark level movies, that kind of never would have been made or would have been on Hallmark. And it is very difficult to make the decision as to what to watch. Whereas just previously being released in a theater either meant it cost X amount of money, and they had to cut their losses, or if it was a smaller film, they thought it was good enough to be worth that spent the marketing budget. So I find them very hard to answer me you’re stuck at home? Do you have a hard time deciding whether to watch a movie?

Anirban Mahanti  11:28  Oh, yeah, all the time. It’s, we’ve got Amazon prime, Netflix and Apple TV+. And during the three we can’t find anything to watch sometimes right? And yeah, it’s sometimes it’s trouble. And sometimes what happens is what I think these recommendation engines are really, really bad. Because what the surface is actually not what I want to watch. And then I discovered stuff that I would like to watch by mistake. It’s like, oh, like by chance,

Daniel Kline  11:54 It is a giant problem. So I’ll go to Netflix and my Netflix, which admittedly, I share with my wife but it’s not like it’s you know, we didn’t differentiate our users which we could have done. I watch superhero shows and comedy specials. She watches true crime. Our recommendations are not the next superhero show. I go back to my old TiVo days where I joke like I because I programmed it to record the Simpsons. It said, you probably want to watch the Flintstones. Well, if you know anything about cartoons, No, probably not. But at least rudimentary, it’s correct. So if I watched the latest Marvel movie, I might want to watch the latest Batman movie like that. That makes sense.

We’re not even there. This is not unique to streaming. I’ve complained about this a lot. Amazon does a terrible job with book recommendations. I will argue that if I’ve read the first 19 books in a series, it’s a really safe bet to tell me the 20th book is coming out. And I might want to buy that. And they don’t do that. So there is something technically or maybe there’s a reason where they know I’m going to seek that out. So they actually make more money showing me something I probably don’t want. There might be some evil science behind this.

But we will revisit this I want to get to number four here as sirens go off in the background. I live next to a fire department. If anyone ever wonders why there’s always sirens behind me. Will we see consolidation in the digital payment space? And I bring this up because I don’t think my list is even complete here. But in the last 10 days, I’ve used Zelle, PayPal(NASDAQ: PYPL), Venmo and Square (NYSE: SQ). I’ve used all of those for very specific purposes. That seems like way too many. Are we going to get some consolidation here?

Anirban Mahanti  13:30 This one is a hard one. I mean, I think you can. But I think it’s largely true that the big ones are PayPal Venmo. And Square right. And isn’t Venmo? Basically PayPal, right? Is it Venmo? PayPal?

Daniel Kline  13:45  They are the same company, but they are distinctly different product different. tricky. Tricky, annoying.

Anirban Mahanti  13:53  Yeah. So the same company, I mean, different parameters, this branding, I think, maybe the you the way I look at the payments, sort of, you know, way you use the payment technologies in the US there. There are a few big names, couple, maybe two or three leaders, and then I think they will have distinctive branding there. I think it looks about right to me, I think it’s really hard for new players to sort of make a name for them. Right. So I’d never heard of this. The other one that you mentioned.

Daniel Kline  14:22  So Zelle is actually a partnership between Wells Fargo and some other major banks. So you’re kind of forced to use it like I pay my rent through Zelle. I don’t want to that being said, because it is tied to my bank account there are no fees associated with it. Whereas if you’re tying your PayPal or your Square your whatever to a credit card, there could be fees associated with it. So there are some benefits.

But for me, like half the time, like I have dinner with a friend and we go to settle up and it’s like wait, we’re on like three different platforms. I think there’s some room for either some partnerships or some cross operability Like, it just feels to me like this should be easier.

Anirban Mahanti  15:03  You know what I think should be easier, paying for things. So we can already use an Apple Pay seamlessly to pay for goods right at the terminal. But what you can’t use Apple Pay right now for is to pay for, say your rent or other things. That would be disruption in my view is that if you use Apple Pay or Google pay, or whatever you’re using, Samsung Pay, and it’s all integrated, and it’s all part seamless. That would be disruption.

Daniel Kline  15:31  You could because you could send like cash, like I’ve sent my son cash via apple. The problem is, it’s then you have to send them like, how do you redeem it like it’s, it’s, it’s,

Anirban Mahanti  15:43  It’s not seamless.

Daniel Kline  15:44  It’s not. And I will say like a negative of Venmo, because I have a property that someone’s renting for a few months, and they pay me on Venmo. And Venmo, doesn’t send me an alert to say I have $1,500 in my account, like that seems to me like a little bit of a glitch. But again, we’re in the very early days of this, I do think there’s going to need to be either a layer over this where it kind of works like some of your credit cards do where like PayPal, you could put a bunch of credit cards in your PayPal, I think you might see somebody’s program that that you can have all of these things, and but pay through one app and connect through other things. There’s, there’s another piece of this story here. But here is the fifth one people have heard me talk about this a lot. So I am not going to weigh in again, this might be a little different in Australia than it is in the US. But is third-party food delivery a viable long-term business?

Anirban Mahanti  16:37  Oh, so you’re talking about things like Uber (NYSE: UBER) and Doordash (NYSE: DASH), and things like that, right?

Daniel Kline  16:40  UberEats, Doordash, we have Postmates, we have there’s like 17 of them here in West Palm, there’s a whole bunch of local ones. And it’s tricky, because they’ll all have different restaurants. And you have to figure out which one actually has the restaurant, and which one went out and got its menu and is placing the order with a credit card can lead to all sorts of problems. Because if your orders wrong, the restaurant has no responsibility. I don’t like this business. And I use it like three times a week. So that is problematic.

Anirban Mahanti  17:09  Yeah, so we use it a lot as well. And you know, the usage is basically a function of two things. One is who has the restaurants, and B, who is charging less fees. So you go to Doordash because Doordash is trying to build its list of clientele. And you know, so and they’re not charging that much fees. So go Doordash when the restaurant is ready to do that. Let’s go back to Uber Eats, because then what all the restaurants? Look, I think it’s an insanely profitable business, right? Because they’re making money off the

Daniel Kline  17:37  No, it’s not these are largely money-losing businesses.

Anirban Mahanti  17:43  So you think about ignore their marketing spend. But if you just think about what they’re making money off, like at the unit level, this is very profitable, because they are charging the restaurant a fee. And in Australia, at least Ubereats actually has two different fees that they layer on, they charge a delivery fee, and a service fee, which adds up almost $10 it’s not even worth it unless you’re ordering like $100 Plus, but you got to pay $10 anyways, right? Sometimes delivery fees, like as high as service fees as high as $8 or $7. So that’s all like gravy, right?

They’ve got money there, and there’s a network expansion. I think this is a network game, and whoever’s got more number of people on it. So it’s not one where I think you can have multiple vendors succeed, but you can have like a duopoly sort of system like DoorDash plus Uber Eats, and it can be profitable. Because the unit economics, I think, work out in the long run, but not for the many others, I think they are gonna go is what I would think

Daniel Kline  18:51  The unit economics work better, though, if you’re actually more exclusive. So one of the things I’ve noticed is they’ve gotten better at Uber Eats where I’m not the only stop the person is making. And I wonder and this is just thinking out loud a little bit. But maybe we don’t need 25 pizza places on Uber Eats maybe we need the three best ones, to drive more orders to it and create more efficiency, like Domino’s is incredibly efficient with its deliveries. Because it’s using AI it’s using routing technology to go Okay, 50 orders came in in the last hour, here are six drivers. And here’s how they’re going to efficiently do this.

A lot of times I’m ordering from places that are farther and farther away as restaurants are being more willing to sort of eat some of this cost. And I’m the only order it can’t be efficient at me getting like $70 worth of barbecue with for $5 or $6 worth of fees to deliver from a restaurant that’s 35 minutes away and be the only stop like that. They need to deliver more things. But am I wrong in thinking that like delivering from Chuckie cheese just isn’t that relevant? I’m not sure if that’s a brand you’re familiar with. It’s a low-end kids pizza chain.

Anirban Mahanti  19:58  So here’s the thing, right? So It depends on how they’re paying the driver, right. So if the driver has been paid from the Uber Eats card, so as I said in here, I don’t know what they’re doing in the States. But here there’s two different fees or two, there’s two different fees, there’s a driver fee, there is a service fee. And then there is what I call the hidden fee, which is the fee that’s being charged the restaurant, right?

So say you order 50 bucks from a pizza place, maybe you’re paying $5, from there to a driver, and that’s all what the driver is getting. And then there’s this other 10 bucks, and I’m paying extra that actually Uber Eats is getting, it can be pretty profitable depends, again, it all depends on how much they’re paying the driver, then how much are they able to, I guess, squeeze the hands of the restaurants.

Daniel Kline  20:46  There’s also the sneaky fee here that in some cases, the item cost more than it does in the store. Or if you order for pickup, that is something that say Instacart, which is grocery delivery, for the most part discloses, they don’t tell you how much but they do disclose it. They don’t tend to do that. And I know because a few times I’ve ordered like one coffee from Starbucks because I was working and didn’t have the ability to get there. And I was in a hotel room or someplace where, you know, normally there’d be coffee, but there wasn’t because of the pandemic. And you’re like, wait a minute, like I had that drink there yesterday, and it was under $5. Why is it like $6.95 now like that can happen. So these are stories we’re going to keep monitoring.

We’re gonna talk about investing mistakes. In a minute, I’m gonna attempt to share my screen in a second, that may not go well, we’re recording this in a different technology platform than we normally do because we were recording earlier, because I am traveling, I will be in the Bahamas, waving to all of you, as this airs. Hopefully, the weather is good, and I am at a beach somewhere. We are the midpoint in the month.

So two weeks ago, we put out our new picks, and I’ve talked about this a lot. It’s an exciting, incredibly diverse array of pics, I went through each person on last Wednesday’s show. So I’m not going to do that today. But I think it’s fair to say we all represent different places in life, different investing styles, obviously, Anirban has more of a global perspective than the rest of us, because he’s lived a lot of places which most of us have not done. Some of us have kids, Anirban and I happen to have older kids compared to the rest of the team. There’s all sorts of different perspectives. And that gives you all sorts of different ways to invest.

So you can look at our picks and go, Wow, I am a conservative investor. But boy, I really like emerging technology. So I’m mostly going to buy Dan’s picks. But sometimes what Anirban has to say or sometimes what Steve has to say, that really speaks to me, or, you know what, I don’t know anything about healthcare, but I really believe that there’s gonna be some winners there. Well, I’m gonna pick Dana’s picks. Anyone can do that.

How do you do that? You go to 7investing.com/subscribe. Once you’re there, you’ll be given a choice, you can either join on a monthly basis, and that’s $49 a month, or here’s the bargain on annual basis. $399 a year. And of course, if you are an active student, that could be any level of legitimate schooling so not you’re 72 years old, and you’re and you’re taking a class you know, at the at the local learning annex, but anyone who’s in, in school, you can get an $84 subscription because we want that next generation

That next generation can be any age, you could be that 72-year-old person I mentioned working on your master’s degree, we will honor that price. So it is really easy 7investing.com/subscribe but let’s try. Well, I’ll share my screen in a second. But we’re going to talk about the worst investing mistakes we’ve made.

I’ll go first and I’ll go quickly. For me, it’s when I was young, and I made no money. I mean, like, you know, $18,000 to $25,000 a year, I had a company 401k match, I had a little bit of let’s call it family money. So I was you know, I had a little bit of a backstop to live on. And I didn’t fully fund my 401k which had a match. And there was probably a decade where off and on I had jobs that offered some sort of 401k. And I just gave away free money.

And now I know that I’m sure back then taking $25 out of my meager paycheck seemed like a lot. But in retrospect, now that I’m you know, it’s 25 years later, that money would be worth a lot. So it’s actually the kind of thing that most people it’s a mistake a lot of people make, and it’s one that I made but Anirban, as I try to queue up the share screen here and pull some of yours up. What is the one that comes to mind for you?

Anirban Mahanti  24:32  I’ve done the same thing and as a family than the same mistake that so we don’t have a 401k obviously yet, but we have something called superannuation guarantees, which basically says that the every employer has to pay 10% of the wages that you make as retirement funds that go into your retirement. So that’s automatically put in to a retirement account. But you can match that up to a certain value every year. And in our first five years in Australia, we didn’t match that.

We could have, but we didn’t, right. And that’s just an opportunity lost for not just for putting aside money, right? Because once you put the money into retirement account, you can’t access it until you’re like 65, or something like that. But also compounding. So that’s one of the mistakes, what my ultimate biggest mistake is actually not that.

My biggest mistake is not to start earlier. I personally, because for two reasons. One is of course, length of compounding. And, and the other is just if you start earlier, you have less money at that point. And I’m not trying to say that I have lots of money, but as you grow older, you make just more money and more savings versus when you’re younger, it’s great to make some of those mistakes that you would make, as early, you know, initial investors with that last one, right. It’s good to learn young and make those mistakes so that by the time you actually have decent savings, you can actually come out at a great rate. So I think those are, I would say at the top of my list.

Daniel Kline  26:04  It’s so funny that you mentioned that because as we pull up some of the Twitter comments we got here, I have our very own, Matt Cochrane and he said, starting so late and late in life, and I don’t think Matt actually started all that late compared to what some people can. Rob said, not starting sooner. And then he has the sad shrug emoji, which is you know, that that brings it home all the more. Huge says not starting investing sooner, you can never make up that opportunity cost, time is short.

Anirban, I’ve started just a few weeks ago, my son is working, we’ve talked about this, I’m I’m making him take 30% of his paycheck and put it in an investing account and buy fractional shares of good companies, we talk about the companies I stopped him from buying things that I truly think are bad, but I’m not stopping him from buying things that I’m a little bit mad on, because these are very small bets. You can be as specific or as nonspecific, as you want about your child. Is this the type of thing you’ve discussed? And your child’s little bit younger than my child?

Anirban Mahanti  27:05  So my daughter is only 13. We have a trust account, we set up maybe, 4-5 years ago, which specifically with the intent that you know, this is money you’re putting aside that might be useful for her. And, yeah, so I really think that strategy of you know, actually, because your child is older, and I think you know, they are making actually some earnings and that they can invest, they can invest in their own account. That is fantastic. I think that’s absolutely the right thing to do.

I have a friend from the Netherlands, and what I’ve discovered him and his nephew, they all invest like when they’re, like, you know, from when they’re 16 or 18. Because they all work. And they have a high culture of savings, and a culture of investment. So I think, you know, buying this fractional shares, I think this is fantastic. Exactly, you know, I’m doing that on my daughter’s behalf. But I would do exactly what you’re doing. I think that’s the way to go

Daniel Kline  28:08  My goal because right now my son lives with me, I suspect he’ll do that, you know, probably for the next somewhere between three and five years. I want him to at the end of that term, see, oh my god, like I’ve only put this relatively minor amount in and here’s what it’s worth, like I would expect it will be you know, a five-figure amount and perhaps a let him use that as collateral to loan him money for a down payment on a house or something like that.

And really teaching why even when he’s on his own and has those expenses, how much that money means it’s a lesson I wish I had learned now, the rules were different and I’m sure you understand this where we’re similar ages is that there was no commission-free trading, it was not there were no fractional shares. There were a lot of bars that don’t exist now. But now that it’s so easy, it took me like 10 minutes to set up a custodial account for him. And then I decided I wanted to have an account on that and it took like 45 seconds to create my account once it already existed, but let’s keep it moving here.

So many of you commented We appreciate it. Barbara Billy’s Zito says selling Netflix and we get the frowny face emoji here but we but we used it for a downpayment on our home so it cushioned the blow. I actually don’t think that’s a mistake. I think if you sell a good stock to buy something, not you know, if you always want to take a trip around the world and that’s why you were investing now maybe she could have sold something that didn’t have the upside of Netflix but I actually don’t think this is a mistake your thoughts here Anirban?

Anirban Mahanti  29:37  I wrote about that. I call it my $200,000 mistake of selling Netflix, you know, so you’ve already hit the nail there. I think if you want to fund something out of your investments, I think then finding stocks that you don’t believe in is of course number one point right or maybe sell some losers. They in banking, some losses tax losses that you can write off next year or whatever.

But another mistake, I think, you know, and this is more than like a newbie or a psychological mistake is to sell your winners early. Right? And you sell them because you are spooked about something or you’re you worry about, you know, the fast depreciation of the shares and things like that. That can be really costly, because again, you can’t get to a 10 bagger without going through a 3, 4, 5, 6, 7, 8, 9 bagger, right? So that process is exactly that, you have to go through that. And if you if you cut the process early, you’re just not gonna get it. So it’s being incredibly patient with selling is a good thing. And it’s a really hard art to master. And nobody, I think can master it totally, I guess unless you’re Warren Buffett. And that’s a different matter altogether.

Daniel Kline  30:54  Warren Buffett’s made some mistakes too. But money covers a lot of that. But that leads right into our next one from beach chair investor, who I hope is beach chair investor because he or she is sitting on a beach chair, not because he’s made big investments in beach chairs, because that’s a commodity they cost very little I live right near the beach. That is a joke of course. “Not thinking long term” biggest mistake was buying Roku at $32.75. And selling it 36.50. 2nd biggest mistake was telling myself to wait for it come to come back down to buy it again.

We’ve seen this over and over, we’ve heard some very famous investors talk about, you know, setting a strike price for Amazon and then never seeing that price ever come up again. This can be problematic, if you like a company, I am not a fan of selling it until you no longer like that company or you retire, you get to the point where it’s time to start cashing in your chips. And that’s why you invested. I wish I owned Roku at those prices. That’s actually not in my portfolio, but it’s one I’ve talked positively about for a long term. Anirban your thoughts on this one?

Anirban Mahanti  31:55  I think you’ve hit the nail there completely. I mean, you know, like, you know, what’s called a penny pinching is not a good idea, right? You know, if you think you want to buy something at, you know, $30 $35 and the stock is at $38, she’s paid at 10% more get it because the whole reason to buy would be you think it’s going to multi back right? At the bare minimum, like, you know, the I think of investments and I say, Okay, my bare minimum threshold is I need to double in five years. If it’s gonna double in five years, I’m not going to worry if I’m going to make 90% or 80%. That’s pretty, you know, okay. Right. So I am willing to sacrifice a little bit too. But if I like a position, if you like a company, it’s great to have a startup position in it. And the same thing. Yes, I don’t wait for the price for you to come back to exactly what i what i think is the exact valuation because there’s no such thing as exact valuation.

Daniel Kline  32:49  Yeah. And that speaks to something people ask us about all the time when it comes to 7Investing picks. Well, when should I buy them? Or you made this pic three months ago, and it’s up 20%? Well, I think all of us have that logic. Me maybe more conservatively than anyone else. But even when I’m picking a steady, steadfast retail company, I am thinking this stock can triple in five years. So if it’s gone up 80% it still has 220% to go now. Does that mean as you look at our picks, there might be others that you consider a better deal? Maybe. But for the most part, I don’t think this is an area where you quibble.

Now, have we seen tech stocks that have gone up 400% in a month during the pandemic? Yeah, we have, and that might be something where you go Okay, like it had all the growth I expected. So even though I love the company, geez, this may not grow again for a while. We appreciate so many of you participating on twitter $307 fool says, taking some years off Roth contributions after a career change and massive pay cut, even just $50 a month would have been a better choice than zero. Anirban I’ll let you go first here assuming you have some Roth experience, even though that is a uniquely American concept.

Anirban Mahanti  34:01  Well I don’t have any like, you know, again, I don’t have any experience with this, but you’re making guesses you can make contributions and you couldn’t, you didn’t it’s just costing you compounding right so that’s you know, it’s costing you compounding it’s not you know if you can make the contribution I think you should always but that’s just me,

Daniel Kline  34:18  I think the muscle memory is important that even in a period where things get tight, you might slow down your investing. We had a span where we had to do a new roof and a new air conditioner at our at our about to be sold other vacation home. And it was like oh god for a couple months, like there was no extra money. So maybe we cut in half what we were putting into the market, but we still put money into the market. We still sort of went through those exercises. And I think that is very important to do.

We’ve got just a few more of these. To get to a an array says investing conservatively. When young, I’m going to push back. I actually think if what you mean is investing conservatively that you invested in you know, putting it in a bank account or buying CDs, well sure those are bad investments. But if you put it in like, I don’t know, Walmart stock or things that are just like considered pretty conservative stocks, I think if you’re young, that’s actually probably fine. Not everybody has to put their money in the latest SPAC that might go up 10,000,000,000%.

Anirban Mahanti  35:24  If you’re young, it’s all about finding your style, your approach, how do you invest? Right? So, you know, like, that’s a good, you know, why everybody starts, you know, investing conservatively. Does anybody reads about, you know, mortgage companies and how they can compound for a long time. So you start there, that’s a great place to be. So, you know, putting your money in businesses with network effects, or staying power with those big moats that are still growing. It’s a great place. So I think that’s fine.

Daniel Kline  35:57  And forgetting the specifics of these two companies, because there was a fraud issue here. But investing in Starbucks is more of a sure thing than pre accounting fraud, investing that Luckin Coffee might become the Starbucks of China like, like, there, there is a reason, some investments and yeah, especially if your timetable is long, just owning a bunch of really good companies. But it is important to note that the good companies today are not always the good companies of tomorrow.

So you know if 1982 to me bought some IBM and GE at some point, you have to recognize when those companies have jumped the shark so to speak, that can happen I want to power through all of these especially because I don’t know how to skip them. And hater ally says missing Moderna at $22 a share. Anirban go first on this one.

Anirban Mahanti  36:45  So that you know this specifically, I wouldn’t say it’s a mistake to me doesn’t appear like mistakes. And I’ll explain this, we there is going to be always an example or two or three or many more that you know you did you know you and I or anybody else didn’t invest in, right. So I didn’t invest in Roku. Well, I could look at Roku and say that I did invest in it. There was some reason if there was a good reason for not investing in something at that point. Didn’t understand the company didn’t understand its future. That’s good enough. I mean, passing up on ideas because you didn’t get them. It’s okay.

Daniel Kline  37:22  Yeah, I don’t lament the companies I didn’t buy because I didn’t fully understand them. I lament the company’s I 100% understood. I brought up Roku before, Roku, you know, and I don’t own Netflix because Netflix like Amazon is a company I have a lot of 401k exposure to which in pretty much every tech fund you can buy. So I feel like I own enough. But yeah, when you understand a company that’s very different than buying a biotech company, which I wouldn’t necessarily or a pharmaceutical company, that I wouldn’t necessarily expect everyone to follow along.

Next one is a little bit funny. It’s It’s from our friend Ken McInerney. Ken is the the father of a member of our team. I will not I will not fully disclose that. But I will be seeing Ken later this year in person or actually early next year. Aside from not maxing out my 401k contribution earlier than I did my work favorite worst mistake was rain forest cafe. We waited on line for lunch and thought it was just about the coolest for a restaurant. Apparently the menu matters more than jungle animatronics.

Let me elaborate on this because, Anirban, I’m not sure this is one you necessarily would have ever had exposure to. But this is a destination restaurant that used to be publicly traded. And if you went on a Friday night, or a Saturday or a Sunday afternoon, you were under the impression that this was the most successful restaurant chain in the world. Because there was a very long wait. The problem is, if you went on a Wednesday night or Thursday afternoon, these restaurants were dead. Unless the few there’s there’s still one at Disney Springs, which is a tourist area. So that would be busy.

There are a lot of restaurants like this, where the concept seems to work, but it doesn’t work based on the real estate it occupies. So a cheesecake factory which takes very big real estate tends to do well all the time with mall traffic in the places it’s located. A children’s themed restaurant that needs a lot of people to eat there that has very, very high rent doesn’t make sense if it’s only doing business-like 30% of the week. That’s sort of a subtlety where sometimes your eyes don’t tell you the whole story.

I’ve mentioned Starbucks a lot. It’s one of my bigger holdings. But Starbucks has put a lot of effort into driving daypart sales were part of the reason they have their loyalty program is they could say hey, Anirban, we see you coming in the morning. How about you come in at three o’clock and have a cookie and their margin that cookie is really really good, especially if it’s your second visit of the day. So this is one of those where yeah, an eye test is important. But you want to go all the time

I actually had a former boss of mine, Roger Friedman, who was my boss at a long-defunct Motley Fool product asked me when Taco Bell’s breakfast first came out to just go sit all morning at a taco bell and take a sense of what the traffic looked like that was that very anecdotal. Absolutely. It was one Taco Bell, though in a very. But that kind of data if you extrapolate over maybe visiting a few starts to give you meaningful action points. So we’re gonna race through this. We are running out of time here. Tom Robinson says, investing in speculative companies short term. Anirban I’ll let you have this one. Because there’s so much we could say on this.

Anirban Mahanti  40:27  I think it’s basically it’s all said, you know, speculative and short term, the combination is basically it’s basically boils down to gambling. So yeah, if you know you’re doing that, that’s fine.

Daniel Kline  40:38  Yeah, I like to gamble. But even there, I gamble when I understand the odds. You know,  if I’m sitting in a video poker machine, I know exactly the game I’m playing and what the standards if I’m playing blackjack, I know the move I’m making. And even if I’m choosing to make our move that that’s risky. I’m choosing that which I don’t gamble when it comes to investing, focusing too much on valuation and missing the potential of the business. That is something that’s happening quite a bit in this current era of let’s call them frothy valuations.

Anirban Mahanti  41:11  So I think this is a good one, because I think at some point, or the other everyone, I think falls into this one. So I think this is good, because what you need to really think about is you need to, you know, as this of the world has shifted from tangible assets to intangible assets, basically, from asset heavy to as applied the asset like businesses, you can’t really value the same way people value the asset heavy businesses, and they have a very different economic structure because you can upfront spend if you’re very sticky, to reap a lot of operating cash flow, or free cash flow down the year. So I think that’s that’s one that’s easy to I think, miss and therefore misjudge.

I’m not saying the valuations are not frothy valuations are look expensive, but some of the valuations can be explained. because of that reason, I’ll actually say another, like related to this. Sometimes what happens is, is if you’re buying into I guess related to this is sometimes when you’re buying to charity, consensus, you land up with lower returns than not buying. So buying things that are misunderstood, or people hate or people think of them as not as profitable.

A great example has been, the Apple has outperformed, say something like Alphabet over, you know, 3, 5, or 10 year windows, largely because Alphabet shares well, you know, we’re the go to shares, and then we’ll go to shares because, well, you know, it’s network effects, they will use a search and oh, Apple is like a hardware business, right? But if you look at the free cash flows over time, you’ll realize Apple was the free cash flow king and still is the free cash flow King. So on a valuation basis, Apple was actually mispriced.

So I think thinking through this is very important thing or the potential of the business is very important. Also, I’ll say that I said asset-light, sometimes actually asset-heavy, can be great, because asset at that point depends on what the asset is, assets actually can be a moat, right? So some there are some businesses which are asset-heavy, but extremely moat-y because they have those assets nobody else has, it takes money to replicate that. And it’s not easy to replicate. So again, I think thinking about the business in today’s context, and then thinking about it in a 10 year window period is very hard.

Daniel Kline  43:34  it’s also very important to understand the business, I’ll channel our very own Maxx Chatsko, who points out that it’s one thing when you’re talking about say Zoom, a company that has, you know, hundreds of 1000s of customers and billions in revenue, I don’t know the exact number but hundreds of millions, at least in in revenue. And when you’re discussing a pre-revenue, pre-product biotech company, that’s all of a sudden worth more than Ford. Like that happens sometimes. And you have to look at what the risk is involved.

So, if you look at zoom and say, okay, what’s the risk, the risk is that they’re not going to continue to grow, and it’s not going to be worth this much. But it’s still going to be a viable business and there will be value to it. There are sometimes valuations where you look and go, Oh, okay, there’s actually the possibility that everything doesn’t go right here.

We are nearing the end here. And this is actually the last one we are going to take. It’s from register and it says our maybe redtiger not sure. Assuming a stock is so cheap, that it cannot go down any further. And turns out as long as its above zero, it can. Yeah, I’ve never been a fan of somebody who buys shares of a bad company that used to be valuable. I think of it this way.

A pizza has a descending value on day one, it’s worth $18 maybe the next day, it’s worth you know, 14 or 15 a month from now you don’t go back and go like wow, that pizza used to be worth $20 it’s worthless, like it’s rotten. It’s no longer good. That doesn’t mean companies can’t recover. There are a few, Sirius XM in our lifetime is the one that pops to mind. But it doesn’t happen that often bad companies tend to go in one direction. Anirban, you can have the last word here.

Anirban Mahanti  45:16  So you know, actually, this is great. I’ve done this mistake many times thinking it gets, can’t get cheaper. So I think actually, the market as a whole ever has a great signaling mechanism, right. And maybe this is a little bit of an investing sort of lesson or something to think about. If the stock goes down on a particular day, that’s a great signal that something bad happened, right. Most of the time, not all the time, the mark is actually right directionally, about the shellacking that the company got it had a really bad report, the future is not looking as great, therefore the stock went down.

What you can question is, did the stock go down enough? Did it get the direction? Did it get the amount? Right, right. And probably market actually gets the amount wrong all the time. But the direction is right, it gets the wrong amount wrong in the sense that maybe it should have gone down even more, because eventually it does go down more. That’s where the mistake is, or it went down too much. And it didn’t, you know, so that’s what you have to decide for the investor.

The same thing happens on the reverse side where only good report, the stock goes up. But then you can think, Oh, it’s all priced in. Maybe it’s not because again, the market is directionally right. It says, Okay, this is great. I think the future is looking bright, but doesn’t get, it either overshoots and undershoots. Right. So I find that I use the market actually market signaling a lot. And I’ve tuned myself to think about this. So when the market says, Oh, this is bad. I actually said, Okay, I really need to run the ruler really hard on this one, if I am going to buy it, right, so a lot more attention in the details and trying to figure out okay, what did the market get wrong?

Because again, directionality of the map, I actually think that when the stock goes up, that you know directionally, at least you’re in the right path. So going up means even if you get the valuation wrong, you just have to wait a little longer to make the returns. And this is something that people don’t pay attention to that much. But you know, directionally if you’re right and it goes up, then instead of maybe making the returns you expect to make in three, you make it in five, or maybe it’s seven, but you eventually make it, the directionality matters, the direction is down. The down is, as he said, goes to zero.

Daniel Kline  47:33  I think it is important to note, though, that in this market, we are seeing a company’s put out stellar earning reports, I’m talking about Apple a lot, but that’s the most obvious example or Netflix, where their yearly growth is amazing. But their quarter over quarter wasn’t great, because they gained so many subscribers in the previous quarter, when a stock goes down, I will look at the actual report to determine if the news is actually bad, or the spin on the news is bad.

And oftentimes, and I’ve talked about this a lot again, I hate to bag on the media, because I am a lifeline and collecting a check as a journalist since I was like 17. So you know, I have nothing but respect for journalists, but I don’t think they understand nuance. And it’s one thing to say like, yeah, Apple is up double digits in every sector, and it might not be able to repeat that next year. That’s true. But that’s sort of like saying like, Well, you know, the the the Celtics won by 30 points last night, I think they’ll only win by 10 tonight, like, well, they’re still gonna win, like I think and I picked the Celtics who haven’t won a lot recently.

But that being said, I think you do have to look at the underlying news story. We are running out of time. I think the next slide is going to be our finisher. But it’s there’s no guarantees of that. Here we are, this is our finisher. And this is which is a bigger financial regret for you selling too soon won this with 46%. Not buying soon enough was 25.8%, being too conservative was 22.1%. And being too aggressive, was by far the lowest at 5.5%. For me, it is overwhelmingly being too conservative, I find reasons to talk myself out of stocks your thoughts here Anirban?

Anirban Mahanti  49:09  I think my biggest regret is not buying into things that I  thought they’re great, but just didn’t get around to buying them or thought, you know, quibbling over valuation and things like that. Those are the biggest mistakes. The other one is, this is a hard one too, is I bought a company, I think it was great. I thought it was great, you know, and then the stock went up. And then I anchored on the price. And then never really added. I’ve had some winners which, are still big positions today. But I never added to them.

So and I just think about you know, I should have added to them because they’re executing and they were doing well. And this is why I was bringing up that point about the market keeps going up for these stocks keep going up. The earnings report comes out and it pops sometimes your position is not a big enough maybe it’s worthwhile to think that oh, this is a great company doing really well. Maybe you want to add. And yeah. But I think by and large, I think I would agree with that ordering. Actually, that ordering is roughly right.

Daniel Kline  50:15  It can also be challenging that, you know, we’re only putting so much money into the market a month. And you don’t want to dilute that so much where you end up owning 1/10 of a share of 9000 companies and have no significant positions. And I think we can lament what we didn’t buy, but we’re not directly connecting that to what we did buy so sometimes it can be obvious if you buy something that turns out to be a disaster. And you remember Geez, I was gonna buy you know, Alphabet and instead I bought Yahoo. Sure, like that’s, that’s problematic, but usually it’s not that linear.

We do this we have to narrow down to our top pick every month. And I would argue that there are things I really really want to pick that have just never been my top pick and there are a couple of things I own that have ever been my top pick. And that’s what it’s like when we’re buying if you had enough money to buy everything you wanted, you wouldn’t need to be investing because you have enough money to buy everything you wanted.

Anirban Mahanti  51:12  I love that.

Daniel Kline  51:13  With that, hopefully I am on a beach somewhere with you know with perhaps a drink in my hand or at least enjoying an ocean. If not, who knows it could be raining. That being said if you’d like to get in touch with us, it is info@7investing.com if you want to interact with us at Twitter, we’re @7Investing.

We will be back with a live show at 1PM on Friday with pretty much the whole team. It is the third Friday of the month, Anirban may not be up yet, but most of the team will be there. So we will be excited to see you until then. Thank you JT Street. Thank you Sam Bailey for Anirban Mahanti, I am Dan Kline. See on Friday.

7investing Operations  51:53 

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