We don’t advocate waiting for the stock market to fall to buy shares in good companies, but when it does that creates buying opportunities. It’s always great to be able to add shares or even start a position when the market gives you a favorable entry point. We’ll also look at what’s next for China’s Evergrande, which could begin defaulting on its debt as soon as Thursday. And, we’ll explain why slowing Disney+ growth should not panic investors.

Transcript

Sam Bailey  0:14  Welcome to 7investing Now, a show that teaches you how to take a long-term view on investing by better understanding what’s happening in the market now.

Dan Kline  0:24 Good afternoon. Good morning. Good evening. Good, whatever it is wherever you may be. And welcome to the Wednesday edition of 7investing now my name of course, is Daniel Brooks Kline. I am excited to be here, but I am also exhausted. Steve Symington. Steve Symington is joining me today, Steve we’ve dealt with, let’s call it a whipsaw, a roller coaster. I don’t know exactly what the term would be. But the market has been crazy. So the original focus of this show was going to be should you buy the dip? That made a lot of sense. At the end of the day, yesterday, when the market was down across two days,  like something like 800 points for the Dow, I might be getting the number a little bit wrong. Today, as last we looked, the Dow was up 424 points, it recovered most of the dip, but I think that actually illustrates what we’re talking about.

So we’re going to talk about three things. We’re gonna talk about, should you buy, and I’m going to say a dip rather than the dip because we’re no longer in the dip, getting very confusing and close to a record for saying dip in a show. We’re also going to talk about China’s evergrande, which is one of the companies that’s behind the initial fall here. And then of course, we are going to talk about what happened with Disney and Disney Plus numbers. Yesterday, I will just say, Do not panic, Disney remains an excellent company. But we will get into that at length. So Steve, we wanted to sort of reset a little bit. We would like your questions and comments. If you have questions about the market, what’s happening, when you should buy, if you should sell all of those types of questions, we are happy to take them we will work them in as the show goes on. We know this could be a little exhausting.

But when the day closed yesterday, the market was down a few percentage points. Things look pretty ugly. And I was pretty confident. And I’ve written about this for members. I believe Steve edited it. Where it basically said we’ve had a lot of these during the pandemic where there’s like some negative news out there. And it sends the market down 800 points but then by like Friday, we’re at a new all-time high.

We’re not guaranteeing that will happen. There are market crashes. But it is it’s worth pointing out that markets don’t crash based on what might happen markets crash on what actually happens. Now markets fall on news and rumors and innuendos and what could happen. So right now, nothing has systematically changed. And that is really important to point out. But let’s get into some common things people say and get Steve’s reaction to them. So buy the dip. But don’t wait for the dip. Steve, your thoughts here.

Steve Symington  2:58 It just feels like you’re overthinking things like buy the dip, don’t wait for the dip. I just continuously add to my portfolio as cash allows. And in businesses that I look for, I don’t I don’t think too hard about buying the dip. That’s just my my sensory thing.

Dan Kline  3:16 So I don’t either I maintain a here’s what I’m going to buy lists. But here’s what I will do when you see a day like yesterday, where Disney goes down, I don’t remember the number but like 6 or 7% it was down a bunch. If Disney was something I was going to buy next week, I might loan myself the money to buy Disney at an advantageous point. Now the problem is that the money is not already sitting in your investing account, you probably missed that window anyway, the way stocks have been behaving. Or if money is sitting there. Maybe I buy the third thing on my list before I buy the first thing on my list, because I can get an advantageous entry point.

But I don’t change what I’m going to buy. Unless you see a really, really big fall. There’s something I love and it drops by 40% I’m gonna find money to buy it. But a lot of people have looked at stocks like you know, your high flying tech stocks and really successful stocks that I’m gonna buy it when it hits this price point. And then it never hits that price point and you realize how much you’ve lost. Let’s move on to point number two, this is gonna be a fast moving show. And again, we would love for you to chime in tell us how you feel about the market. Tell us Did you buy anything to do sell anything? What are you doing? Steve? Never worry about buying at exactly the right time.

Steve Symington  4:25 Yeah, I wholeheartedly agree there. That’s just something that I guess Never say never. But I just you know, I try not to time bottoms and time selling at the top, buy low, sell high. It’s like I just buy and then buy some more, you know, shares with great businesses over time that I think are attractively valued relative to their long term potential. So I mean, whether I buy this week or next month – often is of little consequence, but you know, we will find attractive opportunities every single month. And step in when we think they’re attracted with those valuations. So exact right time – timing the market is so hard.

Dan Kline  5:08 Steve, is this a case where you kind of have to separate good companies from the overall market? Meaning that really, unless something has a crazy run up, that you’re identifying good companies, and you’re concerned with where they’re gonna go in 10 years, not with you where they’re gonna go based on like, what the CEO says at some conference nobody’s ever heard of, which is not the case of the conference Disney was at, thatwas actually a big conference.

Steve Symington  5:30  Yeah, yeah. And that’s that that’s exactly right. I mean, it’s these are things that we’re thinking about long term. And, you know, I’m generally buying a stock with the intention of holding on to it for years. And usually, the near term swings, I try to keep in mind, you know, even if the stock falls in the couple weeks after I buy it, generally not too concerned unless there’s some thesis altering incident, that actually happens to trigger me wanting to sell. And that’s something that we’re actually writing about this weekend on our 7investing research portal, if you take a peek at those, but unless there’s some thesis altering information, that fundamentally changes case for owning that stock, I’m relatively unconcerned.

Dan Kline  6:11 And the cool thing about those articles you just mentioned, too, is there there are public-facing articles, or any of you watching today can read those articles. And it’s basically us talking about selling. And then there is a members-only part of those articles that gets into specific thoughts on specific companies, and what we’re thinking the red flags are. So there is a benefit to not being a member, but it is much better to be a member of 7investing. Steve, when shares in a company you really like fall? Do you view that as a buying opportunity? Or do you tune that out as well?

Steve Symington  6:45 You know, it really depends on the reason, you know, a lot of times you see shares of companies falling for no particular reason, or maybe you know, in sympathy with some of its peers or something. And if I see a pretty steep drop in a company that I liked it even higher valuation, sure, I’ll use that as a buying opportunity. But you know, that’s also not to say we shouldn’t also keep a close eye on our winners and adding to them, you know, too often, I think people focus too much on adding to beaten-down stocks rather than adding to their existing winners, thinking the winners just won’t run higher. And that ends up being kind of the opposite is true. So add to your winners is kind of an underrated piece of investing advice.

Dan Kline  7:28  And, Steve, you talked about an investing thesis. The thesis is sort of the long-range roadmap of why we own a company. So let’s pretend you own Tesla, because that’s a stock I don’t own. So I’m putting it out there as an example. And you see the U.S. heading into an economic downturn, and you think that’s going to be bad for Tesla for a couple of years. Economic downturns have not proven to be bad for Tesla, but let’s pretend you thought that was going to be. The reality is your thesis is only busted. If you truly believe the economic downturn is going to be for 20 years. That it’s that it’s not going to be something we recover from. So these aren’t easy decisions to make, like, you know, so we’ve talked a little bit about, you know, affordable luxuries like Starbucks or going out to dinner at a modest restaurant, let’s say, a BJs, or Chili’s, those are both publicly traded companies.

Well, sure, if your personal income takes a downturn, you might go to Chipolte or something a little bit less nice. But that’s not a long-term change. That’s sort of you might also be someone who would have gone to Ruth’s Chris steakhouse, and instead, you’re gonna go to BJ’s. So like, it’s really, it’s really one of those things where we don’t often know how some of those things are going to impact the economy. I have one more here, Steve, we’re moving through this segment quickly. Because, again, our goal when we wrote this segment, was to kind of hold hands, you know, to sort of say, hey, the markets down, but we’re in it for the long term, we still believe in things. And of course, the market has recovered, though, as we talked about before the show, I would not be shocked if the market somehow ended up down today, because it’s been that type of week where things just go very quickly on very little news. But Steve, is it okay to buy at an all-time high?

Steve Symington  9:06  Absolutely. And that’s something that I just kind of alluded to, I tend to jump the gun because my train of thought leads to these other questions, which is funny. But yeah, most definitely, that’s something that for a lot of businesses, winners tend to keep on winning. And the strong gets stronger and their share prices continue to rise. And too often people trim their winners when they should be really looking at the companies that are underperforming and determining whether to trim them instead. And usually trimming your your winners ends up being something that costs you market-beating returns over the long term.

Dan Kline  9:41 As always, we are happy to take your questions and comments or for you to just watch along at home. We’ve had shows with hundreds of comments and shows with none. So it can go in both directions. We’re gonna move on to talking about China’s Evergrande momentarily. Before we do that, let us remind everybody that we are 7investing. What is the core of seven Investing. It is our 7 highest conviction stock picks each month. Each one of our seven lead advisors makes a stock pick, does a massive write up. I still have a lot of work to do on mine. We make a PowerPoint presentation we shoot a video, our members get as much or as little information on the pic as they want. They might go You know what, that Steve’s really sharp but I really like what he does. I’m just gonna buy his pick every month. They might go, you know with with Dan like, I’m not so sure I’m going to read everything as to say, or maybe it’s somewhere in the middle where you just want to read our key takeaways or you’re just concerned about management or valuation.

We make it really easy for you to get to those picks, how do you get those picks? You become a member at seven investing.com slash subscribe and for $49 a month or $399 a year you get access to those picks. And if you enter NOW as the code, you get a discount. I don’t know what that discount is. We just had this shared in our our personal chat. But you get a discount if you use the code NOW. So please, as soon as the show is over, go to 7investing.com/subscribe and become a member. That is the last promotion I will do during this show at least the last directed promotion. I will do Steve, let’s talk a little bit about what’s next for Evergrande, as I mentioned on Monday show a company I first heard of Monday morning. So it’s not like this is one that was on at the tip of my tongue. But uh, our headline here is what’s next for Evergrande. But the first piece here is what is Evergrande? Steve, if you want to explain what is this company?

Steve Symington  11:36 Okay, so Evergrande, for those of you not familiar is one of China’s largest real estate developers. They’re part of the global 500 they’re absolutely massive. So it’s kind of interesting how there’s so many businesses out there, global businesses that you know, we as Americans think that we kind of hold, have a stranglehold on the world’s largest businesses, but Evergrande is massive, huge real estate developers listed in Hong Kong, based in southern Chinese city of Shenzhen, employs about 200,000 people and indirectly helped sustain more than 3.8 million jobs each year. And it’s made its name and residential property. It has more than 1300 projects and to the Navy cities across China. But it also has investments in electric vehicles, sports theme parks, food and beverage business, everything from bottled water, groceries, dairy products, other goods. But yeah, so Evergrande is – its reach is vast, and it’s come under fire for some of its debts, you might want to take it from there.

Dan Kline  12:37 Yeah, that’s the challenge here that this is a company that has very little cash on hand and has a lot of debt coming due. And the issue is that that debt that’s coming due, they may pay their Chinese debt pay their their native country debt, but not pay the debts they hold in the U.S., Steve, sort of why don’t you go a little more into and there’s some notes in the doc here if this is not at the top of your off the top of your head? What’s going wrong here? Why is this all of a sudden a global news story?

Steve Symington  13:06 So part of the problem is that Evergrande is you kind of alluded to has more than $300 billion in debt. And the last few weeks, it’s warned investors that it’s facing kind of a cash flow crunch, and suggesting that it could default on some set of like a lot of its debts, if it’s unable to raise money quickly. So it’s due to pay out of interest. I think the first kind of test that they’re talking about, is that an interest payment that’s worth about 83 million. I think that it’s an initial issue of about $2 billion in debt that they owe about 83 million in interest on due tomorrow. And creditors have basically not so subtly hinted that it’s probably going to default on that. And so it should be interesting. The concern among investors so far has been will this spread, because the $300 billion in debt is a lot. And they’re hoping that this doesn’t turn into kind of a contagion that spreads beyond China’s borders. And that’s the worry. And that’s what kind of drove down global markets yesterday.

Dan Kline  14:17  Yeah, and the big concern here is just how big this company is. You know, so they have about $2 billion in payments coming Do they have 200,000 employees and indirectly affect something like 3.8 million people. But I think it’s important to point out because there’s been a lot of talk about this, like leading to a crash. But here’s the reality. Lehman Brothers has been sort of the number one comparison here. And there is a pretty big difference. Lehman Brothers dealt with financial assets, and sort of when that chain breaks down, there’s nothing backing it. There’s nothing really there. And in this case, Steve, this is a real estate company. So why don’t we talk about some of the things they’re looking at doing that I think alleviate this crisis, and sort of make It’s not as serious as it’s being portrayed. Albeit, the media has pulled back a little bit after early in the week, this being the end of the world, there were definitely some saner voices prevailing.

Steve Symington  15:11  Yeah. So, you know, part of the big thing is about Evergrande, something that you’ll see increasingly pointed out as the situation becomes more clear is, yes. Well, Lehman has, you know, they had stakes in complicated financial instruments, and that chain breaks down, it’s very difficult to know, when there’s nothing backing these instruments when they crash, that that led to, you know, a breakdown of the financial system, but Evergrande actually holds a lot of land, a lot of hard assets, that it could monetize that way. And you have global economists stepping out and saying now that China, the Chinese government, has the tools and the policies in place to handle this, should it become an issue.

And a lot of kind of Industry watchers in China are saying, you know, what, they’re not going to let this spread beyond their borders, there is some worry that they will kind of pay themselves before they pay international investors in that sense, I’m not so sure that’s the case. But I think this will be somewhat limited. But it probably will result in in kind of a step down in China’s growth, though, because, you know, it’s it’s a lot of assets that are in the country. And that’s going to be kind of challenge China’s economy.

Dan Kline  16:33 So Evergrande, right now is trying to sell its office building. And I think the numbers 1.8 billion, so right there, if they sell that that covers its near term debt, I assume they would be leasing that back, which is actually a pretty typical arrangement for a lot of companies. But that’s the difference. So Steve, if you owe me money, and that money is unsecured? Well, I’m kind of out of luck. If you owe me money, but it’s a lien on your house? Well, at some point, I forced you to sell the house. So I think the difference here, between some of the collapses we’ve seen, is even if this company falls apart, there’s still a lot of pieces to sell. And sure, creditors might get 85-90 cents on the dollar. But they’re not going to get zero because there’s real physical assets. So is this one of those things where the market just overreacted Monday, Tuesday? Because the numbers are really big. And China’s really scary in terms of any story coming out of China as a negative is move the market in bad directions?

Steve Symington  17:29 I think that’s part of it is that people sort of there’s a knee jerk reaction to Oh, my God, this is a massive company with hundreds of billions of dollars in debt. Will this spread? Will this impact the global financial system similar to something that we saw back in 2008-2009. And I think it’s becoming increasingly clear that they’re not an apples to apples comparison. But, you know, we also have sort of other concerns that it may be put people on edge and skittish investors were kind of more willing to embrace that knee jerk reaction and sell everything until they knew kind of more of what was happening. So, you know, we’ve got other stuff like the Fed meeting coming up and concerns over, you know, their, their, their own asset purchases, and easy money policies, when that’s going away in the pandemic dragging on, there’s a lot of stuff that’s kind of weighing on investor sentiment right now. But it is really interesting to see people kind of aggressively buying and responses, they realize it’s not so bad as it seems.

Dan Kline  18:33  Is this one of those cases where after the past 18 months, like we’re having a hard time being long term optimistic, because every time it seems like things are going well, you know, we hear about some new sort of monster, or terrible thing that’s going to, you know, un-brighten our day is it just sort of, we’ve always been sort of a news driven society, but now we’re we just much more likely to see the negative like as a national psyche, and I know you’re not a psychologist, so feel free to share your thoughts.

Steve Symington  19:01 Maybe there’s some fatigue there. Just headline fatigue, and people being you know, just getting tired of, of worrying about that. But but it’s also so interesting, because people are trying to decide whether, you know, with the major market indexes for the stock market, still kind of trading, you know, hovering right around their all time highs, and they’re wondering when the next pullback is going to be and yes, it’s a matter of when not if the stock market will crash or even just correct in the near term. But, you know, we might get a rally into the end of the year before, you know, the Fed starts kind of getting more serious about scaling back their bond purchases and kind of that stimulus that’s helped the markets rise in the first place.

Dan Kline  19:50  Yeah. And to tie it back to the beginning of the show. It’s worth noting that while crashes happen, and we won’t pretend the next crash won’t happen, that historically if you’ve owned good companies, And hold them, you’re going to be fine. Now, obviously, the reasons for a crash might make what seems like a good company not as good a company that has certainly, you know, maybe you had bank assets or real estate assets in 2008. But even those for the most part, if you held them through the crisis, eventually you were going to recover. So that’s what we’ll say. And I wrote something about this for members today. But exhale, step away from your portfolio a little bit. Take a walk, recognize that the companies we recommend the companies we hope you’re buying are good companies that will get through this and sure if I feel like my portfolios not worth as much, might I not take that vacation? Or, or buy a Peloton or have a fancy dinner? Sure, there’s a mental part of it. But that’s not really long term sentiment that is just sort of short term in the moment.

We would like your questions and comments, we see a lot of you watching. We don’t see a lot of you saying hello. So feel free to jump in. Ask us whatever you like Steve has a hypoallergenic dog. I learned that the other day. And as we move into the Disney segment of the program, I will stop and quickly say Today is September 22. Tomorrow is September 23, my 21st wedding anniversary. So if I’m slow to respond to any of you on social media, it is probably because I haven’t bought a gift yet. And I have to figure that out tomorrow, I bought some of the gift but not all and there’s no chance my wife will hear this because she has never listened to this program. With that being said, we’re gonna move on to the homestretch. This is one that is a company I cover. But Steve actually surprised me with an article he wrote about this back in 2019. We will get to that later on. And here’s what I want to say this is I headline “why Disney shareholders have nothing to worry about”. Steve, you want to set the table a little bit about what happened yesterday and why I’m saying hey, don’t panic Disney shareholders. Yeah.

Steve Symington  21:52  Yeah. And I mean, for perspective, my coverage I love Disney, my the very first stock I ever bought was Marvel Entertainment, you know, back when, I mean, why not? Of course, I was just when Disney bought it, but should have just held on to my Disney portion of those shares. But anyway, the Disney yesterday fell pretty hard. After the company, the CEO kind of warned of headwinds on this subscription video streaming growth in the fourth quarter, this is Disney Plus service. And they were talking about production slowdowns that that were caused by the Delta variant. As we mentioned earlier, the pandemic is kind of dragging on. And it’ll lead to a legislative new programming that Disney originally projected. And so they are expecting now to add merely low digit single millions of streaming subscribers in the fourth quarter for Disney plus. So that that’s the concern right now is people are saying, Oh my gosh, this is kind of the shining light for Disney through the pandemic was Disney plus, so yeah, that’s that’s the concern.

Dan Kline  22:56  We’ve been to this rodeo before it happened with Netflix. Now, Disney has been unable to accurately forecast numbers because the growth has been so much faster than expected. We’ll get to that and Steve’s futuristic prediction later on. But here’s what happened with Netflix. Netflix basically said, Hey, we’re gonna gain 20 million subscribers in 2021. I don’t remember what the number was. And they probably gained 22 million in the first two quarters. And then in the third quarter, when they only gained a million or two, everyone went, Oh, my God, growth is slowing. But here’s the reality. I always talk about this like a marathon. If you run really hard for the first 18 miles of the marathon, and then your pace slows down, but you still win. You still

Think we have a graphic here. If we want to pull that graphic up, that does not seem to be happy. There we are Disney Plus subscriber count. So they opened up in 2020, with 26.5 million in 2020. They got in August of 2020. They got to basically their 2024 goal of 60.5 million and then heading into this quarter. They’re at 116 million. Steve, we’ll talk about the why in a second. But you can take that one down JT. Do you remember the original projections? You wrote about them in 2019?

Steve Symington  24:22  Yeah so I just dug up an old article that I wrote a couple of years ago about Disney. And I was like, I’m pretty sure they they’ve already crushed that. But yeah, when they first announced Disney Plus, they were predicting – they set a goal to achieve profitability, I think kind of basis by 2024. And that would have required a massive, as many as 60 million to 90 million subscribers by the end of 2024. That was their initial goal. And obviously, they’ve smashed that already. And it’s really interesting to see you know, that they’re nearly double the lower end of that goal, and it’s not even the end of 2021.

Dan Kline  25:02  So Steve, I didn’t fall into a coma and miss two years, we’re only in 2021. And it basically Disney Plus stopped growing, they’d still exceed their growth target? Disney Plus is on target for 220 to 224 million, 240 million subscribers by 2024. That is roughly and some of that is going to be global expansion and the profits for that –  the numbers can get a bit wonky. But that being…

Steve Symington  25:55  I think Dan has got some connectivity issues. So we will move forward.

Dan Kline  26:04  Yeah, we are not sure what is going on. Just had a bit of a technical issue here. With that, Steve, why don’t you take Stock Investors comment and then we will throw it to the end.

Steve Symington  26:12  Ok Stock Investor’s comment:  he says, Steve, how can I keep my money tree healthy and green? Oh, he’s talking about my money tree right behind me. I just make sure it has nice sunlight and water once a week with my whiskey bottle above my head. So trim everything. Yes, I love my money tree. That’s been a challenge. So, Dan, you’re back again? Nope, he’s not. So we are going to continue talking about Disney here. As Dan mentioned, you know, they’re they’re projecting 240 million Disney Plus subscribers by 2024. But Bob Chapek remains confident that will happen. And that really seems like a realistic estimate. They’re they’re looking at 121 million plus subscribers this quarter after their low single digit, millions growth, and really just an impressive, impressive scale. Hey, Dan.

Dan Kline  27:17  I believe I am back. But let’s not push our luck. And let’s hit our finisher here. Again, I have no idea what’s going on with the internet.

Steve Symington  27:27  Dan is temporarily back. So Dan’s finisher. Now he shared this out on Twitter. He asked people how they watch TV 7% of you said cable 60.8% said paid streaming services combination of both 1.6%. None of the above 10.6%? Almost 11% you really not watch TV.

Dan Kline  27:50  Yeah, I don’t believe that. And I actually don’t believe that that many people aren’t watching some form of cable.

Steve Symington  28:00 

We’re getting about five seconds of Dan at a time. This this great.

Dan Kline  28:05  Steve, why don’t you close the show here?

Steve Symington  28:09  So yes, I’d say paid streaming services. I agree. combination of both. I was actually thinking about getting cable again after they send me temporary deals before the end of the year. But you know, we see that continued trend of cord cutting as far as how people are watching TV. And that finishes up today’s episode of 7investing Now.

Dan Kline  28:29  Yeah, apologies for the technical glitches here. Not sure what’s happening. Maybe there’s thunderstorms or something. Maybe there’s Gremlins in the –

Steve Symington  28:36  – in the system. I will continue that for him. If you guys have any questions for us. Just send us an email at info@7investing.com. That is almost always me responding but several of us have access to that we respond to all of your emails personally. And you can also reach out to us @7investing investing on Twitter. We’re very active there and love to talk with our subscribers and and other folks who follow us and like so. Thank you so much for Dan Kline. I’m Steve Symington. Thank you for joining us. We’ll see you all again on Friday.