The FDA has “paused” the use of the Johnson & Johnson vaccine due to six women developing blood clots weeks after getting it. Maxx Chatsko will discuss whether this will impact the markets and the country’s economic recovery while also giving us some perspective on what’s happening. Then, Simon Erickson will talk about the Coinbase IPO and its recently set price target. Those will be followed by Anirban Mahanti sharing his thoughts on hypergrowth investing.

Transcript

Sam Bailey  0:13

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

Dan Kline

Good afternoon seven investors and welcome to the Wednesday edition of 7investing Now my name of course, is Daniel Brooks Klein. I’m the host of the program here in sunny West Palm Beach. Joining me from very thunderstorm-y in Houston, Texas. I point that out, because we could lose Simon Erickson at any moment is Simon Erickson and of course, Maxx Chatsko is in Pittsburgh where it’s cloudy with a chance of cheese steak. Welcome to the program.

Simon Erickson  0:52

Hey, Dan, how’s it going?

Dan Kline  0:54

So, a little bit of a trivia question for you today just to start the show, but I’ve moved up the list of famous Hofstra alumni. It was a person who died today, Ray Romano, then me. Not literally, but like somewhere in that. Simon, do you know who it was who died today?

Simon Erickson  1:13

I believe I do. Did I believe that Bernie Madoff was a Hofstra Flying Dutchman alumni.

Dan Kline  1:17

Now talk about your mixed bag. You know, when they say any publicity is good publicity? I’m not so sure that the guy who was the best at Ponzi schemes is really what you want to be proud of Maxx, thank you for pointing this out. Maxx asked me earlier if we’re gonna have a moment of silence we’re not going to have a moment of silence for for Bernie Madoff. The first I knew that he was after alumni was of course not when he was successful, it was when he was arrested.

Simon Erickson  1:43

No longer The Flying Dutchman either, right. You guys don’t have the same mascot anymore.

Dan Kline  1:47

No, now we are the pride and it’s actually like severed my connection with the university like after dropped its football team dropped it’s amazing nickname. The Flying Dutchman is a mythical ship in search of an unattainable goal. Anything described Hofstra sports, that was it. We basically peak once every 10 years, make the tournament, and then like get blown out by Duke by like 40 points in the first game.

But we have a special show today. At the top, we’re going to talk with Maxx about the pause in the Johnson and Johnson vaccine. What that means for vaccines, what it means for the economy, not going to lord it over everybody that I’ve already been vaccinated. So I’m not that worried of No, just kidding. I’m very worried about everyone getting vaccinated, so we can get to normal. Then Simon is going to talk about the Coinbase IPO. This is not a company I understood very well. So I’m looking forward to this part. And then we have an interview with our very own Anirban Mahanti. About hyper growth investing. He explained investing to me in a way that basically when you look at a company, it is difficult to fathom how big like if you look at Amazon, you know, from the beginning, you can’t even do the math to where they are today. But with that, Maxx, are you ready to talk Johnson and Johnson vaccine?

Maxx Chatsko  3:00

Let’s do it, Dan.

Dan Kline  3:02

So before we get into this, we, of course are a live show, we’d love your questions and comments. So wherever you’re watching this, in theory, if you share a comment, we will see it. If you just want to say hello, we’re happy with that as well. So Maxx, they’ve paused use of the Johnson and Johnson vaccine. Can you explain why and sort of what the near term implications of that are?

Maxx Chatsko  3:24

Yeah, so regulators, the CDC and the FDA decided to halt distribution at federal vaccination sites. And they did that hoping that states would follow suit, and many have, indeed done so. So the reason for the temporary pause is that they’ve found and they haven’t linked yet, but they found at least six blood clots from women who have been administered the Johnson and Johnson vaccine. So they’re just kind of taking this precautionary approach right now. And they’re, you know, going to convene a panel to see what’s going on and how to proceed going forward.

Dan Kline  4:00

So the reason we bring this up is of course, the faster everyone gets vaccinated, the faster we have a return to semi normal. We don’t know exactly what normal is going to look like, because we don’t know what variants so it might be normal plus a mask, it might be normal with some capacity restrictions. But our very, our good friend, David stress asked the question on Twitter. This may come off as insensitive, but I can’t believe this was stopped because six individuals out of 7 million people who got the shot ended up with a blood clot. I mean, that number is just silly. Nothing is 100% ever. Going to work but nothing is 100% ever going to work. But to stop this for six out of 7 million is wrong, Maxx. That’s not really what’s happening here. This is a pause. It’s not really a stop. Scientifically, what are they looking for here?

Maxx Chatsko  4:47

Yeah, that’s right. So you know, I think it’s important to point out just at the top, it’s really easy in the moment to criticize or to take sides and there’s really no perfect solution here for regulators, right? If they kept going with it, there’s a lot of vaccine hesitancy out there. It’s kind of ironic, right? I cover biotech, my mother is actually an anti vaxxer. So I have a good insight and that grew up in a household like that. So this has implications if you didn’t stop, you know, if this worrisome safety signal came up, and regulators just pushed and plowed ahead, that could be one tangible piece of evidence that could affect, you know, vaccination rates for childhood vaccinations for maybe a generation, right, they have one tangible thing to cling on to and say, Look, they really don’t care about our safety.

So a temporary halt here is probably the right move to do. Now, is it an overreaction? I mean, again, we’re in the moment, you can take either side. So one in 1 million is basically the risk case that we are the rate that we have for blood clots from this vaccine that we know. That’s really very low, right? You know, women who take birth control, the rate is about 1000 in 1 million for who can be at risk of developing a blood clot. And in cases of Coronavirus that we’ve seen the rates 2000 and 1 million. So the thing that the vaccine protects against, you have a 2000 times higher chance of developing a blood clot than the actual, you know, this one specific vaccine.

So the rates are very low. And look, they’re gonna convene a panel, actually, today, this afternoon. Independent experts are going to look at all the data specifically for each of these six cases. And they’re going to come up with a plan – we know that there’s a treatment plan for blood thinners for this. One blood thinner in particular is actually to make it more severe and actually can lead to fatalities. So we want to make sure we understand that, and don’t prescribe that if we do proceed, you know, with vaccinations here, but the risk is overall very low. And you know, I think I mean, my hunch is we are probably going to be redistributing this by the weekend.

Dan Kline  6:44

And Maxx, this is kind of about optics. So like we talk a lot about autonomous driving. And let’s say for every with regular driving me and you driving, for every 1000 people who drive there’s about you know, 30 deaths or accidents. If you theoretically on paper, you could say, well, if autonomous driving cuts it to 10. That’s an improvement of 20. And it’s great. But the reality is, from an optics point of view, they’re only going to accept zero. You can’t say plane travel is 99.98% safe, because a plane crash is really graphic. So these are very, very public deaths. And they’re not stopping this because of the risk. They’re stopping it to figure out the best course of treatment. As you said, they don’t want to give you the wrong thing. So this is just a pause. This is also a very small percentage of the overall vaccinations. The federal government has said, we’re still going to hit 3 million vaccinations per day as they have been averaging. While we’re closing out here. What is the difference between the moderna and the Pfizer vaccine and the Johnson and Johnson vaccine and then we’ll talk economic impact.

Maxx Chatsko  7:51

So in Europe, too, we saw like the AstraZeneca vaccine actually led to blood clots as well and some concerns with that. So both the AstraZeneca and the Johnson and Johnson vaccine use something called adeno-associated viral vectors or AAV to deliver the therapeutic payload. The Moderna and Pfizer biomimetic vaccines use mRNA technology is relatively new. So an AAV is immunogenic. That means that that, which encapsulates the therapeutic payload, actually triggers an immune response. So that’s not good for things like gene therapy, that’s an obstacle for gene therapy, because it degrades the efficiency of that tool.

But for a vaccine, it actually helps. It boosts the immune response because you get an immune response from the encapsulation, the AAV, and then also the therapeutic payload once it’s delivered. So that’s why Johnson Johnson at AstraZeneca decided to go that route. But for whatever reason, it seems like you know, there’s is this rare, rare, rare instance, where blood clots can happen? And we’ve seen, interestingly enough that most of these occur in women, right, the Johnson and Johnson vaccine, all the cases we know all six are in women.

This kind of makes sense from a biological standpoint. Women just like me, I have two x’s in my name, they have two X chromosomes, Dan, men, of course have an X and Y chromosome, but the X chromosome contains more immune genes. So women have a more active immune system. That’s why they actually had like less severe cases, they had less fatalities overall from the Coronavirus. They also have higher rates of autoimmune disorders. So it’s because of those 2x chromosomes. So there’s probably something linked to that, or we’re gonna tease it out at this panel this afternoon. Probably not. But again, there is probably something we can do. We’re probably gonna get this back into, you know, distribution here very shortly.

Dan Kline  9:31

So Max, as we see vaccinations roll out, I think 3 million shots a day is pretty impressive. We’ve got 23%, roughly of the country, I think have received both shots. The numbers a little higher when you add in people that have just seen one. Are we on pace to normal? Are we going to run into vaccine hesitation and not enough people being willing to take it, which in theory sets us back to square one potentially?

Maxx Chatsko  9:56

Yeah I don’t know. I mean, there’s always going to be people out there who weren’t going to take this regardless, right? We’ve talked about this before on the show, I think the people who answer that question in a poll is higher than the people who might quietly walk into like a Publix or Walgreens or Walmart and get the shot anyway, right? This kind of might complicate efforts. And because the Johnson and Johnson shot by having only one dose, and you know, has advantages logistically with storage temperatures and distribution, the government and states were hoping to roll this out in like rural areas, places that didn’t have the same infrastructure in place.

So a Walmart could distribute the Johnson Johnson vaccine pretty easily, or even like a mobile clinic, right. And it’s easier to do that than to sign people up for two doses, right? So that also lessens vaccine hesitancy, easier to get one to two. That does kind of complicated. But overall, like you said, most of the vaccines that are being administered right now are from you know, Pfizer-BioNTech and Moderna. So the Johnson Johnson still made up a very relatively small portion of that. Still important going forward. But I think overall, we’re crushing it in the United States, we’re probably gonna have an oversupply of vaccines. We’ve been saying that for a couple months on the show as well. And then we can export it for a little bio diplomacy, right countries that don’t have enough for screwed up their own plans. Maybe Canada up there will be helping you guys out too soon. Just sit tight. So I think all things considered, we’re still in a very, very good position.

Dan Kline  11:16

My good friend Jim Gillies. Don’t worry, we’re coming. It’s it’s very rare the US is ahead of Canada, in anything, but we do appear to be winning here. I’m going to bring Simon Erickson in here, because why are we talking about vaccines? It’s not because Max is a biotech expert, is because the vaccine will allow the economy to reopen. We’re already seeing here in Florida, a very strong trend of tourism where some of it misguided, but you’re seeing Disney bookings for the fall in the winter, come in very, very strong.

You’re seeing the cruise lines, post bookings for all outside next year. You’re seeing Airbnbs fill up because those are, you know, generally safer, you rent a house with a pool where you don’t have to interact with people. So as more people get the vaccine, I know, the first thing I did two weeks post vaccine was like three weeks post vaccine, and then went to Las Vegas. And I think we’re gonna see that. That’s going to be good for the economy. But I think it’s important here, Simon, that people look at what a business did before the pandemic, and use that as sort of the gauge of what it might do. And kind of factor out that there’s gonna be a surge of demand like, yep, we all might go to dinner like as soon as we’re allowed to, but do you think personally, are you going to travel more? Or are you going to go out to dinner more often? I’m going to travel a little bit more, because I have a year of pent up demand and things to catch up on. But that’s not going to be a long term spike,

Simon Erickson  12:41

Simon? Yeah, I think you nailed it. Dan, I think that travel has been a domestic picking back up and internationally still constrained, you know, companies or countries are still putting caps on their borders and saying, we got to get this under control. But you’re starting to see these kind of regional booking sites, whether it’s Booking.com, whether it’s, you know, China’s Trip.com or you know, things like this are seeing upticks in domestic travel much more than International. And the real question for me is gonna be business travel. I mean, you know, are we still gonna see direct sales reps out there doing meetings post pandemic as often as they did before? That, of course, it’s a big thing. I think it is picking back up, we’ll see if we get back to normal within the next couple of months.

Dan Kline  13:18

So I’ll answer this one. Because every time there’s been a change in technology that makes offsite meetings easier. I remember back to the late 90s, when I used to have to like travel to an office to do a video conference. And they’re like, Oh, this is going to end – no it isn’t. You know why people travel for business? Because they get to go somewhere and have a meal out. And and and have some drinks at the bar. Is there going to be less travel? Probably a couple percentage points less. How will the airlines make that up? With luxury leisure travel, that they were going to be more willing to take vacations and sort of there’s going to be a little bit more fear of missing out we all missed out on a year.

I do think more people are going to worry about those experiences are going to do that. I don’t see a massive change in how we travel. hTere will be a spike there will be some weirdness. Why do I bring this up Simon because in a few weeks, it’s going to be the first of the month. What happens on the first of the month, we release our new 7investing picks to members. My pick next month, and I’m going to tease it without saying very much. Some would view as a recovery play. I don’t see it as a recovery play. I see it as part of one of these broad industries that has been disrupted because of the pandemic that learned a lot during the pandemic. And then can capitalize on that what I’ve talked about publicly that is not my pick is Southwest Airlines. Southwest Airlines was well capitalized so they use the pandemic to to add new routes to go into new airports to upgrade terminals and airports because their competitors couldn’t afford to do that. That’s where I’d look for opportunity. But Simon if people want to subscribe to 7investing, they could of course, just send me money and hope. Mostly, there’s a really good way to do that. How do people subscribe to 7investing?

Simon Erickson  15:05

Can I send you Bitcoin? Is that an option today? Do you accept that just yet?

Dan Kline  15:08

We do not accept Bitcoin. I personally accept Bitcoin.

There is a Bitcoin ATM though…. there isn’t.

Simon Erickson  15:16

Duly, duly noted. Yeah, thanks Dan for you know, for pointing that out. I’m looking forward to seeing your pick that will come out on the first of the month on May 1, Maxx’s as well everyone on the team, we publish our best ideas in the stock market. And you can access those if you want to sign up today at 7investing.com slash subscribe. We also have kind of I think something that’s very unique, which is a subscriber call every single month. And we’re doing that on the Friday morning. So anybody who is signed up that sees our recommendations, is gonna have questions. It’s gonna say, you know, Dan, what about this pic that you had? Or, you know, what do you think about this? Or am I the right type of investor for that.

This is a unique way to get direct access to see not only how do we think about the pigs and the information we write into those reports, but also I have a back and forth conversation, which I think makes it a lot more comfortable and lowers the bar for actually taking action. I figured out the right or not for you. And so the first of the month is when our new recommendations come out. I’d encourage everybody to join  7investing to attend our subscriber calls, which will be on Friday. And then if you know if you’re on the fence and you just don’t know, hey, I don’t know if I’m ready to take the leap into 7investing. Friday’s 7investing live stream you kind of asked me anything opportunity about subscribing or what we think about the stock market. Lots of questions. It’s a long term journey, not a short term sprint, and we want to be there through through all of it with you.

Dan Kline  16:35

I feel like it’s a club. It’s being a member of a club. But unlike most clubs, where I was a member of a country club, and the lowest price membership was like 14,1500 dollars a year that didn’t even get me golf and tennis access. We’re charging $49 a month or $399 a year I keep saying it. But this is a steak dinner for a taco price like it is an unbelievable value. And that’s intentional. We want new investors. Now look, if you’re a very experienced very wealthy investor, we have plenty of those there’s multiple billionaires there’s multiple people who manage money so people who are charging other people to essentially give them our advice. So we would love for you to become a 7investing subscriber.

DanielKern79 says is it Chuck E Cheese? Chuck E Cheese is actually no longer a publicly traded company. But I can guarantee that it would not have been Chuck E Cheese, I can think of few companies that are more poorly run to the point that Chuck E Cheese caters to kids, has the Chuck E Cheese facility, and at some point at night doesn’t up the quality and become Charles E Cheese and invite only adults in theirs. I’m not kidding. Like when you own a building, you have to figure out how to maximize all our rent a building, you have to maximize your revenue time. So when I used to run the toy store, we’d look at our not busy times. And we’d like in the morning bring in like mommy and me reading or come take a picture with the Easter Bunny you’re like whatever you could do to get traffic at times you’re not busy.

When I see a retail business not do that, or a restaurant not do that. I’m very worried. There’s a reason Wendy’s introduced breakfast, because you know what, it doesn’t cost a lot of incremental money to do be open more hours. So sorry for the rant there. We are going to pivot Simon, you are going to talk about Coinbase we will take your question Zulfiqar at some point later on during it but Simon, let me first ask. So Coinbase went public today, the target price was $250. They came out of the chute at $350. So this is gonna change a little bit of our question. But before we do any of this,what the heck is Coinbase?

Simon Erickson  18:39

Sure. So this is kind of an exciting news because Coinbase actually did its direct listing this morning. And like you said, Dan, it kind of sets a reference price where it expects to for shares to trade at, but it doesn’t know that and we’ll get into the details of that in a second. But let me first address your question. Coinbase is a cryptocurrency exchange. And so you can think about this kind of like a stock brokerage like Schwab where you can actually go and buy bitcoin and ethereum and all the other blockchain based cryptocurrencies out there.

This is kind of your one stop shop to get access to more than 100 different cryptocurrencies and they vet it. They do a lot of work to make sure that the transactions are secure, that hold your digital wallet, they do a lot of things to make sure that the retail individual investor can buy cryptocurrencies. But the interesting part Dan is that it’s not just the Schwab it’s also kind of like Schwab combined with PayPal, because in addition to having the brokerage where you’re buying and holding on to cryptocurrencies, it can then facilitate transactions. Now, this is going to be really interesting because remember, Bitcoin isn’t like a share of a stock. If I own shop Apple stock, I can’t go out and buy something at Chuck E Cheese with my Apple stock, but if Charles E Cheese is going to start accepting Bitcoin, I can use the balance that I have within Coinbase to make transactions and that commerce side of the business is still very small compared to the retail trading side. The majority of revenue Today is coming from comissions that is charging per trade, but we could see that evolve with some optionality over time.

Dan Kline  20:06

Simon is the big advantage here that Bitcoin and other cryptocurrencies are generally tricky to keep track of, you need to keep your digital key. And Coinbase sort of gives you a failsafe way to to not misplace your asset, is that Correct reading it?

Simon Erickson  20:21

It is. Security is the biggest question for the less sophisticated retail investors in this right. So if you really had been following Bitcoin for years, you’ve got your own wallet, you’ve got to know how this goes, you might not need something like Coinbase. But if you’re someone like my mom who wants to buy bBtcoin, she might not know all the details of how to do that in a secure way. And so what Coinbase did is it really got retail investors, individual investors a way to do this securely and safely. It’s got more than 43 million accounts, which is huge. By the way, Dan, a large stock market brokerage is typically between 15 and 20 million users. And this is global, you know, cryptocurrencies don’t have to worry about remittance fees, and foreign exchanges, and all of those kinds of things. This is something that could get much, much larger over time.

And there’s one other thing I’d like to point out, too, that this is not a traditional IPO. This is a direct listing, which means that the insiders of Coinbase are selling their shares directly to the public markets. Typically in an IPO, you have an underwriter, a Goldman, or Credit Suisse, or someone that buys all of your shares says okay, here’s your check for the shares that we just bought. And we’re going to release them to the public. They take on the risk of how that trades on the first trading day and subsequent days thereafter. But in a direct listing, the company is basically saying we’re going to take the risk, we’re going to offer those directly to you happens much more quickly, most of the time and at lower fees than a traditional IPO. And so that direct listing is actually what we’re going through right now. So there’s a lot of volatility on that share price on this first day of trading.

Dan Kline  21:52

It’s also important to know that a direct listing does not raise any money for the company. And the usually there’s a subsequent listing. So that is important to remember, because this stock, direct direct listing at 250 was trading at 350 right out of the gate. If they do a secondary listing, which they almost have to do because their last valuation they raise money at was 8 billion, they’re now worth something like 600 billion based on this. But Simon, you actually don’t think they they’re actually hitting their ceiling, you actually think it’s worth more than it’s trading at right now?

Simon Erickson  22:24

Yeah this is actually something that I’ve updated my thinking on within the last 45 minutes. To be honest, when we started this morning, you know, there was the chatter that the direct listing reference price was going to be a 250 a share, which was equivalent of a stock market valuation of around $66 billion. And I said, Wait a minute, that’s if that holds, these are a buy, you know, that is 20 times the earnings that they’ve got, I believe it was something like 10 times the revenue and we haven’t even gotten started with cryptocurrency trading yet. And we definitely haven’t gotten started on actually using transactions.

But you see, companies are starting to explore and innovate this, right? I mean, Elon Musk has now said, you know, he’s gonna he’s bought one and a half billion dollars worth of Bitcoin, put it on Tesla’s treasury, which means he’s, he’s benefiting from the the increase in the price of bitcoin every single day. But then he’s also saying, Hey, we’re gonna figure out a way that you can buy a Tesla with with Bitcoin and Michael Saylor, and, you know, the consultants of the way from Microstrategy to people that are really convinced in this long term trend are enabling those innovators to get ahead of this and so I still think we’re in the super early innings. Dan, Steve Simonton, my colleague and I just had a conversation with our partner CryptoEQ, we’re going to publish that tomorrow for subscribers, just kind of exploring what is going on out there, not only in terms of the price of bitcoin, and any cryptocurrency but how is this actually collision course impacting the equity world that we that we tend to play in here at 7investing?

Dan Kline  23:53

So Simon, how vulnerable is Coinbase was at $100 billion valuation, which is probably where they’ll finish the day. They’re worth more than the New York Stock Exchange and NASDAQ put together. How vulnerable are they to traditional banks and brokerages paying attention to this like I am not going to join Coinbase if all of a sudden my brokerage of TD Ameritrade turns around and offers me the same features. Can they be disrupted here?

Simon Erickson  24:19

It can and it will be and this is something that’s continuing to to bring a lot of competitive attention right now. The traditional example, I guess, history that we’ve that we’ve seen, at least in stock market brokerage has been consolidation. Right? If you had an account with a smaller brokerage 10 years ago, it probably changed names on you three or four times, but your assets were still there, your stocks were still there. You just had to change your login to a different platform. And we also saw commissions fall more and more, you know, discount brokerages were $50 a trade and then they were $20 a trade and there were $7 a trade and now there’s no commissions and you’re seeing the Robinhood’s and you know basically every discount brokerage, giving free trades interactions today, as they find other ways to capitalize on this.

And so for Coinbase, as you mentioned correctly, potentially being disrupted, is it’s charging between 0.5% and 1.5% of every transaction. And so what that means is as the price of bitcoin continues to go higher and higher, the transactions go higher and higher and Coinbase revenue goes higher and higher. That’s why Dan, we saw their first quarter revenue, the most recent quarter revenue was more than all of the previous year’s revenue combined. As Bitcoin continues to climb higher and higher. So the question is, one does do those fees come down as competitors enter this space? And two, does the price of Bitcoin experience a significant correction, which means that revenue falls because the price is lower. Both are on the table, but on the other end, counteracting that we’re still in the earliest stages of cryptocurrencies.

Dan Kline  25:52

And as Sam Bailey, let’s take the first question from Zukar to get towards closing this out, what advantage does Coinbase have over trading apps such as Robinhood? Once I see its accessibility since Robinhood is open to international investors? Boy, I wouldn’t buy something volatile and ethereal in Robin Hood, that seems to be like a terrible idea, like, like their customer service is terrible. But Simon, feel free to jump in.

Simon Erickson  26:18

Yeah, switching Zulficar. I mean, the question here is, you know, who else can scale to 43 million users as quickly as keep Coinbase did. And so Coinbase has got a huge headstart that it can start expanding to offer new things. So Coinbase has now got a Coinbase card, it’s gonna look like a debit card. If you can believe this or not, you can actually pay for things with Bitcoin. If you think Bitcoins overpriced right now and you’re like, Hey, this is great. I’ve gotten a 10x return on my Bitcoin in the last couple of years, I’m gonna use it go buy a new car, right now. I’m gonna buy a Tesla because Elon wants to accept Bitcoin. Now, you can do that. And that’s a lot more volatile, for good or bad than the cash in your bank.

Dan Kline  26:53

Can you imagine the buyer’s remorse of like, you buy a $45,000 Tesla with Bitcoin? And then like two days later, that money would have been worth like 70,000? Like, we’ve talked a lot about when you sell your stocks. And yeah, occasionally, you sell a stock. And for some crazy reason, it goes up 70% in the next week, but that’s not typical. Bitcoin has been very, very volatile, and will continue to be very, very volatile. We have a great comment from our very own Ashley Wilson. And then I will give Simon the last word, Maxx, if you’d like to read this comment, that would be great.

Maxx Chatsko  27:28

Yeah, Ashley says Coinbase has a phenomenal platform. You can earn altcoins for participating and learning more about the underlying tech. There’s also instant trading up to $25,000 on linked accounts, it’s easy and powerful. That’s actually pretty nice. advantage there, right, like instant funds settlement, obviously, for brokerage is not always the case where you got to wait a couple days or hours. It’s kind of annoying sometimes.

Dan Kline  27:52

And Simon that’s one of the opportunities you see here, correct?

Simon Erickson  27:56

It is. I think that kind of if we want to pull this all together with some final thoughts on Bitcoin and crypto and Coinbase. We tend to like to look at this in terms of the bigger picture, you know, you’ve got a company that’s executing very well, it’s got 43 million people on it. It’s now gone public. It’s got a lot of momentum behind it, but bigger picture, cryptocurrencies, the market cap of cryptocurrencies, globally is around $2 trillion. Right now. Take all the Bitcoin, all the crypto, all the ethereum everything out there put it together, it’s about $2 trillion. There’s about $10 trillion in gold globally. There’s around $100 trillion in equities globally. And so what bigger picture? I mean, can we get to $20 trillion of cryptocurrency? And are we actually going to start facilitating trillions of dollars of Bitcoin transactions in the future?

If yes, if we do, then then Coinbase is a huge winner from here. And institutional funds. You know, they’ve got the the target date funds, you know, fidelity has got your retirement fund and a 401k. You’ve got, you know, your money parked in assets like these. I mean, these are these are up to trillion funds, right, Vanguard total stock market returns a trillion dollar asset fund. If they can convert the balances that are in cash that are in money market funds, perhaps in bonds over to cryptocurrencies, and people are really, really wanting to ride this trend, then it’s game over. I mean, then anybody who is a bear on Bitcoin, saying that the price of Bitcoin is going to crater has been proven wrong, because the the price goes through the roof when you’re starting to talk about trillions of dollars with a T. So a lot to watch. There’s obviously a lot of risk, but the long term investor in me is very intrigued. Dan, this is this is kind of why we like chatting with CryptoEQ about this so much. It’s a huge trend that’s just growing in relevance over time.

Dan Kline  29:45

I actually think this is a market that is going to accommodate the traditional players without particularly harming Coinbase. There. There is absolutely a class of investor that wants to buy into this. That’s going to do it from existing platforms. We saw Jamie Dimon talked about it last week that they have to spend. He’s the CEO of JPMorgan, that they have to spend money to compete with FinTech. They know they have to do that. So Coinbase will have competitors.

And Mike V, I’m not taking your question because I haven’t done the research on the alternative to Coinbase you’re talking about but but we will look it up and talk about it on future shows. There’s going to be upstart competitors, there’s going to be established competitors, we’re going to follow this one. But now as we move into the next last segment of the show, I did an amazing interview. Simon, I’m looking forward to you guys seeing this with our very own Anirban Mahanti about hyper growth investing, I didn’t even really understand what he meant by hyper growth, until we actually talked about it. We’re 50/50 on whether this works. Sam Bailey, if you can hit that video now. Go.

Anirban Mahanti, welcome back to 7investing. Now we always have to ask this question because as Americans, we have no concept of the rest of the world. What time is it in Australia, as we taped this at roughly six o’clock eastern time here in the United States?

Anirban Mahanti  31:07

You know, it’s becoming 8am. It’s not that bad. It’s actually nice and bright and almost right in time. I’d say. So, early in the morning, the future.

Dan Kline  31:21

We’re going to talk hyper growth investing. Before we do that – You’ve lived all over the world, you live in a whole bunch of different places. What is the one thing when you’re in Australia, you miss and I’ll get I’ll give you a minute to think about it. My aunt when she lived in Australia, she lives in Sydney also, for 20 years. Like from the point I was like 13 to maybe you know, my mid 30s she missed a specific brand of vanilla pudding that you could not get so we used to send it to her by the box. What is it you miss the most being in Australia that maybe you had in Canada or one of the other places you lived?

Anirban Mahanti  31:52

No, nothing, nothing specific about food. You one of the things in when I lived in Calgary, I used to go to the you know, the Banff National Park and Lake Louise quite often say, you know, that’s one of the most prettiest places in Sydney is beautiful. got, you know, oceans, as you can see, and beaches and so on. But you know, sort of miss those mountains, the modern hikes. So that’s probably one of the things that you know, driving in to the National Park. And just going for a hike is relatively easy access from Cal Poly. So yeah, it said that I was in Calgary, that was one of the things that I would say miss even today,

Dan Kline  32:30

We’re gonna talk about hyper growth investing. So you wrote an article, these are your words, an article about lily pads and hyper growth investing? I’m not entirely sure what that means or where you’re going with that.

Anirban Mahanti  32:43

Yeah. So the thing with lily pads is people use the lily pads example for as a way for to show how compounding works. And you know, often what happens is you have a pond or lake, there’s like one lily pad, you know, one leaf somewhere, then soon there’s two, there’s four. So there’s eight and in a very quickly the point can actually fill up. And often what happens is if you ask someone when the point is half full, when is it going to become full? If it takes 15 days to get half, or people saw another 15 days to get to full.

But typically, you know, compounding doesn’t work that way compound is not linear. But our minds are used to thinking linearly. So the right answer is, is if it’s helpful than 15. In the 16th day, it should become full. It’s it’s just simply a trick play tricks with your mind. But that’s exactly I think what happens when we think of a disruptive growth companies and their growth, we tend to have problems in terms of thinking explanation.

Take a company that’s growing at 30%, right? If it is growing a 30% is doubling every two and a half years. We have a problem to think that this can actually continue for a decade or more. Right. And it becomes worse if you think of the higher growth growth rates here. So take your time, like as an example of is growing at 100% we really have trouble thinking that this thing can actually grow at that rate for a few years. Because if you know 100% or a few years, this is a lot of you know, compounding that’s happening. So that trips, models and and it’s a big deal, because that’s how you get a lot of undervaluation. What people think is overvalued is actually undervalued because this, this exponential growth is not captured. Does that make sense?

Dan Kline  34:30

To put this in perspective, if you’ve ever seen a virus movie or a zombie movie, this is the scene at the beginning where they show the red dots on the map, and like five days in it gets to the point of no return if you don’t slow down the spread. So like it is a difficult number because the other thing we question is whether that growth can continue to happen. There’s a lot of examples where it has, but I think if I told you 15 years ago, Amazon was going to be as big as it is now. I don’t know that the human brain can get its head around exactly how that happens sort of how do you as an investor, look at this and go, Okay, this is a million dollar company, but they’re growing at this rate, here’s why I believe they can get to some unfathomable number when at least comes to my brain.

Anirban Mahanti  35:16

I recently watched Contagion Netflix. Another fantastic thing was just seemed like the entire COVID-19 pandemic was done. Somebody had the template for it many years ago. So and exactly that sort of thing about virus, you know, like, what virus the virus and how they showed the origin of the virus. That’s fantastic. Good example, actually, very timely, I would say, using bias as an example for hyper growth.

So here’s the deal, right? I actually think go back in history. And the reason I like the lilly padarticles or strings of research, I looked at Walmart, and between 1985 and 1995, you’d be surprised that WalMart grew every year at 25% or more. Sales were around $6 billion, or something like that $7 billion in 85. And they were like, close to $90 billion in 10 years, that that’s the power of compounding. So the thing is that there is always an opportunity to compound if you come into a market with a different tack with a different angle, something innovative? If, right, so Walmart has been an innovative business, it was superbly innovative, you know, this hubs and spokes model, it’s where the disruptors are mom and pop stores, and there’s somebody is always getting disrupted, right.

So they can, you know, they disrupted mom and pop stores, they did these, you know, big sectors and smaller centers, and so on, right, and then they sort of applied the same idea internationally, first in the US and applied it internationally. Amazon is basically sort of disrupting them. And the thing to realize with disruption is it doesn’t necessarily mean that the old thing dies, right? Amazon has not killed Walmart it’s just one much growth rate has eventually slowed down, it’s not growing at 5% 6%. Right. The thing to keep in mind is I just look at Walmart and say, Well, okay, think about somebody building a model for Walmart in 1985. A, they would have a hard time putting in 30% growth rate for 10 years. And after 10 years, they will definitely put a terminal value. And the reason I point this out is most people, you know, we build DCF models, when we build the discounted cash flow models, we start with the revenue at the top, and then they go down, you know, figuring out what the cash flow should be. But we have to model the growth of the revenue.

And we would not we would be uncomfortable putting a 30% growth rate for first 10 years and then saying they’re going to not put maybe and even if we do that here to put then a 5% growth rate for the terminal value, which is essentially here 11 to infinity. But here’s the thing, right? Walmart actually then grew at 10% or more for the next 10 years. Right, eventually, but then slowly, so things can actually if they’re great businesses, they can grow for a long time. So actually let history be a judge. Number two, I look at past you know, if a company is growing as this sounds obvious, when you say it’s very difficult to do, if a company grew at 100%, last year, it’s not going to grow at 20% next year, the company grew at 8% last year, so we’re going to grow at you know, 10% next year, but it’s going to grow at some rate and it’s you just have to bear in mind. And then the third thing I try to do is I am happy to be wrong. So and that’s very important. If you’re happy to be wrong, then you’re willing to take these bets. And these bets are great bets because they’re often underpriced for the future growth because people just don’t think exponentially. So that’s how I tackle this.

Dan Kline  38:30

So I’ll point out that Walmart has been a constant innovator because Amazon did kill Sears. I mean, they’re still technically a Sears but it’s a shadow of what it was they’ve crushed JC Penney, I talked about this a lot. There’s a lot of retailers out there that simply thought things were going to be the way they were. And that’s where the the ability to grow came, you know from. Now, of course, Walmart and Amazon have also created their own markets. Is there a point with scale, where all of a sudden you’re you’re rolling downhill where if you’re Amazon and you right now decided to go into bowling balls or golf clubs, or whatever it might be? Pretty much you have the scale to do that. I mean, they’ve struggled with with apparel and a few things that that need exposure, but in a lot of areas, basically Amazon or Target or Walmart, just okay, we do this now. And they’re instantly a market leader.

Anirban Mahanti  39:17

So I purposefully was toggled off, I know that you love for retail, to get your retail Jesus pumping. So that’s why I picked retail as an example. You know, I think it’d be a great point here. So the willingness to innovate is great. Once you have a big customer base, you can really innovate in different ways, right? If customers trust you. So Walmart clearly has an innovative, Walmart’s actually online business is growing very quickly. Right? So I guess the two things is if you have a big customer base, you’ve got scale, you’ve got opportunities, that’s very important. But to get there, you have to grow quickly, which is why he says a lot of companies tend to lose money in the beginning because they’re trying to get to that customer base, which gives them optionality.

The other thing really is the constant innovation which you already acquired. average cost of innovation is what actually saves you from death. The eventual death, like you know, at some point you stop innovating. And then there’s a problem. Innovation also doesn’t have to be like rapidly dramatic, right? It can just be incremental innovation, incrementally better products make us happy, right? We’re still happy with Walmart because it does, you know, provide a good price for the stuff and all that nice places. And you know, it’s great. So I think and their willingness to fail.

Dan Kline  40:27

Let me jump in here because there was a major inflection point with Walmart where Walmart bought Jet.com And it had to make the concerted decision to empower Mark Laurie, who was the CEO of Jet.com to lose billions of dollars in re engineering the Walmart supply chain to work for digital. Basically, he had to sacrifice every lieutenant to work for him, and and more or less engineer kind of his own way out of the company, to get everything that needed to happen.

Doug mcmillon, the CEO, it took courage to give up sales. Now that’s the same thing Disney did when when when Disney started Disney plus, Bob Iger called all of his his department heads into a room and said, you’re gonna lose money at box office, you’re gonna lose money at all of these different areas to sacrifice to grow this new thing. And obviously, that paid off very quickly because of the pandemic, which wouldn’t have otherwise. But I do think your Walmart’s, even your Amazon’s will going forward still have to have courage in order to grow. And Amazon’s always showed a willingness to do that. Walmart, it was there’s gonna be a book written about that, that couple of years span?

Anirban Mahanti  41:32

I absolutely I think mobile has fantastic, Walmart is a great example of an old company, really old company that has been constantly innovating and changing the time. So that’s, I think, the most important thing, willingness to change with change in time. The the I think the thing is that exactly, Sears is no longer there. Because they didn’t didn’t innovate, I guess, fast enough. The other thing is that Amazon’s business, if you think about it is not primarily are Walmart’s businesses, you know, Amazon’s basically trying to go online, these guys have been big on, you know, offline, if I may use that word. And often innovation happens, often the big innovation happens in two completely different dramatically different markets, right?

So you don’t, you’re not going to disrupt social media by trying to be Facebook. Social media could get disrupted by something that we can’t even think of. Right? It’s that’s the sort of the step change. And the other thing is that when the market becomes big enough and establish like, take one example you brought about, you mentioned about Disney, right? The big players with a lot of balance sheet power and staying power with a lot of consumer appeal, they can actually pivot like Disney plus. And that doesn’t necessarily mean that Netflix is going to die. It’s actually just basically says the that market is now fully established or not. They’re like three players, four players that. So I think that’s the fascinating way of thinking about it, I think I feel a little bit optimistic feel that the world is going to be better in the future. And the companies that make our future better are actually going to be the ones that succeed, right? And Walmart is killing that Netflix, Disney. That’s the way I look at it.

Dan Kline  43:10

And it’s worth noting that Disney plus has killed some of the second tier players. WWE Network no longer exists in the US as a standalone entity. It’s now content on Peacock. Because I do think you’re going to see some max for people of You know what, I only need so many of these now. Amazon is pivoting and in an interesting way. They’re going to launch 1000s of traditional grocery stores, and why are they doing that? They have the supply chains, it is a great time to be renting grocery store, you know, that size of store and the prices are going to be good. And that increases their distribution market.

So they’re gonna open physical stores that make their online stores stronger. Again, it becomes that ball rolling down the hill. Let’s close out here with a what are you watching that’s Amazon, like today tell tell everybody, that’s why people are watching. They want to know, you know, like, you know, I say buy Amazon, I think there’s a lot of room to grow there. But that said Amazon’s not gonna as a stock price, you know, be a 10 bagger over the next two or three years most likely.

Anirban Mahanti  44:09

Yeah. So like I own Amazon have not sold the share. You know, here’s the thing, right? So, I think I have tweetstorm about this, that we think of a trillion dollar company as too large today. Right. But you know, the average S&P company today is about $70 billion on average market cap 30 years ago, there was about $6 or $7 billion. So market caps expanded four times Amazon become much bigger over time.

But when you know one company that I think people are sort of under appreciating and I’ve said this, you know, a Tesla, of course TSLA, is one of our my family’s largest holdings, and I stopped I don’t think I would make this an official recommendation because it’s just a difficult stock to you know, it’s one of those stocks that is very difficult to convince people but Elon Musk comes out and says we are going to grow volume. I think 2% for the next decade, but just to the math of that, that’s company serious compounding. Nobody believes that they’re actually going to do that. But if they do that, this thing is, you know, actually cheap.

And in many ways in the way I look at Tesla’s, if we go back in time, similar point in time to Amazon, Tesla’s actually get profitable cash flow generative compared to a to Amazon, Tesla actually has a PE today. And if you look at its forward PE, its actually not that bad. So, and the forward PE probably is under estimating is real earnings. So I think that’s one company that I would say can be significantly significantly larger over time. And I think the other thing, we need to realize they should really not think about market caps in terms of today, right, we should really think about what market caps can be in the future. So I think there’s a little bit of, you know, you know, thinking that we need to do, which is different, like from what I think the conventional wisdom is conventional wisdom, and we are looking back, you know, in time this these companies are so large kind of getting larger, and the answer is yes.

Dan Kline  45:52

So this is why I’m so excited that Anirban is here. Because when you look at a company, you know, companies will tell you their total addressable market, but total addressable market is a meaningless statistic. It’s like, it’s like saying, Hey, I could be the Chipotle of Chinese food and like, sure, you could, but like your odds of getting there are not high. But when you look at whether it’s a mature company or a growing company, you have to project out 10 years of what their business might be. And that literally means it might be something entirely different than where it is.

I don’t think too many people when they looked at Amazon, in the first couple years, it was public when, you know, it’ll be a big driver here. The cloud web services, like nobody saw that people when they were a bookstore might go like, boy, I bet they could sell CDs, like maybe posters. It is a big leap to get where they are. And I think when you look at any of these successful companies, it is what’s next. You look at Tesla. Would it be crazy to you if Tesla became like Richard Branson’s Virgin. A Tesla cruise line isn’t out of the question, a Tesla, whatever that brand mean, so much that sure they can they can exploit it with merchandise, but they can also open Tesla rides as a licensed ride at a theme park. And that won’t necessarily be driving a Tesla. Who knows.

But when your brand is that powerful. Your ability to sell Tesla frozen yogurt is strong. Again, I don’t know what that would look like. But it would be a way to pass the time at the charging station. I’m Being silly Anirban. Thank you for getting up early with us. And I guess I’ll throw it back to myself.

And we are back. I am impressed at that worked. Sam Bailey behind the glass. Thank you for that. We’re going to take Dee’s comment. D says honor bond has been a great addition to the team. Yes, he has been behind the scenes in front of the camera. We had a ton of fun taping that last night and we fought through some technical problems. There’s a koala bears all over the internet there. I’m not sure what it is. But it doesn’t actually we had a lot of glitches. So that was took a bit to get to what you just saw.

But with that, Sam Bailey we are we’re up on the top rope It is time to hit our finisher. Which is the strongest brand for the next 30 years overwhelmingly you said Nike almost 68%. Lulu lemon came in came in third at 11.3%. Peloton at 13.7% and Levi Strauss at 7.1%. Simon, can I make the argument that 30 years from now I’m 100% sure that there will be Levi Strauss jeans. And I am not 100% sure about any of the other ones there. I actually think there’s like kind of some recency bias on this one.

Simon Erickson  48:48

That’s interesting Dan, because I also voted for the minority on this. I almost certainly think that the answer is Lululemon. When we think about the power of the brand, allowing for pricing power and how strong Lululemon has that figured out with their audience? I would personally have voted for B on this one.

Dan Kline  49:05

Maxx have you heard of all of these brands? I know you’re you’re familiar with with Nike, but is there one you’d pick here?

Maxx Chatsko  49:12

Yeah, I would agree with you. Maybe there’s some recency bias. I would say Levi Strauss is definitely gonna be around 300 years from now we’re gonna be wearing those on Mars probably. But yeah, Nike, like I don’t how do you go? How do you pick against Nike?

Dan Kline  49:24

Yeah, here’s the thing. I actually think all of these are going to be long term foundational brands. I don’t think it’s out of the question that there’s some consolidation it wouldn’t shock me if somebody bought Peloton at some point. I know that’s a very expensive purchase. Lululemon same thing. The power to make Lulu lemon beyond an athletic brand is very strong. There could be a Lululemon food line at Target. Like that’s not a crazy thing to think about.

We have run out of time. Let me give a little tease for Friday’s show. On Friday show I’m going to have the entire team and we’re going to be taking your questions. So if you’d like to get a question in, hit us up at our Twitter. That is @7investing. I’ll put up a call for questions up at some point today. We’re in the pool after this. But after that, I will put up a tease where you can ask us questions. We’ll talk about anything. Of course, if you remember, we won’t talk about recommendations. We’ll do that in our members only call that takes place at 11 o’clock.

And you should also remember that Friday’s show starts at 1230 it is a different time. If you have questions for us. You can reach us at info@7investing.com. That’s questions about the service. That’s questions about your membership. And of course we’re available on Twitter for anything you like @7investing. That brings us to the end of the show, apparently the end of my voice for Simon Erickson, Maxx Chatsko, Sam Bailey behind the glass. We appreciate you watching. We will see you Friday at 1230. Thank you!