The space company has been flying high (both literally and figuratively) as it has completed a test flight involving its founder Richard Branson. This has Virgin Galactic ready to become an actual business and in advance of that is begun taking reservations for seats on upcoming flights at $450,000 per ticket. Steve Symington joins “7investing Now” to discuss what this means for the stock going forward.

Transcript

Sam Bailey  0:12

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  0:23

Good afternoon. Good morning. Good evening, depending on where you’re watching this around the world. I will say good afternoon 7investors just to make it easy. And welcome to the Monday edition of 7investing Now my name, of course, is Daniel Brooks Kline. I am the host of the program. I’m being joined today by Steve Symington, and we’re going to talk Virgin Galactic (NYSE: SPCE) raising its prices, raising its prices from incredibly high to incredibly higher. But we’ll get there in a second. We’re going to talk what to watch going forward. We’d like your involvement, your questions about the space race, your questions about Virgin Galactic, your question about what Richard Branson is like, I’ve actually got to be near him at a [inaudible] show, very compelling. But before we do that, Steve, Happy anniversary. How many years has it been?

Steve Symington  1:06

Oh, hey, thanks. I forgot you have me on Facebook. But yeah, it’s 15 years today with my wife and I love you, honey, if you’re watching, but yes, that’s a that’s a long time. I guess when you think about it. It’s a decade and a half now

Dan Kline  1:23

21 for us. So I am winning. And I don’t think you can catch up. There is no three point line here.

So good morning, Allison [uknown name] or I’m probably not pronouncing that correctly. But as you can see, if you are watching the show, wherever on any platform, if you make a comment, in theory, we see it. So feel free to put through some general market or investing questions. We won’t answer those till the middle or the end of the program. But basically say hello, do what you like. It is a free form program a little bit today.

So here’s what’s happened. Virgin Galactic, a company we have talked about a lot has reopened ticket sales with spaceflights at a starting price of $450,000 a seat. This comes after the company completed a test flight. Steve, this is $450,000. I know they say it’s like a four day Space Camp experience. But it’s an 18 minute suborbital flight, this is a lot of money. Yeah, I’ll let you jump in here.

Steve Symington  2:22

Yeah. So for perspective, they already have about 600 people who previously reserved their spots paying an average about $250,000. They closed the reservation several years ago, they have not reopen them until just last week, we saw shares kind of rally on the heels of that. And yes, it comes not just on a single test flight that included Richard Branson, most recently in July. But several other test flights before that. And they are, they received their FCC approval to, or FAA approval, to begin flying commercial passengers whenever they so choose, which we can get to that in a minute, will happen about Q3 next year. So that’s that’s about when they’re targeting it. And there’s a few things behind that. But yes, $450,000 a seat. I think we will be surprised at how many people will jump on that chance. So this isn’t something they’re targeting, just your everyday consumer. These are high net worth individuals who have the money to burn.

Dan Kline  3:23

Steve, just a quick aside here, the original price was $250,000. Does this create a resale market? Because if I had a $250,000 seat, it’s now worth $450,000? I get if I can afford to spend $250,000, an extra $150,000 or $200,000, if I could sell it for less value might not matter to me, but it is still a pretty big number.

Steve Symington  3:44

Yeah, I don’t know how that works exactly. I know there’s been reports of some kind of notable celebrity celebrities Ashton Kutcher, for one who sold their tickets back to Virgin Galactic years ago, because his wife said, hey, we’ve got a young family. She was nervous about it. They hadn’t moved quite as far along in their test program. So who knows how that plays. But, if maybe you could say you want to be one of the first 600 to go up? I don’t know, if we have a resale market there. But

Dan Kline  4:15

So you’re actually confident that there’s going to be significant demand at these prices?

Steve Symington  4:20

Yeah. So I think, when people ask, what kind of demand are we gonna have? I think the the only accurate answer is stronger than you think. Right? And, previously they told investors actually, they’ve shifted some things around on the heels of reopening this, they changed several things. So they previously told investors that they were going to reopen ticket sales after the next test flight, which was supposed to be kind of any week now. Right? And they decided after the Richard Branson flight because they had seen such massive consumer interest voiced on their website for these flights, to reopen them effective immediately and the next flight will be in late September. It’s a scientific research and astronaut training flight with the Italian Air Force that’s at about $600,000 a seat. So that’s another separate market for them.

But they reopen them earlier than expected due to the demand. And there’s several analysts who’ve already stepped out and kind of forecast pretty significant reservations. I think Morgan Stanley actually said they expect they should get a little over 1,100 new reservations out of this. And they also have a group of people, 8,000 people have paid $1,000 refundable deposits, to secure their places in line after the first 600. So those people get the first chance and then they’ll open it up to another waitlist afterwards. So I think that’ll be an interesting catalyst for the stock over the next couple of months is if they decide to step out and say, Look at all this demand, because if they do, fulfill Morgan Stanley’s forecast of securing an additional 1,100 reservations at $450,000 bucks a pop, that’s about $500 million in reserved seats that they’d be able to collect.

And they said, there is a slight premium even more, to reserve full flights, because they’ll have single seat options, they have a two seat option for couples and friends, and family. And then if you want to book a whole flight, you can do that that will cost you a little bit more. But I think I think we’ll be surprised. Most people will be surprised at the demand that we see.

Dan Kline  6:20

Steve, I think it’s important to point out that you and I are both investors here, I think you believe in this a little more than I do. But I see the long range potential, especially on the travel end. But let’s look at the numbers a little bit because I’m not a giant numbers guy, as you know, but as an investor it does, at some point, come down to two numbers. What does it cost to operate a flight? So it’s about eight seats on a flight? Is that accurate?

Steve Symington  6:43

No. I mean, the last one they did was four I think once they really start ramping Commercial Service, it’ll probably closer to six people per flight. That doesn’t include the pilots. So yes, six paying, two pilots. But Virgin Galactic doesn’t break it down in granular detail. Like this is exactly how much it costs for us to fly right now, because they’re looking at scale.

So when they went public, just a couple of years ago, they suggested that once they’re at scale, or at least starting to and this is assuming maybe flying 1,500 passengers a year, which won’t happen for a few years yet. They were suggesting before that they’d be able to generate EBITDA margins of about 46%. So pretty healthy. But that model was also assuming ticket sales around $350,000 a piece. And that would have equated to about $600 million in revenue each year. So 46% EBITDA margins pretty healthy already there. But more recently, I think it was last November, management had suggested that they want to be able to fly out from multiple spaceports with a high single to low double digit numbers of spacecraft at each spaceport, and they expect each one to eventually generate .

If we can assume economies of scale and operating leverage continue, I think we see even healthier margins from this kind of near term aspect of their business.

Dan Kline  8:06

So you’re looking at a very profitable but limited company. So they could open up a few more spaceports. But Steve, how long is this part of the business viable at some point you run out of idle multimillionaires, because the amount of money you have to have to spend $450,000 on an 18 minute spaceflight, you have to be worth, I’m gonna say north of $20 million, or you’re really making a foolish purchase, even then it’s kind of a foolish purchase, how long can this part of the business keep growing?

Steve Symington  8:35

I think again, the answer is longer than you think. I think this goes for several years. I think this can carry the company for a decade or more. But then they’ll start, they’ll start branching out into other areas as well. But, I honestly think this is a part of the business that can provide much needed cash flow, profitability to help them scale into other revenue streams going forward.

But yeah, I think, several years is the answer. And, and I think we’re also in a lot of people underestimate the number of people who have the money to do this. And to do it on a repeat basis. That was something that that Virgin Galactic talked about in their conference call last week. The Q2 earnings conference call . They’re building this up in such a way that it’s not only sort of this life changing, transformative event for people, but yes, it’ll be a multi-day event. The flight itself takes about an hour and a half. The actual spaceflight part is only a few minutes in microgravity, but suborbital again, you go up, you come right back down.

But, we also look at what these people are spending on other things like private jets from New York to London or a week long island rental for a vacation or something, and then eventually they’ll bring the cost down, because it’s not gonna be $450,000 a seat forever. They they’ve, had slides where they say, okay, we’ve got about 50,000 people or 100,000 people who have the net worth to be able to afford this without even blinking. Lower it to $250,000 a ticket the the total addressable market expands pretty significantly lower to $50,000 a ticket, and you’ve got a couple million people around the world who could pay that, and a pretty significant subset who who will pay that? And I think, again, the demand is going to be surprising.

Dan Kline  10:24

A family of four at the newly announced Disney World Star Wars hotel, which is a two day all inclusive, immersive experience is under $10,000. That number seems astronomical. But I’m pretty sure I’d rather do that 45 times, than do this once. Like I know I’m being a little bit silly, but it is a lot of money. We’re going to talk about areas where I think the real future for this company is but I want to take the comments from ABC Capital, because we are starting to see some comments come in. And [unkown name], we will take your comment later in the show.

Steve Symington  11:00

That’s Todd there. Hey, Todd

Dan Kline  11:03

Oh, it’s actually our old friend Todd Campbell, forgot about that. “Forget sales taking folks for golf and steak. Let’s go for a space ride”. I actually think that’s that’s an interesting thing. So that’s a world my brother’s in, where back when he worked at AEG, he took a private jet full of big ticket customers from LA to New York for the Stanley Cup final when the Los Angeles Kings were playing the Rangers, I actually think there is some market there. So that is kind of a smart point by our old friend there. But Steve, when will the company, and that’s Virgin Galactic, we are talking Virgin Galactic. I’m Dan Kline. He’s Steve Symington, and you’re watching 7investing Now. When will the company move into other revenue areas and what do those areas look like?

Steve Symington  11:44

I think it’s gonna take several years before we get there, right, and several years of scaling, building out new spacecraft, and they’re only just finishing up the design phases of their Delta generation spacecraft, which will reduce turnaround to a weekly, or an every couple days flight is is what they’re looking at. But once we do that, and again, several years from now, I think we start to talk about hypersonic long haul travel. So Point to Point travel that can be done not only things like cargo, but flying people, extraordinary distances, in just a couple of hours.

And we already see, they’ve already branched out into scientific experiment and professional astronaut training revenue. That’s something I think, as a supplementary source of revenue, that’s gonna be again there next flight in late September with the Italian Air Force, that’s $600,000 a seat right now. But on their vision page, if you go to [https://www.virgingalactic.com/vision]. They explicitly mention bringing down costs to expand their, their total addressable market, and then over the longer term, even being able to transport customers to Earth-orbiting hotels or scientific research stations. So they have expressed an interest in long term orbital travel, but we are nowhere near that yet. But it’s really interesting, because you look and you say, the sky’s the limit, then sounds cheesy, but it really no longer is, and they have massive aspirations. And, and I think we’re gonna see a pretty significant sized business in the near term before they even get there.

Dan Kline  13:22

That’s actually what I’m most excited about. Because I look, do I think the market for 18 minute spaceflights, no matter how much space camp you go to beforehand? How much astronaut ice cream they give you for free? That’s limited. It’s a vanity plate. No one’s doing this twice, like that is that is absolute nonsense to think you’re gonna. I don’t care how rich you are.

Steve Symington  13:42

I disagree. I do, though. I think we will. And and actually, we can talk about, competition in that sense, but I think people will do it, not only more than once on Virgin Galactic, once they reach scale, but also doing it on multiple flight experiences. Right.

Dan Kline  14:03

That I agree with. And let’s use the comment from [unknown name] I hope I’m pronouncing that correctly, Sam, if you want to bring that up. “What about other players entering the space travel business over the next few years”? Steve, I specifically brought up Blue Origin and SpaceX, it’s important to know that while Blue Origin is going to be in this space, that’s the Jeff Bezos company, their goal is actually colonizing the galaxy. They’re more of an altruistic company, whereas SpaceX is delivering internet and they are more of an eventual business competitor here. So why don’t you talk a little bit about competition.

Steve Symington  14:38

So, I think we’ll talk, like that talks about like, Starlink right, where they have their their fleets of satellites and stuff. But SpaceX, is already ushering people to the International Space Station. I think they have like orbital things that you can go on. But I mean, again, that’s like a $55 million ticket is basically what you’re paying for something like that. Very rare, extremely exclusive in that sense. Blue Origin is kind of similar in that that their aspirations are more or orbital right now they do have that rocket that Bezos and four other people went up on including Wally funk, who incidentally said she also has a ticket for Virgin Galactic flight already. She’s one of those first 600 people, she was the oldest person fly to space. Became the oldest person to fly to space with Bezos.

But, yeah, it’s, I think, I think one important point is that we shouldn’t think of these companies as at least in these stages, competitors, there’s too much lip service being paid to, who makes it first. And, and, and who’s a competitor, where I don’t think they’re stealing each other’s business. I think if something good happens to one of them, it will reflect well on all of them. And I think it’s sheer validation at this stage of the broader industry opportunity. So I don’t think of them as is only this company wins, and there will be more competitors in the suborbital space, and definitely the orbital space going forward. But I do think, to that, and there is some first mover advantage, because you have companies that are they’re working to get FAA approval to do these things, especially if your company like Virgin Galactic, not so much if your rocket ship that’s automated, like Blue Origin, they didn’t require that. But yeah, I think if something bad happens, conversely, it also reflects badly on the broader industry, because it could spur hesitation, among the public who, who was really the target consumer over the long term.

Dan Kline  16:41

Steve, let me ask a quick follow up. And then we’re going to get to some of your questions and comments. How many successful flights do they need to be till we can deal with an unsuccessful one? Because in the airline industry, as awful as it is, we have plane crashes, they are very, very rare. And I don’t want to say nobody worries about it, because obviously, lots of people are nervous about flying. But if we’ve had 1000 spaceflights, is it 100? What’s the number one crash does not set the industry back years?

Steve Symington  17:10

1000s? I think, it’s got to be something where these flights are so commonplace that it’s just a bizarre situation, that caused a flight to fail. 1000’s upon 1000’s, I think before we reach that, and I’m reminded of a meeting that I had with the co-founder of GM Cruise, several years ago, and he was talking about kind of their impending plans to launch a robo taxi fleet at GM Cruise, which I can’t remember that, they’ve since changed their name, but the he he told me that, it’s not enough that we’re twice or three times or even four times as safe. As a human driver, we need to be 200 times safer than a human driver. And that’s just, a situation where, you might have an autonomous vehicle cause an accident, and, very rarely kill somebody.

But obviously, a crash or catastrophic event for something in the space tourism industry would be much harder to bounce back from. But even then, you saw that Virgin Galactic back in 2014, had a flight that actually crashed and killed one of their pilots, the other one miraculously survived. And that was human error that caused that flight, unfortunately, and they fixed those issues. But even then, you look at the 600 people or so who hung on to their reservations through that process. So kind of extraordinary in that sense. But yeah, it’s it’s going to be much more sensitive to adverse events.

Dan Kline  18:41

We’re going to start with the comments. And Steve, you can read this one from our very own JT Boulevard. That is of course, our marketing person JT Street under a luchador mask, Steve, take it away.

Steve Symington  18:51

He says “I agree with you Dan about SPCE long term, that’s Virgin Galactic ticker, Virgin Atlantic double down on cargo during the pandemic and I can see the growth of suborbital cargo flights as a long term goal. Imagine flying a lot of cargo from New Mexico to China in a few hours”. Definitely a possibility, especially once they scale these planes. And that’s something that management has said, at this point, we’ve realized we need a lot of planes and multiple spaceports and again, those are each going to be kind of catalysts for the company. They say, here’s a new plane. Here’s a new style of plane that is much more modular and reduces turnaround times. But new spaceport news and additional planes is the goal. And once they kind of get through, they’re growing massive and are in growing backlog of people who’ve made reservations and most certainly, cargo trips could be really interesting in larger planes that are built to fly cargo and not necessarily people.

Dan Kline  19:43

Sam Bailey, we will take the comment from Mike Fee. Next, Mike, thank you for being a regular of the program. People that put deposits down with Virgin Galactic 10 plus years ago, the return on that money could have been doubled by now if they invested in an index fund. Yeah, and it would be even higher if they invested it with, with 7investing picks. That being said, I am pretty sure the people we’re talking about $1,000 would be the equivalent if Steve and I were out and he forgot his wallet. And he said, Hey, can you spot me? $100? Like, it’s just not, it’s not a relevant amount of money for these people. But Steve, still a funny way to think about money here.

Steve Symington  20:20

It is. And, it’s also something that kind of sheds light on. On the new price,  $450,000 might seem high, but, adjust that for inflation and the possible returns, they could have earned on that money. It’s really not, all that out of the ordinary. And, again, looking at yet you sort of unconfirmed reports talking about Blue Origin’s flight, they said there’s as well north of $500,000 or $500,000 per seat and Blue Origin said they’ve already collected over $100 million in reservations. So, again, a lot of people out there willing to pay this in these early stages, and there will only be more as the prices come down and they scale.

Dan Kline  21:00

Yeah, let’s be very clear. The audience here isn’t like me jumping on Priceline trying to save $30 on a hotel room, or being excited to get comped in Vegas. This is a well heeled audience that is spending dramatic amounts of money on travel and leisure and vacation and, and things.  These are people who are buying cars that are that are six figure cars. So again, it’s not a world most of us travel in, it’s frankly a world that many of us probably wouldn’t spend this money even if we had it. But there’s clearly an audience for this.

I want to close out with the last comment from Daniel Delgado. Daniel will try to take your other comment towards the end of the programming if we have some time. “Isn’t the future to accomplish low orbit flights from Houston to London”? I think this is the most exciting piece of the company, this ability to get super fast global travel, I would happily fly from New York or Houston to London in what like an hour like that sounds great.

Steve Symington  21:56

Yeah, and that’s pretty quick. And a lot of these people are already chartering private jets. And that was part of what Virgin Galactic included in their initial investor presentations prior to their SPAC merger going public. And that, they highlighted the fact that people were already paying $150,000 for a private jet from New York to London. And, in that sense, $450,000 ticket where you actually get to experience microgravity is it would be kind of incredible and and you extend that to be able to go from spaceports to spaceport, could be really, really interesting. And I think it’s going to be a lot of fun to watch this story unfold.

Dan Kline  22:37

It also opens up the possibility of American sports franchises in London, which is something we’ve talked about a lot with the NFL. But the logistics of it has always been the problem. If in theory, you can have a quick flight from London to some New York base like New York, that is actually a game changer in terms of and obviously you have the facilities. This type of thing could make the world smaller. And when I say make the world smaller, I mean that in a really good way. Do I think that means, Steve and I are going to meet for lunch in Paris. No, it’s going to be more expensive than that. But is my brother who is a big time sports executive going to fly to New York for a business meeting much more readily, because it’s even at the cost. It’s worth it with the dollars involved.

We are gonna move on to the homestretch here, the second half of the show, and that we’re going to talk about what’s the most important investing or business lesson you’ve learned from your parents or other family members?

Before we do that, let’s remind everybody, we are both lead advisors for 7investing, what do we do at 7investing? Our core product is seven stock picks each month. We each make our highest conviction stock picks. So we look at the entire universe of stocks, and we say, wow, this is the stock if I could only buy one, this is what it is, and why. We then do a write up on that stock, my write up topped 3000 words, this month, it had like 18 different graphics in it. And then we record a video and Steve, I was shocked to learn my video was 43 minutes long.

So if you’re looking for a deep dive on each of these stocks, you’re gonna have that as well. So as a member, you can look as little or as much as you want. You can say, You know what? I’ve done my research on the stock. I just want to hear Dan’s thoughts about management. I want to hear Steve’s thoughts about valuations on his pick, or you can read the entire thing. We also do, members only calls, we respond to member questions. It is a very intimate service. Obviously, we can’t give you personal investing advice. But we can give you all sorts of ideas and ways to invest and have fun doing it, be part of a community with us doing it you get to experience a little bit of that on 7investing Now. But when you’re a member, you sort of get to become part of the family.

How do you become a member? It is very simple. You have to collect box tops from cereal… No, you go to www.7investing.com/subscribe and you can choose two options. You can either pick the $49 dollar a month option, great option incredible value, or the deal of the century, that is $399 a year for annual membership. You save about two and a half months by doing it that way. We can’t say enough good things about the service. Obviously, we are biased, but our members tell us all the time it has incredible value, you get access to an incredibly diverse team of investors.

Look, I cover retail, I cover some technology, but I cover some entertainment that is very different than let’s say Maxx Chatsko covers in the the biotech space, what Steve covers, and what Anirban covers in the emerging technology, Matt in payments. Dana in healthcare. None of us are full specialists, we all branch into other things. That being said, it is an exciting group of picks every month, Steve 10 seconds, anything you want to weigh in with here.

Steve Symington  25:53

Scott [unknown name] says it’s true they answer personal emails. I send Steve annoying messages all the time. I wouldn’t say they’re annoying Scott. But yeah, he actually sent me a message, I think middle of last week, and we got to chat back and forth about one of our recommendations. If you have questions again, info@7investing.com, I am almost always the person who answers it. But several of us have access and we keep a close eye on that we answer them all personally.

Dan Kline  26:17

We talk about it a lot. But it’s because we believe in what we’re doing. And we’re excited about it.

But let’s move into the second half of the show. Let me remind you again, it’s “What’s the most important investing or business lesson you’ve learned from your parents or other family members”?

I’m going to go first here, and then Steve, and then we’re gonna move to a whole bunch that you shared on Twitter. And I would say it’s one you’ll hear me talk about this a lot on 7investing Now. It’s “serve the customer”. Where did I learn that? Well, my grandfather owned a multimillion, a 10’s of millions of dollars business. And as he walked in, in the morning, if there was a customer at the back of the line waiting for help, my grandfather might spend his first half hour of the day walking into the warehouse picking out what he needs, filling his order. At no point would he say hey, I’m the CEO of the company.

So I learned very early on that you have to really make sure your customer experience is great. And when I worked in retail, that really translated, to Okay, who is my customer? How do I make sure the new person walking in doesn’t feel intimidated? And really thinking about it from every type of customer? I think it’s something that’s greatly not done. And yeah, I’m looking at you food delivery services. A lot of companies don’t say, wow, how do I make every part of this good? Steve, what’s the most important investing or business lesson you’ve learned from your parents or other family?

Steve Symington  27:32

I mean, I’d stick to maybe business on the business owner side of things, because my parents didn’t invest a lot. They didn’t take it that seriously until I actually got more involved with it. But I think just consistency and in hard work and just sticking with it, one of my my dad used to always say never quit, right? And just steadily adding to a portfolio, building on it. And sticking with the companies you’ve actually done your research on and keeping, just watching them as their their thesis plays out and making sure it’s in line with the reasons you initially bought the company and thinking long term.

And while my parents didn’t invest, I know, my grandfather did. And, my, my folks didn’t have a lot to work with when I was younger. But they talked about, how my, my grandfather used to work for an oil company and amassed a pretty hefty nest egg, just by putting a little bit of money away throughout his career. And it’s kind of interesting to watch. So just the importance of consistency and just continuing to work hard and stick with it. And and it’s that’s that’s the best way to kind of amass wealth over the long term is just just consistency, avoiding the get rich quick schemes that a lot of people find, when they’re looking at things like penny stocks or day trading and things that are extraordinarily difficult to create consistent results for most investors.

Dan Kline  28:59

Yeah, as someone who has spent the past two years working out with a trainer, obviously, with some disruptions to our ability to do that efficiently with the pandemic, losing weight and getting in shape slowly, actually does work. Doing it quickly might work. It’s not really that good for you, and it’s gonna have some negative consequences. It is the same with getting rich quick, the worst thing that can happen is dumb luck on a penny stock making you a bunch of money.

We would love you to weigh in with your investing lessons that you’ve learned from family investing lessons you want to share in the comments. [unknown name], welcome back. Thank you for watching. We appreciate the Hello. Sam, let’s take these in order. We’re going to spend about 10-15 minutes going through as many of these as we can. So we will try to be free, but I can’t see the names. I think Roy is the first one. Yep. “My family didn’t understand investing. But they did a great job at teaching me the power of an emergency fund and how to stretch $1”. Yeah, I’m a huge believer in an emergency fund. I am always afraid the second you don’t have any money. It’s when your roof collapses. I actually feel like having an emergency fund is karmic balance against something bad happening. Steve, your thoughts here?

Steve Symington  30:03

Yeah, and something we always say is we don’t like to invest money that we’re going to need in the very near term. And when you look at the stock market, we try and stick to money that you’re not going to need for the next few years and invest that way. And you’ll sleep a lot better at night. When things go bad that you’ll you’ll at least have some money to fall back on in the near term. But yeah, definitely. And also Roy’s Twitter handle @invest4decades, checks out, that’s a good one.

Dan Kline  30:36

We appreciate that. Sam hit us with the next one. “My grandfather taught me to pay with cash if you don’t have enough cash don’t have enough to buy it. Credit cards are not owned, it served me well in life, especially in my 20’s debt is an albatross many put in their lives. And you sometimes can’t escape”. Let me make one caveat here, it is actually important to have credit cards. From a building credit point, if you’re ever expecting to get a mortgage, just really one area, mortgage and a car, the areas where it’s acceptable to borrow, maybe school in some limited cases.

And you do need so here’s what I do. And Steve, you could weigh in, I have a number of credit cards, and I use these credit cards month and actually pay off your credit card bills on, if not a daily, certainly a weekly basis. I also put a lot of things on American Express (NYSE: AXP) that just automatically settles. So I’m spending cash I have, I’m just also getting credit card rewards and building up a credit score, which I think are valuable things for people to do. Even things like your insurance rates or your ability to get life insurance ties into your credit rating. Your thoughts on this one, Steve?

Steve Symington  31:35

Yeah, I mean, it’s kind of hard in today’s increasingly cashless society to pay with cash consistently, all the time, I haven’t had cash in my wallet for a long time. But yeah, I think that also speaks to budgeting and not spending money that you don’t have. And that’s, that’s a hard thing. In today’s society, especially when you’re looking in, keeping up with the Joneses and seeing everybody else do things that you might not be able to afford. But yeah, that’s an albatross.

Dan Kline  32:04

The spirit of that is pay like cash. It doesn’t have to actually mean pay with cash. Sam, let’s keep moving through these. “Money you don’t see you don’t miss, other words auto allocate each paycheck to 401k, IRA and brokerage”. Yes, absolutely. My son just started working and 25% of what he makes each month, each pay period is being quote, “auto allocated” because he makes a different amount. I’m doing it because he’s under 18. So I’m on his account. I’m moving it to a brokerage account. And he’s going to invest that and I’m going to match it at maybe a 10% level so he can experience having those really strong returns, even if the stocks he buys don’t turn out to have strong returns because I want him to sort of learn the market and not having me make every pick. Steve, how are you balancing that?

Steve Symington  32:50

That’s that’s such an underestimated thing is “money you don’t see you don’t miss””” because, yeah, I can speak from experience. Even if you have a budget set out. If there’s money in our checking account, we tend to spend it. So it’s it’s one of those things where you put it aside and you almost kind of forget that you have it if you can’t, if you don’t have direct access to it. So 401k’s, IRAs, brokerage accounts, savings accounts, even moving them aside. Making it less accessible for everyday spending is a fantastic way to save. And again, it’s it is funny how you think, you don’t really miss that money when it’s not there. You put it aside, you save it in and builds quickly.

Dan Kline  33:30

Yeah, we obviously my wife has the equivalent of a 401k. She works at a nonprofit so it’s not exactly that. That’s automatic, we automatically transfer every two weeks into our brokerage account. I will say I had an unexpected $2,100 windfall a couple of weeks ago, we got a rebate from some escrows on our on our closed off mortgage. And oh boy, it was hard to put that money into the market. I really, really wanted to buy something dumb. So I allocated a percentage of that money to buy something dumb. And most of it got invested. Because the reality is it wasn’t found money. It wasn’t money, I won at slot machine. It was my money coming back to me from an escrow.

Let us keep moving forward. We appreciate so many of you asking great questions. “Don’t spend so that you end up paying interest, but save enough to earn interest”. You don’t earn interest anymore. And that’s kind of why I wanted to talk about this one. Absolutely, not having credit card debt. Now here’s when you could have credit card debt. If you are on the way up and your refrigerator breaks, well, you have no option but buying a refrigerator. If you don’t have the cash for it, you have to put it on a credit card, try to get a 0% deal if you can, if not pay it off as fast as you can. That’s why you have credit cards as you’re building your emergency fund as you’re working your way up. But yeah, we are believers in that six month, nine month whenever you consider safe emergency fund. That money is not going to give you a lot of money. Right now. Interest rates are essentially zero. Steve, your thoughts here?

Steve Symington  34:56

I also think this is why, to that end, if you’re spending money that you don’t necessarily have, I think that’s why a lot of younger people are embracing “pay as you go” things, we saw Square (NYSE: SQ) acquire Afterpay (ASX: APT) for $29 billion last week. Right? And, and then you’ve got other companies like Affirm (NASDAQ: AFRM), they’re big for a reason. So, I think that’s, that’s kind of interesting. But yeah, interesting that it is true that it’s hard to earn interest anymore. With with interest rates at near record lows and yields on savings accounts and fixed income investments are so minuscule that it’s hard to justify putting money to work. And that’s part of the reason that equity securities have been more attractive. So, personally, I would prefer if I’m looking to put some low risk money, relatively low risk money to work in investments, look at some of your more stable dividend paying stocks that have pretty healthy yields and and find yourself an attractive balance between the dividends that you’ll be collecting and potential share price appreciation for those stocks. So that what I like at this point

Dan Kline  36:03

It is important to go back to what Steve said though, don’t park your money in, say, Costco (NASDAQ: COST) shares or Microsoft (NASDAQ: MSFT) shares that you’re going to need in the next couple of years because Microsoft has dipped by 50% multiple times over the past 20 years. So just remember that even though it’s not making money, cash is still safe. Obviously, don’t keep it under your mattress, keeping an FDIC insured bank account.

Let’s keep moving and take the next one. Because I want to get to as many of these as possible, because so many of you waited. Philip Gates said, “my dad was frugal, not cheap. But frugal. He taught me just because I could buy something didn’t mean I should buy something”.  That is a lesson. I wish. I wish I learned in my 20’s it’s something I fight with a lot now. Because if something say less than $1,000 I can buy it if I want to. And it’s very difficult for me not to, but I think I’ve mostly controlled that your thoughts on this one?

Steve Symington  36:54

Yeah, that’s a, that’s such an understated thing. And today’s world again, kind of keeping up with the Joneses and constantly getting bombarded by advertising and wants versus need prioritizing them. But yeah, just because you could buy something doesn’t mean you should. And I always think, what’s the opportunity cost here, if I, if I could buy something, for a few $100? Like, would I rather put that few $100 to work in a brokerage account? Do I really need this? I can build on it. And I could turn that few $100, over time into the 1000s. So those are the kinds of things that I’m I’m kind of thinking about when I purchase something, what’s the opportunity cost of spending that money on something I don’t necessarily need versus investing it.

Dan Kline  37:38

We’re gonna close out this segment with Joyce Heinz comment if you want to bring that one up, Sam. “My father taught me how important it is to save money and invest”. So all of us who are watching the show who are part of the show, I actually think it’s really important to remember our kids, our future kids, our nieces and nephews, whoever the young people in our in our world because I know that growing up, my grandfather taught me how to bet at the track.  Like I am really good at a horse track or a dog track, because my grandfather taught me that. He didn’t teach me anything about the stock market. It’s not because he wouldn’t it just because that’s not how we thought.

So I think it’s really important now that that the stock market has been really democratized by zero cost, zero commission trades, the ability for anybody with almost any amount of money to buy fractional shares of really good companies, at least here in the US. That’s not the case in the rest of the world. I’m very open with my 17 year old about investing. Steve, I know you’re the same with your kids. And I think teaching those lessons is very important.

Steve Symington  38:38

Yeah, absolutely. And I like the simplicity of ending on this one. My father taught me how important it is to save money and invest pretty straightforward and I can only hope we instill those same lessons in our kids.

Dan Kline  38:50

Mike Fee says he highly recommends the book The Millionaire Next Door, I am not sure of that one. And I don’t have a millionaire who lives next door to me as far as I know. But Steve is that one you’ve read. It’s a decent read. Yeah, Millionaire Next Door is is you have kind of the power of just steady saving and sort of unassuming people who are wealthy that you might not guess it right. And it’s people just that the power of consistency and saving and, and in budgeting and not spending money that you don’t have. So yeah, good book that speaks to a lot of what we’ve been saying today.

I of course plan to be ostentatiously wealthy wearing a monocle, having a butler, all of the things that, that Mr. Peanut does to show the world of wealth? No, of course not. One of the best things about not doing those things, not wasting money is you can be wealthy when you’re not actually that wealthy. I am not overly wealthy. But I am sitting here in my very nice resort vacation home, because we’ve been very careful and we’ve made very smart decisions. And that’s something that I think anybody can do. I will not pretend I haven’t also been lucky and born into a family that maybe had a little more than some others. So I think that that’s worth noting. I’ve had some help along the way, even though I’ve certainly created a lot of my reality.

We are running out of time. We appreciate so many of you watching the program so many of you playing the home game and asking us questions, following us on Twitter. But I love this one I asked as our finisher here, Sam Bailey, if you would like to bring it up. “Do you find that Netflix has content you’re exists consistently excited about”? 26.5% percent said yes. 73.5% said no. I think that’s kind of a major red flag. Steve, I am pretty negative on Netflix (NASDAQ: NFLX) compared to most people. I pay for it because my wife and son watch a lot of true crime stuff. I find it maddeningly frustrating that you open up Netflix, and finding something you might want to watch is difficult. The recommendation engine is bad. The commitment to, “Hey, we’re launching this series, I’m going to get a conclusion to it, even if that means we just wrap it up at the end of season one” is terrible.

In the early days of Netflix, that wasn’t true, you kind of nothing got canceled. I think it’s too much content, too much thrown at the wall. Every show that launches on Disney+ (NYSE: DIS) is a hit on some level. Netflix is some weird algorithm that they will tell you it’s a hit. I don’t actually think this is the winner that everyone thinks it is. I hate to be negative because it’s a great company and everyone has it and no one’s gonna cancel, but they spend way too much money on content.

Steve Symington  41:21

I think part of the power of Netflix’s model is they have the power to eventually change that, where they could step out and say what, maybe we’re investing too much and in this content that people don’t want to watch. But I think there’s enough there that’s interesting that nobody wants to cancel. And I think that’s kind of an important caveat to the relatively underwhelming feeling of logging into Netflix and not being able to find anything that you want to watch. But it’s not bad enough, where I’m going to go cancel it. I’ve got my kids who who watched content on there, even if it’s old content, and every once in a while an old movie will pop up and I’m like how cool.

But yeah, it’s I’m not as excited about Netflix as I was. But I’m not convinced that they will underperform going forward and or that they’re that they’re “let’s throw a bunch of money and a bunch of resources at creating this content and see what sticks” method is necessarily off base, but might be frustrating. And I hope that they have maybe the vision to adjust that in a more Disney+ esque way going forward. And that could really turn some heads, I think because they can let a lot more that the resources that they’re throwing at original content generation, kind of fall to the bottom line and actually create shareholder value in that way. So that can be more interesting as the company kind of slows its growth going forward

Dan Kline  42:52

If they literally cut the content creation in half, at least on a US level. This is probably not true in most of the other markets where they’re taking more selective swings. But if they cut it in half, it would surface better I would know it existed. The other thing is, I’ve talked about this a lot and people get mad at me so please don’t hit me up on Twitter that is @worstidea7. Please do not message me to tell me how wrong I am about this. Releasing everything for binge watching is catering to a niche audience at the expense of public relations. When Disney releases new episodes of the Mandalorian or Falcon in the Winter Soldier, every single episode is an event that gets broken down on Entertainment Weekly, on The Ringer and all these different major sites, people do podcasts about them. So they have a lifecycle of a show that builds where someone three or four episodes in, sees something goes, I better catch up and watch that.

Whereas if you don’t see Stranger Things in its first 72 hours, you have no idea if you can talk about it with anyone, there’s no hype about it. Netflix has shot itself in the foot for a model that what percentage of people actually sit down to like, hey, Stranger Things is out. I’m gonna watch it all in one weekend. That’s a dumb way to watch a television show. For the most part. I know people like it get mad at me. But I like the reason you spread out something over 10 weeks is it builds it’s fun. You can talk about it in between, I used to have a group that talked about the Mandalorian and we had rules about when you had to watch it by so you can talk about it. I think Netflix they’re the market leader, it is probably still a good investment. I just don’t think it’s actually all that well run and I know that’s that’s terrible to say. But there are better ways to do what they are doing.

We thank you all for watching for joining us here on the show. We’ll be back on Wednesday if you’d like to get in touch with us. That is info@7investing.com that’s usually Steve answering it. Ask questions about our service questions about your membership, questions about how you join, maybe questions about our new student membership. Maybe questions about what Steve did this weekend or what he’s doing for his anniversary. No, do not ask those things. You can follow Steve on social media you will get some of that.  If you would like to interact with us we are a lot of fun on Twitter, we’re @7investing. And a lot of what we do is, is sharing the things that the seven of us are individually talking about. And we have a lot of really interactive things on Twitter that we often make part of this program. The finisher is usually from this program, you saw that last segment we did is all your words on Twitter. This is the most interactive finance show on TV. CNBC doesn’t care what you’re talking about. Most of the other shows out there don’t care what you think or what you want. We’re doing sports talk in the investing world with a long term view.

Steve, thank you for doing this. Enjoy your vacation next week. Not that any of our members will notice you’re on vacation because I’m sure you’ll still be answering the email.

Sam Bailey, welcome back. Thank you for jumping on so quickly. JT Street. Thank you for filling in all week. And of course, all of you. Thank you for watching. We will see you Wednesday.