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Even the most confident investor has concerns. There are things that even long-term investors don’t control (global pandemics come sadly to mind) and other factors that keep us up at night (to varying degrees). We asked you to share your concerns and we’ll go over those, share our own and take your questions live on the Sept. 1 edition of 7investing Now with Steve Symington and Dan Kline.
September 1, 2021
Even the most confident investor has concerns. There are things that even long-term investors don’t control (global pandemics come sadly to mind) and other factors that keep us up at night (to varying degrees). We asked you to share your concerns and we’ll go over those, share our own and take your questions live on the Sept. 1 edition of 7investing Now with Steve Symington and Dan Kline.
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 0:23 Good afternoon 7 Investors and welcome to the Wednesday. More importantly, the September 1 edition of 7Investing Now more about that in a second. My name, of course, is Daniel Brooks Kline. I’m being joined today by Steve Symington. We’re going to talk about what is your biggest worry, slash fear slash concern as an investor and most of those came from you we’d also like to take more live during the show. But Steve, before we talk about the first of the month, which is of course when our new pics are released, so they came out this morning for members. Am I right in remembering that you had a bear attack this morning?
Steve Symington 1:03 Not a bear attack. Our dog was going bonkers and I went outside to scold and we went outside to scold them and very quickly turned from bad dog to good boy like cuz he was barking at a bear that was in our neighbor’s yard. So kind of uncharacteristic for our dog to go crazy like that. But
Dan Kline 1:21 I’ve seen your dog for an entire show, sit behind you and wait patiently to be led into the room behind you. But that is not our lead subject. But before we get into talking about your biggest worries, fears, concerns, whatever it might be as an investor is I want to talk about the first month. We usually do a promo later in the show. We’re not going to do that. We’re going to do it right now.
So if you are a 7Investing member this morning, you woke up to depending when you woke up, you might have been up for a little while. Our new picks so you get each of our recommendations. That is our highest conviction stock, an enormous amount of work goes – Dan looks like a pro broadcaster. Yes, I have adjusted my headset I got tired of having to fiddle with the earbuds. I am wearing a Janet Jackson Control-style headset and it does seem to be going better. Thank you for that Ravi.
But if you are not a member, you can still see all our picks plus all our past picks, as well as our scorecard. You can see how much we are beating the market by. We won’t belabor this but it is 7investing.com/subscribe, and you’ll pay $49 a month or $399 a year. We hope you join us. There’s so much fun for members.
With that. Let’s get to our top story, which is what is your biggest worry slash fear slash concern as an investor? I will go first here to give Steve time to formulate his answer because Steve does a lot of work on the first of the month. Yeah, for me, it’s bad regulation, which has historically been something that can come from anywhere on the political spectrum. I don’t want to make this a political story. But I think we watched for years for decades, where the FCC was way more liberal with say like what Oprah could say versus what Howard Stern could say because of reputation.
So that’s I know, that’s a very extreme example. But I come from the construction industry. My family owns a ladder and scaffolding company I grew up around that. That is a largely self-regulated industry, which has worked pretty well my father devoted a lot of his life to writing regulations for safety on ladders. And that is, you know, that is something that is largely worked. So I do worry about government. And again, I don’t care what side of the aisle you are, you’re on when you watch Congress interview big tech, it’s painful. It’s you know, it’s like watching your oldest least tech-savvy relative, you know, try to figure out how to record something on a DVR. And there’s something they’re trying to record as a show that hasn’t aired in 15 years like it is not comfortable. But Steve, what is your biggest investment concern? And we would love for you to share your questions, your comments, your biggest investment fears in the chat here.
Steve Symington 3:55 Okay, so my Yeah, it’s funny because this is a hard, hard question. I thought about it very deeply until we started this just now but I don’t have many concerns, fears worries as an investor because I trust our long-term process. I trust my homework, I don’t mind volatility, I don’t mind seeing stocks I buy plunge because that’s an opportunity for me to add to stocks that I really liked at low prices. But maybe on that note, the thing that I worry about the most is kind of the short-term thinking kind of overtaking market and that mentality sort of becoming more prominent among retail investors specifically. That’s I think something that concerns me because a lot of people lose a lot of money because of short term thinking and in a panic and you know that I guess that’s nothing new but seems to becoming more prominent of late and that’s a concern for me as an investor.
Dan Kline 5:00 Yeah, I agree. And it’s one of the things we hear about a lot, the laments of someone who didn’t buy, like some company that was bid up through Twitter, or Reddit board or whatever it is. And here’s the reality. If you didn’t create that group, if you’re not the one doing this sort of let’s call it cheerleading, I would lean towards manipulating. But chances are, you’re not going to win. So that is the underlying story here is that we are long term investors. And sure, do we have existential crisis? Yeah, absolutely. Aliens landed kill us all, the stock market’s probably not going to do well. But that’s not something we spent a lot of time thinking about.
But we’re gonna answer your concerns. We’ve got a whole bunch of them on the dock here. We’re gonna start with one from John. And it is a really good one. Easy Japan since the early 90s. They crashed and never recovered. Nothing is scarier. It’s funny I’ve had that brought up to me on a bunch of different shows. But I do think we do have fundamentally different markets. And again, I don’t know enough about the Japanese mindset. But but I do think that while Americans can be short-term pessimistic, we tend to eventually be long-term optimistic. So we might see a multi-year crash.
But I’ve actually seen the opposite happen. We seem to be moving into these sort of hyper crash recovery cycles where if you literally told me, Maxx Chatsko, our very own Maxx Chatsko says breaking news, aliens invade New York City stocks rise. Yeah. I feel like if fanno showed up, like the market would be down on Monday, and then like Wednesday will be like, well, this will be good for construction stocks, he destroys a lot of stuff. Steve, your thoughts on this one?
Steve Symington 6:43 So when you think about like Japan, since the early 90s, you have broad indexes kind of crashing and never recovering and stagflation and all that good stuff. I would say, as an individual stock picker, in my mind, that makes it easier for me to beat the market. Right. I think that’s where individual stock pickers have the advantage because I think you can go back and you can select, you know, Japanese stocks that have done well in their own right. But that’s something that I think as investors, we should also think globally, right. And, you know, I’ve had several people write in and say, why are you only focused on on I guess US equities or why not?
You know, why not? You know, equities in other countries. It’s like, well, we can we do, you know, we’re willing to buy whatever we want to in the stock market. And we just prefer that it be easily tradable, purchasable on a US exchange, because that’s where brokerage accounts largely live. But I think stock pickers have the advantage in this scenario, because if the broader indexes end up lagging, individual stocks can still outperform significantly, so I’m not sure about that.
Dan Kline 7:58 And let me let me give two examples of stocks that are not US based that are on my radar, but are companies I’ve decided not to buy and that would be Nintendo, and Sony. I like both of those companies. But I don’t think they’re best in class. So they never make it. I think Nintendo actually has really good intellectual property but they’re always a failed gaming system away from being in real trouble. We saw that with the Wii U. So we do look globally. And I will point out, there are picks on our scorecard, if you remember, that are not US-based companies. And there are certainly picks are certainly stocks we’ve talked about and considered that are not US-based companies.
We’re gonna move on to Robert Carter, thank you for so many of you participating, we would love you to get active in the chat as well doesn’t have to be on this. We’re going to answer questions in the next segment. So feel free to weigh in. But if you want to pull up Robert Carter, JT, we would appreciate that. And he says, not knowing when to trim a position and letting businesses erased almost all are more of your gains from the previous year or more. Steve, people bring this up a lot. It’s not actually that big a concern for me.
Steve Symington 9:09 Yeah, when they talk about now that’s sort of speaks to the knowing when to sell position. And I’m not concerned about trimming stocks, I very rarely trim position even if it’s become a large part of my overall portfolio because I found that other stocks tend to pull up some of that slack in time. But when I see a stock kind of erase all of its gains, you know, for the past several months for the past year or whatever over a short period of time, I’m reassessing whether that stock is still worth buying whether the thesis is still intact. Usually, if I sell it’s I’m selling for good and I’m selling an entire position because the thesis is fundamentally changed.
And if a stock pulls back temporarily, I think this also speaks to price anchoring where people say oh, I wish I would have sold right at the top. Seldom can you do that. And you know seen several of the picks on our scorecard, 7Investing scorecard of the pullback pretty hard from their highs last year and they haven’t fully recovered yet. But I have faith that in time they will and over time. As the business continues to progress in the thesis continues to play out, the stock price will follow suit. So I’m relatively unconcerned about near-term pullbacks for multi-year recommendations.
Dan Kline 10:23 But my pick this month in the last six months has moved about 70% in all sorts of directions. I don’t think about it at all, because it has nothing to do with my thesis for the company. The reason I own the company is something that will play out over years. And while the stock has gone down at times, the company has actually checked off some of the boxes on its roadmap and certainly all things have been positive. So I think that’s really important to remember. But the other thing is, it’s like gambling, if I’m at the casino, and I’m up $632 playing blackjack, and that’s the highest I’m up for the day, and I play for another four hours and I finished up $500 I spent exactly zero time thinking about the time I was up $632 because that’s not how it works. You don’t know when you’re at the peak.
So really the only time I would sell is if I become uncomfortable with how highly valued a stock is. And that’s much more likely to happen in retail. You know that as a more tangible tie between sales and investment than the multiples for technology or biotech or some of the other spaces. That being said –
Steve Symington 11:31 Expensive forever. Right?
Dan Kline 11:33 Yeah, that being said, I’ve never actually done that enough. Now, the case I’d make and I’ve talked about this before, is pre hype, if you own GameStop, you could make a case that GameStop was going to be a strong turnaround play that a really good balance sheet that a lot of lease flexibility.
I know multiple friends that own GameStop, believing it could two times or three times over the next few years. Well, if it 10 times, and you don’t believe it should be 10 times, then that might be a time to sell and I wouldn’t lament for a second, if due to some weird internet quirk it goes to 100 times that’s just not how things work. I talk about this a lot. Don’t look at pictures of your your old flames on Facebook, don’t look back at the price of a house you’ve sold I made the mistake of that once and seeing that something I sold that I thought I made a lot of money on after 911 quadrupled in value. So you can’t do that. It’s only going to cause you pain.
James Winchester is up next. This is a great one. James says the biggest fear is the one you haven’t even considered yet. Were you thinking about a pandemic in 2019? Most of these smaller concerns may pale by comparison. Yeah, I feel like maybe Maxx Chatsko was thinking a pandemic was a possibility. But I do think whatever the next big disruptor is, unless it’s a war, which I don’t think is that likely, I do think it’s going to be something we haven’t thought of, I just hope it’s like 40 years from now. And and we have a bunch of like mini, you know, corrections based on you know, employment numbers. Steve, your thoughts here.
Steve Symington 13:04 So I immediately think of our old colleague, Morgan Housel, who’s who’s maybe one of the best writers in the world, right. And he wrote a fantastic piece on this very topic called risk is what you don’t see for a collaborative fund. So go Google, that risk is what you don’t see read it, it’s a fantastic read, he tells the story of Houdini, who you know, you know, he all of his stunts were very calculated. And the way he died was somebody had heard that he could take a punch from anybody and they punched him when he didn’t expect it and it actually like caused internal bleeding and he died from that and you know he didn’t see it coming.
But that’s the risk is what you don’t see and it’s never something that the market expects you know, obviously like how very few people can say they perfectly called all of the downward catalysts for stock market crashes and and of course, that’s something that I think everybody should keep in mind and just be ready for the next one that happens not if it happens it’s when it happens and I won’t we’ll never expect and I think it’s an exercise in futility to try.
Dan Kline 14:12 Yeah, the beat you know, look, when the murder hornets learn how to fly planes, that’s going to be a concern. But we don’t know when that’s coming. We don’t know what it’s going to be and look as bad as this past what is it 18 months this this has been? Obviously, as a world we’ve gone through a lot of difficulty. Stock markets are at or very near all time highs. So we’ve proven very resilient. We’ve seen a lot of businesses adapt to things and honestly, I think businesses will adapt to you know, sharknados or whatever it is. That’s, you know, a lavalantula, whatever it might be coming next.
Growth Chaser is the next one on our list. Thank you for so many of you playing along and feel free to jump in in the comments. We’ll take questions live as well. I also fear that an unexpected event could widely reset the valuations at such a deep level that it could take decades to cover to recover. Sort of a similar one. I don’t actually fear that that’s actually not something, I think is very likely. And, Steve, I’ll let you have a quick comment, because that that’s pretty similar to the one we just took.
Steve Symington 15:18 Yeah, very similar. I’m not that concerned about valuations being reset. And, you know, there’s an argument that some stocks are overpriced individually. And some people might argue that the indexes are kind of overpriced, but we’re in a very unique environment right now.
And, you know, if you look back at our last several podcasts, we’ve and in some of the articles on our website, we’ve talked fairly at a reasonable length on the topic of whether we’re in a bubble or, you know, something like that. But yeah, I’m not terribly concerned about you know, valuations being reset, that it can take decades to recover. And if that happens, I’ll be looking to put new capital to work right? And fine, you know, that that’s when bargains are created. And it’ll be interesting.
Dan Kline 16:00 Yeah, a decade long crash is probably not good for our business. And, and I’m, I’m 47. So a decades long crash is definitely is definitely a concern, but I don’t expect it. Speaks to something more direct. And I think every investor, and he says, losing money. And I’ll point out that, yeah, this is something that’s kind of at the heart of all of this, you, you buy a stock, and it doesn’t do well over time. Nobody’s gonna bat 1000. I’m sure even the best investors. I mean, we’ve seen Warren Buffett doesn’t doesn’t bat 1000. I get it that it hurts on paper. But that’s why we’re diversified.
That’s why we’re not saying this is the one 7Investing pick for the year, go all in on it, we are giving you seven picks a month. Now obviously, some of our picks are rerecs, or some of us are are making a recommendation of a pic that someone else picked earlier, which we would also consider a recommendation. But we’re giving you a lot of picks across a diverse platform. And you don’t. In fact, we’d tell you don’t just own one stock, don’t just own a few stocks, you should probably own somewhere between 10 and a lot of stocks. Like that’s again, it’s different for everyone. I can’t give specific advice. Steve, your thoughts here?
Steve Symington 17:12 Yeah. And, you know, that’s why we also rank our stocks by risk ratings, right. And we have, we have different risk ratings from low risk, to moderate risk to high risk to very high risk. And we have a risk ratings article on our website that kind of talks about how we think about those ratings. And it’s really about your personal tolerance for risk and, and how much you’re really concerned about preserving your invested capital, right, and you can just stuffing in your mattress, but there’s there’s opportunity cost loss there, you put it in a savings account, again, minimal, you know, interest rates at record lows, and, and you’re gonna lose money to inflation in that sense. So I think an interesting balance of risk reward is what this speaks to, and your personal preference for the risks you’re willing to take for the potential outsize reward. Losing money is always a concern but I think it happens and again, diversification can help solve that.
Dan Kline 18:11 And if you’re buying good companies in the long run, you’re going to be just fine. NS says under overestimating the potential of a business, this can always be tricky. And this is where sometimes now we’ve never issued a sell. But we’ve all all certainly sold things in our investing careers. There are times where you’re really excited about something. And as it develops, it either doesn’t play out, or somebody else enters that space that sort of dampens your enthusiasm. You know, you could be really, really excited about say Roku. And then then Amazon gets into that space and you go, oh, maybe they won’t do as well. Bad example, because Roku has done great. But that could change your thesis you could be I don’t know, bullish on DraftKings, which I am not. And then Disney comes in and says, Hey, we’re gonna have betting on on ESPN. And all of a sudden you think, Oh, this may not be as good. So that can happen. Steve, feel free to weigh in here.
Steve Symington 19:08 Under and or overestimating the potential of business. I think more commonly, people tend to do this with industries. Right in 3D printing, additive manufacturing, otherwise known as right, it comes to mind. You know, what was it almost a decade ago when everybody’s talking about how 3D printing is going to change the world? And in a lot of ways, it’s it’s starting to, but I think the the pace at which it’s kind of disrupting the way we do things has been a lot slower than a lot of people have expected. So I think, for me, the concern is, is looking and zooming out, looking at the world through a broader lens, which industries are rapidly disrupting the world, and which winners within those industries are going to be the ones that deliver outsized gains for investors over reasonably, I won’t It’s a short period of time. But Dan over the course of several years rather than Okay, this is going to be a big deal in 30 years. That’s, that’s tough to say.
Dan Kline 20:07 It is. And that’s actually no, JT, we’re going to take that in a bit. But why don’t you wait till I call for it. 3D printing is actually one that I’ve seen for almost 18 years, I started a trade show in the construction industry. But here’s the reality, we’re actually under estimating the long term potential of 3D printing, 3D printing is going to be 1,000% essential to the space economy. You are not going to bring, you know, full on manufacturing to Mars, you’re gonna bring 3D printers where you can make everything from your computer components to your coffee mug, from raw material, you can mine on those planets. 3D printing has already become important in the construction world. You can make a part. And Amazon has patents for trucks that can drive around and 3D print the broken part in your washing machine.
I’m sure we’ve all dealt with your dishwasher, your washing machine breaks and the part is out of stock and someone or your car. I had a Saturn that I bought the day before Saturn closed. I did not know Saturn was gonna close. But literally, I bought it on a Saturday and on Sunday, the dealer wasn’t there anymore. And I went over to the dealer close. No, Saturn was gone. So that is something I think you absolutely have to say that a lot of things that seemed difficult now are going to be handled by 3D printing. Now, did we get ahead of ourselves, and we thought everyone is gonna have a 3d printer? You we did, because Steve, you don’t need to print a mug at home because a mug is $1 at Target.
So there, you know, as a toy store, I all when I ran the toy store, I always thought we might sell like collectible miniatures via 3D printer when they have to be licensed. Bookstores for a while could custom print books back when there were CDs used to be able to go into into certain cool stores. And they’d make you like a custom CD based on like licensing each song. 3D printing is actually like in its infancy. But from an investing point of view, if you put in money 15 years ago, you might not have the right winner. And you might be waiting another decade. So timing can absolutely be relevant.
Let’s take Mike Fee’s comment right now. And Mike says no one should think of daily, weekly and monthly account value changes as making money or losing money unless you sell, especially if you have money in the IRA and won’t withdraw it for potentially, decades. That is a really solid point. Steve.
Steve Symington 22:25 Yeah, you know, it’s not it’s not a loss or gain until you actually realize that and yeah, paper losses are a whole lot different than triggering a taxable event by actually selling that or maybe a non-taxable event if you’re in a Roth IRA or a regular IRA. But yeah, that you know, that’s that’s something to really keep in mind is you haven’t made that money or lost that money until you actually take it off the table. And, yeah, I wouldn’t think about gains or losses in that sense.
Dan Kline 22:54 So David Pagan, we’re gonna skip ahead a little bit here. We appreciate so many of you interacting with us on Twitter. David Pagan says not being good enough and understanding financial statements, and the accounting going into it. Are the statements perfect? No. But if I don’t understand the rules going into analyzing them, I’m dead in the water. Yes, and no, I think it’s really important when you look at a company to understand what their important metrics are. I’ve talked about this a lot. Like we often report say, same store sales or year over year sales.
And it might be a company where say membership is a better long term metric, or how many stores they’ve opened, or how many new customers if it’s a tech company, or where their drugs are in the pipeline, if it’s a biotech. I think that’s more important than fully understanding as long as it’s a company, you know, that that’s using, you know, GAAP accounting and giving you the exceptions and most publicly traded companies are doing that. And if you’re not an expert in analyzing it, there’s likely somewhere someone else out there who could be. Steve, your thoughts here?
Steve Symington 23:58 Yeah. I think it’s, it’s good to have a familiarity with, with accounting and financial statements. And, and in a lot of cases, how revenues recognized is maybe the biggest thing that comes to mind, right? When you look at like ASC 606 accounting standards, that change, the way that recurring revenue is is actually recognized on a company’s on a company’s financial statements. And, you know, in some cases, you have really chunky revenue, which is why, like my actually September recommendation that came out this morning, they focus on a lot on ARR, and annual recurring revenue, because it’s more predictable metric.
And you have companies like Alteryx, for example, that where they might have a recurring revenue contract where a chunk of that is recognized right upfront, 40% or 60%, and then the rest is recognized ratably over the course of a year so revenue can look chunky but recurring revenue, can look more predictable. And yes, you need to understand that it helps put things into perspective, when you have a company that might release headline numbers, revenue and net income that sort of differs from what some analysts were expecting a lot of cases. And yeah, it helps, it helps that perspective. So definitely worth understanding.
Dan Kline 25:20 And Steve brings up an important nuance there, because I was gonna mention Microsoft, which is largely moved to a recurring revenue company. You need to know how a company books that revenue, and I’ll give an example. Starbucks sells an enormous amount of gift cards, I forget the number, it’s like one in five people in the US get a Starbucks gift card at Christmas. Well, gift card revenue is traditionally booked when a person uses the gift card, not when it’s sold.
But there are different rules about when you can book that revenue when the gift card hasn’t been used. And most companies but not every company has a formula for that, based on how likely it is to be used, if it hasn’t been redeemed in whatever amount of time. So is that relevant for your average company no. Your average company is not selling, you know, massive, you know, billions of dollars in gift cards. But for Starbucks in the fourth quarter, or in the Christmas quarter, depending how they report that is a very important number. And they might have a significant influx of cash that actually doesn’t, you know, get reported to the bottom line. So their cash on hand may not match up with the numbers. It’s relevant that you know that you follow those. But there’s not that many companies where there’s going to be big corks like that. The big tech companies, again, they might book things monthly, they might book them quarterly, they might take a big thing upfront, over years, that all evens out. And you could see how it plays out.
Caleb says, today’s youth are not being educated on finance, investing and how to take care of their financial situation. Steve, I’ll let you jump in in a second. Because we’re both dealing with this with our kids. It’s not today’s youth, it’s youth forever. We weren’t educated on this. this. I think our kids have much better access to this than we did. Because at least like the stock market is like a front-page news story now.
Steve Symington 27:05 Yeah, that doesn’t necessarily mean they should be given like level three options trading access through Robin Hood by by checking a box like, I think that’s a concern. But yes, I think accessibility is really huge. You know, I, you can open, I open Stockpile accounts for my kids, you know, free trades, fractional share trading in a custodial account, where you can actually like watch what they do and have some control, which is fantastic. But yeah, I agree that youth in general, for decades have not been adequately educated in on the topics of finance and investing. And then, you know, I know, I wasn’t, you know, they talked about my folks talked about savings.
And in some money matters. In that sense, the stock market was sort of one of these things that was very inaccessible and intimidating for me growing up, and it shouldn’t be. And I definitely think parents need to take a lot of the initiative, when it comes to actually educating their children as to you know, what, what financial statements, you know, how to read even simple, simple financial statements and understanding how revenue and net income and cash flow works and what owning a piece of stock means owning a piece of a business, you know, those sorts of things, I think can be done with parents who themselves have a cursory understanding of investing.
Dan Kline 28:31 So we’re gonna talk in a second about how 7Investing is helping but I wanted to relate my own story. Steve, I, too, started a Stockpile account for my son and actually one for myself. And we’re actually we use Stockpile, we’re not partners with them. So there is no benefit of us, recommending them. It was an easy process, and my son is working, and I’m making him take 30% of his paycheck. And every two weeks when he gets paid, put it into a Stockpile account. And the first money cleared was like $75, and they let you buy fractional shares, which is really awesome.
And I said to him, what’s a good company that you think you’d like to own? And his first thing is, he said, Amazon, and I said, Why? And we talked about why he thought Amazon was a good company. And I said, Well, you’re right, like, like, most people would argue that that’s a good company. And I explained how fractional shares worked. And I said, like, when I was your age, I couldn’t have bought into Amazon, because I would never have had the money to buy a share. And then I went through and he named some other companies, and there were a few I had mixed feelings on and I said, Where do you shop the most often? Where do you go that you’d like to go? And he says, Target. And I went perfect, like Target it. So it’s hard to do. But if you have kids who are a little more interested in investing, at 7Investing, we offer a subscription for anyone who is in school. Steve, is it at $87 am I remembering correctly?
Steve Symington 29:51 $84 when you get in there? Yeah, definitely.
Dan Kline 29:56: So if you have .edu email address It’s really easy to sign up. If you don’t, you just sort of have to in the process, let Steve know. And a student can keep that they can keep it for four years. Now, if they are going to school for longer than that, we will absolutely keep it going. But we’re going to be starting a newsletter, we’re going to be doing some, you know, some education events just for kids. We are going to we’ve done some episodes of this show that we’ll make available that will resurface that sort of take you through the best. The basics, I actually am working on a piece right now about sort of how you read an earnings report right now because things are a little bit different. This is a topic we covered last week on the show. But it’s one I’m dealing with a little bit specifically. So we’re really excited for all of our younger members. So 7investing.com/subscribe, select the student, the student option. If that doesn’t work, send an email to email@example.com, there are some quirks. In this one, Steve, go ahead.
Steve Symington 30:58 I will say you know, we’ve got students from dozens of universities and we have students who aren’t even in you know, it at university yet their, their 11, 12, their parents bought a subscription for them. And so if you need it, and we can update our database, if your educational email address isn’t recognized, I can update our database so that it will be and it should work with, with most countries, university email suffixes, but just let us know, again, firstname.lastname@example.org. And if you have any questions, let us know. And yeah.
Dan Kline 31:34 One of our big goals here is to make investing for everybody. I have a great podcast interview on Tuesday with a real estate company CEO who’s actually making it so you can essentially buy like very small stakes in vacation rentals and things like that. Which is a very similar philosophy to what we’re doing. But I love talking to youth groups I know Steve does as well, obviously, we’re in a time of virtual talks being more likely than in person talks. But if anyone’s watching, that has a group of kids or as a teacher, or obviously if you’re a teacher, you’re probably gonna be watching this later tonight, we are always happy to pop in and do a Zoom, you know, and, and do some basic investing and run through some exercises. We’ve done it for all ages, everything from college kids down to elementary school kids.
I know it’s something like I met with a group of 17-year-olds who were just super excited about investing. And they had all these like really off the radar, let’s call them stocks, they were looking at like uranium companies and I, I just sort of said I love the enthusiasm. And I’m not saying you won’t identify something, that’s the next big thing that I’ve never heard of. But you also don’t have to try that hard. Like, yeah, you are more likely to identify the next video game craze, or clothing or whatever it is, then a uranium you know, farming in the Soviet Union or Russia or wherever it might be. So we’d love to do that.
We’re gonna take one more investing fear concern, then we’re gonna move on to a couple of questions. So if you have any questions you want to add, please ask them in the chat or just say Hello, we’re always happy when people say Hello. We’re going to take this this is from one of our regulars ShipofFoolsGD, a longtime friend from multiple places I’ve been says his biggest concern is that I didn’t start early enough. He is an older gentleman, you know, closer to, you know, closer to the end of his working days in the beginning. And it’s one Steve where I don’t worry about that. I mean, sure, I wish I was doing what I did with my son. But I don’t and I couldn’t because there you know, there were no fee free trades. My parents had a stockbroker who later went to prison. So probably good. I didn’t. I didn’t invest with him. But he worked in a very major company. Let’s see, for the most part, all you can do is start today. Like right if you didn’t start yesterday, you can start today.
Steve Symington 33:51 Right And I mean that that speaks to the should have coulda woulda mentality and I find it’s, it’s unproductive to spend too much time lamenting that you hadn’t started earlier. So I would brush that concern behind me and if it was a concern, and say, You know what, the best thing I can do is get rolling now. And you know, I got my parents investing later in life. And you know, they can add up quickly as you you kind of put as much money as you can aside and and yeah, those funds can gain steam pretty quickly when you invest in good businesses. And it only takes a couple of really, really nice winners, even if you have several pretty significant losers, takes a couple pretty big gainers to really offset all of that and and a lot of times very small number of stocks will drive the bulk of your portfolio’s gains but the best way to do is to diversify.
Dan Kline 34:47 And it’s important to remember that this is not just a young man’s game and we’re not just a young man service we have a number of members who are you know who are in their their 50s and 60s and are closer to retirement. My friend Len Caplin, one of my, my mentors and teachers growing up, you know, join the service after asking me and I said, Well, look, you probably want to gravitate towards less risky stocks, you might want, you know, income bearing stocks, but not every 7Investing pick is some hot new company you’ve heard of, or you’ve never heard of.
We’re also, you know, there have been some really big companies that have made our scorecard because we felt that these were rock solid bets. And, you know, and that’s more my style, although I will point out that my pick this month is a high risk pick. And we all sort of make picks all over the board. So if you are older, you can come in and say, Okay, I want 10% exposure to these areas, but I want 90% to be in these companies that I’m pretty confident aren’t going to collapse. Aren’t going to go away. I you know, I’ll just they’re like are you know, Walmart, Target, Amazon, Apple, they’re not going to, you know, disappear tomorrow.
Bradley Emery points out the ridiculous statement I made when I said uranium farm in the Soviet Union. Yes. I was trying to be not exactly direct there. But no, I don’t think you farm uranium. You you. Yeah, that’s, we’ll move on. From there. We’re going to take your questions and comments. We’ve got a couple of good ones. We didn’t get to every investing fear and concern, but we got to a lot of them. We appreciate when you blow something up on Twitter. And that one absolutely went a little bit crazy. But GenghisAhn, our friend James says, How is the team looking at infrastructure and industrial spend so much that has to be repaired like Florida building collapse, Hurricane Ida, and fires across the west? Then much needed fixes for preventative like HVAC, deadly heatwaves, traditional infrastructure and office upgrades. Steve, I’ll let you weigh in. I have some thoughts here.
Steve Symington 36:46 There’s, there’s a lot of ways you can kind of think about that, right? There are certain insurers that are pretty heavily exposed to certain geographic areas in the country, that you need to kind of take that as a risk and consider how they manage their underwriting. There are other insurers that may not be as exposed, that you do need to kind of think about that. But yes, I I definitely look at the risks to insurers. But also, you know, there are construction and home building companies out there that can kind of benefit from benefit from demand like this. But also, I mean, there’s a lot of different ways in retail to play this. My goodness. Yeah, that’s a that’s a loaded question. Dan, what do you think?
Dan Kline 37:29 Yeah, so obviously, we’re in a bit of a housing boom. So I’ve taken pretty long looks at like Pulte, and some of the other publicly traded home companies and the problem with it is, is they are building for future demand. And they manage that the best they can, we’re also in the process of looking at homes. And right now, if you get on a waiting list, you might be looking at buying a new construction for say, four or five months from now. And you probably didn’t get to pick your options. T
hey probably actually built it on spec. And in theory, when demand slows down, if you waited, you might be able to buy one where you pick your options, but what’s the problem there? There’s a lot of forecasting that goes into the price of commodities, how you price, what happens if I put a 5% non-refundable deposit down but the market falls by 20% and I’m better off walking away from my deposit and buying a house elsewhere. Generally, I have not been a big fan of those types of investments.
I also think there’s you know, you can look at – I’ve identified you know, an area like if you think we’re going to be upgrading HVAC around the country, or that improving our roads is going to be something that we’re really committed to doing then there might be some plays there. That being said, I don’t think we’ve been consistent and I know as again someone whose family is in you know, adjacent to the construction business.
Mostly we do scaffold rental that right now there is enormous demand because there’s a huge construction pent up. There’s also a big demand of building homes, but there’s a real excess of office space so now not everywhere here in West Palm Beach we cannot build Class A office space enough because we weren’t an office destination and now a lot of companies like maybe we should put an office someplace where it’s warm and houses are compared to New York and Seattle relatively cheap. I think a lots gonna shake out and Steve, feel free to add to this.
Steve Symington 39:19 I mean there there are a lot of ways to play like the I was kind of thinking as you’re writing like okay what are other ways to play the infrastructure like spending bill i think is kind of what he’s hinting at a little bit here. You know, there are a lot of heavy equipment companies you can consider purchasing though they’re not you know, I sincerely doubt you’re gonna find these on our 7Investing scorecard. Like, is this my best idea in the stock market right now? Like something like that? Probably not. But I think you’re gonna see a lot of chatter about people looking at buying companies like you’ll maybe Cummins or Caterpillar for their, you know, this is kind of suppliers of heavy equipment and maybe power solutions.
You’ll see companies like Nucor, the steel company benefiting from like infrastructure spending. Maybe steel prices kind of climb as as demand rises and, you know, also some energy infrastructure being spent. So we do have, I think one or two energy companies, actually, I think Maxx recommended one before on the seven investing scorecard that can potentially benefit that way. But lots of ways to play it, whether they’re all super investable, or and maybe beat the market style returns. I’m not necessarily convinced over the long term, that’ll be the case. But there, there are lots of ways you can.
Dan Kline 40:34 So here’s the big challenge is that you only have so much manufacturing capacity or if you’re a homebuilder, you only have so much capacity. Now, can you ramp that up to a point? Sure, you can add more bodies, but at some point, you can’t find more skilled labor. Maybe you can’t find, you know, land quickly enough, maybe you can’t find heavy machinery. But if I have a factory, and I’ll give him a hard and fast example, my boss, when I ran the toy store was a senior executive as a high level vice president for a gun company, I won’t say which one. And gun sales at that time, were through the roof. And as a company, they had to make the decision of do we build another factory, because here’s the problem, you invest all that money in another factory. And if demand doesn’t say, at historic levels, then all of a sudden, you’ve spent all this infrastructure money on something that isn’t going to pay off.
And we’ve seen that happen, we’ve seen the the auto industry over-expand. Now, if you’re Tesla, can you forecast, it’s pretty smart to build a new factory probably. But if you’re an industry being affected by let’s call them long term, short term drivers, it might be a lot more smart to tell people to wait and spread your sales out over longer, especially if you’re an area like homebuilding that there just aren’t that many competitors. Like there’s a handful of home builders. And then there’s like people who build homes, while the guy who builds a home might be able to work harder and build eight homes a year instead of seven. He’s not going to all of a sudden be able to build 140.
So all of this comes down to capacity and demand, it’s something I dealt with a ton in the scaffold rental business. You know, takes multiple years, or at least a year to pay back your cost of buying something that you put into rental. So just because I have a customer who wants a bunch of stuff for maybe three or four months, am I going to be able to make my money back from putting all that equipment into my rental fleet. So a lot of times, I would actually get a big order and I’d either talk to other locations around the company and bring equipment in. Or sometimes I bring in one of my competitors to do part of the job, or call up a contractor who I knew owned a lot of our stuff and be like, Hey, are you using this you want to make you know, you want to make some money short term? There is a lot that goes into this. It is not as simple as people would think it is.
Mike Fee has a good comment. We appreciate this one. Mike. Mike says the seven investing picks every month definitely appeal to different risk levels, sectors and industries. Yeah, we’re really proud of that. Like we are all making our highest conviction pick. And sometimes my highest conviction pick is risky. Not usually, in Steve’s case often risky, but not always. You know, so I am blown away by our picks every month, and just how often it’s a company I’ve never heard of that At the end of it – Simon’s pick this month, I pointed this out on Twitter. Not only do I want to own shares of the company, I want to use their service, like they actually do something in the vision space that would benefit me. So, you know, we are learning all the time.
We’re going to take one more question here before we hit our finisher, and feel free if you jump in with anything else but our very own. Scott Bates says, Hey, guys love the new time for 7Investing Now. I’ve been lucky not to experience many market fears over the years but I’ve always been interested in the psychology of weathering the storm. How do you guys get through big drawdowns like March 2020 and come out the other side? Was there a big drop? I guess that was the beginning of the pandemic, I have to honestly say, my, at the beginning of the pandemic, I think we were all thinking, well, this might be over in a month and then maybe like I don’t think anyone had the pessimism to know that it was going to go on the way it did.
And I actually put zero stock in what stocks were doing at that time, because there was a pretty logical short term reason why people were worried you didn’t know if you know Disney World was going to be closed for six months or if you know, restaurants were going to going to not open for a while. Pretty quickly. We got to optimism. Steve, your thoughts on this one?
Steve Symington 44:30 Yeah, this was kind of unusual both when it came to the ferocity of the decline and the relatively short period it took to rebound and then continue to drive to record highs right the march 2020 drawdown but we look at the broader indexes. It was just like, boom and then rebounded just as just as quickly when it came up. And it was it was interesting because we just launched 7Investing on March 1 2020. And then like 12 days later the broader indexes like crash and the pandemic became a thing and we didn’t plan it that way.
But we spent a lot of time sort of preaching levelheadedness right, and just keeping your wits about you in the declines and, and realizing that big drawdowns like that happen every few years. And, you know, every several years, you know, in fact, you get a 10% drawdown at least once a year, and, and 20%, every few years to 30%, every, what five to 10. And, and it’s it’s one of those things where you just realize like these are when stocks go on sale, and these are when some of my biggest winners can be had. So if you look at our scorecard, from that drawdown, even the stocks that we chose just before it, several of them have rebounded hard, and then some, and we, you know, a lot of those stocks, I repurchased or doubled down on my positions, after the big pullback, and obviously happy that we did. But that’s just kind of the way the markets work. And I think those big draw downs are something that I get excited for.
Dan Kline 46:06 When you take the long term view, you have to sort of look at the recovery path, we’ve talked a lot about Chipotle, which had its E. coli scandal, and took much longer to recover than most people would believe. But when you looked at the pandemic, and you picked, you know, whatever a Disney is a really good example. And you said, Oh, movie theaters are closed, theme parks aren’t going to be good, they’re not going to be cruising, which is a very small part of their revenue. And maybe you didn’t foresee, oh, wow, Disney plus is gonna really benefit from this.
You might have thought, okay, for the next six months, maybe a year, whatever it is, Disney is going to be in rough shape, they’re gonna have to borrow money, they’re gonna have to lay people off, this is gonna be bad. But fundamentally, when this ends, will families go on Disney vacations? And at no point did I ever go nah they’re just gonna go to Six Flags. No, of course, they’re gonna go at Disney vacations. kids want to do that. That is a fundamental thing. So you have to look at it.
And is there some disruption? Yeah, absolutely. There are a lot of Starbucks and Dunkin Donuts that are now located next to offices where people don’t go. So you’re probably going to see more closures and more openings, you know, that are essentially stores moving because people have changed their patterns. I you know, I’m very curious, you know, some of the favorite places near the office where we used to work with less people going into that office, if those places are going to survive, if they’re going to pivot more to tourism, if some of those office buildings are going to pivot to you know, semi-residential, like a We Work model, where people want to be in the office a few days a week, but maybe don’t want to live in a really expensive city.
So I think there’s a lot of interesting models playing out. But even when the market crashes, if the reason is something that you think will go away, like oil prices are very high, the market crashes. The labor market is strong or weak, though those can crash the market. You really look at, well, what’s the solution here, and most times, you can see the path out of it. So we weather the course because we believe in the companies we’re buying, and when that changes. And here’s the great thing about the pandemic and we’ll move on to our finisher. The pandemic really showed us which companies that good management and which didn’t.
We saw companies and Best Buy is one that people don’t talk about enough that literally were told to close their stores because they weren’t essential and they figured out how to do curbside pickup for like stoves, and like step up their delivery and like computers and offices. Whereas like a Staples and an Office Depot, I hate to pick on the downtrodden really had an opportunity to capture more market share. And it happened out of like everyplace else is out. So four days later, you remember Staples, and they still have toilet paper. Like but it didn’t really change their business. They didn’t do anything where I believe at the end of this you’re gonna be like, wow, that company was awesome. Like, I can’t believe I didn’t go there before. Steve, you’re gonna have the last word on this one.
Steve Symington 48:57 Yeah, I don’t think I need the last word on that one. I you said that pretty well.
Dan Kline 49:04 That’s Steve just playing Flavor Flav say saying yeah, a lot. Steve also pointed out that 7Investing did not plan the pandemic. I didn’t think that needed to be said. But we did not plan the pandemic. JT Street why don’t we hit our finisher? This is one that got a lot of reaction on social media. Which of these companies have the biggest upside on Amazon won this slightly with 37%. Apple at 15%. Microsoft at 18% Facebook at 28%. Steve I’d argue you can make a case for any of these companies for having the largest upside.
With Amazon, Apple and Microsoft and you could take this down JT. With those three. I think health care is the word we point to. And we saw some stories are probably gonna talk about this on Friday show. You know that Apple is looking at like, you know, going beyond heart rate monitoring to blood pressure monitoring, and some really sophisticated probably not scientifically valid more for entertainment or advisory purposes with the next Apple Watch. But Steve, which of these would you pick?
Steve Symington 50:14 I think I voted Facebook on this one. You know, I think people are kind of counting out its ability to continue monetizing its properties, regulatory risk notwithstanding. But I think Microsoft might have come close second, and they’re all they’re all good companies, though. But Microsoft, I think might be one of those sneaky, outperformers. Right? That people sort of somehow they they skirt around all the the antitrust scrutiny that Amazon and Apple, Amazon and Facebook has.
Dan Kline 50:47 Well, they didn’t used to, there used to be some scrutiny on them. But what they’re doing with like, putting Explorer Edge, whether they call it now on your browser, but also making it relatively easy to download Chrome or Firefox, that seems pretty minor compared to like, Apple’s walled garden or, or, or some of the things Facebook is doing.
Look, Microsoft quietly announced an office price increase, that is likely going to produce $5 billion in revenue, and not one person is gonna leave office, and it barely got reported. Like that is how powerful this company is, they could have gone higher, because Are you really going to take your family off of office and not be able to open your documents as a company really going to switch from office to I don’t know, Google Docs, which is not great, you know, to say the least. I use both. But we do use Google Docs, because we use a shared Google Drive. So I use it a lot more. But if you have to print things out, you don’t want Google Docs. That is not, you know, we use PowerPoint, a lot of us for presentations. But you can’t go wrong with any of these companies. And that was kind of the point here. Steve, I’ll let you close out.
Steve Symington 51:58 Yeah, no, I mean, at risk of talking about specific drivers, for those, you know, I’m excited for several of these companies kind of cloud, Amazon and Microsoft, specifically, like cloud computing efforts, right, and platforms and kind of high margin revenue that’s, that’s really useful. But anyway, yes, you can make a case for any one of these companies having the biggest upside. All these mega caps. I think what’s interesting is that a lot of people kind of tend to underestimate their ability to continue growing at scale. And I think that’s a big mistake for any of the four companies.
Dan Kline 52:34 I think it is very important to remember that there are new frontiers out there. Would it shock you if any of these companies is a leader in healthcare? Would it shock you if Apple developed something that’s crucial for space travel? You know, certainly from an AI point of view, two of these couple, you know, Apple and Microsoft are absolutely relevant. So I think there’s just a lot of potential, and we tend to be in an environment where the big get bigger. Now, does that mean you couldn’t the next generation of management of one of these companies have the next IBM or GE where they just become a ho hum? You know, Ghost of themselves? Yeah, it could happen. But I do think we’re more likely, you know, to see the opposite happen. See, just valuations increase, especially when you think about the ecosystem. Like, I am recording this on a Mac, with an with an iPhone next to me wearing, I’m not wearing an Apple Watch. I’m wearing a Fitbit at the moment, but I have an Apple Watch. And Steve is wearing that Apple Watch, Steve is that
Steve Symington 53:33 Someone just followed me. So I had their profile.
Dan Kline 53:36 Yeah, I’ve been tracking, I’ve been tracking sleep. So I’ve been wearing my Fitbit more, but I have all of them. And if Apple comes out with you know, you know, the Apple, whatever, there’s a decent chance I’m going to buy it. If you’re in the Microsoft universe. That is true as well. But we’ve taken enough of your time. We appreciate so many of you following us to the new time at one o’clock we we understand that more of you are free at one o’clock now that are that are fans of us. So we we absolutely appreciate you joining us.
I will be back on Friday with Matt Cochrane, Maxx Chatsko. Maybe other surprises as Steve, I appreciate you doing this. The first of the month is really difficult. Steve and Maxx put together our reports and prepare the emails and do a lot of the behind the scenes, grunt work to sort of to sort of make this stuff happen. So remember, it’s the first of the month our new picks are out. If you sign up to become a member at 7investing.com/subscribe, you get access to those picks as well as all of our past picks and all of our past performance. We talk about being long term investors, but we don’t hesitate to show you what the road is. Sort of how we’re going along with this and we’ll update if there’s a company.
There are a couple of my companies that had some interesting results and we’ve absolutely done updates and kept you in the loop. If you would like to get in touch with us that is email@example.com. That’s questions about your membership. Questions about becoming a member questions about Steve dog, whatever you like. Just don’t ask us to research a micro cap stock we’ve never heard of. We don’t generally do that. If you’d like to interact with us we are @7Investing on Twitter or you can tag any of us. I’ve had a lot of really interesting conversations of people that just thought I’d be interested in something and tag me. Feel free to do that. Or tag @7Investing for Steve Symington for JT Street, for Sam Bailey who helped out today. We are 7Investing help empowering you to invest in your future. I don’t usually say that at the end of the show. Not sure why that that popped up right now. We’ll see you Friday.
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