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Vaccinations are showing us some light at the end of the tunnel when it comes to the pandemic. Normal won’t look exactly like it used to, but we also won’t spend the summer and the rest of the year at home. That’s going to be good for some businesses -- but not necessarily the so-called recovery plays that have seen stock prices bounce on vaccination news. Maxx Chatsko and Steve Symington join Dan Kline to discuss some companies they’re keeping an eye on and later in the show Dan interviews Max Lucas on his book, “The New Investor.”
March 31, 2021
Vaccinations are showing us some light at the end of the tunnel when it comes to the pandemic. Normal won’t look exactly like it used to, but we also won’t spend the summer and the rest of the year at home. That’s going to be good for some businesses — but not necessarily the so-called recovery plays that have seen stock prices bounce on vaccination news. Maxx Chatsko and Steve Symington join Dan Kline to discuss some companies they’re keeping an eye on and later in the show Dan interviews Max Lucas on his book, “The New Investor.”
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 00:25
Good afternoon seven investors and welcome to the Wednesday edition of 7investing now. My name of course is Daniel Brooks Klein. I’m the host of the program. I’m going to be joined today at first by Maxx Chatsko. Then Max Lucas is going to join us we’re gonna have to Max’s today though Maxx Chatsko has an extra x. Max Lucas is going to join us to talk about his book for new investors. But first Maxx Chatsko. How are things in Pittsburgh?
Maxx Chatsko 00:49
Great, and I’m excited. We have two maxes on the show today. And that’s awesome.
Dan Kline 00:53
It is I was looking for more maxes, but these are the total amount of maxes. I know. So little, little bit of chat before we start the NFL came out today and they added a 17th game to the season Max, you have a quarterback who is brittle, overweight, somewhere around my age, prone to crimes, and a coach who makes bad decisions. Are you excited about an extra game for the Pittsburgh Steelers next year?
Maxx Chatsko 01:19
Wow, that’s tough to defend. I mean, no further questions, Your Honor. No, it’s gonna be bad. We’re gonna have to go through a rebuild. I think you know, it’ll good defense. But I’m not looking forward to this. And what do I think Get ready, getting rid of a preseason game and
Dan Kline 01:32
they are getting rid of a preseason game. And as someone who my favorite part of the season is the preseason, of course, I love watching meaningless exhibitions played by players who aren’t going to be in the league, you know, and getting to see the fifth string quarterback, you know, go go for for 13. No, I’m kidding. Yes, they’re getting rid of one of the preseason games, they should arguably get rid of three of the preseason games, I don’t see a big benefit to this. I’m actually really not a fan of this. Now. The 17th game is good for my brother, my brother is the chief Commercial Officer for Tottenham in the Premier League. They are one of the stadiums in England that hosts NFL games. And as part of the 17th game, every NFL team is going to play I think it’s every eight years an overseas game. So that means that teams that weren’t willing to might end up in Tottenham, so I might be able to go see, you know, you know, patriots whoever playing in England, which would be cool. That being said, you’re in a very violent sport. And I’m not sure you need more wear and tear. What I would have liked to see Max is 17 games. But as a player, you’re only allowed to play 15 or 14 or something like that would make backup quarterbacks more valuable. It would make a short term injury less of a problem it would make it you know, hey, the quarterback shoulders tweaked a little bit and you’re playing, you know, the Jets. Maybe he sits out that week, but I don’t think anyone tuned in to watch us talk football. So we’re gonna talk Our top story today is which stocks are you most excited about? In a post pandemic world, we can see vaccines are coming. There are parts of the world opening up, I traveled recently, I’ve had both my shots. My wife and son get their second shot this weekend, my mom’s had both of her shots. Most of my family here has had both their shots we just saw today Maxx with the Pfizer vaccine that it’s probably going to be approved for 12 to 15 year old that would cover a lot of the rest of the people in my world might even hit some of Matt Cochrane kids there. But we’re going to talk about the stocks we’re most excited about in a post pandemic world. And let me tell you, it isn’t Boeing, it isn’t the traditional so called recovery plays. If you have questions or comments you want to make, please share them with us. We will work them in as the show goes along. So Max, usually on these shows, we prepare you show me first, what stocks you’re going to talk about. In this case, you did not do that. I have to I’ll tease a little bit. I’m going to talk to Southwest Airlines in a second. Do you have a stock you’re excited about in the post pandemic world?
Maxx Chatsko 03:55
Yeah, so this threw me for a loop here. Because in my world, at least, you know, I cover biotech and renewable energy, clean energy. And I think those are two of the spots in the market that are the most overvalued. So when I see like, how is the pandemic coming to an end affect those companies? I think, you know, there’s a little bit too much hype in biotech. So I think we’re gonna see some some of those valuations come back down to earth. So I don’t see that really being a much of a tailwind here for biotech, at least. Now, the company that I do want to talk about, and I brought this up, I think last Friday on our our team show, is essential utilities. So today, of course, you know, we’re announcing the details of a $2 trillion infrastructure plan doesn’t mean it’s going to pass or become law or anything like that. But you know, every once in a while, every so many years, the American Society for civil engineers, issues a report card on America’s infrastructure. Do you know what we scored in 2021 day in America,
Dan Kline 04:53
I’m gonna guess a good old fashioned American b minus
Maxx Chatsko 04:57
c minus c minus, so Season these might get degrees, but maybe not what we want for infrastructure Dan. So for essentially utilities is kind of unique. It’s a water utility, but also has natural gas utility services after its acquisition of people’s last year chosen 19, the last couple years to keep track with the pandemic. But this company stands to benefit if there is any infrastructure spending or increased, you know, aid for how these regulations work. So overall, the United States wastewater is a D plus drinking waters a C minus storm waters, a D, and half of the infrastructure for natural gas transmission and distribution was actually installed before 1960. So this company is could be potentially one of the bigger beneficiaries. And even without any major government spending, essentially, utilities is set up very well for the future. So highly regulated industries. So that means that, you know, it’s going to have steady and predictable cash flows and earnings growth pays a dividend. And because this operates in Pittsburgh, primarily, I’m excited because anytime they dig up the street, Dan for replacing the waterline, they can also replace some of the natural gas infrastructure. So less traffic, less potholes here in Pittsburgh, I’m all for that.
Dan Kline 06:15
They can also lay fiber. So if you walk around my community at the moment, there are squares missing everywhere, it’s actually like kind of dangerous to walk around right now. Because they are putting in fines in the sidewalk or in the road, in the sidewalk, not in the road. So that they are there’s different points where they have to sort of jump in and do it. So you know, it’s best to do all that stuff at the same time. And without getting into the politics. One of the exciting things about having a you know, a national infrastructure plan is it can be planned. It’s much like at home where if you decide to open up your wall to you know, fix a pipe, that might be when you run cable or do something else, you want to make as many plans on an organized basis as you possibly can. I’m going to talk about Southwest Airlines in a moment.
Maxx Chatsko 07:02
Someone calls us out and please do this. We’ve been We made an effort internally anytime we talk about a company on the live show. We do want to talk with say this the ticker so you guys know what we’re talking about. So in the future, please correct us if we didn’t, so that ticker is wt RG it’s essential utilities. So
Dan Kline 07:23
very good point and feel free to call us out. I’ll point out I don’t always know the ticker. I don’t think in terms of tickers I, I came to this profession as sort of a business reporter. Not so much a stock market person and you can’t write about a company by ticker we’re going to take some of your questions and some of your comments if we skip your question or your comment. There might be a reason for it. It might be a stock we’re not allowed to talk about for some of the reasons. It many of you know why we can’t talk about them. Robbie Shaw says Good morning. First time catching this live. Ravi we appreciate every viewer we are happy you’re here. Wisdom Philly says chain restaurants. Yes and no I think well run chain restaurants will have a revival BJs the restaurant chain don’t accidentally by BJs. The the wholesale club. I’m not sure what their their ticker symbol is. But BJ is the restaurant has done a great job with its own app. They’re partnered with doordash in most places, they do really good curbside pickup. They opened safely where they could. That is what I think is going to come back well. But if you look at the parent company of I hop in Applebee’s. I’m not so sure the pandemic is why we don’t eat an Applebee’s. I think the food at Applebee’s is the reason we don’t eat at Applebee’s. So Maxx if you’ve been to an Applebee’s anytime recently, like it’s indecipherable like indescribable lumps of chicken that are like, you get like eight shrimp for free. When you order your burger for $1 they’re they’re selling you dollar drinks. They’re really going in the wrong direction. So I do think there will be chain restaurants that recover maximum. What was the last time you ate in a restaurant?
Maxx Chatsko 09:02
Oh, man, I guess I don’t know. February 2020. Maybe I it’s been a while Dan was you just went to Vegas. You up in a restaurant like this week?
Dan Kline 09:12
Yeah, I would say I’ve been at restaurants pretty steadily throughout the pandemic. Not generally why live in West Palm Beach. I I’ve been out once recently in West Palm Beach with my brother outside at a at a restaurant that we were a little wary about it but they were doing they did a really good job. But in the tourist area over near Disney and we have a house smell maybe 20 minutes from Disney. They’ve been very visible with their safety protocols. Disney Springs especially which is Disney control. So I felt very comfortably eating there outside spaced out. You know, we’ve gone there’s a Longhorn Steakhouse near us of all things that has plastic partitions up and QR code menus. They’re not seeing the interior tables. very much the same thing in Vegas. Vegas was operating at 50% capacity. You really had to plan ahead, there were restaurants we wanted to go to that were sold out. It was a little tricky sometimes like one day I for lunch, I picked something up to eat, and then realized there’s no place to eat it. Like I had to like take it back to my hotel room. Because inside the buildings, if you’re not at a table, they’re enforcing wearing your mask, like you’re not supposed to be eating and drinking while you walk very much like Disney. Let’s, we’re gonna get back to talking about Southwest Airlines. And then we’re going to take my friend Chris morleys comment because I think he brings a good one up. Southwest Airlines Maxx, and I’m not bullish on airlines in general. But I am. I’ve been very bullish on southwest and I’m not an investor, because there’s a lot an airline can’t control, they can’t control fuel prices, they can’t control demand to a point, you know, in a normal world, being a better airline, you know, does have an impact on demand. But Southwest entered the pandemic in the best shape of any airline, they’re going to come out of the pandemic and in the best bet the flights I was on, there was one empty seat on both of that those flights, how that empty seat ended up next to me, I don’t know I’m a friendly guy. I don’t know why nobody wanted to sit next to me. Probably because I got on early and the overhead space was was full. But they are operating very full right now. And they have cash on hand they just ordered 100 new 737 Max is not you max the the Boeing plane, which is the biggest order Boeing has gotten since the pandemic, they are going into airports where other airlines are leaving. So some things like you can’t fly Southwest from blank. That might not be true for me, they don’t fly to Miami, it would be really convenient. If they moved into Miami, they don’t fly out of Columbia, South Carolina would be really convenient for me if they did that. That’s a place I visit our our friend Matt Franklin quite a bit. So I do think Southwest which is always a well run company is going to come out of this much stronger. They’ve also been really, really good to their customers, they did things like extending your loyalty tier status. Normally, you need 25 flights to get there sort of premier elite status, they set your ticker to 12 already so and they extended the amount of time so they really made sure to take care of their best customers. And on the plane, I felt very safe. They were only serving for beverages water, Coke, Diet Coke and seven up I’m not sure how ginger ale is not the fourth one and seven up was picked. You can order just by putting up a number without being rude because they don’t want you to take your mask off to order and they want to be able to understand you. And basically while you were drinking, you moved your mask to the side. I didn’t see anybody pushed back on wearing masks and the flight attendants were very, very vigilant. So if you’re going to invest in the airline space, this is one that I’m very, very confident in. Let’s take the comment Sam Bailey from my friend Chris Morley on Home Depot, Home Depot housing market about to blow up always leading to lots of home renovations, whether contractor or do it yourself. Max, I’ll let you weigh in on this in a second. I absolutely think yes on this. That being said, the home market is already blown up. We’re already seeing this. And I think what’s gonna happen is we might see a Home Depot lag toward the summer we might see as sort of the rules lesson or maybe even disappear if we if we do hit herd immunity. I do think you’re going to see a two three month Hooray, we’re all going out to dinner. We’re all going to go on a trip, we’re going to have a drink at bars. I don’t care that I haven’t painted my living room. And then you’re going to see a return to that. That’s sort of how I see it. So yes, I think Home Home Depot is stronger because of this. We’re all more aware of our homes, more people are moving, they’re buying homes. Changing homeownership is good for Home Depot. I would argue it’s good for Lowe’s as well. Maxx
Chatsko, your thoughts here?
Maxx Chatsko 13:33
Yeah, exactly what you said in terms of, I think that the housing markets already blown up, prices are up pretty high. And some of that is due to you know, limited housing stock, right? A lot of people weren’t selling homes in the last year because of the pandemic. So do you think that affects any of that though, like, in the summer or as the pandemic kind of comes to an end? Do you think a lot of houses are going to go on the market and we’re gonna have the opposite problem?
Dan Kline 13:54
No, I don’t think so. I think for houses now I have a condo for sale that I’m struggling to sell. But at least the markets I’ve seen all across Florida, if you have a standalone house, you’re getting multiple offers on the first day, and often they’re people moving from a more expensive market that are going to want to make changes. I’ve had trouble booking my contractor friend to do small things for me. Whereas at the beginning of the pandemic, I literally had to rebuild a bathroom for me because he was hurting for work. So the world is is Yeah, I think it’s going to be a really good time. And again, even those of us who who didn’t move who aren’t making big changes, I think more people are going to be working from home and we are going to do things like you know painting rooms and and you know buying furniture. Another one that’s on here that that is great is Daniel current 79 says How about Ulta seems like a great going out against ARK Plus it’s a bull. It’s a beloved part of target. They haven’t really started rolling out in target yet but I do think that’s going to be an especially good deal for them. I love Ulta beauty. I love what they done in terms of their website during the pandemic and making it so you can try on makeup virtually, Maxx you and I don’t wear a ton of makeup, but I am actually eager to be able to physically go to an Ulta and figure out what makeup I should be wearing, you know on camera. Now of course if they just hand me like a hockey mask that’s that’s gonna be insulting. But yeah, I do think Ulta because we are going to need to care about our appearance. You know, I, I joke long term, I would invest in the bottom half of outfits because I’ll tell you like my outfit is I wear this shirt. And I’m wearing shorts in early I’m not wearing any shoes. At the moment earlier, I was wearing beach shoes, because I had to go get my mail. And that was what was by my door Maxx if you’ve been in an Ulta beauty.
Maxx Chatsko 15:42
Yeah, I can’t speak much to the financials of these companies are like Sephora, but I’ve been dragged into more also beauties than I care to tell you, Dan. So, you know, but very methodical how they set up their shelves, you know, that’s what I’m thinking about as a guy. And there’s nothing else to do, right.
Dan Kline 15:56
And it’s a very approachable company. And it’s really, it’s not an alternative necessarily to high end beauty. It’s an alternative to just buying your beauty products at CVS. And it gives you sort of that target upscale experience in a non expensive environment. So feel free to share more of your stocks that you think will do well, post pandemic. I have one more but before we talk about that, we’re going to talk about wisdom Philly has a question for us. And he’d like to know which platform will you move to as periscope ends today. Habit twitch I we are on most platforms. We are not actually on Twitch but I think we’re working on that. But we’re going to broadcast via new the the new media studio on Twitter. So for those of you who watch us on Twitter, nothing’s gonna change. You can also watch us at seven investing comm slash live stream. We would also appreciate if you subscribe to our YouTube channel, it’s not where most people watch the show. And it also helps us if you subscribe to this show as a podcast on whatever platform you’ll also get our Tuesday and Thursday podcasts, which are usually long form interviews I’ll tease a little bit. I’m taping one next week with Simon Erickson about the future of retail and how formerly direct to consumer brands are going into retailers. And formerly wholesale brands like Nike are going direct to consumer like so it is a really interesting changing world. I’m also going to tape one with Matt Cochrane, about sort of the state of streaming we were in a really interesting space in the streaming world. But let me finish up with one more stock that I think is going to be strong post pandemic, this one is going to be a little bit controversial and it’s Royal Caribbean. Why is it controversial because Royal Caribbean has largely not been operating for a year. They’re operating one ship out of Singapore right now. They’re about to start up out of Israel using with only vaccinated Israeli natives. They’re going to operate out of Bermuda and Nassau this summer, one ship out of England. But that’s like less than 20% of their fleet. They’re under a no sale order in the US and the CDC. Even though about 400,000 people have cruised over the past few months with with no problems. The CDC is not eager to lift that no sale order. I actually think they’re going to lift it in July, when vaccinations are 60 70% of the country if we get to those numbers. But there is a lot of pessimism about the US. But we’re in the Caribbean managed to shut down Well, they borrowed a lot of money. They have a lot of long term debt. But they were never in danger of going out of business, they were always a couple of steps ahead of it, you can see the pent up demand with their customers. But if you’re going to make this investment, remember that this is going to take three to five years to play out partially because not only do they have that debt, but they have to pay off their existing expenses. They also have to keep building ships I just mentioned the Odyssey Of The Seas. I know that in February, I’ve invited max along to come with me on one of the first US voyages on the Odyssey of the seas, which has like bumper cars, and it’s a really crazy nice ship and you have to keep expanding, keep evolving. We will probably do a show live from the private island or someplace to show off that we’re getting to do this. But they have to keep making those investments. They have to pay down their debt. They’ve also booked a lot of inexpensive trips, but in the rest of the year. I know I’ve been comped any trip I want more or less, which is not normally how it goes. And I have things for free booked out through April of next year. I’m not alone in that. There’s a lot of people that went okay, I’ll book for next year. And a 12 $100 trip was four or $500. So there’s going to be a lot of pain moving forward. But I do think this was a well run incredibly profitable company company beforehand. And it’s going to become a high demand well run profitable company. After Maxx. What is the first pure vacation you’re excited about doing once this is over?
Maxx Chatsko 19:50
Well, every year I take a big hiking trip with with my good friend. So we did that even last year and when you’re out the middle of the woods for five days, there’s no really it doesn’t matter. There’s a pandemic Zombie Apocalypse or anything like that anyway? So this year, that’s my trip that I’m looking forward to. Maybe though if we, if we do go down to the Caribbean, I look forward to that to Dan.
Dan Kline 20:10
Yeah, no, I’m excited other than the fact that we’re gonna learn a lot about each other cruise rooms are not big. Now you spend very little time in your room. So I hope, you know, but I haven’t had a roommate aside from my wife in a very, very long time. But I am excited because it’s, you know, it’s sort of six days of just fun. Now we’re gonna make some work into it. We’re going to, we’re going to talk with members on board, we’re going to do some some free talks. You just want to listen to us, whatever it is. But we’re also going to stop and some pretty awesome places. Not even sure where we stopped. But you know, we’ll get to see other countries. I am looking forward to going anywhere in a second. We’re going to go to what we’re watching, and we’re going to talk about the FTC. That is the FTC, the Federal Trade Commission, suing to block illuminous deal for Grail, which is an anti trust test. Maxx calls it after that Maxx, Lucas is going to join us to talk about his book for new investors. But before we do that, Maxx tomorrow is two things. First of all, it’s April Fool’s Day, the most overplayed least valuable holiday of all, I used to actually write at our former employer like a roundup of April Fool’s jokes. And I cannot remember the last time but April Fool’s joke worked to the point that I actually wrote the April Fool’s joke two years ago, where we used to work and we did it in a way I did it with en and Shaka Zulu, our former boss. And we did it in a way where we were acknowledging that we’re we’re trying to fool anybody because nothing released on April 1, is taken seriously. And that creates a problem for us at seven investing because Maxx what happens on April 1, or the first of any month for people who are members of seven investing.
Maxx Chatsko 21:46
Yeah, every first of the month, we release our new Best Buy recommendations from the whole team, across all different industries, all different parts of the economy. So tomorrow when those are announced, not not a joke, not a you know, we’re not trying to pull your leg. We’re not. I mean, Dan is going to recommend GameStop that’s not a joke. You know, maybe AMC as well so but now
Dan Kline 22:10
I’m excited about my my April pick. I’m excited about my pick every month. And when we share stocks on this show, those are companies we like those are companies we follow but they’re not our top conviction pick members get access to each one of us makes one pick. This is also honor bonds, first picks. So if you’re curious about what our amazing new advisor has to say, what is first pick is it’s an exciting one. All of the picks this month are really really strong. Sam Bailey, why don’t you show the people how they could subscribe if they would like to join seven investing. That is of course seven investing comm slash subscribe, there’s still time to join. Before our picks get out, you not only get our newest picks, you get access to all our past picks, you also get to see the performance of all our past picks. Remember, this is a three to five year race. So I own many of Max’s picks. And when Maxx lays out his case, in our team videos or in his recommendations, he explains that the movement of these stocks until some milestones hit which might be drug approvals, or how they get released to the market. That is definitely you know, sort of in the cards. So we’re going to talk about Illumina in a second. But But I will take a comment from my mom, my mother shares I want to go to I will point out mom that I have a couple of trips at your mark that uh, that you’ll be coming on as well. So hey, any of the seven investing audience wants to go on a trip. Let me know more than happy to have people tag along. I’m not not sharing a room with any of you. But I am more than happy to to have people travel with me. I’m really looking forward to getting to work remotely again and get back to the Bahamas. But Maxx FTC, the Federal Trade Commission, always a scary group, they’ve sued to block aluminous Dale for Grail. Why are they why are they doing this? What’s the logic here?
Maxx Chatsko 23:57
Yeah, so alumina, of course, is a leading DNA sequencing company by a mile, right? It’s pretty much the only place you can get DNA sequencing machines or reagents and kits. So it’s decided recently to acquire Grail, which is actually a used to be a subsidiary of Illumina. It spun it out, I think it’s still owns about 15% of the company. But Grail is working on next generation liquid biopsy. So basically, a diagnostic test that takes a blood draw, and can tell you if you have an early stage of cancer. So instead of getting a more invasive test, like a tissue biopsy, we could potentially use liquid biopsies. So it makes sense that Illumina is doing this, for one thing, Illumina does have some technical challenges on the horizon, its machines maybe aren’t the best position for the future of genomics or our multi omics future is probably a better way to put it. A lot of the data that we need to get you can’t really get accurately from Illumina machines that’s going to be increasingly likely in the future. So you have new companies like Pacific bias sciences, which is still mostly a niche company as well. And then Oxford nanopore, which we just learned is filing for an IPO in London that looks more like the ideal sequencing platform. So there’s technical threats facing alumina, which is heightened by the fact that it’s valued at, I think, $60 billion. So the total global DNA sequencing market, Dan is only about $8 billion, and Illumina is valued at $60 billion. So there’s a valuation risk there. There’s a lot of excitement for Illumina.
Dan Kline 25:29
So the Federal Trade Commission has done this before they sued sprint and T Mobile, which are now one company, is this a threat that that’s likely to impact whether they can merge? Or is it to gain some concessions, or some, you know, some pricing guarantees? I know there were some pricing guarantees in the sprint T Mobile deal.
Maxx Chatsko 25:48
Yeah, so this is actually this is a vertical merger, meaning, you know, Illumina is acquiring Grail. And they aren’t currently in the same industry, right? One is a sells lab hardware, the other one sells diagnostic tests, or is looking to do that none of those are approved yet. So this is a vertical merger. The only other time that the FTC has ever tried to step in and block a vertical merger was at&t and Time Warner. And that did not go well, the government lost its case, this one does kind of make sense, the FTC has some points. So the the arguments from the FTC, are such that, you know, Illumina is really the only source of these instruments for DNA sequencing, you know, if it also owns Grail, well, you know, all these competing companies have to go through Illumina in order for their platforms to work. So the threats like maybe Illumina increases prices a little bit to give Grail, and it’s if it owned it a competitive advantage. So it would be unfair to be uncompetitive. So the FTC does have a point even though this is a vertical merger. So there are some big risks again, because of the valuation and because alumina, it really does have to move into diagnostics, in order to have a future to grow into its market valuation. I mean, diagnostics and next generation diagnostics, orders of magnitude larger than the DNA sequencing market is going to get the gap is going to widen even further in the future. So it makes sense. Luma wants to acquire Grail, if it cannot do so, man, it has some really limited options for the future. So this is something that investors want to keep a close eye on, of course, I mean, Dan, you know how these things go? I mean, you’ve probably covered the at&t Time Warner merger, it takes years for this to play out. And you know, doesn’t mean it’s going to, you know, be next just because the FCC is signaling its interest in trying to stop it.
Dan Kline 27:34
So Maxx if you’re making the argument here as as Illumina, who are their competitors, or their startups, are there other technologies that they could point to and say, you don’t need us? Or you won’t need us at some point? How hard is it to compete with what they’re doing?
Maxx Chatsko 27:50
You know, the problems, the business model for lab hardware companies, right? So you sell a machine, that’s a one time sale, that’s actually not how Illumina makes most of its money is through operating those machines, selling the chemicals and reagents and consumables, that you need to run those. So the company already has a giant installed base, globally, right, a lot of companies use voluminous DNA sequencing machines. So those are fixed, those are high capital costs, there, there really aren’t very many other options out there for companies to go to, and they can’t make the switching costs are very high to just overhaul your whole lab and not use a loom. And it’s almost impossible right now. So it’s not the case with like, hey, there’s other cable companies or phone companies, really Illumina has, it’s like over, you know, 90% market share of this market. So it does this is a real risk.
Dan Kline 28:42
Could the government end up treating this like a utility and just, you know, forming some sort of commission that you have to go to for rate hikes? Or, I mean, we’ve handled this in other areas, obviously, health is very different from say, your cable bill, like if if your cable bill goes up? 10% and you cancel it? That’s not that big a deal. If you need a medical test, and you can’t do it because the price went up 50%. That’s a bigger problem. But are there regulatory ways to sort of make this deal happen?
Maxx Chatsko 29:07
Yeah, I thought about this. I mean, it’s it’s only been news for about a day, but I mean, there’s always concessions maybe Illumina can make. It’s kind of tough, though. If you look at the numbers and the percentages of the market that it owns, and what can it really tap say, like pinky promise not to raise prices on everybody? I mean, now it does need those customers. So it’s not incentivized to raise prices necessarily, but I don’t know. It’s just it’s this is a tricky situation.
Dan Kline 29:33
Traditionally, it’s only been cable companies and ISP, that have promised the government they’re not going to raise prices that have been done it. You know, T Mobile is sticking to the promises it made in the sprint deal. They were frankly, easy promises to keep because there was a lot they had to do to sort of integrate those companies before they could figure out sort of how they were going to raise prices or do other things. They’ve actually gotten rid of data caps. A lot of customers are subject to unlimited data where if you hit a certain amount of money, you Could be slowed down. That’s actually gone away for a lot of customers. So you’ve seen some positive. I know I’m equating to really ridiculous mergers, but it is hard to find examples where the FTC has gotten involved.
Maxx Chatsko 30:10
Right? Yeah, there’s there’s no real parallel here. And, again, I mean, that’s what makes it like a lot of uncertainty here. So this is definitely something to keep an eye on.
Dan Kline 30:19
Towards the end of the show. We’re going to talk about Zillow. There’s a couple of comments in the queue about Zillow. But right now, Maxx Chatsko is going to go get a cup of coffee, a beer, he’s in Pittsburgh, yeah. You know, maybe Cheese Day, who knows? You know, whatever it is, and we’re going to be joined by Maxx. Lucas Maxx is a seven investing. Affiliate. He is a friend of the family. I assume we’re having some technical difficulties out. There is Max Lucas, welcome to seven investing now.
Hey, thanks, Dan. Good to be here.
Dan Kline 30:51
So we’ve been talking about your book for for quite a while if I remember correctly, we did a long phone call about it. But why don’t you tell the seven investing audience the title of your book? Because it’s very in line with our mission here?
Yeah, so the title is the new investor started on it back actually in college about a year and a half ago. So it’s been a little bit of a long time coming, obviously a longer process than I had anticipated. But you know, a little bit happened in between 2019. And today, so a little bit got thrown there. But yeah, so I wrote the book, mainly because, you know, being in college, I was an engineering student got my degree in petroleum engineering. And I met a lot of people, you know, especially engineers, who were had great knowledge and economics. And we’re about to make big money coming out of the industry, but had no idea about investing. These people that were so knowledgeable in economics and future cash flows, and bringing things back to present value had no idea about investing the greatest wealth building vehicle in the world. And so I wanted to write a book that was able to teach these people who had basic knowledge in economics, or even people who didn’t have basic knowledge and economics, abilities to invest. So you know, in engineering, especially petroleum engineering, people had, we’re making six figure salaries. But it wasn’t an income story, especially now I’m working at a bank and mortgages. And the people I see coming through, they don’t have a problem with income, they have a problem with spending and knowledge. The same people if they were just able to know the market and know if you just put 100 bucks a week away, you’d be set for life, you could be a millionaire and 40 years
Dan Kline 32:25
is the biggest part of this Maxx teaching your generation because you mentioned college a year and a half ago, I’m like 25 years out of college. But is it teaching your generation about investing versus trading? There’s been an awful lot of hype over trading. And trading is bad news for most people.
Yeah. So my generation I think, I look at as the golden generation or the Golden Age, if you will, of investing. I came to the markets on Robin Hood. Right? So I started with your commission trades. I know your generation was probably paying upwards of 20 bucks. When you first got started trading, I
Dan Kline 32:59
had to bring a fox pelt to my broker in order to pay for the trade. It’s how far back it goes. And you trade it for beads, right? And,
yes, yeah. So but I got started on Robin Hood. And I learned with zero commission trades. And now I got fractional shares. So an investor today will be able to buy a company like Amazon with only 100 bucks in an account. So I see it today as the problem too, is that we don’t have a lack of knowledge, we have too much knowledge if you own too much information out there. So the problem is, how do you boil it down and get to the right knowledge. I saw the other day on the NBC Snapchat tile people talking about GameStop and trading. And I think I have somewhat of a more contrarian view about that as I, I get excited about seeing my generation talk about stocks. And even if it’s trading, that’s how I came to the market. Right? I came as you know, people talking about Robin Hood and day trading and Penny stocks. And I did that lost money, and then realize, you know, there’s a better way to do this. So I was able to find resources that allowed me to learn how to become a long term investor. And so I’m hoping to give that back to my generation.
Dan Kline 34:10
I think most of us come to the market doing stupid things. The problem with that is, is it can ruin you for life. Like if your first gambling experience in Vegas is you don’t know what you’re doing. You play craps or roulette and you lose a lot of money. versus someone showing you Hey, you can play blackjack, where the odds are pretty even or even close to in your favor. Or you could play poker where you’re probably not going to win in the long term unless you’re very, very good. But you can manage your losses and have a good time and get some stuff for free. The secret in the stock market is to buy good companies and hold them for a long time. That’s not a sexy secret. like nobody’s super excited about like buying a share of Amazon and waiting 20 years that’s absolutely a little bit problematic. What’s the most important lesson your book can teach new investors?
Yeah, so I look at I put a lot of lessons in there. That are somewhat more dumbed down, if you will, but they still have good good lessons. Jim, one of the things I liked in the book is being an engineer, the way I look at decision trees, if you will, or how I make a decision on a project is with a decision tree and I look at what’s the best possible outcome, what’s the worst possible outcome and what’s the middle outcome. And then you assign a possibility or probability to each of those outcomes, then you bring it down to present value, and then you decide from there is it economically viable. And so I look at the stock market the same way. But when I look at the stock market, the equation just blows up, because there’s an unbounded upside. So if I look at a stock like Amazon, when it was originally a bookseller, who would have thought today, it would be making money from Cloud computing, right. And that’s my look at those things. It’s just unbounded, how high stocks can go. And the example I give in the book is Amazon. But it’s also Home Depot when it went public in 1981. I don’t think anyone would have thought today, it would be seen 1.4 million percent in return, even if you would have invested $10, at 1.4 million percent today is life changing wealth, and it would look like an unbounded upside. So I look at all stocks is undervalued, because I don’t know what they can do in the future. The is I think it’s a similar idea with you know, like, you guys had talked with Bitcoin there. The upside to Bitcoin, if they’re the investment thesis in Bitcoin is it can go up infinitely, and it can only lose 100%. Obviously, you have to buy good companies or buy good investments. But if I put a 1% of my portfolio into it accompany and it goes up 1.4 million percent. I’m done, I will retire to my beach and go sailing with Dan Kline on his vacations, that you do want to be careful with the companies you invest in, you brought up GameStop earlier and GameStop. If you look at it as a business, and I and you’ve seen me talk about this on Twitter, everyone says they’re gonna pivot to digital. And that sounds great. Like you remember when all the content sites were going to pivot to video, well pivot to digital, they sell video games,
Dan Kline 37:01
I have an Xbox, I can buy video games directly through my Xbox. In fact, I don’t have to buy video games. Because when I bought my Xbox, I bought the game pass, which gives my son and myself but I don’t play that often access to all the EA games, and like hundreds of new titles. So maybe we’ll buy one or two a year. But GameStop has become where we look at the mall for things we then find on our Xbox at home. So sometimes when you’re when you’re looking for investing advice, you don’t want to just hear the top piece of the story you really have to dig in. Because it’s really easy to say like every restaurant could say, oh, we’re gonna double down on delivery. It’s like, Well, does your food travel? Well, there’s a reason wings and pizza do well and delivery because they’re they’re really versatile. They travel really well. There’s a lot of things, you know, shrimp doesn’t travel so well. So like you need to be careful. Maxx. We’re gonna keep you around for the next segment. But before we finish up on your book here, how can people get your book? Do they have to go to a bookstore? Do they have to go to a website we’ve never heard of? Is there a fax machine where you send your money? Like how does this work on your book?
Yeah, so I that’s a great idea. I should actually just get it, uh, you know, again, over the cloud, which it kind of is because Amazon is where you can find the book, you know, I have the link there. You can get it in both print and over digital. So the Digital’s 99 cents and the print is 799. So
Dan Kline 38:18
Sam Bailey will share that from the seven investing Twitter and we’ll all retweet it. While we’re talking about books. I meant to do this the other day I just a small rest in peace here. Larry McMurtry, the famed author at Kramer versus Kramer, Lonesome Dove all all of so many amazing books passed away earlier this week. And part of the reason I love reading is Larry McMurtry I don’t think he gets his do as a great American author. It’s one of the truly best, you know, sort of his diverse collection you know, Kramer versus Kramer and loads of dove are very, very different books and he’s written just so many amazing things. So if you’re stuck in the pandemic, if you’ve never read any Larry McMurtry books, I highly suggest you do and you know, I’ll say thank you to Larry McMurtry for so much enjoyment. Very sad to see to see that he passed away because even his latest novels were really, really compelling. Let’s talk a little bit about Zillow, zi l asked. And Sam apologies. This is a while back. I’m excited about Zillow. What do you guys think about the growth of these real estate tech firms post Pan gemak. I’ll go I’ll go first. I’ll give you guys time to get your thoughts in line here. I’m a little bit mixed about Zillow, but I do see its place in the market. So I’m selling a condo now. And my real estate agent, if they sold it to a buyer they brought in would get 6% most likely they are going to sell it to someone else. Split that commission with another real estate agent, they will each get 3% I’m still paying 6% if I go to Zillow, they can do it for much lower percentages. That’s a benefit or if Zillow offers I buy which they don’t in my market, they can essentially Not charge me that 6% meaning of their I by offer is it could be, you know, the Commission on selling my home is gonna be over $20,000 that gives them $20,000 worth of leeway on that price. So they might come in low, but the amount of money in my pocket might still be okay. So I don’t superduper love these companies, Zillow and Redfin because I, I do highly value that my real estate agent, I think they’ve done a great job, you know, and we’re just suffering a little bit with not having the right property at the moment. I’ve used them multiple times. And I like that one on one relationship, but I do think there is going to be a place for this Maxx Chatsko, your thoughts on Zillow and Redfin, two companies I know you don’t get spend a lot of time thinking about
Maxx Chatsko 40:42
Yeah, I haven’t I haven’t really dug into any of these companies. There’s actually a pretty active comment section here on YouTube, which is interesting between us el Chris Morley and some others. Talking about Zillow versus Redfin, I don’t know of the differences there, Dan, but
Dan Kline 40:57
it’s, it’s a tough one, because it really comes down to two platform. I think in this space, unless you’re talking ibuying, which one might be in your market, one might not be that you largely want to go with a bigger company that that real estate is about exposure. I also think the Zillow app is kind of awful. Like it presents things in like a map view with little blue circles. And I think there is a way to get a list but but I haven’t figured it out like app should be intuitive. Maxx Lucas, I don’t think you’ve ever bought or sold a home, but with Zillow be appealing to you if that was something you were going to do in the future. Yeah, so
I actually have a little bit of a different perspective on it here working in mortgages. So being a loan officer there the first off the housing market is red hot. Right now we are seeing three acts at my bank mortgages than we saw last year at the same Well, I think so by this time, you know, going into April, it’s it’s when it really took off there when rates lowered. But in January, we saw three acts over the year before. And the problem is we just don’t have any inventory. Our inventory in our market is typically around 1500 to 1400. Right now. It’s about 300 and 150 of those haven’t even been built yet. So there are people buying lots from builders, and there’s nothing on the lot. So the problem right now that we’re seeing isn’t similar at all to like 2007 when the housing market was red hot, our lending standards are so much stricter today than they were back then. And there’s no inventory. So I don’t see this bull run, if you will, and housing going away anytime soon. And Zillow is a company I actually use every day being in real estate there. I use it every day to look up properties to help people you know look at the type of properties they want to use. So I kind of see Zillow there with somewhat of an advantage over Redfin or an open door, just because it’s almost the the go to, if you will, for people looking into real estate, I think Redfin is has a compelling product. And I like their idea of their agents being employees rather than just real estate agents. But I think the ability for Zillow to you know, if that’s the platform everyone goes to, that’s an advantage that I would like to have going into any other market like I buy.
Dan Kline 43:00
Yeah, I actually think there is some opportunity here for them to own more of the process. You mentioned mortgages, I think, and you could tell me more than anybody that mortgages are ripe for disruption. And I don’t mean Rocket Mortgage, like pretending it’s digital. And it isn’t like, unless all of your records are digitized and available. It’s the same process anybody else does. But that being said, I know that I have a mortgage, I’m trying to sell a home with a mortgage, and I’m gonna use the proceeds of that to buy a home without a mortgage. So I don’t need another mortgage at the moment. But if it was easy to get a mortgage, I might take that money, I’m investing and buy something twice as nice. But I can’t go to my mortgage lender and say, here’s the deal. I’ve paid you for four years, I’m self employed. So proving my income proving records is difficult. I’ll turn over my bank account to you. So you can see, you know that money has come in that I’m not spending any crazy amount of money, and I will put 50% down. But I would like a mortgage based on our past history. You can do any other type of business in the world based on that. But you can’t do a mortgage. And this is a pain point for those of us who do not work traditional jobs. But getting a mortgage is difficult for almost anybody unless you almost don’t need the mortgage. I think it is something that you’re gonna see like I got life insurance using lemonade, and that was life insurance. You have to fill out a form there’s no medical test. They’re using algorithms and AI. I think you’re gonna see that in the mortgage space. I I do think it could be Zillow or Redfin, that does that. I’m not sure I’m investing in either one of those based on that but a Maxx with two Xs max with 1x. It is now time to hit our finisher. We have a weird mix of horse racing and pro wrestling terminology built into the show, which I guess tells people what my interests are because I named most of the segments. So our finisher today Sam Bailey, our Director of Marketing, thank you for sharing that. Which struggling stock Do you believe in the most Discovery Communications 9.3%, Viacom, CBS 14.3% 63.8% said good RX. 4.6% said doordash Maxx good RX is sort of adjacent to your space. I don’t believe in good RX at all. It’s a prescription discount program that somehow makes money with data. Like, I’m not really I don’t like their business I’ve had it explained to me. I just don’t feel I feel it’s kind of a hype stock. Am I wrong about this? Everyone seems to think they’re gonna recover.
Yeah. You know, it’s
Maxx Chatsko 45:24
a tough space, right? I mean, look like Amazon, or anybody can really kind of get into prescriptions or online, right? We can digitize that and make it easier. It’s, it’s, it’s tough to be the leader there without like, insane scale, or there’s just so much competition. So
Dan Kline 45:43
they have done a good job getting fliers out to doctors offices, because the couple of doctors offices I’ve been in since the pandemic have pushed it, Mexico, because they’re one out here that jumps out to you.
Yeah, I think, not not necessarily one that jumps out as being good on the upside, but maybe the the doordash one there as a user on both ends of that platform, I do not like doordash I think that as a driver, it I don’t like being told, you know, go to this delivery. And if you don’t want to go drive halfway across town, you know, when you don’t accept the order that they dock you and as a user of the platform, I don’t like when I want to change something they tell me I can’t when it takes 1020 minutes to get a response from someone who can actually help you out. So I these these kind of marketplace for delivery companies. I’m not necessarily a big fan of.
Dan Kline 46:36
So I think there’s an obvious winner here. Discovery communication. So let’s remind people what Discovery Communications is they just launched their discovery plus streaming service, it’s 499 a month with that, you get HDTV, so you get the Magnolia network chip and Joanna Gaines and all their popular programming, you get the Food Network, so you get all the Gylfi it shows and, and all the Bobby Flay shows and all the other celebrity chefs out there, you get an enormous amount of inexpensive to produce programming that people just watch. We were talking earlier with Sam Bailey, how we both fallen into the 90 day fiance rabbit hole. So 90 day fiance is one core show that has a little bit of expense, they’re taping and putting on weddings. But after that they do a million like panel discussion shows where like old people who used to be on the show will watch an episode. Same thing with House Hunters and other show that has some expense to produce. But they have a show where comedians watch old House Hunters episodes, I want to be on this by the way, if anyone from discovery is watching, and they make jokes about it, it is inexpensive programming that’s addictive. I know that I’d say 60% of the time when I’m not paying attention to television. And it’s not the morning where I’m watching ESPN to catch up on sports news. Behind me on the TV is diners, drive ins and dives are chopped or something like that. I think Discovery Communications is going to be a sneaky big winner in the streaming space at 499 a month. I also think they’re a major acquisition target. If you are any of these streaming services, a peacock could buy discovery which is NBC Comcast. You could see you know anybody CBS Viacom could buy discovery plus, and then there’d finally be something on CBS all access are paramount plus, as they call it now worth watching because right now their big draw is like Star Trek spin offs and SpongeBob movies like so I think discovery is a massive asset that is not getting its proper play. We appreciate how many people are active in the questions and comments. Chris Morley zeal Ravi, thank you for keeping the discussion going. We will do a show I’ll have an interview subject on and we’ll try to get my old friend Deidre Willard on to the editor of million acres to talk about Zillow and Redfin. That is something we do privately quite often over over social media dams or whatnot. So,
Maxx Chatsko 48:47
Dan, just just to interrupt. So I don’t know when that question was asked, but I just looked at Discovery. It’s up 80% today, so maybe it already has. But um, it’s valued at $61 billion right now. So maybe, I don’t know that’s,
Dan Kline 49:04
and that valuation might be rich when we wrote that question. It is because discovery and viacomcbs had fallen, they’d fallen for sort of a non traditional reason there was a fund that own them that had to have a sell off it was kind of an artificial sell off. And in reality, companies do recover yet when you look at any of these Look, do I think the roads gonna be easy for discovery? I don’t, because here’s the problem. As much as we like all those shows, they’re not shows that generally you feel like you have to watch like if you know, if the new season of The Walking Dead went away in your cable channel and you’re a huge fan, you’re probably going to seek it out. I’m not entirely sure how quickly you’re going to seek out beat Bobby Flay. I do think that ultimately, you’ll feel the loss as people cut the cord. I think the best value for your 499 is probably discovery plus the second best value is Disney plus at eight 99 I actually think Netflix is way down the line because there’s just so much garbage on Netflix. And there isn’t that archive, like you get Disney plus you get every episode of The Simpsons that could be Frankly, I think every kid should have to watch that. I think that should be like a school year where they stop and do that. But it’s something that you know that there’s all the young kid programming, the Mickey Mouse shows in the Pixar movies and all of that, but they save 55,000 hours of programming on Discovery. Plus, it’s just a lot of eminently watchable shows. If you cook, you can go back and search for Hey, I want to learn how to make, you know, shrimp and grits and find like 15 different shows that do that there’s just so much useful. And then also just like empty calorie programming that you can have on in the background with that, either. Just jump in.
Yeah, it was just every plus to there. I think that you know, in today’s world is so hard to get a show that everyone knows. And I don’t really know anyone who hasn’t watched at least an episode of House Hunters. So I think having shows that are well known by people, especially in today’s world is gonna be you know, a good pickup for any company.
Dan Kline 51:03
I’ll close out by saying two things. I do think I was in the comments. A lot of people talking about how Redfin and Zillow struggled to value houses. That is a problem. When we first put our house in the market. I think it was hurt by the fact that Redfin, Zillow and realtor.com were saying the value of our house was about 300,000. Recent sales in the building suggested the value was was closer to 350,000. We listed at 379. We’re now at 349. That being said, Those valuations have corrected themselves as time has caught up. So I do think the software is going to get better the predicting is going to get better. I will close out with one more comment from my friend Chris Morley, Chris messaged me maybe we could go on a on a bourbon tasting trip once the world opens up. I don’t do much individual stock investing on my own. I’m loving seven investing as a learning tool. I am much more aware of what my wealth managers are investing in due to these streams sparking my interest. I think it’s important. I think that’s an important statement. Because look, I have 401 K’s I have things that are not individual stocks. And I will look at what’s in those holdings and basically say, okay, like, I like this, this gives me some exposure to Amazon, this gives me some exposure to things that I’d like to own more of, I do think it’s important that even if you’re investing in ETFs, or, or having someone else invest your money, that you understand what they’re buying, because there’s an awful lot of money managers that make really dumb decisions. And I point that out, because we’ve talked about this a lot. There’s a lot of people who are investing, and they have sort of the public narrative. One of the public narratives I always talk about is a mall traffic is down. mall traffic is not down down during the pandemic. But the peak of mall traffic was 2019 Christmas season this year was within four or 5% of normal mall traffic at good malls, not at second tier malls. So you really have to understand industries. And I don’t think the average person working at you know, whatever, I’m not going to pick out one company, whatever brokerage house that’s managing your money. I don’t necessarily think they’re doing their due diligence on those companies. And look, a lot of those people are members of seven investing because we do the homework and we welcome that. We’re excited about that. We appreciate max Lucas joining us today if you’d like to get in touch with us, that is very easy to do. You can send a letter to Maxx Chatsko. max, you want to share your address. No, no, we are. You can email us at info at seven investing calm. That’s for questions about our service questions about the show questions, you know, things you’d like to see us do. Not really Hey, could you take a look at this stock? You know, we get a lot of those requests. And usually it’s either something we’re already looking at, and we’ll share it when we can or it’s something so obscure or not on our radar for a good reason. If you’d like to ask us questions in a social media setting, we are at seven investing that is at the number seven, investing on Twitter and we are very, very active sharing all sorts of stuff. We appreciate all the comments, all the viewers tell your friends there’s no show Friday, Friday is Good Friday. So we are we still have a couple of meetings but we’re mostly taking the day off. Some of us are going to church Some of us are not. Sunday is of course Easter. So Happy Easter to anyone who celebrates happy Passover to those who are just finished. And a happy day to anyone out there who’s watching. I am Dan Kline, we will see you Monday. Thank you
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