The stock market fell on Tuesday after reaching an all-time high Monday. Investors have become a little bit spooked by the rising number of coronavirus cases caused by the Delta Variant and, perhaps, panicked that a 1.1% drop in retail sales in July may be a sign of darker days ahead. Dan Kline is joined by Maxx Chatsko to explain what’s actually happening and why a little slowdown in consumer spending may actually benefit the market on the August 18 edition of “7investing Now.”

Transcript

Sam Bailey  0:24 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  0:35:  Good afternoon. Good morning. Good evening, seven investors and welcome to the Wednesday edition of 7investing Now. My name, of course is Daniel Brooks Kline. And you can tell maybe you can’t I’m coming to you live from bathroom at Caesar’s Palace. This is the best reception in my suite. So we’re gonna go with that.

I’m being joined today by Maxx Chatsko. Maxx, it has been a wild couple of days. We did a Twitter spaces yesterday, we’re going to continue talking about the stock market today as opposed to I wanted to talk baseball trades. But given the market conditions, we are going to talk about the stock market. How are you doing this? I guess it’s afternoon in Pittsburgh, it’s still morning here in Vegas.

Maxx Chatsko  1:15:  I’m good. Speaking of baseball, the highest valued baseball card ever sold. There was that was that the T206 Honus Wagner of Pittsburgh, it was like $6.6 million. I feel like there’s a connection there. I want to glean some meaning to investing from that, Dan, I don’t know.

Dan Kline  1:31:  We sold baseball cards when I ran the toy store. And I always felt like I was stealing money. Because like something that would be worth like $1,200 one day might be worth like $85 the next day when that person had a steroid scandal. So collectibles is not the stock market. And that’s something that actually comes up a lot. be really, really careful with investing in collectibles. I have family members with an awful lot of Beanie Babies, that they thought were going to be valuable.

We are going to talk will the Delta variant slow the bull market, we had a bit of a rough day in the stock market yesterday. But it is important to remember that US stocks hit record highs Monday. I know that’s hard to remember, I’m in Vegas. So remember, remembering things is not that easy. But we went way back to Monday to hit record highs. And then yesterday, all the major indexes dropped about 1%. Maxx, let’s talk about why the news reported that happened. And then we can get into the reality of what maybe actually happened.

Maxx Chatsko  2:30:  Yeah, so last, what was it yesterday, a whole 24 hours ago, Dan the news that came out anyway was that retail sales in July dropped 1.1% compared to June. And that was way more than expected. And so everybody got spooked. And then all the headlines said, well, the futures are down early in the morning. So this must be the reason. So as we talked about a little bit on Twitter spaces, you’ve worked in the media for a long time. You know how there’s that pressure to get content out and try to form these narratives. And I think we could both baby say that sometimes journalists fit data to the narrative they want, even if they’re conflicting on opposite ends of the spectrum.

Dan Kline  3:13:  Yeah, so so let me jump in here. And by the way, we would like your questions and comments. So wherever you’re watching this, if there is a comment field, if you type it in, you can ask us questions about the markets, questions about stocks, we’re going to talk for a while on this segment, then we have a taped interview with our friend The Science of Hitting, and then we will come back we’ll take more of your questions and comments. So feel free to weigh in wherever you are.

But yeah, so what happened yesterday is the lead story was that consumer sales, that’s retail and cars basically had fallen by 1.1%. And there is the supposition that that drop in sales caused the stock market drop. But that’s a very big leap to make because falling 1.1% from record highs really doesn’t mean that much and Maxx, there’s also a little bit of a curveball in the data that I know you like to point out.

Maxx Chatsko  4:03:  Yeah, so if you include automobile sales, right, so those were there were more sales in June than in July, because of the shortage of automobiles, then retail sales only fell 0.4% in July, compared to June. Now there was still a pretty decent drop in things like clothing sales, I don’t know what that might have been caused by. But again, it’s like this wasn’t really that big of a deal necessarily. And Sam we’re gonna go a little bit out of order. There is a second graphic maybe about the historical —

There we go. So look, it fell compared to June. But look at where we’re at. We’re still way ahead of pre pandemic levels. So the fact like did this actually cause the market to tumble? And by tumble, I mean, a whole 1% drop? Oh, no. Maybe not. Now, he could also say that maybe the markets a little elevated, it doesn’t take much to to maybe give it a little nudge and have it have a 1% down day. But I guess I would say I’d be cautious about to pinpoint exactly why the market fell to anyone story.

Dan Kline  5:05:  Yeah, let me talk about being a newspaper editor or being in the media, you have to answer questions whether you have the answer or not. So you basically have to say, Okay, this consumer data came out, and oh, my God, it’s a drop, it’s bad, or the week before, just a few days before, we added 943,000 jobs to the economy, and that sent the stock market in the green in the positive direction. But here’s the reality, if you actually take a step back and look at unemployment, we have dramatically more job openings than we have people to fill those job openings. So the creation of new jobs is just numbers. It doesn’t mean anything.

And what’s the nuance? Are those jobs flipping burgers at fast food places? Or do we need new highly trained physicians, or robot techs or whatever it might be? So just those numbers, I mean, look, we’re at a 5.4% unemployment rate. But we’re probably at pretty close to full available employment. Well, what does that mean? Well, most people who want a job likely have a job, why do you not want a job? Well, you might have childcare issues, because your daycare hasn’t reopened, you might have health care issues, because your your grandmother has COVID, or whatever it might be. So the market is affected in the short term by news.

And as a newspaper editor, as a website editor, you have to generate that news. So the guy working at CNN or CNBC, or, or Fox Business, wherever it might be, has to go, Okay, this data came out. What does that data mean? But it doesn’t necessarily mean that like, my concern on this data, and Maxx you could weigh in, is that we’re headed back to school. And we had forecasts the National Retail Federation had forecast record back to school sales. And when you see drops and things like clothing after a year where kids only wear sweatpants and T shirt, that does suggest to me that there is a little bit of consumer wariness. And I think that’s about sort of, we don’t know where the current wave of the Coronavirus is going to go. So I’ve talked too much Feel free to jump in here.

Maxx Chatsko  7:07:  Yeah, and one thing that stood out to me in the data was what you said, We’re going back to school, or we are about to, right. So the fact that apparel sales fell was kind of interesting compared to June anyway, right. So it would be important to remember that it’s relative to June, but also interesting. I mean, in July was the first month that the child tax credit payments started getting mailed out.

I don’t have kids, but it’s like $250 to $300 per child per month, those are gonna go out again, are already have started going out in August. So I mean, I would expect that money to maybe be used to back to school things, hopefully. So maybe in the data we get from August, maybe it’s a little bit higher than July. But again, we are still way above pre pandemic levels. So I think I’d be careful about drawing too many conclusions in the month to month volatility. We’re also in like, we’re in the recovery, which has no really historical precedent. So it’s hard to really draw too many conclusions. I think.

Dan Kline  8:05:  So, Rahul, we will get to your question a little later on, Aleksino yes, good afternoon, we appreciate you watching the program. But that with Maxx, you shared a tweet. And I think this really pinpoints sort of how people are thinking about the market. And the reality is what happens on a day to day basis doesn’t matter. And Sam, if you want to share that tweet, I’ll let Maxx read along.

Maxx Chatsko  8:28:  So I had a funny tweet, because then this kind of goes with the narratives that media come up with, right? So if you if you wake up early enough, and you read articles, like on the Wall Street Journal, they’ll look at a futures data, which has been out for 26 minutes at that point in time. And maybe it’s down though the s&p 500, down 0.5%. And then they try to, they try to tie it into the story of the day or so maybe it’s unemployment data is down.

And they say, Oh, well, stocks are falling based on unemployment data. But then if you check back an hour later, maybe stock futures are up 0.3%. And then they keep the same headline, they just flipped what it means. So they’ll say, oh, stocks shrugged off unemployment, and they’re up. And so it’s like, you could tell it doesn’t really mean anything, we kind of fit the data to the air. So this is a funny tweet. It just said based on all these other opposite outcomes, stocks are gonna rise no matter what. And that was kind of just my funny take on maybe a little bit of how the media works in the moment, right, a lot of it is the noise, not the signal.

Dan Kline  9:23:  So Maxx, we talked a lot about sort of the short term news but is the real fear here, that there’s gonna be another round of lockdowns and restrictions. I know that you know, I’m in Las Vegas, and I was when I was here in March, you pretty strictly had to wear a mask, you’re gonna have to wear one at the pool, except when you were in the pool. Now you’re supposed to wear a mask inside. It’s not being particularly well enforced. That being said, you can also see that it’s not particularly crowded here and it’s August and it’s 108 degrees.

So I’m not projecting that this is necessarily a time where Vegas should be crowded, but it is the this week’s call it stock market fear And the market is down a little bit today as well, at least it was when we started the show. Is it really just this uncertainty? We’re like, teach, maybe I’m not so sure that that September trip to Walt Disney World is a great idea. Or maybe I’m just gonna not go to the mall today and, and hold back a little bit just because I’m not entirely sure, especially with people who have kids who are too young to be vaccinated.

Maxx Chatsko  10:22:  Yeah, I think that’s a good point. I think the ferocity of this wave and I wasn’t even you hear about the Delta variant, right. And it’s kind of in the news a lot. I hadn’t even really checked the data, compared to like, when we started tracking COVID cases. So I checked it the other day, we were talking about this before the show, this current wave is probably gonna be the biggest wave we’ve had in terms of the known cases that we’re going to be able to identify. That’s pretty shocking to me. So the Delta variant is highly transmissible. It does seem to result in more severe infections, were very lucky, this wasn’t the first strain that came out before we had half of our population fully vaccinated. So that is surprising.

That does add quite a bit of uncertainty, as you said, and one of the big reasons that a lot of half the population isn’t vaccinated, you know, we’d like to kind of talk about the political angle to it. But kids under 12, currently, there’s they cannot be vaccinated, right? It’s coming soon. But those kids are going to school, bringing a bunch of children that live around a building into the same building every day, and then sending them back home and then doing that five days a week, that’s a really good way to light a fire under a pandemic that’s still burning. So maybe we might want to rethink that.

As you’ve said, you were talking about this, people, mostly with children are maybe being a little more cautious about their their summer plans, their fall plans. And maybe that’s more of what we’ll see in terms of like, any hit to the economy, however small, I don’t think we’re gonna have lockdowns again. But that could probably restrict certain activities, Dan.

Dan Kline  11:54:  Yeah. So I mentioned what the conditions are like in Vegas, I will say that disney world has reinstated indoor mask wearing. And I think it’s possible. But if you have young kids, you kind of don’t want to spend $5,000, or whatever you’re going to spend on a Disney vacation, come stay at my place. It’s cheaper than that. But you don’t want to spend that kind of money to have a vacation. That’s not 100%, it might be as simple as they haven’t brought back character meet and greets. And if you have a child under five, getting your picture taken with Winnie the Pooh is a big part of the experience. So if you can’t have that, it might not be worth it to spend that money.

So a lot of this is sort of related to what’s going on. But some of it might just be experiential, where it’s like, yeah, I could do this. But why do this now, like, Look, we don’t eat out as often as we used to. And that’s not because like, I’m afraid to go out, obviously, I’m away, I’ve been on a plane, it’s just that there’s an added layer of hassle with with mask wearing and other things you need to do that make it just, hey, let’s order in and eat at the kitchen table.

Maxx, you’re concerned that we’re in a stock market bubble, I take a different approach, I think there are a lot of stocks that have got ahead of themselves in valuation. But I’m not overly concerned if say, a Teladoc, or a Zoom drops by 50%, and then takes 10 years to get back to where it was. Because I think that’s maybe a more realistic growth picture for how it should have gotten. What do you mean, when you say a bubble? Do you expect like we’re gonna see 50% of the market disappear overnight?

Maxx Chatsko  13:26:  No, I don’t necessarily mean that. So I just read about this for 7investing members, actually. But when we talk about stock market bubbles, or real estate bubbles, we often focus on prices. And that makes sense, right? The stock market is about numbers. So quantitative analysis has a big role to play. But if we look back at the history of stock market bubbles, right, we see that some of the defining features are actually tied to human psychology, and also the narratives that we tell ourselves about the economy at the time or innovation at the time. And if you have that historical perspective, you can go down the checklist, sure, valuations are stretched, and a lot of parts of the market even for the overall market.

But also a lot of those human psychology factors are present as well. So there’s a surge of new investors coming into the market, which is good, we love that here at 7Investing, we want everyone to be investing in their future. But also, there’s a lot of people who may be get a little greedy here about your idiot neighbor who’s making a bunch of money and you’re like, this guy’s a bomb, I could be doing better than him. And then I’m gonna put my money in the stock market, and then for 12 months or 24 months, or however long it goes, it seems easy. Everybody’s making money. Woo!

And but history suggests, eventually, the bill does come to fundamentals do matter. Momentum is not a durable advantage. So if you’re interested in these topics, and I think these are this is some of the things that economists kind of shrug this off right, because they’ll point to this data point and that data point and what about unemployment and this This time, it’s different Don’t worry about it. What about innovation this that and we see all the same argue In other bubbles, right, whether it’s the.com bubble, or in the 1980s, or Japanese stocks, or going back in history, any other bubble you want to look at, but I would encourage you to read some of Robert Schiller’s books.

So he wrote Irrational Exuberance. Great book, it’s the third edition is the most recent, very good. He explains a lot of these factors. So he talks about in any bubble, there’s precipitating factors. So that kind of lays the groundwork, right, and a lot of these kind of plug into human psychology. And that sets the stage for a bubble to form. And then there’s these amplifying mechanisms, right. So more people coming in different narratives in the media, an explosion of talking about the financial markets within the media at large. And he’s kind of just inflate and blow up the bubble a little bit.

So he talks about all these and how they tie together, he admits that there’s really, it’s tough to map these perfectly on to some of those quantitative metrics that we we like to follow like price to earnings ratios, or price to sales ratios, or the Shiller P/E ratio, which is named for him. But he does make a pretty good case that, here’s this checklist. These are what we tend to how we define bubbles. And I think if you go through that checklist, right now, you can make a pretty strong case, we’re in a stock market bubble.

He also wrote a book I think it published in last fall called Narrative Economics. So it talks a little bit more about that. Not just that the economic state of the time, sets certain narrative that creates narratives, also that narratives create certain economic reality. So pretty interesting book as well. So definitely read those. I talked a little bit long there.

Dan Kline  16:40:  So you I want to draw some lines between the dot com bubble because I think a lot of people look and say, Oh, my God, we’ve got high flying tech stocks. And high flying tech stocks eventually crash, because that’s what happened during the dot com bubble, there is a very big difference here. You might argue I mentioned two before Zoom and Teladoc. You might argue that their valuations are ridiculous that they’re very high based on P/E ratios that they should come down.

That is very different than companies in the late 90s that had no revenue, and were worth billions and billions of dollars that had no clear path to ever being profitable. We didn’t foresee the cloud. In those days, I was a dot com pioneer, I worked at a an early publicly traded company that spent 10s of millions of dollars a year and took in 10s of hundreds of dollars a year in advertising. Every server we bought physical server was decliningly efficient in terms of running our website and our games and the things we were doing.

So there are some differences. And you might say there’s a lot of stretched valuations. But I could say pretty clearly that Zoom and Teladoc aren’t gonna go out of business. And I can tell you in 1999, or 2000, I could look at 99 out of 100 companies and tell you that they were gonna go out of business, and I was I was wrong, because it was 100 out of 100. In most cases, Maxx, feel free to jump in.

Maxx Chatsko  18:01:  Yes. So you’re right. And I actually push back when people make the we always compare everything to the dot com bubble. And I think there’s maybe some parts of this market that have very strong parallels to the dot com bubble. But there’s also other bubbles, like maybe in Japan, the Japanese bubble in Japanese tech stocks in the 80s seems a little bit more reminiscent of what’s going on now. So those comparisons to any specific bubble usually fall apart pretty quickly, because every bubbles a little bit different. But those basic elements are still present, right?

You might talk about Zoom and Teladoc having staying power, and they’re gonna be fine in the long run. And I would agree. But those same arguments were made, like you said in the dot com bubble, right? For every amazon.com that emerged because of the information superhighway was going to revolutionize the economy. There was 100 pets coms, right? So you do have to be kind of careful. And I see that going on right now.

Especially in the markets, the parts of the market that I cover, which are drug development, and renewable energy and synthetic biology. There’s a lot of people saying, well, this time is different man, like, look at the pandemic, we came up with a vaccine in a year less. This is the golden age of biotech, synthetic biology is the fourth industrial revolution. And the reality is, you’re probably right in the long run. But man, I see a lot of pets.com out there right now, a lot of companies that have really high valuations and sometimes no clinical data, they’re just kind of trading on this narrative, or this idea that this time is different. It’s exactly what happened in the.com bubble for tech stocks.

Dan Kline  19:36:  Yeah, people love their narrative. If you try to talk someone off a narrative and we saw this recently with Cannabis Stocks, cannabis is going to be legal everywhere. All these companies are going to be valuable. Here’s the reality. cannabis is a commodity. It’s hard to stand out and be different as a cannabis company. So the vast majority of people that invested on that narrative have lost a ton of money. Well, we’re hearing the same narrative with everything from plant based meat, you can make a case for beyond meat, you can also make a case that it’s a commodity that’s easy to duplicate. We’re seeing it with sports betting, which I absolutely think is going to be a a commodity.

That doesn’t mean there won’t be winners, there can be differentiated companies, there are a couple of winners in cannabis. But there’s gonna be a lot of failures because people buy the narrative, oh, my God, this segment is going to be huge. And they don’t know how to connect that. You know what’s huge? Retail is huge. That doesn’t mean Sears is doing great. Like, there’s There are stories to be told here.

I want to get to a comment from Rahul, Rahul Gauti, which is going to touch off an area we were going to talk about anyway. So Sam, if you want to share the one along with Dell, along with Delta, lots of chatter about fed tapering, is that a big deal? I was gonna ask Maxx about this and basically say, if sales slow down, and we actually have some negative months in terms of some of the consumer retail data, does that actually sort of give the Fed reason to not taper. So in the negative? Is there actually sort of a positive here?

Maxx Chatsko  21:06:  Yeah, well, that’s like when, when that was the narrative yesterday, right? consumer sales fell 1.1% from June, the stock market’s down. So well, if you take a step back, that’s probably great news for the stock market, because that means the Fed is going to keep the pumps running for longer, right? it’s going to keep trying to stimulate economic activity if we get bad economic data. So right there that shows that maybe some of those headlines aren’t really very well thought out.

But yeah, and this is the thing like so with with the stock market valuations stretched, and maybe there’s just different pockets that are stretched. I think you could say, a lot of valuations are kind of priced for perfection. So it doesn’t take much maybe it’s worrisome data about consumer sales, unemployment data, the Delta variant, maybe it’s talking about when is the Fed gonna start tapering or start raising interest rates, any of those stories, it doesn’t take much of a push, maybe for the stock market to kind of even introduced a little mini correction, maybe it’s just has a few months, where it’s kind of starting to lose a little bit of value, maybe it just goes sideways for the rest of the year, the stock market, the s&p 500 is up 18% since the beginning of the year, that’s kind of a bonkers annual gain. And it’s only what eight and a half months in. So if you have a little historical perspective, I mean you have to appreciate that a 1% drop or a 5% drop, or even a 10% drop isn’t really that surprising. In the greater context.

Dan Kline  22:28:  It’s really important to remember that short term news is just that we don’t change our thesis, because it rained and Disney World had a bad day like that doesn’t change your thesis on Disney. If If a restaurant couldn’t get in its most popular dish couldn’t get the shrimp it needs to make its famous shrimp scampi. And thereby some people cancel their reservation. sure if that happens every day for three months, it’s probably going to have a negative trend. If it happens once you’re probably going to shrug it off

I had breakfast yesterday at a restaurant owned by a big Food Network personality. I’m not going to attempt it. I believe it’s her last name. And the service was really bad if I go back today, and the service is also bad. That might make me think, geez, I don’t want to have breakfast here. But the reality is there were a couple of trade shows and it’s right at the foot of the conference space. And maybe it was just overwhelmed. And maybe that’s the first time since the pandemic that they’ve had a large crowd and they didn’t plan for it. They didn’t staff for it. I’m not going to write it off because of one bad day. It’s okay, close that restaurant. I think it’s really important.

I’m going to take Mike Fees question after we finished the next segment. But we’re gonna close out here, Maxx with the before we got on the air today. The US federal government said it’s going to recommend booster shots for anyone about eight months. So starting about September 20. So that would put me online to get one probably in early October because I got vaccinated pretty early. And they’re doing this based on a few things. They’re showing lower effectiveness of the vaccine in an older population. So they did a study of people over 65. And, again, fewer hospitalizations, but effectiveness drops. And there’s some data out of Israel, which is an almost fully vaccinated population that says this is beneficial. You have a bit of a mea culpa here.

Maxx Chatsko  24:15:  Yeah, so I’ve been pounding my fist on this program, Dan for months, saying we probably won’t need boosters, and apparently I was wrong. Now I was taking the scientific approach, and I failed to recognize that maybe the government would want to try to get ahead of things. So I was wrong. And the government is going to start or at least recommend that make boosters available for anyone who’s received two doses of either the mRNA vaccines starting in September. So it’s going to be obviously the first people who received the vaccine. So the elderly population, those nursing homes, frontline workers in certain categories, and then over by the end of this year. Anyone who basically is eligible to receive a third dose could receive one if they wanted to.

So there’s still some debate in the scientific community. Guess that’s a moot point now about do we need these yets? Or maybe at all because effectiveness is waning? Meaning Yes, we see some breakthrough infections. But for the most part the vaccines, the first doses of the vaccines are still doing their job. They’re still protecting you from severe disease from hospitalization. If you go to the hospital, and you have been fully vaccinated, it’s usually a different part of the hospital than if you’re unvaccinated and going there. Right? You’re not going to the ICU necessarily.

So we have some other data in like Iceland, for example, where it’s also very highly vaccinated population. And even though they’re seeing, actually, I think, a record number of cases right now from the Delta variant, then at any point in the pandemic, hospitalizations are still pretty low. I think only 3% of individuals actually end up in the hospital.

But from the government’s perspective, right, look at it this way. They don’t want to sit, wait too long, to say, Hey, get some boosters and just pump up your immune responses. But winter’s coming. We have like people out kids going back to school. Maybe there’s could be if the Delta variant mutates and becomes something worse, that would be really bad. So rather to be early than too late, I guess I would think, though I can’t imagine we’re going to need boosters every eight months. But we’ll see. I mean, I was I was wrong so far.

Dan Kline  26:21:   So very, anecdotally, because I’ve read some of the Israel studies, it does appear that vulnerable populations will absolutely benefit from the person who could get a minor case and it could be a serious health issue. That is who absolutely probably should get it. Again, I am not a doctor or in any way medically trained. But there, there are some optics here, right forgetting the science of it.

If we get a booster or boosters are available, that’s going to increase consumer confidence, which, again, let’s forget the medical part of it here. Increased consumer confidence is good for the economy. It’s like wearing two raincoats. It doesn’t actually keep you any more dry, but you feel like you’re doing something better. Or maybe it does keep you 2% more dry. But that’s probably not worth wearing two raincoats.

Maxx Chatsko  27:09:  Yeah, that’s true. That’s that’s a very good point. And that’s probably really the government’s concern, right? How do we get through the next six months? How do we get through the next year? We’re all learning for the first time about, this strain these strains rather of Coronavirus and this pandemic, right? We don’t have a blueprint to go on. We’re kind of learning in real time. So yeah, anything that can boost the boost confidence of the population, or at least may put people at ease, right? It’s certainly a good thing in the long run.

Dan Kline  27:38:  And no word about whether DC has given a green light to the Booster Gold animated movie, he is a very lesser known member of the Justice League, who really could be the spokesperson for all this. I am being silly. We’re gonna close out this segment momentarily, but I wanted to take Mike Fees comment directed at me if you want to grab that one. Sam. Dan is Park attendance. That’s theme park attendance still strong and other theme parks in your area, Universal Studios, SeaWorld etc.

So it’s really difficult to tell. SeaWorld reported relatively good numbers, but I don’t trust SeaWorld safety during not a pandemic. So would absolutely I wouldn’t go there. I’ve talked a little bit about how I went to Universal Studios. And we were both vaccinated my son and I, but it was relatively early in the vaccination process, and they were enforcing nothing. Now has it felt crowded? Have I seen lines to get in? Yes. But what you don’t know is what the capacities are, because they’re not reporting what their capacity is. And some of the things like the big shows that suck up 1000s of people aren’t operating. So when those aren’t operating, the park can feel crowded, because most people are being shunted toward the rights towards the food lines towards less things.

I’ve been following the wait times every day. I have some apps that do that and they look busy, but they don’t look August busy. August is usually a very, very busy time. But there are some extenuating circumstances about that, like there is some hesitation there’s also it’s a weird time to fly forgetting the wearing a mask on a plane which didn’t bother me at all. It made it so I could work and not have to talk to the person sitting next to me was kind of delightful. But there are less flights. I couldn’t get to Vegas directly. I’m sure there are still plenty of flights to Orlando but are there 12 flights a day out of JFK like there normally would be probably not.

So there’s a rental car issue meaning you pretty much have to stay on property. Well on property is not a thing at SeaWorld on property universal is more limited than it is at Disney World. So when we look at all this debt, remember that it’s not that cut and dry. It’s not you know, hey, clearly people are worried they’re not going on vacation. It might be I’m worried prices are high, the experience isn’t as good as I’d want it to be. And Won’t I have a lot more fun and a lot more bang for my buck six months from now I know that the cruise lines are throwing Free cruises at me for 2022.

I don’t even know how to book something for 2022, because who knows what I’ll be doing. But I’m going to after this go book my fourth of July trip for 2022, because I’m being offered that. So as we talk about the market and volatility, I’ll let you weigh in in a second here. Just remember that a lot of this is noise, that unless we see a major trend in employment, or shutdowns, or air travel disruptions, that all of this is just the media trying to fill the hole.

And people interpreting things however they want, it would not shock me, if some tiny piece of good employment data came out later this week. And we reverse all of the losses we’ve had so far this week, it would also not shock me, if we just have a read week and it’s bad and it feels bad. And then Monday, something good comes out and you know, things returned to normal. That has been the pattern. During this pandemic, Maxx, I’ll let you have the last word.

Maxx Chatsko  30:56:  So for investors in those in entertainment, or like theme parks and travel and things, maybe it’s probably about setting the right expectations, right? It’s not like every month is necessarily going to be better than last because it’s going to be more of a choppier recovery, right. In terms of like, over time, things will get better, but maybe not in this straight linear fashion. Is that accurate maybe?

Dan Kline  31:16:  Yeah, absolutely. And it’s worth noting that markets are relatively flat today. And there’s gonna be some some fed news later today, which again, won’t mean much, they’re not going to make any sort of massive announcement here. But absolutely, the markets going to react to it. So, again, when you invest in Disney recognize that if people don’t go to Disney World, they might watch more movies at home, they might buy video games based on Marvel characters, or new stuffed animals, or whatever it is. So it’s not a simple procedure. A lot of people sign up to Disney plus, because they couldn’t go on their normal travel or vacation. This is a topic we’re going to revisit.

I find it funny that we talked as if the market was down all day, and the Dow was down a little but it’s actually mostly flat today. And it would not shock me if we actually had a positive day. I might be wrong. I might be right. It doesn’t matter. We’re going to get to my interview with the science of hitting Alex is a friend of the show. He’s someone we’ve used as graphics before. He’s someone we all follow follow on Twitter, I did not know that he’s actually personal friends with Matt Cochrane. So he’s someone that’s in our universe, and I want to kind of introduce him to our audience, basically, so you can know who he is, if he pops up here, or you see us interacting with him.

We’re gonna do this with a lot of our sort of fintwit friends and family over the next few weeks and just just having been an eight minute interview, before we do that, we are approaching the first of the month, I cannot believe it is up. It’s almost September 1, it feels like we lost a year in a blink. I will also note Maxx that the temperature the weather doesn’t really change, right. And it goes from hot to hotter, but it’s always pretty hot. So like no holiday feels right. Like nothing feels normal. So it’s always shocking to me when like when it’s Halloween, like how did that happen?

But at the first of the month, we will release our new picks, we have seven amazing picks. What are our picks, they’re our seven highest conviction stocks. So each one of us each month sits down and we really go through every stock that’s on our radar and we pick the one we are most excited about. And then we do a big write up and we shoot a video presentation that video presentation the other advisors can ask us questions can push back can sometimes give a bear case where we’re giving a bull case so you get both parts of it.

How do you become a member? That is you join at 7investing.com/subscribe and you give us either $49 a month that is a bargain or and this is the real bargain and you should do this or $399 a year that gives you two plus months for free. You also get access to our members only call. We’re going to be doing that on Friday. So if you join today, you’ll get an email inviting you to that members only call if we don’t get that email, please email us and we’d love to have we go from 11 to 1230 on Friday answering your questions about our picks, sharing our favorites on the scorecard.

Really anything our members want to know it is a lot of fun, and it is part of a marathon day because we will be doing 7Investing Now live at 1230 with as many members of the team who wants to participate and our producer Sam Bailey has corrected me. This interview is about 16 minutes long. But it is an interesting interview. It is a lot of fun. Maxx and I are going to stick around to hit the finisher at the end Maxx you can go get a cup of coffee,  maybe take a quick jog or something outside. But Sam if you want to hit that interview, it would be appreciated.

Welcome back to the program. I’m joined today by Alex or as you are more likely to know him The Science of Hitting more on that name later. He’s an investor who focuses on finding high quality businesses to own for the long term his most recent role. Alex Ward As an equity research analyst for a registered investment advisor with $1.2 billion in assets under management, I assumed there was just a big room full of cash, probably not. In April of 2021, Alex left that world he started a substack. And he moved into this whole crazy fintwit investing advice world full time, Alex, science of hitting whichever you’d like to go by. Welcome to 7investing Now.

Alex Morris  35:26:  Thanks for having me. That’s a very kind introduction, I was not responsible for raising those assets. To be clear, I was just helping to invest them. So Well, yeah. So very good work by other people.

Dan Kline  35:39:  You gotta be careful with that, I went to Hofstra University. And for a long time, our most famous alumni was Ray Romano. And then it was Bernie Madoff. You really need to be careful where the money came from. So let’s, let’s get to the name first. What’s the logic behind The Science of Hitting?

Alex Morris  35:56:  Sure, well, the reason I have it in the first place is because I started writing online when I was in college, and I did so to try and build my resume because I was not having any luck on my job search in the finance industry. So at that time, I started writing under my actual name, Alex Morris. But then when I eventually got hired, it was a bit of an issue to keep writing under my own name with my own face on the article. So I had to come up with a pseudonym.

And The Science of Hitting is a book by Ted Williams, that Warren Buffett Buffett references from time to time. And the gist of this section of the book, at least is Ted Williams would draw the strike zone, and it would have circles covering every inch of the strike zone, he would say, when it’s in my sweet spot, I can bat .400 or .450, I can be the greatest batter in the history of the game. But when it’s outside my sweet spot, I’ll bat .200. And I might not even be in the majors anymore. So the idea is to be patient and to wait for your time to swing and Buffett’s little addition to it is in investing, there’s no called strikes. So you can truly be patients and wait for that fat pitch.

Dan Kline  37:03:  And that’s a great tease, because we’re going to have Ted Williams as frozen head on the program. So you did something that I think a lot of us have done, I’ve done it a few times, you left your cushy, fairly comfortable, there was probably like cold brew on Mondays and, and a nice machine that made cappuccinos, you left that job, and you went on your own. What was the logic behind it? And how scary was it? Because it’s been pretty scary the couple of times I’ve done it.

Alex Morris  37:30

Yeah, I quickly realized paying for your own coffee is a lot more expensive than having somebody else pay for it, especially when you drink as much coffee as I do. So, the thought process behind it was, I’ve been reading online, as I said, since I was in college, so 2010 or so. And that was something for me that I’d always found was really good for evolving my thinking and having very clear and concise research, I guess you’d say. And I also found the feedback from readers incredibly helpful. So it’s something that as I started doing it I never wanted to get away from so i, i ensured after I left my first job went to my second job that, hey, this is basically non negotiable, I want to keep on writing. And if it’s under a pseudonym, that’s fine, but I want to keep doing it.

So I’ve been writing for a very long time, eventually joined Twitter and built a network and friends from that. So after, after 10th 10 years in the RA world, I just realized the RA world has a lot of financial planning. And that’s obviously a very important part of someone’s investment advice that they need. But it never really struck a chord with me in the way that investing does. And I wanted to do something where I could spend all my time and focus on investing and hopefully haven’t make a difference.

So I started looking around probably around the end of 2020, I started doing a lot of work on the back end to make sure I came out with some articles that I thought were well written. I thought about things like pricing I found a platform and sub stack that I thought was a good fit for my needs. So I launched it in April of 2021. And you’re spot on It was terrifying. I had no idea. I had no idea what to expect.

I hoped that my network of people that I got to know over time would would give me a nice start out of the gates. But I told myself, Hey, I’ll give myself a year to do this. And we’ll see if I can make it a real thing or not. And thankfully, so far people have been very generous and signing up. And I’ve had a lot of great feedback from people in terms of the quality of work, so it’s gone well, and I’m very excited that it’s going to be a lasting endeavor.

Dan Kline  39:29 : Glad to hear that. We did sort of the same thing. For me, it was in October, joining semmen investing for the rest of the team a year and not the whole rest of the team but the founding members of the team a year ago March. And it is hard leaving steady employment, especially well paying steady employment. But I talk about this a lot. I’m a little bit older than you. I don’t think young people, their first job should be a job because you don’t know how great it is to work your own 60 hours versus somebody else’s 60 hours. You’ve never done it. I also think it can be sort of isolating. If you’ve never sort of had that experience.

Financial Twitter helps. It’s actually like one of the more massively places on Twitter, like, it is very rare that I find negative comments, which like pretty much anything else you could put out, like boy, I loved Black Widow, and you’ll spend the rest of the day dealing with like trolling comments. But in the financial world, it’s generally not like that, which is exciting. But let’s talk a little bit.

So we’re buy and hold investors, that’s something we’re very upfront about. We talk, hey, we’re gonna hold this forever, forever, doesn’t really mean forever, but it means, you know, three to five year minimum, or as long as you still believe in the thesis, you’re fairly similar. How do you go about identifying the stock? How does it get on your radar? For me, I talked about this a lot. It’s It started with Wait, do I use this product? Is that company public? And then it’s obviously expanded from there, how do you go about it?

Alex Morris  40:53:  I do a lot of that still I think I’ve written a lot about retailers lately. And it’s a great business in the sense that you can walk into a store and truly get a feel for the value proposition, you can compare it to other banners or competitors. So I still do a ton of that another nice part of being buy and hold, like you guys are and like I am, is that a lot of the knowledge is cumulative.

So basically, everything I’ve looked at at any point over the past decade is still useful in some way. Today, they’re companies that I would consider owning or I currently own, or they’re a competitor of a company that I own. So a lot of the knowledge is cumulative. And, and as I, as I find new ideas more recently, a lot of times, they’ll come from either people on Twitter, or people in my network that most of the people. I had Jason Greenwall on my podcast the other day, and he said I came to you with an idea. And you kind of shot it down pretty quickly, which I didn’t mean to do.

But I think a lot of people have a sense for the kind of companies that I’m interested in, because we’ve talked for long enough. So it’s a pretty good hit rate in terms of, Hey, this is something that is worth digging in for you. So those are kind of the main ways and really, I spend a ton of time on the companies that I own and their competitors and the stuff that’s on my watch list those 30, 40, 50 companies, for me, that takes a lot of time. So

Dan Kline  42:08z:  So I’m one of the few people that covers retail I it’s a pretty unsexy space, it’s easy to go over losers, hard to pick the winners. And I argue that there’s really only a few winners. There’s a lot of like, tweeners. Like, there’s a lot of like Macy’s and Kohl’s out there, where it’s like, I don’t want to own them, but they might make it. How do you identify, especially at an earlier stage? The companies that are going to be unique and exciting, because there just aren’t that many of them as far as I’m concerned?

Alex Morris  42:36:  No, it’s a great question. I’m, I’m not sure ever really have at least in a way that I’ve done it in my investment portfolio. I think you can, you can dig in on companies like Five Below like you have in companies like Ollie’s and you can really get a sense for what makes them different, what makes them unique. And you can think about how hard is this to replicate?

Another example might be like Dollar General, for example, in my mind, a big part of the strategy that’s difficult to replicate, because it’s just not in other people’s muscle memory is their real estate strategy and where they put their stores. It’s not really direct retail competition in a way. So in my mind is more sustainable because of how they get their advantage, if that makes sense.

So it’s very difficult, though I’ve invested in, it’s not technically retail, but I invested in Zoe’s Mediterranean grill, which is a restaurant that was smaller, and I thought might have legs and the investment didn’t work out terribly. But that probably is gonna turn out to not be the case. It’s hard. But if you can find Chipotle early on, or I think Five Below.

Dan Kline  43:38:  I below, I think food is really difficult You’ve got your Starbucks, you’ve got your Chipotle’s, you can argue McDonald’s, you certainly have Domino’s and I have so many people making cases for might be someday public companies like say Blaze Pizza, or people talking about sweet greens? And it’s like, well, there’s a big difference between pretending you’re healthy, like Chipotle and actually trying to get people to buy healthy food. Shake Shack and other one that comes up that like, I make a pretty strong argument back that like, Look, it’s a cool product. But if it becomes not special, then it’s not going to be special. And it’s not going to have the sales economics. So it can’t scale to 3000 units. But that’s what it’s about.

You mentioned Ollie’s there. And I wanted to bring them up because one of my questions that I shared with you was how do you keep your focus on long term investing versus short term noise? And I bring this up because today, all these is down considerably. Why is it down? I googled this. Apparently their head of supply chain is leaving. Now that’s an important position. But it’s not their CEO. It’s not their COO, supply chains  a whole department. So one person couldn’t possibly, but the stock was down like 10% it could be up now. But like when I looked at hour ago, it was down like a percent

That is short term noise. I don’t wanna say that meaningless news, but it’s tiny, road bump news. How do you tune stuff like that out because we’re dealing with a lot than that, right now we’re like a company reporting the best results ever. And somebody goes, Yeah, but they might not be able to do that a year from now, and then the stock’s down 8%? How do you sort of deal with that on a day to day basis because it can be challenging.

Alex Morris  45:13:  One additional point on your last thing is funny people say this will be the Chipotle of X or Chipotle of Y. Chipotle, they tried that strategy with Asian food. They tried it with burgers, they tried it with pizza. And they’ve since shuttered all of those concepts that they open, it’s very difficult to do to your point. How do I stay focused on the long term?

Retail is a particularly difficult one, because you usually see downtrending comps coincide with margin compression, and then obviously multiple compression on top of the earnings compression, or at least relative expectation. So retail be very difficult. And it’s probably one of the reasons why I haven’t at least to this point, invested in some of those earlier stage concepts. It’s funny to think that Ollie’s is falling on that news. I mean, they went through something very similar, I think, at the end of 2019, when the former CEO Mark Butler passed away,Dan Kline  46:02

But very different there that the CEO lifeblood of the company. And I understand that I think supply chain is the probably top topic, we’re gonna talk about over the next 10 years in terms of logistics and getting everything around the country, it’s a really important job, but it’s a replaceable job, like you’re a desirable place to work. Like I I don’t think all of a sudden, you’re going to go to an Ollie’s and it’s empty.

In that case, though, I think I think it became clear I some people probably know it beforehand, it became clear to me as I dug in, he was incredibly important to their merchandising strategy was obviously is a huge part of that business. So I think he just as always, when short term things happen, you need to have a good understanding why they’re happening, you need to have a good understanding is it’s also happening to their peers, and you need to have an understanding of it’s correct, if it’s correctable or not. And in retail, sometimes it can be really, really hard to say, I mean, it’s hard to say in all businesses, but retail is especially competitive. So it’s always a case by case, but it’s tough.

Dan Kline  47:02:  We’ll wrap up with your you mentioned that knowledge is human. And I think that’s really important. Because I can’t tell you how many people have said, well, are we gonna have another crash like 1999? Well, no, we’re not. Because in 1999, we didn’t have the cloud. And we didn’t have advertising. So we had all of these internet companies were and I worked at one of them, where someone would give us a $50,000 contract to build something for them with their branding on it.

And we’d like 50 grand, great, and it cost us 80 grand to build it. Because there was no cloud, there was the cost of doing everything was much, much higher. Whereas right now you and I, for like 30 bucks can go launch a website and have all sorts of functionality.

So you’re newer to this than me, but still, I’ve been in it for a while, what’s something you’ve seen like that where people are just absolutely projecting out because of the pandemic or because of what’s going on now that they’re really just getting wrong. Hmm, well, that’s very good. I’m, I’m throwing you for a loop here. This was not in our prep talk, and I’ll ramble a little bit to give you time to think about it.

Alex Morris  48:04:  You’re saying things that you think are basically overstated right now that they’re probably not sustainable.

Dan Kline  48:11:  Yeah,and I’ll give another example people, say, Well, you know, maybe we’re in a housing bubble. And I’d argue that we actually have pretty significant population shift, where sure, we might see some of these crazy Miami or Houston, Texas home valuations come down 20%, but they’ll still be like, 60%, higher than where they were, because a lot more people have moved here.

And I think sometimes people look at a situation. And if they don’t have the historical knowledge. The other one I’ll say is like, the death of the office, like he office is going to change, it isn’t going to die. Is there anything like that, that you’re sort of factoring in to your your investing I’m smarter than you that we all like to think as we do this?

Alex Morris  48:55:  This is more of a stock specific slant, but I would think, big tech generally. Obviously, for a long time, there’s been discussion of FANGs and whether or not over I mean, this goes back, I would think, at least five years. And I think what people may miss sometimes, because they’re so focused on price action, obviously, the stocks have done incredibly well.

What they may overlook, is digging in and looking at the actual numbers and recognizing something like a Facebook, which was, I’m sure the valuation was crazy on any traditional metric when it went public. But you look at the business today, it’s going to generate like $120 billion in revenues this year. Its grown at an insane clip. And you look at something like a Netflix and you think about what it what it truly means to have global scale, and potentially some advantages that come along with that.I mean, we’ll see how it plays out.

I think in some cases, people will point to those things and say, well, it’s crazy. It’s a bubble. And I don’t know how much work they’ve done, and actually looked at the results in realize how capital light these businesses are generally speaking. I mean, there’s a lot of places where they invest money because they’re trying to get into new markets, or they’re trying to cement their competitive position. But they’ve just grown in a way that there probably isn’t any historic precedents for what they’re doing.

Dan Kline  50:15:  I fully agree with that. I think those companies may all look different. We may see spin offs, we may see, some government intervention, and this is not being political. I will argue that 60, and 70 year old people probably shouldn’t be regulating technology. I talked a lot about how there should be like an industry led OSHA, like, self regulation, which I know sounds impossible, but that’s how the construction industry does it. And it’s working largely Well, we’re gonna do this again, I am talking to Alex, The Science of Hitting, how do we follow you on Twitter, if we wanted to do that?

Alex Morris 50:47:  My tag, I think it’s called is @TSOH_Investing. And then yeah, from there, you can get to my substack, or anything else you want to find.

Dan Kline  50:56:  Thank you for doing this. I would say I didn’t write for the internet when I was in college, because there wasn’t an internet when I was in college. I think the Motley Fool was on AOL back in those days.

Alex Morris  51:08:  Well, it might have benefited me in some ways, because what people were reading at that time for me was not particularly good. I hope I’ve improved a little bit over time.

Dan Kline  51:15:  I actually think that’s unbelievably important. I’m a past paper editor. And I don’t care if your writing was good when you were in college, as long as you did it. But this is an entirely other story. I’m going to throw it back to me. Thank you for doing this.

And we are back, Maxx, thank you for sticking around. Sam Bailey, we will get right to it. Let’s hit our finisher. Which areas are you most likely to invest more money in?

20% said biotech, 55% said emerging technology, 5% said space and 19.2% said electric vehicles.

I invest in everything except electric vehicles. I follow Maxx’s lead on biotech and emerging technology. I take a few little bites at it, I sort of wait till companies get more mature Maxx, we know you invest in biotech, that’s kind of what you do. Are there any others on this that you’re interested in?

Maxx Chatsko  52:12:  Yeah, I guess I would think all of those categories are kind of under the umbrella of emerging technology in some way, or shape or form. Yeah, I don’t know, I kind of subscribe to stick to what you know. So I’m mostly invested in drug developers renewable energy and synthetic biology. So all of those can be considered emerging technologies or things with very long time horizons.

Dan Kline  52:38:  Is synthetic biology, Maxx, like growing me a new pancreas? Like, is that the is that what synthetic biology would be?

Maxx Chatsko  52:44:  It could be that. Synthetic biology is more of a tool. It’s not an industry, a lot of people don’t understand it very well. It’s more of a way of thinking. Right? So it’s, it’s separate from biotech. But yeah, that would be growing you a new pancreas or any organ is xenotransplantation, actually a real word Dan, that would fall under the umbrella of synthetic biology.

Dan Kline  53:02:  Well, here in Vegas, there would be a hell of a market for that I have seen a lot of people. I’ve had a very low key trip I’m here by myself. I’ve seen a lot of people who are very, very happy to be out and perhaps are not taking care of themselves as well as they possibly should, which probably could be right on the Billboard for Las Vegas.

This has been a fun show. It is never that fun to talk about a down market day. But I checked my portfolio while we were in our little 16 minute interview there. And the vast majority of my portfolio is up today Disney being notably up nothing changed between yesterday and today for say Disney and the cruise lines. Nothing about the about the COVID pandemic, maybe the booster shot thing is a slight shot in the arm to people’s confidence when it comes to travel. But if we’ve already seen people not willing to take the first shot, I’m not so sure everyone is going to sign up for the third shot.

So that being said, we talked a lot about narrative, if you can maintain a positive narrative that does tend to drive the stock market. But be really, really careful in looking at whether the stock you own has an actual story. We call it a thesis behind why you should buy it, or the makeup, one can make a really strong argument as to why AMC is going to be able to put its movie theaters into event homes, and they’re going to be massive, successful destinations. I can compellingly make that argument. I’d be wrong. I’d be silly. That is not a thing that’s going to happen. Maxx. I’ll give you the last word. And then we will tell people why don’t you tell people how they can reach us?

Maxx Chatsko  54:35:  Yeah, so the last word I actually wanted to say this earlier, and I didn’t have a chance to fit it in. But if in the late 90s, you were talking about the information superhighway, and it was gonna revolutionize the economy. You were right. The problem is a lot of the companies that actually would be the become the largest information superhighway companies in the world, like the ones right now weren’t founded weren’t publicly traded hadn’t come up with their most impressive products yet.

Pretty much true across the board. So if you say today Yes, we’re in the genomic revolution of the Golden Age of biotech or synthetic biology is going to be massively important in the next few decades. I think you’re 100% correct. The problem is, I think the most valuable synthetic biology companies probably haven’t been founded yet right?

They’re probably not publicly traded yet. So you’re not late you’re not missing out. Don’t feel this FOMO of trying to get in early and just own everything because like we said earlier, you’re probably gonna end up owning a lot of pets dot coms. In terms of getting in contact with us. That’s @7investing on Twitter. You can also should we tell everyone to email us Dan?

Dan Kline  55:39:  So you can email us at info@7investing.com that is for questions about your membership questions about becoming a member. It’s not to ask us to research a penny stock your barber told you about. And I tease but we do get a lot of those. So any questions about our service? You want to know where I’m going to be next in the you want to hook up for a cup of coffee or a drink? Absolutely. That is a good way to email us. I just want to follow up so Maxx is your last word there. Are you suddenly telling me I should sell my Netscape stock?

Maxx Chatsko  56:11: It would be a good time to do so, Dan.

Dan Kline  56:14: Sadly, that ship has sailed. For Maxx Chatsko, for Sam Bailey. I am Dan Kline heading home from Las Vegas. I’ll be back in West Palm Beach for the Friday show and we will see you Friday at 12:30 ET. Friday is the third Friday of the month. so we go at 1230 Eastern. Thank you!