Welcome to Investing for Beginners pocket and this is episode 76. Tonight Andrew and I are going to do something a little different for us, we’re going to talk about some fun predictions. We’re going to go off the radar and off the range a little bit and talk about some upcoming predictions we think might happen and so we can give you an idea of what kind of great prognosticators we are now.
Well let’s talk a little bit about some stock market stuff maybe a baseball thing or two and just kind of have a little fun so Andrew why don’t you go ahead and start us off a little chat a little bit.
Andrew: all right you mentioned baseball obviously we’re recording this and there’s a game on so before we get into the stock market stuff I want to know who do you think is going to win the World Series this year?
We have to give a context if you’re listening this in the future right now there’s the Dodgers the Braves the Rockies and Milwaukee yes that that’s kind of crazy that’s./ I don’t remember the last time they were in the playoffs with I don’t know where that is just kidding killing and then I’m al there’s Boston New York that’s turned out to be really cool series they were always big rivals.
And you’ll have to help me on the other two al teams us the Astros and the Indians that’s right of course the Astros yeah so he’s going to take it it’s going to be Astros again I’m sorry to say I know that funds will in a year but yeah I think it’s I think it might come down to the Astros and the Dodgers and World Series again and I think the Astros will take it again.
Andrew: I mean the team didn’t change it all right.
Dave: so not a lot but they did pick up a couple new pitchers that helped them huge Gerrit Cole has been monstrous and Verlander has been amazing all season and yeah they got some they got their bullpens much improved and they’re good team they’re really good team.
Andrew: well I want I wonder what kind of pitcher Cole is because if he doesn’t pitch well when the balls are juiced knock knocking clean. they did this thing where I don’t know last year those record for most home runs hit in the World Series ever saw their speculation and in the conspiracy theorists area that the balls are juiced and it just so happened that certain pitches don’t do well when the balls are made different with different characteristics.
And surprise some of the pictures that the Dodger and on the Dodgers I didn’t do well have pitches that would be affected by it so I don’t know what kind of picture pitcher he is I’m sure you probably know that’s something random I I’m sure like a baseball expert when now.
I don’t know obviously I’m big on Dodgers I think this is our year I think our righty power is really good and we have a couple key pieces we didn’t have last year it’s.
Dave: very true yeah it’s I didn’t say it to be easy but I think it’ll be fun to watch for sure Dodgers are playing great at the end of the season so it’s could be a lot of fun.
Although I will say that the Yankees I think are going to be tough if they get by Boston which I think they probably can that will be a that will be a very fun series between the Astros new Yankees because they he’s got a lot of power it’s just crazy this was juggling Sanchez and Stanton oh man.
Andrew: it’s good for baseball when the Yankees are on top it is it is for yep America I guess yeah I get flashbacks of George Bush yes good for baseball good for America yep.
Speaking of America and the bull market we are in do you what do you think about the bull market moving forward that’s kind of the thing that whenever you turn on CNBC or any sort of media outlet they always kind of want to talk about their predictions and thought this is a reason why I thought it’d be fun to kind of have an episode like this.
Because I think as a beginner is too something that everybody wants to know they all want to kind of figure this out and it makes sense because you want to have that there’s a sort of certainty that comes with trying to organize chaos and our world is filled with chaos and what you see with the way what human beings do and how we kind of organize that chaos that’s how we kind of feel that’s how we like deal with our insecurities about not knowing what the future holds.
And so kind of predictions give you that path matte certainty that make you feel better about putting money at risk we’re really anything can happen. Obviously it’s very important to understand that while it can be entertaining to get predictions and projections and then speculations about the future.
Maybe this episode can be good reference point sometime in the future just to see that things are just going to be really awful and things are just not going to play out the way that you would think they would.
And so while we can kind of use some of the intuition we have on how we perceive the world and how we see it going through today. I think it’s can’t be overstated enough that predictions don’t serve a place when it comes to really having an impact on your investment results and really being a good way to kind of plan for your financial future.
They’re not a good way to do that and you need to kind of have a different mindset and the mindset of okay I want to learn things I want to become educated I want to get to the the basics and the time-tested principles instead of trying to figure out what the future holds.
Sorry yeah you clicked on this episode thinking that we’re going to give you something to chew on and instead it’s going to be a couple guys just saying some wild things but I mean when it comes to the bull market. I’ll ask you this like over-under for the bull continuing into twenty right now we’re recording this October 2018.
You have a lot of loud Bears and also a lot of loud bulls bears that come to mind guys like Ray Dalio guys who are really good with economics really smart about that kind of stuff on to really understand like the long-term cycles that could let go with the market and the economy would be here’s to your thoughts Dave over 20.
Dave: I’m going to go under I am I think I’m going to be right there with Ray Dalio and Howard Marks and some of those guys that talk all the time about the credit cycle and how were on the eighth or ninth inning.
Howard Marks has recently put out a book and he’s talked a lot about where we are in the cycle and he’s referring to the eighth inning and I agree with him I think we’re at the end of the cycle credit cycle that’s going to cause us to start to go into a downturn and I think it’ll be before 2020 that’s my prediction all right your thoughts.
Andrew: I’m going to take the over you’re going to and yeah a bold move right um this is coming from a guy who plan for the plan for the worst hope for the best.
Always going to be buying stocks at attractive valuations even than the expensive market you still want to be buying cheap stocks with a margin of safety all those sorts of things.
However it there’s certain things that are just undoubtedly true right like low interest rates we’ve seen low interest rate super low interest rates for a long time. The feds starting to kind of pull back and make those interest rates go higher so we are seeing some of the effects of that.
And it’s very clear that long term they’re going to try to raise those continually and that has historically had adverse effects to the stock market for a wide array of reasons I don’t think we should get into today.
But you have that that’s a fact you have valuations just across the market very high that’s a fact. I haven’t checked lately but last I remember I think the Shiller P/E was somewhere around above 25 maybe approaching 30 and historically it’s been closer the 15.
You also have this is an interesting metric I like the stock market capitalization the market composition of the whole stock market for the United States versus the US GDP.
And so historically it’s actually been less so like for example in the 90s before we had a lot of quantitative easing then that’s really pushed up valuations the historic kind of ratio between US GDP and the market capitalization of the US has been like around fifty percent forty to fifty percent.
And then with what we’ve seen in the past twenty years and also the end of like the 90s that historic ratio has been close to like eighty eight percent but where it’s at today is somewhere like a hundred and forty percent.
There’s a lot of different metrics that show that historically the US stock market’s overvalued but there are other things I see that might also have kind of a play into it right. So at the same time you have everything that’s going on with the Fed you also have the main narrative is this idea that the trade war is really kind of holding the stock market back.
And so obviously that creates a lot of uncertainty it’s really possible there’s have been a lot of profit creation from the tax reform act. it’s very possible that a lot of that that’s kind of been pushed into share prices and really would have pushed the market much higher has kind of impaired down a bit by what we’ve seen with the trade war.
What if what if the concerns about the trade war went away then really what will we see with profitability and the way these companies are buying back shares how much more could those valuations extend?
I mean I think I think even though historically it is very overvalued it could become that this thing could just continue running and if the trade war got resolved I think that could that could really keep this bull market going for much longer than a lot of the experts think.
Again plan for the best what was it planned for the worst hope for the best do not just blindly buy expensive stocks because you think that Andrew said that he thinks the bull market will go past 2020. Make sure you’re still doing everything we preach but hello that’s my kind of weird thought.
Dave: well those are some good thoughts and I like the way you were laying that out I just worry that some of those things will not come to pass that the trade war will go south and things will get worse in it as we’ve seen it really just takes one one thing to really trigger something bad to happen and then things just they’re kind of cascading on each other.
And that could be the trigger that causes the market to stumble and then panic selling and everybody kind of running for the door.
The interesting thing that I was listening to a podcast just recently where Howard Marks was talking and he was mentioning something that I thought was kind of fascinating.
The stock market is really the only retail area where you can buy and sell things that whenever there’s a sale people freak out and run for the exits. and I thought about that I thought what that is perfect I mean you think about it when there’s a store when there’s a sale at any kind of store people go nuts and have to go in there I mean I think about my restaurant when I have discounts that we do at my restaurant then everybody and her brother wants to come there and eat.
And why the stock market is different why that is is it not interesting whenever there’s whenever there’s a downturn in the market when all of a sudden all these great companies are on sale everybody wants to sell him. And that as value investors that’s when we should be buying them anyway so we’ll side note.
Andrew: all right like I think that’s the big difference between if you can get that mindset shift then it can really change the way you invest and I really will help you hold on when things get tough right because right if you’re thinking from a long term perspective rather than man there’s red in my account right now there’s red on my monitor.
But I think that way I think I’m acquiring these businesses and I’m getting them so I’m buying them on sale fire sale fire sale mm-hmm.
Dave: all right so let’s talk some more about some more predictions let’s talk about some companies oh we were talking earlier about some of the bigger companies what are your thoughts on the Facebook’s and I guess to FANG stocks?
Andrew: all right all I’m not going to touch Amazon just because that’s a wild beast just on its own I don’t even know what’s going on there like you have somebody like Bezos who just completely revolutionized the world and he’s now the richest man in the world they’re doing crazy things acquired Whole Foods given me like something that I love to use I love Amazon Prime I love just getting stuff like that so quickly.
I know when I see like Google and Facebook we talked about do we talk about having stocks on a watch list we did right was that last oh yeah yep okay. So like those are two stocks are I have like oh my I call like a bear market watch list.
Where like if these stocks ever paid a decent dividend plus like tray that and reasonable valuations I would be scooping them up and I kind of see Google and Facebook in that way. the kind of parallels I have to what we’ve seen in the past and how I see them now is I don’t know I kind of see Facebook like becoming like a media giant in a way.
I mean they don’t own content right now but kind of just in the way that you have like Comcast Time Warner Cable it’s just got bought out like CBS Walt Disney Fox. these type of big companies that there’s a lot of competition there when they were coming up and they have a lot of eyeballs in the sense that they had a lot of people who are subscribed to their TV packages a lot of money being made from advertising and is that market kind of matured you had these big players and they would have made for great investments over very long time periods you look at a company like Disney.
I think if you’re the body in the 90s and held on with dividends it would have compounded wealth for you very very nicely I’m long Disney right now but I think.
I look at Facebook as less of like a tech company and more of this this giant that’s kind of here to stay I think like the way they acquired Instagram was just like a fantastic move and all those fears of people migrating away from Facebook kind of in the way that people migrate away from MySpace. I think acquiring Instagram was a great hedge against that if you want to use our word and there’s just a ton of eyeballs on Instagram there’s a ton of eyeballs on Facebook they’re competing against Snapchat beautifully.
And so I think just from a stock market standpoint if you look at through history we’ve had these you can call them blue chip stocks. They they’re these big established kind of consistent dependable investments and at times they get overvalued and you kind of see them at different times and pretty much pick any bull market and there will be a period where the blue chips catch some momentum and get really overvalued.
and so I think maybe fit maybe the FANG the FANG the FANG half that I see is like Google and Facebook who are really kind of there to stay at my parallel for Google is like kind of like the way that the big oil giants back in you can even go back to like the early 2010’s. Like or even the 2000s right you had some of the best stocks so at that time was Exxon Mobil Chevron BP.
These were just dependable kind of they got to a size where they were so big they were bringing in so many revenue so much profit and they weren’t blowing that blown returns off the roof with double-digit returns or anything. but they would get close to it and just kind of give you that consistent kind of high single digit returns give you a nice dividend of see a company like Google and they’ve really spread their wings and they’re maybe out there figure out their fingers and a little bit of everything I know half of my life is on Google just through their Google photos it’s a fantastic product I it makes it so convenient for me.
Obviously Gmail everything that’s wrapped into Google I just while they might not be good investments now their valuations are obviously very high I’m bullish on their future and I would love for an opportunity to be able to scoop them up.
Give me a Black Friday sale and all pummel somebody next to me and the line and Walmart instead of going for an Xbox I’m going for some Google or Facebook stock.
Dave: yeah that’s pretty awesome I would probably agree with you on the Google I I don’t know about Facebook I guess I am I guess maybe I’m just jaded I’ve read some kind of negative stuff about the company and Mark Zuckerberg and some of those things and so I guess maybe I’ve been biased a little bit by some of the qualitative stuff instead of or I guess just sick that’s right qualitative kind of a narrative that’s been at least yeah kind of the narratives being pushed.
You mentioned Instagram so he you be heard about the two owners leaving the company and walking away from a lot of money and it was just some of those things just kind of make it give you a pause doesn’t well I don’t think that the company is anywhere near having any sort of event that could cause it to go away.
And I agree acquiring Instagram was a brilliant move on their part to ensure their continued stability and I think I definitely agree with you on a media company thing I think that is definitely the route that they’re going to be going at some point.
I read an article about them just recently and I made a very valid point in the article he said that the growth for the company is going to start to flatten out at some point simply because they’ve reached a saturation point where there’s only so many human beings in the world and it’s not they’re not going to be able to the I guess their growth is going to be slower than the growth of us of human beings the birth rate of the world is not going to be able to keep up with them to be able to because they’ve reached so many different levels of people using their platform that it’s got a finite existence.
And I thought that was kind of an interesting take I would have never have thought about that but it it’s kind of true and so I guess that would be something that would give me pause about the company.
And but Google yeah Google’s like you said they’re in everything and they definitely got their tendrils in my life as well with the Google photos and the Gmail and the Drive and to all the different off all the different offerings that they have is just ridiculous.
And between the and Apple it’s kind of hard for me to imagine existing how did we survive without these companies before I don’t know yeah it’s kind of kind of one of those things people learn things I have no idea exactly like don’t concentrate what did i do before Google I don’t even remember.
I guess I just didn’t know stuff so it’s amazing how much those things have taken over our lives and I think I remember writing something about Google being a googling is a verb now is it probably it should be I don’t know if it is but it’s definitely part of our vernacular now.
Right you don’t you don’t see you at school look it up on the internet it’s go google it so I don’t see what the Google machine has to say. It’s definitely become a bigger part of our life.
Talk a little bit about those two things stocks what about the in and the FANG stock I know you had some ideas about Netflix as well.
Andrew: yeah I I think that’s going to be the one where we look back and we write in the history books that Wow those poor shareholders.
I really like what they’re doing they’re spending a lot of money trying to create content and I even know this the way my daughter uses Netflix now because I don’t know if you’ve how much you pay attention to it but they’ve completely changed their platform in the sense that like they’re really pushing their original content super hard now.
Yes yeah it’s like almost all your recommendations are going to be like some sort of Netflix original something and like somebody like me I have kind of more refined preferences right so or I can kind of tell like okay I don’t like I’m actively on purpose avoiding these things because I want I want stuff that’s like proven to be good that I’m going to enjoy and just because Netflix made it doesn’t mean it’s good.
Like I need more the mouth or I need like these movies that are critically acclaimed or something like that I can’t be wasting my time with something that’s subpar.
But like when they have it for like the kids my daughter’s not making that same kind of thought process she she’s quite happy regardless of what’s on there. but a lot of the times and even if you’re watching like an on Netflix show they’ll have on the credits they’ll have like a little almost like an ad for like a Netflix original show that’s all I got to do is kind of like click over and you can change shows to like oh this looks interesting instead.
And so I on the one side that’s brilliant I see a lot of kids like as a Disney events an investor for example that kind of makes me a little bit nervous because if all these kids are going to be grown up and really idolizing whatever Netflix makes these characters of right because if they can just force enough these kids eyeballs on some of these characters and they can really compete with like a Disney Princess or the other characters that kids like and there’s a lot of money potential with everything involved with that.
But at the same time like you can’t like you can’t just spend to get like good ideas good creative ideas they don’t they don’t you can’t just take a million dollars and a half a million great ideas.
Things are like for example Disney the way that they’ve been able to build characters that kids love so much I just I think there’s something magical there I like not to sound cheesy Disney cheesy. but like and some of the characters that they’ve really been they a lot of kids relate with and have kids really enjoy and kind of theirs there’s talent that takes Talent and it takes brilliance and creativity to really make those type of things that type of media that becomes really catchy and really gets a lot of fanfare behind it.
I don’t see just because Netflix is throwing money I don’t think it guarantees that they can have enough content and I think they’re running out of time I really do. there’s only so much so many years that you can run in the red before a stock can really get hammered and you don’t need to go too far back into history to see examples of that.
Where companies did not run a profit and they were fine and while there was excitement and there was revenue growth but eventually you can’t turn a profit I’m sorry eventually investors run out of patience.
Dave: yeah you’re right about that it is interesting about the netflix content yeah you’re right about the they are pushing the original content very hard it’s kind of fascinating.
Some of it is some of it’s actually pretty good but some of it yes that’s a great and I guess I’m not as discerning as you are and maybe I should be as should be thinking about more about my time then analyzing like these kids shows us my daughter’s watching them Batman is way better than this guy doesn’t even have a catchy name like hey I’ll put on my lap.
I’ll put up my little pony against a TV show like a won the decade yeah exactly yeah it’s engrained into my brain forever. My daughter loves that show obviously.
No I would agree with what you’re saying in it some of the science I’ve already started to pop up a little bit over the last few years as they’ve tried to push more of the original content their subscriber counts I’ve gone down and they’ve been struggling to grow in that realm they’ve been able to grow the revenue over the last few years.
But their cover count if you will is struggling so they’re getting a little bit on the struggle bus for getting new subscribers and I know that they’ve tried really hard to go into Europe and some of the other countries outside of the United States to try to help broaden their base and has not done as well overseas as it’s done here in the state so that’s a concern for them as well.
I know Amazon has really started to try to push the programming in kind of doing some of the same things as well as Disney and some of the things they got going on and so there’s definitely a concern.
There’s the competition in that realm is just fierce it seems like everybody and their brother is out there trying to take a piece of that pie and it’s a tough business so they got through with that.
Andrew: right now they have Disney movies on there but I think it’s something like 2019 it’s going to be lame yeah there’s yeah that deal with Disney is going away and I think the Star Wars movies will be on there until 2022 or something ya know they have it and this is no this isn’t where we’re not friends anymore.
Dave: right exactly so that’s going to be tough for sure.
Andrew: I do enjoy their series though they have been pretty good I’ve seen oranges new black yeah sure yeah well it was a couple of other ones Narcos that was sick like if you like jog lords go watch that I caught entrepreneurship that’s I call it yeah okay if you like watch guys. So we’re your thoughts on Amazon then?
Dave: my thoughts on Amazon are its it’s a completely different beast and I don’t know if I can prediction wise I think it eventually will it eventually will at some point I think Jeff Bezos will stop trying to conquer the world and will focus more on trying to just grow the revenue of the company and the bottom line as opposed to just grow grow grow grow grow.
Because I think at some point it’s just the nature of the law of physics it just has to it has to stop growing it just can’t continue. Unless it just completely takes over the world and I don’t know if that’s really his modus operandi maybe it is I could be wrong.
But I think at some point it will stop and I think the price will come back to earth and the P right now is what over 200 or something it’s just something that astronomical. yeah it’s super high it’s just crazy and at some point the price will come back to earth and my guess is it won’t happen for since we’re doing a prediction show I don’t think it’s going to be time soon I would say it’s probably in the next five to ten years so say eight years from now.
I think you a lot more bullish than you realize what that no I don’t think so but I think I think with Amazon I just think that at some point with the way the retail world is and just again with kind of the nature of what’s going on with some of the larger subscription style businesses like Facebook or Netflix that we’re just talking about they’re going to reach a saturation point.
With the Amazon Prime which is such a huge it was a brilliant idea in their part and at some point that is going to stop. Because there was if there’s 250 million people in the United States and 230 of them have Amazon Prime you can’t go any higher what I’m saying.
Andrew: Devils advocate on that though is they have pricing power with Amazon Prime that I don’t know Facebook doesn’t necessarily have pricing power those are the Facebook you have so many eyeballs that’s right true with Amazon Prime it’s like sure we saturated the market but people love this thing so much that they’ll pay for two bucks this year they’ll pay an extra five bucks next year.
Dave: yeah but would they pay an extra 30 bucks I mean that that’s two bucks five bucks that’s peanuts but I guess my concern would be hey can we ramp it up then our forty bucks a year yeah that might be tough. I suppose if they do two dollars every year for eight years that’s 16 bucks.
Andrew: yeah well if you got a drones here how so lanky you’ll have enough to step outside with onto this right yeah I’d pay I pay another two hundred for that.
Dave: yeah true I did see a Domino’s commercial on Facebook the other day where they had a driverless car pull up to this guy’s house he came out punched in a code that he got after he ordered the pizza and they rolled down the window and there’s his pizza took it out and off the car went. Wow pretty amazing.
Andrew: they’re living in the future the PE for Amazon 171 take a guess on their baby price to book a price to book I’m going to go how about 300 price-to-book.
Dave: now they’re at 26 okay which is like I don’t know twelve times more than I would want to pay yeah exactly that’s not too late that’s too much more to your point though like even if let’s say they’re able to because it’s hard to dominate an industry in general so let’s say they dominate one industry business works his magic he dominates a second and a third at some point they get so big that even if that’s like incredibly hard to do let’s say they do it then the government might even step in and be like what oh yeah at this point like we have to break this up. And then you’re like then what yes super I think on point.
Dave: and I guess the other point about that too is they don’t have the they don’t have the cult-like status that Apple does and people revere Apple and Amazon everybody loves it but they don’t have the same I mean look at the backlash that they’ve gotten with the pay and under paying people or people feel like they’re underpaid and that’s a whole other conversation.
But you could definitely tell that the that they were starting to turn on him and he made a wise decision by raising everybody’s pay rate to 15 bucks an hour that was a great move. but it’s not going to be enough and I don’t think I don’t think people were if they don’t have the same it’s just not it’s not the same cult-like philosophy that people have about Apple.
People Apple can do no wrong they can walk on water they talk about pricing power what are you paying for your phones and a thousand bucks to get a new phone now it’s in people will pay it gladly not even bad and I at it.
I think that they have kind of a different kind of monopoly going on where they have such a pricing power cult-like following that I don’t think anything can unseat that.
Andrew: i 100% agree yeah all right.
Dave: so the last couple things we wanted to talk about was a couple of some of our favorite subjects to talk about from time to time first one being Tesla Andrew?
Andrew: okay yes so I had this idea first off like I’ve changed my tune on the Elon Musk a little bit I have a lot more respect for him and I kind of see where he’s coming from that doesn’t change how I feel about how he’s been running the company lately just.
his tweet about what they called the SEC he called it no something like short-sellers like I wish I had the acronym from me but essentially saying that the SEC is just on the short sellers team but it’s like yeah it says after his vine yeah this is after he got the fine and then he had to get off as a director.
Okay so there was something that I found interesting about AOL and this was back in the 90s they had done some accounting tricks where basically I mean kind of calling the accounting tricks is kind of being nice. What they were really doing is taking money that they should have expensed they should have put it as a part of the income statement profit and loss.
So they’re calling their marketing efforts like investment instead of an expense so they are essentially like when the company does they buy like a plant like we’ve talked about this in the past I don’t know what the episode was.
But like a property plant and equipment from the balance sheet it’s a capital expenditure and you are basically paying it out and now you have this asset and it has a useful life it will give you revenue for a certain amount of years and you can depreciate it over the balance sheet. You can think you’re going to amortize the expense.
It’s a little confusing but that’s the general premise of it and it’s quite fundamental to understand once you kind of get it right because you kind of have this up for an expense.
But in reality you’re bit just because so for example let’s say you you spend two million dollars to build this plant it’s going to make that year’s earnings look really bad because you just spent two million dollars on this plant but this plant is going to give you let’s say fifty I don’t know a hundred thousand or five hundred thousand in profit every year.
Instead of that because really you had a great year but you just made like a future investment so what they do is they kind of spread that expense out over several years over basically the life how how long that plant will will provide income for you. And so it kind of smoothes it out and it gives you a more accurate picture of really how the health of the core business is doing.
AOL was essentially doing that with the way they were they were spending a ton of money its funny. sounds funny now but back then it was kind of I guess brilliant didn’t work in the end but it did get him a lot of eyeballs they were giving out free floppy drives well free floppy disks.
They spent a ton of money doing that and it was just this big promotion and they were trying to make a wall kind of equivalent with the internet kind of like the company you could trust when I came to the internet they made a lot of money with their AOL chat rooms AIM I don’t know if anybody’s ever used that I certainly did in junior high those were we spent most of my junior high after-school hours was on AIM pretending that I had a bunch of friends and was popular.
And so what they did is they spent all this money to try to cry all this hype for their company and they tried to they tried to argue that it was the same as like a plant that will provide the same come over several years and that was more of an investment block.
The problem is they were using projections and they’re saying okay well spending this much money should give us this many subscribers which should provide this amount of income. But that it was all like projections if this wasn’t stuff that was proven with a business plan there wasn’t like a prior record to kind of reinforce this idea they’re just being very optimistic and in a very optimistic time of the 90s.
and so when they finally did put those expenses where they should have been then they took a big hit to earnings and kind of ironically the stock actually didn’t even go down that much I think it actually went up after they made this announcement had some management changes they had a lot of kind of turbulence happen within the company.
But basically this is just one of the companies where we talked about where it’s just not making a profit and they were able to appear like they were making a profit by doing this accounting trick. in reality that they were not making a profit the projections for how many subscribers and how valuable those subscribers would be for them ended up being not nearly as much as they thought.
And so eventually came back to bite them and instead of what was funny is that instead of shareholders kind of shouldering the brunt of this. time warner cable came in and they acquired AOL so they essentially like bail out the shareholders the shareholders would have been the ones to suffer if what really happened because the stock gets bit up and and that’s it’s essentially training at a much higher value than whether it’s true intrinsic value is.
Eventually that’s got to come down to earth luckily they got bought out first so instead of those shareholders bearing the brunt of it was going to be the Time Warner shareholders who are overpaying for a business that’s not nearly worth as much as they paid.
And so all that to say is I think Tesla’s going to be this decades AOL I think they have so much media coverage I think they’re doing really cool things I mean AOL was it was a pioneer in the in the internet world they were really one of kind of the first there and they kind of were leaders in the culture of the Internet.
The way Tesla been with electric cars and the innovations that Musk been able to give the world with the company and just how popular it’s been how much fanfare is still there even with what’s happened recently with musk.
I just think somebody else is going to buy him up I think shareholders even though we love to talk about how they’re going to they’re going to feel one day I think somebody’s didn’t come in and buy them out that’s my wild prediction. And with AOL like really what they did was they paved the way for companies now like even Yahoo you could argue but Google obviously has had huge success in the internet space.
Aol’s kind of paved the way and take that kind of the hype and everything that comes with being first in the market and other people are profiting and while they were doing some irresponsible things with their with their books. Obviously, Tesla’s if you look if you if you really look at their books and you understand them and the way that they’ve been able to survive by diluting shares and raising cash just to stay alive. I think there’s a lot of similarities and parallels there and I think in the same way that an oh well kind of luckily got bailed out and the shareholders didn’t have to bear the brunt of how bad it could have been I think somebody else will do that for Tesla.
And then I see like my big pic just and this is probably very biased just like my baseball pic earlier I really like Audi they’re owned by Volkswagen so if you’re looking to invest in the company and the automaker that owns how the you by Volkswagen based in Germany German stock market.
But I just think it’s like a really cool like looks-wise or just very similar to the Tesla they have that modern sleek luxurious look and I think they’re going to find a way to make electric cars work and I think they’re going to do it in a much obviously they’re going to do in a much more profitable way.
One of the big car makers well and and companies like Ford GM and it may be GM would be the one to to make like a dumb buy like this they’ve always kind of made bad moves.
But I think for now is a pretty impressive electric car so I just an alienated like a third of our audience who owned yeah there’s just these car companies that have really cool electric cars and what Tesla’s be able to do I think if I think about how a lot of the stuff people will be able to mimic it and that’s just kind of the way I see Tesla going.
Dave: I agree I think that’s probably I mean at this point is really kind of the best case scenario isn’t it for them yeah for shareholders for Tesla yeah I mean the PR nightmare right with all the stuff.
Oh yeah that’s just the hole that they’ve dug themselves into again I’ll say it nobody can argue that guy’s not brilliant dude and what he’s trying to do is revolutionary and it’s should be applauded.
But I think when you think about I guess when you think about people that run companies there are creators and then there’s managers and I definitely think he falls into the creator likes to tinker likes to come up with stuff and he obviously likes to be in control.
But I don’t think that he’s the right person to take that company where it needs to go and who that is I don’t know that’s not really for me to say. But I agree with your I think they won’t be bought out I think that’s a very good I don’t think that’s a farfetched.
when it’s going to happen and whether he can give up control enough to do that that will be the interesting I think that will be the very interesting what’s the word I’m looking for play on that company and what happens so I definitely agree with your assessment though.
Andrew: it almost happened already a with the whole funding secured thing so yeah I like halfway I want one step into it anyway right yeah just right just being out it would be it would be like big bank status with people hating I don’t know hating Wall Street hitting me.
Can you imagine just people losing it would be really sad I think Oh everywhere easily spot people unless seen in these in Tesla they just they’re smart in other ways and they don’t respect the history of the stock market or investing in general or the finance community/
Right just turn off like that think of a community to forever hate Wall Street yeah it’ll be would be awful.
Dave: for sure yep all right well the last prediction I would like to tackle would be my friends to snapchat yeah.
So we haven’t talked about them in a while and I was just recently as Andrea and we’re talking about well as we were looking at what we’re going to talk about tonight I did a little digging into the company and kind of some research and whatnot.
And the company has done quite poorly it opened when an IPO’d a little over a year ago around fourteen fifteen bucks a share it got up this high is I believe twenty three dollars a share it’s now cruising at a altitude of seven dollars and seventy eight cents a share.
If you were one of those unfortunate people that bought it when an IPO door came crusted at $23 a share you’re now kind of hurting and doesn’t pay a dividend and things are a mess there.
I do believe that their user base has gone up slightly the revenues have struggled mightily and the it sounds like the management team has been a huge shake-up I believe the two founders are still there but it sounds like everybody else is basically jump ship and they’ve had a hard time keeping staff.
I read an article about the inner workings of the company it sounds like it’s just kind of a mess and but the exact it yeah picture company the only reason the two founders are still there so they can keep collecting dirty pictures.
Yeah probably it has its uses and I think I’m not a user of the platform so I can’t speak to it directly I see my employees using it all the time. And I think it’s fascinating that it’s something you can use and then what there’s no record of what you have posted whether it’s pictures whether it’s text whatever and I guess that kind of is perfect for people that don’t really want to have anybody have a record of what they’re doing. some of my employees have tried using it to call in sick kind of thing and then it’s like well or they go and do something stupid and somebody else sees it on Facebook or on snapchat and they’re like oh I never did it kind of becomes a he said she said thing because it disappears.
One of those things were they calling sick and then somebody sees them at a party guys are not smart enough to not take pictures at the party so yeah anyway.
I guess my thought is is that along the same lines as what happened with Instagram I bet I’m guessing that Facebook’s going to snap them up no pun intended maybe intended I think I think somebody I think I think Facebook will buy them up to utilize some of their technology to kind of corner the market in that world.
Andrew: yeah that would be great just I got since I’m like an expert since I use it that makes me the expert today okay okay they had like big ball back from like it probably caught I you the design like the interface the the user interface yeah they’re like yeah.
It was obvious they changed it to try to make more profit and then now they’ve like changed it back so it’s like even with the way they’re doing it like come on like if you’re going to do it either commit one way or the other don’t be so wishy-washy with what you’re going to do either you’re going to make more profit or you’re going to appeal to the user base right don’t do.
I don’t think Facebook has ever been to the well of what people wanted because they they kind of know what’s better it’s like either this is a good business or this is good for the user experience right I don’t exactly knows but I like your point like there is value because there’s customers right so yeah there’s going to figure out how to monetize it.
I don’t know like let’s say maybe it’s not Facebook maybe it’s some other company or who cares so let’s say it’s our company right would you say that that’s like a good hey maybe that’s not fair let’s say we’re a social media company where there’s possible synergy would you say that that’s like a good acquisition target or do you see it no because it’s been the term investment it’s going to be when I was like oh somebody else is going to bear the brunt of this horrible thing.
Dave: yeah I think somebody else would be bearing the brunt of that horrible thing I mean it’s such an it’s such a mess financially that it would be hard to unless you could utilize the technology and in a way that like you said a synergy of a social media company that’s already got something like that going on.
It would be a benefit to them that they would be able to either monetize the platform or to use utilize the platform in a way that they could increase their monetization of what they already had going on. That would be a way that they could kind of quote-unquote dig out of the hole.
But otherwise he has the finance part of it is such a that will it just would not be it would not be a good you’re buying a sinking ship. what I’m saying and that would be that would make it tough to it’s kind of on its last gasp but I guess.
Andrew: yeah actually yeah I mean yeah whatever not every great product is a good investment no and I’m sure like they’re probably spent a lot of money now but something like that’s probably super easy to maintain like right so right be a lot of fat kind of to cut yep but yes some of these going to no I agree with you I think it’s a perfect kind.
All right folks well that is going to wrap up our discussion of some bold predictions that Andrew and I were making today I hope you guys enjoyed our a little fun discussion here on some different topics and kind of going off target a little bit sometimes it was kind of fun to talk about some things and I think also it kind of gives you an idea of how much prognosticating or predicting the future is just kind of it’s fun but there’s really no science to it and I think as you look back through the years and we listen back to our predictions I think I’d be interesting to see if any or what came to pass of any of them other than the Astros winning the World Series.
So without any further ha ha ha wanted to see if I could slide that in on you alright so without any further ado I’m going to go ahead and sign us off you guys have a great week go out there and invest with a margin of safety emphasis on safety and we’ll talk to you next week.
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