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2:07

You're tuned in to the

2:09

Investing for Beginners podcast. Led

2:11

by Andrew Saver and Dave

2:13

Ahern. Step-by-step premium investing guidance

2:15

for beginners. Your path to

2:17

financial freedom starts now. Start

2:20

now. All

2:27

right folks, welcome to Investing for Beginners

2:29

podcast. Today we're going to answer some

2:31

questions. So I went to the Reddit

2:33

machine and I found some really cool

2:35

questions and we got another great question

2:38

from a listener. So we'll go ahead

2:40

and answer those questions for everybody today.

2:42

So buckle in and have some fun.

2:44

So he got the first one. So

2:47

I'm very new to the stock market.

2:49

I have no idea what to do or how to

2:51

do it and I'm just Dipping my toes

2:53

for now. I was wondering about something.

2:55

Intel stock has dropped significantly in the

2:57

past year. A stock used to cost

2:59

$51.28, now only costs $18 as far

3:01

as I know. Of course, things aren't

3:03

looking good for Intel, but wouldn't it

3:05

be the best time to buy as

3:07

much as I can of their stock?

3:09

Intel is a big company, and surely

3:11

they will rise back up again, right?

3:13

No, I honestly have no idea and

3:16

I would love your opinion on

3:18

the matter. So great question and

3:20

kind of appropriate with the market

3:23

being all schizophrenic at the moment.

3:25

So I think what are your

3:27

thoughts on this question and how

3:29

would you help guide them? I would

3:31

first start by saying, look, you are

3:34

in the game and being in the

3:36

game is the most important part. Investing

3:38

is all about taking your hard-earned money

3:40

and putting it to work for you.

3:43

So whether this decision you make on

3:45

Intel or some other company works out

3:47

in your favor or not, the most

3:50

important thing is to not quit because

3:52

that's what you need for the compounding

3:54

to happen is for you to be

3:57

putting money out there and allowing it

3:59

to grow. for a long time

4:01

period. You're not gonna hit all

4:03

winners, trust me, nobody does, but

4:05

you do it enough and you

4:07

will get enough winners that more

4:09

than pay for your losers. And

4:11

that's how you build significant wealth

4:14

in the stock market. As it

4:16

comes to Intel, oh boy, like

4:18

there are, I don't wanna beat

4:20

up on this person, but there

4:22

are some, I think common misconceptions

4:24

myths or. I guess you would

4:26

call it common sayings that people

4:28

in the market mention that to

4:30

me are just completely wrong. One

4:32

of those being, oh, this is

4:35

a big company so they're gonna

4:37

do fine. That, I very much

4:39

disagree with that and that's like

4:41

the first place I would start

4:43

because I'm automatically staring at that

4:45

and I'm like, no, don't look

4:47

at the stock market that way.

4:49

So when you're looking at what

4:51

kind of stock to buy, what

4:53

you want to invest in for

4:56

the long term, it is true

4:58

that usually the biggest company in

5:00

an industry is the one that's

5:02

going to be the better one,

5:04

especially because of something called economies

5:06

of scale. So the bigger you

5:08

are, the more you can spread

5:10

your costs and the more advantages

5:12

you get. And so you do

5:15

get a lot of... the leaders

5:17

or the top dogs of an

5:19

industry who remain that way and

5:21

even strengthen their position from their

5:23

size. But and especially in technology

5:25

where things move so fast, Intel

5:27

is actually a poster child of

5:29

what can happen when you're big

5:31

fat and happy in the technology

5:33

space. And what can happen is

5:36

disruption. Clayton Christensen is a professor

5:38

at Harvard Business School. He wrote

5:40

a great book about this called

5:42

The Innovators dilemma, where, and I

5:44

love for Dave to explain this

5:46

because I think he has thought

5:48

about it more deeply than I

5:50

have lately, but basically. an incumbent,

5:52

a big company who is the

5:54

leader, gets taken over by a

5:57

small company because the small company

5:59

is more innovative. And there's several

6:01

other factors that kind of play

6:03

into that and kind of feed

6:05

into that. But that would be

6:07

my first point is like, look.

6:09

Just because it's big and just

6:11

because you know it doesn't mean

6:13

it's a great investment. Yeah, that

6:15

is 100% true I think the

6:18

description of Intel becoming fat and

6:20

happy is probably a really really

6:22

good place to start with Because

6:24

if you look back on the

6:26

history of Intel if you read

6:28

the book Chip Wars if you're

6:30

curious about the the semiconductor space

6:32

you need to read the book

6:34

Chip Wars. Not necessarily that it's

6:37

going to help you pick out

6:39

the best one today, but it'll

6:41

certainly give you a framework and

6:43

a groundwork to understand what's going

6:45

on today. And Intel was the

6:47

invidia of its day. It was

6:49

leading edge, it was cutting edge.

6:51

They were on the forefront of

6:53

everything. And through a Basically change

6:55

in management and a series of

6:58

poor managers. This is the Intel

7:00

will be someday a great case

7:02

study for what can happen to

7:04

a company that's that's on the

7:06

forefront and suddenly gets behind and

7:08

basically Intel lost its edge. I

7:10

mean it's the easiest way to

7:12

say it is they lost their

7:14

edge and now they're scrambling to

7:16

try to catch up. And as

7:19

Andrew has taught me in the

7:21

semiconductor space in particular, it's not

7:23

just a matter of throwing a

7:25

whole bunch of money at something

7:27

so that you can... become the

7:29

leader again, you have to advance

7:31

in the technologies, you have to

7:33

do the work to understand the

7:35

technology to become back at the

7:38

leading edge. And you can't just

7:40

skip forward, so to speak. You

7:42

have to go through the steps.

7:44

You have to learn this to

7:46

learn that to learn that to

7:48

learn that. And you can only

7:50

do that through a process. And

7:52

so you can't just go, okay,

7:54

I want to go from here

7:56

to D. You have to go

7:59

through B and C to get

8:01

to D. And Intel is trying

8:03

to do that. now, but now

8:05

they're trying to do it quickly

8:07

to get to D, which is

8:09

already where invidia and Micron and

8:11

AMD and everybody else is already

8:13

playing and beyond and and tell

8:15

us behind. So anyway, all that

8:17

to say, you know, the innovator's

8:20

dilemma certainly strikes hard and and

8:22

deep and swift with Intel. And

8:24

really what it boils down to

8:26

is the innovators dilemma and Andrew

8:28

described it really well. It's an

8:30

incumbent, it gets kind of fat

8:32

and happy and they start to

8:34

lose their edge. And then other

8:36

companies, younger, smaller companies, come along

8:38

and they find a niche product

8:41

in this case, invidia with GPUs.

8:43

It's a different way of computing.

8:45

Because they were so small and

8:47

because it was very niche, it

8:49

was really hitting in the gaming

8:51

industry for a long time, that

8:53

was not something Intel was interested

8:55

in and never thought it would

8:57

ever really be anything. And we

9:00

have learned since that, yeah, it

9:02

became something and it's taking over

9:04

everything. And so that's what happens

9:06

in the interface dilemma is a

9:08

company comes along in a small

9:10

niche. the big fat and happy

9:12

ones kind of ignore it until

9:14

it's too late and that's really

9:16

what's happening now with with Intel

9:18

and the idea of you know

9:21

a big company will always bounce

9:23

back yes there have been some

9:25

examples recently things like meta for

9:27

example that was really down and

9:29

out and has bounced back it

9:31

wasn't business related that was more

9:33

stock price related and the perception

9:35

of the company related as opposed

9:37

to meta not doing its thing.

9:39

So that's kind of a different

9:42

case, but Microsoft was definitely on

9:44

the down and out before Satie

9:46

Nadella took over and kind of

9:48

shifted the company and where they're

9:50

going and how they're going. So

9:52

that's a good example, but unfortunately

9:54

the history of the stock market

9:56

is littered, littered with dozens and

9:58

dozens, hundreds of companies that were

10:01

unable to shift and were overtaken

10:03

by other better competitors. And that's

10:05

the nature of the beast. And

10:07

it doesn't matter how big they

10:09

are. Sears at one time was

10:11

a massive company. Companies like GE

10:13

were massive companies and now they're

10:15

just shelves of themselves. So history

10:17

has shown that just because it's

10:19

a big company doesn't mean it's

10:22

gonna last forever. And they all

10:24

go through life cycles and whatnot.

10:26

So just because it's because it's

10:28

big is. probably a mistake. I

10:30

would encourage anybody that's listening to

10:32

this is considering those kinds of

10:35

investments to do your due diligence

10:37

and understand what the business is

10:39

and what the competitive landscape is for them

10:41

and then make a decision not just because

10:44

hey it's a blue chip and hey it's

10:46

really big and it's going to come back.

10:48

That's not always the case. Most of the

10:50

time it's not the case. If you are

10:52

to see that it's big and we've

10:55

reestablished that shouldn't necessarily

10:58

be your yes or no,

11:00

what is the next consideration

11:02

in your mind about this

11:04

as a potential investment? I

11:07

think for me it goes back

11:09

to I really need to understand

11:11

the business. I got to know what

11:13

they're doing, where they're going,

11:16

and how that stacks up

11:18

with their competitors because that's

11:21

really what it all comes

11:23

down to. If they aren't producing a

11:25

product that people like and want

11:27

to buy, then it doesn't matter

11:29

how big they are, it's not

11:31

going to be. I mean, it

11:33

may have some success, but it's

11:36

not going to have an outsized

11:38

success. And so it really comes

11:40

down to what they're doing, where

11:42

they're going, how they plan to

11:44

get there, and how that stacks

11:46

up against the competition. And if

11:48

they don't have that, to me,

11:50

it becomes a too hard pile. And

11:53

it also depends what's your frame on

11:55

this. For me, for Dave, I'll speak

11:57

for him because I know him pretty

11:59

well. are on the frame of 10-year

12:01

we want to hold stuff obviously

12:03

we don't hold everything for 10

12:05

years but ideally you're finding stuff

12:08

that you can hold for 10

12:10

years or longer that are great

12:12

businesses that we can just sit

12:14

back and let great managers and

12:16

the great business models carry the

12:18

compounding for us so we don't

12:20

have to find a new stock

12:22

every single month kind of an

12:24

idea. With Intel it's hard because

12:26

not only does that industry changed

12:28

so fast, but the nature of

12:30

what they do. You mentioned what

12:32

kind of customers they have. What

12:34

we have seen in the industry

12:36

is the demand for CPU computing

12:38

has not been as strong as

12:40

it was, big part like Davis

12:42

saying of the GPUs now. All

12:44

the data centers being GPU driven,

12:46

a lot of compute being taken

12:48

from a physical. computer and sent

12:50

to the cloud. So that has

12:52

a big impact on Intel. So

12:54

even if they have the best

12:57

CPU, if people aren't buying as

12:59

many CPUs, their IT spend isn't

13:01

as high of a percentage as

13:03

it was two, three decades ago,

13:05

that's going to be a problem.

13:07

And unless that changes, it's hard

13:09

to see Intel barring a successful

13:11

pivot into another business model, like

13:13

they are trying to do with

13:15

the foundries, but barring something like

13:17

that. it's going to be very

13:19

tough for them to get if

13:21

you're trying to beat the market

13:23

and just hold a stock for

13:25

10 plus years. It's going to

13:27

be hard to achieve that if

13:29

they don't have these new demand

13:31

drivers or a new business model

13:33

with high growth. Now certainly you

13:35

can look at the price and

13:37

maybe it's come down and maybe

13:39

you can say yeah in the

13:41

next six months or a year

13:43

it's going to rebound and rock

13:45

it up I'll be in and

13:48

I'll be out. Fine by me

13:50

like if you want to play

13:52

that game that, that's totally on

13:54

you. Not really talking about that

13:56

for the kinds of companies that

13:58

we buy and the lens that

14:00

we're using. So those are the

14:02

types of things that I would

14:04

look for But I mean you

14:06

can be successful sometimes buying stuff

14:08

cheap that's hated and then getting

14:10

out when it's not as hated

14:12

because to your point I mean,

14:14

if they still have products that

14:16

are decently profitable, maybe they're not

14:18

taking over the world, but maybe

14:20

they're still bringing in billions of

14:22

dollars. So there's some value there.

14:24

People are gonna buy for a

14:26

dividend or they're gonna buy for

14:28

buybacks or you just won't see

14:30

very many businesses that can survive

14:32

that will trade for such a

14:34

low multiple that, like as an

14:37

example, if a company has. 10

14:39

billion in cash and the stocks

14:41

at 10 billion dollars. Not many

14:43

people because there's so many eyes

14:45

on Wall Street these days, not

14:47

many people are going to ignore

14:49

that unless the company is literally

14:51

about to go bankrupt. So there

14:53

will always be that floor for

14:55

so many different companies and money

14:57

can be made. But if you're

14:59

looking for something over the long

15:01

term, you do have to consider

15:03

the business and the facts of

15:05

the industry make that really hard.

15:07

So we've got piled on on

15:09

this question. What would be the

15:11

silver lining here or what would

15:13

be the next tangible step? Because

15:15

looking at a big company and

15:17

seeing a stock that's down I

15:19

think is a great potential opportunity.

15:21

It's a great way to look

15:23

at things for sure. It's a

15:26

great place to turn over rocks

15:28

and maybe find a good investment.

15:30

So. If you had to give

15:32

this hypothetical person a pound the

15:34

back in a direction for what

15:36

would you say? I would say

15:38

that looking for contrarian ideas is

15:40

a really good place to try

15:42

to to mine for potential ideas

15:44

and I think it's a great

15:46

idea to look at companies that

15:48

you may know well and may

15:50

have an understanding about what the

15:52

business does and whatnot. And if

15:54

it is unloved or unloved comparatively,

15:56

then that could offer you a

15:58

good opportunity to get into the

16:00

company. And so I definitely like

16:02

the way that they're trying to

16:04

think and trying to look. And

16:06

I think it just comes down

16:08

to you got, I mean, you

16:10

have to take it case by

16:12

case. is some companies in this

16:15

case Intel is unloved probably for

16:17

a good reason, whereas maybe some

16:19

other ones that could be more

16:21

on the unloved side may not

16:23

be as logical. There may be

16:25

maybe not systematic. reasons why they're

16:27

unloved. It could be the investor

16:29

sentiment toward that sector has turned.

16:31

Or maybe there's been some bad

16:33

news recently that is kind of

16:35

more of a nothing burger. So

16:37

there's definitely those circumstances. So I

16:39

like I like the way that

16:41

they're going and I think, you

16:43

know, kind of use a basketball

16:45

term to keep dribbling with your

16:47

head up and looking for opportunities.

16:49

But you have to take a

16:51

case by case and don't assign

16:53

a kind of a blind obedience

16:55

to, okay, it's big, it's cheap,

16:57

it must be, it'll get, it'll

16:59

bounce back again. I think we've

17:01

kind of explored that you need

17:03

to think about the idea that

17:06

it is. and make sure that

17:08

it is a legitimate idea that

17:10

it still has good prospects going

17:12

forward as Buffett would say, you

17:14

know, you can analyze it and

17:16

see that it has good prospects.

17:18

And if it doesn't, then, okay,

17:20

that's too hard pile, move on

17:22

to something else because there's a

17:24

million in one companies that you

17:26

could choose from. And so I

17:28

guess that's kind of what I

17:30

would suggest to them. Yeah, that's

17:32

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20:13

let's let's move on to our

20:15

next question here. So question is

20:17

how can management decisions such as

20:19

capital allocation and mergers and acquisitions

20:21

affect shareholder value? Fantastic question and

20:24

what are your thoughts on this? It

20:26

can certainly change the values a

20:28

lot and more so even It can

20:30

do a lot of bad, and you'll

20:32

see the bad will be really bad.

20:34

And of course, you know, some

20:36

managers can do good too,

20:39

but usually the very bad cases

20:41

outweigh the very good cases,

20:43

always exceptions to the world, but

20:45

in general, you will see some

20:48

very bad ones, and that's just

20:50

kind of the case. What are

20:52

your thoughts on this? Well, to

20:55

me, Kappa allocation is job

20:57

number one, and for every

20:59

CEO. their job is to allocate

21:01

the money that the business makes

21:03

to try to make the business

21:05

grow. And the better they do

21:07

that, the ideally, the business

21:09

will grow. And the hard part

21:11

about this is that sometimes

21:13

it's hard to measure. And

21:15

the other part about it that

21:18

can be challenging is that

21:20

many CEOs that get into the

21:22

positions either have no experience

21:24

in that particular industry or they

21:26

come from, let's say operations, let's

21:29

say operations, or they come

21:31

from marketing and really have no

21:33

experience allocating capital. And so

21:35

maybe they have to off lay that

21:38

to maybe the CFO for example,

21:40

because that's maybe not their area

21:42

of expertise. And so it just

21:44

some of those things can lead

21:47

to problems for the company if

21:49

they're not done correctly. And a

21:51

lot of times when you see

21:53

businesses that maybe are struggling

21:56

to grow, it's because they've...

21:58

put money in in bad.

22:00

acquisition seems to be the one

22:02

where they can get the most

22:04

trouble because sometimes I like this

22:07

phrase they're trying to empire build

22:09

and as opposed to necessarily build

22:11

the business and Really what I'm

22:13

saying is it becomes more about

22:15

the ego of the CEO as

22:17

opposed to creating shareholder value and

22:19

a lot of times they overspend

22:22

to satisfy that ego and then

22:24

it doesn't turn out well. And

22:26

when it doesn't turn out well,

22:28

really the shareholders are the ones

22:30

who suffer. And so this is

22:32

where it can really cause a

22:34

lot of damage to us as

22:37

shareholders. And this is one of

22:39

the things that really has set

22:41

Buffett apart from the PAC is

22:43

that he's done a really fantastic

22:45

job of acquiring businesses. putting them

22:47

under their umbrella and allowing them

22:49

to succeed. Mark Leonard has also

22:52

done an amazing job of doing

22:54

that. That's generally the way they

22:56

grow is by making acquisitions and

22:58

they make hundreds of them a

23:00

year. And so that's certainly a

23:02

skill that he has that not

23:04

every company has. So it's definitely

23:07

something to be aware of. Yep.

23:09

So do you have any examples

23:11

you wanted to maybe share of

23:13

somebody that's? Maybe not done a

23:15

good job of that? Well, I

23:17

think one of the classic ones

23:19

is the whole, was it AT&T

23:22

buying Time Warner, and it was

23:24

something where they paid 200, 220

23:26

billion plus, and ended up, oops,

23:28

it was only worth like 10

23:30

or 20 billion. That was a

23:32

lot of money they laid on

23:34

fire, and hurray for the shareholders

23:36

who got bought out. But if

23:39

you look at the stock price

23:41

for AT&T after that, it was

23:43

not pretty. And that's what happens

23:45

is you basically have what happens

23:47

in effect. is a company makes

23:49

profits and shareholders all, the stock

23:51

market all assumes that those profits

23:54

are gonna continue to grow because

23:56

they have been growing, and then

23:58

you make this huge mistake in

24:00

capital allocation. And now what was

24:02

supposed to lead to growth is

24:04

now no longer leading to growth.

24:06

And now you have money that

24:09

instead of being reinvested in the

24:11

business, maybe is paying off debt

24:13

on something that was a complete

24:15

waste of money. And I think

24:17

that's pretty common, but you don't

24:19

hear a lot of a lot

24:21

of a lot of bad capital

24:24

location can sometimes fly under the

24:26

radar Especially because you won't necessarily

24:28

see the the negative effects right

24:30

away And Wall Street has this

24:32

weird thing that they do where

24:34

they don't look unfavorably on impairments

24:36

almost like it's everything's always priced

24:39

in like all we already saw

24:41

that your growth had stagnated so

24:43

I mean I guess it makes

24:45

sense, but still it's You generally

24:47

don't want to be in a

24:49

situation where the capital allocation has

24:51

not been ideal. Another form of

24:54

bad capital allocation would be buybacks

24:56

when a stock's valuation is super

24:58

super high because the return you

25:00

get on those are very small.

25:02

Buybacks ideally will reduce the pie,

25:04

making your slice of the pie

25:06

bigger as a shareholder as part

25:09

owner of a business. But if

25:11

a company is taking its profits

25:13

and buying back its stock at

25:15

150 PE, they're not getting very

25:17

many shares for the profits that

25:19

they're making. And so your slice

25:21

of the pie is very, you're

25:23

lucky if it's growing at all

25:26

at that point. Maybe it's just

25:28

off-sitting dilution. So that can be

25:30

another way where it's like, cool,

25:32

this business is making all this

25:34

money, maybe. And none of it's

25:36

benefiting a shareholder in a tangible

25:38

way. because it's just being thrown

25:41

at this expensive stock price. And

25:43

that has happened a lot. I

25:45

think you're starting to see some

25:47

of the effects of that. when

25:49

there's market turmoil. But I mean,

25:51

calling me surprise, because these kind

25:53

of stories seem to happen all

25:56

the time and nobody seems to

25:58

batn I and, you know, we're

26:00

all no wiser for it because

26:02

people continue piling into these stories.

26:04

But it is what it is.

26:06

That's just something that, to me,

26:08

I would avoid those kinds of

26:11

situations because you can lose a

26:13

lot of money that way. Yes.

26:15

Yeah, for sure, for sure you

26:17

can. And it seems like it's

26:19

become a source of pride to

26:21

announce that you're buying back shares,

26:23

and they just do it because

26:26

they think that shareholders expect them

26:28

to, regardless of whether it's a

26:30

good choice for the capital allocation

26:32

or not. And that's where it

26:34

becomes, okay, was it really a

26:36

good choice? You know, to your

26:38

point, it's trading at 122 PE.

26:41

Is that really the best? Is

26:43

that the best place you could

26:45

put the money? Seriously? Like, you

26:47

have no other investment ideas you

26:49

could put it into, if it's

26:51

that expensive, and it's probably doing

26:53

well. Like, you could probably reinvest

26:56

something in the business that's doing

26:58

better. And it definitely, I mean,

27:00

these all have impacts on us,

27:02

like Andrew was saying about the

27:04

slice of the pie. I think

27:06

that's a great illustration. And if

27:08

they're choosing poorly, then, you know,

27:10

I'm getting a smaller. bite of

27:13

the pumpkin pie and that's never

27:15

going to make me happy. So

27:17

that's the way I look at

27:19

it. And again, it's job number

27:21

one. This is the most important

27:23

thing that they do. And so

27:25

finding good capital alligators is it's

27:28

an art and once you do

27:30

find one, it's definitely something you

27:32

want to hang on to. Any

27:34

examples burn in your brain about

27:36

like this was a really bad.

27:38

Apple allocation story. Probably two that

27:40

spring to mind. Number one is

27:43

the whole AOL Yahoo thing. That

27:45

was a dumpster fire in the

27:47

offing and it basically destroyed both

27:49

businesses. So it wasn't just killing

27:51

Yahoo. It also kind of killed

27:53

AOL too. And that was a

27:55

gross, gross misuse of capital. And

27:58

I think a couple other ones

28:00

that have sprung to mind would

28:02

be in the payments industry, Fidelity

28:04

National and Global Payments Network, GPN.

28:06

They both bought payment processors and

28:08

this was at the same time

28:10

that Fyser bought a payment processor.

28:13

So all three big. payment companies

28:15

invested heavily in these companies and

28:17

they all spent roughly around the

28:19

same amount 35 to 45 billion

28:21

on these on these acquisitions and

28:23

the first two have already have

28:25

already spun those offer putting them

28:28

up for sale and have impaired

28:30

their income statements billions because they

28:32

were terrible acquisitions. They did a

28:34

horrible job of integrating them and

28:36

really crushed the stock price for

28:38

both businesses and of course they'll

28:40

probably recover to a certain extent,

28:43

but they've really set the businesses

28:45

back and the shareholders back a

28:47

long, long way. It's just because

28:49

all three of them wanted to

28:51

go down the payments playground and

28:53

only Fyserv was able to do

28:55

a good job of integrating their

28:57

acquisition and the other two. didn't

29:00

and they chose poorly and it's

29:02

it impacted the companies mightily and

29:04

it still is. That's a great

29:06

example and I think it's more

29:08

common than somebody should write a

29:10

book about it maybe and maybe

29:12

some of the ads but just

29:15

this idea that companies will literally

29:17

copy what they see their peers

29:19

doing without even putting thought into

29:21

whether this is a good decision

29:23

or not. Well they're jumping off

29:25

a cliff so we'll do it

29:27

too. And that's usually not a

29:30

good recipe if it's in a

29:32

business that's not a good ROI

29:34

business. And so that's a great

29:36

example of that. Yeah. Yeah. McDonald's

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30:32

for our final question for today,

30:34

so this is. Dave and Andrew.

30:36

I have been listening to your

30:38

podcast for a few years now

30:40

and I cannot thank you enough

30:42

for the work that you do.

30:44

I have been a subscriber to

30:47

Value Spotlight and I love it.

30:49

Every month I put it in

30:51

a set amount for the recommendations

30:53

you make. I have some extra

30:55

money and I want to invest

30:57

that into some of the companies

30:59

you've recommended in the past. I

31:02

notice two opportunities have peaked my

31:04

interest. I want to put the

31:06

extra cash into the Texas Instruments

31:08

as well as the Crown Castle.

31:10

My question is if you had

31:12

to choose one, which would you

31:14

would you would you pick Both

31:17

are at lower prices. Do you

31:19

still have the same conviction for

31:21

Texas Instruments or for Crown Castle?

31:23

And which do you think would

31:25

be the smarter play? Either way,

31:27

I would love to get your

31:29

insights on this potential idea. Keep

31:32

up the great work. So this

31:34

is from Boz. And great question.

31:36

And this is directed at you,

31:38

Sir Andrew. Well, thanks for writing

31:40

in Boz. We really appreciate you

31:42

listening and taking the time to.

31:44

to ask us this, because this

31:47

is kind of fun. Maybe not

31:49

so fun for me, because both

31:51

of these stocks have been among

31:53

the worst decisions I've made in

31:55

the past couple years, and both

31:57

for different reasons. I think the

31:59

Crown Castle one... is interesting right

32:02

now because what we have seen

32:04

is an impairment. And that was

32:06

reflective of the CEO who's now

32:08

gone, but basically taking a bunch

32:10

of money and putting it in

32:12

this strategy, this fiber strategy, small

32:15

cells strategy that is now been

32:17

determined that that's not gonna produce

32:19

the type of ROI, the type

32:21

of growth that the company would

32:23

hope for. And so you haven't

32:26

really seen the stock be affected

32:28

all that much, but Wall Street

32:30

has seemed to know this story

32:32

for a while. And there were

32:34

some activists who came in and

32:37

stirred things up in relation to

32:39

everything that is happening. So we

32:41

are getting an example in real

32:43

time of when poor capital allocation

32:45

can happen. And unfortunately, I've had

32:48

to ride through that. And at

32:50

the time, I thought it was

32:52

a good capital allocation. I thought

32:54

it made sense. I thought the

32:56

5G thing with self-driving vehicles and

32:59

all of the data that is

33:01

needed for those things with robotics,

33:03

I really thought small cells would

33:05

be the next area for growth

33:07

for Crown Castle and it has

33:10

not been. Luckily I buy things

33:12

with a margin of safety so

33:14

while it has underperformed we are

33:16

still getting six percent, six and

33:18

a half percent on the dividend.

33:21

So that's been nice. The

33:23

question of whether to add to

33:25

a position like that I think really

33:27

boils down to what is

33:29

your opportunity set at the

33:31

time and how does the

33:33

company you're looking at compare

33:35

to that. Obviously we won't

33:37

get this right every single

33:39

time, but you do want to try

33:42

to think deeply. It's

33:44

unfortunately I haven't found that it's

33:46

as simple as buy all the stocks

33:48

that are down in your portfolio and

33:50

you will do great because Crown Castle

33:52

was actually a buy the dip situation.

33:54

It was a good buy the dip

33:56

but it still hasn't made the stock

33:58

take off like I like I originally

34:00

thought. So to me, again, it comes down

34:02

to the opportunity set. What do you have

34:04

in front of you? Do you like the

34:07

outlook of those stocks or of the stock

34:09

you're thinking of buying the dip for? And

34:11

then the flip side of that, you know,

34:13

one of the arguments is, well, if

34:15

you wouldn't buy a stock, why hold

34:18

it? Why don't you just sell it?

34:20

I think that's a dangerous way to

34:22

look at things because then you can

34:24

second guess yourself with every stock you

34:26

buy for now to the end of

34:28

history. Because if I'm looking at Crown

34:31

Castle, I'm not adding to them at

34:33

this time. That doesn't necessarily mean that

34:35

I'm going to sell them either. You

34:37

just have levels of conviction, you have

34:39

levels of optimism, levels of opportunity. And

34:41

so we're constantly juggling those. I think

34:44

it's always good to ask yourself

34:46

if it's just a time and

34:48

place to buy in and buy

34:50

the dip. As it stands right

34:52

now, though, we've been talking about

34:54

semiconductors, I have dipped my toes

34:56

in a couple semiconductors in the

34:58

last few months, and I liked

35:00

the opportunity set and the future

35:02

potential of those semiconductor companies more

35:04

than a company like Crown Castle.

35:06

And I just think the ceiling

35:08

there is higher, and so with

35:10

my longer time frame, that appeals

35:12

more to me. And because Crown

35:14

Castle does not have that small

35:16

cell growth... Outlook moving forward. There

35:18

are upsides not as high as I

35:20

previously thought. So not a case to

35:22

sell, but also not a case to

35:24

add. So that kind of thought process

35:27

I hope is helpful in debugging a

35:29

situation. Maybe you're holding the stock

35:31

and maybe it does dip and you're wondering

35:33

do I buy this dip? Try to think

35:35

of it from a business perspective. Try

35:37

to think about where you see the

35:40

next 10 years and think about upside

35:42

and downside. I always like to think

35:44

an upside and downside when it comes

35:47

to buying something because I think that

35:49

helps. That certainly helps simplify

35:51

things and sometimes make those decisions

35:53

a little bit easier. Yeah, that's

35:55

a good explanation. So I guess,

35:57

what are your thoughts on Texas

35:59

instruments then? Texas Instruments is a hard

36:01

one. I mean, I know you're bullish

36:04

on it. They've, we both have it.

36:06

I know Leandro's bullish on them, but

36:08

they have been struggling. So profitability for

36:10

Texas Instruments has really come down. The

36:13

revenue growth isn't comparable to peers. They've

36:15

really been pulling back that business and

36:17

there's competition from China, which is making

36:19

it hard, but they're really sort of

36:22

consolidating and Reinvesting and growth in a

36:24

way by having these new bigger factories.

36:26

So it's it's a tough it's a

36:28

tough situation I have had stocks where

36:31

I bought the dip I don't do

36:33

it very often, but it has happened

36:35

and you ask yourself at that time

36:37

like I bought Pulte Group years ago

36:40

when everybody was freaking out about residential

36:42

real estate I still thought the business

36:44

look great and I thought things were

36:46

intact so I I purchased it. When

36:49

you buy the dip in a stock,

36:51

you don't always need to have numbers

36:53

that just rebound miraculously. A stock can

36:55

sell off even if the numbers look

36:58

great. And so to me, that can

37:00

be a great time to buy the

37:02

dip when the numbers still look pretty

37:04

good, but the stock's getting hammered because

37:07

people are just being emotional about the

37:09

company. Apple is actually a great example

37:11

of this. always buy the dip in

37:14

Apple. Right. People like, people like, people

37:16

will repeat the phrase that Apple doesn't

37:18

innovate and then they come out with

37:20

the iPhone 6 and then they come

37:23

out with the iPhone 13. So those

37:25

are the types of situations where earnings

37:27

can be going up and up and

37:29

up and earnings been share up and

37:32

up and up and people just get

37:34

this idea about the companies. Some, some

37:36

analysts says something and you know, some

37:38

macro thing happens and Wall Street's really

37:41

down on the stock, but if the

37:43

numbers still look good and the moat

37:45

has still not been really damaged. That

37:47

can be a really great opportunity to

37:50

buy the dip. So it's not always

37:52

easy. It's a great question. I've been

37:54

looking at those stocks for a while

37:56

and it's very tempting for Texas Instruments.

37:59

I'm waiting for those numbers to look

38:01

better. For Crown Castle, similar story. I'm

38:03

waiting for those numbers to look better.

38:05

And we'll just have to. Wait and

38:08

see and you know I bought these

38:10

companies for a reason so I'm not

38:12

selling them I still believe in the

38:14

strength of their business models But the

38:17

opportunities that I see compared to those

38:19

where the numbers aren't great That kind

38:21

of frames my mindset on it I

38:23

think that's a great way to think

38:26

about them. I mean you have to

38:28

take a case by case and you

38:30

have to look at What I love

38:32

the idea of looking at the opportunity

38:35

cost in the opportunity set of these

38:37

particular ideas versus other things you may

38:39

own or other things that are out

38:41

there and Understanding where each of them

38:44

is in their own business Cronkastles at

38:46

a different place than Texas Instruments is

38:48

and so You just have to I

38:50

think I think that's the best way

38:53

to do it. It's just the way

38:55

the opportunities and decide I think it's

38:57

best not to just blindly just buy

38:59

because it's down. I think it's better

39:02

to understand what it is you're buying

39:04

and why you're buying it and why

39:06

it's down. It's not unusual for companies

39:08

to go through draw-downs. It's a normal

39:11

part of the stock market, but you

39:13

need to understand why it is and

39:15

not just blindly buy it just because

39:17

you really like it and it's down.

39:20

There are a lot of times there's

39:22

an actual reason why it's down and

39:24

you need to understand that it before

39:26

you pull the trigger and buy something

39:29

just cause. Yeah, and unfortunately for both

39:31

of these, there has been things that

39:33

have happened and yeah, the numbers have

39:35

not looked as great as they used

39:38

to. Right. Yeah, it makes it hard,

39:40

right? That's what makes the game hard.

39:42

It does make it hard, yes. That's

39:44

why we pay you the big bucks

39:47

to make all the decisions for us.

39:49

Well, yeah, I am looking at these

39:51

every single month. I'm looking at the

39:54

whole portfolio. I'm looking and trying to

39:56

balance between opportunities. And if you're there

39:58

and you're taking advantage, then that's great

40:00

because we're all making money together. Right.

40:03

Exactly. All right, well, with that, we

40:05

will go ahead and wrap up our

40:07

conversation for today. I hope you enjoyed

40:09

our question answering. And again, if you

40:12

have a question, please send it to

40:14

us at newsletter at e investing for

40:16

beginners.com. You can also send us on

40:18

Spotify for beginners.com. You can also send

40:21

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