What's on Your Mind: Investing & New Years Resolutions

[00:00:00] Hey, Justin. How are you? Hey, Ram. I'm doing well. How are you today? Good. Happy New Year. Feels like we're two months in already. I know. I totally agree. A week in entrepreneur land is definitely not a week in reality for everybody. We need to get a meme where they show a picture of the person who's like age 200 years.

You know what we're going to do? We're going to go to the AI, take a snap, upload it, and say age is 100. It's good though. It's all good though. That's what you sign up for as a founder. I'm trying to Benjamin Button the look. I'm trying to age in reverse looks wise. But I'll take the mental strain and mental growth that comes with the experience.

My curse is if I don't sleep well, I still look perfectly refreshed. You're great. No, you have no idea. Like I have three kids and one Hit me on the face at 5 a. m. By the way, have you ever seen the pictures of [00:01:00] either before and after World War II? Young We're gonna find it. Let's put it on Google.

Let's just screencast that. What's the Google term for that? World War II before and after I would say before and after photos, it's incredible when you see like these are young men going to war and they age so dramatically in that mostly four year for tour for an American 41 to 45. So this is they go to college essentially in terms of timeline.

I got a few up here now. Wow. Yeah. That's cortisol, right? That's too much norepinephrine adrenaline. That's lack of sleep. Too much stress, right? PTSD, all this stuff. Yeah, you'll find left. So this was showing some injured ones, which is like always horrific, but there's somewhere you see the, just the wrinkles and the lines.

There's a, there's one [00:02:00] that I've been thinking of. Wow. Look at that guy. Four years. What the hell happened to him? Oh my God. Unbelievable. It's unbelievable. Unbelievable. Now he might've been an exemplar Not the mean of the distribution, right? Possibly. Yes, that's true. That's why he got the photo, right?

It's yeah, like that guy, I think that was the photo I was thinking of actually. So yeah I'm trying to, we should look up like General Patton and Dwight D. Eisenhower because that would be natural control like before and after. Yeah. They're looking the same though. Presidents often though are seen and obama, like the amount of like gray hair and wrinkles on Obama. That's no question about that, right? You go become like a president, you just age rapidly. Yeah, you're negative Benjamin Button. If you're the president, leadership is a burden. It's a [00:03:00] duty. It's an honor. It's an obligation, but it's also a burden.

It is a tremendous burden. But Like you said, tremendous honor as well. And a joy. And if you can relate to the duties in a way that's meaningful, then I think you get less stress. One of the questions people will ask me is Ram, how do you like stay on top and do all this stuff? It's like my edge over my competitors is for me, work plays all the same thing.

Nothing else I'd be doing. It's work and family. It's all the same thing. And my competition doesn't have that. I, I. They can't, I can't hold a candle because of that. I put my kids to bed. I'm back online getting shit done. We're on it. So there's no doubt about that. So speaking of some of those late night calls, I'm checking late night Twitter and I know Ram's going to be making a call at 937 or something like that.

[00:04:00] A lot of those calls lately have been very timely. Your immediate reaction. You are not, Hey, I'm going to think of. A tweet and it's going to be two weeks in the planning, your real time reaction. And a lot of those have been market sentiment, right? Like you're feeling, you're seeing animal spirits or you're sensing them or you're saying, Hey, overbought, oversold.

Some of them have been really good lately. My compliance hat. Literally is on for us though. And I'm not going to say past performance is no guarantee of the future, but tell us a little bit about some of these things, tech stocks too high. I'm going to share a screen with you. There's a tweet I did because I was just easing all these Wall Street equity strategists that make these 10 predictions for 24.

We made 10 predictions. I got eight of them done this week. They were, we're done with it. Close them out. That we're done. It's they were working on whatever top 10 list. These are deeply researched ideas. [00:05:00] By the way, they're, the approach of Zooming out, it's more than just sentiment.

I look at fundamentals, evaluation, ethnicals together, and then I do a synthesis. And we write about this in our newsletter. It's all in the open. I share how I do it. Also, in turn, I can't unpack everything in real time. I get nothing done. But I try to show examples oh this is what we're doing.

And the framework is non consensus investing. Yeah. You're very good about and we as a company are building publicly, if you will in the way we communicate about our investing philosophy. And I think that is one of the things that I love the most about working together is that ability to understand because of the way you speak publicly about the investment philosophy.

I hear it, like we have those conversations in the morning and then I see the tweet later or. Yeah. Talk at night and see it. But yeah, you see it in real time too. Like I remember Tuesday morning, we had to stand up. I said, I'm concerned about tech and semiconductors. First thing. Yes. Then noon.

Boom. [00:06:00] Portfolio hedges are on. Shorted so far on Friday. Closed it yesterday morning. Now we're cool, but we're not worth it. So sorry. Yeah. Yeah no. Go ahead. I'd love to hear. So it's not at all. It's not at all like instinctual reaction. It may seem like it's not at all.

In fact, if you do like a timeline from November, December, and now, you can see the themes and the buildup. I can give a few examples. I'll start with one example, like on tech. First off, mid October, we're long tech. We're buying Broadcom, ASML, Roadmap, in our newsletter, and other names. We have actually 15 names in semiconductors, but I don't, I use the same names when we talk about public leaks.

I'm not trying to give away all our alpha, right? So we're long. We said this is a correction, and we've been underweight from the first week of October, and then November, okay, small techs. And then in [00:07:00] December, the second week, I said tech is overbought. Don't buy tech, I'm looking at energy now. It's the only thing that hadn't gone up in value.

Fundamentally, I'm a value investor, even though I also own growth. Value is a mindset, but relative value. And energy is a great hedge against tech because they're negatively correlated. Bonds and stocks are positively correlated. Stocks drop, bonds drop. Bitcoin won the bond. What we saw is a few things.

I'll walk through each bucket. In the last newsletter that we published on New Year's Eve, I put it on Twitter the week before that too, usually they're synchronized, but we showed that the long term earnings growth expectations of analysts had peaked again. Last time you saw that, tech corrected. And then we did a name by name through MAG7, most of the MAG7, the view there.

We do some of the MAG7 with Google, Meta, but not like Tesla and Apple. So that was one of the fundamental piece. The second is expectations. You need to get that right. Analysts had gone from year over year expectations of 0 percent going into Q4 [00:08:00] earnings. When the bar is low, you can cross the bar.

And, in October, the analysts and market sentiment was, recession or consumer spending is going to fall. Delinquencies are going up. There's a credit event. When that's consensus, then that's the, that's reflects market pricing. And consensus is not equilibrium. It has to be something other than consensus.

Imagine Mr. Tarzan. Mr. Tarzan is Mr. Market. And as Ben Graham likes to say, it's manic depressive. And he's on the vine. And when that vine is at peak, it's consensus. And that vine's going to come back. The second part, on your point, on sentiment, was end of the year, after that Fed pressure, We're going to orient to rate cuts, markets lifted off, any of the positive Santa Claus season, all this stuff, people get excited, and sentiment is soft landing, and you can measure that, you can measure that, you can measure sentiment, you can measure like [00:09:00] yield, like high yield is like low, that means are up and to the right.

So you can't get better than soft landing, right? There's no way, there's no soft landing for longer. Yes. If soft landing is consensus, it can only deteriorate. Ultimately some news will show up that changes that, and that's the vine drive. And so if you identify those deep consensus, moments. Think about this for you.

Consensus formation, consensus is advancing, then peak consensus. Then the vines are going to move the other way. But all these have to come in harmony. So let's talk about value investing and let's use Apple. You've talked a bit publicly about Apple. Apple, I think, is a great example of your discipline as a value investor because there's a lot of [00:10:00] goodwill.

In the brand I'm speaking to you with an Apple computer in front of me, an Apple monitor to the left of me, multiple Apple devices in front of me, AirPod Pros in, but your value lens has said something different that was insightful to me. And Buffett's a value investor and Apple's a top position. Apple is a great example and this combines fundamental as well as top down themes.

I'll cycle through that framework right now. In the summer, people were saying Apple's as good as a money market. That means complacency. That's peak sentiment. That's one strength. Second, what we saw, I've been at Apple a long time, I can say, I was saying long Apple in May, and then in June, released earnings somewhere in the summer, and their revenue contracted.

That's a big deal. If you want a business and revenue shrinking, you should be concerned. By the way, they beat [00:11:00] expectations. Who cares? If they beat expectations, then your business could This is where Wall Street analysts make money. Wall Street analysts are on aggregate, by and large, awful, some are phenomenal.

We'll come back to that similar Right? Mike Reeder from KBW, so he put the SoFi chip out, or the SoFi sell rating for the day. Anyway when their business is shrinking, you gotta be concerned, and when a double digit percent of revenue is coming from China, which has competition going up, you gotta be concerned, right?

And then, year over year earnings growth we saw in October was 0. 5%. What the hell? What am I owning at a 4P ratio of 30, which is higher than NVIDIA? That's relative value, right? You look at relative value. We field a range of assets and what assets deliver the highest relative value. And you look at long term growth and the price I pay for that growth, and hopefully it's not consensus.

So you pay for consensus, you're not [00:12:00] generating any alpha, at best you get the consensus return, right? So that's, fundamentals deteriorating valuation was off, sentiment was peak, they just rolled out the Vision Pro, so that peak sentiment is there, that lasts for a month. Just hire for longer, remember, two months, hire for longer, September, October, it's peak frenzy, markets are repricing, then it's in, then bonds go the other way.

Same thing with Apple, Vision Pro. Okay, let's talk about Vision Pro. Fundamental sentiment valuation, technicals didn't break, but it was enough not to own it. So we just didn't own it, we just didn't short it, we just didn't own it. Can it be a good business and a bad stock? Can it be a Yes. Great point.

At the same time. Yes. I love Apple products. I have an Apple iPhone. I'm in the platform. I subscribe. I get the best model every year. I renew. I'm a loyal Apple customer. I have nothing against Apple. I think Tim Cook is a skillful operator. I study how they do management meetings. I wrote about Steve Jobs on New Year's Eve.

[00:13:00] I admire, I think Apple is a phenomenal brand. We talked about the 1984 Mac commercial on our Slack channel. We love it. We like Apple. It's making the distinction between Apple as a business and Apple as a stock. It's a difference. And is it also the relative value in the moment of the stock, right? Yes.

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