Episode 27: Brian Stoffel on Antifragile Portfolios in a Chaotic World

Hey guys, and welcome to episode 27 of "Shootin' the Bull Pod" with Drowsy and Bear. As always, you can reach out to both of us. He is investing underscore bear on Twitter, and I'm Drowsy Investor. You can hit us up on email. We've spoken to many of you guys, and welcome even more emails. We are shooting the bull pod [email protected], and lifting up the current a little bit before we get to the main thrust of our show. We wanted to. Well, we. Okay. I wanted to apologize about the volume on the last episode. We're trying out new software this episode, so hopefully we'll be a little bit better. Thank you to those who have reached out to offer to help, to have another set of ears on an episode before we release it, really, it's great to know that we have a whole system around us and thousands of listeners who not only put up with us, but also want to help us. So it's really endearing. Thank you for putting up with us. So with that, this episode, we have a special guest. He's been really excited to talk to him. He's a repeat guest from our last episode last year, and has bold and interesting predictions we'll have to follow up on. But our guest today is the co-founder of Longterm Mindset with Brian Feroldi. He is the lead in the Stock Investing Mentor program. He's formerly up the Motley Fool, and he is one of the best stock educators on the Internet. So Brian Stofold, thank you for joining us. Well, thank you for those kind words. I'm happy to be here. I wish everyone goes well. Yeah. Bear is cheering. You are just a fan favorite. So thank you for spending time with us today. I want to start this episode. I'm stable. We did that you alluded to our last episode of 2025 is one of our all-time favorite episodes by listeners. Oh, great. Thanks for your part on that. Yeah. I was happy to participate. And we'll definitely get back to Transmedics, which was Brian's bold pick. I wanted to paint a picture and then Brian to see how this story matches up with your thinking. So the market right now is we're taping on Friday afternoon is basically an all-time high. We have some new IPOs that are set to come out at trillions of dollars. We have SaaS, valuations of CrowdStrike and CloudFlair and Palo Alto, and several other names that we all hold at extreme levels. We have SpaceX at $2 trillion, almost $3 trillion, and at the same time, we have extreme AI valuations of micro-- sorry, not micron, excuse me, of some of these smaller names that are just breaking out like AsteroLabs and SiliconMotion. So we have the market of extremes right now, and for someone who's been around for almost two dozen years of the investing world, I'm curious how you interpret all of these just extreme signals all at once? You know, there's a lot going on. And I think what makes all of this interesting is that it's-- so the 10-year Treasury, and I know this is not something I usually talk about. Like it is not my-- growth investing with 10-year Treasury. Everybody just fell asleep. It's not. But look, it's higher than it's been since 2002. And it's doing some weird things, some things that we haven't seen, some things that I have to go back and like study up a little bit about because it was, you know, in 2002, I was in college studying to be a middle school writing teacher. So I wasn't investing then. And what we have is we've got some real pressure on multiples for certain companies, not the ones that you mentioned, but for certain companies. But on the flip side, investing is a story-- sorry, investing is reality times a story. That's all investing is. It's reality times a story. And the 10-year rates and interest rates going up, that's the story part because it affects the valuations, right? And valuation is the story part. So you've got that kind of pushing stocks down, but you got to remember, the stock market is reality times a story. The reality is is that earnings are growing faster than they've pretty much ever grown. And so you've got two very strong forces pulling in opposite directions. You've got valuations potentially being compressed because it's-- you get a pretty good deal if you invest in bonds, like it's boring, I've never invested in bonds. But hey, you get 5.3% for 10 years at zero risk that we haven't had a deal like that since I was-- you know, since it was right after September 11th, that's how long it's been. On the flip side, we've got corporate profits growing faster than ever. And so you can't focus on just one. You have to focus on both. Now you were talking about weird things happening in the market too. The other thing is that I've done some research on. So typically, especially in a rising market out of the S&P 500, typically 10 to 15% will be in quote unquote correction territory, where there are more than 20% off their all-time highs. Do you guys want to guess what-- we're hitting all-time highs right now. What percent of S&P 500 companies do you think are in correction territory? So that's down 20% or more. Down at least 20% from their-- well from their 52-week highs. Yeah, bear. What do you think? What percent of S&P 500 companies do you think? So that's 500 companies. It's usually 10 to 15. I would say 40%. Yeah, I'm going to say 35%. You bear got it. I'm the head. 40%. Wow. And so it's-- it's a little wild. And if you think about it, there's 200 companies plus in the S&P 500 that have nothing to do with AI, and we're in the AI trade right now, and kind of in the-- it does seem like all the-- maybe I don't know if Netflix is one of them. It seems like they're down. So there's a lot of different types of things. I know banks are struggling. So yeah, that's a high number, but it's not surprising. Given the craziness, droughts are alluded to. Yep. Netflix, by the way, 44% off their 52-week high. Yeah, that's a lot. So it's just-- it's kind of wild. I don't think that even in the depths of COVID, I've ever seen one force that is so powerful because-- and the main reason for this is because-- so you guys know that SaaS was a huge driver of my portfolio for many, many years. But the thing about SaaS is that it's relatively contained. SaaS growing really fast. It doesn't spill over into all these other things. Data center spills over into so much because it spills over into land, into energy, into machinery, into-- and so it just touches so much more. And yet at the same time, it's like-- I looked at construction, and data center construction is up like 64%, but every other type of construction is pulled back. Now part of that is causational, like people are actively abandoning certain projects to go after other projects in the data center realm. But it is-- it's kind of discombobulating more than anything. That's what I would say. And one thing that we've talked a bunch about kind of on our show is just some of the winners of yesterday are not the small cadre of winners right now. The names like Netflix is a great example. If you own Netflix from 10 years ago, you're sitting pretty, if you own it over the last two years or so, you're not. Same with Amazon or Mercado Libre, or some of these that made our career that we had thousands of percentage of gains are now stagnant. Meanwhile, you have these names popping up seemingly out, nowhere like a Celestica, where insiders knew about it, and maybe a few others. And that's crazy high, or-- and Bear, I-- it's much to my chagrin dimension, this name, but AR test systems, which was the Bane of our existence-- Absolutely ripping. --ripping. --ripping. --ripping. So it's so weird and so kind of counterintuitive to the nature that we grew up in in investing over the last 20 years of these big, huge names that everyone knows. The SNAP test, the David Gardner SNAP test, and now it's literally unpronounceable AI optic names, and that's where the winners are at the moment. Hey, can I make you look really smart real fast? Me or Brian? I mean, Brian, it's already done. But for me, yeah, I need all that. You just said something. You just said something really interesting. So Mercado Libre, you guys want to guess, I know Brian holds-- I know you both hold it. Yes, the 10-year return. So 10 years, it's up. It's up, what percent? 2016? It might be flat. So I tweeted, I know I tweeted in the last five years, it's trailing the S&P by like 55%. --Okay. --505 years. So 10 years. --I think back a little farther. --20, 16? --Yeah. --Maybe up 50%. --I'm going to say it's up, and I'm going to say it's up 100%. --It's up 1,000%. --Are you saying it? --It was $180 a share back 10 years ago. Now in the last five years, a quick guess, anybody, about the last five years? - That, no, I'll do 50% again. - Yeah, it's somewhere in the 50, 60. - It's up 20% total. So a thousand percent return over 10 years, and just Netflix is pretty close. I mean, I don't know if we wanna play the guessing game again. I'll just tell you guys, 10 years, 600%, 596, five years, 12% total, not Kager total in the last five years. So it's not only losing to the market, but it's barely giving you, both of those are barely giving you anything at all in the last five years. And that, the last five years, if you think about it, not even, okay, I guess that actually is pretty much the high of 2021 five years ago, but still, zero, basically zero return from either of those in five years. - Yeah, that is a tough comparison though, because when we talk about five year returns next year, both of those are gonna look a lot better. - That's right. - 'Cause they both fell so much. - That's very true. - And the moral of the story here is, hold great companies for as long as humanly possible. And there's gonna be periods of-- - Sell in 2021. - Yeah, yeah. - I'm curious, Brian, so to folks who have, I mean, I've held Mercado Libre since 2014 or something, and I have these memories of just extreme growth. And when I look at the numbers, the company is stronger than ever. But what do you say to someone who, you know, bear makes a great point in the last five years? It's, you wasted your time a bit compared to owning micron or owning Nvidia even. - Well, you own a different business than you bought Mercado Libre at. Like when I bought Mercado Libre, it was 75% an e-commerce company, 25% a payment company, and that was it. And there's two things that you've got to keep in mind. I always say when you're, when you're, when you have a moat and you have to have a moat, if you don't have a moat and you're in a longterm investor, you don't, you're not gonna make it. You will not be successful. But there's two parts to a moat. There's always two parts to it. The first part is the barrier where you have to build the barrier. You have to build something that other people aren't gonna be able to get through, that the competition won't be able to get through. That's the hard part, that's the not fun part. That's the crappy part. That is the, you know, if you're an athlete, that is the waking up at 6 a.m. and doing the workout and no one's there cheering you on. The other part of the moat is the benefit. And that's where you get those outsized margins. You get the business, the competition decides not to. And that is, the thing is is that's where you make the shot in the game that wins it and the crowd cheers you on. But if you look at a time lapse of it, you spend 90% of your time building the barrier and you get 10% of the time where you get the benefit. The thing is you want to make sure that you're around for the benefit as an investor. That's the key part. And using the sports analogy, we all see the basketball star like the Caitlin Clark or the LeBron James or the Steph Curry making the shot. And we're like, oh, I want to do that. But none of us are watching them do all the stuff that they have to do to be that good. It's the same thing and investing. And I think with Mercado Libre, two things. One, they're building a logistics fulfillment network. That's freaking hard. Like that's buying trucks. That's building buildings. That's making sure that you hire enough people. And then the second is they're building a credit book. They're making loans. That's entirely different. Now they do have proprietary data that helps them make those loans. But the market is not convinced that they can do this at scale without making a big mistake. Because once you become a fintech and you're making loans, you're on steroids. And being on steroids when you're hitting the ball, like Barry Bonds is great. But if you start making mistakes, it can get really, really bad. I mean, so well said, the sports analogy really hits home and how to hang tough through all those early morning workouts and how to, as an investor, remain committed and have that high conviction on this company, that on the other end of all this investment and all this time, both time for the company to build out infrastructure in the case of Mercado Libre. But time, I mean, bear, what is the term that you said, like time cost or opportunity cost of not just saying screw it in 2018 and putting that money towards something else? I mean, especially right now, some of these names are just so much stronger companies than they were before. And yet we're watching kind of the new era of investor class come up with optic names that I don't even understand the technology behind it or infrastructure plays within data centers or even just the hard construction parts of creating data centers and those names are taking off. So our yesterday winners are better companies than ever and yet I'm getting FOMO. It's that part of the cycle of I'm seeing these winners the Celestica's that I saw at 60 and now they're at 360 in a year. I mean, it's just more of commentary and there's not necessarily an astute question at the end of this, but we're in an interesting part of the cycle right now. - Yes, I think it leads into maybe we should go ahead and segue to the antifragile questions you have about Brian's methodology 'cause I do think this is sort of investing philosophy type stuff, right? I mean, my sort of North Star is that I try to make my portfolio look like I bought it just this morning and I try to do that as often as I can. Like maybe every day 'cause I'm kind of obsessive and like this is my job. So, but that means I don't own crowd strike for instance 'cause it's more expensive than the companies, I have about 10 to 15 companies usually that I think are the best deals right now. And when they become not the best deal right now anymore, I move on. So that's a very, very different way than saying, I bought Mercado Libre in 2016 or before and I've been holding it ever since. So that's just, I know Brian does sort of a hybrid where he adjusts his valuations up and down but I, and maybe Brian, you do sell out, ultimately if you think something, I don't know if you own crowd strike right now for instance. - So I'll say, I think 2022 taught me that valuation matters. And so I'm trying to ease like, I'm still trying to ease my way into how do I apply that? - So I don't own crowd strike now. I will say I owned it up until about 220. So I got most of the upside from it. - So you sold it in the last couple of months? - Yes, yeah. But even still, I revisit. I still revisit the-- - Legend status. - I told Drosie he would be a legend if he sold crowd strike right now. He's got like a 20% position. Imagine selling at the top. - Well, so here's the thing. I learned the lesson the hard way about valuation. Shopify was 20% of my portfolio in 2021 and it fell 75, 80%. That was a mistake. Like that was just a mistake. That's not anti-fragile. That's fragile, okay? I think it would have been okay if I cut it down to 3% just so I had it and I knew, and the company, the company was still anti-fragile. The company was still very anti-fragile. It's just the stock wasn't. Those are two different things. They're related, but they're not the same. And I think I made a mistake. I kind of wish I just would have left crowd strike it like a two or three percent position. And just so, because it's a matter of principle, it's an anti-fragile, come, it is. It literally gets stronger, the more chaotic that stuff gets in the cyber world. - That's such a nice two point. - Yeah, that is anti-fragile. - Yeah. - So I think that might have been a mistake. Now, I will say with other stocks like Cloudflare, like it's going up, there's no way I'm gonna let it get to be an outsized part of my portfolio, but I'm gonna say the more agentic AI gets chaotic, the more we're gonna need a gatekeeper. And that's how Cloudflare is positioning itself to be the gatekeeper for agents on the internet. So, am I gonna have that be a 10% position? No, not at today's prices, no way. But do I still wanna own it? Yeah, I do, because I don't know how it's gonna develop. So I'm trying to learn from my mistakes. And I think that it's okay to hold a richly valued stock as long as you're cognizant of how much of your portfolio you're allocating to it. I wanna tease that out a little bit further on the AI front. When I look at the AI ecosphere that I understand, CrowdStrike makes perfect sense. We're gonna need more defense because AI can develop faster offences and there's gonna be a flood of AI agents doing everything all of one. So, something to make sense of that is gonna be needed at a mass scale. Companies aren't gonna rely on, you know, clawed vibing code over the weekend to to protect billions of dollars of their industry. Beyond that, and I'm gonna just throw out Nvidia and then we can kind of move on from that, the companies that make the chips that fund all this are gonna be vital and continue to be vital. But are there other no-brainer kind of AI parts of the ecosystem beyond cybersecurity and maybe the companies that make the actual silicon? In your mind, I mean cloud fillers are good example, but are there others? So I have a video out on, so I did a video in February. So I'll just say, I'll talk about the software side, okay? Because I think on the hardware side, not all of it, I own some of the hardware names, but on the hardware side, this is really a bottleneck play. And to me, that's not anti-fragile. It can be a winning strategy. It's just not my strategy. So I did a video in February about the SaaS apocalypse and I've updated it a little bit since then, but I've called out six companies that I thought were anti-fragile. And since then, they've returned 90%. And I called out a bunch of companies that I said were fragile and since then, they've returned market matching. So actually, that's not actually that bad. But the six companies that I called out were Palantir, Axon, CrowdStrike, CloudFlayer, and Shopify. I think that they all tend to benefit as the world gets a little bit more chaotic with AI or in the physical world in the case of Axon. So those are six names right there. - I mean, and-- - What about the connections we've called? - Didn't that you called out that have only been market matching? - So, yeah, sure. So some of those where I will say that they would be market losing by a bunch. If one of them I called out was Atlassian, which has done very well since then, the rest of them are all down a ton. And a lot of them are like their collaboration tools. - Let me guess, Adobe. - So Adobe was on the list, Asana Monday.com. Asana, was that one of the worst CEO internal buys? Maybe right up there with Jeff Green and Trade Desk. But what's his phase bought? It's evenly like the entire company, yeah. - Yeah, well, I mean, there's only two instances I know of in history. There might be more. And I can't even remember what the other one was where the CEO is actually worth more than the company that comes with my gosh. - Because he was original Facebook employee. So-- - That's true, yeah. But like probably most of their history, he's been worth, you know, like when they went public, I think he was still worth more than them. So it was a very weird dynamic. 'Cause it's like, this guy can buy that shares on a whim. And that it have zero effect on his life. - Yep. - It's very strange in there. - But now, I mean, that was a good call, though, on collaboration, basically. That is maybe the replicable part of this ecosphere in a way that cybersecurity and e-commerce and others isn't. - Yeah, I mean, the bottom line was, if it was something that was connected to the real world, if it was something that had proprietary data, if it was something that was deterministic, it was better than probabilistic. And a lot of these are probabilistic. And I can't remember what the last filter I had was. But when you ran them through those filters, then all of a sudden you're like, you start to see. And there was, I had four categories. I had fragile, I had wild cards, where I wasn't sure what way it was gonna go. I had robust where I thought they'll do pretty well and then I had anti-fragile. - Can you give our listeners just a two minute overview of the history of your anti-fragile framework? And then how has that changed in the last maybe 10 years since you first sort of developed it? - Sure. So the idea came from Nassim Nicholas Talib, who is a trader and he's a best selling author of many books, including anti-fragile. And he describes how most of people, if they were dissecting the world into categories, they say things can either be fragile, which means they'll break under stress or robust, which means they don't break under stress. But he said there's this third category, we don't talk about it enough, especially because it determines a lot of our world. And he calls it the anti-fragile, where things actually get stronger under the right kind of stress. And that's important because if you go and you try and bench press a thousand pounds every day, that's not anti-fragile, that's stupid, first of all. And that makes you fragile. Anti-fragility is about acute stress and lots of rest. And so I took his ideas and tried to say, okay, how can I apply these ideas, which weren't really about stockpicking at all, but apply them to the business world. And so I looked for companies, the rest part of this is having a wide mode. Like that is, I've got my steady stream of business that I can count on, that's the wide mode. But the acute stress is, I'm also trying out other ways to fulfill my mission every day. And even if 90% of them fail, one of them might be really great. So I followed CrowdStrike when they went public. When they went public, they had nine tools for companies to use for cybersecurity. I think today they're closing in on 30. I know it's in the high 20s. Their Falcon platform now has just a ton of them. That's optionality, that is the offense. The moat is the defense, the optionality is the offense. And then you need, you wanna see a company that has enough cash to have some safety. And then you wanna see management and employees who like working there and I have skin in the game and there, this matters to them more than just bringing home a paycheck. So that is how it came up with the framework. Now, two big changes that have been made. One, from when I started it in about 2014 until 2022, I didn't look at valuation at all. And that worked really well from 2014 to 2022. And then it worked really poorly in 2022. So I have layered that on top of that. And then the final thing that I'll say is, and I gotta get Brian Furley credit for it 'cause he's the one who was in my ear saying this. I used to just focus on how wide I thought a company's moat was. And he convinced me that the width does matter but the direction of the moat matters even more. So I'm more likely to get excited about a narrow moat that's getting wider than a wide moat that's stable if you will. So those are the two big kind of changes that have been made. - Earlier you said something about the antifregility of the company versus the antifregility of the stock. Do you look at both? Or do you just have one framework? - No, so I give a score. So in my service that I run, stock investing mentor, if anyone wants to go to stockinvestingmenter.com. I take all the stocks I own and then all the stocks that I follow and I give the company an antifragil score. But then it's like I have an adjuster and you can go from adding three points to subtracting three points based on the valuation and that kind of gives you a final score. So it's an imperfect way but it's an attempt to kind of take the whole thing into consideration. - So when you said Shopify was not an antifragil stock in 2021, it was getting a negative three for the valuation or it should have been. - Yes, yes. - You just didn't have that part added yet. - Exactly, exactly. - Wanna see. - Okay. - I like it. Sorry, Josie, I probably jumped in there. - No, no, no, I think I'm still, I think Brian, I think I'm a scholar of yours until 2021. I don't have the two antifragil frameworks. I just have one still and I need to update my pitch rotation now. My, what pitches I throw? I don't know the correct sports analogy. I throw fastball, but I need to change up now too. - You're Arsenal. - You need it on my other pitch. - Yeah, I mean, I'm living in the 2012 to 2022 timeframe of running up the score basically and not worrying about valuation and we're just in a different time zone. And I need to get ready for that. And I think Bear has been dragging me and teaching me and I'm getting closer, even though maybe the, I'm not legendary status and selling out of CrowdStrike yet, but I need to get there. And that's kind of the direction of my mode. - What did Muse tell you or GPT? Like, you have a great, you pick great stocks, but you have a broken portfolio. - Yeah, and then I shorted meta and I kicked Muse off all my stuff. So yeah, that little fuzzy thing can go kick dirt. Yeah. It did, yeah, it did say great, a broken portfolio full of great stocks, which is a weird, yeah, not great. - Oh, I'll get there. - Brian, within it stocks. - I do and maybe that's the perfect segue. They teach you that at podcasting school to talk about some of those great stocks. Some of the names that you follow and again, for our listeners, Barron, I love Brian's videos. We watch them all the time. I think we almost watch every single one, but some of the after earnings report videos that you do are just stellar. And some of them. Some of the names that we follow and that we want to talk about. And maybe in like a three minute sort of fashion, we'll kind of spitball a few names to you through a fastball, because I don't have a change up. So let's, I mean, I think we have to start with axon. If you were to sum it up in, you know, a few statements and then we'll go back and forth and then bear you've got the next one. We'll do this for a little bit and then talk portfolio management and portfolio review at the end. So axon, I think is still a very antifragile company. Now what they're trying to build is they're taking on debt. Now it's 0% convertible debt, like it's not quite as bad as I think some people think. But the stock is under pressure and the stock is under pressure because axon only has a 4% free cash on margin. Like they're not pulling in a lot of cash. And a company is worth the discount of value of all their future cash flows. Like that is the textbook definition and when you really sit down and meditate on it, like it makes sense. The problem is that with all that cash, like axon's probably not going to be bringing in a ton of cash until 2030. And that's by design. It's okay. Like they're, I actually think that's probably the right decision. So I don't, I don't think it's like stupidity in the C suite. That's not what I think it is. It's just deep investments that they're making in building out basically a company that any first responder can use. It's not just police anymore. Here's the problem. We talked at the beginning about rising rates. How boring is that, right? Well, the thing is is that cash that's 10 years away, when your discount rate goes from 9 to 12%, the value of it doesn't go down 3% because it's compounding over 10 years. It goes down like 30%. So that cash is just, it's still, I think, highly probable that it's going to be there. I think it's still an antifragile business. It's just that the stock was very exposed to high rates because so little of the cash that goes into axon's valuation is cash that's going to arrive in the next five years. And so much of it is arriving in years six through 20. And it's just been slashed. But that's just part of investing. And if you're long term investor won't make that big of a difference, but it's not fun right now. I mean, perfectly well said. And I think axon going back to Ryan Faroldy, kind of a hub moment too, axon is growing the moat left and right. They're not defending the moat. I mean, they're defending the taser mode very well. But I mean, they're counter drone software, they're moving the air up on the prisons, the AI. Correct. I mean, we could do a whole podcast on it. Bear and I have. We're not going to do that here. But I think it fits perfectly within your defending and widening mode frame and agree with you. Long term, this is what you want to see a company doing. And these are exogenous factors that are outside the company's control. And for me, at least, you sit back and hopefully this kind of the tides go the other way soon. Bear. Next company. Can I ask follow up, actually, on axon, it's almost as close of an analogy as you could think of to Mercado Libre, isn't it? Like with low margin now, because they're investing and making the moat bigger. It's almost, you know, and I'm kind of a numbers guy. So for me, it's like revenue growth. I see axons as being a little steadier and a little more sustainable in its growth. And where Mercado Libre has grown, I think they're growing at like 50%. I see that coming back to where it was maybe before this bump. What are your, and then when it comes to margins, I also see axons having the potential to be much higher than, you know, they're both, you know, single mid single digits right now, but axon could go to 25% Mercado Libre. What would you put on that? Maybe 15%. Well, so that's, I mean, tell me how their credit portfolio does. And then I can tell you the answer to that question, because that's, so that is the one big difference between axon, like there's, to me, there's nothing that could go wrong overnight at axon other than every taser automatically firing at the same time and stunning a police officer. You know, like, that's not going to happen, right? Like it's just not going to happen or I guess Josh next time we have him on. Yeah. But if they lost, if they lost all of the data that they've ever had in evidence.com, like that's, it's not going to happen. That would be bad. Yeah. Now Mercado Libre's credit book, I will say it's only like most of their loans are only a year in duration. So it can turn over really quickly and they can make changes really quickly, but, but that is something that can go south quickly. So that, that is a difference. I don't think anything exists that could make things go south for axon the company, maybe not the stock, but the company. There are things that could happen to Mercado Libre that could make things go south quickly. Do I think they're going to happen? No. Do the numbers say that they're happening? Not really, but it exists. So, do you have a number for your like long term free cash flow target percentage for that? I've been, I've just been putting in 10% for Mercado Libre and it still looks pretty good. And it still looks very, very good because we're talking about a price of sales of like three versus axons is I've got to imagine double digits. Yeah. That's the difference. But yeah. Anyway, that was all my follow up. Thank you so much. The one I was going to throw out, well, first of all, I was just going to, you know, agree with you and compliment your micron work you've been doing. I think it's, I think it's excellent, especially the way you explain how the gross margin at 85 percent versus 70 percent means revenue actually gets cut in half. And I don't think people quite understand the math there other than if they watched your video. You've done some yeoman's work there. So I kind of want to not necessarily talk about micron though. So I'm actually going to throw, I'm going to give you dealer's choice here. But what about like Nvidia, have you looked at Nvidia or any other, you said you do own a couple of hardware plays, so Nvidia is one of them. I do want to do it. It doesn't have to be Nvidia. No, no. But the big thing is, and this gets to draws you what you were saying about anti fragility in today's market. Most of today's market, that's true. Most of the things driving everything higher, not all, not all, but most of it is finding yourself being a water salesman in the middle of a desert. And here's the thing. If you're a water salesman, you're the only one who just kind of ended up in this desert, selling water. And by water, I mean optics, I mean certain forms of energy, I mean memory chips, right? You can charge any price you want. And we've seen that, right, like micron can charge any price that they want. The problem is, is that what, it's not about once you get to an oasis in the middle of the desert on all of a sudden, no one, no one's willing to pay you anything, right? Like, no one's going to pay you $20, no one's going to pay you $200, no one's going to pay you $2,000 for bottle of water if there's no oasis that you're at. But it's not about when you get to the oasis, because as soon as you're walking through the desert, and you see the oasis. Not when you get there, it's not when you get there. It's when you see the oasis, all of a sudden, those people that are traveling across the desert with you, they're not going to pay $2,000 for bottle of water. It's going to drop to $200, and then it's going to drop to $20, and then it's going to drop to $2, and then it's going to drop to $20. And in video, I believe, is a company that has a special kind of water. Now, could in video fall when, if supply and demand even out, yeah, of course it could. So I control for that by position sizing. It's not 40% of my portfolio. But I also, I do want exposure to this build out. It's the biggest build out that we've had since the.com era, and I want some exposure to it. So I'm trying to pick the companies that have the widest mode. We'll give you another example there. Broadcom is another example. Now, why Broadcom? Well, part of it's because Broadcom is building out the solution to the Nvidia tax, right? They're helping companies build their own chips. They're a tensor processing unit, you know, whatever it is. But they also have a software side of their business. It's like half the business that has a very solid motor around it. But I think the valuation of both of those companies is quite compelling. Whereas, you know, again, if you guys look at micron, I mean, this is wild. I don't know if I should actually buy into this. But do you know how much it's expected to grow revenue three years from now? It's expected revenue growth like that percentage three years from now. not over the course of three years, but say from fiscal 2028 to fiscal 2029. - I don't know. - I'm pulling it up right now. - Like percentage. - Percentage, yeah. - 50%. - But I would just less than that. Well, I don't know. Go ahead, tell us Brian. - So let me see how many analysts are estimating this, because this is wild, you guys. - Are we taking this year's, I mean, is baseline what they expect for the year that where the fiscal end is August of 2027? - Yeah, yeah, yeah. Well, it's no bent, yes. So what I see is that there are 35 analysts who have made a prediction on the growth that will happen two years from now. And there are 35 analysts that think from fiscal 2027 to fiscal 2028, we're just looking at 16% growth. - Yeah, see, that's what I was gonna say because at some point we have to, I mean, this is actually what NVIDIA has evaded for so long, thus far, is that every time, you know, every time there's a new fiscal year analyst think, okay, well, this has gotta be the one where it levels out. And it's just NVIDIA keeps defying that. - Now, I will say there's only 15 analysts and so these might be your analysts who are not very good at these things, who knows? But fiscal 2028. - The J.B. Squad or the New York Jets of Analysts, yeah. - It might be, it might be. They are actually prediction revenue to shrink in 2029. Now, I'm not saying that's gonna happen. I'm not saying that's gonna happen. But what I am saying is that what that is, is them saying, we believe that they will see the oasis, that everyone buying these memory chips, they're gonna see the oasis and they're gonna be like, "Nah, nope, not paying that, not paying that." - Have you ever experienced something like that? Hold on one second. It hurts my head to think about triple digit growth to negative growth within two years and maybe the company beats it like, it hurts my head right now. Have you seen something like this? - For oldies talked about this once, there was a company that had a cure for hepatitis B and it grew like bonkers. But, you know, and this is where capitalism kind of does and doesn't work, well, it cured it. So, you took it once, that was it. And so, it was this huge boom and then nothing after that. I mean, outside of that, no, another Talib quote, "I've never seen a shortage not followed by a glut." I mean, look at eggs. Do you guys remember during the presidential election, eggs were everything and like-- - Oh my God, all those memes of like, he's rich and then it's a picture of like a dozen eggs, just like timber or longer. - I mean, during the pandemic, COVID tests or toilet paper, like never seen a glut not followed by, or sorry, we've never seen a shortage not followed by a glut. Um, the question is, will that glut come and if so, when will it come? That is the only question that you should think about if you're investing in the AI trade, literally. Any, now, I've only got like 10% of my portfolio in companies that I think are exposed to that. But if you have a bunch, if you're spending any of your time thinking about anything other than when am I gonna see an oasis, then I don't know what you're doing. (laughs) - Especially with micron and the other memory plays, 'cause I think that is a special case, whereas Nvidia, maybe at some point, doesn't, is it just not growing? It's 70% anymore. - Yeah, with micron. - But micron at some point. To your point, if they end up having revenue get cut in half, they still have a 70% margin. In other words, if they lower their prices from, let's say, $100 to $50 or $2 to $4 or $2, you know, whatever the, I don't know what the unit here is, but if they lower the price by 50%, that's still a 70%. - That's still the best margin they've ever had until recently. - Yep. - So like, I don't think people quite understand that. - No, I think that's why it looks so cheap right now. - Definitely. - Yeah, and I'm still just gawking at those numbers and how hard, I mean, and it does distill down to when do they see that oasis? When is this? - In the last 20, 29, I guess. - Yeah, and if it's 2030 or 2031, I mean, you're beating analyst expectations. You're ahead of the curve. Your micron ownership probably goes up. - Well, and you know, the tricky part about all of this is that the companies, the microns, the SK Heinix, the Sandist, the Western Digital, they're almost creating their own trap and it's not a bad thing. It's something for investors to worry about. I think the businesses don't have to worry about this as much or the employees. They're building new plants, because this is the good part of capitalism, because we need them. Like if we want these AI tools to be around, and we can have a discussion about that, we need them to build new plants. Well, what's the thing that's gonna bring the prices down? New plants coming online, because that raises supply. Now, is it possible that demand doubles again? It's possible, but it's also possible that our models get way more efficient and so the demand for the chips isn't quite what it is. Even if demand for tokens goes through the roof, it's possible that we become so much more efficient that demand for the chips doesn't. That, and I'm not an expert in these things. I'm just trying to keep my eye on what it looks like from 30,000 feet. - Well, and you have history on your side here. I mean, this run up, this is what cyclicality is, is what you're explaining. And Micron, you know, Josie, I think you asked earlier, if we've ever seen this before. I mean, Micron seemed their entire life, you know, this happened in I think 2018. I remember people on Sal's board were big into Micron and then it was absolutely the wrong time to get in, you know, and then it kept, but it was up maybe 100% from the lows and then it fell, you know, 50% or something. It was a very small version of this. You know, now we're up, you know, 1500% or something from two years ago. And I think that if, unless the cyclicality is somehow beaten, I think we're in for the mother of all corrections when it comes to the memory stocks. - The big thing is, look at those long-term agreements they're signing because that is the only thing that can act like a hope for them. It's the only thing that can. - But they have done that before or they've tried to. - Yeah, and it didn't work. - And it passed cycles, right? - No, they did. And companies broke their agreements and that was that. They were like, well, we signed an agreement. Well, it didn't matter. - But I think we've given, you have at least, and I'll jump on board. I want to give a full throw to, I don't know how this goes. You know, like something can come out of left field. We're not saying that this will play out the way it's always played out in the past. That's just the bet that I'm making. It was just why I don't own Micron. - Well, again, so the thing is, in my framework, why don't I own Micron? Something that's fragile, doesn't mean that it's going to break. I mean, have you guys been to a DC area? Have you ever been to see the Declaration of Independence or the Constitution, like the actual document? - I have, and Nicholas Cage was nearby to steal it. Yeah, true, it is pretty fragile. - Still intact, right? Things that are fragile can be intact forever. The point is, as you ask yourself, do you want to hold something as a huge part of your portfolio that's fragile? Because look, Micron might keep going for 10 years. You don't have to swing at that pitch for me. It's still fragile. So, I don't want to own it when, you know, when that wind might blow, that tears it in half, you know, or when that earthquake might happen. And all of a sudden, the Declaration of Independence is no more. And the example that telebuses is the sort of damacles. Like, there's a king sitting in a seat, and there's a sword dangling from a thin wire above. Does that mean that the sword's going to fall? No, but it means on any given day, if there's, you know, an explosion or a landslide or an earthquake or someone sneezes wrong, you know, that sword falls in on all of a sudden, you're done. - And Brian, I've been quoting a bunch of some investing buds too, from Tully, when he did the Thanksgiving example of, if you expected 364 days of Turkey is totally fine, but that one day that he doesn't realize it's Thanksgiving, he's done. And just how that plays into some of the ownership on Micron and some of this falling off a cliff, the exact same sword hanging over the head theory. Yeah, I don't know, Bear. And at this point in the cycle, I don't know if I want to risk being wrong as, I mean, maybe it is some more upside, maybe it doubles from here, which, you know, some analysts have $3,000 price target, which we're talking about. would put it at almost triple from here and feasible, but also pretty equally feasible that it doesn't do that and that we're holding the bag at 1,800 at 1,200 at now. Yeah, I would say I don't know a lot stronger than this is absolutely the top. I just think it would probably, well, it's not going to run another thousand percent. How about that? Is that fair? It's not going to become a $10 trillion cup, shooting the bull pipe, that's plain prediction. 2025. Well, I mean, Elon just gave a 1.5 quadrillion target for SpaceX, so he said it could thousand X from here. But you know, drowsy to your point, though, that's where position sizing comes in. So you make my crown like a two 1% position and then so if it craters, falls by half, you've lost 1% of your portfolio. If it triples, you know, that's not bad adding another 3% to your portfolio from that, that's where position sizing comes in. I mean, yeah, perfectly well said, with I want to toss out one more company and then why don't we do portfolio reviews? So the one company that I've been most intrigued by and I haven't bought yet, but it just is that nagging part, I guess, as investors, we all have like that white whale, that one company. And for me right now, it's service now. I think between when it fell about 50% fell under $100, the company is just so vital in some of the industries and so exposed and both good and bad ways towards the AI, trade towards the AI, eco sphere towards, I don't know, the modern data economy that we have growing. And it's always been like right on the verge of I'm going to buy it here. I don't know about it anymore and I start to get cold feet. So I'm curious your thoughts on service now, ticker, NOW at this point. Service now and I have a long and storied history. I before the SASPocalypse, I owned it. And then when the SASPocalypse came, I was like, I don't know how this technology will navigate the ability to code, to create your own tools. I mean, Brian, for all the, in our company with our friend Justin and Brian Whithers, we built a new tool called Stock Simplifier that is fantastic. You should check it out, stocksimplifier.com. And it's basically the tool that I wish was there when I started investing. And when we built that, I was like, whoa, you really can do some crazy stuff with AI. And I also am not a fan of how Bill McDermott the company's CEO obfuscates. On the last couple of conference calls, he's talked about their growth rate and failed to mention that most of the growth has come from acquisitions, which drives me bonkers. And yet, the more and more I think about how, where this company sits, the more and more I realize that if a company has, I don't know, a million agents out doing work for it, they do need somewhere to control what's happening. And that is what service now is building. And I think, I mean, even if I don't like the person who's running the company, I think it's positioned to benefit from that. I reserve the right to change my mind, but that's where I'm landing right now. I mean, I missed the last part of what you were saying because I was putting in my buy order. So sorry about that. I think that's so well said. I think you need to harness the power of a bunch of agents and what better service and company to do it than service now. It's really well positioned. I just, I mean, between the fears of Sass is over and these companies are dead and Clawed can just code service now tomorrow. So why, why do you need to pay up for it? But it's just that nagging one. I bet I'm going to own a small position at some point because I'm intrigued that it does play a key role in the AI agent economy that we're launching right now. And I can see it playing out. I also think the valuation now is less attractive than it was 50% ago. But that's one I'm keen in on. So bear with our remaining time. Do you want to do quick portfolio updates? And Brian, feel free if you want to share a bit about your portfolio, what you've done over the last month, we definitely would welcome and learn from it as well. As listeners know, my goal is to triple bear and I did not this month. So I'm just going to cut to the chase. Bear, you can still go first if you want. But I don't want, you know, that small cadre of drowsy fans that have jerseys and, you know, hats and I sign autographs like are like, he, he did it this month. I absolutely did not. So with that, bear, do you want to go first? Happy to. Yeah. I'll just go back to the end of September because Google sheets, his Google finance formulas are messing up right now, but I was up 27% your to date and the top positions were figure tech, ethos life, silicon motion, toast, so far I read it. And hopefully much to drowsy's delight axon was up there at like 6%. I can keep going or you have any comments so far. Other than this is classic bear. This is position sizing and constantly doing risk reward and these companies were all smallish positions of yours, you know, in a couple months ago and, and you've recognized that there's opportunity here and you've made some pretty good tactical moves and up doubling the market. I mean, once I triple you, then we'll know the actual answer. But you made a good move here and I, I think it's really cool. I think figure in particular as a company that is financially in your wheelhouse, the numbers are very good and they're well within your kind of finance oriented investing style. And yet the industry it's in of making what is a home mortgage crypto back stuff is so kind of new age and sort of beyond our traditional kind of wheelhouse of a company. I think it's really interesting and I, and I, I think it's cool that it's number one right now. Yeah, this is what I had trouble with it first because it is sort of complicated what they do and what's funny is they do, it is blockchain based, you were correct. I think you said crypto, which is funny because I think a lot of people associate it with cryptocurrency, like Bitcoin and such and when Bitcoin goes up, sometimes old figure will catch a bid, which is makes no sense and then also gets hit hard when Bitcoin's going down. So it's kind of, kind of bizarre, but you know, it kind of shows you that the market doesn't always know everything, but it's kind of hit despite Bitcoin doing really well in the last month. In fact, let me just look back. Yeah, in September, figure was down 21%. So that's kind of when I decided to add some and make it my top position. I might have also been trimming the other, you know, top positions, a big position for me now is about 10%. So that's not the, not the heavy days of 2021. Old bear. Yeah. I had three 25% positions or whatever. Those days are long gone. Anyway, anything else in the question? Any of those names, I would say, what do you think is kind of catching your attention most? What are you most excited for in those top 5s right now? And we're heading into earning seasons, kind of starts later this month. I can't wait to see what ethos can do. ethos is a company that came public this year and, you know, it's extremely hard to get excited about life insurance, but we started with bonds. Maybe that's the title of the episode, right? Started with bonds ending with life insurance. Come check us out. But they are just this platform, which I don't know about you, but I'm starting to see their ads everywhere. I think they have Aaron Andrews and one of them. And, you know, so they're advertising on like, you know, the only TV I watch, which is sports and then CNBC and you're just kind of starting to see them. But their growth is insane, you know, 114% year-over-year revenue growth last quarter. They're profitable. They have a roughly 18% net margin. So they're cranking out, they did 53 cents a share last quarter. They're a 2.2 billion dollar company. The, you know, multiple unexpected earnings is 19. So there's a lot going for them, but it is very much in this, you know, I'm not super and I'm certainly not an expert on this industry. So kind of just excited to see what they can keep doing, they do give guidance and books by all accounts that they're going to have another really good quarter. So we will see what happens. Yeah. That's great. The evolution of our investing in seemingly boring companies or rather companies that are upsetting, boring industries started with upstart. continue through Root, continues today with life insurance and mortgages and I mean Yeah, and there's real emotional and investing. Yeah, my top three positions might not Score too well and the anti-fragile framework. I'm not sure. I'm literally using stock simplify right now to look up all these businesses I'm I'm really curious what you would what you would think if you just pick one I don't know. I guess I ifused a bit about about ethos so maybe that's the one but figure tech I'd be just as curious what what you would say about them. These are not ones. I'm familiar with so you wouldn't want to I would need some time to dive in Well, we'll see about that motion if you look at that one at all. I have not Yeah, I'm not I'm not surprised. These are These are kind of the smaller Well, certainly silicon motion is sub 10 billion dollars. So it's not It's not in video or micron by any means and But I wouldn't use company, right? Isn't it Taiwanese or foreign? I mean, is it I don't think they're actually should know this But I don't know where their headquarters is Hong Kong oh Hong Kong That's yeah Yeah, I think maybe on our next episode when we a Brian back it could be Brian lays down the hammer at bear's top three I didn't welcome that I would love to hear that. I think one of my questions that we didn't get to was gonna be like You know about the antifers of framework It certainly seems like companies like Amazon would would be the best scorers of all time and then the smaller the company the harder it would be to But then you know crossed Axon scored very well back in 2017 and it was just a two two billion dollar company Because I knew how hard it was to get a police force to to to cycle off of something like that That's one where you know, it's it seems like those were the the glory days for this But it seems like you could do your due diligence and figure out what they were doing and maybe even talk to a few police officers and realize These guys have a stranglehold on this business. Yeah, they're going into evidence.com. I mean my goodness like there's There's really nothing stop on them and you know history has kind of really not out. Yeah Bear I thought you were gonna go with Getting some doing some due diligence gain some first-hand account maybe like getting rowdy after a tailgate or something That's where I thought you were going. Some glad you didn't go that way Well, you can't learn about evidence.com that way. I don't think That idea. I'll try. I'm gonna jump in with my portfolio just real quick And then Brian over to you if you would like to join Again, didn't triple you. I'm up about 16% this year. So beating the market by a few percent I'm quite pleased by that after being down a lot this year I didn't make really any moves really crowd-strike is carrying me right now as it continues to break new highs as we It's currently up 4% as we tape on Friday afternoon In video still massively oversized position the one move that I did make and I finally sold out of Nebius ticker NVIS I I mean every day for a tidy profit. I mean, I think we think I doubled or tripled even it was a small 1% position Brian to your Position sizing guidance. I mean played it perfectly. I just something about the stock I mean it's something there's a cult like following surrounding Nebius and every day There's some sort of announcement to sort of broadcast. It has this primo role in the AI EcoSphere Meanwhile, it's so tethered to Nvidia and others. I already have a 40% AI trade going with my Nvidia position Which is the king of AI? I just I just wasn't as excited about it and thought I was just over indexing towards it in a way that didn't make me feel comfortable So I sold out of my 3% position I ended up putting much of that towards a new position and my new position is in forgent power solutions Figure FPS. This is something that Baron. I have talked about. It's been on my radar for a long time Actually, Dr. John Ratante mentioned the company a while back as well. I've been trying to get it more into the energy space. I think At first I thought it was going to be bloom energy, but that thing is just too explosive and volatile and growing like weeds So I wanted to go more in the kind of supplier route. I thought about vertif vertif has had an amazing run to grow VRT I owned that for a little bit. We talked about G for Nova, which is another good kind of energy player in the hard creation of these data centers Forgent power solutions a smaller play growing like gangbusters a new stock that came out this year I think all of those work in its favor right now Drawdown of 50% it was in the 30s until recently where I added kind of in the upper 30s We're talking to 1% position so nothing to write home about, but that's one stock that I'm pretty excited about at the moment I don't foresee this growing into a massive position But one that I want to see where it goes especially as it's such a young company also the leadership comes from vertif Obviously a market leader in their industry and knows what he's doing So that is my new position. I'm other than that. I didn't make any moves and still just kind of sitting tight with My portfolio my portfolio full of good stocks. No, my broken portfolio full of good stocks. So So we'll see see what earning season holds for all these companies, especially axon Brian over to you sure So I'm not going to share the most up-to-date stuff because that's just something that we reserve for members of stock investing mentor But what I will do is I'll tell you about three companies this year that I've trimmed that might surprise you three companies that I added to them It's price you. Let's go with the added to first These were all earlier this summer and I added to Shopify, Palantir and Meta Shopify and Palantir I believed that the growth estimates for the companies were understated that the The anti-fragility of these companies to harness agentech AI was being under appreciated and so far I think that that has played out with Meta the main thing was Everybody was meta was I believe an anti-fragile company and an anti-fragile stock because in order for their valuation to make sense basically everything had to go wrong for Meta for the valuation for where it was a few months ago So I wasn't betting on mues happening. I wasn't betting on them saying we will Become a hyperscaler because there was some talk of that in the middle of the summer I was just betting on they would literally have to make all the wrong moves in order for this valuation to make sense because For the first time ever when they started using AI in the feeds and it works on me I don't know about you guys, but I've spent much time I wasn't spending that much time on Facebook and I spend more on it now The price per ad and the ad impressions are both going up Usually that never happens one goes up the others goes down, but now both are going up So added to those three now the three that I cut might be surprising I did cut my exposure to acts on more recently because of rising rates and what we already talked about But I also cut to marijuana Libre and see limited now what you have to understand is those were enormous positions for me And I brought them back down to reasonable why credit books Good look the bottom line is is they'll probably be fine They'll probably be fine Okay, the same way that again, I love using analogies the same way that you know if I bring a firework onto an airplane It's probably going to be fine, but I am introducing something there that could really make things go sideways If it gets into the wrong hands and so You you that title for episode it might be so you throw you throw credit book in there and um They're probably won't be mistakes But it's enough of a potential that I don't want it being 15% of my portfolio anymore So those those are three three three buys three trims. I didn't sell any of those. I just trimmed them You did you did surprise me with those trims. I mean, I totally get it had that I sold out of Mercado Libre and trimmed You know, uh, see limited wayway. I mean, it was never that big for me. I don't think but I've got the only reason I've added to acts on unlike the other two is is because it's Been sold off the hardest in recent months. Although it's still not cheap So I don't I'm not exactly sure what I'm doing there, but yeah, no, that's that's interesting for sure I don't I agree with that friendship I mean our friendship has to have in Brian's stock simplifier. That's got to earth antifragile framework That's like three points right there. That's because most is only you you certainly had some influence on me with accent and I mean Maybe it was about the friends we made along the way. Maybe it was always about that Um, I think that's a I think that's a good place to Wrap up the episode and in true shoe in the bowl Fashion bear Over to you for wrap up Well, I just want to say Brian. Thanks so much for joining us again Always enjoy talking to you. I think you may be the investor that I agree with the most on on on a lot of things that you say I know we have somewhat different styles probably, but there's a lot of similarity there too and and I just I think Um, I'm sure you've influenced me in many ways and I just just think you're I really enjoy your videos and everything you do and I hope people will check them out All right. Well, you guys, it was a pleasure being here. Thank you so much for having me. All right. Well, that's it for us. We'll catch you next time. Thanks for listening.