On this week's Stansberry Investor Hour, Dan and Corey are joined by equity analyst John Zolidis. He's the president and founder of Quo Vadis Capital, which provides research for both professional money managers and individual investors, specifically in the retail and restaurant sectors.
Dan and Corey kick off the podcast by discussing what they're bullish on – what they like, what they want to buy, and what they're buying. Corey explains that he's bullish on U.S. stocks, citing their recovery since last year's market bottom and the country's continued financial leadership in the global market. He believes that despite challenges, the U.S. remains the best investment option. He says, "We're still the best house in a bad neighborhood."
Meanwhile, Dan shares his optimism for the housing sector. He highlights the historically low inventory levels we're seeing right now, which he believes will continue to outweigh other market factors...
The all-time-low inventory could, has, and will keep overwhelming any other fundamentals... The homebuilders are a good bet.
Then, John joins the conversation to share his perspective on the possibility of beating the market and overcoming cognitive biases in investing. He brings up "the wise-man problem," referring to the cognitive bias that arises from an individual's belief that they have seen and understood all market situations based on past experiences.
John cautions against relying solely on historical patterns to predict future market trends. To overcome the biases created by our pattern-seeking brains, he advises investors to adopt a more objective approach... and to focus on the fundamentals of a business rather than being swayed by short-term stock-price movements.
Next, John challenges the notion that it's impossible to outperform the market. He explains that it can be done if you understand the companies you're investing in, focus on long-term prospects, and look for businesses that are relatively easy to comprehend. John uses his investment in Google's parent company, tech giant Alphabet, as an example of this approach...
Google is actually so entrenched in our daily lives that if Google were to stop operating... the whole place would have rigor mortis.
Finally, John shifts the conversation from beating the market in the short term to owning exceptional companies for an extended period. He emphasizes the importance of aligning investments with financial goals and avoiding short-term performance targets influenced by media hype. By adopting a patient and objective approach, investors can avoid pitfalls and achieve long-term objectives. John believes that a longer-term perspective is the key to gaining an edge as an individual investor. As he shares...
A longer-term perspective for an individual investor is the low-hanging fruit. That's the way to get an edge.
President and founder of Quo Vadis Capital
Equity analyst John Zolidis is the president and founder of Quo Vadis Capital, which provides research for both professional money managers and individual investors, specifically in the retail and restaurant sectors.
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.
Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we'll talk with John Zolidis of Quo Vadis Capital.
Dan Ferris: And today Corey and I will talk about stuff we don't normally talk about, and we're not allowed to talk about the stuff we always talk about today.
Corey McLaughlin: And if you want to get in touch with us, remember, send your notes to [email protected]. Tell us what's on your mind.
Dan Ferris: That and more right now on the Stansberry Investor Hour. All right. So, these are the rules. No talking about this stuff. We always talk about: Fed, inflation, interest rates. If you got to work it in there, put it in there and get off of it quick, OK? All right?
Corey McLaughlin: I accept. Did somebody put you up to this or what's going on?
Dan Ferris: No, I'll tell you why though. I had, I submitted a Digest for publication, and they were saying, we're publishing something else that says the exact opposite, and maybe this time we'll publish his thing instead of yours. And I was like, it's perfectly reasonable. We make these decisions like all the time because it just, it looks stupid. You look stupid for publishing the exact opposite thing five minutes apart. It's just human nature.
So, I thought, "You know, they've got a point here." I'm always talking about the same stuff and I'm getting tired of myself. I got tired of myself in that moment, and it's one of the things I'm grateful for when you write for a living, as you well know, because you write 10 times more than I do. You need editing and you need feedback before you're published. And it's just one of the ways that this gig has just been great for me.
So, I thought it got me thinking yeah, OK. They're right. And the question then for us today, we know what we're not supposed to talk about. What I think we should talk about is what you and I might be bullish on at this time. What do we like? What do we want to buy? What are we buying?
Corey McLaughlin: All right. I like it. Flip it on its head a bit here. Yeah. I, like I've said, I don't know if this will surprise people or not, or you even, but I've said I've been bearish on like the Fed and the ability for them to get inflation down. Sorry. I just mentioned it right off the top, but that doesn't mean you can't be invested in stocks, nor should you not be invested in stocks. So, I'm actually, personally, I'm bullish on U.S. stocks in general right now just based on what I saw happen at the end of last year where I thought sentiment was kind of bottoming out. And then what we've seen since then just in price action alone, I'm talking about.
Dan Ferris: Yeah, brilliant call by the way.
Corey McLaughlin: And going forward until the current story changes more dramatically, I would remain that way. Also, stocks I would expect to go higher until the story changes here and central banks have a reason to change policy, which means the economy's in the crapper at that point. I think we get there eventually. In the meantime, though I won't argue against what prices are doing right now. And that's more of a short term, medium term outlook, but I am bullish on that for the short and medium term.
Also, the yields just keep going up and on like T-bills, short-term T-bills for cash, it's just, to me, from going from nothing to 5% in a year and a half. It's pretty nice if you actually are paying attention. Those two things to me, and those are two big obvious ones, but that's what I'm looking at.
Dan Ferris: I'm actually bullish on a number of things. Housing is one of them. I picked three housing stocks in The Ferris Report recently, and I thought I was kind of bearish and concerned earlier in the year, but then, I always had this sort of nagging thing, and I mentioned it on the show. I don't know if I mentioned it in the newsletter, oddly enough, but I did mention it on the show that the structural shortage and housing, the all-time low inventory could and I believe has and will keep overwhelming any other fundamentals like higher mortgage rates, 7% mortgages or anything else. And I think that it's just, the homebuilders are a good bet.
People aren't selling because they have 3% mortgages and who wants to sell and then take on a 7% mortgage? Nobody. And so, that crimps the supply a bit and the people who are stepping into the breach and fulfilling the demand are the homebuilders. And I think this idea of overhang in the institutional buyers, like invitation homes or something, I think that's overdone. I think their access to capital is 10 times greater than the average individual FHA 30-year mortgage kind of person.
I think they'll be able to roll over and sure, they'll lose 100 BIPs or something because they're rolling over, but they'll actually do pretty well, I think. So, they'll be fine. They'll raise rents or whatever they're doing. They'll be fine. And not only that, but even if invitation just liquidated and dumped it all in the market, I did the quick math and it's like less-than-two-tenths-of-a-percent injection into the national housing stock by value.
Corey McLaughlin: Interesting.
Dan Ferris: Yeah. It's 80,000 homes.
Corey McLaughlin: I've heard stories too about people, obviously mortgage rates are going higher, but the ability to kind of negotiate or get mortgages that are below kind of the listed mortgage rates through some of these homebuilders and different things like that. So, there's some ways that it'll keep the demand going too.
Dan Ferris: Yeah. And if let's say, mortgages go 7, 8, 9% or something and prices come down 15%, prices will come down and it'll adjust and then, that adjustment means that it just proceeds forward as before. It's not like there's a wall there. I don't think there's a wall there. If there is a wall, I think it's higher than 7%, obviously, very obviously. But I think it's probably higher than 8. It's probably up north of 10. I think people need someplace to live. They're forming lots of households. So, I'm bullish on some homebuilders.
Corey McLaughlin: One thing I was thinking about recently, I read a headline about the IMF, the International Monetary Fund which has a hundred different, plus different countries contribute money to it with the U.S. being the leader bailing out the country of Pakistan the other day for a $3 billion loan, giving them a $3 billion loan. And this sent me down a little rabbit hole of the IMF. And I was like, OK, Pakistan, they've been in trouble financially for, this is like six months now, and they were approaching a deadline where they were going to basically like default.
And so, the IMF comes in and gives them this money, this loan. So, that got me thinking, OK how does the IMF actually work and who's involved in it? And I'll get to why this is a bullish thing in a second. But then I saw the United States contributes 17% to the IMF's quotas every year, which is the, I think it adds up to $1 trillion, right? That's in this fund. So, I'm like, for all the negative, bad, terrible news we have around the good old U.S. of A, we are still by far the financial leader of the world.
And this, it got me thinking just with the recent little revolt in Russia, I'll call it "little revolt." Not if you were there, it wasn't little, but what's going on with Russia, China, you have China coming back to the table to talk to us, to talk to the U.S. because their economy slowing down. It's this whole geopolitical game. The U.S. is still in a really strong position overall. I sound like Warren Buffett. I am always bullish on the future of the United States of America. That doesn't mean we don't have problems, but compared to other countries we're still the best house in a bad neighborhood.
Dan Ferris: Yeah, and when you consider actually, best house in a bad neighborhood is like in terms, if you're a sort of a libertarian-minded person, you could say that about the government, but in the world in general, like more people have it better than ever. More people have a higher standard of living than ever before. If you're talking about governments, the U.S. is like the best one in the bad neighborhood.
And there are others that are arguably slightly better or much better. I don't know. As far as our standard of living goes, it's like one of the best neighborhoods in the world and the world is a pretty good neighborhood overall these days, I think. I'm bullish on humanity. The ascent of man.
Corey McLaughlin: Yeah. That's what came to mind when you first posed this question. I was like, well, I'm bullish generally speaking on the future of humans. If you're not then it's not too fun.
Dan Ferris: I know. I've got some other ones. We've talked about being bullish on oil and gas because of the strong disincentives to produce. Maybe we'll skip that one. We actually had Vitaliy Katzenelson on here recently talking about pipeline MLPs with some of the same arguments as the stuff that flows through them. And I thought that was a pretty good one. Gold, copper. And you don't have to, to buy gold you don't have to, you can look, you can reference the long term of value preservation for 5,000 years.
We don't have to mention that central bank in Washington that we swore we wouldn't mention in this episode. We can just say it's a great, it's been a good long-term wealth-preservation vehicle, and now today the discrepancy between the gold miners and gold prices is pretty wide. And the gold miners are producing the larger mid and larger cap. Gold miners are in better financial shape and have, I don't want to accuse them of having discipline because I know they'll disappoint us all at some point. They always do, or they always have, maybe we should be more optimistic about that too. But the gold miners to me are very attractive nowadays.
Corey McLaughlin: All right. Yeah. I'm bullish generally on high-quality companies that aren't going to get caught up in this higher-rate era. I would stay away from or just know that the companies that are already have huge amounts of debt are going to have to refinance at higher levels eventually.
Dan Ferris: Right. So, Corey, might you call them cash generating self-funding type companies that don't need the capital markets?
Corey McLaughlin: Right.
Dan Ferris: Therefore, the expense of the capital, the cost of capital out in the market, it's somewhat irrelevant.
Corey McLaughlin: Yes. Products or services that are going to be in demand no matter what happens and if it's connected to a theme like oil and gas, where you have other macro factors behind it too, like oil's not going anywhere for decades, except into cars and everywhere else like just gasoline and it's going to keep being used. I think this is why you got Warren Buffett buying up as many shares as he can of Occidental Petroleum.
They're doing innovative stuff too. I think they're at least putting up the idea that they're participating in the kind of the green push too, but they're still not giving up their core business. That's one and yeah, just the company, good companies for the long term. Again, it goes back to the timeline, obviously those companies aren't going to, it's a matter of who does the least worst in a bad recession or a recession scenario, but I think you really can't go wrong with those over the long term.
Dan Ferris: We've already recorded today's interview with our guest John Zolidis. There's no harm in mentioning that and I want our listeners to focus in on how he talks about Google. Alphabet is the parent company, the publicly traded parent company, but Google and all the ways we use it and what would happen if it suddenly wasn't there, and you couldn't use Google Maps and YouTube and Gmail.
I use all these things and just search. They own search worldwide. So, it would make a huge, big difference, having Microsoft, Word, and Excel suddenly gone from my life. Not to mention the Windows operating system suddenly gone from our lives, just not there. It would make a vast difference in your daily life. There's some negatives to that.
Corey McLaughlin: Again, that's a company that services that you can't live without, or people have grown to not, that you can't live without anymore.
Dan Ferris: I looked at the history of the PE ratio of Google. I was like, wow, that thing got down to 16 times earnings and I didn't pour every cent I own into it? I'm an idiot. And now it's about 24, which compared to the other big ones, Apple and Microsoft, they're in the thirties. And of course, Amazon and NVIDIA are well over a 100. NVIDIA is almost 200 times.
Seems like a pretty decent deal still, even though it's up, what, 50% or whatever, they're all at 50% it feels like at this point year to date, and they're just amazing cash gushers. I do have some worries about them, but long term I know I'm going to be using them for as long as they're available.
Corey McLaughlin: Yeah, the thing I always think about with Google/Alphabet is YouTube because for an entire generation, YouTube is the primary source of information video, whatever it may be. I forgot what exactly the size of it is, but YouTube on its own would be one of the largest companies in America, I think in the top 10. And Google's got its search business and ad business and YouTube. And started off as what Google has, Alphabet has, is this other bets category in their business. YouTube started off and some other things have started off in the other bets category because they have so much cash on hand at all times. They're able to make these other bets that then turn into some of the great innovations that they've come up with.
Dan Ferris: It's like a self-funding VC, it's just gushing cash and putting it into all these bets and then one of them mushrooms into something.
Corey McLaughlin: Yeah, not all of them have to work, but if a couple of them do.
Dan Ferris: No, a couple of them. You can have 100 of them and two of them could go right and you're golden. It's a dramatic oversimplification of the VC model, but it's sort of like that.
Corey McLaughlin: Thinking long term is also hard to do, but it's what you need to do, I think.
Dan Ferris: It is what you need to do. Our guest today, John Zolidis, is very good at it. And we will talk about that very topic. Because his approach, it's just like no short term. There's no short term in this guy. And I've known him for I think about 10 years. I see him most years in Colorado at the VALUEx Vail that we've mentioned recently. I can't wait for listeners to get introduced to this guy. He's a really smart investor, and we'll talk specific stocks and all kinds of things. So, let's do that right now. Let's talk with John Zolidis. Let's do it right now.
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All right, it's time for our interview. This week's guest is John Zolidis. John Zolidis started his career in finance in 1996, following degree studies in philosophy at Kenyon College and the University of Oxford. He has followed retail and restaurants as a senior analyst since 1999 mostly on the sell side. He also managed money in a buy side role at a long-short equity fund in 2013 to 2014. He was named in the Wall Street Journal's best on the street list. And John founded Quo Vadis in 2017 and has been creating research for professional money managers and individual investors, specializing in the retail and restaurant sectors. John, welcome to the show. Thanks for being here, man.
John Zolidis: Dan. Thanks so much for having me.
Dan Ferris: Just for our audience sake, I met John, I don't know how many years ago, sometime in the last 10 years at the annual VALUEx Vail conference in Colorado that we talked about last episode and I have to credit John with one of the better picks I made in my newsletter because, well he, we were thinking about it, but like he tipped the scales and then we came back home and did our own work and said, yeah, and it was Starbucks and it out of the gate it just doubled pretty quickly in a year or so, some short time frame, it did super well. So, thank you for that, John.
John Zolidis: You're welcome. It was a little bit, to be honest, there was some luck involved, which I guess is always the case, but just before the conference that year, which was maybe four or five years ago, there was a kind of cascading series of bad announcements that happened like literally the week before the conference. So, then when I had already decided to present the stock prior to that time at a higher price, but having those things happen literally like the days leading up to it set the stock at a pretty attractive interval. And so, that helped the performance of the pick that's for sure.
Dan Ferris: Yeah. I'll take luck. I'll take it all day long. Let's see, this year I found your presentation really interesting. It wasn't a stock pick. It was a psychology, philosophy sort of a presentation. I wonder if you could just give our listeners a little taste.
John Zolidis: Sure. I like to give presentations on process. I do like to present individual stocks because that's something that I've done a lot in my career. And as a sell-side analyst, I typically had to present two to four times per week every week to my salesforce. Now those presentations were typically quite short and very punchline driven, like here's the one-liner, why we're going to buy this stock or sell this stock today with a lot of sales in mind. But for the conferences, these are typically 10- to 15-minute presentations, which go into a deeper dive about our thesis and why we want to own or sell a stock. But also, still with the generalist audience in mind.
So that is, I'm not speaking to, or I don't believe I'm speaking to people who are sector experts in either retail or restaurants, which are my areas of focus. But more recently I've been kind of more interested in abstracting a little bit and getting into how do we analyze companies from a process standpoint, or how do we make good decisions from an investing standpoint? On a process standpoint, more technical, less interesting kind of to talk about today, but we can go into it if you want to, which is our process based on unit level economics. And so, we try to find businesses that we can break into individual pieces and analyze them from a capital-efficiency standpoint.
But leaving that aside, the talk that I gave at Vail this year was about, I titled it "Destructive Mental Model." And my intention was, hey, most of us in the audience are professional investors. We have processes that we use to analyze companies, but a lot of this coming from my own experience, even when you analyze a company correctly, you can make really bad decisions to buy or sell at the wrong time. And so, why is that? Why are we making those bad decisions?
And so, I wanted to try to draw out some of the sources behind the bad decisions and frame them in a way that people could recognize them in their own processes, recognize the influences that caused them, and then try to pivot away from those same bad decisions. So, that's very abstract. So, if I wanted to be a little bit more specific and then Dan, I'll let you jump in, I guess. So, one of them, I started with this quiz. I said, "OK, how many days does it take the moon to go around the Earth?" Maybe one person in the audience knew it was 27 days.
And then we went through a bunch of other questions about how many days various planets take to revolve around the sun, ending with how many times, how long does it take the Earth to go around, 365 days. OK. So, the quiz was, what do all these numbers have in common? And people thinking it's about physics, blah, blah, blah. And my response is none of them have anything to do with the ideal period to analyze an investment or an investment return. And the point of this was to emphasize something that everyone already knows that 365 days is just completely arbitrary.
It's a number that doesn't correspond to the economic cycle. It doesn't correspond to a business cycle. It doesn't correspond to a specific capital cycle of a business. So, if we think about our investments on a year-to-date basis or one-year basis or our one-year time horizon, we're really doing ourselves a disservice because it's not an appropriate time period really for anything. It's just a kind of a made-up number. And I think it's a source of investment error. So, you think about things in this period, and it leads you to decisions that are not optimized to generate returns.
Dan Ferris: I found this. So, this is really just I have to say a wonderfully original take on a theme that often comes up, especially among value-oriented types, which is just, you got to think long term, right? But what you're doing is you're establishing the absolute deeply ingrained nature, how deeply ingrained it is for us to think short term. Like thinking beyond a year is just, I think for most people and for a lot of us, as you know in the business, like thinking beyond the next quarter or two, it is unnatural. Thinking out two, three years, what's this thing going to look like in five years?
And as I recall when you presented Starbucks, for example, you were talking about years out and the effect of massive share repurchases. I thought you said they were going to, it was some big number. Don't quote me on the number, but it was like, they're going to buy back a third or half the stock within five or seven years or something, at the rate they were going and with the plans they had. And that was really compelling to me, but it was several years in the future. I loved this example. I really did. It's just another way of telling people don't be so short-term oriented, or is it more than that?
John Zolidis: If I can add to that a little bit, totally agree. And you're pretty close on the Starbucks numbers that you remember. We can dive into that a little bit more if you like. But in addition to pointing out the arbitrary character of 365 days, think about your investments or year to date, which is, even though I'm arguing against it, it's something that I'm doing every day, you have to ask yourself, why aside from this being a convenient number are we using these time horizons? And the answer is that there are industry structures that reinforce the use of these ways of thinking and in particular salespeople.
So, salespeople need to be able to sell something. So, you can't sell something based on a time horizon that's kind of nebulous or extremely long. You need these shorter periods. And then in addition to that the industry from a compensation standpoint is based on one-year chunks. So, managers are thinking in one-year time horizons because that's how they get paid. And the reporting of the performance goes into, is aligned in this way. So, there are these reinforcing structures that force us back into this one-year time horizon, which again, I think is not aligned with how we should be thinking about our investments.
But speaking to your other point about getting past the quarterly numbers or the short term it's hard. It's hard and it takes, it's a different discipline. And I do think it helps individual investors if they can look further out, because it's one of the ways that you can get an edge versus professional investors, because they're trapped in this paradigm of the one-year time horizon. They can't really escape it due to the incentive structures, which I mentioned.
But as an individual investor, you don't have that restriction. You can think much further out. The question is, can you deal psychologically with the volatility of stock price movements, which was another part of the talk that I gave because you have this reinforcing impact of the prices moving and how that interacts with your emotions and your ability to deal with that. That's a whole separate subject.
Dan Ferris: All right. Should we do another example from the presentation? Do you feel like doing that?
John Zolidis: Sure. So, in addition to that I talked about two ways, and I'll give you three examples, I guess, three different ways that the pattern seeking brain gets in the way of making good decisions. And so, the first one I just alluded to a little bit is the idea that stock prices are a false feedback loop. So, if you buy a stock and it goes down, you immediately think, "I must not know something, or I must have made a mistake, like the stock's going down." Or you may think that something is going wrong with the business. There's something happening at the business that I'm not aware of, and hence people are selling off the stock.
And so, I think it's really hard to separate the movement of stock prices from the noise that frequently causes them, but your brain wants to cause it. You want to create a narrative. You want to say like, oh, there's a reason why the stock's going down. It's something terrible is happening, obviously. So, then that makes you want to sell the stock because you're afraid of losing more money, but that's the first one is that your brain is trying to create a narrative for the stock-price movement when sometimes it has absolutely nothing to do at all with the fundamentals of the business. That's point No. 2.
Point No. 2, I called it the wise man problem and the wise man problem is when after a lot of experience, you think that you've already seen it all, you know it all, and therefore, when you approach a situation, your first instinct is to search for some part of your experience that was similar to what you're seeing today, and you discount as a result things that are different. And today's market 2023, I think is a really good example of this. So, as we started the beginning of the year there were a lot of economists and macro people and I'm not a macro analyst or an economist, but who pointed to the fact that interest rates were rising, and inflation was high, and the yield curve was inverted as a sign that we were definitely going to have a recession.
And I'm not saying that I know or don't know whether there's going to be a recession. I can't predict these kind of things. I certainly know that those factors that the economists are calling out have historically correlated with recession. But the mistake in my mind is that you think you've seen this before. And so, these are the most important characteristics in predicting what's going to happen next. But in fact, it's what's different about this time that you should be considering. So, that's the wise man problem. The more information you have about similar situations in the past, the less likely you might be to see what's different this time.
And then the third one was something I called analysis by analogy, and it's a similar vein. This might be a little bit more for equity analysts versus individual investors, but what happens when I see a new company for the first time, or when my clients see a company for the first time let's say, let's talk about, for example Kava which just went public two weeks ago, a Mediterranean restaurant, fast casual chain, and it was a very successful IPO, one of the most successful IPOs in the space in several years. And so, I think the first thing that happens when investors encounter a company like this is they think, "How is this similar to other businesses, which I already know?"
And it makes sense to do that because you want to save time. You're trying to get to the analysis as quickly as possible, arrive at the conclusion as quickly as possible, but in so doing you actually miss what's different or unique or special about the business. So, it discounts it. So, your brain is discounting the interesting, different, unique period. And so, here are three ways that your pattern seeking brain kind of gets in the way of you making good decisions, seeing things how they are and approaching an analysis in a way that's going to help you to make the right idea to either get long or get short or sell one of these stocks.
Dan Ferris: Yeah, so maybe we should try to give our audience a little bit of hope now since we've told them everything they're going to do wrong and all the reasons why they're going to make bad decisions. I guarantee you, John, 80% of them at least are listening to this and going, OK, OK, OK, how do I fix this? Can I fix it?
John Zolidis: The answer is yes, you absolutely can. I want to have a positive answer. I do not, I'm not an indexer personally. I put all my money in the stock market. I'm a very concentrated portfolio. I personally am able to deal with volatility, which I don't know if everyone can accept the same level of volatility that I can in my investments, but I think the answer is absolutely. And I also like to rail against this idea that it's impossible to beat the market. I think this is actually just a myth by other salespeople, by the salespeople of ETFs. Of course, they want you to think that no one could beat the market.
They have something to sell to you. None of these people are innocent. There's no benevolent investing group out there. Obviously, some people are trying to act in your best favor, but when you look at the industry structures, they're driven by sales, the sales process, and so they need you to believe them and to get involved with their product. But my message would be, the fact that many managers fail to beat the market ignores the fact that a substantial minority are beating the market.
The harder part is to beat the market consistently every year. I think that's quite difficult, but certainly on a short-term basis or an individual stock basis, you can find stocks that will do better than the overall market. And the way that you have an edge as an individual investor is to not play the Wall Street game. You need to look further into the future. Don't trade your positions. Try to understand the companies that you invest in. Look for businesses that are relatively easy to understand in my opinion. And I guess my biggest bet with regard to investing is believing that the company will deploy its excess capital into other projects that will generate high returns.
And so far that's been a smart bet and I think continues to be a smart bet. So, if you're an individual investor and you can focus on that and you cannot get overwhelmed with, hey, interest rates are going up, and so, multiples have to contract and we're changing our discounted cashflow rate, just ignore all of that talk and focus on the quality of the business the strength it has and really focus on the long term. I think you can do better and make good decisions and avoid these other troubles that kind of get in the way and cause stumbling blocks for a lot of people.
Dan Ferris: Yeah, volatility can be like a bucking bull. You're riding a bull and you need a very firm handle, something you can get a very firm grip on. And I feel like a lot of investors can get a very firm grip on that core business you described, like that's a really firm handle. You can hold onto that even if there's some narrative around some other part of the business that calls it into question or something. And those attributes you described too, like lots of cashflow, highly profitable, it's always been that way. It's never been any other way. Are there other ones that the retail restaurant guy would not be expected to own? I'm curious about going down this avenue if you don't mind.
John Zolidis: Sure, certainly. So, I own a lot of these large tech companies. Apple is one of the best consumer products companies out there. Google controls the world search. Not that hard to – it's easy to understand. Google is actually so entrenched in our daily lives that I think if Google were to stop operating, the whole place would just have rigor mortis. I don't know that we could get away. Google Maps is everywhere, Google Meetings, like Google Gmail. Like if it just stopped I don't think it could be replaced, like it would be extremely disruptive. That's how entrenched it is and necessary of a business it is.
And then again with not a lot of difficult work, you can show, you can look at this and say, "Oh my God, look at the cash that they generate." They have over $100 billion on their balance sheet. This is an incredibly stable business that can withstand any kind of economic environment, probably can continue to grow, is global... super-powerful company. And that's before we start thinking about the value of YouTube and some of their other assets that they're trying to develop.
Meta, I think is a really interesting company, and it was one of the examples I had in mind when I was talking in Vail about something value investors like to prioritize, which is this idea that you have to search in these unknown, little corners of the market to find these hidden gems that nobody else knows about. Those are the only places that value can be found. Look at Microsoft. Last year was –
Dan Ferris: No analyst coverage.
John Zolidis: Yeah. It went from $330 to $90, and now it's almost back to $200. It's still only trading at 10 times EV/EBITDA, which I think still quite cheap considering that it's literally the most successful company in the world in terms of the number of total users. I think it would be hard for us to find a business. Maybe Coca-Cola has more total users on the globe then then Meta. And so, my view there was like, hey, they're still very early in the long-term monetization of these customer relationships. It's like, that's the reason to own. Everyone got focused on Metaverse, but I was like, this is the core business is really the key here.
If we moved away from that and talked about areas where I have a little bit more industry specific expertise, a stock that I've been buying recently, and just as a disclosure, you should do your own work and consult your own adviser, this is not a recommendation is Yeti. And Yeti, I think is a fantastic consumer product, really high quality. It's encouraging a lot of consumers to trade up from what they considered to be appropriate drink or cool wear in the past. It has a very strong margin structure. They can expand the brand into other adjacent categories.
And then what's interesting is that it's a fallen pandemic winner. So, the stock did incredibly well during the pandemic and then post-pandemic, it ran into a series of issues with too much inventory in the channel, some supply chain costs. And then most recently they had a product recall related to some magnets in one of their cooler doors that could after a period of time detach and become loose and fall into the cooler.
So, the idea was like, well, coolers is where you have food and drinks and there's these magnets in there. Like some children could reach in potentially and then ingest the magnets. And then if you have multiple magnets, then you have this big problem. This fortunately did not happen to anyone, but it caused them to, out of prudence to recall this product, which created an air pocket in their growth.
And so, that's the opportunity in the stock in my mind is that we were buying it during this air pocket. And as they come back with the redesigned product later in the year, sales should accelerate. And then that, then you'll have easy comparisons for a business that it has a very strong margin structure currently trading at a discount to where it has been historically with a very, I think, long-term growth opportunity in front of it.
Dan Ferris: Yeah. My initial reaction to Yeti has always been, actually I should back up. We had a guest a few years ago, like pre-COVID talking about this stock. I was like basically, I'm going to say the same skeptical things I said then, which, not looking so great right now, but I worry about this because every time I think about coolers, I think, "Well, don't people just go to the 7-Eleven and get whatever's on," you know what I'm saying? Like a cooler, does anybody really think about the brand name of a cooler?
And I wonder, I think that, of course there's a big difference between a really solid brand and something that's faddish. Maybe I could ask you, how sure are you or what gives you conviction that this isn't faddish, a fad, a short-term sort of thing where a few people are getting excited about Yeti, but it's a real brand with some long term? Like you're not a short term guy, and you're buying this cooler company. This is interesting to me.
John Zolidis: I think that's a great question. So, there is some risk that they're not able to extend the brand or maintain the brand. This is a consumer products company, so it's not like software as a service where you can just roll out the new update and people will automatically renew. Here what's really important is innovation. And the company needs to come out with new products and updates on products and improvements on products that is going to keep the consumer engaged with the brand and willing to add more Yeti products to their lifestyle portfolio.
So, that's the kind of core challenge. Will they be able to do that? With regard to that earlier point about the brands and whether people are, I think there, I would, I don't want to say push back, but I would give you the example of glamping. I don't know if you've heard about glamping, right? So, I know you live in the Pacific Northwest, but people want to be associated with brands they believe in, that's for sure. They want highly functional products. The Yeti products are, I would say, over designed, but they are incredibly high quality relative to what was available in the past. So, consumers love those things.
One charge I might make is as you drive around look and see if you've got, if people are putting Yeti stickers on their cars and on their bumpers, people only do that when they want to be associated with the brand. So, I think it's an incredibly strong brand. I've also, as part of my research met with most of their large wholesale distributors such as Academy Sports or Dick's Sporting Goods. And if you go into those stores and talk to the merchants you can see the product positioning, how they're in the stores and these are high quality products sold at full price in premium distribution.
And that's a sign, or you could take that as a sign that the brand is strengthened, very strong and able to justify that positioning. Now, again, how is it going to be two years from now or three years from now? This is where you're making a little bit more of an investment that you're saying, I think this company will continue to innovate, will fend off competition because there are knockoffs, people trying to create a similar product at a lower price because these Yeti products are quite premium position. And they have to be able to do that.
And my feeling is that they can, and I like the idea that I can buy the stock at a lower price where it's not reflecting an assumption that they are just going to continue to crush it indefinitely. If I speak of a different company that I follow for my professional clients, Lululemon, that's another company that is a premium position brand that has tons of competition that it's fended off and has continued to do really well. And I would say the same thing about it from an innovation standpoint.
If you're going to be engaging with the customer what's really imperative is new products, new innovation, new techniques, got to keep that customer excited. Why do they need more Lululemon leggings in their closet? Well, because you have a new cutout and your new styling and new colors and new technical fabrics. And those are the things that keep the customer coming back, and that's really challenging. Not that many businesses are able to do that consistently over the long term.
Dan Ferris: Yeah. Off of everything you just said, John, you use the word "overdesigned" to describe Yeti. And boy, that resonated with me because I feel like something happened. I feel like Apple did something to us and it brought designed to the masses in a way that hadn't been done before, I feel like. That was one of Steve Jobs' big things. He was all worried about the fonts and the look and the feel and everything. So, now I feel like every product I get, everything unboxes in a dramatic way.
I bought these little headphones that I'm wearing to talk to you, and it's got a fancy box and I'm just, I see that phenomenon. It's everywhere. I feel like now when it gets to coolers, is it overdone? You know what I'm saying? It's like you go, am I really unboxing something I can get at the 7-Eleven here? It's a strange world we live in to say the least, but you make a good case for Yeti, I will say. All right. You know what? I think it's a decent time to do our final question. I ask every guest the same final question. If you could leave our listeners with a single thought today, what would it be?
John Zolidis: I would say many people make investing a lot more complicated than it needs to be. And I think that if you're trying to beat the market on a short-term basis, you're going to cause yourself a lot of frustration and you should focus on owning really great companies over a very long period of time and your time horizon as an investor, you should be thinking about your investments in the context of the end use case for the money that you're trying to save. Not to hit short-term performance targets or measure yourself against the market. You're looking for what is going to get you to those longer term objectives.
And I think if you really orient your thinking towards where you're trying to go and what you're trying to do with your investments, that will help you avoid doing things. The worst thing you can do as an individual investor is sell in a panic and buy when the market's already going up. So, you want to avoid that at all costs, and the way that you do that is not getting caught into the cycle of the media firestorm of fear and excitement that Wall Street inevitably a foists on everyone.
Dan Ferris: Thank you for that, John. That's good stuff. I hope people really, I hope people took notes when you were talking and wrote all that stuff down because it's exactly what they ought to do. And you mentioned it earlier, didn't you? You said that it's basically an easy way to get an edge. And I've said this many times. It's like the low hanging fruit, a longer term perspective for an individual investor is the low hanging fruit.
That's the way to get an edge. May not be emotionally easy, but it's technically it's right there. And I think you just said it very well. Listen, thanks for being here. Thanks for doing this. I'm glad we finally got you on the show.
John Zolidis: My pleasure. Thanks so much for having me.
Dan Ferris: Many mainstream analysts are predicting that stocks will recover soon, but I say we'll instead witness a cash frenzy unlike we've experienced in 21 years before stocks recover. I'm urging Americans not to buy a single stock until they see it.
I predicted the Lehman Brothers crash in 2008, and I called the top of the Nasdaq in 2021. But this, this is the No. 1 most important thing to pay attention to for 2023. I'm not talking about another market crash or politics or inflation or any of these other things.
As all this unfolds, the financial consequences of what I'm talking about could last for several decades if you don't understand what's happening. There will be winners and losers, and now is the time to decide which one you'll be.
This is why I strongly encourage you to read about my warning, totally free today. It's all spelled out in a free report we put together. Get the facts yourself. Go to StockDeadZone.com to get your free copy of this report. You can learn how to get my four steps to prepare for what's coming. Again, that's StockDeadZone.com for a free copy of this new report.
That was a good talk. I've known John for better part of a decade and he's a very thoughtful just insightful analyst. And when I've seen him present stocks at the VALUEx Vail conference, he has a way of sort of getting at the one or two, maybe three at the most really important things to know if you're considering purchasing that stock at that time. There may be other things to know at other times. There may be many aspects to the business, but I recall when he presented Starbucks, and we talked during the interview about how much of the stock they were going to be buying back in the next five to 10 years, something like that.
And I thought, wow, that's amazing. That supports a much higher valuation today than what it was at the time. And of course, we did get lucky. The stock had fallen right before that point. So, it was just really attractive, but really great analysts. Now, when I was in Vail I talked with another fellow who I know who's a very smart banker, merchant banker type of a guy, and he was telling me about a podcast where they did an interview and then every single time after the interview, they talked about the things they agreed with and the things they disagreed with, with their guests.
And I thought it sounded like a good thing because not everybody agrees about everything. And I'm afraid that when I talk after my interviews, every time I say the same thing, "Hey, that was a lot of fun. I hope you enjoyed that as much as I did." We're always saying that on the show. It is true, but I understand it could get a little boring. My problem with this idea this week is I found like little to nothing to disagree with. And I pushed back on the idea that Yeti was a brand with long-term potential, but John responded to that quite rationally and said, yeah, that is a risk.
So, I think we're covered on things I might disagree with for this episode, but for future episodes I'll see if I can't make my outro and my ending comments a little more interesting in that regard, but for now, that's another interview. And that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we did. We provide a transcript for every episode. Just go to InvestorHour.com. Click on the episode you want. Scroll all the way down, click on the word "transcript," and enjoy.
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