Debt Ceiling Deal, The Boycott Craze, and Undervalued Stocks - This Week In Capitalism

Foreign.

This week in capitalism. We'll talk about the debt ceiling. We'll talk about the latest trillion dollar company, and we'll talk about the stocks and the companies that I'm watching right now. And we'll talk about how all this affects your business. Let's talk about the news that affects you, your money and your business. Let's go.

So we have to talk about the debt ceiling. If you're a normal American, this meant nothing to you and you will live longer that way. I'm jealous of you. But if you're an economics nerd or a political junkie like I am, then this was the most fascinating theater in the whole world. And this actually does matter and does impact your business. Here's why. The US is kind of stuck between Iraq and a hard place. We have a lot of inflation right now. This has impacted all of us. And, and it's actually impacted a lot of physical product sellers, especially those of you who sell on Amazon.com and because there's a lot of inflation, there's talk about where this inflation comes from. And inflation comes from having more money in the system going to a small number of goods or a limited number of goods. Hopefully you know that already. Well, most of the noise about inflation comes as a result of discussions around Federal Reserve's interest rates. If you have low interest rates, you have lower borrowing costs. So there's more money in the system. And it's flowing to some assets like houses and food and stocks. And so you see a big boom in the beginning of an inflationary run. Well, we still have a lot of inflation, but interest rates are higher now. And there's another source of inflation that we don't like to talk about. It comes from government spending. When governments run into debt, they have to get the money from the Federal Reserve. That money gets put into the system and we have inflation. So we have competing forces. Right now we're trying to stave off inflation, but we're also trying to avoid a recession. And oftentimes you can't do both of those things. It's kind of like trying to add muscle and lose fat at the same time. You've got to walk a very thin line to be able to do that. And, and for the most part, you should probably just choose one of those goals. Now, I don't like to give credit to politicians. I especially don't like to give credit to Joe Biden or to Kevin McCarthy for that matter. But I think that the deal that's on the table is about as good of an outcome as we could have hoped for. Because if you just raise the debt ceiling and you have more money in the system, you then you're going to have more inflation and we're like on the brink of getting that under control. But if you default on your debt, you absolutely will go into a recession. Why is that the case? Because you've damaged the faith in the United States system. And if you don't have faith in the system, then you're not going to have as much investment here, you're not going to have people hiring here. Plus you're going to have less money in the system because you can't pay everybody. The government's got to choose who they're going to lay off or who they're going to pay. And then you have people who are on fixed incomes getting money from Social Security or from treasury bills who aren't getting their interest payments or their monthly checks. And that obviously is painful for a lot of people. So you have a very fine line in which you can walk right now. And my opinion is the best outcome would be something that raised the debt ceiling. Even though I'm a crazy libertarian and I hate debt and I want the government to run a surplus every year and then dividend that out to people. That's what I wish would happen. But instead we have a debt ridden system that you can't end overnight. So the best possible outcome would be that you raise the debt ceiling, but that you reduce or you at least cap spending. We haven't seen the bill at the time of this recording. We don't know if it's going to pass Congress in time. But as of right now, I do have to give credit to an actually pretty decent outcome. And of course the ideal scenario next would be that we continue to reduce spending over time. But that's probably not going to happen. In the meantime, it seems that we actually got it done. And that is very good news for your businesses and for the US economy as a whole. Also this week, Nvidia became the sixth company in the world to have a trillion dollar valuation. I love stories like this. I love the fact that we have trillion dollar companies right now. Because when I was a kid I used to ride my bike around the neighborhood and pretend that I was a trillionaire because that was the biggest number I knew. And it was like Dr. Evil saying $100 billion. There's just a made out number that sounded huge, that was more money that existed at the time. And now we have companies that are worth $1 trillion. I remember something happened to my brain when I found out that Apple was worth $2 trillion. And that's because it had only been about four years since they crossed $1 trillion for the first time. Then about four years later, they doubled in size and basically Tim Cook had built an additional trillion dollars in four years. It made me think, what is actually possible in my lifetime? I mean, Tim Cook might be a hundred times smarter than me, he might be a thousand times smarter than me, he might be a million times smarter than me, but he's probably not a trillion times smarter than me. So if I play this game reasonably well, what could be possible in my lifetime? Is it possible that I could leave $1 billion to my kids? Well, actually, if you run the numbers on that, if you were to invest consistently $1 million a year for 50 years, just into the S&P 500 at its average rate of return over the last 50 years, you would end up with $1 billion over 50 years. Now, that means you got to save $1 million a year, which might seem impossible right now, but what's possible in five years or 10 years? All I would need to do is have a company spitting off $2 million in profit, save half of it, invest that, and for things to go modestly well. Now, maybe I'm a crazy optimist, but, but stories like this change my brain and they get me excited to think about what's really possible over a long period of time. Decades or fifty years? A hundred years. Because I'm probably going to be on this planet for another 80 years. I'm probably going to be playing this game for another 50 if I take care of my health. So what's possible for me in 50 years? Well, if one company can become a trillion dollar company, can I become a billionaire? Can you become a multimillionaire? And when you think about it that way, is it so unreasonable that you can become a millionaire? It's not so unreasonable. In fact, I've seen hundreds of people doing it just following our basic trainings and the stuff that I give away for free on YouTube and my podcasts. Now, the reason why Nvidia crossed $1 trillion in value is because there was news that came out about the demand for their chips and specifically in the AI sector. Now, personally, I'm not a buyer of Nvidia. Now, they're up about 400% over the last year or so. They're up about four times since I bottomed out in October of 2022. So a little bit less than a year, that's an amazing run up, but I believe the statement that you should buy the rumor and sell the news. I learned early in my career that there are massive changes that happen over a long period of time, but the pace of change is more manageable than we might think. In fact, if you were to listen to the preview of my book on Audible, just search for my name on Audible and listen to the audio preview. It's a clip of me talking about the pace of change and how things change in a more manageable rate than we come to think. So when we're looking at AI or we're looking at the next big boom, the pace of change tends to be a little bit more manageable than the rumor suggests. So when I see a company like Nvidia go up 400% as a result of AI chips having increased demand, that's not something that I'm interested in owning in the short term. But there are other companies in this sector that I like that are making investments in the same sector. You see, the best time to buy a stock is not when they're big in the news, making huge waves. Hopefully you're knowledgeable about a sector enough to know what companies are planning these bets, and those are the ones that you want to look at. My favorite in the sector is Palantir. They trade under pltr, but they're not profitable right now, which means that it's hard to value them. So it's not a stock that I can feel confident buying a lot of, but to me they're one of the more interesting ones in this sector. Again, the best stocks to own are ones that you're familiar with that aren't necessarily in the news right now, making huge waves. And you're early on them. You know enough about them to know that they're placing the bets that could win out and you believe in their long term prospects and hopefully they're profitable right now. There are some good examples of this from the last year. For example, Netflix was down around $170 just a year ago. The reason why they were getting beat up is because people were concerned about their profits eroding. There were fewer subscribers signing up for Netflix and their earnings per share were down just a hair. And people said, oh, this could be the end of the good days of Netflix. The stock fell 50% and today, less than a year later, it's more than doubled. These are the types of news that I like to buy. Companies that I'm really familiar with that I may or may not be a customer of. That I believe in long term that are profitable and then there's something that happens in the news that just kicks them in the pants. That's the type of opportunity that I think matches the Warren Buffett style of investing. You have your list, you wait for news and you pounce when the market is undervaluing them. Another good example of this would be meta Facebook. They're trading at $90 less than a year ago because of eroding profit share and because of the concern of TikTok taking away some of their subscribers and their customers. And some of that did happen. But Facebook made a good play to get into short form content. They recovered. Their ad platform is starting to look kind of sexy again and the stock price has about tripled in less than a year. I was on stage at an event last November and I said my opinion is that Facebook meta stock is very undervalued right now because of all these reasons. Those are the types of things to look for. It's rare that you see really good news and you're like, oh, that's the time to buy. It's when companies are well established and profitable and they really have a foothold and in a sector and then they get bad news. One more example would be Tesla earlier this year. Just five months ago was trading at about $100 per share when Elon Musk said that they were going to risk profit share per vehicle and he was going to do that to gain more market share. And investors hated it because that does not look good for three or four months, but it looks great over three to four years. Fast forward just five months later and Tesla has almost doubled. These are the types of pounces you want to make. That's why I'm not a big buyer in something like Nvidia, even though it has a trillion dollar valuation and it's in a hot sector right now. In case you're curious about what stocks I track that might match some of that criteria right now. I am not an investment advisor. Don't listen to anything that I say. I'm an idiot that you follow on the Internet. I but I'm currently watching Paypal, Alibaba and pretty much the entire banking sector, my favorite of which being Bank Ozk used to be called bank of the Ozarks. They have a really strong dividend and they're in a little bit of a unique sector where they do mostly loans to construction and new builds. So that's kind of a niche market in the banking sector and they have really strong profits and I'M watching them. Full disclosure, I do own some of these stocks, so you should know that when you're listening to my bias about how I look at companies. But I'm looking at PayPal, which is just getting crushed with bad news right now. I'm looking at Alibaba, which Charlie Munger said was one of the worst investments of his career because he underestimated the tensions between the US And China. Now, I think a lot of that's been priced in right now. The stock is down like 40% since Charlie Munger entered the business. And he said at the last meeting that it's a great company, they have great profits, they're doing the right thing, they have wonderful management. But the tensions between us and China right now make it a little bit more risky. Personally, that's a risk I am willing to stomach. And so that is something that I'm watching right now. Alibaba, PayPal, and of course, the entire banking sector, with my favorite being bank of the Ozarks. This brings me to the boycotts that are all the rage right now because it's affecting the stock price of a lot of companies. And I think there's a wonderful business lesson in this. I did a video recently about the controversy around Bud Light and how they totally screwed up this influencer campaign with Dylan Mulvaney. And not for the reasons why a lot of people think. I believe that businesses should be built on serving a core customer. And the way that you communicate to your core customer is speaking to the values that they believe in. Customers have an infinite number of product options now, so they buy on values. And where Bud Light really dropped the ball is they have this core customer base. And then they had this influencer campaign with somebody that their base doesn't really like. And they never came up with any reason for the promotion. So it just looked weird if instead they had had some unifying message around the idea of freedom and how we may disagree on many things, but we all agree that we should be free and we can respect each other's differences. And let's drink to that. That would be a controversial statement, but it would put Bud Light in the center of the conversation about what does it really mean to have freedom? Where does my freedom start to impose around your freedom? And when you have those types of conversations about freedom in the same conversation of a company like Bud Light, you've done a great job at positioning your brand as a leader to your ideal customer. Did they do that? Absolutely not. Now, I said in that video that we wouldn't know if this hurt their sales until the next quarterly report came out and those reports are starting to come out. And Anheuser Busch is getting taken to the cleaners. Now. This is the type of business that I would actually want to buy. In most cases, they pay a dividend, they're super profitable, and they have a raving customer base. And long term, this is something that could be salvaged if Bud Light finds a way to turn around this controversy. I keep saying that. Controversy, controversy. I can't say the word. It's so appalling. It's such a controversial word. If Anheuser Busch finds a way to navigate this challenge, they'll be fine long term. If you think that alcohol sales and beer sales are going to continue to go up, and I do not. A lot of my friends have given up drinking completely. They have other options now. There are other things that they're interested in besides going out for drinks. So I'm just not bullish on the alcohol sector at all. Unless you give me the opportunity to invest in something like June Shine, which is an alcoholic kombucha, which is all the rage here among the hippies here in Austin, Texas. And I have to say, it is delicious. So normally a company like Bud Light, which is getting just crushed in the media but still has a huge customer base, a dividend, and really strong profits, that would normally be really interesting to me. But it's a sector that I am very bearish on, so I'll avoid that one. On the other side of the table, there are boycotts happening around Target right now. If you don't know why people are boycotting Target, it's not worth your time. I happen to be a Target super fan. I see the woke stuff at Target all the time. I don't really care. Yeah, I see body positivity models and stuff that I don't buy, but I. I don't care. I'm not going. I'm not going to buy there. I, I love the Goodfella brand. They make great shorts and, you know, you can buy Kraft Macaroni and cheese there for 99 cents. I don't even eat Kraft macaroni and cheese, but I will for 99 cents. So I'm a Target superfan. I like to go there. But here's where Target is going to have a hard time. When you're a big box retailer, you don't have a core customer. You're really selling to everybody. Stores like Walmart, they have a Target demographic where it being the lower economic side of the customer base, Target would be kind of middle of that. But you don't have clear psychographics around that person which make it hard to speak to values. Walmart can do that because it's all about low prices. But only a few people can win that game. So with Target, you've got to come up with some other unifying way to bring your customers together. But I happen to think that they'll be fine from this boycott. They're getting crushed in the media right now. Their stock price is way down. And this is a company that I'm eyeing right now because they pay a very strong dividend. They're super healthy in terms of profit. They grow pretty much year over year and they have a, they have a raving customer base. People like me who like Target, really, really like Target, they're not quite the same fanaticism as Costco shoppers. They're crazy. And I get it, Costco's awesome. But Target is like maybe the next most passionate. And that's why this is a company that I would look at investing in. I think they're still slightly overvalued with some room to come down. If you're a member of the 1%, then you might have seen some of my trainings about how I look for dividend stocks to buy. I look for a 4% dividend in combination of bad news. So if you have a company like Target that comes down so much that their dividend crosses 4%, that in my mind could be an indicator that it is oversold. We're seeing that a lot in the banking sector right now. So if Target comes down to that three and a half to 4% dividend range, that's where I'm really going to pay attention and see about adding to my position in my long term portfolio. There's a great business lesson in this and that is your job as a company is to develop raving fans that can take you through hard times. All businesses are going to have challenges. All businesses are going to go through hard economic times. Can you delight a customer enough that they will forgive you for mishaps in marketing? Can you delight a customer enough that they will continue to buy from you during bad economic times or at least when things recover for them? If you can't do that, then you're at the whims of the economy and what competitors will do. This is why I tell new entrepreneurs to choose your core customer first. What does your core customer believe and what journey are they on? If you don't know the answer to that question, then you're just selling a product and you can sell a product profitably for a long amount of time. But it's difficult to come up with a brand that you can scale or sell and it's very, very difficult to have a product continue to do well in good times and bad and to weather the storms of good marketing and bad marketing and competitors coming in and undercutting you. But if you have a brand that speaks to a core person and you have a values match, which means you stand for something, you stand for your customers own exploration on their journey, then you are the mentor that they will come to all the way through their transformation. If you do that, then you can build a company that can weather the storms and it's a company that will consistently grow its profits and prepare itself for a really healthy exit. I'm Ryan Daniel Moran with capitalism.com these are the stories that impacted you, your money and your business this week. Thanks for watching. I'll see you next time. And now a quick word from Tristina Tim, one of our members from the capitalism.com community.

We joined the incubator because we knew the things that we didn't know. So we didn't know e commerce at all. And we needed that. We needed somebody to tell us where to go and what to do. Right now we are on track to hit the 3 million mark this year. However, I think next year is just going to double that. We have so many plans for the future and just executing, executing the plan that the incubator brought us. It was fantastic. It was step by step what to do, how to execute it. And then if we did fumble the ball, we had somebody there to help us through it and walk us through our plans for the future. Of course, this year we have 3 million and then next year 6. And we're hoping to get to 10 million within the next three to four years. Freedom is everything to our family. I homeschool and I love that our family can wake up together every morning. Nobody's running off to school, nobody's running off to work. If I had to work at like a 9 to 5 job, there's no way that I could also homeschool. I get to set my own hours and they're not as many hours as a normal job would be. So that's really fantastic. But again, freedom is everything for our family and I don't. It's strange that our kids don't know any other way. Mom and dad are home every day. I would describe the capitalism community as family when you go get so many tips from people, we give tips and I think that we're going to start to work with a lot of our fellow community members and everyone really is rooting for everybody else. Nobody is like in competition at all. Like everyone is everyone's biggest cheerleaders.

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