New Constructs' Live Monthly Podcast - 13 Dec 2024

All right, Kyle, let's rock and roll.

Go ahead, kick it off. Yeah, started off with a quote from none other than yourself in Wall Street Journal. It's symptomatic of a market that has become obsessed with believing in get-rich-quick schemes. Um, we'll talk a little bit about What that quote is and what it's about later. It's from the Wall Street Journal article, "What's flying higher than Bitcoin? The software company buying up Bitcoin." So we'll get this thing rolling here. It'll go to the next slide. Welcome in. This is our monthly podcast with David Trainer and myself. We titled this one, "Can the market rally continue?" Now we've seen today, at least earlier today, the market was on pace for. The first losing week in about a month. So maybe a bit of a pause. But, but we've been talking about for weeks now, months now, it feels like, how overvalued the market looks, different pockets of the market and the overall S&P 500. So can the market rally continue? Here's our regular disclosures and disclaimers. Check these out. The main one is important. We are not providing any advice. We are publishing research. The agenda for today, we'll talk about some recent research, what's going on in the community, some topics David and I have picked. David's done a few different interviews in the media about some different stocks. We'll talk about that, different e-letter, but the replay of this webinar and the slides will be in our community. I'll make a post either later today or as soon as this is available. The next one coming up, they said this is monthly. We've got it tentatively scheduled for January 17th next year. So we'll see everybody in the new year. Research since we last talked, put out a couple different new long ideas, some updates on Danger Zones, the filing season finds report on how many filings we went through. I think it was 2,900 this filing season. So going through tons of filings to get all the updated models, all the updated metrics, financial data. Um, put out a special training, Decoding Q3 Earnings: The Investor's Guide to Finding Tomorrow's Winners Today. And that is up on our website as well as the community. Check that one out. Like I said, David did do a new e-letter on MicroStrategy. We'll talk a bit about that. And a lot of model portfolio updates, not just the model portfolios, but also the featured stocks in portfolios there as well. As we go in and do a shorter dive on a company in those model portfolios, kind of give you the insights into what our research looks like, what we're seeing in the model portfolios, and, you know, a featured stock in that model portfolio. Um, the topics for today, like I mentioned, we'll talk about some special webinars, e-letters, meme stocks, some CNBC stocks, and then also pro members training. And then at the end, as David mentioned, we'll do some stock picks and get those in, in the chat or Q&A. Go by popular demand. If there's not any repeat requests, we can go and kind of random pick a few to take a look at. And those will only be available live to people as a bonus for attending this live. not be in the replay. So on the topic of upcoming trainings, we do have one next Tuesday, the AI Powered Edge, your 2025 investment roadmap. We'll be sending out emails. They've started going out, so check your emails there to get the registration link. And then we will have a Let's Talk Long Ideas for Pro and higher members only on Thursday, 12/19. Um, get emails about that as well. And we'll also make a post in the Pro member section on the community. So check that out to get yourself registered. On the interesting headlines and happenings, we'll start it off with the e-letter. David published this, I think, last week titled Hope Is Not a MicroStrategy, talking about MicroStrategy, the company, and Bitcoin here. You know, they've gone huge speculation on Bitcoin, kind of transformed their entire business to be a Bitcoin proxy, and that's not necessarily a good strategy for Investors wanting to actually own Bitcoin. David, you want to add?

Yeah.

Yeah. To that based on your e-letter there.

Yeah, no, this is, this, this is a bullseye to a question we just got in the Q&A. What is your view on cryptocurrencies? So I think the answer is, you know, they're going to be around. Are they potentially overvalued as part of a general speculative fervor in the market? Absolutely. And, you know, I'm not here to say that cryptocurrencies don't have a place in our society. They do. I think it's just a much smaller role than what we've seen so far. We're seeing an investment fad, and I think MicroStrategy is in so many ways emblematic of people just looking to exploit people. I think I read an article in Bloomberg just a couple days ago, within the last couple of days, saying that there's been over $5.6 billion of of fraud or theft in the cryptocurrency arena. It, it, it's a dangerous place. And I think Bitcoin is trading at dangerous levels. And I don't really look at many of the other cryptocurrencies that much, but I, I think that Bitcoin in particular is, is, is, is the object of, of a, a lot of speculation. And there's not as much underlying utility in Bitcoin as you would have in, for example, an Ethereum. Where there are real sort of practical business applications built on that. And, and so I think it's, it's a disaster waiting to happen for Bitcoin, just like we're seeing in a lot of other memes and meme stocks. And I think MicroStrategy is sort of making itself into a meme stock by sort of being this, this ultra-levered play on Bitcoin while also paying fairly extraordinary fees, right? You know, if you want to get a 3x Bitcoin fund, I think you can find that, right? And you're going to pay a lot less fees than what you're going to be paying in terms of the overhead that ends up going to MicroStrategy executives, employees, etc. There's a whole business and a company there that is going to be taking a piece of the pie over your money instead of it going straight into Bitcoin. Sure, it's levered a little bit, but you can get the same effect from a levered fund in Bitcoin. And, and by the way, I don't know that how much sense it makes to lever an investment And what is already a really, really risky asset. It's like going to Vegas and saying, you know, I'm going to push this little button and every bet I make is 3x. I don't think— I think Wall Street— I'm sorry, because Vegas would love that. I don't think society would love that. I don't think that would work out well for most people. But the stock market makes it simple to, you know, have like an easy button to double, triple, quadruple your risk. And it works great when it works, but it's disastrous when it doesn't. And, and I just, you know, look at New Constructs, we're about making investments that you can trust for months, years, if not decades, that are based on real fundamental value. And we think that's important. And, and sometimes it sounds silly, coming out of my mouth when I hear and see what people are saying on CNBC and Twitter and all this. And it's just like, stock price, bro. Scoreboard, bro. Like, how things are going. You know, we'll get to in a second, but I did an interview on a major network this week talking about a meme stock, and you should see the memes that got posted on Twitter making fun of me, trying to make fun of me. So yeah. We're in a wild time.

People are heavily invested in some of those beliefs and kind of the almost community built around the meme stocks. To see the response is definitely the tell of, you know, people are bought into this, whether it's, you know, smart or not, risky or not. You know, obviously it's extremely risky, but they are definitely entrenched in their beliefs on those meme stocks.

Totally.

Totally. I think one of the things you mentioned there, the jumped out was if you could just, you know, 3 times your bet there. A lot of people might think, oh, that's a great idea. 'Cause right now the market seemingly just goes up, but you know, there is the other side of it and you're also 3 times the downside risk. And so people and new investors, recent investors, and you're like, oh, the markets just go up. Well, have an '08 or a crash here again, not saying that would happen imminently, but you 3 times the downside. And so that's the other side of it. It's not just 3 times your gains.

It's 3 times your risk.

Yep.

Yeah. There are no free lunches. You don't get excess return without excess risk unless you do real work. You know, the cheap way to get cheap, you know, good returns is to, is, you know, is to speculate and gamble. The smart way to get good returns is to invest, which is to understand the underlying cash flows and valuation. Anything else is speculating. Speculating is fun for some people, you know, it can work out. It also probably takes more people down than it brings up over time. Yeah, so speaking of interviews, it was GameStop. I was on Schwab, the Schwab Network this week, made some comments about GameStop having a better chance of going to zero than maintaining its current performance or staying this high. And yeah, I got lit up. It's been pretty funny. I've been going in and like seeing, you know, the memes. They're pretty funny. You probably don't want your children looking over your shoulder while you're looking at that stuff, but they're pretty funny. And it's just, it's crazy how they come out to fight the meme stock mafia, I guess you might call it. That's, it's pretty funny. I mean, look, GameStop is just, it's, the valuation is absolutely absurd however you crush it. And it was fun to be on there. With this guy named Dave Mazza at Round Hill Capital, I believe. And it was, you know, normally I come on these programs and they've got somebody like to take the opposite side. And so, it can be a little testy because sometimes like those dudes just won't stop talking or they'll like talk over me or whatever. And a couple of times I had to be like, hey, you've had your turn. Let me say what I'm going to say here. And they just like make stuff up and they're like, oh, discounted cash flow. What are you talking about? You don't know what cash flow is. They said the same thing during the Valiant, like, run-up. Remember having a debate with somebody on— was it SumZero or Seeking Alpha? Do you remember, Kyle?

Yeah, we had a SumZero bear-bull debate there.

Yeah, big bear-bull debate. And they're like, you can't do the math. You don't know what you're talking about. You don't know how to calculate EBITDA. I'm like, you know what? That's just nutty. And it was like, you can't pay bills with non-cash EBITDA. By the way, anyway, it was nice to have a guy on there, and one of the things he said that I loved is that Tesla's a meme stock. Tesla's become a meme stock. I think most of the Mag Seven become meme stocks when it's not about the fundamentals anymore; it's about the mania that makes it a meme stock. And so that I think that was funny. And then we yeah, we did another interview on on Bloomberg Canada. Just about meme stocks in general, really, that being a ticking time bomb. And, you know, honestly, I sit here and I say that with the knowledge that, look, they could still go up, but I do have a long-term belief that they're going to come crashing down. And maybe that's just because I know that's what society is best for society, because to the extent that we continue to funnel large amounts of capital into these non-value-producing businesses, we're just giving capital to managers that don't make any money with that capital and to bankers that don't make any money with that capital. We're basically just transferring that wealth from these individuals, these investors who are so into their meme stocks. It's effectively a wealth transfer from them to the executives that run the companies and to the bankers that do all the deals to sell the stock and the debt because the companies themselves aren't producing any real value. And it's my hope that we don't continue to do that as a society and as a market because that's value destruction. And you can't do that forever because all the capital is going to get wasted and go away to those bad guys and not go into the companies that are productive users of capital. When I say productive, that means it's a business that you put money into it and it makes more money. And they take that money and they put more— they put it back in the business and it makes more money. And those executives deserve to get paid because they're creating value. They're taking a dollar and they're turning it into, into $1.20, $1.40, $1.50, $2, $2.20. And that's how society improves. That's how standards of living improve. The meme stocks of the world are just stealing effectively. And you can see it in their history. I mean, look at like GameStop is a great example. How many shares have they issued in the last several years? How much have they diluted their existing shareholders? Yeah, they got a lot of cash on the books. That's great. That's your cash. What do you think they're going to do with it? Hopefully not buy a gold mine, right? I mean, you know, just, it's, it's dangerous. And I think it's been proven over, proven over time in several case studies that companies that have a ton of cash in the books tend to destroy value with that if they don't return it to shareholders. And guess what GameStop, I don't think, is doing? They're not paying any dividends as far as I know or buying back stock. They're going to use it to fund the losses.

So, with the hopes of a turnaround.

With the hopes of a turnaround that's more than priced in. But what they mean, what we mean by funding the losses, It's paying all those executives exorbitant salaries for doing nothing but lighting money on fire. And that's just bad for society. So that's, that's kind of what, that's what I think about meme stocks. In a lot of ways, I think that about cryptocurrencies too. There's no real underlying utility or value to the asset, then it doesn't deserve capital. That's what, that's really kind of what capital markets are based on. In some ways, it's what America is based on. When we talk about a merit-based system, which I think is kind of what capitalism is supposed to be, right? That's freedom of ideas, freedom of capital, freedom of religion. Look, it's, it's to where it is to allocate resources to where there we see the most merit. When it comes to ideas, the ideas that win are the ones that have the most merit. They do the most good for the most people. Comes to religion, it's the one that has the most merit for me as an individual, and that's for me to judge. When it comes to capital, that's businesses actually making money with your money, not just taking it to pay the executives.

On that, I think we have one of the most profitable companies out there we talked about on CNBC, Alphabet, ticker Google. Um, Target was another one on earnings, and then EQT Corp were the 3 companies you discussed there. And I know Google always pops up, Alphabet always pops up as, you know, one of the most profitable companies in our entire coverage universe. I mean, talking about taking $1 and turning it into $1.20.

Or turning it into $2 or even more in a pretty short amount of time. So, ironically, we just got a question as I finished up, and I got to read this out loud because it's pretty funny. It says, totally agree with the principles of the mania, but we know we can't cure a lack of intelligence. So, what do you believe are higher conviction ideas for quality companies? So, great question and perfect segue. Thank you very much, Stephen. And his next comment was, never mind, as soon as you went to that slide. So yeah, there's the answer. And look, that's, that's part of why New Constructs, I think, is a research firm for the people, for everybody, because, you know, for as little as, as what, $49 a month, you can get our dividend growth model portfolio. You can get our safest dividends model portfolio, and we'll give you some great safe stocks to invest in. $49 a month, you also get the Most Dangerous Stocks model portfolio, which is going to basically— it's going to really like, whatever you do, don't invest in those stocks because those could really blow up. Our Most Attractive Stocks model portfolio is more expensive. I think it's closer to $300 a month. But it's like, it's an amazing list. I mean, it's the most attractive stocks in the market. You can't get something better than that. In many ways, you could say that's probably the most valuable thing we provide because That's us going through 3,000+ company models and valuations and, you know, applying our expertise built over the last 30 years to identify the best stocks— 20 large-cap, 20 small-cap. From that list, you can get great stuff. Uh, we're going to do a big deep dive on that next week as part of our, our next training. But yeah, this is what it's about. It's not just about warning you, it's about giving you good ideas. The key is that Good ideas take a lot of hard work. And that's why I think it was great that Kyle used the quote he used in the beginning here. People, people want get rich quick. They really want get rich quick and easy. Because that's what Wall Street's selling you on believing, because as long as they can lure you into buying their junk, they're making crazy money. Crazy money. I'm talking tens of millions of dollars a year per banker. Investment banker, tens of millions. I was on— when I was on Wall Street in the late '90s, the top bankers were making hundreds of millions of dollars a year. The first-year analyst, first year out of business school, demanding million dollars in salary in the first year working. So if you're wondering where all that crazy money goes, that's where it goes. It's not growing to make America— it's not growing— going to making our country better by going into companies that actually create real value. But we do the work to find those companies. And the key is it's not easy work because Wall Street's putting out all kinds of crazy bad numbers to make you think stuff looks good. So you really got to do diligence. No substitute.

With the real diligence, we wanted to point out Bloomberg featuring our Core Earnings Leaders Index in partnership with Bloomberg. There's a whole article on the index, its methodology, a lot of the background information on this. We'll send out this link when we get the slides and replay posted. But, you know, the title, I think in the blog post we said the title says it all, you know, Unlocking Concealed Value in Company Financials with Earnings Capture. And that earnings capture is, you know, what we call earnings distortion, the difference between core earnings and GAAP net income. And so this article kind of takes a deep dive into that index and the methodology behind it and the results that they found when they were digging into the data.

Speaking of, you know, another way that we're giving people ways to invest intelligently, to be smart by creating these indices that give, you know, that are published and that people can see as a way for them to, you know, invest intelligently. And it's not just the Core Earnings Leaders Index, it's the Very Attractive Stocks Index that Bloomberg also is running, and they're also running a third one called the Bloomberg New Constructs 500. And that's just the S&P 500 weighted based on core earnings. I mean, it's just a smarter way to distribute the capital amongst the companies in the S&P 500 as opposed to just market cap. Because when that happens, you get these runaway super market cap stocks that are just getting more money because they're a large percentage of the S&P, and then they get bigger and they get more money because they're a large percent of the S&P, and it just grows. And it's a, you know, it's a vicious cycle. Well, let's break that cycle and not just reward the big because they're big. How about we reward the companies that have the highest core earnings, the best core earnings capture? And that applies to the S&P 500, and it applies to generally the The Core Earnings Leaders Index. And then there's the Very Attractive Stocks Index, which is doing, you know, super well also. Uh, the 1- and 5-year performance metrics are really tremendous, uh, for Very Attractive Stocks by themselves.

I think to, you know, speak on the difference in all those earnings metrics, you know, the way to get into that data— we put together this recent training here David did for our professional members only, but we want to actually make it available to everyone in the community. There's a link we posted in the podcast and replays, but David does a deep dive here on the professional membership. So we talked about, you know, some of the model portfolios, most attractive, most dangerous, dividend growth, and you get all of those with a professional membership. And so we made this replay available to everyone. You know, you get— if you have any questions about it, you know, what's in a professional membership, David probably answers them in this video. And as well as kind of seeing all the features you can access, all the tools you can access with a membership, this training replay is available now in the community for anyone to take a look at. So wanted to point that out to let everyone know that that is available.

Yeah, I asked Kyle to make this available for free for everybody because this was typically going to be around, you know, more for just the higher paying subscribers, but I thought it'd be great for everyone to see. Like, see what you get, what's there, what's behind kind of the curtain on some of the more sophisticated tools. Because even if it's not something that's for you, it's nice to know what's out there and how it works. And, and if you had really truly superior data and analytics, you know, how we would deliver that to folks. And so anyway, it's just, it's there for folks to see, and I appreciate you, Kyle, for putting it out there.

Not a problem. We don't want to play that right now. And then also in the community, we wanted to kind of do a quick shout out. Got some more trade discussions going on. John Follins III here, he's adding in some of his, you know, picks, layering in, you know, fundamentals with new constructs, layering in some other metrics and different views on looking at options and trading these different names. He's posted a bunch of stuff in the community, so definitely check those out if you're looking for different ideas or maybe, you know, how how to layer new constructs on top of other analytics and metrics as well, especially options.

John is a wizard, and when these go into the main general discussion, consider that a huge gift because he typically does these in the pro and institutional section only. And yeah, I think John is a true asset in our community, and you guys need to pay attention to what he's writing because it's typically really good. Alrighty. That's all we got today. We thank you for your time and attention, and we hope you have a great weekend. And as always, look, talk to us, email us, ask questions. We're here to help. We're here to help. We're here to make the capital markets smarter, better, higher integrity, because we believe that's going to be what's best for all and best for society. So reach out to us. We want to hear from you. Thank you.