New Constructs' Live Podcast: Intelligent Capital Allocation - 8 December 2023

Thank you so much for joining us this week. New Constructs Live Podcast, Intelligent Capital Allocation. This is our last podcast for 2023. We're excited to have you join us. Here are our disclosures and disclaimers. And our agenda for today. A lot of research is coming out near the end of the year, so be sure to keep your eye out on your emails or out on the research page within the tool. There was the Danger Zone podcast, Street Earnings Both Overstated and Understated, Most Attractive and Most Dangerous Model Portfolios came out, the Dividend Growth Model Portfolio Featured Stock came out, and then the All Cap Index and Sectors research came out as well. So there's a lot to read through there. And the All Cap Index and Sectors also has free abridged versions, just like the S&P. So if you are not yet a customer, there are still great reports out there for you to check out. We'll be heading out to society shortly. David will take over. We've had lots of interesting conversation out there. Some opportunities coming up with the Value Investing Accelerator. We wanted to talk to you a little bit about our changes coming up for the podcast in 2024 and also do a brief year in review. The end of the year snuck up on me. I hope you guys are doing well. I did want to do a quick recap of the year before we all start dispersing. We've had a lot of new folks join us for Stock Tracker 50, and I can see some of them in attendance this week. We're really glad to have the new group of folks. Some of them are returning customers. Some of them are brand new to New Constructs. We hope that you're joining us out on Society as well. We think the live podcasts on Society are a great way to interact with us, particularly for new customers. And if you're not familiar with Stock Tracker 50, please don't hesitate to email me at support@newconstructs.com and I'll make sure that you can get to know it because it's a great entryway into the New Constructs ratings and research. Which are the best around. All right, David, would you like to take us out to society?

Yeah, absolutely. Let's talk about what's going on. So what my favorite post of the week probably is on the SPX Casino, your 4x bets. Uh, Julio had a great post here about a new product, the 4x SPX, 4x levered ETF. And what does that mean about where we are in society that this is the stuff that's selling? Because as you all know, we're rolling out ETFs too, and it's not an inconsequential thing to get an ETF out there and to raise assets. It depends on what people want and what the market's like. And it's a very competitive marketplace. I mean, you can see in our coverage there are 700, 800 ETFs in existence. There's 7,000 mutual funds. There's a lot of people competing for your dollars. So the fact that they can roll this out means that there must be demand for something that's 4 times levered. And I think that's pretty crazy. More power to you if that's how you want to make it happen. But that's, I think speaks to the reckless amount of speculation that we're seeing in the market these days. And then next on the coverage question, which is a really good one. That's from Panaki, who's on a regular basis asking some great questions. He was talking about how you added 40 or more stocks. We've added like 400 or 500 new stocks and really just in the last few months. Some of them are small stocks. True. But you know what? We didn't really have much of a choice because we cover all the big stocks. And if we're going to increase our coverage, as everyone has been asking us to do, We got to go with some smaller ones because there aren't any big ones left. That's why we're seeing some of these smaller stocks. And I think Panaki was asking questions about, well, how small is too small? We struggle with that question too, to be completely fair. Part of the reason we didn't grow our coverage for a long time is because we were covering pretty much everything that was big and liquid enough for any meaningful size of investment. And by that I mean, You need to have at least $1 million in daily trading volume on average if you want to build a position in something of any size without meaningfully moving the stock. So as an example, $1 million in average daily trading volume, if you are a $100 million fund and you want to be in know more than 100 stocks, well, that means that's about a million dollars per stock. So if a stock's got a million dollars in average daily trading volume, you need to probably spend at least 10+ days getting into that stock. Because if you try to buy it all at once, you would own all the volume on that day, and that would cause the stock to go way up. People would see huge amount of buying, and there's probably not a lot of folks who are wanting to sell that much all at one time. So you'd have to keep Raising the price to lure more people in to sell to you when you're putting out that much demand relative to the typical trading volume. So when we're dealing with institutions and professionals, as is our primary focus, covering stocks that have maybe $10,000 of trading volume in a day just doesn't make sense. And a lot of these smaller stocks are down around that level. We're adding coverage anyway because people said they wanted us to add coverage, and so we're crushing it. Our technology has been taking off, as you've seen through our quarterly updates, how quickly and efficiently we are going through and taking care of the new filings that come out every quarter. Our technology is just allowing us to add companies better, faster, and much more efficiently. Hawaiian and Alaskan Airlines. So this was a, a great example. And Kyle and I were actually talking about how we would've loved to have done done our M&A analysis on these guys because this is clearly a situation where the acquiring company overpaid because it went down, the stock went down a bunch, but yet the acquiring, the target company went up by the amount of the premium. What does that mean? That means that Alaskan Air overpaid. The stock price went down by the amount it overpaid. And the amount that it overpaid is effectively the implied synergy by the purchase price that won't be realized. So I don't remember exactly how much the stock went down, but they paid $18 a share in cash. That's a 270% premium over Hawaiian Air's closing price. So Hawaiian Air goes up by 270% because guess what? That's money. in cash they got paid. Alaska Air goes down, let's say, and I'm making up numbers here because I don't have them in front of me, goes down by $8 a share. That's because they just transferred wealth from Alaskan Air to Hawaiian Air by virtue of overpaying by that much. There's a great mathematical way to do that. We cover that in all of our analyst training where we look at exactly how much a purchase price is and how much of that purchase price is over and above the market price is premium. And then premium paid that can't be justified by synergy or an increased amount of profits that the combined companies can create, anything that can't be justified, any increased amount of profits that's not enough to justify the premium is just value transfer from the acquirer to the acquiree.

Yeah, looks like in this case it was Just under $6 a share from Friday to Monday for Alaska Air. It's come back a little, come back up a little bit, but that was the initial reaction there.

There you go. So I was guessing around $8, but $6. So $6 and whatever the market value of that would imply for Alaskan Air, or a third of its market cap was effectively overpayment over and above whatever synergy the market believes Alaska and Hawaiian Air can achieve. There you go. Overpayment. By the way, you notice there's no penalties for overpaying, but you can be sued if investors are unhappy with you underpaying. That's why bankers and everyone are very happy for everyone to overpay, because the CEOs aren't paying with cash out of their own pocket. That's shareholder money. And now they're a bigger company. They're in a larger peer group. They can command greater executive compensation because, hey, you know, we're almost as big as United Airlines. You should pay us like that. And everybody in there is making money except for the investors. That's how M&A works most of the time. All right, let's talk about a new product and training offering that we have. We partnered up with Stock Trading Pros and a guy named Pete Renzulli, who I've known for many years. And we're providing a new product called the Value Profit Blueprint. And I'm really excited about this because it combines Pete's market timing and order flow expertise with our fundamental analysis. And look, when I was running a hedge fund, I will tell you, man, I think we really, we missed out on timing on a lot of stuff. Yeah. Are we right? Are we right on our stock picks? About 90% of the time.

Yeah.

Yes. Are we right right away? No. And could our strategies be better served by really taking into account technicals for entry and exit of positions? 1,000%, especially when it comes to taking into account order flow, because order flow is everything. If the institutions are selling, it's probably not a good idea for you to be buying. So anyway, Pete and I have been talking and working together for a long time. We did a 90-minute training session earlier this week. We've already had 1,000 people watch it, probably 1,200 at this point last we checked. It's super popular. It's a super, I think, a really powerful combination of offerings. And this training is available for you guys to watch here at this link. I think we're going to put that somewhere. How are we getting that out to people?

It's in the deck, so it'll be out on Society very easily for folks to follow.

Beautiful. So the link is in the deck. So go to Society, get link. And then you can also sign up for a really super good deal that we're offering. I mean, a ridiculous deal. 4 live training sessions, 3 months of coaching, and then you get access to Stock Tracker 50 and our Most Attractive Stocks. Those 2 are over $1,000 combined. You get access to Pete's training, which is another $2,000. All in, we're talking about something close to like $8,500. Pete and I decided we're going to do a special founders-only offer and do this for $1,990. A pretty incredible deal for what I think is an amazing offering, not to mention all this training that's going to go with it. This is something we've been doing in our webinars for new constructs and a bunch of stuff on YouTube. Pete has mastered this training and coaching. He's been doing it for a while. It's been really successful for him and his community. They've seen a lot of growth. And we want to offer it to you all too. This is where you're going to be able to get in and just see us put the real work, all the concepts and strategies and things that we talk about between new constructs and stock trading. Well, I highly recommend you check out the Value Profit Blueprint. We explain everything we're doing. It's super transparent, just a better way of investing. Fundamentals works, but we live in a world, as we talk about all the time, like with SPX casino. There's a lot of speculation, and there's no doubt that speculative movements and speculative investors are pushing stocks around back and forth in the wrong direction— sometimes in the right direction too, most of the time in the wrong direction— back and forth. So to be a fundamental investor that pays zero attention to that, we think is risky. So come join us there in the Value Profit Blueprint and take advantage of insights around fundamentals And technicals to really, I think, maximize your ability to outperform in the market.

Do we have a New Constructs offer coming up next week?

Yes, we have a new promo that we're going to be doing, a promotion we're going to be doing. I think we're going to kick it off next Wednesday. And you should be paying attention to that too. There's going to be a special webinar and unique training on New Constructs that we're going to be doing. So a bigger emphasis on training and how not just sign up to our, for our products, And get the best research in the world, but lock in opportunities to get training and ask questions so you're getting the opportunity to make the most out of it. I'm excited to be doing what I'm doing with Pete, but we're also going to be focusing on training and supporting our, our professional and institutional clients much in a much more directed way.

That's great. The data is so deep and there's so much of it. It's going to be really helpful. I know that there was a question here on the Q&A. And I'm not sure if anybody from the, from the analyst or content team has any thoughts on this. The question is, any thoughts on OKE's acquisition of MMP?

I haven't seen that. That's the kind of question I think that we're going to be much better off—

If we know in advance.

Yeah, that's right. I know we suspended the rating for OKE here. One OK, I guess maybe that's how you pronounce it, Oniok.

No, actually.

Which we will do. Look, when, when we know there's a big acquisition that's going to change the face of the financials, we have to say, okay, hold on. What we see around quality of earnings could change and we won't know until we get the new filing. Sorry, we can't answer that in more detail.

Actually, MMP was a long idea prior to the acquisition, so we wrote a quick update on MMP's side because it was a previous long idea.

Ah, here we go. Magellan Mystery Partners. That's right. So we, we crushed it on that long idea then because it got bought.

Yeah. This one was up 30% in very short time because of the acquisition announcement.

I think I remember that we published the report and then pretty quickly someone bought it up and we're like, yeah, somebody's paying close attention to our research.

Yes.

Yes. Corporations. Doesn't surprise me. I mean, this was an incredibly good deal. Super cash flow and We're seeing more acquisitions in the space, and that's part of why we've been leaning in on our long ideas. If you've been paying attention, professional and institutional customers, we've got some really pretty amazing reports. One of the last few long ideas been in the energy sector reminds me of Magellan Midstream Partners because I'm reading the analysis in the first few drafts and I'm thinking, oh my gosh, this story looks too good to be true. Making so much money, so cheap. How is someone else not already bought this stock or bought the whole company. That stuff does happen. And we're seeing M&A in the energy sector really picking up because there's been so much, I think, misinformation around the transition to electric or non-carbon. And capital has overemphasized going into electric and non-carbon, AKA Tesla, and moved away from energy sector. So all those energy sector stocks are really super cheap. And super high cash flow. And by the way, we're not transferring everything over to wind and solar overnight. It's going to take 20, 30 years, in which case these energy companies are going to be making a ton of money as they have been for a lot more time. So we'll take that one okay or onioki question and raise you, yeah, the energy sector looks really attractive.

Thank you. I'm going to take back the screen. Our last update, I'll jump in here, David, please interrupt me as needed. We will be changing our podcast schedule for 2024. We're going to move this particular podcast, Intelligent Capital Allocation, to monthly, and we will still be completely driving that agenda from society. So as we just pointed out, get your questions in early. We very much want to make sure that Intelligent Capital Allocation is both analyst-driven and community-driven. That is going to be the place to have more in-depth conversations about investment research in general and the investment research landscape in general. And then there's going to be 2 new offerings which are more tactical. One will be a monthly offering for our professional and institutional clients, and this is going to be some of that training that David was referring to earlier. These are going to be brief, 30-minute monthly quick dives into particular areas of the product that we think our professional and institutional members can be leveraging to increase the value that they're getting out of the product. And of course, that is what we want for all of our customers. So we're also going to be offering something called Open Office Hours monthly, and that will be open to everybody for their product questions. These last 2 are going to be tactical in nature and product-focused. So your analyst questions will still be best responded to either out on Society or during the monthly Intelligent Capital Allocation podcast.

Just to add to that, I think we've had a great year plus of our podcast. It's been awesome. I really appreciate the work that you've done, Tam, in putting these together, organizing. And, and then chopping these things up into great videos. We've done a ton of reverse DCF case studies. Those are amazing. The, the Value in 60 Seconds, just great product. And I think we've learned that we can keep these a little more focused and apply them a little bit more in a, in a more catered way to smaller groups and, and make it more interactive.

Yeah.

Get the questions in there, focus on that. And, and then also I think we want to do some additional leaning in and, and support with our professional institutional customers. While also having an open forum, ask me anything environment for all of our clients. I think that's one of the things that's unique about New Constructs is a huge amount of transparency. We show you where we get the data from the footnotes. We show you why the data is superior, and we'll answer any question you want about just about anything. Other firms can't do that. Not even close. So thanks, Tam. This is a great plan for next year. I'm excited.

Yeah, I'm looking forward to this. 2023 has been amazing. So we're going to jump into a year In review here, Kyle is going to jump in and talk to you about all of the amazing content that's been delivered in the past 12 months or so.

To start with, we've got, this is all the research delivered to you. Some of it available to all members, some of it to our pro and institutional members. We'll start out with the Long Idea and Danger Zone, long and short picks. Between the new ideas and updates, we had 45 different long ideas. Is on companies, you know, from tech sector like Cisco, energy sector. We just talked about some of those ideas that we really like. Some other basic materials companies, super cyclicals, everything in between. So wide-ranging view of long ideas there. We actually closed out 17 positions, which in review I realized was a lot more than I had thought about during the year. Catches up to you. We're doing a lot of cleaning on that side, some of the older long ideas that had run their course, or maybe companies that— excuse me— had increased a lot, and we're taking gains there as well. On the Danger Zone side, 38 new ideas and updates, uh, and 4 position close updates there as well. We've seen a lot of the overvalued companies in recent months make some runs that hopefully course correct as we move into next year. We've seen some crazy things with some of the real estate companies— Opendoor, um, Buy Now Pay Later, Affirm. Some of those names that we've featured many times have run up wild this year with no improvement in fundamentals. Um, so a lot of those danger zone picks remain open, which is why there's less of those position close updates there. We've got the model portfolio updates, 57 of those at this point, and we'll have 60 by the end of the year. That is one a month. We've got 5 different portfolios there coming to clients. Focus list long updates, we actually did 16 of those, and that is a range of adding companies to the focus list, taking companies off. Same thing on the short side, 10 of them there. On the available to everyone report featured stocks, we put out 44 of these. These are featuring companies on our model portfolios, one stock or 2 stocks from the model portfolio. Featured it, and we'll give you a quick synopsis on fundamentals of the company valuation and some of the adjustments we're seeing. So get a quick insight into some of those companies. And then our macro trends, put out 52 of those available to pro and institutional at this point. That's excluding that accompanying free version that Tim mentioned earlier. We put out an abridged version on all of those so you can get a glimpse of what you'll get with the full report. A lot of the reports have you know, 40+ charts in them on the S&P 500, all the sectors in the market, and then our all-cap as well. So tons of insight there. Um, and then the last item there, we've also put out podcasts, Frightening Season Find Reports, um, best and worst ETFs and mutual funds. So there's a lot going on, um, on that research tab of the website, and we're proud of all the work we put out.

It's an extraordinary amount of work. I have a hard time keeping up with it, and It's my job and keep up with it.

Huge amount of content. And I think almost every single piece of content serves to help our clients understand how to get the most out of our research. That was why we created Long Ideas and Danger Zone Ideas, was they are all individual case studies on how you can find your own ideas and use our research to do that. Because guess whose research we do to come up with our Long Idea and Danger Zone Ideas? We use our research. Same with focus lists, same with everything. We're showing you how to do it. That's the idea.

Yeah, I love that the using of the long and short updates as case studies for how to do this work has been illuminating. I wanted to point out 2 things before we move off the slide. One is, if you don't know already, all of our research is now available to be purchased à la carte. If you're new and you're interested in checking out some of the research, You can go to our website and visit our model portfolio area, and you can download free samples, and you can also purchase them singly there as well. They come in a subscription which you can pay monthly or annually. It's a great way to get to know different parts of the research. The other thing that I wanted to point out is for our members, The model portfolios are available on the portfolio page. I've talked to a couple of current members here recently about this, so I wanted to point it out because I was just concerned that maybe folks didn't notice. When you're accessing your portfolios in that dropdown list, you can see all of the different model portfolios there so that you can go in and see them listed all together, which is also a great learning tool. Should I show that real fast, Tam? Absolutely, please.

If you're on the ratings page, here we are from Magellan Midstream. You'll see there's the report Kyle was talking about, but when you go to the portfolios page, there's an option dropdown menu to look at all the portfolios. I've only got 5 or 6 here. Professional members, I think, can have 50 portfolios.

Exactly.

And as many stocks as you want in there. And you can see here, I've got a portfolio that's called the And then they of course get access to all the model portfolios. So you want to know what's on the most attractive stocks list? Boom, there it is. Worst ETFs. And you can sort by sector and style and just go through and see which ones make the list and don't make the list. Yeah, really amazing. But yeah, if you're a professional institutional person, you get all of them. Large cap, small cap dividends, dividend growth stocks, exec comp, all 3 types. Broken out there for you.

David, I know you were talking about coverage earlier a little bit in response to Panaki, but this is our 2023 wrap-up regarding coverage and other analyst activities that affect you, our customers.

We have an update on some of these numbers. On the bottom here, that 8,927, Tam, that's really 24,397. The 8,927 is a number that really only pertains to the short periods during filing seasons where we were adding. Coverage. Yes, we had a huge jump this year from 2,680, 2,700 to 3,400. So it's about 700. We hope to add a couple hundred more here or even more by the end of the year. We're getting a lot faster at this because of the technology. And you guys see that on a quarter-to-quarter basis when we're able to take all the new Ks and Qs coming in for every quarter and Never have a single day where there's any kind of backlog. It doesn't matter if they're sending 2, 3, 4, 500, 6, 7, 800 from the SEC to the SEC on a given day. We're crushing it. We're getting them all done. And that allows us to add companies to coverage a lot faster, giving you more coverage for more companies. And then the number of improvements to company models, 13, the smallest number on the page, but probably the most important. I don't think there's another firm. Let us know if you know of any other research and data firm that covers a large number of companies, 1,000 or more, that ever even talks about improvements to their financial model because of changes in accounting rules, ever talks about improvements to the way they measure cash flow, return on capital, all these things, earnings based on changes in accounting. and advancements in our understanding of how disclosures do or do not reflect the underlying economics of businesses. I don't know of anyone who does that. We did it 13 times. 13 times updating models for, for like 25,000 periods of data for just this year. If you go back over all of our history, 1998 to 2025, plus years, That's a ton of analytics updated. Huge work there. And then the number of SEC filings reviewed during filing seasons, that's actually 24,397.

Before we move off this, David, could you talk a little bit about the difference between premium and primary coverage, please? We have a question on that.

Yes. So premium coverage is going to be where we go through everything, footnotes, all disclosures, all non-income statements, balance sheet, and cash flow data. Primary coverage is going to focus only on income statement, balance sheet, and cash flow. We're doing this on the smaller stocks because footnotes tend to be less meaningful and material there, and it allows us to add the coverage very quickly, and it helps us in our data business where we are providing a pure data product. And most folks in the data business only care about income statement, balance sheet, and cash flow statement data. Our clients and partners in that space say we do that meaningfully better than everyone else as a standalone. And so we are focusing on those, and in the near future is going to potentially allow us to really ramp up coverage because we are in a place now, our technology's showing that we can analyze income statement, balance sheet, cash flow statement 100% automatically for over 60% of all the filings out there. So that's going to potentially allow us to ramp up What we're going to call our primary coverage super fast. Premium coverage remains on the really big, complicated companies because that's where it's needed.

Thank you. Our last slide to wrap up the 2023 retrospective. We focused a lot on community this year. Before I joined the Society of Intelligent Investors, our online community was launched in February and it's grown to nearly 300 members. We have some truly extraordinary contributors, and I just wanted to take a second to thank them. I know you hear about Giulio and Pinaki, and they drive a lot of conversations, and we're really grateful for that because we want to hear from you. We want the conversations to be community-driven, and we very much want to know what you're thinking about. We also have fantastic contributions from Jim and Stephen and Kent. Those are our top 5 contributors for 2023. Again, thank you for your time there. It's been super fascinating and super fun. Our YouTube channel, we've got 150 new videos on it this year. We have had a 1,000% improvement in our viewing year over year. We've had over 236,000 views of our YouTube videos. I'm hoping that in the future that number is going to be a lot higher because it's a great way to leverage all of the work coming out of our analysts. List and content team. And we have nearly 800 subscribers, which is again a huge improvement year over year. Thrilled that we are able to reach a wider audience out on YouTube. We try to cater to as many different groups as possible out on YouTube. The support channel has answered a lot of questions this year. That number just continues to go up as our new customers come on and have questions. We're always excited to get your questions. We're always happy to answer them. It might take us a business day, but we are focused on getting back to you as quickly as possible. And our podcast stats: 36 Intelligent Capital Allocation podcasts this year, which is an extraordinary amount of time and it's an extraordinary amount of focus from the highest levels of the organization. We have our C-level executives focused on this weekly, an extraordinary amount of dedication. And I'm just really grateful that the cross-company focus that has happened on this podcast has truly been extraordinary. So, internal, thank you, folks. And thank you to the audience. This is our last podcast for 2023. We will see you in 2024. We're grateful for all of your time and attention and contribution in 2023, and we look forward to more collaboration in 2024. Hope you guys have a great weekend.