In this podcast, Motley Fool senior analysts Jason Moser and Ron Gross discuss:
Why short-term trading in and out of the market is not the answer.
Okta‘s (NASDAQ: OKTA) strong results and optimism for the rest of the fiscal year.
Lululemon Athletica‘s (NASDAQ: LULU) online sales growth.
Ford Motor Company (NYSE: F) CEO Jim Farley’s comments on plans for electric vehicles.
The latest from Chewy (NYSE: CHWY) and Salesforce (NYSE: CRM).
Nick Maggiulli, COO of Ritholtz Wealth Management, discusses insights from his book, Just Keep Buying: Proven Ways to Save Money and Build Your Wealth, why it’s important to splurge, the data behind retirement savings, and much more.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on June 3, 2022.
Chris Hill: It’s a Motley Fool Money radio show, I’m Chris Hill and I am joined by Motley Fool senior analysts Jason Moser and Ron Gross. Good to see you as always gentlemen.
Jason Moser: How are you doing Chris?
Chris Hill: We’ve got the latest headlines from Wall Street. Nick Maggiulli from Ritholtz Wealth Management is our guest. As always, we’ve got a couple of stocks on our radar. But we begin with the weekend guidance. On Thursday, Microsoft officially cut their guidance for the current quarter citing the impact of foreign exchange rates. Earlier in the week JP Morgan Chase CEO Jamie Dimon said investors should brace themselves for an economic hurricane and that his company is planning to be very conservative with its balance sheet.
After telling executives at his company that he expects them to be in the office five days a week, CEO Elon Musk said he has quote, “A super bad feeling about the economy” [laughs] and plans to cut 10% of the jobs at Tesla. Ron, let me start with you because we got the monthly jobs report Friday morning. I think that’s an important data point, but increasingly, I find myself paying more attention to what large companies are saying and doing.
Ron Gross: Yeah. I think that’s fair. Macro reports certainly can be interesting, but they’re sometimes hard to decipher, and they’re even harder to predict where they’re going to go next. It’s safer and I think easier quite frankly, to focus on what management teams are telling us about their companies. For now, [laughs]based on your read right there, it certainly seems like they’re telling us that weakness is here and accelerating. “Economic hurricane” doesn’t sound that good to me, Chris. Now, I do think it’s important to note that management teams don’t have crystal balls either and they tend to overcorrect.
What they see now and what they predict in the future doesn’t always come to fruition and sometimes they can either be too conservative or go the other way. But it certainly pays for us to listen, especially about the companies we’re watching closely. Specific to something like Microsoft, which is mostly a bringing doubt of guidance because of the strong dollar from the foreign currency impacts of that. They really only cut revenue guidance by less than one percent and they cut profit guidance by a little over one percent. We can take this in and we can understand what they’re doing. I don’t think we need to panic, especially if it has nothing to do with the operating business and it has to do with something macroeconomic like a strong dollar that is largely out of their hands unless they’re going to hedge.
Chris Hill: Jason to what Ron was saying there in terms of companies, maybe overcorrecting. Think about what Jamie Dimon said, how conservative they plan to be. I mean, we’ve been saying this for a while on this show, this is one of those [laughs] times where there isn’t really an incentive for companies to be anything but conservative right now.
Jason Moser: Well, I agree. I think in regard to looking at macroeconomic reports versus boots on the ground, I mean, remember like the Fed also was saying on repeat here for the last several months that inflation was going to be transitory. We’ve seen how that played out. It’s all to say, you got to take those types of things with a grain of salt. Look at the actual conditions on the ground, that’s how I prefer to at least take it. I think ultimately what it does as investors, gives us obviously a more holistic picture. But it certainly feels like there are reasons to at least consider subscribing to Dimon’s hurricane theory.
I mean, when you look at consumer sentiment at its lowest point, I think in something like a decade. When you look at the personal savings rate now at 4.4% lowest since I think 2008, you consider inflation. You consider the confluence of events that are going on all over the world. In all of the things that are generally speaking, really out of our control. The Fed can only do so much to try to help tame inflation and keep things moving toward that soft landing we talk often about. I think it only makes sense to really actually look at what the companies are doing because I think they honestly are the ones with a better look into the real economy and what’s going on. We talked about this for a while, I mean, it does feel like while we’ve had this labor market where it’s tough to fill jobs. At some point that flips, the shoe goes on the other foot. It feels like that moment is getting closer and closer.
Ron Gross: I will say with respect to using macro in your individual company analysis for something like foreign currency impacts. We tend to not really focus on that too much because there will be years where that will be a benefit and there will be years where that reduces profits. In the end for long-term investors, for people that hold companies for long periods of time, those will even out over time. We shouldn’t be thinking about trading in and out because this year the dollar might be strong or next year the dollar and may be weak. As long as we’re holding companies for the long term, I think we’ll be fine.
Chris Hill: Let’s get to some notable earnings this week and we’ll start with Okta. Shares of the ID authentication company up more than 15% this week after strong first-quarter results. Okta also raised their earnings guidance for the full fiscal year. Jason, notable considering the environment we’re in.
Jason Moser: Yeah. Obviously, one of the companies that has had a bit of a tougher year as it continues to work its way toward profitability and sustainable free cash flow growth. But this was certainly another encouraging quarter as they continue to really forward to that value proposition and organization IT and security strategies. When you look at the numbers and revenue, $415 million that grew 65% from a year ago. This is a subscription business which is really nice, but that easily outperformed their own guidance just a quarter ago. Their subscription backlogged and now at $2.71 billion, that was up 43 percent from a year ago.
Like you mentioned, boosting full-year guidance is just a tad that’s nice to see and calling for revenue now for the full year of just over $1.8 billion, that would represent a growth of 40% assuming they hit that target. No reason to believe that they won’t, particularly when you look at the customers they are bringing on. They added another 800 customers, bringing their total customer base to 15,800. That was up 48%. Again, as we look with a lot of these companies, the big customers, the customers that are spending $100,000 plus per year, that stands now at over 3,300 and that grew nearly 60%. I think all things considered, the business is doing very well. The big risk is obviously a security breach and they did have an incident over this past quarter. It’s worth noting, they said based on their own assessment there, it had a what appears to be a negligible effect on the business. But that’s something always to keep in mind with a business like Okta.
Chris Hill: Online sales growth highlighted a strong first-quarter report for Lululemon Athletica, profits and revenue were higher than expected. The company also raised guidance for the full fiscal year. Despite all that, shares at Lululemon were basically flat this week. Ron, is Wall Street not entertained? [laughs]
Ron Gross: It’s curious a little. Yes, the report was better than expected, but margins were weak. But you might expect that margins would be weak for a retailer because they are for all retailers [laughs] in the environment we’re living in. Perhaps it wasn’t strong enough to overcome those thoughts and investors just weren’t impressed. But it was a solid quarter, revenue up 32 percent, comp sales up 24 percent. As you said, direct-to-consumer very strong at 32 percent growth, and now the direct-to-consumer revenue represents about 45 percent of total revenue. That is pretty strong. Management has been raising prices on selected products to offset higher costs from, as we say, the global supply chain disruptions, as well as increased raw material costs, labor costs, freight costs, it’s a trifecta of higher costs.
CEO Calvin McDonald said the company has not seen any negative impacts on its sales volume as a result of those price increases. Lululemon exhibits some pricing power is a premium product, is a luxury product perhaps their customers are not as price-sensitive as in some other areas. But because of that higher cost we’ve mentioned earlier, gross margins fell, and adjusted operating margins fell. When you boil it all down, earnings per share is still solid, up 28 percent. Now, finally, they’re seeing a modest impact from lockdowns in China on the stores, some vendors are struggling but the overall impact on the quarter was more than offset by strength in other regions. Growth plans remain on track for 40 new stores in Mainland China. Let’s keep an eye on that. But as you said, they did raise guidance. Trading at 32 times full-year guidance right now, a premium price but for a premium company.
Chris Hill: The automotive wars just got a lot more interesting. Details after the break, so stay right here.
Jason Moser: You’re listening to Motley Fool Money.
Chris Hill: Welcome back to Motley Fool Money. We are still here with Jason Moser and Ron Gross. Signs of life from Chewy this week. First-quarter profits for the pet retailer were much higher than expected and shares ticked up a bit as well. Jason, this is another one of those companies, rough year for the stock but when you look at the underlying business, it does seem to be improving for Chewy.
Jason Moser: Rough year, I see you what you did there.
Chris Hill: I swear that was not intentional.
Ron Gross: I didn’t see it coming.
Jason Moser: I don’t believe you. [laughs] Well Chris, the love of our pets is stronger than any bear market and stock performance notwithstanding, it really does look like Chewy’s business continues to deliver the goods. I know they’re delivering them to my house. Judging by the numbers, I’m not alone. Revenue of $2.43 billion was up 13.7 percent from a year ago. They brought in $6.4 million in free cash flow. Little bit of a concern on the gross margin side, 27.5 percent, which was down 10 basis points. It’s not a whole heck, nothing really terrible there, but it’s worth noting simply because they are recognizing some headwinds there on the cost side. Supply chains, inflation, that is something that plays out on this business to an extent, but the auto-ship customer sales increased to 72.2% of total sales. That’s a new record, that’s up from just over 69% from a year ago. That’s strong retention.
That’s a reliable revenue stream when people just hit that auto-subscribe button and just have that food and that those pet goods just appear as if from nowhere every month on their doorstep. Active customers up 4.2% from a year ago, they now have 20.6 million active customers and net sales per active customer grew 15% reaching an all-time high of $446. They continue to leverage their marketing and ad spend bringing that down as a percentage of revenue that will contribute to profitability as they get there, guiding for 16% revenue growth at the midpoint here, they will break through $10 billion in revenue this year. With shares valued now at around 1.3 times sales has been, like you said, a tough year for the business, but honestly, this looks like a really interesting opportunity for a business with obviously a very resilient market opportunity in pets. I think investors looking for some speciality retail, keep your eyes on Chewy.
Chris Hill: There was a lot to like in the first quarter results from RH, but the luxury home furnishings company said it expects second quarter revenue to drop and shares fell a bit on Friday. Ron RH has been such a strong performer for a long time, but this is another one where 2022 has been a rough year for the stock.
Ron Gross: Exactly, down 60 percent from its 52-week high, but even with that, still up 600 percent over the last five years. This is a strong report, but there are clearly are some things to be concerned about. Revenue was up 11 percent that’s not too bad, then gross margins increased, that’s interesting. Their product margins increased and the company was very careful to hold prices steady even though demand began to weaken. Now, it’s risky not to keep pace with the discounting that is going on across the industry there, but management sees the bigger risk being brand erosion and model disruption as they want to maintain that premium price point.
As a result of new investments, operating margins fail, they’re introducing new concepts, things like RH Guest House, which is their first introduction into the hotel industry, the hospitality industry, they have one location so far. If you’re interested for in a luxury overnight stay. But again, a solid report net income up 54 percent guidance was soft, that’s what we have to watch. They see second quarter of revenue down 1-3 percent with margins further eroding full-year revenue growth of only 0-2 percent. That’s what’s troubling here. They did authorize a large $2 billion share repurchase program only 12 times earnings right here, if you want to take a little bit of a flyer on business firming up a year or two from now.
Chris Hill: I don’t want to question management that has done such a good job for so long, but why would you launch your own luxury hotel when it seems like a partnership opportunity with an existing chain, seems like an easier lift, doesn’t it?
Ron Gross: It’s a very expensive proposition to enter into. You’d want to see them stick to their knitting, they only have probably, I want to say 67 percent or so galleries and there’s plenty of room for expansion here if they just would stick to their knitting. But they seem to be really moving into other areas pretty heavily. That’s where the costs add up and that’s where you have to be careful.
Chris Hill: Great week for Salesforce, first-quarter profits and revenue were higher than expected, they raised earnings guidance for the full fiscal year and shares of Salesforce rose more than 10% this week, Jason.
Jason Moser: Yeah. Really nice thing for Salesforce. It really is a testament just to the value in this business. The market they pursue and customer relationship management, getting data from all of these different communications channels, they helping businesses learn more about their target audiences, which ultimately helps this business retain customers drive sales. Salesforce is the No. 1 player in the space there. These numbers really, I think just are a testament to that. Revenue, $7.4 billion up 26 percent from a year ago, and operating cash flow of $3.7 billion, it was up 14 percent. They did update full-year revenue guidance, they guided down just a tick, and that ultimately though primarily due to currency effects and they mentioned places like Japan and the call. I think that speaks back to Microsoft’s recent reiterated revised guidance.
I don’t know that I’d worry too much about that because when you look at the business itself, everything seems to be, as Ron would say, firing on all cylinders. Where sales cloud and service cloud businesses are both six billion dollar plus businesses, they grew 18 percent and 17 percent respectively. Slack, the acquisition they made not too long ago, outperformed internal expectations, brought in $348 million in revenue for the quarter versus their expectations of 330 million and going back to those big customers, that number of customers spending more than $100,000 annually grew 45 percent from a year ago.
The data-cloud business continues to perform those acquisitions of MuleSoft and Tableau, that segment of the business, grew 15 percent from a year ago. You put that all together while they did guide down on the revenue side, just a tick, revenue for earnings per share now $4.75 at the midpoint, then value shares today at around 38 times full-year earnings projections. While I wouldn’t say that’s cheap like conventional standards, remember number one, this is a leader in its market. Number two, it actually makes money. I think when you put that together, it looks like a reasonable multiple for such a strong business for folks looking for some opportunity in that tech space.
Chris Hill: This week, Ford Motor CEO Jim Farley said he wants to make it easier for customers to buy his company’s electric vehicles. Farley said he wants Ford’s EVs to be sold exclusively online with no dealer markups or price negotiations. As for marketing, Farley said their EVs are so popular, that they’re already sold out, “If you ever see Ford Motor doing a Super Bowl ad on our electric vehicles, sell the stock.” [laughs] Ron, bold words from someone not known in his industry as being the loudest talker. Among other things, it seems like Farley is gunning for Tesla.
Ron Gross: More so than gunning for Tesla, I think he just sees the current business model as somewhat antiquated. The change could be a win both for the company Ford, as well as the consumer. They said that the current distribution model adds around $2,000 an extra cost per car compared to Tesla. A third of that cost is tied up in inventory, another third is spent on advertising. Unlike Tesla, which has been able to sell directly to consumers, the traditional manufacturers have not been able to. I didn’t know this, but there are laws written in some of the states that don’t allow car companies to go directly to consumers. The franchise dealers are going to have to play a role, I think at some point unless we get the laws changed.
Chris Hill: Ron Gross, Jason Moser guys, we’ll see you later in the show. But up next, author Nick Maggiulli has three important words of advice for investors, so stay right here. You’re listening to Motley Fool Money.
Chris Hill: Welcome back to Motley Fool Money, I’m Chris Hill. Nick Maggiulli is the chief operating officer at Ritholtz Wealth Management. He is the creator of the popular blog Of Dollars And Data, and he is the author of the new book, Just Keep Buying: Proven Ways to Save Money and Build Your Wealth. He joins me now from New York City. Nick, thanks for being here.
Nick Maggiulli: Thanks for having me, Chris.
Chris Hill: Bunch of things I want to get into, let’s start with the book. I think you’ve pulled off something rare when it comes to this category of books. That is, this is a book about money and investing that I think is really for everyone. It’s for younger people who are just starting out, it’s for people who are starting from square one financially. There are parts of this book that are very much for people like me, older people getting closer to retirement. All these different ages and groups you’ve managed to write something just for them, was that your intention when you started the book or was that something that you just realized through the process of writing it?
Nick Maggiulli: Yeah, I think I wanted to make sure I had a very big market because I think in the first chapter I talked about this thing called the save-invest continuum. That’s basically, how much money you’re saving versus how much your investments can earn you. Basically, which one of those is higher, basically, tells you where you are in your financial journey, and where you should be given you’ve been saving for a long time. What I realized was that one idea, if you can save a lot of money, but your investments are earning you a lot, you’re probably very early in your career and you have to get high income. But if your investment can earn a lot of money, but it’s really hard for you to save more to keep up with that and you’re probably later in your career, you’re probably retired, you probably have very big nest egg, it’s running out of money if the market goes up 10 percent.
But salaries in the extreme example, let’s say your $10 million, market goes up 10 percent, that’s now a million bucks. It will be very difficult for someone who is 22 years old to save a million dollars after tax rates. That simple idea became the framework for the entire book and that’s how I wanted to frame that. I wanted people to be able to take anyone, be able to read and take something away from it. Of course, everything will be applicable if you’re 70 years old and you’re not working anymore. You don’t need to learn about savings. I’ll say skip that section. That was the idea, keep it as broad as possible for everybody.
Chris Hill: I do love that. It’s the first time I can remember an author just openly telling the reader, you can skip this if you want. This might not be for you. You can skip to chapters later in the book. There’s so much data in the book and yet there really are some emotional underpinnings and we’ll get to those in a second, but part of what you do in this book is use data to make different points about saving and investing. It’s right there in the title for anyone who didn’t clue into that. Just the idea that the way to financial independence is to consistently by over time. There are a couple of myths that you’ve used data to bust, I guess. Was there a part of the book that was more fun for you to write?
Nick Maggiulli: I think my favorite chapter was Chapter 17, just talking about buying during a crisis, which is basically this idea of when the market’s down badly, how do you keep yourself motivated and how do you reframe thinking about purchasing when the markets are down bad spot. You can keep the faith and keep buying really. Because I think it’s the toughest thing to do is when energy market’s down 15, 20, 30, 40, 50%, how do you keep the faith and not just give up on everything? That’s where that came in. That’s my favorite chapter. But I think the most surprising chapter was the second one where I realized there isn’t this major retirement crisis we’re told in the mainstream media, when only 1 in 7 retirees are selling down the principal in their assets or their nest egg. Six out of 7 are living on security and what the investments are generating. It’s actually a surprising result. After I saw that, I was like, how is that possible or obviously there are people who are struggling. I’m not here to minimize that. It’s not a general retirement crisis, it’s a crisis that’s affecting a smaller subset of the population and therefore our policy responses should be set to those people and there’s not a huge retirement crisis like I’ve heard for so many years.
Chris Hill: I’m assuming for people who are older and in that situation, there has to be an adjustment that goes on there. If you’ve been someone who’s just worked in methodically saved and invested over time, when you actually retire, I’m assuming there’s an adjustment of wait, should I be spending money because I don’t have any income now?
Nick Maggiulli: Yeah. That’s why it’s scary. It’s really scary for people and this is true of anyone who have been people who have a lot more, higher net worth and things like that. We have clients for it. It’s tough way to teach them how to spend money. It sounds like if you think about it, if someone has a very good diligence, let’s say of the 80th, 90th percentile on saving and now have to go from that to flipping the switch to the other side. It’s really tough, especially if they have a lot of money. It’s like, wait, I can spend 2x or 3x what I’ve ever spend in my life and I still have a lot money. It’s like, that sometimes happens.
Chris Hill: For younger people who are just starting out, I like the fact that you make the point in the book. Your savings rate shouldn’t be static because your income is not static. That also goes against what some people advise that it’s like no, you have to have this rigorous savings rate no matter what your income.
Nick Maggiulli: Yeah. I think just create skilled for you one way or another. You’d be like, “Oh, I saved 20 percent. I have all this extra money. I’ll spend it.” It’s like, you’re going to be wasteful in some circumstances and then in times where it’s tougher or maybe you got job loss or something or your income got reduced and you’re trying to save 20 percent and then you’re feeling guilty every time you spend money, it’s like you lose on both ends. It’s like, no, you should just save what you can. If you’re like, I’m not saving enough, then you need to increase your income so that you can. I think that’s the sustainable path outward. That’s the long-term path. It’s not the best short-term solutions that you’re spending, but that’s really difficult and I explain why that’s difficult. You can do on a short-term and the longer-term path is income and I think the data is overwhelmingly in support of that.
Chris Hill: Thank you for pushing back on the more extreme elements in the financial media universe who advocate Spartan lifestyle that never involves treating oneself to cup of coffee. I appreciate that. Along those lines, what do you splurge on? I know you live in New York City, you don’t have a car. When you’re looking to treat yourself, what form does that take?
Nick Maggiulli: Restaurants. I like going to nice restaurants and for me it’s like I would say, “Hey, if I told people there was some amount spent at restaurants, it’s an exorbitant amount of money.” But I don’t spend money on other things. This t-shirt is 20 bucks. I don’t have super nice clothes. I don’t have a car. I think most of my money spend obviously on rent, just New York City. But then where I’m actually been [inaudible 00:26:05] is probably restaurants. I just like experience going and things like that.
Chris Hill: Let me get to a couple of chapters and one that when I looked at the table of contents before I even started reading the book, the chapter heading that lead talked to me was, why you shouldn’t buy individual stocks? Which, once I read the chapter because I read that and I thought, “Oh, boy, are we going to get into a fight here if I interview Nick?” But what I realized is that, among other things, you’re the kindred spirit of our mutual friend Morgan Housel, that it’s just for you and let’s face it. For a lot of people, it’s not necessarily about the finances, it’s also about the emotions that go into buying individual stocks.
Nick Maggiulli: I think a lot of it so that we can talk about the performance stuff. We can talk about the SPIVA reports S-P-I-V-A, you can look those up and you can see performance up. Let’s put that aside or something you talked about the financial aspects. I think the tough part of having most of your wealth in just a handful of individual stocks is an existential issue. Chris, if you and I picked the basket of stocks and we waited a year and your basket was higher than mine, does that better stock record? We can’t say with certainty. You might be. Statistically, if we did that for 3, 5, 10 years, you probably be a better stock picker over the long run. Over 10-, 20-year period for sure we identify that.
But there’s still a lot of luck involved and that’s what makes it tough for me. In so many endeavors in life we try identify talent pretty easily and in others, it’s very difficult and I think stock picking is one where there’s so much luck involved with that it’s really difficult. For most people, I don’t think you should be spending all your time in a place where you can’t really identify if you’re luckier. Now, of course, I’m not against people taking a portion of a small portion of their wealth, 5,10 percent, whatever and you putting into individual stocks or doing it for fun, that’s completely fine. But I think there’s the cautionary wealth that you need to grow and you need that to happen then you want to have fun with a little piece of it, that’s fine. But I just don’t think most people should be having most of their money and only a handful of individual stocks.
Chris Hill: Is your approach broad index, ETFs, that sort of thing?
Nick Maggiulli: Yeah. Cheap, broad-based index ETFs and a lot of others. Remember, that’s not the only way. I’m not saying you have to own stocks. There are people that have gotten rich and real estate, there are people got rich one farmland. There’s a lot of ways to do this, and I think that’s another big misconception in the wealth building industry. It’s like, oh, I have in the true path to wealth. But it’s like no, that’s not true because I know somebody rich real estate people that have already been touched stocks. I know somebody rich stock, people that don’t even touch real estate and vice versa. It’s more about finding what works for you.
For example, I don’t think I’m ever going to own any real estate outside of my own primary residents. I don’t think I’m ever going to own like an investment property because I don’t want to deal with tenants and all that. I don’t like that personally. That’s just my personal thing. Of course, that may change, but that’s just how I feel. Some people love that and it’s I don’t want to go out and stocks, I really would rather managed properties and so that’s great for them. I’m trying to give you a plethora of options and then you can pick and choose what makes sense for you. I think that makes more sense than saying, this is the only way to get rich.
Chris Hill: As I said, there’s a ton of data that you do a wonderful job of bringing to lighten the book. But I think for my money, one of the most important chapters is late in the book, a chaptering titled why you will never feel rich. For me, it was pretty illuminating because it’s something that I’ve been wondering about particularly with seeing people either in the financial media or just in sports entertainment, people who are exponentially wealthier than I am. I wonder like, “Wait, do they feel rich?” Because I remember sharing Neal Brennan, the standup comedian, tell story about the times in his life when he’s been on a private jet and it is someone else’s private jet. Every single time he has been on someone’s private jet and said something like, “Wow, this is really nice.” Whoever’s jet it is, points to another jet at the private airport and says, “Wow this private jet is nice, but what I really wanted, but I was hoping to get that one.” I just thought, “Oh, my God, there is even among the super-wealthy. On some level, nobody feels rich.”
Nick Maggiulli: It’s very true and I think it’s because you keep moving into social circles. As you gain more wealth, you probably start consuming slightly differently, you probably get into different social circles or move to a different address. Whatever it is, you start getting into social circles where there are other people spending more money, you’re going just run into richer people, you start getting more successful and you’re getting invited in different events. All these things happen and you can always end up on a treadmill. How do you solve for that? You have to remember where you’re from and think of your wealth in absolute terms always on this ever changing relative terms.
The example I use, I say, if you have a $100,000 in net worth in the world, that puts you in the top 10 percent globally. I would say someone in the top 10 percent is rich. Now you’d say, “Well Nick, that’s not fair. You can’t compare me to random people elsewhere around the world, it’s not a fair comparison.” I understand the argument. But in the book I talk about Lloyd Blankfein who’s the ex-Goldman Sachs CEO and he says he’s not rich, he’s just well to do it, but he is a billionaire. But the issue is he’s hanging out with people like David Geffen and Jeff Bezos, people who have 10, 100 times his wealth, and so he doesn’t feel rich relative to them. Now you’re going to say we well Nick that his argument is ridiculous, but he is making the same argument. If I’m going to say, “Well, he’s rich,” you’re saying, “Well, he’s going to say I’m not rich because you can’t compare me to average people like you and me Chris.” You can say like, “I’m indifferent.”
He’s using the same argument that we would use when we’re comparing us to people like, let’s say in the developing world. He’s going to use that argument against us because we’re not in his social circle and so I understand that. I’m not saying it’s right, it is obviously a more outlandish argument on objective terms, but it’s the same argument and we’re just cutting hairs. Where you’re like, what is rich really? You can say I’m rich globally, but maybe you’re not rich locally or some other way. It’s just about realizing that like, how do you define rich? Set some absolute metric and then judge yourself based on that and your background, and where you could be, that’s the better way to do it instead of always chasing that feeling of trying to be rich and then never feeling it.
Chris Hill: Before I let you go, just want to touch on your blog for a second and again, the blog is online, it’s called Of Dollars And Data. You wrote something earlier in the week entitled rallies to the bottom and I was hoping you could just share a little bit of that with the listening audience, because you unpack some data that I think is worth keeping in mind.
Nick Maggiulli: Yeah. Before this week, we had seven losing weeks in a row and we finally had a winning week. Thank gosh. Now S&P is on a positive streak, now broke that negative streak, but the issue is like a lot of times when you see that like that could just be like a rally, but then we keep going lower. The examples I went through the four biggest crushes in US stock market history in the 1900s, which includes 1932 was the bottom there, 1974, 2003, and 2009. I looked at those, all of those had at least three rallies of more than 10 percent gains before they continued their decline. For example, the Great Depression, which is obviously the worst, had an 89 percent total decline from top to bottom tick.
But over that period, there were six separate rallies of over 10 percent, one of those rallies was up 48 percent gain. After that first big crush, that first big rally was from that bottom, you gained about 48 percent from that local bottom, and then it kept going lower over that, of course, the next 2.5 years. It’s one of those things were like just because we have a rally anywhere out of the woods yet. Just keep in mind, I’m not saying all we should move to cash, no, it’s nothing like that, I’m not trying to scare people. I’m just saying you need to understand the nature of markets if you want to be a good investment. You have to realize how these things happen and we might have a rally to the bottom and it’s terrible if it happens, but just be prepared for it. That’s what you have to do, it’s like recognizing what can happen and then acting accordingly.
Chris Hill: The book is Just Keep Buying: Proven Ways to Save Money and Build Your Wealth, is available everywhere you find books, and just pick up the copy because it’s great. Nick Maggiulli, thanks so much for being here.
Nick Maggiulli: Thanks for having me, Chris, appreciate it.
Chris Hill: After the break, Jason Moser and Ron Gross return with a couple of stocks on their radar, so stay right here. You’re listening to Motley Fool Money. [MUSIC] As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against them. Don’t buy yourself stocks based solely on what you hear. Welcome back to Motley Fool Money, Chris Hill is here once again with Jason Moser and Ron Gross. Guys time to get to the stocks on our radar, our man behind the glass, Dan Boyd, is going to hit you with a question. Jason Moser, you’re up first, what are you looking at this week?
Jason Moser: Sure. Well, I feel like I told you our recent trip to France, it just reiterated to me the value, the necessity of a company like Uber in this day and age. I’m going with Uber this week as my radar stock ticker U-B-E-R. Uber is just a mobile and digital giant. As the world becomes more connected, this company’s market opportunity grows plain and simple. They get three primary segments of the business there and mobility, delivery in freight, also a burgeoning advertising business there, lots of different ways to cross-sell. Uber has reached verb status, much like Google, and I don’t think you can underestimate the power of that and they’re also building out interesting, I don’t know a lot of people know these, they’re building out a membership side of the business now, which I think is very compelling. Members spend 2.7 times more than non-members and they exited 2021 with over 6 million members and total for their different membership offerings. I think when you put that all together, this is a business still getting its fee or its wheels underneath it, so to speak. A lot of opportunities left though as the world becomes more connected, so this is one I’m digging into.
Chris Hill: Dan, question about Uber.
Dan Boyd: Yes, Jason has a total addressable market look these days. Still, literally everyone on the planet.
Jason Moser: It basically is and that they referred to that mobility delivery freight three multi-trillion dollar market opportunities as they quoted Dan, so any which way you take it with a grain of salt, it’s still big.
Chris Hill: Make no mistake people. There are always going to be those things we will never forget about certain companies. In Uber’s case was that their S-1 filing where they said our total addressable market is every person on the planet.
Jason Moser: Awesome, they’re not wrong.
Chris Hill: Ron Gross, what are you looking at this week?
Ron Gross: An update for those that have heard me talk about Titan International, TWI, industrial tire and wheel manufacturer for years and maybe even bought it on my recommendation. It’s been a long road. I have been talking about owning this stock for nine years now. Patients appear to have paid off because of the current economic environment, business is strong, TWIs order books are full through 2022 and 2023 could be even better, management says. The price of corn, soybeans, wheat, and cotton, are near historic highs, there’s no surplus out there, which should lead farmers to spend more on equipment for quite some time. Shares are up 75 percent this year.
This year in this market environment, at about $19 a share, only trading at 7.5 times their recent EBITDA guidance. Back in December, Titan’s Chairman pulled an interesting move by suggesting shares could be worth $24 a share. He is an interesting guy if you want to read some of his letters. According to him, still 25 percent upside left from here to be totally transparent, I did sell 10 percent of my stake earlier in the week. I still have 90 percent left, I will sell into strength as the stock continues to go into the 20s.
Chris Hill: Dan, question about Titan International?
Dan Boyd: I’m just happy the old economy run is back in the proverbial driver’s seat and is talking about Titan International again, what a great time to be an investor.
Chris Hill: Thank you Daniel. Two stocks that are related in a lot of ways. Obviously Dan, you’ve got one you want to add to your watch list?
Dan Boyd: I’d tell you what, Chris, what does every Uber need? That’s right, tires. Every vehicle that doesn’t have rails needs tires. I don’t think tires are going anywhere. I think I’m going to go Titan International this time mainly because I like the stock price, is very affordable.
Chris Hill: Very nice. Ron Gross, Jason Moser, guys thanks so much for being here.
Jason Moser: Thanks Chris.
Chris Hill: That’s going to do it for this week’s Motley Fool Money radio show. The show is mixed by Dan Boyd. I’m Chris Hill, thanks for listening. We’ll see you next time!
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Chris Hill has positions in Alphabet (A shares), Alphabet (C shares), Chewy, Inc., JPMorgan Chase, Microsoft, and Okta. Dan Boyd has no position in any of the stocks mentioned. Jason Moser has positions in Alphabet (C shares) and Chewy, Inc. Ron Gross has positions in Microsoft and Titan International. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Chewy, Inc., Goldman Sachs, Lululemon Athletica, Microsoft, Okta, RH, Salesforce, Inc., and Tesla. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.