Revolve’s venture into brick-and-mortar retail with its first Aspen, Colorado store was not just a success, but a triumph. The initial pop-up store in December was a mere glimpse of the potential, and the decision to sign a multi-year lease was a resounding testament to Revolve’s ability to exceed its own expectations.
Why does this matter? Revolve, a digital-first business that has been diligently building its brand and e-commerce model, has made a strategic shift. Despite previous comments from earnings calls suggesting no serious plans for retail, Revolve has now embraced the potential of the physical retail space.
But the results were too good to ignore. It wasn’t so much that they sought retail, but demand called, and Revolve answered the call.
Aspen is just the beginning. With a robust digital marketing apparatus already in place, and the success of its first brick-and-mortar store, Revolve is poised for further expansion. This is a pivotal moment for Revolve, as it can now potentially translate its digital brand into a network of physical stores, paving the way for future growth.
This has the potential to increase an already impressive high average order value from the benefits of in-person shopping: impulse buyers from being able to feel and touch the merchandise. The Aspen store has also been a source of bringing in new customers, which is Revolve’s advantage and opportunity.
Advantage: Revolve’s customer base is mostly Millennial and Gen Z females. Roughly 60-70% of Macy’s and Nordstrom’s customers are Gen X and Boomers. I am not optimistic about legacy department stores. They have a problematic long-term business outlook. Macy’s is investing heavily in Bloomingdale’s and Bluemercury, but their brand name has declined significantly in the past decade. Nordstrom is doing a better job attracting young customers due to its off-price retail chain, Nordstrom Rack, but focusing on deals and discounts is a race to the bottom, and they will likely lose to Amazon, Walmart, and Target. I never understood Nordstrom’s business model because the off-price division does not complement the flagship stores. A “luxury” brand shouldn’t target consumers on a budget and vice versa.
Opportunity: Macy and Nordstrom need help mightily attracting Gen Z customers. It’s dire. Both companies will likely not show any year-over-year sales growth. Macy and Norstrom will eventually go private and leave the public market soon. It’s not a matter of if but when. These businesses may be able to restructure by going private, but it will likely take a very long time. Going private would also make raising capital difficult and cause a potential departure from key employees. Once the move happens, the capital and employees will likely shift towards a company like Revolve.
Is the Aspen store a signal for immediate retail expansion? I hope not. The focus should remain on building the digital platform and live events—Coachella, The Super Bowl, Cannes, etc. Physical retail should only complement the existing business unless the data overwhelmingly suggests otherwise. Much work is needed to build the brand through product/category expansion and international growth, which is more cost-effective through social media and pop-up events.
It would be premature for Revolve to make an aggressive retail push like Aritizia (3-5 new stores annually by FY27). They also don’t need it. Revolve has a much bigger online presence than other digitally native brands like Figs, Warby Parker, or Allbirds.
As a shareholder, I advise Revolve management to focus on curation rather than expansion. Identify 3-5 unique locations to create a highly personal and immersive experience. The stores should be bright and feature natural wood fixtures, making them engaging places to shop. Aspen works because it is an affluent city that blends luxury, charm, and scenic beauty. However, a store like Aspen is not scalable to a nationwide rollout. The ambiance is more subtle than in bigger cities like Las Vegas or Miami. It offers lesser-known brands in the high-end category to stand out more to a wealthy clientele.
I have identified some markets for Revolve to explore that can create a potential Aspen effect:
Park City, Utah Nantucket, Massachusetts Jackson Hole, Wyoming Charleston, South Carolina Carmel-by-the-Sea, California Key West, Florida Santa Fe, New Mexico
Entering smaller but highly profitable markets is a strategic move that makes perfect sense. Revolve, armed with ample marketing data, is poised to make prudent decisions and identify a few Aspen-like markets. The goal is to create a small footprint of high-ROI stores that offer a curated collection of luxury fashion brands—a blend of art, immersion, and boutique feel. The key is a luxurious bespoke experience, catering to the target audience’s preference for experiences over value or deal-hunting.
There is still plenty of room to grow. Despite a challenging macroeconomic picture for luxury retail, I haven’t sold any shares. I am confident in the business’s fundamentals and see a long-term pathway for growth and overperformance.
Why Tesla Shareholders should emphatically vote to approve Musk’s $56 Billion pay package
Musk’s compensation isn’t just about dollars; it’s about shaping Tesla’s destiny and soul. As shareholders, we are not just passive observers but active participants in this journey. Our votes on his pay package are a direct reflection of our belief in his vision and our commitment to Tesla’s future.
Under Musk’s guidance, Tesla’s stock price has skyrocketed, defying recent market turbulence. This dramatic rise starkly contrasts the stock’s value in 2018, which was a mere $21. Long-term shareholders have reaped substantial financial gains from this growth, a clear testament to Musk’s undeniable influence. This is not a personal viewpoint but an impartial, nonpartisan, indisputable reality.
Musk’s strategic decision-making has been a driving force behind Tesla’s success. Against all odds, he has led the charge in electric vehicle and clean energy innovation, reshaping entire industries. His ongoing leadership is not just important; it’s crucial for maintaining Tesla’s competitive edge and ensuring a prosperous future for the company. The potential loss of his leadership should inspire every shareholder to vote in favor of his compensation package.
Tesla’s long-term vision hinges on visionary guidance. Voting on compensation reflects shareholders’ trust in Musk’s ability to steer the company toward its goals. Elon’s compensation package is entirely contingent on achieving ambitious targets. If Tesla fails to meet specific triggers, Musk receives no compensation. This ensures that his pay is directly linked to the company’s success, aligning his interests with the shareholders. This alignment of interests should foster trust and confidence in every shareholder.
Tesla shareholders should ask themselves why they invested in the company in the first place. How many cars they sell this quarter or next quarter is less important than how they are positioning themselves for a Robotaxi world. This is an AI and Robotics company. Shareholders who dislike Musk or want to invest in a typical car company that achieves predictable quarterly numbers can choose from a bevy of other publicly traded companies.
Actual long-term Tesla shareholders don’t see Tesla as a car company; they see it as a venture with a start-up mindset into sustainable energy, AI, and software development. At heart, the vision is greater than just manufacturing vehicles. There is a clear line in the sand. Do you want Tesla to attempt to achieve moonshot or be a mediocre car company run by a Wall Street figurehead chasing predictable quarterly numbers?
If you vote no, you clearly communicate that you do not want Elon running Tesla. It’s a big middle finger to spite someone when the sentiment and stock price are low. Accelerate the transition to sustainable energy, revolutionize transportation, and produce humanoid robots at scale vs. grabbing low-hanging fruit and achieving goals with lower-moderate upside?
The rhetoric being spewed by pundits is biased, carrying a political agenda. Elon Musk’s loudest and most vocal critics are likely not Tesla shareholders, meaning they have no skin in the game. Think about it. Why would you “invest” in a company with a CEO you find deplorable? Does that make sense?
A story about business and technology has been hijacked by partisan fundamentalists. This rabid audience is tribal and less open to listening to opposing views. Elon Musk has been tagged as a villain that commentators will continue to deride. They have used the recent downturn in the stock as ammunition to defend their ideology.
Attacking Elon Musk has become a proxy for attacking President Trump. It’s that simple. These pundits are not your friends and are far from advocates of unbiased investment advice. Tesla stock could 100x and produce more than 200 million all-electric cars in a year; Elon Musk is still a con man to them, and the company is still a bad investment. Facts, data, and performance don’t change a fundamentalist’s opinion. It also won’t get them to admit they are wrong. The goal is to see Elon and Tesla fail spectacularly. Ask yourself if their interests align with yours as a shareholder.
I have voted yes because Elon’s pay compensation is necessary and mission-critical to Tesla’s future growth. Not voting for this package could potentially have catastrophic consequences. Losing his leadership would be a setback for Tesla and the future of our society as a whole. Musk is a man on a mission, and we as a society are in debt for his projects, which are critical to improving humanity through Tesla, SpaceX, Neuralink, The Boring Company, X, and xAI.
Elon Musk has revolutionized the electric car industry and taken on unimaginable financial and reputational risks. His sacrifices and suffering paved the way for Tesla’s success, allowing shareholders to thrive. This pay package is a testament to his past performance and a powerful incentive for future success. I voted yes because it keeps the trailblazer in place and re-positions Tesla into propelled growth for the next decade.
A Zoom court hearing in Michigan involved a defendant who was allegedly caught driving with a suspended driver’s license.
I invest in both companies.
I see solid fundamentals and strength in both businesses.
It is important to remember that the growth is still early in markets that are still evolving. Evaluating these companies based on traditional valuation metrics is problematic because these industries are far less static than other sectors. Both have bright futures, but Zoom would have a slight edge if I had to choose the better long-term investment based on a risk and reward estimation. This suggests a potential for high returns, inspiring optimism in potential investors.
Zooming in: Misunderstood as a one-product company:
Company
Revenue (Billions)
Gross Profit (Billions)
Earnings (Millions)
Palantir
2.23
1.8
209.8
Zoom
4.53
3.5
637.5
1. Core Functionality & Additional Services:
Zoom offers foundational features like video conferencing (Meetings), chat, and phone calls.
But on top of that, they provide additional services built around this core functionality like:
Rooms – dedicated video conferencing hardware for meeting spaces.
Events – hosting large-scale virtual events.
Contact Center – cloud-based call center solutions.
2. Openness and Integrations:
A key feature of platforms is openness. Zoom offers a Developer Platform (https://developers.zoom.us/docs/), allowing third-party developers to create custom applications that integrate with Zoom’s core services.
This extends Zoom’s functionality and caters to specific user needs. Imagine a Zoom app for scheduling meetings directly from your calendar.
3. Diverse User Base and Use Cases:
Zoom caters to a wide range of users, from individuals to large enterprises.
The platform’s flexibility allows it to be used for various purposes, such as business meetings, virtual classrooms, telehealth appointments, and even social gatherings.
In essence, Zoom provides a foundational communication platform and allows users and developers to build upon it to create customized experiences. This is a core difference from a product company that offers a fixed set of features.
Zoom has a larger TAM and a much easier pathway toward highly profitable growth.
According to the most recent reports, Zoom boasts 191,000 enterprise customers. While the exact number might fluctuate, Palantir has several hundred enterprise customers (1,300-1,500), significantly less than Zoom’s reported customer count.
Palantir primarily targets large enterprises, providing software platforms for data integration and analysis, often with over 10,000 employees and significant revenue. Zoom has a much broader customer base with businesses of all sizes.
One company targets a niche market of government agencies and large corporations with specific complex enterprise software solutions. The other offers a communication and collaboration solutions platform to businesses of all sizes, with its bread and butter being video conferencing.
Zoom is available in the Education, Financial Services, Government, Healthcare, Manufacturing, and retail industries. Palantir targets many of the same sectors; however, its platform is bulkier and has no actual application use for smaller enterprise businesses. Palantir’s software is generally considered expensive, with some estimates suggesting hundreds of thousands or even millions of dollars per year. Zoom offers a freemium model with tiered pricing plans, different features, and user capacities for businesses and government agencies.
A significant market opportunity ahead with an exceptional product:
Zoom saw 325.81% revenue growth in 2021 due to the pandemic. It is safe to say they will never see this type of year-to-year growth again, but it doesn’t need to.
Zoom is riding a consistent growth trend that began long before the pandemic. Work-from-home or Remote Work, whatever you want to call it, is the inevitable increased globalization of work. Fast Company coined the term “Gen Global” For Gen Z, who prefer “work from anywhere” and prioritize travel over education. Young workers grew up on social media and are more comfortable communicating via video conferencing.
Working full-time in the office is a dying trend. The new long-term trend is a form of hybrid work, from which Zoom will likely reap the rewards. As technology improves, the migration from On-Prem to the Cloud continues, and older CEOs phase out, companies will become more receptive to Zoom’s platform. Hybrid work is inevitably the future and growing; companies that resist the trend will lose out on talent, leading to a loss in profits. Zoom’s strategy to capitalize on this trend is to continue improving its platform and expanding its customer base, particularly in the government and healthcare sectors.
Zooms provides cloud-based products that the next generation of workers will use. Meetings offer a better mousetrap for workers and are becoming an essential product for employers to provide as an efficient way to communicate with each other.
It is popular among most workers who see it as a “perk.”
Reduced costs for real estate
Expanded pool of recruitable talent
Increased worker retention.
Adopted over time as hardline proponent CEOs of returning to work retire.
Fundamentals vs. Valuation:
Zoom and Palantir have been public for less than five years, so evaluating past performance based on limited data is difficult. With companies like these, it is more helpful to first zone in on the fundamentals to make an educated guess about the future.
The Artificial Intelligence Platform (AIP) is promising. I am a believer; however, the pathway is far from certain. Palantir’s commercial business is nascent, with even its most ardent supporters having to take a leap of faith that it will grow. Selling a product that companies don’t even know they need is almost impossible to map out five years out.
Palantir has a long sales cycle. Learning its solutions takes much longer because the learning curve is high. It will likely take a year before their platform shows any meaningful ROI.
AIP is intriguing and ambitious. The presentation deck is broad and alluring. It captures an investor’s attention when you help uncover human trafficking rings or battle the Russian army. I have determined the risk is worth the rewards as an investor, but valuing this as an investment is problematic because it assumes high optimism in a new space without a clear track record.
Can Palantir expand its commercial business and attract a broader and more diverse customer list? It is too early to know if the path is certain. A longer track record of low churn and increasing profits is needed to make a better determination.
Zoom’s software has already penetrated multiple enterprises, organizations, and businesses. However, its platform still has a lot of room to grow. Many analysts dismiss Zoom’s government business, which is largely untapped, more so than Palantir.
Another lockdown may not happen again, but the residual effects of the lockdown are seeing permanent work behavioral changes despite the pandemic being over:
Columbia University went fully remote due to Palestinian protests.
School districts in many U.S. cities went remote during the winter due to the flu/Covid outbreak.
Flu/Covid outbreaks will continue in the future.
Someone even had a Zoom court hearing while driving with a suspended license.
MLB’s league offices use Zoom Meetings, Zoom Rooms, Zoom Phone, and Zoom Webinar, while Zoom’s all-in-one collaboration platform is integrated across several MLB clubs, platforms, and broadcast outlets.
For a platform critics say is dying, people still use it daily. Zoom’s client list ranges from news broadcasts to hospitals, school districts, colleges, and courts. Its partnership with MLB is one of the best case studies of how Zoom’s suite of products can provide a large, multifaceted enterprise with various solutions.
The two biggest fundamental questions that I will be closely watching for the near future:
(1) Leadership execution, mainly if they can make intelligent acquisitions of smaller technology companies to complement and grow their existing businesses. Zoom has a large cash pile and will likely search for an acquisition target to grow its business.
(2) Increased sales and marketing. The CEO & Founder, Eric Yuan, acknowledged this on a previous earnings call: “One thing I think we did not do well, as I mentioned even before, is we did not do well on the marketing front. A lot of customers and users do not know Zoom has a greater presence in Team Chat functionality at no additional cost. And it works extremely well.”
Yuan has proven he can make great products, but Zoom must enter wartime sales mode. Zoom must ramp up S&M spending and sacrifice profits for growth. Zoom has a significant edge over Palantir because it has far more brand recognition. Conceptually, learning how Zoom’s products can help a business is easy. Practically, there is a low learning curve, with Meetings & Chat being extremely user-friendly. Foundry is a much more challenging platform to use and understand. Palantir would need to make Foundry less heavy to address many lukewarm and bad reviews. It’s an early and fixable problem but a potential red flag for future growth.
Both companies have potential opportunities, but Zoom has a bigger total addressable market. Despite the pandemic being over and Zoom becoming a target for other companies to criticize, Zoom’s platform is already becoming a mainstay in the enterprise ecosystem. The story is still early for its commercial and government businesses.
Low vs High Expectations and Sentiment
From a Price-to-Earnings Ratio and other traditional financial metrics, Palantir is an expensive stock. Is it overvalued? That depends on whether it can meet or exceed high expectations. Zoom is the opposite, an inexpensive stock with low expectations.
In the short term, Zoom has a low bar to jump. Analysts would view 5-10% YoY growth in 2025 as wildly optimistic and likely cause the stock price to double from today’s price. For Palantir, anything under 25%-plus overall growth would be disappointing and likely not well-received from Wall Street.
A company with high expectations can exceed them, but Zoom likely has better odds of meeting its target projections.
So why mention expectations? I discuss this to reflect the nuisance of investing and how to become a better, well-rounded investor. Suppose you are an investor and only consider the company’s qualitative aspects. That strategy probably works out in the long term, but you must ask yourself: Is there a compelling reason to buy the stock where it trades today? The better-discounted price you get, the more likely you have a higher return.
Analyst ratings for both companies are pretty tepid. Remember, Palantir traded above 35 in early 2021, and Zoom traded above 555 in 2020. Many bitter retail and institutional investors are underwater on their investments if they are still holding, but this is where the behavioral aspect of investing plays a factor. The mood of the market and macro environment was completely different during the pandemic than today.
The past is the past. An investor cannot change the price at which you bought the stock last year or five years ago. The company’s valuation is different, but if you are down 30-80% on your Zoom or Palantir shares, it doesn’t mean the company is 30-80% worse. Palantir has seen significant growth in its commercial business. Zoom is a high-quality company trading at a rare reasonable valuation with solid fundamentals. Zoom has yet to see its revenue decline, which likely would have happened if its platform was a pandemic fade. The low sentiment has manifested skepticism about the viability and feasibility of the Zoom platform. This creates a potential opportunity for patient longs who do not care about the lack of momentum. Shares for both companies are not overbought according to the relative strength indicator (RSI), a momentum-oriented technical analysis tool.
Final Thoughts:
Both of these companies have compelling evaluations. They meet the criteria for quality companies. I give the edge to Zoom because it trades more at a discount. Both companies have an opportunity because their balance sheets look healthy, and their cash flow is growing steadily.
I may seem down on Palantir, but as I said earlier, I invest in both companies. Although it looks fairly valued today, Palantir is not an overhyped AI company. I could be underestimating its fundamentals, meaning it is grossly undervalued today.
I love the fundamentals, but valuation matters. Can you ignore the possibility of an economic slowdown, a hiccup, or a U-turn in sentiment or the story’s narrative? Can you invest successfully, ignoring risk and assuming a large meteoric rise based on already-priced assumptions? I don’t have enough conviction to go all in on one name, but I do have enough of a risk appetite to stay on the ride and let it play out. Zoom’s sentiment today is low, and all the momentum it had during 2020 and 2021 seems to have evaporated. Although not dirt-cheap, Zoom appears like an inexpensive stock with better odds of overperforming.
While it’s difficult to say whether Big Tech is past peak growth, investors should start thinking beyond 5-10 ticker symbols, no matter how incredible they are.
An obvious point needs to be made: If you have been investing for the past 10 years and have yet to own at least one of the big tech companies, you likely have been missing out. Any fund manager who has ignored these names has committed financial malpractice. The most significant single-day market cap gains in the past four years have come from Meta, Apple, Amazon, Nvidia, and Microsoft.
If you don’t own one of these names, you might ask yourself, “Why?”
These companies have a significant competitive advantage, allowing them to maintain their market share. They are well-positioned to benefit from several long-term trends, such as cloud computing and artificial intelligence.
It also helps that these companies can write blank checks to fight against regulatory scrutiny. They also can burn through a lot of cash on projects or initiatives that are unprofitable yet still maintain pristine balance sheets.
If you already own these names, there must be a compelling reason to sell them, and I don’t see any obvious red flags. These are companies you typically hold and don’t trade. However, strong evidence shows these names are no longer must-buys at any price.
In 2022, Facebook’s user base stagnated for the first time.
Apple’s revenue growth has been 5.5% from fiscal years ending in 2019 to 2023
Digital advertising, which accounts for over 80% of Alphabet’s revenue, slowed down in 2022. While Google Cloud revenue is still growing, the growth rate has slowed compared to previous years. The same goes for Amazon Web Services (AWS).
Although these are not necessarily signs that these companies are in peril, they signal cracks in the foundation. These companies still have high expectations for future growth. Yet, there is clear evidence of saturation and slowing growth in their core markets.
Revenue growth has already slowed, and it will get more challenging for them to get bigger. Acquisitions are a costly way to grow, but with regulatory pressures, that is not likely a realistic option anymore.
Meta also authorized its first-ever dividend, joining Apple, Microsoft, and Nvidia. A dividend usually means transitioning from a volatile, high-growth company to a stable, slower-growing one. Anytime a company offers a dividend, it gives away value to become more widely held by large institutions like pensions and mutual funds. This is the trade-off a company makes when issuing a continuously growing dividend.
What’s happening is that these companies are maturing. They are more predictable and closer to the consensus, aligning closer within parity to the general market. The Magnificent 7 is no longer a group of companies that produces alpha; it is a risk management group. The days of these names creating outsized gains in your portfolio are likely over. These companies will succumb to the law of large numbers, even Nvidia.
Is this a bad thing? Not necessarily. However, the ability of these companies to grow in size in the next ten years will likely be slower than in the past ten years. Looking at these names for supercharged growth is the wrong mindset for an investor. It’s wrong on both a fundamental and a valuation viewpoint.
Probabilities, Probabilities, Probabilities
The secret is out. These are high-quality businesses, and much of the value has been priced. The more new money you add to these names, the higher you will have to pay and the lower your future return.
There is still a place for adding stable, high-quality businesses in your portfolio, but better strategies exist to build a portfolio that outperforms.
Valuation and Quality Matters
An investor aims to find undervalued assets and dislocations in the market. Undervalued in valuation and fundamentals. Investing is not always about zigging when everyone else is zagging. An investor should also buy and hold quality, even at a premium price. Not every move is a contrarian bet, but a well-rounded investor must be able to do both. Having flexibility in thinking but a structured discipline process. Investors that can do both of these things will likely rise above the median.
As an investor, you must think like a general manager of an NFL team. Not owning a company in the Magnificent Seven is the equivalent of trying to win a Super Bowl without a star quarterback or pass rusher. Teams need quality players, but cost and value matters.
Patrick Mahomes is the best quarterback in the NFL. You can call him the Nvidia of Quarterbacks. That doesn’t mean the Kanas City Chiefs should trade him for draft picks and sign a lesser quarterback to save money. It also doesn’t mean the Miami Dolphins or Chicago Bears should mortgage their future and take on Mahome’s salary by trading for him.
The one luxury of being an investor in your portfolio is that you are the GM and Owner. You can enact your vision and strategy without the fear of being fired. If you want to “win,” you must make good decisions and not think in such a pedestrian matter.
Expensive players come at a high price that can and will diminish when they can’t keep up with overhyped expectations. Continuously overpaying, even for quality players, is a losing strategy because teams will run out of cap space. You will get less bang for your buck and likely cannot field a well-rounded team. The Chiefs’ success largely depends on getting production from their core stars and signing and drafting overlooked players in free agency and in the draft.
Buying stocks based on the market’s direction is not an investing strategy but a gambling strategy. You are not investing in companies; you are betting, period. You are falling into the trap of the allure of the market: Chasing gains and buying based on superficialities. This is emotionally a draining investment strategy when the inevitable business cycle fluctuates.
Nvidia was trading below 120 in October 2022. How many analysts had buy ratings on the company then?
Meta was trading below 100 in November 2022. What was the mood and sentiment of the market back then?
Who was pounding the table to invest in these names?
Finding quality value
As a long-term investor, think about sleepers and good bargains. Will it work every time? Of course not, but this is a proven winning investing strategy.
Build core positions in high-quality companies and add to them when undervalued. It also requires pulling the trigger when the street sits on the sidelines. There is absolutely zero edge or creativity when you follow the consensus agreement.
Every investor should, at minimum, look at the company’s balance sheet they invest in. While a balance sheet is valuable for understanding a company’s financial health, it doesn’t capture everything.
Characteristics of a good company that goes beyond the numbers:
Strong leadership: A clear and inspiring vision from ethical, transparent, and accountable leaders.
Brand reputation: A robust and positive brand image that resonates with customers and stakeholders.
Intellectual property: Valuable patents, trademarks, and other intellectual assets.
Customer & Supplier Relationships: Strong and collaborative relationships with key customers and suppliers.
These characteristics are not found in a balance sheet or screener. It requires more unconventional research and abstract thinking. I still have certain investing principles. If a company has negative gross profits (Revenue minus cost of goods), It’s almost an automatic no-touch investment. When revenue cannot cover the basic expenses incurred to create a product or service, it’s like a diner paying $6 for raw materials to sell a $5 burger. Fundamentally, the business needs to be fixed and likely won’t scale. This may seem rudimentary, but money continues to be poured into Rivian, Lucid Motors, and many other unprofitable businesses.
My playbook? I will only add to specific names in the Magnificent Seven if they become significantly undervalued, which will eventually happen, but less often than before. These names are becoming in lock-step with the herd, which means less opportunity. I will not be shy about adding to these names when the herd and the street flood out of these names. This strategy is a lot easier said than done. Heavy buying is usually best when you don’t hear a company like Nvidia is a “must-buy” stock, even though it has been up almost 2,000% in the past five years. I am OK with holding these names and increasing my ownership through a dividend reinvestment plan but not adding to them at these levels with fresh money.
Good solid investing requires creativity and outside-of-the-box within a framework. Look at traditional metrics, but be willing to go against the grain.
Two examples of looking beyond the numbers:
WWE fans are dedicated and incredibly loyal. The amount fans spend on scripted sports entertainment is quite astonishing. The revenue growth since the company went public in 1999 has been consistent. You would think fans’ interest would drift towards another form of entertainment, but it hasn’t. Fans of the product in the 90s and 00s are still engaged and driving consumption today. Pro Wrestling still hooks newer and younger fans, even though the format hasn’t changed.
WWE fans are dedicated and incredibly loyal. The amount fans spend on scripted sports entertainment is quite astonishing. The revenue growth since the company went public in 1999 has been consistent. You would think fans’ interest would drift towards another form of entertainment, but it hasn’t. Fans of the product in the 90s and 00s are still engaged and driving consumption today. Pro Wrestling still hooks newer and younger fans, even though the format hasn’t changed. An entire book could be written about pro-wrestling fanaticism, but the popularity is likely to continue for a long time.
Taylor Swift: Her current “Eras Tour” has an average ticket price of $1,088.56. Compare that to Dua Lipa for her past Future Nostalgia Tour, the average ticket price was around $97, or Olivia Rodrigo’s Current Guts Tour, which falls between $117-$637.
Explaining why a fan would spend so much on a Taylor Swift ticket is based on a combination of the artist, music, physical presence, and live experience. Explaining Swift-fandom is a complex phenomenon beyond rational or conventional thinking. Life itself is not static, and you must look at investing similarly. Swift’s meteoric rise wasn’t an accident or purely based on luck. In a different life simulation model, Swift is likely to be successful, even under worse circumstances. That’s because her success is influenced by various personal factors, not just based on one or two songs. Good investing is a process, not just being lucky in 1 or 2 ticker symbols. Investors who can develop a framework for success will likely avoid the pitfalls that the majority fall into.
Moderna created the Spikevax vaccine, a miracle vaccine that saved millions of lives during the pandemic. Something not mentioned enough is how AI algorithms aided the vaccine in analyzing vast datasets to optimize the mRNA sequence in Spikevax.
While Spikevax isn’t an AI drug, it showed the potential of AI in accelerating and improving drug discovery. Moderna has always been an AI company since its founding in 2014. The impact of AI is seen almost everywhere in Moderna’s value chain, which makes it a leader in the space rather than a company responding to a hot secular trend.
mRNA vaccines have a bright future in medicine, and the story has just begun. mRNA is a molecule that teaches your cells how to produce antibodies that help fight certain diseases. The breakthrough discovery was utilizing Lipid Nanoparticles as a bubble to safely deliver the RNA (a fragile molecule) to its target cell. Once this happened, the technology was no longer theoretical but a signal that medicine had evolved.
The biggest challenge to Moderna and RNA technology is achieving efficient and targeted delivery to the suitable cells within the body. Optimizing RNA delivery efficiency to the desired cells remains a work in progress, but AI is streamlining this process with data analysis, experiment design, and manufacturing processes. These advancements have dramatically improved drug development efficiency, where we are no longer growing our drugs; we are printing them.
With Moderna experiencing tremendous advances in its platform, what does that mean for its future financial outlook?
Moderna estimates its combined annual revenue from its respiratory virus vaccines (COVID-19, RSV, and flu) to reach $8 billion to $15 billion by 2027.
Getting an approved RSV and flu vaccine would help Moderna return its revenue close to its peak during COVID-19, bringing in a whopping $19.3 billion in 2022.
Three approved respiratory virus vaccines may not propel its stock to all-time highs, but it would likely be significantly higher than where the stock trades today: In the 70-130 range.
What would be a paradigm shift for Moderna?
Moderna expects to add $10 billion to $15 billion in annual sales five years after launching new Oncology, Rare, and Latent diseases products by 2028. This is in addition to the previously announced $8 billion to $15 billion of expected sales from the Respiratory Franchise in 2027.
Moderna stock is undervalued and has a good chance of bouncing back. Whether it surpasses where it was in 2021 depends on how many approved vaccines it develops, the pricing, and the market adaption of each new product it launches.
My prediction. Moderna has 1-3 potential home runs in their pipeline outside of Covid. With a plan to launch 15 products in the next five years, one or two will likely be a blockbuster drug.
mRNA-4157 is a potential home run as a future cancer vaccine. Vaccines or therapeutic cancer treatments are always potential game changers because there is no effective cure for cancer. The timeline for a cancer vaccine is a long, unwinding road, but the results have shown promise against Melanoma, the key word being promise. Cancer therapeutics have always shown potential but are primarily unsuccessful. Although progress is very likely in the next five years, whether that will lead to a robust ROI is a complete mystery.
Moderna has many potential vaccines dealing with herpesviruses. There are over a hundred herpesviruses, but eight infect humans. Most people in the world have at least one of the eight herpesviruses:
Herpes simplex virus: double-stranded DNA virus
HSV-1 (oral Herpes): The most common type causes cold sores around the mouth. It can also cause genital Herpes, although this is less common.
HSV-2 (genital Herpes): This type of HSV causes genital Herpes, which can be painful and itchy. It can also be transmitted to a newborn during childbirth.
Human herpesvirus 3 (HHV-3): Varicella-zoster virus (VZV):
VZV is a viral infection that causes chickenpox in children and shingles in adults.
Human herpesvirus 4 (HHV-4): Epstein-Barr virus (EBV):
EBV is a widespread virus that infects most people at some point in their lives. It usually causes no symptoms, but it can sometimes cause Mono, a fever, and swollen glands.
Human herpesvirus 5 (HHV-5): Cytomegalovirus (CMV):
CMV is a common virus that can cause mild symptoms in healthy adults but can be severe for newborns and people with weakened immune systems.
Human herpesvirus 6 (HHV-6): Herpes 6
HHV-6 is a common virus that causes roseola, fever, and rash in young children.
Human herpesvirus 7 (HHV-7): Herpes 7
HHV-7 is a common virus that is often found in people with roseola, but it is not clear if it causes the disease
Human herpesvirus-8 (HHV-8): Kaposi’s sarcoma-associated herpesvirus (KSHV):
KSHV is a virus that can cause Kaposi’s sarcoma, a type of cancer, and multicentric Castleman disease, a rare inflammatory disorder.
There is a common theme with all Herpesviruses:
No cure.
Most people with herpes are asymptomatic: People can be infected with Herpes and not experience any symptoms. These cases often go undetected, contributing to the undercounting of total infections.
Very contagious and easy to spread in various ways.
The CDC does not recommend herpes testing for people without symptoms.
My test results indicate I have tested equivocal/positive for Herpes Type 2. Herpes Simplex Virus II is also commonly known as Genital Herpes.
Moderna has programs in development for Herpes simplex 1&2, VZV, EBV, and CMV.
Based on most conservative estimation models, 50% of the global population has oral Herpes, but more than 2 out of 3 people likely have it. Far more people, by a significant amount, have oral Herpes than are obese.
About 1 out of 8 people are more likely to have genital Herpes, but those estimates are likely conservative as well. The exact number is unknown, but it is expected more than 2 out of 10 people worldwide have genital Herpes. The complexity of the virus is that it is easy to spread even without symptoms, and it likely will not require any medical attention. Most people with Herpes do not know it, and the number of those who have recurrent painful outbreaks is in the minority.
Going through the process of getting tested for Herpes gave me insight into how profitable a vaccine would be.
My Western Blot results for Herpes Type 2, The Gold Standard for Herpes blood tests.
I recently took an STD Panel test and tested equivocal/positive for Herpes Type 2. I was pretty shocked as I never showed any symptoms. Mentally, it was starting to take a toll on my physique as I became worried every itch or pain was the beginning of an outbreak.
I learned that most standard blood tests for Herpes, when there are no sores or symptoms, are inaccurate. These tests are likely misinterpreting HSV-1 and HSV-2 antibodies with other antibodies your immune system produces.
I live in the only state in the United States that conducts the most accurate or “gold standard” for Herpes blood tests: The Western Blot at The University of Washington Virology Research Clinic. Through a referral from my provider, I was able to get my blood tested in person (anyone out-of-state has to mail their blood sample) and, after a week, received an official negative diagnosis for HSV-2.
Due to the complexity of the virus and the high number of asymptomatic cases or those that experience mild symptoms, a vaccine would create a massive opportunity with high demand and a large market.
Anyone who suffers from frequent outbreaks of Herpes is likely interested in a potential vaccine. More people would probably get tested if a safe vaccine were available, revealing a more prevalent virus than current studies suggest.
Even though Herpes doesn’t seem like a big deal, the stigma and psychology of the virus are real, particularly genital Herpes. How much money would you pay for a vaccine that would likely make having sex more accessible and safer?
Cancer and Herpes are only two potential growth catalysts for Moderna. The company has a long runway for growth, with over 45 developing drugs and 38 ongoing clinical trials. There’s a buffet selection of diseases, even though most of these trials will fail. Getting 10-15 drugs approved in the next five years could give Moderna a higher market cap than any other biotech company.
mRNA technology is still in its infancy. There are hurdles and uncertainty ahead, but the future looks exponentially promising. With many potential applications, this has the feel of the Internet or mobile phone in the early 1990s. Ten years from now, we will not look at mRNA as a fad but as a widely used technology much more significant than we could conceive today.
What’s wildly exciting is that we likely don’t know many things. Investing in what you don’t know is typically seen as a negative, as you can have blind spots toward risk factors. It’s important not to downplay the potential for a blue-sky scenario. The more we understand RNA and how to improve its delivery, the more likely we can see its capabilities and applications increase. Our current expectations may not be high enough. Moderna is developing drugs that can change the world and revolutionize medicine. It is important to remember the miraculous progress made in the past five years.
I told Rick Barry I’d rather shoot 0% than shoot underhand. I’m too cool for that.
Myth #1: Quants, sophisticated algorithms, and the brightest minds in the world struggle to beat the market, and most do not. The odds are that Sam from Nebraska will not outperform the market and is better off not playing around with individual stocks. Just invest in index funds.
The problem you have, and will continue to see, is the word “invest” being interchangeably used with trading, gambling, speculating, etc…
Not everyone buying stocks is investing, certainly not long-term investing.
Many fund managers or professionals you read about do not even invest in their own fund.
Why would you invest in a fund if the fund manager isn’t doing the same?
Wall Street’s strategies differ from what you should mimic.
Investors need to understand the fundamental difference between generating income and building wealth. Typically, stocks are a wealth-building tool. Generating income from stocks requires more short-term thinking and trading strategies.
The more I see investors tinker with their portfolios or trade in and out of positions, the more confused I become. Price movement in the short term is often volatile and unpredictable. It also can be stressful and gut-wrenching. Emulating Jesse Livermore or Steve Cohen is more challenging than being the next Ronald Read or Geoffrey Holt.
As for index funds, the fundamental problem with this instrument is that it is a self-defeating investing practice. You have chosen to match the market rather than outperform it. The technical framework of most index funds is capping your gains by taking on less risk. This investment vehicle may suit some people, but I find it unacceptable.
Investing in index funds that follow a benchmark may be suitable for those who can generate a lot of income or have multiple income streams. It also may work if your portfolio is already large enough to live off without supplemental income.
You get what you deserve: The equity investor is entitled to a bigger reward because they took on more risk. Investing primarily in an index also does not change behavior or protect investors from the psychology of investing. Remember, future returns are not guaranteed. Index investing is popular because it has done well historically. Once again, a 10-15% average annual return is not guaranteed, and there is no way to assess the probability of future annual returns with pinpoint accuracy.
“A really wonderful business is very well protected against the vicissitudes of the economy over time and competition. I mean, we’re talking about businesses that are resistant to effective competition…”
“There is less risk in owning three easy-to-identify wonderful businesses than there is in owning 50 well-known, big businesses.”
– Warren Buffett
I never understood the attraction to wanting to own the entire market. It insulates yourself against a particular risk, but this diversification is unnecessary and can show a lack of focus and conviction.
Owning ten or more index funds or ETFs in your portfolios is “analysis paralysis” on steroids. There likely is a lot of overlap and bloat.
An investor must ask themselves, “What is the bigger picture?”
Diversification could help against risk, but over-diversification will likely hurt performance.
Diluted returns: Being right on a particular holding in a fund or index won’t make a material difference. The percentage of your portfolio is too insignificant to make a meaningful move.
Unnecessary risk protection: Some companies have a market cap equal to greater than the GDP of a small country. Not wanting to own these companies individually due to their potential to go to zero is not the best way to assess probability and risk.
The Brock Purdy/Tom Brady effect: The 49ers got lucky when they drafted Brock Purdy in round 7, pick #262. The Patriots got lucky when they drafted Tom Brady in round 6, pick #199. If these teams were confident that these quarterbacks would turn out the way they did, they would have drafted them in much earlier rounds. These teams took a small risk that paid off handsomely. Investing has similar scenarios. Investing $5,000 isn’t a lot of skin-in-game or conviction. A $5,000 investment in Microsoft in the 90s would be well over one million dollars today – and guess what? Microsoft is, by many analysts, rated a must-own stock today! These types of gains you will never see solely investing in an index.
Myth #2: I would have to spend countless hours researching individual companies and monitoring the market daily. Why invest in stocks with the odds out of favor in beating the S&P and its proven returns?
As I explained earlier, investors who primarily invest in an index are entitled to a lower return than a direct equity shareholder in companies who take on more risk.
The research barrier people make not to invest has always perplexed me. Looking at a company’s balance sheet is a relatively simple exercise. Earning reports are quarterly events and typically get recapped in a 1-page article.
Should an investor pay attention to current events and occasionally read business news? Everyone should be doing this, but is it necessary to spend several hours a day of research to be a successful investor?
Monitoring the market is a behavioral choice, not a requirement of being an investor. If you are a long-term investor and have already committed to holding a stock for an extended period, watching the price movement of a ticker symbol every day or every hour is an addictive habit that doesn’t help advance your investing skills. A company’s fundamentals do not change daily, even monthly, so worrying about daily price fluctuation is an unnecessary risk of losing your sanity.
No one can accurately predict the future. Every investment is a bet. You will likely succeed if you have a consistent framework for investment decisions and can understand the basic plumbing of how a company makes a profit. In most cases, the research advantage is not a true advantage. There is no significant correlation between time spent researching investments and investor performance.
Investor A: Invested $100,000 in Apple Stock in 2007 due to how innovative the iPhone looked during its launch.
Investor B: Invested $100,000 in Apple Stock in 2007 after doing hours and months of research in the company, reading balance sheets, plugging numbers through several financial modeling tools, reading articles, etc.
Investor B has more formal education than Investor A. Most people would consider Investor B “smarter” than Investor A. Investor B is an extremely hard worker, shrewd at business, and knowledgeable about the stock market.
The result is the same if both investors sell at the same time. Investor B may have been likelier to sell the stock, trying to time the market by mistaking research for market noise. For a long-term investor, selling Apple stock in the past 15 years would have been a mistake, even if the reason was valid.
Putting hours of research into investments doesn’t give you a guaranteed edge in investing. Having high cognitive intelligence doesn’t correlate to investing performance.
Investing does not require you to write a 200-page dissertation to be successful. “Time in the market” refers to the holding period, not time spent researching.
Being a highly-rated brain surgeon requires years of studying and training. The same goes for being a world-class athlete or chef.
Investing is a rare activity where sitting on your ass and doing nothing pays off more than trading in-and-out of stocks. The investor’s hidden superpower comes from having discipline, patience, and emotional intelligence. The stock market is auction-driven, where you cannot drive the outcome of the results outside of buying, holding, or selling a stock.
The skillset required is a behavioral one. That is the secret weapon needed to beat the market. In all likelihood, investors A and B have already sold their positions in Apple stock for various reasons.
“On the other hand, although I have a regular work schedule, I take time to go for long walks on the beach so that I can listen to what is going on inside my head. If my work isn’t going well, I lie down in the middle of a workday and gaze at the ceiling while I listen and visualize what goes on in my imagination.”
-Albert Einstein
The problem with the research argument:
Investors must understand that this game of critical thinking. Being an investor is a thought-job. Success comes from curiosity and continuous thought work.
Research/Investing is subjective. One person can determine Bitcoin as ‘rat poison,’ and another person can evaluate it as the future of money.
Investment returns directly correlate with how much risk you are willing to take, not how many hours of research you have done. No matter how much research an investor does, it cannot accurately predict future prices or events.
Myth #3: Pick the right company takes a lot of work. It is simply too risky, and the odds are not in your favor.
It is an easily debunked myth because the proof is an investor’s brokerage statement. Many professional and retail investors correctly invested early in companies like Nvidia, Apple, Amazon, and Tesla. These investors correctly picked the right company that generates life-changing results. These companies are well-known and have recognizable brands.
The problem is that most of these investors sold out too soon, indicating poor investment behavior. Investors frequently let fear and other emotions guide their strategic investment process.
Many investors also incorporate too much of a “market timing” tactical approach in their investment strategy, leading to how powerful psychological forces play into investing decisions. If the secret to wealth building is to buy and hold companies like Apple and Nvidia for a long time, why do so many people refuse to do so?
The answer is complex and simple at the same time. It would be like asking why don’t all poor free throw shooters in the NBA use the ‘Granny Shot’ free throw motion, where the player holds the ball at his waist with both hands and hoists the ball at the hoop in an underhand motion, with arms spread apart.
There is actual evidence that the Granny-style form works:
One argument in favour of shooting underhand, compared with traditional overhand, is that it requires less movement and is therefore easier to repeat. There are physics behind the form as well. Shooting underhand creates a slower, softer shot, because a two-hand shot, gripped from the sides of the ball, allows a player to impart more spin than a shooter launching the ball forward with one hand.
John Fontanella, a professor at the Naval Academy who wrote “The Physics of Basketball,” said most shots spin at two revolutions per second, but an underhand free throw will rotate three or four times per second. The additional backspin means more shots that bounce on the rim fall through.
Shaq attempted 13,569 free throws in the regular season and playoffs for his career. He made 7,103, just 52.3%, which is pathetic.
If Shaq worked on and adopted the granny shot the day he started the NBA, say, his career free throw percentage would improve to 70%. That’s 2,395 more points. How many more games and championships does Shaq win by doing this?
Despite the empirical and analytical evidence, no NBA star has adopted this shooting style since 1980.
Why? The answers players give are silly:
Shaq: “I’d shoot zero percent before I’d shoot underhanded.”
“They’re gonna make fun of me.”
“That’s a shot for sissies.”
The reasons why most poor free throw shooters don’t adopt a technique that is proven to work are similar to the same reasons why most investors can’t buy and hold stocks for a long time:
Fear of standing out
Outside of your comfort zone
Pride and ego
Herd mentality
Many investors invest like Shaq shoots free throws.
Shaq didn’t want to shoot underhanded because it wasn’t for him, even though it would have dramatically helped his free throw percentage.
People want to invest successfully, but they want to do it on their own terms. The rewards are life-changing, but it requires you to embrace chaos and uncertainty. Outside of your emotions, an investor has no control over the economy or geopolitics. For many investors, long-term investing means: “If I make money, I’ll stick with it, and if I don’t, I’ll sell and do something else.”
The most significant risk factor for investors is themselves.
It is not the economy, interest rates, or the threat of war. The biggest threat to your portfolio is your behavior.
My advice:
Do not get too cute with your overall portfolio strategy.
Stay focused and adopt long-termism.
If you have the discipline, adopt something similar to the coffee can strategy, an investing strategy where you mostly stay still during market volatility and sell recommendations.
Do not sell winners like Nvidia or Apple simply because someone says it is time to sell. These are companies you buy and hold, not trade. Selling a stock because someone said it’s wise to trim your position has been dud advice for high-quality companies. Keep asking yourself, “What is the bigger picture?”
People managing funds are investors at heart. They research solid companies in attractive industries that can grow from a long-term perspective. But they inevitably engage in profit-taking and market-timing based on news/rumors, drastically shortening the time horizon. We then become hyper-influenced by analysts’ recommendations and hyper-fixated on valuation metrics. Long-term investing involves holding during downturns, but letting your winners run is equally important.
Now that the science is well recognized for mRNA, do you think we’re going to see some kind of RNA vaccine revolution?
We already are. There are about 250 clinical trials going on right now using RNA therapeutics and vaccines. Five years ago, there might have been one. So there’s an enormous number. They cover every imaginable infectious disease from genital herpes to influenza to hemorrhagic fever vaccines, to HIV and many others. … All of this came from COVID.
RNA is the producer of proteins. Proteins are vital to build and repair body tissue and fight viral and bacterial infections. When you use an RNA vaccine, you only need the sequence. The RNA makes a copy of the individual protein.
Beyond the COVID spike protein, the technology has huge vaccine and therapeutic applications potentially for genital herpes, influenza, HIV, and so many different diseases.
Before ending the year, I wanted to discuss why investing is so difficult for many of us.
Investing is complex because several factors influence our decision-making and behavior. Some factors are within our control, and others are not. If you believe investing is only about math and financial modeling, you will likely struggle as a long-term investor. Investing is unique because it is a science and an art. It requires more than just analytics. There is a behavioral and psychological side that is much harder to measure.
Long-term investing: Much of what you’re willing to endure and risk to achieve a reward.
Investing behavior and decision-making are rarely caused by a single factor. There is an interplay of various influences that determines your risk tolerance and expectations. The better you understand these factors, the more likely you are to develop effective strategies to improve your performance.
When you think about successful investing, compare it to dieting and exercise. There are no shortcuts or one-size-fits-all answers. Generic solutions often become platitudes. Advice like weight is calorie-in-calorie-out, becomes a platitude. Someone morbidly obese could have the same diet as a marathon runner; the results may not be the same. Several key factors contribute to a healthy lifestyle. The same goes for investing. A financial expert who tells you the best way to support is to “index fund and chill” is oversimplifying a solution that doesn’t work for everyone.
Generally, people need to be motivated to lose weight. It is challenging to feel motivated if they do not see short-term results or if it takes too much time and energy to maintain a diet. Knowing vegetables and fruits are good for you doesn’t necessarily lead to a change in action. Understanding that you need to do more cardiovascular activities doesn’t mean you will start running daily. Without goals or action plans, you will get situations where people want to eat healthier but do not make meaningful changes in their diet or exercise.
Improving your outcome relates to your behavior. How do you change your behavior? Create goals to help develop your strategy. The more personal your goals become, the more likely you are to become motivated to achieve them.
Why invest:
Buy more material things.
Buy more experiences or influence.
Be able to support your spouse or family.
Fund your retirement.
Pass along your wealth to your children.
Why lose weight and exercise:
Improve external appearance.
Feel better physically and mentally.
Not be bedridden later in your life.
Be there for your loved ones.
Live a longer and more fulfilling life.
Investing is a mixture of science and human behavior. Human behavior is very imperfect, different, and subjective. Your behavior needs to change to see different results.
Financial experts say the best way to invest is through ETFs or index-weighted funds. Such advice is generic and does not change your behavioral psychology. It does not change the bad habit of consistently buying overvalued assets and selling them at a much lower valuation.
What happens when the index you invested in, based on the advice of experts, is down 10% or more?
Do you sell?
What if, after ten years, your portfolio is flat? Did you even plan on having a holding period that long?
If you are a long-term investor but continuously trade in and out of stocks.
If you enjoy highly volatile growth companies but have little tolerance for risk.
If you are health conscious, but your diet consists of fried food and sugary drinks.
If you spend a lot of money on athletic clothes but do not work out
Your actions do not align with your goals.
Align your goals and timeframe with your actions; the outcome should improve.
The problem with professional investing:
Most people can agree long-term investing works, and allowing high-quality companies to grow and compound requires a long-term holding period. So then, why is the average holding period of an individual stock just 6-10 months?
Professional fund managers: A profession where their income depends on quarterly performance. Income comes mainly from fees charged to investors who invest in them.
Funds flow out of underperforming funds and into those performing best, creating a casino environment where most fund managers chase gains and trade in and out of positions. Institutional fund managers’ informational and analytical edge over retail investors is almost useless, as they act more like traders than investors.
Institutional and Retail investors: Actions and goals not aligned with long-term performance.
Retail Investors: Freedom to invest without restrictions or deadlines. The behavioral edge often goes unrealized as retail falls victim to the same pitfalls as institutions – panic selling, over-trading, chasing gains/momentum, and emotional decision-making.
It is not your fault:
If you are struggling as an investor, it is not your fault. If you are struggling with losing weight, it is not your fault.
In 1942, the Metropolitan Life Insurance Company made standard tables to identify ‘ideal’ (and later ‘desirable’) weight, and with the naming of weight-to-height ratios as the body mass index (BMI) by Keys and colleagues in 1972, obesity was understood as a health risk that required medical intervention.
It has taken a while, but society is starting to accept that genetics, medical conditions, and other factors that contribute to our weight are outside an individual’s control. The American Medical Association (AMA) recognized obesity as a disease in 2013!
Labeling obesity as a disease is helpful as it takes pressure off the patient, not putting the blame all on themselves.
The same goes for investing. Human nature works against good investing. There is a tremendous fear of non-guarantees and a need for certainty. Human nature can work against us when it comes to investing. How does it feel to bungee jump 700 feet above the ground? You can only understand the feeling once it happens, just like how you will feel and respond to watching your portfolio fall 20% in a week. For most people, it’s likely a combination of fear, depression, and panic.
If lousy investing habits and obesity aren’t your fault entirely, how do you fix it?
The answer:
Every patient is different.
Every investor is different.
Each requires personalized attention and solutions.
I hate the phrase, “It isn’t your fault,” because even if true, what now? It does not give people the mindset that they have the power or control to change their circumstances.
Genetics, human nature, and upbringing play a role, but we are all not destined to be victims of circumstance. It is within our control over what’s preventing the desired outcome – Maintaining a healthy weight or having enough for retirement.
With the proper motivation and mindset, behavior can change gradually. There are no quick fixes.
Can GLP-1s like Wegovy or Ozempic help with weight loss? It could be part of the solution but only part of the solution. Medication does not replace a healthy lifestyle, what you eat, or daily exercise. Anyone struggling with weight should consult an endocrinologist and obesity medicine physician to develop a beneficial outcome.
Investing does not have one-size-fits-all solutions. Depending on your circumstances and financial goals, investing in funds that track broad-based indexes can help a portfolio. Should you consult a financial advisor? If that person can take the time to understand your needs based on your situation, it could help. Any effective solutions need to be customizable according to individual needs. As an investor, your primary objective should be to obtain greater knowledge and, as a result, steer you to more control over your finances.
Zoom CEO Eric Yuan (right) takes the photo opp on Zoom’s IPO day.
Zoom was a company I wanted to avoid. An app I was forced to download during the pandemic to communicate with the rest of the world. Since Cathie Wood made Zoom one of the more significant holdings in ARK Innovation ETF (ARKK), I assumed it was a hyper-growth, deeply unprofitable company with more hype than actual substance.
With the stock cratering since its pandemic day highs, I have done a deeper dive into the company and realized I may have judged this book superficially by its cover. The company is highly profitable, has no debt, and has proven it no BlueJeans, not even close. The company was built from scratch as an enterprise tool nearly a decade before the pandemic. Although its use as an app for virtual cocktail parties and meet-and-greets is declining, Its use in the business world is expanding rapidly.
Expectations for Zoom are ridiculously low for such a high-quality company. It trades at such low valuations it is screaming potential great opportunity. Many analysts have either given up or taken a wait-and-see approach. It appears there are two reasons why Wall Street is sitting on the sidelines:
Microsoft Teams will cut into Zoom’s videoconferencing software market share.
2022 was the peak for Zoom because of lockdown restrictions. It will not likely see this type of growth in a non-pandemic environment.
Analysts do not provide the specificity and context for why Zoom will lose its market share. Analysts assume Teams, Google Meet, and other big-name players will continue to erode Zoom’s 55% market share lead in video conferencing. Even if losing market share is inevitable, Zoom will remain an entrenched leader. The TAM for this market keeps accelerating and evolving, with hybrid work models now a permanent fixture.
The video and audio communication market alone is big enough for multiple winners. It isn’t a winner-take-all scenario. Zoom doesn’t have to be the leader to succeed, just one of the leaders. Audio and video communication in the enterprise sector was saturated before Zoom was founded. More likely, the industry is still growing and evolving with increasing AI adaption and innovation velocity. Even better, Zoom has less than a 6% market share in the overall office-suites market. Google Workspace is the dominant player in the market, providing Zoom and its suite of products an opportunity for solid growth over the next decade.
Zoom’s Edge over Microsoft and Google:
At its core, it is an artificial intelligence company. Its rapid implementation of AI into its products is slowly helping it create a powerful network effect for its enterprise business. They have built from the ground up and patented their cloud-based technology stack instead of being based on decade-old code trying to fit it into new technology; Zoom is a pure cloud-based platform based on Amazon’s AWS and Microsoft’s Azure servers. Its best-in-class products provide users with superior video & sound quality and overall better user-end experience. Zoom has a significant advantage over smaller players who do not have the capital or resources to bring a competitive product onto the market.
Regarding reliability and quality, Zoom ranks highly because of its premium technology stack infrastructure. Zoom’s growing patent portfolio shields itself from Microsoft or Google stealing or copying their products. Zoom holds patents in videotelephony, voice-over IP (VoIP), and AI-driven technology. These patents give Zoom a premium evaluation in the case of being acquired. These fundamental qualities are a hidden secret weapon that you cannot see on the company balance sheet or just based on the numbers.
Zoom’s technology and products integrate seamlessly with other applications like Salesforce, Slack, and Dropbox. Once integrated into the enterprise connective tissue, this creates a situation where the product becomes too costly and time-consuming to remove, creating a powerful network effect. Enterprise customers typically use several third-party application vendors, depending on their use case. Some customers want all their applications to be Microsoft products, which is atypical of how the enterprise ecosystem typically works. Most clients do not want to be completely locked into the Microsoft Office 365 ecosystem or have Microsoft as their sole vendor. As long as the multiple applications flow cohesively within the enterprise workstream, many companies will hesitate to go all-in on Microsoft.
Aside from having the best product, Zoom is pouching away key-level executives from Microsoft. Zoom’s Chief Product Officer, Strategy Officer, Development Officer, and Technology Officer bring over 84 years of experience from Microsoft! Overall, the leadership team is seasoned and well-rounded, many coming from Webex/Cisco. This team is a potential dream team in the making. The company is led by the founder and CEO, Eric Yuan, who is intensely focused and visionary. The leadership team understands the enterprise market and rapid product rollout, with a long-term plan to execute a go-to-market (GTM) strategy. They have already passed a real-time stress test during the pandemic, essentially repairing and upgrading a plane while in the air. Management passed with flying colors.
One of the biggest compliments of Zoom came from the CEO of Upstart, Dave Girourad, a former product manager at Apple and President of Google’s Enterprise division. In an interview with the Motley Fool last year, Girourad gave high praise about the team at Zoom:
Obviously you don’t want to act in fear, I’m one who has not historically done a lot of singular stock picking. I do it occasionally, but I usually will not do a lot of that myself. But occasionally I just have conviction and I have conviction through experience in seeing a product, and I will just give you an example. I put a big chunk of money recently, the first time I bought a singular stock in a long into Zoom. I was I know that business, we’re trying to build products like that at Google. I know how hard it is. That company executed incredibly well when suddenly their business just went through the roof in early 2020, and I had just so much respect for what they’ve done, and I know how hard the problem is to solve. How many times has like doing video like this has been just a nightmare in the past despite the fact that Microsoft’s coming after them, Google’s coming after them whoever else.
High praise from a highly credible executive in this industry. I value his opinion and personal experience much more than most Wall Street analysts.
Zoom Notes offers a robust editor with extensive formatting options like font, styling, bullets, colors, and more.
Technology stack advantage, quality of products, and execution by management will be the winning formula for Zoom. As we see rapid and intensive AI integration, this will likely force companies to take on higher expenses in multiple industries. Typically, the CIO or CTO decides to take on Zoom as a vendor vs the legacy apps. Video conferencing tools will be viewed as more of a need than a want. Taking on Microsoft Teams simply because it is free or provides several features businesses rarely use won’t be good enough. Is it intuitively running better for clients of Teams after collecting their data and information? Is the Teams platform increasing productivity? I and many others argue it underdelivers.
Imagine if Zoom automatically takes notes or creates an action plan during a meeting. It has already launched these products, and the higher costs associated with superior AI-implemented products will be worth it if they can unlock significant cost savings in the long run or significantly boost meeting productivity and collaboration. Zoom is winning the popular vote as its tools and applications are viewed as more intuitive and user-friendly than Teams. This will become more noticeable as technology improves.
From a valuation standpoint, ZM stock is trading at dirt-cheap levels. You have to ask, will Microsoft grow faster than Zoom? Which is more likely? One has a market cap of around 22 billion, and the other almost 2.8 trillion. Even if Zoom doesn’t achieve Ark’s $1,500 share price projection by 2026, the stock will likely be a big-time winner, even if management meets baseline expectations. Today, the stock is undervalued based on most financial metrics:
ZM Price to Sales ratio: 4.92 MSFT Price to Sales ratio: 12.81
An investor in Microsoft is paying a premium for a superb business. Expectations are sky-high, and they must deliver great numbers to maintain their high valuation. Is it possible? Absolutely. Is it more likely than Zoom, trading at low valuations and expectations, to outperform Microsoft? The probabilities appear to favor Zoom. These are the types of questions investors should be asking. I started a position in Zoom, hoping that not only is it undervalued but also misunderstood, with the growth story still early.
I see an investment in Zoom similar to that of Moderna. Two companies that multiplied during the pandemic for areas not of their original focus – Moderna developing cancer treatment and Zoom acquiring B2B customers. The narrative has shifted quite a bit for both companies as they have grown significantly from their start. Although the headlines read companies struggling to adapt in the post-pandemic world, they are fundamentally strong. Zoom may have received an artificial/temporary boost from consumers downloading the app for reasons outside of enterprise; what isn’t artificial is the increased brand awareness, obtaining verb status (zoom, tweet, google, Airbnb), and cash windfall, which can be invested in the overall business to further separate itself from Skype, FaceTime, and Google Hangout.
A glimpse of the future: Zoom changed how the world communicated from Zoom yoga sessions, weddings, and funerals. The transformation of workplace communication is still evolving.
Pros of Zoom as an investment:
Exceptional and best-in-class product offerings.
Impressive technology foundation and patent list.
Founder-led company that shined bright during a global emergency.
The beginning of a new intuitive human work communication system?
Risk factors:
A lot of execution risk and pressure.
The best product does not always win.
There is insufficient data to show that Zoom customers will keep them long-term and pay higher prices instead of switching to a less expensive platform.
The stock is inexpensive. That reason alone does not indicate future growth will be impressive despite lowered expectations. A short-term bounce back or recovery is possible, maybe even probable, but a sustained price increase will require consistent growth.
According to royal expert Katie Nicholl, King Charles reportedly nicknamed his daughter-in-law Meghan Markle ‘Tungsten’ because of her toughness and resilience. The Oxford English Dictionary defines tungsten as the chemical element of atomic number 74, a hard steel-gray metal of the transition series. It has a very high melting point (3410°C) and is used to make electric light filaments.
Being nicknamed after a rugged metal seems peculiar, but Meghan Markle, Duchess of Sussex, seems like someone with a strong backbone who gets what she wants. Meghan is opportunistic and cunning. Although these may seem like critiques of her personality, they complement her inner strength. Companies with tungsten-like qualities can turn into fantastic growth stocks to invest in.
Here is a list of some companies I would qualify as a Meghan Markle stock:
Alphabet Shopify Nvidia Chipotle Revolve Airbnb Taiwan Semiconductor Zoom Video Pinterest Palantir Moderna Intuitive Surgical Duolingo Monday.com The Trade Desk
So, what characteristics do I look for in a Meghan Markle stock?
Companies that have significantly more cash than debt: A company with more debt than cash is not necessarily a bad business – see Live Nation, Netflix, and Uber, as their debt is in use for future growth, but this does create higher risk, especially if a companies revenue plummets. Blue Chip companies like Apple and Berkshire Hathaway are in a separate category. They can safely take on debt for strategic reasons due to their strong balance sheets, track record, and business models.
Investing in the company’s future growth could pay off tenfold (Amazon investing in AWS) or backfire (Peloton expanding showrooms and acquiring Precor during the pandemic). Companies with more debt than cash risk serious liquidity issues, which may further dilute shareholders through equity raises or breaching a loan covenant.
A couple of companies that are NOT Meghan Markle stocks are Carnival Cruise and Royal Caribbean Group. We know why they took on significant loans, and although the pandemic was not their fault, they are far less attractive now than before 2020. These companies have recovered and are seeing healthy booking demand, but it will take several years (if not more) to right their financial health. The increased debt limits their options and leaves them with less wiggle room if the economy were to turn.
Low Capex and G&A ratios: Lower Capex and G&A spending can lead to higher free cash flow and a better return on capital. Relatively low costs for assets like factories or equipment mean the company can focus on capturing more market share and expanding into international markets. For tech companies, you want them to spend heavily on R&D rather than on upgrading stores. For apparel brands, you want them to spend heavily on S&M to build up their brand rather than on office furniture because when Capex and G&A make up a meaningful percentage of a company’s net income, that could indicate excess spending. If profit margins are increasing faster than Capex, that’s typically a sign of healthy financial growth.
Market cap higher than their Enterprise value: This characteristic echoes a company having more cash than debt. Companies like these have a low probability of going into bankruptcy and are attractive acquisition targets. Companies sitting on a lot of cash and little debt are typically more nimble and opportunistic. They can wait for the right time to issue share buybacks, reinvest in their business, make acquisitions, or be acquired themselves.
Proven more than two or more consecutive years or eight straight quarters of being free cash flow positive: A solid growth company has to prove it can be profitable in the long term. Being free cash negative is not a long-term sustainable business model. At some point, there needs to be a long enough track record of consistent growth; if not, the investment is just a speculative bet. If free cash flow exceeds net income every quarter, that could signify a money-printing business. Yelp has always been free cash flow positive since being a public company. The business may not seem appetizing, but its performance and return to investors have been much better than the companies that get the most airtime on CNBC and Bloomberg.
Important things to consider:
Asset light does not equate to a moat: Amazon is more debt-intensive than other big tech companies, which has helped them create a durable moat. How many companies will outspend Amazon to build a better logistics network? The same goes for Uber and its global ridesharing network. Debt and high spending can help a company have true pricing power, so there are potential trade-offs when a company sacrifices immediate profits for future growth.
Rising Free Cash Flow drives growth: A company that can produce consistently growing free cash flow is worth looking into, even if it has increased expenses, debt, or equity dilution. Apple is miraculous as they have higher free cash flow than most other companies, bringing in total revenue! They are more of an anomaly as they have so much cash and can increase their dividend while buying back their shares simultaneously.
Industry matters: Certain industries, like e-commerce, have more competition. Getting market share can be difficult during a challenging macro, creating a cash burn. The lower the startup costs, the easier for new entrants to disrupt the market. Specific sectors in technology are volatile, so a pristine balance sheet may reflect little returns for investors.
The critical aspects of these Meghan Markle stocks are toughness and resilience. Consumer headwinds can persist for several quarters, and if these companies remain profitable during a touch macro, that is a good sign of long-term durability. Like cockroaches, a company with low debt, consistently rising revenue, and free cash flow is almost impossible to squish. A company’s financials are easily accessible on a balance sheet, and any investor should know these basic figures to establish a framework of understanding before making a more thorough analysis and deep dive.
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