As of the time of recording, the stock market is down. And this is either bad news because maybe there’s a recession coming, or it’s good news because stocks are on sale. It’s time to stock up. Today’s guest is Ricky Mulvey, host of the Motley Fool Money Podcast, and he’s joining us to talk about ways to still find great investments even in this current market.
Hello, hello, hello and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me as always, is my still investing in the stock market co-host Scott Trench.
Thanks, Mindy. Great to be here. Dow you doing? Ah god, whatever. We’ll try again later. BiggerPockets has a goal of creating 1 million millionaires. You’re in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for everyone, a matter when or where you’re starting or even if you are one of those stock picking types. Today, we could not be more excited to have Ricky Mulvey from the Motley Fool here on BiggerPockets Money to talk about uh stocks in a general sense and things you can look for uh as you attempt to find great value in the stock market. Ricky, welcome to BiggerPockets money.
Thanks for having me. What a time to talk about stock investing.
Yeah. Maybe we start there and just kind of get your reaction uh at a high level to how you feel about the pullback we’ve had here of 10-ish percent as of March 11th from the peak in February, um and most major indexes.
I don’t wanna give you too much credit, Scott, but this is something I know you were worried about on the show for for a little bit now. You in in February when you’re looking at what was it the forward PE of the the broader market at 29. The stock market corrections are a good and healthy thing. and in fact, as someone who is investing for for decades and trying to make a lifetime out of this, this is something that I’m excited for and in a weird way, also rooting for.
Oh, explain how you’re rooting for this.
Because it’s like if you go to the store and you see your favorite shoes on sale for 20%, uh you get a little bit happier to buy them. There are companies that I’ve been looking at that I’ve had on a watch list that have become from a metric sense, more affordable is people become increasingly pessimistic about uh the the economic outlook for the next uh we’ll say we’ll say a year with the the trade war that’s going on. People are worried about a recession, but I’m in this game for decades. And so as a younger investor, this is something I become increasingly excited for when I think about that long time horizon.
Okay, two things. I love that you said I’m in this for decades. Yes, absolutely. Um If you are investing for decades long returns, this is going to be a drop in the bucket. I truly believe, of course, past performance is not indicative of a future gain and I cannot guarantee that the stock market is ever going to go up again, but I have faith that it will. Uh second, Ricky, you mentioned that Scott was looking at the forward projections of the PE of the stock market and that’s why he sold. Would you categorize these recent market drops as PE related?
Not entirely. And I also want to be care I mean, Scott, I know you were buying a rental property. So it wasn’t just your feelings about the market. You don’t want to say, oh, the market’s too hot, too cold, I’m in and I’m out. Um But I think that it’s it’s a combination of things. You look at a brewing tariff war, which is becoming increasingly uh in reality, we’re recording this on on March 11th. But this is something that economists have warned about. Um If you if you shut down global commerce through more taxes or I shouldn’t say shut down but rather impede global commerce through uh you know, 25% ish taxes. That slows down the economy. And then the other thing is that I think you had investors when things get priced up like that, they look for reasons to sell and when you give a strong bear case like that, which I don’t want to dismiss the reality of it, it it leads crowds to head for the exits.
I kind of summarized it as and I think you have to incorporate the political element into it at this point, even though we love to stay away entirely from it. But I think the way to phrase the political element is is I think hundreds of millions of Americans are asking themselves, am I comfortable leaving the majority of my financial portfolio in U. S. stocks given the activity Senator the Trump administration. And for a large and potentially growing percentage of those people, they answer that is no, and I think that’s the best way to frame the problem without really getting into the politics of the situation too deeply. Do you agree with that?
I think that’s fair. You know, there used to be this, so I I have a background, I worked for a financial advisor on their uh radio show before I got started at the Motley fool. This was widespread among the financial advising industry is people would bring out a chart where they’d prove basically that the stock market returns have no, um basically no correlation to who’s in office. But I think it’s increasingly difficult to make that case. And what I would say now is a lot of this does seem to be self-inflicted and I would also consider the fact that this is a more violent market, good and bad. The ups, I think there’s gonna be stronger ups and downs as things change based on uh a headline, a new tariff, a response to the tariff, all of that kind of thing.
Just a couple of clarifying points on kind of my position from a few weeks ago, which I think is largely unchanged despite the pull back here. One is, um I I I was just uncomfortable with the Schiller PE ratio rather than the forward PE ratio. Um The forward PE ratio can change in a heartbeat. um as we saw in 2008 in terms of things, I was I was uh afraid is the word I would use of the fact that price to earnings in real terms over the last 10 years adjusted for inflation, um in real terms uh for the S and P 500 and and other us index funds were were priced at close to their 1999 levels. and that was kind of my primary fear. And then on top of that, I was like, there’re just like like the a market that’s priced that way needs a lot of things to go right. and anything that goes wrong could could potentially put that in in in create a create a problem. Um it’s like kindling and any any spark can ignite a fire. That was kind of my my thesis. I didn’t have much more to it than that. and I’m like, I just can’t, I can’t handle the heat. I’m getting out of the kitchen and I’m putting it into real estate. um which I’m more comfortable with and feel like even if there’s a massive general downturn, it will, I’ll lose less badly than I would with equities in terms of a with a paid off property and in the event that things uh and I’ll also be able to refinance even at a lower value at that point and use those dollars for something else. And uh if things go well and I’m completely off my rocker with this, I’ll still earn a 6 7% cap rate and some appreciation on the property, which is, which is not going to be too far off the index. Um long-term average. That was more my, my thought process just for the record there. Um in addition, do do you do you see the same risks that I’m talking about in there and how what is your reaction to that play as a, as a stock market guy?
Two things. One, I think you did something incredibly wise. You moved to your circle of competence. You know way more about the real estate market than than I do. And you saw an opportunity there where you said this is a better use of my capital. Um The thing that I would be a little more cautious about is anytime you’re you’re getting in and out of the market, you have to be right twice. Um It’s very easy to say that the market is overheated. What becomes increasingly difficult is deciding when to get back in. Um I remember stories of investors where, you know, they saw 2008 coming and they pulled out their money. But what when, when, when do you decide that you have an all clear signal um to get back into the market? And, you know, there’s research from J P Morgan that I’ll I’ll bring up. Basically seven of the stock market’s 10 best days occurred within 15 days of one of the markets worst days. So I think it’s incredibly difficult to be right twice.
I completely agree. That’s why I’m not like saying I’m gonna go back in. I’m saying I’ve permanently reallocated to real estate. And if I see a generational opportunity, maybe I’ll refinance, but it’s more mostly just, this is a paid off property that I’d be happy to hold for 20 30 years on this front. I just have that option. Should I ever want to refinance it is kind of more the way I think about it.
There are still pockets of the market that are cheaper than the broader market um that I think are worth looking at. And there’s also parts too with interest rates being a little higher, for someone like You Scott. Um if you look at broad baskets of corporate debt, like there’s there’s one ETF I’m thinking of in particular that has a more than a 7% yield on it. So you don’t get the appreciation you may get from uh a rental property, but you trade that off with not doing a whole heck of a lot of work. I’ll pay the fine folks at Blackrock to do the diversification for me and uh I’ll I’ll I’ll take a 7% check on that ticker USHY. So high yield corporate bonds.
Well, well, uh, so what is your kind of thesis? Where are you looking as an expert in the stock market and an analyst for Alpha for for for value in today’s, in today’s world?
The thing I’m really looking at right now more uh more than I think I have before is insider buying activity. So I’m trying to look for companies that have um good three to five year holds for them. and then also I like seeing insiders buying gobs of stock with their own money because to me, that’s an indication that they believe that their company’s undervalued.
How do I even begin, let’s say I like that idea. How do I even begin to do research to that to see who which insiders are buying stock? And what are some interesting observations you’ve had recently that you’re exploring whether or not you’re actually going to pull the trigger and invest?
I’ll talk about a stock that I own, but um there’s there’s a couple uh there’s sources on um one one account I like is called Insider Radar. That basically tells people when uh there’s large purchases of insider stock. But also when insiders in companies uh go to purchase shares or sell, they report it with the SEC. So when you’re looking at a company, one of the filters I do is to see what insiders have been doing um with with their own uh personal stakes in the company and that that’s a form you can find on the the Nasdaq website, they have to report it if they um sell or buy shares.
Yeah, shout out to Randy Trench, my father who has uh uh said said to me in the past, there’s a lot of reasons people will sell stock, right? You want to buy a house, pay for college, all those kinds of things. but there’s only one reason you buy stock.
Yeah, and especially on the open market. Right? These are people that know how to value their company and if they think the market is wrong, let them put their money where their mouth is.
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Welcome back to the show.
Love it. So okay, so you look at those things and then, um, what what are some of the the firms that that you’re interested in that are doing that where you’re seeing that?
One stock I’ve been buying lately is uh it’s TKO Holdings, ticker TKO and this is one just kind of started making a profit. This is the parent company of the UFC, the WWE, professional bull riding and soon a boxing league. And uh I’m actually, I’m I’m glad to be here. I’m happy to talk about combat sports for for as long as you’d like me to, but there’s something interesting going on with this, which is that the uh the CEO, Ari Emanuel has set up a automatic buying program for his company’s stock. And usually when you see company leaders, they set up automatic selling programs. So it’s the market doesn’t take it as an indication, oh, the CEO just sold a lot of stock. They want to diversify away, do the thousands of things that Randy Trench referred to, but in this case, you see a lot of insider buying and I think the company also has a couple of um key catalysts that make it for me, an attractive stock to purchase and one that I’ve been doing in my my personal account, um over the past, uh past few weeks, months.
So your your thought is in the current environment, you know, it’s kind of wacky out there, but insiders are buying, that’s what intrigues me. How do you then do the next level of of diligence or thought process on an investment like uh TKO?
Everything comes down to um what are the earnings this company can do and what is the sentiment going to be because that’s what the market values, right? What are your earnings and then you put a multiplier on that in order to um in order to create a value, you’re doing an equation. So for with TKO, I’m thinking of a of a few things. One, I think they have a pretty tremendous value driver and I gotta credit my, my colleagues, Nick Sciple and Jim Gillies in their work on this. but this year, they are the only company with a major media rights deal that’s that’s coming up. So that’s that’s the UFC. and if you look at a few moves that uh ESPN has been making lately, they’ve been getting rid of baseball. They got, they ended their contracts with professional baseball and they’ve been, uh, this has been something that I think they’re basically creating room to invest in a big media rights deal, um, for the UFC. Uh also, you have the WWE which just premiered on Netflix in the United States and also Netflix has the international broadcast rights for the WWE. So I think they can significantly grow their global audience for that. And the third factor you have in this is uh the money from Saudi Arabia. So the UFC is going to start a, uh basically a boxing league, and this is being done in conjunction with uh with the fine folks in Saudi Arabia to compete with the current system in uh in boxing. The other thing I would consider for a value driver is there is a political element, right? Dana White is the CEO or is is the CEO of the UFC, not the organization. He has a long and deep loyal relationship with uh President Donald Trump. So you have to think if this guy wants to get a deal done, he’s gonna have less resistance than he would have had in the past four years. I think that’s just kind of icing on the cake. Um so those are the value drivers that I’m really thinking of of a growing sport, a growing audience, money coming in from the outside. and then you look at the valuation. It’s at about 34 times forward earnings when I checked Y charts this morning. To me, that’s not bad for something that’s essentially a monopoly in two areas already in professional wrestling and in mixed martial arts.
Awesome. So I love that. So there’s not, there’s not a value play. It’s not like this has a great multiple, price to earnings multiple or super strong balance sheet. This is all, this is a growth story and you’re looking for companies that are going big in the current context and have potential major strategic needle movers um here and there’s a very rational argument for why this company, you know, could, could, could really dramatically expand and has really huge tailwinds behind it.
Has tailwinds and has a moat.
Yep. Moat, moat’s perfect. So,
I like this insider buying thing. I never even thought to look at that, although I have that has definitely been something that I have thought was a good thing when I was interested in a stock and then, oh, the CEO of the company is buying oodles and noodles of this stock. Well, that makes me feel even better about my choice.
Yeah, you want to find CEOs and co-founders that um that have basically themselves tied to the mast of of the ship. And the the second level of this is it’s not just the insider buying activity, but it’s also good to see what insider stakes that they have in the company and, and in the company, does this CEO own a lot of sock because if they, you know, if this is 90 95% of their personal portfolio, even if they think the sock is going to go up, you know, they may not be buying on the, on the open market for for diversification reasons, but I think this is a pretty important check uh for me when I’m looking at buying a stock, especially right now.
So let’s go into that because I think that’s the same thing is true in the syndication space, right? You know, and like we have these guys who raise money to buy an apartment building and they put nothing into the deal. It’s a, it’s what I call a free spin on it, right? They can go up um around there. And look, I, I think there’s going to be a weak correlation, frankly, um so for some of these things, I think that the math would prove that out over, over history, there is a, there is a correlation between insider buying and better returns over time, but it’s fairly weak. Is that right, Ricky?
Um I don’t have the data on it. I would say look for strong insider buying and that’s up to you as an investor what means uh what’s, what’s strong to you. So two examples that I, I think of in the past one is, um just a few months ago, Calvin Mcdonald, he’s the CEO of Lulu Lemon, stock got crushed. He bought a million dollars worth of stock for the CEO of Lulu Lemon, is a million dollars significant. It’s kind of hard to tell. Um for me, it was significant enough and the stock’s done ok since then, we’re having a cool down in um sort of apparel sales, but that was something that was uh important to me. And then the other one that I found significant was Ted Sarandos, he’s the CEO of uh former CEO of Netflix, co-founder of Netflix, a few years back in 2022 when the stock was just absolutely getting hammered, when everybody was pessimistic about the future of Netflix because they lost subscribers on an earnings call, he went out and with uh more than a million dollars of his own money went and bought Netflix stock on the open market. I think it was below 200 and since then the stock has done uh has beaten the market since then. To me, that was a strong indication and uh it’s one I look for not just the head fake, not just a few thousand dollars but once we’re getting into supercar money, that’s when I start to get excited is a as a lower stock investor, Scott.
You know, when I think about like good alignment with the executive of the chief executive of a company or or one of these syndicators, it’s close, somewhere reasonably close to half of their personal wealth is in the is in that that investment, right? And great if they’re, they’re taking additional dollars to buy into that. but that to me is what meaningful really looks like. now, many people won’t do that. A quarter is still good. less than 5% of the individuals wealth in the asset that they’re running in terms of what that what the capital they have at risk. that would be a concern to me on it. And that’s where I think you’re getting at here is you have to guess at what the in order to understand strong insider buying, it sounds like you have to kind of guess at what the personal wealth of some of these individuals is external to the company and make sure that the company is is their, their, their number one or or very close to their number one, the most meaningful single placement that they’ve got in their their personal portfolio.
There are other important things when you’re looking at a mature company does this company, um does it produce positive earnings? Does it produce positive cash flow? What is it doing with that cash flow? What is the market’s price tag and expectations that it puts onto this company? Um those are also like very key and important that I want to make sure I’m not brushing aside as we as we have this conversation.
Oh, absolutely. This is I just love that this is the starting point and this is a great and we, we cannot spend, you know, hours and hours going through all these different things. That’s what you do full time at the Motley Fool. You have such a body of of wealth and information, um, on there, uh, over a long period of time. I just love the insight into this, hey, this is the first thing I look for. First, the first thing that gets me peak, my interest peaked about doing more research is this. So, awesome.
So, Ricky, let’s look at your personal holdings. How would you categorize your split between like index funds and individual stocks in a percentage basis?
I lean toward individual stocks. Um If we’re counting, so we’ll count my 401k in that, I’m probably I I’m probably 60 40 index funds to individual stocks.
And do you have any bonds or any other non-stock holdings?
I hold a uh a bond fund, uh USHY that I that I mentioned previously, it’s, it’s not a super major position, but it’s uh to me a little bit of a cushion and it’s I I’ll take 7% for uh sitting here and playing on the computer with y’all.
I like 7%, I like 15% better.
Yeah, nothing wrong with that.
15% being the index fund return for the last couple of years, right? Is that what you’re referring to?
I’m actually I’m guessing at my returns for the last couple of years. I haven’t uh I haven’t really looked at that because I haven’t… what a terrible thing to say. I I haven’t really looked at it, but I haven’t. I mean, Carl looks at it every day, so I don’t have to. Ricky, do you have a stock that has changed the makeup of your portfolio? Like you picked a winner, you picked a non winner?
My best ideas and my worst ideas. Let’s let’s get into it because if we’re talking about a winner, I also want to talk about times that I’ve been absolutely fundamentally wrong and lost money.
Chinese fruit juice company. That’s Scott’s.
The two that have been uh big winners for me have been meta platforms and Spotify. By a dollar basis, those have driven a lot of returns for my portfolio. and that was a time where I thought both of those, I think were times where I saw long-term trends where the bears were hammering down on very pessimistic points where I was able to go. You know, I think you all may be wrong about this. Um We can start with Meta. So meta back in back in 2022 ish, we’ll say it was no longer Facebook. We’re a metaverse company now and we’re gonna spend lots of money on reality labs and everybody’s gonna go around wearing these goggles to play video games to meet uh to meet online and to watch movies. And the investors at the time were very concerned about the amount of spending that was going on. And in my view, they kind of missed the fact that this is still a platform with billions of people spending their time and attention on it and incredible ad platform. and so I took a stake in the company and that has been a a good winner for me, the flip side of that I’ll also say is that’s also one where I sold too early where I sold some of my shares because I’m like, ok, good, I’ve made a good game gain, let’s reallocate this elsewhere. I price anchored and I made a mistake.
Love it. I I remember that that time period and I, you know, I don’t, I don’t participate in this, but I remember like the back of my mind, I was thinking about, man, Meta is in this and, and there was some Reddit post or something that was to the effect of, man, look how much better Grand Theft Auto five’s virtual world is from five years before the billion dollar spent by Meta on this, the Meta’s three D virtual reality world. And that was tanking their stock. I remember that and that’s when you bought, that was a smart buy because it’s like, ok, we’re gonna give up on that and go back to our core business of dominating the world from social media perspective in the traditional business and that’s exactly what they did.
They did. And there’s a couple things that one thing you said there is, you know, you had an observation about that and I know you don’t like individual stocks as much, but the thing that I want to communicate is that you as a is a retail investor, you as a regular investor, you actually have tremendous, you have some tremendous advantages over institutional investors if you’re a long-term buy and hold uh investor and there’s a, there’s a famous investor named Peter Lynch and one of his ideas is that the observations that you have about the world aren’t always valuable, but can be valuable. And this is especially true for people who live between the coasts that are able to see some economic trends that may not be as visible outside of places like New York City.
Yeah. You know, it’s funny because uh his book one Up on Wall Street is a wonderful read for folks. I always tell folks like who are new on the, they don’t really know they’re just getting started, especially in like high school or college. It’s really hard to convince someone in that area, in that area like just index fun for the next 50 years um for it. So I tell them to read both, you know, um uh the Simple Path to wealth and a book like One Upon Wall Street to get kind of the different perspectives of of those and kind of make their own decisions and let them know I chose the Index fund approach there. But I will say over the years, there have been a couple of times when I’ve been like, this is an absurd situation. I really want to bet on it and I haven’t and I don’t know what my record be. I have to go back and actually write them down in the future and and kind of look at what it. One of the one of the ones that that is most memorable for me. um on this is Kodak. So Kodak is a company, obviously camera company declining for a very long period of time, less than half a billion dollars in market cap now. um and in 2020 they came out with Kodak Coin, their crypto for to take camera for photographers and their market capitalization increased from 250 million to 750 million overnight. And I remember thinking I’ve never been so sure of my life that this company is gonna come crashing right back down. And sure enough within a few weeks, they did that and I, I just regret to this day I never bought a foot option. Well, just a small amount of money on that one. It was like, it’s like Warren Buffet, it’s like, there’s 10 times in your life when the market will hand you something just so extraordinarily absurd that you gotta act on it. Um in there and that was, I don’t know, is that, is that kind of what you’re referring to in in in these types of situations?
I’m generally a long only investor. I’ve tried shorting stocks before you said put option, which is good because that can bite you a lot less than um than shorting a stock. But I’m a long-term optimist and there’s a part of there there are times I’ve wanted to short stocks. I don’t love rooting for companies to go down in flames. The case of Kodak is a special example anytime you start seeing a a coin that’s associated with the company, something that just seems weird and off that gets your Spidey senses up. Yeah, I think, I think you made a good observation on it and I wish you made a profit.
We have to take one final ad break, but we will be back with more with Ricky Mulvey right after this.
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Thanks for sticking with us.
Let’s talk about holding periods because Ricky, you said I sold meta too early. My favorite best friend Warren Buffett has said my favorite holding period is forever. What is your typical holding period?
Yeah, Warren Buffett says that and there’s stocks that he has owned for fabulously long period of times, but anytime you look at uh Berkshire’s 13F, you see some buys and sells in there. He gets, he can sometimes get a little tradery with it.
I agree. There’s a big difference between what he says and what he does, frankly, in a lot of in a lot of areas. Like right now, he’s got $300 billion in cash. He exited every like a huge chunk of supported polio in the last couple of um months. So it it I I agree that there’s like a lot of people quote him and they there’s a big difference between the two.
You can find a Warren Buffett quote that that suits what you want to do sometimes. The thing I would also say say to Berkshire, they’re an entirely different investing category than than us folks here and and listening, they have to shoot with an elephant gun. This is one of the largest companies on the open market. They’re not like even able to buy small cap companies. They have to look at stakes in very large cap companies. We just talked about how a lot of large cap companies were um were overvalued. So they’re not able to play in in the parts of the market that someone on the retail side is as well. Now, to actually answer um Mindy’s question, what’s my holding period? I I think three to five years is is a proper one. I like to find companies though that think in terms of generations when possible, not all of them do. There are a couple that come to mind, but I I think three to five years is a good amount of time to test a thesis and that that also puts you ahead of the pack in a lot of ways. Um I found according to New York Stock Exchange as, this was in 2020 the average holding period of shares was five and a half months, which is a decrease of a late 19 fifties peak of eight years. So investing is a very strange thing if you’re willing to to sit on your hands and do nothing, I think that can give you a large advantage over a lot of the crowd.
Okay, that’s really interesting because my favorite holding period is a really long time. I’m not gonna say forever, but like I’ve been in, I think Apple iphone was in in introduced in 2003 and I’ve been in Apple since then, I was in I got into Google at on their IPO in, I want to say 1998. Um I’ve been in Tesla since 2012, I hold for a really long term and I might sell a little bit. I did a full disclosure, I just sold $100,000 in V, uh what I sell $100,000 in VGT because we are not because I think the market is bad, but because I’m building a house and I needed some extra cash. Um But for the most part, I hold for a really, really, really long time. And Ricky, you said you you are investing for decades, why are you only holding for half a decade?
Also, I want to pile on with that question with a part two to Mindy’s question here, which is tax drag. So if I have $100,000 invested today, it’s an if let’s say I have a gain of $100,000 and I realize that gain and let’s say it’s close to the marginal tax bracket, right? That could be, that could be very little, but that could, it could be at a high tax bracket, 15% um for long-term capital gain in one bracket or up to 20% plus we live in Colorado, all three of us. So there’s a 4.5% state tax on both long-term capital gains, short-term capital gains and income here. So let’s say, so let’s say that you we sell $100,000 in stock. Now we have roughly $75,000 surrounding $25 that we invest when we put it right back in the market. Well, it’s not like after tax in 30 years, we’re left with the same amount of money. We’ll actually have materially less after tax wealth when we go to sell portfolio B that is that was that is invested an after a lower after tax basis than the previous one. So how do you get around, how do you think through that concept of tax drag on the returns of your portfolio with that three to five year hold period? It’s a fair criticism of my decision recently as well. I will go through that and that’s the first time I’ve ever sold stocks.
Oh, you real estate investors with your with your tax thoughts. How could you? Um So so to be clear, the three to five years, that’s when I’m, that’s the amount of time you wanna thesis to play out. If a stock is performing well, that is, uh you want to continue to hold it as as long as possible. The three to five years is when I’m basically signing up to buy shares, that’s what I get in my head. This is the, these are the fundamentals that I’m thinking about and I want to see this play out over three to five years. So I’m not itching to to sell. Um with that said, there can be thesis altering events. You want to be careful um about recognizing those and making a decision based on that happening. But that’s when I’m buying a stock. I’m thinking, ok, this is, uh, this is my three to five year sort of thesis on this. And then after that you can revisit it and you can continue to hold. I’m not looking to necessarily sell in three to five years, but those are the sort of uh amount of time chunks that I’m thinking in. Um and then I do a lot of my investing within uh within Roth accounts. So, um I’m taking after tax money, no gains on on sales, that kind of thing. Um yeah, we we love the Roth account.
Perfect. Awesome. So we do that in a retirement account. You don’t have this problem. Um uh out there for to a large degree, either it can be tax deferred or or the post tax account in the Roth. What about does that change for specific companies? So for example, I imagine that meta, you, you had a clear several year uh thesis in that particular example. but I imagine like if if I was looking at the market as a layman, I would not imagine that would apply to say Costco, right? Costco, my my, my belief is they should just keep doing what they’re doing in perpetuity with few changes because I want to continue going there to fund a modestly uh uh luxurious lifestyle on the cheap for many decades to come. Um but how, how like how do does that does that change for you with any specific plays like a, like a Costco?
I don’t own Costco stock. I wish I owned uh Costco stock. I perhaps I should I should go out and and buy some. That’s something I’m a customer of and you know, that’s the type of thing where you’re seeing the thesis play out every time you visit. um you go to a Costco, maybe the thesis changes and you go and you realize, you know what, maybe they’ve just hiked my membership a lot. Maybe I feel like I’m not getting quite the value on Costco steaks that I once did or those um I forget what they’re called exactly those figgy bars I have them as a snack once a day, every time I go to Costco, I get them. Um maybe I’m noticing that the stores are a little bit dirtier, that the freezers are out of stock. So, um you’re you’re saying that as long as Costco keeps doing what they’re doing, if you own shares in Costco, you would be an intensely um sort of active observer and how the company is doing and it is the type of company where, you know, I think about what would it take for me to stop shopping at Costco? It’s a lot. Every time I go there, you spend a few $100 and you feel like you just got a great deal.
But then and then it comes down to what’s the price earnings ratio, I looked it up and Costco is trading at 54 times price to earnings, right? And so it’s like, okay, a lot has to go right to meet those expectations and that’s where, that’s where this all be becomes really complex again.
Yeah, you’re not the first person to realize that Costco, uh is a great place to go buy goods and in a good place to work. The way that I might consider reframing that though is you’re talking about Costco like a store, like it’s a store. What if I told you it was a real estate company with a subscription component attached to it? Because a lot of the ways that it makes money is that subscription revenue and as long as they keep people happy, that’s what, what, what, what I think the street is saying is that that’s pretty safe. Additionally, right now, given the market uncertainty that we talked about at the top of the show, you’re seeing a lot of investors that say I want to go to something that seems safe. And uh what’s what seems safer than Costco?
Yeah, that makes perfect sense. Although I push back on the real estate piece like you wonder what else could possibly go into the Costco building in the event that they had to liquidate the real estate at some future date.
They could put an Amazon warehouse there. Um The part with that is they own a lot of their real estate where you see a lot of stores that are leasing their space. So they are a real estate owner. I I guess more of the point that I was trying to make rather than them being a read.
Let’s, um, let’s wrap up with a couple of more tidbits here. So we’ve got, you, you, we’ve got, we’ve got your, you start your approach with, hey, the market pull back is an opportunity um that prevents, that presents at least a little better buying um chance than, than, than maybe was a few weeks, that there was a few weeks ago in some areas. You then look for insider buying in particular to start your search. Go ahead, you were about to say something. So we got,
Yeah, that’s one component. I think more broadly, the thing that I would encourage that I do that I would encourage folks to think about, where are you spending your time and your money? Um and that can be a good place to start looking for stocks as well. Um what do you see that’s becoming popular with with your friends and then you use that as an opportunity to research um to research more. if we use the time, uh you know, the time and attention thing, you’d be looking at uh companies like Facebook, Costco, maybe Visa, MasterCard, um you look at some of the big tech stocks that enable the internet to happen. You could look for worse places than that. but one of the things I I I try to look for, you know, what’s happening in in the world around me and then I use that in as an investigation to look into the company. Sometimes I end up buying shares in the company and then sometimes I don’t.
Got it. So, and that’s very much in line with the Peter Lynch One Up on Wall Street approach. So if that is appealing to you or even worth considering, you should like, would you agree that people should definitely pick up a copy of that book to get that, they get something that’s fairly close to the starting point that you use to investigate opportunities.
Yeah, I think it’s a great way to to see how people have historically beaten the market. It was written years ago. so there are a few things you’ll look at that seem a little dated. Um There’s no cost of trading anymore. I think the market is a bit more violent than it used to be. I think the ups and downs are significantly larger. Um But I think it’s a great starting point and also is good to give you the confidence that, you know, uh that you think of a lot of games and professions and activities where the professionals have a tremendous advantage over you and I think one up on Wall Street is a good anecdote to that to say no, you actually have tremendous advantages as a is a is an individual investor who’s able to be patient and also move freely.
Ok, so, so we have that as the starting point. We have so let’s zoom back out. We have the market pull back is, is at least an incrementally better opportunity to go hunting for bargains. We have, I we start with where are we spending our time in attention um here and what are our friends doing? What, what are things that we’re starting to notice that we on the ground can see as individual investors. Then we look for insider buying. And those are kind of the very beginning points of like how you be how you at least begin the thought process of looking for investment opportunities. After that there’s a large amount, I’m sure of due diligence and research that you do on these companies that would take us much, much longer. But are there any kind of key additional points that you would say are are are downstream there like, hey, we like we like the insider buying. I’m starting to spend a lot of time with attention on what my friends are watching, MMA fights. Um, you know, what what is the, what if you know, what what would be a gotcha? What would have been something that would come up, could come up in diligence but didn’t that would have scared you away from it?
Um From from TKO specifically? Yes. Um What would come up, what would come up that I really wouldn’t have liked there? Um If I saw no path for them to be able to make a profit. So from there, um you want to look at, I like looking at operating profit because there’s sort of nowhere that’s, that’s, uh basically fewer places for a company to hide. If you can’t make an operating profit, you have some explain to do. Maybe you’re a young company with a big growth story and you can set that aside. but from there, I’m looking at what are these company’s pathways, basically pathway or pathways to being profitable? And I if I if I thought that um so for instance with TKO, if I saw like a ton of dilution, that’s something that would give me pause if I didn’t see um like insiders taking stakes in the company or if I was seeing things like people suddenly um disinterested in um mixed martial arts in the WWE or if they were getting way outside of their circle circle of competence. So one of the things is that, you know, they’re making a, uh they’re making a play on the boxing side that makes sense for a combat sports organization. Sometimes you’ll see companies that get um you know, a little too expansive for themselves. Maybe they want to go buy like an online marketplace or an energy drink. I would start asking questions about why they’re doing that. But after you go through that, you say, what is the market assuming about this company and then what has to be true for this to be right? What has to be true for it to be wrong? And then I’m thinking about the fundamental value drivers that could increase earnings or um you know, change sentiment about the company.
I love talking about this stuff. I I read the books too early and uh not too early. I read the books early on about how you can’t beat the market and stayed away completely from this. Um But you can tell I, I always have like a little part of me that’s that wants to go into this and I know Mindy and Carl uh uh you know, stay, talk about index funds and then, you know, are, are, you know, billionaires because of their, their Tesla uh and Google investments.
But we have moved into index funds. We just didn’t, we had never heard of them until, I don’t know when did Jail Collins write that book?
Most truths, I think are somewhere in the middle. Um you know, for, for people who are focused on stock investing, I think index funds are wonderful and can make a lot of sense. I own a lot of them myself. Um for those who are interested in investing, I think investing in stocks and companies is a great way to make hypotheses about the world, to be a curious participant in society and also have a scorecard of uh you know, how right you are or how wrong you are. And this is uh yeah, I I I it’s something I personally enjoy and I’m, I’m not just saying that as a, is an employee of the Motley Fool.
Ricky, where can people find you online?
At Twitter on, on Rick, at Rick slick, or it’s X now at Rick slick on on X. That’s two Ss between the K and the L. And also if you’re interested in stock investing, we have a, we have a podcast called Motley Fool Money. I host it. We put out six shows a week. It’s it’s a, it’s a fun time. I’d invite you to check it out.
Yeah, they do. You do a great job over there and you have a couple of different hosts on that show um as well that have expertise in different areas, right?
Yeah, I’m I’m one of three. So I co-hosted along with uh Dylan Lewis and Mary Long. We also are very lucky to be assisted by um a a uh wonderful roster of Motley Full analysts who are uh even more of an expert or even more of experts in the stock market that I am, just a lowly host of the Mole Full money podcast, but yeah, there’s a ton of folks on it and uh we we we try our best with it.
Awesome. And and I just want to say, you know, I we’ve had a wonderful experience and the overlap that we’ve had with everyone from the Motley Fool over the years, including a what was supposed to be very bloody battle between real estate and stocks, um with with uh two experts from Motley Fool on the BiggerPockets real estate podcast. Mary has been wonderful to work with. You’ve been wonderful to work with and we look forward to meeting Dylan uh some day as well. So thank you for all you guys do over there and uh the the share free sharing of your expertise here on bigger pockets.
My pleasure. and I’ve enjoyed every basically every interaction, not basically, I can say every interaction I’ve had with an employee of BiggerPockets has been um pleasant and I’ve always been impressed by um uh everyone I’ve talked to has just seemed competent which has has always impressed me and I’ve been, I’ve been grateful for in my experiences with BiggerPockets.
I love talking about this stuff. I I read the book too early and uh, not too early, but I read the books early on about how you can’t beat the market and stayed away completely from this. Um, but you can tell I I always have like a little part of me that’s that wants to go into this. And I know Mindy and Carl, uh, uh you know, stay, talk about index funds and then, you know, are, are, you know, billionaires because of their, their Tesla and Google investments.
But we have moved into index funds. We just didn’t, we had never heard of them until I don’t know, when did Jail Collins write that book.
Most truths, I think are somewhere in the middle. Um, you know, for, for people who are focused on stock investing, I think index funds are, are wonderful and can make a lot of sense. I own a lot of them myself. Um For those who are interested in investing, I think investing in stocks and companies is a great way to make hypotheses about the world to be a curious participant in society and also have a scorecard of, uh, you know, how right you are or how wrong you are. And this is uh, yeah, I, I, I it’s something I personally enjoy and I’m, I’m not just saying that as a, as an employee of the Motley Fool.
Well, we could tell you’re passionate about it. Thank you so much for sharing your wisdom here with us. We really appreciate it. Uh thanks for everything that you guys all do at the Motley Fool. We look forward to learning more from you over the, over the years here and uh best of luck this year with uh TKO.
My pleasure. Thanks for being. Thanks for letting me on the show.
Thank you, Ricky. This was a lot of fun and we’ll talk to you soon. All right, Scott, that was Ricky Mulvey and that was a really, really fun conversation. What did you think?
I, you can tell, I, I love this stuff and I’ve had to force myself to not do any stock picking essentially for the last 10 years because I’ve read the research and kind of that, that, that suggests that passively uh managed index funds tend to almost overwhelmingly outperform active investing. And yet the Motley Fool and that community, there are plenty of exceptions to that that are out there that have clearly outperformed the market over time and plenty of people who try it and do it honestly and to the best of their abilities and believe that. And Ricky is one of those people uh out there and you can tell it’s just so it’s fun, it’s like fun to talk about these things and to place these these these, these ideas out there. So I think that, you know, hopefully that conversation what it does for folks is it says, look, we we’re not changing our core beliefs in index funds and Ricky even at a motley fool guy is in 60% of his his his stock market positions are index funds out there. There’s a best practice component to that and it shouldn’t be a taboo thing in a general sense to spend some time doing this. If that’s something that you’re interested in in a general sense, maybe not with the majority of your portfolio, but it’s not like, it’s not like you’re breaking with, you know, a religious doctrine here to to invest in in in uh individual stocks from time to time and it’s something that a lot of people have done and been very successful with. Um and it’s also, you know, there’s also good research to say that the index fund tends to be a little better um for the, for the, the average, if not the majority of uh investors out there.
I would say if you are thinking about investing in individual stocks, you should have a reason, not just oh, my best friend, sister’s boyfriend, brother’s girlfriend told me about this one stock, so I should totally put my money into it. No, if you don’t want to do the research to figure it out or if you’ve heard of a stock and you’re like, oh, that sounds great. I’m totally going to put my money in there. You should, you would be better off with index funds, but if you want to do the research, if you have an unfair advantage, if you have insider information, and I don’t mean that in like a illegal sense. I mean, like, you know, your brother works at GM and he keeps talking about this car and how it’s doing great things with test audiences and, or, you know, whatever, clearly, I don’t know what I’m talking about there, but, you know, if you know somebody who is really excited about a product and can tell you more about it, and then you start doing your own research and you dive down that little rabbit hole and you’re like, oh, you know what, this seems like a great idea. I would definitely not suggest putting all of your money into it. Definitely don’t get a mortgage on your house. Oh my goodness, the meme stocks when people were taking out mortgages on their house so that they could put money in meme stocks that ultimately uh did not perform the way that they thought they would. That’s not a good idea if you’re going to invest in individual stocks, you should have a reason. But if you have a reason, dabble. Scott. I would love to see you buy Costco stock. It’s like $800 a share now or $900 a share.
I, I can’t buy, but here’s the thing like if I’m gonna dabble, I’m gonna dabble, but I would, I would, I, coming out of today’s conversation, I would be more inclined to begin my research with Peloton than with Costco because of that value dynamic. Like I can love Costco all I want and then say in order for Costco, like, like I need to do more research, of course, I don’t really know what I’m talking about, but the 54 times price to earnings ratio scares the heck out of me on uh for for for Costco versus the very low revenue to price ratio to enterprise value ratio for Peloton, for example, is really interesting and so that’s like I, I cannot I could not do the TKO style investment that’s predicated on these big deals and relationship with Trump and those types of things. My mind doesn’t work that way. It’s, oh, there is clear value to be produced in this area and we can scale up from there, uh, in in in in this particular business. I just would, I would be a totally, I would approach it from a totally different angle than even um than Ricky does here. That’s just the way I’m wired.
I like that point of view though, Scott. Ricky invests in one way because of his experiences and his knowledge base and you invest in a different way because of your experiences and your knowledge base. And if somebody’s investment strategy makes you feel uncomfortable, then don’t use it. There are so many other different investment strategies out there. I would hope that nobody is listening to this show and saying, oh, well, Mindy does this, therefore I’m going to do that too or Scott did that. So therefore I’m going to do that too. No, have a reason for what you’re doing, do your research.
And again, I I probably won’t do any particular individual stock investing. Um, or if I do, it will be less than well less than with less than 1% of my, my position because I’m an index funder, right? If I’m an index funder, even though I’m out because of the current market as I put as, as I put more into index funds or into stock market, it will almost certainly be with via passively managed low cost index funds over the most of my life. If there’s ever a a sharp break, I reserve the right to make that and go into a different direction at some point in the future. I’ll let everybody know.
Ok, great. Well, that’s awesome, Scott. And that wraps up this episode of the BiggerPockets Money podcast, but before we go, I want to let you know that we have a newsletter that you can subscribe to. we can deliver it directly to your inbox. Nothing for you to do except go to biggerpockets.com/moneynewsletter and subscribe today. You will hear uh information from me, information from Scott. Scott has his very own column called Scott’s thoughts. So, we would love to have you subscribe. We would love to share our uh information with you. So again, biggerpockets.com/moneynewsletter. And with that, he is Scott Trench, I am Mindy Jensen saying adieu Caribou.
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