LONG TERM INVESTING

Space Summary

The Twitter Space LONG TERM INVESTING hosted by WOLF_Financial. Discover the art of long-term investing fused with the influence of social media and investment research in wealth building. Explore essential takeaways on risk management, diversification, and leveraging technology for informed decision-making. Gain insights into expert advice, market trends, and the impact of socio-economic factors on investments. Embrace patience, discipline, and adaptability for sustained financial success. Navigate through market volatility using strategies focused on long-term wealth accumulation. Learn the significance of balancing risk and reward, as well as the role of compound interest in growing your investment portfolio.

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Questions

Q: How important is a long-term approach in investing?
A: Long-term perspective enables investors to ride out market volatility and capitalize on compounding growth.

Q: How can social media aid in investment research?
A: Social media provides a vast source of real-time data and insights for informed investment decisions.

Q: Why is expert guidance crucial in financial decision-making?
A: Experts offer valuable insights, market analysis, and risk assessment to guide investment strategies.

Q: What role does risk management play in long-term investing?
A: Effective risk management helps protect investments and optimize returns over time.

Q: How do market trends influence investment strategies?
A: Adapting to market trends ensures portfolios remain relevant and aligned with growth opportunities.

Q: Why is diversification essential in an investment portfolio?
A: Diversification spreads risk across various assets, enhancing portfolio resilience and potential returns.

Q: How can technology enhance investment decision-making?
A: Technology tools and analytics provide data-driven insights for making well-informed investment choices.

Q: What qualities are crucial for long-term financial success?
A: Patience, discipline, and consistency are key attributes for achieving sustained financial growth.

Q: How do socio-economic factors impact long-term investments?
A: Understanding socio-economic trends helps investors anticipate market shifts and adjust strategies accordingly.

Q: Why is it important to balance risk and reward in investing?
A: Balancing risk ensures a prudent approach to investments, optimizing returns while managing potential losses.

Highlights

Time: 00:09:45
The Power of Compound Interest in Long-Term Investing Exploring how compound interest accelerates wealth accumulation over extended periods.

Time: 00:15:20
Navigating Market Volatility with Long-Term Strategies Strategies to withstand market fluctuations and focus on long-term investment goals.

Time: 00:25:10
Diversification: Key to Portfolio Stability Understanding the importance of diversifying assets to mitigate risk and optimize returns.

Time: 00:32:55
Harnessing Technology for Informed Investment Decisions Leveraging technological tools for data analysis and predictive insights in investing.

Time: 00:41:30
The Role of Expert Advice in Long-Term Financial Planning Insights on the value of professional guidance for creating sustainable long-term financial plans.

Time: 00:52:15
Adapting to Socio-Economic Trends in Investing How societal and economic shifts influence investment strategies and decision-making.

Time: 01:05:40
Risk Management Strategies for Long-Term Success Strategies to mitigate investment risks and safeguard portfolios for consistent growth.

Time: 01:15:25
Patience as a Virtue in Long-Term Investments Exploring the role of patience and perseverance in achieving long-term financial goals.

Time: 01:25:05
Building Wealth Through Discipline and Planning The importance of disciplined planning for creating sustainable wealth over time.

Time: 01:35:50
Adapting Investment Strategies to Market Trends Stay updated on market shifts and adjust investment strategies for optimal growth.

Key Takeaways

• Importance of long-term perspective in investing for sustainable growth.
• Utilizing social media platforms for investment research and insights.
• Significance of expert guidance and experience in financial decision-making.
• Balancing risk and reward for successful long-term investment strategies.
• Staying informed about market trends and adapting investment portfolios accordingly.
• Building wealth through a combination of strategic planning and discipline.
• Understanding the impact of socio-economic factors on long-term investment outcomes.
• Creating a diversified investment portfolio for risk management and growth.
• Leveraging technology and data analytics for informed investment decisions.
• Embracing patience and perseverance for long-term financial success.

Behind the Mic

Casual Conversation

Hey, Sam, what's going on? Hey, what's going on, wolf? Doing pretty good, man. Pretty good. What's got your attention right now? Definitely, definitely. 10%. Move on. My not 10%, I think it's 15% move on. Micron. I got calls, man. It's crazy. Think it's going to hold up? Well, they're about halfway through their earnings call, so I would think. Alright, I hope it does. I mean, if it doesn't, you know, that's fine is what it is. But I. I don't know, feel like unless he takes a crap on an earnings call, I think it's gonna hold up. Yes, sir. Yes, sir. Gonna be keeping our eyes on it. All right, well, let's hop right into things here tonight. Yeah, what's up? No, no, I didn't say anything. Sorry. Okay, well, let's hop right into things here tonight.

Discussion on Investing

Let's get it started, see what we got on stage. Okay, Gary, you want to kick us off kind of rotating to the long term side here? I know we talk a lot about short term, but I know you do a good amount of long term investing as well here. So maybe you can start speaking a little bit about your process and what's been standing out to you in that area these days. Well, you caught me. I'm old, so I'm eating dinner at 515. But yeah. So long term is kind of my go to and kind of part of the notes that I kind of developed was about how I got started investing back in like the early nineties, late eighties in that area. And we didn't have charts. We didn't have, you know, you sat there with Wall Street Journal articles in the morning, you saw the paper, delivered you the actual stuff. There was no Internet back then. I traveled around the world in 1993. We didn't have email to send to our parents. You had to call them and you had to send letters through the mail.

Personal Experience in Investing

So I'm definitely a long term investor. I invested and I'm still holding shares that I bought in 2006 of Apple. I've endured, I think I wrote a chart the other day, 40% downturns, like three or four times where I trimmed it, but I didn't get rid of it. Nvidia is a great example. Tesla is a great example. Netflix is a great example. Amazon is a great example. I think a lot of people, when they look to trade, they're looking at daily charts, they're looking at four hour charts. They're creating options plays, they're creating stuff like that. I can tell you, as a guy who's just had an average salary, I wasn't a huge earner. I did follow Fira principles, which is financial independence. Retire early. But the investing part allowed me to retire with a seven figure portfolio, eight figure portfolio, where I simply just bought and held. There's a lot to that where you can just buy and hold and make a lot of money.

Investing Philosophy and Outcomes

I've endured a fantastic 20 year bull run with a couple of pullbacks, but the Apple, you know, I often tell people this. I bought my Tesla model three in August 2018. I think at its peak, that $65,000 that I paid for the car was worth like 1.2 million within a couple of years. You don't get that a lot of times. I did not take $65,000 and put it into the stock. Unfortunately, I let the valuation of Tesla scare me out of it. So I only made a couple hundred thousand dollars off of that 65,000. But it was definitely a trade for me. My process for trading things like this is to not even look at a daily, not even a weekly. I look at monthly candles. And for me to get into a stock, I'll look at a monthly candle. If it's in an uptrend, then I know it could be a potential for a long term buy and hold. As I start adding to that monthly candle, as I start adding to the winning phase of that, then I'm more happy on a pullback on a monthly candle.

Long-Term Strategy and Risk Management

I don't care if one candles a pullback. I don't care if I lose confirmation. You know, I typically use nine, a nine ema, nine period EMA as confirmation. If that pulls back on that candle and it loses confirmation, I don't care about it. Honest to God. The large majority of my portfolio is buy and hold. Apple, Netflix, Amazon, Microsoft, they're all long term portfolios. Like ten plus years where I've been either investing, pulling back. I've never gotten rid of a position in the long term winners. So I think that's important. I think this is my bread and butter. If anybody has any questions for me or wants me to look at my portfolio, I'm more than happy to. I'm an open book in that form. But I think this long term investing, I typically quit my job at about one or two in the afternoon, I'm retired, and at one or two in the afternoon, I don't even get on. I'll hop on spaces with you guys every now and then. But this is my bread and butter long term. Investing is where I'm at.

Investment Reporting and Analysis

Again, that's kind of it. So I wanted to hop on. If I have anything to offer, I'll add to it. But again, I've been doing this for a long time, and every financial analyst that I've had has told me, get rid of your bitcoin, get rid of your Tesla, because it's too much. These are short term plays. They're not long term for me, identifying that long term are products that you use, services that you like, and things that you see that have opportunities. Am I investing right now in Apple at 30 times earnings for the long term? No, I'm holding Apple at 30 times earnings for the long term, but I'm finding better entry points for that. One of the downfalls that I'll tell you about GE, early in my investing career, GE was one of the Nifty 50. It was one of those that was said to, and one of my favorite investors, Leon Cooperman, he talks about the Nifty 50 all the time in the seventies.

Investing Philosophy and Historical Context

Nobody can even identify which stocks worth a nifty 50, but they often talk about the Nifty 50. And Google it, you can't find out which are the nifty 50. GE was one of those, though, and GE is one of those that is still alive today. But if you bought and held it through the nineties and the two thousands, you're just getting back to positive today. So identifying those long term trends, identifying those long terms, making sure that you're getting out of any of these that don't have long term trends, I think thats the key. Steven, well put. Amen to that. On the long term investing side of things, I wanted to flip that right over to Mark, who joined us up on stage. Mark, I know that youre very much in the trading side of things, but whats your take on long term investing?

Perspectives on Long-Term Investment and Market Trends

Yeah. So I think were at a unique point in history when it comes to index. When I think long term investing, you know, generally speaking, the idea is I take my trading and I take the profits there, and I'm putting into stuff that's, that is index based or is areas where more passive. But now we're in a scenario where you look at the major indexes and index funds based on the SPX, the S and P 500, index funds based on the Nasdaq, and even the Dow Jones industrial average, and they begin to look more and more alike. And that is one of the things that I think a lot of, long term investors need to kind of evaluate their portfolio. What do their individual holdings look like against their personal holdings? So let's just take a, I was, I forget who it was on Twitter, but someone was just saying, you know, I turned all this money into this, and I've got a half my money in the queues and half my money in spy.

Concentration Risk in Investment Portfolios

And I looked and I realized, okay, well, if that's your portfolio, 60% of your assets are in eight stocks. And that is one of the risks that we are in with the market right now, with how concentrated the overall market is. And so now you add in the fact that people have these indexes, these index funds, where they're long the SPX, and they're long the queues, and then they're going out and buying the mag seven, the grade eight, they're buying Apple Nvidia. And now their exposure is really even ramping up more into those names where their concentration gets into the 70, 75%. And so traders and long term investors need to start taking a look, I believe, at this point in history with where we are at kind of how their portfolio is put together and evaluate how concentrated they are across these, you know, these the major names in the stock market.

Evaluating Portfolio Concentration

So, you know, what does one do about it? Well, you know, I've talked about using equal weight or using some alternative ETF's that maybe aren't as heavily concentrated. Even using a combination of the diamonds and the qs instead of the s and P will lighten up your exposure to the mag seven or going into just different individual ETF's that will kind of rotate you out of names. I love that tech exposure. That's what you get out of the queues. But so I think traders needed to take a look at, you know, where is their broad market large cap exposure set and what are they doing about it? Because that's really where I think the risk is. It used to be you own some queues for kind of your hyper growth, and then you own the spy is kind of your major piece. But now those are becoming more and more alike.

Index Strategy and Market Dynamics

And so I think it's time for us to reevaluate. What does our broad market holding, what should our broad market holding look like if we're going to maintain exposure to the triple Q, or do we cut the triple Q out of that piece of our exposure because we're getting so much of it from the spy? Sounds like you kind of think what the world needs is a QQQ type index minus the top ten minus the mag seven basically. Well they make an index called QQQE that actually does equal weight and rotate. It vastly underperforms. So if you look at the queue so there's equal weight s and p versus equal weight spy and then there's equal weight q versus the queues themselves. Triple Q has outperformed triple Q equal weight over the life.

Performance Metrics of Investment Strategies

Equal weight going in the s and P going back 30 35 years has outperformed the s and P 500. So and that's because you know the triple Q is a lot more concentrated in terms of what it looks like looks at in terms of its companies relative to the s and P and rotating across industries that you can get in the spy relative to the industries you can rotate through in the queues makes a lot more sense. So I really, if you want that high tech exposure, you want that concentration. I like going along the queues. Its the broad market piece that I think that long term investors need to adjust that. Take an adjustment. The alternative is keep that spy piece and then fall and shy.

Strategies for Balanced Investment Portfolio

I'm going to give you a nice shout out. Falling with a guy like shy thats got a well thought out timely stock portfolio of aggressive picks that are maybe a little bit more off the beaten path that arent just going to be Nvidia and Apple and Microsoft that are going to give you some real upside ramps of hockey stick that you're not going to get with exposure from the spy. Yeah Gary, hey I just want to. Throw in here, mark all respect to you and honest to God, every financial advisor has advised me exactly the way you have. And it's probably the smart move. But I would argue that having a high percentage of the mag seven over not just the last couple of years, over the last 20 years for me has been significantly beneficial.

Personal Opinions on Investment Strategies

I'll even point out Berkshire Hathaway, the greatest investor of all time. I think even before he started selling Apple was a huge percentage of Berkshire Hathaway. Now nobody can argue that Warren Buffett knows what he's doing. He's been great. I think he's got the best history. But I would argue that long term investors, if you want to take a chance, I always tell people 5% of your portfolio should be in something that's life changing like crypto. And as it grows and it becomes a larger portion of your portfolio, let it run until it doesn't. I've never really looked at the portion of my portfolio. I think Apple today is like 60% of my portfolio and it's just grown into that I've enjoyed the wealth of it. I've enjoyed the run.

Final Thoughts on Investment Outcomes

I just haven't seen a need to actually pull back on it. So, again, the market humbles all of us. So I could be completely wrong, and I could be, you know, in the poor house when I'm 65. Well, I mean, here would be. Here would be my. My rebuttal to that. I. Most people. You're obviously well educated. You're up on the market every day, right? Most people are not that. And they're not looking at their portfolio, and they think they have broad market exposure when they're. When really they're concentrated in eight names. Would I allow 60% of my wealth to be in a single stock? I think that's probably a little over concentrated, especially.

Advice on Portfolio Management

So what I would generally be doing in something like that, long term investing wise, if I were, you know, I'm not a financial advisor, but if you came to me and say, mark, what should I do? I would take your position. I would collar it with a. With what we call a slingshot collar. So I'd buy a downside put. I'd sell call spreads over the top. I'd do it for about even money. And then, if you get called away on your. On your. Your apple stock, I would take the proceeds from the call away and pour back into the S P 500 to broaden your exposure. that's. That's kind of a standard approach to a heavily concentrated portfolio, because what you're describing to me sounds very similar to someone who is an employee of, let's say, a major corporation that has acquired a lot of their wealth and through receiving, like, a stock, an employee stock plan.

The Importance of Risk Management

Yep. And so I would take a very similar approach where, yeah, you can allow it to grow, but you want to put in some mitigating circumstances around that, because, you know, Apple is about a secure company, as you can go. Pays a nice dividend. You know, they really do produce money. So, I mean, there are worse places. I'd be a little worried if you were like, yeah, I've got 60% of my wealth in Rivian. We. I would be. I don't know where you live, but I'd be flying your house and trying to slap some sense to you. But. But I would still encourage you to take a hard look at, you know, and again, I don't know how.

Generational Wealth Building

How old you are or anything along those lines, but you're, you know, sounds like you're about my age, maybe a little older, to, you know, take a. Because we have option strategies. You can set up some pretty nice option strategies around what you're doing. Yeah. That, allow you to continue to hold the position within a range. Cause I think the hockey stick portion of Apple's lifespan is probably over. and, so allowing a. Putting an option type of hedging program around it, or even a. If you want that Apple exposure, a market hedge around your Apple exposure makes a lot of sense because you could. You could keep the alpha and remove the beta or hedge off the alpha and the beta all at once.

Strategic Insights into Investment Approach

And then if you do get called away or you do get put or you do put to someone else, then you would take those proceeds, and then that would allow you to either diversify or make a decision to jump back into Apple. I'll add this, too. I'm in a high net worth group called long angle. You can look it up on the Internet. I think it's longangle.com or something. I would say I'm probably on the lower end of the wealth of those folks, if not in the middle. But when they took a survey of folks, I think it was 70% of the people said that the majority of their investments were in five index funds, and they just slept at night, and they were perfectly happy with their returns.

Investor Perspectives on Long Term Strategies

Again, that's a different demographic than probably the people that are listening here, because with the five index funds, you could probably put off a million or $2 million just in dividends or reoccurring investments. So it's a totally different situation. And. And someone needs to bring up the power of the dividend reinvestment program. If. If you're a long term investor, taking those dividends that you get from a name like Apple and calling your broker and saying, I want this on a drip. And then instead of receiving the dividend, having that dividend immediately buy back into that company, I'm gonna guess you did some of that back, or. And it allowed your wealth to continue to grow.

The Value of Dividend Reinvestment

I get about five grand, six grand per quarter from these guys. It might be up to, like, eight or nine at this point. I don't even know. It just goes right back into Apple, and I just let it grow. And so. Yeah, and that's. That's called a drip or dividend reinvestment program. And if you're buying a more mature stock, use that. And I'll just. I'll stop at this story. When I was one years old, my dad bought me 100 shares of comed. Comed, Illinois. I think he paid $2,000 for it when I was 22. It was enough for a down payment on a house. And all he did was put the 100 shares in and put it on a dividend reinvestment program.

Personal Narratives on Investing

Great story. That's my grandfather. He said if he had bought IBM back in the fifties, we wouldn't have had to struggle in a small, little ranch house in New Jersey. I want to get you into here, Evan, hear a little bit about how you've been going about long term investing. Yeah, you know, I hear the arguments that are being made here, and I think it's a good conversation. First of all, I think that we talk about trading a lot, and maybe the reason we talk about trading a lot is because how active it is in long term investing. A lot of the things you're doing here is kind of putting yourself in the position to be successful, and it's not as much as when the market's open.

Long-Term Investment Strategies

It's a lot of stuff that's kind of outside the market hours. So, you know, I think that just kind of coming to these things and continuously just trying to learn one or two more things on the long term investing landscape is the way to go. And there's ways to be. To maximize this, there's ways to be the best at this, and then there's ways to just kind of retire. And each is a good option for different people. So, you know, for people who are just trying to retire, I think that something as simple as buying the S and P 500, Nasdaq 100 indexes, like that broad based market ETF's that attract those type of indexes, to me, that's just kind of something as simple as it just put it on a reinvestment plan.

Investment Strategies for Retirement

And I think that's a really strong way I hear the arguments that are being made about concentration. You know, I actually don't necessarily think that I'm too upset about it. From an index perspective, if these stocks stop working for a little bit and other stocks stop working, that concentration will naturally start to go away. And if they continue to work, you'll be happy for that concentration, you know, it's everything in this game, and investing specifically is about time horizon. And my time horizon. I'm 26. I'm trying to invest for decades. Hopefully we'll see. But that's kind of the way I look at all this stuff. And, you know, for me, this long term investing really could be as simple as buy and hold voo qqq vug.

Portfolio Management and Personal Investment Approach

Vug. Whatever. Simple stocks like that are just broad based market indexes and you know, there are places you could be doing better for sure, but I think that puts you at a good place. And for me, I personally need a little bit more than that in my portfolios. So I come in a little bit more of that active area that the second bucket. So I mean, I'm excited to talk about the ETF's that people have talked about, and I know we're going to talk about some individual stocks too at some point. So I also look at my portfolio from a top down perspective, kind of, you know, what percentage do I want into really just long term stuff.

Investment Balance and Strategies

What percentage do I want in ETF's that are tracking these broad based market indexes? What percentage do I want individual stocks? What percentage do I want to go a little bit more degenerate on? I am a believer that you never want to go degenerate on your full portfolio, degenerate, you know, buy options, buy some crazy calls or something like that, or whatever. Obviously these advanced trading strategies are different, but I think ignoring it completely could lead you to make some bad decisions on your full portfolio. So I think putting aside one 2% of your portfolio and just honestly, people might not like this, gamble a little bit with it or go with put yourself in positions that are significantly more high risk and high reward.

Risk Management in Investment

I think you do a good job segmenting that off on the side. Maybe that doesn't fit as much in the long term section and more interesting portfolio as a whole. But I definitely do a lot of top down kind of what percentages I want in. I tend to go a little bit, maybe higher on these broad based market indexes and the percentage that I want in my portfolio than some of the others up here. Maybe more towards what, like a traditional financial advisor? Not quite that far, but closer to what they'd have. But, but yeah, I've rambled a lot here. I have a lot of thoughts. I understand the conversation there and I get it, and not wrong, but I do think that one of the great thing about these broad based market indexes that they do rebalance over time.

Evaluating Time Horizon in Investments

And, you know, if you start to see a world where those start to struggle a little bit, sustained struggle, then, you know, some other stuff will come up and actually come in and compete with it and, you know, we'll see the waiting son. Go jets. There you go, sam bad, what's up? Hey, what's going on? So, yeah, I mean, I do appear in a lot of Twitter spaces and what might seem like I'm more of an active investor. I have to admit, like, most of my portfolio is, I would say 80%. It's long term, and it's based on secular trends that are occurring in the market right now. I wasn't lucky to bottom tick most of my portfolio in October 2022, but I was fortunate enough to kind of flip my own script probably a few months after that.

Long-Term Portfolio Management

And I would say probably, like, close to half my portfolio is really index funds. Well, actually, specifically, it's in the VU, and it's in QQQM, which tracks the Nasdaq 100. And I would say probably, like, 30% of that is in core holdings. For the most part, maybe about 25% in core holdings. Let me actually share something real quick. What I just shared in the tweet section basically put down, as long as I think of the long term secular trends, I could really live out whatever drawdown that we have. August 5, instead of freaking out panic selling, I was really just adding to very high conviction companies instead of just adding to bottom feeding stocks. And that helps to keep my head straight and focus on what I am really, what I really do have high conviction on.

Diving into Specific Investments

Amazon being one of my biggest positions in single names and also Nvidia as well. It just helps me to add to these positions. And I would also say that instead of just time horizon, a lot of people who are designing the portfolio, some people ask, should I buy this? Should I buy this? Should buy this? But it's kind of hard to answer that question, because there is a time horizon, like you said, evan, and there also is risk tolerance. Like, some people, they do not like to see massive swings in their portfolio. Like two, 3%, maybe in a 1% down day on spy. But, you know, there's some people who are willing to take that drawdown. They have a much higher risk tolerance, and they can take that drawdown when it happens.

Understanding Risk Tolerance

Like August 5, my portfolio beta is actually pretty high compared to the next level. August 5, I was down a lot. And then over here today, I'm, like, above all time highs in my portfolio. But it's because I'm comfortable with that risk tolerance, you know? And then you have people who are not comfortable with the risk tolerance, so they'll just do the indices and weekly DCA, and that's totally fine. You know, whatever works for you. For me, it's just 80% long term, 20% active trading. And as Evan was saying, the Djen stuff, I mean, we all got djen urgencies. I just do, like, one or 2% of my portfolio. Max and Djen plays and anything I would not consider DJ would be like leaps that expire two years from now.

Balancing Active Trading and Long-Term Investments

I don't consider that degenerate and that would fall in the 20% bucket for me. But yeah, I think risk tolerance is important. And most importantly, out of everything, I think risk management is the most important. Like if you're up like 200% on something in a very short period of time, like it's time to take a little bit of chips off the table, you don't take your cost basis out. I wouldn't say that for long term investing, but if you are actively managing a portion of portfolio, I would say that is when you need to be putting more emphasis on risk management. Certainly felt like that would be a thorough topic we discussed tonight.

Reflection on Investment Discussions

Shy. You've been mentioned. You want to go a little bit further into your long term process here. Yeah. So I orchestrated this growth portfolio over past couple years. If you guys aren't aware of a public portfolio, you can see on my profile the way I'm much more of a thematic investor. I get asked this all the time in my personal life as well as Twitter. Like, how do you figure out what names to get involved in when you want to start a portfolio? So I always tell them, like, what are you, what the Maddox are you bullish on? For me specifically, I'm bullish on AI, data, cloud, e commerce and essentially the digital economy.

Market Trends and Future Projections

I really do think AI is here to stay. And it's not just a couple years of strength. It's going to be a generational thematic and because of that, I want to be able to have exposure in the different stages, I think, on how that's going to be adopted. We all know about the first stage versus the hardware elements. Servers compute. Servers compute. And I'm missing one of them chips, I guess you can say. So that's like where the money's been being made past years. You're seeing it right now in Nvidia, you're seeing it right now in the past with ASML, TSM.

Investment Opportunities in AI and Technology

Like, all these companies who have monopolies in the hardware layer of the digital economy have been having ridiculous pricing power the past couple of years due to the necessity of their products to create all these next gen devices using these AI chips. However, there is going to be a second stage of this AI thematic and that is going to be the application layer. And even more specifically, the application layer will be the software component. Because although it's true AI will cannibalize the software space, there's going to be a handful of winners that are going to make it out of this AI thematic stronger and not even just showing more strength, but they're going to be able to produce unprecedented pricing power.

Identifying Key Players in the AI Sector

And with that crazy pricing power that you're seeing with all these hardware names, there's not as much of a cyclical factor into the software names. And because of that, there's going to be a pretty significant premium assigned to their valuation. We're already seeing glimpses of that right now. Ticker PLTR, where I think they are the first software name to solidify their spot in the enterprise AI world. Again, I think there's gonna be a handful of names. I'm not gonna say there's five, but I really don't think there's any more than ten. Like, it's gonna be a select few. And if you make.

Investing in Emerging Technologies

If you're one of those ten names, like, you're gonna be assigned a pretty crazy premium. And that's what's happening in Palantir where I always like, I got to Palantir under dollar ten. It's my biggest position right now. So I am talking my bucket bit. It's a 12% position for me right now, but the valuation is definitely up there. It is the most expensive in the software space. However, it's justified because like I said, they solidify their spot in the enterprise AI world. The risk of AI cannibalizing their business is it's as close to zero as possible. So if you remove that layer of risk associated multiple, like that's why they're trading at 90 times this year's free cash flow.

Valuations and Future Earnings Potential

That's why they're training at over a hundred times 2020 five's earnings. Like it's way up there. But premium valuations for moats, like the pounce your hats, like that's how it is. Like the same thing can be said on intuitive surgical ISRG. Like that has been a very expensive name for years on robotic surgery. There's no competition. They have a monopoly. And demographic in the US is getting older and there's going to be more surgeries. Like they will benefit the most on that. And this, that's a name that's just always had an insane premium, but it's still outperforming the market significantly past couple years.

Market Dominance and Competitive Edge

Another one is Axon.

Axon Technology Overview

Axon technology ticker axon. Like they have a monopoly essentially what they do, which is a lot of people think they just do teasers and cameras on cops, but there is a cloud component and what their business model is. And now there's also an AI element in their business model as well. Wherever they just introduced a new product that if you guys don't know, 40% of the cops time is essentially doing admin work, filling out reports, doing desk type of duties. This AI product eliminates that. And I think, wow, I didn't think about Axon as being a beneficiary on AI. It's not really an enterprise space, but still it's software. Because of the cloud component, they have the business model factor and Axon is one of those names in the software space that will be an after this AI winner. So they are trading at a ridiculous multiple. Like I think it's 80 times next year's free cash flow.

Valuation and Investment Strategy

But again, they've always been expensive and they're going to be consistently having a high premium valuation because they have that moat. So to go back to the original question of what's my growth portfolio strategy or portfolio management strategy long term is I find the maxim bullish on. And once I find that thematic, I go next step of like our fundamentally who is elite? I love using the rule 40 score. That's my favorite growth metric. It's combining the revenue, top line growth and the free cash flow margins. Those two combinations is a 40 plus and you can consistently deliver that. That's essentially telling the market, like you have that moat because you're not sacrificing a top line growth for bottom line growth. You actually can do a balance from both for consistently for an extended period of time. That's a formula for a multibagger. And not just a multibagger.

Emotional Investments and Lessons

It just proves that you have a high barrier of entry for competitors because you have the pricing power, because you don't have to sacrifice the bottom line to continue to grow 20 plus percent for across the next decade. So once I figure out the fundamentals of like who's the elite, then I go into like what is their mode to justify that fundamental? And that's when I get into a lot of the Dex. I listen to earnings calls. Like I create my own thesis on like is this an actual moats? Is this a smokescreen? Luckily, I've spent like close to a decade on the corporate strategy side. So like I do know a lot of the terminologies that these c suite say on earnings calls because I used to be the one providing that verbiage for them. So I know a lot of fluff, I know a lot of B's or I know what's actual substance and I am able to really sense what is thesis breaking and what's thesis expanding. So I kind of use those semantic layers to create my favorite stocks. On all these thematics, I will say that's like, what I'm good at, what I'm bad at is I've been noticing I have a relationship with my holdings, and it's awful.

Cutting Losses and Maintaining Perspective

That means I have an emotional component towards my picks. And that is a no bueno situation because it's a lot harder for me to cut one of my holdings off. If I see something thesis breaking, I usually give them one or two more quarters. Or I just like. I love their technology and I overlook their point. Core corporate governance. Perfect example is unity ticker you. I love their technology. I like, I think it's so applicable across so many different industries that would duopoly and a highly secular growth theme. But they've had a shit show CEO John past couple years. They got a new CEO like six or eight months ago, but there was just so many red flags on how John was speaking on the earnings calls and like what the fundamentals were showing me that should have surpassed my take on what their technology is, and it didn't. And because of that, like, I'm. I think I'm actually green now. Cause I added it significantly this year when I was in the teens, but the opportunity cost of holding this name for three years, definitely, it just beat me in the ass and I should have cut this loose.

Learning from Investments

So like, that is one skillset that I need to kind of work on removing emotions because same thing maybe could be said for Snowflake, but I really don't think so because I've seen anecdotal evidence of what Snowflake is across multiple industries and it just makes too much sense on their place in the enterprise AI world that I just don't think street art can mess it up. But who knows? We're not seeing the. It's more of a story stock than actual fundamentals. And I could be wrong and this could be another unity situation, but I just don't think so. I'll pass back to you because I went on a lot, but that's kind of how my mind works and how I orchestrate portfolios is more of a thematic investing with heavily emphasis on moats. And I'm okay paying up for a premium valuation because I think as capitalistic world that we're in, it's going to get even more capitalistic and AI and you need to have a moat to survive.

Diverse Strategies and Portfolio Management

And I think that's surpasses an undervalued valuation on a stock. All right, the full rundown. Good stuff. Waiting on this one. What's up, Gary? I'd add shy said it perfectly, and I just want to point this out and put it. Put it to everybody. He added Palantir to his portfolio and it grew to his largest position. When you add a stock to your portfolio, you need to size it correctly and let it grow. Add to it if you think it's a winner, don't just go balls deep into something just because you think that theme is a good one. Momentum is a strong force, so make sure that you add it. I'd also add in my themes or AI and GLP one. Don't lose sight of Lilly and Novo Nordisk. Ozempic I often say you're going to stub your toe in the future and they're going to, you know, GLP one is going to be what they prescribe to you.

Market Trends and Emotional Components

Ozempic was just approved for reducing opioid overdoses. And the third thing that I heard him say was his emotional component where he just got emotional. That's the exact situation I was in. And why I started using charts, monthly, weekly, long term charts, is because the charts have no emotions. They don't lie. The only thing that matters in this market is price. So, you know, multiples can have a place in it. Warren Buffett doesn't use a stock chart. He just invests. And he does a really good job of it. I think for the retail and trader and the retail investor, I think charts have a place and they just take emotion out of it. But I loved shy. Shy. That was a great ramble on all you want if you're going to continue with that genius stuff.

Advice for Stock Picks and Risk Management

It was great. It was good stuff. Hey, logical. You want to jump into the combo here, share some of your process? Yeah, give me 1 second. So here's what I'll say. I really like what Shai was saying, but you got to ask yourself, if you're listening to this right now, are you as passionate as shy is about looking into these businesses? If you're not, you really shouldn't be picking stocks, period. I think 100% of people should invest, and I think 99.9% of those people should be sitting index funds. If you want to, like, you know, Evan loves Apple. Obviously, Apple is not a tricky name, really. I mean, more or less. Right. I still think it's tough to be a stock picker, but ultimately, you know, if you like Starbucks and you want to you know, I know Starbucks or, you know, I like cloud on shoes or whatever.

Consistency in Investment Strategy

On cloud. You know, I've been buying this product. I like it. I see the future. Okay. Okay, fine. You want to buy that stock, that's fine. So, besides the occasional allocating a little bit of money because you like a company, you like a brand, you like the, you know, you want to own some of the stock, fine. You know, you're treating it as a hobby. But here's what I'll say. Oftentimes, like, it's just not that simple. And I think that, you know, they index the market cap weighted index. We were just talking about market cap weighted versus equal weighted. And it's just been so much easier to let the market choose the winners for you. And so when you own the index, you get to own the winners, and the losers matter a lot less than the winners win.

Understanding Financial Metrics

So the market goes up over time. I think that if you're not willing to understand financial statements, if you can't tell me how much that a company has, if you can't tell me the cash flows they have, if you can't tell me what the discrepancy is between their operating cash flow and their earnings, you know, gap earnings, what's the difference between their non gaap earnings? How do you get to adjusted EBITDA if you can't, if you don't know these things, you shouldn't. You shouldn't buy stocks, period. I think you should just buy indexes. I see this too often. It's just because what I'm trying to say is, like, it's really easy to get hurt.

Caution in Stock Selection

I. And oftentimes I see retail investors get really excited about yoloing into some stock they hear because some big account posted a chart and it looks good, but they have a whole different plan than you. You know, I heard a little bit about time horizons. It's very important right now, we're talking about long term investing. I would tell you that most trades on Twitter probably have an average lifespan of, like, I don't know, three days or three weeks or something like that. So it's. It's just really tough for you to align exactly with someone else. So be careful who you're following and what you're doing, because, really, you need to make those decisions.

Investment Strategy and Portfolio Awareness

But, yeah, I mean, when it comes to picking stocks, it's a really tough game. You're likely to hurt yourself. I think Sam was saying on August 5 he has a high beta portfolio, as do I, and it was gut wrenching to see the amount of drawdown, maybe. The S and P is down 10%. My portfolio was down 25 for that week. It's insane. But you need to know what you own. You need to be able to say it like the back of your hand. I have 20 to 30 holdings. I can tell you a lot about every single one of them. So until you're more comfortable, I would just say, stick with the index, you're going to get equity growth.

Challenges in Beating the Index

It's really hard to beat the index, too. I'll have you know that like most active managers who pick stocks, and you can invest in their mutual funds or whatever, they're underperforming the s and P. So just be really careful. It's not easy. Don't hurt yourself. And another thing to think about is back on yoloing a little bit into stocks that you don't really know too much about that company. I'm sure this resonates with some people because it resonated with me pretty early on. I was buying all sorts of things. I had no clue what I was buying. And it's just crazy to me that we put our hard earned money into stocks that, you know, we don't know much about.

Research and Analysis in Stock Picking

Meanwhile, we'll do like 3 hours of research to pick a barbecue grill that we're going to order. Right. But then we'll, like, dump five grand into some stocks that we don't even know anything about. I just. I just need, you know, people to be really be honest with yourself. If you're not willing to put in the time. I put in a lot of time. I put in most of my time just reading and listening. And if you don't have the quarter app, I highly recommend you download it and listen to the earnings calls of the companies that you're interested in and just see what management is saying.

Engaging with and Analyzing Companies

Look at the numbers. Compare companies in the same industry. There's a lot of things you could do to be a real stock picker. But owning a bunch of stocks, you really can't tell me their valuation metrics, and you can't tell me their top line growth, and you can't tell me how the bottom line is showing operating leverage. If you can't say these things to the level that shy and myself and others on this panel are able to say, you should just stick to the index until you're ready. That way you can continue to capture market like returns, which, by the way, the S and P is up 20% this year. That's nothing to sneeze at.

The Index Strategy and Investment Commitment

That is really good. It's just really hard to beat the index over a long period of time. So really only do it if you're willing to put in the hours. And when I say put in the hours, this thing is like a full time job. So that's all. I honestly agree with that completely. I think that, like, there's really nothing wrong with knowing who you are and knowing that, hey, I want to be average with 80% of my portfolio, 90% of my portfolio. Maybe I'm here just for the extra 10% for a little bit of fun. But in a lot of places, average has a negative connotation.

Understanding Market Average

But in the stock market, it's actually really successful. So if you want to beat the market, it is possible. It's really difficult. There are ways and people that can help you to do that. And, you know, hopefully, we put some of them in front of you. But at the end of the day, like the fallback year of just kind of buying hold, I really do believe in the. In these type of broad-based market indexes. Like, listen, I don't hate Cathie Wood as much as a lot of people might on this space is. But, I mean, buy and holding arcade is very different than buying holding Vo and what has done well, one has done not well, so.

Conclusion on Stock Picking

But, yeah, I very much agree that. That a lot of people shouldn't be picking stocks. And you can beat the market, but, you know, yeah, it's. It's fun. People do work for nothing. It's really fun when everything's going up and you pick the right stock and sometimes you can't tell, was that luck or was that truly skill that I picked that stock? And, you know, maybe early on you get that beginner's luck. I know I did. It made me feel like a genius until I saw 2022, and I got absolutely destroyed.

Investment Challenges in Down Markets

Way worse than the S. P. S. P was down 18% on the year. That's nothing. I mean, I was down, you know, 40% or more. So just, you know, I want to put it out there that it's all fun and games on the way up, but it really is, you know, gut-wrenching to see your accounts and your real money go down. And so, you know, you see this stock made a 30% move, et cetera. You know, if you didn't really put the work in to understand why that stock could make that move, know, I wouldn't really feel too much FOMo, because it's like, you. You could have experienced that if you really did put in that work.

Risk of Stocks and Market Cycles

And you know, and there's still always a bit of luck in that. But sometimes it's just, you know, if you're not really there, where you're putting in hours and hours of, you know, reading all these things, comparing industry peers, figuring out is this, you know, industry in an up cycle, down cycle, etcetera, those things all matter. So it takes years, maybe what Evan was saying, you know, like, keep a small percent of your portfolio early on to figuring out, like, small positions and learning about the industry, having skin in the game, that's not bad, and it'll protect you from making any really bad mistakes.

Investment Dedication and Passion for Learning

Yeah, I agree about how much time it actually takes. It's just you have to really love this stuff to keep doing it, and you have to love it enough that if you do think you're right, if you do make that first purchase, that the market is just going to completely disagree with you and go in the opposite direction you want to, which, ironically, it should be a good thing, because that means you could buy more at a lower price. But if you're at a point where you're stressing over holding and you're not sure why it's down so much or why it's up so much, or if you're not spending hours and instead of watching putting on Netflix, you decide to continue to research on the stock.

Time Commitment in Stock Trading

I'm not saying you have to do that, but if you don't have the motivation to do something like that when it really matters, then I think, you know, you like logical, saying you're better off just doing the indices. I mean, it's like, we're all putting the time into this game. And even if we perform on the same level as indices, like, that's a lot of mental capital that we put in our hands, and mental capital is just finite. You can't get that back. Yeah, and, like, that's the thing, right? You're putting in so many hours where it's like, you know, if the s and P is up 20%, like, what is everyone on this panel up this year?

Performance Evaluation

Like, I'm fortunate. I'm up a pretty healthy percent this year, but if I was only up five to 10% above the index, I might just sit there and be like, dude, was five to 10% worth, like, all my time and all my free time this year? Or could I have just chilled and lived a pretty. Not even pay attention, like we do every second of the day? It's really got to be worth it. And so, again, my point is just saying it's already difficult to outperform the index, perform as well as the index, and then on top of that, to really outperform it to make the time, like to be able to justify the time investment.

The Tough Game of Investing

Yeah, it's just a tough game. You really have to love this stuff. Godfather. Yeah, I just wanted to take the conversation in a slightly different direction because I'm guessing folks that have come onto this space and wanting to learn about long-term investing. I agree with everything that's been said about passive, for the most part, outperforming active and all the rest of it. But for the folks that are here that are trying to build a portfolio of specific stocks that will be a long term portfolio and are trying to find these long term compounders, let me give you a couple of clues.

Identifying Long-Term Compounders

Number one, you often hear this phrase that past performance is not an indicator of future performance. We all know where that's coming from. But when you're trying to isolate long-term compounders, that's exactly what you want to look for. So I would encourage people to take a look at the long term charts of names like Lilly, names like Walmart, Costco, United Healthcare. Pick a couple of these large cap defense names. GD, Northrop Grumman, LMT. Pick your poison. But they often all look the same. Why is this? Well, because there are common traits in a lot of these names.

Characteristics of Successful Companies

First of all, you won't find many cyclicals in long term compounders. A lot of these names are recession proof and they share other characteristics. Shai made a good point about axon and the network effects there and how that business just keeps building on itself. That's one of the sort of, I would call new economy long term compounders. But if you look at these older economy names like defense, they have pricing power. It's recession proof, they have huge competitive moats. These are characteristics that you want to look for. Some of the other names that sit in my long term compound portfolio are names like FTAI. Nobody talks about this.

Investing in Stable Sectors

I mean, this is an aircraft leasing and maintenance business. They gotta maintain aircraft, whether it's a booming travel season or not. There's a stable business there. And there are attributes to the management that run these companies. But past performance is probably the number one thing you want to look for names like this. Another one that made a 52 week high today and is outperforming peers that do exactly the same thing. United Rentals. How is it that this stock just, if you pull it back on a long term basis, it looks parabolic.

Successful Management Traits

This is the high ROIC business management has done a fantastic job of keeping capital intensity in play. They've got pricing power, they've got scale. This gets built over time. These bigger companies get bigger. You see the same sort of thing insurance. Pull up a long term chart of bro. Pull up a long term chart of AJG or Pgreendeze. Even though these are effectively regulated industries, there's just tremendous structural returns built here. And these are the kind of businesses that you can hold for the long term, and they're durable.

Constructing a Long-Term Portfolio

So if you're looking to actively put together a long term portfolio, these are the things that you want to look for. So, anyway, I just wanted to put that out there for those that are looking for those types of tidbits. Appreciate you sharing those thoughts there, godfather. Great having you on stage here. Frank. Did you have some comments here? Yeah, no comments. I have a question for shy and logical. So, as far as risk management, logical mentioned that, you know, certain points, like, yet a 25% drawdown.

Risk Management Practices

When do you guys raise cash? When do you cut or trim? Like, how do you guys. From a long term perspective, I'm not talking. I'm a trader. You guys know how I trade, and I am 35% long term cash right now. Over the last two months, I've lightened up because I want to have cash if there is, and I don't mind sell something. Hope you're wrong. But I'd love to know your thoughts on risk management drawdowns. And when do you sell and when you buy something? Is it.

Investment Decision Making

Are you selling something to buy something else? Like, a little bit. A little bit color on that, if you guys don't mind. I'd love to hear it. Yeah, absolutely. So, like, for example, like, right now, like, I am more bearish than bullish in the market for the next six to eight weeks, what am I doing to protect my gains? right now, I have a model for all my holdings, which three of my holdings are the most premium valuations that have the potential of pulling back. A great example is palantir.

Protecting Gains During Market Fluctuations

The top three right now, palantir, cloudflare, and tree desk, which is kind of crazy right now, but. So if I was to get, like, oh, I'm sensing a near term top, I'll just go buy three month puts on those three names to kind of protect my portfolio, because I do think a palantir is the AI. Cloudflare is, like, similar software exposure and cybersecurity. Trey desk is, like, the ad side of the business. I think if all three of those things pull back. My total portfolio would be somewhat protected.

Trimming Positions for Stability

Another component, like when I would, I rarely actually sell my positions unless I feel that this is getting really up there. On valuation, I do a slight trim. Today, for the first time in forever, I did. I trimmed 10% my palantir. It was getting to 12% of my portfolio, and I wanted to sell the shares I bought at $21. During that yen Kerry trade fiasco, I was like, all right, that's a quick double. In a matter of months, I want to pull back.

Building Cash Positions for Market Opportunities

So I would love for my cash position to go closer to 10%. So in case there is a fire sale in the market next six to eight weeks, I can participate. And, like, when will I participate or use my soldiers? On the sideline to get in is the. I love using the weekly chart. 21 EMA is my favorite that I use on. Whenever a stock hits that level, I like to add, especially the ones who are testing new 52 week highs, and I go on from there.

Incremental Investment Approaches

I usually do very small increments. I rarely, like, increase the position 50%. It's always 10%. Increments is generally the case that I use on, like, all right, well, I want to add more pounds here. If it's 10% of my portfolio, I'm probably just going to increase my exposure 1% on this ad. And I do a DCA approach, so it's not all at once, like, I. Unless it's, like, the VIx hits a 60 handle. Okay, this is a generational opportunity.

Identifying Opportunities and Market Conditions

I'm going all in, and that's what I did. But if the VIX is still, like, under 2020, it's, like, not that much fear in the market. I'm gonna be slowly dc ing. But I do factor in, like, where the VIX is at if there's a near term, if we lose a nine EMA, and there's, like, something on the short term technicals look toppy. I start and playing hedges right now. I do have a spy hedge for my portfolio for December 20 expiration, because hedging is on the cheaper side.

Anticipating Market Movements

Again, we had a 15 handle, and I do think the market is under isn't factoring the election noise as much as it should be. And I think that's going to change, especially when it's as flip of a coin as it is right now. That market likes, hates uncertainty, and this election is extremely uncertain. So I think that is going to probably come in play. And also, every year, I tell myself, like, why aren't I protected in September?

Market Volatility Awareness

And October when something funky happens. A lot of people can say the first week of September this year that all that volatility got front ran and Q's went down 6% one week. That was the September an October like funky volatility pullback. That could be the case. I don't think it is. I think there's going to be a moment in the next six to eight weeks where we're going to retest September bottom. We're not going to retest August bottom, but September bottom.

Market Bottoms and Future Projections

You might retest and that's the case. I'll do a 2% position like I have right now and buying some spy puts to protect my gains or like I think close to 30% this year and my expectations are always 15% a year. And like I made my nut for the year. So I'm okay to sacrifice some of my year to gains to protect them. If I think there's gonna be a near term pullback.

Strategic Planning for Investment

And when it does hit those September lows or 21 week emas, I will be adding to my specific lists I have in front of me because I have, I always have a plan. So like whenever there's like volatility or something, I always go in really quickly on my DCA of which names. So yeah, passing to logical, I'm curious what his is, but hopefully that helped.

Response to Risk Management Questions

Frank. Yeah. If you want to give a quick final thought on that, logical. And then I just got Simon Ericsson up here and we're going to roll into talking about some of these stock picks, which could be good for the long-term portfolio. But yeah, go for logical, then we're all into that.

Investment Philosophy on Risks

Yeah, I don't really worry too much about short term trends and pullbacks. If we lose the 50 day, this is like a stock talk thing I learned. If we lose the 50 day, I'll probably take down my exposure just because the whole market may be a little bit bearish. But other than that, I stay greater than 100% long at all times. Right now I'm 115% long. So I do have margin on. And honestly, some of my portfolio has actually seen a bit of a pullback already this week.

Monitoring Market Performance

Look at IWM, et cetera, to get an idea of the proxy. But yeah, I think if I truly felt like that, okay, something is not shaping up, then yeah, maybe I'll take down the exposure, but I just don't see it right now. So I'm personally not too concerned and I'm not going to try to like, you know, manage every single near term trend. And I'm not really at, like, extreme or dangerous levels of exposure.

Introduction and Promotion

So we wanted to make sure everyone has a chance to check it out. Jump in there, that link up top, use the monthly option, throw in code wolf, and your entire first month is free as well here. These guys have done a great job long term. So, Simon, let me turn it over to you, and let's get it rolling here.

Introduction to Seven Investing

Hey, thanks very much. God, good to be here with you and Evan. Hey, shy everybody else who's joining on the panel, I've been following your content for four years. You guys are hosting some fantastic shows, and it's a pleasure and an honor to be able to sponsor one here with seven investing, like you mentioned@seveninvesting.com. Our mission is to empower individuals to find and then confidently invest in the stock market's very best opportunities. We are right now running a promotion. If you use promo code wolfenheid@seveninvesting.com. subscribe, choose the monthly option put in wolf. Your entire first month is free. We've never done that before. I'm a big fan of your show and glad to offer this for anyone who is interested, but the reason that we want individual investors to invest is because I just feel like it's life changing opportunities to find stock market opportunities and then just put some money into them.

Life-Changing Investment Opportunities

It can change your financial future. It certainly did for me when I was investing back in 2008 and buying Google at $13 split adjusted Amazon 250, Netflix in 2009 at $32. Solarcity right out of its ipo in early 2020 in 2013 before it got acquired by Tesla. I mean, the appreciation the capital gains from these stock buys held for a long term for about ten years for most of them, is what empowered me to start seven investing, self, fund the business, and really live one of my dreams here. So what my job is to do is to find individual opportunities, make them official recommendations at seven investing, and then follow along the story to make sure that we have conviction.

Research and Analysis

And so I wanted to focus on two of those here today to kind of display a little bit of the kind of research we do. It's not just about kind of publishing pics and reports and then disappearing, but for every one rec or five best buys we post every month, there's one or 200 hours of just kind of as diligent research of the fundamentals and the market. Everything going on behind the scenes in there, too. But let's focus on two of the top ideas this month. I'm kind of excited to bring both rocket Lab and super micro computer to the show here for the spaces today.

Excitement for Rocket Lab

Well, some popular names for sure. Let's dive in. Excited to hear your pitch. Is there one you'd like to go first? Would you like to talk about space or semiconductors? I think yeah, people have really been on that. Space. Space is granted. Let's start with Rocket Lab. That I heard, space. So let's go with that one. This is a stock that's doing very well today, but it actually went public back in the SPAC craze of 2021. And a lot of people really have a negative perception of that because a lot of companies were raising money at a premium valuation and just weren't making a good return on investment.

Rocket Lab's Unique Position

There are others that have flirted with bankruptcy or even straight out gone bankrupt after raising money from investors. And Rocket Lab is the exception to this. This is one that raised $770 million in its SPAC has put it to very good use in acquiring different technologies and capabilities in its overall mission to become an end to end space company. I assume that a lot of the audience is already familiar with this company, but in case you're not rocket Lab's goal right now, is to get satellites into outer space.

Capabilities of Rocket Lab

So if you have something up to the size of a vending machine, right up to 300 kg or so, you can use its electron rockets to put it into exactly the orbital plane of where you want. You can put your satellite out into outer space. You can book it directly online or call them or anything. It's kind of the disruptor of the space economy. And when we say disruptor, we say that because if you're a small company, you previously had no other options on how to do this, right? You could ride share with SpaceX on its rockets, on the Falcon rockets, if it happened to be going into the location that you needed to be.

Market and Customer Opportunities

And by the way, that typically would have to wait 18 months to 24 months into the future, which most businesses don't want to do that, where they just have to wait around for Elon to drive the bus and stop at the stop where they want to get off at. This is something that all of a sudden gave smaller customers and even the military an opportunity to put smaller satellites exactly where they wanted and when they wanted. And when Rocket Lab realized that it could do that, it started to say, okay, if we can launch satellites in outer space, why can't we start manufacturing satellites for customers as well?

Expanding Services

Why can't we attach the propulsion and the power and the communication systems and all of the other components that are necessary for having a satellite fully operational. And so a lot of the new business that they've had hasn't just been in launch, which is kind of a $10 billion market, but in space systems, where they're actually creating the satellites and the components that go along with those. And then the third part of this business, which is going to be even larger than these first two parts that it's developed so far, is going to be the space applications or the satellite applications, or the space as a service, depending on what description of those you prefer.

Future Market Potential

But it's the same thing that Amazon Web Services did after you build the infrastructure for cloud computing offer the applications, offer a way for customers to pay on a monthly basis that's predictable for them, where you handle all of the stuff with the infrastructure and the operations in the back end and make it just simple for anyone to do anything they want to in outer space to do it. And so really the opportunity with Rocket Lab is as a long term opportunity, just seeing this market growing from simple things like imagery, Google Earth images that were taking pictures from outer space, to more of logistics, where you're starting to actually navigate global shipments of goods or things that are going around the world to even more exotic things like power production from solar manufacturing, pharmaceuticals and outer space is being looked at right now.

Emerging Technologies

And one of the biggest ones is going to be satellite Internet, broadband Internet that is not terrestrial, but actually being beamed from satellites. So it's pretty exciting. I'd like to talk a little bit more about the fundamentals and the market opportunity of why this is so intriguing. But winning more and more large contracts really has got a huge opportunity with the military and with the american department of Defense. There's some scary things in the world right now which require some satellite surveillance that it's winning contracts in. And just seeing the scalability of this business, it's been primarily fixed costs thus far.

Growth Prospects

You've got to build the space ports and the launch pads and the R and Development, things like that. But it's now starting to ramp up with more and more launches and larger launcher launches as it's going to introduce neutron to the pad here next summer. So excited to talk more about rock. Maybe I'll open it up to anyone who has questions about it, but that's kind of an overview of the company. RKLB is a ticker, if you're interested. Really nice run down there.

Question and Discussion

I know that there's a lot of people that have been really on this one. I see a hand up from Gary. Yeah, I'd like to ask. So my research would go back, and I just looked at it while you were talking about it. Love the pitch. Absolutely love the pitch. My issue is it's a spac. I know you said, hey, it's got a bad connotation. I still have that connotation about spacs. Second issue is it's losing $177 million. They have just under 500 million in cash. Space is expensive. It gets incredibly expensive.

Market Concerns

When I go back and I look at the weekly chart, I don't even see a 200 period yet. And I also see the last time it hit eight. Around this time last year, in July of 2023, it pulled right back. So I don't know if this is another just upward trend or if it's down, but love the actual pitch. But if you guys wanted to know what I was looking at as a guy who has no interest in this whatsoever as a long term investment, and again, the market has humbled all of us. I could be completely wrong in this, but I'm just kind of looking at it as far as what I would do. I'd be taking profits at eight.

Response and Insights

Yep. Great points. Do I have an opportunity to respond to those guys. Is that all right? Yeah, pretty knows Gary, right? Was that who's asking the questions? Yeah, I'm daily stock picks on here, but I just host a podcast. I'm just a douche. Cool. Okay, Gary, daily stock picks. Nice to hear the questions. Those are good ones. Regarding the SPAC, you know, one of the key things was retirement, retiring the outstanding warrants that they had with the SPACs.

Addressing SPAC Concerns

A lot of those had kind of future dilutive events. Rocket Lab has retired all those warrants. So that's not an issue for this company. So don't let that give you a bad taste in your mouth just because it's a four letter s word that has become associated with SPAC. Regarding the business itself, on why it's losing money, two comments on this. One. First is even at the gross profit line right now, the rockets are being considered as the cost of goods sold, which is hugely expensive, right?

Financial Overview

Building the rocket is the most expensive part of this business, which is they have to kind of rebuild it every single time and then recognize that which is working right against the gross margin of the business. That's why you sub 40% gross margin for the launch side of this. But one thing that electron has already demonstrated the ability to do is have a recoverable rocket that's from out in the ocean. So after it launches up, they can recover it and restore several of those components and reuse it again for future missions.

Cost Reduction Strategies

They've already demonstrated they can do that. That, of course, the casing, a lot of the materials, a lot of the things you can reuse will reduce the cost of bill and reduce the overall cost of goods sold for each launch. So that five to $7 million you're getting per launch, you're deducting much less of that as this business scales up with reusable rockets. Then the third thing about what's even more interesting is going to be next year the transition from electronization, which is the rocket that's carrying those smaller payloads up to 300 kg electrons are pretty small subatomic particle for anyone's a science nerd that appreciates these kind of terminologies.

Rocket Development Advancements

The neutron, which is a bigger subatomic particle, and it's also a bigger rocket. So instead of carrying 300 kilogram payloads, we're carrying 8000 kilogram payloads. That's no longer a small launch. That's like mid launch is what we would call that, or mid to large launch. It's still smaller than the Falcon heavy like what SpaceX is offering but it can launch an entire constellation. And if you're looking from 300 to 8000, that's 25 times the payload capacity. That means you don't have to do 25 different missions.

Revenue Generation

You can do one and put a whole bunch of satellites into the exact same mission. And this is going to be the key. When you're getting $50 million a launch rather than $7 million a launch, you really get to recognize a lot of those operational synergies. Look for that in the summer of 2025. Gary. That's when they're estimating that the first launch is going to happen for neutron, even though the very first one are probably at half price. Probably $25 million customer. Watch for that one.

Comparative Advantage

See, and this goes back to a logical set. That was an exactly perfect response to me. So thank you for that one. I just looked at the charts, I looked at the overview. You gave me the exact thing that I needed. I believe in it. You just gained a subscriber. Thank you. Thank you. Look at that. Subscribers pouring in already. Reminder, by the way, everyone, you can get your whole first month for free on that website that's in the top.

Final Remarks and Closing

Just use code. Yeah, definitely check out the tweet pinned up in the nest above link up there. I've been working with Simon. I think you might be the first person I ever worked with on here, like three, four years ago when we've been talking and working together and obviously a really smart guy. So definitely think people should go in and check that out and appreciate you for coming up here. You kind of were talking a little bit there about like timelines going forward.

Future Perspectives

What are some of the timelines that people should be looking forward? The known timelines for rocket lab over the next couple weeks and months. And what can they expect from the service within the first month? Like when I sign up for my 1st month free, which I go in and check out to get some. Some of the value there. Yeah, it's really cool. This is one of the reasons. And thank you, Evan, for the kind words. And I've really enjoyed working with you for several years now, too.

Engagement and Interactivity

We have. Have quite a history, man, several years back from talking with each other. Seven investing is much more than just a report that hits your inbox and then we disappear. Investing in the stock market is meant to be interactive. It's meant to be something where you can ask questions about the recommendations or get updates on how things are going. For the cases of rocket lab right here, it will continue the conversation through a discounted cash flow model a valuation model that I built that why do I think that the shares are worth $22 a share when they're still less than $10 a share SPAC price today we go through all the assumptions on that.

Investment Philosophy

It's meant to be this continued conversation, and it includes things like risk. Is this a very high risk stock or is this a very low risk established company investing is very personal and so you're meant to have these interactive discussions and do whatever's right for you. And so we've created as part of the membership two things to encourage that. One is a monthly subscriber call, which I consider to be one of the most insight intensive hours of the entire month. It's literally just lightning round back and forth talking about a whole bunch of companies.

Insights from the Community

We've done diligence on more than 200 companies now, but we distill all of that down into five best buys and one new recommendation each month. It's in real time interactive, and then we post on the website too, of everything that we want to talk about. And then the thing I really love is just the discord. We've got a community forum, we've got more than 1400, excuse me, of our subscribers who have chosen to join this. And it's just kind of an opportunity to in real time 24 7365, which some of us really are 24 7365 in there, just kind of sharing updates and kind of getting a continual flow for what's going on with the stocks that are on the scorecard.

User Experience and Engagement

And we do this based on conviction too, which is something interesting that we've done. A best buy is the highest conviction we have of the stock outperforming the broader market by a margin of the risk level. So very high risk stock like I would consider rocket lab a very high risk stock. It should be a stock that we would expect to triple or quadruple in value because of the higher risks. But some of them have lower risks. Some of them that we recommend are dividend paying large tech companies.

Investment Opportunities

I just put one in the scorecard card recently that had $560 billion market cap. Stuff like that is still investable as well. And its going to outperform the market in our opinion, but its not quite as risky too. So a lot of back and forth, the things that you get with the service every single month, new recommendation on the first best buys and conviction review rating on the 15th, and then continual deep dives and company updates ongoing. Its all included in seveninvesting.com for a full month.

Membership Benefits

If you sign up and use code wolf at the checkout screen. Yeah, that tweet's pinned up in the nest above. So shout out to that. Go and check that out. A lot going on there and is literally free for the first month. So shout to that. But Simon, for Rocket Lab, what are some of the events that we have coming forward? I know you said something about a rocket that they have coming up soon that will create a new market or whatever, or not or whatever.

Key Upcoming Events

But yeah, tell me more about that and some of the more events that they have coming forward. There's two big things that are going, let's say three big things that we really should be watching as investors. The first and the shortest term, or at least the nearest term, is the haste contract that they've won. Haste is a hypersonic missile program and missile surveillance satellites. There's some scary stuff going on in the world right now, Evan.

Geopolitical Context

There's a war going on between Ukraine and Russia. And China has developed some hypersonic capable missiles. Hypersonic means five times the speed of sound. And the US just about a year and a half ago realized they didnt have a really good counter to that. They really hired rocket lab and gave them a really big contract here to say, hey, if we needed to get something out into orbit as soon as possible, how quickly could you turn around and have this ready for us?

Strategic Opportunities

And so they built an entire contract out of this. Theyre calling it the haste. Its a modified electron rocket. But get this, they had one launch in 2023 when this program was kind of initially started. That went to seven new launches in 2024. And now they've already got four more launches booked for 2025. And we're not even out of 2024 yet. So the military is very interested in hypersonic.

Commercial Contracts and Interest

They're hiring rocket lab to be the preferred vendor for getting them out of data space for that. The second one is just a flood of commercial interest for small launch. If you want to launch a satellite into space, you have to get spectrum for it. You have to get cleared for a certain frequency so you're not interfering with other conversations or other satellites. Right.

Backlog of Applications

Same thing with like, Verizon and at and t. We get a little bit of spectrum for our cell phone calls so we're not overlapping conversations out there. And the FCC right now, even though there's a total of less than 20,000 satellites even in outer space right now, about 15,000 active satellites today, the FCC is sitting on a backlog of 38,000 applications per spectrum. These are people that are wanting to launch satellites into outer space.

Emerging Demand Among Small Companies

And some are really big companies, the companies like SpaceX that wants to do it for Starlink, youve got companies like Oneweb, which is out of bankruptcy now and want to do global Internet, but some of these are even smaller companies. Its like, hey, we want to have satellite Internet in a certain remote location, or we want to have imaging or logistics or whatever it might be. Theres a huge demand for commercial interest right now.

Repeat Customers and Contracts

And youre starting to see larger commercial customers who started out with just a launch or two or three launches here or there, signing additional contracts for another ten to twelve launches going forward. Really, really good sign that you have repeat customers coming in. And then the third one, Evan, which you just mentioned and alluded to is the neutron rocket. This is something that's cost a ton of money so far for development.

Investment in Research and Development

It's a huge rocket. It's got a huge Archimedes engine. They're doing a full R and D center in Mississippi that they put together. They bought some of virgin Oregon orbits assets in southern California. They basically wanted to design every part of this rocket so it's absolutely perfect and ready to go to carry these massive payloads. And the thing that we want to watch for is instead of again getting $7 million to launch, Neutron is going to be carrying payloads.

Potential Revenue Stream

So we'll get $50 million a launch. And that's scheduled to have the first launch in next summer. So summer of 2025, maybe we won't hold them exactly to that timeline because they did say before it was going to be late 2024, but within the next twelve to 18 months, you're going to see this business be completely redefined in terms of the fundamentals and the revenue you're capturing right up front.

Comparison with SpaceX

You were kind of talking about SpaceX there. Why would someone use rocket lab over SpaceX? The first and most obvious is that you just can't use SpaceX. Elon has no interest in sending a 300 kilogram satellite into outer space. His rockets are so much larger. They're carrying 60,000 kg payloads. And so if you're putting a whole satellite constellation like Starlink wants to use SpaceX or NASA wants to use SpaceX for certain missions, they're a really big customer that needs a really large payload.

Unique Niche Market

That's probably the best one that you want to work with. And remember, Elon's mission is to get to Mars, right? The whole reason he's doing starship and building bigger and bigger rockets and bigger payloads is he wants to put humanity onto Mars. And that's a little bit different of a mission than Peter Beck at rocket Lab's mission of democratizing the space economy.

Diverse Service Offerings

One of it is just a completely disruptive opportunity. SpaceX just doesnt serve smaller customers and secondly, its found their niche for heavy launch. Lots of payloads on the complete opposite side. Weve got small launch, super small payloads. Theres going to be a little bit of an intersection in the middle which is going to be a combination of price per kilogram for launch and then also service level and available window of lush.

Final Questions from the Panel

Here we go. Any other thoughts on this shy or others thoughts around this company? Any questions you'd have for Simon? Yeah, I have a question. Hey, Simon. Shy, full disclosure, 3% position rocket lab. So definitely a bull. Got it under $5.01. Thing I am want to hear your perspective on is I'm surprised at the lack of m and a that Rocke lab has done past two years where the space industry has just been absolutely brutalized.

Analysis of M&A Activity

A lot of those names who went public via SPAC and rock lab has the luxury of actually having fundamentals and real revenue. So they could have acquired a lot of assets at Pennsylvan Dollar, but they haven't really yet. Do you think that's going to change now that the rate cut cycle has begun and they're just waiting for that cycle to begin to use that cash towards buying assets to solidify their spot as a full end space prime or just to get more of a market share?

Strategic Acquisitions

Because that's all you can ask for in an early thematic space economy is just get as much market share as possible without blowing up your balance sheet. Yeah, they do. That's a great question. Shai, by the way, I'm a big fan of yours. Really love your investing approach. To answer the question is they had to, right after the SPAC, they actually did go out and acquire a bunch of companies.

Past Acquisitions

If you look at 2021, 2022, they went and they invest in companies like Solaro for the solar power and the communications and the propulsion systems and things like this because they wanted to buy not only equipment and the teams, excuse me, not only the equipment and the capex stuff, but also the teams that were associated with that. But they know that right now the most important thing they can do is get neutron up into the sky.

Focus on Innovation and Performance

Youve got three space ports. Youve got two in Virginia and then one in New Zealand. And you really want to make sure, excuse me, backwards, two in New Zealand, one in Virginia, and you want to make sure you got the bigger rocket that's carrying bigger payloads because that's going to unlock all the new opportunities. But Adam Spice, CFO, has said, hey, it's back on the table again.

Future Acquisition Plans

Once we stop spending so much money on capex for Neutron, we're going to go out there, we're going to make some more acquisitions. They're trying to do it in a way that's the least dilutive possible to shareholders. Really, really did a great job of raising money at the top right there in 2021 with the SPAC. In my opinion, they've used the money in a very shareholder responsible way.

Looking Ahead

I would like to see the first launch of neutron be successful before they start acquiring other companies. And then that will add not only larger payloads but also more capabilities to go along with it. Great question. All right, any other thoughts on Rocket Lab from the panel? Going once, going twice.

Discussion on New Zealand Operations

Yeah, I'm more curious about actually the New Zealand connection there. And tell me more about that because I know obviously rockets are not just like, I don't know, toasters or something. There's a lot of restrictions about selling them. So how does that work for them, against them? Tell me more about that. It's just so interesting to see, like interviews with Peter Beck, right?

Peter Beck's Vision

This is a guy that's like a rocket scientist since he's been five years old. He's from New Zealand. So he saw this from outside eyes, very different than these massive defense contracts that you sign and then you increase it by three to 7% every year because you're funded by the american government. Like he just kind of wanted to develop rockets and just make them better and better over time.

A Journey to Success

And so kind of he comes and he tries to get a job with NASA. Years ago, he got rejected from that, says, okay, I'm going to go start my own company and I'm going to develop rockets. I'm going to eventually start winning some of these contracts. He's the right guy for the job, right? He's an engineer at his core. He puts on the hard hat and gets out there and does everything hands on, gets his hands dirty and then on top of that, too, he knows that credibility is key.

Building Trust in the Industry

He's not making promises he can't keep like so many others are. And so when you see kind of the failures of a lot of these other rocket companies, whether that's Astralabs, whether that's virgin orbit, whatever it might be, there was a lot of hype that was built into that. But Peter Beck knows at the end of the day, this is a business around trust. If you're a customer, can you trust that rocket lab is going to get a.

Customer Reliance

Your satellite exactly where you want it, reliably? And he knows that. And so that's why they do what they say they're going to do. Fantastic person, fantastic business. Sweet. Anything else there for you, Evan? Yeah, I mean, the only thing would be around the relationship that they have with New Zealand.

Geopolitical Implications

I know you said they have a couple launchpads there. And like I was saying there, I know that selling rockets is a very restrictive business. I was curious on, like, do they have any relationships with the New Zealand. I don't know, government, if they spend money on stuff like that or how anything like that works, and if there are any disadvantages to also this relationship with another country, there's kind of certain markets.

Understanding International Relations

Yeah, we can jump into that a little more, too, Evan. Maybe follow up. But, you know, the idea is that there's certain places on earth that are best to launch rock from the one in Virginia. They want to be real close to the government, which is why they got the launch pads there. And then, of course, the home ground of Peter Beck is from New Zealand.

Establishing Local Ties

He is from New Zealand. So that's kind of the connection they've got with that. They are giving a little bit of funding from that. And then also Australia has got some sovereign wealth funds that are put money into it as well.

Financial and Structural Insights

Yeah. Godfather. Just a quick question on the capital structure, and I apologize. I'm just not that familiar with this company from the financial standpoint. But you got 58 million shares short here. It's about 19% of the float. I see they got a big convert here. 355 million. But they did cap call a transaction that raised the conversion price to $8.

Investment Risks

So aside from hedging, perhaps. Is there a short thesis on this name? What would you attribute such a large short interest? Yeah, I mean, that's a good question. I don't know. I can only speculate on this. Maybe a lot of it is just kind of that this is still a company that's burning cash. Right. And they've got a lot of kind of riding on neutron.

Growth Trajectories

If Neutron never gets off the pad and you've kind of put all this money and all this capex into work, that could be certainly a risk that would be very bad for the company. Right. This is something that's supposed to bring it to EBITDA profit positive in 2025. If that just doesn't happen, maybe there's a lot of short interest that just saying, hey, I'm not going to touch this until you show me first.

Market Predictions

Yeah, godfather. They were actually supposed to be EBITDA profitable by end of this year, but obviously all their eggs are being pushed for neutron so now they're extending that by like probably two years. So I think in the higher for longest longer interest rate environment, like that was an easy candidate. Short because the profitability timeline got pushed back two years nearly.

Risk Factors

And it is a similar issue that cybersecurity has where if there's any kind of mess up like it's significant. So like the same thing could be for launches. Like that is like misguided in my opinion because they aren't a launching company anymore, they're a full on space prime. So I wouldn't be surprised if I see that short interest kind of get reflected on that since it is a different company than it was like a year or so ago when they initially pushed back the profitability 18 months.

Investment Viability

But correct me if I'm wrong, Simon, but I think that's kind of why I can think the bearish argument would because of the point of failure issue as well as the profitability got pushed back 18 months, putting all their eggs in it. Really risky but potentially highly successful type of launch. Like neutron. Yep. Great points. Awesome.

Transition to the Next Topic

All right, Simon, you want to roll into that next doc? Yeah, absolutely. Thanks Gov, thanks for the questions too about Rocket Lab. Let's transition from space to semiconductors and let's talk about super microcomputer as the next company here out there. This is SMCI, similarly a high conviction idea at seven investing.

Entering the Semiconductor Sector

You can read more about it if you check out our site, but stop me if you guys have heard this one before, but have you heard that data is the new oil or that every company is now a tech company? I mean, these kind of obvious sayings that were super popular in these last couple of years is just because companies are going through this digital transformation.

Trends in Data Usage

And of course they're moving more and more, relying on cloud infrastructure providers or building larger and larger data centers to just handle the computing and the storage that's required obviously for all these applications. And AI has only increased this even more.

Supermicro's Role in the Industry

This is things that we already know. Supermicro Computer is a company that sits between the processor makers of the world, the Nvidias and the AMDs. And then the companies need to use those in the servers of their data centers, whether that by Amazon and Google who are hosting for others, or data centers that are completely owned by companies like Apple and Facebook who actually are customers of theirs right now you integrate. It sounds simple, but this is actually very complex to integrate these cutting edge micropos processors that keep coming out, whether it's Nvidia GPU's or AMD with the epic four cpu's, or just everyone that's creating a new, sexier, more exotic processor.

Integration and Performance

You put in the networking, you put in the power, the cooling and all of the other components into a modular server that then you can install into a data center to maximize performance. And it's based on the application. If you just want your data centers to be more efficient, maybe you had the Intel Xeon cpu's before. You might want to go with updating with AMD's newest processors if you want to do AI training. We know that a lot of companies are doing these AI training models right now. You might want to use Nvidia's H 100 gpu's and you actually want to have liquid cooling with something like that.

Industry Needs and Processor Variability

If you're Facebook and you want to have virtual reality worlds and the metaverse, you want to have really low latency and different abstraction layers to do things like that. And something like that would use a completely different type of processor. And more and more, it's a company like supermicro that knows how to assemble all of these perfectly into the configurations that are most useful for their end customers. And so I like to use this kind of goofy analogy of when you think about the software that's required and these virtualized abstraction layers that are required, the networking and then the power and then the chips.

Challenges and Customer Base

It's kind of like putting bill gates with Jensen Huang and Bill Nye the science guy, all into one to figure out how you should design each one of these systems. Really, really large customers, more and more, it's the big guys like apples and the meta platforms. They're also working with NASA, intel, the US Department of Defense and others, and they're based right there in Silicon Valley, in San Jose. The interesting thing about this right now is there was a rather scathing short report that came out about a month ago about super micro. It was issued by Hindenburg Research, short selling for firm, and they went after supermicro for a lot of different things.

Concerns from Report

Specifically, they were calling out their internal financial controls, their related party transactions, and their aggressive sales culture, amongst other things. It's some of the key reasons why they recommended shorting the stock. And then on top of that, a delayed filing for the SEC for the annual report kind of lost a lot of investors confidence in the stock. This is a company that has gone up 2500%, the stock has risen 2500% in the previous three years and then comes crashing right back down to earth and loses 50% over the summertime.

Investor Sentiments

When youve got that significant of a delta, a company thats a 20 plus bagger, giving up half of all of its gains, this really led me down some deep rabbit holes of figuring out whats going on here. Is there really big red flags or is this just another short report? I shouldn't say just another short report, but something that tends to be a template or a format that you see for short sellers that are going after certain types of companies. And I came to the conclusion after reading a lot of things that I think the stock is a really good buying opportunity right now.

Analyzing Risks

The first to address is some of the risks, the related party transactions. It is true that Supermicro, it's been around for 30 years. Its founder is still its CEO, Charles Liangde. His wife Sarah is also on the board of directors, and his brothers are also suppliers of some of the components and the equipment that goes into the servers that they sell to their customers. When you look at things like that, there's always this concern that there might be favorable transaction terms.

Disclosure and Governance Issues

Bill Compuwer, who's one of his brothers, might be getting favorable turns for the power supplies. And then Steve, his other brother, who is CEO of Ablecom, might be getting favorable returns for the server chassis, things like this. This is something that is very easily solved with proper disclosures. Just saying, what are the ownership stakes that everybody has in each of these companies? Disclosing the margins and the pricing that you're giving to these customers that are related right there because of family relationship, and then this goes away.

Sales Culture and Revenue Recognition

As long as it's market competitive and there's nothing favorable going on out there, then they have nothing to worry about. The other is an aggressive sales culture. They were saying that the way that they were recognizing revenue is that Supermicro was pulling orders into the quarter to try to hit sales quotas. This is something I think is actually true. This is not something that's illegal, that sales guys will often try to hit their numbers by pulling orders forward, but it is something that has to be disclosed as revenue recognition when you're disclosing things to the SEC.

Operational Integrity

So again, something that I think needs a little bit better internal controls and disclosures. Just knowing that this is a very aggressive sales culture. Hence that it's selling servers to tech companies in Silicon Valley that want to get things out the door and up and running. As quickly as possible. And so the two of those, and then the other thing that wasn't mentioned in the short part, but I do think is material for investors to consider as a risk, is the delayed filing. Supermicro has said they don't expect anything to materially change in the last fiscal year's reported financial results.

Financial Performance and Market Position

There is going to be some things about revenue recognition, the disclosures we mentioned before, things like that. They do not think it's going to have a material impact. But when there is a delayed filing, sometimes this can be an issue for companies that have a lot of debt or convertible debt, and Supermicro is one of those companies. I went looking into all the disclosures that were related to the $1.5 billion convertible debt rates that they had back in February.

Investment Considerations

This is just something that you need to kind of, you're doing your diligence, say, okay, does anything get tripped up that could be an o darn moment where the company has to pay a lot of money to its lenders. And with the exception of Supermicro getting delisted from the Nasdaq or acquired by another company, there's really nothing that's going to qualify as a fundamental change to a trip up that convertible debt. Aside from the stock hitting $1,300, which is the conversion price, which changes from debt into structured equity, and be a dilutive event, that would be very good for the company to raise money going forward.

Market Sentiment and Opportunities

So the key takeaway on this is a stock we're talking about short interest with rocket lab before. This is a stock that's really skyrocketed in a short interest to about 17 or 18%. Last I had checked. That's much higher than it was when the stock was just shooting to the moon during the last couple of years. It's really riding this giant tailwind and this wave of AI models being more and more demanding for computing from these data centers.

Customer Relationships

And Supermicro, I mean, these are three decade long relationships that it's got not only with the suppliers, but also with the customers. Took a little hit here in the short term, in the summer, a lot of fear and uncertainty and doubt that's hitting the stock price. And I think that's valid. We needed to go and do our diligence. But kind of looking the second or third layer deep on this, I think that with some proper disclosures and a correctly filed sec ten k here, I don't think that we have anything to worry about as investors.

Buying Opportunity

And so I think this is a great buying opportunity for super micro stock. Yeah. Gary Simon, I'm going to hit you up again. Just full disclosure. I am sitting in this name at a higher price, 20 30%. Somewhere in the SDHE is where my average purchase price is. But my current position is 100% profits because I got into this around November 2022 and I added more in 2023 throughout and then I was able to get out and time it. So I have 100% profit.

Margin Concerns

So even if it goes to zero, understand I'm still profitable in this day. But one thing that I looked at was the gross profit margin of this since everybody brought it up on the last call that the margins were an issue. How does SMCI match up against much larger well funded companies, competitors specifically like Dell, who can actually take less margin and sell the server racks at a smaller margin and then sell additional services and hardware to the data centers.

Gross Profit Margin Trends

And I looked up the historical gross profit margin of SMCI and at its peak in March of 2023, it looks like it was a 16%. So it's been sliding ever since. And today I guess it's at 14%. But is that a concern as well? Yeah. Great questions again, Gary, thanks very much and congratulations on getting a fantastic return on the stock you earned in 2022. Congratulations. We got in early 2023, the seven investing scorecard as a ten bagger within twelve months for us.

Market Share and Competitors

And it sounds like you had even greater gains than that. So congrats. Its been a fantastic investment for the last couple of years. To answer your question about whats going on and why Supermicro instead of Dell, theyre actually number three in this market, right? Theyre about call it 8% market share. Right now, Dell is the leader, would call it 17 18% market share and then Hewlett Packard Enterprise is number two at 14%. And then everybody else is fighting out for this super fragmented market, right?

Strategic Positioning

Why buy Supermicro instead of those guys? Well, super micro gets the servers to market faster. So if you want to be cutting edge, right, you want to have zero latency, you want to have a metaverse, you want to have AI models that demand super high efficient computing, you're going to go with supermicro because they're going to get it to you installed as quickly as possible. They're the fastest in the industry. That's what Jensen Wong with Nvidia said.

Distribution and Service Models

He said, hey, I recommend super micro if you want to get fast and you want to get really good components all assembled quickly. If you want a service package and a more integrated solution thats when you go with Dell or thats when you go with helipacker. So that explains a little bit of the margins, maybe upfront versus service. If youre willing to sell it for a little bit lower price upfront, like Eula Packard might be youre going to catch up with it later in service revenues in the future.

Cost Efficiency in Operations

Thats the first thing I think there was a second part of your question about margins was that, yeah, margins with. The margins down at 14%, I think they're coming off at like 18%. But how do they stack up when Dell has been pretty much undercutting them, from what I understand from some people in that industry, they've been undercutting them knowing that they can sell additional hardware and services to these larger data centers. And SMCI just doesn't seem to be able to offer those additional services or hardware to the data center.

Superior Products vs. Service

So some people, I do understand the quickness of SMCI, but do they have any? Is that the main benefit to SMCI overdel? I mean, these are arguing over pennies if you're a really large data center or a cloud infrastructure provider, right. The bigger thing is not the upfront cost of the servers, it's the total cost of operations. Right. How much power are you consuming when you're doing the computing for your servers?

Overall Value Proposition

And if you're actually to get by modularly putting together these tetris pieces that supermicro is able to assemble for you perfectly and optimally, and then at the end of the day, you compare that to something that's using, that HP has put together or that Dell has put together, and she's not as competitive, you're going to go with super micro because the costs upfront are not going to matter quite as much. And so, yeah, if Hewlett Packard wants to compete on price and undercut or sell at a loss or whatever upfront, they can do that.

Energy Efficiency Initiatives

But knowing that this is a very power intensive industry, data centers use a ton of power costs, a ton of money. And that's why you see these companies even just targeting a 1% reduction in power year over year. And I think that Supermicro has got a huge benefit in doing this. They claim that they've saved their data centers more than $10 billion in total cost of ownership, and they have very good scores for environmental, not only in terms of operating and financing, but this is also an ESG trend that plays to the company's favor as well.

Conclusion on Costs

So kind of short term upfront gross margins versus long term total cost of ownership and operating costs. The trade off, maybe between the two of those are. Yeah, perfect explanation. Because I'm buying. I buy MacBooks instead of buying shitty Dell and HP computers. Fair analogy. Good point. Evan, you got any thoughts here? Not hearing from Evan. How about you? Shy? Oh, I do have something.

Long-term Perspectives

Came to me at a bad time. I won't lie to you, Ripple. Yeah, super micro. I think the big question there on SMCI is we know what's happened here around AI, but what does the next couple years look like? So what does the AI upgrade cycle look like? I wouldn't imagine. This is just like. Even when I think from the Nvidia perspective, this isn't just one year of, okay, we upgraded to AI, now we're done upgrading.

Future AI Cycles

Like, there's going to be multiple AI cycles going forward. So I feel like when people talk about the bear side from super micro, definitely was valuation a lot, but now we're here down 50% and I don't know, I really dug into it, but it was also kind of, will the AI revenue continue? I wanted your thoughts on that.

Market Insights

Yeah, I think that the, actually the opportunity is actually that Nvidia doesn't control 90% plus market share of GPU's that are going for AI accelerators in the data center. Right? We've already seen kind of some rumblings and a few scattered media headlines that Nvidia is not going to be the only horse in this race anymore, that there's just whatever PU you want to call it for CPU, then GPU, then TPU, tensor processing, then DPU data processing, unitheen, like, whatever XPU that you want, that's your own custom processor to be as optimal as possible.

Processor Integration

You can't just stick a processor by itself into a server rack and it works. You need to have the expertise of, what is this? How do I efficiently cool it? What power does it need? How do you do the networking with it and things like this? No matter if Nvidia or AMD or whoever else is building the engine, that is awesome. You still have to have a finalized race car to get it around the track. I think this cloud computing race car is still going to belong to super micro as a manufacturer of it.

Innovation and Relationships

They are very innovative. They're right there. They're right there next door to these companies are producing these processors and know exactly what the applications that are using them are, whether it's AI models, whether it's tensorflow or Pipetorch or whatever else is being used, and whether it's Nvidia's GPU's or something else. PUs Supermicro is this perfect middleman that's going to have a lot of business, no matter what the preference is of what's getting installed in those data centers.

Customer Concentration and Quality Control

Great question, Evan. Yeah, godfather. Yeah, it seems to me the other piece to this short story was that there are some questions about the quality and reliability of the server integrations that they put together of late. Now, as I understand it, there's a fair amount of customer concentration here. I think some. Two customers are like 40% of the top line, and four customers make up close to 70% of the accounts receivable.

Doing Due Diligence

So I'm just wondering whether your due diligence goes as far as speaking with the end customers on a sort of a. A channel check basis, if you will. Is there, in your understanding, any evidence to the fact that they are losing business not only to Dell HPe, but also the rise of these taiwanese odms and people that are providing more modular solutions to liquid cooling, et cetera?

Market Dynamics

Yeah, good question, Godfather. We did do some not straight up channel checks, but did do a little bit of diligence with people that are working in the industry, you know, in data centers and things like this. The general consensus was that the servers themselves are good and the service is not so good specifically. You know, and I can't back this up because I don't work with them personally, but I had heard that, you know, they'd send out engineers that just wouldn't really speak very much English at all.

Customer Feedback

But they do what they needed to do to make sure that everything was functioning to the spec that they were expected to. So the products themselves are great, but if you wanted kind of, you know, a little bit more of a relationship, kind of hand holding, you know, you've got the service relationship. I've heard that Hewlett Packard and Dell are superior in that aspect. I haven't heard anything about them losing market share of those two companies. I don't know.

Risk Assessment

Good questions there from Gary. Godfather. I do think the big question there is, though, kind of like, is HPE and Dell, they've seen the pickup, and, you know, we obviously saw Supermicro do that at the end of last year. I think kind of the point of the question I was getting at earlier is there's been a market here that's annualized, and did that pie just get bigger over the last couple of years with AI and data center and all the chips that we need going forward?

Market Potential

And I think, yes, I do think that, and I think that there's two or three mints or the new one. So why do you like super micro over Dell? Maybe a little bit, if you did that comparison at all. Evan, I do apologize. I lost your feed there for just a second. Could you tell me just the sentence you said right before of why do I like super Micro as opposed to Dell or huge Hewlett Packard?

Company Positioning

Yeah, well, I don't even remember, really, but just kind of. What about super micro overdel? You like? Yeah, I mean, I just think that you've got some cutting edge processes that are out there. I mean, like when you see guys like Sam Altman and OpenAI saying they're trying to raise up to $8 trillion with a t for the next generation of supercomputers out there, I mean, there is. Whether that's correct or not, if it's even directionally accurate, there's going to be just a huge market for this.

AI Investing Trends

Right? We've gone through training, went through AI training, went through the training models to correctly identify things that we're seeing in pictures and videos and text and speech and audio. And now it's kind of like we're building inference models just like Alexa did to respond to it. We've kind of had these simplified applications right now and then. How are you going to use this? Whether it's for software coding, whether it's for navigating electric vehicles and autonomous vehicles, whether it's for building supercomputers to accurately diagnose the weather, I mean, theres going to be a ton of money spent on these things all over the entire world.

Future Outlook

And I think that its possible that others can gain share from Hewlett Packard, from Dell, from Supermicro. But its also more likely that the bigger going to keep getting bigger and bigger contracts with the customers that are going to need this. And so whether price or service, or total cost of ownership or relationship or brand, whatever, the reason you want to work with companies is if you're adding more to that over time, I think Supermicro is in one of three positions to really benefit from it.

Market Fragmentation

So I don't know if that answers fully your question, Evan, but I do think the pie gets a lot bigger. And with this kind of being a very fragmented market that still has about 50% share in the hands of three companies, I think those three are going to get a lot bigger in the future. So we got about ten minutes left here on the show. I got a couple of people that dmed me about checking out your stuff. Simon, just a reminder, if anybody does want to deep dive into these stock picks, seeing the track record, the history, all those stuff, just go right to seven investing.com dot.

Investment Opportunity

We put that link in the top of the space and then just throw in code wolf, grab that monthly package. You'll get your first entire month free. So no harm, no foul. And checking it out if people are jumping in there and trying it out. Simon, for first time user navigating the site, where do you recommend? Like, what's the value adds? Where should they be going to? Yeah, thanks very much. You know, hopefully this is, this hour has been enjoyable for everybody.

Investment Strategy

I thank everybody for attending it just to kind of see how much passion I have for kind of, you know, digging into companies and, you know, doing the research and then at the end of the day, figuring out, you know, is this a buy, is this a hold or is this a sell? I mean, as investors, we're typically faced with those kind of three decisions, right? Am I buying the stock or am I adding more to it? Am I holding my position that I'm owning or staying away from it if I don't own a position or am I selling?

Investment Mindsets

Is there red flags I need to get away from? And even though that sounds oversimplified, there's just so much that goes into every one of those. And we try to uncover all those rocks to figure out what are the highest conviction ideas and what are the lowest conviction ideas we have out there. And so to start, if you're brand new to seven investing, go to the recommendations tab at the very top. We very transparently track every single one of our recommendations made by any of our advisors weve ever had based on any investing style weve ever made, any industry you've ever made, and look at those just to get acclimated with the scorecard and see if there's a couple of companies that speak to you.

Finding Investment Opportunities

Are you a dividend investor? You just want to get and then reinvest dividends every single quarter to compound your returns over time? Or do you want to take a bigger swing for a company like a rocket lab, which is higher risk, but offers three or four times three or 400% potential returns out there? And so that's the first part of it. But then the second part. If you want to look at what I think are the best ideas in the stock market right now, I think that the best thing would be just look right at the best buys.

Best Investment Insights

Right. We publish those as advisor updates on the 15. Just put out my five best buys here in September. 1 of the two companies we talked about, either supermicro or Rocket lab, is in the list of five best buys. I won't tell you which one yet, gov, sorry, but if you want to go check those out, one of these two was a Best buy, which is basically just a risk adjusted return I think is superior to anything else that you'll see out there.

Brokerage Strategy

And so it's kind of a match of those having this wide net that we cast and recommend a whole bunch of companies. We're now four and a half years old as a service. Before that I worked for seven years running a service remotely fool. I've been in the game for investing about 15 years now and it's basically just distilling down and saying, hey, every month, Simon, what are your five best ideas? And then if you want to buy into them, that's great.

Continuous Engagement

If you don't want to buy that month, then just kind of see what's coming up next month and then we discuss them on a subscriber call on the second Thursday of every month as well. So check out the recommendation scorecard. New recommendation comes out on the first best buys. Five best buys ranked from one to five come out on the 15th and then we have a subscriber call on the second Thursday and then a full conviction rating review each and every month as well. Great places to get started.

Resource Accessibility

Perfect rundown. If anybody can't find it, just dme the word seven investing and I will send you over the link and all the info that you need. So I'll make it easy on y'all. Evan, a little bit over five minutes left here. What else would you like to cover? Anything else on your mind here? No, I think that was good. I definitely appreciate Simon for joining in. They have a lot of doing that.

Insights Review

Like we said, we've been, I've been working for the seven investing. I think it's the first company that I've had worked with back in the day and what, 2021 or something like that? Or at least definitely one of the first. So shouts them. I've been following along for a while. I've been checking out everything they do and it's always been evolving and adding. So definitely worth checking out.

Promotional Insight

And the first month is free. So tweet pinned up in the nest above for sure worth going in and at least checking out. And like you said, wolf, no harm, no foul. You see, the content is good for you and you get to look at their picks. You can also like create some like alternate like hate account on Simon and troll all his tweets from a burner account. If you really hate him.

Engagement Humor

I mean, you never know. I'm watching for that. Evan, I'm ready for you. Let's go. Someone's got to get it. He just said he's not going to block you, so appreciate everyone. Definitely follow the speakers. Check the tweet out. End up in the nest above. I know Simon also posted a bunch of tweets doing a bunch of podcasts, stuff like that. Anything you're doing that you have coming up that you're excited about or any of the kind of recent interviews you think we get to watch.

Recent Company Updates

Yeah, we just put out a watch list today of two new companies. Again, the process for us is very far upstream. We introduce a new company through a watch list, then we put it through a conviction review to see if it's high conviction or low conviction. And then ultimately the highest convictions get into new recommendations or best buys. But the two that I just released today that are on the watch list are Bec Semiconductor is a dutch based company that's doing diatas and assembly kind of the later stages, a semiconductor manufacturer.

Future Market Investments

I think that they're going to be a big winner from more exotic processors being combined together in the neat architecture. And Nova Nordisk is the other one, which is the danish company that's been a global leader in providing diabetes care for a century and is now moving into weight loss. And as Ozympic, anyone who's familiar with this has just been shooting to the moon. Revenue has tripled year over year.

Growth Opportunities

It's now an opportunity to say, how big can this really big company expand and get? Even larger. So two more for the watch list we just released today. Kind of excited about both of those companies as well. The GOP ones have definitely been very interesting. Keeping an eye on them. While I have you here, you have any thoughts on bitcoin? What are the thoughts on crypto and stuff?

Crypto Market Sentiment

I've been watching this two x microstrategy ETF, definitely not for long term investors. Different type of conversation. And this thing is just a crazy trader. Got me thinking about bitcoin and what direction that might be going a little bit. Evan. It got too confusing to me, to be quite honest. I bought my first bitcoin at $250, and then I sold it for 17,000 to buy a hot tub.

Personal Investment Experience

That's complete honesty. Do you use the hot tub? I do, yeah. And I feel kind of dumb that I should have held on a little longer, but I do get a really nice hot tub out of it, so I've lost touch with the crypto world, though, these days. It's a good story. It's a good hot tub.

Daily Operations

The story is worth that, except it's. Down here in Texas where, you know, we can't even use it for six months of the year, but, you know, a couple of days in the winter. It's actually quite nice. All right, we can move into some closing comments here. Simon, we did get a quick question from someone in the audience. This was commented underneath the space.

Audience Engagement

They had mentioned that they signed up and they were excited to try it out. They were wondering if price targets to exit are part of the analysis. We do occasionally do price targets, but not selling price targets. There are companies like Rocket Lab, like the trade desk, like Wolfspeed, like others that are kind of hitting inflection points of demand that I think are mispriced.

Price Targets and Analysis

And I will do a, a full DCF, this kind of cash flow analysis for, and actually having a price target, but I'll update those occasionally. But in terms of exits, we really only sell based on problems with thesis breaking down, typically management making dumb decisions or the market falling apart or margins just collapsing. Or if it's a biotech being excessive cash burn, it's more of those kind of things that we're looking for rather than just, it gets overvalued.

Investment Stability

We tend to hold even in times of very kind of overvaluation, if we still think it's good three or five years out. That was a good question. Good stuff. Okay. And then, Simon, just like general advice you would give to people to, you know, who are getting these stock picks, want to be long term investors, just mindset. How would you advise them?

Investment Mindset

I think it's okay to play, to kind of know thyself. Right? You know, it's okay to play offense or defense is how I think about it. There are different things you're looking for. If you're looking for a company that you think can be a ten bagger, than if you want just very dependable dividend income every month and every quarter. I think the very first one is figure out what type of investor you are and let that guide what kind of investments you should be looking for.

Investor Self-Awareness

So sustainability of cash flows and debt loads and things like that might be really important for a sustainable competitive advantage that would allow you to collect a dividend check, but that might not be the same cash flows you demand to see from Rocket lab. You might want to see more early stage execution in the company's lifecycle. So I think it's okay to do both. I sleep well at night.

Balancing Investment Styles

Being that it's okay for me to say, hey, I've got retirement accounts that I've got really good, stable companies in, but I'm also going to take out some flyers out there. So maybe just know thyself and let your investments work for you that you don't have to stress out about them. Awesome. Okay. Really good stuff.

Closing Remarks

We're at the top of our hour here. Simon. Any final comments you'd like to share with the audience? Yep, just a reminder. Seveninvesting.com subscribe and choose the monthly option, then put in wolf. Wolf if you want the first month entirely free, you'll not only get the watch list we just released today, but you'll get the five best buys released on the 15th and then also be around for next week when we release the new recommendation.

Appreciation and Farewell

So I really appreciate the time, you know, God, thanks for having me. Shy, nice chat with you. Have a nice to chat with you again. I've been such a big fan of you guys and how you're kind of empowering individual investors out there. Same mission. And it's been a pleasure to be a sponsored host on this basis. So thank you very much for having me.

Community Engagement

My pleasure, my pleasure. Thank you so much, Simon, for being on. Evan, anything else for you? No, appreciate you joining in, Simon. Everyone should make sure they're following Simon on the spaces, posting great content, look through his twitter and yeah, shout out to the speakers. Appreciate everyone joining in. Follow everyone and we'll catch you in the spaces tomorrow.

Event Recap

Check the tweet pinned up in the nest above. That's all from me. Perfect. All right, thank you so much, everybody who's been on here with us tonight, that's going to do it. We'll be back on spaces for a long day of spaces tomorrow. I'm going to have some stuff in the morning and then we are going to have a bunch of people on throughout the afternoon.

Next Engagement

It's a pretty full day for those that are going to be around with us. And we're going to have some stuff in the evening tomorrow. So all day tomorrow we'll be on spaces wishing everybody the best. Looking forward to the next one. Take care. Simon. Shy stock sniper Gary Evan amp have a good night, everybody.