Stocks We’re Buying and Selling March 2024 -- and Tech and Big Media Challenges Humanity With AI

Stocks We’re Buying and Selling March 2024 -- and Tech and Big Media Challenges Humanity With AI

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Kasey: We never intended for this channel to be a stock picking service for the semiconductor industry. We just want to break down what we believe is one of the most complex and important endeavors around right now. Nick: many of these books are actual derivative period pieces in a way. What worked in the past isn't exactly going to work the same, now.

Kasey: Hey, everyone, welcome back to Chip Stock Investor. We're going to start off the week by doing a little bit of a portfolio review. It's been about three months since we did our last update on stocks we're buying, stocks we're selling, stocks we're holding, for the new year. And so we've made some changes to our portfolio and we're going to do an episode here where we consolidate a little bit of our portfolio reveal with somewhat of a book review, maybe, or what are we reading lists that may help you as investors. Nick: Yeah, that's right.

We have a lot of content from the last three months since we did that series of videos in December. So we'll talk about our portfolio, but in our own way. We're not into just providing like a list of stocks without any context or nuance whatsoever. Let's talk about books we read, because we do get asked this a lot.

And I think everybody is looking for some sort of book, like a Peter Lynch style book that is going to like magically reveal all investing secrets you need to know, that'll skyrocket you to a magnificent wealth. We don't read books like that, I guess, is the short answer. I think I've maybe read like three in my whole life that are explicitly about like investing. And I have a few reasons why. First, I think many of these books are like peacocking. Wall street moguls, writing down lots of anecdotes and cliches that add very little actual nuance to the very vast complexities of actual investing and an actual investment process.

Oftentimes these little cliches get written down as lessons that you need to live by as a hard and fast rule. And I think that's harmful. Second, you are not that person, who wrote the book. Oftentimes these are people with hundreds of millions of dollars of net worth, maybe billions of dollars of net worth. They're not you. So don't try to be them, be yourself, develop your own process that works for you.

And third, many of these books are actual derivative period pieces in a way. What worked in the past isn't exactly going to work the same, now. For example, I mentioned Peter Lynch.

Peter Lynch was great, fantastic investment process, but his run was in the 1970s and the 1980s. We don't live in the seventies and eighties anymore. What do we read? We like to read stuff that helps us learn how the real world works right now. So to wit, I guess I've been sitting on this for a while. And we've been talking about this particular episode for quite some time and weren't sure how to do it.

And here we are, I promise this is going to dovetail into what we sold and what we bought the last few months. But my favorite book that I read in 2023 that very much has to do with investing is The Creative Act, A Way of Being by Rick Rubin. Kasey: I'm about three quarters of the way through this book and Nick is right, it's an excellent read.

It's an excellent listen, if you're into audio books like that. Rick Rubin reads it himself. So that makes it particularly soothing to listen to.

It came out early 2023. It is a well timed book We really think that Rick Rubin's dictation of his processes for artists is more important than ever because of the generative AI rage right now And everything about the human experience has been reduced down to raw data, ones and zeros in our world, with data being a basic building block or ingredient of the modern economy. Nick: Yeah, it's an interesting thing. This is why we've been sitting on this and thinking about it. So it was last October, you made a chart of the hierarchy of the economy. And it's actually two different inverted pyramids.

One of the traditional economy, and then the newer digital economy. And it seems like the apex of the traditional economy, let's say services and creative works are now getting reduced, like you said, to raw data and feeding into the base of the pyramid of the digital economy, this puts traditional media companies in a really, really strange position, and there's all sorts of things happening right now that indicate this. So there's of course, like the New York times lawsuit against Open AI and Microsoft, in case you missed that interesting things happening there. More recently, Elon Musk filing a lawsuit against Open AI as well. What are these court battles really about? What we think the crux of the matter is that our value as human beings are being challenged at this point by technology.

This happens frequently, whenever there's these new technological revolutions and it brings up moral and ethical issues, along the way. So the stakes are high. A lot of companies that used to be highly profitable and highly differentiated, again, there's their services, their work, their creative output, both as businesses and as individuals really being challenged because it's getting reduced to raw data. Computers can now recreate that work. Kasey: We're not saying that traditional media stocks are a buy.

On the contrary, many of them have pivoted to digital. You can think about newspapers going online with a subscription service. TV has gone streaming. There's many platforms that you can use to essentially get a cable service.

Unfortunately, many of these companies have completely missed the point of the internet, and that's the best way to monetize it. Becoming a platform facilitator and partner of creators content rather than an old curator and promoter of their own brand and agendas. That's why we believe that old media companies are still in a long, broad, slow death spiral. Think about Disney, Warner Brothers Discovery, Paramount, NBCU, which is part of Comcast.

And we don't see that changing anytime soon. We feel like new media platforms that have revenue sharing agreements with content creators have all the power. You can think about Alphabet or Google's YouTube. This is our primary bet in this area.

But to be absolutely clear, YouTube is imperfect. So we also have Shopify, which has tremendous optionality in its e commerce platform. And then also maybe Pinterest as well. Adobe and Salesforce both have segments dedicated to digital content distribution and management and big data platforms like Snowflake are a way to bet on the monetization of raw data. Nick: We still think other companies like Netflix that we've historically avoided. We were content to wait on the sidelines and watch and see how that would play out, still are sitting on a massive opportunity if they can break free of some of the old media business models.

instead of just purely buying so called professional content and maybe embrace a bit more of the user created content. And then of course, the important way this work is monetized these days is via advertising, which is rife with lots of conflicts of interest, especially in the walled gardens. So like Meta's Facebook and Instagram. This is an egregiously misunderstood business, we think, but it does help power a lot of small businesses all around the world. It's a very powerful platform, that's not going away anytime soon.

Same with Google and Alphabet, but one company that has tremendous potential to continue to disrupt that walled garden of data of user data, and in turn, we think help try to make the use of that data more fair over time. Rather than just big tech, reusing that data and commoditizing it for their own purposes is The Trade Desk, doing incredible work to break down those walled gardens And help everyone from actual publishers to marketing platforms, make better use of their own digital work, their own digital creations. So Kasey, before we launch into the portfolio moves that we've made in recent months, we promised what we just talked about is relevant to that.

But before we do that, what are you reading right now? Kasey: I'm still listening to the audio book of A Creative Act by Rick Rubin. Almost finished with that. I also just finished a book by Ed Yong. That was also from last year, An Immense World, or maybe two years ago now. That one is very interesting, about the, animal kingdom and all of their senses and how they perceive the world.

And by extension, how we perceive the world with our senses. That was an amazing read and very applicable, if you want to look at the world from a bigger picture of where we sit in the world. And then I've just started another book by the same author, Ed Yong, I Contain Multitudes. You can tell that I kind of like books about the natural world.

How about you, Nick? What are you reading? Nick: Those books definitely fit with your background. Kasey has a medical background. Here, she is. I've poached her away from the medical industry to talk stocks with me. I appreciate that. What have I been reading? I just finished up two books.

I listened to the audio book version of Don't Call It Hair Metal by Sean Kelly. And I finished reading the physical book, Black Holes, The Key To Understanding The Universe by Brian Cox and Jeff Foreshaw. So I guess that's maybe indicative of the fact that I have neither a fully developed left or right hand side of my brain. I struggled a bit with completely understanding the book on black holes. So closely related to that, I just started reading a second book on that topic. The Matter of Everything, a history of discovery by Susie Sheehy, which so far I'm really enjoying.

Maybe that means we'll actually have , a mega quantum computing episode at some point in the not so distant future. Kasey: Yeah, possibly. It sounds like you might be able to educate us on what's going on in the quantum realm. My knowledge of this is limited to the Marvel Cinematic Universe. I have a lot to learn. Nick: Or Interstellar, you have sat through Interstellar a few times.

Kasey: That's true. I've fallen asleep through that a few times, but maybe I'll try again. If you've watched this episode all the way through, you may be wondering why we haven't got to our stocks that we've sold, held, and bought over the last few quarters.

But we really just wanted to share a little bit about our process, who we are as individuals, and really promote the act of reading. I think that's really important for all of us. We're constantly being educated. It's good to be educated by the right things. Don't try to pigeonhole yourselves into just reading investment books, try to get rich quick schemes by authors. Just try to improve yourself as an individual.

And, the rest is going to follow. Nick: Yeah, I think that's an important point. Be yourself, do what you enjoy. Don't do things just for the sake of trying to make the most money you can from your investing journey. Obviously this is not a creativity based channel. at least if you ask Rick Rubin, we probably would not fall into that category.

But his book, highly relevant to where we're at right now, as you said, Kasey, I think that is by far the best thing I read in 2023 and really has had us thinking and challenging ourselves a bit when we're picking companies that we want to invest In. Okay. With that, should we maybe start with stocks we sold in the last couple of months, since our last updates in December.

Kasey: You can see our video stocks we sold in 2023 and stocks we still hold for the full list of what was on the chopping block at that time and maybe still is. The top two from that list that we decided to part ways with after many years of underperformance is Disney and PayPal. Disney was on the chopping block for me for a long time. Why did we finally pull the trigger, Nick? Nick: We pulled the trigger because , I finally conceded defeat and that you were right all along. And similar story for PayPal. This is still something that I battle with myself personally is sometimes I get attached to things, especially if they're cheap.

If you look at the businesses themselves and the valuations and think, wow, there's a lot of value in this longterm. And that's definitely true with both of these businesses. They both still have value. And for the right investor, it might make sense.

But I think at this point, it was really getting hard to ignore the lost opportunity of staying invested in those two. While some other businesses have been able to produce positive results from their efforts that the market is recognizing right now. Disney and PayPal still in the midst of these turnaround strategies, and it's unclear how successful those turnaround strategies will be. And I think that's where our process has evolved a bit over the years. By and large, we're trying to avoid turnaround strategies. Especially again, going back to the introductory comments to this video, the world is changing very, very rapidly.

And it's difficult to be in a position where you're trying to recover or rebuild your business, when there are other companies popping up all the time that are not in need of rebuilding. They've started fresh for, let's say a digital forward future, not a digital only future, but definitely one rooted in the modern economy where lots of processes and lots of work from the old economy is being reduced down to raw data. So it was time to move on from these two. What did we allocate to Kasey? Kasey: Some of the existing stock positions that we had already, we've added to in 2024.

Those include Amazon, Palo Alto Networks, CrowdStrike. And just a note on that, Fortinet is our oldest and biggest cybersecurity holding and it's already at a full position. That's why we haven't added more to Fortinet, but to those other 2. P, A, N W, and C, R, W, D. We've also added to Arcadium Lithium, ALTM.

Air Products and Chemicals, A, P. D. Shift 4, ticker symbol 4, F O U R, and On Running, ONON.

Nick: Again, for a full breakdown of some of these, we did the video series of videos in December link to those in the description and here on the video, just to one, I want to maybe talk about briefly, Air Products and Chemicals. We did nibble again on it after the most recent earnings, it was a very small nibble. And one thing that came up multiple times in comments, as well as over on our Discord channel is Air Products business is not executing very well, especially when you compare it to Linde ticker symbol, L I N.

And so a little bit of pushback on that, I guess from us is sometimes we hear investors talking about execution, and there's no real substance to the discussion around the business executing or not executing. And it's a bit like saying the stock isn't doing as well as Linde stock. So we've been trying to dig into for our own purposes, think about why it is. And I think the conclusion is Air Products and Linde are peers.

They're not direct competitors, though there is definitely overlap in their portfolios. Where they do compete by and large, these are two very different businesses. We primarily bought Air Products and Chemicals for the natural gas and liquefied natural gas technology that they possess and that they're the leaders in as well as the hydrogen investments they're making. Linde by contrast is still getting massive benefit from their merger slash acquisition that they did with Praxair back in 2018. So their capital expenditures are very low.

Meanwhile, Air Products very much building a lot of this infrastructure for liquefied natural gas and, closely related to that infrastructure, also the stuff needed for hydrogen. So that's one thing I think, we're watching very closely, but we are by no means ready to say, Linde is simply executing better than Air Products. I think that's just an oversimplified way of saying the stock has been doing better. It hasn't been quite a year yet since we made our initial buy. So we're content. The second one, just a couple of comments I want to make is Shift 4 payments.

So this is an interesting one. We started adding to our portfolio last summer as we were kind of starting to. think maybe PayPal no longer suits our needs.

We've continued to add to it, but over the course of the last two quarters, it sounds like they've been approached by a few larger companies to be acquired. It sounds like Fiserv, ticker symbol F I S V, is possibly, the bid that is being considered. The co founder CEO of Shift 4 payments is Jared Isaacman, very much in control of the business. So it's ultimately going to hinge on him, whether or not the company gets sold. We're not going to speculate on that.

If he decides to sell to Fiserv, great. Hopefully it's for an adequate premium. Where we can take that premium and dump it in probably just an index fund, rather than another digital payments upstart, or maybe we will just add it to Visa or MasterCard, which we've already had for many years. Best case scenario, based on what we like to see with the businesses we buy. We bought it because we thought, Hey, there's many years of positive growth in this one. So we would prefer the company stay independent, we'll just see what happens.

So those are my, that's my two cents on those two particular stocks. So over the last two months we've been talking about some new positions, we've begun building here at late 2023, early 2024. What are those? Kasey: Aehr Test Systems, which we actually had a position in 2023, but sold in the summer. We decided to repurchase that stock going into 2024 in November and December, we started a new plan into Aehr Test Systems.

Axcelis Technologies, a wafer fab equipment maker, we recently did a video on them as well. We finally decided to go ahead and nibble on that stock here in 2024. Celsius Holdings, which is new for us. An energy drink company that has become very popular, especially in North America. Nick and I drank a number of cases of it for a while, have laid off of it recently, but we still like the company and I've gone just basically back to coffee. For full disclosure sake, we did purchase some, i shares Bitcoin ETF.

I dabbled in purchasing some crypto coin in 2021 when everyone else was, but we've consolidated that and just went with a Bitcoin ETF. And then our final stock is Netflix. Nick: So I guess let's maybe bring the conversation full circle with Netflix and go back to that conversation on old media and a great number of creative works getting reduced down to raw data. So this is where we decided to reallocate the proceeds from our sale of Disney, about half of those proceeds went in to Netflix.

And there's a lot of reasons why, which we'll probably delve into later on. And as well, we'll have some conversations about it over on our Discord channel. But for those that have been maybe following our writing over the course of many years, you probably know one of my biggest beefs in years past with Netflix was yes, they did generate a GAAP net profit. However, GAAP net profit excludes amortization of intangible assets.

And for a media company like Netflix, amortization expense is of content that you purchase video content. So Netflix dipped its toe into the content creation and purchasing game, a little over a decade ago, House of Cards was its first series , that it purchased for itself and they steadily ramped up their purchasing, but they were actually dipping into their reserves to do it, and raising the cash , to produce content and to purchase content by raising debt. I was really uncomfortable with that.

And as a result of this free cashflow actually was negative for many years, but that has basically in short the switch, flipped on that the last couple of years, Netflix is now profitable on a GAAP net income and free cashflow basis. This is another one where we see lots of flaws in the business itself. We would really like to see Netflix diversify its content creation to include more of the creator economy, kind of like YouTube. We don't want them to imitate YouTube, but that model has worked very, very well for Google and for the creators on YouTube. We would like to see Netflix do more of that going forward, but we do think it is early days still for Netflix, so that's why we pulled the trigger on that one.

Again, we'll talk about this more later on, or if you want to jump on Discord and have a conversation about it with us right now, feel free to do so. Kasey: I think we'll just sum it up with, we never intended for this channel to be a stock picking service for the semiconductor industry. We just want to break down what we believe is one of the most complex and important endeavors around right now. And so learning how that works can provide really important lessons that you can use everywhere in your life. So hopefully we're doing that here on Chip Stock Investor.

Hopefully you did not mind our ramblings about what we're reading right now. Nick and I are constantly learning, trying to improve our understanding of how the world works. So feel free to leave your book suggestions in the comments. We love that. And if you would like a little bit more personal discussion, as Nick mentioned over on our Discord channel, we have that with a community of like minded investors. Make sure you check that out.

That is it linked through our membership here on YouTube or over on our Ko Fi channel. Subscribing to our monthly membership gets you access to Discord as well as all of our published show notes included in the price of 5 a month. One way to get all those perks. We have much more content coming your way this week. We're going be talking about some Japanese semiconductor companies, Tokyo Electron and Renesas both of those we have not covered in depth, but we're going to do that this week.

So stick around. We'll see you again soon here at Chip Stock Investor.

2024-03-19 04:54

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