Why Dave Portnoy Triggers Professional Traders | What Are Your Thoughts?

hey guys it's downtown josh brown we're here for another round of what are your thoughts i'm here with michael batnick as always and we have a uh a new way that we want to talk about doing the show which i'll get to at the end but for now big topics on the street this week lots happening let's get into the music and then we'll go right in [Music] all right so michael uh barry my partner your partner barry redholtz interviewed dave portnoy last week and at first i was a little bit nervous because i was like what the hell are they gonna get into uh and can barry back himself out of something that he's not really supposed to be talking about but it didn't go that way at all i thought it was a really interesting conversation on entrepreneurship more more than anything else did you prep him for that yes what did you do to prep him to interview portnoy because i don't think barry's a stooly i don't think barry he's not a little guy so he was he was nervous that it was just gonna be like stock picking and stuff like that was like you don't understand he can be a serious person he's playing a character sort of like andrew dice clay but he has the ability to talk seriously and so that's what it was i thought it was a very meaty conversation it was great i mean he the guy sold barstool twice he sold like a controlling interest to the churning group which is serious media operation and then sold the rest of it to uh a public company so he's not just walking around with a green hammer you know to to ring the opening bell of day trading like he he clearly knows what he's doing um i was very struck by and i didn't really understand this the fact that he basically was toiling in obscurity for a decade he was like writing all the articles in this handout newspaper he was then he was editing himself then he was printing it and then he was delivering it he was selling all the ads and he did he did that for a long time before anyone ever heard of him really like before there was twitter uh or or any way for him to go broader um and i thought that was i thought that was like uh i i respect that so much did you did you know the whole story going in yeah i've i've heard that stuff before i loved what he said about i did love his stuff about stocks that he's like they're laughing at me on cnbc but i don't really care it's a he he he knows exactly what he's doing he said it's a slow motion train wreck that you can't look away from one of the things that i like about what he's done is that he doesn't take himself seriously as a trader and i think the reason that that pisses off so many professional traders who like live and die by their reputation on social media is how little he cares about when anyone thinks and how little he's trying to pretend that he knows what he's doing he's just like i don't i don't know let's trade this let's trade that um it's kind of like it's refreshing yeah he said he saw a deer outside his house how he bought john deere i saw him pick a ticker symbol out of a scrabble bag and then then and then trade it like he picked the tiles the thing that triggers people the thing that you see the people that have been bearish for five years uh quote tweeting is portnoy's saying stocks only go up and obviously that can be a dangerous mentality but the irony is don't you think that you're way more likely to make money if that's your mentality versus stocks are always about to crash so which is what his detractors say so i don't even think of the direction i mean you probably know better than me i don't really think the directional thing is what triggers people i think it's the fact that he's having fun and not taking himself seriously and he actually has some trades that work out i'm sure they don't all but um i think it like there are people that take their research and their trading so seriously as they should if they're really professional traders and he just shows up and like totally makes a mockery of the whole thing and these guys are like no wait subscribe to my look how great i am and he's like that's he's like i suck follow me anyway i i don't know i thought i think it's cool that's become his thing stocks only go up is like his tagline right all right so that pisses people off because it sounds so ignorant than it is and it's dangerous but the irony is that the people that are that are like getting triggered by him are the people that are that are always afraid that stocks are about to crash so it's a perfect like it's a perfect storm of bunny pads imagine you're like one of these like macro uh fake hedge fun guys on twitter and you like spend 16 hours a day on your research and tweeting stuff out and all this and like you you put out you put out something and like five people like your tweet and then he comes along and he's wearing like a superman costume and you know 300 000 people see his tweet like how how emasculating is that um yeah that's that's tough i get i get i certainly get the frustration um i wanted to talk to you about solar stocks were you aware of what's going on in this space you know what i should have been i'm i was a little bit aware of the fact that they kind of took off with tesla this year um but i didn't realize the extent of it um until i looked at some of the charts and holy cow yeah so i was digging like what's what's going on so solar accounts for just two percent of total electricity generating the united states and when was first solar and sun power and solar city when were these the hot stocks like 2013. it's been it's been a long time yes i was probably 13 i think it's been a long time since they've been in the news but uh there's this one stock end phase that's up almost 250 years 250 year-to-date so i'm looking like what's going on and and like it's it's these are not no longer just ideas the revenue growth is pretty tremendous there was an article in barron's recently talking about what's going on in china i think it's like eight percent of a layer of electricity something like that uh the scope of xi's ambition in a country that still gets two-thirds of its power from cold is breathtaking there's an estimate that china will have to spend 15 trillion dollars on green transformation increasing solar power six times and win more than three times so you contrast what's going on in the clean energy space there's also a ticker from eye shares i c l n i clean which is which is pretty similar to the solar etf t-a-n right uh but you contrast what's going on with these names versus traditional energy xle exxon chevron you know all those old-school names and it is stark that's the story um you know the rest of the world is further ahead of us in terms of like adoption of clean energy and they care more about it and they write it into their laws and we're like dismantling those laws but the other thing that's happening is i think uh esg driven portfolios and there are people that want to invest in energy but not oil and they discover these stocks and they see that the attributes that you're talking about like revenue growth etc and it gives them a place to put money and say that they're investing in energy and not have the stigma of you know we're putting pension money into oil funds uh oil companies so i think that that that's definitely driving dollars um forget whether or not you believe in esg or you agree with it forget all that this is like what people are doing with very very large portfolios around the world institutional investors um they're they're really focused on this and they actually in many cases have to answer to committees about you know where their allocations are going so i think esg is playing a role in driving attention toward energy stocks that are not carbon energy i think that's a good point so these these two etfs are not even necessarily esg etfs i mean they're not they're they're thematic etfs yeah but i but but the ishares clean energy etf and and the invesco solar etf both have 1.7 billion dollars in assets that ain't nothing uh they were dude they were 440 million dollars at the beginning of the year so a lot of that is just growth but a lot of that has to be money coming in same thing with uh first trust as a global wind energy that went from very little to 250 million dollars so maybe flows is part of the story as well yeah and then you know the utilities are playing a big role here and berkshire hathaway um mid-american energy there i guess maybe they're calling it berkshire energy now but it's it's basically a collection of utilities that uh warren buffett has spent the last 20 years acquiring and a lot of the new construction that berkshire is pursuing is solar and wind um but i was looking at this before so uh they have a new project that they announced the beginning of this year uh in their envy energy subsidiary where they're gonna build a 690 megawatt solar energy plant on on federal land in nevada well the current record for a solar plant is 579 megawatts so it's going to be the biggest in the world by a large or in the country by a large margin and it's not their first you know berkshire has been doing solar and wind projects for a long time at a certain point pricing the prices have come down for solar panels and solar infrastructure to make them more and more competitive with building anything coal-fired or or you know oil gas natural gas so that's what's happening and it's real it's not you know it's not a dream uh there are millions of homes that are powered by some version of clean energy and it's going to keep going so i think that's kind of cool to see and to your point most people probably aren't really aware of it that don't follow the space closely i don't think it's a big uh it's a big story but it is absolutely transformative right now um let's get into uh this thing from verdad capital our friends at verdad they do such amazing research and they're a value shop and they did a piece on fan mag which is you know facebook apple netflix whatever so they were they were talking about fan mag envy and they looked at like the next tier of growth stocks and the insanely high multiples they're specifically looking at uh sales to enterprise value because now everyone's valuing um cloud computing stocks on you know uh sale price to sales ratios so they're looking at uh they're looking at this tier of companies and you know a lot of the names these are like the cloud computing superstar stocks and one chart in particular that they show they break all the stocks into deciles and they're looking for the most expensive enterprise value to sales and they find that actually uh these companies have delivered they say uh before we get too critical we must acknowledge these multiples reflect performance enterprise value to sales multiples have historically been good predictors of realized sales growth so yes these companies are expensive but they're also crushing it and they're actually creating value for shareholders um why why isn't that more intuitive uh to to value investors where they look at a high multiple stock and just say ah it's not for me no no i i think that i think everybody knows that i just think what happens is that these these stocks often don't fail to deliver so i don't think he's showing that they do that they no no no no no no deliver no they have delivered this chart does not always look like this it's i mean in theory the the most expensive names have the best growth but they don't it doesn't persist and so the price just gets too far ahead of expectations and any hiccup and growth even if it's if expectations are for 30 growth and they deliver 28 they could still get crushed so i think value investors understand that very well what they're saying is no no we prefer to have a margin of safety and not pay up for growth that might not materials might not materialize it's just a different it's just a different mindset okay so apple two years ago right the the airpods become a runaway bestseller uh hit the app store revenues all of a sudden go to like 20 or 25 um of of the overall sales picture so getting further away from gadgets and and closer to a true subscription services model um and it's selling 20 times earnings and it's growing 15 you know 20 give or take and it's paying a dividend and it's buying back and it's by next stock and then you look at that and then you say yeah that looks cool at 20 times earnings but you know what i got this real piece of company and they're they're making uh raccoon traps and it sells at 0.7 times sales and it's dirt cheap relative to its last 100 year history it's what kind of mindset is it that you want to buy the worst piece of you can find because it's selling at a low multiple to sales versus buying apple that's doing absolutely everything right i really don't understand it yeah but that's that's once that's one style of deep value investing i don't think most value investors are trying to buy the shittiest company possible so i don't think that's fair so what are they actually trying to do right now because hold on we're getting away from the point the point is that the most expensive stocks have actually delivered that's it that's the story is that a lot of time growth gets overpriced and in fact it's been underpriced these companies continue to exceed expectations that's the story and i was actually shocked by this jack vogel did a similar post recently where he looked at he broke down stocks from 1990 to 2019 stocks that were trading below 10 times sales and stocks that were trading above 10 times sales that's it that was that was the line in the sand ten time sales is actually pretty chaste these days it's it's actually pretty conservative so over the last 10 years it's been an incredible 10 years for all stocks yeah over the last 10 years stocks that have a price of sales ratio over 10 times have annualized at 19 right versus stocks below at 15.7 which is still very high it's been an incredible decade for stocks over the last three years this is the widest gap over the last three years they've annualized at 21 for the expensive stocks versus 13 for the for the less expensive stocks i know this is naive and i know the quants work on this night and day and there aren't any easy answers but why not just say the best time to buy a value stock is when it figures out how to start growing again like i look at all the people all the money trapped in the large cap banks we'll forget energy or any of that let's just let's focus on uh financials right you have financials that are doing really well they're hold on hold on hold on hold on don't you think they've thought of this well let me let me make my point like what you're saying is is not so uh profound they have thought of this it's not that easy i agree it's not easy but like wouldn't that be a better thing to focus on rather than just pure uh pure value metrics why not just i don't think you're giving them enough credit to think that they're not absolutely data mining the out of these uh these fields to try and find what you're what you're suggesting all right perhaps perhaps perhaps they are in the end there's a ton of money trapped in wells fargo bank of america citibank jp morgan um these stocks these companies do not grow um they're you know one times book value or below and they have been for almost a decade now there's absolutely no sign that they're going to find a new way to grow i'm sure they're trying but they don't necessarily no they don't necessarily need to grow to deliver decent returns to shareholders well they do they do because they're not allowed by the government to buy back stocks opinions can change stocks get re-rated they don't necessarily need to grow well they have caps on how much capital they could return to shareholders so if they're not allowed to juice their earnings with buybacks to the same extent that stocks and other sectors can then i think they really need um to figure out new avenues for growth if they want any kind of multiple expansion i don't disagree with you everybody knows this you know everybody knows this nobody's bullish on banks right so it doesn't it doesn't change much uh and again you could have said this three years ago so it's it's tough i i get what you're coming one thing that i would have expected to have changed um the sentiment around banks is the boom in mortgages unfortunately it's not and a lot of mortgages are now being originated on the internet yeah but think about oh so that's a good point to think about how low mortgage rates are the spread is like just not there correct correct but there's still there's still money to be made the problem is being made by rocket mortgage uh not by wells fargo i mean that's is it just facts uh and so maybe they might have just been uh literally disrupted out of any potential growth there is um i said something on tv the other day that got a big reaction that one of the biggest ups in indexing in the last 10 years or so was designating paypal and mastercard and visa as technology companies if these were in the financial uh sector then that sector wouldn't look as shitty as it looks now it would have mega cap stocks that are going up and to the right but those companies are like classified as technology or software and i think it's a huge mistake those should have been considered financial um but they're not so financial is dominated by growth impaired quasi-utility large cap banks and it's it's kind of a rack um all right let's not do any more on that what do you what do you got next i want to talk about this chart from jp morgan we've we've spoken about this a bazillion times that the stock market is not the economy so this is a really neat chart i i've seen it in various ways i've never seen it like this so they break it down different sectors of the economy they break it down by by gdp how much are they responsible for for gdp by employment and by uh by the s p 500 okay and to me i mean this is obvious the biggest story here by far is technology technology is responsible for six percent of nominal gdp just two percent of employment and 40 percent because obviously obviously they're incredibly efficient with with what they're able to do yeah and 40 of the stock market and you know what's remarkable technology just xlk the etf uh apple and microsoft are 43 of that right so this is just a function of what investor preferences are like in other words the reason we have multi-trillion dollar technology companies is because investors are prioritizing investing in the future and in growth by the way to your point financial services 23 of gdp and just 12 of the market and shrinking and some of that look some of that is classification error because it's not like financial services activity is declining it's exploding uh the problem is venmo which which is where people move money around is not in the right index right it's owned by paypal and uh square and then stripe is gonna come public i don't know where they're gonna put that it would be like airbnb coming public and instead of being considered lodging just calling it a tech stock because they have a great website like that's i think i think a lot of these classifications have led to disparities in sector performance where you look at this i don't really agree with that you look at this chart that you're showing me it makes no sense it's not reality i i don't i don't really agree because you're right you're right that uh uh visa paypal square i think might be technology as well but they're not i mean they're big companies they wouldn't necessarily make xlf like a whole you know a target they would paypal is a 200 billion dollar stock what are you talking about yes they would no they wouldn't come on if you put mastercard visa paypal and square into the xlf it would be it would be substantially more balanced in favor of growth versus the way it is right now look there are growth companies in the xlf um but they're tiny it's like msci is a hot stock in the xlf it's an index provider it's a tiny company but like if you had more fast growing mid and large cap stocks um that are in the s p 500 and actually doing financial services classified correctly the xlf would have had much better performance and this would be less skewed um toward the technology sector i'll take a look at this okay you should do a post on that i'd love to see if i'm right i i will and i i mean yes the the performance will be better there's no doubt i don't know if it necessarily would have saved it so for example xlf is up 47 over the last five years it's a little bit more that's a little more respectable okay no no let's do this three years it's flat over three years right so if we put uh paypal visa mastercard into xlf what do we think the return's gonna go from flat to what up three or four percent or you think up like if you weight them um based on cap yeah you think it's gonna go up to like up to like 10 15 percent i don't think so well you have to pull market cap away from so many underperforming large cap stocks so it will so it will make a big difference we'll say you know how to do that yep i could pull that right from my charts all right so run run the numbers i'd love to see it maybe we'll talk about that next time um i want to get into this thing from reuters wall street strategists uh had a really tough year in 2020 they have a tough year every year uh no offense um no it's not their fault it's ridiculous it's a ridicul it's a ridiculous thing to have to a in january handicap the s p 500s earnings like the full indexes worth of earnings and then b come up with a price target which is really just guessing at sentiment like the only way you could put a target on an earnings number is to guess what multiple on average we're going to be paying for the market so you can nail the fundamentals and who the hell knows what what the multiples are going to be well they didn't do either because something happened in late february that completely changed the world which is of course uh unforeseeable by anyone and the story was basically that they started slashing estimates the whole way down after the market was already falling and you know this guy mike wilson who's pretty smart at morgan stanley he basically cut his target on the s p the day the market bottomed on on march 23rd or march 24th and then on the way back up most of them were underestimating the recovery for stocks um and chasing the earnings revisions higher which they still are and so their targets went from being too high to then way too low and then now they're all chasing the market back up so it's almost like what's the point and i understand the point i i don't think they're telling people i'm going to nail my target i think it's fodder for conversation with institutional investors and it's a free and it's a framework it's one of that because we're only seeing their price targets but they're actually doing a ton of research that goes out to their clients and the headlines all the headlines do us pull out the price targets i agree i agree um but my guy tony dwyer gets uh gets the last word in the story so tony dwyer is at canaccord genuity he's a friend of mine and uh he suspended his forecast in march which i think is probably the most responsible thing he could have done um and then uh he reinstated it over the summer and then on august 31st he pulled it back because the s p started to rise above his his target and he basically says to the reporter it's a wild guess um and then dwyer added he believed the overall investment thesis he provides clients is more important than quote a made-up target i totally agree having the ability to talk with mike wilson or david costen or tony dwyer and just get their sense of what's going on is so much more valuable than 3600 is my target you know the number is stupid but i understand they have to play the entirety of the game i want to give the last word to ben graham because uh we always say like why even bother why do they do this he said nearly everyone interested in common stocks wants to be told by someone else what he thinks the market is going to do the demand being there it must be supplied yeah i think that's right people people might say all right i know it's hard to guess but what would you guess which is which is fine i get it um all right let's do this quick so we don't much time last topic uh miles alden did a really good post uh public is a new private for years now we were saying private as a new public private markets that is and now it's it's it's reverse it's a boom uh companies are coming public left and right you talked about this on your podcast last week yeah about the the renaissance in in the ipo market what are your thoughts on this well i think seeing a lot of companies that were privately held now have this really really fast on-ramp into the public market is exciting because i do think that when private companies go public they get this currency that they can then use they can incentivize their employees they can hire more people they can spend more on research and development more you know more capital spending hopefully uh and hopefully most of it doesn't get wasted chamath just announced a reverse merger uh one of his spacks is gonna take over cloverhealth and a 3.7 billion dollar deal yeah so it's a legitimate company totally so i i don't i don't uh i don't have a problem with it um i just think for from an investment standpoint most of these won't work now you could say well so what because i get my cash back if the deal doesn't get consummated or if shareholders vote against the deal i just get my cash back what's the big deal what's the risk um i think the risk is people are paying premiums for spax thinking that when a deal is going to get announced they're going to get an after market they're going to get it after the news pop those pops are increasingly failing to materialize because there just aren't that many exciting companies that you can put into your spac a really great exam there was a 16 billion dollar deal last week from somebody who's a proven operator in the space and they bought some kind of a boring in business like a record-keeping insurance business or something and not only the stock not pop it fell and so that that's the risk if you're paying a premium for a pile of cash and the market's not excited about the deal they announced you're probably going to see this you know 10 or 15 fade and if you're okay with that then so what play on uh it's not for me i would rather wait till a deal is announced and it's a great deal even if i have to pay up if i want to invest at least tell me what i'm investing in i'm not i'm not big on door number you know what's behind door number one what's my tour number two it's not my that's not my style uh all right that's that's all i got for today uh let us know what your thoughts are on the topics that we've discussed and we're going to try something new we have an email address that you guys can send us topics that you would like to see on the show next week that email address is ask the compound show at gmail.com so go ahead and send us an email tell us what we should discuss on the show next tuesday and we will make that our seventh and final topic we'd love to hear from you guys uh and and we will definitely start incorporating more of your feedback into the show um because i think that's a lot of fun and a great way uh to get some of your most interesting ideas involved so go ahead and send us that email and we will be back next tuesday eve bye

Channel: The Compound

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Keywords: Stocks, Stock Market, How To Invest, Investing, Money, Trading, Financial Advice, Investment Advisor, Josh Brown, Michael Batnick, finance, downtown josh brown, financial markets, retirement, wall street, the compound, financial services, invest, esg, solar, oil, clean energy, icln, dave portnoy, barstool, spac, ipo, xlk, xlf, xle, paypal, ritholtz wealth, davey day trader, economics, day trading, pypl, tech stocks, wells fargo, energy, robinhood, berkshire hathaway, charts, green investing, sri

Id: KIIVms5U_TY

Length: 28min 6sec (1686 seconds)

Published: Tue Oct 06 2020