TIP206: MASTERMIND DISCUSSION 3RD QUARTER 2018

W/ HARI RAMACHANDRA & TOBIAS CARLISLE

1 September 2018

Every quarter the Mastermind Group from The Investor’s Podcast gets together to discusses their latest investment ideas. In this episode, each member of the group recommends a stock pick that might outperform the S&P 500.  After each stock pick, the remaining members of the group pick-apart the idea.

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IN THIS EPISODE, YOU’LL LEARN:

  • The group’s intrinsic value assessment of $GOOG, $FB, $HRB, and PPC.
  • How to assess the intrinsic value of growth stocks like Google and Facebook.
  • If Pilgrim’s Pride is at the top of it’s business cycle or just trading at a very attractive price.
  • If H&B is a good dividend stock.

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Preston Pysh  0:03  

Welcome to today’s show. Once a quarter, we get our good friends Toby Carlisle and Hari Ramachandra to join us for our quarterly Mastermind Discussion. 

If you’re not familiar with the format, each person brings one stock pick to the table and they pitch the rest of the group on the idea that the company might be a great investment. 

After the pitch, the remaining members of the group provide feedback and risk considerations on why the investment might be good or why they might have some concerns. It’s a great opportunity for us to go through our line of thinking and hone our skills at asset valuation. 

Without further delay, we hope you enjoy our Mastermind Discussion for the third quarter of 2018.

Intro  0:42  

You are listening to The Investor’s Podcast where we study the financial markets and read the books that influenced self-made billionaires the most. We keep you informed and prepared for the unexpected.

Preston Pysh  1:03  

All right, welcome to the show. We are always excited to do our Mastermind Discussions. 

For people who have listened to these before, you know the group but if not, we have Toby Carlise from the Acquirer’s Fund. We also have Hari Ramchandra. He works at Salesforce as a senior director of engineering. He works out in Silicon Valley. He’s worked at other companies, call it LinkedIn, or whatever, but he’s our expert out in the Valley. Stig and myself. 

Without further delay, let’s go ahead and kick this thing off. I believe, Stig, you were going to go first with your pick for this quarter.

Stig Brodersen  1:38  

Yes, so my pick for this quarter is Google. I’m very excited to hear what you guys have to say before I do my pitch. It’s not your typical value pick at all so I’m really excited. So 80% of the revenue right now comes from digital advertising. You’re probably familiar with a lot of their products such as AdWords, AdSense, Gmail, Google Maps or whatnot. They have a lot of streams of revenue. 

Then you have 15% of the revenue, they actually call it other revenue. It’s a very original name. Then other bets, which is the cloud that they are right now investing heavily in. Apps in Google Play , hardware, and so on so forth. 

Lately, I think a lot of people have noticed that Google has been in the media about breaking antitrust laws and the fine of $5 billion from the European Union. Just to give you guys some perspective, $5 billion that comes out of the operating income, trading 12 months of 30 billion. It is significant, even though it’s not something that will have a detrimental effect on Google. 

Just as a fun fact, I can share that the last record of fines given by European Union was back in 2017, it’s $2.7 billion. It was also Google and it’s primarily from bundling search engines and Chrome Apps into operating systems and so on.

It’s kind of like a ring from the past with Internet Explorer and Netscape, I guess. 

However, if you look at the main source of revenue, digital advertising, this is a huge industry. We’re looking at around $250 billion in the market. That is out of all global ad spending, which includes radio and television. 

However, $250 billion is only digital advertising where Google is huge. You have the industry that is growing. :ast year was growing at 21% so it is rapidly growing. Facebook and Google accounted for 90% of that growth. 

If we look at the moat and I can already say here it’s very interesting that we have Hari with us, you’re off from the Valley. You can probably talk more about the moat than I can. Of course, it’s their algorithm and it’s their search engine optimization. 

I think we come up with many different types of moats so it really depends on where you focus. I like the idea that the core business that they have right now, they do not need to reinvent themselves the same way as, say, something like Apple. They’re so dependent on their iPhones. 

I see a lot of moat right now in Google’s algorithm and their search engine optimization. They’re sitting on 90% of the market share. It’s not enough for me to say if it’s a better algorithm than other search engines. I don’t really know if it is, but it is the go-to place and the platforms where programs are working. 

I know this is a long pitch and before I jump into AI, and all the other good stuff, I would like to talk about valuation and hope to get some feedback. It’s kind of difficult for me to evaluate a pick like Google.

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