58. Travis Hoium on Asymmetric Investing
Note: All of our podcast transcripts are lightly edited for clarity and ease of reading.
[00:00:00] Jason: Hey everybody. Welcome back to the smattering where we ask the hard questions about investing. I'm Jason Hall joined as usual by Jeff Santoro, the voice of the people. Jeff, how's it going buddy?
[00:00:14] Jeff: Hey, how are you?
[00:00:15] Travis: I'm doing well. Yeah. Good. I'm good. I'm doing good too.
[00:00:18] Jason: And I'm excited that we've got somebody else joining us today.
Somebody that's been on the podcast before but was part of a bigger group, somebody I've known for a long time friend, long time colleague. Travis, William, Travis. How are you bud?
[00:00:31] Travis: Doing well. Excited to be here. I'm disappointed that death was earlier on the agenda than I was - last week's episode, but that was a great discussion.
I do want to compliment you guys on that. Just that, yeah, we gave it a lot of thoughts.
[00:00:48] Jeff: We said, "what would be perfect to have Travis on after" and we decided death.
[00:00:53] Jason: Yeah. So I, I actually wanted to try to squeeze in an episode about taxes too, before you.
[00:01:00] Travis: It's not taxing.
[00:01:03] Jason: No, no, that's, that's right. So, all right. So for those, for those that don't know, Travis, I've, I've got just kind of a short bio here, Travis. Maybe you can fill in the blank some, but professional training engineer, you worked for a large materials company for a number of years before you moved into being full-time investor, analyst, writer, follower of markets and industries.
You, and you and I first met working together for the Motley Fool doing work there. You've covered the energy industry, particularly renewables for a very long time. You've talked before about how you bought your first stock when you were a teenager, so you've followed the market closely for many, many years.
One of the things I think's interesting, Travis is, and I maybe this is part of kind of how you come to, you've come to Asymmetric Investing, which we're gonna talk about, which is your newsletter, and some other things that you're working on is following the, the renewable energy industry. You've seen how disruption can work and how it can fail, and how the winners and losers can play out.
So I'd love to hear how that and other things kinda led you down the path to Asymmetric Investing.
[00:02:26] Travis: Over the last 18 months or so. I've played around with what I wanna write. Kind of when I can write about anything that I want to write about. So this started with the RIIV project. So the word RIIV means explosive disruption.
So, so that's kind of where this came from. And, and that was really in the context of I was trying to follow things that were happening in crypto and the blockchain that weren't number go up, number go down, but were more, Hey, what's the disruption going on here? What's the business behind this? What's the, what's the tangible thing that's gonna be, that we're gonna be talking about 10 years from now?
And so it was kind of this meandering road under that project, and as you know, crypto kind of fell, fell to the wayside. And, and I really figured out that there are people who invest in stocks and then there are people who invest in crypto and they are not at all the same people. So I kind of got to this crossroads where I had to go, okay, why am I interested in this in the first place?
Why was I interested in solar energy? What is, what's the common thing here? And the common thing is that there's some sort of disruption happening. There's some sort of opportunity that's bigger than just, oh, hey, this stock trades for a nice price to earnings multiple. It's, it's Google in, you know, what did they go public in 2005?
Where if you would have gone like, this is what this company is gonna become in 16, 18 years, you would've thought you were crazy. You can go through any investment that has done many, many multiples over decades where there's this, there's this slow but steady disruption that happens. And that's what I wanted to just dig into is what's the commonality between these companies?
What can we learn from them? What differentiates them? What can we learn from their business models? I think that's something that I write a lot about is business models. Not just, you know, Hey, I'm really interested in electric vehicles, or, you know, a certain topic, but like, what makes a certain business better than a different business?
What made Google, Google and Yahoo. Yahoo, what has made Nvidia, Nvidia what has made Intel, you know, kind of the phenomenal investment was for decades and then the terrible investment that it's been recently. That's what I want to dig into and that leads me to, well, if I'm gonna look for these kind of opportunities, what you're looking for is asymmetric opportunities.
You're looking for the stocks that can go up 10x, 100x and if you can get a few of those right, then any of your losers sort of don't really matter. They kinda come out in the wash and that's what, even the Asymmetric Investing logo just sort of leans into that. As a, as somebody who buys stocks, you have a limited loss.
If I put a hundred dollars, a thousand dollars into a stock, that's all I can ever lose. But the upside is effectively infinite.
[00:05:36] Jason: Yeah. Theor, mathematically it's infinite. But then in practicality, obviously there are limits in the returns. And kind of my one sentence understanding of what you're doing with Asymmetric Investing, kinda based on what you've said and what we've talked about before, is the opportunity that they're pursuing is so many orders of magnitude larger than the business is today.
Mm-hmm. That, that's where you can get those asymmetric returns. General Mills doesn't have asymmetric potential maybe over the next five centuries. It does, but we're talking about within, you know, just a few decades for some of these companies that you're, you're interested in.
[00:06:13] Travis: Yeah. And sort of the benchmark that I look at is, is there a possibility that this stock could 10x in 10 years?
And a lot of times I'll do like a back of the napkin model at the end of a long writeup and I'll say, Here's, here's kind of how you get to that number so that you don't think that I'm completely crazy. And it's sort of, you know, it's kinda a check on me too, to go, I'm not just saying AI buy all the AI stocks because yada yada.
Like there's a real thesis behind it. There's a real business that I think is gonna develop behind it. Maybe I'm wrong about that and I'm willing to, you know, be wrong. But if I'm right, then the upside is huge.
[00:07:00] Jeff: One of the things that I really like about your newsletter is that thing you just talked about, which is the quick back of the napkin math at the end.
That sort of justifies how you think of it as a potential investment. Cuz it's very easy to understand. It's not a, , it's not like a full DCF or something like that. It's just a very basic, like with these assumptions. Here's how I think we get there. I don't know, I you probably don't wanna give away too much cause I know it's a subscription newsletter, but can you give us and those listening just like a, a quick elevator pitch on one or maybe two of the companies you've covered?
Something that can kind of give them an insight into some of the things you're looking for.
[00:07:38] Travis: Yeah, I'll talk about a couple. Cause I think they're really identifying identifiable and easy to understand. One is General Motors, so now as we have half the people turn this off because I just said General Motors.
[00:07:50] Jason: love, I love this because I wanna, for the people that don't know Travis, I think it's important. People that have watched some of the YouTube videos I've done with Tyler Crowe know this because we've talked about a lot. The reality is as exciting as the automotive industry is, especially now with the advent of EVs, there's been exactly one really big winner.
And the automotive sector. Well that's not completely true, but it's pretty close to true. And that's Tesla. None of these other automakers have really been market beating, life-changing investments. They just, they just haven't, the economics are terrible. It's a tough industry
[00:08:24] Travis: unless we ran them in like the thirties or forties.
[00:08:28] Jason: in the lifetimes of the people listening to our podcast. Yes,
[00:08:31] Travis: yes. That's a hundred percent true. But, so here's, here's what my view on the world is. I have a six year old son just like you, Jason, and I look at what we're doing with technology in driving today, and I ask myself, is he ever gonna either get a driver's license or need to get a driver's license?
Like we have autonomous vehicles on the road today. So what does that business look like in the future? What does the business model behind that? And. That's what I've sort of been slowly exploring over the last few years. And some of the things that I write about, and I keep coming back to General Motors, about 80% ownership of Cruise is the one company that seems to have a very clear strategy and business model behind autonomous ride sharing, robo taxis, if you want to call 'em that.
So they have this custom made vehicle called the Cruise Origin, fits about four people. You know, there's no driver, there's no steering wheel. It looks like a miniature bus. And actually Zoox, which is owned by Amazon, has a very similar looking vehicle. They kind of developed those in tandem a little bit behind from a regulatory standpoint, but General Motors has invested in this company and then kept it separate.
That's one of the things I, I really want to highlight here, because a lot of times what happens with disruption. And with what we call the Innovator's Dilemma is a company sees disruption coming. They go, we need to go there, but then they can't get out of their own way. So like, Microsoft was earlier to smartphones than Apple.
So why did they fail? They failed because they were focused on Windows. And Apple was able to say, okay, I'm gonna start from a fresh piece of paper. What should a smartphone look like? And that's how you get to the iPhone. So autonomous ride sharing. So if we're gonna have a a, a fleet of vehicles just driving around available to pick you up wherever you want to be, where wherever you want to go, what should that look like?
Well, it should be a custom vehicle that's, you know, easily replicatable. You know, you're not gonna have all kinds of different features the way that we do with the vehicles that we're buying today for personal use. It's probably gonna be something that is specifically for autonomous ride sharing.
You know, Uber just made this deal with Waymo. I'm really wondering if they're gonna be able to disrupt themselves by, by doing this, this is always one of the challenges. They see it coming obviously, but can they actually say, Hey, you know what drivers, you're gonna be over here, but we're also gonna be at the same time promoting this autonomous driving thing over here.
So, so I think there's an advantage over even the incumbents in the market. And then you get to the point where if you're gonna deploy this at scale, you're gonna have to have billions and billions of dollars. Well, that's where GM comes in and they have a 5 billion line of credit with crew. So Cruise can be a separate company with its own board of directors, its own ceo, its own technology.
They're working with GM and Honda to build this vehicle, and they can use GM as kind of like the. The rich uncle to just fund operations. And that's really compelling to me because if they get this right, and to get to those, you know, back of the napkin kind of numbers that we were talking about, Uber's in 10,000 cities, well, let's say crews can get to a thousand, let's say that instead of charging an average of $24 a trip, they charge $18 and they can do, I th I think my range was like three to 10 rides a day.
You start to do these numbers and suddenly, and, and there's maybe like a couple hundred vehicles in each city. By the way, there's about 300 in San Francisco. So, so we, these are not crazy numbers. Suddenly you get to like, this could be a 200 billion revenue business. And again, you go back and you go, well, how much is Uber bringing in?
Well, their revenue is 30%, but that's only, or their revenue is about 30 billion, but that's only about 30% of the actual money that you're paying for rides. So Uber people are paying about a hundred billion a year for Uber rides. So, you know, I get to this 200 billion number by 2033 and all of it kind of goes like, man, this kind of checks out if, if it all works and if we adopt it.
And oh, by the way, the other thing I wanna throw in here is that may seem crazy, but 10 years ago, Uber seemed crazy. So we adopt tech technology, I think, a lot faster than people think. So the idea of a bunch of cars driving around with no driver in it seems insane right now. It would've also seemed insane to get in the backseat of a car, of a random person and just have 'em take you somewhere, you know, 10 or 15 years ago.
[00:13:44] Jason: Stay staying in random people's homes instead of hotels. Exactly's another example I can, and this is, I'm gonna date myself a little bit, but I was a, I was a manager for Circuit City in the late nineties and early two thousands and they brought something called DVI X to market. And if you go online, there's DVI is like a video format.
This was something completely different. And the idea was you basically, you could rent movies, but you would actually physically possess the disc and you didn't have to return it anywhere. And it cost about the same as a Blockbuster. So it was almost kinda like Netflix before Netflix with you never having to send media back.
The thing that blew it up was it had a modem and it connected with the modem and like this whole privacy thing, the, basically the, the movie industry and all of the consumer electronics competitors just completely pushed back about, about this idea. You fast forward a few years, Everything is completely changed with the way that we consume media and the idea of not having connected devices to be able to do that stuff.
That's to your point, right? Whenever there's some sort of initial pushback, the Overton window shifts and, and then all of a sudden every it becomes normal. It becomes normal, so, so much more quickly than we think. One of the things I think is interesting, Travis, about the, about your, your, your case for GM is really, it's a, it's a case for, for Cruz, right?
Yep. Largely the, the upside is there and the downside is you still own gm, which might be crappy, but in terms of, but it's cash flow business. But, but that, that's the thing, right? I mean, it's not, maybe it's not gonna be a market performing business if Cruise doesn't deliver the upside, but it's not something that's gonna go to zero.
So I think that's one of the really interesting things about that one. Well, I
[00:15:33] Jeff: wanted to ask, this is the question I was wondering cuz you got, you, you peaked my interest with the whole GM thing, Travis, after I read your your newsletter about this, one of the things I, I want to get your thoughts on, and I've been wondering it myself, is to Jason's point, , the asymmetric returns according to your thesis, are gonna come from this Cruise investment.
However, GM is also a car company trying to compete on EVs just like all the other car companies are. And you have to think there's gonna be some crossover of that knowledge. , and I, I, I think they, they even are a little bit more advanced than maybe some other companies in. The other types of autonomous driving that fall short of full autonomous driving.
Right. So like all the assisted driving stuff that we, a lot of us have in our cars now, you know, if those features work really well and start to, , find their way into GM's electric vehicles or maybe even their internal combustion vehicles, that could be a competitive advantage for them as they just try to, you know, keep selling cars separate from the Cruise thing.
Do, do you, do you have any thoughts about that?
[00:16:39] Travis: So a lot of the technology comes from Cruise, so I'll point that out. I, I think you're right, but I don't know. How do you differentiate yourself in that space? Like you said, everybody is adding autonomous features. I just got a used Volkswagen Atlas that has the, you know, smart following feature and the lane assist.
I mean, we were like, I was like, why, why do I need more than this? You know, I, I enjoy driving. I don't need to fall asleep in the driver's seat. So these features are out there and they're getting better all the time. I don't know whether you're talking about Tesla or the, you know, Waymo technology, if they start licensing that, I don't know who necessarily wins.
I think what differentiates the potential upside with something like Cruise's, that there's actually a fleet of physical vehicles out there that would be your, your differentiation. So from, from just GM as a manufacturer, I don't know that they're necessarily all that much better than anybody else.
They've done really well just making big trucks and SUVs. I think that's what, that's really the differentiator today, is that people are still buying Tahoes and Suburbans and, you know, Silverados at a really rapid clip while the price of everything else kind of. Comes down, especially in the EV space, pricing is getting more and more competitive, but like, nobody's making a Tahoe sized EV yet.
So I as long as it's a cashflow business, the cashflow positive business, I'm cool with that. But the auto business is generally just very risky. Cuz if you look at something like auto demand in 2009, it just fell off a cliff and suddenly you have a massive overhang of operating costs that you gotta cover.
And that's how a company like GM goes bankrupt in that phase. So, yeah, I I hear you, Jeff. I just don't, it's, it can't be part of my investment thesis because I don't know how somebody's gonna build, build a sustainable advantage in that segment of the business.
[00:18:47] Jason: So I've got a question before we move on to the next one here.
I think you said you had a couple you wanted to talk about, but you mentioned differentiation, right? And, and my, my. My observation is one of the biggest mistakes, mistakes most individual retail investors make is we see a disruption and we assume that that disruption is gonna create economic value for companies, right?
I'll use solar panels as an example. This is a sector that you and I both have followed for a very, very long time, and we've both kind of paid a lot of tuition in losses in this area because we've seen the race to the bottom because it's really a commodity technology, right? You're just trying to get to the cheapest cost per what?
If you're a power producer, there's no, there's no added value that you can charge a premium for, right? For solar panels, right? I mean, there's just, there's really, there's, there's really not. And so I think that kinda gets back to what you're talking about with, with some of the, the driver assist technologies is.
Looking for things that create moats, right? Mm-hmm. And I'm curious, you talked about that a little bit with Cruz, maybe that's something with the second, second stock you wanna talk about, maybe you can kind of focus on
[00:20:06] Travis: Yeah. I think you, you led in nicely to the business model piece of what I'm interested in because I think what you and I probably both got wrong with solar was, you know, we were right that this is gonna be a growth market.
Absolutely. But who extracts value from that market and thinking about that is ultimately really important. For a long time, a lot of the companies were trying to vertically integrate, and as it turned out, over the last five to seven years, the value has been extracted by the companies that were modular that could serve everyone.
So if you think about just like a stack of bricks, if you're vertically integrated, you wanna own all the stack of bricks. If you are a horizontal company, you wanna say, Hey, you can build your stack whatever way you want, but I wanna make sure that I am in this piece of the value chain in every single stack, no matter what your stack looks like.
So whether you're building solar panels or a solar installation with Canadian Solar panels or SunPower panels, whether you're on a rooftop, whether you're in a desert, that's why companies like SolarEdge and End phase have won is because that segment of the value chain extracted all the value. And that happens over and over and over again, right?
The internet, who extracts all the value? Google and Facebook, like all of it. And so what can we learn from that? And that I think is fundamentally really interesting. The second stock to I think cover that that leads in nicely is Peloton. Here's a company that has gone from being a vertically integrated premium fitness company.
I remember, do you remember the first time you saw a Peloton? We were looking for houses in like 2017, and somebody had a Peloton in their basement, and I was like, wow, they're doing well. Now you can get access to the app for free.
So Peloton has gone from being a vertically integrated premium company, ran into all the roadblocks that that entailed when you start coming out of the pandemic. And Barry McCarthy, the CEO now, has said, no, no, no. We wanna be the fitness company for everybody anytime, anywhere. So I did a strength workout last night with my wife. I've got a bike sitting next to me. You could go for a run and do a Peloton workout. You can do any kind of workout anywhere, and all you need is access to the app.
And I think we're moving to a world where they're gonna be more like Spotify, where you can access that on any device that you want. So you know, you have a bike or your own rowing machine. All you gotta have is a screen, you know, to, to access the content. They're making the content. So they're now a horizontal services company.
So that's the way to think about that company today. And then you start looking at the metrics that go into, what does that mean to be successful in that kind of business? Well, you wanna grow your subscribers, check, and by the way, all their competitors are losing subscribers. You want to lower your prices, you don't want to increase your prices, you wanna lower your prices because you wanna make your addressable market even bigger. Check.
They just, you know, introduced a new pricing structure for their app. So that's another one of those companies where you have to rethink the entire business model because now they're playing with internet economics and not. Selling bikes, which was kind of a crappy business to begin with.
[00:23:47] Jeff: And it, and it plays right into their strengths.
You know, like the reason I held exactly the company for as long as I did when I did own it, was I just saw all my friends and all my friends' wives on the Peloton constantly. And it's that brand, it's that community aspect. It's the instructors that are basically celebrities to the people who are Peloton members.
And now they can do all those same things without all of the, you know, extra expense they had before they sort of reimagined how the company would function. And
[00:24:18] Travis: you start thinking about, am I gonna cancel this membership now that I can go back to a gym? Well, I mean, my wife has a yoga membership. I think it's like $130 a month.
I mean our Peloton membership, that which is the high end Peloton membership cuz we do have a bike, is $44. The, the one without equipment is, I think $25
[00:24:41] Jeff: and that $44. And anyone in your family can use.
[00:24:44] Travis: Anyone in my family can use it. Cost effective. We can, we can use it on the bike, we can use it downstairs, we can do a million things with it.
So even if we only use it a few times a month on a comparison basis, it makes a ton of sense to keep that, even though, you know, gyms are open. Again, I think that's what you're seeing in the numbers, but you have to, you have to again, think about what does this business look like 10 years from now? Not what does next quarter look like.
[00:25:11] Jason: Yeah. And the reality of the style of investing, I think this is important is, and we hit, we talked about it a little bit already, but I, I wanna spend a little more time hearing directly from you on this is acknowledging that you're not (always) gonna get it right. You talked about earlier how, you know, If, if you're, if you're entirely wrong, you can lose all of the investment, a hundred percent of the investment.
But if you're just mostly right, you know, you can make up for a bunch of wrongs and still, you know, make orders of magnitude of money on these. So, those multi bagger opportunities are significant. But how do you think about balancing out like the, the slugging percentage versus like the, the, the hit rate of these in terms of building a portfolio?
[00:26:01] Travis: I wrote an article last week called Ideas Versus Conviction, and the ideas part is really what you're getting from a newsletter like mine or for any, from any other research that you're getting about investing. And we can talk about ideas all the time. But that conviction piece of it, which is what you're talking about, what am I allocating to this idea?
How confident am I in it? That's really something different. And the way that I approach that with Asymmetric Investing is, you know, the subscription, the newsletter is about those ideas and the research and the, you know, thousands of words that go into each one of those, those pieces. But the conviction piece,
[00:26:49] Jason: yeah.
I'm gonna just real quick, I wanna circle onto that too. Cause I think it's really useful to describe, that's, that's the way I think about what you, what you're doing is you're not, you're not offering up stock picks and recommendations, but you are providing your research into the companies that you've identified that have the characteristics of generating asymmetric returns.
[00:27:08] Travis: Absolutely. And, then the portfolio piece is the conviction piece. So I have even, you know, laid out just because I cover a stock, I do a spot, what I call spotlights on these stocks. Just because I cover a stock doesn't mean I'm actually going to buy it. Maybe it's just, Hey, I wanna put this on your radar because this is an asymmetric opportunity and I want you to be aware of it.
Where, where sort of my conviction comes in, and you can see my conviction is what I actually allocate money to. So I put $500 a month towards stocks. In the Asymmetric Investing universe is the, the phrasing that I use. I I pick stocks in that universe and then allocate according to what I feel comfortable with.
So the first month, there were only three stocks to pick from and in the second month there were six. I think I bought five of the six in that allocation in next month, I'll have, I'll have a few more available to me as well. And that's really where sort of the rubber hits the road in how much money do I put into one of these ideas.
And I, I don't wanna put too many constraints on anything. Because I don't know where there's gonna be an idea. That's such a good idea. I think, you know, Buffet's a good example here for this. He actually has a very, very concentrated portfolio, even though you would think he's a very diversified investor, but his stock portfolio, I think is allocated to like, 80% of the portfolio is like five stocks.
So I wanna be able to do those things and give myself the freedom to do those kinds of things, or let those stocks grow into those kinds of allocations, which is what Buffett's portfolio has really done. So I wanna be as balanced as I can while also overweighting my best ideas.
[00:28:59] Jeff: So just to put some numbers on that, just as an example, I'm not saying this is how you do, like if you look at, just use the two examples you just gave.
If you look at Peloton as being within the Asymmetric universe, but maybe you have a little bit of a lower conviction, at least right now, but you see more potential in GM. GM might get more of that $500 in any particular month than Peloton would, but you're always kind of picking from your universe as you allocate.
[00:29:23] Travis: Right? And I wanna be opportunistic too. So maybe I buy a stock one month and I don't buy it again for six months because I don't know the stock went up. Maybe I don't like what's going on with earnings. I don't wanna sell stocks unless there's really, really something wrong because I don't know when that opportunity, when it's gonna turn asymmetric, if you will, because I've, I've made that mistake over and over again that the biggest mistake that I've made investing is selling something when I shouldn't have.
And so I wanna let companies execute, but I don't have to allocate to them on in every given month. So I wanna be able to be op opportunistic about that. And that's where, you know, kind of building this universe of companies. Is really useful because then it gives me a big list to choose from. You know, and hopefully over time I can sort of overweight to the really good ones and, and keep following those.
And like I said, some of the losers are gonna fall by the wayside.
[00:30:25] Jason: Yeah. It's important to remember thinking about that. Your, your toolbox. Something, Travis, we talk about a lot on here is trying to help people build frameworks to answer these questions for themselves and how to think about managing their own portfolio and all of, you know, making, making these right decisions.
And I think it's important to remember in this case, the, the, the, that's, this is a feature of the market, right? It's not a bug. That generally the majority of your returns are gonna come from a small portion of your stocks, right? So I think you're really leaning into that with, with what you're, with what you're doing.
We've got some more questions we're gonna talk about your investor toolbox and some of the tools you're trying to help your members build. We'll talk about your portfolio too, but before we do that, I wanna talk about something that you followed really closely for a few years. And that's, and that's crypto.
Let's, as a starting point, let's kinda look and just in a couple of sentences, I know that's gonna be hard for you, you and me, you and me both. We're eloquent in the same way. But what's changed with crypto over the past, let's say three years?
[00:31:35] Travis: I think the technology and innovation that's happening in crypto has accelerated at a really rapid pace, but the hype cycle drove a lot of usage and adoption and that has just completely died over the last six months or so. So that's one of the things that's been sort of interesting is, no, go ahead Jason.
[00:31:59] Jason: I was gonna say fraud cycles do tend to affect hype cycles.
[00:32:04] Travis: Yeah, that's absolutely true, and I think there's a lot of historical parallels that we can go through with the crypto industry to the internet. Back in the nineties, I mean, it wasn't that long ago that people were afraid to put credit cards on the internet.
And so the reason that I got into, you know, buying things like NFTs and, and I, I was never a trader of crypto. But I wanted to learn about the blockchain and, you know, I did a, I did a spotlight talking about a company that I put a very low conviction on, but when I have it in the universe, I did a spotlight on Coinbase a couple of weeks ago, and I talked a lot about blockchain technology and what the potential advantages of blockchain technology are, and that's fundamentally what I'm interested in.
I'm not really interested in, you know, this token's hot, that or not, but like what can we do if. You know, access to the smattering was a token that could be bought or sold. I don't know, maybe that's interesting. Maybe it's not, but it's worth exploring if you're somebody like me. The, you know, the payments infrastructure I think is really fascinating because Visa, MasterCard, these kind of companies are taking a, basically a 3% tax on every payment that we make.
When there are more efficient ways to process that out there, are we ever gonna move in that direction? I don't know. But again, it's good for me to explore those kinds of things and at least say if there's an asymmetric opportunity here, this is where I think it lies. So that, that kind of innovation and development has happened.
But you're right. Way too much of what went on in 2021, in 2022. Was a hyper fraud cycle. I would say the stuff that's left now, sort of in the ashes that I, that I still, you know, kind of follow as much as I can is what's gonna fundamentally be interesting and come out of this. And I don't know exactly what that looks like, but there's a handful of projects that I follow that are building real stuff and there's real companies talking to them and there's, there's real innovation happening.
There are things that are better than putting data on a random server, you know, in an AWS warehouse or using the visa rails. Again, I don't know if that's gonna be the future of anything, but for me, looking for these asymmetric opportunities, it's absolutely worth exploring. And so we're still sort of in that phase, and I sort, sort of think about this as like the post.com crash.
Maybe even worse than that. Of the two thousands where the stuff that came out of that, the companies that came out of that were the phenomenal winners over the next 20 years.
[00:34:58] Jeff: It's funny, you know, the three of us have talked about crypto a lot off the air, and I think we're all on the same page in terms of the potential of blockchain technology.
I mean, Jason and I have talked about that on this podcast several times, that we both believe that that's where the future value lies in this whole crypto universe. Mm-hmm. But you know, recently we talked on last week's episode in the second half about the recent SEC suing Binance and suing Coinbase.
So since I know you just wrote about Coinbase and you follow the company pretty closely, I wanted to get your take on maybe when you heard that news, what you were thinking, and if you have any prediction on how it might shake out.
[00:35:38] Travis: That's been coming for a very long time and one of the things I think. I think Brian Armstrong, the CEO of Coinbase, is very clear on the way that he thinks about the industry with the way that he thinks about what is clear and isn't clear in the law.
I tend to agree with him, but I think this may just push it to a point where something has to be done. And guess, guess what? Other companies do that. Tesla did this, Uber did this. You know, companies end up doing this, pushing the law kind of to its limits, where it's not really clear, you know, is a law that was written in the 1950s.
It says you have to have a dealer sell you a car. It can't come from the auto manufacturer. Does that make sense? In 20, you know, 2015 when Tesla was expanding, probably not. Does the securities laws that were written for securities when they were pieces of paper, does that make sense? In a world of the digital economy, Probably not.
So I don't know whether the judge is gonna, you know, eventually force some sort of action by Congress or by the SEC but I tend to think it's probably not that big a deal. And a lot of times these lawsuits don't end up being as destructive as a lot of people think they will be. And we see that with the stock reaction, right?
Like the, the negative from the stock reaction standpoint happened over the last year. It wasn't in the last, you know, 15 days. Yeah.
[00:37:15] Jason: Jeff, we talked about the stock had only, I think, come down from the time that we recorded a few percentage points. And we were talking about it, you know, a couple weeks after everything came out.
[00:37:26] Jeff: I was gonna say that risk was clearly baked into the price cuz it didn't really move much. Yeah,
[00:37:30] Jason: absolutely. You know, Travis, it's interesting to me. One of the things about, about all of this and everything that's happened over the past three years is really if you talk about like the, the most passionate crypto enthusiasts, the people that are focused on.
The, the, the digital apps and the, like, the decentralized tools that are being built on blockchain. The vast majority have been pretty clear that the idea of decentralized exchanges is terrible, right? Because you're kind of undermining kind of the central tenet of the reason these crypto assets were created, right?
To not have a central authority where so much of the transactional things were happening or that had, you know, outsized influence. And the other part of it to me, and I'm interested to hear your response to it, is I said, when Jeff and I were talking about it, is it, I think to a large extent, everything that happens on these exchanges with the value of the, of the assets is so, it's so un currency that we have to see a certain level of maturity and almost stagnation with the asset values.
For, for their functions as transactional devices, particularly for complicated high value transactions like real estate, right? If you were ever gonna use real estate for titling or the blockchain for titling, for something like real estate, a transaction can take multiple months. If the value of the asset that's, that's, that's being used, that's being traded hands can change values 50% or more up or down in that period of time, it's not gonna get used, right, because it's not safe.
[00:39:14] Travis: So I think I wanna push back on both of those things. The centralized exchange part of it. The problem that we've had, particularly with FTX, potentially with Binance, is that these are unregulated centralized exchanges that we have no idea what's going on in them,
[00:39:29] Jason: They're completely unaudited.
[00:39:32] Travis: There's no, there's no transparency. I mean, apparently FTX was basically running on an Excel sheet which is just laughable, so there were no rules behind it. Now, Coinbase is at least a publicly traded company, so they have audited financials. You know, we can at least reasonably assume that the assets that they say they have, they actually have.
We also, I think the other thing with exchanges was we thought that they worked like, you know, a vault and they actually worked more like a bank where you would deposit your crypto and then the exchange would go do something else with it. And so when you have a run on FT X, you figure out there's no assets there.
Just like if, just like a run on a bank, right? The bank doesn't actually hold your hundred dollars. If you deposit a hundred dollars in the bank, they go loan it out to somebody else to make money. So there can be value in centralized exchanges. I think there's also value in decentralization.
I'm not in any way decentralization maxi. So when I think about these things, I'm not really thinking about it in the context of, you know, what we need to do is get the government out of everything and everything should be decentralized. So as a result, you know, if, if, if my interest is in the blockchain, then that blockchain doesn't necessarily have to run on its own native token, you know, Ethereum or Solana or whatever, whatever that may be.
And that's really the only reason those tokens exist because that's sort of like the currency of the blockchain and they're, they're the mechanism to record everything. Yeah. And it's the currency that the validators use to, to get paid right, right. Yeah.
[00:41:15] Jason: It's the asset that trades hands.
[00:41:17] Travis: Yeah. So, so there's something called USDC and this is a token that is a US dollar token that Coinbase is involved with, but there's no reason that that can't be the payment mechanism for a good blockchain that does a lot of these things that we're potentially talking about here. So it doesn't, it doesn't need to have sort of the negatives, like a volatile currency, like centralized exchanges that are taking risks they shouldn't be taking.
Those things don't, aren't functions of blockchain technology. They're functions of the way the tokens were built and the fact that when(everything was going up) everybody made their own token. So again, what's gonna kind of come out in the wash? What, where are we gonna be at with 10 years in this? I think the fact that BlackRock and, you know, all of these big, big banks, big institutions are interested in blockchain technology tells you that there's something there. We just don't know exactly what it is. I mean, in my writeup I wrote about the history of why settlement of stock transactions takes two days, and in 2023, there's really no reason.
It's just a legacy of, well, it used to be five days because you got five days to move your piece of paper from where you, wherever you had it, to, wherever you needed to deliver it to. And then we said, eh, five days is a little too long, so let's make it three. And then a few years ago we said, eh, three days is a little too long. So let's make it two.
Why do, why do we need to have any transaction period there? Why can't that just settle immediately if you have the stock and I wanna buy it? So, you know, again, these are things that I, I think, are worth thinking about and exploring. Because it is a little reminiscent of the internet.
Maybe not the same thing, but you know, there's, there's some interesting things going on here that could fundamentally be disruptive.
[00:43:08] Jason: Travis, you have, you have the, the portfolio and in Asymmetric Investing you were talking about, but that's, that's not your, in your entire invested wealth. So let's talk a little bit about your own portfolio.
How do you, how do you build your own wealth?
[00:43:26] Travis: I, I really try to find good long-term investments that are reasonable values and then just hold them forever. I open – both my portfolio and the portfolio I manage for my parents, for my kids – every few months.
So, you know, when there gets to be an idea that is worth allocating to, that's when I'll open up the portfolio and go, oh, we've deposited this much money into one of my kids accounts or you know, here's what we have sitting on the sidelines. That's what I'll allocate to this, you know, this stock that I know we own. Maybe I don't like what's going with the direction that it's going. That's what I'll think about going in and selling. But I do, I, a little bit like the Asymmetric Investing portfolio.
I don't have rules behind things. I allocate more based on "does this feel appropriate?" And so, you know, Apple became 30% of the portfolio. I don't have any problem with that being the biggest stock that I own, but should it be 30%? Eh, maybe not. So maybe it's time to sell that. Same thing with something like Axon.
So I wish I had like a, like a grand formula, but I just, I just don't, because I think so much of this is, is sort of the touch and feel of your convictions in the market. And once you start boxing yourself in with formulas, you sort of miss the upside opportunities because Starbucks never looks cheap.
You know, Axon never looks cheap. The phenomenal companies are, are never cheap. And if you're just buying, you know, low price to earnings ratios or only allocating 3% to a position, you know, you, you sort of box yourself in. So, all of these portfolios just sort of evolve over time because I do so very little with them on a trading basis.
So when a company becomes really big, it becomes a really big percentage of the portfolio. And that's the point.
[00:45:39] Jason: Yeah. It's like, it's like I say, Jeff rules tell you what to do. Frameworks tell you how to think, make decisions. So Travis- Sure. You can borrow it, you can even license it.
Travis: I'm gonna have to steal that.
Jason: Sure. You can borrow it, you can even license it.
[00:45:52] Travis: Yeah. Yeah.
[00:45:54] Jason: All right, Travis, this has been fun. This is we're gonna, we're gonna take a break here and have you hang around and we'll do a lightning round.
All right? Okay. Everybody, welcome back. Travis is still with us. Jeff's still with us. We're gonna do a lightning round. Are you, are you ready? Are you ready, Travis?
[00:46:08] Travis: I don't know. I didn't get any prep for this, so I'm, I'm, yes, I'm worried that Jeff's going to out prep me here.
[00:46:21] Jeff: You never have to worry about me doing any extra prep work than anyone else. That is one thing you don't have to worry about. But I'll ask the first question. All right. So Travis, what is a stock that you have been super wrong about in your investing career?
[00:46:39] Travis: And I just pick one?
[00:46:44] Jeff: I mean, I didn't wanna say that. You've been super wrong about it a lot. I was trying to be polite, but yeah, so pick one.
[00:46:50] Travis: Well, let's just do the last couple of years. Coinbase was something that I was really excited about prior to Asymmetric Investing starting. But, you know, I remember talking with Jason about that and, you know, printing billions and billions of dollars of cash a year seemed like a great business.
And it maybe will be eventually again, but it has not been a great stock.
[00:47:15] Jason: So here's, here's a question after for you, and I'm gonna ask this question and then we'll have a follow up question to it. AI, artificial intelligence, is this a bubble?
[00:47:26] Travis: Yes.
Travis: I – there's something very real there with AI, but understanding how we're gonna invest in it today is a fool's errand. Because a lot like these new technologies when they come out, whether you're talking about the internet in the 1990s you know, air travel, the early winners are rarely the companies that end up with huge returns over a long period of time.
IBM and computers, right? Remember when they dominated that market and then they gave away all the value to Microsoft. So to think that we know where the value is going to be created in AI today, I think is just wrong.
[00:48:23] Jason: Yeah, and it gets back to what you were talking about before about, you know, it's, it's, it's identifying where the, where the disruption is gonna create you know, some sort of economic moats and we don't know.
You're – absolutely Nvidia is gonna make a lot of money. TSMC is gonna make a lot of money, but beyond that we don't.
[00:48:39] Travis: Yeah, I, and I think, you know, those two companies are ones worth following. But again, TSMC is much more compelling to me than Nvidia because, do we keep building AI models and doing inferences the exact same way as we're doing them in spring 2023? Are we doing it the same way in 10 years? I doubt it.
I don't know what it looks like or if Nvidia has some sort of role that is insurmountable for every other company. I can reasonably assume that TSMC is probably gonna be making the chips, maybe even Intel with their new factory. Who knows?
[00:49:15] Jeff: The thing I keep thinking about with AI is, and this is why I think it's a bubble of all, like the bubbles we've had in the past, let's say 30 years. I think AI is gonna be a real thing.
Like I don't think it's gonna go away and not be a thing. Sort of like 3D printing was, right? That was like a recent kind of bubble, but I feel like it's only because someone released something publicly that all of a sudden everyone became aware of it. But it just seems to me that AI has been here all along and just sort of growing on this slow, steady plane behind, you know, behind the scenes until it wasn't, and now everyone's talking about it thus causing the bubble.
But, you know, anytime you've typed in a Google search and it has auto completed for you, you've been interacting with some, some degree of AI. So, I, I think it's gonna be a thing that sticks around and it, it's gonna be in a lot of our lives in a lot of different ways, but just there's so much hype around it right now because of like ChatGPT getting released, that that's what makes it feel bubbly to me.
[00:50:16] Travis: And to your point, Jeff, look at the, you can look at the Google keyword trends. Look at the trends for ChatGPT. It, it kind of peaks in November when it came out. It stays pretty high, but it's now trending lower. Same thing with, remember when Lensa popped up? Lensa was the, the first kind of image creation app?
It went from zero to like a billion dollar run rate in like two weeks, and then it went. So you, you're right. The sustainable things have been built forever.
The other thing that I wanna point out is the companies that have been building AI, namely Google and Facebook, look at their margins over the past decade.They're going down and they're going down because they're using more of this machine learning, artificial intelligence stuff to, you know, provide value in their services. So, that squeezes margins.
So is it gonna be great for everybody's bottom line? I, I, again, I don't think we know the answer to that because if your Facebook ad now suddenly becomes a custom image that was created specifically for you, that's gonna be costly. So does the revenue opportunity there offset any added costs? I don't know.
Maybe, but I think you're right. The old winners are probably likely the new winners in this specific case. You know, is this a sustaining innovation or a disruptive innovation to kind of talk Clayton Christensen? I tend to be leaning towards that this is gonna be a sustaining innovation, meaning the companies that are already established are going to just ingrain themselves even more.
But maybe that's wrong.
[00:52:01] Jeff: All right. So we referenced at the very top of the show that this is actually your second appearance on our podcast, but you were with a group the first time back in December. We did our Reckless Predictions for 2023 episode, and I went back and dug yours up.
And I want you to give us a six month review of your 2023 reckless prediction, which was that Tesla will lose money in 2023. So how you feeling halfway through the year, and do you stand by your reckless prediction for the second half of 2023?
[00:52:31] Travis: I'm feeling great about that prediction. Tesla's margins have dropped significantly – about $10,000 per vehicle in the last six months. We don't know what second quarter numbers look like, but we're already seeing hints that inventory's gonna be a problem just like it was. It, it has been a growing problem for them,
Jason: Meaning too much inventory.
Travis:Meaning there's too much inventory. So basically you're taking cash and you're turning it into cars rather than turning cars into cash. And that's a challenge for any manufacturing company. And ironically, this is where Tesla's, you know, we own the dealer model sort of works against them because now they have to keep that inventory on their balance sheet instead of dumping it on dealers, which, you know, GM and Ford and all these other auto manufacturers can do.
So, I dunno if they're gonna lose money. That was maybe a little bit too far, but yeah, – by the end of the year, what's that?
[00:53:31] Jason: Made a couple billion dollars in the first quarter, so, yeah.
[00:53:35] Travis: So things are gonna have to go pretty wrong pretty quickly, but, you know, if we have an economic slowdown, interest rates are rising. Electric vehicles sales specifically have really struggled. You look, yeah, you look at–
[00:53:47] Jason: Rivian and, and some of these others the Tesla story about excess inventory. Is not just the Tesla story. It's pretty industry-wide.
Jason: The Tesla story about excess inventory is not just the Tesla story. It's pretty industry-wide.
[00:53:58] Jeff: Well, anecdotally, we have a, like an actual physical Tesla location around here, and they park their Teslas at the mall across the street, and they've been doing that for years.
And I drive by it a lot on my way to work. And it's always been 30, 40, 50 cars. I drove by it just the other day, had to be three or 400. Yeah. So, you know, just anecdotally–
[00:54:22] Jason: there's channel check people
[00:54:23] Jeff: tons and tons and tons of cars just sitting there.
[00:54:27] Travis: Yeah. And they're supposedly not running at capacity in China.
They're having problems in Germany and they're building another plant to add even more supply to the market in Mexico. So supply and demand is real. This is, we talked about internet economics earlier. Tesla is a manufacturing company. It's not a company with internet economics. It's a company with good old fashioned picks and shovels, supply and demand economics. And you, you gotta understand that if you're investing in a company like that.
[00:55:00] Jason: So let's, let's circle back to a couple things here. Travis. We talked in the first part of the show about crypto, and did you still have some optimism that there are some great things that could be built that we just, we don't know yet.
We talked about AI, this is a bubbly period right now, some incredible things that are happening, but it's not clear where the economics are gonna flow and who the winners are gonna be. So let's do the obvious thing and put you on the spot and tell us which is the better investing opportunity, which is gonna be the bigger investing opportunity.
Is it AI or crypto?
[00:55:37] Travis: And I have to pick the basket, like the whole industry?
[00:55:43] Jason: So here's the way I was thinking about the question, and Jeff, maybe you're thinking about it differently, but I was thinking. For individual investors trying to pick winning stocks, where, which of these two do you think is more likely to lead to outperformance for investors?
[00:56:01] Travis: Well, there's only a handful of crypto related stocks, so I guess my answer would be that, because I think there's gonna be a lot more, you're, you're buying at a peak today with AI and a lot of the companies who are rising on future hope for artificial intelligence will probably not be around 10 years from now.
Whereas if you're buying something crypto related, it has already been beaten up and if it has survived this far, it, there's a good chance that it will generate some sort of value at some point in the future. I think that's the way that I would lean is it's, it's more a function of where we are in the cycle than it is my general thesis.
On the potential size of either of these things, I think AI could be much, much, much bigger. But I also don't wanna pay a hundred times revenue for a company that may or may not be a great comp, great AI company or not.
[00:56:54] Jason: Last question here, and this is another either/or for you over the next decade, better returns.
And for those that follow the, follow me on Twitter, this is something we actually tweeted about. We put a little survey out there, 10 ba– the 10 biggest– better returns over the next decade: The 10 biggest tech companies or the dividend aristocrats index?
[00:57:22] Travis: Tech companies. A lot of those, a lot of those dividend aristocrats I don't think are gonna be aristocrats for much longer. I actually did a video about this and the thing that I think we need to think more about is how much the internet broke the value that a lot of those companies were creating.
Think about Budweiser over the last, forget, forget their last couple of months, th their, over the last decade, Budweiser used to have such a control on supply that the Budweiser distributor could go into a bar that you could have a new local brew at that bar and they could say, take that out or, I'm pulling all my Budweiser and it would be done. And that market is completely flipped to, yeah, we also have Budweiser, but look at all these local brews we have.
And so, you know, I, I think some of the people we follow on Twitter a lot, talk a lot about brands, but in the seventies, eighties, nineties, what I think we have to question is, were these brands, big brands because people wanted to buy that brand? Or were they big brands because people had to buy that brand because it was the only thing in the store when you went there.
[00:58:40] Jason: Customer acquisition's completely changed.
[00:58:43] Travis: So yeah, it's, the power has shifted from supply to demand and when that happens, a lot of things break and a lot of these dividend aristocrats, I think we're gonna find out that they had a distribution power and that was fundamentally where their power came from. Not the fact that they had some great product or great brand, it was because it was kind of the only option.
[00:59:05] Jason: The irony is that at least half of the 10 biggest tech companies benefit from the thing that is undermining those-
Jason: -consumer brands. Yep. Love it. Love it. Jeff, anything? Anything else?
[00:59:22] Jeff: Well, first of all, it took me like nine seconds to unmute, so I'll have to edit that out. No, I think we're good. I think we said it. I think we said it all.
[00:59:29] Jason: Travis, we do have, we do have one more thing we have to ask you. How do the people find you?
[00:59:48] Jason: We're gonna make it easy for you people. We're gonna put it in the show notes. You can find it right there. Travis, this was awesome. Appreciate you coming on, buddy.
[00:59:54] Travis: Thanks for having me.
[00:59:57] Jason: All right, as always, we love to give our answers to these hard investing questions. Get really smart people like Travis to give their answers.
Remember, think frameworks, not rules. You've gotta figure out your answer to those questions. I believe in each and every one of you. See you next time, Jeff.
Jeff: See you next time.