In this week’s episode of Motley Fool Money, Chris Hill chats with Motley Fool analysts Jason Moser and Andy Cross about the latest headlines and quarterly reports from Wall Street. They’ve got the latest earnings breakdown from one of the big retailers, an aftermarket automotive retailer, a top apparel manufacturer, and more. Also, Chris chats with Wharton Professor Katy Milkman about financial behavior.
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This video was recorded on September 25, 2020.
Chris Hill: We begin with big retail. Costco‘s first quarter report was pretty much everything a shareholder could want. Profits and revenues were higher than expected, digital sales nearly doubled, same-store sales up more than 11%. And, Jason, shares down a little bit on Friday; are we not entertained?
Jason Moser: [laughs] Well, I was definitely entertained; it was a good quarter. And again, the market is selling the stock modestly; I wouldn’t read too much into it. I think part of the market’s reaction here is, we’re pretty far into this pandemic and I think we’re closer to things getting back to somewhat normal or at least we’re seeing that trend. And so, that ultimately means that shopping behaviors are going to start to normalize to a degree. And I think the big question, and maybe the question that the market is focused on really is, will Costco be able to hold on to the current behavior and then keep growing from here or is there going to be some kind of a reset for the business?
And going to the performance that you were talking about there; earnings per share of $3.13 versus $2.47 a year ago; very strong. Fourth quarter membership fee income was up modestly from a year ago. Total paid households, though, I thought this was really impressive, total paid households at the end of the quarter came in at 58.1 million, that compares to 53.9 million a year ago. So, clearly, they’re getting more households to buy into that membership model. And I think the other concern is given the state of things today, you know, one of the big value props for Costco is gasoline. And as people don’t go there to get as much gasoline, there is a little interplay there in traffic for the stores, and we certainly saw traffic on a worldwide basis down modestly. Although, in the U.S. it was up slightly, and transactions have grown a bit as people continue to stock up. So, all in all, a very good quarter. I think the market is just really looking forward and asking itself that question of, do we have to hit a reset button here at some point or not? And I think that’s a fair question.
Andy Cross: I think what’s interesting about Costco, we hear this a lot from a lot of retailers, and, Jason, you just touched on that a little bit, is that even though the traffic into the stores might be down, the amount they’re buying once they’re in is way up. We saw this big-time with Starbucks, and I think for others too. So, you start to see fewer trips to the stores, but when you’re there you’re stocking up, you’re buying things. And I think that really bodes well for Costco, which [laughs] obviously has that history and the actual brand of going there and buying a lot of stuff, lots of big stuff. And the more and more we’re stuck inside our houses, the more and more we actually need stuff that Costco sells. It’s interesting, I don’t know if they talked about their business traffic being up or down, Jason, but that might have been interesting too, because fewer people are now in offices, and Costco did serve a pretty good-sized business community.
Hill: First quarter digital sales for Nike (NYSE:NKE) rose 82%. Profits were higher than expected, and shares of Nike hitting are another all-time high this week, Andy?
Cross: Yeah, a great quarter from Nike. Revenues were flat, and that was ahead of estimates. But what we continue to see Nike do so well is really innovate on the digital side. They started investing in the digital space a few years ago. They brought on John Donahoe, CEO, who came over from ServiceNow, and before that in PayPal, he brought a real digital focus. Their digital sales were up 82% this quarter as compared to 75% the previous quarter. They added $900 million in incremental sales just from digital. They’re seeing 200% growth in demand for the Nike commerce app, so that’s just like buying on activity. They’re seeing a 100% growth in monthly active users on that app.
And what’s important with that, Chris, is that the direct business has a 10% higher gross margin than their wholesale business. So, overall, Nike continuing to really get it done and continuing to innovate in the space when it comes to their brand, launched Nike Maternity, launched Nike Yoga with a fabric that they’ve been in production for two years in development. They launched Space Hippie, of which we have a pair here, that’s an incredible sell-through product, which is really sustainably sourced shoes. So, the direct-to-consumer business for Nike and the innovation they’ve been putting in there has really been helping.
And the connected fitness, Nike active members to the connected fitness app was up 60%. They hit an all-time high of percentage of users using the Nike Training app. So, you get the brand, the business, and the technology innovation, they’re really doing and have been emphasizing and investing into, and that’s been a really big win for Nike, and obviously for shareholders as the stock is doing really well.
Hill: You know, Andy, we’re at that point in the year where people are trying to figure out what sort of holiday retail year we’re going to be in for. Nike is talking pretty optimistically about the holidays, but I don’t know if that necessarily bodes great things for the retail landscape or just Nike.
Cross: No, I think it bodes better for Nike. Just again, getting back to the innovation. But the push to direct-to-consumer, that’s really been the innovation for them. Their stores are back open, but their retail traffic, as I mentioned before with the retail traffic in general, that’s down for them. So, even though their traffic is down, they continue to boost growth into that really important direct-to-consumer and really tying together the digital experience and making it much more brand focused with their one Nike marketplace, I think that is a big innovation for one of the best branded consumer companies in the world, and now really becoming a technology powerhouse in the retail space.
Hill: Shares of AutoZone (NYSE:AZO) down 6% this week despite a strong fourth quarter report. Profits and revenue came in higher than expected. Jason, same-store sales are up more than 20%, my goodness!
Moser: Yeah. I mean, this was another one of those really excellent retail reports that we’ve seen recently; and there have been a few of them, Nike and now AutoZone. A bit of a home improvement angle here I think, in that the market they serve is a fairly resilient one, given the role that automobiles play in all of our lives. And AutoZone had noticed earlier on — the stimulus, for example; the first round of stimulus helped their line of work and we saw the same thing play out with Advance and O’Reilly, an additional one will likely serve them well also.
And let’s face it, the stores are open for business and there’s a right way to go about things, so traffic is relatively OK. But they enjoyed, actually, their largest quarterly same-store sales performance ever since going public in 1991 at 22%. So, that tells you what kind of a quarter it was. But now going back to Costco, I think we have to ask ourselves the question, is this the new normal? Are we going to have to hit a reset button? And we’re really not there yet, but we’ll get some more clues as the quarters go.
But again, the numbers, I think, came across very nicely. If you look at actual topline revenue, it is only growing at around 21%, but then you see how well they were able to bring it down to the bottom-line with net income up 41.2%, earnings per share up 47.6%. They didn’t make any share repurchases at all, and have kept inventory in line as well. So, when you look at this space, AutoZone and O’Reilly are the clear leaders, kind of like the Home Depot and Lowe’s dynamic. And I suspect that even if they have to hit a reset button with the business later on, it’s still going to be a very good business and one that shareholders should feel good about.
Hill: On the flipside, Stitch Fix (NASDAQ:SFIX) stumbled to the end of its fiscal year; the fourth quarter loss was much bigger than expected. You know, Andy, the stock is still up around 35% over the past year, but this was one of those quarters that you look at and you go, yeah, they’ve got their work cut out for them.
Cross: Yeah, Chris, it wasn’t a bad quarter, they added 9% more new members; that about matches what they did in the third quarter. Their revenues were up about 11%. Revenue per client was up about 2%. But I think what people are focused on, I certainly am, is looking at the clients they brought in during that COVID period, between March and May, and they had those new clients. Typically, in their models, in their history, those clients come back and they order more and more, but they didn’t see that. Stitch Fix really pulled back their marketing during that time to save money, and so that hurt their subsequent fix buys — what they call their fixes — subsequent buys for those members. And that’s going to continue into the year.
So, I think that has some concerns with analysts and investors. This only means that’s something to watch, otherwise they do continue to innovate, they do continue to have progress with the members they have been bringing in recently, so over the last couple of months, adding more and more to their baskets and buying more. But the concern about whether those members, and the ones they brought in this year, are going to be able to continue to add additional revenue, and is their lifetime value lower than what historically has been, I think has some concern on the analyst front and on the investor front.
Hill: How concerned should they be about the ways in which, I’m going to call it nontraditional apparel companies, and I’m thinking primarily of Target and the way Brian Cornell, the CEO there, has been so focused on apparel at Target over the last two to three years — is that a major concern or is that, sort of, on the backburner?
Cross: No, I think it is a concern. The competitors are getting more and more sophisticated when it comes to digital experiences; we just talked about Nike, and there are many, many others out there. Stitch Fix has been pivoting, they had a lot of success with what they called their direct buy, so you no longer have to order something, wait for it to be delivered; you can actually now buy stuff directly from their website and that’s outperforming their expectations. There is a lot of return purchase health there. So, they are continuing to innovate, they have these digital stylists that they work with, they have a lot of data scientists that they work with to help get the best measurements and the best fit, but they’re not the only ones in the space, and there are a lot of innovation from some really good retailers out there. A lot of, obviously, challenges from the retail space too, but on the digital side, a lot of retailers are doing some really good things out there.
Hill: Shares of Tesla (NASDAQ:TSLA) are down 8% this week. The CEO, Elon Musk, made a number of announcements at the company’s investor day, and apparently some investors didn’t like what they heard. Andy, to the extent that there was a theme here, it was timelines being pushed back. The cheaper model of the vehicle is going to take a few years, the batteries that were unveiled at the event are not going to go into mass production until 2021. It seems like Musk was being pretty reasonable.
Cross: Yeah, I think there was also maybe — from the Battery Day event — that they didn’t have quite the huge big announcement maybe some people were expecting, especially on addressing the so-called million-mile battery. But still, overall, a lot of innovation from Tesla. Coming out with the tabless battery, so they removed the tab that connects the cell into what it’s powering, to increase that range by 16%, boost car power by 600%, to drop the kilowatt/hour — that’s the real key, they have to drop that kilowatt/hour because they want to be able to go to that $25,000 level for the mass market to really get the car down to a level the mass market can afford. From the leaked email about deliveries in Q3 of 2020 that will be at record levels, but not so much greater maybe than what they were the last record in the end of Q4.
So, overall, it is interesting when Tesla continues to, as Jason mentioned expectations, if it doesn’t continue to really, kind of, boost those expectations for a massive growth, those growth momentum investors who’ve been getting involved, who don’t have a long-term horizon, probably start selling off the stock.
Hill: Well, it could be worse. Nikola shares were down 40% this week after Founder Trevor Milton resigned as Chairman of the Board and deleted his Twitter account in the wake of fraud charges. Both the SEC and the Justice Department are investigating the electric truck maker on the potential that the company misled investors. Jason, this really isn’t a good look. I mean, maybe it’s all a big misunderstanding, but the immediate resignation combined with disappearing from social media, it really doesn’t look good.
Moser: No, it doesn’t. And I would tell you, there was a pretty good little trolling effort there on Twitter where somebody essentially turned him into a male version of Elizabeth Holmes and put him in like the black turtleneck with a little bit longer blond hair, and you’re thinking, oh, my God! This is just [laughs] this is bad blood all over again. Maybe we are jumping the gun here, maybe this is not as bad as it looks. But you know what? Where there is smoke, there is often fire. And there are enough red flags here for investors to at least take a pause and say, you know what, there’s no reason to rush in anything like this, they don’t have a product, they don’t make any money. And I’ll tell you what, it’s amazing [laughs] that it’s still a $7 billion market capitalization company. I mean, that is the time that we’re living in right now. It does make you realize, economics aside, what Tesla and what Elon Musk has done to-date and their ability, really, to keep on moving forward and all of these companies trying to play catch up. And you really start to see some desperation from competitors.
Hill: Andy, it really seems like there are other places to invest your money.
Cross: Yeah. I mean, his response to the Hindenburg Research report was, this is all you got, out on Twitter. I mean, really, this is another example of why you really shouldn’t be chasing these stocks from founders that you just don’t have the confidence in, that we really need to see if they’re going to build a business. Like Jason said, a $7 billion company, no revenue, all hype, a lot of promises out there, SEC investigation, BP backed away from their partnership to build the hydrogen fuel station. So, there are so many high-quality growth companies out there that you can invest in that have so far less speculation.
Hill: Quibi, the fledgling video streaming service that launched earlier this year to much fanfare and very few subscribers, is reportedly exploring strategic alternatives. Among the alternatives being explored are an IPO or selling the company outright to Amazon, Apple, Disney, or Comcast. And Jason, all of those companies have deep pockets, and none of them should spend it on this business.
Moser: [laughs] Well, Chris, you know I won the drawing this week for our monthly pizza day, so I was lucky enough to have a pizza delivered here to our home thanks to The Motley Fool, and with my girls both here doing school for the day, that pizza is now gone. So, I’m exploring strategic alternatives as far as what I’m going to do for lunch, because it’s resulting in nothing. And I think very much that Quibi is going to ultimately result in nothing. It feels like the question that should’ve been asked that probably was not asked when this business was started was, if the content is there but there’s nobody to watch it, does it even exist? Because you can have content if you want, but if you don’t have people watching it, who cares? I mean, they do have some content, I don’t know if that is very compelling. And I think the biggest problem is that I don’t think anyone, including Mr. Katzenberg, really knows what Quibi is to begin with. It was never very well defined. I don’t know if it’s supposed to be social or streaming or social-streaming, what void it is trying to fill.
And so, much like investing, sometimes you just have to be able to call it, admit the mistake and move on or you just keep burning money. And I have a feeling that is what we’re watching play out here. Perhaps, with his connections in the industry, there is some type of interest in making an acquisition. But I’ll tell you what, any company that jumps in there to make an acquisition of this business, I would hold that against them, because I think it’s essentially a writedown to zero in very short order.
Hill: Security is a priority for any homeowner, and Amazon is here to help. Remember back in early 2018 when Amazon bought Ring, the smart doorbell company? Well, this week Amazon unveiled the Ring Always Home Cam, a flying drone camera that patrols the inside of your house. Andy, it’s coming in 2021, it’s a cool $250. How many do you think you’ll be buying?
Cross: Well, we don’t even have an Alexa in our house, so I think the answer is zero. I have to say, when I first saw it, it was pretty cool. [laughs] The little thing pops out when you’re gone, flies away. The commercial that they have out there, the one that I saw is not, I think, super-inspiring [laughs] with what it shows with the criminal breaking into the house, but I do think the technology looks kind of neat for those who really care about their monitoring. It gets to the big questions of privacy and data and who is owning what and what are they seeing, and do I really need this?
Hill: She’s a tenured Professor of Behavioral Sciences at the Wharton School of the University of Pennsylvania and host of the podcast Choiceology. We’ll pick things up when I ask Professor Milkman about financial windfalls and how we should deal with them when they come our way.
Katy Milkman: You know, I think one of the things that behavioral science has shown people do poorly is, think about financial windfalls. We tend not to make the best use of these opportunities. The first and best use of that windfall is to look at your debt. And if you have debt, you want to pay that down and you want to start with the highest interest debt and pay as much of that down as possible and if you can pay that off completely then go to your second-highest interest source of debt and so on, because debts are something that can become a vicious cycle, right? That interest just accumulates and accumulates and it’s part of the reason why half of Americans didn’t have that $400 they might need for an emergency when surveyed just a couple of years ago. And so, that is my No. 1 most important piece of advice.
Right. After you’ve paid down your debt, I think having that emergency fund would be the next place you think about if putting a windfall is really important, because we don’t actually appreciate how often we are likely to run into emergencies. There’s this really fascinating research led by Abby Sussman, who’s a Professor at the University of Chicago’s Booth School of Business, showing that when people look at their inflows and outflows into accounts over the course of a year, they’ll see, like, all these weird things. Every month, they sort of think, oh, you know, I have to pay my rent, I have to pay these other consistent bills, my car insurance and so on. They recognize that those are recurring expenses and they think about that as their budget, but then they’ll see these, like, weird things that come up every month. Oh, you know, I had an unexpected doctor’s appointment. Well, that’s just unexpected, that doesn’t happen normally, they don’t think about that in their budget. Oh, then the next month their drain broke and they had to pay a plumber to come in to repair, but that was an emergency.
Basically, what they do is they look over the year and they discount all these things that come up. And they say, that’s not something I have to plan for, but it turns out they come up every month, [laughs] they’re different every month, but something always happens. And that’s part of why I think people don’t make the wisest budgets, because of this mentality that if it is a constant and consistent payment, I’m not going to think of it as something I need to account for. But these surprises are predictable, they come up over and over again. So, we need to have that emergency cash reserve to cover that in our budget. So, that’ll be my second piece of advice.
And I think that’s enough, [laughs] I’ll let you ask any other questions you have, but I hope that helps.
Hill: It absolutely does help. One of the things that you’ve written about deals with how we can change habits, and obviously, change habits that aren’t great into more positive habits, that is something you call temptation bundling. Before I ask you to explain temptation bundling, just out of curiosity, because you have this expertise, how many of your students or maybe what percentage of your students in a given year will say to you in an office setting, like, a one-on-one setting, hey, by the way, aside from the curriculum I’ve got this one habit … like, how many are seeking out your advice for how to improve a single bad habit that they have?
Milkman: That’s very common. And by the way, I welcome it. And the classes I teach are about behavior change, and I think my students, you know, take insights from class as useful for their careers. You know, how can they manage a team at work and try to help people make better decisions, how can they make better decisions in their finances, how can they make better decisions in their personal lives. And you know, they solve little problems that come up over and over. I think that’s great, I want it to be all of the above. So, it’s very common for students to come and talk to me about personal problems, as well as professional ones. And I hope I am consistently [laughs] helpful with both.
Hill: Temptation bundling. What is it and how can I make it work for my benefit?
Milkman: [laughs] So, temptation bundling is actually — by the way, I should say, I do what I call me search. [laughs] Many scholars study problems they have and try to figure out like, oh, what are systematic solutions? So, you’ll see people who struggle with social interactions, a social psychologist trying to figure out how they can be better at a cocktail party. Or economists who struggle with their finances, like, becoming experts in this area. So, I do that too. I definitely struggle with maintaining good habits, and I study it in part because I think that it’s so weird and quirky and interesting and that we can come up with solutions.
Temptation bundling is a solution to a problem I had when I was a graduate student and I realized I could help other people too. So, when I was a graduate student, I had two problems. One problem was, at the end of a really long day, I was incredibly tired and I found it really hard to motivate myself to go to the gym, even though I know it was good for me in the long-term and that I needed to exercise to have energy; it just wasn’t where I wanted to be after all those classes. But then the other problem was that what I really wasted time doing when I should’ve been studying was that I was really into reading lowbrow fiction. So, I would curl up with a page-turner when I should have been doing my homework. And I realized I could actually solve both of those problems at once if I did the following. I only let myself read page-turners while I was at the gym exercising. And by doing that, all of a sudden, I stopped wasting time at home reading these books when I should have been working on my problem sets for my classes. And at the end of a long day, I found myself craving a trip to the gym, like, eager to find out what happens next in my novel. And when I was at the gym, I didn’t even notice the time passing and it wasn’t even painful to work out, because I was so engaged in this gripping thriller that I just didn’t notice.
So, it solved all of these problems for me. And I realized maybe that actually — I started calling it temptation bundling. I was like, maybe I’m not the only one who has dual problems that could be solved this way. What if we, one, could systematically study this and see if it helps people to combine something that is really tempting to them with something that they know they should do but sort of resist. They often feel they shouldn’t — you know, they’re too lazy to actually get to doing. So, can we make these combinations?
And I started seeing other opportunities to do it in other parts of life. So, we studied it and showed that actually if you, for instance, lock people’s tempting audio novels at the gym and tell them they can only access them at the gym, it helps people exercise up to 50% more. Those are some results from a big experiment we ran early on, this kind of combination helps people a lot. And then we also have recognized that it’s not just exercise and tempting books or binge-watching TV, there’s all sorts of other ways in life you can combine things.
So, my students only let themselves pick up their favorite drink at Starbucks that they crave every morning when they’re heading to the library to study, and those two things are combined for them. Or you could imagine only allowing yourself to binge-watch your favorite TV show while you’re doing household chores, and listen to your favorite podcast while you’re out for a run. So, you can sort of pick what are these things that you might be able to combine to get the best of both worlds.
Hill: When I was doing some research, I came across a piece that you wrote for The Washington Post a few years ago. Time got away from me, so I didn’t read it, but the headline was amazing, so I’m going to ask you about it now. The headline was Heat doesn’t just make us cranky. It makes us dumb shoppers. Now, I’m very familiar with the concept that you should never go grocery shopping when you’re hungry, I’m aware of that one and I try not to do that. And now that I’ve come across this headline, I’m grateful that the weather has turned, you know, wonderfully autumnal here in Northern Virginia. What is it about the heat that makes us so dumb when it comes to shopping?
Milkman: Oh, my gosh! That’s such a funny headline. And by the way, I should say, if you write op-eds for newspapers, they pick the headlines, you don’t. I think they have some optimization algorithm [laughs] that they —
Hill: That’s a good headline.
Milkman: I guess. [laughs] It was an article, actually, about research. And I was, sort of, reviewing other people’s research showing that our emotions are triggered by the weather. And that on unusually hot days, we actually are angrier and we make a lot of bad decisions. So actually, my favorite study is not about shopping, and it was featured prominently in this, it was about baseball players. Pitchers are more likely to hit hitters on hot days, on unusually hot days. And the analysis was really carefully [laughs] done to control for like, oh, are they sweatier? It was like unusually hot days, unexpected heat that seemed to make people angry or more likely to try to hurt players from the opposing team.
We make bad decisions about all sorts of things when we’re overheated, when the weather is unseasonable. We also, by the way, are more likely to believe in climate change, it turns out, on days that are unseasonably warm. So, it’s really interesting how we’re affected by these fluctuations in temperature. Our environment shapes our decisions in all sorts of interesting ways.
Hill: It really seems like the more I learn about your field of expertise, almost like the more self-aware we all have to be if we want to, sort of, optimize who we are at work, who we are in our personal lives. It can sound both rewarding, but also a little daunting.
Milkman: Yes, I think that’s true. The field that I’m part of, I’m a behavioral scientist, and what we do really is we study the imperfections in human nature, the ways that people deviate from being perfect, optimal, rational decision-makers who are just like calculators, like Captain Spock from Star Trek, right, who never make a silly move. And recognizing all your mistakes and all your flaws can be [laughs] a little bit overwhelming because there are a lot of them. But I think a more useful way to think about it is, one, recognize it’s OK, humans, and it’s not just you, we’re all flawed, we don’t come with a perfect operating system, so cut yourself some slack when you screw up, when you yell at someone when you shouldn’t have. Or you make an impulsive purchase or buy a stock that you wish you hadn’t or whatever. It’s not like you are the most flawed human in the world, we’re all flawed, everybody is screwed, [laughs] it’s human nature.
So, I think that, No. 1, is empowering; and then, two, it actually doesn’t matter most of the time, because most of our decisions are low stakes. If you pick the wrong flavor of ice cream, it’s not going to be the end of the world. If you pick the wrong spouse, that’s a bigger deal. You know, if you really make the wrong choice of career, that’s a bigger deal. If you buy the wrong house, that’s a bigger deal. So, I think it’s useful to say don’t worry about or don’t sweat the small stuff. And the fact that you will goof, that’s human nature. But it can be useful to learn more about making good decisions and really focus and try to talk to experts when you’re making those big life decisions.
Hill: How have you applied this to your financial life? How does Katy Milkman invest?
Milkman: I buy index funds, and I sit on them. [laughs] And that is what I do. So, I do not believe that I know how to do better, frankly, on the stock market than a monkey throwing darts. And so, I have a diversified portfolio of index funds. And my retirement portfolio, I contribute the maximum amount to my 403(b) plan at my university, and it’s in a target date fund. [laughs] And that is my mantra. Like, I don’t think I can pick the right stocks, I never cash out when there’s a crisis, I leave it. I don’t look at it regularly, there’s research showing that when you check your stock portfolio more frequently, you’re also more likely to invest in bonds rather than stocks. And stocks, obviously, there’s a premium for equity, so you want to — you know, I just don’t look, I don’t look during these bumps, because I want to smooth over those periods.
Actually, sorry, I’m quoting that research wrong, it’s a paper on the equity premium puzzles, and here’s what it was. It’s by Richard Thaler, from University of Chicago, and Shlomo Benartzi. And I was giving you the punchline, but not actually the finding. So, the finding is that you can explain away the equity premium puzzle, which is like, why isn’t everyone investing in stocks, everyone should be investing and they dramatically outperform bonds. And the answer is, if people looked at their portfolio once-a-year that would be often enough, given our degree of loss aversion, which is like how much we hate seeing our portfolio go down. Once-a-year would be enough to explain the equity premium puzzle in terms of people’s feelings of loss that they would experience and their aversion to that, that could explain the whole thing.
So, that leads me to say, like, the less often we look, [laughs] the less often we’ll experience that loss and the less likely we will be to pull out of stocks and make the wrong decision to be heavily in bonds.
Hill: Our email address is Radio@Fool.com. Question from Adam Travis in Brooklyn. He writes, “I’m a new investor with just one year of experience so far. Aurora Cannabis was the first stock I bought last year and it’s done just about as badly as a stock can possibly do. Any advice for a stock market novice like myself?”
Andy, Adam’s got an experience that I think is common for a lot of people who are just starting out. All the more reason you want to build out that portfolio as soon as you possibly can.
Cross: Yeah, you really want to be able to diversify that portfolio. So yes, that one, that stock has not worked out. We do have those sometimes that don’t work out in our portfolio. I certainly do, and I know many of us do. So, you want to make sure you diversify that portfolio, building out your highest quality candidates, continuing to save and invest as a new investor. That’s really important.
Also, make sure when you diversify, you can also think about very local index funds and ETFs too to really get that broad diversification in your portfolio, don’t be a one-stock wonder.
Hill: Yeah, Jason, we’ve seen that before, right? We’ve heard from people who’ve said, I bought one stock, it went down, and I’m out of the stock market for life.
Moser: Yeah. And that’s the challenge too, right, for new investors. Especially because when you’re getting started, really, you’re starting from zero. And so, for a while you are not going to be diversified, because you’re going to buy one stock and then another and another. So, it does take some time, and I think that’s why when you’re getting started, like Andy said, you either start with something like an index fund or you start with companies in more reliable spaces, with more reliable business models and more history of success. Something like, you know, we’re talking about Costco. I mean, that’s been a wonderful investment for so many folks for so long. So, just be aware that when you pursue those new markets like marijuana, for example, there’s potential, but they have a lot to prove still.
Hill: All right. Let’s get to the stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Andy Cross, you’re up first, what are you looking at this week?
Cross: Oh, great. I’m going with Inspire Medical Systems (NYSE:INSP), symbol INSP. A $3.3 billion technology health company that aims to help the 100 million people worldwide who suffer from sleep apnea. It created their first closed-loop implantable stimulator to monitor breathing and deliver a little pulse if it notices a little block in the breathing pattern. So, it’s helping 17 million potential people in the U.S., it’s an alternative to the CPAP machine that you damn may have seen advertised on TV and is currently widely used.
It’s addressing a $10 billion market opportunity, which is more than 500,000/year who are qualified for this kind of device. So, it’s not a lot of revenue, very innovative, really focused on helping sleep apnea around the world. So, I’m looking at Inspire Medical, INSP, Dan.
Hill: Dan, question about Inspire Medical.
Boyd: Well, Chris, not so much of a question as a comment. Sometimes I go to conventions and sometimes I share a room with people to cut down on costs. And one time I shared a room with the guy who brought his CPAP machine and I was sent to the underworld every night for the entirety of that con, because it was like a fan but 3X as loud.
Cross: That person should be one of the 9,000 people who Inspire has helped with their sleep apnea problem to date, Dan.
Hill: Jason Moser, what are you looking at this week?
Moser: Yeah, I’m excited to see Unity Software (NYSE:U), ticker U, finally go public. They are now trading on the public markets as of this week. And Unity Software operates a 3D development platform. Ultimately, they have software for creators. They create, run, monetize interactive and real-time content. 2D, 3D, mobile phones, tablets, PCs, consoles, very large presence in augmented reality and virtual reality devices. Reputation for a really strong presence in the gaming industry, but they have done a very good job of stepping beyond just the gaming industry. So, whether it’s healthcare or engineering, aviation, anything, Unity is becoming a platform for creators everywhere.
And we’re seeing a lot of impressive numbers as of June of this year. They had approximately 1.5 million monthly active creators in just about every country around the globe. And the applications developed were downloaded over three billion times per month in 2019, on over 1.5 billion unique devices. So, clearly a company with a very big reach, and glad to see it out there for investors now.
Hill: Dan, question about Unity Software?
Boyd: Absolutely. Jason, the video game space is very crowded, very competitive, and also very expensive to produce. What makes Unity special, how does it stand out?
Moser: Yeah, I think that really is in the immersive content, right? The augmented and virtual reality content that they’re able to help produce, that really is seen as the next leap forward in gaming and in other types of immersive experiences.
Hill: What do you want to add to your watchlist, Dan?
Boyd: I’m looking at Inspire. I mean, if anything, that cut down on snoring in the wild, man, I’m all for it.
Hill: [laughs] All right. We’re out of time. That’s going to do it for this week’s show. Thanks for listening, we’ll see you next week.