IFB164: Politics in 2020, Uber, and Tesla with Vitaliy Katsenelson
Announcer (00:02 ):
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Dave (00:25 ):
All right, folks, welcome to Investing for Beginners podcast episode 164. Tonight, we have a special guest. We have Vitaliy Katsenelson with us. He is the founder and blog writer of one of my favorite blogs, the Contrarian Edge, and he writes some fantastic stuff. He’s also an investor, a very smart investor, and we’re going to go and chat with him. We had him on a while back, and he’s graced us with his presence again. So we really appreciate you taking the time to talk to us again. So thank you, Vitaliy, and welcome back to the show.
Vitaliy (00:56 ):
Well guys, thank you so much, Andrea and Dave, congratulations on 163 podcasts. That’s a lot of podcasts.
Andrew (01:02 ):
So thanks for getting up there in age now. Yeah, hopefully, a tiny bit wiser.
Andrew (01:12 ):
So Vitaly, last time we had you on the show, you know, since then we’ve had the coronavirus and a lot of change through that recently we’ve had a devaluation of the dollar very recently, actually in the past month or so I guess a lot of things to talk about. What, what, how have you been dealing with the past? Let’s say six months compared to where we were about a year ago when we talked to.
Dave (01:43 ):
You know for a very, very long time, I was not a big believer in the kind of owning gold and the, for like the very lot of good reasons for that, because it’s kind of unproductive asset that sits there in the volt or us safe and shines and doesn’t do anything. But like, as, as, as a look, as the United States, I can see how the United States has been busy given this privilege of having a reserve currency. And we earned that privilege because we are countries surrounded by two oceans. You know, they have a kind of a very polite neighbor in the North and kind of a fun neighbor in the South.
Vitaliy (02:30 ):
And you know, it’s an alone yet. It’s the largest democracy, at least by GDP in the world become a very solid economy. We have a very stable political system. And you know, in addition to that, we have a lot of natural resources, which kind of, you know, allows us to be kind of self-sustained for the most part. So it’s very still, so there are a lot of geographical, political advantages that gave us this, of having, you know, it was of currency. But at the same time, if you look at what happened to our economy over the last 20 years, and then [inaudible] was 30% in 2008 and got to 60 before Carver before, like, you know, end of last year, we crossed a hundred and just realized that at the end of last year in 2019 use debt to GDP was 86%.
Vitaliy (03:27 ):
So for a long time, we looked at Europe and said, well, this socialist, you know, when, you know, you know, they’re born too much money, they’re spending the money they don’t have. And then last year we had more debt per GDP than Europe. Then if you look at our debt to GDP today, this year, we’re most likely going to exit a miss 100 2230% that the GDP, our spending, as a percent of the economy on COVID, you know, kind of on trying to keep Academy, Florida is two times more than any, like then you all, or like big countries in a year. I think it’s three times more than three or four times more than in Japan and other countries. So we are basically, so the, we are, so the reason I’m making this point is that if you look at the US dollar, probably going to continue to be the reserve currency, just because there are no good contenders for that, you know is the dollar, but at the same time, I can see how is it becoming less and less attractive currency overall.
Vitaliy (04:43 ):
So, you know, so I feel like, you know, so the two things we’ve done our portfolio, first of all, we own more foreign stocks and foreign, basically Europe that would benefit in us dollar terms if the dollar gets weaker. And second of all, for the first time, we will, gold. Gold is just a position in the portfolio. We don’t have a 30% position, it’s a small position, but for the first time, I ever have about gold. So in gold also is a play that not just the dollar gets debased, but all currents against it, knowing the base. So they, in other words, the dollar now the unit for the dollar does not decline against Euro or other currencies. He just, the gold prices would go up and up solid charms because you know that because there is a kind of race to the bottom for all currencies, more or less.
Andrew (05:35 ):
Yeah. I mean, all the currencies are staying relative to each other. And if they’re all generally devaluing, it could, in theory, go on forever. Whereas gold, there’s only a certain amount of gold on the planet. So, you know, a commodity like gold could store value. Other commodities could also fall into that bucket as well. And maybe it’s something we look more than, let’s say five or ten years ago.
Vitaliy (05:59 ):
Yeah. And I think they, you know, I think that’s a very good point. So, what makes go slightly more special than other commodities is that, for the most part, it’s not used for industrial users. Right. So let me just give you an example oil, like in, like in theory, the oil should benefit from a weaker dollar in general, the coal price should go up, but there is also another dynamic there, which is supply and demand. Right. And supply, you know, in there, you know, in the, yeah, I can, I can see where, where the demand declines and supplies, there’s the same, et cetera, gold doesn’t have that. They say gold is it’s, you know, people just look at it as a store value. And that’s why when they say, you know, when they get out of us dollar or euros, they buy, you know, they just, you know, they, they park their money there. That’s, you know, that’s, that’s his distinction between gold and industrial commodities. So like, I’ll give an example. So if she’d say China, the Chinese economy goes through severe correction demand for iron ore will decline now just as an example. Right. So even though I don’t know, in theory, should benefit from the basement of currencies. There would be other factors that could influence this price substantially.
Andrew (07:19 ):
It’s more of a pure-play. Exactly. Yeah. That’s a good point. I think for somebody like you to take a small hedging position in gold, to me, it’s, it’s significant maybe people who are aware of you and your philosophy are, aren’t aware of like how big of a move that is. So, you know, is there a point where let’s say spending versus GDP gets to an even higher level? Is that at a point where you look at going from a position, a small position that has that now to possibly going to a bigger position than gold? Or is it something you’re just constantly evaluating? How do you look at that moving forward?
Vitaliy (08:06 ):
You know what, I’m not there yet. I mean, this is for us to go to such a big decision at the beginning of as philosophically. Like I, I, I don’t know. I, you know, honestly I just really don’t know yet, but we have been like, you know, we have been like, if I look at the world today, it is a lot less stable now than it has been in the last 20 or 30 years, like Neil, since the cold war list last 30 years. Right. And so now the group of companies we’ve been buying, defending their kind of defense companies, you know, and just because I feel, you know, the, you know, the, there are some opportunities where we can basically, I feel there is the symmetric risk they’re symmetrically priced. In other words, if things continue, if in the worst-case scenario, we’re going to make some money and they are going to lose money because the way they’re priced in the, there was hypermobility that especially European defense stocks as the United States creates this vacuum in the world, you know, their European company is going to have me, a European country is going to have to be spending more and more money on defense, which would benefit these companies.
Vitaliy (09:24 ):
So now they’ve created a tailwind for them. And in the tail of that, if there is some kind of armed conflict of substance, and I really, and this is, We should we’ll think in my, but trust me. Yeah.
Vitaliy (09:41 ):
I hope it doesn’t come to that. But in that case, this company has become a hedge in our portfolio against that. So, and just, to make you, yeah, just to clear clarify this point, I am not a macro investor at all, but I think, you know, this is a time where you have to have a, can, you know, kind of, you can’t bury your head in the sand and kind of assume everything will be, you know, that you know, that everything will be stable forever. And I think so the I’m not a microdose at all, so, but we are starting to make changes in our portfolio, just for these risks that now kind of, we can see rising, you know, more and more they have today.
Andrew (10:27 ):
It’s funny that you mentioned that because I’ve been doing something similar pretty much ever since COVID hit, you know, you don’t, like you said, one to make the macro completely guide your decision, making that it’s about the companies and the businesses and the cash flows and the dividends and all of those things. But it’s, it seems like, and, you know, I’m asking may be from a selfish perspective, cause I’m curious about how you’re looking at it now. It seems to me like there’s a lot of events going on. You mentioned the EU needs to build up an army. I know the US just pulled out some troops from Germany as an example, you have China doing all their things to piss off pretty much everybody and not just the United States. And so, as it comes to, do you find yourself spending a larger proportion of time following the news that you think would be relevant to your investments than you did in the past versus like a balance of, you know, reading annual reports and, and how, how are you thinking about that these days?
Vitaliy (11:31 ):
Yeah. So there’s, this virus was a wake-up call for me. And let me tell you, from which perspective I, I remember like early January, maybe sometime in January, I forget what it was. I was kind of panic, close, close attention what’s going on in China is a virus. And I remember thinking, well, this is China’s problem. I mean, I need to figure out how it’s going to impact us, but this is, you know, this is a China problem because these things don’t happen in the United States. Like this is, you know, and that is such an arrogant way of thinking, you know, and by the way, this is me thinking this. And then I realized that now that I look at this thought and I realize this, that is a very arrogance, right. And that arrogance, you know, had plenty of, kind of fruitful ground for that, because I guess what bad things haven’t happened here for a long, long time, right?
Vitaliy (12:28 ):
They happened in some other places, but not the United States. And now I realize that. And so now I realize, well, I need to kind of not to be involved in wishful thinking, like, will it, I don’t want bad things to happen in eight States. I need to be more open-minded and say, okay, well, what bad things could happen now? So it’s kind of opened up my mind a little bit more than that. And, you know, I guess I, in hindsight, I was more close-minded than I thought I was. And so, yes, I mean, you know, and if you fewer Marshall, and this is hopeless, I don’t want to get political. I won’t, but if you’re a Marshall and you land and you kind of look at about what’s happening in the world today. You look at the United States’ behavior over the last, you know, three or four years, you can see that we are, I think from a geopolitical perspective, are less via became more volatile from a geopolitical perspective and less predictable.
Vitaliy (13:40 ):
And the more entrenched in the kind of, you know, kind of be a, not trying to be the world leader anymore, and we’re entrenched in. And that means that. And also if you think about it and what’s also happening is that, and that’s kind of become an evident now self-evident almost every day, kind of globalization is kind of coming to an end right now. Now, countries are, you know, the global trade is, you know, is probably shrinking, like the direction, the way that list is going the other way. And that is actually by definition almost to lead more global political instability. Because when you, when you trade with somebody, you’re kind of joined at the hip, once you stop trading business that country, or you start doing less and less of that, it’s becomes us versus them a lot more. And that means just the world is becoming less linear, less and less stable. So that’s kind of, so to answer your question, yes, I’ve been thinking a lot more about geopolitics over the last months, you know, and so, and yes.
Andrew (15:04 ):
Yeah. Dave, what about you? I know I’ve, I think the past month or two on the podcast, I’ve probably talked about geopolitics while more than I have in the whole history of the podcast combined. How do you? Are you sure about this?
Dave (15:21 ):
I know we try to try to avoid it as much as we can, right? Yeah, we do. And, but I think it’s just a natural with all the things, if Italia was pointing out it’s, I think it’s completely natural too, to focus on more of this before. And I think what Vitaly was saying was right on the Mark and as the supply chains were disrupted early on with what was happening in China, that I think that really kind of opened my eyes like, wow, we depend on other countries far more than you think we do. And how was that good or bad? And what are the impacts of that? And like Vitaly was saying, I think that’s right on the Mark. As far as we are trying to pull back from other countries, that’s going to cause more frustration and anger from those other countries because they depend on our money as much as we depend on their products. And I think that that leads to more instability. I worry that we go back to the protectionism era of the 1930s and forties before world war II. And that was, America was very much an isolationist type country at that time before we got involved in world war II and everything that lasts happened after that, I wonder if that is a trend that we’re going to and not to get political, but I wonder if this upcoming election and elections after that if that direction will change.
Vitaliy (16:46 ):
And can I just, I want to put in some, so there’s three of us on this call and three of us dancing, you know, doing this very interesting dance because none of us want to touch politics. No, no, because I want you to think about something for a second. There is a very good reason for that because politics became so toxic in the United States. It’s the end. You like the second you state your position about your politics. It’s basically that the person at the end stops listening. And because it’s becoming an incredibly kind of in the primitive level of tribal, like in the, you know, and that also tells you about kind of the the the one thing is also the kind of Wars me about the United States and also our everybody else outside. And they say, consider this too, is that the social fabric of our societies kind of, kind of breaking, you know, it’s breaking the ice-breaking out as well.
Vitaliy (17:54 ):
And so that’s another reason why kind of you want to hedge against your sour because remember the political stability, you know, is you know, I, I don’t think they’re going to stop in a democracy anytime soon, but, but to become a little bit less of a democracy, like, I don’t know if you can be a little bit less of a democracy. It’s like, I don’t know. I don’t know if the polls a civic category is like being a little bit pregnant kind of thing. Like you can become less of a democracy, but, you know, we are like, I would argue we are less, the social fabric of society is a lot more strain today than it was. I don’t know how far back you want to go. Four years, eight years, 12 years. 20 years.
Dave (18:41 ):
Yeah. It’s been a; I think it’s been an evolution. And I think one of the things that I’ve been thinking about a lot recently is I think the strength of our country, our country for many, many years, was our ability to compromise and work through problems from both sides of the aisle. And I think there has over the last, you know, I would say maybe ten years or so, there has been a shift towards extremism on both sides. And I’m not saying both are right or wrong. I just have noticed a lot more people are flat stronger in their opinions and they’re a lot stronger, and my opinion is the right way, and anybody else is wrong. And that’s the only way that we can go about doing it. And I think if you look at the history of our country, it has never performed best in that way.
Dave (19:33 ):
And even going back to the beginning of this whole episode with COVID, and you think about the political parties, being able to come together at that time and get a relief package done as quickly as they did kind of cool because it was something we haven’t seen in such a long time and without play you’re casting blame on either side. I just think that there’s been such a division of views and thought points, and you can see it on your social media; whoever you are, you can see the divisions, and it’s, it’s so rampant. And I, I just think that for me as we get farther down the road, I think figuring out a way that we can all work together is going to be the better way for our country to go. And not just for us personally, but just for every place in the world as well, because we wind our country has lent some more stability to the world over the last 40 or 50 years than we had experienced before that. So I just think that that’s something to, I guess, consider
Vitaliy (20:41 ):
Well and just, you know, so none of us want to get, you know, want to go into politics. And then, yeah, the only point I’m trying to make is this that’s the, all those things are like, you know, so we are hedging against you as dollar declining. And these are the reasons for that, like old, everything we talked about, that is why we’re doing it, because that is, you know, all of those things are not positive for the US dollar.
Announcer (21:06 ):
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Dave (21:16 ):
Alright, so maybe we should pivot off of politics and let’s, let’s talk about Uber. So you had a great, you had a great series that you wrote about your thoughts about Uber, and I would love to hear some more ideas on, on, about that company.
Vitaliy (21:33 ):
Well, so I just do listeners, I just want to tell them, and I’m like, can it be a little self-promotional, but not for the know for the right reasons. I’m so much smarter on paper than I am in person. So you have this mission, this conversation on new Uber interest. I do have like this 13-page in-depth writeup on Uber that you can, you know, you can, you can just download for free on my website. It just because I go into that in so much depth, you know, but the but just, you know, to just to sum it up, it’s like probably the most, one of the most controversial stocks we are owned because we can have value investors, right.
Vitaliy (22:13 ):
And we are buying this company that never made any money that I think lost $5 billion last year or something like that. That has a contentious relationship as its drivers. Politicians hated everybody hates it. And at the same time, the thing is a great investment. And when you all, and I think most important, people who use it love it. Right. And you know, to be honest to me is more important than that. Politicians love it. But I think, you know, so what I think Uber is misunderstood and I, and I, and I, and I say that because I kind of look at my thing, how my thinking about Uber evolved. And I think I used to be on the same campus. Everybody else, like everything, I just told you, like, you know, this company is losing the money, et cetera, et cetera, et cetera.
Vitaliy (23:00 ):
Like the, like if you look at and it’s digital competitors, let’s say you look at Facebook when Facebook now, the faster Facebook was growing, the more money it was making, like, what I mean by this, it’s not like if it’s earnings, revenue is a hundred percent, it’s earnings would go up 500% or something like that. And the reason that happened because like technology companies have substantial economies of scale, right? For Facebook to let’s say, Facebook wants to go into France for them to capture the French market. That cost incremental costs the minimus because they just have to translate their website to French. That’s it. And maybe install some data, you know, kind of buy more capacity of, you know, you know, this data now can build our data service in France or something. Which doesn’t cause that much cost millions of dollars.
Vitaliy (23:54 ):
And then they have bills of bills—those revenues. Now Uber is kind of a hybrid company. Part of them is like a digital company like Facebook, which is a switchboard between a passenger and a driver. Right. You like, if you think about it, when you take Uber, the cost tuber of that, of that ride, is the minimum, right. Because all they’re doing is connecting you to the driver. Okay. So it’s a, but the problem is there was a second part to where business, which is analog. And what I mean by this, this is more like a brick and mortar kind of more or less part of the business, where in the past, when they were growing, they were like, they would go into a new market. Let’s say they go to Australia, they come to Australia then, like they have zero presence there.
Vitaliy (24:52 ):
So, and it’s a two-sided marketplace. So so for them for rider’s, you know, so what they had to do they had to pay drivers for months and months to sit and do nothing, because then know, once they had a kind of drivers sitting there and waiting for the passengers to come, they had to go to passengers and say, by the way, you can take Uber now. And so can you, can you imagine how much it costs them to create the two-sided marketplace? You know, there was an enormous cost. So, and then every time it would go to Newtown, et cetera, the taxi, you know, they had to fight against taxes because taxes were local monopolies and they didn’t do not want them to come. So they had huge legal costs. In addition to that, they had to spend a huge amount of money in R and D build out new products, all the, you know, create accountant systems, et cetera, all these different things.
Vitaliy (25:54 ):
So it took them a while to get to scale on the unlock side of the business. And, and my argument would be last year was the year when they got to scale on that side of the business. And if you just look at Uber rides business, not the other businesses, that business was cashflow positive. And if COVID did not happen, you know, the whole company would have been more or less cashflow positive by the end of the year. And then, and this is where there’s in. Part happens. Then, as the Uber, you know, I would argue that Uber business, Uber rides business, you know, is still in infancy because it’s not competing against taxes and rental cars. So it does, but that’s not, that’s not the core market. The core market is car ownership or taking, right. Actually, not even car ownership.
Vitaliy (26:48 ):
It’s you take in rights, which could be cars, which could be taxed, could be rental cars, but it’s also could mean that you take in subway or bus. So the market for them is enormous, and they have, and they just they’re. They do have a significant competitive advantage because they’re the largest. And then this key in this Mark has been the largest gives you a huge competitive advantage. And therefore, they are most likely to be the company to, you know, when the market matures, they would capture the largest portion of the market, and therefore, the economics would accrue to them. And also, here’s the key once the analog business is at scale, the digital business starts are responsible for incremental profitability, and it’s incredibly profitable. So the contribution margin for every hour of incremental sales, 50 to 60 cents, should drop to the bottom line. So, therefore, when you buy an Uber, if you look backward, it looks, it looked insanely expensive because it lost money. But what we see, if you look three to five years out, you see company could make at least $3 of earnings per share. So suddenly, you know, it didn’t look as expensive to us when we were buying it.
Andrew (28:18 ):
So can I chime in here? You know, I don’t want to get too deep into the accounting and stuff like that, but am I correct in assuming that essentially they had negative operating cash flows. Still, you’re saying those were towards building the analog side, and those expenses that were on the operating side are not going to be there in the future because they have the analog side built up.
Vitaliy (28:45 ):
Yes. And that’s just, just to make clear, that’s part of the story, because Uber is actually, maybe just say Uber, we assume you would say one business, but there are multiple businesses inside of it. So the rideshare business, that’s the, by far, the largest business and the most profitable business, but there is another business, let’s say suddenly became an exploded through the last four months, which is a Uber eats business. Right? And that business is still losing a lot of money. So when we were analyzing Uber, we had to assume that one of the two things will happen in the next five years. Either Uber eats Torrance, cashflow positive, or they close it. Okay. Because it’s not running, you know, if five years is plenty of time for them to figure it out, if this business has a reason to exist, because unlike Uber, like, so, so unlike their, their core business, this business, they, Uber is businesses more difficult.
Vitaliy (29:48 ):
And there isn’t as difficult because, in addition to having three parties in-wall fishes, a passenger, passenger driver, and Uber, you also have a restaurant in the middle. Therefore it’s more difficult to make money because you have fewer hours to divide between all these four parties. So for that business to succeed, they get, should they, they need, they need to be able to batch orders. So whenever, when the driver comes to a Chipotle to pickup order, he needs to pick up, pick up, pick up two orders, two or three orders and drop them off to customers that are right next to each other. If, you know, otherwise those breweries will be called and also the ticket size has to get larger. So if they get there and you know, and that’s an assumption, even though, then this business will be worth a lot of money now, but we were something. And if they don’t, then they’ll click the, shut it down. And that’s how we looked at it. And, you know, that’s how we looked at that. That makes less sense.
Dave (30:56 ):
Yes, it does. So I guess a question along those lines, then you’re talking about working at the different businesses. How do you, how do you go about valuing something like that? And that’s one of the things that I struggle with as a value investor is I, all the things you were talking about, I see the negative cash flows. Is it negative earnings, losing money, all those kinds of things. And I think, woo, I’m not touching this with a 10-foot pole. So how do you step past that to look at a company like an Uber?
Vitaliy (31:25 ):
Well, so first of all, I think I’ll give you two answers to that—number one. So when we were analyzing Uber, we had to understand that it could be unlike each business inside of it independently. Okay. So just looking at the income, like looking at the income statement overall, like, you know, looking at our combined company and cash flows is not very helpful. So you have to look at the economics of your business. That’s point number one. And so once we understood economics, which business we realized that, you know, you, you understand, you’re starting to sense the analytics side and digital side of the Uber, Uber, the Uber ride business. Then it becomes easier to see that you know, they’re now in, you know, in turn, this into interest into the stage of where the digital business now runs starts, it becomes more important.
Vitaliy (32:18 ):
This point, number one, point number two, it’s also important to understand how, like, if you, if you look at Google’s and Facebook’s of the world and kind of underlies them in hindsight, like, you know, over like you started this business as, and see what happened to them, it helps you gives you some clarity to understand how these businesses evolve, how they have a fixed, right. And this fixed causes, you know, are they all over time? The revenue growth thickness cost starts growing at a slower rate than revenues, and the margins expand, and suddenly 15% revenue growth translates to 30 or 50% earnings growth. So it’s a, you know, I, you know, I would study though, you know, the, I would study the other companies in, you know, in this, what we did, you know, we spent a lot of time email@example.com and other companies, you know, to see how they wolves.
Dave (33:15 ):
That makes sense. So I guess kind of along those lines, then what is, what do you see as potential, I guess, risk or I guess, disruptor of your idea of Uber and the move towards profitability is the ride-sharing, not ride-sharing. I’m sorry. Then, the evolution of driverless vehicles. I know that that’s probably a little bit out, but is that something that is a, is a concern for Uber and your thoughts on that part of what could happen?
Vitaliy (33:54 ):
All right. So I’ll do another shameless. So promotional, but again, it’s not it’s for the benefit of your list. Okay. I forgot. I wrote a 30 when I get into this project, let go deep. I wrote a 35 page write up on Tesla. And because I bought the car and I was so blown away by the car that, you know, I started, I realized that’s kind of the future. And I started the whole industry, and I wrote this 35 page. Write up again; go to the contrarian edge. That com you can download it. It’s free, just, you know, I’m, I’m getting nothing out of that. Just, you know, the satisfaction that you’re listening to us read my 35 pages write up, or they can listen to it the way they can listen to it on my podcast. It’s all there. Some of the way, both Uber and test the pieces are there.
Vitaliy (34:45 ):
But anyway, the reason I’m bringing this up. So when we were studying Tesla, like one of the big questions for me was what’s, what’s the future of self-driving. And what I realized that the salvage driving is so much further away than people, you know, that Elon Musk would make you believe. And the reason for that, it’s; it’s a lot more diff well, it’s a couple of reasons. Number one, number one it has to be perfect. It has to be nearly flawless, and it has to be, and it’s not that it’s not what the car does on a sunny day on the highway. When you have clear dividers, it’s what happens in this kind of unique circumstances where there’s a cone suddenly line you all kind of line in the middle of the lane, or there was construction, or I saw a video like just, I saw a video of a guy walking along the highway, there’s a stop sign, carrying a stop sign behind, like, what, what do you do?
Vitaliy (35:55 ):
Like when that happens. Right. So, right. So that’s number one. So you have to get the car, you know, the cars have to be trained for all these very rare events. Okay. That’s number one. Number two, if you don’t have a legal framework for that yet, like, so what happened? Who’s responsible when a self-driving car, you know Tanya causes, it causes an accident. That was an accident. We don’t have a legal framework for that. So the point I’m trying to make is that self-driving is a public good, ten years away. Okay, it’s getting there, it’s going to happen, but it’s just one. Most likely, what’s going to happen is we’re going to have a thick self-driving is going to be a smaller assisted driver, assisted driving. And let me give you this analogy for you. Radiologists, right there, they read the x-ray and know more radiologists could probably read about a hundred X, a hundred x-rays a day, no more or less now computers, if you think about it, the spending, especially if your specialty, you can, if you have a specialized area, computers can probably do as good of a job reading the next phrase or better than humans can.
Vitaliy (37:12 ):
But the problem is, would you trust the consumer to read your x-ray? Well, that’s a big issue, right that’s, you know, that’s, you have a life and death situation. So VR brand comfortable with that, but what’s happening now is that for every hundred and by the way, for every hundred x-ray x-rays, but maybe one or 2%, one or two is peer-reviewed by somebody else. Right? So maybe one or two x-rays today, peer-reviewed by another radiologist. Okay. So two things could happen, you know, there is now number one, computers can peer review hundred percent of x-rays, right?
Because the coin comment, of course, is very low. And therefore, when that happens, they can bring out to, you know, they can say they can bring back an extra to rage. Alison say, did you look at this area? Okay. Also, another thing that computers can do they can, when he knows where the geologist is reviewing the following way, they can point out a few areas. Other [inaudible] maybe he or she spent some time looking at, which is basically like assisted driving, almost like, you know, going, coming back to self-driving. Right? So today my car buy Tesla car helps me too. It helps me to drive. It doesn’t drive for me, but it provides assisted driving. And I think this is, you know, this is what’s most likely lays the future for next, probably at least ten years. And that’s why that is not a risk for Uber for a long, long time. So this is a very long answer to your question, But know 37-page paper, it’s very difficult to answer this question. The short, Well,
Dave (38:59 ):
I, the thing that I liked about, both of them, was the depth that you went into. And also the thing that I liked, especially about Tesla. One was the discussion about moving away from ICE vehicles or internal combustion engines and towards the electronic. And I just, I enjoyed that analogy of the, what happened to the horse and buggy makers when cars kind of became the thing. And I just, I thought that that was really a brilliant insight and it really kind of made the evolution from, you know, a normal air quote, normal cars to electric cars that much more, I guess, stark to me. And I enjoyed that. And I guess one of the things about Tesla that we’ve we talked about before was the aspect of their valuation now on what they’re going to have to do to get to that. And you were talking about how they still have to bend metal to make the cars and people focus so much on the fact that it’s a technology company, but it’s, I think, it’s more than that. I think Uber probably falls into that category a little bit too. Don’t they? Maybe not maybe, maybe thinking that through a little bit, maybe that’s, that’s a great analogy.
Vitaliy (40:13 ):
So, should I think of say that that’s good, there was a reason, so there’s a reason why like Uber, right? Because Uber can grow its revenues tenfold, and their incremental investments in infrastructure are going to be minimal. Right. Just because it’s kind of software connecting bite and you all can decide to network it’s like eBay, right. It’s, it’s almost like eBay conservative con connecting, you know buyers and sellers. It’s kind of the same thing. Right. You, if you think about that core income and your kind of core businesses is growing right. With Tesla isn’t it’s okay. I am very proud of the analogy I used. I call it Tesla’s valuation assumes there is a temporal wormhole developed.
Dave (41:06 ):
Yeah, yeah, yeah.
Vitaliy (41:09 ):
Yeah. Well, because of the right. Like in the Star Trek, I remember, like, yeah, I’m a fan of Star Trek. And remember when the cast Starship can go from Walden galaxy to another, and if it weren’t for the wormhole, it would take, I don’t know, a hundred light-years or whatever, but because the whole wormhole, it can get there in seconds. Right? Well, Tesla, today is I think manufacturing roughly about half a million cars a year. And like if you look at the Euro and this is not a perfect analogy, by the way, but if you look at Toyota, it’s, I think it’s making it close to maybe eight to 10 million cars a year. And Tesla has a larger market capitalization than Toyota by 30%. So the market is assuming that you know, like the future already has happened, right. You know, pick me up, and Tesla is manufacturing, you know, like almost 10 million cars a year.
Vitaliy (42:08 ):
Well, the problem is the two things is that, so there is a time and, you know, there’s a time element of that, right? It would take time for Tesla to get from half a million cars too, you know, 10 million cars. Right. You know, but also, but also it takes a huge amount of capital. So to get to the half a million cars, a year production Tesla spent, I forget the 25 or $30 billion in capital expenditures, just to mention that 25 to $30 billion. So, in other words, if you are saying, just think about it, right. So if you’re saying the production will go up 10 or 20 fold, just think the company, they would have to spend hundreds of billions of dollars. Okay. And that’s real money. So, and that, that capital is, you know, that’s cost money. There is a, you know, they’re going to have to build factories, bend metal, attach all these different things, right.
Vitaliy (43:07 ):
So that’s a real cost. And the market is completely ignoring this. And let me make another kind of the tangential point. That is also true. The temporal borehole is happening to like two whole bunch of other companies today that is; I’m not even talking about the things actually, I’m talking about the, like you have a lot of technology companies that are trading the 30, 40 times revenues that have been in earnings anymore because they have no earnings, right. Like a company that trades at five solid times earnings. So a 5 million times earnings kind of falls in the same category. Like there was no difference between them. So there’s this way, this company is traded on revenues, 30, 40 times revenues. And, you know, they’re kind of investors, that’s kind of assuming that, you know, there’s a temporal warm hole there as well.
Vitaliy (44:01 ):
Like there’s just, but the same thing happened then, and then your name by the way. So could we kind of have seen this movie before? There’s a lot of this companies and Tesla as well, you know, so I, you know, it just took me out for the V never had a position on Tesla until recently we have a small position and put options on Tesla, but that’s still, then again, it’s not, it just it’s just because of the valuation. It doesn’t mean Tesla is not unimportant to the company. I love my model 3, but it’s just, you know, the stock got ahead of itself by, you know, by law.
Dave (44:38 ):
Yes. Yeah. The last, the last three or four months of, of all the craziness on the stock market is seen so many crazy things like Tesla, like what’s the truck company, Nicola, Nicola, that,
Vitaliy (44:55 ):
Which is a play on Nikola Tesla. So
Dave (44:58 ):
Yeah. Yeah, exactly. It’s a better note.
Andrew (45:04 ):
I think you should tweet Elon Musk and tell him he’s the temporal Warhol. I bet you; he would retweet you exactly. But it’s sexy.
Vitaliy (45:17 ):
Yeah. You would finally get a chuckle out of this because I knew him, but he probably would not disagree with me that much. Like, you know, I think you commented on the stock price saying that kind of got itself. It kind of itself.
New Speaker (45:34 ):
Yeah. That was funny too.
Dave (45:37 ):
Where for those two or three people out there that are not familiar with you, where, where can people go to find more of your work?
Vitaliy (45:44 ):
Got it. So I’m going to give you two different locations, one for the readers and then one for listeners how’s that. So you can read my articles and subscribe to my emails on that contrarian edge. That com egg that comes, contrarian, the egg that comes, however, those who would like to strain their ears instead of the eyes, we have a kind of a lazy man’s podcast, which is my articles read to you by a professional, I guess, artists. And you can go to Investor.FM, like an FM radio. If you go to investor.fm, you can just listen to the only habit. Unlike you guys, you only have an 84; I think we have 84 episodes. So you guys are much, you know, for the longer than us. But you can listen to my articles. And they just out of form.
Dave (46:42 ):
Yeah. They’re, they’re awesome. And I will say this, that Vitaly is writing is some of the best out there. And if you have not checked out any of his stuff, you absolutely must. He is a fantastic thinker, as we just illustrated here in the last hour or so that we spoke. And I’ve learned so much from his writing, not only his contrarian edge blog but also the books that he’s written as well. And the podcast is a nice little bonus treat because then I can read it first, and then I can listen to it later, so it can help reinforce what I already read. So I appreciate the opportunity to have that stuff. And we, of course, appreciate Vitaliy taking the time out of his busy day to come to talk to us. We really appreciate that.
Vitaliy (47:22 ):
Thank you, guys. It’s been a pleasure. Thank you.
Dave (47:26 ):
All right, folks. So that’s going to wrap up our discussion today with Itali. Again, we want to thank you very much for taking this time out of his day to come to talk to us. So it was a pleasure to speak with him again, and great insights into everything from markets to Uber, to Tesla and beyond. So thank you again for Tyler for your time and go out there and invest with a margin of safety emphasis on safety. Have a great week, y’all, and we’ll talk to you guys next week.
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