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We welcome you to “Bare With Us,” the podcast where we Bare Out the latest economic and financial questions that matter to you. Mike Robinson, a Chartered Investment Manager (CIM) from Calgary, Scott Richardson, a Certified Financial Planner (CFP) from Edmonton, and Finn McKay, a Chartered Financial Analyst (CFA) from Winnipeg, engage in an unstructured discussion, bringing you a wealth of knowledge and a diverse experience from the world of finance.
Each episode features an unstructured, unscripted and entertaining discussion where we pursue ideas and concepts as they arise naturally through our conversation. We tackle a broad range of timely topics, from economic or market trends and financial planning strategies.
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Do you wanna record the intro, or you just wanna get out this and then record the welcome everybody season two thing later?
Scott:Okay. I can do that. Welcome, everybody. Thank you for joining us on the Bare With Us podcast. My name is Scott Richardson.
Scott:As usual, I am joined by Mike Robinson and Finn McKay. And, today, you are joining us for season two episode one. Please don't ask how we got there. And this is our second attempt at, discussing AI in investing and and what that means, and and is it a bubble. So, Mike, I would ask throw the question to you of you made a comment that everywhere that you look social media, you're hearing this thing about AI bubble and things kinda from an investment standpoint, and you're getting questions about AI stocks, we've seen presentations on it.
Scott:So I think we'll kinda throw it to you relatively to start and kinda throw your comments in.
Mike:Yes. I mean, between my YouTube feeds or my, you know, algorithmically generated news feeds that I get. I can't open anything these days without there being an article or a podcast or an interview on on someone. And I mean people of reputation. I don't just mean like podcasters or like nobody's, like, legitimate credible people talking about the potential that we are in an AI bubble.
Mike:And, you know, there's I think there's in my experience, I think there's several reasons why people are saying that, but the bottom line is that since the market was down in 2022, you know, in late twenty twenty two, ChatGPT was launched. And since 2022, the market, particularly the S and P 500, has accelerated tremendously. And but it's a very concentrated market, and so the entire S and P 500 has not moved up tremendously. The concentrated stocks or the so called magnificent seven are the ones that have moved up enormously, like 80% kind of thing. And that's leading to a lot of questions about overvaluation.
Mike:And then this this SpaceX IPO, which is generating talk about, you know, an anthropic, IPO and then, OpenAI IPO and the valuations there, and it's leading people to say, are we in a bubble? And so I thought we could start by, first off, just exploring, like, what is this AI investing theme? Because AI is a big big topic. What is the theme, and why are people calling it a bubble?
Finn:Yeah. So so talking about the AI bubble and what's going on there, like, it's we did some work on on how much of the S and P 500 has been driven by AI names. So and this really kinda came out of a few weeks ago. I got a note from from from JPMorgan, and they've they're launching a new ETF. And we we talked about ETF exchange traded funds.
Finn:And what they wanted what they were doing was they created this new product, which was all of the names in the S and P 500, all the companies in the S and P 500, but they removed all of the companies that are related to the, quote, unquote, AI trade. And so because at this point, they found that now over 50% of the companies in the S and P 500 are tied to the AI trade in some way. So it's not just hyperscalers, data center companies, semiconductor companies. It's also there's certain types of utility companies that are selling merchant power into data centers. There's a lot of industrial companies that are selling, you know, cooling systems into into data centers.
Finn:So there's all of these different companies that have become kind of tied up in the AI trade, and the concentration among, you know, certain names have led to a huge portion of the S and P 500 being AI related. And so they they made this ETF, and the ETF excludes all of the AI primitive. And their recommendation was that you can use this to short the the non AI companies in the S and P 500. And when we looked at when I kinda disaggregated and looked at all of the companies in the S and P 500 that are related to BII trade, And at the time, I believe it was 10 of the nine points of return year to date. There was about 80 names that are, quote, unquote, AI related names out of the 500 in the S and P 500.
Finn:10 out of the nine points of year to date return came from those names, and then the other 420 names contributed a negative one point return from that. So the market has become really, really driven by AI related things. And so, you know, that's that's obviously problematic, but also the other sides of side of it too is just how much the economy is being impacted by AI. There's all these numbers that people are throwing out with the percentage of GDP last year that came from AI related build outs from data centers and all that kind of stuff. So it is really, really dry for the market, and the scale of the build out is quite extreme.
Finn:Like, this year, I don't have the numbers exactly offhand, but it will probably be close to 6 to $800,000,000,000 of data center related spending to build out new data centers. And that's obviously a huge portion of the growth in the in the economy this coming year, but it's also having ripple effects for the rest of the economy. And the question is, you know, can they put that much money for while also be able to get a good return on that investment? Because, you know, if you want to get a good return on $800,000,000,000, that means you can generate a significant amount of profitability in the future.
Scott:That makes sense. But so, Mike, like, do you get concerned when when you when people ask you about the AI bubble and everything because my response to most people is I'm not really concerned about it. But and you know, based on the the numbers that you just said, Fin, like, yes, a lot of the return that we see in the market is generated by that but if I think of AI and companies and what they're doing and the amount of money that they're putting into and and I look at those magnificent seven and whatever, like I think there's a difference if you think about the bubble that's being created in actual businesses and I don't mean that the other ones aren't actual businesses, but businesses that were businesses before AI came along versus companies that have only been created since AI came along. And I think that's a different conversation in terms of the AI bubble because I think if you've got companies like Apple and Google and Amazon or whatever where they're investing heavily into AI, well, they've already got a really sound underlying business anyway. And they've got really good products behind the scenes.
Scott:And so I get really stuck on understanding what people mean by the AI bubble because if those companies are investing AI to make their existing business way better, like I'm all for that. If it means that we're going to get better services or they're going to make more money or whatever. But if you're just talking about OpenAI or just an company that runs an actual AI tool. Yeah. That one is a that to me is a different conversation.
Scott:So what do you see in terms of the questions that you're seeing and and where it kind of leads you, Mike?
Mike:K. So what you just said, I agree with completely. And, you know, an Alphabet, an Apple that are very, very strong businesses and would continue to be strong businesses should the data center build out, etcetera, not come to fruition. That is not a major concern, although, like, at least to me. Where there are questions, where there are concerns are and I'll just randomly sort of, like, throw a few of these out, and I'm sure Fin will probably jump on a couple of them.
Mike:But one, you know, one thing is the what they're calling the circular financing, you know, where Nvidia is lending or, you know, investing in investing in another company, and then that company is using the proceeds of that investment to turn around and buy NVIDIA chips, for example. There are we have situations, including with Alphabet now, where, you know, Alphabet has invested in other AI themed businesses and and invested in equity. The equity of those companies has increased with valuation, and that's being reported as a gain, as as earnings. That is being reported as part of Google's earnings. And then when you start valuing businesses, you start applying multiples, and now you're applying a multiple on something that is a one time accounting entry.
Mike:You know, that's not a gain or that's not an increase in margin or a permanent profitability type of thing. And then at the fringes, there's, you know, I get reminiscent of the late nineties when, you know, a business that had the word Internet in it, stock would go up a 100% in in six months, and like, then it doesn't even make any money. And we're starting to see that, I think, on the AI front where, not the Googles and the the Apples or the Microsofts of the world, but some of the smaller, lesser known businesses are being or just completely saying, well, now we're an AI company and their stocks are going up 50%.
Scott:Yeah. I agree. And I think that's one of the the big differences that I think that was in when we were in Winnipeg and saw that presentation, that was the difference. I think in the nineties, a lot of those companies, the price earnings ratio was like over 67 times and right now the average for most of those companies is 27. So you've you've got share prices that aren't as inflated as they were back then and you've got companies that are or they have way to better earnings that the the it can justify more of the price.
Scott:So I don't get as worried about it being a bubble. I do get worried with people who are ready to put all of their money into like OpenAI IPO and stuff. Yeah. I think that's where I I think a lot of the concern is. But why so why would it
Mike:give you more pause that they're putting money into an OpenAI IPO?
Scott:Because I don't think the earnings are as justified, yet, and and they don't have anything else in terms of a business that they can fall back on.
Mike:Yeah. They're like That's what I'm pointing that's the that's the thing. Yep. That's part of what I'm pointing to. And maybe bubble's not the right word, but it's the word that keeps getting used, so that's why I'm using it.
Mike:But that's that's a point in case where Yeah. Yeah.
Scott:I think we'd
Mike:all agree that OpenAI has a pretty cool product, and I probably don't even understand the half of what it can do. In fact, I'm sure I don't. Mhmm. But we're all concerned about those IPOs because the valuations appear to be, quite frankly, ridiculous. Although, then you spend more time looking at this, you might have better insight on.
Finn:Yeah. Like, if if there is a bubble I mean, the best the most accurate way to probably talk about it is it is probably like a like a profitability bubble, if that makes sense. Like, that there are companies that are over earning because of the fact that they're spending a lot of money to achieve some sort of level of growth, and then that that growth is just gonna dissipate. Like, for example, NVIDIA's margin for, you know, 75%, which is my bad. And that's that's, you know, make is that sustainable?
Finn:Right? That's sort of what the questions we should be asking. Because if you look at okay. Well, you know, NVIDIA sells semiconductors, Microsoft, and Microsoft sells data center compute to, OpenAI, and then OpenAI, you know, their losses are just, like, crazy. I think that they need, like, 15,000,000,000 in revenue and, like, they had 20,000,000,000 in losses.
Finn:I don't know the exact right now, they just I think they just filed their their IPO paperwork, stuff like that. So you can actually check the numbers now, and they're not they're not pretty numbers. Yeah. And then you've got, which has a number of different businesses. I mean, they IPO ed last Friday at a $125 a share, and, then I think it went to over 200 something dollars per share yesterday, and then now it's come back a little bit.
Finn:But, you know, Itad Toyota had a crazy valuation. Like, I think it was 1 and a half trillion. It went up to 2 something trillion, essentially, on a business that does, I believe, $30,000,000,000 of revenue. And a good portion of that revenue is from, yeah, like, selling they just started building a data center business with Mylan. They're selling they're selling compute for Optic and now also signed an an agreement to sell compute to Google.
Finn:And, of course, Google owns part of they own shares of of SpaceX. So when SpaceX buys more compute from Google, then they get more. Of course, you know, the same similar thing with Anthropic. You know, if Anthropic buys compute from SpaceX, Amazon benefits. And Amazon, I believe, you know, there's going to investment share and type in there and stuff like that.
Finn:It it there is a bit of yeah. Like, the secure the circularity stuff isn't great, obviously. But but at the end of the day, like, the real answer will be, like the reason why people are calling me a bubble is because it's just such an absurd amount of money that's being spent on this stuff. Like, we just haven't seen a build out this big in a very, very long time. There was the tech bubble, which was, you know, the advent of the giant platform shift around the entrance.
Finn:And then you can go all the way back to the railroads. And the railroads were an incredible thing. It changed the entire world, and and, you know, we way overbuilt them. And, actually, since, like, '19 and I the early nineteen hundreds, we've been reducing the amount of railroads. So the real question is, you know, the real question around is is when people who are making these investments get good returns on those investments.
Finn:Is there profitability and cash flow? You know, Alphabet, they can put a lot of they can put up a lot of data centers and then use that to enhance their search results. You know, they're, they've got that isomorphic labs business, which is really interesting, which uses AI for drug discovery. They think that could be a $100,000,000,000 business within, you know, the next decade or so. You know, I I doubtful that it will be a $100,000,000,000 business that quickly, but, know, the the opportunity for those types of changes there.
Finn:So that's the real question you have to get at the crux of is is there going to be return on all that investment? You know, all of the other stuff where, you know, OpenAI has got a crazy valuation and they're loss making. Anthropic has a crazy valuation. I don't think that they're loss making actually. SpaceX, crazy valuation, also loss making.
Finn:Those those are, obviously concerning. But within the like, within these larger players like Alphabet, like Microsoft, if they can turn those into real returns, then that it'll be it'll be positive in their businesses, obviously.
Mike:K. So, like, when you say Scott, when you ask me, like, what are you concerned about? Here's what I'm concerned about. I just heard Finn say that the circular financing issue is of concern, that valuations are crazy. And I agree with you, Fin.
Mike:The question is, is there going to be a return on some of these major cash outlays that the big hyperscalers are outlaying. It appears that the market is pricing these these shares as though they are because valuations appear to be crazy, and circular financing is a concern. So, yeah, that's when you say what am I concerned about, that's what I'm concerned about.
Scott:Is it is it a con like, I kinda look at it as a race where and maybe not the space race. I know you mentioned SpaceX, but although the space race does make me think that it's, it's the race to get there first type thing is is why a lot of the money is being pumped in. But if if if we're looking at it as a race, I I think a lot of the investment stuff that that I've got when I ask clients about it is they wanna be there with when the takeover happens or whoever ends up being the winner out of this. They wanna be the ones that got in there first. And I find the the fallout from it, a lot of them, the reason why they're jumping on AI is because they they miss Bitcoin.
Scott:Like, there there's a bit of this FOMO attached
Mike:And to
Scott:and so that's why they're really jumping on this. And so that's where my answer has always been to go back to kind of that first thing that I said of, well, let's just own companies that have good background businesses because the odds are they're gonna be the ones that have the bank to be able to deal with some of these takeovers down the road. So that that's kind of
Mike:the way to agree.
Scott:And so I I agree.
Mike:Like, that's the that's part of the, well, what do we do about this situation? But I wanna delay or not me lay out, but put out the question of, like, why are people talking about a bubble? And that's what it is, is there's a concern around circular financing. There's a concern around whether or not the hyperscalers will get a return on the enormous, like, absolutely staggering cash outlays that they are making, investing in things like data centers, and valuations, including these proposed IPOs, are crazy. That's that's why people are talking about is there a bubble.
Mike:The Yeah. After that, you go to, well, how how legit is that, which I guess we don't know, but then what do we what do we do about it? And there's, again, two perspectives from that. One is from a fin perspective, like as a portfolio manager, how do you look at this space? How do you participate in it?
Mike:Or do you wait for the fallout, like to Scott's point, like wait for who the winners are? And b, but from from a financial planner standpoint, like, how do you allocate a portfolio considering high valuations in this space? But then I do wanna come back, like, not this minute, but I wanna come back. I think you made a great point, Scott, about the jumping on AI because they missed Bitcoin because I think there's something definitely to that as well.
Finn:Like, from from, you know, from my perspective, you know, because we we do own Alphabet as well as Microsoft. And so understanding the returns that they're getting on this additional capital is really important for us, and understanding how they're gonna monetize it is really important. So when you think about Alphabet and all the money that they're putting down, like, we we keep track of the actual returns on incremental capital that they're putting down so that, like, the actual dollars that they're investing, and we're seeing how much their profitability is growing off of those dollars that they're investing. And the the growth rates have accelerated at Alphabet quite meaningfully on a very, very large base. So and when you think about Alphabet's business, I mean, it was it was, twenty five years ago when one of the founders said the ultimate version of Google is AI.
Finn:You know, organizing the world's information, getting people answers quickly, the ultimate version of that for them has always been AI. And so there is there is an opportunity there that they are pursuing, and they seem to be quite successful so far, but we obviously watch all that kind of stuff really closely. And, you know, in terms of how else do you participate, mean, I thought it was sort of funny. You know, Scott, you mentioned bank in a different way, but, you know, there are a lot of old economy companies like banks, that can benefit from these tools. And it's not it's not just like, when people think of AI, I think another thing that I think is really important to recognize is there's a lot of people who are really afraid of AI and a lot of people who are concerned, and I think for a lot of good reasons because the world is changing at a more rapid pace than we've seen in a very, very long time.
Finn:And, you know, will people lose jobs? Will you know, because that's that's the common thing people see when they look at what's happening with AI. It's like, you know, I you know, if someone's working in an admin or a job that has a lot of, you know, AI can can replace that kind of job, then then it's it gets really scary. And I get that, and I think it's fair. You know, I think one thing that that gives me a bit of hope is the way that a lot of the management teams that I cover from companies that I cover are talking about it.
Finn:And the way that they're talking about the opportunity, not as a way to, you know, cut half their workforce, but as a way to enhance the way they do everything to serve their customers better and also to move the current workforce into higher value activities. And, you know, we don't we don't own DBS. This is the the Development Bank of Singapore. It's a publicly traded company, but it's a very well run bank in Asia. And this I was listening to the CEO on a on a interview talk about what what they're doing with AI, and I thought it was fascinating because it was it was totally different perspective than a lot of outward facing AI folks are talking about.
Finn:Like like, what she was saying was that we have, like, 200,000 people work at clients who don't have a direct relationship with someone at the bank. And then we have thousands of people who are doing administrative tasks that could be just handled with AI, and we just need to transfer all these people from these, like, let's face it, not exactly enjoyable jobs that are very repetitive and boring into helping clients achieve better outcomes and making them more client facing. And that's a huge opportunity for them. So, you know, so I sorry. That was kind of a long answer, but, basically, to kind of sum it all up, like, we we keep track of the businesses that are directly involved with AI, and they do have other businesses if AI doesn't, you know, play out the way that people expect.
Finn:We also own some companies along the supply chain of AI that are benefiting from it but aren't reliant on it. And, you know, the future with AI, I think that we have to try to be optimists about what it can do and hopefully that companies are more like the Singaporean Development Bank and can find ways to improve what they're doing rather than just cutting workforce.
Scott:That makes sense. Yeah. My question to you, Mike, too is one of the other things or I guess my response to you, Mike, is one of the other things that I've asked clients about when they've talked about AI bubble and AI investing and everything and whether it's bursting is, what it came down to when I talked to them about it was volatility. That these a lot of these AI related stocks have extreme volatility in them And so there's people making tons of money in a very short period of time, but then also that risk of being a ton of money in a very short period of time. Like the first time the first time we recorded this, no to all listeners, we recorded this once before but we lost it.
Scott:But that first time that we recorded it, know, that was when that circular financing thing was kind of hot news Mhmm. Between I think it was Oracle OpenAI and Nvidia. Is that right, Fin?
Mike:Nvidia. Okay.
Scott:Yeah. So so but back then, like late fall, you know, Oracle's shares got up to over $300 a share. Well, then they dropped in the new year down to like a $150 a share. So you're talking like 50% loss. And then in the end of May, they went up a $100 a share and then dropped back.
Scott:So the volatility to me is one thing where it's people making very quick money.
Mike:Yeah. No. I agree that's a concern. You know, again, to clarify earlier, like, I'm I'm not the one saying we're in a bubble. I'm saying that I'm hearing a lot about it.
Mike:But I do have concerns in general about market valuation and where we are. Like, we've been on basically a bull market since 2008, 2009. Mhmm. You know, we had a dip in 2022, and we've recovered and then some, but mostly on the AI trade. And so you get back to like, well, what do we do about this?
Mike:And your I think your point is right, is volatility is a concern. I I think now is a good time for everybody to revisit some very old school standard finance practices, one of which being diversification. Because of that that volatility comment, you're I I think you're right. I think I don't know if we're in a bubble or not. I don't know if if the hyperscalers are going to get the return they need, to justify the cash outlay or what that will do on the stock price.
Mike:What I think I know is that now is a good time to remember that you should have a diversified portfolio. Because we do have extreme market concentration, and if they, if something does go wrong, if the circular financing does collapse, if the valuations are too high, there could be some calamity there. And I, you know, and some of the I think we should be looking at other old school principles too, like, make sure that the investment accounts that you might be using in the shorter to medium term are a little bit more conservative than your longer term, but remember to view them as an entire as an entire portfolio. So if you're, you know, if you're gonna use your TFSA for something in a three year range and it's more conservative and it's only returning 6%, but your RSP is long term and it's equity and it's returning 18%, don't look at it as six and eighteen. Look at it as it's it's 12.
Finn:So so one you just made me think of a few things. One one is, you know, you mentioned 2022, you know, the the the down the downturn that we saw in 2022 and the recovery being really driven by AI. Like, there's only there's only of the all of the GIC sectors, there's only two sectors, techno like, information technology and communication services that have outperformed the S and P 500 since the launch of OpenAI. Only two. Obviously, information technology, including all the semiconductor companies that are part of the the data center build out, and communication services, you know, having, you know, also a lot of technology companies like like Alphabet as well.
Finn:So very narrow market since 2022. And and and the worst performing areas of the market, of course, are the ones that are the most boring and the ones that well, boring might be a harsh term, but the ones that are just, like, not interesting right now. Consumer staples, real estate, health care has been just really lagging the last, I guess, now four years. And, you know, like what you're saying, Mike, like, this is an opportunity to and this is what we've been doing is, you know, to lighten up a little bit on some of the names that have gotten, you know, got where their share prices has been very positive. And we we're now seeing opportunities across other areas of the market.
Finn:Like, one thing that happened during the tech bubble, and it's kind of happening a little bit right now, is that when there is when there is exuberance in one area of the market so during the tech bubble, you'd saw, like, Cisco and all these other companies see their share prices skyrocket. There's often, like, an anti bubble happening in another market. So during the tech bubble, companies like Unilever and Diageo, and, you know, Procter and Gamble all saw their share price actually go down during the tech bubble, while the rest of the market was, like, screaming higher because they were a source of funds. Why do you own Unilever when you can own what that is going you know, it's it's up, like, 3%, you know, over six months. When you can buy Cisco, it's up 40% this month.
Finn:That's that was sort of the attitude. And and you're seeing that now, a little bit, around the edges where companies like, you know, Mastercard, Visa, health care companies, waste waste management companies are just, like, flat to to slightly down, you know, over the last year or so. And so, you know, if their outlooks remain good and they're continuing to grow, then it just becomes a compressed spring and we can take advantage of that for clients.
Scott:Okay. So I got a question. I'll I'll throw it out to both of you that both of you kinda made me think of is with this bubble or or volatility or anything, how much of it do you think gets affected by kind of the episode we did before with passive flows and this constant bid of money that keeps going in from, you know, moving away from defined benefit pensions to everyone having a group RRSP match where 5% of their income is being matched by 5% of the company and all of that's going into the market. And if it's going into, an ETF that's buying everything or all of those names, like does this end up looking like it did in the past when it can't in my opinion because we in the past, we didn't have the type of massive amount of flow that we have going into the market than we did before. And I don't know, what's your reaction to that?
Mike:Well, I think it's a great point. I think, and maybe even for editing purposes, we might even wanna back up and re explain that issue a little bit. It's not so much that people are not in defined benefit, it's more that they're in indices, like their their DC plans or their group RSP plans, or in The US four zero one k plans are putting them into target date funds using passive investment options. And so a passive investment, of course, is just going to buy whatever is in the index. But it's a great it's a great question because this is what also relates to this these IPOs, whether, you know, SpaceX, Anthropic, and OpenAI, that the Nasdaq 100 is including SpaceX and surely the other two in their index despite what, you know, quote Finn McKay has been quoted as saying, the valuations are crazy.
Mike:I think it's an interesting question because, you know, I asked the what do we do about it? What do we do about this high market valuation or potential bubble or, you know, big push in the market on the AI trade? And our answer to that is varied, but it's, you know, make sure the businesses that are in the portfolio are good businesses otherwise, and if they don't get full return on their investment in AI, that they're still gonna be good businesses. Make sure your portfolio is diversified and make, you know, make sure you're viewing things properly and and looking at your goals the right way. But if you're just in a passive if you're in a passive index, you don't have that option.
Mike:You get whatever you get.
Finn:Yeah. And I think just to pick up off that, the, you know, we were we were talking about this, I think it was two weeks ago, I guess, was the annual meeting. We were talking about the what was going on with SpaceX and the inclusions and stuff like that. Like like and it was it was a bit shocking. Maybe I'll let go.
Mike:Yeah. For a second. Yeah. Like, we need to clarify that for people because this is part of this is part of the big discussion around the SpaceX IPO. One is just the valuation, and second is, you know, the float multiplier.
Mike:But but this is the third. Like, I believe that people are unaware Mhmm. Of what the discussion was around the S and P five hundred and the Nasdaq one hundred and why it's important.
Finn:Yeah. So so so for some context, so, you know, there's rules. Like, the the index providers, the Nasdaq and S and P, they have a set of rules that they are that they say that they're gonna follow about which companies go into the index. So if you have an account and it owns the Nasdaq one hundred or the S five hundred or whatever it is, you know, the Nasdaq or the S and P five hundred has set rules to determine which businesses at which weights are inside those indexes that you will own. And so a couple weeks ago, S and P came out and said, we're considering we're evaluating changing our rules to allow for companies like SpaceX to be included in the in the index.
Finn:And, you know, the rules are are there I mean, there's there's a number of rules, but, you know, the the most important ones that they were considering changing was, the fact that I think it was called, like, the season the seat like, the the stock has to be seasoned as in, like, it's been on the market for a certain amount of time because new issued IPOs can have a tremendous amount of volatility. Like Scott was saying, you know, some people are seeking that volatility, and some people maybe don't want that volatility. And, you know, so, you know, it's supposed to be seasoned so that you don't have that volatility in your portfolio. Of course, knowing that, obviously, if you're an S and P 500 holder, you probably don't want that. And then also profitability.
Finn:It allows the
Mike:market to determine a reasonable what it thinks is a reasonable valuation. Like Yeah. Yeah. Like the SpaceX launched on Friday. It's been three, four days.
Mike:Like, we don't know where it's gonna settle. It'll settle in a range, and that's what that seasoning period is. Yeah.
Finn:And and it also it's about, you know, allowing time for index, like, ETF providers to buy the the the the shares of the company so that they they aren't, like, forcing the share price in a certain direction right away and all that kind of stuff. You know, there's off that's right. After nitro. There's, like, lockup periods where people can sell. We can talk more about that in a moment because I think that's important specifically to SpaceX.
Finn:Then there's also profitability requirements that the business has to be profitable. And, anyway, so so there was there was S and P was evaluating this, and they ultimately determined S and P ultimately determined to not change the rules. The Nasdaq determined that they will change the rules. But, you know, for some context on sort of how I think about this, like, it was really the the the general idea was, okay. Well, we've got this company.
Finn:This with shares that are with a business that is unproven, it is unprofitable, and at a screaming high valuation, and we're gonna shove it into people's retirement accounts. And that that is and and those people have no choice. They're just they now own that own that that company. And so the Nasdaq made the decision to do that. So for specifically for what they call I think it was called, like, mega cap companies.
Finn:So it would the SpaceXs, the Anthropix, and the OpenAI's. And so if you're if you're an index holder, you now will will own those companies. And specifically for SpaceX, there's also float requirements for for these index inclusions so that a certain percentage of the shares outstanding must be available publicly to trade for them to be included inside of an index. And we might have talked a bit about this on the in on the index, like, passive versus active episode on one of the reasons why they have those float requirements is that in the late nineties, the indexes were built without float requirements. So you would you would if you had a 100,000,000,000 if you had a $100,000,000 company during the tech bubble, you'd IPO 1% of that.
Finn:So there was a million dollars worth of shares that was IPO ed into the market, and the index would be buying it as if there was a $100,000,000 of market cap to buy. But it could only buy 1,000,000, and because of that, it would force the shares up. Right? And this became, like, a very this became obviously a problem, and then they changed it to be float float adjusted. And so what the Nasdaq has done, because the SpaceX is is I believe only 5% of their shares outstanding, they have this what they call a three times inclusion.
Finn:So instead of it being that the Nasdaq will the Nasdaq one hundred will buy it as if there was only 5% of shares outstanding. It's gonna be buying it as if there's 15% of shares outstanding, which will force buying on SpaceX as ETFs, try to reach that that weight level, which is three times the amount that's available. And, obviously, that that I mean, you know, there's a lot of ways that you can kind of think about why they did that. To me, it just seems like a way to kind of get more people to force them to buy shares of it and then force the price up. And the fact that it's so early after its IPO that companies are going to have to or or ETF providers will have to start buying it, that also becomes a problem because the lockup periods for, for employees and for other shareholders will be later.
Finn:And so they'll be they're basically allowing the market to push the shares up before employees can, you know, start selling out of it. So it's a bit of a timing thing there also.
Mike:Wow. Well, don't you find that concerning?
Finn:Yeah. Yeah. It's it's not well, I mean, I I don't own the Nasdaq 100, so for myself, I'm not right now too concerned for for for my own portfolio. But for but for the market, yeah, it's it doesn't set a good precedent for sure. And it's it's certainly like, we create like, the financial world created a lot of these rules for for good reasons.
Finn:And if there it feels like you're slowly stripping them all off.
Mike:Yeah. It's why I figured it means the I think he made a very good decision in not changing that rule. The Nasdaq 100 is a far less implemented index Yeah. In in the passive world. The S and P 500 is the index.
Mike:Yeah.
Finn:Yeah. It would have been frankly irresponsible if they if they went ahead with that. And I
Mike:think that would have been completely irresponsible.
Finn:Yeah. Yeah.
Mike:I think that that issue is almost not understood by anybody except for deep insiders. Like, when people hear that any business is going public, the assumption is that the entire business is now publicly traded and the reality is that it is not. Yeah. Yep. Mhmm.
Scott:I was gonna say that the concern that I have about that too and I'm I'm happy that S and P made that decision is I think the big thing from a client perspective is the amount of people that come in and talk about the market, mister Marcus. And and so if if that created a ton of volatility in these indices that we call the market, then that would just make everyone's life extremely stressful. And so I think it was a very smart decision, but that's that's some of the concerns that I have. Again, it goes back to where where people usually get stressed out when they come talk to us. It's market volatility.
Scott:Look back over a ten year period, they're not ever typically not that stressed out over that ten year period. It's just the month to month, day to day volatility. And then I think, like, again, tying it back to an old episode of ours with the tariffs one. It's just the the the uncertainty of the world right now, I think, makes everything crazy. So I think it was a really smart decision by the S and P because I think it would have stressed a lot of people out.
Finn:Well, and something else that I I think is, also important to think about is that the the the activities of the S and P Committee as well as the Nasdaq, I should say, because some some do benchmark to the Nasdaq and other other indexes like the MSCI World, is that if they if they did include if when they do or if they do include companies like SpaceX at high at high weights in it, it puts pressure on some active managers who are much more benchmark measured by their benchmark to then buy shares of them. Now, thankfully, you know, I work at a company where we are I I would say we're we're benchmark aware, but not we're not benchmark obsessed. And that we you know, we're aware of the benchmark. We're not we're not actively trying to every single day beat the beat the benchmark in in in any short period of time, but we believe our process will allow for for attractive good returns for clients that they can count on over the long term. And if you are a benchmark obsessed active manager and, you know, SpaceX is 4% of your benchmark and it's up 50%, those managers are now also looking at buying SpaceX just so they can keep up with the market.
Finn:And a shocking amount of active managers are making decisions where they aren't they aren't actually really actively making decisions. They are basically trying to closet index their portfolio and charge fees on it, and they'll just they'll just buy SpaceX because it's a high weight in the in the in the index. So the the implications of it being included, the SP fabricator is much wider.
Scott:How long before like, for a company to be seasoned, how long would it take before SpaceX is included in the S and P?
Finn:So let me let me check. I think that I mean, for for the for the Nasdaq, it's gonna be fifteen days after IPO. Previously, it was three to twelve months Holy smokes. For the Nasdaq.
Mike:Yeah. I think S and P 500, I think, is twelve months.
Finn:That sounds right. I don't know exactly, Rafn, but that does sound right.
Mike:I don't wanna go off too far on a tangent, but I mean, the whole AI discussion, like, there are a lot of elements of what's going on right now market wise that are extremely reminiscent of '98, ninety nine, two thousand. And what you just said, Fin, like, you could have said word for word in 1999. Like, word for word. Right. Act supposedly active portfolio managers who do not really want to buy some of these technology names
Finn:Mhmm.
Mike:But know that if they don't, they're going to pale in comparison to the benchmark if the benchmark continues to rise, was driving a tremendous amount of buying decisions of companies that portfolio managers would privately tell you they think are crap. Crap companies. But if they don't buy them, they'll lag the benchmark and people will complain about their returns. And then in reverse, like, when that crap company totally collapses, well, it won't collapse their portfolio because, hey, the benchmark has, you know, 5% of it. We have 1%, so we'll look we'll look good.
Mike:They're purposely buying businesses that they thought were complete crap knowing that, you know, they it it won't blow up their portfolio, but they'll participate on the upside. Yeah.
Scott:And is that because most people don't have a clue what's actually inside of their accounts? Like, some sort of index, some sort of mutual fund or whatever investment that you don't have a clue what's inside.
Mike:Comparing your no. It's they're comparing their portfolio to the benchmark. Yeah. Just like they do just like people do all the time. I mean, that's not a new issue.
Mike:But then but what's reminiscent is that is the market concentration. In 1998, 1999, you know, businesses were just pumping up the index. I'm no one can who's listening can see me, but I'm doing the air quotes. The index, you know, the TSX is up by 30. Well, yeah, but, like, 18% of that 30 was driven by Nortel Networks.
Mike:Yeah. Right? And now we're we're having that with with the AI trade. Like, yeah, the S and P 500 is up x percent, but two thirds of that x percent is, you know, Google, Microsoft, Nvidia, you know, and a couple other hyperscalers.
Scott:Yeah. Well, and that was like COVID with Shopify and Yeah. What was the what was the was the one that drove the TSX back in the day? It was a it was a a drug company. Oh, yeah.
Scott:I can't remember. Anyway, but yeah, we've seen that a lot. Valiant Pharmaceuticals. Oh, Valiant Pharmaceuticals. That's right.
Mike:Mhmm. Yeah.
Scott:So again, we've seen this a lot.
Mike:I'd say that's not a new issue. That's not a new thing that's happened, But those were like one offs. Right? Whereas in the late nineties, it was it was anything that had the word Internet in it was just off the charts.
Finn:Yeah. Well and and and and similar to that period, I mean, you know, one one thing that happened recently was there's that company was it Allbirds, I think? Yeah. Yeah. It was a shoe retailer, Allbirds.
Finn:And they, they made an announcement that they were going to sell the entire shoe business and pivot into data centers, and their shares went from $4 to $818 Yeah. In a day. And then and then Ford, they said that they they might be able to sell some some batteries to data centers for energy use, because, you know, data centers use a lot of energy, and their shares are up, like, 20% on the day. It's just you're you're you're getting that exact same sort of anything related to AI is getting a a huge bump. Exactly.
Finn:Yeah. Like like, you know, like, we were talking about before But
Mike:then you ask me again, why are you hearing there's a bubble? This is why. That's why.
Finn:Because of these types of things. These are these are very bubble like things.
Mike:Well, I was gonna say, to your point, Scott, so I gave the example of, you know, an active portfolio manager could say, okay. I'm gonna invest in, not the shoe retailer, but, you know, I'm gonna invest in OpenAI when it becomes public because, you know, if I don't, my returns will lag compared to the benchmark, but I'll only put a little sliver. So when OpenAI, you know, comes tumbling down because it's overvalued, you know, the market will go down 30% and I'll go down, you know, 5% or something. And I'll I'll look great. Right?
Mike:Because he's underweighting it relative to the benchmark. What's different now, to your point Scott, is if you are investing in a passive portfolio and you are getting the index, you are getting the full weight. Even though I condemn that portfolio manager for buying what he knows to be a crap business, at least he was underweighting it. Or she. They were under underweighting it.
Mike:If you have the the index, you are getting the full weight. And more and more of these group benefit plans defined contributions, are target date funds that are using passive investing. And they are if they have the Nasdaq 100 as one of their options, they are going to buy SpaceX. And when the seasoning period is over on the S and P 500, they are going to buy SpaceX, whether you think it's overvalued or undervalued or irrelevant. The fundamentals of the business are not relevant.
Mike:You are buying it.
Scott:Yeah. Well, and I think that goes back to our conversation of active versus passive. But like Finn, with a lot of the names, like, when's the last time you owned a business inside of your pool that, you know, dropped 80% in a you know, like, that had that type of volatility? I don't know. I
Finn:Well, yeah. Never. I mean, that's those these are the the the the volatility that we're seeing in the from a lot of these names is is is, I think, quite concerning. And, you know, the other thing too is that when when a company goes down, like like, as I was talking about before, in the tech bubble in, like, 2001 from I think it was, like, '98, yeah, 1998 to February to 1998 to 2000, Unilever was down almost 50%. K?
Finn:And Nasdaq was up 200% over that same time period. And, you know, if you're you know, that's that's that's like a wild thing to happen to a company that is, like, very dominant, very large, consumer staples business, repeat small purchases, you all over the world. You know, over 3,000,000,000 people use Unilever's products every day. But you can also you can go back to all the things that I just said and say, okay. Well, you know, it's down a lot.
Finn:It's still a great business. It's got very high levels of revenue. The revenue growth is there. It's very durable, and you can have confidence that it will recover and that this might actually be a time to buy more. When you have a company that is got that is loss making, the future is very uncertain, you don't have that level of durability that you have in these other businesses, if it goes down 50, you you might not you you don't know what the future is gonna be like, and you can't have confidence to actually double down and add more.
Finn:And you might sell at the worst time or you might sell at the exact right time, but it's it's not a it's you you your inability to be able to have certainty into the future makes for the investment decision making process significantly more difficult and significantly more prone to errors.
Mike:Yeah. And I I agree completely. I think you're exactly right. But again, I I you know, I'll just kinda repeat myself, but that's why I want to come back to some of these fundamental principles that we all know, but sometimes over time in exuberance we overlook. Patience is one of them.
Mike:Like, again, I'm not saying we're in a bubble, I'm saying I have some concerns about valuation and and then, you know, I have some concerns, you know, what do you do about it? Well, one is is you is you be patient. Like, I agree that you should be, as our portfolio manager, acquiring businesses like that, but this could go on for some time. I mean, the alarm was sounding in 1997 about valuations in the tech sector, and it took, you know, three years. And if we're in a similar environment today, and that is an if, if we're in a similar environment today, you should be buying businesses like that.
Mike:We should be buying portfolios of funds that have businesses like that. But this may take some time to play out. We need to maintain patience, sound fundamentals of portfolio management and asset allocation.
Scott:Yeah. Yeah. I agree. And, again, even when we talk bubble, like comparing it to the tech bubble back then, like a lot of those companies are still around and they're really profitable companies.
Mike:So Absolutely.
Scott:And on top of it, the Internet is still around. And so, like, if I tie it to AI, like, my opinion of this is that, like, AI is not going anywhere. And it is unbelievably useful, as a tool. I use it daily. It is it's you learn how to use it, which is a whole other conversation and ball of wax, but once you know how to use it, it's unbelievably valuable.
Scott:And so it's here to stay in my opinion. I think the navigation of this bubble or whatever will be, yeah, we could have a period where stocks go down or or a lot of stocks go down, but we could have that from just a general market environment or political environment, economic environment rather than it just being the AI bubble. And so, you know, I think it goes back to those fundamental principles of, yeah, if you wanna throw some money at this, go ahead and do it, but don't do it with your life savings or your retirement or whatever. Like find some fun money and and throw it in there if you want to. I'll I'll encourage anyone to do that because if you have that FOMO, the last thing I wanna be is the guy that told you not to do it and then you're mad that it didn't happen.
Scott:But what I don't want anyone to do is to do it with their life savings and to wind up being one of those people that's interviewed on TV for like, that's the thing that I'm worried about. So
Mike:Yeah. I agree. It's all about valuation. It's you're exact exactly right. Like the the Internet bubble or the tech bubble burst in, you know, 2000.
Mike:The Internet didn't burst. The Internet is is more robust and powerful and useful than ever. It's it's valuation. It's being cautious about what you're paying in order to acquire shares of a business. And, you know, back to some of what Fin said, like, what's the profitability?
Mike:What's the expected growth rate? I totally agree. And I also agree with, Fin, you said earlier about the changing in jobs. There is there's a tremendous amount of concern out there about jobs being eliminated or replaced by AI, and I agree that it's predominantly a shift. And again, we can use the Internet analogy, like the Internet and online booking systems and we do everything on our phone these days through apps and the Internet, but we haven't had a 40% increase in unemployment.
Mike:It's just it's a change in what people do.
Finn:Yeah. Yeah. No. And and it's the the speed at which the change is happening is just I think that's the thing that's that's concerning people. But a a few a few other thoughts.
Finn:Like, one is that people always tend to underestimate technology change impacts in the long term, but they tend to overestimate them in the short term. And that's that's probably what's happening in the the stock market right now. Because, yeah, like, you could have you could have bought you know, if if you could pick the winners from the tech bubble, you could have bought them at at, you know, midway through the tech bubble, and you would have done decently well over the long term. You would have had a horrible roller coaster of an experience getting there, but, but it wouldn't have been too devastating. But the Are you referring to, like, Cisco?
Finn:Cisco, Microsoft, Amazon. Yeah. Yeah. Exactly. Yeah.
Finn:Intel. Yeah. But the the other thing too, though, that I think is is very unique and interesting about AI specifically, which is different than a lot of other technology adoption curves, is that it's very easy to use generally. Like, yeah, you're you're right, Scott. Like, there's some some like, there's some there's a learning curve to it, especially getting it to do what you want it to do.
Finn:I think that learning curve is improving as they improve AI. It's becoming easier to use. But, like, in the when they first created the telegraph, everyone thought that everyone would have a telegraph on their desk. Right? But you had to learn all of these strange incantations to be able to actually use it.
Finn:And then the telephone came along, and it was simple. It was easy. You just pick it up and you talk. And I feel like and that's and then that became widespread use everywhere. And AI has that same sort of pick it up and talk simplicity.
Finn:We already have the Internet. The the the amount like, the the the fact that AI is diffused so aggressively through the entire world so quickly, is a very positive thing for the story, I think. And and they still like, Satya Nadella, I think it was last week, said that under 1% of knowledge workers are actively using AI on a daily basis. So, you know, the the growth on the other side of this could be quite significant.
Scott:Yeah. I agree. And I think, like, to your point about jobs, Mike, and people being concerned about them is, like, we've seen that before, that story play out. Like, there's there's not a lot of lamplighters out right now, lighting lamps or street lights, you know, like and or telephone. Like, I don't know how many operators there are, but I don't think they're I don't think it's a job anymore.
Scott:I don't know that though. Yeah. So yeah. You know, like those things happen over time as technology moves and that's just natural progression. I think the thing that I look at with it is the comment that I that I give to people all the time, which I got from a conference and we all know it, but it's it's that AI isn't necessarily going to replace your job, but people using AI will replace people who don't.
Scott:Yeah. And it's I think that was said more towards us but I think it could be anything. And so I think that to me is more of the AI push and growth potential is people adopting it and realizing that it really does up your ability to, do your job, provide service, you name it.
Finn:Yeah. Like, I started building it's a tool. It's a tool for us to use. Like, I've started using I've started building a whole bunch of different, like, AI agents to complete entire workflows. And it takes a while, and you have to spend a lot of time tuning it, and it can get a bit frustrating, but it's it's it has significantly improved my productivity.
Finn:My my my concern right now, though, is is the the, you know, the the narrative around from, like, the general public has gotten really negative. Like, AI is not a love thing by the general public right now, and I wouldn't be surprised. And for for, like I was saying, like, for for not bad reasons, because of the the rate of change, the potential impact of it, the uncertainty behind it, and also the fact that I think that, you know, the the folks who are running these, you know, AI model companies like Sam Altman and Dario, like, they're not exactly the most, charming, people who have, a lot of positive things to say about where what AI is gonna do. They're like they'll come out and say, well, think ever no one's gonna have a job in the future. We're just gonna AI doing everything.
Finn:And you're like, well, that sounds horrible. Yeah. They're not exactly the most charismatic folks. And I wouldn't be surprised if in the next you know? And there's also a lot of a lot of misinformation too about AI, like like the amount of water use that a data center uses.
Finn:At one point, it was quite terrible. Now this the most recent stats that I've seen is that one, you know, huge data center uses about the same amount of water as a small restaurant does. You know, the electricity use is pretty extreme, but that's also improving significantly. And, also, all the hyperscalers all have big renewable energy, plans, so they're trying to do this in a in an efficient way. Actually, a narrative violation that I thought was really interesting.
Finn:So we have some utility companies in in the portfolio that I run, and people think that when a data center comes up in your neighborhood that your energy bill is gonna go up. Right? It's a common narrative. And the the CEO of this utility company spent they spent a lot of time talking about customer affordability because utility companies are very unique where if they can save customers money, they tend to actually make more money for themselves. It's sort of a complicated way to complicated thing to explain, but they they essentially the CEO said that when they've got these data centers customers coming up, they are pricing the electricity so that they are taking a larger share of the pie of the expense.
Finn:So that when a data center gets turned on in their utility grid system, the average price for the rest of the people on the grid will go down. So that's actually a positive. And that's cool. And, yeah, it's super cool. And, you know, that makes me wanna be like, well, you know, we should have more data centers around because then I don't wanna pay as much money in electricity.
Finn:They can pay So I wouldn't be surprised if you're a widespread protap around AI in the next six months just because of the fears and the uncertainty and the misinformation. But
Mike:Yeah. Yeah. Can you We're gonna just can just back up for a second, and maybe we should have done this like an hour ago, but can you define for listeners what a hyperscaler is and what a data center is?
Finn:Yeah. So the hyper when people refer to the hyperscalers, they're typically referring to one of the large, like, one of the larger data center providers that is providing cloud services to customers. So you can think of Amazon's AWS, Amazon Web Services business, Alphabet's Google Cloud business, GCP, or Microsoft's Azure business. So so those are the the large ones. Those are considered to be the hyperscalers.
Finn:There are other businesses that are that have hyperscaler like operations. Like, Oracle has is has got a growing data center business. And then there's just, like, the gen generic data center companies. Like, you know, they might be the ones that run the actual real estate for them, like Equinix, and they've got, like but the hyperscalers are the ones with generally, the cloud businesses built behind them that have that attach a whole bunch of different software to being able to run a company's enterprise software and data online.
Scott:Okay. Yeah. So that's a hyperscaler. What's a data center?
Finn:So the data center is what the hyperscalers are running. So it would be a giant building, full of wires and servers and cooling systems, to be able to actually have, like, the GPUs and the CPUs and the networking, tools and all that kind of stuff to be able to actually do compute for a cloud customer. So when you, you know, log on to a website and it's being hosted by Amazon Web Services, all of the data and all that kind of stuff is being done at at the data center, which is being ran by the hyperscaler Amazon Web Services or Amazon. And there's there's a new thing called, like there's there's other smaller data center companies. They're called, like, Neo Clouds.
Finn:Those are kind of popping up here and there because, you know, the the excitement around data centers has gotten pretty extreme. I think I've even seen I was talking with some friends. I haven't verified this. This is total hearsay, but, I was talking with some friends about how there's, like, companies that they've seen where they're you can put a data center a little mini data center in your backyard, and they'll and you can hook it up to your grid, they'll pay you money, for for it. So there's a lot of yeah.
Finn:Those would not be hyperscalers. Hyperscalers are when people typically refer to the hyperscalers, they're talking about Microsoft, Google, and Amazon. So Amazon.
Mike:This this might be, like I'm not a very technologically inclined person or at least not anymore. Or maybe this is a question for our IT people versus versus you. But like like ten, fifteen years ago, we were getting rid of server rooms and moving everything to the cloud. Yep. Like, we were so now we're
Scott:We moved our server room to their server room.
Finn:Yeah. That's exactly it. Like, instead of you having your own server room, it's being put in the cloud, being ran by the data center providers, which are the hyperscalers. So and that's been I mean, that's been a that's been a huge growth business for Azure, for Microsoft Yeah. Microsoft's Azure business and Amazon Web Services.
Mike:Okay. I just didn't realize that we were moving ours to theirs. I thought it was just like going in the cloud, in the sky. Yeah.
Finn:The well, and and the or it's like and the other thing, like, the the genesis of AWS is really interesting because Amazon Web Services because, basically, Amazon in house a lot of their compute, and they a lot of the compute usage was happening around holidays when people would go online and they, be buying their stuff, and then they realized that they were overbuilding their compute for those key moments when everyone else is online. And then they realized, well, why don't we just sell? You know, it's like the Amazon method. Just go down your income statement and just every single expense, turn that into a revenue opportunity. Right?
Finn:So they had an expense with data center operations, and so they started selling it to other operators so that when they were using it, they could sell compute to other other people. And they were very quiet about how much money they were making doing that because there was an absurd amount of money doing that, and that that eventually became Amazon Web Services. You know, maybe maybe if you want, I can kinda summarize what we've been talking about quickly that, you know, we're seeing some exuberance in the market. There are certain areas of the market that look a lot more risky and a lot more exuberant. There's real businesses making real money, seeing real growth from AI.
Finn:A lot of older businesses have an opportunity to benefit from AI in ways that we can't really know exactly how it's gonna happen, but it seems like they're they're planning on doing that and it's that that's a that's a positive thing for them. There's a lot of fears, around the speed and the uncertainty at which AI, you know, changes the world. And, you know, there's there's that's something that we should be recognizing, and and it's it's it is it is kinda scary for a lot of folks, but I think that if we look out, you know, over the next five to ten years, the the net impact will probably be positive. And, you know, just continue to monitor the portfolios to make sure they're not becoming too concentrated, investing in real businesses with real profitability, and taking advantage of the new opportunities that are being created within within the market. Because as certain areas experience exuberance, other areas are kind of languishing and and but the areas that are languishing are are real businesses that are just seeing their their share prices.
Finn:Spring is sort of compressing on the opportunity behind them.
Scott:My summary to your original kind of comment of clients are or you're seeing it above this AI bubble is in my opinion, I don't think of it as a bubble in the sense from an investing standpoint because it's not something that I'm really encouraging people to directly invest in with what we do. Like, it's it's not a bubble or you're not gonna get caught in a bubble if you don't own it. Will we potentially see markets come down because of it or something? Maybe. But Yeah.
Scott:Again, if you own the businesses that have good underlying businesses and are still gonna be around just like the Microsofts, and the Apples who went through the the tech bubble bursting and are still here today and are still great businesses, that doesn't really concern me. I think the there there's a chance for volatility and everything. So it goes back to kind of those investment principles that we talked about. And then if you've got fear about it, like fear of missing out or FOMO on it, then I encourage everyone. Like if you wanna throw a little bit of money in something to see what it does and to make some money, go for it, but don't do it with your entire retirement.
Scott:Don't do it with the bulk of your investments. That's that's kind of my summary on the is this an AI AI bubble and what do we do on the investment side? So that's my take.
Mike:Yeah. I I don't know if we're in a bubble or not. I think there are some legitimate valuation concerns out there, and I agree with what you're saying about, you know, business selection and portfolio construction. However, if if it indeed turns out to be a bubble, we will still get caught in it, which which doesn't mean we shouldn't do it. What it means is bring back to some principles.
Mike:Think right now, for the next few months to even years, is to make sure we stick to some really good fundamental principles like making sure you have a diversified portfolio, making sure that your investment accounts are lined up are lined up with what the specific objectives for those investment accounts are. Mhmm. And, but at the same time, your your accounts as a portfolio as a whole, and don't get caught up on individual spots or pieces. And remember, keep your like, what's the goal? I always come back to you.
Mike:What's the target? The target is not beat the S and P. The target is not make the most highest return possible. The goal is meet your financial objectives. Retire the way you wanna retire.
Mike:Have as much money as you want for as long as you want it. What do we need to achieve in order to meet those goals? That's that's what's key for me.
Scott:Everything in this podcast is meant for entertainment and educational purposes only. It is not financial advice. And all the opinions that we express in this podcast are not necessarily the opinions of the companies that we work with or affiliated with. So bear with us while we discuss these topics and remember that financial and investing decisions are different for everyone, and you should consult a financial professional or do your own research before doing anything for yourself.
Mike:Well said. Thank you. I also like to say, trust me, when I'm giving you financial advice, you will know it. It will be one on one and in person, and it will be clear that this is financial advice. This is not.
Mike:You will
Scott:know exactly what I'm talking about.
Mike:Yeah.