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Diversification Returns as Market Leadership Shifts · The Financial Exchange Show

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1:10
Speaker 2: The S and P five hundred is closing in on
1:13
Speaker 2: a winning week. Though trading today has been relatively quiet,
1:17
Speaker 2: not a lot of volatility on the markets, perhaps waiting
1:20
Speaker 2: to see what happens between the US and Iran over
1:23
Speaker 2: the weekend. We do have some big news out of
1:26
Speaker 2: South Korea today. Sk Heinix is going to be debuting
1:30
Speaker 2: on the US markets. They are seeking to raise about
1:33
Speaker 2: twenty six billion dollars in an IPO. We are waiting
1:37
Speaker 2: their first trade, but initially inclinations are that there is
1:41
Speaker 2: a tremendous amount of appetite for this IPO. Skhynix is
1:45
Speaker 2: a company that is a memory chip maker. They are
1:48
Speaker 2: similar to their US counterparts Micron and SanDisk and others
1:52
Speaker 2: that have generated a tremendous return year to date and
1:56
Speaker 2: over the last twelve months, as there has just been
1:59
Speaker 2: incredible demand for these memory chips that usually were utilized
2:04
Speaker 2: in electronic devices such as your laptop or your iPhone,
2:08
Speaker 2: but now they are being used abundantly across AI data center.
2:12
Speaker 2: So investors are looking for any way that they can
2:15
Speaker 2: get a bite out of what has been a very
2:17
Speaker 2: profitable trade. Some may argue that that trade is a
2:21
Speaker 2: bit over extended, but regardless, clearly with this IPO looming,
2:26
Speaker 2: there is the demand there for investors to continue to
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Speaker 2: buy these companies that are so integral to the tech
2:34
Speaker 2: stack and the AI data center build out. I want
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Speaker 2: to talk about the lead of our program here this
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Speaker 2: hour about the benefits of diversification. It's a piece here
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Speaker 2: from Barons where Mark I know this will be right
2:48
Speaker 2: up your alley. I think the way I came up
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Speaker 2: from an investment perspective was always to have a portfolio
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Speaker 2: that had exposure to all these different areas of the market,
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Speaker 2: emerging markets, international equities, small caps, mid caps, large cap value,
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Speaker 2: large cap growth. That was sort of the way that
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Speaker 2: I was trained in the industry as to how to
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Speaker 2: build out a portfolio. The problem with that portfolio construction is,
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Speaker 2: over the course of the last you know, five ten
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Speaker 2: years or so, because of significant returns from the Magnificent seven,
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Speaker 2: the S and P five hundred has been a far
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Speaker 2: better performing portfolio. That sort of passive approach of just
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Speaker 2: tracking the S and P five hundred indicy is much
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Speaker 2: better from a performance perspective than the diversified approach I've
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Speaker 2: spoke about before. But things are starting to change here,
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Speaker 2: at least in what we've seen year to date on
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Speaker 2: some of these other areas of the market.
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Speaker 3: Yeah, public markets, markets in publicly traded stocks, things that
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Speaker 3: you see on the New York or the American or whatever.
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Speaker 3: The Nasdaq Exchanges consists of much more than the five
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Speaker 3: hundred leading companies identified by S and P and that
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Speaker 3: comprise the S and P five hundred index or even
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Speaker 3: the Russell one thousand index of the largest by market
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Speaker 3: capitalization total value of their shares companies listed in the
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Speaker 3: United States. US companies are about sixty five percent of
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Speaker 3: total stock market global stock market capitalization. I get that
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Speaker 3: number by looking at the MSCI. That's Morgan Stanley Capital's AQUI,
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Speaker 3: which is an acronym for All Country World Index. I'm
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Speaker 3: looking at it at its components, and you see North America,
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Speaker 3: which is mostly the US, a little bit Canada, that's
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Speaker 3: about sixty five percent. But Greater Europe, which is the UK,
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Speaker 3: in Germany, France, etc. Is about another fifteen percent, and
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Speaker 3: then what they call Greater Asia about another twenty percent.
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Speaker 3: Of those numbers I gave you, yeah, they add up
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Speaker 3: to one hundred, as they should. So my point is
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Speaker 3: the opportunity set for a long term investor who is
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Speaker 3: seeking higher returns than you'd get from bonds, which you're
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Speaker 3: generally viewed as conservative. You've got a lot more choices
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Speaker 3: than just US markets. And if you're investing three or
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Speaker 3: four to one k, say a target date or so
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Speaker 3: called balanced fund, or they may even call it an
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Speaker 3: asset allocation fund or something like that, you probably have
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Speaker 3: exposure not just to US, but to foreign markets as well.
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Speaker 3: And within US not just big companies, not just the
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Speaker 3: big tech for example, companies that are so prominently featured
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Speaker 3: in news stories every day, but smaller companies too. You
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Speaker 3: might have heard of the Russell two thousand, and just
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Speaker 3: like I mentioned the Russell one thousand, the biggest one
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Speaker 3: thousand companies buy the value of their shares total value
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Speaker 3: of their stock. Russell two thousand is the next two
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Speaker 3: thousand companies in terms of the value their shares. They're
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Speaker 3: not household names. They're small cap, small capitalization. That's when
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Speaker 3: people say small cap, they're abbreviating capitalization. That's a distinct
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Speaker 3: investment type, and it's a distinct ingredient that should be
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Speaker 3: part arguably of any long term investors portfolio. And the
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Speaker 3: upshot of the story is small cap stocks, again smaller
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Speaker 3: in size, are outperforming large cap stocks. By small cap
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Speaker 3: stocks have appreciated twice as quickly this year as large
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Speaker 3: cap stocks. That's obviously not always the case. Foreign stocks
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Speaker 3: have appreciated more about thirty percent more, not percentage points,
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Speaker 3: but percent more than US stocks this year, and depending
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Speaker 3: on the segment, emerging markets are up twice as much
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Speaker 3: as US stocks now, again not always the case, but
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Speaker 3: it can happen for long spans of time. So diversification
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Speaker 3: generally earns you a smoother ride. It's a diversified portfolio
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Speaker 3: should be less less volatile, there should be fewer swings
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Speaker 3: and less pronounced swings than a more narrowly diversified one.
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Speaker 3: And the returns historically have been higher too, not always,
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Speaker 3: not in every sub period, but on average over long periods.
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Speaker 2: Yeah, these other areas of the market, small caps and
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Speaker 2: emerging markets had been mentioned in International equities too, had
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Speaker 2: been focused on quite a bit over the last five
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Speaker 2: ten years. They were trading at cheaper multiples, and they
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Speaker 2: just had failed to outperform the S and P five
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Speaker 2: hundred over that span of time. But like you said,
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Speaker 2: with those returns. They are outperforming it this year. And
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Speaker 2: it is interesting on the emerging market story, where all
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Speaker 2: those gains have been heavily concentrated in the tech sector.
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Speaker 2: Companies that have just seen a meteoric rise Samsung, s Khinex,
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Speaker 2: which I led the program with, and TMC or Taiwan Semiconductor.
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Speaker 2: They make up about three dollars of every ten that
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Speaker 2: goes into the emerging market ETF. So there is a
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Speaker 2: bit of a concentration phenomenon there, but that's no different
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Speaker 2: from what we've seen with the Magnificent seven here domestically,
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Speaker 2: you also have had large cap value stocks up eighteen
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Speaker 2: percent year a day, outpacing growth stocks, and that is
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Speaker 2: something that we hadn't seen so interesting just to study.
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Speaker 2: You know, we're six months into the year the market dynamics.
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Speaker 2: We are seeing appreciation in these other areas that had
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Speaker 2: not been as sought after and had really trailed the
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Speaker 2: big boys, the Magnificent seven and the S and P
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Speaker 2: five hundred broadly over the course of the last few years.
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Speaker 3: Yeah, when you think value, you don't necessarily think of
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Speaker 3: tech companies. You think healthcare, financials, utilities. But the story
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Speaker 3: and value and value is defined I'll just be very
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Speaker 3: general here as relatively low price of the stock as
8:38
Speaker 3: compared to book value, low price to book as opposed
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Speaker 3: to growth stocks, which are the opposite as defined by say,
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Speaker 3: for example, Russell that main the management firm and index
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Speaker 3: provider that manages and publishes these two indicies that I'm
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Speaker 3: talking about. The story and value this year has been
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Speaker 3: beaten down tech companies. Most of the top performers of
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Speaker 3: the top twenty five companies of the top twenty five
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Speaker 3: best performers in the Russell one thousand sometimes abbreviated Russell
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Speaker 3: one and the Russell one value this year, like twenty
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Speaker 3: of them are tech companies and Micron is the number
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Speaker 3: one in terms of weight in the Russell one thousand value.
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Speaker 3: You wouldn't have thought that necessarily, but tech companies like
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Speaker 3: semi companies, because it's such a boombust sector, as you've
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Speaker 3: talked about, they get beaten down so much that they
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Speaker 3: become value stocks, and they're what's driving the Russell one
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Speaker 3: thousand value this year relative to growth.
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Speaker 2: It is surprising when you look under the hood of at
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Speaker 2: Russell thousand, there are names that you would expect the
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Speaker 2: Walmarts and some of the financial institutions. But like you
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Speaker 2: mentioned some of those tech companies, I don't know if
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Speaker 2: I necessarily would peg as value, but that is an
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Speaker 2: interesting phenomenon that has going on. Speaking of value into
10:00
Speaker 2: out there the Dow Jones, there's a piece here from Barons.
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Speaker 2: We often give the Dow Jones a bit of a
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Speaker 2: hard time on our program just because it is price weighted,
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Speaker 2: there's only thirty companies in it. It doesn't really do
10:13
Speaker 2: a great job of giving you a sense for how
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Speaker 2: the broader US market is performing. It's sort of an
10:19
Speaker 2: older index that though it's talked about, I think it's
10:23
Speaker 2: probably marked the most popular and most quoted amongst just
10:27
Speaker 2: regular people that you might be speaking with on a
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Speaker 2: daily basis. But really the S and P five hundred
10:32
Speaker 2: is of greater focus for us as investors and people
10:36
Speaker 2: who follow the markets. But there is an interesting PC
10:38
Speaker 2: in Barons which just breaks down We just came up
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Speaker 2: on America's two hundred and fiftieth birthday, looking back at
10:44
Speaker 2: where we were on the Dow Jones in nineteen seventy six,
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Speaker 2: fifty years prior on the two hundredth birthday, and just
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Speaker 2: the list of companies within the Dow Jones today versus
10:55
Speaker 2: where it was fifty years ago, and only two names
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Speaker 2: have still survived that fifty year period, Chevron and Procter
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Speaker 2: and Gamble. We're in the Dow Jones in nineteen seventy
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Speaker 2: six and still remain there today. There have been many
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Speaker 2: new entrants and many companies that it's interesting just to
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Speaker 2: look back at that have fallen by the wayside. And
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Speaker 2: again there's nothing really to take away from this piece
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Speaker 2: other than it is just interesting to see mark how
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Speaker 2: these companies EBB and flow their names over time and
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Speaker 2: become you know, less of a point of emphasis. I
11:29
Speaker 2: mean some of these names here sears Eastman, Kodak and
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Speaker 2: others that have just gone by the wayside, and points
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Speaker 2: to how difficult it is to sustain dominance for a
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Speaker 2: long time as these publicly traded companies.
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Speaker 3: Yeah, it's I guess it illustrates the dynamism of the
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Speaker 3: US economy that creative destruction is an economist once called
11:49
Speaker 3: it is a is a good thing. And there's also
11:54
Speaker 3: a lesson there about the way to invest for the
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Speaker 3: long term, which is to unless you have very strong conviction.
12:01
Speaker 3: And some individual companies buy a broadly diversified stock index
12:06
Speaker 3: that takes care of those turnover issues for you. You always
12:10
Speaker 3: own shares in the industries of the future. If you
12:15
Speaker 3: want an index fund, their weights will change over time,
12:19
Speaker 3: but really you don't have to worry about picking winners,
12:21
Speaker 3: which is the beauty of that structure. It's a natural
12:24
Speaker 3: way to buy a slice of the US stock market,
12:28
Speaker 3: of the US economy. Really, the extent that publicly traded
12:31
Speaker 3: stocks are representative.
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Speaker 2: It certainly is reinforced looking at this list from fifty
12:37
Speaker 2: years ago. We're going to take a quick break here
12:40
Speaker 2: on the Financial Exchange. When we come back, we'll have
12:43
Speaker 2: trivia as well as some shakeup at open Ai, their
12:47
Speaker 2: number two executives stepping down, what that means for the company,
12:51
Speaker 2: and much more on the markets right after this break
12:53
Speaker 2: here on the Financial Exchange.
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Speaker 4: Time for trivia here on the Financial Exchange, and today
14:12
Speaker 4: is Nikola Tesla's birthday. Tesla moved to the US in
14:15
Speaker 4: eighteen eighty four and briefly worked for a famed American
14:19
Speaker 4: inventor before a major falling out in subsequent feud over
14:25
Speaker 4: electrical systems. So our trivia question today, which famous American
14:30
Speaker 4: inventor did Nikola Tesla work for when arriving in the
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Speaker 4: United States. Once again, trivia question, which famous American inventor
14:39
Speaker 4: did Nikola Tesla work for when arriving in the United States.
14:44
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14:48
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15:10
Speaker 2: Fijisimo will be stepping down the number two executive at
15:14
Speaker 2: OpenAI due to some medical issues that she is battling.
15:18
Speaker 2: She's battling a neuroimmune condition that she had previously stepped
15:22
Speaker 2: away from her role in the month of April and
15:25
Speaker 2: now is saying that she will step down entirely from
15:29
Speaker 2: OpenAI as they head for their public market debut that
15:33
Speaker 2: was rumored to be later this year, though that has
15:35
Speaker 2: been debated a bit as they are going through quite
15:38
Speaker 2: a bit of shake up with their business in terms
15:40
Speaker 2: of the valuation that is received in the private market.
15:43
Speaker 2: OpenAI had really a tremendous head start on many of
15:47
Speaker 2: its competitors by getting Chatchibt out there first and getting
15:52
Speaker 2: over a billion users as of a couple months ago. However, Anthropic,
15:56
Speaker 2: its counterpart in the large language model space, has now
16:00
Speaker 2: reached a higher evaluation because they have been able to
16:03
Speaker 2: penetrate the enterprise market for businesses a lot stronger than
16:07
Speaker 2: open ai had. Fijisimo Wasenti, in charge of the CFO
16:12
Speaker 2: at the company as well as overlooking the chief revenue officer.
16:16
Speaker 2: She was the one that had axed the Soro video
16:20
Speaker 2: app generation of AI on open Ai to try and
16:24
Speaker 2: cut down some costs, and had also introduced ads to
16:27
Speaker 2: chat TBT, which did not go over that well. So
16:31
Speaker 2: open a is still kind of struggling to sort of
16:33
Speaker 2: find its footing on the profitability side, it stands to
16:37
Speaker 2: sort of gather Again, It's a private company, so not
16:40
Speaker 2: entirely sure, but that certainly has been the tea leaves here.
16:44
Speaker 3: Did we Tucker? Did we see the story or Paul
16:47
Speaker 3: about open ai and Google selling AI models to blacklisted
16:50
Speaker 3: China groups Financial Times?
16:52
Speaker 1: Yeah?
16:52
Speaker 4: Yeah, go ahead with that mark.
16:54
Speaker 3: Yeah I don't. I'm scanning it now, and I won't
16:57
Speaker 3: pretend to have any deep inside. How about I'll just
16:59
Speaker 3: read the first couple of sentence as that opening eye
17:01
Speaker 3: on Google are selling their advanced AIM This isn't funny,
17:04
Speaker 3: don't know, I am giggling advanced AI models to Chinese
17:07
Speaker 3: tech giants blacklisted by the Pentagon. Okay, so companies that
17:12
Speaker 3: do military stuff, they make military hardware or something comma
17:17
Speaker 3: exposing I won't continue to read the uh, the punctuation
17:21
Speaker 3: exposing a gap in Washington's efforts to slow Beijing's AI
17:26
Speaker 3: development period period. Uh, they've been supplying oh boy to
17:32
Speaker 3: they've been supplying AI services to Ali baba babo? Tencent?
17:37
Speaker 3: Am I pronouncing that right?
17:39
Speaker 1: Yes?
17:40
Speaker 3: Tencent? Let's see, yeah, which the government, which the US
17:44
Speaker 3: government is accused of working with China's military period. Okay,
17:51
Speaker 3: I I think I've got my Yeah. I think I've
17:55
Speaker 3: come to the conclusion that these these the executives running
17:58
Speaker 3: these companies have no soul. They would sell their mother
18:00
Speaker 3: out for a bump and share price. And I can't
18:03
Speaker 3: believe we're outsourcing AI policy a technology which could pose,
18:06
Speaker 3: by their own account, an existential risk to the way
18:10
Speaker 3: we live. I can't believe we're trusting these people with
18:14
Speaker 3: anything at all. I I know we talked about this
18:18
Speaker 3: earlier in the week, and I wish I'd mentioned it
18:20
Speaker 3: with Chuck to Chucks out of yesterday, because he may
18:23
Speaker 3: have a different view. He may be able to tell me,
18:26
Speaker 3: as you'll be may be able to tell me, Paul,
18:27
Speaker 3: where I'm where. I'm misunderstanding things here. But we're outsourcing regulation. Basically,
18:34
Speaker 3: we're letting the fox guard the henhouse here. These technologies
18:38
Speaker 3: are so caught, these these programs are so complicated. Only
18:41
Speaker 3: the codes who created them can understand them. They could
18:45
Speaker 3: pose a threat to our way of life if the
18:47
Speaker 3: wrong thing is let out into the wild. We've got
18:50
Speaker 3: stories like this today. In retrospect, we may rue the
18:55
Speaker 3: day or the moment, or the year or whatever period
18:57
Speaker 3: of time that we didn't regulate. It's more like a
19:01
Speaker 3: weapon of mass destruction.
19:03
Speaker 2: It certainly brings up a lot of concerns when you
19:06
Speaker 2: hear stories like that. It is something that is so
19:11
Speaker 2: sophisticated that I can't profess to know exactly what these
19:18
Speaker 2: model makers are thinking. It certainly doesn't sound good when
19:21
Speaker 2: you have that technology being parsed out to your enemy
19:26
Speaker 2: or your adversary. So we'll continue to follow those stories
19:29
Speaker 2: as they develop. Here on the Financial Exchange, We're going
19:32
Speaker 2: to take a quick break here, but when we come back,
19:34
Speaker 2: we'll have Wall Street Watch as well as the answer
19:37
Speaker 2: to our trivia question right after.
19:39
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Speaker 4: The markets are now edging higher, but still relatively quiet
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Speaker 4: to close out the week as investors cautiously weight developments
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Speaker 4: out of the Middle East between the US Iran. South
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Speaker 4: Dow is up about a quarter percent, SMP five hundred
20:25
Speaker 4: up two tenths of one percent, Nasdak edging nineteen points higher,
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Speaker 4: twelve percent after beating earning earnings expectations and hiking its
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Speaker 4: full year guidance. Elsewhere, at the Wall Street Journal report
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Speaker 4: of that Netflix is discussing the addition of live channels
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Speaker 4: Netflix down by three percent, and shares and telecommunications firm
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Speaker 4: Vodafone are jumping twelve percent after it was revealed French
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Speaker 4: billionaire Xavier Neil took a sixteen percent stake in the
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Speaker 4: company worth about six billion dollars. I'm Tucker Silvan. That
21:33
Speaker 4: is Wall Street Watch and in the previous segment we
21:35
Speaker 4: asked you the trivia question, which famous American inventor did
21:38
Speaker 4: Nikola Tesla work for when arriving in the US. That
21:42
Speaker 4: would be Thomas Edison and Ray and East Greenwich, Rhode
21:46
Speaker 4: Island is our winner today, taking home a Financial Exchange
21:49
Speaker 4: Show T shirt. Congrats to Ray. We play trivia every
21:53
Speaker 4: day here on the Financial Exchange see complete contest rules
21:57
Speaker 4: at Financial Exchange show dot com. And it does look
22:01
Speaker 4: like Paul Skhinez just debuted on the Nasdaq at one
22:05
Speaker 4: hundred and seventy dollars to share just now, got it.
22:09
Speaker 2: So up from that one forty nine that they were
22:12
Speaker 2: priced at, but I think down from a little early
22:14
Speaker 2: this morning.
22:14
Speaker 4: Fourteen percent fourteen percent higher than the open yep.
22:18
Speaker 2: Fourteen percent higher than they open. In early indications they
22:20
Speaker 2: were at one seventy five, so a little bit less
22:23
Speaker 2: than that, but certainly still some enthusiasm regarding their debut
22:26
Speaker 2: will continue to keep listeners surprized if anything out of
22:30
Speaker 2: control happens in early trading. Mark you had spoken about
22:33
Speaker 2: some of your concerns regarding AI and the behaviors of
22:37
Speaker 2: some of the large model makers in the prior segment
22:40
Speaker 2: one piece here that is from Bloomberg, where I don't
22:44
Speaker 2: share as many fears when it comes to the use
22:47
Speaker 2: of AI agents building out sixty forty portfolios. This is
22:52
Speaker 2: something that isn't new, you know. Algorithmic trading or machine
22:57
Speaker 2: learning when it comes to stock trading or building portfolios
23:00
Speaker 2: has been around the industry for quite some time. The
23:03
Speaker 2: reason that this piece is done here in Bloomberg. Just
23:06
Speaker 2: to give the context is that JP Morgan has been
23:09
Speaker 2: testing whether their model that is AI powered can beat
23:13
Speaker 2: you know, the general market, and apparently the sixty forty
23:17
Speaker 2: portfolio that they put together outperformed b zero point seven
23:21
Speaker 2: percent a year with lower volatility over the course of
23:25
Speaker 2: the past two decades. Very important caveat here that this
23:28
Speaker 2: was done with back testing. It's not something that it's
23:32
Speaker 2: based on historical context. It's not live trading by any means.
23:36
Speaker 2: It's an area where mark You know, there's a lot
23:39
Speaker 2: of models and algorithms out there in the market, and
23:43
Speaker 2: I'm just not so sure that if everybody is building this,
23:46
Speaker 2: that this will lead to great efficiencies from a portfolio
23:50
Speaker 2: assembly standpoint. But maybe your views different from mine.
23:54
Speaker 3: There's really not enough information here to say, not surprisingly
23:57
Speaker 3: that what they're developing is probably considered proprietary. Sure, So
24:02
Speaker 3: by sixty forty, by the way, we mean sixty percent
24:04
Speaker 3: stocks forty percent bonds a pretty representative or average mix.
24:12
Speaker 3: So how might you use AI to put to So
24:15
Speaker 3: those are the broad parameters I want to my risk tolerance,
24:19
Speaker 3: my return goals are such that sixty forty is right
24:22
Speaker 3: for me sixty percent equities forty percent bonds. So what
24:26
Speaker 3: active decisions within the sixty and within the forty are
24:29
Speaker 3: being made or could be made by software as opposed
24:33
Speaker 3: to people. Well, presumably it's not which to overweight, because
24:37
Speaker 3: like that would be sort of boring, Like I don't
24:41
Speaker 3: think it's telling them go seventy percent stocks if your
24:44
Speaker 3: guidelines allow you to go that high. So the AI
24:47
Speaker 3: model could be the software could be. It could be
24:50
Speaker 3: doing that. It could be market timing. It could also
24:53
Speaker 3: be selecting managers on JP Morgan's platform and those managers
24:57
Speaker 3: happen to outperform. I don't know. It could also be
25:00
Speaker 3: selecting individual stocks. They don't really tell you where the
25:04
Speaker 3: model added value is what I'm trying to say. Was
25:07
Speaker 3: it a good market timer, was it good at security
25:10
Speaker 3: selection stock or manager security selection? Or was it something
25:14
Speaker 3: else entirely? Did it just rebalance more effectively in retrospect?
25:19
Speaker 3: So I don't know. There are a lot of levers
25:21
Speaker 3: an active manager could pull when you're running an asset
25:24
Speaker 3: allocation fund of sixty forty fund. It's not clear here
25:28
Speaker 3: where AI again added value, And I don't off the
25:33
Speaker 3: top of my head, no I wouldn't know where to
25:36
Speaker 3: start if I were setting this thing loose on managing
25:40
Speaker 3: a sixty forty, like, what instructions would I give it?
25:44
Speaker 3: So there's that again, you just don't get that information here.
25:48
Speaker 3: And then if then there's the good No.
25:51
Speaker 2: The parameters are critical, but obviously JP Morgan's yeah, they're
25:55
Speaker 2: not going to tell you that. And then they're not
25:56
Speaker 2: the only ones building it, but the come they.
26:00
Speaker 3: Could tell you what I just said. Of course I
26:01
Speaker 3: would ask that if I were. So they're going to
26:03
Speaker 3: start to take this out to market at some point
26:06
Speaker 3: they're going to brand it as an AI managed balanced fund. Well, great,
26:11
Speaker 3: where is the they'll have this information when they take
26:13
Speaker 3: this to market, assuming they do, where is your AI
26:16
Speaker 3: added value? Where is it detracted? Just like you would
26:19
Speaker 3: ask any active manager. And then the point you made
26:22
Speaker 3: about testing it out of sample is critical, and you
26:26
Speaker 3: can do that if you only have a I mean,
26:29
Speaker 3: you can train it on the first ten years of
26:31
Speaker 3: your sample, then set it loose on the next ten years,
26:35
Speaker 3: but don't train it with the next ten years so
26:37
Speaker 3: it doesn't know what was coming. This is a standard
26:41
Speaker 3: approach for testing model accuracy and so called time series analysis.
26:46
Speaker 3: You train it on some of your set that's called
26:49
Speaker 3: the training set, and then you let it loose on
26:53
Speaker 3: the rest of the set that's called the test set.
26:56
Speaker 3: Naturally pretty intuitive, and then you test its accuracy on
27:01
Speaker 3: the test set, and there are variations on that. You
27:05
Speaker 3: can mix things up and to get a good sense
27:07
Speaker 3: for how robust the results are. No indication here as
27:12
Speaker 3: to whether they did that or why they wouldn't if
27:17
Speaker 3: they could have, so, like, not a lot to go on,
27:19
Speaker 3: but you know, part of my day job here, like
27:22
Speaker 3: at any investment firm, is to due diligence managers. And
27:26
Speaker 3: if Morgan thinks this is an effective way to manage money,
27:28
Speaker 3: they'll bring it to market. At some point we'll learn more.
27:31
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28:45
Speaker 2: About a month ago, we were hyper focused on the
28:48
Speaker 2: IPO of SpaceX. Now we've been talking in today's program
28:53
Speaker 2: about sk Heinex. But the interesting thing that has gone
28:56
Speaker 2: on with SpaceX, it's been, like I said, I believe
28:59
Speaker 2: it was around June eleventh or June twelfth in which
29:02
Speaker 2: it went public. The first trade for SpaceX was at
29:05
Speaker 2: one hundred and fifty dollars a share. The IPO price
29:08
Speaker 2: was at one thirty five. Now SpaceX is trading at
29:12
Speaker 2: about one hundred and forty eight dollars a share. What
29:14
Speaker 2: has been surprising is there hasn't really been a tremendous
29:18
Speaker 2: amount of movement in the stock price. Yes, it did
29:21
Speaker 2: peak early on around two twenty a share in the
29:23
Speaker 2: first couple of days of trading, but other than that,
29:26
Speaker 2: it really hasn't garnered as many headlines in terms of
29:29
Speaker 2: its day to day trading activity. The same applies here
29:33
Speaker 2: for Tesla, it has relatively just stayed pretty stagnant. They
29:37
Speaker 2: will report their earnings on July twenty second, but it
29:40
Speaker 2: seems as if the continued focus here is to whether
29:44
Speaker 2: or not there is going to be a merger of
29:47
Speaker 2: must to behemoth company. SpaceX is the sixth largest in
29:53
Speaker 2: the world at the moment on a market cap standpoint,
29:55
Speaker 2: and Tesla is not far behind it, with a market
29:59
Speaker 2: cap that is either slightly exceeding a trillion dollars or so.
30:03
Speaker 2: Off memory here, so we'll continue to fall if there's
30:07
Speaker 2: any updates on the potential merger. It certainly has been
30:10
Speaker 2: rumored around quite a bit, but really no pricing action
30:15
Speaker 2: that is very significant on either company over the course
30:18
Speaker 2: of the last few weeks, which is rare. Usually with
30:21
Speaker 2: must companies, you do see a lot of trading volatility.
30:24
Speaker 2: Perhaps that's to come later this month when we get
30:27
Speaker 2: the earnings report from tess Up. We're going to take
30:30
Speaker 2: a quick break here on the Financial Exchange. When we
30:33
Speaker 2: come back, we're me talking to Paul la Monica from
30:36
Speaker 2: Barons and a bit of stack Roulette right after this break.
30:40
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30:58
Speaker 1: He's the Financial Exchange, Ladies and gentlemen. The weekend.
31:12
Speaker 2: As promised, we are joined by Paul Monica from Barons
31:16
Speaker 2: this Friday to talk a little bit about a company
31:19
Speaker 2: by the name of National Beverage. Paul, thanks so much
31:23
Speaker 2: for joining us.
31:24
Speaker 5: Thank you, Paul.
31:25
Speaker 2: I am familiar Paul with this company, in particular because
31:29
Speaker 2: of the Lacroix. Lacroix it sounds like the wolfhole Wall
31:34
Speaker 2: Street debate that they had sparkling water that's all over
31:39
Speaker 2: my household. My wife is a big consumer of that beverage.
31:42
Speaker 2: Tell us a little bit about National Beverage. They announced
31:45
Speaker 2: a special cash divenend and just give us a state
31:48
Speaker 2: on how the business is doing. Is my wife buying
31:51
Speaker 2: enough cases of this stuff to keep it going.
31:53
Speaker 5: Well, she might not be. I think that the good
31:58
Speaker 5: news for shareholders is that there is this cash dividend.
32:02
Speaker 5: The company does not pay a regular quarterly dividend, but
32:05
Speaker 5: they do every now and then. I think it's thirteen
32:08
Speaker 5: times over the past twenty two years they have paid
32:12
Speaker 5: this big cash dividend, So shareholders get rewarded there. The problem, though,
32:17
Speaker 5: is that this is an intensely competitive business. Right now.
32:22
Speaker 5: Lacroix faces, you know, competition from other sparkling water brands,
32:27
Speaker 5: from the likes of Coke and Pepsi. You also have
32:31
Speaker 5: a lot of other sparkling beverage brands independent as well
32:37
Speaker 5: as you know, probiotic soda as well, you know, like
32:40
Speaker 5: Poppy that have become increasingly popular. So when National Beverage
32:46
Speaker 5: reported their special dividend, they also said that sales for
32:51
Speaker 5: the year and earnings were down slightly, and that's continuing
32:55
Speaker 5: a trend for the past couple of years. A UBS
32:57
Speaker 5: analyst that follows company as a sell rating on the
33:00
Speaker 5: stock and says that, you know, top line growth has
33:03
Speaker 5: been you know, a challenge for a while now.
33:07
Speaker 2: It certainly is a really competitive area, like you mentioned,
33:11
Speaker 2: is the potential play for them to try and be
33:14
Speaker 2: acquired by one of the bigger players. It does seem
33:18
Speaker 2: like they all have competition or they all have like
33:21
Speaker 2: their own offering and the market cap in it sits
33:23
Speaker 2: around three billion dollars. Is that something that has been
33:26
Speaker 2: rumored about. Are they more suited to kind of go
33:29
Speaker 2: at it on their own?
33:30
Speaker 5: Yeah, I have not heard any chatter about the company
33:35
Speaker 5: being for sale. It's a founder led company that hasn't
33:41
Speaker 5: really shown a willingness I think to you know, look
33:46
Speaker 5: to a Coke, Pepsi or another you know, big consumer
33:50
Speaker 5: products firm to buy it.
33:52
Speaker 1: You know.
33:52
Speaker 5: That being said, you never know what will happen in
33:55
Speaker 5: the future, but it is not something that strikes me
34:00
Speaker 5: as likely in the next few years. I wouldn't be
34:03
Speaker 5: you know, suggesting people buy the stock on the hopes
34:06
Speaker 5: of it being a takeover target.
34:08
Speaker 2: Any indications as to what they're trying to focus on
34:11
Speaker 2: in terms of the turnaround here to get those sales
34:14
Speaker 2: back up and growing up into the right from the
34:17
Speaker 2: declines that they've seen.
34:19
Speaker 5: Paul, Yeah, I mean, it's going to be interesting to
34:23
Speaker 5: see you haven't really there hasn't really been much in
34:27
Speaker 5: the way of diversification for the company beyond the Lacroix brand,
34:34
Speaker 5: which is really their flagship. You know, they're constantly introducing
34:38
Speaker 5: new flavors, and they have, like your wife, as you
34:41
Speaker 5: pointed out, a pretty loyal fan base. So it's not
34:45
Speaker 5: as if this a company that is facing you know, obsolescence.
34:50
Speaker 5: I think it's just a difficult environment right now for
34:55
Speaker 5: consumer products. You know, in some respects, the success of
34:59
Speaker 5: the Lacroix brand has probably attracted a lot of competition
35:04
Speaker 5: from other beverage companies, both you know, the Cochs and
35:07
Speaker 5: Pepsi's of the world, as well as you know, other
35:10
Speaker 5: smaller independent brands like spin Drift, which you know I
35:13
Speaker 5: know my wife.
35:15
Speaker 2: My wife has that too. Therein lies the problem. There's
35:18
Speaker 2: a lot of competition out there, Like you mentioned, Paul
35:21
Speaker 2: A Monica from Baron's talking about National Beverage. Thanks so
35:25
Speaker 2: much for the time, Paul, and have a great weekend.
35:28
Speaker 5: Thanks a lot you too.
35:29
Speaker 2: Netflix is exploring live TV and bundles as it's struggling
35:34
Speaker 2: to keep viewers hooked. This is a piece here from
35:37
Speaker 2: the Wall Street Journal. They have seen their viewership numbers
35:41
Speaker 2: peak out at seven point eight percent TV viewership. That
35:45
Speaker 2: was the lowest level since May of twenty twenty five,
35:48
Speaker 2: according to Nielsen. So interesting to see this mark from Netflix.
35:53
Speaker 2: They've dived into a couple areas that they were sort
35:56
Speaker 2: of very hesitant to be a part of before, and
35:58
Speaker 2: Reed Hastings, the founder, was almost just against ads is
36:02
Speaker 2: one example. They have ad tier pricing now and now
36:05
Speaker 2: talking about live TV channels that could be coming on
36:07
Speaker 2: the platform. Really speaks to the amount of competition in
36:11
Speaker 2: this space on the streaming side, as everyone is fighting
36:15
Speaker 2: for eyeballs constantly.
36:16
Speaker 3: So let's see live TV broadcast TV advertisements multiple That
36:22
Speaker 3: sounds sourcely content. Yeah, just throw in a box for
36:26
Speaker 3: the top of your TV and a remote control, a
36:29
Speaker 3: bulky remote control. This is back to the to the
36:34
Speaker 3: eighties or.
36:36
Speaker 2: Yeah, it just feels so reminiscent of this bundling and
36:40
Speaker 2: it's just a circular.
36:41
Speaker 3: Web the way they describe it. No no, it's not cable,
36:45
Speaker 3: but it's gonna have multiple content sources. We're gonna have
36:48
Speaker 3: advertisements and all your favorite local TV network.
36:52
Speaker 4: Is that sports? Got sports now?
36:55
Speaker 3: Hey guys, Oh so cable, that's cable.
36:59
Speaker 1: Uh time has flat see to buy vans and it is.
37:06
Speaker 2: It's just it is comical how we've kind of found
37:09
Speaker 2: ourselves back at this point. Particularly what's mentioned in this
37:12
Speaker 2: piece here is the idea of them acquiring Peacock. There
37:16
Speaker 2: was the lawn drawn out battle for them bidding for
37:19
Speaker 2: Warner Brothers that ultimately went to Paramount. It has just
37:22
Speaker 2: been an arms race in the media space, and some
37:26
Speaker 2: of these ideas that you continue to hear are, like
37:29
Speaker 2: you said, Mark, so reminiscent of the last phenomenon that
37:33
Speaker 2: we had for decades prior of cable television. Taking a
37:38
Speaker 2: look around at markets, the Dow Jones is up about
37:41
Speaker 2: one hundred and twenty points. The S and P five
37:43
Speaker 2: hundred relatively client only up about ten points. Heading into
37:48
Speaker 2: the weekend action. We would be closing out for a
37:51
Speaker 2: winning week on the S and P five hundred if
37:53
Speaker 2: we were to close out where we are today. So
37:57
Speaker 2: we'll see how the rest of the trading day continues here.
38:00
Speaker 2: I want to wish everyone a fantastic weekend ahead a
38:03
Speaker 2: enjoy the July summer beautiful weather. We'll be back at
38:07
Speaker 2: it here on Monday at ten am with much more
38:10
Speaker 2: updates on the market and the economy. Thanks so much
38:12
Speaker 2: for joining us