S2E52 – Which is the best investment? AMZN, META, CSCO, or PYPL?

Key Timecodes

• (01:03) – Market thoughts  
• (17: 51) – Paypal stock review
• (25:36) – Amazon stock review
• (31:10) – Meta stock review
• (33:53) – Cisco stock review
• (30:20) – Conclusion and ranking
• (44:29) – Guest contacts

Transcription

[00:00:03.390] – Intro

Payback Time is a podcast about building businesses wealth and financial freedom. We try to uncover the challenges our guests faced, the mistakes they made, and the steps they took to achieve their goals. The overall objective is to provide you with a roadmap that leads to your own success. Sean Tepper is your host. Are you ready? It’s payback time.  

[00:00:33.640] – Sean

In this episode, Ryan Sterling returns to talk about the status of the market and we discuss which of the four stocks is the best investment today. Those stocks are Amazon, Meta, Cisco, or PayPal. Let’s dive in. Ryan, welcome back to the show.  

[00:00:49.140] – Ryan

It’s good to be here, Sean. Thanks for having me back.  

[00:00:51.300] – Sean

All right, we’re going to be diving into three stocks today PayPal, Amazon, and Cisco. But first things first, let’s talk a little bit about the market. I’d love to hear your thoughts.  

[00:01:01.860] – Ryan

Yeah, it’s been a challenging year. I mean, we were just talking about this before recording. This bear market that we’re in in 2022 is going to go down. I call it it’s a history book, bear market. We’re going to be talking about this for the rest of our lives. Not to say that the magnitude so far has been anything that’s scary, but just in terms of the buildup to this bear market, the catalyst for this bear market, kind of the complexion that it’s taking is something that I think there’s a lot of really important lessons to learn in this bear market. And I’m happy to kind of dive in quickly. I will say that there’s nothing I’m overly worried about. It could certainly get worse before it gets better. But I hope I think that there is a silver lining here. So just kind of taking a step back. Why are we here right now? Why are markets, roughly speaking, down 20% as of this recording so far in 2022? Well, it’s really driven by interest rates. So there’s an inverse relationship between interest rates and asset prices. So generally speaking, as interest rates go down, asset prices become inflated.  

[00:02:08.110] – Ryan

As interest rates go up, asset prices deflate. You see that with stocks, bonds, real estate, et cetera. So when you think about what’s causing this bear market this year, it is mostly due to the fact that the Federal Reserve has taken interest rates from 0% to right now, around 3% likely to the four and a half 5% range before they’re done. Just to give you some context, this is an enormous increase in a short period of time unlike anything that we’ve ever seen in terms of the rate of change. I’ve been talking to clients about this. I started my career in the early 2000s right after the technology bubble burst and the Federal Reserve kind of coming out of the technology bubble, the recession that we had, and then of course, 911. The Federal Reserve took interest rates down to at the time was historical and called a 2% range. That helped stimulate demand, get the economy back up and running. And then I think it was in around 2005 or so, the chairman at the time with Allan Greenspan said we’re going to get interest rates back up to a neutral level. They wanted in the four and a half 5% range, but we’re going to do it over time.  

[00:03:18.460] – Ryan

So basically, more or less every quarter he was increasing interest rates, 25 basis points, 00:20 5%, and it was very measured where basically every three months or so he was lifting by 25 basis points. And the intention was to basically get us back to a range of four and a half 5%. And we got there for a short period of time because we had the 2008 financial crisis. So in response to the 2008 financial crisis, chairman Now Bernanke at the time took interest rates down to zero and then engaged something called quantitative easing, which is basically further easing monetary conditions, the intention of having interest rates at 0% and quantitative easing, this was not a long term solution. It was something basically to get us through a very challenging time. All right, so Bernanke was able to leave interest rates at 0% for a while because we had zero inflation for a very long time back for the 2015. And the chair of the Federal Reserve at that time is Janet Yellen. And she basically took the Alan Greenspan approach to say, hey, we’re going to lift interest rates for the first time since the financial crisis.  

[00:04:26.520] – Ryan

This is the end of 2015, but we’re going to do it in 25 basis point increments, and we’re going to get there over a period of time. She started a trajectory, say 2016, 2017, 28 Jpaul, who’s now the Federal Reserve took over. He continued on that trajectory and again, the goal to get interest rates back to four and a half percent or so and then COVID habit, and then they had to take interest rates back down to zero. So now here we are, we’re going from zero to likely four and a half percent by January 2023 in a twelve month period. This is unlike anything, any chair that the Border Reserve has had to do in our lifetime. You could go back to Volker in the late 70s, early 80s, but long story short, this is incredibly disruptive for markets. In addition, we’ve had the conflict with Russia and Ukraine, and then we’ve had the zero COVID policy in China, which has created some bottlenecks on the supply chain. So that’s main inflation has been higher and more persistent than people expected. And the way the to the Federal Reserve has to fight inflation is through interest rate policy.  

[00:05:32.760] – Ryan

So that’s where we are right now. I would argue that the markets have been incredibly orderly given this repricing, and that it’s required a complete rerating on PE multiples across the board, and that part of it is largely done. The next part of the equation is, okay, so what does this do in terms of dipping us into a recession? And what does this do to earnings? Markets are forward looking, so I’d say right now where the market is predicting interest rates and where the market is predicting earnings. I think the market is fairly priced at this point. So if interest rates come in lower than expected and earnings come in higher than expected, that’s going to be positive for markets. If interest rates end up being higher than expected and earnings being lower than expected, we could easily see a decline of 10% to 15%, maybe even 20% from here. So I think markets have been fairly rational. I think we are at fair value for the markets. So Fair Value does a very good job of informing you of what to expect over the next ten years. So if you look at any period of time where markets work on beta levels right now, in terms of the P E ratio, you would expect ten year annualized returns of around eight to 9%.  

[00:06:46.660] – Ryan

So your money is likely to double over the next ten years, broadly speaking, in the market. So Fair Value does a very good job of informing you of what to expect over the next decade. Fair Value does a very bad job of informing you of what you expect over the next month, the next two months, the next three months, the next six months. And that your guess is as good as mine as where we’ll be six months from now. But I feel high conviction that the market will double ten years from now from where we are today. And it’s funny because in my practice and just talking to some clients, there are clients who see this as an opportunity and say, hey, I’m a long term investor. I can put more money to work right now at a 20% discount from where we were last year. I mean, obviously get to go back to levels that we saw in 2020 and invest money now. Absolutely. Let’s do it then. I talked to other clients who they want to pull their money out. No one has, fortunately. And we prevented people from being their own worst enemy.  

[00:07:43.570] – Ryan

But it’s interesting, I was talking to someone the other day, and I was saying that, what if we framed it like this? So imagine there’s a collectible that you’re very familiar with and just picture anything. It could be anything. So there’s this collectible, and going back over history, hundreds of years, that collectible basically has doubled every ten years. And you’re pretty confident nothing has changed, and you’re pretty confident that over the next ten years, this collectible is going to double in value. Okay? So you’re in a store, you have the collectible in your hands, and the manager comes over and says, I got to tell you something. The price that you see on that collectible, that was actually the price that we put on this collectible in January of this year, and actually the price is 20% less today. You say 20% less from the price in January, and the manager says, yes, 20% off. And you say, okay, is it going to be marked down anymore? And the manager says, well, it might be 30% to 35% marked off. No guarantee that that’s going to happen. There’s also a chance that this markdown is only temporary and that we’re going to basically mark it back up to the price that we saw in January 2021, in the next month or so.  

[00:09:05.350] – Ryan

It’s really tough to tell. But what I can tell you is today it’s 20% off. And you look at the manager and say, no thank you, I’m handed it back to you, and I’m walking out the door. You’d be insane. You would never do that. This is something that you want, you know it’s going to double over the next ten years, and you get it at a 20% discount from where it was ten months ago. Well, that’s the market, right? So if you’re walking away from this market, or if you’re saying, no, I’m not going to buy today because of the stress and the volatility, you’re basically saying no to 20% discounts. If you’re waiting to see if it goes down another 35% from the high, that might never happen. And what I’ve been telling clients is, let’s say you do invest today and the market does go down another ten to 15% from here. Yeah, that’s not going to feel great, right? But as long as we have confidence in markets and companies, which we do, that loss is going to be temporary so long as you allow it to be temporary. So if you buy today, it goes a 10% loss, just don’t sell it, and eventually it’s going to come back up.  

[00:10:09.730] – Ryan

Okay, so a loss, a paper loss is only temporary so long as you allow it to be temporary. But the missed opportunity, that’s permanent. So if you don’t put money in today and the market rallies 1020 percent from here and we never get back to these levels, that opportunity. You can’t go back in time and say, okay, now I want to not then in October of November, 2022. So that’s where, like, when I think about managing portfolios and I think about timing at the markets, I do think about risk. And yes, there’s a risk of losing money, but there’s also a risk of missing out. And if you have a long time horizon, the risk missing out is actually a lot bigger than the risk of losing money. So again, don’t walk out of the store. The collectibles at a discount, you know it’s going to go up, it’s going to double the next ten years, say thank you to the manager, take the discount and buy it.  

[00:11:01.560] – Sean

Yeah, that’s exactly I love the story there and how you can connect the dots to the market today, because you’re right, it’s this unique opportunity. I tell people within the Tykr community that the best buying opportunity we had before this. Aside from COVID which was very short, very steep drop and then steep incline. Prior to that, it was 2008. And times like this do not come around often. So I love that. Tell the manager, thank you, I’m buying, and if I can buy more of the same collectible in Mass, I will do it right now, today.  

[00:11:37.740] – Ryan

Yeah. By the way, like, people talk about 2008. If you would have purchased in December of 2008, that would have been an amazing time to put money to work. By the way, you would have gone down another 20% because the market didn’t bottom until March of 2009.  

[00:11:52.240] – Sean

That’s right.  

[00:11:52.920] – Ryan

So it would have been a shock, but it’s still looking back in hindsight. December 2008 was a great time to put money to work. But again, it wasn’t the exact bottom. The bottom was March 9, 2009. And I remember that day. There was nothing on that day to signal, now is the time to buy.  

[00:12:10.140] – Sean

Right?  

[00:12:10.530] – Ryan

There was talk about the auto filing for bankruptcy. We were in a recession. The company that I was working at at the time, they were laying people off that day city reported earnings which weren’t good. The headline in the Wall Street Journal I think I missed this last time. The headline in the Wall Street Journal was how low will stocks go? And there are analysts saying we could go to another. That was the bottom. So the bottoms are only clear in hindsight and there’s no bell that goes off. There’s no signal to say the coast is clear. And there’s usually not a positive catalyst. Bottoms are usually formed when sellers become exhausted and when news goes from bad to slightly less bad. By the time things feel good, markets already long moved up.  

[00:12:55.460] – Sean

You’re right. It’s like the positivity is a major leg. The market could be greatly corrected. I remember that through it was almost like 2010. Eleven people were still, you know, markets are really tough, everything’s down, and it’s like, no, it’s not like we’re rallying your hardcore. What are you talking about? There’s this mentality. So the idea there is, I like to say strike while the iron is hot. And that moment is definitely now. And you’re right, if the market goes down a little bit further, fine. Like we DCA around here. Like, don’t throw all your chips in at one moment. Pepper it in.  

[00:13:34.110] – Ryan

Same huge advocate of dollar cost averaging. And look, I would say that if someone came to me with a lump sum and we were talking about then investing that lump sum today, and then just through income, excess cash flow dollars or cost averaging, I would be 100% an advocate of that. I don’t want to get too cute with things. So part of me thinks, like, if you have a lump sum yeah, dollar cost averaging. If you do, you know, do it over three months, six months. There’s an art and science to it. You just have to stay consistent with it. I also don’t know there would be wrong to put a lump sum to work right now and dollar cost average just do monthly contributions.  

[00:14:11.920] – Sean

Yeah, right now this is a good context of the markets and from my perspective well, I really like what you had to say about your perspective of the, you know, when you went from quantitative easing through the years 2008 to 2015 and what each Fed share was doing. My perspective is a little different, which is I was looking at the last 100 years, last 19, or they’re about 19 major bear markets or which you could qualify average duration of each about nine months. And then average downturn is about 38%. So I’m looking at this like, hey, we’re down 20, right? Can we go down more? Yes. I look at the tech stocks, I primarily hold tech. They can go down a little bit more. But are they going to really tank a whole lot further? In my opinion, probably not.  

[00:15:04.010] – Ryan

Yes, I agree with that. And I would say that I mentioned this with silver lining, and I think the silver lining is with interest rates, that damage has largely been done right. And the market is basically given the Fed to go ahead to take interest rates. The four and a half 5%. That’s what the market is expecting and I suspect the Fed is going to get there. The one nice thing about the market with interest rates now at 4.5% is it keeps valuations honest. And I actually think it makes it easier to be a stock picker going forward because that margin of safety becomes more important, cash flow becomes more important. Where the environment that we saw in 2000 and 22,021, it was a very challenging environment because it was all based on kind of hope and ideas and stay at home and like what’s going to take over? And you had these companies that were getting ridiculous valuations. It was the growth at all costs was getting rewarded. And now with interest rates again providing that four and a half 5% alternative now as an investor, you have to look a little bit more into like what’s cash flow?  

[00:16:10.320] – Ryan

What’s cash flow today? What’s going to a few future cash flows? It keeps the market honest, it keeps the market it brings a certain amount of integrity to markets going forward and I think it will put us on a much firmer footing going forward. Alan Greenspan, in 96, when tech stocks were really taking off, had his famous irrational exuberance speech where he basically said, like, hey, there’s some irrational exuberance going on around tech stocks. That was in 96. Tech stocks continued to rally in 97, 98, 99, before finally bursting in 2000 and bursting in a very, very, very pronounced way. 2021 was a little scary just because you had some of the same behavior, where, again, you saw companies like Peloton, Zoom, DoorDash, kind of, you name it all, like, great product, by the way, but not really solid companies from an investment standpoint, because they were just burning through cash, which you just can’t do on a sustainable basis. And then of course, you have the main stocks of the world, you have the cryptocurrencies of the world, like all of these speculative assets getting incredibly high valuation and having a certain money euphoria around it.  

[00:17:22.440] – Ryan

That’s where things get a little scary. Now that can last for three or four years. So the fact that the error has been taken out in these eleven months, again, I think it’s a good thing going forward for integrity of the markets and I think puts us on much firmer footing and it gives me a lot more confidence to say, I think over the next ten years, I think we comfortably double.  

[00:17:43.540] – Sean

Yes, easily, easily. Even faster, depending on what you invest in.  

[00:17:49.510] – Ryan

That’s right?  

[00:17:49.930] – Sean

Definitely. Well, speaking of doubling, we got a few stocks that I certainly believe will double pretty quick. We’re going to jump into PayPal, Amazon and Cisco. So, first things first, I’d like to start with PayPal. I’m just going to do a high level. I’m going to turn over the Tykr, just give everybody a little snapshot of where we’re at with the numbers. Hold on here. PayPal is currently a watch in Tykr score of 56. Margin of safety of zero. Financials could be a little better, but I’ve been a long term holder of PayPal because it is literally a super app for cash. I’m just going to do a quick run through so people understand what they own. I love the transaction fee business model. I love SAS. The transaction fee I find to be a lot more scalable. But you have Venmo, which we’re going to talk about that a little bit as it relates to Amazon. They own zoom. It’s a money transfer service, 39 countries. They have Brain Tree Digital Wallet. Happy Returns, return service, hyper Wallets. A mass payment solution, honey, which I use. I have that extension in my Chrome. So coupons pop up, Chargehound, a dispute management system, pay the buy now, Pay later in Asia, simility, a fraud prevention platform, and then Zetta looks like hardware products.  

[00:19:16.090] – Sean

The point of sale, purchase. So not just PayPal’s making money. All these other businesses, they buy that complement PayPal underneath that umbrella. I’ve never seen a stock beat down so bad. About a year now is the first one to get hits, in my opinion, last year, and I’ve been buying more as we go. I’m very excited to see where the stock goes. So I’d love to hear your thoughts.  

[00:19:38.010] – Ryan

Yeah, I have as well. And I should also say too, I don’t know what the exact legal language used to be. But of course this does not constitute an advisory relationship or nothing advice. You have to do your own due diligence. So I just kind of want to get that out of the way first. But no, PayPal is one of those companies, I think, and I think all of the companies that I mentioned today and I’ve mentioned in the past are companies you put in a lockbox for ten years and you’ll be very, very happy. The thing I like about PayPal, it’s a company that has an established franchise is you just kind of hit up on it’s, well diversified. It has a number of different revenue streams, a number of different brands attached to it. We’re talking about double digit sales growth. We have about 5 billion in free cash flow. A company that has incredible growth prospects has been really good about making acquisitions. And Allocating Capital has a P ratio right now of 20, which is pretty reasonable given the fact that there’s so much growth potential. And this is a company where I talked about before with respect to the missed opportunity, in the sense that you can’t go back in time after a stock rallies.  

[00:20:50.160] – Ryan

Well, here guess what? You can take a time machine back five years and buy it at the price it was five years ago, right? So I’m looking at a company that’s significantly bigger than it was five years ago, a company that has more business lines than it did five years ago, a company that’s been adopted more on a global scale compared to where it was five years ago, yet it’s the same price it was five years ago.  

[00:21:14.510] – Sean

And this is a stock I feel like when this market takes off, I look at what Tykr kind of looked at with stocks through the recessions. How did they behave? Nvidia in 2008, I believe that stock that was over 100% return when the market corrected. And this is one of those deals where PayPal, I definitely believe that if we’re not going to double the first year, we’re going to double pretty quick. I’ve never seen the stock beat down so severely. So we walk into that store asking the store manager, he’s not saying 20% off. In this case, it’s like 70%.  

[00:21:52.300] – Ryan

Like 70% off. Exactly. That’s why I like the stock a year ago for ten years. I love it now for the next two years. And that’s the thing. Again, the store manager is telling you it’s a 70% off. Don’t ask questions. Take it and run. One thing I like with certain businesses that I really like is companies that produce 5 billion of cash flow, where from a consumer perspective, you just kind of wonder how they make money, right? So for me, I use PayPal, I use memo, et cetera. I’m not really thinking about how they’re making money. Like, for example, when I go in Starbucks, I know I’m paying Starbucks for my coffee when I buy their Nikes, I know that I’m paying for those Nike. You kind of don’t know how you’re paying for PayPal. And I feel like companies that have kind of those underlying, like the revenues kind of baked into it are just kind of like just slowing underneath. They’re really solid businesses. And I don’t mean that from a shady there’s nothing shady about it, right? I feel like if you wanted to find out, you could. It’s fairly easy.  

[00:23:04.630] – Ryan

I do think consumers benefits from services like PayPal, but the fact that as a consumer, you’re kind of disconnected from the revenue or the cost. I like companies that are like that.  

[00:23:16.080] – Sean

The key word there, spot on. Which is friction. When you do not have friction with the transaction process, that is one of the best business models on the planet. Because when I talk to our audience about this, like that transaction fee model, the fees are so small, but we’ve got a huge population of people using it and not feeling the pain. That’s that winning formula kind of like, you know, advertising, I’d say, is right up there. Like Facebook, Google, you know, we as consumers were clicking ads, we’re browsing things. We’re not feeling the kind of pain. Of course the payments are falling on small businesses, but that’s what they want. They want those clicks and want those leads. And it’s low friction, high volume.  

[00:24:00.070] – Ryan

Yup. I remember as a kid really liking the restaurants that we go to as a family, where it was it was quote unquote, free refills. And it’s not free at the time. Say if you spend a dollar for a Coke at one restaurant, where another Coke, it’s $50, but no free refills. I was probably only going to get two anyway, but it just felt like you were getting something when you’re paying a dollar for a Coke with free results and the fact that, again, you can have certain costs kind of baked into it just from a consumer’s perspective. Makes you feel better.  

[00:24:37.960] – Sean

Yeah. Love it. Let’s take a quick commercial break. Hey, this is Sean. I just want to say thanks a lot for checking out this podcast. I know there’s a lot of other podcasts you could be listening to, so thanks for checking out this one. Could you do me a quick favor? If you haven’t done so already, could you leave us a five star rating on either Spotify, Apple, Podcasts, Google, or any other platform you use to listen to podcasts? What this will do is help us rank higher in the podcast search engines, you could say. So that would be much appreciated. Also, if there are any questions you want me to ask the guests for a specific topic you want me to address, please go to our Tykr Facebook group. You can leave a comment there and I’d love to hear what you have to say. All right, back to the show. Yeah, so PayPal again, great business model. One of my longest term stocks. I’ve been holding this stock for a long time and I’ll just continue buying this one for sure.  

[00:25:35.560] – Ryan

Yeah.  

[00:25:36.490] – Sean

Cool. Let’s transition to Amazon just to touch on this real quick. We’re looking at a 44. It’s currently overpriced in Tykr. 44 is a score margin of safety zero as well. That’s all okay because in this case, the business model checks out. Now, I don’t hold Amazon, but exciting news. Over the last, I think, week or two, venmo has finally been added to the transaction process within Amazon. So those Venmo users, which Venmo is only a US based product right now, but consumers can use Venmo to buy products. So, hey, win for PayPal and win for Amazon.  

[00:26:15.520] – Ryan

Yes, that’s right. And you hit the nail right on the head with respect to friction. And that Amazon mastered this right when Amazon so Amazon was the original company to do the one click checkout. They actually had that patented when they introduced one click checkout, I think the revenues went up by like $5 billion or something along those lines because they understand that the easier you make it for consumers, the more you’re going to spend. And I think that I used to work at the firm Capital Group, so Capital Group was one of the largest asset managers globally. And I remember being a meeting with one of the growth managers. And at the time, Capital Group was kind of the top shareholder outside of Jeff Bezos of Amazon. He has a room for maybe 150 people in the room, he said, who subscribes to Amazon Prime. And I’d say probably 80% of the room raised their hand. And he goes, that’s why Amazon is my number one holder. And I would say that’s become even more pronounced since the pandemic, I think about. I live in New York City. There’s a Dwayne Reed right outside of my apartment.  

[00:27:28.090] – Ryan

The Dwayne Reed has become increasingly more frustrating to buy products in. I feel like they’re understaffed. I feel like the staff is, for the most part, pretty unfriendly. I’ll be waiting to check out. And basically everybody wants to be stocking shells instead of helping customers out. And they just don’t really seem to care. It’s just an aggravating experience to go to Dwayne Reid. And I basically been able to by Dwayne Reid purchase that maybe I went to once every two weeks. I’m just doing it on Amazon right now. I feel like Amazon has just made things so easy. I can put things on autopilot. It’s at my door a day later, and I don’t have to worry about actually going into the store, dealing with unhappy customer service reps, kind of dealing with their inventory issues, etc. I just get it from Amazon. I think about taking my experience and just applying that to hundreds of millions of billions of people. Amazon just makes it so much easier. They. Really do and they understand how to reduce those frictions. So I think with Amazon you get the strong franchise, strong cash flow, but they’ve been really good about being efficient with their cash flow and using it to build out other business lines.  

[00:28:39.670] – Ryan

So you think about what they’ve done in terms of building out Amazon Web Services. That’s a business that super scalable, super high margins. It’s really hard once you’re in their ecosystem, it’s really hard to switch out of it. And I think about what that’s going to fund in terms of future initiatives. So I think I look at this is my third time on the show and I look at one of the themes I think you could extract that I look for, and I like is companies that have the combination of free cash flow and innovation. And if you go back in the history of the markets, particularly speaking, had one or the other, you had companies that were super innovative, but you just kind of had to hold your nose and hope they can grow into their valuations or hope that they could have positive free cash flow someday. On the other side, you had companies that produce stable cash flow, but they tend to be in really slow, boring industries, tend to be capital intensive, tended to pay dividends, but there wasn’t going to be an enormous amount of growth over time. Today it’s like the first time that we’ve seen this amazing combination of the two.  

[00:29:48.090] – Ryan

And that’s why I look at Google, microsoft, Apple, Amazon. These are companies that have incredible talent, incredible innovation, they have incredible free cash flow and you basically get a free call option on their innovation and technology. I think this is a combination that, again, we just, we really haven’t seen and I think it’s a really powerful one. So I trust the management team at Amazon to be able to use that free cash flow in a way that’s going to compound my wealth greater than if they paid me a dividend.  

[00:30:19.900] – Sean

Right. You mentioned a lot of big names there and there’s people out there, investors who are looking for they could call it the next Ten Beggar. They’re looking for that new tax stock that’s hot and they try to be contrarian. I’m not going to invest in Apple or Amazon. And you got to take a step back and realize that all these names, yes, there’s a brand mode there, but each entity has multiple streams of revenue. I’m really big on that with building a healthy business. If you’re an entrepreneur, but also investing in the business is how many revenue streams do they have and how healthy are those streams. And you look at all those, including Amazon, the AWS, you get the commerce platform and they make all this money off small business owners. Their Amazon FBA is a huge engine in itself. Those streams of revenue together really compound and make it a special business.  

[00:31:09.880] – Ryan

That’s exactly right. And let me just take it one step back here because I feel like I do apologize to the listeners from my last call, the last interview where I recommended Neta. I still put Meta in that category. It’s been a really challenging stock to own and a really frustrating stock to own. But I will say I do put met in that category and that they have unbelievable free cash flow and their issue is nobody believes in the Metaverse. And I think the criticism is fair. I would say in the case of Amazon, they have yet to have a Meta moment. And I feel like the risk of a Meta moment is less with Amazon than it was with Facebook.  

[00:31:54.700] – Sean

So what? You’re not bullish on legs? Okay, so that’s the amount of money that Zuckerberg and his team were investing in Meta to animate legs.  

[00:32:04.440] – Ryan

Oh, sorry.  

[00:32:07.310] – Sean

Investors are like, really? That’s what we’re investing in is animated legs?  

[00:32:12.000] – Ryan

Anyway, actually, I didn’t know you’re going with that. Yes, I will say I’m not selling Meta. I’m still a long term holder of Meta. And I will say with the Metaverse, I feel like two things are going to happen, and then we’re going to talk about Meta. I just want to say two things. I know, though. Number one is one of two things will happen in a year or two, mark Zuckerberg will say, we’re going to abandon ship on the Metaverse. It’s not going to be what we originally thought. It’s going to be some sort of slight, smaller variation of it. The stock is going to rally 30, 40, 50% on that news alone. If Mark Zuckerberg came out today and said, we’re going to scrap all metabolic investments, the stock would probably rally 30%. Okay. So I feel like that’s a downside scenario. The upside scenario is that he has a lot laugh and that everyone’s calling him an idiot right now. And ten years from now, the stock is ten X. We’re talking about stocks doubling. I think that’s a stock that could.  

[00:33:08.160] – Sean

Ten X. I agree. I’m not an investor in Facebook, but I do respect where it’s at. And I’ve been telling people, if you own it, don’t sell it. The reason is that advertising engine, it isn’t going away in recessions or bear markets like this. This is repeating what happened in OA to remember businesses pull back on an advertising with Facebook and Google, and it’s like, that’s what we’re seeing right now. Let the stock drop like it did. But when it rallies businesses, guess what? They’re going to open up their wallets. They’re going to be spending money in advertising, and that stock is going to go through the roof.  

[00:33:43.020] – Ryan

That’s right. I think the worst case scenario is if the Metaverse, like, we’re scrapping, the big ambitious plans for that stock is going to rally 30% off of that.  

[00:33:53.510] – Sean

All right, we get a bonus stock today Meta. So we’re going to get to Cisco. Now, I have to admit, I’m in the tech space, and I would say I know a lot about tech, but I don’t spend a lot of time looking into Cisco. I know it’s networking switches, and really what I know is big businesses will hire Cisco to put in the networking switches, routers, all that kind of thing. It’s a physical infrastructure that it’s hard to compete with. It’s stock. Right now, it’s overpriced in Tykr 39 score. Margin of safety is zero. I haven’t shown interest in this, but I’d really love to hear your thoughts.  

[00:34:30.150] – Ryan

Yeah, so I feel like Cisco is another one of those companies and that I can look at my desk. Right actually, it’s a lot easier. I can look at my desk right here. This is a Cisco phone. If I went into my closet, you would find a Cisco router. I would suspect that most people on this call, they’re using Cisco or interacting with Cisco products or services in some way, shape, or form on a daily basis. You just don’t really notice it. I like companies that do that because revenue is happening behind the scenes, and it doesn’t require you as a consumer to go into kind of the physical Cisco location. So the thing I like about Cisco is this is almost kind of like an anti. Anti. It’s almost like a hybrid stay at home play. We all stayed at home in 2020, and Zoom became really popular, and people were having company rapping meetings over Zoom, families were getting together, Zoom, so on and so forth. Well, one thing that if it’s the two of us, we can do this over Zoom, fine. If you’re Goldman Sachs and now you’re sitting there and saying, okay, we want people back in the office, but we know that there’s going to be some high level executives that are going to, every now and then work from the Hamptons or work from, we can’t do this over Zoom.  

[00:35:51.570] – Ryan

We need a better enterprise solution, because we’re interacting. And it’s not just executives, but it’s also we’re now seeing clients virtually on a more frequent basis. And doing that, a resume is just not going to work. Like, you need a stronger enterprise solution, and Cisco is the go to provider for these enterprise systems across the board. So number one is, I think that as we go back to this kind of hybrid stay at home, go back to the office, working home permanently and interacting just with for small businesses or just kind of families zoom was fine for businesses. They have to upgrade their Cisco networks. But also going back to the office look these things as a replacement cycle, right? And this is a great opportunity now, okay? People are going back to the office. Work is going to look a little bit different from what it did back in 2020. We need to do a complete overhaul of our systems, and Cisco is going to be a huge beneficiary of that.  

[00:36:52.010] – Sean

Right. Nice. That’s great perspective. I didn’t think of that. With the work from home on, their products indeed are in people’s homes, and there are companies that permanently or work from home or partial. So that’s a great point. And then, of course, I look at the bigger businesses I work for. It’s like, okay, so we’re going to set up an infrastructure on 14 floors. Guess what? It’s all cisco. I mean, the contract on something like that is okay, over $10 million. That’s what I’ve been exposed to. And that’s where Cisco makes a lot of money.  

[00:37:26.190] – Ryan

Most companies, and again, with kind of this hybrid work from home going to the office, so many companies are kind of updating what the going to work is going to look like, and that’s coming with changes in floor plans. That’s coming with changes in schedules and routines, so on and so forth. And when you’re doing that, when you’re changing things, like, Cisco is right in the middle of that, and they’re helping facilitate what this kind of new normal is going to look like.  

[00:37:53.940] – Sean

Right. All right, let’s do a rundown here. I want to hear your thoughts. We’re going to rank them from your favorites to lead favorites, and we’re going to use four because we got a bonus stock now. So we got PayPal. Amazon, Meta, and Cisco gave it to us. How would you rank those?  

[00:38:11.590] – Ryan

I would say number one, I would say PayPal. I think that’s the best opportunity between now and ten years from now. And I always look in decades. Number two, it’s tough. I want to say Meta, I really do, but I’m going to kind of hedge myself and kind of love Meta and Amazon in there. Number three, I’d say Cisco. Cisco, I think is a good opportunity. I like it. We have it in our portfolios. Cisco, I think, is a really good opportunity. I don’t think it’s going to be overly exciting, but I think it can be really effective for the next ten years. But, yeah, I would say PayPal would be my highest conviction. Beta Amazon. I would love to end Cisco at the bottom.  

[00:38:45.600] – Sean

Cisco at the bottom. Okay, so PayPal number one for me too. I have to go with Amazon because I really like, AWS, I love the profit margins, the stickiness enterprise. SaaS companies aren’t trying it for, like, a year. We’re talking 5710 year commitments, third pay, I’m sorry. Meta, because of the scalability of the advertising engine. And then Cisco, I know the least about the business. I do respect what they do with hardware infrastructure, but I think it can still do really well for the next ten years. But I see the other three businesses are the rocket ships. In my opinion.  

[00:39:26.210] – Ryan

We’Re in close alignment here. And I will say that I mentioned kind of the ten year time horizon, a lot. And I’m saying that very intentionally because I think anyone on this call who wants to make money in investing, you have to have a long time horizon. I heard this from someone recently and I’m going to steal it. When you talk about making money and making a lot of money over time, there’s two things, right? Number one is you have to focus on getting doubles and then you have to be aggressively patient. So let’s start with number one. The building wealth game is really a game about doubles, right? So if you have $100 a day, you’re ten doubles away from a million dollars, right. So how do you shorten the distance between the doubles? Both investing is going to be part of it, right? But we’re not going to double. We’re not going to compound over growth rate 100% every year. So it’s a matter though of building portfolios that are we talked about this before. You want to be diversified but there’s risk of being too diversified if you want to get a faster double.  

[00:40:27.750] – Ryan

And then number two is how consistent dollar cost averaging approach. So the combination of the money working for you in these stocks along with adding on a consistent basis that gets you to the doubles that much faster. But then number two is you have to be aggressively patient in that when you’re doubling going from one hundred dollars to two hundred dollars, it doesn’t really feel like you’re making that much progress. When you go from 200 to 400 doesn’t feel like much progress. 400 to 800. 800. 1616 to 32, 32 to 64. Sorry. I said a $1,000 sorry a $1,000 sorry $1,000. You’re ten doubles away from a million so you’re going from 1000 to 2000. That doesn’t feel that exciting. When you’re going from 2000 to 40. 00 40 00 80 00 816, 16 to 32, 32 to 64, 64 to 121, 20 to 242. 40 is roughly 505 hundred to a million. That’s where it gets exciting. It’s later on but when you’re first starting out and you’re 1000 to 2000 it feels like, oh my God, the distance is so far you’re just nine more doubles away.  

[00:41:34.360] – Sean

Yeah, you’re great perspective there. That doubling really does get exciting as you go with our audience. I tell them investing is especially in the beginning, it’s not a job replacement strategy. You still try to create some kind of ongoing stream of income, get a job. Some people, they don’t love that, but that’s the safest and the easiest way to really build wealth. Consistent paycheck. Keep throwing money into your brokerage account every month, you’re going to thank yourself years later and be like, I didn’t love that job, but I got that consistent paycheck and I got philosophy to build my wealth.  

[00:42:12.640] – Ryan

That’s right. I don’t know what the target demographic of the listener is here, but I’d say that most of my clients are in their thirty s and forty s very much in the wealth of stage of their life. And we were talking about this before we went on the podcast here. What I’m a big proponent of is reaching financial independence. But what I’d say, that for my typical client, we’re targeting financial independence in their early 50s. So if you’re someone who’s 35 today and you have kind of a mid below six figure portfolio, let’s say if we can have some sort of combination of maximum your four hundred and one K and having a consistent amount going into your brokerage account. Call it $3,000 or so, depending on your lifestyle, because there’s lots that goes into the financial independence number. I have a formula that I use where I can basically help clients figure out what their financial independence number is and then back into what do we need to be doing on a monthly basis in order to reach that goal? Okay, what that does is that says, okay, over 15 years, someone is 35 to early 50s, let’s say 15 to 20 years, we’re going to get you to financial independence.  

[00:43:18.390] – Ryan

You’re not going to see it tomorrow, you’re not going to see it a month from now, you’re not going to see it six months from now, you’re not going to see it a year from now. It probably won’t even feel like you’re getting that close five years from now. But trust the process and you will. All of a sudden, 1520 years later, you’ll say, I can’t believe we covered this much ground. But what that does is two things. Number one is if you cheat financial independence in your mid fifty s, you have a lot of life left to live. And you can choose like, do I want to be an investor fulltime, do I want to take some time off travel? Do I like my job and want to continue to what I’m doing? Do I want to join a startup and get equity into startup? Time is yours, and you can choose how to spend your time. But what that also does though, is it frees you up to live your life today. So I want my client, who’s 36, to be able to we’re talking about this. Take the trip to Greece, take the trip to Italy, buy that cool new guitar, whatever it is that lights you up, that gets you excited, you should feel free to spend today and enjoy in the presence, knowing that there’s a machine in the process working for you in the background.  

[00:44:23.320] – Sean

Right on. I love that background there. And that motivation, especially for our listeners. And I think this is a great opportunity. Why don’t you tell our audience where they can reach you in case they want to talk about this financial independence calculator you put together?  

[00:44:38.830] – Ryan

Yeah. So I’d say, if you want to talk, you can book a meeting. I’m happy to have one on one meetings. You can go to my website futureyouwelf.com, there’s a place where you can connect and book a one on one call. In terms of LinkedIn, that’s probably where I’m most active, but I actually have not been that active on social media. I need to get more active on it, but you can find me at ryan Sterling on LinkedIn is probably the best place.  

[00:45:03.150] – Sean

Nice. Well, thanks for returning again. I always love talking about stocks with you, ryan, we’ll have you back again soon.  

[00:45:08.940] – Ryan

Yeah. Thanks so much, John. Appreciate this and looking forward to the next one.  

[00:45:12.420] – Sean

All right, we’ll see ya. Hey, I just want to say thanks for checking out this podcast. I know your time is valuable and there’s a lot of other podcasts out there you could be listening to. So thanks for taking the time to listen to my guest story. If you did enjoy this podcast episode, could you head over to itunes and leave a five star review? That would be much appreciated. Thank you. And last but not least on this podcast, some episodes we do talk about stocks. And please keep in mind, this podcast is for entertainment purposes only. So if you did hear any buy or sell recommendations, please don’t make those decisions based solely on what you hear. Right, thanks a lot. See you. If you like this podcast episode, you may also like this episode with Chandler Walker – Big wins, fast failures, and managing emotions