High conviction ideas with next gen investors

0:09Welcome back to Seeking Alpha's Investing Experts podcast. I'm Rob Isbitts and my work at Seeking Alpha is under the profile Sun Garden Investment Publishing. I also lead the investing group Sun Garden Investors Club, where we focus on teaching our club members to embrace the flexibility of modern markets. Our club prioritizes risk management, technical analysis, and using options to protect and enhance assets. So just a few weeks ago, I was in the guest chair, and Rena Sherbel, Seeking Alpha's excellent director of content programming, interviewed me, as we'd done before. and the title was It All Starts With Risk Management, so check that out.

0:53So today, really excited about this. I am hosting and I really want to thank Rina and the crew at Seeking Alpha for saying yes to this idea. So here's what we're doing today. I really do believe that the investing business has a shortage of great young analysts. For me, it's the only industry I've ever been in going back to 1986 when I walked into the World Trade Center in New York to start my career as a portfolio assistant, a lowly portfolio assistant. 39 years later, as they say in golf, I'm kind of on the back nine of my career. And when I sold my advisory practice five years ago and went into semi-retirement, I wanted to identify some of these upwardly mobile next generation investment pros.

1:42And I've introduced dozens of them to Seeking Alpha over the years. Today you're going to hear from three of the best, Julia Ostian, Jack Bowman, and Kenio Fontes. I'm going to introduce them in a moment, one by one. They will briefly describe their backgrounds, and then we'll move right into their research and talk about what they are really seeing and what's most important in their worlds right now. And so I will start off by simply saying, what are three things that I think are kind of driving my own research at SunGarden and in SunGarden Investors Club? First one is the bubble in very large U.S.

2:26stocks, Mag7, etc. I manage money through the dot-com bubble, and that makes me respect these strong returns, but I am always on guard for sudden and swift reversals. Eventually, one of those reversals is going to stick and it's going to last a while. And I just don't think that many investors are prepared for it. Second thing is that how investors can prepare. I think they should learn more about using options, specifically something I write about a lot. It's called the collar strategy, and that puts guardrails around stocks and ETFs and allows me to define what my worst case scenario will be before it's too late.

3:06And the third thing, it all kind of ties into this and why I like technical analysis so much, the post-pandemic market is different. Stocks are different. Bonds are different. And I think that means our skill set has to adjust. I've been a technician since the 1980s. And I think the markets follow the chart patterns now a lot more than they ever have. And so I think that people either learn how technicals work or they stay in denial and they take their chances. So those are my three things off the top of the brain. Let's now go and introduce you to three of the best young thinkers on the Seeking Alpha platform.

3:50And let's start with Julia Ostian. Julia, first of all, what should people know about your background personally and professionally?

4:02Julia Ostian:Hey, Rob. Thanks for having me, first of all, for Seeking Alpha. I am very happy to be part of this Next Gen podcast. And I truly appreciate this opportunity. So the first thing I guess the readers should know about me before reading any of my analysis is the fact that I am fascinated by businesses. And I guess it will be important to say that I've grew up in a family of business owners. I never had a role model of a person go to regular job, if it makes sense. I never saw anyone do anything besides of having and building something of their own. So I guess since my childhood, I've been a part of this building, managing, selling even for process so i guess this is that i guess this is why i'm basically here and this is why i'm so interested breaking down the companies so the investment part of the whole process comes for me personally after the business part and probably this is the reason why for example i find a hard time investing in unprofitable business for me business is a way to make money business should earn and we're here not to do charity or not to be fascinated by the innovation although we can be right but in my opinion business is the way to live right and to make you rich so that's that about my view and the favorite part of the investing process is again I will come back to the money because I like the fact that when you have an opinion or when you decided on something you can actually put your money on it and this is kind of a deal that I've made with myself.

6:16Julia Ostian:I am not slapping a buy rating on something that I'm not ready to buy. And I am actually going and buying many of the securities that I have a buy rating or especially a strong buy rating on. And this is basically like a checkup of how true you are to yourself, right? Are you ready to put your hard-on money on what you're talking about, on your research, on your outlook so that's probably that and about the things that I have a total confidence will happen in many of my analysis I often say that I am kind of bearish on the whole macro situation right now and I must say I am like of course I'm trying to stay as objective as I can but But I often say I'm not sure I am because I was born and raised in Ukraine.

7:14Julia Ostian:And Ukraine currently is at the war. I'm living in Israel for the past eight years. So probably all of the listeners know the situation in the Middle East right now. So I guess it only makes sense that I would be bearish. I don't see how with all of the volatility and with all of the geopolitical situation in the world we can have the highest market ever so for me it doesn't make sense but again I might be biased because of the places I'm living at well I'm sitting here wondering gee maybe we should skip the conversation go right to the book you're going to write about everything that you've seen geopolitically the last few years.

8:08We'll certainly be coming back to that and talking to you about some of the things that you like and don't like right now from your writing. Jack Bowman, what should people know about you professionally and personally?

8:23Jack Bowman:Yeah, thanks, Rob. So, hey, everyone. This is my first time on investing experts. That's exciting. Things to know about me. I'm a former teacher. So I spent about five years in the K-12 education system teaching high school economics, which means that I have a need to explain everything. And I want to make sure that you get it in my articles. So if you get through an article and you get to a point where I'm explaining something you think might be trivial, or you should just know this, keep going. Because it does get deeper, but there's scaffolding built into my articles, right? I'm aiming to teach with a lot of my writing on Seeking Alpha.

8:57Jack Bowman:And that's just part of my ethos. Other than that, I'm a registered investment advisor. And so I also kind of aim to write with an asset allocation focus, with a risk management focus of, you know, you can make money on anything, but you can lose money on everything. My favorite part of the investing process is the research, for sure, as a writer. I love getting into this stuff. I love being able to deploy it. And of course, I love making money. I think most people do. But my real joy has been in finding the information, digging through the masses and masses of the digital world that we have now.

9:38Jack Bowman:We have so much information and data at our fingertips to find. And all we got to do is figure out what story they're telling. And the three things I have a high degree of confidence on, that's hard because I don't often have a high degree of confidence about much. I am very willing to admit that I cannot know the future. And even predicting is so, so very hard, especially with our current administration being more unpredictable than the last. And I'll leave that there politically. And so if I had to pick three things, I think rates do come down this year, maybe probably at the end of the year.

10:16Jack Bowman:The asset bubble is not going to pop anytime soon. It seems to me that macro forces like Congress and whoever are doing everything they can to keep the asset bubble going. So I think regardless of all the doom and gloom you may hear, the bearish takes, the party will still go on for some time, no matter how little sense it may make from an evaluation perspective or what have you. And my last one is the line's going to keep going to the right, no matter what it does next, it'll keep going on. Right. And that's the thing we got to remember is whether it's up or down, we still got more time. We will always have more time.

10:56All right. I, uh, well, you know, you, you could add up probably any two of your ages and I'd still be older. So I don't know about the time thing, but, uh, but it's all relative, right? Yeah. So yeah. And I love the scaffolding comment. I mean, I think, yeah, I'm, I'm kind of built the, the same way having been an advisor for many years till I sold the practice five years ago. Kenio, Fontes, it is pretty cool because, I mean, we are all from different parts of the globe. Just getting the four of us on together was a battle not of availability, but of availability in a reasonable time of day so that somebody wasn't doing this in the middle of the night.

11:41uh kenio tell us what should we know about you personally professionally and then we'll move on to some of your current work uh highlights and then then we'll go back to everybody and talk

11:53Kenio Fontes:about it yeah hi everyone thanks for having me here so as you were saying the first thing i'm going to say is that i'm brazilian and actually i started analyzing stocks in brazilian market about five years ago and that shaped a lot of my thinking because it forced me to pay attention to some risks like macro risks, currency impacts and mainly management and corporate governance. And over time I expanded my research globally trying to be as much pragmatic and holistic as possible. I believe everything in markets is dynamic so a stock that looked overpriced yesterday might become attractive tomorrow depending on narrative execution and valuation resets.

12:38Kenio Fontes:I focus more often on tech, but I look at all sectors when the opportunity is clear enough. My favorite part of the investment process is understanding the business itself. So the long-term strategy, the industry dynamics, how the company really makes money and how it can unlock more in the future either by expanding sales or adding a new segment or expanding margins valuation and balance sheets of course it's very very important but they come after i understand the fundamentals of the business just giving a quick example i'm amazon i find it fascinating how i think about how their massive capex today whether in logistics or cloud will translate into revenue growth and margin.

13:34Kenio Fontes:Three things that I have more conviction today is probably that AI will drive not only revenue, but also expanding margins in a lot of sectors. The second one is about Alphabet or Google, if you will. I think it probably will perform the market over the next three or four years in the medium to long term. due to strong execution and attractive valuation. And the third one is meta. Probably, I think meta is likely to see revenue growths normalize and then it will potentially lead it to a modest multiple contraction. So I'm a little bit more bearish in meta. So, you know, it's funny. I'm listening and I'm taking some notes here about what everybody's talked about.

14:32And already a couple of you have mentioned Amazon. I'm sure we all have our own opinion on it. Mine's more technically based. Jack's maybe a little bit more macro driven. Julia has already mentioned it as an individual stock. And so has Kenio. And I feel like maybe this is a kind of what I said before. Or the stock market has become very crowded at the top. And it's almost like we're getting to the point where outside of maybe 15, 20 public companies, most of which are in the US, if you're trying to track an index, not sure you need to go much beyond that. A lot of stuff is getting simpler simply from an investor standpoint because so many stocks don't matter.

15:23And look, it's all about generating alpha, right? So let's talk about that. I mean, Julie, I want to go back to you. You are pretty stingy on strong buy ratings. And you're probably not the only one in this group that is. But you do have two that did stand out to you. uh one the aforementioned amazon and uh the other is a little car company although maybe they're not just a car company right that's what they say about the other you know car company uh tesla but that's uber so amazon and uber they stand out and you have a much higher conviction level on those than you do. So if you can, just kind of weave that into, let's say, the broader market view that you have, because I think that's an indicator right there, right?

16:24That if you only have a couple strong buys, maybe it says something about your broader outlook.

16:30Julia Ostian:Yeah, that's true. So first of all, I wanted to say that I really connected to Jack's point about the market being overheated right now and that there is a strong possibility of that's not happening anytime soon it's not changing anytime soon i mean because well when the government has the strongest goal to keep it up right i guess they will be successful in doing so but yeah basically i am not throwing around strong buys because of that because in my opinion us especially us market right now is overheated and well i have no idea when it will change i actually had an idea of going out selling everything and keeping cash but i realized that i will be just missing on every opportunity possible so i decided not to do so and basically it connects to everything i mentioned before about the business for these two companies for uber and amazon i currently see a mix of perfect timing for example long-term dominance which is really important to me both of these companies are the best in their spaces and they make a lot of money i really like it when businesses make a lot of me and I see a misunderstood opportunity there as well I mean for Uber I started buying it back when it was$60 per share so I guess it kind of went up from there a little but still right now I see this company adding the stock of this company adding few dozens of bucks easily in some near future.

18:20Julia Ostian:And for Amazon, for example, first of all, it has very strong advertising power. I am fascinated by this business. I am fascinated by the AWS and how it took over basically like everything. I live in Israel. So we're like a high tech nation and I hear about AWS from everywhere. Basically, if you want to have a work in engineering, you must learn AWS. This is like a standard. Have you ever experienced Amazon as a consumer? Where you live? What do you mean? Like only retail, not I haven't used AWS services. Got it. So unlike, I would imagine, Jack and me, I'm guessing that Kenny and Julia have not had the pleasure, even multiple times a day of an Amazon truck showing up and delivering to you what you forgot you ordered yesterday?

19:20Jack Bowman:This is something I think a lot of people kind of miss about the Amazon story is that when you look at their revenue breakdown, right? Like they make more money from AWS, like we're talking about, than they do from Amazon Prime. Amazon Prime is a big money loser, but it built brand, it built name recognition and all these things that allow them to build AWS. But most Americans interact with Prime, not AWS, right? So that's kind of our vision of Amazon is this big shipping company, even though most of their money comes from the cloud and software development, right? Was part of that the idea that the market allowed them to get away with that for the longest time?

20:02Again, here comes my advantage or disadvantage of age, relatively speaking. I remember when the biggest complaint about Amazon year after year was, well, they never make any money. And a lot of it was because they kept throwing all the profits back into the business. So, Julia, you were going to say.

20:21Julia Ostian:Yeah, I was going to say that basically with the retail, I was not aware. I actually saw that they are making money from the retail inside of the U.S., but I saw that they just turned profitable, I guess, last quarter from the retail in the world. And I mean, it's kind of crazy, right? We are all using Amazon, like all the time. I have this app installed on my phone and it's like, it's in use forever. And I could never have guessed that they are not making money from this. But yeah, this is actually, it was another great point from Jack that this is such a strong marketing effort, right? That this whole thing, this whole narrative that they were able to build around this company, I know for sure that in Israel, for example, once again, we're a startup nation or how they call us.

21:17Julia Ostian:People do learn AWS because of the actual Amazon. I am pretty sure it's like that. and I never had a chance to use AWS, but my husband actually has. And he says there is nothing even close to quality to this product. So basically, it was my point why I think, in my opinion, Amazon is still a great, amazing buy. And although people are concerned about the valuation of Amazon, I am pretty convinced that the growth and the future opportunities, for example, I wrote article on on their project Kuiper and this future opportunity in my opinion is simply amazing people are looking to invest in satellites right and in my opinion there is no better player right now than Amazon in this space and Kenny so before we turn this in the Amazon hour because as far as I know they're not a sponsor please two cents on Amazon and then we'll move on to a lot of other topics

22:30Kenio Fontes:yeah perfect I must say in Brazil we are experienced like I think it's almost near what Americans are experienced too so we can order, buy a product and receive it in one day so mainly in capitals so the international expansion is working All right. All right. So now let's stick with you, Kenny O. You're a big admirer of Warren Buffett. I don't know anybody in this business who doesn't at least admire and respect what he's done. And of course, his late great partner, Charlie Munger.

23:18but what does that do for your work at Seeking Alpha? And in fact, I know that you even had a chance to attend the Berkshire conference this year and that must have been quite an event because you showed up and he retired.

23:37Kenio Fontes:Yeah, it was amazing, amazing, awesome experience. So Buffett is a value investor, which means he cares about valuation and margin of safety. But early on, I was very focused on valuation, chasing cheap stocks. But over time, I realized that without good management, execution or a solid industry, cheap can stay cheap forever or even get worse. And Buffett taught me that quality doesn't only matter, but it's the foundation. So today's valuation is still very important to me, but it's like the cherry on the top. It only matters if the business is worth owning in the first place. He also influenced me how I think about optionality.

24:27Kenio Fontes:So going back to Amazon, AWS owns just a small side project, but now it's almost the main pillar of the business. that kind of long-term thinking really stuck with me.

24:46And Jack, you mentioned before you used to be a teacher. I think you very much still are one, reading your work, as I do frequently. Talk to us about a subject you've written about quite a bit, which is the Federal Reserve. but explain it to me like I'm a high school student. Yeah.

25:10Jack Bowman:And I used to teach the Fed as part of my econ course in high school. I used to love the lesson I got to teach on monetary rehypothecation. I'm like, this is the smartest word you're ever going to learn in my classroom, and you're going to impress the hell out of your parents when you go home and tell them about how the Fed creates money out of thin air, right? And so the way that I would explain what's going on with the Fed today, just to readers, and I know that you're not in high school, or some of you might be, unlikely with the Seeking Alpha audience. But essentially, we have an independent from the government arm of the banking system that is designed to keep the banking system in check, designed to keep inflation down and designed to keep employment up.

26:01Jack Bowman:And to do so, they employ basically a couple tools. They can buy and sell mortgages and securities and treasuries, which we call their balance sheet. They can change interest rates, which we call monetary policy and is the main focus of a lot of people watching the Fed, is on interest rates, because those interest rates control how fast or slow our economy moves. And because the U.S. dollar is so powerful, it controls also how fast or slow a lot of the rest of the world moves because their financial systems are contingent on the speed and velocity of the U.S. financial system. So following them becomes very important if you want to understand where the financial system is moving, where the cracks may be.

26:43Jack Bowman:I just talked about the Fed getting involved in the repo markets, which is where banks needing extra collateral to make their balance sheets healthy. They needed more money last week than they did at any point since 2019. It was about$11 billion they needed to just have injected into the banks. And the Fed provides this liquidity and keeps the system churning and paves over a lot of the potholes that we may see in the banks. And so it's important to follow them for those reasons and to understand kind of where the economy is moving. So open question for all of you. So how how is this allowed to go on and what changes it?

27:27Because we've all talked about how, well, you know, the party keeps going until it stops. And look, I mean, I've thought at times that it could be just a matter of, OK, if anybody from China, Asia, Europe gets tough on trade. and says, okay, don't need the U.S. market, at least for a while, we'll make do without it, that might upset the whole world over. I'm kind of replaying what we were dealing with in March and April. So I'm wondering what breaks the logjam between glorious equity returns at the top end and something else where we actually get a true bear market that lasts a while? Jack first, and then I know Julia wants to comment on this.

28:23Jack Bowman:So I won't get too into this because this isn't the Jack China show, but China is the main focus for me macro-wise of what could stop the music right now. Either that's on the trade deal that's currently being worked out as a short-term torpedo to markets, and this is the big tale that we don't know about, right? President Xi, the current president of China has said, and I tend to not try and speculate on this. I believe people when they tell me who they are, he said that by 2027 or during 2027, he will invade Taiwan, right? That'll be a huge catalyst that would give them what we've been calling the Russia treatment, where you get delisted from SWIFT, you get taken out of the monetary system.

29:03Jack Bowman:Americans can't buy and sell your stocks anymore. That would be a huge hit to the market because of how conjoined our economies are and how intertwined things are. Now, that is a huge catalyst that may never happen, right? She has said it's going to happen, but politicians say all kinds of things all the time. And he was saying this to his own people who have limited access to the internet and so may not be able to challenge what he says. And I'll leave all that to political discussion, but that would be the thing is in my focus, is what China does, not necessarily what we do with or to China, but what they do to us or to our allies.

29:42Julia?