Investors Get Cold Feet in a Hot Stock Market

0:05Stocks are near all time highs, but investors are shaking like a leaf. Motley Fool money starts now.

0:25Everybody needs money. That's why they call it money.

0:36From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Jon Quas, joined by fellow Fool contributor Lou Whiteman, as well as by Motley Fool analyst Emily Flippen. Thank you both for being here. We're going to talk Warren Buffett and Elon Musk in a moment, but first, let's talk about fear. So there's a thing called the Fear and Greed Index, and it tracks investor sentiment. And today, Friday, November 7th, is the 21st consecutive day that it's measured fear or extreme fear. and it's actually measuring extreme fear today. Now, the market goes up 10 % annually on average.

1:15It's up 14 % year to date. So these are above average times and yet investors say, hey, I'm scared right now. I wanna acknowledge that fear and I wanna ask both you, Lou and Emily, what exactly are investors afraid of? Emily, we'll start with you. I mean, this is day 38 of the government shutdown. Is anything contributing to fear from that? Oh, that's the understatement of a century, John. I mean, you know, one of my favorite movies is this movie called Everything, Everywhere, All at Once. And I think that basically sums up what investors are afraid of. Everything, everywhere, all at once. I mean, headlines, to your point, are driving the narrative.

1:51And that means we're waking up every day with new news of tariffs, shutdowns, concerns of the divide between the middle class and the K-shaped recovery layoffs. layoffs. And then I think what most of our listeners and every investor is probably afraid of, like, what's going on with my retirement funds as a result of all of this? But the fact that this has measured fear or extreme fear for nearly a month now is absolutely crazy when you look at and you compare to the actual market performance itself. Because if you had blindly entered this story, John, I'd say, well, the market is in greed mode.

2:22That's certainly how it's acting. And that just goes to show that there is a divide between how people are feeling and what they're actually experiencing. But in my opinion, there's always a reason to be afraid. There's never going to be a realistic world to relive in where an investor sits down and says, there's nothing to be afraid of, whether that's terrible economic situations or if that's literally just the fear of missing out because the market is so hot. But in my opinion, the fear is what drives the narrative. And when that happens, that presents opportunities for diligent long-term investors.

2:52You mentioned layoffs, and I did want to acknowledge that. So October layoffs, around 153 ,000 jobs cut. That's the highest for October since 2003. And if you look at year to date, the highest since 2020. Lou, is there anything to be concerned with with the regular working person? Yes, I think there is. And it's funny, you know, right now I get the fear and I kind of feel the fear, too. But if anything, guys, I'm more bullish about Wall Street than I am Main Street. It's Main Street. I think it's really taking it hard right now. Wall Street, there's this weird world where there are still enough people working.

3:31We've talked about like a K-shaped recovery where the haves and the have-nots. The haves are still buying. Coupled with all of these layoffs are going to help profitability, I guess. And everything going on with lowering rates. There's a world where earnings can continue to go up, even if things get worse and worse on Wall Street. It only goes on for so long. But I think the fear is going to hit Main Street before it hits Wall Street. And so if anything, to Emily's point, it's been a great run for stocks. The question is, looking into 2026, I guess, how long can that last? This past weekend, it came out that Warren Buffett, in charge of Berkshire Hathaway, Berkshire Hathaway is actually sitting on a record pile of cash at$382 billion.

4:15dollars. For a perspective, that's more money than what 95 % of S &P 500 companies are worth. So I think we call that a lot. Is this Warren Buffett saying, hey, I'm actually scared too, and I'm hanging on to my cash? What do you think, Lou? I don't know what to think of it. I keep a ton of money out of the market. And I do that not because it's an investment strategy, but because I do like to just, I sleep better knowing I have cash. But that doesn't really work for Berkshire Hathaway. They have all the money in the world,$381 billion. That's more than they are ever going to be able to deploy, even if we do have another 2008.

4:54So the whole idea of keeping dry powder for this, it feels like we've gone over the top there. I just don't think anything that Buffett wants to buy looks reasonably valued. And so I don't think he knows what to do with it. I will say, if this wasn't Berkshire Hathaway, I wonder what we would think about them just holding onto all of this cash and just letting the pile get higher and higher. I know they've earned the benefit of the doubt, but it's still, it's a weird thing to me. Well, it really makes you wonder about what that transition plan looks like at Berkshire Hathaway and if the cash isn't part of that decision.

5:26And to be honest, I think if you're an average person, of which I imagine everybody listening to this podcast, unless you're Warren Buffett, is an average person, probably shouldn't be looking to Berkshire Hathaway for portfolio management advice. The amount of cash that Berkshire Hathaway has sitting isn't really an investment. They're not trying to make some sort of macro call by holding it. I honestly think, to your point, Lou, there's a lot of different dynamics that are going on behind the scenes, whether the transition of leadership at Berkshire Hathaway, investment opportunities, of course, but also just the sheer size of the cash that they're holding is, in my opinion, not representative of the challenge that the average investor seeks.

6:03And while you're right that I never put money into the market that I need for the foreseeable future, my emergency fund over the next three years, I also do not keep a conscious cash position for my investment account. In my opinion, investors, depending on your risk tolerance, probably shouldn't. It doesn't make mathematical sense. Stocks generally go up. So every penny that I intend to hold for the long term, I like to keep that invested regardless of what Berkshire Hathaway or the market is doing at the time. Far be it for me to expect Warren Buffett to take my advice, but a dividend. Come on.

6:35We just have to see a dividend. You can pay out a huge dividend and still have plenty of cash sitting around, I feel like we can walk and chew gum at this point with almost a half a trillion dollars in cash on the books. Come on, just do it, Warren, please. So as crazy as this might sound,$382 billion isn't actually the biggest number that we have to talk about today. Tesla announced that its 2025 performance award for CEO Elon Musk has been approved. And if this thing fully vests, Musk's wealth is going to make Berkshire's cash look like chump change. It's a trillion dollar pay package put all together.

7:16I wanted to point out that there are milestones here with this performance award. And there are both, let's say, stock milestones. But I want to focus in on the operational milestones that the company has laid out. So essentially, it's looking to deliver 10 million Tesla vehicles cumulatively, 5 million active full self-driving subscriptions. Optimus robots are in there. Robo taxis are in there. What do you guys think about this? Well, far be it for me to be the person to defend Tesla here as somebody who has been a skeptic of the stock for a while, but I actually really like this pay package.

7:53And we've seen other pay packages that have been similar. I think about Axon when they set market cap goals for compensation for their founder CEO and achieved them, it can be one of those win-wins for shareholders. But I will say the milestones that you laid out, John, in my opinion, are somewhat contradictory to the expansion and market cap for Tesla because we're talking about expanding the number of vehicle deliveries, robots, robo-taxis. These could be initiatives that are actually margin reducing for Tesla. Trying to deliver more vehicles means cutting the cost. We've already seen Tesla's margins start to erode in previous quarters.

8:27There's still not an optimist robot that's available for purchase. So if we're aggressively going after these milestones, if I'm Elon Musk and I want to get my pay package, right, and I have to achieve these milestones, you're going through all of these steps to aggressively achieve them, even if it is at the expense of something like free cash flow. And free cash flow has been the silver lining for Tesla shareholders for so long now. So I worry a little bit that these operational metrics are in direct contrast to what has made Tesla such an incredible business to this point. Spot on. Spot on.

8:57And I can't believe that I'm defending a trillion-dollar payback, especially from Tesla. But I think it sounds different if you say it's a package that would give him 12 % of the stock if he hits milestones. That seems much more reasonable. And remember, if it is an$8.5 trillion company, he will have arguably done just fine for shareholders even with this trillion. But Emily's right. There are a lot of really, really wild goals here. If they can achieve them, great. But I think that a lot of these Google or Alphabet would call other bets and know they might never pay off. If he is incented to heck or high water, just make sure all of this happens, that might not turn out well for shareholders.

9:38And there's also this element of, can these goals be fudged? For instance, the 5 million active full self-driving subscriptions. It's not clear whether or not those are paid or if they can be given out for free, for instance. So there's also, I think, a lack of clarity about how these goals could be delivered upon. And in my opinion, I think the operational goals are actually worse for Tesla than just doing pure market cap-based goals. We saw that work for companies in the past. I wish that's what it was, but I actually, I'm so excited to see how this plays out for Musk and Tesla. Are you predicting that SpaceX is going to buy 500 ,000 Optimus robots?

10:14Oh, there's no doubt in my mind that we're going to be sending robots to space any day now. Yeah. I've gone on record saying I'm not eager to have an Optimus robot in my house, but that said, the goal here is 500 ,000 Optimus. I think that there are potentially 500 ,000 people out there interested in it. So that's a really interesting one for me. When we come back, why doesn't anyone want to own pizza anymore? This is Motley Fool Money. In January of 1915, Ernest Shackleton's ship, Endurance, became encased in the ice in the Weddell Sea. Through determination, grit, and savvy, Shackleton would lead his men through a brutal winter, then over hundreds of miles of Antarctic ice, followed by 800 miles across some of the roughest waters in the world.

10:59It is one of the most extraordinary and inspirational journeys in the history of exploration. Find this story and many others at the Explorers Podcast, available wherever you get your podcasts or at explorerspodcasts.com.

11:17Welcome back to Motley Fool Money. So restaurant stocks are not having a great year this year. The Advisor Shares Restaurant ETF is currently down about 10 % over the past year compared to a 16 % gain for the S &P 500. And so there's kind of a lot to talk about here in the restaurant space. Interestingly enough, pizza is having a, let's just say, interesting time. So Yum Brands, if you look at the top three pizza chains out there, if you will, no disrespect to Little Caesars, but the big three, you have Domino's, you have Pizza Hut, and you have Papa John's. Yum Brands owns Pizza Hut, and it's looking at strategic options right now, which may even include a spinoff.

12:02And then you have Papa John's, a private equity firm, Apollo Global, had put in a$2.1 billion bid to acquire the pizza chain, but it actually withdrew that bid earlier this week. Why doesn't anyone want to own pizza anymore, Lou? Yeah, I mean, it's pizza and then there's pizza, right? I mean, there's a lot of pizza out there. You know, this is fine pizza. I talked before about the idea of a K-shaped recovery. I do think that there is sort of a world where these companies are more impacted by the economy than some maybe higher-end restaurants. Maybe it's that. But this does seem to be like, I don't know, I can't imagine pizzas falling out of favor.

12:46But for Yum, Yum's other brands, KFC and Taco Bell, they're doing great. Together, they generated 90 % of global operating profit. So maybe it is a pizza thing. Maybe we just, Emily, are we just not interested in pizza or we found somewhere else to get it? Oh, you are so off base, Luna. I mean, you're right in the sense that, yeah, pizza sales for these companies are declining, but people want pizza. People demand the pizza, but they just want it from a gas station. And I think this is what everybody is sleeping on. I mean, I look at a business like Casey's General Store, the ticker is C-A-S-Y.

13:18They are the fifth largest pizza retailer in the United States, and they are a convenience store based in the Midwest. Their inside sales, so sales made inside their locations, are driving massive comp growth in large part due to their prepared foods and pizza is by far their most popular option. And this is true across the board, even with private chains, right? Sheets, Bucky's, Wawa just introduced pizzas. These gas stations are aware of the fact that people want cost and convenience. And I think when you look at that difference, yeah, there are some elements of the K-shaped recovery with, you know, people in the middle class being squeezed especially.

13:50But I think in this case, when you're looking at Chipotle and Cava and all these other brands that are saying they're losing share, they're losing share to convenience stores. Yeah, that's such an interesting thing to point out there, Emily. I want to stick with you, Emily, on this one. I know that you have some thoughts when it comes to China. And we do have some news here in the restaurant space, coffee giant Starbucks. This coffee chain has been struggling in recent years trying to get back to Starbucks with new CEO, Brian Nickel, but it's finally making a move in China. It's been trying to figure out what to do with its business there.

14:24And it just announced that it is entering a joint venture with Boya Capital. It's going to sell up to 60 % of its China business to that private equity firm to continue on with business there. Emily, I want to know, is this the right move and can it help investors? Yeah, you're right, John. I do have thoughts for better or worse. And I think my answer is a little complicated. I think this is the right move for this management team, But I think this is the wrong move for Starbucks and its shareholders. I mean, look, this is Starbucks' new leadership just saying, hey, we're no longer the best owners of our business in China.

14:59That's the truth, right? They're exchanging being the leader that could be in Chinese coffee and instead trading that for cash, lower risk, less assets. And on a quantitative basis, this is really only a good move if their Chinese business continues to underperform. But I actually think that's pretty unlikely. And I think if they had just taken the time to find the right leaders and skill set for that side of the business, there was a lot that they could save in this initiative. And look, I mean, Starbucks, their second largest market, I believe is China, or maybe their largest market. It's one of their top two.

15:30And they're facing intense competition there, of course. But why do you face competition in big markets? Because the opportunity is that large. And they're just throwing up their hands and saying, hey, we're going to let somebody else drive the bus. Yeah, they're retaining 40 % and some royalty, but that's all less than 100%. Starbucks should always be getting 100%. I think you're right. And I think this is more about execution than it is lack of an opportunity. But what I'm curious about is, does this, I mean, how bad are things in North America? And how hard is it going to be to recover in North America?

16:03Because I think the best case for this is that management is saying, we don't have the bandwidth to do both. So we need to let someone else handle China. I love Starbucks. I think Starbucks will be around forever. I don't know how they get the mojo back. I don't think it's going to be as easy as we hope it is. And so I do wonder if this just kind of points out to management saying is, man, we have a full-time job just getting North America back and running the way we wanted to. And so we need to just find help or find someone else to take on China. Yeah, definitely. It's hard to be overly excited about a turnaround story, right, guys?

16:42But I will say that sometimes the best turnaround stories are the ones that have the brands, right? The brand recognition, the consumer mind space. And I would say that Starbucks definitely has that. Still a ways to go in the North America market to be sure, but certainly not a lost cause either. It's not been great for shareholders over the past several years, but hopefully that turns around in the near future. And maybe this joint venture in China will help it focus on North America market. One final topic we have here for the restaurant space. This one surprised me. So private equity firm Triartisan Capital Advisors has agreed to buy dining chain Denny's for a deal with an enterprise value of$620 million.

17:32dollars. So now just for some perspective, Denny's flat, same store sales over the recent quarters, net closures when it comes to restaurants and a very high net debt position. So that's why this was a surprising one for me. I've got to ask, Lou, if you woke up in charge of Triartisan tomorrow, would you be excited to go through with this deal or would you have your eye on something else in restaurant space. I only know Denny's from the ads, so I am not the one to tell you about Denny's and their quality, but no, this will not be my topic. Living in the South, if I was shopping in this pool, it would be Waffle House.

18:13Not for the food again, but they are everywhere around here. There's always people there. I have a feeling it wouldn't be the same turnaround play. I'm not sure how far my$620 million would get me, but Denny's just feels to me like a chain that that snap test, if it disappeared. I don't know if we would notice it the way if Waffle House disappeared all over the South. Yeah, look, this would be canceled the moment it goes across my desk. At a$600 million plus valuation, I mean, that's more than Sweetgreen. And I understand Sweetgreen's been struggling, but in my opinion, one is clearly the better pick over another.

18:45Lou is speaking my love language by pointing out Waffle House, and now I am hungry for that chain. I think that that food is good, and I would also concur that that would be the one that I'm going for here. Next up, we've got some random calendar events and that has our team here hugging bears. You're listening to Motley Fool Money.

19:28I see the girls in California, I'm hoping it's going to come true, but there's not a lot I can do.

19:41Look for the bare necessities, the simple bare necessities. Forget about your worries and your strife. Welcome back to Motley Fool Money. On the Friday show, we like to have a little bit of fun. And, you know, we have a big holiday coming up, which is Thanksgiving. That's my favorite. You can't beat gratitude, family, football, and pie, in my opinion. But there are infinity of other holidays on the calendar that we hardly ever talk about. And it turns out that today, November 7th, is Hug a Bear Day. And I think for safety reasons, I'm obligated to point out, we're talking about hugging teddy bears, not real bears.

20:20But, you know, we thought this would be an opportunity to have a little bit of fun. There's a lot of fear in the market right now. There are things that investors are betting against. And so we're optimists here at The Motley Fool. And so we wanted to go through some stocks where bear sentiment is running high. And I want to ask both Lou and Emily, are these stocks that are beaten down bears that we want to hug or should we avoid them? Let's start with DoorDash. So DoorDash reported third quarter results on November 5th. The stock plunged 17%. It has ongoing investments to integrate its acquisition of Deliveroo.

21:01It's now down 30 % from its all-time high. So bearish territory. Is this a bear to hug or a bear to run from? Lou, let's take you first. So I'm really big on who owns the customer with these businesses because I feel like a lot of these services are going to be commoditized. I like DoorDash's customer list. I'm going to hug that customer list. I think they can be a winner here despite the stock's fault. Emily, how about you? I have to take the opposite side here. I mean, DoorDash, I think, while the leader in its space does see really intense competition from Uber Eats, especially globally, I think the acquisition they made of Deliveroo was an expensive one.

21:39It's going to be hard for them to integrate. And I think right now the market is pricing DoorDash shares as if the business is going to continue 20 % plus revenue growth and have margins north of 10 % to 15 % on the bottom line. I think given their cost structure and given the cost of this acquisition, that's pretty unrealistic. All right. Next up on our list, we have Axon Enterprise. This is the law enforcement technology company. And don't cry foul here. I know that Axon stock is actually beating the market over the last 12 months, but it's down more than 30 % from its all-time high after it reported third quarter results.

22:15They were a beat and raise quarter, but it acquired a company called Carbine for$625 million to modernize the 911 system. Didn't seem like investors were too enthused about that. I don't know. Is this a bear to hug or a bear to run from, Emily? Yeah, it's ironic because I'm sitting here raking DoorDash over the coals for their expensive acquisition, but I actually think that I hug Axon in this situation. And yes, I understand the market's reaction to this acquisition. It's an expensive one, again, north of$600 million. And we've already established that's basically the cost of a Denny's and more than a sweet green.

22:50But I actually think in this case, the market opportunity for Axon doesn't really matter whether or not this acquisition goes to plan or ends up costing more because their under-penetrated market opportunities for this company are just so vast that I think Axon combined with their management team, which as we talked about a little bit earlier, is very incentivized to grow this company. It's a type of business that when it draws back like this, gives shareholders or investors buying opportunities. So John, you mentioned Thanksgiving at the top. And for me, this is one that I'm just going to kind of sit there with that ant you don't want to hug.