The Conundrum of Investing in AI Today

18:39Travis Hoium:Yeah, it will be very interesting to see how the enterprise and the consumer side differentiate because I think that is really happening in this business right now. When we come back, we're going to get some favorite quotes from Emily and Lou. You're listening to Motley Cool Hidden Gems Invest.

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19:28Travis Hoium:welcome back to motley fool hidden gems investing in this section we like to have a little bit of fun with investing and this week i wanted to get some background some stories from lou and emily let's start with this lou i want to know what your favorite investing quote is gosh it's hard

19:45Lou Whiteman:to just pick one and i hate going with warren buffett because everyone goes with warren buffett but i do think that this is just such a great quote the stock market is a device to transfer money from the impatient to the patient. I like holding long-term. I like thinking years. And this really resonates with me that, you know, the whole idea of a hidden gem in my head is, is that just the market is missing something right now and they'll figure it out eventually. And I'll, I'm going to buy it now and have it. So I always really liked that.

20:13Travis Hoium:It is wild to think about all the things that we sort of knew in the market, wasn't pricing in appropriately, you know, like streaming is the future. Like, of course, of course it was like, we kind of knew that 15 years ago. And yet it took a long time for the market to sort of realize that, you know, Netflix and all these other companies were going to be dominating streaming. There's a lot of different examples like that. So I love that line.

20:38Lou Whiteman:Yeah. I'll go a step further too. Like if you watch every night, they tell you why the stocks went up or down and whether or not that's right or not. But almost always it's something we already knew. Like mostly there's every now and then there's a shock to the system, but mostly it's just we collectively decide to care about something we already do. That's when stocks move. Emily? Yeah. I'm sure this is, quote, attributable to a famous investor, I'm since forgetting, but I'm going to attribute it to my former colleague here, Jim Mueller, who told me this quote on my first day at the Motley Fool.

21:08And he said, pessimists sound smart, but optimists make more money. And again, I know this is attributable to somebody else, but I really took it to heart because if anybody who's listening to me on the podcast probably knows, I am maybe the biggest pessimist that has existed. If there is a side of an argument that I can take, I will take the other side of the argument just for the sake of having a fight. And you do sound so smart whenever you look down on whatever it is that people are excited about, right? You had this very long conversation around AI. I'm obviously sounding very pessimistic around it.

21:40look at what's kept the market performing so well throughout the course of not just 2026, but over the past few years. If you were a pessimist when it comes to your investments and never invested in any AI related company, you would be losing money today versus the broader market. So it's great to have the perspective and the awareness that not everything is hunky dory all the time, but I do not manage my portfolio in a pessimistic manner. My portfolio sounds and looks very different than I do on a podcast. And I'm preparing myself for the worst because my portfolio is heavily invested in the market and growth oriented investments for the long term.

22:18Travis Hoium:To even take that to the next level is I almost think that the best investors sound crazy because they're investing in these things. Like you listen to venture capitalists and they're they're explaining this world that doesn't exist. And you're like, that sounds nuts. And even if they're wrong. It's like the what I shoot for the moon, but if I miss, I hit the stars kind of a thing. It's having that level of optimism or forcing that into yourself. You know, this is one of the reasons I invest every single month because it forces me to go, okay, what do I like rather than saying what don't I like each month?

22:55Travis Hoium:So I think there is something just broadly to learn there, whether it's optimism, whether it's craziness, some of those things are going to be the best tools that you can have as an investor. I do want to add one here. I think this came from Munger. Show me the incentives. I'll show you the outcome. And I think there are so many things in the world that you can apply this to. Think about this when you're hearing quotes from executives, when you're hearing quotes from people about AI, what are their incentives? And it'll help you put context to how to interpret that. All right. One of the things we like to talk about is books.

23:31Travis Hoium:So Emily, what is your favorite investing book? So this might come as a bit of a surprise. And I will say it's not necessarily my favorite from the perspective of how it's written or, you know, the size of it. But it's a little book that beat the market by Joel Greenblatt. And the reason why it's my favorite is because, A, it was one of the first investing books I ever read. But B, I think it provides probably the most critical lesson to new investors. And it's around the mentality of long-term investing. The book itself kind of purports to found the magic formula, so to speak, to beating the markets.

24:03The formula doesn't naturally work anymore. So ignore that aspect of it, in my opinion. But the most important thing to take away from this book, if you do choose to read it, is the fact that Greenblatt ran a fund based off of this formula for a number of years under the expectation that it would drive market beating results, right? Had done all the backtesting, done the logic and said, OK, this is our magic formula. This is our strategy for beating the markets. And after, I can't remember exactly how long it was, a number of years of underperformance, the fund was actually closed and was given over to somebody who actually kept that same mentality, that same kind of magic formula, so to speak, that then, of course, went on to beat the markets.

24:41And this is kind of the takeaway, which is don't be so short-termist in your strategy and your goals that you lose sight of the bigger picture. It's the most critical thing for long-term investors. The best advantage that we as individual retail investors have is our long-term focus. is the inability or I should say the lack of responsibility to report something like quarterly metrics to investors who are going to take their capital away on short notice. We are the owners of our own capital and we can take that long-term mindset. And I think this book communicates that so well.

25:10Lou Whiteman:I went back to the 90s. I've always liked stories over textbooks. I'd much rather hear a story to learn than kind of just, you know, have to memorize facts. Roger Lowenstein is the best financial writer of kind of my generation, I think. One of his books, When Genius Failed, which is the story of the rise and fall of long-term capital management, the original quant fund. This was the crash before the dot-com crash. All of these smart academics came together, figured out how to break the market or to outsmart the market, and it failed spectacularly. I learned so much about just how Wall Street works, how investing works from reading this book and just kind of we'll get to this.

25:54Lou Whiteman:It's kind of a theme with me. I don't know. I don't know. But the I think everyone's first crash is hopefully when the hubris is sucked out of you. And just seeing the way ego or seeing the way, you know, that that got in the way of this. I just think it's a fascinating story about kind of just how, I guess, back to mindset, just like Emily said, about how mindset can go terribly wrong.

26:20Travis Hoium:I want to give a quick shout out to a book Built to Last, because I think that compares a whole series of comparing two different companies and why one company succeeded and another company failed. So really fascinating business lessons. But if you haven't read Confessions of a Wall Street Addict, which is by Jim Cramer, this is not a book that I learned anything about investing and which stocks to buy, but rather how the market works. And I think that underbelly is just fascinating to learn about because it does allow you to take a step back and go, OK, this is what's happening over the past hour or the past week.

26:59Travis Hoium:is that crazy? And you can go, yeah, it is because the day-to-day of the market is absolutely crazy. I mean, there are stories of him or his colleagues like cornering CFOs in hotel lobbies so that they could try to suss out, are you going to beat your numbers or not? Calling analysts, trying to figure out, are you going to upgrade or downgrade a stock? That was how things worked in the 80s and 90s. There are different things today. There's quantitative trading, algorithmic trading, all kinds of stuff. But once you start to understand that underbelly of the market, I think it is a little bit easier to be a long-term investor, which is, I guess, kind of our theme here is the takeaway is thinking about 10 years is much wiser than thinking about the next 10 minutes.

27:40Travis Hoium:All right. I wanted to give you a little bit of an opportunity to tell us some stories about the market. Lou, what is the most interesting thing someone in the industry has told or taught you about the market?

27:51Lou Whiteman:So I'm going to stay on a theme here. And again, back to like the, your, your first toe stubbing is the one that hopefully teaches you a lesson. Uh, back in the nineties, I was working for kind of more an institutional and, uh, it was a stock called eToys that was kind of now just the, the quintessential.com bust stock. They peaked, I want to say in October of 1999, and they were 80 something dollars per share. the writing was on the wall going into the next year but we were smarter than everybody else and we knew eToys was a terrible business but we also knew that eToys was going to put out a ton of press releases as we approached the holiday season and all of these silly investors who are stupider than us were going to buy up the shares on those press releases and we're going to get in make a fortune and get out i believe that by december of 2020 eToys was at a buck all right the lesson there is, is that, you know, in my career, I've found the ones, the times I feel like I'm the most clever are usually the times that I'm being, making the stupidest mistakes.

28:59Lou Whiteman:I think you have to learn that the hard way, but you, I mean, I like to think I wouldn't do this if I didn't have some advantages. And I do think I'm capable of beating the conventional wisdom. That's why I buy individual stocks. But at the end of the day, I'm not nearly as smart as I want And I think I am. And I think that's probably true of most of us. Emily? It's really hard to follow that up, but I'll do my best here. In order to do so, I'll steal probably what I think is maybe one of the most interesting things that I've been told by somebody in the industry and actually by Motley Fool co-founder David Gardner.

29:31And this was, again, during my first week here at The Fool, we sat down. I believe we were playing code names together as a, you know, kind of welcome to the company activity. and he said one of his favorite piece of investing advice is to simply live a more interesting life and for you know a how old was I gosh like 23 24 year old who had just kind of started my investing journey that was a weird piece of non-conventional wisdom that has stuck with me because I think the idea is you can really use the opportunity to expand your circle of competence to learn what you don't know to see things from a different perspective because on every transaction you have in the market.

30:07There's two sides, right? And to lose points, we always think that we're the smartest ones. We're buying a stock when somebody else is selling it. We're selling a stock when somebody else is buying it. But the truth is for every decision that you make, somebody out there who's probably just as smart is making the opposite decision. And the only way that you can get and expand, try new risks, get new perspectives is to go out there in the world and experience things beyond just your little narrow slice of life. And for anybody who's followed me on TV or otherwise have, I know that I take that advice very much to heart.

30:37And I think it would make us all better investors to get those new perspectives.

30:41Travis Hoium:I interned at a hedge fund in grad school. And some of the most, to Lou's point, I think it was Lou who said, you know, the real life experience, the stories is really where you learn. Spending three months with the people who are making markets every day, who are trying to find little tiny edges is fascinating. And as my time there came to an end, the owner who was very wealthy, had done extremely well investing, had been in the hedge fund world for, I don't know, 30 years or so at that point, said, eventually we all blow up. The trick is to make it as long as possible. And it was just, it was so fascinating to hear this fragility of people in that industry.

31:27Travis Hoium:And again, I am completely the opposite investor. We were looking for things that were going to, you know, make money tomorrow or the next day or, you know, making markets is having your computer closest to the exchange. Those were the kinds of things that we were doing at that fund. So it was fascinating to learn about that. But to have the acknowledgement that, hey, eventually I'm going to be wrong and I'm going to be really wrong and this is all going to go belly up is just, it's it's a very very different corner of the market than i'm uh used to now so but just again being aware of those things is is uh i think a good thing to learn about all right i want to give a quick moment for some maybe hidden gems uh as we and some stock talk as we end this segment and i want to do this in honor of ferrari who took a big swing with the luce this week getting panned online but i don't know i think it's probably going to do okay if you're taking a big swing on investments over the next, let's say, 20 years or so?

32:27Travis Hoium:Emily, where are there some hidden gems for you? So this company, old hidden gems recommendation, but one that I think is the definition of big swings, and that's Transmedic. The ticker is TMDX. With all these big swings, I will say, different to Ferrari necessarily, this is a very, very risky investment. So if somebody chooses to dip their toes in, I really encourage them to do some additional due diligence. But I like what the company is trying to do, which is moving in healthcare logistics. They've built a platform that aims to keep organ donors or donor organs, I should say, alive and functioning outside of the body for as long as possible during transport.

33:02They're in the process of trying to vertically integrate that entire organ transplant supply chain. And this is obviously for anybody who's been through the healthcare system, especially here in the United States, a massive opportunity because of the need associated with organ transplant. It's a company that is the definition of volatile, though. So like I said, tread carefully. But if they're able to crack the code here for organ transplants and manage to keep them alive, then that is just, yeah, it's a game changer for people's lives and hopefully investors.

33:32Travis Hoium:Along the lines of Intuitive Surgical, who is probably one of the Motley Fool's most successful picks long term. Lou?

33:39Lou Whiteman:Well, like Emily said, almost by definition, big swings, 100x, whatever, you're taking on a ton of risk. and he just said it three times, but I need to say it too. Caveat, caveat, caveat. We're not saying that there's no risk here, but look, if you want to look at that category, space for me is that category all the way across the board. I don't know what becomes of it. Right now we're in this process where everything's about to get really a lot more affordable and we're going to figure out what really smart people can do with it. I don't know how it plays out, but I do think that there's going to be some crazy, crazy good investments there.

34:13Lou Whiteman:If you really want a stock and the biggest long shot, I think, I'm just going for bust here. Little company just went public. Merlin, autonomous flying is what they're trying to do. I don't think in my lifetime I'm ever gonna get on a Delta jet that doesn't have a pilot. But Travis, we need, the world needs 600 ,000 more pilots than we have over the next 25 years. If you can get this tech good enough that we could just reduce the numbers in the cockpit in half or something like that, that is gonna be a massive success. The issue is it's autonomous flying. So God help us if we ever get there. So we'll see.

34:51Travis Hoium:I don't know about the 100x expectation in space, Lou. I've been following space for six months. And what I have learned is that these stocks go up 10x every.

34:59Lou Whiteman:I was going to say we're already 100x. All right.

35:03Travis Hoium:When we come back, we are going to get to the stocks on our radar. You're listening to Motley Fool Hidden Gems Investing.

35:14Travis Hoium:As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. We like to end the show with the stocks on our radar. Emily, you're up first. What are you looking at this week? I'm looking at FedEx Freight.

35:42The ticker, once it goes public and listed on June 1st, will be FDXF. But this is actually a spinoff from FedEx. And once they complete this spinoff, it should be the largest LTL that's less than truckload carrier in North America by revenue, just under$9 billion in sales, with a really strong operating ratio just above 84%. That's not an Old Dominion Freightline level of good, but it is much better than their competitors. And while the spinoff here will saddle the company with a lot of debt, they're making a big payout to FedEx. I do think this is probably spinning off the better part of FedEx's business.

36:17And it's something that I think all investors maybe should just keep an eye on over the course of the next coming quarters.

36:23Travis Hoium:Dan Boyd behind the glass. Are you interested in the good FedEx? You know, it's hard to argue with FedEx in general, y 'all, because like I'm pretty sure, judging by my emails today, that I'm going to have a FedEx driver visiting my house at some point today. Yeah, they're kind of everywhere. Ubiquitous company. I think I am as well. I'm getting the same emails or maybe we're on the same email chain. Lou, what are you looking at this week?

36:48Lou Whiteman:So Dan, I'm looking at Astronix, ticker ATRO. And Astronix is an aerospace electronics supplier. It sounds kind of boring, but let me tell you what they really do. They make those in-flight entertainment systems that keep your kid occupied on a plane and keep all the other kids occupied. So we love this company right there. They also have a defense business. And when we considered this company for our national security portfolio last December, what we said was Astronix was at an inflection point with both their commercial and defense businesses having the ability to really, you know, interesting growth opportunities up ahead.

37:21Lou Whiteman:This week, we saw some of that play out. The company announced it received a purchase order from the U.S. Army for radio systems. For now, it's only 44 million. It's just a demo. But there are hundreds of millions, hundreds of millions more where that came from as it plays out. What this does is adds a lot of clarity about revenue in the years to come. Couple that with a still red hot market for commercial travel and the premium airlines trying to differentiate themselves with electronics, with plugs in the seats, all of these kind of fringe items, but the things that this company is great at.

37:52Lou Whiteman:And I think there's room to fly here.

37:54Travis Hoium:Dan, what do you think about the infotainment systems in aircraft?

37:59Lou Whiteman:Room to fly. Lou thinks he's so funny, huh? I do. I love myself, Dan. You know that.

38:03Travis Hoium:You know, it's a little bit of whiplash here going from infotainment to military applications, but it definitely is an interesting stock. And as somebody with two young children, I can't understate the value of those things. All right. What's going on your watch list? FedEx, freight or astronics? I'm actually very curious in both companies this week. Travis, it's rare. Usually our analysts give me a dud, especially when Emily shows up and says, here's a terrible company that you shouldn't invest in. But it's on my watch list now. So I actually am more interested in FedEx rate. I like it. I like FedEx.

38:38Travis Hoium:Let's go. All right. It'll be just interesting to see how that one plays out because GE had some good spinoffs over the past couple of years. Thanks, everybody, for listening to the show. That's all the time we have. We'll see you here next time.