How do I know if I own a ‘meme stock’? July 12, 2024

27:43Yeah, but so-and-so said this. Yeah, but there's a report that says that. And I'm a very thinly veiled example of the climate change stuff right how do you how do you how do you sandbag renewables you just sow enough doubt and you walk away so those who don't want to believe or are on the bus have enough reason to say oh maybe not and i raise that's a bit of a controversial one and i don't again genuinely really care i'm trying to offend anybody but it's the same on the other side and why i say about the niche is in the politics you just need enough people not to be sure to not vote for you or to vote for the other guy with with this with this kind of you know meme stock stuff what is it a tenth of one percent of all investors probably bought game stop right um a 100th of one percent of all investors probably ever bought brain chip that's kind of all you need all you need is enough buyers to overwhelm the sellers to push the price up which is your great example great kind of outline you gave what a meme stock looks like and how that moves that's all you need is just create enough demand and make it worthwhile and the other problem i suppose at some level is was it always a meme stock was it always a pump and dump was it always a rampy or well there's people who actually genuinely believed and the stuff just got contagious and then throughout the madness of crowds right yeah the south sea bubble didn't happen because it was a fraud everyone just got so excited about everyone else's wins and successes they convinced each other in this really horrible for a while felt like a virtuous loop ended up being a vicious loop because you kind of go i'm making money you should get it i did so i'm making money i better buy some more if you'll make money i'm gonna buy more and you go from maybe this works to then your own proof convincing someone else and then their success convincing you it's like how did we get here and really i'm picking that it's tough so sometimes it's absolutely nefarious 100 nefarious just people on on chat forums ramping stocks to try and make some money and hope as it doesn't catch up with them other cases just like hey look how cool this thing is in some it's just organic right in some parallel universe amazon is broke now it's i've said a million times musk himself apparently said that tesla would have gone broke in a recession.

29:44Now, you look at Tesla and say, look how clever I am. Look how well I've done. Was that a meme stock for a while? Yeah. In the sense that it was the cult of Elon. Now, does it exit meme stockness at some point because it now has profits? Yeah, it does. But in some alternate universe, both Amazon and Tesla are broke. And people are putting people like me and saying, oh, you're an idiot. I told you e-commerce never be a thing. Or Amazon was always bad. Walmart's still the world's biggest retailer. And we're back to normal. Or electric vehicles die because Tesla dies in a recession that was unexpected.

30:14The pandemic hits 10 years earlier. Tesla gets wiped out. Yeah. And I told you ice vehicles are always going to be around. So it's only ever definitive in hindsight. But I'll ask you that question back. Do you then avoid meme stocks? How do you engage with them? Yeah, I don't think you do. Like as a rule, I just think that you – the thing you want to avoid is being carried away with the hype. Yes, exactly. And usually when you push – Because I remember when Brain Chip was on its way to the moon. And you just get... I mean, you know you're in a bubble when I just start getting texts and calls from various uncles and acquaintances I haven't seen for a while.

30:57It's like, okay, the balls are running. Because these people are only interested after something's gone up 5x and now they're going to put all their money into it. And the rationale is it's going up. Like that's it. beginning, middle, end. Why? It's going up. Which I always think... I always correct it to everyone's roll of the eyes. It has gone up so far. Exactly. Stop saying it's going up. You don't know what's going to happen tomorrow. And this is a thing... And Brainship's the example of that. If our viewers want to, go and look up, while you're listening, jump on your computer or phone, just ASXBRN, hit the chart.

31:36And at some point, someone would have said, it's going up, look, it's going up, it's going up, it's going up. and they would have kept saying that and when it started to come down they would have said oh it's going down now but it'll go back up because the things that got it here will keep going and we're now at what 20 cents again yep it's like why are you doing it it's going up oh yeah well what else it's really it's breakthrough computer chips what else do you need to know it's going up that's it that is it beginning middle and end so you don't avoid it but you do a bit of work on it right it's like we were talking about Guzmini Gomez the other day we both agreed it's an incredible franchise happy to eat there it's really great Is it worth, like they quote 30 times EBITDA, I've actually seen it better presented as 50 times operating profit when you account for various proper adjustments.

32:20And you think, nah, that's kind of a little, anyway, not investment advice, everyone do their own research, but I'm on the record as being negative on that float because of a hopefully objective-ish view of the underlying. So there's sometimes things you just don't know what you don't know. A lot of these stocks you've never encountered before, and it is the pump that gives it some increased awareness and puts it on your plate. Okay, cool. Don't just dismiss it straight out of hand, but don't just buy it out of hand either. That is the key. And here's the other thing as well, is that even if you're right, it is I often say it is the height of hubris to think that the moment after you buy is when the rest of the market will recognize your genius you know it's just got up all of a sudden yeah and by the way so what did I say the start of 2020 this stock was at 4 cents now it's at 22 cents so you bought it that's right you went you went to an Antarctic research station for 4 years you came back and you've 5xed your money exactly and the person who bought then and I think this is a really important technology and this and actually, well, yeah, that's kind of fine.

33:37Yeah, okay, they went all the way up and then all the way down. And even before that massive spike in late 2021, early 2022, it was still, yeah, you'd have a month or two where it would just drop 30%. And then it would triple and then it would drop 30%. You've got to not only have a reasonable assessment of value that's independent of what the market is doing, but also the recognition that the whole voting versus weighing machine thing is a thing. It is a thing and it will take time to play out. So there may well be someone out there who bought BrainChip. Poor old BrainChip. They're copying the worst of it here.

34:14I'll give you some other examples. There's$1.60 and in 10 years' time, they will have made an incredible return. That's a possible future. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

34:32can i jump in one thing mate in terms of meme stock there's one thing i just should have mentioned before and didn't it only could while you were talking because i get my best ideas from you um if you look at and i don't look at charts for anything it's not it's not going to tell you anything usually uh and never ever invest on the basis of a chart in my opinion however however i'm not going to contradict myself but when you do a chart in most software software packages just broker websites. You get the price and you get alongside that the trading volume, the number of shares changing hands. And here's what's really interesting and it's not a tell directly.

35:08If you have a business that's getting better, the price goes up just because investors think it's worth more, which makes sense, right? Woolies sells more baked beans. You got to make some more money. The share price goes up because the share price is a function of profit and even if nothing else happened, if there was no shares traded, the quoted or not the quoted, the offered price would go up slowly over time because all this was growing. And if you're going to pay 10 times earnings, those earnings are higher. You're going to pay a higher price at 10 times the higher earnings. That just mathematically works out that way.

35:34When you look at Brainship, again, remember this is a business that hasn't had any sales or profits. You see an enormous spike and a continued spike from about, was it February 2024? I'm not going to do a lot of detail here because numbers are hard on audio. Early Feb 2024, price is$0.14. You have this huge, huge, massive bulge of volume while the price goes from 14 cents to, what's that price look like? I can't tell, 49 cents, right? In the space of a month. On the back, there's massive spike in volume. Now, what is it telling you? It's telling you a whole lot of people are in there rushing into this thing.

36:10Buy, sell, buy, sell, buy, sell, buy, sell. Huge jump in volume. Now, maybe there was a great announcement. Maybe there was a reason for it. Again, we're picking on brain chip. By the way, the other way you tell, I have people who would at me. I mentioned on Sky once, so I don't think it was a great idea to buy it. I was right, as it turns out, at least thus far. and yet I was spammed for weeks. Oh, that is the biggest tell. I think they doth protest too much. Whenever you get someone who takes it personally, a market is a market of opinions, if anything, right? You've got to make your peace with the fact that someone else disagrees with you and that's good because you need someone to sell you the shares, right, or not compete on the bid.

36:48This is normal, whether it's BHP, Woolies or BrainChip. And yeah, I will emphasize that point. You really get that pushback, you know. It's that Afterpay was the same, right? Those accounts almost only ever tweeted about Brandship, by the way, is the other tell. Yeah. You look at this, it's like, who's giving me your advice? It's like, Brandship, Brandship, Brandship, all the way down the page. And they're all deleted now too. All of those posts are deleted. Guaranteed. Anyway, so when you see a whole lot of volume, again, maybe there's an announcement that goes with it. I haven't followed the company.

37:18I don't really care. And we're using the example. And maybe I haven't, if I ever said, this could be the next Amazon or the next CSL or Coca or whatever. but when you see that volume, you're seeing in action the hype. You see everyone who wants to jump in at the same time, and guess what? When everyone's jumping at the same time, if there's not enough sellers, the price is going to go up. And it can happen all the way down too. You have spikes in volumes. Everyone goes to the exit at the same time. Someone yells fire, and the exit is not wide enough for the whole theater to get out. Except that someone's going to keep buying.

37:46So there's always a buy on the other side, but with a limited number of buyers and a lot of sellers, the buyer gets the price they want. The other way around, the seller gets the price they want when there was a huge spike in potential buyers. So again, just worth looking at. Again, I want to be really, really clear. There's exceptions to every single comment we make through this episode, literally every single one. But if you see a huge surge in volume, there's a very good chance someone's getting excited about something. And unless you are sure that excitement correlates with genuine value creation, not the chance of, not a nice announcement, not a press release, not a whatever, but genuine value creation, just be really, really careful That's often a sign.

38:26It's a sign to be more careful than usual. You should be super careful anyway, but more careful than usual. We should instead talk about the share price, talk about the market capitalization, which is the share price times the number of shares. Yes. And this thing got to$2.5 billion, billion in value. Again, no product in the market, zero sales revenue. It is quite remarkable. It's not unheard of. you know um i think open ai did something similar to that before they'd made any money and they're still at the very early stage so it's not not not unreasonable but gosh that is that is a very that is a big business here's who i this is gonna this is gonna jar with a few people i i you know in some ways i feel sorry for management because i think management are culpable yes and there's a lot of management that are like this where they are very hypey and they tell the market what they want to hear and they're out there on every platform that they can get onto and they're talking big numbers and we're going to do this and like they are feeding the beast yeah and they are culpable and they deserve the derision that they get there are other companies where you're just johnny on the spot and for whatever reason some rando on youtube starts getting excited about your stock and pumping and then you wake up one morning and the share price is up yeah now you're the CEO, right?

39:46You're not going to go out there and say, oh my God, we're not nearly worth this much. What are you people thinking? This is crazy. The board would fire you if you had the temerity to say that. And rightly so. You're there to represent the business. You're not there to ramp it. You're not there to help pump it on poor information. But if you've done nothing wrong and you find yourself in this situation, what do you do? I think you kind of go, well, it's great that we've got all this attention and we're going to try and deliver and this is what the vision is and all of that kind of stuff. And you know what else you do?

40:25And this is the bit that sticks in people's craw. You raise money. Yeah. You raise – why? Because before when you were four cents, if you wanted to raise$10 million, you had to sell a ton of shares. When you're of$2.5 billion market capitalization, You can raise$10 million like that and barely dilute anyone. GameStop did it. GameStop's got a treasury like you wouldn't believe. They didn't get it from selling a bunch of copies of Doom. Sold their own shares, yeah. Yeah, they, you know, God, I dated myself. There's, you know, there's other, there might be more relevant examples. Mario Brothers, Doc Pong.

41:04Pong. Choose your, pick your poison. Star Wars, Sprecipitas. There is a new doom coming out, so maybe I go with the original.

41:16But I would. I would. If for some reason the market was stupid, we're not listed, but if straw man was somehow fortunate enough that someone said, you're worth$20 million, I would raise money the next day. Because now it takes money to make money. I can make investments with that. I can enhance the platform with that. I can hire some more salespeople with that. I can do all of this. It's a smart thing to do. And so sometimes, well, when the worm turns and everyone does rush for the exit and you go up the stairs and down the elevator shop, everyone's going to look for someone to blame and it's not going to be there.

41:54No one goes, you know what? I really got carried away there. I really threw a lot of money at that thing without ever having the faintest idea of what I was doing. No, he's the CEO. The CEO said this and he said, no, no, no, no. And I'm like, did he though? Now, often yes, often yes. But not in all cases. And I don't necessarily think in this case either, but I'm not close enough to it to be definitive on that. However, I think that's an important delineation here too. And I would just go one step further and say with any investment, whether it's us two knuckleheads talking or anyone, like it's your money, it's your choice.

42:30And I just think it's such a cop out for anyone to turn around and blame someone else. Get your ideas from wherever you get them from, but your money, You got to take ownership of it. I'll say that and repeat that for the umpteenth time only because it's a little bit confronting. But I also think that if you actually take that mindset, you'll make better decisions. Yeah. Because when you've got no one to blame, you'll just think harder and you'll make better decisions. And by making better decisions, you'll avoid more losses. Like it's a good thing to do. Anyway, off topic. So let's move on from brain chip.

43:04Let's talk about – I'm going to put this out there. Go on. Get your feeling because you've made the excellent point that a lot of the time it's only identifiable in hindsight. Yes. Well, it's only definitively identifiable in hindsight. Some that look like meme stocks will be. Some look like meme stocks won't be. And equally, the reverse will be true. But yes. So there's a – I was going to say a little company. It's not a little company. And I've got to be careful here because I've got exposure to it. And it's called DroneShield. Yes. And a lot of people will know. It's got all the makings of a meme stock.

43:39Now, got to be careful. Cutting edge. Drones, dude. Right, drones. And guns and shooting and stuff. Like, you know. Have you ever seen Edge of Tomorrow? No. The Tom Cruise movie? Haven't you? No. Well, yeah, you've got to watch it. That's a good one. Do you like Groundhog Day? The Bill Murray movie? Yes, I love Groundhog Day. Think sci-fi meets Groundhog Day. Okay. That's a good movie. Okay. Yeah, I liked it. I like all those infinite movies. Oh, Palm Springs is another good time loop movie. Anyway, I'm completely off topic. Where was I going with all of that? You're about to talk about drone shields.

44:15Oh, yeah, so Edge of Tomorrow. The guns are so super cool, right? What they do is they shoot this electromagnetic beam at the drones, discombobulates them, no more drones, right? It reduces the threat. Drones are a massive part of modern warfare. So they had this technology. Again, it's the overnight success that's 10 years in the making. I think too often we as investors forget that, oh, it came on the market, it started going up, and you just forget the 20 years in someone's basement where they were toiling and couldn't get arrested and no one wanted to talk to them, and all of a sudden they were.

44:46So that was this company, and it had some memish characteristics because, again, they had very little revenue to sort of speak of there. It was this really cool technology in a big market, and usually when the pitch deck is all about how big the market is and if only we could take 1%, you know, it's just like saying, if only I get 1 % of China, I'm going to make a fortune. It's like, well, true, but it's actually harder than it sounds. Anyway, turns out they're selling a lot of stuff. Their sales are going through the roof. Ukraine has been a tragedy in every way as wars always are, but it's been a great marketing message for them.

45:25They've gotten into a lot of the NATO supply agreements. It's very difficult as a weapons or military contractor to get on the inside of the tent. Once you are on the inside of the tent, it's incredible. It's really good, not for humanity, but for the company and the shareholders. And so I want to put it out there. And again, it's my third largest holding on straw man. I should be careful. I didn't engineer it that way. It just went up a lot. And that's, that's just a sneaky way for me to put a humble brag into the, into the thing. But I was on a podcast at the end of last year, singing his praises.

46:05Right. And, and I, and so I've got to say all of that because I, I think that this is a legit company. And if the CEO, Oleg, we've spoken to a couple of times, if you're listening, I'm, you know, I'm a fan, right? I just, but I put it out there because cool tech sci-fi kind of thing. a lot of chat on Twitter, on Reddit, on YouTube. And you've got a share price that has gone, let me just remind myself, at the beginning of this year, six months ago, it was 40 cents and now it's$1.53. So it's just gone vertical all of a sudden. In fact, even if you can go back, let's do that, in fact. Go back to the beginning of 2023 and it was 20 cents.

46:52So it doubled in 2023. And since the start of 2024, it's whatever, X'd, you know, it's just gone. So, and your point is a really good one. Look at the volume chart, sort of average-ish kind of volumes. And then all of a sudden, it's like everyone's favorite play thing. I'd sold some recently on Strongman just to reduce my weight. I actually think the company today is in better shape than it's ever been. like like the future is much less uncertain that it was but it's also much much much much more expensive and you have to think about portfolio weighting considerations and the rest of it so i sold some down but it just it did occur to me that there is um i don't live my investment life this way because it's just too painful but there was a part of me that thought you know given this meme characteristics here this this could double from here oh yeah please for the love of god no and run out and buy because I just, I'm navel-gazing and speculating.

47:52I'm just like, it could. It could, yeah. And it could. Or it could go back to 40 cents tomorrow. Yeah, the same was true of Braintip at the top. It could have doubled. Yes. It didn't. Could have. And we thought it was expensive at 60 cents, and it did double. That's right, yes. And it did double, right? Exactly. So, but I'm going to throw that into the mix because this is a more, A, because I know a lot of our listeners will be aware of it, and B, it just, it feels, it's got that bit of a flavor to it. So here, and I've just, look, sanity check what my assertions have been. But here you've got a real business, cashflow positive, make a profit, right?

48:29But there is a lot of hype and there is a lot of future expectation baked into it. What do you do? What do you do? So I think - I told you what I just did. Well, yeah. I mean, I think, so here's the problem. We'll compare this with Brainship. Again, I don't know either company at all. I do. I did pull up. So I looked at where the share price started to rise and looked up the press release at the time. And if you want to be impressed and if you want to go war and technology and drones is cool, if that's your thing, get this first paragraph. The Drone Century X Mark II system is a counter UAS solution initially designed for on-the-vehicle applications.

49:10The company believes that Drone Century X Mark II system sales will have a material impact on revenue. The AFS kit is a significant new product for DRO as it enables the Drone Sentry X Mark II system to be used without a vehicle and efficiently set up and deployed in a broad range of use cases, including fixed site or semi-permanent wide area operations. And on it goes. Now, I'm sure it's all true. But if you want to believe, oh man, so this could be even better than I thought. If you already are drinking the Kool-Aid, and again, maybe the Kool-Aid's great, but if you're drinking the Kool-Aid already, you see this like, so it's even better.

49:45they've just doubled, tripled, quadrupled, 10x the potential use case of this stuff. And if that's true, then armies will buy more of these things. And then look, how am I going to make even more money? So there's that. That being said, two things. Drone Shield has been making sales for the last seven years. Those sales per share have steadily increased. The earnings were negative for the six of those seven years and just this year have gone positive. So you've got two things. A newly expanded market opportunity and they're actually making money all of a sudden. Now, I'm not here to give it a wrap.

50:18I don't know anything about it. I know you own it. I think a couple of guys at the Fool like it as well. So it is not... I like it less now just for the price. I was about to say, right? So this is 77 times earnings. Yep. So how fast does it grow? Again, Amazon was 1 ,000 times earning at one point, right? So what I will say about DroneShield is, Fortescue was$0.02 at one point before it became a$29 stock, right? So these things are possible. This is why meme stockery, I've just made up a phrase, is so hard to diagnose because for every, I'm not going to say brain chip is necessarily a meme stock.

50:53It certainly has been behaving like one. But if it goes to be$100 stock, then hey, cool. If drone chip goes to$100 from here, then amazing. And this would be a blip. You won't even notice this rise on the share price chart, right? If, however, the, and this is the other thing. Let's say they're right. But let's say the rollout is 10 years in the making. okay we got about 10 years for those sales and profits okay well then i'm paying 70 to 70 times this year's earnings something that'll happen in x year's time that's a you know that's a very very different story and i think for me mate that's is it a meme story or is it just expensive and and you know and people go now kogan right so drink speaking of companies i own that went from$5 to$20-ish, I think, at the height of the pre-vaccine COVID palaver, and then fell back to$3 again.

51:45So was it a meme stock at that point? Or was it being true? And the reason I separate that is because, maybe it was, by the way, but it's not necessarily a meme company. And this is where I want to draw, I sort of tried to do it before, but I've kind of come up with a better way to describe it. There are, meme companies are all bad, right? They're either no business or they're not there or whatever. When a company turns into a meme stock, does that mean it's a bad business? Was Kogan stupidly expensive at 20 bucks? Yes. It's falling back to whatever it is now. Was it a fraud? No. Was it a bad company?

52:18No. Were people wrong about its future at that point? Well, some people were, yeah. Doesn't mean underlying it. I mean, maybe it's crap. Maybe there's more value. Maybe there's not. Amazon would have had big highs and big falls while people tried to work out what was going on. And we had a whole lot of hot money chasing it when it was going up and then people sold when it's slightly disappointed. Kogan is the same. Over time, if it goes back to 20 bucks, it was a meme stock for a period of time. It was being treated as a meme stock. It was being meme-ified by some people who were just chasing hot, hot money.

52:50But again, the only one thing I want to separate, Matt, is a meme stock has that virality, that kind of idea of the crowd almost encouraging each other, that idea of the – it was almost gamified, like not not not gas the idea of like hey let's all do this i'm not necessarily even agreeing to do it together but everyone jumping on that bad way and getting excited it's one thing to say hey i think kogan's going to be worth more because i think online sales are going to go higher now people were wrong about the price but was it necessarily a meme stock or was it just over value because people had wrong assumptions and am i drawing a am i drawing a false distinction in some ways yeah because it doesn't matter why but by the other by the same token when you think about how you're separating not not defending kogan by the way when you think about how you how you're separating what you're thinking about them this is where i would say with drone shield is it is it being treated memely maybe but there's a real business and it's making sales and making profits that's a very different story to the brain ship growth which is on what basis you know still still making sales still making profits share price goes from 20 cents to dollar 40 and you kind of go that seems pretty early and pretty you know i don't people are basing that on so there's degrees of memeness i suppose and and i'll stop using the word meme and all of its different derivations in a minute but um you know it is possible for businesses to be different in that context gamestop is an awful business clearly a meme is being treated as a meme idea and i'm not i'm not trying to split hairs by not calling a meme stock i just it's important you separate the business from what's happening with the share price because to your point management aren't necessarily doing anything about they're just trying to run the business the best they can yeah if people if people grab it run with it it's not the business's fault or the manager's fault necessarily now they could you know speak more clearly about the business and its future and you know that kind of stuff i mean i'll give buffett a wrap he has at different points at the time said we don't think berkshire shares are attractive enough to be buying right now that's effectively saying you people are idiots you're paying way too much for this thing now how often does a ceo say that right that's that's the candy i'm going to get from 99.8 percent of ceos um and buffett owns a large chunk of their business and has people's loyalty so he can afford to um to your point if if the drone shield ceo came out said oh guys don't pay this much for the shares you imagine the nooses come out for that guy when he's like you know the the share price craters because he says you're paying too much for it even if that was legitimate and genuine and real you're not you're not getting no one's thanking you for telling the truth yeah for me for me the key aspect is is the it being small shareholders driven and very organically not not conspiratorially, but driven by a social media phenomena.

55:27It's, that's what's, the troops are being rallied in that fashion and they're being rallied in a manner that is disconnected from reality or even a reasonably optimistic view of reality. So that's the key thing. Before meme stocks existed, there were South Sea bubbles and tulips and all kinds of silly things. So that's not enough to call it a meme stock. A meme stock needs to be – it's the kind of one that you hear from the proverbial cab driver or Uber driver these days. It's like the person is usually never interested in this stuff and is interested in it purely because the share price has been going up and that there's a lot of people online saying it will continue to go up.

56:04That kind of gets at it for me. So under that definition, I don't think DroneShield is a nice clear-cut example of it. But I just know that when I look around on Twitter and I look at it, like there's a lot of stuff, it's part of it. I didn't think it started that way. I think they actually started achieving really good results and then the market got on top of it. And then it just sort of gains a life of its own. So that's – the other thing that I do is – and I did this with Afterpay. And there's another one I got a lot. Talk about getting grief. Gosh, I said that on Ausbiz one day that I liked the business.

56:41I wasn't as anti the business itself, although let's face it, it's not a great business. But in terms of like making money, yeah, they're doing very well. My argument was it was just too expensive. And gosh, you really put some people's noses out of joint with a very benign, I would have thought, non-controversial statement like that. But when I had – I was invited on to do a debate because, you know, makes a good TV. And, and I kind of took the other guy, I don't want to throw him under the bus, but I took him a bit off guard because I think he was assuming that I was just going to go, it's a terrible business.

57:18And I think, and I did the same with Brain Chip. I actually looked it up on Strawman. It's actually be free because we, after a while, the content gets public. So if you just get to strawman.com, you know, forward slash BRN, you'll, you'll see if you scroll down a comment I made two years ago. And I said, all right, I'll take it all. I'll take the hype at face value not because i believe it because i think it's really valuable outside of what we're specifically talking about here but just do us so what you can do 100 valuations so do it okay you're telling me the brain chip is going to be a significant player on the global chip manufacturing okay i'm taking that at face value did a bit of googling went around to wikipedia oh okay so it tells me that the total addressable market for for uh computer chips i can't find it now on my big long thread, but it was 10 billion or 10 hundred, whatever it was.

58:10I can't find it now. I've lost it. A hundred billion, a hundred billion dollars. Right. And okay. In 10 years, it captures 10 % of that. So in other words, they're going to double their revenue this year and the next year and the next year and the next year. And they're going to do that for 10 years. Cool. Now NVIDIA, let's have a look at some of the competitors. Okay. They run at 10 to 15 % margin. All right. Thumbs suck that. Let's do that as well. All right. Let's look at the current multiples that these companies are trading on. Even before NVIDIA went crazy two years ago, still at a lofty mark.

58:42All right. I'm going to do that. Now anyone could go, oh, but they're unreasonable assumptions. Like, yeah, but I'm just testing them. And that's the beauty of maths and spreadsheets. I can just test things all day long. I'm not committed to anything, but it allows you to say, and this is where I got to with Afterpay and where I got to with brain chip was even if what you're telling me the bulls are true it still doesn't make sense because even if they capture 10 of the market even if they have incredible margins even if they traded a very big multiple on the market and and they do that all in this very short space of 10 years time and i discount it today and today even at just 10 per year which you would argue i would argue probably need a bigger risk adjustment factor than that but anyway whatever let's do it it's still twice the price that the market is trading at.

59:33So in other words, what you're saying not only has to come true, it has to be – what you're saying is insanely good and it has to be twice as good as that. And if it is twice as good as your insane assumption – It's fairly valuable. It's fair value. That's right. So it's too much insane as a business and I can pay today's price and not lose money. Yep. Test the thinking. Now, when you get someone who goes, no, it's still worth it, you know you're dealing with an ideologue, and there's no point continuing the debate. So I guess that's one thing I would encourage if anyone is looking at something.

1:00:14If you're thinking, oh, gosh, do I own a meme stock here? Is everyone going to rush for the exit at some point? Find the bulliest bull that you can find and say, well, okay, the share price is going to the moon. and we all know that, how much revenue do you think they're going to make in five years? What's the margin on that? How big are multiple? And just use those most bullish assumptions that you can make and then see if it makes sense. And in a lot of cases, you'll find that even with all of that, it's a nonsense. And by the way, that's kind of why I don't have shares in NVIDIA. Not directly, at least.

1:00:51I've got it through an ETF, I'm sure. But not because I don't think they've got every potential to be a huge company. It's kind of like, gosh, so much expectation is baked in. That was Afterpay. And that was your case for Afterpay as well. I was like, well, okay, great. Are they worth 25 times sales? Like that means you can just get rid of all of your costs. Yes, exactly. That's right. And it will still take you 25 years to pay back the purchase price. Like it does, there's, anyway. Just exasperating myself. I want to actually take half a step back, mate, because as we finish up, I just want to take this analogy.

1:01:29I do want to use, as much as it's about meme stocks, I want to go back to non-meme stocks for a second. But I want to stay in that kind of hyper growth or the rich expectations stuff, right? So was I forever a meme stock? I don't know that it qualifies as a meme stock for the reasons we've just talked about. It had a business. It had sales. There was a business doing a thing. The company itself was a real company with sales and theory at some point. It was very popular on the forums. Well, so this is what I want to get to. Like on the hot coppers and the Twitters of this world. That was a lot of that.

1:02:00And what I want to get to is thinking about when you really break it back. So firstly, don't buy the FOMO. Easy to say, harder to do. Don't buy the FOMO. Secondly, though, think about you made the example of valuations. And the reason I wanted to bring it half a step back was you were saying, there's no way that all this pays for itself. Clearly overvalued, that's fine. I want to argue there's another 25 % of companies that fit somewhere between fair value and meme stockness. And I just want to, just for the two minutes before we wrap up, I just want to focus on that for a second because let's say you've done the numbers and if those all assumptions come true, it'd be 25 % undervalued.

1:02:37There'll be people out there who are like, well, I want to believe and I've done the numbers and look, I can make it work. because if those assumptions are real, I get 25 % upside. That's going to be amazing. And I just want to come back to probabilities because in some cases, the absolute optimism, you go, well, I still can't make that make sense. There's no scenario in the world which makes sense. That's easy to ignore. It's easy to put it aside and go, you people are mad. Just no. There's a group of companies that fit below that. This is where I would put Kogan at$25, wherever it got to, where you do the math and go, well, could it get there?

1:03:07Could that be justified? Yes. There was a scenario and it's not an unreasonable scenario. There is, you know, the market is big enough. Kogan has enough customers. Whatever the scenario is, I can get to a$25 share price. Yes, absolutely. But let's think about the probability of that. Is there one chance in 10 of that? Yeah. Okay, well, hang on. That means there's nine chances I'm not going to make money. So if I can do the maths and make it work, how likely is that? This is just the next bit down. Because when you think about your broader investing, we mentioned Charlie Munger's odds here. I've got a chance of a$25.

1:03:41I've got a chance of a market beating return okay so I and I'm not going to make up numbers for the fun of it let's say the upside is 20 % right so at 25 bucks I think it's worth 30 if everything goes well it's worth 30 bucks I can buy at 25 dollars and get a 20 % upside that's pretty cool yep but if the odds of that upside are only 10 % and there's a 90 % chance that the company's worth somewhere between 5 and 15 well then I'm kind of betting against you know that again is lotto ticket stuff you're far far far more likely to lose money than make it just because there's a chance you're going to make money isn't enough and this is the other side of that just as you do the maths you got to yourself what are the range excuse me of outcomes and then where is it most likely to fall on that chart because if you're always chasing the one in tens and the upside isn't justifying that you know that probability you're going to lose money that's a negative expected value to use the phrase you using before which is the more i play this game the more likely to lose money rather than make it that's just crazy where i like it is because it gives me something to measure against that's not the share price yes so whatever okay 25 top line growth for 10 years cool all right if you want to think that that's that's fine well in a year's time or six months time we're going to get some results and you'll be able to sort of put what they actually did against what they needed to do that's all right and it might be oh 38 actually it's growing faster than even i expected or it might be 10%.

1:05:06I was like, well, the thesis ain't necessarily busted, but now there's a lot more heavy lifting that the other nine periods have to do. And then you go another period of, and it's like, oh, they've still grown, but only at 6%. I've actually done my, not done my dough, but I've certainly made some pretty ordinary investments and some losses on companies that have continued to grow. And today are much bigger than they were when I first invested. It's just that I was expecting 20 compound sales growth and it grew at eight percent so like whoops you know what i mean and it's sort of like it and and i could recognize the thesis as broken not because the share price was down because some i mean that's that's just a bad it's going to be a a bad tell a bad bit of signal because sometimes the share price goes down for dumb reasons not it doesn't always go down for smart reasons but when you can say well look i predicated this whole thing on on this expectation and it's just not being delivered.

1:06:02I can make more of an independent assessment as to whether I was right or wrong. Now, look, you might be able to reformulate and thesis and go, by the way, cause myself a lot of angst doing this. But like, well, I was wrong before, but now, you know, now it's in the price. Now they only have to go up this much. Oh, so it's, you know, it's a low hurdle. Don't worry about the sunk cost. It's on. So you can, in theory, do that if you're honest and objective enough with yourself. Yeah, that's a good point. But I just love the exercise. You make such a good point because you will make anything make sense if you use bold enough and ambitious enough assumptions.

1:06:38You just will. I mean, maybe before when I was spitting out all those stupid numbers of brain chip, I sort of 10x it all. And all of a sudden, it's like crazy cheap. And maybe they do that. But it's more – so, yeah, A, there's a chance of that actually happening. But it's also just that yardstick to measure progress against that's not the share price is the point I wanted to emphasize. And I think that is a wonderful way, mate, to wrap this one up. I think, understand the fundamentals, that's the fundamentals of the business, right? The share price tells you, as Ben Graham said, almost 100 years ago now, in the short term, the market is a voting machine.

1:07:14All you're finding out is how people are feeling, what they're thinking, what they're doing. You're seeing nothing about the business itself. In the long run, the business's value will, more often than not, be correlated with the price, at least directionally, and certainly largely in a quantum. So yeah, keep that in mind. It's the fundamentals that matter. And as you say, mate, And having a separate yardstick to share price is what will keep you, not perfectly, but will keep you grounded to what you're trying to do and not getting carried away with the farmer. Look, if you can do that, you're already ahead of 80 % of your average, to use the horrible term, retail investor.

1:07:47And for institutions, by the way. And a very significant number of institutions. They're all looking at the share price. And I've used the analogy before of the man walking the dog. The dog's on a long leash and he's darting everywhere. and everyone watches the dog. It's like, no, watch the man. Whatever the dog is doing right now, he's going to go where the man is going because he's tethered to the leash. And watch the man. You'll go a long way. And with that, mate, will you come back on Sunday? You know it. Of course you will. We've already pre-recorded the episode. We've already done it. Oh, that joke's going to get old eventually, but not just yet.

1:08:22Thank you for listening. Enjoy the first half of your weekend and we'll see you on Sunday. Until then, full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.