Stock Red Flags to Avoid Before They Destroy Your Portfolio

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1:04I would say like Micron, the stock went up about 400 % in the last year. If I was going in and I was well aware of the hype cycle, and I saw Micron, CEO, CFO, and half the board selling stocks at all-time highs, I wouldn't touch that stock. This doesn't invalidate what we're saying about not paying attention to insider sales, but a concentrated group of them around the same time at all time highs. I would see that as a big red flag for me.

1:36Welcome to Stock Club, the podcast where we find and discuss stocks that anyone can buy, many of which we believe will go on to grow your wealth. Today, that's Thursday, 2nd of April, I'm buying a brand new stock into my portfolio via the Horizon service that I run that was the only company common to three different AI models that were fed an academic study on multi-bagger stocks and the latest feeds from other stock exchanges around the world and instructed to find qualifying candidates. But it's also the one stock that Porter Stansbury said to me that he would buy when I met him here in Dublin last Friday.

2:20I've watched this business for years. It's effectively completely unheard of. And it's about to fly high, I believe. So email frank at mywallstreet.com if you want to subscribe to Horizon ASAP. He will do you a deal, I'm quite sure. But this is a stock that I'm really excited to become a part owner of, especially with all the validation that came from great thinkers and great models alike. But apart from all of that, I've loved it for years. Mike, talk to me. How are you this week? I'm good. I'm good. I'm a little tired. I was back in Dublin, as you were as well. Very long weekend, but hopefully a very successful one.

3:02and uh you can't really complain too much when your work your work trip involves playing two rounds of golf and going out for nice dinners and drinking pints but you're tired at the end of it all the same aren't you you were such a such a hero mike because you played all the golf 36 holes and you drank plenty of beer so probably probably 36 pints as well i don't know if it's okay to say that anymore we don't celebrate excessive anything sure we don't like no this is uh this is what's opposite this is me looking for sympathy oh yeah in the name of uh progressing my wall street this is a total irish sympathy it's like oh god i'd have to feed a beer and have a terrible headache oh you poor thing that's terrible yeah yeah thank you so it's um pure irish mike um i got a message uh via x from a long time listener and friend of my wall street called ibrahim shami and ibrahim wrote, we need an episode about the red flags that investors should look for in a company.

4:07Another episode should be about investing psychology for beginning investors. Keep up the good work. So you and I had a chat there yesterday. We thought it's a great idea and specifically talking about red flags. And I certainly think that's one thing we can talk about this week. What do you reckon, Mike? Yeah, I thought it was a great idea because Because all we do on this podcast is talk about reasons to invest. But go in the opposite direction, like, you know, the no-fly list. What do you see that completely turns you off a business? I think it's really important, too, especially when you're getting started with stock picking, stock investing in general.

4:41And you're doing all these screeners and you're looking at so many different businesses. You really need factors that can prune the herd very quickly. um so like you're on this podcast you'll describe a beautiful graph of revenue or profits that goes up into the right and everyone will know exactly what you're talking about and it'll be really good podcasting but but on the other end of the spectrum what are the reasons we wouldn't invest and you know they can be universal they can be quite niche they could be personal to me and you i would invest in businesses you would have no interest in and vice versa so there's loads of different directions we can go with this and so i i just kind of i just basically looked introspectively and thought what would be the reason why i wouldn't invest in business i'm kind of i've listed a bunch here and we can kind of run through them and you can throw back your ones as well and i think that's the best way to get through this episode and and before we do i was just pondering as you're talking there so a thing you can do if you believe a business is deteriorating and its stock price is going south, the mechanism for capitalizing and the southward moving stock price is a thing called shorting stocks, which I'm sure most of our listeners have heard of and some have done.

5:57But we've never really zoomed in on that. We've never said we are shorting this, that or the other. I think the only time I ever said I was interested in shorting a stock was either to you or james or rory many moons ago when snap aka snapchat were uh filing for ipo and i think was it gwyneth paltrow or gwyneth paltrow's cousin or something wrote a good chunk of the prospectus and that was um gwyneth paltrow's cousin was not snapchat it was we work i think oh yes you're right sorry but it was definitely snap sorry so what whoever wrote the perspective yeah uh the yes i forget what the name of the form is it was well i don't use bad language but here it goes it was batshit like i i remember thinking i have read a lot of these i've never read anything quite like this and i said on the show i'm going to short the stock and sure enough post IPO.

6:58I went over a cliff, but of course it recovered and they've played a very good game and strategically smart. They were calling themselves a camera company. So the first thing written on the prospectus was Snap as a camera company, which was incongruous with my understanding of what they were. So what I was going to say was that if you are someone who's naturally pessimistic or enjoys capitalizing when something is deteriorating the mechanism is shorting but do you need to be optimistic about a pessimistic outcome in order to short a stock so like yeah i'm an optimist at heart i'm pretty optimistic that the signs all the signs are this stock is going to go down and i'm gonna uh i'm gonna write options so are you and can you be an optimistic pessimist an optimistic pessimism you can be an enthusiastic pessimist right be very confident of a negative outcome um i think hoping for a negative outcome seems a bit yeah yeah it's a bit dark in fairness like shorting and selling puts and all the rest like that's not really meant for a um a profitable trading strategy in the sense that they're hedging strategies and what they've evolved to is you know this kind of pseudo gambling i suppose yeah in terms of people you know buy naked putts and all the rest and that's something we would never recommend because that's a completely different game to what we're doing um and so i that if that's your flavor by all means but i don't really think that that is the strategy i would go with personally i don't think that's a strategy that will work for an awful lot of investors out there and it's very niche have you ever shorted a stock mike have you ever taken a bet no no it's so rare for me i could count in one hand a number of times the number of times i've done it in 30 years it's just a very very rare moment where i'll do it almost out of curiosity on the mechanism yeah because the thing with shorting as well is that it doesn't even matter if you're right what matters is the timing too so correct it's fine yeah 100 so i'm going to talk about the one One stock that immediately came to my head when we're talking about red flags was Nikola.

9:15Right. Yeah. Nikola. But he's back, baby. He's back. I know. Don't even talk to me. He saw the AI grift and he came right back after his pardon. But Nikola is a great example of kind of a trust red flag. And these are always so obvious after the fact. But at the time, maybe they're not. Do you know what I mean? But nothing, I think, is more destructive to a business than out-and-out fraud. Nikola is the most recent example in terms of how bombastic it was and how public it all went about. But that was just a complete, utter destruction of value on the public markets. Now, you could have been short that stock for a very long time and lost money right when all the hype was coming around.

10:00So that's why I think even though you are right about something, if you time it wrong, you can still lose money. That's why I think is a big drawback from shorting in general and options too, because you can be right about a stock going up eventually, but you don't get the timing right and you lose money too. So that would be why I think the short-term bets maybe stay away from them unless you're a real expert. But sorry, sticking on with Nikola and red flags in general, it is quite difficult to spot fraud before it happens. but there are always signs like if a company is pre-revenue uh it's making a bunch of outlandish forecasts uh just maybe wait a while before investing let them show some signs of execution before jumping in this is pretty common obviously we had the spacc trends post uh post and during pandemic where they were the few companies that were allowed to make forecasts in such a way whereas pre-ipo companies couldn't do the same so that fed into that but there are a lot of businesses, especially pre-revenue business, we talk about biotech a lot here, that you can really get caught up in a hype cycle on the promise and the story and the potential of a business.

11:20And that would be a red flag for me. I personally wouldn't ever really go for a pre-revenue company. So that would be one of them for me. And that's just being able to avoid kind of serious value destruction because there isn't really an underlying business if the business isn't making money yet. In a classroom of sodas, most stay quiet. Then there's Mr. Pibb. Sweet cherry, bold outbursts, the kind of flavor that gets attention. Bold kick of cherry. Hey yo Mr. Pibb. Oh yeah, I totally agree. The management integrity is a difficult one, but so important. we can open screeners till our face turns blue and screen for businesses with revenue growing at more than 20 % a year or return on equity above 20 % a year and insider ownership between 5 % and 40 % and all these other numbers that have been prevalent in businesses that went on to grow.

12:19But the greatest driving force is the woman or man who founded that business still at the helm, operating that business as if it is their family because and and spiritually it is their child and when i i'm sure i've said before that when you consider if you just think of the names of the most well-known business people of all time they are all people who founded a business where their name was absolutely inextricably linked with the success of that business um so whether we're talking about the luminaries of the business world like uh steve jobs or elon musk i might say or those who are not a founder of tesla technically not a public company founder no but he's done a bit since you gotta handle it he's about to be i'm not going popularity here in fact when you read read walter isaacson isaacson's book on steve jobs as opposed to his book on elon musk you're not left feeling a whole pile of love for Steve Jobs you are left feeling in awe of his reality distortion field and his ability to see a future and make it happen now those who knew him I'm kind of drifting here uh like Tim Cook who knew him very well said look I didn't see a lot of Steve in that book it didn't feel right but my point is that a passionate founding CEO is not necessarily there to win a popularity contest.

13:47There's a great book I read many moons ago called From Good to Great by Jim Collins. And what he describes is what he calls is a level five leader. And a level five leader of a business is one, he describes level one, two, three, and four. But a level five leader is somebody who exhibits two traits in abundance. And when they do, they very often create untold wealth through the companies that they're they're running and uh the humility and fierce resolve so business leaders who have a degree of humility which i think would strike elon musk off the list and fierce resolve are the ones that generally commandeered that company to higher highs and he describes in his book things like um yeah i think it was the ceo of gillette uh when gillette was a virtually unheard of and growing brand was so humble and so media shy which was another thing that he said was prevalent in these level five leaders that when he saw his picture on the front of a famous magazine whether it was fortune or time or forbes or something like that he actually had a heart attack on the spot he was so media shy now i think that just because you write a book and identify these as two attributes of great leaders it doesn't mean that if you don't have these two attributes you're not a great leader which evidently has been seen with all these other leaders we see but your point about less humble less humble so yeah and it seems being humble is is almost um well the humble ones you won't hear about so there's great businesses out there like we've spoken about waste management on several podcasts recently as a wonderful business that grows capital appreciation and increases dividend but like who's the leader it's not like everyone knows who the ceo of the biggest garbage company in america is they kind of said yeah but your point is that the integrity and drive of a leader determines when a stock is going up but the inverse of lining their pockets out to achieve short-term gains looking for what they can get out of it themselves is generally not a very good look no very much so i have that on my list as well like as in if you see a carousel of new ceos every few years that would be a big red flag for me yeah like not all great businesses will have a founding ceo or at least a long-term ceo skin in the game but i think it's a huge plus and i think you should definitely prioritize businesses like that when you are screening companies and looking for looking for stocks that are going to endure not for one or two years but five ten twenty twenty five years because those are the businesses everyone wants to own my sticking sticking with the leadership um aspect for now as well we mentioned um in the insider insider trading episode insider buying episode that insider selling you can't place too much importance on it but there is for one like identifying a red flag for me for sure would be concentrated insider selling around all-time highs.

17:00And so while a CEO might make a sale for any number of things, their daughter is getting married, they want to buy a new yacht, whatever it is, that's fine. But if you see a bunch of the leadership team, a bunch of the board selling while the stock is at all-time highs, I would avoid that business like the plague for the next six to 12 months no doubt about it do you have do you why do you go in and look at that often mike because i'm all about looking at insider buys and i so rarely screen for insider sales now and again i do but is it something you'd look at often yeah i think like as in when you're looking at a business and i suppose that would be a bit of a short term um that would be a bit of a short-term indicator rather than anything to do with the the long-term outlook of a business but if you're going in and you're making somewhat of a significant purchase i would go into fintel because fintel would show the buying and selling and like if you see i'm trying to think of an example now but like i would say like micron the stock went up about 400 in the last year if i was going in and i was well aware of the hype cycle and i saw micron ceo cfo and half the board selling stocks at all-time highs i wouldn't touch that stock do you know so we we do and this doesn't invalidate what we're saying about not paying attention to insider sales but a concentrated group of them around the same time at all-time highs i would see that as a big red flag for me so you use finviz to look at that i presume is that correct no fin tell okay finviz does it too i i use open insider i think open inside yeah there's plenty of them because it it's all just collating uh sc public sec information so that's quite a quite an easy website to go and build if you're into into that but um okay we're getting through them now so there's a few more nuanced ones as well when it comes to say accounting and stuff um some you'll even see in like strong well-established businesses but you know if there's a big difference between net profit and cash flows that would be a cause for concern because it doesn't mean that it's a hard note, but if there is a gap there, profits might be tied up in unpaid bills.

19:17And then you start to tone the line with creative accounting, which is never good. Or another example of this in a different sense is what we see a lot is the overuse of adjusted EBITDA instead of net income. So that will hide outside stock-based compensation expenses. And this is one of my big frustrations with a lot of tech companies, a lot of software businesses. And you see it everywhere. This isn't a reason not to buy, but it is, for me, a red flag. It's going in the, if you're making a pros and cons list, it's very much in the cons list. And it can just be a real detriment to investors who are essentially being diluted quarter after quarter consistently.

19:56And if you see, because these are usually high performing stocks as well, so they're going to carry high valuations too. If you see the stock turning around and start going down, that valuation gets compressed, that dilution starts to really matter. And I would like to see businesses, very good performing businesses, like CrowdStrike is one. Axon is a very big stock-based compensation business. I would like to see them actively reduce that because it is a detriment to investors. Now, if you own CrowdStrike or Axon over the last five years, you're going to do very well. So it wouldn't put you off the investment completely.

20:32But it is something I would look out for something to improve on. That wouldn't be the same as, you know, Trevor Milton and Nikola, red flag. But it is something that I would look at and be like, okay, I'm not totally okay with that. Yeah, yeah. So is that in the same camp as deteriorating fundamentals? Or are we talking here about, like, so when I think about a business with its fundamentals worsening, I think about a business where the revenue growth is, there's no growth. It's declining and margins are getting compressed. and then an uninteresting or bland return on equity that's been going on for years and years.

21:11And then even you bring in other things like rising cost of acquiring customers. They're all kind of fundamentals, but what you're going for there is slightly more financial engineering, isn't that right? Yeah, and in that sense, I put it much more of a don't particularly like rather than absolutely cannot be a part of. But it does come into play. And I think what you've mentioned there, those four big things really are the inverse of what you would look at for equipment. And they're completely obvious, but incredibly important too. And I think what's important there as well is identifying whether that is actually a consistent trend or if that is just a one-year blip and there might be an explanation for it.

21:59But if you see a business with revenue falling, margins tightening returns on capital getting worse and worse year after year stay away from like the plague as well and i think that's maybe the most obvious thing but with red flags is that is that more than a red flag is what i'm saying is that just a i won't go touch i won't touch a business like that because well what is there to gain from unless you're unless you're identifying a turnaround play and there's a cat exactly so So what you described there sounded like Tesla. Tesla's sales are going down, revenue's dropping, they're killing off lines, they're no longer making the Model S or the Model X.

22:42And you can see that their fundamental business, as it is today, is under attack from Chinese new entrants and not quite so new entrants. um but to the second point you made there is a lot of evidence that tesla is about to undergo the largest pivot ever seen possibly that this is moving from being a car manufacturer into an autonomous vehicle operator built on one of the most sophisticated ai systems in the world with a whole fleet of humanoid robots. So, you know, it's a very extreme example and it's a bombastic example and it's one that, you know, the world is watching. But I think the devil is in the detail.

23:33You look at a business and unless there's a clear catalyst where this is a transitionary period, I totally share your concern. So if a maker of widgets is just planning widget V2 next year, but sales are going down and the cost of acquiring customers is going up, it's just not something to get too excited about. Very much so. And I think what you're bringing in there is overall systemic risk to a business, which usually comes in the form of some third-party threat that the business itself has no real control over. This is probably the hardest to identify because it won't show up in any balance sheet.

24:14you know a company may look like a bargain with all the attributes we like and everything trending up is right but the business could be you know terminal this could be in the form of say like a well-resourced competitor so the trade desk has suffered hugely from amazon entering the the demand size ad tech race really um or in general the thinking that sass businesses are seriously under threat from ai if you look at adobe on paper it looks like an incredible business but who's to say AI isn't going to completely disrupt everything in five years time. So that's what's really hard to identify, whether it be competitors, whether it be disruption, whether it's even behavioral shifts.

24:57We were talking about this over the weekend, like you're looking at alcohol stocks, which were always seen as really solid businesses, blue chip brands, solid income investments, not going anywhere, just the kind of stalwart business you like to have in your portfolio. Now, all of a sudden, it's coming out that Gen Z has completely turned its back on alcohol. Young people are drinking less than ever before. And if that trend continues, where are Diageo or Brown Forman's customers going to come from in the next 10, 20, 30 years time? So that kind of needs a much wider analysis than looking at just individual businesses.

25:31And it's probably why it's the hardest to define and identify. But if you can see that and you believe in that trend against the business, then one million percent. That is the biggest red flag because that's going against your beliefs and your outlook in general. And that can be quite subjective. Like we're talking about Tesla, and you say they're at the inflection point of this huge business pivot. But that could also be perceived as, in this hypothetical, let's go for a second, And that could be seen as a pre-revenue autonomous driving company and a pre-revenue autonomous robot company. And all these promises are just promises now.

26:14Obviously, there is a cash flow business underlying it with the car company. But that's how that could be perceived. And some people will perceive it that way. And some people could be absolutely no way are they going near Tesla. While others have seen the success that Musk and Tesla has had. It's a trillion dollar company, not by accident. And so much of that comes from the vision. so it's not i i would love to give very hardcore if you see this do not buy red flag list things and there are some things like that but it's so subjective and there's so many elements and and you you kind of raised two i felt two different uh red flags there one was an unforeseen threat so when you bought the share in adobe you never considered or saw that ai ai was coming down the track so you bought adobe 10 years ago and suddenly you're looking at this business and the great disruptor has arrived and that was one of the things i heard you say in second was changing tastes which are very difficult very very difficult to um put a circle around like if you take for example last night i was chatting with my wife about on you know the the makers of the running shoes on for a little while i was seeing them everywhere and so too was my wife and we had conversations about them and i had a look at them as an investment and uh federer roger federer was involved and probably got a handful of shares uh sweat equity as it's known and he was kind of one of the hidden founders of the business and it was a hot stock and at that time I truly considered pitching it for Horizon because it looks like, to use an overused analogy, the next Nike.

28:02You know, they were kind of, you see them in shopping malls and airports and putt-not. I haven't seen them in a while. And the stock price, I mean, look, my observation and the reality of business are very often diverged. But I haven't seen on-runners or sneakers for a while. And their short price has been going down, down, down. and their fundamentals are deteriorating but all of that is to say that taste change really quickly in some industries and i have really over the years found out the hard way that fashion is one where just things can change it can a day arrives where everyone who is wearing an ugg boot looks down and goes hold on my feet look like i was a yeti monster i'm not wearing that anymore and suddenly the taste has changed.

28:55It might be the case for Arm. I don't know. There might be a screaming buyer at the moment. I'm not making a comment about that. So you're changing tastes and then you've unforeseen disruption. Now on the unforeseen disruption, I have a great story. Nobody wants to get catfished by dating profiles or big wireless carriers with hidden fees. Your one true match, Visible Wireless. It's one-line wireless with unlimited data and hotspot for just$25 a month, taxes and fees included. Now that's a green flag. And it's fully digital. So you can switch as fast as you swipe. Tap the banner to learn more.

29:31Terms apply. See visible.com for plan features and network management details. Which maybe everybody knows. So stick with me, folks. And it was that the greatest. So Encyclopedia Britannica, and I don't have the story written down or re researched in front of me, but Encyclopedia Britannica, for those my age will recall was a vast volume of leather-bound encyclopedias that a lot of upwardly mobile families would enjoy having on their shelves rarely opened but they were like something to be admired and almost spoke to a family's intellectual capability and you'd see the A to Z books on a bookshelf in a home.

30:13And that was the de facto encyclopedia. This company was around for hundreds of years, I'm going to say, or at least 100 years. And the year it enjoyed the highest number of sales, I'm going to say, I'm going to try and remember, I'm going to loosely say it enjoyed its highest number of sales in, let's just say the year 2005. And a quick Google will set people right but i'm probably plus or minus 10 years by 2006 it had gone bust imagine it had spent a hundred years going to climbing to the pinnacle of the encyclopedia sales curve and along came wikipedia and wiped it out in a matter of months and sometimes i suppose the lesson is that sometimes almost all times a disruptor isn't seen until you're staring the dragon in the eyes and you realize oh my goodness everything we've thought and used about this tool has suddenly changed and whether it's a better mousetrap or an altogether new thing the unforeseen disruptor is a real you've to spot it and recognize it really quick so if you are in if you own a business and we spoke about Adobe or we could talk about Figma or we could talk about Atlassian or any one of these SaaS companies we're now looking in the eyes of the dragon called AI and we're all trying to figure is it going to be the slayer of our beautiful business in our folio or an accelerant and I think that that for me is one of the hardest ones to get my hands around because we could go off and talk about AI as we do so many weeks and say well maybe it's an enabler for this business Maybe they're going to roll out faster, better products because they're already in companies and they're going to have an AI capability.

32:06Or are they going to be coded out of it? And I think it's quite a complex one. But I think as soon as you see a business admitting that AI is disrupting or the disruptors there, like Chegg, short for chicken and egg, a company that did or does, I don't even know if they're still on the scene, college books, which are notoriously expensive in America. all of a sudden along came AI and Chegg's business model was goosed um yeah so it is a really interesting point to make is it a disruptor or is it a change in taste but both of those things are very powerful very much so um okay I'm gonna run through a few smaller ones that I would look at as companies and this wouldn't be I'm not touching this business but this would be I'm very wary of this now.

32:56Valuation is always important. We talk about wanting to own businesses for 20 years. So we're going to look for enduring quality, which are the kind of businesses everyone wants to own. So hence, we do recommend expensive stocks. But with a long-term mindset, that is a system that works out pretty much. But you still have to stay within very much the realms of reality. So we mentioned last week on the Aussie podcast, Pro Medicus. It's a good example of this. The I think around its peak last year, was it around 250 times earnings when I first looked at it. Stock is still down 60 % since then and it's still expensive.

33:33It's still over 50 times earnings. So you can buy great businesses and ProMedica is a great business. But if you buy it at the wrong price, they're going to make bad investments. So I would definitely have, if you're making some kind of investing checklist within reasonable bounds, I would have a valuation there. um don't completely avoid stocks if they're you know over 25 times earnings because you're going to miss out on good investments and you won't believe how if a business keeps a quality business keeps delivering how it will be able to stay expensive for 10 years 20 years that that's very much a possibility but do stay within the realms of reality with that for sure Another one is customer concentration.

34:18This is one we bring up a lot. So customer concentration is essentially how much revenue one client can contribute to the overall business. So if you see that and you can look this up within any company 10K, it'll be on the investor relations site. Just a quick Google search on customer concentration will show you if there is that risk within a business. And this happens a lot within small businesses that serve large clients. So if you can imagine, one company we looked at was Ceridian. And it is a SaaS business that serves big major telco companies. And customer concentration was a risk there because of the size of Ceridian compared to the size of its clients.

35:05and if you have a company that has customer concentration risk of 20 25 percent that is essentially beholden to the success of its client and the loss of one client the loss of one contract can devastate a stock overnight we saw that with um the fertility specialist benefits progeny when it lost its amazon oh absolutely that's the one that i was calling it progyny by by the way, and your color progeny, we never got to the bottom of that. Yeah, well. Either way, we're talking about the same company, but you're absolutely right. That's where they lost Amazon, right? Exactly, yeah. Yeah, yeah. I had that pitch.

35:45I think I had that bought in Horizon to my distress, and there was a customer concentration, you're right, in Amazon. And not only did Amazon pull the plug, but you suddenly realized Amazon was a competitor because they got their own one. Yeah, well, that's what Amazon does. any expense it has it looks to monetize eventually which uh which might make amazon the best client when you come to think about it um and then what else i'm trying to run through a bunch here last one i suppose a high dividend yield of now not i'm saying three or four percent i'm saying eight or ten percent that's often a warning we discussed this a bit on the you did you said when i pitched for horizon you said oh right that's given is a bit too high yeah so if you're looking at that you see a 8 % dividend, you're like, that's great.

36:31Maybe pump the brakes. You look at a thing called payout ratio, if that is over 100 % of profits, companies probably borrowing money to pay shareholders. And there's just absolutely no future in that. So that would be another one that would very much hit the list of red flags to look out for. But again, these things are so subjective, there's so many of them, you could find 100 things that you wouldn't like to see in a business that I would be okay with and vice versa. So it is quite a subjective thing. I think we've ran through as much as we can there. But it's a very important thing to do because you're supposed to have these guardrails for yourself to avoid picking bad businesses more or less, or even bad, good businesses at bad prices.

37:16And it's so important to have those guardrails and to make them suit your own investing style. I think that's one incredibly important thing for any stock picker out there to have your own investing checklist and to be able to stick with it and to not get tempted whether the market is really expensive and there's no good picks out there there's nothing wrong with sitting on the sidelines for a couple of months you're still practicing the stock picking mindset and method even if you're not actively buying shares so yeah i think this is a good episode i think it's a good way of um good way of looking at what not to look for as well because all the time we're talking about what to look for what to avoid is just as important and you have to sleep at night you have to know that the assets you own are aligned with your philosophical beliefs and your um your your palette for risk like there are there's another one which there's a lot of businesses that have binary outcomes that if they don't get the regulatory approval from the fda for their single product they are donald ducked they're gone and And you need to, if you have one of those in your folder, you need to be aware that sure, if they get the regulatory approval, this thing is going 5, 10, 20, 50 X.

38:31But if they don't, they're dead. And some people just can't. I would prefer not to live with that level of binary outcome. But you're right, there's so many different, it's the inverse of the things we look for. and there's no absolute formula but i'm sure a lot of people who do nothing but short stocks for living could tell you there's at least a reasonably replicable formula for shorting stocks but we don't go there okay you have a little bit done for following profit this oh yeah i sure do and then you're going to talk about something properly exciting for irish investors am i right you're going to talk about that much so yeah okay well okay mike it's following profit where you or i spotlight one of profit's current 10 stocks which is our just tell me what to do service profit only always it always holds 10 stocks and only 10 stocks and it rebalances every four weeks it's so simple child could do it as usual i would like to caveat this section with the fact that we are talking about a company in the knowledge that profit might sell it in three and a half weeks and the reason i say that is that last friday um profit updated and it had quite a big update because typically every four weeks it might sell two and what you do is you sell the two on the day you take the cash and you evenly divide it into the incoming two and then four weeks later it says sell these three so you sell three and you use our little calculator super simple and you buy an equal third of the incoming three well last friday four stocks were sold and um four were bought and the four i thought i just mentioned one of the four uh that were bought that was bought on friday because i never heard of it and it's spx technologies have you heard of it mike Nope.

40:37So glasses do they? Specs. Exactly. That's good actually. So the specs, no, they don't, but they do something even less glamorous, which is they supply infrastructure equipment, serving the heating and ventilation and cooling and the detection and the measurement markets, all things to do with air. Okay. Very AI coded. yeah exactly hvac do you ever see hvac on vans high volume air conditioning yeah so more than so but they sell their stuff in the us china and the uk and across the rest of the developed world and the company operates two segments which is the hvac segment uh which engineers and designs and manufacturers and stalls and services and looks at and admires and talks about all things to do with big, heavy cubes that sit inside a building to cool the air, which is very important when the air is going for.