How to Find 100 Bagger Stocks

17:12Downtown Josh Brown:Somebody told me, I forget the number, so maybe it's not interesting but um you start with a regular standard domino and each domino it knocks into is twice the size i think after the 13th domino you're knocking down the umpire state building or something like that it's a good example so yeah uh it might not be 13th but the point remains people understand the concept of of compounding um and that'll but what people don't know is what you just said which is like just how much of the astounding return happens at the very end, which of course it's hard to get that far. And it's boring.

17:47Michael Batnick:Who wants to be rich at the end? Right. I want to be rich right now. Yeah. This is a get rich slow kind of concept, right? And that's why a lot of people, you know, kind of look at it and they make their 100 % and then they're, you know, on to the next.

18:00Downtown Josh Brown:Before we go into your slides, I want to make sure that for the audience, they understand where you're coming from. So you and Neeraj meet. this story is something that kind of like binds the two of you okay and you have this obsession that you want to learn learn more about what it means to find these stocks and how to do it and okay i love it but your background super unique you were at uh janice and you sort of tell this apocryphal story of uh you find out as an analyst that a company called fast and all is going to miss earnings. And you go running into, I guess, the boss? Yeah, my portfolio manager.

18:43Downtown Josh Brown:So tell us the story. So I was a young analyst. And yeah, we followed this company fast and all. It was one of the first companies that I had followed. Got to know the team really well. Knew the CEO, Bob Kirna, very well. This was in the day and age before Reg FD. So what that meant was I got full access. We got to go. You were allowed to know more than other people by virtue of your closeness. Exactly. It was, you know, kind of the work that we did, we got, we benefit from that. So I got to go on, on tours, if you will, with the, the branch managers going on customer visits and doing that. Well, I got to meet a lot of the regional vice presidents.

19:21And what I was able to do is, you know, kind of going through that process, I was able to figure out that they were going to miss that number. Now, at the time, it was actually about 8 % of our portfolio at that time. But what we didn't know, you know, at the time was how great a company this was. I mean, we obviously were, you know, fascinated by who they were and kind of what they had. And that's why it was our largest position. And I'll just say that it's a company that sells nuts and bolts. It's literally nuts and bolts. Nuts and bolts on construction sites, in vending machines. So, you know, they really penetrated.

19:58So those site visits were important. Oh, yeah.

20:00Downtown Josh Brown:So construction company doesn't have to run back and forth to the supply house. They will literally set up, here are all the screws and nails and fasteners you might need. And you just pay as you go. It's like mobile Home Depot. Yeah. Well, the greatest thing that a lot of people didn't understand, but we actually had figured out, was that the cost of what they were selling, all their nuts and bolts, was less than 3 % of the total project cost that the customers had. And so why that was important is that what really mattered is the service that Fastenal could provide. So think about it. If they didn't have that nut there or they didn't have certain things, you would have an entire labor crew that didn't have— Waiting for a part.

20:40Yeah, couldn't do it. And you'd have the machines that they had to have. So this was a really big part of that story. And what they realized, what Fastenal really created, was we're going to be your supplier of choice. We will make sure you will have the right part at the right time and do that. And if you don't have the right part, we can actually machine, you know, tool them so that you actually have that. That's what made them so special.

21:02Downtown Josh Brown:And you're running around worrying about they're going to miss the earnings this quarter. So what had happened was, you know, given it was a large position in the portfolio, I had figured out that they were going to miss. And so we went out, went to my boss, and we sold the stock. Well, from there, the stock actually went down 55%. Now, the market at that time had gone down about 15%. So I looked like a genius. over that time frame. Yeah, you saved the day. 8 % position. Yeah, yeah. And on a split adjusted basis, it was about$1.45, went down to about 70 cents, right? Somewhere thereabouts, 65 cents.

21:37But if we had actually held our position, that it then went up from there by 19-fold. 19-fold? 19-fold from where we sold it. Did Berkshire end up buying it? No, Berkshire hasn't bought that. Oh, who bought Fastenal?

21:53Downtown Josh Brown:or is it still? It's still publicly traded. Yeah. Yeah. And it's still exceptionally well run. CEO now is Dan Fornis. He used to be the CFO. I mean, this is one of those companies that just, you know, is so well run. What's a 19 fold return over, like what's the average annual return of that stock? So to put it in terms versus the S &P. Yeah. The S &P went up over that timeframe four times. Okay. So you can tell if we would have just held on to that position, even though you had that down to, You know, we wouldn't do that. You should have done what I did. I sold it the same time you did. And then when it fell 55%, that's when I bought it back.

22:30Downtown Josh Brown:You're brilliant. Just saying. Why don't you do that? You know what? I'm saying that's an approach. Yeah, no, it's absolutely. Okay, so, but that's a very, it's a moment where you say to yourself, I just learned something really important. Absolutely. Okay. And this is what you're actually getting into is the real important thing that we talk about. Epiphany, I was trying to say. It's an epiphany. It is. It wasn't epiphany. It's that it's human psychology that plays such a role in how we do as investors. And, you know, that was a great one right there because, to your point, if I knew that to sell it, guess what?

23:05When it was down 55%, it's really hard to go back and buy it again, right? Because at that time, too, one of the things that was playing out was Amazon. You know, Amazon's going to enter the market. They're going to destroy Fastenal. They're going to do that. Right. Never turned out that way. And in fact, now Amazon is one of that, Fastenal has the largest customers.

23:22Downtown Josh Brown:So here's the problem though. And this is what I think our audience, you probably too, everyone, is what we struggle with. When it's down 55%, you now know it's a great company because you've been on the road with management. You've met the customers and you understand whatever's going on this quarter is not existential. You know this, but most people, they're not that close to the situation. They have a stock that just dropped, cut in half on earnings. they don't know what's going to go 19 fold after they think it's going to zero right or the or or best case scenario they get stuck in a down stock so that to me that it's not just the length of time to hold the stock it's the willingness to endure 50 percent drawdowns not everybody has that no they don't and that's what makes um the long-term investing special right you have to be willing to go through that i'll just add matt and matt's uh study about what these companies have in common, nearly every single one of them experience an existential event.

24:24Yeah. Okay. That they survive and come back. Exactly. Yeah. And over that timeframe, from the max drawdown, 70%.

24:32Downtown Josh Brown:So it's almost like the hero's journey. It's like the Campbell books. That's right. Like you have to come back from the dead to - Act three. Right. To have your act three.

24:43Michael Batnick:So Matt, you just said this about the 40 % number or the 70 % number. I read this in 2014, I believe, and this really stuck with me. There was a research report from JP Morgan called The Agony and the Ecstasy of Stock Picking. Yep, right. And they said 40 % of all stocks in the Russell 3000 experience a catastrophic decline, meaning a 70 % decline from which they never come back.

25:10Downtown Josh Brown:Right. So 4 out of 10 never come back.

25:13Michael Batnick:So I think what Josh said is so right that you have unique information that the average investor does not. And I think the reason why it's so hard, I mean, for a million reasons to stick with the winner is because, A, you know that at some point you will get cut in half. It's just part of the deal. None of these stocks go up 100x in a straight line. Right. And you don't know which of those are going to come back. And so if you double your money, that's a great investment. It's a great trade, whatever you want to call it. I better not be part of that 40%. Let me just take my money and just leave.

25:41Michael Batnick:So for every fast and all, there's thousands of companies that do go to zero. Right. So it's actually one of the basis of my entire study. So think about what you have is what were those stocks that went down by that and never came back?

25:55Downtown Josh Brown:Because those are the ones you have to avoid. Exactly. On the road to a hundred bagger, you might have a few zeros, but you can't have a lot. Right, right. And the biggest difference, what I found after going through the hundred bagger, is that all of the companies that kind of turn out to be hundred baggers, were high quality. A lot of the stocks that Morgan Stanley talks about are the ones that actually were lower quality. But do they start out as high quality or do they become that in time? They actually all did. They started as high quality. Yes, from the study. So what I started out with is from the IPO.

26:29What happened was that these are really high quality companies. What's your definition of high quality? They had high returns on tangible assets, which before you guys roll your eyes, that's just a definition of efficiency of how, you know, kind of how much operating profit they do relative to their assets.

26:51Michael Batnick:But what about in the modern economy? Because not a lot of companies have tangible assets like they used to. Right, right. Well, but that's actually a great definition, right? Because if they can generate those profits and obviously turn that into cash flow, that is a great thing. That means the faster that they grow, the more cash flow that they generate. And that's one of the reasons why when people like to look at multiples today versus multiples 40 years ago, I don't know if that's always apples to apples comparison. It's not. But what about the consistency of the returns of tangible assets or whatever you use them?

27:23Michael Batnick:Because any company can have a good couple of quarters or whatever, but what do you look for consistent-wise? Yeah. No, it has to stay there, right? So think about you taking an energy company. In any kind of given timeframe, they could actually have very high returns on capital. Because oil prices are really high. The margins are running really high. The running utilization on the refineries is really high. So you can look at it in that. What I do is I look at it over a 10-plus year time frame and look and say, are these returns consistent all the way through that? It's stable and up and to the right slowly.

27:55Well, it doesn't actually have to go up always. But to give you an idea, it's Warren Buffett's kind of favorite way of looking at the quality of a business. So he and I, I guess I can't speak for him, but for me, what I would say is that 15 % or more is actually a decent business. 20 % or more is a good business. 25 % is a great business. And then 30 % more is an exceptional business.

28:19Downtown Josh Brown:Don't high-quality companies, though, become low-quality companies? And if they're shoved into the coffee can, what can you really do? You have to bet that it'll become high-quality once again. Absolutely. You're hitting on the most important point from what I learned from the study. These are companies that don't regress toward the main. They don't. They do not. And what happens is that they have such a strong, enduring competitive advantage that that's what keeps the returns high over that time frame. It's like anti-disruptors. Yeah. Yeah. So think about when they actually have something that people can't just, you know, through a bunch of money and, you know, like that they can't go in and kind of turn this over.

28:59Downtown Josh Brown:All right. So let's do like real world examples. Let's take a company. Chenier Energy. I'm not saying it's a hundred bagger. I'm not even saying it might fit your conventional definition of high quality. What I will say is nobody in the next 10 years is going to stand up a liquid natural gas export terminal on the Gulf. Nobody, like literally nobody. We know this. So now it's only a question of, can they run the business in a high quality enough way, I guess, to generate the profitability. But we know the mode is there. What do you do with a story like that? So I think that's actually a great example of one that I would not invest in.

29:45And the reason being, I don't know Chenier very well, but the reason being is that my guess is that Chenier's margins are a function of what the price of the natural gas is.

29:56Downtown Josh Brown:To some extent, they have to be yeah so what i always kind of look for and i try this is kind of part of the kind of the replacing making sure that you don't buy the lower quality one i look for ones that the management has the most control pricing power it's it's not only pricing power but actually control over kind of the inputs within that so that they can actually be the ones that can control that so so a lot of commodity stuff gets screened out by that one factor alone yeah yeah so one of the things that, you know, and maybe this is a good time to bring it up. It is the slide that I've sent you.

30:31So I don't know.

30:32Michael Batnick:Guys, we are looking at chart a small percent of outlier companies. Yeah. One of the first ones. Yeah. 16, I think it is. Yeah.

30:40Downtown Josh Brown:What's going on here? So these, I think, are Michael's, you know, kind of favorite things. This is from the book. This is new. Yeah. Oh, this is new. This is new. This is new. So the reason why I actually put this together was that Michael's quoted this a lot. And I think this is a really important one for your listeners to understand. And for those of you who are listening and can't see the screen, the first part is at two thirds. And what it is, is two thirds of companies actually underperform the kind of rolling 10 year index numbers that they have. That's a large number. That is a very large number.

31:14Downtown Josh Brown:Let me, this is the fine print, over rolling 10 year period, 71 % of individual stocks fail to match the market return. 71. Yes. So like by 10 stocks, the probability is that not for me, but for most people, seven of them will underperform the index. That's a damning. Very much so.

31:34Michael Batnick:This is from Bessenbender's famous study. And I think I forget what the exact number was, but he looks at the number of stocks that fail to beat inflation. Right. That's the third column. Okay. So I'm getting to that. So the second one is, you know, one out of five of the stocks survive and outperform over 20 years. One out of five. One out of five. Yeah. So let me go to the one. And this is a seminal paper done by Besson Bagné from ASU. And what he found is, to your point, Michael, when you were looking at relative to the T-bills, right, that only 4 % of the companies, and this is from 1926 to 2018, and then he redid it in 2022.

32:16he found that only 4 % of those actually had actually created net wealth, is what he calls it. Think about it. We all know the Pareto principle of 80-20.

32:28Downtown Josh Brown:80 % of the gains will come from 20 % of the, right. This one is 100 to 4. So much worse. Yeah, so much worse. So what I haven't seen a lot of people do is actually go to the last one. And so what I did is I took Besson Binder's numbers, And he had that the top 50 companies from the study, they created 50 % of the net wealth. I then said, well, how many of those are high quality companies? What I found out is 84 % of those were high quality. And here's the other side of that is Morgan Stanley in Atlanta Capital then actually did a study that showed that over a 35-year period, high quality companies outperformed low quality companies three to one.

33:15Now, you guys had Jeremy Grantham on the show the other day. I love the guy. He's fantastic. Their firm has actually done a lot of research on high-quality companies. And what they found, they call it the weirdest efficiency in the market. It shouldn't exist. Yeah, it shouldn't exist. Right. And so, you know. Say what it is. Say what it is. Yeah, so what it is is that you can actually have higher returns with lower volatility. Makes no sense. Nothing else in finance works that way.

33:43Michael Batnick:I think it does make sense. Only, it's counterintuitive, of course. These companies are so boring that they're underpriced, and they're underpriced for perfection.

33:51Downtown Josh Brown:Serially underpriced. Yeah, and what I'd also tell you, I think a lot of it is time. Because they just, they're so boring that people, you know, kind of, you know, just, you know, don't watch them, don't, you know, kind of go without time.

34:02Michael Batnick:Oh, they sell nuts and bolts. Let me put$100 ,000 in there. Nobody wants that.

34:06Downtown Josh Brown:So for the listener's benefit, this is so important. what Grantham is saying and now what Matt is saying, like if you buy a one-year treasury bill, two-year treasury bill, like you should have very little volatility. Right. And as a result, you should have very little upside because risk is rewarded in the markets. And then if you buy a junk bond, you're taking more fluctuation. Therefore, you should have a higher total return. Doesn't always work out, but like you're at least putting yourself in line to make more money. What Grantham is saying is this makes no sense. These are the highest quality companies.

34:44Downtown Josh Brown:Therefore, you have the least amount of like terminal risk. Like this is a zero. Why is it that these are the best performers too?

34:53Michael Batnick:Right.

34:54Downtown Josh Brown:You should be getting less return per unit based on the lack of risk that you're taking there.

35:00Michael Batnick:In finance academia, it makes no sense.

35:02Downtown Josh Brown:Right. And they actually proved this over not just, you know, high-quality kind of big-cap stock. They looked at small-cap stock. They looked at junk bonds. Every single category showed this high-quality marketing efficiency. The reason why I'm bringing this up is let's go back to Besson Binder's finding, right? And one of the things that I love is Charlie Munger's kind of idea of invert, always invert, right? So if you look at Besson Binder's finding, the easy thing to say is, wait, 4 % created 100 % of the net wealth. Let's do it. Just by those. Just by the 4%. By the 4%. Obviously. But the bigger thing is, how do you start to eliminate that 96 %?

35:47That puts you in a much better position to find that 4%. It doesn't guarantee you you're going to find that 4%. But what a lot of people do is that they're constantly looking for, you know, what's working right here, right now. And so what they're not doing, in my opinion, is that they're not focusing on trying to kind of winnow the entire kind of the universe to the things that in the companies they really want to own. So let's look at what's in that 96%. These are companies that are in declining industries. Go to next chart. These are companies in declining industries. They're over levered. They don't have free cash flow.

36:23They're not growing. They don't have. These are all things that you can go through the process. And once you figure that out, you screen those out. now maybe you take that you know 96 and you can cut that in half probably cut it down by two thirds you dramatically improve the probability that you can now look so you're saying if you're looking for a needle in the haystack pull the hay out yes exactly and actually you know go get a

36:47Downtown Josh Brown:better sieve you could put that as a blurb on the back if you really like well i'm not a damn rather i understand but i had a chance to on the next one okay i had a chance to just watch that go through this process and forgive me it was a little bit like rain man because he'd be mumbling to himself he'd put up the screens i have quality he'd have am i allowed to do that but you know he would do that and he would just i would hear his pen you'd just be scratching them off talking to himself including things like no that's dependent on the price of oil i don't even want anything in that space and he would constantly do this and he'd narrow it down to just a couple and then his research would begin.

37:30Right.

37:30Downtown Josh Brown:After getting rid of all. Exactly. Disqualify first. Right. Yes. Okay. Do you think a lot of investors work that way? No. You don't? No. Despite how, like, as we say it out loud, despite how obvious it sounds, you don't think that there's a lot of people that are managing money this way? And I think it's actually a couple of reasons. One is, you guys know this, the average holding period. You could take that off. Yeah. The average holding period is five and a half months today. Back in the 1950s, 1960s, it used to be eight years. Well, we're only holding something for five and a half months. They didn't have Robin Hood back then.

38:06Yeah. Exactly. But one of the problems that you have is not only are you not doing all the research up front, but in a five and a half month timeframe, really good businesses don't get the benefit of that. So you're not seeing that compound. Going back to that slide, that first 10 years, the differentiation between the market and, And, you know, there's really high quality companies. It's not particularly large.

38:28Downtown Josh Brown:Some of the most money I've ever made in individual stocks has come from buying, I wouldn't say low quality. I would say high revenue growth pre-earnings. And then eventually when the earnings kick in, that's when the stocks start to work because a new category of institution is willing to take a look. Yeah. Whereas previously you're sort of like paddling in front of a wave, right? If the growth rate is substantial and the, like the revenue is there and you can see management executing its plan, you sort of know you're going to make money or you know the company will get profitable. You don't know what that will mean for the stock price.

39:11Downtown Josh Brown:Of course, if you did, you'd mortgage your house and buy, but I have 10 examples at the tip of my tongue where that's worked for me. I think what I'm trying to say is that is very far away from what you're attempting to do. But for the listener, this is not the only way to make money in stocks. This is a very specific project that you're embarking on. And it requires you to throw situations like that away because by definition, if you're not profitable, you're not high quality. Yes. But here's what I will tell you. Once it becomes that, if everything that you said before kind of plays out and it's a high return and you get the growth, you know, now you got the compounding.

39:51And these are the ones, if it has an enduring competitive advantage, I can own that for the long term then. Right. So I'm actually, I might be the buyer, you know, from you and you're going out and finding another one. But you are not opposed to coming into a stock after it's 3X'd.

40:09Downtown Josh Brown:No, not at all. Because you would not have bought it earlier prior to it becoming a quality compounder. And now it is one. And now it's in your universe. Right. Okay. Because you and I have taken a different risk. That's right. And so for me, one of the things that I learned from the study is that these are lower risk stocks. Because they've already proven out the business model. They've proven out the product fit. They've proven out the economics that they have. So it's just kind of a different game that the two are playing. But what I'll tell you is, it's whatever you, you know, kind of get comfortable with and what your own investment style is.

40:46For me, given I'm looking to hold things for a long time, the last thing I'd want to do is actually hold, you know, buy one that, you know, didn't even have the likelihood of being viable.

40:55Michael Batnick:Matt, I'd be curious what your, I know it doesn't especially matter if you're holding a stock for 30 years where you buy it at the price, right? You hold something for 30 years, then a lot will be forgiven. But last week we were talking about, would you be more likely to buy a stock that doubled or that just got cut in half? And the four of us said, well, doubled, obviously. That means it's working. Is that, are you more likely to buy a stock that has just doubled or doubled again? Or one that's - New position. Right, new position. Or one that's been cut in half and you think the market is wrong?

41:23Personally, I'm more the one that's been cut in half.

41:25Michael Batnick:Okay, interesting. Because what I'm, but I can feel comfortable buying both. And the reason why I can have that is I'm not looking at the near term of kind of playing that game. What I'm actually doing is all the research to say, is this a company that I want to own for the next 30 years? That's very different than like somebody who comes in. And I think a lot of people can make good money on this where their view is, you know, is this stock going to go up? My view is, is this a company that I want to own for the next 30 years if there is no market? So how important is the current multiple to you?

41:58Michael Batnick:Because if you say it's trading at 40 times or 60 times, I don't care. It's earning$2 today. I think it's going to earn$50 in 2042. Like, how do you think about the earnings trajectory in the current valuation? So you've heard, you know, Charlie Munger saying, right, that, you know, the return of the stock held for a long enough time frame is going to match the return of the business. So this goes back to what we were talking about before with high quality. These are high quality companies that have a high return. So what happens is if I buy those, even if I might pay a little bit too much in the short term, to your point, it covers a lot of sin on the launch term.

42:34And I'll just add in Matt's study on the revenue growth that you were talking about, when you follow those companies over time, they have insane growth profiles. I mean, I'm talking about 20 % growth year over year over year over year. And that gets harder to do the bigger you become. So I think 20%, I mean, it was 20 % growth 20 years into their IPO. It's the 20 % Cager 20 years after the IPO.

43:02Downtown Josh Brown:By definition, you have to become one of the largest stocks in the market if you can do that. Those are all going to become blue chips. Yeah. Okay. And that's the whole idea and kind of when you buy it. So before we get into the 100 baggers that are in the study and start talking names, I want to come back to the philosophy and the origin story itself. You worked at a firm called Lateef. this is a kind of an old line money manager that had this sort of concentrated long-term low turnover portfolio mentality like is that where you first adopted some of these ideas that became core to the type of investor that you are absolutely so so when i was at janice um you know it was great because it was all about really deep fundamental research i was on a team when i started there.

43:49And got to beat the market this quarter. Yeah, exactly. Exactly. So, you know, they were always kind of, you know, kind of chasing different things. Then when I went to Lateef, you know, we actually held 15 to 17 names. That was kind of the, you know, kind of the sweet spot. Out in... Geographically. Oh, it was out in California. So it was in Marin County.

44:07Downtown Josh Brown:What kind of guys? Were these like hippies? No, no. What kind of guys are these? These are actually great guys. What I loved about... That's the travel dad. But what I loved about Lateef, it was almost all separately managed accounts. So this is a very important statement. Exactly. They are not in the mutual fund derby trying to get morning started at a fourth or a fifth star. They're not worried about their ranking this quarter. I'm sure they want to perform, but because they're not in the mutual fund derby, they can afford to act differently than everyone else who is. That's exactly the point.

44:42And one of the things that I actually loved is that we spent a lot of time with the fund holders, right? Because we'd be talking about how they're going to pay for their kids' college. What are they going to do with retirement? It's what we do here. Yeah, exactly. And so one of the things that we spend a lot of time on is we would educate them on the stories, on the companies that we actually own. And what that allowed us to do is that then when things were down, we just were able to come back to them and say, remember what we talked about with this company? Here's where they're at. Here's how the business is trending.

45:17Stock market may not like it today, but this is a business that we're going to want to own for a long term.

45:22Downtown Josh Brown:The term story has taken on a negative connotation in recent years. But I find that investors don't care about the disdain that professionals have for that negative connotation. Investors like stories. And that works out great for me because I like to tell them. Big story, guy. Like, yeah, no, but listen, I could recite, here's the earnings. Here's the book value. But that doesn't mean that everybody could recite that. It's right off a screen. Investors do when they own individual stocks, they do want to know what they own. You could talk them out of it. You could tell them it's irrelevant. You could tell them blah, blah, blah, blah, blah.

46:00Downtown Josh Brown:But they still want to know. Okay. So that was a powerful way to keep people in these low turnover portfolios. One of the best ways is by helping them understand what the company does. Especially business owners. Yes. They especially appreciate a portfolio manager who's willing to spend a minute and say, here's why we're invested in this. What they really actually appreciated, we actually understood the business so that we could explain it to them. Because ultimately, when things go up and things go down, the most important thing you're going to be able to say is, here's why they still are relevant.

46:33Here's why they still are important. I think feeling the confidence from the person you're working with and the conviction behind the idea is important. And I remember, you know, I had to go up through a big learning curve on this one. And there were times where there are certain stocks that Matt was following. I'm like, you know, something happened. And he's like, I still believe. In fact, this is a buying opportunity.

46:55Downtown Josh Brown:You're a story guy. Yeah. You're a producer. Yes. So you understand the idea of these are the characters. 100%. This is how the story starts. And we run into trouble. this is how it resolves like you you innately understand that so here you have a source who's a wall street source that's right but he's not in wall street he's in kansas city which we'll talk about later um so he's very far from the melee of quarterly monthly daily reports on performance it's it's omaha right and he knows this and he knows the stories of the companies that he's invested in so he's calm yeah he knows what's going on he's following the numbers he's been following it over time.

47:36So I think Matt spends more time choosing the stock than ever thinking about selling it.

47:43Michael Batnick:So one of the hundred beggars is Amazon. And Amazon reported today. And what these companies are able to do is unlike anything we've ever seen at this scale. So Andy Jassy said, we're reporting$181 billion in revenue, up 17 % year over year. For the quarter. But you mentioned, Neeraj, how hard it is for these big companies to continue to grow. He said, starting with AWS growth, growth continued to accelerate up 20 % year over year. The fastest growth rate in 15 quarters. AWS is now a$150 billion annualized revenue run rate business. It's very unusual. This is a quote. It's very unusual for a business to grow this fast on a base this large.

48:29And the last time we saw growth at this clip, AWS was roughly half the size.

48:35Michael Batnick:Unbelievable. Yeah. The classic, is this the classic hundred bagger? Founder led? Yeah. B2B. Well, not just B2B, but -

48:42Downtown Josh Brown:When people say the law of large numbers, they're saying it wrong. It doesn't mean what people think it means. there is this human tendency to think what goes up must come down, right? We call it the gambler's fallacy. The roulette wheel is red. It's red, it's red, it's red. It's got to be black next, right? So we have that as part of our DNA. It's the way our minds work. And we're programmed, right? After winter, there's spring. We just, okay. And then people trot out this trope about the law of large numbers, meaning like no way it can grow its earnings 20 % for much longer. And then it does, and then it does, and then it does.

49:25They think it means what goes up must come down.

49:27Downtown Josh Brown:Yeah. It's a regression towards the mean. Like the base is too big to sustain a growth rate. And the mode.

49:33Michael Batnick:So the actual definition, I'm so glad you mentioned this, Josh. The law of large numbers states that as the number of independent identically distributed trials increase, their average result approaches the expected value. That's not what we're talking about.

49:46Downtown Josh Brown:I have no idea what that means, but it's not what we're saying.

49:49Michael Batnick:I was just talking about if you spin heads or tails, you're not going to get 99 tails in a row. Right. Can we look at slide 25 as I think it hits that right on the head, Matt? So this plays into what we were talking about before. So remember, you know, the one on the left, for those who are just listening, it is the, you know, the Morgan Stanley Atlantic Capital one. talking about over 35 years, how the high quality outperformed three to one over the low quality. And on the right, we actually had the Grantham Mayo showing on that. But what you're getting at, Josh, was the key thing that came out of that study is that, so I'm a University of Chicago grad, right?

50:29And we were taught everything regresses towards a mean, you got, you know, efficient market. FAMA. Yeah, FAMA. Come from FAMAMaland. Yeah. So that was FAMA. On the other side, I actually had Richard Thaler from University of Chicago, too, who behavioral finance. Thaler won. Yeah.

50:43Michael Batnick:That chart, the high and low quality stock, the fact that low quality stocks have lower performance and higher annualized volatility, Thaler won. That should not be a thing. Fair. I'm in agreement with you. But what a lot of it came down to is these were good. Remember, we've talked about it before. These are good companies that came great and they stay great.

51:02Downtown Josh Brown:Yeah. That's why I actually own Google. I own Amazon. and I've owned these for years because they have these characteristics that you feel very comfortable. When did you buy Amazon? It was probably about seven, eight years ago.

51:17Michael Batnick:Okay. Amazon was so crazy because it was B2C, founder, and then it went B2B and that was like where the explosive growth came from. Wait a minute.

51:23Downtown Josh Brown:So the stock worked. They lost money every year. The street wanted them to lose money. The street looked at them losing money as validation of Jeff Bezos' overarching worldview, you, which is a lot of companies have profit margins that we don't think they need to have. We're going to take the customer. So every time they lost more money, the street said, this guy is amazing. And then the switch flipped with the advent of cloud computing. They just, it was too profitable. They couldn't help but start to report profits. Okay. That's at that point you get in. That's nowhere near the end of the run.

52:00Downtown Josh Brown:That's where the run begins. that's so important for our listeners who think i missed it how could i buy nvidia right how how could i right how how could i buy eli lily this is this is how you can right because companies reinvent themselves and they keep growing so one of the things i think a lot of people missed about amazon is how much of their revenue they're investing in r &d you guys remember that i mean And it was, they were, you know, quote unquote, unprofitable and a lot. But if you looked at it and you took out the, you know, the R &D, which why would a retail company actually invest in R &D, right?

52:38What they were doing is they were rebuilding the future revenue. And so, you know, a lot of people, people, they built their own UPS. That's right. People don't even understand that. Yeah. I mean, they do now, but at that time. Right. Right. But that's one of the things I look for in the companies I buy now is these are companies that are putting a lot of money back to work. And Jeff Bezos talked about it. It's like the numbers we're putting up this quarter were from things we spent three years ago, five years ago. These were things that we're putting in place. That's a great management team that don't try to go back and hit a quarter just because, you know, and pull back on the R &D for that.

53:17They are looking at it and say, five years from now, 10 years from now.

53:20Downtown Josh Brown:They're sitting in the shade of trees that they planted 10 years ago. and you had to have believed. Right. Okay, can we get into some of the names in your study? Can we do that slide now? Absolutely. Okay. John, put up the 100 baggers included in this. Oh, here we go. Okay. So for the listener who's not looking at this tableau of tickers, Cintas, Adobe, Microsoft, Fastenal, Hyco, Cognex, Nike, Intuit, Cisco, tractor supply monster i think monster is the best stock of all time uh i'm pretty sure uh united healthcare oracle nvidia expediters uh landstar copart first observation with maybe one or two exceptions this is every sector in the s &p okay i don't see i don't see real estate i don't see oil i don't see chemicals or utilities but you told me why on the chemicals and the energy yeah i don't see good point i don't see he actually sorts this by uh sector yeah so if you go uh two two slides these are not these are not stocks to buy today these are the stocks that are in your study of the best stocks ever the hundred backers And I'm not saying they're not worth buying today.

54:41Some of them may be, but yeah. I mean, Warren Buffett actually just went out and bought last year a pool card. So he put it, you know. Bad timing.

54:49Downtown Josh Brown:Yeah, it looks like death. And we don't know if that was Todd Collins or Warren Buffett. Right. So here is what you're getting at, Josh, right here. So for those listeners who can't see the screen, what it is is we broke all the 50 names in the study. We broke it out by the industry. And this might surprise a lot, but technology, which I put is both software and the technology sector, only made up about a third of the total. You actually had a lot in retail. That's interesting. Yes. And so, you know, you look at like a tractor supply company, which you guys probably know, sells directly to farmers in rural markets or, you know, AutoZone, Home Depot, the like.

55:29But then you get into the manufacturer. You've got, you know, Amphenol, Hyco, AI. I don't know what half these companies do. Yeah, exactly.

55:37Downtown Josh Brown:Maybe more than half. Yeah. And most people don't. Yeah. That's one of the big takeaways that we're going to talk about here in just a second. We use the term unsexy a lot in the book. Yeah. And it's funny because Matt considers himself personally to be unsexy. Oh, that's not true. That's totally true. He likes to do the research. He does a lot of reading on each of these companies and really gets into them.

56:00Michael Batnick:Do you think we'll get another retail hundred bagger? It seems unlikely given the current makeup of the market that these names don't come public. and if they do like a retail name, like how would that even happen? These are such like iconic names. I know they had to come from somewhere, but. Here's what I'll say. I can't predict the future. And so I don't know. And I think about, you know, if there's a new category. There is, and we have them.

56:22Downtown Josh Brown:They're not in the United States. Zara, what's the parent company? The Spanish fast fashion. Inditex or something? What is it called? Yeah. It's like the biggest fast fashion. That's what it's called? It's a Spanish business. Guy's now one of the 10 richest people in the world. He's selling schmatas. It's like literally selling like$10 sweaters. But like the business is completely on. So we're still getting new retail. Like we're still getting new consumer brands. It does happen. They keep coming up. So I think the next slide looks at them by five-year increments. So if you think they all happened.

57:00Downtown Josh Brown:Oh, this is great. Yeah, go to the slide. Explain this. Oh, this one.

57:04Michael Batnick:He's talking about something else. But they didn't all just come out in 1985. Right, right. So if you could go back to slide five. There we go. So here's how I went through and I broke it out. Because it's the same question you guys are having. It was all, you know, first off, we looked at it, you know, they're all in the same industry, where we're at. Then I actually looked at it and said, by five-year increment. So to make sure your viewers understand. So I looked at all companies that went public from 1980 to 2000. The reason why I had to go there is before 1980, there just wasn't very good financial information.

57:39Not easily being able to take it.

57:44Michael Batnick:Why did you stop there at 2000? Because when looking at a 30-year, I wanted to give the companies plenty of time. You need more hindsight. Yes, exactly. Right. And so we looked at that and said, all right, we have this from 19 – so I broke it down by five years, from 1980 to 1984.

58:01Downtown Josh Brown:By the way, look at the class of 1980 to 84. Home Depot, Apple, Nike, UnitedHealth, Amgen, all in one graduating class. That's right. It's a great cohort. But then look at the others. So I go the end of the 80s, right? Now you have companies like Oracle, Microsoft, and Adobe. These are ones people have heard of, but look at like a Jack Henry. You know, that's just the back office software for banks or Autodesk. That is the architectural engineering. Electronic arts. Yeah. Then you get into the early 90s, 1994, and you have names like Starbucks, AutoZone, Old Dominion Freight Lines, which is the trucking company that's at last mile.

58:44You then get into the late 90s, and you're looking at Pool Corp, Amazon, Cognizant, NVIDIA. And one of my favorites, unfortunately, in the book, we talk about this, Mettler Toledo, right? They make precision scales. You know, like in the laboratory, these are the ones that can get to the finest of precision. But they also make the same scales that when a truck pulls off on the highway, they have to weigh them. They do that. It's a hundred bagger. I had met with them on their IPO. Loved the company. Loved the management team. You know, stock went up about 30 % in the first like four months. We sold it.

59:20never got back in. The other interesting thing here is when I was interviewing him about all of these, and he's trying to identify future 100 baggers, I said, well, what about some of these companies? They're still growing. He's like, yeah, you know, I won't say which company, but he said, that's only another 30 or 40 bagger.

59:41Downtown Josh Brown:That's it. That's it. I'll take that one.

59:43Michael Batnick:You know, I notice a lot of these companies start with the letter B. Is it that easy? Is it just that simple? Good question. I'll have to do a little more research. Matt, do you think if the average person is like, listen, I like this guy's style. This all makes sense to me. Analyze the business. Invest in things that you think probably aren't going to radically change like nuts and bolts. I'm going to try this. Do you say to them, whoa, whoa, whoa, stop the clock? Or do you say, yeah, you could do it too? So let me enter into kind of two parts, right? I think the first part is, can they do it?

1:00:15And I think it's people like you guys helping educate, helping them learn about companies, helping them do that. I think people can do the research. They can do it. It takes a lot of work. The second part of the question is the bigger one. Should they do this? And the reason why I say should is what we were talking about before. It's the upfront, the psychology of that. Can they withstand the volatility? Can they actually have the intestinal fortitude to say, this is that great company. I know this is too much.

1:00:46Downtown Josh Brown:Let's double click on that then. This would be a good time. A lot of the stocks that you talk about are, as we speak, being thought of on Wall Street as literally marked for death by Anthropic and Gemini and ChatGPT. and we're talking about both horizontal SaaS, you know, like enterprise software companies that serve companies in every industry. And what they do is a very critical layer to help manage these companies. And people think, well, these new tools are coming along that are going to enable anybody to build their own. Okay, that might be true, it might not. Maybe in some cases, okay. Then the vertical software companies is a company called Constellation that owns, I don't know, a thousand tiny software companies that are specific to all these little niches like travel agency software.

1:01:45Downtown Josh Brown:And, you know, I make the software that goes into the drive-through window for fast food companies and anything you could think of. That's under siege. Then you've got Microsoft having the answer for itself and Adobe, Fortune 100 software companies, Salesforce, which is in the Dow. So we're in that moment. And up until the last six months, these SaaS software companies looked as though they were the highest quality, highest profit margin, best growth stories anywhere on the planet. The customers were sticky. They made a ton of money. It was very clear that they were a system of record for these businesses.

1:02:29Downtown Josh Brown:and they almost were impervious to competition once they got in, right? And all of a sudden that story that we were all great with for 15, 20 years just was turned on its head. So what do you do as the coffee can investor if you've got these types of names in your coffee can? Do you pull them out? And you do. Or how do you know? And you do. So tell us. So the first thing I think is always fair is that when the market does a radical kind of down move. A re-rate lower for a whole sector. Yeah. The first thing you have to do is be honest with yourself, intellectually honest, and look at it and say, is this real?

1:03:09Check your priors, they call it. You never want to put yourself in a position that you're not open-minded and understanding where things are. The second thing that you have to do is then go back to the numbers, go back to the thesis, and really kind of double click on that and understand that a lot better. So let's talk about the SaaS companies, right? What's fascinating to me when we look at this, and maybe it's because, you know, market right now holds things for five and a half months, but they hear a narrative, and the first thing they do is, if it sounds plausible, must be. So what am I going to do?

1:03:47I'm going to just, you know, kind of throw in the towel. Sell first, ask questions later. Yeah, they're shooting right now, and they're certainly not asking many questions. One question I don't hear them asking a lot yet. What do the customers think? Right? I mean, we talk a lot about, oh, you can kind of build this and it's 10 % of the cost to actually develop software. Well, let's actually put this into what I like to term kind of low consequence versus high consequence. So the low consequence is we go out and we use the software. If it is close enough, you know, we're okay with that. Think about like marketing technology or me building a, you know, website.

1:04:27And I'm not making comments on any specific company. But that, you know, if I'm off a little bit, you know, I can go back. I can fix it. No harm, no foul, right? Well, those, you know, there's a reasonable chance that, you know, somebody could come in and, you know, offer a much lower price than they had that. Right. But let's talk about high consequence, right?

1:04:45Downtown Josh Brown:Cybersecurity. Yeah, cybersecurity is definitely one. I don't know that. Yeah. Right. Yeah. Can't get little things wrong in certain arenas. So if you guys indulge me for just a minute here. Yeah. So take a company, one of the companies in the book that we own, Technology One, right? Here they are. You take, assume that, or imagine that you're the CEO of the Brisbane, you know, local council. the largest local government in Australia. You have 470 ,000 property owners there. You have to actually get, by August 15th, you actually have to get each one of them your tax assessment. There's 186 different categorizations of those taxes.

1:05:31It's things like owner-occupied, it is short-term rental, it is industrial, it's on and on, right? And then you get into the levies on, you know, kind of, they have a Queensland Reserve levy that they have to kind of put on there. These things change every single year. In addition to that, their subdivisions are going up, so you get another 1 ,500 more every single month coming up. You have to actually get these accurate and correct at that time. Otherwise, say you're off by 1%. that's$14 million of miscollected funds that you've already spent the money on.

1:06:09Downtown Josh Brown:Not to mention the phone's lighting up. Exactly. God forbid you make an error against the homeowners. Oh, and this is the big one, right? They actually can take you to the tribunal, right? They can take you to court. But here's the one that nobody probably understands. You as the CEO, you're actually personally accountable. That's high consequence. Yeah. That's what, in their business, they are actually highly regulated, highly compliant. I mean, they're not worried about saving 20%, 30%. This is a software provider to a municipality that you're describing. That's it. Yeah. And so think about from what they have.

1:06:51So they're in there and they're actually, you know, kind of developing this, making sure you don't go to court. You aren't personally. that. That's why I said nobody's talking to them, you know, kind of the users. They're not hearing that side of the story. Yeah. They're also with universities, same thing, right? So that they are very niche player. They're in local councils, they're in universities and like, but here's the next one. So we got, um, is on the cost side, one of the councils that they have, they're paying less for the technology one than what they pay for Microsoft office suite for their, for their, you know, kind of for their counsel.

1:07:27Yet technology one is what they run their entire business on. You have to pay, you know, you have your residents actually have to pay taxes or they have to go get a dog permit. It goes through technology one. But here's the reason why I really, you know, kind of love technology one, because this is the other side of the story. Everybody's concerned about what, you know, the downside is. Let's look at the opportunity. One of the things that they've done, they've been doing AI now for six to seven years. They just actually went out and launched about six months ago. It's called PLUS. It's their AI.

1:08:03Well, what they've done is they've actually gone through, because of the system of record, they actually own kind of the workflows that they have. They have access to all the data. They just, you know, here they have all these local councils, universities. They actually created the AI for the orchestration layer. What they're able to do there is now for these, take the university. Let's say that you're the CFO and you're trying to figure out, you know, that I need to actually go in and figure out the profitability by degree program, by, you know, student or whatever it might be. But today, you know, or before, what they would have to do is they'd have to go get a junior analyst, pull all the stuff together, and, you know, put it together.

1:08:42It was all coming through Technology One. Now Technology One's doing that for them. Okay. So the university, they actually have an opportunity to not actually have as much labor.

1:08:54Downtown Josh Brown:So this software company made itself even more sticky. Right. Software is labor. But let me take it one step further. What they've actually also come out with is they've actually gone B2B. Now they're going B2B to C. So think about who their customers' customers are. They're the residents. They are the, you know, kind of the students. They've gone out there and said, all right, say you're a student and it is four o 'clock on a, you know, Thursday night. And you're sitting there and you have a paper due tomorrow. What they've actually done is gone in through an app. They can actually just sit and talk and do it and say, hey, I've got a paper due tomorrow.

1:09:31I can't get it done. What do I do? They've set it up so that they go through and look at all the curriculum, look at all the stuff. And they actually find out, oh, the paper that you're talking about is just the volcanoes that are due tomorrow. Well, we found out that you actually get one late assignment per semester. When do you think you're going to be able to get your paper done? I can get it done in five days. Fantastic. Let me actually send an email off to your professor. Let them know that you're going to get it in by next Friday. Right. Can I add one thing on this? What I love about it is, you know, as someone who's operated businesses, there were times where we were looking at Salesforce and all of these big sort of ERP systems.

1:10:15No one ever tells you you have to hire a whole bunch of consultants to put this thing in. Oh, I know. And it takes six months, a year to get it done. One of the things that I discovered through Matt's research on all of this is because you're dealing with universities and because you're dealing with local governments, it's just a simple platform. There is no installation. Right. You automatically use it. So one of the key things that is a common theme throughout the book is Matt's looking for companies that have essentiality. And the idea that these people need to use this in order to operate and can do it at the cost that he's talking about, whereas de minimis, those are part of the ingredients that he's looking for.

1:10:58Downtown Josh Brown:So to button this up and to finish out what Michael's getting at, let's say there's 150 of these SaaS companies trading in the United States. Some of these went from being the biggest winners of the market to this year being the biggest dogs. Broadly speaking, how wrong would you say the market is? Is the market completely 180 in the wrong direction and they don't get it? or will there be genuine winners and losers where before all of these companies look like winners? What do you think? The way that I describe it, I think AI is transformational. I use AI every day. I think it's going to keep getting better and we're going to go forward.

1:11:37Downtown Josh Brown:However. However, it is again back to this, you know, that's going to, it has to become more discerning because you're going to see companies that have, you know, tremendous network effects that, you know, no AI, you know, native software company is going to do. I used to run my own software as a service business. I know how hard it is to compete against an incumbent. In fact, for the incumbents, I mean, they have their own kind of way of actually looking at it. So if it's already deeply embedded into the workflows, they already have that trust. And again, going back to the customer, what do you really care about?

1:12:14So you guys are probably going to get a kick out of there. So remember, being at Janus, I was there at the, you know, we're the epicenter of the new economy versus the old economy. Yes. Right? Between the 99, 2000 era.

1:12:27Downtown Josh Brown:You guys were the center of the whole thing. We were the center, right? Yeah. And at the, kind of the biggest baseline was in retail, right? That's what was going to get disrupted by the internet. Right? Yeah. So just for giggles, last week I went and looked and said, what are the largest e-commerce websites out there today? Five on. Yeah. Walmart.com, Target.com. No, no. So the top 20. How many would you say is new economy versus old economy? Oh. Probably two or three new economy and the rest old line retailers that created their own websites. Close. There's only five. Huh. Five new economy, 15 old economy.

1:13:10Downtown Josh Brown:What are the new economy? Chewy, Amazon. So it's Chewy, Amazon, Etsy, eBay, and Wayfair. And everything else is a chain of stores that got their shit together eventually. It's Walmart. It's Home Depot. It is Best Buy. I mean, I was blown away by that because, you know, going back that time, that's what we thought. So I'm not saying that's necessarily going to be the same thing going forward. But I think too often the market is very quick to say, this is cool. This is neat. this is going to take over and then these forget that there's an execution. So I have another category of where I think people are wrong on this.

1:13:48Downtown Josh Brown:I think there are some verticals where the average willingness to adopt new technology is so low that once you get the workers in that world to do it once, ain't no way you get them to do it twice. I own two software stocks that I'm underwater, 30, 40%, both of them. I can't imagine a scenario where these companies get disrupted. One is called Toast. Restaurants. They already vanquished the bigger competitor, which is Block, Square. Yep. And Fiserv, which owns Clover. Toast won. They have 150 ,000 restaurant locations in a universe of 600 ,000. They're going to get them all. And now they're getting hotel chains like Marriott.

1:14:38Downtown Josh Brown:Every point of sale in a Marriott is toast. I think they won. They're going overseas. I think they'll win there too. And the reason that's important is that every hospitality worker now knows how to use toast. And the next job they get, thank God there's toast to you. I know how to immediately slot in. The stock is cut in half from a tie. I know for a fact, once you convince a guy that owns a diner to adopt this, he ain't never taking it out he's definitely not replacing it with something harder to do so that's one the other service titan which came public a little bit over a year ago you won't like it they're losing money um this is basically contractors construction people that will dig a swimming pool people that will put up a fence alarm companies home service exterminators home services they literally show up to your house holding the device and they'll print you out a bill right there or they'll do the invoice right there on this on the thing that they're holding once you have people that are in that world that they're adopt the technology they're not like oh how quick can we get rid of this and do something different so i don't so i understand why the stocks are lower because people are saying the ltv calculations are going to be lower right like the The value of this customer is not going to be what we thought.

1:16:05Downtown Josh Brown:And I say bullshit. These would be the same companies that have this market share. They might even have more market share three years from now. Wall Street doesn't care what I think. And you must have that same feeling. Wall Street doesn't care what you think. No. Could you pull up slide 28? Don't tell me you're long toast. I'm not long toast. But I have looked at service site. And one of the things I actually love about that story is the founders. They're still there. Yeah, they're still there. Two brothers, the sons of an immigrant. Yep, and they know the industry well. They came from the industry.

1:16:37That's exactly right. That's one of the key things that I try to look at. So I think this actually tells a bigger story of what's going on in the software stocks. I do think the fear of AI is real. And I think not all AI companies, I'm sorry, software companies are going to survive. But look at what's kind of happened to the multiple.

1:16:59Michael Batnick:So they were too expensive to begin with. Yes. Exactly right. So this is from the guys at Meritech who put out some phenomenal research. But if you look, what they did is they break it down by 25th percentile, 50th percentile, 75th percentile, and then the 90th. And so what they're showing here is a lot of the companies, the software companies, came public back in the 2021 era where their business was just on fire. And they had, you know, and the market was more than happy to get on$6. And investors didn't care.

1:17:27Downtown Josh Brown:They would pay any price for any stock. Right. For a moment. Because they were high growth. And it was COVID. Yeah, exactly. And so this, I think, is actually one of the big stories in the market here is that we not only have this big fear that's going on, but you played right in when the multiples were high.

1:17:45Michael Batnick:So I have two questions for you as we get to talking about the book and why you're even doing this in the first place.

1:17:50Downtown Josh Brown:Yeah.

1:17:51Michael Batnick:So you're doing something incredible for your three daughters. You're putting$5 million into a metaphorical coffee can. the idea was I'm going to do 20$250 ,000 investments into stocks and we're going to put it away forever you've done 13 at least as of the writing of the book unfortunately 8 of them at least according to Claude ironically but seriously are software stocks so my two parter is this you want to do over my two parter is this if you knew that Claude and Anthropic were going to be a thing in 2017 or whenever you started to buy these stocks Would you still have decided to buy these names?

1:18:29Michael Batnick:And part two is, how permanent is this portfolio really? Because some of the businesses are disrupted. Are you going to say, all right, this is obviously not going to happen. I'm just going to take whatever I have left, whether it's$40 ,000 or the$250 ,000 or whatever the number is, and we're going to reallocate those resources elsewhere. And of course, I want to hear about the kids. Yeah. So, the first, to your question, where I've set it up is that the barrier to entry to get into the coffee can is high. Very high. I, you know, go through all the different steps. The barrier for me to sell it is even higher.

1:19:04Wow. And the reason why I do that is the whole thing that we've talked about in the past is that, yeah, because you have that psychological, I'm not going to let the market tell me how to think. I have to let to better understand what is going on with this companies. Now, with that said, it does not mean I won't, you know, these are not, I'm not looking at this and literally burying it in my backyard and not looking at them. What I'm actually doing is saying I'm going to hold myself to a very, you know, kind of high standard to make sure that I don't, you know.

1:19:37Downtown Josh Brown:There are false narratives all the time. Last summer, myself included, many people thought Google was in big trouble because AI would cannibalize search. Google knew they were in trouble, and they responded, and they fixed their own future. Stock came to new all-time high today. It's not impossible that some of these almost on the verge of being disrupted SaaS companies do the same thing. So here's a question I always ask. if we loved the management before and we thought they were brilliant and they ran the company, why do we think they all of a sudden got stupid? Right? That's a great point. So what a lot of people don't understand is that a lot of these have already been doing AI.

1:20:19One of the companies in there, CCC Intelligence Solutions, they've been using AI for 11, 12 years now. In fact, they were one of the first users of the NVIDIA chip. So, you know, it's not like they don't know what AI is. And it's not like they're not actually building that into their business. So, you know, so that's what I kind of keep coming back to is where you have to be careful is that one, you have an industry that is going to be easily disrupted. You talked about like the horizontal that kind of is all things to all people. The value add doesn't run particularly deep in there. Yeah. But this is, yeah, this is, I can't make some of it, but this is one of those where, you know, this is competition.

1:21:01They faced this before, right? When we moved from the on-prem to the cloud, there was those transitions that they had to go through.

1:21:09Downtown Josh Brown:I think you have high-mode companies, low-mode companies. That's right. You have industry-specific dynamics. Right. Yep. Michael and I looked at the – when they finally got around to selling CrowdStrike and Palo Alto, we looked at each other and started laughing. And we said, okay, this is a joke. And Schwab.

1:21:24Michael Batnick:When Schwab got 10 percent, this is nonsense. This is literally a joke.

1:21:28Downtown Josh Brown:So you're going to take a quarter – what are the – walk us through the numbers of the coffee can. endeavor? What are we doing? So first and foremost, what I did this for is my three daughters, right? And so my wife and I, you know, I came together and we said, look, how do we leave a legacy for our girls? How do we, you know, how do we leave something that matters? And so this is where, you know, Neerj and I have talked a lot about is we want our kids to actually have true financial literacy. You know, in my opinion, it's abominable that we don't teach financial literacy in high school. And so one of the things that we do with our kids all the time is talk to them about, you know, how to think about not just getting a career, but actually building out your portfolio and how to think about investing and going into kind of the, you know, kind of the two forms of income that you can have.

1:22:16So that was where we were doing. And so then as we talked through it, it's like, well, what would be, you know, kind of, you know, how do we say that best? And that's when we're talking about writing a book is explaining my process, explaining how that kind of goes through. Now, as you guys said before, everybody has to have their own, right? I always like to say, you know, outside of your spouse and your kids, there's no more personal relationship people have than with money. So what you need to do is kind of figure out what is the right kind of direction for you and how you can kind of go forward with that.

1:22:51So we, that's why we put this together, but it is, you know, 20 stocks,$250 ,000 per stock. And the, the goal is over 30 years.

1:23:00Downtown Josh Brown:So you're putting 5 million into 20 stocks. Right. Right. Okay. And so the goal is, you know, it should be right around there. Each kid have their own coffee can or this is the coffee can for everyone. I don't know if you, this is actually a coffee can. If you wanted to put$250 ,000 in there, you could.

1:23:15Michael Batnick:So you, but you wrote about this in the book about the story of how you set your girls down and that must have been quite emotional for you your wife you you you and your wife did not come from money no so you obviously did incredibly well financially for you and for your family yeah and the girls i'm sure you grew up fine but they weren't driving the nicest cars and wearing the nicest clothes like you grew up them up in a very normal you look below your means

1:23:36Downtown Josh Brown:right so this must have been like he's not from no definitely not okay so this must have been like a in fact the car he won't buy a new car yeah he won't buy it just dip into the coffee can get in His daughter's car has dents on both sides, a hole on the passenger seat, and a magnetic band-aid on either side of the car. Morgan, you did that? You could do better. You did that? Yeah. They call it Wilbur Andy.

1:23:59Michael Batnick:But that must have been an emotional shock to their system to see those kind of numbers. It was. And to be honest, we were terrified, you know, as parents, to tell our kids.

1:24:12Downtown Josh Brown:What were you afraid of? that they would start acting different or start asking for things. Exactly. I mean, I grew up in an era that, you know, I had no idea how my parents were doing and they didn't share, you know, with us. It's very different now. Yeah. We never had, you know, kind of, you know, wants for deeds, but we, I never knew kind of what my dad, um, you know, kind of where he stood or how we did versus neighbors and all that. So when we told them our biggest fear was that, oh, you know, now I'm going to act different. I'm going to do this. And, you know, I've got a poem. Yeah, hey, money bags.

1:24:45Downtown Josh Brown:I want to go to Taylor Swift this weekend. That's right. I mean, one of my favorite poems is Max Ahriman's Desiderata. And I don't know if you've ever read that. But he has a line in there and said, do not compare yourself to others because you will either become vain or bitter. And that's. I like comparison is the thief of joy. Exactly. Exactly. And so when we told them, we didn't know what to expect. Right. And here was the greatest gift, I think, that we got. And we talk about that in the book, is that my girls, from my side, you know, first they're like, how much? You know, and one was asking how much we're going to put in.

1:25:21The other was asking kind of where it could go if we did that. But the first thing that they started talking about is if this works, how can we help other people? What can we do? And then they're asking, how can we help you with your research? How can we be part of this journey with you?

1:25:36Downtown Josh Brown:What I'm talking about is an extraordinary proposition. You've done all this research into 100 bagger stocks, and you are literally aiming to land on the moon. You're saying, I'm going to take$5 million invested in companies that I have researched, and by the time we're taking the money out of it for you, it could – we don't know. We don't know. We're hoping it can approach half a billion dollars. I mean, it's an incredible thing. Right. And to be fair, you know, and to make sure all your listeners understand this, I don't know if it's going to get there. No, of course. Nobody knows. But nobody thinks this way.

1:26:15Downtown Josh Brown:Right. People, you ask people on the street. We're in Bryant Park, right? Noraj, you go ask somebody, why are you investing? I don't make more money. Yeah. Right? So I have more money. More money for what? Look, I think for both of us, this project was really important because we were doing this for our kids. Yeah. It's kind of like when I took a golf lesson when I turned 50. It was stupid. I had to unlearn all of these bad habits forever. We wanted the kids to understand how to invest in companies and not be a trader. Right? And the five-and-a-half-month hold time for a stock and declining is terrible.

1:26:54Downtown Josh Brown:Yeah. The average American retirement is between$300 ,000 and$400 ,000. Right. Good luck. And so the idea of being able to start early for your own retirement and in our case to do something for our kids was incredible. And not only do they have a hard time understanding five million, half a billion is beyond their comprehension. And not once ever have they ever thought about the term inheritance. They just want to do things on their own and they want our love along the way. Well, let's test this. Morgan, can you come around this side? All right. Let's see. I hear you're a smart cookie. What do you think?

1:27:37Downtown Josh Brown:Okay. She doesn't need the headphones. She doesn't need the headphones. All right. You don't go anywhere. I need you after. Yeah, just stay right there. Okay. How do you feel you're going to be an heiress someday? What do you think? Do you like it?

1:27:53Michael Batnick:Don't be nervous.

1:27:54Downtown Josh Brown:We won't keep you here that long.

1:27:55Michael Batnick:It's definitely a shock. Okay. I mean, it's exciting. I hope I don't become one anytime soon.

1:28:03Downtown Josh Brown:You don't want to be Paris Hilton anytime soon? No, definitely not. Here's what I want to ask you. Yeah. So when you heard about this, had you thought about stocks at all before, the markets? I know it's your dad's life's work, but had you given a lot of thought to just what he does all day and what he's working on?

1:28:19Michael Batnick:Yeah, he's walked us through his process a lot of times before because his big thing was we should always have a second income. In case anything happens, you get fired, you, you know, taxes, all this stuff. It's always important to have a second form of income. And so him being so passionate and brilliant on this subject, he wanted to get us started on it young. And so we actually have a few stocks that we're invested in. And we started at a very young, like he got us into this at a very young age before we could even fully comprehend.

1:28:55Downtown Josh Brown:Are you and your sisters now passionately tracking the ticker symbols of these stocks? Because I know that that's antithetical to the approach of holding for 30 years, but you must be curious how things are going.

1:29:06Michael Batnick:Yeah, have you been on day trading yet? It's a lot of fun.

1:29:10Downtown Josh Brown:That's what I've heard. That's what I've heard. I got to give her some kudos. She actually bought NVIDIA. Come into the mic. Sorry. I got to give her kudos because she actually bought NVIDIA and made it 14-fold on it. Come on. So I'm just turning the money over to her. Okay. Good idea.

1:29:26Michael Batnick:No, it's been great. Just at the very beginning, he's gotten us involved. And it's wonderful to have such brilliant parents who understand business.

1:29:37Downtown Josh Brown:Oh, look at that. Look at that. You can't hear, but the crowd is going wild right now. Okay.

1:29:43Michael Batnick:And he's taught us financial literature because truly that is not something that is taught at schools. and you have to learn it on your own. And so I'm so -

1:29:53Downtown Josh Brown:You're in college?

1:29:54Michael Batnick:Yes.

1:29:54Downtown Josh Brown:Okay. University of Wisconsin?

1:29:57Michael Batnick:Yes.

1:29:58Downtown Josh Brown:Okay. How do you like it?

1:29:59Michael Batnick:I love it then.

1:29:59Downtown Josh Brown:All right. You're going to go into nursing?

1:30:02Michael Batnick:Yes. I'm in nursing school.

1:30:03Downtown Josh Brown:Congratulations. Thank you. We're rooting for the portfolio for you and your sisters. All right. You can have a seat.

1:30:10Michael Batnick:Okay.

1:30:10Downtown Josh Brown:Morgan, you're off the hot seat.

1:30:12Michael Batnick:Awesome. Thank you. It was so great talking to you.

1:30:14Downtown Josh Brown:Thanks for coming on the show. Well done. Round for Morgan. Yay. All right. Not easy to do. All right. And you got two more of those? I got two more. All right. Good for you. Congratulations. Very lucky.

1:30:28Michael Batnick:But now their potential boyfriends are going to know.

1:30:31Downtown Josh Brown:Yeah.

1:30:32Michael Batnick:It's going to attract some unscrupulous suitors. I thought you were going to just keep them from having boyfriends. Suitors.

1:30:37Downtown Josh Brown:What century are we in? All right. Guys, I want to tell everybody. I want to tell everybody. First of all, the book is for sale as of came out in April. Okay. Okay. What's the feedback been so far? People are into it? Like people are excited? Yeah. Okay. I think a lot of people have really liked the idea. They kind of look at it as a cross between Rich Dad Poor Dad. Yeah. And Jim Collins is good to great. Okay. Based on his research and family relationship. Okay. And they love that it's a narrative as opposed to just a how-to. You know what? That's a great point. There's enough books about how to invest.

1:31:12Downtown Josh Brown:there's not enough there's not enough books that marry that with a great story and a personal connection between the person writing adventure yeah tracking him through this i love it and people will come away from this not just with your story but with like here if you were to begin to search for 100 baggers this is how you would go about it right so there is a how to invest component to it wrapped in that story it's a it's not a what to think it's a how to think yeah i love it Okay. I love it. And one other thing I'd add on that too is that this isn't just for 100 beggars. I mean, this is literally looking for high-quality companies.

1:31:49You know, you can do that. The 100 beggars one is where kind of where you might be a starting point. You know, I go kind of smaller companies, but you can use this at any level. That quality paradigm is important across the entire spectrum.

1:32:03Downtown Josh Brown:Did you guys have fun on the show today? Loved it. All right. Are you ready for hour two or should we leave it there? All right, guys, this has been amazing. And we've learned a lot. And now we're rooting for the portfolio. And we encourage everybody to go ahead and check out this book. I want to let people know, in addition to the book, where else will you guys? I mean, I know there's a media push and you guys are going to be doing a lot of stuff. Like, what's your ultimate goal? Like, how big do you want this story to get? Or like, could this be an Oprah thing at some point? Look, I think there's a lot of different forms that this can take place and different outlets to share the education.

1:32:42You're a media guy. You have connections. I'm a media guy. And in fact, you know, I would say to you, what I really am trying to do with this is to create a series of investing adventures. So I'm actually almost done with another book right now where I've been following a billionaire who's a real estate investor. And how they built everything from the S &L crisis to the GFC to today. Okay. And so I don't think we get inside the minds of these investors as much as we should. And not only to follow the story arc in which they're making a giant bet now, in this case,$5 million. So it takes a lot of conviction and fortitude.

1:33:20And I respect what you guys do. Oh, thank you. Thank you. Thank you. Thank you. And I think you're some of the best storytellers in the business news business. Thank you so much.

1:33:29Downtown Josh Brown:Neeraj Kamlani, ladies and gentlemen, Matt Ankrum. Guys, thank you so much for being part of the show. I really enjoyed this and we will follow your career with great interest. All right. All right, guys. Thank you. Thanks to all the listeners. Thanks to the viewers. Like and subscribe. We'll see you soon. That was great, guys. I knew you would.