Where to Put Money When the Market Feels Risky with Dave and Friends

21:59Brandon:I mean, he's all good. He's sad. Also, the interesting thing to think about is even when you do get to retirement, though, you don't need all the money. So, you know, I think that a lot of the worry is that there's going to be a downturn right when people are going to retire. But at the same time, like you're only going to be pulling and maybe losing a little bit of money, you know, depending on how much money you need to pull. So I always kind of have find a little bit of comfort in that, knowing that, like, you know, there's not necessarily a finish line. You know, you can still have time to compound even when you are retired.

22:35Constantin:Yeah. Your hope is that you retire and you've still got a handful of years left and you can live those as your best year. and you don't want it all to, again, you did put it in different, more safer, maybe investments or less risky or less volatile, I guess, assets. But yeah, at the end of the day, your hope is that you live, you retire 65 and you make it to 90, you got 25 years to live on that money and enjoy it. So yeah, for sure. I think that's a great point too. So I guess the next, like, so you also had to kind of propose the question of like defense kind of sectors or where would you look at kind of investing that money um anybody i was kind of wondering like what you

23:18Brandon:guys have like if you've thought about it at all like you know the ones that came to mind were health care uh real estate and um there was a one other one i can't think of now it might be even banking but uh you know do you have any thoughts on on whether those are recession proof and Or do you have sectors that you prefer?

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26:23Constantin:My gut says if the market turns and drastically goes down, we're going to all be along for the ride. Now, does that mean if you've got something that is paying a 3 % or 2 % dividend right now, you can't invest it later when it's cut by 25 % and that dividend gets to 3.5%, 4 %? absolutely not um specific sectors um i know people like utility stocks but they have actually run relatively high this year because of the the thought of the data center the amount of energy we're going to need and i know dave you brought up a great point i was saying um we're going to need a lot more energy i couldn't tell you the exact number but yeah those definitely seem to

27:10Brandon:already have you know price baked into them because of a uh i i would tell you if you if

27:15Constantin:If you've got a niche for it or you've got the yearning to do it, energy stocks have been beaten down pretty badly over the last handful of years, at least over the last year, year and a half. Their dividend yields are relatively high. The biggest, hardest thing about the energy stocks are how do you find a top performer in there? Because they are more difficult to find. um several of them will pay more of a fixed dividend as well and then give kind of a additional dividend on top of them um do you find a lot of m &a happening with them and so the thing

27:53Brandon:is is like you just never know when one's gonna pop because they just keep absorbing each other

27:59Constantin:you can but if you look at like more of the the major players um chevron i mean that it's a well-established huge company um it's got a ton of cash it's it's it's sitting in a good place like if you're looking for more of those bigger plays and i think chevron i can't i can't tell you exactly i know at one time it was paying a relatively high dividend i think it was almost around four percent um those are going to be good health care to me has pulled back a little bit so it's gotten because of uh certain things that have happened um so yeah there's a lot of stuff

28:32Brandon:happening with the administration and whether things get approved it's kind of it's kind of iffy but i still think that those are easily seekable things that you can find as long as you find a like a good strong company yeah they're gonna you know they're gonna last the the whole administration and what the decisions that they're making on what the uh all the stuff is gonna be

28:55Constantin:you know and we shouldn't invest just for administration i mean if we look at like i I think somebody made a great point. I can't quote this exactly, but I thought it was something like energy did really, really, really well during the Biden administration, which was funny because the Biden administration was totally anti oil and all that. But it did really, really well. And it's not done quite like nearly as well in the Trump administration. So it's like sometimes, again, if we're just investing for the short term and we're saying, oh, I'm going to get some some kick up one way or kick her up another way.

29:27Constantin:Brandon, I know you and I have talked a lot about the defensive stocks. um, and kind of those, like, I can't, I don't want to invest in a company just because I'm like, oh, well the Trump administration tends to be pro military. So he's going to invest a lot of money in the military and I'm going to make a whole lot of money. I think that's again, find the, find the best companies, find companies that are going to grow.

29:45Brandon:Yeah. That's not really ever a plan because everything's always so scatterbrained about it. And I just figure, you know, the, the thing, you know, you can go on as the sec filings, You can do your research on the company and what decisions are made. Politically, that's just something that you can't account for. And I would never lean heavily on an investment based on my idea of what the administration prefers. It's just not a smart way to do it. Yeah, and I like the real estate sector.

30:18Constantin:I think that's another sector that's underperformed a whole lot over the last handful of years. I would go in with the idea that if you look at something like realty income, and we talked a little bit about that, like EPR, assume that you're going to make the dividend and you may not make growth beyond that. Because if the market doesn't want, again, a correction, or I kind of hate the word correction anyway, because the market just is inevitably moving one direction. But the idea is if it does move one, the regression, I guess, would be to where we are right now, you're going to make a pretty decent percentage or a decent dividend.

31:01Constantin:And that may be good enough. like the whole market, the S &P 500 may only make 3 % or it may go negative for the next year. And you're making five and a half percent as the dividend on something like realty income.

31:13Brandon:Yeah. My two that I'm kind of like was insurance and real estate. And the two that I was like, mostly have on my radar for when maybe, you know, something happens with price that makes sense and it clicks would be chubb and it would also be the vici those the vici just seem like an a a bulletproof way of doing it um those casinos are going to be around they're not going to go under and um you know it's somewhat like investing in nicotine you know it's like it's a it's an addictive uh thing that that humans have they like to go to vegas and spend money and those places make money hand over fist, even when it's a downturn.

31:57Brandon:So people want to get away and forget their, uh, you know, their, their hardships. And that's definitely one way to do it. So,

32:07Constantin:well, and I think it's perfect. Cause I was having a conversation with a friend that was, he does the fan duel stuff and it's got, it just came to Missouri and it's, it's, I think it was fan duel or whatever we put us to betting. Um, and I'm, I'm not a sports better. I played sports. There's no way I would bet on that to each of their own though. Um, I just think it's too inconsistent. You're betting on too many factors. But again, to each of their own, if that's your cup of tea, you're welcome to do that. But I think for me, we were talking, he was adamant. He's like, I just don't, I think like you're just, people can ruin themselves and blah, blah, blah.

32:39Constantin:And I just kind of looked at him. I said, yeah, but you can do that with anything. Like Bitcoin goes around 24 hours a day. There's no telling that Dave doesn't decide to invest a lot of money in Bitcoin. Constantine doesn't decide to go to the casino and drop a bunch on a blackjack game. We can't stop people from making bad decisions. We can't watch my investment drop 35%, me freak out, and then go, I'm selling. There's no one really to stop me on those things. So again, the casinos are going to be there, and the people that are going to do that, hopefully people can be responsible with it. I've always said the beer commercials, and if anyone's out there listening to this, that's a Budweiser rep.

33:20Constantin:I apologize. But your goal is not to have anybody drink and drink two drinks and be done. You know, the more we drink, the more bad decisions we're going to make, the more we buy. And it's like anything else.

33:34Tyler:So what do you guys think of the difference? Like if you, like when I think of defensive stocks, like a company like Walmart certainly comes very high to the mind. But what would you guys think about the difference between Walmart and Amazon? Now, Amazon certainly has way more AI exposure with AWS than Walmart does. But the flip side of that is they have a nice tidy sum of money wrapped up in their infrastructure and their retail. So which to you, if you look at what happened during COVID, let's go around the room. Which of those two do you think you would choose? Walmart. Constantine? yeah walmart too yeah anyway they have like uh almost like 22 gross this year so this is one of the tough performers on uh what is the consumer service and i might go amazon i just i just think

34:35Constantin:walmart has run hot and into credit what they're executing and what they're doing i just think if I look down the line for the next five to 10 years. And if Amazon has a pullback and drops 35%, great, it's on sale. I've got it for even cheaper. Again, I think when we look at some of those clear companies that are just in that top tier, I think if you are willing to expose yourself to those over time, you're not going to go wrong. Again, we always talk about what is it going to look like in 10 years? I think Amazon is going to be a lot better shape than Walmart is in the next 10 years. Could they have a drawback for the next two years and sink and look ugly?

35:17Constantin:Yeah. But I think just for my portfolio and where I'm at and where I'm looking down the line, I would feel more comfortable owning an Amazon.

35:27Brandon:The way I look at it is that Amazon is the play if you want more diversification in a single company, whereas Walmart is really more of a consumer staple. And when there is a recession and people or a downturn or whatever you want to call it, when prices are high and it's really hitting people's wallets, people buy from Walmart. They look for a deal and the deal doesn't pop into your head to go to Amazon. Amazon has been slowly getting away from brands and buying random brands I can't even pronounce of the same exact product that used to be sold there. They're not necessarily a deal. Like there's now a bunch of websites that also you can like copy the URL, paste it up and you can see price tracking for it and you can see when it's a deal and when it's not a deal.

36:21Brandon:There's just more obvious things that on Amazon, they've just kind of been like, look, we've got you hooked. We've got your membership fee. You think this is the best price. It is no longer the best price and we're going to make it up on our margins. Whereas Walmart, you're definitely going to be, they're fighting for margin there and they're, they're passing it along to their customer. That's part of their, their company. That's what they've always done is pass savings onto their customer. So in a downturn, when things are tight, Walmart is the better play. And that may be for a short term, but I still think that's a better play during that, that moment.

37:00Brandon:And then, but like you're saying, Tyler, you know, five to 10 years later, I mean, you can't go wrong with either. It just depends on price and what you feel like is the best move at a specific time.

37:13Tyler:What about Costco? Because that kind of fits into the same idea. I would, if you had to compare, if you had to choose of those three, which do you feel like would be the better bet?

37:25Brandon:What's the economic temperature? What are we talking about?

37:29Tyler:well i mean if we're talking about it basically just uh some sort of recession i think that that's probably what's going to treat you know whether the chicken and egg right is the stock market trigger recession or recession you know trigger a turn in the market um could be either way but for me it would be more of a recession i guess i'd still go walmart just because the hurdle for

37:54Brandon:or Costco is going to be much higher, you know, for a membership fee, you probably definitely find value there, but you're also buying name brand things. You're not buying store brand unless it's Kirkland. So I would still say when people, when something like that hits, I think people's minds go to Walmart. They go for looking for something that's cheaper that they can get. Maybe they're buying an off brand that they, from what they normally buy.

38:22Tyler:and anyway it's it's all about the money because you know like in a downturn your amount of money will gonna diminish so when you go over there you're gonna you're gonna have everything and you're gonna say okay i need this and only only one package i don't need five packages of cheese or whatever he is like on casco so you're gonna look over the money and you spend it wisely

38:49Constantin:yeah and i and i can't comment a whole lot i we've got a costco but it's about 15 miles the direction i we use sam's club so i guess that's that's related to walmart um when we do it i know walmart again the delivery system and the job they've done with that has been really really efficient that's one thing that we use um it saves my wife the time you always look at it and it's like anything else we were talking about um why my brother pays somebody to mow his My wife can go pick up groceries, but it saves her the hour, hour and a half every single week. And we say that's well worth the time, even if there's a little hiccup here and there, which there are.

39:26Constantin:And Walmart has done a fabulous job, I think, executing that. So to me, I think Costco is, again, pulled back a little bit in price. Do we, Dave, I think you commented a little bit before in our group text that was the, you still think the valuation is a little high for that.

39:44Brandon:um so i do i do i do dave what's your answer to both of those questions that you asked us

39:53Tyler:uh my answer would be probably i probably would default to amazon for the walmart um the walmart question and then i would probably choose costco um i so during the pandemic in full disclosure during the pandemic I was not a Costco member, so I can't say for certain how that would have impacted how we shopped during the pandemic. I know that the way that Walmart did it with their drive up, being able to order a line and then have somebody bring it to your car so you didn't have to go into the store was, in hindsight, it probably was a big, much ado about not a lot. But at the time, it was terrifying.

40:42Tyler:And so having that ability was a godsend. And I know that Costco did not have the capability to do that, neither did Amazon. So that certainly set them apart in that respect. And so that's where we did 99.5 % of our shopping was at Walmart during that period. today however i think you know if i you know if i'm already paying for the membership to costco i'm going to use the heck out of that and if uh if i already have you know if i've already paid the subscription and you know a downturn comes we start you know we have a recession tomorrow i'm still going to go to costco to shop because you know to me the kirklands uh food the quality of the food and for what we get it's you know it's amazing and i won't i don't I wouldn't give that up.

41:31Tyler:So yeah, yes, you would be sometimes buying, you know, a little more cream cheese than you really want, but in the, in the long, in the grand scheme of things, I think that that works out. Okay.

41:46Constantin:Yeah. And I guess the way I looked at Amazon was if there was a regression or whatever to the, where we are, where the valuation is now, which one becomes more attractive. And to me, that's what, that's where I went with Amazon. If there's a 30 % drawback, walmart draws back 30 amazon is back 30 which one do i feel more confident putting my money in i would say amazon but again i don't i think they're both great companies i don't think you can go wrong with either i think walmart will be in a better position in the next 10 years and i

42:14Tyler:think amazon will too yeah well we recently discovered that i'm gonna i don't remember exactly which one is a dollar general or dollar tree one of the two has had like 70 or 80 returns this year has had a fantastic year and we didn't talk about those what's dollar tree is dollar tree yeah dollar tree so had a fantastic return and you know for what we're talking about that may that may be the the the better play of all the three that we just mentioned

42:46Brandon:or just silver that would have been the play recently you're right

42:53Constantin:well and i also think brandon if you're looking for defensive stocks or at least plays that are are going to be in a good place i like like i am a shareholder of paypal um we talked a little bit about that and they're applying for a bank loan but they just started paying a dividend um which again i think some people will hate some people love i like it i like being able to receive the money. And either if the company's executing well, and I still believe in it, and I'm like, you know what? I like to reinvest that. Sometimes if you get in early with something like PayPal, where they're paying a 14 cent dividend, and you're willing to hold for 10 years, that 14 cents can turn into 75 cents over the next 10 years.

43:40Constantin:And then again, your cost base is relatively low, your dividends continue to grow. Again, there's no telling PayPal may move at a cent next year. I have no idea. But looking for those companies, I know, again, if I saw a drawback in a company like NEE, which is NextEra Energy, they were used to be Florida Power and Light. I like that company. I think they've gotten a little pricey. Analyst estimates have them at about$85. It's at 79. It's been as high as 85, but I was looking at it at 60. And maybe I'm just anchored to a price point, but they've continued to raise their dividend about 10 % every year for many years.

44:20Constantin:You can get in something like that if there was a drawdown in some of those utility companies and then get in something that does continue to raise the dividend over time. Because again, the utilities tend to be real safe plays. They are one of those things that they're basically monopolies and people can't play with them and they're not going anywhere. But I would look at too and i would encourage you like there's you can look at like water um utilities as well or decent ones um that tend to be more safe plays um but again i would also look at like there and just be cautious of this too if you look at like states like california they do have a little more regulations in their utility companies um again and unfortunately like um the one out of hawaii I can't draw my name right now, but, um, Hawaii electric.

45:11Constantin:Thank you. I was like, why not electric? That's what I was going to say. Yeah. They had a hiccup, um, bad deal. And I, I, in the stock, maybe bottom, I have no idea what's done over the last couple of years or whenever that actually occurred, but it, it drew the stock down, the dividend went away. So, um, some of those places that are a little less friendly to companies could be a little more regulatory. So just be aware of that.

45:32Brandon:The dividend is always interesting because, you know, you, oftentimes I'm skeptical as well because you're just like, well, why is this high? Like, is this just a ploy for more investment from investors, uh, to get the dividend, but it's not really a stable company. And I'm always like, you know, yeah, sure. I love dividends, but at the same time, I'm always like, what is this really about? Like, how long have you paid it? Uh, when's this going to stop?

45:59Constantin:So, and I would encourage you because I like dividends. Um, I tend to be a dividend stock investor, it's probably just my novice ability, but I like being able to, again, if I'm investing in Brandon's company and he's executing it all cylinders, I can reinvest that dividend. If all of a sudden Brandon's, the thesis may be breaking, I'm still going to receive that dividend at least for this time. And then I can put it in Dave's company, whatever that may be. So it's kind of a reward for me. But again, I think there's a combination of both, but there's a lot of things you can look at when you're looking at dividends.

46:29Constantin:You can look at the, how are they paying for those dividends? What is the amount of debt the company's taking on? How close is that payout ratio? Again, it's a little different with REITs because they are paying out about 90%. They're required to pay out at least 90 % of their dividends. But if you have a company that is a dividend payer and they are paying it with an absorbent amount of money and they paid it for 165 % for long periods of time, unfortunately, that's not going to carry on forever. So looking at that stuff and looking at some of those like dividend kings or dividend aristocrats are good ways to do it because they're going to do everything they can to make sure that they continue to pay that dividend.

47:10Constantin:Like I said, Chevron, I believe, is a dividend, at least a dividend aristocrat. It's continued to raise this dividend. It's continued to raise it at a pretty decent percent.

47:17Brandon:One of the first ETFs that I started this whole investing journey in was NOBL, which is definitely an expensive ETF. But that was definitely something that attracted me that it was, you're getting a dividend and you're definitely safe. Those companies aren't going around and dying necessarily. So that I was happy about. But once I learned more, I quickly sold out of that and put it to better use, I think. But have any of you stopped the drip when you've sort of lost a little bit of conviction on one of your companies and decided that you were just going to take the cash to move it into something else?

48:00Brandon:To sold the business.

48:01Tyler:If I lost conviction in the company, why? If I've lost conviction in the business, why would I just keep it for the dividend?

48:11Brandon:I guess that would be the first move before you've got your price. That's kind of the way I'm thinking about it. Like you'd be like, okay, well, I don't need to have this strip anymore. This is on target. I'm going to sell it. And you just waiting for your price to happen.

48:23Constantin:Well, and I think sometimes if the position gets bigger, it's, it's a bigger position. Like I've got quite a bit of money in realty income. Um, again, with being a teacher and receiving a pension, I just got to be not stupid enough to lose a bunch of money, um, and watch something that again, continues to pay five and a half percent. Um, but it is a bigger position. So So what I've done is I've started to liquidate that dividend that it's paying each month. And I put it in EPR or VICI to just, again, back. So I'm reinvesting. I'm just reinvesting into smaller positions that could continue to build as well.

48:57Brandon:Yeah, you could definitely use it as a way of portfolio allocation as well. Like, you know, if you just don't want a position to outgrow itself, that's easy to do too. But I haven't really gotten to a point where I needed that because all my money is in bigger ETFs or mutual funds. So it's hard.

49:13Constantin:And I also think a good way to look at it, too, is if, again, Constantine, we've had this conversation about looking at maybe some little more risky growth stocks. That's not a bad idea to just say, hey, you know what I'm taking? I'm going to dump, I don't know,$10 ,000,$15 ,000 as a high yield savings account in realty income. I'm going to make that 60 to$75 a month. And I'm going to put it in something a little riskier because at the end of the day, it's really not my money. And it's, it's, it's a way that you can play without maybe burning your own money. Again, you are burning your own money because it is given to you, but ultimately you may feel a little like, Hey, not only am I investing just a little bit, I'm doing it over a longer period of time.

49:51Constantin:So, um, again, I really just think it boils down to your, your own comfort level and what you, what you're trying to do. So.

49:59Tyler:yeah for sure yeah i i like the idea of brandon kind of threw out insurance companies um shouldn't be any surprise to anybody that's listened to the podcast for any length of time that i like insurance companies uh i think those are can be fantastic uh investments especially if you find the right ones and that's a big reason why i've invested in berkshire is because they have two of the better ones under their umbrella. And so it's a great place to put my money. And I'm also getting the benefit of their insurance knowledge through the years. But the company you threw out earlier, Brandon Chubb, is certainly a strong contender for a really good insurance business.

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52:38Constantin:I don't see it going away. I think it's too big to fail. I think my concern is with Warren Buffett buying it or whoever bought it at Berkshire, let's say Berkshire bought it. It doesn't fix the problems that were still there. They've still got the litigation. They've still got the mess. And my thing is, are you going to be compensated for the risk you are taking if they can navigate this well and you believe that they navigate this well and they get on the other side? I think it could be a good investment. My father took a pretty big position in it. He likes it. He's also 82 years old and in a little different position than I am.

53:30Constantin:But he bought at the right time and then Berkshire bought and it looks pretty right now. But it is one of those things that I think it's too big to fail. I think they will find a way to get across it. I just don't know, again, if any of this major litigation pans out and these start to become more of a mess. what that looks like.

53:48Brandon:So for me, I just, I haven't even looked at it. It's not been on my radar. It's not even something I would start to look at. And the only reason is because I think it was an option for me and my wife for our healthcare. And when we did research on whether it was good or not, it was terrible. And so automatically it was like, well, if I'm finding out that to be a customer of it is awful. Why would I put my money down? So I, I just, I'm out.

54:21Constantin:But I think, I think that's a great data point. Cause if, if you're walking into this and going, I'm not even investing money into this. I just want to be a customer. You've already got that bad taste in your mouth. Now, again, I, I, that is one very small data point. There could be people out there that love it. I have no idea. I'm not a customer of it. Um, but I think just knowing that part and you've already been turned off to it, I don't think you're going to be like, hey, I really want to invest more money in this company and become a shareholder. Because I think, again, you want to be in companies that you feel good about.

54:47Constantin:You want to be invested in companies that you believe in.

54:53Tyler:Constantine, do you have any thoughts? Not really. I'm just afraid about the political climate, because you don't know at the end of the day in which side they were going to go. And I think they have a lot of exposure and it's a lot of risk.

55:16Tyler:Agreed.

55:18Constantin:Anything else on the defense sectors or anything that we would look at? Anybody have an opinion on any of those?

55:26Brandon:Well, would you consider banks to be a defensive area or is that not a great place to put money in when you're looking into a recession?

55:36Tyler:I mean, on one hand, it's a necessary evil, right? For the most part, most people aren't big fans of banks just in general, but it is a necessary evil. And whether the economy or the market goes, I guess it's different. If the market goes through a downturn, then like Tyler said, everything will go down. JP Morgan will go down just like Google will. But if it's an economic downturn, will a bank be as affected as much as it could be? It depends on the exposure. And this is what we saw during the pandemic was that the immediate response was that people were worried that car loans weren't going to get paid back, mortgages were going to default, and just generally credit cards were going to default.

56:25Tyler:And we didn't really see that in part because of the stimulus and in part because the economy wasn't it didn't shut down as long or as completely as I think was originally feared. So in that circumstance, I guess it really kind of depends on what the bank is exposed to and what really is happening. Wells Fargo, for example, who is very highly correlated to the mortgage industry, they're hurting because the mortgage industry is hurting and people aren't buying homes. And that's how Wells Fargo makes a large portion of their money. Contrary, Ally lends money more to autos for cars. And that's more their bread and butter.

57:08Tyler:And as the auto industry has struggled, Ally has struggled. So it really kind of depends on the exposure. A bank like Capital One, which is more exposed to credit cards, maybe they don't get affected as much. I'm not sure. I don't know the answer to that, but those would be the things I guess I would try to look at if I'm trying to consider a bank. I'm a big investor in Nubank out of Brazil. If they have any sort of economic collapse in Brazil, it's going to impact Nubank unquestionably. You can't sugarcoat that. And if you go in investing and thinking that that's not a risk, then you're fooling yourself.

57:49Tyler:And so that is something you've got to be concerned about. But if there is a downturn, economic downturn, you know, I don't know, you know, if you don't think the bank is going to be permanently harmed, then it could be a really good place to put your money if you expect it to turn around at some point. But if you, you know, if it's going to be a longer term economic downturn, then it could be a harder place to put your money.

58:13Brandon:yeah it's like it's hard because it's hard to wrap your head around it because if if the major part of the banks the inflow and outflow of of the thing that people are lacking it it makes it hard to be like okay this is a go let's you know let's buy you know whatever chase or or or whatever uh i just didn't i don't know i don't know that i really don't know whether it's really all that recession proof like like you said it depends on the bank there are all kinds of different banks to invest in but even still when you you know you choose something big like capital one or whatever i i don't know i mean yeah does everybody turn to their credit cards because they don't have cash in their in their wallet maybe right is that a good thing or bad thing for the bank i don't know

58:59Tyler:it you know in the short term it's a good thing but if people are defaulting 90 days later then it's a bad thing so it really it really depends on how how that plays out i guess to me insurance companies, if you're looking at financials, insurance companies would probably be a safer bet because we all need life insurance. We all need car insurance. We all need health insurance. Those things are not going away. And so as much as we all hate them and complain about spending too much on them, it's still a necessary evil. And so progressive is not going away. So that to me would be, I guess, a safer play.

59:35Tyler:Well, and as you say, I think the banks are a harder,

59:39Brandon:too hard pile in that case. So I would just rather go into an insurance company then because I can understand that.

59:46Tyler:And what about the government thinks they are too big to fail and they get bailouts and that stuff? Right. Yeah. That'll have an impact for sure. And we will definitely see more systemic banks. The big four, Citibank, US Bank, JPMorgan, and Wells Fargo, they will definitely be propped up in any way, shape, or form they can. But I think smaller banks, particularly more regional banks, they're going to be, if they struggle, they're going to be in trouble. Insurance and businesses too, they're going to prop up, you know, they're going to prop up Progressive or Allstate or UnitedHealth because they have to, because they're systemic to our lives and they can't have those fail.

1:00:34Tyler:Whereas Bear Stearns, I don't think at the time was really a systemically important bank and that's why they let it fail whereas they would never have let jp morgan go under ever yeah and i think the regional banks are honestly a good place

1:00:47Constantin:to play if there is a drawback because their their dividends tend to be pretty high um you but you just you're gonna have to find some of those clear leaders in those in those regional banks because you don't you take you absorb a lot of risk um when you're dealing with stuff like that. But there's, there's several of them that, again, if there is a drawback, I know I'll be attracted to in the banking sector. Cause I just, I like the banks. I think they're big. I think they're, they're hard to, even in the regional sector. So should we compare a new bank to PayPal

1:01:21Brandon:since we brought up both of those and see which one's the nicer of the two?

1:01:28Constantin:Yeah, absolutely. For those that don't know, PayPal has applied for a bank loan, which is, again, I think the CEO, Dave, you're going to have to Krauss.

1:01:41Tyler:Alex Chris, I believe.

1:01:43Constantin:Thank you. Alex Chris is the CEO, and he's making some moves. Dave, what are your thoughts on it? PayPal, do you think it's a good move? Do you think it's a beneficial move?

1:01:56Tyler:um i so i think what i think there's a few things going on so first of all uh you know full full disclosure i am also a bag holder of pain pal uh so i do own one percent of it so uh and i think i think he's doing i think he's doing the right and prudent things and i think part of what is the disconnect between what he's trying to do and maybe what the market is seeing is that I think people are still hanging on to PayPal being a growth stock, being a 20, 25 % revenue growth consistently year after year. And I think those days are behind it. And I think he knows that. And I think he's wisely moving it to more of a air quote, mature type of business idea where he's buying back a ton of shares.

1:02:47Tyler:He started to paying a dividend, they apply for a banking license, which will allow them to start giving out loans. They'll start being able to have, they'll be able to carry credit card loans on their balance sheet. They'll be starting, they'll be able to start handing out loans for people. Maybe they get into car loans, you know, who knows? And that is unquestionably a easy, not easy. That's a really good place for them to make money. It also, I think, helps diversify a little bit away from the PayPal button. I've always been, I guess at first I was pretty bullish on that, but now I'm a little more skeptical on the importance of the PayPal button.

1:03:30Tyler:I frankly have never, ever used it. And I have a PayPal account. I'm a PayPal shareholder. I have never used the PayPal button to buy a single thing ever. And I'm hard pressed to find anybody in my circle of knowledge. Okay. One.

1:03:47Constantin:And you're, you're, you're going on what a hundred. So, I mean, you may not even have a credit card yet, right?

1:03:53Tyler:Yeah, exactly. Still trading in beads.

1:03:58Constantin:You guys paying a change at the cash register. Yep.

1:04:01Tyler:Yep. Exactly. Exactly. I, you know, I, I begged a deer the other day and I was selling the antlers to this guy. It worked out great. Um, so, you know, I just, yeah, I, I think he's doing some really smart things. I just don't think the market has recognized it yet. And whether or not that is what I want to invest in, I guess I'm kind of on the fence on that. Yeah.

1:04:24Constantin:And, and, and bold disclosure to, I am a PayPal investor, or I guess a shareholder as well. But my cost basis, I would imagine is a lot different than Dave's. So we probably got a little different, different tastes on what's going on, but I agree with you. I think it is, it looks more like a mature company. And I don't think that's a wrong thing. I just think when you're talking the price of what it was going for several years ago, it's not there anymore. So I think it's going to start to level itself out a little more to what that looks like. But yeah, I think it's a good move. I think it's an interesting move.

1:05:05Constantin:I've been impressed with what he's doing. I just think what you're going to do, and we talked a little bit about this, I heard a guy talk about this earlier this week, was trade desk is kind of the same thing. It's had this huge growth story. It's had this expectation. Now, all of a sudden, you're finding there's different players that are getting into this game. And the sentiment was trade desk will still be a good investment. It just may not be the growth story that it wanted to. And you're going to see a lot of these investors that have gotten in with the idea that it's going to be this growth story.

1:05:37Constantin:And I think PayPal is kind of the same thing. We'll start to leave and you're going to have just a mature base that says, we understand what we own. We like the direction. We know that the stock isn't going to fly up, but we're going to be a steady growth company that returns X amount for shareholders. And I think those can be great companies, especially depending on what kind of company you're looking at and the price you buy.

1:05:59Brandon:Yeah, it's definitely interesting because I just did a quick little search and so basically you know paypal is going to be the more stable more diversified uh you know pick uh if you're looking for something with higher growth higher risk then new bank would be the one they are just inherently different i mean i know that paypal has applied for a bank charter but um you know the it's just a it's hard to say it's interesting to see how new bank is just much more efficient than paypal is and um but i don't know i've never really compared these two before um they're not really the same thing but they are so it's definitely interesting you know to try and talk about about well i think what alex chris is doing really well

1:06:48Constantin:at is he is looking to cut the fat from paypal like they would just they had their their tentacles in 97 different things. And they only did a handful of them really, really well. But it was like, yeah, you know what? Let's take these really low gross profit margin businesses. And he's just cutting those. He's saying, no, you know what? They're not worth it. We're going to get really good at a handful of things. And we're going to be effective at that. And that's all we really care about. Which, again, I think in five to 10 years, you're going to look at PayPal and it's going to look like a very different company.

1:07:17Constantin:But the hope is that it's a much more effective company.

1:07:20Tyler:So, yeah, I think the, if you're looking at the difference between NewBank and PayPal, the, I think the several things probably need to, you need to think about. So the first is kind of what Tyler was alluding to. PayPal is a far more mature business. And so the expectations for that have to be different than the expectations for NewBank. NewBank is still new. They've only been a public company for about five or six years, and they've only been in existence for 10. And so they're a much newer business. And what they're trying to do is vastly different than what PayPal is trying to do. And as a bank, they're also fundamentally different in how they make money.

1:08:06Tyler:The vast majority of the money that New Bank makes is from lending, from credit cards. And so that's where the vast majority of their income comes from. And so they are trying to expand into different geographies. And there's been some chatter about the New Bank applying for a banking license here in the United States. And although they have not said this directly that I've heard, there is no indication that they're planning on going after J.P. Morgan or Bank of America. I think what they're really trying to do is try to appeal to the Latin American community that's here in the United States. Because, for example, if you have a Brazilian or somebody from Mexico that can bank at Nubank here in the United States and have family in Nubank in Mexico, how much easier is it to send money now to your brother or sister or your wife than having to go through Remitly, Wise, Wells Fargo, Western Union, any of those other, or even crypto, even any of those things.

1:09:09Tyler:If you just literally go on your bank and transfer money on your bank and your app, there isn't anything easier. And with a very large population of Latin Americans here in the United States, it makes 100 % sense to try to appeal to those. And it doesn't mean that someday they can't maybe try to go after some of the American gringos like me, go after me at some point. But I think that it's a pretty smart play. And everything they've done has always been fairly measured. to begin with. So they're not really, even though they're a big growth story, they're not really an aggressive, go out there and go crazy, go nuts after everything, because they've been profitable for a long time.

1:09:50Tyler:So it's a different beast, I guess, is the best way of putting it.

1:09:54Brandon:It definitely is. And then the reason I think the biggest part of it is just the macro environment is different. PayPal is just not going to be affected by some macro sensitivity by any means, whereas Nubank will. Plus, I don't know, is there a big difference when you're dealing with a different currency at all and how that could technically, I mean, they're only dealing with the one or two because of the Mexico exposure, I guess. But beyond that, I don't know, is the currency itself more unstable than the dollar? And so therefore, your risk also comes with how stable the currency is?

1:10:34Tyler:There is certainly some of that tied to it for sure because the currencies in Latin America are more volatile than the dollar for sure. And if you just look at the relationship between Argentina and Brazil, it's fragile. And so the currency exchange is fragile. And similarly with Colombia and with Mexico. So there is certainly that. Brazil has one of the stronger economies in Latin America. And I say that hesitantly because it feels a little bit like it's balancing on one skinny rock kind of thing. So it's not nearly as stable as the United States, obviously, but it is something to certainly be aware of.

1:11:21Tyler:Now, PayPal has their own currency issues to deal with because they do a lot of business in Germany, for example. So the currency, it won't fluctuate as much as the heist to a dollar, but it's certainly the euro will fluctuate to the dollar. So it is something they do have to deal with, maybe not as much as NewBank would.

1:11:42Brandon:All right. So right now, if you had to pick PayPal or NewBank, but in the house, what are you putting it down? new bank no question

1:11:56Tyler:constantine what do you think uh new bank too i was a shareholder of the paypal for a long long time ago and uh the new bank uh looks a little bit better if i'm betting the house i'm going

1:12:13Constantin:with paypal because it's it's more mature it's going to have less volatility it's it's not going to most likely fail where if you're talking about my entire growth story i would again i think i think what alex chris is doing is he's making it into a mature company that people are going to feel more comfortable holding um as opposed to new bank if there's hiccups my i don't even know what new bank's going for i know one time it was 16 my 18 a share could turn into 12 or 10 dollars very, very quickly and get some hiccup. But if you're talking about what am I going to put a decent sum of money in and have a pretty good confidence on the growth story, NewBank's definitely the choice you'd want to go with.

1:13:00Constantin:Brandon?

1:13:02Tyler:He's running some calculations.

1:13:04Constantin:Exactly. Got to use his DCF, right?

1:13:07Tyler:He's got an Excel spreadsheet in front of him right now.

1:13:09Brandon:He's running some numbers here. No, I just wanted to look at the chart and what it's currently going for. It just seems like PayPal's been struggling. I mean, it's down like 75 % the past five years.

1:13:21Constantin:That's why you just got to buy it when it's in the bottom, dude. It's not hard to do.

1:13:24Brandon:That's the plan. But the thing is, I've listened to plenty of podcasts of Dave complaining about PayPal. So I kind of want to just break out and say, forget it. I'm just going to go full bore on NewBank.

1:13:35Constantin:Well, Dave also bought it when it was in the pandemic and was pretty pricey, I believe.

1:13:40Tyler:I was paying my initial cost basis was$350. So yeah, there is that.

1:13:46Brandon:Yeah, that would leave a bad taste in my mouth. And with it currently, it's at$59.81. Nah, I'm good. New bank all the way. Yeah.

1:13:56Constantin:Okay, we'll see. We'll see in 10 years if you guys are broke or rolling in beyond meat money. So awesome, guys. Well, this was great. I appreciate this. It was really, really good. Like I said, we covered a lot of stuff. And hopefully people got a couple of things out of it. But yeah, always, always great to catch up and learn some stuff.

1:14:15Tyler:So yeah, I certainly appreciate all of your guys' time today as well as the past year. And I wish you guys both, all of you, a Merry Christmas and a Happy Holidays, whichever you celebrate. And be safe out there. So with that, I will sign us off. You guys go out there and invest with the margin of safety. Emphasis on the safety. Have a great week. And we'll talk to you all next week.

1:14:40Brandon:We hope you enjoyed this content. Seven Steps to Understanding the Stock Market shows you precisely how to break down the numbers in an engaging and readable way with real-life examples. Get access today at stockmarketpdf.com.

1:14:59Constantin:Until next time, have a prosperous day. The information contained is for general information and educational purposes only. It is not intended for a substitute for legal, commercial, and or financial advice from a licensed professional. Review our full disclaimer at einvestingforbeginners.com

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