CCIV & Lucid Motors, Bitcoin, Square (SQ), Spotify (SPOT) and Index Investing

Podcast Transcript

Hey this is Jeffrey with another edition of Stock Smart, the February 24^th, 2021 edition. Hope you’re doing well. Want to start out, you know, the podcast is growing by about 10% every day. So that’s really exciting and thanks so much. All the feedback is great and appreciate all the downloads. We’re going to have a huge announcement on this podcast in the near future. We’re still about a month to two months away from announcing but extremely excited about something new that’s going on and I’ll let you know and I’ll keep you posted as we get closer to that. So we’ll start with some stocks, CCIV, again the company that bought Lucid Motors down again today about 8%, probably going to get oversold here.

[00:00:39]
So if you’re interested and I think that the news is so bad on this because it would happen with the Lucid Motors deal in the overpricing essentially and the Insiders getting the company at $15 per share while everyone else may have bought it up all the way up to 60. Churchill Capital getting sold off, down about 8%, $32. It’s in a buying range. I mean, I think if you buy it now, you’re not going to be disappointed long-term, you’re going to have to buy it long-term to ride it out. But if you’re going to buy it here, dollar cost average in and buy a little more tomorrow and maybe a little more the next day. It’s a good strategy for that stock. The VIX is rising again as the market is in a mini correction. It sorta was up in the morning in the pre-market, 23-24 sold off again midday.

[00:01:21]
So it is constantly and very volatile. It’s also called the volatility index which make sense. So the VIX is moving around. I think the market is still unwinding, the oscillator is neutral now, so that is a time when you’ll buying, but it’s a little undecided and again we’re going into this kind of an empty or a kind of a black hole with stocks. We’re not going to have a lot of incentives or catalyst to purchase stocks because we’re going to be out of earnings here in the next week or two and then we’ll have another four weeks until we get to bank earnings and you know banks are kind of actually rising right now because they’re doing better because of the spreads in the interest rates as the 10-year continues to creep up.

[00:02:00]
We’re seeing not only the 10-year going up but the Bund and other foreign currencies, foreign bonds going up as well. So that’s happening. So you know people who are refinancing their homes, you know, you better do it now. Although the 10-year isn’t directly related to a bond that would back your home. They’re competing against each other. So when they go up they go up together, but we are seeing more unwinding in the market as people move out of equities, I should say, and in to bonds. So Bitcoin, right, we talked about Bitcoin a lot. Square has added Bitcoin to its balance sheet up to about 170 million in the last quarter. So it’s becoming a daily news story and you’re hearing it.

[00:02:39]
You’re seeing it on a daily basis, where more and more companies feeling the need to diversify their assets and in their treasury, adding Bitcoin, so it is becoming more investable as you get these larger companies buying bigger stakes you’re going to see decreases in volatility because they’re going to hold it, they’re not going to necessarily be trading it, the market is being traded heavily. That’s why it’s so volatile. But once you see it becoming more of an asset, meaning it’s held, the stored value, you’re going to see more stability come to it. Which again is going to make it more investable. So on Covid, Johnson and Johnson, interesting story here.

[00:03:15]
And this is this is maybe a warning or harbinger to people who were buying Novavax, Moderna, Johnson & Johnson the legacy great American company has a vaccine that is 67% effective in preventing moderate-to-severe virus disease, a favorable safety profile. Today there was a committee that they put together the FDA and they’re evaluating it, essentially if they recommend this J&J vaccine, this is going to happen really quickly. So beware of these other stocks out there that are these Covid vaccines, Moderna and Novavax. If J&J becomes the favorable vaccine, these other stocks could fall to Earth quickly.

STOCK WATCH

So let’s take a look at a stock we were watching. A company that I use, let’s see what the marketing language says.

[00:04:04]
It’s at digital music service offering, music fans instant access to a world of music, the company operates through the following segments, premium and supported, the premium segment provides subscribers with unlimited online and offline, high quality streaming access in music and podcasts on computers, tablets and mobile devices. Can you guess it? I’m a user I love it. My podcast is on it. Spotify, gotten killed a little bit lately on earnings. Reached a 52 week high of 370 but hasn’t seen that in a while, down again today about 1%. I like the company. I like what they do, but I would be very careful now going into a world where we’re not going to be at home as much, everyone’s excited to hear about that right, we want to go places, travel, anywhere, just to dinner, a movie remember doing these things.

[00:04:53]
We haven’t done it in a long time. If I were an investor now and I am an investor but I should say I probably wouldn’t be in these stay at home entertainment stocks, I’d be very wary of their subscription rates going forward. Not that they’re not great companies, we love Netflix, you know Amazon Prime is fantastic. That’s probably one that won’t get affected because it’s tied to so many other things but these singular stocks that offer entertainment like Spotify, for example, you wanted those at home because we’re sitting at home, you put your music on, you relax. Netflix or some of these other channels that offer subscription programs.

[00:05:25]
I would think these will go down over the next 6 months to a year because subscription rates are likely to fall. Again people are going to go and use their entertainment dollars and everyone has this you have a certain amount of money a position for certain things in your life. You have to pay your basic expenses. Number one the most two expensive things we all pay, where we live and our insurance and then you have everything else and then down the road is your entertainment dollars where you go to dinner what you spent on entertainment, movies, shows theater. I would think people will move money out of these at-home subscription services, which I don’t really consider Spotify the same, more like a Netflix.

[00:06:03]
I do consider that an at-home subscription service, but I would think that you could be wary of these because I think in the near future you’re gonna see some declines in subscription rates. So Spotify guidance not great, technical chart poor, I mean the problem for me with the stock is I look at the chart and it’s declining, right? It was at that high, it’s got support in the 320 range, but I see it breaking through that. I think this thing is headed for 290 and if it breaks 290 where it’s got a lot of support, I’d be a buyer at this at 240. I would not buy it until it hits 240.

[00:06:34]
I would predict or what I’m thinking is going to happen with this company, another incentive or another reason to beware of these kind of high-growth companies, you know, as you see the 10-year creep up and bond prices become more attractive. There are many investors or people who invest for a living for their clients that have had to creep into more risk in the last two-three years because the interest rates on bonds are terrible. They are more than excited to get out of high risk stocks to put their customers in more fixed type investments. And so as we see they’re going to be piling into bonds and things that they have a very careful return for their investors that are in their 70s, 75, 80 people who want to preserve capital and make a little bit of income.

[00:07:16]
So you’re going to start seeing that and there’s been no place to hide for those investors for the last two years because interest rates on bonds are terrible so you can’t get any return on them. So you’re going to see more and more money that’s either on the sidelines or in equities piling into these bonds and that is the creep and the scare for investors in these high-growth companies so be on the lookout for that. So Spotify, love the company. Absolutely I am not changing my subscription but the growth in a lot of these entertainment at-home stocks needs to be watched and I think there is a concern there as we go out into the real world again and use our entertainment dollars on things outside of our homes.

THE AVERAGE INVESTOR

So I got a question from Jen.

[00:08:00]
And thanks again for all of your questions. You can send them to Jeffrey@JeffreyKamys.com and Jen wants to know what is index investing. Jen, index investing is very popular. One of the largest ETFs on the planet, which is the SPY, is essentially an index-invested tool, so index investing, it’s a passive investment technique that attempts to generate returns similar to a broad market index, in this case the SPY attempts to generate the returns of the S&P 500 and there are plenty of advantages, research finds really that investing in indexes tends to outperform active management. Warren Buffett’s a big believer in this, he’ll always say, hey a manager is not going to be able to outperform the S&P 500. In reality

[00:08:42]
He’s probably right because a real investor or manager who’s going to be diversified with his client’s portfolio is not going to be able to just put all their money in the S&P 500 because when you get a year you get imagine if you had all your money in the S&P 500 when last March hit, and your clients lost 30%, they would want to kill you. You can’t diversify your clients when you’re a portfolio manager and so he’s correct in that. The reason he’s correct maybe not the same reason that it sounds like he’s correct. But generally when you index you essentially get the returns of the market and the S&P 500 over 82-100 years returns 8 to 10% on average, right? So if you’re in that, you’re like hey, I’ll just throw my money in the index fund, S&P 500, make my 8 to 10%, then I’m done.

[00:09:28]
It’s a hands-off approach and it’s passive, means you’re not moving and shifting when the market moves and shifts because the market moves and shifts, that’s what it does. It generally goes up 70% of the time, it eliminates stock picking strategy and biases the companies. So it is popular, right? But this is one little bit of a trick a little bit of a thing that probably an average investor again doesn’t understand about him. I’m going to go get into this a little bit more later in the week. So a lot of these indexes are based on market capitalization meaning the value of the company based on the shares outstanding and the share price.

[00:10:01]
So in some of these indexes, you’re going to own a disproportionate value in these large companies, you know so companies like Amazon, Facebook, Apple these companies that are in the S&P 500 they are a huge and especially Tesla they are a huge part of the index now, so when you’re indexing, you’re really buying a gigantic or 20-25% of these like 15 companies and everything else is all the other companies. Now and that gets into another idea of maybe going with an equal weight SPY or equal weight index. That gives you more of a broad range. We’re going to look at this in the next couple shows and take a look at it. But that’s essentially what indexing is, you throw your money into passive fund.

[00:10:44]
You leave it there and just watch it, and you get the market returns. So hey, thanks again another great show and we’ll see you again next time on Stock Smart.