The Capitalist Investor - Episode 40

Dave Portnoy has taken the internet by storm. He is the founder of Barstool Sports, which he sold, and now he’s worth well over $100 million. He loves gambling on sports, so of course, the natural segue was for him to create a day-trading firm. He posts videos that are absolutely hilarious and coined the phrase “Stocks only go up.”

During the Coronavirus Crisis, Dave started to take some shots at Warren Buffett—specifically when Warren sold ALL of his airline positions. Dave Portnoy is a marketing genius. A lot of these comments are designed to ruffle some feathers and stir up controversy. Why? When you do that, things go viral. Everyone is going to talk about it like we are now.

In this episode of The Capitalist Investor, we talk about the difference between investing and trading, growth versus value stock—and answer the questions: Is Warren Buffett Washed Up? And is Dave Portnoy the New Captain? This is a fun one—don’t miss it!

Outline of This Episode

  • [1:13] Is Warren Buffet washed up?
  • [4:46] Dave Portnoy’s marketing genius
  • [7:31] The differences between investing and trading
  • [16:10] Warren Buffett is a value investor
  • [19:48] Value investing vs. growth investing
  • [26:29] Warren Buffett and Dave Portnoy are just different

The differences between investing and trading

The two biggest difference between Warren Buffett and Dave Portnoy is that Warren is an investor and Dave is a day trader. Day trading is more like gambling without a whole lot of specific goals—other than making money. It has more of a short-term focus. Investing is a much different game. You’re dealing with people’s life savings. Investing is not always about getting the highest rate of return. You want to get the best return per unit of risk you’re willing to take.

Delta hit around $60 before the Coronavirus crisis hit. They dropped to a low around $20 and have rebounded to around $30. Assuming Warren bailed on them at $30, he lost 50% of his market cap. Dave dove in around $20 and has made 50%. Dave started at the bottom of the market. It’s really easy when the market goes up.

Warren got rid of Delta because there’s too much risk. No one knows what’s going to happen with the industry. Airline travel is down by almost 70%. Numbers aren’t going back up to what they were. Delta stock is down 50%–not 70%. So perhaps it is overvalued right now. Business travel is dead—and isn’t coming back anytime soon.

Value investing vs. growth investing

It’s our prediction that value stocks are going to lag growth stocks for the foreseeable future. With the Russell 1000 Growth vs. Value, you’ll see that tech stocks make up 50% of the Growth index—but it’s only 9% of the Value index.

As time has gone on, tech stocks are changing our lives. Amazon rules the world. Salesforce is the last expense any business would cut. The game has changed. Tech companies generate high-margin and recurring revenue. We are in a tech-heavy world. Traditional ways of living and doing business have been upended.

Value is significantly overweight to dead-money sectors: financials and energy. Energy is a graveyard for your money. It’s becoming irrelevant. Tesla is out to prove that we don’t need oil companies anymore.

I don’t think value will EVER play catch-up. Growth is where the future is. It was even a better choice in the past. Growth outperformed value by 1% a year in the ‘80s. Growth outperformed value by 5.5% a year in the 90s. In the 2000s growth underperformed value (but given the circumstances, it makes sense). In the 2010s, growth outperformed by 3.5%. It makes sense to move in that direction.

David versus Goliath: who’s the winner?

Warren Buffet is a value investor. He wants to buy companies that have a margin of safety. Because of that, he’s heavy in financials, consumer staples, old school industrials, etc. He’s always been the kind of investor that wants to understand the business. Apple is his biggest holding (44%). Apple didn’t fit into his typical model, but he knew it was under-valued. It’s the only innovative holding in his portfolio. The rest of his stuff is boring, low-growth positions.

Dave the day trader buys stocks. Warren Buffett buys businesses. He buys them by acquiring stock, but he enters the transaction looking at the total value of the business. He’d never invest in Tesla. They don’t make money. You’re buying it off of its potential—which he’d never do. It doesn’t make him a bad investor, it just means he has a disciplined investment process that he sticks to.

The goal when you’re investing is to manage risk and live to fight another day. Managing risk is always smart. Warren Buffett isn’t washed up, he’s just playing a different game.

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Keep Listening to The Capitalist Investor:
Episode 41:
The Rise of Sports Betting and the Ways to Play It, Ep #41
Episode 2:
Is the Stock Market Overvalued?
Episode 3:
Impact of a Bernie Sanders Presidency
Episode 4:
Coronavirus, Pandemics, and Your Money
Episode 5:
What We Consider A Smart Investment Strategy, Ep #5
Episode 6:
Why Investing In IPOs Is Not A Good Idea, Ep #6
Episode 7:
How a Joe Biden Presidency Will Impact Your Portfolio, Ep #7
Episode 8:
Special – Coronavirus and the Economic Shutdown, Ep #8