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Yes. Cathy, there's a lot of market signals right now that are flashing green. There's a lot of market signals that are flashing red. Do you feel that you have to position actively to all of those things, or do you say, "You know what? I can't control this. I need to look 5 years out." So, how do you manage the risk, and how do you view the markets today?
Yes. So, the risk question obviously we get a lot because our portfolios are volatile. They don't look like the benchmarks, and uh when markets get uh uh into a bearish period, investors tend to hug their benchmarks, and we're moving in the opposite direction. Uh so, I just want to say, we do what we do, and yeah, you know, that's what our advisors expect.
They don't expect us to raise cash or or do anything. They might That's their decision, right? In terms of what we do to control risk, during bear markets, we will concentrate towards our highest conviction names. We have a scoring system based on management, execution, moat or barriers to entry, product service leadership, valuation importantly, and thesis risk.
So, uh with those scores, we concentrate. During bull markets, which I do believe we are in a bull market that is broadening out, we tend to diversify because the IPOs start appearing again, and um we have more information on some of the companies we've sold during the bear market. Give us the read on Elon's trillion-dollar pay package.
what's so interesting about it, uh and this happened with the first model we put out. We put out a model uh once a year of Tesla, and with our price target 5 years out. We looked at his first package, and we said, "That looks like our model." And we looked at this one, we said, "That looks like our model." And our model is public.
has Tesla at 8 and 1/2 9 trillion. Well, right. And we we put out there 5 years for Yeah, yeah. So, and I think if he delivers on humanoid robots the way he thinks he is, we don't have enough in there. So, our price target is 2600. I think it's at 330 today, something like that. Yeah, 2600 and and we have very little for humanoid in.
But, what Elon is capitalizing on is this convergence that I mentioned, robotics, energy storage, and AI. That convergence [clears throat] in the robotaxi space is pretty much the same convergence in the humanoid robot space. Do you underwrite compensation as part of your model, meaning like when you look at a package like that, if you compare it to other CEOs, Zuck or whomever, different styles of compensation, Bezos famously took no compensation post the IPO.
How do you think about that as a motivating factor or a necessary condition in 2025 to get results? I think it's huge. I mean, I I wish more CEOs would do this. Elon's not going to be paid in let unless he reaches these milestones, either. So, I think it's very motivating to him. I think it also, you know, it's kind of an incentive to, you know, shoot for the stars, but do it in a a very first principles way.
You know, everything's physics-based and everything's milestone-based. And he's very disciplined. If people do not know that, they should. And when a milestone misses, he's in there on the floor. quick question. As a stock picker, do you care where the companies are incorporated? Like do you look at Delaware now and say there's fundamental business risk?
I need to sort of or and or do you cajole these folks now to maybe reincorporate in different places? We're not an activist investor. I have to be very careful and say that. We are moving out of Delaware. Uh You as your own business. Why? You don't trust them to be predictable? Is that the issue? They're not predictable now and they're activist?
Activist activist It's In a bizarre way. What business do they have overriding the shareholders of Tesla when it comes to a pay package? And all those shareholders who did that drive-by lawsuit Twice. They did twice. Yes. Is it smart to buy stocks right now? Here's Warren Buffett's advice for dealing with market uncertainty, and we all know Warren Buffett is the best in the business.
Now, growing market and geopolitical uncertainty may make you hesitant to buy stocks. The thought of investing in the stock market right now might fill you in might put you in bit of a confusion. The S&P 500 and the Nasdaq composite have been on phenomenal runs over the last 3 years. But, the uncertainty has started to force stock prices to to waver in early 2026, and that escalated recently with President Donald Trump's strike on Iran.
Stock prices have seen an uptick in volatility, and the S&P 500's flat performance for the year so far belies the significant swings you've seen in many sectors year-to-date. And it's no wonder many investors are considering sitting on the sidelines to await more clarity or just selling stocks outright.
[clears throat] And in times of uncertainty, it can be worth revisiting what some of the best investors in history have done and what they recommend others to do. And few were forthcoming with their insights and advice than Warren Buffett. The simple investment philosophy behind Warren Buffett's success In Warren Buffett's 1986 letter to Berkshire Hathaway shareholders, he laid out a simple strategy that has enabled the company to deliver phenomenal returns to shareholders over the years.
It's advice that he has repeated numerous times throughout history and bears repeating again at this moment. We simply attempt to be fearful when others are greedy, and to be greedy when others are fearful. That advice notably came at a time that was familiar to today. Earlier in the letter, Warren Buffett explained to shareholders that few investment opportunities looked appealing.
He echoed that again in his 2024 letter to shareholders, and backed it up with 13 straight quarters of net stock sales in Berkshire's marketable equity portfolio. He expounded on this idea at Berkshire's 2010 shareholder meeting, especially noting the dangers of getting caught up in a cycle of fear.
If you have a temperament that when others are fearful, you're going to get scared yourself, you know, you're not going to make a lot of money in securities over time is what he said to everyone. First, what is economically happening in in America that prevents so many people? What do you see, number one?
And then number two, what characteristics and responsibility do retail investors have? If they're going to YOLO this, and if they're going to buy this other thing, and they're going to try to go further out on the risk spectrum, what is their responsibility so that there's no crying in the casino? There are ways to access innovation, and one of the question many ways, of course.
Uh we have packaged it up. We don't look anything like a traditional benchmarks. So, if they're diversifying, we're a very good uh source of diversification, especially in trying to get exposure to innovation. We also have a venture fund. One of the questions I get regularly from retail investors used to be, "Why can't we access the private markets?
We know more about those technologies than most of the institutions who are buying them. They have no idea. We're passionate about it." And so, we've gotten more vocal, and this administration is certainly uh becoming more vocal and and and more more focused on this this particular idea because it is un-American, right?
You have to meet this threshold. ChatGPT every day, but you can't buy OpenAI. Exactly. But you can buy a lottery ticket or you can bet on sports. makes no sense. And I do think it's going to change and I think this administration will it change? Should we just have and I've advocated for this before on the pod and I believe you've talked about it.
6% of the country, 5 6% are accredited. You got small number who are QPs. Should we just have a test? You know, you get a license to own a gun or drive a car, cut hair in this country. Why not just have a simple accreditation test? You understand diversification, you understand private versus public assets, how to read a balance sheet.
Wouldn't that just solve the problem right quick? I mean, I used to say, you know, it would be what we're doing in the investment world right now would be the equivalent of saying, you can't drive because you don't have make enough money or you do not have enough net worth. Take a test. Take a test.
And we we have this big question in the country about polarization of wealth. 50 60% of the country has some exposure equities, but the people who don't, they tend to trend towards socialism or handouts. Maybe they don't feel they're part of what we experience, which is we meet great founders and you get to do public and private and we get to say yeah, you know, I drove in a FSD car when Tesla was private or whatever it is and or I looked at Coinbase when it was private or Uber.
Yeah, I got the sense I want to put 1 or 2% into that. Yes. Yeah, it does feel profoundly unfair, doesn't it? Yes. He went on to say that conviction to buy, sell or hold stocks has to come from within. He explained that he could tell someone it's a great time to buy and help them build the courage to to stocks, but that person could run into someone else next week who says, "We're headed for a disaster." and they would sell.
And thankfully, Warren Buffett offers an antidote for those who can't build that conviction. Now, this is Warren Buffett's advice for becoming an above-average investor. The average investor will will often get caught up in fear or greed, and the result is consistent underperformance of the funds they buy.
Morningstar provides an annual report detailing how much investors outperformed compared to simple simply investing a lump sum into the funds they bought. Over the 10 years ending in 2024, the average investor underperformed by 1.2 percentage points per year. That compounds to become quite a bit over a decade and a huge amount over a lifetime.
Warren Buffett's Warren Buffett provides a solution for investors battling the sway of fear and greed that makes it much easier to ignore the noise generated by the markets. Firstly, he recommends that investors without the acumen or inclination to analyze individual businesses buy S&P 500 index funds like the Vanguard S&P 500 ETF, but he warns the main danger is that the timid or beginner investors will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur.
And as the Morningstar study repeatedly points out, the forces of greed and fear can still negatively affect the investment decision of so-called passive investors. That's where Warren Buffett advice is the key. The antidote to that kind of mistiming is for an investor to accumulate shares over a long period and never to sell when the news is bad and stocks are well off their highs.
And in other words, Warren Buffett recommends that most investors use something to dollar-cost averaging to build their stake in an S&P 500 index fund that can prevent someone with a lump sum to invest from hesitating to make their to make that first purchase or waiting to make the next purchase. And if they can ignore the news, all the better.
But that advice applies to everyone, even buyers of individual stocks. If you've bought a great company at a fair price, you should be willing to hold it as the news turns bad and the price goes down. As long as nothing fundamental has changed in the business, it may be an opportunity to buy more. If the price goes up, it may still be a great buy, but there may be better opportunities to pursue.
Nobody knows where the market will head from here or how geopolitical situations will unfold, but investors need to prepare for the forces of greed and fear and know how to combat with them. To better understand a market crash, one needs to understand recessions and why they happen. And speaking plainly, a recession is a downturn in economic activity.
While many cite two consecutive quarters of negative growth in GDP, that's not the official definition. A recession usually occurs when a number of unpredictable and hard to prevent factors coincide. For example, a war could break out leading to supply chain disruptions, inflation could push the Federal Reserve to raise interest rates to purposely slow down the economy.
Interest rates could be a major factor in a recession. If a central bank maintains extremely low interest rates, it makes debt much more attractive. People buy bigger houses and more expensive cars. Businesses take on more risk taking advantage of the low rates to expand quickly. But when businesses fail, this results in layoffs, home foreclosures, and car repossessions and we find ourselves in a recession.
So that's it guys for me today. Thank you so much for watching. Please subscribe. It really helps.
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