Open Windows Investing by TPFG

Legendary Tech Analyst Mark SF Mahaney Gives Us Tips!

January 10, 2023 Julie Mochan Episode 11
Open Windows Investing by TPFG
Legendary Tech Analyst Mark SF Mahaney Gives Us Tips!
Show Notes Transcript Chapter Markers

Julie Mochan talks with legendary internet/tech analyst and author of the  book Nothing But Net - Mark S.F. Mahaney of Evercore ISI.  Hear how Mark got his top notch status learning from the best in the early years of the internet's existence, plus:

  • Is the Sky Falling?
  • There Will be Blood
  • Founder Led Companies Make a Difference
  • The Hunt for Dislocated High Quality Companies (DHQs)
  • Expert Consumers Rely on Gut Instinct
  • How Much Company Revenue Growth vs GDP 
  • Growth Curve Initiatives (GCIs)
  • What to Do When You Get it Wrong
  • Twitter and more!

Since 1984, The Pacific Financial Group, Inc. (TPFG) has built a rich tradition of serving financial advisors and investors with best-in-class investment solutions and unrivalled customer service. The firm was founded on the single premise that everyone, regardless of their account size, should have access to high quality investment opportunities and independent expert advice. Today, we are a Founder Led dynamic Wealth-Tech firm that blends over three decades of traditional asset management experience with leading-edge financial technology know-how, to provide products and services that empower financial freedom for advisors and their clients.  TPFG and Evercore ISI have no affiliation.

Want to hear something on the podcast?   Make it Happen  - Contact 
Julie Mochan today.
Original🎵 by  Ma’aM

Important Disclosure: This podcast recording has been prepared and made available by The Pacific Financial Group, Inc., also known as TPFG, a Registered Investment Adviser (RIA) offering advisory services. Information in this podcast is to be used for informational purposes only. The information contained herein, including any expressions of opinion has been obtained from, or is based on sources believed to be reliable, but its accuracy or completeness is not guaranteed and is subject to change without notice. The information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service. Any expressions or opinions reflect the views of the speakers and are not necessarily those of TPFG or its affiliates. TPFG does not provide tax or legal advice. Investors should consult their financial, tax or legal professionals before investing. Past performance is not a guarantee of future results. All investments contain risks to include the total loss of invested principal. Diversification does not protect against the risk of loss.

Open Windows Investing w/ TPFG Episode 11: Mark S.F. Mahaney 

January 10, 2023
Host:  Julie Mochan
Guest:  Mark S.F. Mahaney, Evercore ISI


[00:00:35] Julie: Happy 2023, everyone. Welcome back to Open Windows Investing. I am happy to have 2022 in our rear view, one of the worst years in history when it comes to, uh, being an investor, but we're in it for the long run people, we’re not in it for one year or as 

[00:00:55] you'll hear from my guest, you never want to play quarters. [00:01:00] Um, unless you're at a tailgate with a red cup, that's,

[00:01:04] Um, that's my dumb joke. Sorry. 

[00:01:09]  if there's any FAANG lovers out there, F A A N G the acronym,  I'm not talking about fangs, like the Netflix,show “what we do in the shadows". By the way that's a really fun show and a cool original movie. 

[00:01:22] I'm talking about the monster tech internet company stocks. So that would be Facebook, Apple, Amazon, Netflix, and Google. 

[00:01:33] So in a minute, I'm going to kick off the year with, an episode that full disclosure I did record last year, but in this episode, I'm talking with Mark SF Mahaney, senior managing director and head of internet research at Evercore ISI. Mark has been covering internet stocks on wall street since the late nineties. Like that's what. [00:02:00] Well over 20 years, And so get this for for the past 15 years, He's been ranked as a top internet analyst with five of those years holding the number one spot, 

[00:02:09] and he's in the top 1% of all wall street analysts in terms of single year stock picking performance. So Mark's a superstar, and he is so humble and really fun to talk to. 

[00:02:21] And do here. Um, exactly what I'm talking about when we get into the interview. 

[00:02:26] I contacted mark because I happened to see him on Bloomberg television. 

[00:02:30] I always have the market on, in my office and on day that I noticed mark. I was amazed at how expansive his knowledge was. And I stopped what I was doing. Like I literally stopped what I was doing at Just to take in when he was saying. he was short and to the point, and I actually recorded my television with my phone because it sounded like, Hey. 

[00:02:51] This person is actually talking sense like, you know, they're not just repeating what everybody else was saying. So we're going to talk to mark in a minute [00:03:00] and you're going to love it. , he, by the way, has a book that he came out with. called Nothing But Net. 

[00:03:05] I read the book. while I was sitting, I had a family member that was ill. So, I was spending time in the hospital. Uh, and I sat and just sort of read it, cover to cover. It's a short read. It's an easy read and it is a plethora of information, if you're buying any sort of tech, you got to read this book because it. 

[00:03:26] Literally tells you a step-by-step everything to look for. And there's a lot of work that goes into it. and Mark will be the first to admit you know, It doesn't matter how much work you put into it. There's going to be blood right? You're still going to fail, at one point or another, because you just can't predict everything. So we're going to talk to mark in a minute real quick at TPFG. Let me just remind you what we do. If you haven't listened to this podcast before, go back and listen to some of the other episodes. 

[00:03:54] If you feel like it, or I can tell you real quick, what we do, at The Pacific Financial Group, you can call us TPFG, [00:04:00] which is easier. Our portfolio management team works with several big name partner strategists, and they allocate 36 different investment model portfolios for retirement savers. 

[00:04:11] And this is the special part, they're built f or participants of employer sponsored group retirement plans that offer self-directed brokerage. That's a lot to say in one breath, but here's what it means. If you are an advisor. And you have a client that is working and I'm sure that the chances of that are pretty high. 

[00:04:33] And you're helping them with everything in their life financially, except for their 401k for 403(b), or 457 account, whatever it is. That doesn't make sense. Right? You can't really give them advice without taking on fiduciary responsibility. 

[00:04:48] And, it's not fair to your client because you're managing all of their assets except for this one. Arguably the biggest piece of their savings depending on their situation. And [00:05:00] so what the founders of the Pacific financial group did was they said, Hey, this doesn't make sense. Let's come up with a way for advisors to not only manage those assets

[00:05:11] So that the financial plan that they're building for their client doesn't exclude

[00:05:16] A huge part of the client's savings. 

[00:05:18] But also have the ability to 

[00:05:20] be compensated for their advice. 

[00:05:24] And here's the best part. You don't have to be the rep of record. Which means you don't have to have the whole plan, right? The whole group retirement plan. You don't have to know everything. There is no about group retirement plans. You just have to know a little bit about self-directed brokerage account management, because we know everything about it. You just have to know a little bit about it and you have to understand what the offerings are and what's suitable for your client. And so there you have it check us out at and or check my backlinks for this episode and you'll be able to find out how to get in touch with us. All right. Let's move [00:06:00] along okay. So. I typically have more interest in macro trends when it comes to the market and, not necessarily individual stocks, but given that Facebook, which is now Meta. Amazon Apple, Netflix, Google, which is trading as Alphabet now. Account for such a huge part of the total S & P 500. 

[00:06:23] And just had all the phenomenally horrible year, After growth had been in favor for so many years. Right. It was perfect timing for me when I read Mark's book because, everything that he pretty much says in it is true, no matter what type of, uh, macro environment that you're in, unless obviously, an asteroid hits planet earth. And there is no longer an environment for us anymore. That's a different story. So, uh, let's get into it with Mark. Again, if you're managing money yourself and you're an advisor. I really think you should hire a professional to do it because you need to manage your clients' relationships. And that's a [00:07:00] lot of work, obviously, but if you are doing anything like that, or if you'd just like to be able to be more knowledgeable about what the heck is going on, when it comes to these internet- 

[00:07:12] type stocks. Uh, let's get it from. The best that there is out there. Mark welcome To Open Windows Investing with TPFG it's great to have you

[00:07:22] Mark Mahaney: Well thanks Julie I'm looking forward to doing.

[00:07:24] Julie: So, I just had a chance to tell the audience about, your book, Nothing But Net, which I think your subtitle is. 10 timeless lessons for picking tech stocks. published in 2021. As I was reading it, after I figured out that net, , was not a basketball net or a net that you catch fish with That you were referring to the internet. Before we get into What you've learned over the years how did you get to where you are right now?

[00:07:51] Mark Mahaney: Well, okay, so, I think I've been extraordinarily lucky. , I think I say that at the beginning of the book, I've been able to cover internet stocks for 25 years. It's been one of the [00:08:00] most explosive segments of the stock market for the last 25 years. And explosive in all senses of that word, you know, good and bad.

[00:08:09] The internet as a phenomenon, technological. I guess regulatory, consumer enterprise, you know, is sort of behind the biggest market cap creations that we've seen except for Tesla that we've seen over the last, 10, 20 years. So it's behind Microsoft Cloud computing.

[00:08:26] People use the iPhone of Apple to access the internet. it's behind obviously Google, Facebook, Meta, and, uh, Amazon. So, it's, it's been this phenomenal growth engine, and I just kind of stumbled across it back, you know, in the mid-nineties, just as it was coming out. And, uh, these things, uh, like, EarthLink, MindSpring, excite, then Yahoo, well-known, Amazon, well-known eBay we're, we're coming out.

[00:08:49] So I just got lucky. In terms of timing, I've sometimes said it's, , it's as if, I was becoming a young professional in the media industry. Network TV was exploding onto the scene or [00:09:00] an airline analyst when commercial air aviation was taken off. So, it was really kind of the birth of a new industry.

[00:09:05] And, uh, yeah, there's, it's been, the quick quip for me is, you know, I started in 98 about the time Julie. I think that you started getting into the industry and the first two years internet stocks , were us, you know, skyrockets and, uh, And uh, you know, when I was boom and boy, I thought I was a genius cuz I, I helped cover internet stocks and in the next two years it was bust and I thought I was an idiot cuz I watched these stocks, , evaporate.

[00:09:33] Um, And the truth turned out to be somewhere in the middle. So, uh, I got lucky. I, I started working with, uh, a woman who really, pioneered the internet research space, Mary Meeker at Morgan Stanley. 

[00:09:45] Julie: Oh, yeah. Wow. Look the queen of the internet, 

[00:09:48] Mark Mahaney: and, uh, the quick story is, I, I saw her, I mean, I was on a college campus, university of Pennsylvania when, uh, the internet was really starting to show up on all those computer desks. When I, [00:10:00] when I was in college, you know, we were doing floppy disks, but when I got to grad school, we were, all of a sudden, the internet was out and you could use these things like, uh, yahoo, and AOL and you could send emails to people. And it was super exciting. so anyway, I came out at a time when the internet was just starting to take off.

[00:10:17] And this woman, Mary Meeker, wrote this internet report that was written up in the Wall Street Journal, and I bicycle to the Barnes and Noble in downtown Philadelphia and purchased a copy of the internet report, the first Wall Street, uh, research report that was published and available in, in commercial bookstores.

[00:10:32] So, so that's what kind of got me started. It was super exciting, super, fascinating. I got a chance to work with Mary for five years and just, really loved it. But it was there, during the boom, during the bust, And then started building up my career, starting then and building it up after all that.

[00:10:46] And, here I am 25 years later, hopefully wiser and I decided to try to distill what I'd learned and to try to tell some of the fun stories in this book. Nothing but Net

[00:10:55] Julie: It was fun to read, about your experience with Mary and, uh, with Peter [00:11:00] Lynch as well. Great stuff obviously. Is there anything that you can. see or relate for people who are younger? That don't remember " You've got mail" not having the internet or that don't remember having inflation, to the point that we do right now. Is there any advice you could give. from, your younger years 

[00:11:17] Mark Mahaney: So we, yes, it does seem like the sky's falling generationally. High inflation rates we're probably heading into a recession. Covid just keeps coming back.we got a European land war first time, we had a lot of generational events going on here. Once in a generation events, it's very unfortunate and I shouldn't even be smiling about it, but you know, this too shall pass.

[00:11:39] These are the times that try investors souls. To paraphrase Thomas Payne and, and in the market. Um, it was one, a wonderful lesson from early days of the Covid crisis was just how the market really does move pretty quickly, and it was certainly willing to ride out covid a lot faster than almost anybody thought, was gonna happen.

[00:11:59] And so I sort of think the [00:12:00] same thing, you know, like, we'll, we've gone through this before. We had the great financial crisis, in 2008/2009, and. That was something living through that boy that was, um, you know, that was the housing market. I mean something, the real cornerstone of the US economy that went south, dragged the rest of the market.

[00:12:15] Like that was truly gut-wrenching. We're not going through gut-wrenching now. I try to put it in perspective and one of the points in my book is there will be blood. What I meant by that is, when you pick stocks, you know you're gonna, you're in part, completely, dependent on how the overall market does.

[00:12:32] And, you can be just a wonderful stock picker and understanding P&L and balance sheets and cash flow statements and product innovation on part of companies and completely wrong if, you buy a stock when, uh, you know, Microsoft, Apple, Amazon, Google are all. , materially year to date, but that's because the market's off year to date.

[00:12:49] So, you know, some of this is just outta your hands. There are the market gods and, I think part of it is to have a lot of patience. And also you have to be a bit of a contrarian, to, to really generate great [00:13:00] returns in the market.

[00:13:01] So, whoever bought at the bottom of the Great Depression, and you can't call the bottom, but you know, get reasonably ballpark close to the bottom. That's how you make good returns, as investors. So, anyway, if you're working. It's a tough environment to be in., but this too shall pass and, uh, learn from the environment. Cuz of course the environment's not always gonna be good.

[00:13:21] If it was, it'd be boring.

[00:13:23] Julie: Hey, mark, just to touch on a couple of your, , 10 lessons. Obviously, revenue growth, right? Total addressable market. Being customer centric. One of the things that caught my attention. Was management teams and how you are able to, or, are you able to analyze a management team? Like what do you look for there when you're looking at whether you think a company's going to succeed? 

[00:13:49] Mark Mahaney: Oh.

[00:13:49] Yeah, it's a very hard thing to know. Julie, and I think it takes a long time for people to really prove themselves. , years maybe with management teams. What you wanna see things [00:14:00] like long-term thinking from management teams. The, , the teams that ask me about quarterly expectations I tend to be a little skeptical of them.

[00:14:07] Those that are, those that really can kind of tune out the financial markets and just focus on what they can manage, which is their own business. I'm more interested in those. I love these founder led companies because the founders, have their skin in the game.

[00:14:20] It's their baby, and they're fully committed to it. Now I've seen some successful companies. That were run by non-founders that were great stocks. Uh,, now Booking is a great example of that, but most in tech anyway. Most of the big, uh, market cap stories have been companies that were run by founders for a substantial period of time.

[00:14:41] There's an exhibit I put in a report. If you look at the biggest tech companies in the world, all of them were founder run. For about 20 years. I think that was the average, whether that's Microsoft, Amazon, Google, not quite the case, but, but those founders were there for a substantial period of time.

[00:14:58] Tesla, you know, like [00:15:00] Apple. So yeah, you look for people who kind of stick the course and course in. You wanna also see examples of companies that can succeed in multiple different area. 

[00:15:07] Which one would be a good example of that. 

[00:15:10] Mark Mahaney: a wonderful example of Amazon, like Amazon was a speculative long, it absolutely was for.

[00:15:18] I don't know, maybe even the first 10 years of its public market experience is certainly the first five years. We didn't know if the internet was gonna be big. We didn't know whether Amazon was gonna really win online retail and we didn't know whether the business model could work and generate lots of free cashflow.

[00:15:31] Like there were three mega questions. Is there a market? Is this the leader of that market and and is there a business model here that is gonna generate cash flow? Three big unknowns. But somewhere along the way, Amazon went from being purely speculative name to somewhat speculative, to probably a decent core holding.

[00:15:51] And for me, the evidence of that came in kind of 2006, 2007, when this company was no longer online. Book retailer. They sold a whole bunch of [00:16:00] other things, consumer electronics, music, , then it started getting into apparel, but then they also, put out this Kindle product, this book reader product.

[00:16:08] Um, so they showed that they could retail and manufacture or, you know, generate goods. And then they rolled out this cloud computing business. I mean, these are three dramatically different business. And they did it successfully. And you could have stepped in in 2008, nine or something, or 10 even, and then you still would've had a decade of great stock outperformance.

[00:16:29] So you don't have to call the beginning of it. But what you've learned is that this is a company that could successfully execute in a bunch of different areas. There's gotta be something in the water in Seattle or something really good about that management game that allows ' em to succeed in different areas.

[00:16:43] Stick with them.

[00:16:44] Julie: Well, Hey, that's great advice. TPFG is from that area, 

[00:16:47] and we are founder led. 

[00:16:49] There's coffee in the water. 

[00:16:51] Let's jump to something That I think is going to really resonate with people right now. Because of what's going on with the market. you had an [00:17:00] acronym for it, dislocated was the one word. I can't recall it at the moment, 

[00:17:04] Mark Mahaney: okay yeah, if I just jump to the punchline, it's look for hunt for DHQs,, dislocated, high quality companies. so Julie, as investors. What we're trying to do is we're trying to minimize two types of risks.

[00:17:15] fundamental risk and valuation risk. You can never eliminate them, but if you can minimize them a little bit, you increase your chances of making money and investing, correctly. What's valuation risk? Well, the risk that you buy something that trades at 30 times earnings, and you wake up and one morning and it's training at 10 times earnings, like the valuation can't hold.

[00:17:35] And, one of the ways you try to minimize or hedge that risk, wait for the stock to trade off 20 or 30% because even the best companies will roll over at some point, either cuz they're gonna screw a quarter at some point or the market rolls over, which is exactly what you've got now.

[00:17:49] So Apple, Microsoft, um, Google, Amazon are all off, doesn't mean they can't go off more, but you know, it's, their valuation is a little less risky now just because of the [00:18:00] selloff. So I look for those dislocated opportunities, stocks that have traded off 20 or 30%, but if more important, I focus on the high quality companies and I, I spend much more time finding high quality companies and then trying to figure out when to buy them rather than looking at cheap stocks.

[00:18:15]  so for high quality companies, I, I talk about these four things and you started Julie to, to get at it, which is first companies that are addressing large total addressable markets or TAMs

[00:18:24] secondly, companies with really great management teams. , you want management teams that are in place for a long time that can show the ability to succeed in multiple different areas. Uh, third companies with compelling value proposition. And maybe the best test of that is do they have pricing power?

[00:18:39] So, is Amazon actually able to increase, the price of Prime? Could Netflix increase the price of its subscription and still grow customers at the same or even a better rate? That's huge evidence of pricing power, which means that they've got a really compelling value proposition. Like people love the service so much, they'd be willing to spend a little bit more for it.

[00:18:59] And the fourth [00:19:00] thing, Is, uh, companies that are really good at product innovation, particularly in, in technology. And a lot of this is consumer tech, so you're Julie just as much of an expert as I am on consumer tech. Like, do you like Spotify?

[00:19:11] Do you, you know, , do you find it a better service than Pandora or Apple Music? You can make your own decision on that if you find something. Really, like you think is a good service. That's kind of the Peter Lynch principle too. He was one of those, you know, you like the coffee, you buy the stock.

[00:19:25] That was his approach on Dunking Donuts. I'm overly simplifying, but that's true. So my son, my youngest son, um, w wanted to ask me for an investment idea and I said, well, which, which of these companies do you feel like you really know really well? Which services do you use? And he said DoorDash, which of course got me immediately looking at my credit card statement.

[00:19:43] Julie: Oh, yeah. 

[00:19:45] Mark Mahaney: Uh, but, I said, well, if you use DoorDash, you're probably gonna be a decent investor in the stock. Doesn't mean you buy it, but you'll get a sense of whether there's a new, change in the way that them. Give you the restaurant, recommendations, or food style recommendations, [00:20:00] or you'll be there noticing when all of a sudden 7-Eleven is included on the DoorDash app, or whether you can start using it for pet supplies, and groceries.

[00:20:09] Like, you'll have an intuitive feel for the product and the service, and you'll know when it's getting better and maybe when it's getting worse too. So, all of us as consumers can make calls on whether the product is really good or not, and stick with your gut on that.,

[00:20:22] Julie: That's funny. I have a similar story about one of my daughters. Was really upset with, Uh, grub hub. And she calls it grudge hub. And won't use it because of just like one thing. I don't even know what it was, but it's, um, it's kind of what you're getting at it. People like things for different reasons, but go with your gut and, buy what you know, 

[00:20:43] Mark Mahaney: Mm-hmm.

[00:20:43] Julie: Ok, in your book, A couple of things that stuck out also for me were You talked total addressable market you talked about 10 baggers which you used a Google i believe as an example of a 10 bagger and then you also talked about growth curve initiatives so [00:21:00] obviously you can go with your gut when you're looking at a stock if you're using the company yourself and you want to own shares of it that's one thing but finding high quality company isn't just isn't that easy obviously 

[00:21:13] Mark Mahaney: Yeah.. So I kind of came up with these four ways to tell whether a company's high quality, and I talk about management, value proposition, product innovation, total adjustable markets, but those are hard sometimes to figure out what's the financial tell of whether you have a a high quality.

[00:21:29] Well, a company that can sustain premium revenue growth. So GDP growth is whatever it is, two, three, 4%. If you got a company that's growing its revenue, it's say 20% i e. You know, five, six times faster than GDP growth and is doing it consistently and is doing it at scale, what I call pulling a Google, then that's probably a financial tell that you've got a high-quality Asset.

[00:21:52] Like you don't grow with those rates, , from scale, from like a billion in revenue or something like that. You don't grow that unless you are doing something [00:22:00] special that consumers really like, or enterprises really like. So, one that's my financial. I did a little bit of, uh, analysis in this work, and financial scholar have done plenty more of it than I have, but you know, the market does reward companies that can sustain premium revenue growth for a long period of time.

[00:22:17] So I'm making the point like revenue growth matters a lot to tech and growth investors. And so, then if you can find companies that have GCIs or growth curve initiatives, like things that they're putting in that can cause their revenue growth to re-accelerate.

[00:22:29] Julie: Reaccelerate right () 

[00:22:31] Mark Mahaney: right so I go through this example with Netflix, and Netflix back in 2017, , had an acceleration in its revenue growth 2017/ 2018. How the heck did they do that? And they were already starting to get big in size. So, we're talking about 8 billion or 10 billion a year in revenue. a good chunky number. And they did that because they implemented a price increase, a successful one. That's one way to grow your revenue, but you better have a good value proposition because if consumers don't like you at 7 99, they're not gonna, they're gonna hate you at 8 [00:23:00] 99, but if they really, really love you at 7 99, you get a chance for them to love you at 8 99.

[00:23:04] So, they price increase, they also expanded into more, uh, international markets in the Asia. Yeah. If you expand into markets, that's another GCI Growth curve initiative. And then they also started rolling out a lot of this original content that wasn't the case with, Netflix.

[00:23:17] until, I don't know, seven years ago or something like that. But you know, they had these three GCIs and so you can just think about when you see companies are, do you see something that they're doing that's, uh, gonna cause their revenue growth to accelerate? A lot of times that's expanding internationally into new markets, or it's laying out a new product line, or maybe it's, uh, they're rolling out a price increase that could be successful.

[00:23:38] So when I see that, you know, that's what I, I refer to those as GCIs. I want to know what the company is. To potentially re-accelerate growth. Cuz if not all companies will eventually fade down the GDP growth. Even the best companies will, unless they're investing and innovating in new growth areas.

[00:23:55] That's why you look for GCIs cuz markets react really well to companies and [00:24:00] stocks where there's revenue growth, acceleration.

[00:24:01] Julie: Hey, you don't talk about this in the book, but, uh, in, in the financial industry, we always deal with, regulators, there's always something changing with regulations in this industry. I feel. 

[00:24:11] Mark Mahaney: Oh yeah. 

[00:24:12] Julie: Do you see any impact of, regulations? From Congress, having any effect on some of these big tech companies. 

[00:24:19] Mark Mahaney: Look, big tech has, uh, fallen under...coming into the sight s of regulators. I think I used that analogy, right? Um, no question about it. And it should, I mean, if you work at the Department of Justice, I don't know why you wouldn't be looking at these companies.

[00:24:33] You know, Microsoft, apple, Google, Amazon, Facebook. They're so massive, so influential that there's the potential for abuse of power. Um, you know, this small company like Pinterest is probably not gonna abuse power cuz they've got tiny market share, big company like Facebook or Google could. So, anyway, you are gonna have greater regulatory scrutiny as companies get more successful and bigger.

[00:24:55] That's a probably a good thing. We need that healthy check. And, you know, the, these companies aren't [00:25:00] angels. I mean, um, you know, they're capitalistic, companies and they're very, they wouldn't have got to where they were if they weren't really aggressive. Yeah. So anyway, regulatory risk has become bigger and when it comes to investing in tech and uh, it's probably at some level, kind of crimped a little bit, the multiple that these names will, uh, will trade at. Um, so anyway, if you're investing in big tech, you need to know something about what are the regulatory risks that are out there.

[00:25:22] No question about it.

[00:25:22] Julie: So mark a lot of financial advisors, that our listeners. They utilize money managers. And, If a money manager doesn't get it right. They're able to maybe, um, pivot from there. For you, this is more of a psychological question for you as an analyst, when you get it wrong, how do you sort of deal with the backlash that comes at you? whether it's just from people you know personally or on twitter or you know i know it happens how you deal with that

[00:25:53] And then also, quickly, if you have anything to say about Twitter, 

[00:25:57] Mark Mahaney: Yeah, I, you know, when you upgrade or downgrade [00:26:00] stocks and if you're, relatively public about it, you will get the emails, you'll get the tweets, um, you know, like you, you got this wrong.

[00:26:06] You're gonna be dead wrong on this. It comes with the territory, that's fine. And there are times when I am wrong, and worst thing you can do is, , you don't wanna find an analyst or a stock picker that can't acknowledge their errors. , so usually find, yep, you're right.

[00:26:19] I got that wrong. That usually silences the critics. And not that that's my job to silence critics, but I think most people, they find it pretty rare that people acknowledge when they make mistakes. But hey, if you're in the stock picking industry, I mean, you're gonna be wrong a third of the time, 40% of the time.

[00:26:33] If you're wrong, only 40% of the time you're, that's great. 

[00:26:36] Yeah, and it's a very humbling industry. , if you're picking stocks for a living, you're gonna be wrong a lot. And, , and it's very clear. You know, you have a buy on the stock and it's down. you can give all the excuses you want.

[00:26:46] You're wrong. If you gotta buy on the stock and it's up, you can, maybe luck or not, but you know, you, you got it right. Um, so anyway, it's a very, it's a very transparent industry, I guess is what I really meant to say. Uh, and then, uh, this Twitter situation I think is [00:27:00] fascinating. Now, Twitter is a stock I liked at the time of the I P O. I thought there was something really innovative and interesting about it. And I was a, I was a user of Twitter. I still am a pretty active user of Twitter. I think it's a wonderful, service. If it wasn't there, we would want to invent one. It's a wonderful, tool for news junkies, and a great way to really delve. Products, it's, but people who want realtime news and information and commentary, great tool for reporters. Um, the mass market need for it is maybe a little less, and frankly, more people wanna watch and connect with their friends and families on social media networks rather than on, realtime news networks. Hey, you know, that's what people wanna do. Um, there's nothing wrong with that. Uh, I think Twitter made some mistakes when they went public and said that they could be just as valuable as major platforms. Facebook. But anyway, they tripped themselves up a, a little bit. But, you know, over the years I, I've generally been pretty disappointed by the level of product innovation at Twitter. Both in terms of consumers and in terms of advertisers. I think that's probably limited [00:28:00] them. I’d definitely like to see somebody improve Twitter. Well, then along comes Elon Musk.

[00:28:04] He's fanatical about the product. He's used this product almost daily, for like five years. Like, he's gotta be one of their biggest power users. He's got a hundred million followers. I mean, I think there's a handful of people on Twitter of that many followers. He comes in and he talks about how he wants to change the orientation of. Of, uh, Twitter, make it much more of a open, free speech platform. A lot of good, a lot of good, uh, with that, no question about it, but, you know, there's a lot of, uh, tough calls to be made about content moderation at Twitter, and I think you bring enough adults into the room and they would agree that , there's some content on there that should not be allowed. I think most adults, would agree with that. Then I know there's some controversial, calls on that and, I don't think you can have a blanket policy one way or the other. Um, and, uh, anyway, it's very clear he has no commercial interest in Twitter. His is more of an ideological acquisition. If you're the world's richest person, you can do that, you know, and there's nothing wrong with doing that and having that as a motive. [00:29:00] I have huge respect for him as an entrepreneur. So, my guess is that, you know, the, the business has been, not permanently, but temporarily impaired a little bit. So, there's some stuff that's gonna need to be fixed. Uh, they'll have to work through them for a year, you know, maybe longer. But on the other side of that, it could be something interesting.

[00:29:16] Julie: All right. Thanks for that, mark. Uh, how about just a couple of things to wrap it up with? If you don't mind

[00:29:21] Mark Mahaney: Maybe I'll try to wrap it up with three points. First is, I know we've had a very volatile tech market, you know, and we probably always will, but I do think that in the long run, stocks do follow fundamentals. So companies where revenue growth, revenues get bigger and profit pools get bigger, stock prices go up.

[00:29:37] It's not that simple, but sometimes it is. And whoever said that in the short term, the stock market, voting machine in the long term. It's a weighing machine. I think that was Ben Graham. I think, um, I think that person is right, given my limited experience, you know, 25 years covering tech stocks. Uh, you know, the biggest tech stocks in terms of market cap and stock prices have been the best [00:30:00] companies.

[00:30:00] It's not like there's some dramatic mistake that the market has made. I look at Amazon versus eBay, Google versus Yahoo. Um, uh, DoorDash versus, uh, “grudge hub”, as your daughter called it, or GrubHub, like the better company became the better stock. So focus on fundamentals cuz over the long term better fundamentals, make better stocks.

[00:30:19] Deteriorating fundamentals mean to declining stocks. The second, lesson broad thing is just a learning animal. I just love this expression. I stole it from somebody else. But it's, you know, if you have the ability and the willingness to constantly learn, like if you can look at an Amazon spreadsheet, for the 100th time and still find something interesting or new in it.

[00:30:39] that's great. If you're open to always learning as like, uh, you know, these companies, if you're covering stocks, you're, or covering industries like the day you know everything about the industry. One, you're gonna be bored.

[00:30:50] And secondly, you're gonna be wrong because, especially tech industries that just keep morphing and changing and, uh, I don't know whether there's gonna be a metaverse or. In five or 10 years, or if there's gonna be a massive [00:31:00] metaverse. But I just, you know, like, I love learning and figuring out how this is gonna change.

[00:31:04] So just, be a learning animal won't be open to always learning and, it'll make life more interesting. So, and then the third thing is. I'll just pitch my book nothing but that. And you, you, we joked about the title. There's kind of, 2 symbolisms to me buying the book.

[00:31:18] I've got four, uh, sons and, uh, three of 'em play basketball. So that's the net reference. Uh, but the other one is, it was my email tag line, Nothing But Net meaning Nothing But Internet. And so, I, I've been lucky and blessed to cover, this space, uh, the internet space. And I found something I'm passionate about.

[00:31:35] And I enjoyed, I really enjoyed the book writing process. Uh, I, I've been thinking about doing it for years. My sons were, on me to say, dad, when's the book coming out? And I finally had a chance, a three-month break to, to do it. And I'm so glad I did it. 

[00:31:48] So thanks for letting me talk about what I learned, , from my experience. Julie, it was nice chatting with you. And, I guess my hope will always be a job for an analyst.

[00:31:57] Julie: Great quote, there always be a job for [00:32:00] an analyst. People. That was Mark SF Mahaney. 

[00:32:04] I will catch you on the next episode. because I'm a learning animal. I will be bringing lots of great content to you on the podcast in 2023. Cheers!
Important Disclosure: This podcast recording has been prepared and made available by The Pacific Financial Group, Inc., also known as TPFG, a Registered Investment Adviser (RIA) offering advisory services. Information in this podcast is to be used for informational purposes only. The information contained herein, including any expressions of opinion has been obtained from, or is based on sources believed to be reliable, but its accuracy or completeness is not guaranteed and is subject to change without notice. The information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service. Any expressions or opinions reflect the views of the speakers and are not necessarily those of TPFG or its affiliates. TPFG does not provide tax or legal advice. Investors should consult their financial tax or legal professionals before investing. Past performance is not a guarantee of future results. All investments contain risks to include the total loss of invested principal. Diversification does not protect against the risk of loss.

Who is Mark Mahaney?
What does TPFG do?
Introducing Mark
What is "Nothing But Net"?
How Did Mark Get Here?
Is The Sky Falling?
There will be blood
Founder Led Companies = Success
What to Look for in a Company
Something In the Water in Seattle
Hunt for DHQs
Four Things To Look For that = High Quality Companies
Going With Your Gut as an Expert Consumer
The Financial Tell of A Good Company
Growth Curve Initiatives (GCIs)
The Impact of Regulations
How to Deal with Being Wrong
The Stock Market Isn't Making Mistakes
Be A Learning Animal
Nothing But Net - and close