Daniel Creech 00:00

How’s it going out there? It’s Thursday, October 22nd. You’re listening to the Wall Street Unplugged Podcast. I, Daniel Creech, am solo today—great to be with you—as the one and only Frank Curzio is busy working to get ready for the second annual Curzio Wealth Forum that takes place this weekend. I look forward to seeing you all there in beautiful Fort Lauderdale. Joe’s excited about that too. We’re having good weather here, but it’s going to be even better down in South Florida. Everything’s better in South Florida. Just ask the South Florida people. So you’re stuck with me, which means we get to talk about whatever the flying Florida I want to talk about. And I will give a shout-out just to show you that I can cross aisles and talk about things that may not necessarily interest me. The World Series starts tomorrow, Joe, between, as Frank was joking, two small market-cap teams. He doesn’t understand who’s going to watch it. But congratulations to both those teams. Joe, it is the Brewers and who?

Daniel Creech 00:59

Rays. Tampa Bay. Ooh, we got a Florida team in there. See how much we pay attention? How about that? Anyway, I’m not going to watch it because my favorite crazy Uber driver is a Cleveland… in what are they? Guardians? Politically correct here. Curzio research every once in a while. And they lost, so therefore they won’t get my attention. And they don’t fight much in the World Series. And I love baseball fights because it’s the only time you see about 50 grown men run at each other with weapons and get broken up by two umpires. Nobody gets hurt. It’s fantastic. It’s almost like WWE. I enjoy it. Turning to markets. What a difference a day makes. Yesterday we had the SpaceX news and Elon Musk conference call that Frank and I talked about on yesterday’s podcast. Gave the markets, AI, and everybody a good shot in the arm. Had some green across the board. Today, though, well, you’ve heard this before. Middle East unrest. This on-again, off-again war with the US and Iran. Also Ukraine and Russia kind of going back and forth between attacks on refineries and then maybe now a peace deal.

Daniel Creech 02:05

We’ll see how that plays out. But the mighty Meta reported earnings last night. And it’s kind of a gray or blurry area. Overall, I thought the numbers were pretty impressive considering the size and the scope of Meta. Now, they did have… if you look at their numbers, you can see some operating income and such down year over year. And that’s because of a legal issue. Joe, when I say legal issue, I mean $9.9 billion in fines. And I’m not laughing about the subject, the teen mental health stuff. I’m laughing at the size of this and the fact that you can take a $9.9 billion charge and still put up impressive numbers. That’s the dark sense of humor on that side. Meta reaches over 3.6 billion people per day across its family of apps. And they did put up some impressive numbers. But everybody is going to look at what? Yes, thank you. AI, CapEx spending, efficiency, productivity, and such.

Daniel Creech 03:08

Now, Frank and I have talked about Muse. It’s an AI agent. And it’s kind of one of the… it’s not first to market, don’t misunderstand. But it’s one of… out of Meta and Google and all that. It’s kind of one of the assistants to kind of take shape. In just one and a half months, Joe, does this impress you, sir? One and a half months? Over 10 million people in the US and Canada have signed up for Muse and start using this. And they go through… and the conference call is pretty informative. They talk about how businesses and ads and impressions on ads are growing. And how what I thought they did a pretty good job of is explaining how a lot of these smaller companies and even large companies, but a lot of mid-size and small businesses, because you have a greater number of those, are going to be able to use Muse and other tools from Meta to be more efficient and increase productivity. That’s the holy grail of AI. As Frank says, if they can lower cost and see a greater return, that’s when you see this efficiency of AI, not just necessarily in a light item on a balance sheet or something.

Daniel Creech 04:15

The attention is turning to the CapEx and spending. And I’ll tell you, oh, well, the Muse product getting 10 million right away is incredible. And Zuckerberg on the conference call talked about how it obviously cost a lot to generate the compute power needed to run this. And as more people use Muse, and it gets across a larger section of their business or life. So you go from letting it look at your calendar and make appointments for you to then looking through your email to then hopefully banking and all this kind of stuff. And they had a comment on the conference call about how right now it’s incredibly expensive for all this compute, but over time, they say next year they expect to improve cost efficiency by more than 10X. And then over the next few years, it should be massively profitable, increasingly profitable. It’s not profitable yet. But they did kind of give investors this pathway towards, listen, you want to see AI getting a return on our investment, we’re going to see this through Muse as more and more people pay for it.

Daniel Creech 05:20

It’s come out of the gates real strong. Now, that’s very popular. You got to tip a hat on. I would if I had… I would tip my hat to them if I had one on. However, this is going to only generate more competition. Competition is a good thing for consumers like you and I, but it’s going to make it difficult for the individual stocks to compete with one another. So Google, Microsoft, Amazon, you can expect all these different AI agents and all this kind of stuff. We’ve been talking about this for a good time. The market has been promising you this for even longer. Joe, last thing on Muse here. Have you seen that character, the little caricature-looking thing? It’s not a Teletubbie, but it kind of looks like something like that. As amazing as AI is, and I think it will be, the silliness of these characters, it almost reminds me of the Metaverse type deal. Those are not it. I don’t know. Joe, it’s too close to Halloween. Joe’s looking at Halloween scary people over there.

Daniel Creech 06:24

That’s not it either. Anyway, you can… yeah, that’s pretty good. Man, Frank’s going to regret leaving us in charge. All right, let’s get back to some interesting numbers on Meta here. Free cash flow. Here’s a big number. Free cash flow was negative $2.1 billion for the quarter. Now, before you set the place on fire here and worry about that, let me give you some perspective. Last year during the quarter, it was $10.6 billion. Now, that’s a positive. So you went from generating over $10.5 billion to losing $2.1 billion. If you go back nine months ending September, last year, they had a positive $11 billion in free cash flow at this time. Versus, or excuse me, this year, it’s still $11 billion positive for the year versus last year at this time ending in September of $29.5 billion. Again, these guys do not have a cash-generating or revenue problem. They are simply spending a lot to build out the AI and the dreams of AI and the CapEx there.

Daniel Creech 07:30

And the reason I want to point that out and try to give some perspective on this, excuse me, is because while they’re investing heavily right now in hundreds of millions of dollars, or billions of dollars, excuse me, they don’t have to do that every single year. And I understand, and I can get caught up just like anybody else can. You kind of get this feeling of, oh, man, they’re going to be negative cash flow for how many quarters or how many years? Well, the market and everybody can adjust their spending. When prices get high for us consumers, you can adjust your spending, increase your savings, lower your savings short term, whatever you got to do. Companies can do the same thing. We’ve seen this over and over again. That’s just part of it. What I want to stress here is that, yes, they have a negative number this quarter, but don’t get too caught up in it because one of the levers that they’re pulling is the Reality Labs. Joe, you got to love this. Reality Labs, we’ve talked about this.

Daniel Creech 08:22

This is their… they’ve now focused on the superintelligence angle of it. But this was where the Metaverse was. This is where they just pour billions of dollars into this company to do all kinds of R&D, research and development across all different products, glasses, all kinds of wild stuff. Some will never even see the light of day, never hit the consumer side. That’s okay. I’m not bashing them. I’m just telling you. They are losing billions through this segment. And they actually said on the conference call that they’re going to lower the losses to around $15 billion next year. That’s lower. Hell yeah. 15’s lower than 18, which is lower than $20 billion when you’re lighting it on fire. Okay. So they’re limiting some losses there. And then they said they’re actually going to be going towards profitability. Not a big timeline on that one. So be careful. I’m just explaining that you can take steps and maneuvers to manage your cash flows appropriately. Yes, they did have a negative quarter for free cash flow.

Daniel Creech 09:17

Don’t get too hung up on that. Now, Joe, you are familiar with this wealth tax proposal in California? You’re not? Okay. Well, if you’re a billionaire, they’re essentially, and I’m paraphrasing here, you’re going to have to… one-time wealth tax of like 5% on billionaires there. And Mr. Zuckerberg lives in California and with his net worth of over $200, I think it’s over $250 billion-ish, I’m rounding here, a tax would be over $12 billion if Zuck had to sell some of his shares in Meta to pay this tax bill. It would lower his voting percentage in the stock. Now, Zuck’s not going to give up control. So what do you do? Well, if you’re a director in a movie and you’re running out of ideas, you do a prequel. All right? Screw going in the future. Let’s go back to the past. Star Wars, everybody’s doing it. Game of Thrones even did it, right? Whatever. Do what you got to do. What is Meta doing?

Daniel Creech 10:18

They are creating a new share of class, or excuse me, a new share of class C common stock. Now, this has zero voting rights. That way, if Zuck has to sell some shares, he can get these shares through this issuance coming up, and he doesn’t lose any of his voting power. All right? So in one aspect, it’s just to make sure the founder stays in the same control that he’s got. You don’t have to agree with that. I’m not trying to persuade you either way there. I’m just simply kind of laying out why they’re doing this. Is that it? No, that’s not it. You want to also know why? Because they’re raising more capital. On the conference call, they reference hundreds of billions of dollars more needed to build out AI. Now, this is a way that you can raise additional capital. Yes, it could be dilutive. So red flag there for all you guys paying attention. But they’re going to have to increase their CapEx spending, and they don’t want to just go negative on free cash flow. So they’re going to go take out either debt as they have, or they’re going to issue new shares.

Daniel Creech 11:20

This is going to be that way. Some analysts are saying or suggesting that they would raise $100 billion in the first half of 2027. We’ll see how that plays out. The other side to that is you have… when you factor in… here’s one thing. And this isn’t… I’m going to share this with you because you ought to pay attention to it, but you don’t have to… don’t use this as a reason to sell Meta just yet. I’m not beaten up on Meta here. You’re going to raise more capital. You’re signaling that to the market. Market’s already on pins and needles with this CapEx and how much hyperscalers and everybody else is going to spend on AI and how much the entire economy and the stock market move is tied to AI. I believe there was a report out there. Don’t hold me if it was Goldman, but essentially 50% of the market earnings are in some way tied to AI. That means a lot as we’re ramping up and through earnings season right now.

Daniel Creech 12:14

If you factor in the off… so Meta has, and I’m rounding here, but Meta has about as much cash, $80 some billion on its balance sheet as it does debt, $80 some billion. If you look at off-balance-sheet commitments, it’s over $600 billion. Now, that is incredible. Now, like with CoreWeave, and I’ll mention CoreWeave in a second in greater detail, be careful jumping to conclusions on there just when you see big numbers because you don’t know all the devils in the details. You don’t know all the details of all those off-balance-sheet requirements, arrangements, etc. And so if you… these guys have great teams of lawyers and many of them, and don’t just say, oh, they’re on the hook no matter what for $600 and change billion. That’s not how that works. But I do think it’s a mistake to ignore it, just as like a mistake to just say, oh, well, they’re way over leverage and all that kind of stuff. This cash flow, the company generates so much revenue and operating leverage, it’s just absolutely incredible.

Daniel Creech 13:19

And it’s because you have over $3 billion people daily using the product. All right. So I say all that because if you look at Meta, it’s just a little bit off of its all-time high. It’s one of the hyperscalers. It’s one of the biggest AI plays, and they are not slowing down. And that is why some of the market is still on this pins and needles with this. Now, in addition to Meta’s earnings and shock, a little bit of surprise, more CapEx. They did… the only thing they did to CapEx on changing it is they raised the lower end. So instead of going from $130 to $145 billion, they raised it to $135 on the low end. So it’s still $135 to $145 billion. Anyway. All right, moving on from Meta. Oil prices are surging back over around $100 a barrel for WTI here in the US. Brent crude’s usually carrying about a $10 premium to that. And markets are taking it on a chin a little bit. Not quite open just yet, but as of now, Nasdaq futures are down about 1.7%, S&P down 1%, and Dow down about a half a percent.

Daniel Creech 14:26

We’ll see how this closes. We’ve seen a lot of volatility lately. You should continue to expect that. Frank and I have been hitting that nail on the head pretty often as we have a lot of volatility. We have… Joe, the midterms are less than two weeks away. Are you excited? Me too. Regardless of the results, I have a Montana area code cell phone number, which I always thought helped me stay out of the spammers and kind of cluster calls that you get. Well, not during political season. I’m getting… I just got two text messages from random numbers. I guarantee you. They’re telling me to either go Democratic Socialist or MAGA. I don’t even have to read them. I know what they’re saying. All right. Keep your eye on Meta. I like that stock overall from a macro standpoint if you want exposure to AI and all that build-out that we’ve continued to talk about for some time. But on Thursday’s podcast, we always take a few questions. And since Frank’s not here, that means I am going to take all your questions.

Daniel Creech 15:27

And the first question comes from Matthew. And Matthew asked about Cerebras. And I got to like this guy because he’s short and to the point. He says, “Is Cerebras a buy now?” No. Next question. Joe, pull up the chart, please. Let’s go to the videotape, as they say. CBRS for those of you listening and not watching. This chart, I say no because I don’t want to try to catch a falling knife. Now, I do think that this is a trading opportunity or getting very close to it if you are a trader. If you are a long-term holder and want exposure to this AI chip and compute section, I would start looking at this. But let me give you some plus and minuses. We’ll do a quick tea chart here. Now, the company is relatively new, raised over $6 billion in its IPO, very popular IPO, came out of the gates, absolutely surging, and then has since crashed. Now, a couple of things here.

Daniel Creech 16:29

They are a competitor. They are not trying to replace. They’re not going to take over, but they are competing with a little company called Nvidia, the king of AI in the chip space. So Nvidia’s got the best GPUs, greatest chips, and all this kind of stuff. Cerebras is trying to compete with them. And instead, they must be from Texas because everything’s bigger in Texas. These guys make microchips the size of a dinner plate. They’re massive. We’ve shown pictures in the past. Pretty cool stuff. Now, here’s the catch-up on Cerebras. First of all, when you’re looking at a stock like this coming out of the gates, you want to have some big picture items that could kind of derail, not your investment thesis, but the momentum in the stock. What I mean by that is lockups. So next lockup expiring is around October 28th, and then you have lockups between November 9th and 12th. That could add to volatility. Maybe some people are taking some off the table, depending on how long they’ve been in. I just want to point that out.

Daniel Creech 17:27

You don’t have to make an investment decision around that specifically. But if you’re buying this, just know stocks have to do something between 9:30 and 4:00 Eastern Standard Time. They’re going to bounce around. If you come across and this thing is down significantly on little to no news or even market news, then you kind of want to figure out, hey, what’s going on here? What’s behind the momentum, either to the upside or downside? That’s the kind of stuff. That’s the kind of reason I point that out. So look at lockup periods. The other thing is, as Frank has talked about and been correct on, is investor sentiment. And right now, investor sentiment is not good on AI. It’s more sour. It’s not like everybody’s cheers in one another. They’re kind of exiting. It’s the old bathroom break. Hey, I’m going to hit the bathroom, and then you just boom, you’re out. You don’t say goodbye to anybody. It works. It’s great. I’ve done it at parties. Not many, but I have a friend who is famous for that.

Daniel Creech 18:19

And I fell for it several times. It cracked me up. But anyway, that’s kind of what investors are doing right now. And the easiest way to explain that, as Frank has done well, is to say, listen, you rewind several months ago or heaven forbid a year ago, anybody that announces that they’re going to spend a ton of money or they just signed a deal in the future to either potentially generate or spend a lot of money on AI, the stock would pop and react positively. Now, you got to do a lot more than that. In fact, a lot of times, if you announce you’re going to spend billions of dollars without the guarantee or the projections quickly to understand return on investment, people are like, eh, you know, they’re kind of selling first and ask questions later. Key point here, this went from market darling and the next Nvidia to, you know, look at this stock. It’s a falling knife. Now, I say traders because deadcat bounce. If you’re a short-term trader, you could argue that you’re due for one of those anytime.

Daniel Creech 19:16

If I was going to trade this around a charting situation, I would wait for a short-term bottom. So you want to see Cerebras bounce. Cerebras, why do I keep saying it like a zebra? CBRS, people. You see a nice bounce here. Let’s say it goes 5, 7, 10%. It just needs to start going the other way on the chart. And then I would look for a retest to its recent low and then maybe start building the base off of that. However, I think that sentiment trumps all news right now. Okay? So until we get back to this through the midterms and through kind of some earnings jitters and all that, I don’t think that momentum is going to come back into this name or the AI space in the next couple of weeks. I don’t think it’s gone forever, but that’s why I’m telling you all that just on the charting side. A couple more red flags. And again, I don’t mean red flags. I say that to get your attention, not to persuade you in any way. I want you to think. That’s the value that I want to provide here. Share some perspectives and get you to think on some things.

Daniel Creech 20:18

Listen to this stat. Two customers of CBRS make up over 65% of revenue. Now, the wild thing is that’s down from about 86% before it went IPO. Most of its revenue was coming from the Middle East in an artificial intelligence college or system over there. Now, they do have OpenAI. When you think of Cerebras, you think of OpenAI because they have a massive deal with them for 750 megawatts of compute capacity going out through 2028. They also have and are involved in this circular financing with OpenAI, which has given them a loan to help bridge all this and bring this compute on or to OpenAI. And again, OpenAI and Anthropic went from superchild to whipping boy. And now you have to worry about, are they going to be able to execute, afford, and build out all these dreams that they are talking about?

Daniel Creech 21:18

So that’s a big deal on Cerebras. What they are doing in a positive way, and one of the best things going for the stock right now, is they have two main options for revenue. Yes, they sell the chips size of a dinner plate, but they also, like everybody else trying to get on the AI bandwagon, are selling compute. And that is growing very quickly, very fast. Now, this company has to continue putting up solid growth. So I forget the number, but revenue’s growing over 100%. Well, it needs to. Okay? And the other thing you want to look at here is you want to look at gross margins and then see what they guide for on operating margins. They’re going to guide for a loss. They did in the previous quarter. Cerebras reports its next earnings on November 12th. So again, you got a lockup coming up on October 28th, then you got the lockup around the next earnings. If you want to trade this in between now and then, that’s to you. But really, there’s an old guy. He passed away.

Daniel Creech 22:18

I read quite a bit of his material. His name was Dr. Van Thar. And he had this saying that you trade the beliefs. You trade your beliefs about markets. And the reason I say that is because if you are really in or a big believer in the AI trend, then I think you want to look at companies like this because I do think they are a major player in the AI space. They have great ties to OpenAI and all this. If those work out, and that’s a big if, and we have to wait and see, and execution needs to be had, these guys, in my opinion, will benefit. But do not get married to this idea or any other idea for that matter. But if you want exposure, if you really believe in AI as being the next generational build-out and all that kind of stuff, then yeah, I think you can look at this. But right now, it’s a falling knife, and you have to manage your emotions because you do not want to look at this and fall for the trap that says, “Oh, man, this thing was trading over $300. Now it’s getting beat up. AI is still alive and well.

Daniel Creech 23:13

This can’t get any lower. It can always get worse. Don’t challenge worse.” But it is setting up for at least a deadcat bounce if you look at the chart. That mean one’s coming. But like I said, I would let it put in a bottom and then retest that bottom before I started getting crazy on the charts. And the other item that is very important here is your timeframe. If you need money within the next six or eight months, I think you’re Florida silly to buy Cerebras right now unless you just get blind, dumb, lucky, and you get a great bounce or a quick V reversal. If you have a longer timeframe, that means you can take on risk and manage that over time. So just take all that into consideration. The other kind of short-term checkpoint, think about you’re driving down the road and you want to look at mile markers or signs. In Q4, at some point in Q4, they should announce an AMD. They’ve already announced a partnership, but they’re going to essentially make more news and announcements on the chips and the progress with their joint venture, essentially.

Daniel Creech 24:17

So that could be a positive headline that could get some momentum back in the stock and help change investor sentiment. Remember, it’s about sentiment, people. And right now, it is not in our favor or a bull market favor, which is why you’re seeing all this choppiness and a lot of pain despite indices holding up near all-time highs. Enough about that one that I can’t pronounce. Joe, anything from you? You okay over there? All right. Next question is from Scott. Scott says, “Hi, Frank and Daniel.” Scott says, “Forget the markets for a second. Our eagles,” he’s obviously talking about Scott and Frank, “our eagles are done for the year. You think this ends Hertz career? It’s a horrible way to go out.” Well, Frank’s not here. I’m not talking about the eagles. On the market front, I currently have several holdings that are down significantly, close to my stop-loss levels, though they haven’t hit them yet. And I still maintain strong conviction in some of them.

Daniel Creech 25:19

I have a few questions regarding your position sizing recommendations. Do you ever add to full positions? If a holding is down 20%, but you still anticipate growth, would you double down, or is a full position the maximum risk you are willing to take? How do you determine what constitutes a full position? Like 5% of your total portfolio. Thanks for all you do, Scott. All right, Scott. Well, I ignored your first question, so I’ll do my best to take your next four. Do you ever have a full position? Yes. So if you are a subscriber to Curzio Alpha, we do have some half positions and some full positions. And the reason we do that is to try to get around market volatility. This crystal ball is beautiful, but it does not work all the time. Not even 50-50, believe it or not. And if you have a lot of volatility going on, we just don’t know what’s going to happen next. And that’s very humbling to admit. But we can do all the research. We can love an idea. We can think it’s got a great catalyst, and you recommend a stock, and then something at the market level, like an Iran situation or nervousness about credit default swaps on some big company going higher, whatever market news that pushes the entire market down can hit you and cause you to stop out.

Daniel Creech 26:33

Quickly on stop losses. Yes, we use stop losses. They vary from short or tighter stops to large, wider stops, say 50%, because you want to have a stop loss in place because, again, no crystal balls, and that eliminates you from taking a full, complete loss of capital. Remember, this is like poker in the sense that you want to play for a long period of time. All right? This is not a tournament or a game of chess where you have to hit the clock every time you move. All right? Nobody’s forcing you to buy or sell anything. You can take the long game. So a stop loss protects you from a permanent loss of capital or wiping out your entire portfolio. That’s the good thing. If you are buying a very volatile stock, then you want to either have a wider position or, excuse me, a wider stop loss. So if you’re buying a very volatile stock versus a very non-volatile stock, you don’t want to use the same stop loss. So 10% might be good for one stock, but if another stock moves 10% in a day, unless you’re day trading it, you want to widen that stop.

Daniel Creech 27:38

If you’re going to use a very wide stop, you can lower or limit your position size. Therefore, you’re not risking too much of your capital. And nobody really likes this answer, which is probably why it’s very, very true, but that is a personal decision. And you just have to be able to manage your emotions on that. So to his next question is, so do we ever have a full position? Yes. If they do drop down, we start with half position for market volatility and company-specific volatility. And yes, if it goes against you or if it goes higher, we do that with the plan on adding to it sometime in the future. We just want to see if the thesis is intact, if management’s executing. There’s all kinds of different reasons we can do that. If you still have a high conviction and the thesis is still intact and the position is going against you, that’s when you either have to add to it or just manage. And again, what nobody likes to hear is that you have to be comfortable emotionally. So if you’re watching this every single day, you’re not sleeping at night, and you’re about to, what’s Frank say, live on a park bench, then you probably have either too much invested in one idea or your stop loss is too wide and you can’t concentrate.

Daniel Creech 28:50

And that will floor you up because when you take a big loss or you’re frustrated over one position or you’re hung up on one idea or one thing, that is going to impact, in my opinion, a negative impact on your future decision-making and investments. Okay? So you could have the greatest deal walk in front of you at a turtle’s pace, and you ignore it completely because you’re so focused on this over here. Hopefully, that helps. There is no exact answer there. One of his questions on how do you determine a constitutes a full position size like 5% of a total portfolio? Joe, if you would, pull up HedgeFollow. This is a great little website here. And it tracks different hedge fund managers, 13Fs, etc. We already took the action of clicking on Mr. Warren Buffett’s portfolio. And the reason I want to say that, and I know he’s passed the reins to Greg Abel. However, if you look at this, it just ranks them by top position. So Apple makes up 22% of Berkshire Hathaway’s funds. 22%.

Daniel Creech 29:52

Remember all that diversification BS people tell you about all the time? This guy says it’s BS. These guys take big concentrated bets. Now, they can do that because, A, they’re extremely intelligent. They’ve done this. They’ve got a great track record. They have huge amounts of capital and all that. My point here is, should you put 20% of your own funds into one idea? Well, that’s up to you. And again, nobody cares more about your money and your situation than you, including me. And that’s the way it is, and that’s the way it ought to be. Now, I’m not telling you not to put 20% into a high conviction idea, but I’m also not telling you to do it because I’m telling you you need to figure out if you are, and I’m not being a psychiatrist here, nothing against psychiatrists. I’m not asking you to lay on a couch and tell me about this. Okay? This is not a session. I’m simply pointing out that emotions are huge in investing. And if you listen to all those amazing hedge fund managers on that main page of HedgeFollow, they essentially tell you all the same thing.

Daniel Creech 30:52

So you have to be able to determine what you’re comfortable with. I think it was Warren Buffett that said, “It’s almost a mistake if you don’t put a lot of money into one great idea if you think it’s that great of an idea.” I’m paraphrasing, of course. The odd thing about diversification, and here’s another big product. I’m sorry to kind of continue to go on, but I think this big macro stuff is very important, and it causes investors to think. If you think about the markets, there are people that try to make money in markets, and then there are people that use markets to diversify. And here’s what I mean by that. These hedge fund guys, Warren Buffett, Stanley Druckenmiller, Bill Ackman, those guys make money by going into the market and essentially playing a huge game of poker. Okay? They are going to play the best hands. They’re going to put all their money in when they think the odds are with them. They are going to control and help management teams.

Daniel Creech 31:54

They are first in line, etc. That is not the normal person. So be cautious on being a normal person. And I’m not putting you down like me, regular Joe’s. I’m simply saying there’s a difference between trying to make your income or net worth in the market versus using the market to diversify and build your net worth. Most people have a real job. They have a 401(k). Most people make their money through their trade, whether you do HVAC systems, you’re a teacher, you’re a salesman, whatever. You’re not playing the markets all the time. Okay? You are taking your main income source, and you are diversifying that, and you are putting that into the markets. In my opinion, a great idea would be to buy the market with a low-cost ETF, like every genius tells you to do. And if you want to take more risk, you buy individual stocks to try to get alpha, the measurement of returns above the market returns. And so that’s a big difference. If you’re wanting to try to make money in the markets, then you’re going to be less diversified, in my opinion.

Daniel Creech 32:54

If you’re using the market to already diversify it, that is the big difference and key there. And I hope that Joe, does that make any sense? Joe’s being nice. I don’t know if he’s telling the truth, but he’s being nice. Okay. Let’s see. Determine. All right. So hopefully, that answers all your questions, Scott. Yes. When we take half position, we plan on adding to it, whether it goes down or higher. We just want to see more of our thesis kind of play out. Full position. Yeah. And then, like I said, how much of your personal portfolio goes into that, that’s up to you as an individual. And you don’t have to answer that right away. That’s kind of a learning thing as well. So anyway, moving on from that great question, though, and thank you. Next question, and last question comes from Michael. This is another big topic, but a fun stock. So Michael says, “Hey, Daniel.” He says, “How would you approach a small company like this who appears to have a good product, fire-resistant wall tech, but doesn’t seem to have the ability to make any money off of it?

Daniel Creech 33:59

Just pass altogether or take a small lottery ticket position and let it ride.” This stock is called Exerient. And it’s over-the-counter. So you might have to use Seeking Alpha on this one, Joe. I don’t know if CNBC pulls this up, but Exerient, over-the-counter, symbol is XERI. XERI. Now, I’m using this because, again, this helps me or gives me the opportunity to kind of talk from a macro standpoint, try to provide value perspectives, and get you guys to think. First of all, major red flag here, when you’re looking at companies like this that are so tiny, I would have more of a trader’s mindset. Unless you just have so much wealth that you can take a chunk, put it in here, and it’s just like you’re spreading out so many bets, almost like private, as Frank discusses, private equity deals. You don’t want to just do one private placement deal. You want to do like 5 or 10 because the majority are going to go to zero, and then you have that massive winner that makes up, and then some for everything else.

Daniel Creech 35:03

This one, depending on what website you’re using, if you’re using Seeking Alpha or whoever tracks over-the-counter stocks, this has a market cap of just over $10 million. Needless to say, that is extremely small. So you want to look at the market cap. You want to look at the volume. According to Seeking Alpha, it’s got about 97,500 shares traded. Then you want to try to look at, and you can use AI for this, plug in your favorite bot or get that caricature muse on it. Try to look for, so you got market cap, you got volume, and then you want to try to see who owns and where are the shares. All right? Because I’m not accusing this company of anything, but all these over-the-counters, all these penny stocks have red flags. Think of Wolf of Wall Street for pump and dumps and a lot of shadiness. Okay? The other thing, when you’re looking at tiny companies like this that you want to use as a general kind of toolkit is look at what have they done in the past and what are they aiming to do. So you want to find out as much as you can about management.

Daniel Creech 36:05

These guys are located in Boca Raton. Maybe Joe and I ought to take a little field trip on the way down to Fort Lauderdale and see if we can get some info on this. But you want to see, is this company somebody that’s just up and started, or has this company kind of been just the flavor of the month and changing from whatever hot topic there is? And a quick Google search, it looks like these guys, Joe, used to be in the luxury cashmere apparel segment. All right? And then they got into aerospace technology, vertical takeoff and landing. And now they are eco-friendly. They used recycled products to make this advanced eco-friendly fire retardant or proof. Joe, do you have the I give it to him on the website here. This video is incredible because it’s testing its product. And it shows them lighting this torch for five minutes to show you the durability of this product here. Now, I’m having some fun here, but just because it jumps around, we’ve recommended companies that used to do one thing and now they’ve totally pivoted to another.

Daniel Creech 37:15

That by itself is not a reason to run. It’s just a reason to be skeptical. And being skeptical is perfectly fine as long as you’re willing to listen to the answers and the other side of the argument. So I can be skeptical about anything, but if I’m not willing to listen to the other side or listen to them defend themselves or answer my questions or skepticism, then that’s silly on my end. So just because they’ve hopped around a little bit doesn’t mean that they’re scam artists. It does mean that you want to kind of hold their feet to the fire, kind of like they did on that wall there, and see if they’re executing and all that. So look at management, try to figure out as much as management, look through the incentives on the share count and such. And then just like I did with Cerebras, look up any potential share lockup periods, etc. Now, with a company like this or any company this small, when penny stocks, if you get these big moves, I would look to take some off the table almost immediately.

Daniel Creech 38:13

Okay? Because they’re not profitable yet, and you have to figure out, hey, what are they telling you? How are they going to do? Joe made a comment earlier. I asked him if he’d ever heard about this company, and he says, “I don’t know, but I would take it to Home Depot and try to sell all this.” Now, don’t get caught up. Here’s a couple of things and potholes you can step into. Okay? They make a fantastic product that they’re displaying there. Their total addressable market could be massive, and every stock is going to have a great story. Okay? So if you think about competing with drywall and plywood just in the construction space, and I know housing is hurting and higher interest rates and all that, I’m simply talking about you have an opportunity to sell an idea and a story and say, “Hey, look at these total addressable markets. All we got to do is show them our product. Our product’s bigger, better, safer, all this kind of stuff.” That all could be true, but you have to execute. And then you want to start looking at cost and the supply chains and all that.

Daniel Creech 39:09

Just looking through this a little bit, I don’t know. Again, I would be a trader on this, but I would have to have a ton of money to even want to put into something like this just because of the small market cap, the few red flags, and the volume there. You could get trapped in something like this. To your point, “Hey, what if this works out and this is the new, this is some great product?” They get a big break, a big contract, or they get bought out. Hey, you could get a great takeover target, but again, I would focus on management. I would look at their background and try to dig through and use AI to get as much of the runway in the thesis that they’re putting out there for the investor base. And then that way, you can kind of hold them accountable or within your own reason, kind of understand, “Hey, do I think they can execute on this?” So just do not fall for, “Hey, they got this massive total addressable market in drywall and plywood and all this kind of stuff.” And if you get a positive headline, meaning let’s say they sign some deal with a Home Depot or somebody’s going to pick up their product, that is not the end.

Daniel Creech 40:15

That is the start of either an execution or a problem. Because if they get a big order, they have to supply it. They have to have all their ducks in a rows. Their supply chain, their logistics have better be on point, unless they’re just licensing and all that. Then you got to figure out how that impacts margins and all that kind of stuff. So hopefully, that gives you guys enough things to think about when you’re looking at these kind of companies. The other idea here is just to spin a wheel and, “Joe, we can flip a coin and put like 10,000 on black or something like this and see what happens.” But from cashmere to plywood and stuff, that’s pretty impressive. I will say, I’m going to ask a friend of mine about this. You meet amazing people in different networks, and cigar lounges and dive bars are wonderful places. My cigar lounge, I’ve met a gentleman that actually has a small business, and they waterproof and install some products to stop fires and have to I’m messing this up, but they have to be able to withstand certain temperatures for so long.

Daniel Creech 41:18

Very interesting guy. Great little business here. And I’ll ask him about kind of stuff like this and kind of get his and maybe update you guys in the future. So that could be impressive. All right, Joe, let’s see. That’s three questions. I want to leave you guys with a company that I like a lot, and they report earnings tonight. So big earnings tonight in Kinsale Capital. KNSL is the ticker there, Joe. These guys are in the insurance business. Some property and casualty. You guys know, regular listeners know I’m a huge fan of property and casualty. This is a similar line. This is the excess and surplus. And what you want to pay attention here with these guys, or all property and casualty insurance companies, is the combined ratio. And the lower, the better. So a score, a combined ratio of 100 means that you are taking in the same amount of premiums as you are paying out in claims. If you have a combined ratio of over 100, that means you are taking in less in premiums than you are paying out in claims.

Daniel Creech 42:20

You are losing money on the policies you write. And then if you have a lower than 100 combined ratio, that means you’re taking in more premiums than you are paying out in claims. The management team is always key here. Mr. Buffett talks about this consistently and has beat this to death in the past. And again, if I had a hat on, I would tip it to him because you want to drive that number lower. And the only way to do that is to have a great team and a disciplined team to be able to walk away from writing policies when they are not in your favor. And Kinsale Capital, going through their past conference calls, they have talked about how some segments are slowing down and they’re growing in other segments. They’re getting smaller contracts or premiums, but they’re trying to make up for it in volume in different segments because they have some competition and there are others. That is exactly what you want. In the short term, yes, that’s painful because you’re walking away from premiums income, but you’re also walking away from a risk-reward you don’t think is favorable.

Daniel Creech 43:19

All right? So if you’re signing big contracts over here and you’re losing a portion of that business and you have to go make it up over here and you’re doing smaller business, but you’re trying to make it up for in volume, yes, that’s a short-term headwind. But I think that is a great thing management-wise because it’s showing you discipline. These guys’ combined ratio is Florida fantastic. It’s so low, it almost seems silly, but they’re in a different business in the E&S market. I’m going to be looking through this and going through this conference call. I think these guys, this management team is very smart. I’ve seen some hedge funds buy this stock, which originally put it on my radar. If you look at the stock chart, if you back out to, say, a year, it went down to about 300, I believe, once or twice in the last couple of months. Yeah, what is that, Joe? June? Yeah. So the summertime, it has rallied, made a higher low back in the end of September. I don’t know where did that go up to.

Daniel Creech 44:13

Almost 400, and then it dips down at the end. All right. So hey, if you want to trade this, you can look at the previous September low as a stop. Stop loss on this. This is one more where when you listen to their commentary on their conference call, just see what they’re talking about as far as competition. And if prices and that’s a good thing. Again, for consumers, more competition is good. For these guys, if you have to walk away from business, it can be a negative. But they’re going to do a lot of commentary on competition in the different segments that they operate. And I’ll be interested to see if those pricings are still moving higher or if they started to drop a little bit depending on competition. So that’ll be something to keep an eye on. But really like that space. Also, another high flyer, throw in BE, Bloom Energy. I know a lot of you guys love this.

Daniel Creech 45:05

We could have managed this better, picking tops and bottoms, but Frank made an absolute killing on this recommendation for subscribers. These guys report after the market closed today. Expect volatility. This is going to be great on investor sentiment because I don’t see how their backlog and numbers aren’t going to be positive, but it’s just going to see, hey, if the backlog grows X amount, investor sentiment’s still sour. Excuse me. And the timeline is going to matter a lot here. Dark black coffee. Wonderful. The timeline will matter on the backlog. So if they say, “Hey, we just signed another billion-dollar deal, but it’s not coming until 2029,” the market is past that. And we’ll see how that plays out.

Daniel Creech 45:56

But Bloom Energy has been a big winner. Joe, I’m dying over here. So that’s going to be volatile. Keep that on there. It’s a coin flip. Excuse me, people. All right. Answered a few of your questions. Frank, once again, left us in charge. It’s one of the best opportunities. I can’t tell you how much I love this. Joe loves this. We’re having a great time and looking very much forward to the second Curzio Wealth Forum in beautiful Fort Lauderdale this weekend. Hopefully, we’ll see all you guys there. If you can’t attend, be ready for updates. I know Frank will put a lot of that interviews and such on the website later on for all the subscribers that cannot make it. And if you’re interested in Curzio Alpha or Curzio One, head to Curzio Research and always shoot us an email. Love us, hate us, don’t ignore us. Daniel@curzioresearch.com. That’s daniel@curzioresearch.com. Have a wonderful, wonderful weekend, and we’ll see you next week. Cheers. 

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