Berkshire's Bet, Rotation and Rebalancing & The World Cup's Impact On Stocks

— Hello everyone. Welcome back to our latest episode of Market Bites, the first one of June. Sounds absolutely mental saying June already, but here we are. Back as a dream free Brett and Neja with me today. First of all, Brett, how you doing across the pond? — Um I was doing great until you reminded me that the longest day of the year now is what 2 weeks away. So I was feeling a little more optimistic until that, but outside of that I'm doing well. How are you guys? — Yeah, all good. It is depressing in literally under 3 weeks the days are going to get shorter, but hopefully we will have good weather for the next 3-4 months in Europe. Neja, how are you doing? How's your weather? — It's actually great. It's it feels like the first heat wave is right around the corner. So it's it feels like summer finally. So I'm doing great. Thank you, but I missed you last week and I'm happy to be back on the show. How are you Sam? — Well, yeah, very good. It's great to have you back. Um I'm okay. I I got a last minute ticket out to Budapest for the Champions League final which um which cost me an arm and a leg, but I was willing to pay it to get out there and had an amazing time until the last kick of the game where we lost on penalties, but uh it was good fun. Will be it getting home was a nightmare. Had to like sleep in an airport. Didn't fancy doing that and then I paid for a hotel for literally like 6 hours, but booked the wrong day. So I slept in the hotel lobby and luckily didn't get kicked out and then I had like two flights to get home. It was just absolute chaos, but made it back and uh do you know what? It's actually a little bit cooler in the UK than it was a week ago and I have to say I'm so happy about that because that you know, 30, you know, mid-30 or early 30 degrees in London, it's just too hot. It's just too hot for us. So, uh yeah, all is okay. We'll have a little discussion today about a few bits, but I wanted to get Brent you know, there's your thoughts and just how things are at the moment because we got certainly the US, the Nasdaq and S& P pretty much at all-time highs every single day, albeit at the time of reporting today off that better levels. A lot of individual stocks are pushing higher. I do a webinar and I know a lot of people that will listen to this will join it on Monday with my diamond clients. And I asked them the question about whether anyone is thinking about rebalancing soon. And the reason behind that question was just because so many stocks have done well. And obviously a lot of those weightings within people's portfolios will be higher than maybe they actually wanted to or they might think about taking profit. The answers of all the people that got back to me, it's 51% yes, 49% no. So, there wasn't really a clear winner. But it does get that feeling that maybe a rotation, maybe something like that could happen soon and rebalancing could be useful. Brent, just quickly on that, how would do feel about the state of play at the moment? — Yeah, so honestly I'm glad that you mentioned that because I was looking like you know, through my screens and um different watch lists the other day. It has I have like a valuation column attached to a lot of these names and you know, you're looking at them and you see them trading at either at the lower end or at new 52-week lows on a valuation basis. And then you start to like dig into some of those names. Some of these names are down into These are like not poor quality names. These are high quality industries, high quality firms within those industries. Um they're trading at valuation levels that have been a trough area for a decade. Um, so these are like high quality companies that have sort of been left out of this rally. And when you sort of, you know, zoom back up to 30,000 ft and look down, this rally has really been tech and semis. Uh, it's driving this whole move. And yes, the um, S& P is up like, I think, eight or nine straight weeks. Uh, you might think like, "Oh, this is an everything rally. " It's like, it's not an everything rally. In fact, we haven't had any of the financials or the We haven't had the financial sector. banks, the credit card companies. They're not really participating in this rally, which to me is always a little bit of a red flag. I like the banks to be involved uh, with tech. That gives me kind of like uh, a nice green flag. Um, but I guess keeping the answer a bit more concise, I do think that there's opportunity to rotate and not just for the sake of rotating cuz it is hard to exit winning positions that have done really well. Um, but I do think that there's nothing wrong with taking some chips off the table when we've had a very strong rally in one area and a lot of high quality undervalued names still sitting there waiting for their turn next.

next. — Yeah, it feels like it's feels like that's the market was is really at the moment concentrated in only few sectors that as you mentioned, Brett. And uh, and like every run ends someday. No one knows when it will happen. And rebalancing is something that it's not the funniest thing to talk about because it's about trimming positions that outgrow your how like with how much you're comfortable with. But I think that when the market is doing so good and some of your position have outgrown, you need to start thinking about rebalancing just to prepare of for some kind of return uh, rotation. And uh, just to be ready to like to see the switch on the market. And I know that um we will have a webinar uh about this topic next week. So, everyone listening to this podcast today, and if you think about rebalancing, uh you can join us uh you, Sam, and Martin next week. Then you will be discussing uh rebalancing. So, I think it's something that it's worth thinking about since as you said uh Brett, the market has been up for eight like for eight or nine straight weeks. So, and no one knows when it will happen, but corrections happen, and um I'm sure that we will see a correction uh this year as well. So, uh it's good to be prepared for that. — Yeah, absolutely. Just on that webinar, I'll put the link in the bio if anyone that does want to join it. That's on the podcast. Um wherever you listen, Spotify, Amazon, it'll be in the bio to click and join. Completely free, and you can watch on demand, but it will be a live webinar next Tuesday, I believe. And for anyone listening to this that's thinking, "Well, you know, rebalancing, why would someone do that? " And the reason behind it, well, just to keep it very simple, very low level, let's just say you invested in I don't know, Nvidia 3 years ago. And you had like a rule where you say, "I'm only going to invest, you know, up to 5% in an individual company. " Nvidia, if you invested 5% of your portfolio 3 years ago, it's not going to be 5% now. It's going to be a lot more because of how well it's done. And therefore, the risk of that is higher. So, you might want to trim a little bit of that. Might want to take a profit. That said, if you invested, you know, in Nvidia 3 years ago, you know, you're pretty happy right now. So, you're also saying, "Well, whatever. " Um fair enough. You can do whatever you want to do. But I think it's important to have that process. Um let's talk about another big company. Just talked about Nvidia there, but let's talk about Alphabet. You know, Yasha, before we have these podcasts, we always have a little catch-up before and any topic is on the table, but you wanted to talk about Alphabet this week. — Yeah, like I Alphabet is like one of the top news this week just because like actually about because of two topics. First one is that Berkshire Hathaway decided to put another 10 billion dollars to the company and everyone is paying attention to what Berkshire Hathaway invests in. So it makes sense that Alphabet is one of the top news this week and yeah, cuz um And why is that? Is it's because Berkshire Hathaway is sitting on such a huge pile of cash and when they decide to invest in something, it's everyone is paying attention and 10 billion dollars is quite a big investment. So and what is interesting in this one is that they're investing in Alphabet after it's like after their rally basically cuz it's up more than 100% from last year. So investors are wondering what is behind what are they thinking with that investment? Do they see it like a huge opportunity? Maybe do they see Alphabet as another Apple to their portfolio cuz it's a serious bet cuz we are known like we know that when Berkshire Hathaway invests or opens a new position, they often start with relatively small positions, but Alphabet actually became one of the their largest holdings in their entire portfolio cuz and that doesn't happen by accident. So I think that there is a huge conviction behind that. Um and what's also interesting is that Berkshire when Buffett was still the leading man of the company, they weren't really into technology. Like Buffett was known to avoid tech companies cuz he thought that this sector is evolving so fast that it's changing so fast and he didn't really want to participate. So I think that they don't see it really like another big tech company. They see I think that they see it as like foundational business and with durable

mode and significant like significant earnings power. So like it's really interesting that they decided to put more money in it after such a like such a big run. And I don't know what you two think about it. Do you think that there is more opportunity out there and cuz the other news that came out this week is that they are raising more money to invest into AI which is clearly like a very good news, but market didn't take it as a good news because they that actually tells us two stories. The first one is that they are investing more in AI because they're seeing more opportunity in that and they need more money to like to develop new things to for data centers, for all of that. But the other angle that we can take a look at like raising more money to invest in AI is that AI is extremely expensive. So they need more money for that and at the end if they will profit from this investment that's going to be huge, but if that investment won't pay off it's going to be like a huge hurdle for the company. So there always two angles to look at the story. So I think that Alphabet is really one of the top topics to take a look at this week. — Yeah, I'd agree with that. It's always a good or used to be a very good you know show of confidence if Berkshire Hathaway's invested in your company. Obviously with Warren Buffett stepping away now, maybe it holds a little less value, but we'll have to wait and see. We can judge people in their own time. I guess you'd have liked to have seen Berkshire Hathaway do this 14 months ago and get that 100% rally of Alphabet, but they're in a good solid position, good solid foundation. I you know, you'd imagine it'd be a pretty solid investment for the coming years as well. I mean, it goes back I guess to what we were talking about, you know, even if there is a correction, you know, companies like that survive it, don't they? Certainly for sort of those people that want to buy these amazing companies at a bit of a discount as well. So, you know, we go back a few weeks ago to where we talked about Nvidia and how it's maybe one as at the time it was one to hold, not necessarily buy new, but if you do get that 10 15% drop in a stock like that or 20% like Alphabet, where it's an it's a great opportunity to get in and maybe we're going to see that in other Mag 7 companies that have been down quite a lot. Your Metas are down pretty big at the moment. You know, you know, Microsoft's have had times where they've been down a fair bit and maybe they will have their day again, but yeah, I don't know Brett, for you, does it seems like a, you know, pretty solid investment at the moment? — Yeah, I mean, I think it's an interesting I think there's a few sort of takeaways that are less just interesting takeaways, I guess. First, like and as you mentioned, this is a step away from something that Warren Buffett would have typically done. He we've seen him step into the into companies in meaningful ways. Granted, maybe this isn't a meaningful way when you're talking about a multi-trillion dollar company, but we've seen him step into like the banks during just he likes to buy into distress. Is this like are we seeing a little bit of a character change at Berkshire or something that's more impressive of tech, maybe a company you'd say is trades at more of a premium than something Warren Buffett would typically be interested in. Um not that Alphabet is egregiously valued. It is for itself, it is highly valued relative to where it's been for the last, you know, 5 to 10 years, but in terms of like what we see intact, this is a very profitable company, uh very strong business, and obviously it has a good foothold in AI. Um I think the other interesting takeaway from that, because that's more a little bit of a speculative question, like will we see some more of these deals from Berkshire in the future, but the other interesting, you know, for this is Berkshire, their DNA does tend to be long-term. This isn't like, "Hey, we're going to take a slice of a $10 billion slice here and look to flip it in 6 months. " This is like we're taking this in we will be holding it for several years, probably. So, I think if anything, this is Berkshire's way of, you know, getting a little more exposure to that AI side and looking long-term thinking, like yes, they're putting in $80 billion to additional, they're raising $80 billion for this AI investment, we still see returns in the future from this industry in general. So, I can I think a few kind of interesting takes from it. Again, granted Sam, to your point, I mean you would have loved to see Berkshire do this you know, a year ago when what Alphabet was 16, 17 times forward and not, you know, to like what, 28, 27, 28 times, which is sort of the upper end of its range over the last decade, but nevertheless, uh it is interesting to see Berkshire step in. — I like that you mentioned the point of valuation, cuz Berkshire it's really not known for chasing momentum at all, cuz if anything, they're known for being

extremely disciplined with valuation, and the fact that they're buying after such a huge rally, it tells me that they believe that intrinsic value of the business has uh like is still good enough to invest still keep investing in the company. In other words, I think that they might believe Alphabet's earnings power in 5 or 10 years, as you said, they're looking at the long term is much higher than what market expects now. And with all these investments, I think that they only see a huge potential in it and not a risk cuz otherwise they wouldn't have it as a 9% position in the portfolio. — Yeah, I mean maybe it would be quite funny to see Berkshire just go rogue and be like, "You know what? Yeah, we're just we're flipping. Every 3 months we're getting a new temp said, you know, about portfolio and then we're gone. " I mean, that would be that would just be incredible. I also just listening to Nezh and I say Berkshire and then Brett say Berkshire. I mean, you're definitely saying it the right way and I just want to apologize to all our American listeners out there that are hearing Nezh and I say Berkshire and they're just like, "You idiots. " Uh and but there you go. — At least I have an excuse that English is not my first language, so. — Yeah, I don't have one. So, I my hands are up for those that are watching on YouTube. But speaking about America, one thing that's happening this year is the World Cup. I think officially starts this time next week. I think it's the 11th uh of June. Biggest World Cup in terms of the amount of games and the amount of teams that are are participating. Um but we recently we did a bit of a study at eToro just looking into, you know, a few different categories and sectors. Kind of which are how they performed since the last World Cup, how they might perform this World Cup and going forward. And so, we looked at hospitality, we looked at betting companies, groceries, sports clothing, and drinks companies. And I think one thing before we sort of go through the results we looked at just the impacts really of you know inflation certainly in the UK was you know up since 2021 quite considerably which is when the last World Cup was in Qatar. in Qatar. And it it's definitely had an impact I think on the way maybe fans in general people in general in UK and probably Europe as well and are looking to watch this World Cup. I mean for example you've got the England shirt now if you wanted the actual one that the players are going to wear on the pitch is 135 pounds which is just crazy. So you know we already talked multiple times about companies like Nike and Nike in general that struggled in recent years. One of those reasons amongst many is because of these you know the price of these shirts they're pricing people out and obviously other you know up and coming companies like your Adidas's and all of that have taken a bit of market share as well but you know this is one of the biggest tournament the biggest sporting tournament single sporting tournament in the world and investing in you know your Adidas's your Nike's your Puma's probably doesn't actually seem like a solid investment idea at the moment even with all those eyes on it maybe for a number of reasons but the price of a kit is just insane. Also for anyone that's been to London recently or the UK in general the price of a pint has gone up quite dramatically too. I mean some places in London now you're looking at 8 pound a pint which is just crazy to think about and you know companies like JD Wetherspoon's Young and Co Fuller Smith and Turner Mitchells and Butlers for a lot of people in the UK that would have heard those companies they they've all kind of struggled really in the last sort of 5 years down anywhere from 22% to 55% and you look at the broader stock market, you notice how much that's underperforming. Betting companies as well, Flutter, Entain, Evoke, down 45, 67, 91% in the last 5 years as well. And you know, that could be as well because people just have sort of less money than they did previously to spend on things. And obviously, if you know, people will have a gamble here and there, of course they will. And I'm sure people was like myself will be tuning in into the World Cup to have stupid bets at 1:00 a. m., but betting companies have struggled and the sports brands have struggled. I mean, Nike in the last 5 years is down 66% and Adidas 47%, Puma 70%. Drinks companies in general a little bit more mixed. But the grocery shops like Tesco, last 5

years up 105%, Marks & Spencer's another big company up 123%. Tesco's 21, which isn't a lot, but a lot more than those other companies. So, it might well be that heading into this World Cup, people are choosing to stay at home and go get those, you know, the beers from the supermarket instead of the pub. And actually, that's going to be the the play here. And those sort of traditional football stocks like your Nikes, your Adidas's, your hospitality companies as well, are going to struggle a little bit more. Maybe that will be the case. We'll have to wait and see, but any sort of follow up on that? I mean, does that surprise you? Any of you mean, Brett, I'll come to you. I guess we're also going to see, you know, the impact of that even more so if inflation numbers do continue to rise. And you know, there's no you know, you might well see that sort of stay-at-home stock do a little bit better. — Yeah, I mean, one thing [clears throat] so far this you know, this whole earning season has been this resilient consumer. And Uh, you mentioned, you know, World Cup in the in North America, it's going to be a even though I would say soccer is not, you know, the biggest sport in the US, the event itself, um, will certainly draw a lot of attention, strong ticket sales, a lot of at home, bar uh, watching, but at the same time inflation has been something that's been weighing on consumers and um, they've shown a a willingness to sort of ex- expand as far as their budget will allow, um, but for a lot of people with what um, energy prices have done what grocery prices have done, it's going to force them to the edge of that budget will be going uh, to like the grocery store and watching these games like at home or with friends. Um, and uh, on the apparel front, you look at something like a Nike. I never thought we would have seen Nike sort of implode in the way that it has and you I feel bad about the Berkshire thing, so I'll commit my own foul right now. I'll say Adidas. Um, you know, we see these names you can't walk outside and not see someone wearing these. And you would think it's almost at like um, like Peter Lynch style of investing like oh, everyone has these it has to be a good investment and that's not always the case. So, I think it's a little bit of a reminder that just because it's a common brand or something you see everyone else wearing or doing doesn't mean that the stock is doing well. Um, so I think that would be like my main ta- I think Nike has like forever seared that lesson in my memory, but um, yeah, I would not be interested like uh, your guys' sort of take on that as well. — I'm really wondering how the stadiums will look like when we will be at least I will be watching uh, like uh, World Cup games from home, so uh, I would really like to see how full the stadiums will be since the tickets for the event itself are a couple of thousand a couple of thousands of dollars. Um, and talking about Nike, Nike is really one of the saddest stories of the market right now. It's in this time of when everyone is just waiting for this rotation to happen to for this turnaround. They have this CEO they're putting all of the hopes in. He's been with the company since all basically all his career. He was already retired and then he came back as a CEO. So, now everyone is really hoping that he will be able to turn the company around and we see Nike everywhere, but as you said, Brett, that doesn't mean that the stock is performing well. Um and uh fingers crossed for Nike and for everyone who is still hoping uh in and investing in their stock that um maybe World Cup will help them anyway. Um but like it's going to be there is so much change needed to see a turnaround in companies like that uh cuz they're so well-known, but they've been struggling for such a long time. — Yeah, they have. They really have. — Sa- Sam, I'm curious when last time I was in London, the people were spilling out of the pubs watching these games. Is that's going to be the case, will it not? — What I I'd say definitely for England games. The issue obviously we we've got is that a lot of the games are going to be so late here. Um so, you're going to have I think England games in general going to sort of be 10:00 p. m. maybe 11:00 p. m. maybe 1:00 a. m. And that you know, pubs will get the late license for that. So, that in itself might be a reason why people stay at home. Like for example, if there was you know, if Brazil were playing someone and it was you know, 6:00 p. m. I'm going to go to the pub and watch it. But if it's Brazil versus someone in a group stage game and it's 11:00 p. m. I'll just say I'll watch it at home. So, I actually think that for certain British companies whether it be hospitality or um uh or drinks companies, that's going to be quite interesting. Uh the impact that it would have there, the time difference. Uh I mean, just

I'd imagine for the evening games it would be busy, but overall I don't think it will go maybe as well as some of the pubs are actually planning for or expecting. That's just a gut feel. But also on the, you know, just the spending thing. I was, you know, 12 months ago I was thinking I'm definitely going to America for the World Cup. It'd be incredible. And then it was the ticket prices, it was the hotel price and it really put me off actually. Um and I wonder just how many other people that has happened with. Um I'm sure it'll be a great World Cup and hopefully — at the end the World Cup will really give us a real real-time um a view of how consumer is really strong in, as you said, in UK and also in the US uh based on how uh how crowded pubs will be and how like how the stadiums will look like. — Yeah. I mean, and and also I mean, like Brett, as you say, it's not the number one sport in the US, but it's, you know, it's growing a little bit to be fair, but you don't — True. — From a consumer point of view, if those stadiums aren't, you know, full, yes, a lot of that would be, you know, tourists anyway, but it would be a pretty telling sign, I think. I think right. We'll sort of get a real-life update as we see it really for just how people are looking at it. It's like if the Olympics come to town, you know, athletics isn't the top sport in any country really, but you go watch the Olympics. So, you know, the World Cup was if you had a stadium 30 minutes from your house, you you're going to go, but if those stadiums are half empty or not full, it's kind of a pretty telling sign, I would say, but we can review that um in the coming episodes. I mean, people probably sick of me talking about football. But there's uh there's an excuse here. There's going to be method to our madness. — Um but we'll wrap it there for today. This time next week the football World Cup begins. Exciting times. Brett and Nezh as always, thank you very much. — Uh thank you. — Look forward to you next week. — Take care, guys.