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    My First Million

    What Stock Would Warren Buffett Buy If He Started Over In 2024?

    Mon Feb 12 2024
    StockapaloozaStock PicksUFCWWEInvestmentFerrariTKOLuxury Car Companies

    Description

    The podcast episode covers the introduction of Stockapalooza, the criteria for picking stocks, the dominance of UFC and WWE in the combat sports market, the growth potential and risks of the UFC, investment options including Ferrari and TKO, profitability and exclusivity of Ferrari, challenges and future outlook for luxury car companies, and investment considerations.

    Insights

    Stockapalooza introduces a competitive segment for stock picks

    The hosts introduce Stockapalooza, where they each present a stock pick and make a case for it. The winner will be determined based on style points and substance points.

    Warren Buffett's investment criteria

    Warren Buffett's investment criteria include understandability, economic moat, competent management, margin of safety, and strong financials. These factors are important when evaluating potential stock picks.

    UFC and WWE dominate the combat sports market

    The UFC and WWE have over 95% market share in the combat sports and wrestling market. Competitors like Bellator have failed to challenge their dominance.

    Growth potential and risks of the UFC

    The UFC is experiencing significant growth with a 20% annual increase. However, there are risks associated with the UFC, including debt and underpaid fighters.

    Investment options: Ferrari and TKO

    Ferrari and TKO are discussed as potential investment options. Ferrari is a highly profitable company with strict rules for customers. TKO, which owns WWE and UFC, has simplicity and widespread appeal.

    Profitability and exclusivity of Ferrari

    Ferrari is a highly profitable company with exclusive ownership. It generates revenue from merchandise sales and has implemented strategies to maintain its brand strength.

    Challenges and future outlook for luxury car companies

    Luxury car companies like Ferrari face challenges such as declining interest in cars among younger generations. Compliance with EU regulations and maintaining brand focus are also important considerations.

    Investment considerations and final thoughts

    The speaker discusses their approach to investing, including the importance of revenue growth and comparing it to Warren Buffett's strategy. They consider investing in Ferrari and TKO but ultimately decide not to invest in either company.

    Chapters

    1. Introduction to Stockapalooza
    2. Picking Stocks and Warren Buffett's Criteria
    3. Monopoly in Combat Sports and Wrestling Market
    4. Growth Potential and Risks of the UFC
    5. Success Factors and Challenges in Managing the UFC
    6. Investment Options: Ferrari and TKO
    7. Profitability and Exclusivity of Ferrari
    8. Brand Strength and Challenges of Ferrari
    9. Challenges and Future Outlook for Luxury Car Companies
    10. Investment Considerations and Final Thoughts
    Summary
    Transcript

    Introduction to Stockapalooza

    00:00 - 06:06

    • The podcast hosts introduce a segment called Stockapalooza, where they each pick a stock and make a case for it.
    • Stockapalooza is compared to the Zone Conference, where stock pickers give TED talk-style presentations on their chosen stocks.
    • The hosts will have 20 minutes each to present their stock picks, complete with slides and data.
    • Viewing the podcast episode on YouTube is recommended for a better visual experience.
    • There is a brief mention of an ad for HubSpot's sales tool.
    • The hosts encourage listeners/viewers to subscribe to their YouTube channel.
    • The rules of Stockapalooza are discussed, including how the winner will be determined based on style points and substance points.
    • Even professional stock pickers can make bad predictions, so the hosts expect their own picks to be flawed as well.
    • Winning in this context is not clearly defined but could be based on returns or overall success rate.
    • A disclaimer is given that the podcast episode is purely for entertainment purposes and should not be considered financial advice.

    Picking Stocks and Warren Buffett's Criteria

    05:51 - 12:11

    • Buying one stock carries more risk than investing in an index fund like the S&P 500.
    • To justify the additional risk of picking one stock, it should aim to generate a higher return than the index.
    • The goal is to find a stock that can potentially deliver a 5x return over a 10-year period.
    • Warren Buffett's investment criteria include understandability, economic moat, competent management, margin of safety, and strong financials.
    • Buffett focuses on buying brands rather than just stocks and looks for businesses that will endure and grow steadily over time.
    • TKO, which owns WWE and UFC, is suggested as a potential Buffett stock due to its simplicity and widespread appeal of combat sports.

    Monopoly in Combat Sports and Wrestling Market

    11:44 - 18:16

    • The UFC and WWE have a total monopoly in the combat sports and wrestling market, with over 95% market share.
    • Competitors like Bellator have failed to challenge their dominance.
    • The management team behind these brands, including Dana White and Ari Emanuel, has a strong track record of success.
    • Despite generating over $1 billion in EBITDA annually, the combined market cap of UFC and WWE is only $14 billion.
    • This is significantly less than the recent sale price of an NBA franchise.
    • Unlike other sports leagues, such as F1, UFC and WWE don't have revenue-sharing agreements with teams or pay guaranteed salaries to fighters.
    • The combat sports industry is resistant to AI disruption since it can't replicate the experience of watching two fighters in a ring.
    • The growth rate of the industry is currently at 20% per year.
    • Media rights deals for both UFC and WWE are up for renegotiation soon, presenting an opportunity to increase their earnings from streaming companies like Netflix and Amazon.

    Growth Potential and Risks of the UFC

    17:49 - 23:49

    • The UFC is experiencing significant growth, with a 20% annual increase.
    • Media rights deals for the UFC are up for renegotiation, which could result in a doubling of their current earnings from streaming companies like Netflix and Amazon.
    • The UFC generates consistent cash flows and is a profitable company.
    • However, there are some risks associated with the UFC, including a substantial amount of debt and underpaid fighters.
    • The stock performance of the UFC has not been great since its merger, but there is potential for improvement.
    • Dana White, the CEO of the UFC, plays a crucial role in driving the business forward.
    • There are concerns about liability within the industry due to risky behavior and controversial statements made by individuals involved in the UFC.
    • Despite these risks, the UFC has shown resilience during challenging times such as COVID-19 and has found ways to adapt and continue operating successfully.
    • The global nature of the UFC presents untapped growth opportunities in regions like Africa, China, and India.

    Success Factors and Challenges in Managing the UFC

    23:19 - 29:25

    • The UFC has the potential to expand globally, particularly in untapped markets like Africa, China, and India.
    • The UFC excels at storytelling and creating characters, which sets them apart from other sports leagues.
    • The UFC has a larger social media following than the NFL and baseball.
    • The UFC's success can be attributed to their ability to negotiate media rights and sponsorships effectively.
    • Despite its profitability, there are risks involved with running the UFC, including the potential departure of key figures like Dana White.
    • Managing a league like the UFC is challenging due to the unique nature of professional fighters and potential legal issues regarding fighter compensation.
    • Fighter pay in the UFC is significantly lower compared to other major sports leagues.

    Investment Options: Ferrari and TKO

    28:55 - 34:34

    • The speaker discusses various companies they have looked at, including Rivian, 23andMe, Container Store, and HubSpot.
    • They express their intention to base their investment decisions on what they find cool and interesting rather than focusing solely on numbers.
    • Amazon is mentioned as a slow but predictable company that can generate great returns.
    • Tesla and Bill Gates' Microsoft are considered as potential investments but are deemed less exciting.
    • The speaker introduces Bernard Arnault, the CEO of LVMH (Louis Vuitton Moet Hennessy), as an inspiration for their investment choice.
    • LVMH is described as owning over 100 luxury brands such as Dior, Fendi, Sephora, and Tiffany's.
    • The speaker explores Aston Martin as a potential investment option but dismisses it based on its low market value and poor margins.
    • Enzo Ferrari is introduced as a historical figure who started out as a race car driver before founding Ferrari.

    Profitability and Exclusivity of Ferrari

    34:16 - 40:36

    • Enzo Ferrari, the founder of Ferrari, started out as a race car driver and eventually created his own car company.
    • Ferrari is a highly profitable company, with a revenue of $6.5 billion in 2023 and a net profit of $1.3 billion.
    • Despite selling only 13,000 cars per year, Ferrari has a market cap of $72 billion and is one of the most valuable car companies in the world.
    • Ferrari makes more profit per unit sold than any other car maker in the industry.
    • The waitlist to buy a Ferrari is exclusive and mysterious, requiring customers to sometimes purchase multiple base models before being able to buy more expensive ones.
    • Ferrari has strict rules for its customers, including restrictions on modifications and colors.
    • Similar to the luxury watch industry, flipping a Ferrari without permission can lead to being banned from purchasing future Ferraris.

    Brand Strength and Challenges of Ferrari

    40:12 - 46:48

    • Ferrari is an exclusive and elite brand that people are eager to own, with some cars selling for millions of dollars at auctions.
    • Ferrari generates a significant amount of revenue from merchandise sales.
    • The company has implemented strategies to maintain its brand strength, including a bounty program where individuals are rewarded for reporting rule-breaking modifications on Ferraris.
    • The Lindy effect suggests that Ferrari's long history and strong brand will contribute to its longevity in the market.
    • Owning a Ferrari can be seen as prestigious but also comes with downsides such as attracting attention and being challenging to drive.
    • Despite the growth and success of Ferrari, its PE ratio is currently high, indicating potential overvaluation.
    • Younger generations show less interest in cars and getting driver's licenses, raising questions about future demand for luxury brands like Ferrari.

    Challenges and Future Outlook for Luxury Car Companies

    46:20 - 52:28

    • Young people nowadays are less interested in getting driver's licenses, which poses a risk for luxury car companies like Ferrari.
    • Ferrari is based in Europe and will need to comply with EU regulations that require hybrid components in cars by 2030.
    • Ferrari has built an aspirational brand by being passionate and focused on their mission.
    • Building a luxury brand requires saying no to many great opportunities, which can be challenging but ultimately pays off.
    • Despite selling only around 10,000 units, Ferrari is the seventh largest car company in the world.
    • Italians have a reputation for valuing luxury and are not typically associated with arbitrage or affiliate marketing.
    • Lamborghini was created because Enzo Ferrari refused to sell a car to its founder, who was initially making tractors.
    • While Ferrari is seen as a cool business, the stock may not be attractive due to its high valuation and limited growth strategy.

    Investment Considerations and Final Thoughts

    51:59 - 56:04

    • The speaker admits to not understanding how stocks work.
    • They discuss the growth rate of a stock and whether it reflects the growth of the business.
    • The speaker mentions that revenue growth is important for stock prices.
    • There is a reference to a presentation where numbers were not discussed.
    • The speaker compares their approach to Warren Buffett's strategy.
    • They mention two different investment options: Ferrari and TKF.
    • The speaker leans towards investing in Ferrari but acknowledges higher upside potential for TKO.
    • Ultimately, they decide not to invest in either company.
    • The speaker talks about the value of monopolies in the tech industry.
    • They explain their thought process behind considering TKO as a potential investment opportunity.
    • The decision to discuss stocks on the podcast was made prior to considering other stocks.
    • A unanimous decision is reached regarding the stock analysis episode winner.
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