U.S. Looks for a Deal with China; Apple Finds a Deal with Amazon

Chris Hill: It’s Monday, December 3rd.
Welcome to MarketFoolery! I’m Chris Hill. Joining me in studio today, Jason Moser,
where he belongs. Thanks for being here! Jason Moser: It’s my happy place!
I’m happy to be here! Hill: Thank you to any listeners who survived
the bonus episode over the weekend. If you skipped it, good news, we’re going to be talking
about the market again. And we’re going to dip into the Fool mailbag.
We should probably start with the market itself, which is up pretty big this morning on the
latest trade announcement. In this case, it’s that the leaders of this country and of
China have said “Hey, why don’t we take a break for the holidays? Why don’t we just call a
little truce and get back to this? Step outside, have a cigarette. We’ll get back to
this sometime down the road.” Moser: Yeah, why not? You’re right, the market
is up today. It was funny, I think I saw something cross my Twitter feed on Saturday about this.
The next step in my mind is, “Oh my God, the market is going to go ballistic on Monday
with this news, it’ll be so happy.” Of course, futures were indicating upwards of 450,
500 points on the Dow. That’s how it opened. You look at it now, as of taping, and you’re
looking at a Dow up maybe 150 points. The S&P, same basic thing, up just a little bit more than 0.5%.
I think perhaps the euphoria is wearing off. The fact of the matter is, like you said,
this is, “Let’s take a break.” It’s not a resolution? It always befuddles me as to why
you see such enthusiasm on news like this when you know essentially nothing has been
accomplished. That’s where we are. If anything, maybe this buys a little bit more time in
that there is not some bottom line solution or compromise that has been reached that
one side’s not very happy with. At the end of the day, for all of what President Trump is
trying to accomplish, and obviously, I think he still prides himself on being a
dealmaker, this is probably just part of that, figuring out how to reach the fairest deal for both
sides involved. I’m sure something will come out of all of this, but who
knows when that’ll be in. This really is, in a nutshell, why we invest
the way we do here. Doing the work upfront on the businesses that we want to own,
understanding that you can’t avoid situations like this. If you’re going to be an investor,
you’re going to run into situations like this. You don’t want to be making investing
decisions based on these types of non-events. Hill: Right. You look at the comments from
President Trump, President Xi, if nothing else, headlines like this are maybe a good opportunity
for investors to pause for a second and say, “Well, wait a minute. What are the stocks
in my portfolio that might be impacted by this?” And if you’re, say, a shareholder of Caterpillar,
if you own one of the big automakers, that situation, then yeah,
this is something you have to consider a little bit more closely as opposed to if you look
in your portfolio and you own, say, Home Depot or Dunkin’ Brands or something like that that’s
not as exposed to this type of trade talk. Moser: Yeah. I mean, good businesses are going
to be good businesses regardless of this type of news. It made me think back a little bit
further to Alibaba and Jack Ma. The reason why I say that is, the headline that seems
to come out of here is that ultimately, President Trump is trying to get China to buy more
American stuff, to balance that trade deficit a little bit. And I get that. That makes sense.
You want some sort of equilibrium there. To that point, though, one of Jack Ma’s goals
in Alibaba, in growing that business in the retail space in China, was to make China more of an importer,
to bring more stuff into China as opposed to sending all that stuff out. So, that headline
today is certainly in line with what Jack Ma has been trying to do at Alibaba all along. And Alibaba
matters, obviously. It’s a tremendous company, and it does a lot of business,
and it’s responsible for a lot of the money that flows through China’s system.
I think that makes a lot of sense. For an economy like China’s to continue to
evolve and advance, they’re going to need to become more of an importer. That’s bringing things
in from places like the United States or Brazil or Russia. Those are the countries that
Ma has even called out. That’s in line with what we’re seeing today. I’d like to believe they
can get to that point some time or another. It’s going to take some time, obviously. I tend
to look at these types of headlines and think, OK, it’s nice when the market pops
on news like this. It doesn’t make me want to do anything differently. I kind of like
it when the bad news comes out and you see the market overreact to the downside,
because then there is an opportunity to add a company or two to your portfolio that you don’t own.
These days, you have to be ready to pull that trigger. News travels so quickly, the market adjusts
a lot more quickly than it did 10, 20 years ago. Hill: To go back to
something I’ve said before, one of the things I’ve learned in my investing
lifetime is — and when I say I’ve learned it, I’ve learned it the hard way —
don’t fall in love with a price. Don’t fall in love with an exact price, where you look at a stock
and you say, “Well, I want it to fall to this point.” To what you just said, we are seeing
these types of drops, and they show up in individual stocks in the form of a 5% discount.
That’s really the question you need to be ready to pull the trigger on. “I like this,
it’s on my watchlist. Now it’s 5% cheaper.” What are you going to do? 
Moser: I go back to a lesson that my father taught me years ago as a kid, learning how
stocks worked. He always said, and he says it even today, listen, you’re never going
to buy at the bottom and sell at the top. It’s just not going to happen. When you buy
a stock, be ready for it to go down and be worth less than what you paid for it at some point.
And at some point down the road, you’re going to sell. And you’re going to look back
there later on, and that stock will probably be higher at some point, too. So, to your
point there, yeah, don’t get too married to a particular price point. Understanding the
company, it’s general worth, the longer that you stretch that timeline out, the less that
price at that moment really matters. I’m a big believer that price matters.
Don’t get me wrong. I’m not saying buy at any price. But don’t get too anchored when opportunity
presents itself. Sometimes you just have to go ahead and take the plunge.
Hill: Let’s spend a minute or two on a story that broke late last week. This is not one
of those stories that really moves stocks in any significant way, but it does move the
landscape of an industry. In this case, we’re talking about the entertainment industry,
and more specifically streaming music. That is the announcement that Apple Music is now
going to be available on Amazon Echo devices. I’m curious what you think about this.
Anytime there’s a partnership, any kind of a deal, one of the ways to think about it is, who are
the winners and losers? Are they both winners? That sort of thing. I haven’t really
decided where I come down on this, except I think this is a win for anyone who believes
that smart speakers are growing as an industry and will continue to grow. I don’t look at
this necessarily as a big win for Amazon or a big loss for Apple, although I do think
it is a slight win for Amazon and… maybe not a loss for Apple, but certainly an admission
that HomePod, which is their smart speaker, those things aren’t flying off the shelves.
Moser: Yeah. I think that’s it. You have to take the wins and losses in context. It’s not
something where Apple’s going to be going out of business. But this is a clear sign
of a couple of things. I think it makes a lot of sense. I really do applaud Apple for
seeing the forest for the trees here and recognizing that if you don’t own an Apple device,
there’s really no incentive to use Apple Music. Now, you may say, “Well, half the country
owns an Apple device.” And you would be right. Basically half the country here has an iPhone.
But Android is the operating system around the world. That’s the operating system that
dominates the landscape globally. From that perspective, thinking outside of our domestic
box here, Apple Music has a lot of hurdles to clear. That’s why Spotify has
done so well for so long. To me, we’ve seen Apple looking to make this
move towards becoming more of a services company. They’re not going to be reporting units sold
when it comes to hardware going forward. On the flip side, they are going to give us more
transparency into the costs involved with building out that Services
business. I think that’ll be really helpful. For me, this is a sure sign that HomePod is
not flying off the shelves. I don’t know anyone personally who has one. I had a hard time
ever making the leap that the masses would be going out to buy one. It’s priced at a
level where you can’t even really have it in the same conversation with an Amazon Echo
or Google Home. There are going to be plenty of Apple fanatics who want to have a HomePod
because they want a premium speaker, but frankly, if you want a premium speaker,
Bose has a pretty good brand out there. Hill: Sonos, as well.
Moser: Yeah. So, to me, an implicit admission that HomePod isn’t really working out so well.
Not a big surprise. I don’t think this is anything that moves the needle for either
company. This is something that people who have Apple Music, it’s one more way for them
to get it. Speaking as someone who has a few Echo devices in the home along with an iPhone
in my pocket, I don’t use Apple Music, I can’t imagine I ever will, so generally speaking,
this is less about acquisition and more about engagement and retention of those
who do have Apple Music here domestically. Hill: As you said, they’re not going out of
business. They’re still attempting to sell the HomePods. It does, however, seem like
this is one more step towards the investments that Apple is making in Apple Music. You look
at what they did with Beats, there are numerous reports in trade publications that Apple is
in talks with iHeartMedia, which is the largest broadcast radio company in America,
about possibly either making an investment or flat-out acquiring iHeartMedia. So, they do appear
to be looking to build out that ecosystem even more. Moser: If you want to
be a services company — and by services, I mean distributing media content —
then you want as big of an audience as you can possibly have. That means that
you have to cross platforms. If you’re going to just maintain that that walled garden,
then you’re going to do fine here domestically — again, you’ve got half the country’s attention.
I don’t know that you’re really ever going to get much more than that. And globally,
clearly, you’re not going to ever come close to that. So, if you want to be a services
company, and you want that to become a bigger part of the business, then you’ve got to reach
out to as many partners as you can. And Amazon’s a great partner. Apple’s a great partner, too.
I love to see two companies like this come together. I’m a big fan of Tim Cook and
Jeff Bezos. To see these two companies doing stuff like this… I hope we see them doing
more together, because I think ultimately, consumers can only win.
Hill: Our e-mail address is [email protected] Question from Ed, who writes, “I saw an article
written by Dan Kline about 30 CEOs making more than $30 million a year. It got me thinking.
When analyzing a company and putting together your investment thesis, how much consideration
do you put into CEO pay? Thanks for all the insight, love the podcast.” Thank you, Ed,
for the kind comment and for listening. Good question. You go first. How much does
that factor into your investment thesis? Moser: It’s not something on its own that
determines the ultimate action to be taken, but it matters. It can tell you a lot about
the individual running the company. With that in mind, it can be squishy. You have to figure,
how old is the company? How long has it been a publicly traded company? Is there
a track record? What are the types of things that incentive bonuses are based on? Under Armour
is a good example. A project I did a number of years ago here at The Fool, looking at
Under Armour and the incentive bonus program that they had, what were the metrics that
that incentive bonus was based on. And it was net revenue growth, operating income
as a percentage of revenue, and inventory turn. And to me, those were very relevant metrics.
They tell you the business is growing. They can’t really be manipulated too much.
It was nice to see something like that. There is a form that investors can look at
to get a better idea of exactly how executive compensation is laid out there. If you look
at the table of contents of the schedule 14-A, and that’s an SEC form. If you go to EDGAR,
you can pull up the 14-A. There’s a table of contents entry there for executive compensation.
You can read through that to get a better idea of who’s making what and how all of that
is determined. I like, further, to look for companies where executives have big
ownership stakes. I always make sure to tell people, that’s not something that determines yes or no,
but it does tell you exactly where their interests lie. If someone owns a lot of the
company, then that’s a lot of incentive to make sure it’s performing well.
But, it’s not always necessarily a good indicator. You can look at Amazon as a mature company,
and Snap, we can pick on Snap a little bit here. Even though it’s still brand new, the fact of the
matter is, when Snap went public, co-founder Evan Spiegel got somewhere around $600 million
for a CEO award which was based on just taking the company public. Nothing more than just
IPO-ing! Now, we could argue that Snap isn’t even worth $600 million at this point.
The market’s telling you it is, but hey, let’s be clear, the math ain’t
really making sense here yet. Hill: I don’t think you and
I would technically argue about that. Moser: No, I don’t think we would.
Maybe a listener or two would. But, this goes back to understanding a little bit more about who’s
steering the ship there. And I look at that, and I just think, wow. That’s really taking
a lot of credit for something you haven’t done yet. Just taking a company public…
I’m not saying that’s not significant. It is. But for an executive to make the kind
of money that Evan Spiegel is making, there’s a lot of success already implied there, and
he’s come nowhere close to proving that out. You flip the coin over there, and Jeff Bezos,
obviously, over time, has really proven out there. And his salary is actually extremely
modest. I mean, extremely modest. Now, he owns almost 20% of Amazon,
so he’s got that going for him, too. Hill: Which is nice.
Moser: It’s squishy, but those are the types of things you want to
look at. It definitely matters. Moser: I would say for me, it’s on the checklist.
It’s not high on the checklist, but it is one of those things that I like to see.
I tend to look more at not just the straight up salary, but the combined, what is
the salary, what is the ownership. One other thing, particularly if you’re buying
shares of a more mature company, and this is one of those things that I don’t think
shows up in official SEC filings, but companies sometimes will announce this, sometimes you’ll
see CEOs selling shares. And it’s not really put out there in any big way that they’re
on a schedule. For a very long time, this was the case with Bill Gates. Steve Case in
the heydays of AOL was doing this, as well. And people would say, “Oh, Steve Case is
selling shares of AOL!” Well, he set that up as, I guess the exact opposite of direct deposit.
It’s just automatic selling. That’s just one more thing once you own shares. It’s definitely
something to look at. To your point, it really does speak to the overall ethos and culture
of how the company views compensation, or certainly how the management does.
Moser: I’m glad you brought that up. Another example I like to look at, this was a fascinating
story as Twitter’s IPO and existence as a publicly traded company evolved over time.
Obviously, there were some leadership issues there. Jack Dorsey came back a few years ago
to try to help right things. These are the kinds of things that tell you a little bit
more about the kind of person that you’re dealing with in the executive suite. I mean,
he gave a third of his Twitter stock — which was essentially 1% of the company —
back to the employee bonus pool like. That was stock that he was able to basically give back
to the company in order for the company to then be able to attract new talent,
without having to go dilute the shareholder base again. He was basically saying, “I own a big chunk
of this company already. I’m going to give a little bit of what I have here, knowing
that this is a long-term bet on bringing good talent here, and ultimately we’re going to
be successful and be a lot bigger than we already are.” That was a fairly selfless act
on his part, I thought. I think his actions with Twitter and Square tell you a lot about
the kind of person he is. I think he’s a good person. You can look at those little times throughout their existence as executives to get a better
idea of the kind of people that they are. Jeff Bezos, same kind of thing. His history
is littered with being able to give that money away to good causes. And we have more
seasoned leaders who are coming to the tail end of their careers. Warren Buffett, Bill Gates,
whoever. They’re talking about making sure they give all of their money away. I think
that’s really respectable, too. You see those types of things, they can help you understand
a bit more what kind of person you’re dealing with. Hill: Two quick things before we wrap up. First, as some may have heard, the market
here in the United States is going to be closed on Wednesday, December 5th. It has been declared
a National Day of Mourning in honor of former president George HW Bush, with the funeral
in D.C. happening that day. Be aware of that. Second, as mentioned in our bonus episode,
it’s now December, which means, for the fourth year in a row, the holiday
music on MarketFoolery has begun. Producer Dan Boyd, he loves this month. Moser: Yes he does. Hill: And listeners love this month because of that.
Tonight is the second night of Hanukkah, so we’ll leave it to producer Dan Boyd to
work his magic. Jason Moser, thanks for being here! Moser: Thank you! Hill: If you’re not already listening to Industry
Focus, Jason hosts the Monday episode, Banking and Financials. Check it out! One click of
the button, and you can subscribe to Industry Focus. As always, people on
the program may have interest in the stocks they talk about, and
The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks
based solely on what you hear. That’s going to do it for this edition of MarketFoolery.
The show is mixed by Dan Boyd. I’m Chris Hill. Thanks for listening!
We’ll see you tomorrow!

1 thought on “U.S. Looks for a Deal with China; Apple Finds a Deal with Amazon

  1. You can never trust US government. They tried so damn to do whatever if takes to prevent China from developing its high end technology. US government is so mad at the facts that Huawei is selling more smart phones than Apple does and Huawei is leading the 5G technology. Another shitty move by the US government. Tell me why US government did not put sanction on Saudi after Saudi prince brutally killed the journalist and continued selling weapons to Saudi? Give me a break US, if you don’t follow the rules created by you, why on earth you command others to listen to your shit? Free Meng ASAP!

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