Welcome back everyone. We have so much to get into in this episode of the Joseph Carlson show as you know I made some changes to the portfolio, the beginning of this year. I'm basically trying to up the quality of my companies. I'm trying to trim down on some of the fat and make it so that every company, my portfolio are really top performers.
Now, what I want to do is actually just do an update, see what's going on. Year-to-date we're up five point nine, six percent so far year today, that's 22,000 and we're going to go By sector by sector and category by category and just see how these companies are doing and why they're performing the way they are this year. Then of course, we have some economic news u.s. GDP came out at two point nine percent growth is moderating in the US.
Corporate layoffs are spreading Beyond just big Tech into the entire corporate world and we have some earnings reports Union. Pacific released their earnings. Microsoft released their earnings MasterCard released their earnings. These are all large Holdings in my portfolio and we're going to be going through all These earnings reports and see how these companies are doing. And then finally, we have an update on all of those tick-tocks of a day in the life of a LinkedIn employee or a
Google employee. Now, employees or rather X employees are making videos of a day in the life of being laid off from Google. I kid, you not. This is the new trend, they're making videos about their story of being laid off. So as always, we have a lot to get to in this episode. Let's go ahead and start off with a portfolio update. We gained thousands of new
subscribers. Scribers in the Joseph Carlson show every single month so if you're one of the new ones here, welcome we do something a little bit different here. The most channels we show our actual money, we show it. Invested we show it transparently with every single thing that we're buying. Every single thing that we're selling. I not only show what I'm buying and selling but I also show what I make mistakes when I have
Investments that don't turn out. Well, one of my worst Investments right now is Disney. I'm losing money on this company. So there's a level of transparency here that you don't get Any other places, but what I want to do in this video is give an update on the performance of my portfolio. Year-to-date, we're looking at the passive income account and what I'll say is this 393 thousand dollars that is real money and that makes up my largest investment vehicle by far.
I have another smaller Tech portfolio but that one is much smaller than this portfolio. Four hundred thousand dollars is a ton of money to me. The only thing that even comes close is my equity in my house where I live. Live and I don't really consider that an investment in the same way I do the passive income portfolio so this is a meaningful amount of money. And the goal here is to compound my portfolio as much as possible.
Frankly, I want to beat the S&P 500 and I want to Beat It by a large degree over the next ten years in terms of keeping track of progress. I really started paying attention to it in 2022 and 2022. The passive income account was down 16, .22 percent and that's with dividends being included. So with dividends reinvested, we were Sixteen point two, two percent time-weighted Returns
the S&P 500 went down. 18.1 4% the same year with dividends reinvested so we barely out performed it in 2022. And that's partially because of how well, Texas Roadhouse and view cheated. So a couple Holdings held it up last year, but this isn't the type of outperformance that I'm wanting. I don't want to beat the S&P 500 by just a couple percentage. I'd like to make the Gap much wider over the coming years. And so, what I want to do is Go
over my plan for doing that. If I flip over to a year to date so far were up, six point two, one percent. The S&P 500 is up. Five point seven, seven percent. So we're basically matching it right now and some of my companies are performing a little bit better than others. If we stay on the year-to-date metric here, we can go sector-by-sector, we go into the tech category, I have two companies in this category apple and Microsoft Apples Up 14%
Microsoft is lagging. The market up only two and a half percent. I think that Microsoft or Right now is heavily undervalued based off the quality of the company and its future growth prospects. And I say that, after seeing their last earnings, that were a bit disappointing to investors. If we look at Microsoft's latest numbers, they are a little bit lower than last year, the earnings were down 11%
year-over-year. The ibadah was a little bit lower, that's a little bit concerning, even the top line, revenue had an incredible deceleration. It only grew at two percent two percent year over year. But most of all I think the Most concerning thing is, in the cash flow of the company, the cash flows plummeted. Look at this last quarter. Doesn't that put it in perspective? There the cash flows, like a third of what it was the prior quarters.
Now, over the full year, it was a pretty good year for Microsoft in 2022 but the fourth-quarter shows a strong deceleration. Then in addition to all these slowing Trends with this quarter, we have the CEO of the company Sachin, Adela he goes on the earnings call and he basically does everything in his power. To torpedo the company's stock price. He talks about how everything slowing down and the company's going to basically take a break for the next two years that Tech spending.
Slowing down the economy, slowing down, every time someone talks to him about something exciting. He basically pores cold water on it. So he was not enthusiastic in this earnings report. Now there's something that I want to mention that I think is an often missed point, but I think it's very important in regards to CEOs like Sachin Adela talking negatively about his own company saying that that growth is slowing. That competition is coming that they're struggling through the
times. Let me put it this way, once you're the CEO of a company that is monopolistic and Incredibly powerful. It's as if you get invited to a secret Club, a secret Club of CEOs of monopolistic companies and they highlight the rules, right? When you enter in the club they say, rule one. Being part of a monopolistic company is you do not talk about the monopolistic nature of your company. Rule, two is to not break. Rule 1, do not talk about the monopolistic nature of your company.
You have to tell the public that you're a company, that faces lots of competition. You don't have a Stranglehold on the market. You are struggling. You're just hanging in there. That's what you do as the CEO of a monopolistic company. So with that in mind, you're We're going to hear a CEO like such an adult, come out and say, Microsoft, basically, controls everything in the corporate world. We have all of the most important applications, we Face minimal competition that we can.
Frankly, just by, if they ever actually threatened us and all things are running as normal, we basically don't have to do much to maintain our Monopoly. He's never going to come out and say that you have to read that between the lines. Tim Cook will never come out and say that iOS is a monopoly, he'll never come out and say that even though it kind of is Is you're never going to have the CEO of MasterCard which is clearly monopolistic and they own a duopoly with Visa.
The CEO of MasterCard is never going to come out and say look we control the payment rails. Everything flows through us, we have a natural monopoly. People, use our products, we have incredibly little competition and anyone that tries to go around us, instead of through US does to their own detriment. He will never say that. The CEOs of monopolistic companies are often the ones that talk mostly about all the challenges.
Changes. They face they talk about all the problems of company has all the competition they face and they do so because they know publicly that's what's best to highlight. Because in many cases the main challenge these companies face is legislation the government coming in and breaking up their natural monopolies.
Now on the contrary many cases the CEO's that talked about their company being a monopoly and facing no competition and they can't even see competition with a telescope are in many cases, the companies that faced the most Competition.
So a lot of this is completely in verse to what you would suspect as an investor, when you're listening to earnings calls and you're listening to companies, talk about their own company, the ones that are the most confident in their Market position are the ones that need to speak. The least amount about how powerful their business model. Is the companies that have the least powerful Market positions are the ones that have to convince investors.
They have to talk openly about how powerful of a company they are. So, Keep that in mind when you're listening to earnings reports either way. A lot of investors, don't get this subject and what such a Nadella did speaking down about Microsoft had the effect of throwing cold water on the earnings report. And I don't think that that paints an accurate picture for a
company of this quality. The main thing that I'll mention about Microsoft's report is even though things are decelerate in a little bit, they're slowing down the core products. The most profitable products in the most meaningful ones are still going really well. The server products, and Cloud services, they increased Revenue by 20%. All of their server products. Still grew at a 20% rate, the Azure business, their primary cloud service. Revenue growth was 31% and that's with currency being
adjusted. If you held constant currency, which basically means if you took out foreign exchange rates, it grew at 38%, that's an astounding level of growth for Azure. So, their core products are not decelerate in that much, that is still very strong growth. 'The so my opinion, even though this is a slow down this quarter, I think we can exercise a little patience here because I don't think this slowdown is going to last forever. The core businesses of Microsoft are still doing really well.
A lot of the things that slow down where their Hardware Sales things that I don't think are as critical for the core business for Microsoft. Now, moving on, we're still looking at the year-to-date performance here. I want to go into the financial category.
This is another one that I've built up heavily this year, SP Global and MasterCard. If you haven't studied these businesses, Is I recommend doing so because the more that I look into them the deeper, I dive the more I like these companies they fit basically. Every characteristic I look for in a compounder they have pricing power real pricing power where they raise prices for 10 years straight and they don't lose customers. As a consequence, they have
almost no capex requirements. So these companies are incredibly Capital efficient. They have pricing power their monopolistic. They're highly entrenched businesses that I think, will grow their earnings per share. R & free cash flow per share at a rate far exceeding. The S&P 500 over the next 10 years. I truly believe these companies will trounce the S&P 500 over
the next 10 years. MasterCard, just reported their earnings and it was basically in line with expectations, which is exactly what I'm looking for. The CEO had commentary, that's a little bit different than what we're seeing in the economic reports. He says that the economy overall is pretty resilient that consumers are holding up and he
speaks about travel. He said, quote as we look at the broader economy, We see the continued recovery of cross-border travel with volumes up 59 percent versus a year ago, and we're encouraged by Asia opening up further, while macro economic and geopolitical uncertainty persists, consumer spending has been remarkably resilient. We are well prepared to adjust our investment profile quickly if needed. That's another thing that being Capital, light allows you the company has a ton of
flexibility. One more thing that I'd highlight from this earnings report is their return of capital to shareholders because MasterCard is such an
efficiently ran business. What they're essentially able to do is reinvest very little back into their business and return all of their massive amounts of profits back to the investors, MasterCard, repurchased, 7.4 million shares at a cost of two point, four billion dollars and paid four hundred and seventy three million dollars in dividends if the stock price ever dips for a company like this, you know, that they're buying back, the shares aggressively, they will work on
getting that stock. Back up through share repurchases, MasterCard, is such an efficiently ran business that aside from some type of horrible disruption to their core business model. I think the company will continue to compound, it's free cash flow per share at 15 percent over the next 10 years. And in terms of core risks to the business model, I believe the biggest one is government intervention. Now again, we're still looking at year-to-date here and we're going on to the next category
which is consumer. This is a category that I have not been adding to this year. In fact, all I've done in in this category so far is trim different positions. I've trimmed my Nike position by a pretty substantial amount. I really like Nike as a stock and a company, I think it's phenomenally. Well ran the metrics are incredible. The profitability ratios are incredible. The balance sheet is solid, there is nothing wrong with this business.
But this stock price is just hard for me to wrap my head around no matter which way I looked at it. This stock is just expensive it trades at a 36 Ford PE ratio the free cash. Those that like 1% right now. I've even ran through different discounted cash flow metrics based on different assumptions. Oh, no matter what way I look at the company, I keep coming to the conclusion that it's just a
bit expensive. I thought it was time to take some gains and move the money to other companies that I think, present, a better risk reward in the restaurant category. Again, this is just year to date on these companies. I'm up in total over 6,000 on Texas, Roadhouse and 3,000 on Starbucks. And I have not been buying or selling either of these companies.
I've simply been holding them I'm very bullish on Texas Roadhouse. I still think this company is going to widely outperform the market, over the next couple of years, especially if demand stays relatively strong for restaurant spending. So we'll see how this one does the earnings reports. Next month, I'll give an update on it, but my assumption is it's going to be out growing a lot of
growth companies. I think Texas Roadhouse will be outgrowing the majority of big Tech once again after the restaurant category we have my real estate holdings. These are real estate investment trusts I only hold one company right now which is Vici so far up, 6.8% year-to-date. This is a very large holding of mine and I have not bought any or sold any this year and I don't plan on trimming.
This holding any time soon. I'm still incredibly bullish on beachy, although the company employs leverage because it's a real estate company, it has baked in pricing power, every single year they have contractual agreements to raise prices above the rate of inflation. So right there, we have the pricing power question solved and we also have a Oh, that aspect, because they continue to
buy new properties. So, overall, I still like the valuation of the company, I still like the dividend payments, I like the growth prospects. And then last but not least the category, that's performed. The worst this year is the Industrials, which are actually in the red this year down 1.5 percent year-to-date. I don't normally love industrial Investments and the reason that I don't love them is because of their incredibly high amounts of
capex. They require a ton of capital to run these This is lots of reinvestment back into the business year over year over year, for example, Union Pacific, and Canadian Pacific. The average capex that they have to spend proportionate to their revenue is around 15% per year. When you look at a company like Mastercard, or VISA or SP Global, it's less than a percent per year.
So, these companies, spend a fortune in capex, they have lots of heavy Investments, they have to make back under their business. The reason why I still invest in these companies Knees. Despite them having high capex is because of their monopolistic Market structure. The fact that they're highly entrenched and I think they face very little competition and chance of disruption. I thought the earnings report was fine, it was nothing, amazing, the market, didn't seem to like it that much.
The stock was down a couple percentage afterwards, but for the full year of 2020 to the company grew Revenue by 8%, which I think is good for Union Pacific because they struggle with that top line revenue growth and their operating income was up six percent. Now, what I actually thought, At the market didn't like, the most was comments, that the CEO made soon after the earnings release. He went on to CNBC and he spoke
about the overall economy. Yeah, so unlike say, the past three or four years, you've got this Dynamic of the FED raising interest rates very rapidly, which ultimately will destroy demand across markets and you've got consumers that have been telling us for quite some time that they're concerned. But they've been flush with cash. Mostly about transfer payments from the government, but also
from a very hot jobs market. So you put those two together and it does appear, that consumers are starting to pull in their horns. On Goods, consumption. They're still consuming at a high rate on experiences and travel and entertainment and and it's just not clear yet exactly what the impact is going to be of the FED interest rate increases. Although clearly, you can see early Innings, it's having an impact on things like housing.
You see the commonality here another You have a company that's widely considered an oligopoly and has entrenched Market position is not talking glowingly about the future. He's saying that things are a little bit less predictable. We have some employment issues and he's highlighting all the challenges but he can't highlight the strengths of his company. The CEO is not going to come out and say we Face very little competition. So we can continue to employ pricing power.
We can raise prices because our customers unfortunately can't really go to anyone else. Else, you simply not going to say that. Now, if I go back to the earnings release, I want to jump to what I actually consider to be the most important thing to me. This is what I'm looking for here. The 2023 guidance, what they outline here is full. You're operating ratio Improvement, so they're saying that margins are going to go up there.
Operating efficiency is going to go up and that is the story of the railroads becoming more and more efficient every single day. Then we have that next, very difficult thing that I look for in companies pricing power. The ability to raise the price of your product, above the rate of inflation for 10 years, straight without losing customers to competition, they outline that they're expecting to price dollars in excess of
inflation dollars. So they're raising their prices in excess of inflation and they state that openly why are they able to do that? Because their railroads and their customers frankly don't have many other options and then in terms of capital allocation like I outlined they spent a significant amount of their revenue. On capex. And this case they're aiming for less than 15%. That's a lot of money spent on
capex. This is a downside of the company but overall I really liked the fact that they pay a dividend with a low payout ratio and then everything else goes back to share repurchases, which they repurchased over four percent of the shares outstanding over the past year. So even though the railroads haven't surged like the rest of the market this year so far, I'm still very bullish on them and I'm still buying these companies. I'll be adding to these positions.
And as long as they lack the rest of the market. So this is what the portfolio looks like. Year-to-date you can let me know what you think of it. If you agree with my byes, if you disagree, I'd be interested to know and I'm happy with the performance year to date as well as all time. I think we're headed in the right direction. Now let's go ahead and move on to some news. We have the headline news that
u.s. GDP Rose 2.9 percent in the fourth quarter and there's a lot of different takes on this news like most economic data, you can look at it positively or negatively. Lee, I'll give you the basic argument for each side. The argument that the Wall Street Journal makes and what most economists are making right now, is that this news really isn't as good as it. Seems the overall economy slowing down and we're coming out of an environment. That was really easy going into
environment. That's really difficult. They say the fourth quarter, capped a year of economic slowdown in part reflecting a return to a more normal pace of growth after output surged amid business. Re-openings fiscal stimulus and waning pandemic in 2021. All right, so Just got done with our pockets, being filled with money and being locked up in our homes. And finally, we are able to spend that money.
We're able to travel. So naturally, the economy is rebounding a little bit but then they go on to highlight that the economic output grew one percent in the fourth quarter of 2022 compared with a year earlier down from five point seven, percent growth in 2021 and 2.6 percent growth in 2019. So overall the longer-term trends are that the economy is slowing. It's actually moderating and Pace. Whether you look at that as a good or bad thing is up to you, in my opinion, I actually think
that this is a good thing. If we have a overheating economy, that would be basically an invitation to the FED to raise interest rates dramatically more. So, I think the economic growth actually, moderating is a good thing in terms of the feds interactions, and then the other bit of news is the layoffs, this is the more sad news.
I really don't enjoy, seeing people get laid off from work even when it's Justified from, Company even when it's responsible move by the employer, it's still not a fun thing to see people losing their livelihood, losing their income stream. That's basically like a worst nightmare for anybody. That depends on that income stream and that's part of the reason building this channel is trying to help people find a different way to find passive
income. The ability to at least survive without your primary job with enough effort and time we can get to a point or not totally reliant on our primary income, but layoffs have been picking up. Up and they started off with the biggest companies that are the trendsetters once big Tech does anything, everyone else follows. That's the way these things work. A lot of companies simply modeled their covid policies. After big Tech if big Tech was working for home, all the other
companies would work from home. If big Tech required wearing masks in the office, other company said, you had to wear masks in the office other companies, basically copied their HR policies and their corporate policies and now other companies have the leeway to do layoffs. Because big Tech has done layoffs. So this is a concerning trend of rising layoffs. In, in my opinion I think this is going to continue.
I think a lot of these companies that did a big round of layoffs are going to be doing another round of layoffs. When you look at the fundamentals of them, many of them hired. So many more employees than the fundamentals of the companies justify. And I think we're going to see a pretty big reversion over the next year. Now on the subject of layoffs with these companies like Google, one of the things that I've been highlighting over the past year are these videos of a
day in the life. Life of a Google employee. And the reason I've been highlighting this is because I think they're so incredibly revealing of the problems with the culture of these companies, you can even see from watching any of these videos basically all they're doing or at least all they're showing here is eating tons of good food hanging around and doing minimal. Work it to the office at around 6, a.m. to beat the traffic and just get a nice workout and around 7:00. A.m.
I'm getting ready to the locker room. Getting breakfast at this really cute. Cafe at ADM. Got some Crepes iced Americano, which is so. And at around eight, Twenty Eight got to work. I usually get a snack at around 10 a.m. and today I forgot to charging cable. So I went to the vending machine to get one and 11:30 is usually, when I eat lunch, I got a whole hodgepodge of things including pizza and this is the view that I like to eat with our 12:00.
I get some more caffeine and just spend the afternoon doing some more work. I like to do stress at the end of the day and today, I booked a massage appointment. So I have that for an hour and then go home at 5:30. These are the type of videos that we've looked at. And I've repeatedly said, I don't think these videos are a good idea. I think they represent the company poorly. It's bad PR for the company because it makes it look like the employees. There are wasting money and resources.
I think if employees are going to make these videos, they should focus more on the work that they do. What do they actually do at work? I think that'd be very interesting to see, I'm sure they do. Lots of high-level things things that are very important highlight. Some of that stuff, it would look a lot better to people that are watching this on the sidelines. Now, this employee hair gets to the end of this day in the life
of video. And then she has an important update for us at 5:30 Big Life Update. Got laid off yesterday. So, that's the end of that. And now we're seeing more and more of these videos pop up of people getting laid off from companies like Google. So I woke up to this really ominous checks for my boss and I honestly had no idea what it was going to be about. So I called her the minute, I woke up and saw this and she told me to check the news and my email.
So I rushed downstairs to find out that I had lost access to basically everything. I couldn't log into my email or even check my calendar. I called my boss back and we just sobbed over the phone because she was also finding out about by layoffs for the first time today to started getting calls from a bunch of my Coworkers and started finding
out. Who else was let go on my team and some neighboring teams as well, but I think the worst part is that it seems like no one was consulted on this decision and everyone was just finding out about the layoffs at the same time. It just felt like a really bad game of Russian Roulette. And there was no consistency around who was let go. It was also not performance-based, so it just felt really random. I opened up LinkedIn, which honestly was not great for my
mental health. There were so many people who were in the same boat that were both equally as shocked and blindsided, by It said help me feel a little less alone. Honestly, I spent so much of the day crying that. I just felt so tired from being sad and wanted to do something that would just make me feel better. Luckily I have an annual pass. So I headed over to Disneyland because I wanted to go eat my feelings.
So I started off with a cinnamon Galaxy churro and so she gets laid off from Google and heads to Disneyland for the day. Now, what she said here was correct as far as I can tell, there was no performance-based layoffs at Google, lots of people that had very high marks got laid off. Lots of people that were tenured that worked at Google for a long period of time, got laid off and the CEO of Google. Sundar pichai is taking a lot of heat right now.
For the way that this happened. In fact, Google just recently held a town hall where they described it as animated because there's a lot of very frustrated employees. And in this case, I actually agree with many of the employees complaints in the town hall. Sundar pichai, is taking a lot of heat and a lot of different accusations and questions and he tries to justify the reason that they over hired and he tries To explain why Google over hired and this is an explanation that
I just don't understand. But Chie said that 2021 marked quote one of the strongest years we've ever had in the history of the company. With 41 percent Revenue growth Google increased headcount to match that expansion and pichai said that the company was assuming growth would persist. Now, first of all, did Sundar, pichai really believe that growth would You at a rate of 41 percent for a company, the size of Google because I have a very difficult time believing that.
Any reasonable person would believe that growth would persist at anywhere close to this level that there would be no reversion to the mean, I'm not Sundar pichai. I'm not as knowledgeable as him, I'm not as smart as him but I've highlighted many times on my channel, the anomaly of growth they had in 2021 and how that was likely not going to continue when things like that happen. There's almost always a
reversion. So surely Sundar pichai knew that this growth was not going to persist and him saying that he hired thirty thousand extra employees on the assumptions growth would just continue in perpetuity I think is a little bit upsetting I don't buy that excuse at all but that was the decision that was made in that context. We made a set of decisions that might have been right?
If the trends continued again if the trends continued if Google kept growing at 40%, if YouTube Revenue kept growing at 40% per year There's no way these Trends were continuing at that rate of speed aside from that. There's another problem I have with Sundar pichai, is assumptions here. He says, you have to remember that if the trends had continued and we had not hired to keep Pace, we would have fallen behind in many areas of the company. Now this part I'm a little bit baffled as well.
I don't understand it. Google is a highly scalable business with a ton of operating leverage with an extremely efficient Core Business in Search and YouTube. Properties that they own are not like Amazon's they don't have to hire warehouse workers. They're not like Union Pacific. They don't have to lay Railway to grow their business.
Their company, that is incredibly efficient, Google searches one of the best highest margins most efficient businesses on Earth. So I have a difficult time understanding, why they would have fallen behind if they didn't hire, as many employees. So I think a lot of this is the
fault of a management. And I think it's something that a lot of the bigger tech companies did a Has on over hired as well, Microsoft probably over hired in parts of their company, but Google, I think was the one that did this to the most extreme. Now, for those of you that might accuse me of having hindsight bias and saying everything's 20/20 in hindsight, I wasn't just saying this.
In hindsight, I have videos mid last year, over six months ago, questioning why the company was still hiring. So many employees, this has been an ongoing problem that I've highlighted time and time again with Google and they say, in terms of the employees that was laid off. There was A lot of things considered their skillset, how crucial their role was their experience, their relationships, their performance, so on, and so forth.
So, there is no one thing that determined it, I think a lot of it just came down to where they could cut costs the most. Now, the last thing that I want to mention is a note from Morningstar, and I want to give Morningstar an award hair for this note, the award that I'll give them is being latest to the game. The latest one to figure something out that the last person to actually figure out the obvious. They Have apple here, which they currently give a three star rating.
And then just recently, they decided to upgrade Apple from a narrow economic moat to a wide economic mode and they've raised the fair value to $150. So, there you have it from Morningstar. They finally acknowledge the obvious and I thought we should take some time and appreciate them for doing that. Now, that's all for this episode. I hope you enjoyed and I'll see you in the next one. Have apple here, which they currently give a three star rating.
And then just recently, they decided to upgrade Apple from a narrow economic moat to a wide economic mode and they've raised the fair value to $150. So, there you have it from Morningstar. They finally acknowledge the obvious and I thought we should take some time and appreciate them for doing that. Now, that's all for this episode. I hope you enjoyed and I'll see you in the next one.