Stock Club EP#173: Unlocking Japan's Investment Potential

Welcome to Episode #173 of Stock Club. In this episode, we're diving deep into the Japanese Stock Market, uncovering Ajinomoto, Calbee, and Nissan. We'll also explore the impressive rise of the Nikkei stock index and dissect Apple's strategic shift towards repair-friendly products. Zillow's 1% down payment mortgage plan

Key Highlights

1. The Japanese Stock Market Unveiled

The Japanese Stock Market holds intriguing opportunities with companies like Ajinomoto, Calbee, and Nissan trading below book value. We explore the factors behind their undervaluation and the strategies propelling them forward. The Nikkei stock index has also been on a remarkable ascent, and it's not by chance. We delve into the factors fueling this impressive rise, including a weaker yen and endorsements from major investors.

2. Apple's Strategic Shift

 Apple is making a strategic shift towards repair-friendly products. This move carries significant implications, not only for consumers but also for the repair industry and Apple's broader strategy. We'll examine the motives behind this change and what it means for the future of tech.

3. OpenAI vs. Microsoft

OpenAI's recent launch of a business chatbot competing with Microsoft raises intriguing questions about the dynamics between these two tech giants. With a shared 49% ownership, the competition adds an interesting twist to their relationship. We'll dissect the implications of this development for the tech industry and investors.

4. Zillow's 1% Down Payment Plan

 Zillow's innovative 1% down payment mortgage plan has caught the attention of many prospective homebuyers. However, it also comes with its fair share of risks. We'll examine the potential pitfalls and the broader challenges millennials face in achieving homeownership in today's competitive housing market.

Stay tuned for more captivating insights and thought-provoking discussions in our upcoming editions. Until then, keep exploring, keep learning, and keep thriving in the world of finance!

Transcript: 

Michael O’Mahony: 1:04

Hi there, I'm working at Stockloaf, a podcast brought to you by my Wall Street. I'm Mike from Jeremy. Today's episode is an image and memory from my Wall Street Analysts team. A quick word from our friends and sponsors at Vodafone Business before we move ahead. Vodafone have recently launched their V Hub Digital Advisory Service, offering Irish businesses of all sizes free one-to-one digital support and advice. You don't even have to be a Vodafone business customer to avail of this service. Search Vodafone V Hub to book a call with one of the V Hub digital experts and we will leave a link in the show notes for today's episode. I'm Marie Amish. Welcome to another episode of Stock Loaf. Another day in paradise. We've been recording nonstop, I feel like for the last week, so I think we're really no offence to both of you, but I'm sick of the society.

Emmet Savage: 1:45

Yeah.

Michael O’Mahony: 1:46

I get that a lot when Ferris, me and you, emmett, I think, are worse.

Emmet Savage: 1:51

Actually, we go through like four meetings in about two days sometimes, which is rough yeah yeah, exactly, and the worst thing about Zoom and the Zoom generation is that you are sitting in front of, effectively, a digital mirror all day.

Michael O’Mahony: 2:03

Oh, staring at yourself. You have to hide the camera, hide the selfie, whatever it is.

Emmet Savage: 2:09

Yeah, definitely when possible, but sometimes it's not possible. Sometimes I'm on a call and there I am and I can't get rid of me. Yeah, and it is so weird, like imagine pre the virus if a mirror was placed on a table every time I was in Vodafone, In board meetings there's just those hand mirrors slightly to the right of who you're talking to.

Anne Marie: 2:33

Do you guys find that you stare at yourself like the entire time? Oh, 100%.

Michael O’Mahony: 2:36

That's what I was saying. Like yeah, it's awful.

Emmet Savage: 2:39

Yeah, it is awful. I mean it's hard not to, because you know well, it's the face you're most used to, but the one you've actually never seen in the real world.

Michael O’Mahony: 2:46

And that's what I was just going to say. The most messed up part about it is that that's the. You're always staring at the inverted view of yourself. You don't even know what you actually looked like.

Emmet Savage: 2:54

Yeah that's strange, you're right, it's so true, like when we're looking at our lighting with a real image versus a virtual image. You know your left is your right and your right is the left.

Michael O’Mahony: 3:04

It kind of messes with your head a bit, I'd say people on TV, like news announcers and stuff, get an awful war of self-image in themselves.

Emmet Savage: 3:15

I think it's inevitable. Oh yeah, I mean, it really is weird. I've sometimes thought that if I lived alone, I'd have no mirrors in the house. I would have no interest in mirrors because, honestly, I've seen it, I've seen that face enough times to remember what it's like. I'd use it when I'm in the barber so I could just keep an eye on progress, but I'd have no interest in a mirror in my house. That is a fact, yeah.

Anne Marie: 3:37

But then see, you get caught with that though, because then you'd like to walk out of the house and you'd be covered in toothpaste or something.

Michael O’Mahony: 3:42

Yeah, you wouldn't know, big smots hanging from your nose.

Anne Marie: 3:47

Yeah, and then you would get to like one or two in the day and someone would finally be brave enough to say it to you and you would be going. Oh my God, how long have I been walking around like this? It would ruin the last several days for you, I think.

Emmet Savage: 3:58

Yeah, my cousin did a half marathon with her underwear in her hair, which she had used to hold her hair back that morning, and didn't notice. Now she's an absolute ticket. She's one of the funniest people, but it was not a comedic movement.

Anne Marie: 4:11

On behalf of those absent-mindedness it's so nice of you to put her on blast once again on this public platform, thousands of people who listen to this podcast Right Before you tell anything more incriminating about your family members.

Michael O’Mahony: 4:23

Emish, we're going to Japan this week With a look into Japanese investments in general and the Nikkei 225 index as well. So the three of us have watched our free weekly news that are charging for us to pump out international investment after international investment. They're all very good ideas, but considering the value of the Japanese index in relation to, we'll say, other stock markets, it is kind of the overall value of the market that there's a relative lack of Japanese companies in that flow. We'll say so. Can you explain why you think Japanese companies maybe don't get as much attention as others?

Emmet Savage: 5:02

Well, what's absolutely amazing, Mike, is that many stocks over there in Japan are trading way below their book value. Well, according to Wall Street Journal anyway and Tokyo's exchange finds this wholly unsatisfactory. And it all comes back to the fact that Japanese corporations have been labelled as unprogressive and I have to say I have seen it myself for years and years. It's just that they never seem to absolutely speak and deliver. But apparently companies are now actively working to dispel that stereotype, which might, I suppose, spell an opportunity for us international stock investors, international people of mystery. Suddenly, there's a surge in very specific comments by Japanese companies floated in Japan that speak to growth and transformation, like, for example, Ajinomoto. Actually, lads, have you ever consumed a product from Ajinomoto?

Michael O’Mahony: 6:05

Not that I know of, but I assume you're going to prove me wrong.

Anne Marie: 6:08

Yeah, it's just like some massive, massive company that has like a dozen brands that we've there will be like oh yeah, I interact that every day. Yeah.

Emmet Savage: 6:16

Well, you better believe that, because they sell.

Michael O’Mahony: 6:19

We didn't really play that role properly for you.

Anne Marie: 6:22

Okay.

Emmet Savage: 6:26

Like, so they do. Msg monosodium glutamate everywhere, everywhere. Which, by the way, when I read about the company last night I was looking at, I managed I fell into an Ajinomoto or more to the point, an MSG rabbit hole of research. I never thought, but there I was late last night reading about it. And, as a sidebar thing, in the 1960s a letter was published in a US medical journal which alleged that eating Chinese restaurant food triggered headaches and heart palpitations and all these other symptoms which led to this widespread misperception that the cause was MSG and that actually led to the term Chinese restaurant syndrome C or S, which in turn led to anti-Asian sentiment in the US. And from all of that there's a negative image of MSG that has become fixed in the public's imagination and apparently it's all baloney and MSG is absolutely fine. That said, I would not sprinkle it on a strawberry, but I have no fear of MSG. I've no will, will and my heart towards it.

Michael O’Mahony: 7:34

I've made my pieces with MSG, Wasn't there the Irish? Was it Aromat? Does MSG have it?

Emmet Savage: 7:41

you heard of Aromat.

Michael O’Mahony: 7:41

No, no, it's from like the. It's old school enough now. I think it's from the 90s or something. It was just like very bright yellow seasoning, I think it was. I think it was MSG, but I can't remember. Irish people on over Suddenly.

Emmet Savage: 7:58

Irish housekeepers were good chefs. Potatoes tasted more potato. We and their bacon tasted more bacon, to totally play to the Irish stereotype. Anyway, ajinomoto has declared plans to triple its earnings per share by 2031, which is a goal that will demand a really significant overhaul of their current business model. I mean, there's only so many valid meals for MSG, right, but they're going to triple it. And then there's Calbee, who makes snacks. You'd die hungry if you're on the Atkins or Paleo diet and locked in the Calbee factory. They do potato based, flour based, corn based snack foods and cereals. Basically, they do food that crunches when you eat it. I'd imagine it's good. It's a good factory to sell beer in, though If you're locked in that factory, the beer business would be a good one. Anyway, never mind. Anyway, it said earlier this year that it'd been hampered by a conservative inward facing corporate culture and weak ability to affect change, and the net upshot is the 74 year old company's pledge to revamp its business and boost its profits. And when I read the statement, it just made me realise once again, the Japanese do contrite very well. They really are so apologetic. They punish themselves really when they, when they identify something that is perceived as a weakness. But if we look at other names that are far more familiar. Nissan, for example, has decided to increase its annual dividend, with plans to raise it further, which signifies a really direct move to enhance shareholder value and trust. So these strategies are collectively working towards basically a singular goal, which is to convince investors that Japanese corporations are evolving, that they're embracing change, that they're determined to offer better growth than, ultimately, better returns for investors like us.

Michael O’Mahony: 9:53

And the Nikkei. Is it Nikkei or Nikkei? I'm not sure, fully out of pronunciation.

Emmet Savage: 9:58

I've heard both pronunciations, but I've always called them Nikkei. I kind of blend both pronunciations, just kind of like Nikkei. There's some words I kind of fudge because I've actually heard a pronunciation wall. So anyway, that's a go there.

Michael O’Mahony: 10:12

It's one of those words. You have read it hundreds of times.

Emmet Savage: 10:15

Yeah, I don't know how many times.

Michael O’Mahony: 10:16

I've said it out loud to Nikkei. We're going to go to Nikkei for this episode anyways. Dusty Irish pronunciation Nikkei yeah this is a flat.

Emmet Savage: 10:23

Are we a Nikkei? There's a flat. No, nikkei, I'll write here. Nikkei, I heard you have an index.

Michael O’Mahony: 10:30

So the Nikkei is at a huge start to the year. It was outperforming the NASDAQ. Is it still? I'm not sure.

Emmet Savage: 12:21

Yeah, so, as you said, it's the Japanese primary stock index. It's basically the S&P 500 of Japan and it has witnessed a remarkable surge this year, up from about 26,000 points to about 32,000, which is a 12.5% increase. So I'm not sure if that's ahead of the. Nasdaq but it's certainly been a performer, yeah.

Michael O’Mahony: 12:44

So what are the trends or the influences that have been behind this surge?

Emmet Savage: 12:49

Well, there's a few reasons, First and foremost, from what I can see, good old fashioned currency dynamics. A weaker yen has made Japanese goods and services more competitive in the global marketplace, and this currency advantage in turn has benefited Japanese companies, which ultimately leads to positive repercussions for the stock index. So previously, it was too expensive to put MSG on your spuds. You can now do it no problem. It's good value. So then there's also, I suppose, joint first place, for what's driving the index is endorsements from the gods, like in this case. Warren Buffett has given his all knowing nod of approval to the Japanese market, and in middle of June 2023, berkshire announced that their wholly owned insurance subsidiary had acquired about 5% of five Japanese companies, which are a Tochu corporation, mitsubishi, who we all know, and then Sumitomo Corporation. So, basically, Berkshire has gone on a buying spree which we've all seen. For now, at 65 years, there's a very strong signal of value.

Michael O’Mahony: 14:00

So he's not a national investor. He's not the only one either. Elliott management is there. Dan Loeb, I think, is in there as well, that's right. Yeah they're all recognizing the same thing. I think what you've mentioned already.

Emmet Savage: 14:12

You're absolutely right. So, where previously it was an ignored market, all these international investors would incredible track history of success and who were once apathetic towards the Japanese market have started to redirect their capital. And I think some of this renewed interest is due to growing scepticism about other markets like China, which is prompting investors to seek alternatives in APAC and Japan, with this blend of really established corporations and brand names that we all know and trust and have seen our entire lives, and then emerging innovation, and then a bunch of companies who really have sat up straight and started to promise investors that they're really going to focus on what matters, it is an attractive proposition. And then there's other factors as well, like the overall robustness of Japan's economy, which definitely has provided, I suppose, a solid backdrop against which companies can actually thrive.

Michael O’Mahony: 15:09

And we've discussed this before. I think it was me and you Emery around the kind of complexity of the corporate governance over there and there's a lot of companies that own shares of other public companies. So if you have someone like Warren Buffett or even Paul Singer from Elliott Management who can come in and crack the whip and tighten things up, it seems like it's low hanging fruit for a lot of these major investors. If they focus away from complexities and simplify and just bring it into just how do we get shareholder returns up to a point we want, basically. So I think there is a lot of opportunity there, and you mentioned this earlier. The price to book ratio so why is it so significant in Japan and what are the limitations to that?

Emmet Savage: 15:54

Yeah, the price to book ratio has really emerged as this really salient metric, as a benchmark for valuation, not just in Japan, but everywhere really. And the Tokyo Stock Exchange noticed, I suppose you could say, that nearly half of its listed entities were trading below their book value. That's unbelievable and it really sounded like alarm bells. And, as I'm sure our listeners know, when companies trade below their book value, it indicates that a market values them at less than their net assets, which really is a concerning sign for investors and it highlights potential issues with profitability.

Michael O’Mahony: 16:31

More. More concerning sign for management no, oh yeah, oh yeah, you're right, you would think they're being painted by saying they're worth minus value to a company and what they're doing.

Emmet Savage: 16:42

Yeah, I mean, I've always celebrated management teams that low ball their expectations for the quarter or a half year, a year ahead, and we've always said it's great when you see a company smash its own targets quarter after quarter. But it seems that there is an excessive helping of modesty from Japanese businesses and leaders and there's this fear of not thinking big but promising big. So they definitely consistently underpromise. Now that actually leads to and do they over deliver? Not necessarily, but I suppose when, as much as it's concerning for investors and you're right, absolutely concerning the sign for the management team it really does indicate that there is some unrealized value or unacknowledged value. I mean, there's value sitting there, but will it ever be acknowledged? And like Peter Lynch, in his book one of the most which we speak about regularly on the podcast here identifies the, I think six or seven or eight types of companies. I can't recall how many he said, but one was a value play and in the, in the example he gave in the book, was it?

Michael O’Mahony: 17:52

Nina paper. It was a company that owned and landed on numbers worth. More than the market cap or something like that.

Emmet Savage: 18:02

Yeah it had millions of acres of lumber as far as I recall. But the point that Peter Lynch said in the book is that this Unrealized asset may never be recognized. So you might say, wow, this company is a B&C, that the market is discounted to zero. But will the market ever spot that?

Michael O’Mahony: 18:22

anyway, yeah for difference between, a difference between a value plan. About your trap, I suppose, isn't it?

Emmet Savage: 18:28

That's exactly it. So the price to book ratio offers a straightforward tool for comparing companies within sectors and this helps us identify undervalued stocks, but it really is limited because there is no one size fits all metric. Any investor who's really been around the block a few times Realises you just cannot compare apples to oranges. So the price to book ratio might be effective for certain industries but absolutely is useless and others, for instance, it's not really useful for sectors like banking, where giant banks, like, their raw material is cash, so they might have capital reserves on the book or have a ton of Deadout standing to their end customer, but on the book, when you look at price book ratio, it does not look well. And then, on top of that, it doesn't capture Intangible assets, which is really flawed, when a significant portion of modern companies lies in intangibles like intellectual property and brand value and goodwill. And you know, going for something that here to for has never been Done before and I very often on the podcast talk about CRISPR, not just CRISPR therapeutics, but CRISPR is a human pursuit how are you going to use a price to book Evaluation for a business that is out to utterly change Human kind with something that has never been done before. So anyway, look, net. Net bottom line is that when you use the price to book ratio, it carries a risk of oversimplification and it's fine if you understand it doesn't. Are 20 companies on your spreadsheet, so to speak, and you realise they're all, broadly, businesses that you can use price to book for. But when you apply it to an entire Nation as listed on a stock exchange, in this case the Nikki you, you basically see it, you basically see its flaws.

Michael O’Mahony: 20:19

Yeah, I suppose it's recognizing something is undervalued, isn't the whole hog? You know, some things are undervalued for reasons, and figuring that out is as much, or if not even more important.

Emmet Savage: 20:33

In the last couple of years, even the last 12 months since we launched charging of fearless, I have awoken to the the criticality of having a broker, or at least a couple of brokers, that allow you access to markets beyond the two big ones in America and definitely New York's stock exchange on NASDAQ. I did two exchanges that I suppose our ring fence around the safest investments. I'm saying that what I mean is governance is best and it's at its peak in America, and the standards by which you need to adhere to in order to list your stocks on the two big exchanges in America Is the highest, and Sarbanes oxley is there, but just massive, massive value, untold value in dozens and even hundreds, well nearly hundreds of other stock exchanges around the world, like Sweden is an incredible stock exchange. I'm looking at stocks and I'm looking at the output of the tool we're building, for something will unveil soon enough and Sweden's an amazing hunting ground for great investments, as is Norway, as is Denmark, as is Japan and really you, traditionally, if you like. I have logged on to my broker, my main brokerage account is TD Ameritrade, soon to be Schwab, actually Schwab the day after tomorrow. They're fully switching over day after tomorrow, as we recorded on Wednesday 30th of August. But I know that they, like they, have pretty far reach. They've a wide reach into a lot of exchanges but I'm seeing more and more value that really requires a broker who can settle almost anywhere you want. And I'm a huge believer now in retail investors Looking at the reach of their broker, as opposed to just the two big ones in America.

Michael O’Mahony: 22:17

Yeah, and there's a little secret to it too. I think Ben Carlson wrote a great piece recently about international diversification, and We'll have short-term memories here because US stocks have outperformed everything by a country mile. In the last We'll say, yeah, 10 to 12, 13 years, but before that International stocks and emerging market stocks were far outpacing the US. So it does flip-flop a bit. So it's important to kind of keep the eye out, I suppose.

Emmet Savage: 22:49

Yeah, I was speaking to Chris Mayer recently. I've had a few chats with him author of 100 baggers again in preparation for a new my Wall Street product and, and effectively he named two businesses that he has very, very high conviction for and and that let's just say if you're going to try and find 100 bagger, you put these near the top of your list and and to buy them is tricky, like it's difficult. It's not just a log on there now and shows a few Bob in. It's actually a bit of a. It's a bit of an odyssey to try and find a broker that will help you buy them.

Michael O’Mahony: 23:25

Yeah, okay, we'll leave it on that teaser there, and it's so. And, Anne Marie, we're going over to California, very far away from Japan. This is a pretty serious 180 for Apple. So it's now actually supporting the right to repair bill that's currently looking to be passed in the California court. So why is this such a big deal, both for Apple and then for its customers as well?

Anne Marie: 23:48

Yeah, it's a pretty huge, I think, significant cultural shift for Apple. If you ever go and watch that movie Steve Jobs the one that has Michael in it, not the one fashion culture, very important there there's this pivotal scene kind of in the beginning of the film and it's immediately before the Macintosh computer is going to make its 1984 debut very intense. They're in the hall, they're preparing for this live event and there's a system error in the computer. And when the engineers comes over and says if it's a hardware issue, we can't get into the back of the computer, and Steve Jobs is like okay, and Joanna Hoffman, who is Steve Jobs right-hand woman for a number of years, who's put by Kate Winsett, is really confused and she's like what do you mean? You can't get in the back of the computer, just open the computer. And it's revealed then that you need special tools in order to open the Macintosh and those tools are made by Apple exclusively and all the engineers forgot them at the office. And this is because Jobs insisted that the computer use non-standard screws. And the reasoning for this, it's later revealed, is that Jobs didn't want consumers to be able to open the back of the computer, which was absolutely insane at the time because at home computers were incredibly expensive and it was not uncommon to hear somebody building their home, set up piece by piece. Or you know, they would make an initial investment into a computer with the assumption being okay, I will update the RAM in six months or nine months or whatever. So the fact that he was arrogant enough in 1984 to say, no, we're gonna ship a Computer that no one should need to open Was pretty insane and like the point of that scene is to introduce the concepts to the audience and also to Kate Winsett's character, that Apple, from its very conception, was building a closed loop system. You know, from the very ground up they wanted to own and control absolutely everything that they were producing. But I think it also is an even greater testament to the perfectionism that Jobs had and his belief that, like a truly user-friendly Computer should be absolutely perfect from the moment it touches a user, like it should never even cross somebody's mind a Desire to open their device and try messing with it. You know he was so obsessed with design and aesthetic and the way things looked because he knew that that would also inform the internals. You know he felt that all Apple devices should be like magic when they arrive. And you remember, like some of those presentations, like I remember, when the iPod was introduced, it really was like that. You know people were astounded by the technology that they were able to pull off, and that culture has really been maintained at Apple, this idea that you really shouldn't mess with anything. The way that we give it to you is how it is meant to be. You know we have seen that even after the passing of jobs like that has been maintained and you know we can look back at instances in which it has gotten them in hot water. You know, a few years ago it was revealed that Apple had installed software into all the iPhones to slow them down as they got older, in an attempt to preserve the battery. But this has not been kind of said to consumers and consumers got upset. They basically said I would much rather maybe just replace my battery, then have the understanding that my phone is going to slow down. And you know Apple, on the other hand, was probably arguing well, you know we designed this technology that it will eventually be replaced, and we would. You know, if you want to have a nice experience, we would much rather prefer that you get a new phone with a new screen and a new camera and a new battery, but anyway, that's not really the way that the world has ended up working as iPhones have become kind of more prominent. So this is a pretty extreme pivot. Apple is basically changing the definition of what they think is user-friendly and Probably some of this is probably born from the fact that, like this is no longer than 1980s and 90s. People are very, very comfortable with computers and with electronics. They use them absolutely every day, every hour of the day, and so probably the idea of opening up one of your devices and making an adjustment, or even just like having the understanding that, hey, like it's, at some point, if I become frustrated with something, I can take it in and just one aspect of it can be replaced, or I could take it open and put the new battery in. I'd say consumers find that less daunting and see that less of a reflection of shoddiness and more just a reflection of an ability to kind of Fully own a product. It's probably also simply a reflection of Apple's ability to find a way to maintain its design standards While making the phones be easy to open and repair for a really long time. I remember it was like, in order to replace the screens on iPhone devices, you had to heat the phone up in order to get the glue to unstick, because they had designed them in such a way that it was like, once the screen was on, it was never coming back off, and so it meant that you go to these repair shops. They were really doing work that, like Apple, had never conceived being possible, and so obviously then you know, the likelihood of that screen lasting more than six or nine months was pretty low and, interestingly, actually Apple this is something that's been kind of bubbling away in the background, it's been in the works for a bit Apple expressed their openness towards the shift, kind of within the last year to two years. We could see things were kind of on the horizon. But this right now, is them really coming out and saying, ok, yeah, we're on the same page. The way that they did that is they wrote an open letter to California State Senator Susan Eggman wonderful name that they would be supporting her bill, which is SB 244, which will require vendors of consumer electronics and appliances to make sufficient documentation, parts and tools for repairs available to customers and independent repair shops, and while this is just a single bill that they've written a letter of support to, there are 14 others currently sitting on state floors in the United States, and the European Union has proposed very similar legislation. So, as of right now, probably getting on the right side of this is just like probably a forward thinking business move as well, because you know, if it's coming down the line, you may as well be ready.

Michael O’Mahony: 29:13

So what are the motivations, then, behind Apple getting on the right side of this, like they've been pretty much fighting it for what? 20 years, more or less? Oh yeah, You're saying 1984, you know, yeah, yeah.

Anne Marie: 29:28

Um, yeah, my optimistic side says love of the consumer and into the environment, and my pessimistic side says money. So, as I kind of mentioned in the last question, they've been trialling this already. So in 2021, they announced the self service repair program, which was small, it was kind of like a beta tester. It only initially started in the US and that allowed customers who were comfortable with the ability to gain access to tools and parts to open their iPhone 12 and 13, and then a couple months later, they rolled it out that they would allow consumers to open the Mac computers that had an M1 chip. So that was kind of you know, once that Apple themselves had manufactured more of the internals and this program was pretty interesting because not, not, not, not even two years prior, in 2019, apple had gone in front of the House Judiciary Committee and argued that by doing their own in-house repairs, they had never, ever made money. They said, hey, we have allowed consumers to bring in devices to have batteries replaced or have screens replaced for over a decade and we have never, ever turned a profit on that service. So this just isn't something that we can feasibly do. And then 2020, when they pop up, never mind, you know, if you want to do this in your house, fair enough, we'll sell you the parts. But as we just kind of know from our own usage and you know looking at statistics, and we know that iPhone sales are slowing and iPhone sales make up a significant portion of Apple's revenue, you know we end up keeping our phones for longer. I think I have an iPhone 11. I have had that. In December I will have had that phone for four years and it's fine, like it works, fine.

Michael O’Mahony: 31:01

I've not really thought about getting anyone. I'm very because they got caught slowing down my phone, so yeah, I'm very much kind of like you know.

Anne Marie: 31:09

I like that I had an iPhone five prior to this one and I used that thing until it would not turn on anymore. I was like I just didn't have the motivation to kind of swap it out, and so I would say Apple has sat down. They probably crunched the numbers and were determined to listen, this is inevitable. People are keeping their phones for longer, so we may as well get some revenue out of them. And, as anyone who's like walked around any kind of major city, we know that there are an awful lot of phone repair shops that are making money doing this work anyway, using unauthorised parts, stuff that's been taken off of old devices and pretty shoddy workmanship, and I would say Apple is just going to attempt to box those players out and make this an authorised service. According to an article in the Guardian, we already know that the way that Apple has priced its authorised parts to third party vendors and third party repairs people, it is almost impossible for these shops to compete with Apple in terms of pricing. In many cases, Apple is going to offer the cheapest prices for its work that will be authorised and insured. So really, for most consumers who are thinking like me, who are thinking I would like to keep this device for five or six or seven years. They would probably say it's worth paying the premium on having this repair service done because they know it will be insured and the likelihood of the screen going black after six months, being going to have to go to another repair shop and pay again is low. So I say that's the market here that they're tackling. We will house her, to guess. Now. Apple actually announced yesterday, the 29th that it will be having a big iPhone conference on September 12th, and I wouldn't be surprised to see them come out with a big repairs spec and, you know, consumer ideas section. I wouldn't be surprised to see them say OK, from now on we would recommend that consumers have the batteries and their phones replaced every year or every two years, and you know we will offer the ability that, as we bring out new cameras, you can have your phone brought in, you can have the camera replaced. Or, you know what, if you want to upgrade the internal chip, that will be fine with us. And I think that's a big key thing, because you have to remember that Apple has spent the last two years building out its in-house component manufacturing. It will begin making its own iPhone chips by the end of this year in Arizona, and it is already manufacturing the M1 chip for the computers, effectively boxing out Intel. So I would say as well, there's probably a more realistic opportunity here to turn a profit because it's controlling more of that infrastructure. Again, yeah, it's like there has to have been a massive shift since 2019 that this is now financially viable for Apple. I cannot see them just, you know, throwing in the towel and saying, yeah, we'll just resign ourselves to thinking that people will only keep their devices for seven years. That being said, it is still worth remembering that you know the hardware is important, but the software rules the day, and you know, as we have seen over the last couple of years as they release iOS updates, oftentimes if you have a phone that's older than about six years, they will announce to you oh, the new iOS will not be coming to your device, which is fine for a while. You should get away with it for about a year, but then it gets to the point where like apps will no longer work because the companies are no longer supporting the older versions of the apps, and then usually you get hit with some kind of security concern down the line because Apple isn't releasing updates to the security system as well. So while this is, you know, a fix for kind of the middle ground of holding onto phones, I certainly don't think Apple is going to be repurposing and remanufacturing iPhones to have them have a 10 or 15 year shelf life.

Michael O’Mahony: 34:19

I have a little kind of out there theory about this, and it's entwined with the iOS, the 14, 14.5, the privacy update. Basically, that said, all advertisers are on fire. Yeah, is Apple Mannington just trying to do everything they can, outwardly and visibly, to stay on the right side of regulators and kind of be looked at as protecting consumers while they build up this three trillion dollar behemoth that just?

Anne Marie: 34:49

terminates everything. Yeah, I think I mean you could be right there. That conference that I mentioned, the iPhone conference, is happening in September and actually also the same event in which Apple will be introducing the first iPhone that will feature a USB C, which was a regulation that was put in place by the EU in an attempt to reduce the number of electronic cords and charging cables that are being produced. So that again is Apple bowing to regulators and saying, ok, yes, we will remanufacture our products to meet these standards. But I actually think the thing that you said there is interesting. I think it's less of a play for regulators and more actually a play for consumers. I think that Apple gets away with a lot because they have been able to adopt almost like a sense of justice into their branding effectively that sense of we will make the right decisions, we are on your side and in a lot of ways I think it allows Apple to often sidestep the king of the lumping in to big tech. When we criticise huge corporations, we will rake Amazon and Meta for not thinking of consumers first, of thinking of profit first, of making things very, very. It's making things difficult for consumers to understand, making it so that we don't really. We can never sit down and see how much data Meta is actually scraping about me. Where is it going? Who is it being sold to?

Michael O’Mahony: 36:07

Think of how much more is in your iOS and iCloud and all the rest, but it's just not a question.

Anne Marie: 36:13

We could probably make an entire podcast about the frustrations of trying to cancel Amazon Prime. And yet Apple has complete control of the iOS Apple Store infrastructure, which basically means that all apps have to be effectively sold through them, and they take a huge portion of the percentage, what is it?

Michael O’Mahony: 36:28

250 of your Amazon Prime subscription goes to Apple.

Anne Marie: 36:33

Yeah, it's been made through the App Store. So, yeah, I think this is kind of the goodwill that they are happy to take on because they have clearly I guarantee this is two or three years worth of research has gone into this. Apple doesn't do anything in a reactionary way. Everything is planned. So, yeah, I think it's just them trying to appear correct. And I think the reason that people get so upset about the right to repair is you feel like you're being wronged because you think I own this thing. I should be able to do whatever I want, I should be able to open it up. And I think that sentiment is captured really well in this really wonderful article, the Countacle Days ago in the Atlantic. It's called Good News for your Sad beaten up iPhones by Damon Beers and he says Even if many people wouldn't want to take the time to crack open their own phone and mess around with it, there is a sense that a principle has been violated. If you own something, something that you have paid for with a lot of your money, shouldn't you have the ultimate say over how that thing operates? If you want to put a slice of deep dish pizza in your toaster, you can put a slice of deep dish pizza in your toaster. Then when the toaster breaks, you can fix your toaster. Repair keeps the machine running, keeps you from spending money on a new one, keeps trash from piling up in the world. There is no such thing as a responsibly manufactured phone. They are wasteful, destructive little things demanding rare earth minerals for their construction, to say nothing of the carbon emissions, the toxic byproducts from the mining. I think more and more people are becoming aware of that or becoming this thing of like. That is not realistic. That I get a new phone every two years. And also I don't think there's like Apple no longer justifies upgrading every two years because even when they bring out new iPhones, the technology has rarely advanced to a degree that you're like yeah, I will spend another $1,500 to get a slightly better camera. I don't think we are no longer in that world and Apple has, for quite a number of years now, been trying to position itself to say, oh, we are environmentally friendly. In that piece it's mentioned rare earth elements that go into phones. Apple, for the last I think seven years, has been working very hard to recycle old rare earth materials out of the old phones and put them into new ones. So they are kind of already on the right side of that in a kind of back end way. This is very much trying to approach it from a consumer facing way. So you know it is a little bit dubious. It is Apple trying to say we are the good guys.

Michael O’Mahony: 38:47

Give us your money. A bit of a branding exercise, almost.

Anne Marie: 38:51

Yeah, but I am also very interested to maybe see what the stats are in terms of. Does this slow down the iPhone turnover rate? Because it is at the end of it. It is an environmental issue, Like it is horrible the way that we have just now we buy things and turn them over so quickly. And it also makes me think of what you often hear from people like our grandparents' generation, where they talk about how you would buy a vacuum and you would remanufacture that vacuum for 25 years, Even if it became the most inefficient thing ever. You just did it because it was cheaper and it was easier. And we, I think, like throughout the 80s and 90s and early 2000s, we've completely moved away from that mentality and we're just like just buy a new one, we have the money just throw it out, buy a new one and I just. I don't think that that lifestyle is compatible with our environment at all.

Emmet Savage: 39:36

So it's not, but I do. Apple has a monopoly on this. Let's call it right to repair things because I had. I was up in my attic clearing it out not too long ago when I found an old computer which I didn't dispose of because I didn't want to send it down to an electrical waste bin without removing the hard drive, and I decided right, I'm doing it now and talk about non-standard screws, clasps and clips on a Dell. It was unbelievable. I spent a whole Saturday afternoon drilling and hammering and trying to get into this thing. It was like trying to break into the World Bank. I was only short of trying to go ahead and buy some dynamite to open it. I've never had a harder technical engineering project and I'd be pretty okay with these things.

Michael O’Mahony: 40:21

I'm just, I'm just reminded. You know that scene in Zoolander where they're like the files are in the computer. Yeah, that's right, you're smashing an old Dell around the side. That's right, I'm standing on the table banging it.

Emmet Savage: 40:32

Yeah, and honestly I. So the customer problem, if you will, that you described there, anne-marie, is one that I have lived with, but it wasn't with an Apple. I wouldn't attempt to do it on an Apple, but I certainly have had it with other machines and in this case, a very old Dell that was sitting in my back garden with tools strewn everywhere.

Anne Marie: 40:53

I do think the industry has followed in Apple's footsteps and felt as well oh yeah, we should, because they make more money just saying buy on your laptop. I think the real testament to how real this promise is from Apple is when we see what the documentation looks like, because that is part of the bill is when this goes through is they have to provide clear instructions of how everything works and how you open the phone and how, if you want to replace the RAM or the processor, this is how you would do that. This is what every component in the computer looks like, and Apple is very good at making consumer facing, educational content for other things, but if they don't really want people to be doing it, they will make a very boring ugly little guidebook that you won't want to bother with. But I think if it's done very well, I think then it is a realistic expectation that they believe people will do this. They believe people will open their phones and try to replace elements of it.

Michael O’Mahony: 41:44

Okay, I like that kind of take. Okay, we were talking about Japanese stocks there, and one place where you can get new Japanese stock ideas is charging and fearless. So that is our weekly newsletter. It's completely free. No one else is covering the markets we covered where we delivered you a weekly stock pitch that could be from anywhere in the world and we are going to make an intention to put more from the Niki index, as Emmett so eloquently called it. So it's a completely free stock pitch every week. You'll have it read in about 30 seconds flash and we can almost guarantee most of these companies are going to be brand new to you, which is where you get an edge. So you can sign up now in the show notes for this episode. Okay, let's run through. A big dealer and IDEAL Amish. This one is funny. Openai launches a business version of chat gpt that competes directly with Microsoft, which is pretty odd considering Microsoft is OpenAI's largest backer and investor. Big dealer no big deal.

Emmet Savage: 42:42

OpenAI claims it will run twice as fast as the paid version and that data from customers of the product will not be used for the training. But on the other side of the wall, microsoft has also released its own chat gpt based product, being a chat enterprise, and it's worth noting that OpenAI and Microsoft are separate companies and have had occasional conflicts. Well, I suppose it's hard to say if it's a big deal or no big deal at the moment, but when you consider the unprecedented impact that gpt had on retail users, everyday users, I'm going to say that this is a big deal. I would not like to be competing with GPT, even if I was Microsoft. So, yeah, I think it's a big deal. What about yourselves? What do you do?

Michael O’Mahony: 43:27

i think Well, I wouldn't want to be competing with anything that I own 49% of.

Emmet Savage: 43:31

That seems like yeah, that's true. That seems like.

Michael O’Mahony: 43:33

That's so true. Man United own and have a man city. Yeah, yeah, that's a fact. That is a fact, yeah.

Anne Marie: 43:40

It's kind of, but it doesn't remind you of love. It's like when a child tries to overthrow their parents. It's like it's kind of changing the guard of it. I'm interested to see how good it is and how much it eats into Microsoft's business.

Michael O’Mahony: 43:56

Yeah, you could see something that I'm not sure about. Excel is a perfect example If you could just have a little textbox to say exactly what you want to do, without knowing about macros or formulas or anything like that. Yeah, so, yeah, okay, Anne Marie, this is straight out of the big short, basically, but Zillow. Home Loans is now offering mortgages with a 1% down payment option. Big deal or no big deal?

Anne Marie: 44:24

Big deal, bad idea.

Michael O’Mahony: 44:26

We'll just say that.

Anne Marie: 44:27

So it's yeah, you go 1%. You can get a mortgage with 1% down. Zillow will give you 2% for free Happy day, but you know your interest rate is probably still going to be 6%.

Michael O’Mahony: 44:35

So it's more like A's.

Anne Marie: 44:38

Yeah, this is Zillow has gotten into this space before. They were doing the iBuy thing back in 2020, 2021. That didn't work out. They got out of that space. They have been underwriting mortgages already. That was kind of where they had been trying to move in the last year or two, the idea being, oh, maybe if you were searching for homes on Zillow then you would want to get your mortgage. They haven't turned a profit on that yet. It was, at last quarter, $167 million loss from that section. So they have a kind of infrastructure set up. So I'm kind of wondering is it them being like, well, it's well dried out?

Michael O’Mahony: 45:15

What could go wrong? I know what could go wrong.

Anne Marie: 45:20

I read an article about this. The top comment on it was very smart. It was someone being like, if you cannot scrape together more than 1% for your mortgage down payment, what's going to happen If your roof leaks or you need to get new floors or something like that for any kind of maintenance in that home? You are likely not going to have the cash on hand in order to deal with it, so it's just a recipe for disaster. Do not get a mortgage through Zillow, yeah.

Michael O’Mahony: 45:47

Yeah, we could do a whole episode on this, but the US housing market at the minute is in such a flux. I think the average mortgage raise people have on their homes is 3.6% at the minute, and the current going mortgage rate if you buy a new home is like 7.5, I think. So there's such a supply glut there. No one is going to sell because they would get to a worse mortgage office. And then I also saw that I think 20% of new homes are being bought by investors as well, so it's like one of the most unaffordable housing markets and one of the hardest to attain a housing market I think there's ever been. Something's really going to have to change there.

Anne Marie: 46:29

Yeah, but we've been.

Emmet Savage: 46:30

American dream with the white picket fence. Sorry, emery, like the American dream with the white picket fence is still. Is it still intact? And, Marie, do you think that your peers in America have abandoned the idea of home ownership or haven't embraced it just yet?

Anne Marie: 46:45

I don't necessarily think they have abandoned the idea. I think it's kind of been taken from them. You know, you see a lot of statistics about how old on average people were when they buy their first homes, and they're usually in their mid to late 20s and I know that people are not getting married as young, so that's a contributing factor. But not like millennials have effectively almost been completely boxed out of the housing market and like. We had terrible statistics come out about Ireland recently. It was something like people under the age of 29 in Ireland. It was like 80% of them or 85% of them were living at home with their parents. It was unbelievable.

Emmet Savage: 47:21

I actually didn't believe it. I know that's absolutely incorrect, that cannot be right, but it's quite sad really that there's so many layers to the problem. You could peel it back and get accusatory at any one point in time or any one policy, but in the big picture it's a very, very complex equation.

Michael O’Mahony: 47:40

Yeah, I think, I think a major factor in what we're talking about Ireland with the US, as well as just lack of supply. Both sides, yeah, yeah and also just like a lack of regulation around who is allowed to buy new supply.

Anne Marie: 47:52

Because on the same topic of Ireland, somebody ran an analysis. I think it was at the top of an inquiry. It was like an independent news organisation ran an analysis and they found that because Ireland is not one to like apartment buildings, that's just the kind of Irish people really want to own the piece of land in which their home sits. But I do think, like Ireland is becoming a major city, we need to have apartment buildings and so there were some built last year and of the apartments of new build apartments in Dublin that came available last year, 90% were bought by investment, like investment funds. And so like that's just a you know that will be held in perpetual rent by some poor individual forever.

Emmet Savage: 48:32

That's right and I think I know we're going down a completely different avenue to our core topic. But I think the government has made decisions to try and dissuade investors from sucking up all these apartments. But their price point is at a place and their lending market is at a place where, let's say, a normal single or couple, you know, in the springtime of their life or career just can't afford it anyway. And, Marie, you and I were talking about an apartment development not too far from where we both live, where it was one of these kinds of. It was like one of these we work, whatever you call it type of place where a co-living space and they promised a price of.

Anne Marie: 49:10

Can you recall there was a price of X and then it was a Y, I think it was what they had initially. When they got permission from the government. It was them. So it's a co-living space which would be like you effectively get like a very tiny studio apartment. But you're fine with it because they have a bunch of community spaces. So they had like a movie theatre, they had a gym, they had big communal giant kitchens if you didn't want to cook in your apartment. They had massive sitting rooms and game rooms and that type of thing. And it was intended for people under the age of 35 who you know might be moving to a new city and be like how am I going to make friends? So I kind of like that idea. But the planning permission they got said that they were going to start I think like 750 a month. That was going to be the entry level unit and they came to market at I think 1350.

Michael O’Mahony: 49:52

Yeah, and that's just yeah.

Anne Marie: 49:55

That's insane.

Michael O’Mahony: 49:55

Degree necessities. It's awful. It's awful, but right. We're going to have to nip this in the bud if we want to get in under an hour for our podcast today. Lads, I'm worried you're going to close us out with an elevator pitch, so this is one for the nerds. What stock are you pitching to us?

Anne Marie: 50:15

Yeah, this is a cool one. This was very unexpected when this came up. I liked this one so much. I'm at your, the only one I actually haven't seen yet. Do you know Warhammer? It's a game. Yeah, it's a tabletop game. Yeah, warhammer. The company that owns that is called Games Workshop, and they invented Warhammer in the, I think actually in 1984, same year the Macintosh computer came out, so Smash cut to Steve Jobs up on stage yelling at an engineer, being like go find the tools of the office, to some men in an apartment in England painting little figurines. This is all happening at the same time. So Warhammer is comparable to Dungeons and Dragons. It is a very obsessive fan base we're very excited, yeah, but unlike Dungeons and Dragons, there's a huge collector element to this, because you buy the figurines and then they need to be painted. That's a bit so. There's like a whole cohort of people who all just want to collect figurines. They don't want to play the game. And then there's people who are actually just obsessed with the lore of it because built around all these games is token, like Lord of the Rings, like stories, they have magazines, they have books, they have video games, now audio series, like it's a whole, it's a huge thing, it's a world. It's definitely one of those things I like. When you're outside of it you're like whatever, and then as soon as you're in it, it consumes your entire life. But it turns out that this business is just raking in the cash because it is completely vertically integrated. Who knew? And obviously a big part of this is culture, as the community is maintaining that aspect. So they have a bunch of in-person retailers that they own. They own 526 in-person retailers all across the globe. 399 of those in-person retailers have one employee, the store manager, because all it's meant to be this place. You know where little fans go in and they get to buy their figurines or they get to have little meetups or they get to go in and play the game. It's like a little community space. It's a third space for people who love Warhammer.

Michael O’Mahony: 52:05

And they're cultivating your experience completely by owning everything.

Anne Marie: 52:11

And they were like, we only need one employee, so all of their locations are profitable, all of them turn a profit, which is crazy. So it means that they have a gross margin. Hold on, turn away from that one. It means that they have a gross margin of 68% and an operating margin of 36%.

Michael O’Mahony: 52:30

The company does and they can pay and this is for a retailer, basically, which is nuts A retailer.

Anne Marie: 52:37

They can pay a 4% annual dividend.

Michael O’Mahony: 52:39

That's huge.

Anne Marie: 52:40

And all they do is make figurines.

Michael O’Mahony: 52:43

We saw the chart you had in that week's charge and fearless as well. The return on capital employed is in the three figures, I think for the last couple of years.

Anne Marie: 52:53

Yeah, 333%.

Michael O’Mahony: 52:55

Yeah, so that works, that works in most places.

Emmet Savage: 52:59

Wow, that is amazing and it's a refreshing business model insofar as it's anti-digital, it's moving away from screens, it's going back to a form of gaming and community that existed in the 70s and in the 80s and when I was in college in the 90s, and there's something really for me nostalgic about it, even though I never really played Dungeons actually never played Dungeons and Dragons at all and I certainly never played games, workshops, game, what is it? Warhammer?

Anne Marie: 53:28

Warhammer.

Emmet Savage: 53:29

Yeah, but there's something about it that appeals to me as a virtuous investment. Yeah, because it's good old fashioned being a human. Yeah.

Anne Marie: 53:41

And here's the best part about it: they just signed a contract this year for a TV show with Amazon Really and it's going to go to. Amazon Prime and it's currently in pre-production. At the minute they're figuring it out and they're kind of tied to it and a producer in it and I think he's going to star in it is Henry Cavill, who played Superman very famous Because he for the last like 10 years he's obsessed with Warhammer and he talks about it all the time, like in a lot of like in any interview he gives. He says oh, the number one thing I do when I'm off is I go and I play Warhammer, and so it means that fans are obsessed with him because they're like, they feel really like he is the responsible person to take up this venture and so I think it'll be good for fans. But I also think we've had a lot of video games get adapted recently. We've had a lot of books get adapted recently Fantasy World, Science Fiction Worlds that then get these massive, bigger, much larger cult followings Like Think of Game of Thrones that went from like a niche book series that people who really, really loved to absolutely everyone on the planet knew about it. So if Warhammer 40K, which is the game that's getting adapted into a TV series, if that goes like the last of us and becomes very, very popular, it's going to funnel in a whole bunch of people into this world, and this world is primarily merchandise based, so that's going to be a huge bump to revenue. So very exciting times for Games Workshop. That being said, lots of people have taken notice of these exciting times.

Emmet Savage: 54:58

Current price to earnings is 29, which is expensive, but it didn't stop CEO Kevin Rauntree from putting in 300 grand worth into the shares in August.

Anne Marie: 55:08

Yeah, at the beginning of this month I picked up 300k. So yeah, definitely something to look at. Kind of a fun one In my brain, actually, when I was writing this up, I was wondering if it would get picked up by a media conglomerate down the line. It reminds me a lot of Marvel, of that thing of Marvel had decades and decades of building up its stories, of having these legacy, of having characters that people who were in that universe really, really loved, and then, as soon as they were bought by Disney, it was like this massive accelerant of we can get Iron man in front of millions and billions of people. So, yeah, I wouldn't be surprised to get them picked up. But even just as a standalone business, it generates so much cash, it's being handled so responsibly, they're obviously very good at curating their community. So, yeah, a very impressive company.

Michael O’Mahony: 55:49

Okay, so that's Games Workshop. It's on the London Stock Exchange and it is just in our most recent charging and failure. So if you want to get the full story, do sign up in the show notes for today's episode. Okay, we're going to finish out with a quick word from our friends and sponsors at BotoPhone Business. Botophone have recently launched their V Hub Digital Advisory Service, offering Irish businesses of all sizes free one-to-one digital support and advice. You don't even have to be a BotoPhone business customer to avail of this service. Search BotoPhone V Hub to book a call with one of the digital experts there and we will leave a link in the show notes for this episode as well. Amri and Amish, thanks for joining me today and thanks to everyone else for listening. Remember, if you have any questions you'd like answered or elevated pitches you'd like to attack, make sure to get in touch. You can find us on Twitter at mywallstreethq, on Tiktok at mywallstreet, or simply just email us at pod at mywallstreetcom. If you're enjoying the show, leave us a review, share us with your friends and we will talk to you next week.