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

Intro (00:00:00)

• The hosts, Sean and Sam, introduce the concept of "Stockapalooza," where they will each present a stock pick and make a case for it, similar to the TED-style talks at the Sohn Conference.
• They encourage viewers to watch the video on YouTube to see the slides and charts they have prepared.
• They ask viewers to subscribe to their YouTube channel to support their efforts.
• Each host will have 20 minutes to present their stock pick.
• Sean will ask questions but try not to interrupt too much.
• After both presentations, they will discuss the stocks and answer questions from viewers.

Rules of Stock-a-palooza (00:03:00)

• The video analyzes choosing a single stock that has the potential to outperform the S&P 500's 10-year annual return of 10.5% and potentially provide a 5x return in 10 years.
• Warren Buffett's investment criteria are studied to gain insights into successful stock selection.
• Buffett's criteria include:
  • Understandability: Investing in businesses that are easy to comprehend.
  • Economic moat: Preferring companies with few competitors, pricing power, and long-term durability.
  • Competent management: Valuing strong management teams.
  • Margin of safety: Buying stocks at a discount to their intrinsic value.
  • Strong financials: Seeking companies with high earnings, low capital expenditures, and low debt.

5 reasons to buy brands not stocks (00:08:30)

• Warren Buffett shifted his investment strategy in his 60s from focusing solely on financials to prioritizing brands.
• He believes in paying a fair price for a great business rather than a great price for a fair business.
• Some of his current investments include Apple, Bank of America, American Express, Coca-Cola, and Geico, all of which are well-established brands.
• The speaker shares an example of using HubSpot's landing page tool to generate leads for their company, Hampton.
• They created a landing page with a survey about founders' finances and offered access to the survey in exchange for email addresses.
• The landing page was shared on Twitter and attracted thousands of visitors, many of whom provided their email addresses.
• The speaker can track the source of the traffic and measure the revenue generated from the survey, including how many people signed up for Hampton membership.

Shaan's stock pick: TKO (00:10:30)

• TKO, the parent company of WWE and UFC, meets Warren Buffett's criteria for successful investing: understandable business model, global appeal, high lifetime value fans, monopoly-like market share, and competent management.
• TKO has a market cap of around $14 billion and generates over $1 billion in annual revenue.
• The company is relatively recession-proof and AI-resistant, with the potential for significant growth through renegotiating media rights deals.
• Risks include a high debt load and recent poor stock performance.
• If Warren Buffett started over in 2024, he might consider companies like Alphabet (GOOGL) and Amazon (AMZN) for their strong fundamentals, long-term growth potential, and history of innovation.

But the risks… (00:19:30)

• Potential risks associated with the UFC:
  • Fighters unionizing and collectively bargaining for higher pay.
  • Dana White, the CEO, retiring and the impact it could have on the business.
  • Liability concerns due to the nature of the industry (grown men fighting in their underwear).
  • Controversial statements and actions by Dana White, including a domestic violence incident.
  • Controversial figures in the UFC, such as Sean Strickland, who make statements that some people find offensive.
• Despite the risks mentioned, the UFC has shown resilience and continued success:
  • The business has survived and thrived despite Dana White's controversial statements and actions.
  • The UFC has demonstrated "anti-fragility" by successfully navigating challenges such as the COVID-19 pandemic, which heavily impacted live events.

Forecast: Rising micro tide (00:22:00)

• The UFC demonstrated adaptability during the pandemic by creating "fight island" in Abu Dhabi, showcasing untapped growth potential in markets like Africa, India, and China.
• The UFC's storytelling and character creation make them successful on social media platforms compared to other sports leagues.
• Endeavor's expertise in negotiating media rights and sponsorships contributes to the UFC's financial growth, with recent major streaming deals highlighting the potential for lucrative streaming revenue.
• Dana White's departure could negatively impact the UFC due to the loss of his leadership and charisma.
• The UFC's fighter compensation structure, paying fighters 14% compared to the NFL and NBA's 50%, faces a lawsuit alleging monopoly practices, potentially altering the UFC's economics and changing fighter compensation.
• Despite championship status, some UFC fighters, like Francis Ngannou, face financial struggles and rely on additional income sources like driving for Uber, highlighting the challenges UFC fighters encounter.

Sam's rule: Numbers be damned (00:28:30)

• UFC fighters are underpaid compared to mid-level engineers at Google.
• Underpaying fighters could negatively impact the sport's longevity and business.
• Rivian
• 23andMe
• Container Store
• HubSpot (owned by the speaker)
• The speaker will focus on the story rather than the numbers.
• The speaker will base their analysis on what they find cool and interesting.

LVMH model (00:30:00)

• The speaker suggests potential stocks for investment if starting over in 2024.
• Amazon is considered a slow and predictable investment, while Tesla and Elon Musk's ventures are dismissed as unappealing.
• Microsoft is acknowledged as a great company but deemed unexciting.
• Inspired by Bernard Arnault, the CEO of LVMH, the speaker emphasizes the importance of heritage, high margins, and affordable luxury in the luxury goods industry.
• Aston Martin is initially considered but rejected due to low valuation, poor margins, and lack of exclusivity.
• The speaker ultimately identifies an unnamed company that meets the criteria of longevity, high margins, exclusivity, and desirability.

Sam's pick: Ferrari (00:34:00)

• Enzo Ferrari, the founder of Ferrari, was passionate about race car driving and dissatisfied with the performance of Fiat cars.
• Ferrari focused on creating powerful engines and eventually gained recognition for his expertise.
• In 2023, Ferrari experienced a 17% revenue growth to $6.5 billion and a net profit of $1.3 billion.
• Despite selling only 13,000 cars compared to Honda's 1.2 million, Ferrari's market capitalization reached $72 billion, making it one of the largest car companies globally.
• Ferrari has a high PE ratio of 54, indicating a relatively high valuation compared to its earnings.
• Ferrari is considered a cash cow in the industry, generating more profit per unit sold than any other car manufacturer.

The ultimate brand play: Exclusivity (00:37:00)

• Ferrari generates a significantly higher profit per car sold compared to other luxury car manufacturers due to its strict and exclusive buying process, which includes a waiting list and requirements to purchase multiple base models before accessing higher-end models.
• Ferrari enforces strict rules and restrictions on owners, including limitations on modifications, repainting, and reselling without permission, to maintain brand exclusivity and ensure brand integrity through a "bounty program" that encourages people to report violations.
• Ferrari generates a substantial portion of its revenue from merchandise sales, with a significant percentage of car sales going to existing Ferrari owners, who are attracted to the brand's strong heritage and the exclusivity it represents.
• Despite the high price tag and potential drawbacks such as being loud, rough, and attracting a lot of attention, Ferrari products are highly sought after and command a premium price, making it a strong and successful brand with a loyal customer base.
• While Ferrari's PE ratio is high, indicating potential limited value left in the stock, its consistent growth with an average annual stock price increase of around 30% since going public in 2018, along with the recent signing of Lewis Hamilton, suggests continued success and appeal for the brand.

The downsides (00:44:30)

• Ferrari is a luxury brand with a high PE ratio, making it a risky investment.
• Younger generations' declining interest in cars could affect Ferrari's future demand.
• EU regulations requiring hybrid components in cars by 2030 pose a potential risk to Ferrari.
• Ferrari's success is attributed to its founder's passion and focus on building an aspirational brand.
• The company's refusal to compromise its brand by offering lower-priced models has contributed to its success.
• Warren Buffett would likely invest in a company like Honda or Toyota, which sells over a million units.