Podcast Summary
July 4th travel trends: July 4th holiday weekend saw record travel numbers due to decreased gas prices and airfare, but the travel industry faces challenges with high fixed and labor costs, oil prices, and competition on pricing
Record numbers of people traveled during the July 4th holiday weekend, with both air and road travel reaching new records. This trend can be attributed to the recent decrease in gas prices and airfare, providing consumers with a rare affordability in an otherwise expensive environment. However, the travel industry faces challenges due to its high fixed costs, labor expenses, and variable expenses such as oil prices. Airlines have responded by expanding capacity and focusing on ancillary revenue through loyalty programs and partnerships with major credit cards. Despite these efforts, the industry's profitability remains uncertain due to the need to constantly compete on pricing and the impact of external factors.
Capacity expansion in airlines: Airlines are expanding capacity despite struggles to fill seats, with Delta Air Lines outperforming competitors through customer service improvements and smart ancillary revenue strategies. In the pharmaceutical industry, Eli Lilly's acquisition of Morphic Holding for $3.2 billion diversifies offerings and brings potential future growth through an oral drug in phase two trials.
Airlines are continuing to invest in capacity expansion despite current struggles to fill seats and generate revenue, particularly outside of peak travel periods. Delta Air Lines, which has focused on improving customer service and implementing a smart ancillary revenue strategy, is currently outperforming competitors and has reported good financial results, including positive free cash flow. In the pharmaceutical industry, Eli Lilly's acquisition of Morphic Holding for $3.2 billion represents a strategic move to diversify its offerings beyond diabetes and weight loss drugs, which are based on the same class of medicines and have delivery limitations. The acquisition also brings an oral drug in phase two trials to the table, providing potential for future growth.
Lilly's strategic acquisitions: Lilly is making strategic acquisitions to diversify its portfolio and prepare for future growth, despite the risks and pressure to maintain past performance
Eli Lilly, an $870 billion pharmaceutical company, is making strategic acquisitions to diversify its portfolio and prepare for the future beyond its current growth drivers. The latest acquisition of Morphic Therapeutic for $57 a share, which is a relatively small addition to Lilly's balance sheet, is seen as a smart move given the ease of acquisition and the potential for innovation. Lilly's recent acquisitions of DICE Therapeutics and Point Bio Pharma, among others, reflect a larger trend of the company investing in R&D and setting up new businesses. The company's balance sheet, while impressive, still has room for more diversification, particularly in light of its significant goodwill and large cash reserves. However, there is a risk that the innovation may not pan out, and the industry's focus on the next blockbuster medicine adds pressure to maintain past performance. Despite this, Lilly's strong financial position and decent interest rates on long-term debt make it a company that can afford to take calculated risks. The recent increase in long-term debt, which has grown faster than working capital, is likely a result of the company's focus on building capacity for its promising drugs and making strategic acquisitions.
Debt-to-asset ratio, future debt plans: Monitor a company's debt-to-asset ratio and future debt-acquiring plans for a stable investment. Personal finance: Keep track of all financial accounts and transactions using apps like Monarch Money.
While a company's strong cash flow and low-interest debt may not be an immediate concern, it's important to keep an eye on their debt-to-asset ratio and future plans for acquiring more debt. Ricky Mulvey and Dylan Lewis discussed this in relation to a specific company, but the principle applies to all investments. On a personal finance note, Ricky also highlighted the importance of having a clear view of all your financial accounts and transactions. He recommended Monarch Money, a top-rated personal finance app that offers a comprehensive view of your financial situation and even provides a clean cash flow statement every month. During the conversation, Ricky also shared his excitement for interviewing Kirsten, a former colleague from their editorial team days, who transitioned from geology to investing. Her journey from "rocks to stocks" serves as a reminder that an interest in business and investing can lead to various career paths.
Investing as a hobby: Starting with familiar investments can lead to successful hobby-turned-career in investing, but education and informed decisions are crucial for long-term success.
Investing can start as a fun hobby and lead to a successful career. The speaker shared how they got burnt out in their previous field and discovered investing as a way to deploy their savings effectively. They started by investing in what they knew, specifically two restaurant companies, Chipotle and Schlachle's, based on their frequent patronage. This successful experience in the stock market simulator gave them the confidence to explore investing further. The speaker's approach to stock picking evolved from a simple, familiar choice to a more deliberate and informed process. Despite the initial success, they recognized the importance of educating themselves about the companies and markets to make informed decisions. This story highlights the potential for personal growth and financial success through investing, starting from a simple hobby.
Investing learning journey: Patience and persistence are key in investing, even with setbacks and mistakes. Intellectual curiosity and diverse experiences contribute to success.
Investing is a continuous learning journey, and it's important to be patient and persistent, even when faced with setbacks or mistakes. The speaker shared how they started investing with index funds and gradually moved towards individual stocks, but even as an analyst, they still consider themselves a long-term investor and don't always know what their mistakes are right away. They gave an example of investing in In-phase Energy and how it hasn't met expectations yet but still holds potential for the future. The speaker also emphasized the importance of intellectual curiosity and how their diverse interests and experiences have contributed to their success as an investor. Overall, the message is that investing requires time, effort, and a willingness to learn and adapt.
Mental models in investing: Understanding mental models like signal to noise ratio can help investors focus on essential information and make informed decisions based on long-term growth potential, rather than short-term market fluctuations
Having a strong understanding of mental models or analogs can greatly benefit an investor's approach to analyzing a new company or industry. These mental models can be derived from various experiences, including scientific concepts or personal expertise. One example given is the concept of signal to noise ratio, which is essential in both micro seismic geophysics and investing. It's crucial to focus on the signal, or the essential information, rather than the noise, or irrelevant distractions. This skill helps investors make informed decisions by focusing on the long-term growth potential of a company, rather than getting caught up in short-term market fluctuations. Overall, having a strong mental framework can help ground investors and provide a solid foundation for making informed investment decisions.