Is that the wrong metric to look at, or how do they kind of have to think about that when they make decisions based on a PE ratio?

Yeah, the PE ratio is simultaneously one of the most helpful ratios and one of the most confusing ratios at the, at the exact same, same, same time.

So the price to earnings ratio, for those that are unaware, just compares the market cap or the, the value of, of the stock, um, to the company's earnings, typically over the last 12 months.

Now, when those numbers are clean, when a company is fully optimized for earnings, AKA it's in phase four, um, the PE ratio is very, very helpful because it's a quick way of you looking at a number and saying, well, this company is cheap or this company is expensive.

It's a very short, um, shorthand way of doing that.

The problem with using the price to earnings ratio is not the P, it's the E. It's the bottom number in that equation, and there's a whole bunch of reasons, accounting reasons, why a company's earnings might be overstated or understated.

Um, that there could be accounting reasons, like if you make a big acquisition, if you take a big, if you take a big write-off, if you pay a lot of stock-based compensation.

So how, what, how does this work? How do you kind of adjust for quality? And then how does a beginner kind of build a judgment here when it comes to adjusting for quality?

Does Dave just need a hobby? Yes,

that's exactly what Dave needs, right? Investing is a great activity.

It's a lot of thinking.

It's a lot of studying.

Again, it's a subject that just interests you.

But Dave sounds like maybe he should take a pickleball, maybe some golf, maybe fishing, maybe going on a hike, maybe playing tennis.

I hear that's really a lot of fun.

Yeah,

Yeah.

It was like not even revenue, not even a financial metric.

It was, it was price to hope, uh, uh, essentially, and this is like the tulip bubble of the 1600s.

That was pure...

There was no fundamentals.

It was just the price was going up.

So the price was completely detached from fundamentals.

But outside of just data centers, are there any other sectors i- in space, let's say, 'cause we talked about SpaceX, are there any other sectors that are developing or evolving, m- maybe with the backing of AI, that excite you? And I'm talking like biotech, robotics, any of that kind of stuff that you think are, are good kind of places to look this, in the, in the coming decade?

But this isn't your first rodeo, right? You've studied a, a bunch of these, so [chuckles] let's go.

At least this makes sense.

I hope this makes sense.

When things go down, companies lay off people, and they cut projects that have low hope, and they cut back on their marketing.

It's, it's no surpri- ...

The same way that if you got laid off, you would immediately look to your expenses and say, "How can we cut this down so we can survive this tough period?" Companies do the exact same thing.

Okay, that's phase one.

So that was phase four of force number two, but I think there is a fifth phase, correct?

Likely Google and Amazon will probably exist afterwards.

Yeah.

Well, it all depends on how much risk, how, how much risk you wanna take on as, as, as an investor, and whether you...

What, what is the, um, appropriate way to play, uh, AI? This is something that you have to think about deeply when you invest in any trend.

All trends or all innovations create value.

The question that you have to ask as an investor is, who captures that value? Because sometimes innovations come along, they create a tremendous amount of value, but if there's no barriers to entry or, or the products become commoditized instantaneously, what happens is capitalism competes away the profitability, lowers prices, and the people that capture that value are the consumers of that product.

Companies have to have structural things in, in, in, um, built into them that protect their profits, that allow them to capture that, that profitability.

What is your process when it comes to beginning that fundamental analysis of, let's say, a new stock, stock X?

What's the shopping cart that you're using here?

It's called Spiffy.

Spiffy is the shopping cart that I use, and I, I like them quite a bit.

So right on this page, they can just check out and b- buy the seven if they want to, but I offer them the ability to, uh, to upsell.

So I created a couple of mini courses.

These are less than half an hour long, and they dive into some aspect of, of investing.

So I built a mini course that's all about how to analyze a company's moat.

The mini course then, or the $7 thing?

What's your sort of overall vibes about AI in the market just generally? Are we in a bubble? Are we out of a bubble? Or is it going to pop? Where are you with all that kind of stuff?

So I think if you look, you're right that it has dominated the narrative for the last couple of years now.

And I think a lot of investors, I've been sitting on the sideline.

Well, I am largely invested, but I have a larger than average cash position right now because I look at the valuations out there and I think that they are pretty darn aggressive.

I mean, ChatGP, OpenAI has a multi-hundred billion dollar market cap, even though that company is like eight years old, nine years old, something.

along those lines and making nowhere near the revenue that I would need to justify that if it was a public company.

When it comes to, is it a bubble? That's a really hard question to answer because there's two types of bubbles.

Is that the case?

So once we assign it a role, what do we do next?

Yep.

So the second big tip for any AI prompt is to give it a stepwise structure.

Give it specific information and a step-by-step logic flow that it should use and follow to do any analysis.

For example, in the prompts that I built, I first say, acquire data.

And these are the sources.

These are approved sources that you can get data from.

Yes, we, you and I've talked about it and we've talked about it on the show before.

Maybe can we kind of walk through some ideas of how that might work?

Yeah, sure.

So to me, this is the very first question.

When thinking about capital allocation, this is the very first question that every CEO should ask themselves.

Are there opportunities available where I can reinvest in the business and I can estimate that my return on that investment will exceed my cost of capital? Cost of capital is a squishy term.

It's most useful when looking at discounted cash flow models.

The cost of debt is a very known number.

What would be some red flags to look out

So now that we kind of have a good idea of the different phases and maybe what identifies them, how the heck do you tell where each company or where a company is in each phase?

Yeah, so the answer there is slightly more complicated and requires some visuals that are very helpful.

So hard to do in a podcast, but I will do my best.

So when it comes to figuring out what phase of the business growth cycle is a company currently in, you have to really look at three numbers, all of which are found on the company's income statement.

So number one is revenue.

Look at a company's revenue over as long of a period of time as you can, three years, five years, 10 years.

If a company's revenue is growing very quickly, it's likely to be in stage one, two, or three.

Do companies all follow this pattern from going from startup all the way to decline or where they move back and forth?