Matt Caruso: Learning To Exit Weak Plays Faster | Investing With IBD

[Music] Hello and welcome to another episode of Investing with IBD. This time, it's going to be talking about when to hold them and when to fold them. So, we've all been there with that one position where you're convinced you're going to see better days tomorrow. But there are times when it's better to just say, "Hey, I got my profits. Maybe it's time to exit." Uh, it's Wednesday, January 10th, 2024, and joining me, as he always does, is Arusa Pius. He's a portfolio manager over at O'Neal Global Advisors. How you doing, Arusa?

I'm doing, Justin. Are you doing your best Kenny Rogers impression?

Yeah, you know what? I, I, I should have, I should have started doing a little bit of singing. Uh, you know, I've got the, I've got the beard going. Um, you know, I, maybe need a little bit more white in my hair, but I think I've got the white enough white in my beard for it. Uh, but you have to hold them and fold them as part of your intro right there.

I, no, yeah, I, I, I got it. I'm, I'm very well. The Gambler. I wasn't going to do the whole, you know, song. Uh, but if, if you want me to, I guess we could.

If you know what depends, you know, we, we'll, we'll do a bidding war. You know, the highest bidder gets me to sing because it's, uh, it's not pretty.

We're gonna check out and see how the, the singing voice is on our guest. Uh, it's, it's a pleasure to welcome back to the show, uh, Matt Caruso. He's the president at Caruso Insights. Um, and I, I have a special place in my heart for because the very first time I was doing the show all by my lonesome, and Matt Caruso was my guest. That's where I first met him. Couple years ago now.

Was it two or three years? I don't remember. Funny enough, he was the last guest. Oh, okay. For me, only got, we only got the audio version of Matt out there. We couldn't do the, the, the video version because that was the cut off from when IBD was sold to Dow Jones. So, yeah. So, so, you know what? Maybe, maybe hold them and fold them kind of all starts and ends with Matt, you know. Um, in terms of our, our host. So, how are you doing, Matt? You're, you're up there in Canada, and you were just telling us that you, you actually got out there and shoveled snow and on purpose.

We got a a nice big snowstorm to hit start off the year, and, uh, it's all right. Keeps you in shape, keeps you focused. You need that, that energy from exercise to keep your focus from sitting all day in front of the chart, so you have to balance that out a little bit.

Yeah, definitely. I, I do sometimes find that my back gets, uh, a little tweaked just from the sitting. I'm not sure that shoveling would be, you know, my, my favorite activity to, uh, help the back. But, um, you know, maybe one of these days I'll, I'll come over and help you shovel.

It'll be, it's all the technique, Justin. Show maybe that's what it is. I need that technique. I don't get much practice here in Southern California.

So, uh, yeah, we're going to talk a lot about the markets, of course, in our first segment. And, uh, also, hey, look, it's the new year, and Matt's got kind of some ideas of how you can kind of come up with your New Year's resolutions. Um, you know, for, for how you're going to trade in the new year. What, what is it that you're going to change? What are you going to do different? Uh, so he's got kind of his own, uh, you know, take on that. And of course, we're going to cover some stocks in our third segment that are potentially setting up and looking good. Uh, so let's, let's go ahead and start with the market. I mean, Matt, we had, uh, I, I feel like this was one of those markets where you, you got extended, and you're like, gosh, we just need to pull back. You know, hopefully, it's an orderly one. The, the pullbacks never feel good when they're happening, but then in hindsight, you're like, oh yeah, that's exactly what we needed. And it, it caused more setups to happen, and, uh, you know, it got support exactly where you'd want it to. So I feel like it kind of did everything we asked it to do.

I agree. I think things just got a little ahead of themselves. They got moving fast. I mean, and, and that's a great sign also, the ability for the market to get so stretched to the upside, have that pullback, and then keep going. I, I, I think almost like one of the best definitions of a, a bull market is that you get overbought and you stay overbought. I mean, when, when markets can pull that off, it's something. It's doing something special. So I think we've had a big change. I think different, although, you know, the QQQ gets a lot of the attention, we're up near all-time highs. I think this last leg was different in character than what we had earlier in 2023. It was much broader. You had a lot of strength coming in from even smaller cap stocks. I think high growth stocks, you know, like ones like, you know, Can Slim type stocks participated much better. There was much more activity, a lot of breath, a lot of strength. So I, I think overall, it was a healthier rally than we had in, in the earlier 2023.

Yeah, absolutely. And, you know, maybe we show on the, on the screen for those of you that are watching. Um, you can always watch on our YouTube channel or at investors.com/podcast. But if you look at, uh, the Russell 2000, I mean, the lack of participation was so marked for, for so much of the year, um, of, of 2023. And I mean, it's certainly looked like it was getting better, but, uh, you know, right now, it's still kind of on the ropes. You know, it hit that 2000 level and kind of, you know, darted right back below it.

Yeah. Well, I mean, we, we did get above what was resistance for, I don't know, going on almost two years. We kind of pulled back into the base, but I mean, that's kind of normal with, with any kind of basing structure. You, you'll break above, you, you'll have that retest. So if we do push higher from here, I would say that we, we, we definitively broken out of the structure. And, you know, the old saying in technical analysis is the bigger the base, the higher the space. So this is put in quite the base. I, I think this is really driven by, by interest rates. Uh, you know, the very large cap stocks always have access to, to better priced credit. The, the smaller cap stocks definitely were struggling. They're more economically sensitive, they're more interest rate sensitive. So seeing rates skyrocket like they did the past two years put a lot of pressure on that group. So my view really is going into 2024, uh, I think I'm, I'm bullish in general because I think inflation will continue to abate and rates will work their way lower. But I think particularly under the surface, you're going to see a different set of stocks lead. Not that, you know, stocks from last year can't continue to climb, but the, the leaders, the ones who really bring the outside gains are, are stocks that are more interest rate sensitive.

So, so Matt, going back to the NASDAQ, where we had this really powerful rally to end the year, markets got really overbought, which is, as you said, a good thing, especially at a beginning of a rally. How, how did you handle kind of going through like, okay, the markets are really stretched. Do you lighten up a little bit and and wait for that pullback? How, how did you kind of proceed, uh, this time around, really over the last couple of months?

Yeah, so, so this, uh, it actually worked out well. I, um, and we can kind of talk about that in the next section as well, as one of the things I was trying to focus on was trying to smooth out those drops in your, in your equity curve. So one of the things I've really put a lot of focus on is, is you're always holding this basket of stocks. Some people, it's five stocks, some people, it's 15 or 20. When you're, when you're getting that overall stretch in, in the indexes, it's a time to go around and really start selling the stocks that are underperforming. For me, you know, the def, everyone tries to look for that leader stock. You know, to me, the definition of a leader is a stock that both goes up the most, but then we'll, we'll kind of retrace the least. And that, to me, is because, you know, if it's just a stock that goes up the most, you're just looking at volatile stocks. It's the ability to go up and stay up. Um, so, so the irony I found in my career is, you know, often times they say, like, oh, you know, the stock, it hasn't gone up much, but it'll, it'll probably hold up better. But it was always this, this kind of odd thing where the stock that doesn't go up as much ends up crashing more than my, my leading stocks in, like, this, in this frustrating way. So I've just really learned to be like, hey, if this, if we have good gains all around the market stretch, go around, pay care, you know, sell, harvest profits where you can on weaker securities. Ironically, the stocks you have the bigger gains on, they're more likely to actually stick around than your weaker stocks anyway. So that's one of the ways I preemptively prepared. I also bought some, some puts. I kind of put a double strategy. I, I hedged a little bit at the market right, right in the last week. I used the Santa Claus rally to do some hedging, and I also bought some kind of out-of-the-money puts so that I said, if some stocks do correct, I'll have some protection. I can buy in size and buy comfortably. So that actually worked out pretty well to start the year. I was able to do some buying on weakness without any kind of concern.

Yeah, one thing like going back to some of those stocks that weren't doing as well, a lot of times what I'll tell my, is if, and, and because sometimes you might find yourself in one of those lagger stocks, and now they're starting to get going. I'll ask myself like, okay, what took you so long to get going? When everyone else is going, why weren't you going? And a lot of times they might just be recovering all those massive losses that it had before, really deep bases, and things like that. But that, that has helped me, uh, kind of stay out of, kind of like same conclusion as you. And really, what Bill O'Neal has taught for so many years in, in his book is, you know, stick with the true leading stocks. And if you're those stocks that aren't performing as well, be quick to cut them. You know, be, be, uh, quick to, uh, weed that garden.

Yeah, and there's one thing that really stood out to me, um, is the amount of both the market, the NASDAQ as a whole, but a lot of individual stocks had many consecutive weeks up in a row, which is really odd. There's only two times, like, in my study, two times that it's, that stocks or markets will do that: at the beginning of a trend, or like at the end of a trend in a climax top. Looking at the Russell 2000, kind of hard, hard to argue you have a climax top here. It looks a lot more like the start of something, right? So seeing those, those stocks that had this seven, eight, nine weeks up in a row, to me, that was, hey, first of all, the stocks that are pulling that off, they need a lot more attention, and I need to get more money into those. And all the stocks that didn't, well, I mean, we have this opportunity where these stocks are doing this, this tremendous feat. Get rid of anything that's not participating. And, and I, this is, I haven't really ever kind of told anyone this before, but there's the great IBD Home Study Course where where Bill talks through all the charts. And I got that years ago. And at one point, when I kind of fully transitioned to doing this style of investing away from market making, I told myself, I'm gonna hit my, hypnotize myself with Bill O'Neal. I've listened for years nonstop to those same videos over and over. I, I actually uploaded them to a private YouTube account so I could get, have them on the go. So I, like, constantly listen to them. And there's a monogram in this. He says, look, it goes up five weeks in a row, then does eight, and it does it again. Look, it does it again. He's like, it's, it's abnormal. So I, I tell you, not like maybe it's working. I saw these seven, eight weeks up in a row, and I had Bill in my ear telling me that's abnormal. You know, they probably gonna go much higher. And that's really been my focus.

Well, and imagine, like, uh, Justin had Bill and in his ear for what, years, right?

Exactly. Yeah. Yeah. Some of those, uh, some of those things. Yeah. I mean, it was one of the greatest things. I mean, I don't know how many times I saw him speak, um, you know, and, and it was to the point where, uh, I, I knew, I knew the story so well that, you know, sometimes I'd be behind a curtain, you know, kind of whispering, you know, oh yeah, you, this, this is where you want to go next, you know, and stuff. So.

But, you know, speaking of, speaking of being up a lot of weeks up in a row, um, if we look at the Dow Jones Industrial Average now, look, we're not normally big, you know, Dow followers, necessarily. I mean, it's 30 stocks, but the Dow here, anything to make of this? I mean, this was nine consecutive weeks up in a row, and this one didn't pull back very much. Uh, it, it really just kind of held, um, in terms of indexes. Um, what, what, what is that telling you?

I mean, it's very, very impressive. Uh, I mean, that, that's the, the great thing. There's, there's strength everywhere. There's broad-based strength. So I mean, you, I think you can pick where you want to participate, what, what your style, what your preference is, whether you want things that are a little more high octane, whether you want things that are more established but have great pricing power. I think in general, if you just kind of look at big picture, and you kind of pretend you're in the classroom, right? And you say to yourself, okay, if we get 10% inflation, but then everything goes back to normal, you know, all things being equal, like the old classroom talk, all things being equal, stock prices should be 10% higher eventually, right? So if, like, I, you know, I think that's why the Industrials are doing well. We had that inflationary period, things are coming back down. These Industrials, they have pricing power. They have, they were able to, like, kind of, you know, offload that inflation, uh, to, to the customer. And as a result, their revenues and earnings, even though it's nominal, it's, it, it is, you have to know there was inflation in there, but as a stock price, yeah, you should be higher. It wouldn't make sense that once things go back to normal that you wouldn't ultimately go higher. So I, I think it makes a lot of sense. And, um, and so I, I can see some continued strength there as well.

So, Matt, I have to ask you this, but going back to the NASDAQ and switching over to a monthly chart. This is, this is one of the, the nicest looking cups with handles that I've ever seen. You know, what are your thoughts about this on the monthly?

I, I, you know, the amazing thing about the, if you, you take a step back, like, like I said, I think there's going to be a lot of catch-up moves in other stocks as well. But if you take a step back and you look at the NASDAQ Composite and you say to yourself, if you think of it in terms of relative strength, like what the NASDAQ's doing versus everything else is astounding. And so, I mean, coming out of a, a correction, the, the relative strength leader tends to, to lead even more after the correction ends and everything gets back to normal. So to me, like, yeah, there may be a catch-up move elsewhere, but ultimately, I think NASDAQ is just going to continue to be that leading. And there's so much innovation under the surface, which has been, I think, covered up and people have been concerned because of all the macro factors. You know, like Bill would say, it's people who change the way we live, work, and play. And that's really going on. I mean, you can, you know, I don't want to say AI, like the, the typical term will come up and Nvidia and all, but, you know, there's so many ways that's going to filter into our lives and new opportunities and new technologies. We're going to talk about buy now, pay later after, and all these different payment systems. There's so much that still keeps coming up. I just, I personally see the NASDAQ continue to work higher. Mean, as long as we have, um, you know, the key macro factors come into into control. I mean, I think there's a lot of innovation going on. It's, it's actually very nice to see.

So are you maybe a little bit more focused on, uh, kind of the technology stock? I mean, that's, that's really what drives the NASDAQ Composite. You have, um, you know, a lot of, a lot of oomph from those top names, you know, Microsoft, Meta, Apple, you know, the, the trillion-dollar club is, is expanding, and, and they have a big weight on the NASDAQ Composite. So is, is that where you're focused? I mean, I know a couple years ago you were, you know, you were talking oil, commodities, you know, all of this stuff. Is that kind of, you know, what, forget that stuff now? We're, we're, we're back to, we're back to our growth stocks, and, and technology is king.

I tend to prefer always growth names because they, they really have the potential to expand and continue advancing. The way the commodities have worked in my experience is, you have moments in time where there's an in, because I mean, in general, commodities are commodities. Markets are efficient. Things are, you know, optimized. You shouldn't see oil spiking way higher unless there's some kind of a situation and imbalance, or it's going from a very low price and you're readjusting higher. So when we were first speaking a couple, couple years back, we spoke before oil kind of really took off. I was joking with a, remember with David about buying the periodic table. That was when, you know, FDX and the rest was, was just starting their move. So that was, but once you get your move in the commodity names, unless there's some kind of continued shock like the '70s where the dollar came off the gold standard, and so there was this persistent inflation, OPEC, and all the rest, besides that, to me, commodities are, you get a really good trade for a quarter or two, and you need to step aside and look for better opportunities. So I, overall, um, the sustained moves really comes in those companies that can deliver continued earnings growth, continued revenue growth. So I, I, I tend to prefer more mid-cap because I, I like stocks that can have a little more, uh, speed to their movement. But for me, mid-cap technology is, is really where my focus is, in payments as well.

And, you know, you were a professor for, for a while, professor of finance. And, uh, maybe it's worth talking a little bit of the macro, because you brought up, you know, inflation, interest rates, you know, all these things that do can affect commodities, you know, sometimes on the short term. But that's certainly been the focus now. How much of the macro picture, I mean, look, you know, right now, it's, it's all about the, the soft landing narrative, the, the fact that cuts are potentially coming. I mean, now the Fed Funds Futures is expecting, uh, March, you know, for cuts to start happening. I think for May, it's like 90% chance that the first, uh, you know, quarter-point cut is going to happen by May. But look, you know, the futures got it wrong before. They thought, you know, cuts were going to happen at the end of 2023, and they didn't. How much are you kind of putting this macro picture into your, your calculus of decision-making?

It's a big part because I, I think, uh, in the past year or two, macro has been a big deal because we had rates go from zero to 5%. If you look at high-yield debt, you went from, I think it was 4% to almost 10%. These, these were really dramatic moves. So that, that was the key factor because every company who's operating out there has suddenly a completely different operating environment in terms of financing and credit and profitability. If we're going the other way, so, so, and that actually created the winners and losers in the market. That's why you had companies like, uh, the Fang, that were so powerful. They had pricing power. They had low access to low credit. Or you had companies with big current earnings, like the commodities, Industrials, that did well. Everything growth, everything, like they'll call them high duration, where their earnings are far into the future, they got smacked because they had cash flow issues and all that. So I, you know, my, my belief is, even forget about what the indexes do as a whole, even internally, I think if that starts to go the other way, you're going to start to see a lot of rotation back into high growth. That's why I think they've outperformed so strongly, and I think we're still early days. If you look at, like, high yields, we went from, uh, nine down to eight or so. I have to check my number. Nine and a half down to eight. I mean, typically we can get down to the six, five and a half area. There's still, there's still a lot of downside in yields. Uh, and especially if the economy slows, that's going to help bring down interest rates even further. So that's going to further the rotation. I mean, there's some companies, if you bring up, let's say, Lending Tree as a perfect example, T, and you put up a weekly chart, you'll see this is like a company that is incredibly, it's off the charts, not in a good way. But this is incredibly sensitive to interest rates. I mean, their business was completely destroyed because, I mean, consumers couldn't get access to credit at attractive prices. Uh, companies were concerned about selling insurance because they didn't know what the replacement cost would be for parts and all that. So their business went from being a good business to being a business that was almost closed. So that sensitivity can be seen here. And look at off the bottom, we're talking kind of percentage changes. As soon as rates topped, I mean, this stock went from 10 to 30. That's a dramatic move. That's, I mean, it's a small cap, but just to show how some parts of this market, which have been really under the pressure of higher rates, can really start to benefit if things go the other way.

Well, we're going to get into in our next segment, uh, a little bit about where your focus is and for the, for the new year, and also this whole idea of, okay, there's some trades where, you know, what, you don't have to be holding them for too long, and how to make the decision on what the difference is. So stay tuned, we'll be right back.

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Welcome back to Investing with IBD. It's Justin Nellen here, your host, along with Arusa Pius, who joins every week. He's a portfolio manager over at O'Neal Global Advisors. And joining us this week, it's, it's one of our favorite guests, uh, holds a dear place in our heart, Matt Caruso, uh, president of Caruso Insights. A great educator, always looking for ways to improve. I think that's one of the great things I, I, I love about, you know, hearing, you know, the things that you're working on, you know, things that you're kind of, uh, you know, coming up with ideas. So we just had the end of the year, start of a new one. Uh, what, what does your process look like for when, when you are, uh, doing that transition, especially since, you know, we kind of had a new rally to kind of spur us on this time around. Uh, what, what did you do for your transition, kind of looking at your goals for the new year and, uh, things that you learned from last year?

So this is something I started a few years back. I remember, uh, at one point, I was on the trading desk, I was going through a slump. You know, those times you just, nothing's kind of working, and it kind of got to the point where you're almost starting to get that nervousness to put on another trade. You know, you're, you're under, you're in drawdown, and all that. And I had a, a good friend working next to me. He's like, look, Matt, he's like, just pick a number you're willing to lose that's not going to even bother you, and just start trading again. And I said, okay. And then it kind of got me going. And, you know, one trade leads to another good trade, and another good trade, and suddenly your confidence is back, and you built it up. But that was like a really good learning lesson. And I said, oh, you know, so I created this kind of this, uh, dollar stop concept, where for, given my current account size, there's a certain amount of money. I mean, we all like to work in percentages, but our, our mind works in dollars. Yeah. So I say, I'm willing to lose so much, and it won't bother me. And that was a dramatic, it really helped me to always keep my stress levels down. And so it was such a, a step change in how I was able to deal with stress and the rest. I, I started this thing each year where I would pick what I felt was a weakness in my strategy, and I'm going to spend the whole year on purposely trying to improve that one specific area. So, you know, not that we ignore all the other rules and the rest of the strategy, but an oversized effort, an oversized attention to detail of that one specific problem. So you can make other mistakes that year, but I don't want to make any specific mistakes to, for, for that goal. So in the past, like one I mentioned was keeping stress under pressure. So I solved that with the dollar stop. One was patience. At one point, I just had a hard time. I went from day trading, market making, to position trading. When your holding period is, you know, a minute and a half to like, you're trying to hold for six months, it takes adjusting. It doesn't come so easily.

Yeah, put in the clutch to change those gears, huh?

Yeah, exactly. You know, so, so, so one year it was all about patience, and I, you know, even if I was going to have to give up gains, it was forcing to stay in. And, you know, last year, and even to this year, one of my real key focuses has been trying to smooth the equity curve on those drops, and selling into, kind of, I went the other way with patience. I went a little too patient. So I had to kind of now my focus is dial it back, dial back to patience on stocks that aren't showing incredible characteristics of strength. Don't fall in love with everything, type of idea. So each year I pick that one goal, because I, I think really, I mean, trading seems so simple on the surface, but when you get down to it, there's all of these different components of the strategy, there's mindset, and risk management, and, you know, when to buy, how to sell, how much to sell, how much to buy. Each part, if you get any of those, like parts of the equation wrong, it could have a real dramatic negative impact on your trading. So I figured if each year I can make, you know, get a little closer to perfection on each part of the, the system, ultimately, you become a better investor. So that's kind of each year I, I pick that one goal. It's kind of like a New Year's resolution, but it's one that I really stick to for the whole year, and I really try and focus on.

So, so what are some of the strategies that you're trying to use? I mean, cutting your laggards and things like that, but are there any other kind of specific strategies that you might be trying to use, um, to try to say, you know, I'm going to hold this many stocks and try to let them test the 50-day moving average during kind of normal corrections, and these others, maybe I'll half of them, I'll try to sell at 20%, anything like that?

So there's, there's one issue I've always had with selling into strength. And if you go back and you study the stocks individually, say you go back and you study Qualcomm, like, kind of no matter what type of selling technique you use, it's not going to work because the stock is this crazy rocket. It's, it's really difficult to find whether you use Bollinger Bands or Keltner Bands or overbought oversold oscillators or even trend lines. So, you know, like, like my worst, my worst nightmare is, hey, I get this big position, Qualcomm, early in the move, this thing's about to go tenfold, and I sell out at a 30% gain because it was short-term extended. So it, you know, I came to this realization, which really helped me recently, where I said to myself, you know, the leaders will break out first, we know that. That's what makes it a leader. They break out first, and they'll tend to top last because they're leaders. So rather than trying to kind of use a technical sell signal for the leaders on the leaders themselves, I, I basically look at the market as a whole. So when the entire market, market is overbought, or there's, let's say, there's extreme upside breath, then I use that to go around to start hedging things. I'll either sell my weaker, my weaker stocks, or maybe buy some puts to hedge my strongest stocks. So rather than trying to get the signal from the stock itself, which tends to fail with the strongest leaders because they're so, that's what makes them a leader, I use the market as a whole to hedge. So when, even like the old saying, even when turkeys can fly, like in a, in a, um, wind storm, when even like the junk, when everything is hot, and you, every measure you can look at for breath is at the upper echelon, and you're, the number one, you know, indicator is when you feel amazing, when you start browsing the internet for places to vacation or new cars to buy, when that indicator flashes, okay, I need to buy, I need to buy some hedges and stuff like that. So, so using the market as a whole to hedge is, is one of the techniques that I've, I've been using, and that's what helped me kind of really hedge into what were very strong markets during the, uh, kind of holiday period just recently.

And, and just out of curiosity, uh, you know, because I, I know that there's a lot of different ways to hedge, right? You know, some people will use the market indexes, inverse indexes, use futures, kind of match up with the delta, you know, so Chris Gessle was actually our guest last week, and that was kind of his, his whole thing about different ways to hedge. What, what is your, your preferred way of of hedging when things get a little bit, um, you know, out of out of bounds, uh, from their normal areas?

I think before the index, I mean, it depends the kind of portfolio, portfolio you're running, first of all. But if you're, if you're like concentrating to a few leaders, I, I personally find hedging with the index can be a little dangerous because sometimes your leaders can take a real hit, and Microsoft's acting well, and so the NASDAQ doesn't really kind of fall. So your hedge doesn't work. Same with the inverse. So, you know, I, I don't, last year, yeah, yeah, you lost two ways. That's, and that's a big risk. You know, like I, when I was on the desk, I used to be with, you know, a guy who was a spread trader, and, you know, we used to talk, and, you know, their worst nightmare is kind of news that pushes the spread the wrong way, and they have size on, and they can blow out. So like, early, and I saw a bad example of that, so I had an early kind of example of making sure your hedges really match up properly, because it could be dangerous. So I, I, I don't personally like selling stock because again, my whole goal is really finding those leaders and getting position. So I, I kind of feel like taking stock off, uh, kind of works against my ultimate goal. So I just kind of came to the conclusion of, hey, if you have this really big gain, you're doing great. If you can find reasonably priced put options, you know, yeah, you give up part of your profit. It's kind of like, you know, you buy insurance for your home. If your home doesn't burn down, you're not really upset about it. And if the stock kind of just keeps going up, you have the extra profit. If it does have a hard break, like we had, well, you, you've eased the pain, and you've hedged part of that drop, and you can be more aggressive on the pullback. So that's, that's my preferred way. But there, there's many ways, like you mentioned, to do it. And I also just wanted to kind of, uh, you know, touch base on, you know, kind of your, your thinking of tackling one, one issue at a time. Bill O'Neal, you know, did have for his portfolio managers, you know, of course, Bonial was the founder of Investors Business Daily, and, you know, he had, you know, sometimes seven to 10 portfolio managers, and a lot of times he would make them go through the post-analysis process, and, you know, kind of come up with their rules, you know, what, what are, what is it you're going to work on for this next time? You know, uh, Mike Webster famously one time did, like, 17 pages or something, what he was going to, you know, work on. And Bill was like, whoa, whoa, whoa, I wanted like one page, uh, you know, because I really wanted this to be focused. So of course, Mike went back and single-spaced, took off the margins, did, you know, nine-point font, and, you know, everything like that. But, you know, Bill's point was, you know, sometimes you, you, you need to kind of, you need to focus. You, number one, because if you're, if you're going on too many different things, you know, you're not, you're not going to be focused on one thing. Or, and a lot of times, what's really tripping you up comes down to two or three things that really kind of messed you up. And if you can fix those, uh, you can get so much more bang for your buck, uh, as opposed to, okay, let me, let me try and be perfect in everything. It's sometimes just really narrowing it down to a few things. So I, I really like that process, Matt.

Yeah, and, and I really put a premium on simplicity. Like, like when I started, like, I mean, Bill was the first book I really read on, on investing, but then I, I got deep into technical analysis. I'm, I'm a CMT, like Arusa, so then I got really into the, like, the weeds of indicators and all that. But eventually, especially, I think, I think kind of being, being a market maker and just then focusing so much on price action and trying to read, like, the major buyers and sellers, that gave me a different spin on things. And so I kind of slowly went back to just really, like, first principles and being very simple. And I think the markets are so unpredictable. There's so many, kind of, things that that that can come out of nowhere and have these big. If you're simple, it allows you to react a lot quicker. If you have this really complex formula, like maybe it's slightly more effective, but in the heat of the battle, are you going to be able to really implement? I mean, already, I personally find being heavily invested with many names, it's hard to react on one of those days where things are breaking, and there's earnings, and there's news, and is your stock affected by that news? So I think bringing down the simplicity, it pays, you know, um, has a lot of benefits in different ways, especially in such an uncertain, unpredictable type of business. I think simplicity is extra important.

Yeah, and so, I mean, I'm immediately thinking, like, one, one of the things I've been working on for a while is just the, the pullback backs, buying on pullbacks. And Charles Harris has always been so good at that. And some others are either, a lot of times, either you're really good at buying breakouts, or you might be better at buying pullbacks. But it, it takes a number of years, but I think after a number of years, I'm getting a little bit more comfortable recognizing that, hey, this, even though it's a bad break, this actually might be an opportunity in the near future to actually initiate a position instead of just removing it off the radar. And it's just that keeping it simple, right? Looking at enough examples, kind of like what you were talking about before, listening to Bill O'Neal over and over again, after a while, you see enough examples that you start getting a little more confidence that this could actually hold instead of really breaking.

Yeah, and, you know, I think also you have to put yourself in a position to win as well. You know, it's a interesting business because you, you have to, you know, preemptively prepare yourself for the situation that's coming up. If you think there's going to be a bad break, but you don't take any of those profits, you, you don't prepare to protect your, your equity curve. Well, how are you going to buy when you're under significant drawdown? You're already fully invested, you're already on margin, you can't. So if your goal is, you're looking at all these stocks, and they're all extended 40% from their 10-week average, and this is typically where they start to correct, but you don't take anything off, and this is the problem I had for years. Like, I, I, you know, you want to buy on the 10-week. I'd always be selling on the 10-week because just about the time it gets back down to there, I'm near my average cost, or I'm freaked out because everything is breaking down. And so, you know, you have to kind of, you know, plan ahead for saying, like, okay, this is where we are. If we get back down to that 10-week, will I be able to buy? If everything drops, and most of the time, if you're honest with yourself, the answer is no. You know, that's the answer. You don't want to believe it because you don't want to sell your stock because you're feeling greedy, but the answer is no, I won't be able to buy down there if I don't take any profits. So, you know, the whole plan has to work together. That's, I think that's where a lot of people get tripped up in trading, and they can do really well in one period, but then get really hurt in another, is that the whole system is is interrelated. You can't be a good buyer, but not be a good seller, or be a good buyer and seller, and not have good risk management, or not have any kind of, uh, you know, other psychological tools. If there's any kind of one critical error in your process, at some point in the cycle, it's going to bite you. So, like understanding it's, and that's why again, simplicity. There's enough stuff going on. If you're going to get really complicated with all of your models, and that, it gets difficult to, to have to execute in real time.

Yeah, and going off of that, a lot of people, especially when they're new, they may switch from strategy to strategy, too, right? They, they might be, uh, buying breakouts, and then they're switching to futures, and then options next year. You have to focus on one thing and really to develop that expertise. These are a fraction of my books. Sorry, I'm sorry. I was going to say, even worse, sometimes they, they're switching strategies midstream, like, oh, I'm going to go from, you know, a short-term trader to a long-term trader, you know, uh, because they don't want to take a loss or something like that. But, yeah, I, I'm sorry, you, you were going to say something about your, your books.

Yeah, this is a fraction of my books. And that just shows all the strategies. Every time I got a new book, oh, that sounds good. And you would change, and you would change. And, you know, what would happen is, ironically, you're always in the wrong place at the wrong time. Because just about the time of follow-through day happens, and Can Slim's going to look good, well, you're not paying attention because it was a bare market, and you're probably in maybe commodity stocks because there was some kind of inflationary problem causing the bare market. So you go to oil because it's hot, but it's, that's topping while that's bottoming. And it's, you're always in the wrong strategy, in the wrong place, at the wrong time. You want to be a specialist. I think, you know, there's, there's benefits to being a specialist and doing one thing well, and rather than jumping all over the place.

So, I mean, how many people have became macro experts over the last couple of years, right? Right. Let's, let's, let's all decipher what the Fed is going to do, and what, what Jerome Powell's words mean, and everything like that. I mean, for a while, I mean, that was like Alan Greenspan's thing, right? Everyone was trying to decipher, uh, you know, the Maestro, Alan Greenspan, Greenspeak, what, you know, what it all meant, um, you know, when, when he spoke each time. Um, so, you know, just to kind of get into this a little bit more, because I think I think we have the concept down of what, what you're doing here. It's, it's you're, you're wanting to free up cash so that you can, uh, you know, take advantage of those pullbacks. And you're also recognizing, uh, as you said, not everything is going to be that big leader. You know, not, not everything is going to work. And, um, you know, I, I think I had a humbling experience in a conversation with Bill where we were on the way to, he was, he was going to be speaking on as a guest on Kudlow and Cramer, back when Larry Kudlow and Jim Cramer had a show together. And, you know, I was talking to him about my portfolio, and he's like, you know, how come you're not taking any profits on anything? I'm like, well, you know, I thought that this was going to be a big winner. I thought this was going to be a big winner. And he's like, look, I expect, you know, one or two out of my stocks to be big winners, you know, three or four, uh, of my trades to be, you know, those 20 to 25% gains, and the rest to be losers. And you think that you're, everything you touch is going to be a big winner, like, you know, who do you think you are, basically, you know? So, um, I guess, you know, when it comes down to it, um, what, what kind of percentages are you looking at in terms of how many stocks do you look at as

Okay, these are going to be my big winners. These are going to be my 20 to 25% gainers, or whatever your number is. Um, and how do you tell the difference? There's, I, I think I have to, I have to blame Bill for that one because he made his book so inspirational and so enticing, you know, and then full of all big winners. They look, aw, everything. I remember, I was like 16, I would just look at, went up 582% in 72 weeks. Like, oh, really? I'm like, okay, if I do that a few times, you know. And then, and then he buried, like in one chapter, there's like two sentences saying, "But only one or two out of 10 will do it." You know, it wasn't, there wasn't a proper representation. I have to say. Uh, and so ironically, even when I was day trading, it was never a problem taking profits. You're trading all day, but then when it came to this style, it's like you had this mental block where you think every stock's going to be this monster. And again, that was one of the lessons I had to force myself into correcting over the years.

But yeah, you know, for me, it's hard to put a number on it. The way it works for me, I've noticed, is I get periods of time which I think, you know, obviously the strategy has its times where it's in vogue or it's, it's working well with the market in general, where almost everything works. And there's periods of time where almost nothing's going to work. So it's a little bit of, um, it's, it's hard to say one or two out of 10. I think Bill was giving a good, like, overall estimate. And maybe he's also, maybe for him, it was one or two out of 10. He found an Amgen or a Qualcomm. I don't think I'm at that level. I wish I was. But, um, but for me, it's really come, kind of comes where it's the right environment and you want to press it with size. And in the wrong environment, where you know you're just striking out all the time, don't be too big. And that's really what I've, I try and do.

And then that second part, how do you tell the difference between those that you're like, okay, this, this one could really be the, the game changer, you know, this one could really make a big difference in my portfolio. Um, and this one is more like, oh, this one's, this one's like the commodity trade where, you know what, it's, it's just a, the right time for this thing. Uh, I'll take advantage of it, but it's not going to have the staying power. Any, any insight there? Yeah, it kind of, they all, it all kind of comes together on the. So I, I've had, like, over the course of my career, uh, like, like maybe three, four really big years, like, like serious triple-digit returns where everything kind of comes together. And, um, and so really, it's kind of like the technical, fundamental, and your positions all start to tell the same story. You can really see, like, and some people are just purely technical, or some people are purely fundamental. But I, I really think both are helpful because I like to concentrate. So if I'm going to concentrate, I need to have a vision of really why this company is going to win, just even if it's just for the sake of when the stock's pulling back, that you still have faith to stay in the stock because you know it's not easy to see your account go back and forth. So, so it's really those times where you start to put on your position and the profit builds very quickly, that right away puts you in the driver's seat to to increase exposure because you have that profit cushion and you feel better. You feel confident. The confidence is key. So the positions tell you the, the right story, that the company has the right fundamental story. And then technically, you start seeing things that are really typical of bull runs, like we just said, seven, eight, nine weeks up in a row. That's, it's, it is abnormal if you look back, unless it's a climax top or the start of a move. You don't typically see eight or nine weeks up in a row on individual stocks, especially growth stocks. So it's really with when those come together every so often, then you know that's when you really get fireworks. And, uh, I think the rest of the time, it's about, you know, scraping by. You, you're trying to get the profits when you can, not take too many big losses. But not every year is going to be that, you know, amazing, amazing year. And you don't need it to be. I mean, you, the way the math works out, you have a few good triple-digit years and, you know, that can really change, uh, the, the direction of your, your portfolio and, uh, and your overall, you know, wealth, uh, building. So yeah, it, it, it doesn't have to be every year. Um, but I, I think to, uh, I think a point that we always come back to is part of that is that you have to have your risk management in place. And you can't, uh, you can't lose too much. You know, because if you have 50% drawdowns, then that means you need more triple-digit years in order to recover and get just back to even. So, uh, great, great chat here. Uh, I think this is some useful stuff for all of our listeners to think about in terms of how they want to tackle 2024. And when we come back, uh, we'll discover some of the stocks that are on Matt's radar in terms of looking for, uh, those, those next potential winners. Stay tuned. We're going to be right back.

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Welcome back to Investing with IBD Podcast. It's Justin Nealon here, your host, along with Arusa Pish, a portfolio manager over at O'Neil Global Advisors. Uh, and he joins me every week, thank goodness. Um, and thank goodness we have Matt Caruso joining us this week. He's the president of Caruso Investments. And if you've, uh, been interested in the stuff that he's been talking about, I mean, you've got some great educational material yourself that you've put out there, Matt. Um, a lot of that can be found at CarusoInsights.com. And I should also mention that you, you do a great job of, uh, you know, I, I feel like at critical junctures, putting some stuff out there. I feel like sometimes I read your stuff and it helps calm me down, uh, when looking at, you know, the stuff that you put on X, formerly known as Twitter. Um, and of course, folks can find you there at @TraderCormCaruso. So, a lot of great places to get, uh, more Matt if you need it. Um, so, uh, great, great stuff that you're putting out. But let's, let's go ahead and talk a little bit about some stocks. Um, and you already brought up LendingTree and how, how ugly things got for a lot of these, uh, you know, stocks that were interest rate sensitive. Um, so let's go ahead and take a look at Affirm. And of course, you know, when Affirm came out, it was, I, I feel like, you know, the, the IPO, it, it went through its phase, uh, and then of, of, you know, what the, our folks at the life cycle trade called the due diligence phase, uh, in 2021. But it really had this phenomenal move at the end of 2021 where it looked like, oh yeah, this, this one could be a game changer. You started seeing Affirm like everywhere. I mean, it was like, you know, and I mean, even, you know, Peloton, buy your Peloton and use Affirm to pay for it. And, you know, the whole buy now, pay later thing, uh, really was taking off. But then, man, did this thing come down. So, um, it's certainly up off of its lows, but a lot of overhead supply. So how do you kind of thread the needle here in terms of a stock that, um, that that that can grow from here? Yeah, so I, I think the buy now, pay later space, I think there's a lot more to it than people, uh, believe. I, I think people have kind of simplified it down to like, oh, they just help people split up payments. If you listen to what the CEOs are are talking about. So there's two of the, the best ways to play it in my opinion are either through Affirm or SQ, which is Block, formerly Square. They bought Afterpay, which is one of the kind of competing buy now, pay later services. Really, this is going to be, I think, I believe, a smarter way for people to spend. It's, it's gonna, they've built us really from the ground up to be able to offer people much more flexibility, really change the way people make purchases. Now, again, like Bill Neale would say, it's something that should change the way we live, work, and play. I think this absolutely nails that. And, um, what helps is that again, this is one of the stocks that you've seen this many weeks up in a row, which kind of shows institutions have come back to it. There's, there's a number of reasons why. First of all, you know, unlike after some, you know, major bull market runs, like the company, kind of like, even like Peloton, didn't kind of grow into what its expectations would be. But if you look at buy now, pay later, buy now, pay later in total, it just in 2023 made new records in the amount of usage of buy now, pay later. So I mean, we're at all-time highs in usage of of that type of service in total. If you look at Affirm, their gross merchandise value from 2020 fiscal year 2020 to now is up fivefold. Fivefold increase. So I mean, that's a really huge, uh, ramp. So maybe they sometimes they come to market at the end of a bull market, it's a little overvalued, and there's that normal kind of post-IPO drop. You see that in a lot of stocks. But I think it was overdone. I think they really have, um, an incredible moat. There was recently, they had an annual, uh, kind of, uh, investor day, and they had the CEO of Shopify on. And I found this was really interesting because I didn't realize, uh, it was even this complex. But he was, he went out, started by saying that Shopify originally wanted to create their own competing buy now, pay later service. And right now, Shopify uses Affirm as a preferred partner. They have some others, but the Shopify CEO said it was, it was much more complex. It seemed simple on the surface, but once they kind of drilled down, he, he figured it would have taken all of Shopify's engineers in unison to work on this project to rebuild what Affirm had done. Wow. And so he just figured it was easier to kind of, uh, go to Affirm rather than rebuild it himself. So that, I mean, that's an incredible moat. I mean, like the Shopify CEO, and you want to use, like, an outside party, obviously, the CEO of the company itself is going to talk well about itself. But I mean, the Shopify CEO was saying, this is insanely difficult to build, engineer, and go at scale with speed. Because what's different about Affirm versus, or all the buy now, pay laters versus a regular credit card? It's not just a kind of revolving credit. Essentially, the reason you have this flexibility of payments is that they're essentially underwriting a loan for each purchase you make. So you need to have a good credit scoring capability. This has to be done in real time. But the amount of flexibility that comes from that is incredible. So it's going to be able to offer consumers vastly superior choice. And that's why I think it's going to kind of just absolutely beat other payment options. And in fact, what I really like is the CEO of Affirm, he's the former CTO, technology officer of of PayPal before it was sold to eBay. So this is not his first rodeo. And he was saying in five years, not only does he want to be the the biggest in the buy now, pay later space, he wants to be the biggest company in payments, the most valuable payment company in the world. So this is one of those, you know, serial entrepreneurs who can definitely execute. And he has incredible aspirations. He lays out his his road map very well. It's an incredibly huge market with a huge total addressable market. And so I think there's a tremendous potential. And you're starting to see that in the stock. Finally seeing that eight, nine weeks up in a row. Investors have taken note again with a number of deals they made with Walmart and Amazon. Another interesting note as well is if you bring up Block, which is SQ, this has also kind of gone to sleep. And I find this really interesting as well. If you look at their earnings estimates going forward on the left side of the chart there, uh, Justin, they're knocking on record earnings. I mean, we're far off of record highs for the company. So not only are they already executing with earnings, but they have, similar to Affirm, they have a huge ecosystem already built. All all their current merchants that are using their product, they're going to start pushing, uh, their buy now, pay later, Afterpay onto their merchants. They have the Cash App, so a lot of consumers. So they already have this. And and Jack Dorsey is back. He came back in October. You know, Jack is back. And that's big because you need this visionary. I mean, he's, he built Twitter, he built Square, he left the company, didn't do so well, and now he's back to kind of reinvigorate things. So you have two CEOs in the space, both putting their full efforts into what they think is a huge total addressable market. And it's a win-win for customer and for merchant. Even the merchant, think about it. When you want to sell something and your customer on the fence, you have to, you have to discount. Discount cuts into your margins, you have less profits. Whereas really, most people who don't buy just figure, oh, I can't afford it right now. If you can just simply offer more flexible payment terms, you don't have to obliterate your margins just to move more merchandise. You can just say, you know, give Affirm their small percentage instead of giving it to another car company, you give it to Affirm. But now your customer has this flexibility. It's a win-win for all. So I think it's a big opportunity that's just just starting to take off.

So getting back to Affirm, where where did this come, uh, on your radar again? Because obviously got got hit with a lot of everything else in 2022. When did it start showing up again then, you know, starting to look like, oh, you know, maybe this has a chance? This is interesting. Right before it broke out of that kind of cup base, it was on my radar. But this had been such kind of like a sleepy. Yeah, right, right in that cup base area there. It had been such kind of a, uh, old beat-up stock that I didn't give it much attention. I kind of had it like as a setup. My alarm went off, but I passed on it. And then it went vertical. I said, oh, I passed on a stock that could be a kingmaker, like a, like someone I know was was saying, you know. So in fact, this for me actually was one of those where I said, if this pulls back down to that 10-week line, I want to put a big position on. So I, I kind of, to the discussion we had before, when I felt things were kind of frothy in general, uh, two weeks ago, I bought some way out of the money puts, like at $40 for, for very inexpensive. I said, if there's a quick drop, I did some math. I said, if this turns into a high tight flag, which I think it's trying to build, it should pull back to about that $40 level. So actually, the other morning, part of my New Year's resolution is to actually exercise more. I was at the gym at 6:15 in the morning, and I was looking at my Affirm quotes, and I actually had some pre-market bids at 41 and a quarter. So I'm, I, I was able to buy some stock off the chart. It never actually got there after the open. So I had the puts. I said, look, if I put on the stock, I'm covered anyways. I'll buy it right into weakness. So I've started to establish my position. I want to buy more. But that's how I've started to enter into the stock. I mean, it's pretty amazing over the last like four or five months. All these weekly bars, I mean, there is some accumulation going on there. So yeah, I mean, that, that really sticks out to me. And also the nine weeks in a row, uh, like you were talking about before. And and look at the way the volume has eased on the pullback. I mean, you went vertical, you went up huge like that, and you pull back on low volume. In fact, like, I, I've been kind of using Qualcomm as a precedent to this. Um, I mean, it's not perfect, but, you know, uh, that's one of those like Bill, back in in 1999, before it took off, he was saying, look, it's trying to build base and base and they're not working, they're not working. And Affirm kind of has many of those little cups along the way. And the last one went, and it pulled that high tight flag, and then it just kept going. So this is kind of, I mean, I don't know if it'll be a Qualcomm. We all always hope that we walk into a 1999 Qualcomm. But I fig, yeah, that's gonna be the headline of the podcast, by the way. Is this the next Qualcomm? Yeah, yeah. This is Bill's fault again. He put all those great charts. And, you know, I'm still expecting 900% in 43 weeks or something like that. But, um, but I always tell myself, if, if I think it looks like a Qualcomm, if I get even a fraction of that move, I'll still be doing okay.

So that's, that's the, the good side of things. Now, a lot of this does, I mean, at least for Affirm, it really does depend on the strength of the consumer to a degree, right? I mean, uh, is there a concern? Well, I guess, or does it, because if the consumer isn't as strong, but has the ability to, um, you know, do this kind of deferred payment system, does that potentially get them into trouble when now their debt load is increasing and their, you know, maybe some layoffs come with a, a soft landing, you know, a little bit more recessionary, uh, type action in the economy? Uh, do you see that as a potential problem? Like the timing? And, and I, you know, speaking of timing, it just reminds me of when Square turned to Block, which of course stands for blockchain. I, I think that was within months of its top, you know, kind of thing. So, is, is there a potential macro shift that we have to be aware of here? They also bought, bought Afterpay for $9 billion, and now Block altogether is only worth $41 billion. So just, you know, poorly timed, poorly timed purchase. Timing is is important, obviously. But I mean, I think there's different ways to think about it. So if you, if you look at what the, um, what the consumer wants, like I said, there's record usage of buy now, pay later. So you can, yeah, obviously if the economy falls off a cliff and spending just dramatically drops, there could be an issue. But you can almost kind of turn it another way where if the economy is a just a little bit softer, I mean, people would like more flexible payment options. If you can pay with your debit card or your credit card and you have to pay immediately, or you can pay with buy now, pay later over five payments for no additional fee to you, again, it's, it's a better mouse trap. It's just, it's just a better way of doing things for for the consumer and for the merchant. I mean, instead of saying, I need to slash my prices because I'm not be able, I'm not able to sell any of my inventory, or you can say, oh, you know, I can just give Affirm a 3% cut instead of giving it to whatever other card company and, uh, price 10% to increase the demand. Right. Yeah, exactly. So I, you could almost kind of make the argument if it's a better product, if it's a better way to do things, I can see it doing better in a softening economy because it gives better payment terms. And even in a, in a good economy, if payment, if, you know, if spending just increases, it would also benefit to them. I think the key here is, do they have a revolutionary way to change the way payments are going to want to be done? I know they're they're now going, I think they said something like 80% of payments are under $70. So so they've up until now focused on the higher, you know, cost, uh, purchases, which makes sense. You want exactly like a Peloton. But, you know, their goal is to really walk into the smaller payment size and also to address small and medium-sized businesses. If, if you're a small business and you want to get a loan at a bank, I mean, good luck. They want all of your financial statements, they want your personal guarantees. And so Affirm has a plan that the CEO was talking about is to also use their underwriting excellence to be able to kind of use buy now, pay later to help small, medium-sized businesses, which is a trillion-dollar borrowing market on its own, apart from those who can't even get credit because they're, you know, uh, one or two-year-old company. So I think there's a lot of growth trajectories. Um, anything obviously can throw that off, but, uh, I think there's more to be optimistic about. And I, I think the fact that this IPO had that kind of rough patch where now the stock has probably gone into strong hands after that long sideways basing period, and it's eight, nine weeks in a row in volume surge is showing that I think institutional interest is reawakened. So for me, you know, really the upside, I think this, I think it's something that's really interesting. I think Affirm looks great. And same, I think Square is kind of like a sleeper. It's just sitting there with record earnings coming, with Jack Dorsey back, with similar opportunities to kind of expand buy now, pay later into all their offerings. And this stock is still sitting near where it's been for a couple of years now. So we, we'll see what happens.

Well, and you brought up Shopify earlier. So let's go ahead and get Shopify's chart into the mix for those of you that are watching at investors.com podcast or on the YouTube channel. Um, you know, you, you mention how Shopify is like, okay, you know what, Affirm, you got this. We're not, we're not gonna, we're not gonna try. Um, but what, what else, what is Shopify doing that, uh, again, this is one that really got, you know, taken to the cleaners. Uh, it was up, you know, at over $160 and came all the way down into the $20s. But here we are at $80. You know, which again, you know, you look at that move from from $23 to $80 and it's like, wow, that's that's impressive. But you're still, you know, 50% off your high, uh, or more. Uh, so what, what is it about Shopify that you think can change here, uh, change its trajectory permanently? A few interesting things. I actually did a YouTube video about this like, uh, back in, I think it was September or something, discussing this. But first of all, if you take a look at their earnings, similar to to to Block, uh, they're already looking at record earnings, which is, you know, uh, impressive this far off your highs. And if you go further past '24, I know Market Smith's not showing it, but they're, they're, you know, on track to make even higher earnings. So, you know, obviously the multiple is important as well, but definitely they're executing. So I think that the turnaround situation for Shop is that they got into trouble. They want to get into distribution and kind of really go head-to-head with Amazon, like not just in terms of providing e-commerce platform, but also being like the, uh, last touch, getting the packages to the house. They bought, I forget the name of who they bought to kind of help them with that, but they realized that was the wrong way to go in terms of capital expenditures and and all the rest complexity. So they actually sold that off. And they, uh, this is what I spoke about a while back was that they finally now allow Fulfillment by Amazon through the Shopify platform. And this reminded me back in, I believe it was '97 or '98, I don't quote me now on the year, it was '99, I forget when exactly, but when Steve Jobs came back to Apple, he realized he had a huge problem. Is that, you know, people felt was going to be either Microsoft or Apple. And so no developers wanted to go to Apple because they felt it was going to be a losing horse. And so he says, I'm coming back to Apple, I need to re, you know, fix things up. Yeah, right around '97, '77. Yeah. So he came back. The first thing he did when he came back is he went to go make a deal with Microsoft. He says, look, invest $100 million. We're gonna drop our, our, I think it was a patent lawsuit. If ever's any antitrust issues, you'll get more of a pass because you're, you're investing in in Apple. We'll allow Office on our platform, and let's make, let's make friends. And that was a dramatic turning point because the world's, you know, largest, you know, competitor suddenly was no longer a direct, direct competitor. So Shop, I feel, did a very similar move. They went to Amazon, said, look, we're getting rid of fulfillment. We'll allow you to fulfill through our platform. We just want to control the payments. We'll let you get fulfillment. Our, um, Shopify customers are happy. We're going to focus on being the best e-commerce solution possible. And and their goal is to really win anyone who wants an e-commerce site, basically outside of Amazon, even large enterprise customers. I mean, this week, uh, X, you know, formerly Twitter, X announced that they're partnering with Shopify to bring some e-commerce features to X. So Shop's goal is to just be the default platform for everyone else, make it so easy, so effective. They have the, the by far the highest conversion checkout on the internet. So, uh, I, I think a better focus, getting rid of the problems, making nice with their largest enemy, just like Apple did with Microsoft. And I mean, their earnings are already booming. So I, I think this is just a matter of time, personally, before this gets to all-time highs.

And when you're looking at, uh, you know, the earnings, of course, and you mentioned how, uh, how that was in relation to price, so of course that makes me think PE ratio. You know, PE ratio 174. Not something that would deter Bill. You know, he was often like, hey, look, you got to pay up for for the stuff. But, you know, and it's also, you know, the PE of 174, that's looking at the last, uh, four quarters, you know, the last 12 months. And, you know, you can see that the estimates are for even greater, uh, ahead. But the forward PE is still pretty, pretty high up there at 78. So, um, is this, you know, I, I guess, do you think PEs matter? You know, uh, do you think PEs matter in this environment? It seemed like for a while there, they did. Um, do, do you think they still do? And for 2024, I, you know, I'm not terribly, I've never really terribly concerned about PE. If anything, you know, price to sales will bother me a little bit more, if they get excessively high. I mean, you know, you have to be able to monetize. It's not just sales that matter, but I mean, the earnings factor. I mean, look, Amazon for years wasn't really, you know, showing big earnings growth because they were focused on growth. So, you know, you can, some people wondered if they'd ever have earnings. Yeah, exactly. I remember that was the argument saying Amazon's never going to become profitable. It's so funny in retrospect. It seems like a ridiculous question, but that was a real, a real question 20 years ago. Yeah, yeah, exactly. You know, uh, but, you know, but earnings is, it's an accounting number, right? So, so companies can, if they want to show more earnings, they can. Typically, they're focused on growth. So I think, you know, the, the PE ratio, if it's high, but it's high for the reason that the company's delivering growth. And I think if investors understand why, you know, there's a lot of R&D and there's expense, and they they agree with the vision that they're going to succeed and they're going to win, I think a company can do just great with a very high PE ratio. So I think the context matters, but I wouldn't let that deter me solely. And if you look at their forward numbers, like 2025, 2026 for for their growth rates, I don't think it's an astronomical number compared to what you see in a lot of places. And and certainly, uh, computer software, I, you know, the enterprise software has, has been a great place to look. And, uh, Shopify has has been a dominant force in in that space. So, uh, some, some great stocks to look at.

Any, any final comments from you? I think it was really interesting just kind of having this one kind of theme right here and a number of, I mean, because Affirm, yeah, like this is, this almost kind of take me back a few years ago where we were all talking about, we were all excited about it. You know, Upstart was one of those other stocks that that was, uh, part, part of that group too. But, uh, it is interesting to see how Affirm has been acting. Of course, Shopify coming back, and I like the, the partner stuff. But yeah, the Affirm, how strong it is here, it's worth putting on a watch list and and doing more investigation and see if it's a, a stock, uh, worth considering for your portfolio. Yeah.

Well, hey Matt, always a pleasure having you on. Uh, it's, it's great chatting with you. Um, I'm glad you're, glad you're at the gym. You're gonna inspire me to get back into the gym and maybe work on my shoveling technique. Uh, so always appreciate you coming on. Great seeing you, man. So much. Thanks for having me.

Okay. And don't forget, uh, you can also get more information about Matt. Uh, you know, he, he's on YouTube, he's on, uh, X at, you know, @TraderCormCaruso, and of course, at CarusoInsights.com. So a lot, a lot of great stuff he has on there. And, uh, that's going to wrap it up for us this week. Join us next week. We're gonna have, uh, Ari's old friend, Ari Goz, on the show. Ari is, gosh, how long has he been there now? I mean, it's, it's been over a decade. He's been at Market Smith. Yeah. So he's, he's getting up there. Yeah. He started back in, you know, before it was Market Smith. So he's got a lot of war stories, you know, of, of when he was kind of working in a closet, a two-person team, I think, for Market Smith. He's, of course, a senior product coach now. So it's going to be great to hear some of his stories. Uh, so hope you join us for that. Thanks a lot for watching us this week. We'll see you next time.