Big Story Rate Hike Odds Surged

0:00Looking for strategies to help you protect your portfolio in these uncertain times? Visit robblack.com. Robblack.com powered by E.P. Welp. Friday September 11th, 2026. I think the big story of the day has to be that the Fed rate hike odds surged 90% on a monthly jumping core prices. Here are some other things out there that are news as well. SpaceX just revealed an important timeline for launching data centers into space that stocks up 1.1% on that news. They also signed another AI computing deal with $100 billion in run rate. CFO says the company is on track. Nvidia CEO Jensen weighing just dulled down on his big 2030 prediction. He is expecting the size of the AI market will reach $3 trillion to $4 trillion by 2030

1:00during the talk at Goldman Sachs, Copia and Tech Conference. It was exactly a year ago that he made the initial prediction at the same event. His quote was the semiconductor industry is going to keep getting larger and larger, which is what we are seeing now with these two fundamental ideas that we have a new layer of computing with a new application and the end of Moore's law. He also went on to say, meanwhile, people are expecting these AI models to be smarter and smarter because they don't like wrong answers. Then the compounded result of that should result in a very large industry. Nvidia's data center revenue, which includes hyper scalers, and AI cloud industrial and enterprise companies, came in at $89 billion versus the projected $85 billion in the most recent quarter. Showing you, he's struggling to meet demand every single day. The industry is struggling to meet compute demand at this point in time. Most CEOs of companies in data centers will say something along the lines of every GPU we

2:06have could be sold to multiple different clients. It's a unique moment that continues to be a unique moment. We're going to look at some individual stocks up there today. Apples had a good week, adding another seven-on today, sitting at $334 all time highs in the low 340s. Their event, I would say, came off without a hinge, which was a play on the thought on the new foldable foam and has a hinge in it. The hinge is incredibly complex and tough to make. That's the, I found that just a rabbit hole worth going down as far as looking into analysis of the company. I see Qualcomm's up 4.5% day, met as up 1%, Nvidia's up fractionally, Microsoft's up, just a big broad rally, if you will. Stocks are rallying even after that, hotter than expected inflation report, strengthened expectations of the Federal Reserve will raise interest rates next week. The SP 500's up 1% than ASDAX's up 1.1% down, Joe and Zedustra's average is up 500 points.

3:11It sounds backwards. Hot inflation usually means higher interest rates and higher interest rates usually pressure stocks, but markets don't always rally because the news is good, sometimes they're rally because the news is less uncertain. The August CPI rose 4.10% from the prior month in line with expectations, while Core CPI which excludes food and energy increased 3.10% slightly hotter than the economists expected. The rate hike next week may not be what investors want, but at least the Fed's next move is becoming clear. Wall Street hates uncertainty, almost as much as it hates surprise earnings misses. A well-tell-graphed rate hike could signal that the Fed is trying to get ahead of inflation now, rather than waiting and potentially having to deliver a much more aggressive series of rate increases later. In other words, investors may be viewing one predictable hike as better than the risk of several unexpected hikes down the road. Oracle's cloud infrastructure revenue jumped 121% year over year, while the company reported

4:14more than $30 billion in new AI cloud contracts and maintained its capital spending plans. That has investors buying companies that supply the data center build out, including Dell, fuel-packed enterprise, super-micro, net-app. The market's message today is not that inflation is suddenly harmless. It's that investors are balancing three things, a likely Fed hike now, following oil prices, and continued spending on artificial intelligence. For now, the oil pullback of today and the AI optimism are outweighing the inflation concern, but with the Fed meeting next week, the market may be calm today because the outcome is much more clear and predictable next week. The inflation problem has not disappeared. Nvidia has become a core piece of the Robotaxi stack as autonomous fleets move into commercial scale. Every major Robotaxi program operative scale days are to use an Nvidia across training, simulation, and in-vehicle compute.

5:16I am bullish on Nvidia, I am bullish on GPUs because of cases like commercial fleets of Robotaxis. I love the idea of a Robotaxi. In my 50s now, I look at my ability to drive is less than it used to be. I don't like driving at night anymore. So I want to put off my next car purchase until I can get it loaded with GPUs as more self-driving. Speaking of Nvidia, Jensen Wang says cyber security will be the next major use case for AI as he believes that cyber attacks will grow exponentially. There are two stocks that I think really do well, CrowdStrike and Palo Alto Networks. CrowdStrike has pioneering autonomous threat detection enterprise defense belongs to Palo Alto Networks. I think they are both very interesting stocks and delivering hyperfast cloud independent

6:18behavioral AI remediation directly in real times can be a thing. So another use case of GPUs from Nvidia. Let's take a look at inflation. Price changes in one year on gas are up 28%. Your line fair is up 24% energy up 16%. Food that you have in your home is up 2.2% food that you take dining out up 3.4%. Clothing's up 4% rents up 3% tobacco's up 6%. Alcohol's up 2%. Now this week we've had a lot of focus on energy prices gasoline a little bit. Most prices are going up. The average price of regular gas hit about $4.29 a gallon up nearly 30 cents from a month ago and roughly up about 10 higher than last year. Diesel climbed to a record $6.5 since a gallon breaking $6.00 for the first time ever. Diesel touches everything in the economy that means higher fuel costs can eventually show

7:21up in the grocery aisle. Fuel can account for roughly 15% to 30% of the cost of some foods, particularly produce, meat and other perishables that must be harvested, refrigerated and transported quickly. Grocery prices are up 2.2% from a year ago. Higher diesel costs can add another layer of pressure, especially because businesses rarely absorb higher costs forever. Home owners who use heating oil could also feel the pain in this winter. Estimates suggest heating a home with heating oil could approach $2,500 with prices potentially near $5.55 a gallon for heating oil. Then there's the commute that's the frustrating part of inflation. You don't have to buy anything extra to feel it. You simply have to drive to work by groceries or heat your house. Energy companies are benefiting from higher oil prices, reminding us of a diversified portfolio. If energy prices push inflation higher, the Federal Reserve may have less flexibility to cut rates aggressively in 2027 when this Iran war should be over.

8:28When off-winner of the higher energy cost and diesel prices could be Tesla's electric semi, it could get a boost from $6.00 diesel prices. That's why transportation stocks have been under pressure. Names like XPO, Old Dominion Freight, XPO Tereson XPO, Old Dominion Freight, ODFL and FedEx all down on the higher prices of diesel fuel. Tesla's talked about producing his minis 50,000 simes a year at roughly 300,000 per truck that would represent about 15 billion in annual revenue, meaningful, very small piece of Tesla's overall business. I'm going to make coming up Saturday September 12th. Just tomorrow or day depending on when you're listening to this. It's in Lafayette's library. I'd love to see you. It's my last event of the year in the East Bay. And as I get older, I never know when I'm going to be doing these events.

9:29You can jump online. Sign up for the event at roblachshow.com that's roblachshow.com. See you tomorrow. These days retirement planning is more complicated than ever. So set aside Saturday morning September 12th and get ready to learn some strategies for a wealth preservation and retirement planning from Rob Black, Ryan Ignacio and Julie Channel Rork. This event will focus on retirement income, tax strategies, estate planning, alternatives and funding retirement. If you're at or near retirement with at least 500K in investable assets, this seminar is for you. You'll learn how to transition your portfolio from the accumulation phase to the income phase, which accounts to draw from first how to protect your estate from long-term care costs and much more. Learn how to invest during inflation and interest rate moves, social security strategies and managing IRAs and 401Ks in retirement. Rob Black will share market happenings and trends. That Saturday September 12th, 10 to noon at the Don Tatson Community Library in Lafayette. Space is limited so sign up today at roblachshow.com. That's roblachshow.com. Investments not if the ICNCR at best performance does not guarantee future results not on

10:32African seller as a listation to buy any security member, Finder and S.O.P.C. Joining me now, Pete Chad Burton. Chad, tax planning becomes very important in retirement. What are the top tax issues people should be aware of before retiring? That's good question because it kind of comes in phases and I think that we kind of try to create a list of the top things. I think one basic that I see people come in with their own spreadsheets, Rob, is you got to remember your 401Ks and IRAs have never been taxed. So when you pull the dollar out, you got to pay the feds and you got to pay California if you live in California. So that's number one to remember that's part of your budget is your overall tax bill and where you can add a lot of planning if you have different asset types in retirement. So there's not a ton of tax planning besides Roth conversions if all you have is a 401K in your home, right? Because everything in your 401K, if it's all pre-tax, it's just you to pay taxes that comes out. When you have different asset types, you can be much more creative, which is something

11:34we go over at the event. So the other thing to think about is that 85% of your Social Security is likely going to be taxable if you can afford to retire. 85, okay. And it's just an odd number and I always joke that this was, you know, this law was put in place on whiskey, night and Congress because the formula doesn't even make sense. But it's, if you're modified adjusted gross income, which even includes your tax free bond income plus one half of your Social Security is over a certain amount and it's very low limits, like 25,000 and 32,000 married, finally and jointly, then 85% of your Social Security is going to be taxable. I don't know why it's 85%, I don't know why it's not 100. You know, it comes out as a tax and then paying taxes on it again is a little rough, but that's the way it is, okay. And then so that's one thing that I think people think about Social Security sometimes is tax free, but it's not. Now the other thing to note is your IRAs, your 403Bs, 401Ks, those types of plans that

12:35you put money in pre-tax, when you hit age 73 or if you were born 1960 or later, that's now age 75, your required minimum distributions kick in, that's RMD, that's what, when you hear that term, that's what it means. You have to start taking money out and then you take the year-end balance and divide it by a factor based on your age and that's how much you have to take out each year. And so that is going to create taxable income that you have to think about. So that's why a lot of times putting off your IRA income because people like, they're like, okay, well, I have other assets. I've got cash, I've got stocks that if I sell at its capital gains rate, which is a lower rate, that's another thing to think about. Capital gains rates, a lower rate in many cases than ordinary income. And so they wait, they pull money out of different areas and they wait forever on their IRAs and all of a sudden they lose control of their bracket. So we talk a lot about that. Medicare premiums, Rob, that's another tax issue, it's called Irma.

13:36IRMA, and this is for some reason I never remember what it means. And I've been doing this for 25 years, I still don't understand what it means. I just think it's a funny name, right? But essentially what it means is that if you're modified a just a gross income, whenever you're free here, modified a just a gross income, you have to look at your tax return. And you can clearly see on the front page what your adjusted gross income is towards the bottom of your 1040. But then you have to go back and add in your tax free bond income to that. And so if that number is over 103,000, if you're single or 206,000, if you're married filing jointly, there's, you pay more for your Medicare part B premiums. It's called an Irma, right? An Irma surcharge. And so essentially what happens is they look at your income every two years and adjust it. So if you get really high income in 2025, you're going to get a notice in 2027 that your

14:36Medicare part B premiums are going to go up. Okay. So that's another important thing because it's really a tax for high income earners. And then in each bracket of that, Irma Rob is about an extra 1,000 to 6,000 per year in Medicare part B and E premiums. The other thing that when people retire and they're talking about these conversion strategies where you know what, I'm going to take some money out of my IRA and convert it into a Roth, pay the taxes now. One of the things that you have to be able to have software that shows is does it trigger Irma or not? You know, we really have to go through the phases of retirement. There's from, let's say you retire when you're 62. There's retirement to when you take Medicare, right? And you might have that Irma tax and then there's from retirement to when you take Social Security, which is somewhere between, you know, 67 to 70, depending on, you know, when your advisor tells you to take it. And then there's the date, the income planning and the tax planning phase from the date you take your Social Security, let's say it's age 70, to when you require minimum distributions

15:38kicking from your IRAs. And let's say that's 75. And so there's different phases of planning and different ways you can play with the tax system. But in all of it, it's really understanding the difference between the capital gains tax bracket, which goes from zero to 20% and then the ordinary income tax bracket, which goes from all the way up to 35%. And so understanding what ordinary income is like from your job or from interest on your bank account versus capital gains, which is selling stock real estate or business that you've owned for over a year. And I think the next top one rob that we can, you know, kind of move on after that is what your charitable giving strategy should look like. So usually when you're giving money to charity, $1,000 or more, you want to give appreciated stock to your favorite charity. They all brokerage accounts. You can, you know, shift some shares of Microsoft or Nvidia over to your favorite church or charity. But there's this little lock called a qualified charitable distribution where once you

16:40hit age 70 and a half, you're actually allowed to give up to 100 grand a year directly from your IRA directly to your charity. You don't pay taxes on that distribution and your charity doesn't pay taxes on the distribution. So those are some top ones that you really need to think about going into retirement. Fascinating stuff. And again, I keep the nuances that you throw to it. It's great. What about choosing to itemize deductions or take the standard deduction? Well, this is where, you know, I think that if you've got kids in college and, you know, most jobs are under, you know, concern regarding AI, there's already a shortage of tax people in this world. And I tell you this one big, beautiful bill made stuff even more complicated. It's actually really good. In 2017, the bill was really, really good rob for kind of the middle class retiree. And most of the most people over 65, it was a really good bill. It increased the standard deduction and lowered the ordinary income tax brackets for, you

17:44know, like your IRA and 85% of your social security and all that. So it was really good. Well, it just got better. And the issue is that whenever you're filing your tax return, let's say you're doing it yourself with software or your CPA is doing it on the side, they're always calculating what is better for you. And then you're getting the standard deduction, which everybody gets and that's 15,750. If you're single or 31,500 if you're married. And then there's an extra 1,600 to 1,600 now. If you're 65 and older, rob under this one big, beautiful bill act. And so it just made a lot more of your income free of taxes for 65 and older for the next four years. It goes away after 2029. But in the background, you're always calculating that versus your itemized deductions. And your itemized deductions are things like your healthcare costs over 7.5% of your just a gross income. State and local taxes up to 20,000, single or 40,000 married. But that's phased out.

18:44That new rule, if you have income over half a million, it gets phased back down to 10 grand. But if your healthcare costs, the state and local income taxes, mortgage interest, charitable deductions. If those all add up to more than the standard deduction, then you're a person that's itemizing your deduction. And that could change on an annual basis depending on how your income looks and retirement. Sounds good. We're going to talk key retirement income strategies, portfolio adjustments for today's markets, social security timing, state planning tips, transitioning from wealth accumulation to wealth management, leveraging alternative assets like private credit, private equity, and private real estate to enhance returns, tax offensities, and much, much more. This interview featured on the Rob Black show is brought to you by EP Well. Learn more at robblack.com. There's a quote that's been floating around for years. It's attributed to Charlie Munger. It says, if all you ever did was by high quality stocks on the 200 week moving average, you would beat the S&P 500 by a large margin over time.

19:49The problem is few humans have that kind of discipline. The quote may actually not be Charlie Munger's, but the investing idea is very monger like. One of my favorite investing strategies is also the simplest by great companies and the market temporarily stops loving them. Not bad companies, not speculative companies. Not companies with a great story, but no profits. I'm talking about businesses with powerful brands. Huge customer basis. Strong balance sheets. All competitive advantages and products people actually want. When those companies suffer a major sell-off, I start watching the 200 week moving average. Think of it as a long-term valuation and sentiment line. Stock that has been above its 200 week moving average for years suddenly falling below it gets my attention. It doesn't automatically mean buy. It means start doing your homework. It healthcare is a great example. The stock has been hammered by concerns about Medicare Advantage, medical cost, regulatory

20:50pressure. But United Health is still a massive healthcare company with a huge customer base and businesses ranging from insurance to healthcare services. The question isn't whether the problems are real, they are. The question is whether the market has already priced into many of them. That's the strategy I want investors think about. What Munger is getting at is the 200 week moving average is roughly four years of stock price history. When a great company falls back towards that line, it often means the market has experienced a major correction and sentiment has gotten ugly. The idea is not the 200 week line magically means buy. It's find a truly great business with the strong balance sheet competitive mode, durable earnings, great management. Wait for the market to beat it up. Don't chase. Don't chase it when everyone loves it. Watch for the stock to approach its 200 week average. That's where a high quality business can potentially become available at a much more attractive price.

21:50Then you check the fundamentals. If the business is still intact, that's when Munger's philosophy becomes interesting. Buy a wonderful business at a fair price rather than a mediocre business because it's cheap. Buffett is specifically credited at Munger with changing Berkshire's hat approach in the direction. The important distinction is 200 day moving average equals about 10 months, 200 week equals about four years. If you're thinking about this as a long term Munger strategy, 200 week is an important one. The 200 day is more of a shorter term trend. This is actually a really good framework for the way you talk about stocks in your portfolio. Look for great companies that are down. I tend to say 10, 20, 30 or 40 percent. Find out. Find what's underperforming. What are the great businesses that have fallen far enough that they're approaching their four year trend? For example, Nvidia Apple, Microsoft, Google, Meta, Amazon and Costco.

22:55You went it automatically by them because they touched that 200 week. You'd use that event as a red flag to stop, do the fundamental work, and potentially start buying in pieces. The big money is not in the buying or selling, but it's in the waiting. The difference between cheap and on sale is pretty big. A stock can be cheap because the business is deteriorating. That's a value trap. A stock can be cheap because the market has temporarily decided that a very good business in fact isn't worth as much as it used to be. That's where opportunity can exist. It's about buying a house. If the roof is falling off, the plumbing doesn't work and the neighborhood is disappearing. The 30 percent discount is not that great of a bargain. I see companies like Nike that are continuing hitting 52 week lows and they don't qualify even though they look like they would. But I am interested even in Nike. Stocks work in a very similar way.

23:57You don't want to buy a house that's broken down into lapidated. The goal is to buy the biggest loser. It's to buy quality at an unusually attractive price. I like stocks when they're on sale. Most investors know the 50 day and 200 day moving averages. Those are useful for looking at shorter intermediate term trends. The 200 week is totally different. You're looking at roughly four years of price history. You have to look maybe the earnings collapse for a reason. Maybe the industry changed. New management made mistakes. Maybe investors simply got carried away on the way up and are now overreacting on the way down. Take a look at someone like a zoom. The moving average doesn't tell you which one it is. That's your job. That's why I don't view the 200 week moving average as a buy signal. I view it as a shopping list signal. Think about Apple. Imagine Apple gets hit by a major product cycle problem. Maybe iPhone sales disappoint. Maybe China becomes a bigger problem. Maybe investors become convinced Apple is following behind an AI.

25:00The stock gets cut. Sometimes buy a quarter. Sometimes buy a 40 percent. Sometimes buy half. He's happy. He's not only a bad company. Not necessarily. It would be a company with a problem. Those are very different things. Apple has one of the world's most viable consumer brands and enormous installed base. A massive service business and an ecosystem that keeps customers inside it. In fact, when a company has those characteristics, a major sell-off sometimes become more interesting not less. Has the business changed or has the stock changed? I look at McDonald's recently. It's well off its 52-week high. It's showing support and considering it. It's a shopping list issue. I like that almost 3 percent dividend yield. If we get an ugly market in the next couple of days, maybe I'd pick it up. Microsoft has another kind of quality name that I like. It offers a different example. Its competitive advantage is not a sneaker. It's not a smartphone. It's not social media platforms.

26:00It's deeply embedded in the way businesses operate with office, windows, a-sure, enterprise software, cybersecurity, and now artificial intelligence. Microsoft is spending enormous amounts of money on the AI infrastructure, which has led some investors to question whether the returns will justify the investment. That's a legitimate concern. A lot of Microsoft were to fall dramatically because investors temporarily lose faith in the AI spending cycle. I'd want to know whether the underlying business has deteriorated. If the answer is no, a major long-term decline could become an opportunity. That's the whole strategy. I buy the debt because the business is still excellent. Half of that's the best example of all, in my opinion, for years investors worry that artificial intelligence would destroy Google search business. That narrative changed on a dime. Google's AI capabilities improved. It's cloud business continued growing. Investors started focusing more on the company's enormous AI infrastructure and advertising

27:03machine, the stock rebounded. This is how great companies often work. The market finds a reason to hate them. Investors pile out the stock falls. Then the company proves the market was too pessimistic. The trick is figuring out which of these companies are capable of doing that. That's why you have to have a shopping list and you have to stay on it. You don't want to list with 100 names on it. Take a look at a name like an Amazon. It's always on my list because it's a great company. I'd put on any long-term shopping list. Amazon isn't just an online retailer anymore. Amazon is the online retailer. It's a logistics company. It's a cloud computing company. It's an advertising company. It's a streaming company. It's increasingly an AI infrastructure company. That complexity can make the stock volatile, but complexity can also create opportunities. If Amazon ever gets hit by a major slowdown in retail, Amazon web services concerns or a giant capital spending scare, I'd rather investigate it after a big decline than after

28:04the stock has already returned to its highs. Looking for great businesses, which could be a temporary problem for the company, which led to a big decline. That's a setup. I always have Nvidia in this conversation, but with the giant asterisk, Nvidia is one of the highest quality businesses in the AI infrastructure boom. Its chips are at the center of the AI build out, and its software ecosystem gives it an enormous competitive advantage. Quality doesn't mean you can pay any price. That's an important part of the strategy. A great company can still be a terrible investment if you pay way too much. Nvidia could be the greatest semiconductor company our generation still fall 40% if expectations get too high. That's why I like the idea of having a list of companies that you would love to own, and then waiting for the market to give you a better entry point. One of the worst things I ever see when I do these seminars and or points in portfolios are just names that are just crap. So make a list. You know, have it include names like Apple and Microsoft Alphabet, Amazon, Nvidia and

29:08Meta. United Healthcare, Costco, Walmart, Visa, Home Depot, MasterCard, American Express. Then you have to watch the chart sawdum, or you can ask Google alerts, or you can ask your AI to help you, you know, let me know when it's 20% from its high or 30% from its high. These are recommendations that I just threw down, establish your own thresholds, maybe a stock goes down 20% from its high. Maybe if it's a blue chip like a McDonald's or a Visa, it's 10 to 20%, or there's a tech company, maybe you're looking for 20 to 30. Or if it's a speculative company, you're looking for 40. You don't need to catch the exact bottom. In fact, trying to catch the exact bottom is one of the easiest ways to miss the opportunity altogether. This is where investors get themselves into a lot of trouble. A great company falls 20% you buy. Falls another 20% you panic. Stock falls another 20%. You decide you were wrong. Then the company fixes the problem in the stock doubles. Instead of trying to pick up the bottom and consider buying in stages, scaling in, maybe

30:11by one third of your intended position now when the stock reaches your first valuation target, and another third of it falls below further. And the final third when the funnel in a picture begins to improve. That's when you're not betting your entire position on one price. You're building a position as the opportunity develops. Always ask yourself on any company buy. Is it still a great business? Is it still a great company? I always stock down or the problem's temporary or permanent. What would have to happen for the company recover? What am I paying for those future earnings? As it ever done it before. I don't want you to buy whatever stocks fall to the most. I want you to buy great companies always. When investors temporarily forget their great companies, that's a very different strategy and that's where power swings into you. Sometimes the best investment opportunity isn't finding the next great company. Being a great company that already exists for a much better price. I have events coming up. Check them out at roblackshow.com under events. Want a review of your preliminary financial plan?

31:12Drive me to email robatroblack.com. These days retirement planning is more complicated than ever. So set aside Saturday morning September 12th and get ready to learn some strategies for a wealth preservation and retirement planning from Rob Black, Ryan Ignacio and Julie Channell Rourke. This event will focus on retirement income. Work strategies, estate planning, alternatives and funding retirement. If you're at or near retirement with at least 500K in investable assets, this seminar is for you. You'll learn how to transition your portfolio from the accumulation phase to the income phase, which accounts to draw from first how to protect your estate from long-term care costs and much more. Learn how to invest during inflation and interest rate moves, social security strategies and managing IRAs and 401Ks in retirement. Rob Black will share market happenings and trends. Saturday September 12th, 10 to noon at the Don Tatson Community Library in Lafayette. Space is limited so sign up today at robblackshow.com. That's robblackshow.com. Investments not if the ICNCR in best performance does not guarantee future results not on after-to-seller as a listentation to buy any security member.

32:13Find out how you see it. When I was a teenager, it was super important to have a collection of albums. Whether you were trying to impress your male friends or female friends, it reflected your musical taste. There was a company called Columbia House that sort of took advantage of that and created a subscription model that we should look at now and learn from. For Penny, you can get 12 albums delivered to your home. The catch of course was that you were greened by more albums at full price unless you remembered to mail back that little card telling Columbia House no thanks. It was a brilliant business model and for decades it worked incredibly well. Columbia House shipped its 1 billionth record in 1990 and at its peak in 1996 the company generated roughly 1.4 billion revenue and had over 8 million customers. Columbia House and BMG accounted for roughly one third of all CD sales in the United States at one point in time. But as diesel-many's services grew, the company struggled even when it tried streaming.

33:17The company bounced to various parent companies before declaring bankruptcy in 2015. The fundamental problem was that the customer no longer wanted the product delivered the way Columbia House was built to deliver it. Columbia House eventually disappeared. Great businesses don't stay great forever. This is where Columbia House's story gets interesting to me. When you're looking at a company that has dominated its industry for 10, 20, or even 30 years, it's tempting to assume that the dominance is going to continue. But investors need to ask a different question. What happens if the way customers consume this company's product changes? Think about what happened in Blockbuster when Netflix arrived. Think about what happened in newspapers when advertising moved online. Think about what happened to traditional PC industry when smartphones changed computing. Think about what streaming did to the entire music business. The lesson isn't that you should avoid successful companies. It's that success can sometimes make a company less willing to disrupt itself.

34:21The best business is adept before they have to. One of the characteristics I like to see in an investment is a company that is willing to make money today while simultaneously investing heavily in what could replace today's business. It's one reason investors spend so much time watching companies like Amazon, Microsoft, Apple, Alphabet, and Nvidia. These companies are not immune to disruption. Quite the opposite. They're constantly trying to disrupt themselves. Amazon went from selling books to selling almost everything. And then it built Amazon Web Services. Microsoft went from selling software in boxes to subscriptions and cloud computing. Apple went from computers to the iPod to the iPhone. Services now artificial intelligence. Alphabet built its business around search advertising while simultaneously investing billions in technologies that could potentially change how people search for information.

35:25That's a very different mindset from protecting old businesses and all costs. While investors often look backwards, we see a company that has grown earnings for 10 years, increased its dividend, dominated its industry and produced tremendous stock returns. So we assume the next 10 years will look just like the last 10. But investing is really about future cash flows, not past accomplishments. A company can be a fantastic business and still be a terrible investment. If you pay too much for it or if it's competitive advantages, are about to disappear. I always like asking two or three questions on a company. Is it a brand? Does it have technology? Does it have distribution? Does the company you like have network effects or switching costs? What could destroy that advantage? This is the Columbia House question. What new technology competitor or consumer behavior could make the company's existing

36:30business model less relevant? Streaming killed people who collected CDs, DVDs. You get the idea. DVD sales used to allow a lot more movies to be made because they could make money on the back end. Another question to ask is for you, the company, are they going to stay relevant, is managing them investing in the next decade or protecting the last decade? I think it's the most important one. Another lesson that we could learn from Columbia House is not just that dominant companies can go bye-bye. It's how important recurring revenue is. It's powerful. Columbia House created recurring revenue. They get the customer in the door with an unbelievable deal. Twelve albums for one penny. And they make money over time as the customer continues purchasing. Subscription model sounds familiar. Essentially the strategy behind much of today's subscription economy like Netflix or Spotify.

37:35Microsoft 365 Amazon Prime. Apple's growing services business. What's interesting to note, I have a subscription to Netflix Spotify. Microsoft 365 Amazon Prime. Apple services business. That was the examples I've given you without even realizing I have those subscriptions. My son has Spotify. You get the idea. The modern version at Columbia House doesn't necessarily send you a CD every month. It charges your credit card automatically. For investors, recurring revenue is incredibly valuable because it makes future revenue more predictable and increases the lifetime value of each member. If there's a warning here too, a subscription is only valuable if customers continue to believe the product is worth paying for. Columbia House couldn't create enough value once consumers found a better way to get their music. Don't just look for the next winner. Look for the next Columbia House in your portfolio. This may be the most useful takeaway. When you hear about a new technology, AI, robotics, autonomous vehicles, digital payments,

38:39whatever comes next, don't just ask. What company is going to win also ask which existing business could this technology destroy? That's where some of the biggest investment opportunities and biggest investment losses can come from. The company is being disrupted. They may still look fantastic in their review mirror. Their earnings may still be growing. Their dividends may be increasing. Their brand may be enormous. The stock may look cheap based on historical valuation. But if the underlying business model is becoming obsolete, cheap can get a whole lot cheaper. Columbia House wasn't a stupid business. It was actually a remarkably clever one. It found millions of customers. It created recurring purchases and adapted to several generations of physical media. What it could have adapted was the fundamental change of how people wanted to consume music. That's an important lesson. Don't just invest in companies that are winning today. Investing companies that have a realistic chance of remaining relevant tomorrow. Because next Columbia House probably won't look like a company selling cities. It might be a company selling something we currently can't imagine living without.

39:43That's the trickiest part of investing. The biggest threat to a great business is often not its biggest competitor. It's the next business model that makes this one old and unnecessary. You'd always find me online at robblackshow.com. Visit the Rob Black Show online at robblackshow.com. Listen to Archive Podcasts, Market Updates, and Information from EP Wealth, Certified Financial Planners online at robblackshow.com.