Happy Monday Y’all! This weekend I watched the veeeery weird and most thought-provoking film that I’ve seen in a long while - “El Conde.” It’s weird. It’s foreign. But the little part of me that loves Ingmar Bergman films LOVES this movie.

The movie closes with this quote:

“If you want anything said, ask a man. If you want anything done, ask a woman.”

And with that…well…Imma just leave my prologue there. Onto the good stuff…

Things You Should Know About So You Sound Smart…

China Is In the AI Regulation Game

China's new AI rules, which came into effect last month, are some of the strictest in the world. They aim to regulate the development and use of AI in China, with a focus on protecting national security and public interests.

These rules will likely have a significant impact on U.S. companies that operate in China or ones that provide AI products and services to Chinese customers. For example, the rules require companies to obtain a license before operating AI services in China, and they also require companies to disclose certain information about their AI systems to regulators.

The rules also prohibit the use of AI for certain purposes, such as developing or using deepfakes or other forms of synthetic media that could be used to deceive or mislead the public.

While the full impact of the new AI rules on U.S. companies is still unclear, there are a few potential ways in which they could be affected:

• Increased compliance costs: U.S. companies will need to invest in compliance measures to ensure that their AI systems comply with the new rules. This could include things like hiring new staff, developing new procedures, and implementing new technologies.

• Reduced market access: The new rules could make it more difficult for U.S. companies to compete in the Chinese AI market. For example, the requirement to obtain a license could create a barrier to entry for new companies.

• Increased scrutiny: U.S. companies that operate in China or that provide AI products and services to Chinese customers could face increased scrutiny from regulators. This could include things like audits, inspections, and data requests.

It is important to note that the new AI rules are still in their early stages of implementation, and it is possible that they will be clarified or amended in the future. However, it is clear that the rules have the potential to have a significant impact on U.S. companies.

Here are some specific examples of how U.S. companies could be affected by China's new AI rules:

• A U.S. company that provides social media services in China may need to implement new filters to prevent users from posting content that is prohibited by the new rules.

• A U.S. company that develops self-driving cars may need to provide Chinese regulators with access to its data and algorithms.

• A U.S. company that uses AI to develop facial recognition software may need to obtain a license before using the software in China.

There’s some important precedence to look at: China’s relationship with foreign banks. Historically, China has made it extremely difficult for foreign banks to operate there; big firms like American Express, Citi, Blackrock, and Goldman Sachs have only recently been able to enter the market over the last few years, through wholly owned subsidiaries or joint ventures. By gatekeeping foreign banks out of China, the government was able to create a friendly environment for domestic banking firms like China Unionpay—the biggest card processor in the world despite only 0.5% of processing volume originating outside of China. Warmer financial relations were a sticking point in the 2020 trade agreement between the US and China. It’ll be interesting to see whether allowing AI companies access to the Chinese market in the future becomes a major negotiating point between the two powers.

U.S. companies that operate in China or that provide AI products and services to Chinese customers should carefully review the new AI rules and assess their potential impact on their business. Basically, get thee some good regulatory advice before operating any kind of AI operation in China!

“If You’re So Good at Economics What Do You Invest In Anyway?”

These days I get grilled on what startups I invested in and why 24/7 by LPs. I used to hate this line of questions. Now I absolutely love it. Maybe I’ve become a narcissist or maybe secretly I always was a narcissist because I now love talking about my investing style and how I make investing decisions.

However, one thing that always sticks out to me is that a lot of folks don’t really know how to build a stock portfolio or what goes into it. A lot of young adults especially know that they need to start investing but they just don’t know where to start. I get asked by sooooo many Gen Z folks about how to invest in stocks, what to invest in, and how to create an investment portfolio. For me, it started with an E*Trade account and my first paycheck. And now it continues to be each paycheck but we’ve sadly (or thankfully) moved on from the consumer-friendly E*Trade to more self-managed portfolio management.

* Remember this is not investment advice. In any shape or form. Just nope. Get yourself your own investment manager if you wanna get advice.

I’m not telling you to buy or not buy, love or hate these companies.

I’m just explaining why I invested in these stocks and how that big ball of tissue in my head works. As an investor, the best thing you can do for yourself is to figure out what your financial goals are and doing your own research.

A couple of things that you’ll notice right away…

• I generally only invest in public market stocks that provide dividends to shareholders. In general, my overall personal investment portfolio is very risky with a decent chunk of my investments being angel checks written to startups. To level out some of that risk I focus on dividend-paying stocks that will be good bets in almost every single economic cycle. This mix isn’t for everyone, but it works for me. To each his own!

• These companies share a lot of the same traits. These are also some important markers for me when I evaluate public stocks:

  - Stable Leadership

  - Innovative R&D

  - Ability to Change/Adapt to Different Economic Climates

  - Well-Managed Regulatory Risk

  - High Demand Industries

• Unsexy things make money. Tractors. Glue. Eggs. Not every investment you make needs to be on a hype train. Sometimes those hype trains can be going nowhere. Beware. Choo choo all aboard y’all. Remember…this is my conservative asset class. You want unsexy here.

So without further ado, here are some of my favorite public stock investments…

John Deere (DE)

John Deere was the first investment I ever made. In 2001. So now y’all know…I’ve been doing this for a while. Why? The best (and first) advice I ever received about investing in stocks was…Invest in what you know. As a youngin’ I didn’t know that much about many things, but what I did know about was…farming. I still think that advice is sage…thankfully I just learned more about things besides farming. Now I get to explain to folks that I know about the seafood market from my volunteer work at the Marine Mammal Center and that’s why I’ve invested in a company that is making protein-based seafood. I’m telling y’all the more well-rounded you are as an individual the better investor you will be. Take the time to look closely at what interests you in your personal life. What excites you. What you enjoy learning about. All of it. Go down the rabbit hole and learn about everything you can.

I even got so well-rounded that I ended up going to work for Fiat and Case New Holland so no matter who wins the tractor battle I have some kind of stake in the winner now. Let’s Go Tractors!

Coterra Energy (CTRA)

Why? Even though the energy sector (especially oil & gas) is very cyclical I am in love with this stock. Strong financial performance: CTRA has a strong track record of financial performance, with revenue and earnings growth outpacing the industry average. In the first half of 2023, CTRA generated free cash flow of $3.2 billion, up from $2.3 billion in the same period of 2022. I won’t lie - this stock is probably the closest parallel to what I look for in startup investment opportunities as well. They have found multiple moats and understand that making money for investors is the name of the game.

• Low-cost production: Coterra has some of the lowest-cost production in the industry, which gives it a competitive advantage in a down market. The company's average production cost is estimated to be around $10 per barrel of oil, which is well below the current oil price.

• Diversified asset base: CTRA has a diversified asset base, with operations in the Permian Basin, Marcellus Shale, and Anadarko Basin. This diversification helps to reduce the company's risk exposure to any one region.

• Strong management team: CTRA has a strong and experienced management team with a proven track record in the oil and gas industry. The company's CEO, Thomas J. Siebel, has over 30 years of experience in the energy sector.

• Commitment to shareholder returns: CTRA is committed to returning capital to shareholders through dividends and share buybacks. The company has a quarterly dividend policy that pays out 50% of free cash flow.

Johnson Controls (JCI)

Why? Johnson Controls is a company that is probably present in everyone’s life…you just don’t realize it. I first heard about the company when I was in Wisconsin working for Case New Holland and we did a lot of collaborations with the other big employer in town…Johnson Controls. JCI is a global leader in sustainable building solutions, with a portfolio of products and services that help buildings reduce energy consumption, water usage, and carbon emissions. This is a growing market, as governments and businesses around the world are increasingly committed to sustainability goals and usually these commitments are coming to fruition with the help of JCI.

Two big things have always stuck out to me about JCI. First, I’ve never seen a company have such attractive valuations throughout the years as JCI has. I believe this is probably because of it not being perceived as being a “sexy” investment. Second, it’s hard to innovate in sustainability and actually be impactful. I believe that doing what you say you will do as a company outweighs most everything else and JCI really does excel at this.

3M (MMM)

Why? Like Romy & Michelle, if I could have invented one product it would have been Post-Its. I love them so much. You can find almost every SKU of Post-its offered in my home. Another reason that I will be bullish on 3M until the day I die is that they utilize amazing skunkwork operations and have patents (3M has over 55,000 patents) for everything and anything you can think of with more and more patents being filed each day. Remember kids, patents matter. Patents = $$$.

Related Sidebar: It’s been incredibly hard to work in M&A over the past few years and see founders lose many opportunities because they failed to seek IP protections. If you are selling a company that has novel products that are patentable you need to have an IP portfolio before most large companies will look at an acquisition. Learn from those startup mistakes y’all.

3M is also Dividend King, meaning it has increased its dividend for over 60 consecutive years. Can you imagine over 60 years of income to support growing dividends?!?

Abbott Laboratories (ABT)

Why? One word. Diabetes. I know I talk about Diabetes a looooot. But, the outlook for diabetes diagnosis in the United States is beyond concerning. The number of people with diabetes is projected to increase from 37.3 million in 2021 to 60.6 million in 2060, representing a 65% increase. The prevalence of diabetes is also expected to increase in all racial and ethnic groups, with the largest increases projected among Hispanic and black Americans

Abbott Laboratories has been a leader in diabetes care for over 50 years. Abbott's diabetes portfolio includes a wide range of products and services, including:

• Continuous glucose monitoring (CGM) systems: Abbott's FreeStyle Libre CGM systems are the world's most popular CGM systems, and they offer people with diabetes a continuous stream of glucose data without the need for fingersticks.

• Blood glucose monitoring (BGM) systems: Abbott's FreeStyle BGM systems are accurate and reliable, and they offer a variety of features to help people with diabetes manage their diabetes, such as automatic Bluetooth syncing to smartphones and apps.

• Insulin delivery devices: Abbott offers a variety of insulin delivery devices, including insulin pens and pumps, to help people with diabetes deliver the insulin they need.

• Diabetes management software: Abbott's diabetes management software helps people with diabetes track and analyze their glucose data, set and track goals, and make informed decisions about their diabetes care.

Abbott is also actively involved in the research and development of new diabetes treatments and technologies. For example, Abbott is currently developing a closed-loop insulin delivery system, which would be a fully automated system that would automatically deliver the right amount of insulin based on a person's glucose levels.

Basically, I see no world in the near future where ABT isn’t raking cash in due to our inability to stop Diabetes. No bueno.

Cal-Maine Foods (CALM)

Why? Cal-Maine is in the egg business. And they also have great dividends. I also enjoy investing in companies that are based on commodities as it allows me to really think about inputs and use my background in agricultural economics in a way that companies operating in things like software just can’t.

Cal-Maine Foods is the largest producer and distributor of shell eggs in the United States, with a market share of approximately 25%. When you look at expected food industry trends, the egg industry is poised to benefit greatly. These trends include things such as population growth, rising incomes, and increased awareness of the health benefits of eggs. That being said, egg production is veeeeeeeery heavily regulated so I pay very close attention to how they handle potential hurdles there.

Coca-Cola (KO)

Why? Yes, soda pop is bad nutritionally. Yes, caffeine is addictive. Yes, diabetes is a serious problem that I will touch on multiple times with stocks I talk about here. That being said, have you ever met someone who drank a bottle of Coca-Cola and said “That was a terribly unpleasant experience.” No. People enjoy drinking Coke. I enjoy drinking Coke. If you talk to impoverished people all around the country I can guarantee you that a can of Coke will make their day. Yes, it may be bad for us but you have to allow for some fun in this world for everyone. Basically, the lesson here is to invest in things that folks enjoy eating, drinking, using, and talking about. A pleasant user experience that delights and brings joy will win more times than not in the marketplace. Always bet on the pleasant user experience that brings joy to make money.

I believe that due to everything I just said, Coca-Cola is a phenomenal defensive stock, which means that it tends to perform well even during economic downturns. This is because people still need to drink beverages, regardless of the state of the economy. And they will always seek out the drinks that bring even a moment of joy when able to.

Microsoft (MSFT)

Why? Because every single person I work with at a large company continues to send me Microsoft Teams invites…and low and behold…companies are still using teams. Never bet against MSFT.

Kinder Morgan (KMI)

Why? Our nation’s energy infrastructure basically runs on KMI’s infrastructure. Their asset base is truly essential. Kinder Morgan's assets, such as pipelines, terminals, and storage facilities, are essential for the transportation and storage of energy products. This gives the company a competitive advantage and makes it less susceptible to economic downturns.

Kinder Morgan is also investing heavily in renewable energy projects, such as solar and wind farms. This positions the company to benefit from the growing demand for renewable energy in an ever-changing world. I do love a good pivot so seeing the renewable energy focus take shape is attractive as a KMI investor!

How long do I hold stocks?

I firmly believe that Social Security isn’t really going to be an option for many folks starting in a few years. Though we may hope and pray it won’t be the case, the numbers just don’t lie. Therefore, I view most of my investments as illiquid that I can use to fund my retirement. I had a brief period of my life where I spent a summer day trading because I was bored but that’s not sustainable and not something that becomes a disciplined investor. I do usually have sell orders at a certain amount for a percentage of my shares. And to be fair anytime a stock hits 300x I do a deep dive into materials to see if I should fully vacate my position. I’ve also held a few companies’ stock post-IPO after I angel invested. Crowdstrike and Natera are two of those companies.

Have I ever shorted a stock?

Yes. I don’t normally love the idea of shorting. It reeeeaaaallly feels like bad karma to hope for anyone or any company to do poorly. That being said. I have shorted DuPont. Why? I grew up in a part of West Virginia that was utterly devastated by DuPont’s actions. DuPont polluted the water in my area so badly that I grew up in a Leukemia bubble. Before the age of 13, I lost 5 childhood friends (including my best friend Billy at the age of 6) to Leukemia…so I don’t feel bad about this short. This time it was a personal grudge that drove my decision, which though I don’t recommend doing as an investor, I would do again. The personal satisfaction I got on that order was most definitely worth it. Will I ever short another company? Most likely, not.

Feel free to read more on DuPont’s actions at their Washington Works plant here. And if anyone is building a Teflon alternative that doesn’t happen to cause children to die…send wire information immediately!

And since I’m technically a VC I have to ask…

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Stevie