In this segment of the Market Foolery podcast, host Mac Greer, Jason Moser of Million Dollar Portfolio, and David Kretzmann of Motley Fool Hidden Gems Canada weigh in on the prospects for the new corporate supergroup that's taking a whack at the U.S. healthcare system's many flaws.
Between them, Amazon.com (NASDAQ:AMZN), Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), and JPMorgan Chase (NYSE:JPM) employ millions, and they carry a lot of clout -- but none of them have any experience here. Then again, as they attempt to disrupt the market, that might just be a good thing. So what should investors think?
A full transcript follows the video.
This video was recorded on Jan. 30, 2018.
Mac Greer: Let's begin with a big deal in healthcare. On Tuesday, Amazon, Berkshire and JPMorgan Chase announcing a partnership aimed at cutting healthcare costs and improving services for their U.S. employees. The three companies will create an independent company that will focus on technology solutions and will be "free from profit-making incentives and constraints." Now, David, this feels like a big, big, big story.
David Kretzmann: Yeah. I'm guessing that Jeff Bezos put in the "free from profit-making incentives and constraints" there. Yeah, this is a really interesting deal. They're really just focusing on their own employees in the U.S., so we don't want to extrapolate it too far right away, which I think some people are doing. And certainly, it could expand and develop down the road where they begin to serve and address employees outside of their own respective companies. But for now, this really seems more like a big but internal experiment with these three companies. But make no mistake about it -- this is the Avengers or the Justice League. These are big, powerful hitters.
I'm actually going to look to Manoj Bhargava, the founder of 5-Hour Energy. He has a mental model here where he looks at experts and invention of a field. Three quick points here that I immediately thought of when this deal was announced this morning. Manoj Bhargava, he's a very successful entrepreneur. No. 1, he says, most inventions aren't from experts; they're from people outside of a field. No. 2, experts are good at telling you what not to do, but they're terrible at telling you what to do. And No. 3, learning the past way things are done won't help you create something new.
And that really resonates with something Jeff Bezos mentioned in the release. JaMo, I know you put this out on Twitter, but Bezos said success here is going to require a beginner's mind. So I think it's very telling that there isn't a healthcare company among these three players in this deal. So that's immediately what I thought of. These are three very successful companies in their own fields. None of them are healthcare companies, and they're trying to tackle this healthcare issue with their own employees.
Jason Moser: Yeah, I think this is a fabulous first step in trying to tackle perhaps one of the biggest problems in our society today, in the exploding costs in healthcare. And obviously, healthcare is something that we're going to always have to deal with and address, as long as we walk the face of this Earth. The idea that they're going to keep this at least in their universe at first, with their three companies, to essentially serve as an incubator for ideas and building something from the ground up. Cutting costs, improving service, that's right in Amazon's wheelhouse. I think having Jeff Bezos as a part of this is going to be crucial, really, because he takes such a long-term approach there. And obviously, we know where everybody else stands, Warren Buffett, and obviously JPMorgan.
I think, though, before you start predicting the end of healthcare stocks out there as we know them, let's think about this for a second and be a little bit more rational here. This is a big deal. It's not something they're going to be able to change overnight. This is going to require a lot of trial and error, a lot of iteration. I think there are plenty of healthcare companies out there today who would be wise to view this entity as an opportunity, as a partner, as opposed to saying, "No, we just want to go our own way," because I think that latter decision there would be quite damning for a number of reasons.
Greer: Let's talk some more about that. When you look at these other healthcare companies today, here are just a few names. CVS, Cigna, Express Scripts, UnitedHealth, MetLife, all down big. These are companies that are not free from profit-making incentives. They have to make a profit. Jason, to your point, if I'm an investor in one of these other companies, what do I do with this news?
Moser: Aaron Bush made a good point earlier when we were talking about this around their desk -- all these companies you just mentioned, they're not founded based on altruism, right? They're not out there solely trying to make the world a better place. There is a profit angle that needs to be considered. I think the bottom line with a lot of these companies is, they have a role to play here, but it's more about figuring out a way to wring the inefficiencies out of this model, figuring out an easier way to get from point A to point B. I think one thing you could say with our healthcare system today, there are a lot of hands in the cookie jar. I think it's trying to sort of bring this process up with the times. Technology has done such a great job in disrupting and changing everything to this point. And it's done that, in a lot of ways, with healthcare. But there are also a lot of ways where it's still falling short. One of my favorite companies out there, we talk about this all the time, Teladoc, bringing in that virtual healthcare angle. That's one healthcare stock, Mac, that's not down today, and I think that's probably for the reason that it's focused very much on that, bringing more efficiency to an inefficient system.
Kretzmann: I think if you're a healthcare provider, you certainly want to take this seriously. But as investors, you don't want to jump the gun so quickly. I think we have a great case study looking back to June last year when Amazon announced acquisition of Whole Foods, and you saw tons of grocers drop 5%-10% pretty much the day of, and certainly in the following weeks after that deal. It really does show the power and weight that Amazon has. All they have to do, really, is put out a press release that they're entering an industry, and people panic. But looking at Walmart as an example, right before that Amazon Whole Foods acquisition was announced, the stock was at $80 a share, dropped down closer to $70 a share or so within two weeks or so after that announcement. Today, it's close to $108 a share. So I think it's certainly a good thing as a consumer. There needs to be more competition. I think these healthcare providers will feel the fire, will feel the pressure. At the end of the day, I think it's a good thing. But I wouldn't take this too far just yet as an investor.
Moser: Yeah, I made a point the other day on Twitter about how valuable the experience of going through the Great Recession was. For as scary a time as it was, there was a lot to be said for actually witnessing it and coming out on the other side and recognizing that the world didn't exactly come to an end. Someone had asked, what were some of the lessons I took away, and I think one of the bigger ones was really being able to recognize the babies that are actually being thrown out with the bathwater. There are some bad players, but when you have a wide-reaching exodus from something like healthcare because you see Amazon's coming in there to change the game, not everybody out there is a bad player. There are actual gems out there that do serve a role and could benefit from partnership and helping take this market forward. I think looking at this market, recognizing the big players in the space, the ones that have those competitive advantages, I think UnitedHealth Group is one just by its sheer size alone, but not to mention, when regulations change, that's going to be one of the companies that will be very quick to roll with the changes. So just because there's this big spate of bad news out there doesn't mean every player in the space is one you want to steer away from.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. David Kretzmann owns shares of Amazon, Berkshire Hathaway (B shares), and Twitter. Jason Moser owns shares of Berkshire Hathaway (B shares), Teladoc, and Twitter. Mac Greer owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon, Berkshire Hathaway (B shares), and Twitter. The Motley Fool recommends CVS Health, Teladoc, and UnitedHealth Group. The Motley Fool has a disclosure policy.