The Motley Fool recently got some new additions to its investment team, and we've been getting to know them in recent episodes of Industry Focus: Financials. In this week's installment, host Jason Moser sits down for an informative chat that you don't want to miss with analyst Auri Hughes.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on June 3, 2019.
Jason Moser: As you may remember, we've recently brought four new analysts onto our investing team here at The Motley Fool. We wanted to take the opportunity here on Industry Focus in Between Two Fools to introduce you to them. In our fourth and final installment of our analyst interviews, I had the good fortune of speaking with Auri Hughes. I hope you enjoy our conversation!
OK, Auri, first things first here. Tell our members, tell our listeners out there, who are you, and how did you get here to The Motley Fool?
Auri Hughes: Sure. And thank you for having me, by the way! I'm originally from Northern Virginia. I grew up not too far from the headquarters of The Motley Fool in Northern Virginia, Fairfax area. I've always had a passion and interest in business. In high school, I used to do a lot of marketing competitions and things like that, where you'd come up with proposals. I thought for the first portion of my life I was going to be a marketing executive or a brand manager somewhere.
Moser: Well, we do have a marketing team here if you're interested.
Hughes: But finance was my first love. I was interested in being a stockbroker. What happened was, I was entering college as the recession hit, and I said, I'll do marketing, but I want something a little bit more technical, or maybe a little bit certain in this economy. So I thought, OK, maybe I'll do finance. So I double-majored in finance and marketing and then started off as a financial analyst for a local government contractor. While I was in college, I really got interested in the markets. And I took the little income I had from my part-time job and I would start looking at shares of things I'd like to own and research, and that just bloomed and then it grew and grew. And last year, I finally said, I really want to be an equity research analyst. I don't know how I'm going to do it, but I made that my goal. I put together a report, started going around, interviewing, and then I discovered The Motley Fool, and the rest is history.
Moser: Well, I can tell you, as a part of your interview in coming here, one of the things that struck us was your passion for investing. That Apple stock pitch that you brought to us, speaking with you, it was very clear that you were doing something you really enjoy doing. That was ultimately one thing that made us feel really good about having you come here and join us. Really, investing is all about that passion and wanting to dig into it every day.
Now, speaking of investing, we like to talk about value investing, growth investing, dividend investing, all that stuff. Identifying what kind of investor you are, I think, is always a bit of an interesting exercise. When I started here almost 10 years ago, I wasn't really sure what kind of investor I was. What kind of investor are you? Do you know? Are you still in that process of discovering that? Or do you have a strong feeling there?
Hughes: I think I identify myself as probably a combination of value and GARP. Essentially, I'm interested in businesses that generate some type of free cash flow. That's really important to me because I think about business from a practical standpoint. If I owned a private business, I'd want something that generates cash. You have a lot of high-growth companies that maybe aren't cash flow positive. Those are the businesses I prefer.
Moser: GARP, I can relate to that. For listeners who aren't familiar with it, that's Growth At a Reasonable Price. I like that one. I've always considered myself a motley investor. I'll go anywhere where I feel the opportunity is, but I think I probably fit mostly into that GARP category.
Since you've been here, and it's not been all that long, and you're still going through our investor development program, but what's something you've learned here, in your time here so far? What's something you've learned in regard to investing that surprised you, or something that you weren't expecting?
Hughes: One of the things I really valued out of the analyst development program that wasn't a part of my process before was this whole idea of looking at proxy statements to see how management is incentivized. I used to read the 10-K, which is the document that describes the business in general and gives you the financials. But it's really important to understand if management is incentivized to make the business more profitable to generate free cash flow. Is your CEO going to get bonuses or incentives based on making the business more efficient or more profitable? Those are really important things to me now that translate, I think, to higher stock prices, especially for most businesses. I really value it now, but it wasn't a part of my process before coming here.
Moser: I think that makes a lot of sense. You can see in some of those proxies, if incentive is based on earnings per share, you and I know they can manipulate that earnings number. But if it's based on something like operating income, that's a number you can't really fudge so much. That's a great point there.
What is the best piece of investing advice you've ever gotten? In all of your years, up to this point, anything stand out?
Hughes: I think the best piece of advice falls in line with a lot of the Buffett mantras, the idea of, would you buy the entire business? If I'm looking at any company, I start with that question. I don't think about it as just a stock. Is this a business I would be willing to own if the market shut down for 10 years? Things like that is where I start. I think that also dictates your risk tolerance. It also determines how comfortable are you with this type of business. So, that's where I start. Would I own this business in real life in a private setting, is the starting question for me. I think it's really important.
Moser: We talk to a lot of investors all the time, members and listeners and prospects, people who are asking questions. That whole idea of business-focused investing, that's what that is. View yourself as an owner, would you want to own that business? That'll help you make that decision pretty quickly. Some of them, you'd be happy to own; some of them, you're like, I don't want to own that thing.
Hughes: I think also, the other thing is, too, do you understand the business? I think that'll be another thing that comes out of that. Can you have a conversation about how it makes money, what things in the environment affect that, as well.
Moser: That's one of those questions you can ask sometimes, be like, "How does this company make money?" It seems such an obvious one, but in some cases, it's not such an obvious answer. That is really a great starting point to figure out exactly what that business is, and if it's even something you understand or want to get mixed up in. That's good.
OK, going away from investing for a second, talking about Auri the person, what's something that has happened to you in your life? Something interesting, something unique, something you feel our listeners should know about you?
Hughes: I'm an avid snowboarder. I really enjoy snowboarding a lot. I haven't done it as much recently. But once, I was in Vermont, and I got caught in a snowstorm while I was snowboarding. I had to wait it out until I could get back to the lodge. It was a scary experience.
Moser: How long did that take?
Hughes: Maybe 30 minutes. [laughs] The wind was blowing, and I had to go behind a shed and just wait it out until I could make it back down to the lodge. It was pretty scary!
Moser: Yeah, I can imagine! Now, I heard a rumor that you're a pretty good ping-pong player, too. Is that right? Did you lay the hammer down on Buck Hartzell? True or false? This is being recorded, it's going out there!
Hughes: Buck has a ping-pong table in his house.
Moser: I know!
Hughes: And we were talking before the match, and he was like, "I have to find my paddle." And I was like, "Oh, gosh, this guy has his own equipment." [laughs] That made me really worried. But I think it was his partner that wasn't as good. I think if he had a partner that matched his skill set, he would have won, in all fairness. So if we make it to the next round, then I could probably start to say we're a good team. But I think his partner held him back more so than my skills of being a ping-pong player. [laughs]
Moser: I don't play a lot of ping-pong, I play more tennis and golf. But I tell you, my first time ever coming here, the day I came here for my interview, I came in here, the place was a ghost town. And I came to find that the reason why was because it was the office ping-pong tournament, and everybody was over in the game room playing ping-pong. And I thought, "Oh, my God! I have to get a job here!" [laughs] Thankfully it all worked out!
OK, great! Normally, we wrap these interviews up with getting a book recommendation from our interviewees. In this case, because you are who you are and you do what you do, I thought it'd be great if you could give our listeners an idea of a stock that you really like today and why. So, tell the listeners out there, what's one stock on your radar today, and why do you like it?
Hughes: Sure. The stock on my radar I'm really interested in is a company called Intuit, INTU. Intuit is the creator of Turbo Tax. I think this is a great business just because of the need to do taxes every year. It makes for a great reoccurring revenue for the business itself. They're the leader in the do-it-yourself market for tax preparation. The software is easy to use, it guides you through the process. It's very sticky. You have users coming back to it every year. The culture, they're always adding things to the product. It's really disruptive, and they're always bringing new additions to their products. They also own QuickBooks, which is the leading small business software for accounting. It has 80% of the market share. They've also updated these products for the gig economy. That's people that drive Uber, Lyft. There's been a big need there to understand the accounting in that contractor realm there. The software lets you send invoices, which is really advantageous for small business owners and things of that nature. It's one I like a lot. The only thing I'm a little uncomfortable with is the valuation at these levels, but it's a very, I think, attractive company that'll be around for years to come.
Moser: Yeah, I think valuations are a little scary all the way around here.
Hughes: [laughs] Sure.
Moser: I've gotten a little bit picky these days. But, Intuit, I like it. I've used Turbo Tax myself. And you know what they say -- death and taxes, right?
Hughes: Yeah. [laughs]
Moser: All right, Auri, thanks so much for taking the time to stop by today! I know our listeners got a great thrill out of meeting you. I'm sure we'll be seeing more of you in the near future.
Hughes: All right. Thank you, Jason!