 Good day fellow investors. Today we're going to discuss the third stock I would really recommend to watch and see how it fits your portfolio and that will be a surprise to all of you because it is Facebook. I will discuss my theory behind it and why I think it will be a very very interesting investment even at these high prices. Warren Buffett said this. I'll tell you why I like the cigarette business. It costs a penny to make, sells for a dollar, it's addictive and there is fantastic brand loyalty. Warren Buffett said this to Solomon Brothers CEO Godfront when they were discussing whether Solomon should buy a tobacco company. Warren Buffett didn't buy it because he likes to be liked by everybody else and tobacco was too much of a negative publicity for him so he didn't buy but he advised Solomon to buy. Nevertheless the main point of the quote is that if you can find a business that costs nothing to make that is addictive and that is constantly growing and then unlike tobacco there are no regulations that prevent it from further growth except in China then that might be a great business perhaps even the best business model out there. Similarly if you look at Buffett's investments they were Coca-Cola, Caffeine, Sugar Addiction, Seize Candy, Dairy Queen, Credit Cards, American S Express, one you get on that credit debt it's very very difficult to get rid of the addiction. So Warren Buffett really invested in such businesses that get to the psychology of humans and make it very difficult for them to switch to live or to do something else. Similarly what Facebook is doing. Another quote from Buffett why he owns Coca-Cola people don't understand that what makes Coca-Cola great and worth tens of tens of billions of dollars is one simple fact about really all colas but we will call it Coca-Cola for the moment. It happens to be a name that I like. Cola has no taste memory you can drink one of these at 9, 10, 1, 5 o'clock the one at 5 o'clock will taste as good as the one you drank early in the morning. So Coca-Cola makes you constantly with the combination of caffeine, sugar, salt makes you constantly want other Coca-Cola's creating addiction and the funny thing is you don't remember the taste from the previous one so another perfect business model. Something similar is going on with Facebook. What is Facebook doing? Facebook plays on human pain. The pain of being bored. Whenever a Facebook user is bored which boring means that your psyche is affected by pain Facebook provides the solution. Facebook tells you okay your bored here is some fun let's go search what's going on on Facebook what are other people doing let it will be something fun a sketch this and that and people on average the 1.3 billion of Facebook users spend 50 minutes daily Facebook users spend 50 minutes a day on Facebook and we can see that the number of daily users has constantly been growing the number of monthly users is even higher. Alongside the growth in the number of users Facebook has managed to grow revenue through monetizing what it has and the content and the attention it gets from its users. If Facebook continues to monetize their business model at current growth rates we could further expect Facebook to grow as a stock as a company. However let's dig more into the addictive side of Facebook. As I said Facebook becomes addictive because it targets your boredom and that's not my saying that's the saying from near aerial from the Stanford Graduate School of Business that has researched how Facebook becomes a learned response to humans. You are bored you feel pain and then you go to Facebook and you're immediately happy. Facebook users when they see the Facebook logo they become happier which means it's a learned response that solves some kind of pain in this case boredom. Further research has been done that shows that it is extremely difficult and here we come to the brand loyalty that Buffett is looking for to leave Facebook. People try to leave Facebook then they feel bad then they feel guilty and they go back onto Facebook again to solve that pain they have inside from boredom or from whatever. So once you get hooked on Facebook it's simple human psychology it's very very difficult to leave Facebook. No matter what we think if you are a Facebook user if you are not a Facebook user then you look at those Facebook users why are they spending so much time on it what's interesting and I bet if you are a Facebook users I bet that you don't know what you were looking at three four five days ago because there is practically no value there. However it keeps your mind busy and entertained and solves the pain from boredom. So Facebook plays on that it's addictive it doesn't have any immediately seen physical consequences so it won't be banned by the government that there is a big probability that Facebook will just keep on growing. The current trailing price to earnings ratio is 36 which makes it really look like a bargain if they just continue to grow at the staggering growth rates of 20-30% in earnings then the 36 PE ratio will soon become 18 which will be a real bargain for a dominating addictive play like Facebook is. Now just on the funny side if you think about it 1.4 billion daily users times 50 minutes equals 424 billion hours per year if you just compare it to the billion hours that are worked in the US during one year you can see that that people spend almost double the hours on Facebook in the world then the total number of hours worked in the United States. So I know Facebook is saying we are connecting the world we are bringing the world close together but if those 400 billion hours would be used more productively then we would end poverty on earth we will end hunger we will end sickness everything would be better. So it's really always a fact of perception yes Facebook I can talk to somebody in India or something like that but it takes away a lot a lot of time which can be used in a better way. Will that be solved? We have seen research it's very difficult to get away from Facebook which means Facebook is building a big big psychological mode and that's why it's really important if you have a growth part in your portfolio to see how Facebook fits that because the price or new ratio of 36 is very low for the addictive growth and the stickiness it has towards their customer. On a personal note I really don't like Facebook I have Facebook but I don't use it I just publish my videos there if somebody wants to see who am I and check what am I doing on YouTube. So I'm not going to invest because I really don't like the addictiveness of it like I think it's like cigarettes so I'm going to stay away check how it fits your portfolio check whether this is a mode there is a risk always with Facebook the biggest risk is that there will be a recession and in the recession ad revenue will go down however that will be temporary probably as when the economic cycle turns again revenues will again grow because the attention will remain there so A. you can buy now and enjoy future growth B. in a recession I would definitely look at Facebook especially if there is a temporary decline in revenue growth. Thank you for watching looking forward to your comments how much time are you spending on Facebook do you think you can leave Facebook or not do you have friends that spend a lot of time on Facebook and they're really addicted and how does that work from an investing perspective thank you for watching and I'll see you in the next video