(Ep.22) The Acquirers Podcast: Zach Abraham – Known Risks, Value, Activism And 60/40 Bond Alternatives

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In this episode of The Acquirer’s Podcast Tobias chats with Zach Abraham who runs Bulwark Capital Management and has a radio show called Know Your Risk Radio. During the interview Zach provided some great insights into:

– What Was It Like To Grow Up In A Brokerage Firm
– To Infinity and Beyond Meat – Keep Your Head When All About You Are Losing Theirs
– There’s A Lot To Like About Undervalued Tailored Brands
– Boeing – Cost Cuts Are Cost Deferments
– Which Indicators Show That The Current Market Is Overvalued
– Why Fixed Indexed Annuities Should Be Considered As An Alternative To Bonds
– What Geopolitical Risks Could Impact The Market
– Investors Should Consider Permanently Allocating 5-10% Of Their Portfolio Into Gold

Other Papers/Research Mentioned

Fixed Indexed Annuities – Roger Ibbotson.

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Full Transcript

Tobias Carlisle: All right man, well, let’s get after it.

Zach Abraham: All right buddy.

Tobias Carlisle: You ready?

Zach Abraham: Yeah, let’s do it.

Tobias Carlisle: I’m Tobias Carlisle. This is the Acquirers Podcast. My special guest today is Zach Abraham. He runs Bulwark Capital Management in Seattle. He’s also got a radio show called Know Your Risk Radio. He’s got some very interesting views on geopolitics, precious metals, undervalued stocks. We’re going to talk to him right after this.

Speaker 1: Tobias Carlisle is the Founder and Principal of Acquirers Funds. For regulatory reasons, he will not discuss any of the Acquirers Funds on this podcast. All opinions expressed by podcast participants are solely their own and do not reflect the opinions of Acquirers Funds or affiliates. For more information, visit acquirersfunds.com.

Tobias Carlisle: Hey Zach, how are you doing?

Zach Abraham: Fantastic. How are you?

Tobias Carlisle: I’m much, much better for having you on the show.

Zach Abraham: I don’t know about that.

Tobias Carlisle: We’ve known each other for a little while. We’ve had some great conversations. You’ve got one of the more interesting backstories. Tell us how you first got interested in this business.

Zach Abraham: Oh man that’s a long sordid tale. I guess you could say I come by it honestly. My father and grandfather started a brokerage firm in the Seattle area in 83, so literally grew up in a brokerage firm. Then, was just [inaudible 00:01:49], like a lot of guys talk about, “I think you’re just made for this business,” one way or the other, just fascinated by the business and stocks and making money. Then, as I got older, I kind of realized that at least in my opinion, I’m a competitive guy and this is probably one of the most competitive games, if not the most competitive game. That kind of sucked me in and so studied finance and economics while playing football in college and got a job at Russell Investments right out of the gate and hit the job market in an interesting time, right around 2005, 2006. After growing up in a brokerage firm, I was sure that I didn’t want to deal directly with retail. I want to go to work for a fund or a mutual fund company, something like that.

Zach Abraham: Then, through various different turns in markets and in my time at Russell, being very concerned about housing, kind of a roundabout way to tell the story, but being very concerned about housing and the impact it could have on markets. Then, running that past a lot of colleagues that I worked with at Russell and everybody was kind of telling me, “Oh kid, you don’t know what you’re talking about, housing’s never gone down.” We’ve all heard the stories. I was managing some money at the same time in my father’s firm on the side. We went short, wasn’t nearly as short as we should have been, but watching that whole thing unfold really soured me toward the institutional side of things. It was more of, wasn’t really a meritocracy, it was a bureaucracy and being an athlete and growing up in a small business that just wasn’t really conducive. Got recruited to be a broker at Wells Fargo Advisors and accepted that. Then, my first day on the job was September 15, 2008. I walked in the office, starting out. They threw a phone book at me. The Dow was down 1200 points I want to say and said, “Get after it kid.” Here we are 11 years later and I’m still in it, so I guess that’s a good thing, but it’s been a wild run.

Tobias Carlisle: What do you pitch to people when the Dow is down that 1,200 points?

Zach Abraham: Value, this is a good time to do it. No that was tough, especially starting out. The traditional broker route, while probably not appreciated by a lot of the institutional guys and guys that run funds, it’s a tough way to come up. I think the failure rate was like 93% in the first two years or three years. Then that probably compounded a bit when you start in the middle of September 2008. It was tough. We were pitching to them value dividends, all the same stuff that a lot of guys were pitching. We actually ironically are my best run in managing money, my best returns were from the period of the end of 2007 to the middle of 2010. We did really well during that period and then, probably got a little overconfident with that performance. Then, learned a lot. What is the old quote? I don’t remember who said it, but every investment teaches us or we either get wiser or richer with every investment, never both. I think Mark Yusko said that or at least that’s where I got it.

Tobias Carlisle: It’s a good line.

Zach Abraham: Yeah, I love that. It’s been true in my time in the business. Yeah, it was tough. We did a lot of MLPs, looking for dividends, stuff during that period of time. At the same time though, you and I both being value guys, it was tough, but it was also like shooting fish in a barrel. I mean everywhere you looked, there was value. You get past the whole fear of the entire economic financial system unraveling, which was a legitimate fear at the time. Yeah, it was an interesting road.

Tobias Carlisle: Very much so and that was a really good period for value that last quarter of 2008, first quarter of 2009. I remember that very vividly because the last quarter of 2008, the value portfolios were basically flat even though the market was down about 12 or 13%. Same thing again in the first quarter of 2009 and that’s one of the features of value that I like so much. It’s always front running the market a little bit, so the downside is it sells off first. Value investing seems to get the message first, but it also recovers first that six months before the market really got the message, value had already taken off. Coming from a family two generations beforehand had been in the markets, you must have seen some pretty crazy stuff. You remember 1987 pretty vividly.

Zach Abraham: Yeah, I think you and I talked about that the last time I was down in your neck of the woods. I think growing up in the industry, especially the way that my dad and grandfather ran their firm, they were a brokerage firm, but they were really VC guys on the natural resource side of things. I think anybody has spent any time in markets or managing a portfolio knows the natural resources, it’s a different animal all together. They were in the middle of a … I still remember it to this day, I was probably like five and a half years, old but remember my dad walking through the door on Black Monday and the look on his face, looked like he aged like 10 years. They were in the middle of a money raise for a gold-mining project. Interestingly enough, kind of a prescient topic today. The whole deal, it blew up instantly.

Zach Abraham: Watching that disappointment, watching the downside of markets, seeing it again in a more muted fashion again in 89, the recession in the early 90s, the Asian currency issues in the 90s, the dotcom bubble, watching all that upfront, it gave me … I’m kind of old beyond my years I guess you’d say, much more jaundiced, maybe more of a contrarian perspective, just realizing that probably a bit of a short seller streak in me as well. As a matter of fact, some of my best stuff has been on the short side. Just realizing that there’s a flip side to the coin and not being enamored with the opportunity to get rich and just seeing the downside, watching the impact out of my dad and not just psychologically. There was a health impact as well from the stress of that situation.

Zach Abraham: It’s a different experience from a different angle. I think it’s kind of given me a different perspective on things.

Tobias Carlisle: Yeah that’s amazing. That’s the point that I was just going to make about you, it’s as if you’ve been in the market for a very, very long time because you … Even, you call your radio show Know Your Risk Radio. I think that it’s kind of unusual because there’s a lot of people in the market [inaudible 00:09:01]. It’s been a ten-year bull market. Nobody has seen what happens. Not many people have seen what happens when you go through the meat grinder at the other end.

Zach Abraham: Right and I think that again with that perspective that I’ve had and it’s just kind of been a theme, right? I mean starting off in the business actually on the brokerage side of things, the day Lehman Brothers collapsed, you just had all these things reinforced. It forces you to be sober or at least it should. Hopefully you learn that lesson. My clients tell me all the time, they’re like, “Zach, you’re the oldest 37-year-old. I’m not supposed to be encouraging my money manager to take more risks.” The other side of it too and I know that you know this. You run money as well. It really is all risk management. That’s the name of the game is managing your risk, when to swing big, when to pull back, knowing which parts of the portfolio you want to expose to risk, which you don’t, how much you can afford to lose. I think those are lessons learned by scars. I think it’s especially now, like you said, 10 years into a bull market, no one’s talking about it. It’s to infinity and beyond. We refer to it as the buzz light-year market on our radio show. It’s just everything’s going to work out and unfortunately, you and I know that’s not the case.

Tobias Carlisle: To Infinity and Beyond Meat.

Zach Abraham: Yeah, yes, yeah, prescient. That’s very fitting.

Tobias Carlisle: Yeah, I’ve been tweeting about Beyond Meat. I can’t do anything with it because it hasn’t been listed for long enough to sort of get any view on it. There’s so much heat in that thing. They don’t even have the good grace to lose enough money. They’re not even big enough to justify the size of the market cap, it’s crazy.

Zach Abraham: Yeah and again, going through the late 90s, my dad was a value guy, a natural resource VC investing value guy, which is sort of [inaudible 00:11:08].

Tobias Carlisle: [inaudible 00:11:08].

Zach Abraham: Yeah, I guess that’s kind of two opposite ends of it, right? Yeah, I didn’t think we’d see speculative valuations like this again. I just didn’t think you’d see it, where you’re looking at these companies on a valuation basis and you’re saying, “Look, I don’t know when, but if you pay up at this price, you’re going to lose money. You book it.” You and I have spoken about this off air, especially the six months of this year have been tough because the market is skyrocketed, value has just been in the tank. I’m hoping, well, like you and I have spoken again already about, I’m hoping this is sort of a blow-off bottom, if you will, at value because I mean it’s getting absurd. The spread between the valuations of growth and value, like again I just didn’t think we’d ever see it again.

Tobias Carlisle: Well, let’s talk about some undervalued names, Tailored Brands, the ticker is TLRD. I know that’s one of your favorite stocks, so tell us a little bit about Tailored and what do you think is going to happen there?

Zach Abraham: Boy, it’s one of my favorite names with a bullet. I think it’s an incredible value opportunity, but it’s been a tough one to be involved with like a lot of value has. My wife affectionately refers to that side of what we do as dumpster diving. Yeah, it’s kind of a take on similar approach to Michael Burry and I’m not equating myself to Michael Burry at all. Yeah, just looking for things that are trading well below their intrinsic value and have a lot of bad energy around it and where you look underneath the hood and you find a good business or a good segment of a business. You sit there and think the downside is overcooked. We first noticed Tailored, I want to say back in 2015, I want to say right after they executed a disastrous merger with Joseph A. Bank.

Tobias Carlisle: It’s Men’s Wearhouse-

Zach Abraham: Yes, yes.

Tobias Carlisle: … combined with Joseph A. Bank.

Zach Abraham: Yeah, they did a merger. They were each other’s biggest competitors and they came up with this brilliant idea to merge. Men’s Wearhouse paid way too much for Joseph A. Bank. The stock at the time of the merger was 65 bucks, came onto our radar screen around 17 or 18. We’ve got a saying just because some’s down 90%, doesn’t mean we’ll buy it, but we’re going to stop and take a look.

Tobias Carlisle: Well, there’s a great [inaudible 00:13:53], what do you call the stock that’s down 90%? He says, “The stock that was down 80%, got cut in half.”

Zach Abraham: Yeah. It’s not our first rodeo when it comes to stocks like that. We’re certainly aware of that possibility. You got to be careful, but we just started looking at this company and went, “Look, Men’s Wearhouse is a phenomenal brand, been around for a long time. It had all the hallmarks of a good business right down to the way they train their employees.” We really did a deep dive on it for quite some time. We started accumulating shares I want to say at the end of 2015. I think our average price was around 13, 14, 15 bucks a share. Sure enough, it had a couple quarters that weren’t as bad as everybody thought and the stock popped to 34. We had a fair value target on it around 28 to 30. We sold out between 28 to 30 and then, moved on. In the last year, the shorts came out again and the equity got smashed, dropped down to 12, 13 dollar range. We bought some more, which look I don’t usually like to do that because I feel like you’re tempting the fates a little bit too much. It’s kind of its superstitious, but when you make money on a trade like that I’m always very cautious about re-entering the fray because it’s take the money and run.

Zach Abraham: Again, it was just a valuation. It’s just compelling, what I can buy a company that’s got $270 million of free cash flow for a $650 million market cap, it’s just hard to turn that down, especially in today’s market. Anybody can pull up the ticker price and realize that’s been a tough ride over the last four to five months for us because-

Tobias Carlisle: Do you like the way it looks?

Zach Abraham: No, not at all, but I mean it’s just we’ve all been there before. The market starts moving against you and we started accumulating at 13. We pick up some more at 8. We picked up a little bit more at 6. It’s currently at 5.50. We think the dividend is safe, at least for the near term. It’s really a tough deal because I’ve got some issues the way the company is managed. For instance, when they took a write down on the Joseph A. Bank purchase, which they should have done, never should happen in the first place. They took, I believe it’s a $1.3 billion write down on a $1.8 billion purchase. I was a fan of them suspending the dividend at that point, just take it all upfront, use the dividend to pay down the debt. They didn’t do that.

Zach Abraham: The argument at the time was they thought it’d scare away too many investors and be harmful for the stock. Well that was when the stock was at 15 bucks a share. We’re now at 5.5. There’s definitely some management issues, but they got a new CEO who I think’s on the right track. Again, it’s dropped a little bit in terms of the free cash flow, but we’re still looking at a company that’s going to have free cash flow somewhere north of 200 million this year. It really looks to us like sales are bottoming. Again, there’s just that value there that you really have a tough time walking away from.

Zach Abraham: The current market caps got bankruptcy priced in. I can’t see it.

Tobias Carlisle: How much debt are they carrying?

Zach Abraham: They’re at about 1.1 billion, so they’ve got a load. Enterprise value of the company right now is right around 1.3, 1.35. You’re talking about a company that did 3.2 billion in revenue that has other brands as well, some valuable brands, some not as valuable. You start pricing out the assets and I don’t really care what kind of math you’re using or what kind of model you’re using, you’re looking at the enterprise value of this company and just saying, “Look, if this is a fair valuation, then everything has to not work. Every asset they own worth nothing.” That’s not the case. Like I said, it’s out of style right now because you don’t see the revenue growth and that’s the name of the game right now. If you can take it and you can take the heat, I think there’s an incredible value there over the long run. Not a recommendation by any stretch of the imagination, but it’s a core holding of our at this point.

Tobias Carlisle: Joseph A. Bank is a interesting stock that I followed for a long time because it was a net-net at one stage about 10 years ago. That was because they carry an enormous amount of suit inventory. The question was how do you value that suit inventory? I’ve heard two different arguments on it. One was from John Hampton, who’s the Australian short seller. He said, “When they swell up a big asset like that sometimes that could mean that there’s some fraud going on in a sense that’s a way of hiding the … That’s the accrual. That’s where the accrual shows up.” Then, the other side of the argument is men buy suits. They walk into a suit store and they want to be able to walk back out with the one that they pick. They’re not going to wait around. You need to have this big inventory of suits and suits don’t go out of style that quickly. It was legitimate for them to have that much on. Probably that’s been resolved with the acquisition, if they’ve written off that $1.3 billion or whatever it was in the $1.1 billion. Whatever issue was there is now probably gone away. The Joseph A. Bank guys have probably got off scot-free.

Zach Abraham: Yeah, again, this goes back to the conversation we were having down in your neck of the woods few months back. Ironically that’s actually what got us to take the leap on the stock was the write down. The write down is where we went, “Okay, everything bad is priced into this thing. It can’t get a lot worse.” That was the point where we kind of jumped in and said, “Look, I don’t really know what the value of Joseph A. Bank is, but if you’re going to write off 1.3 billion of that purchase, then you’ve taken it on the chin and this seems like a good time to enter.” Last quarter was tough for retailers all around. Joseph A. Bank sales were down 0.7%. It really looks like us [inaudible 00:20:10] bottoming. Again, I don’t know what Joseph A. Bank is worth, but it’s worth more than zero. That’s where the current equity is priced out. I mean you look at the whole company, it’s trading at a value below what Men’s Wearhouse is worth on just a cash flow basis.

Zach Abraham: Can you still hear me?

Tobias Carlisle: Yeah, all good.

Zach Abraham: Oh, I accidentally … Can you hear me now?

Tobias Carlisle: Yeah.

Zach Abraham: Okay, hold on, I can’t … Okay, sorry about that. I pushed my … You’ll have to edit that part out. I pushed the wrong button on my controller there.

Tobias Carlisle: No, it’s all good. While we’re taking a little break, just check to make sure that your voice is coming through the … If you got a Skype audio-

Zach Abraham: Yeah.

Tobias Carlisle: … just check to make sure, just audio and video. Then, make sure microphone is your headpiece. I can hear a little …

Zach Abraham: Would it be in the … Go to …

Tobias Carlisle: If you go to Skype, are you on a Mac, are you on a …

Zach Abraham: No, I’m on a PC.

Tobias Carlisle: I don’t know it as well, but it should be the Skype audio.

Zach Abraham: [inaudible 00:21:18], just go to settings?

Tobias Carlisle: Yeah, it sounds pretty good. Just there’s a slight echo in the background. Maybe just because you got a big voice man, it’s just bouncing off the walls.

Zach Abraham: Yeah, you know what, I wonder if maybe that’s it. Wonder if I should open … Let me try opening the door to the office. I don’t think you’ll be able to see it, but let me try that.

Tobias Carlisle: I can’t see it, okay.

Zach Abraham: Okay, do you notice any difference there? Is that any better?

Tobias Carlisle: Actually that does sound a little bit better. It’s a little bit more on the microphone.

Zach Abraham: Okay, perfect. Okay, so we’re all good there?

Tobias Carlisle: Do you want to finish your thought on Tailored or do you want to just redirect to something else?

Zach Abraham: No that’s fine. I can finish up and then, we can go from there.

Tobias Carlisle: Okay.

Zach Abraham: That was really the jumping-off point for us was that write down. Like I said, we didn’t know what Joseph A. Bank was worth, but it’s worth more than zero. Then, the entire enterprise is being valued at less than what we thought Men’s Wearhouse would sell for. Again, it’s tough time to be in value stocks. I’ve received a bunch of calls from clients, going, “This thing’s horrible. Why do we own this?” That’s an interesting conversation to have, but we’ve got great clients and they’ve been patient with us. Hopefully, it’ll work out.

Tobias Carlisle: Just going back to your Know Your Risk Radio, clearly as we’ve discussed in the past, you’re nervous about where the market is. You see market as being overvalued?

Zach Abraham: Oh my goodness, yeah. There are some really interesting things going on valuations. Again, we’ve spoken about this, but you look at the discrepancy between the Buffett metric market capitalization versus GNP, price to sales, all these different valuation metrics. One of the things that we’ve spent some time looking at is the spread between P/E ratios and those other valuation metrics. I think a lot of it probably has to do with the unprecedented level of debt and how that isn’t figured into pricing models, at least on valuation basis. It’s certainly confusing, but yeah, when you look at … For instance, when I look at a stock like Coca-Cola, who’s got … Don’t quote me, I obviously don’t have the data in front of me, but whose revenue’s down something like 20, 25, 30% or something like that over the last four years and it’s still sporting a 34 price to earnings multiple or you’re looking at Walmart at above 40, something like that. I mean it’s just everybody is suspending reality.

Zach Abraham: One of the interesting things I think about Walmart and this kind of opens Pandora’s box, so if this gets us off the beaten path, you ought to forgive me, but it’s something we referred to about two and a half years ago. I thought it was cute at the time and it’s been one of those things that’s kind of come to fruition, which I wish it wouldn’t have. We talked about the Amazoning effect of the market, just how Amazon was the darling and how we really thought that this was going to spread that we were going to look at revenue growth above all else. I didn’t think that that would get extrapolated over to stocks like Walmart. You look at Walmart, over the last I want to say three years, net earnings have gone from 14.2 billion to 7.1 billion, a 50% drop. Over the same period of time, the stock’s up 50%. Everybody goes, “Well that’s because they’re investing in the business.” I sit back and look at them and I’m like, “Boy, you’ve got a lot of faith in their investing ability, their investing capability.” I mean that’s unbelievable to me.

Zach Abraham: The other side of it is like how much better … You could not come up with a better way to let management off the hook. Don’t pay attention to our earnings anymore. Don’t pay attention to the whole purpose for why we’re a business entity. That doesn’t count because we’re investing. I think the market has just made unbelievable assumptions about how those investments are going to turn out. Those are just leaps of faith that I’m not going to take with my money, I’m not going to take with my client’s money and I’m not going to take with anybody’s money. I think that extends to the overall market. I mean there’s just no focus on earnings or quality of earnings. Well, the other metric that you hear that’s astounding is like historically, the spread between GAAP accounting and adjusted accounting has never been wider. If you don’t think that there is fraud hiding in that at the very least, we’re talking about valuations, we’re not even talking about the possibility of fraud. You could not till the soil in a way that was more conducive to growing fraudulent companies than is currently the case. You couldn’t do it.

Tobias Carlisle: Galbraith used to refer to the difference between what you thought the situation was and what the actual situation was as the bezel, like that’s the amount of fraud that’s going on. The bezel swells at times like this because you can get away with fraud. It all turns up in the crash.

Zach Abraham: Yeah, I mean I look at it … Don’t get me wrong, I mean I envy these guys. I wish I could run my business on a revenue basis and not be accountable for earnings. It’d be kind of tough to explain to the wife, “Hey honey, we don’t have any money in the account, but revenue is rocking and rolling.” Well, Josh Brown recently put out a … We spoke about this on our radio show last week. I didn’t really spend a lot of time, trying to figure out whether he was saying, it was justified or not, but he was talking about these high revenue growth companies and how they could be kind of the new paradigm. He was saying, it’s the equivalent of having a business model that sells $100 for 90 bucks. That’s the other unspoken aspect of all these companies that you see going through the roof is what the market is building into them is this unbelievable profitable upside. It’s on the basis of incredible revenue growth. That revenue growth is enabled because they’re web based companies, meaning they can scale on an international level instantly.

Zach Abraham: Well that knife cuts both ways. Any potential competitors can do the exact same. You look at cloud computing and I know that there are … I’m not a tech expert by any stretch of the imagination, but cloud’s obviously really hot, kind of reminds me of the dot-com bubble, just throw the cloud into your name. It’s kind of like Bitcoin people were doing not too long ago. I look at that whole set up of those types of companies and I just see unbelievable, unending margin pressure on the very base of it, like the bases of it like the AWSs of the world. Great businesses and I’m not attacking the viability of those businesses at all, but you’ve got this cash infusion or building these server clusters or server, server farms. You’ve already got that fixed cost. You already put that money in, so every person, every company you put through there is just money to the bottom line. Well that’s I mean talk about margins that are just begging to be crushed. I just think that there’s just a lot of false belief and a lot of false faith that this time, it’s different. Of course, you and I know that’s never the case.

Tobias Carlisle: What’s very interesting that margins particularly, I think are very high and we’ve seen that in … I got a question on Twitter. Somebody said Boeing, when they had the problem with the MAX 737, whatever it is. Somebody said, “Have you had a look at Boeing, like do you think it’s cheap?” I said, “How much further would it have to fall before you think that it would be cheap?” I looked at it and I thought, “Well, I think this thing’s at least two times overvalued.” They copied Jesse Felder as well and Jesse Felder said, “I agree.” He looked at a different metric to the one that I was looking at. He looked at price to sales and I looked at the price to sales on it and it had taken this hockey stick in about 2015-16, something like that. Then, I looked at a few other charts. A lot of companies have had this on a price to sales basis, not something that I watch really closely, but I looked at it when Jesse raised it. Many companies have had this hockey stick of the … This is not a hockey stick in revenue growth. This is a hockey stick in revenue ratio, price to sales has exploded.

Tobias Carlisle: We talked about that at the time. What are your thoughts on that?

Zach Abraham: My thoughts are you’re hitting on all the controversial stuff that we’ve invested and talked about. We really haven’t been involved in Boeing in a long time. It’s a local company here, have had family that’s worked for Boeing. I’ve got clients that have retired from there, clients that still work there, a lot of connections obviously. I think everybody living in Seattle or that’s grown up around here, it’s one of the main employers. The performance of the stock has been really unbelievable. We started looking at it, again just watching a stock that was so range-bound for decades explode the way it has, it attracted our attention and we started really looking into it at the end of last year. We were fortunate enough to have some connections and as we started digging deeper into it, we kind of leveraged those connections for some interviews that we did. We did about six or seven interviews with not executive board stuff, not C suite people, but people high up in the senior executive circles, if you will.

Zach Abraham: The basis of the valuation on Boeing was this belief that they had this incredible cost-cutting program going on that they were just really trimming the fat and it was a lean machine. Then, of course, you had the backlog. Everybody was familiar with the backlog. I think at the height, it was at $650 billion worth of planes. First of all, from living here in this area for so long, Boeing always has a backlog at the top of markets. When your biggest customers are nations themselves, when the economy turns south and they decide they don’t want to buy from you, good luck enforcing the contract.

Tobias Carlisle: You got to send in the army or something.

Zach Abraham: Right and so that kind of caught our eye. As we dug in deeper and again, one of these things that always catches my eyes when you’ve got a company like Boeing, who’s had some really brilliant executives and I’m just blanking right now or Alan Mulally, the guy that was there in the 2000s that did some great things with them, then went on to lead Ford and do a good job there as well. You’ve had some brilliant executives and what you’re asking me to do is suspend my belief in what your business is and you’re asking me to believe that these new executives, they put in place are just five times more brilliant than the guys that were there that there was all this waste. We really started [inaudible 00:32:57] it from the cost-cutting side, like is this real? With every single interview we did, there were a couple of themes that just kept coming up and they were too big to ignore. That was that A, management is solely focused on the price of the stock. Everybody we talked to said, “$800, $800.” That was all they were talking about. The minute I hear executives focused on stock price that my ears always perk up. You can’t serve two masters. Are you focused on your business or you focused on the price of the equity? Lot of times, those things are in conflict, at least in the short run.

Zach Abraham: As we started digging into it on the research side and doing these interviews, as it related to cost cuttings, the vast majority of them in our opinion are cost deferments, they’re not cuttings. This is first-hand knowledge that we’ve had with people that have been at the company 32 years, senior executives in the accounting department, talking about how they have suspended a lot of traditional maintenance costs. Whenever they approached people on the management committee and said, “Why are we doing this?” The answer was always the same, “Have you seen the performance of the stock?” That certainly caught our attention. Like I said, these were themes. They kept recurring. I’m talking to having broken-down elevators for six months on the factory floors and not repairing them. I’m talking about HVAC units that are out of service for months that aren’t being repaired. I’m talking about roofs that are damaged or leaking and need to be fixed, and they’re deferring that cost out into the future, jeopardizing the integrity of their homes—this is where reliable roof installation services, backed by experienced professionals and quality materials, become essential for ensuring long-term safety and peace of mind.

Zach Abraham: Bottom line is all the cost cuts everybody was talking about, they’re really cost deferments. It looks artificially more profitable than it is. Then, you move on to the backlog and I had about a three hour interview with a senior accounting executive that had been there 32 years. They said that the backlog wasn’t all it seemed. Again, my eyes kind of widened and I went, “Whoa, what do you mean?” They said that the price is that … Now, their words were 75 to 80% of the backlog. Again, it’s hearsay, but this is a person, we dug into their background. They have been a senior accounting executive there, so we did our due diligence. They said that the backlog is priced at sales that if the company were to deliver those jets today, they would deliver them at a loss. I kind of sat back and went “Well, why in the world would they do that?” They said, “Well, management’s betting on the [inaudible 00:35:34]. They’re betting that they can continue to cut costs in such a way that when they deliver those out into the future that they’re going to be profitable.”

Zach Abraham: There were a couple things. First of all, it made sense. I sat there and went, “Okay, this makes sense. That would help you build a backlog.” Then, second of all, it was … Then, I asked her, “What allowances have they made for an increase in input costs and inflation?” They said, “None.” You and I both know that one of the things that’s really missed out for the most part on this bull run that we’ve had have been the materials, have been the input costs for a company like Boeing Jets, which are significant. I mean you look at the cost of a Boeing, I mean it’s all input cost. I mean it’s all material cost. That’s what it is.

Zach Abraham: You’ve got inflationary pressures building. Look, it may go up, it may not. I don’t know. I just know that the stock is the definition of being priced to perfection. We went on and kind of laid this out on an hour-long radio show that we did. We’ve got an hour-long radio show on the weekends, finance based. I don’t lie to myself [inaudible 00:36:38] it’s not like we’re can’t-miss radio or something like that. The amount of feedback we got and the amount of ire that was raised was unbelievable. We got a call from a senior Boeing executive that wanted to set me straight and again that was another red flag. They’re going, “What in the world are they …” Why do they care what some nobody on financial radio has to say on a weekend?

Zach Abraham: I just see a ton of red flags. I don’t think that there’s fraud per se. I just think that it’s a classic case of pricing a business to perfection and there’s no such thing as bad assets. There’s just bad prices. I just think it’s a really, really bad price.

Tobias Carlisle: There’s lots of micro examples of overvaluation. You mentioned there’s a macro measure, Buffett’s measure. I don’t know whether Buffett’s measure is necessarily exactly right, but then you look at it with Shiller. Shiller gives you a similar answer. You look at it with Tobin’s Q, which … Shiller looks at inflation adjusted average of earnings. Tobin’s Q looks at replacement value of assets versus market value of assets. Buffett’s measure is looking at the total size of the market relative to the economy. They’re all totally different snapshots of the market. They all give you a pretty similar answer. The problem is that they’ve given a pretty similar answer, which is to say that it’s very overvalued for a long period of time What do you do in an environment like that? How do you protect yourself for the inevitable sort of decline?

Zach Abraham: Man, I don’t know. If you have any suggestions, I’d be happy hear them. Look, we’ve continued to focus on value. It hasn’t been easy. We’ve had some good wins here and there. We’ve kind of gone back and forth. We had a good year last year, but really we finished like up half a point in our actively managed portfolio. That was almost entirely due to hedging. It wasn’t like we picked some great stocks. That’s kind of, I definitely got to throw that caveat in there. This year, we’ve underperformed significantly. It’s just about trying to stick with it and trying to keep above my head here. I’ve got the If poem hanging on my wall.

Tobias Carlisle: Yeah, the Kipling poem.

Zach Abraham: Yeah, you’re trying to keep your head when all about, you are losing their. Just knowing that that it’s going to take a turn, I mean asset prices have to be valued at their intrinsic value at some point, just sticking with it. The other thing that we’ve really done and I’ve actually dreaded this part of this conversation just because it’s kind of seen as sacrilege in the finance industry, but we’ve also introduced the use of some insurance type structured products into our clients’ portfolio as a bond alternative. It’s something I never thought I’d do. I’m again raised in a brokerage firm, studied finance and economics. We look down at anything insurance related, it’s just garbage. Well that industry has changed a lot and there’s some really, really attractive offerings, especially on the retail side. I think it’s important to point out, we’re a registered investment advisor, so we’re looking at things a little bit differently. We’re not a hedge fund. We started utilizing some of those insurance products in our clients’ portfolios as bond replacements. Ironically that’s been a huge winner for us.

Tobias Carlisle: How do they work because they do have a bad name, but you’ve found something interesting with the way that these ones function.

Zach Abraham: Yeah, I kind of go back to the beginning of the story for you on that one. Like I said, we had our best performance, I think we were up about a net about 120% from the of 07 seven to the middle point of 2010. Then, I was a big gold fan at that time, was sure that the world was going to come apart. Where to deploy capital started being really tough. Not just on the stock side, I knew that stocks could do whatever they wanted, but the bond side, the whole modern portfolio approach that the vast majority of our clients are in retirement or nearing retirement and so, you do it by the book. You’re looking at 30 to 40% in bonds. We were looking at bonds and just saying, “This is the most obvious underperforming part of the portfolio. They mathematically cannot throw up the type of performance that they have over the last 30 or 40 years” and saying, “What we really need to do is find a replacement for the bond side of our clients’ portfolio.”

Zach Abraham: I thought that that was going to be a pretty easy task, but it ended up being a lot more complicated than we thought because there were really three criteria that we were looking to address. That was, A, whatever we chose had to be as safe or safer than bonds. We weren’t going to jump out of the frying pan into the fire. That was number one. Number two was if we’re going to pivot because we don’t see the possibility due to where interest rates are, Fed Funds was still a zero at that point. Rates are either going to stay low or they got to go up, so we’ve got to follow whatever that safe alternative is that we use has got to be able to do well in a rising interest rate environment. That was number two. Then, number three was we cannot add significant cost. If we’re worried about underperformance, we can’t be tacking on to the cost of the portfolio. That again sounds easy at the offset and then, got about literally eight to nine months into the process and couldn’t figure out a way around that as an alternative to fixed income.

Zach Abraham: Now, we still use fixed income and we have as more of a tactical type thing, but just not as that consistent part of the portfolio. At the behest of a relative of mine, who was in the insurance industry, who I didn’t want to listen to because he was in the insurance industry, he’s not a finance guy. I started looking at something called the fixed indexed annuity. Now, before everybody turns the podcast off right now, let me explain-

Tobias Carlisle: I’ll have to [inaudible 00:43:08] that out.

Zach Abraham: … because it was really … Yeah, well, we have a segment on our radio show called the Dirtiest Word in Investing and it’s annuity. What we’ll start off by saying is really, there’s so much negativity built around the name. I think my natural value inclination made me a little more open to it. What we started finding out when we dug into these products is, A, you could get a fee free version of the product. You could strip off all the extra insurance riders and you were left with this product that was guaranteed against loss that have no management fee and that was giving you literally 50 to 60% of the S&P 500, depending on the product. It was a nine to 10 year contract. You started looking that and running the numbers on it and it looked really attractive. Just think about it, you get a 60% free ride on the S&P 500. In up years, you go up with it. Down yours, you’re guaranteed against loss. When you look at the returns, it literally looks like a stair.

Zach Abraham: Now, again, due to my view on insurance that was enough to pique my interest, but I was completely skeptical of all the information I was reading. I was like, “This is how insurance companies get you, right?” We spent time talking to the actuaries that built it. We spent time, talking to the guys that built some of the different indexing models. We flew to New York, met with guys at J.P. Morgan that built the new volatility adjusted index that they were using inside of a product, spoke to executives and actuaries at Nationwide. That was J.P. Morgan and Nationwide were two companies that we had some contacts in and really doing our due diligence and just sat there and started looking at these products and said, “Look, on a risk-adjusted basis, if we take the typical 60/40 portfolio and we swap out the bonds with one of these products, we’ve done a couple things. A, we’ve just de-risked the portfolio. We’ve got a portfolio that can’t lose money.” Everybody goes, “Yeah, well, insurance companies can go broke.” That’s true, but it’s an interesting thing about the insurance industry is that every single state has an insurance guaranty fund. These products are essentially backed up by the states themselves. Then, you look at the default rates or the amount of these products that have gone under and there’s virtually none.

Zach Abraham: Any time a company faults or a company goes sideways or belly-up, the Insurance Commission steps in and typically negotiates a buyout of the assets, but the purchasing company has to honor the terms of the original contract. We started looking at it, the cost side of it, the safety side of it, check. We got cheaper and we got even more secure. Then, on the performance side of it, we didn’t know that the underlying indexes were going to perform as well as they have, but it’s been a boon. I mean we were hoping to average 4.5 to 5.5% annual returns and that portion of our clients’ portfolio has been up in average 7 to 8 since we started using these in 2011. It took about three years to get comfortable with it. Every time we get return numbers back, I’d kind of sit there and view it like this, like looking through, waiting for the other shoe to drop, even though we … Again, I’m a finance guy, so I was just as jaundiced and negative about these products as probably a lot of people listening to this are.

Zach Abraham: Then, in 2016, a guy who’s a bit of an idol of mine who I had the pretty cool privilege of getting to interview in the last month on our show was Roger Ibbotson. I know, you know who Dr. Ibbotson is. He came out with a research paper in 2016. It was far more articulate than our take on it, but literally, it was a 16 page research paper that highlighted everything we were talking about and how he thought that this would make a great bond replacement or at least supplement to a bond portfolio. That was really vindication for us. The world of finance, I don’t need to tell you this, but a lot of opinions floating around out there. I think one of the biggest things people want to do is catch somebody with their pants down, sit there and prove that somebody’s an idiot and they’re doing stupid things. That comes with managing money, it’s fine, but I’ll listen to these other guys rage about these annuity products. You get two minutes in and I sit there and I go, “They have no clue what they’re talking about, they just don’t.” I know their arguments thoroughly because I-

Tobias Carlisle: You’ve had them.

Zach Abraham: … had them myself. Yeah, I mean I knew the [inaudible 00:47:42]. When I met somebody, when I met an investor that had an annuity, I was licking my chops, just going, “This is cake, they’re horrible,” but it’s been anything but. I’ll make a pretty bold statement, I think in the retail side of investing, you’re going to see somewhere between 80 to 90% of retail clients in the next 10 years and have a product like this in their portfolio with at least a 15 to 20% allocation to it just because on a risk-adjusted basis, they blow bonds out of the water. We got our three-year returns back on one of our most recent products. It has not been our best performer, but it’s been good. We’ve got clients that are up 21% in the last three years in a product that has no fee and no risk. Again, not the most exciting thing to talk about and it’s why we call the dirtiest word in investing, I don’t like to lead with that because I know when you do, anybody in the investment world is immediately going to go, “Oh, okay, you’re an insurance guy.” I’m like, “No, I’m not, I’m really not.” It’s been phenomenal for our clients and it’s really been some saving grace because it’s offset some of the underperformance we’ve had based on the fact that we’re value focused.

Tobias Carlisle: One of the great lines from The Big Short, one of the investors says to the sales guy, “Just tell me how you’re going to screw me, just tell me.” When you ask these guys like what’s in it for them, they’re then able to turn around and sell the upside beyond 60% is that how they’re doing it.

Zach Abraham: Yeah, essentially. Basically, what’s in it for them is they’re just stick in the … Every company’s got its own special sauce and we could sit here and go over this for three hours, but essentially, just so everybody else understands, how is it they’re offering 50 to 60% upside in these indexes? Some of the indexes, some of these value or these volatility adjusted indexes, which look, I know people have issue with volatility balanced indexes. I can see a potential issue, but you got to remember we’re using this inside of an instrument that’s guaranteed against loss. Essentially, all these volatility adjusted indexes are basically risk parity. It’s just another take on the whole risk parity approach. What the insurance companies are doing is they’re taken between 85 to 90% of the capital that’s invested and they’re putting it in their general account fund, general account, general fund. All these guys have a goal pretty much on the insurance side of making somewhere between 3 to 4% a year, very conservative portfolios. That shouldn’t surprise anybody. We all know the basis, how the insurance industry works. That’s really how they’re making their money is investing it and getting a piece of the performance.

Zach Abraham: Then, they’re taking the remainder of the capital, somewhere between 10 to 15% and they’re buying option straddles on the underlying indexes. Everybody goes, “How can they guarantee you against loss?” I go, “You’re actually looking at it the wrong way. Their down years are typically the best for them, for the insurance companies because they’re not giving you any of the upside of the puts. They’re just giving you the call upside on the index.” In the down years, typically, their portfolios do really well because they’re really very bland, very secure portfolios anyway. They’re keeping the money on the put side of the equation on the underlying indexes. In the up years, the returns for the investor being generated on the calls on the index.

Zach Abraham: A client looked at me and said, “Well, Zach, couldn’t you do that for me in my own account?” I said, “Yeah, absolutely, I could.” He goes, “Well, why don’t you do it that way?” I said, “Well, because I can’t guarantee you against loss and that’s not a risk I want to take on. Moreover, I don’t think that that is a risk that if we can get them to saddle that risk for us and if we can introduce third party risk into the portfolio and offset some of that risk, it makes sense.” Yeah, it’s actually pretty simple how they’re doing it. Like I said, it’s been a pretty powerful tool.

Tobias Carlisle: Do they … Sorry, I just completely blanked. Just give me two seconds to remember what I was going to ask.

Zach Abraham: It’s all good.

Tobias Carlisle: Damn it.

Zach Abraham: We’re talking about the-

Tobias Carlisle: No, I got it. Do they guarantee the initial amount or do they guarantee the amount that it grows by each year as well?

Zach Abraham: They do both, so your starting principal, you can never go below that. Then, you also don’t have fees, so you really can’t go below it. Then, every product is different. They’ve got different crediting periods of time. At the end of the crediting periods of time on these traditional products is when the gains are added. At the time, where the gains become actually realized, the gains also become protected against loss as well. You’re banking it essentially. It’s like taking chips off the table and stick them in your pocket. Now, I’m losing my train of thought as well. You got some editing work to do. Yeah, so they’re locking that in and then, one of the downsides of the product when we first started using it as a bond replacement and supplement was that you had to wait till the end of the period to get the interest credited. So if you wanted to take a withdrawal for income or whatever and that’s the other thing is that there’s immediate liquidity in these products, typically around 10% of the contract value per year.

Zach Abraham: Now, most of our clients are utilizing these inside of a retirement account and everybody gets hung up on, “Well, but if you want to go over that you got surrender fees.” I go, “Well, buddy 80% of your capital’s in an IRA account, you’ve got a 30% surrender charge on it, it’s called taxes. Are you planning on sucking 50% of your IRA out in any given year? No, so what are we worried about?” We’ve seen the evolution of the product when Nationwide came out with a product that’s got something called Daily Tracking. Essentially when you look at this product that Nationwide’s put out there, it’s a fee free balanced mutual fund that’s insured against loss. That’s essentially what it is. Any given day, even though your gains aren’t protected, so if you’re in the middle of a crediting period, let’s call it two years, even though those gains, you haven’t reached the end of the crediting period, so they’re not insured yet against loss. If you want to take a withdrawal mid-period, you pull based on the value that day. That’s a new thing. That’s a new aspect that Nationwide patented.

Zach Abraham: I actually spoke to that with Dr. Ibbotson of and he goes, “Yeah, that’s a great point.” He goes, “It essentially is a balanced mutual fund that’s insured against loss with no fee.” Like I said, we knew when we started doing this, we were swimming upstream and that we were cutting against the grain. I’ve gotten in some pretty good Twitter spats with guys about this. Honestly, I don’t even typically like to bring it up between other investors because I just don’t want to go through the hour-long conversation about why we do it and the efficacy of it. Yeah, I mean it’s really proven its strategy. Show me another bond portfolio that’s really secure that’s averaged 7% over the last seven years. I mean it just doesn’t exist. I mean it’s better returns you’ve gotten out of high-yield.

Tobias Carlisle: Let’s switch gears a little bit and talk about geopolitical risks to the market. Talk to us about China and the trade deal.

Zach Abraham: Okay.

Tobias Carlisle: Is it going to happen?

Zach Abraham: Oh man, yeah.

Tobias Carlisle: Is it politics, is it just wait until the end of the year and then, pull a rabbit out of a hat, “Look, we’ve solved it.”

Zach Abraham: Let me offer a disclosure here, I’m not a part of a political think tank and not a geopolitical expert, but it’s a hobby of mine, I guess I should say. In this world of central bank driven markets, I think it’s something we got to pay more attention to. It’ll be really interesting to see what happens after the G20. My personal view based on the stance of China is I don’t really see why … There’s two sides of the coin. I’m going to be concerned if they capitulate and sign a deal that’s what Trump wants. The reason I’m going to be concerned about that is because I think the only reason they would do that is if they thought things were coming unraveled because you’re looking … They know what the state of the political intensity and rhetoric is in our society today. They’re not idiots. They’re looking at Trump. I think Trump has really caught them off-guard. I don’t think they had Trump figured or a Trump-like person figured into their 100 year plan. I don’t think anybody did. I look back and think, “Hey, I don’t think China can afford to play it straight really. I don’t think they can without serious disruptions to their economy.”

Zach Abraham: I think the thing that makes the most sense, if I’m in Xi’s shoes would be to sit back and see what happens in the election. The only reason why I don’t think that they would do that was if things were unraveling worse. That goes into the whole tariff discussion as well. I happen to be a fan of the tariffs, not because I’m a Trump sycophant by any stretch of the imagination. I really don’t understand the whole issue. I don’t get it. I understand whenever I talk to somebody, who’s really anti-tariffs, it typically always is it devolves into how much they hate Trump. I look at it and I think that trade is more fair with the tariffs on. I think it’s long overdue. I’m amazed at the pushback on it. I don’t understand it. I think it’s probably the best thing he’s done since he’s been in office. At some point, these people have to start playing by the rules and not robbing us blind. I don’t think we’re asking a lot. I think a deal will definitely get done at some point. I just think it’s the context, right?

Zach Abraham: The other side of it is I don’t see Trump capitulating unless markets are significantly down. We’re sitting here talking today and the S&Ps just hit all-time highs. Stock market Trump, he’s not going to back down as long as he’s got the equity markets at his back. Like I said, I don’t think Xi’s going to back down unless things are really nasty. To me, it’s fascinating. I think it’s far more important. You’re talking about China, China’s made up 50% of global growth over the last decade. I mean it’s a big deal. I think it’s going to have a lot to say with what markets look like over the next several years.

Tobias Carlisle: Well, let’s talk a little bit about precious metals. Do you allocate to them? How do you feel about them? What do you think about them?

Zach Abraham: Wow, you’re hitting it on all sides.

Tobias Carlisle: This is a test. I’m running you through geopolitics, equities, insurance, now precious metals.

Zach Abraham: Yeah, so I was a huge precious metal [inaudible 00:59:07] in 09, in 08. I just thought the writing was on the wall that had a lot to do with our out performance in 2010. Then, thank God, right when gold was [inaudible 00:59:22] with $2,000, it just seemed like too much too fast. The other caveat to throw in there is that I’ve been involved in the gold mining sector since I was little kid. My dad did a lot of VC deals. My grandfather as well, funding gold mining projects, things like that when gold was really hot in the early 80s. I spent summers at gold mining operations. I’ve been all over North America to different gold mining operations. We saw companies taking on leverage. From being on the inside of it, looked very much peak cycle. We pulled back on our gold exposure in 2011 right by the highs, thinking that we’d get a better entry point. Thank God, we did pull back because that entry point never came, so we really hadn’t had much exposure in gold over the last five years, six years at all. We’ve taken some shots here, had a good run in 2015. Based on a theory, we got pretty significantly … I think we were 25% gold two days after the Fed announced the first rate hike at the end of 2015. We had a 20 to 25% of the portfolio allocated to gold.

Zach Abraham: Getting back to original question about, where I see that going, I think that a guy that we’ve had on our radio show a few times put it best that’s Luke Gromen. He said that he thinks that gold will end up being the credit default swap of this cycle. Maybe it doesn’t deliver those kind of returns, but I think at some point, I see that playing out. If anybody’s been involved in gold markets or precious metals markets, you realize that if it goes against you, you got to be quick to pivot because it can be very painful. We’re very cautious on that but at some point, there has to be a reckoning for all of this printing. At some point, just … To me, it really goes hand in hand with the whole value thing that you and I both subscribe to is that markets are teeter totters. You load up one side of the boat, it ends up going back the other way. As much as no one cares about anything real right now, I can see the rush into gold making in the period of 2009 to 2011 look like child’s play. I think we’ll see it at some point. It just seems fitting.

Zach Abraham: For the average investor out there, I would suggest a permanent allocation somewhere between 5 to 10%. We play it more tactically than that which I’m not sure is a good idea. I’m always hesitant to pull down our gold exposure because I don’t want to get obsessed about the short term negative moves and miss the big move that I very much believe is going to come. I look at it just kind of like a margin call. At some point, central banks are going to have to back all the paper they put out there. The paradigm will shift and it will probably shift rather violently. The scramble for real assets, real value, I think will be biblical. I think it’s going to be a big winner at some point.

Tobias Carlisle: It’s funny, the cycles aren’t that long. I remember dotcom 1.0 and inside the decade, we were in this precious metals supercycle and that’s gone away. Now, we’re in dotcom 2.0, so it’s easy to see that there’s precious metals supercycle 2.0 not that far away.

Zach Abraham: Yeah, I’m just shocked it’s gone on this long. This gets into another thing that I was thinking about, leading up to this interview is that there’s so much ranting and raging at the Fed and central banks. I think that every ounce of it is earned. I don’t think that we have fully digested what the long-term implications of it all means. Essentially if you look at it on kind of a philosophical take, central banks have basically come out and said that they recognize that their currencies are valueless. I mean if you’re going to print that much and you’re going to say that there’s no side effect, what are you saying? If you take too much of any medication, it can have negative impacts. These central bankers would have you believe that there’s no possible negative outcome from all this printing. I look at it and I go, “Okay, so you’re admitting that it’s essentially worthless,” which it is. Every fiat currency has gone the same way over a long enough time line or on an on a long enough time line.

Zach Abraham: Like I said, I think we’re just really beginning to digest and we probably won’t fully digest until decades down the road with a lot of hindsight to really realize the full impacts of what’s going on. When you apply that metric, one of the things that I always think about is to me, central banks are the best justification. If you’re going to make a justification for high equity valuations, I think central banks are the best justification. What would you rather have, Italian government sovereign debt or shares of Apple, right? Who do you trust your money with more? If you pick the Italian sovereign debt and it’s trading in a premium to 10-year US Treasuries, good luck or then, you get into Argentinian 100-year bonds, where they’ve defaulted four times in the last 100 years. I mean it’s madness. It’s never fun to sit out a party and kind of feel like I’ve been doing that. Like I’ve been the designated driver.

Tobias Carlisle: You’re the designated driver, I was just going to say that.

Zach Abraham: Yeah, hey, I’d rather be in the party too. I make no bones about it, but you and I spoke about this at great length. I never thought that we’d be in this position, never thought that we’d be here and man, it’s challenging. It’s certainly tough, trying to find value and trying to stay disciplined, but you got to do when you’re looking over other people’s money, I think the toughest part is the professional risk you’re taking. I think that’s where you just need to get resolute and stick with your model and stick with your process and just tell clients, “Look, the performance will come, you got to give it time.”

Tobias Carlisle: Sobering thoughts. If folks want to get in contact with you Zach, what’s the best way of doing that?

Zach Abraham: Well, they can always follow me on Twitter for my random musings and rantings.

Tobias Carlisle: What’s your Twitter handle?

Zach Abraham: @KYRRadio, so @KYRRadio. Then, we do a weekly radio show and that posts over to podcast as well. They can listen to that. We’ve had some great … We’ve had you on a couple times, Bill Fleckenstein, we’ve had him on a couple times. Luke Gromen, Brent Johnson, a lot of the guys [inaudible 01:06:30]-

Tobias Carlisle: Ibbotson, Yusko.

Zach Abraham: Ibbotson, yeah, several with Mark Yusko, Ibbotson, which has been one of the coolest things about doing the radio show is getting to talk to a lot of these guys. Hopefully, it’s good content. People seem to enjoy it. The other thing is there’s a lot of guys out there, like I listen to some of the guys you have on your podcast like Chris Cole. He’s one of my favorites. I love volatility. We come at it from a little bit different angle because we’re talking to retail people. We try to keep it a little more simple, a little less esoteric. I mean that in the best way. I love listening to those guys, but the average retail investor’s kind of eyes glaze over. Ours is a little bit more plain spoken. Yeah, I’d encourage people to check it out.

Tobias Carlisle: What’s the website to find them?

Zach Abraham: Okay, so well, you can find it at our website, so bulwarkcapitalmanagement.com. We’ve got a link to our podcast site on there. The other thing you can do is get us on Stitcher. That’s the one that I refer most people to, so just Google “Know Your Risk Radio Stitcher,” and it pops right up. We have a YouTube page, where we separate out our individual interviews. I believe you’re on there. You can again just Google “Know Your Risk Radio,” and it’ll pull right up on … Or on YouTube, you can search, “Know Your Risk Radio,” and it’ll come up.

Tobias Carlisle: We’ll put the links in the show notes to this. I read all the comments too, so please leave comments, leave reviews on iTunes. We do read all of that stuff. Zach?

Zach Abraham: Yeah, but just spare me the annuity comments, if you would, right? I’ve heard them all many times.

Tobias Carlisle: Zach Abraham, thank you very much.

Zach Abraham: All right, thank you, appreciate it.

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