Tobias Carlisle: And the final argument that you made is that value is a bet against tech, which that certainly seems to be the problem. I would say that that’s the main problem over the last 10 years. It hasn’t held a lot of these, the tech names that seem to have made all the money.
Jack Forehand: That’s right. And it’s been a bet on financials and its bet on energy, and it’s been a bet against tech, and those are all have not been good things. And even if you run a sector neutral value strategy, which a lot of people do, you don’t tend to be buying. If I had forced myself to have an allocation to tech, I’m not going to be buying Google and Netflix. I’m probably going to be buying Seagate and Western Digital and Micron Technology and companies like that, so even if I’m doing it sector neutral, I still technically have a bet against the high growth tech that’s driving the market.
Jack Forehand: But the flip side of that argument is, if you looked at it in 1990, in the 1990s value, it was a bet against tech. And then it became, the fact that it was a bet against tech became a really, really good thing. So it’s part of the nature of it, but because these tech companies are making more money now, they’re doing much better than the tech companies in the late ’90s where you do have to worry about if they continue to dominate the world, if they continue to grow at the rates they’re growing. If the fact that value strategies aren’t investing in them, is that going to be a drag on the strategies going forward?
Tobias Carlisle: I think that’s an interesting argument. That comparison between the late 1990s where they were basically they had to come up with the unusual metrics like eyeballs and clicks and things like that to justify that valuations were as they say, the ones now they have much more in the case in the way of revenues. They still don’t have a lot in the way of profits though, and not a lot of that-
Jack Forehand: No.
Tobias Carlisle: Revenue is falling to the bottom line, so there’s a lot of money that’s been invested in those tech companies. And I sometimes think, so use WeWork as an example, there’s no reason, there’s nothing particularly technological about WeWork. It’s still ultimately leasing space and then chopping it up and subleasing it to somebody else, which is, that’s not a new strategy, but it does if you look at they’ve grown very quickly, but it’s just because they’ve jammed a whole lot of capital into it. And I think that some of the tech companies have done the same thing. If you just jam an enormous amount of capital into something, you’re going to see growth. You don’t necessarily see profits and you don’t necessarily see return on equity. I don’t know.
Jack Forehand: Yeah, and WeWork is a perfect example of what you were just talking about. If you want to talk about making up metrics, the whole community adjusted EBITDA, but they came up, which is a perfect example of the same type of thing you were seeing in the ’90s, but the one thing that I will say is different is if you look at the top end of the technology, if you look at Google, Google is a profitable company. Amazon is a company that if they chose to be profitable, could be a profitable company. So there is more of that going on that some of this underperformance of value has been a function of fundamentals. Has been a function of some of these companies, these tech companies have done better than the tech companies in the late ’90s. That doesn’t mean that evaluations aren’t inflated or they’re not crazy or anything like that, it just means that those companies have performed better than the internet type companies in the late ’90s have performed.
Tobias Carlisle: But Google and other companies like Apple have been value companies on occasion over the last decade. Google spin on a couple of times if you backed out the cash. It got pretty cheap and true of Apple as well, which I’ve written about. I don’t expect tech companies or any company to be a value all the time, but I think if they become value stocks on occasion, that’s proof that value is still working.
Jack Forehand: Yeah, and we’ve actually seen with our Warren Buffet model, Apple comes in and out fairly regularly depending on the valuation. When the valuation gets a little high it doesn’t, but it’s been in there three or four times over the past decade. So it definitely has been a value stock at times.
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