Summary

In this episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle chat about:

• A Review Of Aswath Damodaran’s – Revisiting The Big Market Delusion
• Chuck Akre – The Art Of (Not) Selling
• Justin Mallory  – What Can Warren Buffett Buy?
• How To Stick With Your Investing Strategy
• Coca-Cola (NYSE: KO) Has Performed Miserably Since 1999
• Dan McMurtrie and Alex Draime – The Dating Market: Thesis Overview
• Some Stocks Are Just Impossible To Trade Long Or Short
• What Makes InterActiveCorp’s Barry Diller So Successful?
• Why We Love Sam Zell
• Southwest Airlines Is Interesting – Here’s Why
• Alternatives To Market Cap Weighting
• Is There A Conflict Between Margin Of Safety And Beating The Market Returns?
• Has Every Twitter Investor Really Had A Blockbuster Year?
• The Spite Trade

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Full Transcript

Bill Brewster: Should I start it?

Tobias Carlisle: Yep.

Bill Brewster: All right.

Jake Taylor: Anytime now.

Bill Brewster: Hang on, hang on. How do we start this thing?

Tobias Carlisle: Hi, I’m Bill Brewster-

Bill Brewster: All right. Yeah yeah yeah yeah. Welcome back to value After Hours. I’m Bill Brewster, your cohost, along with Toby Carlisle and Farnam Jake, Jake Taylor. And this week I’m going to be talking about Chuck Akre’s The Art of Never Selling and how it’s gotten in my brain. And Toby, what are you going to talk about?

Tobias Carlisle: So a great Twitter stream, tweet thread, from Justin Mallory on what Buffet should buy given all of the… He’s got $128 billion in cash. What’s he going to spend that on?

Bill Brewster: Jake, how about yourself?

Jake Taylor: I’m going to be covering as Aswath Damodaran’s Revisiting the Big Market Delusion. So it’s going to be all about TAM.

Bill Brewster: It’s great to be back folks.

Tobias Carlisle: Right after this.

Bill Brewster: Also, we’ve got a healthy mailbag this week.

Jake Taylor: Big mailbag.

Tobias Carlisle: Big fat mailbag, right after this.

Jake Taylor: Keep them coming.

Tobias Carlisle: Right after this.

Bill Brewster: And as a reminder, compliments to Toby, insults to me and what goes to Jake?

Jake Taylor: Praise?

Bill Brewster: Okay, there you go.

Jake Taylor: I don’t know. Mailbag?

Bill Brewster: Mailbag. Right after this.

Tobias Carlisle: Right after this.

Speaker 4: Tobias Carlisle is the founder and principal of Acquires Funds. For regulatory reasons, he will not discuss any of the Acquires Funds on this podcast. All opinions expressed by podcast participants are solely their own and do not reflect the opinions of Acquires Funds or affiliates. For more information visit acquiresfunds.com.

Tobias Carlisle: Let’s start with Aswath Damodaran.

Bill Brewster: Yeah.

Jake Taylor: Close. Yeah. Damodaran, something like that. Yeah. Late last year, he put out a, I don’t know if you call it a blog post or whatever, but… And yeah, I was… Revisiting The Big Market Delusion. So he’s worked on this before, talking about really trying to back into the idea of, you look at these companies and people start drawing straight lines up and to the right about revenue and income. And if you take all these companies and sort of sum them up, is there even enough revenue in the entire, kind of, economic universe for that to make any sense? And what he’s found is, and through multiple different scenarios that that typically, it doesn’t happen. And a lot of these… So he talks about the 1990s and e-commerce, and how rapidly that went up and then exploded.

Jake Taylor: You have online ad companies in 2010 to 2015 and then cannabis in 2018 and then maybe AI today. Who knows? But what was interesting about… So we’ll start with the eCommerce one. In 1999 60% of the IPOs were internet stocks. So you had just this absolute gold rush of people trying to raise money for internet stocks. And more than two thirds, a couple of years later, of Bloomberg’s internet index were bankrupt. So two thirds of the companies ended up being zeros. And granted there were some that survived obviously like Amazon, but even then, like there was a 90% haircut there. And there were question marks about if they would be able to get through difficult period. So it wasn’t… Amazon as we know it today seems like such an inevitable, but maybe it necessarily wasn’t.

Jake Taylor: So then online ad spending, 2015 Aswatch came up that it would require a roughly $520 billion of online ad revenue to get any kind of a reasonable valuation for these companies by 2025. So he’s trying to project out in the future. Really what is the TAM in 2025? And at that time, the current ad spending for everything, was at 545 billion. So not that far off of it. And at that point the internet-

Bill Brewster: Just real quick.

Jake Taylor: Yeah.

Bill Brewster: Sorry, sorry, just real quick. When you say for all these companies, who is he summing up when he’s… I mean I assume Facebook and Google are in that, right?

Jake Taylor: Facebook, Google, Twitter.

Bill Brewster: Trade Desk? Roku? Like is all that thrown together, do you know?

Jake Taylor: I’m not sure. I think it was the more traditional online ad companies. I don’t think you include… I don’t think even like Amazon at that point yet. Or Snapchat wasn’t even around yet. So at the time 128 billion was the total revenue of the industry. So it basically had to grow to absorb the entire online ad industry for any of the valuations to make much sense. And today he did the similar calculation and it’s something like 570 billion needs to be online ad revenue by 2029. So that one is interesting because it hasn’t really popped like… It’s been more of a sort of slow balloon deflating, as expectations have come down a little bit. Maybe not so much for Google and Facebook, but definitely for Twitter it hasn’t been the best run for them the last five years.

Jake Taylor: Cannabis. So the numbers in cannabis are so insane, but… So you look at Tilray and when they went IPO it was a $13 billion market cap on $28 million of revenue.

Tobias Carlisle: That was almost-

Jake Taylor: And roughly-

Tobias Carlisle: Almost… Sorry, sorry, go ahea.

Jake Taylor: Yeah, roughly 25 million of losses also on top of that. So-

Bill Brewster: It’s just a bunch of stoned compounder bros being like, “No man, it’s on the come.”

Tobias Carlisle: It was a similar ratio for Beyond Meat when it was public.

Bill Brewster: Oh, it was? Yeah.

Tobias Carlisle: It was like a $13 billion market cap and I think it was like $23 million in revenue.

Bill Brewster: I had a friend that asked me about going long the Beyond IPO. And I said to him, I was like, “Look man, just paying this kind of multiple for sales and given the education that I think it’s going to take. It’s just not the game that I’m willing to play.” And then it goes up like seven X or something. I mean, what… I don’t even know what that thing did. It was crazy. It was just parabolic. And a couple of the guys that saw how restricted the float was going to be and worked out sort of what the demand was going to be. This one guy, Denny Crane on Twitter, he sort of had that thing completely pegged.

Bill Brewster: I just didn’t see the world that way. My mind wasn’t looking at it that way. And my friend was just texting me. He’s like, “Why’d you keep me out of this thing?”

Tobias Carlisle: And they added it to the value index as well.

Bill Brewster: Did they really?

Tobias Carlisle: Jake at EconomPic said they’re going to add it to the value index and he said it’s because when they don’t publish certain, or they don’t have certain metrics. They just impute them from the rest of the industry and it’s a food industry so they’re like, “Well it’s probably going to be a value stock.”

Bill Brewster: Oh that’s crazy.

Jake Taylor: Wow. So Tilray went up 10 X within a couple of weeks of the IPO and then totally blew up and I think it’s like off more than 80% from there. So-

Bill Brewster: Was that float driven too? I wonder.

Jake Taylor: Oh I think it’s just like magical pie in the sky ideas of what can happen here.

Bill Brewster: Cause [inaudible 00:08:02] owns a lot of that, right?

Tobias Carlisle: Nobody’s looking at the market cap relative to the size of the business. They’re just looking at the trajectory of the stock price and say “Well it’s been up. It’s going to keep on going up. I’ll buy some.” That’s what every marginal buyer is doing.

Bill Brewster: Momo baby.

Jake Taylor: It is.

Tobias Carlisle: Quite working.

Jake Taylor: But that Momo has to be fueled by something. And I think that’s what the interesting part of what Damodaran is talking about is that, so they have these four common elements in this. Number one is a big market story. So you have to have some big macro potential. We talk about TAM. Number two, there has to be blindness to competition. So you basically have to assume that growth is not going to be shared by anyone else. You’re going to be the only one that gets all of the growth. And completely, we like to joke, we call it a TES, which is total eventual supply, that you don’t hear anyone really talk about that much.

Jake Taylor: Number three was it’s all about growth. So you ignore profits and bad unit economics. That doesn’t matter. It’s just how quickly can you get this thing as big as possible. And then number four is disconnect from fundamentals. Which obviously, it’s usually there are negative earnings, so there’s nothing you can… You can’t do a P E on it. There’s usually a little asset. So there’s no price to book to really do. And they usually trade at just insane price to sales or revenue. So I found it to be an interesting paper because they share all these commonalities, but then the one difference they have is how they end. Some explode, some slowly deflate, but any time you get that far out over your skis, it’s usually pretty bad news for investors.

Tobias Carlisle: They’re impossible to trade, long or short. You can’t be long cause you eventually get dusted. You get what’s coming to you. And you can’t be short because before justice has done, you get your face ripped off. So there’s no easy way to trade that stuff. You just got to be away from it. Away from-

Jake Taylor: It’s radioactive. Stay away.

Tobias Carlisle: As far away from the blast center as possible.

Bill Brewster: But man, it’s hard to stay away. I mean, I was talking to… It is, right? I mean if you’re compared to an index and SAS is what’s ringing in my mind and I know that this is going to upset people, but whatever, it’s my podcast with you guys. So I can talk about what I want. So you know I’m talking to a buddy out in Silicon Valley and he runs a firm out there and he said to me, he goes, “Man, it’s crazy how much people are spending on engineers. And a lot of us know how crazy it is. But the conversations that I have with other CEOs are, we have to spend this because this might be our only chance to get really rich. And in order to create the appearance that we’re really big, we have to have a lot of engineers.”

Bill Brewster: And if everybody’s thinking that way, naturally that’s going to cause some inflation in the price. And, I don’t know, I look at some of these companies and all the free cashflow or a lot of it is share-based compensation. And I understand why all these businesses should be worth a lot. And I understand why the growth should be worth a lot. But culturally, what happens to people organization when you have to cut salaries, or get rational or something and I don’t know. I just feel like a dinosaur is sometimes because I look at it and I feel like I understand it and then I look at the numbers and I just can’t get there.

Jake Taylor: Did you see that news about SoftBank pulling a lot of their term sheets?

Bill Brewster: Oh no. That’s a shocker.

Jake Taylor: They’ve been stringing people along with promises like, “Oh yeah, yeah. The checks in the mail” kind of thing. Apparently… “Uh, actually, no, we’re not going to do that deal after.”

Tobias Carlisle: When I was still in undergrad, I knew one of the professors was a value guy who ran his own value fund. And he said he’d done this analysis on gold mining companies and he said, “Here’s something interesting about gold mining companies. When they go through periods of time where the gold price is low, which means they really struggle because they can’t make any money digging it out of the ground and selling it. But this is the unexpected thing. When the gold price is high, they really struggle to make money too, because engineers and all of the equipment becomes really expensive. So their margins are always squeezed.” That’s an interesting insight. I always think about tha. That’s true of a lot of different things. As soon as there’s a little gold rush in an area, not necessarily gold, it could be anything. Engineers in Silicon… Online, SAS businesses in Silicon Valley, the inputs all gets so expensive that it’s hard to make money. It’s hard to make money. That’s the nature of business.

Bill Brewster: Yeah. I mean, you look at something like Adobe, I mean, that makes sense. I understand why people like that. And Microsoft has proven how important a sticky user base is. I understand some of these bigger ones because I think that they can acquire some of the smaller ones. But the idea that everyone can land and expand without bumping into each other doesn’t make a whole lot of sense to me. And the idea that everybody can just spend a bunch on R and D hoping to expand before bumping into each other. I don’t know. I just get uneasy about that whole thing. And I feel like, if we were talking about 30 different retailers with decent concepts that were just dropping new stores in every single neighborhood hoping to acquire customers, people would be like, “That’s insane.”

Bill Brewster: But then you turn it into software and everybody just sort of forgives it.

Jake Taylor: I mean, doesn’t that kind of explain… I mean that that describes burger joints over the last five years. It was just like, “Let’s cram as many burger joints as we can into a square mile.”

Bill Brewster: Yeah. And look, there’s smart people on the other side of this thing, right? That understand it better than I do. But it’s just to your point Toby, it’s something that, unless I really can figure it out, I’m just going to watch it from the sidelines and hopefully I can deal with under-performance for a little while if that’s what it means.

Tobias Carlisle: Do you know the unheralded investor in this area, who maybe he gets a lot more attention now, I’m a little bit behind the curve, I don’t know. But I’ve only just started looking closely at interactive. Barry Diller.

Jake Taylor: Diller, yeah.

Bill Brewster: Oh yeah.

Tobias Carlisle: So Diller formed in 1995. I was just looking at their financials and they got $3 billion in cash sitting on their balance sheet. That’s a lot of fire power, I guess it used to be a lot of firepower. I still think it’s a lot of firepower.

Jake Taylor: Trillions now, Toby. We’re only talking trillions.

Tobias Carlisle: I know the T’s. Billions don’t count. Used to be a lot of money. I think he’s incredibly… The performance in that stock is phenomenal. The rate of gain that he has been able to create. He formed that in 1995. It’s like 25 years old. That’s astonishing kind of work that he’s been able to create there. I’m going to study it for the next podcast. I’ve only just started looking at it. I don’t have anything intelligent to say. But I’m kind of intrigued by what he’s achieved there. A little bit envious. I think he kind of figured it out before everybody else did, and he made it through that dot com 1.0 bust, has thrived at the other side.

Bill Brewster: He and Malone trade assets a lot.

Tobias Carlisle: Oh they do? Well there you go.

Bill Brewster: They do. And I don’t know if you read the Super Mugatu paper on dating. You should read that. I mean, if you’re interested in IAC.

Tobias Carlisle: I’m interviewing Dan on the podcast on Thursday, so I’ll have to read it before then.

Bill Brewster: Yeah, you should. It’s a very good paper. I mean the match spinoff and then you’ve got Vimeo and I guess care.com now. What else do you have in there? Oh, Angie’s-

Tobias Carlisle: Angie’s list?

Bill Brewster: Yeah, whatever that group is. I don’t know. That’s a really interesting entity.

Tobias Carlisle: He’s got 128 brands in there. Or that’s what the website says when I looked at it.

Bill Brewster: He’s a monster. If you listen to his interviews, I mean that guy is just awesome.

Tobias Carlisle: He’s smart.

Bill Brewster: Yeah, he is.

Tobias Carlisle: I caught him on the CNBC morning show that Joe Kernan, the one that he’s on, a month or so ago, and he’s brilliant.

Bill Brewster: He reminds me… Him, Malone, Sam Zell. Those are all guys that if I ever see them on TV or an interview, I just stop what I’m doing and listen.

Tobias Carlisle: Yeah. 100%.

Jake Taylor: And you never want to be on the other side of them.

Bill Brewster: You better know why you are, if you are.

Tobias Carlisle: Zill, of course did the era defining sale… Or the era defining merger in the last go round in the 2007 he managed to roll out of, was it general properties? I forget the exact name of what he had.

Bill Brewster: Oh, did he?

Tobias Carlisle: He sold at the peak. Biggest LBO I think ever at the time. But he was the vendor, which is where you want to be in a trade like that.

Bill Brewster: Yeah, his audio book is awesome. It’s just his raspy voice talking the whole time like this and he’s reading you his book.

Tobias Carlisle: I got to say I love him because I was… My wife and I with our brand new daughter when she was… This was when we had our first kid. We went out to a restaurant in Malibu for lunch and Sam Zell was outside in the parking lot with his wife and I was standing out there waiting with my daughter in the stroller and Sam Zell came over and he wanted to talk and he was talking about the baby and he said, “Oh, she’s really pretty,” all this stuff. So I said… I didn’t let him know that I knew who he was, but I already love him. But I love him more for that.

Bill Brewster: Yeah. I’d be like, “You could have her, if you spend an hour with me.” I just want to listen to you.” You really should listen to his audio book. It’s awesome. And I bought this at the bottom and then I sold it at the top.

Tobias Carlisle: It’s a great book. I haven’t listened to the audio, but I’ve read the book.

Bill Brewster: It’s fantastic.

Tobias Carlisle: Bill, do you want Chuck Akre? Chuck Acre…Akery? How do you say it?

Bill Brewster: No, I don’t. I don’t want to do it at all because it has really messed me up.

Tobias Carlisle: I want to talk about it cause I think it’s a super interesting topic but they never sell. They’ve come out with these two crazy pieces recently, right? What was the other… We had them at the Netflix, HBO comp of $1,000 per subscriber.

Bill Brewster: Oh no no no.

Jake Taylor: That was [inaudible 00:18:32].

Bill Brewster: That was [inaudible 00:18:32].

Tobias Carlisle: Oh. I’m sorry. I’m sorry. Yeah.

Bill Brewster: No but Akre, I mean it’s the Art of Never Selling is what the paper’s called, and it basically says once we own something, the only thing that we’re looking at is degradation and business quality. So a multiple, in and of itself, is never going to be the reason that we sell. I think that the real possibility could be either that it’s a theory that avoids a human bias and gets them focused on businesses that they want to own forever. And then they have said the benefits of this outweigh the cost of occasionally holding a great business too long, or through a period of extreme overvaluation. Or… I don’t even know what the other logical reason could be. Because there’s, there mathematically is some multiple that it just doesn’t make sense not to sell.

Tobias Carlisle: Well, you’ve got two issues, right? You’ve got the tax that you incur when you sell and then you got the opportunity cost.

Bill Brewster: Which they never address, but it’s got to be embedded in what they’re talking about.

Tobias Carlisle: But you’re going to reinvest in something, right? You can stick it back in cash. Maybe you are marginally better off holding a great company earning high returns and investing capital sustainably so over the next 20 years than you are sticking into cash yielding nothing.

Bill Brewster: Maybe, I don’t know. Is Buffet better owning Coke when he coulda got out in 99? I mean, I don’t know. Probably in that entity, but if he was a small investor, I think he’d be out of that thing.

Jake Taylor: So I talked to one of my good friends Rishi at Google about this and he had some interesting perspectives. He sent me this paper, the author’s name is Hendrick Bessembinder and it was a journal of financial economics. And the finding was that, they looked at a crisp database, 1926 to 2018 or 17, four out of seven common stocks did not beat the one year treasury. So already more than half of the stocks, if in when you buy and hold for the whole thing.

Tobias Carlisle: So randomly selected in any given year? Or over that entire period?

Jake Taylor: Every stock that was available, if you bought it and held it to its entirety didn’t beat treasuries. Okay. So, okay. Number one, it’s already… Buy and hold forever is a very, very difficult proposition. It gets worse though. 4% of companies accounted for all of the gains of the market. So if we start from base rates, we’re looking at approximately a one in 20 probability that we will be the one to find that hidden gem that we can hold forever and get all of these returns, right?

Bill Brewster: You’re about to sell me on indexing right now by the way.

Tobias Carlisle: I was going the same way.

Bill Brewster: And, podcast over see you guys later.

Tobias Carlisle: We’re all bogle heads, thanks for coming.

Jake Taylor: Exactly. Well I mean that positive skew of the distribution is what lures us all in thinking we can be the one in 20 right? I mean that is the kind of the bitch of it. But I understand their logic in wanting to… When they find it, you just don’t let go if you think that you found that company. But like you said about Coke, I mean if you were to describe a company that had maybe like one of the most unbelievable moats, the amount that they could spend on advertising compared to anyone else. The just the actual physiological response to Coke of the sweetness with the saltiness, the hyper palatability of it, their distribution network. They have so many advantages and yet they couldn’t… If you look at the numbers from a 99 to today and not only has the stock done poorly, which it’s got, if you count dividends, it’s two and a half percent return from 99 to today.

Bill Brewster: Wow. Really? I didn’t realize it was that low altogether.

Tobias Carlisle: Per year? Or all together?

Jake Taylor: Per annum, yeah. And then, but the business in size-

Bill Brewster: With dividends included?

Jake Taylor: Yeah.

Bill Brewster: That feels low.

Jake Taylor: Well this was according to Rishi. He sent me a spreadsheet. He’s pretty solid. Hi Rishi. The other part was that the revenue and net income has only grown at three and a half percent. So you have the business fundamentals inside of it haven’t grown like you would’ve ever thought for this compounder. Right? So it’s-

Tobias Carlisle: What’s the issue? Is it changing… People don’t like the sugar? Is that the issue? People getting away from the sugar?

Jake Taylor: I think it’s sugar. I think-

Tobias Carlisle: Kombucha. Red Bull.

Jake Taylor: There’s so many different options now. You go to the store and it’s like there’s 25,000 choices of what to drink. I don’t know.

Bill Brewster: Also some of it was the valuation rerating downward. Right? So I mean the business has to grow a lot to catch up to that valuation degradation, or rerating downward so we had… One of the mailbag questions was I read a lot and how do I figure out how to invest, right? My perception of how traditional value works is I see the world today and I’m trying to buy what I know today for a lower price than I think it’s worth.

Bill Brewster: And growth is definitely a component of what something is worth today. But I am less certain in what is on the come. So maybe I’m less willing to pay for the growth than someone else that feels more certain. Where I think I would be uncomfortable in Akre’s shores, at least without really living it, I guess, and maybe I should try. I don’t know. That’s why it’s so in my head. But how do you prevent yourself from becoming a frog in the boiling water, so to speak? And how do you know when there’s enough degradation in the business to actually get out? And just a lot of it feels amorphous to me at that, for lack of a better term, I hope that’s the right word.

Tobias Carlisle: What if you think about it this way? It’s really hard to find those high quality businesses when they’re selling at bargain prices, right? It’s hard to get them so when you get one, you just, that’s your big bet for that year. You take that position and then you just let that run and come hell or high water you just hold onto that. And then you spend your time looking for the next big opportunity. Now, I think for most people who’ve got an income that are looking for something to invest, that’s a pretty good way of doing it. If you’ve got a fixed amount of capital in a fund that you have to redeploy, that’s a much more difficult proposition, right? You don’t have any more income to rely on, you kind of got to… Then I think you’ve got to be thinking about at least trimming.

Bill Brewster: Yeah, well I think that’s the studies that you’ve published in the past and deep value and whatnot. I think that value outperforms, if you rotate on a year to year basis, and where-

Tobias Carlisle: I don’t know that it has to be quite as often as that, but I think yo do need to rotate.

Bill Brewster: To turn it a little bit right? And then I think the Ackre and Ensemble and probably Bluegrass, I’m not sure, view of the world is buy these great businesses, and if you hold them long enough, then you can outperform as long as you’re paying a reasonable multiple. The way that I do what I do is I just need to understand what I’m applying to the asset that I’m applying it to and really be able to understand it. And as far as the question goes, I would just say read a lot of different investors. I mean I’ve learned more… I started out, I was only reading like Buffet and Graham and I feel like I wasn’t really growing. And then I started to pay attention to guys like Bill Miller and I mean thankfully Twitter has opened my eyes to a lot of different ways of thinking. And now I can at least identify why people are taking positions.

Jake Taylor: Well, let me ask you this. If you… We know how hard it is to find that that company that can redeploy capital at high rates, has a good management that won’t mess things up, and maybe even has some reasonable multiple, and you found all of those things that you believe in. Why would you tell anyone about it? I feel like this is a secret that you never want to tell. I mean you-

Bill Brewster: Yeah, I don’t know.

Tobias Carlisle: You filled up. You want the glory.

Bill Brewster: Yeah.

Jake Taylor: No, I want to be able to buy even more if I can.

Bill Brewster: Well, it depends is how big it is.

Tobias Carlisle: If you take away one of the elements that you said then was a reasonable P, if you take away that and you say, let’s identify the best hundred companies globally, there’s probably only 80 to 100 companies globally that fit those other criteria, right? Where they’ve got that sustainable high… They’re just going to grow for the foreseeable future. It’s hard once you’re in those, you’ve got to wait around for another one to kind of get cheap and I think that more likely is what happens is they all get cheap at the same time. Crash or something like that. Or there’s something that happens in the business that brings into question their ability to keep on doing what they have been doing. That’s the really hard thing, right? They get cheap right at the time that the single thing that you like about them is now in question.

Jake Taylor: Question. Right.

Bill Brewster: Like Chipotle when that-

Jake Taylor: I think, I mean Buffet was buying that at what, eight to 11 times earnings? Depending on what-

Tobias Carlisle: Coke?

Jake Taylor: No, Amex when he really went big on it. I mean that’s eight to 11 times earnings does not describe much of today’s universe of compounders, right?

Bill Brewster: Yeah. No. Chipotle, I mean, I don’t know. It’s, it’s definitely not Amex. But when they had that scare, my whole theory was this is going to break people’s habit of going to Chipotle. I mean, I was obviously wrong. But I was concerned that they were going to lose the habitual purchase. So I stayed away from that sell off. And in retrospect, that was a mistake. But to your point, how do you know when something’s a permanent change and when it’s not? I don’t know. It’s judgment. You probably find out about the people that judged correctly and don’t hear about the ones that judged wrong.

Tobias Carlisle: That’s right. It’s a survivorship bias game.

Jake Taylor: Huge survivorship bias.

Tobias Carlisle: So should we move on to my topic?

Jake Taylor: Sure.

Tobias Carlisle: Justin Mallory on Twitter, MBA, cattle farmer, great Twitter account. He was looking at… So he’s doing some analysis on Buffet. So everybody knows Buffett’s got a $128 billion in cash. Some very large portion of that is float that can’t be used for acquisitions. It’s supporting liabilities that are insurance liabilities. So they do this analysis where they say basically he can spend, let’s say he can spend some 20% of it and then he can lay about 50% more that can be half of your purchase price. So they get to about 50 billion. And then you go through the list of stuff that he has invested in in the past and what he might buy. And so they say… So the market cap has to be between 10 to 50 billion, P under 20 he’s saying U.S. domiciled here, price to free cashflow under 10 return on investment over 10% so then-

Jake Taylor: The screen returns an error because there are no-

Tobias Carlisle: And then he said kick out the financials.

Bill Brewster: You have one company, sir.

Tobias Carlisle: So here’s the list. It’s a pretty short list. It’s funny. United rentals. Ticker’s URI. Synchrony financial. Cause he already owns that in-

Bill Brewster: Synchrony’s got a position in…

Tobias Carlisle: In the… that’s right. So that’s a high on the list. Discover. Southwest airlines, we just love. HPQ, which is not the enterprise, that’s the printer side of the business. Delta airlines, which we know he’s got a little holding in already. Valero, VLO. Capital One COF. So I thought it was kind of interesting. I just-

Bill Brewster: It’s all financials and capital intensive crap businesses. The little ones.

Tobias Carlisle: Here’s the thing. That Looks a lot like my portfoli to be perfectly honest. It’s not very Buffet like.

Bill Brewster: Yeah.

Tobias Carlisle: It’s hard to find cheap stuff out there.

Bill Brewster: Yeah, I mean you got to stretch. I was talking to somebody that owns parking garages this weekend. And we were just talking about what valuations have done. And he’s done really well over the past five years or so. He goes in and he helps people optimize their parking spaces and he takes equity positions in them. And I asked him what’s gone on lately and he said the valuations are just sort of where they’re at. They’ve just sort of plateaued. And-

Jake Taylor: Is that a permanent high plateau?

Bill Brewster: Well, in Chicago he said equity’s coming down quite a bit. There’s it’s very market specific because who’s going to… You don’t want a lot of permitting, but you want growth in the population. So it’s sort of… I don’t know, I just thought it was an interesting asset class that he said, the valuation seems stretched and I don’t know how much upside we have. That’s sort of how I feel about most of what I look at. I’m like, yeah this is pretty rich. It could work. But a lot of things have to go right.

Tobias Carlisle: I saw an analysis on Uber. They said that the Uber, the share price is where people were investing in 2014. So there’s been, you’re VC investing in 2014 in Uber, you would think that you probably hit it out of the park, wouldn’t you?

Bill Brewster: Yeah.

Jake Taylor: Right. It sounds like it.

Bill Brewster: It’s flat.

Jake Taylor: How’s it done from its IPO? Did it have any run up and then back down?

Bill Brewster: I think it came out pretty flat, I’m not sure.

Jake Taylor: Pretty stale?

Bill Brewster: Yeah. I think that was the beginning of the old bus tier in the… Hey, it’s up 3% today, so it’s got that going for it. Yeah. It IPO’d at 41 and it’s at 32 so…

Tobias Carlisle: It’s probably one of the better performed IPO’s of that class.

Bill Brewster: Yeah. In a couple of months, Peloton would give anything to have that.

Tobias Carlisle: Yeah. Peloton was up a little bit last time I looked.

Bill Brewster: It’s up 2%. A day of junk.

Tobias Carlisle: It’s a very tough market. If you’re a disciplined investor, it’s a very, very tough market to get sufficient cashflow and earnings for the dollars that you’re spending. And the only people I think who are sort of doing well in this market are people who believe that the growth is much more sust… Like people who have accepted that we’re going to have much higher growth for a much longer period of time. Who can believe that and stick that into the models and pay up have done very well. But I can’t do that.

Bill Brewster: They’ve been right so far.

Tobias Carlisle: They have. That’s what I’m saying. It’s working.

Bill Brewster: Doesn’t matter how long. Yeah.

Tobias Carlisle: I don’t mean to be critical.

Bill Brewster: I may have said this before, but I sort of wondered after the financial crisis, you didn’t have a lot of capitalized competitors. I wonder as we get deeper into sort of the recovery… I mean I know it’s 10 years, but does more competition pop up as sort of people’s, I don’t know. Either get more confident again or now they’re balanced.

Tobias Carlisle: Hasn’t the land grab been kind of… Isn’t that the land and expand isn’t that kind of over now though, in a lot of sectors.

Bill Brewster: I don’t know.

Tobias Carlisle: There’s no competitor to Uber or Lyft now, right? That game’s over.

Bill Brewster: Yeah, but there could be, there was a company V… I have no loyalty to either of those companies.

Tobias Carlisle: Cross competition, right?

Bill Brewster: That’s right.

Tobias Carlisle: Stay with the the biggest network, low cost operator.

Bill Brewster: Everybody shits all over my airline thesis, but they like Uber and Lyft and I’m like, “This is the same thing guys. It’s just a little different.”

Tobias Carlisle: Well, I’ve been pitching Southwest. I mean I’m a believer in that too.

Bill Brewster: I saw that.

Tobias Carlisle: So I think that Southwest is interesting because it’s… the 737 max, the Boeing issue is hurting them more than it’s hurting everybody else. They’re the biggest operator. They rely on the 737 max. Have a look at that… The financials in it are phenomenal. It’s a great business. It’s still an airline, but it’s a great airline. I shouldn’t say it’s a great business. It’s a great airline. It’s really-

Jake Taylor: It’s just like the horse that can count as a good mathematician.

Tobias Carlisle: Yeah, that’s right. That’s right. That’s exactly right.

Bill Brewster: How dare you.

Tobias Carlisle: But it’s a $28 billion market cap last time I looked. They’ve earned returns like 24% return on invested capital, which is down from 37 about five years ago. They’ve used all of their free cashflow over the last five years to retire stock and pay a little dividend. So it’s actually cheaper now on a price to book value basis. I don’t know that’s got its own problems, but on a book value basis, it’s cheaper now than it was when Buffet took a swing at the basket. I like it. I’m looking like an idiot at the moment, but I think it’s… I like the stock.

Bill Brewster: I bet the basket is cheaper than it was when he took a swing. I mean American has just gotten killed for some good reason, but Delta-

Tobias Carlisle: What’s the reason? Is it 737 max?

Bill Brewster: No they just have way too much leverage. And they run a pretty crappy airline. They need to pay down their leverage. And they don’t think they do, but it’s clear that they do. It’s a hard argument to make. We don’t have too much debt because we have a big revolver behind us. So in a downturn we have $7 billion to draw. It’s like, okay, well that’s just more debt, man. Eventually you got to pay this back. So, that’s what I say.

Jake Taylor: Those can disappear potentially. You have counterparty-

Tobias Carlisle: As the dead guy… How solid are those things? Can they yank them if it gets… They say this is a material adverse change. That’s gone.

Bill Brewster: I don’t think so. I would need to look at all their covenants and stuff.

Tobias Carlisle: Depends on specific terms.

Bill Brewster: Yeah. And I think the way that they do most of their financing is there so much capital out there that’s willing to take an asset-backed loan on an airline. Like an actual aircraft, that I bet that… Yeah. But I bet that the actual true leverage to the operating entity is lower than the headline leverage screens. But I just… It’s not a game. It’s hard enough to bet on an airline. Why would you bet on the most levered one out there? Other than-

Jake Taylor: That’s where all the juice is.

Bill Brewster: That’s right. Yeah. I mean,

Jake Taylor: You’re a gambling man. I’m just imagining the monopoly guy and he’s pulling his pockets and turning them inside out and like, “Oh, sorry, I don’t have any money to give you now.”

Bill Brewster: Yeah, I mean it’s an issue or it can be. You get into trouble with revolvers sometimes if there’s like a leverage covenant. And so a company will say we have a $600 million revolving credit facility, but they can only draw 200 million before they breached their leverage covenant. So it’s really a $200 million facility. But some of them won’t exactly tell you that.

Tobias Carlisle: We’ve got a gigantic mailbag this week.

Bill Brewster: Big mailbag.

Tobias Carlisle: Should we start… Let me just see if I can find where it all starts so I’ll just kick it off. I’ve got one here. Okay. For people who want to park their wealth in a Vanguard style index, what alternatives to market cap weighting, if any, should they be considering? Are the three of you for or against market cap weighting? Will fees of ETS that use alternative index methods be driven down to zero anytime soon? Let’s start with the first one. What alternatives are there to market cap weighting

Jake Taylor: Based on what I’ve read, any of them are better than market cap weighting.

Tobias Carlisle: Except over the last few years.

Jake Taylor: You probably know better. Yeah, true

Tobias Carlisle: There’s an inverse market cap.

Bill Brewster: Yeah. I was just going to say that.

Tobias Carlisle: R V R S I think reverses, the is the ticker, which is run by my sub, so I should just disclose that. My sub advisor. They literally take the inverse of… So the biggest market cap is reversed. If you test it tests phenomenally. It just hasn’t worked out for the last few years.

Bill Brewster: Are there certain periods that it tests better or is it over most time periods in tests better?

Tobias Carlisle: It tastes bitter over the full dataset. The times when it doesn’t work at the times when vlue doesn’t work, it’s this. When the market is frothy and going up really hard, then you want to be in the big momentum stocks.

Jake Taylor: Yeah. Nifty 50 style has got the-

Tobias Carlisle: But that game only works until it doesn’t.

Jake Taylor: Yeah, no breadth to the market.

Tobias Carlisle: So are you guys for or against market cap weighting? Against, I’m guessing.

Jake Taylor: I think I’m against, yeah. I would recommend Joel Greenblatt’s book. He says the big secret. That for the small investor he tears apart market cap weighting pretty well.

Tobias Carlisle: Equal weighting outperforms.

Bill Brewster: And when I just think about… Let’s just take Brookshire as an example. And the more that Buffet owns, the less that the market cap weighted index wants to own. When you’re doing these float adjustments. That doesn’t make any sense to me at all. Like, right? That seems totally 180 out of logic.

Jake Taylor: Yeah. It’s crazy to underweight founder led and founder owned companies. That’s who I want to bet with.

Tobias Carlisle: You’d be like the index that invests more in those guys would be a better index, you would think.

Jake Taylor: That’s right. Yeah.

Tobias Carlisle: That’s a great idea for an ETF. That question was from-

Bill Brewster: FNDR, that’s your ticker.

Tobias Carlisle: What do you want to call it?

Bill Brewster: F N D R right? Founder.

Tobias Carlisle: Founder. Yeah. That’s a good one.

Jake Taylor: I’m sure Meb already has that locked up.

Tobias Carlisle: Don’t let Meb listen to this podcast. I think there’s no danger of that. That was from Jason in Alberta, Canada.

Jake Taylor: We never make Meb’s top podcast of the week, huh?

Tobias Carlisle: Yeah, we have. We haven’t?

Jake Taylor: I don’t know. I haven’t seen it.

Bill Brewster: I’m going to submit us this week.

Tobias Carlisle: Shout out to Meb, how are you? I got one from techno sleug in Eastern Europe. This is a big one. So what are your thoughts on the concept of margin of safety and beating the market returns? It seems there’s the conflict in the purpose of the concept.

Bill Brewster: I’m in.

Tobias Carlisle: So it’s a long question. So, are they in conflict? That’s the question.

Bill Brewster: No, you just got to be patient. And then you got to swing. And then you got to be right. So I think if you can do those three things, then you can outperform with less risk. It’s a lot harder in practice than it is in theory, right? I mean everything sells off… I mean, I’m sure there is some stock that is never sold off somewhere. But-

Tobias Carlisle: Yeah, it’s been around for like six months. It’s been listed for six months

Bill Brewster: Yeah that’s right. But sitting there with cash in your pocket is really, really difficult, especially when things are going up. And then when that event happens that gives you an opportunity, you got to be able to swing. I don’t think that you can look at most things most of the time and say, “Oh, there’s this huge margin of safety in this and I’m going to be fine.” I just don’t think that’s how the world works.

Jake Taylor: No I think that’s right. I think the market is generally pretty good at pricing things. In general. My understanding of the question when I read it was that… I think what he was getting at was like, doesn’t the return profile actually increase along with the margin of safety as the price that you buy goes down. And I’ve always thought that was kind of a logical explanation that academia tended to totally whiff on. I’ve heard Buffet talk about it a little bit, but it does seem very logical to me the more the price goes down, not only the more margin of safety I feel, but also the more potential return that I see coming.

Tobias Carlisle: It sort of breaks that idea that risk and return go together because it’s… All else being equal, if you’ve got the same company available at two different prices, the cheaper price gives you better returns and a greater margin of safety.

Jake Taylor: Well, let’s take it to a very logical extreme of, or illogical extreme, of if I could pay a penny per share for a great company, let’s just say Microsoft, do I think I would make more money or less than at 10 cents a share? Or a dollar? I think I’m going to make a lot more and I’m going to take less risk at a penny than I am at a dollar or $100.

Tobias Carlisle: Yep. Good answer. Okay. Moving on.

Jake Taylor: Easier said than done though.

Tobias Carlisle: That’s the problem. It’s always the thesis is… This is the issue that I have is that the thesis is always the thing that comes into question. Your reason for owning it is the thing that everybody is looking at the same data. You just have to figure out better than everybody else does that it’s not an issue and you buy it or you just ignore it completely and say, “Oh, it’ll be all right” and you buy it and it works out.

Jake Taylor: You have to be right and you have to have everyone agree with you, but later.

Tobias Carlisle: Eventually.

Jake Taylor: Eventually.

Tobias Carlisle: Whose line is that? It’s that Greenplum?

Jake Taylor: Jim Grant.

Tobias Carlisle: Jim Grant. That’s right. sorry Jim. I know you listen. I got number three. As an early investor, I read and listen about so many great investors who have different strategies, Buffet, Huber, Ackre, Graham, et cetera. How do the three of you stick with an investment strategy? Thanks, Thomas Duncan.

Jake Taylor: No offense, but Huber made the Mount Rushmore there?

Bill Brewster: Huber can write man. Why you going to Huber?

Jake Taylor: I’m just joking.

Bill Brewster: Sorry John. I know you’re listening too. Jeez, come on man.

Tobias Carlisle: I’m going to get John on the pod. I keep on saying that. I’m a big fan of John’s.

Bill Brewster: John’s great.

Jake Taylor: I am too. I was just teasing.

Tobias Carlisle: I read his article about that share price moving around relative to the fundamentals of JP Morgan once a year. And I say it about five times a year.

Bill Brewster: Yeah, John’s great.

Tobias Carlisle: So how do you stick with your strategy? How do you not slip around and do something else?

Bill Brewster: I can’t say I don’t. I mean, in the last year, I’ve owned Netflix, JW Nordstrom, Delta, I mean, you could argue there’s some style-

Tobias Carlisle: Some slick logical profile there.

Bill Brewster: Yeah. You could argue that there’s some style drift in that. So my dad and I were talking about this. And I think that Nordstrom was never this argument that it’s going to be this business that no one else sees. It was an argument that the market is pricing this thing like it’s going to die tomorrow. And with the balance sheet, you could take the working capital out of it. I mean, I get that there’s problems with this, right? But it’s not in runoff. So you can’t just liquidate it. It’s not the right way to value it. But there’s just a lot of things that are going on in that entity that I thought it was too cheap.

Bill Brewster: Delta, I’m really comfortable with where I think it’s going to be in 10 years. And Netflix was a little bit more speculative. I mean there are different lenses that I think you’ve got to look at different investments through. To the listener my best advice if you’re trying to figure out who you are is study these different people. Try to see what they own and try to figure out why they own them. I mean I think I had mentioned them earlier, Bill Miller’s portfolio is really, really interesting to look at and try to back into why do you think this guy owns what he owns? Go have fun doing that, right? And then figure it out. Whatever resonates with you, buy. Or don’t.

Tobias Carlisle: What do you take from Bill’s portfolio?

Bill Brewster: Oh man, he has crazy stuff. So he’s long American airlines. Because I think that his general thesis is the leverage… He was early on it so… But I think he still holds it because he sees the debt pay down accruing value to the equity and I think he thinks they’re going to be very free cashflow positive going forward. He owned restoration hardware super early, so I think he was willing to make a bet on change. He pitched ADT, which is arguably an overlevered home security company being attacked by Google. He pitched that in September last year and it’s ripped. I mean there’s a lot of different ways that he sees the world.

Tobias Carlisle: How is Google going after ADT?

Bill Brewster: Well they’re doing all these home…. Yeah, all these home security-

Tobias Carlisle: Doesn’t Amazon own Ring?

Bill Brewster: Well all of them are coming. That’s sort of the theory. I mean alarm.com is a cool company that sort of monitors a lot of your home stuff. And then what else? He’ll take a swing on a biotech. That guy sees… I think he’s very good in general at seeing risk and return and measuring it within his perception of outcomes.

Jake Taylor: I was going to say my advice to a young investor would be get an investment journal going, write down not only your predictions about like, “Oh, I think I’m going to make money here,” but write down your predictions about the business itself and keep score for yourself. I think that’s… You have to close that feedback loop to really start learning about yourself, about what you understand, about how the world when it throws you curve balls and what you can learn from them. You have to get the reps in, but I think you can learn much faster if you keep score. And I unfortunately I don’t think that that’s actually common practice because it takes a little bit of work and it’s annoying to do that.

Tobias Carlisle: Yeah. Start a blog, do it publicly.

Bill Brewster: I actually like that-

Tobias Carlisle: Do it anonymously if it makes you nervous.

Bill Brewster: Yeah. The only thing that I don’t like is I don’t like doing public pitches. That [inaudible 00:50:21] pitches really rubbed me the wrong way.

Tobias Carlisle: You’ve got to a point now where the issue for you is consistency bias, right? Like you want to be able to put a position on, change your mind, take it off, and you feel like you’ve made this public commitment to the position. If you’re just starting out, they’re not going to be that many people reading your stuff. It’s mostly you reading it. The point of writing these things down is so when you come back to it five or six or 10 months later or a year later, you remember why you bought this thing. Cause you look at a lot of stuff and you just, sometimes you forget why you’re in something. It just becomes three letters. It just becomes a ticker and then you can’t remember what you did, and you need to be able to hold yourself accountable. You thought this and you made a mistake for this reason. Then that goes in your list of things of mistakes that you have to be careful not to make in the future.

Jake Taylor: And it’s very easy to look back and think, “Oh yeah, I knew that already.” Or “”I knew that was going to happen. Well you didn’t write it down. So maybe you actually didn’t know it. And we’re all susceptible to painting a bullseye around wherever our arrow landed.

Tobias Carlisle: As to what style. I love going back and reading Michael Burry’s letters. I think it’s sort of an under recognized part of Burry’s skillset that very early on he said, you can buy net nets, you can buy these sort of earnings power type companies that are just cheap on some sort of P multiple or something and go, or you can buy these growth companies. And I recognize that you’re going to get more sure returns out of the net nets and the really good compounders are going to be very hard to find. So they’re not going to be very many of them. Net nets are hard to find too.

Tobias Carlisle: So in the middle is going to be the bulk of what you do. And he wrote down all of these positions and very early on he was good across all three of those areas. And so what happens in the market is sometimes growth gets very expensive and you want to be doing net nets or comp or the earnings power or whatever the case may be. You want to be doing the thing that is screaming at you. And if you’ve only got one skill set and you can’t move on to the other ones, then you’re limited.

Bill Brewster: Yeah. Having some flavors of valued diversity.

Tobias Carlisle: And avoid the circle of competence thing. It’s sort of a thing that I kind of hate.I recognize why Buffet does it and I think it’s great once you’re an experienced investor yeah have a circle of competence. What he’s saying sometimes I think when he says I can’t figure it out, what he means is no one can figure this out. The airlines might be one of them. No one can figure this out. For a young investor to say that thing’s outside my circle of confidence is ridiculous. Get it and figure it out. Rate it, rate everything in the industry. You’ll figure it out.

Bill Brewster: No, I think that’s right. And if you’re young and you’re starting out, you got to make a bet. There is no truer statement in my opinion, that you don’t know what you own until you own it. And researching something and then living something is just completely different. Feel that. Feel the emotion and figure out, do I… If I believe in deep value and I’m not willing to own the business risk of GameStop, is there another way that maybe there is a product out there that can solve my need? I don’t know. Maybe, right? Or maybe I just want to index in the S and P. Or maybe I want… I don’t know, but you got to do it to get to the answer that you need.

Jake Taylor: I think paper trading doesn’t get you there because the emotion is not the same. I mean it’s a whole different ball of wax when it’s… And I’d probably want to pay early cheap tuition if possible and not wait until you can roast a decent amount of money.

Bill Brewster: I also think I mean it’s, I somewhat overdone I think, but getting to know who you are is really important. I mean there is a lot of guys out there that have done well, that use technicals, that use momentum, that sort of identify trends. And they’ve done well for themselves. It’s not the game I would like to play, but that’s fine. There’s plenty of money out there for people to make. It’s just… I have found, I have made mistakes when I’ve tried to be somebody else.

Tobias Carlisle: Just before we go, there’s no more questions from the mailbag, but one thing that I did see a lot of at the end of this year, it seems like every Twitter user who I follow has had an absolute blockbuster year.

Jake Taylor: Victory laps.

Tobias Carlisle: 70% to 115% that feels to me… That’s the 90% confidence range. So if you’re… The median being like 100% return for the year. If you’re not 100% return for the year, then you’re bullshit.

Bill Brewster: Yeah. That’s been interesting for me. I’ve been struggling a little bit with that. Andrew Walker wrote a really good blog post at yet another value blog about why he thought that that was not a good practice. And I’m going to violate it cause I’m going to write a letter here in a little while once all this peacocking sort of goes away and I can be a little bit rational about it. But it was interesting because I was really proud of the year that I put up. And then it’s like, “Oh man, I’m just sort of a turd wading along the the world.”

Jake Taylor: I’d be curious to see a decomposition of the returns, whether it was… Was it business fundamentals that changed in the last year? Or was it the sentiment that that carried you? Was it, I don’t think it was dividends probably. Right? So there’s only a couple of ways to figure out what the returns are.

Tobias Carlisle: It was a particularly-

Bill Brewster: Also I’d like to know, to be perfectly candid, if it’s just bullshit or not.

Tobias Carlisle: I think they’re real. I think that-

Bill Brewster: Well I’m sure some are-

Tobias Carlisle: But what do you get out of telling everybody that you’ve got a return that you didn’t? No one cares. It’s like, “Oh good for you. Wonderful.” I think they’re real.

Jake Taylor: There’s some fund to funds looking to snatch you up. Right off the Twitter waiver wire.

Bill Brewster: I saw you got them Twitter returns.

Tobias Carlisle: But that does happen. There are lots of guys who’ve got their jobs… And I know I can think of at least two who’ve got jobs from the quality of the research that they were doing and publishing on Twitter or on a blog rather tha the returns that they were generating, let’s say. It was sort of more the quality of the thought process than the returns. I just think, but what it tells me is that it has been a very good year for a value guys who are more of a sort of DCF style value guys. It’s been a good year for those guys and that’s good. They should be congratulated.

Bill Brewster: I will tell you one thing that makes me pretty nervous is I have my IRA that I do not treat as nicely as I treat my true portfolio. And that thing ripped this year.

Jake Taylor: This is your burner account?

Bill Brewster: Yeah, pretty much. But I mean I think it was like 45 or 46% that I put up in that and I mean there’s some options in that. But makes me nervous when the account that I am less prudent with returns that.

Tobias Carlisle: That’s always going to be the case though. In a good year you’re more leave it silly account is going to do better than your more careful account. And in a bad year you would hope that your more sensible account does better.

Bill Brewster: You would I-

Tobias Carlisle: That’s why you have the silly PA so you get all the gamble out in the silly PA and then you do the sensible stuff in your main account. You’ve got the account that you take to the race track you take to the casino and that one is defiled and you don’t care if you blow it all up. Cause that’s probably what’s going to happen. And then you have the one that you got to live on or retire on and that’s where you actually sit down and become an become an auditor or an accountant and you do sensible things in that one.

Bill Brewster: I’ll tell you what’s defiling the retirement account right now is those Tesla call spread that I sold this. Those things are taking on water every day saying, please stop.

Tobias Carlisle: That thing is based, I got to say.

Bill Brewster: It’s amazing, isn’t it?

Jake Taylor: It’s just over 70 was it $75 billion market cap now or something?

Bill Brewster: Yeah, it’s just been brutal.

Jake Taylor: Unreal.

Bill Brewster: I mean like come on, bulls, take a rest.

Tobias Carlisle: Lucky none of us here was smart enough to be short that for a quarter and a little bit. Oh wait, that was me. Damn.

Bill Brewster: Yeah, it’s at 4.70 Today. I mean, that’s crazy. That’s an 84 $85 billion market cap. What did I tell you guys? I said at 90 billion I start losing money. Well, we’re getting their close. Like quick.

Tobias Carlisle: Good on Elon. What a machine. Back against the wall. Got it done. Got to respect that.

Bill Brewster: Do I? Or do I have to get mad because I’m losing?

Tobias Carlisle: Don’t hate the player. Hate the game.

Bill Brewster: I agree. I agree.

Tobias Carlisle: Unforced errors.

Jake Taylor: We have a mutual friend who he likes to have one kind of spite trade per year always on and it’s just something that either annoys him or… I don’t want to live in a world where I’m not short that or whatever it is. And Teslas could be for some people that type of thing where you’re just like “I can’t live in a world where this makes so little sense.”

Bill Brewster: I like that idea.

Tobias Carlisle: I’m going to take the reverse. I would say I think you need to fade yourself. If there’s something that you just hate, that it colors the way you think about it, then take the opposite position.

Bill Brewster: Yeah, go full Costanza.

Tobias Carlisle: That’s the hitch. Or maybe you figure out a way to get there so you put your main position on the way you really feel and then you just hedge it with something that if you’re completely wrong, it pays off massively.

Jake Taylor: Like a market cap weighted index.

Tobias Carlisle: Well, it would have helped all of us this year I think. Maybe not. Maybe I’m speaking for myself.

Bill Brewster: No, I like that. That’s a good idea.

Tobias Carlisle: All right gents. I think we’ve come up on time. We’ll be around next week. Thanks very much.

Bill Brewster: It’s been fun. I missed you guys. The break? It was awful.

Jake Taylor: I know. I was kind of scratching, looking for that fix last Tuesday when we didn’t record.

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