(S02 E03) The VALUE: After Hours Podcast

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Summary

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

  • 3 Lessons Investors Can Learn From Rush Drummer – Neil Peart
  • The Right Tail – How Errors Of Commission And Omission Are Hurting Your Returns
  • Who Needs Moonshots? How Former Hollywood Mogul Barry Diller Built A $4.2 Billion Tech Fortune Out Of Underdog Assets
  • Heico Corp – The 47,500% Return: Meet The Billionaire Family Behind The Hottest Stock Of The Past 30 Years
  • If You Don’t Adapt In Investing You Get Left Behind
  • Find A Handful Of Multi-Baggers Using The ‘Y Combinator’ Investing Strategy
  • We’re At A Part In The Cycle Where The Sale Side Has To Chase Price Targets
  • It’s Hard To Tell Brains And No-Brains In A Bull Market
  • The Didier Sornette Wave And How It Applies To Markets
  • (Ep.48) The Acquirers Podcast: Steven Kiel – Transition Co’s
  • Fiat Chrysler, Peugeot $50 Billion Merger

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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Full Transcript

Tobias Carlisle: Let me get this intro done.

Jake Taylor: Yeah, get the intro in.

Bill Brewster: I don’t even know what I talked about anymore.

Jake Taylor: You should’ve recorded this whole time.

Tobias Carlisle: Hi, I’m Tobias Carlisle. This is Value After Hours. I’m joined by my two co-costs, Jake Taylor and Bill Brewster. Jake, what’s your topic this week?

Jake Taylor: I’m going to be, with the passing of Neil Peart, the drummer of Rush, I’m going to cover three lessons that Rush can teach us as investors.

Tobias Carlisle: And Bill, what are you talking about?

Bill Brewster: We’re going to talk about whether or not there is a way to capture more of the right tail in some of these investments, and whether or not focus on errors of commission has precluded some good decision making.

Tobias Carlisle: And I’ll be talking about Barry Diller and IAC and acquisition as a growth strategy. Coming up right after this.

Speaker 4: Tobias Carlisle is the founder and principal of Acquirers Funds. For regulatory reasons, he will not discuss any of 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: What’s the deal with Rush and value investing?

Jake Taylor: Yeah, I’ve got three lessons that Rush can teach value investors.

Tobias Carlisle: So who’s Rush?

Jake Taylor: Well, this started because last week Neil Peart, the drummer of Rush, passed away. And it turned out that there were more Rush fans out there I think than people realized.

Tobias Carlisle: Yeah, there’s a big outpouring of grief on Twitter. I saw that.

Jake Taylor: Yeah. And for good reason. The guys was an amazing drummer. But not only that, he seems like he’s a pretty amazing human. So let’s start with lesson number one, I guess. Let’s just jump right into this. So it’s 1976, and Rush has had three studio albums. They’re playing concert halls basically. They’re not big time. They’ve had one hit, Fly By Night. And their last album just flopped. The record company’s pissed. They want something very mainstream. Give the people what they want, right? Rush says, “No, not going to do that. In fact, we’re making a sci-fi concept album and the first song is 20 minutes long,” which is never going to be on the radio, right?

Bill Brewster: Wow.

Jake Taylor: So they doubled down on their own creativity because that’s what they wanted to work on. Now, the album is 2112 and it’s this story about all… It’s this kind of dystopian future where all individuality and creativity has been outlawed basically and the solar system’s ruled by the solar federation. And everyone’s controlled by these priests who basically they take orders from this big computer bank. I’ll let everyone put their tinfoil hats on and say like how much does that resemble the fed today? So there’s no music and there’s no art. And this nameless man finds this old, beat-up guitar in a cave and he starts playing it. And he takes it to the priests to show it to them. And I’m not going to ruin, I’m going to… It’s a spoiler. I’m going to let people listen to the song themselves.

Jake Taylor: So when I was about 10 years old, my dad, always been really into music, he brings me down to the basement where he kept the good stereo. He puts the headphones on me, gives me the liner notes, and he plays this song, 2112, for me. And I shed a little tear at that point. It was a moving… It connected with me. So everyone else, you can listen to is. And just really listen for the musicianship that these guys have. I mean they’re these farm boys from Canada, and yet the three of them individually are arguably the best at their instrument of anybody. It’s pretty amazing.

Jake Taylor: So the first lesson there is they’re down on their luck. Everyone wants them to do one thing, and they totally go on their own and they double down on what makes sense to them, what they want to work on. They’re really artisans of music. And I think good value investors today are artisans of studying businesses and taking advantage of that. So that’s lesson number one.

Tobias Carlisle: What is an artisan?

Jake Taylor: I would say someone who pays special care and attention to the task that’s at hand, that they’re working on, what they’re creating or producing.

Tobias Carlisle: Is it distinguished from artist? Is it artist is someone who does something for non-commercial reasons and an artisan is someone who does something for commercial reasons? I’m just asking, I don’t know.

Jake Taylor: I don’t know. Yeah, I haven’t heard those definitions that way. But maybe that does make sense.

Tobias Carlisle: I always understood that artisan was slightly lesser than an artist. Artist was someone who was doing it for the sake of the art and an artisan was someone who it was commercial.

Jake Taylor: Bill, any ideas?

Bill Brewster: Sorry. I got nothing.

Tobias Carlisle: I’ve derailed you, mate. Keep going.

Bill Brewster: I’m a little stuck in my own head thinking 2112 is the year that Tesla’s going to engulf the entire market cap of the world.

Tobias Carlisle: It’s going to get there faster than that.

Jake Taylor: Yeah, we’re on pace for much sooner than that, that’s for sure. All right, so lesson number two. It’s 1992 and Neil Peart, the drummer, he’s already been inducted into the Drummer Hall of Fame. He’s widely recognized as one of the greatest drummers to ever touch a drumstick. And he takes on a coach actually, this guy named Freddie Gruber who’s kind of a famous drummer coach and a drummer in his own right. And he completely reinvents the way that he plays drums. And he pulls in all this soul into it that before he was just so precise like a robot before. But now he’s talking about playing the space in between the drum hits. And he takes it to a whole nother level, right? So lesson number two for us is that even when you think you’re the absolute goat, there’s always room to be improving, working on your game, looking to reinvent yourself.

Tobias Carlisle: I like that one. I think that’s a good one.

Jake Taylor: They’re all good, Tobi. Come on.

Tobias Carlisle: And I love the fact that he went from… Well I haven’t heard the third one yet but I agree so far. I like it.

Jake Taylor: Yeah, fair.

Tobias Carlisle: But I like the idea of getting a little bit of soul in there too.

Jake Taylor: Yeah. I’ll let you figure out what that means for your investment process.

Tobias Carlisle: I’ll get a little soul in my Excel spreadsheets, syncopate the cells and things like that.

Jake Taylor: Yeah, exactly.

Tobias Carlisle: On the off beat.

Bill Brewster: Get down with some circular references.

Tobias Carlisle: Riff.

Bill Brewster: That’s interesting because the [Acri 00:07:21] article’s got me… I mean I’ve been pretty in my own thought process about that. It’s one of those-

Tobias Carlisle: Still reeling. Still reeling from the Acri article.

Bill Brewster: I’m just thinking on it, man. I don’t know that about reeling, right? But, look, that guy’s got a lot of wisdom so it’s not… I think that at least thinking about stuff like that is remaining somewhat stupid. So it’s fine if I get through this thought process and come back to my original answer, but at least I’ve questioned it, right? Which is sort of like this guy hiring a coach and going out and reinventing himself a little bit. I mean I don’t know where I’ll come out the other side of thinking through this, but at least it’s not staying still.

Jake Taylor: Well and isn’t that the real attraction of this whole game is that it forces you to grow? Otherwise, you’re going to get left behind. It’s always adapting to what you might be good at. And it pulls you into a better version of yourself if you really are dedicated to it.

Tobias Carlisle: I agree, mate.

Bill Brewster: You can do the opposite too.

Jake Taylor: Fair. Fair point.

Bill Brewster: It’s always pulling in some direction.

Tobias Carlisle: Well that’s an interesting point. I mean it’s kind of a truism of it that if you don’t adapt, then you get left behind. And by definition the people who are still in it are the one’s who’ve managed to adapt, and so you don’t see the ones who get left behind. But then also you have to be careful because there are lots of cycles where if you start doing what is popular in the cycle, you’re going to get whipsawed when we go back to a more normal… It’s devilishly difficult to do. I don’t know what the solution is but it is something that I think about a lot. And particular apt what you’re talking about, this market has been particularly kind to growthier value investors. It’s been a very, very good period for growthier value investors. So does that mean you want to start incorporating more growth into your forecasts? I don’t know. I mean every year that I have thought this is the year when we go back to a more normal cycle, that hasn’t happened.

Jake Taylor: You just keep turning it up to a… I thought it was already at 11, and now we keep turning it.

Tobias Carlisle: Yeah. We’re at 13 now I think.

Jake Taylor: All right, so lesson number three. It’s 1997, he’s on top of the world. His 19-year-old daughter dies in a car crash, his only kid. And 10 months later his wife passes away from cancer. Yeah, talk about just a brutal, brutal year. So he disappears and he rides his motorcycle around Northern and Central America for a year and covers 55,000 miles. And he says what brought him back from the brink was to just be out in nature like that and to see so much of the Earth and to reconnect with… Part of it was with how small he is in the world and insignificant really, but more look at nature and the amazing things and the beauty there. And he comes back and he ends up getting remarried, having another kid. I think the lesson for us there is that during difficult times maybe we shouldn’t be wallowing or looking to everyone else for the answers, and maybe we should be spending a little bit more time in nature, a little bit more time disconnected, a little bit more time with our own thoughts to process things, and it might serve us well.

Tobias Carlisle: That’s a good thought. I sort of think that I need to meditate on that. I hate to be filling up the air with nonsense thoughts but I don’t want it to be dead air either. So I don’t know, I need to think about that one. It sounds good.

Bill Brewster: Yeah. No, I think everyone has a tendency to think what’s going on in their own life is what matters. And, more often than not, it’s really not. So I agree.

Tobias Carlisle: Well what does matter?

Bill Brewster: I don’t know if that’s a dead comment or not.

Tobias Carlisle: What does matter?

Bill Brewster: Well, I mean other than my family and stuff, I don’t know. My portfolio really doesn’t, you know? I mean my ego wants it and I want to be known as somebody that does this well. But the world doesn’t really care if I’m here or not. So as long as I’m, I think, being prudent… I found the Druckenmiller interview pretty interesting. And listening to him talk about how his portfolio is now that he’s running his own capital versus how much risk he might be willing to take if he was running other people’s in the race. And he said it-

Tobias Carlisle: What did he say there? Did he take more or less?

Jake Taylor: Didn’t that feel backwards when he said that?

Tobias Carlisle: Yeah.

Bill Brewster: It did seem backwards because a lot of the times he was like, “You know, I’d probably be taking more risk if I was still in the game. But now that I’m running my own money, I’ve sort of backed off the risk.” And maybe that’s something that I should keep in mind. I think I probably have not hit the accelerator as hard as I can because there’s real consequences to messing that up. And I think that’s true if you’re participating in a fund structure too.

Tobias Carlisle: Maybe what Druck said is impolitic but true. Everybody likes to say, “You know what? I’m most careful when I’m running outside money,” but maybe… I mean that’s why you want to see the manager with lots of skin in the game, right?

Bill Brewster: Yeah, that’s right.

Jake Taylor: Yeah. I think the lesson is to the LPs in that message of, “Listen, the incentives are for these guys a lot of times to be swinging for the fences and trying to make a name for themselves, not necessarily to steward your capital through difficult periods.”

Bill Brewster: Well, and it’s especially true in a lot of private equity funds. I mean that incentive structure is such that at some point… I mean I’m involved in a real estate one and they tend to pull down a capital call every quarter. And I almost feel like I think they’re doing good deals. I don’t think that they’re doing stupid things. But sometimes I wonder, “How much are you pulling in just to get your fees going?” Right? And your carry.

Tobias Carlisle: What happens if you don’t meet a call?

Bill Brewster: If I don’t meet a call?

Tobias Carlisle: Yeah.

Bill Brewster: Then I’ve defaulted.

Tobias Carlisle: But what happens to the money you’ve already invested? Do you forfeit that?

Bill Brewster: I mean I would imagine… Yeah, I’m pretty sure they have a claim to the extent that… I mean they would probably try to sell my interest to somebody else. But there’s all kinds of penalties with that.

Jake Taylor: You don’t just get diluted by the other money or something?

Bill Brewster: I think that you may. I mean I would need to go through this. But I know that there are fees associated with it, and they’d probably place your slug with a different investor, is my sense. But I don’t know.

Jake Taylor: And they’re calling every quarter?

Bill Brewster: Pretty much.

Jake Taylor: Interesting. There can’t be that many deals out there that regularly, right?

Bill Brewster: Yeah, well I mean that’s part of the question, right? But I do think they’re good at what they’re doing. But I do question the incentive structure and how they call some of that.

Jake Taylor: So barber, do I need a haircut this quarter?

Bill Brewster: That’s right, yes.

Jake Taylor: Oh, I do. Shoot. All right.

Bill Brewster: And then the other thing that I said to somebody at a family office, and he hadn’t even thought of it which makes me terrified of how that family office operates. But the difference between their marketed IRR and my IRR is so different…

Tobias Carlisle: That’s some voodoo right there.

Bill Brewster: … when they’re calling. I’m sitting here in cash waiting for a capital call. My IRR is from the day that I’ve committed. There’s is since they called it. And he was like, “I didn’t even think of it that way.” I said, “Well, I mean do you even know the game you’re playing? That’s terrifying, man.” But anyway, I don’t know how we got off that tangent.

Tobias Carlisle: I think it was such a profound point that Jake made that we couldn’t possibly talk about it for very long.

Jake Taylor: Move forward from that.

Bill Brewster: That’s fair.

Tobias Carlisle: We have to put this podcast in another category.

Jake Taylor: Yeah, I guess maybe I wasn’t After Hours enough.

Tobias Carlisle: It’s a good thought. I mean I haven’t had enough things happen and as badly on that scale to had to have dealt with it. So I haven’t thought about it enough, which is very lucky for me.

Jake Taylor: Me too. So Bill, what’s your topic today?

Bill Brewster: Piggybacking on the Acri article thought, right? I had sent out into the airwaves of the Twittersphere that I thought that it was potentially not a mistake. My question was why is a lack of errors of commission so revered in this game when the right tail can do so much of the work?

Tobias Carlisle: I thought that was a very interesting point. I’m glad you brought that up. Let’s talk about that.

Bill Brewster: Good. I sort of in the conversation diverted a little bit of the conversation to GameStop because I had said, “If there’s not much of a right tail then I think an error of commission is almost certainly and error. But if there is the possibility of a right tail, then I don’t think that you necessarily made an error. That might just be probabilities manifesting in a negative way.”

Tobias Carlisle: Let’s just define right tail. What does that mean?

Bill Brewster: Well yeah. So that’s part of it, right. I mean it’s all a risk/reward skew. So if you think GameStop is a 10 cent dollar and it could 10X or 5X or something like that, it’s got plenty of right tail. I didn’t mean it just as, “Buy compounders and let them go forever.” That wasn’t really my thought process. What I was really getting at is I feel like Buffet particularly is so revered for not making errors, and I have massive respect for his track record. But the other side of it is what if he had bought Google when he said he should’ve? And how do you balance that-

Tobias Carlisle: Stick a billion in.

Bill Brewster: Yeah, that’s right. I mean, whatever. So I don’t know, it’s just the thought that I was coming upon. And I think historically I have avoided things because I haven’t wanted to make an error of commission. In retrospect, I don’t know if that’s the right thing. Certainly, looking back today, I probably should’ve pulled more triggers. But you could say that about a lot of different things today, so I don’t think today is the right framework. And are you right for the right reasons is a whole nother discussion. But that’s what was on my mind.

Tobias Carlisle: I thought it was very interesting. And it helped me. I’ve been thinking about it too in this kind of context, right? So we’re in this market right now which seems to be rewarding very high-growth companies, and I have trouble getting comfortable with those companies. But maybe the way through it is to say… So Y Combinator, you guys familiar with the Y Combinator model?

Bill Brewster: Yeah.

Jake Taylor: Mm-hmm (affirmative).

Tobias Carlisle: Where they every year they take in, I don’t know the exact number but it’s something like this, say 100 small entrepreneurs who have startup ideas. And I think they seed them with $100,000 each, which I think means that they’re committing $10 millions in capital in any given year.

Jake Taylor: The math checks out.

Tobias Carlisle: Yeah. I just made that up on the spot, but it’s something like that. It’s roughly that kind of scale, like many, many small bets, with the idea that if you have lots and lots of these little, small bets, one of them or several of them… The traditional model for a VC fund is to have 10 positions, and you know that a handful are going to be massive winners, basically a handful will break even, and the rest are losers. And the idea is that the massive winners make so much money that the whole fund does really well. So their approach is you got to get lucky to get one or two out of 10, you got to get less lucky to get 20 or 30 out of 100. So you just seed a lot of these little positions.

Tobias Carlisle: What I interpreted what you were saying, Bill, was that you’re going to have a lot of these losers, and it’s very hard to distinguish between the monster winners, the Shopifys and the Netflixes and so on. So what you should do is you should have lots and lots of these small bets, knowing that many, many of these are going to be errors of commission. Because in this instance, making an error of omission is the worst error. So you want to have a tiny little part of all of these businesses that are going to go up 10, 20, 30, 60 times. And that’s how your portfolio works. So you take a kind of angel VC model and you put it into the public market.

Bill Brewster: Yeah, that was a bit of what I was thinking. I mean certainly you don’t want to make it with a concentrated bet. But Shopify was something I was looking at. I couldn’t quite get there. I don’t know, would it have been smarter, rather than having a hurdle that says, “I have to be able to put 5% of my portfolio into this,” is it enough to say, “Boy, I think this thing has a very legit product, a super long runway, and could work from here, so maybe a 1% position makes sense today.” And if it sells off big time, you can still come over the top of 1%. That’s not going to kill you. But right now it’d probably be 4%. That’s good.

Tobias Carlisle: And if you love the position. Or if you love the underlying business and it’s the valuation that you can’t get comfortable with, if you put in a point and it backs off 50%, now you got price, stick in a point, you’ve still got a fairly small exposure to this thing. But now you’ve got your price, you got 1.5% in it. Maybe you take it up a little more even then. I think that’s a smart approach. I think there’s something really interesting in it.

Bill Brewster: It’s part of what I’m thinking about, yeah. There’s some of these that I can’t get there on valuation. But for the really good ones that I think are really awesome, does it make sense to have a little bit of exposure? And then, to your point, if it sells off, as long as my assessment of the business hasn’t changed, buy a little bit more.

Jake Taylor: I would push back to challenge that at least my understanding is that VC funds have not returned very good results as a category. So maybe that’s not something you’re looking to emulate.

Tobias Carlisle: I think that they say if you divide the VC universe into four, the very vast bulk of the gains are in the top quarter of VC funds. And the reason for that is, unlike public market investing where any… can open up a brokerage account and take a little bit of Shopify, you need access to get the good investments in VC. And part of being a successful startup is I got Benchmark to invest in me.

Jake Taylor: Right.

Tobias Carlisle: That’s the signal. It’s not just money, they want the brand. They want the imprimatur of somebody else to say this is a worthwhile investment.

Jake Taylor: I always wondered how that word was pronounced.

Tobias Carlisle: I don’t know if that’s the correct pronunciation. But I think that’s what they used to call… That’s how they stamped the coins.

Jake Taylor: Yeah. Well, my understanding is that you almost, in a VC fund, you can’t afford that sin of omission. Because that one, if you miss it, if you don’t have the one Google in that population of startups, then you miss all of the returns basically. So you have to bet on everything to make sure that capture the one crazy unicorn.

Tobias Carlisle: Which makes it hard, right? It means you just got to…

Jake Taylor: Very hard.

Tobias Carlisle: Every guy who walks in the door, you got to stick some money in his company.

Jake Taylor: Here’s a check.

Bill Brewster: Yeah, well you’re certainly judging humans, right? And saying, “If I like this guy, I can’t let him walk out the door, especially if I like his product.”

Tobias Carlisle: Travis Kalanick.

Bill Brewster: Yeah.

Tobias Carlisle: He walks in the door, you cut him a big check.

Bill Brewster: There’s clearly a tension with this. I mean you can’t erode your criteria so much that you’re just spraying at everything. But I do think that there is some gray area here that can be applied. And I mean it’s almost like a Chris Meyers coffee-can portfolio type, 100 beggars. That would be where I would be looking to apply this sort of thought process, where it’s like, “I don’t know. This thing could really be huge and it’s got some traction.” Does it make sense to just sort of coffee can that with a small percentage? I don’t know.

Jake Taylor: Ignorant of valuation?

Bill Brewster: Not ignorant of but I mean, yeah, you’d probably stretch on some of these.

Tobias Carlisle: But it’s also true that all of the, and we’ve discussed this before but it’s worth reiterating that all of the monster winners, Overtime, Walmart, Microsoft, take your pick, have always come out of the most expensive… Everybody knows that they are the companies where they want to invest. The thing is that, even knowing that, everybody underestimates how good the end up being. But, then again, there’s part of me that thinks this is real bull market talk. This is real…

Jake Taylor: So late-cycle topic.

Tobias Carlisle: This is real Tesla tripling into the last six months.

Bill Brewster: When we’ve got the author of Deep Value talking potential VC strategies in the public markets, you know it’s late cycle.

Jake Taylor: Check. Check please.

Bill Brewster: I mean, look, it’s not how I run my money. My money is not at all in that way. But I just think that, personally, I do not belong in the same sentence as Chuck Acri, right? Or Tom Russo or Buffet or any of these guys. So to look at what they’ve done and not at least think a little bit about how could I improve my process, I think is just silly. So that was one of the thoughts that I had.

Tobias Carlisle: So I saw this funny comment on Twitter. Buffet or Buffet’s lieutenants, I don’t know who did it, but whoever’s taken the big position in Apple, and then it’s had this monster run. And then someone said, “Does he sell?” A question I got on Twitter. I think, as we discussed before, it’s so hard to get into those positions. There’s so much money that he’s put into it and rolling around. He can’t get out. He’s stuck in Apple now, even if he thinks it’s overvalued, he just has to say, “Well, we’ve front-end loaded our returns, but we’re still going to be in.”

Jake Taylor: Yeah, nevermind the tax consequences as well on that.

Tobias Carlisle: Yeah, right. You get liquidity in tax issues. There’s no way he’s selling out of that.

Bill Brewster: It’s not like with that kind of size you can go into the option market either, right?

Tobias Carlisle: Yeah, you can’t. That’s right.

Jake Taylor: Hedge out, yeah.

Bill Brewster: There’s no way that they could absorb it.

Jake Taylor: There’s no hedging out.

Bill Brewster: Yeah, I think the same thing. I mean I bet he’s just mad. I bet he’s stewing a little bit because he’s thinking about that the buybacks don’t go as far and he’s like, “Ah!”

Jake Taylor: Clogged my buyback thesis.

Bill Brewster: That’s right. I’m sure it feels good though also.

Tobias Carlisle: I bet he doesn’t think about it much.

Bill Brewster: We might be in the middle of the melt up. I mean it’s very possible. There has been a lot of stuff going on that’s…

Tobias Carlisle: The market has melted up. It has been bananas. Tesla and Apple have just gone vertical.

Bill Brewster: Yeah,…

Jake Taylor: I think it’s all these…

Bill Brewster: … I was talking to my buddy. The other day I said, “If you were buying momentum and trading technical, at this stage you’re just drawing a line straight up.” It barely even moves horizontally.

Tobias Carlisle: We’re at that part of the cycle where the sale side has to chase the…

Jake Taylor: Price targets.

Tobias Carlisle: … the price targets, yeah, which is bizarre. It’s funny to see it. I was still in law school when the dotcom boom was going on in real time. And I remember this happening. It didn’t really happen up to 2007, or I don’t remember it happening then. But I definitely remember it from 2000s. This is the real put your price target out, then just increase it by 50% and it’s still wrong, it’s still…

Jake Taylor: Trailing.

Tobias Carlisle: You got to update it, yeah.

Bill Brewster: Yeah, well that’s what they just did on Tesla, right? Somebody wrote it up $200 or 50% in what, like three months? Okay. That’s a lot that changed. They must have a real outlook change there.

Tobias Carlisle: You know, the one guy who I thought would’ve been getting this a little bit wrong, I think is actually getting it right. Ross Gerber, he’s very bullish on Tesla. When Ross Gerber says you should take a little bit of money off the table in Tesla, I think that we’re getting closer to the end of that run than the start of it.

Bill Brewster: It’s a frustrating world when Ross Gerber is proved correct, even if short term. But it is what it is. He has won on this one.

Tobias Carlisle: I think that he’s got a little bit more… I think he’s doing pretty well. He’s got Apple and Tesla right. Even if you can’t understand the method, it doesn’t mean there’s no method there.

Bill Brewster: Well, to be fair when I say that, he pokes at TSLA-Q I mean he’s into the game, right?

Tobias Carlisle: But TSLA-Q is too. Yeah.

Bill Brewster: I understand. So if the game frustrates you a little… I’m just frustrated that that player currently is winning because I like the research that TSLA-Q is doing more than I like the research that I see Tesla doing.

Tobias Carlisle: It’s kind of like bombing on the VCs right? The VCs come out and say, “When you’re doing an analysis, you should look at gross profits.” And every analyst out there, every stock market analyst, every guys who’s looking at real businesses is just like, “You guys have just discovered gross profits?” You don’t need it, right? Because they’re doing something different. I don’t know what he’s doing, but he doesn’t need the analysis that the shorts do anyway. It’s worked.

Jake Taylor: Let’s just say that it’s very hard to tell brains and no-brains in a bull market.

Bill Brewster: Well, you know what’s crazy is I’d been thinking on that particular stock what is the price action? And I can’t imagine some of the margin calls that people are getting.

Tobias Carlisle: On the short side.

Bill Brewster: Oh yeah, I’m sure when it was going down, I mean people pressed their bets. I don’t know, I hope nobody blew up over this. I’m certain people have.

Tobias Carlisle: Yeah, almost certainly.

Bill Brewster: Yeah. I mean it’s vertical price action. That is margin calls. It can’t not be.

Tobias Carlisle: The shorts have come down. The shorts have come down commensurate with the price action.

Bill Brewster: Yeah, because their accounts got liquidated.

Jake Taylor: Of course.

Tobias Carlisle: The funny thing is you can’t short it here either. Tommy Thornton, who does Hedge Fund Telemetry, I think. I hope I haven’t got that wrong. He came out and said he’s doubling his Tesla short here, which I think is aggressive. He’s using some sort of technical analysis, DeMark, exhaustion, that sort of stuff to look at it. He might be right. I’m not doing this to… analysis on it, but it looks like that Didier Sornette wave.

Jake Taylor: I don’t even know the words that you’re using right now.

Bill Brewster: I have no idea what you just said, but sure. If you’re going to say it’s overextended, I agree with you.

Tobias Carlisle: Well look, this is interesting. So Didier Sornette, he’s was Taleb before Taleb was Taleb. And Sornette came up with the term… What Taleb calls a black swan, Didier Sornette calls a dragon king. And he named them dragon kings before Taleb called them black swans.

Bill Brewster: I think… kill swans. We can settle that debate right now.

Tobias Carlisle: Dragon kings kill black swans?

Bill Brewster: Oh yeah, for sure.

Tobias Carlisle: The difference between Sornette and Taleb is Sornette looks at the price action. You get that the line is going up and to the right. It’s still going up and down, but the wave is big. And then it gets to this point where every dip is bought so aggressively that it gets into this very, and this is the Sornette wave or Sornette bubble, every single dip is bought so aggressively until it just doesn’t dip and it sort of goes into this vertical price action from which point it sells off. The difference between Taleb and Sornette is Sornette says you can kind of predict these things. And Taleb’s whole thing is these things are unpredictable.

Jake Taylor: By definition.

Tobias Carlisle: And so Sornette might be trying to short whereas Taleb might say you have to find another instrument in order to express your view in this thing. So I lean more to Taleb’s camp but I just like the Sornette idea. I would never trade on it, I just like it. And I’ve seen… written about Sornette before.

Bill Brewster: So you think Sornette would be more likely to play an exhaustion move in Tesla,…

Tobias Carlisle: Yes.

Bill Brewster: … whereas Taleb would look at some of, I don’t know, some component part that traded correlated but was not quite as parabolic, and he would maybe short that?

Tobias Carlisle: So Taleb might express his view through volatility or something like that. So volatility may increase on the way up. So this is another interesting thing. This isn’t for the stock market in totality. Most of the time volatility is associated with a downward move. You get higher volatility as the market goes down. So the VIX spikes, the volatility index spikes as the market falls. And when the market is going up, volatility’s very low. That’s why we’ve seen very low volatility for a long time. But volatility started picking up again recently. And this is behavior that we saw in the dotcom bubble where there was so much upside volatility. Volatility was actually going up before the market crashed. And the volatility was quite high before the market crashed. Then, when it went down, volatility went bananas. So I think that we’re seeing that a little big now, volatility going up while the market’s going up. That’s why volatility traders, they’re in a nice position. They don’t have to be directionally right. They just sort of have to put on a trade that doesn’t get them vaporized if vol goes down, but leaves them open to massive gains if vol keeps on spiking.

Bill Brewster: I was looking at Beyond the other day. That’s another one that’s going nuts.

Tobias Carlisle: Yeah, back again.

Bill Brewster: Yeah. A lot of these names. Guys that I talk to on Twitter that tend not to be too valuation focused, even they’re saying, “My portfolio looks a little rich right now.”

Tobias Carlisle: What do you think is the cause of it?

Bill Brewster: I have no idea.

Tobias Carlisle: I think Jake and I are going to agree on it. What do you think is the cause of it, Jake?

Bill Brewster: FOMO?

Jake Taylor: Oh, I don’t know.

Tobias Carlisle: Go on, say it. Say it. If you don’t say it, I’ll say it.

Jake Taylor: Fed liquidity?

Tobias Carlisle: That’s what I think.

Jake Taylor: I don’t know. I mean I knew that’s what you wanted me to say, but I’m not sure if that’s true or not. Honestly, I have ratcheted down my confidence of understanding in this game so hard the last three years. I used to think I knew kind of which way gravity fell, and now honestly I don’t know. I think gravity might go sideways, I’m not sure.

Tobias Carlisle: It is curious though how closely… And there’s a correlation there, which is not to say it’s causation. But that fed balance sheet was being sold off and value starts working again. Fed balance sheet gets a vertical spike. And then you look at Apple and Beyond and Tesla and all of these things that are already rich start getting very, very rich.

Bill Brewster: I’m going to push back on Apple. I actually think Apple is not as crazy to me as some of the other things that I see.

Tobias Carlisle: I agree.

Bill Brewster: At least you have true cashflow underlying. I can articulate the bull case.

Jake Taylor: Can you get to a 30 multiple?

Bill Brewster: If you start doing relative valuation.

Jake Taylor: Yeah. Boy, that’s the dog ate my homework for this entire rally.

Bill Brewster: But I’m just saying, I mean I-

Jake Taylor: Well, compared to this it’s a pretty good deal.

Bill Brewster: That’s right. Yeah, and it’s self-fulfilling, right?

Jake Taylor: Yeah.

Bill Brewster: Because you’re like, “Oh, well Lululemon’s luxury retail, Apple’s luxury retail. Why doesn’t Apple trade at 35 times?”

Tobias Carlisle: I agree that Apple is different from those other two. But the reason that I raise Apple is just that from the bottom it had a very good run. Part of that was because it was undervalued and part of that is because Buffet invests in it so that gets a lot of attention from the value guys. Then it goes on a run so it gets attention from the momentum guys. And not it’s at that point where people who are buying it here are looking at the price action rather than the valuation route.

Bill Brewster: I think.

Tobias Carlisle: That’s what I think.

Bill Brewster: Yeah, you got to have a rosy outlook and a long time frame to be able to be right in my opinion on that stock right now which is why I sold it, which in hindsight was a major mistake.

Tobias Carlisle: That’s only a bull market mistake.

Bill Brewster: But if somebody could’ve fast-forwarded the world for me, I wouldn’t have sold.

Jake Taylor: Yeah, I’m in. You shouldn’t sell anything, you should just be buying everything hand over fist.

Tobias Carlisle: That’s right, don’t sell.

Bill Brewster: Probably why Acri lives in my head.

Jake Taylor: Could be. Tobi, we need to get to your topic.

Tobias Carlisle: Yeah. So I said last week that I wanted to do Barry Diller and IAC. I don’t really want this to be an analysis of IAC. I sort of want to do it more in the context, and I’m going to do a theme of, just because I’m interested in this investment strategy… So Berkshire Hathaway is the original, maybe not the original but the one that we all know, it’s the compound growth through canny acquisitions, through smart acquisitions, right? And so I had this question. Are the gains that they have achieved because… I mean I know the answer in relation to Berkshire is because Buffet is a great investor. Is it the nature of the companies or the businesses that they’re targeting? Is it the discipline that they exercise in making these acquisitions? Or some combination of both? And probably the answer is both. It’s un-… Anyway, I forget the word.

Jake Taylor: Satisfying, is that it?

Tobias Carlisle: Yeah, it’s unsatisfying. That’s the word I was looking for, as unsatisfying as that is. So there are a few examples of it. I think Barry Diller and IAC is a very good example of it. And then everybody knows Constellation and HEICO, HEICO? How do you say it?

Bill Brewster: HEICO, yeah.

Tobias Carlisle: HEICO.

Bill Brewster: Then you got Roper Technologies. And AB InBev, shout-out to 3G.

Tobias Carlisle: Well I’ll make a commitment to do all of those. I want to keep on going through. Because I’m kind of interested in what… But then you’ve got things like Valeant too, right? It doesn’t always work. And maybe Valeant was blown up more by the fact that the fraud or whatever the… Philidor.

Bill Brewster: Philidor.

Tobias Carlisle: The Philidor fraud. And maybe they were just overpaying too. So that’s a problem, right? And there’s lots of examples of conglomerate. Conglomerates were very hot in the ’60s. And these guys were doing all these acquisitions that are increasing their earnings per share by making acquisitions of slower-growing companies that had higher earnings per share. And that causes this effect where it looks like the entire enterprise is growing earnings per share very rapidly. I don’t actually see what the difference is between what those guys are doing and what Berkshire and those other guys are doing. But I think I’ll leave that kind of analysis to the end of it. But let’s just talk about Barry Diller and IAC because I think it’s kind of interesting.

Tobias Carlisle: So Diller was already pretty successful. He’d been in QVC. QVC had got taken over and he personally made about $130 million. So in 1995, he’s sort of looking for something to acquire. And he gets Malone to back him into the Home Shopping Network, which was basically just a collection of these UHF stations. But then he goes on this phenomenal investment spree from thereon in. And I’m kind of interested in… I don’t really know what the theme is but I’m interested in it. In 1997, he bought the USA network or he bought a part of it for $4.1 billion, which four years later he flipped for $11.1 billion. Buys half of Ticketmaster in 1997 for $210…

Jake Taylor: That was a monster deal there, yeah.

Tobias Carlisle: … he buys the other half in 2003. They spin it 2008 for $15 billion. 1999, Match.com, puts in $1.6 billion, currently worth $17 billion. Hotels.com, $244 million, wraps it into Expedia for $1.5 billion dollars, currently worth $20 billion. He’s got this long list of deals. You can see it on the site. The site is great because it lists out each year and what they did in each year in this one webpage that you can scroll through. So basically the company now is he’s got ANGI Homeservices.

Jake Taylor: List, yeah.

Tobias Carlisle: Yeah, which is part of Angie’s List, and Match. 85% roughly of each of those is basically the $20 billion market cap of IAC is its totality. They got some cash in there they’re going to spin off some of these businesses. They’ve also got some really clever little things in there. So one of them is Ask Jeeves. Ask Jeeves still gets 120 million people through a month. It’s kind of amazing.

Bill Brewster: They turned that around too. That was pretty much a dying asset and they turned it around.

Tobias Carlisle: Well, it’s just running for cash for it.

Bill Brewster: Yeah, actually Kara Swisher had interviewed the guy that turned that around. It was an interesting story because she was commenting on how rare it is to be able to turn an internet property. And that fact that they could do it was… I mean that’s really against the base rate.

Tobias Carlisle: I mean do you ever hear of Ask Jeeves anymore, Ask.com?

Bill Brewster: I do not.

Tobias Carlisle: Do you ever go there?

Bill Brewster: No, I…

Tobias Carlisle: Who’s going there? What’s it for?

Jake Taylor: I’d have to google it to find it.

Bill Brewster: Yeah, that’s right. Yeah.

Tobias Carlisle: In addition to that, there’s some other stuff. So they bought Vimeo, which was just getting destroyed by YouTube. This 32-year-old Harvard grad comes in and says, “You should use it for putting up movies and things like that.” So they make $200 million a year out of Vimeo now. So they’ve got $5 billion in revs, $20 billion market cap, $3-$5 billion in cash, going to spin out these other things, going to have some cash, going to be totally renewed where I’m thinking that they’re waiting for the market to come off a little bit and then they’re just going to on this monster buying spree. So the article that I got a list from, which is great, is Who Needs Moonshots? from Forbes. And I’ll stick it in the notes because it’s a fascinating read. I got to say I didn’t really know much about Diller before I read this. I’ve read his book, but the book ends before all of this happens.

Jake Taylor: Yeah, because before that he was in charge of Fox and had a pretty successful career already as a executive in the media world.

Tobias Carlisle: Right. He created Fox basically.

Bill Brewster: Worked his way up from the mail room if I’m not mistaken.

Tobias Carlisle: That’s right.

Jake Taylor: So, yeah, it’s a fascinating case study of… Maybe I’m wrong but if I had to categorize the kind of deals that he’s looking for, it’s things that are kind of a little broken and that you might be able to cashflow if you can sort of get a few things figured out. And then things that seem like they’re just going to be eventualities. So, for instance, like Match. I think in that article it said that his nephew or something was saying, “You know, I think everyone’s going to be”-

Tobias Carlisle: It was Diane von Furstenberg’s son, his wife’s son.

Jake Taylor: Yeah. “They’re going to be finding mates on the internet.” And he’s like, “Yeah, you know what? That makes sense to me.” And so you go spend $4 billion to get out in front of that wave. And he’s been really good about surfing waves.

Bill Brewster: The dude understands the right tail.

Tobias Carlisle: Yeah, well that’s exactly right. I was thinking about it in that context.

Bill Brewster: I mean that’s a $4 billion bet on the right tail of dating.

Tobias Carlisle: That’s a big bet.

Bill Brewster: That’s not a small bet.

Tobias Carlisle: I like that. The only thing that I could kind of glean from the article that gave me any insight into it at all was this one part where he said, and this is Jeffrey Katzenberg commenting on Diller, “Barry would always say there’s no natural momentum to a movie. It must be driven by somebody’s belief and passion.” And I kind of thought every single movie is it’s own little business. You’ve got to start a business every time you make a movie. That’s a brand new business. That’s why movie making’s hard because businesses like to fail. So basically the only thing these things kind of come into life is through just the will and persistence of a single individual, which has been him in many instances. But it’s not in IAC, all he does is buy and invest and flip.

Bill Brewster: Yeah, and they have control, right? That matters.

Jake Taylor: Bad News Bears was one of the movies that he made.

Tobias Carlisle: That was about Bad News Bears, yeah.

Jake Taylor: Yeah, isn’t that kind of what he’s… Buying something like Ask Jeeves is like a Bad News Bears thing. “I got a good price for it and maybe I can wring something out of these assets.”

Tobias Carlisle: I’m just trying to take out, is there anything to be learned from what they’re doing? Is it just switching? I mean for Ask Jeeves is it just we’re not running it for growth anymore, we’re not trying to compete. We’re just going to try and get every last dollar of cashflow out of this thing that we possibly can.

Jake Taylor: I think that from a capital allocation standpoint, it’s actually very heroic to not try to build an empire around your one asset and to keep just plowing money into it until it gives up the ghost. To have the foresight and the fortitude really to wind something down in a profitable way, I honestly… They get a bad name as vultures, but there aren’t enough I think vultures in the ecosystem today. And that’s a bull market thing as well. There’s not as much debt around so the vultures have kind of gone extinct. But I’m pro-vulture actually from… of capitalism.

Tobias Carlisle: It’s reminiscent of Buffet, right? It’s reminiscent of Buffet with Berkshire.

Jake Taylor: Yeah, for sure.

Bill Brewster: Yeah, and I think one of the things that is important from a minority shareholder standpoint with somebody like IAC is they have proven the agency costs are not where you’re going to have leakage, right?

Tobias Carlisle: Say that again. What does that mean?

Bill Brewster: So my best example that’s coming to my head is GrafTech, EAF, right? I am pretty sure. I might be mistaken on this. But I’m pretty sure that Brookfield tendered their shares to EAF at $22 a share when the quoted market value was $12 a share. So if you look at what I perceive Brookfield did in the deal when they bought Howard Marks’ firm and some of these other issues that people bring up about them if you get talking about Brookfield, I’m not sure that you want to be on the other side of them. I think that you could run agency cost risk because, especially if they’re controlling the votes, you may not actually realize what you think you’re going to realize. I think that’s one of the things that people revere so much about Buffet is he never let agency costs be the reason that his minority, I’m going to call them LPs, they’re shareholders, but didn’t realize the benefit of the compounding. And I think Diller has done the same thing. And Malone has done the same thing, though people knock Malone. But if you follow what he does and you read the filings, there’s no malicious hiding. It’s just you got to do your work.

Tobias Carlisle: I think he’s just run that to not pay tax, right? I mean that’s just achieved through the letter of the law. They’re not doing anything particularly aggressive. They’re just spinning off asset and selling them.

Bill Brewster: Yeah. Yeah, I think that’s right. But I think some people take issue with how some of the trackers get put together and stuff like that. Look, it’s complicated, right? I mean if you’re just some retail person that’s not doing any homework, you could end up getting some leakage on some of that stuff. But I don’t think that that’s their shareholder base on average. I mean they sort of have a more sophisticated shareholder base. I look forward to what you’re going to do. I’m going to try to work through it with you because all those companies are super interesting. I think I had sort of joked about 3G, but it is real. I mean what they built in AB InBev is freaking incredible where they came from. I wonder… Well, I don’t wonder, I think they’ve probably hit this point where the acquisitions now have to be so big to move the needle that I think you could argue Kraft Heinz was sort of forced in this. AB InBev SABMiller one probably was too.

Tobias Carlisle: Are they doing what Jake would describe as the N plus one? They need to be back to N or N minus one?

Bill Brewster: Yeah, I mean everybody asks me. On AB InBev people are like, “Where’s the next growth going to come from?” My answer is maybe it’s time to just pay down your debt and eat yourself. But that’s not in their DNA. So asking them to change who they are is not a fair ask. So I don’t know.

Bill Brewster: I don’t know what the commonalities are going to be but I think it’s going to be interesting. I bet it’s a combination of smart capital allocation, the industry you’re picking to go into, right? I mean software is really good, HEICO is aerospace after parts, those are pretty high-margin businesses. So it’ll be interesting.

Tobias Carlisle: Just on HEICO, I know a little bit about HEICO but not… I know that a lot of people who have studied it very, very closely so I don’t want to embarrass myself by saying what little I do know. But I do like the fact that they started out, it’s a father and two sons who I think the sons said, in the ’80s, “Let’s do an…” And they got dad, who was a I think Deloitte partner, he was an accountant, he put up the capital.

Tobias Carlisle: And they bought control of this busted, basically, listed company that was pretty small. It might have been a $30 million market cap. It might’ve been even less than that. And it was a spin-out that made the aftermarket parts. And I think they got a little bit lucky, but they understood then what they had stumbled upon. And then they set out to build an entire business that basically just kept on absorbing these things. And a lot of it is regu-… They spend a lot of time in Washington getting their parts approved and making sure that they’re better than the OEM parts. They don’t want a failure to ever be attributed to a HEICO part.

Bill Brewster: I mean you were going to say the words, but it is regulatory capture.

Tobias Carlisle: Regulatory arbitrage, that’s what I was going for, yeah.

Bill Brewster: Yeah, it is. And I talked to somebody that’s in that industry, and the barrier to entry to get your parts approved is so high. And going through the FAA, there’s only a couple competitors that can actually do it. So then it’s a matter of trying to price high enough that you’re returning capital to yourself but not so high that the regulators come after you.

Tobias Carlisle: Interestingly, they said they aim for a 15% gross margin, which is exactly what Costco does.

Bill Brewster: Yeah, that is interesting. Somebody’s going to get mad at me. I haven’t done enough work on…

Tobias Carlisle: No, I haven’t either. And I’m going to do a little bit more so that people can get really angry next week when I say this is how much work I’m going to do.

Jake Taylor: When you’re really talking out of your ass.

Bill Brewster: Yeah, you and I should have some hot takes, and then people will get all mad.

Tobias Carlisle: I guess we got to do the mailbag.

Bill Brewster: Yeah. One thing before we get to that. If anybody’s listening to this and they haven’t listened to your latest interview… What was it, Arquitos? Is that how you pronounce that?

Tobias Carlisle: Yeah.

Bill Brewster: Man, that was a good interview.

Tobias Carlisle: That’s an interesting one, right?

Bill Brewster: Yeah.

Tobias Carlisle: Steven Kiel from Arquitos. And he also runs the SYTE, S-Y-T-E, is the ticker.

Bill Brewster: That was awesome.

Tobias Carlisle: Yeah, that was a good one.

Bill Brewster: You don’t hear enough true deep-value conversations…

Tobias Carlisle: Deep-value wheeler dealers. Deep-value, special-situation wheeler dealers. The whole thing is balance sheet to income statement arbitrage, which I thought was kind of interesting. It’s a Peter Cundill. Don’t know anything about him. I couldn’t really track down much information on him. Does anybody know where you find some good stuff on Peter Cundill.

Jake Taylor: Yeah, he’s got a book. He’s a Canadian fund manager, wasn’t he? And I think he… I might be getting this wrong, but wasn’t he a Watsa acolyte potentially? But he has a book. What was it called? There’s Always Something to Do, something like that. So yeah, he’s a little known. He’s kind of off the radar though. You know, Canadians, we don’t pay enough attention to them.

Bill Brewster: That’s right.

Tobias Carlisle: I’ve got one mailbag question. This might be a little bit too detailed for this, but let’s just throw it out there and just work through it. We don’t have to give the answer. We’ll just work through the problem. “I’m a value nerd and right now I follow the Fiat Chrysler/Peugeot merger. Fiat Chrysler plans to distribute 5.5 billion euros to shareholders at closing of the deal, along with $1.1 billion ordinary dividend. Assuming the deal takes 15 months to close, I’m getting a 26% yield pre-tax based on a $14.11 current price. What are you thoughts regarding the merger and the cash distribution to shareholders over the next 15 months?” That’s from Corbin in Fort Wayne, Indiana. Thanks Corbin, good question.

Jake Taylor: Bill, I’m going to let you take this easy one.

Bill Brewster: Thanks. So knowing nothing about this deal…

Tobias Carlisle: It’s a merger arbitrage question.

Bill Brewster: Yeah. And what did you say the return was? It’s north of 20%, right?

Tobias Carlisle: 26% yield pre-tax. I think he’s saying on 15 months. So I guess the IRR is a little bit lower than that. Which I could calculate it but it’s going to be 22, 23, something like that.

Bill Brewster: Yeah. I mean I don’t know the answer to this question. I can tell you that kind of return is super interesting. The Agnelli family is really, really smart and I don’t see real realistic reasons why Fiat Chrysler shouldn’t be able to merge with somebody. So it seems to me to be a fruitful pond to fish in. I’m not sure I can lend any more than that. But it sounds like you’re thinking about it, right?

Tobias Carlisle: Yeah, I think that that process that he’s described is the right way to think about it. And I think that, worst case scenario, you end up buying Fiat Chrysler and Peugeot, I mean I don’t think that’s a bad outcome either.

Bill Brewster: That’s right. I mean I think whenever you’re playing the merger arb game, you want to think about, if this thing busts apart, what do I own and am I okay with that? That’s probably a less than, I don’t know, what? 30% probability that it doesn’t go through. But, like I said, I’ve seen it work.

Tobias Carlisle: I can’t handicap that. But I would be inclined to do that deal in special-situations portfolio.

Jake Taylor: Any concerns about the capital being sucked out of a very capitally-intensive business and hamstringing the company, and then you end up with maybe they have to raise later because they were over-aggressive on taking money out of the business?

Bill Brewster: Are we buying the stock to hold, or are we just playing the merger arb and then selling?

Tobias Carlisle: Well I own Fiat Chrysler, and I like Fiat. I’ve owned Fiat Chrysler for a long time. And it’s had a pretty good run since, I think it was 2016 or 2015, something like that, since I bought it. I actually bought it with… I leaped into it.

Jake Taylor: Tasty.

Bill Brewster: That is tasty.

Tobias Carlisle: Because it was one of those things that it was at five bucks or something. And I think that the options, the two-year options, were a buck or something like that. So I thought, “Well, this is probably one of those opportunities where if you get a good run out of it, you’ll get-”

Jake Taylor: It’s going to work or it’s not going to work. And those are they only outcomes.

Tobias Carlisle: It’s going to work a lot.

Bill Brewster: Pre or post-Ferrari spin?

Tobias Carlisle: That was post-Ferrari spin. Yeah.

Bill Brewster: That’s one I missed. Chalk that up on the you were a bonehead.

Tobias Carlisle: You weren’t looking at the screen. It was the cheapest thing on my screen, cheapest thing on my large-cap screen.

Bill Brewster: Well, Fiat I got a piece of, but Ferrari I always thought was too rich. And that was the wrong thought.

Tobias Carlisle: The Ensemble guys, when they discussed Ferrari, I was like, “Yeah, that’s great analysis. I missed that one.”

Jake Taylor: It seems so obvious in hindsight, doesn’t it?

Tobias Carlisle: Yeah.

Bill Brewster: Yeah.

Jake Taylor: This whole game is so obvious in hindsight, and so hard looking forward.

Tobias Carlisle: I recorded a podcast with Ensemble. If you’re interested in Ferrari, listen to that one because those guys have this great analysis. Everybody thinks of Ferrari as a luxury market, which it is, but something that would therefore be very sensitive to the cycle. But the interesting thing is that you have to kind of be a Ferrari aficionado, you have to have already expressed your love for Ferrari. And then they have limited edition, “We’re going to make 200 of these things.” And they call you up and they say, “It’s a million dollars. We’ve got you down for one.” And you’re allowed to say no. It’s not like you have to take it. But if you say no, you never get back on the list.

Jake Taylor: Isn’t that wild?

Tobias Carlisle: Yeah, it’s amazing.

Jake Taylor: I mean talk about exploding offers, in the Cialdini sense. I mean they’re really-

Tobias Carlisle: So you need to be a really price-insensitive buyer and you need to have a big wallet to be able to drive around in a Ferrari. So you’re really making a statement in a Ferrari, probably more than any other car.

Bill Brewster: Well, did you read the article about the guy whose job it is to say no to people that want to spend $2 million on a car or whatever? He’s just the guy that says, “Sorry, your my 51st best customer, and this only goes to the top 50.”

Tobias Carlisle: That’s a good place to be.

Bill Brewster: Brutal.

Jake Taylor: And those guys, they’re not used to no, right? Probably.

Bill Brewster: That’s right. Yeah, number 51 gets pissed off. I mean you start getting some questions, “What do I have to do here?”

Tobias Carlisle: But that’s why you got to take it when they say so, because 51 is standing there ready to take the car. And if you’re in the top 50 and you don’t, you just never get back on that list.

Bill Brewster: I’ve been saying that I need to do work on this forever. I don’t actually want to do it. But Volkswagen, they’ve got some brands in that entity. I mean I understand Lamborghini doesn’t have the same history, and whatever, that Ferrari does. But Lamborghini to me is modern art and Ferrari’s classic art. I think they can push some price on Lambos.

Tobias Carlisle: The Lambo.

Bill Brewster: But I could be wrong. Yeah, that thing’s sweet.

Tobias Carlisle: Buy it with your crypto gains.

Jake Taylor: How bad did you want a Countach when you were 10 years old?

Bill Brewster: Of course that was on my wall.

Jake Taylor: So hard.

Bill Brewster: So was the Porsche 911. And Porsche is also in that entity. So is Bugatti, so is Bentley, Ducati, even though it’s a motorcycle. I mean they got some brands.

Tobias Carlisle: I think that if you had some Tesla gains, you could use that to go and buy and Lambo.

Bill Brewster: Oh, for sure. I’m just going to buy…, who cares? It’s only going up.

Jake Taylor: How much longer before Tesla’s market cap’s bigger than Volkswagen?

Bill Brewster: Yeah, that’s right. Maybe Tesla will just do a stock acquisition of Volkswagen, get some scale.

Jake Taylor: That would be gangster move.

Bill Brewster: That would be.

Tobias Carlisle: We’re coming up on time fellows. So let’s do the wrap up. Thanks very much everybody. We’ll be back next week. You guys what to say goodbye?

Bill Brewster: Have a good one, folks. See you next week.

Jake Taylor: (singing)

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