(Ep.51) The Acquirers Podcast: Jon Boyar – Private Equity – Private Market Value, Spinoffs, And Super Mario Gabelli

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In this episode of The Acquirer’s Podcast, Tobias chats with Jon Boyar. He is the JD/President of Boyar Research, which is one part of the value investing firm, Boyar Value Group. the Boyar family of companies has successfully navigated through many fads, gimmicks and market volatility over the past 40 years. During the interview Jon provided some great insights into:

  • Super Mario Gabelli – Look At Every Investment Through The Lens Of A Knowledgeable Acquirer
  • Why Have Spin-Offs Significantly Under-Performed Over The Last Decade
  • Investing Alongside John Malone Leads To Outstanding Returns
  • The Problem With Investing In Cyclical Businesses Is You Have To Be Right Twice
  • Great Consumer Franchises Provide Profitable Investment Opportunities
  • Maybe We Don’t Need A Catalyst For Value Investing To Return
  • Charles Dolan And Family Have Become Unbelievably Shareholder Friendly
  • Barry Diller Is A Great Capital Allocator
  • Successful Investing Is Sometimes Like Watching Paint Dry
  • Special Offer For Acquirer’s Multiple Subscribers

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Full Transcript

Tobias: Well when you’re ready. So let’s get going.

Jon Boyar: Let’s go.

Tobias: Hi, I’m Tobias Carlisle. This is the Acquirers Podcast. My special guest today is Jon Boyar from the Boyar group. They have a very well known research service and an asset management arm. They’ve been around for 45 years on Wallstreet. There aren’t very many who’ve been around longer. I’m going to talk to Jon.

Speaker 3: Tobias Carlisle is the founder and principal of Acquirers Funds. For regulatory reasons we will not discuss any of the Acquirers Funds on this podcast. All opinions expressed by podcast participants are solely their own and do not reflect the opinions of Acquirers Funds or affiliates. For more information, visit acquirersfunds.com

Tobias: Hi Jon. How are you?

Jon Boyar: I’m doing great. Thank you.

Tobias: So many folks will know the name Boyar, but if you could just give us a little history of the firm.

Jon Boyar: Absolutely. As you mentioned, we’re celebrating… On Monday we celebrated our 45th anniversary, which is absolutely amazing. My father started the business in 1975 right in the middle of a brutal bear market. And it was probably the worst time, but the best time in retrospect to start a business like this. And we started as a research boutique and we provided independent research, the hedge funds, mutual funds, family offices, et cetera. And we slowly morphed. Over time, we got a good reputation in the community and the value community people ask him to manage money, et cetera. So we started managing money in 1983 so we have really two sides of the business that are separate but very much related. We have an institutional research arm, Boyar research and we have, Boyar asset management that manages money and we are happy to go into our philosophy if you’d like.

Tobias: So Jon, how did you get your start in investment? I know your dad started the business, but how did you actually get in there.

Jon Boyar: It’s a great question. I had kind of a different way of getting into business. I was somewhat from a young age, I was exposed to this while other people’s parents were reading regular nighttime books. I was being read 10 K’s and Q’s. But one of the things, and it’s a great story and my dad does a really good job of taking what is a complex situation and really explaining it so well that even an eight, nine, 10 year old could do it. And I remember one of the first examples was when I was in I think middle school, I would come home each year, each month with an order to buy, with a little pamphlet to buy $20 worth of Scholastic books and each month my dad would give $20 or 30 whatever it is.

Jon Boyar: And then he started looking at it and said, is this a public company et cetera and he was really looking at the business saying, “What a wonderful business this is? You have free sales men and the teachers, you have a really good product.” And he was explaining to me kind of an early on, what makes a really good business. How important this distribution is, et cetera. So I was exposed to these things kind of at a very young age. And it’s been really great. To me this is not just a job, I don’t want to say it’s a way of life. That’s a kind of an exaggeration. But it’s to me… I always think about what are the investment implications behind everything? And he really taught me that.

Tobias: He was making you do the Phil Fisher scuttlebutt from nine or 10 years old?

Jon Boyar: Yeah, exactly. I was obviously I was his Guinea pig on that. And it’s really important… I think the thing with Fisher that people don’t get, everyone says, “Oh, buy what, you know.” That’s true. But valuation is really important. So with Scholastic, you had a cheap stock at the time. If memory serve, they owned really valuable real estate down in Soho as well. So you had a lot of things going on. Selling at a cheap price and no one wanted to own it. So yeah, it’s important to invest in what you know but it’s also, he taught me from a young age, valuation matters.

Tobias: Do you have kids?

Jon Boyar: I have two kids.

Tobias: How old are your kids?

Jon Boyar: I’ve been eight and four year old and with the business been involved around for 45 years, if it’s around when they’re old enough and they want to do it like my dad, I’ll do a soft sell into the business there. It would be great to have them.

Tobias: That eight year old sounds like he or she’s about to start getting some Scuttlebutt lessons.

Jon Boyar: Yeah, exactly. It’s never too early to start. They’re important lessons. I mean learning the value of a dollar and compounding things is extremely important.

Tobias: So my impression of Boyar is that you guys were sort of looking for takeover candidates maybe originally, but when I went through the site, it looks like it’s more of a maybe a buffet style looking for great businesses that can grow and compound over time. How do you characterize the philosophy there?

Jon Boyar: The philosophy, it’s pretty simple. We look at everything through the lens of the acquirer. What would a knowledgeable buyer pay for a business? And that’s what we… Whether it’s a large company, it’s big… Years ago we get home Depot or Microsoft in mid to late two thousands it’s still healthy to do that exercise because you’re buying something at a significant discount to intrinsic or private market value over time good things will happen.

Tobias: What’s the difference between say intrinsic value and a private market value, which sounds a little bit like Mario Gabelli loves that the private market value and in his private market value he includes some sort of takeover premium.

Jon Boyar: Yeah. To me the private market values is what would a knowledgeable acquire pay for the business. You look at precedent transactions and Mario was my first boss on Wallstreet. He is a fantastic investor. I’ve certainly learned a lot from him and watching him and yeah, so to me I kind of think they’re one and the same. It’s what is the business really worth. And to me what it’s floating on your stock screen is not what a business worth it’s worth what someone’s willing to pay at that moment in time for a fractional interest in the business. What I’m looking for is, if I wanted to buy the whole business, what would that be worth? And if a stock is significantly below where it’s trading at the value of the business, then it’s something that we would interest us.

Tobias: What sort of businesses are you looking for? Would you consider cyclicals or a are you avoid the cyclicals? How do you think about that?

Jon Boyar: Yeah. When you hear about value investing, a lot of people think you have deep cyclical names. That’s not our… We’ll do some of those situations, but we prefer really good businesses that you can compound over time. And that’s because the majority of our clients are US-based taxable investors. So with cyclicals you have to be right twice. You have to know when to go in and when to go out. We prefer looking at companies that you can just compound over time and hold onto them for as long as possible until they get blatantly overvalued. Just because, yeah, everyone they have this focus on fees. There’s fee compression in the industry, everyone wants to pay the lowest matching fees, et cetera. But really the biggest cost that most investors face is to Uncle Sam or at least US investors, and when you have to pay well in excess of a 20% for longterm capital gains and roughly 40% for short term that’s what you should be abhorring.

Tobias: Your uncle Sam is your partner and every single one of the winners, not much help in the loser story.

Jon Boyar: That’s a terrible partnership. I love the United States. I love the country but yeah it’s a painful to have to pay taxes on transaction then something you really should be mindful to us it’s not what you make, it’s when you keep it.

Tobias: Yeah. I couldn’t agree more. Tax off is a very, very large source of return that not a lot of folks think about. When you’re constructing these portfolios, how do you think about diversification, concentration? How do you size that inception? What are you guided by there?

Jon Boyar: Yeah, we’re really an agnostic to S and P weightings. I know roughly what they are but sometimes it hurts us sometimes it helps us, but we’re looking for the cheapest stocks. So we’re just trying to construct a portfolio from the bottom up. I invest slowly over time. We don’t invest everything all at once when a client comes in and we’re stewards of people’s capital, we’re not going to put 80% in media names as we think they’re cheap, but we’re not afraid to put 20 or 30% in media names or highway or let’s say in consumer discretionary financials significantly above the benchmark. If we think that those stocks are cheap and if we think that certain names like energy that we don’t want to buy because they’re influenced by the price of a commodity and that’s not the type of business we want to own, we can totally disregard it.

Tobias: How do you think about constructing a portfolio?

Jon Boyar: Yeah, we really take a bottoms up approach to constructing a portfolio. If a client comes in, unless they mandate it to us, we do not get fully invested right away. We like to invest slowly over time obviously in an upward tilting market that hurts you, but we’re big believers in capital preservation. That’s the most important thing. We don’t even look at what the indices sector weightings are. That’s something that’s important to us. And we’re not afraid to significantly put a lot of names in let’s say the consumer discretionary and media names and not put anything in, let’s say energy. We just want to buy a lot of great businesses, put them on a portfolio, invest in them slowly over time. The typical portfolio has between a 20 and 40 stocks depending or depending on the mandate and it’s… Yeah, so that’s how we look at portfolio construction. We are cognizant, we’re not going to put 60 or 70% of the portfolio in media names. We do look at that. We want to have some diversification. But in our opinion a lot of managers over diversify.

Tobias: When you’re putting on a position at inception, do you have any limits to the sizing of the position? Are they equal weight at inception or do you size up then the better opportunities? How does it work?

Jon Boyar: Yeah, it’s really a case by case basis. We don’t equal weight. We’ll certainly have names in our portfolio, let’s say we start out at a 2% position and then we’ll maybe make it a three or 4% position, but we don’t start with a half a basis point or something like that in a position typically. And we hope that positions grow in size the right way just by the stock appreciating and we also… One of the most important things is when a stock is going down is to kind of reevaluate the thesis, makes sure everything is still intact and if it is, add to it but add to it in such a way that you’re mindful of your original cost.

Tobias: Do you trim as they go up or do you prefer to… How does that work?

Jon Boyar: Yeah, it’s more art than science. People try to make this business more complicated than it really is or it needs to be. But as I mentioned before, we’re really tax sensitive. So we try not to sell things until it gets blatantly overvalued. I’d say on average our portfolio turnover is let’s say five to 10%. So it takes a… Sometimes it’s like watching paint dry, but we think over the longterm that’s what’s right for the client after tax returns.

Tobias: The interview on the site, your dad says you look for great consumer franchises. So how do you characterize a great consumer franchise?

Jon Boyar: Yeah. To us brands are critically important to us. That’s something that’s very difficult to replicate. It takes lots of marketing dollars, et cetera and it gives consumers a huge advantage. Or it gives a company a huge advantage with consumers. So we really like kind of two companies. One company is just with a terrific consumer franchise or companies with a great consumer franchise that are masked by a corporate name. Years ago we came up with the idea a coush net and if I mentioned the name to most people, they have no idea what it is but they make title as golf balls, put joy golf gloves, et cetera. And believe it or not, that leads to valuation discrepancies. And over time the stock market usually does the right thing and values the company correctly, but it creates opportunities.

Tobias: Right. One of the interesting things that interview no cigar butts no cyclicals which I was a little bit surprised by. I sort of had the impression that you guys did a little bit more of that. But that was an interesting point that you’ve raised it before that you have to be right twice. I’ve never thought about like that once when you buy and once when you sell.

Jon Boyar: Yeah. When to sell is hard most people concentrate on when to buy. Fortunately because of the way we look at companies, a large percentage of the names that we profiled, they’re taken over. So the decision is made for us and then we evaluate if it’s a stock deal, whether we want to keep the stock or if it’s cash obviously where we’re forced to tender our shares. And going back to your point about cigar butts, that’s kind of how we started in the 70s. And I think that was just where the opportunity set also lied. There were no real computers, everything was done manually. I got high technology was having a calculator. So it was easier to have an information advantage on some of these names. That’s kind of been whittled away and you have to do a little bit more homework.

Tobias: So yeah, if the information advantage is no longer there, and this is true for everybody, what are the advantages that you’re using? Where’s the edge?

Jon Boyar: The edge to be honest is patience. That to us is… Trying to figure out where stock is going to be three or six months from now I think is almost impossible. And it’s a really hard game to play and we choose not to play it. Our advantage is we have terrific clients who will enable us to hold onto names and judge us over multi-year periods that allow us to have these temporary pricing anomalies and take advantage of them. So that’s really our biggest advantage. Listen, we have a great research team that’s terrific. That’s been with us for a long period of time. My father’s been in the business a long time. He’s still very active. So we have definitely the research advantage as well. But I think having that mindset of being able to sit there and not panic is critically important.

Tobias: It says on the site that there are several hiding places for good positions. You look for complexity and facades. So you find them in complexity and size. What do you mean by that?

Jon Boyar: Well, complexity a lot of people won’t touch any like that. Let’s say the Jon Malone names because they’re so structured, they’re weirdly structured, they have tracking stocks, most people don’t even know what a tracking stock is, et cetera. So that leads to things to be undervalued. So the more complex a name is kind of the more interested interested in it because most people are probably just put it in the too hard to analyze pile and move on to the next easier thing. So we definitely look any of the Liberty names, etc. are usually good hunting grants.

Tobias: Well, let’s talk about one of those Liberty names. Let’s talk about Discovery. What’s the thesis there?

Jon Boyar: Yeah, discovery is a really interesting company first going back to Jon Malone. About a year or two stocks roughly 29 $30 a year or two the stock was languishing at about $18 a share. He came in and bought a lot of stock personally. Recently he came in and bought $75 million worth personally at around $28 a share. So obviously you don’t want to blindly follow anyone, but he’s a good person to at least take a look at. But it’s a really interesting asset. They own terrific franchises like their namesake, Discovery channel. Their advantages, they’re able to produce content that’s significantly cheaper than scripted dramas. They have for a roughly 4 billion cumulative global subscribers. They’re able to amortize that cost over it. And the great thing about Discovery is their programming resonates across cultures.

Jon Boyar: If you want to watch animals in Africa that resonates to Europeans, Americans, Asians, et cetera. So they’re able to transcend cultures. So it’s a really kind of a unique asset. It’s cheap. They bought recently Scripts a few years ago. Now they’re the number one network for women between age 18 to 54. So they’re really valuable. People are going to want to put them in skinny bundles, et cetera. They have a loyal audience. We think the stock’s worth roughly $49 and we wouldn’t be surprised if one day someone bigger entity like a Comcast, I’m just using that as an example, comes in and acquires them.

Tobias: Malone does the annual interview with Eric Schatzker, I think it was with Schatzker on, on Bloomberg. Did you catch that one where he said, sorry… Did see that one?

Jon Boyar: No, I’ll definitely going to take a look at it. I try and watch as many Malone or read as many Maloney interviews as possible. What did he say?

Tobias: I had this great line where he said, “I ran my screen.” So he has this, I think it’s a price to free cash flow screen. And he said, “Discovery was the top name and that in that screen. So I went and bought $75 billion worth of stock.”

Jon Boyar: Yeah, to him, I mean, yeah… I had a free cash flow yield I think is roughly 14-15% on discovery. So they were able to do the script’s deal and the reason the stock got slammed it went from 30 down to 16 or $17 was it was a buyback story and there were a lot of fast money hedge funds in there and they were upset that they weren’t using the money to buy back stock. But we saw with Viacom you need to invest in programming. You need to have really good quality content. So buying the food network, et cetera. We thought it was a good investment. Now they generate a ton of free cash flow. They’re delivering and then they’re starting to buy back stock. They bought a decent chunk in the third or fourth quarter of last year.

Tobias: Let’s talk about two other names that are a little bit related, MSG and MSGN. How’s the thesis there?

Jon Boyar: Yeah. MSG is a really interesting name and to take a step back, we got there, we used to invest and write about Cable Vision. Cable Vision was controlled by the Dolan family and everyone loves to hate the Dolans and we’ve actually had a pretty good experience investing alongside of them. In 2007 they tried to steal the company but they said that they wouldn’t do the deal unless the majority of the minority shareholders approved the deal. It was voted down. And since then they’ve been unbelievably shareholder friendly. They had the highest payout ratio in the cable industry. They ended up spinning out MSG, MSG ended up spinning out MSGN. Cable Vision spun out AMCX. The walking dead, etc. And then Cable Vision sold itself to Allteas for a price we never thought we we would get.

Jon Boyar: So we have a quite different view of the Dolans than most people. They may be horrible team owners. I mean the Knicks, I think under Dolan, I’ve lost over 800 games. They haven’t made the playoffs in I think five or six years. I mean they’re absolutely terrible but from a shareholder perspective, they’re terrific. So that brings me to Madison Square Garden. It’s the epitomy of a trophy asset. For you’re buying the garden, the air rights associated with the garden, you’re buying the Knicks, you’re buying the Rangers, you’re buying Radio City Music Hall, the LA Forum, a Valuable Entertainment business. And basically if the current stock price, you’re just paying for the Knicks and the Rangers and getting everything else for free.

Jon Boyar: It’s about a $200 stock. We think it’s worth about 300 or so dollars per share. And there’s also a catalyst. One of the things that we always look for is a catalyst. What’s going to make the stock ascend in value over relatively reasonable period of time. And in the case of MSG, they’re spinning out the entertainment division sometime in the first quarter of this year. And so that could lead to possibly the Knicks or the being applied so that he’s simplifying the business, which is something we like.

Tobias: And you think that that spun out stock, maybe you don’t see any diminution in the value of the existing stock, but you get the other one has found value. Is that the thesis?

Jon Boyar: It’s more now you’re going to have really two companies. One the sports teams that are or have their own shareholder base who want to own these trophy assets and someone who wants kind of a faster growing entertainment business and people can kind of make their own decisions on what they want to own plus it makes it easier if someone wanted to come in. It was interesting that they structured it that the entertainment company was a parent company. So a buyer could come in now and buy the Knicks and or the Rangers and not endanger the the tax free nature of a spin out.

Tobias: Right. So totally unrelated. Hanesbrands what’s the thesis there?

Jon Boyar: That goes back to great consumer franchises. I mean Haynes you have the legacy, Haynes, which is extremely popular globally. They also have bonds which is popular in Australia, et cetera. But one thing they also have that most people don’t realize is Champion. And Champion is growing like a weed and they’re not getting credit for it. So one of the things that they could do is spin out the Champion brand over the next couple of years to kind of demonstrate the value of Champion. It’s roughly a $14 stock. We think it’s worth 27 or $28. The reason why it’s so depressed is just generally Target, Walmart, their big customers aren’t doing as well and they just need to adapt to a new medium.

Jon Boyar: I don’t think people are buying less underwear because people are buying things online. They just need to kind of be educated to figure out to buy it on Amazon, et cetera, which is also a fast growing category for them. And interestingly, they’re not losing market share online. So the value of the brand is extremely important. There are studies that say that the closer you get to the body, the less likely you want private label to… So I think private label is only about 10% of the underwear business.

Tobias: What’s the reason for the popularity of Champion? It’s a rowing brand, right? Is that a-

Jon Boyar: If it’s [inaudible 00:26:18] same thing with Lulu Lemon, those types of names. People just like it. It just resonate. This was a brand that was big 20 30 years ago and it’s just making a comeback and it’s just, as I said, it’s growing 25% a year. And I think this year they think I don’t have it from memory but $2 billion of sales is not out of the realm of possibility.

Tobias: It’s been a rough run for value investors generally. Have you guys seen any of that? So do you have any thoughts on it?

Jon Boyar: Yeah, it’s been unbelievably painful, but it’s terrible to watch these high flyers sore to even higher Heights and watching some of our stocks languish. But then you have to look at it this way. We’re still having really good absolute returns. We might not be getting Amazon, Apple type returns, but over time or Tesla over time, I think value’s going to win out. And under some metrics, I’ve seen bunch of charts, stock market hasn’t been, value hasn’t been this cheap since 99 and we know what happened a year or so later and at some point in time there’s going to be a rotation. There’s always mean reversion et cetera and in the end, I think buying stocks for less than they’re worth is a winning strategy.

Tobias: Yeah. It’s a logical strategy at least even if it hasn’t been a winning strategy in the very short term.

Jon Boyar: Yeah, exactly. It’s certainly in the short, even in the medium term it’s been… Growth is trouts value, but over time I think value wins out.

Tobias: Yeah, I agree with you. I think that value has done pretty well on an absolute basis even relative to its own history. And that has resulted in if you look at just ranking on price to cash flow or something like that, looking at the cheapest 10% the cheapest Decile. The cheapest decile looks a little bit rich relative to its longterm history, which could be the result of interest rates but that’s one of the things that makes me a little bit nervous that even the cheap stocks are a little bit expensive even though they haven’t sort of performed as well as the most expensive. What do you guys do in a scenario like that? Do you hold cash? Do you do short?

Jon Boyar: We don’t generally short. I think Jordan is a great way for people to try to get incentive fees. If you’re a really true longterm investor with a multi year time horizon, you’re throwing away money. As long as you can take the volatility. There’s a real reason if you want to smooth out your returns to hedge et cetera, I get it. But if you’re really looking at things to holding things for 10 15 20 years, then hedging or shorting doesn’t make sense. It’s a really tough game. So but we’re not afraid to hold cash. That’s kind of our hedge. If we don’t see bargain basement prices. We’re not going to buy something just for the sake of buying it.

Tobias: What sort of cash holdings are you comfortable with you? What sort of level of cash do you get build up in the portfolios?

Jon Boyar: I think it’s a case by case basis. I mean we know most of our clients, so we take it on a client by client basis. But if it’s kind of like a pool vehicle 10 to 20% and we’d go higher than that 20-25% and in some cases if we really can’t find things to buy. But we have a team of analysts, there’s always something, there’s always a mispricing. Things obviously can always get cheaper, but that’s our job is to find these ideas.

Tobias: Yeah. So that’s how you construct a portfolio sort of on an ad hoc basis. If you find a position, you put it on. If you don’t, you don’t have any kind of requirement to be fully invested or anything like that?

Jon Boyar: Yeah, for most of our mandates, we don’t have a requirement to be fully invested. I realize some people have a view that you should always be fully invested. We just like to have dry power.

Tobias: Let’s talk about the research side for a little bit. What, what sort of… What products do you put out and what’s the team look like? How does it function?

Jon Boyar: Yeah we have a team of four analysts plus myself and my father and their job is to come out with great investment ideas and we publish them on a pretty frequent basis. We’re not doing daily notes or anything like that. We have roughly nine deliverables a year. So we provide our research clients with thoroughly research reports on companies that are generally outside the mainstream. They’re really two types of companies we follow. One that have very little Wall Street coverage or maybe two or three analysts at the most. Or an example of a stock that we have a view that goes against consensus and our value add is to say, “Hey, we think this is interesting for X, Y, Z reasons.”

Tobias: When you say deliverables is that you publish an entire newsletter covering all of them at each stage or if you find an idea you publish it immediately.

Jon Boyar: Yeah, we are old fashioned. We still actually send everything via hard copy. We have heard of the internet, we realize it’s cheaper and greener to do it via electronic means, but we like kind of having paper. So yeah, seven times a year we come out with a research featuring three companies. So someone get 21 ideas. We do a thematic piece at the end of every summer or early fall. This year’s theme was, and it was quite interesting, I think I sent you a copy of it was on spin-outs and why they’ve been such terrible investments over the past decade.

Jon Boyar: Spin outs people have always thought were winning strategies but over the last decade they’ve significantly underperformed. And then we picked four names that we thought were interesting that fit the theme. And then our last part what we’re probably best known for is every December, it’s our Christmas gift to our clients. We come out with something called the forgotten 40 and it’s our 40 best ideas for the year ahead where we do one page snapshots on names we profiled, names we know and why we think they’re going to outperform in the year ahead.

Tobias: The spin-outs is an interesting phenomenon. Everybody’s read the Greenblatt yellow book where he talks about spins and typically everybody before that book, I guess you’d want to go with a more popular stock, but I think that Greenblatt said you want to look at the one that is the… You’ve got to follow the incentives. Look at the spin, the one that’s sort of likely to be the baby thrown out with the bath water. But then that’s been a very tough strategy for a decade I guess. Is that because everybody read the book and they followed his advice or what happened?

Jon Boyar: Yeah, we came up with a couple of ideas and I actually wrote an article that appeared in Forbes on it. One of the things is activist investing has… They’ve forced companies to spin out divisions that probably shouldn’t have been spent spun out. And so you’re getting a much weaker prop of spin-outs these days. So that’s one reason also more money going to passive investing. Active managers have less money to invest in these more one off situations. So there are a lot of different reasons why this occurred, but we don’t want to be backwards looking. You want to be forward looking and one of the things that you mentioned was incentives. To us incentives matter.

Jon Boyar: And in the report we discuss ways to look for winning spin-outs and one of the things that is consistent is look for where the like an IAC for example, where they kept match. Where they kept 85% they’re going to be spinning out, I think the remaining 15% later on. And they did an Angie’s list same thing. So you want to look for incentives, you want to look where management is going. If a whole bunch of the team is going to the spun off entity, maybe they think that prospects are better going forward. So you have to really look, follow the money.

Tobias: Do you follow IAC closely?

Jon Boyar: It’s a name that we profiled four or five years ago and then we profiled it again in the fall. So it’s a name I know well. Every time. It doesn’t look cheap enough and I haven’t pulled the trigger and I kicked myself. But it’s a great business. And Angie is an interesting business as well. Jon Barry Diller is an unbelievable capital allocator. He’s just done a fantastic job in his career and as someone people should be comfortable investing alongside of.

Tobias: There’s a recent article about them not taking any moonshots that I looked through, that list of investments that he’s made. He’s had this phenomenal track record of putting a few hundred million dollars or maybe up to $1 billion in multiple companies and getting returns that are like 15 20 X on those positions. I don’t know what he’s doing. I want to figure out how he’s seeing it.

Jon Boyar: Yeah, no. And one of the things IAC was getting punished for, and the reason why the stock was depressed was they refused to bid up companies. The private market stocks were so expensive. They didn’t want to play in that game. They were very value focused. So now with what happened to WeWork, et cetera maybe they’ll be able to get some of these early stage investments at reasonable prices.

Tobias: I had to look at the balance sheet recently that I think the last [inaudible 00:36:50] had something like $3 billion in cash and I think they’ll have five once they complete some of these final spin. Spin interesting vehicle when the market gets a little bit cheaper, which I guess it does at some stage. And then dealers in there with a lot of dry powder, it will be a worth revisiting I think.

Jon Boyar: Yeah, no absolutely. It’s an interesting name there… They have great properties from Investopedia so it’s something investors should definitely take a look at.

Tobias: What do you think is the thing that turns it for value? What’s the catalyst? Because it’s been an extraordinarily long kind of painful draw down that I used to say it’s not as deep as the 2000 but it’s taken much longer. But now it’s sort of we’re getting to that point that it’s looking like 2000.

Jon Boyar: I guess what was the catalyst in 2000? There was really nothing people can… People have theories, et cetera. There isn’t necessarily have to be one event that makes it turn. Is it this valuation? I don’t know. It’s a different world now with, with passive owning 22% of on average event of an S&P 500 company. So I don’t know what turns. Is that something with interest rates when they start to rise? If they start to rise, does that turn? I have absolutely no idea. I just think at some point it will and I hope sooner rather than later.

Tobias: Yeah. I thought last year about late August, that was as far as the rubber band got stretched between growth and value and it looked like value had a pretty good run. And then there was that early September, first two weeks of September. There was that day where value had its best day since sort of 2000 and momentum had its worst day and then it was followed up on, started on the night, followed up on the 10th and it’s been a pretty good run since then. But it’s been soft again coming into 2020 and then you contrast that with things like Tesla that have, I don’t know whether that’s a short squeeze or what that is, but Tesla’s had three X from its bottom-

Jon Boyar: Tesla is in explainable. This is why you can’t short on valuation. It’s the classic example of it. I have no idea why people are plowing money into this. This is a car company. And it’s a high barriers to entry. They are pricing in perfection. More than perfection at this point. So I think buyer beware.

Tobias: Tesla there were celebrating recently the fact that it went through $100 billion in market cap, but it’s got some dead in there too. So that the EVs more like $110 billion in Tesla and then it’s not making any money. So I bet the most bullish report I’ve seen was in Barron’s where they said they might make $5 billion sometime in the future. So you’ve got to pay $110 billion for a theoretical five sometime in the future. That’s not the kind of investing I like to do.

Jon Boyar: No, it’s to me, I don’t know who’s buying it. If this is retail institutions, is it a short squeeze? I have no idea. But to me it just it doesn’t make sense. But it’s one of those things where it’s interesting to talk about and it’s interesting to kind of follow, but you shouldn’t spend so much time focusing on it because it takes you away from companies you’re actually going to invest in. But I think at some point Tesla breaks and what it is, people are going to lose a lot of money and a lot of money very quickly.

Tobias: Let’s go back to the… So we’ve talked about the research side. Let’s talk about the asset management side. How does that work? You have managed accounts. Do you have a pooled vehicle?

Jon Boyar: Yeah, we have a pooled vehicle, we have managed accounts, we have all sorts of different ways people can invest in us. One of the things we pride ourselves is treating each account individually and being tax efficient.

Tobias: So how’s the pooled vehicle work? What’s the structure?

Jon Boyar: It’s just a 1940 act vehicle because there’s so many regulations, et cetera.

Tobias: You can’t talk about it?

Jon Boyar: I can’t talk about it, which is crazy, but the lawyer in me, I’m a recovering lawyer says, “I probably shouldn’t,” but we have a variety of ways people can invest from as a small amount of money up until a separately managed account.

Tobias: Did you practice or did you go straight to mass asset management?

Jon Boyar: I did practice law. I was a litigator for a couple of years and I realized how much I disliked it. I know you were a lawyer as well. Billing by the hour and trying to figure out how you’re going to build something was just a really difficult way for me to make a living. And my dad did not want me to join the business. He thought it’s just… He just discouraged me but he was nice enough to allow me to join and I’m really glad I did. I loved it. I love it. I’ve always been interested in investing in stocks and learning from you for your dad is terrific.

Tobias: Yeah. It’s nice to get away from the billable hour. It’s sort of it changes the way you think. If you’ve got a little bit of time to think about things, I think you make better decisions rather than sort of trying to work out whether something is worth in fact the amount of time that you’re spending on it.

Jon Boyar: Yeah, I think it’s just a terrible incentive system. I think at some point in time that goes away. It’s a difficult way to make a living plus litigation is by nature is adversarial. It wasn’t for me.

Tobias: What area of litigation were you in?

Jon Boyar: I was doing medical malpractice defense work and I happened to at the time been dating and engaged with my now wife who’s a physician. The only way to make real money, and I’m not entirely motivated by money with the only way to make real money is to be on the plaintiff side and to marry a doctor and then go Sue her friends wasn’t a great way to-

Tobias: You might get invited to many cocktail parties with that.

Jon Boyar: No. Not at all. The subject matter was wasn’t… It was all depressing bad outcomes. So the subject matter combined with the billable hour combined with wanting to have a good marriage, it just wasn’t for me.

Tobias: Yeah, that’s my theory too. You want to stay as far away from human misery as you possibly can. And there’s a lot of it in litigation and particularly that type of litigation.

Jon Boyar: Yes, absolutely. Unfortunately with it is they’re just bad outcomes most of the time because there’s always negligence. But most of the time it’s just kind of an act of God or just a mistake and now unfortunate there a lawsuit from it and it’s just really no one wins except really the plaintiff’s lawyers.

Tobias: Where are you finding value now? Are there any sectors that you think are particularly cheaper? Any industries or what’s interesting?

Jon Boyar: I think media is really interesting. I think in the end content wins out for sure. I think small middle and micro cap names haven’t been this cheap in a very long period of time relative they’re larger names. I think that’s a good place to hunt the historically small cap names have outperformed and they’ve underperformed for the past decade plus. So that that’s a good place to go hunting. But you really have to take it on a stock by stock basis.

Tobias: Yeah. Anything that’s a kind of a sensible strategy over the longterm seems to have not worked for a long time. Value hasn’t worked. Size being in those smaller names hasn’t worked. Even equal weighting, which has been tradition. If you equal weight an index, that’s traditionally been a pretty good way of out performing the market cap weighted version of it just because it’s sort of a quasi size, quasi value approach and even that’s underperforming. It’s been a very unusual market for the last probably decade.

Jon Boyar: Yeah, and it’s amazing. You look at the top 10 weighted names in the S&P 500. They were responsible for, I think 27% of the indices gains. Apple and Microsoft were a huge chunk of it. It’s really a tale of two markets. I don’t know what’s causing it. I don’t know if it’s the flow from active to passive. That’s just exaggerating everything. Is it interest rates being historically low, but the fact of the matter is it doesn’t matter. This is kind of the hand you’re dealt and you just have to kind of react and try to position your portfolios the best way possible.

Tobias: What’s driving the undervaluation in media names? Do you think is it all of that sort of Netflix and distribution over the internet? Is that the reason?

Jon Boyar: Yeah, I think that’s a big reason. It all started a few years ago when Bob Iger on a conference call, he’s still CEO of Disney, started talking about ESPN subscriber losses. Not that this started off but it all certainly exacerbated it and people are just worried that you’re going to have a world where people aren’t going to have traditional cable subscriptions, et cetera, just broadband.

Jon Boyar: But now you have all these skinny bundles and you have Netflix at $14 here and then you have to pay for Amazon prime and then you have Disney at $7 and all these other ones, at the end it’s not a skinny bundle after a certain point in time. So I think in the end you have to look at the companies that have the best content. They’re going to win out. They’re going to be a way for them to get distributed and paid for them and that’s why we look at really good content owners, that people want to own like a Discovery.

Tobias: Yeah, that was one of the questions that came to mind when I looked at Discovery. Do you feel like there’s any potential for something that’s more like a Netflix style to compete with Discovery? Netflix does have those lots of nature documentaries on it.

Jon Boyar: Discovery is a huge headstart at it. They have so many hours of films in their library already. They have brand loyalty, et cetera. Listen, you can make the case that Amazon with their case is going to disrupt everything in the room, but they don’t have a great history of… They have a lot of losers. Everyone thinks about the winners. I think in the end discovery is going to find its way into all this or the majority of the skinny bundles potentially someone takes them out. They just have a really strong hand.

Tobias: Do they have a standalone service that you can access other than through the cable?

Jon Boyar: They have one of these apps, Discovery Go that’s growing. I think it’s grown 10 X already and they there you’re able to do more targeted advertising, et cetera. So that’s going to help them as well.


Special Offer – Acquirer’s Multiple Subscribers

Tobias: Jon, we’re coming up on time. If folks want to get in contact with you, how do they do that and I understand you have an offer.

Jon Boyar: Yeah, well you can always visit our website Boyarvaluegroup.com that’s a B-O-Y-A-R everyone misspells it and if you want to purchase the Forgotten Forty is still on sale. If you email info@Boyarvaluegroup.com and put Acquirer’s Multiple in the subject line we’ll give you a years free of the Acquirers multiple. So it’s a win win. We’d love to talk to you more about our service.

Tobias: Will stick that in the show notes for anybody who wants to get in touch with Jon. Jon, thanks so much. I love seeing you at all of the conferences when we’re in the same place. Have been great talking to you over the years.

Jon Boyar: No, it’s been great. You’re going to be ringing the bell soon.

Tobias: Yeah. Well, we’re still trying to sort that out. Hopefully not too distant future. I’ll certainly let you know when that happens. There’s a long line of people who want to ring that bell.

Jon Boyar: Yeah. When you do a let me know, I’d love to get together and thanks for having me on the show.

Tobias: It will be my absolute pleasure, Jon Boyar, Boyar Value. Thank you.

Jon Boyar: Thank you.

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