In this episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle chat about:
- Self Organized Criticality And How It Applies To Markets
- Making Sense Of FWONK’s/FWONA’s Latest Transactions
- Why Is Warren Buffett Selling Stocks Down Under 10%
- Will We See A New Bottom Later This Year?
- Japan’s Warren Buffett – Masayoshi Son
- Does Anyone Have A Compelling Pitch For TSLA On The Long Side
- Michael Burry’s Latest Holdings
- Allan Meechan Shutting Down His Fund
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:
April 14th, 10:30 a.m. on the West Coast, 1:30 p.m. on the East Coast, 5:30 p.m. Greenwich Mean Time. What’s happening in the markets, anything interesting going on? I’ve been in my bunker.
Bill Brewster:
Not much. At the index level we’re almost on a full recovery within the Q’s. What did I see, that it’s down like 1% year to date or something like that? Might even be.
Tobias Carlisle:
All time highs in Amazon.
Jake Taylor:
Walmart.
Tobias Carlisle:
I think Netflix as well.
Bill Brewster:
That sort of makes sense to me.
Tobias Carlisle:
I can get there on a narrative basis. I don’t know if I can get there on a valuation basis.
Bill Brewster:
Yeah, but I mean-
Jake Taylor:
What’s that? I don’t even remember what that means.
Tobias Carlisle:
We’ve got Albany, New York. I forgot to call out everybody last time, but there was a great list of guys from all over the world. So let us know where you’re up. SPY’s up 2.72%. Thanks Mike.
Bill Brewster:
It’s fake news. There are only 10 of you, but thank you for tuning in to the rabid.
Tobias Carlisle:
Open up a few screens on your computer.
Bill Brewster:
Yeah.
Tobias Carlisle:
Samson, where are you Samson? All right, let’s get underway. Jake, what’s your topic this week?
Jake Taylor:
I’m going to be talking about grains of sand falling into a pile that a lot of us are familiar with, but there was something that we were missing all along, and then actually how that sort of relates to the Fed. So get your tinfoil hats out, we’re going to be having a good time.
Tobias Carlisle:
And Bill what are you doing?
Bill Brewster:
I am going to try to figure out what Jake just said, but while I do that I am going to discuss something going on at Liberty Media, the entity that’s Formula One has a transaction that I think could be interesting, so I’ll talk about that a little.
Tobias Carlisle:
And I’ll be talking about Buffett selling down a third stock, Bank of New York Mellon, BK is the ticket. It’s the third stock that he sold down under 10%, filed late on a Friday afternoon, which means he doesn’t have to file again to tell anybody what he’s doing. I don’t know what’s going on, but I’m going to speculate to my heart’s content. This is Value: After Hours, I’m Tobias Carlisle. I got my amigos, Bill Brewster and Jake Taylor, and I think we’ll be kicking off with JT, you want to take sand pile theory?
Self Organized Criticality And How It Applies To Markets
Jake Taylor:
Yeah, sure. So there’s this Danish theoretical physicist whose name is Per Bak, shortest name on record I think. It’s only six letters total, but that’s great. So he has this this famous thought experiment where you imagine this hand of God that is full of sand and it’s dropping down a one little grain at a time into a pile, and it forms this one pile.
Jake Taylor:
And each sand particle will then trigger some level of an avalanche. Typically it’s a small, almost unnoticeable little bit of slide, but every once in a while there’ll be a really big slide and we never know what the grain of sand is it’s going to be. And what this was trying to explain was a couple things.
Jake Taylor:
One, is what they called self-organized criticality. So this thing has its own, separate from the grain of sand, it has its own characteristics that play out. The grain of sand is the cause, but the interaction between the sand is what actually is the emergent phenomena that we’re looking at there.
Jake Taylor:
So what’s interesting about this is that if you plot out the avalanches, it follows that familiar power-law curve where you have a lot of small outcomes and then the occasional very large outcome. And what the difference between a Gaussian distribution, a normal distribution, and a power-law distribution is, take something like height which is a normal distribution.
Jake Taylor:
The more data that you gather on it, the more the estimate gets accurate. But in a power-law like these avalanches, the more that you add, the more estimates that you add, actually the bigger the things that you can measure become. Like you start catching these very, very rare events that happen.
Jake Taylor:
So everyone’s pretty familiar with this idea already. Here’s what’s interesting that I found when I went back and read the original stuff on this. In that analogy all along there was a table that the grains of sand were falling onto, and in my mind I never thought about this before, I never put a table underneath the pile of sand, but in his original construction that’s what it was.
Jake Taylor:
So the size of the avalanches are completely dictated by the size of the table, so the bigger you make the table, the less large avalanches that you’ll have. But then when you do have the big avalanche it will be even bigger than anytime with a smaller table. Does that make sense?
Tobias Carlisle:
You might have to run that by me one more time.
Jake Taylor:
Okay. Imagine a very small table you’re pouring sand onto. When it eventually falls onto the floor it’s going to be a smaller amount of sand.
Tobias Carlisle:
Okay.
Jake Taylor:
Imagine a very large table you can really pile that table up-
Tobias Carlisle:
Okay, I got it.
Jake Taylor:
… and eventually it crashes. Well, my insight was that what if really the Fed is really just a table and it’s trying to make itself bigger and bigger, but really all it’s doing is making the eventual sand pile avalanche that happens be a bigger disaster to deal with.
Tobias Carlisle:
I like that analogy. Bob Seawright wrote an article that came out a few years ago that I grabbed some of for a Forbes article called What To Do When The Market Punches You In The Mouth? Regrettable title, because I’ve discovered since that that gets used all the time. It’s based on that Mike Tyson quote, “Everybody got a plan until they get punched in the mouth.”
Jake Taylor:
Spot on impersonation.
Tobias Carlisle:
Yeah, thank you. He makes the great point that the ’87 crash, everybody thinks of that as program trading, there was a whole lot of futures used to hedge the market and then when the market went down hedging in the futures created this cascade of selling. They interviewed Michael J. Fallon, who was the president of the NYC, and he gave a list of five things.
Tobias Carlisle:
And fifth on his list was futures trading, he didn’t think it was particularly significant. The only point is that it’s just one of those phenomena that you can’t predict, but after it happens we want to stick a reason to why it happens. I kind of think this time around it’s just one of those… we hadn’t had a crash for a long time.
Tobias Carlisle:
I don’t know what the root cause of that was. Possibly that’s Fed pinning the rates so low for so long, having QE going on and on, values just getting dislocated from underlying, or price is getting dislocated from the underlying values. Chris Cole uses the analogy of the redwoods. You have to burn back the tender of the redwoods otherwise if you don’t do that and you just let the tender grow, you get these explosive wildfires that come through every five or 10 years.
Tobias Carlisle:
And so if you don’t have little crashes, you get much bigger crashes. So I think that that makes sense that if you eliminate that possibility for a little crash, which gives everybody… If you think that the market could crash, you probably carry a little bit more cash rather than running levered, what do you call that? Acquisition, the N+1 strategy all the time. I think it’s an interesting theory.
Jake Taylor:
Bill?
Bill Brewster:
I don’t know. I don’t know what I have to add to this. I mean the Fed would not be doing what they’re doing if it didn’t have any impact, right? But I’m not well-versed enough to know how the balance sheet expanded and contracted relative to the overall size of the market over the last 10 years.
Bill Brewster:
I know they’ve been active way way longer than I thought they would be and I don’t suspect that they’re just going to exit the market once, I don’t know, say in June or July. That said, I do understand from a policy standpoint coming in to stabilize the market here, and I mean I think we got enough shit to worry about.
Bill Brewster:
I’m not sure that right now is the time to go full hands-off and just let the market… I mean you’ve got a natural demand shock, you’ve got oil supply shocks, if we don’t try to at least stabilize the market, I mean you’ve got the real potential for real true systemic risk, and I think that they’re trying to prevent that right now.
Bill Brewster:
Now whether or not they can, I don’t think that we’re going to get to the end of this, and these bailouts or whatever just means that equity is going to be fine. I mean companies are going to be screwed and if over the next 12 months we try to stave off bankruptcy just by continually bailing people out, then from a policy perspective I’d be much more worried.
Bill Brewster:
This to me seems like, or a lot of what I see going on, and I don’t know all of it, but seems to be solving for a liquidity problem, which is short term.
Jake Taylor:
I don’t think that my argument would be that the last month’s worth of activity was necessarily the problem. It was the 10 years before that, that made a pretty big ass sand pile, and the table did not shrink at all in that time period enough to make the smaller shocks… I mean you could just look at the VIX as a sort of a proxy for how much disturbance have we had over the last 10 years, and it was nothing. It’s been historically incredibly low.
Tobias Carlisle:
Why not take that opportunity to raise rates and switch off the QE or all of that stuff?
Jake Taylor:
Shrink the table a little bit.
Tobias Carlisle:
Yeah. I mean what is the function of the Fed if it’s not supposed to be acting as that counterweight to all of that?
Jake Taylor:
The adult in the room.
Tobias Carlisle:
Yeah, I mean there’s a lot of fiscal priming going on. That would have been a good opportunity, you would think, to kind of pull back a little bit on the monetary, see how high you can get those rates.
Bill Brewster:
The thing that is tough for me to reconcile mentally right now, is they started to do that, and on December 21st, 2018, the SMP was at $240 per share.
Tobias Carlisle:
This is SPY.
Bill Brewster:
Yeah. And now we’re looking at just a massive, massive economic problem, and we’re at 283 a share, and the reason is policy response, but you’re really just… I mean let’s say the Fed can do everything that they want, they’re not getting the spreads back to where they were in December, right? Like spreads have blown out a little bit, and the the fiscal stimulus-
Tobias Carlisle:
High yield spreads, is what you’re talking about there?
Bill Brewster:
I think generally even [crosstalk 00:12:00]-
Tobias Carlisle:
Every spread.
Bill Brewster:
… I think are a little bit wider. And then like even the fiscal stimulus, you’re just catching up. I mean you’re replacing stuff. It’s not stimulus, it’s just plugging a freaking hole. So I don’t understand, the bullishness right now is a bit confounding to me on a market level, like market wide basis.
Tobias Carlisle:
Do you see anybody out there who is like, “This totally makes sense to me? I fully expected a bottom on March 23, and then just rocket to the new all-time highs.” Do you talk to anybody who who’s like, “This is what I thought was going to happen?”
Bill Brewster:
Only people that are full of shit.
Tobias Carlisle:
Yeah, if people who are telling you that’s what they did on March 23.
Bill Brewster:
I think it’s funny. Real quick, I think something that’s funny is you’re starting to see hedge fund letters that used to tout performance that are now talking macro and it’s like, “Oh, interesting how you’re hiding.”
Tobias Carlisle:
There’s a good question up on the screen. You guys can’t see it.
Jake Taylor:
50 Pages epidemiology instead of the returns.
Tobias Carlisle:
There’s a good question up on the screen-
Bill Brewster:
That would be one that I was thinking of.
Tobias Carlisle:
… “Do you guys think the Fed even matters if you’re a micro economic business oriented investor? Isn’t the important thing just competitive advance and execution?” That’s kind of the point that you’re making a little bit, isn’t it Bill? You’re just like, “Just ignore it. It’s out of your control, just keep on functioning.”
Bill Brewster:
Yeah, I mean it 100% matters. I mean if you have debt markets that completely lock up, then all of your fundamental analysis changes. But, yes, I do think that focusing on what the business is more likely to look at is where I spend more of my time.
Tobias Carlisle:
I mean some of the Fed actions are just the Feds going to do what the Feds going to do. I personally disagree with them, but who cares? I have to go in there and do what I always do. Actually it doesn’t really change anything that I do. All I do is I come on podcast and kind of whinge about it.
Jake Taylor:
Bitch about it, yeah.
Bill Brewster:
I mean, look, if they’re compressing yields and you’re buying assets, I think you have to at least think a little bit about whether or not you’re paying what would be a fair price or whether or not it’s manipulated. But we live in the world we live in, I don’t see them going away any time, so what’s manipulated vs. theoretically right, I don’t know. That gets into stuff that’s just too hard for me.
Jake Taylor:
Yeah, it does matter though, right? I mean it hugely impacts most of the valuations you’re looking at. Pricing I mean, not valuations. But valuations as well.
Tobias Carlisle:
Well, it affects valuations.
Bill Brewster:
Yes, valuation.
Tobias Carlisle:
I can get a fixed valuation.
Bill Brewster:
100% it does.
Tobias Carlisle:
This stuff is all just too hard for me, it just breaks my brain when I think about it. But the level of government debt, that was once the concerning metric. That was something that people used to talk about a bit, and Ken Rogoff did that study where he said there’s a tipping point where you get too much debt, your currency and your government collapses, or your currency at least collapses.
Tobias Carlisle:
You can’t raise money through debt anymore for an extended period of time, but then somebody found that he’d hard coded one of the cells in his spreadsheet, and Krugman came out and dunked on him pretty hard, and that argument kind of just went away. But I just can’t see how it doesn’t matter.
Tobias Carlisle:
We’ve seen credit crisis in our lifetimes, like in other countries. Clearly it happens all the time.
Bill Brewster:
Yeah, well, I mean the whole process has made me super grateful in a lot of ways. I think you look at the death numbers and it’s a testament to what the United States can accomplish when we work together, and that’s pretty freaking awesome considering that it was sort of more of a decentralized plan than I thought that it would be. But man, the ability to have your own reserve currency right now, I mean you got to protect that.
Jake Taylor:
Are you talking about Bitcoin?
Bill Brewster:
Yeah, that too.
Jake Taylor:
Okay, sorry.
Bill Brewster:
But it gives a lot of options that emerging markets just aren’t going to have. I mean imagine being in Argentina right now with what they had going on going into this shit, and then they’re going to have to stop their economy for a little while. I mean, man…
Jake Taylor:
And pay back dollars.
Bill Brewster:
Yeah, dude, that is going to be brutal. So I don’t know.
***
Making Sense Of FWONK’s/FWONA’s Latest Transactions
Tobias Carlisle:
Well, just like every value manager out there, this podcast has gone full macro. So let’s do some micro for a bit. Let’s do FWONK.
Jake Taylor:
Good call.
Bill Brewster:
FWONK. So here, I’ve got to pull up the transcript so that I don’t mess up any of the tape. But I thought it was interesting, we talk about some of these holding companies sometimes, and Greg Maffei said he’s talking about what Liberty Media adds to their… They have a collection of assets, so like Qurate Retail, which is QVC and HSN.
Bill Brewster:
They have Formula One, they’ve got the Braves, they’ve got obviously Charter, I’m missing something I’m sure. Anyway, it’s a collection of assets, and what he said is… Oh, Liberty SiriusXM. So he said, “We back at the home office in Englewood only add value and have a reason to exist if we can find something that makes a lot of sense to do on top of what our operating entities are doing.”
Bill Brewster:
So, one of the things that he sort of got himself into, they sold calls within Formula One. So Liberty Media is one legal entity, and it owns these subsidiary positions. In order to highlight the value of the underlying assets, they attribute the economic performance to different tracker stocks.
Bill Brewster:
They’re basically derivatives of the assets that Liberty owns. Within one of those derivatives, which is Formula One, they’ve found themselves naked on a call that they wrote on Liberty Sirius’s shares. So what that really means is they sold the right to buy it from them at $36 a share, and all of a sudden it goes to $39 a share and they’re out of the money on the call.
Bill Brewster:
It creates an obligation. Well, with this sell-off, the thing that’s interesting is they could have in theory bought some calls to offset that naked exposure when Liberty Sirius had sold off very hard depending on what happened to the volatility and the options. I just think it’s like a very tangible example right now of if you’re betting on those guys to add value, it will be interesting to see in the 10-Q or K in the earnings calls, I guess it would be the Q now, just like they did to tighten up that transaction.
Bill Brewster:
This is a real opportunity for some of these capital allocator types to really add value right now.
Tobias Carlisle:
Why sell the core? What was that about?
Bill Brewster:
Dude, they do a lot of stuff that has to do with getting cash in the door, reducing taxes. They do a lot of things, and I don’t fully understand exactly what it was.
Tobias Carlisle:
So that was where I was going. Aren’t you risking the shares getting called away from you and then incurring the tax by doing that, or was it cash-settled?
Bill Brewster:
Well, so I mean I don’t fully understand the mechanics behind it. So I think LSXMA, that entity has the shares to satisfy the obligation, but within Formula One it didn’t have the shares. So part of the thing about the tracking stocks that they try to do is treat each group of shareholders correct. I think they overcomplicated to transaction probably, and at the time that they did it, it probably brought money in and was a benefit.
Bill Brewster:
But then what happened was Sirius just performed way better than they thought, and all of a sudden it became a bit of a pain. I think they have something like four or five years to roll out of the problem, but it’s interesting that this opportunity presented itself now.
Jake Taylor:
I always feel like that that whole complex is too complex.
Bill Brewster:
They do a lot.
Jake Taylor:
It makes my brain hurt. It just feels like, God, if they were just running one clean company with subs inside of it, I would be much more attracted to it honestly.
Bill Brewster:
Yeah, I mean I get it.
Tobias Carlisle:
Aren’t they just spinning out tracking stocks that mean that they don’t really sell it, you get to value each piece of it on its own merits.
Bill Brewster:
Yeah, well, the theory is you try to avoid a conglomerate discount.
Tobias Carlisle:
That’s pretty smart actually.
Bill Brewster:
Because then you can actually have the company together that owns the assets, and that gives you some optionality. But if you can highlight the independent segments and let people bet on those independently, that’s theoretically pretty interesting.
Jake Taylor:
And getting like cross holding confusion, and I don’t know, just like…
Tobias Carlisle:
Do they have cross holdings though? Do they do that? I thought it was pretty clean.
Bill Brewster:
Well, FWONA has the interest in the Braves and they’ve got the interest in Live Nation that Liberty owns, and then Sirius is pretty clean. They own Pandora, but I think because of this transaction, FWONA started to buy some of LSXMA to settle the shares if they needed to. It sounds like a pain in the ass.
Tobias Carlisle:
It’s a little more complicated than I realized. I don’t look at it. I know it’s very popular in the generic value partners community. No disrespect, just that’s what I’m calling it.
Bill Brewster:
Oh, yeah. Malone, I mean he’s made a lot of money for a lot of people. That tends to make you popular.
***
Trying To Explain TSLA’s Latest Valuation
Tobias Carlisle:
So we’ve got a super chat on the screen, Lemonade Stand, “Can I flesh out fair value of TSLA that is -54 bucks per share?” was what I was saying. I will, but I’ll save that up until we get to the question time, because there’s a couple good things.
Bill Brewster:
Dude, isn’t the Fed adjusted value at TSLA like 950 a share?
Tobias Carlisle:
Yeah, that’s what you’ve got to adjust for.
Bill Brewster:
Oh, shit. TSLA is at 737. Whoa.
Jake Taylor:
Fed adjusted.
Bill Brewster:
$136 billion market cap, my Lord.
Tobias Carlisle:
Shut down the factories and let everybody off.
Jake Taylor:
No operations, but who knew that that would be such a [crosstalk 00:23:24]
Tobias Carlisle:
That’s the perfect stock for these times.
Bill Brewster:
Yeah, I mean to be fair, if you’re not making any money today what does it matter if you don’t make any money today? That’s my Yogi Bearism.
Jake Taylor:
They don’t sell cars, they sell stock.
***
Allan Meechan Shutting Down His Fund
Tobias Carlisle:
I saw this just before we came on, Allan Mecham of Arlington is shutting down.
Bill Brewster:
Yeah.
Jake Taylor:
Oh, really?
Bill Brewster:
For health reasons.
Tobias Carlisle:
Yeah, too stressed. I’ve never seen Allan interviewed anywhere. I’d be happy to have him on the podcast, I just have no connection to him at all.
Jake Taylor:
He’s pretty low profile.
Tobias Carlisle:
Yeah, very.
Bill Brewster:
Tell him it’s a low-key, non-stress podcast. I’ll chill with some Allan Mecham.
Tobias Carlisle:
It’s crossfire. I don’t have to say it either.
Bill Brewster:
Whatever.
Jake Taylor:
It’s problem Mecham.
Bill Brewster:
Not going to manage his money anymore. I hope he’s okay. I mean that’s all that really matter, right?
Tobias Carlisle:
Or he’s made his number.
Bill Brewster:
Hopefully the guy is healthy. Yeah.
Jake Taylor:
Tell him it’s a health podcast.
Bill Brewster:
The letter that I saw, he said that he was sad to be leaving, but it was better for his health. Thanks for being one of the 10, I hope we can help you through retirement.
***
Why Is Warren Buffett Selling Stocks Down Under 10%
Tobias Carlisle:
Yeah. You’re more than welcome to come on, make this a foursome. Let’s talk about Webb and his kind of perplexing maneuver. So biggest-
Bill Brewster:
We’re talking about the Buff dog, for anyone that didn’t understand.
Tobias Carlisle:
Yeah, sorry, Warren E. Buffett, W.E.B, web, he’s been very quiet through the most rapid decline in stock market history ever, in the U.S. anyway, in the data that I have. Maybe there was one that was sort of pre-1850, but it looks like the fastest one, faster than ’29, faster than ’87, probably the biggest bounce.
Tobias Carlisle:
All he’s done is sell down three stocks. So he sold down two weeks ago, he sold down Delta and Southwest to get underneath 9.9%, which gives him the advantage of not having to file when he moves in them. And then on Good Friday he sold down Bank of New York, ticker’s BK, very, very unfortunate ticker for that bank. You don’t think he’d try for a… It doesn’t make any sense at all.
Bill Brewster:
Yeah, that’s odd for a bank too, to not think of that, and why wouldn’t it be BONY?
Tobias Carlisle:
Everybody refers to it as BONY, or BONY, why wouldn’t they call themselves BONY? Get that ticker. Nobody else is going to want that ticker.
Bill Brewster:
I don’t know that you want the ticker BONY. It’s a little odd.
Tobias Carlisle:
But it’s memorable. It sticks in the brain.
Bill Brewster:
It is that.
Jake Taylor:
It will be a good one for a dating app.
Bill Brewster:
Yeah.
Tobias Carlisle:
It is odd that Buffett hasn’t bought anything, publicly anyway, and all he’s done is rapidly sell down three things. Now either he’s just working really hard behind the scenes and nobody’s heard anything, which I think we’re going to find out soon. I think he’s probably bought back some stock, he’s probably bought some more of the public stuff that he’s got that he likes. I’ve seen this theory going around that he sold down to get under 9% so he can really take those positions up.
Bill Brewster:
These people are idiots.
Tobias Carlisle:
He’s just not a stock market operator like that.
Bill Brewster:
I’m sorry of you’re promoting the theory, it just doesn’t make sense.
Tobias Carlisle:
He’s just not a stock market operator. He just doesn’t try to fool people by fake faking them out in the market. I don’t think that’s happening.
Bill Brewster:
No, I think he would, I just don’t… Why would he ever want to buy one single airline? They have always said that they don’t want to do that, so why now do you want to do it? I think they made a bet and the outcome wasn’t what they thought the bet would be.
Tobias Carlisle:
But I’m not even at that point. I’m not even trying to work out what he’s doing, I’m just saying if he was going to do that, he’s not going to sell down first.
Bill Brewster:
I don’t know, he would do misdirection.
Tobias Carlisle:
Do you think so?
Bill Brewster:
I think he’s a shark. Oh yeah, oh yeah. Dude, he’s like what? The third or fourth most rich person in the world and everything he’s done his whole life has been about money. If he thought that he could do right for his shareholders by doing a little misdirection, jue play, 100% he’d do that.
Tobias Carlisle:
But that sort of stuff, you get to do that once and then everybody else is like-
Bill Brewster:
I would want to be a shareholder.
Tobias Carlisle:
But once you do that once, everybody’s like, “Well, I know the trick now, so next time you do that I’m going to buy the shit out of that thing.”
Bill Brewster:
I guess.
Tobias Carlisle:
So you can’t do it. You can’t do it.
Jake Taylor:
Sounds more Icahn to me than Buffett, doesn’t it?
Tobias Carlisle:
Yeah. It’s stock market operator type stuff, which I don’t think he is. He’s an investor like business investor, that’s what I think of him.
Jake Taylor:
Yeah, but I mean if he’s worried about everybody front-running him, I don’t know.
Tobias Carlisle:
Wouldn’t you just sell down, get under the nine so people don’t freak out, and then you just bomb out. Go and do something else.
Jake Taylor:
What was the total percentages that we were talking about, because we talk about these numbers, but like percentage of Berkshire’s security portfolio, how much did he trim?
Tobias Carlisle:
Not much, but the significance of it is just to get under the reporting obligations, and he did that really rapidly, which gives him the option now to sell down at his leisure. You guys notice how I learned that?
Bill Brewster:
Leisure. I liked your old way to do that.
Jake Taylor:
Leisure.
Tobias Carlisle:
Over this next quarter, and I think he reports then in July.
Bill Brewster:
But I mean the two that I can think of are Southwest and Delta. So if he wanted to take them out, he would need to come with some sort of tender offer, right? And if he was going to accumulate shares he would get over the 10 and then he’d have to start disclosing it again. I think he just changed his mind on the positions. I bet they’ve been net buyers and I think he changed his mind on that outcome. I don’t know that it’s more complicated than that.
Jake Taylor:
That’s probably the Occam’s razor answer right there.
Tobias Carlisle:
Yeah, that’s that’s exactly right. That’s what I think has happened. He’s just changed his mind and he doesn’t want to be in them.
Bill Brewster:
I mean dude, there’s talk about-
Jake Taylor:
He’s allowed to do that, right?
Bill Brewster:
Yeah. Well, and think about where they are right now. They’re tapping all their assets for cash, they’re talking about pre-selling miles. I mean they’re going to come out of this heavily indebted. A core part of that thesis is that the balance sheets have been repaired to make it through a recession. This episode completely destroys the thesis. They’re not going to come out strong.
Tobias Carlisle:
You don’t think that they’re going to get, not a bailout, what’s the other word for it? It’s repo, except it’s something else. Everything’s got a different name now, like you don’t just call stuff what it is. You’ve got to give it some other name to fool people who aren’t paying attention.
Jake Taylor:
Euphemism.
Tobias Carlisle:
The euphemism, yeah.
Jake Taylor:
It’s a stability enhancing…
Tobias Carlisle:
There’s another word. They don’t call them bailouts there, it’s disaster payment, I think that’s what it is. Disaster relief. It’s disaster relief. You don’t think that the airlines get disaster relief?
Bill Brewster:
Well, it’s the CARES Act, I mean that’s what it is. But I mean even today Delta is out, they’re leveraging assets that they have that were unencumbered.
Jake Taylor:
Sale and leaseback, right?
Bill Brewster:
Yeah. And there’s a Bloomberg article about them looking at pre-selling miles, and then on top of all that the rumor is that Mnuchin’s asking for warrants, which was in the act that he can do. So they’re like balking on that a little bit. I mean you have deal guys in the White House, for real.
Jake Taylor:
Do you they’re sharks that way? You think they’re going to scalp them?
Bill Brewster:
Do I think Donald Trump and Co are sharks? Fuck yes, I do.
Jake Taylor:
Okay. Well, hold on though, but what is his actual outcome that he’s looking for? Is it to make money for the U.S. taxpayer, or to get reelected in November? What’s more-
Bill Brewster:
That’s how he can get reelected. He can go out and say, “No other president could have done the deal that I did. Look at the deal that I made for the taxpayer. We saved them, we saved the jobs and I made the money. I’m the fucking man.”
Jake Taylor:
That does sound like him.
Bill Brewster:
Why would they not do that? “I made the best deal ever and look, we even got equity in these airlines and we’re the smartest guys in the world, and sleepy Joe Biden wouldn’t be able to do any of this.” Yes, 100% I think they’d do this shit.
Jake Taylor:
Donny from Queens, you’re on the air.
Tobias Carlisle:
We’ve turned into this macro political podcast quoth.
Bill Brewster:
Oh, Jesus. No, but I don’t think these are just easy bailouts. Look, if you’d stick the screws to small business, that is politically unpalatable. You stick the screws to airlines a little bit, like Chamath or whatever gets on CNBC and starts ranting, and everybody gets a huge boner over it. I mean people don’t want to see these airlines get a huge bailout.
Tobias Carlisle:
That cracking comment on the screen, “What a play it would be to spend 60 years being the ultimate investor and finish off your career with a crazy stock operator move.”
Bill Brewster:
Yeah.
Tobias Carlisle:
Set everybody up for 60 years to cash in right at the end. Pay it. That’s a good line.
Bill Brewster:
Slow play. The other thing that Kevin… I’m sorry, I don’t even sight his last name anymore, he’s such a regular-
Tobias Carlisle:
Zatloukal.
Bill Brewster:
Yeah. He had mentioned on my timeline, he was like, “Well, if he just did a big buyback, that would be pretty awesome too.” And I agree, that’s like the one move in Buffett’s career that he has not done yet. That would be kind of a cherry on top, although I’m sure it would be unsatisfying.
Tobias Carlisle:
Sorry, what’s the big move?
Bill Brewster:
Just like a big opportunistic buyback.
Tobias Carlisle:
Take back’s your private.
Jake Taylor:
Single turn.
Bill Brewster:
Backed by the Fed. I got that Fed bunny.
Jake Taylor:
LBO.
Bill Brewster:
That’s right.
***
Does Anyone Have A Compelling Pitch For TSLA On The Long Side
Tobias Carlisle:
So toss your questions in. I’m going to get started on TSLA. I have been short TSLA in the past, not short now, just fell out of the screen, better opportunities. I’ve traded absolutely terribly, so I’m probably the last person you should be asking about this. I frankly have no idea what goes on with TSLA. I think it’s a garbage balance sheet and it’s losing heaps of money.
Tobias Carlisle:
I get that there’s lots of growth in the in the car sales. There’s also monster competition out there.
Jake Taylor:
Units. Units, not revenue.
Tobias Carlisle:
Units. Yes, units, 2% growth. They sold a lot of units in Q1, somehow they absolutely monstered Q1. Evidently people were out there just before they went into lockdown, got to make sure you get your TESLA before you hit lockdown.
Bill Brewster:
Buying that Tesla. Yeah, for sure man.
Tobias Carlisle:
So I’m like the last person to ask on this stuff, because I have zero idea and I’ve fortunately come to the recognition that I do have zero idea, although if the screen tells me to buy it, it’s [inaudible 00:34:09] I’ll go back and I’ll do that again. But at the moment, I’ve got it very, very wrong.
Tobias Carlisle:
If I look at it on a valuation basis, where to start. It’s a money loser, it’s free cash flow negative, it’s a metal bender, so it needs a lot of money to grow. So it has to keep on raising money all the time. That requires that you sustain a very high valuation, which makes it virtually impossible-
Jake Taylor:
Other than that, how was the play Mrs. Lincoln?
Tobias Carlisle:
I frankly don’t get it. I just don’t understand it at all. I don’t understand why people are bidding it here. I don’t understand why people were bidding it when it was at 200 bucks. So if anybody’s got any good ideas, I’m all ears, because I just don’t get it.
Bill Brewster:
Well, I mean you’ve got to have some assumptions about how their economics scale in the future and operating leverage, and then they’re going to own everything with SolarCity, right? I mean you sort of got to have a belief that they’re like… I’ve watched people start pitching them as a fucking platform. My language has not been very good today, sorry folks.
Tobias Carlisle:
They are pitched as a platform. [crosstalk 00:35:16]. You can play computer games on it, you can use it to go and ride hailing, you can use it to-
Jake Taylor:
Robo-taxi service right around the corner.
Tobias Carlisle:
Generate electricity, so it’s going to power the grid. Nothing it can’t do. Get you into space, get you in the future.
Bill Brewster:
Yeah. I mean, is this gross profit growth? Is this a full 1% last year, is that what I’m seeing? That’s not exactly the most growth e-company I’ve ever looked at.
Jake Taylor:
No. There’s no fundamental reason for any of it. It’s all narrative.
Bill Brewster:
Gross profit growth of 0.6%. I mean units are cute, revenue’s cute, gross profit you actually get to pay your SG&A with.
Tobias Carlisle:
Yeah.
Jake Taylor:
What does that look like with zero in the revenue?
Tobias Carlisle:
It’s like $1,000 stock.
Jake Taylor:
Yeah, easily.
Bill Brewster:
I mean they’re just going to raise debt, right? Somebody’s going to give them the money. They got six billion of cash. I don’t know, I can’t do this off the top of my head.
Tobias Carlisle:
There’s some good stuff here, Samson says, “Model Y sales is going to be better than model three for a crossover.” Martin says, “Millennials believe in it.”
Jake Taylor:
Like the Tooth Fairy?
Tobias Carlisle:
John says… I’ve got a chase this down the screen. Stop it. I think I got it. No, not going to let me do it. “Galloway says they’re going to issue digital coins. The value would be skipping on a wait list of new models.”
Bill Brewster:
Yeah, well Galloway is not a genius. He just has good takes occasionally.
Tobias Carlisle:
“It’s two times the GM EV/REV multiple.” Yep, it’s expensive. Sorry, when I first read that, I was reading that it’s gross profit. I was trying to put all the positive ones in, so we can get there. I want to hear the countervailing narrative. I’ve never really seen a particularly good one. I realize there are a lot of believes in the car, like have you driven it bro?
Tobias Carlisle:
And I think there are lots of nice guys out there, smart guys, Vitaliy Katsenelson, smart value guy likes it.
Bill Brewster:
Yeah, he likes it.
Tobias Carlisle:
I don’t think there’s many other who’ve made kind of a really compelling pitch on the long side.
Bill Brewster:
I mean just looking at it, if they can tap the debt market a little bit more, which why not, then they can have the liquidity to survive two horrible quarters. I’ll tell you what made me a little nervous about what the Fed’s doing, is I now record Kramer, because I find it super entertaining to just flip on, because I like to see what’s going on, what retail is being told.
Bill Brewster:
The excitement that he has over what the Fed is doing was the first time that I was like, “Oh, this might be really bad.”
Jake Taylor:
What is he saying?
Bill Brewster:
Oh dude, he is amped up. He’s given booyah like crazy, he’s hitting all the gun sounds. Yesterday he said something about there’s like unlimited firepower and a machine gun came out. I mean he is excited, he can barely keep this clothes on.
Tobias Carlisle:
Dude, I can probably get some sounds on this podcast.
Bill Brewster:
We’re going to need some.
Jake Taylor:
I need a bazooka.
Bill Brewster:
Yeah.
Tobias Carlisle:
Yeah. That’s every time you say Fed, you get the bazooka sound. So Corey Hoffstein says, “Net gamma exposure of dealers flipped above 610, so lots of dealers likely buying as the price goes up to hedge.” Yeah, I do agree that that’s likely what’s happening there.
Bill Brewster:
Shout out to Hoffstein, how are you doing man?
***
Michael Burry’s Latest Holdings
Tobias Carlisle:
Yeah, thanks for coming in big fella. Appreciate having you on. So let’s do some questions, Burry’s Tailored Brands. Burry’s on Twitter, did we say that last week? Burry’s on Twitter dropping bombs, he’s come out swinging hard. He got the Chris Cole playbook for how to dominate Twitter in about three months.
Jake Taylor:
He just ramped. That’s a ramp.
Bill Brewster:
He just went like full anti-Ackman. He was like, “Oh, this guy Bill on CNBC, I’m going to exact opposite way.
Tobias Carlisle:
Goobtron says more cowbell, that’s the noise we need. Sorry to interrupt, keep going.
Bill Brewster:
No, I saw he also bought more GameStop and that’s apparently why the stock is ripping, which is odd, because I guess the nice thing about owning GameStop stock is you don’t have to worry about social distancing because no one was there anyway.
Tobias Carlisle:
It’s safe.
Bill Brewster:
Boom! Boom!
Tobias Carlisle:
It’s a balance sheet play though.
Jake Taylor:
Do you think though that the more that he owns, the more interesting it gets though from sort maybe if he is able to execute any activism?
Tobias Carlisle:
Yeah, I think that’s a big part of the narrative.
Jake Taylor:
I could buy that.
Tobias Carlisle:
Has he done… I mean I don’t think he’s done activism like that, has he? I mean there’s no reason why he wouldn’t.
Jake Taylor:
He talked a little bit about recently about doing some in Japan actually. A couple of his… it doesn’t sound like it’s like combative.
Tobias Carlisle:
That sounds hard.
Bill Brewster:
Yeah.
Jake Taylor:
I think talking with management in a constructive way, is what it sounded like.
Bill Brewster:
Yeah, so how much of that requires social skills?
Jake Taylor:
Dude, you just show them the big short, and then they take your call. Don’t worry about that.
Bill Brewster:
All right, I’m just asking.
Tobias Carlisle:
There’s a strong argument though that you need to be that personality.
Bill Brewster:
I don’t know him, so I’m not trying to be a prude.
Jake Taylor:
They’re expecting Christian Bale to walk in the door, that’s why they’re excited.
Tobias Carlisle:
I think that there’s a good argument to be made that there are personality types that are very well suited to activism. They’re the same guys who are litigation lawyers, are good activist, because you just need to be able to… Most of us sort of absorb psychic pain, Like it sucks to be going through these fights, you think about it all the time.
Tobias Carlisle:
Some people don’t. Icahn clearly does not care one way or the other what people think, so he can just plow and say ridiculous things to people that it hurts them, it doesn’t hurt him at all. It just falls off his back, so maybe that’s a huge advantage.
Bill Brewster:
Yeah, I think. I guess that the difference is I don’t know that Burry… and I when I say I don’t know, I really mean I have no clue. This is all just bullshit podcast speculation, but I’m not sure that he has the personality type to push and push and push like some of those guys do.
Tobias Carlisle:
He’s clearly, like he’s able to get into a position and ignore the marks that he’s given by investment banks.
Bill Brewster:
Yeah, for sure.
Tobias Carlisle:
Like you’ve got to be concerned there that they know something that you don’t know, right?
Jake Taylor:
Listen, I mean he-
Bill Brewster:
Yeah, I mean I think he knows what he owns and he believes in it, so that I respect, but-
Jake Taylor:
That commencement speech that he gave, like it’s much easier to just get on there and say a bunch of platitudes and not like come at the system like he did, right?
Tobias Carlisle:
Yeah.
Bill Brewster:
Yeah.
Jake Taylor:
That’s somebody who DGAF.
Bill Brewster:
Yeah.
Tobias Carlisle:
Yeah.
Bill Brewster:
Well, and he’s obviously an independent thinker and he’s crazy smart. It’s just that’s slightly different than changing a CEOs motives to see the world the way that you see the world. I think it’s a separate skill set.
Tobias Carlisle:
What about Tailored Brands? Because he’s also in Tailored.
Bill Brewster:
I don’t know, the nice thing about that one is and one’s buying suits. I got to eat today.
Jake Taylor:
[inaudible 00:42:48]
Tobias Carlisle:
Mate, you are enjoying this podcast.
Bill Brewster:
Yeah, I am.
Jake Taylor:
More than anybody.
Bill Brewster:
I don’t know, I can’t see a lot of people buying suits right now and they got a lot of leverage, but I’m sure there’s a price where it makes sense.
Tobias Carlisle:
Yeah.
Jake Taylor:
I don’t know enough about it to say one way or the other. I’ve never really looked at it.
Tobias Carlisle:
They could balance sheet value, they’ve got lots of cash.
Bill Brewster:
They’ve got a lot of operating leases man, and they got a lot of leverage on top of it.
Tobias Carlisle:
Operating leases aren’t debt.
Bill Brewster:
Yeah. Liz Hall has had a pretty good article about that actually.
Tobias Carlisle:
That’s it.
Bill Brewster:
Yeah. That was a value-added tweet thought.
Jake Taylor:
It is a little funny how all these leases and everything, it just becomes very malleable. The second there’s any pain, like, “Oh, I’m not paying you tomorrow.” Nevermind.
Tobias Carlisle:
Yeah, it turns out you don’t have to pay at all.
Jake Taylor:
I’ve got the contract.
Tobias Carlisle:
I’ve been paying mine like an idiot.
Jake Taylor:
Like a total idiot this whole time. What have I been doing?
***
Will We See A New Bottom Later This Year?
Bill Brewster:
My buddy just sent me something, I’m trying to find it. I guess The Related Group, he says it’s the largest landlord in New York City, the headline, I haven’t read the article, but it says only 20% of Related Group’s commercial tenants paid rent in April.
Tobias Carlisle:
20?
Bill Brewster:
Yeah.
Jake Taylor:
Bullish.
Tobias Carlisle:
You’ve got to think they’re not running out of money yet, they’re just like conserving cash.
Bill Brewster:
Yeah.
Jake Taylor:
It’s a chance to push the problem to someone else.
Bill Brewster:
I think the thing that’s interesting or will be interesting to watch in the market over the next year, is like JPMorgan on their call today and Wells both, I mean they were both like the range of outcomes is so wide that who knows. So maybe this retest of the low doesn’t happen tomorrow like everybody was expecting.I mean maybe we just sort of drift lower for a while, or maybe we go to the all-time highs. Like who knows?
Jake Taylor:
Let’s update, we asked that I think a week or two ago, what’s the probability of taking out an all-time high again in 2020? Where are you guys at with that?
Tobias Carlisle:
Yeah, that’s a good question, throw that to everybody to-
Bill Brewster:
I’m not going to up it.
Jake Taylor:
40% is not an acceptable answer.
Tobias Carlisle:
Yeah, let’s make it binary, yes or no?
Jake Taylor:
No, no, no. You have to have a probability prediction otherwise it’s a shit prediction.
Tobias Carlisle:
So you can’t say 40%.
Jake Taylor:
No, we can’t say that just because it’s the joke answer.
Bill Brewster:
I mean I don’t know man, it all depends on whether or not you can come up with a reasonable way to treat this illness that can make people not be scared. If that happens, then I think it’s off to the races.
Tobias Carlisle:
I don’t think it happens. I mean unless we just give it a kiss here, but I think really it’s markets expensive underlying is really, really hurting. Some time the markets going to… this is just the sugar rush from all of the Fed intervention from a few weeks ago, and the Fed’s continuing intervention. I will look at the filings and get a little bit of religion when that comes through.
Bill Brewster:
Yeah, I mean the market discounted Covid-19 in January, and that turned out to be a pretty big mistake.
Tobias Carlisle:
Yeah.
Bill Brewster:
And now I think that some people are looking at some of the numbers and I don’t disagree that there are trade offs with the strategy, but it also doesn’t mean that all that was made up. Maybe we just did a lot better job than I had thought we were doing as early as we were, but if you read any of the proposals about what opening up looks like, we’re not going to run into making a bunch of money. This is going to be a slow process, I think.
Tobias Carlisle:
I’ve got a question. Sorry Jake, I stepped on you.
Jake Taylor:
And the longer it goes, the longer it’s going to take to probably come back too.
Bill Brewster:
Yeah. I mean I may have said this already on the podcast, I’ve said it a couple times to people, but my buddy’s dad was telling me they have like a pretty successful restaurant chain and he was like, this was when things are good, he was like, “We don’t go to the black until November,” much like retail.
Bill Brewster:
I mean at 80%, November never comes, and they’re a pretty successful restaurant. So I mean I’m concerned about what six to nine months looks like. I think today it’s easy to convince yourself that, “Hey, we’re going to be okay,” but I think it’s a race against medical treatment.
Tobias Carlisle:
I don’t think a lot of these businesses are even talking about profitability. This is just can you generate enough free cash flow to keep on going or can you generate enough cash flow to keep on going to get you out the other side, which is a big part of we’re not going to pay the rent.
Bill Brewster:
Yeah. No, I think that’s right.
Tobias Carlisle:
On a related, this is tangential, but this is a question up on the screen, “Any comments on recession advertising impact on Facebook and Google?”
Jake Taylor:
Numbers I’ve seen were interesting and that the impressions were up, because everyone’s just sitting around on their phones all day. But then CPM had come down a lot and then was maybe starting to come back. But I don’t know, it will be interesting to see. I’m very curious to see what their numbers look like when they come out, how they’ve been faring.
Bill Brewster:
I think fool all the time on Twitter had said that advertising reminded people that advertising has a one and a half times multiplier with economic impact.
Jake Taylor:
Cyclicality.
Bill Brewster:
Advertising pulls back, yeah.
Tobias Carlisle:
Advertising pulls back one and a half times the GDP, whatever.
Jake Taylor:
20% GDP cut, that would how much advertising?
Tobias Carlisle:
30%, is that what you’re saying?
Bill Brewster:
Yeah, that’s definitely one and a half times 20, it’s just a matter of fact. That’s how the the math works. But I think that is the math. And then I think Wall Street dropout has had a couple things on it also. I’m sure I’m forgetting some people, but my apologies folks.
Tobias Carlisle:
Corey says, “Delta on December 320 strikes is 0.5, so market seems to be seeing 50% odds of landing in the money, making a new all-time high by then.”
Bill Brewster:
Yeah. That’s easy Corey. Come on, keep bringing stuff, but 50/50 that is aggressive to me.
Jake Taylor:
It does feel like… Well…
Tobias Carlisle:
But there’s two things going on, there’s sustainability of it. Like I think the market is just whipping around at the moment. I think everybody’s feeling pretty good at the moment, because we’ve had a pretty substantial rally and we’re up big today. But I-
Bill Brewster:
This changes narrative, oh man.
Tobias Carlisle:
Yeah, and I don’t think that this is… you don’t know if this is the end of the bear market for a year after the fact, that’s what I always say. In the moment you can’t tell. This could easily be a bear market rally, we just go back and blast through the low, or in 12 months time we’re like, “There you go, that was it.” One time, two times.
Bill Brewster:
Yeah, well that’s why I think if you can get-
Jake Taylor:
We’ve reached a permanently high plateau.
Bill Brewster:
Well, if you can get a treatment and we can sort of get back to work, for lack of a better term, I mean I know that’s what everybody’s saying, but it’s true, I can understand why the market would rally given where it looks like rates are going to be for a while, I guess.
Bill Brewster:
But, man, I don’t know. It’s just very hard for me to see how the December of 2018 sell-off was implying a worse outcome than what we’re currently looking at. This is the worst thing I could have ever dreamt up in my life. So we’re almost at the highs, there’s a 50% chance of hitting the highs.
Tobias Carlisle:
You’re very optimistic.
Bill Brewster:
It’s not wrong, but it’s hard to get in my head.
Tobias Carlisle:
Yeah.
Jake Taylor:
Agreed.
Bill Brewster:
But I have found that a lot of these times I’m the one that’s wrong, unfortunately. I’d love to say that I’m not, but it’s just not how the world works.
Tobias Carlisle:
What does it say if we just blast back to new all-time highs about the market?
Bill Brewster:
I don’t know, but I’ll tell you what it does say to me is Joel Greenblatt’s little rule about not ever going more than 10% more aggressive or less aggressive than your ideal allocation, is a pretty smart rule.
Tobias Carlisle:
Say that again. What’s his rule?
Bill Brewster:
We had talked about this earlier, but he said if you run a 70/30 stock bond allocation and you’re really build up, maybe you go 80/20 and if you’re really despondent you go 60/40, but you always stay around sort of your target, because if I was just arbitrarily going to cash and not, I would not have caught this bounce. So I think you got to hold for the long-term and understand-
Tobias Carlisle:
It’s incremental moves.
Bill Brewster:
Yeah, that’s right.
Tobias Carlisle:
Graham said never go more than 75% cash never go lower than 25% equities, and the other way around, 25% cash 75% equities. But he’d gone through the Great Depression, so he was a little bit more careful bearish.
Bill Brewster:
Yeah.
Jake Taylor:
I mean speaking of that though, how do we go back to the all time especially sentiment wise? Doesn’t this have to wake some people up at a business level, at a personal expenditure level, at a debt level? We’ve borrowed so much from the future, you can’t do that again, can you? Haven’t we already taken that bite of the apple at this point from valuation standpoint? It seems hard to imagine that now all of a sudden we go even further along some of the paths that we’ve been going the last 10 years. After this like stepping right into a buzzsaw.
Tobias Carlisle:
Kevin Zatloukal’s got a good comment on the screen.
Bill Brewster:
What’s up Kevin? How are you doing man?
Tobias Carlisle:
“How many people are yelling at their Bloomberg screens are just mad there aren’t many obvious opportunities? Fair value hasn’t shrunk more than 10%. That was using AQR’s methodology so the markets not being crazy.”
Bill Brewster:
Yeah, I mean I think that’s true, if you a long time horizon. That’s why I said like a couple weeks ago if you think time arbitrage is your massive advantage, right now is the time to use it. But man, I don’t know, it just doesn’t feel right. That’s the best way that I know how to describe it. I think the math can work, but the feeling is very hard for me to get. My EQ feels off.
Tobias Carlisle:
This is a good comment.
Jake Taylor:
Your body is tingling.
***
Tobias Carlisle:
“Optimism appears oblivious to risks, so by default pessimism looks more intelligent.” I often think about that too, because I do think that Buffett’s superpower has just been to be incredibly optimistic all the way through, and then have it work out. If it doesn’t work out then you’ve got other problems to deal with, like where you get your shotgun shells and how do you fortify your house so marauding gangs of people looking for your shotgun shells and your gold don’t break in. Mad Max scenario.
Bill Brewster:
Well, but that comment to me is a lot easier to say when the markets down 35% off the highs. I mean right now are you getting compensated for the risk, is the real question? I don’t know.
Jake Taylor:
Buffett’s not 100% all in either.
Bill Brewster:
No, he is not.
Jake Taylor:
He’s in that same type of thought. So I don’t know. I think you have to apply some logic as well.
***
Japan’s Warren Buffett – Masayoshi Son
Tobias Carlisle:
Yeah, I wonder how the Japanese Buffett in the 20 year L shaped BOJ recovery feel about that.
Jake Taylor:
Actually he probably crushed it. I mean the Japanese Buffet.
Tobias Carlisle:
It’s probably Masa, right? Masa Son.
Jake Taylor:
Oh, stop.
Tobias Carlisle:
I love Masa. How can you guys not like Masa?
Bill Brewster:
I think it was when you guys had the Berkshire event together, Ted Seides was there and I was talking to him. I mean he told me in a bar, so it was not exclusive, he said that out of everyone that he’s ever met the billionaire’s almost all of them have had a massive amount of luck.
Bill Brewster:
He was like, “Buffett’s the only guy that I think you could drop in any time frame and give him any set of scenarios and he would figure out how to be a billionaire.”
Tobias Carlisle:
I can’t.
Bill Brewster:
I don’t know. I’m just telling you what Ted told me. I’m not trying to have the argument.
Tobias Carlisle:
I’ll have the argument. This is a podcast, that’s what we do.
Bill Brewster:
Damn you.
Jake Taylor:
No, that doesn’t make any sense to me.
Tobias Carlisle:
There are lots of really smart entrepreneurs out there.
Jake Taylor:
Drop Buffett on a rice paddy in China in the 1500s, and he’s going to be a billionaire.
Bill Brewster:
Whatever in China 1500 terms, yeah.
Jake Taylor:
I don’t know man.
Bill Brewster:
I mean you’ve got to think who the dude was. At six he’s like counting soda caps to figure out how many bottles have been sold out of a vending machine. I mean you put that mind and that attention and you’re going to get a good outcome.
Jake Taylor:
I’m not saying it won’t be impressive, but the distribution of outcomes in that environment is much tighter than the capitalist that serves that mind even further.
Bill Brewster:
Yeah, and he’s acknowledged that being born here made him super lucky. Also you hate Buffett and you should go say 10 Hail Marys.
Jake Taylor:
Obviously.
Tobias Carlisle:
So somebody wants to what flavor LaCroix you’re drinking, so I’m going to make sure everybody gets-
Bill Brewster:
That’s Tangerine, isn’t it?
Jake Taylor:
It’s Tangerine.
Tobias Carlisle:
Pamplemousse.
Bill Brewster:
No, that’s Tangerine. Pamplemousse is the pink and yellow.
Jake Taylor:
Yeah.
Tobias Carlisle:
Gracias.
Jake Taylor:
Tangerine, it’s okay. I’m not loyal to any-
Tobias Carlisle:
I want to talk about Masa. I’m not letting you guys get off Masa. Masa was down 99% and he’s made it all the way back. Pay that.
Bill Brewster:
Yeah.
Tobias Carlisle:
And he started from nothing.
Jake Taylor:
Don’t go 99% down to start with.
Bill Brewster:
Whoa. Whoa.
Jake Taylor:
Okay, we can unpack Masa.
Tobias Carlisle:
Some guys are more volatile than others.
Bill Brewster:
Yeah dude, like Bill Miller, you hate him too? I got mad [crosstalk 00:57:14].
Jake Taylor:
He’s buying things based on the shine of someone’s eyes.
Tobias Carlisle:
And getting it right most of the time. Going to have some bonus in there, but you got that one wrong.
Bill Brewster:
I mean look, it’s more of a VC from my understanding, and like I said, I have not done a lot of work, but it seems like more of a VC spray and ride the right tail, which what was it? It was Alibaba, right? Or was it Tencent that he hit the home run on?
Bill Brewster:
I mean with that approach you only need to be right once, but one of the things that Greenblatt has said that I found super interesting is he said running a concentrated portfolio, letting the winners run is as hard as watching the ones go against you. And for Masa to have the ability to let that one run, I mean that’s a skill.
Tobias Carlisle:
Yep.
Jake Taylor:
I’m actually not that big of a hater, but just some of the more recent things felt like odd bets to me. Maybe it was smart, maybe there’s some version of the world where all of these things that he invested in actually ended up taking over and radically disrupting, and he is the king at that point.
Bill Brewster:
But isn’t his bet that you only need one or two to actually take over, and then you just let the right tail go?
Jake Taylor:
Maybe, I don’t know.
Tobias Carlisle:
Next time growth gets really cheap, I’m coming back as Masa.
Jake Taylor:
Yes.
Tobias Carlisle:
I’m going to do some crazy stuff.
Jake Taylor:
How are you going to measure that?
Bill Brewster:
[crosstalk 00:58:43]. I’m kidding.
Jake Taylor:
How do you measure when growth is cheap?
Tobias Carlisle:
I’ll use the French data and I’ll look at it relative to its own long-run, meaning I look at relative to value, and just when the yield gets fat on both… I think that the thing that I missed was that in 2010 particularly, value got expensive and growth was cheap, and that would have been a smart time to have a big growth bid on.
Tobias Carlisle:
And I think if you’re a value guy, you’ve got to be alive to those kind of opportunities, and my big mistake was not recognizing that and just staying deep value through that period.
Jake Taylor:
That was the compounder [crosstalk 00:59:27].
Tobias Carlisle:
Not going to do that again.
Jake Taylor:
Yeah, for sure. I think that’s smart.
Tobias Carlisle:
That’s time gents. So I got one last question. Am I still hoping for the value golden era? Yes, I am. I still think it’s coming. Great question. I’ll check it up.
Bill Brewster:
Oh, the golden era, yeah. Okay. Yeah, of course. You’re not going to stop hoping. Your whole bet is value.
Tobias Carlisle:
It’s not just hope.
Jake Taylor:
Did you ask that question yourself.
Bill Brewster:
I have data.
Tobias Carlisle:
No, I’ve got it up on the screen. It’s my sock puppet.
Jake Taylor:
Toby C. from L.A. asks.
Tobias Carlisle:
Yeah, you’re live, you’re on the air.
Bill Brewster:
Right.
Tobias Carlisle:
Thanks everybody. We’ll see you next week, same Bat-time, same Bat-channel.
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