In this episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle chat about:
- Holding Stocks Is A Superpower!
- Investing From First Principles
- When Buffett Was A Quant
- Finding The Bad Actors In Small Caps
- Munger Missing From This Year’s Berkshire Meeting
- SPAC Investing
- Chis Bloomstran – Is Berkshire Buying Back Shares?
- If You Started Your Investing Career In ’99 You Had A Great Shot At Becoming A Guru
- Was John Neff A Quant Investor?
- Bill Gates On Life After Lockdown
- Bill’s Take On Intrepid Potash
- Fantasy Investing Team
- Will Tobias Ever Be Interviewed By Consuelo Mack?
References In This Episode:
When Buffett Was A Quant (Verdad)
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:
Breaker
Overcast
RadioPublic
Stitcher
Full Transcript
Tobias Carlisle:
… Live.
Bill Brewster:
It’s go time.
Tobias Carlisle:
It’s April 28, It’s 10:30 AM on the West Coast, 1:30 PM on the East Coast. I’ve just been told that Greenwich meantime, it’s not 5:30. It’s daylight savings time, but I don’t know what the acronym is for… So, in London it’s 4:30 I think, or it could be 6:30, I have no idea. Sorry. It’s not 5:30 though. Next week I’ll put up UTC, that’s coordinated time or something like that, just so you can set your clocks if you’re dialing in from the moon or wherever you’re calling in from. Let us know in the comments where you’re from so we can enjoy that subsequently. How’s the market doing? A little bit of a run off for value.
Bill Brewster:
Yes, buy is up like negligible amount. It looks like the stuff that’s really moving is the airlines and cruise lines. All the go back to work stuff is jumping over the last couple of days.
Tobias Carlisle:
That’d be great to go back to work, is chat-
Bill Brewster:
Queues are down a percent. Let’s see what the Russell… Russell’s up 1.7. So, there you go.
Tobias Carlisle:
Tennessee, how are you doing?
Jake Taylor:
Small, all right.
Bill Brewster:
Yeah.
Tobias Carlisle:
Whose intro is it today?
Bill Brewster:
Oh, I think it’s mine.
Tobias Carlisle:
Brewster’s millions.
Bill Brewster:
I’m ready to go. Welcome to VALUE: After Hours. This is Bill Brewster with my cohost Jake Taylor and Tobias Carlyle. Jake, what are you going to be talking about today?
Jake Taylor:
I’m going to be discussing how I reasoned from the bottom up using three different large data sets.
Tobias Carlisle:
From the bottom of your heart.
Jake Taylor:
That’s right Tobias.
Bill Brewster:
Toby, what are you going to be talking about?
Tobias Carlisle:
I loved this article that Verdad put out on Monday when Buffett was a quant, not written by Dan, this time written by his partner, Nick Smiths. So, that’s a fun read. I’m going to chat about that and some of the implications about that for the market and so on.
Jake Taylor:
How about you Bill?
Bill Brewster:
I’m going to be talking about holding is a super power. I’m pretty sure I stole that saying from Jake Rosser at Coho Cap, but Tom Russo is proving it correct. So, we’re going to discuss that right now.
Tobias Carlisle:
Holding is hard.
Bill Brewster:
Yeah, it’s not easy.
Tobias Carlisle:
Do you want to take that one away? That’s an interesting topic.
Bill Brewster:
You want me to start? Sure.
Tobias Carlisle:
Yeah, let’s do it.
Holding Is A Superpower!
Bill Brewster:
Russo released his letter to shareholders, and I got looking at some of the positions. You just look through like MasterCard, his cost base is 7.9 billion, current market value 93.5 billion. Berkshire 17.6 billion-
Jake Taylor:
Wait, how much money is he managing?
Bill Brewster:
On 628 million, so it’s a 15% position now.
Jake Taylor:
Okay.
Tobias Carlisle:
That was the market cap when he stuck it in, not the size of his position.
Jake Taylor:
Yeah, that’s about how much he… Yeah.
Bill Brewster:
Yeah, total cost and market value today. His total cost on Berkshire is 17.6 million, current market value, 84.6 million. Nestle cost base is 13.5 million, current value, 80.7 million. If you look at the aggregate gains in his portfolio, they are just under 300 million, it looks like. No, sorry total gains 363 million. Of that, 210 million looks like it’s the top three positions. So, it’s just one of those. I think it’s really… I mean, and then is Comcast position stupid, if these numbers are correct, which I assume they are, on a $373,000 position, it’s up to 12 million, 12.7 million. So it’s just-
Jake Taylor:
He should have bought more.
Bill Brewster:
Yeah. I’m shocked he never averaged up. So, it’s just one of those interesting peeks at if you just let your winners run what it can do. I mean, it’s a, it’s almost an argument for a coffee camp portfolio or something like that. This goes back to, I think I mentioned this before, but Greenblatt has mentioned that when he ran a concentrated fund, he found that letting winners run was as hard.
Tobias Carlisle:
This is a special situations portfolio?
Bill Brewster:
Yeah, back when he was running like six things. He said it was mentally just as difficult to let winners run as to have losers.
Tobias Carlisle:
I would have thought special situations had a pretty, you got a pretty hard catalyst. You know what are you going to get paid when you get the money back, that’s it. It’s played out. He’s letting those run?
Bill Brewster:
I don’t really know exactly what he was talking about, but I do know-
Jake Taylor:
It could be more spinoffs too.
Bill Brewster:
Yeah, not have-
Tobias Carlisle:
That’s fair.
Bill Brewster:
The other thing is, I don’t know if you think you have a 4:1 upside and you’re at 3:1 and it’s 25% of your book, letting it eke out that last part of the run could be really difficult.
Jake Taylor:
Returns per decision is an interesting metric to think about, and Russo’s got a pretty high score on that one.
Bill Brewster:
Yeah.
Tobias Carlisle:
Per position or per decision?
Jake Taylor:
Per decision.
Tobias Carlisle:
So, does that mean if it goes down and I buy a little bit more, have I made two decisions there, the initial purchase and the re-upping?
Jake Taylor:
I mean, probably technically yes, but that’s a half of decision. I don’t know. How do you guys measure that?
Tobias Carlisle:
I want the technical. I want you to be technically correct about this JT. I need to be able to code it into my system.
Jake Taylor:
Technically correct, and directionally wrong.
Tobias Carlisle:
It’s the best kind of correct.
Bill Brewster:
I think even if it is too, you’re not buying and selling and buying another security. I mean, he is very good at fishing in the pond that he understands and letting his oaks grow.
Tobias Carlisle:
Does he trim?
Bill Brewster:
He does. Well, I asked him or John, I’m pretty sure I submitted that question, John Mahalcovich asked him that at The Manual of Ideas presentation and I’m pretty sure he said that he views that as cutting your flowers and watering your weeds, and he doesn’t like to do that.
Tobias Carlisle:
Because the problem is that, you get a position that you like, I don’t know what you put into it, 5 or 10%, maybe more at inception. It goes really well. You’re up to, it could be 30 to 50% of your book. At that point that it’s run so far relative to the rest of your book, it’s much, much riskier now than it was when it was a much smaller position, because there’s more speculation in the price than there is… This is assuming that the value hasn’t run as hard, maybe the value has for him. I think it’s hard to then say, well now this is a 50% position and it’s more expensive. It makes total sense to me to keep it as a 50% position. You don’t want to trim it back a little at that point?
Bill Brewster:
I mean, I think that this is where my perception as Tom Gayner would let it run. I think this is where Buffet and Munger would probably say you let it run. I think that’s the thing that’s pretty tough, right?
Jake Taylor:
Coke.
Bill Brewster:
Yeah.
Jake Taylor:
That was maybe not good letting it run.
Bill Brewster:
Well, but I mean, you can’t… When you get to that size, you can’t sell in and out of a business like that. So, you’re going to pay the taxes and you’ve got to figure out where to redeploy it. That’s a different issue I think.
Tobias Carlisle:
But, you could… Sorry.
Jake Taylor:
I did a little study at one point on looking at different quantitative value, it is nothing is as in depth as Toby’s done with all of his different books, which you should pick up and read. But, one hypothesis… So, I looked at that and I compared it to all of the gurus that you can find their track records. I looked at, over the same time periods, how did the studies perform relative to the gurus? Of course, the gurus trounced the market, but the studies actually trounced the gurus. One hypothesis, and obviously there’s some liquidity problems with some of these studies. It’d be really hard to actually execute it. But, one of the hypotheses I had for that was that, the studies, because they were mechanical in nature of buying and selling, that they would participate on the downside inefficiency by buying something that was cheap, but they could also participate on some upside inefficiency when it got over, when a guru might’ve sold out and out on some of the runs to the upside there. So, maybe there was this extra headroom that the machine was capturing that the human wouldn’t.
Tobias Carlisle:
Why didn’t the machine sell? Because it was on a rebalancing rather than-
Jake Taylor:
It was on a rebalance, yeah. It was like every two years it would rebalance, but it had already run up to past where maybe a guru would have sold it.
Tobias Carlisle:
I’m a big believer in value names becoming momentum names, and you lose some of the return if you sell them too early. So, Graham says you hold for a 50% gain or two years, whichever comes first. That’s actually not really good advice. That’s bad advice if you test it. Because, the 50% gain means you’re truncating anything that actually starts working. You’re much better off ignoring that one. The two year one is fine. That’s how you get pretty good returns. If you hold for more than a year you get… Because, there’s a lot of stuff that just doesn’t work out of the gate, just stumbles. What are the chances that you get this thing at a slope? Pretty small, right? You’re getting it in the trouble that it’s having.
Tobias Carlisle:
Then, it takes a little while. It takes a few quarters for it to work out and you could chop it out anytime through there, because it doesn’t quite meet your criteria. But, if you let it run for two years, often they do turn around and then you get a lot of the gain, but just by nature, by virtue of the fact that moves are exponential for securities. A lot of the gain happens in the last few quarters of a year. So, it’s worth holding for longer. That’s an argument for holding I guess. That’s a strong argument for holding.
Bill Brewster:
Yeah. Well, Munger has said they will hold securities at prices that they won’t buy them. Hat tip to my man, the science of hitting investing. We were just talking about that yesterday.
Tobias Carlisle:
That’s a great one.
Bill Brewster:
And Akre too, right? I mean, that’s the essence of what he had written. I think the sound reasoning that I have heard about that or thought about is, it’s hard enough to make one good buy decision. So, if you hold something that’s a little rich and you’re really trying to own a business for the longterm, who cares if you take a little bit of a draw down on an inflated price quote, that’s not the end of the world.
Tobias Carlisle:
Particularly if the underlying business is still going well. So, that’s the thing you have to be careful to distinguish between-
Bill Brewster:
Yeah.
Tobias Carlisle:
… If you’re buying cyclicals-
Jake Taylor:
Yeah, you have to have that right.
Tobias Carlisle:
… You’ve got to buy and sell cyclicals. But if you’ve got a really good business that is a compound, that does pay you to hold it for a long time, they’re just hard to pick.
Jake Taylor:
No, they’re not apparently. Everyone’s got a whole list of them.
Tobias Carlisle:
Was that, was that Gayner, or Russo? Which Tom was that?
Bill Brewster:
That I just talked about?
Tobias Carlisle:
Yeah.
Bill Brewster:
It was Russo.
Tobias Carlisle:
Okay, I thought you said Gayner at one stage.
Bill Brewster:
I think gainer is good. I think he’s good at picking a horse and riding the horse and buying it over time. Well, buying it over time and measuring. As I listened to him more and more, I think that’s probably like, if he has a super power, that’s what it is.
Tobias Carlisle:
Good comment here. That was Walter Shaw’s his biggest error, which he admitted not holding long enough. Good one to avoid there. There’s a good podcast with Tom Russo and Meb Faber, where Russo gets right into his process. I enjoyed that one, [crosstalk 00:12:15].
Bill Brewster:
His letters are crazy. They’re super in depth, which I think some of it he’s probably just writing to clear his head, which we all do, right?
Tobias Carlisle:
Yeah, that’s why you do it. Buffet says that too. He doesn’t know what he thinks until he writes it down.
Jake Taylor:
That is, boy amen to that one.
Tobias Carlisle:
Sometimes you’ve got to… You can believe it to yourself and then you try and justify it to someone else and you see all the errors that you’re making. Lucky that one didn’t get out into the wild, I’d better strangle that one on the cot.
Jake Taylor:
Well, that’s the great thing about being such a reasonable creature though. You can come up with all kinds of reasons to justify what-
Tobias Carlisle:
Is that Franklin?
Jake Taylor:
At Excel, yeah.
Tobias Carlisle:
That’s a great line. I had that pinned above my desk for a long time.
Bill Brewster:
Ironically, most of the things that I have owned that have gone really well, I have not written up publicly. If you scan my blog, you probably think I’m the worst investor ever invented, because it’s basically airlines and ABM Bev, which sucks.
Jake Taylor:
Nailed it.
Bill Brewster:
Yeah, great job, which is honestly part of the reason I haven’t written again. I probably just need to get back on the horse, but part of me is like, “Man, once I make these things public, it’s just destined to die.” So, maybe I don’t-
Tobias Carlisle:
Well, that’s true. That’s right. You’ve got that consistency bias. When you say something publicly, you feel like you’ve got to justify it. It’s better to develop a reputation for being really inconsistent. Then, that’s what you got. You’ve got to maintain that. He’s just really erratic, mercurial, changes his mind at the drop of a hat. That’s the great thing about Soros, right? He says, “I get a sore back and I change my mind.” That’s a good… “Why are you changing your position?” “I’ve got an ache in my back.” They’re like, “Okay.”
Jake Taylor:
Isn’t that how you get a lot of action at the poker table too, is people think that you’re a loose player.
Tobias Carlisle:
Yeah, loose aggressive. That has been, I don’t know if it still is, but when I was watching a lot of it, that was the way to play.
***
Bill Brewster:
Two quick things before we move on. Shout out to Jake for bringing up the topic that Paul Singer ended up writing about.
Tobias Carlisle:
Oh yeah.
Bill Brewster:
Did you advise him on that particular part of his letter or?
Tobias Carlisle:
Well, Paul’s one of the blokes listening to the podcast.
Bill Brewster:
1 of the 10, yes. I’ll tell you what, Paul Singer, shout out to you. Good job on the Argentinian boat, not that you need me to tell you that, but that was a gangster movie.
Tobias Carlisle:
What’s the highlight? The Argentinian boat or Twitter?
Bill Brewster:
Probably the boat. Well, probably Twitter.
Jake Taylor:
Touche. Do you need your own private Navy to take Twitter to task?
Tobias Carlisle:
I don’t know how you’re going to fix Twitter.
Bill Brewster:
You may, you honestly may. You may need a bot Navy to re-attack. Also, thought it was pretty interesting that Liberty Media did the big re-attribution of the trackers after we talked about that two weeks ago. That was timely, on the day that our pod dropped.
Tobias Carlisle:
Yeah, fingers on the pulse. Another symbol guys listening to the to the pod.
***
Fantasy Investing Team
Bill Brewster:
Yeah, dude shout out to you Greg and John. Thanks. Hope Denver’s nice. Then the last thing, how do you not have Simons in your freaking fantasy team, man?
Tobias Carlisle:
Well, here’s the-
Bill Brewster:
You’re not going to put him in?
Tobias Carlisle:
Evidently, I was applying rules that nobody else was applying, which was that you had to have some money leftover to manage… I was planning on like… I’m a value guy. I’m a deep value guy. Of course, I’m going to pick Einhorn. He’s a dollar. He’s on the bottom line. He ran some spectacular… He up performed 24.5% until 2007. He’s underperformed by a little bit since then every year. But, Einhorn is a good investor.
Bill Brewster:
Okay, that’s good. It doesn’t explain leaving out the goat.
Tobias Carlisle:
I love Web, of course I’m going to buy Web, but at five bucks, that’s that’s GAAP, it’s quality-
Bill Brewster:
Yeah, you’ve got to pay your stars.
Tobias Carlisle:
I’m a deep value guy. I’m going to go off the bottom row, $1 for each.
Jake Taylor:
Come on. [crosstalk 00:16:13] Greenblatt where he was priced was way under priced.
Tobias Carlisle:
So was John Neff. There were a lot of guys who are just on the wrong rows there.
Jake Taylor:
That’s like the Scottie Pippen Bulls Contract.
Tobias Carlisle:
Yeah.
Jake Taylor:
Way underpaid.
Bill Brewster:
I announced my selection and I was over by a dollar, and then I got blown up. So then, I had to-
Tobias Carlisle:
You’ve misunderstood the rules of the game.
Jake Taylor:
Jerry Jones or something, you just throw money at this.
Bill Brewster:
Yeah, screw the Caps. I get all-
Jake Taylor:
Go under the Cap.
Tobias Carlisle:
I figured I’d have [inaudible 00:16:40] that I’d hedge the portfolio.
Bill Brewster:
Yeah, that’s fair. I wanted Li Lu for China exposure.
Jake Taylor:
That’s fair.
Bill Brewster:
Buffet and Simons. It’s Simmons, right? Not Siemens.
Tobias Carlisle:
Yeah, I think so.
Bill Brewster:
Then, I would probably go Greenblatt, but then I also threw an Ackman-
Tobias Carlisle:
Magic Formula Greenblatt or a Special Sits Greenblatt?
Bill Brewster:
No, no, it’s… Yes.
Tobias Carlisle:
Did I put Greenblatt in, because I would have had him. I want special situations go.
Bill Brewster:
I think you might’ve, I don’t know. I saw who you omitted and I got so mad I stopped [crosstalk 00:17:12].
Tobias Carlisle:
That’s my point.
Bill Brewster:
It’s just like, “What is he doing?”
***
Was John Neff A Quant Investor?
Tobias Carlisle:
Did you see, Jim O’Shaughnessy was talking about John Neff yesterday, so I got John Neff’s book and had a quick read through it. It doesn’t really talk about being quantitative, but O’Shaughnessy had lunch with him earlier on in O’Shaughnessy’s career. As John Neff was talking to him, he said, “John, you’re a quant.” He was like, “No comment.” So, clearly Neff had a little bit of quant in him. Sounds like Icahn’s got a little bit of quant in him too, calling for some Graham and Dodd, a little bit more Graham and Dodd, a little bit less tech and growth.
Bill Brewster:
Ironically though, a lot of his returns recently come from Netflix.
Tobias Carlisle:
Well, I think that was his son, wasn’t it? I think he talked about that a little bit.
Bill Brewster:
Yeah, I’m just saying he’s messed around in some energy, which I still think could be a large play.
Jake Taylor:
[crosstalk 00:18:00] made some pretty good money there.
Bill Brewster:
Yeah, he did. That’s true.
Tobias Carlisle:
That was a deep value then.
Jake Taylor:
Yeah. He still-
Bill Brewster:
It hurts he did not, hurts, hurts.
Tobias Carlisle:
I can stand a little bit in biotech and pharma as well. He’s got a good biotech pharma analyst, I think. I think it’s one of those things. I think he’s a very good, he’s very good at that portfolio manager level. He’s very good at that poker player. He knows when to bet big and when not to. A lot of the shot selection is brought to him by his team of assets. He’s not necessarily picking those stocks by rating 10 cues the way Buffet does. He’s not doing that work himself, but he’s very good at getting the portfolio right. That is not just me saying that. That’s born out by the fact that his size, his actual portfolio outperforms an equal weight version of his portfolio.
Bill Brewster:
Yeah. That makes sense.
Jake Taylor:
That’s interesting.
Bill Brewster:
I’m going to take us down one more path.
Tobias Carlisle:
Do it.
***
Bill’s Take On Intrepid Potash
Bill Brewster:
Just to something that I’ve been thinking about. This shit co that I love Intrepid Potash, the setup right here is directionally. They’ve invested 500 million in low cost potash mines and they’ve invested 100 million in acquisitions and building out energy infrastructure. Their current market cap is something like $100 million dollars. So, on a balance sheet or replacement value one, you have to answer the question, are these assets worth replacing? But once you answer that question, and if you think the answer is close to yes, it’s almost certainly cheap. The issue is it’s pretty much controlled by one major shareholder.
Bill Brewster:
So, I’ve been thinking through and how my thinking has morphed a little bit is, on the one hand, the market rewards what the business and the assets are worth over time. But you’re buying a minority interest. So if you’re side carrying along a guy who hasn’t really created value for 10 years, it’s reasonable to expect those minority interests to trade at a discount, right? As the minority holder, you don’t benefit from that transaction. Oddly, it’s actually gotten me to a point where I don’t hate share repurchases as much because, it forces return of capital to the minority shareholders.
Tobias Carlisle:
You didn’t like share repurchases?
Bill Brewster:
Not really. They’re so pro-cyclical.
Tobias Carlisle:
What about when they’re called buybacks?
Bill Brewster:
Oh yeah, yeah, then I like buybacks.
Tobias Carlisle:
Wait a second, that’s news. You don’t like buybacks?
Bill Brewster:
I think that it’s a very… I don’t like how management teams tend to execute that-
Tobias Carlisle:
You don’t like most buybacks.
Bill Brewster:
Yeah. I’m not one of these outlaw buyback people. That’s not me. I’m just saying, I think if you look at them, many management teams are basically momentum repurchase [crosstalk 00:20:49].
Tobias Carlisle:
Yeah, no disagreement from me there. I think most buybacks are bad.
Bill Brewster:
But, if you’re buying in shares and somebody doesn’t the valuation, they can sell proportionately and they do get a tax advantage capital gains rate, right? So, there are some advantages. Anyway, the minority interest discount like when money is not coming back to you, is the thought that I’ve been having specifically because of that entity, which tortures me for no reason. I should just leave it like I left Sarah Guasta.
Jake Taylor:
Timely. Would you discount then something with a dual class structure as well, for same reason?
Bill Brewster:
Yeah. I mean, I think that the onus is on the allocator to either grow the business or return the capital to the shareholders. I do think that you have to… One of the reasons that Berkshire never did is, because they kept increasing the intrinsic value. So, it was okay that they weren’t returning it to you because they were using the dollars for something better. But, in an entity where the dollars are just sitting there, I do think it should perpetually trade at a discount. You see where my head’s at?
***
Chis Bloomstran And Berkshire’s Possible Share Buy-Backs
Tobias Carlisle:
Chris Bloomstran says that he thinks that Berkshire bought back $20 billion of stock.
Bill Brewster:
Chris listens to this?
Tobias Carlisle:
No, probably, but it was a Forbes article me or something.
Bill Brewster:
I was going to say that shocked me. shock me. If they bought in 20 billion, that’d be sick.
Tobias Carlisle:
Do you think that’s-
Bill Brewster:
Is that what he said?
Tobias Carlisle:
Yeah, that’s what he said. I mean, Chris would know better than anybody else. He follows them much more closely than anybody else does.
Bill Brewster:
I haven’t looked at their filings or anything in a little bit.
Tobias Carlisle:
I don’t think there’s any suggestion that that’s actually happened. I think that’s him speculating, but he’s pretty… He’s reasonably well informed. That’d be good if it did actually happen.
Bill Brewster:
Reasonably, he’s the ACSM Berkshire.
Jake Taylor:
I would pay a significant amount of money to just sit in the corner while he went through a full breakdown of Berkshire.
Bill Brewster:
I’ll tell you what, he’s a good dude. I know him, but he’s fun. We’ve had some fun together.
Tobias Carlisle:
I get the sense that they hadn’t done a great deal through this, through that last little period from what Munger said, because I was thinking likely they’ve done a whole lot of buybacks too, but Munger was like, “Just conserving cash at the moment, selling out of all of the shit cos like Southwest.”
Bill Brewster:
Well, the facts change.
Tobias Carlisle:
Which has been 900 for the quarter. That was fun.
Bill Brewster:
I’ve been thinking, you’ve got them, you’ve got Elliot, you’ve got Malone, you’ve got Gundlach, all of these guys say that the upside downsides, Icahn-
Jake Taylor:
Geller.
Bill Brewster:
Yeah. I mean, we’ll see. I think the deals are on the com. I think everybody just wants it to be over with right away because we’re all on Twitter all day, and it’s just not how life works.
Jake Taylor:
Come at mother nature, you better not miss, right?
Bill Brewster:
That’s right, yeah. Now that I’ve basically had three different topics, [crosstalk 00:23:53].
Jake Taylor:
Are you done hogging this thing or what?
Bill Brewster:
No, no, it’s my hour.
Tobias Carlisle:
You wanted to… JT you want to do yours?
Jake Taylor:
Yeah, we have like 30 seconds for mine.
Bill Brewster:
Yeah.
Tobias Carlisle:
Well, mine’s like, everybody’s probably read it already so it doesn’t matter. I’m just going to be talking in my book anyway.
Jake Taylor:
Yeah, yours is just a victory lap in a way.
Tobias Carlisle:
Mine’s more confirmation bias for deep value guys, just more salve for the wound that’s a decade deep.
***
Investing From First Principles
Jake Taylor:
So, I thought it would be fun and I’m punting a little bit to this week, because I wrote this up at my last quarterly letter. But, this is how I reason up from large data series to arrive at what you would call a capital T truth. One of the problems that we have is that, it’s really hard to figure out what is true and what’s not true a lot of times. Do we have enough data sampling to be able to say much of anything with real conviction?
Jake Taylor:
Well, the first three… The number one data set that I look at is the inorganic universe. So, this is like physics. What are the things that we can take from physics that will allow us to say-
Tobias Carlisle:
This is really first principles.
Jake Taylor:
We’re going deep first principles, yeah. So, I’m going to relate this to one specific idea, which is reciprocity. I’m going to show how each three of these data sets show that reciprocity is a capital T true thing for us to hang our hats on. In the inorganic universe, we have Newton’s Third Law, which is for every action there’s an equal and opposite reaction. That’s basically reciprocity. If you run something into something, it’s going to bounce back, or if you send a planet around the sun it’s going to come around the other side.
Jake Taylor:
The second giant data series is biology. We have 3.7 billion years worth of data to look at here. So, conclusions we can draw from biology can be useful in other domains. If you think about us, we’re all made of eukaryotic cells and that probably came about-
Bill Brewster:
You got that Toby?
Tobias Carlisle:
I remember that one means it’s multi as opposed to monokaryote, something like that.
Jake Taylor:
Yeah, we’re multicellular. Inside of these cells there is-
Tobias Carlisle:
It’s high school biology bailing me out there.
Jake Taylor:
Did they have that in Australia?
Tobias Carlisle:
Yeah, they did. They taught me stuff that’s not true. I had to discover it afterwards. Phylogeny does not recapitulate ontogeny. I’m sorry, keep going.
Jake Taylor:
So, it’s probable that eukaryotic cells came from two bacteria teaming up, and there’s a couple of reasons why we might believe that. One of the cells would be… One of the bacteria would have been providing food and maybe movement and protection. The other one would probably be providing energy to the cell. So, if you look at us today, our mitochondria they’re determined 100% actually by your mother’s lineage.
Tobias Carlisle:
The mitochondria is the powerhouse of the cell.
Jake Taylor:
Correct. So, we have one little thing inside of the cell that is totally determined by your mom’s lineage, and the rest of it is a mixture. Well, isn’t that interesting? Why would it come out be that way? It’s probably because two things teamed up together, and they were symbiotic in their relationship. So, there’s a reciprocity at a biological level.
Tobias Carlisle:
So, does that mean that your energy levels are dictated by your mom?
Jake Taylor:
It’s possible that the way that you process, the way that you convert chemical food into energy that your body uses, is largely determined by your mother’s lineage, yeah.
Tobias Carlisle:
Interesting.
Jake Taylor:
So, number three, large data set human history. We have 5,000 years worth of recorded history if we go back to Sumerian cuneiform, but above that, we have 2 million years worth of-
Bill Brewster:
I love your face Toby.
Tobias Carlisle:
I love this. I love this whole thing. It’s amazing.
Bill Brewster:
I do too, I do too.
Jake Taylor:
… So, you have 2 million years worth of, we’ll call it modern, what you and I would recognize as a human. We were largely hunter gatherers at that point. The hunter gatherer environment was very random. You would go out for a hunt and chances are maybe you’d come back with an empty stomach. However, if you did get a big kill, unfortunately the meat spoiled before you could eat all of it. So, you could actually store some of the meat in one of your friend’s stomachs, and if they got the kill they would then be reciprocal to you and feed you. So, that was the first insurance policies that we came up with was, come back with the kill and feed everybody in the tribe, and then when they get the kill will get fed.
Jake Taylor:
So, we are hardwired to appreciate reciprocity, to understand when someone is cheating us, when someone is a loafer and not delivering enough, we are very attuned to that biologically, and it’s from 2 million years of evolution of that playing out. So, all of these things, these three large data series tell us that reciprocity is a real thing that we can appreciate.
Jake Taylor:
What does this mean for investing? A business exists in an ecosystem and has to have reciprocity with all of the interactions that it has with its constituents. So, its constituents are the employees, it’s vendors, the environment, the communities that it does business in, its employees and then customers, and then lastly, its regulators. So, we have six primary constituents that there has to be some reciprocity for this business to operate and be sound in a longterm way, like biology would dictate.
Jake Taylor:
So, when you’re looking at businesses you have to look for, is there anywhere where that business seems like it’s getting over on one of these constituents? If it is, you have to ask yourself, is this going to… Is this a sustainable business over a very long term? We talk about wanting to be holding as a superpower. Well, if you’re going to hold for a really long time, you have to have a business that is going to be win-win across all of these stakeholders. Otherwise, eventually someone is going to defect because they feel like they’re getting over. Whether that’s employees unionizing, whether it’s an employee or the government cracking down on them for antitrust maybe, or whether it’s customers feeling they’re getting cheated, maybe a cable company and they’re like, “Screw those guys. I’m not going to-
Bill Brewster:
Hey, lay off. Lay off.
Jake Taylor:
I knew I’d throw that on Bill. So anyway, if we take some really long sweeps of data series, we can maybe apply that to our investing framework and look for those kinds of outcomes. What the beautiful thing to me about that is that, all of that is a win-win for society and all of us who are participating in this. I find that to be a really beautiful thing about capitalism, when it’s done well is that, it really does have to be win-win for everybody. It’s such a magical thing and it surprises me sometimes how we try to squish it away. But, that’s a different-
Tobias Carlisle:
Let me throw a couple of-
Bill Brewster:
My man went full Peter Kaufman on you all, just so you know.
Tobias Carlisle:
Let me throw a few names at you.
Jake Taylor:
I didn’t want to say that because he doesn’t like attribution, but-
Bill Brewster:
No, that’s the stuff he preaches, right?
Tobias Carlisle:
I want to just throw a couple of names at you and get you to talk a little bit about the ecosystem applying those rules. Amazon.
Jake Taylor:
A little bit problematic in how they treat suppliers probably. Probably a little problematic on-
Tobias Carlisle:
Employees in the warehouses.
Jake Taylor:
Yeah. That’s, I mean-
Tobias Carlisle:
They also did this thing today where they’ve reduced commissions for affiliates from 8% to 3%, a good time to do it.
Jake Taylor:
Right.
Bill Brewster:
They only do it so you can get diapers cheap and quick. So, somebody’s got to lose.
Jake Taylor:
Well, that would… Eventually, somebody will figure out a way to revolt against that if they’re getting pinned down for long enough.
Tobias Carlisle:
How about Google?
Jake Taylor:
In general, pretty clean, but some of the data-
Bill Brewster:
What’s funny is, everybody calls them fads.
Jake Taylor:
… How are they using the data, there may be ways of-
Tobias Carlisle:
Facebook seems a lot more offensive to me than Google, even though Google probably has just as much, maybe more on me.
Jake Taylor:
Yeah, definitely. Probably a lot more actually across wider things.
Tobias Carlisle:
Yeah, that’s interesting.
Bill Brewster:
My beef with this is, I’ve had this discussion as it pertains to airlines, so get your drinks out. But, somebody told me that they thought that Southwest was very customer focused and Delta wasn’t. I have heard from a lot of people that love Delta and say like Delta actually is.
Tobias Carlisle:
I fly both, Delta’s great.
Bill Brewster:
I know. Well, I think that you can get into pretty subjective stuff here. But, I don’t disagree with theory and I think that the thinking it through is super important, but Toby to your point, I hate Facebook and everything that it represents to me. That said, you talk to somebody Marcelo P. Lima, and I think he has pretty compelling arguments on the other side for what it can do for society.
Jake Taylor:
When is it going to start doing those things?
Bill Brewster:
Well, the thing is the internet in general… I think the problem with Facebook is they privatize the internet and when you privatize the internet, you get its ugly corners too. That sucks, especially when stupidity can ring louder than rational thought.
Jake Taylor:
I do think there are definitely some shades of gray to all this. You can’t just say like… It’s not binary if someone is clean or dirty. But, there are some that are more obvious that people are probably ignoring a lot of times, and I think eventually it will bite them in the ass, it may take a long time.
Bill Brewster:
Here’s one, what about Disney?
Jake Taylor:
Well, I’m sure it doesn’t seem like they’re treating their employees particularly well in this time of need.
Bill Brewster:
What about their customers?
Tobias Carlisle:
They’re also a bit nasty on the copyright front. They’ve got little deals in there, they come after you for copyright. And that’s silly thing on Twitter where they said, “Tell us what you feel about…” whatever it was. Then they put straight underneath, “By the way, if you respond to this email, you’ve given us the rights to use your likeness in this tweet in perpetuity.” Totally binding agreement.
Bill Brewster:
I mean, they’re one that I would say, and I have friends that are along it and I’m sorry to say, I don’t think that they are particularly concerned with treating everybody well. They just have a really, really unique experience in IP, so they can charge you enough that you have to take out a credit card loan to go there, or a second mortgage or whatever and people do it.
Jake Taylor:
How about from the owner’s standpoint, which is another one of the constituents that I forgot to say, and having such, maybe I’d call it egregious cop for the management. That’s a little chiseling of the owners, isn’t it, to pay some of these guys so much money.
Bill Brewster:
Yeah.
Tobias Carlisle:
Did you see that SBC thing that I tweeted out yesterday?
Jake Taylor:
Yeah.
Bill Brewster:
Yeah.
Tobias Carlisle:
It’s not my chat, somebody else’s chat, but holy cow, some of those companies have just been blasting up 20% plus-
Jake Taylor:
Stock based compensation by the way.
Tobias Carlisle:
Sorry, stock based compensation, pardon me, it’s stock based compensation, just through options and so on, like 20% a year.
Bill Brewster:
Yeah.
Tobias Carlisle:
That’s crazy.
Bill Brewster:
Only thing I’ll say real quick on the comp with Disney particularly, Iger has added a lot of value. He set that company up. That could be a dying company right now if it wasn’t for some of the moves he made.
Tobias Carlisle:
Did he also quit and then come back? What was all that about?
Bill Brewster:
He can’t let go.
Tobias Carlisle:
He wasn’t just the sidestep-
Bill Brewster:
I thought that was really funny. It’s like, here’s the new CEO and he’s super prepared, and Oh by the way, shit just hit the fan. I need to take this job back.
Tobias Carlisle:
I read it the other way around.
Jake Taylor:
You’re out.
Tobias Carlisle:
I read it like, well-
Bill Brewster:
Well, I meant you could run it when everything was good. I didn’t mean you could run it, run it.
Tobias Carlisle:
I thought that was the other way around. I thought he was like, “This is all sweet,” and then air pocket, I’m out. He pulled the parachute and then it was like, “Oh, we righted that ship surprisingly quickly. It’s not an 18 month rip up. I want to get back into play and you’re out brother.”
Jake Taylor:
This is like when you give your little brother the controller that’s not even plugged in and he thinks he’s playing.
Bill Brewster:
Yeah, yeah, have fun Chapek. Toby, what’s your topic?
***
When Buffett Was A Quant
Tobias Carlisle:
So, sorry for all of the deep value guys who followed me into deep value and have just endured years of pain in it now. The only thing I can say is that, I’ve been in during at least as much pain as you have. So, I’m in there for real. But, a nice thing came out from Verdad, Nick Schmitz, I think he’s one of the partners, one of Dan’s partner.
Bill Brewster:
Who’s your verdaddy?
Tobias Carlisle:
Verdaddy, someone’s gotta to get that Twitter handle, Verdaddy, @Verdaddy. Basically, it’s when Buffett was a quant talking about when Buffett was much more mechanical, going back to his net-net days, makes a little bit of a leap because Buffett’s was never this kind of quant. But, it is interesting. The chat that they put up is interesting. It’s one that I’ve shared in the past too. It just shows the cheapest decile in the pharma French data, the free cash flow yield. I think it was free cashflow that they put up. It’s now at this point where the last times that it got as cheap as this, the returns that immediately followed were spectacularly good, like 20-30% a year type returns.
Tobias Carlisle:
So, to get to this point, obviously that’s a very painful under-performance and nobody’s enjoyed it, including me, but I’m hopeful that the forward returns look much better. Of course, it can always get cheaper, but basically the opportunity set, and I have been saying this since the start of the year, I’ve been saying this since maybe a year ago, the opportunity set is basically as good as it ever gets for this stuff. So, I think the market is expensive and the market’s going to do what the market’s going to do, but the deep value stuff is basically about as good as it gets, particularly in small, small value. Small value’s just ridiculously good value at the moment. Anybody want to confirm my bias?
Jake Taylor:
Yeah. I mean, my opinion is that we’re shaping up maybe not totally there, but we’re shaping you-
Tobias Carlisle:
What are you waiting for? What are you looking to see?
Jake Taylor:
I just worry that it could… We haven’t taken out 73, 74 level in that chart, and that’s still aways away I feel.
Tobias Carlisle:
How far was it?
Jake Taylor:
That was down to, what was it, 1.5 or something price to free cashflow.
Tobias Carlisle:
Where are we now?
Jake Taylor:
What was it? Two and a half or three or something like that. But, the other problem is, I’m not entirely sure that it’s apples to apples with the debt levels might be a little bit different across that data series.
Tobias Carlisle:
Yeah, that’s the price of the free cash. So, that’s a good point. When add in the debt, it’s not quite as cheap because we’re a little bit more indebted than we have been in the past. That’s true. But, I think if you… That turns up. If you have a look at Alpha Architect’s website, they’ve got an EVE bit tracker that goes back. It says that value is pretty good value at the moment, but it’s not as cheap as it has been at other notable turning points. The only thing that I would say to that is that, when Cliff Asness wrote his Venial Value Sinning article and then followed it up with the Never Has A Venial Sin Been Punished So Swiftly or So Brutally, he talks about using an ensemble. When he uses the ensemble, he said basically you’re at this point where, we either proceed onto dotcom undervaluation, possible like this. We’ve done that before.
Tobias Carlisle:
But, if you’re betting on us going to dotcom undervaluation, you’ve got to know that we’re in the 97th or 99th percentile of undervaluation here. So, that it’s much more likely that we go back in the other direction.
If You Started Your Investing Career In ’99 You Had A Great Shot At Becoming A Guru
Jake Taylor:
Yeah, well I mean, what I was going to say was that, if we’re getting close to, or at least maybe already there, this I would call the value guru making setup. ’99 was when… If you started in ’99, you had a really good shot of coming out of that as a guru.
Tobias Carlisle:
Yeah, that’s [inaudible 00:41:30].
Jake Taylor:
I didn’t want to name any names, to take away from their glory, but there’s a lot of guys that came out of ’99.
Tobias Carlisle:
Who’s the original, I just I’m blanking on his name a little bit at the moment, the original activist of that period?
Jake Taylor:
Loeb.
Tobias Carlisle:
No, not Loeb, but he is another one in that group. The guy who was Sears.
Jake Taylor:
Lampert?
Bill Brewster:
Bruce Berkowitz?
Tobias Carlisle:
Lampert, Lampert.
Jake Taylor:
Berkowitz was before it too, he was early ’90s.
***
Will Tobias Ever Be Interviewed By Consuelo Mack?
Tobias Carlisle:
Yeah, there’s some good reputations to be made when value starts working, and the market goes down, you look like a genius. I’ve had it the other way around, so I’m not going to be able to claim that I’m a genius. If it starts working, I’ll be like, “Yeah, I’m just a value guy.” It would be nice. I’ve been imagining what it would feel like. It’s what gets me out of bed in the morning.
Jake Taylor:
Are you doing little Forbes interviews into your comb? You’re talking-
Tobias Carlisle:
In the mirror.
Jake Taylor:
Why? Yes Consuelo. We did have a very good year in 2021.
Tobias Carlisle:
Sad, but true. You’ve made it when you get on Consuelo Mack, right? That’s how you know.
Jake Taylor:
Yep, that’s how you’ve done it.
Bill Brewster:
Tell you what, she’s got a pretty legit podcast.
Tobias Carlisle:
Yeah, it’s great.
Bill Brewster:
I mean, every Saturday I’m like, “all right, I’m happy I spent my 30 minutes here, on 1 and 1/2 speeds, so really like 18 minutes or whatever.” [crosstalk 00:42:58]
Jake Taylor:
She seems like a hustler, I like her.
Bill Brewster:
Yeah, yeah. She asks good questions too.
Tobias Carlisle:
what is WealthTrack? I watch it, but I watch it screen on the web. It looks she shoots it for a studio for some. Any ideas what it is?
Jake Taylor:
I don’t know how they make any money, I don’t know what they’re selling behind that.
Tobias Carlisle:
It’s one of the original podcasts, right?
Bill Brewster:
Well, she’s sponsored by some of the investment advisory firms, right?
Jake Taylor:
Okay.
Bill Brewster:
Feels a little promotionally to me, but she’s got such a wide array of people that she interviews.
Tobias Carlisle:
[crosstalk 00:43:31].
Jake Taylor:
I know Royce pays for that, don’t they? I remember.
Bill Brewster:
Yeah, and it sounded like Chuck’s on that every day. So, I don’t think it… think it’s, I don’t know. Did she come up when Wall Street Week went out? I mean, now I’m just asking stupid questions. Somebody’s probably like, “This guy doesn’t know what he’s talking about.”
Tobias Carlisle:
Yeah, it’s hard. I feel like she’s always been there. I feel WealthTrack’s always been there, PBS corporate is PBS. Yeah, that makes sense. I feel like it’s been there forever and ever, but I don’t know anything about it other than it is worth listening to. She always gets Greenblatt and Greenblatt appears so irregularly.
Jake Taylor:
He’s hard to get, yeah.
Tobias Carlisle:
So, he’s always good for that.
Jake Taylor:
You can only get him for $3 on Twitter.
***
Investing In Small Caps
Tobias Carlisle:
Do you guys want to throw in your questions? I’ve actually got a good one up here from Brad Schultz. He said, generally agree with Toby, but I worry about bankruptcy risk in small value. Yeah, 100% agree there. If there’s a place where it really pays you to do some work on the balance sheet and to look at statistical measures of financial distress and earnings manipulation and fraud, it’s in small value. The dispersion in small is so big that, if you eliminate all the bad stuff you do much better than the index. Then, if you’re actually reasonably skillful and you can find, it doesn’t have to be value, but value when value works. Value is one of the things that does it, you can do other things like momentum and so on. If you can find the stuff that works in there, then you can distinguish yourself again. So, value is a really… The good investors who are good small cap investors are really good investors. So, Ian Castle always springs to mind when I think about those guys.
Jake Taylor:
Isn’t it priced in there though? I’m just thinking out loud here, but I think you said before that when net-nets… The ones that are actually losing money tend to outperform the ones that are not losing money because it’s more of a catalyst.
Tobias Carlisle:
I distinguished small cap from net-net. So, I think net-net is a special case.
Jake Taylor:
Well, let’s just take that same mispricing potential and apply it to the small cap world. Why wouldn’t the bankruptcy ones… Why would sheltering those or filtering those out make for better returns?
Tobias Carlisle:
Because bankruptcy and indebtedness are different. I mean bankruptcies, obviously that’s a binary thing. If something’s bankrupt then that’s game over. But financial distress is trending towards bankruptcy. That is something you can distinguish from just being indebted, because there are other things going on. Like there’s liquidity issues and solvency issues and various other… If you’re looking for… Often, there’s a lot of share issuance for these little ones, that’s okay, but that’s just worth keeping an eye on share based compensation. It’s not only important for large cap tech, it’s also important-
Jake Taylor:
Not just a Silicon Valley trick.
Finding The Bad Actors In Small Caps
Tobias Carlisle:
… Large cap tech can get away with it. Large cap tech can definitely get away with it. Small caps is like a frontier. I think it’s the most fun area to invest, and I think It’s also the area that’s most easy to blow yourself up just because there are lots of bad actors. I think about this all the time. I would love to… If I had enough money to hire an analyst who could just focus on this one thing and just go around and pick out all the bad actors, in not just small cap everywhere, who issues too much more stock than revenue like Snapchat does, who does stuff like that, who’s just enriching the insiders? Who’s paying the insiders way too much? Who’s basically ripping off their clients? I mean ripping off their shareholders.
Tobias Carlisle:
I’m not even talking about the business, I’m just talking about guys who are just in there to extract it from their shareholders. I think that you could make… That’s a pretty good… I don’t know if they’re good shorts, but it would be worth someone just drawing that to everybody’s attention, because I reckon it’s a third of small caps are like that.
Bill Brewster:
You’re telling me you can’t get some college kid to be your intern to do that stuff? You’ve got books, man.
Tobias Carlisle:
Probably, but I-
Jake Taylor:
50,000 followers, there’s not one in there that wants to-
Bill Brewster:
Yeah, you’re an influencer, bro.
Tobias Carlisle:
I would turn it… I’d almost want to get activists with some of these things and I don’t want to go activist, but I think it would be just worth it. I wish somebody would just publish that stuff and just tell everybody who the bad actors are. So they cleaned up what they do, behave a little bit better.
Jake Taylor:
I will maybe do activism later.
Bill Brewster:
Isn’t that what SEC is supposed to be doing?
Tobias Carlisle:
Yeah, well they don’t, that’s the problem. But yes, that’s what they should be doing. You should just be sending briefs to the SEC.
Jake Taylor:
Yeah.
Tobias Carlisle:
It’s like activism as a public service or something like that, not necessarily to make money because I don’t think you could long them and I don’t think you could short them. You’d have to go activist.
Musk Paying For Insurance For His Boeing
Jake Taylor:
Speaking of SEC asleep at the wheel, did you guys see that apparently Musk is paying for the insurance for his Boeing?
Tobias Carlisle:
Is he paying or is he just saying he’s insuring them?
Jake Taylor:
I thought he was paying the premium for the insurance, maybe I misread it.
Tobias Carlisle:
See, the way I interpreted it was, the premium was too high. So what he’s going to do is he’ll insure them instead, which means if they get an issue, he’ll just underwrite it.
Jake Taylor:
He’s self-insuring.
Tobias Carlisle:
Does that work? Can an empty sack stand up under its own weight? I don’t know.
Jake Taylor:
Cold.
Bill Brewster:
I don’t know that I want to get into this.
Jake Taylor:
Come on, the water’s fine.
Bill Brewster:
No.
Tobias Carlisle:
It would be one thing to say, “Look, the premiums are too high. You give us coverage up to one level and I’ll reinsure above that level.” That’s one thing. It’s a completely different thing to say, we don’t need the insurance all under… I got you. What if you’re sued too? Don’t worry about that.
Bill Brewster:
Yeah, no.
Jake Taylor:
Is that legal? I’m not even sure. It seems like a weird conflict to me on-
Tobias Carlisle:
The board okayed it. The board approved it.
Bill Brewster:
Elon Musk is the corporate Trump. There’s nothing that he can do that his followers or his board are going to stop him from doing. So it just is what it is. The lines are divided and everyone will see what they want to see. Let’s see how the [inaudible 00:49:19] to say. As we were talking about small cap value, I’m looking at stuff that’s ripping right now. My beloved airlines, United up 11%.
Tobias Carlisle:
Are they working?
Bill Brewster:
I mean, are they working it all depends on your timeframe, right?
Tobias Carlisle:
Today.
Bill Brewster:
United up 11% ,American up 13%, Delta up 10%.
Jake Taylor:
We got a vaccine?
Bill Brewster:
Southwest. Well no, that’s actually exactly where I’m going with this. Southwest is only up 2%. When you think about all those, Southwest has the most domestic network out of anyone, and the least amount of leverage, and they’re up the least.
Tobias Carlisle:
Southwest reported.
Jake Taylor:
Chunk rally.
Bill Brewster:
Yeah, you’ve got massive international travel exposure on those other names and a lot more leverage. It’s interesting to see what’s going on to say the least.
Tobias Carlisle:
The Chamath, so he’s been out, I’m mispronouncing that, he’s been out talking about buybacks and so on. I think the first little run that he had was pretty good. The second one on buyback playing a few wrong nuts there from me personally. But, do you guys want to take any of that?
Bill Brewster:
Sure. I’ve been told that I’m opinionated, so here one goes.
Tobias Carlisle:
That’s what a podcast is for.
Bill Brewster:
Yeah, no. I think the guy is a joke when he gets outside of his lane. I think he’s obviously intelligent and he’s made a ton of money, and when he talks about tech, I listen, and when he talks about Berkshire, I don’t.
Tobias Carlisle:
What did he say about Berkshire?
Jake Taylor:
What’d he say about Berkshire?
Bill Brewster:
I don’t know. He said something about Berkshire Hathaway Energy, runs with negative equity or something like that.
Tobias Carlisle:
That’s okay.
Bill Brewster:
I think his stance on buybacks is ridiculous. I think he suffers from buyback derangement syndrome like everybody else does. He’s got this vision of the world where he’s right and no one else is, and I get it. But he’s just some tech bro to me. I’ll listen to him talk about tech.
SPAC Investing
Tobias Carlisle:
Do you know anything about the SPACs?
Bill Brewster:
No, and I would never invest with him in a SPAC under any conditions no matter what. That’s as opinionated as you’re getting out of me. Jake too?
Jake Taylor:
I’ve nothing to add.
Tobias Carlisle:
Nothing to add, very Munger of you. I like this first thing-
Bill Brewster:
Thinking about SPAC that I don’t understand is, he has proven that one that he-
Jake Taylor:
I do have one thing to add.
Bill Brewster:
… He definitely helped Facebook become what it became, right? So that’s super important. But, Zuckerberg is the strategic visionary behind that company. I don’t know that you just give him money for a SPAC. I mean, that doesn’t make a whole lot of sense to me. Especially when he’s out on at Stanford saying like, get the fucking money then change the world. Why am I going to give you my money? Screw you, I’ll change the world with my own money. I don’t know.
Jake Taylor:
Is he involved with the Virgin Galactic?
Tobias Carlisle:
I think someone did say that, yeah. I think he does it.
Jake Taylor:
That’s one that’s been puzzling to me is that, Branson’s scrambling to get to keep Virgin going for regular, actual humans needing to move around the earth for probably legitimate reasons, and somehow space is still high. What?
Tobias Carlisle:
Yeah, that is a puzzler. I’ll just say this about SPACs, SPACs are giving a manager who you like the money to invest in something that they don’t know what they’re going to stick the money in. I just usually don’t like to play that game. But, SPACs become interesting when the time’s about to run out and they have to give the money back, because often they’re traded at a big discount, they’re under some pressure to do a deal and you get a pop. So, I don’t mind them as a little special situation play close to that. I think it’s usually two years when the period of time is going to run out, and they’re going to give you back the money. So, they’re worth watching. If you see one, put it in your calendar for 18 months time and just start looking at it then.
Bill Brewster:
The other thing, the ones that I’ve looked at and they’ve only been a couple, the amount of capital that the GP for lack of a better term puts up is like nothing. All the incentives to me seem to be to do a deal to enrich themselves. I just don’t… The incentive structure just seems way out of whack. If I knew the person and they had a track record, then maybe.
Munger Missing From This Year’s Berkshire Meeting
Tobias Carlisle:
Chamath is Chairman of Virgin Galactic, just to confirm. Sorry for not knowing that everybody. Here’s a couple we haven’t talked about this. Munger’s not doing the Berkshire meeting this year.
Bill Brewster:
Yeah, it’s sad.
Jake Taylor:
My heart is broken.
Bill Brewster:
He does not use the internet. What do you expect?
Tobias Carlisle:
Come on daddy. Someone can’t set him up with a camera and a bowl of peanut brittle, and let him watch from home and just stutter and waddle off the whole thing?
Jake Taylor:
Can you drive over to his house in Pasadena, Toby and get him hooked up on your laptop?
Bill Brewster:
No, it’ll give him Corona virus. Stay away.
Tobias Carlisle:
Yeah, I’m a super spreader.
Bill Brewster:
We don’t want you to be anywhere near him. I don’t know, it’s a shame.
Tobias Carlisle:
He can’t Skype in?
Jake Taylor:
I don’t know but I’ve got my box of See’s Candy ready. I’m going to be dialed in for this.
Bill Brewster:
He looked reasonably good at Daily Journal I thought, right? I
Jake Taylor:
Sure.
Bill Brewster:
His tone was good, so I don’t think it’s a health issue. Do people know if he has a computer at his house? You would think he has one, but I mean, he talks about never even using Google. It’s hard to think that you have a computer and haven’t used Google.
Tobias Carlisle:
Google is only available in computers, correct? I get the printout.
Bill Brewster:
He’s got a flip ball I suppose.
Tobias Carlisle:
Does anybody have any interest in mystery science 3000, the whole thing? That’s a long haul, but do you guys have any interest in doing that? Maybe we just do-
Jake Taylor:
I don’t want to be distracted. I want to be focused in on it. But, I would like to do a pop episode after, like a post game show.
Tobias Carlisle:
I might be a three sheets to that win by then.
Bill Brewster:
We’re to going to have to circle back. I don’t know if I’m going to be available.
Jake Taylor:
What are you doing that’s so important? Get out of here.
Bill Brewster:
I just don’t know.
Tobias Carlisle:
Fair enough. All right, well we killed that one.
Bill Brewster:
I would like it. I just, I’ve got other stuff going on.
Tobias Carlisle:
Well we have to do… Well, I guess we’ll do one of these straight afterwards, so we’ll be close. Maybe we’ll record it and do it afterwards, I don’t know, I don’t know. It’s Seven hours. Is there a highlight reel?
Bill Brewster:
Is it going to be all seven hours? I thought it was only going to be three this year, but I could be wrong. I haven’t really paid attention.
Tobias Carlisle:
Well, I wasn’t paying attention at the time. Isn’t it usually-
Bill Brewster:
Even when it’s live, I’m usually the guy that’s booking Harrah’s three weeks before the actual event. I’m always in cancel bluffs because I was delinquent on my planning.
Jake Taylor:
You could sleep on the floor in my hotel room if you need to.
Bill Brewster:
It’s fine, I mean I get to look at the river and whatever, take my walk.
Jake Taylor:
You’re just gambling over there.
Tobias Carlisle:
I’ve done Harrah’s and there’s a Holiday Inn or something, where everybody who goes to the Omaha Correctional Facility stays. They’ve got all these signs up about-
Jake Taylor:
Conjugal visits?
Tobias Carlisle:
No slave trade, don’t… What is it when you get somebody and you’re trying to get them across that, you get a child, you’re trying to get them across the border. There’s all these signs, little people’s signs to watch out for.
Bill Brewster:
I think you’re talking about human trafficking.
Tobias Carlisle:
Human trafficking, thank you, yes. Human trafficking signs.
Bill Brewster:
Those are the signs in the hotel you’re staying in?
Tobias Carlisle:
Yeah, dude. It’s the Omaha… It’s the one where you stay if you’re visiting the Omaha Correctional Facility.
Bill Brewster:
I’m glad I haven’t stayed there.
Tobias Carlisle:
I tell you, it’s cheap though.
Bill Brewster:
It should be. I mean, this is the difference between price and value.
Jake Taylor:
Who’s your cellmate?
Tobias Carlisle:
Well, it’s very deep value and deep value’s had a bad run. If deep value goes a little bit better, maybe I’ll be staying in Harrah’s next time.
Bill Brewster:
There you go, yeah. Just don’t drop the soap in that place.
Tobias Carlisle:
Well, I think we’re running out of stuff unless anybody’s got any words they need to say before the time.
Bill Gates On Life After Lockdown
Bill Brewster:
I’ve got nothing. I hope these opening ups, the opening up of the economy goes well. I hope everybody’s a responsible. I’m more hopeful than I have been, but don’t… Have you listened to what Bill Gates has put out the past week?
Tobias Carlisle:
No, what did he say?
Bill Brewster:
The thing that’s tough is… So, he’s basically preparing everybody mentally for spring 2021, if you want to be optimistic.
Tobias Carlisle:
Come on.
Bill Brewster:
I mean, that’s the thing.
Tobias Carlisle:
I’ll take my chances before then.
Bill Brewster:
Well, and then you look at what the market’s pricing in and it’s like, I don’t know, what’s going on here? But, the market discounted this thing from January to March and it was wrong objectively speaking. So, now I think it’s a little interesting that I perceive people to just be looking at Bill Gates is the guy that’s too dug in on his view.
Tobias Carlisle:
You think it was too pessimistic in the March 23 low?
Bill Brewster:
I would not be shocked to see that retested.
Jake Taylor:
I saw they’ve been polling the group of super-forecasters that Phil Tetlock does, and asking them COVID questions. One of them that was scary was about vaccines. If I get it right, like 30% of the super-forecasters said no chance of a vaccine until well basically like 18 months from now, and then another like 40% of them were like into 2022.
Tobias Carlisle:
Aren’t we all going to have it?
Bill Brewster:
Yeah, well maybe.
Tobias Carlisle:
Haven’t we gone the old school style?
Bill Brewster:
But then, according to the WHO, the WHO, they say even if you’ve had it, there’s no guarantee that you’re immune the next time. So, I don’t know.
Jake Taylor:
Or a different strain or if it mutates, there’s still a lot of things that could go wrong in this planet.
Bill Brewster:
But, I heard Gates say yesterday-
Tobias Carlisle:
Well, at least a couple of states, Texas, God bless Texas, are going to roll out, is going to test it all for us, see how they go. Vegas strip as well can find out.
Bill Brewster:
I hope it goes okay. I would like it to. I don’t mind the little AB testing. Hopefully it’s doesn’t end up in anything catastrophic.
Tobias Carlisle:
On that note, thanks folks, that was really fun.
Bill Brewster:
Have a good week.
Tobias Carlisle:
We’ll see everybody next week.
Jake Taylor:
All right. Enjoy Berkshire.
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
