VALUE: After Hours (S02 E19): Bumper Buffett BRK.A BRK.B Berkshire Hathaway Bull Session

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

  • Buffett Shows His Genius Through This Crisis
  • Berkshire’s Ted And Todd Couldn’t Find Anything To Buy In March
  • No Stimmy For Berkshire Companies
  • Buffett Worried $137 Billion Is Not Enough
  • Why Did Buffett Bring Up That In 1929 The Market Had A 20% Rebound But Took 20 Years To Get Back To Flat?
  • Just Because Someone Does Them (Buy Backs) Stupidly Doesn’t Make Them Immoral
  • Buffett – You Don’t Need A Minute By Minute Opinion On Your Ownership
  • Why Couldn’t We Have Had A Ten MInute Cameo From Munger At The Berkshire Annual Meeting?
  • That PowerPoint Presentation At The Berkshire Annual Meeting
  • Bill And Buffett Both Sold Airlines
  • The Future For Travel And Leisure
  • What Kind Of Multiple Can We Expect From Where We Are Now?

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Full Transcript

Tobias Carlisle:
It’s Cinco de Drinko, it’s Taco Tuesday, and we’re all locked down because of a virus that sounds like a Mexican beer. So if that’s not an excuse to have a shot of tequila every time we say Buffett or Berkshire, just drink yourself into an alcoholic coma. Drink until the market makes sense, is what I say.

Bill Brewster:
Or airlines for that matter.

Jake Taylor:
It’s Australian for portfolio management.

Tobias Carlisle:
I’m Tobias Carlisle, this is… What is it? Value: After Hours.

Bill Brewster:
It’s Value: After Hours.

Tobias Carlisle:
Forgot where I was for a moment there. With my amigos, Bill Brewster and Jake Taylor. Only one topic today, we’re just going to chew over Berkshire’s annual meeting. Who’s got the hottest take?

Jake Taylor:
Got to be Bill.

Tobias Carlisle:
Bill Brewster, what’s your hot take?

Bill Brewster:
That I’m the go-to Buffett analyst obviously. No, so look, I think the hot takes are interesting. I’m going to open up some of my notes so that I can rattle through.

Tobias Carlisle:
Was that the most bearish you’ve ever seen Buffett?

Bill Brewster:
I don’t know if it was bearish per se.

Tobias Carlisle:
Subdued?

Warren Buffett Shows His Genius Through This Crisis

Bill Brewster:
Yeah, I mean what I thought was super cool about that meeting was you had a real chance to see a guy who is a legitimate genius think through a crisis. And I think that he was as candid as I’ve seen him. I really liked that there were no life questions. I’m glad that there was no random person, like I think Becky Quick did an incredible job keeping him going and on point.

Bill Brewster:
I really like that Greg was there. I didn’t think that I would like not having Charlie there. I thought that that would really taint it. For me it was a great insight and sort of a peek into the guy that’s controlling a lot of internal capital allocation.

Tobias Carlisle:
He did a lot of Charlie-ish kind of stuff too. He did the Charlie stick.

Bill Brewster:
Yeah, he did.

Jake Taylor:
No way.

Bill Brewster:
Yeah, he definitely did.

Jake Taylor:
I’m debating that take hard. That was not Charlie at all.

Tobias Carlisle:
Yeah, he did a few, I have nothing to adds.

Jake Taylor:
Okay, like one joke that everyone knew was coming. I mean that’s not Charlie.

Bill Brewster:
I mean I thought a couple of the things that he said that I would like to go back and look at. I’d like to understand why he said the FDIC could have changed the Great Depression. I mean I don’t have enough of a sense of history to understand why he thought that that could have made such a difference, and it made me think through how policy can smooth some of the things that were are going through right.

Tobias Carlisle:
It can go the other way too.

Bill Brewster:
Yeah, well and it’s not without consequence, right? I mean he said a number of times we don’t know what the outcome of all of this is. And I guess for me to just see him up there talking about probabilities and how wide he thinks the distribution of potential outcomes are and how concerned he is about permanent changes of behavior coming out of this, I think is pretty interesting.

Bill Brewster:
I mean travel for me is something that I really don’t think is going to change, but he forced me to sit down and think about like, “Okay, well, how confident am I in that, and what are other alternatives?” So I just thought it was a really cool way to see him think through a crisis, and obviously he missed the bottom and he’s a loser and the world has passed him by, but it was nice to be able to watch it.

Tobias Carlisle:
I don’t think he’s missed the bottom.

Bill Brewster:
No, no, well, you haven’t checked CNBC or Twitter lately, so…

Tobias Carlisle:
I don’t think we’ve seen the bottom yet, so I don’t see how he could have missed it.

Bill Brewster:
Well, that’s because you’re not on Twitter. Well, you are on Twitter, you’re just not listening.

Tobias Carlisle:
That’s true, I’m not listening.

Jake Taylor:
To any of you.

Bill Brewster:
I mean look, I don’t know what we were talking about before we got on, I don’t know how you can square the policy offset to I think I just saw that the White House is thinking 16% unemployment by the end of April. Starbucks, their stores that are open in China, I’m pretty sure their comps are off 35%, which is an improvement from down 90, so I guess it’s going in the right direction.

Tobias Carlisle:
Good growth.

Bill Brewster:
Yeah, that’s right. So what does the world look like? Does it create permanent inflections and growth rates? How do people adjust behavior? I just think it was an interesting meeting. I don’t think the guy’s a sage at predicting this stuff, but I thought it was a cool peak to listen to him think through it.

Jake Taylor:
Yeah, I think would it maybe it highlights to me is that he’s thinking in probabilities like you’re supposed to, and we just added a huge left tail very high consequence probability distribution, both greater magnitude and frequency because of this. So that impairs the entire implied expected return.

Jake Taylor:
So he has lowered his expected return, I think, for a lot of things, and I think that probably shows most evidently in what he knows the best, which is Berkshire stock itself, and him not doing buybacks much. I think that reflects a lower valuation in his mind of intrinsic value for Berkshire stock.

Jake Taylor:
Whereas everyone else is thinking in binaries that this is either like good or bad, or solved or broken, or bull or bear. I don’t think that’s how he thinks about it. So I think that’s a good lesson I think for all of us to take right now.

***

Buffett Worried $137 Billion Is Not Enough

Tobias Carlisle:
How did you take the news that they hadn’t done much in the way of buybacks because they were worried that a 137 billion, whatever it is, might not be enough?

Jake Taylor:
It didn’t bother me. The other thing he talked about was the optionality of the cash, and I think that’s another huge data point there. That’s him telegraphing, I think, that I think I’m going to be able to put this cash to work at much more favorable rates than buying back my own stock at whatever, 1.2 ish or price-to-book at this point.

Jake Taylor:
So it doesn’t bother me at all. Who am I to call out Buffett buying something that he knows better than anyone?

Tobias Carlisle:
I don’t mean so much criticizing him, I just mean the implications of what he has said there. Like that really was the thing that I took away the most, that they didn’t do a great deal as the market fell, didn’t buy back a great deal of stock, didn’t go and buy a lot of stock. Really just sold some stuff. Very, very uncharacteristic for Buffett.

Tobias Carlisle:
Like you look at every other time that the market’s gone down, they’ve been pretty aggressive through those periods. That was the thing that really gave me to fear. Like I tweeted this thing out yesterday, my Sunday scaries, my Monday scaries was that thought that Buffett’s running around with $137 billion and worried that that might not be enough given that they got some huge cash flows going into that business too.

Jake Taylor:
Yeah, I think in general they’re probably in pretty good shape internal cash flow wise. I wouldn’t expect a ton of money to be consumed inside the business at this point, like that excess capital absorbed by basically internal losses. I could be wrong, but you never know what’s hiding under insurance. That’s why it’s so important to trust whoever is the underwriter, just like a bank.

Jake Taylor:
But they’re Railroad, and I guess if things get too bad, there’s a lot of fixed costs there, but it’s not as bad as other businesses. The energy I think is probably relatively good shape. I don’t know, not oil, it’s like solar panels and stuff that have long term power purchase agreements. So anyway.

Bill Brewster:
Got some pipeline exposure, but yeah.

Jake Taylor:
Yeah. No, and I mean they have retail, they have other things too that are definitely problematic, but this coronavirus I don’t think came after them as hard as some other businesses in general.

Bill Brewster:
Well, and also I mean I don’t think that we have held people out. I think that we have gotten through a liquidity crisis and now on the back end of it you’re going to have balance sheets that are very impaired and you’re going to have some reasonably good businesses that have bad capital structures on the back end of this.

Bill Brewster:
And what does a business owner in January feel like if the current iteration of the world is continuing? Do they still want to have their family’s risk on the line, or do they want to de-risk a little bit? Do they want to enter some sort of pilot J-type transaction where they can sell 20 some-odd percent this year and then run it for five years, and then sell the rest?

Bill Brewster:
I mean there could be transactions out there, nine to 12 months down the road, just because he didn’t bottom tick March. I mean, look, I wanted a bigger buyback. I mean, but after I listened to him talk, I want my wife to do certain things, she wants me to do certain things, we don’t do… this is going to stay above board here, but it’s like investment and partnership, it’s like a marriage, right?

Bill Brewster:
And there’s going to be periods over a long term holding where you disagree with your manager. I think after he explained how he was thinking about it, it’s hard to call it negligent. It may be something that I disagree with, it might not be how I run my portfolio, but I get it. They might be too big. I mean that’s a legit criticism.

Tobias Carlisle:
Not too big to buy back though?

Bill Brewster:
Yeah, I know.

Tobias Carlisle:
I think the thing that he said when he was talking about the buybacks was that it was a little bit confusing to me the exact phrasing of it, but he said down 30% and then he kind of went on to another thought. And I just wasn’t sure if the two were connected together, but he said, “I don’t see it’s any better value now than it was before all of this went on in kind of late December last year.”

Bill Brewster:
Oh yeah, I think it’s connected.

Tobias Carlisle:
But was he saying down 30% it wasn’t any better value?

Bill Brewster:
Yeah, because I think what his argument would be is that the downside distribution of the probability tree, you have increased your probabilities of the downside occurring and the downside has gotten wider.

Tobias Carlisle:
So it narrows your intrinsic value estimation.

Bill Brewster:
That’s right, yeah.

Tobias Carlisle:
Because the downside pulls down your midpoint. Yeah, okay.

Bill Brewster:
Yeah, it might not do shit to some point estimate that somebody DCFs, but like if you really think through what are all the probabilities out here, he’s saying like the distribution of outcomes is pretty freaking wide, and the losses could be pretty big. I think that’s new information for him.

Tobias Carlisle:
I thought the whole thing was he was quite subdued. It’s hard to tell, because there’s no crowd there, there’s no laugh track to what he’s saying. But I thought he was very subdued, and as it kind of went on I was trying to work out why he was so subdued. And then I thought it’s probably appropriate. We are right in the middle of… the coronavirus is still around, lots of people don’t have jobs, you don’t want to come out and be too kind of-

Bill Brewster:
Ra Ra.

Tobias Carlisle:
… too quippy, but you contrast that with 2008, Buy American. I Am, versus this time around. T Buy American. I Am, was a little bit aspirational, inspirational, we’re actually doing it here. This time around it sounded like, “Be careful. I Am.”

Jake Taylor:
Yeah.

***

Buffett – You Don’t Need A Minute By Minute Opinion On Your Ownership

Bill Brewster:
Yeah. You know what I think is kind of interesting too is, I think that his actions with his money are some insight into his private conversations with Bill Gates. And one thing that I have wondered about Bill Gates and the virus is his incentive structure is such that he doesn’t really benefit that much from saying, “Hey guys, this isn’t as big of a deal as we once thought,” right?

Bill Brewster:
And I mean he’s not immune to incentives. Bill Gates is working on his legacy for eternity, so I think he has an incentive structure set up where erring on the side of caution about advising about what the virus could be, that’s like where Bill’s incentives sort of, if I were to analyze it, that’s where I think he would be leaning towards the side of caution.

Bill Brewster:
It sounds like he’s telling Buffett in private like, “No man, this thing could be a really big deal.” Now is that because Gates is more focused on emerging markets generally, and could it be a bigger issue down there? I don’t know, but I mean Buffett’s got a hell of a network, and his network’s telling him, “Be careful.” I think it’s interesting.

Tobias Carlisle:
He also has a great overview of the economy from the railroads to just… he’s got a mini S&P 500 that reports to him internally, that tells him what’s happening. So he knows where the pain points are.

Jake Taylor:
You don’t need a minute-by-minute opinion on your ownership. I thought that was smart. I mean he said it in different ways before, but I don’t think he’s used minute-by-minute before, and I was like, “I like that one.”

Tobias Carlisle:
Tick by tick.

Jake Taylor:
We’re all living minute by minute right now on the market and scratching our heads, right? So maybe that tells you a little bit of get back into some fundamentals instead of tracking like why the hell this doesn’t make sense right now.

Tobias Carlisle:
I got to say it doesn’t make sense the way February didn’t make sense. Like we knew that there was all of his bad stuff going on and it just hadn’t been reflected in the market yet, and I kind of feel the same way now.

Tobias Carlisle:
We know all this bad stuff is going on, it’s just not reflected in the market. My bias is that I’m probably a little bit more bearish to realistic, so take that for what it’s worth.

Bill Brewster:
I mean the thing that’s tough is I don’t know how to handicap what all the fiscal stimulus and what the Fed intervention does long term. I do think that the idea that fiscal stimulus is just on the come until we get out of this thing, I think that that is pretty improbable and there’s already signaling that the austerity hawks are about to come out and that could complicate matters quite a bit.

Tobias Carlisle:
Not yet. It’s hard to say.

Bill Brewster:
I think we’re getting close.

Tobias Carlisle:
Really?

Bill Brewster:
Yeah, I think we’re getting close.

***

Why Did Buffett Bring Up That In 1929 The Market Had A 20% Rebound But Took 20 Years To Get Back To Flat?

Jake Taylor:
Let me ask you this guys, why did he bring up that in 1929 the market had a 20% rebound, but it took 20 years to get back to flat? And he also-

Tobias Carlisle:
And it bottomed in ’30 or ’32, whenever it was. It didn’t bottom in ’29.

Jake Taylor:
Yeah. He is giving us this long sweep of history, which I completely agree with by the way, like I think it’s really smart to provide that kind of long-term perspective and context and the belief that things will get better, but then to add that in as a pretty major caveat and that like entire generation of people shied away from equities because of this.

Jake Taylor:
Even when he talked about buying and holding something like S&P 500, he was using 20 to 30 years as the sort of safe holding period. When before I think that that might have been a smaller number when he’s referenced it before, like he kind of pushed back a little bit. Like it’s safe to hold it, but it might take longer than I’ve said before. I don’t know, what did you guys think about that?

Tobias Carlisle:
Yeah, that was the other thing that gave me the fear. That was nerve-wracking to see, and he referenced the… I think he talked about the Spanish flu as well. Am I imagining that?

Bill Brewster:
No, he did.

Tobias Carlisle:
If you look at what happened with the Spanish flu, the market did crash in 1918, but the bottom was like 1921. The bottom was three years later.

Jake Taylor:
The Forgotten Depression.

Tobias Carlisle:
Yeah.

Jake Taylor:
Good book by Jim Grant.

Bill Brewster:
I think as far as why he did that, I do think that when he talks like now he knows that a lot of people are tuning in and he knows that a lot of them are unsophisticated. Look, there’s a chance out there that shit gets really bad, and if people don’t think that, then they’re blind. Now there is also a reasonable chance that the market’s totally right and things go up, and then we’ll all be grateful because life isn’t going to suck.

Bill Brewster:
But if you’re buying equities today and you’re not prepared to hold through the consequences and the knock-on effects of 16% unemployment, which could take five to 10 years to work off, and equities through a five to 10 year period to work off, not working and the second-order effects of debt defaults and all the shit that can happen, and psychologically the washout that can happen, then you probably shouldn’t buy equities right now.

Bill Brewster:
My mom is older and doesn’t have that much saved up, and I told her I was like, “Mom, I don’t think that you should really hold much equity right now. You may need this money. You may not, but if you don’t…” She sells real estate. I said, “If you don’t, Scottsdale real estate should be booming. You’re probably going to be okay anyway. You’re upside downside skew doesn’t make sense given where your life’s at.”

Bill Brewster:
I don’t think that’s bad advice right now, given where the markets are.

Jake Taylor:
How is every baby boomer and pension fund and everyone else state that needs 8% returns to match all their cash flows, how does that fit into your hypothesis?

Bill Brewster:
Yeah, I mean we’ll see. Look, we could go a lot higher. That’s in the probabilities, but the big downside is there too, and I think it’s under appreciated by some.

***

Tobias Carlisle:
Let me just do a few quick housekeeping matters. Love seeing where everybody’s from, so stick that in the comments. JT is up against the green screen you, can’t see because the way it’s cropped, but he’s actually sitting between Buffett and was it Abel or is it Munger? Is it an older one?

Jake Taylor:
Yeah, it’s Abel.

Tobias Carlisle:
Buffet and Abel.

Jake Taylor:
It’s from this year, yeah.

Tobias Carlisle:
Eliot Chenoweth sent us a super chat. He says what’s my favorite item at Dairy Queen? Temple of Doom.

Bill Brewster:
Yeah.

Jake Taylor:
Ridiculous. You need a chocolate based blizzard.

Tobias Carlisle:
Thanks. Everybody tell me what kind of blizzard I should have, and I’ll go get one next time.

Bill Brewster:
Thank you for blowing my mind so much, now I don’t even know where we were [crosstalk 00:19:43].

Tobias Carlisle:
Next time we’re in Omaha, we’ll do it in Omaha.

Jake Taylor:
I’ll buy you one.

Tobias Carlisle:
The segue from JT background, let’s just lighten it up a little bit because it’s going get… we’re going to have to go and shoot ourselves after this.

Jake Taylor:
At this pace.

***

Why Couldn’t We Have Had A Ten MInute Cameo From Munger At The Berkshire Annual Meeting?

Tobias Carlisle:
What did you think about two guys in a gigantic auditorium all by themselves? What was that about?

Bill Brewster:
Strong power move. The man doesn’t want to waste money.

Jake Taylor:
Sunk cost.

Bill Brewster:
He’s already paid the rent. He’s not going to pay the rent and not use it.

Tobias Carlisle:
How do you know he paid the rent? You’ve got to pay a year in advance?

Bill Brewster:
Oh, I’m sure he paid.

Jake Taylor:
Probably. I don’t know, I mean I was brutally disappointed that they couldn’t at least pipe in Munger on a Zoom call for 10 minutes, 15 minutes.

Tobias Carlisle:
I mean come on.

Jake Taylor:
Come on.

Tobias Carlisle:
Get him cameo in.

Jake Taylor:
Just a cameo.

Bill Brewster:
I didn’t mind it. Go to Daily Journal if you want Munger.

Jake Taylor:
I do.

Bill Brewster:
I’ll be there. Could be blowing up my spot.

Jake Taylor:
But I also want to hear from him right now. This is the exact time when you need that sort of sage wisdom.

Bill Brewster:
He did the Wall Street Journal article.

Jake Taylor:
Yeah, but that’s kind of filtered. This would be straight to the vein, 15 minutes.

Bill Brewster:
No, he doesn’t ever go hardcore Munger at Berkshire. There’s too many people watching. I’d love to have Daily Journal all over again right now.

Jake Taylor:
Yeah, Daily Journal was two months too early, huh?

Bill Brewster:
Yeah, because he goes hardcore there.

Tobias Carlisle:
They’ve got to set him up on a Zoom. I don’t want him in a room full of a few hundred sweaty people who’ve all come off a plane. They need to quarantine him. He can just do it over Zoom. Do it from his house.

***

That PowerPoint Presentation At The Berkshire Annual Meeting

Jake Taylor:
So let’s jump to the the elephant in Bill’s room of-

Tobias Carlisle:
The PowerPoint?

Jake Taylor:
No, no, front running.

Tobias Carlisle:
Where do we get the PowerPoint template?

Bill Brewster:
Oh dude, that was so classic, Buffett with just like the high school PowerPoint just saying like flip the slide next shitty slide after the next. Just fantastic stuff.

Tobias Carlisle:
I wish there had been a few wipes and fades in it.

Jake Taylor:
Yeah, dissolve.

Tobias Carlisle:
A few dissolves.

Bill Brewster:
That would have been dope if it like spiraled at you, and then just that terrible formatting came up.

Jake Taylor:
The bounce.

Bill Brewster:
Yeah. Still learning how to do this.

Tobias Carlisle:
Because you know that somebody at head office must have been like, “I can make that look a little bit better for you,” and he was like, “Sure, go ahead.” That’s the improved version.

Bill Brewster:
That’s right, yeah.

Jake Taylor:
We need more corporate overhead here, obviously.

Tobias Carlisle:
Take one he had a lot more words. It was just like paragraph after paragraph. Unlikely.

***

Bill And Buffett Both Sold Airlines

Jake Taylor:
So Bill, how did you feel after he exited the airlines completely?

Bill Brewster:
The whole thing felt fucking good man. I am finally able to say that I have learned enough from the master that I think in the same general ballpark that he does. I would give anything to be able to listen to him think through the probabilities, because I don’t think that you can accuse somebody of being right or wrong until you hear how they assign the probabilities of why.

Bill Brewster:
But yeah man, I mean I like that I am fearful of some of the distribution of outcomes, I like that he is. I like that I saw something similar in the airlines and so did he. It makes me feel like I’m improving. So I don’t really want to make my career on the notion that I lost a bunch of money in the airline’s quicker than Buffet did.

Jake Taylor:
Just like Buffett.

Bill Brewster:
Yeah, that’s not exactly the thing I’m trying to hold my hat on. But I think as far as the process goes, he and I saw similar stuff and that feels good.

Jake Taylor:
Yeah, really good at capturing Buffett downside.

Bill Brewster:
Yeah. Shit, I hope I can get some of the upside,

Jake Taylor:
I did find it interesting that he was almost to the point of laughing about how much volume he saw to be able to sell into.

Bill Brewster:
Yeah, that was wild.

Jake Taylor:
Like almost, I don’t want to think he was rubbing it-

Bill Brewster:
It took us months to build the position, and I got out in a couple days. How about that?

Jake Taylor:
Pretty easy. I wonder how that happened?

Bill Brewster:
Imagine at the worst possible time all you guys were buying. That’s hilarious.

Jake Taylor:
I mean wasn’t that kind of what was between the lines there?

Tobias Carlisle:
Yeah.

Bill Brewster:
I mean that was explicit. I don’t even know if it was between the lines. I also think he’s talking about how many companies issued debt and whatnot, and I mean you could see it if you were paying attention too, but I just flashed back to when we were talking earlier, I hope it was during a recorded podcast, it might have been after one, but when I said that like my guilty pleasure, Jim Cramer that I wasn’t worried about what the Fed was doing until I started to hear him like shooting the machine gun and saying like, “Carnival issue debt, Royal Caribbean issue debt, like everybody gets debt.”

Bill Brewster:
And then Buffett was just like, “It was pretty amazing how much debt was issued in those two months.” I could just hear Cramer. The guy I a maniac.

***

Tobias Carlisle:
How about his stamina? Just sitting up there for four and a half hours, delivered the one and a half hour monologue from memory, had a few slides up there.

Jake Taylor:
Solid. Impressive.

Tobias Carlisle:
Had his glass of coke that must have been refreshed a few times, but got to play that-

Bill Brewster:
I thought it was the best meeting I’ve ever seen. I mean I really think that even the ’08 and ’09 meetings, I’ve listened to him a couple times, they’re not that great because I don’t know if the timing like you just didn’t catch him in the real middle of the panic. Becky Quick, one of the 10, thanks for listening, you did a great job.

Bill Brewster:
But she did fantastic, and I’m glad that she didn’t… I don’t want to hear what he thinks of Wells Fargo anymore. I don’t care. That thing’s a shit show, everybody knows it. Get onto new things. I really felt like she did a good job not getting bogged down in sort of the stuff that the general public can get distracted on.

***

Berkshire’s Ted And Todd Couldn’t Find Anything To Buy In March

Tobias Carlisle:
I got a good comment on the screen here, is it funny that Ted and Todd couldn’t find anything to buy in March and April?

Bill Brewster:
It’s odd.

Jake Taylor:
I wondered the same thing.

Tobias Carlisle:
It’s only Todd, it’s not Ted and Todd, because Ted’s running Geico.

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

Jake Taylor:
He still has a portfolio though, I think. I think he’s still PM as well. My understanding.

Bill Brewster:
I found that interesting. You would have thought given the fact that they nibbled on Amazon earlier that maybe they would nibble a little bit more, or I mean Google got pretty cheap by most people’s eyes. It’s interesting that they didn’t see it that way.

Jake Taylor:
Guess I need glasses.

Bill Brewster:
You may.

Tobias Carlisle:
There must have been word from on high that they conserve cash. We’re not doing it this time around.

Jake Taylor:
I don’t think he would ever tell them that.

Tobias Carlisle:
It’s just a coincidence that they couldn’t find anything to buy?

Jake Taylor:
I mean if they’re talking together, maybe, and Buffett’s has like-

Tobias Carlisle:
Yeah, he’s not telling them, he’s just saying, “This is what I’m doing.”

Jake Taylor:
Yeah.

Tobias Carlisle:
You do you, but this is what I’m doing.

Jake Taylor:
You do you, but by the way, he’s saying, “I can’t find anything. Nothing’s coming in the door that seems attractive. We’re getting crowded out right now.”

Tobias Carlisle:
So let’s talk about that a little bit. So I see this stuff all the time, it was too fast. I got to tell you, in the moment it didn’t feel too fast to me, it felt like a really really long march.

Bill Brewster:
Yeah. I tweeted out the other day, I said… well, last night. I said, “The asset allocation is going to protect you going forward a lot more than stock picking.” And what I meant is the range of outcomes I think is still very wide. Like Buffett said, I mean the total crash has been taken off, the total short-term implosion of the financial system was taken off the table. Gundlach, in his CNBC interview said that-

Jake Taylor:
You’re putting zero on that now?

Bill Brewster:
I’m saying it’s, yeah, I think it’s pretty off the table for now. I mean it may still… nothing is zero. It’s certainly not five, so it’s pretty low.

Jake Taylor:
All right.

Bill Brewster:
Gundlach said that the bond market was more locked up in March than it was in ’09. I mean I was looking at it TransDigm was trading at north of 11% yield to maturity, Teva blew out from six to 10 and a half in two weeks. I mean there were crazy moves in the bond market. That got stabilized, but my point and what I said yesterday is like it wasn’t a stock picker hedge fund comment, it was to anyone that is in my position.

Bill Brewster:
I think people really got to think about how much risk they want to hold right now, and then with in equities you can sort of debate which equities you want to hold. But I mean I don’t know if you want to be all balls out into equities right now. If you’re not and the market shoots up, okay great, you’re still going to be fine.

Bill Brewster:
So I don’t buy that it was too quick. I do buy that the Fed precluded them from getting the DIP financing type packages that they maybe would have gotten in the past. But I do not think the deals are off the table. I just don’t think the pain started yet.

Tobias Carlisle:
Yeah.

Jake Taylor:
I tend to agree. We’ll see after everyone gets their stimmy, and then things are still rough. I would be especially concerned right now if we start easing the restrictions on shelter-in-place and we just see a bunch of flare-ups again. Like that’s going to be really I think demoralizing for us. That we’re in this for a while here. This isn’t just going to go away all of a sudden.

Jake Taylor:
If that ends up being a case, when that realization happens, I would say that’s when we start to get a real grip of like, all right, this is going to suck for quite a while.

***

Tobias Carlisle:
Yeah. This is slightly off topic, but just on the market, I had this risk position in Humana with Aetna in the Aetna takeover, and there were four insurers that were involved in a merger out of the top five, but the largest United was not. United and all of those mergers took a really long time to play out, because there were various issues.

Tobias Carlisle:
You remember first it was the inversion for tax purposes that was blocked, and then the DOJ came in after that was taken off and said they’re going to open an investigation, it may block the merger. During all of that period, United just kept on going up. So the range of outcomes at one point for Humana was the deal doesn’t go through or it gets blocked by the DOJ, which is the worst possible outcome in this scenario.

Tobias Carlisle:
Best possible outcome is it gets approved and it goes through, right? So you’re trying to handicap those two outcomes. On the day that the DOJ formally blocked and the worst possible scenario manifest itself, the stock was up like 20%. So that’s one of those things-

Jake Taylor:
Uncertainty.

Tobias Carlisle:
The uncertainty was worse, the possibility of the worst possible outcome was worse than the actual worst possible outcome. So sometimes I think about that a lot, or I think about that a lot and I’ve said this to you guys before, that I think this market is a little bit like that where at the moment we’ve kind of priced in, except it’s the reverse unfortunately, we’ve priced in like the best possible scenario and so the moment that we get the economy is opening up again, everybody back to work, that’s when I think everybody’s like, “Oh hang on, this isn’t that great,” and we go the other direction. For my two cents.

Jake Taylor:
So there’s only, in your mind, there’s two outcomes of this, which is one is that it ends up being the best case and then it goes down because it’s sort of like, “Ugh, all right,” or it’s like worse than everyone thought and then it probably goes down?

Tobias Carlisle:
I think that the market… it’s not even a question about what actually happens underneath, it’s a question about the market’s reaction to it. Because I think we all know that it’s pretty bad even if it turns out we open up.

Tobias Carlisle:
I just think that it’s one of those sole effect kind of things, like I think that when the announcement gets made everything’s back on, then everybody’s going to be reminded of the market was pretty… I think I’m one of the few people who think this, but the real curve inversion is pretty good. It did go through, the market fell over, it’s just convenient that you get to…

Tobias Carlisle:
Like what’s Tesla going to do? So Tesla’s had a blockbuster Q1, they’re going to have a disastrous Q2, they’re going to blame it on the virus, and it’s not going to be their fault. And so that stock’s going to be beaten up a little bit too, I think. I have a bias there, obviously, but I just don’t see how they skate through this.

Bill Brewster:
Maybe, I don’t know. I don’t know that that stock trades on quarterly numbers, but I-

Tobias Carlisle:
It doesn’t trade on anything. Opium.

Bill Brewster:
It trades on a rosy optimistic look at the future.

Jake Taylor:
He had a kid, he’s going to get a, what, $750 million or something option payday, like everything’s coming up Milhouse right now.

Tobias Carlisle:
Selling all the physical assets.

Jake Taylor:
Yeah.

Tobias Carlisle:
What does that tell you? In this market you put you $40 million house, he’s got two multi multi $10 million dollar houses that he’s stuck on the market. Now is not the time. I guess maybe you don’t care about 10 million here, 10 million there.

Bill Brewster:
Now is the time. Why is now not the time? This is no guarantee that two years from now it’s going to be easier to sell something like that?

Tobias Carlisle:
Yeah, well I think it’s getting harder.

***

What Kind Of Multiple Can We Expect From Where We Are Now?

Bill Brewster:
I mean look, I think that I could see the market going up a lot. You just have to believe that rates are going to be low for a long time, the stimmy works, people come out of this, and in 18 months there’s a cure and we get back to the races.

Jake Taylor:
But what kind of multiple would you expect then from where we are now?

Bill Brewster:
Dude, I’ve said for a long time I think that you could double. You’re talking about zero rates. People have nowhere else to go. Where else are you going to go? You want to hide in cash while the government prints money and incinerates your cash? You want to go to corporate bonds where you know that the Fed is manipulating all the yields?

Bill Brewster:
I mean it’s happening, so you’re going to under price the risk, or do you want to go to equities where you could actually get some growth? And by the way in those growth names, these states that are getting the shit kicked out of them financially and they’re going to tax the crap out of you, at least you don’t have to pay on some sort of distribution coming on the near term.

Bill Brewster:
I could argue for growth. I just think that there’s a lot of ways down too.

Tobias Carlisle:
The best argument I’ve heard if that-

Bill Brewster:
You know what I’m saying? Like I mean but you’ve got to think in probabilities, and that’s what I think was so great about the meeting is that you’re watching the guy whose whole fucking life has revolved around probabilities, analyze this crisis through a probabilistic lens. I mean if you can get over whatever fanboy you have, if you’re me, or whatever hatred you have if you’re like some other people and you just watch the mind work, it was a really beautiful display of how a genius thinks through a problem.

Jake Taylor:
How do they underwrite.

Bill Brewster:
Yeah, and I mean he’s also worried what happens if a Cat-5 hurricane hits New York this year, right? That’s been one of the insurance outcomes that he’s always talking about, being like just terrible.

Tobias Carlisle:
That would be bad.

Bill Brewster:
Yeah, he’s not just thinking about this is the worst case and therefore this. He’s thinking like, “Well god, we’re going into hurricane season and what happens if this happens?” So it’s interesting to be able to see a mind like that, and then read the 10-Q and think through like, “Okay, what are the businesses that he’s worried about?” I think it was the best birthday present I could have gotten.

***

Tech Keeps Growing At 20% As The Rest Of The Market Becomes Irrelevant

Tobias Carlisle:
I think there’s a good comment on the screen, which is the point that I was going to make too, I think the best argument for the strength and the S&P 500 after this is just the fact that 20% of the index is growing at 20% a year, and it’s possible that tech just takes over. And tech is basically anti fragile to this particular type of crisis. If we get an EMP or something like that, it goes in a different direction.

Tobias Carlisle:
But right now it’s just getting stronger through this. There’s no question in my mind that more people come out of this and say work from home, don’t commute, don’t get changed, and we don’t have to go and rent expensive office space. You’re going to be more productive and you just Zoom in every now and again. So that a lot of things that feed on that are going to do better. So tech keeps on growing at 20% a year, the rest of the market becomes increasingly irrelevant.

Bill Brewster:
It’s very possible. I would wonder how easy it is to continue to swim I mean in a real downside scenario. I don’t know, how quickly can you swim upstream? There’s going to be a lot of dollars taken out of the world in a bad case scenario. You’re talking about debt defaults, you’re talking about real estate restructuring.

Bill Brewster:
I mean there’s pain, so I don’t know in a world where people haven’t… I mean we’re talking about 16% unemployment, but I think a lot of the white-collar jobs right now are pretty okay. Do they stay okay? I mean do businesses stay staffed like this in nine, 12 months? I mean I don’t know. I think anyone that thinks that they know is out of their mind. I think you have to embrace the uncertainty right now.

Tobias Carlisle:
You also got to look at what’s priced in. So I think that if you’re looking at, without knowing which direction the markets going to go… Bills gone into the Jaketrix somehow, but you’ve got to price in, you’ve got to look at what the odds offered are, and I think that the downside is not priced at the moment. The downside is almost free and the upside is kind of expensive.

***

No Stimmy For Berkshire Companies

Jake Taylor:Yeah. What did you think about no stimmy at all for any Berkshire companies?

Tobias Carlisle:
I mean I kind of admire it. Was he saying that he wouldn’t take it or was he saying that they didn’t take it?

Jake Taylor:
I don’t remember him saying they wouldn’t, but he definitely said they didn’t.

Tobias Carlisle:
Do you think that’s being sensitive to criticism of the last 2008/2009 that the banks were kind of bailed out and they were beneficiaries of that?

Jake Taylor:
Maybe. I think I mean the charitable explanation, I think the one that maybe to me makes the most sense, is that they’ve long tried to run their business in a way that they would never depend on the kindness of strangers.

Tobias Carlisle:
Yeah, that was a good line.

Jake Taylor:
Like he says that a lot. And so this is a way of you telling everyone inside of the company like, “Don’t take that money. This is a principled thing. This is how we operate, and for you to take that now undermines our culture of not wanting to depend on others.”

Tobias Carlisle:
Yeah, I think we’ve lost Bill very quickly there, so we’re just going to have to…

Jake Taylor:
Bill got killed.

Tobias Carlisle:
I tried to add him back in, but at the moment it’s just you and I, JT.

Jake Taylor:
It’s all right. The show goes on.

Tobias Carlisle:
There’s a lot of criticism on Twitter because that’s the place that I’m spending most of my time looking of all of the bailouts that they took.

Jake Taylor:
Looking for the criticism.

Tobias Carlisle:
Maybe. I follow guys who are Austrian-ish critical of the bailouts and that kind of thing, but critical of the 2008/2009 bailouts, and Buffett comes in for, deservedly, some criticism for taking bailouts for a lot of those organizations. I don’t know if it’s deserved, so I shouldn’t say that.

Tobias Carlisle:
He comes in for a lot of criticism for the things that he held taking those bailouts. I think probably he feels similarly to this time around, maybe, that the Fed did front-run him a little bit in some of those things, because they clearly had enough money to give very very substantial bailouts to Goldman Sachs and get the gigantic preference, get the convert, get all of that sort of stuff.

Tobias Carlisle:
But clearly some of that has got through it, so they’re very clear that they didn’t take any of the stimmy.

Jake Taylor:
Yeah, and it makes it easier to give money to Goldman Sachs if you know that their counterparty, AIG, is getting money shoveled into them which then goes to Goldman Sachs, right? Like all that counterparty risk that you should have been bearing got shored up by government intervention. That is a backdoor bailout of companies that he was invested in.

Tobias Carlisle:
Yeah, I guess he’s well-connected and smart enough to sort of have known that that was going to happen. I guess that’s the criticism, right?

Jake Taylor:
Yeah, and that’s fair. I mean but I guess that’s sort of like the game you’re playing too. That’s one of the variables when you’re playing this game.

Tobias Carlisle:
Do you have any airlines?

Jake Taylor:
Do I-

Tobias Carlisle:
Do you hold any airlines? Yeah.

Jake Taylor:
Personally own any? Yeah, a little bit.

Tobias Carlisle:
What do you hold?

Jake Taylor:
A little Southwest, just because I bought it at the… Well, I’m a little bit under it now, but not much.

Tobias Carlisle:
When did you buy it roughly?

Jake Taylor:
Late March.

Tobias Carlisle:
Just the most recent…

Jake Taylor:
Yeah.

Tobias Carlisle:
Yeah. So I own it as well, I’ve held it, I forget exactly but I think probably six months or something like that, maybe a little bit more than six months. I didn’t buy it because I thought Buffett was in it, and I’m not going to sell it because Buffett’s out of it either.

Jake Taylor:
Yeah.

Tobias Carlisle:
I’m going to sell it at some rebalance date I’ll look at how it looks, if it still meets the criteria I’m going to hold it for five years if it keeps on being the criteria. But it’s going to be a little bit difficult through this period, because it is going to get beaten up. When those fundamentals come through, they are ugly. It’s lost $900 million for the quarter. I mean that’s, ugh…

Jake Taylor:
Mm-hmm (affirmative). Yeah, but I mean to me it’s like one of the most well-run companies probably in the U.S. It’s a difficult business and certainly this is a really tough period for them, and you may not survive as inequity necessarily, like dilution is very much in the cards.

Jake Taylor:
You don’t know how hard you’re going to get diluted, and it makes it really tough to handicap what your ownership is going to look like in the future. But boy, it’s a well-run company, they weren’t levered up, they were pretty reasonable, and it got down to a price where I think when I was buying it was around eight times call it some kind of earnings or cashflow number.

Jake Taylor:
That’s pretty cheap for a sort of best-in-class business that has a great culture, in my mind, checks a lot of boxes. It’s just a very unfortunate situation for them that they may not survive as the current equity holder. You may not survive, but I think the business survives and maybe even comes out stronger on the other end, because other ones will not pass through the keyhole.

Jake Taylor:
But we’ll see. I don’t know. The question is, is if it’s down another 50% from here, am I doubling up? And that’s something I’m still been kind of working through.

Tobias Carlisle:
Yeah, I think the challenge that I have with airlines is that pre Buffett’s intervention-

Jake Taylor:
Not investment advice by the way.

Tobias Carlisle:
Yeah, not investment advice. The problem has always been that when one of them goes bankrupt then they come back in as the low-cost operator with a much better balance sheet than everybody else, and then they compete really aggressively.

Tobias Carlisle:
And so then the one who has the ugliest balance sheet and the highest cost structure is put under the most pressure, and eventually that one goes under, and then they come back out with a brand new cost structure and lower costs.

Jake Taylor:
Meanwhile equity’s just getting boned on every round.

Tobias Carlisle:
Yeah, every single time. So the airlines don’t go away, but the equity holders kind of make a big donation in each one every now and again. And that happened for decades in that industry, and so the risk is now I guess that all of the dirtier shirts are going to go through that process and that’s going to make it more difficult for Southwest and Delta, which have been well managed and have had the best balance sheets. Going to make it tough for them to compete. Possibly that’s what their thought process is, you just don’t want to be in this industry at all. It’s time to look somewhere else.

Jake Taylor:
Yeah, when I think about designing my portfolio as sort of like owning an empire of businesses that I’m constructing, there’s a little place in there for something like Southwest.

Tobias Carlisle:
Yeah, I think so too.

Jake Taylor:
I could be completely wrong, but it’s a very very small position. It was a toehold sort of starter and then it hasn’t really done anything enough. It hasn’t moved down enough to make me want to add more yet, but there’s a price somewhere where I’m getting compensated enough to put more in. I don’t know, we’ll see.

***

Tobias Carlisle:
What other takeaways do you have from the meeting? Here’s one that I had, because I’m deep value, I’m more of a Graham guy probably than a Buffett guy, but I’m like 85% Graham, 15% Buffett.

Jake Taylor:
[crosstalk 00:46:26]

Tobias Carlisle:
No, well I’m saying I’m 85% Graham, 15% Buffett.

Jake Taylor:
So that waters down 85, 15 inside of Buffett, so…

Tobias Carlisle:
Yeah, you got me.

Jake Taylor:
95%.

Tobias Carlisle:
That’s what I was saying. But I think Buffett is still 85% Graham too. I was kind of watching it, I was like he’s probably a lot more careful than I’ve seen him in the past.

Jake Taylor:
Yeah. Do you want to try to invite Bill back in? I don’t know if that’s a thing.

Tobias Carlisle:
I’ve been trying to call him, but he’s not picking up.

Jake Taylor:
Okay, he texted.

Tobias Carlisle:
Oh, he can do it now. I’ll see if he’s there.

Jake Taylor:
So we had another one-

Tobias Carlisle:
This live television.

Jake Taylor:
Yeah, this is great. They should show that like technical difficulties screen where it’s like some guy boozing. Another one that I thought, Buffett was talking about how he’s been wrong on inflation, but he said that the ability to just borrow money and print ad infinitum was so great, then-

Tobias Carlisle:
Here we go.

Jake Taylor:
… you would think that we would have discovered it thousands of years ago.

Tobias Carlisle:
Yeah, that was a great line.

Jake Taylor:
I thought that was a really great line. If MMT was so great, we would have already discovered it a thousand years ago and been doing it.

Tobias Carlisle:
Sorry folks, technical difficulties. I think that we’ve kind of halfway got him back in, but-

Jake Taylor:
Just the tip.

Tobias Carlisle:
Somehow you’re on both sides of the screen, and I’ve got no-

Jake Taylor:
Even better.

Tobias Carlisle:
There we go, he’s back. Out of the Bill matrix.

Bill Brewster:
Hello. Jeez.

Tobias Carlisle:
So what happened mate? Where were you. You went into a wormhole.

Bill Brewster:
I don’t know. Now I come back, my backgrounds blurred. I mean just a brutal series of events. It really felt like we had it rolling and I just ruined everyone with my work from home nonsense.

Jake Taylor:
I thought like zombies had come in and kicked the door down.

Bill Brewster:
I’ll tell you, this work from home stuff is nonsense. Unblur my background. I really thought we had it going, and then it’s like the power cuts out and I was just like-

Tobias Carlisle:
You lost power?

Bill Brewster:
Yeah. Brutal. I apologize.

Jake Taylor:
It’s the EMP.

Bill Brewster:
Yeah, I know. I don’t know. I mean it like super matrixed me, whatever they tried to do to you, they took me right out.

Tobias Carlisle:
So let’s do some questions, because we’ve got 10 minutes left. Throw them in there guys, I’ll throw them up to the boys.

***

Just Because Someone Does Them (Buy Backs) Stupidly Doesn’t make Them Immoral

Jake Taylor:
I did have another one that I liked.

Tobias Carlisle:
Oh yeah, sorry, go.

Jake Taylor:
He was talking about buybacks, which I thought was great. Hopefully that zombie dies, because it just won’t go away. But he said that just because someone does them stupidly doesn’t make them immoral, and I thought that was a pretty good line.

Tobias Carlisle:
Just because buybacks are done stupidly doesn’t make them immoral.

***

Jake Taylor:
Yeah. How great was it that we had the Bill Murray question make it?

Bill Brewster:
Bill Murray asked a question?

Jake Taylor:
Yeah, at the end.

Bill Brewster:
Oh, I did not know that.

Tobias Carlisle:
Yeah, I wasn’t fully paying attention by that stage either. What did he say?

Jake Taylor:
God damn guys, come on. He asked what we could do to honor all the frontline people basically who are working in the trenches. I mean I thought was pretty cool.

Tobias Carlisle:
And what was the answer? Buy a Tesla.

Jake Taylor:
Yeah, exactly. Sell everything. No, I don’t know. I didn’t find there to be like a very definitive answer there, it was more kind of platitudes.

Tobias Carlisle:
So I got a good question here, “Would Buffett rather pay a premium valuation once the left tail is chopped off versus running into the fire with a lot of uncertainty?”

Bill Brewster:
Yeah, what, for his stock? I mean he’s got to return capital to shareholders eventually. This is getting insane. But I understand not wanting to sacrifice what you have a need for what you think you need.

Jake Taylor:
Do you really think it’s that bad? I mean on a let’s say-

Bill Brewster:
Yeah dude, it’s bad.

Jake Taylor:
Well, let’s run the numbers, 200 billion-ish in let’s say private equity inside the company basically, another 130 or whatever for cash, and then another one whatever it is 150-ish or something and that’s probably lower now, but call it like maybe it’s like 180-ish of equities portfolio.

Jake Taylor:
That puts you in a roughly 25% cash balance inside the entire thing. Like that’s not… to be conservatively run, you have insurance operations that could pop up with big asks, 25% cash, it’s not that material as much as people are acting like it is. Like he needs to send you a check now because he’s got 25% cash? Really Bill?

Bill Brewster:
It was 17% of my portfolio, now it’s seven. On march 19th I sent a friend a picture of my portfolio, I said, “Buy anything on this list except for Berkshire.” So yes, I think he needs to do something with his cash.

Tobias Carlisle:
I was literally buying it the next day.

Jake Taylor:
From you.

Bill Brewster:
No, he’s too big, he’s structurally precluded from taking advantage of some things because of his size, and if he’s not going to return capital to shareholders, I mean at some point your cash pile is too large for the elephant. There aren’t that many targets out there if you’re waiting with all that cash, and he’s got one right in front of him that appears to be reasonably priced.

Tobias Carlisle:
What’s that, Berkshire?

Bill Brewster:
Yeah.

Jake Taylor:
I don’t know, tell that to Conrad Hilton in the Great Depression buying hotels for way under replacement value.

Tobias Carlisle:
JT just hit you with some knowledge.

Bill Brewster:
I’m not saying that it’s not going to work out. I’m just saying eventually he’s going to have to return money to shareholders. If we’re three years down the road and the world’s okay and he still hasn’t returned any money to shareholders, I mean Chris Bloomstran, that guy is really-

Tobias Carlisle:
Oh, his back into the Billtrix. We’ve killed Bill.

Jake Taylor:
Son of a bitch. Killed Bill.

Tobias Carlisle:
I’m going to have to cut him off. I’ve got a good question here from Corey Hoffstein, “Might Covid lead to creative destruction in the economy increasing technological adoption and efficiency?” I think so. I think we’re kind of seeing it.

Jake Taylor:
Yeah, I think that’s a interesting way to look at it, and that those might be more profitable because of a lower cost. However I would say that historically most of that sort of pie goes to the consumer. And so the profitability that you would imagine ends up becoming consumer surplus instead-

Tobias Carlisle:
That’s a good point.

Jake Taylor:
… and prices come down, and it’s not like all these guys just make all the money. It’s more like we all win as a society.

Tobias Carlisle:
Yeah. We’ve been doing a lot of that, I think. It’s also been working in the stock market too. So who knows. So this is another good question. I don’t actually know the answer to this, but I saw a report from AIG today so it’s possible that this is the answer, but, “Buffett called out another insurer for underwriting business interruption insurance.” Do you know who that is?

Jake Taylor:
I don’t. Well, as soon as we started to think that things were getting real on this, I started digging in to see if I could find who had business interruption insurance, business continuity insurance exposure, and so far what I found is that most of them have… it’s pretty tightly worded so that it’s more like if there was something wrong with the structure of where the people were showing up to work, and it’s not so much that if there’s pandemics.

Jake Taylor:
I think there are a couple I found that had some problems that might have been exposed, but probably could have gotten out legally, but we’ll see. That’s going to be lawyers deciding a lot of that stuff.

Tobias Carlisle:
And Bill’s back. Do you know who the insurer was who Buffett sort of called out for underwriting business interruption insurance? There’s just a photo of him.

Bill Brewster:
I don’t. You can’t hear me? This is garbage.

Tobias Carlisle:
No, you’re good. You’re on.

Jake Taylor:
Time out.

Bill Brewster:
Yeah.

Jake Taylor:
I don’t know who it is. It looks like Fairfax based on the stock price.

Tobias Carlisle:
Really?

Jake Taylor:
Well, I mean you’re down like below half price to book right now for a Fairfax, which is pretty cheap if assuming the book value is good.

Tobias Carlisle:
Oh man, sorry I’m scrolling, this computer’s just not up to it, but let me see if I can find some good questions.

Bill Brewster:
Yeah, you’re clearly the technical problem with this podcast today. I’m in a remote location. It’s got its benefits.

Tobias Carlisle:
You’re in a bunker.

Bill Brewster:
I am.

Tobias Carlisle:
You saw the Berkshire meeting and immediately went to your bunker.

Bill Brewster:
That’s true.

Jake Taylor:
Went underground right away.

Bill Brewster:
Yes. But this bunker has bad power and bad internet.

Tobias Carlisle:
All the bunker needs is power and internet and maybe running water.

Bill Brewster:
Yeah, it’s pretty much the worst bunker you could ever imagine.

***

Tobias Carlisle:
So Fairfax is kind of interesting. What has happened to Fairfax? Are you guys following that closely?

Bill Brewster:
No, I don’t follow them that closely.

Jake Taylor:
I do. So my take is that the insurance operations have been pretty good lately last call it five years. The portfolio has not been doing much.

Tobias Carlisle:
Yeah, they’re a little bit deep value I think, aren’t they?

Jake Taylor:
Yeah, a little too much, and they can never get both things firing at the same time. When their portfolio was doing well, the insurance was sucking wind, and now the insurance has been doing much better but the portfolio has been lagging. So you can never quite get on both feet running under you.

Jake Taylor:
However I do think it’s interesting, they have these deflationary hedges that they purchased at pretty reasonable prices, I thought, when they did it, because no one was really talking about it at that point. There is some scenario where things get really bad and those things pay off in a big way, kind of like the CDS’s that they had during ’08.

Jake Taylor:
I don’t think it’s quite the same probability that they had of winning in ’08, but that could be kind of resulting by Monday morning quarterbacking looking backwards, but there is some universe where you win pretty big there maybe. In the meantime you have a decent insurance operation that’s globally focused, not so much U.S., and theoretically some kind of mean reversion in a portfolio that’s kind of sucked ass for the last call it 10 years. So it’s not the worst bet in the world I’ve ever seen, but it may take a while.

Bill Brewster:
It would be a funny world where the hedges he put on for macro reasons, he then-

Tobias Carlisle:
Hurt him.

Bill Brewster:
… well, he didn’t want them because he started to believe in the macro stuff that was going on. but it would be funny if it actually paid off while he believed in the macro stuff that was going. It would just be a very funny series of events if he got paid now.

Tobias Carlisle:
Yeah.

Bill Brewster:
Because the last AGM or the one that we went to together, he was like, “I’m not making macro bets anymore. By the way here’s all the macro stuff I like going on.” It would be funny if he got paid now. That would be some sweet justice that the world would be sending somehow. A beautiful irony.

***

The Future For Travel And Leisure

Tobias Carlisle:
So I got a question here, this might be more of a Bill question, but “Any thoughts on travel and leisure perhaps go the online booking providers instead of those with hard assets?”

Bill Brewster:
I’ve always liked the leisure market. I think people want to get back to leisure.

Tobias Carlisle:
I take pleasure in other people’s leisure.

Bill Brewster:
That’s right. I mean that’s the one comment that Buffett made that I sort of would really like to debate him on, is I don’t know that I actually believe that this permanently changes people’s desire to travel and move around and whatnot. I don’t know.

Tobias Carlisle:
I think 9/11 was more frightening than this was, right?

Bill Brewster:
Yeah, I think so too. So I don’t know why he’s so freaked out. As it pertains the airlines I get it, because your balance sheets are impaired and you might have too much capacity for a while, and that is a terrible, terrible combo.

Bill Brewster:
But as far as actual changing of human behavior, I don’t fully understand why he seemed very concerned about that.

Jake Taylor:
I’ll take the other side of that and say that a lot of the leisure and travel industry has a lot of operational leverage built into it. You have a lot of assets to build a hotel, it takes a lot of money. And that marginal customer, when they fall off, if you’re at 20% off of capacity, the economics completely change.

Jake Taylor:
If you add that 20% capacity back, like you start printing money. So I think Buffett’s worried about that marginal customer.

Tobias Carlisle:
It’s the marginal 20%. Yeah.

Bill Brewster:
Yeah.

Tobias Carlisle:
Okay, that makes sense.

Jake Taylor:
And now all of a sudden all these things are structurally unprofitable for a long period of time, and if they’re levered up at all, which they kind of tend to be with asset heavy like that, and what seem like relatively dependable cash flow streams, your goose is kind of cooked. So I don’t know, I’m not as sanguine that things come back to… maybe eight out of 10 of us do, but those other two were the ones that were all the profit for all these.

Tobias Carlisle:
Yeah, that’s fair.

Bill Brewster:
Well, yeah, and I mean I’ve gone back and forth on Velas Resorts since this whole thing started, and I mean that’s a good example. A lot of their money comes from people that are flying and spending money at this ski school and spending money on fancy wine at dinner and stuff like that. I mean they do have local traffic, but like my-

Tobias Carlisle:
They’ll probably break even on those season passes, right? It’s all the tourists whom the real money is.

Bill Brewster:
Yeah, I think that’s where the money really flows from.

***

Tobias Carlisle:
This might be the last question that we have, but kind of the other side of that question, “E-gaming, VR, online work companies, any thoughts?”

Jake Taylor:
I don’t know.

Bill Brewster:
None worth sharing.

Jake Taylor:
Nothing that everyone else doesn’t already know.

Tobias Carlisle:
I’ve recorded an interview with Will Hershey, he runs the N-E-R-D, NERD ETF, which is eSports and digital entertainment. Kind of interesting, that one comes out on Monday. I think that world is so big and not nearly as well understood as it is big. It’s so much bigger than film.

Tobias Carlisle:
Just that the eSports and entertainment part of it is so much bigger than… the amount of money that just gets tipped into it’s kind of staggering compared to the mind share that it has. It’s one of those things, it must be like right on the tipping point of just becoming completely mainstream that you go and watch other people compete in various of those games versus watching… I wouldn’t want to be the marginal professional sporting franchise in a state. So he said-

Jake Taylor:
The XFL of eSports.

Tobias Carlisle:
I mean not even the XFL, I hesitate to say this, but he said the average age of someone who watches baseball is 60 years old.

Bill Brewster:
Yeah.

Jake Taylor:
I believe that. Speaking of regular sports though, how great is the Last Dance? Have you guys been enjoying that?

Bill Brewster:
Oh, it’s fantastic.

Jake Taylor:
So good.

Bill Brewster:
Dude, Jordan’s a monster.

Jake Taylor:
Jordan is amazing. I always loved him and had respect for him, but like his drive, it boggles the mind.

Bill Brewster:
Yeah, my dad was never big into sports, so I only watch the NFL, and watching that I’m like disappointed because I really enjoyed watching LeBron. I’m the guy that likes to stir the pot and be like, “Oh, LeBron’s the goat,” even though I know he’s not. And then like I watched that and I’m like, “Oh man, how can I even make that joke ever again?” Like it’s impossible.

Jake Taylor:
It’s not even funny anymore, right?

Bill Brewster:
Yeah.

Jake Taylor:
There’s no one. He is such an alpha, oh my god.

Bill Brewster:
Yeah.

Tobias Carlisle:
I haven’t watched it. I’ve got to go and get into it.

Jake Taylor:
God damn it Toby.

Tobias Carlisle:
I do want to watch it. I grew up… you got to understand the cultural significance of MJ globally, he reached outside of basketball, reached outside of the States. So there were professional athletes all around the world who wanted 23 as their number.

Tobias Carlisle:
So Shane Warne in Australia who’s a leg spin bowler, that means nothing to any of you guys, but he’s like a generational bowler. And he had 23 on his back, because he was just after MJ, just because he wanted to have MJ’s number on his back.

Bill Brewster:
When you say bowler, why don’t you explain what you mean by a boulder?

Tobias Carlisle:
It’s a pitcher.

Bill Brewster:
Yeah, in what sport?

Tobias Carlisle:
I don’t know why it’s called bowling. I didn’t name it.

Bill Brewster:
In what sport.

Tobias Carlisle:
Cricket, sorry, cricket.

Bill Brewster:
Correct. There you go.

Tobias Carlisle:
Apologies.

Bill Brewster:
Now the Americans understand what you’re talking about.

Jake Taylor:
No, they don’t. [crosstalk 01:04:59]

Tobias Carlisle:
So leg spin is like knuckle ball. It’s really hard to control, but when they get it dialed in, they’re just unstoppable. They just tear your batsman apart. Tear your hitters apart. Dudes, that’s time. We’ve gone a little bit over.

Bill Brewster:
Sorry about my technical difficulties. Brutal.

Tobias Carlisle:
Take you a technician out the back and shoot him or her.

Bill Brewster:
It’s my grandma bro.

Tobias Carlisle:
Thanks very much guys. See you next week.

Jake Taylor:
See you next week.

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