VALUE: After Hours (S02 E21): Is Value a Value Trap, Winchester Mystery House, Cash n’ Carry

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

  • Is Value A Value Trap?
  • The Winchester Mystery House
  • Cash n’ Carry
  • Frédéric Bastiat – The Parable Of The Broken Window
  • Eugen von Böhm-Bawerk – The Positive Theory of Capital
  • The Power Of Network Effects
  • The Problem With Inflation
  • Great At Knowing What To Do, Terrible At Executing
  • Can Anyone Invest In US Tanker Stocks Better Than The Pros?
  • Michael Burry’s Latest Picks

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

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Full Transcript

Bill Brewster:
Got to talk about yesterday.

Tobias Carlisle:
With love fellas. Save all that quality content up for … right now you can say it.

Bill Brewster:
That’s right.

Tobias Carlisle:
What’s happening? How’s Florida?

Bill Brewster:
People will hear this in 10 days unless they get less lazy and tune in live.

Tobias Carlisle:
Miss all the good stuff.

Bill Brewster:
How about time for us? We’re making time for you.

Tobias Carlisle:
We did advertise it as after hours and here we will are. Will and truly it’s lunchtime on a Tuesday. It’s 10:30 AM Pacific, 1:30 PM Eastern, 5:30 Universal Coordinated time. So if you want to tune in live, you just got to head on over to the YouTube channel and you can look at it live or you can see it immediately after it goes up. The audio comes out a little bit delayed because we need to get a transcript and a few other things done. That was super relevant when we were going through the wild drawdown but it’s become less … always like to hear where everybody’s from. So it embarrasses my co-host, but I enjoy it. I like to see it when I watch it back. We’re global baby. What’s happening fellas?

Bill Brewster:
Not much, man. Your video feeds off though. You’re on a little delay.

Tobias Carlisle:
Really?

Bill Brewster:
Yeah. You just said really in my face.

Tobias Carlisle:
Really? Sorry.

Bill Brewster:
But that’s okay. It’s all good.

Tobias Carlisle:
Maybe it’ll figure itself out.

Bill Brewster:
No, things are good man. Madonna notice … they announced that the world is going to be fine tomorrow and [crosstalk 00:01:38].

Tobias Carlisle:
I want point five billion dollar capital raise right after that.

Bill Brewster:
Yeah.

Tobias Carlisle:
Gee. Cynical.

Bill Brewster:
A bit odd.

Tobias Carlisle:
They moved the whole market with that. 1.5. … so preliminary results on like four people out of 15 or something like that. Maybe it was more than that, I don’t know exactly. But basically, it’s nobody. It’s like randomness. They’re like, yeah, we got the cure. Home Market rallies that thing goes bananas then they say, “Yeah, we need $1.5 billion.” Thanks for playing, that’s a pump and dump. Maybe they got it, I don’t know but I’d be careful with that one.

Jake Taylor:
Yeah, what was the … I don’t know if this is true, that they’ve been around for a long time and have never actually brought anything to market but now everyone’s like, well [crosstalk 00:02:21].

Tobias Carlisle:
They’re in the business of selling stock, baby.

Jake Taylor:
Well, right time to do it.

Bill Brewster:
Well, It does indicate that we are at a point right now where the market does want to go up in my opinion, and they’re willing to buy whatever rumor. Now, whether or not there’s a outbreak that changes everything that’s fine but sentiment right now to me skews quickly bullish.

Tobias Carlisle:
I remember that it’s security analysis, for what chapter you said again?

Jake Taylor:
Chapter 69, I don’t know.

Tobias Carlisle:
That’s in the seventh edition. That’s [inaudible 00:02:56].

Jake Taylor:
Yeah. [crosstalk 00:03:02] pump and dump that was in the footnotes.

Tobias Carlisle:
Do you want to do the intro Jake? I think it’s your turn.

Jake Taylor:
I did it last week. So it’s Bill’s turn.

Tobias Carlisle:
Bill? Sorry Bill. Sorry brother.

Bill Brewster:
Welcome to Value After Hours, It’s Bill Brewster with my co-host, Toby Carlisle and Jake Taylor. Toby, what are you going to be talking about today?

Tobias Carlisle:
Yes, so I did some writing over the weekend after I read Cliff’s piece. I got a little bit inspired, wanted to go and verify that the data was as he reported. And the two questions that everybody had after Cliff’s piece came out, which was excellent by the way, was, aren’t we only measuring the spread here? Which is relevant for long short guys like me partially, but also I’ve got a long portfolio as well. So is value undervalued? So I went and looked at the long leg values specifically. And the other question is, are these companies that are in the value portfolios more levied than they have been in the past? And so I just use my two favorite metrics EVE and EBITDA to answer that question, so we’re talking about that.

Jake Taylor:
Are we just doing this whole segment right now or what ?

Bill Brewster:
No dude, he’s just introducing.

Tobias Carlisle:
I got five 5000 words plus commentary.

Bill Brewster:
Yeah. Jake it’s my intro. Geez. Also, they should be more levered lower debt service coverage reduces your wack higher EV, let’s go. [crosstalk 00:04:32] markets. Jake, what’s yours?

Jake Taylor:
I’m going to be talking about the complete opposite of that. What the Winchester Mystery house can teach us about economics.

Tobias Carlisle:
I like that one.

Bill Brewster:
That is a mystery. And I will be talking about how I’m positioned right now. Some people have thought that [crosstalk 00:04:53]. No, no. Some people think [crosstalk 00:04:57].

Tobias Carlisle:
And you’re leaning closer.

Bill Brewster:
Than I lean. Yeah, that’s right I’m officially in the closet. And I’ll be coming out soon so all right. Right now.

Tobias Carlisle:
Yeah, I wish I could play the intro music here.

Bill Brewster:
I just want the outro on loop man.

Tobias Carlisle:
Yeah.

Bill Brewster:
Shit is hot.

Tobias Carlisle:
It’s sweet. Maybe I’ll just put up some clips of us with the whole song. It’s pretty good, Grace Mesa how we do it for everybody.

Bill Brewster:
We can do a TikTok.

Jake Taylor:
Oh Christ.

Bill Brewster:
I don’t know that’s really where we want to go with this. We’re not really omni channel, we’re mostly just … we got our niche here but-

Tobias Carlisle:
You’re in charge of the Instagram account.

Bill Brewster:
TikTok’s so hot right now.

Tobias Carlisle:
TikTok?

Bill Brewster:
No I’m good. Tobby, why don’t you go first?

Is Value A Value Trap?

Tobias Carlisle:
All right. So I wrote it for … it’s up on the acquirers multiple website. I’ll link to it in the show notes to this straight after we record it. I called it, is value a value trap? Because I don’t know, everybody’s got a different definition of a value trap but I think my definition of a value trap is something that keeps on going down in terms of the price, and every time you go to look at it, the intrinsic value is down too but the price is still discounted to the intrinsic value. And so you feel like you shouldn’t be selling it because it’s still cheap. And it just keeps on doing that until all your money’s gone. So I looked at value … and so that’s the question that I have, is value just a melting ice cube? Is it that these portfolios are just getting junkier and junkier and we’re reforming at a lower point every time but they’re worse portfolios and so you don’t want to hold them at all?

Tobias Carlisle:
So Cliff’s piece was really good in digging into, are these unusually bad portfolios? Is it … like the return on assets question. So they’re no worse than they usually are over full data set. Are they more levied? So his analysis left a few guys asking, “Does this satisfy that answer?” So I took a look at that in the context of EV/EBITDA and EV/EBIT. So what I did, I pulled the data off the visual factors page on the alpha architect side, which runs each of the metrics, price to cash flow, price to earnings, price to book. EV/EBITDA, EV/EBIT over the data set back to 1992, which is a good one because that’s modern history where … people say, “What happened in 1940s is not relevant. What happened in 1960s is not relevant.” But 1992, today, I think is a long enough data series to give you some idea what’s going on. But it’s mostly modern history. It’s mostly-

Jake Taylor:
Was ’92 the last time that value worked?

Tobias Carlisle:
No, it’s worked a few times in that period. But that’s a fair question. Not much over the last 30 years, basically. Basically, it’s underperformed 70 to 80% of the time over the last 30 years. Even though it’s outperformed over the full data set, that’s weird, get your head around that one. 70 to 80% of the time, it’s in a drawdown. But you still win over the whole thing. That tells you something about value, and that tells you why it’s so hard to hold on to it. I mentioned that in the piece. But basically, what I did to workout whether these things are cheap or expensive, it’s hard. Do you adjust by interest rates? Do you adjust it by other things? I don’t know. So what I did was I just ran them back against their own averages. So where … if a P is 10 today, and it’s traditionally a P5, you would say that’s twice as expensive. So that would not be a good opportunity for value. If it’s usually 10 and it’s currently five, then it’s a better opportunity than it usually is, value’s cheap.

Tobias Carlisle:
So I looked across every single one of the data sets. In every single instance, value is above average opportunity. It’s rich to its mean which means it’s a good opportunity. In two of them, so price to book value is about 65% rich, which is about as high as it’s ever been. The only time it’s been high was March 31. So this data goes to April 30, month end. The only time it’s higher was March 31, which makes sense, we’ve bounced a little bit off the low. That’s true also for price to earnings. The only one that doesn’t look great is price to cash flow, which is about 5% rich. But that’s still better than two thirds of the time. So one third of the time it’s been better value. It’s hard to know which of those metrics you want to lean on the hardest. So I just took an equal weight average of all of them and I caught the combo and I stuck that together.

Tobias Carlisle:
If you just equal weighting each of those metrics, the combo says we’re about 35 and a half percent rich to the long run average. And the only times that it’s been a better opportunity than this … there are six month ends out of 340 through that whole data set. There are five right at the very peak of the dot com bubble. And there’s one March 31, a month ago. So, I would say that value is a very good opportunity right now. The question about whether the portfolios are unusually levied or not, I think is answered by EV/EBITDA and EV/EBIT. So EV/EBITDA is about 25% rich. And it’s like they’re 4% of occasions, which is about 10 months that we’re better than this.

Tobias Carlisle:
And they’re all like 2000 EV/EBIT. There are a couple more, it’s in about the 10% of opportunities, but they’re all clustered around the 2000 peak and the 2007 Peak. So I think on just about any metric value looks very very cheap to me and across all of them It looks cheap, the portfolios aren’t unusually livid. And the main takeaway for me which I found really surprising was that value has underperformed. 70 to 80% of opportunities over the last 30 years and still outperformed over the full data set. So that’s interesting.

Jake Taylor:
Yeah, frequency versus magnitude.

Tobias Carlisle:
Exactly right.

Jake Taylor:
So good luck trying to time that and missing out on it.

Tobias Carlisle:
That’s right. Like you really have to be invested in it to capture those returns, you have to know that .They really do come about infrequently. And when they come about, there’s so big that if you miss them, then you miss out on all of the value of valley, all of the out performance of valley.

Jake Taylor:
That makes sense. It probably should be easy.

Bill Brewster:
It’s like Adam Don.

Jake Taylor:
[inaudible 00:11:47]reference.

Bill Brewster:
I said it’s like Adam Don right strikes out a lot, but when he hits it’s out of the park walks a lot too, but anyway, doesn’t matter.

Tobias Carlisle:
One of the other interesting things so I pulled in a whole lot of research from … I looked at some Olson research, I looked at AQR research, I looked at Cory Hoff Steen had this piece on why book value looks so busted and whether you can discount that or not the same piece on on unpacking the problems with book value, which I thought was pretty interesting. I think there’s an awesome piece that was really interesting that they call factors from scratch with a look at what drives value what drives growth. So, when you form a value portfolio, they tend to be subnormal profitability and the profitability tends to fall over the course of the time that you hold the portfolio. And then when you rebalance, you rebalance into a cheaper portfolio so has this sawtooth where your earnings are falling while you’re holding it. And all of the gain from Valley comes from multiple rewriting and the way that you can think about that is there’s already sub normally cheap portfolios, people oversell them because they don’t want to be in something that’s falling and sub normally profitable.

Tobias Carlisle:
But they overestimate how bad they are. So that’s the way it works. For growth, it’s the opposite, the earnings of growth portfolios do go up. It’s just that we tend to overpay, the difference has been over the last 10 years or so. So depending on when you start the under performance starts in about 2006, for price to earnings and like 2014 for price to cash flow. Basically, that multiple expansion and compression has gone away. So growth has seen the multiple expansion, in addition to rising earnings growth has seen multiple compression in addition to falling earnings. And that is driven though, that the alligator jaws really wide and send out values is unusually cheap growth is unusually expensive.

***

Great At Knowing What To Do, Terrible At Executing

Tobias Carlisle:
Typically what happens when that occurs is you get some reversion to the mean and you get some value out performance when the spread is really tight. And Jake pointed this out in 2014. So kudos to Jake for calling this one. He said the opportunity In 2014, based on dispersion was the worst in 25 years. And he was dead, right? It’s been a terrible run for long short value and for the long run, it’s the reverse. Now the spread is very, very wide. It’s probably likely that we see some reasonable out performance.

Jake Taylor:
I wish I would have been smarter of knowing how to benefit from that.

Tobias Carlisle:
Should have tried to run.

Jake Taylor:
Yeah. I guess.

Tobias Carlisle:
Thanks for the Super Chat.

Bill Brewster:
She’s six years at trade, is that a medium term investment strategy?

Jake Taylor:
No. It’s like, forever now. Right?

Tobias Carlisle:
You could have been a growth legend at that stage. If you put it on and like, put a whole lot of expensive quality companies you would have done very well. But now it’s not the time next time.

Jake Taylor:
That ship sailed.

Tobias Carlisle:
Now the opportunity is invaluable. It’s great.

Jake Taylor:
Yeah.

Tobias Carlisle:
I missed it. I didn’t understand this stuff in 2014. Even though you’d been telling me JT I should have listened to you, should have thought about what it meant.

Jake Taylor:
I don’t know, man, like I said, knowing doesn’t mean being able to execute anything [inaudible 00:15:10].

Tobias Carlisle:
Yeah, I’m not going to make that mistake again. The right trade now is valid the right trade at some stage in the future will be growth. It’s not now.

Bill Brewster:
All right, I don’t know where I fit in the style box.

Tobias Carlisle:
You don’t have to.

Bill Brewster:
What I would say is the style closet.Yeah, that’s right. But Jake, what you said, I was thinking about this earlier the difference between knowing what something is going to be and living it. I forget how you phrased it, but you triggered the thought that I had.

Tobias Carlisle:
[inaudible 00:15:43].

Bill Brewster:
Yeah, man just like, knowing what this lockdown would be like, right? And reading about it and this is what you’re going to go through and now like actually experiencing it, is just two totally different worlds. Theoretically understanding something and then experiencing it. I did not think that … I don’t know the lockdown would be like it is.

Tobias Carlisle:
Pretty much [crosstalk 00:16:09].

Bill Brewster:
And I think-

Jake Taylor:
Mark Twain.

Bill Brewster:
Was?

Tobias Carlisle:
Those-

Jake Taylor:
Mark Twain –

Tobias Carlisle:
Sorry[inaudible 00:16:14]

Jake Taylor:
It was like carrying a cat home by the tail. You can learn about it but it’s nothing like experiencing it.

Tobias Carlisle:
There’s a comment on our channel from Patrick Rossi who said, make sure you get a haircut before you go in. The food’s going to come back, don’t stockpile toilet paper, make sure you get a haircut. And I read that and I was like, that’s probably good advice. And I said to my wife, “What do you think about me getting a haircut before we go into this?” And she said, “Oh, that’s one of the things they say that you’re at risk of catching it.” So it was too late for me but I appreciate the commentary. Patrick, if you’ve got any more tips-

Bill Brewster:
I’m grow this out now.

Tobias Carlisle:
You look great, man.

Bill Brewster:
I don’t think I’m going to get [crosstalk 00:16:51] like this again.

Tobias Carlisle:
Everybody looks better with long hair.

Bill Brewster:
Yeah. It’s getting there.

Jake Taylor:
Now you’re talking [crosstalk 00:16:56].

Bill Brewster:
I think you’ll screw it. Let’s go through four more inches and try.

Tobias Carlisle:
On the hit.

Bill Brewster:
Yeah, I see. Yeah. Well, like Dude, you keep bringing it up. I can’t just double that. It’s hard enough to get anything. Anyway, I digress.

Jake Taylor:
I faded that take and I had my wife cut my hair this weekend.

Tobias Carlisle:
Yeah. You look great man. She’s on a cracking jokes.

Bill Brewster:
I may come in here bald one day.

Jake Taylor:
Who does to the wifey?

Tobias Carlisle:
Just shave it off?

Jake Taylor:
Oh yeah, that’s it is tempting.

Tobias Carlisle:
Yeah. But so far I like this. It just gets in the way. Shave it off Britney Spears. I’ll tell everybody that you got a problem.

Bill Brewster:
Oh men, shoot so hot for a while. You remember that oops, I did it again video, like, get out of here with that.

Tobias Carlisle:
How could anybody forget? [crosstalk 00:17:42].

Bill Brewster:
[crosstalk 00:17:42] used to have this jeep. And it had these speakers, the thing used to bump. In South Florida, we got stupid with our cars. And he comes in, he used to play stuff like the Loonies and Bone Thugs and whatnot, and then he starts bumping Britney Spears, and I was like, “What are you doing?” He was like, “She’s so hot, I can’t help it.”

Tobias Carlisle:
Backstreet back.

Bill Brewster:
Anyway that was after [inaudible 00:18:03] years. Still hadn’t touched a boob. Thanks, Kevin Kennedy.

Tobias Carlisle:
We’re going to move this conversation on somehow.

Bill Brewster:
Do we? Still mad at him? Jake, you want to go?

***

The Winchester Mystery House

Jake Taylor:
Yeah, I will. So the Winchester Mystery house is this … It’s a tourist attraction in San Jose. And it came about from the widow actually of the Winchester Rifle Company. He died of tuberculosis, they had an infant who died and she thought she was cursed. And you have to understand how rich she was based on this company that this guy founded-

Tobias Carlisle:
That lever action rifle man, that was the gun that won the West.

Jake Taylor:
Yeah, so she was worth about 500 million of today’s dollars. And she was getting like nine million in dividends from the company a year. So she had a pretty good cash flow happening. Well-

Bill Brewster:
That’s almost that Buffet money.

Jake Taylor:
Yeah.

Bill Brewster:
Close.

Jake Taylor:
No.

Bill Brewster:
Not really. [inaudible 00:19:08] that much.

Jake Taylor:
Yeah, so she goes to like a psychic, a medium who tells her that she’s going to be forever haunted by all of the ghosts that were killed by the Winchester rifle which at that point, probably a lot of people, right? So she moves out West, moves to San Jose, buys this property and the medium tells her as long as she continually adding to this house that the ghosts will like leave her alone basically. So she starts building in 1884 and she just keeps adding to it and adding to it at all times. And eventually, the thing is like seven storeys tall, it’s this mid monstrosity. Earthquake happens and like a bunch of it falls over. So they rebuild it till It’s four stories today. It’s got 161 rooms. There’s all these doors and stairs that go to nowhere because it’s not designed by any central plan. It’s just like, Oh, well let’s add another room over here. 47 fireplaces, 10,000 glass panels.

Jake Taylor:
The thing is just like a monstrosity. Well, so she ends up dying in 1922 it gets auctioned off for like $135,000 and someone that turns it into a into an oddity, basically, like come and check this thing out. All right. So kind of fun story. But what does this have to do? What can we learn from this because, I have to be the vegetables guy here. This is what drives me crazy about things like GDP. So she’s adding to this house at all times. And this is like GDP growth, right? We’re adding to GDP with every single one of these. However, what was the real value that was ever created for the average person because of this? It’s nothing right? If those same materials could have been used to build 100 different houses for people and produce much more value for society. All right. What does that mean?

Bill Brewster:
It is network, charter. Anyway.

Jake Taylor:
Oh boy. Now you’re talking your own book. So this is what drives me crazy about dip shits like Paul Krugman who say things like in 2011 that we need an alien invasion to come to get us all on the same page to get GDP growing. That is such a stupid comment. I can’t even believe that there are Nobel prizes that aren’t stripped when you say things like that. We figured this out in 1850 when Frederic Bastiat wrote about the broken window fallacy, that you can’t just create something and it doesn’t take away from something else, right? So we could create … we could have scientists working around the clock on how to counter an alien invasion. But that’s just things that they wouldn’t be solving for like cancer or putting better roofs over our head or more food for everybody. It boggles my mind that even today, we still see that same kind of broken window fallacy coming out.

Jake Taylor:
So think for a second about guys like Buffett and Gates, where they have all of these claim checks that they’ve accumulated over their lifetime. And they’re not building houses with 160 rooms, and then they’re not building only … they’re not having 1000 people come and paint their picture of them, right? They’re putting that money towards trying to actually help most of humanity. The people on the lowest rung. It’s such a beautiful sentiment to me that-

Bill Brewster:
Are they really doing that.

Jake Taylor:
Yeah, he’s given us money to gates.

Bill Brewster:
So he’s outsourcing all that I don’t know that he’s doing.

Tobias Carlisle:
That makes sense [crosstalk 00:23:05] get the guy, he’s best to do it for you. Get the young guy who’s energetic and super smart to do it for his built out the infrastructure.

Jake Taylor:
That’s right.

Bill Brewster:
It’s criticism of his that I understand.

Frédéric Bastiat – The Parable Of The Broken Window

Jake Taylor:
So I’m going to read a quote from Bastiat in 1850. Okay so, this is not breaking news or anything. Society loses the value of things which are uselessly destroyed to break, to spoil, to waste is not to encourage not national labor. Destruction is not profit. Okay. I think a lot of people would be really well served, do yourself a favor and pick up Henry Hazlitt’s book economics in one lesson that will teach you everything that I think you need to know about where most of the problems that we see with economics today typically and it was written, I think in the 1950s. So, All right so, comments there before I move on to Part Number Two of what we can learn from this house?

Bill Brewster:
I guess no. I think I understand what you’re saying. But I also think that if you look at how much better life is today than it has been, I don’t disagree that there are parts of GDP growth that are like, oh, what are we really chasing here, but in aggregate, we’ve done a pretty good job.

Tobias Carlisle:
He’s not disputing that what he’s disputing is whether that is the measure that tells you that we’ve done it really well. Maybe it’s a different measure. Maybe it’s like gross wealth or something like that rather than gross domestic product to gross national product.

Bill Brewster:
Yeah. Probably GDP per capita plus some measure of the wealth gap, right?

Tobias Carlisle:
But the problem is that-

Bill Brewster:
[inaudible 00:24:54] for all of society.

Tobias Carlisle:
The problem is the GDP is this aggregated measure that is muddy as hell. And it doesn’t really tell you for wealth of the nation, the capital of the nation is the thing that makes it wealthy.

Jake Taylor:
Wealthy.

Tobias Carlisle:
Because GDP … this is the point that has Bastiat I’m making is that if you go and vaporize a city, and then you rebuild the city, you’re definitely poorer. But now your GDP is up because you got to spend money that you saved to rebuild the city, rather than sort of building new factories and creating new things new inventions, new businesses.

Bill Brewster:
Yeah, this is why I think that I don’t buy the inflation argument. We just vaporized a lot of velocity and then you’re putting more money in and you’re saying inflation is on the come? I’m just not sure that’s true. So I do understand the concept.

The Problem With Inflation

Tobias Carlisle:
Well Inflation is … the problem with inflation is that everybody thinks it’s CPI. And the numbers are sandbag, right? If anybody other measures showed us that sort of you used that I can never remember the name of the index JT what’s the cottonwoods?

Jake Taylor:
We should just like … Yeah. [crosstalk 00:26:09].

Tobias Carlisle:
It says that inflation is running, something like that. What is it?

Jake Taylor:
Yeah, I think it is. It’s not Buttonwood, that’s an economist.

Tobias Carlisle:
Cottonwood, something like that. We’ll figure it out.

Jake Taylor:
Yeah.

Tobias Carlisle:
If you use that it says … they track the 500 items that people spend the most money on in each of the cities. The 500 items that most families spend the most money on in each city. And you can have a look at those numbers like they’re running between 11, 12% a year for the last five years, that probably matches most people’s. That’s what you spend the money on. That’s what you … So it’s not CPI. inflation doesn’t have to run through CPI, inflation can run through asset prices. And I think we’ve seen that.

Bill Brewster:
Yeah, that’s fair.

Eugen von Böhm-Bawerk – The Positive Theory of Capital

Jake Taylor:
There’s an understatement. All right, so the second thing to learn from this crazy house out in San Jose comes from this late 19th century economist whose name was Eugene Von-Bohm Bawerk. And he has this analogy that he calls the five sacks of grain. So picture a farmer, and he has five sacks of grain sitting in front of him. Now with the first sack, he is using it to survive, that’s creating the bread that allows him to live. With the second sack, that’s him thriving. He’s feeling good, it goes from just survival to full health. The third one is he’s feeding his farm animals with it. The fourth one is he’s making whiskey out of it. And then the fifth one is he’s feeding pigeons.

Jake Taylor:
Okay, so we have five sacks of grain, which if he gets one of his sacks stolen, what does he do? Is he going to consume one fifth as much eating, one fifth as much whiskey, one fifth as much for animals for his farm? Unlikely, right? It’s going to be the pigeons. That’s the thing that he values the least of these five sacks. Okay.

Bill Brewster:
Sounds like GameStop. Next.

Jake Taylor:
Man, that might actually be accurate. So I think what the lesson here is that this house that was built in San Jose, at one point the value of it was determined by what this woman … it was chasing ghosts away, right? And that was a certain value that was created by it. Then it gets auctioned off and now there’s this whole different use of it, which would be as a tourist attraction, right? Maybe at some point they build something else in there and that’s a different grain of sack that you could use it for. So the value of anything is determined based on what do we as humans get out of it? What is the means that are accomplished by it? So, one of the things you can think about in your investing is, if I had to stop doing whatever this set of assets … what was the next best thing that I could do with this set of assets?

Jake Taylor:
That would be the default … the world changes, what is the new value of what these assets might trade for? Now, I think in Benjamin Graham’s time, that was an easier thing to come up with. And I think that the values were more sturdy, there were more sacks of grain there. Today, when it’s a lot of it is like IP, and even just code, that second grain, or that second sack is pretty much empty, right? If that code can’t be used for the exact purpose that it’s being used for today, it’s pretty much worthless.

Jake Taylor:
So perhaps it’s the … disruptions in the world are much more severe now, because the assets are … they decay from full value to zero, because they’re so specialized. Whereas before it was like, Graham could go and look and see like, oh, man, there’s a bunch of track here. Well, we can take that rail track up and move it somewhere else where it needs to be and the molecules didn’t disappear. It still has value somewhere else in the economy. And I think that we’ve gotten so specialized now that that is not really as true as it used to be. So you would expect more booms and busts in your asset values potentially as the world changes around them.

Tobias Carlisle:
Yeah, I need to think about that a little bit. Because I would say it’s not necessarily … we have a lot more know-how than we used to. And I use know-how as a substitute for intellectual property, which is like, everybody thinks that means brands or patents or design or copyright or something like that. Know-how it’s just like, we know how to do stuff. There are lots of businesses that are very specialized and good at doing things. A friend of mine has this thing in Australia, they measure the hardness of rocks in a mine. That’s a great business. They make a lot of money doing that. They’ve got some specialized know-how from a university and they do this thing better than anybody else in the world, make a lot of money doing it. But how do you measure that? What’s the alternative use of that? I don’t really know. It’s used in mining obviously, because you want to know what kind of machine you need to bust up the rocks to feed whatever you’re feeding into the machine. Like do you need a really expensive one? Can you get away with a cheaper one?

Jake Taylor:
Yeah.

***

The Power Of Network Effects

Tobias Carlisle:
So I think there are a lot of businesses out there. A lot of big businesses that have networks, what’s the distribution network or the … doesn’t have to be distribution, but just some sort of communications network, anything like that. Those things are highly valuable and probably more valuable than it costs to stick them in the ground. The cost of building a trench and sticking some cable is pretty low end infrastructure. But the value of that link is huge. It’s probably not wrong, that trades for more than its book value, that’s probably sensible. So I think there’s a lot of that. So I have a little bit … I probably need to think about that a little bit more to fully understand the thrust of that idea.

Bill Brewster:
Yeah, I think too … when I was studying physics, I did much better when I had examples with the concrete world. And then once we got into stuff like fields and magnetic fields, it was harder for me to conceptualize. But I came to realize that was as true in the non-physical world as the rules were in the physical world. And a lot of these … even though they’re not rails like Visa, and MasterCard, are the rails and when people have tried to penetrate them, they more often than not ended up partnering or … I think of Match.com or that whole group. They basically have a monopoly on people having sex, I guess you could try to create a scenario where other people are on other apps having sex with other people that don’t know about the cool app, but I’d rather own the one that has the direct line to the sex.

Tobias Carlisle:
There’s a lot of apps that … there’s nothing to stop you creating a new app.

Bill Brewster:
Go try.

Tobias Carlisle:
Lots of people have done it.

Bill Brewster:
At the end of the day, you want to bring the people … Yeah, but you want to have the people that want to have sex with all the people. You don’t want to create the app where you’re like, hey, it’s you and Joe Schmo, and you’re going be right, swiping on each other.

Tobias Carlisle:
That’s true.

Bill Brewster:
That’s just hard to recreate.

Tobias Carlisle:
That’s a good point. But we’ve done it before. There’s a TikTok version of Match coming.

Bill Brewster:
Maybe. I don’t disagree. I know that Scott Galloway thinks Peloton has a good inside track to potentially launch a dating service. But I do think that there is something that … that’s what he said. But there is a real legitimate barrier that you have to get people to sign up for. And on something as base level as sex, I think that’s a pretty good vertical to own. I would love a drug vertical if I could own that too. I think historically drugs and sex [crosstalk 00:34:24].

Jake Taylor:
Legal or illegal?

Bill Brewster:
[crosstalk 00:34:25] made a lot of money on. I don’t honestly care as long as I can keep the money. If Pornhub listed, you’re telling me people wouldn’t buy the IPO? They’d be insane not to. Yeah, I know that I’ve diverted the conversation but I’m just saying … I’m using the analogy because A, I think it’s entertaining but B, I think it’s very real. And the network effects on something like that I think are easier to theoretically displace than to actually displace.

Tobias Carlisle:
There’s an Equinox gym dating app. According to the article brouhaha.

Bill Brewster:
If you get on that, you just a loser.

Tobias Carlisle:
Like Oracle gym … so, Equinox gym is already … that’s pretty high end gym so you know they’re going to be rich and you know they’re going to be at least interested in getting healthy. That’s probably pretty good crap.

Bill Brewster:
Yes, you can go there, feel free. Sometime I don’t want to [crosstalk 00:35:20].

Tobias Carlisle:
You’re on the Peloton app?

Bill Brewster:
If I were a single person. Yeah, but I’m not there to date dude. I’m there to lose my gut.

Jake Taylor:
So maybe is it … I’ve wondered about this before with even just returns on capital quality as a metric of things to look at. But you have the Berkshire world, which is, let’s call it 10, maybe 15% return on capital just chugging along every year, kind of unsexy. And then you have some … I don’t know more like a Facebook or something where you just have these extreme, very, very high margin high returns on capital. Well, especially if you … depends on how you count labor in there, but what you end up with I think is almost more like … if information is the new oil, it almost seems some of these are the shale producers where it’s this huge gusher at the front end. But then the next one that comes along, the next TikTok that comes along, good luck squeezing any money out of this thing [crosstalk 00:36:26].

Bill Brewster:
No fucking way. You guys are saying … these things are exploding right now. Even with TikTok’s growth, engagement on all these platforms are growing like crazy. I don’t just [crosstalk 00:36:36]. Okay, that’s your example. But you’re talking about the example from like 15 years ago man. Myspace didn’t have the scale that Facebook had. I’m not long the stock, I was, I should be, I think it’s cheap. I just fundamentally can’t partner with Zuckerberg because I don’t like what he’s doing to society and I should get it out of my head and I should just buy it. I think that the theoretical ability for these things to go away is a lot easier than it’s actually proving to be. And I don’t disagree it’s a risk that you have to watch. But these businesses are incredible. And they’re just proving it. And right now, when all these asset heavy protectable businesses are out there getting crushed, these theoretically fragile ones are proving how strong they are. I think it’s hard to deny that. [crosstalk 00:37:30] on Facebook right now or an airline?

Tobias Carlisle:
Well, there’s some good commentary coming through that addresses this, to Jake’s point. If someone, Brian McKenna, someone did penetrate dating to Jake’s point, the assets of Match are worthless, they cannot be repurposed. And it’s true for Myspace and so on. I think maybe that’s the Thrust, Geocities, Yahoo, AOL. That’s a good example.

Bill Brewster:
Google is the person that did it. So yeah, I do agree that in theory, it’s possible that somebody can displace Google and I think you got to watch that.

Tobias Carlisle:
I think Google [crosstalk 00:38:11] to displace.

Bill Brewster:
Well, is it that much different than owning some real estate and somebody tries to overbuild you, and then you try to flex your competitive position? I think that this stuff’s much, much easier to theoretically displace than reality. I believe that network effects are pretty strong.

Tobias Carlisle:
I think it’s hard for any individual to displace. I think it’s much easier to bet on someone from the crowd figuring out how to displace them. So to your question before, why don’t I go build one? I don’t have any of the skills to do that. But I bet you there’s some kid coming through who’s like, this is what’s wrong with all these dating apps. This is where they don’t understand the current crop of kids coming through and I will get something out there. And it’ll just be this flanking maneuver that just takes their head off and they’ll get something through some way, and when … I got that’s the way Facebook got in there.

Jake Taylor:
100%.

Bill Brewster:
It’s possible dude. Everybody thought Snapchat might do that. [crosstalk 00:39:09] and these companies get stronger and stronger. I get it. So it’s not that easy.

Tobias Carlisle:
But here’s TikTok. TikTok is just fine.

Bill Brewster:
Yeah. It’s a product that is capturing some attention, I don’t disagree with that. We’ll see see whether or not Facebook’s gone in 15 years, I bet it’s still around.

Tobias Carlisle:
I don’t think it’s going to go. The money goes where the attention goes. And the most of the attention is used by the kids and the kids have no loyalty. They don’t want to be on the same platform as the olds are. So I think they’re the ones who roll off really quickly. That’s why TikTok exploded. Instagram’s probably still the standard, probably not Facebook, it’s probably Instagram but Facebook and Instagram I’m aware. TikTok comes through. Might be eating Instagram’s lunch.

Bill Brewster:
It may. I don’t think it-

Jake Taylor:
And when the next one comes though, it’s a long way down from the current sack of grain. That’s I think what I’m trying to say like the next day uses it’s zero.

Bill Brewster:
Here’s what I would say. I would say that I bet that if you and I had this conversation at any time over the last six years, we would have had the same conversation and I probably would have agreed. And now I’ve completely flipped. Because I can only watch something go on for so long before I realize maybe it is more durable than I thought. And maybe that’s a great sign that the whale will die. But for now, it just seems to get stronger.

Tobias Carlisle:
I’m I supposed to count?

Bill Brewster:
I didn’t. I did have a well, though.

Tobias Carlisle:
Six Degrees?

Bill Brewster:
58 or maybe it was 56 what number was Derrick Thomas anyway? I think it was 58. Anyway, I think it’s much easier to say than to do.

Tobias Carlisle:
We’re going to run out of time.

Jake Taylor:
That’s fair.

Tobias Carlisle:
Do you have more[crosstalk 00:41:03] JT?

Jake Taylor:
No I’m good.

Bill Brewster:
Yeah. I just don’t know. I think that you could say it about any business. Why is coke still around? Can’t you just create another soft drink? But these things indoor and pattern and human behaviors are to disrupt.

Tobias Carlisle:
Well I think that the only way they can hold on is to do what coke has done and to buy lots of other things that they can use their distribution network to keep going because people definitely aren’t drinking as much coke as they used to.

Jake Taylor:
Yeah.

Bill Brewster:
Well, I think they are right? They flex their competitive positions.

Jake Taylor:
Shout out the top of Chico.

Tobias Carlisle:
Too many bubbles. Do it [inaudible 00:41:58]

***

Cash n’ Carry

Bill Brewster:
Sure, yeah. So I’ve talked to people and I guess that they’ve seen my tweets, and they think that I’m more bearish than otherwise or than I appear on the pod. I am pretty optimistic on the stock market. Generally with all of this monetary and fiscal policy, I can make a pretty compelling case, I think for going up a lot for any offer. Yes. No, that’s right. And, and the opportunity cost, if that scenario plays out, if you’re on the sidelines, I think is going to be massive because then if you want exposure down the road, you got to buy quite a bit higher. Now, I don’t have a huge degree of confidence in that prediction. Right? I have 30% cash. Now, if I was certain I was going to make money, I wouldn’t be carrying that, right? So I’m like, somewhat defensively positioned. That’s not a market call. That’s how I run my life because I want to be able to God forbid, I need it to survive, right? So it’s more of like a retail or an asset allocation discussion.

Bill Brewster:
But as far how balls to the wall in I’m on a vaccine and how we’re going to go with a second wave, I’m looking at maybe renting a property in a small beach town and bureau next year and renting out my house in Chicago, because I don’t think we’re going to have school next year. So I don’t exactly … I’m not overly joyed bullish. I’m also not overly bearish. I think that there’s a lot of merit to both arguments, but that’s how I’m hedging my life and my portfolio right now. And within the portfolio, it’s high quality stuff or it’s what I perceived to be really high quality in travel or something airline , aerospace related that’s just gotten the shit kicked out of it. But that’s, that’s more or less how I’m betting I don’t come off overly bullish or bearish.

Bill Brewster:
I think if you listen to what Buffett said, the range of outcomes is super wide. And I just think if for myself, if I’m not prepared for it, it’s bound to cause big behavioral problems. So that’s where my mind’s at this week. We’ll see where it goes next week. But I had nice conversations over the past week and one of the takeaways was I’m trying to get the portfolio where I’m not like that dependent on the virus’s path. And I’m trying to do the same thing with my life. I mean, if I end up renting this house down here, the worst case scenario I guess I look like an idiot, and I live close to my grandma who’s 91 for a year. And then I go back to Chicago and people say, Hey, remember when you’re freaked out? That’s no doubt. That’s no downside.

Bill Brewster:
So the upside downside skew out of a decision like that, I think is massively skewed to the upside. I’m just trying to put myself in those positions all over because I’m pretty worried that we are fumbling, or there’s a reasonable possibility that we fumble, and if we fumble, the rollout then everything that is optimistic right now ,like I said the market wants to go up. That’s on hope. I think if this thing like falters and God forbid, we have to shut down again. If hope disappears it’s going to get ugly.

Tobias Carlisle:
What do you think about Sweden, which hasn’t really done anything and they seem to be tracking okay, and the places in the states that have opened up seem to be okay.

Bill Brewster:
I think we’ve got … can we tell Google right now that we are not a conspiracy theory broadcast [crosstalk 00:45:54].

Tobias Carlisle:
We are not … but just don’t say the word.

Jake Taylor:
[inaudible 00:45:55].

Bill Brewster:
I’m just telling-

Tobias Carlisle:
Let’s just talk about it without saying the word. Covid.

Bill Brewster:
Come on dude.

Tobias Carlisle:
Coronavirus.

Bill Brewster:
Yeah, no I have no idea. I’m not a scientist.

Tobias Carlisle:
That doesn’t hold anybody else.

Jake Taylor:
Yeah, that’s irrelevant.

Bill Brewster:
I think that there are a lot of experts that are saying, be careful, okay. So I can either say I know better than all them. And just not adjust my life. Or I can pay some attention to what they’re saying and say, Okay, well, I could hedge my life in this way. And I will tell you the other thing is, I don’t think that your question necessarily matters because you have to layer on the political response to whatever the data is. And that really complicates things.

Bill Brewster:
I think that’s part of why Buffett’s so cautious is I don’t think that you can just have a logical conclusion right here, you also have to layer on politics and you also have to layer on what an election year can do. And I just think, for me, I live near Chicago. If that city has an outbreak, I’m going to be under the same rules, given the teachers unions, the city politics and the state politics. I don’t see how we don’t shut down. Hopefully I’m wrong. I’m not trying to live there to test my thesis. So I hope Sweden comes through it okay.

Tobias Carlisle:
I think they’re fine.

Bill Brewster:
And I hope we get a vaccine relatively soon, right?

Tobias Carlisle:
I think we’re going to be okay. I still think the stock market’s pretty risky at the moment.

Bill Brewster:
It may be, I just think we go a lot higher before we go lower if nothing bad happens.

Tobias Carlisle:
I don’t know. I’ve got no idea at all. Should we throw up to some questions I got. There’s a couple of good ones here. We haven’t discussed Buffet punching out a Goldman Sacks. Anybody got any thoughts on that?

Bill Brewster:
Is that really?

Jake Taylor:
Bullish right?

Bill Brewster:
Goldman … is Goldman Goldman anymore? For real?

Tobias Carlisle:
What do you mean by best of breed?

Bill Brewster:
I don’t know they’re building out a commercial bank.

Tobias Carlisle:
Yeah.

Bill Brewster:
They’re trying to become something they’re not JP Morgan’s taken a lot of share from the investment bank. I know that they still be a talent, but I don’t know do recent graduates look at Goldman and say,-

Tobias Carlisle:
Yeah, I’d say so.

Bill Brewster:
Boy, that’s where I really I want to go just still yeah?.

Tobias Carlisle:
I guess that’s still on top of the list.

Bill Brewster:
Yeah, maybe I don’t know.

Jake Taylor:
Don’t be a Muppet. Just don’t [inaudible 00:48:42].

Bill Brewster:
I don’t study Goldman. So this opinion is worthless. But I do, when you look at him buying into JP Morgan and Bank of America. I think he’s probably looking for his perception of cleaner and stronger organizations. And I’m just not sure Goldman said anymore.

Tobias Carlisle:
So I got another good question here. Bailey-

Bill Brewster:
If he stole Bank of America I’d worry for real because he’s been buying that in size. That would be I think Intel

Tobias Carlisle:
Do you hold him?

Bill Brewster:
No.

Tobias Carlisle:
I do. I wouldn’t sell if he sold. I didn’t sell Southwest because he sold. I wouldn’t.

Bill Brewster:
I’m not saying that I would sell it. I’m saying that would seem to mean more to me than him selling Goldman but maybe I’m wrong.

Tobias Carlisle:
So I got a good question here Bailey give it to James Anderson, manager of Scottish mortgage trusts, wrote a letter saying Buffett’s a hold on the investment community was a tragedy as it drove investors away from growth and tech. I think that that’s probably true. I wouldn’t guess if I was to call that a tragedy. But I would certainly say that Buffett’s sort of not considering tech certainly made that a place where a lot of value investors just didn’t look for a long time.

Bill Brewster:
Yeah, cost me a shit ton, but he didn’t cost me money I did, right? That’s not on him. But yeah if he was not in my ear, I would have bought Apple, for sure, in at least 2011 after the iPod changed my life 100% but I was just telling myself, you can’t tell what’s coming in tech. You don’t know. You don’t know, you don’t know. And probably for six years, I told myself that and that was really, really, really stupid. But that’s not his fault.

Jake Taylor:
I guess everyone knows how it’s going to play out now with all those companies.

Bill Brewster:
Well, I think it’s pretty clear that buying Apple nine years ago would have been a good decision.

Jake Taylor:
Yeah. It was pretty cheap then too.

Tobias Carlisle:
Well, Google-

Jake Taylor:
That wasn’t a particularly contrarian idea when it was like 10 PE

Tobias Carlisle:
Google got pretty cheap A few years ago, when you backed up the cash. It was … I can’t remember exactly. It was within valley hitting distance. And they mentioned it at the meeting a couple of years ago where he said they knew that they Geico was paying whatever it was $15 a click for the insurance and he said we could have done it then we just whiffed on it.

Jake Taylor:
My beloved Splunk rest in peace. But you know I think that game in a similar way that playing the value game is choosing the businesses that are not just total shit, right? unless you’re betting on the factor. I think that the tech game is too. I think you’re playing with fire if you don’t know what you’re doing. But I also think it is true that a lot of value investors remained blind to what created a lot of wealth for a lot of people, because they prayed at the altar of Buffett and that’s like, honestly our fault. It’s not his he’s never said you got to do what I do. It’s not thinking for yourself, which in my mind is fundamentally not listening to him.

Tobias Carlisle:
100%. It’s like a finger pointing at the moon. Don’t stare at the finger, your missile, the heavenly glory, something like that.

Bill Brewster:
Hey.

Jake Taylor:
Ooh [inaudible 00:52:03]

Tobias Carlisle:
That’s not me. That’s a girl. I can’t remember. Oh, Jackie Chan. Oh my God.

Jake Taylor:
Bruce Lee?

Tobias Carlisle:
Bruce Lee. Thank you, wise man Bruce Lee.

Bill Brewster:
Jackie Chan Jesus Christ.

Tobias Carlisle:
I know, sorry whoof. Good question here. What-

Bill Brewster:
Just real quick. I think this is the danger that I see when they’re and … I don’t know how else you learn but I do think that going through 13 F’s and putting these guys on pedestals and not realizing that your own work in good work is just as worthy as some thesis you read anywhere. I don’t care where it is, once you can get to that point of investment where you’re like, this is what I think and this is how I’m going to bet then you are an investor. If you’re looking [crosstalk 00:52:52] you’re a halfway crook.

Jake Taylor:
Don’t seek what they found. Seek what they saw.

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

Tobias Carlisle:
I like that. Okay, here’s the question. Why do you think smokehouse [crosstalk 00:53:05].

Bill Brewster:
People get smart like that.

Tobias Carlisle:
Dude, the crowd is smart. I wish I could … because I got to keep these questions up on the … otherwise I’ll forget the questions. But there’s some good comments. The crowd knows the answer to all these questions as we’re going through, it’s great. Why do you think small caps and growth have been doing so much better when the global economic backdrop is so horrible?

Jake Taylor:
[inaudible 00:53:27] better?

Bill Brewster:
Off the top of my head, I would say growth makes sense because when discount rates go down, you don’t have as much of a cost to weight. Small caps probably have a more US centric focus, and I would not want to touch EM right now. So if I had to bet that would be why. I think the US is in much, much better shape than most countries right now. Much better.

Tobias Carlisle:
Yeah, I don’t know. I’m not sure if that’s true.

Bill Brewster:
I would not have to … Well, let’s watch over the next couple of years. I would not have to pay back debt in not your own currency. I think we’ll have problems [crosstalk 00:54:05].

Tobias Carlisle:
[crosstalk 00:54:05] their own currency.

Bill Brewster:
[crosstalk 00:54:07] more manageable. Yeah. Well, we’ll see.

Tobias Carlisle:
Australia has had virtually no cases. Borrows in its own currency, [inaudible 00:54:16] the government did.

Bill Brewster:
Yeah. I wouldn’t mind Australia. I was looking at Sydney Airport, thanks to one of the listeners. And yeah, I think Australia makes sense. The problem is down there your listed companies [crosstalk 00:54:31].

Tobias Carlisle:
That’s a big problem

Bill Brewster:
Sorry, Australia. That’s junky right?

Tobias Carlisle:
Well.

Bill Brewster:
You got a lot of commodity stuff.

Tobias Carlisle:
That’s the problem, the US is unique in the fact that it creates so many of these consumer discretionary consumer staples, tech businesses. That just doesn’t happen anywhere else in the world. That’s the huge advantage of the US. I didn’t know we’re talking specifically about the stock market. I just meant, generally. I think that there’s an enormous amount of money that’s been pushed out here, there’s a lot of debt. There’s a little bit of damage to the economy from all of this stuff. I just can’t handicap who’s better or who’s worse at this stage. I’m just a little bit nervous about this Asia, Europe, the US, Africa, there’s some … it’s hard to say who’s going to do the best and you’re paying the higher prices here. So maybe not, maybe adjusted for sectors and a few other things, it’ll work so I just don’t know. I can’t hold it all in my head to figure it out.

Bill Brewster:
Yeah, I would just say I’m glad I live here. I don’t know about which stock market will perform the best, but I’m more comfortable. I’m really grateful that I’m here. I hope our worldwide listeners are safe too. I’m just telling you. I don’t know, South America man it was bad before. I feel really bad for some of these countries. I hope this isn’t what I fear it is for the world. But I fear it’s going to be really, really hard to restart.

Can Anyone Invest In US Tanker Stocks Better Than The Pros?

Tobias Carlisle:
Do you guys have any thoughts on the tankers? The tanker trade’s been doing the kind of lap on … [Kapi’s 00:56:15] been pushing the tanker trade. And I’ve seen as a whole of the guy has been in it, I gather that it’s now been busted up. I’m not in it. I don’t play that stuff. I’ve done that stuff so many times and lost so much money trading those junky things unless you’re an expert in it, don’t touch it. I’m not an expert in it. So I’ll just leave that one. I like cash flows. I don’t like to buy stuff and try to figure out what it’s going to be worth when it starts cash flowing. Whether you’re going to be even holding it because it’s going to be falling through to the debt guys, the secured debt guys. It’s just too hard. Hats off to anybody can do it.

Bill Brewster:
I looked at it and I said, can I play this cycle better than the pros? No. And then I thought, do I think that the tankers let’s say they make a lot of cash flow this year? Do I think that they’re going to distribute the cash to me and I didn’t know and then I was just like all right, there’s better places. But I like the shipping man on Twitter. Shout out to him if he’s listening.

Tobias Carlisle:
I like following, I like watching. I don’t want to play it.

Bill Brewster:
[crosstalk 00:57:13] trying to play a similar game.

Jake Taylor:
There’s a right price for everything. I just don’t know if it’s there yet. I’ve done okay in that in years past when you were buying for sub scrap value. But it’s a once every 20, 25 year kind of thing where all the stars align. And those kind of industries, the cyclicality of them and the long lead times what they call cobweb effects in economics where the supply and demand, the price, because it takes so long to get the next supply online, you get these weird price movements. And you get huge booms and busts. And the demand also is not as … it’ll just fall off a cliff and then come back crazy strong. So it leads to some really wild outcomes. So you can make a lot of money, but you can also lose a lot too. So you have to be really careful with those I think.

Bill Brewster:
Isn’t there some regulatory issue where they’re not buying new ships, so there’s almost like an embedded lag in it or whatever? I don’t know. The one I might play is airlines when I think the time’s right. That’s the capital cycle theory that I think I could actually out-trade people in because I just know it. Shipping, I don’t know. I know airlines.

Jake Taylor:
You mean like Boeing? Or do you mean like the air lines?

Bill Brewster:
No. I think if we get to October, and United really lays off 30% of their pilots and retires a bunch of planes and Boeing is going to have to layoff people in the supply chain. I don’t think that ramping up that supply chain is going to occur as quickly as demand may come back. And I think you could see a real seat shortage for a little while and you’ve got a bunch of NOLs after this. I think you could see airlines print some pretty big numbers on the back end of this. I just don’t know when those numbers start.

Jake Taylor:
Got to survive too from here first. As an equity holder.

Tobias Carlisle:
Do you think they’re going to let them go under? Do you think that-

Jake Taylor:
Is there a difference between getting crammed down big time as an equity holder by government warrants or?

Tobias Carlisle:
I just wonder if they feel some responsibility for shutting it all down. They say, “Well, we’re just not to going to walk everybody out.”

Bill Brewster:
Well, I think that’s what the payment … That was what the payment protection loan was and they got the below market loan. Government, if you’re listening, fuck American.

Tobias Carlisle:
The problem is if you let them go then they reemerge clean from bankruptcy. And all of a sudden, everybody’s got to compete with them. And that’s going to just create that-

Jake Taylor:
You broke the oligopoly basically.

***

Michael Burry’s Latest Picks

Tobias Carlisle:
Yeah, that’ll have knock on effects for everybody else for a long time. I got a good question on … Michael Burry, he’s in GameStop and he’s in Tailored … And he might even be in Boeing too, I think I saw that somewhere.

Bill Brewster:
He hit a home run on Jack in the box. I don’t know if that makes stuff for anything.

Tobias Carlisle:
Recently?

Bill Brewster:
Yeah, I think he forexed in under a month.

Tobias Carlisle:
Woof.

Bill Brewster:
But come on. He’s like, minus 75% of Gamestop. So I don’t know on a blended … Everyone is, aren’t they?

Tobias Carlisle:
I don’t know. I just don’t follow that closely.

Bill Brewster:
GameStop’s still the old buy it down it’ll lose half.

Tobias Carlisle:
Yeah.

Jake Taylor:
So what’s the question?

Tobias Carlisle:
Any takes on Michael Burry and GameStop or Tailored?

Bill Brewster:
Yeah, here’s my take. That guy is so much smarter than me, and he’s even having a hard time playing that game. So why am I going to?

Jake Taylor:
I know I wouldn’t want to the other side of him.

Bill Brewster:
Also, Tailored brands … walk into men’s wear house, really think about whether or not you want to own that. He could beat me. That’s not my game.

Tobias Carlisle:
I have heard a lot of pitches for Tailored. There’s a lot of people who like Tailored.

Bill Brewster:
I bet none of them wear suits and they’re all working from home.

Tobias Carlisle:
Well, everybody’s working from home.

Jake Taylor:
Yeah, that just described 100% of the population.

Tobias Carlisle:
I just bought a suit from J.Crew, 163 bucks.

Bill Brewster:
Boom.

Tobias Carlisle:
As soon as they did their bankruptcy … because I like there suits and I have to wear one once a year or something like that. So every time … my single yearly trip to New York to go and do some Bloomberg, I put on my suit once. I want to look good for 163 bucks.

Bill Brewster:
[crosstalk 01:01:58] Wear house and gotten five free.

Tobias Carlisle:
I could have gotten 10. But none of them look good and I only need one.

Bill Brewster:
Here’s the thing that I can’t … because I haven’t done the work. And if you’re wrong, just accept that I’m wrong and I know less than you. Okay? But GameStop I guess in theory, you can get one more console cycle and then the CEO can decide to give you all the money back. Is that where the world is going? Do you really think that-

Tobias Carlisle:
It’s going to turn into Starbucks to play games.

Bill Brewster:
Yeah, maybe. I don’t think that’s actually a bad strategy. I think that that’s how I would play the card I was dealt to, but I think you’re playing like a 3/8 offsuit. May not be a 2/7-

Tobias Carlisle:
10/2, baby.

Jake Taylor:
They’re launching a game or dating app. You didn’t hear that?

Bill Brewster:
That’ll prove how hard it is to launch.

Tobias Carlisle:
On that note, it’s time I guess.

Bill Brewster:
[crosstalk 01:02:58] matches anyway.

Tobias Carlisle:
You guys want to say goodbye? We’re over time.

Bill Brewster:
I’m sorry [inaudible 01:03:05]. I will stay in the closet all day.

Tobias Carlisle:
That’s fun. Thanks, guys. We’ll see you next week.

Jake Taylor:
See you next week.

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