VALUE: After Hours (S02 E29): Buffett’s Got The Greatest Trade Ever, $WFC WTF, Investor Personalities

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

  • Warren Buffett Pulled Of The Greatest Trade Ever
  • $WFC WTF
  • Finding Your Fundamental Investing Blindspot
  • Bill Miller Credits His Success To Learning Philosophy
  • David Einhorn: Before and After
  • Bill Ackman And Mature Unicorns
  • The Problem With Personality Tests
  • Twitter’s New Job Listing Subscription Platform
  • Piper Sandler’s Super Bullish Tesla Report With $2,300 Target

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

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Full Transcript

Tobias: And we’re live. It’s 10:30 AM on the West Coast, Best Coast. 1:30 PM on the East Coast, 12:30 PM in Chai Town where Bill is. How are you, Bill?

Bill: I’m Okay.

Tobias: 5:30 UTC.

Bill: Yeah. I had to listen to Wells, so it’s not exactly the way to start your day. [crosstalk]

Tobias: That will pull the wind out of your sails.

Jake: Come on. Let’s get the energy up on this, baby.

Bill: It’s a kick in the nuts to start with it.

Tobias: And JT, what’s happening?

Jake: Just living the dream on the West Coast. I don’t have the Wells blues at the moment. But that doesn’t mean I couldn’t get them.

Bill: You’ll get there.

Jake: [crosstalk] contagious.

Bill: I’ll get you into it.

Tobias: [chuckles] Going to be shutting down again for the big C. Never ends.

Bill: Dude, I’m supposed to go to Florida next month, and I’m watching this curve. I hope it slows.

Tobias: Just get in a little tan and batten down the hatches, you’d be all right.

Bill: Yeah, no doubt. I mean, that’s where we’re going.

Tobias: Saskatoon, Canada.

Jake: Yeah.

Bill: Oh, what’s up? Yo, get that [crosstalk] prices up, Saskatoon. Do something.

Tobias: Switzerland, Seattle, Portland, Oregon. What’s happening? Captiva Island, streaming from the beach. India in the house. Whose intro is it?

Bill: I appreciate you. Go do something better with your day.

Tobias: Bangalore.

Jake: Hey, Toby, isn’t your birthday today?

Tobias: Toronto. Oh, my God. Yeah, it is.

Bill: Yeah.

Jake: Oh, what?

Tobias: [laughs]

Tobias: I was hoping to sneak it through.

Bill: Happy birthday.

Jake: Happy birthday.

Tobias: Thanks, fellas. That’s very kind.

Jake: Nope. Not on my watch.

Tobias: Bastille Day. That was a good time.

Bill: [crosstalk] –your intro since it’s your birthday.

Tobias: Oh, that’s very kind. Welcome to Value After Hours. I’m Tobias Carlisle. I’m joined as always by Jake Taylor and Bill Brewster. Jake, what is your topic today?

Jake: I’m going to be talking about the fundamental blind spot that all of us probably have.

Tobias: Not me. [chuckles]

Jake: Except for you. One guy.

Tobias: Bill, what are you talking about today?

Bill: I was going to talk Malone. But given my morning, I think I’m going to talk Wells.

Tobias: We can do both.

Bill: Why talk about something good when you can talk about something terrible?

Warren Buffett Pulled Of The Greatest Trade Ever

Tobias: Well, I’m going to be talking about something good. I tweeted this out on Friday. I truly believe it– I can’t believe he doesn’t get any credit for it. Warren Buffett has pulled off the greatest trade ever and nobody seems to have noticed. Such a funny thing. It’s something I’m going to be talking about right after this probably. [onomatopoeia] There’s the intro music. What do you want to do, fellas? Should we kick it off with the good stuff? Get off on a high note?

Jake: Yeah, Toby, you go first.

Tobias: I love that Greg Zuckerman book, The Greatest Trade Ever, where he talks about Paulson turning his fund into a multibillion-dollar fund. He’d been a risk arb, merger arb, making some money but not very well known. And he’s outside of Paolo Pellegrini. He comes in and says, “Have you noticed that if real estate prices just stop going up, then all of this housing crashes down.” So, he creates this fund, puts on this big trade. Probably, they stole it from Mike Burry. I don’t know. Mike Burry might have been the one who came up with it.

Paulson makes like $10 billion or something like that in the fund off a billion-dollar position, so 10x. But putting in a billion, and he could have dusted the lot. That gets an entire book written about you as The Greatest Trade Ever. And I’ve been seeing all these things about how much Apple not makes up in Buffett’s portfolio. So, it’s 20% of Berkshire Hathaway. It’s 40 something percent of his book.

Jake: It’s a 120% of book value, I think.

Tobias: [laughs] That would be very high-quality book value and Berkshire should be getting some credit for that. But basically, the last numbers that I checked, it was like a $36 billion investment, which is already a sizable chunk of the book. And it’s a $92 billion as of the close on Friday. So, he’s made $56 billion. He’s been in the position I know since 2016, but the position has grown considerably over that period of time.

I just think it’s crazy. It completely flies in the narrative that Buffett’s completely lost it. Buffett doesn’t like tech. He’s taken this gigantic concentrated position in a very well-known company, anybody could have done it, and had this massive return and got no credit for it. So, I just wanted to make sure he got some for it.

Jake: What have you done for me lately? [crosstalk]

Tobias: Yeah, I feel like that’s pretty recent.

Jake: Yeah. I think it’s a testament to how quickly we forget things and we ignore– it’s amazing that to do something of that size and have that result. That’s why it’s the greatest ever is because the size of it is just almost incomprehensible.

Tobias: I made the comment that he’s a Kelly-type investor. I’m not saying he’s gone and done a Kelly calculation. I got someone in my DMs telling me that I’m wrong that it’s not a Kelly position. I know it’s not a Kelly position. I’m referring to Bill T. Ziemba, who’s the Kelly guru along with Thorpe, who said that Buffett’s investment strategy follows a Kelly-type path. That means he takes big concentrated positions in the things that he agrees with and things that he likes. He’s done it again. So, it flies in the face.

There’s this some pretty famous response to Kelly theory written in one word, and I think it’s Samuelson’s– it’s just escaping me now who wrote it. It’s an entire paper written in one-syllable word, except for the final word which is syllable. And basically, says that the idea of Kelly, like maximizing your geometric return is not right. For example, you’ll take a lottery ticket bet even though you know that a lottery ticket– your expected return on a lottery ticket is you lose money on it because it’s not worth what you pay for it. But you would still do it because it costs you virtually nothing. And if it hits, your payoff is so big, it changes your life.

On the other end of the spectrum, if you win that lottery and then someone comes and says to you, “Well, I’ll flip you for it, you can double it or I’ll triple it, and if you lose, you give me everything.” You’re not going to take that bet either even though Kelly says you should because the downside is too great. It affects your life negatively. So, Kelly’s imperfect but for a very, very large number of situations in the middle, Kelly, properly sized down is a fine way of doing it.

And Buffett’s proven it. He’s very, very rich and he’s gone and taken a gigantic Kelly position. So, pay that old man. He’s done well.

Bill: Pay that man his money.

Tobias: Pay the man his money. Don’t splash the pot.

Bill: My buddy, who is a pretty successful dude likes to– he frames things through like step changes in your life. I think that that’s a pretty good way to apply, like a real-world Kelly bet, where he’s like, “I’m not going to risk this unless I can meaningfully change my quality of life.” If he feels like he can, he’ll bet. But it gets harder– He’s the one that lives on the beach in LA. The next bet he makes is almost like he’s got to get a jet. [crosstalk]

He’s not betting anything right now. And he thinks the entire world’s crazy. That’s through the framework of like, look at all the risks that you all are taking right now when there’s a huge business cycle risk. I’m sitting here cashed up on the beach, why would I risk what I currently have to walk into this? This is insane. It’s interesting. It’s definitely not a textbook method of investing. He made his money flipping oil companies. He was a general partner on the operating level within a fund. So, he bet everything he had twice and he had other people’s money to play with and he won. He’s a beast. Some of that’s resulting a lot of it’s because he’s actually very good at execution.

But his framework of how he bets is a very interesting thing that I think about a lot. I’m like, “Okay, is what I’m betting worth what I’m actually gaining in reality?” Forget about the numbers, is this bet worth making from a lifestyle standpoint? It’s helped me sort of pare down what I like to look at and what I don’t.

Tobias: I think that that’s a little bit– I think we were talking about that last week or the week before when we were talking about the farm. It’s apocryphal, but the farmer who doesn’t do anything for seven years and every now and again, when there’s a crash, he rolls into town, buys everything that he can buy and then goes back. And we were talking about in the context of Munger, who just does nothing for years and years and years. Finally gets his pricing Wells, which is a subject today and Bank of America, was that what he bought it in?

Bill: Yeah.

Tobias: Like, literally pulls over the 405 to phone in in the trade. That’s FOMO.

Bill: Trevor Scott, he’s at Tidefall Capital I think. He had a tweet today, that was funny. He was like, you think you’re having a bad year and he posted the Daily Journal portfolio and it’s 59% Bank of America and 48% Wells or something like that, or that’s too many percent. [crosstalk] Yeah, too many percent. But anyway, it was funny. It was a good tweet. Well done, Trevor Scott.

Jake: I like that framework that your friend has because it forces you into very asymmetric bets. You don’t take the 10% upside roll of the dice with a really long tail of potential outcomes that are bad. You wait until it’s like, well, this is either 10x or maybe zero, but it’s not going to be a small outcome.

Bill: Yeah.

Tobias: It’s a better framework than getting bored and doing something.

Bill: Yeah. I question how I’m implementing it sometimes because I look at my portfolio and it skews big and it’s like how the– large seems by definition to have more of a concave than a convex outcome set. Part of me is, why am I being a salmon swimming upstream? That doesn’t make a ton of sense to me but like Charter and TransDigm– we’ll see on Transdigm but Charter I bought when it was a unique operational hiccup and everybody puked it. Transdigm, I think it was somewhat similar, but it was macro. Wells, I’m finding harder, but we’ll talk about that soon. But that would be the only way that I would defend where I play and when I typically get into things.

Jake: Does that take out all of the big tech things then? We’re going to go from $2 trillion for Amazon to $20 trillion?

Bill: Yeah, I mean, it hasn’t historically– I’ve owned Google for a while. I currently on a little of Microsoft. I’ve been trimming that quite a bit. And I owned Amazon from November to recently. But yeah, I can’t hold it here. It’s not in me to hold something at that valuation.

Tobias: I always think the big round numbers are funny though. At some point in investing, we went through from millions to billions. Do you think people were saying, “Oh, well, now, we’re billions. This is too big,” without considering all of the underlying– Just ignore the– And I know that this is not stuff that I would buy, so it’s easy for me to say and not have to do it. But I do think about like, do you really care if it’s a trillion-dollar company, why can’t it become a $20 trillion company?

Bill: Yeah, I don’t know.

Jake: You can, but what’s a loaf of bread going to cost in that?

Tobias: Yeah, a lot. [laughs] $1 billion.

Bill: That said, man, you don’t want to sit on cash while that world happens. I mean, you’re not going to able to buy [crosstalk] cash.

Tobias: Well, that world is happening right now. That’s why where we are where we are.

Bill: Yeah. Tesla, I’m sorry, we’ve been wrong on it forever. I don’t know what it’s trading at today, call it $300 billion. That’s got to print money at some point if you think that you’re going to pay $300 billion, say that you want 7% on your equity, you still got to come up with $20 billion in cash flow at some point, even if you’re not going to discount it. It seems to me to be a lot of free cash flow for a company like that to print but maybe I’m wrong. I’ve been wrong before. I’ve been wrong on that particular name.

Tobias: I think it’s always hard to imagine the numbers getting as big as they do. A trillion-dollar company, even 10 years ago, would have just seen absolutely– $100 billion company seemed like a gigantic company 10 years ago. Now, a trillion-dollar company does five– [crosstalk]

Jake: Yeah, that’s just an IPO of a hydrogen trucking or some shit.

Tobias: Yeah, that’s right. You just have to have a PowerPoint presentation, your money good. PowerPoint presentation back into a SPAC, you’re done.

Bill: The thing about Amazon is AWS– I’m doing this on memory, but I do think you have a 28% return on assets growing at 30% with a long runway. I get why people think that that’s worth a lot. Even when I try, I can’t get myself north of $800 billion for that company, and that’s like being pretty generous.

Jake: That’s 50% haircut from here.

Bill: No, I’m saying AWS. I can maybe [crosstalk] $800 billion at some point. That’s not a bet I want to make, I can just make the argument. You know what I mean? I would not place my chips on that valuation.

Tobias: Dude, you did the Tesla right up at 5%, had to look at it?
Bill: [chuckles] That’s right. Yeah.

Jake: Yeah.

Tobias: It’s like, “Whoa, $100 trillion company.” [laughs]

Jake: There’s a variant perception.

Bill: Look, I’m not the smartest guy in that name. I bet Marcelo P. Lima has a lot of reasons that I’m wrong and he might be right. He obviously thinks about that stuff a lot more than I do. But I can only handle what I can handle. My brand is smaller than some. I try to stay in my spots.

Tobias: Yeah. You do better with whatever it is, 115 IQ, acting like you got 100 IQ than you do with a 130 IQ like you got a 150.

Bill: I guess, I don’t know. Sometimes, I wonder when I watch these tech stocks rip. I think maybe I need to go lower or higher. Stocks go up, buy them.

Tobias: Should we do another subject, do another topic?


Bill: Yeah, I wanted to play this when you started your segment. [50 Cent – In Da Club playing] So, I don’t know how we’re going to party. I guess we’ll party by talking about Wells Fargo.


Tobias: There’s some sound issues. Who’s got the sound issues? Daniel Connor says there’s some sound issues.

Bill: Whose sound issues?

Tobias: I don’t know. Not close enough to the mic, could be me.

Bill: Could be me. Is it me?

Jake: I think that’s just we always have sound issues. That’s a reflexive [chuckles]

Bill: Don’t come here for the professional production, folks.

Tobias: Yeah, this is not the right place, unpolished.

Bill: [crosstalk] -don’t come here for investing advice. All right, so Wells–

Jake: Why are you coming here?


Bill: See a bunch of guys talk like they’re in a trading pod.



Bill: Let’s talk about my favorite stock of the day. We have a bank here that is printing an 81.6% efficiency ratio. For those that don’t know, that sucks.

Tobias: Bill, they’re saying you’re too quiet. I’m not having any problems hearing you, but maybe just get up a bit closer to the mic. No, everybody, something’s going on. I don’t know.

Bill: How’s that? How’s this? Is that louder?

Tobias: Just try closer.

Bill: I can’t get any closer.

Tobias: Little bit further away, closer. Further away. [crosstalk]

Bill: Fine, we’ll go a little higher here. How’s that? All right. Anyway, 82%? efficiency ratio, terrible.

Tobias: What’s that mean?

Bill: It means that their expenses are approximately 82% of their revenues. You want it to be like 55% to 60%, they’re a little high.

Jake: Too many employees.

Tobias: Mate, you work at banks. You don’t invest in them.

Bill: It’s too high, too high. I’m doing this off– like I just did this back of the envelope. If I’m wrong, I’m sorry, but I think I’m right. $35 billion top line, $27.5 billion of expenses gets you to 8 billion pre-provisioned net income this year. $13 billion have provisions for credit losses this year. So, that’s something. It’s not nothing. Gets you to a negative $5 billion post-provision statement. But then I figure, you got to spread the $13 billion of provisions over a credit cycle. That’s not like you just incurred all that today. So, if you normalize it, I still think they’re anywhere between $5 and $7 billion of normalized net income and they think they got $10 billion of costs to take out of the entity. You got that for $98 billion it’s offered.

There’s a lot of shit in it. You got 28% of your loan book is in financials, not banks. So, I’m going to assume that that’s a lot of private equity sponsor lending. You’ve got 6% of your books in retail, 5% yours books in energy. So, you’ve got some risk but you’re looking at 0.8 times tangible book value. Can you recreate that business for 80 cents on the dollar? I don’t think so.

Jake: What do you think about the loss provisioning? You feel like it was conservative, aggressive, accurate?

Bill: My opinion doesn’t matter. Let’s see in five years. Look, I think that there’s a lot of reasons that if I was the CEO, I would be conservative. I don’t know how much he knows. He’s been there for six months. But I do think that generally speaking, commercial banks are not aware a lot of the risk is. And I think that in that entity, the asset capital really screwed them. I have a high degree of confidence that today he sent an email to his employees that echoed what he said on the call today, and I think that there’s a lot of fat that’s going to come out of the organization.

Tobias: It sounds like what he said was there’s a lot of outside that we take on. We’ve got way too many consultants. We’re going to gun the consultants too.

Bill: Yeah, his comment on third-party spend was interesting. He said he’s never seen anything like it. I guess the thing that is– [crosstalk] What?

Jake: –bullish for the economy?

Bill: Yeah, well, I mean, it’s just one company.

Tobias: I tweeted out. There are three comments from– Jonathan Farrow on Bloomberg tweeted out. A series of three comments from the Delta, Wells Fargo, and Jamie Dimon, all saying that the underlying is pretty ugly.

Bill: Yeah, I’m off that United bond idea, hard to switch your mind that quick on credit. But once I saw those flare-ups in the southern states, I think it’s going to be really tough to get TSA throughput up here. You’ve got to pivot when the facts change. [crosstalk] those are deeply subordinated. So, anyway.

Tobias: I’ve got a few good comments for you, Bill, from the crowd. The first one was somebody’s ex-girlfriend worked there and she sucked, so–

Bill: That’s not good.

Tobias: This is the real one.

Bill: She might get fired, so you can take some solace in that.

Tobias: To invert this whole discussion, if you’re a competitor like JPM or Bank of America or a regional competitor, how do you destroy Wells Fargo? How do you compete?

Bill: If you’re regional, I don’t really know. Right now, if you’re JPM or even a super-regional, I think that you can go at them pretty hard because this asset cap is really going to hold them back. I think that where they got really screwed through this cycle is they probably returned too much capital to shareholders. They have an asset cap anyway, so it’s not like they could do a ton to grow. But I think that March happened, everybody drew their line, plopped the assets on the balance sheet. Now, all of a sudden, these deals that you want to go out and do, you’re capped by your asset cap. Now, you’ve got to tell clients that you had deals on the table with, we actually can’t do these deals.

And that is a really bad outcome, especially in banking. You’re only as good as your word. So, if I was anybody, I would be calling up all of their clients and pitching them new bigger deals, because I know that Wells can’t grow. So, they’ve got to get that cap lifted. But this is the age-old investing question. You’re buying it at 80 cents on the dollar a book, you could pay one and a half times book for JP Morgan. Microsoft was a dead piece of crap company too, not all that long ago.

Tobias: 10 years.

Bill: Wells is not Microsoft.

Tobias: You’re old, mate, 10 years is a long time. I’m just teasing.

Bill: No, I know, but it’s a five-year thesis. It’s going to be ugly. I guess the thing that is difficult is the difference between like Charter and TransDigm to me is Charter was a one-time hiccup. They were otherwise executing. TransDigm, I got my head around. Wells, you have consistent underperformance, and that is harder to bet on turning around. You basically have to say management’s turning over and now it’s a new leaf. I don’t know, but, man, the downside here from this price level just doesn’t seem huge. Famous last words.

Tobias: Yeah, I got up on the screen, you can’t see it, but I got Bank of America got to 0.4 price to tangible book back in circa 2011 when they were the whipping boy.

Bill: Yeah, well, but now, where are they?

Tobias: Yeah. Still cheap.

Bill: So, whipping boy can change.

Tobias: Yeah, I think that’s the right thing to do. You get new management in. He’s going to clean house. He’s also going to big bath the first quarter so it’s going to look much, much worse than it actually is. So, then he can be the big hero as it goes along. And it’s probably cheap and it’s a pretty good company. I don’t see how– everything bad is already priced into it. And it probably is looking a lot worse than it actually is.

Bill: Or it might be that bad. I do think this is part of the issue with value when you– fundamentally, banking is a fairly decent business. You don’t control your pricing, but you do have recurring revenue. You’ve got sticky relationships. There’s a lot of good things about it. If you’re buying it at a discount, it probably looks pretty ugly to everybody else too. Then, when you have to listen to the call and see the results, you sort of throw up a little. But that’s why the price is where it is. How much optimism is in the price? That’s the question.

Tobias: I agree.

Bill: I will argue not much.

Tobias: Now my volume is too high.

Bill: I think Jake’s too low. I don’t know, whatever. You don’t like it. Get out of here.


Tobias: It might be me who leaves.

Bill: [crosstalk] stay away too long because eventually we want to have that Twizzler that Toby has promised us.

Tobias: [laughs] You collected in Omaha, you’ve got to be there for the Twizzler in Omaha.

Bill: Look forward to it.

Tobias: Good discussion. What do you think, JT? You want to feed us the veggies?


Finding Your Fundamental Investing Blindspot

Jake: Yeah, sure. In social psychology, there’s this phenomenon called the fundamental attribution error. And what all that means is that we observe other people’s behaviors, we assume that it’s something about their personality that makes them that way and not the situation that they’re in. For ourselves, we like to think that we’re good people always and that it’s the situation that is causing us to behave in a certain way, and it’s not that we are a certain way. It’s so fundamental to almost all of social psychology research that it got the name fundamental attribution error. I’ve been looking for what’s the fundamental blind spot, maybe even especially in the investing world.

I came across this study, that was it’s called the Framed-Line Task. I’m going to try to put it up here behind me just– I know this stuff never works. We have this idea that you end up with a– if you picture this box, it’s like a frame and you have this line that’s going down about two-thirds of it in the middle of it. They can ask someone to look at the– they’ll show you the box again, but it’ll be bigger. Then, you have to redraw the line again. What it shows is that people who look at this, some people will remember the relationship like the ratio of the line relative to the size of the box, and other people will remember the exact size of the individual little thing and then redraw it that way. So, it’s a relational versus an absolute size.

What that then expresses itself as is some people see the relationship between parts in their worldview more and that tends to be more like Eastern philosophies. In the West, being more individualistic, we see the line as its own individual constituent. We tend to see the world more as independent objects.

Tobias: They don’t specify how you’re supposed to redraw the line? They’re not saying you must draw the line proportionate to the box, what they’re saying is just draw the line, and you can draw– So basically, there’s a box, the box is then doubled in terms of diameter and width, of course. And then, if you redraw the line, the line that you redraw just to keep the same proportions should be twice the length of a line that you draw. If you’re asked to redraw the line, you draw the same length line. If you’re asked to draw it proportionate to the square, you would draw one that’s twice the size, but there’s no rule. So, what you choose to draw says something about whether you’re an individual or whether you’re– Is that fair?

Jake: That was what I first thought was how it was structured when I read about it.

Tobias: Oh, good. There’s more to it. [chuckles]

Jake: They’ll tell you which one to do. Draw relative or absolute, but depending on your disposition, you’re more accurate at doing one or the other. The people who are more seeing the relationship between objects are more accurate in their recreation of the redrawing of the– making it the bigger part of it like ratio-wise– [crosstalk]

Tobias: That’s a little woo-woo.

Jake: Well, I don’t know. I think it’s reasonable. You’re like, how do you observe the world? Do you see things as little individual constituent components that you then try to assemble together? Or do you see the interplay between the world and the pieces in it?

Tobias: The only objection I have to it and the only reason I say it’s woo-woo is, some people are going to draw the line more accurately because they’re just better at drawing stuff. Some people are going to draw the line inaccurately because they’re not very good at drawing stuff. And then you’re like, “Well, if you drew it this way, then that means that you–” whatever. You’re an individualist. You’re like, “No, I’m just better at drawing lines.”

Jake: Bad at art.

Bill: Yeah, my line would suck.

Jake: I think that they probably control for that kind of artistic abilities. It’s not that complicated either. I mean you’re drawing one single line.

Tobias: I’m just increasingly skeptical of all of these social science type– I don’t know. As a purveyor of them, I’ve had a few in my books, so I do like them as much as the next guy likes a personality test, it’s just always that thinking.

Jake: I know there is a reproducibility crisis.

Tobias: Let’s replicate this. How do you replicate this?

Jake: Yeah. All right. Well, let’s just break this back more to an abstract theoretical thought exercise, which would be–

Bill: [crosstalk] -is an abstract. I thought we were abstract.

Tobias: No, I liked it. I don’t mean to be criticizing.

Bill: I like it too.

Tobias: I didn’t mean to chop you up. Sorry, keep going.

Jake: It’s okay. All it is, is just to ask yourself if you don’t even really know that type of thing about yourself. Do I see the world more as how the inner workings of individual components with each other or as their own thing? What else am I blind to in how I’m processing the information? If you think about the investment process as taking all these inputs and processing them, you have to be cognizant of the different filters and layers and lenses that you look at the world and how you process that information that’s coming in. There’s lots of– something as simple as that would interact with every single thing that came in.

That’s why I think it could be a fundamental blind spot potentially, because, like I said, every single thing you’re looking at, you’re processing and if you can’t even tell if– like that initial lens that you’re viewing the world, boy, what else you missing out on. Which gets you thinking, is there any room for some kind of personality testing? Base maybe, whether it’s Myers Briggs or StrengthsFinder or maybe Enneagram. There’s a bunch of different ones, different modalities, but taking that information and using it to adjust for your own potential blind spots.

Tobias: Everybody loves taking IQ– not IQ tests, those personality tests, don’t they? I see this thing in a lot of Twitter profiles. I’m an INTJ. Is that the one [crosstalk] to be?

Jake: Yeah. That’s Myers Briggs.

Tobias: But is that the best one?

Jake: It must be because that’s the only one I ever see people bragging about.

Tobias: You’re bragging about it.

Bill: I’m definitely an E. I don’t know the rest.

Tobias: Whatever the other stuff is– [laughs] how about your horoscope?


Bill Miller Credits His Success To Learning Philosophy

Bill: Yeah. I’m an E-Taurus. Thank you very much. Did you listen to any of the Bill Miller interviews this week he was on Masters in Business and also Consuelo Mack.

Jake: I haven’t gotten to that yet. [crosstalk]

Bill: He talked about how philosophy has helped him a lot in investing and how he thinks it’s an interesting training ground to work through how you see things and work through what truth is. The Masters in Business, it was a little bit more personal. He focused a little bit more on his background and his personality and why his investment style suits that. It’s just a thought that I had while you were talking about like who you are and what you see and stuff like that, worthwhile discussions.

Tobias: I’d be interested to know what his are? How does Bill look at the world?

Bill: Well, he’s one of the 10 [unintelligible [00:33:54], hit us up.

Tobias: I’ve been trying to get him on the podcast. I may get him on the podcast.

Bill: Dude, he’s a beast. Tell him, say, “I got a buddy that thinks you’re the man.”

Tobias: I’ll give him the INTJ test before he comes on.

Bill: [crosstalk] -get out of here.

Tobias: Because I saw somebody tweeted out– If you see his returns, he seems to get quite a long way ahead of the market during bull markets and he has a big drawdown that pulls him back towards– I’m just interested like what kind of personality, he’s clearly much more aggressive in a bull market than I like to be for example.

Bill: He likes leverage. He has a lot of look-through leverage in his portfolio and that could have something to do with it, but he understands it very well. I guess financial has got him in trouble which I’m reminding myself however big I do decide to go on Wells, I’m not doubling down after I do it. I think it’s cheap here, that’s it. That’s a Hempton thing, don’t double down on leveraged business models. [crosstalk]

Tobias: Cyclicals.

Bill: Yeah. But Bill Miller pitched ADT and Teva on I think it was Consuelo Mack and those are both really levered entities. I’m more inclined to Teva out of the two of those than ADT just because I don’t really understand why ADT is going to exist in 10 years. That seems like it’s ripe for somebody to undercut them. But Teva sort of is the undercutter. You learn it from Malone if you listen to Malone. There’s a lot of different ways that you can support leverage. I think you just want to make sure that your cash flows are diverse and small– like small transactions, diverse transactions, you can handle a lot of leverage. Bill Miller, he bailed on American Airlines. I could have helped him out of that one earlier. So next time, hit me up, Bill. But other than that, I think that might have something to do with it. I think he’s got a lot of look-through leverage, but over time, I think he’s good at it. So, might have something to do with it.


The Problem With Personality Tests

Tobias: I don’t mean to poopoo completely the idea of the personality test. I do find it really interesting. I’m conscious of this replication crisis, which is this ongoing thing where they go back and revisit, even things in pretty hards, like a lot of medical double-blind placebo whatever else you’re supposed to do on those tests. Just because they’re doing so many, you’re going to get false positives, statistically significant things that aren’t statistically significant. And then, when they try to recreate them, it’s astonishing how many they’re not able to replicate. My feeling is that that would be more so in social sciences where– for one thing, they can’t be done double-blind.

Jake: Yeah, for sure. Well, Sam Arbesman has this great book called The Half-Life of Facts. Every single fact, even the most hard science physical facts like Newtonian physics, had a half-life where it eventually got disrupted by something else and we found new facts. So, there’s no doubt that– those things are always in different degrees of flux, so you got to try to stay up on them.

I think the problem is when you take it and you assume that it’s just like gospel, and not that it’s the best that we know for now, doesn’t mean everything is a full capital T truth.


Tobias: That’s fair. I also watched this documentary over the weekend about the Death of the Universe. It’s trillion, trillion, trillion years away, but nothing matters. [chuckles] It doesn’t matter. Everybody’s going to die.

Bill: I’m not going to know anybody. Most people that I care about when I do this mental exercise, I think four generations away is when they start to become strangers, maybe the fifth. You get outside of my kids’ grandkids, and you’re just another person.

Tobias: [chuckles] Depends on how famous you are.

Bill: Maybe you [crosstalk] kids’ grandkids, because my kids will be happy–

Tobias: Lot of people can trace their lineage back to Cleopatra, previous lives. Lots of people can trace their lineage back to Genghis Khan because he killed half the world and fathered the other half.

Bill: Busy life.

Tobias: Let’s get some questions in, fellas. If you’ve got anything that we can ask or throw to the crowd, hit us up.

Bill: [crosstalk] Quick on knowing yourself. We’ve talked about this before, but I used to play a lot of golf. When I played my best is when I was myself and I was a big field player. When I really screwed myself up is when I tried to be in somebody else’s box. I think investing is the exact same.

Tobias: What’s a field player? [chuckles]

Bill: The swing thought that I have is– at the top of my swing, I just can hit it to third base, it’s just a weird feeling that I have but that’s what makes it work. There are other people that tried to teach me to focus on my wrist angle and stuff like that. There are some people that are really good if they have a specific thought like that. I’m not that type of brain. It doesn’t work for me. I think whoever you are as an investor, similar things can apply, but very differently. Just stay out of everybody’s box.

Tobias: There’s a big mental element to golf. Guys just melt down and forget how to play halfway through. I think tennis has that problem too sometimes, but I think Malcolm Gladwell wrote about it. You get so stressed you just forget how everything functions, and you just fall apart, and it seems to happen in golf quite a lot. I don’t know why particularly.

Bill: It’s because you’re out there and the fucking ball doesn’t move. It shouldn’t be that hard. It’s just you thinking and it’s quiet and all your demons come out.

Jake: [crosstalk] you can’t brute-force your way through it either.

Bill: Yeah, that’s right. You got to really be in touch with what’s going on. What’s the question?


David Einhorn: Before and After

Tobias: How do you think about historical track records? Seems like folks with long-term returns like Tepper, Ackman, Buffett, Klarman have long periods of time with weak or negative returns. That’s a good question. I like that question.

Jake: From Toby C– [crosstalk]

Tobias: [laughs] No, that’s too obvious. T. Carlisle.

Bill: I like the question too. I don’t know what the question is getting at. I think if you’ve listened to our discussions in the past like– Jake, I think you like Einhorn right now, right?

Tobias: I do.

Jake: [crosstalk]

Tobias: I might be more bullish Einhorn than Jake is.

Bill: Okay. Like what–

Jake: I’m not anti.

Bill: Yeah, I know you’re not. I guess what I’m saying is, like you guys, when you have said that you like certain investors right now that are out, sort of down in the dumps, it’s because you respect who they are and their process and the research they put out. I’m inclined to feel that way too. The problem with looking at track record is it doesn’t matter until the end. I also think– I’ve been pretty vocal about liking Markel, I think Gainer’s record is pretty good. I have owned Berkshire because it’s a bet on what I think that company has achieved with them and who I think they’re hiring. So, I incorporate track record, and I use it more as a leeway thing. Like Charter, for instance, Rutledge has a pretty good track record in cable. So, if I disagree with his decisions, I’m the one that’s probably wrong. So, I give deference to track record.

Tobias: I do think it’s striking. It’s almost like Einhorn is two different people from the first decade of this millennium.

Jake: Finkle and Einhorn?

Tobias: Finkle and Einhorn. The first decade of this millennium. He was outperforming on a yearly basis by 24.5%, which is just absurd. If you’re putting those up as standalone numbers, those would be absurd numbers, but to be outperforming by that number is ridiculous. He runs it from 96 to 2007, just turns on these spectacular returns. Since then, he’s underperformed by– last time I looked, it was a little while ago, now it’s a few years, but I can’t imagine it’s got better over this period of time. If anything, it will have got worse was. He was underperforming by 6% a year, something like that. It’s hard to believe that it’s the same person.

Bill: Dave, get on FinTwit, bro.

Tobias: Well, he’s on. He’s got an account.

Bill: [crosstalk] –stuff. He needs to get along all these with all these SAS names. What’s wrong with this guy?

Tobias: CorporateRaider says he was mega long Apple but sold.

Bill: That sucks.

Tobias: Yeah. An accompanying question. When is a long enough timeframe to determine if an investor is making good returns from luck or skill? It’s hard. I think Corey Hoffstein said 80 years for a factor. No one’s ever going to show but I’ll be inclined to say that Buffett’s probably got some skill.

Bill: Nah.

Jake: You think? [crosstalk] Of course. It’s not just the years though, it’s how many market cycles. I think that’s important. Theoretically, guys should be growing as they’re going as well. These aren’t static things any more than I hope that the three of us aren’t static and how we do things. We’re trying to get better all the time. Maybe if you’re on a steeper growth trajectory as far as understanding, maybe you missed the first cycle, you didn’t do real well, but then the second one you’re going to do even better. This whole idea of static measurement is– I’m a little against it in that way.

Tobias: Howe Street says, Einhorn used to do in-depth DD. Now he’s a quant. I’ve never heard that before. What’s your basis for saying that?

Bill: Yeah, give me your basis. What’s your basis?

Tobias: Well what’s the evidence? How do you know that, is what I’m saying. You object to the way that I’m saying that [unintelligible [00:44:19]

Bill: No, I don’t. I just liked it. I was just piling on. Didn’t he write the book, Fooling the Street Some of the Time or Fooling Everybody–

Tobias: -Some of the People All of the Time. Yeah, I remember one of those things.

Bill: I think that dude probably does diligence. He just may not be coming up with the conclusions that are working right now.

Tobias: Dude, I’ve told this story a few times, but I was at the value investing–

Bill: He also might be a little too rich. That’s possible.

Tobias: He was going through a divorce or he’s had his divorce, that happens.

Bill: Well, then he might get real good, bet on him now.

Tobias: I think it’s all of those things, that’s all trimming. He’s a deep value guy, and deep value’s just had a very rough run through this period of time. I saw him at this value investing conference in New York. I was sitting beside– name’s just going to escape me right now. But someone who had in back and forth with him about St. Joe’s. When I was long St. Joe’s, it was trading at $22. It looked like it had 60 bucks.

Jake: [crosstalk] –was on the other side of it.

Tobias: Berker was on the other side, but it wasn’t Berker who I was sitting beside. I was talking to– just can’t think of the name right now. Stocks bull and net current asset value was the blog, hasn’t been updated for a long time. He had been long because he liked undervalued land and I like undervalued land at the time too, and we’re both long for that reason. Einhorn only had the name of the presentation, which was If They Build It, They Won’t Come. And I looked at that and I thought this wouldn’t be another short at St. Joe’s because it’d been shorted like 80 bucks and he’d ridden it all the way down to 20. I’m like, “He’s not going to short this in the hole, is he?” But then, he got up and he gave this presentation. Of course, he was short. Over the course of the presentation, stock price fell from $20 to $50 to $17 and then proceeded to go lower. But the presentation was 120 slides of them having driven the streets of St. Joe’s holdings. They’d gone through their accounts in a forensic. They’d pulled them to pieces. It’s the most in-depth presentation I’ve ever seen anybody give, probably even since then.


Bill Ackman And Mature Unicorns

Jake: Dude, Ackman is rolling over in his– [crosstalk]

Tobias: Well, Ackman is up there. Maybe Ackman is up there too. But this, I’ve never seen anything like it before. I sold the position after reading through his whole thing. I didn’t sell it sitting in my seat with my phone, but I went back and read through all this stuff and then sold at the absolute bottom which was like 12 or 15 bucks or something like that. And it has rallied up and it continues to survive. But his whole thesis is basically these things are just slowly liquidating assets, that fund management, so you’re never going to make much money out of it. Which seems to be a pretty accurate assessment, but he definitely does his work is my point. He’s not a quant.

Bill: Isn’t he the guy behind Green Brick Partners?

Jake: Greenlight.

Bill: No, I’m saying the Green Brick in Dallas.

Tobias: Yeah, I think so. Greenlight [unintelligible [00:47:18] is his?

Bill: Yeah, correct. Didn’t he partner up with the guy? Didn’t they short real estate together and get together on GBRK, which is Green Brick, now it’s a $12 stock. Anyway, that’s like a development company in Dallas. I think that’s– Whoa, that stock’s had a run, 622, bottom that now, it’s at the– Anyway, I digress.

Tobias: I got a question. Any thoughts on Ackman’s Tontine SPAC?

Bill: I love the Ack Attack. I don’t know that I’d buy his SPAC but I like him.

Jake: I liked that he went with the tontine idea. I mean that’s fun.

Tobias: Is it actually a tontine or is it just called tontine?

Jake: I don’t know I read somewhere that you called it a tontine because you have to hold some options for a certain period of time for them to be good. So therefore, it wasn’t like the classic–

Tobias: It’s not a real tontine.

Jake: Yeah, where death is the catalyst.

Bill: Yeah, Einhorn is behind Green Brick. Look, I think Ackman is really freakin’ smart. I think if Ackman stays in his lane, you make a lot of money with him. I think he gets into trouble when he gets into pharma roll-ups and Herbalife. Outside of that, which there were huge bets and he risked a ton of reputational capital on and ultimately was wrong–

Jake: Tears.

Bill: Yeah. But look at his track record. I don’t know how he holds Chipotle here. If you want to come at me for saying Chipotle is overvalued, I’d buy it half of where it is. But still.

Tobias: I thought he said he was looking for mature unicorns.

Bill: Yeah, that is what he said. They’re hard to find.

Jake: Is that a dating site?

Tobias: [chuckles] The same thought occurred to me.

Bill: –by match. Yeah, no, I think that is what he’s looking for.

Jake: Sure, unicorns. Goddamn. That’s the market that we’re in, right now [chuckles]

Bill: [crosstalk] It is going to be some good VC company that can’t– he might have a shot at this. You get some sort of selloff here or some sort of like prolonged malaise, and maybe people don’t want to go public and he can take somebody public and it’s like a consumer tech company. I could see it. I’m not going to just give him money. I’d rather buy units in Pershing Square.

Tobias: Yeah, that’s fair. Well, you could get it at discount too.

Bill: Yeah. That’s right. If I was going to partner with him, that’s probably how I’d do it.


Twitter’s New Job Listing Subscription Platform

Tobias: I got a good question here. Any thoughts on Twitter stock with the recent subscription job posting? Do either of you guys hold it?

Bill: No, I don’t.

Jake: I don’t.

Bill: I read a couple expert interviews, and I just don’t know that the company is going to be able to make the transition to a moneymaking company like it should be. The bulls would tell me I’m an idiot, and I really hope they’re right because I love Twitter. I clicked on an ad five times over and over and over again, this fucking guy that was promoting a trading strategy, one, screw that guy. Two, I got to drive revenue to Twitter.

Tobias: [laughs] The ads are so bad.

Bill: I keep clicking every time that guy’s trading strategy comes up, I am clicking that promoted tweet just to close the window.

Tobias: The ads, it’s so junky. It’s unbelievable. It’s the lowest common denominator ads.

Bill: That said, they got me to try Sentio and that would have been like a $6,000 recurring purchase. That’s a pretty good ad to put in front of somebody and then it was on Sentio to convert.

Tobias: Most of the ads that I see for these little sites that’s so gossip– basically advertising and you click on them, and then it’s just page after page of advertising. So, as soon as I see on, I just mute them and tell Twitter I don’t like it. But I’ve done that 50 times. At some point. I’m like, Twitter’s just not listening to what I’m telling it.

Bill: I guess the problem is that when you set up your Twitter account, they did not prioritize getting data on people. And now in order to get the data, they have to go back and ask. But whenever somebody pitches that from the monetization team, the product team is like, “Well, how does this actually improve their experience?” So, maybe Elliott can get in there and say, “You got to make money in order to have a company, so this is why.” But it seems to me as though, in that business, Jack really, really cares about the product much more than the monetization and I think that’s going to be a tough hill to climb.

Tobias: Why can’t they be the same thing?

Bill: That’s the ethos, man. That’s like asking why can’t Wells Fargo be efficient? I don’t know. I’m betting on hopefully they do become efficient but sometimes culture just– [crosstalk]

Tobias: But you say you care about the product and then you send me this dumb ad for some gossip site. You don’t care about the product is what that says to me. If you cared about the product, you do it like Instagram. Instagram is great, you scroll through Instagram, it sends you all the stuff– like they know who I am.

Bill: They got all the data though.

Tobias: Yeah, well, Twitter’s got to look at what I’m writing and figure out what I like. Map that to other people. It can’t be that hard, come on.

Bill: [crosstalk] –deep value smut.

Tobias: Well, that would be better than I’m currently getting.

Jake: Yeah. When will it end?

Tobias: I still think it’s–

Bill: [crosstalk] –depression.


Jake: [crosstalk] –stoicism.


Piper Sandler’s Super Bullish Tesla Report With $2,300 Target

Tobias: Yeah, it’s stoicism. There we go. That would be helpful at this point. I’m waiting on a few more questions. Piper Sandler has this Tesla bid up and I just thought there’s some funny stuff in here. I’m not going to go through the whole thing. The stock’s up 260% year to date, 88 times off where it was in the IPO. S&P 500 inclusion seems likely. I don’t know if that’s true or not, but certainly they got a pretty good argument for being included. So, they’re increasing their price target to $2322 after adjusting at DCF model to reflect the faster than expected share gains and software. [crosstalk]

Bill: I do understand why this is the argument and I don’t necessarily think it’s flawed, but I find it funny. You’ll find these people that are stuck in these businesses that are like just getting creamed. And the argument is like, “Well, one year doesn’t really matter.” But somehow all the acceleration that’s come from the adoption of tech, that matters a ton.

Now, it does. I mean you have an inflection in your long-term growth rate, theoretically, or you pulled it forward a lot. But feels like, if the DCF doesn’t matter in the front years to the negative side, it shouldn’t really matter on the positive side either. If we’re all just doing terminal value investing, who really cares about the front years?

Jake: [crosstalk] –year one?

Bill: Yeah, or even two, three, four. I get it. I just don’t fully get it if you understand what I’m saying.

Tobias: The terminal value investing is interesting. You can make the terminal value slip around quite a lot. It’s pretty sensitive to the inputs. You’re a better investor than I am if you can get all that stuff around. That’s hard.

Bill: The nice thing about the terminal value investing is as your stock goes up, the narrative gets better and your TAM expands.

Tobias: There you go. [laughs] That sounds good.

Bill: Yeah, I wish I knew how to play that game. I don’t.

Jake: Obviously, they are looking at these because they keep coming out. But I mean, they’ve shown over and over and over again how bad these price targets are, and how they’re always trailing, they’re always over-optimistic. They’re never right. And yet people–

Bill: Did you see the Wells one?

Jake: I don’t know, from who?

Bill: They literally said, “The stock is below our gray sky.” Gray sky implies a pretty bad scenario. It’s the bottom of their price range, the stock’s below it and they remain neutral.

Jake: Okay.

Bill: I mean, whatever.

Tobias: Yeah.

Jake: If you’re changing your price target by $1,000, or– what were you doing before that then? And why should I listen to you now?

Bill: Well, my view on sell-side research is it’s very, very good for information and very horrible for conclusions, which is basically what I think about the news too. If you can filter out the opinion stuff and get in the facts, you can get some decent info, but once you start listening to the conclusions, you might as well flip a coin or worse.

Jake: I’m reminded of Phil Tetlock. He says that one of his heuristics is that any prediction that’s more than five years out is like a godsend because you know you can ignore it right away. You don’t have to think about it. Write it off to zero, it’s nothing. So, the further out you see these– as they keep moving the goalposts to like, well, 2030 profitability. But wait, stick around for 2040, now it’s really cranking on 80% margins.

Tobias: Yeah. That makes me feel better about the death of the universe.

Bill: Yeah, that’s not something to worry about, man. We will all be ashes by then.

Tobias: We won’t. We’ll be broken down into our constituent atoms, which have been broken down into their constituent parts. It’s a really good documentary. You should enjoy it. You should watch it. In fact, everything breaks down to the point that there’s nothing there and then that is only the start of the life of the universe. Most of the life of the universe occurs after it’s nothing, just goes on forever, according to this documentary.

Bill: This feels like equity. In order to save the equity, we have to kill the equity. In order to save the universe, we have to kill the universe.

Tobias: It’s a cheery thought just before I hit the sack the other night. So, here’s a good question. Thoughts on Berkshire’s share buyback. The stock charity donations indicate BRK has repurchase shares recently. I saw something about that, but I didn’t really dig into it. I don’t know what’s going on there.

Bill: Jake?

Jake: I saw the headline, but I didn’t dig into it. He’ll buy something back if he wants to, or he won’t like it’s not–

Tobias: Not going to be material.

Jake: That probably shouldn’t really change what you’re doing there if you own Berkshire.

Tobias: I think it’s so cheap at the moment, it doesn’t matter.

Bill: I think you’ve got a $10 billion deal that he just did. It’s unfathomable to me that you don’t have a hard insurance market coming up. If the Buff Dog isn’t deploying capital into repurchase, I’m not going to second guess him here. And if he is, then that would be icing on the cake. But I think Berkshire is pretty set up for a pretty good run here, and I have 11% of my equity portfolio in it. So, I don’t know what that indicates, but it’s an inconsequential bet for me.

Tobias: You got 11% in Berkshire?

Bill: Yeah. Was down to six in March and it is no longer six.

Tobias: It’s been interesting to watch it. I saw that Musk passed Buffett on the billionaires’ list, but Buffett’s given away some of his money. But Tesla’s had a cracking run too and Musk hasn’t sold, so full credit for Musk for never slowing down. He just borrows against his shares.

Bill: I hope Munger called Buffett and just mentioned it. I hope they have [crosstalk] chip. Munger is like, “So, Warren, looks like Musk passed you. How’s that feel?”


Tobias: It feels very like cycle to me. I think I tweeted out top, I didn’t even look at the responses because I just know it’s going to be too gnarly. But I think we’re getting close to the end of the cycle and the start of the cycle.

Bill: Things like Tesla are confounding. I’ve never been right on it, but this is stupid. And at some point, why can’t it be a trillion-dollar company? Why is that much different than $300 billion? We’re all just making up shit anyway, let’s go full bore.

Tobias: Yep. And on that cheery note–

Bill: That’s a good investment thesis.


Bill: You know what I mean? It’s like Asness said to Toby. Once you’ve accepted that the world can be irrational, you can’t just be like, “Oh, well, this is the point of irrationality.” This is it. This is just crazy.

[50 Cent – In Da Club playing]

Tobias: We’re probably going to get demonetized again. [crosstalk] But that’s it. Thanks, folks. We’ll see you next week.

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