Thematic Investing

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During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Thematic Investing. Here’s an excerpt from the episode:

Bill: So, I’ve been spending a lot of time thinking about some of what I perceive to have worked recently, what people missed. I guess that I think that we’re at a point in time– maybe Twitter is not the best place to have nuanced discussions. I will admit that, but it seems to me that some of the earlier thematic guys really thought–

Jake: What does that mean by the way, what’s thematic mean? Like Zoom, we’re having [crosstalk] therefore buy Zoom?

Bill: I’m going to getting there, bro. No.

Jake: Okay, sorry.

Bill: Dude, Geez! God! Your smart-aleck comments.

Jake: That wasn’t smart aleck. I actually don’t know what it means.

Bill: No. So, when I think of it, I think of it closer to like, this is a trend that is definitely coming and the rest of the world doesn’t recognize how big this trend is going to be. Therefore, if I’m earlier than many, recognizing the potential, I’m going to end up doing very well over time. It’s very, very similar to the rule breaker philosophy, at least how I’ve mentally chewed on it. The rubric of– [crosstalk]

Tobias: This is the [crosstalk] full one, right?

Bill: Yeah, that’s right. I think that there’s a lot of merit to that strategy. I think it’s actually very smart. I think this market has particularly rewarded a strategy like that. But I think that, generally speaking, if you marry that strategy with small on a market cap basis, I can really get down with that. And it’s somewhat VC in public markets. My aversion to that method right now is I think everyone is looking for a platform. So, I’m not sure how many unique insights like I’m actually going to have versus other people. And I think if you’re applying VC from a high valuation, the outcomes are probably less good than maybe backward-looking outcomes are.

But I think that people should listen to David Gardner and really chew on that philosophy. He did a podcast with Consuelo Mack. He did one with Patrick O’Shaughnessy. I think it’s something that’s interesting to contemplate. I didn’t expect yesterday to open up a YouTube to see Mohnish Pabrai discussing the merits of compounders and focusing on business quality. I think that is an interesting thing to happen at this stage of where we are in the market, I don’t even think he’s wrong. I don’t want to come off in that way.

I think that what is going on right now is there’s so much pressure to go into the compounders. I’ve heard– I have not watched the ARK Invest video, but I’ve heard that they’re just like dunking on value guys, and I think that they have a point. I also think value guys have a point, but it’s gotten to the point where the traditional value guys voices are mocked and that’s how rotations into different asset classes outperform and others lose. I think this is what– I don’t want to say like tops look like because I really do think we are about to approach the melt-up. But I think this is a really interesting time and there’s a lot of merit in the VC strategy and looking for young companies that are doing things differently at small valuations is a very rational strategy to me.

As far as Pabrai goes, I just think it’s really interesting because I never thought that I would hear the words come out of his mouth. So, yesterday, I just didn’t expect for him to go into compound town. But welcome. Welcome to the club. [unintelligible [00:07:52] been saying this forever, man.

Tobias: Let’s just leave Pabrai to the side for a moment, I will come back. I just want to ask a few things.

Bill: Please do.

Tobias: What you’re describing, is this some sort of top-down approach?

Bill: I think it is. Yeah, it’s got to be. I think where it works is companies that have entered industries and have approached it in a different way. So, I don’t know that it necessarily has to be top-down. For instance, Netflix in the media industry, is offensive to a lot of fundamental guys, because they’re looking at today’s cash flows. There’s a world where in 2026, Netflix has a ton of cash that it’s printing. You’ve got to believe some things, but I don’t think it’s patently silly to believe those things. I think you can have a debate about whether or not the assumptions are realistic. But I think that in the past, I would have been served better by looking at these crazy high valuations and thinking like what’s the bet the market’s actually making here rather than dismissing it?

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