VALUE: After Hours (S02 E46): Value: After Hours S02 E46 Buffett Sells $COST, Einhorn’s $GLRE And Icahn’s $IEP, Long-Lived Instos, Fundamentals Aren’t Dead!

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

  • Einhorn’s $GLRE and Icahn’s $IEP
  • Buffett Sells $COST
  • Long-Lived Instos
  • Fundamentals Aren’t Dead!
  • Einhorn – Capital Intensive Businesses
  • Terry Smith & Buffett On ROE
  • Burry Buying Qurate
  • $CRWD And The History Of Cybersecurity Firms
  • Tobacco Companies
  • Selling ‘Loosies’
  • Japan’s Oldest Company
  • Weed And Alcohol Stocks
  • Sagrada Familia Cathedral – Build Something That Lasts
  • Adversity Builds Longevity
  • Tobias Starts Playing Chess Again

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: We’re live. It’s 10:30 AM on the West Coast, 1:30 PM East Coast, 6:30 PM UTC. No idea what time it is in Australia. Sorry, folks, I’ll look that up for the next one. How’re you doing, fellas?

Bill: Doing okay. How’s everybody?

Tobias: That’s the kind of energy I want. Bring the energy.

Jake: Yeah. Bringing in the heat there, Billy.

Bill: [crosstalk]

Tobias: New Jersey, first in the house.

Bill: Sup, New Jersey? How’s that?

Jake: That was better.

Tobias: Chapel Hill. Cincinnati. I’ll just call it The First Five or Ten.

Bill: Alrighty. Whose intro is it?

Tobias: It’s probably mine, I guess.

Bill: Sure.

Tobias: Welcome to Value: After Hours, where we discuss stuff that we read on Twitter last week–

[laughter]

Bill: That’s due diligence these days, isn’t it?

Jake: Yeah.

Tobias: As always, I’m joined by my cohosts, Jake Taylor and Bill Brewster. Jake, what are you talking about today?

Jake: I have a little veggie segment that I’m calling The Data of Long-lived Institutions.

Tobias: Oh, yeah. I like that. Lindy Institutions. Maybe, I don’t know.

Jake: Could be.

Tobias: What about you, Bill Brewster?

Bill: I think I’m going to talk about Buffett selling Costco in a never-sell world.

Tobias: I didn’t even know he bought it.

Bill: I barely did either.

Jake: How about you, Toby?

Tobias: I’ll be talking value, deep value. A couple of the deep value guys have managed to hang on for the last decade. Their vehicles could be interesting. I got an email yesterday saying take a look at Greenlight Re. So, I had a very quick look at Greenlight Re and also Icahn’s IEP. So, I’ll be talking about them right after this. Who wants to go first?

Bill: I do not. Jake, feel free.

Jake: All right, I guess we can–

Tobias: You want to lead– I don’t mind. I’ll lead off if you don’t want to do that because I’ve just read this before it came on and it’s all in my short-term memory and I don’t want to fall out before–

Jake: Yeah, let’s get that out, Toby, before you forget. [chuckles]

Einhorn’s $GLRE and Icahn’s $IEP

Tobias: Einhorn genius for a decade. The GOAT for a decade, a GOAT for the last decade. I think it could be back to the GOAT stage, possibly for the coming decade if value gets a little run-on again. I’ve been hunting through some of the small-cap value names small and micro. Some really interesting stuff. I pitched Diamond Hill on the Investor’s Podcast over the weekend, which is a value investor, manages value funds. They’ve got some performance and other fees in there. So, it’s a real long/short plus long-only. They’ve got about $20 billion. Pretty incredible returns on invested capital as you’d expect from that kind of vehicle.

Greenlight Re is David Einhorn’s sort of public vehicle that you can invest in– if you’re not accredited, or an institution, you can invest through Greenlight Re. They’ve got different exposures to the hedge funds because they’ve got different constraints, and it’s also a reinsurer, so you’ve got the reinsurance risk there too that they just get the reinsurance wrong.

I had a very quick look. Book value is a little bit north of $12, grew at a couple of percent last quarter. Trading at $8.35 today, so it’s at about two-thirds book. You get Einhorn at a discount, they’re buying back stock pretty consistently, although they said they’ve got lots of investment opportunities, and stock is not their favorite thing to buy back because they’re not planning to liquidate.

Biggest holding is AerCap, AER. I think it’s very, very undervalued, but it’s one of those positions that given the infinite number of future parts, there’s a few of us feature parts where AerCap is a donut. I’m always a little bit nervous about those kind of businesses. But I do hold a few of them if you size them small, little option size positions that can be done and it’s fine. It’s their largest position that makes me a little bit nervous.

I think it’s interesting at this kind of price, because they short as well. There’s a reasonable chance that if we go through some– if the world gets busted up, if we go through another recession that shows up in the stock market, then they should be protected, they might do reasonably well in that kind of scenario. So, I think Greenlight Re’s interesting and worth taking a look at if you like the jockey and it’s a reasonable-looking horse, although the parts of it might end up in the glue factory. IEP similar kind of firm, it’s a stable, maybe rather than a single horse.

[laughter]

Tobias: I’m a big Icahn fan, I think he’s a great investor. IEP is an extraordinary part– it’s not a stock, it’s a master limited partnership, I think. Got this incredible run– you have a look at it, when value really gets going, it gets on this parabolic tear, it’s close to the bottom. I’m not predicting a parabolic tear or anything like that.

The only reason I think it’s interesting, it’s a collection of pretty cyclical businesses, but it’s got lots of energy and automotive that kind of exposure. It pays $2 a quarter in dividends pretty consistently last five quarters, and it’s grown pretty consistently too, over the last– since 2015 or 2016, it’s grown. It’s paid about $1 extra a year.

So, it’s like five, six, seven, eight, and then it’s stayed steady for this year, so it’s another $2. Stocks at like $52. So, it’s like a 15% or 16% yield at this price and you get Icahn. He owns 92% of the units in it. He pays himself units in his distribution, so that he doesn’t take the cash. So, it’s one of those things. You’re along for the ride with Icahn, that’s not such a bad thing.

Jake: He’s been kind of quiet lately, hasn’t he? There’s no fights with Ackman– I mean, what’s he doing these days?

Tobias: Yeah, I don’t know. I have seen him around a little bit, but not doing much. I guess, he’s in his 80s now.

Bill: Yeah, that way, I guess some of the discount on Icahn. I just think I’d be a little bit nervous. You’re getting his son, his son did Netflix. I don’t know that much about his son, but I– [crosstalk]

Tobias: His son got into Netflix.

Bill: I know. Yeah. I just don’t know that much about him. I’d want to know more about him.

Tobias Starts Playing Chess Again

Tobias: All I know is they play chess together. I’ve started playing chess again, I haven’t played since 2016. Unfortunately, I think I mentioned in one of the podcasts or Bill mentioned in one of the podcasts, and now I’m playing all these guys who’ve got like 1800 chess ratings in Chess.com and that’s way too high.

Bill: I’m terrible. Just atrocious. I guess that when you’re on the other side of someone like Icahn and IEP, do you wonder is he going to take advantage of me sometime? That would be my biggest concern. He’s not exactly somebody that I wouldn’t– I don’t know, he’s got a sharkier image than many.

Tobias: Thing is it’s been out there for a long time. It’s been trading for a long time and it’s been cheaper than where it is now. So, he’s had lots of opportunities to take you under it. I just think– he already controls 92% of it. It’s publicly listed. It’s just a wafer. And he takes all these distributions in the units. I’ve got that up on the screen. He’s not buying, he’s getting distributions in– He takes his distributions in kind, so you’re always getting diluted and he’s securing more control. So, you’re along for the ride with Icahn. But if you’re invested in his fund, you’d be in the same boat.

Bill: Yeah, that’s the only thing that I’ve ever sort of been like– I don’t know. But I don’t know. Thanks for listening, Carl.

Tobias: 15% to 16% yields getting to the point where I’m like, “Ah, I’ll just about risk it for that.”

Bill: Yeah, at some point, you’re compensated for it. Right?

Jake: Well, it turns out that not everybody will work for $100,000 a year and be the greatest capital allocator of all time at that price tag.

Tobias: Yeah. He’s a little undervalued there. Does he get a bonus?

Jake: No, but he gets, I think, another 400,000 for security detail. Yeah, but otherwise– he might be a little bit underpaid.

Bill: He gets some other benefits from it, though.

Tobias: He gets the regional pay package because he’s based in Omaha, Nebraska.

Jake: Yeah, that’s right. It’s price adjusted, and it’s a work from home.

Tobias: Work from home, yeah. You think he’s going in the office in COVID times?

Bill: No way. Why would you?

Tobias: I wouldn’t, but I wouldn’t go into the office anyway. He likes his driving to the office. He takes his–

Jake: McDonald’s, yeah. How’s he going to– [crosstalk]

Tobias: McSausage when he performs.

Bill: I wouldn’t mess around. I mean, he’s in the high-risk category.

Tobias: Yeah. But he’s made it this far, so he’s probably got this at least as much left in him.

Bill: He’s got Gates in his ear being like this thing can take you out. I don’t think I do it. I wouldn’t do it. Not if my boy was Bill Gates. I’d be like, I don’t know. I’ll tell you what though, the curve is going straight up, at least it looks that way.

Tobias: Yeah.

Bill: We’ll see.

Jake: [crosstalk] –going to look like for [crosstalk] everyone gets together and coughs on the mashed potatoes or whatever.

Tobias: I’ve been trying to ask my wife if we can quarantine, not see family, that sounds ideal to me.

Jake: [laughs]

Bill: Well, as I said, I’m going to wait to see if some housing inventory hits the market around here. There’s a chance.

Tobias: Over that period specifically or– [laughs]

Bill: Over the six months.

Jake: However long– [crosstalk]

Tobias: Sorry, I misunderstood that one. We need to get someone who knows technical analysis to tell us if that curve is breaking out.

Bill: I think it is. I think it’s breaking out on high volume, that’s a signal.

Tobias: 50 DMA. If it crosses over 200, you’ve got the golden cross, and then you’ve got to get long.

Bill: Do you have to worry about a Hindenburg Omen? Or is that a different thing?

Tobias: Yeah, I forget what that– I don’t know what the Hindenburg is. The death cross is the other way around, 50 and 200.

Bill: Death cross, that’s when I sell everything every time. You give me a Hindenburg Omen, I’m half out. Death cross, I’m out.

[laughter]

Jake: Liquidate all.

Bill: It’s never sell, or until the Hindenburg Omen.

Buffett Sells $COST

Jake: Speaking of never sell, what’s Costco no more?

Tobias: It seemed like a good segue there.

Bill: Yeah.

Tobias: I thought everybody’s complaining about– I thought we were complaining last week, in fact, that he hadn’t bought even though he’s got Costco’s biggest cheerleader as his business partner.

Bill: I know. Well, I think now you got a little bit of a different situation because, I guess you’re somewhat saturated in the US. I’m sure they can still open a couple more, but open more boxes here is probably less of a potential. It’s got to be a China story, which when they opened up that China store, that was crazy. That was like a rock concert. But I guess if you’re looking at it, and you’re him, and he’s probably doing much more advanced calculations than I am, but free cash flow yield on the equity is maybe 3%. I figure it grows like 5% or 6%. What’s the probability of some multiple fade between now and perpetuity?

Tobias: Reasonable.

Bill: Yeah.

Jake: We’re back to flat.

Bill: Yeah. So– [crosstalk]

Tobias: Multiples don’t rewrite anymore. Multiples only expand.

Bill: They just go up. [crosstalk]

Tobias: Unless they’re value stocks, in which case they contract.

Bill: That’s true. Yes, there is multiple momentum for sure.

Jake: It’s a ratchet. It just only goes up one way and stops and then keeps going.

Tobias: I pulled up the chart for– I can’t remember– it might have been. I’m going to get this stock wrong.

Bill: But don’t you think that’s what he’s thinking before we get too far off it? I mean, he’s probably thinking they’re like, “All right, so I probably get somewhere between a 5% and 10% return. Maybe in a good side, I get 12. Can cash do a lot better for me?” That’s how I’d think about it, I think.

Tobias: You think he’s getting as much return then?

Bill: What?

Tobias: You think there’s that much return in Costco from here? [crosstalk]

Bill: I think he’s at 5% to 10%. That’s a wide range, sir.

Tobias: Either 12 is what I heard.

Bill: No, I said– Look, here’s a way. You know that I’m in Team Melt-Up. I mean, I think things could go nuts. Maybe the 50 P/E is the new rates are at zero, bro. So, where else are you going to go? And 50 P/E is where everything trades. I don’t see why it’s not possible.

Tobias: But aren’t we fundamental investors, aren’t we–?

Bill: –never happen.

Jake: Narrator, it was already– [crosstalk]

Tobias: [laughs] Aren’t we buying the flows? Buying the divis in the reinvestment?

Bill: I’m saying, if you’re asking me how it’s possible to get that return, I think it’s possible. If you’re asking me–

Tobias: Multiple expansion is the–

Bill: –if I think it’s probable, it seems hard to me that a lot of these names are going to deliver satisfactory returns in the future. But that’s a hell of a business, and Kirkland just grows and grows and grows and grows and grows and grows and grows, so it could outgrow what people think.

Jake: Well, I think your logic is sound for why he would say he’s not buying more, but why sell at this point?

Bill: I don’t know. You know, Charlie was like, “Come on,” at everything?

Jake: Right. You’ve got all this stuff, that’s what you’re going to punch out of?

Bill: Yeah, you’re going to keep that Wells exposure? Can’t you just get rid of that if you need the cash?

Jake: Well, Charlie’s not saying that because look at the Daily Journal Portfolio.

Bill: That’s because Charlie knows it’s still cheap.

Tobias: Kevin Zatloukal come through with the details for us. He says 42 P/E, 39 forward P/E. Have to project the analysts expected earnings growth forward over 18 years to justify the valuation.

Jake: Bargain.

Bill: Yeah.

Tobias: He’ll probably going to get another bite of that cherry, little bit lower.

Bill: You think?

Jake: But if he didn’t sell Coke, I don’t know, in ‘98, why sell this little bit of Costco now?

Tobias: Yeah, why sell it? Was it his? Was it one of the boys?

Jake: I think that was his, but I don’t know for sure.

Bill: That’s a decent question. It’s interesting. You see those guys making moves like this in the never-sell era.

Jake: Yeah. So, what does that mean for never sell?

Bill: Well, I think never sell may make sense as a strategy for certain people. It’s not the one I’m comfortable with.

Tobias: I think there’s a lot to be said for never sell, but if you’re looking to– It’s hard. If you’re looking to maximize the pretax returns, never sell, it’s probably not the best way to do it. If you’re looking for like a calmer, longer life, maybe, maybe never sell is a good way of doing it. You just wait for good things to get cheap. Then, take your opportunity and then just coffee-can it, never look at it again. And your plan is in 10 years’ time, I’ll be getting the dividends out of it. But in the interim, I’m not going to think about it.

Bill: Ooh, at that point 0.73% dividend yield is not juicy.

Tobias: It’s about the ten year. It’s growing.

Bill: Yeah, I mean, I guess I’d rather own Costco than the ten year.

Tobias: Yeah, I mean, the ten year is creeping up to 1 at the moment. I don’t know the ten year could have gone through 1, I don’t know where it is today. It was getting up there, it pulled back a little bit.

Bill: I’d still take Costco at a discount to the ten year out of the gate, but to your point, the ten year is not your only opportunity cost.

Tobias: Ten year is running up a little bit too.

Bill: It will happen.

Jake: We can’t have that.

Tobias: No. Could someone get BOJ on the phone and see if they can tell us what to do?

$CRWD And The History Of Cybersecurity Firms

Bill: Something that I think is interesting is I mentioned CrowdStrike last week. Then, I talked to somebody that I think knows a whole lot more than I do. He said, “Look at the history of security firms, and tell me one that has made it.” Symantec had, and McAfee, I guess, had a good run, but I was saying like how defensible is this, and if you look at what the valuation implies, I think you need to believe that asset duration is going to be there for a while.

He’s not endowed with the answer, but he was like, “There’s not a chance that I would ever bet on that continuing for perpetuity.” And he said, if you look at what they’re acquiring, it’s sort of like more weird businesses that he thinks that their clients are pushing them into, and they’re selling more services, but not software services, it requires more engineers. So, he pushed back on me strongly. I didn’t have a view. I just said, “Can you explain to me why this is defensible?” The message I received was, “Ha, ha, it’s not.”

That guy’s got a bias too, but it just goes to the people in the market, I think, to endow the stocks that go up with narratives that are never sell. And here, I pinged a guy that I know in the industry, and he had a strongly different opinion, which is not to say he is right or wrong, but it is to say, I think that there’s benefit in talking to a lot of people when you’re researching these things. Understand who’s short–

Jake: [crosstalk] –well endowed with answers right now.

Bill: That’s right. Yeah. That’s what you need, you need well endowed, or you don’t. I don’t know. It’s how you use your context. My point is, it’s important to understand what people are saying on both sides of the trade and figure out what’s real.

Tobias: I got a good comment here. “The boys can buy new cell phones, but they can’t sell the old man’s Buick.” I enjoyed that one. I just wanted to get that for the listeners home. Is it 8.873– sorry, the 10 year is at 0.873? It’s fallen out a bit. I don’t know what’s happening.

Bill: I mean, what’s the difference with some of these numbers?

Tobias: I mean, it’s nothing.

Jake: That’s not a market price [crosstalk] talking about.

Tobias: On an absolute basis, it’s quite a big move, but on a–

Bill: Yeah, big percentage–

Tobias: To itself– relative to itself, it’s a big move on a percentage basis, yeah.

Bill: Yeah, no doubt. It’s going to be interesting coming years. I’m sort of looking forward to it.

Tobias: What do you think’s going to happen? Or you don’t know, you’re just interested to see?

Bill: I don’t have a clue. I’m just trying not to step over my own feet and ruin everything that I’ve tried to build.

Tobias: It’s a difficult task in this environment.

Tobacco Companies

Bill: I mean we were talking about Buffett and how he’s created his own sovereign. I mean, I’m trying to do something– when I tell people, I own cigarette companies, I don’t know if that’s the best equity in the world. I’m not running that strategy. I’m not an equity hedge fund manager. I’m a guy that’s trying to build a fortress of personal wealth. I think getting 10% dividend yield selling cigarettes right now is a pretty good proposition, in general, if you need to generate cash flow in your life relative to the other cash-flowing assets, and then using that cash flow to maybe make longer duration bets. That’s how my mind works.

Selling Loosies

Tobias: Probably sell some ‘loosies’ down the corner, get a similar return like that.

Bill: Loosies?

Tobias: You bust the packet open and sell them one at a time.

Bill: Oh, yeah. That would be excellent.

Jake: Is that like prison slang, Toby? I didn’t know you–

Bill: Yeah, what is that?

Tobias: You’ve got to be careful. The coppers will come along and choke you to death, so you’ve got to be careful with that one.

Bill: I didn’t know if you’re trying to turn me into a theoretical pimp or something like that. I didn’t know what selling Lucys meant. I was like, Toby, what are you talking about, man?”

Tobias: I think you need a license. Don’t go doing that without a license. That’s not investment advice.

Bill: You could do that with Coca-Cola back in the day.

Tobias: There you go.

Bill: Put it in the little radio flyer and drag it around and break up the six-pack.

Tobias: [crosstalk] –you did that?

Bill: I did. [crosstalk]

Tobias: Inspired by what?

Bill: No. My buddy, his dad was a big-time entrepreneur. So, he had the idea, I just did it with them, but it was fun.

Tobias: I think Buffett has a similar story. Didn’t he? Buy it wholesale? Sell at retail, sell them individually?

Bill: Yeah, but that dude did it, I just sort of piggyback the idea. And then, I felt bad because we were actually selling it to construction workers in the neighborhood. I was like, I should probably just give this out like morally, but whatever. Reminds me of a story Ivanka Trump told when she was selling lemonade, and she said that it was very difficult because there wasn’t enough demand– [crosstalk]

Tobias: On Fifth Avenue?

Bill: [crosstalk] –gate. Yeah, she’s sitting behind the gate. There was enough demand. It’s like, “Oh, cry me a river.” I digress. It turns out, I think she sold the stuff to her bodyguard. So, she found demand. It’s all in her book.

Tobias: Was she like 25, 26 at the time?

Jake: [chuckles]

Bill: Probably.

Jake: It was a Harvard Business School case.

[laughter]

Bill: Anyway, we’ve derailed. Jake.

Long-Lived Instos

Jake: All right, veggie time. So, this segment is called The Data of Long-lived Institutions, and it’s based on this article and a presentation that Alexander Rose gave, and he’s part of the Long Now Foundation. Those are the guys, I don’t know if you remember, but they built this 10,000-year clock. And maybe even longer than that. What’s interesting about it is, and I like this as setting the tone, but on all the dates that they put things on, they add a zero to the front of the year. So, they make it– it’s 02020 right now. You need to start thinking a little bit further out ahead.

Tobias: I love that. I’m going to create a clock that doesn’t move and say it’s a 10,000-year clock. It’ll tick over in 1000 years, or whatever, or 100 years.

Jake: Yeah, just hang around and wait for it. So, the first thing to talk about is, what they call this pace layers. They have this diagram. Imagine the layers of maybe the earth or something and you have like, as you move down, more and more layers. Out on the outer shell is fashion, and then next down is commerce, then infrastructure, governance, culture, and then finally, nature. And all those things, the things on the outer rim move much faster than the things on the inner rim.

So, they use the example of Apple, iPhones and whatever. Apple’s putting out a new iPhone every 12 months or whatever, the commerce layer is Apple’s selling methods. Let’s say it’s commercials where people dancing to a U2 song, they shadow people and that sort of changes at a slower pace than maybe the phone. And then, below that is infrastructure, which would be all the cell phone networks and the chip fabs, things like that.

Next layer down is governance, and that is often a government, but it doesn’t have to be the government. That’s things like privacy and standards and even how many cycles electricity wise when you plug the phone in, is it running, at 60 cycles? That change is slower. Then you get to culture, which nowadays, I guess you’d probably expect most people to have a cell phone if you met them, but 20 years ago, that wasn’t the case, I don’t think. I wouldn’t expect everyone to be carrying a cell phone.

And then, last thing is nature. They bring up some of the environmental damage that a lot of these electronics cause with rare earth– all the stuff. All the earth you have to move through to get some of these elements. Apple may at some point need to address that if they’re going to be that long lived. Anyway, it’s sort of interesting paradigm to think about these different layers and how quickly they change or not.

Next thing, 1950 the average company in the Fortune 500 was 61 years old at that point. Today, it’s 18 years old.

Tobias: That’s crazy!

Jake: I know. My question to you guys would be– All right, we’re seeing faster turnover now, but is that a secular or a cyclical thing? We’ve hit some IT or whatever, technology revolution, and that turned over the portfolio of the Fortune 500, or is it like, “Don’t expect the new guys to stick around for very long.” What do you think we are? Are we in a cyclical or secular there?

Tobias: Yeah, that’s an awesome question. I’ve thought about that a lot.

Jake: No answer?

Tobias: Yeah, I’ve got pretty good arguments for both sides. The secular one is, when you look back, they’re these– I don’t know how often but every 40 something years, there’s a big technological revolution. I’ve looked at it in the context of value and growth, but it’s still true that you have these big tech– maybe it’s not as many as 40, maybe it’s like 20 or something like that where you do have enormous turnover.

But then, if you look at the length of time that companies have– the age of them over time in the S&P 500, it’s been coming down. So, it looks like it’s a secular. I think sometimes it’s hard. This is something I think about a little bit too in relation to other things. But it’s hard to sometimes tease out the secular from a cyclical. When you’re at a cyclical peak, it looks secular, which is the problem. All of the statistics on a secular basis over a very long time period at a cyclical peak look secular. It’s why investing so hard.

Jake: Especially the first one of it. Let’s say cloud becomes more of a commodity and maybe it goes through cycles eventually. Well, this is the first– we’ve only seen one-half of that then potentially so far. And yet, it seems like, “Well, maybe that just keeps going up into the right forever.”

Tobias: It seems it’s getting easier to start businesses though, and it’s easy to get a business to scale on the internet because you can aggregate very niche audiences globally and get a fairly big audience pretty quickly, where there’s really no way of doing that even 30 years ago other than using more mainstream networks like television or something like that. You had to have the money to advertise on television. Now, you don’t. You could get a tweet picked up by somebody who’s got a lot of Twitter followers, and all of a sudden, there’s a lot of attention on your–

Jake: I mean, three bozos could just get on YouTube and talk for an hour every week.

Tobias: And there’ll be like 10 people or dozens of people watching.

Jake: Yeah, 10 people watching them.

Bill: An important 10 though. Very important 10.

Jake: That’s right. Bill, you have any thoughts on the secular versus cyclical?

Bill: Probably none worth sharing. I think I’m where Toby is on it. I think that– I mean, obviously Tesla is going to be around for a long, long time.

Jake: Forever.

Bill: Rest, I don’t know. I just saw that they were included in the S&P, so they were up 12%. So, I figured I’d make that joke. I don’t know– yeah, I don’t know, sorry. My sense is that I’m more prone to like the moat and durability of businesses that require capital to replace them to those that are intangible, but I also realize that intangible scales a lot quicker and network effects are real, but– similar to when– I think I’ve said this before, but when I was in physics, I was always– it was much more intuitive to me when we were talking about things that I could touch in the physical world or how cars go around a racetrack. When we got into magnetic fields, it was always sort of harder for me to get my head around. I think it’s somewhat similar.

Jake: Hmm, yeah, that’s probably a good analogy I can torture there somewhere, eventually. All right, more data. Oh, go ahead.

Tobias: No, sorry. Keep going, I’ve got to think about– there was something germane to it, but I’ve got to think about where I heard it. So, keep going, sorry.

Japan’s Oldest Company

Jake: All right. So, they looked at a study of 5,500 companies that were over 200 years old, and 56% of them, so 3,100 of them, were in Japan, which is interesting. And then, another 15%, 800, were in Germany. And then, everything else is all over the place. Any ideas why Japan happens to be a place for old companies?

Tobias: Well, I was thinking about this other day. Doesn’t Japan have the oldest continuously operating– might even be family business, and it might be like 1000 years old? It’s either a restaurant or soy sauce manufacture or something like that?

Jake: I mean, probably. I’m not sure what the oldest one is.

Tobias: There’s a lot of pressure on you if you’re the child who has to inherit that business.

Bill: Yeah.

Tobias: You can’t do anything else.

Bill: You don’t want to be the one that messes it up. Yeah, that’s fair. Though you would think that over 1000 years and idiots run it, there must be something special about that business.

Jake: Statistically, yeah.

Bill: Especially within family. I know a fair amount of people wouldn’t trust their family members over a professional manager. I’m sure somebody in the family at some point is like, “Ah, this guy’s an idiot, but he’s the oldest. So, he’s got to take it over. This is BS. Our gravy train is going to stop.”

Jake: Yeah.

Tobias: The collective hive mind has come through with the answer. It’s a hotel that opened in 705.

Bill: Bang.

Jake: 00705.

Tobias: That’s it. [laughs] I wonder if they read–

Bill: [crosstalk] –the hotel.

Tobias: Yeah.

Bill: Wow!

Jake: We’ll get to that in a little bit. That’s a good segue. Another interesting finding of these 5500 companies, 90% of them have less than 300 employees. So, there’s something about size that creates problems, apparently, that lead to eventual dissolution. I don’t know if it’s a dilution of the culture, whether it’s– there’s Dunbar’s law, which I’m sure you guys are familiar with. It’s the 150-people units used militarily, like tribes tend to be in that size. And it has to do with they think that the human brain can only handle roughly 150 relationships and keep track of– the social load of keeping track of the relationships kind of tops out at 150. But this is 300, so why would it be– Why is it not– I would have believed more if it said it was under 150. I’m like, “Oh, well, that’s Dunbar’s law at play,” but it’s 300. I find that to be interesting. Although I did do a little bit more–

Bill: [crosstalk] –Fibonacci derivative or something?

Jake: Maybe. I did a little more research, and there’s anthropologists in the mid-19th century or 20th century, in New Guinea, which was a popular place to do anthropological research because they’re backward in time there relative to more advanced. They found that villages rarely exceeded 300 people because above 300, there would be schisms, a long inner clan within the tribe, and there’d just be a buildup of social tension to where it would break up eventually. So, that 150 number, maybe it’s more like 300, I don’t know, but it is interesting, why would smaller last longer.

Bill: I think you can adapt a little bit easier if you’re smaller. You get big, you get like an aircraft carrier, and then you can start taking on water from a lot of places. Banking is different, but it’s the only place that I’ve really worked that’s been that large, but everything was so process driven. I mean, it was so hard to get anything done. You wonder why can’t we get a term sheet out, but it’s got to go to credit, and then credits got to run up the chain if there’s something weird, and then it’s got to come back to your manager, and then you’ve got to change it in the system, and then it’s got to go back, and it’s like, what are we doing here?

Tobias: Risk management.

Jake: Yeah.

Bill: Yeah, and the answer is, the errors have a huge– I think that there’s merit to having your banks that regulated, but I do think that it makes them susceptible to be attacked. Conversely, I actually think that it gives them some defensibility because not just anyone can enter into that, unlike these FinTech companies, as long as they can exist on the edges and offload all that stuff to a partner bank that’s willing to do it, that’s one thing, but you FinTech people they think you want your FinTech to become a bank, you’re out of your minds. You never [crosstalk] it’s going to tear your face off.

Jake: You need those covers on your TPS reports always, that’s one problem.

Bill: But that’s what it is. If you’re big, and you get into that market, that stuff matters. I mean, it’s maybe not that crazy, but, yeah, you’ve got to make sure boxes are ticked and everybody’s got to go through it. Let the regulators in. You can look at what happens at Wells when the regulators get in. I mean, that’s a unique circumstance. But once they start scratching at something, it’s not like they just walk away.

Jake: Yeah. Another study of 1,000 companies that are over 300 years old, so a little bit older, smaller subset. 230 of them are in the alcohol business. So, what, sake, beer, or wine. 117 hotels, 88 restaurants, 67 food or sauce, 43 in pharma, 40 universities, and 8–

Tobias: Pharma?

Jake: I know. 18 in the financial. That’s what you’re hinting at before, Toby, about Lindy effect. People probably need to eat, they probably want to drink some booze, and they probably want a roof over their head occasionally.

Tobias: You get a habit. If you like one brand of soy sauce, it doesn’t really matter. It’s not a huge part of your budget when you buy it. So, you’re going to buy the one that you like. It’s same with booze. If you like one particular brand, you keep on buying that brand.

Weed And Alcohol Stocks

Bill: You think weed is going to be that way? I don’t think weed is going to be that way.

Tobias: I think that weed is a big risk for booze. I think that was why, there’s a lot of weakness in booze.

Bill: Yeah, I think it’s going to take share of throat for lack of a better term. I used to not think that I’ve morphed on that.

Tobias: I saw Sam Adams– when Sam Adams got cheap a few years ago, it came into my screens, and I looked at it and I thought, what’s the– That’s the dumbest thing I’ve ever thought, but what’s the impact of weed on this thing? I should have just bought it, because it’s up a lot since then. I did start thinking about–

Bill: Sam Adams?

Tobias: Yeah.

Bill: That’s different, though, man. They came out with that Seltzer and then they also got Dogfish Head. I don’t know, if that was totally foreseeable.

Tobias: No, but it was cheap. I think what I’ve seen is that if the business is good enough, when it gets cheap, they figure out some other thing. I think it’s like a partially formed idea.

Bill: Can I add a layer on what you’re saying though?

Tobias: Yeah.

Bill: The really important thing I think in Sam stock is they only had like 1% of the market. Right now, Molson or Tap, whatever, what is it, MillerCoors? Yeah, MillerCoors used to be Molson Coors. That’s cheap, I think. But I don’t know that I would have the same– It’s a different dynamic than Sam had. Sam has always sort of been going like, very– That ship is always sailing pretty well. I don’t think that Sam has ever been taking on a lot of water from business lines and stuff like that. They’ve just sort of always been under the radar and–

Tobias: Got a big owner operator in there too, which is a big plus for Sam.

Bill: Yeah. I mean, I’m probably somewhat shellshocked for my Bud– [crosstalk]

Tobias: Did your Bud work out or not work out?

Bill: The stock didn’t work. I wasn’t willing to hold the business risk through coronavirus with all that leverage on top of it. I just got nervous. When I sold was in March, and I was very concerned that emerging markets would just get destroyed by coronavirus. They seemed they have been having a hard-enough time getting growth as it was, I didn’t really want to lose like 2%, 3% of your drinking population. I didn’t know if that was realistic at the time.

Tobias: It’s amazing how the explosion in boutique breweries– When you go into the supermarket now, there’s just shelves of it, when that wasn’t the case even 10 years ago.

Bill: Dude, the problem is now it’s all owned by private equity. So, people think it’s a bunch of small guys, but they’ve all been rolled up and bought by P/E. That’s why some of it all sucks now.

Tobias: Does that help with the distribution? Is that why you do then? You got a portfolio and then you’ve already got the distribution for it?

Bill: Yeah, Bud is the biggest craft brewer in the US by volume.

Tobias: Is that right?

Bill: Yeah.

Tobias: The big guys always win, I guess.

Bill: Yeah, but I don’t know.

Jake: Illusion of choice.

Bill: Yes, the illusion of choice is very, very true. One thing I think when I was honest with myself about that. When they took over Goose Island, the quality of Goose Island’s beers went down quite a bit. I think that part of what those big breweries suffer from is, it’s almost like buying a new car where the second that they closed on the transaction, the brewery is worth less. Even though you know you can theoretically say, “Well, we’ll just pump out the distribution,” I think the brand image takes a hit. That’s a real in beer nerd drinkers.

Tobias: Good comment from the hive mind here. Beer in REC, or recreational cannabis legal states, is down mid-single digits off base year. That’s interesting.

Bill: Yeah, it was probably down low single digits before. I can see that– Weird thing about alcohol consumption though is it follows a power law. A really high percentage of the population doesn’t drink. And then, the top decile is basically just degenerate, and then the second and third–

Tobias: Oh, you got your mic cut for that, mate.

Jake: Yeah, he did. Oops.

Tobias: Big alcohol cut your mic.

Bill: Oh, yeah? Well, I mean, it’s sad when you look at how much the top decile drinks. It’s impossible to argue that those people are living healthy lives.

Tobias: Sad or amazing.

Bill: Yeah.

Sagrada Familia Cathedral – Build Something That Lasts

Jake: All right, next data point. One way to build something that lasts is to take a really long time to build it. And so, there’s this Sagrada Familia cathedral in Spain. They’ve been building it for 125 years. It’s not done yet, but it’s already a UNESCO heritage site while they’re still building it.

[laughter]

Tobias: Still a startup.

Jake: Yeah, it’s still in startup phase.

Tobias: Maybe that’s Amazon’s big trick. It’s always day one run.

Jake: It’s always day one. Yeah. Another way is to keep rebuilding. Apparently, in the Shinto religion, there are these temples that they rebuild them right next to them and it’s an eight-year process, and there’s a bunch of ceremony involved with it. But they’re able to continually refresh it effectively. Another idea is that universities have built into them– they have a new set of customers every four years that they have to sell to. So, there’s a refresh rate that is built into it. Now, whether they’ve done a good job of that lately, I’m not so sure, but that’s a topic for a different conversation.

One other thing is that this idea of communities of practice. Martial arts, for instance, some of these have been around for 2,000, 3,000 years. It gets handed down from person to person in a community of practice.

Tobias: I think we’ve got the earlier startup on the screen here– sorry, not startup, business. Kongō Gumi started in 578. It’s a construction company, that would be the only construction company that’s continuously operated for more than one business cycle.

Adversity Builds Longevity

Jake: [laughs] The last piece of this and it’s probably the best piece, the most interesting, is this idea that adversity breeds longevity. The bristlecone pine is the oldest continually living species of anything on earth. What’s interesting is that it wasn’t discovered that how old they were through coring or anything like that. It was actually scientists had found, the harsher the conditions, the older the tree that tended to be there. So, someone postulated if you go find like the worst harshest condition, I bet you’ll find the oldest tree there. People started going to all these desolate mountain ranges and they found these bristlecone pines that were over 5,000 years old there. They backed into the right answer.

Tobias: That’s crazy. Is it because the harsh conditions bring about stronger trees? Or is it because only the strongest trees can survive in harsh conditions, can get started in harsh conditions?

Jake: Only the strongest can survive through the harsh conditions and they learn how to handle hard conditions.

Tobias: Nothing can compete with them.

Jake: To have to run through that gauntlet, you have to be very hardy.

Tobias: Sounds like value investors. [laughs] Surviving value investors.

Jake: Surviving that harsh conditions.

Bill: I like that you talked about that because I have these huge oaks outside my– on the property that we’re renting. I think how the heck do these things make it through hurricanes? But they have. I mean, it’s impossible that they’re under 100 years old, these things are incredible. But then, you go just down the South a little bit and they’ve got all these Ficus trees, and Ficus, the roots grow out, knocked down. So, just a puff of wind comes, and they all just topple over. So, it’s interesting

Einhorn – Capital Intensive Businesses With ROE

Tobias: There was a quote this week or last week by Einhorn where he said, and I’m going to get this wrong. If someone hears this one and knows the correct– put up on the screen, but it was like, he prefers businesses that are capital intensive and undervalued. I think I tweeted it out. I’ll have to look it up because– does anybody know that quote? Let me pull it up– [crosstalk]

Bill: Yeah, I do. He said that he liked to be more resilient. The problem with a lot of these businesses, there’s these theoretically great businesses. And then, you pull up the cash flow statement and all of the operating cash flow is share-based compensation.

Tobias: Is that right?

Bill: Then, you ask people, “Well, why is the free cash flow share-based compensation?” And it’s like, “Well, everybody’s doing it.” Okay. If business has an inherent characteristic that it cannot compete without people in it– I mean, we’re talking generally these asset [unintelligible [00:46:05] IP companies. If there’s a dynamic in it, that says, “Well, everybody’s doing something, so I have to do it also,” whether that’s hiring more engineers, or whether that’s giving away stock.

Over time, it’s very fathomable to me that a lot of these are just terrible investments to have minority interests in. They may be great businesses, but over the long term, dilution really matters. If you’ve got a two- or three-year time horizon, who cares? It’s what’s going to make the stock work, but if you’re really going to own it, that stuff adds up.

Tobias: It’s like trying to put your fingers in all other holes opening up in the dyke. It’s just keeps on– There’s just too many holes. All of the value just leaks away. I found a quote, by the way. “It’s important to analyze return on equity, but only in capital-intensive businesses. It may surprise you, but I prefer at the right price capital-intensive businesses with low return on equities, where I think the return on equity will improve to high or at least medium return on equity.”

Bill: No, that makes sense. That was a lot of the airline thesis.

Tobias: That might be his problem over the last decade. I like that approach.

Jake: Now we see what you were on.

Tobias: [laughs] Yeah, there you go.

Bill: No improvements in ROE, that makes a lot of sense to me.

Tobias: Yeah. That’s hard to pick. There’s not a lot of improvement in ROE. The only places that you find improvement in ROE, statistically, is in stuff that’s not doing very well on an ROE basis.

Bill: Yeah, I think that maybe what Buffett saw in the airlines when he got into it, combined with capital returns, as the credit cards made up a larger and larger portion of their earnings, that’s a better business, and I think that was part of it.

Jake: Well, I’ll tell you what, go have a look at some of the big oil companies right now, and their return on equity back when things were humming along with oil prices.

Tobias: Was it still terrible?

Jake: Compared to today. No, they were great.

Tobias: Was it better? Was great, yeah.

Jake: Yeah. Now, they look terrible. Well, imagine if whatever you were selling got cut in a third, the price of what you could charge for it. How difficult would that be on your business?

Bill: It did, valium stocks.

[laughter]

Jake: Good point.

Tobias: Yeah. I’m trying not to sell them, I’m trying to buy them. I’m trying to sell the expensive stuff.

Bill: I know. I’m just trying to make a joke.

Tobias: It’s a good one. I’m just trying to defend myself. Einhorn is a bristlecone pine.

Jake: Scrubby.

Tobias: Those are good veggies, Jake.

Jake: Sitting all by himself up on a mountain.

Tobias: What’s the underlying paper? Where did that come from?

Jake: It was an article and a presentation that Alexander Rose put together, and it was called The Data of Long-Lived Institutions. There’s some other stuff in there that’s good too that I didn’t include but, yeah, it’s worth checking out.

Tobias: Yeah, I’m very interested in stuff that’s got lots of longevity at the moment, stuff that seems invincible.

Jake: Well, if you’re going to be never sell, you’ve got to be thinking like this. If you’re not asking yourself these kind of questions, I question your never-sell mentality.

Terry Smith & Buffett On ROE

Tobias: [chuckles] Well, that still rules for Terry Smith were like when ROE starts declining, when the business itself starts looking a little bit worse, but there’s going to be– even in high ROE businesses, there’s a little bit of cyclicality, and I don’t know if you’re ever going to be the first person at the door. I don’t think you can be, because I think that the market’s pretty sensitive to that. That was my always my complaint back when ROE– the first decade of this millennium where ROE just bumped sideways for a long time. Anytime there was any slowdown unless, things got cut to shards. Not anymore.

Bill: [crosstalk] –ROE is you can juice it with leverage, that’s how I think investing capital makes more sense.

Tobias: Yeah, that’s right. But then, Buffett says he likes ROE and then he controls for the leverage because essentially, you’re buying the equity. You’re not buying the invested capital. So, if you’re buying the equity, you’ve got to make sure that they’re running the equity the way you would want to run the equity.

Bill: No doubt. Or you understand how to do it. I would not want to run Malone entities the way he runs it, but I trust him to do it his way, if that makes any sense. I don’t understand debt like he does, but I understand that.

Tobias: Maybe you do understand debt like he doesn’t. He just hasn’t got to the terminal point yet.

Bill: Well, I think that I don’t know how to– he’s just much better pushing the market. He’s got this swag that he can throw it around. Same with 3G. I mean, those guys have almost an unlimited ability to issue debt. So, I sort of understand why they do what they do, but I, Bill Brewster, do not have that. So, it’s just different.

Tobias: Throw your questions in, folks, we’ve got 10 minutes left so, we’ll take them.

Burry Buying Qurate

Bill: It’s funny how many people tagged me about Burry buying Qurate. I mean, I guess it’s cool, but I don’t really care. If anything, it hurts because it gets the stock on people’s radar and the way that I can actually [crosstalk] money is–

Jake: You want to buy back?

Bill: Yeah, the stock languishes, but the business goes. But nice for the reputation, I guess.

Tobias: Yeah, there’s some value guys following this part, I think, Buffett into a few–

Bill: Yeah, well, it’s good. They know the right idiots.

Tobias: [laughs]

Jake: Bozos, Bill.

Bill: Sorry, bozos. My apology.

Investors Blow Of Steam Every 20 Years, Then Relearn The Same Lesson

Tobias: Idiot, bozo. I’ve got one here. Here we go. Are behavioral strategies like buying low multiple stocks, betting on overreaction no longer creating alpha? If no, is it due to more efficient markets and/or less mean reversion margins earnings? Yeah, that’s a–

Jake: That’s a Toby question.

Tobias: There’s a long, long discourse on that question. That’s a great question. There certainly seem to be– I think that O’Shaughnessy has some research specifically on this looking at the two– if you bifurcate the market into growth and value stocks, growth being the high multiple ones, value being the low multiple ones, what has traditionally happened is that there’s been multiple expansion in the low multiple ones. Multiple contraction, the high multiple ones, even though the underlying earnings tend to fall for value and tend to grow for growth. That has not been the case over about the last 10 years, 5 or 10 years particularly.

There are as many opinions about why that is the case as there are people out there, and everybody’s got something new and unique and wants to test it. I don’t think anything really holds up other than the market does some weird things for some time over long periods of time. I don’t think that there are a lot of people lining up to buy value stocks now. But I have seen that there’s some research going around that says that if you ask people what they think is going to outperform, value or growth, then people say value, but I don’t think that their money is invested that way.

Bill: I just don’t understand what this means. I think over time, if you execute a strategy and– Toby, you’ve overlaid buybacks into yours, so if you’re right, it’s going to work. Yes, if you have to be judged on the stock price and mark to market, I have no idea whether or not it outperforms. But there’s nothing that– I don’t even understand the question because if you just go from first principles, I bought Qurate, Qurate’s a value stock. If the stock gets cut down to two, Greg Maffei will buy the entire company in under a year. It’s how the math has to work. The stock will go up. It can’t not. I mean, yeah, there’s a bunch of shitty businesses out there that aren’t going to rerate, but I think that if you’re choosy, it’s a great bond.

Tobias: That’s right, but to be– even being choosy, you can go through these periods of time where there are these perplexing moves where things that are too undervalued, that are doing the catalytic steps, still go backwards.

Bill: It’s particularly odd in a seller’s market too, where it’s everything else is catching a bid, but this isn’t. Like, what is going on?

Tobias: The markets have these periodic manias. It’s just what happens. Everybody needs to blow off some steam every 20 years or so and learn a brand-new lesson. Learn that same old lesson personally for themselves, and it’s about a 20-year cycle. It took 10 years, 15 years.

[crosstalk]

Jake: –two innings, 20 years, that means we’ve got another eight innings. [crosstalk]

Bill: I think you’ve got to pray to the– this is why I think one of Buffett’s real strengths was, he legitimately thought this way. I mean, if you’re buying value and you’re hoping to outperform in the next six months, I have no idea whether or not– That doesn’t even make sense to me, because I would bet on momentum in the short term. But over the long term, it seems to me that I would rather own things that are cheaper, all else equal, coming out of the gate. Now, obviously, some of the compounder bros are going to be like, “Yeah, but the businesses suck.” Well, they don’t all suck.

 

Fundamentals Aren’t Dead!

Tobias: I’ve got a good one here. Chris Cole was on Grant Williams– I saw him tweet this out, he said, “Fundamentals are dead. It’s all about flows,” which is the Mike Green argument. The question is, how do you pivot? Or how do you respond if that’s reality? So, I would say–

Jake: No.

Tobias: Do you want to go?

Jake: I just want to say that makes no sense. They may be suspended for a while, but they’re not dead. That doesn’t make any sense. At the end of the day, these are still businesses that are out there doing things, making money or not, and eventually that matters. I don’t think– maybe I’m completely blind and a religious zealot, but you’re going to have a hard time convincing me otherwise, that flows are the only thing that matters.

Tobias: Yeah, I have gone back and forth with Chris about it. Chris has been telling me about this thesis for quite a long time, and I’ve been talking to him about it. My first impression, my initial impression, when he first told me about this was if it benefits some stocks and it doesn’t benefit others, that just creates some undervalued stocks, in which case I’ll buy the undervalued stocks. And if you think about how you get a return as an investor, as a value investor, as a fundamental investor, as an investor, the way that Munger and Buffett define it, how do you get your return? You get your return through any yield, any dividend that it pays out, any stock that’s bought back. And then, you get the reinvestment in the business, you get the reinvestment and the growth in the underlying business.

So, if I get these opportunities to buy really good things really cheaply, and I can get yield and growth in them, it doesn’t matter to me how the market treats the multiple in those stocks, because I can hold on to them and just keep– I’m not necessarily pitching Icahn Equity Partners, but I’m just using this as an example or Diamond Hill, or Greenlight Re, or any of these sort of businesses, that the yield in them is astronomically high at the moment. It’s possible there’s some cyclical– I haven’t dug into them deeply enough to know if it’s sustainable, but I think it is. For Diamond Hill, I think it’s reasonably sustainable. If you’re getting a 10% 15% yield, in a world where the 10 year is like, whatever it is, 90 bibs, I’ll do that deal all day long. I’ll just keep on doing that deal. It doesn’t matter to me how the market treats it.

Bill: Yeah, I guess the only thing is the market may never give you the bid that you want. But eventually, you’ll get it. You’ve just got to have the staying power to get there and that’s the– [crosstalk]

Tobias: But why do I even care about the bid? Why do I care about the bid if I can get the yield and I can see the underlying business, regardless of how the market treats that business? If the underlying business itself is growing, isn’t it like–

Bill: I’m with you.

Tobias: As you say in relation to Qurate–

Bill: I just think your investors need to stick with you to get your return [crosstalk] and that is the institutional constraint that makes this all very, very difficult.

Tobias: That’s Mike Green’s argument that the value versus all get there. They all get fired. And so, the market becomes only index because index is price insensitive. They never sell, they only buy if there’s flows going into them. But I think even in that market, can’t I then just go and raise– There are enough business guys out there who understand these arguments. If I say, “Look, you can get a 15% yield here if we buy this thing, we’ll take it private.” Let’s do that deal. Instead of let’s doing it with one, let’s do it with 30 and let’s not take them private. Let’s just hold them. Let’s just get the yield and the growth. There you go. That’s my business.

Jake: There’s the Acquirer’s SPAC. We just launched it.

Bill: The Acquirer’s SPAC. Yeah, no, that makes sense to me.

Tobias: It’s exactly Qurate, right?

Bill: Yes, I have gotten very, very choosy about which capital allocators I tend to get in bed with, and part of the reason is [crosstalk] I don’t want to deal with– Yeah. Well, part of it is, I knew when I was having the Qurate decision, I got enough inbounds that I sort of knew who was buying, why they were buying, who couldn’t buy but was interested to buy, and who just wasn’t interested. I mean, I had enough of those conversations, so I sort of understood the setup. And then, I was like, “Alright, well, if none of these guys ever buy, Maffei is going to buy a ton.” And then, if people do start to buy, I sort of was able to see it’s a weird dynamic, is as the market cap grew, some people that were interested could actually enter and you almost get this flow sucking up the valuation, which is–

Jake: Ian Cassel.

Tobias: [laughs]

Bill: Yeah, well, it completely makes no sense because you’re saying– I mean, it does make sense if you’re running a fund, but what the comment was is like, “We like it, but we can’t get in it because it’s not liquid enough that we could get out and call it two or three days.” So, it’s like they would be more comfortable buying something higher if it had more liquidity, even though buying at higher prices actually has more risk. It’s counterintuitive.

Jake: You just explained the individual investor’s advantage.

Bill: Yeah, well, I mean, at least in that situation, it was real.

Tobias: We’ve gone a little bit over time, but it was a fun one today. Thanks, guys. We’ll be around next week.

Bill: Yo, Mike Burry, thanks for listening, shoutout. Let’s make some money together.

[laughter]

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