Invincible Stocks & Fragile Businesses | The Acquirer's Multiple®

During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Invincible Stocks & Fragile Businesses. Here’s an excerpt from the episode:

Tobias: That’s the challenge. If you look at the big winners that we’ve had over the last– I guess Tesla’s not an example, because Tesla’s had a pretty big win over the last– I guess, bitcoin’s the same, they’re both roughly 10Xed or something over the last year or so. For more than 10X, funnily enough, you need to pay value prices for them to get the really big compounder and going.

Bill: Yeah, I don’t know that we have standing to really talk about this. When you’re saying, well, you’re only up 10x for the next 10x, you really got to pay right. I don’t know that we’re the guys to come to for that kind of advice, but that said, I don’t know how many people out there are truly playing an investment game versus playing a Momo game tied to low rates and thinking that they’re brilliant. I’m not sure. I’ve said in the past, I think it’s hard to figure out which ones. I know a couple of them that I have a lot of respect for, but a lot of the comments that I see maybe [crosstalk] wanting for more work.

Tobias: I thought I copped to it earlier when I said that the problem with the attitude that says, take the 19 off the table when you get to 20 is that you don’t get to 20 in the first place.

Bill: Yeah.

Tobias: To give Musk credit, the reason that Musk is the richest man in the world currently, or– I don’t know exactly where he is, but he’s right there. It’s because he’s left his entire net worth in Tesla, and he’s just ridden it, just let it ride, let it ride, let it ride, let it ride. You’ve got to respect that. He’s running it. He’s an owner-operator running the whole thing. I take my hat off to him. Let it ride.

Bill: Yeah, there is an element of truth to that statement. The other element of truth to that statement is if you are someone that has $20 million of stock in Tesla, and you are unlevered, and your entire life is dependent upon that one position, that’s quite a bit different from Elon Musk who has almost certainly all his travel expenses covered by the company, a salary covered by the company, got a ton of options in his plan, a huge other people money levered game. So, you’re not making the same bet. You may think it’s the same bet, but if you think it’s the same bet you don’t know what the hell you’re doing, in my opinion.

Tobias: He’s got lots of houses, but he’s got houses and things because he was x.com into PayPal.

Bill: I’m not saying he’s pillaging Tesla for his houses. What I’m saying is, like, the reason he’s the richest man in the world is his stock has gone up a lot and people were willing to give him a lot of options. It’s not like he bought that stock and held it. The way that he has made it is not–

Tobias: Most of it is, isn’t it?

Bill: Look, yes, but other people’s money is a huge part of the reason why he’s so rich. It’s the part of the reason that everybody gets rich. It’s part of the reason that Buffett’s rich. My man didn’t do it through option grants, y’all.

Tobias: [chuckles] Yeah, that’s fair. How do you keep Musk interested at this kind of level? I don’t know that the big option grant does much anyway, but he needs some sort of recognition for getting the– when they wrote these option grants, and they were like, if he could get, like, imagine in this world where Tesla gets to, whatever it is now, a trillion dollars or whatever. Sure, Elon, if you can get the share price, that will sling your $100 billion.

Jake: Yeah, you can have that.

Bill: Yeah.

Tobias: Elon just heard that. Okay, I’ll just get the–

Jake: Results. See, that’s the amazing thing. It didn’t require much business results to get there.

Tobias: I mean, to get give him credit, they’re making more and more cars. The business is doing something. The business is producing more and more cars. People like those cars, people feel very strongly about Tesla. I’m starting to think that maybe the community around it makes it kind of– it’s sort of an invincible business. I don’t know if the stock is invincible. The stock can do whatever the stock’s going to do. Musk is–

Jake: Really? I was going to say it’s the other way around.

Bill: An invincible stock and a fragile business? It’s very possible.

Jake: Yeah.

Tobias: I don’t know.

Bill: Look, it’s a great product. It’s a product that’s ultimately going to change the world. That’s what I would say about Chamath too. If somebody really push me on it, I’d be like, you know what, I may not want things done in the same way. I may not go about things the same way. If he is successful in what he’s doing, we need people to take risks like that in order to push the world forward. Maybe in the same shoes, I would feel the same way.

Tobias: Serious question, not trying to be snarky, but what risks has Chamath taken?

Bill: I think he has used his profile in a way to elevate a lot of companies and raise a lot of money for things that he deems worthy of raising. If he is correct on that, I do think that there is– I think the argument of reflexivity and getting somebody like him to stamp your product and go out and pitch it can create a somewhat virtuous cycle where it gets heat going into the headlines, and then people want to join. I do think that stuff’s real. Whether or not I’m willing to pay for it is a completely different question. I don’t invest in it, but I also think that saying like, that’s not how the world works is not really living in reality.

Tobias: Does his billion come from space?

Bill: No, most of it comes from Facebook, right?

Tobias: Oh, okay.

Bill: That’s what I thought.

Tobias: I don’t know. I don’t know that much. I’m not–

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