VALUE: After Hours (S03 E11): Reopening Trade, Airlines At Ludicrous Speed, And Low T Birds

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

  • Testosterone In Investing
  • Airlines At Ludicrous Speed
  • Surely Price Matters Eventually
  • Company Bailouts
  • Value Guys Are Low T
  • Women Are Better Investors
  • So Many Stocks Ripping
  • No Left Tail
  • Small, Cheap, Junk
  • Next Week’s Anniversary Of The Bottom
  • The Gigantic Ramp
  • Lots Of Little Experiments
  • Hedging Against A Nuclear Attack
  • $NFLX & $DISCA
  • Robinhood Changing The Rules
  • Bull Markets & New Gunslingers

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: Good day, amigos. It is Value: After Hours. 10:30 AM now, it’s daylight-saving time on the West Coast 1:30 PM East Coast, which means that I got the times right, I think it’s 5:30 PM UTC. It’s 5:30 AM Australian Eastern Standard Time. I guess– there might be many Aussies on this one. How are you doing, fellows?

Jake: Good to be here.

Bill: I am well.

Tobias: I’m joined as always by [crosstalk] Jake Taylor and Bill Brewster. If you’d like to listen to this live, you just go to The Acquirers Podcast YouTube channel, hit the notifications and it’ll let you know when it goes live. That’s like seven and a half thousand people signed up and we’re getting a few 100 now on the podcast, which is up a lot from the 10 or so that we started out with. [laughs]

Bill: It’s not so bad.

Tobias: It used to be more hosts than listeners.

Jake: Yeah.

Bill: [laughs] For a while, for almost a year and a half. But then we exploded higher.

Jake: Now, it’s exponential.

Bill: That’s right. Ian’s got the bots working.

Tobias: Wild times in the markets. Oh, here we go. An Aussie from a place I can’t pronounce in Hungary.

Bill: What’s going on in the markets?

Tobias: Well, some unusual things. Small, cheap, junk is having a bit of a moment. Although it’s shifting back to tech again today. Who knows? We’re on a knife’s edge all the time here. But there’s been a lot of junk. [crosstalk] Sorry, JT, cut you off.

Jake: Just saying you’re probably better off not trying to watch it too closely all the time with this chop.

Tobias: Yeah. I’ve taken to only looking after the close.

Bill: Yeah, I don’t know. I just know that, apparently Altria is a meme stock, which is sweet. Let’s get it going, WallStreetBets, do your thing.

Tobias: Dude, WallStreetBets, I just sent you guys this morning, that the Wall Street Mod Twitter account has like 850,000 followers. I was stunned. It’s exploded.

Bill: It is funny and entertaining to follow until it ends in tears if it does.

Tobias: It’s been amazing.

Bill: As are most things. Coke binges are fun while they last, and then you die.

Tobias: That’s been the policy of the Federal Reserve, hasn’t it? That’s how we’ve kept the party going so long.

Bill: I don’t know. I think that policy did a damn good job through all this. If you had said that we were going to stop the world and we were going to come out and have life be pretty normal on the other side, I would have told you that you were out of your mind. I would definitely take this over mass default and layoffs and coming out of this into a depression. Fuck that.

Tobias: You don’t think that’s what we’ve got anyway? Isn’t that happening–? That’s what’s happening to everybody on Main Street. Wall Street’s having a party.

Jake: Yeah.

Tobias: Main Street’s like getting kicked out.

Jake: One-percenter.

Bill: Look, I’m not– my mom struggles. I’m not some one-percenter that doesn’t understand that people struggle. I get it. I’m telling you right now, she sells real estate. She’s generating commissions because people can pay for homes. I don’t want a scenario where everybody is defaulting on their loan and we have mass implosion. I think that’s a crazy thing to advocate for. So, I think they did a good job. Now, are there going to be negative consequences? Yeah, but we fuckin shut down the world. Of course, there’s going to be pain eventually for the market. Hopefully, the wealth effect can start to get this– we can get this thing going again here pretty soon. Personal savings rates are at high levels. Now, how much of that is in the wealthiest pocket? That’s a problem. You’ve got to figure out a way to fix that. But to advocate for just shutting it down, I think that’s a nonsense argument.

Tobias: Didn’t we shut down though? Wasn’t that the issue? We shut everything down.

Bill: No, but we got people through. Let’s talk about the people that bitch about airlines. What we really wanted–

Tobias: Well, hang on, let me tell you what my topic is today.

Bill: Okay.

Tobias: My topic is airlines.

Bill: Yeah.

Jake: Okay, now go.

Airlines At Ludicrous Speed

Bill: People really wanted the airlines to just not get any help. All those union jobs, just fire them all. Fuck them. All the pilots, release them. Let’s cut it down to bare bones. Let’s wipe the equity out. Let’s restructure the debt. Let’s do it to every single industry. I’m sure it’ll be fine. We’ll reset to this utopia where people act responsibly. That’s insane to me.

Tobias: Yeah, if you shut it down, then you’ve got to bail it out. But you don’t have to shut it down the first instance.

Bill: Well, I mean, in retrospect, you’re correct. I think that at the time, given what we knew, that was the decision that they made. It is what it is.

Tobias: Yeah, it is.

Bill: We live in a society man.

Tobias: That’s why some of us complain.

Bill: Yeah, but I guess that the issue that I have with some of the complaints about what’s going on is, you can either update your assumptions based on the way the cards have come out, or you can bitch about the cards that came out. You can’t change the cards they’ve been dealt, so you have to change you. Otherwise– [crosstalk]

Tobias: I think somebody’s stealing from the bottom of the pack. If we’re going to use this analogy, my issue is not the cards that are being dealt with, it’s the way the cards are dealt.

Bill: Yeah, I just think that, as a human, we have to adapt. I don’t understand the idea of like–[crosstalk]

Tobias: No question, adapted though.

Jake: What do you say to the moral hazard argument about that?

Bill: I say that I own Malone entities, dog, and these covenants don’t exist, so give me that money.

Jake: Now, I’m keeping on the airlines. You know the behavior that that preceded–

Bill: What did they do?

Jake: Levered up, bought back.

Bill: Oh, get the fuck out of here, dude.

Jake: Didn’t prepare for a rainy day at all.

Bill: Delta was investment grade– You are out of your mind. Delta was investment grade. Alaska was investment grade. American Airlines, I’ve always shit on. The ULCC’s run an operating lease strategy. If we want to live in a world where the government runs the airlines, and they can’t have any capital from private entities, then, yeah, let’s make them carry five years of opex to cash on the balance sheet, and while we’re at it, we’ll pay the CEOs 150 grand and we can all just ride around in a flying bus. That’ll be great.

Tobias: Isn’t that what we do if you fly?

Bill: Yes, it’s a fantastic experience. It’s segmented. You can choose where you want to sit and pay where you want. If you want TSA, you can upgrade for that. If you don’t, you get in the fucking back of the bus. It is capitalism.

Tobias: It’s tough for the big fellas riding in the back of the bus, mate. Can’t get those knees behind those seats.

Bill: Oh, then you might have to pay a little bit more for the extended leg room, but you have that choice. Right back in the day when everything was like a limo, the airlines sucked as businesses. Now, they were moderately decent businesses. I agree, they didn’t plan on shutting down the entire fleet for six months. I think Scott Galloway is out of his fucking mind when he talks about this. I think nothing can be– [crosstalk]

Tobias: What’s he saying?

Bill: He goes into this whole buy that thing.

Jake: [crosstalk] -capitalism argument.

Bill: Yeah. I just don’t buy it. I think it’s a nice thing to say. I don’t think it’s actually adapting to the facts as they were.

Tobias: Well, this is my topic. Let’s jump into what I was going to talk about. I saw a tweet today that said the Jets, which is the ETF of all the airlines is flying. Everybody loves a good pun on a headline like that. I jumped in and had a quick look at Jets. It’s done really well. It’s almost back to where it was pre-pandemic, which is kind of amazing. Markets are a forward-looking discounting mechanism, of course. But the thing about airlines is that they do carry a bit of debt, so I looked at the EV’s. I pulled up the enterprise values, which includes the debt, for folks, in the weeds, the enterprise value is market cap plus the debt, back out the cash. Airlines have also got liabilities on their planes, but that’s not included here. This is just the EV of the holding company.

Delta is basically– its enterprise value is the same as it was at its absolute peak. United is at its absolute peak. Southwest is about 85% of its peak, Americans 85% of its peak and Alaska Air is about 66%, but it had this spike, this weird spike. You can’t look at the EBIT of these companies because they don’t have any at the moment, so had to go through and have a look at revs, EV revs for all of these companies. Long-run average for EV revs across these companies is less than 1, so that means that they sell about as much of their enterprise value every year. So, they’re currently on these multiples. Delta, it’s 3.3 times revs. United is 4 times revs. Southwest is 2.6.

[connection lost]

Tobias: Ooh. No idea what happened there.

Bill: There he is.

Tobias: We’re back.

Jake: What?

Bill: Your audio is off.

Tobias: Oh, it is? Okay.

Bill: Yeah.

Jake: Well, it’s on, but it sounds like you’re in a submarine.

Tobias: Let me fix it.

Bill: I think I hear us on YouTube.

Tobias: Here we go. Check, check, check.

Jake: There you go.

Tobias: All right, we’re back.

Bill: Are we live still?

Tobias: I think so. This is a live video.

Bill: Yeah. We are back.

Jake: This is a quality podcast.

Bill: It’s very high quality. Everybody can hear us.

Tobias: My computer shut down, logged me out of Skype, which is super helpful.


Tobias: I’m back here trying to remember my Skype password.

Jake: Oh jeez.

Tobias: Who would know what that is? Anyway, sorry, amigos. We’re back. Did everybody get my terrible airline stats? Let’s shift to somebody else’s topic here. Sorry, fellas.

Bill: I think we were talking about moral hazard.

Jake: Hmm.

Tobias: That’s a good one. Who wants to take that one?

Jake: Bill’s pro, I’m anti.


Bill: No, I just think that saying that we shouldn’t have bailed people out is a much easier thing to say in some classroom or theoretical standpoint than reality. I just think that the idea that we should not have come to the rescue of asset-intensive industries and pushed away investment forever– maybe not forever. I don’t buy it. I fundamentally don’t. Now, do I think that there are negative consequences of that? Yeah. I don’t think that if you looked at Delta’s balance sheet going into all this, a rational person would say that was– [crosstalk]

Tobias: They’re being reckless?

Bill: Yeah, they just weren’t. It was an investment-grade balance sheet. It’s like looking at somebody that has 40% loan to value on their house and saying that they’re out of their minds. No, that’s just the way it runs.

Jake: Okay. Well, let me ask you this then. Is that the government’s job to step in?

Bill: Yes. To keep society going and to protect the system that we all live within, and to keep the fabrics that we all have had an underlying assumption together? Yeah, I think that’s exactly government’s job.

Jake: Let me also ask you this. A reset in that industry does not make the planes disappear. It’s just the ownership of who owns the planes and is operating them may change.

Bill: Who is going to go buy the equity after? How do you finance new airplanes? Do you think that society is better off now than it was 30 years ago?

Jake: I guarantee you there’s a price somewhere that there’d be happy equity buyers of airlines.

Bill: Yeah, that’s fine. You’re not going to get that price because government actually steps in. You’re not going get–

Jake: [laughs] That’s my point.

Bill: Okay. I think my point to you is that you’re trying to make the world as you want the world to be. What I’m saying is, that’s not the world we live in.

Company Bailouts

Jake: I guess, I would prefer the world to look more nature looks like, where systemic problems get cleared more regularly and instead, we sweep them all into a pile and then kick the can down the road. I don’t know if your system actually solves the problem in the long term, and maybe doesn’t create bigger problems down the line.

Bill: Yeah, I agree that if there was a way to have shut down the country, and not had mass defaults, and not have every asset-intensive industry going into bankruptcy court at the same time, and having creditors own all the equity, maybe that would be better. It’s just not going to happen. So, I don’t even understand the point in bitching about it anymore. I guess that it seems to me that I’ve now seen 2009 and 2020 happen. Both times, like Libertarian, Austrian, Ron Paul people, of which I was one not that long ago, had complained that the world is not as they think it should be. But I guess my comment back is, well, then maybe the world isn’t like you think it should be. You either are going to continue to yell into the air or update your [unintelligible [00:15:35], because I don’t think that the world is going to change to what we want it to theoretically be. I think we got to live in the world we have.

Jake: I agree with that. I think it’s something I struggle with, which is, is the world different than how I think it is? Or, have we not looked at a long enough timeline? I go back and forth on those. They kind of give you different answers.

Bill: Yeah. I get the, well, equity should just be wiped out thing. I do understand that argument, but I just don’t think that if you really think that all that’s going to happen is equities going to get wiped out, and the world’s just going to continue, and you don’t think that leads to deflationary bust, if you really think that at the moment that the world has stopped, that it’s okay to send almost every asset-intensive industry into bankruptcy court and do you think we’re going to get through that, then maybe I just don’t understand path dependency like you do. I’m not saying you, I’m just saying the collective you. I just think that you’re introducing a massive, massive deflationary bust risk into a system that didn’t need it and the path we went down has negative consequences. But once there’s a global pandemic, there are going to be negative consequences, so I view government’s job is to mitigate those consequences. I think that to a large extent, they did it and then I think that it became political and people lost their fucking minds.

Jake: I would probably agree with you more if during the good times, we ran surpluses and prepared for the bad times as a collective, but we haven’t done that at all. It’s always been pedal to the metal, at least for the last 12 years.

Bill: Yeah.

Jake: I don’t know. It makes it a little bit weaker the argument that we’re doing this for the greater good.

Bill: Well, that’s a separate issue, though. I’m talking about 2020. I bitched a lot about the tax cuts and blowing out the deficit 10 years into freaking recovery, [crosstalk] yeah, like 7 to 10 years. I think that was asinine. The idea that now Republicans are going to complain about deficit spending, like they– [crosstalk] Yeah, they lost the moral high ground on that. We definitely agree that the problem with Keynesian economics as implemented is Keynes always thought that you should pull back when times are good and we just do stimmy, stimmy, stimmy. I don’t think that in 2020 is the time to take the stand. That’s where I just disagree.

Jake: Yeah, but there’s never going to be a convenient time for austerity.

Robinhood Changing The Rules

Bill: Okay, that’s fine. 2016 is a more convenient time than 2020. Hopefully, 2024 is more convenient than now. I just don’t think today is the day to get austere. I think that doesn’t make sense. It almost reminds me of changing the people on Robinhood’s ability to pump GameStop in the middle of the game. You don’t change the rules in the middle of the game. It’s not sportsman like.

Tobias: Wouldn’t their argument be that they were trying to protect them?

Bill: Yeah, I guess in that instance, they had to stop it so that Robinhood didn’t collapse and that didn’t collapse everything. I guess that would be the argument.

Tobias: But they were also trying to protect the smaller investors in there. The thing had mushroomed and there’s no– once those things go parabolic, there’s no– it got to whatever it got to, $15 billion or more than that, and then what if it gets to like $100 billion or if it gets to there’s–

Bill: I don’t think they cared about that at all. [crosstalk]

Tobias: One of those things almost got to a trillion. That sucked a lot of people in that one.

Bill: Yeah, well, still is. I don’t think that’s at all what they were trying to do. I think that they were trying to make sure that when you carve up shares and issue fractional shares and have all kinds of derivative contracts, you want to protect counterparty risk. They were on the brink of having regulatory problems because they were undercapitalized.

Tobias: Yeah, I don’t know why.

Bill: That’s– [crosstalk] I mean, that’s my understanding.

Jake: You can’t [crosstalk] at that.

Bill: Yeah, we should be able to throw confetti and push notifications. Imagine trading Robinhood or GameStop on Robinhood and getting a notification every time that the stock moved up more than 5%, your phone would have just lit up like all day long, continues to go up.

Tobias: What’s– [crosstalk] would have felt good.

Jake: Oh, yeah.

Bill: Yeah, I guess until it didn’t. Bizarre world. It’s happening to Volkswagen today.

Tobias: Again?

Jake: Really?


Bill: I saw when it was up like 23% pre-market.

Tobias: Oof. [crosstalk] EVs.

Jake: Yeah.

So Many Stocks Ripping

Bill: Well, this is where I think this Mike Green argument might have legs. What the hell is going on with this many stocks ripping this much? Is there not enough liquidity in the market?

Tobias: There’s no downside. There’s no moral hazard.

Bill: I don’t think that’s it, man. I don’t think–

Tobias: You don’t think that people are in this market because they saw that 2020 March pandemic got truncated, and we’ve bounced back with all-time highs?

Jake: I am invincible.

Tobias: You don’t think that’s people feel– [crosstalk]

Bill: No, I don’t think [crosstalk] Volkswagen.

Tobias: I’m not talking about every specific instance is going to have its own set of factors. But when you see it in bitcoin, you see it in Tesla, you see it in marijuana stocks, you see it in GameStop, it’s just across everything.

Bill: Yeah.

Tobias: Yeah. It’s to the point where it’s becoming systemic, right?

Bill: Yes, I agree that there is a lot of punting going on right now.

Tobias: When do you see that? Is that typically, what inning do you typically see lot of that?

Bill: Well, I don’t know. Probably, the inning that everybody’s locked at home and can day trade anything on their phone and get stimmy checks. I am not sure that’s an inning issue. Yeah, I don’t know that we’ve ever seen this.

Tobias: You think that all goes away when we get back to work?

Bill: I have no idea. I don’t know what’s going on.

Tobias: I think people are basically back to work at the moment, aren’t they? If you’re working from– everybody’s on Zoom all day long.

Jake: Those people were already working. I don’t think there’s a lot of people who got laid off or back. Some are, but not– we’re still well, well below, like 2019 employment figures, right?

Tobias: Yeah, well and truly. Do you guys have a topic? Do you want to do your topic before we run out of time?

Jake: Yeah, I have a veggie segment I prepared on. Last week, we talked about to get the thickest branch that you can, you need to keep it moist.


Tobias: I should show everybody. I got on the Inspired by Jake’s thing last week. I got myself a kit to make myself a bonsai. It comes all the bits and pieces. It’s 25 bucks, delivered the next day from Amazon. How magic’s that.

Jake: Terrific. Is there an affiliate link you can put–?


Testosterone In Investing 

Jake: This week, we’re going to be talking about testosterone in investing.

Bill: This is good on the back of talking about punting. It’s a good segue.

Jake: Right. That’s why I waited until it was a perfect timing.

Tobias: Dopamine.

Jake: And dopamine. Some of this comes from this book called The WEIRDest People in the World by Joseph Henrich. Pretty interesting book in that– By the way, WEIRD in this context is actually an acronym for western, educated, industrialized, rich, democratic. What’s cool about this book is that it points out this blind spot I think a lot of us have if you’ve read much psychology research in that a lot of that research is conducted on university campuses in western world. There are some things about that may not be a very representative of most of humanity, especially if you look through a lot of time periods. We’re might be weird group to examine, and then therefore, to extrapolate that out into all of humanity, it might be a mistake.

Tobias: Interesting.

Jake: In this specific context, talking about testosterone, we’re going to start with birds and then shift to humanity. Testosterone is related to mating and courtship in birds and humans, but what it does is the male birds will ramp up their testosterone before mating season and they’ll become much more territorial. They’ll fight with other male birds, they will do these courtship dances and things like that, and it’s all testosterone fueled. What’s interesting is to use birds as our analog is that they have many bird species form pair bonds during mating season, just like humans, in a monogamous way. A lot of the male birds will help with nest preparation and feeding the baby birds once they’re born. They make a paternal investment. Studying sparrows, the male’s will ramp up their T’s, their testosterone levels during mating season, and then it will drop after mating season. When they look at other birds, specifically the red-winged blackbird, which is a polygynous species, the males look for as many females as they can in that situation. They will, after mating– they keep looking and competing for more mates, and their testosterone levels don’t drop.

What’s interesting then is if we bring that to humans, it’s actually the same. In our weird world that’s monogamous societies, after you get married, your testosterone levels will drop and then after you have kids, your testosterone levels will drop.

Tobias: Keep the kids safe.

Jake: Well, it is. It’s a parental investment. Interestingly enough, if you get divorced, the testosterone levels ramp back up. But in polygynous human societies, the male’s testosterone level doesn’t drop. There’s a competition to it. They looked at inhabitants of the Lamu Island of Kenya, where about a quarter of the males will take a second wife, and their T levels stay elevated. The book goes into some really interesting things that I don’t want to get into, but actually the church and its use of monogamy, precepts, was sort of a control device to keep men a little bit more docile, potentially. Anyway, Bill, you look like you had something witty to say.

Bill: I did, and then I thought better of it. I’m just going to keep it in.


Jake: Testosterone is typically thought of as making you more aggressive, but that’s not quite right. What actually it does is it makes you increase your want to climb the social ladder and outcompete. That can show up as– it feels competitive motivation, which can show up as aggression, but not necessarily. It also suppresses fear, heightened sensitivity to rewards, engender zero-sum thinking, and makes you less trustful. It’s hypothesized that testosterone suppresses the connection between your prefrontal cortex and your amygdala. So, your rational part of your brain and then the fear part of your brain and breaking connection of those two interacting, changes some behaviors.

What else is interesting with respect to that is that suppressing testosterone within a monogamous marriage, the way that it does, actually promotes greater self-regulation and self- discipline, which is interesting.

Now, there was a study that was done on, to get this back to finance that– they looked at 3000 hedge funds– and apparently you can correlate the wideness of the face of a male with the amount of testosterone. The wider the face, the greater the testosterone. They did these measurements of 3000 hedge fund managers, and then looked at alpha and how did they do. It turns out that the higher the testosterone, the more frequently that hedge fund traded, the more they preferred lottery-like stock outcomes, and the more reluctant they were to sell losers. So, you had all this kind of risk-seeking behavior with the higher testosterone levels. Also, they found in another 2015 study, that when they administered testosterone gel, it actually increased the optimism about future prices that they would expect in these simulated markets. Interesting enough that cortisol also has similar deleterious effects where for alpha– and it’s mostly probably like stress related, like cortisol is the stress hormone. If you’re really stressed out, you make suboptimal decisions.

One of the thing about testosterone I was thinking about, China in their one-child policy, in 2009, they had roughly 30 million surplus men– because the Chinese wanted boys more than girls, they’d abort female fetuses, they’d send them out for adoption. It was about– they wanted to have males to keep the line going. They ended up with a lot more males in this this time period where they were running the one-child policy. What’s interesting is that, it was imposed in different provinces at different times, so they could see then that there was a wave of more males in this area versus another area within China, and so they could do studies to see– and crime rates went up in those areas at the same rate as the imposition of the– 20 years after where it was imposed the one child policy, crime rates went up in that particular province.

It’s interesting how society has harnessed our endocrine systems in a lot of ways through different mechanisms. Anyway, I’m not sure all of the takeaways for being an investor, but maybe– I don’t know, if you’re looking for someone else to manage your money, you might actually not want the most strappingly looking male, alpha male, that is probably going to lead to suboptimal results, potentially, I don’t know.

Value Guys Are Low T

Tobias: I’ve got a comment on the screen, value guys are low T. That’s bad news.


Jake: Values is all betas.


Tobias: I mean the way we’re trading at the moment, that would be true.

Women Are Better Investors

Bill: Well, I think there’s a number of studies that have showed that women are better investors.

Tobias: Better traders, yeah.

Bill: Yeah. I think Jen Ross had mentioned to me that she thought the men were way too tied to being correct, that she thought that women were better, I guess, at being objective about their positions. I think that’s reasonably plausible. I don’t know whether that’s true.

Tobias: It’s just too easy, and particularly when you’ve got other things going on, I guess consistency bias is the main one. Ego in it as well. It’s very hard to back out of a position. You’ve got to find some way to punch out when you’re wrong. You’ve got to start saying, “I was wrong. I just got it wrong.”

Bill: Yeah.

Jake: What’s interesting is that is diametrically opposed to what would attract assets. Confidence, I know what I’m doing, I know what’s about to happen, that is what puts the dollars in the bank account oftentimes, which is the opposite of probably what you want once it’s in the bank account.

Tobias: You need the super smooth guy at the front, and his nerdy girl in the back doing the actual investing.

Jake: That’s the ultimate combo.

Bill: I experienced this in a different way, because I played old man tennis last night. There was this fucking guy there, and I could feel the alpha energy between he and I. He kept trying to hit the ball at me and stuff, and I was just like– so then, I got in his head, I got real close to the line when he would go to serve, and he would turn his back when he went to serve, so then I would back off, and it was all mental games with him, and he always hit it into the net. I was like, “This dude is straight up, just dudeing me right now.” It was very annoying. It’s very aggressive aggressive. It wasn’t even passive aggressive. I think that if you allow that to enter the market, you’re going to get shellacked because, in my opinion, the problem with trying to prove the market you’re wrong, is you just don’t have either the time or the money to do it. You’ve got to be really honest with yourself. Which it helps to have writing, write in journals, and when do I think this is actually going to be wrong, and update that stuff.

Tobias: Going to write that in my diary.

Jake: Yeah, so imagine– isn’t that what Druck was talking about? He wanted young guys in a bull market, the beginning of a bull market, because it’s–

Tobias: They have got no memory. That’s one big thing.

Jake: They have no memory but also maybe they’re more risk seeking, they’re willing to push it and they’re more optimistic about where the price can go with higher T levels.

Bull Markets & New Gunslingers

Tobias: I mean, that’s the feature of every single bull market, isn’t it? That you get the new young gunslingers who come through because they’re fearless, they can chase it much, much harder than all the old guys who’ve seen a few busts, and then they get their first bust and they learn something.

Jake: So, maybe you need high T at the bottom of a bear market and low T in a bubble.

Tobias: Probably works.

Bill: I think that’s fair.

Tobias: Do you have a topic, Bill? Do you want me to throw–?

Bill: Then, you just got to figure out when the low and the high is? I don’t know. We’re running late. We could do some questions.

Tobias: Do some Qs?

Bill: Yeah.

Tobias: Throw some questions in, guys.

No Left Tail

Bill: The comment that I would have is on the left tail and whatnot, is I do think that we somewhat removed the left tail in 2020. But now, you’re starting to see the tax ideas get floated. I don’t know how much long-term upside there is, but I think we could get a lot sillier here. It’s kind of my operating theses for the last two years.

Tobias: There’s no question you can always get silly. I always refer to the Einhorn quote that five times silly is not more silly than two times silly. They’re both as silly as each other. You can keep on going to just any level of silliness. Nobody really knows what’s going to happen. At any stage, anything can happen. We could easily double or halve from here. I have no idea anymore. Everything just seems totally detached from fundamentals from my perspective. So, anything is possible.

Jake: I was told that there’s no left tail.

Tobias: Well, it looks that way.

Bill: There definitely is. I guess that the whole function of government, if you’re going to bet on the left tail playing out, you’re basically betting on society failing. If you want to make the bet, you can and you’re probably going to get paid like crazy when you’re right. But I also think if you’re the type of investor that cares about base rates, how often does the left tail manifest itself? I just don’t understand– I guess if you want to set yourself up for success, I guess just betting on the left tail just seems insane to me. Maybe I’ll be the guy with nothing and you’ll be the guy with– not like you, but whoever will be the guy with everything. Then I can say, “Okay King. tell me I was wrong.”

Tobias: Well, there’s two things for this betting on the left tail, betting on it occurring, and then there’s just incorporating it in your range of outcomes where a left tail is a genuine possibility– [crosstalk]

Bill: Yes, I agree with you. But I think that the fear of that makes people way overweight the probability of it. So, the expected value of that actually being dealt and government failing, I think is way overweighted in people’s heads.

Tobias: That’s probably right.

Bill: Yes, the expected loss is huge, but that’s one of the fundamental tenants of loss aversion, is like people are so scared of losses that they exacerbate the probability of them. I’m saying that the government functioned okay. I think that there’s problems. I’m freaking glad that I came to a state that’s open. I think government in general, maybe on the state level, doesn’t exactly get the passing grade that I’m saying. I think we compounded the errors. I don’t think I give us 100% or anything like that, but probably a C plus, B minus. I wouldn’t give us an F.

Tobias: Florida?

Bill: Oh, Florida did pretty well, I think. I know that’s going to piss some people off here. Life has been pretty decent here.

Tobias: Well, let me throw a scenario.

Bill: And the desperate 100,000 have not been materially higher. If data actually matters, I think it’s hard to look at what Florida did and say that they didn’t– No, maybe they had embedded strengths. People can be outside and whatever, but they played the cards that they were dealt pretty well.

Lots Of Little Experiments

Tobias: That’s the thesis, I think, what JT would say is that you’re better off having lots of little implementations, lots of little experiments going on, so you have 50 experiments going on is better than 1 experiment going on, and then having every county maybe making its decisions, and then maybe having each individual making decisions.

Bill: Yeah, that what I say. I move my fucking life for that thesis. I am fundamentally not a top-down guy, but I think that when the world stops and the federal government is the reason the world stops, then do not expect the federal government to lend assistance is not really matching. It’s almost an asset-liability mismatch in a different way.

Surely Price Matters Eventually

Tobias: I’ve got a question for you. This is from Betty Swallocks. That’s funny written down, I guess, but Chris Bloomstran talked about not caring about BRK share price, only performance of underlying business. Surely share price matters eventually. Otherwise, what’s the point of holding the stock?

Bill: This is actually an interesting– I’ve been playing this out in my mind a little bit. People are like, “I don’t like bitcoin, because it’s an idea.” Then, I got to thinking, well, how–

Tobias: [laughs]

Bill: Right. It’s just an idea. Well, this matters, okay? If you’re trading minority interests in securities, the idea that it’s just a weighing machine over time is literally just an idea. There is nothing to guarantee you that this cash ever comes back to you as a minority interest holder. The reason that I think that in something like Berkshire, the underlying business matters is because you can trust the managers to do the right thing with the cash flows that you’re entitled to. If you’re in some company that you don’t– this is why I think agency costs are so important, because then the stock price doesn’t actually matter. But if you don’t trust management to do the right thing, then, yeah, stock price matters a lot, because you could just be stuck, because Buffett will go out and buy shares then. Then eventually it maybe you just get huge dividends down the road, if nobody ever buys the stock, but what a guy to be partnered with.

Jake: I want lower for longer.

Tobias: Why?

Jake: Buffett’s got his best, probably most layup, deployment of capital at that point.

Tobias: Into Berkshire.

Bill: Same with Malone. All these guys that are real capital, Barry Diller, all these guys that are really proven track records. I don’t think you want the stocks to go up.

Jake: This is a fundamental difference. Are you a business owner, in which case you want partners retired from ownership interest potentially at the right price? Or, are you a trader, who wants the price to go up?

Tobias: If the price isn’t moving, you can always look at the fundamentals too. You can see, is the book value compounding away? Is the earnings and return on investment sustaining or growing wider? Is earnings growing? If the share price isn’t responding and they’re buying back stock and all that stuff is going on under the hood, then that’s the absolute best of every world because you’re going to keep on earning, you keep on buying that stock, and it’s all going up in value. You’re getting a better deal every time you buy.

Bill: Yeah, as long as you don’t need the liquidity.

Tobias: We’re talking investment capital here.

Bill: Yeah, so I’m just saying I think that’s the risk in Berkshire, is maybe your duration is slightly off from Buffett’s duration. So then, he’s not returning capital when you need it, but that’s on you to plan for.

Hedging Against A Nuclear Attack

Tobias: Yeah. Got a Super Chat here. Thanks, Jonathan Wallace. What do you think is the probability of a nuclear attack or equivalent event prior to 2071? Can you hedge for that?

Bill: My guess is as good is yours, and probably not. I don’t think you can hedge for that. No.

Jake: Hmm.

Bill: You could buy guns.

Tobias: These big bad events happen every now and again. Every 20-25 years, something really nasty comes along. Can you hedge for it? I don’t know. I think it’s interesting to think that one of the things that Buffett thinks about is a nuclear attack. One of the things that he’s worried about is a nuclear weapon going off.

Bill: Yeah. Well, he would say it’s inevitable over a long enough time horizon, but I don’t know.

Tobias: Yeah, he’s thinking about the things– [crosstalk]

Jake: Don’t live in a big city, I guess, would be one hedge.

Bill: I guess you could adopt what we’re talking about. You could say, “Well, if that were to happen, then given the facts that have played out in ’09 and now, the government’s probably going to spread money everywhere, so own gold,” I guess. Maybe that’s the way you hedge.

Tobias: You can move to Los Angeles. It already looks like one’s been detonated.

[laughter] [crosstalk]

Tobias: We’re already living in the rubble. I was watching Judge Dredd, and they have the big wide shots of the city and it’s like megalopolis in the future where everybody just lives in these gigantic cities. I was like, “That looks like LA.”

Jake: [laughs] That’s the hellscape that–

Tobias: The hellscape. Yeah. [laughs] What else have we got?


Bill: Somebody asked about streaming like Discovery and Viacom. Your guess is good as mine. They seem a little bit rich. They were probably too cheap. We’ll see. I’d rather own Netflix than Discovery at this multiple, I’ll tell you that. They’re trading at the same 2025 multiples. Okay, we will see.

Jake: 2025? Who the hell has–?

Tobias: Yeah. How do you know– [laughs]

Bill: Well, first of all, that’s what people are looking at. Second of all, you guys laugh, but if you’re talking about being long-term focused, I don’t see how you can say I am a time-arbitraged long-term investor and not think about 2025. I just fundamentally think they’re separate. Now, the precision of the estimate is-

Tobias: There you go.

Bill: -clearly not right. I don’t disagree with that, but you got to at least think about this stuff. Unless you don’t.

Tobias: There’s a little growth in Netflix to make that happen though, right?

Bill: Yeah.

Tobias: Whether that’s going to happen or not is a question for each individual person, but to throw it out there like it’s a done deal, I think that’s what we’re laughing at.

Bill: Well, that’s what you’re doing with Discovery here too. It’s the same bet now.

Tobias: Discovery was in my screen a year ago, it was cheap a year ago. I don’t have any particular view on it now.

Bill: What I’m saying is, if you’re going to laugh at Netflix, I think you ought to laugh at Discovery-

Tobias: Yeah

Bill: -because it ain’t cheap anymore. I assure you of that.

Tobias: Well, that’s an interesting point because it’s related to my airlines example earlier. For whatever reasons, small, cheap, junkie, just had this little, it’s having a few months, it’s having a moment here in the sun where it’s trading like software as a service did, it’s trading like tech did a year ago. Why, is my question.

Bill: Yeah. Discovery’s market cap since 12-31-20 has gone from 1.4 times sales to four and a half times sales.

Small, Cheap, Junk

Tobias: That’s expensive. Why are they’re running in small, cheap, junk? Why do they run?

Bill: People trying to buy anything they can.

Jake: Yeah. I mean a lot of that stuff was faced an existential crisis.

Tobias: Yeah.

Jake: The smaller you are, the less likely you are to get your left tail chopped off by the government. The junkier you were, the more closer you were to a potential existential threat. Lot of those were levered companies too, that much closer to the edge. So, if all of a sudden, if people can look past all that now and say, “Well, if everything’s going to survive, let’s buy this.” It sort of makes some sense to me.

Bill: I don’t think so. I think it’s betting you see everywhere else.

Jake: I think so. It’s last thing that hadn’t–

Bill: Tripped, yeah.

Jake: Yeah, maybe.

Tobias: There’s some big MOMO rebalance coming up here where they’re going to be buying a whole lot of finance and energy. Evidently, those are the two sectors that are going in. Does it keep going?

Jake: [crosstalk] -that’s already been priced in. [chuckles]

Tobias: Well, being added to an index, that keeps you going. Anything that I thought I knew, I no longer know. I’ve got back to zero knowledge of this market, just completely baffled by everything that happens every day.

Bill: Qurate is when I want to go down. Somebody asked if I have an update, I don’t. My update is do your own work.

Jake: That has been a kick in the intellectual nuts, this last really year. If you had told me that you were going to have all the things that happened, you would never say the market would be up and ripping and all-time highs and retail froth and all of other Grantham’s boxes checked. You just never would have said that. If that wasn’t enough to convince me that I have literally no idea where things are going, then I’m not sure I ever will.

Tobias: Yeah. It’s a baffling market.

Bill: The only thing I knew is you couldn’t wait to see the numbers. That’s the only thing I knew. I had no idea that it would be this. Oh, we had that conversation. I literally said you can’t wait to see the numbers. That happened. That’s something that I did believe. But it certainly seems as though a lot of return has been pulled forward a lot.

Next Week’s Anniversary Of The Bottom

Tobias: Next week is the anniversary of the bottom, so we’re going to have to do a special show.

Bill: You think it’ll lead this selloff, like a lot of people taking gains?

Tobias: [exhales] Nothing leads to selloffs. Nothing leads to selloff in this market.

Bill: I don’t know, man. [crosstalk]

Jake: I don’t understand those words.

Bill: A lot of things flip into capital gains and now you’re looking at tax increases. I don’t know, I could see it.

Jake: Little race to exit or some– at least tell your [crosstalk] amount.

The Gigantic Ramp

Tobias: See, what you’re doing is you’re applying logic, and logic doesn’t work in this market. What it’s probably going to lead to is a gigantic ramp.


Jake: We’re in Costanza mode, huh?

Tobias: That’s my prediction. Gigantic ramp over the next 12 months. I just want this market to show me that I’m wrong. Prove me wrong.


Jake: Oh man.

Tobias: All right, amigos, I think that’s full time. I can hear the whistle blowing. We’re on injury time at the moment. Until next week, which will be the anniversary, it will be a fun one. Peace.

Bill: Thank you all.

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