Taking Big Swings

In their recent episode of the VALUE: After Hours Podcast, Mitchell, Brewster, and Carlisle discussed Taking Big Swings. Here’s an excerpt from the episode:

Bill: Yeah, well, that goes to another point, though. You’ve got to be willing to swing. Mike, why do you think that you’re so willing to take big swings? Because that’s very personality driven. Was that learned, or do you think you’re born with that?

Michael: No, for me, it’s an evolution. By the way, I’m not even sure that it’s the right answer. It’s just where I’ve naturally gravitated to. I can’t tell if it’s intelligence, or laziness, or a combination of both, I really don’t know it. For me, when I find something great, it’s all consuming. Now, I’m like if anybody wants to talk to me about lumber, there’s two things floating in my head right now.

Bill: [laughs]

Michael: It’s lumber and rights offerings. That’s it. If anybody wants to have a conversation about those two things, I didn’t care who you are. I’m at the grocery store with the mask on, and a lady’s like, “You go to this checkout.” I’m like, “Really? Because that’s interesting, there’s this debate about southern yellow pine-

[laughter]

Michael: -and that they can be used for framing materials. A lot of people say it can, but then there’s other people, builders so far, saying, no,” and she’s like, “No, no, no. Checkout is right over there.” For me, my brain gets focused on one thing, and it will not let it go, and it wants every piece of information on that. As I developed as an analyst and investor, it’s almost like when I found something, I go back to Charter, because that was an example of things that worked, which by the way, I’d like to spend some time if it’s okay with you guys talking about Ls because there’s a lot of discussion about Ws and I really good–

There’s a big L I’d like to talk about, but so you go back to Charter and it’s like– The only thing I was interested in is high-speed data growth, and household formation, and how that affected high-speed down passings and the pricing power of high-speed data at the time, Chairman Wheeler at the FCC and his regulation, net neutrality, that was my entire life for about two years. I just figured I had a view, it was a strong view. Figured if I was wrong, I probably wasn’t going to lose that much money, and if I was right, I could get rich. So, I just was like, just push all the chips on the– Just do it. Just push all the chips on the table.

The risk is that when you do something like that, you have to be right. That’s one caution flag, I think, people understand, but when you have two choices, your margin of safety has to be massive, or if you’re swinging big on something like lumber, you really need to be right. I feel I’ve got a good margin of safety on my investment, but really it’s like when you swing in big on something like that– you say this really well, Bill, you’re like, “Look, at the end of the day, it’s a commodity, and who knows.” I have a strong view, and I think my downside is protected, but who knows. It just the way my brain works. It’s an extended answer but I just feel much more comfortable having all my eggs in one basket. I don’t know why that’s the case.

I also don’t mind losing money. That’s the other thing. It doesn’t really bother me to lose money. If this investment hadn’t worked out huge, if it goes back, I know people are going to be really annoyed, but I don’t care just. I haven’t sold a share. I’ll see what I do with these rights. I’m probably going to have to sell some, but for the most part, I’m like, “Dude, if it goes back to–” hell, it was 45 cents six months ago or nine months ago, if it goes back there, well, that’s fine, right? Okay.

Bill: [laughs]

Michael: Nothing in my life changed when it went to five, six bucks. Nothing’s going to change when it goes back to 45 cents though.

Tobias: How do you think about this? You want basically no downside, or basically– you know that you can get back out where it is, and you don’t mind spending whatever it is, a few points around it, whatever that works out to be because you don’t know exactly where the bottom is, or where you can burn some money doing research and burn some money just trading around, but you’re just trying to find something where it’s so asymmetric that you don’t know necessarily how big the upside is, but it’s materially a multiple of where you are, and your downside is roughly where it is.

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