VALUE: After Hours (S03 E23): Qurate $QRTEA, Lumber, Formula One FWONA, Crypto, Meme Stonks

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In this episode of the VALUE: After Hours Podcast, Mike Mitchell, Bill Brewster, and Tobias Carlisle chat about:

  • Taking Big Swings
  • Management: The Most Important Factor In Investing
  • How Did $FWONA Survive?
  • John Malone On Incentive Structures
  • What’s Going To Kill This Market?
  • The Reality Of The Boardroom
  • Behind The Curtain Of Berkshire’s Compensation Packages
  • John Malone “That Debt’s An Asset”
  • Scandinavian Lumber
  • The Opposite Of Great Management
  • $HOG’s Popularity
  • Get Your Capital Back Fast
  • Insanely Bubbly Market
  • The Fed’s Next Step
  • Qurate $QRTEA
  • Opportunities In Distasteful
  • 400,000 Construction Jobs Needed
  • What’s A Reasonable Rate Assumption?

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: All right, fellas. Going live. Tell me when you get [unintelligible [00:00:03].

Michael: [crosstalk] I shouldn’t have said that right as we’re going live.

Bill: No, that’s okay. Nope, streaming live.

Michael: Hey, now.

Tobias: It’s Tuesday. It’s 10:30 AM, 10:33 on the West Coast, 1:30 PM on the East Coast. It’s 6:30 AM Australian Eastern Standard Time, I got no idea. How are you doing, fellas?

Michael: [crosstalk]

Bill: I’m okay.

Tobias: We’ve got Mike Mitchell and Bill Brewster.

Michael: I haven’t seen Bill. It’s been a while since you made your move to Chicago. I haven’t seen that beautiful face. Look at that guy. Living the dream.

Bill: I’m very happy.

Michael: [crosstalk].

Bill: I’m very happy right now. I need to learn the official rules of Beer Die. There’s a lot of playing in my backyard or my neighbor’s backyard. And then the girls behind us refuse to clean up their bottles. But it’s a nice change from family life.

Tobias: [laughs] Back in the front house.

Bill: [laughs] Yeah, man. My wife and I were both saying, “This is fun for a month. I wouldn’t want it to be permanent.” But to be able to see youth all over the place is a good time.

Tobias: Yeah, just a reminder. As much as you miss it, you just go and do it for a short period of time, and then you just go back to your normal life.

Michael: It’s like that Toby Keith song. “I ain’t as good as I once was but I’m as good once as I ever was”. That’s my idea. I’ll go back to fraternity house for a month. That’s been always, I think.

Tobias: Month is a long time.

Bill: I have yet stop by.

Michael: Dude, we actually– I would do that and make the drive up to Itasca. That’d be a lot of fun. Let’s do that before you leave.

Bill: Yeah. You should come here, and we should play drinking games with the frat kids. That sounds a great plan for an investing podcast to start with.

Tobias: Old school.

Michael: Sold to me.

Bill: That’s right. Then, we’re going to try to get this thing– We’re going to try to get Qurate to turn into a meme stock.

Michael: A meme stock? Yes. Hey, if Wendy’s can be a meme stock, QRTEA can be a meme stock. QVC– [crosstalk]

Bill: We’re going to plant it on college campuses.

Michael: Wow, That’s– [crosstalk]

Bill: We’ve got to figure out the pitch.

Michael: [crosstalk]

Tobias: You’ve got to just get a plane to fly overhead with by Qurate. The problem that you got is too many symbols, then no one’s is going able to remember.

Michael: I know. That’s the problem. They really need to drop it. It just needs to go back to QVC or QVC-A or make it so much– [crosstalk]

Tobias: There you go. That would do it. Kind of an ironic one.

Michael: We should get David Venables to actually make tendies on one of his cooking shows.

Bill: Oh, shit.

Michael: I’m going to pitch Shane on that next week-

Bill: Yeah.

Michael: -when he’s here in New York.

Bill: That makes a lot of sense.

Insanely Bubbly Market

Tobias: This market has gone back to being just insanely bubbly again. How is it that it just keeps on doing this? Have you ever seen anything like this before? It’s just– it won’t die.

Bill: I had a lot of time to think about these questions when I drove in the car, Toby. Since people love the inning updates–

Tobias: Yeah, what inning are we in?

Bill: I don’t know. It’s definitely the starter is starting to get tired. The reliever is warming up. The starter isn’t getting tired, because he got shelled– he’s pitched a pretty good game. I think we’re fifth or sixth inning.

Tobias: The funny thing is that– [crosstalk]

Bill: There’s a lot of weird shit going on.

Tobias: We talked about this on last week when we had a chat offline, but I’m amazed at– Where we are now? I know that we’ve been talking about what inning we’re in for a while and originally I said, this is pretty nutty where it was, and then you said, “No, no, no, this is early innings,” and I couldn’t imagine how insane it could get. Don’t you think we’re now– it’s completely jumped the shark at this point. It has like-

Bill: No.

Tobias: -what can possibly happen that would be more silly than what we’re seeing now?

Bill: Get Apple at $5 trillion, man. That’s my top.

Michael: I don’t know, guys. [crosstalk]

Bill: Without underlying earnings growth. I should caveat that.

Michael: I’ve got to tell you that, number one, I don’t know. I’m the dumbest guy in the room on this, but I got to tell you, I can’t see, what would stop it? That’s what we’re talking about, what’s going to stop it? I’m open to any ideas, but there’s nothing I see. It will stop. The higher it goes, the bigger the crash but what’s out there? To me, it’s– [crosstalk]

Tobias: What has stopped it in the past? What has been the triggering event in the past? I don’t think you actually ever get a catalyst. In hindsight, you look back and you say, “Oh, it was X,” but in that moment, there’s no catalyst that’s any different from anything else that could possibly pop up.

Michael: That happened in 1990s when the bull market actually in tech really, internet stocks, the old meme stocks, people didn’t know they were toast until six months after they were toast.

Tobias: Yeah.

Michael: There was a good post, I forget who made it. I bookmarked it. I’ll put it back up on my Twitter machine feed. Somebody put a big post that actually went through all the steps and read all the old research from Bernstein and was really trying to diagnose what happened and what killed it, and–

Bill: That wasn’t a thread.

Michael: Yeah, it was great. The answer is you never know of course, but it’s always a confluence of things, and of course, we’re going to know the answer in hindsight, but I’m looking at– You look at the world, to me, it looks like a boom. Famous last words, but it looks like a boom. Not throwing a lot of capital behind that, but it looks like a boom. I don’t know what’s going to kill it. Interest rates, maybe?

Bill: Yeah, the thing is, there’s a good article that Elliot Turner, I’ll see if he’ll send it so we could pop it in the show notes, but as housing goes, goes the economy or something like that, and housing has got a lot of multiplier effects and a fair amount of pent-up demand, and then, there’s a lot of 5G infrastructure spending going on. I don’t know.

Tobias: What is 5G infrastructure spending? Are they just changing the machine on the pole?

Bill: No, they got to build out a lot of these networks, and then they’re going to have to densify the networks, and got edge computing going on. There’s actual buildings and data centers being erected and whatnot. That’s all jobs. I don’t know how big–

Tobias: [crosstalk] thinking for a while. Hasn’t it?

Bill: It’s not [crosstalk] for sale has the– Yeah, but it’s going to continue to go on for a while.

Michael: Yeah.

Bill: I’m just saying you get that and you get housing, I do think that there’s a real possibility that the economy’s zooms and the stock market stagnates a little bit.

400,000 Construction Jobs Needed

Michael: Yeah, that’s possible. Ali Wolf, the housing economist, was saying, I think on the Odd Lots podcast that, we need something 400,000 more construction jobs. We’re picking up 40,000 or something. We need 400,000 to deliver the houses of need in this country. [crosstalk]

Bill: Dude, there are labor problems everywhere. Like my boy that turned– Shoutout to Carson’s. If you’re in Chicago, go eat at Carson’s. They’ve had a rough year. Help them out. He’s back there. He’s making salads, because they can’t get waiters right now.

Michael: Yeah.

Bill: He’s running that place for 20 years, and he’s in the salad line.

Michael: Yeah.

Tobias: What’s everybody doing? Trading crypto?

Bill: Bro, yeah. They all got that stimmy.

Michael: They were all in Miami last week at the crypto conference.

Bill: I do think that’s real. Marcelo P Lima, he was like, “Uber’s broken. What’s it going to take to fix it?” I was like, “Drivers.” There’s no drivers.

Tobias: Crypto crash.

Michael: Yeah, crypto crash.

Bill: Yeah. I don’t know. It’s funky.

Michael: Interesting times, man. A lot of similarities to things that have happened in the past and an awful lot of differences. Again, I just don’t know what’s going to stop it.

Bill: I’m a pump my own book here. People should listen to Colony. Shoutout to anyone that helps me understand what I own, because it’s gotten a lot bigger than I like it without knowing it real well.

Michael: [laughs]

Bill: But the nice thing about that company is they do a lot of outreach. Some might argue that’s not exactly the best thing to be at every conference, but [unintelligible [00:08:05] at the Wells Fargo conference was interesting the other day. He was talking about– not that assets– I shouldn’t say that he said that they were priced to perfection, but you’ve got tower assets trading at pretty tight spreads. I think he said that he thinks that they’re low single digits, and you’re taking execution risk for that, it can work. You’ve just got to hope that rates don’t move.

Michael: Yeah, I mean–

What’s A Reasonable Rate Assumption?

Tobias: Yeah, that’s the thesis for everything. Isn’t it? Whenever I put it together, I just look at all the little valuations that I’ve got, if I stick in– What’s a reasonable rate assumption? 6% is insane. I’m not going to stick 6% in my valuation, but if I start getting to 5%, there’s a lot of stuff that it doesn’t make sense at 5%.

Bill: No, [crosstalk] 3%, man. 3% is where I’d stress stuff too. By 5%, stuff is just blowing apart.

Tobias: What are we at now? 1.7 something? I haven’t actually looked for a little bit, but it’s bumping around 1.5%, 1.6%, 1.7%?

Michael: I think 1.5% and change since I last saw. But yeah, right around there. So, 1.9% I guess for the risk assets on a 30 basis points spread high yield, something like that for a 10 year?

Tobias: 30 bips. Yeah. When I look at the CNN’s fear and greed indicator, I just find it fascinating, because the little components, they track all of the underlying parts. One of the things that I look at is the junk spread to investment grade, and that’s been really tight in extreme greed for a long time, and it looks at the put call ratio. Since I’ve been looking at it, I’ve only been using this thing for– not using it, just like checking in and out for over six months or a year or something like that. It’s constantly in extreme red.

What’s Going To Kill This Market?

Michael: I’m just going through this in my mind, what’s going to kill it? What’s going to kill it? What’s going to kill it? If you’ve read The Great Crash by Galbraith, it was written in the early 50s. It’s a great book. He talked a lot about how there was this belief in the 20s. When JPMorgan forced the banks to bail out the economy in the United States, I think it was in the [unintelligible [00:10:20] Twitter machine correct exact [unintelligible [00:10:23]. There’s a belief out there that when the Roaring 20s happened, that the banks would not allow the market to crash. That was in the psyche so that everybody was buying crazy real estate in Florida. That was one of the many Florida real estate booms that happened in this country. They were also buying stocks hand over fist, and the belief was, at least as Galbraith tells it, that most people thought that the market would not go down because the banks would step in and bail it out.

I wonder if what you’re really looking for is, forget everything else. The second there’s a massive drawdown and the Fed doesn’t step in with cash, that’s when you just get out of the way. In my mind, there’s this belief that if liquidity really dries up, you’ve got to put. That puts been there since 2008. So, it happened a couple of times. You’ve had a put from the EU, but put from the United States. If they step in and say, “That’s it. We’re just going to let the market shake out.” [crosstalk] buy.

Bill: Oh, yeah, you’ve got to sell everything.

Michael: That’s what would kill it. That’s what killed it in the 20s. Banks were like, “We’re not backing up your froth. This is froth. We’re not doing it.” There was no floor. That’s when the panic started. Everybody thought that it was impossible to lose money and it feels like that’s where we are right now. It’s like, “I can’t lose money,” because if liquidity dries up, the Fed will start buying ETFs. They did.

Tobias: Which they have — [crosstalk]

Michael: Yeah, exactly. You’re waiting on them to say like, “We’re not doing that anymore.” Nobody’s going to believe it until the stress happens, and then they don’t show up. [crosstalk]

Tobias: Do you think that there’s any chance that they don’t show up being realistic?

Michael: I guess the answer to that is no. So, I going to go– hold on, I’m going to buy some AMC calls here.

Tobias: [laughs]

Michael: I’m kidding. Don’t buy AMC calls. You can buy them, I don’t care.

The Fed’s Next Step

Tobias: It’s politically impossible at this point to not backstop at all. They’ve talk about winding back mortgage-backed security purchases, talked about– They’re selling something. I saw that they’re selling some of their corporate bond holdings. I wasn’t sure they actually executed on that. So, I just saw in passing that they were going to try and get out of that.

Michael: Well, maybe the answer is they just keep doing this and then on the other side, they just come with a tax reform to basically strip away the gains from the wealthiest individuals. That may be how they solve it, is, “Yeah, we’re going to go in and bail people out and write people checks– [crosstalk]

Tobias: Context bitcoin, bro.

Michael: Yeah, exactly.

Tobias: That’s where the money is.

Michael: Tax the Doge. We’ve got to tax the cryptos. I still don’t even know how all that works. I’m sure they’re going to figure out a way to tax it [crosstalk]

Bill: Yeah, I do think that’s the most likely outcome given the path we’re on. The thing that’s wild is, I played golf yesterday with a guy that’s at a big private equity shop. I talked to another guy who’s a fundraiser at a big one, I’m talking one of the big four, or three, or whatever. Both of them said, there’s just so much fucking money flowing in. One guy that’s a fundraiser said there’s so much coming in that like, “I’m concerned.” There you go. You’re having your moment.

Michael: Keep going. Keep going.

Bill: Your TV moment. He’s like, “I’m concerned that the deal teams aren’t even going to be able to put it out.” Hey, there we go.

Tobias: Mike’s got his newest analyst in. [laughs]

Bill: That analyst might have better answers than we do. But it’s just interesting. With that much capital chasing deals, you have counterparty risk on the committed capital portion of it. If they call the capital, and it’s just not there, that’s a risk. Man, there’s just so much money out there chasing so few good deals that I just don’t– [crosstalk]

Tobias: Don’t you feel it’s been the case for an extent? That’s been the case for five years. I thought that would result in a lot of buyouts over the last five years, and that hasn’t happened.

Bill: Well, I think that what we’re learning is this stuff can go on a lot longer than five years.

Tobias: But I just mean in the sense there’s been a cycle of plenty of dry powder and–

Bill: Look, this guy’s words to me yesterday was, “Fund 2 can just sell the Fund 7, and then fund 7 can sell the fund 17 down the road.” Now eventually, it’s going to have the stop, but I don’t know. How many of these guys actually — I’m not trying to say it’s some systemic issue or make it bigger than it is, but I do think that a lot of the guys that are making a lot of money now are going to have enough to be retired in 10 years if they just keep the game going. So, what’s the incentive to stop it?

Tobias: But doesn’t that feel that’s what they’re trying to do? Like, go get the boomers off– We’re going to let them go out on a high and then tank it for whoever comes underneath them.

Bill: I don’t know that tanking it, but yeah, that’s what I think us as a society is. I think that’s one possible outcome of what we’re doing. It’s very possible that a lot of return is just being pulled forward.

Michael: I would go farther and say it’s likely that a lot of returns being pulled forward. I wouldn’t even use the word possible.

Bill: Yeah. Except for Qurate.

Michael: Except for Qurate. Qurate is cheap, man.

Bill: That’s right. Meme it.

Opportunities In Distasteful

Tobias: There always– There always pockets of undervaluation. You’ve just got to be prepared to do something that doesn’t feel very good at the time you own home shopping, or lumber, or energy, or something. Just pretty distasteful at the time that you go into.

Michael: Why are you coming after my book, Toby? Why are you guys talking about my book? It’s got high-quality assets.

What’s Required To Take Big Swings

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-


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.

You Need To Be Right When You’re Swinging Big!

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.

Get Your Capital Back Fast

Michael: That’s it, 100%. I frame this– the bet on GFP that I have, I frame it similarly to how I framed QRTEA. The reason you get big in QRTEA, the reason I did is because I truly believe the vast majority of our capital is coming back to us really, really fast. I actually thought it would end up being more than what they initially announced [unintelligible [00:20:08], and if Bill and I were right on that, luckily– and I don’t even think they’re done, I think that we’ve got another announcement coming. I don’t know whether it’s 2Q or 3Q, they’re going to do another capital action this year. Share repurchase, they’re going to do something, I don’t know what it is, but I don’t know when they’ll talk about it. I think our money’s coming back. So, that was an easy bet for me to make.

Now, as Bill rightly pointed out, as it’s worked, I’ve sold down shares and still have a meaningful position. But as it goes higher, that multiple’s expanded, which means it’s just taking longer at the current price to get all your bait back, essentially. So, what do I do? I just de-risk it. For GFP at the current price, in my view, it’s something very similar. If I’m right about the housing cycle, and then that impact on what the lumber price is going to be, I think there’s a very reasonable shot that I get all my money back between now and the end of 2023. If that’s the case, then I don’t really care. It doesn’t matter to me.

Now, if I’m wrong about the commodity, if I’m wrong about the business, if I’m wrong about the operators, then, yes, it’s going to be a nightmare and that sucks. It’s going to be a big L. But if I’m right about them, I’m right about the commodity, then it’ll pay me back in a couple years, and then we’ll get a look on the next 10 and if it sucks, who cares? I’ve got my money back. It doesn’t matter. That’s the mentality, Toby. I like things that are giving me my money back fast. Liquidations, cheap stocks, as long as my money’s coming back, I don’t care.

Tobias: This is– Sorry, Bill. Yeah.

Bill: No, I was just going to say, when you’re saying things like I want to get my money back, are you saying that you believe that you will actually get your money back? Are you saying theoretically as a minority interest holder? Because I think sometimes there’s a big difference between people say-

Michael: Oh. Totally.

Bill: Well, the shareholder– To me, a minority interest, it only goes as far as the people that you’re betting with. So, just curious how you think from that.

Management: The Most Important Factor In Investing

Michael: No, that actually is the most critical– As I look back to the Ls, and I compare them to the Ws, there’s one pretty consistent theme of the Ls is that, I didn’t really have a good handle on who I was betting on. I had, I think, an okay handle on the bet, but not the people running the bet. In this case, and frankly every case of every stock I’ve ever bought, every investment I’ve ever made so far, it has not been a control investment. I’ve been a minority shareholder. So, the question is– a lot of the time was spent what am I underwriting and understanding what I’m underwriting, but I never spent enough time– we talked about this at Zale, and this is certainly the case with the other investment I made that was a total L.

I think it was the only total L I’ve ever taken. I didn’t underwrite people at all, like zero. I counted on other people to underwrite that. I can’t allow the people to do that work for me, it was a huge mistake. I should have done that myself. Not that I would have come to a different conclusion, but at least now, I could sit here and say, “Well, I was wrong. I looked at that person, I judged that person what they’re going to do.” That’s a very long-winded way of saying, the answer is you’re a minority shareholder, I don’t know if they’ll give the money back. Of course, it’d be wonderful if they give money back, but the key is whether they get the money back to me or not, the key is that they do something smart with it.

So, if they’re going to reinvest the dollar, that it’s going to end up being worth more than a dollar after they’re done reinvesting it. If they’re not going to reinvest the dollar and they’re just going to pay down debt, which I look at that as an accrual to me. What they’ve said is they’re borrowing $120 million, the first thing they’re going to do is pay down debt. That’s 80 cents a share in value that will come back on a stock that going into this transaction [unintelligible [00:23:29] like that. I know 80 cents in value is coming back to me as an equity holder. After that, I’m not really sure. I don’t know if they’ll go out and buy a mill, I don’t know if they’ll pay out a dividend or distribution, I know what my vote will be in the absence of new deals. But the key is, is that I don’t think they’re going to waste the money.

I can’t say that about a lot of businesses, frankly. In fact, most businesses in the lumber space, and really pick one, I don’t have a lot of confidence that the people are going to go and invest in something that I understand, and I know it’s going to make me money. But the guys that I bet with though, it’s critical to me that I feel, they’re going to do a good job. If they– [crosstalk]

Tobias: What are you looking for?

Michael: In people?

Tobias: Yeah.

What To Look For In A Great Management Team

Michael: The number one thing is honesty. I really like transparency. I don’t care about the wins and the losses. It doesn’t make a difference to me, but if you tell me how you came to the conclusion– What I’m looking for– is the conversation you and I had about Zale. I walked you through, like, “Here’s what I saw. Here’s why I made the investment. Here are the mistakes I made. Here’s what ended up happening.” I like doing it in that order, because it’s not always about what happens. What happens is what we all end up talking about, but it’s not that. It’s like did you have a rational thought process as to why you invested in this? Did you see something and make an investment that you believed in, and is it something that I can understand when you went through that?

So, when I talk to people, what I want to know is, I really just want to understand what your thesis is going into all these different deals and is it something that I can underwrite. If it goes well or doesn’t go well, I just want you to tell me. That’s it. The key for me is, I really have to just trust you, and I don’t want to spend my day thinking about what’s going on in Kenora, or in six mills in Ontario, or what’s going on at a movie screen business, or what’s going on QVC, on television, I don’t want to spend my day doing that.

What I have to do is find somebody where I know they’re doing their best, we’re all taking a lot of risk, it’s just is what it is. But if they’re doing their best, and they’re being open and honest with me– when Mike George, the CEO of QVC, told me in 2019– it wasn’t me personally, it was on a conference call. I’ve known Mike long enough and I know him well enough to know he was being incredibly honest. Once he told me, the impression I got was we don’t necessarily know exactly what’s going on here, but we’re working on it. It’s like, okay. It looks my thesis has blown up. I appreciate that. Win or lose, I just want you to tell me what’s going on so that I can make my own choices.

The Opposite Of Great Management

The biggest L I had, I invested in a private investment in a lumber mill in White City, Oregon. It was the opposite of that. It all looked great on paper. The guy who ran it, being kind here, he basically lied. I’m pretty sure he stole money, too. The bills started stacking up, he didn’t pay him. Engineers are coming, saying we’ll restart the middle, that we can restart it at this certain capacity level, we put $6 million into fixing the mill up, and when we turned it on, it was running at 35% of what we thought, and we come to find out the guy had basically, this really tragic, he got sick and had cancer, and he basically was like, “This is my last chance.

I’m going to say anything I need to say to get capital to turn this on, if it works, great, and if it doesn’t,” It’s like Fire Festival but in White City, Oregon, with lumber. I’m not saying that if I would have met him, I would have said, “Oh, this guy’s a liar.” I might have liked him and given him my money, but at least in that scenario, I could have felt, the mistake I made was not making that call myself, not actually meeting the guy. The two guys who found him who underwrote the deal, I didn’t even vet that, it was through one of a good friend of mine. Teddy liked them, had done a deal with them. It hadn’t really worked, but they found this deal, and this deal looked interesting. I should have done that diligence myself. It was a mistake.

I’d like to think that I’m a good enough judge of character where if I met the guy, I might have been able to say like, this guy’s– It’s not even his incentives. I don’t really care about the incentives. It’s when I meet you, can I trust you? I met Bill and in about 20 minutes of talking to Bill Brewster, it’s like I would give all my money. I don’t even care what you do with it. Just do your best.

Bill: Don’t do that.

Michael: It’s a mistake. Yeah, it’s a mistake. The guy’s open, the guy is honest, wear his heart on his sleeve. It’s like something I can get behind. He’s a good person. And I’d say the biggest thing, the most important thing to me, and I think this might sound shallow, but please don’t take it as shallow. Actually, to me, it’s very meaningful.

Tobias: Is it [crosstalk] [laughs] Is he good looking?

John Malone Loves Making Shareholders Money

Michael: He’s a good looking– I can tell you for sure, John Malone loved it, that he made me a lot of money in Charter. It made him very happy. Courtnee Chun, who’s the head of portfolio there at Liberty, I wrote her this letter in 2017 or maybe early 2018 that was like, “You have no idea how much I appreciate you, and the amount of wealth that you created for my family.” It was not more complicated than I just listened to them. I didn’t decide cable was great on my own. They were like, “This is what we’re doing. We think this makes a lot of sense. You should do it too.” I was like, “That sounds easy, and you guys sound great.” It made Courtnee incredibly happy that she made my family so much money. That is the one thing– The guy in White City, Oregon, could have cared less that he cost my family $100,000. He’s like you’re some rich a-hole from Westchester County, New York. I don’t care, and if this works, you make money. I don’t care.

Well, John cared. You see it in his book, but I’m just telling you, spending time with the guy, he cared. He really wanted my family to do well. It’s the same with the other partners I have in the lumber project. It gives them no end of happiness that we’re all doing well together. I know it’s the same with Brewster. Brewster loves seeing it work and seeing it go well, and I know he takes it personally when it doesn’t. I feel that’s the best thing you could hope for in a partner. That’s my two cents or– [crosstalk]

Bill: You don’t keep saying nice things about me.


Michael: That’s really all I have. After that, it’s all downhill. That’s my best stuff, but the people [crosstalk]

Bill: Nice. Thank you. I’ll send you the check later.

Michael: Yeah, exactly. I say this all the time. People do not spend enough time. They honestly not spend enough time underwriting to people. Anymore, that’s pretty much all I do. Then, once I feel like I trust them, and I know what they’re doing. I just want to get out of the way. I’ll just read a book.

Tobias: Who else out there who is like Malone? Maybe Malone is the pinnacle of that group, but who else out there is in that group who is trying to make money for you or with you rather than trying to make it off you?

Bill: Nick Howley. The G.

Michael: Yeah, Howley’s– He’s doing a good job with it. [crosstalk]

Tobias: Was he?

Michael: TransDigm.

Michael: Yeah.

Bill: Those dudes at HEICO, the Mendelsons, right?

Michael: Yeah.

John Malone On Incentive Structures

Bill: I think where you can find a lot of aligned incentives are in businesses that are at the growthier end of their inflection. I think where you start to get a lot of agency costs is guys have nice salaries, grow starts to slow, they’ve got to figure out how to keep the stock up. That’s when, I think, stuff gets grey.

Michael: Yeah. This might surprise you. I don’t spend a lot of time actually reading through incentive structures. It doesn’t like it– I used to, and I used to pour over proxies and well, where do your options strike, and are you selling, and what sort of comp do you get? I think it was 2016– When did the Time Warner Cable Charter deal get announced? You guys when it was like about to close, and Rutledge got it– [crosstalk]

Bill: Oh, I just talked about this with Francisco. I think it’s 2016 or 2015 [crosstalk]

Michael: Okay. 2016. 2016 comes and Greg Maffei is out touting Tom Rutledge’s compensation agreement that he helped write that agreement. Sure enough, if you looked at it, it was this wild options package, tons of options, but they laddered and they all struck at prices– I think the stock was 200, or even under 200. They all struck at prices up to five, six.

So, Greg was like, “Look at this, he’s got to get the stock up to do really well,” and I want to say, I think this is close, I haven’t done this math. I want to say it would make Tom effectively a billionaire if he’s like– it was an insane amount of comp. I asked John and he’s like, “Yeah, it’s a lot of money, but you’re right. It’s higher prices.” John’s like, “You’re overthinking this. What you want to do with managers is you want to give them way out of the money options, and if they hit it, make them rich.” He’s like, “Trust me, they’ll hit it. If they’re any good, they’ll hit it.”

Tobias: Interesting.

Michael: I was like, “Well, man. That is absolutely true.” He’s like, “No, you’re overthinking this comp stuff. Just give them away out of the money options, and if they hit a home run, make them rich, who cares?” No, he’s not wrong. I see people bitch and moan about comp packages, I’m like “Dude, if the guy triples your money, who gives a flying F if you make $5 million and he makes $500 million? Who cares? You just made $5 million. What is it such a big–” People I’m sure are going to shit on the Twitter and YouTube for saying this, but at the end of the day, he’s not wrong. If the guy makes a ton of money, who cares what the fee is? Who cares that Greg Maffei $150 million? Greg Maffei made me a ton of money in Qurate, I’m happy he got paid. It’s the same with Mike George. I want those guys to get rich. By the way, we get rich together, it’s like that’s part of them being excited that we all did well.

Tobias: This is a slight segue. You know the pay packages for Logan Paul and Mayweather fight? Did you guys see what they were?

Michael: No, I didn’t see. What were they?

Tobias: Mayweather gets $100 million for doing it, and Logan Paul was something $12 or $18 million. I’ve seen two different numbers, but I think he basically puts it together. There’s no reason for Mayweather to go and fight this guy. He says he’s retired. I just thought about it in that context, why would Paul give away five times? Because he can make $20 million.

Michael: Yeah, who cares? That is my point with management. People look at the incentives and say, “Well, this is crazy and he’s going to–” The truth is, if you’re adding the value and you’re making me money, take your fee, man. 2 in 20 doesn’t bother me. 3 in 30 doesn’t bother me. If you’re worth it, charge away. Do that. No complaints on my end. I’m happy to pay the fee. On this lumber deal, I’m going to pay two guys, one guy was a number two Fairfax and another guy was found some lumber company. The fee that they’re getting, if you look at it in terms of the best investment that they made and the warrants, the fee they are getting is obscene and I also could give 20 shits how big it is. I wish it was three times as big as it was. This was a home run. Thank you, guys. To me, that just doesn’t resonate.

Bill: I think the tough thing happens, man, when you get into the– I’m going to take a shot at Zaslav. I’m sorry for the Discovery shareholders. But that dude has made– I just saw his pay drop to $30 million. Yeah, he put together this deal, but over a five-year stock chart– now, I’m not doing per share intrinsic value, so, forgive me people. I’m doing this on the fly. But that stock hasn’t moved in five years. That’s up 16%. He’s getting, I don’t know, somewhere around $150 million to $200 million during that time. I think that the art of it comes from being– The scenario like that, it’s easy to say, well, Malone owns it, and he believes in Zaslav, and he thinks Zaslav is worth it.

Behind The Curtain Of Berkshire’s Compensation Packages

Bill: I’d be really interested behind the– or behind the curtain in Berkshire. I think some of those managers make a lot more money than people think they do.

Michael: 100% correct. I would love to see the actual total cost of Warren being Warren. My understanding is that there’s Warren’s secretary knows exactly when he wants a Cherry Coke. He travels with him everywhere and delivers Cherry Cokes. Now, I don’t know what all [unintelligible [00:32:04]. I don’t know what that costed Berkshire. I can tell you for sure, whatever it costs, it’s totally worth it. You should probably be paying a lot more than you are. But I also know his comp isn’t $150,000 a year. That I know for sure. It’s like if you do the all-in cost, it’s a lot more than that.

Tobias: Including security for his house.

Michael: Yeah. Then, he owns– [crosstalk]

Bill: Does he own security? I don’t think Buff Dawg has security. Even [crosstalk] have security there.

Tobias: I think that’s security for the house, isn’t?

Bill: He’s just got that gate. I know, because I lurked once.

Michael: Yeah, see that’s why he needs security, because [crosstalk]

Bill: He probably knows.

Tobias: Dude, did he tase you? You got tased.

Michael: [laughs]

Bill: Oh, man. I come in peace to the Buff Dawg. He could sense it on me.

Michael: Of course.

Bill: It’s like the force. The value investing force.

Michael: I do think that the big, horrible fact is that a lot of guys get paid to do absolutely nothing, and that to me is really– I don’t love it when shareholders do poorly, and management teams do well. That is absolutely– I want people to get paid a lot when they do well. That really rubs people the wrong way, when somebody gets paid and everybody else loses money. It’s really a bad outcome, and it’s a bad look. Either way, I would say.

Tobias: Why does Buffett take any salary at all? At $150, it’s a waste of his time, isn’t it? He’d be better off just doing the Steve Jobs. Just give me a buck or give me nothing.

Bill: Ooh. How dare you?

Tobias: Don’t you think? $150, he wouldn’t even notice.

Michael: No, no.

Bill: Yeah, I do think.

Tobias: It’s just a hassle.

Michael: When was that $150, probably three decades ago, something like that? It’s been set there for a long time.

Bill: Yeah, it’s probably been a while.

Michael: There is this dynamic. I think it would be great for investors to invest professionally to just go sit on a board, even as an observer or as a board member of a public company, just to see the dynamics of the board. I’ve been on two as advisors, Applebee’s and Zale, and I can tell you, it isn’t what you expect. It’s just not. We all think it’s analysts sitting around, talking about the stock and the business, and that isn’t what it is. I think you’d be well served to actually just go see the dynamic– [crosstalk]

Tobias: What’s your impression of what happens?

The Reality Of The Boardroom

Michael: Well, we hear Buffett talk about it– I think it’s Charlie talks about it. He says, “Independent directors who do this as their primary source of income are not independent.” They’re just not. He’s million percent correct about that, they’re not. The dynamic is, it’s a two-day event, you fly in, we all go to dinner together, we just talk about how great things are. If there’s a problem, we’re like, “Well, we’ll work on it get back to us next time.” Then, we go to this nice dinner, we stay in a nice hotel, and we meet up at a meeting, we have an all-day meeting, and the management team come out and the CFO makes a presentation and merchandise makes a presentation, the restaurant makes a presentation, and CEO makes a presentation. Okay, we need to do this better. We need to do this better.

Nobody really ask any tough questions. Nobody wants to piss anybody else off. My guess is on the comp for Buffett, it was, “Hey, we need to pay you something. This is what you do for a living. We need to pay you something.” That’s another dynamic. I think, actually, it’s pretty hard to make zero unless you just come in and say, I want to make zero. I will make zero, you’re not going to pay me. I’ll send it back like Gates does. It’s pretty unusual.

The main thing, f you’ve got a CEO that’s in firm control of a company and in firm control of the board, these boards are packed with people who are friends with the CEO, of course, because they don’t want to go and answer tough questions. They want to go play golf. Seeing that dynamic up close, it’s really hard to understand, unless you actually see it. Which is why I say, it’s really important for you to pick that good CEO because everything else is going to fall down as a result of that. You have to be really comfortable with John, because John is going to pick Greg.

You see that the Qurate deal with the share swap, Bill, we talked about it. It’s like I understand it has to be independent board members and they all got to go– but the truth matters. These are all John’s people. It’s whatever John says is going to happen. Stars almost got sold to CBS. Les wanted it, and I don’t know why this happened, but if you go through and you read the proxy when Lionsgate bought it. John just walked into the room and was like, “Yeah, I want CBS.” That’s literally what happened.

He just walked in, and he was like, “I don’t think this makes sense. I think it’s going to be too tough for CBS,” and it’s dead. It doesn’t matter if they were offering more money. Unless you’ve actually been there and seen that dynamic, it’s really hard to get your head around as an investor. But again, to me, what it says is like, you just got to pick the right people that you know are going to do the right thing. They’re not always going to get it right, but you’ve just got to trust that– they’re in full control of your capital. You’ve just got to trust that people that you trust are actually going to do a good job for you and really want you to do well.

Tobias: Yeah, I’ve sat on a few boards as an observer rather than as a director and my observation is that the nonexecutive guys just have no idea what’s going on. The executive guys are telling them what is happening, and they have no other choice but to accept that as being the case. There’s no difficult questions there, and that message is shaped for them so that they can understand what’s happening.

Then, I’m always struck that analysts who are observing the things that are going on with the business have some view about where the business is going to be in a period of time when most businesses that don’t have that recurring subscription type model, there’s a chaotic element about what is going to be closed in any quarter or what’s going to happen in any quarter and somehow, the outside analysts have modeled this out years into the future. I just laugh, because I think nobody inside the company even knows what’s going to happen at the end of the quarter.

The Challenge With Fixed-Price Contracts

Michael: I can tell you in all my cases, the answer was nobody had any idea. There’s some businesses that are really predictable, but nobody has any idea. It’s wild, because you’re setting these comp targets, and you’re paying people based on these numbers, and you really don’t know. It’s almost a weird incentive. You’re setting these comp targets where guys are going to make a ton of money if they hit them, and you really don’t know. Once they think they lost it, the kitchen sink it, because then they’re setting up the next year to be– everything’s going to come down and then they can get it back, and it just creates this weird– It’s like fixed price contracting. It’s that game that goes on where it’s like if you do fixed price contracts–

Fixed price contracts, everybody, you’re supposed to overshoot, and then they underdeliver so they can maximize profits, and if they think it’s going against them, then they just tank the whole thing, so they can lose it and not have to have any brain damage on it. There’s just these weird dynamics that pick up that shouldn’t exist, but they do. They’re all over the place. It’s unfortunate. Which again, good people, you’ve got to pick people who can work around it. Sorry, I told you guys, I’ve said this before. If you let me talk, I’ll just keep going.

Tobias: No, it’s great.

Bill: It’s okay.

Tobias: We’re here to listen.

Bill: I have nothing to add to this conversation.

Michael: Let’s get you on a board, Bill.

Tobias: [laughs]

Bill: I think I’m about that board, bud. I would probably ask some hard questions though.

Michael: I’m bad.

Tobias: It’s torture, though.

Bill: I’d have to go to Kyle’s school of how to ask questions, because I’d probably bail everybody out with the answer that I wanted in the middle of the question. I ramble a little long in my questions. That’s what I’ve noticed. Got to get better about being short.

How Often Should Boards Meet?

Tobias: You don’t want to be spending– How often should a board meet, quarterly or monthly?

Michael: Monthly is too much.

Bill: Depends how much they pay me, dawg. I’ll show up every day.

Michael: [laughs]

Tobias: Monthly is crazy, but there are plenty of boards that meet monthly, and you meet for hours at a time, go through board minutes, have a terrible coffee, have a terrible lunch sandwich, and then meet in a month.

Michael: It just depends. It depends on the company. The process of setting board materials together took Zale’s a month. I felt bad for them, but what they have to compile to present to the board and then show them what they presented before and then compare it, it’s like everybody was on high alert for 30 days, that’s a massive drain of internal resources. You wouldn’t want it– probably shouldn’t have been that high in the first place but two is you just don’t want to do it that often. Then, the Great Recession hits and comps down on 20%, we should be doing board calls once a week.

Tobias: Yeah.

Michael: Then, don’t give any materials. Let’s just update where are we in cash? Where are we in liquidity? How are the financials going? Did we lose any key personnel? Is there anything we need to be doing in relationships with banks, etc.? I think it just depends.

Tobias: Zale’s the diamond company?

Bill: Yeah.

Michael: Yeah. Zale’s a diamond company.

Bill: Yeah. Do you help them with liquidity analysis and stuff, or was that [crosstalk]?

Michael: Yeah, the answer is yes. Help is probably the wrong word. I was shipped to Dallas for months to just sit in an office somewhere and just be present on the ground. Not at management’s request, but my boss at the time’s requests. I don’t think they wanted me to be there, but they’re the nice– Shoutout to them. I love them. They’re the nicest people in the world. So, they were perfectly happy having me there. My job when I was there and actually working my job was–

Tobias: What year, Mike?

Michael: This was 2000 and this is right after Lehman and Bear, so this would have been [crosstalk]

Tobias: Yes, it was a net-net, right?

Michael: I got down that low.

Bill: That’s not how they bought it, Toby.

Michael: That’s not how I bought it. No.

Tobias: I bought it as a net-net.

Bill: [laughs]

Michael: I bought it as a net-net and I wrote it off with Greenbackd.

Michael: Did you?

Tobias: Yeah.

How Did $FWONA Survive?

Michael: Glad somebody made some money. My firm ended up actually flipping a profit on that, but it was the most inefficient investment. When I was there, I did a big sensitivity of, let’s just say that– this is what everybody was doing in March, but it was a little more robust. In March of 2020, everybody’s doing this analysis of like, “Well, if COVID keeps the world down for two years, how long can Formula One survive with no fans and no races?” What does that look like and how long can they–? So, everybody’s doing that analysis. I was doing that on steroids for Zale of, how many people are we going to have to let go? What is this going to look like? If this goes on– If we’re comping down 20% for three years, what does that look like?

So, at a certain point, you’re like, “Okay, we’re going to lose the arm, we’re going to lose an ear, we’re are going to lose a foot, but the patient’s going to survive,” and you just go because of 100% patient survival, and what is the absolute worst we can take, and then so that was like– and by the way, if you really want to have an awful conversation, you get into this where people know that, for them and their families, it’s income or no income and it was awful. I don’t recommend doing it, but that was my job, was to go through and just try to figure out, where the absolute– where did we cross the Rubicon? [crosstalk]

Tobias: Did you do it for Formula One?

Michael: Oh, no, Formula One wasn’t even that hard, really. I did it on the back of an envelope. These are our global sponsors, this is the money I think we can count on if the races go away. Formula One is lucky because one, being a tracker, it’s so easy for Liberty to move assets around. Easy, it’s relatively easy. If you’re a standalone asset-backed public company, you’ve got two boards to deal with, everybody’s got their own advisors. Everything takes time. When you’re a tracker, it’s all the same board and it’s all John, and you’ve got– it’s not even legal structure differences. When they did that reattribution and they moved Live Nation over to SiriusXM, and then they moved cash back and, I don’t know exactly how long that took, but in theory, John could have done that in an hour. It really did– [crosstalk]

Bill: Dude, imagine Maffei’s March. That must have been fucking brutal.

Michael: I really can’t. That guy was between Live and Formula and Q sourcing from China, when China was shut down, I can’t even imagine that guy’s– [crosstalk]

Bill: And the Braves.

Michael: And the Braves. Yeah. Not knowing what the Braves– The good news is with them I– [crosstalk]

Bill: Every one of his businesses is comped. [laughs]

Michael: By the way, and SiriusXM, people are commuting to work. The question would be like, “Who’s going to turn off their subscription service if they’re not commuting to work anymore?” The answer [crosstalk]

Bill: I like that reattribution, because then you get the cash flow from Sirius, but then you get the growth component of Live potentially.

Michael: Yes.

Bill: It makes sense to sell as a music thing.

Michael: People did not like it. The LXSM guys didn’t like it when it was announced, but my thought was it probably made more sense for Live to be over there anyway. In my mind, those two things just made a lot more sense than Formula One with Live. I personally thought, I didn’t think– Live is such a nice business. It’s really pricey, crazy nosebleed pricey, but it’s really– you basically have a monopoly on tickets and then as a promoter, having the ticket business gives you so much leverage. It’s a really good symbiotic business relationship they have inside of Live and so I really liked it. John and Greg, they got so burned by leverage going into the financial crisis, those guys are very sharp about how they structure their debt. They’re very sharp about how much liquidity they have.

Formula One, I just basically went to them, was like, I’ve got their balance sheet, and if you go look at it, like, okay, most of their costs are variable, because it’s deemed payments.” So, they’re like, “Okay. Let’s say we keep a couple of teams afloat.” That was really– The only wild card with Formula One was did we have to keep Haas alive or Williams or was that going to be– and that was unknown of how much money if we had to make loans to those guys, what we were going to need, but I also was like. “Look, they’ve got a lot of cash. They generate cash in SIRI, they can reattribute stuff around if they need to,” and sure enough, that’s what ended up happening. I don’t work a lot, guys. So, that’s like– [crosstalk]

Bill: I only smirked when you talked about John getting a burned-on leverage, because somewhere on vacation, Jake’s head just exploded, and he’s saying, “Well, why do they still have all this leverage then?” [laughs]

Michael: It’s funny, because you talk to– [crosstalk]

Bill: Shoutout to Jake. What’s up, man?

Michael: Jake, sorry. He’s on a plane.

Tobias: Yeah.

Michael: Sorry, we miss you, Jake. By the way guys, it turns out, Jake’s been holding out. It turns out he’s tight with one of the– There’s five people in North America who value lumber mills for a living, and Jake’s tight with one of them, and he just made that connection last week. I’m like, “How have you been holding out this whole time?” The guy’s Tim. He’s a nice guy. Shoutout to Tim, if you’re watching. The nicest guy of the world. He’s like, “Come to our lumber mills with me.” I’m like, “Yes, sir.” Anytime-


John Malone “That Debt’s An Asset”

Michael: [crosstalk] 100% of but I’ll do that with you. If you talk to John, when they were doing the Expedia, Lexia– they had the Liberty Expedia and Expedia, Dillard was going to buy it. It was the worst kept secret that Dillard is going to buy it and the question is what price. I had dinner with John and I was like, “Well, you know what? What’s the negotiation between you and Barry? You say Barry’s my best friend. So, does that mean you guys are going to do a friend deal? Does that mean– is it board’s involved?” And he’s like, “Look, it’s really simple.” This is classic John stuff. He’s like, “It’s very simple. I just want them to give me the shares. The problem is that you had a business in there and what’s that worth, and then you had some debts in exchangeable debt at LEXI, and so what’s that worth? I was like, “Yeah, that makes sense. But you’ve got some debt at LEXI, he goes.” He goes, “Mike, that debt is an asset.” I was like, “Okay.”

Bill: [laughs]

Michael: He’s like, “That’s not a liability.” He’s like, “If you look at the price, we did that exchangeable 170 a share, stock’s 120 a share, that is an asset that I borrowed money that cheaply.” I was like, “Okay. Thanks, John.” I’m being a little more adamant and a little more animated, he’s not quite so animated, it’s an asset. That’s how John structures debt [unintelligible [00:50:41], that the think of it like an asset, versus the short-term stuff that got me in trouble years ago, and that’s the stuff that you can just choose to stay away from that stuff. It’s not wrong. You had that happen to Formula One. It’s fine. If cash flow goes to zero, it’s like you can survive. That’s how we built the debt structure.

Tobias: That was the biggest question for me. Aren’t you relying on the Formula One teams having enough money to get themselves through? For the ones like– for Mercedes Benz, they’ve got no issues at all. It’s the ones that, as you point out, Haas and Williams, that are on the edge anyway.

Michael: [crosstalk] Yeah, no. You’re not wrong. The risk was that 10 teams went to 5 and 5 teams, fielding 10 drivers in 10 vehicles is not an exciting thing to watch. That was bigger– The risk wasn’t that the brand goes away, the risk was the teams go away. So, that one was like we just cross our fingers, and we just hope that these 10 come back quickly. Then, the teams like Haas– I don’t know what Haas spends a year. Somebody’s going to know this. I think it’s $15 million bucks. It’s very, very low. Maybe it’s $20, they don’t spend– Mercedes spends $400 million.

Tobias: That’s gross or that’s their loss? That’s their gross. That’s what they–

Michael: I think that’s the gross. It may be as high as $40 million. I don’t– [crosstalk]

Tobias: You can build a car and fly it around the world with a team for $15 million a year. No way. [crosstalk]

Michael: Maybe, it’s $20. It’s not a lot. They outsource a lot of that to Ferrari. Somebody’s going to be on YouTube and be like, “You’re morons. It’s $80 million a year.”

Tobias: Screaming.

Michael: No, it’s disclosed. There’s estimates about what every team spends, but it’s really not that much. By the way, the number I’m quoting might be– you might be right. [crosstalk]

Bill: I think Haas is more, man. It’s looking $110 million [crosstalk]

Michael: Is that what– You just googled it? Okay. Yeah, maybe I’m thinking of the net number of plus– I didn’t think it was a lot, but maybe I was thinking the net number plus their different sponsorships. Point is, if you had to do it, you have to float Haas for a year, how much do you have to give them to do that? Because obviously, they’re not flying their car around every year, if we’re not having any races.

So, the question is how much you’re going to have to float? I didn’t think it was that big of a number, but it was a little bit of a– I must confess, shoutout to Dan McMurtrie, when Dan McMurtrie started tweeting about South Korea shutting down last year, my wife and I went on a walk, and I was like, “There are some stocks if the US shuts down that we just can’t own, and the top of that list was Formula One.” So, we got lucky. We ditched most of it, and then ended up just buying it back. So, I wasn’t playing defense. But yeah– you did have to calm your stomach down a little bit, and buy that before we knew that COVID wasn’t going to be as bad as we were thinking that it might have been.

Bill: Yeah, looks like last year. In 2019, Haas was at $173 million, but Mercedes is almost a half billion. That’s a lot of money.

Michael: Everything I say you’re going to be my fact checker. I want Bill to just go and google it– [crosstalk]

Bill: Dude, that’s why you need multiple personalities on the radio show.

Michael: This is the risk. I haven’t done any real work on anything since 2018, and that’s the risk– [crosstalk]

Bill: Good for you.

Michael: My memory on this stuff can be totally– [crosstalk]

Bill: Except for lumber.

Scandinavian Lumber

Michael: I do a lot of work on lumber. I have a lot of conversations on lumber. That is true. It’s nice too, because these forums like last time– oh, this is one correction I got to make say, I just did this work myself. I was looking at marginal cost of lumber production in Scandinavia and shipping it over, which was my guess to where the lumber breakevens would be in North America if I was right on housing starts. I was looking container rates. If you want to ship lumber from the United States to China, which actually is a thing. Hardwoods or softwoods, we use a container which takes 5000 board feet.

It turns out this guy, Tim, who’s Jake’s friend in Scandinavia, they have these conveying and he’s like bulk shipping things that can get that cost way, way down from $800 per 1000 board foot. He was saying $50 per 1000 board foot now. You have to get these bulk cargo carriers and the rates on those there’s off the charts. So, $50 might be $100 now or $150, but it’s not $500, it’s not $800 [unintelligible [00:54:50] It’s really nice. People will hear it and they’ll email you and be, yeah, this is one piece of the puzzle that you don’t have, and it’s helps you formulate your thinking. If you’re tracking breakevens on Scandinavian lumber, Scandinavian softwoods, the number is not $800.

Tobias: [laughs]

Michael: $50 to $100, that’s the number we should be [unintelligible [00:55:10]

$HOG’s Popularity

Tobias: Do you guys have– We’re coming close on time here, but do you guys have any views on Harley-Davidson? I’ve got a question here about that. On the hog?

Bill: I don’t. Somebody pitched me on it. They were dead right on it. Sounds like the business rationalized a lot of inventory coming out the other end of COVID. I don’t know.

Michael: There’s this whole dynamic, but I don’t know what you’re seeing in Chicago or in Florida, but there’s this whole interesting dynamic. So, country clubs in the northeast– I played with a friend in Garden City. His club is now fully booked. One of my friends in Old Greenwich, his club is now fully booked. You can’t get in. That hasn’t been the case in 20 years, and I wonder– they’ve been giving spots away, and now you can’t get one. I wonder this move out to the suburbs that causes people to go to golf clubs, if that’s not going to end up being a boon for Harley– people might have to be a little bit older, because I think the demographic actually is a little bit older for Harleys, but I wonder if that old path of you get out to the suburbs, put your kids in a country club swimming pool, and then buy yourself a Harley-Davidson when you turn 50 is the new thing. I don’t know, but it’ll be interesting to see. That dynamic is definitely shifting back to the suburbs.

Tobias: I think it has been a short. I think it’s been a pretty long-term terminal short. I don’t know exactly where it is now, but it’s been more short than long, and I think the problem of it has been the riders tend to be older, and that there are no younger people coming through riding. I don’t know what younger people ride instead. Gold Wings or something like that. Bill, what are those things called?

Bill: No, you know who captured a lot of share? Was Indian.

Michael: Oh, yeah.

Bill: Polaris owns some.

Tobias: I see, right.

Michael: Yeah, I see. The bikes I see around in the northeast are all Kawasakis and they’re all the crotch rockets. They’re not the Harleys.

Tobias: [laughs]

Michael: That’s what they’re called, right?

Bill: I see a lot of Harleys– [crosstalk]

Tobias: I think so. I don’t know.

Bill: There is also a lot of people there.

Michael: Yeah– [crosstalk]

Tobias: That’s time, fellas. I think next week, we’re going to have a foursome.

Bill: Yeah.

Tobias: I think we’ll have JT. Bill and Mike, everybody’s back next week for the June 15 hit-off.

Michael: If you want me to drop off, just put it in the comments. I’m happy to–

Tobias: I’ll ignore it.

Michael: [laughs] It’s a lot of fun, guys. I enjoyed it.

Tobias: Thanks again, Mike. Thanks, Bill. Thanks, everybody. This has been fun. See you next week.

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