In this episode of the VALUE: After Hours Podcast, Jake Taylor, Bill Brewster, and Tobias Carlisle chat about:
- Small Caps Cheaper Than The Market
- David Gardner’s Investing Strategy
- Yoshiaki Murakami – Japan’s First Successful Hostile Takeover
- Chancellor: Japan Tortoise Will Outpace U.S. Hare
- There’s A Lot To Like About Musk
- Would Berkshire Be Bigger Without Bailouts?
- Is This Bubble About To Pop?
- Paypal’s Worst Day In 20 Months
- Cannabis Investing
- Elliott Takes Significant Stake In Toshiba
- Dillard’s Buy-Back Strategy
- Peloton Off 60%
- Riches In Niches
- When Jamie Dimon Merged Bank One With JP Morgan
- Microsoft Still Haven’t Figured Out The Cloud
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:
Tobias: We are live. It is 11 AM on the West Coast and 1 PM on the East Coast. This is not a new time. It’s also daylight savings, just to confuse– well, we’re at the end the daylight savings that it’s the normal time.
Bill: Maybe that’s why I’m so tired.
Tobias: Yeah, 100%. Because the kids don’t know they wake up at the normal time. So, you don’t get like an hour of sleeping.
Jake: Oh, brutal.
Jake: I think you’re right.
Tobias: I hope so. The kids are all up bright and early. So, I’d be surprised if anybody actually [crosstalk].
Jake: No one’s here.
Tobias: It’d just be us.
Jake: Perfect. What’s happening?
Tobias: What’s happening, fellas?
Bill: I’ve had a long day.
Jake: It’s only 10 AM. I’m just kidding. [laughs]
Bill: It’s been a long one. It’s been a good one, though. Interviewed David Gardner.
Tobias: Oh, yeah. Let’s talk about that.
Bill: Ah, [crosstalk].
Jake: How’d that go?
Tobias: Went well, man. He’s a very nice guy.
Jake: Did you fanboy on him?
Bill: I think so, yeah. I did. But I think we also talked about some– I think I asked some hard questions. I’m not going to come out there and be like whatever. Some people might–
Tobias: Did you order for code red?
Bill: Yeah. But I mean we talked about how much of his returns are a function of interest rates. We talked about how much is he concerned about companies staying private longer.
Bill: We talked a little bit about marketing on the internet and why my mind was closed a little bit to the Fool. So, I think it was a good conversation and he’s a great guy.
Jake: Those are good questions.
Bill: Yeah. I think it was solid.
Tobias: Are you going to talk about that today? You’re going to give us some–
Jake: That was everything. [laughs]
Bill: There was some more. That’s all I remember. I blacked out.
Tobias: Those are the questions. Where are the answers?
Jake: Yeah. I was drinking during that. [crosstalk]
Bill: No, I wasn’t. I kind of want to now.
Jake: [laughs] Yeah. This is After Hours.
Bill: But then, Jake and I were just on a call, so it’s been a day of being on the screens.
Tobias: How about you, JT?
Jake: We’ve got a little weather here now. It’s a little rainy. So, that will take the piss out of you, but I’ve got a segment today on a Japanese investor who you likely have never heard of. So, maybe this might be fun.
Tobias: Oh, that sounds good. I’m just going to give a shoutout to some good names in here. Foresthill, Stonkville, Townsville, Queensland. What’s up? [unintelligible [00:02:36]
Jake: Stonkville. [laughs]
Tobias: Nashville, Tennessee. Hartwell, Belgium, Raleigh, Bretton Woods, all right.
Jake: Bretton Woods, New Jersey.
Tobias: STOCKholm, Sweden. Very funny.
Tobias: What’s up, Value Dudes? [laughs] My topic, there was a MarketWatch article that came out over the weekend making the argument for small cap value. I’m going to go through it a little bit just because I want to believe–
Jake: Fake news.
Tobias: I want to believe but there’s some interesting little parts of the charts and things that I want to talk about. Also, just overall valuation with rip through 40 on the Shiller PE, nothing matters anymore, but–
Jake: We did it.
Tobias: We might as well celebrate that. When’s the 100th episode, JT?
Jake: I believe the 23rd.
Jake: So, I think we have two weeks.
Tobias: Two weeks. So, we’re going to do it. We’re going to do something for our 100th. We don’t know yet. We’re going to figure it out.
Jake: It’s going to be spectacular.
Jake: We hope.
Tobias: [crosstalk] unspectacular.
Jake: Probably not. [laughs]
Bill: It’s either going to be that or very mediocre.
Jake: Or just kind of show up and pretend like we’re doing something.
Bill: That’s right.
Jake: Who is going first today? Toby, you want to break out some MarketWatch?
Tobias: Yeah. Let me do MarketWatch and smalls, and let’s do David Gardner. Because David Gardner, he’d characterize himself as a smalls guy, wouldn’t he? Is that where he stands?
Bill: Ah, I don’t think so.
Tobias: Not necessarily?
Bill: No. He [crosstalk] stuff that’s big.
Jake: He’s a grower, not a shower.
Bill: I don’t know that. Yeah. I don’t know that he’s– Yeah, I don’t know that I need to divulge the whole interview, sir.
Tobias: Valencia, Spain, what’s up?
Bill: But I will tell you that my big takeaway today is invest in quality growth companies from both conversations. So, I’m happy to riff on that.
Small Caps Cheaper Than The Market
Tobias: So, cool. Let me kick it off. A few things that I wanted to note. So, we’ve blown through 40 on the Shiller PE, Fear & Greed’s at 86 which is pretty greedy.
Jake: Is that good or bad?
Tobias: It’s greedy. Not if it’s good or bad. People are feeling pretty good at the moment. Last time, we went through 40, it was January 1999. So, you’ve got a solid 12 months before you hit 44 on the Shiller PE and China and Japan get to 100 times. So, don’t panic yet. The forward returns over a decade assuming mean reversion from hereabout–
Jake: Are strong to quite strong? [laughs]
Tobias: Negative 0.1% on the index but 1.2% total return which includes 1.3% in dividends. So, we’re all going to be dividend clippers for the next decade. The MarketWatch article was called– I tweeted it out, but a bargain you can’t ignore. Small cap stocks are trading at the second biggest discount in 20 years, and the biggest discount was last year in March 2020. There’s just a few interesting things out of this. So, they went through the forward P/Es. So, the current forward P/E for S&P small cap 600 is 15.6, and the S&P 500 is at 21.59. So, they’re saying that there’s like a 72%– The S&P 600 is 72% the valuation of the S&P 500.
Now, you might say, “So what? Small caps should trade at a discount to the rest of the market.” But I thought this is kind of interesting. So, the three-year average, small is 16.7, large is 19.5. So, the valuation over the last three years, the disparity hasn’t been as wide. The five-year average is 16.6 versus 18.7, closer still. 10-year average 15.8 versus 16.2, closer still. 15-year average, 15.3 versus 15.5, roughly identical. Then, the 20-year average is 15.3, 15.7. So, again almost identical. Smalls haven’t traditionally traded at this bigger discount. So, it’s entirely possible that–
Jake: If you could summarize that, then it might be saying that historically, they roughly trade comparably on forward P/E, but as the last 20 years have unfolded, the bigger, the more expensive it’s gotten.
Tobias: Unfortunately, that’s the takeaway from that. The smalls are roughly trading where they have for the last 20 years. It’s the S&P 500 that has exploded, has become much more expensive over that period of time. You could make an argument there’s the composition of the index, but this is a kind of interesting thing. So, you’re looking at growth rates for S&P for the smalls versus the 500. So, they’re predicting sales growth is going to be faster for the smalls at 7.8% versus 6.7% earnings per share.
Smalls, 14.1%, large 8.2, which is still pretty good increase year-on-year. And free cash flow per share for the smalls growing 20.7 and large 14%. So, on every metric, smalls are growing faster and they’re cheaper which makes me like smalls more than the rest of the index. That part that I was talking about earlier with the index on a cyclical basis being so expensive, I think it’s tough to be in the index at the moment. I think you probably want to be somewhere else.
Jake: Well, is that the market sniffing out returns to scale?
Tobias: Yeah. Possibly.
Bill: I would be inclined to say yes, and I’d also like some index construction. So, yeah.
Tobias: Smalls are shittier. There’s no question but they are growing faster.
Bill: Yeah, but I don’t know. I guess I’m not sure what the growth means. But I don’t know. These are tough things without the components of the index for me. For instance, Microsoft is going to have a large percentage of the S&P weighting, right? Just by definition how big it is. Their returns on capital are quite a bit better than most smalls, and they’re growing at quite a bit higher rate, and I would argue they’re actually critical infrastructure to the way the world works. So, they’re not going to trade where smalls trade.
Tobias: That’s true.
Bill: You take Microsoft out of the world, the world doesn’t function. So, I think– [crosstalk]
Jake: Let me try to push back on that just for fun.
Jake: Not necessarily whether I agree with this or not, but could you have made the case back in, let’s say, 2004, 2005, 2006, 2007, whenever, that a company like Exxon, which was a huge part of the market cap of the index at that point and had monster scale, and was obviously important to making the economy work, we need oil to run this whole thing, why would that be any different? Now, it’s gets kicked out, and it’s effectively stock non-grata, and the world definitely changes, over time.
Tobias: That was a quick fall for that stock, wasn’t it? Not quick in decades, but amazing that it was. At one stage, it was like 40% of the index. It’s nuts. It’s huge.
Bill: Well, I mean, so even index– [crosstalk]
Jake: Critical infrastructure, Toby.
Tobias: Yeah, arguably. You need energy to make stuff go. I understand that’s how it works. I’m not an engineer.
Bill: Okay. The highest return on assets that Exxon ever achieved appears to be-
Tobias: Yeah. It’s not as good, no question.
Bill: -18.4%, and they sell their goods through undifferentiated gas stations that anyone can go fill up their car with absolutely zero switching costs. So, you could have made the argument, but I would argue they’re quite different.
Jake: Mm, fair point.
Tobias: That is a fair point, but people didn’t seem to know. It’s sort of become a more recent thing. I do think that the S&P 500 looks like a reasonably good portfolio. If you look at the top names in the portfolio, they’re all Google, Amazon, Microsoft.
Tobias: Tesla, it must be.
Bill: Oh, yeah.
Tobias: I forget the top names.
Tobias: Yeah. [laughs] Tough to say it sometimes.
Jake: It wouldn’t cross his lips.[laughter]
Tobias: It’s up there anyway. Anyway, that’s my argument. Smalls are cheap relative to the index. The index is very expensive. Probably going to be normal returns for smalls, and I think the index is going to get flattish.
Jake: I’ve heard the argument that the 99 call it value heyday renaissance. Might have been just as much a small renaissance over large as value versus growth. I don’t know exactly if that’s true or not. Toby, probably, you have a better handle on that.
Tobias: Yeah. That’s not something I’ve ever looked at particularly because I don’t have any strong love for smalls. I do think that the size effect is a little bit mythical rather than real. I’m more interested in value than I am in size. I think that the size is like a derivative of value. If two things are running $100 million a year and one’s trading at $2 billion, and one’s trading at $20 billion, the smaller one is better value. But it’s not better value because it’s small, it’s better value because it’s better value. Assuming– [crosstalk]
Bill: Microsoft return on assets isn’t great, by the way. I’m looking right here. So, I potentially am wrong, but 19% this year, 15% last year, 6% 2018 couldn’t get into how return on assets is calculated. But maybe Exxon was as good of a business. I think the switching costs was a lot lower.
Microsoft Still Haven’t Figured Out The Cloud
Tobias: Yeah. Microsoft and Google, they just got stupendous reflected basically returns on– infinite returns on capital aren’t they? Because they have some money tied up in the business, but they almost don’t need it. They could pay it all out if they wanted to.
Jake: Yeah. I think you need to do some adjustments to the typical calculations to really–
Jake: Right. Yeah, I think– [crosstalk]
Tobias: Not write down the R&D, is that that sort of stuff?
Jake: Yeah. There’re those kinds of that like Mauboussin paper that came out a couple months ago, that’s pretty good on some adjustments to make that I think are pretty logical. But I’ve said this before already on the show, but that I think you’re better off trying to put your business person hat on, put yourself inside the business, try to understand what they’re actually putting money into, and what is that producing, and not try to follow accounting only treatments of these things like be a business analyst, not a stock analyst.
Bill: I think that’s why I cited the return on assets improperly. Because I just fundamentally think Microsoft is a much better business than Exxon ever was.
Jake: Well. Let’s run oil up to $200 a barrel and see what their financials look like.
Tobias: Someone makes– [crosstalk]
Bill: Yeah, but to your point, you are then dependent upon an input that they cannot control and others supply can come into the market. So, Google Docs tried to dispose Microsoft and didn’t go so hot.
Tobias: I don’t know if it’s over yet. I use Google Docs for lots of things. They’re not as good and they–
Bill: You and the two other people like it a lot. [laughs]
Tobias: It’s still pretty useful like the spreadsheet because you can get the live data updated is great. And I like being able to pull up the Doc. Google haven’t quite figured it out– Sorry. Microsoft hasn’t quite figured out that distributed. The Word across different–
Jake: Cloud Word.
Tobias: Yeah. The Word, every time it has to go and like confirm that I’m in fact– that I’ve paid my fee for them. It just frustrates the shit out of me, honestly.
Tobias: I paid $8 whatever for the month, so I can use Word. It goes and confirms and the whole thing hangs whilst doing that. Andrew makes a good point. The game seems to have become, “Let’s all make noise when we see a great business” Is that investing? Yes, Microsoft is a great business. The market doesn’t know this? Yeah, it’s not been a handicapper’s market for a while. First order of thinking.
Bill: I don’t think that’s true. I really don’t. I agree with it on certain instances. But I think that that’s an excuse to not think, but we’ll see. Maybe, that’s a topic comment.
Tobias: Microsoft’s expensive. I don’t think it’s not ridiculous. It’s not like just look at it, it’s obviously out of it. But it’s still expensive, and it’s fully valued anyway. The run that it’s had is largely a result of being not fully valued in 2011 through to 2015, and then getting a big hockey stick from them. The multiple has blown out the entire time. The underlying earnings have been great, too. But there’s a lot of multiple expansion in that return.
Jake: I would say, it has a great chance probably of working out okay. I don’t know if you would want to bet 30 of those idiosyncratically and expect to do particularly well.
Bill: Yeah. I don’t think there’s 30 Microsofts.
Jake: I’m just saying hypothetically.
Bill: I think there is one.
Jake: Okay. The math checks on that.[laughter]
Tobias: All right. Let’s dig David Gardner. Let’s give us the good stuff.
David Gardner’s Investing Strategy
Bill: No, look, I don’t know. I mean, so, different presentation that I was in today. The guy says, “Value investors are like accountants. They want to close the gap between intrinsic value in the market price. Growth stock investors actually get to enjoy the benefits of growth. The math is irrefutable. If you get the math right, then it’s over.” I think where growth stock investors such as David Gardner, and the guy that I was listening to today are more correct in my estimation than what I used to be when I only looked at like trying to buy cheap stocks is, you know, if the business can reinvest in itself and you can win for a very long time, like, yeah, you can take a doughnut on some of these positions. Like David Gardner has had a lot of big losers. But he also owned The Trade Desk since like three bucks a share.
Now, if you want to come at me and say, “Well, it’s a bubble, bro,” fine. I’m going to ask you, “What stocks you own that you’re up 33 Exxon?” If we cut his stock in half, he’s still up 15x. That’s a lot of re-ratings that you got to play and he didn’t pay any taxes. That’s just one of many for him. So, I’m not a hedge fund manager, I’m not a professional money manager, I’m just a guy trying to figure out how to invest. I think that the Motley Fool, a method of looking for quality growth companies, and taking less concentrated bets, and holding them for a lot longer for someone of my skill set is much, much smarter than waiting for the next Coca-Cola, and then putting 30% my net worth in and then finding out that actually, I didn’t realize that the– [crosstalk]
Jake: Like RC Cola?
Bill: Yeah, that’s right. Some of what I say comes from that standpoint. I’m probably not as smart as most of you, you know? So, I’m just trying to figure out what works for me, and I think it’s easy to say, “Well, multiples,” but also like, go look at the results for real and think the people that have won bigger, the people that have bet on businesses that have gotten much bigger over time, and yes, multiples have helped.
Tobias: Yeah, that’s undeniably the case, but we’re looking at–, it’s been a long, long period where growth has worked, and a long, long period where value has not. If we wound it back, and we had a look at these numbers in 2014 prior to this run, you draw a different conclusion, and that’s probably what makes this such a difficult game that as one starts looking much, much better than the other. It’s paradoxically the other one that is becoming the better opportunity and that’s why investing such a hard game. That’s not to say, that’s not a commentary on the approach that you’re adopting at all, like, you got to– ultimately you got to do what is best for you that allows you to buy more of something once it’s gone down, like you need conviction, whatever strategy you’re doing. But I think that a lot of the run that we’ve seen has been multiple expansion in–
Growth stocks always definitionally they grow faster than value stocks. It’s just you have to pay a price where you get the optionality in it rather than paying for it, because it’s hard to handicap. I say this all the time. I don’t know that my argument doesn’t look pretty particularly smart at the moment. I get that, but it is what it is.
Bill: Yeah, I mean, look, I honestly don’t know. I do have serious questions when you know– So, energy. Energy is this idea that everybody loves, and everything else is a bubble. So, let’s go to energy. Well, okay. If we assume– [crosstalk]
Jake: Everybody love sit? I don’t know those multiples don’t look particularly well loved.
Bill: Well, maybe, that’s because it’s a shitty company or business. It doesn’t deserve a big multiple. To be fair, I guess, what I’m saying is, if it is true that supply is fundamentally constricted, and their earnings go through the roof, that’s an awesome trade. I don’t know how to trade a cyclical, I don’t know how to forecast where energy is going to be in the future, I guess what I continue to ask myself is, “Let’s say we’re in this bubble and all these multiples are super high. Does that impact total energy consumption?”
I would think the wealth effect has something to do with spending, and I would think spending has something to do with overall energy consumption. So, let’s say this bubble pops. Like what happens to energy demand? I don’t know how to underwrite the E at all. Like I said, I might just be dumber than most people, and I just have to do what I get to do.
Tobias: It’s a little bit of a false dichotomy, though. It’s not cyclicals on one hand and growth on the other. There’s a lot in between that can be a very good business that is managed pretty conservatively, and this is like, I wouldn’t say that I’m a cyclical investor. I would say that this is what I’m trying to do is buy sort of unloved, but still pretty reasonable businesses that are run by a management team is doing the right thing. They’re taking advantage of the fact that they’re undervalued.
Dillard’s Buy-Back Strategy
People have laughed pretty hard at Dillard’s and other companies like that. Dillard’s spent years and years buying back stock with a declining business, too. The business wasn’t growing. The business was declining, but they’re buying back stock at a faster rate so that people who held those shares were getting more and more value in what was left over. I forget what they reduced by, astronomical, it’s like 80%, 85% something like that the share count. Then, eventually, the market woke up, and from over the last 10 years, it probably works out to like a 30% return compounded. It’s just that it almost all came in a very, very short period of time right at the very end.
Bill: Yeah. I kind of think an example like that is like cherry picking some of the really good growth stocks, though.
Tobias: You gave me Trade Desk up 33 times. I’m just giving you an example of one off the top of my head.
Bill: I understand. The Trade Desk isn’t just like a one off. And I know that the values. The value stocks aren’t either, which is part of why I don’t even like talking about growth and value.
Tobias: The joint at the hip.
Bill: That, you’ve got it.
Tobias: It’s the same thing.
Bill: You’ve got it. We’ve learned.
Tobias: Somebody drop us a note. Let us know, are they joint at the hip or not?
Bill: But yeah. I don’t know, man. I think a lot of these are really tough. I just know that I want to look for businesses that can grow for a really long time and pay reasonable prices for them. That’s all I know.
Tobias: I think that’s a good approach too. I don’t want to say that I don’t. I really love that approach. I think it’s really fun to do it, too. I love what Ian Cassel does. I love what all micro-cap, David Gardner. I almost called him Graham Gardner.
Bill: He doesn’t like micro-cap. He doesn’t think the company is irrelevant.
Tobias: Yeah. So, what’s the distinction that because I said that before and you wouldn’t.
Bill: I shouldn’t say that he doesn’t like micro-cap. That’s maybe a little generally broad. But his number one rule is like, if people snap their fingers and the company disappeared, would anyone care? I think you could argue for most micro-caps, the answer is, no. Maybe, some micro-cap out there is like this super integral experience to people’s lives. But like, do you think like micro-caps almost by definition could go away without the world noticing too much.
Tobias: Fair. You don’t think someone would replace. I’m not disagreeing, but as a group, I don’t think it– [crosstalk]
Riches In Niches
Bill: It reminds me of the Brent Beshore like no business chooses to stay small. So, if something is like small, why is it small? It’s probably because I don’t know.
Tobias: It’s still like, what do they say? Riches in niches. You can still make money in some little like, it’s just scale. Just can’t grow beyond that. But it can still make lots of money, and it’s sort of niche. There’s nothing wrong with that.
Bill: No doubt. I think that certain things like that can be exploited.
Tobias: There’s lots of local stuff, right? There’s lots of stuff that just, you know, aggregate. You just can’t transport aggregate a long way. You just always going to be a local monopoly. That’s a great little business.
Bill: Yeah, that’s right.
Jake: There’s some specialty insurance companies, too, that just print money. Just unbelievable, but they can’t expand past a certain point. It’s just doesn’t. It won’t absorb capital that way.
Bill: When you think about that like, how does that company motivate employees to come work for it?
Tobias: Pay them well.
Tobias: Cash on the barrel.
Tobias: Not options. Yeah, that’s a good point though. You do make a good point. I talked to Hari Ramachandra, he’s a Silicon Valley software engineer. He’s been around for a long time. He always says, when he looks at things like GoDaddy versus something else, there’s not much tech talent heading to GoDaddy. It’s heading to whatever is sexy, and wherever they can make the money. That is a real thing. That’s a competitive dynamic, competitive advantage that these very fast-growing sexy companies do have. They can hire top talent and they can probably GoDaddy was well positioned to come up with an AWS type thing and didn’t do it possibly, because they didn’t have the top-level talent there where Amazon, and Microsoft, and Google do.
When Jamie Dimon Merged Bank One With JP Morgan
Bill: Or not even that. Like think about small banks. Some small community bank versus like mid-level bank like, I mean, I wasn’t at some huge bank, but I’d much rather work at BMO Harris than I would some like shitty community bank. So, if you’re relying on credit standards, I just think be most processes better than most, and then you know what? When BMO told me, “You’re going to be comped against us beating JPMorgan,” I said, “See you.”
Bill: Because that ain’t going to happen.
Jake: You’re not going to Jamie.
Bill: Yeah, no. Maybe, I won deal but not overall.
Tobias: Because Jamie rolled up into JPMorgan Chase? How big was that when he started out, whatever entity he was CEO of when he started?
Bill: He was at Bank One, wasn’t he? I don’t know. I don’t know how he got. He was with, what? Sandy Weill or whatever. I don’t know how they rolled it all up, but he’s made it much bigger and much better.
Tobias: Because that’s always been the play with the regional banks is that, you find some guy who doesn’t want to be a regional banker and he’s going to roll them up into something else. Sometimes, that works and sometimes it’ll collapse just like savings and loan type thing. I remember before I was an investor, when I was a lawyer, someone, they were handing around– I think it was when Buffett I identified Jamie Dimon’s letters as being a great example of a letter. You could have read it and bought it then.
Tobias: What year that was?
Jake: Before after they were bailed out.
Tobias: That would be pretty bail out.
Jake: Oh, okay.
Bill: So, in banks like FRC versus Wells, right? Like Wells has been–
Tobias: That’s part of the game.
Bill: Wells has been cheap for years. It’s just gotten the shit kicked out of it because it’s pretty demotivating. Now, hopefully, Sharpe turns around. Lord knows [unintelligible [00:28:45] sold it at exactly the wrong time.
Tobias: Chemical Bank, thanks, Bo Banks. Was that right, chemical? That sounds right. Being able to attract– being able to attract some bailouts is a key part of being a banking CEO.
Bill: That’s right.
Jake: Yeah. Get big. Get too big.
Tobias: Yeah, put that on the resume.
Would Berkshire Be Bigger Without Bailouts?
Bill: Big part of being Buffett to be fair. He’s benefited a lot from that.
Tobias: Do you think he made it?
Bill: Ah, I guess, he waited until after they came right in– [crosstalk]
Tobias: He is an indirect beneficiary. I’ve seen that criticism leveled at him.
Jake: He’d have more money now, if there weren’t continuous bailouts. He would– [crosstalk]
Bill: I don’t know that I’ve– [crosstalk]
Tobias: [crosstalk] Berkshire record cash pile now. Berkshire record cash pile right now $140 billion.
Jake: You don’t think, he’d have a lot more bites at the apple in the last 15 years if we didn’t have just continuous handouts?
Bill: I mean I think if we didn’t bail out everybody in March, we’d be living in depression.
Jake: Fed [crosstalk]
Bill: So, no. I don’t. I think everybody would be a lot poorer. He might have more wealth, but no one would have anything.
Jake: Okay, let me rephrase this. Not mark to market but would Berkshire have bigger and better assets today if there were no bailouts?
Bill: Oh, yeah, probably.
Bill: They probably wouldn’t have the financial portfolio they have, though.
Tobias: I said this. Record cash by $140 billion?
Bill: Record cash.
Jake: Is that good?
Tobias: Well, I don’t know. It’s a record.
Bill: I don’t know.
Tobias: JT, do you want to give us some vegetables?
Chancellor: Japan Tortoise Will Outpace U.S. Hare
Jake: Yeah, let’s do it. This actually comes from a recent Reuters article by Edward Chancellor. One of the 10 I’m sure, undoubtedly.
Tobias: One of my favorite books of all time.
Jake: Yeah, capital returns.
Tobias: Devil Take the Hindmost.
Jake: He’s quite good. This article was called Japan tortoise will outpace US hare. So, what I liked about this is, it combined some of my interests into one article, but he’s talking about how Japan Inc. has long proclaimed allegiance to what they call the five joys. Those five joys are employees, customers, suppliers, society, and then lastly, shareholders. So, this goes into that win-win framework that we’ve talked about a lot where the really sustainable businesses have to have a more stakeholder mindset, and they aren’t just trying to purely maximize over the short-term shareholders outcomes. But if you get all of these balanced correctly, then actually paradoxically the shareholder has the best chance at doing a very long duration good investment.
Tobias: That’s Porter’s five joys, are they?
Jake: No. It just Japan Inc.’s five joys.
Tobias: I’ve realized, but it sounds very Porter-esque. I don’t know, maybe, I’m missing.
Jake: Five forces. Yeah. So, he’s talking about how the US has been leaning towards stakeholder capitalism a little bit more lately, and then Japan is actually moving the other way towards being more respectful of shareholders, probably, shareholders have subsidized somewhat the rest of the counterparties in Japan over the last call it 20, 30 years. So, as a few examples of that, like, steel partners apparently, which is a hedge fund, they tried to take control in 2007 of Sapporo, the beer company, rebuffed, didn’t work.
2011, this guy, Michael Woodford, who was a British CEO of the Olympus, which is an optics company in Japan. He was actually ousted by the board because he discovered massive fraud within the company. So, he got kicked out because of basically pointing out in his own company like we found fraud. So, I think another part of it is when we look at the balance sheets of US companies versus Japanese companies, and US firms have borrowed $2.3 trillion in 2021 which is 60% more than– or sorry, $2.3 trillion in 2020 which was 60% more than 2019. Then, there’s another $1.6 trillion through September of this year. Then, of course, Q3 buybacks are on pace to set a new record. So, if you’re wondering where the bid is coming from for your S&P 500, it’s coming from the LBO of these companies basically.
Tobias: Index bias. [crosstalk]
Jake: Yeah. It’s probably going to eclipse Q4 2018, which is the previous record for a quarterly buyback. Now, on top of that the US firms I think one could levy the charge that they have been somewhat myopic in offshoring a lot of productive capacity from the US in a race to really boost ROEs maybe at the long-term expense of the ability of the company to– I think they introduced a fair amount of fragility into a lot of their systems by trying to offshore everything. Perhaps, a pandemic is and revealing a lot of the supply chain issues and maybe lack of you know, humans have two kidneys for a reason. There’s some redundancy that may or may not provide you with the buffer to survive volatility and survive problems that we’ve probably overoptimized in the US.
Whereas Japan, they still make a ton of stuff there. In fact, Toyota has more EV patents than Tesla does. Now, I don’t know if that’s because Tesla supposedly didn’t make public all of their patents or something a number of years ago. I don’t know. That plays into it but whatever. Let’s not ruin a good story with facts. [laughs]
Bill: IBM had patents, too.
Jake: It still does.
Tobias: It’s the tickets to play.
Elliott Takes Significant Stake In Toshiba
Jake: Japan in general is becoming friendlier to shareholders. And in 2014, the Tokyo Stock Exchange introduced some fiduciary responsibilities, and changed some codes, and like most companies now have removed their poison pills that were previously a big roadblock to any kind of activism. A lot of the cross holdings, which were another block against activism are starting to be unwound, and Japanese companies are actually initiating buybacks now, which previously was sort of corporate taboo. Recently, Elliott Management who has I think do they have their own sovereign Navy.
Tobias: Army. Yeah, army and navy.
Jake: They took a large stake in Toshiba recently, which it’s like, maybe there’s– The game is changing I think in Japan right now.
Yoshiaki Murakami – Japan’s First Successful Hostile Takeover
Jake: So, this brings us to our story of this Japanese investor who I had never heard of, and maybe you guys haven’t either, but his name is Yoshiaki or Yoshiaki Murakami. He was born in 1959, and graduated, and went to work actually at the Ministry of International Trade and Industry for 16 years. So, he worked in the government for 16 years, and he realized that corporate governance is a really important thing to the sustained growth of Japan. He left to start his own fund at 40 years old, and he launched an activist fund about 20 years ago, and he started– He got it like he started doing activism in Japan. His style was to obtain shares in a target company, and then try to force them to focus on the profitable businesses within that business and try to divest the ones that weren’t profitable and not just make work, which is something you tend to see in a lot of Japanese companies. Nope.
Actually, earlier this summer, he just completed Japan’s first hostile takeover bid. So, I’d be curious to see if this is sort of– does Japan today look a little bit like the US did in maybe the early 1980s as far as a potential heyday of call it lazy balance sheets, low ROEs on business, lots of potential maybe and in fact like 50% of non-financial companies that are listed have net cash on their balance sheets in Japan, which relative to the US. I think that number is more like comparable is like 15%. So, obviously the starting valuations are a lot lower than the US, and especially in the small end value basket likely. Maybe, Japan is a place as a value investor that might–
I think, Toby, you’ve pointed this out very correctly before that. A lot of times the catalyst of very cheap is that, like business people come along and they see like, gosh, there’s all this cashier, it’s a business that’s underperforming, let’s get in there and clean it up and hopefully, they don’t take it to the extremes of the 1980s, where you get like a Milken kind of fueled LBO where like, you just borrow a ton of cheap money, and then go, and kind of raid and, you end up with the barbarians at the gate kind of stories. But there were some– a lot of good returns for value guys that saw a lot of traditional value on a balance sheet, on an income statement, and we’re able to go unlock that through activism and maybe there’s some good work to be done here.
Tobias: Was America resistant to that kind of activism before that sort of 1970s, 1980s?
Jake: I’m not sure that’s true. Buffett was getting in there and doing stuff at Dempster mills. I’m sure there were activists. I just don’t know if– Well, one, I think there was a much more financialization of the world post in like the 1980s, Wall Street went from being a backwater to something that everyone, well, not everyone, but a lot of people aspired to go get on there and make a ton of money. I think cheap money also played a factor like price movement, too.
Going from 15% interest rate to whatever five-ish, like that’s– some stuffs going to lift off when you do that, and that’s just going to attract attention, it’s going to attract people who want to make money, and I think there’s– the action just gets heated up, and then you introduce a financial innovation, maybe like mortgage-backed securities and junk bonds at that time that allowed corporate raiders to have a bigger artillery to go wage war against these companies. So, I think it’s like a confluence of factors. What do you think?
Tobias: America had the conglomerate boom before the LBO boom. So, there were a lot of those cross shareholdings and they were under earning because they were using that sleight of hand a little bit where they were trying to grow EPS on a per share basis rather than looking for so, you can buy something very cheaply, but not great, and that would translate through an EPS, but it meant that they held all these very low return on–
Jake: Yeah, a lot of empire building I think at that point too.
Tobias: It was the picking apart, the 1980s was about busting all of that up and picking it all apart, and they started from very low valuations. It’s an interesting corollary that Japan might be in that situation. If they start seeing performance out of the stock prices, there’s been a well-established culture of owning stock in Japan for a long period of time. I think they call the households, Mrs. Watanabe, and she’s very long-term holder. She doesn’t trade a lot, but if they start seeing some performance out of these things, they might start chasing them, and then get the scenario [crosstalk] as you described.
Jake: Some of the corporate governance changes have actually come from the Japanese pension side, who realize the trouble that they’re in as far as returns go and have wanted to make the change now to get better returns out of their business ownership. Like actually forcing the idea that, “Hey, this capital has a cost and you need to get over your cost of capital, which was being ignored before.”
Tobias: This guy’s an activist and Warren Lichtenstein at Steel Partners had a run up in 2000. There’s been a few– over the last 10 or 20 years, they’ve been a few attempts at trying to improve corporate governance, but maybe they needed an insider who could culturally push it through rather than American to a just a different style.
Jake: Well, doesn’t this kind of rhyme a little bit to what the US of, let’s call like 1989 Japan maybe comparable to 1968 US. NIFTY 50, huge blowout, big bear market for a long time, death of equities articles finally at the bottom after 17 years of nominal sideways, but real return just absolutely gutted you. That’s kind of been Japan a little bit, why wouldn’t some consolidation maybe happen there as well? I don’t know. It’s interesting to imagine. Was it like Graham always quoted Horace about how the fallen shall be mighty again, or something like that. What’s the quote, Toby?
Tobias: Many should be restored.
Jake: Yeah, that’s it.
Tobias: Yeah, he’s talking about words funnily enough. Yeah. Ars Poetica. Yeah, I like that. Is it Edward Chancellor? What’s the name of the article?
Jake: Japan tortoise will outpace US hare.
Tobias: That’s a good call. I always forget the Bernstein. I’m not sure if it’s appeared, but I think, it’s Bernstein who had the blog a long time ago, and he used to point out the difference between China and England over the last, and this was written a few years ago. Now, it’s 10 years old, probably. But I might even be older than that. I think it was the century of China and England and China has been a very rapidly growing.
Maybe, it wasn’t a century, but it’s a very rapidly growing market, and you pay a high price for it, whereas England was a much, much slower growing market that was much cheaper. England stock market had outperformed material. I don’t know where it is now, but that was to the point that he made that article, it was the case that basically it was valuation and really just basic improvements to these businesses to get them earning their cost of capital, brought the whole market to life, and it sort of exploded in a good way.
Jake: Well, I think the Japanese companies have already been doing a lot of the hard work of getting profit margins better to boost ROE and now, getting some of that cash off the balance sheet, maybe cheap buybacks, like all those things are the easy moves of boosting ROE relative to, I would say the US has done some of the easier things as far as borrow money and prop– boost your share price.
Tobias: Yeah, I don’t know if there’s a lot– I mean, it’s optimized as you say.
Tobias: It’s least optimized.
Tobias: It might not be over optimized. Whereas Japan’s under optimized maybe too resilient. I don’t know. But I think that what starts out as being a very good idea will be rapidly adopted and will be abused eventually. It’s the long way of [crosstalk] future.
Jake: Right. That’s how human nature cycles?
Tobias: Unfortunately, that is so. All right, dude, throw some questions in if you got them.
Jake: I was going to say ladies first, but I know it’s only guys in the chat. [laughs]
Tobias: Jamie Walkerdine, activist investors are like pests that make the house cleaner?
Jake: I think it’s like anything where there’s good and bad versions of it. There’re ones who want to gut a company and do things that are short-term optimized, long-term detrimental. Then I think there’s other ones that want to be constructive and create change that are doing what I call like the Lord’s work of capitalism. I think it’s hard to tell the difference sometimes, but I do think that they’re good guys and bad guys like in anything.
Tobias: Yeah. There’s a reflex that the guys, the incumbents of the good guys and the insurgents of the bad guys.
Tobias: Yeah, that’s often that’s not the case. It’s the other way around. Billy, you got a question on cannabis. You want to talk cannabis?
Jake: He’s for it.
Bill: I wanted to smoke it earlier.
Bill: I love it. I have some edibles right behind me, probably going to take one in the not-too-distant future.
Tobias: I’m interested in hearing your thesis. What type of business do you recommend in the industry that might do well in the next decade?
Bill: Look, I think that there are things to think about. You got to figure out whether or not you’re comfortable investing in something that’s going to change a lot, because I think it is. And if you’re not, then it’s a non-starter, and then if you are, I think you got to think about whether or not you think that a retail advantage is important or not, and how much wholesale you want to accept and whether or not you think there can be brands, and then I think that you got to start working through the work. I don’t know what to tell you.
I think the easy way to play it, if you just want exposure, MSOS is the ETF. It’s got some problems because I’m pretty sure it’s all derivatives exposure. I don’t think that they can own the underlying. But I don’t think it’s going to be easy, but I happen to love marijuana, and I don’t mind covering it. So, I’ll watch for the change and hope that I can invest through it.
Tobias: Meb Faber’s got a white paper out there talking about the corollary of when booze was legalized after prohibition in the States versus cannabis being legalized in some states now. And his argument was that, the whole industry grew 20% a year for a long time. And so, [crosstalk] it did pretty well.
Bill: Weed is going to grow like crazy, man. I think anyone that like looks at, just the amount of opioid share that I think we could take I think it’s going to grow like crazy. I think once people destigmatize it a lot then I don’t know. I think very bullish. I’ve been surprised that edibles haven’t had more take up. People still seem to be opting for flower in quite large percentages which–
Jake: Why is that?
Bill: I think it’s probably cost of dose. Yeah, also turning point brands and raw have created these cones. They’re awesome. So, it’s easier to roll a joint these days.
Jake: Is there [crosstalk] for that?
Tobias: Is Nintendo going into the metaverse?
Bill: Of course.
Jake: [laughs] Of course.
Bill: Here like–
Bill: So, like this guy, it’s just like a pre-cone.
Bill: Put you in there, tap, tap, tap it in then you got yourself joint.
Tobias: That’s some scuttlebutt research right there.
Jake: Yeah. [laughs] This is a deep dive.
Bill: I might roll one and smoke it on 100th. We’ll see.
Tobias: Yeah. Hold on, hold on.
Jake: Oh, boy.
Tobias: That will definitely get us demonetized at some place.
Jake: We have been demonetized. Even just–
Bill: Why? First of all, Google is in California, the leaders of all this. Secondly, people need to stop hating on the weed.
Jake: There’s no logic to the demonetization. That’s just what it is.
Tobias and Jake: Now, we’re gone.
Bill: You’re welcome.
Jake: Now we have to pay them.
Tobias: Don’t worry. [crosstalk]
Bill: Yeah, you’re welcome. I do think a lot of what’s going on right now in the pod stocks is like retail flows and you can see how the sentiment just collapsed. Not much has changed except for how many people want to punt on the stocks.
Jake: Is it up or down? I don’t even pay attention to it.
Bill: Oh, it’s gotten crushed.
Bill: Lots of stuff. I keep saying it, but it’s true.
Tobias: Yeah, there’s definitely a big–
Peloton Off 60%
Bill: Peloton is off 60%.
Tobias: No one could have seen that coming.
Bill: 60%. Six-zero.
Tobias: Tesla’s having a little beat up today because Musk’s selling down some stock to end world hunger.
Bill: Good for him.
Bill: Shorts rejoices, they say, they’re correct as they’re down over 1,000%.
There’s A Lot To Like About Musk
Tobias: [laughs] Yeah, I like Musk as an entrepreneur. I don’t want to be misconstrued as, I think that he’s done a lot of good for the world. But he’s been well rewarded for it at the same time. So, it’s charitable. But he’s done some good work and he’s a great entrepreneur. The reason he’s got the money is because he’s left it all on the table and let it ride the entire way through, which is hard to do. But he has borrowed against the stock. It turns out– Michael Burry pointed that out, he’s got $88 million–
Jake: I think that was shares.
Tobias: Sorry, $88 million shares. Pardon me. Yeah, $88 million shares. Are they’re not the same thing?
Jake: That’s a lot of money.
Bill: Yeah. The thing is you know you see that, but what kind of swap did he enter? Does he have a total return swap to hedge him on that? This information with that information is not information you dig.
Bill: If his bankers let him do that and don’t have some sort of swap in place that’s a mistake.
Tobias: He’s not Aubrey McClendon. There’s a big difference between where he is, but then again, when the stock goes backwards, which all stock prices do inevitably, even Amazon had a few 90% drawdowns. So, that’s where it gets a little bit sweaty, but I don’t think that he’s going to be in any trouble. Particularly, now if he ships whatever he is shipping at the moment $30 billion.
Jake: That’s an IOU. That’s as good as money, sir.[laughter]
Bill: I think the thing that’s crazy about Elon is like how much he has created himself just out of thin air. That’s pretty impressive. Even if you do think it was borderline fraudulent at times, I think sometimes the difference between frauds and great successes are a success. Oh, dude, the SEC looked at it and you got to pass. So, sometimes people play by different rules and that pisses people off, but it’s also a fact of life.
Tobias: The going private tweet was a bit silly, but there’s this you know, everybody cheers for these other entrepreneurs who overestimate or they give the appearance of their business being much more successful than otherwise is in order to attract VC, which then they invest in the business and it all works out, and that’s a good thing when that happens. I guess he’s doing the same sort of thing, but so is Elizabeth Holmes. Theranos– Theranos?
Tobias: I think [crosstalk] say it.
Bill: I don’t think that the metaverse and Oculus killed Peloton. I actually think I’m intrigued by Peloton here. I don’t have a position, but I think like there’s a version of the world where Peloton treads and whatnot are sort of the underpinning of the Ready Player One that we’re all going to go into luxury Ready Player One on Peloton.
Jake: Now, is that because we’re going to be pedaling to provide the electricity for our houses because we didn’t invest in any energy?
Jake: Oh, okay.
Bill: No, that’s not.
Jake: Got it. When was last time you rode your Peloton?
Jake: Okay. Attaboy.
Bill: Yeah, I still like it quite a bit. I do supplement it with boxing on the Oculus and I have gone to the weight machines at the gym, even the free weights a little bit. I am fat, so, I do less of that than I used to.
Tobias: I think that the exercise where you don’t know that you’re doing exercise is really the way of the future that Oculus thing we put it on and you whatever you’re doing, boxing or whatever the case may be– [crosstalk]
Bill: We got to change the form factor. It needs to be lighter on your neck. I also think that like if you could have a screen on glasses, that would be a game changer for Peloton. Because if you try to do their strength stuff at the gym, it’s got to be on your phone and then you’re like at the gym looking at your phone for your training regime like that sucks. You don’t want to be that guy at the gym. No one gets laid doing that.
Jake: So, you want to wear those Google glasses when you are at the gym. [laughs]
Tobias: That’ll make it easier.
Bill: I think, it’d be a little easier.
Jake: And you’re really going to get– [crosstalk]
Tobias: Ladies love the Google glasses J.
Bill: It could be a lady on the Google glasses trying to attract dudes. We don’t need to assume one way or the other folks.
Tobias: No lady is going to wear those Google glasses, mate. I think we got that right.
Bill: It’s true. It is a nice prophylactic.[laughter]
Jake: Oh, boy.
Bill: Instead of getting vasectomy, I should have just bought Google glasses.
Jake: Yes. [crosstalk]
Bill: It would have been less painful.
Jake: Comparable outcome.
Tobias: And tell everybody, I’m a value investor that– [crosstalk]
Jake: Sahara Desert right after that.
Tobias: What type of value invested deep value this like, “See you later?”
Bill: That’s right. I’ll have a run. People have left.
Tobias: The wife and three kids makes it hard.
Bill: That too.
Jake: That’ll slow things down a little.
Is This Bubble About To Pop?
Tobias: Anybody want to take any predictions on– I find this market is a little bit frothy at the moment and I kind of wouldn’t be surprised that we have– not that there’s anything– You don’t win any– what does Buffett say? You got to build the Ark, you don’t get any reward for predicting the rain. This is purely, this is not me building an Ark. This is me just talking off the top of my head. But it does feel to me like peak Fear & Greed on an expensive market with reopening trade and [unintelligible [00:56:29] probably being turned down. This is about as precipitous as it gets. It’s faded. Take the other side. Let’s make it a discussion.
Jake: Well, so I mean, one doesn’t– Who knows where you are in the cycle? But if you had to imagine the soil that creates a large bull market, it’s high interest rates, its low profit margins, it’s low valuations, its general lack of interest or active hate for equities. I don’t think you can really check any of those boxes today.
Tobias: From US, Japan sounds like it might be right.
Jake: Maybe. But who knows? It could be 1997 right now for all you know.
Bill: I just think a lot of the heats come out of the market, man. This earnings season murdered a lot of things.
Jake: So, now we’re going to rip from here?
Bill: I don’t know. I just don’t think it’s as speculative as it was a couple of months ago. It would be my only point.
Tobias: The setup is unique in the sense that as you point out the S&P 500 index is optically expensive on a Shiller P/E basis. When you look at the components, the four or five biggest components are all pretty good. Businesses that aren’t going to slow down, interest rates are very low, and who knows? We could see negative interest rates in the States. We’ve seen that on the bulk of the interest-bearing debt globally. So, there’s no reason why that can’t happen.
Jake: Well, they’re already real negative.
Tobias: Yeah. I saw an interesting tweet today, like, what happens if we’re not in this inflection point for interest rates going back up? What if they just keep on doing what they’ve been doing for the last 30 something years? What happens then? Probably, you see what we’re seeing now the growth and everything comes back to life.
Bill: Yeah, oh, man. Rates are zero. Microsoft’s worth 80 times. Easy.
Tobias: It’s worth– infinity, isn’t it?
Bill: Probably, you got to put some equity risk premium on it, don’t you?
Jake: Stuff from negative three to negative one.
Bill: Oh, yeah. That’d be sweet. People would be partying. Lever up baby.
Tobias: It’s a funny market though in the sense that the index is strong but expensive. There’s been this carnage underneath and all the really frothy tech stuff. Value is added to the long run average. It’s just cheap by comparison. It’s not absolutely cheap. Although, I think, it holds some absolutely cheap things, but I acknowledge that everybody’s portfolio is undervalued. I get it.
Tobias: I don’t know.
Tobias: That’s it amigos.
Jake: All right.
Bill: PayPal’s off $20 billion today. That’s used to be a real number.
Tobias: That used to be a lot of money.
Bill: Yeah. I don’t know. I think a lot of froth is out of the market.
Tobias: I think so too. But I also think that what tends to happen is crashes tend to be very long drawn out things where the wind comes up for 12 months before the pop, and it’s the last sort of– The run up in reverse, the run up is like years and years of too high returns before you get the speculative end, and then the bust is the reverse. It’s like a year of that the wind kind of slowly coming out and people just getting the– We’re not making money anymore. Yes. So, now we’re out. We’re all deciding to get out at once and that takes six months, and that’s when you see the carnage. That’s what I said, facetiously, but that would be around about February next year, for six months, I figured August could be nasty.
Jake: You can’t have boring market with a speculative minded investor base at the margin.
Tobias: That’s why I like Tesla running out. Somebody told me, Tesla was like 50% of the options market– or 50% of [crosstalk] the options market.
Bill: Yeah, there’s a lot of options activity there.
Tobias: That’s speculative, right?’
Jake: That’s investing. That’s not speculation.
Tobias: That’s the tail wagging the dog in that instance, because there’s all that delta hedging, all that sort of stuff going on. Anyway, top of it today.
Bill: I don’t know that that’s going to change though. You don’t think that’s going to change, do you? I mean, it might but Robinhood– [crosstalk]
Tobias: The speculative part?
Bill: Yeah. Well, now everybody’s got a casino on their phone. I think that maybe a step change in how deep derivatives markets are. I don’t know or how interested.
Tobias: People get bored. How long can you sustain interest in it? That’s the question. Do you move on to NFTs, then you move on to whatever else, and eventually, [crosstalk] something else?
Bill: Oh, yeah.
Jake: FanDuel. Next word, gambling on NFTs or whatever.
Bill: Yeah, but the nice thing about options is, you can gamble on the upside and the downside.
Tobias: Yeah. How many people do you think– Options are expensive on the downside, I’ll say that.
Jake: Yeah. Wait till they see that– they’ll give you money to sell puts.
Bill: Yeah, had fun call.
Jake: Free money.
Bill: Synthetic stock, baby.
Jake: Oh, boy.
Tobias: All right, dudes. This is fun. We will be back again next week. Probably, try to get back at the normal time on a daylight savings time.
Bill: Oh, yeah.
Tobias: Standard time rather because it’s not savings time. Standard time. So, next week, we’ll be at normal time.
Bill: If they demonetize us for that cone, I’m going to be very upset with Google.
Tobias: Google’s probably for and it’s probably just not going to turn up in some countries.
Bill: Yeah, that’s fair.
Tobias: All right, guys. Good job.
Jake: Cheers, mate.
Bill: I’ll trust you government. Bye.[laughter]
Tobias: You got to do that after the–
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