Basket Investing vs Idiosyncratic Investing

In their latest episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discuss Basket Investing vs Idiosyncratic Investing. Here’s an excerpt from the episode:

Bill: Yeah. I think you’ve got to have a view on what short-form video does to the inherent nature of the platform.

Tobias: Eh, you know.

Bill: What do you mean eh?

Jake: [laughs]

Bill: It’s a social platform and [crosstalk]

Tobias: We’ll do it in different ways, mate. I don’t know if using all that stuff. I’m never going to figure that stuff out too hard. If it gets too cheap, I’m just going to buy it.

Bill: Yeah, okay. Well, that’s fine. We have definitely [crosstalk]

Tobias: Hardly a little bit. Let it ride.

Jake: It’s the difference between basket buying and idiosyncratic buying.

Tobias: That’s right.

Jake: That’s okay.

Tobias: I think a lot of this stuff is unknown. I just think that, it’s a little bit like macro, it’s fun to talk about, but it shouldn’t really impact investment decisions.

Bill: I don’t think that talking, doing calls with advertisers, and have them tell you that stories monetize different than newsfeed, and that the reason is because the way that people click through it, and if you look at human behavior scrolling the news, I don’t think that’s unknowable. I think that’s just doing the work.

Tobias: That might be why it’s cheap. Yeah.

Bill: Okay. I mean sure.

Jake: [laughs] Eh.

Bill: But you don’t have a view on it. The whole point is, you have a statistical idea. So, you opining on it and just [crosstalk] away is–

Tobias: I’m not opining on it.

Bill: I know. I don’t mean this disrespectfully. But the way you’re treating this, it’s almost as if it’s not even worth talking about.

Tobias: Well, let’s talk about–

Bill: I was trying, but if it gets too cheap, you buy it. That’s the discussion.

Tobias: I think that’s– we’ve already established that’s my approach.

Bill: Yeah. I have no idea how you determine what is cheap and what is not without these questions being answered in a discretionary portfolio. If you want to outsource it to a bunch of bets, I totally understand that. But then, it’s not worth having a business discussion over. It’s a statistical conversation.

Jake: Well, you’re trying to handicap the future based on dynamics that are happening today. Toby’s looking backwards at what’s already happened and assuming some reversion of the mean somewhere, and both of you can be right, and both can be smart ways of doing it. It doesn’t necessarily have to–

Tobias: What it is for me, I can tell you– I’m not trying to be too flippant here, because there’s a lot of work that goes into the background. But the idea is that it has been historically a good business and that’s all observable quantitatively. It’s now priced too cheaply if it sustains what it has done in the past. It’s not priced too cheaply, even if there’s a pretty big diminution in its historical performance. If it’s not going to completely revert to the mean, then it’s too expensive. But it’s got a long way to go before it becomes too expensive at these prices. So, that’s the way that I think about it.

I think if it does anywhere near what it has done in the past with a very wide range, it’s too cheap here and it’ll probably do okay with a long enough time frame, 5-year, 10-year timeframe. That’s what I think about it. As to dive down into the detail of the business part of it, I question whether anybody can really figure that out, because they’re almost cyclical so quickly and maybe that’s why you don’t want to be in tech, but that’s my position without being too flippant. All right, fellas, that’s time.

Jake: [laughs]

Tobias: This was fun.

Jake: Dead air. [laughs]

Bill: I question how you can invest without questioning that stuff. But statistically, cheap bets is the way you can do it.

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