Is iPhone The Best Toll Road Ever Created?

In their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discuss Is iPhone The Best Toll Road Ever Created? Here’s an excerpt from the episode:

Jake: Let me try to ask a question, Bill. At any point in history, has there ever been a technology that is comparable to this network effect advertising platform that– is this truly a one-off technological advancement and economic moat that we’ve never seen anything like it and therefore– because why wouldn’t something from the 1920s have carried with it huge margins for 50 years, if that’s what the argument that we’re making right now?

Bill: Yeah. I think that for the first time in– You can throw Microsoft if you want to get outside of mobile. But yeah, for the first time– I was thinking last night. I was in bed and I was like, “Holy shit, Buffett got his toll road, and it’s the best toll road that’s ever been created, and it’s the iPhone.” I could be wrong. I don’t think that there’s ever been a time in history where incremental margins can increase like they do, and the toll road looks like something that everyone carries around in their pocket and looks at almost 40 times a day. I don’t.

You could have a railroad but you’ve got to put money into that. Yeah, you’ve got to put R&D in the Apple, but you sell these devices at huge gross margins, and then you just take, and take, and take, and take, and take. That’s a hell of a business. I don’t think that’s been created. And you’ve got global scale now. So, it’s not like somebody can outflank you on a scale position. But I could be wrong. From wrong, [crosstalk] I’m an idiot.

Tobias: I’m sympathetic to that view. I don’t know whether– I’m somewhere in between. I don’t know exactly. But I just keep an eye on– As far as I can see, that’s reasonably good. It doesn’t have to be any one of those measures. It’s not CAPE. I’m just using CAPE because it’s the easiest one for me to calculate. Tobin’s Q is a bit harder and the Buffett metric is easily calculated too, but it’s just harder to pull that data automatically. They will give you the same answer. So, it’s not the–

Jake: They’re all directionally in the same– [crosstalk]

Tobias: They’re all directionally the same. The only possibility of anything that is different is the case that you’ve articulated there where it’s these businesses are so fundamentally different that we have to treat them differently. Possibly, that is true. I’m just wary of kind of arguments like that, because that argument has been made at every other peak that we’ve ever seen, which is not to say that it’s wrong this time. It’s just to say that I’m just skeptical a little bit.

Bill: Yeah, well, and look, when I said the thing about Google growing 5%, it’s possible that Google grows 5% per year. I’m telling you right now if that outcome is the case, my answer is you sell everything. If that’s the bet, I think that’s a macro bet. That I think is an asset allocation question. Dude, in that world, I don’t know, a lot of things are really screwed. Unless some big technological advancement comes in, kneecaps it, it’s possible but I just don’t think it’s probable.

Tobias: What about just a recession more generally that just impacts everything? There’s just fewer dollars to spend.

Bill: That’s an asset allocation question, in my mind. I think if you want to call a recession or you want to say these peak multiples on peak earnings and things are going to come in, I think cash protects you more than going lower quality in stocks.

Tobias: I forget what the number is, but I’ve seen various systems. But, JT, you might know this better than I do. But the number of dollars that are outstanding versus a few years ago, there’s 40% or 80% more dollars outstanding than they were only a few years ago.

Jake: Yeah, it’s 110% more the balance sheet of the– Well, we should probably be a little more careful in what we say, dollars versus the balance sheet of the Fed, because I don’t think those are exactly comparable. But anyway, sorry, go ahead.

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