In this episode of the VALUE: After Hours Podcast, Jake Taylor, Bill Brewster, and Tobias Carlisle chat about:
- Where Do Returns Really Come From?
- Updates To Acquirer’s Multiple Screens
- Buffett: Buybacks Are A Better Alternative Than Doing Something Stupid
- Expected Growth Is A Good Value Approach
- NFT’s Are Dead
- Net-Nets Appear When Everything Is Dusted
- Fear & Greed Index In Buy Territory
- Callaway Is Going To Be A Boom Stock
- Volatility Is Truth
- Flat On The Index For The Next Decade
- Peter Lynch v Net-Net Approach
- Elasticsearch Down 53% Last 6 Months
- Futuristic Thinking
- 20 Hour Work Weeks
- When You Open A The Doors To A Concert And Everyone Runs In At The Same Time…
- $FB Is Cheap
- More Labor To Be Outsourced
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: Preparing to livestream. It is 10:30 AM on the West Coast, 1:30 PM on the East Coast. I tell you those times, so that if you want to watch this live, you can hop on to the YouTube channel. Click the links and subscribe something like that. Here we are, Jake Taylor, and Bill Brewster, and Tobias Carlisle. How are you, fellas?
Bill: Good.
Jake: Living the dream, feeling good. I think the world got a little interesting since we last got on here, huh?
Tobias: Yeah, indeed.
Bill: Indeed, it did, unfortunately.
Tobias: Interesting in the Chinese curse since. A few things have happened since then. We’ve got over 10,000 subscribers on the podcast.
Bill: Hey, oh. How many bots are you paying?
Tobias: Not enough. [laughs] I’m not paying any, but that doesn’t mean it’s not there.
Jake: They’re all Russian bots. So, we’ll find out when they’re all disconnected here.
Bill: [laughs] It turns out we had 50 listeners overall at the peak.
Jake: Yeah.
Bill: I always thought it was 10. It was bigger than we thought but never big as [crosstalk]
Jake: Not much as you really thought. [laughs]
Bill: Yeah, that’s right. Engagement was real poor.
Jake: Makes sense. Production quality. [laughs]
Bill: That’s right. Technical prowess ended up biting us in the tuchus. No one actually stayed around except for 50 people that probably should have better things to do with their lives. Thank you all for sticking with us.
Tobias: Kathmandu and Limerick. Sounds like I’m starting a joke, but Papua New Guinea. [unintelligible [00:01:44] Papua New Guinea.
Jake: Whoa. Other side of the world.
Tobias: Sure, it is. Beautiful part of the world. There’s been some interesting things happening. I regret a little bit precipitously suggesting you should be long Russian equities last week that looks like that’s got a whole lot more complicated than–
Jake: A little premature accumulation there, perhaps.
Tobias: Yeah.
Bill: Well, one of us called it right.
Tobias: What did you say? Too risky?
Bill: No, I think I just said that I thought the [crosstalk] construction was shitty. I don’t know that I thought that their entire economy would be shut off from the world. I don’t know, man. Sometimes, I think people are like, “Ah, it’s priced in.” I guess.
Jake: [laughs].
Bill: I’ve never seen anything priced in. In my opinion, if the results disappoint, your stock’s going down. I don’t care if it’s ETF or a company specific stock.
Tobias: Thomas in London says, “His Gazprom holding was vapourised.” I like that British spelling, that extra ‘U’ in there. Yeah, there a few names I saw that– I don’t want to try and pronounce it, but I’m not going to try. There are a few cheap Russian names around anyway and getting cheaper evidently.
Jake: Yeah, every tick. Yeah, what are the studies say about that, Toby? We have Bernstein’s book on Deep Risk, which gives you some pretty good things to worry about as far as confiscation of wealth. I don’t know. What would the value studies say about–? Obviously, we’re looking at if any numbers hold as far as fundamentals go, Russia’s pretty cheap right now. What does it say about taking doughnuts from that when you’re– [crosstalk]
Bill: Dude, they just got kicked out of SWIFT. They’ve got sanctions all over them. If any numbers hold is the big IF, right?
Jake: Well, of course, but also, that’s how you get a one P/E.
Bill: I guess, dude. But people were saying Russia was cheap 70% ago. I mean yeah, somebody will bottom tick it.
Jake: Yeah.
Tobias: In the grand scheme of things.
Jake: It was relatively cheap. I’d say it’s pretty historically cheap today if numbers hold.
Bill: Well, somebody should go buy it. Tell me how it feels.
Jake: Not an investment advice, by the way.
Tobias: On the point that you make, Bill, it’s 70%, that’s a big absolute move in the short term. But I sometimes think if you look many, many times, investments that perform really well over long periods of time like five, or 10 years, or longer, you can look at that– I’ve noticed this lots of times that you get that extreme volatility at the point of whatever the incident is, whatever the catalyst, and I wouldn’t say 70% is well within the range of a move, it’s all price right at this point. Having said that, I’m not advocating for a Russian investment. I’m just saying that I wouldn’t worry too much about those moves that’s just what happens when you buy in. [crosstalk]
Bill: Sounds like somebody that bought Peloton at $85.
Jake: Yeah. [laughs] Let me try to reframe it. [crosstalk]
Bill: I mean that is true right. It’s just because it happened to be in the value bucket. We’re like, “Well, 70% down is okay.” But if it was in the growth bucket, I bet we’d be dunking on it. So, I don’t know. You take a 70% drawdown, you’re wrong. That’s my view.
Jake: Let me ask this. Would John Templeton today be buying Russian equities? Because he talks about absolute- [crosstalk]
Tobias: [unintelligible [00:05:35].
Jake: -maximum pessimism. Hard to imagine a lot more pessimism from here.
Bill: Yeah. I don’t want it. I wouldn’t even want to make money that way.
Jake: [laughs]
Bill: I wouldn’t. I don’t care. There are certain things that I don’t want to do and that’s one of them.
Tobias: I don’t hold any international stuff at all. I’ll hold US stuff. Idea is that maybe through this US things, but I don’t actually think I have any ideas in there at the moment.
Bill: Plus, what do you own? You end up owning it, now you got a bunch of– You get a rerating in the bunch of oil companies and financials. Okay.
Jake: Yeah. Rerating off of a 1x.
Bill: I guess, man. We’ll see. I’m sure it does well. Somebody else can write their letter and raise funds off it.
Jake: [laughs]
Tobias: There’s somebody makes a good point here. Gregory Nihon. “Sir John didn’t invest in the USSR.” That is one point worth mentioning that there are plenty of stock markets that they just have hundred years of history missing, because they shut down and they didn’t reopen. I’m with Buffett like, “You should be happy if the stock market closes tomorrow and hold five years in the interim, but–.”
Jake: “But not a hundred.”
Tobias: Oh, that’s tough. That’s a long time.
Jake: Be patient, man.
Bill: Well, what did he say? He says you should buy something that you’re okay if the stock market shuts down for five years, right? I’m not sure that– [crosstalk]
Tobias: Look for stock markets that are getting shut down?
Bill: Look, Charlie’s not buying Russia. He said he wouldn’t invest.
Jake: So, that’s a good question, though. Ostensibly, we could have a conversation about what’s the difference if China were to invade Taiwan today? What would the reaction of–? [crosstalk]
Bill: Potential upside in the economy. Russia, it’s a shitty business economy. It just fundamentally is. China, you got Tencent, you got Alibaba, there’s a lot of R&D, there’s a lot of intellectual property, they’re investing a lot in tech. They’re not just a commodity. I’m sorry to my Russian hacker friends out there that aren’t on Putin’s side on this, but I don’t see what the appeal of owning Russia as a country is. That’s why I thought it traded cheap. I don’t think it was particularly good value.
Jake: I will agree with you, especially in the last, let’s say, 10 years when we’ve been in a bit of a commodity bust from just an insane 2000 to 2010 time period, where commodities were just on fire. But it’s not impossible to imagine that commodities over the next 10 years do reasonably okay. If so, ROEs on banks, and oil companies, and gas companies aren’t, they won’t look as bad as they did the last 10 years.
Bill: Shitty businesses.
Jake: [laughs] Told forever. I would agree.
Bill: What if Buffett started his letter with Charlie and I are business pickers not stock pickers. That’s where I’m tending to more. So, I don’t even care if it’s that cheap. I don’t want to own Russian banks and Russian oil companies. I just don’t care.
Jake: Surely, there’s some price where you’d interested.
Bill: No.
Jake: If I said, “You could have the entirety of Gazprom for $1, you would say no?”
Bill: Sure. For a dollar, I’ll give you a dollar.
Jake: There’s obviously somewhere we can work up to where there’s a [unintelligible [00:09:14] then.
Bill: I just told you, man, I’m not interested.
Jake: [laughs]
Bill: I don’t want anything to do with it.
Jake: You just wanted it for a dollar.
Bill: Yeah, okay, a buck. That is completely meaningless to me. You put any amount of money that I actually care about, I have no desire to invest there.
Jake: That’s fair.
Bill: I don’t want to own it. I don’t care about a rerating then I have to figure out the next time on the cycle to sell it. It’s not the game I want to play anymore.
Tobias: To be fair, Buffett said the same thing, because he said that he was having problems getting the money out of one of the investments there. They’re fine letting them drill the holes, but they didn’t want them to take the oil out or whatever it was. I forget the exact. He said he was threatened with violence. So, he decided not to invest there anymore. It is Templeton cheap and I guess, if you’re on an index, maybe the index is the way to go. The index or something like that. Someone pitched that last week or the week before. I thought that was pretty smart. That was a smart idea.
Bill: It’s a shitty way to live, man.
Jake: [laughs]
Tobias: Which part? War profiteering?
Bill: Yeah. I don’t know.
Tobias: It’s interesting.
Bill: We’re getting into politics and I have no desire to root for Russia to win this particular conflict to get some rerating in the bunch of businesses I think are shit. I just don’t care.
Tobias: But the index isn’t a bad business.
Jake: The rerating would come from– [crosstalk]
Bill: It is. The index– [crosstalk]
Tobias: I’m sorry, sorry. Not the index. The stock market, stock exchange. The index.
Bill: Yeah, I guess the Russian Stock Exchange, fine. I don’t care. I don’t begrudge anyone that wants to make money doing it. Don’t write me about an idea that has anything to do with it.
Jake: [laughs]
Bill: I don’t care.
Jake: You’d be rooting for peace because that would be the rerating event for you.
Tobias: Point.
Bill: Yeah. I guess, that’s one way to frame it.
Tobias: Peace profiteer.
Bill: That seems a whole lot of motivated reasoning to me.
Tobias: Put that on a t-shirt. [laughs]
Jake: Put that on a t-shirt.
Tobias: All reasoning is motivated reasoning.
Jake: Yeah. All right. What do we have other topics today other than just the world? A little less secure– [crosstalk]
Bill: I got a couple– I got to get this dog a bone, this thing’s eating my hand. Please excuse me for a second. I’m down to do Buffett’s letter. What did I want to say? Why I went on Callaway? There’re a couple things I’m down to do.
Jake: Okay. What you got, TC?
Tobias: I’ve spent the last few weeks plugging away behind The Acquirers Multiple website. I made a few changes to the screeners, which I just want to talk about a little bit and then I’ve included these bubble charts-
Jake: Yeah. I like your bubble charts.
Tobias: -that I’ve been having a lot of fun playing around with just– I don’t know what it means. I don’t know if it means anything, but they’re just interesting charts. They’re fun to look at and I’ve been having fun playing. So, I’m going to talk about that a little bit. What you got, JT? You got any vegetables for us this week?
Jake: Yeah, we’re going to call this one, “Where do returns come from?” Taking some of Chris Bloomstran’s analysis out of his last letter that just came out, what, last week or recently, and we’ll go through some of the numbers. It’ll be a little bit numbers heavy, but I’ll try to narrate along with a number, so that we can talk about where returns come from, and what they might look like for the next 10 years.
Tobias: While we’re waiting for Bill, let me just talk a little bit about the site.
Jake: Yeah.
Updates To Acquirer’s Multiple Screens
Tobias: The ongoing questions that you always have as an investor is how concentrated you want to be in an industry or sector. It’s just the case that whatever is ailing any particular stock tends to be– often, it’s an industry that gets cheap. Like energy for the last few years has been just getting cheaper and cheaper until recently, when it started taking off again. What that means is that the screeners get heavy with individual industries. There’s also the problem that for the most part it does tend towards–
Jake: Cyclical.
Tobias: Yeah, cyclicals. I don’t necessarily hate that, but you can get a very heavy concentration and then as we know, with cyclicals, there can be no bottom for a long period of time, and the cycle seems to be quite long. I run back tests for everything that I stick for every change that I make to everything. What I have done in the screens is I’ve just limited the number of names per industry to six, on the basis that the seventh cheapest name in the industry is probably not that interesting and if there’s about 80 industries that ends up with about– [crosstalk]
Jake: That’d be on 3%, because even position sizing. So, you end up with 18% max sector exposure?
Tobias: Right.
Jake: Okay.
Tobias: Or, max industry exposure. I’ve done down to the industry level. There are about 480 industries– Sorry, 480 names across 80 industries roughly, six names for industry. You get a little bit of a different distribution. I’ve increased the market cap cut off in the large cap screener to 20 billion just because I haven’t moved it up for a long while. [crosstalk] Yeah, it’s amazing how big everything’s got and it’s an interesting distribution of names now in that top– in the large cap screen.
So, Facebook actually makes an appearance in there, which is extraordinary, because it means it’s one of the cheapest names in its industry, I guess, but it also is one of the cheaper names having made that cut that gets in there among a whole lot of other like all the cigarettes are in there. Moderna popped in there, which I thought was funny. Moderna is absolutely terrifying to me as a position, because clearly it’s had a pretty spotty record up until recent times with the vaccines.
Jake: It could be a bit of a hula hoop.
Tobias: To create the bubble charts, I need a second axis. I’ve got The Acquirer’s Multiple on one axis and I just was trying to find something to stick on the other axis that was related to performance. I put the five-year average return on assets on there. It’s an interesting analysis that gives a little spread of these names. You can clearly see which are the better businesses or which are the businesses that generated a little bit more return on assets than the other ones. These bubble charts are great. You can have a color axis as well. It means that it’s gray to green. I’d rather run from red to green, but I can’t figure out how to change that sitting in the back. So, it’s gray to green at the moment. I used the [crosstalk]
Bill: Tech was never your high point.
Tobias: Say it again? [laughs]
Bill: I said tech has never really been your real high point. I can see how the gray to red would throw the entire idea off.
Tobias: I think to be fair I’ve got it a long way for a lawyer to have got this stuff out.
Jake and Bill: Yeah.
Tobias: Get all this stuff talking together.
Bill: Well, your best I think–
Tobias: I like tinkering.
Bill: Your best at long form books and charts.
Tobias: That’s fair. That’s probably correct.
Bill: Formatting and tech, I don’t know. I wouldn’t say like, “That’s Toby’s [crosstalk] strength.
Tobias: I like to think a little bit artistic, but [crosstalk] I like Greenwald’s growth metrics. I like Greenwald’s way of valuing growth. He looks at the yield, he looks at the return on the reinvestment rate, looks at it incrementally, and then he sums it all together, and that gives you this expected return figure, which is what I’ve done. I’ve made my own modification to it, because I’m not using free cash flow. I’m using operating income and then playing around with a little bit. It makes intuitive sense to me. I might have to explain it a few different times, find a way to explain it better– [crosstalk]
Jake: Toby adjusted earnings? [laughs]
Tobias: I find it interesting. It’s quite a useful little tool and it tests reasonably well, too. It’s interesting in the sense that what it has done, if you’re just purely ranking on this expected return figure, it’s quite good at picking stocks that do well in a growthy market. It’s a growth screen. I put that into the screener. There’s one on the front page, which is the large cap screener. If you go to The Acquirer’s Multiple website, you can pull it up. It takes a little while to load up, but then you can see that screen and then if the paid screen is on our full depth on all investable, full depth on small and micro, and you can see the bubble chart distribution to see where everything is in there.
$FB Is Cheap
I think there are a few things that are interesting to stand out. To me, Facebook stands out. I’ve said this a few times as we discussed last week and the week before. I don’t know which of these two outcomes is the correct one. All I know is that the price is quite distinct from the last five years of operating history for that business. Either the business is going to collapse pretty precipitously here over the next few years and that’s entirely possible. That’s not off the table at all or the price is wrong, if it can continue on what it’s doing. So, I don’t mind little bets like that.
Jake: Can I set the calendar reminder for 2032 to pull that growth screener off the shelf and–? [laughs]
Tobias: Yeah. Well, next time you go to write your value worst opportunity sitting 25 years or whatever it’ll be by that stage, 35 years or 55 years.
Jake: Yeah. [crosstalk] but that’s it.
Expected Growth Is A Good Value Approach
Tobias: Let me know because then we’ll switch that one. The expected return is still a value approach to investment, because it still requires fundamental–
Jake: Yeah.
Tobias: The rate of growth is limited by the ability of the firm to reinvest in itself. The better returns on assets in the higher rates of reinvestment will generate higher expected returns. It’s just that for whatever reason, they tend to be quite mean reverting, they tend to not pan out the way that they present in the screen.
That tends to be just too optimistic, I think, for the most part, but it’s still in periods of time where growth is running pretty hard. It’s pretty good at picking good names and it’s got some good names in there. Now, you can go in there, you can rank. I’ve added some additional things. That’s one of the things I’ve included.
I’ve included this expected return ranking thing in there and an intrinsic value to price, because this is the way that I think about it. If you’re going to spend a dollar, how much intrinsic value, i.e., buying, you want to be buying more than a dollar for the most part.
Although when I tested, I found that provided you are getting about 60 cents or more in these better names, you’re going to be fine. You can overpay for really good stuff. A little bit like that discussion we were having earlier about stocks falling 70%. If for a really good business, you can tend to pay over the– Even the growthy estimate of what they’re worth. If they work, the payoff is so huge over a period of time. In my experience that seems to be it’s okay.
But about 60 cents is pretty consistently, you don’t pay too much more than that. If you’re getting 60 cents or more and then– You want high expected return without paying over the odds from those names in the screen that delivers pretty good performance, but this is the crazy thing. The Deep Value Screen is still the best one. It’s just very cyclical, but Deep Value Screen continues to be– I don’t know how this is the case, because it picks a whole lot of really scary stuff all the time, as rerating does seem to work.
Anyway, so, go check out those screens. Let me know what you think of. I’ve had some fun playing with them in the background. I’ve been doing it for about three weeks. I think I’ve gotten slightly insane doing it all, but it was fun while I was doing it.
Jake: Welcome back. [laughs]
Tobias: I had to put it all up on the site, because I was getting tired. I was getting sick of it. So, that was the point. I had to let it go, but I’ve been torturing my wife with it. She just doesn’t care. [laughs]
Jake: Oh, God. Like getting a [crosstalk] great artist. I can’t stand a look at it anymore. We’ll just send it out.
Tobias: I think that’s the way to go. Yeah. Anyway, it’s fun.
Jake: Guys want to crank through some “Where do returns come from?”
Tobias: Yeah, let’s do the Bloomstran thing.
—
Where Do Returns Really Come From?
Jake: Okay. You guys know Bloomstran’s Semper Augustus letter’s always a bit of a massive lift. It’s 130 pages typically. But towards the beginning of it, he has a little section on basically, like, what has happened in the last 10 years. If you imagined the S&P 500 as a single conglomerate and looked at it as one big business, and “where do returns really come from?” That’s what we’re going to break down right now. You could go back to Benjamin Graham’s time period and look at return on equity impacting changes in book value, and then a multiple of book value plus a dividend will give you basically what your return could have been. But today, we use more earnings-based thing. You can do a little bit more decomposition than what Graham might have done.
Really, you’re looking at the change in earnings per share, which we can then decompose into the change in the sales and the change in the share count multiplied by the changes in the margins of the company times the multiple plus the dividend yield. We have this equation that holds true and will tell you exactly where returns came from within a business. It’s the fundamentals, how they’re changing, the multiple, which is the assessment, the sentiment about those earnings, and then a dividend yield. Sum it all up and you get where your returns came from and where they might come from in the future. Let’s run through what the last 10 years looked like.
This is from December 31st, 2011 to 12-31-21. Total over those 10 years, sales for the S&P 500 went up 34%. That’s a 3% annualized growth rate, which is basically GDP. The share count fell by 7% total. That added in an annualized form about seven tenths of a percent to your return. Margins expanded 46%. That turned into a 4% return attribution. Multiple expanded 81%. You got 6.4% attribution return to the multiple change. 2.4 from dividend and it sums up to a 16.6% annualized return for the S&P over the last 10 years. That’s a pretty monster run. 16% annualized for 10 years is a lot. That’s 363%.
Tobias: That’s one of the higher returns, I think, in the data.
Bill: You are coming off of a pretty low base.
Jake: True. One way to break this down a step further is for every one dollar of return, what percentage of that return pie, where did it come from within these buckets. Sales gave you 19 cents of every one dollar, the share count shrinking gave you four cents for every dollar, margin expansion gave you 25 cents off of dollar, multiple expansion gave you 40 cents of the dollar.
Tobias: The penultimate then was margin expansion gave you 25 cents and then multiple expansion gave you–? Can just say this two, again?
Jake: Yeah. Margin was 25 cents, multiple was 40 cents, sales was 20 cents.
Tobias: Okay.
Jake: And then dividend was 15 cents. Sum that all up, that becomes 16.6 total return for that time period. Let’s look at what the same 10-year increment, but let’s look at 12-31-89 to 12-31-99 and see what kind of rhyming we can see there. Okay, in this instance, sales group 79%, which is a 6% annualized.
Tobias: That’s twice a rate, right?
Jake: Twice the rate of actual sales growth. Shares actually increased by 20% over that time period. I assumed just a bunch of IPOs towards the end of that time.
Tobias: Is that a negative number then for that–?
Jake: That’d be -2.3% attribution to your return from share count expansion. Margin expanded 48% giving you 4.2% attribution.
Tobias: it’s about the same, right? Just 46 that the other one.
Jake: Yep. It’s very close. Multiple expanded 96% total. Basically doubled multiple, which gives you a 7.2% attribution, which is a little bit more than 6.4 from this last decade. 3% dividend yield, sum that all up and you get 18.2% annualized for the 10 years of the 1990s. Then we could do that quick, like, cents on a dollar. 34 cents per dollar from sales increasing -12 cents, because of share count actually expanding, 23 cents for margin expansion, 40 cents again for multiple, and then 16 cents from dividend. So, it almost rhymes completely with that time period.
Okay, now, let’s put the connection of the time period in between, which was 12-31-99 to 12-31-09. The numbers don’t change a ton if you added two more years to get it to the 2011 time period, so that you connected the full sequence. By the way, I’m going to put the punch line at the beginning of this, which is that, you had a -9.1 cumulative return over that 10-year period, which is basically -1% annualized. So, how did you get there? Was it sales growth, sales problems? No. Sales grew 49%, which was a 4.8% attribution in the plus side.
Tobias: So, more than the last decade.
Jake: More than the last decade. Share count expanded a little bit over that time period and this is probably just dilution from money being raised in 2008 and 2009. You had basically 6% share account growth over that time period. Margins contracted 22%, which shaved off 2.8% return for you. Multiple contracted 31%, which shaved off another 4.3% and then you got your 2.1 dividend yield. Basically, sales were fine and better than even the last 10 years. Margins came in and multiples came in enough to where you had a last decade. All right.
Tobias: I wonder what the relationship of margins and multiples? I don’t think anybody’s devolved to that level before.
Jake: I don’t know. I haven’t seen that either, but they would appear to be very high, at least in these– [crosstalk]
Tobias: Yeah, in those three examples.
Bill: Yeah, I would think so.
Jake: Now, let’s sum all this up and look at it from 1999 to 2021 basically, so 22 years’ worth. You ended up with 136% total sales growth. That’s a 4%. Basically, GDP plus a little bit, share account is basically flat, the margins expanded by 67%, which gave you 2.4% total annualized return attribution. Multiple actually shrunk over that time period by 17%, so that shaved off basically 1% of your attribution.
Tobias: Because the comp is 1999, which is close to the-
Jake: The comp is 99.
Tobias: It’s the highest we’ve ever seen.
Jake: Right.
Tobias: Yeah.
Jake: And the dividend gave you 2% again every year.
Tobias: What that saying was 17% cheaper than we were in 1999. We’ll close to the very top in the biggest bubble ever.
Jake: Right. Especially, multiple wise, yes. Margins again are quite a bit higher. All told that gets you to 7.5% total return over that 22 years, which is what you would expect for equities. That’s a long run return. It just goes to show you beginning starting valuations, changes in margin and multiple really drive a lot of what’s your shorter-term experience is going to be, shorter meaning 10-year period. But once you get long enough that you can start to feel comfortable that enough of that stuff comes out in the wash, and you basically will get sales growth, and whatever share change, and the dividend over the years, and that’s probably where a lot of your returns will come if margins and multiples get washed out over the time period.
Tobias: So, margin saw close to all-time highs at the moment, right?
Jake: Yes. Well, real quick. Chris also breaks down what FAANG did over that 10-year period, the last 10 years and it’s revealing, so 12-31-11 to 12-31-21. Sales grew 17% annualized.
Tobias: Annualized, yeah.
Jake: Yeah. I’m just going to give the contribution, the attribution of return for this. 18.3% attribution from sales growth from these five companies. 2.6% per year in share account reduction, which was mostly I think Apple and probably Microsoft. Margins actually came down some. So, you lost 1% to margin changes, which is surprising. I wouldn’t have thought that their margins would be lower in 2021 than they were in 2011.
Bill: Amazon does a lot to that.
Jake: Lower margins than they were in 2011?
Bill: Yeah, dude. They just continually reinvest. They’re not playing a margin game. So, I think that as they grow their sales, the blended average might come down.
Jake: Fair enough. That’s a good observation. I like that. Multiple expansion, you got 9.4% per year in that, and then a dividend, which basically is nothing half a percent, totaling you to 29.8% annualized over that 10-year period. It’s just monster.
Bill: Got to revert it to the mean, you’re only going to make 17 going forward.
Jake: [laughs] Well, let’s talk about going forward like what would the next 10 years look like? Because you have to get comfortable with all of these numbers if you’re going to make a projection as to what your next 10-year might look like. Let’s say sales and we can have conversations about debt levels, maybe–
Tobias: Is this FAANG or is this the index that you are discussing–?
Jake: No, let’s just go back to the full index.
Tobias: Index.
What The Next 10 Years Looks Like
Jake: Yeah. Let’s say, you’re an indexer that owns S&P 500. What do you think the next 10 years is going to look like for you? Well, the last 10 it grew at 3%, which is basically GDP. I’d have a hard time getting much above that number. I don’t know about you guys. Share account, maybe reducing 1%, maybe annualized, but even then, we added a lot of debt in the last 10 years to do that LBO, so I’m not sure you could pull that lever again. I don’t know. How do you guys think about that?
Tobias: FAANG is a big part of that index and FAANG, probably does stop buying back some stock here. That’s been Amazon’s got a buyback, Facebook’s got a buyback, Google’s got a buyback going on, I think.
Jake: Yes.
Tobias: Netflix, probably not. Who else is in there? Apple does on occasion, probably across that’s like 25%– [crosstalk]
Bill: Netflix is going to start buying shares.
Jake: Exactly.
Bill: They may not be a lot, but they’re going to start.
Tobias: They have done it on and off pretty substantially in the past. I just don’t know where they got that one going on now.
Bill: Well, I believe and this is from memory, but I believe that they have been authorized. As they get free cash flow positive, they said that they’re going to start to return capital through buybacks.
Tobias: I would say, you probably rely on buybacks from FAANG getting it to 1%. It’s probably fair across the full index.
Jake: How about margins today at 13.4% and absolutely blistering number compared to the data set?
Tobias: I don’t even know where the long run margins are these days, it used to be 6.1. I think that was about the mean for the long time.
Jake: Yeah.
Tobias: But it’s gone nowhere near that for the last 15 years. Probably, not 15. Probably, 12 or 13. It’s just been expanding over that full period of time.
Jake: Yeah.
Tobias: I don’t know. It is that a better composition. FAANG being better businesses.
Bill: Well, growth profit definitely is going to get better over time. Then the question is, can they manage GNA, I think?
Tobias: Well, that’s an interesting question, because I think that what they have been doing in the past is compensating people with options. But we’ve seen with Facebook, because Facebook stock is now smashed. They’ve increased their starting pay from was 160 to 350. I think somebody else had done something similar to that paid increase their associates pay pretty substantially.
Jake: It’s Amazon.
Tobias: Amazon. That sounds right. I don’t know what they– [crosstalk]
Jake: At any point, does that start to impact your margins, do all these commodity costs ever impact the margins, is higher energy prices ever impact margins? Inflation will show up somewhere eventually, right?
Bill: Yeah, a bunch of small cap companies that are old world businesses. This is famous– [crosstalk]
Jake: No, we’re doing S&P 500. Let’s separate those out.
Bill: Yeah. But as tech increases as a percentage of the S&P, I think tech’s been fighting inflation for a long time. It’s just been salary inflation. It’s not the price of engineers have gone down anytime in the last 10 years.
Jake: No.
More Labor To Be Outsourced
Bill: Look, man. There’s a chance. I don’t know. This is way too hard for me and my pea brain to figure out. But there’s a chance that work from home actually really does decrease the amount that you have to pay people, because it may not be work from home in the US, and maybe all of a sudden, you can outsource a lot of this labor to really low-cost countries.
Tobias: It’s definitely going on in scale at the moment.
Jake: That’s been going on, though, for– [crosstalk]
Bill: It’s a lot different now. I know that people are going to laugh at this, but if you listen to the Zuckerberg’s Metaverse conversation, he had something that came out not too long ago. A lot of what he was talking about is putting an Oculus on and coding with people, I don’t know man. I don’t know. The labor outsourcing may continue for a very long time.
Tobias: I think that’s definitely the case.
Jake: Okay. We can get into this a little bit and [unintelligible [00:37:16] others. Multiple today 23.6 priced earnings and then dividend giving you a 2% yield.
Tobias: What’s the long run average? Is it 16 or 17?
Jake: It’s probably around 15, well it’s probably 16-ish these days.
Tobias: I know that Cape is that kind of number, but I just don’t know how Cape– I don’t know why Cape in a single-year multiple would be different.
Jake: Yeah, I don’t think it would be. Because it’s a summation of all of those would form, summation of Cape.
Tobias: Yeah.
Jake: So, to get to even a 10% per annum return with 3% sales and a 2% dividend yield, we could maybe take those roughly to the bank. We need to get another 5% from somewhere out of margin and multiple. Let’s assume we needed to get two and a half percent out of each one of those. That would mean margins would have to go to 17% and the P/E would have to be north of 30 for us to get that other 5% return over the– [crosstalk]
Tobias: Here’s the thing. If margins to go to 17%, there’s probably a reasonable argument to be made that the P/E should be at 30.
Jake: Sure. Right. If you hold margins at 13% in this little scenario and you need a P/E of 40 at that point, to get your 10% return.
Tobias: We probably get the P/E– [crosstalk]
Bill: Well, who says you are entitled to 10%?
Tobias: Well, he’s just doing a though exercise of how you get that.
Bill: Yeah, I know. But look at the world. What’s your alternative?
Jake: Well, what percentage of financial planners have in their calculation something between 6% and 10% for all of their client’s equity which are [crosstalk] over the next 10 years?
Bill: Yeah. Well, they are idiots.
Jake: Okay, but this is what people are expecting.
Bill: Oh, they shouldn’t.
Jake: This is what they are being told they are going to get.
Bill: They should not. As Charlie says, “Lower your expectations.”
Jake: I agree 100%. [crosstalk] I’m trying to give you the numbers to explain why you should lower your expectations.
Tobias: Can you do the exercise with what you actually think said? Just do those figures with what you actually think is likely to happen and then see if we can– [crosstalk]
Bill: Yeah. Give us a forecast. Give us your 10-year forecast?
Tobias and Jake: Yeah.
Jake: This is dicey.
Bill: I’m going to say, my range of Jake’s expected outcomes are -4% to -6% for a six-year period.
Jake: [laughs]
Tobias: Let’s just write down numbers. It was 3% GDP, which is sales, which I think is fair. Fair to bullish.
Jake: Yeah. I will take the under on 3% for the next 10 years.
Tobias: But let’s say 3 [crosstalk]
Jake: I’ll keep the dividend yield at 2%. So, I need to find, what do we get from there?
Tobias: That’s five.
Jake: Shares, I actually–
Tobias: Shares at one.
Jake: I’m going to say flat, because I think it’s likely that some companies are going to have to issue equity over the next 10 years.
Tobias: Flat’s probably fair.
Jake: Some will buy back, but I think there’ll be enough that got over their skis with too much debt, and are going to have to cram down their existing equity holders, because they borrowed too much money.
Tobias: Yeah, the margins– [crosstalk]
Bill: Yeah, that’s because you don’t accept that we’re going to inflate our way out of a debt problem.
Jake: [laughs] Wow. All right. You’re introducing other– [crosstalk]
Tobias: If you do inflate your way out of the debt problem, doesn’t it then impact your margins? Doesn’t that show up somewhere else? It’s not free– [crosstalk]
Bill: Yeah. Look, I don’t know what the answer is financially. I think it shows up in the political system. I’m very, very, very concerned about political risk.
Jake: Yes, I agree with that.
Bill: I’m less certain on how it manifests itself financially.
Jake: I would fade margins to 10%, because of all the things we just said with inflation. Not everyone’s able to pass on these costs forever. Somebody is going to have to get squeezed eventually here. [crosstalk] Well, maybe. I don’t know.
Tobias: Not so far.
Jake: I guess depends on how many robots we get built. But multiple, I have to fade the multiple to something more like 17, which gives you flat, I think, roughly.
Tobias: You lose half a point per year to the multiple, and you lose how much to the margin going from 13.5 to 10 over 10 years?
Flat On The Index For The Next Decade
Jake: It doesn’t quite work exactly like percentages because it’s a multiplicative series. You have to do a little bit more math than that. But let’s just say that when you add all together, I would say flat is my basic– [crosstalk]
Tobias: Flat on the index for a decade?
Jake: Yeah. That’d be my– [crosstalk]
Tobias: I think you’re an optimist.
Jake: [laughs]
Tobias: Yeah, I think that flat would be a good outcome. Probably, a likely outcome. There’s always some good stuff that happens through there, too.
Jake: Yeah, of course.
Tobias: We’ve seen that before. That’s what happened even 2015. That was a long haul before it got back up over its peak. But this peak, I don’t think has been quite as peaky, and maybe they’re a better mix of businesses than they were in the very peak in 2000.
Jake: Yeah, I believe that. All right, well, I’m not sure you know, what else? [laughs].
Tobias: Put a mark in your calendar for 10 or 15 years, you’d be able to pick up Microsoft where it is. I don’t know. That’s what happened last time.
Jake: It’ll be Shopify at that point.
Tobias: Shop’s interesting at some point. Not at this price, but at some point.
Bill: Yeah, I don’t know. I’m just looking at the index construction. I know the Tesla bulls are going to hate this, but that’s a big risk to me.
Jake: [laughs] Yeah.
Bill: You got Tesla number at six.
Tobias: To the upside.
Bill: Yeah, well, obviously, obviously.
Jake: Oh, man.
Bill: A lot of people write me for my pod and they’re like, “You got to have a Tesla bull.” I’m not opposed. I’m just saying. That one’s tough for me to buy. Whatever.
Jake: I know somebody who would be good to talk to if you want to actually talk about that.
Bill: Well, it probably be a decent perspective coming out of my brain, because it’s not something that normally comes out. You got Apple, Microsoft, Amazon, Alphabet, Tesla, Nvidia, Berkshire, Meta, United Health, JPMorgan, Johnson & Johnson, yeah, I don’t know.
Jake: [laughs]
Bill: No opinions we’re sharing. Go to cash.
Jake: [laughs] Oh, that doesn’t have to be the answer, but also just tamp those expectations down a little bit.
Bill: There’s just too much money out there, man. Like returns of the price of money. I don’t understand why with this much money there should be return. It’s just something that I’ve never actually understood, I just don’t fundamentally get it.
Tobias: In the sense that the returns have been very good and the– [crosstalk]
Jake: So, you are saying that to divide every single–
Bill: There’s so many dollars like– [crosstalk]
Jake: Divide every single one of these numbers by the bitcoin price, is that how we back–? [crosstalk] [laughs]
Bill: Yeah, not quite, but I do [crosstalk]
Tobias: If you print a whole lot of money, if you inflate then on a real basis, you could be flat. On a nominal basis, you could have a really good decade.
Bill: Yeah.
Tobias: It’s just to be your purchasing cars the same like you still buy the same number of hamburgers and– [crosstalk]
Bill: But you know, who wins everybody that levered up.
Tobias: That’s good point.
Jake: Levered up and survived.
Tobias: That’s a good point.
Bill: Yeah. But, dude at the end of the day, if inflation really is 7% a year, I know for a fact the bondholders are going to get paid a hundred cents on their agreement. But that hundred cents is not going to be worth a hundred cents. So, they better hope that everybody defaults in order to get any real return.
Jake: I mean this is the 1970s all over again, though, you get real returns that were– [crosstalk] The inflation masked huge losses of purchasing power in your marketplace. Returns looked flat, but you actually were way behind.
Tobias: On a real bass is 73, 74 was worse than 29-
Jake: Yeah.
Tobias: -because of that stagflation. Aren’t we in stagflation now?
Bill: I don’t know how long the inflations– when I finally admit that inflation is a systemic problem, then you’ll know it’s over.
Jake: It’s about to recover. [laughs]
Tobias: I don’t really know. I don’t count for– [crosstalk]
When You Open A The Doors To A Concert And Everyone Runs In At The Same Time…
Bill: I don’t have a strong view. Michael Greene said something to me once and I think it makes some sense. He said, “If you open the doors to a concert, and everybody’s running through the concert doors at the same time, and they’re all jammed in, do you have a capacity problem or do you have opening the floodgates problem?” I thought that that was a good metaphor for what I actually think is going on. Now that said you start building a lot of redundancy in the system. You sanction Russia or whatever. I don’t deny that for a little while. It could be bad, but long term I just don’t know that I really buy inflation outside of things that are artificially constrained or the government’s involved in.
Jake: You know what else hurts profit margins? Adding a bunch of working capital because your supply chains were so screwed up that you had to redundancy [crosstalk] stronger.
Bill: Certainly, possible.
Futuristic Thinking
Tobias: It’s hard, because the long-term trend of business has been to get more efficient. The idea that commodities are short human ingenuity, I think that’s a great line. That has been true over very long cycles of very long periods of time. Although, we do have to increasingly heroic stuff to get oil out of the ground, we know that offshore drilling is, that’s scary stuff what we’re doing it there. But at some point, we’re going to come up with a better energy source. We just got to build a whole lot of nuclear reactors at some point. Nuclear reactors, all the cars are electric. I don’t know. What happens beyond that, that gets you off a lot of those problems which– [crosstalk]
Jake: How much does it cost to do that, to build all that stuff?
Tobias: I’m the idea guy.
Jake: Yeah. [laughs]
Tobias: Someone else go and implement that stuff. I’ve just had the idea. My job is done. I’m a futurist, visionary.
Jake: Oh, my God.
Tobias: How hard could it be? Get an engineer to figure that stuff out.
Bill: Yeah, that’s a good point.
Jake: That’s for the bean counters to solve. [laughs]
Bill: That’s a good point. I like that. How hard could it be?
Tobias: [laughs]
Bill: Just get it done.
Tobias: Look how many electric vehicles there are right up there. Everybody’s putting their hand up to make electric vehicles and getting massive multiples on it as well.
Bill: Yeah. Don’t worry about the fact that we’re actually capacity constrained for how much we can mind to get the batteries and whatnot. Don’t mind– [crosstalk]
Tobias: It’s the future. We’ve solved that problem. It’ll be something else.
Bill: Don’t mind the fact that the minds are full of acid and whatnot. It’s nothing.
Tobias: You’re too limited your thinking in today’s technology. You got to think about the technology we’ll have in 12 months’ time, it’ll be amazing.
Jake: Build the robots that will build the robots.
Tobias: I like that.
Bill: Yeah. Look my real fear is, we figure out a way to replace more, and more, and more humans and margins go– As some tech guy said, “Eventually, we’re going to end up like a bunch of people that own everything and a few people that rent everything.” I do not want that world. I don’t think that’s a good world.
Jake: Do you mean the other way around that few people own everything and the rest of us are all renting their stuff?
Bill: Yeah, that’s what I mean.
Jake: Okay.
20 Hour Work Weeks
Tobias: Karl Marx, his idea for the socialist Utopia was that robots would do all the work. That’s a great idea and we get all the leisure time, let’s do that.
Bill: Yeah.
Tobias: Where is the problem with that? That sounds perfect to me.
Bill: Well, I’m just not sure that it’s so perfect in reality.
Jake: 20-hour workweek for everyone?
Bill: That would be sweet.
Tobias: I’m a four-hour workweek guy.
Jake: Okay. We’ll get you down to that. [laughs]
Tobias: Tim Carson.
Bill: Yeah, the Tim Ferriss thing.
Tobias: Tim Ferriss, yeah.
Bill: Yeah. I get that. That is an appealing concept.
Tobias: You don’t start work until midafternoon, and then you do half an hour and then you’re done, take off.
Bill: Dude, I’ll tell you what’s crazy. I don’t even do anything. I look at my calendar and I’m like, “How the fuck does Buffett keep his calendar empty?” My calendar is always got something on it. It sucks.
Tobias: He’s good at saying no. He’s got a secretary who says, “He’s free if you’re here and otherwise he’s not booking his calendar. He might be free if you’re here.” That’s fair. That’s what the fuck you money is.
Bill: I was looking [crosstalk], “This is not an empty calendar.”
Tobias: That’s the only thing you want, the fuck you money, just a free calendar.
Jake: I’m guessing it if a lot of your kids’ stuff ends up on there and I guess, I’m pretty sure his calendar didn’t get too impacted to that. [laughs]
Tobias: Yeah. Pick up your kids from school. That’s in my calendar a lot.
Bill: That is a good point. Yes. Nourish them emotionally. I have to write that down. Otherwise, I’ll forget.
[laughter]Callaway Is Going To Be A Boom Stock
Bill: Real quick. I was thinking about Callaway.
Tobias: We’re doing legit time. Callaway’s going to be boom stock when the socialist Utopia hits.
Jake: Yeah, when it’s all robots doing the real work, we all can just golf all day.
Bill: Yeah, well, I’m a rip through this one and then I’d rather talk to you guys about Buffett and repurchases. I just got a new driver and a new 3-wood. They’re crazy expensive, but they are pretty freaking good and I resisted, I mean played with my old driver for 11 years. I’m not this new golf club type guy. I was thinking to myself I was like, “Wow, Callaway might have a real upgrade cycle.”
You’ve got people that can move to the Sunbelt a little bit more, you’ve got to step up and demand. They own top golf, which I actually think is a pretty good product and a good distribution system for Callaway golf clubs. They own this Travis Matthew brand, then I was like, “I just don’t know. It’d have to be so cheap, because what’s your reinvestment runway at the end of your holding period.” I just don’t think that they really have a long runway because at the end of the day, I do think golf is in secular decline even if it gets a bump, a step up from this.
Jake: Do young people like golf relative to their parents?
Bill: I can’t say. I don’t think.
Tobias: Is golfing in secular– I don’t know that.
Bill: Yeah. It takes too long.
Jake: It is.
Tobias: Yeah.
Jake: Yeah. Our attention spans are not golf.
Tobias: It’s not like a Tiger Woods thing.
Bill: Same with horse racing, horse racing is dead. I think it’s because you have to wait between every race. Nobody wants to do that.
Jake: Robot versus–
Bill: I acknowledge it’s different, but I think it suffers from similar trends. Anyway, I don’t know. I got to the point. It’s like I get to with Russia. It would have to be screamingly, screamingly cheap, except I wouldn’t mind making money on– [crosstalk] What?
Jake: [crosstalk] cheap like it was a net-net back in the day [crosstalk] was my portfolio.
Tobias: A few of the golf names got net-net cheap, I think.
Jake: Yeah.
Bill: Yeah. I don’t even know if I’d want it then.
Jake: [laughs]
Bill: I don’t know. I think it would take a lot.
Tobias: it’s a nice brand.
Bill: Because here’s what I was thinking.
Tobias: If you’re not paying for the brand, if you just paying for the working capital, that’s all right.
Jake: Yeah.
Bill: Well, when was it a net-net?
Jake: 2010?
Tobias: Oh, it’s 15 years something like that.
Bill: Yes. So, what’s the opportunity cost of buying a net-net in that environment?
Tobias: Yeah, but walk around with the Callaway golf shirt on and [crosstalk]
Bill: You should have bought Google.
Jake: Well, of course.
Tobias: Yeah. Then you would be retired and playing golf.
Net-Nets Appear When Everything Is Dusted
Bill: I know. I think that’s my point. When I think about the environment that net-nets pop up in, it’s not everything else is trading at super huge valuations and all of a sudden the world is flooded with net-nets. Net-nets appear when everything is dusted.
Jake: True.
Tobias: It’s true,
Bill: Are they really the thing to buy in that scenario? I don’t know. It probably makes sense for a portion of your holdings. The returns are good, but– [crosstalk]
Tobias: There are a lot of work is the thing. You got to turn them over. There’s a lot of tax in them too, probably.
Bill: Yeah.
Tobias: I don’t know. Just [crosstalk] to adjust for those things.
Bill: I think maybe in the world that Buffett grew up in, they were a better thing than they are today. Maybe not.
Peter Lynch v Net-Net Approach
Tobias: My brother wanted to do some investing and he was like, “You’ve been talking about net-net. So, tell me how to do net-nets.” I was like, “Don’t do net-nets. It’s too much. It’s too much work. Just go and buy something good that you can buy once and don’t have to worry about them, if you’re not going to do this full time. You need to spend as little time as you can.” I think that Peter Lynch approach is the way to do it. Find something that you like don’t see if it’s reasonably valued, and make sure it’s going to survive. When you come back in five years’ time, you’ve forgotten about, still hopefully it’s up.
—
Buffett: Buybacks Are A Better Alternative Than Doing Something Stupid
Bill: I don’t disagree, but moving to a more interesting conversation, I think, why do you think Buffett is so okay with Apple repurchasing shares here, but he’s not willing to commit Berkshire’s capital?
Tobias: Do you think he’s okay with it or do you think he’s in that sort of?
Bill: He cheers Tim Cook on. Talks about how Berkshire’s percentage has grown and we didn’t even have to lay out a dollar. I fucking hate this part of the letter. Every time I read it, I’m like, “This is so intellectually dishonest.”
Tobias: He tries to be a supporter?
Jake: Well, he’s– [crosstalk]
Bill: He’s always done it. Yeah. Even when Coke was doing it back in the days like, “Yeah, we’re happy to own more. Keep going. Who cares if the P/E is 45?”
Jake: He knows the base rates of what CEOs typical cap allocation looks like.
Tobias: Better than buying another company. Is that what you say?
Jake: I don’t know them buying a movie franchise like Coke did or buying magic beans or yeah, M&A that’s ill conceived. Just get it out of their hands, I think is often probably what he’s imagining.
Bill: So, you think, he thinks exceptional manager, exceptional business.
Jake: Where else are they going to put the money, for Apple?
Bill: You could dividend it out. [crosstalk]
Jake: Metaverse, is that where he wants it?
Bill: Where you could actually pay cash.
Jake: A car?
Bill: That’s possible.
Jake: Apple car?
Bill: No. Well, you can pay cash.
Jake: On a 2% margin car?
Bill: Again, I think you could pay cash, money dividends.
Jake: Yeah. Well, you could make a very strong argument that at Apple’s price today that a dividend is probably the smarter play.
Bill: If I was him, I’d be on the phone. I’d be like, “Dude, just issue special dividends.” I’ll make the decision to buy the stock or not.
Tobias: Can you pay up capital and have it get a different treatment to a dividend? Can you engineer something like that?
Bill: Well, corporations have different tax rates and they receive dividends. The shareholder base doesn’t. But I don’t know. Do half. I don’t know. It’s weird. It’s weird to me that he says that and he says like, “We didn’t even have to put any capital out.” Yeah, but there’s an opportunity cost to that capital.
Tobias: Maybe he was just reusing last year’s letter and he was like, “Oh, I don’t feel writing this again. That’s close enough and still trading.”
Jake: I know it’s 35 times earnings, but we’ll just run this SPAC. [laughs]
Bill: Yeah. I don’t know. It’s interesting. If you listen to the questions when Coke was crazy in the 90s, he had no problem with them buying in shares. Maybe it is because he just doesn’t want him something stupid. That would make some sense.
Jake: He’s seen a lot of stupid cap allocation decisions in his 70 years of doing this.
Tobias: Yeah. Probably the least stupid is least objectionable capital allocation processes. Probably, he’s just like, “At least it’s not a big acquisition.” At least he’s not buying Tesla or Nvidia.
Jake: Yeah. [laughs]
Bill: It’s weird for him to cheer it on. I don’t know.
Tobias: Yeah.
Bill: I just wanted to continue.
—
Fear & Greed Index In Buy Territory
Tobias: I got two little points. One of them is that, Fear & Greed. I know, we talk about this all the time. It’s complete voodoo. It’s total bullshit. I acknowledge it. I don’t use it at all. I just like have fun watching this thing.
Jake: Where is it at now?
Tobias: I think someone earlier on. Sorry, I missed your name when it came through, but someone said it was at 18. So, that’s typically–
Jake: That’s low, right?
Tobias: That’s buying territory from what I have seen running it back. The problem with the Fear & Greed index is it started after the 2007 to 2008 smash up. So, I don’t know how– [crosstalk]
Jake: It’s basically should be called like “buy the dip” is what it should be called. [laughs]
Tobias: It’s been a pretty good short-term indicator, even though, it’s total nonsense of like– I think if you’re thinking about buying something and the market is at the other end of the index, maybe you just wait a little bit on the chance to get a better price for it.
But if something that you really want and Fear & Greed is sub-20, then probably that’s a pretty good time to go and pick it up. As I was putting together the charts for the site, I was building up all the backend for the site with the spreadsheets and I was watching the bubbles move as I was building it out. I was watching Google slip down. It will and truly into buying territory and then bounced pretty heavily as I was putting all those charts together. At the time that we’re discussing Fear & Greed last time.
I don’t really know why it works. It’s a total verdict, but it did slip over 20 last week. It’s below 20 again today. So, if you’re thinking about buying something, it’s probably not a bad time. The other tweet that I shout out last week– [crosstalk]
Bill: Please don’t expect to make any money for 10 years.
Jake: [laughs]
Tobias: [laughs]
Jake: What are you talking about? You buy every dip and it just rockets back. That’s what we’ve learned– [crosstalk]
Tobias: Well, it has been the case. I’m saying buy something cheap, buy something good.
—
Elasticsearch Down 53% Last 6 Months
Bill: I have this itch to buy Elasticsearch, but I know I don’t know it well enough, but I want to buy it.
Tobias: What are you trying to buy?
Bill: It’s called the Elasticsearch.
Tobias: I don’t know.
Bill: Well, it’s Elastic is the company. But they do Elasticsearch. If you think about the world, there’s a lot of search that goes on that’s not Google. When you search on Uber for the car, that’s a search function. They run the backend. It’s open source though, which has some problems. Amazon forked it, but I don’t know, apparently, Amazon’s products not very good for the people that actually care about stuff like that. But I don’t know what to do. I don’t know the fucking business as well as I need to. So, part of me just wants to have a support line. If it breaks it be like, “All right, I’m out.”
Jake: [laughs]
Bill: David Gardner opening position, break support, I’m out. Traded that shit. Bye.
[laughter]NFT’s Are Dead
Tobias: The only other thing I wanted to mention just because we’re going to run out of time here, but I watched the Google search terms for NFTs every week, just to see where it is. It’s fallen off a cliff which I have this thesis that in order for NFTs to continue to work, you need a whole lot of people coming in the front end and it seems few people are searching it.
Jake: You mean like the bottom of a pyramid? Is that what you’re talking about? Okay, sorry, go ahead.
Tobias: I know that some of us are prior to NFTs. I’m not trying to be rude about it. But I just thought it was funny. I completely, speculatively, I think NFTs are over. So, this will be one of those Paul Krugman’s thing about the internet being dead in 10 years’ time. I’m saying that I think NFTs are–
Bill: Definitely, not over.
Tobias: JPEG says $22 million JPEGs is over.
Bill: Maybe. I don’t know, man. But I’ll tell you what. There’s a lot of garbage out there that’s just not art at all. Somebody would be like, “Oh, art is in the eye of the beholder, bro.” Fine. You can go enjoy your pudgy penguin or whatever.
Volatility Is Truth
Jake: Well, let me ask this that real quick. Bitcoin has rocketed in the last couple days I’d happen to see. Is that good or bad for if it’s actually people bugging out of Russian–? Is this a way to skirt the system and is this a proof of Bitcoin being valuable or actually the beginning of the problem that now of course there’s going to be regulatory crackdowns, because they’re not going to let Russian oligarchs slip out the backdoor in the Bitcoin?
Bill: I don’t know. Can you regulate it? I guess we’ll find out.
Jake: [laughs] That wasn’t much of an answer.
Tobias: Volatility is real. Volatility is truth, I think. The fact that currency is– [crosstalk]
Jake: Is that on a t-shirt? [laughs]
Tobias: Yeah, I like [crosstalk]
Bill: Chris Cole does walks around with it.
Tobias: Volatility, well, I was not actually thinking of Cole when I said that. There’s another trader who I know he used to say volatility is truth in relation to Bitcoin. But I think that there’s a huge speculative element in it, too. That makes it a little bit more difficult to figure out what’s going on. But not that there isn’t a huge speculative element in other currencies. I don’t know how you figure all that. But you would think that makes sense that Bitcoin should rally, where there’s global instability of the kind that people need to get their assets at. But the thing that makes me a little bit skeptical of it at the moment is the fact that it trades like tech. When it stops trading like tech and starts trading more like–
Jake: Gold?
Tobias: Yeah, the instrument that it’s supposed to be it. It probably becomes, maybe it’s just too early–
Jake: Can’t find that.
Tobias: Yeah, it’s life. Yeah, I still got that so much speculation. When that takes off, it goes back to being or it goes to being more of a gold like thing inflation hedge then it gets more interesting. But that’s time, amigas. We’re a little bit over time.
Jake: All right.
Tobias: This is fun.
Bill: I have nothing to add.
Jake: [laughs]
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