VALUE: After Hours (S04 E013): Graham’s Take on Book Value, 10-2 Treasury Inversion, and Infinity

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

  • Graham’s Take on Book Value
  • 10-2 Treasury Inversion
  • Beyond Infinity
  • Central Bank Pretending There’s No Inflation
  • Maybe We Should All Just Invest In SPY
  • How To Get Optionality In The Market
  • Tesla Trading Sardines
  • Weird Shortages
  • Cash Black Boxes
  • Icahn Lost The Battle—But Won The Apple War
  • Munger Steps Down As DJCO Chair
  • Why Meta Is Mispriced
  • We’re Living In A Monetary Hilbert’s Hotel
  • NFT Update
  • The Monty Hall Problem
  • The Genius Behind Drive To Survive
  • No Gas Stations – What Happens To Scratch Tickets & Cigarette Sales?
  • Shopify Looking Interesting
  • Zeno’s Paradoxes
  • Invesco QQQ Commercials & Reinvestment Rates
  • Flows Are Still Coming In

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: And we are live. It is 10:30 AM on the West Coast, 1:30 PM on the East Coast. It’s Value: After Hours. I’m joined by the regular crew, Jake Taylor and Bill Brewster. What’s happening, fellas?

Jake: Good to be back. I missed you guys last week although Kyla did an admirable job, I thought, filling in.

Bill: You don’t have a chest. I can see mountains in your chest.

Jake: That’s right. Special effects on this show are off the [unintelligible [00:00:28].

Bill: That’s awesome.

Jake: [laughs]

Tobias: Jake’s an Ironman. I didn’t realize that.

Jake: I’m a half of one. Not just because I’m not the tallest guy. [laughs]

Bill: I would have said yes. Jake’s done on Ironman.

Jake: You would have taken that bet?

Bill: Yeah.

Jake: That’s fair.

Bill: Me, that would be much more shocking.

Jake: [laughs]

Bill: Since, I would have done it and not known about it.

Jake: Dun, dun, dun.

Bill: Yeah. No dun, dun, dun.

Tobias: Yeah, it would’ve been on my Twitter profile if I’d done that.

Jake: [laughs]

Tobias: Let the world know. Tell everybody.

Jake: Well, my wife’s done the full one. So, I feel a little– What’s the point of me even saying anything at that point?

Tobias: Did she push you in the little trailer the hallway that dragged you– [crosstalk]

Jake: Yeah, pretty much. Although, I will say that being a spectator for someone and cheering for them on Ironman is the absolute worst [crosstalk] experience.

Tobias: Just as hard.

Bill: What were you doing? You’re just stand in there, right and then come by?

Jake: Well, no, you try to go to different points along the course. You only see them for a second when they’re swimming away and then maybe when they’re swimming back, and you see him in transition. And then maybe try to catch them a couple different points on the bike ride and it’s like, “Oh, I’ve been waiting for 45 minutes in this spot that took me a really long time to get to,” because the courses are closing down all the roads in the area.

Then you get there, and you’re waiting and waiting, oh, and she rode by for 10 seconds, “Hey, yeah, go,” and then you don’t see her again for another hour. You go see her somewhere else and then the run’s the same thing. You get 12 hours of waiting around for about a cumulative minute and a half of actual like seeing the person that you’re cheering for. It’s awful.

Bill: Yeah.

Tobias: That sounds fun. There’s been some wild moves in the market since we did our ultra-bearish podcast two podcasts ago.

Jake: Bottom ticked it.

Tobias: Bottom ticked it.

Bill: Yeah, since I cried.

Jake: Yeah.

Tobias: We’ll run out– [crosstalk] We’re basically back to all-time highs, again.

Bill: 4% down, man. S&P is a machine.

Tobias: Unbelievable.

Maybe We Should All Just Invest In SPY

Bill: I don’t even know why– I was writing somebody today. I was like, “I honestly don’t know outside of motivated reasoning and the fact that–” I didn’t say this, but I came up with this. The other than the fact that my identity is as an active investor, I’ve been saying it for a while. I should just index.

Tobias: What if you just took what the top 10 names in SPY and then just made that your full portfolio? That’s a pretty good-looking portfolio.

Bill: Yeah, I guess. I don’t know.

Tobias: All the top 30?

Bill: I was always– [crosstalk]

Tobias: Jake’s there, yeah. [laughs] It hurts Jake a little bit.

Bill: I was like, “Once growth shits the bet.” Boy, the S&P, it’s really got to watch out. Turns out it just morphs and goes on about its business in a tax advantage manner.

Tobias: Word.

Jake: History says though, the biggest names don’t tend to stay the biggest and outperform like that. So, you can’t make a long-term bet on just the biggest names.

Tobias: I do wonder how useful history is for some of the– This is one that Meb Faber has promoted a little bit that the biggest name has typically been the worst place to be, because it tends to be the thing that is, at the top of, it’s very long. It takes a lot of success to get there growth wise, I mean, fundamental wise, then you need overvaluation. So, it’s a bad place to be. When you look at the names that have been in there, it’s been the oil, Exxon-

Jake: Exxon.

Tobias: -has done a lot.

Jake: Probably, the most egregious would be Nortel Canada, when it was 40% of the index.

Tobias: Dotcom boom. But now, when you look at it, I think Apple is the biggest name in there at the moment. Then, there’s Microsoft, Google. They’re not egregious where they are.

Bill: I’m telling you, man, I’ve been saying for a while. I got two years and I’m just going to eat the tax liability that I have to, throw it in an index, and go do something else. Because she is a bad, bad beast.

Jake: Your golf games going to get off the chain, if you do that.

Bill: I just don’t know what I do. It’s honestly half of why I’ve not indexed. It’s not a very good reason. I don’t know. I’m going to have to fire myself soon. It’s sad.

Tobias: If someone presented you with– I don’t even know what the top 30. I couldn’t tell you what they are outside of the top five or 10. If someone shows you their portfolio and they’re just like– It’s like what Cathie Wood has done with NASDAQ. It is just to concentrate, like, just to take the biggest names in NASDAQ, just take the biggest names in SPY and say, “Yeah, that’s my portfolio.” People like, “Well, you really know what you’re doing? Is this a great portfolio?”

Jake: [laughs]

Bill: It worked for a while.

Tobias: For Cathie, I think it works in SPY. It would work now. Your portfolio look great then– [crosstalk]

Flows Are Still Coming In

Bill: I tell you. You call this. Michael Green, he was on Spaces in George Noble space and he was like, “You guys are too bearish. You just got to look at flows.” He’s like, “The flows are still coming in.”

Tobias: Yeah, that thesis hasn’t been killed, yet.

Bill: No. It’s not just that. It turns out, it’s not actually all that volatile, either.

Tobias: Because the flows are so consistent.

Bill: I don’t know. Growth guys look super smart and then they had a huge drawdown. Value, as a factor underperformed for a while and then it’s got this run, if you were in the– Ironically, I bet price to book at a really good six months after everybody said it was dead, because it’s probably commodity companies.

Tobias: Yeah, that’s right.

Jake: Almost, we’ve talked about that at some point on the show.

Tobias: It outperformed. It outperformed going in. Asness, Cliff Asness pointed out that it was– Because it was the worst of the value factors, it did the best, went through the value factor growth.

Jake: Yeah, least valuey. [laughs]

Tobias: and Bill: Yeah.

Bill: But yeah, I don’t know, man. S&P is a monster. It just doesn’t stop.

Graham’s Take on Book Value

Tobias: That’s partly my topic, today. I got asked to write an article on, how is the definition of value investing changed? As I was putting it together, I always to go back to those 1932 articles that Ben Graham wrote for Forbes. He wrote those three, when he was saying that the market was, there are 600 public companies at the time or was 600 in his universe. And 200 of them were trading at a discount to their net current asset value, like, their liquidating value. It’s the S&P 500 having most of them trading at a discount.

We could only value, just almost unimaginable and some 50 of them were trading at a discount of cash. I’ve missed this. I read this article lots and lots of times. In there, he said, “Perhaps, it’s because there’s all of these old-time investors, who spent too much time focusing on book values [laughs] pretty good–” [crosstalk]

Jake: Oh, he’s dead, 1932. [laughs]

Tobias: Ben Graham said that in 1932.

Bill: That’s interesting.

Tobias: Yeah. I really think that the big difference in investors in the market is, some people treat trends as cyclical and some people treat them as secular. It’s not monolithic on either side, but I think that there’s a lot more cyclicality and a lot less secular. I think that’s what I want to chat with you guys when it’s my turn in a little bit. Then, we can talk about the inversion of the 210, which is basis points away or a basis point away.

Jake: [sighs] What’s only predicted? What, 18 of the last 10? [laughs]

10-2 Treasury Inversion

Tobias: Well, here’s the thing. This is one thing I don’t really get. Why we track the 10:2 inversion. When Cam Harvey’s original formulation is the 10-year three month and the 10-year three month is rocketing up, the spread is going the other way. The last time it looked, this was early 2017. It did call the COVID crash. It was late 2019, it inverted. But it’s nowhere near inverted. It’s going the opposite direction right now. So, that’s my other topic when we get there. What’ve you got, JT?

Jake: I have a segment on infinity that might be interesting.

Tobias: Big infinity or little infinity?

Jake: Probably, medium.

Tobias: Medium infinity.

Jake: Medium infinity. [laughs]

Icahn: The Restless Billionaire

Bill: I was just going to talk about the S&P and then I watched the Icon documentary, which I thought was pretty good.

Tobias: How was that? I haven’t seen that, yet.

Jake: I haven’t seen– [crosstalk]

Bill: I liked it. I think it’s a Carl Icahn marketing piece, but there were some good stuff. I took some notes.

Tobias: Was he interviewed in it?

Bill: Oh, yeah, man. He’s interviewed the whole way through. He sat down for a lot of it. The notes that I had on it I think are interesting. He got wiped out early in his career, because as he said like playing the market.

Tobias: In options or is it just–? [crosstalk]

Bill: No, just the market. I think he got caught up in short-term moves and whatnot. Then, he actually got into options and started writing an options newsletter. That was like, “This is what you should have paid for your options.”

Jake: What year was that? In the 70s at that point? Where are we in– [crosstalk]?

Bill: Yeah, I think it was in the 70s.

Jake: Okay.

Bill: Because of that newsletter, he got into brokerage, made a ton of money as a broker, and then he started the activist stuff and that was in it. I think the late 70s, early 80s is when he started activism, and then TWA really hurt him, but then he obviously came back with Netflix, and Apple, and Herbalife.

Jake: Oh, lots of stuff in between there, though, too.

Bill: yeah.

Tobias: Everybody lose money in airlines, I guess.

Bill: Yeah, he tried to manage it, which was not good. But the quote that I liked– He said, “You have to buy things when the world thinks you’re a little crazy.” That’s a nice quote. Some FinTwitter popped in and said, “He’s underperformed for five years.” So, serious track record.

Tobias: I think you forget him. [laughs]

Jake: Jeez, write him off.

Bill: Guy came from nothing and turned into a billionaire, but five years of underperformance, I guess, some 25-year old’s calling him dead.

Tobias: Yeah, fair enough.

Bill: In a non-account.

Jake: An egg account called in when he’s in his 80s. [laughs]

Bill: Not going to make it, Carl. Sorry, buddy.

Tobias: He must be almost 90, mustn’t he. He must be– [crosstalk]

Bill: He’s 85. I think so. My wife didn’t find him very likable at all. You know what? He’s not there to impress you. That’s my job and I don’t do it very well.

Tobias: We are watching live– [crosstalk] When Ackman was on and he dialed in, and he’s just [crosstalk]

Bill: Oh, bro. That was so fucking funny.

Jake: I got to rewatch that. That’s probably the best.

Ackman v Icahn

Bill: I liked it. I am on the record as someone who likes Ackman. I don’t know that I study him deep enough to go out and say like, “I’m a true fan,” but I don’t mind Ackman at all. But man, when Icahn was like, “I appreciate that you told me that I’m a good investor. I can’t say the same about you.” That shit is savage.

Tobias: [laughs] It’s a savage

Jake: That’s cold.

Bill: Savage.

Tobias: There’ve been a few articles written about him. I don’t think he sounds like a very nice guy. He’s taking a shot at Brett, his son. He’s going to see how good his track record is. It’s his early days.

Bill: I think he was just negotiating in public. Brett’s the reason that he was in Netflix and Apple. Hard to argue that Brett has taken away from Carl’s. I think Brett said in the documentary, it was nice to get– I think he said, “I made my dad $5 billion” and that was nice.

Jake: My kids are really lazy, then I guess– [crosstalk]

Tobias: Yeah. You kids aren’t doing anything.

Brett Icahn Made His Dad $5 Billion

Bill: [crosstalk] dad was a real dick. I thought it was interesting. He said that his dad never asked him what he did for a living. Then finally, he went to see his dad when his dad was old, and his dad was like, “All right, tell me what you do.” This is well into Icahn’s career. Carl was like, “All right, you finally acknowledged that. I’m worth asking that question, too.”

He said he still cries when he thinks about that. They are like, “Well, why do you think you cry?” He couldn’t articulate, because it’s the only time my dad ever showed me any love. It’s pretty fucking obvious why he cries. But yeah, his dad would say things to him like, your mother and I have talent, you don’t. So, you should go be a doctor. He’s just like a real matter of fact jerk, it sounds like. Sorry, Carl, if you’re listening. I’m not trying to talk badly on your dad. It’s one of those I can do it, you can’t type things, I assume. But felt a little bad for him in that way.

Jake: Kind of confirms that hypothesis about the– To become that rich, oftentimes, there’s some hole in your soul that you’re trying to fill and maybe you do it through business success. There’s a reason why there’re so many super successful business people, who are orphans, or didn’t know their dad, or had a rough relationship with their dad.

Bill: Yeah.

Entrepreneurs Tend To Have A Distant Or No father

Tobias: I remember looking at some research in that it was the entrepreneurs tended to have a distant or no father and had a stronger relationship with their mother. I don’t know how that translates into the world, but maybe every single person, who you deal with, it’s like a representation of your data you got to destroy.

Jake: One, it’s never enough. You have to keep going.

Tobias: Yeah.

Jake: it can never just stop and be happy.

Tobias: Yeah.

Bill: Had the wrong set of cards for this that are reversed.

Jake: Hmm. What does that manifest into? [laughs]

Bill: A whole lot of problems and sitting on a couch for a long time.

Jake: Yeah. Paying 100 bucks an hour for a couch.

Bill: Yeah.

Jake: [laughs]

Bill: But I think I’ve worked through most of it. I don’t know. I think it’s a documentary worth watching. I wish it was four or five hours, but I’m a long form nerd. But there’re a lot more stories that I would love to hear.

Tobias: Shocked that the guy with a three-hour podcast limits the fact that the documentary on it went for an hour or so.

Bill: Yeah, but they’re not three, anymore. It [crosstalk] an hour and a half. But yeah, no, I know. Well, the thing is, I would love to hear them talk about blockbuster and how he snatched defeat from the jaws of victory there.

Tobias: Yeah.

Bill: But then to go out and buy Netflix after, that is gangster. Kill one company and go buy the beneficiary, that’s a beautiful thing to do.

Tobias: Yeah, that was the one that I understood was Brett’s. But Apple was more– [crosstalk]

Bill: Netflix was Brett’s, yeah. Apple was, too.

Tobias: Apple was more traditional. Fair enough.

Bill: But Apple was Brett’s idea.

Tobias: Einhorn was all over it at the same time, because they had the big cash pile on trading definitely cheap once he backed out the cash.

Bill: Yeah, Brett brought the idea to Carl and Brett was like, “Once he saw the balance sheet it was–” He didn’t even have to think.

Jake: Buybacks too, probably.

Tobias: Well, they hadn’t done any by that point.

Jake: I know, but it was starting to probably become the next most obvious thing.

Bill: Yeah, I think–

Tobias: But they didn’t want to do it.

Icahn Lost The Battle—But Won The Apple War

Bill: The interesting insight was that, well, I don’t know if it’s true or not, but his interpretation of the facts, Carl’s were that, he had Tim Cook over for dinner and they were like, “You need to buy–.” [crosstalk] Yeah, sorry. They were like, “You need to buy in shares.” Tim Cook was not necessarily opposed to the idea and Carl Icahn was like, “I wonder–” He never said it to me, but I wonder if he was happy that I was there, because the board was reluctant to do it. But I created some of the pressure to give him some cover to start doing it.

Tobias: Einhorn was out there, too. The argument was, if you do a buyback, you’re admitting that you no longer a growthy tech name. Einhorn said, “It doesn’t the fact that you’ve got all this cash on the balance sheet. It already indicates that that is the case and not you just acknowledging reality?”

Bill: Yeah.

Jake: Corporate inception.


The Beauty Of Indexing

Bill: I think I bought 3% position in Apple then and sold it early. What a frigging idiot I am. Swing hard.

Jake: Go from like a 10 P/E to a 35.

Bill: Such an idiot. So, I should index.

Tobias: Yeah, then you had a big chunk of Apple, still?

Bill: Yeah, that’s right.

Tobias: 7% portfolio in Apple, something like that.

Bill: Instead, I got it in Berkshire with a huge deferred tax liability.

Bill: The thing about the index, it’s so beautiful is how it morphs and you don’t pay taxes on the morph.

Tobias: Yeah.

Bill: Man, that is hard to beat. Apart that Buffett doesn’t tell people, when he says that people should index.

Tobias: Yeah.

Jake: Well, good. ETF does the same thing, right?

Bill: Yes. That legal structure is a very smart legal structure to be in.

Tobias: Yeah, it’s got some big benefits.

Bill: Yeah. Need to create my own.

Tobias: Historically, it has been a bad thing to be structured the way that the index is structured, which is tending towards all that SPY– waiting towards, yes, float adjusted market capitalization has tended to underperform even equal weight. Then there’s another ETF out there reverse RVRS, which takes the inverse of the market cap weighting, which should outperform equal weight as well. We’ve been through a really funny long period of time in the market, where it hasn’t been driven by fundamentals. It’s been more driven by size and momentum.

Jake: Who’s that ticker? RVRS?

Tobias: Yeah, I don’t know. It was a Phil Bak, Phil Bak’s ETF RVRS. I think it’s still going. I haven’t heard.

Jake: Almost like Dogs of the Dow in a way.

Tobias: Yeah, exactly. Just waiting towards– It should work. It’s going to be size constrained at some point– [crosstalk]

Jake: We’re post history. Nothing [crosstalk] will tell you anything about what would work. [laughs]

Bill: Let’s see.

Tobias: That happening– [crosstalk]

Bill: 2017 it looks it’s underperformed by 4% per year. I don’t know if it goes back further.

Tobias: Well, we’ve been through that period. We’ve been through that really wacky time period.

Bill: Yeah.

Tobias: Equal weight. Run it against the equal weight S&P spike or whatever that is.

Bill: Well, I don’t know what that ticker is, dude.

Jake: [laughs]

Tobias: Yeah, I don’t either.

Jake: Nothing like doing research on the fly in the middle– [crosstalk] riveting.

Bill: Hang on, hang on, hang on. We can do this.

Jake: [laughs]

Bill: Equal weight looks like it’s annualized since 2013 September 3rd. I don’t know why I started there. I just did. So, sorry. Annualized reverse has done 12.7%, S&P has done 14.9%, and the equal weight has done 13.3%.

Tobias: Yes, equal weights underperformed over that period, too.

Jake: [crosstalk] That makes sense.

Bill: Yeah.

Tobias: Yeah.

Jake: Those are still good numbers, though.

Bill: There you go.

Jake: To be an owner of a business and to be paid for that as a capital provider is a very reasonable outcome.

Bill: It’s not even a business, though. It’s a diversified index of the best businesses in the world that more tax advantaged way.

Tobias: The biggest businesses [crosstalk] Yeah. There’s reason why Buffet– [crosstalk]

Bill: And you are still doing 13%.

Invesco QQQ Commercials & Reinvestment Rates

Jake: Well, I’m getting like those– Did you watch any of the NCAA Tournament and see those stupid QQQ commercials over and over again?

Bill: Yeah.

Jake: “Oh, I’m an owner of the–” Where they were doing spatial measurement, “Oh, okay. That’s what you’re doing.” [laughs]

Tobias: Yeah, they are good. Those QQQ ads.

Jake: [crosstalk] had a 2.4-inch higher release point.

Bill: Berkshire’s climbing up 14.34% versus 14.88% on the index-

Jake: Who is?

Tobias: -from my starting point. Berkshire, the Buff dawg.

Jake: Yeah.

Bill: What the fuck [crosstalk]

Jake: I’m the only one left to, is sad to see it going up like this as one of the owners. Taking those buybacks off the table, I don’t like it.

Bill: Q’s have done 21.4%.

Jake: Well, that’s how you get a NCAA commercial.

Tobias: [laughs]

Bill: With a huge drawdown. This last little growth pocket was my– Oh, well, when growth slows down, boy, Q’s are in trouble. Turns out not at all.

Tobias: Y’all look at the Q’s, the internal engine there, I look at the reinvestment rate, it’s a very, very high number. I forget what it is off the top of my head. You’re paying a big premium multiple for it, but the engine room is strong.

Bill: Yeah.

Tobias: I wouldn’t be surprised if it keeps on doing well for a long period of time.

SPY Engine Room Looks Solid

Tobias: Actually, the engine room and the SPY is pretty healthy so, I think it could be like, I don’t know. I don’t put a number on it. But I think that the expected return is something like 17%. It’s got a high multiple, so that it might contract, but the underlying business growth is high.

Bill: My bold call is US small cap does well, as does– As of a week ago, I would have said European value, but that’s probably all bounced back already.

Tobias: You missed it.

Bill: Yeah, probably. Quick trigger finger. You got to have it.

Jake: What is that ROIC? I assume that’s a big part of what you’re talking about right now. What do you assume that profit margins are in this engine room?

Tobias: Yeah, that’s a fair question. I am not adjusting for that down. There’s no adjust. This is a no mean reversion model. That’s what I’m trying to take the multiples out of it and just look at it without the mean reversion in this. I’m just looking at the reinvestment rate. It’s literally the payout ratio, one minus the payout ratio times that reinvestment rate plus whatever the payout ratio, the shareholder yield sums to.

I was shocked at how high it was for both SPY and for the Q’s. You’re paying a premium multiple for the Q’s, but there’s an argument to be made that it’s worth it. If it doesn’t have any that mean reversion and it’s going to keep it going for a long time. [crosstalk]

Bill: I still think they’re playing a rational game. Look, I don’t know that it’s a rational game for the minority shareholders on the outside of the company. That is fine to debate. But at this point, I think if we’re saying it’s not, the onus is on the people that say, it’s not because it has kicked the shit out of me for a long time. So, I’m not the one to listen to. But it If you were to say to me, “Well, money’s going to tighten and it’s going to be tougher–” all of that says to me is that the barriers to entry are getting higher and it makes it even more important to chase as much scale as humanly possible when conditions are loose.

Tobias: Yeah.

Bill: Because if rates are 6%, good luck getting billions of dollars of funding to go out and compete with these guys.

Tobias: I think it’d okay at 6, but I think north of 6, like 6 is the long run average and we’ve done pretty well at 6. But yeah, I take your point. That’s tighter than where it is now, considerably tighter.

Bill: Yeah.

Tobias: Multiples will come in if that happens, substantially.

Bill: Yeah. I don’t think it will though. What is a developed world economy with rates at 6?

Jake: What’s a fair P/E?

Bill: Well, no, just like, what’s an example of one? Not Europe, not Japan.

Tobias: You’ve got to look historically. Historically, that’s been quite common. That’s the average.

Bill: But I think the issue now is we’re just a washing capital.

Tobias: By virtue of investment, central banks just pumping it up constantly.

Bill: So, then you got to make me buy the argument that central banks may stop, which was a tough one to sell me on.

Tobias: There’s no chance that they stop.

Bill: Yeah. That’s why I can’t get myself to higher rates sustainably. But that’s going wrong recently.

Central Bank Pretending There’s No Inflation

Tobias: But I think that the central banks default setting is lower interest rates and lots of money supply. The only reason that they ever reverse course is because there’s a gun to their head and that gun is inflation. I’m amazed at the moment that the central bank is so deft at pretending like there’s no inflation. You got the stock market at a record high. The property market is white hot. Consumer Price Index is running like 7.9%. Last time, we took a look and they’re just like– [crosstalk]

Jake: Bonds even still–

Tobias: Bonds. We’re really crossing our fingers to some inflation. We’re hoping to find some sense. We still can’t find any. Not able to find any signs. But we’ve got roomful of PhDs here. [crosstalk] We’ve got hundreds of them out. Can’t find it.

Bill: Is that what they said? I thought they said that– They’re saying that– [crosstalk]

Tobias: Transitory. They’ve been sitting there for a long time. They’ve been sitting there for 10 years. Have a look at the [crosstalk] plots. Everything has been saying, we’re going to have higher rates, just a little bit later. Not just yet. Just down the road. Lots of rate hikes coming. Not yet.

Bill: But I think they’re actually doing it now.

Jake: If we chased, but not yet.

Tobias: Yeah. We will give it 25 bips.

Bill: This is a question I have and I just haven’t done the work to figure it out. But when does Biden’s spending plan, like, when does the capital start coming out in that plan? Don’t we have still a bunch of infrastructure spending and stuff on the comm?

Jake: Always.

Bill: But I mean like a real package still coming. Not always. Like, substantially more.

Jake: I don’t know.

Bill: Yeah.

Tobias: Yeah, I haven’t followed it closely enough.

Beyond Infinity

Jake: This will be a good tie in for my infinity.

Tobias: Let’s do that. Let’s do infinity.

Jake: Okay.

Bill: Might need to start pumping the melt up again.

Jake: To Infinity.

Bill: Yeah.

Jake: First things first. To tie in with infinity, I went on Jim O’Shaughnessy’s podcast, which is called infinite loops and I did a little segment and that came out, was it last week or the week before? So go check that out if you want to hear me in a different format, which was fun. I thought it went pretty well, actually. But most of what I’m going to be talking about today is from this book called Beyond Infinity, which is by Eugenia Cheng.

She’s a mathematician professor. Also, what sparked us a little bit is, as I do listening back through Buffett and Munger in the AGMs for Berkshire, 2004 again, and he’s talking about– Someone asks him about R minus G and what happens when you end up with this growth rate that is way up anything above your discount rate forever and now you go to infinity? He’s talking again about the St. Petersburg paradox and Durant, who did a piece about it that Buffett knew about. We had talked about this on the show in Season 3, Episode 2. If you want to go back and explore that, that’s one spot.

But there’s some weird stuff about infinity that that is hard to wrap your mind around other than just that something could go on forever, theoretically. But there’s some weird math things that happen with infinity. For instance, let’s say that you have infinity and then you add one to infinity. Does that equal then infinity? Infinity plus one equal infinity.

Well, if we subtract infinity from both sides of that equation, you end up with one equals zero. Okay, well, that doesn’t make any sense. That’s a mathematical foo bar. How about infinity plus infinity equaling infinity? Well, if you divide both sides of infinity, in that case, you end up with two equals one. Well, that doesn’t make any sense at all either, right? How about infinity times infinity equaling infinity? Well, again, divide both sides by infinity and you end up with infinity equals one. Okay, totally nonsensical.

What this tells us is that, infinity is not an ordinary number that you can use typical equations on. It took mathematicians actually like thousands of years to wrap their minds around this and the invention of set theory and calculus, actually to get a little bit better understanding about what’s happening with infinity.

There’s this idea called a Hilbert’s Hotel. It’s by this mathematician named David Hilbert. Imagine a hotel with infinite number of rooms lined–

Just going off into infinity and they’re all labeled one, two, three, four, five counting all the way up. Now. Imagine that every single room is full in Hilbert’s Hotel. A new guest shows up, how can we get them into this hotel? What do you do? Well, Hilbert’s idea is that, you can’t put them at the end into a new room, because infinity just keeps going on forever and we can’t find the end of it. But what you can do is shift them all up one. Take every person and say, “Okay, you’re in room one, go to room two. Room two, you go to room three. Three to four, ad infinitum, right? N plus 1, basically, to this whole equation.

Well, what happens then when the next guest shows up? Okay, well, we need to shift everyone again now to the next room. You end up with basically, everyone having to keep moving up by a room as you add more.

We’re Living In A Monetary Hilbert’s Hotel

I would posit it that it’s possible that we are living in a monetary Hilbert’s Hotel. In that whatever the latest problem to show up, which would be a guest in this instance, what do we do with it?

Oh, we have to print money to throw it at this problem and we have to shift everyone. Everyone needs to go change rooms and move up a room, so that we can put these people into room number one. Oh, COVID hit. Okay, time to shift everybody off. We need everyone to move. By the way, the people who are closest to room number one are the ones who get the most benefit out of it.

This is the Cantillon effects, where whoever gets the money first gets to go buy things with it at the original price level versus by the time it gets all the way out to room infinity, well, good luck, it’s pretty much watered down at that point and that’s what inflation looks like for you. All which is to say that, money is not neutral. There’re winners and losers when it comes to shifting everyone in this Hilbert Hotel.

Zeno’s Paradoxes

The next idea, then, is this idea called Zeno’s paradox and this is from 2,500 years ago. Imagine that you’re covering a distance, you’re going from point A to point B, and in half that time, you’re going to be halfway in between A and B, and then in another half of that, you’re going to be a quarter of the way done, and then you go another half and you’re an eighth of the way done, and if you keep going half, and half, and half, and half to infinity, you never actually get to where you’re going.

It’s always adding up to this smaller and smaller amount of distance that we have to cover, so, how do we get that infinite distance? We know that we go places all the time we get from A to B, yet, Zeno’s paradox would say that you can never get from A to B. What the hell is going on there?

Well, this is what happens when you take anything with one divided by infinity, you end up with oddly enough an infinite number that is going, but yet, it’s nonsensical. It becomes absurd because the distance is less than– At some point, the distance is less than the size of your toe and so, what does that even mean? Okay, so, this is where we get into calculus. The key is how long does it take to do each stage of those things? You’re going the same speed throughout going from A to B and each stage then takes half the amount of time as well as what–

With an infinite number of stages, the time that gets spent on each stage gets shorter, and shorter, and shorter. The total time actually then becomes a finite number. It’s interesting thing like it took mathematicians 2,500 years to solve this paradox. Last coupla things in this that I thought were just interesting little tidbits.

Binary Birthdays

When it comes to binary, if you had seven candles on a birthday and you use binary to express it, you could actually go up to the age 128 candles. Maybe, if you have a really nerdy friend that might be a fun thing for you to do is some days put their candles in binary. In fact, when I’m 80 years old, I encourage you guys to give me a cake, and put it in binary, and I’ll think that’s funny.

Tobias: How many candles is that?

Jake: Seven candles can express up to 128 in binary.

Tobias: Oh, I see. You just got to turn some on and turn some on.

Jake: Right. Even more impressive that you can actually count up to 1,023 on your fingers, if you do it in binary. They mean different things, but that’s pretty impressive to me. I don’t know if anybody can actually keep track of it. Of course, a computer can very easily do it, but…

Rational & Irrational Numbers

The last thing about this book that was just interesting was, it taught me more about what real numbers are, what normal numbers, rational, irrational, and this idea called the axiom of choice, all this stuff hard to explain in a podcast. It’s supposed to be fun. So, I’m not going to bog us down with it. But I enjoy it actually. It’s a dorky book, actually, she tells a lot of stories about little math things from her life, like, about baking and stuff. But it’s interesting and maybe I’m just a dork, but I think it’s fun to read about weird math problems that come out from infinity. So, yeah, there’s a little segment on some fun trivia for you guys.

Tobias: What’s the book called?

Jake: Beyond Infinity?

The Monty Hall Problem

Bill: Have you ever heard of the Monty Hall problem?

Jake: I have.

Bill: I spent some time on that.

Jake: Yeah, that’s a mind F. Did we do that on the program at one point?

Tobias: Which one’s the Monty Hall problem?

Bill: You got three doors. Two doors have a goat, one has a car. The host, after you pick door one, opens door three and it’s a goat. Should you switch your initial pick?

Tobias: Yeah, the answer is you should always switch.

Jake: Yes.

Bill: Yeah, what’s the probability that you’re right by switching?

Tobias: Because you get to adopt, your untrained probability is one in three, but you get to take advantage of their additional knowledge, because by opening up one of the doors, they’re only going to open a door that has a goat behind it. So, you can take their probability by switching. It’s either the door that you’re on or the other door. So, it becomes 50-50.

Bill: It’s actually two thirds.

Tobias: Two thirds?

Bill: Yeah. Because you’re correct in a series of independent random events. But because the goat open is dependent upon the host knowledge, it’s actually two thirds of the time [crosstalk].

Tobias: You get their probability. That’s right, you get their probability. So, yours is one in three and there’s still in three. That’s good.

Bill: I was sitting there, I was a little high, I was trying to figure that out.


Bill: You guys are probably kidding me. [laughs]

Jake: Some of the best part of that– [crosstalk]

Bill: I do wake up in the morning and reread it. I was like, “Oh, no, I get it.’

Jake: They had some women mathematicians wrote in about that and then just the misogynistic responses about like, “Go back to being a secretary.” Actual real scientists, who did not get the problem. It just really revealed some of our biases– [crosstalk]

Bill: Well, a lot of scientists didn’t get it.

Jake: No.

Bill: A lot of people were like, “This is BS” and it turned out to be true.

Jake: Yeah.

Munger Steps Down As DJCO Chair

Tobias: Total non-second, total change of direction here, but we’ve got to mention this. Charlie stepped down as DJCO Chair. I think he might still be on the board.

Jake: Still on the board.

Tobias: He donated his stock or donated $1 million of stock.

Jake: Yeah.

Bill: I love it. What a monster? Huge leverage, a margin position on Baba and then say, “I’m incapable of still continuing at this company.” Cool.

Jake: I think he’s still running the portfolio that was part of his duties as Director.

Bill: Yeah.

Jake: That’s my understanding.

Bill: No.

Jake: Anybody know anything about this new guy that’s taking over?

Bill: He’s apparently a tech guy. So, that’s good.

Jake: Not 87 years old.

Bill: Yeah.

Jake: Like Salzman. So, that might be something.

Bill: No, I don’t know anything. I don’t know. I know that Tyler Technologies has probably doubled sales since Charlie said that they were a terrible company and easy to compete against. Daily Journal has–

Jake: Doubled leverage. [laughs]

Bill: That was the math knot.

Tobias: Yeah, Tyler’s was expensive, but it’s definitely a good company.

Bill: Yeah, they’re monsters. But you do have a lot of multiple potential fade.

Tobias: Yeah.

Jake: Are we back on QQQ? Sorry. [laughs]

Bill: No. Tyler’s, a lot more than that. I think Tyler usually trades at a very, very tight cap rate.

Shopify Looking Interesting

Tobias: Yeah, it’s never got close to hitting distance. The other thing that I’ve been tracking for a little while started. Not didn’t quite get there, but this is looking interesting with Shop was still getting into, but not.

Jake: Oh, yeah. Get some, Toby.

Tobias: Not yet.

Jake: Fellow Toby?

Bill: I thought about buying some of that just as factor exposure, but then I was like, “I should just buy some ETF.” But I don’t even know what ETF to buy. Man, seeing stuff, trade all in tandem, this is all just one big factor. But everybody else just that can admit it is just like masturbating over how smart they are.

Jake: Yeah. [crosstalk]

Tobias: It is weird how much the– [crosstalk] it is weird. I watch it all the time. I watch some weird move happen, and I go and look at all of my peers, and I’m like, “How about that? We’re all doing the same thing.”

Jake: Nobody’s doing any real work.

Bill: Yeah, the whole root real works in tandem. Meanwhile, I’m out here reading expert calls like an idiot trying to figure out some insight.

Tobias: Well, that might provide– There’s the argument for that too, that you could find something that– They are all moving in tandem and they shouldn’t be.

Bill: Maybe. I don’t know that it matters anymore. That’s maybe something silly to say, but–

Tobias: But it does, because ultimately, what you’re buying is a stream of cash flows. So, you just have to sit there and wait until it comes into your heating zone. The way it trades after you own, you don’t care.

Jake: Wrong. I’m just front running the next flow behind me.

Bill: Look, I don’t disagree with the theory. I think the theory is theoretically correct. As Yogi Berra says, “There’s no difference between theory and practice in theory, but in practice, there is.”

How To Get Optionality In The Market

Tobias: I think that’s very practical. The longer I do it, the more I think that that’s actually really true. I think there’re two things that you can do in the market. You can either buy things that are really, really undervalued and basically, you don’t pay for the equity, because you’re getting your balance sheet value, you’re getting cash, and other stuff in there.

Or, you find stuff that’s really, really good. Again, you’re trying to get optionality for free. Either those two things work really well. That’s what I try to do. I try to get both. I just want optionality in the portfolio. Then the thing about optionality is, there’s some randomness in it. You don’t know when it’s going to hit, but ultimately, it’s still holding these things like printing money, and buying back stock, and growing, and doing all the right stuff. You have your time. Your moment comes.

Bill: Yeah. All right, that’s how I invest. I’m just not sure I believe in it anymore.

Tobias: Yeah, it’s hard to believe it sometimes when you’re doing the right thing and it’s just running against you for years, start thinking that you might be nuts. It’s a mental game. It’s all a mental game.

Bill: I guess the reason I don’t want to index is I was really happy when my friend, [unintelligible [00:43:00] this week and I’m talking to him. I was like, ” Have you ever tried it on?’ They’re like, “Hate on them.” Yeah, fuck yeah. [unintelligible [00:43:08] I like that stuff.

Flows Work Till They Don’t

Jake: This same problem though exists, that flows dominate. That’s what we’re saying at the moment. But that same thing works on the other way, too. There will be a tough point, where you’re like, “Oh, my God, this business is amazing. Why does it just keep going down day after day after day?” It just doesn’t make any sense. The fundamental support a much higher price from here. Well, that’s the flows argument going the other direction. We only hit the right price on the elevator up and down. You just have to know where you are and play your game.

Tobias: I still think that the more distortion there is in the market, the better it is. The flows argument, I’m still now entirely on board with it, but even if it is the case, then I love it. Let’s do that. Let’s make sure somethings are massively overvalued and somethings are massively undervalued. I don’t care if it doesn’t necessarily show in portfolio performance in the near term, because I’m not trying to buy future performance. I’m trying to buy businesses that print cash flow and do stuff.

Bill: Just need to make sure the agency costs aren’t there.

Tobias: Yeah, that’s–

Jake: What do you mean by that? What does that mean?

Bill: I mean, there’s a lot of cheap stuff that’s just there to enrich management. They suck this stuff out, and you get this cash on the balance sheet, and you’re never going to see it just in some glass box. I always have an issue when– I don’t know. Facebook was a good example before they were doing their buyback. It’s like, “Well, look at all the cash.” It’s like, “Okay, well, that’s just Zuckerberg’s play chest.” That’s not yours. You’re just along for the ride and turns out he’s going to spend $100 billion on something that people, well, thinks he’s going to that a lot of people don’t agree with. [crosstalk]

Tobias: They’re doing some buybacks, too.

Bill: What?

Tobias: They’re doing some buybacks.

Bill: Yeah, well, I think that I think it’s changed a little bit and I actually–

Jake: This is a fun game that-

Bill: Don’t have a same aversion.

Cash Black Boxes

Jake: -Ben Graham used to play with his acolytes, where they would do little puzzles like this, and one of them was, imagine this company as a black box that the cash will never come out of. We’re assuming that like upfront. What is it worth, then? What would you pay for that price?

Bill: Nothing.

Jake: Well, but there’s probably– [crosstalk]

Bill: That’s a trading sardine. Because if the cash is never going to come back to you, you’re just hoping somebody pays you more down the road. Then you’re saying like, “In theory, it should be worth this.”

Jake: So, how much of these businesses are these black boxes, and how much are actually you’re ever going to see that return on capital, and who’s playing what game?

Bill: This is why I actually like buybacks, because even though they’re inefficient, they distribute cash back to shareholders.

Tobias: It’s also a good signal. If they’re doing it at a discount, but was slightly missing Jake’s hypothetical here. I can’t figure my way through that hypothetical, because I think that the answer is probably that it’s not worth anything if it never comes up. But there’s no company that’s actually like that. If they come to an end, they liquidate and then you get something back, unless it’s all consumed by the agency costs.

Bill: Yeah, it’s worth a lot to management. It’s probably worth $20 million a year to CEO.

Why Meta Is Mispriced

Tobias: I’ve had a bet on Meta. The thesis for Meta is pretty simple from my perspective that fundamentally, qualitatively, it’s mispriced. I don’t know whether what the future holds for it. It may very well be the reservations that Bill’s expressed at various different points. I know you’re long, too. I’m not trying to set you not long.

Bill: Yeah.

Tobias: The reservations that you’ve expressed may very well be the end for Meta. There’s so much cash, there’s so much cashflow. It’s still Mark Zuckerberg. He knows what he’s doing. It’s still right in the ecosystem of like, a lot of advertisers. There’s a reasonably good chance that it works and you’re getting the right valuation here. I think if you do this with all these positions, it works out okay. Even if it doesn’t work out in Facebook’s instance, but I think it does over time in aggregate on average.

Bill: I’ve recently thought about selling Google to buy it. So, I think it’s cheap.

Tobias: I think Google’s pretty cheap, wasn’t it?

Bill: Well, that’s what I’m saying and I got taxes. I don’t want to deal with that. But I think Facebook’s cheap.

Don’t Trade On Round Numbers

Tobias: Google almost traded at $2,500 through that whole thing. It had three runs where it got to down to 20, 5, 30, and I think every single person in the world was sitting there on $2,500.

Jake: Ready to [crosstalk}.

Tobias: Yeah, so, it just wouldn’t trade at the round number which is I already know that lesson. I don’t need to learn it again. Don’t try and buy it round numbers. There you go. But it could easily have been again. If I’d have put it at 2,530, it’d have traded at 2,100 or so.

Jake: Yeah, exactly.

Tobias: You have that as well. I thought Apple was interesting at hundred like– You get Apple at 150. Go bet 2,500. Things got pretty good value through that little suck down there. Didn’t quite get to there, though. It’s only 15% of the top and then rocket back. [crosstalk]

Bill: 1807.

Tobias: What was that?

Bill: We tested the highs.

Tobias: Yeah. We just don’t know. It could be a melt up, it could be a meltdown, it could be just business as usual. Who knows?

Jake: It will– [crosstalk]

Bill: I’m glad I didn’t take exposure off when I cried. I didn’t add any, but I didn’t take any off. [crosstalk]

Jake: I thought you had leaps up out the ass when you were crying.

Bill: No.

Jake: Oh.

Leaps Way Too Volatile

Tobias: I was looking at them. There’s just way too much volatility. It’s hard to get in anyway. I didn’t want to sell anything, I didn’t want to sell vol.

Bill: Yeah, I just don’t understand the options well enough to really mess with them and I know that.

Jake: Well, you wait for a split and then you can buy more of them, and then it goes up- [crosstalk]

Bill: No, that’s a good point.

Jake: -and that’s how you win. [laughs]

Tobias: That’s how it works.

Bill: That’s a good point.

Trading Sardines

Tobias: Yeah, that was funny that Tesla– You pointed this out to me, JT. You should probably talk about it.

Jake: Oh, it was just my little cringy part of me. But I sent Toby, it was just a screencap of two articles about Tesla that were next to each other and Apple’s stocks thing. One of them said, “Stock split about Tesla. It’s rocketing.” Then the other one said like, “Shanghai plant closing due to COVID concerns.” I’m like, “Okay, well, you could see which one of these is driving Tesla’s price.” It’s the fact that we can pun a little harder now, because the stock splits going to allow us to get in more options play versus oh wait, the business actually closing down a key facility for a while, even if it opens back up at least it’s pushing out production for a while [laughs].

Tobias: Those are trading sardines, sir.

Bill: Yeah, maybe the argument is the macro picture looks more stable now, so, the long duration. I don’t know. I tell you what, if these commodity guys are right, it’s going to be interesting to see how expensive electric vehicles get. I don’t necessarily think the commodity guys are wrong. I’m not sure I want to go out and buy commodity stocks here, but there is a lot of tightness and there are a lot of smart people that are out there saying that, we can’t possibly produce these things. I get that like people want to wish that we can. That’s a nice world to be like, “Oh, no, we’ll figure it out.” But we still need to figure it out.

Weird Shortages

Tobias: There’re still so many weird holes in the supply chains. I saw on today that they having trouble producing fire hydrants, because they’re missing some component of the fire hydrant.

Bill: I was talking to the dude that [crosstalk].

Jake: Isn’t red paint?


Bill: Might be. [crosstalk] opening a Bobby Flay’s. The issue that they’re having– I was looking at wholesale inventories and they look like they’re at normal levels. But I wish you could drill down into finished goods versus raw materials and whip. Because what he said happened is, they are waiting on a lot of refrigerators.

All the raw material is at the refrigerator manufacturer, but the refrigerator manufacturer only has so many machines dedicated to stamping out these refrigerators and they’re like, “There’s no way we’re going to buy six more machines for 12 months of demand, so that then we have equipment that’s worth nothing.” If you want it, you pay to get it now. I just wonder how much of the actual inventory is just like raw material build. I don’t know how it’s calculated.

Jake: Imagine with all of those variables moving around all over the place every single day thinking that you know what the right amount of money to provide to this whole thing should be. [laughs] Just imagine that [crosstalk] it takes.

Tobias: There’s a building full of PhDs there, sir. They have got this figured out.

Jake: It’s all dialed in.

Tobias: Because as Bill pointed out earlier, just going and studying for a PhD in economics is just the same thing as running a business. [crosstalk]

Bill: That’s right. Yes.

Tobias: Practically.

Bill: And figuring out how the whole economy will respond.

Jake: Oh.

Tobias: And theoretically right is for more right than practically right. You could be wrong in instances, but as long as the theory remains sound, then the theory is sound. It’s not a problem.

Jake: That’s as good as money, sir.

Tobias: [laughs]

Bill: And if you’re wrong with everybody at the same time that helps.

We All Want Cheap Electric Cars So We Don’t Have To Go To The Gas Station

Tobias: It’s a bummer. I really want cheap electric cars. So, I don’t have to go and fill up at the gas station, because that’s a bummer. That’s pain.

Bill: You got to pay from to get charged, man. Nothing’s free.

Tobias: It’s just the hassle of going to the gas station. I just want to plug it in at home.

Bill: Yeah, it’d be nice.

Tobias: That’s so much more efficient.

Bill: It’d be nice.

Jake: I think we’ll get there as a species, but we just have to hang in there for a while, I guess.

Tobias: I haven’t liked the idea of not necessarily owning a car. The Uber, I think is a great idea. It’s tough when you got kids, because you got to put car seats in the back of the car. But if I didn’t have kids and I didn’t have to stick them in the car seats, then I’d be happy. Just send me my electric Uber with no driver and–

Jake: Just stop going anywhere. That’s the answer.

Bill: I know somebody, who has a Tesla that–

Jake: Eat your lentils at home like a good boy. [laughs]

Tobias: Eat your bugs. Eat your bugs.

Jake: Oh.

Bill: Yeah. This dude’s not afraid to drink, because he’s like, “The car is driving me home.” Now, whether or not that sound, it’s whole another issue.

Jake: I don’t think that will pass legal muster. [laughs]

Bill: Well, you got to get pulled over first, but I don’t deny that it’s not a very good strategy. It’s not sound.

Jake: You got to see that video that Tesla jumping at– [crosstalk]

Bill: Yeah, that guy’s an idiot.

Tobias: [laughs] Was someone actually in that car?

Bill: Yeah, and then they fucking put it on YouTube like a moron.

Tobias: That’s funny.

Jake: I thought it was pretty cool, myself.

Tobias: It’s an appreciating asset.

Jake: I watched it 10 times in a– I’m just, “Whoa, look at the air.”

Bill: Yeah, he could have killed somebody.

NFT Update

Tobias: Do you guys want a little NFT update?

Jake: Yes.

Tobias: I’m checking every week on the Google. It’s bounced a little bit. It got as low as 27. I think it was up to 28 last time I looked. There may be a short-term bounce in the NFT market. So, I don’t know. I haven’t I haven’t performed any moving averages on it. [crosstalk]

Jake: What is that? What’s that measured in? Rembrandts. How do you–?

Tobias: I guess, it’s Google’s attempt.

Jake: I know.

Tobias: Google’s very squirrely about what they’re actually telling you there.

Jake: Yeah.

Tobias: It’s indexed to its highest number, I guess so. If hundred is the highest number of 27, 28, it’s going to be one of those Paul Krugman things, when he says the internet will be no more significant than the fax machine. That’ll just come back to haunt me forever. But I still don’t think that you want to be going and holding a lot of crypto punks just here. Two cents.

Bill: The Bored Apes got a big distribution. They were very excited as a community.

Jake: What does that mean?

Tobias: Yeah. What does that mean?

Bill: I don’t know.

Tobias: I saw that as well. I saw some guy rented a couple of Bored Apes out and he clipped $1.3 million in Ethereum, and then he lent them back or he gave them back.

Bill: Yeah, I don’t really know.

Jake: To who?

Bill: But I know that it happened, because I heard from my friend, who owns one. He was like, “I told you. You should have bought this.”

Jake: Is it like a pic, where you get paid in more apes? [laughs]

Bill: No, it was some distribution that was marketable. So, yes, I think you have to sell it. But there was a market for it.

No Gas Stations – What Happens To Scratch Tickets & Cigarette Sales?

Tobias: I think there’s a good question here. “What happens to scratch tickets and cigarette sales with no gas stations?” Now, someone’s thinking about the second order consequences.

Jake: Ooh, I like that.

Tobias: Yeah, so do I.

Jake: That will get you nowhere in this market, sir. [laughs]

Tobias: That’s too much thought.

Bill: Well, I’m not sure that convenience stores have to go away.

Tobias: Yeah, that’s true. Is that the main vent? Cigarettes are going to be okay, because people who are addicted to cigarettes, they can find a way to get cigarettes.

Bill: Yeah, they are just going to [crosstalk] and stop. Yeah.

Tobias: What about the scratch? Scratchy tickets? Scratchies?

Bill: I think people will probably figure out a way to get their lotto tickets, too.

Tobias: Yeah.

Bill: Well, probably, some tech person will probably figure out a way to deliver it directly to your phone and-

Tobias: Yeah. Wouldn’t that be great?

Bill: -they sell more and they’ll call that reducing friction.

Tobias: That’s a billionaire. NFT scratchies.

Jake: Link that right to UBI.

Bill: Yeah, that’s right.

Jake: And you’ve got the whole world figured out.

Bill: Can’t go wrong. That’s pretty much Robinhood.

Jake: [laughs] Ouch.

Tobias: I think we’ve run out of stuff to say. You guys got anything?

Jake: Unbelievable. But no more questions, I’m sure there’s some question here.

Bill: I don’t think I do.

Tobias: What about Red Bull? I think Red Bull is going to be okay.

Jake: What happened to them?

Bill: Yeah.

Tobias: I guess, that’s what– I think Red Bull’s bought by 21-year-olds in clubs, isn’t it?

Bill: Yeah.

The Genius Behind Drive To Survive

Tobias: Did you guys watch Drive to Survive this year, F1?

Bill: Didn’t I need to. I’m going to the Miami race.

Tobias: Dude, hats off to– [crosstalk]

Bill: No, it’s not Miami.

Tobias: Hats off to Liberty for buying F1 And then pumping up all that content, figuring out that it’s an entertainment content business getting that Netflix show viewership up. Bernie Ebbers used to say, they used to say, “You know what, no young people watch F1.” He said, “I don’t care I’m rich 70-year-old’s watching.” But it turns out that– [crosstalk]

Jake: Bernie Ebbers of like WorldCom?

Tobias: Who was the guy who owned Ecclestone? Sorry, I mangled that one. Who owned F1? Who sold F1?

Bill: I think that was his name, was Ecclestone.

Tobias: Ecclestone. Sorry.

Jake: Okay.

Tobias: It didn’t mean any intervention there.

Bill: Yeah, it was Ecclestone.

Jake: [laughs]

Bill: I think I heard that he ran it out of his house. It was like a room in his house.

Tobias: How hard could it be?


Bill: Just throw together some aces.

Jake: We are able put out some premium content from a couple of rooms and houses.

Tobias: Whoever is the producer or the writer for that show, that’s just absolutely genius the way that they pick up those storylines. They’ll make one go the bad guy, and then you just tune in the next week, and that guy’s the good guy. You just like, “Yeah, this is makes complete sense to me.”

Bill: It’s like wrestling.

Jake: Yeah, it is wrestling.

Tobias: It’s brilliant.

Bill: Yeah.

Tobias: It’s so good.

Bill: If only the cars were evenly matched.

Tobias: The actual F1 is so fucking boring. They just keep going round, and round, and round.

Bill: Terrible to watch.

Tobias: I’m like, “Where’s the commentary?”

Bill: It is terrible.


Bill: Swan NASCAR, man. American sport with the same equipment. Rubbin’s Racin.

Jake: You have been in Florida for a while, haven’t you?

Bill: Yeah, I don’t watch NASCAR.

Jake: Oh.

Bill: I did for a bit. I was Denny Hamlin fan. I liked that black FedEx car.

Tobias: Yeah, UFC is where it’s at. Khamzat Chimaev, get on Khamzat early.

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