In their latest episode of the VALUE: After Hours Podcast, Bill Brewster Jake Taylor, and Tobias Carlisle discuss:
- Use Randomization For Better Returns
- Continually Adapt Your Strategy
- You Just Can’t Overpay For Quality!
- Investors Should Beware When Cloning 13F’s
- Good Ideas Taken Too Far
- Chesterton’s Fence
- Why All The Data Is Very Confusing
- American Happiness Hits Record Low
- Inflation Is Running Through Everything
- Buffett Bought More Apple Last Quarter
- Jamie Dimon’s Hurricane
- It’s A Long Way Back For Tiger Global
- Growth Traps
- The Risk Of Following A Single Strategy
- Austrian Century Bond Down 55%
- Cricket Bars
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: Zoom is preparing to livestream. That means it is Value: After Hours. 10:30 AM on the West Coast, 1:30 PM on the East Coast. Jake Taylor and Bill Brewster as always. What’s happening, gents?
Bill: So much.
Jake: What’s [crosstalk] my brothers. And yes, so much.
Bill: So much.
Jake: [laughs]
Bill: Yes. Jake, what did you prepare for us today?
Jake: Well, I’ve got a segment on cultural evolution and Chesterton’s fence.
Tobias: Ooh.
Bill: Bang.
Jake: We’re getting into some deep stuff here.
Bill: I heard a thesis that ended in Chesterton’s fence the other week. The guy said, “Sometimes, it just is, the moat just is.” I’m pretty sure that’s what Chesterton– It wasn’t just like a fence. It was in the middle of the field and it was just there.
Jake: Yeah, it’s more generally that reforms of any kind should not be made until the reasoning behind the existing state of affairs is fully understood.
Bill: So, you can never make a reform. I like it.
Jake: Well, you can’t just go reforming, because you don’t unders– Well, why this fence here? This is stupid. Let’s just tear it down. But it was put up there for a reason originally and why is that?
Bill: Sometimes, the world changes, man. Sometimes that a reason is no longer valid.
Jake: That’s true, but I think we often use reasoning. I won’t get into all this, but to jump to a conclusion as to why something’s no longer needed, but we’d actually don’t understand why it was originally being used.
Bill: Yeah. And what you really need is a jump to conclusions, man.
Jake: [laughs] It’s like twister.
Bill: Yeah. But you jump to conclusions.
Jake: [laughs]
Tobias: Got a good spread today, fellas. Dubai, Illinois, Bangalore, Townsville, Caribbean, Huntington. What’s up, fellas? Good to see you everybody.
Jake: Wow.
Tobias: Good global spread toddy.
Bill: I don’t even believe any of those.
Tobias: Townsville, Queensland must be like-
Jake: Fake news.
Tobias: -3:30 in the morning. Could be earlier than that. I don’t know. That’s an early start. Good for you.
Jake: Wow.
Bill: I jumped into an Aussie Space on Twitter. I like listen to the Aussies talk finance.
Tobias: [laughs] What he’s saying like?
Jake: What was on? What was going on?
Tobias: Was it a [crosstalk]
Bill: The guy was talking about how– I thought it was really good Space. I perceive him to be 45 or 50 and he started to Space for, this is on the Twitter machine for those that don’t know. Just for younger people to talk about like journaling his thoughts to make sure that his mind was remaining sane in a drawdown. I thought it was a nice way to get back.
Jake: I like that.
Bill: Yeah, that was solid.
Jake: That’s not a moat. This is a moat.
Bill: That’s right.
Tobias: [laughs]
Bill: Let’s talk about this fence concept.
Jake: Okay. Well, do we have anything else to tease or just going to try right [crosstalk]
Bill: No, we spend our time on GIFs.
Tobias: I’ll tell you what’s coming.
Jake: [laughs]
Tobias: We can do JT at first. I got Smead Cap. Don’t know much about them, but have this nice piece called When Quality Fails. That was a good one. Some good lines in here.
Jake: Smead as in Captain Hooks 2? Is that or something?
Tobias: Smeads me. Yes. Smead, I think that’s right. Yeah.
Bill: There you go.
Tobias: [crosstalk]
Jake: I watched that last night, Hook with my– [crosstalk]
Tobias: Oh, really?
Jake: Yeah.
Tobias: That’s a classic. That’s a [crosstalk] goofy yo, goofy yo.
Jake: Oh, [crosstalk]
Bill: How old or young do you think somebody needs to be before you can watch that?
Jake: I think like a seven- or eight-year-old could watch it really easily.
Bill: That’s what I was saying, but I got pushback from the fam. Oh, I got to sign for something and then I’m going to be right back. But I just got to delivery and I know I have to sign for it.
Jake: Uh-huh. Special hook up.
Bill: It is a special delivery. I was told. Make sure to sign for this.
Tobias: We’ve got Brisbane [crosstalk] on the house too.
Bill: But I can [crosstalk] I would.
Tobias: Brisney Land, I’ll be back at Christmas. Going to be back in Australia for the first time since 2018. It’s been too long.
Bill: All right, I’d right back.
Jake: Wow. Are you doing a world tour? You’re going to go see the fans in Down Under?
Tobias: Just to see the family.
Jake: Oh, okay.
Tobias: Maybe I’ll do something.
Jake: Yeah, do a happy hour or something for the [crosstalk]
Tobias: Half dozen of the people I know who show up. The other thing I’ve got– Xena came out. We can discuss this while Bill’s not here, because he won’t enjoy this as much but Pzena came out, and they said, “The value run’s not over. It’s going to keep on going.” So, I was relieved to hear that.
Jake: Oh, from rich’s mouth to God’s ears. [laughs]
Tobias: It started in September 2020 and it’s June 2022. I think it’s still got legs. I’m happy to hear that.
Jake: I did see a chart, I don’t know, was it might have been Cliff Asness? Maybe not. Something on Twitter that showed that these kind of regime changes could take 10 years. They take longer. I think that people often give them credit for.
Tobias: Yeah, I don’t think it’s really even got started. I think all we’ve seen is run up and get smoked.
Jake: Just a taste. [laughs]
Tobias: And value just in sitting there, but we’ll see. I’m going to do the quality thing a bit. There’re some great ones in here. Value Stock’s in the house.
Jake: ESG.xls? [laughs]
Austrian Century Bond Down 55%
Bill: You see how much the Austrian century bond is drawn down?
Tobias: How much?
Jake: Oh, what is it?
Bill: It’s like 64%, 65%.
Jake: Oof.
Tobias: You’re going to collect the face value of that, though.
Jake: That’s duration risk on a 100-year.
Bill: Maybe you argue about buying it here. That may not make that much. That could make sense.
Tobias: When’s it expires?
Bill: Life.
Jake: You’ll be dead.
Bill: Yeah. 21 something.
Tobias: That’s a hundred years from today. It’s only just recent issue.
Bill: No, but I think it was issued in 2018. So, 2118, something like that. It’s a long time.
Tobias: Geez.
Jake: Why didn’t the US do that?
Tobias: 100-year bonds?
Jake: Yeah. I think the appetite might have been there. If you’re going to have low rates, issue 100-year bonds and go build a bunch of infrastructure.
Tobias: That is weird, though. Why didn’t they that?
Jake: I don’t know. Because we’ve got jabroni’s running things.
Tobias: [laughs]
Jake: Sorry, dudes. [crosstalk]
Bill: At the time, we had the best businessman in the history of the planet, sir.
Jake: That would happen? [laughs]
Bill: I’m just saying. I don’t know. I read it from his Twitter account.
Jake: I’m going to have to go back to my journals and see what I was thinking about that. [laughs]
Bill: Fair enough. Anyway, we shall move on.
—
Chesterton’s Fence
Jake: Okay. Should we crack open some Chesterton’s fence?
Bill: Yes.
Tobias: Let’s do it.
Jake: Okay. This comes a little bit in a roundabout way. There was this book called The Secret of Our Success and it was by Joseph Heinrich. If that name sounds familiar it’s because he’s an anthropologist who also wrote another book that I think we’ve talked about on the show called The WEIRDest People in the World. Anyway, this book, basically asked the question– It’s hypothesized that humans succeeded because we have this raw intelligence.
Heinrich argues that, that may actually not be what our success came from. His evidence that he points to is that European explorers, when they came over to the new world, they’re in these foreign lands. Theoretically, they should have been done really well. They had all these advantages of better technology they had. It was basically just young men in their prime who came over. They didn’t send women, and children and elderly.
Tobias: In their 40s, early 40s.
Jake: Yeah, and they were selected for hardiness.
Tobias: [laughs]
Jake: [chuckles] Shut up, Toby. But yet, these guys who came over, these Europeans, they ended up starving to death often. Meanwhile, and the hunter-gatherers, who are living here already felt they were living in material abundance. So, like, “Where’s the disconnect?” When these Europeans were forced to hunter-gather, they failed miserably.
I would challenge any of us to, if you want to see how bad we probably are actually at survival just on using our raw intelligence would be like go try to start a fire outside right now with no implements. Could you actually do it? It turns out incredibly difficult to do. If you ever watch Naked and Afraid or any of these other survival shows, without the tools, a lighter or a flame thrower, it’s really hard to get fire going. [laughs]
Anyway, so, how did these local populations do it? Heinrich argues that it was cultural evolution, a trial and error over long periods of time, and the transmission of what work to the next generation that actually emerged as to how we survived. These tools, and techniques, and cooperation, and tradition, and trading, all of those are how we were able to survive and thrive in an ecology.
You take a European, and put them in that same ecology, and they don’t thrive because they don’t have the cultural adaptation built up for it. Even our digestive system evolved along with us with our culture. It turns out that our digestive system is incredibly puny when compared to the rest of animals. Our mouths are the size of squirrel monkeys.
Chimps can open their mouths twice as big to eat food than we can. We have really weak jaw muscles. Our stomachs are about 1/3rd of the surface area as what you would predict based on our size compared to other apes. Our colons are only 60% of the expected mass. We have this really underdeveloped digestive system. We’re an embarrassment to nature like “What’s going on here?”
Well, it turns out that we depend on this thing called pre-digestion, which is cooking, and soaking. and chopping, and rinsing, and boiling. We basically precook our food to unlock the nutrients. What happened was that a lot of these European explorers, they had the wrong cooking techniques for that environment. They were eating plenty, but none of the nutrients were being absorbed because they weren’t unlocked, because they didn’t have the techniques.
Investors Should Beware When Cloning 13F’s
First little nugget that we can take and maybe extrapolate back to our world of investing is that I think you have to be careful when you’re borrowing other people’s ideas through 13Fs or whatever you’re reading their– If you don’t have the same pre-digestion, the same cooking techniques for an idea that they have, you may not actually unlock the nutrients of that idea. You’re just not going to understand how they got there and you’ll never have the same conviction around the idea. All right.
Tobias: Long bow, but it’s a good story.
Jake: [laughs] Okay. That’s what we do here.
Okay. So, next thing is, it turns out there are brands come hardwired with some predetermined slots to them. Like language, animals, and plants, actually. If you notice, why is it that when we teach the ABCs? It’s generally taught through animals like A is for alligator, B is for Bear.
It’s because actually the human mind is prewired in a way to recognize fauna and associate and learn from that quickly. We’re then naturally drawn to it as well like we want to learn about animals when we’re kids. Also, same thing with plants. It’s a little bit the opposite.
They did the studies with infants where they’ll give them some object and the kid will put it in their mouth right away. You guys have kids. You’ve seen these phenomena play out. But if you give a kid, an infant a plant, they won’t put it in their mouth right away. Like we’re prewired.
That’s because the revolution, plants had their own evolution where they evolved nettles, and poison, and toxins, and oils that would cause irritation to not be eaten. And so, until an infant sees other people eating a certain plant, well, they then start to eat it. But before that they won’t. So, it’s a cultural learning about what plants are safe to eat.
Bill: That is neat.
Jake: I think so, too. Now, this applies to other things, too, as well. Westerners, we learn that insects aren’t edible as kids, typically. But some Asian populations learn that insects are edible and they taste good to them. It’s probable that once your wiring gets set for that, you’re never going to then find an insect to sound like something good that you want to eat in your youth we were exposed to it or not.
We learn this cultural adaptation really of, are insects edible enough. All the Davos people who are pushing for us to want to eat insects, you probably want to start now on this population that’s just born, because no one’s going to find it edible unless you learned when you were a kid.
Tobias: Thank you for many ideas, mate. Thank you for many ideas.
Cricket Bars
Bill: Weren’t people are arguing for crickets for a while? If you [crosstalk] them off, they are high in protein.
Tobias: I think they’re still. Yeah.
Jake: Sure.
Tobias: You can pick cricket bars.
Jake: Yeah.
Bill: You can go to a cricket bar?
Tobias: You can get cricket bars, like a protein bar.
Bill: Oh, okay. You can buy a cricket bar.
Jake: Grounded crickets into a protein bar. Yeah.
Bill: Yeah, I guess, I’ll try that. I don’t know.
Tobias: If you flavor it with enough stuff, it just tastes like the flavor.
Bill: Yeah.
Jake: Yeah. I’ve had them before. I didn’t carry forward myself, but maybe it’s because I didn’t grow up eating crickets.
Bill: Maybe it’s because you just have good tastebuds.
Jake: I don’t know. All right. So, the next part that’s interesting is, there’re these native foragers up in Labrador, Canada and they hunt caribou. They have to decide where do they want to go, to go try to hunt caribou. If you went to the same place over and over again, the caribou would start to learn as well that like, “Oh, don’t go here. There’re humans here. You’re going to get hunted.”
There’s a matching problem where the hunter wants to match where they’re going to be and the caribou wants to not match wherever the hunter is going to be. If the hunter showed some bias towards a particular place, then the caribou would start to catch on to that and then they would be less successful. What ends up happening is that the best hunting strategy actually involves having some randomization to it.
And so, the cultures evolved this thing of divination really, which is, they’ll take a caribou shoulder blade, and they’ll put it in the fire, and it will get this charring and cracks in it, and then they’ll take that shoulder blade, and use it as a map to figure out where should they go hunt. That’ll tell them where to go hunt. But really, what they’ve evolved is just a random map generator to make sure that they’re more randomized. This is where we get back to Chesterton’s fence.
We could look at that and say logically, “That makes no sense. There’s nothing about a shoulder blade that’s going to relate to Canadian geography and how it gets scarred in the fire.” Yet, it has this adaptation that is favorable and that it creates a randomization that makes them less predictable. That’s a Chesterton’s fence, where logic says, “We’ll tear that fence down. That doesn’t make any sense at all.”
But it evolved for a reason. Unless we really understand what that reason is, we don’t go tearing it down. There’re other examples of that. The Romans had this thing called augury and I think that it involved often bird watching to then tell them where are they going to attack and when.
They would use birds as a signal from the Gods basically and what it effectively did was created randomization. If you are too predictable as an army, the defense can figure out how to repel where you’re going to be. It sounds like, “Well, what the hell would birds have anything to do with leading your army and yet, it had this very useful thing of randomizing?”
And then one more of these. Actually, every taboo that humans have, probably, it has some deeper biological evolutionary reason behind it. Like Fiji women, it’s a taboo for them to eat sharks. It was because they believed that your child would be born with shark skin if you ate sharks. But what actually was happening was that it turned out that sharks contain these chemicals that would cause birth defects in Fiji babies if the woman ate sharks.
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Use Randomization For Better Returns
They got there, but for not any of the right reasons, which makes me think often about actually position sizing. I can’t help, but wonder if maybe even position sizing is a little bit of taking advantage of the randomness of the world that we really can’t predict as much as we think we can.
If you just use randomization in a way via even position sizing that you give yourself a chance at maybe even better outcomes than when you think that you know the right reasons for why you’re going to really load up on this one idea versus one of the other ones. So, there’s our veggies for today.
Tobias: It was good stuff, JT. That was very interesting. What’s the book called?
Jake: Book’s called The Secret of Our Success.
Tobias: That’s good. I liked some of those ideas.
Jake: If you don’t want to read the whole book, there’s a pretty good article that Slate Star Codex did in 2019 on it that goes through some of the high points of it that is probably worth if you want to just take the CliffsNotes version.
—
The Risk Of Following A Single Strategy
Tobias: There’s definitely some risk to following a single strategy, for example, in investing. You can underperform for very long periods of time, get discouraged, get out of the market.
Jake: Tell me more.
Tobias: In a theoretical sense, I’m talking totally theoretically. [laughs]
Jake: Oh, yeah.
Tobias: Yeah, that strict version of anything, I think, even though, ultimately, it might succeed over the long run can have that short run can be very long that turns out tough to follow.
Jake: Yes.
Tobias: But I like that. I like the randomness, too. I think that slight, small random number generator, that can be helpful just to push you around from idea to idea.
Jake: Yeah, and it’s something we’ve talked about a little bit before in an evolutionary context with Slack and systems, and allowing them to explore a little bit outside of an optimization to then find a higher maximum. Because if you don’t have enough Slack in a system, you could get stuck in a local maximum that is very suboptimal.
Tobias: What was the solution? Got a little bit of momentum or something like that in that context?
Jake: For investing Slack?
Tobias: No, no, no. That specific example, whether that was– What was the full story there?
Jake: There’re lots of examples of it from evolution of an eye for biology. Allowing an eye to evolve, it would take a lot of Slack in a system. Your genes are like that in a big way where they’re not particularly optimized for any one environment. They’re more a recipe that then gets called upon based on the environmental impacts, which creates the epigenetic phenotype that would survive for that environment.
Tobias: Some good words there. I had to google this [unintelligible [00:19:47] [crosstalk]
Bill: I got lost.
Tobias: Epigenetic phenotype.
Jake: Sorry, my own eyes [crosstalk] for a second there.
Tobias: [laughs] That was good. Should we move on?
Bill: I don’t go in the ocean when there’re birds above. There’s birds there’s bait fish. If there’s bait fish’s, there’s big fish, if there’s big fish, it could be sharks.
Jake: All right.
Bill: There you go.
—
When Quality Captivates Investors Minds
Tobias: That’s smart. I don’t go in the ocean further my knees, basically. That’s not true. I used to do a lot more than that, but I think I’m going to keep on trying. This is Smead Cap, When Quality Fails. Some good lines in here.
“Quality has so captivated the minds of investors because it gives them comfort at the mania we just ended was not 1999.”
I think this is true from what I’ve seen. “Back then, there were no earnings, no return on capital and very little cash stacked up on balance sheets. The mania we have today is good balance sheets and good returns on capital with no problems inside.
The only issue is that there are companies before that have found themselves in a same situation as today.” It was the NIFTY 50 in 1972. This was the creme de la creme of Bluechip growth in business in America. Jeremy Siegel argued in his book Stocks for the Long Run, that “Investors could have paid the highest prices ever for these securities and still almost beat the market 25 years later, because ultimately the quality of the business was so good. They produced higher earnings growth and higher returns on capital and the rest of the S&P 500, but still lost.”
And then he gives the example or they give the example of Coca-Cola. They give the example from the 70s, but you could just as easily give the example from the early 2000s, which I think we saw as well.
The idea is that there are multiple different approaches that you can take to the market. You can take momentum.
Momentum is a very specific approach. You can take quality, and value, and then measuring different things. Value is literally as it’s defined in the academic literature. As a result of Cliff Asness’ work, quality minus junk thing which came out. I think it was 2014 or something like that.
His argument was that “High-quality balance sheets, high-quality cash flow from earnings are the little metrics in there leads to better performance.” It’s his own alpha generating thing, quite distinct from whether the things are undervalued or not and then its value.
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Quality Starting To Underperform
There are strategies out there that I always struggled to fully understand what they were doing, because they weren’t value guys at all. They were just quality. These other metrics and it does seem to be quite successful for extended periods of time. But everything has its day, momentum has its day, and then it has a pretty serious collapse when that cycle ends.
Value clearly has serious collapses and in some theoretical sense. Hopefully, at some point in the future, we’ll have a pretty good run and quality, too. I think quality really has started underperforming a little bit from what I have seen. It’s been similar situation to the one that they were just articulating in that article and also, the one that I talk about a little bit in the early 2000s, where there was some very, very high-quality companies that were very dominant in their niche and had all those other indicia of good quality companies, good balance sheets, and good returns in capital, and so on. And they just went nowhere for 15 years from the start of 2000 to 2015.
They’re all the things that Walmart– GE, all the companies that we would agree were really good businesses. I think that there’s some risk of that happening from here as well in some of these businesses, although, for everybody else I’ll look at. Those top businesses, I think Google’s undervalued, Microsoft is close, all those top names in the S&P 500. But I do think that there’s some risk that we go into an extended period where it won’t be quality working. It’ll be probably value through this point. Maybe I’m talking my book.
Jake: [laughs]
Bill: Yeah.
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You Just Can’t Overpay For Quality!
Jake: There is something very appealing about the idea that you own this quality business and that it should protect you from whatever vagaries the world throws at you, whether it’s inflation, or market crashes, or economic problems. The good businesses should theoretically insulate you somewhat, but–
Tobias: You can’t overpay. You just can’t overpay.
Jake: That’s the thing. I’m not entirely sure that that competitively advantage period, which is what’s required to earn excess returns on capital, how long those are anymore.
Tobias: Why do you think they can be quite long? But I think they’re often in things that are just under– The quality brand middle stand, those things, it’s a family and business that’s been owned for generations and they make something– I think all of these advantages get eroded over time.
But they make a Scotch that everybody recognizes the brand of, and they have a limited run every year, and they sell them at the price that they– Every year they wake up and they decide how much they’re going to charge more than last year, and then they sell them all, and they go and do that again the next year. That’s a good business, probably. Got a very, very durable moat. There are a few of those around.
Bill: I hate these conversations.
Tobias: Why? What are you objecting? Is it theoretical?
Bill: Look, the price you pay matters, but if you buy dog shit at cheap earnings, and then that dog shit has to continue to reinvest, and you never see the earnings, that’s not value. That’s just crap. I think something that I’ve been thinking about a lot is, actually, I think in a high interest rate environment, high ROIC companies should trade at a bigger dispersion, because theoretically they could actually dividend you back cash when you have reinvestment opportunity. But then the problem is a lot of them buy back their own shares.
So, I think you should almost look at ROIC, it is like a weighted average of the reinvestment that is needed to maintain or the investment that is needed to maintain times or well, plus the reinvestment that is needed to grow, and then plus, these are all weighted. Like the way to free cashflow yield on the buyback. That’s how I think is the most appropriate way to look at the overall return on capital, because a lot of times, I think–
I don’t know. I like buybacks because it prevents management from doing something stupid. But I also think people just look at a buyback yield and they don’t– Look, if you’re shrinking your share count by 2%, it’s costing you a billion dollars to do it. I don’t know. But yeah, I think it all comes down to what you pay and what something’s worth. I don’t like the classifications of different stocks.
Tobias: No, I agree. I agree. I’m just teasing them out to talk about a little bit, and possibly this is an artifact of the last two years that we went through the period before then where the argument was, you basically just had to pick the best business and then that was the only thing you needed to do. You didn’t need to worry about whether what you’re paying was sensible in the context of.
Bill: I don’t think that that was actually the argument.
Tobias: I encountered that multiple times.
Good Ideas Taken Too Far
Bill: Chris Cerrone, who actually wrote the paper of The Art of (Not) Selling would not make that argument. People that read the paper that don’t understand what the fuck Chris actually means might make that argument. But that reminds me of, I used to study Buffett and think I knew what Buffett said turns out I was the idiot, he wasn’t. I think good ideas got bastardized.
Tobias: Yeah, I agree. I think that’s the point that we’re trying to make though–
Jake: Good idea taken too far?
Tobias: Yeah, that just merely being a high-quality business isn’t enough. You can run that as a strategy. That’s an entirely appropriate strategy to run, but it doesn’t work all the time, even though, it sounds like a very compelling strategy. You do need some combination of both. And probably, the error that I have made is just focusing too much on value and not enough on the quality of the business.
I think I’ve tried to correct that error as we’ve gone along. Because I think the thing that Buffett has got working for him is that he’s buying very high-quality businesses, but he’s also paying deep value prices for them. In the event that you get these long periods of time where you get no mean reversion in the multiple, you’re still doing okay because your business is doing well.
Bill: He’s buying more Apple today.
Tobias: Yeah.
Bill: And he pitched Amazon at the meeting.
Tobias: I think Apple looks to me to be the most expensive of those four. I don’t know [crosstalk]
Bill: It’s definitely not deep value prices.
Tobias: No.
Sometimes The Best Investments Just Don’t Work Out
Jake: No. But neither was precision cast-parts and that didn’t work out.
Bill: Yeah, sometimes, shit doesn’t work out.
Jake: [crosstalk] though.
Tobias: People make mistakes. Individuals make mistakes. I don’t know what the problem is. I honestly can’t work out what the problem with IBM was like, “How you could avoid a mistake like IBM.” That’s what– [crosstalk]
Bill: So, Rob knew that. I remember talking to him.
Tobias: Well, how do you avoid that?
Bill: Well, I don’t know how you avoid it, but I know how he avoided it. I remember asking him about it and he was like, “If you were in computer engineering and you read the words that were on the page,” to him they just didn’t make sense. He was like, “This just doesn’t make sense what they’re trying to do.”
Tobias: It was a consulting business, right?
Bill: Yeah. But I don’t know. Look, I don’t know enough to speak on– I suspect Buffett saw a sticky product and bought into some of the reinvestment. But I think he was probably outside of his circle when it came to the reinvestment, what it would generate, I think. I don’t know. What the fuck do I know?
Tobias: Consulting businesses is just seemed– [crosstalk]
Bill: He’s Buffett and I’m an idiot.
Consulting Businesses Always Trade Cheap
Tobias: There are consulting businesses all over the world. The consulting businesses, for whatever reason they seem to trade like they do seem to be cheap to what you would think that they would be worth looking at the returns on invested capital. I don’t know why. Maybe it’s that argument that– I think Buffett has said this too that the bank, half the revenue goes to the employees of the bank. So, it’s hard to make money and then they will leave the office at the end of the day. So, all of the value disappears.
Bill: Yeah, Accenture is [crosstalk] really good stock.
Jake: Definitely true.
Tobias: It’s consistently cheap though or maybe I’m wrong.
Bill: Accenture?
Tobias: [crosstalk] the Accenture.
Bill: I want to say, it’s a 30 times free cashflow yield right now.
Tobias: Nah, that’s expensive.
Bill: Let us see.
Jake: What is the metric for a consulting company you think?
Tobias: Well, it should be– [crosstalk]
Bill: Oh, I’m way off, I’m way off. That’s why no one should listen to me. What’s 193 divided by 8–? Quick.
Tobias: 25.
Bill: There you go. Well, actually, even looking at the numbers, I’m not right. 198 divided by 8696. Yeah, 22. Yeah, that’s not crazy expensive. I don’t know how much that business grows.
Buffett Bought More Apple Last Quarter
Tobias: It’s foolish, though, right? Buffett’s buying Apple here?
Bill: I thought he was on the last 13F. Yeah, I thought that came out. [crosstalk]
Tobias: The thing that we found odd was he was congratulating or he was highlighting the fact that they had bought back stock and that Berkshire had increased its ownership in Apple.
Bill: I love when he does that.
Jake: Clearly–
Tobias: We thought that Apple was expensive while he was doing that.
Bill: I thought he actually added to Apple. But I might be wrong.
Jake: I think he’d rather have buybacks than an Apple Car.
Tobias: Buybacks on an acquisition?
Bill: Yeah.
Jake: Yeah. Who knows?
Bill: Yeah, I thought that he added, but maybe I’m wrong.
Jake: Bill is Apple going to win VR?
Bill: I have no idea.
Jake: Okay.
Tobias: Solo prosperity says, “Just look at the financials for IBM. Revenue declines started in financial year 2012 and continued for 6 years straight. High ROIC/ROCE still need “growth even if modest.” If you looked at Microsoft the same year, I think that 2011 or 2012 was the year that Microsoft’s revenues backed off too. I just don’t think it’s as easy as… he did buy when Apple added 0.43%.
Bill: Yeah. There you go. The Buff dawg loves it.
Tobias: 0.43%. $3.8 million shares in Q1. That’s a lot. I was going to say 0.43% is not much, but $3.8 million shares is quite a few.
Bill: Well, when you’re dealing with his numbers, it’s not.
Jake: Yeah. [crosstalk]
Growth Traps
Bill: I guess that’s what I think is so hard about the game. Look, I think value, you get into value traps, growth, you get into growth traps, quality, you get into something that loses its quality, and it all boils down to you thought something was cheap, and then you paid too much, and you got screwed.
Tobias: That’s why you need those caribou shoulders.
Jake: You didn’t hear a growth trap as a phrase for the last five– [crosstalk]
Bill: 100%, dude. We talked about growth traps on the show. I don’t know when because I don’t have a photographic memory. But we had a discussion about how growth traps rerate lower than value traps when value traps crack.
Tobias: We’ve talked about growth traps, but I don’t think it’s been a pervasive thing on FinTwit any, like, value traps has been to be fair, there been a few more value traps.
Bill: Yeah.
—
Tobias: I think there is something to just a tie back in the veggies from earlier. I think there really is something to– I wouldn’t say necessarily randomize it, but in retrospect now when– [crosstalk]
Jake: Scramble bag, that’s the trick.
Tobias: Scramble bag. [laughs] Yeah.
Jake: You pull letters out, you got yourself a ticket.
Tobias: Davey Day Trader knew what he was doing.
Jake: He was onto something.
Bill: I wonder what [unintelligible [00:34:35] drawdown has been year to date.
Jake: I think fairly modest.
Bill: Because that would be what I would define them as quality portfolio, you know?
Tobias: Also, Fundsmith, right? The Tiger international, Tiger Global–
Bill: Yeah.
—
Tobias: The one that was Tiger Technology, Chase Coleman. So, they’re down 52% for the year and that’s in their hedge product, in their long only product, it’s 62%.
Bill: Yeah. What were they up, though?
Jake: I don’t know, but–
Tobias: A lot, it tops that now.
Jake: They reported 5x inflows compared to redemptions even when you’re down 50%.
Bill: Yeah.
Jake: Double down.
Tobias: You need some mechanism. Sorry to interrupt you. I just want to finish the thought before the–
Bill: Yeah.
Tobias: You need some mechanism and this is the error that I made and JT made, too. Sorry, man, I’m going to bring you in here with me.
Jake: Oh, well, well.
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Continually Adapt Your Strategy
Tobias: You wrote the article and then I fully understood what you were saying in that article, and I rewrote it, and broadcasted it. I’m just saying that in 2015, it was the worst opportunity set for value in 25 years. The reason was that the most overvalued stuff was squashed right down tight with the least overvalued stuff or the cheapest stuff. If I thought about the natural implication of what that meant, what that meant was that there were very, very high-quality companies trading for the same prices very low-quality companies.
In that instance, the best move was to go and buy a whole ton of the high-quality companies, even though there might have been optically more expensive than the cheap stuff that was worth paying up for. I think that anybody who had the foresight to do that had a spectacular 2015 to whatever 2021, something like that. I think the play now is a little bit different because the spread is so wide.
I think you want to be in the cheapest stuff because I think that this will be a period of time where it’s going to be multiple driven. You’re going to need to have a discount in order to get the return. The discount is going to drive the return for a little while. Anyway, that’s my prognostication. That’s really the only thing that I truly believe that is likely to work over the next decade.
Jake: Let’s say, tying in previous episodes where we talked about where do returns come from and that’s revenue growth, profit margin, dividend, and then multiple, and then share count.
Tobias: Right.
Jake: You’re saying that it’s probably going to be more multiple driven and that will more likely be in values favor as opposed to quality. It’s going to be harder to maybe when on top line or profit margin.
Tobias: That’s what I think. Yeah, I think profit margin, very, very tough. Top line, hard to predict. The other ones like dividends are very–
Jake: Pretty steady for that. Yeah.
Tobias: They are pretty steady, but the yield on them is very low historically.
Jake: That’s how– [crosstalk]
Tobias: Yeah.
Jake: I think it’s a lot amount of cash coming out.
Tobias: Yeah, that’s fair.
Jake: The price is high.
Tobias: Although, I think that the payouts have gone down over time. I think there was 60% [crosstalk]
Jake: That’s because you made [crosstalk] getting paid on EPS, not on dividend yield. So, break that share account instead of [crosstalk] return.
Tobias: Well, let’s be fair. I’d probably prefer to do that.
Jake: It depends on how expensive it is.
Tobias: Yeah, that’s fair.
—
Bill: It’s not a big Tiger Global dunker.
Tobias: I don’t want to dunk on them. I’m disappointed. That’s a big drawdown.
Bill: Yeah, it is. I guess, I’m more curious as to why people are still allocating, and I haven’t seen their internal numbers, and what their actual returns have been over a long period of time. So, I guess, I defer to them. Although, I would be pissed if I was an LP and wrote a high-water check just to [crosstalk] represent.
Tobias: Well, I had a guy in the article. Did you see that?
Jake: I know you did.
Bill: Yeah, that would [crosstalk]
Jake: What was the article?
Tobias: Wherever I read the story about, the Tiger’s stuff that they had some quote from some guy in it [laughs] allocated in November last year.
Bill: Oh, yeah. Wasn’t he like, “It’s an unacceptable drawdown.”
Tobias: Absent of bear market, yeah.
Bill: The other thing though, is fuck that guy!
Jake: Yeah. [crosstalk] performance chaser.
Bill: You know what you’re buying when you buy– [crosstalk]
Tobias: Yeah, to be fair, the value did the same thing just like a few years beforehand. So, it’s not that would have helped you either.
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It’s A Long Way Back For Tiger Global
Bill: Well, we would have conversations last year about Shopify, and I would pull up the free cashflow yield and be like “Jesus.” We can do that. We’re not savants. This guy could have looked at their whole portfolio. Look, this is the same conversation we’ve always had. If you’re going to own stuff that valuation, you need to own it. They may not be wrong. I know that that sounds absolutely ridiculous to say, but if a value stock can go down 50% and you’re not wrong yet, then so can Tiger Global’s portfolio.
Tobias: That’s true.
Bill: But you got to go– It’s a long way up and you got to own it.
Tobias: It’s 100% in 12% to 15%. Elite returns are 12 to 15% a year from here. So, that seven or eight years that you’re underwater plus inflation, real returns, it’s a long way back. It’s a decade plus back.
Jake: So, you’re telling me, there’s a chance.
Bill: It could rip. Who knows?
Tobias: There is a chance. I mean it’s probably going to– provided they don’t shut up shop because that’s always a risk, right?
Jake: Yeah.
Tobias: When these big guys pull down as far from their high watermarks–
Jake: Start a new fund.
Tobias: All their incentive is gone and they do the Melvin capital trick, where they just wind up.
Bill: Yeah.
Tobias: Because they don’t want to dig their way back.
Jake: It’s pretty gross to do that and then just go get a new batch of LPs.
Tobias: You got to respect Mohnish Pabrai. Dawg came back. Didn’t shut up shop. Ran it for free for a long period of time.
Bill: Yeah, he did do a good job with that. I don’t know.
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Jamie Dimon’s Hurricane
One of the things that I was doing getting ready for the show is, I think right now the positives are not talked about a lot. I was reading Jamie Dimon at the Bernstein conference and that’s a terrifying transcript to read.
Tobias: Was that the hurricane one?
Bill: Yeah, but there’s much more in it than the hurricane one or I don’t think, I guess, when I heard that headline, I thought it was hyperbolic and I still do.
Tobias: To be fair, he didn’t say what has been attributed to him. He said, “It’s a hurricane, but it could be something small or something big.” He wasn’t saying it’s going to be terrible.
Bill: Yeah, and he did say a lot. Look they are very focused on risks.
Jake: That’s not going to get any clicks, Toby.
Bill: Yeah, that’s right.
Tobias: It’s clever, though. Maybe he gets the headline where he says, hurricane. But if it turns out that he’s wrong, he can go and say actually I said it could be good or bad or not that bad.
Bill: Yeah, well, I was giving an insight into how I do things. It was past work hours. So, I had a Puffco pen, and I put a little bit of wax in it, and I smoked some of it. Then I started reading Jamie Dimon and I started freaking out.
Jake: [laughs]
Bill: I was like, “Oh, my God.” Then I had to slow myself down, and then I got to think in, and I talked to Bill Wabuffo a little bit, and I got to thinking like, “They just did an investor day. So, I don’t think Jamie Dimon was actually talking to investors.” I think he was talking to policymakers and the Fed more than he was talking to investors at that conference.
I think sometimes the messaging can get crisscrossed, if you’re reading it as an investor and then you’re not considering the audience that they’re speaking to. He did note that the consumer is in good shape. Wells Fargo and Bank of America said the same thing.
Goldman COO is there and he’s an investment banker. He said that he looks to M&A activity for indications of CEO confidence. He’s not seeing M&A. I think he said we’re seeing it hang in there. Then I was looking at–
AAA spreads are pretty much in line with history, corporate high yield doesn’t look great. But the 210 spread has widened a bit. Ken Fisher always like to talk about the 90-day to the five year or the 10-year, because that’s how commercial banks actually make money like borrowing really short, and then lending long. That is widened out. I don’t know.
You’re starting to see the articles about, “Too much inventory was in the system.” Target just came out again today and said that they’re going to have to mark down inventory a little bit more. Layoffs are starting to come. There’s a world where this inflationary pressure actually does decline a little.
I don’t think commodities are going to be the immediate– People aren’t going to feel it that way, but on a rate of change basis– The headline says, “The Bloomberg commodities index hit an all-time high.” But if you look at it, we’re starting to get pretty technical on the definition of an all-time high. It’s hanging out in a range.
Tobias: I think Grantham had a comment where he said that, “They have an in-house index that they have tracked of a commodity pool,” and they said that it had declined pretty consistently from whenever they established in 2000 or maybe it was based on some earlier data than that, through to pretty recently and he said, “It declined from 100 on the index down to 30.” That’s basically a 70%, not lost, but we became 70% more efficient at pulling stuff out of the ground.
Jake: Technology for the win.
Tobias: Yeah. Which has been the very long run experience of-
Jake: Human.
Tobias: -humanity. There was a kind of blip, I guess, it was the chart. You remember the commodity super cycle?
Jake: Yeah.
Tobias: That was before the tech stuff [crosstalk]
Jake: 2008.
Tobias: Yeah. The early 2000s was the commodity super cycle that China was going to do all this building it. Even in that commodity super cycle evidently, commodities were getting cheaper, I guess, because people were investing in it and that’s what happens. But he said, “Since it bottomed at 30, it’s now back to 90 in his–” Most recent that it’s tripled in the last five years, I think.
Jake: It was back to 1870 prices or something for– [laughs]
Tobias: Well, we’re back to at least early 2000 prices. Maybe set an all-time high. Maybe it’s just made a new nominal all-time high.
Bill: I find the conversations around this get very heated very quick. The second somebody brings up Ukraine, I hear a lot of people be like, “Oh, it’s not Ukraine, it’s a supply issue.” It’s like, “Okay, well, maybe it’s both guys. Maybe, just maybe, both things can be true.”
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Why All The Data Is Very Confusing
Tobias: Well, I think what happens is you get the underlying conditions are sown and then you have a catalyst that brings it all out into the open. I think the Ukraine is the catalyst, but the underlying conditions preexisted.
Bill: Yeah. I think that’s mostly right. I have no clue how to interpret any data right now. It feels humans are just spending in waves. I think that’s a caught target off guard and Walmart, too. I don’t know how you forecast. You’re looking at last year and you’re saying, “Well, we think it’s going to be within this percentage. We all need to get all this shit to the shore really quick.” So, you got to spend a lot of money. Now, you get a whole bunch of high-cost inventory and then all of a sudden, a herd of cats or not cats, because they spread. You know what I mean? Everybody starts traveling.
Tobias: Everybody on the boat.
Bill: Yeah.
Tobias: Everybody on the boat ran to one side.
Bill: And now, not to bring up lumber, but people are like, “Oh, lumber is crashing.” Well, yeah, it is. But look at what happened last year? It happened that– This all rhymes. Who the hell knows what’s going to happen?
Tobias: Yeah. As we were talking about last week, it’s very hard to predict that. Because when you look at the last two years– You got three years of comps, and you’ve got a normal year in 2019, you’ve got a shutdown year in 2020, then you’ve got a-
Bill: Crazy stimulus in 2021.
Tobias: -stimulus in 2021. Yeah. So, it’s hard to normalize for those three. I don’t know. In 2022, you look back through that Merck, and then you’re going to try and figure out what happens next, that’s really, really hard.
Jake: A menu had that– [crosstalk]
Bill: I’m pretty sure Ed Hyman is–
Jake: Oh, go ahead, Billy.
Bill: No, I’m pretty sure Ed Hyman is saying that he’s expecting 2% growth in 2023. So, no recession. But I guess you could say, “Well, if inflation is eight and you’re growing two, that’s a recession.” I saw the misery index is way high and that’s correlated with inflation even though financial stress is low. I don’t know.
Tobias: The data is very, very confusing. What were you saying, JT?
Jake: I don’t remember.
Tobias: [laughs]
Jake: Couldn’t have been that good.
Bill: The other thing that’s hard about it is you can point to all the good data today and people are going to be like, “Well, the shit just hasn’t hit the data yet.” It’s definitely a probability. I can’t argue against that.
Jake: I know what I was going to say. You have that third body problem, what’s the fiscal and monetary response to all of this? We’ve been running crazy deficits already, which eventually, I believe that you have to pay the Piper someday for that. I don’t know when, I don’t know if it’s us, I don’t know if it’s the next generation.
Bill: Are you sure people aren’t right now? Because right now, we’re running a surplus. The dollar is going up crazy, and emerging markets are going to die of starvation, and that’s actually going to happen. So, maybe that’s how the Piper’s paid.
Jake: Maybe.
Bill: That seems very unfair, but– [crosstalk]
Jake: Well, imagine a recession here and we’ve gotten used to now direct stimi payments, which wasn’t really as much of a thing before. We end up with something UBI adjacent. Then how do you normalize anything? You don’t know how big the response is going to be. I don’t know. It’s almost as if you would demand a pretty high bar now to part with your capital because there’s so much uncertainty [chuckles] about what the world is going to look like. And yet, it’s not really been that dramatically changed.
Bill: Yeah. I don’t know that it’s going to change, but we’ll see. I mean it may. I’m more worried about trying to stop inflation that’s one to two years and crashing the entire economy in the process.
American Happiness Hits Record Low
Tobias: When they run those surveys where they asked people how they feel, they’ve just had the lowest rating ever or the most number of people say that they’re unhappy with their situation ever, that data runs back through the 70s. Now, either we were just tougher back then and people will just have a — [crosstalk]
Bill: Probable.
Jake: Yeah.
Tobias: And now, I think they’re not particularly useful in surveys, but they do show something in it. Though a lot of people are upset. I don’t know what the reason for that is. Not enough money, everything costs more. That’s [crosstalk]
Bill: Yeah. Well, everything you need is exploding.
Tobias: Yeah.
Bill: The only stuff that’s actually experiencing deflation is a bunch of stuff like electronics and maybe home goods or whatever.
Tobias: Expensive stuff.
Bill: That’s all stuff people bought last year.
Jake: Yeah.
Bill: Everything that’s getting cheaper. No one’s even buying.
Jake: Do you need that 10th TV now?
Bill: Yeah. And everybody’s spending money. There’s $750 on an airline ticket and they remember the days that it was $230. Get to Disney and they just gouge you on every single ride that you go on and it’s happening everywhere.
Jake: Other than that, though, how was the play, Mrs. Lincoln?
Bill: Well, but then you look at the data and consumer balance sheets are pretty good and spending is pretty good. Deposits, they said are down from the highs, but they’re not. This is what I’m saying. I don’t know how to interpret this stuff.
Tobias: It does seem it’s being financed on credit cards, though. I did [crosstalk]
Bill: [crosstalk] be.
Tobias: Big spike in credit card use.
Bill: Yeah, I think Moynihan said that.
Tobias: It could have just been me taking the family to New York.
Jake: Yeah, I was going to say this for [crosstalk] confession.
Tobias: Travel with three kids, they’re just absolute animals. My wife and I don’t eat during the day just have that one meal at the end of the day. Kids are always hungry and they never want to pay for anything. You’ve got to pay for everything all the time.
Jake: [laughs]
Bill: All right.
Tobias: They got to eat right now.
Jake: They never– [crosstalk]
Bill: Charlie Scharf, Wells Fargo. “First of all, today, there’s no question that the consumer and businesses are still extremely strong.” Now the question is how long will that continue and do we see chinks in the armor? I think the answer to those questions is yes.
Moynihan, “The nice thing is, card balances are starting to pick back up commercial loans that were leading the pack, balances picked up, and frankly mortgages balances have tipped over and grown now largely, because the payoff rate has come down, and new originations are down, but the portfolio is not.” So, loan growth has been solid and we expect to have quarter to quarter loan growth. So, that’s matters because if aggregate credit is expanding in my worldview, then total money maybe expanding.
Jake: Then we’re all rich.
Bill: No, but you’re not. A contractionary period is not fun for anybody.
Tobias: Is that what aggregate credit expanding, that’s what it indicates, people borrowing, so they feel–
Bill: I think you got to multiply that by money supply, but yeah.
Tobias: That simply is the money multiplier. [laughs]
Jake: Macro, macro alert, macro alert.
Tobias: Moving on. No, I don’t know. I like that discussion, but I don’t know.
Bill: I don’t know either. I do know that no one want– [crosstalk]
Tobias: I might be more confused when to get started.
Bill: No one wants to own anything in a world where monetary conditions are getting tighter and fiscal conditions are getting tighter. Everything goes down, I think.
Tobias: Buffett’s got good data coming in because he’s got such a– [crosstalk]
Bill: That for maybe oil. Sorry, Toby.
—
Tobias: Buffett’s got a great data. What he does with all of that great data is, he’s buying back Berkshire and buying Apple.
Bill: He’s buying a shitload of Occidental.
Tobias: An Oxy. Yeah. [crosstalk]
Bill: He doesn’t appear to be very price conscious on that particular buy.
Tobias: and Jake: Yeah.
Jake: I was thinking about this the other day. The railroad is going to look so good with high oil prices, because trucking, the efficiency is just– night and day difference between a railroad and a truck. His ability to then move things cheaper competitively is going to just look increasingly outrageous, I think. So, you have him long Oxy, bought Chevron, you could argue the railroad is a long play on oil in a way. I think he’s thought that this was going to come for a while and that he’s been ready for it if I had to guess.
Tobias: Energy spiking or– [crosstalk]
Jake: He was talking about inflation again in 2011 annual meeting. He just didn’t see how we could have the monetary interventions that we had in that 2008 to 2010 period without there being some repercussions someday. We’ve in the last three years have made– We look at those charts between that time period and now, it is not even close. You could barely even see 2008 on the chart.
Bill: I don’t know that I think he’s– I’m not sure that I agree that the monetary– This is stuff that I really don’t know. So, if it sounds dumb, it is.
Jake: Don’t let that slow you down.
Bill: I won’t.
Jake: [laughs]
Bill: It’s a podcast. I just don’t know– [crosstalk]
Tobias: You don’t need to apologize beforehand, because people are going to call you out after the fact.
Jake: Yeah.
Bill: Yeah. Well, that’s true. I just don’t know that the monetary stuff actually creates inflation as much as it creates inequity in society. I think it increased political risk much more than it did inflation. Then I think what I really missed is because I think that so much. I missed that, obviously, mailing checks to people would be the lighter fluid that sparked the fire.
Tobias: Don’t you think that like just having a whole lot of–? The tokens to participate in society, if you increase the number of tokens out there substantially and you can’t really do much about the physical things that are out there, but the price of those physical things denominated in those tokens must go up.
Bill: No, I don’t. Because I think that the rich are so rich that they don’t spend them. They just hoard them. I think it creates a huge bifurcation in society of those that have a lot of wealth and then those that never see the tokens.
Tobias: Well, people who have the assets don’t care about what number of tokens, those assets that are denominated in. It’s the people who have to use those tokens to live that get hurt. That’s the point that I make.
Bill: Yeah. Well, I think where we would agree is, I sort of X education out of this, because I think there’s a lot of policy errors with education. But I think that’s why– [crosstalk]
Tobias: [crosstalk] an energy.
Bill: Yeah, but I think that’s why you see a lot of the things that people want to do, went up in price, and there was deflation everywhere else. I think anything that rich people were doing went up in price a lot and I think a lot of the reason is they were given the tokens and other people were not.
Tobias: But those prices are going up and stuff that people consume a lot like that the average person consumes a lot of food and energy. Yeah.
Bill: Right. But the big change is, now, we have mailed a ton of stimulus directly to the people. That’s the big change.
Tobias: So, we’re seeing [crosstalk] monetary.
Jake: That’s too damn high. That’s how we figured out.
Tobias: Fiscal phenomenon, not a monetary phenomenon.
Bill: Yeah, that’s what I told myself.
Inflation Is Running Through Everything
Tobias: It’s policies. I think it takes on very many different forms. Evidently, you are not allowed to say this. Inflation doesn’t run through asset prices. I don’t really understand why that can’t be the case. But you can definitely have inflation running through asset prices, you can have inflation running through consumer prices, you can have it running in– This is before all of this got kicked off.
The Austrian view on this is that you don’t really know where the inflation is going to run. I think that was true. The inflation did run through asset prices for about a decade. And now, for whatever reason, I don’t know what the catalyst could be. Maybe, it is just sending out the checks. It is starting to run through the– The CPI, which is still Mueller.
Jake: That’s a case scenario.
Tobias: Yeah, that’s an underestimation of the real rate of inflation, I think.
Bill: To be fair, I’m pretty sure Russell Napier had said what I said. He just said it six months ago and my brain was too dumb to realize it when I heard it. But I do fundamentally think, a lot of QE is what caused a lot of populism and a lot of the bifurcation in society. I think it had a lot of negative consequences. Don’t get me wrong. I’m just not sure inflation was one of them.
Tobias: Well, there was no inflation. If you’re looking for the CPI definition of inflation until—Well, no inflation, but it wasn’t notable until recently, until the last few years.
Bill: Yeah.
Tobias: And now, it’s notable. That does seem to coincide with the monetary stimulus with the stimulus checks.
Bill: Yeah, fiscal, yeah.
Tobias: Fiscal stimulus. This game is easy.
Jake: Yeah. It’s pretty obvious. What to do now?
Tobias: [laughs]
Jake: [laughs]
Tobias: What should we do now?
Bill: Grab your ankles and hope.
Tobias: What should we do now? What’s the answer?
Jake: Lower your expectations.
Tobias: Oi.
Bill: I don’t think that’s true. I think you should raise your expectations. I think the time to lower your expectations isn’t everything was super high valuations and all the returns had been pulled forward. I actually think there is– [crosstalk]
Jake: I had did that, too.
Bill: I don’t know, man. I think that there’s interesting opportunities out there.
Tobias: I agree. I think there’s cheap stuff out there, too. Cheap, good stuff.
Jake: I didn’t mean from investment portfolio, although.
Tobias: [laughs]
Jake: I meant more from lifestyle for the average person. Things are just going to be more expensive. Your wallets just not going to go as far, I don’t think for a while.
Bill: Yeah, that may be true.
Jake: Let me ask you this. Are you backing off on premium tile from the house that you’re building? [laughs]
Bill: No.
Jake: Okay.
Bill: I’m changing some consumption habits. Yeah. But the wife is going to build the house that she wants.
Jake: [laughs] Price inelastic.
Bill: Well, the thing is, I mean, the real answer is, we just bought another house to avoid rent. It’s more modest than the one that we’re building. If real estate prices are what they are, we’ll probably flip the one we’re building.
Jake: Oh, really?
Bill: Yeah.
Jake: Mm.
Bill: I got a price on everything, man.
Tobias: That’s time, fellas.
Jake: Wow, we’ve made it against all odds.
Tobias: Good chat. We’ll see everybody next week.
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