How Often Should You Underwrite Your Portfolio?

In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss How Often Should You Underwrite Your Portfolio?. Here’s an excerpt from the episode:

Tobias: How do you even set up a new boat every day in a stock portfolio?

Bill: I don’t know. Look, if I was a hedge fund manager, I’d be like, “You buy your portfolio every day.” I don’t know that I actually buy that. But that’s just because I’m not smart enough to play the game that others do.

Jake: Yeah, maybe not every day. But you do have to re-underwrite regularly, right?

Tobias: Yeah. Quarterly, right.

Jake: Maybe. There’s things that happen outside of the quarter. But yeah, typically, you get the most shot of new information on a quarterly basis.

Bill: Yeah, and I think to– Like cable’s one that I’ve been thinking about and what a real risk fixed wireless is and what can actually happen. I think if you’re not aware of the biases that you bring to the reanalysis, and you’re not trying to figure out what the other side of the argument is, and you’re just blindly like, “No, I’m right,” I think that’s a great way to get waxed. I have held cable through the drawdown. Altice is a definitive mistake on my part. But the Charter holding that I have, I’m still pretty comfortable with it.

I guess somebody said, “How can you own cable and not have seen this coming?” I guess the answer to that is like, “Well, I don’t know. Just because the stocks are down and the headlines of competitive risk have increased, were we really underwriting a world, where there was going to be zero competitive risk?” And I would argue, “When stock prices were quite a bit higher, yeah, that was probably my implication.” My dumbass sold out a charter and got into Altice, because of the multiple and that didn’t work out so hot.

Jake: Sounds a little bit like resulting though.

Bill: Well, a little. I think that holding on to an asset that is performing, and has solid operating metrics, and tangible results is probably a more sound strategy than trying to chase yield by going down to a crappier asset. I think what I did was the definition of getting pushed out on the risk spectrum and then risk happened. I think I deserved it. I don’t know. I guess it’s a long, convoluted answer to your question, but I just think you’ve got to re-underwrite what you own and try not to let the lens that you currently see the world through preclude you from seeing the world as it is.

Jake: I read a nice little turn of phrase from Chris Pavese. He’s the chief guy over at Broyhill and a guy I like a lot actually. He had a little thing in his latest letter about, if it’s a regime shift now which some people are speculating that it’s now going to be profits over promises. I like that as a little turn of phrase.

Tobias: “If Buffet says he would’ve done better never selling, why is that not an option for us?”

Bill: Because when did he ever say he would have done better never selling?

Tobias: I think he’s said that particularly in relation to something like American Express. I think probably he mentioned in a few things that he’s rebought later at a higher price.

Bill: Yeah.

Jake: Disney, I think at one point he talked about.

Bill: I don’t know.

Jake: But there’s those were like, he bought it in 1952 and then bought it again in 1985 or something.

Bill: Yeah.

[laughter]

Tobias: Yeah, never sell– [crosstalk]

Bill: Well, the never sell thing, the thing about it is I think you have to do it on an asset that has a lot of tangential growth, and that growth has to be explosive. Otherwise, it’s very, very difficult to make the math work.

Jake: You were talking about runways before is one of your topics, which I think is interesting in this context of– I think it’s incredibly difficult to find the businesses that have that kind of generation-long runway of ability to deploy capital that’s going to keep producing high returns. I think it’s understated or underappreciated how hard that really is.

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