In their latest episode of the VALUE: After Hours Podcast, Bill Brewster, Jake Taylor, and Tobias Carlisle discuss:
- Michael Burry Sells All But Prisons
- The Boring 20s
- Chris Bloomstran – Choose One Asset To Hold For The Next 246 Years
- Warren Buffett’s Latest Bets
- Momentum Is The Best Proxy For Determining Fundamental Growth
- GMC & AMC Debates
- Cliff Asness – Value And Interest Rates
- Commodity Investing Sucks!
- Don’t Be On The Wrong Side Of Getting Taken-Under
- The Future Of Shipping Investments
- The SPAC King Goes Silent With His Empire Shrivelling
- Backing For Adam Neumann’s New Firm Prompts Outrage
- High Yields On Long Term Debt
- S&P Profit Margins Dropping
- U.S Under-Policed and Over-Imprisoned
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:
Tobias: We are live. We’ve got it right on the dot.
Tobias: It’s 10:30 AM on the West Coast, 1:30 PM on the East Coast. It’s 3:30 AM Australian Eastern Standard Time. I don’t know what is UTC.
Jake: Well-oiled machine.[laughter]
Tobias: What’s happening, fellas?
Bill: It’s a Lionsgate film The Unbearable Weight of Massive Talent. There you go. So, we got that going for us. For people that don’t know what we’re talking about before we got on, now, you get a peek.
Bill: Boom, behind the scenes.
Tobias: Yeah, that Nic Cage movie, The Unbearable Weight of Massive Talent is great, if you haven’t seen it. It’s perfect for Nic Cage and I like Nic Cage.
Bill: I got a little bit high, and watched it, and really liked it.
Bill: And then, I told my wife, I was like, “We’ve got to watch this movie together.” And then we watched it, again, and I only got 35 minutes in the first time. Then, I watched again. I like the whole thing. I’m not sure if she fully understood why I told her to watch it.
Tobias: Yeah. I think my wife is a little bit the same.
Bill: It was an error in judgment.
Tobias: She was checking out her Instagram all the way through.
Jake: Oh, second screen on.
Bill: That was about my wife was, too. But I enjoyed it quite a bit.
Tobias: This is Value: After Hours, by the way.
Tobias: I’m Tobias Carlisle. I’m joined as always by Bill Brewster and Jake Taylor.
Bill: And the ten. Shoutout to y’all.
Tobias: Let’s see. Cameroon, Tbilisi, Georgia, Amsterdam, Dublin, Caribbean. Nice. Scotland, Chapel Hill, Columbus. First– [crosstalk]
Bill: Amsterdam is a pretty city.
Tobias: Townsville? Yes.
Bill: Ah, the Townsville listener. Shoutout to you. Always on.
Tobias: Good to see. Yeah, man. Townsville. The town so nice, they named it twice. Just so everybody knows that it’s a town. [chuckles]
Bill: There you go.
Tobias: Dallas, yeah. Amman. Wow. Farmhouse.
Jake: Got it all.
Tobias: “What does Jake think of the Kirkland’s short squeeze?”
Tobias: Is that a particular type of juice they?
Jake: [laughs] Yeah, that’s Casco’s new special juice they have. Yeah, a little bit of interesting to see, but that’s not really my-
Tobias: Market’s [unintelligible 00:02:13] high? Right.
Jake: -bailiwick, you know?
Bill: What’s Kirkland? Are we talking about a mining company?
Jake: No, it’s a home decor type of retail chain.
Bill: Oh, nice. I’ll tell you what– [crosstalk]
Tobias: Is the [unintelligible 00:02:27] home rent?
Bill: I’m open to putting down all my tickers. And if anybody wants to meme me, I’m not too good for that.
Jake: [laughs] Yeah.
Tobias: That’s the only thing that can save us at this point.
Bill: [chuckles] Yeah, really, folks, feel free.
Jake: Need that meme bid bad, huh?
Bill: That’s right. I remember I made a joke about somebody memeing one of my stocks and somebody came in and they were like, “You’re better than that.” At the time, I deleted my-
Jake: Oh, who’s that?
Bill: -tweet back then, because I was like, “I am better than that. No more.”
Jake: No, [laughs] definitely not better than that anymore.
Bill: Yeah, that’s right. I’m about to lose all my body weight in the lower half and go full Chamath.
The SPAC King Goes Silent With His Empire Shrivelling
Tobias: Yeah, speaking of which, he got pasted in an article, Bloomberg article today without just pointing out his– [crosstalk]
Bill: Dang. His leg routine, they were like–[laughter]
Tobias: Calf is not a real muscle? [laughs]
Bill: Dude, those are pathetic little chicken legs.
Jake: What did they say in the Bloomberg article? About SPACs? [crosstalk]
Tobias: Oh, just pointing out the performance of those SPACs. Yeah, he’s going to be okay, punched out a few hundred million at the top. Yeah, it doesn’t look good.
Tobias: He’s not going to make it.
Bill: Not going to make it.
Jake: Maybe don’t talk shit about the GOAT. Come on now. How many times we got to learn that lesson?
Tobias: Every time.
Bill: But did he learn the lesson? The guy made a couple hundred million dollars.
Tobias: Nah. Yeah.
Bill: So, what’s the real lesson here?
Jake: Well, how much is the reputation cost, I guess?
Tobias: Yeah, what is the– [crosstalk] $200 million. You can have it.
Bill: Look, Adam Neumann just raised capital. It’s not like this is going to stop them from doing it again.
Jake: Yeah, that’s a good point.
Tobias: Yeah, we’re definitely not in a bear market when 350 goes to Adam Neumann to have another go at it.
Bill: I was thinking about this and I need to watch WeWorked and do a little bit of– [crosstalk]
Jake: Due diligence.
Bill: Yeah. My hot take on this, which is completely unvetted and you’re welcome for this–
Backing For Adam Neumann’s New Firm Prompts Outrage
Bill: It’s worth what you’re paying for, folks, is I’m not sure that Adam Neumann wasn’t a byproduct of a little bit of SoftBank nudging him. Look, you make money when you look a lot of times, not all the time but when you look like a fool making a bet. I wonder if Andreessen Horowitz actually thinks that the circumstances around Neumann, they must think this or less bad than Neumann himself.
Tobias: To be fair, the timing of that WeWork IPO getting pulled was very unlucky for them. I think they are stretching at the price that they were asking. But if you had wound that for 12 months or two years and it’d come in the middle of the work from home, lockdown, pandemic, that thing would have been an absolute monster.
Jake: Probably, [crosstalk] never been over the finish line.
Tobias: It’d be done 95% now. But it would have been– Yeah, it definitely would have got over. Now, I think with everybody working from home, those WeWork or WeWork style, that’s probably very attractive. I would like to get out to–
Jake: Get the hell out of the house. [laughs]
Tobias: Have a workspace that’s separate from the house.
Jake: Kids are going back to school. It won’t matter.
Tobias: That’s right. That’s right. The brain damage will be over in about a few days.
Tobias: Two weeks.
Bill: Yeah. I don’t know. Andreessen Horowitz, last I checked, is not stupid. So, they must be seeing something that the rest of us don’t.
Tobias: It’s a good idea, and he knows how to execute at that sort of scale, right? He can take $350 million and turn it into a lot of money. Probably will.
Jake: What if this time he actually elevates human consciousness?
Bill: That’d be dope.
Jake: That’s a right tail outcome that you’re not counting on.
Bill: That’d be dope.
Tobias: That’s right.
Tobias: It was all getting a little bit messianic at the end there, wasn’t it?
Bill: The dude’s out there.
Jake: Oh, yeah. [laughs]
Tobias: Walking barefoot for New York city streets, that’s right out there.
Bill: Yeah, it is. That’s not genius. That’s just dangerous.
Tobias: Just giving your immune system a checkup.
Jake: It’s how you get hepatitis.
Tobias: That’s the best thing– [crosstalk]
Bill: You think somebody at Andreessen Horowitz called them up and was like, “Dude, if you get cut by glass and die of some New York city disease, this investment sucks for us. Put some fucking shoes on.”
Jake: That’s key man risk– [crosstalk]
Tobias: We’ll get you some toe shoes.
Bill: Yeah, it gets them Allbirds.
Tobias: Barefoot shoes.
Bill: Be a hippie. Don’t worry about it. I don’t know.
Jake: Oh, boy.
Tobias: Before we got on, we were talking about, is this market quiet? Is it boring? What’s everybody else saying? I think it’s– is it the summer malaise? Is it boring? Is it quiet? And is the reason the summer malaise or is it because we’re in that part of the– [crosstalk]
Jake: The eye of the hurricane?
Bill: You mean, the beginning of the new bull?
Tobias: Well, let’s talk about it.
Jake: Beginning number one. We’re in first inning.
Bill: But yeah, we just had a reset. Now, it’s go time.
Jake: [laughs] It wasn’t much of a reset.
Tobias: Nah, it didn’t– [crosstalk]
Bill: It was a reset. It was a reset.
Bill: 20%. It wasn’t even down as much as it was in March 2020.
Bill: Ah, you got to look below the covers, man.
Jake: [chuckles] Some resets, but definitely not a system wide.
Bill: Yeah, but I don’t know that a system wide was on the– I don’t know. It’s always on the table, but I don’t know that– I don’t know. I expected the big ones to sell off more on the last earnings. So, I have thought that we had lower to go, but I’m open to the idea that we don’t, or we do. Either one will happen.
Tobias: Yeah, it’s impossible to know. No one knows. Bird Global (scooters) are down 22% today to $0.50.
Jake: That’s the one thing.
Tobias: 51 cents to go.
S&P Profit Margins Dropping
Jake: By the way, S&P profit margin dropped to 10.9%.
Jake: That was always a little bit of a question mark of, what our margin is going to be doing over the next–?
Tobias: What did it get out to? 13?
Jake: Yeah, something like that.
Tobias: It’s a pretty serious retracement.
Jake: It’s a little bit giving some back to the lowly employees and labor– [crosstalk]
Bill: it’s time to get it get back. Capital deficit– [crosstalk]
Jake: Shut up.
Bill: Time to raise prices, get our margins back.
Jake: Yeah, they’re really suffering. We got to get to that.
Bill: That’s right.
Tobias: There haven’t been any space launches in probably 12 months, right?
Bill: What, a space launch? What do you mean a space launch?
Tobias: Ah, I don’t know. Like Blue Origin?
Jake: Oh, like– [crosstalk]
Bill: Oh, I watched SpaceX just the other day. It was dope.
Tobias: Oh, SpaceX. SpaceX, yeah, Government funded.
Bill: I went to the beach, looked north.
Jake: Oh, really? You can see it from your house?
Jake: Well, yeah, from the beach. Yes.
Bill: Yeah, that’s cool.
Jake: Will you send me a video that next time you see one?
Bill: Ah, it’s not that cool on video. I tried to take one.
Tobias: That’s like fireworks.
Bill: Yeah, you lose a lot.
Jake: All right. Fair enough.
Bill: It was cool though. I had the countdown, and the kids are watching, and then I was like, “Okay, we should see it.” And then, sure enough, it was going up and I’m like, “Oh, that’s sweet.” At night, I want to see one at night.
Michael Burry Sells All But Prisons
Tobias: Did you guys see Burry’s latest 13F?
Jake: He sold it all. He went in on a– [crosstalk]
Tobias: Everything’s except for GEO. [crosstalk]
Bill: Yeah, which is what–
Tobias: It’s like a prison mental health– Private prison mental health.
Bill: Yeah, private prison. Good for him.
Jake: Ooh, that’s dark. [laughs]
Tobias: He’s just punched out of every other single thing in the portfolio.
Jake: Everything, huh?
Bill: Good for him.
Tobias: Is that outside money or is that just him?
Jake: I don’t know at this point.
Bill: I have no idea.
Jake: You would think after watching The Big Short, how angry all the investors were and I’m sure he was like, “All right, I don’t really need this in my life anymore.”
Bill: I am not part of this distribution – [crosstalk] fucking list
Tobias: But then, he can probably raise a lot of money.
Jake: Yeah. He could probably raise a lot of money.
Jake: He’s not following anyone on Twitter. So, that’s part of the problem. [laughs]
Bill: No, he does that intentionally. That’s part of the allure.
Jake: The flex.
Tobias: He deletes his tweets immediately too.
Tobias: So, you just got to follow. Don’t follow Burry. Follow the Burry Archive.
Bill: Ah, look at you. That is smart. Where’s that?
Tobias: Burry Archive.
Bill: Oh, few.
Tobias: If you search those two words, it should come up.
Bill: It’s as if they named it for what it is.
Tobias: It does give me a little bit of pause when Burry who called that last–
Tobias: The reasons for just to punch out of every single thing.
Bill: No way.
Tobias: But it’s not so much the selling and of everything, whatever. That’s a little concerning but going all in on prisons and mental asylums. Does that say something?
Jake: Yeah. What does that tell you? [crosstalk]
Bill: I don’t know, hopefully–
Jake: About society?
Bill: Hopefully, he takes a big loss on the position as we decriminalize some of the marijuana convictions-
Jake: Hmm. That would make sense.
Bill: -retroactively even though I know some of my conservative friends are screaming at their screen saying, “How can you break the law and get away with it?” The answer is, “I don’t care.”
U.S Under-Policed and Over-Imprisoned
Tobias: I saw a study today that says that the US has longer prison sentences and fewer police per– I don’t know if it’s per citizen or per resident of the jails. The better idea would be shorter prison sentences and more police. Underpolicing is the problem is their argument.
Jake: The US is underpolicing right now?
Tobias: Yeah, underpolicing.
Bill: It’s possible.
Jake: [chuckles] I’m sure everyone in rougher neighborhoods is like, “Oh, yeah, a lot of underpolicing happening here.”
Tobias: They’ve got the statistics. I don’t know if it’s true or not. Statistically, it seems to be true. I don’t know what it means. I’m not an advocate for either of those two things.
Bill: You’re trying to lock people up, man. Is that what you’re trying to do here?
Tobias: I’m just trying to make sure– I don’t get locked up, mate. That’s the only thing I’m doing.
Jake: Take it easy there, spitzer.
Tobias: By the way, I’m running for Attorney General of California.
Jake: Yeah. [laughs]
Tobias: More police, longer prison sentences.
Bill: I could see how you could have a theory that social media and what it does to people’s minds or constantly being connected to the internet, could lead to more mental instability. If you were long some sort of mental–
Jake: Or Prozac?
Bill: Whatever. Yeah. But I could see that, if that’s part of the prison thesis. I don’t know about– I haven’t looked into private prisons enough, I guess. I’m sure they’re great margins.
Jake: There’s got to be a better way to make a living.
Bill: Yeah. But that’s the beauty of being a passive investor. You don’t have to actually go do it.
Jake: Yeah, no conscience.
Bill: Munger would advise against it, I think.
Tobias: Yeah, I was just about the say. I don’t see those guys lighting up on cigarettes and so on.
Bill: A young Munger might think differently. But a rich, older Munger would say, “Don’t do it.”
Tobias: My favorite quote of his was when he said something like, “We stopped trafficking in the really cheap stuff and our returns didn’t go down that much.” I was like, “Yeah, that’s right.”
Jake: [laughs] Hmm.
Tobias: That’s what the rich, old Munger does.
Tobias: Pour more money. Also, it’s trading, I guess. That’s always nice.
Bill: Munger, what a beast to look upon.
Jake: What else do we have on tap for today? I got something obviously, but what else–?
Tobias: Well, Burry was my–
Jake: Oh, okay.
Tobias: Burry, Chamath. I’ve been watching that 10:3 inversion. Because I really wanted to be the first one to call it.
Jake: [laughs] Okay. Has it gotten there yet?
Tobias: No. [crosstalk] It looks like that Chinese plane flanked directly at the– It was scary how fast it was going down. It was directly at the inversion, and it just stopped, and it’s just bumped sideways along the top of the inversion. So, 0.07 from inversion right now, which means it could be tomorrow. I think I’ve said this for few– Not that it means anything. It’s a completely arbitrary number. When you look at the risks that yield curve, it’s a funky yield curve.
Bill: It means everything.
Jake: How long does it have to be inverted for it to count? Is it just the tip and it counts or is it–?
Tobias: Just the tip and it accounts. Yeah.
Jake: Okay. Fair enough.
Bill: Never, never play that anyway.
Tobias: There’s a good comment. Iggy. “Private prisons are countercyclical because their use increases when governments have to cut cost by privatizing prisons.” There we go. Thank you.
Bill: Bang. Put 100% of your portfolio in it. First of all, good comment. Thank you.
Jake: Full Burry.
Bill: Yeah. I do like enough.
Tobias: The “10-yr 3-mo.” right? Yeah. The 10:3 is what Cam Harvey did his research on. So, 10:2 went through a while ago. 10:2 is really deep 10:3 is not there yet. But then you can look at the whole yield curve. It’s an arbitrary number. The yield curve is in a funky shape at the moment.
Jake: 10 year and three-month money being opposite of that is just crazy to imagine, isn’t it?
Tobias: They are basically the same at the moment. You’re getting roughly close to 3%.
Jake: What? [laughs]
Tobias: Google the treasury yield curve. And this site– [crosstalk]
Jake: And it just shows you like a Picasso picture?
Bill: Yeah. Three month, five year is pretty close too.
Tobias: I’ve got a site that compares that. You can pin today and compare it to any other date or compare any date to any date. It’s just crazy to see how much it’s moved over the last 12 months. It’s all up as you’d imagine, because interest rates are up. But also, the front end is way up.
Tobias: There’s a lot of distress out there.
Jake: But it’s all good within 10 years, I guess.
Tobias: Well, as long as the 10 year and the three months, they’re 0.07% away from each other, it hasn’t technically crossed. And so, it’s okay. But it’s so close that it’s practically there.
Bill: It’s already there already.
Jake: You could taste it.
High Yields On Long Term Debt
Bill: Yeah. I was saying before we came on. I think there’s some interesting debt out there. This is not what I do and I’m sure I would be negative alpha in credit land. So, no need to pay attention to anything that’s about to come out of my mouth. But I’m pretty sure TransDigm has some bonds that are trading it. You get paid 5.5% and I think that yield is 6% to maturity. If that’s remotely close to the truth and they go out to 2027, that’s interesting. Shut up, Bloomberg. Also, the 2027s or– Charter, I was looking at, what are these things? Hang on, let me pull these up. Because you can go out to 2042 and I think you’re making 6% [crosstalk]
Tobias: Do you have a Bloomberg?
Tobias: How do you get access to a Bloomberg?
Bill: I just fucking pay.
Bill: 648, 2045s. I don’t know. I can understand that in the equity, but the debt seems like you should get paid back. But I’m a bag-holding Charter bull. So, that’s the– [crosstalk]
Tobias: What’s the reason for the–? Why is it down?
Bill: I think that it all traded off when rates went up.
Tobias: Rates broke it.
Bill: I think you get a shot to actually get paid to take debt risk now.
Tobias: Once we get through this, there’s some cyclical component to the inflation, so that comes off at some point. Does it settle below that yield?
Bill: Yeah, I think probably.
Tobias: You’re not doing the thing where you– You send out 100 burgers worth of money and you get back 90 burgers worth the money in a few years’ time.
Bill: You might, but I don’t know. What do you want to do? You want take [crosstalk] years to avoid that? I’m not sure too many places are safe.
The Boring 20s
Tobias: We were talking about this before we came on. I think it’s hard to be excited about anything at the moment, because I didn’t think anything is super cheap and I don’t think anything looks super good either. So, it’s all a little bit blah. That’s why I like JT’s blah thesis, where it’s the summer malaise or the boring market.
Jake: Yeah. I’ve coined it The Boring 20s.
Tobias: Oh, damn, that’s good.
Bill: The Boring 20s, I like it. I don’t know. If you think that Morningstar is any good at what they do which for free not to, a lot of four-star stocks, there were a lot of five-star stocks. They’ve moved a little bit, but there’s some interesting stuff on these lists. All a matter of figuring out which ones are worth betting on.
Tobias: They’ve got an aggregated market level valuation tool that they use. I think that they aggregate all of the stuff that they cover to come up with a level of the market valuation.
Jake: What’s it say?
Tobias: I was wondering if Bill had it there.
Bill: No, I don’t have it up.
Tobias: “Is it still a bear market rally if S&P makes new all-time highs?” No.
Bill: Yeah. When? I just said, it’s a new bull.
Bill: Literally, just said that.
Tobias: When do you call a new bull? Just has to get past the old all-time high?
Bill: Ah, I don’t know. I don’t think so.
Tobias: Because if you’re measuring it, you probably say from the bottom to the peak, right?
Bill: I think you need a couple of higher highs and higher lows.
Jake: You’ve definitely got to take out all time high-
Bill: The old technician–[crosstalk]
Jake: -to be a new bull?
Bill: I don’t think so. Do you?
Bill: I guess it depends on your timeframe.
Bill: It could be a long-term sideways with a short-term bull. I don’t know.
Tobias: It’s all a little bit bullshit, isn’t it?
Jake: It is. It’s all just a lot of– [crosstalk]
Tobias: It doesn’t matter. Just names.
Bill: My man, Bill, he thinks we’re going to the highs.
Tobias: Who knows? It could be all-time highs, it could be all-time lows. We don’t know.
Jake: It will be a sucker rally. Who knows?
Tobias: You can call it in. Whatever happens, you’d be right. Double mess.
Bill: Yeah. I think Bill is a data-driven dude. He goes by Wabuffo on the Twitter machine. I think people should follow him. He’s interesting. He follows monetary plumbing. When things were selling off, he was talking about how high tax receipts were and that we were actually running a governmental surplus and how that was phantom tightening. And now, we’ve switched to deficits again, which means a reflate, baby. Mo bubble.
Jake: Isn’t it concerning to anyone else how much government policy, that kind of stuff is what drives this as opposed to what are the businesses doing? [laughs] It’s all just this liquidity game in this particular view of the world.
Bill: Yeah, that’s right. It always has been.
Tobias: Liquidity is always a short-term answer, right?
Bill: Always has been.
Tobias: Liquidity or market animal spirits, probably it’s liquidity driving animal spirits. And then over time, it becomes a weighing machine. But in the short term, it’s always liquidity.
Bill: Yeah, but then–
Jake: It flows.
Bill: Then, the populations get older, and people get wealthier, and there’s more people that are in the capital markets. I don’t know. I just think– I don’t know. I think Buffett was born at the right time.
Jake: That’s true.
Bill: I think he’d be fine anyway, but I think he was born at the right time.
Tobias: Ah, you’re going to be okay one way or the other.
Bill: Who, me?
Bill: Not me.
Bill: Everybody else. I won’t be sucking my thumb.
Jake: Not going to make it. [laughs]
Chris Bloomstran – Choose One Asset To Hold For The Next 246 Years
Bill: That’s right. Do you want to debate that thing that you sent around, the 250-year investment?
Jake: Yeah, we could do that. That’s interesting. Bloomstran put out a tweet where he had asked for, “What would you pick if you had to choose something to hold for 246 years?” I believe, which I think takes you back to 1776. I think that wasn’t an accident as to why he selected 246.
Bill: Correct. He’s thoughtful.
Jake: You have to hold it for 246 years from today, who’s your fighter? You had a bunch of the obvious choices like S&P 500, or the dollar, gold, the euro. What else was in there? Any Treasury. Kind of got to pick whatever you wanted, but what was going to be the best outcome for a really long-time horizon? What do you got for that, Bill?
Bill: I’m taking the S&P. I can be tucked into some all-world index. That’s fine. But I’m taking some index, and I think I’d take the S&P.
Jake: I think the index is a strong choice because of the malleability of it and the ability to rotate into whatever’s working at that time. So, that makes sense that it does seem like a good choice. I do wonder about the US part of it, and my argument is that if we went back and re-wound the clock 246 years and looked at, what would you have picked at that time in this same scenario? The United States was, basically, a war-torn emerging market and you would have– [crosstalk]
Tobias: Civil war.
Jake: Yeah. You would have definitely picked the British Empire to bet on at that point.
Bill: Aah, gangly teeth and a small island, no way.
Jake: Do they were the G’s at that point. They were worldwide.
Tobias: The Sun never sets.
Bill: Couldn’t even beat us and we didn’t even have a country, losers.
Jake: [laughs] If we fast forward to today, what are you betting on a similar British Empire that is the US today and is that a little bit of recency bias in your selection of the S&P?
Tobias: Yeah. VT is the answer, right?
Jake: Could be. Get the whole– Own all the world’s businesses, basically, whatever may happen.
Tobias: Everybody’s got that home country bias. Meb Faber would be saying, “We’re allocated to a home country.”
Bill: The thing is the S&P is multinational. So, I’m just not sure that your as home country biased as– I don’t know. I need to know how– [crosstalk]
Jake: So is the British Empire, who’s pretty multinational.
Bill: Yeah, but they’re a small little island.
Jake: [laughs] Okay.
Bill: I don’t know, man. I’d want to be in North America, and I’d want to have multinationals until– I guess, if we run out of all of our natural resource advantage, all right, this has to go away. Then maybe I’m wrong. By then, I’m probably dead and I figured my kids are probably dead.
Jake: Aah, there’s no copping out with the we’re all dead things. You got to think multi-generationally.
Bill: Well, that’s why I picked the index.
Tobias: [laughs] We’ve got a couple of good ones. AMC from Keith Harmon. Matt Hanson says GEO. [laughs]
GMC & AMC Debates
Bill: Dude, I tell you what, have you seen what Bed Bath & Beyond is doing today? Or, no, is it Bed Bath & Beyond? Yeah, I think it is.
Tobias: I saw Carla Scanlon had a good tweet. She did a sum of the parts valuation she had been. She had, Bed, whatever it was, 10 bucks, bath 10 bucks, Beyond infinity.
Tobias: There you go. That’s the evaluation.
Jake: The math checks out.
Bill: What a beast. Up 75% today, I think. 70.4%. Good for– [crosstalk]
Jake: What is happening there? Is that just a short squeeze?
Tobias: Yeah. The AMC thing gives me– I follow Cliff Asness. He’s got a 12 basis points short on GME– Sorry, AMC, as part of a huge portfolio of shorts but he talked about it.
Jake: Yeah. [crosstalk]
Tobias: He’s the billionaire short, who has become the face of-
Tobias: -the other side of AMC.
Bill: Oh, that’s funny.
Tobias: That Twitter account, oh, my God. The [crosstalk] that he is taking, the brand image for that position. But I feel the AMC guys, I don’t know how many AMC people are listening to this. Probably, not many, but what is you doing, baby? That is–
Jake: See, Cliff thrives on that vitriol. That’s energy for him. He’s a vampire. [crosstalk]
Tobias: Yeah, he does.
Jake: He’s just fine with it.
Tobias: He’s enjoying it.
Tobias: To watch him argue with, he’s just [crosstalk] the argument that they’re just insane.
Jake: Arguing with eggs. [laughs]
Tobias: There’s nothing going on there. Ugh, it’s brain damage. I can’t imagine being short.
Bill: Oh, dude, that part is coming out.
Tobias: That’s the argument.
Bill: Yeah, it’s got to be. That as good as anyone they’ll come up with.
Tobias: Here’s the thing, dude. That goldmine, for all we know, gold rips and AMC becomes a goldminer. It’d be hilarious. A goldminer that has cinema attached.
Bill: And you’ve got a CEO that done some stuff in his life. That’s true. But not where I would put my money and I’m not rooting for any of them, especially that woman terrible.
Tobias: The brain damage from shorting stuff that moons like that, just– [crosstalk]
Jake: We criticize by category, Bill.
Tobias: I don’t miss– [crosstalk]
Bill: No, no, not her. Not her. Criticize by name. That’s fine.
Tobias: I don’t follow her. I don’t know. I’ve seen the handle around, but I don’t know what she does. JT, do you want to give some– [crosstalk]
Bill: I think she has children. Those are the real victims here.
Tobias: You send all the hate mail straight to builder.
Bill: Send it to me. I’ll debate you guys on AMC. [crosstalk]
Jake: Bill [crosstalk] also, too. [laughs]
Tobias: You haven’t seen the debate. You don’t know where that debate’s gone. The debate, it’s not a debate on the merits, mate.
Bill: The thing that’s nice is if you start to debate people on Twitter, if you say something and then they come in, it’s just like you can mute so many people at once. It’s such a good way to thin out the bad brains of the world.
Tobias: If you want engagement, that’s how you get engagement. Put those tickers in and then take a position and strap in.
Bill: Yeah, I’d guess. Oh, boy.
Tobias: But then, the engagement is fun for the first day or so. And then, the third day, I’m like, “Oh, okay. I’m over this now.”
Bill: Yeah, and then you are like, “Jesus, these people actually live for this stuff.”
Jake: What was I thinking?
Tobias: There’s just unlimited wave prepared to storm the beach.
Bill: Yeah, over a theater company. It’s amazing. And GameStop too.
Tobias: Somehow, they’ve been persuaded that there’s some vast conspiracy on the other side.
Bill: Yeah, man. I think this is– [crosstalk]
Jake: Cabbage mine.
Bill: You would think the internet would make people smarter. In theory and say, we’re going to come out with this thing that has all the world’s information and we’re going to get smarter from it. It turns out everyone got dumber.
Tobias: Yeah, it just allows you to fund more support for your own views. iamright.com.
Jake: Yeah. everyone got more confident.
Jake: But their predictive ability did not improve at the same rate as their confidence.
Tobias: There’s good [crosstalk] about that.
Bill: I would argue maybe their predictive ability went down.
Jake: Could be. All right, we are ready for–
Cliff Asness – Value And Interest Rates
Tobias: Hit us, JT.
Jake: It’s a good palate cleanser, because this is about AQR, and Cliff had a piece. I think it came out last week, that was called “Is Value Just an Interest Rate Bet?” And that’s something that’s been a topic that’s come up a lot as– [crosstalk]
Tobias: We’ve talked about it a lot.
Jake: Yeah, we’ve talked about it a lot. And so, here’s some actual real research as opposed to us just shooting off the hip. There’s this commonly heard logic that growth stocks have these longer dated cash flows than value stocks. And therefore, that longer duration means that they’re just moved more with long-term interest rates. It makes sense. There’s some logic to it on first blush. There’s this pile of money at the end of the rainbow and it’s discounted less. Then, when rates drop, and therefore, the net present value is higher. I think maybe we’ve all taken turns arguing for that particular viewpoint.
But the first thing that Cliff does to unpack this is he looks at the rolling five-year monthly correlation between the Fama-French value factor returns and then the US 10-year Treasury yield. Basically, academic value returns versus 10-year, and what do those look like? He goes back to 1930. The average correlation is around 10%. It’s trivial. The first thing is the data doesn’t support this argument, that rates and value are interlinked.
But then, if you look at around 2010, it starts to connect together. That correlation increases materially up to 50% or 60%. It moves around. So, there’s some recency bias potentially in this argument that shows that if you’ve only looked at the last 10 years, it does look like interest rates and value are correlated a lot tighter than they happen. Whether that persists or not is the million-dollar question that you’re trying to figure out.
So, what about growth assumptions in this whole thing? Cliff says that, “By definition, growth stock investors believe their portfolio will outgrow value stocks.” And they’re right. On average, using our very diversified global value factor to sort stocks, the expensive ones outgrow the cheap ones by about 4% a year over the next five years.
Tobias: This is the fundamentals of them.
Jake: Yeah, right. This is the fundamentals of the value versus growth and what actually materializes. What Cliff says is that most of that actually comes in the first two years, which he says is where the majority of any predictability seems to reside. And then after five years, it’s basically a push. There’s no excess growth from year 6 onward between value and growth in their datasets. He shows this graphic of a 10% growth rate for 50 years. It’s this just super curve that just takes off.
He says that, “This is what growth investors think that they’re buying.” He calls it a unicorn. It absolutely just crushes obviously. But he says what they’re actually buying is more of this 4% excess growth at the beginning for five years, and then basically, equaling out with the value portfolio. And so, he shows these two, what they think they’re buying versus what they’re actually buying. It’s an order of magnitude difference on the Y-axes that show how much– It goes from $1 to $140 at year 50 for the 10% for 50 years and the other one’s at $12. So, there’s huge difference.
Basically, he has one last thought. He says he doesn’t find that low interest rates justify super cheap value versus growth prices. But he can’t argue with the idea that a 40-year bond rally, particularly in real rates, has raised equity prices more generally. He just said it shouldn’t change the relative equity prices between diversified value and diversified growth more than a tiny bit, if at all.
He says that there’s some reflexivity in this in that if people think that that is true, it will show up in that short-term voting machine type of approach. But there’s no fundamental reason why this tighter correlation should continue.
And the historical data, if it mean reverts, it would show a decoupling between rates and value. I thought that it’s a nice little, short piece that actually dives into the numbers and the statistics behind this argument and does a pretty good job of debunking it, I think.
Tobias: I read the paper that his colleagues produced when it first came out a few years ago. Cliff said at the time that he thought that there was a little bit more support for the argument than they were showing in that paper. Because the paper, they looked at the shape of the curve, the level of the curve, different types of rates. He couldn’t find anything that gave any– [crosstalk]
Tobias: Yeah. There was no coefficient– There was no relationship, basically, they could show. He said, “I think that I can show one with a brute force method.” But he didn’t ever publish the paper. And I guess, this is the thing that he’s come up with, which is more of a blog post than–
Jake: Yeah, it’s not a real full research paper. It’s more of a blog post.
Tobias: Because I find the argument pretty compelling. The argument that backdated backend cash flows are more sensitive to interest rates in growth stocks and value stocks, which are all frontend loaded. That makes much more sense to me. I wonder why use price to book as the metric, because there are other cash flow metrics that you can pull out of that—Or, there are other flow metrics that you can pull out a Fama-French, which makes more sense to me compared to an interest rate than book value.
Jake: Yeah, a 10-year yield would probably comp more to a cash flow yield for a company. It’s like flows.
Tobias: I would have thought, but then there’s also that research that shows that the Fed model, which is basically the rate– It’s the yield minus the rate. Whenever there’s a big premium, that indicates that there’s going to be some good returns to equity. But there’s no relationship either in that. So, maybe that won’t yield anything better either.
Jake: One thing he does say is that it’s possible that this is just randomness, and we all try to find answers in randomness. [chuckles] We’re pattern-making creatures, right?
Tobias: There’s also just the case that low interest rates or interest rates that are below whatever the natural rate, I hate saying the natural rate, because whatever that is. But below the natural rate, there are lots of these periods of mooning tech type stocks or growth, whatever the main fad of the day it happens to be, electronics or whatever.
Jake: Radios, or TVs, or railroads.
Tobias: Yeah. The telegraph-
Tobias: -in 1840. Steam ships in 1825. Whenever the new technology comes in, there’s this massive amount of excitement about it. All this money flows into it. Most of it’s shredded but for a period of time, it looks like it’s working. Sort of Soros reflexivity but I don’t know, if that’s due to the rates or if it’s just excitement over a new area of business. It’s hard to know.
Momentum Is The Best Proxy For Determining Fundamental Growth
Tobias: It feels like a very meme stock– It’s hard to believe that this whole thing is over with memes stocks running the way that they are.
Jake: [laughs] Is that on Jeremy Grantham’s checklist of bubble behaviors, like meme stock?
Tobias: There’s probably some word for– Whatever the popular stock– [crosstalk]
Jake: Retail enthusiasm was probably what he would call it.
Tobias: Retail enthusiasm. Perfect.
Jake: Something like that. Yeah.
Bill: I don’t know that I buy that it’s retail. Definitely, the apes, but I don’t– There’s a lot of money behind some of these moves. I’m not sure this isn’t big time hedge fund guys.
Jake: Do you think that algos turned into ape-like behavior for some reason?
Tobias: For sure.
Bill: Because look, if you have a momentum strategy, you have to be long that shit depending on what your time horizon is. So, I just wonder if some of this meme stuff is more of like a market structure thing that people have hacked than it is– It’s definitely risk-seeking behavior. Don’t get me wrong. But there are a lot of people in the world that don’t even view fundamentals as a legitimate way to invest.
Jake: Different [unintelligible 00:41:03]. [laughs]
Bill: Yeah. Well, that’s right.
Tobias: [crosstalk] really wealthy ones have all retired.
Jake: Yeah. These are ones on the beach already.
Bill: Well, yeah. And to be fair, I think that there’s some view of the world that can laugh at fundamentals and has legitimate reason to do it. It’s not the church I pray to, but I’m not convinced my religion is the only religion.
Tobias: Momentum’s very thoroughly backed by the research. Momentum is a real thing.
Bill: Yeah. You would know better than me but with these memes, they happen so quick, I don’t know how momentum strategies catch them.
Tobias: I don’t think they would. I don’t think many of them would. I don’t know the shorter-term stuff. But I know that some of the work that the Alpha Architect guys did was to look at the volatility of the trend. So, if you have less volatile momentum, that’s better. Because that means it’s probably– [crosstalk]
Jake: Just like a long, upward– [crosstalk]
Bill: Yeah, more durable.
Tobias: It’s mirroring the underlying growth in the fundamentals.
Bill: Yeah, I could dig that.
Tobias: I remember Jack telling me at some point that momentum was the best proxy for determining the growth of the fundamentals. If you want earnings growth, stock price momentum will give it to you.
Bill: This is really boring. But if somebody came to me and they were like, “My strategy is 15 stocks, high quality,” however they wanted to define it, “And basically, I ride them if they’re above the 200 day, and I sell them if they’re below, and it’s an equal-weighted strategy,” I would be interested to see that how that does. I think that could be a fairly rational way to invest.
Jake: Didn’t Greenblatt do something like that, eventually? I thought he messed one up with adding a momentum layer to that formula.
Tobias: On an individual stock basis, it’s a little bit different. I don’t know how it works on an individual stock basis. I think that there are lot of momentum stuff is– [crosstalk]
Bill: Yeah, the [crosstalk] is screwed by gaps, right? You need diversification so you don’t get gapped down by 40% stuff.
Jake: [unintelligible [00:43:01]
Tobias: I think Jesse has the stock market.
Tobias: Livermore. Yeah. Livermore looked at it. The pseudo anonymous Twitter account, Jesse Livermore looked at it and said– crosstalk]
Jake: Not the original Jesse Livermore from [crosstalk]
Tobias: No, not the original one.
Tobias: Yeah, I forget the detail of it exactly. But I’ve lost my train of thought. [chuckles]
Jake: Great story.
Bill: Yeah. Cool segment by us. I like that. I didn’t say much because I was thinking the whole time. I think you guys did a good job with that. So, well done. Kudos.
Jake: Credit goes to Cliff for doing all the hard work.
Jake: I just read what he was saying to you. [laughs]
Tobias: He’s had a few recently. He’s back out arguing for value again, because it’s at the 97th percentile, which is also where it is– It’s the second highest reading ever on the spread according to the Alpha Architect EV/EBIT chart.
Jake: Solid days are ahead.
Bill: I got to capture a lot commodities in that, I’d think.
Tobias: Couldn’t get the flows. I don’t know.
Bill: I thought you got a lot.
Tobias: You think that’d be flowing for 12 months?
Tobias: Energy kicked off at the start of this year, right? I can see all this stuff mooned a little bit before then, didn’t it? [crosstalk]
Bill: It has shipping in it. Yeah, a lot of stuff has. I think the EV is probably come down and your trailing EBIT’s quite high. I’m not convinced it doesn’t work, by the way. I just think that’s probably a lot of the composition.
Jake: We’ve wondered before if that all of this stuff “value works,” because it’s just almost being macro agnostic, right? Not having a prediction about, will this cycle last longer or not? Who knows?
Tobias: That’s probably part of the problem with becoming a little bit more experienced as an investor that you start looking at their– [crosstalk]
Jake: Tap yourself out all the good ideas.
Tobias: Yeah. They all fall– You’ve seen everything fall apart. I’ve seen everything fall apart now. It’s all going to fall apart at some stage but hopefully, not before I get out. I’ll be oaky.
Jake: Just smart to make money. [laughs]
The Future Of Shipping Investments
Bill: Well, the interesting thing about that is everybody wants to rent them. Nobody actually wants to own them.
Tobias: Which ones, sorry?
Bill: Just generally, commodities.
Jake: All the commodities?
Tobias and Bill: Yeah.
Bill: There’s so few people that want to own anything in the market and then you turn it into commodities, and I think there’s even fewer. I pay some attention to shipping, because J. Mintzmyer got me into it. And those balance sheets are going to come out the other side of this in pretty damn good shape. And copper, if you think that the Inflation Reduction Act is half– The idea that there’s not going to be incremental electric vehicle demand over the next eight years, I think, is a very low probability. If there was a grain of truth in the mooning that supply is tight, maybe a recession can get all that figured out? But I think with good balance sheets, eventually, they’ll cycle. No doubt. Everything will. But I don’t know, man. They may be higher for longer.
Jake: It might be a lot of money to be made in between them.
Bill: Yeah. Well, the funny thing is, we’re shipping, I was reading Global Ship Lease, their commentary. I think what they would say is like, “The backlog is high.” It’s 54% of the fleet or something like that. But when you look at it, it’s a lot of these really big ships.
These are container ships that they’re talking about. When you look at where they play, basically, the entire fleet is currently shipped– or currently leased. They have fixed contracts through 2023, and there’s been no scrapping over the last two years, and you’ve got environmental regulations, which are rolling in. So, ships are going to have to slow down to comply. So, you’re looking at phantom reduction of capacity by 5% to 15%, just naturally based on the– [crosstalk]
Tobias: Even though there’s this more ships, because they’re going to be traveling more slowly, it’s going to be- [crosstalk]
Bill: Yes, it reduces– [crosstalk]
Tobias: [crosstalk] equivalent to having less capacity. Okay.
Bill: Correct. To the extent that China continues a zero COVID policy– a big recession would eliminate a lot of the port congestion. But to the extent that there’s port congestion that continues, it just takes longer for a ship to get where it needs to go. You have this phantom capacity reduction. I don’t know. They’re coming out of the other side of this. They got five unencumbered ships, they’re paying down their debt, they’ve got contracted EBITDA. Obviously, that’s like a joke in that industry because you have plenty of leverage and plenty of reinvestments.
Jake: Yeah. Pretty sure that the D is real on ships.
Bill: As is the I. But if you believe in inflation, you do have a hedge in the steel, if you had to scrap them. I don’t know. It’s one of those things that I could see why on the backend, they say, “You know what? We don’t have to chase the growth, because we don’t have to service our debt, because we have our balance sheet fully repaired and we have unencumbered ships. So, we can actually manage the supply side.”
If that’s the case, this is marathon capital cycle theory stuff. You watch supply really tight, really closely, and you can have some results that are pretty impressive in some historically shitty industries. Of course, it’s a big prisoner’s dilemma and they’ve always fucked you through history.
Bill: [laughs] Lay that bet if you want.
Jake: Yeah, that would be an exception to the rule of capital [crosstalk]
Bill: But I think it rhymes a little with what Buffett sees in Occidental.
Bill: You have a massive free cash flow.
Jake: Buff Dawg’s putting his bets down as far as the sustainability of this, isn’t he?
Bill: Yeah. Look, I got this theory from Dan. This is not something I came up with. But remember, when you, me, and Dan were sitting down and Dan was like, “Buffett likes to see the capital coming back to him”? He was going through scenarios and like, OXY– Your front year cash flows are huge, and they’ve committed to not growing production, and they’ve committed to shareholder returns. I see what he’s probably seeing. I obviously don’t see what he sees because he’s a genius and I’m an idiot. But outside of that, I think I see it.
Jake: Especially with your glasses on. It’s a lot easier to see.
Bill: No blue light, man.
Tobias: Get those blue blockers.
Jake: Blue blockers.
Bill: Yeah. Shoutout to Twitter. They send them to me.
Tobias: Do you notice them? Do you sleep better?
Bill: I don’t sleep well.
Bill: My eyes are less strained.
Tobias: All right.
Jake: Oh, okay. [laughs]
Bill: Anyway, I don’t know. Those are my thoughts.
Commodity Investing Sucks!
Tobias: In the screens that I run at the moment, there’s a lot of commodity stuff around. There’s a lot of steel and commodity. Because I’ve gone through a super cycle already, I’m nervous as hell about that stuff but that’s probably pretty good buy cycle.
Jake: You flag all those out?
Bill: Well, who the hell wants to own it? You’re on the downside, right? Everybody’s already made the money. Now, it’s selling off. You’ve got to be an idiot to buy commodities here. Except maybe not.
Tobias: And that’s my bat signal.
Bill: Except maybe not.
Tobias: It’s hard, dude. I don’t know. I think nobody knows. You’ve got to put your chips where the stuff looks cheap. Let it ride.
Bill: I was listening to some oil company talk and they were like, “Oil services inflation has outpaced oil inflation.”
Tobias and Jake: Yeah.
Bill: That’s the thing that sucks about commodity business.
Jake: Yeah. [laughs]
Tobias: The margins stay the same through the whole cycle. They never get good, because-
Jake: So annoying.
Tobias: -now, you got to pay everybody to go out and work huge rates. You need $300,000 for the guy turning the stop sign.
Bill: Yeah, who’s not loyal at all and will jump no matter for the next dollar. So, I don’t know.
Jake: I did a little exercise where I looked at, let’s just say, Exxon and Chevron at the start, and looked at their book value, and just tried to imagine, “Okay, when things have been going well for them in previous periods, what ROEs were they looking at?” Let’s assume that this is going to be a reasonably good period for them and let’s look forward a little bit and try to back into what that return on equity within due to book value.
And so, like skate to the where the puck is going to be as far as book value. And then, when things have been going well, what is been the multiple that they would get on price to book? If you run that kind of exercise, I think they’re still relatively not crazy expensive. There’s still, I think, some upside to them if you at least in what my estimation of looking through like that–
Bill: A lot of three-star stocks in the energy space. I was just scrolling Morningstar just to see. But I did notice Exxon’s three stars.
Jake: What does three stars mean? Market performer something?
Bill: Yeah, not too cheap, but it could probably work.
Warren Buffett’s Latest Bets
Tobias: Do you think Buffett has a view on oil? Does he need to have a view on oil to be buying OXY where it is? Where does he need the oil price to be for that to work? That’s probably a better question.
Bill: I think this is a really hard question, because I don’t know how he’s thinking about the bet. If you think about the bet, like, it hedges the rest of his book and even if oil goes to– [crosstalk] I don’t know, man, I think he’s built his life in a way that’s very hedged.
Jake: He’s always thought about downside, first.
Bill: I think people like to say he doesn’t, but I think he does. I think there’s probably– [crosstalk]
Tobias: But you were talking about two different things. You’re seeing hedge for the book and, Jake, you’re saying downside of the individual name, right?
Jake: Uh, I think what Bill saying, correct me if I’m wrong, is that having effectively long oil fits in with the rest of his worldview and the way the rest of the assets are positioned. Is that what you’re saying?
Bill: Yeah, I think what he probably– I have no fucking clue. But if I was him, this is what I would see. I’d be like, “Okay, I’m getting a ton of cash up front, and they’ve committed to not growing production 5%, and they’re going to give me the cash back. I’m going to have investment opportunities when that cash comes back to me.” Let’s say oil goes to 50, what’s my real downside in this bet?
And then if oil does go on some run, I’m going to have a bunch more cash to deploy in a scenario where a lot of stocks are a lot cheaper and it hedges the rest of my business, because maybe I’m implicitly short oil in many different ways. So, it’s one of these, for lack of a better term, Dhandho bets. What up, Mohnish?
Tobias: David Wilson has a good comment here. “Weird he wasn’t buying oil two years ago.” I know someone who was buying oil 2 years ago.”
Bill: Ah, really?
Tobias: I know someone who was buying oil two years ago.
Bill: I think there was a lot of other things going on. He said, “I read their presentation on capital allocation and that’s when I started to buy.”
Tobias: Yeah, fair enough. That might be the big difference.
Jake: Well, I’m sure he’d be just fine if the price of oil came down some and that made the stock puke. He could buy more and the company could buy back more. I’m sure he’d be just happy to own the assets at lower valuation. Maybe even take the whole thing out as you’ve speculated, Bill.
Bill: Ah, my man, Francisco, made the first speculation. I’m just piggybacking him. I think what does he want it below? 59, 62, or something? Isn’t that where his warrants are from the pref that he gave them? I thought that’s what I saw. I might be off by the 10s. But I know it is 59 something and I think there’s six. And then I think– [crosstalk]
Jake: It’s probably– [crosstalk]
Tobias: Donald Regan says, “OXY’s slides from last quarter or two quarters ago said their dividend is sustainable at ~$40 WTI.”
Jake: Well, that’s a pretty good bet, probably. I don’t know. Sure, you’ve got 9% inflation helping you already there, right?
Bill: I was peeping his 10Q, man. The operating businesses are humming right now. Talking about double-digit operating income growth.
Jake: This is true of all of the conglomerates that fall in that category. The Markels, the Fairfaxs, the Berkshires. You leave out investment gains and losses out of stupid gap, they’re all humming been pretty good right now.
Bill: Yeah, I saw you bought Markel. I wonder how much of– He’s like, “The insurance market is crazy hard right now. I want as much exposure as I can.”
Tobias: Ah, I like some Markel guys.
Bill: Yeah, maybe. I don’t know. It’s your own business, you know?
Tobias: “Negative oil was the green light.” Yeah, that’s what I think too. Had to suffer for six months. I thought I didn’t do anything about it. JT actually did–
Bill: My dumb ass, I bought TGS and OPEC, and I bought Occidental bonds, and I didn’t hold– Well, TGS was a loser of an idea and the bonds I didn’t hold. So, good for me.
Don’t Be On The Wrong Side Of Getting Taken-Under
Tobias: I saw a comment. There was a comment earlier about getting taken out– There are a few take-outs now. Yeah, I was in Pzena, because I like Rich Pzena and I like that business.
Jake: Not anymore. [laughs]
Tobias: Yeah, they got a bid– [crosstalk]
Bill: Not going to own it anymore.
Tobias: They got a bid right where it was at the start of the year.
Jake: Yeah. [unintelligible 00:57:36] banks.
Tobias: I bought it in the last 12 months, because it was cheap. Yeah, I agree with them. It’s too cheap. I’d take it private too if I owned it.
Bill: Fucking Swedish Match is probably the one thing I’ve done well over the last 12 months and Philip Morris steals it from me. Sucks, sucks.
Tobias: There are some other–
Jake: That is a weird dynamic that can happen, where let’s say, you buy something, and you run the risk of actually becoming pot committed. As the price moves further and down, your risk of a take-under increases and you have to keep buying to then keep your cost basis lower and lower so that you don’t get taken under your original cost basis. And now, all of a sudden, you’re way deeper into it than you wanted to be.
Bill: Don’t do it in financials, folks. That’s a good way to blow up. [crosstalk]
Tobias: Or with wealth management.
Jake: [crosstalk] Good bank for that a quicksand bet or something?
Tobias: Yeah. You don’t want to be doing too much of that anyway.
Tobias: Yeah, it’s frustrating. Good luck to West Coast.
Jake: You don’t always know you’re getting into it though when it starts. [laughs]
Bill: Yeah, that’s why how– [crosstalk]
Jake: Although if you’re on the other side of somebody like, I don’t know, maybe—Well, I don’t criticize by category. Maybe I won’t say this, but maybe it rhymes with Brookfield. You might be [laughs] more worried.
Bill: Brookfield Management.
Bill: Yeah. They’ll take you under. They don’t care. It’s why it’s better to just be on the same side of those guys.
Jake: Could be.
Bill: But I really like Hempton’s thoughts on position sizing and having a max loss for a position and not. [crosstalk] Every time he talks about– [crosstalk]
Jake: Wait, [crosstalk] I’m going into it.
Bill: Yeah. Every time he talks about surviving, I think he has very intelligent thoughts.
Tobias: “Ted Baker accepted a takeover bid 20% less than a bid they rejected 5 months ago.” Oh.
Jake: Thanks, boys.
Tobias: Good job, fellas.
Bill: Appreciate the service.
Tobias: That’s time, amigos. We made it.
Bill: All right. Have a good one.
Tobias: That was fun.
Jake: What do we got? Cheers?
Bill: It’s applause.
Jake: Ah, I didn’t hear it.
Tobias: Didn’t come through though.
Bill: Oh, [claps] really? That’s upsetting.
Tobias: “BAM is splitting out the asset manager.” That’s interesting.
Jake: Is that true?
Tobias: And tidy that up a little bit. This is fun. Thanks, amigos. We’ll be back same…
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