VALUE: After Hours (S04 E31): Crypto Bankruptcies, Pacific Crest Through-Hiking, Small Caps are Due

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In their latest episode of the VALUE: After Hours Podcast, Thomas Braziel, Jake Taylor, and Tobias Carlisle discuss:

  • Crypto Bankruptcies
  • Investing Lessons From Through-Hiking
  • Small Caps are Due
  • You Only Need One Good Investment In Life
  • Invest In Places With The Highest Dispersion
  • The Impossibility Of Replicating Returns From Decades Past
  • The Trouble With Net-Net Investing
  • First Principles Investing
  • Warren Buffett Could Have Stopped At See’s
  • Huge Opportunities In Japan
  • Everyone’s A Momentum Chaser
  • Unkillable Twitter
  • GEICO Working Through Some Turbulence

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:

Thomas: How do you do bathroom breaks in this?

Tobias: It is live. We are live.

Thomas: [laughs]

Tobias: Its Value: After Hours. That means, it’s 10:30 AM on the West Coast, 1:30 PM on the East Coast. I’m Tobias Carlisle joined as always by Jake Taylor and this time, our regular sub- [crosstalk]

Jake: Thomas.

Tobias: -Thomas Braziel. What’s up, Tom Braziel?

Thomas: High five, guys. [unintelligible [00:00:23]. Nothing much, guys.

Tobias: Where are you?

Thomas: I’m in Italy, as usual. It’s great here. It’s cheap for per unit of quality.

Jake: Yeah.

Tobias: There you go.

Thomas: I’m a GARP guy.

Jake: It’s GARPY.

Thomas: My base, it’s really GARPy. Back to you.

Tobias: How’s the pizza? Lots of pineapple pizza over there?

Jake: [laughs]

Thomas: Pizza, yeah, pineapple pizza. They do a weird thing for kids with French fries on pizza, which I think is I don’t know.

Tobias: American style.

Jake: That sounds good.

Thomas: It’s an American thing?

Tobias: I don’t know.

Thomas: I don’t know where it’s came from.

Jake: It’s what they think Americans would want.

Thomas: Yeah, that’s what they think. [laughs] And there’s another one that’s really funny, where they– At McDonald’s, they put cheese on fries. But McDonald’s fries with cheese, it’s like, “What are you doing?” That’s sacrilegious. Anyway, may be.

Jake: You can get that at In-N-Out as well in the States.

Tobias: Animal style.

Jake: Animal style on your fries.

Thomas: Ooh. Now, what is the In-N-Out Burger? Is that a crinkle fry or is that a flat straight fry like the McDonald’s?

Jake: It’s closer to the McDonald’s, but it’s not quite the McDonald’s.

Thomas: Really?

Jake: Yeah.

Tobias: It’s a big SoCal thing. Honestly, I don’t really get it. They are not that good, whatever.

Jake: [laughs]

Thomas: [crosstalk] I think [crosstalk] chili cheese fries.

Jake: Price adjusted, Toby. It’s a good value.

Thomas: Yeah.

Tobias: Is that the attraction?

Jake: Yeah.

Tobias: McDonald’s discovered that if you leave your potatoes sitting outside, they dry off and that makes for a superior fry. And so, super fresh fries. Not as good.

Thomas: Guys, since we’re on the topic of McDonald’s, the Ray Kroc– Ray Kroc, Jim Kroc, Ray Kroc, Ray Kroc?

Jake: Ray Kroc.

Thomas: Ray Kroc, biography is phenomenal or no, autobiography.

Jake: Grinding It Out.

Thomas: Yeah.

Tobias: [laughs] It’s a great name.

Jake: It is good. Huh.

Thomas: Jake, you’re a big reader. Not that you’re not, Tobias. I said that– That makes it sound like– [laughs] Have you guys read this? Has anyone read it?

Jake: Yeah.

Tobias: I haven’t. I saw the movie.

Thomas: It’s just like the movie.

Jake: It was inspiration for parts of my book, actually.

Thomas: No way. Okay, so you really liked it. I really liked the book. It’s also short too. It’s like a novella type. You could read it on a plane, at the beach.

Jake: Gets to the point and tells the story.

Tobias: Ideal size.

Thomas: He’s got– what do you call those? Aphorisms. He’s got these great little encapsulations of an idea.

Jake: Yeah.

Tobias: Tweets.

Thomas: It’s the greens you’re growing. Yeah, tweets.

Jake: [crosstalk] tweets, no? [laughs]

Tobias: Not like Taleb. Just putting all of his tweets together into a book and calling it The Bed of Procrustes.

Jake: Yeah.

Tobias: It’s aphorisms.

Jake: I thought you were going to go Bezos at McDonald’s there when you’re- [laughs]

Tobias: I guess so.

Jake: McDonalds

Tobias: Things have got bad.

Jake: Yeah.

Tobias: Bezos is at [unintelligible [00:03:22]

Jake: It’s rough out there. [laughs]

Tobias: [crosstalk.

Jake: Yeah, 2 and 10 inverting, that’s nothing. Bezos at McDonald’s. That’s your recession indicator.

Tobias: There you go.

Thomas: [laughs]

Tobias: What do we got on deck today, fellas?

Jake: Well, I’ve got a little piece that’s on the Pacific Crest Trail and some hiking stuff. So, that might be fun. And then how about you, TC?

Tobias: I missed this last week, but there was a good note from the Verdad. I don’t know which of the Verdad guys it was. I always attribute to Dan, but I realize there are more people writing there now. So, I shouldn’t say that. But it was on the historic discount of smalls to large. We’ve a decade plus of underperformance both in terms of just absolute underperformance, but they’ve also been more volatile through this stretch. And so, the article that they wrote deals with the reasons why we’ve had the underperformance and what the future looks like, the 10-year forward returns have historically looked like when it looks like this.

Jake: Yep.

Tobias: It’s promising.

Jake: [laughs]

Thomas: I like it.

Jake: So, you’re telling me, there’s a chance.

Thomas: [laughs]

Tobias: It’s the same story I’ve been telling for about four years now.

Jake: Yeah. Well, how long we’ve been podcast– Yeah, four years. That’s right. [laughs]

Tobias: Four years, something like that. It’s coming up on that. I think three years, I suppose?

Thomas: [laughs]

Tobias: You are due. 100% due.

Tobias: Yeah. At some point, the stock clock is right.

Jake: That’s right.

Tobias: I don’t know. Hoping that that time is soon.

Jake: TC is a genius again.

Tobias: [laughs]

Jake: [laughs]

Tobias: Been a long time.

Thomas: [laughs]

Jake: Tom, what do you got?

Tobias: What about you, Tommy? You just came off the bench. What’s been happening?

Thomas: I don’t know.

Jake: Yeah.

Thomas: Let’s see. I guess I should do that just like– [crosstalk]

Tobias: Let’s do some crypto.

Thomas: Yeah, I was going to say–

Jake: Crypto winter, right?

Thomas: Yeah, like war stories from the trenches here. We can talk about the Voyager and Celsius bankruptcies. Crypto bankruptcies are really interesting.

Tobias: Well, I’m interested. I don’t really understand what’s going on there. I like to run my little Google update on NFTs. That’s got really bleak. Now, I feel bad. I can’t tweet that out anymore.

Jake: It’s the interest of NFTs, right? It’s a Google–

Tobias: Google search interest in NFTs.

Jake: Yeah.

Tobias: Because it’s my theory that that’s a Ponzi that needs a big front end of suckers coming in to make it pay off. And so, then– [crosstalk]

Jake: How does it look right now? Tell me about it.

Tobias: It looks like they are going the wrong direction, honestly. It’s at the lowest levels in about 12 months.

Jake: Not great, Bob.

Tobias: Probably trying to go and buy NFT, if that’s your bag.

Jake: Hmm. Okay.

Thomas: Ah.

Tobias: That’s not investment advice, by the way.

Thomas: I remember meeting some managers there in NFT funds early on and they absolutely crushed it. But I never really–

Tobias: People at the start of a Ponzis always do well. It’s the people who come later who get beaten up. OpenSea’s NFT marketplace, the transactions are done 99%, which is a lot.

Jake: Really? Wow, that’s–

Tobias: Not 100% but can still go down another 99% from here.

Thomas: But not 100%. [laughs]

Jake: Huh.

Tobias: So, that’s the range. That’s my range. Anyways, sorry. What’s really happening? I’m as far away as [crosstalk].

Thomas: Just OMG.

Jake: [laughs]

Crypto Bankruptcies

Thomas: Here, I’ll go down– I may have to move to better WiFi. But NFTs, I think they’re interesting. Who’s paying the crazy prices for some of the stuff? Maybe some of the early projects are very, very interesting. But I don’t know. I’m not an expert on the area. I think it’s super interesting, but a lot of things are interesting. So, I might, I don’t know, partake in some very, very small way. But that doesn’t mean I’m going to part huge amounts of my savings. Yeah, so Voyager and Celsius, both of them filed through US bankruptcy– [crosstalk]

Tobias: What are they?

Thomas: Basically– Ah, yeah, that’s a good question. What are they? Are they unregulated banks? Are they basically like brokers, like E-Trade or something like that or are they something different? Are they exchanges?

Tobias: What do they say they are? What do the tax authorities say they are or the SEC? What’s the point of contention? They prefer to be regarded as unregulated exchanges. And the SEC, the government says, “Maybe you’re a bank or maybe you’re a broker, and you need a license for that.”

Jake: And you need to know your customers.

Thomas: Show’s over. You got it. No, that’s how you are going to do it.

Jake: [laughs]

Thomas: They started talking past each other about what they are. I suppose the biggest crux is like, what is crypto? Is crypto a commodity? Is it a security? Are certain crypto securities and certain cryptos commodities? Are they nothing? Are they just digital assets in some weird non-security way or something? So, there’s lots of legal questions here and Toby, you are a lawyer– [crosstalk]

Tobias: It says literally non-fungible. Because that’s what they’re describing themselves. The NF is non-fungible. If you’re non-fungible, it’s hard to argue that you’re a commodity, aren’t you? Because you can point out that’s my NFT.

Thomas: Well, not NFTs–

Tobias: Or it’s not.

Thomas: I just mean in general. These guys own some NFT portfolios, but mainly on their platforms is Bitcoin, Ethereum, Cardano. Basically, the top 10 cryptos that you’ve really– [crosstalk]

Tobias: But don’t we always know at every point in time who owns what? Isn’t that the entire point of it? Doesn’t that argue against it being a commodity?

Thomas: Well, yes. That’s a very good point. No, it’s not fungible.

Tobias: It’s more like a security.

Jake: The prosecution– [crosstalk]

Thomas: Yeah.

Jake: [laughs]

Thomas: Toby is just slicing– [crosstalk]

Tobias: I don’t know. I’m just like, “This is first principles.”

Thomas: Oh, I’m dead.

Tobias: This is more than 20 years ago.

Thomas: I think you’re probably right. But I think so far, it looks like Bitcoin and Ethereum are likely to be considered a commodity and everything else is like big security. And the big differentiator seems to be the decentralized nature of their origins versus the way they originally did like an ICO, which is probably a security offering.

Jake: Security.

Tobias: Right.

Jake: Yeah, it seems like it.

Thomas: Yeah. It just squarely fits within the Howey Test. So, it’s pretty hard for guys to argue against it. But the question with these bankruptcies, of course, isn’t that. The question is, so what are these, exchanges or brokers? They look a lot like brokerage. They look like E-Trade or maybe more even like a bank. Because did you own the crypto or did you own this underlying account that owned crypto? Therefore, you don’t have a title to it. You’re just a general secured creditor. So, lots of questions.

And then, there’s a bunch of securities laws that is pumped into the bankruptcy code, or I shouldn’t say, pumped in, but behind the bankruptcy code, so like this thing called 5469(e), which is a safe harbor financial transaction through financial intermediaries. Boy, that’s a mouthful. It applies to commodity brokers and security brokers and banks really. And so, the question is, does it apply in this bankruptcy?

And then, you have custody accounting issues as well. Custody, how do you–? And then, there’s perfection of security interest. How do you do that with crypto? The Uniform Commercial Code doesn’t speak to that or does kind of, but it’s not totally clear and they did an update to the UCC. Boy, this is really going to get boring. Everyone’s going to be falling asleep. Anyway, there are lots of interesting novel legal questions that these bankruptcies are going to be looking into.

And they are the biggest crypto bankruptcies basically, of all time. I find that fascinating. There’s also a lot of people, unfortunately, they’ve gotten sucked into crypto through these vehicles. Some of their stories are tough to swallow and you think like, “Gosh, really needs to be a lot more regulation on some of this stuff.” It’s one thing for someone to punt around and lose some money in an NFT and it’s all funny, ha ha ha. But when you have some Australian person who has literally their life savings, are 58 years old, and they just lost their entire life savings in bankruptcy, and it’s going to materially affect their retirement, that’s not good. So, there’s also that side to the story. That’s what’s going on in my world.

Jake: How distressed are we talking for this stuff?

Thomas: The recovery is depending upon– Voyager’s probably somewhere in the call for 50 to 70 range. These are real ranges here, because we don’t know what the auction process is going to bring in. These are the holes in their balance sheet. And Celsius is a little far behind, probably somewhere in the 40 to 50 range in terms of recoveries.

Jake: Because that just seemed like puking as the price of all this stuff goes down too, is that how it’s working?

Thomas: Yeah, kind of.

Jake: You’re trying to get at the front of it.

Thomas: It depends on the how you think about it. Yeah, some crypto people think of things in terms of only crypto, but the bankruptcy code does look at things in terms of dollars at the petition date. And then, you have assets, but you’re basically long crypto and it’s moving around a bunch. So, it’s an issue. But just to back up for a second, financial institutions blowing up on a loan book is as old as time.

Jake: Yeah, Mesopotamian–

Thomas: So, it’s not new. Yeah, that’s the thing, people are like, “Oh, this is this.” Unfortunately, people are like, “Oh, this is–” Some people say, “Oh, this might be a Ponzi scheme, because of the way they were doing it.” All the financial institutions and banks have circularity– They have deposits and they’re propagating them out, and then it’s circling back to pay you interest. So, it all works until it doesn’t.

Jake: Yeah.

Thomas: So, there are a lot of upset people, but yeah.

Jake: All banks are insolvent. It’s just a matter of timing.

Thomas: There you go.

Tobias: Backstopped by fed.

Thomas: Yeah. Crypto guys don’t get the backstop.

Jake: So, 50– [crosstalk]

Thomas: They want it. They want it.

Tobias: [laughs]

Jake: You’re paying 50 to 70 cents on the dollar right now roughly for–

Thomas: Us? No, no. Those are recoveries. The market is probably somewhere in the 20 to 30 cent range for both dockets.

Jake: Okay.

Thomas: Yeah.

Tobias: You might be buying a proverbial-

Tobias: 50-cent dollar.

Jake: -50-cent Bitcoin.

Thomas: 50-cent dollar. Yeah. I think the cases are interesting legally. I’ve been helping a lot of claimants just because people started reaching out. It all started on Twitter. It’s on Twitter Space, and there was someone on there who’s a securities lawyer talking about bankruptcy, and I was just like, “Ah, that’s not really how it works.” So, I started just helping out a little bit- [crosstalk]

Jake: Educating.

Thomas: -as well. Yeah. Look, honestly, I already know all this stuff. So, it was quite easy. Because a lot of the questions here, you can imagine there’s just someone asked me very simple thing. They’re like, “What is an IRA?” You’re like, “Oh, well, it’s this.” You are like, “Here’s a here’s a link.” I don’t know. It’s just stuff that you think like, “This is so easy to give very straightforward answers to it.” So, I started to get involved in that way. But there are tons of interesting legal questions. Just unbelievable amounts.

Tobias: Are you doing anything outside crypto? Is there anything else going on?

Thomas: Yeah. Looking at a few things.

Tobias: [crosstalk] you want to talk about it?

Thomas: No. Net call project, let’s see what else. Got some real estate stuff we’re looking at recently, some fitness industry stuff. We have a fitness and investment chain of gyms. I say we, but one of my clients does. And so, we’ve been looking at fitness assets. Some of them are still on their back. They haven’t really totally come back post pandemic.

And then, there’s some companies that they were doing D2C and the math they thought penciled out and now that the pandemic fervor of, I don’t know– I don’t want to say, cheap money, but people staying at home and ordering a bunch of stuff online has slowed, they peel back the onion and they’re like, “Oh, maybe our lifetime direct customer isn’t what we thought.”

Tobias: [laughs] Who knows?

Jake: And our CAC is way too much.

Thomas: Yeah.

Tobias: The CAC is solid.

Jake: Yeah. The CAC is real. [crosstalk]

Thomas: This is great. I get to do my Jim Grant quote. Do you know this Jim Grant quote? He says, “The assets– ahh, we don’t know what if [unintelligible 00:16:16] is when you look at the balance sheets. The assets. I’m not sure what those are worth. The liabilities, oh, yeah, those are $100,000.”

Tobias: Solid.

Jake: Yeah, money [crosstalk]

Tobias: He stole that from Benjamin.

Thomas: Oh, did he?

Tobias: I think so. That’s Graham. Oh, that’s Buffett quoting Graham, anyway.

Thomas: Oh, I thought it was Jim Grant. Okay.

Jake: Speaking of Buffett, happy birthday to the GOAT today.

Tobias: Yeah. 92.

Jake: Yes, sir.

Tobias: That’s a good knock. He’s eight short of the ton. Let’s see if he can carriers his bat the whole way through. That’s for cricketers.

Jake: [laughs]

Tobias: [crosstalk] Do you think he can stay in the seat to the 100?

Jake: I think he could. He’s certainly smart enough. [laughs] He’s got enough experience to get there. I don’t think he’ll get fired– [crosstalk]

Tobias: [crosstalk] block.

GEICO Working Through Some Turbulence

Jake: Yeah. He did say though that– He’s said it several years ago and he said it multiple times during the meetings, but that he expected GEICO to get to number one ahead of State Farm by the time he was 100. He figured that GEICO had a better chance of holding up the bargain than he did.

Tobias: [laughs]

Jake: But we’ll see. Maybe he might actually be the one that that wins that one.

Tobias: Has GEICO slipped? What’s happening with GEICO?

Jake: GEICO hasn’t slipped. They have not had a great– They’ve had a little bit of a scuffle lately relative to their normal peak performance that you expect out of them.

Tobias: Was there’s some cost inflation and–?

Jake: There’s a definite cost inflation, medical, legal inflation, and then obviously, just– It’s more expensive to get parts, and labor, and all that stuff. Rates can be a little slow to catch up. They had a boom year in 2020, because miles went way down. So, nobody got in accidents. But premiums didn’t fall quite as fast. So, it was like a banner. And then, I think things swung a little bit faster in the other direction than they were expecting. So, it’s just navigating through a little bit of a weird turbulent time. Though I’m sure they’ll be fine. It’s just–

The other thing too is Progressive Snapshot as a data feed for your underwriting, it’s probably a pretty reasonably good innovation that GEICO slept on for a long time and probably fell a little bit behind that on– [crosstalk]

Tobias: What’s the Snapshot? Is that the thing that you plug into your car?

Jake: Yeah. It’s like an accelerometer, real-time measurement of your driving’s safety.

Tobias: You can see your rate going up and down.

Jake: Yeah.

Thomas: [laughs]

Tobias: You speed up your racing time.

Jake: Your run that red light, you can see your premium raising.

Thomas: [laughs]

Tobias: That would help probably. You’d be very safe.

Thomas: I could see it now. All the Buffett investors– or all the Berkshire investors are speeding around town at 1000 miles an hour. I’m joking.

Jake: That’s all they could get it.

Tobias: You need a dashboard that has the depreciation of your car, the cost of fuel, all of those things. As you’re accelerating, you can see how much the trip is costing you in real time.

Jake: Ooh.

Tobias: And drive sensibly.

Jake: Now, you’re talking.

Tobias: Look out for my startup.

Jake: [laughs]

Thomas: That would be a cool app, actually. That’d be a cool idea. Just right here on the pod. See, we’re giving out free ideas. Tobias, come on. It’s a million-dollar idea.

Jake: This is just a million-dollar idea. Now, what are you doing?

Tobias: There’s no property in an idea. You got to execute it. I’ve done my part. I’ve done my part. I expect some founder’s shares.

Jake: Yeah, send the royalty check.

Thomas: Yeah, I always think that’s interesting. People think ideas or sometimes, I’ll meet people, they are like, “Oh, I can tell you about the idea.”

Jake: Yeah. You got to sign this NDA for me to tell you about that.

Thomas: I’m like, “I got to tell you, brother. It’s just a lot of perspiration that needs to happen.”

Tobias: [laughs]

Thomas: Really, the ideas are just– Those are easy.

Tobias: Yeah, execution is tough. If only we could outsource that.

Thomas: Do you think it’s important in investing as well? I’m not going to move around here on you guys. It’s easy to talk about it. I like what Cliff Asness likes to say, what is it? We all know what we’re supposed to do to be healthier. It’s eat less, move more.” I think in investing, this is another thing that we missed.

Tobias: Well, the stuff that you do this, there’s additional execution difficulty as well.

Thomas: Yeah.

Tobias: We’re actually going to go and do it. The private equity guys got real execution difficulty in making their buys and sells. That’s why I don’t do private equity. I like the public markets. You don’t like it, you can tip it up tomorrow.

Jake: [laughs] On a whim.

Tobias: In private equity, it’s hassle to get rid of it.

Thomas: Yeah.

Jake: Yeah. You just sell it back and forth and mark it up all the– [crosstalk]

Tobias: Yeah. Well, once you’re in the little club, you are fine.

Jake: Yeah. It’s all good.

Pacific Crest Through-Hiking

Tobias: Do you want to do yours, JT? I probably need to just spend a little bit time looking at mine.

Jake: [laughs] Okay. Let’s do it. First of all, shoutout to Brett Shaffer, who sent me this article that inspired this particular veggie segment. We’re going to be talking about the Pacific Crest Trail, which is this– It’s a long-distance hiking trail that runs along the cascade and the Sierra Nevada Mountains. And it goes from Canada to Mexico border all the way through Washington, Oregon, and California.

Tobias: Is it [crosstalk] for Yosemite?

Jake: Yeah.

Tobias: I think [crosstalk] part of it.

Jake: Yeah. So, it’s 26,500– Sorry, 2,653 miles, which is for our international fans about 4,200 kilometers.

Tobias: I’ve booked about three of them.

Jake: [laughs] Yeah, exactly. And it ranges in elevation from about sea level at the Oregon-Washington border up to about 13,000 feet at forest surpass in the Sierra Nevada’s. And the route passes through 25 different national forests and seven national parks. So, it’s very, very scenic and actually runs through my backyard in Lake Tahoe and it’s absolutely gorgeous. You can hike all around through there. Do yourself a favor and google some of the pictures of the Pacific Crest Trail and just go through it. It’s absolutely stunning.

In this whole idea of hiking, there’s this thing called thru-hiking. And it’s a term that’s used to refer when hikers will complete some long-distance trail that goes from end to end, like, point to point on a single trip It’s not like a loop or anything. And through hiking, typically, there’s very long commitment where you’re taking– In this case for the Pacific Crest Trail, four to six months, it requires thorough preparation and a ton of dedication to train for it. Actually, the Pacific Crest Trail Association estimates that it takes six to eight months to plan, train, and get ready for the PCT. The average completion rate is estimated about 14%. So, most people who attempt this don’t finish it.

Part of the problem is that hikers have to determine ahead of time, where their resupply points are along the trail. Typically, like a town or a post office, a hiker can replenish their food or supplies and cooking fuel, stuff like that. They could ship packages to themselves at the post office and then pick them up along the way.

Earlier this month, this British guy named Josh Perry, who’s 27 years old, he finished the thru-hike and he did it in just over 55 days. So, remember. We said that this takes four to six months and he did it in 55 days. He beat the previous self-supported record by five days, which is pretty big jump. There’s this concept called fastest known time, FKT in the hiking world. It’s used for basically like a trail record. Like, who’s done this the fastest? It’s a bit like setting a world record for sprinting or whatever. But this is just for the hiking version. And maybe even more impressive, he finished just four days behind the supported record, which was set last year by this Adidas sponsored ultra-marathon or ultra-runner who– He slept most nights in an RV, he had hot meals, sports massages. He was going to take the record down, whereas this Josh guy, he’s just out there on the trail with his backpack getting after it– [crosstalk]

Tobias: Gentleman Jockey wins the race.

Jake: Yeah, exactly.

Tobias: Of course.

Jake: He had better horse. Perry, when he finished, he was actually disappointed, because he really wanted to even beat that supported time. The reality is that the record setting thru-hikes have gotten much harder in an era of escalated wildfires. Perry, he was cruising for the first 1,700 miles in California and he finished that in a faster than any other recorded hiker in about 34 days. So, he was on pace to actually break the all-time record. He was shuffling and jogging for most of those miles. He was very aggressive. He was sleeping six hours a night and the rest of the time, he was just moving.

In some instances, some of the shorter, like, fastest known times, these guys will sleep for two hours for days on end and just be moving for 22 hours. It’s insane.

Tobias: How long can sustain that for?

Jake: I don’t know.

Tobias: Could you spend the full 555–? You couldn’t sustain that for 55 days, surely?

Jake: I don’t think so. No, I think you’d go crazy. I’m pretty sure you would actually based on what I know about sleep chemistry. Your brain wouldn’t clean out enough of the plaque. Anyway. What happened to just Josh Perry was that, in Oregon, there was a trail closer from a 2020 fire and it forced him to have to find an alternate route that approximated the Pacific Crest Trail. When he planned this out, he thought that that would have been cleared by the time he got to it 35 days into the hike, but it wasn’t. And so, he was forced onto this really overgrown trail. Then there was brush that was really thick. It took him seven hours to bushwhack through seven miles of this dense trail. And he’s falling on some wet rocks that you normally wouldn’t be going over.

Tobias: Had to kill a bear with his bare hands.

Jake: Yeah, exactly. In fact, he survived a heat stroke while he was walking in temperatures over hundred degrees. And for several hundred miles of this, he carried a seal roll of duct tape to bind his right quadricep and case it tore, because he felt it was starting to. At one point on this, while he got sidetracked, he’s delirious, he’s dehydrated, he actually began vomiting, and defecating on himself. The conditions were so bad that he decided to quit for a little while. But he was so far out in the middle of nowhere he just pushed on, because he had to get back to somewhere. And eventually, he finishes this hike [crosstalk] and he broke that unsupported record. But his body’s an absolute shambles at this point, right?

This actually wasn’t his first brush with adversity. He had made a southbound run. He had gone before south to north as he was setting it that just recently. He had tried to southbound run coming from Canada to Mexico trying to set a record. And after clocking 49 miles per day for about thousand miles, which is insane, if you’ve ever hiked before, anything more than 20 miles and you’re just absolutely, typically wiped. And that’s if you’re in pretty good shape. He got stung by a wasp unaware that he was allergic. And three days later, he collapsed on the trail. He had to be carried out by these other hikers.

Anyway. This new record that he just set, it really highlights the unpredictability and the increasing unpredictability of the Pacific Crest Trail. The difficulty of record keeping, when a trails length and course now changes every year due to wildfires. The official race direct personnel of this trails had this to say. “With climate change, there are going to be closures. You’re never going to have what previous hikers had on that route.”

Investing Lessons From Through-Hiking

Jake: So, what this really highlights for me to bring this back to investing is that, we don’t really get to decide what the trail conditions are for our investment journeys.

Sometimes, there are fires that are going to force us onto it more difficult trail, where we’ll lose time, will struggle to push through this very thick brush. And this has really surfaced probably for a lot of people in 2022. If history is any guide, I’m not sure that it’s going to be out of our lives necessarily right away. We have to be mentally prepared for a tougher trail, maybe for the foreseeable future. If we focus on what others had done and strive to beat their FKT, their Fastest Known Time of different eras, I think it’s just not very realistic of an approach. And especially, if finishing the trail is your primary goal, that’s what we should probably be really thinking about is, how do we finish.

To expect you to put up 1950s Buffett returns in today’s era, I think is just questionable to me. It really requires leverage, too much concentration, maybe options. You’re probably going to be pushing too hard and maybe not finish. And some people might get through, and might get lucky, and we’ll get all the headlines when they do it. But I think failure is probably the predominant expected outcome of that approach. I think you want to be diligent, you want to get in your daily miles, you want to keep grinding with relentless forward progress, and you want to plan correctly with your gear and your food depots, and so, that you are doing everything you can to control what you can. But you don’t want to get caught short of food.

But you should probably stop occasionally and look around at the beauty that is this whole journey. But if you’re in a dead race to actually beat someone else’s time under the completely different trail conditions, I think you’re going to have a really miserable experience and you might even be lucky to even just finish. So, hopefully, maybe we tied some hiking, and fastest known time, and to what we can expect for our investment journeys.

The Impossibility Of Replicating Returns From Decades Past

Tobias: I like that. I often think about– Graham had at least one World War, and the 29 crash and the Great Depression. Buffett obviously had a pretty nice run from the 50s through to present day. And then John Maynard Keynes as well had– I don’t know, how old he was relative to Graham, but he at least had First World War, obviously, because he wrote in the First World War and then likely, he had the Great Depression as well, because he was running funds through those. So, it’s hard to say it. It’s nice to have good conditions for your investment strategy.

Jake: Yeah. I think Buffett would say– They saw in his investment time a World War. He saw or at least his lifetime, a pretty bad flu in the 50s. Pretty a lot of comparable stuff. He saw inflation in the 70s.

Tobias: 70s.

Jake: Yeah. He saw-

Tobias: Still the ’29 crash [crosstalk] is the worst one.

Jake: -lots of recessions.

Tobias: And Graham came out the other side of that and then wrote security analysis.

Jake: True.

Thomas: But it helps that Buffett was in the winners’ market in US. [laughs]

Tobias: Yes. Good point.

Thomas: Is it Dimson or someone that that has all those times series–? [crosstalk]

Tobias: Yeah, Elroy Dimson, Marsh.

Thomas: Yeah.

Tobias: What’s the thing that you had?

Thomas: That’s my own voice.

Tobias: What’s the thing they bring out of every year?

Jake: Triumph of the Optimists.

Tobias: Triumph of the Optimists.

Thomas: yeah.

Tobias: Good one, JT. Good memory.

Thomas: There’s a French guy that goes back– There’s a French economist that goes back– You guys are going to know this probably. There’s a famous French economist that goes back and looks at-

Jake: [crosstalk]

Thomas: –ways of return from– [crosstalk] What’s that?

Jake: [unintelligible 00:32:09].

Thomas: Was that his name?

Tobias: [laughs]

Thomas: I don’t even know.

Tobias: No.

Thomas: You can make it up.

Jake: I’m being glib.

Thomas: He goes back to the 1600s or something to try to look at rates of return.

Tobias: Yeah.

Thomas: I can’t remember the guy’s name. Of course, a French economist would be into this.

Tobias: Well, Mikhail Semenov has put together that 200 years of value, which I love, where he runs back to– He uses the 1825 to 1875 dataset is everything that they could find.

Jake: Two railroad companies. I don’t know.

Thomas: [laughs]

Tobias: And then, 1875 to 1925 is the Cals Commission data. And then, 1926 onwards is– Yeah. What’s the name of it? Fama and French.

Jake: Fama-French.

Tobias: [crosstalk] Yeah, the French data set. Thanks to the Investorblog, €10 for JT to the veggies.

Jake: All right.

Tobias: JT is going to have a drink. We’re doing some event. That’s not next week, is it? that’s the following week?

Jake: Yeah. following week. Correct.

Tobias: We’re going to do future proof– I don’t know what we’re going to do. We maybe all doing that from one hotel room. We might have to do a live version from the hotel room and then do a performance.

Jake: My understanding is that they’re going to have some kind of audio situation set up there for us. I’m not sure we’re going to be able to stream live directly to YouTube in real time, but we’re going to record it live from there.

Tobias: The recording will be up. Yeah.

Jake: Yeah. So, we’ll see.

Thomas: Wait, where are you guys doing this event?

Jake: Huntington Beach. Some kind of conference.

Thomas: California?

Jake: Yeah.

Thomas: Cool.

Jake: Should be fun. Bring a little extra energy to the show.

Tobias: Yeah.

Jake: Maybe we’ll get Billy a couple mimosas before we start.

Tobias: [laughs]

Thomas: [laughs]

Tobias: Yeah. What about the–? [crosstalk]

Thomas: Get him some [crosstalk] Put them up on stage. [laughs]

Jake: Yeah, exactly.

Tobias: Good veggies, JT.

Jake: Thank you.

Thomas: Yeah, I love it.

Small Caps are Due

Tobias: Let me do Verdad.

Thomas: Yeah, what are you doing?

Tobias: Verdad, so a size factor. It’s not been a great decade—

Jake: Toby, it’s how you use it.

Tobias: [laughs] That’s what everybody says. That’s not true. It’s been a bad decade for– [laughs] It’s been a bad decade for the small caps. Everybody knows that. It’s been bad in the sense that they’ve performed really badly in an absolute sense, but they’ve also been more volatile. So, the risk-adjusted returns are a hot garbage. It’s got so bad that people wonder whether the size factor continues to be worth anything or not.

When you look back over the full dataset though, the size factor has come in and out of existence and it has delivered better returns at a better risk-adjusted rate for the full dataset. The really interesting chart in here is where the guys look at– This is, yeah, Verdad. I think it’s all the guys put this together. It’s got Dan Rasmussen, Brian Chingono, and Nick Schmitz listed.

Jake: The Verdaddies.

Tobias: The Verdaddies. That’s a good one. There’s more than three Verdaddies these days.

Jake: Okay.

Thomas: Another billion-dollar idea right there. Just giving it out.

Jake: We’re just flowing.

Tobias: Merch is their second part of their business. Just get that Verdaddy shirt out there.

Thomas: [laughs]

Jake: Who’s your Verdaddy?

Tobias: Who’s your Verdaddy? There you go. Dan, you can have that one for free.

Jake: That’s interesting.

Thomas: [crosstalk] listener.

Tobias: They looked at the small cap relative discount and the 10-year forward returns. This is the interesting chart. They’ve only been two occasions in the last– I think this goes back to 1927, 1926. There’s only two occasions where small caps got a lot more expensive than large caps. And that through the 80s. And then again, between 2012 and 2017, that five-year stretch in there, they got expensive again relative to large caps. In both of those instances, they’ve delivered terrible performance relative to the large caps, where they’ve been at a very wide discount as they currently are.

The forward excess returns over the large caps have been quite big. And so, it would look like the same problem that value had, where the last decade has been partly working off overvaluation or relative overvaluation at the start to that becoming a narrative that small capsule value doesn’t work to now we’re at the point where the discount is so wide that it likely indicates future forward returns that are good-

Jake: Adequate?

Tobias: -adequate. Yeah. I’ve been telling that tale for a little while. I think at some point that becomes true, but I like that setup. As a value guy, I like that setup. So, I feel good about value, and I feel good about smalls.

Jake: If you just keep putting it out into the universe, Toby. You’re going to secret that– [crosstalk]

Tobias: Do you think is that- [crosstalk]

Jake: Into reality.

Thomas: [laughs]

Tobias: -the secret that’s hidden? [laughs]

Thomas: Toby’s got like a seance going on– [crosstalk]

Tobias: I’m burning some– [crosstalk]

Jake: Chanting.

Tobias: I’m burning some joysticks back here.

Jake: Yeah. [laughs]

Tobias: Get my little Buffett shrine up.

Thomas: I’ll bring you one next time.

Jake: Yeah. Oral drums.

Tobias: Joysticks or a Buffett shire? I need a little Buffett Buddha.

Thomas: Yeah.

Tobias: There’s the third billion-dollar idea.

Thomas: Another billion-dollar idea.

Tobias: He did the bookends. That was Andrew– He did the Buffett and Munger bookends.

Jake: Oh, I haven’t seen that.

Tobias: Yeah.

Jake: Oh, was it Andrew Wilkinson?

Tobias: Yes, Wilkinson. Wilkinson had the bookends.

Jake: I could imagine that would be him.

Thomas: Yeah, didn’t someone do Buffett and Munger– Couldn’t you order [unintelligible [00:37:56] like a quote.

Jake: A bus ticket. [crosstalk]

Thomas: yeah, like all the bus.

Jake: Yeah.

Tobias: Yeah.

Thomas: [laughs]

Tobias: That was Wilkinson. I think it was about 900 bucks or 900 bucks each, a little bit too rich. [crosstalk]

Jake: I’m frankly a little disappointed you didn’t get one for me, Toby.

Tobias: [laughs]

Jake: I’m a little hurt, actually.

Tobias: You get €10 from Investorblog. So, I’ll put that towards it.

Jake: Okay. [laughs]

Tobias: Something for Christmas.

Jake: Oh.

First Principles Investing

Thomas: I think as someone who’s more in the trenches than driving people’s portfolios, for me, things have to make sense from a first principle standpoint. Both of things you guys say, one is, you don’t invest for one particular thing. You invest to in a robust manner, which seems to me a very first principle thing to say. Now that you’re not saying it, but Jake, your story, it’s good to reminder to me. It’s not just about returns. It is about the robustness of it given you don’t know what’s going to happen tomorrow, the next week, or the next year.

Jake: Yeah.

Thomas: And the same thing with value and small. It fits in that robustness. It just makes sense to me from a first principles standpoint. We were talking about this earlier. We’re talking about whether something is a commodity or security. The first principles are clearly an interesting place to always be looking. I don’t know from a quantitative standpoint, but it’s just not plainly obvious. But to me, seemingly, an interesting place to at least start from value and small. Because there’s no machinery. There’s no bid. There’s not in general. I don’t know what you mean when you say small, where does dataset start? Is there $250 million up to a billion and that’s small cap?

Tobias: I think it’s indexed. I think it’s something like that.

Jake: Yeah.

Tobias: There’s a few potential reasons why the opportunity set has changed. And one of them is that “Sarbanes-Oxley made it much more expensive to become a listed company to the tune of a million dollars a year.” That’s meaningless for Google, or for Facebook, or something like that. But that’s a meaningful amount of the bottom line for smaller companies. And so, they either don’t go public or they wait until they’re bigger. In which case, they don’t get into that cohort that they would be the ones that are more successful. They don’t sell at that point. They just wait until we get a bigger, which is what Facebook did. Facebook waited until it was a large cap before it listed and it’s been the trend of these bigger companies, that they don’t come on until they’re huge. And so, the VCs soak up a lot of that excess return rather than the small cap investors. I don’t know. That’s been the narrative, but I don’t if– [crosstalk]

Jake: It’s a thesis. I don’t know, if it’s true.

Tobias: It seems it’s not reflected now in the data. So, the data says that the valuation dispersion is very wide. We’ve talked about this before. The valuation dispersion seems to be the thing that drives a lot of that return. I know that there’s this quantitative macro ideas. A lot of people just say, “I don’t care. I just want to look at the individual names and do the work on the individual names.” The problem is that when you’re doing that and you just keep on stubbing your toe and you’re not performing very well, sometimes, it’s because you’re not doing a very good job and you’re blaming it– [crosstalk]

Thomas: Well, maybe you like stubbing your toe. [laughs]

Tobias: Sometimes, it’s because you’re swimming against the tide and you might be just– If you just had a little bit of a better perspective on what was happening, you might not put yourself there. You might put yourself into a winning stream. And right now, that might be non-US, non-large, non-growth. It might be everything.

Jake: Yeah.

Tobias: [crosstalk] the macro guys have.

Invest In Places With The Highest Dispersion

Thomas: What are your thoughts and how do you take the kind of approach you do with–? Like David Swensen was always like, “Go to the places where there’s high dispersion.” If you want to be active, he was like, “Don’t waste your time with stuff that’s crazy efficient.

Tobias: Yeah.

Thomas: “Earn me hundred extra basis points? Forget about it.”

Tobias: Yeah.

Thomas: If you’re going to do anything active, it better be– There was other parts to it, I think, as well. But I think his point was like, “Just go to the heavy, heavy dispersion areas.”

Tobias: Well, there are two heavily dispersed areas right now as we’ve discussed. It’s smalls in the US and value, and it’s also international versus the US. There’s huge dispersion. If you look at the discount of Japan versus the US, it’s pretty massive.

Huge Opportunities In Japan

Thomas: What are your guys’ thoughts on Japan? I love Japan. I don’t have any investment there, but– [crosstalk]

Tobias: As an investment destination?

Thomas: Yeah. [crosstalk] activism.

Tobias: So much to recommend it.

Thomas: I’m following some of the stuff.

Tobias: A lot of world-class businesses.

Jake: I think it’s cheap relative to the rest of the world. I think corporate governance is heading in the right direction after decades of pretty dismal returns on equity for businessowners. That being a structural issue due to cultures, and rule of law, and how they just organize their economy. But that seems to be heading a little bit more laissez-faire direction, which hopefully unlocks some returns on equity that all of a sudden now you’ve got some pretty decent businesses that are also bought at pretty cheap prices. There’s a lot to recommend there.

Tobias: It’s politically stable. A lot of the businesses are global. So, you get big like Sony and other things like that that are– It’s amazing how big it is. It’s surprisingly big, the whole economy still.

Jake: They are really industrious people. Lot to be admired there.

Everyone’s A Momentum Chaser

Tobias: Yeah, I agree. Here’s a good question. “Is it better to look at large to mega cap stocks during big down turns and small caps during a steady to higher market environment?” From Samson. Thanks, Samson.

Jake: I don’t know. That’s too hard for me.

Thomas: In Europe, Europeans, I know people say big cap in the States are down. But Europe, I wouldn’t want to call [unintelligible [00:44:05] names, but do you know what I mean? The darlings, some of these companies are absolutely obliterated in terms of valuation. It’s just more to that international theme, where people pull back and I assume it’s like, “All right, just sell this stupid 5% allocation now to this international whatever.”

Jake: Yeah.

Thomas: I guess it makes sense.

Jake: Well, everybody’s a momentum chaser for the most part.

Thomas: Really?

Tobias: That’s been a good strategy for a decade.

Jake: Worked well.

Tobias: That’s been the strategy for a decade.

Thomas: Jake, you guys are– [crosstalk]

Jake: They are all on the beach right now. [laughs]

Tobias: Just surf that wave to the beach. That’s right.

Jake: Yeah.

Thomas: I want– I’m sorry. Go ahead.

Tobias: Oh, I was just going to say, when you look at that discount of smallest to largest, part of the problem too is that the largest include Google, Microsoft–

Jake: Yeah.

Tobias: Amazon. There are good names in there.

Jake: I think Verdad had a little more research even this week on, if you back those guys out– Or, maybe I saw it somewhere else. I apologize if I’m referencing it incorrectly.

Tobias: Give it to Verdad. They pump a lot of research.

Jake: If you back some of those biggest names out, you almost can’t see the difference, I think.

Tobias: There’s been no performance or there’s been no–? Interesting. In terms of performance or in terms of valuation?

Jake: Performance.

Tobias: Yeah. Okay, because that seems to be reflected in their weight in those indexes too.

Jake: Well, how do you get to be big? You get big and that process creates a lot of [crosstalk]

Tobias: Have a good run and have the multiple expand. Yeah.

Jake: It creates a lot of market cap.

Tobias: “Win your category as your category beats everything else and get the multiple expansion at the same time,” which is why they’ve traditionally not been the best places to be, because they tend to be stretched.

Jake: I think they started to call in him tera-caps too which I thought was a fun terminology.

Tobias: What is that? [crosstalk]

Jake: It’s bigger than mega, tera-cap.

Tobias: Oh, we’ve got to invent new terms.

Jake: [laughs]

Thomas: Speaking of how momentum everybody is, I once had an investment LP, he was like, “Oh, yeah, man, super long term. I get it. Yeah, man. Three years. Yeah, I got–.”

Jake: How about yours?

Thomas: He was like, “Yes, super long-term. I know, that’s three years, right?” He says, “So, how are we doing this month?” I was like, “Sorry, what?”

Tobias: [laughs]

Thomas: “It is the 9th of the month. We’re not doing anything. There’s no change. I’m going to go with a hunch.”

Tobias: A hunch. Yeah.

Thomas: As I realized, I was like, “Oh, geez, this is not going to work.” [laughs]

Tobias: Not going to make it.

Thomas: Yeah.

The Trouble With Net-Net Investing

Tobias: Did you ever do small cap stuff? What was your way into it through bankruptcy investing?

Thomas: I wanted to be Warren Buffett. For me, I guess like everybody– And for Buffett, for me, when I was a kid, I idolized Buffett probably an unhealthy amount. I really looked at him almost like a father figure, sort of like teaching me about life and about business. So, when I got into investing, I was like, “Graham, Buffett, don’t talk to me about any of this other crap. The books are [unintelligible [00:47:32], get out of here.”

I think when I first started investing, I said, “I’m a balance sheet value investor, because I don’t want anyone to mistake what approach I will use like. No, no, none of that.” Anyway, so, I started in that and then I realized when you look at the net-net screens, the cheapest ones were always like a $5 million company, 10 million– Little tiny companies.

Jake: And they’ve on that screen for 10 years?

Thomas: Yeah.

Tobias: It is amazing how you can run the screens.

Thomas: You’ve got 50 minutes to figure that out. [laughs]

Tobias: I’m running now the same ones I was running about a Greenback’d in 2008.

Jake: Yeah, it’s all the same guys. [laughs]

Thomas: That’s how it made. Tobias. you had Greenback’d. I remember reading your blog. I’m like, “Wait, there are other people that are into this?”

Tobias: Well, it’s a disaster. You can’t have more that [crosstalk] at any one time.

Jake: Yeah.

Thomas: Jake, you were clever enough not to put it– [crosstalk]

Jake: Oh, no. No, I wasn’t. No.

Thomas: Oh, did you? What blog did you–?

Jake: No, I guess, I didn’t write that way. I wrote more letters. They weren’t public for a long time.

Tobias: Everybody has this idea that they’re going to be like Buffett and buy their net-net, get control their net-net, and then turn it into Berkshire Hathaway. It turns out, when you buy control, the net-net, it stays in net-net. It’s tough. It’s really hard to transition out.

Thomas: [laughs]

Jake: Yeah.

Thomas: Yeah.

Jake: And the whole idea of running off into creating this excess capital that you’re going to redeploy turns into– where’d all the money going in the bank?

Tobias: Fires all the time.

Jake: Wait, I got to put in more equity?

Tobias: Yeah. The transition that Buffett made from textile maker to insurance was inspired. That’s a big jump. That would be a hard move to pull off today.

Thomas: You guys were talking about GEICO, right? I don’t know how many X’s GEICO is. 1,000x, gazillion x, trintrillion x. Let’s really unpack the fact that this– That’s why the [crosstalk]

Jake: Especially that first half that he bought, he bought that well. Second half was a little bit more expensive.

Tobias: Did he buy the first half when it was distressed, when it had transitioned away from the founders, and they were underwriting too much bad stuff?

Jake: They had a really bad stretch, and they might have gone bankrupt — [crosstalk]

Thomas: Yeah, they were really that close.

Jake: It was close.

Thomas: Was there a private placement that he did or something? It was an investment that he’s– [crosstalk]

Tobias: He had the support to do, initially.

Jake: I’m not sure. We need Adam Mead to hop in.

Thomas: Come on, [crosstalk] come on.

Tobias: Yeah. Well, Bloomstran [crosstalk]

Jake: Bloomstran would correct us right now, probably, “No dummies, this is what happened.”

Tobias: We need Bloomstran in the corner. Like the NFL, when they switch to the ref, he explains the rules to [crosstalk] understand. Just explains it.

Jake: Yeah. What do you got on this one? [laughs]

Tobias: Explain it all to us.

Jake: That’s not a catch. [laughs]

The Death Of Reorg Equities

Tobias: This is a good question. I saw this earlier. Thanks, Lotto. “Have there been any good post-reorg equities in the past 5-7 years? I haven’t seen them.  It used to be a great source of pricing inefficiency but now seems like everyone and their mother is wise to them (like spinoffs)?” Yeah, I agree with that. There used to be lots of ideas that floated around. That was the thing for a long time there, but I haven’t seen anything. I haven’t even–

Jake: Still pretty fat spread on Blizzard, isn’t it, or Activision?

Tobias: Yeah, merger. Is it really?

Jake: That’s what I heard. I haven’t looked in a little while.

Unkillable Twitter

Tobias: What about the Twitter spread to Musk?

Jake: That could be something. I don’t know.

Thomas: Twitter is such an amazing thing.

Tobias: I agree.

Thomas: What are you guys think about Twitter in general?

Tobias: I love Twitter.

Thomas: It’s amazing that they can’t monetize.

Tobias: Amazing.

Thomas: I can’t even get my DMs straight. I can’t surf DMs, like, “What the heck is going on?”

Jake: It’s rough.

Tobias: It’s such low hanging fruit.

Thomas: Right.

Tobias: I just feel Musk could make so much money out of it if he could just run it sensibly and fix those things like that. Because it’s one of those things. It’s hard to get into Twitter a little bit, because I don’t think it’s intuitive, because it’s not pictures. You’ve got to read it for one thing, so that excludes a lot of people.

Jake: I’m out.

Thomas: Reading?


Tobias: But then once you’re locked into it– It’s my newsfeed and it’s the way that I connect to all the experts in various different fields. And I use it as a marketing tool as well.

Jake: It’s often hilarious.

Thomas: Yeah.

Jake: The jokes are there and they’re there in two seconds of whatever it was that just happened.

Tobias: That’s right.

Jake: The creativity that gets– If we could even apply that to a more productive use for humanity, God, we’d be all Gods.

Tobias: It’s not unproductive though. The fact that there’s an event that can happen, and then somebody has some analysis on it, and then somebody else has a joke on it. And then four hours later, it turns up on CNN. I’m like, “Yeah, we’ve moved on already.”

Jake: We already ran that one.

Tobias: Something else is happening.

Thomas: Yeah.

Jake: But come on. [crosstalk]

Tobias: It’s got to be worth something.

Jake: Bezos eating a hamburger memed a million times. That’s not moving society forward, is it, Toby? Come on.

Thomas: [laughs]

Tobias: It’s funny though.

Thomas: Get somebody to then take out to your feed. [laughs]

Jake: All right.

Tobias: That was funny. It was good. There are a few different takes on it.

Thomas: But seriously, I find myself– You have to leave a platform to actually talk with people, because you can’t talk on the platform.

Tobias: [crosstalk] the DM.

Thomas: You can’t voice call, you can’t– The chat is terrible. There’s no voice notes. The DM is just an absolute mess. I assume for actual creators, it’s quite– You don’t really monetize with Twitter, even though it is good for marketing probably.

Tobias: Their Space was excellent. That Clubhouse– I thought Clubhouse was going to go away pretty quickly. But when Twitter brought in Space, this is a no-brainer. I know they are talking about getting rid of Spaces.

Jake: Are they really?

Thomas: What?

Tobias: Something happened.

Jake: [crosstalk] happen all the time?

Tobias: Or are they changing it to circles or something like that?

Jake: Oh, okay.

Tobias: They’re just in there desperately trying to shoot themselves in the foot all the time. I don’t get it.

Thomas: To me, again, it speaks to, I wouldn’t say, how great. But there’s definitely a lot– [crosstalk]

Tobias: It’s robust.

Jake: Yeah.

Thomas: Yeah, it’s robust.

Tobias: Like Buffett says, you can’t get– [crosstalk]

Jake: It’s a ham sandwicher?  [laughs]

Tobias: Run by Western superstars. It’s still there. It’s unkillable. I don’t know what it’s worth, though. It’s hard, because clearly, it’s undermonetized right now, right? [crosstalk] fear that monetization.

Thomas: You think things are really great or really hard to value. And that’s okay. That’s part of being really great. I don’t know. I guess that’s a silly thing to say. But you should probably pay a lot for something that’s super robust, you can’t really think of any way to kill it.

Jake: Yeah, not all greatness is cashflow.

Tobias: Yeah, you’re saying it could be great and never make money.

Jake: Yeah.

Tobias: Just like a public good.

Jake: Sure. Where the profit versus value creation falls doesn’t always necessarily accrue to the owner of those assets.

Tobias: That’s a good point.

Thomas: Yeah. No, I hear that. No, I hear that.

Tobias: They’re occupying that intersection. You got to be able to stick a tollbooth up at that intersection and charge something for it.

Jake: One would think.

Thomas: There was a great story.

Tobias: Plenty of people got that right.

You Only Need One Good Investment In Life

Thomas: Have you guys are read the story about the guy that bought a–? It was a tiny $100 or $150 million market cap company that he bought. It was the bridge that connected Detroit–

Tobias: No way.

Thomas: Do you know the story?

Tobias: [crosstalk] No.

Thomas: He literally bought one bridge. [crosstalk] It goes from Michigan into Canada. I wish I can remember the story. He bought it for a few $100 million dollars. It’s now worth $5 billion bucks. It’s literally a toll road. You know what else he does? Y’all love this. He strategically buys land along the coastline [laughs] so no one can build a bridge. Because they were talking about building a competing bridge 10 years ago.

Tobias: He’s like, “I’ve get some land I can sell you. The price of land is $5 billion.”

Jake: If I remember right, there are two bridges. There’s one public and one that’s private that goes into– [crosstalk]

Thomas: Okay. He must own the private one. [crosstalk] It’s one of the stories where I love reading about stuff like that. Because I’m a believer that you just need one good investment. I love Buffett, because he’s public and we learned a lot from him. But he could have just done GEICO and just gone home. He didn’t need to do Berkshire, he didn’t need to buy John Mansfield or whatever else he did. He didn’t do all his– [crosstalk]

Tobias: Well, I think it’s See’s. He got the See’s. And See’s has been– [crosstalk]

Thomas: Yeah. could have been some See’s.

Tobias: There’s not much you can invest. If you take the money that you get out of See’s, which is now in the billions of dollars and you just stick that into the market, like you just reinvest.

Jake: You don’t have to. You don’t do anything. Literally, just put it under your matress.

Tobias: That’s gargantuan. What did he pay for that? $27 million or something like that?

Jake: $25 million.

Tobias: $25 million.

Jake: I think $35 million with $10 million in cash, something like that.

Jake: Roll out our Buffett fact checker. [laughs]

Jake: Yeah.

Thomas: We’re the Buffett fact checker. [crosstalk]

Jake: Well, all of — [crosstalk]

Thomas: What do you think–? [crosstalk] We can’t get him?

Jake: We’re looking for metaphorical toll bridges.

Tobias: Yeah. He was just looking for the real thing. [laughs]

Jake: He’s just like, “Hey, dummies. But the actual physical toll bridge. Go straight to the finish line.”

Thomas: I’m sure there was some turmoil. It’s like what’s the guy that owns the Irving Company? That’s another one. It’s one deal, man. One deal. The Irving Company, what’s his name? He’s a famous developer. He owns basically all of Orange County. Irvine, California, was orange groves. And I’d read in a book, which is actually a great book. I don’t have it here, so I can’t remember the name of it. But there’s a great book by the Tolman guy. He was a famous real estate guy. They had bought, I think it was called the Irvine Company, which basically a huge– I think, rancher or like orange groves.

Tobias: His name wasn’t Irvine?

Thomas: Who?

Tobias: Irvine Companies?

Thomas: No. This guy’s name is– [crosstalk]

Tobias: No, I’m reading that–

Thomas: His name’s like Ron. You can google it. No, the buyer of it. The guy that owns it today is worth $50 billion or something. He did one good deal. That’s my point. All of these one-good-deal stories, because it’s somewhat true. You need to get a hold of a rocket ship and just realize, it’s a rocket ship.

Tobias: The trick is there is not selling it right. Most people buy it and then you get that runup and then before mean reverts, you’ve got to sell out of it. Trick is just to let go.

Thomas: I don’t know about that. I don’t know. Okay, maybe.

Jake: Munger has that story about the guy that in bought all the land around Stanford. John [unintelligible [00:59:03] or something like that. I’m probably not getting that right, obviously. But it was actually a funny fact. The father-in-law to Marc Andreessen, I think Andreessen married his daughter. But anyway, he just bought a bunch of orchards around basically all of Silicon Valley and just developed that. Never left that little 15-mile area and is multibillionaire from that one smart place. Munger uses it as a circle of competence. You don’t have to go too wide. You just need to make sure you stay within it.

Tobias: It does help to be buying land in California right next to Stanford.

Jake: That was a smart move.

Thomas: Yeah, but it was a long time ago,

Jake: Hewlett-Packard and yet some other stuff that was maybe already there. But it wasn’t obvious that that was going to be such a place where money from all over the world was going to come in there just like a torrent.

Tobias: There are some ghost towns around that were once boom towns.

Jake: Sure. Didn’t we do have those on a show at once? I think it was Bodie. I talked about it.

Tobias: Yeah.

Jake: Yeah.

Tobias: Good one.

Jake: Yeah.

Tobias: All right, folks, we made it.

Jake: We made it.

Tobias: Thanks, Tom.

Jake: Tom, thanks for joining us. It was fun. We appreciate you hopping in.

Tobias: Yeah, could’ve got the crypto update.

Jake: Yeah.

Thomas: Yeah, go ahead and send over your crypto and I’ll get you an NFT to you, guys.

Tobias: [laughs]

Thomas: Was not investment advice.

Jake: Yeah. Soliciting.

Tobias: All right. Thanks, folks. We’ll be same bat channel, same bat time next week.

Jake: Cheers.

Tobias: Peace.

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