VALUE: After Hours (S04 E35): Predicting Growth, Dalio Steps Down, Musk v $TWTR Back On, $AMZN Retrospective

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

  • Predicting Growth
  • An Amazon Retrospective
  • Musk v Twitter Is Back On
  • Ray Dalio Finishes On A High
  • Greg Able Buys $68 Million Of Berkshire Stock
  • Earnings And Multiple Expansion
  • Now Is Not The Time To Sell
  • Finding Cheap Opportunities Today
  • Monster Returns Using A Shotgun Approach To Investing
  • Warren Buffett: Hershey Or See’s?
  • Elon Musk Unveils Optimus Robot

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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Full Transcript:

Tobias: We are live. It’s 10:30 AM on the West Coast, 1:30 PM on the East Coast. It’s Value: After Hours.

Bill: During hours.

Tobias: I’m joined as always by– [crosstalk] Yeah, it should.

Jake: Yeah, never mind that.

Tobias: Change that name, sometime. Bill Brewster and Jake Taylor, what’s happening, fellas?

Bill: It’s a vibe, man. We can’t change the name.

Tobias: I agree.

Jake: Yeah.

Tobias: I agree.

Jake: Good point. How are you doing, brothers?

Tobias: It’s an interesting market. There’s a lot of interesting stuff going on.

Bill: Yeah.

Tobias: Interesting times.

Musk v $TWTR Back On

Bill: Looks like Elon realized that when you bid $54.20 and nothing happens. Sometimes, you have to pay $54.20. So, I guess, he’s proposing to pay-

Jake: Oops.

Bill: -what he bid. I thought that that was the bid is the proposal. But I don’t know, I’m confused these days. Some told me he’s a tech genius.

Tobias: And Twitter’s going to think about it too. Twitter’s going to mull it over.

Bill: Right.

Jake: Yeah. Did you read through those text transcripts?

Bill: Some of them, yeah.

Tobias: [laughs] I did. Yeah, a few of them.

Jake: Wait, maybe some of the shine coming off of the–

Tobias: Well, I don’t want out. Text messages just getting released later.

Jake: Oh, God, see what buffoons we are.

Bill: Well, to be fair, there’s– [crosstalk]

Tobias: Just confirming it.

Bill: There’s no shine on us. Yeah.

Tobias: [laughs]

Jake: Yeah, good point. Yeah. [crosstalk] stay down here.

Bill: I think the whole thing is so interesting, because it was so obvious if you paid attention to Twitter. I can understand. People that don’t live on Twitter didn’t think it was obvious. That’s a fine take. But for the people that are on Twitter often, this is all completely in the open. And it was one of those were like the must defenders were like, “Well, don’t trust your eyes.” No, I know what happened. It’s all here. And I don’t know, It’s wild.

It’s wild how convoluted people’s arguments came like, “Well, what happens if he just doesn’t listen to the judge?” Where the fuck did that come from? That was just made up. And of course, he’s not going to say. I’m definitely going to listen to judge. You just let the public run with the narrative. But man, it’s an interesting issue and different people seeing the facts way differently. Probably, a lesson in there.

Jake: Well, I could get behind why they would think. He routinely violates the Twitter sitter agreement. It’s not that big of a stretch to imagine that he might not follow everything to a T.

Bill: I don’t know, man, you can get in contempt of court. You can actually get thrown in jail for that shit. The Delaware court system and the federal court system, when you get to the level of the appellate court, this isn’t just cute stuff that people don’t listen to. This is the law of the United States. And if we’re not going to enforce that, then the entire market deserves to rerate massively.

Jake: [laughs] That’s fair. I can understand where they’re coming from on that though, with previous behaviors.

Bill: But he had a judgment and he ended up paying it. He thumbs his nose at the SEC. I think it’s way different when you’re talking about the SEC in a potential fine and the Delaware chancery court and all of your corporate affairs being in Delaware for the most part. These are not the same.

Jake: All right, that’s a good observation.

Tobias: Well, if they really asked to complete, he’s got to complete– He’s paying that money one way or another. So, get it– [crosstalk]

Bill: Yeah. Well, then, I guess, people would be like, “Well, what if he just doesn’t pay?”

Tobias: Well, there is a process that just gets contrary.

Bill: Yeah, that’s right.

Tobias: You can resist it a long way, but ultimately, there’s only one way.

Bill: Yeah.

Tobias: Let’s just give some shoutouts. London, Santa Monica. Hoffstein’s in the house.

Jake: Hey, Hoff.

Bill: Hey, shoutout to him.

Tobias: Germany, Lincolnshire, Chapel Hill, Lima, Peru. It’s cool. Lisbon, Portugal. Reading a history of Portugal at the moment. Portuguese shipping. Nashville, what’s up? Toronto, Halifax. Awesome. That’s a good spread.

Bill: Especially since it’s only 10 people.

Jake: [laughs]

Tobias: I thought we had a dozen.

Jake: I don’t know that we’ve never got that high.

Tobias: Yeah, we didn’t get a dozen out at Future Proof.

Bill: We were going for quality, not quantity.

Tobias: That was a good crew, though. That was a high powered– [crosstalk]

Jake: Yeah. Per capita, it was off the chart.

Tobias: Yeah.

Bill: That’s right.

Tobias: We had the dudes from, all right, there’s Seawolf now, but whatever they were in The Big Short, Porter Collins. If someone has actually played you in a movie, that’s pretty legit.

Jake: That’s what’s up.

Bill: I hung out with somebody that knows them this weekend. And I don’t know, [crosstalk] I got to get those guys on a podcast. They sound like they’re really fucking fun.

Tobias: Sorry, Colm Moore. Skipped Ireland evidently. Ireland, Sweden, Leeds, and Dubai. Iceland, what’s up, fellas? Romania. Wow, this is good spread. Sorry about it. Keep going.

Bill: It’s okay.

Jake: We got a little mini Twitter teaser out of the way to start, but what else we got on tap for today?

Ray Dalio Finishes On A High

Tobias: I got a few things. Ray Dalio. Done.

Jake: Never heard of.

Bill: It turns out cash isn’t trash.

Tobias: But he’s had a banging yield. He’s up 30% for the year. He’s going to ride off into the sunset.

Jake: Okay, let’s– All right, well, we can unpack that, but I have questions. [laughs]

Tobias: Well, let’s do that. I’ve got a list of things to go, but that’s one of them. Well, what’s the question? I’ll answer it. [laughs]

Jake: How with bonds down they are and my understanding of risk parity being a lot of levered low risk on-

Tobias: How do they do it?

Jake: -how do you get up 30%?

Jake: I don’t know.

Bill: I don’t know, but I think they probably had some decent commodity exposure. I don’t know.

Jake: Okay. Well, how levered were all of these things to be able to put that together?

Tobias: They’ve got a few funds for this.

Jake: That’s the other question is, what [crosstalk] fund are we talking about?

Bill: I just know that after having some conversations with people smarter than me, I think that they are very, very disciplined to what they do. And I don’t think they deviate in a large way without having a lot of data to support the deviation. So, what I do know is that I don’t know, but I think it’s probably pretty rational.

Jake: Okay.

Tobias: I can’t comment. What about cash is trash and down 30% and how cash is back on–? [crosstalk]

Bill: That I find funny.

Tobias: That is funny, right? He says, it’s gone to neutral. He did explain a little bit. What he said was that, I guess, cash was way below the rate of inflation. So, that’s the reason for him saying cash is trash. And now, he’s saying, it’s neutral.

Jake: Really? My cash in my checking accounts yielding 9%?

Tobias: Well, there’s probably some cyclical chunk of that inflation print. There’s coming off a high– Every single chart looks exactly the same, where they’ve had this huge ramp and return to Earth. So, that must have filtered through. Everybody’s got that sugar high. All the Fed cash has been pumped into the system. Everything shot to the moon, and then run out of fuel halfway up, and is returned to Earth. I think that probably the real number is around 3%, or 4%, or 5%, wherever it is now. I don’t know. That’s what he’s saying. I’m not necessarily saying. That’s what he’s saying.

Bill: I just think it’s interesting that when cash is trash, it outperformed a lot. And I’d be much more inclined. I don’t know, you look at investment grade bonds. They’re finally yielding something. If you get any duration on that basket, I don’t think we’re going to live in a inflation environment like this for an extended period of time. I don’t know, seven to 10 years getting some investment grade return. I think it makes in my pea brain some sense.

Jake: I’d be very curious to go back and talk to people in 1972 and whether they thought that they would see inflation for the next 10 years or not.

Tobias: We’ve already seen that, right? I saw that somewhere where they showed that every year, nobody believes it was real.

Jake: It was transitory, agree?

Tobias: Yeah. Nobody believed that the entire way through until right near the end when everybody was like, “This is going to go on forever.” And of course, that was the turning point.

Bill: Yeah, look, it may. I don’t know. What the hell do I know? I haven’t called anything, right?

Tobias: [laughs]

Bill: I don’t know why anybody listens to me on anything.

Jake: [laughs] It’s okay. It’s a podcast, sir.

Greg Able Buys $68 Million Of Berkshire Stock

Tobias: I got another one here. Greg Abel, vice-chairman of Berkshire waded into the market over the weekend, bought a $68 million– He’s been paid $75 million by Berkshire over the last few years, plus he sold 1% of Berkshire Energy back to– [crosstalk]

Bill: He bought $68 million of stock?

Tobias: That’s the– [crosstalk]

Bill: Is this real news or fake news?

Tobias: No, that’s real news.

Jake: Of Berkshire?

Bill: That’s a fucking buy.

Tobias: Of Ace, Ace too. Who wants the voting shares?

Jake: [laughs]

Bill: Good for him. What a pimp.

Jake: I thought they should have just done a stock swap anyway for the BHE.

Tobias: Was it $800 or $900 million worth? $700, $800, $900, something like that?

Jake: Yeah, I think he was in that range.

Tobias: He was given the choice, right?

Jake: Oh, was he?

Tobias: That’s what I understood.

Jake: [crosstalk] cash? Come on, Buff dawg would have– I don’t know, if he has given the choice.

Tobias: You know, they’d like them to buy their stock.

Jake: What’s the difference though– [crosstalk]

Tobias: It’s pretty stinky with the stock.

Jake: If you’re going to just straight swap it.

Tobias: You got to issue new stock to–

Jake: Yeah, I get it. But if they’re doing buybacks at the same time, then that’s taking– [crosstalk]

Tobias: That might be the key, though. He doesn’t want to issue it while he’s doing the buyback. I don’t know.

Jake: Maybe.

Bill: Why?

Tobias: He’s been very consistently with that.

Bill: 2020, you issue it and then you buyback- [crosstalk]

Tobias: Yeah, that is how– [crosstalk]

Bill: -the dilution, and then you say, cash flow from operations with stock-based compensation, and then you don’t deduct the buyback from your cash flow from operations, and then you call yourself free cash flow positive. Bang.

Tobias: That’s how it works.

Jake: Whoa.

Tobias: That’s how it works.

Jake: You just nailed the– [crosstalk]

Tobias: SaaS.

Jake: You just nailed the GAAP.

Tobias: And that’s my topic for today. Actually, this is the Verdad. piece. Sorry, I don’t know which one of the guys, right? This, again, I didn’t look at that. It had a few names tagged on it. They’re looking at the predictability of growth in various different earnings measures. So, I just go through that.

Jake: Plug your ears. [laughs]

Tobias: The conclusion was pretty good. I’ll give you the conclusion, if I can pull it up quickly enough.

Jake: Don’t bury the lead.

Tobias: The conclusion was the last sentence. Sorry to– I had all– I’ll dig it up when I do it.

Jake: Well, my topic is, it might dovetail nicely with that. I love this when this happens on accident, because we don’t pre plan anything. But I was going through Amazon’s financials over the last 15 years or so and just made some interesting observations that I thought I might share with the crew.

Bill: Did you have something move below your belt when you saw AWS?

Jake: [laughs] No. This was a little bit higher level than that, but there’s some movement.

Bill: Imagine 30%-ish returns on capital growing at 30%-ish with that big of a base. What a beaut

Jake: It defies the laws of physics.

Bill: What a beaut. And it’s going to end up being the infrastructure of the internet.

Jake: It’s going to end up being a utility one day.

Bill: Yeah. [crosstalk]

Jake: Regulatories.

Bill: What do you like? You like Zoom? It runs on AWS. You like Netflix? It runs on AWS. What else do you like? Everything’s on AWS. It’s wild.

Jake: [laughs]

Bill: Fucking monster.

Jake: Ah, we’ll see.

Bill: And he was going to displace it. You got Microsoft.

Jake: They’ve never done anything. [crosstalk] I suppose those they don’t know what they’re doing.

Bill: Ah, they know what they’re doing, but I don’t know– [crosstalk]

Jake: No resources.

Tobias: Google’s out there.

Bill: It seems to me to be a different use case. If I needed something that was going in a very heavy data analytics way, I would probably lean towards Google. But I’m not sure that outside of that they have top of mind in that particular area. Sorry, Rishi. If I’m wrong, hit me up, man.

Jake: Hit us up anyway.

Bill: Yeah, that’s right.

Jake: Because we love you, Rishi.

Bill: Yeah. Well, just to say, hi. But that’s different. I don’t know what I have. I’ve been dealing with shit all morning. I’m a mess. I’m sorry.

Jake: Well, we got Twitter going. So, that was a good take.

Bill: Yeah. I don’t know. It’s very interesting, man. Sometimes, I think that I see the ball clearly and sometimes, I think I don’t see any balls at all. So, we’ll figure it all out at the end of all this. When I have no money, I’ll say, “I didn’t see any balls.”

Tobias: When you think you see it clearly, lie down. And when you don’t think you see it, well, then you’re on to something.

Bill: I guess.

Tobias: Me personally.

Bill: Twitter, I saw pretty clearly. The whistleblower was tough. And like we were saying, I think the thing that’s hard about taxable money in merger arb cases is, I’m not getting paid the carry. If the deal plays out, I thought it was, it was probably going to be short-term taxes.

Jake: Hopefully, but you need that for your IRR.

Bill: Yeah. But you’ve got to pay ordinary rates on that. And I do think that there’s a fair amount of stuff in the market that’s pretty beaten down. I don’t think the market on average is cheap. I think that there’s a lot of things that are arguably fair, but I think that there’s pockets of opportunity. So, I just– [crosstalk]

Tobias: Sounding like Burry like there. Burry’s got a couple of good tweets, where he came out and said, “It looks like 2000 to him. Market doesn’t look cheap but underlying good cash flowing assets value looks cheap.” Some undervalued stuff.

Bill: Yeah.

Jake: Said that he was feeling greedy.

Tobias: Yeah, that’s right.

Jake: Ooh, what? Say what?

Tobias: Yeah, it would even punch out three months ago.

Jake: [laughs]

Tobias: Not down that much– [crosstalk]

Bill: Things have gone annihilated. Not the index. The index is a different beast, which is why everybody should probably just invest in it and go home.

Tobias: Still [crosstalk] 20 something percent for the– [crosstalk]

Bill: And obviously, you have a value ETF sprinkled in, if only there was such a thing.

Jake: Those all died.

Bill: Yes.

Tobias: Let me kick off a little bit of–

Jake: Who’s your Verdaddy?

Predicting Growth

Tobias: Yeah, Verdaddy. I thought this was pretty good. There was a paper that came out in 2001. “The level and persistence of growth rates looking at annual growth rates across all US firms from 1951 to 1997. After carefully conducting tests on multiple measures of earnings, the authors concluded that while some firms have grown at high rates historically, they are relatively rare instances. There is no persistence in long-term earnings growth beyond chance.”

Clearly, we live in a new regime. And so, they wanted to retest. The data ended in 1997. These guys have updated from 1997 to over the last 25 years. I guess, that’s to date. “Testing whether those secular changes that we were discussing before have actually manifested. And so, they find out of sample results corroborate the original papers conclusions using the same methodologies chain we found little to no evidence of persistence in earnings growth beyond chance over the long-term.” And then, now, we’ve got to search for the great line.

Jake: What that saying then is that I think they use some coin flipping methodology for the chance. Basically, your odds of finding those super persistent growers is not great.

Tobias: There’s a little evidence for persistence in revenue, but not much more than chance. And so, this is the great line. “When building a DCF model, it seems analysts might as well plug in the same long-term growth assumptions for SaaS software company as when valuing a coal miner.

Bill: Ah.

Jake: Ah.

Bill: No way. No way. That’s idiocy.

Jake: [laughs] Well– [crosstalk]

Tobias: This is earnings growth, not necessarily return on investment.

Bill: Well, part of the problem is, there’s no fucking earnings. They could grow, [crosstalk] probably, low base pretty well. I don’t know.

Tobias: Anyway, you should read that article. I’ll give you the name of that article to give the boys a shoutout. Persistence of growth by Brian Chingono and Greg Obenshain.

Bill: Here’s the problem with that though. I don’t know that anybody– I guess, what I would want to know is, what is the period that statement starts at? Because– [crosstalk]

Tobias: 1951 to 1997. And then out of sample, 1997 to date.

Bill: Yeah, but then I need to know the slices of the lifecycle of a firm. I don’t think anybody thoughtful builds a DCF. That’s just like, “Ah, this is just–” Mauboussin, you got to have some feed rate and growth, I think, to appreciate what the base rates are. But to look at a company that’s growing– [crosstalk]

Jake: Not if you’re going to get to 2021 prices. [laughs] You better not be fading anything.

Bill: A lot of that was interest rates.

Tobias: It turns out after the fact.

Bill: It’s always been an interest rate. It still is. It will be in 20 years.

Tobias: I think it would be [crosstalk] finding the inflection in the S curve there.

Bill: Some may have. I don’t know who’s right and who’s wrong. I’m not going to dunk on people that are down [crosstalk] 4x.

Tobias: I’m not dunking. I’m not dunking.

Bill: I’m not saying that you are. No need to be defensive, dunker.

Jake: [laughs] Motherdunker.

Bill: Yeah. I don’t know.

Tobias: I think that supports every other bit of research that I’ve ever seen. Growth is too hard to predict. Anything that is a quality metric tends to be reasonably hard to predict. A future flow metric is reasonably hard to predict. That’s all.

Jake: Like Zoom, you might as well just plug in a commodity growth rate on.

Jake: GDP.

Bill: Just say, I’m never going to buy it, which is fine. It’s all on the too hard pile. Anything growing is too hard.

Tobias: I think that that’s fair. I do think that at the early stages of rapid growth, it is very, very hard to see what the future economics is going to look like. And I think that you want to wait until it’s stabilized a little bit before you try and make those predictions, because it’s a prediction business about the underlying. That’s I would agree with it.

Bill: Yeah, that’s fine.

Tobias: This is going to dovetail nicely into what JT is going to do.

Bill: Yeah, well, that I get. But to say Zoom or Fastly– Oh, well, Fastly, I don’t know. It’s a CDN. Datadog? Datadog is not going to grow like a commodity company. No fucking way.

Tobias: Well, the commodity companies may have– The cycles do cycle and they might have a good run here.

Bill: Yeah, they may. I would lay pretty decent odds against commodity growth outperforming Datadog’s growth of earnings over the next 10 years. I think that that I would fade hard.

Jake: I think one of the problems is that there’s assessing that competitively advantaged period is very difficult. Not to pick on Datadog, but how long is a Datadog, a Datadog before it becomes a toaster? Because eventually, everything becomes a toaster. And so, the time period it takes from Datadog to toaster will dictate a lot of the outcomes for you as an investor and what you paid for it. So, I think that that game is very difficult, because it requires you to know what the dynamics of the industry look like out into the future. And that seems like a really hard thing to wrap your mind around.

Bill: Yeah, I think buying cheap shit codes is really fucking difficult, because managements incentives are to screw you. So, nothing’s easy in this game.

Jake: Speaking of easy and then realizing it’s not easy that Davey day trader montage that someone put together on Twitter is pretty funny to just watch different little 10, 20 clips of him.

Tobias: I had no idea it was still going.

Jake: Over the level. I know.

Bill: I didn’t know. I did not know it was [crosstalk] either.

Tobias: I didn’t realize it was still going 2022. I was looking at those months in 2022 saying, I thought that was last year.

Jake: Missing though was the Scrabble bag, which to me was the pièce de résistance of the whole play. You missed the best clip.

Bill: I think he ended up picking a good company out of that.

Jake: Was it Raytheon came out of that?

Bill: It was like Raytheon. Yeah.

Jake: [laughs]

Tobias: Was it Raytheon?

Bill: Yeah, it was a really good company.

Jake: It was like a value pick on accident.

Bill: Yeah.

Jake: Like two weeks before Ukraine was invaded. [laughs]

Bill: If you’re long Tesla, shoutout to Samson. And you watch how Elon has done this Twitter thing. And I’ve listened to Galaxy Brain, he’s going to get advertising synergies and it’s all going into x, and this, and that. Don’t you have to wonder if this is just an impulsive overgroom baby that maybe is very, very smart also, but maybe has hit the point in his life, where having all these children and doing all these extracurricular things and being addicted to Twitter? Maybe he is having some negative impacts on his brain? And maybe Tesla traded us at a slightly lower multiple, because maybe the genius that you’re betting on is going little nuts? Is that possible?

Jake: [crosstalk] shots fired. [laughs]

Tobias: Maybe you need that stuff to come up with those ideas. Maybe you need to be like that. I don’t know, if that necessarily makes you a good operator. [crosstalk]

Elon Musk Unveils Optimus Robot

Jake: What do you guys think of the robot?

Bill: [laughs]

Tobias: From a standing start, it’s pretty impressive. But as many people pointed out, Sony had ASIMO 22 years ago that was a little bit sleeker than that. But I’m guessing they’re leaving themselves– They’ll have a few more announcements over the next few years. So, we’ll get it looking more like ASIMO. So, I’m sure they’ll catch up to ASIMO in the next few years. And then– [crosstalk]

Jake: So, they’ll be up to 1997. [crosstalk]

Bill: That’s the one– [crosstalk]

Tobias: Yeah. He’s priced them at 20 grand.

Bill: There is one robotics company and it is Boston Dynamics.

Tobias: Yeah, that’s right.

Jake: Those guys are doing backflips.

Bill: Yeah. Those are robots. This thing is some fucking side project.

Tobias: I would have also accepted the one that runs around on the floor hoovering up your– [crosstalk]

Jake: Roomba?

Tobias: Roomba. Yeah.

Jake: Yeah, that’s fair.

Tobias: Roomba, that’s a real business.

Jake: Is it hoovering up the crumbs on the floor or the data of the floorplan of your house? [laughs]

Tobias: Both.

Jake: Oh, okay.

Bill: Well, didn’t Amazon just buy it or did they buy iRobot?

Tobias: Something like that. Yeah.

Bill: Yeah.

Tobias:I think iRobot is Roomba, isn’t it?

Bill: Yeah, I guess, I don’t know. I think they bought something. I got an ED. I liked the ED a lot. It’s a Roomba, but it’s an ED. It’s half the price.

Tobias: Well, having the having the name for the category is a big deal.

Jake: Yeah.

Tobias: Having the-

Jake: Kleenex.

Tobias: – Kleenex. Yeah.

Bill: I don’t know. I agree with you. If we wanted to be smart, we’d call them cognitive reverence. But I think with the amount of reviews that you can go and shop things with, I’m just not sure that that matters it once did. Because I found the ED, I looked up the Roomba, I was like, “This is too expensive.” And then I just read a couple of consumer reviews on the interwebs. It’s this thing that came out a little while ago. I’m still trying to figure out how to use it. But you type into Google Search, it brings back reviews that people have written.

Jake: No way.

Bill: Yeah, and I found something for half the price that I’m very happy with.

Jake: I’m guessing that the profit pool for that entire category can’t be as big, if you end up with competitors that are charging half the price as the first mover. What if that applies to any of these other industries that we’ve been looking at?

Bill: Well, it may. It just may.

Tobias: To give Musk and Tesla credit, what they have done is created this cult of people who just us so heavily invested in believing it so much that they ignore any evidence. To the contrary, I’ve got a good quote from Samson. “Tesla bot is a side project like AWS was for Amazon.”

Bill: Oh, get out of here, Samson. How is his dick taste?

Jake: [laughs] Oh.

Bill: Anyway, I think– Look, Tesla’s incredible. I have always liked the way that those cars drive. They are one of a kind, in my opinion. I don’t know, if you follow Doug on YouTube. The Rivian SUV just got the highest DougScore ever. There is competition coming. Do not fool yourself. Now, do they have all the supercharging and all the infrastructure? No, I get it. I’ll tell you what, I think if I had a big Tesla position, I’d sell it happily and move on. At index, I’d rest my life without that risk.

Tobias: I’ll tell you guys, there’s a lot of Tesla’s operating where I am. What I have noticed recently is, there are a lot of Rivians and I saw my first Lucid yesterday.

Jake: Oh, really?

Bill: Yeah?

Tobias: I don’t even know how many Lucids are on the road. There’re thousands on the road right there. Dozens.

Jake: [laughs] Yeah.

Bill: There’s dozens of us. Yeah, the Rivian truck, I don’t love. The SUV looks pretty good.

Tobias: Aren’t they the same thing?

Bill: Yeah, it’s got a back.

Tobias: Okay. They’ve got that compartment where you can stick a dead body to which is very important.

Jake: Handy.

Bill: Yeah, the thing that’s nice about electric vehicles is you get the frunk. You know that front trunk.

Jake: Yeah.

Tobias: JT, you want to do yours before we slide too far off topic here?


An Amazon Retrospective

Jake: Yeah, or off the rails here. For sure. All right. This is precipitated from messing around. Just curious. Wanted to go look at Amazon’s financials, because it’s been a while since I looked. And so, let’s start with over the last 15 years. Let’s go through the order of growth rate. What’s been growing the fastest within this company? These are CAGRs over the last 15 years. All right, coming in at number six, we have book value at 22% CAGR. All right. You could say like, “Book value doesn’t really mean very much for a company like Amazon.” I’m fine with that. Number five, we have stock price at 24% CAGR. All right. Number four, we have revenue at 26%. So, that might surprise some people that actually revenue is growing faster than the stock price over the last 15 years.

Number three, EBIT actually coming in at a 27% CAGR. And so, those are the good news. Here’s number two and number one that might not be as good news. Number two, full time employees growing at 35% compound annual growth rate. That’s interesting to me, all these cap light businesses. And number one, growing at 45% CAGR for 15. years.

Tobias: SBC.

Jake: Capex.

Tobias: Capex.

Jake: Capex. A lot of money pouring into Amazon and building permanent infrastructure or at least, hopefully, relatively permanent, but growing at a much faster clip than a lot of the other variables. I thought it might be interesting to if– And granted. Okay. Extrapolation is the first tool of ignorance. You shouldn’t put anything into this. But it’s just fun mental exercise. If we use the last 15 years growth rates and used it for the next 10 years, what would that imply about Amazon as a company? Okay. So, book value, starting off at $131 billion growing at a 22% CAGR for 10 years. That gets you to $957 billion book value. So, almost a trillion dollars of book value in 10 years. All right. Revenue starting off at $470 billion growing at a 26% CAGR. That’s almost $5 trillion of revenue implied in 10 years, which is about 25% of today’s US GDP.

One of every $4 of US GDP today, it would be going through Amazon’s turnstile. That implies a relatively large business. EBIT at $112 billion starting point, 27%. CAGR. Gets you to $1.2 trillion EBIT 10 years from now, which is about 35% of today’s $3.5 billion pretax corporate profits. Full-time employees starting at $1.6 million and growing at 35% clip would give you 32 million full time employees, which is about 20% of today’s civilian labor force. Imagine 20% of the people working for Amazon. And then finally, Capex at $61 billion today, growing at 45% clip, get you to $2.5 trillion in Capex for 10 years from now, which obviously, that’s a very large number. And then finally, market cap at $1.17 trillion today. There abouts at a 24% CAGR, gets you to $10 trillion, which is about 30% of today’s S&P 500 market cap. Those are obviously some very, very large numbers that are implied, if you were to use growth rates of the past to these various metrics. Okay.

Another analysis that might be interesting to see. I took the cumulative last 15 years of results and then compare those two different things. In the last 15 years, Amazon has had $2.2 trillion of cumulative revenue that’s come in over the last 15 years. Today’s market cap at $1.17 trillion implies that it’s a 1.8 basically cumulative revenue to today’s market cap. Basically, for every dollar and 80 cents that has come into revenue or come into Amazon over the last 15 years, you’re paying $1 of market cap for that.

Let’s do a little for reference. Let’s talk about Berkshire over the last 15 years. Revenue of $2.82 trillion. Actually, Berkshires had more revenue over the last 15 years than Amazon, which might be a little bit surprising. And they’re priced based on a $600 billion dollar market cap to 15 years’ worth of revenue is it’s 4.71 times cumulative revenue to market cap. Basically, $4.71 has come into the door over the last 15 years compared for every $1 of market cap assigned today. 4.7 versus 1.8 effectively.

Now, let’s look at cash flow from operations. And cumulative last 15 years, Amazon’s at $259 billion of cumulative over last 15. And so, that gives you a price to 15-year cumulative cash flow of 4.5, whereas at Berkshire, it’s $424 billion. Almost double the amount of cash flow and obviously, on a much lower price. You end up then at a 1.4 price to 15 years total cumulative cash flow. And then total Capex actually is a little surprising last 15 years. $172 billion for Amazon and $163 billion for Berkshire. Actually, comparable revenue and Capex over the last 15 years for two companies, but pretty dramatically different prices as far as what you’re paying for that. I don’t know. I find that to be more interesting different analysis than what I’ve seen for Amazon.

Bill: It should be different. One’s an insurance conglomerate with an old man running it and the other is Amazon. I’ll tell you what’s beautiful that you missed. This is a thing of beauty. Hang on here.

Tobias: It’s got no real debt, doesn’t it?

Bill: Well, this is what I’m about to say.

Tobias: Okay.

Bill: $10 billion of debt maturing after 2052, they issued 3.95 paper maturing 2052, four and a quarter 57. 2.7 at 60. 4.1, 2062, oh, my God.

Tobias: You should get those blokes running the Treasury. [crosstalk]

Bill: Good job to the CFO. Yeah.

Jake: Now, do Berkshire’s.

Bill: Yeah. Well, they’re doing a good job too. No doubt.

Jake: Zero.

Bill: Oh, no, Berkshire has been issuing debt.

Jake: No, no, no, zero interest rate. Yen.

Bill: Oh, yeah. Yeah, the Buff dawg, he’s good financial analyst. [crosstalk] I think Amazon has done a good job at their end. If you’re going to [crosstalk] step on competition now…

Tobias: What’s the–? [crosstalk]

Bill: Use the debt markets to fund it, especially if you think rates are going up.

Tobias: What’s Amazon’s debt like? It’s basically material, right?

Bill: Oh, no, they got some debt.

Tobias: How much is it?

Bill: I don’t know. $30 billion or so.

Tobias: Oh, okay. Yes. I’m just looking at– [crosstalk]

Jake: What, market cap to– [crosstalk]

Tobias: On JT’s numbers. Yeah. On JTs numbers.

Bill: No, $142 billion. $82 billion of net debt. Sorry.

Tobias: If you project forward on that analysis that you did, you get EBIT of $1.2 trillion by that terminal date and a market cap of $10 trillion. It’s only 8x. That’s reasonably good value for something that big, I would’ve thought.

Bill: That’s why Buffett’s buying it.

Tobias: Amazon?

Bill: Yeah.

Tobias: That’s one of the boys, isn’t? Ted or Todd?

Bill: Well, it’s in the house.

Jake: [laughs]

Tobias: And that’s interesting. You could get reasonably high rates of growth for a decade, so be on modest. It’s probably pretty good value.

The Shotgun Approach To Investing

Tobias: I like that analysis that the intrinsic value– I’m blanking little bit on the name of it.

Bill: Ensemble?

Tobias: Yes. Ensemble. Thank you.

Bill: Yeah.

Tobias: I think that’s the name of the blog, right? Intrinsic Value Investing.

Bill: Yeah, Intrinsic Investing.

Tobias: They look at the subsequent price performance or market capitalization performance to work out whether you overpaid or underpaid prospectively, which is an interesting way of going about it. Obviously, you can’t do that prospectively. But you could pay a very high price for Coke and it’s still delivered ridiculous up performance for the subsequent period. And Buffett didn’t pay a very high price for it. So, it’s interesting. Maybe it’s– [crosstalk]

Jake: Yeah, if you get your hands on one of the best businesses of all time, you can probably pay a lot of–

Tobias: [laughs]

Jake: It’s just a question mark of how easy it is to identify those a priori.

Tobias: Yeah, that’s fair.

Jake: And do you have a portfolio full of them is my other question.

Tobias: Yeah, that’s right.

Bill: But Buffett would say, “You swing 20 times in your life,” right? I think that that implies, if you believe that punch card quote. And you live by it, that implies you’re not going to have them any– [crosstalk]

Tobias: It’s funny though, because I take the opposite view of that. I think that given the extreme outcomes, you’re better off having more of them. You’re better off taking, like, I was going to say, a VC type portfolio. I don’t know how concentrated VCs are. I thought it used to be 10 times 10 positions, which seems extremely concentrated to me.

Jake: Yeah. You want like 101% positions in that distribution of returns.

Tobias: That was the approach of– Ah, I’m blanking on all these names. What the–? Marc Andreessen’s– Y Combinator. Y Combinator. That’s not Andreessen’s. I’m sorry.

Jake: no.

Tobias: I got there. Y Combinator.

Jake: Paul Graham.

Tobias: Graham, yeah. Y Combinator has $100,000 tickets for $10 million in a year. I would love to see their return. They must be astronomical.

Bill: Yeah, it makes sense. Shotgun approach.

Tobias: Because some of them are going to be mistakes, but some of them if they are geared up to perform. They do have those monster returns on equity, big margins, high rates of growth. If they can sustain it, you get silly runaway returns at the end of it.

Warren Buffett: Hershey Or See’s?

Tobias: Did you know Sees Candies was public when Buffett bought it?

Bill: I did not know that.

Jake: Was it?

Tobias: I’ll dig up the tweets I saw today. And so, they paid, whatever, for the controlling interest in them. They bought out all of the minorities subsequently. But he could have bought Hershey’s at about the same time. I think I sent this through JT yesterday. Hershey’s had a market cap of $100 or $200 million at about the same time. Hershey’s today’s $45 billion company, something like that and it’s been paying dividends the whole way through.

Bill: Let’s say, you hold the stock and a young Buffett gets control of it. Are you happy or are you worried?

Jake: [laughs]

Tobias: How do we know that it’s a young Buffett? Is it someone telling us that it’s a young Buffett or is it–? [crosstalk]

Bill: No, I’m just saying.

Jake: Self-describe.

Bill: I don’t know. Let’s say Ackman gets control of it.

Tobias: Probably, not the right example.

Bill: It’d be close.

Tobias: My definition of a young Buffett is someone who– Maybe he’s changing his ways a little bit, but someone who’s just not going to– He’s focused on the downside first. He’s risk focus. I think Ackman has sometimes tended to with Target and fewer of those things. He has just tended to swing for the fences.

Bill: My point is, I’m not sure that as a minority shareholder felt like you were totally safe at all times. He used to get super pissed off if his friends bought something in front of them. I don’t know that your– [crosstalk]

Tobias: That’s in snowball. Yeah.

Bill: I think you’d better be aligned. Maybe that’s the best idea.

Tobias: Yeah. I’m guessing that there has been pretty good capital allocation there to get it to this point. But the story of Hershey is not so much that it was great at capital allocation. It was it had all of those other qualities that has high returns and equities branded. Everybody has these good feelings. You could take the Seas analysis and apply it to Hershey’s and it’s also true.

Bill: Yeah, probably a little bit. I think Sees is probably a prettier brand than Hershey’s was at the time.

Tobias: I would say that Hershey’s is more famous than See’s, though.

Jake: Oh, yeah.

Tobias: I’ve heard of Hershey’s. I’ve never heard of Seas until I’ve started reading Buffett– [crosstalk]

Bill: Yeah.

Jake: Maybe not on the West Coast. Seas probably gets tip of the cap, but Hershey outside of that– [crosstalk]

Tobias: Outside the states.

Bill: You bring your wife a Hershey’s Kiss and get love for that?

Jake: No, but you’re going to buy a Hershey candy bar every single time you go to the store and you’re not going to buy Sees every time you go to the store.

Bill: Yeah, but that’s the thing. You’re pricing your wife’s happiness in See’s. You’re not pricing a commodity chocolate.

Tobias: It’s a gift, right? See’s is [crosstalk] as a gift.

Bill: Yeah, you want to go home and [crosstalk] time on

Tobias: So, it doesn’t matter, if you have ever pay for gift.

Bill: I think it matters, but I think that you have more pricing power in it. Yeah. Because I’ve heard Charlie you say that before. Like, you get it. It’s a special box.

Jake: Pricing power, but unit volumes, I think are big differences there, because the job to be done by each one of those is so different. Like you said, one is a gift and the other one is a self-indulgence.

Bill: I don’t know, Roomba has it See’s better invest in their stores, if they want to keep that a lure.

Tobias: But that’s always been the case. There’s one near us that I go to occasionally to buy something for my wife exactly that– [crosstalk]

Jake: Get down the doghouse.


Tobias: The thing is that there’s always quite a few people– I’m always surprised, because it’s this little strip mall that it’s housed in and it’s basically this big store. It’s vastly empty and it’s all white. But it’s still full of people. And you pay when you buy them. I’m like, “This is a good business.” It’s all margin.

Bill: The lottery is French and they do– What are those little French cookies? What the hell are those?

Tobias: Oh, yeah. I know what you mean.

Bill: That place, if I could own stock in that and I was guaranteed that they wouldn’t expand units too much, that’s a hell of a business.

Tobias: Before you said that, I was just to see– if they can work out how to distribute those things, that’s a good business.

Bill: No, they need to, but I wouldn’t want them in every city. I think it’s luxury cookies, man.

Jake: Isn’t it interesting to have [crosstalk] in travel–?

Bill: You can’t have luxury cookies in Alabama.

Tobias: Well, macarons, I guess, they’re just too hard to get them to–

Jake: Probably– [crosstalk]

Tobias: Stay puffed when they travel. Yeah.

Bill: You see it a lot. I think fast food is regional in certain ways. Beers definitely regional.

Tobias: Yeah. Beer can travel. It’s funny. We’ve gone through that. When I was a kid, beer was very regional. And then it went into a macro.

Jake: What were you drinking back then?


Tobias: In Australia, XXXX beer was very regional and then it got consolidated, because everybody considered they are great businesses for leveraged buyouts. I support that recession resistant. And then they became macro brands. And then, I guess, some of that CPG flows through the beer companies as well, because they spend more on advertising, get the [unintelligible [00:43:49], all that stuff. And then, sometime over the last decade or so, people just said, “Too much macro. We went the microbreweries.” They changed one of the– There was a regulatory burden that microbreweries couldn’t get over. And so, they’ve now changed. That’s why you’ve seen the explosion in microbreweries everywhere.

Jake: It’s like distribution or something?

Tobias: I’m not sure what it was. I don’t know how they were. I don’t know what the issue was. But I just remember reading that they had changed something, which was too onerous for a microbrewery to get the license or something like that. So, the microbreweries was still big breweries not– [crosstalk]

Jake: And now, they are getting all gobbled up too that microbreweries.

Tobias: Yeah, it’s just the way of the world.

Jake: You’re either bundling or unbundling it all times.

Tobias: It’s not a bad [unintelligible 00:44:34]. Yeah, Foster’s the most un-Australian– That’s right. We export that stuff. So, we don’t drink it ourselves.

Bill: No, the commercials say you drink it. So, you drink it. Sorry.

Jake: Yeah.

Tobias: I definitely did not. [laughs]

Bill: No, you do.

Jake: It’s Australian [crosstalk] beer. Come on.

Tobias: It’s regional. Victor Bravo Victoria beer and then I don’t know what Sydneysiders drink. And then XXXX in Queensland. I guess, it’s Swan, WA, something like that.

Bill: You know what I like about Australia? I used to like paying before you eat, because then you’re not sitting around waiting for the check and the tip. Is that just what I did? Is that not a thing? [crosstalk]

Tobias: Order from the counter?

Jake: [laughs]

Bill: I was at hostels and stuff, but it was good food.

Jake: That’s called Chipotle.

Tobias: There’s a more traditional– Yeah, they bring the [unintelligible [00:45:22] to your table.

Bill: Well, I wouldn’t like that.

Tobias: I’ve got a little datapoint tweet from Econompic that I thought was interesting.

Bill: Do we have any listeners from Byron Bay? I am willing to visit your house anytime you want me too.

Tobias: I will be there.

Bill: It’s my favorite place on Earth.

Tobias: I’ll be back in Christmas. I’ll be back around Christmas. So, I’ll be visiting Byron Bay.

Bill: So badass. And then you’re going to hit up Nimbin?

Tobias: I might have to. I don’t know. We’ll see. We’ll see how it goes.

Jake: Are we going to do the show? It’s going to be three in the morning for you.

Tobias: [laughs]

Bill: It will actually be after hours.

Tobias: Maybe. It maybe.

Jake: Uh-oh.

Earnings And Multiple Expansion

Tobias: Started the day from Jake @econompic. This is from Credit Suisse. “Russell 2000 returned negative 23.5% over the last 12 months,” which– Solo Prosperity, good Twitter account–

Jake: Is that good?

Tobias: Pointed out that was my definition of a bear from last week. And this is how it broke down. It was composed of a 27.7% growth in earnings and a negative 40.9% multiple contraction. It’s a tough game-

Jake: Ouch.

Tobias: -off a low base too. That’s done.

Jake: Right.

Bill: Dude, the multiples expanded? They correctly projected the earnings growth and then they got a little ahead of themselves. And here we are.

Jake: I don’t know if they were. I don’t know if they really were that far ahead of themselves, because they were– Let me see, if I can find that.

Jake: It is a tough game, though. If I told you a priori a year ago that here’s what’s going to happen. Earnings are going to grow this much. You’re like, “I’m rich. This is all coming up.”

Tobias: [laughs] I got it right.

Jake: And then just– [crosstalk]

Bill: One year of earnings doesn’t mean– [crosstalk]

Tobias: I know. But let’s just indulge me in the intellectual exercise.

Bill: Yeah.

Jake: Everyone would have been like, “Yes, this is–” [crosstalk] Coming up Bill house.

Tobias: This is for the category. The historical earnings growth in this category is 27.44, which I think is just a little bit different from what I said. But 27 was the right handle. Price earnings under 10, 9.95. Price book, 1.47. Price sales 0.8, price cash flow 4.99, dividend yield 2.16. Those are pretty good numbers. I guess they’re much more volatile than the rest of the market. People get nervous going into recessions. Maybe that’s what’s happened.

Jake: Is it possible that that E is a little overstimulated also?

Tobias: That’s possible. Yeah, I guess, there is some sugar coming through. We’ve seen that hump in a whole lot of– I guess that it hits the little guys more than the big guys. Maybe it hits everybody, I don’t know, equally.

Bill: It’ll hit them eventually.

Jake: Stimi.

Tobias: I saw another stat yesterday that said that excess savings or whatever, I don’t know exactly how they categorize it but it was off the Richter scale through the 2020-2021 period. It’s now turned negative. But on a rolling 12-month, it’s still higher than it’s ever been. So, we’re working through it at the moment.

Bill: Yeah, well, that’s the thing. That’s what makes I think a lot of this so tough is the consumer is in very good shape. The consumer debt is pretty– It’s termed in a reasonable manner. It’s not all adjustable rate. Jobs are pretty good. We’ll see. I don’t know, good news is bad news, bad news is good news, I guess. Go into recession to get stocks up is a weird concept to me, but I guess, I get it.

Jake: That tells you that we have too much Federal intervention.

Tobias: It’s in everything.

Bill: I don’t know if that’s what it tells me. It tells me that people are way too focused on the short-term.

Tobias: It’s little bit hard.

Jake: Well, [crosstalk] going to do in the event that bad news means that they come in more. and that becomes– [crosstalk]

Tobias: It’s got hard to predict. Yeah, good news is bad news– You’re like four or five derivations deep on that one.

Jake: Yeah.

Bill: I don’t know what Ed Hyman said lately. I haven’t seen his stuff in a minute. But last I saw, he was not predicting an earnings recession. If anyone sees it, send it over. I won’t disclose who it is.

Tobias: Well, there is a prediction of an earnings recession up there, because that was the Man Group one that I delivered a few weeks ago. Man Group said, “S&P 500 last quarter for trailing 12 months was $203.” And they’ve got based on a forward projection of– I don’t know, they’re using some economic indicator looking forward. They said 190. And that’s where they get their 12 times on 190 is 2,300 and that gets you to a 2000 a lot. That was their pitch. Actually, I saw one from John Hussman today. I know you’re not allowed to quote Huss but–

Jake: [laughs]

Tobias: I thought this was interesting–

Jake: Scarlett letter?

Tobias: He says, “S&P 500 price to revenue ratio,” not forecasts, this is TTM, I’m guessing. “2000 peak, 2.36. 2020 peak, 2.42. 2022 peak, record high, 3.21. Current level, 2.28.

Jake: Oof. So, we’re back at 2,000 is what he’s saying, basically, today?

Tobias: Yeah. A little bit below, but yeah, not much. 1982 low, .33.

Jake: [laughs]

Tobias: 1990, low, .62. 2002 low, 1.15. 2009 low, .68. 2020 low, 1.6. I think that it takes more than one bust to get us to a table clearing number, because it’s– [crosstalk]

Jake: Well, so the argument against price to sales is that margins are–

Tobias: Margins are better.

Jake: -through the roof. So, you can’t really compare for like– But still, that is a little bit of a troubling data set, isn’t it?

Tobias: But that margins through the roof, that’s poshed. Let’s say, capital of a labor argument, which is reversible and it has been a mean reverting series since the beginning of time, but not over the last decade or so.

Jake: Oh, you said mean reversion.


Jake: What a bozo.

Bill: I need to know my money supply to total market cap. There’s so much fucking money out there and there’s so many people that are doing this. I don’t understand why the expectation of things get cheap. Look, they may get cheap and then the people that have been waiting, good for you. You had to sit out 15 years, now you got your shot, take it.

Jake: [laughs]

Bill: But I just think there’s so much money out there that I don’t know why people would expect for things to get egregiously cheap. But if they do, I’ll probably be crying without any money and the person that waited said, “See, I can dance on your grave.” And I will say, “Good for you.”

Now Is Not The Time To Sell

Tobias: It’s not there’s much you can do anyway. The time to sell out was, I don’t know, there’s been no good indicator to sell out.

Jake: Now, you tell us.

Tobias: It’s definitely not now. Now is the best opportunity that we’ve seen in a long time. Now’s the wrong time to be doing it. Forward returns– [crosstalk]

Bill: it could go a lot lower.

Tobias: It could, but I’m just saying that forward returns, when you get to these levels start looking pretty good.

Jake: To start getting to adequate, right? [laughs]

Tobias: Well, I guess, it depends on what part of the market you’re hunting in. If you’re looking at the market, if you look at the index, and then again, the index is made up of, like, we just discussed Amazon. But we could have said the same thing for Microsoft or Google. That’s a big part of the index. These are unusual businesses. We’ve already discussed that. It’s possibly index does all right in defiance of Cape. Probably, it’s a better bunch of businesses. It’s not like you’ve got Exxon as the number one stock in there, which is selling a commodity. Then again, Verdad says it doesn’t matter. It’s a hard game, right?

Jake: Yeah. Exxon was a pretty good business for a long time too.

Tobias: It is a good business. They are just taking prices, though. That’s the only problem. I guess Amazon’s taking prices in some sense too. Google’s probably setting their prices.

Bill: Well, the auction does, right?

Jake: Oh, yeah. They’re capturing a big chunk of the consumer surplus versus producer surplus there in their auctions for sure.

Bill: Not enough. Help them get more.

Jake: [laughs]

Bill: Same with Microsoft. Microsoft needs more money too. Jeez.

Jake: Raise the price.

Bill: That’s right. I’m still waiting to get a percentage of every transaction on the desktop.

Jake: Make all these capitalists richer.

Bill: That’s right.

Jake: [laughs]


Tobias: I wonder why Berkshire doesn’t go and buy a whole lot of Google. They’ve talked about it before. They clearly understand the economics of it. Was there a meeting a few years ago where they were talking about–? I could see how much they’re paying for clicks with Geico.

Jake: They have talked about it multiple times in the– [crosstalk]

Tobias: Yeah. What’s the reticence there do you think? Not cheap enough? It’s pretty cheapish.

Jake: I don’t know.

Bill: Yeah, it probably isn’t cheap enough for the Buff dawg.

Tobias: What do you think, JT?

Jake: I don’t know. I think it’s some combination of cheapness and size that makes them question. They’ve been wrong and admitted they were wrong. And I think we’ve all or at least I’ve admitted I was wrong. So, I don’t know. I don’t know the real answer. Sucking your thumb, right?

Bill: The first thing you almost said would be tough.

Jake: [laughs]

Bill: Yeah, I don’t know.

Finding Cheap Opportunities Today

Tobias: I feel reasonably positive about the returns for, I don’t say value, but for things that you can do evaluation on. Let me say that. We’re ignoring whether it’s valuable growth here, but it’s fundamental. It’s actually generating some earnings throwing off some cash flow. I do think those things that they’re cheapish at the moment, although pretty good value to me. It does depend a little bit on where interest rates get too, but there’s a fair bit of headroom for some of those cheap ones.

Jake: Is it to play devil’s advocate? Is it possible that there’s some anchoring to the last few years of extreme prices that–?

Tobias: Teasing. Well, not so much the prices, but the E. [crosstalk]

Jake: Valuations, I mean.

Tobias: Teasing out the E is the difficult– Yeah, that’s probably fair. It’s cheap related to where it has been for a while. From October 9th, 2020, when I was talking about something, I look at these values. My valuations are lower now than they were at that point and all of the other metrics are roughly the same.

Jake: Okay. Based on October of 2020?

Tobias: Yeah.

Jake: So, two years ago?

Tobias: Yeah.

Jake: Well, that’s good news.

Tobias: And I thought that was when I was saying, I thought value was a big long at that point, because I thought it was unusually cheap. Yeah, I don’t know.

Jake: [laughs]

Tobias: I can’t get a run on it. You get six months and then-

Jake: It falls over?

Tobias: -falls apart. Even though I think the underlying is performing Jack @econompic illustrates like the underlying, it is doing pretty well. You got the multiple in your face all the time, the contraction you face. Tobacco, energy, that’s right.

Jake: Raising rates will do that to multiples.

Tobias: Also, true. I think the bigger the bigger issue when you’re doing the analysis is looking at trying to tease out that value, sorry, trying to tease out that sugar rush from or that stimuli that came through. All of those charts look exactly the same. Every single chart looks like a moon shot with a failed exit from gravity and now, return to gravity.

Jake: Yeah.

Tobias: Who knows where the bottom of that is. It showed up in the earnings and it showed up in the multiples. And the multiples contract first and maybe the earnings are still returning to Earth. They got the multiple right for where the earning’s going to level out. So, that’s why it looks cheap and it’s not. But I still think the opportunities pretty good. I think that everything points to better opportunities now that we’ve seen for a long time. A few years, at least.

Jake: Yeah, that’s good.

Bill: David Rosenberg says, no.

Jake: [laughs] Okay. He said no for– [crosstalk]

Bill: Nouriel Roubini also doesn’t like it.

Tobias: I would like to be the lone ball, where everybody else is bearish. That would be fun. I hate being on the bearish side and having everybody else being bullish. It’s much more fun being optimistic when everybody else is upset, which is why the stock market goes down.

Jake: We’ll get there. I think will be a good counterbalance at some point. I think we did a good job- [crosstalk]

Bill: We came bottom– [crosstalk]

Jake: -in March of ’20. I think I went back and watched it. We were pretty positive and constructive.

Tobias: Oh, that’s good.

Tobias: I was tweeting about Berkshire at that time. I had a few people telling me that the– Well, I had a few people telling me that the book value wasn’t where you posted the book value, because the underlying had also formed. But even with that, it was as cheap as it’s ever been on a price to book value basis. I thought that was about as easy as you get.

Jake: Yeah, that felt like a pretty safe, obvious thing to do, huh?

Tobias: It’s cheapish now too, even though it hasn’t come back. It’s not as cheap as it was then it’s still cheap. I think it was 1.3 or 1.4 times Book, which is not far– [crosstalk]

Jake: Yeah, it might be lower than that right now. Well, it’s hard to tell. You’ve got to mark down the securities portfolio to something.

Tobias: Yeah.

Jake: So, book value is moving on. But they might– [crosstalk] Yeah, right. But it’s possible that they’re internally that they’ve been crushing enough to where some of that marketable security gyrations.

Tobias: Fellas, we made it.

Jake: We made it. I think insurance has been doing well. I think the railroad’s doing pretty well.

Tobias: Yeah.

Jake: I imagine BHE’s doing just fine.

Tobias: Mid-American.

Jake: Yeah.

Tobias: All right, fellas, thanks so much everybody.

Jake: Cheers, everyone.

Tobias: We’ll be back. Same bat channel.

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