VALUE: After Hours (S04 E40): The Buffett Indicator, Small Quality Value, Risk and Crashes

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

  • Bob Robotti – Growth Investing In Value Industries
  • What Is The Buffett Indicator Telling Us?
  • Small Quality Value Crushing It
  • The Big Flush Is Coming
  • Investment Lessons From – Risk: A User’s Guide
  • Are Concentrated Portfolios Good Or Bad?
  • Warren Buffett Blasé About GEICO
  • Investing In Mining Royalties
  • Tesla Is The Market
  • Elon Musk vs Jack Dorsey Face-Off
  • You Can’t Protect Yourself Even Though You Know Something’s Coming
  • What Would A Publicly Traded Twitter Be Worth?
  • When Employment Cracks Equities Run
  • Carvana Is A Bust
  • The Warren Buffett Of Crypto – Sam Bankman-Fried
  • The Housing Cycle Is The Business Cycle
  • This Is A GMO-Type Market

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 is 10:30 AM under the new non-daylight-saving-

Bill: Oh, yeah.

Tobias: -regime in California. So, we’re actually an hour late. [crosstalk]

Bill: Puerto Rico is now an hour forward from the East Coast. Arizona’s now what–? [crosstalk]

Tobias: It’s 1:30 PM– [crosstalk]

Bill: Arizona’s, what an hour? I don’t know.

Tobias: I don’t know. It’s too complicated. It’s now 4:30 AM Australian Eastern Standard time. I think it’s 6:30 AM UTC.

Bill: What’s you guys take on all this? Do you like this or should we get rid of all this?

Tobias: All right, we should get rid of it all. Just one time.

Bill: Yeah.

Jake: Time is a flat circle.

Bill: Mm. That’s deep.

Tobias: It shouldn’t matter, because everybody’s operating across different time zones and everybody’s got these Google-based clocks, everybody’s connected on the same clock. So, it should just be local time. I want to get back to normal time. I hate daylight saving.

Bill: Yeah, I think I agree. I don’t know. [crosstalk] It’s kind of nice to open or to wake up and have the Sun come up pretty quickly, but I don’t know. I like sunlight too. You can’t have it both ways.

Tobias: Let me give some shoutouts to Portugal. Two from Portugal.

Bill: I identify as a springtime person, I think.

Tobias: Townsville.

Jake: [laughs] That’s true.

Tobias: Awesome– [crosstalk] What time was it in Townsville? Was it 4:30? Brandon, Mississippi, Tesla Downville. Yeah, a little bit. Sanford, Florida, Chapel Hill. What’s happening, fellas?

Bill: South Florida. Where in South Florida?

Tobias: Abu Dhabi, Brisneyland. I’ll be back in Brisneyland.

Jake: You guys are just making things up now. These aren’t real places.

Tobias: Brisneyland.

Bill: That’s the place.

Tobias: Brisbane and Queensland.

Bill: That’s the place.

Jake: [laughs]

Tobias: Atlanta. All right.

Jake: Oh.

Tobias: Fellas– [crosstalk]

Bill: Apologies for the late of arrival. I was voting doing my civic duty.

Jake: Oh.

Tobias: You vote in person? Mate, there should be a chute when you push a button, you just stuck on a ship somewhere in the middle of a harbor.

Bill: Dude, I’m so old. I go into the bank branch.

Jake: Oh.

Bill: Yeah.

Tobias: You can vote by mail. Just get it all out of the way.

Bill: I’ll tell you what, I didn’t think it would take a long time. Then, the way– [crosstalk]

Jake: It’s all these old people in front of– [crosstalk]

Bill: No. No, no, no, it’s not that it’s the way the ballot’s written. Some of the amendments, I’m like, “What in the world are you even asking me?” It took a fair amount of brainpower. I was tired walking in there.

The Warren Buffett Of Crypto – Sam Bankman-Fried

Tobias: Before we kick everything off today, do you guys know–? So, this FTX-SPF Alameda, do you guys know anything about that at all?

Bill: I know that I have avoided everything NFT and crypto related and therefore, I don’t have to pay any attention to this.

Tobias: Because my impression was Sam Bankman-Fried, Freed, I don’t know how you say it.

Bill: Next Buffett, right?

Jake: Yeah.

Tobias: Next Buffett. Yeah, the kiss of death from the Fortune magazine title writers.

Bill: Thankfully, I don’t have to worry about that. They’ve never profiled me as that.

Tobias: They’re bailing everybody out and now they’re getting their own bailout, So, I don’t know. Anyway, that’s [crosstalk]

Jake: It’s bailout turtles all the way down.


Bill: There we go.

Jake: I do want to say thank you to the Seawolf guys for filling in for Bill and I that allowed us to go, have some fun together in St. Louis.

Bill: It’s right.

Tobias: That was fun.

Bill: Hanging out with homie-bloomie and his boys.

Jake: Yeah, some brilliant, sharp fellas there.

Bill: We had a good time.

Jake: Some good analysis. I learned a lot. It’s a worthwhile trip.

Bill: Yeah.

Tobias: Is it all omerta? You’re not allowed to say what you see or is it–?

Jake: Generalities.

Bill: I did see some of it.

Jake and Bill: Yeah.

Bill: I would say that– [crosstalk]

Tobias: What’s the time? How’s everybody feel?

Bob Robotti – Growth Investing In Value Industries

Bill: Well, I wouldn’t say that everybody’s bulled up. Here’s something that surprised me and I think I’m going to interview him soon and I’ll ask him to follow up. So, go on the record as this. Bob Robotti referred to himself as a growth investor. And I think that traditionally, when I’ve thought about his portfolio, it’s more value-based, but his argument would be on maybe trafficking in value industries, but there are industries that I see consolidation in and on the backend, there’s going to be earnings growth. I thought that was an interesting way to categorize it. Maybe I miscategorized him in my mind.

Then, there was another investor there that really only focuses on monopolies and oligopolies. He’s gone to that group, he’s never pitched something under a 20 PE. His results are incredible. But you ask them, “How long have you owned this? How long have you owned that?” He’s owned stuff 24 years. So, it’s one of those things that if you play that game, you really got to be willing to own that stuff. I think that owning something for 20 years is a whole lot easier said than done. Sometimes, I have a problem owning something for five minutes. I’ll buy it and be like, “Oh, shit. What did I do?”

Jake: Help. [laughs]

Tobias: Robotti’s changed a little bit then, because I’ve got some old Columbia– that Columbia Business School value letter that does the rounds. It’s got some of his strategies in there– [crosstalk].

Jake: Graham and Doddsville.

Tobias: Graham and Doddsville. Thank you. Yeah, I posted some of that on Acquirer’s Multiple and he was definitely a low price to book guy at one point.

Bill: Well, I think he might argue is a combo.

Jake: Well, he said this. He actually is looking for companies that are losing money and a consolidating industry, because it’s going to lead to –

Tobias: That makes sense.

Jake: -making money, eventually.

Tobias: Capital returns theory [crosstalk] cycle theory.

Jake: It’s capital returns, [crosstalk] yeah, if you dig deep enough in there. I think that’s true.

Bill: The only thing about that sometimes people say, those marathon guys, in order to make money playing that game, you’ve got to be more right than the market. The market anticipates the same. So, you’ve got to be more right. And that’s something that sometimes, I have lost my– [crosstalk]

Jake: Rode that buggy whip all the way down to zero. [laughs]

Bill: Yeah. Anyway, I like Bob.

Tobias: Yeah, that’s the problem. If you get something that mean reverts, I think that you’re paying low multiples for things. Low price to book with money losers, I think that’s almost the best game to play, but it’s hard– [crosstalk]

Jake: Energy, a couple of years ago, definitely fell into that bucket. You had long periods of losing money for a lot of companies, book value shrinking. So, it could be a little difficult to try to figure out where book value was going price to book kind of way.

Bill: You got to figure out if you want to stay on the train.

Tobias: You had two signals there. You had negative oil and you had Exxon getting pulled out of the index and being replaced with Salesforce. He could have either of those.

Jake: That’s actually pretty good idea that sentiment has shifted in a way that might have created an opportunity.

Tobias: Indeed.

Bill: Maybe.

Bill: What do you got on deck, JT?

Jake: I have a little piece that– I try not to just do book reports on the show. This is from a book called Risk from General Stanley McChrystal. So, I don’t know if you guys have read any of his stuff before.

Tobias: I haven’t, but I like the name.

Jake: [laughs] Yeah, he commanded the Special Forces group in Iraq that was pretty successful in-

Tobias: In [unintelligible [00:07:33] right now.

Jake: -battling. I would get his other book, Team of Teams. That one was, I thought, a little better than this one, if you’re actually actively purchasing. Yeah, Risk: A User’s Guide, so we’ll dig into some of the stuff here. It might be a little bit boring like a book report, but we’ll see if we can torture it into some more fun places. What do you got, BB?

Bill: I don’t know. I’m looking at Exxon. I still don’t understand how it was cheap. Anyway, I– [crosstalk]

Jake: What do you mean, dude? It was 0.6 price to book at one point.

Bill: Dude, you are talking about a company that doesn’t generate more than $15 billion in cash flow on a normalized basis. Never got below $350 billion of enterprise value. I don’t know. I like cash flow.

Tobias: It was 40% of the index at one point and then much, much smaller.

Bill: Yeah. Well, so was high growth SaaS.

Tobias: They got that windfall profits tax coming to– [laughs] Good luck in that stuff.

Jake: Yeah.

Bill: I don’t know. I can go anywhere. I said earlier that I was excited about looking at advertising revenue. I looked. I don’t like what I see. Can talk about some cable if you want. I can talk about the week that we just did. So, you pick it.

Tobias: Yeah, those are good subjects.

Jake: What do you got, TC?

Tobias: I got two. I think one is a gift from JT, the Buffett Indicator. There’s now some academic research on the Buffett Indicator, which is fun. So, I’ll talk about that. And also, GMO’s got a little paper on quality smalls. I think smalls are undervalued and they think if you’re going to play that game, you need to be in the quality smalls, because there’s a lot of money losers in there. They don’t do as well, so I can cut through all of those.

Bill: You know what? I might agree.

Tobias: Yeah. They’re not going too far. I have been there.

Bill: Has been a while.

This Is A GMO-Type Market

Tobias: Yeah, this is definitely GMO-type market.

Jake: [laughs]

Tobias: This is a world returning to normal. This is a GMO-

Jake: Reversed into the mean.

Tobias: GMO’s time to shine. Yeah, a little bit of mean reversion going on.

Bill: Yeah, I don’t know.

Jake: Bill, I want to hear more of the St. Louis trip.

Tobias: Let’s do St. Louis.

Jake: Yeah, that’s going to be the most fun. Let’s have fun.

Bill: Yeah. Look, I just think it’s group– I think that last year, Chris wrote a thread about Tesla and people laughed at Tesla.

Jake: Laughed at him or–?

Bill: Well, he described the room and that people laughed about Tesla. I think that the way he wrote the thread did not necessarily capture reality. He posted on Twitter and I think where Twitter went with it was not particularly kind to him and I can understand why.

Tobias: Unexpected from Twitter.

Jake: Yeah.

Bill: But boy, you fast forward a year and it’s interesting to– Tesla’s still not cracked, but– [crosstalk]

Jake: It’s still 50% from a year ago though. So, that’s– [crosstalk]

Tobias: But he’s not wrong.

Bill: Yeah. Well, I think a lot of the stuff that room talks about in general is the kind of things that I think are really interesting. I found it to be a pretty diverse group. You get deep value pitches. What’s the car company he loves? Stellantis, right? Stellantis was pitched. Then you get stuff like– [crosstalk]

Tobias: Only that I love, but– Yeah, it is true.

Bill: Then, you got Guidewire. Alcon was an idea. It’s all over the place. I just think there are is– [crosstalk]

Tobias: What’s the Stellantis pitch? It’s in there. I can see it sitting there. I can see it’s cheap.

Jake: Two times its earnings.

Bill: Yeah.

Tobias: Well, that’s a good pitch.

Bill: That’s it. [crosstalk] That’s basically it.

Jake: That’s it. Yeah.

Tobias: Every time it gets the– [crosstalk]

Jake: The name sucks and too– [crosstalk]

Tobias: The name does suck. When it’s the cheapest thing in my screen, I’ll buy leaps on it. That’s been my strategy and I’ve done that a few times and I always do that.

Bill: I like what the Seawolf’s guys said about options. I tend to agree.

Tobias: Yeah.

Bill: I always feel someone’s trying to rob me.

Tobias: Still voluntarily vol. Don’t buy vol but every now and again.

Jake: So voluntarily vol.


Bill: Yeah, look, what’s the market cap or enterprise value? Like $20 billion?

Tobias: Stellantis?

Bill: Foreign-listed, weird company, John Alcon is the chairman. Now, here is the issue with– [crosstalk]

Jake: Look at that earnings growth though over the last five years. It’s been bananas.

Bill: Well, see, I don’t know what’s real and what’s not, because you’ve got a merger. So, I don’t have the proforma backwards looking stuff. But other side of it is, how many people are buying cars if rates are at 7 and what do those automakers look like when operating leverage goes the other way? And if we start to get into some sort of true bust, I don’t know, you want to own an automaker?

Jake: To be fair though like I- [crosstalk]

Bill: That’s why I think it’s cheap.

Jake: -I felt that exact same way in probably 2011, let’s say, for Fiat when it had Ferrari in it still and I thought, “God, this is cheap, but we’ve got to be on the right before some kind of macro thing.” There’s no way you can be holding a metal bender into a macro– Europe’s melting down– That was what everyone thought at that time. I probably would have a lot more money had I just bought that and held it for the last decade. So, I don’t know, I think it’s really hard to layer in the macro even though it’s going to be hugely important for a company like that, right?

Bill: Yeah, I think so. I don’t know.

Tobias: I got a few interesting names– [crosstalk]

Bill: Macros theory.

Tobias: One of the things that the boys mentioned last week was RIG Transocean. Transocean’s got an absolutely– I don’t think it’s got so much debt that it’s a speculation. So, let me just say that up front. But it is in a market where it looks like inflicting the other way, it’s probably something that works. But the downside keeps me out of it. But what do you guys think? Nobody wants to touch it?

Jake: Well, no. [laughs] If you want to be levered to-

Tobias: Oil.

Jake: -oil, that’s probably a pretty high convexity way to do it.

Tobias: Yeah.

Jake: But high convexity also goes the other way too. So, like you said, zero is definitely within the cards of some of these companies. Position sizing, probably.

Bill: Yeah, I think there are some sharp people who have talked about that. Yeah, I would agree with that. I’d say, “What does the rest of your portfolio look like and how are you sizing it?”

You Can’t Protect Yourself Even Though You Know Something’s Coming

Jake: Would you agree, Bill, that I felt last year the general sentiment of that room was incredulity. Like, crazy things are happening in markets and a lot of these guys have been in the game for 30 plus years and have seen a lot of cycles. So, I think they recognized in real time how crazy some of the stuff was. What’s funny to me is that I didn’t get the sense that a lot of them were that protected by it. I feel like it was a fair amount of damage still taken in this year. So, it’s like, “Shit, everybody saw this coming and yet wasn’t able to sidestep it necessarily.”

Bill: What do you do?

Jake: I don’t know.

Bill: Howard Marks, same thing. Howard Marks’ maybe never sell make sense pretty much at the top.

Jake: Yeah.

Bill: And then also says, on the other hand, valuation matters.

Jake: [laughs]

Bill: I don’t know what you do in those environments.

Jake: I don’t know. I just find it funny to see it in the human psychology of it. Even if you know something’s coming doesn’t mean necessarily that you can do much about it.

Bill: Well, dude– [crosstalk]

Tobias: Actually, the psychology, it’s just like as a practical matter, do you want to be whipping your portfolio around guessing what the market is going to do? I think that if– [crosstalk]

Bill: Okay. Well, here’s the question. [crosstalk]

Tobias: If you’ve done it for long enough, that doesn’t work, right?

The Big Flush Is Coming

Bill: Do you think a flush is coming?

Tobias: Yeah, I do.

Bill: Jake, do you think a flush is coming?

Jake: I think it’s probably more than 50% chance, yes.

Bill: I agree. Are any of us selling– [crosstalk]

Tobias: There’s nothing need to do. No.

Bill: Are any of us selling equities to protect ourselves?

Tobias: No, absolutely not. Because the forward returns are good from here. The forward returns are good.

Bill: Maybe.

Tobias: You’re either a trader you as an investor. Well, they’re better than they were. Let’s all agree on that. [crosstalk]

Bill: No doubt.

Jake: Yeah.

Bill: They could have been pretty shitty.

Tobias: You just can’t trade every twist and turn of the market. There are traders out there, good luck to those guys, I can’t trade every twist and turn. Michael Gayed, [crosstalk] melt up. But I think that if you look at what Michael is saying, he’s saying like, “melt up through to the end of the year, we’re still in a bear market. Thereafter, then everything falls apart.” I don’t know.

Jake: I don’t know, man, Twitter is full of dudes who can’t have every turn.

Bill: Right.

Tobias: That is true.

Bill: Right.

Tobias: That is true. But to be fair, he’s quite vocal and that is a non-mainstream view that we’re going to have a melt up here. So, he could be entirely right, because I don’t know what happens to the market in the short term. I just think that we’re very, very close to being down so much that we’re getting to that point where sometimes you get those little cascades of selling where people get– FTX, I know that’s got nothing to do with anything else that’s going on, but it is one of those things that the bodies just float up in markets like this. There’s all the cross contagion and I think that that’s how you get these big flushes.

Bill: But Rivian still got a $39 billion valuation. Tesla still trades where it trades. As much as I have liked big tech over the years, one of the things that they have done over these past years is take a lot of the fixed cost from companies, and turned it into companies’ variable cost, and they brought the fixed cost onto their, I guess, balance sheet via the cloud. I don’t know. Team margins can go up for a while. I still think if the Fed didn’t try to stop the entire economy, that was a plausible outcome.

Jake: Well, hold on a second.

Bill: I don’t know what we flush to.

Jake: Stop [crosstalk] the economy.

The Housing Cycle Is The Business Cycle

Bill: I don’t know where these things– [crosstalk] Well, dude, look, the housing cycle is the business cycle. Read the paper. I think it’s mostly true. You get 8% housing rates, housing stops. Okay, cool for mortgages. You get 7% car loans after everybody’s got new cars. What happens to car sales? The layoffs are starting now in tech. Now, if I listen to myself as a [unintelligible 00:18:55], I’d say, “This fucking idiot didn’t get any of this right before. Why is he right now and it’s all priced in?” Okay, maybe. On the other hand– [crosstalk]

Jake: I think this is cheap rates bashing into the shore of reality, finally.

Bill: Yeah, maybe. I don’t know.

Jake: What’s the longer term than the last 20, 30, 40 years? What’s been a more natural rate? We’re much closer now to a natural rate of interest of history than– The anomaly was the last 20 years.

Tobias: We maybe been north because I think the long run rate is about 6%. On housing, it’s 7.3% last time I had a look.

Bill: Yeah, I don’t know. We’ll see.

Tobias: But they do have to keep on hitting those rates up until inflation gets below those rates. Otherwise, we’re– [crosstalk]

Bill: Well, or employment cracks. It is a dual mandate and employment hasn’t cracked yet.

When Employment Cracks Equities Run

Tobias: When employment cracks, that’s the starting signal for equity to start running. That’s historically– [crosstalk]

Bill: Well, it’s cracking.

Tobias: It’s not sick. It sounds sick because equity celebrates as soon as employment starts getting busted. But it’s really a timing issue that equity is very forward looking and employment tends to be– not that it’s backward looking, it’s coincident– I guess– But you can– [crosstalk]

Jake: I don’t know. Is that true, because– Let’s just think for a second about in general– Well, let me ask a thought experiment. Do you think that the average S&P 500 business has more or less operating leverage in it than 20 years ago? So, every incremental dollar of revenue that’s added to that business, is it more profitable or less profitable than its cohort from 20 years ago or 30 years–? [crosstalk]

Bill: I think if you look at margins, you have to say it’s got more operating leverage in it.

Jake: I think so too. So, let’s theoretically remove some revenue from each of these businesses overall with a slowdown and now, profits are going to be even bigger hit to them than you would have maybe historically thought based on just higher operating leverages. So, I don’t know. [crosstalk]

Bill: This is the question.

Jake: And if that’s true, it’s a very, very expensive market for a shrinking E.

Tobias: Yeah.

Bill: That’s exactly right. So, why the– [crosstalk]

Jake: Why would you rip–? [crosstalk]

Bill: That’s why I would short Paramount and Warner Brothers till the cows come home, because good luck finding linear revenues when you’re trying to make your value proposition worse in a time when consumers are getting walloped everywhere.

Carvana Is A Bust

Tobias: How does something like Carvana hold up in a in a market like that? [crosstalk]

Bill: Well, it’s almost a zero.

Tobias: Yeah. It’s almost to– [crosstalk] No, it’s down to a billion dollars in market cap.

Jake: Not great, Bob.

Tobias: I don’t know how much debt is in there, but it’s got a $300 million payment. I think they’ve got something coming up. So, they’ve got some event.

Bill: Yeah, it’s down 97%. I think that story is written. But how does something like Builders FirstSource hold up? How does something like James Hardie’s hold up? How does something like Camping World hold up? How does something like– I don’t know. How does Warner Brothers hold up? How does Paramount hold up? I know how people hold up–

Tobias: There could be a lot of squashing coming through here.

Bill: How does AT&T hold up?

Jake: A lot of debt.

Tobias: How about ATUS? A-T-U-S.

Bill: No, they don’t.

Jake: Hate us because they ATUS?

Tobias: Yeah.

Bill: Yeah. Well, they got their own problems. We’ll see. If they don’t take people under, then the stock works. But if they take you under, you’re screwed, I think. You probably win, if they take you under, but– [crosstalk]

Tobias: I don’t know. I’ve been taken under a few times in the cycle. I don’t like it. I don’t want any of them.

Bill: Well, how does energy hold up? How do you have a recession and have oil go up?

Tobias: Well, I think that’s what happens.

Jake: Real question.

Tobias: That’s how energy goes back. It gets the cold spoon through here somewhere just from the economy.

Bill: Tesla bulls might say, “Tesla’s going to hold up, because it gained share.” Okay, I’m going to argue a lot of Tesla buying is wealth effect from tech.

Jake: Did you guys read Elliott letter yet? [laughs]

Bill: Yeah. That was not uplifting.

Jake: No, that’s a little on the bearish side of things.

Bill: He has been for a while.

Jake: That’s true.

Tobias: Doesn’t mean he’s wrong.

Bill: Yeah, that’s right.

Jake: Did he say more than 40% of options trading are like 24 hours or less in expiration?

Bill: Yeah, that’s nuts.

Jake: My God, what have we done to this–? [crosstalk]

Tobias: Maybe the explanation is that you get in for a cent and somebody’s figured out that there’s a lot of move in them.

Bill: Yeah.

Jake: Yeah, but you can’t call that like– This is like Keynes’ thing of like, when you’re directing of capital by markets turns into a casino, the job’s not likely to be very well done. This is clearly– [crosstalk]

Tobias: The argument could be something like Rentec has figured out that the moves on options on the last stage justify buying a basket of them. And so, they’re in there buying every single option at one cent knowing that most of them are going to expire worthless, but there’s a right tail and it works out on average. It could be.

Bill: Maybe.

Tobias: I don’t know, I’m just speculating there. It could just be a whole lot of gamblers buying and hoping to get paid off and they don’t pay off. I don’t know.

Bill: That’s probably a lot of computers trading it too. I don’t know. I don’t know what makes up the majority of the volume, but yeah. I don’t know.

Tobias: Buffett bought Paramount.

Bill: Treasury ladders makes sense. Yeah, Buffett’s wrong on Paramount. He is.

Tobias: [chuckles]

Jake: Do we think that was Buffett?

Bill: Probably not. I don’t know. I think if you’re going to be long Paramount, because Berkshire’s long Paramount when you lose money, don’t blame them.

Jake: Yeah.

What Is The Buffett Indicator Telling Us?

Tobias: Speaking of Buffett, let me do the indicator. There’s really not much to this. The Buffett Indicator which I understood it to be total market cap to gross national product, which is all of the goods and services traded by companies that are domiciled in the US, including its national stuff and GDP is all of the trading that goes on inside the borders of the US, whether it’s owned by domestic corporations or external ones. As it happens, the distinction is almost irrelevant, because the two lines are virtually identical and have been for forever. It doesn’t matter.

This particular article or this paper, I don’t know whether it’s Master’s level or PhD. I don’t know what level of paper is, but they have said that gross domestic product rather than GNP, which is what I understood Buffett to be, but it doesn’t matter. GDP versus market value of equity MVE is quite predictive over 10 years, they get a very high R squared. The way that they do it is not cross-sectionally. So, you can’t compare one country to another country. So, you can’t say America is 158% of market cap to GDP and Germany’s 55% market cap to GDP. Therefore, Germany is cheap and America is expensive. That doesn’t work.

The way that they use it is they look at it relative to its own history. So, wherever your average is going back through the data, that’s your average. When it’s expensive relative to that average, that’s expensive. When it’s cheap relative to that average, that’s cheap. And so, it’s more predictive in CAPE. They say they couldn’t find any statistically significant support for CAPE, which I thought was pretty interesting.

Jake: We got a flag Meb on this one. Let’s see– [laughs]

Bill: No.

Tobias: I’ve seen other papers that say that CAPE works fine. Hussman in that tweet that I saw, there’s an attachment to a Hussman chart at the bottom where he shows the predictability of all of these different ratios. The one that he finds best is non-financial market capitalization versus gross profit. Oh, sorry– [crosstalk]

Bill: Okay. So, back out the banks and stuff?

Tobias: Yeah.

Bill: Okay.

Tobias: And then, he’s looking at profitability. He says that’s the most predictive at 90– It’s got a 0.91 R squared over a decade, 0.93 over 12 years. So, he uses a 12-year period. I don’t really understand why 12 is better than 10. But in all the research that I have seen, the longer you go out using CAPE, the more predictive it becomes. So, that’s probably the reason why.

The most interesting thing out of it though I thought was that there are certain countries where it’s not very predictive and I find that they’re mostly bank financed. I guess people take loans to start businesses instead of trying to raise money through equity. Bank finance nations haven’t traditionally had a very good fit for MVE to GNP, whereas countries like the States, Canada, Australia, England, there’s about 15 countries that have all got these very high R squared for those things.

So, I just thought was interesting. Buffett’s intuition on that was right and it’s probably a reasonably good metric just to bear in the back of your mind when we’re very, very expensive relative to our own long run average, you might want to be just mindful about what you’re sticking your shackles into.

Jake: Or at least temper your return expectations for the next period of time?

Tobias: Yeah, I think that’s fair.

Bill: It’s just so hard, because things have sold off so much that it’s like, “Well, is it priced in? Is it not?” This company I follow OEC, read their investor day, read their current earnings call. If the world doesn’t fall apart, it’s probably cheap. If the world falls apart, nothing’s cheap.

Jake: hmm. That’s very Yoga Bear, Yogi Berra.


Bill: Yeah, I think I’d have enough liquidity get through a couple years here. I wouldn’t want to be a force seller over the next three years.

Tobias: That’s right.

Bill: I never want to be, but you could [crosstalk] really fucked.

Tobias: You want to be getting longer here. I don’t think you can be pulling the shackles out of the fire anticipating the flush, even though I do think it’s going to happen. I’m just trying to mentally prepare for it. So, I don’t panic when it happens. Not that I can really do much damage panicking anywhere, but just for my own mental tranquility and peace.

Bill: I don’t know what happens on the backend to all this, because one of the things that I’ve said a lot is like– [crosstalk]

Tobias: Rips.

Jake: [laughs]

Bill: Yeah. Well, I don’t know what happens to housing, because look, I guess there’s some version of the world where all the Airbnb investment was malinvestment and it’s all this phantom inventory that comes on the market, I don’t actually think that’s true. I actually think that Airbnb is a very legitimate product and has given people a very legit income source. How those people are financed, whether or not they flip, whether not they can get through downturn, all that, I don’t know.

Jake: I think it’s sponsored by all the maids out there, because those cleaning fees are off the chain. [laughs]

Bill: Yeah, they are.

Jake: [crosstalk] financed by a big cleaning fee.

Tobias: [laughs]

Bill: Yeah. Well, it is unfortunate that we all can’t be subsidized by venture capital anymore. That was a nice time.

Jake: Yeah. That was fun. Uber rides for free.

Bill: Yeah, that was great. Shoutout to the VCs.

Tobias: [laughs]

Bill: They all got rich off it and left the public holding the bag.

Tobias: Teaches patience once again.

Jake: Yeah, always the last– [crosstalk]

Bill: [crosstalk] total bull shit like Robinhood.

Small Quality Value Crushing It

Tobias: The only other bit of research I’ve got just so I can get this one out there, it’s nothing that nobody would expect, I wouldn’t think, but smalls are now relatively cheap. I think they have been for a little while, but– [crosstalk]

Jake: Ain’t getting smaller. [laughs]

Tobias: Ain’t getting smaller. Smalls are getting smaller and cheaper.

Bill: I don’t know. They’ve been trading strong lately, haven’t they?

Jake: I was joking.

Bill: I mean, industrials.

Tobias: It’s the time periods that we’re talking about.

Bill: Yeah.

Tobias: I think they started the decade expensive and they’ve come back a lot. Maybe they’ve been strongish since October, or six months of this year, or something like that. I’m not sure.

Bill: Okay.

Tobias: I don’t know. The conclusions are very simple. Basically, in small, you want to be in the better-quality smalls, probably everybody already knows this but you want to be in the money-making smalls not the money-losing smalls. Money-making small have outperformed smalls by 1.8% a year going back to that 73 and small quality versus everything else that performed by 2.8% a year. That’s a big margin. Surprised to see that one. Certainly, [crosstalk]

Bill: Ian Cassel, celebrate. Shoutout to you, Ian.

Jake: [chuckles] Small in quality.

Bill: He’s always said like, “If you’re getting into small, kick out all the money losing-ones and then start there,” which I think makes sense.

Tobias: Yeah, the strategy that I’ve heard that I like is, you find the ones that are a quarter away from going profitable on a trend line and you buy them where they have a cue where they lose money than they have a cue where they make money and you make a lot of money when they make money when they first go positive. You have to know them reasonably well where to figure that out, I guess.

Jake: it sounds like a lot of work.

Bill: Yeah.


Tobias: JT, do you want to hit us with some Stanley McChrystal?

Investment Lessons From – Risk: A User’s Guide

Jake: Yes, I will. What I actually really liked about the book– So, this is Risk: A User’s Guide. And what I really liked about it is he has this idea of the risk immune system. And so, trying to use a biological analog for you to think through like how would the body respond and then how would an organization respond, and thinking about an organization as a complex adaptive system, which as you know I’m horribly biased into believing that worldview. That I thought was one of the best parts about the book.

Using the analog of your immune system, like how does your immune system work, there’s four stages or four processes that happen. First one is detect, and then assess, respond, and then learn. And so, the readiness of the body– and, TC, you’ll appreciate this from Taoist standpoint or a Sun Tzu, but readiness is less about accurately predicting specific threats and more about building resiliency for any threat. Lay some ancient knowledge on us around that.

Tobias: Yeah, that’s readiness. That’s exactly right. But both. You want to be able to work to the risk, but also, yeah, resilience over trying to pick it. But that’s also Taleb.

Jake: Yeah, true. Well, isn’t Taleb just repackaged ancient wisdom?

Bill: Oh. Uh-oh.

Tobias: All wisdom is repackaged ancient wisdom.

Jake: That’s true. That’s what I think.

Tobias: There’s nothing new under the sun.

Jake: Can we get Jake and Taleb into a Twitter fight?

Jake: [laughs] I will lose.

Bill: Yes, and then you will get– [crosstalk]

Tobias: I think you’ll win by not engaging.

Jake and Bill: That’s right.

Jake: I will build him a golden bridge of retreat.


Jake: All right. Just real quick. There’s a bunch of stories in here about different army battles, because he’s a big historian of warfare. There’s a lot of good Civil War stories. But then, he’s also somewhat interested in business. I think he was actually on the board of Deutsche Bank for a while after he was out of the army. Anyway, there’s a bunch of different stories in there, but he has some solutions that will theoretically help with all of the that four-step process. I’ll just run through these really quick just for fun.

Solution number one is doing an assumptions check. Just going through everything that you– what assumptions are you making implicitly that you might be blind to that could be messing you up? Solution number two is a risk review and this is like an initial quick premortem of what could go wrong. Solution number three is a risk alignment check, which is, think about it like an X-Y graph of probability of something happening and the consequence of what if it does happen. It’s kind of a standard insurance thing, if you think through it. Solution number four is a gap analysis. So, where would the problems arise based on our current posture and readiness, if some of these things were to happen. Solution number five is a snap assessment. A lot of times, there’s a quick immediate feedback that can happen in a rapidly developing crisis that will short circuit it and stop it from spiraling even further out of control. Solution number six is a communications check. A lot of times, the coordination within the organization, if the communications aren’t up and running and good enough, then you can’t respond effectively. Solution number seven, tabletop exercise, which is basically, theoretical exploring, playing the game risk, basically, the equivalent of that to a warfare and assigning responsibilities and accountability within that.

Solution number eight is a war game, which is more of like an actual dry run of your response to and execute against a particular risk. Solution nine, red teaming. This is like devil’s advocate, exploring weaknesses in your system before you’re actually in the fight. Solution 10 as a premortem. After you’ve gone through all this stuff, now think through about all the different ways that things can go wrong. And then, solution 11 is what they call an after-action review. It’s not quite in the military they have this thing, I guess, called like a hot wash, which is right after the battle, you sit down and do an assessment of what just happened and what can we learn from that really quickly. The after-action review is a lot deeper exploration and a careful assessment of all of these past events that happened. So, it’s a postmortem, effectively. So, that’s Stanley McChrystal’s taking military, combining it with biology and writing a book about it.

Tobias: How did he apply it at Deutsche Bank?

Jake: The biggest thing that was helpful for him was that he was an outsider. And so, he would ask a lot of stupid questions that people might have been wondering themselves. Maybe even to go back to that segment that we did a while back about that illusion of knowledge, where we think we understand something, but then when we actually have to go write it down, it’s like, “Oh, shit, maybe I don’t really get this as much as I thought.” So, having that outside perspective and willingness to ask stupid questions, I think, was very helpful in his role there.

Tobias: Was he on the board?

Jake: Yeah.

Tobias: Is he’s still on the board?

Jake: I get the sense that he’s not on the board anymore. I don’t know that for sure.

Tobias: Does Deutsche survive this?

Jake: I don’t know. I’m pretty sure the liability side of the balance sheet might be good.

Tobias: Solid. [laughs]

Jake: Yeah, I don’t know about the assets. You really have to understand the person and the team and the organization running it to get comfortable with that. I don’t know enough to make that assessment.

Tobias: That’s interesting. Do you think it’s useful for–? Does it apply outside of–?

Jake: I think it’s a lot of the general things that we’ve talked about in the investment process, premortems, red team, risk assessments of– just trying to imagine all the things that could go wrong before you get in there minding the downside. After an investment going through and doing a postmortem, see what you can learn, closed feedback loops, all that same stuff, all exists in ways that we’ve talked about previously. So, there’s probably nothing really new. I think it’s always nice to get a different application of existing ideas so that you think about them again and maybe in a little bit slightly different context, add just a little nuance to your thinking along the way. I think that’s probably where real deep knowledge comes from, is getting that initial version of it and understanding it, but the nuance doesn’t happen until you’ve thought about it in a hundred different permutations of that same idea.

Tobias: Makes sense. Do you guys want to give us some questions? Throw the questions in and we’ll take a swing at them.

Jake: Swing and miss.

Warren Buffett Blasé About GEICO

Bill: How do you feel about GEICO, Jake?

Jake: There’s definitely some things to keep an eye on. If you looked at my notes, it would say little hashtag that says monitor. Keep an eye on it. I think they’ve downplayed the, what is it, Snapshot? Telematics, basically. Like their slowness to getting the telematics, I always thought that telematics made a ton of sense. If you’re trying to underwrite risk that data feed coming in, it seems actually a pretty strong one.

If your job is to price risk correctly, and other people have that data feed and you don’t, and you’re using other, to me, slightly less first principle. They’re using your age, your previous driving history, where you live, all that stuff matters. But boy, the accelerometer in your car and if you’re hotrodding around and it shows that, well, shit, you’re probably more likely to get into accidents, makes sense to me. So, anyway, I felt like they were a little bit slow and Buffett was a little blasé about it, I felt like. I don’t know, what do you think?

Bill: I would say if I had a color where yellow is nervous and red is stop, it’d be close to orange right now.

Jake: For GEICO, specifically?

Bill: Yeah, and I’d be lying if I didn’t say that it worried me a little bit for what else is under the hood.

Tobias: It’s been a little bit of a weird time though with car prices when car prices went bananas, then inflation has gone bananas on the other side for all of the inputs.

Jake: Yeah.

Tobias: All of that stuff hurts. They had a good period too when nobody was driving through COVID. Now, there’s additional costs in this. So, I think some of the comps might be a little bit messed up.

Bill: Yeah, just progressive is much better than they are right now. It’s frustrating.

Jake: I think it’s still a pretty great business and I think it’ll be just fine. Well, I don’t want to come at the GOATs, but I do wonder a little bit like who’s the CEO of GEICO right now?

Bill: Yeah, it’s Todd, right?

Jake: Does he have anything else on his plate? Any business of that size probably benefits from having a laydown in the aisle maniac type of leadership like a Sam Walton would be doing. If you’re in a war with all these other companies, it’s helpful to have your general not also running a bunch of other stuff. [chuckles] I don’t know, I wonder a little bit. I’m sure if anybody’s capable of doing that, it’s Todd but that’s a tough bill to be a full-time investor. You have to be Lou Simpson and also a terrific operator. That’s a pretty hard tall order.

Tobias: Totally different skill sets, to be fair, because one is, you want your operators to be operators and all over it all the time. And your investors, you want them above the fray a little bit.

Jake: Yeah. I’m sure there’s things that he learns from that that help in the portfolio. I do believe Buffett’s idea of you’re a better businessman and a better investor and vice versa. But just bandwidth wise, it’s got to be tough.

Tobias: You’re a marketing guy as much as you’re an operations guy. You need to see there’s a whole lot of things you can be doing with your time.

Jake: How do you read 500 pages a day and also nurture a culture?

Bill: I think it’s a week. I don’t think it’s a day. I think it’s a week, but yes.

Tobias: 500 pages?

Bill: Yeah, I don’t think he ever said a day.

Tobias: 500 pages a week?

Bill: Yeah, a week.

Tobias: That’s like 50 pages a day. [chuckles]

Jake: Yes.

Bill: I don’t think he ever said 500 pages a day.

Jake: That’s like a book a week. I think that’s pretty doable for a lot of people.

Bill: Yeah.

Investing In Mining Royalties

Tobias: Ah, let me hit you with a couple of questions. We got some– [crosstalk]

Bill: Maybe he told it. I don’t know. Maybe he said a day. I guess he said a day.

Tobias: I thought this was a pretty interesting one. “Thoughts on royalty companies for resource exposure?” Yeah, no exposure to operations inflation [unintelligible 00:44:33] you are, but you are indirectly exposed to it, embedded to– [crosstalk]

Bill: Yeah. What do they trade at?

Tobias: Yeah. But it’s a good idea. Traditionally, they’ve outperformed. If you look– just escaping me at the moment. There’s the very long-term gold one. No, I can’t do it. And then, there’s Texas Pacific Land TPO for energy and a few others out like that. I looked at TPL, didn’t pull the trigger, regret it all the time.

Bill: Yeah, that was better when it was not a C Corp. Once he did that C Corp conversion, it ripped.

Tobias: “How do you feel about China at the moment on investing?”

Bill: TPL’s in insane valuation here. I’m sure somebody’ll be like, “But look at the ROIC.” You’re paying $19.9 billion for $400 million of cash flow. [crosstalk]

Tobias: The ROIC is irrelevant, because they can’t reinvest.

Bill: Yeah.

Tobias: They get a lease on the land. They own the land and they get royalties on the land.

Bill: Yeah. [crosstalk]

Jake: I don’t know, that’s a tough one. There’s a lot happening there that I don’t feel I have any special insight into.

Tobias: I’ve looked at the resource companies. There’s a young Australian bloke in Canada who’s running– He started a resource. It’s a listed company. It just escapes me for the moment. I looked at a few of them at the time. It’s a much better business than a mining business for the obvious reasons. They’re not heavy. They don’t have to have all the reinvestment, they don’t have all the speculation, they miss all that stuff that. Long-term charts are fantastic. You just got to get them when they are cheap.

Bill: Yeah. I’m just doing some math on TPL. So, you’re trading at 51 times cash flow and the theory was that you could buy in shares. Okay. You don’t get toi buy in that many shares when you’re trading at that multiple.

Jake: Yeah. Do you even want them buying in shares at a 2% yield?

Bill: No, I don’t think so. Somebody probably can justify why it’s going on, but you’re talking software at that multiple.

Jake: You got to have a pretty long timeline for that to feel it makes a lot of sense, right?

Bill: Yeah, or a pretty crazy inflation projection.

Tobias: Franco-Nevada. Thank you, Thomas. That was the one I was after.

Jake: There you go.

Tobias: Wheaton as well. Yeah, I get it.

Jake: [crosstalk]

Tobias: There’s Mesabi Trust. That was part of Cleveland Cliffs. They had the iron ore royalties or whatever. It can work.

Bill: China, if China really goes into recession, I don’t know what that does to commodities in general though. That’s doesn’t seem bullish to this guy, but what do I know?

Tobias: How about China as an investment destination?

Bill: Not for my money.

Tobias: More or less investable than the last time we talked about.

Bill: Never investable. That’s my answer.

Jake: [laughs] It never was.

Tobias: It’s just not.

Bill: Yeah. It can be for some people. I’m just not going to lose money there.

Tobias: It’s one of those things where if it is investable and there’s some good arguments that it might be, then you’re getting all of these incredibly good companies incredibly cheaply. Somebody is going to start a fund and hoover up all those companies and look like a genius in 10 years’ time or quietly shut it down and never talk about it again. That’s how I feel about it.

Bill: I have no idea.

Tobias: It’s completely unpredictable, but someone has predicted it one way or the other.

Bill: Yeah. Flip enough coins, someone’s bound to get a lot of heads.

Tobias: Spencer Cole. Yeah, it was. Thanks. He’s the young bloke running the royalty company in Canada.

Are Concentrated Portfolios Good Or Bad?

Jake: The hive mind knows everything.

Tobias: They do. It’s amazing. Yeah.

Jake: I don’t know why they listen to us. We just grope around– [crosstalk]

Tobias: Coordinate the hive mind. Coordinate the hive mind.

Jake: Yeah. [laughs]

Bill: We lost a listener after the last episode.

Jake: Oh.

Tobias: I offended somebody to the point he told me to find God. So, I’m sorry. Anyone that has problem with me, cut the line. I’ll tell you it didn’t feel great, but I’d probably do it again for the first time.

Jake: [laughs]

Bill: It was fun. I don’t know, he was very mad at me. It’s a shame. Now, we’re down to nine. Maybe, Charlie. Can we get Charlie the link? I think he dropped off for a minute, he churned. We got to re-get him in.

Jake: He’s there.

Tobias: I don’t really understand this question, but I’ve seen it [crosstalk] twice.

Bill: Let’s go for it.

Jake: Ask it anyway.

Tobias: So, I’m going to throw it out there. “Is there a difference between funds down 50% concentrating in stuff like Carvana, Peloton vs funds down 50% concentrating in companies like Nike, Restoration Hardware and Sherwin Williams? Concentration bad is the new mantra.” The concentration is bad at the bottom of every bust and concentration is good at the top of every bone.

Bill: Yeah, that’s right.

Tobias: I’ve gone through enough cycles now to tell you that that’s the way that it works. You get smoked by concentration on the downside and it makes you look like a genius on the upside.

Jake: I think one thing that people should probably keep in mind is that it looks very irrational for you as an outside investor that, “Why would this guy have 60% of his portfolio in speculative company X, Y, Z?” As an LP in that, it feels incredibly irrational. However, it has to do with the fact that you are playing the game in a one-turn way. That other person who’s running it, he might be playing the game where there’s multiple rounds to this game. And so, what I mean by that is that he could BK that fund and maybe go start another one in a few years. If it works out, great. He’s a genius, he’s going to have all the money in the world that he ever wanted to manage, he’s going to be incredibly wealthy. But if it doesn’t work out, okay, well–

Tobias: Let’s start again.

Jake: Shit canon. I’ll start over and I’ll take another shot at it. And so, I think you have to recognize that sometimes you’re playing different games and you have different rounds that you’re facing compared to the LP and the GP.

Tobias: There’s another side of that too.

Bill: Alternatively, somebody might have told the person that’s big in Carvana to go out and find Carvana. So, I don’t know what their mandate is, I don’t know what the discussions are behind the scenes.

Tobias: That’s the other thing. There are LPs who have 10 GPs or 10 funds and they want concentration from each one. They don’t want diversification in those funds.

Jake: Right.

Tobias: I don’t think that’s a good idea for individual investors or for people running funds together.

Jake: I think everyone just needs to be cognizant of which side of that dynamic are they on is that where they want to be.

Bill: Look, to answer the question as I think it was asked, my visceral reaction is that there’s a higher probability of the person that’s down in quality coming back from it than there is the person that is down in 10 speculative or what I perceive to be speculative stocks. However, I know enough to know I don’t know anything. So, it’s very possible that all these stocks that sold off come back and rip out of this. I’m not dancing on everybody’s grave, because I don’t know what the hell is going to happen next, just like I didn’t know what was going to happen at the top. I think the forward returns for stuff down 90 is better than it was. So, you got that going for you.

Tobias: To be fair, that’s not entirely true for all of them, because stuff that’s down 90 can go all the way down to zero. So, you can lose 100% from here.

Bill: And you lose employees. That stuff matters. Your share price does matter in people-based businesses. So, I don’t know. I don’t own it. I don’t own Nike. I’ve a hard enough time doing what I think I know.

Tobias: There are people who hold positions and just don’t sell them. They could have started out as a 3% position, 20 bags into a– Not really. But it could have been. It could have grown into a very big position.

Bill: Yeah, that’s right.

Tobias: And if you just don’t want to take the capital gains, then you just sit on it until everything else comes back and– [crosstalk]

Jake: Didn’t tell you to have any capital gains anymore.

Tobias: [laughs]

Bill: That’s right.

Jake: Problem solved.

Tobias: To be fair, that was Buffett in Coke. He knew it was up. He knew it was expensive, but he wasn’t going to sell it. He was just like, “Oh, that’s just take–” [crosstalk]

Jake: Yeah, but there’s also a return of capital that’s happening every single quarter there for him that’s not happening in a lot of these other ones.

Tobias: And he did do the big Gen Re deal, which diluted him down and that one too.

Jake: True.

Tesla Is The Market

Bill: Yeah. Well, we’ll see what Apple is. I don’t know. If I was going to short big tech, Apple would be the one I’d pick now.

Jake: What is that based on? Just the fact that it hasn’t got– [crosstalk]

Bill: It’s the last to get shot. Yeah, there’s going to be headwinds that come for that business. If I had to go long one of them, it’d be Meta.

Tobias: I’ve had this theory for a while that in one sense, Tesla is kind of is the market, because it occupies so much mind space and it’s taken a lot of investment. It’s front and center. And part of that is this people who are in the stock and in the cars love the cars and love the stock and think Musk is a genius.

Do you think that this Twitter acquisition–? And there’s definitely a sea change in sentiment towards Musk. Do you think that he risks Tesla having that premium built into it?

Bill: Not only do I think it, I asked this. When we were at a table at Berkshire, I asked this exact question. The greatest way to get people to hate you is to own a social media platform.

Jake: Yeah.

Bill: It’s proven. No one likes somebody that runs– Who likes somebody that runs a social media platform? Maybe Evan Spiegel, but– [crosstalk]

Tobias: Well, I like Tom. Tom is my friend.

Bill: Who’s Tom?

Tobias: MySpace friend.

Jake: Yeah.

Bill: Oh, there you go.

Tobias: It’s [crosstalk] best friend.

Bill: Yeah.

Jake: Wading to First Amendment battles seems like a really– [crosstalk]

Bill: Free speech shit.

Jake: Oh, no. It’s so hard.

Tobias: Also, then talking about politics today, if I had been him and I had good control of that thing, I’d have stopped talking politics immediately. But he’s been like, “Go vote Republicans.”

Jake: You know what’s crazier?

Elon Musk vs Jack Dorsey Face-Off

Bill: I’ll tell you what I’m here for. I’m here for Jack pushing back on Musk about who is or to whom is the statement accurate. This is great.

Jake: I know.

Bill: This is all the popcorn.

Jake: Just let [crosstalk] billionaires.

Tobias: What was that one? To whom is the [crosstalk] accurate?

Bill: Musk said, “Twitter needs to be the source of the most accurate information.”

Jake: Of truth.

Bill: Yeah. No, accuracy, I think. And then, Jack said, “To who,” and then somebody came in and said, “I think you mean to whom,” and Jack said, “Whatever.”

Jake: [laughs]

Tobias: Nobody knows how to use whom.

What Would A Publicly Traded Twitter Be Worth? 

Jake: It’s so funny to watch billionaires catfighting on– You know it’s really a shame though is that Twitter’s not publicly traded still to watch what the price would have done on Monday morning after this last weekend’s worth of Musk’s shenanigans would have been fun to see it play out, right?

Bill: Well, he released some stat that says that engagement is higher than it’s ever been. I don’t know if that’s a previously disclosed stat or not.

Tobias: It’s hard to know, because they said that there’d been a whole lot of people signing up. But then, I saw a third party that said there’d been a whole lot of accounts closed down. So, I had no idea.

Jake: Engagement through the roof, but revenues-

Tobias: Fewer accounts.

Jake: -through the floor.

Bill: The price would be fucked. Here’s Roku on the TV scatter market, so upfronts are what you booked, scatter is what you’re booking. Current weakness in the overall TV market and the ad scatter market in particular. Paramount, what we’re seeing is softness in the scatter market. Warner Brothers Discovery. But the reality is the scatter market is pretty dry right now. Twitter would be screwed in this environment.

Jake: Would be or is?

Bill: I mean is, but it’s private.

Jake: [laughs] Okay.

Bill: So, I think it would be trading down.

Jake: What do you think is a fair price for Twitter as a property?

Bill: Oh, dude, I don’t know.

Jake: It’s not $44 billion, right?

Bill: I’ve liked it before. So, I’m not going to sit here and pretend that I don’t see the potential, but no. In today’s market?

Jake: Yeah.

Bill: With the debt load?

Jake: Yeah.

Bill: Five-ish?

Tobias: I think it’s an interesting test, because– [crosstalk]

Jake: Got something haircut from- [crosstalk]

Bill: It could be insolvent.

Jake: -recent purchase value. [laughs]

Tobias: It’s an interesting test for Twitter, because personally, I think Twitter goes away, They’re the libertarian equivalents of Twitter and now, there’s Mastodon, and there’s some other stuff on the left, and there’s some Truth Social, and other things out there for the right wing. Everybody’s now getting into their own silo.

Jake: Is Mastodon left? is that what is?

Tobias: I don’t know, but I’ve seen some of the accounts that I follow that I’m more left suggesting people go to Mastodon.

Jake: Okay.

Tobias: I don’t really know. For me, it’s Twitter. Twitter is the one. But it’s an interesting test. So, we go through, we’re going to find out if it really can hold people, all people will leak out to these other ones.

Jake: It’s invincible then, that we have to back test?

Tobias: Well, we’re going to find out. Yeah. And then I personally don’t think it goes away. Whether Musk can hold on to it with all the debt on it, that’s a different question. But there’s one possibility where he just falls it gets– Silverlake or somebody takes it over.

Jake: Yeah, PE comes in and– [crosstalk]

Tobias: They rationalize it and then they just flip it back onto the market. That’s an interesting kind of– I probably–

Jake: Bill Gates comes in and buys it. I saw that one is a– [laughs]

Tobias: Is that possible?

Jake: I don’t know.

Tobias: Probably, Silverlake.

Bill: I think if you’re the bank, you try to let Musk do what he can do with it.

Jake: Yeah.

Bill: I don’t know who you’re going to get as a better person in control.

Jake: That’s a good point. If you owe a million dollars, you have a problem. But if owe a billion dollars, then the bank’s got a problem.

Bill: Yeah, I think that’s right. Because the other thing is, what if he leaves the platform? Now, he’s got to advertise on Tesla a lot more, but he drives a lot of engagement. So, he’s got some power in the negotiations, I think. Sorry, Toby, I didn’t mean to cut you off.

Tobias: Oh, I didn’t have anything to say, I don’t think. I can’t remember. It was fleeting. That’s time, fellas.

Jake: We did it.

Bill: Peace.

Tobias: Well done, we made it.

Bill: Good look out there.

Tobias: Thank you, everybody.

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