In their latest episode of the VALUE: After Hours Podcast, Bill Brewster, Jake Taylor, and Tobias Carlisle discuss:
- 10-3 Steepest Ever
- GMO: Deep Value Really Undervalued
- Invisible Present
- The Genius Of Warren Buffett
- Every Generation Thinks Their ‘Latest Tech’ Will Last Forever
- Macro Investors Get Famous By Being Right Once In A Row
- $HD Home Depot Pivoted Within Its Business Model
- Acquisitions: Don’t Buy The Assets, Just Buy The Stock
- Counting Butterflies
- Meeting Li Lu
- Match Group Sues Google Over Monolopy Power
- HOPE: Housing, Orders, Profits, Employment
- Consumers More Value Conscious Than They’ve Ever Been
- Companies Pulling Back On Working From Home
You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:
Tobias: This meeting is being livestreamed. What’s up, folks? It is Tuesday. It’s Value: After Hours.
Jake: Is it? [chuckles]
Tobias: It doesn’t make any sense. Don’t worry about it. Just let it wash over you.
Tobias: Joined as always by Jake Taylor and as a special guest today, we have Alex Morris, The Science of Hitting. How are you, Alex? Welcome to the show.
Alex: Good. One of the ten. Happy to be on. It’s really nine listeners now, unless Bill’s listening, I guess.
Jake: He’s not.
Alex: Okay, we’re down to nine. Sorry to hurt the numbers.
Jake: Good to see you, Alex. Glad you could make it.
Alex: Yeah, I was putting some Journalytic notes in this morning.
Alex: So, we’ll see how those pan out in a couple years.
Jake: [laughs] What are the odds that they’re going to be embarrassing? That’s always a good question. [laughs]
Alex: Pretty good, pretty good.[laughter]
Jake: Strong to quite strong?
Alex: I have a notebook that I kept for a while and one of my journal entries that I remember was Microsoft, which thankfully, I still own today, but I remember I wrote, it’s at $25 fair value’s $32. I was very confident for the fair value is $32. I don’t remember why or how I got there. But thankfully, I didn’t listen to that in hindsight.[laughter]
Jake: Oh, what was that like 5x ago?
Alex: It was a while ago. Yeah. [laughs]
Tobias: Let me do some shoutouts.
Jake: Yeah, Toby, where are they coming from?
Tobias: Townsville’s strong in the house today. Craig and Deano in Townsville, what’s up, fellas? Arkansas, Seattle, Jamaica, Milwaukee, St. Louis, Madison, Concord. Norberg, Poland. Stirling, Scotland. How about that? My brother’s middle name is Stirling.
Tobias: Auckland, The Azores. This is a great, great, great spread. How’s everybody doing?
Tobias: Let us know.
Jake: Yeah. Oh, that was rhetorical for the audience? [laughs]
Tobias: That’s rhetorical. Yeah.
Tobias: How was the reaction to the Journalytic launch last week?
Tobias: Strong, quite strong?
Jake: Quite strong. Yeah, I was pleasantly surprised. Lots of people creating accounts and getting in there and doing some real work. And lots of good feedback, which is exactly what we need right now. So, it’s been fantastic. Been very thankful for everyone’s energy in participation and sharing it. Yeah, I think we might be building a pretty solid community here as well. So, there might be a lot more features coming that would allow some more interaction.
Tobias: I’ve been using it for a week. My performance hasn’t improved at all, JT.
Tobias: Well, just stop then right now.
Tobias: I think I’m down.
Tobias: I’m down over the week. Give up. I got a few topics this week.
10-3 Steepest Ever
Tobias: This is not a whole topic, but the 10:3, the Treasury, the 10:3, either yesterday or Friday was the most inverted it’s been in the data going back to 1982. I get that that’s a short period of time. I don’t know if steepness in the inversion means anything. I don’t know if it’s relevant or not. I just bring this up, because it has been a pretty good predictor of recessions in the past. If you go into a recession, you get a much bigger drawdown in the market. I don’t actually do anything about that trading wise. I just watch it just because it’s like slowing down on the freeway knowing that there’s a big accident further up ahead. I’m not going to do anything, I’m not changing anything. I just know that it’s coming. Anyway, it makes me a little bit nervous, some good buying opportunities when it rolls around.
Alex: I looked at it after you talked about it last week. The only conclusion I came to is that I was very confused by what I was even looking at. I don’t understand most of this stuff very well, but it certainly was confusing/little bit scary to me to see what I was looking at. [chuckles]
Tobias: I don’t know what it does. [crosstalk]
Jake: Is it hard to imagine though, Toby, that there’s–?
Tobias: More slowdown coming?
Jake: Well, is this the most telegraphed recession and market crash in history, if it was to show up? Almost by definition, since everyone knows it’s coming, does that mean it can’t come?
Tobias: The thing is the market’s not off that much. The S&P 500 is only off 12%, 15% since the start of the year.
Jake: That’s fair.
Tobias: Given what’s happened over the last few years with that bubble runup and then on some measures, the most expensive market we’ve ever seen. People can debate the efficacy of Cape, or Tobin’s Q, or those other things. But they do seem to be very, very stretched and they have spent a long period in history below the mean. These things run back more than a hundred years. Maybe we’ve entered a brave new world where margins are more easily managed and capitalism doesn’t compete as ferociously, but it doesn’t feel like that to me.
So, at some stage, margins compress. PEs start looking a little bit stretched, because the earnings are down. Even though the market’s down, it still looks expensive. Maybe there are better opportunities elsewhere. I don’t know how it works. I get that sentiment view too. I don’t talk to anybody who’s not– The average person who I talk to is just like, “Yeah, there’s a big crash coming.” So, that’s not like that’s new news.
Jake: Yes, that’s a real– very [crosstalk] there.
Tobias: It’s not helpful. It’s not helpful at all. There’s not like you can use, there’s a big crash coming to do anything. It shouldn’t change your behavior. The only reason I do it is because I just want to be mentally prepared when it happens. I will get my buy list ready. I know what I’m going to do. And so, when it happens, you don’t get the adrenaline pumping. You’re just going through the plan that you have to buy stuff knowing that– You probably buy something and sell it cheaper, because there’s something that’s better value down there and don’t worry about it, just keep on going through. The worst thing you can do is panic at the bottom and pull all your money out, which is a sin lots and lots of people do it. So, I’m just trying to get my head right before we have a car accident, know what I’m going to do.
Jake: That’s a very good idea, like have your man overboard plan ready to go.
Tobias: Yeah, that’s Mauboussin.
Jake: Don’t wait until you’re in the heat of the moment.
Alex: Yeah, one of the things I struggle with this particular time period is completely understanding that comment and having some sense of normalized economics that might come in if macro is tough. Knowing what normalized is for a lot of the businesses I’m looking at has just become so-
Alex: -tough in the past two to three years. For a lot of names or industries that I definitely wouldn’t have predicted at the start of COVID having major headwinds, tailwinds at different times, in some cases, I can’t even explain it today, basically. So, that makes life a little difficult. [chuckles]
Jake: Yeah. COVID feels like we all have to knock 10% off of our circle of competence across the board, basically.
Jake: Just understanding, being able to predict what industry competitive dynamics look like, I think you got to be really take some of that in in your competence and just recognize that like, “Boy, this is tough right now.”
Tobias: It’s tough to tease out the secure and the cyclical. It’s always tough to tease out the secular and the cyclical, but particularly this time, to what extent will work from home persist and then what knock-on effect does that have for commercial real estate? Very, very high in commercial real estate. And then within that, there’s also a business cycle going on. It’s very, very hard. I don’t know that anybody can figure that out, but it’ll cost you in one way or the other.
Companies Pulling Back On Working From Home
Alex: On that topic, it’s funny. It seems like most companies have from what I’ve seen pulled back a bit on the idea of, “Hey, you can work remote full time forever. That will be your job.” Outside of Airbnb, which is a company that continues to say, “We think this is a competitive advantage for us to be able to hire anybody anywhere and give them significant amount of flexibility.” Maybe there’s other companies doing it obviously but I’ll be curious to see how that kind of experiment plays out for them over 5, 10 years.
Tobias: Do you think that’s because of the nature of their business that they have to be seen to be doing them?
Alex: The CEO, definitely, he’s lived on Airbnb at various times. I think he might be doing it now even. So, it certainly plays into his idea of what’s possible, but obviously, different levels of the organization have different roles and responsibilities that may require being there in person. So, I’d just be curious if it’s actually applicable on a much broader way than the CEO.
Jake: [crosstalk] This is like, if you’re an office REIT managing one of those, do you [laughs] just have to come back into the office? We’re all remote. We’re all remote.[laughter]
Tobias: Yeah, I wonder if something like Microsoft, Google– because I don’t know if you guys remember but before COVID, Yahoo was working remotely. Yahoo was doing a lot of remote work. When Marissa Mayer came in, she said, “No, I don’t know, we’re stopping that. You guys are not doing any work. You’re all back in the office.” Nothing saved Yahoo. Obviously, that wasn’t a problem, but it’s funny that they were trialing it, couldn’t get it work for Yahoo. If it doesn’t work for Yahoo, I don’t know who it works for.
Jake: It’s a brave new world.
Tobias: I’ve got the GMO paper. We don’t have to do that now, but GMO came out with a recent bit. I should get the title because it was good.
Jake: I’ve got a topic called the Invisible Present and also, a fun story from last week when I was up in Seattle. So, we’ve got a full lineup today.
Alex: 10:3 inversion, do you guys still do the earnings anymore? Haven’t heard Bill talked about the earnings for– Are we going backwards? How does that work?
Jake: You are Bill today. So, you have to be the one who tells us what inning we’re in.
Jake: [chuckles] Oh, boy. World Cup edition, we’re in extra time. We’re running out of time. [laughs] We’re almost at [unintelligible 00:10:16]. We’re getting close.
Tobias: It’s funny, because the 10:3– I saw somebody– like the average period of time, the 10:3 inversion, once you’ve got 10 consecutive days, I guess, they’re business days, so two weeks, then there hasn’t been a period of time where a recession hasn’t followed over the last 50 years. But there’s only eight instances where the 10:3 is inverted followed by a recession. So, it’s not statistically significant, but it’s an interesting kind of fact that– The thing that we were talking last week was a little bit about whether it was not predicting so much as it was illustrating that there was a problem. It was an expectation of deflation because it did exist.
Evidently in the 1800s, the paper that I tweeted out showed that inversion was the ordinary course. It was ordinarily inverted. It was a backwardation, contango. Normal backwardation. I’ve got that the other way. I don’t know. The inversion is unusual today, but it was not unusual at all. The reason was, well, the interpretation in that paper was that they had a lot of deflation. So, perhaps, it indicates deflation or predicts deflation. I don’t know. But it’s inverted right now. The average period of time from inversion to the recession is 10 months. So, that would be like August, September next year.
Jake: This is Treasuries that we’re looking at for this?
Tobias: Three-month Treasury and the 10-year Treasury.
Jake: Is there any sense as to how clean or dirty market signals are today with intervention? Is there a finger on the scale?
Tobias: Yeah, that’s interesting. I don’t know, but there’s always been a finger on that scale, right?
Jake: I guess.
Tobias: Was this 1913?
Jake: Is that true?[laughter]
Tobias: They’ve always participated in that market, haven’t they?
Jake: [crosstalk] I would imagine. Yeah.
Consumers More Value Conscious Than They’ve Ever Been
Alex: I think the commentary from some of the retailers has been interesting in terms of just general sentiment of consumers. DG and Walmart on one end are more brochures and anything else and skew a little bit lower end. Basically, the commentary is food and beverage is driving all the sales as inflation and price increases, basically. There’s not really volume growth there. It’s just pricing and that’s offsetting general merchandise to the extent that that exists.
On the other end of the spectrum, Costco comments yesterday from the CEO saying, high end TVs, stuff like that. I think his comment was, “The consumer today is more value conscious than they’ve ever been before.” So, interesting comment, obviously, at two different ends of the spectrum in terms of income levels.
Jake: Ever been? Oh, that’s actually a pretty bold statement.
Alex: That’s what he said. Yeah.
Tobias: It feels like there’s a lot of unprecedented stuff in the data over the last few years just because that runup and then the run back down has made it so hard to predict. So, everybody’s overboard or bought in too much inventory and they had to get rid of inventory. Now, the shipping is coming back to normal.
Tobias: Remember, we were talking about that on this podcast. Do you remember, JT, when they said they would clear that backlog that was off Los Angeles? Did they say it was end of 2022, because they’ve got that right, if that was the case, mid-2022?
Jake: I thought it was projected to go out even farther than that back then, but I don’t know.
Tobias: [crosstalk] pretty well there.
Jake: Probably should have written that down somewhere. [laughs]
Tobias: It was recorded in a podcast. There’s a transcript somewhere.
Jake: Yeah, that’s amazing to clean that up. It had to have been not the easiest thing in the world to figure out logistically.
Tobias: Yes, you just keep on working on it. The interesting thing about the recessions and stock market performance, often the declaration of a recession is the bottom for the stock market.
Jake: Because it’s backward looking and already, the cat’s out of the bag.
Tobias: The recession call is backward looking, but the stock market is forward looking. The sequence of economic data is H-O-P-E. So, it starts with housing. There’s O and P, whatever that stands for, [crosstalk] goes last. I haven’t bothered looking it up yet. There’s a few– [crosstalk]
Jake: I love the fact this is like the fifth time we’ve talked about that acronym and you still haven’t bothered to go look and see what the O and P are. [laughs]
Tobias: Because you only need to worry about two of them. You don’t need to worry about the H and the H is clearly rolling over pretty hard at the moment. The E is employment, is still very strong. If you hear any commentators talking about it, they’ll say, “Oh, employment– there can’t be a recession, because employment is really strong,” not realizing that the recession– [crosstalk]
Jake: It’s the last.
Tobias: Yeah, it’s the last thing to go. When employment peaks and you start seeing losses, that’s when the stock market takes off. The stock market will rock at that point then. It’s sick. It looks like the stock market’s celebrating the fact that people are getting fired, but I think it’s more to do with the stock market’s looking forward and they know that as soon as it cracks. And in any case, that’s backward-looking data. So, when that cracks, it’s typically better times are ahead. It’s [crosstalk] complicated.
Jake: For the love of God, someone in the hive mind, please look up with that O and the P is.
Jake: I can’t do this for another week.[laughter]
GMO: Deep Value Really Undervalued
Tobias: Do you want me to do the GMO paper? There’s just one interesting factoid from the paper that I just wanted to bring.
Tobias: I thought it was kind of interesting. So, this is the quarterly letter and they’re explaining the deep value. They say the deep value is very, very cheap. They divide the universe into five quintiles. So, quintile is 1/5th and then they rank them from one to five, where one is the most expensive. That’s all the growthy type stocks. And then, the fifth is the cheapest, so the value-type stocks. And then, they looked at their relative valuations to their own histories. And so, the most expensive stocks, even though they’re off a lot, they’re still trading in the 88th percentile of overvaluation, which I think is amazing. The second quintile was in the 90th percentile of overvaluation.
Jake: [crosstalk] This is the most expensive we’re talking about and working our way down?
Tobias: The most expensive is in the 88th percentile of overvaluation.
Tobias: The second quintile was in the 90th percentile of overvaluation. The third quintile was in the 97th percentile of overvaluation. So, that’s the market, probably. The fourth quintile, so this is the second value bucket. This is in 70th percentile of overvaluation. But if you get down to the cheapest bucket, it’s in the fourth percentile relative to its own history. So, what you’ve seen is huge. I’ve been talking about the spread, like this massive spread for a while now. They peaked at the end of September. I think it came in in October for the first time and you can see that in this data are a little bit. Basically, what GMO is saying is that deep value is the only place that’s really undervalued. Yeah.
Jake: See, after I read that, I went and looked a little bit, I was trying to dig into some of my– If I cannot confirm that anywhere in other data– And one of the places I looked was the ETF RZV, which is the small cap value, it’s just a plain vanilla small cap value. I’ve owned it at different points in the past. When I looked at it, it was at 8.6 PE trailing and 0.95 price to book, which to me is like a normal price for small value. It’s probably around one times price to book typically. Maybe a little bit more than that. But I’ve bought it at times where it was down at a half of price to book. So, that’s 2x from where– I know, I’ve purchased it before. So, that’s doesn’t quite square with that fourth percentile cheapest cheap bucket in my mind.
One thing that was interesting was that the ROE on the RZV was actually 12.5%, which I thought was quite a bit higher than I would have guessed. That’s a lot higher quality. So, maybe that’s part of it. I don’t know. Clearly, we’re looking at different data slices somehow. But to me, it didn’t seem quite as cheap as I would have expected based on GMO’s observation.
Tobias: Yeah, how have they determined the value? Oh, I’ve just lost the–
Jake: Are they probably use some kind of multifactor or multi-measurement value–?
Tobias: That makes sense. [laughs]
Alex: If you want something to be optimistic about it, I remember a Golden report a few years ago that said we’re at the 99th percentile in terms of valuation. You said the middle bucket’s 97 now, right? So, we’re getting cheaper.
Jake: So, you’re telling me there’s a chance.
Tobias: [laughs] It’s funny how little it’s moved, honestly. It’s funny to go and look at it and see. I feel the market, it’s been in drawdown all year long. At various stages, we’ve been down 20% or so. I don’t check it that often. So, I went back in and had a look and I was like, “Oh, no, it’s hardly moved. It’s hardly off,” because it bounce so much from that October low.
Jake: Well, if you’re using earnings– I don’t feel that the fundamental has rolled over to keep at a similar valuation level, the ratio? I don’t know. You’re right though. It doesn’t feel this super bomb-out, certainly yet.
HOPE: Housing, Orders, Profits, Employment
Tobias: I’ve got an update on the acronym. Do you want to hear it? John [unintelligible [00:20:15]
Jake: Oh, yeah.
Tobias: Housing, orders, profits, employment. Orders and profits.
Alex: I already forgot what you said they were.[laughter]
Tobias: Housing goes first, employment goes last.
Alex: There you go.
Jake: Orders, profits, employment.
Tobias: Brad says, “RZV wouldn’t be bottom decile. The 4% was the bottom quintile.” So, what is RZV? It’s a half, right? They divided in half. There’s RZG and RZV?
Jake: I suppose, yeah, that might be a factor.
Tobias: The question is would they do it by count of stocks or whether they do it by like some valuation index, because I think that that’s been a problem for some of those value ETFs that have that style of creating them, they haven’t had enough stocks to put into the V bucket. There’s too much stuff that’s doing too well. So, it all ends up in– Because I think that they tend to put some momentum overlay in there as well. So, it pushes a lot of stuff into the momentum, the growth-
Tobias: -part of the ETF.
Jake: Lot of ways to slice it, huh?
Tobias: Do you want to do your bit, JT?
Meeting Li Lu
Jake: Sure. I thought I would start off with a little story that was kind of fun. I was up in Seattle last week, and celebrating with a little bit of the launch with my cofounders. I also happened to meet up with our mutual friend, George, Toby. I got a chance to actually meet Li Lu, which was quite an awesome experience. Very effervescent, very personable, high energy. Actually, it was weird because I came away from it and I was like, “Ah, that was cool,” that night. Then the next morning I woke up and I was like, “Wow, that was actually really cool.” It took a little bit of time for it to sink in. Eventually, I was like, “Man, that was better than I would have ever expected.” They always say, “Don’t meet your heroes.” But in this case, Li Lu came through in a big way.
Tobias: Jealous, envious.
Alex: That’s awesome.
Jake: I would have been as well up until last week, but [laughs] pretty awesome. Okay, so you guys want to do some vegetables?
Jake: This one comes from, shoutout to my boy, Paul, in Ireland who sent me this article that’s from the Long Now Foundation, which we’ve done a few of their things before. I like them a lot, because they’re trying to get humanity to think in longer timeframes, which is I think near and dear to my heart. But one of the things that they do that I always find funny when you’re reading one of their articles is that they put a zero in front of the years. So, it’ll say, zero [Tobias laughs] 2022 to get you to think about like, “Well, someday it’s going to be 12022.” It’s always a little off putting when you first read it, because it’s like, “Wait, oh, that’s supposed to be a year.” But then, when you remember again what they’re trying to get you to think about is fun.
So, let’s paint a little picture. For nine months of every single year, there’s this guy named Chris Halsch who, every two weeks will walk this same 10-mile loop near Donner Pass, which happens to be in my backyard. It’s high up in the California, Sierra Nevadas. His sole purpose when he’s out there every two weeks is to count butterflies. He visits five different sites at different altitudes. And with this metronomic regularity, he’s out there for the past five years counting butterflies. Every time he retraces his steps, he’s jotting down what species and the number that he’s seeing. It turns out that these notes that he’s taken are actually highly coveted by scientists. He types up in a spreadsheet and every single datapoint, adds a new segment to this really long chain of observations that’s been growing without interruption for more than half a century. It’s these exact same places that they’re measuring, these really long-lived efforts to monitor the butterfly population. It’s like a relay race, where now, Halsch is the one who is extending this run, this marathon that actually started 20 years before he was even born.
So, these type of multidecade time series observations, they’re really rare and they’re very valuable artifacts in measuring ecosystem health, because they overcome this particular weakness that we have in our ability to perceive the natural world. We’ve developed all these powerful methods for looking at past events that could have been like the birth of galaxies billions of years ago, mass extinctions millions of years ago. We have instruments now that will measure and parse the present down into these tiny, tiny slivers of time that we can measure. They call them zeptoseconds.
When it comes to this modest timescale of our own lives, we’re almost basically blind. So, for instance, scientists had been tracking atmospheric CO2 at the Mauna Loa Observatory in Hawaii for 64 years. Right now, we will use tree rings, and ice cores, and sediment drilling samples to capture, sometimes, data that are millions of years old. There’s some fun stories about– locals in Finland had been keeping the freeze and thaw dates of a particular river for 325 years. So, we have some pretty good idea of some of the temperature changes for that particular area. And of course, Japan, we’ve talked about longevity in Japan before. They have some data series that are measuring the flowering of cherry trees and when did that happen. It goes back like 12 centuries. They have these notebooks from monks who are keeping track of when the cherry blossoms happened. So, it’s back to like 800 AD or so.
The problem is that our perceptions are often distorted by– we have really selective memories and cognitive biases, sometimes political agendas. One of the most difficult parts of this is that we have this shifting baseline syndrome, where whatever the recent past has been will influence what we think is normal. Each generation gradually forgets the conditions of the past and we accept the new ones as completely normal. There was an essay by the zoologist named John Magnuson and he wrote about this temporal myopia that we get trapped in what he called the Invisible Present. So, that’s what I’m calling this segment. It’s this space where we can’t see the slow changes and we can’t see the effects, because often they’re lagging years from their causes.
One of the issues that right now in science is that there tends to be these three-year grant cycles. So, if you wanted to have a longitudinal study, you can’t get the funding for it because there’s nobody to pay for it further out than about three years. And so, we end up with these thousands of snapshot studies that look at a single hurricane, but it won’t look at what happens, cyclical damage of hurricanes over 30 years, like that type of analysis just doesn’t get done.
So, I thought it’d be interesting to think about like, “What’s the invisible present to us today in the investment world that we’re missing out on?” These shifting baselines, they mean that we start ignoring the past and accept the present as normal. We get used to it. We start taking it for granted. What would appear right now today to be anomalies in a bigger, longer dataset?
The first thing that comes to mind is interest rates for me. The relative president has been these incredibly low rates, but that seems like a historical anomaly. I think everyone’s waiting for rates to go back down to 2%. We just think that’s going to be the new normal. I wonder about that. Multiples, obviously, which are often driven by that interest rate. We got used to getting 30 or 50 times revenue for a SaaS company. Is that going to come back or was that an anomaly? Profit margins, we talk about this on the show a lot. These 12%, 13%, 14% profit margins, is that the new normal or is it that’s the historical anomaly? Because 6% used to be the normal. And then, factors obviously like value’s dead, those type of arguments. But historically, if you look back further, it tended to work out pretty well.
A little bit of self-promotion. These time series data are really hard to just remember and it’s really dangerous, I think, to do this kind of work all in your head. So, you should probably be keeping a journal. It’s pretty impossible to remember what you were thinking in the past in high fidelity and to keep track of the changes. One of the biggest problems is the business effects can lag their cause by multiple years. Bezos famously said during– He’d get congratulated on a quarter and he would say like, “Well, I can’t really take credit for that, because that was all stuff that we did three years ago that’s finally showing up today.” It’s just simply too hard to keep track of all that stuff in your head unless you’re writing it down.
I would say the short research grant cycles of academia today are analogous to short-term horizons in the investment world. It really easy to be blind to the slower developing, but important trends when you’re only thinking a few months out or the next Fed cycle. And then, it’s shocking when you read about these crazy percentage of options today that are trading that are really turned out in hours, not days or weeks or months. It’s this insane gambling instinct that’s still taking place.
Tobias: Well, that’s exactly what it is. Otherwise, you don’t get the satisfaction of your answer straightaway.
Jake: Yeah, exactly. Toby, of course, you have these value charts that go back hundreds of years, but it’s really easy to dismiss it today that all that stuff is not applicable to this new digital age. Price to book’s been discarded because intangibles are the new normal in the business world.
Tobias: [unintelligible [00:30:48]
Jake: Well, yeah, maybe that’s the anomaly. I don’t know. But I think we all have to be thinking in these– Thinking about our longitudinal datasets and how applicable are they today and should we– What’s the new normal and what is not the new normal? I think that if you can get some of that stuff right, I think the game gets quite a bit easier.
Alex: Yeah, great example. I was listening to a portion of the 2004 Berkshire meeting before we hopped on here randomly, and a question was about corporate profits as a percentage of GDP, and Buffett’s answer was basically, “Technology is just as likely to make that better as it is to make it worse.” He effectively said, “The real beneficiary of the GDP growth over time, a lot of it goes to the consumers.”
You could think of that comment being said almost 20 years ago now and thinking how long even the largest, most well-established — They’re really just getting there now in terms of what was being seen late 1990s, early 2000s, it’s only now and obviously, it’s still reshaping and will continue to reshape. But it’s a good example of it takes a long time for these things to play out and there is an open question still, whether or not are the companies the beneficiaries or the consumers? Is there a reasonable mix? What’s the actual breakdown there?
Jake: Yeah, they’re going to have to share those economics with their customers, eventually. I’m fairly confident over a long enough time horizon eventually that it almost all goes to the consumer. It’s just a matter of how long does that take and how much profit is there available to the producer surplus in the meantime.
Alex: You can layer on top of their political version of that same idea, which is 20 years ago, M&A, that might be able to get done, is that still applicable today. Or has political regime or thinking on these topics changed in a way that fundamentally impacts industry structure over long term?
Jake: Yeah, what do tax rates look like? They’re quite a bit lower than they were 20 years ago.
Every Generation Thinks Their ‘Latest Tech’ Will Last Forever
Tobias: Before we got on, we were talking about– Do you have that [unintelligible [00:33:00] quote off the top of your head, JT?
Jake: Oh, yeah. Something like, “Financial history teaches us that over the short term, we learn a lot. The medium-term, we learn a little bit. And the long term, we learn nothing.”
Tobias: The tech boom cycle repeats over and over again through the history. It’s just funny. Every human being has ever been alive has known that they are modern humans at the very pinnacle of civilization. [Jake laughs] It’s just the technology has changed along the way. In 1825, it was steam engines, steam ships that became steam trains. 1844, it was the telegraph and so on. 1969, it was electronics. The late 1990s, it was Dotcom 1.0. And then, this last boom, I don’t know, SaaS, or Dotcom 2.0, or something else. And there’ll be another one in the next 10 or 20 years that will be completely plausible in the moment and won’t seem like a bubble at all until it’s well into it and then it gets swept away and the [crosstalk] valuations go crazy. It will happen again.
It’s funny. My first day of work was April 2000, which was the crash, but I was at university and I remember seeing just as exciting and interesting all the dotcom stuff that was happening. And then, it was a value cycle that ended with that leveraged buyout boom. All those gigantic leveraged buyouts getting done with [unintelligible [00:34:31] selling into the biggest buyout ever done.
Jake: You’re getting sucked in as a value investor that– [crosstalk]
Tobias: Well, we were value momentum investors. We were just riding the train. We just knew what was working. Tech was cringe as hell. People pitching tech ideas were just laughed out of the– Tech was trading like three times EV/EBIT. I was buying tech companies for nothing and worried about them because I didn’t think they were going to make it.
Jake: [laughs] Yeah.
Tobias: Then, you get this new cycle, tech will be cringe again. Tech is getting cringe now. It’ll be hard to raise money for tech a little bit. And then coincidentally, that’s probably the best time to be investing and then we will probably have a financial run here, it’ll end with more tears and it’ll be on to the next cycle. It just happens over and over again. You just got to try not to get– [crosstalk]
Alex: Okay. Got it.
Tobias: That’s it.
Alex: There’s a great quote from Klarman along the ideas of, “Everybody starts in the business in a certain window. Has certain [crosstalk] about stuff and it takes that 5, 10, 15-year period for that to washout and restart again,” basically. [laughs]
Tobias: I think that’s true. I think that’s– [crosstalk]
Alex: Yeah, it makes sense.
Tobias: Hussman also says something like, “You should measure from peak to peak or trough to trough.” I never really understood why that was so important until I’ve been through a few of them and I was like, “Yeah.” You can really get funny results, if you measure from a trough to a peak or a peak to trough. You really need to be aware of where you aren’t in the cycle. Even looking at businesses themselves, it’s not just stock price results.
Tobias: Do you have more, JT?
Jake: I’m spent.
Tobias: That was a good one.
Alex: I think another one that probably applies to what you’re saying that I’m not smart enough to talk about but I’m going to just say it is probably geopolitical and globalization, and everything happening, which seems like a lot and obviously, it could potentially be changing pretty significantly as we look ahead, which would probably be very bad for the world. But that seems like another notable one.
Tobias: Yeah, the Fall Berlin Wall felt momentous. I was 10 when that happened. I’d grown up watching Rocky and Rambo, and all this.
Jake: Yeah. All that propaganda.
Tobias: So, it was funny when that happened. [crosstalk]
Jake: Red Dawn. [crosstalk]
Tobias: I was like, “Oh, it was not– [crosstalk] Yeah, they remade Red Dawn.
Jake: But was it with the Chinese or the Russians at that point?
Tobias: Yeah, I don’t know. It could have been North Korea. You can’t criticize China because that’s a big export market. You got to find a country that doesn’t buy– [crosstalk]
Jake: Yeah, Hollywood- [crosstalk]
Tobias: Doesn’t watch the movies.
Tobias: -cozied up with them.
Tobias: North Korea, it gets a hiding. It’s like 20 million people living in the Bronze Age. At least, you know you’re probably going to be them. Easy segue from that, one of the things I wanted to raise was the Cape is a good example of that, JT. Cape over the last 25 years has a much, much higher mean than the full set. The full set mean is 16. I think it might even be pushed up to 17 now because of the last few years. But even then, that’s way, way below where it’s traded for the last 25 years. The funny thing is that when Shiller wrote his paper, it was 1996 and that’s coincidentally the last time that it traded at the mean. It took off– [crosstalk]
Jake: That was irrational exuberance.[laughter]
Tobias: Yeah, then it took off from there. It’s never traded– I think in 2009, touched the mean– March 6, 2009, it touched the mean and bounced off like a golf ball off a concrete path.
Macro Investors Get Famous By Being Right Once In A Row
Jake: Yeah, if you were using Cape as a timing tool, that was a rough go for you there. Because you would have thought for sure in that environment, you’re going to go below the mean for a little while, right? You have to.
Tobias: I thought so. I thought so. I guess, the interest rates– [crosstalk]
Jake: [crosstalk] on a macro guy.
Tobias: Oh, you’d be out of business. I don’t know how you do it. I guess you just have to hold on a little bit of every asset. You have to do it like asset allocation. I think that’s the only way to do it.
Jake: Well, what’s the point [crosstalk] about? Might as well just index and go home.
Tobias: You get to be a macro hedge fund dude, go on CNBC, talk about what you think.
Jake: Yeah, it is sexy topic if you can get in there and really just spend some yarns about macro stuff.
Tobias: But you do need to read something like superforecasters before you do it. You need to get into that and then realize how wrong you’re likely to be.
Jake: Oh, God, the track record is no bueno there.
Alex: [chuckles] [crosstalk] names. A few are popping in my head, but I’m going to keep– [crosstalk]
Tobias: Oh, they all. Everybody’s right one times in a row. You get famous for being right one times in a row. Take your pick. Roubini or the FiveThirtyEight guy, like all those guys, they get one– [crosstalk]
Tobias: If you took the entire universe of newsletter writers, there’s somebody in there who’s got the right– Somebody is right right now for the right reason completely coincidentally.
Jake: And never again. [laughs]
Alex: Well, as a newsletter writer, I’ll take my one run, if I can get it.
Tobias and Jake: Yeah.
Jake: One-time Verdaddy.[laughter]
Tobias: It might just want to be right once.
Alex: I’ll take once. It’s fine. It sounds pretty good right now.
Jake: Yeah, no kidding.
Tobias: Someone asked, “Do you Track the S&P 500 reversion to the mean model to pick tops and bottoms of the cycles?” I think it would be very hard, because that’s one thing I noticed. I love– [crosstalk]
Jake: [crosstalk] cash for 17, 18 ,19, 20 and then finally felt like you were half right and COVID–
Tobias: I used to do this little model where it would kick you out when you got to some new level of overvaluation on the Cape and it would then kick you into– [crosstalk]
Jake: Treasuries or something?
Tobias: Yeah. And so, when the Treasuries are yielding 6%, many times, that was a great idea. Because you just [crosstalk] 6% for a year and the market went down at 20%.
Jake: That’s the Munger model, huh?
Tobias: That’s a good model. But the problem is that– [crosstalk]
Jake: How to do it lately? [laughs]
Tobias: The problem with it has been that Cape has just got progressively more expensive over its history. You had to find some way of dealing with whatever the overvalued– That’s not right. Always crashes two-standard deviations above the mean. Whatever absolute level you set for Cape, it’s gotten more expensive each time before it’s actually managed to crash. So, you can’t be doing it backwards looking. It doesn’t work. The valuation doesn’t work as a timing tool. Can’t be forced to work. Alex, you said you looked at Home Depot or you get some story on Home Depot?
Jake: Yeah, give us some thoughts on that.
$HD Home Depot Pivoted Within Its Business Model
Alex: I’ve been looking at Home Depot recently. I’m writing it up now and I just thought it’s a fascinating business/stock story. The business story is, if you want to take the last 30 years and split them into two parts, the first half, you start in the early 1990s. They have about 200 stores. You jump forward 15 years and they’re at 2,200 stores by the mid-2000s. And obviously, the market liked that a lot. By the early 2000s, it’s trading at, call it, 50 times forward, something like that. Then, 2000, obviously, financial crisis comes around. Business gets hit, honestly, at a lesser agree that I would have assumed. It’s down low single-digit comps or low to mid-single digit for about three years. But obviously, you could imagine it being much worse than that during that period.
The bigger thing from strategic perspective is the company comes out and says, “We’re not going to build stores anymore. We’re kind of saturated in terms of what we think we should be doing. We’re going to focus on the economics inside the four walls what we already have.” Obviously, other investments there, supply chain, remodeling, etc. But the market did not react favorably to that idea at least at the time. It’s a 10, 12 times earnings type of stock. Earnings at that time were around two bucks and it’s just a fascinating story in terms of you fast forward to today, earnings last year– obviously, there’s pandemic stuff in here, but earnings last year about 1,550 compared to $2. The cumulative increase in the store account over the past decade is less than 5%. It’s just a fascinating–
Alex: So, share buybacks are part of it. Honestly, the bigger driver is just significantly improved [crosstalk] economics.
Alex: There’s a great interview with Frank Blake, used to be the CEO who effectively says, “Excellence requires intense focus.” You just think about a company that’s at 200 stores, gets to 2,200 over 15 years, was expanding internationally, had different concepts besides the core Home Depot box. You can imagine in real life, like a financial model or a spreadsheet, you can get spread pretty thin in terms of resources, and managerial attention, etc., etc.
Jake: Built that empire.
Alex: Yeah, exactly. So, long story short, $60 stock at the turn of the century. A decade later, a $30 stock. And today, it’s $320 or something like that.
Alex: A good addition– [crosstalk]
Jake: Where did the capital came from for the build out to go 11x store count?
Alex: I think a lot of it was internal as far as I know. Yeah, I’d have to look at the– I don’t know if I have share count going back to the 1990s or not. But I think a lot of it was internal. The economics were very attractive. A good addition to the story is Home Depot started in late 1970s in Atlanta. They opened stores in South Florida. My dad’s a plumber and we live in South Florida. He didn’t buy the stock at that time. He did buy the stock around the turn of the century. [laughs]
Jake: When it was hot.
Alex: He eventually sold it around 2008, 2009, 2010, somewhere in that range. [laughs] It was right in his wheelhouse in terms of circle of competence and– [crosstalk]
Jake: So, he’s in there every day.
Alex: He’s in there every day and struck out on that one. Sorry, Dad, if you’re listening.[laughter]
Tobias: When you were talking about the transition from growth to– they said they weren’t going to build any more stores, just reminded me of this– There was this Australian mining company executive, kind of wildcat type of dude who was the actual miner behind it. They had a big boom in the 1980s and then they got religion in the 1990s about not spending so much money developing all of these mines. He said that as they got the discipline to make sure that their mines ran more efficiently and they didn’t spend money doing silly acquisitions or any of that sort of stuff, they lost the blue sky speculative multiple that they had had and they went and started trading like a value stock, I was like, “People, they want us to be out there spending that money.” The stock market tells us to go and do that. That’s funny the number of times now that I think that I’ve seen that in stocks. Funny though, when you think about something like Google, Google doesn’t get any credit for that crazy blue-sky stuff that they’ve got going on, their other bets. Alphabet’s other bets.
Alex: Real quick on it because it ties into that perfectly. The Home Depot cofounders wrote a book in the late 1990s. There’s a section in the book and this is the period where they’re starting to expand their rational new concepts, etc. They say specifically in the book, “We had to try to expand and do these other things because we wanted to keep the high multiple that we’ve become accustomed to,” which is hilarious, because it’s a book where you read it and the whole way through, you’re like, “Everything hear is like gospel to me and it reads perfectly in the way I think.” And then, you get to something like that, it’s like this is the exact opposite of what I want– [crosstalk]
Tobias: Behave irrationally.
Tobias: Behave irrationally to get the higher multiple, but then you can use that higher multiple to do sensible things.
Alex: Yeah. And again, it was a business that as far as I know. Most of this was just internal funding one way. If anything, they were repurchasing shares. So, it was something where you would, at least in theory, prefer it to be the other way. But at the same time, it might be different in their case where their cofounder is still running it, own equity, etc. Like the Disney situation right now, you can see how stock price– your long-term vision better align with your shareholders, and your board, and everybody else because– I mean, there’s other problems there besides that, but it certainly is part of the story as well. So, it’s an interesting theory versus practice discussion on some of the stuff.
The Genius Of Warren Buffett
Tobias: It’s interesting to watch someone like Buffett with Berkshire, because Berkshire has gone through lots of different cycles where it’s been loved and hated. When it was loved– When it was loved last? Probably, in the late 1990s, do you think, JT? More recently than that?
Jake: Yeah, I would say like the real hard love, I would say probably 1998 when he did the January swaparoo. That was pretty genius.
Tobias: Yeah, that’s what I was going to raise too. That’s the last time he used overvalued stock to do an acquisition, where he overpaid, but he was overpaying with an overblown stock anyway. So, from his perspective, he was like, “That is a bargain. That is cheap.”
Jake: Maybe BNSF a little bit too. They used stock for that one, I think. If you look at the profitability of that company versus probably the growth and profitability of Berkshire shares, which is how you should think about when you’re trading your company for someone else’s company, that was probably a pretty savvy move as well.
Tobias: [unintelligible 00:48:05] was just hated for a long time there. Buffett just picked that up at the perfect moment because there was a great blog post that came around afterwards and I don’t know who did it because it’s too long ago now, but they pointed out how much money he pulled out in that initial period. He basically got back a third or a half or more in cash over the first few years of that acquisition, kind of amazing.
Alex: Yeah, speaking of Buffett and what you were saying before about the Australian company, OXY is a really interesting example of the company, very clearly spelling out capital return policy and growth expectations. My read on the situation when I look at it is that certainly played a big part in– They have to actually hold themselves to it now, which is the hard part. Everybody can say in a down cycle what they’re going to do when there’s opportunities to grow again. So, we’ll see– [crosstalk]
Jake: That’s the genius of Buffett though, is that he points it out publicly and he calls out the slide.
Tobias: Yeah, that’s it.
Jake: High-end management to the math.
Tobias: That’s it.
Tobias: It’s interesting though, possibly that’s what attracted him to it. He was like, “Well, we’re at this point where they’re going to be returning capital.” I think that’s an interesting model to think about. He doesn’t like the super high growth. He likes it where they get to the point where they’re like, “We don’t need capital anymore. We’re going to be returning capital. We built it all up.”
Alex: Yeah, not only that. They specifically put a cap on production growth. There are no ifs, ands, or buts about what the capital allocation policy here, JT’s or to your point. Buffett wants people to know that and management to stick to it, I assume. [laughs]
Jake: I did see an interesting paper that talked about why oil or energy won’t drill from here. The basic tenants were ESG. There’s still pressure ESG wise from investors to not have more drilling. Engineering wise, the engineers are still telling management like, “Let’s save our tier-1 assets for later. There’s no point in drilling in them.” You look at the math of whether it makes more sense to drill that next marginal well or buyback your shares for cheap, the returns on buying back your shares, it’s kind of a Tobin’s Q type of mentality, where is it buy versus build. The buyback makes way more sense than the next drilling. That probably is going to go on as long as it stays cheap for ESG reasons. So, I find it to be interesting. I’m not sure why that would be wrong. I know eventually, they’ll all lose religion, but it’s probably not at prices where we are today. I don’t know. [crosstalk]
Tobias: Boone Pickens made exactly the same observation about rating in the 1980s, I think. He said it was cheaper to drill for oil on Wall Street than it was to go and actually drill for oil in the oil patch.
Tobias: Ron Zollo pointed out in the comments that the shale assets, do they seem to put a cap on where the oil price can go? Because they are high-cost assets, but at some point north of that everybody starts drilling and then that caps a little, because you get a little bit of–Did the shale actually produce any oil or did it produce any returns? Does anybody know? I thought that they were like net negative on money invested in shale that might not be right.
Jake: No, that’s something I think Bethany McLean said at one point in-
Tobias: Okay. She’s a good source.
Jake: -Saudi America. I think that was her book. The start and stop time of the measurement for that would probably be pretty important. So, it was probably true for some time period. I don’t know if it’s still true.
Every Investor Wants To Start Their Own Berkshire Hathaway
Tobias: I think I tweeted this out after the podcast. But Value Stock Geek has a newsletter that he sends out and he had this little tidbit in there that I thought was interesting. Buffett paid $400 million for Dexter Shoes and he’s complained about it in a few letters about the fact that it didn’t make money or that it lost some money. And them Value Stock– [crosstalk]
Jake: [crosstalk] it went away?
Tobias: But he said that if you put the same $400 million in Nike-
Jake: Oh, yeah.
Tobias: -it’d be $20 billion today. Isn’t that crazy?
Alex: Pretty wild.
Tobias: Often, I fantasize about going and starting some enterprise like a Berkshire Hathaway type thing like everybody does.
Jake: Can I be your vice chairman?[laughter]
Tobias: I want to be the vice chairman. I want to be the vice chairman.
Jake: No, I want to be the vice chairman. [laughs]
Alex: Marc Hamburg, whatever the CFO’s name is now, I assume it’s still him, and I’ll take that job. So, nobody knows any clue who I am–
Jake: That’s a good job though.
Tobias: Yeah, that’s a good job.
Alex: Probably gets paid $75k.
Jake: No, I think those guys actually make a lot of money.
Tobias: Every time I think about doing that, I had the same idea when I was a young lawyer doing private equity transactions. It’s just so much work to do an acquisition. It’s so much paper in acquisition.
Jake: [crosstalk] the back of a napkin, isn’t that what Buffett does?
Acquisitions: Don’t Buy The Assets, Just Buy The Stock
Tobias: [chuckles] I’ve never seen anybody do it like that. They produce these three-ring binders full of the acquisition agreements. There’s 20 binders full of acquisition agreements for all the debt and all the assets and everything, it’s complicated. And then, you’re stuck in it, you can’t get out of it. They’re hard to get out. At the same time, you find the same asset trading on the stock market for three times earnings– [crosstalk]
Jake: Then, you can get in it for $5 in your Schwab account.
Tobias: Then, you wake up tomorrow and you know you made a mistake, you just push a button and get back out. But you can still have those returns, if you get the Dexter Shoe and you stick it into Nike instead, which seems like Dexter Shoe should be this hidden asset and Nike’s like– Everybody knows what Nike is. Everybody knew what it was 20 years ago or whenever he bought Dexter shoes. And then, here we are 20 years later, it’s run up 40 times. It’s crazy. It’s run up 50 times, because it’s $400 million.
Jake: It does speak to the just absolute amazing gift that public markets are to the individual investor. The ability to transact so cheaply in world-class businesses and have all the information available to you that’s available to everyone else. What a godsend really.
Alex: Yeah. Absolutely.
Tobias: There’s opportunities just sitting out there in plain sight. Apple’s another one. When Buffett did that Apple transaction, everybody knew what Apple was. It had been cheap– [crosstalk]
Jake: Never heard of it.
Tobias: That was late in the run. It’s not like you’re picking up when Steve Jobs comes back or when they introduced the iPhone or the iPod or does like fruit-colored computers. Everybody’s seen it forever. It’s one of the biggest companies around. Then, you put third of your money into it and it pays off like that.
Alex: I don’t know if he said it immediately when it was first disclosed or later on, but the comment that real estate being more valuable in 5th Avenue. Not in specific numbers obviously, he didn’t say that. But it’s a pretty smart comment in hindsight.
Jake: Yeah, that was smart. And a 30% rake on that real estate as well.
Alex: Yeah, it’s not bad. Not bad if you can get it.
Tobias: Yeah. Bill’s in the comments here. That was his point too that you got the TV, you can finally got his toll road. You got his toll road on every bit of transaction that happens on the internet.
Alex: A lot of cars going across that one.
Tobias: Crazy. 30 cents out of a dollar too. [crosstalk] Yeah, that’s what I was going to tell. Can you see that last thing? That’s going to be broken. [crosstalk]
Jake: It’s too win-lose to stay forever, right?
Tobias: How do you think you can run it?
Jake: Nature finds a way.
Tobias: Yeah, good point.
Alex: It’s amazing to think this has been going on in some capacity, obviously, for a while. But just publicly how many companies that pay them hundreds of millions of dollars a year, Match, Spotify, plenty of others, there’s very publicly– Yeah, there’s very publicly expressing discontent with the current– It’s just kind of a funny. I can’t think of other topics that are really like that, if any. Companies tend to keep these things behind closed doors.
Jake: [crosstalk] We live cut to the FTC and they’re playing Solitaire on there.[laughter]
Tobias: It’s funny to see– Oh, sorry, I’m just completely blanked. I was reading Billy’s comment.
Jake: Sorry, I interrupted.
Tobias: Yeah, lost it.
Jake: Time for a question or two, for Alex, especially.
Match Group Sues Google Over Monolopy Power
Alex: Just say a real quick Match group, CFO, if you want to read somebody who’s the most optimistic on something changing, he’s a good person to read and he does a good job of covering what’s happening in different jurisdictions and the like. I still don’t believe that they actually have the proper read on what’s going to change or when, but we’ll see.
Tobias: Feel that they should or they feel that it will?
Alex: They feel that it’s starting to effectively. They certainly feel that it should as well. Funny enough, they had a bit of a tussle with Google and Google ended up putting out a public blog, which I thought was very interesting, where they essentially trashed them and then sued them, sued Match, which is obviously a big company that pays again hundreds of millions of dollars in app store fees every year. It’s very interesting. I was surprised that Google would do that. Is it the last throes of this is going away or them feeling so confident about the position that they’re willing to publicly slam, again, a big company, customer, whatever you call them? It’s just odd.
Tobias: I remembered what it was. When Twitter was having its fight, when Musk said that Apple had pulled some advertising, and so, his solution was to go and build a competing phone which– don’t want to laugh at someone like Musk– Clearly, he can go and build competing things that are very, very successful. But it’s not like that strategy hasn’t been tried before. Google’s out there with competing phones. It’s pretty good.
Jake: Microsoft– [crosstalk]
Tobias: Yeah, everybody. Samsung’s still out there with the phone. Wall Street Journal did this article and you can probably still find it out there somewhere where they just went to China and got a Wall Street Journal phone put together. They report they got the phone put together, it’s trivial. You go and tell them what you want, the camera and all the bits and pieces that you want in there and you’re probably going to get an Android operating system. And so, we could have a Value: After Hours phone if we wanted to. Tesla phone will be just a completely trivial exercise at this point. But I guess– [crosstalk]
Jake: That’s the case that goes on the phone, Toby.
Jake: It’s not actually the phone.
Tobias: Still, there’s things inside the phone. That’s the thing that you need to make it work.[laughter]
Tobias: Folks, we are coming up on time. This is going to be our last one for 2022, because I’m on vacation in Australia. Probably, trying to meet up at some point for any Aussies who want to come down. Anybody else is welcome too from anywhere, but it’s a long flight. That’s the only thing. What are you up to for the break, Alex?
Alex: I am heading to San Diego for a week, which should be fun. And then, after finishing up Home Depot, I will be looking at Floor & Decor, which is an interesting smaller retailer that I’ve been meaning to look at for a while. The firm I used to work at in Georgia actually had a couple ties to the company. So, I know a little bit about it from when they went public, but it seems like a pretty interesting concept that I don’t know enough about right now, but I’m very interested to learn more about.
Tobias: Floor & Decor, what do they do?
Alex: Yeah, they do flooring and decoring. [laughs] I think it’s mostly, I guess, you would call more commercial relationships. You might go in there and pick something out, but they’re dealing with a contractor or someone like that, is my understanding. It’s not you going in there and buying sort of thing. I know very, very little about it at this point, but having with the Home Depot, I’m excited to dig more into that space.
Tobias: What about you, JT? What are you doing for the break?
Jake: Going to Mexico with the wifey for about a week, which is much needed little– Just the two of us getting away. We haven’t gone anywhere without the kids since pre-COVID, I think. So, it’ll be nice. Yeah, and then just home and making the magic with the kids, magical memories like we try to do.
Tobias: That’d be fun.
Alex: Is this the Journalytic International launch? Are you saying that right now?
Tobias: For tax purposes, yes.
Alex: [laughs] That’s where HQ at?
Jake: Yeah. Well, we’re thinking about shifting into the Bahamas. That seems like a good spot for stuff.
Alex: Take some real estate– [crosstalk]
Tobias: Nonextradition treaty.
Jake: Yeah, nonextradition treaties are nice. Apparently, the banking rules are pretty lenient.
Jake: Do whatever you want. [laughs]
Tobias: That’s fun. Well, thanks for all the love and support this year, guys. We’ll be back early next year. So, take it easy, everybody. Thanks, Alex, too for filling in for Billy.
Jake: Yeah. Thanks, Alex.
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