In their latest episode of the VALUE: After Hours Podcast, Bill Brewster, Jake Taylor, and Tobias Carlisle discuss:
- Our 2023 Predictions
- Warren Buffett: You Don’t Have To Make It Back The Way You Lost it
- ARKK Flat For Past 5 Years
- What Is The Economic Case For Self-Driving Cars?
- Bill Miller Shorts Tesla
- Yield Inversion Predicting A Soft Landing
- Simple Models Outperform Expert Judgments
- We’re Going To See Another Dip
- Charles Munger Turns 99
- Slow Meltdowns Don’t Trigger Tail-Risk Insurance
- Is The Bitcoin Price Stabilizing?
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: This meeting is being livestreamed, gentlemen. What’s up, everybody? It is Value: After Hours. It’s 10:30 AM. It’s 2023. Billy Brewster– [crosstalk]
Jake: Season 5.
Tobias: Season 5? That’s nuts.
Jake: I think that’s right.
Tobias: And Jake Taylor.
Bill: Can it be that long? I don’t know that it’s that long. I think maybe it’s Season 4.
Jake: Well, I’m pretty sure– [crosstalk]
Bill: Who cares?
Jake: Calendar year.
Tobias: Well, we kicked off in Thanksgiving. So, it’s probably like three years and whatever that is, a month.
Jake: Yeah. Roger that. I’ll go with that.
Jake: Well, whatever. It’s good to be back. I missed you guys. I missed The Ten.
Bill: Yeah. Shoutout to The Ten.
Tobias: Me too there.
Jake: Hope you guys had a good Christmas break.
Tobias: Townsville is always the first in the house. It’s crazy. Who knew Townsville was so full of whatever we are, value guys?
Jake: Yeah.
Tobias: What’s up?
Jake: It’s Graham & Doddsville.
Tobias: Samson’s back from Dubai. Danny, Jamaica. Lytham, UK. This is cool.
Jake: TC, how was your trip to the other side of the world?
Tobias: Awesome. Great to go back to Aus. We ended up just spending most of it with my family, because my kids hadn’t seen their cousins and needed to reconnect with the grandparents. My little fellow was three months last time he went. So, he’s five years and three months this time. So, that was cool. They loved their– Got to play with the cousins a lot. It was awesome.
Bill: Yeah, it’s good stuff.
Tobias: Yeah, it was great. Good to reconnect. Good to be back in Aus.
Jake: Wholesome.
Tobias: Drank so much coffee.
Jake: [laughs] Did you?
Tobias: Australian coffee is the best in the world. Sorry to all of the Italians or whoever invented it, but it’s the best.
Bill: I don’t think this is factual.
Jake: [laughs]
Tobias: This is the case. If you go to New York City and you find an Aussie coffee shop in New York City, that’s how you know it’s a good one.
Bill: New York City.
Tobias: And LA as well. Ah, someone’s giving us the coordinates. I’m going to phone in a bombing run.
Jake: Oh, boy.
Bill: And we’re demonetized.
Jake: Ugh.
Tobias: Oh, that’s right. I forgot about that. Santa Monica.
Bill: Can’t take what we don’t get.
Tobias: Athens, Greece.
Jake: Three minutes in.
Tobias: Canada. Sydney. Sydney is in. What up? It’s very cool.
Jake: How about you, Billy? What did you do over the break?
Bill: Oh, I don’t know. I contemplated life.
Jake: Mm. Deep.
Bill: Yeah. What did you discover?
Tobias: Did [crosstalk] resolution?
Jake: Yeah. What’s– [crosstalk]
Bill: I don’t know. I think a lot of this is just useless. [Jake laughs] I like hanging out with you guys but watching my grandma decline has put a lot of stuff in perspective. I don’t know. By far, the best move that I made last year was I sold a bunch of stuff in her portfolio in March of 2022, and arguably the best timing I can possibly have, and I came out 4% positive after tax. So, how often is that a good move? It makes me just think a lot of this brain power is totally useless. There are a lot of other outcomes where that didn’t come out that smart and I end up behind. I don’t know. Just spent time with family. It’s been rough, man. I called hospice in. I didn’t know if she’d be ready for that. They said she wasn’t, but it has not been the easiest time off.
Tobias: Sorry to hear that, man.
Jake: Yeah, it’s a bummer.
Bill: Yeah, it sucks. On top of that, you got family money dynamics, and people are wondering if she’ll croak, because then the trust get distributed. It’s not fun over here in that realm of life. However, we can talk about factor betting.
Jake: [laughs] Ooh, smooth segue.
Bill: Yeah.
Tobias: What about you, JT?
Jake: Yeah, I kept it small. Stayed home. Family. Nothing real major going on. I was happy to not be traveling and stuck in an airport for four days or whatever. That seemed to happen to a lot of people.
Tobias: Yeah, the traveling is, that’s wild, man. We missed the connection, 6 hours. That’s not so bad.
Bill: Who did you fly? Qantas?
Tobias: Qantas.
Bill: Yeah.
Tobias: Not many choices to– [crosstalk]
Bill: That fly [crosstalk] in Australia. Yeah.
Tobias: Virgin was excellent. Virgin was the best, but Virgin is gone.
Bill: Mm. Thanks, COVID. Virgin probably took a vaccine. It dropped dead.
Jake: Oh.
Tobias and Jake: Now, we’re demonetized.
[laughter]
Jake: Oh, man.
Tobias: What have we got on deck? I think we should do predictions for this year. This is– [crosstalk]
Bill: I think we should just keep saying outlandish stuff and see how many people we can make mad.
Tobias: This was Jake’s suggestion that we do predictions for the year, and I think it’s a good one, because predictions are really fun and then you can go back to them at the end of the year and see how wrong you were.
Jake: Yes.
Bill: But I know that I’m going to be wrong.
Jake: Well, then pick the right answer. Stop being wrong.
Tobias: That’s it.
Bill: Oh, noted.
Jake: [laughs]
Tobias: Don’t be wrong.
Bill: Noted.
Jake: Just stop being wrong. That’s the model for 2023.
Bill: It would be a lot easier.
Tobias: Did anybody want to take it away? Anyone have a shot with that? We can break it down a little bit.
Jake: Yeah. Let’s do the full– [crosstalk]
Tobias: Let’s give us some ground rules.
Jake: Yeah. [crosstalk]
Bill: Let us know what’s going on, Jake. Come on. Talk to us.
—
Charles Munger Turns 99
Jake: All right. Before we do that, let’s do a quick happy birthday to Charlie Munger turning 99 last week.
Tobias: Wow.
Bill: The real OG.
Jake: What a legend.
Tobias: Wow.
Jake: What a legend.
Bill: Finds a guy that wants to work really hard and rides his coattails. The smartest person in the room by far.
Tobias: Damn.
Jake: What a legend.
Tobias: True.
—
Our 2023 Predictions
Jake: Okay. So, with that out of the way, happy birthday, Charlie. This is inspired by Jason Zweig, had a recent writeup that he called his Hindsight Bias Buster Quiz. Every year, Jason, he’ll run this into your quiz. Basically, the intention behind it is to record your estimates of some key asset classes and just see how your predictions pan out. Jason points out how regularly we fool ourselves. Often, what we know alters our perception of what we think we knew a year ago, right? And that’s what psychologists call hindsight bias.
So, there’s a lot of things– I’m going to give you a quote about what Jason said in this, because I think it sums it up nicely. “The meaning of the present is almost always hidden until it becomes the past, at which point you can’t reconstruct your earlier state of ignorance. That makes it all too easy to fool yourself into thinking that you knew what would happen all along, which in turn can delude you into thinking now that you know what will happen next. So, we’re basically just meandering through life with one hindsight bias crashing into another. But what’s fun about this is, we’ll record our predictions and then that way, we’ll circle back from them and we’ll see how dumb were.
Actually, I had my guys at Journalytic create a checklist for Jason’s Hindsight Bias, just to make it easy to record all of your answers. And then, you can add a one-year-out reminder to that journal entry, and then, it’ll serve it up to you in a year and you can check on your own hindsight bias, if you want to get in there and do that. And if you happen to do that and you want to screencap it and post it publicly, that could be fun. Actually, in the article, Jason said to send him your entries at intelligentinvestor@wsj.com. So, he asked people to send them his entries. If you wanted to, I mean you don’t have to, but you can CC hello@journalytic.com, just for fun, because we like to keep track of that.
Tobias: Tag us on Twitter too, because there’s little tools on Twitter that will let us look back in a year as well.
Jake: Yeah. There are a number of questions here, and we’ll take them one at a time and I’ll give you of reference points for each one. So, the first one is, what will the closing value of the Dow Jones Industrial Average be in one year? And currently, it’s at $33,500, let’s call it.
Tobias: This is a little more specific than I was planning. Let me think.
Jake: Uh-oh. [laughs]
Tobias: Can I look at where it is now?
Jake: It’s at $33,500.
Tobias: $33,500.
Bill: He just told you, bro.
Jake: [laughs]
Tobias: Mate, I got goldfish memory.
Jake: Oh, boy.
Tobias: $33,00 times 1.09- [crosstalk]
Bill: 0.67.
Jake: [laughs]
Tobias: – equals? I’m going to get $36,000.
Jake: All right, Toby’s going $36,000. Bill?
Bill: Oh, I don’t know. I don’t know.
Tobias: Actually, that was dumb. You want the extremes, you want the extremes. You want to go a double or a half.
Bill: Oh, I think– Yeah.
Jake: Well, pick what you really think it’s going to be.
Bill: I don’t know. The thing is– [crosstalk]
Tobias: Stick them in the comments so we can come back to this later and see who is right.
Bill: I’m going down. What’s down 7%?
Jake: All right, I’ll just write that and we’ll calculate it later. All right.
Tobias: I typed in my– I typed in $33,000– [crosstalk]
Bill: It’s like, let’s go– I don’t know, go like 312. All right. What is it? $33,000? So, say $31,200.
Jake: All right. Final answer?
Tobias: Brian asks, “Price is Right rules?”
Bill: Yeah, I’m late on this. It’s already– [crosstalk]
Tobias: What is [crosstalk] calculator?
Jake: Yeah. Price is Right rules. This is closest. Not Price is Right.
Bill: One dollar.
Jake: What will be the total return of the S&P 500 over the next year?
Tobias: Just before you move on, somebody said, “The Dow Jones is a garbage index,” and I completely agree. It’s so weird. Like 30 companies, 33 companies– [crosstalk]
Bill: Stop being a hater. Price [crosstalk] is the only way to do things.
Tobias: Just wait.
Bill: Everyone knows this.
Jake: [laughs]
It’s So Hard To Deviate From The Index
Tobias: I completely agree. That’s such a silly way of constructing the index, but it does show how hard it is not just to outperform, but to deviate from an index. If you said at the start of your thinking, “I’m not going to do what the index does,” have a look at what the S&P 500 looks like compared to the Dow. They’re virtually indistinguishable in terms of returns over the very long term.
One of the things I wrote about in Concentrated Investing was how hard it was to deviate. Just randomly selecting 30 stocks gets you N30, which is about statistically significant number. Price weighting, which is crazy, still tracks the S&P 500. It doesn’t make any sense. To actually deviate your performance, you have to do something radically different in your portfolio even trying to underperform. Sorry, dude. [crosstalk]
Jake: Yeah. That’s a good observation. All right. S&P 500 over the next year?
Tobias: Well, logical consistency, I have to go like 9% on– [crosstalk]
Jake: Plus 9%?
Tobias: Plus 9%, which is my calculation for Dow.
Jake: All right. Bill, what do you got?
Bill: I got to go down 7%.
Jake: All right.
Tobias: Can we do inter-year marks too, because I think there’s going to be a big crash to–?
Jake: No, too much work.
[laughter]
Tobias: We can discuss it. We can return.
Jake: Yeah. All right. What will be the yield on the 10-year US Treasury note in one year? Currently at 3.6. Call it.
Tobias: That is a tough one.
Jake: Yeah. That could go a lot of different directions, huh?
Bill: Hang on, I got it. Hang on.
Tobias: To what extent does the 10-year reflect the will of the people and to what extent does it reflect the Fed?
Bill: Everything is Fed manipulated.
Jake: [laughs]
Bill: Always and always. We’ll go 2.5.
Jake: All right.
Tobias: Well, I’ll go 6%.
Jake: Coming down. All right. Going the other direction. That’s what I like.
Bill: You like how I think that the stock market is going to go down and the 10-year’s going to go down? Yeah, that’s a great prediction.
Jake: Yeah. It’s just a stat.
Tobias: Look at mine. I’ve got 9% of the index and then 6% on the– That makes no sense either.
Bill: Yeah. You and I, we need to get to different camps.
Tobias: Not thinking. Then, we’ve had each way bets too. So, there’s something.
Jake: All right.
Tobias: We pitched ourselves.
Bill: Yes, that’s right. The key is to throw enough stuff out there that we can say correct, no matter what.
Tobias: Hedge. Just keep hedging.
Jake: That’s right.
Tobias: 40% certainty.
Bill: We’re in the media game, folks. That’s the game.
Jake: What will be the annual rate of inflation in one year? Currently 7.1 for the CPI.
Bill: 3.2.
Tobias: Negative.
Bill: I like that.
Tobias: Whatever in your mark.
Bill: It’s tough to get a 6 handle on the 10-year with negative inflation, but I like it.
Jake: [laughs] You are really– All right. Give me a number though to put in here. It’s -1 or something?
Tobias: Yeah. Just give me below zero. -0.1 and then I get everything below that.
Jake: [crosstalk] below that. Okay. [laughs] I’m not sure I agree with that, but that’s fine.
Tobias: It’s [crosstalk]
Jake: All right. What will be the price of bitcoin in one year? It’s currently $17,350.
Tobias: See, that’s a hard one, [laughs] as opposed to the other ones.
Jake: Yeah, the other ones are easy. This is hard.
Tobias: Bitcoin. Yeah, it slides around a lot, doesn’t it? You could say one-tenth or ten times, and that would be the range. So, I’ll go one-tenth, $1,700. Go $2,000. $2,000.
Jake: Wow, that’s a big haircut. All right. What do you think, Bill?
Bill: I don’t know. $25,000?
Jake: Whoa.
Bill: Yeah, totally plucked out of random numbers. I assign 0% confidence interval for that, by the way.
Jake: It has been surprising to me that with this all the SPF, all the FTX, all that stuff like unwinding crazy stuff, this seems to have been one of the more stable periods for bitcoin. It’s been in that $15,000, $16,000, $17,000 range for longer than I remember or maybe I’ve just been expecting it to do something.
Is The Bitcoin Price Stabilizing?
Tobias: One thing that’s funny is when you go and look at it, it trades sideways and then it takes a step down, and then it trades sideways and takes a step down. It’s almost– I don’t know, maybe it’s trading around whole numbers or something like that. I didn’t look that closely. I just eyeballed it and thought it’s a funny. It has a very tight trading range and then it breaks, and then a very tight trading range, and then it breaks, which is different behavior to what it’s had before. Maybe it is stabilizing. Maybe that indicates that it’s more useful as a unit of exchange rather than just– [crosstalk]
Jake: Store of currency or store of value?
Tobias: Maybe it’s less of a trading side and more like a currency. Yeah– [crosstalk]
Jake: What will be the price of gold in one year?
[crosstalk]
Bill: [crosstalk] double that. Big double on bitcoin, by the way.
Jake: It’s currently $1,877.
Bill: Target price should be zero.
Jake: [laughs]
Bill: Gold?
Jake: Yeah.
Bill: What have I thought?
Jake: 1,877 right now, dollars.
Tobias: Yeah. I’ll say $3,750.
Jake: Whoa.
Tobias: Yeah, Jake, you should be giving your predictions too.
Bill: Yeah, Jake.
Jake: Okay. I’ll run mine at the end, just to– [crosstalk]
Tobias: You are going to go through– [crosstalk]
Jake: Yeah, just to crystallize.
Bill: Yeah, but you thought of this. I have not.
Jake: In fairness, I sent you a link to like– [crosstalk]
Bill: Oh. Yeah, I know.
Jake: Yeah, here’s all the questions, we’re going to talk– [laughs]
Bill: Yeah, but I have not prepared in the past and I’m not about to start.
Jake: Yeah, you’re the Cal Ripken of– [laughs]
Bill: Let’s go. $1,300.
Tobias: Is oil coming up here? Because we’ve got some oil predictions coming in too.
Jake: What will the price of crude oil be in one year?
Tobias: I haven’t really followed that closely. You’re aware of it at extremes, right? So, I remember when it went through zero. I reckon it’s $200.
Jake: It’s currently at $75, call it. So, just FYI.
Bill: Yeah, but that’s an SPR-adjusted $75.
Jake: [laughs] Yeah.
Tobias: $200. Yeah, that’s my prediction. $200.
Jake: $200? Jesus, what a world are we living in, Toby?
Tobias: If you don’t know, you got to go to the extreme, right?
Jake: Sure.
Bill: I’m going to go with– [crosstalk]
Jake: Yeah. What are you saying, $75?
Bill: Yeah.
Jake: Yeah. When you don’t know, bet against the base rate. That’s what I was– [laughs]
Bill: I think between $60 and $80 is my real answer.
Jake: All right. What will be the best performing major financial asset over the next year?
Bill: US small caps.
Jake: Okay.
The Best Way To Predict A Commodity Price
Tobias: Oh, please. I forgot to mention. When you’re predicting commodities, the best prediction for a commodity priced 12 months ahead is the current price. The reason is that it minimizes your error because you got no idea. So, that’s generally the best prediction unless you get it to an extreme– [crosstalk]
Bill: This would be what I would say for everything, by the way.
Jake: Yeah.
Tobias: Well, unless you get it to an extreme and then you get the mean reversion. So, if I was being statistically smart and a betting man, I’d betting the current prices for everything for the year ahead. I’m not going to say those things, because that’s boring, but it would be nice to track that as that’s the market. Do you what I mean? That’s the base.
Jake: Yeah, base rate is whatever it is today would be your– if you were a no-nothing.
Tobias: Yeah. It’s the smartest thing to do if you’re statistically inclined.
Jake: Too boring for the media though. So, let’s get a little crazy. [crosstalk] What do you think?
Tobias: I’m going to say equities and particularly emerging markets value. Emerging markets, small value.
Jake: Oh, all right.
Tobias: I think the thing that has been most beaten up over the last decade is probably the thing that turns around hardest over the next decade and probably start in this year.
Bill: Until everyone dies and there’s no terminal value in those.
Jake: Whoa.
Bill: I would take junk debt too.
Tobias: Yeah, that’s probably in there.
Jake: All right, I’ll add that as a– All right, I’m going to lock these in now. You’re happy with what it is and then I’ll reveal what mine are?
Tobias: Yeah.
Bill: No. I’m not happy with these. These are garbage.
Jake: [laughs] All right. Here are my answers just for fun. Dow Jones, $29,500. Total return S&P 500 minus 15%. US 10-year, 4.5. Rate of inflation, 6%. Bitcoin, $14,000. Price of gold, $22,000. Best performing asset class, energy.
Tobias: Interesting. Sober. Sober.
Bill: We’ll see.
Jake: All right.
Bill: US small cap, get ready.
Jake: [laughs] Rocket ship.
Bill: I’m serious. Small is beaten up in a big way.
Tobias: Small does look like a coiled spring to me. They’re a lot better than they’re being valued at the moment.
Jake: Does that rhyme with 2000?
Bill: I think that they’re trading at global financial crisis levels, which last I checked, this isn’t that.
Jake: I meant more of the still generally expensive broader market, but very cheap like small versus large, which was one of the characteristics of the 1999 to 2002 timeframe.
Bill: Yeah, I could see that. I could see large not doing so hot. I could see the index not going too many places and small doing pretty darn well.
Tobias: I want to do another little prediction. I’m going to double down on my– I still think that like just at the end of last year, we traded down 20% year on year, I got two crack jokes out before it traded back up again.
Jake: [laughs]
—
We’re Going To See Another Dip
Tobias: So, I want to make more of those crack jokes, cracks that are appearing in the market. I think there’s a reasonably good chance that we do see another dip, because we’re about 12 months into– So, the dip started right at the end of last year, right at the beginning of last year like day one of last year. Historically, they’ve run 18 months to two years, which means that– We know that the first two-thirds is about a third of the drawdown, last two thirds– Sorry, last third is two-thirds of the drawdown. So, that would mean that we’re coming up now on the action– [crosstalk]
Jake: Final act three of the play?
Tobias: Yeah. So, that means either– Well, it’s six months to a year, right? That’s the 18 months, two years. If this is like a 2000, 2002, 2007, 2009 style mega bear, this is when you see it. This is when it gets really crazy. So, I still think that there’s a good chance that happens, but I don’t know what the catalyst is. I don’t know what’s going to cause it. This is one of my topics too. I don’t want to gum it up too much, but Cam Harvey– it’s related. Cam Harvey wrote his 1986 PhD dissertation on the 10:3 yield curve inversion. He used data going back to 1968. I don’t know how many yield curve inversions there had been before then.
Bill: Sounds like some elite ivory tower loser.
Tobias: He’s an academic at Duke.
Bill: Yeah. What does he know?
—
Yield Inversion Predicting A Soft Landing
Tobias: He’s the [crosstalk] He wrote the 10:3 inversion. When he goes back through 1968, the 10:3 version has preceded every single recession. If you get a crash in a recession, that’s a much deeper crash. That’s like a 40% to 45% drawdown peak to trough. Since this paper came out in 1986, there have been four more. And in each instance, it’s led to a recession and a very big drawdown. He has come out recently and said that he doesn’t think this current inversion is meaningful and he doesn’t think it’ll lead to a recession. He says, “Sometimes, [crosstalk] are wrong.”
Bill: Soft landing, baby.
Jake: Really?
Tobias: One of the things that I’ve written about– [crosstalk]
Jake: What was his reasoning? Did he say anything like [crosstalk] that?
Tobias: Yeah. He’s got a variety. One of them is that he says inflation adjusted, the yield curve is a lot flatter than it appears, because he says they’re real numbers. I’ve just got someone blowing up my phone here. Sorry, I can’t look it up at the moment.
Bill: The inflation adjusted yield curve is new. I haven’t heard of that one.
Tobias: Yeah, I wasn’t aware that was the thing either. The first thing on his list was the labor market is tight. [crosstalk] Everybody knows that I don’t know what the O and the P.
Jake: [laughs]
Tobias: Thank you for everybody who sent me the email telling me about the O and the P. I do know what they are now, orders and profits. But it’s not relevant, because the H is the one you have to worry about. That’s housing. That’s the first one to go. And then, the E is the one you have to worry about on the long side, because when employment breaks, when employment cracks, that’s typically–
Bill: Lagging.
Tobias: -first sign of the recession, that’s beginning of the recovery. Yeah. And he lists that. He says labor market tightness and tech layoffs, because he says people who get laid off in tech get rehired again really quickly. So, there’s not a lot of slack there. So, those are his top two why. This is not– [crosstalk]
Bill: I don’t know if that assumption is going to hold water this time.
Tobias: Which part?
Jake: The tech.
Bill: I’d argue if there was any fat to really be trimmed from the system, it’s probably the number of tech employees that have been arguably overhired to juice growth in the name of chasing revenue multiples. [crosstalk] I’m not sure all these companies need to be this size.
Tobias: That’s right. I look at the numbers that they lay off. Astonishing. They’re so big.
Bill: Yeah. Well, even the small ones. My buddy in 2019, he said CEOs were just hiring engineers that they didn’t need to show growth, because that’s how you recruit more engineers, and your engineer growth drives your valuation and they were all trying to get rich. And guess what? Then, 2020 and 2021 happened and they all exited. So, they played the right game.
Tobias: Yeah.
Bill: Pretty smart.
Jake: [crosstalk].
Bill: Yeah. But I give them credit for identifying the way to exit and then exiting nicely.
—
Simple Models Outperform Expert Judgments
Tobias: Yeah. What all of that means is what I was going to say before. The inversion, this theme that I have written about in my books many, many times is this idea of simple models tend to outperform expert judgments. I think this might be another instance of– This is the problem. We all want to fade our models all the time. We all want to correct our models thinking that we can add to them. I just wonder if this is an instance of Cam Harvey, he’s an expert. There’s no doubt. And that model is a very good one and here, he is trying to fade his model again. I just wonder if it’s an instance of an expert trying to override a simple model. Because he makes the point, it’s a very simple model. It’s a one-
Jake: Factor?
Tobias: -a variable. Yeah, it’s a one-variable, one-factor model.
Jake: Yeah, what’s that? Was it Grove, I think, said in or maybe it was [unintelligible 00:25:53], but one of those guys that did a meta-analysis of all these simple models, and it was the simple model represents the ceiling, not the floor, compared to when you add the human element.
Tobias: The golden rule is that simple models outperform experts even when experts have access to the output of the simple model, because we just detract from it. We can’t help it. I just wonder if this is an example of it.
Bill: You should write them.
Tobias: Yeah.
Bill: Look, I’m just saying. I’ve written some books, you’ve written some papers. I think you’re wrong. Don’t override your model.
Tobias: I don’t want to argue with him though. He’s got good reasons. Who knows what he’s–
Bill: Twitter, put him on blast and tag Toby.
Jake: [laughs] Don’t do that.
Bill: Do it.
Tobias: He seems like a very nice man. [crosstalk]
Bill: A very nice man that overrode his model.
Tobias: Who knows? Maybe, he won’t be.
Jake: Yeah, we’ve all been there.
Tobias: Yeah.
Bill: Cardinal sin.
Tobias: Which means that we can get a big crash. It still might be on the books, but who knows? I’m not changing anything I do as a result. This is all just academic. This is just all bullshitting between us and whoever else is watching.
Jake: Yeah. [laughs]
—
Bill: Yeah. We should figure out how to tell everyone that the crash is coming like Robert Kiyosaki style.
Jake: Oh.
Bill: I bet it would drive a ton of people to our channel, which is what life is really about.
Tobias: Yeah.
Jake: Yeah.
Bill: Yeah. And then, sell them gold commercials or something like that.
Tobias: One of the– [crosstalk]
Jake: This guru bought Amazon at $1.
Bill: That’s right. He sold it at a buck 50, but he bought it at a dollar.
Jake: Don’t worry about that.
Tobias: That’s why you need to be David Gardner. Just buy a little bit of everything into– [crosstalk]
Bill: Careful.
Tobias: Hold on.
—
Authentic Sleaze
Bill: Careful now. He held on and added to Amazon. I will give him credit to that. [crosstalk] I don’t disagree with you. I think their marketing, I have some issues with. I don’t know where the lines are anymore.
Tobias: In terms of what?
Bill: I don’t know, man.
Jake: Yeah, you do.
Bill: No, I don’t know. I give these guys credit for over hiring and then exiting, and then some stuff pisses me off and other stuff doesn’t. I don’t know where my line is. I do have an issue with people that have built a brand in one field going to another and using somewhat sleazy marketing. I don’t mind if the sleazy marketing is inherent to the way that the business started, [Jake laughs] if that makes any sense.
Jake: As long as it’s sleazy from the beginning, you’re okay.
Bill: Correct. Yes. Because it’s consistent.
Tobias: Foundationally sleazy.
Jake: Yeah.
Bill: Yeah. Because you’re not flip flopping in that instance.
Jake: Yeah. Give me the straight sleaze.
Bill: Yes. That’s [crosstalk]
Tobias: One of the things JT and I were talking about before we came on, which I just want to add to what I was saying before– [crosstalk]
Bill: But real quick. Is that consistent or is that stupid how I’m thinking about that? I don’t know. Straight sleaze, at least I know it’s sleaze.
Jake: Yeah. Be authentically sleaze.
Tobias: Be honest with your sleaze. Is that what you’re saying?
Bill: Yeah, I think so.
Jake: Yeah.
Tobias: That’s the difference between bullshitting and fraud, right? The bullshitter, you know that they don’t believe what they’re saying.
Jake: [laughs]
Tobias: Fraud is like they’re trying to trick you.
Jake: Yes. [crosstalk] true.
—
Tobias: Persuade, I don’t know. Somebody wrote a book about it. The only point that I was going to make was that in 2000 and 2003, this is what JT and I were talking about before we came on, the market was massively overvalued and had that terrible crash that lasted for a really long period of time. But value, stuff that was undervalued did really well through that period. So, if you were a value-based stock picker and you were looking at the index as a reason to be in or out of the market, you miss what was the generational opportunity. So, you need to be careful watching big macro stuff.
I know I talk about it all the time on this, because I don’t really like talking about single names. So, that limits the amount of stuff I can talk about. So, I prefer to talk about like bigger macro ideas. But I do think that if you find something that’s undervalued, it really doesn’t matter what the rest of the market looks like. Even if it trades lower after you buy it, if it’s undervalued, you should buy it. Don’t worry about it. That’s not investment advice. It’s just my personal thought, talking to myself.
Jake: Yeah.
Bill: Right. I tend to agree.
Jake: Wisdom is following your own advice. Is that what you tell other people? [laughs]
Tobias: That’s following your own simple model, right?
Jake: Yeah. I think you are right though. [crosstalk]
Bill: There’s a lot of stuff that’s bounced pretty hard. A lot of stuff got pretty beat up in that last month of December.
Tobias: Do you think it’s– Sorry.
Jake: Oh, go ahead.
—
ARKK Flat For Past 5 Years
Tobias: This is another thing we were talking about before we came on, but do you think that the flows to something like Ark, which I think is kind of representative of the bubble that went through, the flows to Ark have been incredibly strong over the last 12 months. They’ve not dipped at all.
Bill: I’ve never had an opinion on this and I’m not going to start.
Jake: Oh, come on. This is a podcast, sir.
Bill: Look, I don’t know. One, I think some of those people are maybe doing the right thing. Two, I don’t understand how the hell that entire investment complex is structured, but I never have.
A lot of those things are up. If you go to the top, they’re down a ton. But if you go back to 2018, 2019, they’re performing pretty well. So, I don’t know. Is this before the crash when they’re all screwed or is this just a selloff that you got to deal with and you realize now, you get 70% forward returns. Who the hell knows? I wouldn’t bet on it.
Jake: [laughs] Oh, man. I don’t know the compliance, how they do that, but– [laughs]
Bill: They don’t have compliance. They ask for forgiveness, not permission.
Jake: Where we’re going, we don’t need compliance.
Tobias: [laughs]
Bill: That’s right. They’re in the future with ChatGPT as their compliance.
Tobias: Do you know who did have a good year last year? It was Berkshire.
Jake: Yeah.
Bill: Yeah.
Tobias: How does he keep doing it?
Jake: So, I’m looking like ARKK, the main one, I think is, it’s flat from August of 2017.
Bill: Ooh, that sucks. Perfect buying opportunity.
Jake: That’s a pretty far round trip.
Bill: Well, do you know how much innovation has gone on since then?
Jake: [laughs]
Tobias: It’s more than five years, right? Is that five years? 2018, 2019, 2020, 2021, 2022? Yeah.
Jake: I got to take my shoe off to get to numbers that high. [laughs]
Tobias: I can do it in on one hand.
Jake: Okay.
Bill: Yeah, boy. That is [crosstalk]
Tobias: I was counting with my fingers. [crosstalk]
Jake: There weren’t a lot of dividends, I don’t think, coming out of that portfolio either to worry about, right?
Tobias: It’s a really low dividend. I had to manually put the dividends in when I was doing the forward return calculations that I do. Because if you put in zero, it riffs out.
Bill: Yeah, that’s nuts.
—
Warren Buffett: You Don’t Have To Make It Back The Way You Lost it
Jake: Yeah. I don’t know the answer. I’ve wondered if it would be a useful model for everyone to think about something that Munger said in the 1994 meeting. Buffett at that time said, “You don’t have to get it back the way that you lost it.” Munger pointed that out as being very wise advice, and I wonder if that would be good for us to hear right now as well. If you’re trying to buy the dip in things or if you lost something and maybe there’s a chance to trade up into something else, even just if you maybe tipped more growthy earlier and thinking growth is where you need to stay, maybe you don’t necessarily. I don’t know. But just trying to evaluate the entire opportunity set as cleanly as you can without any kind of recency bias and anchoring bias to what had worked the last 10 years, let’s say.
Bill: Yeah.
Tobias: That’s a good thought.
Bill: It would be interesting. I don’t know.
Tobias: I like to say a lot of this stuff initially– So, I’ll get cover when it actually happens, but I think [Jake laughs] you need to be able to buy stuff that you think is undervalued and then sell it lower, because you’ve got better opportunities to put in there. It was not a bad decision when you bought it, because that’s what the auguries indicated. Whatever you look at, the entrails were pointing in that direction. Entrails were pointing in a different direction when you rolled out. There were better opportunities around. The shoulder bone cracked in a particular way when I threw it in the fire [crosstalk] that way.
Jake: It’s tough to sell 5 PE to buy 2 PE, huh? [chuckles]
Tobias: I would love that opportunity to do that. I don’t mind doing that.
Jake: I think you’re kind of rare in that instance though. I think there’s a lot of people who are like, “This is too cheap to sell.” Even if there is something else, they just feel like they know it better. “I’ve already done all this work on this one.” Yeah, it’s really easy to get sunk cost bias happening.
Tobias: I’ve wrestled with it for a long time and that’s why I say it up front so I can do it with impunity. Is it Buffet who says–? Munger, develop your eccentricities when you’re young, so it doesn’t look like senility when you get older.
Jake: [laughs]
Bill: Hmm.
Tobias: Same kind of theme, trying to do that.
Jake: Yeah.
Tobias: You said that the 1990s Berkshire Hathaway meetings, that’s the best vintage if you’re looking to go back in the late 1990s? What year is he predicting saying through there?
Jake: Probably 1994 through 2003 would be premium just because of you get to see a bubble forming, you get to see a bubble bursting, you get to see how they managed all the way through that. And especially in the early years, the quality of questions from the audience are just really high and Buffett and Munger are just absolute peak performance. They’re in their mid-60s then.
Tobias: Yeah.
Jake: They’re sharper, they’re faster, they’re funnier than even today. It’s really special content, I think, and just a special time in history to have those guys at their peak during a generational bubble and a burst, and just to see how they handle it in real time, and how their attitudes and what’s important to them at different periods of time, I just don’t think it can be replicated by much. Especially content today even, I don’t think can be as probably just not as good as that.
Tobias: I think it’s a consistent theme when you go back and look at bubbles that have formed is that each time they form, everybody thinks– that idea of the permanently high plateau, that was like– Was he a Fed chair or whoever said it in 1929? You knew that coming?
Jake: It’s Fisher. Yeah.
Tobias: Fisher. Who was he?
Jake: He was an economist.
Tobias: Just an economist. Okay.
Jake: Yeah, but a very preeminent economist at that time period. Who would be the equivalent today? Maybe– [crosstalk]
Tobias: Krugman.
Jake: Yeah, maybe Krugman. He was well known.
Tobias: Who else is out there as a well-known economist today? Like Nouriel Roubini, somebody like that. Dr. Doom. Who else?
Jake: Thankfully, there aren’t a lot. [laughs]
Tobias: Rubini got the Dr. Doom moniker because he predicted 2000, and then he’s been right once in a row and it was enough to–
Jake: He’s riding that ever since.
Tobias: [laughs]
Bill: Ah, he was all around in 2008, but yeah.
—
Living Off 1 Right Predection
Tobias: If you get a prediction right, you should never make another prediction.
Bill: Facts.
Tobias: Because then you blow up your reputation. From there on in, you’re just like, “How I did it on the World Economic Forum speaker circuit.”
Jake: How I did it? [laughs]
Tobias: How I predicted it? And then, Taleb, I guess, as well. Didn’t even predict it. Got credit for it, 2007, 2009.
Bill: He made money, that’s all that matters, right? I don’t know if he made money.
Jake: Uhh.
Bill: I don’t actually study him at all, even though I know I should.
Jake: I could be wrong about this, but my understanding is that– I don’t know if because it took so long to play out, but that he shut down right before the fireworks actually, like the big paydays would have happened.
Tobias: That’s my understanding.
Jake: And then, Spitznagel is the one who– [crosstalk]
Tobias: Who is his head trader?
Jake: Cashed all the checks, basically, when it did.
Tobias: That’s right.
Bill: Mm-hmm.
Tobias: Spitznagel’s first month was June 2007, and it was like 100%. And then, he was off to the races. And Taleb had been holding out. MICHAEL, Big Short. [crosstalk] No, sorry. Thank you. Yeah, I think Lewis or maybe Gladwell, somebody wrote an article about him called The Blow-Up Artist and said the only thing that could happen is he could bleed to death. He couldn’t blow up. It was all about how he was like– [crosstalk] Yeah, well, I just think it just got to him. I think it’s tough to be– Now that I’ve seen it closer, I think it’s very tough to be a blow-up guy, a tail risk guy, because I think the market is really– everybody interested in the market conspires against the guys who are the blow-up guys. They don’t like to see blow-ups.
Bill: You also have to be like, when that opportunity comes, you got to capitalize on it.
Tobias: You got to have it on. You got to have the trade on.
Bill: Yeah. I guess what I’m saying, and I think we’re saying the right thing or the same thing, but you got to have the right trade on, because I think there are a few of those vol guys that were kind of prepared and then didn’t execute.
—
Slow Meltdowns Don’t Trigger Tail-Risk Insurance
Jake: What’s happened to them this last year too, if a slow meltdown does not trigger tail risk insurance and you just bleed premiums, even though you could have a– If I told you that the S&P was going to be down 18% last year, you would have thought some tail risk guys probably got paid, but they didn’t.
Tobias: Oh. The hedge is down with your long book down. People were just like, “What are you for?”
[laughter]
Tobias: “You lost me money during the good times, and here we are in the bad times,” because we haven’t had– That was one thing that characterized last year, right? I didn’t feel the terror of March 2020. I could feel it in Twitter. I couldn’t feel it this time around. Nothing happened last year.
Jake: Yeah. The punctuated experience of a real drawdown in a short period of time.
Tobias: I think that’s the mistake that everybody makes. If you go back and look at 2000, 2002, first 12 months was down 20%, and then the fireworks started. 2007, 2009, I mean not quite 20%. It was like 19 point something. 19 point something also 2007, 2009 and then the fireworks started. Same thing this time around. Not done much. It doesn’t indicate that it’s over. These are the conditions that you would see before the fireworks start.
Jake: Is that the eye of the hurricane?
Tobias: The eye of the hurricane.
Bill: I don’t know.
Jake: Trademark. [laughs]
Tobias: What don’t you know, Billy?
Bill: I don’t know.
Tobias: It’s not predictable.
Bill: I know. I think the hurricane has hit small. That’s what I think.
Tobias: Small caps.
Bill: Yeah.
Tobias: Why did it miss everything else?
Bill: I don’t know if it missed everything. There’s a lot of stuff down. [crosstalk]
Tobias: Yeah, that’s fair. There’s a lot of carnage.
Jake: This is [crosstalk] 70%.
Tobias: That’s true.
Bill: Why hasn’t the index sold off yet?
Tobias: The index has to some extent, I mean, 20% sold.
Bill: Yeah.
Tobias: It’s only 16% now, I think.
Jake: Boy, 60:40 portfolio last year, that’s a– [crosstalk]
Tobias: Crushed.
Jake: You use TLT for the bond part of it. You’re down 23% last year, which is– [crosstalk]
Bill: Man, you were up a lot in 2020 or 2021.
Jake: But the person would have thought 60:40 is supposed to be this kind of relatively hedged, relatively safe.
Bill: Look, until it’s sold, it’s all just fancy pixie dust anyway.
Tobias: What about [crosstalk]?
Bill: All right. You can’t spend your investment account until you sell that shit and pay your taxes.
Tobias: You’re supposed to do that thing with your age. So, as your age goes up, bond allocation goes up.
Jake: 100 minus your age.
Tobias: Those people [crosstalk] smoked as well.
Jake: Yeah.
Bill: Yeah.
Tobias: They got more smoked. I don’t know. More smoked.
Bill: They got one chance to cash out at the top.
Jake: [crosstalk] heuristic was, I think, developed over 40 years of bonds going from 15 to 0. So, those adages are born from those type of–
Tobias: It’s weird, isn’t it?
Jake: -long tail wind.
Tobias: The basis of these things.
Jake: Yeah.
Tobias: They’re often very short.
Bill: It’s odd to me that interest rates declined at the same time that boomers aged and got spending power.
Tobias: Do you think that it’s like that big cohort, like somehow it reflects that they’ve been in control of the whole interest rate? It reflects them investing and then taking money out?
Bill: I don’t know. I really don’t know. It’s odd to me. One of the reasons that I don’t think that rates can go up is, I just think there’s so much money sloshing around and demographics are so fucked that I just don’t know how you get yourself to the– True economic growth, I think is going to be really, really hard. Now, maybe that ends up causing people to cling onto their dollars, because there’s not growth, you have to offer them a higher price to part with them. Maybe that’s how this works, but it’s just odd to me.
Tobias: Is [crosstalk] template?
Bill: Yeah, maybe, but I don’t know. Peter Zeihan, he was on Rogan yesterday. I don’t know, I like his book. I think it’s interesting. It jives with whatever demographics– [crosstalk]
Tobias: What’s his thesis?
Bill: That demographics are totally fucked. Look at the age of China’s population and then look at the age of basically any developed country. There’s going to be a lot of keeping boomers alive. There’s going to be a lot of money in healthcare to life extension. But outside of that, you’re going to have to replace a very big slug of people with a very small slug of people. It’s part of why I don’t really want to be long commodities. At the end of it, the operating leverage could get really ugly to the downside. Now, that’s probably beyond everybody’s investment horizon and who cares, but operating leverage going the other way is not a fun thing to deal with.
Jake: I saw an interesting tweet about– I think it was from Jesse Felder. It was about how hyperoptimized a lot of US corporations have become. So, thinking about GE or with Southwest and maybe not investing enough into their computer systems to keep them up to where they don’t crash like they did– [crosstalk]
Tobias: Ooh, with the airlines? Yeah.
Jake: Yeah. Just in general, this focus on optimization of US businesses, I was wondering if that actually could be somewhat of a deflationary force. When you’re underinvesting in your business, you look you’re earning more, your costs are actually higher than they are. But just because you have a bunch of delayed or deferred liabilities in technical debt and bad relations with employees potentially, all these things are on the balance sheet that were underrecognized and these fragilities are revealed in times of stress like we’re experiencing. And all of a sudden, maybe that becomes inflationary if you have to catch up on all of your stuff that you were underspending on.
Tobias: It’s not only that. Big companies use their wage employees or their frontline employees as like human shields. They do all of this stuff to make it to reduce the experience for all of the customers. The airlines are a great example. Then, who do you complain to? You’re complaining to the stewardess. I don’t know if that’s the politically correct term. I don’t know if you’re allowed to call them steward– [crosstalk]
Jake: Flight attendant.
Bill: [crosstalk]
Jake: Flight attendant.
Tobias: Flight attendant. You’re complaining to the flight attendant. That person doesn’t get paid until the door of the plane closes. That sucks. That’s the wrong person to be complaining to. You want to get on a line to complain to someone? No, I think it’s awful. I hate the way they do it because the decisions are made by people who don’t bear the consequences of those decisions. Thanks very much. Someone gave us a tip here. Thanks, AnOmniscientCat. Thanks for it. It’s very kind.
Bill: Thank you. We’ll put it in the market, it’ll go to zero.
[laughter]
Tobias: We’re going to put that in some vol calls.
Jake: Yeah.
Bill: Yeah, that’s right.
Tobias: Make some money out of it.
Jake: That’s right. Black Swan.
Tobias: The thing I was saying before, every single peak has been– There’s somebody there who’s saying, “It’s a permanently high plateau.” We always seem to think that technology has allowed us to escape from these market forces. Even this last one, it just amazes me. Every single time, everybody thinks that mean reversion is dead, the market doesn’t work anymore. It’s a permanently high plateau.
Bill: On the other hand– [crosstalk]
Tobias: We’re proven wrong every single– [crosstalk]
Jake: Disruption, bro.
Bill: Well, no, on the other hand, a lot of those quality stocks, they’re down, but they’re not down that much. I just told you I sold them plus 4%. I think it was the best timing call I possibly could have made. I don’t know, how much does that fucking matter? Now, obviously, it was super low basis and one of them, I think it was Merck ripped. So, that screwed my decision on the backward looking. I don’t know. I haven’t gotten the impression that– Look, SaaS and some of the growthier names destroyed. But I don’t know, my beloved Qurate, rest in equity peace.
Jake: [laughs]
Bill: There has been a lot of places that got blown up, but I don’t know. I guess expensive got hit harder. Real estate around here is fine. I just saw average transaction prices are 11% higher than they were last year.
Jake: Wow.
Bill: I know the end of the world is coming. I get it. But it’s not here yet.
Tobias: The same thing is happening here where it’s been selling off since September or something like that, maybe a little bit earlier than that. But because the bump was so high from the start of the year, it’s still like plus 6% year on year, even though the drawdown is 7% so far.
Bill: Yeah, it’s probably plateaued or peaked or whatever, but I don’t know.
Tobias: There’s that bump making its way through the snake in everything, commodities, stock markets, real estate markets. I think real estate is just really sticky. It takes a long time for it to show up. It’s hard to transact. You can’t just bounce out of the house the way you can tip out your stocks.
Bill: Yeah. The other unique thing is Fort Myers and Naples helped the situation for those that did not get hit so hard by hurricanes. So, it’s a little unique. Our rents went up year over year. Just kind of nuts. But I think it’s people that would have gone to the West Coast are no longer– They’re looking for somewhere to go.
Tobias: Because there is a big real estate drawdown going on. I get news articles that said to me like that all the time.
Bill: Yeah. And like fucking Boise. Who cares about Boise? Boise sucks.
Tobias: Vegas.
Bill: Boise doesn’t actually suck. I don’t actually mean that. I was watching Joakim Noah talk about Cleveland and they were like, “Do you regret what you said about Cleveland?” He was like, “No, Cleveland sucks. I’ve never heard anyone say that they’re going to vacation in Cleveland.”
Jake: [laughs]
Bill: I thought that was funny. So, anyway, that’s where I pulled the Boise thing from.
Tobias: Yeah.
Bill: I don’t know, I think some of those tertiary market’s definitely getting hit. But I don’t know, man. Quality, I think assets for the long term is something that– Maybe it’s a little wrong lesson to learn, but it’s one I’ll probably stick with [crosstalk] indexing.
Jake: It does seem like it’s a FIFO experience, right? It’s like first in– Or, LIFO, I mean. Last in, first out when it comes to those kinds of bubbly areas.
Bill: Yeah. Well, I’ll never forget a professor at Auburn. Somebody was like, “Oh, man, it’s so cheap to live here.” The guy’s like, “Yeah, no one wants to.”
Jake: [laughs] But he did.
Bill: I don’t know. Well, I think he got paid a reasonable amount.
Jake: Should we take some questions since we– It’s been so long.
Tobias: I’ve got one. “Where do you want to buy Tesla?”
Bill: Next.
Tobias: That was a question from the crew. Let me look at where it is.
Jake: Yeah. What’s the market cap right now?
—
What Is The Economic Case For Self-Driving Cars?
Bill: I asked a question on the Twitter machine. I messed up how I asked it, but I said, “What is the economic case for investing in self-driving?”
Tobias: Revenge.
Bill: The amount of answers that I got– The one that makes sense to me is if you believe that the world goes to local monopolies and there’s a data advantage, then you can harvest the economic profits. I don’t know how big of a fleet you need. I don’t know what your cost on your fleet needs to be, and I don’t know what your discount rate that you’re assuming is. But so many people were like, “Oh, well, people won’t die. Insurance will go down.” Almost all the answers did not explain why money will get harvested from this. It’s just like why it’s a benefit to society.
Tobias: Yeah.
Jake: I don’t know. I do not trust Elon Musk.
Tobias: Consume a surplus versus produce a surplus.
Bill: Correct. Yeah. I just don’t trust Elon and I don’t understand it and I don’t understand where the galaxy brain has the equity. So, I will continue to let everyone else make money and I will stay poor.
Tobias: Has anybody had that kind of demolition of their reputation the way he has over the last 12 months?
Bill: He bought a social media company. It’s a terrible idea.
Jake: Ooh. You said that a long time ago, Bill, and I think that was right.
Bill: I see. [crosstalk]
Jake: Why would you ever want to deal with First Amendment issues? [laughs]
Bill: It’s so stupid. He’s not stupid. Don’t get me wrong, but that decision is a great way to have people hate you.
Tobias: Because I don’t know what the value of Twitter is, but LBO Twitter at $44 billion, where you’re already negative on the interest payments. Every single bad deal from the peak of every single stock market crash has exactly that kind of deal in it, where somebody way, way overpays where the flows don’t pay the interest on it and people just– [crosstalk]
Jake: It’s just AOL 2.0.
Tobias: To be fair, AOL-Time Warner, that was a stock for stock deal, so that– the AOL gentleman whose name is just escaping me could [crosstalk] the sunset.
Jake: Case.
Tobias: Case. Yeah, that was a brilliant deal for Case.
Jake: Oh, yeah. of course.
Tobias: Case did a good job. Nobody else did.
Bill: Yeah.
Tobias: This a financial transaction. LBO is a financial transaction.
Bill: Look, at the end of the day, you have to be comfortable getting in bed with Elon if you’re going to buy Twitter or Tesla. I’m not there.
Jake: Doesn’t he have 12 kids already. What do you–
Bill: Yeah. But you know what I mean? You are going to depend one man. Without him, that whole equity falls apart.
Tobias: [crosstalk] was a little distracted.
Bill: Yeah.
Tobias: He had a few other things to do.
Bill: Yeah.
Tobias: SpaceX, Twitter, The Boring Company. That’s huge.
Bill: I’m sure he’s not running- He is running Tesla, but I get the same way– [crosstalk]
Tobias: One way to put the wires in people’s brains.
Bill: Capital– [crosstalk]
Jake: Neuralink.
Tobias: Neuralink.
Bill: I don’t know.
Tobias: Look, if technology goes that way, we’ve got to have an operation to get wires put into your brain, I’m just going to let technology go on without me. I’ll be back here in the real world using my hands to open doors like an idiot, [Jake laughs] but I don’t want wires in my brain.
Bill: What’s the next question?
Tobias: “Why is Twitter connected to the fundamentals of Tesla?”
Bill: Well, because you’re banking on a key man and that key man happens to be incredibly distracted would be my best answer.
Bill Miller Shorts Tesla
Tobias: Samson says that Bill Miller has a short on Tesla. That’s very un-Bill Miller like, isn’t it?
Bill: Oh, I heard Bill Miller’s portfolio is really something. Somebody said that we should talk about it. What did he say? He’s long Coinbase, Silvergate, Amazon, and Bitcoin.
Jake: Wow.
Tobias: And short Tesla.
Bill: Yeah.
Tobias: Long Coinbase, short Tesla is an interesting trade. There’s a very strong statement there.
Bill: I’ve never known. I’ve never known. [crosstalk] Yeah. Why would I know now?
Tobias: I’d rather be short Coinbase and long Tesla if that’s my only two options.
Bill: Yeah, if you ask me anything in the car space, my answer is Garrett Motion. That’s a company I’d like to own. So, that’s what a boomer I am. That’s it. They make turbochargers. So, I’m on the end of ice. I’m going to get destroyed on it. The terminal value is zero. It’s probably zero next year. How can you possibly be in it? I don’t know. That’s why I have no money.
Jake: [laughs]
Tobias: To be fair to Tesla, I don’t think it’s a donut, because it’s generating free cash flow. It looks to me like it’s generating free cash flow. I don’t know if that’s– If you dig into it forensically, I don’t know if that’s actually the case. But it does appear optically from the outside that it’s generating free cash flow. It’s got huge support. I said a few podcasts back that maybe Tesla was starting to look invincible, because it’s got such a huge community of people who are so on the message, they love the– [crosstalk] Yeah, exactly. I thought that the big risk to that was something like Musk destroying his own reputation, which now seems to have happened. But I still think Tesla is probably okay, but that doesn’t mean I want to buy it at $100– It’s like $117 today and I think– [crosstalk]
Bill: I don’t know. You want to counter trend trade it? You could do that. Moving average, the 50 days at $167, I could see a big bounce. The 100 days at $215, the 200 days at $245, [crosstalk] sold, fine.
Tobias: I want to buy for fundamental reasons.
Bill: Yeah.
Tobias: It could bounce. I don’t know about that stuff. I don’t know about how that all works. But it’s too expensive where it is. [crosstalk] We’re at the 50 bucks at 30.
Bill: I hear that moving– [crosstalk]
Tobias: I don’t think that stuff works on individual names, does it?
Bill: I don’t know. I think as an exit rule, it may.
Tobias: [crosstalk] just have more looked at it and he said it works on indexes but not on individual names.
Bill: That’s possible. They bounce around a lot more. But I wonder if it’s an exit rule, it makes some sense. At a minimum, I bet you’re spared a lot of carnage. Now, that may come at lower returns.
Jake: I’m sure Wes has done some work on this with a value in Momo and Meb as well.
Tobias: Yeah, at an index level, it certainly works. Probably at a strategy level, that works too. But I don’t think it works at an individual name level.
Bill: Well, there you go. Then, we don’t buy Tesla, I guess.
Tobias: Not here. I would love to flip long and buy Tesla at like $20. Wave it into the screen– [crosstalk]
Jake: What would that market cap imply? What’s that, like $40 billion, $50 billion?
Tobias: Like a 50– [crosstalk]
Jake: 50 billion?
Bill: There was a dude on Twitter, I’m pretty sure he went by Katis. If I’m not mistaken, he called Tesla pretty much at the bottom. And then, Maxar, he called, but apparently got blown up in between, which is not great. I like the way– [crosstalk] Yeah, that’s the problem. I don’t even know if he actually got blown up or not. I just think– [crosstalk]
Jake: That will be one of the annoying things to come out of this, is that assuming that it does crater eventually more, there’s someone will have time that short correctly and will take a huge victory lap on it when there’s a bunch of dead bodies in front of them that could have easily been them as well.
Tobias: Right. One time in a row.
Jake: Yeah. That will be unfortunate when that happens.
Tobias: I’m just trying to get right once in a row. It’s not that easy.
Jake: Just one time for daddy.
[laughter]
Bill: Yeah. Well, that’s what I was talking to– I interviewed the guy that goes by Henry Rearden. He shorted Carvana. I was just like, “Dude, how did you manage it short?” He had a short thesis since 2019. I can’t even figure out long only. I couldn’t imagine figuring out short.
Tobias: You got to stay small, and you got to take your losses along the way and keep it small but You got to keep on selling down or whatever though.
Jake: Yeah.
Tobias: You got to keep on trimming it small. You don’t want to– [crosstalk]
Jake: Risk management.
Tobias: You don’t want to let it go from 1% of the portfolio to 2% of the portfolio.
Jake: To 10, which is what happened–
Tobias: Yeah, that’s right. You got to keep it at one. Sell it down to one, it goes against you– [crosstalk]
Bill: Ah, so you just keep trimming it back to your– [crosstalk]
Tobias: You have to. And then, when it starts going in your favor, then you maybe let it ride a little bit more. But that’s time, dudes. We made it.
Jake: We did it.
Tobias: Thanks, everybody.
Jake: I missed you, guys. It’s good to be back.
Tobias: Likewise. Missed everybody. We’ll see you–
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