In their latest episode of the VALUE: After Hours Podcast Jake Taylor, Tobias Carlisle, and Bill Brewster discuss:
- Ben Graham Doesn’t Get Enough Credit For His Work On Quantitative Value Investing
- Logical Conclusion of Fundamental Analysis is a Hold Forever Period
- Contrarian Optimism: The Secret to Outperforming the Market
- Operation Twist: Can It Help Equity Prices?
- Small Value and EM Value: Best Bets for the Next 10 Years
- Stock Market Dynamics: The Unpredictable Nature of Inputs and Outputs
- The Federal Reserve’s Yield Curve Inversion Explained
- Value Spread To Narrow Further
- Lumber Market Rollercoaster
- Insights on U.S. Home Prices and Mortgage Rates
- The Inflation Reduction Act Is New Spending
- Ozempic: Risks & Benefits
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:
Breaker
Overcast
RadioPublic
Stitcher
Transcript
Tobias: We are live. It’s Value: After Hours. I’m Tobias Carlisle. We got the band back together.
Bill: Mouse is running.
Tobias: Jake and Billy, what’s happening?
Jake: Yay.
Tobias: What’s happening, fellas? Is there anything going on in the world that we should talk about?
Jake: Oh.
Tobias: Should we limit our comments to the markets today?
Bill: I think so. I think that makes a lot of sense.
Jake: Yes.
Bill: Is COVID still a thing?
Tobias: I think so.
Jake: Is it back?
Bill: Yeah. I don’t know.
Jake: I’ve heard it’s back.
Tobias: I don’t think it ever went away.
Bill: I heard kids can enjoy Halloween again, which is nice.
Tobias: It’s something that I haven’t really thought about, except that every now and again, there’s a note from the school saying somebody’s got it. But I think we’re past the worst of it, I hope.
Bill: Yeah. Well, what is going on?
Jake: [laughs]
===
The Federal Reserve’s Yield Curve Inversion Explained
Tobias: Yeah, what is going on in the markets? This is a funny time in the markets. I still think that the 10-3 inversion is a live issue. So, I’m just waiting to see how that all plays out.
Jake: Is that uninverted yet to trigger the imminent collapse of Western civilization?
Tobias: We got to -1.89. Like, there were two lows in April and June. And it’s been closing pretty consistently since then. On Friday, it was 0.85. These numbers are meaningless. I know, I’m just trying to give you an idea of the scale of the– That was the most inverted. It’s been probably going all the way back to since– We tracking—[crosstalk]
Jake: Stone Ages?
Tobias: Yeah, since the Stone Age.
Jake: [laughs]
Tobias: Yes. There’s not much data out there. So, it’s a fairly short data series for what it’s worth. Not many ends in it. We’re a little bit past halfway back to normalization. I don’t know what happens if we– The lag that Cam Harvey talks about is from the first point of the inversion. But it’s been such a long inversion. It seems unlikely to me that we uninvert by October 25, which would have been, like, that’s the average length of the– That’s when the recession follows on from the—So, it will still be an inversion when that comes around in a couple of weeks.
Jake: Wow.
Bill: Do you know the uninversion is–
Tobias: Normalization. Yeah.
Bill: That’s when they say that you really got to worry, as Jake alluded to.
Tobias: Post that. Yeah.
Bill: Is that because the front end gets cut, or is that–? In this instance, the long end came up.
Tobias: Yeah.
Bill: Is that actually a positive thing, because it might imply growth is going to be good or–?
Tobias: I don’t know. Same—[crosstalk]
Bill: Yeah.
Tobias: I don’t think that’s been tested. There’s not much because there’s so few ends. It’s not like you can really subdivide it into different scenarios, but—
Bill: We could make up stuff though. That’s never stopped us.
Jake: Yeah, we could.
Tobias: I read—[crosstalk]
Jake: [laughs]
Bill: It’s a radio show, folks.
Tobias: My old lecturer, Chris Leithner, who’s still based in Australia. He’s Canadian econometrician, who looks at these sort of– He’s much more interested in the economic side, although he’s also a deep value investor. So, I just—[crosstalk]
Jake: Wait a second. What’s your relationship with him?
Tobias: He was a lecturer of mine at UQ, University of Queensland.
Jake: Oh, really? I didn’t know that.
Tobias: I knew him at UQ.
Jake: What’s he like as a person?
Tobias: Very gentle soul. Very, very intelligent. I really like him as a human.
Jake: Oh, I’d like to meet him someday.
Tobias: Yeah. He’s a good dude. I think he lives in Tasmania now though, because he’s trying to hide from the globe.
Jake: Is that even a real thing? I thought that was just [unintelligible [00:03:44] [laughs]
Tobias: I’ve never been. I don’t know if it’s real or not.
Jake: Okay.
Tobias: It’s a Hollywood soundstage, for all I know.
Jake: [laughs]
Tobias: He says that the inversion is mostly the Fed raising front end rates to dampen, so that nobody knows what interest rates should be right. At least of all the Fed or any other central bank around the world, they tend to err on the side of too low because that stimulates the economy, and everything looks great. And then they have a problem where inflation runs too hot or whatever happens. And so, then they have to jack up rates to get that under control. And so, they pull up the front end, which is the part of the yield curve that they control. You pull up the front end, you suck some of the liquidity out. That’s what causes all the speculation in real estate and property markets and stock market to cool down.
They keep on raising trying to get the inflation under control. They don’t know what the right number is there either. And the lag is 2-year, 18-month lag. And so, they overcorrect. And then the moment that they see something break, they start cutting. But because there’s a lag, the cut doesn’t have any effect for quite a while. It’s animal spirits…
then rates low. That’s you see the behavior of the yield curve that you do. I think that’s pretty much borne out empirically, even though there’s only eight instances that you can look at as to the question about whether you can uninvert it with the back end of the yield curve coming up. That seems to have been what’s happening. The 10-year has been rising really quickly, but I don’t know if it changes anything. They’ll still cut.
Bill: Yeah. I don’t know if they’re cutting anytime soon. But obviously, if we’d fall off a cliff, that seems to be—
Tobias: What are they going to do?
Bill: Well, I don’t know. It depends if employment sticks in, right? But I guess, you would think employment would go down.
Tobias: Yeah.
Bill: This is the analysis you come here for, folks.
Jake: Yeah. [laughs]
===
Tobias: Employment tends to be lagging. So, employment tends to be– That’s Michael Kantrowitz’s HOPE framework that the E goes last. And so, the E is much closer to the bottom of the stock market crash.
Bill: I see you, Jake, but Toby’s going into the matrix a little.
Jake: Yeah.
Bill: Yeah, dude, you’re speaking too much truth to power.
Tobias: [laughs]
Jake: Little bit of matrixing on Toby’s part? Yeah.
Bill: Yeah, the employment would be last. Look, if you had a job, and one side was price stability and the other side was employment, why would you not continue to hike until employment cracked? It’s the way it’s set up, so they just have to keep going until they don’t go anymore, or they’ve gone too far.
Tobias: It does seem when you look at those two relationships, interest rates and employment. I understand why they create those as the dual mandate of the Fed, because if you set rates low, you get low unemployment. If you set rates high, you get more unemployment. If you look at the two charts together, that’s what the relationship looks like.
Bill: All else equal, right?
Tobias: All else equal. All else equal. That’s right.
Jake: Yeah. My interest in Chris goes back probably 15 years at this point, because he was one of the first who I saw tried to integrate value investing with Austrian economics.
Tobias: That’s right.
Jake: You just don’t see too many of those in the world. If I had more time and I was more enterprising, I might try to pursue that integration more, but it seems like it take a lot of brain damage to do it.
Tobias: He writes a lot. He writes like an academic in the sense that he sources everything he writes. There’s very little speculation without some underlying data or article or something that you can pursue further to the extent that you disagree with what he says. So, he’s a good record keeper of what’s occurring, because I think his writing is very clear. It’s very easy to understand and he’s very good at sourcing. So, I think he’s a very useful voice out there. It’s worth reading his stuff, and there’s lots of it. He writes faster than I can read, I think.
Jake: [laughs] Yeah.
Bill: It’s quite a skill.
Jake: It’s a he? Oh, the.
Tobias: He sends a newsletter out once a month I think, and more stuff in between. But it’s very good stuff. Even if you disagree, it’s worth taking a look at.
Bill: No, I only read stuff that I agree with.
Tobias: Should I do some shoutouts? Santo Domingo. Bendigo, what’s up? Early stuff for you. Brandon, Mississippi. Gulf of Mexico. Yes. Toronto. Bangalore. Waynesboro. Toronto. Bill Fansville. Tallahassee.
Jake: Ooh.
Bill: Hey.
Jake: I have been there.
Bill: Church.
Jake: Bill Fansville.
Tobias: Katowice, Poland. Amsterdam. Durham.
Jake: Deep in the south.
Tobias: McMurdo station, Antarctica. Is that true?
Jake: Yeah. Pics or it’s not real.
Tobias: Havertown. Beijing, China. Arjeplog, Sweden. Leeds. “Macro: After Hours.” Yeah, that’s right. Gothenburg, Sweden.
Jake: We apologize. [laughs]
Tobias: I guess, we’re always pretty macro here, because it’s a finite amount of stuff that we can talk about. I think that macro is the deciding factor at the moment, unfortunately.
Bill: Is it ever not?
Tobias: There was some criticism on Twitter. I saw you jumped in there. What was the two criticisms though? They don’t like the value spread. So, I’ll give you a value spread update. [crosstalk]
Bill: Yeah, we need the value spread update.
Tobias: And too bearish didn’t push back enough on Zach, but I’m pretty bearish. So, we probably needed Billy for that one to bit more– [crosstalk]
Bill: I don’t know that I’m super bullish.
Jake: Lucky optimism.
Tobias: Let’s hear some good stuff.
Bill: I said back when Russia invaded Ukraine, I remember I was sitting outside, I had to do the episode. I did part of the episode from my car, and I did part of it from sitting outside because I was locked out of my house.
Tobias: [crosstalk]
Bill: I remember that episode, and I said, “I think that stuff is tough right now and I continue to think that stuff is very tough.” I don’t have strong opinions either way. Although, and I’ve been wrong on this, small cap and EM does look relatively cheap, but it has only gotten cheaper since I started to think that, and talked to enough guys that were around in ’08 that they say that if you make that bet too early, cheap can go a lot lower also.
Tobias: We had a good one with Juan Pablo Torres. Is it Schroeder’s on Em Value? He’s an Em value guy. Kind of interesting. His process through there.
Jake: Survive. Is that the process? [laughs]
Bill: I think I was—[crosstalk]
Tobias: [unintelligible [00:11:02] metrics.
Bill: Yeah. The tough thing about EM– I tweeted this out, but I didn’t really say what I meant. I talked about going passive. The tough thing about EM and small cap is I think I would hate to have the idea and be right on the idea and screw it up because I chose the wrong product. That would drive me nuts.
Jake: Yeah.
Bill: So, looking for the right product or manager. I think it’s probably a manager. Now, I’m going to get a bunch of retail guys-
Jake: [unintelligible [00:11:37]
Bill: -that send me. Yeah. “Hey, it’s me.”
Jake: [laughs] Yeah.
===
Value Spread To Narrow Further
Tobias: The value spread came in a little bit just in case, just so everybody– [crosstalk]
Jake: Stays up to date on that?
Tobias: February 2023 was as wide as it got on EV/EBIT. It’s come in again a little bit through to the end of September. It’s been good for EV/EBIT strategies over the last 12 months. Some reasonable outperformance there for those that are out and about looking at that stuff, but still seems very wide to me. It’s still wider than 2009. So, I think it’s probably got a little bit to go there. The really amazing story, I think I tweeted out a few of these charts is just looking at smalls versus SPY. It’s crazy. So, the data only goes back to 2000. I don’t know how representative is of the ordinary experience, but there’s this extraordinary run for small value from 2000 to 2008 massive outperformance.
Jake: What are we talking about here when we say smalls like–?
Tobias: Well, this is IWN. So, this is Russell 2000 value.
Jake: Okay. Perfect.
Tobias: I forget whose ETF it is, but that’s the Russell 2000 value. Massive outperformance from the start of the data in 2000 to mid-2008. And since mid-2008, it’s just lost the entire way through. It hasn’t quite given it all back though. The outperformance was so huge at the start. So, IWN has done about 500% cumulatively since 2000. SPY has done about 360% cumulatively since 2000, but all of the outperformance is in that January 2000 to mid-2008.
Jake: Without naming names, you could highlight probably a lot of investment gurus whose performance looks pretty comparable to that, right? Like, the tide has been difficult to swim.
Tobias: There’s a lot of value guys who got famous up to 2008, and then it’s been a little bit tougher since then. Tougher sledding. Inosaurs, all of us.
Jake: [laughs] Do you like my little pictures that I had my graphic guy put together for me?
Tobias: That wasn’t ChatGPT?
Jake: No, it was. Yeah. It was one of those, but I don’t know how to do it.
Tobias: That look cool. I tweeted him out.
Jake: Yeah.
Bill: Mario Cibelli is doing a lot of work on this.
Jake: On inosaurs?
Bill: No, just on the small cap stuff. It’ll be interesting to see, right? I think that the retort is with the growth of private equity. They’re the people that might capture small cap value, because they’ll buy it at the bottom and you got to wear the downside risk and they’ll take the upside. I don’t know that I buy it, but it’s a nice convenient narrative to wedge into price, which usually tends to happen.
Jake: So, maybe only the dogs are left over in the ones that private equity didn’t want to buy?
Bill: Yeah. Or, the types of businesses that maybe private equity doesn’t want.
Tobias: There’s two elements to it. There’s that private equity picking out the better stuff or the more consistent stuff, maybe the more stable stuff. And then there’s also Sarbanes-Oxley, which added about a million dollars in compliance costs, which is, material, if you’re a small cap company off your bottom line because that just goes straight through your bottom line. So, they just decided that they’d don’t list small, just wait until you’re bigger.
Jake: Yeah.
Tobias: So, it’s probably not the same opportunity. Having said that, that is one of the few places where it pays to spend a little bit more time doing some research and doing some work in small caps because you can build pretty broad portfolios of much higher quality companies than you can anywhere else in the market. It’s just largely ignored. So, I think you paid for looking around in the smalls. I think if you’re a value guy, it’s a pretty easy place to hunt. But we’ll see. Hope springs– [crosstalk]
Bill: It doesn’t work now. It’s not going to work.
Jake: Yeah. It’s all flows.
Bill: I tend to think it’s going to work. But if it doesn’t work, I don’t know what I would need to see in order to think that it would, right?
Tobias: I just think you need to be more patient than anybody can possibly imagine. You just got to–
Bill: Yeah, you got to own the businesses, right?
Tobias: Yeah, that’s it.
===
Lumber Market Rollercoaster
Jake: Man, this is teeing up the veggie segments so nicely. Just keep going.
Tobias: [laughs]
Jake: I love it. And of course, it was because we planned it this way, right? [laughs]
Bill: Yes.
Tobias: It’s been a wild run, I think, through these last few years. What a crazy macro backdrop that has massively influenced micro results in everything. Like, the shutdown alone was huge, and then the restart with all of the prices going kerflooey through that. Like, remember when this was a lumber podcast?
Jake: [laughs] Yeah.
Bill: I still own some lumber. I’ll tell you what’s crazy about lumber, as shitty as that is. Let’s see, lumber CME price. $494. 50-
Jake: Still higher than–
Bill: -with rates at 8% on mortgages.
Jake: Yeah. How does that happen?
Bill: Well, that’s the question.
Tobias: Well, I think that might be part of it, because there’s been that weird effect where people haven’t been able to buy secondhand homes. They’ve had to go and buy their homes brand new because they can get the rate bought down. So, they’re still building.
Bill: That’s part of it though. But there’s a lot of renovation that goes into that demand. Look, you got fires, you got wood disease, you got all types of stuff. Let’s put it this way. If the thesis was that, lumber would be higher for longer. I think it’s very hard to argue that thesis is wrong. Whether or not it was expressed in the right way is maybe a different question.
Tobias: Is there such a thing as a real price of lumber? Do you know what I mean? Can you inflation adjust lumber or that’s impossibility? It’s just price to price?
Bill: Well, you could if you did your own. If you went back to the 1990s or whatever and put your own compound– [crosstalk]
Tobias: [crosstalk] whatever the decoder is. Yeah.
Bill: Yeah. I think like most commodities, it hasn’t gone anywhere in real terms in a long time.
Jake: Here’s how bad I am at macro. 2020, our fence has been falling down for [laughs] a number of years.
Tobias: [laughs]
Jake: Already at that point.
Tobias: It picked up.
Jake: I was like, “Oh, man, we should fix this. But the prices have to come down.” This was before they ran up. I’m like, “Okay. GDP is off 25% during COVID. There’s no way the price of lumber can’t do anything, but go down in that situation.” And of course, the next time I look, it’s $1,200 a board foot. And it hasn’t come back down at all.
Tobias: [crosstalk]
Bill: Yeah. Well, it’s lower now, but yeah.
Jake: Not from where I first said it should go lower.
Bill: The stock certainly is fun.
===
Tobias: There’s some testimony out of the SBF trial, where they said that they spent– I don’t know what they did, but they spent a lot of money trying to predict who the winner of the 2016 presidential election was going to be, which they got right, and managed to front run CNN figuring out who it was going to be, and then put the trade on that they thought would be the sensible trade given the outcome of the election, and just got it 180 degrees wrong, of course.
Bill: Sounds right.
Tobias: Which is why macro is hard.
Jake: Yeah.
Bill: Roger Dodger.
Jake: [laughs]
Bill: What else are we talking about? We’re talking about something before we–
Tobias: Lumber.
Bill: Yeah. Balls. I don’t know. Oh, well–
Tobias: You can took more broadly– .
Bill: Oh, COVID stuff.
Tobias: Oh, ggod.
===
Analyzing Thermo Fisher’s Fluctuating Operating Margins
Bill: I pinged you guys about Thermo Fisher, because I’ve gotten pitched that recently. I was looking at that business. This is a lot, because they were COVID, they were a beneficiary, and then they were running at full capacity. 2019 operating margins were 36%. 2020 were 50.2%. Then you get to 50%, and now you are back in Quarter 2 to 33.1%. My perception of a lot of that is you had COVID vaccines running off, you’ve had destocking in the channel. They benefit from lower rates incentivize research at the lower end of the market cap, so drug discovery. And that uses a lot of their products. I think now that rates are higher, you’re seeing pipelines not come out as quickly. They guided the 7% to 9% growth in 2021. It will be interesting to see if they can hit that growth projection. They did that when they had a lot of tail [crosstalk] long term.
Jake: [crosstalk] before?
Bill: Long-term. They say, long term, 78%. They got a little bit of catch up to go to get to 78% long-term. I will be interested to see whether or not they can hit that. I would lay chips against that particular guidance. It’s just interesting. Even a business like that, you can just see the whipsaw on the numbers.
Jake: Yeah.
Tobias: It’s everywhere.
Bill: Yeah, it really is.
Jake: Yes, it’s everywhere.
Tobias: It makes it hard to figure out what you’re looking at often.
Bill: Yeah.
Tobias: I don’t know what the solution is.
Jake: The chart is this upside down. [laughs]
Bill: I think the solution is to do less until you have a unique insight, and then do more, and then do less.
Jake: So, be a little more discerning.
Tobias: You’re like [unintelligible [00:21:59] at the beach. Do less. Do less.
Bill: That’s right.
Tobias: Do too much, do less.
Bill: Yeah, that’s right, man. That is right.
===
Insights on U.S. Home Prices and Mortgage Rates
Tobias: I got something from Lance Lambert. I should give him this proper—Fortune Magazine’s real estate editor. He says, “We’d return to pre-pandemic housing affordability IF one of these 3 things happened–”
Bill: We’re not going.
Tobias: “U.S. incomes spike 55%.”
Bill: Nice.
Jake: What?
Tobias: U.S. home prices fall 35% Mortgage rates fell 4 percentage points. That’s from Andy Walden, @black_knight.
Bill: Yeah.
Tobias: Hard to pick mortgage rates falling 4% seems like the easiest path.
Bill: Let’s put it this way. If rates don’t go down, almost everything that requires a loan is going to be very interesting to forecast volumes on or price for that matter. But look, the amount of people that locked in rates, a house is not a two-year asset. I wouldn’t want to be a forced seller right now, but I don’t know that it’s as big of an issue.
Tobias: I think it’s always force seller–
Jake: Yeah.
Tobias: It’s always forced sellers.
Jake: We got to figure out a way to get that portable mortgage product thinking about–
Tobias: You’ve got a 2.5% yielding asset in a 5% yielding world, that asset is worth half. So, how can you transfer over the liability? I don’t see how it works. Why would they let you do it without marking it to market in the transaction?
Bill: I think the math works there.
Jake: [laughs]
Tobias: Somebody’s got to eat the loss there.
Bill: Ah, you just market the model.
Jake: Now you’re thinking like a real investment banker.
Bill: Yeah, the bank doesn’t have to.
Tobias: What finance guy is going to pass that through at model?
Jake: Then you securitize it and you sell it to the Fed and-
Tobias: yeah, that’s right.
Jake: -it’s gone.
Tobias: They take it apart.
Jake: The Fed really is the vaporizer of bad assets. [laughs]
Bill: Yeah. We’ll see. I’m selling two houses here shortly. So, I’ll let you know how it goes.
Jake: Oh.
Tobias: Get them done.
Jake: Yeah.
===
Bill: Yeah. I’m perhaps naively not that worried, but when I come back in the fetal position and give you an update, I’ll let you know how that felt.
Jake: Well, anytime celebrities sell their houses, it always goes for way more than market because everyone wants to say they lived where–
Bill: Speaking of which, I’m going to do this shirtless.
[laughter]Jake: For those of you listening, no video.
Bill: No video. Watch it. If you’re not watching, you don’t get it.
Bill: Bill lifted up his shirt to reveal six pack abs.
Bill: No. My OnlyFans account, which I’m going to need after these house sales.
[laughter]Jake: Oh, Lordy.
Tobias: I thought this is interesting—[crosstalk]
Bill: Just the tip jar.
===
The Inflation Reduction Act Is New Spending
Tobias: This is from Leo @growth_value. “Firms expecting the economy to improve.” So, from 2016 to basically 2021, it was about 40% in positive territory. Since 2021 to date, it’s been well below. So, I guess, this is most people expecting to do not expect the economy to improve. It’s down in negative territory. It’s as negative as it was positive beforehand. It’s been as low as 60%. It’s currently sitting around 40%. This is small firm. Small caps aren’t very upbeat about the future. Probably justified in having their low multiples then in that case.
Bill: Oh, my macro strategist is Bill @Wabuffo sometimes referred to as the Toronto Bull, but he doesn’t like that. Until Bill goes bearish, I’m staying not bearish. That’s what I do. I defer all this to Bill. He’s been more right than I’ve seen most people, and he’s very data driven. So, I appreciate his contributions to my mind.
Jake: So, he’s still bullish right now is what you’re saying?
Bill: I don’t know that he’s bullish. I think he thinks that things are pretty strong. I think he thinks the US economy is strong to quite strong. We’ll remain that way until it doesn’t. You’re welcome for this.
Tobias: It’s a little stimmy–
Jake: Penetrating insights.
Tobias: It’s a lot of stimmy.
Bill: Yeah, there is. There’s a lot of fiscal spending that appears to be not going to stop anytime.
Jake: We put up like $2 trillion more in debt in the last, I don’t know, whatever it was. It’s like six weeks or something.
Bill: Somebody told me you’re talking about a stock and you got to look at the flows. I don’t know what all that means. [crosstalk] Yeah, that’s right. GDP to interest expense is what you got to look at, I’m told. Not debt to GDP.
Jake: No, this is full. Like, we’re going adjusted EBITDA community.
Bill: Yes, this is the American way. We’re going to financialize even further.
Jake: But $2 trillion, that used to be real money.
Bill: Yeah. Well– [crosstalk]
Tobias: A lot of those claim chicks– [crosstalk]
Jake: How does that happen? Are we taking less tax receipts than expected? How do we end up with a $2 trillion extra big hole in six weeks?
Tobias: Inflation Reduction Act is doing a lot of work at the moment, I think.
Bill: Yeah. I don’t think it’s a tax receipts issue. But obviously, I don’t know what I’m talking about, but I’ll say it. Who cares? It’s a podcast. I think Toby’s closer to right than the tax receipt side.
Jake: It’s a spending. But didn’t we already know what the spending was going to be? Therefore, how do we get so far ahead of the– ?
Tobias: I think the Inflation Reduction Act is new spending.
Jake: Okay.
Tobias: It’s going to be- [crosstalk]
===
Tobias: Masoud Bahraini wants to know, “Who won last year’s competition?” The competition’s only– We’ve got another few months to run. Jake’s got all the numbers. The competition’s not open.
Jake: Yeah. We’ll save that advertisement for a– [crosstalk]
Tobias: We did a mid-year update.
Bill: I’ll tell you who’s not winning. [crosstalk] This guy.
Jake: [laughs]
Tobias: Well, there’s lots of things can happen.
Jake: Yeah.
===
Stock Market Dynamics: The Unpredictable Nature of Inputs and Outputs
Tobias: It’s one of the strange– The stock market, because it’s that– What do you call it?
Bill: You know what I feel a little bit upset about?
Jake: Para-mutual?
Bill: I said that the stock market would probably be down, which was stupid, objectively stupid against base rates. But on an equal weighted basis, I’ll be damned if I wasn’t close.
Jake: Yeah, you’re right.
Tobias: It was down when I looked last week. It’s right on the–
Bill: Maybe it’s run. Yeah, but I’m just saying equal weighted I was closer to right. I just forgot about– [crosstalk]
Tobias: You should have specified. Yeah.
Bill: The top seven.
Tobias: It’s always the way.
Bill: You could have fast forwarded. You could have told me exactly today’s setup and not told me what the Fab 7 did, and I would have told you they were down. So, I’m not trying to be revisionist here.
Jake: You would actually probably thought equal weight would have done better because you would have thought, “Oh, those other things have run so much. They’re probably going to weigh it down.”
Tobias: Well, that would be my guess. Most years equal weight should outperform market cap weight. It tends to because it’s more like a value strategy. There was an ETF out there. I don’t know if it still exists, but RVRS, they took the inverse of the market cap weight. So, it wasn’t value. It gets value like characteristics by doing that.
Jake: Yeah.
Tobias: Waiting into the stuff that’s smallest. I guess, that’s a small strategy. And that’s not been great either. Smalls have been decimated. Continue to be.
Bill: Yeah. Interesting shit out there. Or not.
Tobias: Part of the [crosstalk] macro. The word I was trying to think of before, the market is a complex adaptive system, which means that the input does not equal the output. You can have tiny little inputs that have gigantic outputs and you can have huge inputs or inputs that you think should have a much greater output and have virtually no output. But then those systems go through phase changes, which– When you’re describing the stock market, that’s what happens. Like, you raise interest rates and you get no impact for a really long period of time, and then you get the phase change and all of the impact at once. That’s what I think is happening in this instance. So, you’re just wrong until you’re right or right until you’re wrong, and it all happens at one go. How’d you go bankrupt slowly and quickly?
Jake: All at once.
Tobias: Then all at once.
Bill: How you also can have a 10 bagger though. Let’s not just make it bearish.
Jake: True.
===
Tobias: That’s right. I always forget which one of the– BRK guys. It was in DDS, Dillard’s.
Bill: Yeah.
Jake: That would be Mr. Weschler.
Tobias: Weschler. Six years of no returns and a 35% CAGR over the full period, because the last year was a 10 bag.
Jake: Yeah, the game is that easy.
Tobias: It’s that easy.
Jake: [laughs]
Bill: Really easy to hold through those six years too. Really easy.
Tobias: I had owned Dillard’s on and off multiple times through there because for that exact reason, I’d put it on super cheap. Then nothing had happened. Take it off, put it back on. Probably three times through that seven years, I wasn’t holding it when I did the 10 bag.
Jake: Oh, didn’t catch it, huh?
Tobias: I probably had made sure that I could never buy it again. “This thing doesn’t work.”
Jake: Yeah, this is broken. Screen that out.
Tobias: Same thing with GME.
Bill: Well, you failed to anticipate meme stocks, which is a real problem.
Tobias: I really, really did fail with GME, because I had GME the year before it took off and then sold it for a 16% gain or something like that.
Bill: Probably felt awesome too.
Jake: Yeah, felt good.
Bill: “Yay, I made money on GameStop, bitches.”
Tobias: What was the net–? [crosstalk]
Bill: Told you, value works.
Jake: Yeah.
[laughter]Jake: “You guys were all pessimistic about it? Look at this return I got.”
Bill: That’s right.
Tobias: 16%.
Jake: Stupid market.
Bill: In a quarter, the IRR was crazy.
Jake: [laughs]
Bill: Meanwhile, Roaring Kitty is somewhere on an island now, chilling.
Tobias: To get to the 16%, I probably had to go down 41st as well.
Jake: Well, that’s fair.
Tobias: And then had the 50% final quarter or something like that. Silly. JT, you want to hit us with the vegetables?
===
Jake: Yes, sir. Let’s do it. So, we’re titling this piece on being contrarian. I was up in Seattle last week, actually, for the Himalaya investor meeting day and saw Mr. Li Lu. And while I was in the Pacific Northwest, I spent some time with my friend, Kevin Zatloukal. I think you guys might have known him a little.
Bill: I love Kevin.
===
Ben Graham Doesn’t Get Enough Credit For His Work On Quantitative Value Investing
Jake: Yeah. So, Kevin, just to give some context for everyone else, Kevin’s a professor of computer science at Washington University. He literally teaches a class on quantum computing. This guy’s crazy smart. And he’s also a fellow with O’SAM, O’Shaughnessy’s thing, where he gets academic access to all of their data and tools and stuff. So, he does research. Last context is that I’m forever grateful to Kevin because he’s the one who introduced me to my out of this world CTO that I have for Journalytic.
Kevin, he likes investing. So, he writes a lot of fresh and original research papers on his own. I think he does it on medium. But anyway, his most recent one was an article that was called Reflections on Ben Graham. I thought I’d share a few of my favorite parts of it with everybody. And so, the first point is that, he thinks that Graham actually doesn’t get enough credit. In that, he says there’s actually stronger evidence for quantitative value investing in The Intelligent Investor than Fama and French’s landmark paper.
Probably because it’s not academic, it doesn’t get held up as much as Fama-French does, but he makes the good point that the second edition of The Intelligent Investor has an out of sample study, basically, of what he talked about in the first edition. It had serious outperformance in it, which, when you look at Fama-French today, my understanding is that actually all of the outperformance is pretty much gone at this point. I don’t know. Toby, do you agree with that? Is that true?
Tobias: Is all of the outperformance gone? I don’t know if–
Jake: From 1994 to today?
Tobias: Ah, that’s the length of time of their paper. Yeah, that’s possible because it’s been such a bad run for value since 2010 or whatever. 16 years of outperformance. Well, it’s probably not 16, because the late 1990s weren’t outperformance either.
Jake: Yeah.
Tobias: Probably 30 years. It’s probably the other way around for value. I don’t know about the other factors though.
===
Logical Conclusion of Fundamental Analysis is a Hold Forever Period
Jake: Okay. Second item to note from Kevin’s paper is the logical conclusion of fundamental analysis is a hold forever period. How he gets there is, if you think about a lot of times when you’re buying something and you’re planning on holding it for, let’s say, one year to three years, you’re still making a bet that there are going to be other people who will think good things about this company in three years when you want to go sell it. That has really nothing to do with fundamentals necessarily. Like, you’re betting on sentiment. You’re betting on a mean reversion of the business and the sentiment, one of those combinations. Go ahead, Billy.
Bill: This is true.
Jake: Well, there’s no guarantee that you’re going to get it on that timeline that you’re asking for. So, you are depending on the kindness of strangers on that one year to three year time, right?
Bill: Yeah-ish. I guess, what I would maybe think in my head, which is dumber than Kevin’s, but is that you should only buy things that you are willing to hold forever? But I don’t know. I do think this is the risk and IRR driven pitches that rely on multiples going up. I think that does rely on the kindness of strangers. But if you have an underlying business and you have a three-year view, I don’t think it’s totally irrational to say like, “I can’t forecast 10 years out. I do think I can go three years out. So, that’s as far as I’m going to go.”
Jake: Yeah.
Bill: I guess is the only thing that I’m thinking.
Jake: Kevin has the pretty good line where he says, “Listening to some value investors, you get the impression that you can send your DCF spreadsheet to the New York Stock Exchange. And as long as the math checks out, you get to sell at that price.”
Bill: [laughs] I like that. That’s funny.
Jake: If your goal is to stay within fundamental analysis, then maybe you do have to be willing to think a little bit more and never sell terms, I guess, and have that long timeline. And there’s certainly I can personally attest that these things take much, much longer than you would ever sometimes imagine. It’s probably just important to ask yourself before you make an investment, like, how long are you willing to wait in these situations and maybe setting a shot clock on that?
===
Contrarian Optimism: The Secret to Outperforming the Market
Then Kevin’s last point, which is probably my favorite is that, he says that the market rewards optimism. And so, think about like betting on the S&P 500. Let’s say, you’re buying an index fund. You really are making an implicit bet that you have a lot of faith in the long-term prospects of the US economy effectively. You have to be optimistic to earn beta. And then, how about alpha? That usually comes from contrarianism, like, you need to buy when others in the marketplace are underpricing a security, for instance, and that often requires a contrarian view and for you to be right.
So, in Kevin’s construct, outperformance is made up of beta plus alpha, which is like this combination of contrarian optimism. And so, the most basic way to outperform is when sentiments really extremely poor, and when others can’t imagine that things are returning to good times. And so, you’re rewarded with not only the beta of the US economy, let’s say, growing, in this instance, but also with the alpha of being right about things being not as bad as they. He points out that a lot of value investors seem to have this view that is very contrarian, but it can also be natural pessimists. They’re always convinced that there’s a recession right around the corner, which means that they miss out often on the beta component due to that pessimism.
Actually, the beta component tends to be larger than the alpha component often in the return stream. I think he points out that Buffett is the best example of this word. He’s just like relentlessly optimistic, even though he’s also a natural contrarian. I mean, “Buy American. I am never bet against America.”
Bill: He didn’t buy in COVID.
Jake: Well, you know–
Bill: I’m not saying that as a criticism. I’m saying that I don’t know that he’s just naturally optimistic. I think he was rightly scared in that situation.
Jake: Yeah, but if you would have asked him, he would have still said like, “The luckiest kid is still the one born today.”
Bill: Yeah, no doubt.
===
Jake: Then we’ll wrap things up with that great Klarman quote about, “Value investing at its core is the marriage of a contrarian streak and a calculator.” But maybe we could add to that like, when you are that calculator, it probably pays to be a little bit optimistic on that calculator, in general.
Bill: I’ll pay well in– [crosstalk]
Tobias: Yeah, I think you want term optimistic and short-term careful pessimistic contrarian, because I think you want to make sure that whatever you’re investing in is going to survive over the next three years. And then after that, it takes care of itself.
Jake: How does that work when the long-term is just a series of short-terms added together?
Tobias: It means you should be basically find a way to force yourself to be long often most of the time. But I do think there are periods of time where we’re going through one now. We’ve been going through it for a few years now. There should have been some cause for concern in 2021 when the market was extremely bubbly.
Jake: Imagine through the last three years and still believing in a truly hard form of market efficient, you know? [chuckles]
Bill: Well, the thing that was really hard in 2021 is like, “Okay, if you’re going to sell, what do you end up buying?”
Tobias: Yeah.
Bill: There was nowhere to hide. Now, yes, if you went to cash and you were willing to pay the taxes and you were willing to just sit there and wait, that would have worked nicely. I wish I had the intestinal fortitude to do so, but my dumb ass traded down in quality at one point and almost got waxed on Altice. Thank God, I got out of that thing. But that could have been really bad. Instead, I just rebought Charter for another 25% drawdown.
Jake: [laughs] Yeah.
Bill: Yay.
Jake: Genius.
Tobias: Through 2021.
Bill: That’s called winning.
Tobias: Through 2021, I would have said value is unusually undervalued. I think that’s when we really started talking spread.
Jake: Yeah.
===
Small Value and EM Value: Best Bets for the Next 10 Years
Tobias: Spread has been very, very wide. I continue to think that’s still the answer. That the market itself, it’s basically the seven now versus the other 493 or whatever it is. Or, you can go further down. You can go all the way down into the small value, which has just been left for dead. So, you could go there. You could take it out of the index and make a conscious bet on small value. That’s not been working out really well so far, but you could do that.
Jake: Yeah.
Bill: Yeah.
Tobias: You could go EM value.
Jake: Yeah.
Tobias: If you want outperformance, you got to do the really uncomfortable things. You have to deviate from the crowd. That’s how you deviate from the crowd. You go small value, you go EM value.
Jake: I now think that’s probably right.
Tobias: Then we roll forward in 10 years’ time, I’d bet on small value and EM value. I’d bet on value, small value, EM value over the next 10 years depending on how off piece do you want to go.
Bill: Yeah, I definitely think small wins. I think that there’s a chance that small and growthy wins. If thesis is true that private equity has picked over a lot of the value, I have serious questions as to whether or not there’s validity behind that thesis. But I could see a scenario where there are some small companies that trade currently at a price that doesn’t make sense to do an LBO on them, but they are quality and have just gotten schlacked with– I think it’s undeniable to see that small trades as one big factor and then you have sub factors within there. There does look to be cheap stuff in small. And small now is probably under $4 billion. Shit, what’s a real small cap now? $1 billion to $3 billion-ish?
Jake: It’s shrinking. [laughs]
Bill: I know the micro and nanocap guys will crack up when I say that, but I do think that is small.
Tobias: Well, I run a mid-large value strategy that when I look on Morningstar now seems to be sitting in the small box.
Jake: Is that right?
Tobias: Yeah, just the very top of the small box.
Jake: Interesting.
Tobias: My smalls are off the bottom of the small box.
Jake: [chuckles] They’re not even in the boxes anymore? [laughs]
Tobias: But they are micro, so that’s where I’d expect them to be with the—I don’t know, it’s very confusing. I check on Greenblatt’s Gotham site every now and then.
Jake: Yeah. What’s it saying right now? Where are we at?
Tobias: I think it was like 46 percentile.
Jake: Oh.
Tobias: It’s been a run over the last few weeks where it got out to 60 percentile weeks ago.
Jake: Really? So, it was like 40-60-40 again?
Tobias: Yeah, it’s had a weird run through there. He’s looking at the 700 cheapest out of the top 1,400, I think, something like that.
Jake: Hmm. Yeah, that’s been a really odd development to have that go from–
Tobias: Yeah, it was 90 percentile.
Jake: Yeah.
Tobias: How far do we get? Do we get to 95 percentile?
Jake: I saw 92 percentile. Actually, I had a call with him around that time, and he had a pretty good, great quote. I don’t know if it’s for public consumption, but I’ll say it anyway. He said that, “You’d have to be a really greedy pig to want more than 92 percentile.”
[laughter]Tobias: I think there’s– [crosstalk]
Bill: That I think it’ll need public assumption.
Jake: It wasn’t that bad, but I don’t know.
Bill: I think he would be proud of that quote. I would be proud of that quote.
Jake: He’s right, I think. He’s probably right.
Bill: Yeah. Could you imagine be like, “Yeah, 92 percentile is not good–”
Jake: 92 percentile? Well, what if it goes to 100 percentile?
Bill: That’s right.
Jake: [laughs]
===
Tobias: It is a great quote. Even the value spread, the EV/EBIT value spread, none of those things are really behaving the way that I would expect them to behave. They’ve come in, but not with massive outperformance. It’s been a year of outperformance, but not during the period where it closed really.
Jake: Yeah. What is that? It’s like the linkages don’t seem to fit together, huh?
Tobias: No. It’s possibly it’s a definitional problem. The Alpha Architect EV/EBIT one that I’m quoting is 75th stock versus the 750th stock. So, that’s a little bit arbitrary.
Jake: Yeah.
Tobias: His is 700 of the top 1,400. I mean, Gotham’s is 700 of the top 1,400. So, that’s a very widespread.
Jake: Yeah. But even the movements within Gotham’s version go from 92 percentile to 42 percentile without seemingly the fundamentals or the price changing that much.
Tobias: Yeah.
Jake: It still racks my brain a little bit.
Bill: I don’t know. You got a lot of energy. The earnings did come in a lot on energy. A lot.
Jake: You think so?
Bill: Yeah.
Jake: When I went through and poked around through just—This is very anecdotal, but the big ones especially, it’s not like the earnings have blown up or anything. They’re just down some from a pretty good peak. But it probably couldn’t have been more than 30% or 40% off in earnings.
Bill: It’s a big difference in the denominator.
Jake: Yeah.
Bill: Yeah.
Jake: Enough to move you from 9 out of 10 opportunity set to below average?
Bill: I don’t know about that, but yeah. I don’t know.
Tobias: Well, you would have said that the opportunity set was largely driven by energy and financials. And so, that’s the biggest concentration. If that’s what’s pushing it out wide, then if you see some weakness in the earnings on that side, then that would make the ratio come in without delivering any of the outperformance.
Jake: 30 was on the high end too, by the way.
Bill: I don’t know, if this is right. My data could be total shit, but the enterprise value of Occidental is basically the same today as it was on December 31st. But the free cash flow– I’ll give you 2023 estimates that I have, which are probably wrong, but the free cash flow has gone from $12.3 billion in 2022 to an estimated $5.6 billion in 2023, and the EV is basically flat.
Jake: That’s a lot.
Bill: That can make the math move a lot.
Tobias and Jake: Yeah.
Bill: Again, I don’t know if my estimates are right. I don’t pay for the best estimate feed. So, junk in, junk out. That’s my brain.
Jake: [laughs] Well, if those guys knew what the number was, they’d be trillionaires already.
Bill: I don’t know how the estimates are even built. I probably don’t subscribe to enough places. I probably have the crappy ones that I do have. So, don’t quote me.
Tobias: Has Buffett continued to buy through all of that? I thought he was still buying pretty recently.
Bill: The man likes to eat under $58 a share.
Tobias: Yeah.
Bill: Feed him.
Jake: [laughs] He is quite amazing at that. Just relentless hoovering of shares, huh?
Bill: Yeah. Masoud Bahraini– I’ve answered this question already about half an hour ago. You keep on posting this comment, we’re going to announce the winners of the competition at the end of the year.
Bill: There are no winners. We’re all losers, man.
Tobias: Yeah, that’s the correct answer. There are no winners. But dude, I don’t know how many times I got to say it.
Bill: Yeah. Or, how many times I got to say, I lost?
Tobias: “Does Bill have a view on Alternative Asset Managers? Apollo, Blackstone.”
Bill: Oh, no.
Jake: I love to hear that.
Bill: No, I don’t. I have no view we’re sharing. I’d love to work for one. I’d love to fundraise for one.
Jake: [laughs]
Bill: That’d be sweet. You got 10 years before anybody can call you on your shit, that’s amazing.
Jake: Yeah. And you get to say whatever you think it’s worth all along the way?
Bill: Yeah.
Tobias: Marked your own homework.
Bill: Dude, somebody pitched me on private credit the other, then– Shoutout to Josh Clarkson. But somebody pitched me on private credit and they were like, “Well, it was up last year.” [Jake laughs] And I was like, “Ah, I don’t know, man. Every other marked assets down. I’m not sure this one was up.”
Jake: Yeah.
Bill: But maybe.
Jake: The Blackstone REIT is probably the best one of that, where the private version is flat and then the public ones. [laughs]
Bill: Yeah. One thing that you were saying about Kevin’s paper that I was thinking is, the benefit of private equity is you don’t get quoted. I know that that’s silly to say, but I think– This is so overused, but I do think if people actually took a private equity approach to public markets and really didn’t check. I know that that may sound like absolutely crazy, especially to people in hedge funds, but I just wonder if the average person wouldn’t do a lot better just looking at it like, “Look, this is a five-year lockup. I’m buying these shares. If I was in a private structure, I couldn’t redeem.”
Jake: 100%. Probably, the real benefit of that is that you are probably a hell of a lot more discerning on the front end if you know you’re going to sit for five years.
Bill: Yeah.
Jake: If you know you can punch out any moment, you kind of, “Yeah, let’s just throw a little here and see what happens,” right? It’s much more of a punch– [crosstalk]
Bill: I can personalize it and tell you that I am that person when I don’t tie myself to mass bowls.
Jake: Yeah.
Bill: Maybe I am, but a neophyte.
Tobias: Carnage-
Jake: And the simpleton.
===
Operation Twist: Can It Help Equity Prices?
Tobias: -in the 30-year bonds and all of the commercial credit has been amazing. I think Meb’s been posting about it a little bit saying– I don’t know what particular thing he’s talking about, but it’s down like 46%.
Jake: TLT, I think.
Tobias: [crosstalk] TLT.
Bill: Well, what I said to him one of the responses– Maybe this is really dumb, but anyone that was buying those bonds I feel like was price agnostic. So, either you had like an asset liability matcher or somebody who had a mandate to do it. Look, I bought some equity and you can argue– [crosstalk]
Tobias: People thought rates were going negative.
Jake: Yeah.
Bill: But those people, aren’t they typically levered and long and wouldn’t they have been stopped out? I’m sure some disappeared.
Jake: Well, it wasn’t like you were getting any yield along the way.
Bill: Look, I thought that rates could go negative. I’m still not convinced they can’t. So, I don’t know what I don’t know. I’m not convinced they can’t go to 18. I have no idea where they can go.
Jake: [laughs]
Bill: So, somewhere between -18%-
Jake: Somewhere between.
Bill: -is my confidence interval. But I just kind of feel like, I don’t know, I’m not sure who was buying those.
Tobias: Yeah. Meb didn’t specify. He just said– [crosstalk]
Jake: There had to have been a lot of institutional buyers, right?
Bill: Yeah, that I think don’t have a choice?
Tobias: There’s a chart that does the rounds that show all of the losses in all of those bonds that are held on bank balance sheets. It looks like–
Jake: Scary?
Tobias: It’s amazing how much they’ve lost. Like, I can’t believe there’s anything left. But I guess, it’s all held to maturity. So, it’s okay. You’re not impacted– [crosstalk]
Bill: Well, you’re impacted. Your shareholder returns are going to not be great, right? If you had a big slug and it’s earning two, and somebody else didn’t and they’re earning five, and capital seeks higher earnings streams, I would suspect the people that locked in too are going to have pretty shitty stock performance, but it is from a solvency issue–
Jake: What about that giant hedge fund that we call the Federal Reserve that owns a bunch of those long dated–? How the losses looking on that?
Bill: I don’t know about all this.
Tobias: They just fill that whole selves, can’t they?
Jake: Sure.
Tobias: I don’t know how that works.
Bill: Yeah, I don’t know.
Jake: Don’t you have to expand balance sheet to do that?
Bill: I don’t know how to– [crosstalk]
Tobias: [crosstalk] something like Twist. Operation Twist.
Jake: yeah.
Tobias: We’re just going to play with the yield curve a little bit.
Bill: I’d like to Operation Twist myself.
Jake: [laughs]
Bill: It’d be awesome. Try to get some of these equities up a little. That’d be a nice feeling.
Jake: Yeah.
===
Interest Rates: Are We Raising Them to Clean Up the Mess We Made?
Tobias: I posted a long-term chart of rates. I think that we’ve got rates that go back to like 1875 or something like that. 1871, that’s right. 1871 to 1970, rates were between 5.5% and 2% pretty consistently. Like, up around 5% until about World War II. And then after World War II– [crosstalk]
Jake: What happened in 1971? [laughs]
Tobias: Well, somebody responded, said, “[unintelligible [00:54:36] goes a bit–” I said in the tweet, “It looks a little bit deranged past 1970.” And then because rates went from 1970 around 5.5% a to 1982, where they were whatever, they got it to 16% or something like that. And then from 1982, until whenever we bottomed out recently, it was down to zero through that period of time.
Jake: Negative.
Tobias: Yeah. The period after 1940 had that rates were too low, I guess, which was why they had to come in and Volcker had to raise rates to nosebleed levels, and then we’ve had that high rate.
Jake: Oh, you skipped over a lot of history there between World War II and Volcker. [laughs]
Tobias: The rates don’t move that much. Like, you can look at the chart. Not much goes on. It’s pretty gentle. It goes up to 5.5%, it goes down to 2%, and then it goes up to 5.5%, and then it goes absolutely bananas from 1970 to 1982. So, I’m guessing they just set rates too low for too long. Volcker had to clean up that mess. And then from 1982 until a few years ago, their rates have just gently drifted down to zero, and now we’re putting rates up again to clean up that mess.
Jake: What does that mean from [crosstalk] to 2012?
Bill: Is that the master cleaning up or are we cleaning up spending mess?
Tobias: Yeah, I don’t know.
Bill: I don’t know either.
Jake: Well, the first part of the mess is you got to stop making more mess, and then you can start cleaning up the mess.
===
Bill: Yeah, we’ll see. One of the interesting things that I did out of this little drug research project, I was looking at the cost of health care, and how little of it is pharmaceutical drugs, and how much attention they get politically. I was shocked.
Jake: What’s that look like?
Bill: Dude, it’s minuscule. I’ll send you the chart. Well, that’s the question, right? Yeah, it’s like hospitals, procedures, I think long-term care. That’s something I actually want to dig into, because when I saw the pharmaceuticals as a percentage of total spend, I was like, “This is crazy, how low this is.” I was shocked.
Jake: Is that because the seniors pay prescription drug prices and then therefore, they’re extra squawky about it?
Bill: I don’t know. I think it’s probably because Big Pharma makes so much money. It’s really easy to attack them politically, I think. I don’t know. They’re like faceless and they’re pill pushers. No one likes a drug dealer.
Jake: And yet, the answer that we always want is a pill for every ailment.
Bill: Well, that’s easier though.
Jake: I know.
Bill: What are you going to do? Change your life?
Jake: Yeah.
Bill: I think Toby’s gone into the matrix. He’s just staring. He’s like, “I changed mine.”
Jake: Oh, no.
Bill: Oh, you’re the host.
Jake: [laughs]
Bill: Look at that.
===
Ozempic: Risks & Benefits
Jake: Billy, what do you think about this Ozempic? Do you have any thoughts on that?
Bill: I don’t. I guess, what I actually think is whatever side effects there are from Ozempic, they are going to better for the obese population. I think if you are not obese, using Ozempic as a weight loss drug is not the best answer that I’ve ever seen in my life.
Jake: You’re adding some left tail for a smaller upside?
Bill: Yeah.
Jake: Yeah.
Bill: There’s one lady around here that went on it and like, ooh– I don’t know. You have to eat enough protein to maintain your muscle mass, right?
Jake: Oh, yeah.
Bill: Well, she’s not. Now she just looks droopy.
Jake: Oh, really?
Bill: Like, skinny droopy. That’s not good.
Jake: Start withering away?
Bill: Yeah. And she was kind of hot. No moss.
Jake: All right.
Bill: Yeah.
Jake: Maybe I’ll post it on Twitter, but there’s some science chart that shows you, and it looks just absolutely convoluted, all the little moving pieces, and it’s huge. There’s probably 500 things shown on this chart on a single page. It’s the basic human metabolism, and that’s what it’s showing you. All the little moving pieces, how they interact. Imagine just putting your finger into one place there and not thinking that you can’t screw up the entire cascade of all these interacting pieces. It would scare me to do that.
Bill: Yeah. I think it was the information had an article on that stuff. The people say you used to love a hamburger and now you’re on Ozempic. They say that the thought of a hamburger makes them nauseous. That’s crazy to me.
Jake: How’s that work? What else is that messing up to cause that sort of change?
Bill: I don’t know. But look, if you’re really in the part of the population that you cannot help but be obese, clearly, I would rather be on Ozempic than that. That causes real health issues.
Jake: Yeah. It’s a catastrophe prevention thing.
Bill: Yeah, it makes a lot of sense to me in that way. It’s like a weight loss drug. I don’t know, I saw Weight Watchers is ripping, and I think that they changed their strategy, basically to become pill– Well, I shouldn’t say this. I think that they have embraced pushing prescriptions.
Jake: New– [crosstalk]
Bill: Dude, then I was looking up the CEO of that company, and I’m pretty sure she founded Houseparty. Do you remember Houseparty?
Jake: No.
Bill: There’s a reason you don’t. Yeah, CEO of Houseparty by Epic Games. Houseparty, it was like a COVID app that people were using. It was a lot like– Oh, what the hell was that thing before Twitter Spaces?
Jake: Oh, yeah.
Bill: Yeah.
Jake: Something where it was a shared audio.
Bill: Yeah. What was that?
Jake: I can’t remember.
Bill: Andreessen Horowitz is trying to get that thing off the ground. Anyway, I thought it was funny that she’s now the Weight Watcher CEO. I don’t know where they’re going with it, but I guess, social has to do with it.
Jake: Well, we should probably wrap up that way.
Bill: No, we should keep it going, so that Toby’s all upset.
Jake: Hoping Toby’s going to get back. [laughs]
Bill: This is going to be like the first episode he drops that’s longer than precisely an hour.
Jake: Yeah, we’re going to drive him crazy. Make a bunch of extra work for him. [laughs]
Bill: Indeed. Well, it was nice hanging with you, guys. I look forward to doing it again sometime.
Jake: Yeah, we will get a more routine rhythm going again.
Bill: Yes. Well, in time, my friend, in time. Hopefully, sooner than later.
Jake: Yeah. Get those houses sold and then you’ll have more time to hang out.
Bill: I guess. Or, more time to work, one out of two.
Jake: [laughs]
Bill: All right, my dude. Have a good one.
Jake: All right, thanks, everybody.
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
