VALUE: After Hours (S06 E06): 200th Episode, Bill’s Back, Value on Macro, Value and ZIRP, Farmer’s Fable

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

  • Einhorn vs. Passive Investing: Is the Market Broken or Just Evolving?
  • Higher Rates & Value Investing: Examining the Complex Relationship
  • Diversification Explained: The Farmers Fable and the Math Behind Risk & Reward
  • First-Gen Riches, Third-Gen Bust? Investing in Google’s Future
  • Fairfax Short Report: “Don’t Mess with Prem Unless You’re Sure”
  • Are Profit Margins Doomed? The Slow Slide Back to Normal
  • Crony Capitalism vs. Trickle Down: Which Policy Has More Bite?
  • EVs vs. Commodities: Is Human Ingenuity Saving Us From a Chart Crime?
  • Elon vs. the Court: Can Shareholders Approve Anything They Want?
  • OEC vs. CPI: Can This Stock Outperform Despite Inflation and Volatility?
  • Why Constellation’s Distributed Acquisition Model Works
  • Leveraged Nation: Are We Pushing Debt Limits Too Far?
  • Krugman vs. Rogoff: Debt Ceiling Debate Heats Up
  • Private Equity and the Russell 2000: Has Business Quality Declined?
  • Is “Zero-Interest” Hurting Value Stocks? Exploring ZIRP & Bailouts’ Impact

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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Jake: Like nothing different.

Bill: Yeah, you’re spending a lot more to live exactly the–

Tobias: Oh, Billy fell out. We’ve just gone live.

Jake: And we’re live.

Tobias: See if we can get him back in. This is Value: After Hours. I’m Tobias Carlisle. This is Jake Taylor. We’re short the prodigal son, he’ll be back in a moment.

Jake: [chuckles] Perfect technical difficulties for our 200th episode.

Tobias: On brand.

Jake: Totally on brand.

Tobias: The prodigal son returns. He’s on mute.

Jake Taylor: [laughs] There he is.

Bill: All right.

Tobias: He’s back.

Bill: I’m happy that happened. It would be a shame if given our–

Tobias: Can you imagine, no technical difficulties? [crosstalk] people know.

Bill: Yeah, it would be [crosstalk] us. That would not be us at all.

Tobias: Billy’s broadcasting from new digs, the prodigal son.

Bill: That’s right. Returns.

Tobias: Where are you now?

Bill: I’m at my crib, man. So, I’m in the office.

Jake: Beautiful. It’s good to see you, my man.

Bill: It’s nice to be here.

Tobias: Silhouettes.

Bill: I was making my cider jokes that was cracking me [Tobias laughs] up last week, man. I guess that’s a real drink in Florida or in Australia, Dicken cider.

Tobias: Yeah, but the joke came first.

Bill: Yeah, no doubt. But it’s a three-star drink. So, people buy it and they say it’s reasonably decent.

Tobias: Out of how many stars?

Bill: Well, that’s a good question. Anyway, yeah, I don’t know. Nice to be here. I thought I was going to be on last week, and then I signed on, I was like, “Oh, my God, I don’t know what’s going on.” And then I saw the tweet that John was on. I said, “Oh, that’s good for the fans. They can wait one more week before they have to have me.”

Jake: Yeah, keep them hungry.

Tobias: JT has just come back from Columbia in New York.

Bill: Oh.

Jake: Not Bogotá, Colombia. Yeah, Columbia University.

Tobias: University.

Bill: Noted. I want to go to Colombia-Columbia.

Tobias: What was the event?

Jake: It’s like a student investment association.

Bill: CSIMSA or whatever.

Jake: Yes, CSIMA that they do-

Bill: There you go.

Jake: -regularly.

Tobias: Who was talking? Any good speakers?

Jake: Yeah, you had John Griffin from Blue Ridge. He’s one of the ex-tiger guys. They’ve been pretty successful. Mauboussin did an interview with him. Who else? Oh, gosh. Sallie Krawcheck? Is that I think how you say her last name? She’s been in a lot of different finance positions over the years. She came in over a Zoom that was pretty– I felt like she was pretty candid and forthright about her career. That was interesting. Yeah, I had to duck out for a little while, so I missed some of the stuff. [laughs] But caught up with some old friends, and it’s good to be in the value community, where I feel like that’s a little bit ground zero in a lot of ways, where Graham was teaching many years ago.

Tobias: Any good takeaways? Any good learnings, make benefit glorious nation of Value: After Hours.

Bill: Yeah. I know you’re sworn to secrecy in the room, but–

Jake: Yeah. Again, it’s all the same stuff, guys. You’re not missing anything, I guess– [crosstalk]

Tobias: Buy cheap, right?

Jake: Yeah. Buy cheap. Understand what you’re buying.

Bill: Grab a thigh ankles.

Jake: Have patience. [laughs] All the same stuff.

Tobias: It’s been a pretty good run for growth over value since the start of the year and the year before that and the decade before that. But I thought we had a little bounce yesterday, but then I switched on the machine and more this morning.


Jake: Why does a CPI print that’s a little hot come right after you if you’re a value guy? What’s the connection there?

Tobias: Yeah, I can’t figure it out either. It seems like good news is good for growth and bad news is bad for value. I don’t know.

Bill: I think that value from what I have seen lately is screening a little bit more industrial. So, maybe if there’s hot CPI, the theory is the Fed doesn’t cut and things slow a bit, maybe. But I don’t know that I believe that, but that would be what I would think.

Jake: I would think that longer-term, longer dated cash flows that might be more representative of a glamour basket would be a little bit more interest rate sensitive, if you imagine that rates were going to be moving up.

Bill: Maybe. The S&P I would argue probably has more pricing power. So, I’m not sure. My official position on the S&P is that I don’t think it is objectively bubbly. I don’t think you can own it and expect more than 1% to 3% real. But if you’re living in an existence where wealth disparity is as big as it’s ever been, you only have to get wealthy once if you want to protect it. I can understand being in the S&P. I just don’t think you’re going to do what you did.


Are Profit Margins Doomed? The Slow Slide Back to Normal

Jake: Yeah. Toby, give me an update on where profit margins are these days. I think we saw–

Tobias: There was a little chart out. I think they peaked at 13.1%. I think 2021. I should have a quick look at that. But they are mean reverting. It’s the slowest mean reversion in the series.

Bill: Well, dude, even if–

Jake: Down to like 10%, right?

Tobias: Yeah, they’re down to 10%. [crosstalk]

Bill: Where were they in 2019?

Tobias: So, here we go. This is from Charlie Bilello. So, they got to 12.1%. That was late 2018, early 2019. Fell to 5.9% at the trough of the COVID-

Jake: We can look through that.

Tobias: -crash.

Bill: You almost have to look through the peak though too, because–

Tobias: 13.5% was the new peak post. And so, now we’re back to 10.7%. 8.9% being the long run average going back to well 2000.

Bill: A 1% to 10.7%. That matters.

Jake: Yeah.

Tobias: 13.5% to 10.7%.

Jake: If you’re more on your way to 6%, that’s really going to matter.

Tobias: Well, 8.9%, the new normal since 2000.


Jake: Yeah. Oh, I know. This is an intangibles returns of scale. We’ve had all these arguments already before. And tax cuts. I think Corporate America is taking a pretty good bite out of the total pie at the moment, and that’s– Who knows? We’ll see.

Tobias: Yeah. Does labor get its due? It seems like unemployment is pretty tight.

Bill: Yeah.

Tobias: You get any movement in the other direction that would seem to be bad for labor, wouldn’t it?

Bill: And it depends on robots.

Jake: Pay higher interest rate costs, have taxes move the other way potentially for you, maybe back up to 23 again or 35.

Bill: Who’s going to do that though?

Jake: I don’t know.

Bill: I don’t think this is controversial to say. Neither party I think is really willing to take pain, unless they absolutely have to. And then they can come together and they seem to get stuff done in crises.

Tobias: Biden could come back in and say, “We’re running massive deficits. These are unsustainable. The top end of town has to do its part. We’re going to increase taxes on corporates and high-income earners.”

Bill: Aren’t the think tanks in his party basically saying, “We’re running massive deficits and inflation is not a real problem, so we can continue to do it”? Isn’t that the intelligentsia right now?

Tobias: Is it MMT, like Kelton and those guys?

Bill: Yeah.

Tobias: I don’t really follow, and I don’t understand how that stuff works.

Bill: I don’t either.

Jake: If you did, we’d have to question your sanity. [laughs]

Tobias: We’ll give some shoutouts.

Jake: If you are not [crosstalk] you don’t know what’s going on.

Tobias: Pantsparty, first in the house. Petah Tikva, Israel, “Happy 200th.” Thank you. Toronto. Miami. Dead Cat Gully, New South Wales. Me too, brother. “Happy 200th, Fellas.” Birmingham, Alabama, not England. Norberg, Sweden. Valparaiso. Kotor, Montenegro. Grimsby, Ontario. Monterrey. Mexico. Santa Monica. Jupiter, Florida. What’s up? It’s nice in Jupiter.

Bill: Shoutout to Jupiter. It’s a good place.

Tobias: Milton, Keynes. Castleford, England. Savonlinna, Finland. Poland. Cleveland, Tennessee. Kennesaw, Georgia. London. Tulsa, Oklahoma. Winter Park, Florida. Tallahassee.

Jake: My God.

Bill: [unintelligible 00:09:05], Poland. [unintelligible [00:09:06]

Tobias: Galway. Like a bit of a Galway Pipe, the drink. Brookings, South Dakota. Highland Park, Illinois. Hartwell, Georgia. Chapel Hill, what’s up? Durham. Cardiff, Wales.

Bill: Keep this going– [crosstalk]

Tobias: Toronto. Philly.

Jake: [laughs] Yeah, let me know when you are done. I’ll be back.

Tobias: I think I got them all.

Jake: [laughs]

Tobias: I think I got them all. Clungeville, Scotland. [crosstalk] Bangalore, India.

Jake: Where’s Bill scurrying off to? Did get to show off the calves though on the way out of the door? [laughs]

Tobias: He did show off the calves. We’re going to have to mark this one, not for kids.

Jake: Yeah, not safe.

Tobias: And Winnipeg. Sorry, I missed you, guys. Hang on, Billy’s back with a dog.

Jake: He’s brought a dog back. That’s good. [laughs]

Tobias: Yeah. So, here’s a good question. I’ve been thinking about this one a little bit. I don’t have answer, but I’ll throw this question out to you, guys.

Jake: I forgot.

Tobias: Yeah. Oh, you got the glasses? Actually, I have some– I got my 100s too. It’s still here.

Jake: Yours is probably in a box somewhere, Billy, since, you moved I know.

Tobias: Here’s a good question, I like this one.

Jake: [laughs]


Crony Capitalism vs. Trickle Down: Which Policy Has More Bite?

Tobias: “Do you guys have any hypothesis for what the effect of the bifurcation between monetary policy (tight) and fiscal policy (loose) could have on different sectors of the economy?” I’ve been thinking about this a lot. I still don’t have answer, but I think it’s a good question.

Jake: It’s a very good question.

Bill: That’s a good question.

Tobias: Anybody have a go?

Jake: I wish I have an appropriately strong answer to that.

Tobias: “Mid flight to Jamaica.”

Jake: All right. Well, so I think, here’s my answer is that I think that monetary policy is able to get into the nooks and crannies of the economy more through the transmission of interest rates, but it’s also much more broad-based. It’s like taking antibiotics pill as opposed to a topical application, which I think the fiscal policy is a little bit more targeted, but also probably more susceptible to crony capitalism as well, where the first pigs at the trough get those dollars before anyone else, and so you get those Cantillon effects where you get the dollar before it gets weakened. So, there’s a political element to it there.

But I would say that there’s probably the arguments that same thing happens with the monetary side as well, where the banks are the first ones at the trough at the Feds. When they’re dumping, you could basically borrow money for free, buy Treasuries, collect the spread, and we just give resources away. But yeah, I think probably banks benefit more from the monetary. And then the subsidy truffle hounds get more from the fiscal side of things. What do you guys think about that analysis?

Tobias: That’s a good answer.

Jake: Just off the top of my head.

Tobias: That was a good answer.

Bill: I don’t know that I agree that banks benefit the most. But I don’t disagree. I just need to think about it.

Tobias: From loose monetary policy.

Bill: Yeah. I don’t know.

Tobias: Banks are first in line. He’s saying, where tight monetary policy and fiscal spending is going to be the truffle hounds, the subsidy truffle hounds.

Bill: Yeah, that could be.

Tobias: I don’t know.

Bill: I don’t know. The thing that keeps me up– Well, I’m not actually staying up thinking about this, but the thing that I wonder a little bit is, it seems to me the current iteration of our economy is fairly strong data with tight monetary policy. And it is unclear to me why if I were at the Fed, I would cut until jobs started to crack a little bit. And I wonder a lot of this inflation data has a lot of benefit of rent that’s flowing through. And if you look forward to 2026 and 2027, there’s not a lot of real estate that’s being developed today that’s going to deliver then. And I just wonder if–

Jake: It’s going to stay high then? Is that what the–?

Bill: Well, if rates don’t come down– Right now, if you read the earnings calls of any of these REITs, they’re just supply, supply, supply, supply. Well, that’s a product of the zero-interest rate environment of two years ago, three years ago, because you’re building huge buildings. So, rates stay higher. I don’t know, I wonder what Shelter looks like in three years. I can’t help, but think if you think rents are high now, they may go a lot higher.

Jake: Rent is too damn high already.

Bill: That’s what I’m saying. So, I don’t know, it’s going to be interesting, because I don’t know how you’re going to get– Maybe we don’t need more housing. Maybe that’s the answer, but I don’t think housing starts to look very good. But maybe I’m wrong.

Tobias: Good answer here from Adam Jones. He says, “Powell gave the answer in 60 Minutes…he’ll protect against recession at the risk of high inflation.”

Bill: Yeah. Well, we’re not like there yet.

Tobias: No.

Bill: Well, I guess I don’t know that would be my answer.

Jake: That kind of talk to me sounds like subprime is contained and permanent new high plateau to think that, “Well, we could just control all this very easily.”

Tobias: But I think what he’s saying is that, even though inflation is running hot and they’re going to keep rates up, the moment that there’s any kind of crack, they’ll cut to zero.

Jake: Well, certainly, the market feels like it’s kind of suss that out, or at least leaning that way, huh?

Bill: [crosstalk] He’s also saying that. But he’s also saying that after a period where I think he possibly deservedly can take a little bit of a victory lap on squashing inflation. So, I don’t know, we’ll see. I guess what I’m really saying is, it’s easy to say that now, and I understand why maybe he would say that, but what if all this fiscal spending actually has an inflationary problem even in some sort of recession? I don’t know the answer to this question.


Leveraged Nation: Are We Pushing Debt Limits Too Far?

Tobias: Value guys talk macro.

Jake: I know, this is a never ending–

Bill: Well, it bothers me that the country is being run like a leverage buyout. And this is like this old Charlie Munger, “Show me where I’m going to go to die, so I don’t go there.” This is like one of those things that I think, I don’t know that we need to push it so far to figure out where the problem point is.

Jake: Yes, I agree with that. They were talking at the 2,000 meeting about borrowing money as a country, and what does that mean, and what do you do with that money? It really does matter what you do with it. Like, they were saying, and when I say they, I mean, Buffett and Munger in the Berkshire AGM, if I wasn’t clear before, that if you’re borrowing to spend money on infrastructure that’s going to create the ability to run a society at a much higher level for 30 years, that might make sense.

I think not all Keynesian deployment is the same. Like, what you do with the money matters too. But if it’s all just for consumption or to buy stuff you’re going to throw in the garbage in a month from China or whatever, maybe that doesn’t pencil out from a societal deployment of resources. So, I think maybe we’re doing ourselves a disservice not to differentiate a little bit more as to what are we spending money on.

Bill: We haven’t even hit the wave of entitlements. This is like the old look. You could take eternal leverage, you can take two turns of leverage, you could probably take three turns of leverage, probably take four. I don’t know, there’s comes a point where– [crosstalk]

Jake: Sorry, it was three. We overshot. [chuckles] Found out the hard way.

Bill: So, I don’t know. I hope it’s all under control. It’d be good for us all if it is.


Krugman vs. Rogoff: Debt Ceiling Debate Heats Up

Tobias: Such a bummer that they I found that hard coded selling that Ken Rogoff thing where he said that higher interest rates at some point– Oh, I’m sorry, higher debt loads at some point, high government debt loads are bad, which just seems like axiom– [crosstalk]

Bill: Well, that’s just common sense, isn’t it?

Tobias: Yeah, obvious. But that’s anti-Krugman’s worldview. They found the hard coded selling there, so they just said, “None of this-

Jake: Doesn’t count.

Tobias: -doesn’t count.” Yeah.

Bill: Well, when you don’t have much debt, Krugman’s point of view, where you could take more. Okay, it’s true. Yeah, you’re right. I don’t know that you want to mess around with finding the edge of this.

Tobias: Yeah. No, I agree.

Bill: I’m a little worried that we’ve all said, “Oh, the edge doesn’t matter.”

Tobias: It just hasn’t yet.

Bill: That’s– crosstalk]

Tobias: We haven’t found it yet. [crosstalk]

Jake: Until it does.

Tobias: Until it does.

Bill: Yeah.

Tobias: Old Ocean, Texas and Fort Lauderdale. What’s up? Giving everybody a shoutout today.

Jake: Could you imagine though if we had a complete 180 from the existing stance of like, “Well, it doesn’t really matter”? What if the US was actually like a bastion of like, “We’re going to have a very sound currency, we’re going to help facilitate trade around the world, we’re going to use our navy to make sure that trade happens freely”? Really, in a lot of ways, it’s like the Marshall plan over again. But imagine if we had the discipline–

Bill: You didn’t think we’re that now?

Jake: Ah, I don’t know, man.

Bill: I think we’re that now. I just think we’re teetering on fucking it up. Everyone that’s imperial–

Jake: I don’t feel like that’s the ethos from our leadership is not of, we need to set a good example monetarily, fiscally, and we’re going to be like a very good neighbor about these kinds of things. We’re not going to create this– We’ve exported a lot of inflation all over the world, and we’re abusing our monetary reserve currency status, I think. You can only do that for so long.

Bill: Yeah. You need a good military that you need.

Jake: You will take these pieces of paper.

Bill: That’s correct. I don’t know.

Tobias: Let’s do–

Jake: All right, enough macro bullshit.


Einhorn vs. Passive Investing: Is the Market Broken or Just Evolving?

Tobias: Einhorn is Finkel. Did you guys listen to Einhorn–?

Bill: Yeah, I listened to Einhorn.

Tobias: Einhorn says the market is broken, passive has broken the market.

Bill: I’ll tell you what pisses me off about Einhorn, and I say this as someone who does not deserve to have this opinion. But when I listen to his argument, it sounds a lot like I used to better at the Keynesian beauty contest than everybody else and now I’ve found religion. And if I buy businesses that are returning capital to me, that’s how I’m going to win.
I just don’t understand why he didn’t start there. But he’s also David Einhorn and I’m me. So, I don’t know that I understand like, I can’t flip it to people anymore. So, therefore, market structure is messed up.

Jake: Yeah.

Bill: I more understand like I now because market structure is messed up, I look for C Corp conversions, they’re going to have index buying. I look for index inclusion that I can flip it to somebody. I buy cheap stocks that are flipping momentum, because algos are just going to buy it. Like, that to me makes some sense. But to buy cheap stocks that are returning capital is just like owning businesses. That’s like Buffett 101, I think.

Jake: Yeah, I think that’s fair. Where’s my greater fool rerating? And you’re not doing that anymore for me.

Bill: Yeah, and he’s complaining that that’s gone away. And it’s like, “Well, maybe the greater fool has just been killed.”

Jake: Where are all the dentists that were supposed to take this off my hands at an unreasonable price? [laughs]

Tobias: Wouldn’t passive breaking the market be the best thing ever for value investors? This is what I’d understand. The first time I heard Michael Green’s argument, I just thought– If this is true, this is the best thing ever– If all the money rushes to the big end of town.

Bill: Depends when.

Jake: That’s exactly right.

Tobias: What do you mean–?


Private Equity and the Russell 2000: Has Business Quality Declined?

Bill: What’s the conversation that we’re really having here? Because I think this is important. Is it, do I want to make the most money in a forward return basis, or is it, do I have to justify to outside investors why the S&P is kicking my ass? Because I think that’s a different question.

Tobias: Yeah, that’s fair. I think it’s the best market for–. The fact that value is so beaten while the rest of the market is expensive is great. That’s a gift. Particularly if some of these companies are buying back stock, I don’t need the return of capital, but concentrate the value. Let’s go.

Jake: Yeah. It’s flows versus fundamentals. It’s voting machine via flows, momentum versus weighing machine, eventually. And if it takes longer, that’s just the price that you have to pay for this new world. But I agree. It seems like the disconnection there should create extreme valuation opportunities to take advantage for the discerning buyer who is actually looking at businesses and the quality of the business.

Bill: I was looking at the S&P, and I guess somebody said it’s trading at like a 2.8% current free cash flow multiple or something like that. And I’m thinking to myself, “Okay. Well, if I want to preserve wealth and I got a 10-year duration, I can take the S&P, or the 10-year that’s going to give me four, and I’ve got to take on some of the currency things that we’ve identified.”

Jake: Yeah.

Bill: Maybe the S&P gives me some earnings power. Should it re rate down? I need to know the scenario that it does, but the companies, if they can protect some of their earnings power buying in shares. So, over time, I think that 2.8% will grow. Well, if I can talk myself into why that’s rational here, I’m sure you can just extend it and say, “Well, at 1.4% it works.” That’s up 100%.

Jake: Yeah.

Bill: I don’t know that value outperforms that rerating. At some point over the future, you would think your entry fee cash flow yield should matter. There’s this is a company I follow, OEC. If people want to take a look and tell me why it’s stupid, let me know. But they’re guiding to $500 million in mid cycle cash flow. It’s a $2 billion company, makes rubber black. It’s not a terrible industry, but it’s not something people are going to enter. I don’t know, the S&P probably kicks its ass for a while, eventually. I think that’s like that payoff, but you got to own them.

Tobias: You can’t control the multiple, right? You can’t control the multiple rerating either for your own stocks or for the rest of the market. So, there’s no point worrying about it. What you can control is how much value you get when you buy. And the value that you get is the yield, plus the reinvestment rate. You don’t need multiple rerating. It’s nice if you get it, and I would like some. I don’t like the headwind all the time, I’d like a tailwind. But you can make money just on the yield and the reinvestment. Even if you get a little bit of a headwind, then over time, eventually, it all works out.

I think that’s exactly what Einhorn’s saying. I don’t think he’s actually complaining too much. I think he’s just saying you don’t think about it in terms of getting that. Don’t buy something that’s cheap relative to the index expecting it to catch up to the index, buy it because it’s genuinely undervalued and you’re getting a new return at the moment that you buy it. But I think that he keeps on coming out and saying it and it sounds like he’s complaining a little bit, but I don’t think he is.

Jake: Sounds like the Fed ate my homework?

Tobias: Yeah, it does.

Bill: It just sounds a lot to me like, we used to identify opportunities before the market saw them and we’d flip them to people who probably underperformed. If he’s outperforming doing it, they’re probably underperforming. He was doing it during a time when the S&P went on an insane run and like–

Tobias: Where the value factor went on an insane run.

Bill: Well, but I’m saying the last 10 years that he’s saying that things are broken. A lot of those people that were buying this stuff from him, I don’t know, they weren’t doing it in a tax advantage wrapper. A lot of them were like old school shops. I don’t know, those people going away is that the market broken or is that just capital markets iterating. I think the advent of ETFs to do some of this stuff makes a ton of sense to put a lot of pressure on those people that probably would be buying that. Do I think value ETFs existing have distorted market structure? No, I don’t. So, I just don’t know.

Jake: I think there’s a little bit of exogenous things happening too there where you have the perhaps adverse selection bias of PE sucking out maybe the better companies potentially. We’ve seen some measurements of like the Russell 2000s, business quality has deteriorated, and that might be PE driven.

And then secondly, you have big pools of capital who have looked for liquidity in places to meet their private investment obligations, capital calls in PE and VC and where do they get the money from. Well, let’s sell this dog or let’s redeem this dog manager. It tended to be probably on the more value end of the spectrum over the last 10 years. And you have this reinforcing momentum of that where this guy stinks now, he doesn’t know what he’s doing, let’s redeem from him. He has to sell those stocks, they go down. It just drags in other value investors that might have held it as well. And then you get these feedback circular, self-reinforcing loops that can go on for longer than you would probably hope as a manager who’s trying to just be rational.


Is “Zero-Interest” Hurting Value Stocks? Exploring ZIRP & Bailouts’ Impact

Tobias: He doesn’t seem to have a lot of impact on the Russell 2000. If anything, they’re at the low end of the Russell 2000, the small end, rather. Russell 2000s quality, I think, is largely driven by– When it’s easy to raise money, you get a lot of the biotechs and the things that they don’t have any revenue that just–

Jake: That becomes public.

Tobias: Yeah.

Jake: The ducks are quacking. You got to feed the ducks.

Tobias: I think that’s what it looks like now. There’s a good question here, which we come to in a bit. But the question is– It’s germane to this one from Tyler again. “Do you guys think the underperformance of the value factor in the recent past is partly explained by ZIRP and bailouts preventing consolidation of industries from low ROIC firms to high ROIC firms?” I do a little bit. Japan had this problem where they had these zombie companies that they just never declared bankruptcy. They were able to stumble from– .

Jake: Failure to failure. [laughs]

Tobias: Yeah, with no lack of enthusiasm. No loss of enthusiasm.

Jake: [laughs]

Bill: What’s the definition of value?

Tobias: Yeah. Well, we’re not defining it for these purposes. You submit your own low PB.

Bill: Yeah. Low P/B is tough, because some of the best firms in the world have no B, right?

Jake: For sure.

Bill: Even cigarette companies have no B. They just bought it all in.

Jake: Yeah.

Bill: So, you almost have to do like a price to assets on some of those businesses.

Jake: Or, add a bunch of leverage that can take your book value to nothing.


Higher Rates & Value Investing: Examining the Complex Relationship

Bill: Yeah. I don’t know, like Green Brick has worked great and the stock has worked as the business has worked. It doesn’t seem like a broken market, but he’s a lot smarter than I am.

Tobias: All right. Let me throw out another one. Tyler’s got a couple of good ones here.

Jake: He’s on fire today.

Tobias: Yeah. “Do you guys think the value factor will perform better with a period of sustained higher rates?”

Jake: It’s above by pay grade, Toby. You take this one.

Tobias: Yeah, that’s an interesting question. It doesn’t really make sense that higher rates should help equities. But I think that higher rates certainly hurt firms that have got back ended cash flows, so the growthier stuff that isn’t doing anything now and things that are highly levered, which you could maybe say value firms tend to be more highly levered, I don’t know. It’s hard. Buffett said following the last big period of inflation, whether it was 1970s or 1980s something like that that he would have rather been in the asset light businesses that had pricing power than in the received wisdom.

The common wisdom was that you want to be in the asset intensive stuff, because the assets go up in value, ignoring the fact that you have to periodically replace the assets, which means that you’ve got to stump up. You got to find the money to buy them at a higher price than you bought them previously. And so, you might earn money on your assets for a period of time, but then it’s illusory, because when you go to buy, you got to pay more. It’s a tough one. Certainly, low rates didn’t help, but let’s try high rates and see what happens.


Bill: Well, look, I think to the extent that rates would cool the labor market and to the extent that labor runs through value firms income statements, I think it could help. I noticed Met Coal is in some value screens. Met Coal seems to me to be a big beneficiary of fiscal stimulus. If rates stay high, I could see an argument why you wouldn’t build more facilities and you may not expand your operations. So, I think that the combination of fiscal spending and high rates could help some of these value stocks a lot, because I think it may restrict supply from coming on.

Tobias: Coal has had a pretty good run over the last 12 months.

Bill: Yeah. But I’m thinking the same thing. I have this theory that high rates might actually create inflation, and I think it’s because it may reduce aggregate supply and I think that may help value, but maybe not.

Jake: What about giving all these savers a little bit more spending power too? And grandma’s savings account now gives her four before that she can go buy things with that she wasn’t when it was at zero.

Tobias: It depends a little bit on the composition of the economy. Like, if it’s mostly net savers versus– Maybe that doesn’t work out. Maybe you have to have that– Maybe the savings has to equal the borrowings, I don’t know. I don’t know.

Bill: I think the composition of the economy is maybe one reason to be a little less scared of oil than were in the 1970s. Oil going higher will actually do wonders for taxes, which was not historically the case. It didn’t used to bring much money into the US economy. Now it could.


EVs vs. Commodities: Is Human Ingenuity Saving Us From a Chart Crime?

Jake: Yeah. And the sensitivity to oil, the oil– What’s the word? Amount of oil concentration required to run the economy has come down quite a bit. Just efficiencies, more service than heavy labor or heavy production.

Tobias: EVs.

Jake: EVs, saving the–

Bill: I’m not sure that applies here. That’s sort of.

Jake: Energy intensity? Maybe that was the word I was looking for. Intensity

Bill: Yeah, I remember when you did that segment. I was actually on that show, or I was watching.

Jake: I don’t remember.

Bill: I think I was here.

Jake: [laughs] I blacked out.

Tobias: What if it helps commodities and value tends to be concentrated more in commodities?

Bill: Yeah. As long as it doesn’t hit the income statement. As long as it doesn’t impact your cost more than your revenue. There’s the easy answer.

Tobias: Yeah. Well, if you’re selling them, you’re okay. But yeah.

Bill: As long as you’re not buying new machines.

Tobias: Yeah.

Bill: If the capital is already in the ground and the price goes up and you don’t have to put a bunch of maintenance CAPEX in, then yeah, it should work.

Tobias: I think it’s a chart crime. I don’t know exactly why it’s a chart crime, but it always gets pulled up by the guys who call out the chart crimes. But the comparisons like the S&P 500 to a basket of commodities, that relationship in 2000 was stretched the way it is now in favor of equities over commodities in 2010 or whatever. 2020 was stretched in the other direction, and it’s still stretched that way. So, you’re better off buying commodities rather than equities here.

Bill: Yeah.

Jake: Would you say though that one is a bet against human ingenuity and the other one is a bet for human ingenuity?

Tobias: Over the long run, you want to be for human ingenuity. Yeah, so that might be why it’s a chart crime. It’s not a min reverting series. Maybe there’s a drift

Jake: Yes, stationarity in the data.

Tobias: Energy intensity is just one. Probably, find the intensity of all of this.

Jake: Yeah. Metal–

Tobias: Everything is, we’re using less of it, they’re more efficient.

Jake: Digitization removes a lot of material out of your economy.

Tobias: I operate mostly a paperless office. Like, that was a big deal at one point. We’re going to be a paperless office.

Bill: I can’t function without paper. I am a straight up boomer.

Tobias: I hate when I have to print something out.


Diversification Explained: The Farmers Fable and the Math Behind Risk & Reward

Jake: Oh, it’s the worst. [chuckles] Shall we do some vegetables?

Tobias: Let’s do some veggies. It’s top of the hour. Let’s do it.

Bill: What do veggies cost these days? It’s a lot.

Jake: They’re kind of expensive. Yeah, surprisingly, given that–

Bill: Has it taken you longer to do veggie segments with inflation or not so much, does that not apply?

Jake: There’s a little bit of inflation.

Tobias: It’s the margins.

Jake: It’s just purely ego, I think is the–

Tobias: The input cost is low relative to what he sells them for. Good margins.

Bill: Productivity increased.

Jake: You know what it is there’s diminishing marginal utility from them as I scrape the bottom of the barrel for ideas.


Bill: Yeah, you’re learning about the oil industry. You’ve mined your good wells first.

Jake: Yeah, definitely.

Bill: I don’t know, that’s not true. You come up with good stuff, so let’s get it.

Jake: Let’s get it. This is called the Farmers Fable, and it’s a story about a farmer named Bill. And in a good season, he’ll harvest 150 seeds for every 100 seeds that he plants. So, it’s a 50% growth rate. Not bad. And if Bill plants these seeds every year, this business will grow exponentially. But at last, farming is not so easy. And sometimes there’s a bad harvest. And when that happens, Bill only gets 70% of his original seed count. So, it’s a 30% loss. So, where Bill lives in Florida, it’s random coin flip–

Bill: You should have given me a trigger warning, Sir.

Jake: [laughs] I’m not going to. I wanted to get you off here, like on tilt here. So, where he lives in Florida, it’s a random coin flip between a good season and a bad season. So, we’re still looking at a pretty good bet with a positive expected outcome. Half the time, it’s plus 50%. The other half of the time, it’s minus 30%. On average, we can expect a 10% outcome.
And Bill has an edge here.

Given all this, we could run simulations on what Bill might expect to happen over the next 100 years of his farming. And in the first run that I did of this, Bill fared pretty well. Things started choppy, good season, bad season, back and forth. But then he had a run of good luck, and he ended up with over 100x his original seed count. He’s the man. And then the next time I ran it, he started with a run of bad luck, and he lost 90% of his seeds before bouncing back and finishing with ten times the original amount after 100 years.

Bill: He didn’t stick with it. That Bill blew out at the bottom after a 90% drawdown, [Jake laughs] started selling itself on the corner.

Jake: He did.

Bill: Went broke.

Jake: The next time I ran it, Bill started hot, but then he hit a rough patch, lost his confidence, and he finished with actually less than he started with, which is bad luck. And so, even with an average of a 10% expected return, Bill ended up with 100x in the first scenario, 10x in the next, and then a loss in the last one. So, there’s a lot of luck involved here. So, maybe farming maybe isn’t as good a business if it’s so random.

But here’s where things start to get interesting. Bill has his friend named Toby, and he’s also a farmer. And they happen to live on opposite sides of the country from each other, so their weather is [Tobias laughs] completely unrelated. It’s random who will have a good year and who will have a bad year.

So, let’s run another 100-year simulation with both Bill and Toby farming alone. This time, Bill ends up with a relatively lucky outcome, and he has 16 times his original seeds. And Toby’s unlucky, and he ends up at just barely break even. So, maybe Toby is a bad farmer, I don’t know.

However, what if these friends decide to make a deal? And at the end of every season, Bill and Toby agree to pool their harvest and then split it equally. So, here’s a little of the math behind it. And it’s actually quite counterintuitive. So, I would urge you, if you’re listening to this, to go to, which is where I got this from, and click through the little animations that it has. And that’s fable with an F, it’s not table. Click through the animations yourself to follow along.

And honestly, I’ve had to run this multiple times before it really made sense to me, it’s that counterintuitive. But eventually, I’ve started to wrap my mind around it. And honestly, it blows your mind a little bit, and so that’s why I’m sharing it with you guys now.

So, I’ll try my best here to keep it simple of what’s going. So, imagine that Toby starts with– We’re going to change it to like one bundle of wheat, okay? And in the first harvest, it’s a great year, and Toby triples his bundle to three, all right? Awesome, right? Then he has a second harvest, but it’s not so good and he merely breaks even. So, Toby finishes after two years with three bundles of wheat. All right, we’re following along so far?

At the same time, running along with this, Bill also starts with one bundle of wheat. He breaks even in his first year, and then triples in his second. So, both Bill and Toby started with one bundle and finished with three after two runs of the simulation, right? Simple enough.

Now, let’s imagine that they pooled and shared and it’s the exact same weather patterns held over this. Just like in the first example, in the first year, Bill finished– sorry, Toby finished with three and Bill finished with one, okay? But before we moved to the second season to run it, they pool their bundles and then split them up. So, three plus one totals to four. They split it, and now they each have two for the next harvest season.

In this next season, Toby breaks even and keeps his two. Bill triples his two, which then takes him to six, okay? What a stud. They pool again and split it, and this time, it’s six plus two equals eight, so they split it in half, and now they arrive at each at four bundles. So, that’s one more each than when they were farming by themselves. So, there’s actually this free lunch that occurs from diversification and pooling, and that’s maybe what everyone has been talking about when they talk about this free lunch.

So, anything that grows exponentially like this in a multiplicative series, there’s an advantage to sharing. It pays to redistribute after each step moving forward, because you only take a partial step backwards when you share. And so, this luck becomes more of a certainty over the long run with this pooling and sharing. And so, you’re actually, interestingly reducing risk and increasing the growth for everyone involved, because it’s reducing the fluctuations. It’s this variance strain that we’ve talked about.

There’s actually ways you can demonstrate this mathematically that that someone who is objectively better farmer than the person that they’re pooling with will benefit from a pooling arrangement, although, there are some limits to it. If I was paired up with Warren Buffett of farming and then I was totally dead weight for them, that would not be a good arrangement. But there is allowance for a little bit of delta there. So, it really shows you the importance of avoiding those big downs that the variants drain as much as possible, which, of course, is why probably Buffett has rule number one is don’t lose money.

And this whole Farmers Fable was inspired by a 2019 research paper from Ole Peters and Alexander Adamou, I believe, is how he said, called an evolutionary advantage of cooperation, if you wanted to read the more scientific treatment of it. But they’re basically able to prove that this cooperative transactions in a multiplicative series, where you have to multiply things out like geometrically, there’s a real advantage to be had for pooling arrangements. So, I find that to be very interesting. And if you click through that, it’ll help do a better job of what I just said orally, which is not as good of a way of teaching this as probably looking at little bundles of wheat.

Tobias: Yeah, good call. Tyler Pharris got there again with Shannon’s Demon before he got very far into that story again.

Jake: Correct.

Tobias: Shannon’s Demon is a great example of that, which is why you want the uncorrelated or anticorrelated. Ray Dalio says. “Get 10 uncorrelated series.” That’s a good way of doing it if you can find them.

Jake: Yes. That diversification of being able to limit the downside, which allows you to catch that bigger upside with a larger pool of capital.

Tobias: Evidently, we’ve crashed Dozens of people went there.


Tobias: Couldn’t handle a lot.

Jake: I didn’t think about that. Sorry, guys.


Why Constellation’s Distributed Acquisition Model Works

Bill: Why roll up math makes sense. You add some things across, get geographic diversification, it’s actually worth more.

Jake: Interesting. I haven’t thought about it.

Tobias: Do roll ups ever work?

Bill: Some. I don’t know if the base rates are great.

Jake: What goes wrong there?

Bill: I don’t know. I suspect if you were to study it, that you’d probably find incentives are squarely in the middle and you’d probably have to be fairly decentralized to do them really well, I would think. I haven’t done a good roll up study, despite wanting to.

Tobias: When they’re thematic, they start with lots of little ones. And then they move the needle, they get bigger and bigger, so their biggest mistake is always– Well, their mistake that they finally make is always the biggest mistake they make. The ones that do well are like Constellation or Berkshire.

Jake: Pretty small.

Bill: It used to be 3G.

Tobias: Well, Valliant. Remember Valliant?

Jake: Yeah, that was a roll up. [crosstalk] Got to imagine some overconfidence creeps in when you’ve done a bunch of small ones, you’re like, “Hey, we’re pretty good at this. Let’s take a bigger bite of the apple,” and then you get clobbered.

Bill: Yeah, you start believing that you’re actually worth the multiple that people are giving you and get a little bit of the God complex. I can see that.

Tobias: Constellation has managed to keep their acquisition size incredibly small.

Jake: Unbelievably small. I almost don’t believe them. It’s so impressive.

Tobias: It’s distributed acquisitions all the way to the edge of the network, rather than having to rely on the dude in the middle coming up with all of the ideas. It’s a good way of doing it.

Bill: Yeah, you need the right kind of leader in that. That’s a guy that I suspect doesn’t require all the attention.

Jake: Maybe the opposite is trying to avoid all the attention.

Bill: Yeah. It could be something to learn there.

Tobias: They have podcasts.

Jake: There’s definitely.


Tobias: Or, keep your podcast very small.

Jake: Yeah.

Tobias: Niche podcast.

Jake: That’s why we’re doing it. That’s why we keep it small and intimate.

Bill: Yeah.


OEC vs. CPI: Can This Stock Outperform Despite Inflation and Volatility?

Tobias: Do you guys want to do predictions for 2024?

Bill: Haven’t we already done those?

Tobias: Yeah, but I just meant generally, what’s going to happen?

Bill: Oh, God, I don’t know.

Jake: Can you just beat me with a stick instead, Toby, and we’ll just call it even?

Tobias: I certainly can.

Jake: [chuckles] Thank you.

Tobias: Next time I see you. “Danaher.” There’s a good roll up. Big sell off today, because we got a hot CPI print. Does that make sense? Market looking for a reason to sell off?

Bill: I don’t know, lots of people seem to be commenting on the Twitter machine for whatever that’s worth that things are really heated. I just think that some of these just middle of the road, old economy businesses don’t seem crazy to me. I bet if you own them, you do okay. Maybe you got to live through a little bit of a recession in the meantime, but the prices aren’t indicating euphoria, at least as I see it. But then again, who the hell knows? I could be blind.

Jake: What kind of multiples are you seeing?

Bill: Well, you know like that what OEC—Look, they have to bring this LaPorte plant on, but what four times forward EBITDA in 2025? That’s not crazy. Okay, how much is D&A? Call it maybe, I don’t know, $90 million or so. Let’s say $500 million is $300 million in free cash to equity, you’re two times levered and—Obviously, it’s a commodity. So, who the hell knows what’s actually bankable? But you’re looking at an equity value of $1.3 billion. I don’t know, four and a half times free cash. Maybe that’s peak. So, maybe it’s $100 million, okay? Well, then you’re 13 times cash. Last I checked, that’s still 7% return. You got to own it though. If a cycle goes against you and you puke it at the bottom, you’re screwed. Look, I just described charter for me.

Jake: [laughs]

Bill: No, I kid. I puked it a little higher.


Fairfax Short Report: “Don’t Mess with Prem Unless You’re Sure”

Jake: I do think it is all but impossible to time these kinds of things. You really don’t know when the worm will turn, I don’t think. Let me try to make more concrete. Do you think you could have timed the 2000 to 2007 value renaissance?

Bill: No. But I do think at some point, the valuation spread does get a little too big where it’s like value probably does well. I think the harder question is after it does well, I don’t know when I’d sell it.

Tobias: You got to surf that wave all the way to the beach, Billy?

Jake: Yeah. [laughs]

Tobias: I don’t know what that means. I just like saying it [crosstalk]

Jake: You mean crash it onto the rocks?

Tobias: [laughs] Dig that nose into the sand at the bottom. Fairfax short report.

Jake: Yeah, that’s interesting, huh? Any thoughts on that?

Tobias: Seemed like a funny–

Jake: All the things out there that might be fugazi, and you’re going after Fairfax? Okay.

Bill: Well, they have historically– People that know insurance, some have had some questions about their underwriting, I think. If you believe publicly reported data, I think those questions– I was just looking at it. Like, their last 10 years of combined ratio is like 97 or so or 96, seems like there could be worse than that. Then what? You’ve got acquisition accounting, and you’ve got a stock that’s been on a hell of a run. So, if you wanted to scare people, I think it could make some sense to write a report like that and you get some shakeout, and then you close your short, and then you move on.

Jake: Yeah.

Bill: I don’t like the idea of publicly shorting, man. Especially, Prem. I think Prem has come after people in the past, and I think he would not be afraid to do it again, if you did not have pure motivations. I think you better be fucking right on your analysis if you come after a guy like Prem.

Jake: My interpretation of Muddy Waters complaints were mostly like, we don’t like the way IFRS accounts for things. [chuckles] It’s like, well, yeah, fine. You don’t like the way that it was marked to market for something like say like digit, for instance. Well, that was like what Sequoia led that round and that was the price that they marked the equity at. What do you want them to do? That’s just how it works. Make your own adjustments. No one’s saying accounting gives you the exact answer. These are all just abstract approximations of reality at the end of the day, you need to make your own adjustments. But that doesn’t mean that it’s fraud. So, I don’t know, I found it rather unconvincing myself.

Bill: The question that I had, by the way, is I believe that Prem sued Roddy Boyd. I could be wrong. I believe that– [crosstalk]

Jake: There was a big short interest in, well, 2005, 2006 timeframe for Fairfax, if I remember, right?

Bill: Yeah, I may be wrong on that. But I’m just saying, they released a response to the response. I actually talked this weekend to a guy who was a short seller who found himself the subject of an investigation. And his side of the story is he was just doing good work and he wrote a public short report. And the amount of heat that came on him– Even if you’re right, the legal bills are a lot. I don’t understand the risk reward skew. The only way it makes sense is if you’re running a firm and you want to attract assets and you think it’s worth all the headache. But man, being public and short, would– I commend the guys that do good work and do it. It doesn’t sound like a fun existence. Sounds like even when you’re right, you can put yourself through hell.

Jake: Oh, God, the Einhorn entire book about shorting allied was like– If you read that before you ever even think that you might want to do it, because that probably scare you straight.


First-Gen Riches, Third-Gen Bust? Investing in Google’s Future

Tobias: All right, here’s a good question riffing on Buffett’s chat. “What do you guys think are some of the few companies that are going to be better businesses and earning more 5 years from now with 90% confidence?” That’s from Tyler Pharris. They’re the fourth higher producer. Tyler Pharris is responsible for 90% of this episode. Thanks, Tyler.

Jake: Yeah, it’s interesting. That came from, I think, Todd Combs talking about what him and Buffett talk about on Saturday afternoons. They’re basically mostly just talking about businesses that fit that criteria. Is that a correct–?

Bill: Yeah. Do we have a price on this? Are we limited to the 15 times earnings thing?

Jake: [laughs] Yeah. That makes it a little harder, doesn’t it?

Bill: Yeah.

Tobias: There wasn’t a limit on this. So, I guess you can swing away.

Bill: Anything.

Tobias: What about Mag 7?

Bill: I don’t think I am going against it.

Jake: Yeah.

Tobias: It was true. All of the big growthy companies from 2000, they all compounded away from 2000, 2015. Price didn’t go anywhere, but the businesses certainly got bigger over that period.

Bill: This isn’t a unique thought given where it trades. But I think the one that would make me the most nervous is Google. I just don’t know–

Jake: AI related search.

Bill: Yeah. And I don’t even know that it’s like AI. It’s just like, they’ve made so much money for so long that I just wonder if something were to compete with their economics, do they even have the muscle to learn how to pivot? It’s like first generation makes it, second generation spends it, third generations got nothing, like, what generation are we in?

Tobias: Three generations.

Jake: [laughs]


Elon vs. the Court: Can Shareholders Approve Anything They Want?

Tobias: It’s been interesting to watch Meta when it was smashed like a year ago or 18 months ago, whatever was the bottom. It was like half Google on my– I have this screen on the Acquirers Multiple website with the little bubbles, and Meta was half Google for a while. And now it’s more expensive than Google.

Bill: Yeah.

Jake: That’s because Zuck went– He’s like, “Time to get hardcore.”

Bill: Yeah. Well, and he got [unintelligible 00:57:06]. I don’t know.

Tobias: Zuck said that jujitsu and massaging his cows and feeding them macadamia nuts and beer. I want to be one of Zuck’s cows.

Bill: Copied TikTok. Figured that out pretty nicely.

Tobias: Pay himself a big fat dividend, live in a bunker in Hawaii. He’s got a [crosstalk].

Jake: How come Zuck’s not demanding 25% of the company be given to him?

Bill: Oh, I actually think that this is– I’m actually on Team Elon here.

Jake: All right. Break that down for me.

Bill: All right. So, to the extent that you would be a shareholder, so you’re already signed up on team Elon. He wants to build a robotics company. He is building a robotics company. He refers to it as a robotics company. But I think out of all the people that are actually worried about artificial intelligence, I actually resonate the most with what he says. And I see, if I were him being like, “Look, if I’m going to unleash this beast, I want to control where it goes.” I don’t think that that’s necessarily–

Tobias: If anybody’s going to make the monster that destroys humanity, it’s going to be me. It’s not going to be somebody else.

Jake: [laughs]

Bill: Yes. And you don’t have to say that it can be him, by the way. That’s fine. If you say “No, it’s not you or it’s not in this entity–”

Tobias: Let’s get that AI into some of those bots, give them guns, let’s see what happens.

Bill: Look, I think he thinks he wouldn’t, but I don’t mind the man asking. We’ll see.

Tobias: Well, he got approved by the shareholders for the last slug, so the people who really count voted for it, and then the court said no.

Bill: Well, yeah, it could be voting shares. It doesn’t even have to be the economics. I don’t understand. I need to realize why the court said no. That doesn’t seem American to me on its face. I feel like if shareholders are going to give you that much money. They should be allowed to.

Jake: Yeah.

Tobias: And it’s a big shareholder basis. A lot of people in there, a lot of sophisticated investors.

Jake: Christ, it turns over a million times a year too. So, whoever just rented it most recently–

Bill: Hey, man, don’t hate the player, hate the game. That said, I don’t like his securities fraud or my perception of it, that has always bothered me and always will. He’s a complicated figure. I think he’d be good to do without the means in his life. The dopamine and the ketamine, I think he could get off of.

Jake: It’s probably fair for all of us. [laughs]

Bill: I’ve tried to reduce the dopamine. I’m in a better spot.

Tobias: Maybe it’s descriptive.


Tobias: All right, fellas, that’s 200 episodes in the bag.

Jake: Wow. Congrats, boys. I’m proud of you.

Tobias: Well done. Thanks, everybody, for sticking with us. Happy Valentine’s for tomorrow. Play this for your significant other and show them how much you love them.

Bill: I remember when I got my dog and she was a puppy on this show. She’s now 80 pounds and sleeping. Just a fat beauty.

Jake: [laughs] She’s learning [crosstalk] in you.

Tobias: See you next week, folks.

Bill: Hey now.

Jake: Huh.

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