In their latest episode of the VALUE: After Hours Podcast, Tobias Carlisle, Jake Taylor, and Zeke Ashton discuss:
- Why Margin of Safety Matters More Than Ever
- How to Spot Long-Term Value in Overlooked Small Cap Stocks
- Avoiding Growth Traps & Value Traps
- Fractals in Business: Insights on Patterns and Capital Allocation
- Portfolio Management: Position Sizing and Risk Mitigation Techniques
- Risk Management & Value Investing
- Hidden Risks With The Kelly Formula
- Active Management Redefined: Options, Bonds, and the Evolution of Value Investing
- The Strategy for Capital Protection and Opportunity Exploitation
- From Overhyped to Underappreciated: PayPal’s Market Journey
- How Undervalued Companies Can Turn into Market Giants
- How to Spot and Assess Visionary Management
- Decoding Executive Compensation: What to Look for in Proxy Statements
- Yearly Option Grants vs. Retirement-Cliffed Options: Which is More Effective?
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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Transcript
Tobias: This meeting is being livestreamed, which means its Value: After Hours. I’m Tobias Carlisle, joined as always by my cohost, Jake Taylor. Our special guest today is Zeke Ashton. Zeke, it might need no introduction to many of you, but for others who are newer, Zeke was one of the investors who I looked up to when I was getting started in this business. He’s got a great combination of a low-risk approach and very solid returns. He’s been out of the game for a little while. He’s been lecturing, but he’s back with a new fund. How are you, Zeke?
Zeke: I’m doing great. Thanks for having me, Toby.
Tobias: Let’s talk a little bit about– [crosstalk]
Jake: It’s really value childhood dream come true here, huh?
[laughter]Zeke: It’s very nice of you to say.
Tobias: Let’s talk a little bit about how you got started. So, when did you get started? Let’s start there. When did you get started as a fund manager?
Zeke: Yeah, I was introduced to investing– I was actually doing an internship when I was studying abroad during my college years. And one of the guys who’d hired me as an intern was– This was in the mid-1990s. So, the bull market was just catching on. He was a big Peter Lynch fan. And so, he lent me a Peter Lynch book. And I read it. I think I read it in one sitting and I thought, “Wow, in a perfect world, this is what I would love to do.” But of course, these were pre-internet days, and I had no way of thinking how I would get from where I was at the time to being able to do that. But it was a great introduction to it. And the guy who introduced me to the book is– Ultimately, I ended up working for him at his company in the risk management consulting business.
So, I was in Europe for about five years after I graduated. I got very interested investing there. I hired actually an intern myself from Harvard, who is huge into the new internet stocks. This was probably 1996, 1997 when that was just starting. You could actually get an online trading account, which was a totally new thing. I remember it was Datek was my online trader. And so, yeah–
Jake: They get acquired by– [chuckles]
Zeke: He was a big Motley Fool reader, which was just getting started at that time. And so, he turned me on to reading the Motley Fool, which I would do after the day was done. But luckily in Europe, with the time difference, I could actually trade after I got home. And so, I just started experimenting a little bit.
Initially, I was very influenced by Peter Lynch with the growth. Peter Lynch is somewhat misunderstood today. People think of him as this great growth investor, which of course he was, but he was also very good about valuation. He was just a really, I think, gifted all around investor. But eventually, Peter Lynch led me to Warren Buffett. That’s where I found this incredible treasure trove of wisdom that’s on the Berkshire Hathaway website. Still is out there for anybody who wants to go read it. So, I started reading that. Yeah. So, there I was–
In the mid-1990s, trying to do value investing, also doing growth investing. And what seemed to work though was just buying really speculative internet stocks that– [crosstalk]
Tobias: [laughs]
Jake: Anything with dotcom on the end of it?
Zeke: So, I ended up having this bipolar investing approach or schizophrenic investing approach, where half of my portfolio would be things that Ben Graham and Warren Buffett would approve of, and the other half was just totally irresponsible stuff that worked.
Jake: They call that barbell strategy to make it sound less speculative.
Zeke: Sure. We’ll go with barbell. We’ll go with barbell.
Jake: Yeah. [chuckles]
Zeke: Yeah. Anyway, the more I did it, the more I realized that that was really something that I enjoyed. Even then, I loved going to the company’s website and pulling down annual reports. The Motley Fool writing back in the day was very fresh and unique. So much of it was about educating the individual investors. So, they would literally have 2,000- or 3,000-word essays tearing through balance sheets and cash flow statements, which you could never get away with online today. Yeah, so I was blown away by all that. I decided, sometime in 1998, that I was going to become an investor that I felt like that’s what I was built to do.
I was living in Switzerland at the time, and I started a partnership for some of my friends who were fellow expatriates, but they wanted to invest in the US market. And so, some brave people put some money in for me to manage, which I was doing for free as I try to figure out the game. I really started getting into writing up my ideas, started writing myself quarterly letters as I was writing to these investors.
Eventually, I started writing essays. I sent one to the Motley Fool. And lo and behold, they published it. And before long, they were emailing me saying, “Hey, we’re looking for writers. Would you like to write for the Motley Fool?” My first day at the Motley Fool was January 1 of 2000.
Jake: [laughs] [crosstalk]
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Risk Management & Value Investing
Zeke: At the time, I landed virtually at the top of the bull market. I found the Motley Fool was just a really stimulating place. There were lots of talented people. They’re writing, and I was there too. So, it was great I got to learn from some really interesting and fun people.
I think one of the best things about the Motley Fool was, I had to read a 10-K a day of a company that I’d probably never heard of, and then try to get an article out by the afternoon. So, that’s a lot of reps that you do.
I don’t know if you’ll remember this, Toby, but they had two portfolios back then, the rule breaker, which is very much similar to today’s– That’s where the Tesla’s would go and that’s where the Nvidia’s would go. And then they were the rule makers, which was the, I would call it, the high-quality compounders. And so, I wrote for the rule maker team. It was just a great experience. But by 2002, I lived through that bear market.
By the way, it’s very interesting. I think that a lot of investors are colored very much by their formative experiences, particularly when you’re managing other people’s money. So, I got most of the money in that partnership actually when I joined the Motley Fool. And for the next two and a half years, through July of 2002, the NASDAQ went down by 67% and the S&P went down by 45%.
And so, as bear markets go, it wasn’t so bad if you were really a value investor. But I do remember going to a Jeremy Grantham presentation and him running through the numbers about how crazy the valuations were. I found it very hard to refute. So, basically, during that time, I really converted to value investing, by which I mean not necessarily paying super cheap prices for companies, but just trying to value the businesses. And so, I was able to protect capital very well through that bear market.
Started Centaur in 2002. The guy that lent me the Peter Lynch book, my friend, Rick, he was my first investor. And so, that kicked off my career. I’d never managed money for anybody prior to that in terms of working for another professional asset management firm. So, I had to learn it all myself. But was very fortunate. My first eight years, I think we compounded at something like 20% a year. And the worst quarter, I think we were down by our management fee. So, it was just a great run. It was a good environment for my style. There was lots of good values to look at, but there were also things to short, which was a new wrinkle that I’d added to my playbook during the busting of the internet bubble. And so, yeah, that’s how Centaur happened. I had a great ride for 17 years there.
Tobias: You search your name, one of the things that comes up is, you did very well in 2008 because you were down single digits, I think, versus a market that was down in the 40%. Was that the shorts helping you out there?
Jake: 37%, I think.
Zeke: Yeah.
Tobias: 37%.
Zeke: I think it was a combination of a number of things. The business that I was in before, I really thought I’d end up being a risk manager at a bank or an insurance company. The company basically provided risk management systems to big banks and conglomerates. It’s a tough way to make a living. But what you get to do is you get to see how the capital markets interrelate. I was studying all the blow ups that had happened at that time. And there were a lot of them. Very famously while I was there, the ING Barings guy with the futures. But even before that, there had been mishaps.
Long-term capital management happened in 1998, when I was really getting serious about investing. That was also a really good learning experience. And so, I ported over my risk management skills to value investing. I do think value investing is really about two things. I think it’s about valuing businesses, most obviously, but I think it’s also about managing risk and assessing risk. I think people like Warren Buffett are often not fully appreciated for their greatness, and how to assess and manage and avoid risk and make sure they’re getting paid for it.
So, basically, 2008, 2009, I didn’t really fully see it coming, but yes, it was very helpful that I was short a lot of things that I was really glad to be short. But I was also long some interesting things like– I will always have a soft spot in my heart for Fairfax and Prem Watsa, [Jake laughs] because I was trying to buy credit default swaps and I couldn’t get an ISDA agreement set up. A friend tipped me off to the fact that Fairfax was chock-full of this huge CDS portfolio and all the stuff that I wanted to short.
And so, yeah, I bought some Fairfax, which, by the way, was not an easy call even then, because Jim Chanos was very famously shorted. And so, you had to overcome this fear of going up against or at least be on the other side of the trade of somebody that I’ve very much respected on the short side. But I was very convinced that that was what I wanted to do.
And then at some point, we also bought Odyssey Re, which was a Fairfax owned insurance company that had its own CDS book. And so, the combination of the shorts definitely helped us. But also not owning any of the banks, being aware of what was going on. Unfortunately, there are limits when you’re mostly an equity person. Even an equity long, short person, some things you just don’t see coming. That one was a tough one, because so much of the froth wasn’t actually in the equities market. It was really in the mortgage market.
I remember us going through the exercise of asking ourselves, “Well, how much subprime mortgage exposure can there really be?” And it was not a big number relative to the damage that it ultimately inflicted. But what we didn’t understand at the time was how much of it got duplicated through all these other instruments. And it spread to all corners of the globe. And so, it was a very unique time, but I do think the risk management principles that we had were very effective.
I also think just prior to that, there was a huge movement, particularly in the value investing community, of getting too concentrated, getting very concentrated. This was around the time that the Kelly formula was super popular, and people were presenting it at conferences talking about they needed to be taken 25% and 30% positions. And so– crosstalk]
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Hidden Risks With The Kelly Formula
Jake: Not so familiar today, doesn’t it?
Zeke: Yeah. So, I guess I’d always benefited from that risk management experience. It’s very interesting. I’m often asked by people, “What’s the one thing that you really think you learned from studying all the risk management stuff?” It was a very surprising lesson. And the lesson is, it’s never the dumb person that makes the mistake. It’s always the smartest people in the organization that lead them to ruin, because it’s usually somebody who’s had a great history of success. They’re incredibly confident. Nobody in the organization will oppose them, because they’re clearly a winner. They’re the golden child. And then they just over bet, and then something unexpected happens and then you get massive wipeouts.
Tobias: It’s the strong swimmers who drown.
Zeke: Yes, that’s exactly right. It’s certainly overconfident. The other thing that people don’t understand is we’re often taught to find the people who have long track records of success. But what we don’t realize is that sometimes that they’ve gotten that success through taking inordinate risks and they’ve been rewarded. You can do that three, four or five times in a row. But the next time, it comes up tails and it could have really nasty consequences.
Jake: There’s a great interview that Zeke did with Manual of Ideas, I think around the 2009 or 2010 timeframe, where you really distilled a lot of the lessons that you learned from 2008. I would encourage people to go read that. But maybe talk a little bit more about the Kelly formula and some of the shortcomings in how you think that otherwise smart people apply it. I’m thinking specifically about bankroll, thinking that you could use the whole bankroll when that may or may not be true.
Zeke: Yeah, the Kelly formula is very interesting. And of course, you’d probably remember there was a book called Fortune’s Formula. I think part of the problem that made the Kelly– [crosstalk]
Jake: It’s so good. I actually reread it like two weeks ago, just because I was like, “I haven’t read that in a while.” It’s so damn good. [Tobias laughs]
Zeke: But you know, Jake, I think that was part of the problem. It was such an-
Jake: Too good.
Zeke: -[crosstalk] book. And it was so compelling that people were almost forced to go, “Hey, I’ve got to use this. This is too much of a toy.” [crosstalk]
Jake: “I’m Ed Thorp. I can do this.” [laughs]
Zeke: Yes. And of course, it’s like anything. In hindsight, it really worked beautifully. The problem is, of course– Well, there’s a number of problems. First of all, when you’re using it for gambling, which was originally what it was designed for, you have a series of uncorrelated bets. Whereas in the stock market, you don’t have a series of uncorrelated bets. They all tend to correlate at the worst possible time.
The second thing is, you do know what your bankroll is. And the problem is, when you’re managing other people’s money and you have liquidity terms, you may not have the bankroll you think you have. In fact, you only have the bankroll that the weakest investor in your fund, their pain tolerance that’s the beginning of your pain tolerance. Because even though you may want to have strong hands and buy into weakness, your investors have to allow you to do that.
We were talking about 2008. My hedge fund was down 7%. I’m convinced I should have been up on the year. Unfortunately, I had a lot of redemptions towards the end of the year. And there I was thinking that I had really strong hands. And unfortunately, I had to be selling with everybody else just to meet redemptions. And so, I learned a lot from that experience. I will say that is one of the benefits of being an individual investor, if you’re sophisticated is you really do have the full use of your bankroll.
But I think there’s a lot of other things that are not– The Kelly formula, certain business models you simply cannot average down into. Like, you cannot average down into a banking business model where they’re using 10 times or 12 times leverage at a normal case. But you may recall pre-2008, all the investment banks were actually 30 to 1. Lehman Brothers, Bear Stearns. Goldman was very fortunate, because they were actually able to apply for a banking license and make sure they were fine. Yeah, that was a very scary time.
I’m not sure there was any one thing that we did that allowed us to do well. Obviously, shorting was beneficial. But I also ran a long only mutual fund at the time, and it was only down, I believe 20% in 2008. But then we beat the market by a good bit the next year going back up.
So, what I will say is I think risk management is also an instinct and a feeling. Certainly, now I’ve seen these market cycles many times. You can just feel when people are starting to lose their heads a little bit. You can feel when risk is not something the market cares about. But the really funny thing about risk is that nobody cares about it until it’s the only thing that they care about. That’s why you get the scoreboard changes so fast and the points come off really quick.
Yeah, so the combination of having the right investors and the right approach, and really thinking about this stuff in advance, having position size limits, having industry limits and then having business model limits where you’re like, “Hey, we’re just not going to have more than a certain amount of exposure to business models that cannot stand up to capital market dislocations.”
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Tobias: Zeke, let me give a shoutout to all of the people who are following along.
Jake: After our geography lesson.
Tobias: Bendigo, Australia. Good stuff for you. Good gold mining town there. Honolulu. Philly. Cleveland. Cromwell, New Zealand. Milton Keynes. Savonlinna, Finland. Tallahassee. Grimsby, Ontario, Canada. The rainy UAE. United Arab Emirates. Nashville, Tennessee. London.
Jake: Oh, it’s a desert.
Tobias: Croatia. Sorry, is it Rijeka? I don’t know how to say that. Antigonish, Nova Scotia. Saint George, Utah. Luleå, Sweden. [chuckles] Pyongyang, DPRK. We’re the biggest value podcast in Pyongyang. I think there’s one. [Jake laughs] Basel, Switzerland. Jupiter, Florida. Fort WOrth, Texas. My computer’s unable to scroll down fast enough. Petah Tikva, Israel. I think I got Fort Worth and in Jupiter, Florida. You’ve won.
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So, Zeke, you’re back with a brand-new fund. Why now?
Zeke: Well, for one thing, taking several years off was very beneficial for me. I’d run a hedge fund for 17 years, mutual fund for 15 years, and of course, I also ran the business. It was a family business. My wife ran a lot of the operations. It’s just really tough. The hedge fund business is really a series of one-year sprints, and the mutual fund business is a marathon and running your own business is really an obstacle course.
[laughter]Zeke: So, when you do that for many years that we did—[crosstalk]
Jake: But those altogether.
Zeke: Yeah, it was very hard to escape from it. I was also just feeling a little burned out. Towards the end, I have to say, I felt like I had made all the adjustments to our valuation metrics that we could. I was willing to adapt as much as possible to the environment. But at some point, I thought, “You know, these skill sets that I have which is valuing businesses and assessing risk, just don’t seem to be super needed right now.” [Jake laughs]
There’s not that many opportunities you get in life where you can take a couple years and step away and have a midlife sabbatical from what you were doing. But it was a great thing to do. There were some personal goals that I wanted to reach. There were some family issues that were– It was a good time to address with parents and other things. And so, it was just a really nice thing. I got to travel. That was really important. Got to go to Australia, New Zealand, which had always been on the bucket list. Got to do that for a month, which was great. And so, it was really nice. And then teaching– [crosstalk]
Jake: You picked some good years to skip too, by the way. [laughs] Poor at value.
Zeke: Not [crosstalk] other people’s money during the pandemic was a real blessing. And then getting the opportunity to be a professor at the University of Alabama. So, my shoutout is to Tuscaloosa, and the students at CIMG and the value investing program there, and John Hines, who runs that program. I was able to spend three semesters as a professor. And that was really fun. I enjoyed it. And it also brought back a little of the joy of investing. To a certain extent, there was a part of me that felt like I was coaching when I could still be playing. And so, I felt this pull to come back. I really didn’t feel like I had reached my full potential as an investor, I think there’s one more layer that I hope to get to. And so, I hired one of the smart students at the University of Alabama to start up my new fund. It’s nice working with somebody who’s 30 years younger than you, who’s really smart and motivated, but literally has no memory of–
For me, the great financial crisis was last week. For him, it’s nowhere in his memory bank at all. So, part of his job is to nudge me when there’s a really good idea and push me to get bigger, so that I don’t get too conservative as I get older. Yeah, so that’s why.
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Why Margin of Safety Matters More Than Ever
And also, after 2022, which was very interesting, I think there are a lot of value investors now who are not– They rely much more on the quality of the business for the margin of safety than anything else. I’m a huge believer that what differentiates value investors of all flavors is it’s somewhere in the portfolio, there’s a margin of safety against this permanent catastrophic loss that people talk about, which is, it’s not that you can prevent your stocks from going down in the near term, because you really can’t control what the market will do. But over time, if you’ve really done your job, your portfolio should recover within a reasonable period of time, so those losses don’t become permanent.
That may have been lost a little bit. And so, I got a few calls towards the end of 2022 from former Centaur partners saying, “Hey, I don’t know that there are people who think about risk the way that you do anymore. I have a piece of my portfolio I’d like for you to manage.” And so, it was just nice to get those calls, because it’s not something you necessarily can expect. But I’m very grateful for that. Many of the investors that were with me and Centaur, they’re with me with my new fund. I’m very grateful that they would trust me with their capital again.
Tobias: So, [crosstalk] a little bit–
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Active Management Redefined: Options, Bonds, and the Evolution of Value Investing
Jake: So, the new format, is it a LP structure or did you get mutual fund? Because I know you had both before.
Zeke: Yeah, certainly the mutual fund, one of the reasons to stop doing it was, it simply wasn’t really competitive structure anymore. If I was going to do a structure like that– Now I do an active ETF, because the tax benefits are just much, much better. And so, I got to the point where my mutual fund was really only for IRA investors. Like, I really could not recommend people with taxable money put money in a mutual fund. I also visit www.Gold401k.com to read about the benefits of securing the future by investing in precious metals.
But the fund itself, it’s called Ashton Total Return Fund. Again, it’s all about risk adjusted returns, value investing. Still do long-shorts. Also, use options quite often. This was something we did in the mutual fund as a way to smooth out the return profile a little bit. And so, we’re still doing that. Yeah, that’s the story there.
Having the LP structure is important, because I don’t want a lot of separately managed accounts, because many of our investments, there are things like options where you can’t count on having liquidity every day at the same price that you can push into 10 different accounts. So, I love having a wide spectrum of idea types in the portfolio. I love having large caps. I love having micro caps. I like having even have a few bonds in the portfolio from time to time when I can find something interesting. So, this just allows me maximum flexibility and just allows me to express myself as fully as possible.
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The Strategy for Capital Protection and Opportunity Exploitation
Tobias: Now when you look at the markets and the economy, how do you feel about the near-term opportunities to pick up some positions?
Zeke: Well, I do think went through a very long period. Of course, we had highly suppressed interest rates. I think we’re going to look back in history and think of the time when there was something like $10 trillion in sovereign debt at negative interest rates and wonder what we were all thinking. Also, the volatility suppression that came with that was pretty noticeable. For my strategy, I do need volatility to really take advantage of opportunity. I need to exploit opportunities that have some volatility. And so, I really think that the market of the next 15 years– I’m not saying I hope that this happens, but I think it will, is I think there’s going to be a lot of adjustments that have to happen.
I think there was a lot of misallocated capital over the last 10 years. There was certainly a lot of money printing. And now we have a lot of geopolitical tension. I think the pandemic has made a lot of permanent changes in the fabric of how the world is going to behave in the next 20 years. I’m hopeful that I can do a good job of protecting capital when it needs to be protected and then taking advantage of some of the opportunities that I think are going to happen, because I think there’s going to be market dislocations and I hope to be there to take advantage of them.
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From Overhyped to Underappreciated: PayPal’s Market Journey
Tobias: Where are you finding opportunities now? Do you think there’s any interesting sectors or industries that are worth looking at more closely?
Zeke: Yeah. What’s funny is you’d think based on the market’s return over the last several years and the larger cap valuations, which are very full, you would think there’s not a whole lot of opportunity out there. But they’re actually is. It’s just in very different places. It feels like that the market either really loves a certain stock or industry or sector, or it really does not.
Jake: Couldn’t care less.
Zeke: Yeah. By the way, small caps, there’s a lot of value in small caps. You do have to be careful. You have to be very discerning. But I have a screen that I’ve been running since 2003. I designed it so that in a normal market, it would kick out about 100 candidates. I’ve modified the screen inputs from time to time to keep it around 100. This screen got down to 30 names in 2016. It briefly jumped to about 170 names in the pandemic. Right now, it’s at 104 this morning. And again, this is not necessarily– I’m not looking at this screen necessarily for ideas. It’s more of a barometer thing, and I actually have several of these tools I use to tell me where things are.
But I’ll give you another example. You know, how people talk about the value trap a lot. But the growth trap is even worse. There’s a lot of stocks that got– Of course, in late 2021, there was a huge speculative rally in virtually everything, but particularly companies that were pandemic beneficiaries, at least short-term. Now that some of those growth stories are broken, there is literally not a buying constituency for those stocks. I’ll give you a name as an example that I think is quite interesting and we have a small position. That’s PayPal.
So, PayPal was selling for $350 a share at one point in 2021. Obviously, the pandemic really improved their business in the short-term, and people were willing to pay more than 10 times sales for this business, which is a very good business still. Just for some scope, they processed about $1.4 trillion worth of payments last year.
So, fast forward today, they’re no longer growing the top line very much. They’re in a period of transition. They have some new management. There’s been some activist involvement that’s walking them through some smart decisions in terms of capital allocation. But today, I can buy that stock for 12 times true free cash flow. They’ve got a great balance sheet. They’re going to buy back about 7% of the shares this year if the stock doesn’t move.
I think this was a business that I wasn’t super familiar with. I remembered it mostly from the eBay days. But I was really surprised once I started looking at it, how powerful their business model is, and they have this neutral competitive stance where they compete with everybody, which people focus on now, but they also work with everybody. And so, I just think it’s a very interesting idea. It’s not a super big position for us, but that’s the value that’s out there.
Let me tell you, nobody likes it, because none of the growth guys want it. it’s down 80% from its high. It’s a good example of still a very good business. But it’s hit this air pocket where it does not have a natural buying constituency. I think even a lot of the value guys don’t want to own it right now. So, I don’t know how well it’s going to do. We have a small position, but it’s just a good example. 12 times free cash flow for a very good business. So, we’ll see.
Jake: Yeah. If they’re buying back, you’re locking in a what 8% earnings yield at that point, that might look pretty damn good over the next 10 years. Who knows? [chuckles]
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How to Spot Long-Term Value in Overlooked Small Cap Stocks
Zeke: Yeah. There’s quite a few stocks that we’re growing pretty quickly. I think it’s still very difficult for many companies to know what the true demand is for their services and what the true costs are for providing those services, particularly with physical things and what’s happened with the supply chain. So, it is very difficult to project out what some companies are going to do for the next 12 months to 24 months. And that’s created a lot of uncertainty. And so, those are the areas we’re looking at.
And then, as I mentioned, the small cap areas, we’re actually finding very good businesses trading at single digit multiples to free cash flow. I’m not talking about super capital intensive, commodity-based businesses. I’m just talking about little businesses that have a reason to exist. My friends who are playing in the high-quality game would certainly not want to own them. But my view is if a business has been around for a long time and it truly deserves to exist, somebody’s got to own it. When nobody wants to own it, you might get a chance to buy it at a decent price. So, I certainly am happy to own a mediocre business if I’m getting a really good value on it.
I will say one other thing that’s interesting. If you go look back at all the companies that Berkshire Hathaway has acquired, what you’ll find is that they’re not all the world’s best businesses. They’re just good businesses that were run by owner operators that really, really had a good reason to exist. And people wanted the product and they generated good cash flow over time. Warren Buffett, of course, bought them at very good prices. That’s the lesson that we take away from that.
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Avoiding Growth Traps & Value Traps
Tobias: Zeke, let me just go back to something you said earlier. You said you were trying to– There were growth traps as well as value traps. Just define for us what those two things are. And then talk a little bit about how you avoid value traps.
Zeke: Yeah. So, the growth trap is, of course, when people extrapolate recent growth. Just like there’s a big value investing constituency, there’s also a big growth investing constituency that may actually be larger. As long as the company is showing strong growth trajectory, they want to own them. But unfortunately, many companies just will eventually run into some problem, and they can’t grow for a couple of years or by attempting to grow at very high rates, they actually start to run the business poorly, and they get declining returns on capital and this sort of thing. And eventually, that turns into a problem.
I think, by the way, Peloton is a tremendous example of that. Like in 2021, it just looked like they could grow for a long time. Then all of a sudden, the brakes just got turned on superfast. And when that happens, when people are projecting 20%, 30% growth for many years into the future, and then all of a sudden, that growth turns negative, there is a huge air pocket that has to be filled in, because the multiples go from multiples of sales oftentimes to multiples of earnings, and sometimes there’s no earnings. And so, there literally can be 80% peak to troughs before a value. Some constituency goes, “Hey, let’s take a look at this.” And that’s just how that goes.
But the value traps, there’s a couple of different flavors of these. But I think the one that people usually mean is if you find a stock that is truly undervalued and you own it, but the market never really does recognize that value. I think this is the flavor that David Einhorn’s been talking about a little bit recently when he says, “The market for value investing is broken and you have to find companies that can self-help a little bit by buying back stock or engaging in some other behavior to highlight the value.” But my belief is is that that’s a patience thing generally, that if you wait long enough and the company really is doing the right thing, if they’re buying back stock, worst case they’ll get acquired, but the waits can be very uncomfortably long.
What I will say is the value trap for me historically has been, when I’ve tricked myself into thinking that a business is slightly better than it is. Or, I was right about the business, but I was wrong about the management’s incentives. And so, instead of running the business in a way that could have maximized shareholder value, they tried to turn it into a growth business, or they tried to expand by acquisition or they were just poor capital allocators. That tends to be more what happens.
In other words, usually, there’s a catalyst for the value trap. Something happens that probably shouldn’t have happened, and that’s where you get it. But it is funny. I get asked about value traps a lot, but I don’t think a lot of people recognize that the growth traps are usually much more painful for people who are caught in them.
Tobias: Everybody’s been caught in value traps for the last 5 years or 10 years, so they’re more in recent memory, although I think that people found some growth traps after 2021.
Zeke: I think it is difficult to own a portfolio of stocks that just generally trade at low multiples to book or low multiples to earnings, because generally, you’re owning a collection of inferior businesses. So, you have to layer on something beyond that. Also, I think the market has gotten better at that. I think the screens– There’s a reason I don’t use the screens anymore. But I do think things like, obviously, your Acquirer’s Multiple, you try to be a little more sophisticated than that.
Tobias: Not much more sophisticated.
Jake: Yeah. No. [laughs] [laughter]
Zeke: Those who remember the magic formula from Joel Greenblatt, which was a very similar thing. I actually think that works too. The problem is the timescale is very long. And so, partly, that’s why I don’t have a whole portfolio of those. I like to have some growthier names in the portfolio as long as I can find them that are reasonably valued. I will also occasionally do the Benjamin Graham net working capital screens and see if there’s anything there that looks interesting. Although, as you might expect, that very rarely happens anymore.
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How Undervalued Companies Can Turn into Market Giants
Tobias: I saw tweets, actually, that Allbirds has an $85 million market cap and $130 million in net cash. I didn’t look at it. I just saw the tweet. But it’s interesting.
Zeke: Yeah, these things happen.
Tobias: I think they’re losing a lot of money there.
Zeke: I’ll tell the best story I have about the networking capital thing. When I was at the Motley Fool, in fact, somebody introduced me to this screen. I looked at it, and there were like 20 companies on it. And one of them was a company called Hansen’s Beverage.
Tobias: Oh, yeah. Hansen. Well. Hansel Natural.
Zeke: I read the 10-K, and I drove to a local store to see if I could find it on the shelves. And it was at the very highest shelf, it was covered in dust, there was like two cans.
[laughter]Zeke: There was like two cans and the little plastic circles where the other four cans should be, because somebody didn’t want to invest in a full six pack. And I thought, “Okay, this thing’s terrible. It may be cheap.” But then the next year– [crosstalk]
Tobias: What year was that? What year?
Zeke: This was probably 2001, maybe. But then the next year, they introduced this new concept called Monster Energy drinks. And I thought, “Wow, that’s never going to work.”
Jake: That tastes terrible. Nobody’s going to buy that. [laughs]
Zeke: I was like, “Red Bull’s already there.” And of course, Monster became literally the monster stock of– I think it’s probably one of the top five performing stocks all time. Started on a net working capital screen. And of course, the whole time, I was like, “This screen is stupid. It’s never going to work.”
Jake: [chuckles] These are all crap companies.
Tobias: My mother-in-law thought that– [crosstalk]
Zeke: Yeah, it really was. It was a crap company with a crap product, but they changed.
Tobias: My mother-in-law bought the Hansen’s Natural. I drank them, and I liked them and I thought, “I should go and buy the stock.” Couldn’t do it.
Zeke: [laughs]
Jake: Oh. Ultimate Peter Lynch move right there.
Tobias: Yeah. I wouldn’t be doing this podcast if I put 2,000 bucks into it.
Zeke: [crosstalk] I thought I was doing the right thing by doing the channel checks, you know?
Jake: Yeah. Really doing it with due diligence.
Zeke: We’re out there in the world. And man, when I saw it, I was like “Oh, no.”
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Fractals in Business: Insights on Patterns and Capital Allocation
Tobias: Zeke, we do Jake’s veggies usually at the top of the hour. We’re a little bit late today. We missed it last week. And thanks to everybody who let me know that we missed it. We’re trying not to do that ever again.
Jake: The natives were restless.
Tobias: They were.
Jake: All right. Let’s just get this out of the way. Give the people what they want. So, this week, we are talking about fractals. And fractals are these complex patterns that are self-similar across different scales. So, zooming in, it looks the same as when you zoom out. And the pattern closer resembles the overall shape over and over again. These patterns are found in mathematics, nature, art. They’re very appealing to the human eye. There’s something about them. They’re really characterized by their infinite complexity.
So, the term fractal was coined by Benoit Mandelbrot in 1975. It’s from the Latin word fractus. Meaning, broken or fractured. They’re produced by repeating these simple processes with an ongoing feedback loop. So, basically, the output then becomes the input of the next part of it, and it just keeps running over and over again.
Mandelbrot’s journey into this world of fractals that he discovered are really more named. I think they existed already in nature, obviously, but it almost began by accident. While he’s working at IBM on these on signal noise problems, which should sound familiar if anybody remembers Kelly and Thorpe and Claude Shannon. But he started noticing these patterns that seemed too irregular to be described by traditional Euclidean geometry. And his curiosity led him to study coastlines, clouds and other natural phenomena where he recognized also these self-similar patterns. This interdisciplinary exploration was a real departure for the norm and was actually not well received by his peers. Like, it blocked him in his career [chuckles] to actually be using your mind in your own ways.
But his work was groundbreaking. And not only in mathematics, but also in the way that it bridged the gap between art and science. It really showed that these simple mathematical concepts could explain complex patterns in nature. And now, they’re all around us. You see them in trees, you see it like Romanesco, broccoli, coastlines, mountain ranges, even actually patterns in lightning have some similarities. And this repeat pattern at different scales, it explains things in a more simplified way.
So, basically, in computer graphics today, now the fractal algorithms are used to create realistic looking landscapes and textures without actually having to draw it all out. You could just run the math behind it, and it will then generate it and create this really infinite, rich complexity. A term that Mandelbrot used was roughness. So, the more there was to it, the more rough did it look, you think about a rough coastline.
And now, they play a really crucial role in digital signal processing, the design of antennas that go into mobile phones and other devices. So, this daydreaming French guy that just found these patterns, it ends up translating into all kinds of places in the real world that help us.
But let’s try to bring this back to business a little bit. So, I was having coffee with a guy last week. He’s running his own private mini-Berkshire holding company. We were talking about different principals and managers. It occurred to me that there’s a fractal nature at play there, where there’s like these Russian nesting dolls, which are called Matryoshka, I believe, or Matryoshka? My Russian friends will have to be making fun of me for that. But in effect, it affects capital allocation, actually. So, if you’re a large pool of capital, you’re looking for certain characteristics in your fund managers, like intelligence, enthusiasm, trustworthiness, dependability, maybe a conservative bent, maybe not, today’s day and age, independence of thought.
And then those fund managers are also looking downward into the CEO’s of their companies. They’re looking for the same things. And then the companies are looking to a lot of the same things in their employees. We get these the same patterns that we’re looking for, but then they’re at different scales. And no matter where you zoom in or zoom out, you see these same patterns. And so, my private Berkshire friend later, he sent me a tweet that he had what was a hot take on our conversation. I’ll just read it to you real quick, because I think it’s actually a better take than anything that I said while we were in the middle of it.
So, he says, “Capital structure ripples through management, and ultimately ripples through employee experience. If you work in a business run for cash flow, like a PE backed platform, a business run for growth or a business run for long-term hold, your experience as an employee could not be more different. The cash flow capital demands low overhead, fast ROI and has little patience for capacity building. The growth capital spends aggressively to build the company of tomorrow. Today, nobody worries about profitability. The PE capital is all about the exit, and everyone has managed aggressively around the corridor to maximize strategic value and EBITDA at the time of sale. And then the long-term hold capital worries about downside more than upside and tends to err on the side of conservatism. It’s a marathon, not a sprint.”
So, he says, “There’s no one right way, but it’s worth remembering that it’s the capital that ultimately designs the game that everyone else plays.” And so, there’s a fractal element of that as well. So, the owners of the business, the capital that’s provided shows up along the path and trickles all the way down. So, I think it’s interesting just to think about fractals and how they apply to the fund management level as that cascades down as well as inside the business and even all the way down to the employees.
Tobias: Mandelbrot’s autobiography, The (Mis)Behavior of Markets, is one of the all-time great books. I think he was Polish, because I think he escaped during— [crosstalk]
Jake: Polish, but raised in France.
Tobias: Is that right? All right, I’ll take it back. Superior knowledge. I bow to it.
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How to Spot and Assess Visionary Management
Zeke: That really has a lot of interesting implications when you try to discern corporate culture. I think that’s why trying to understand what management is doing and how they’re incentivized is really important.
Jake: What do you look for there, Zeke?
Zeke: I do look for, I guess qualities that I want to see in terms of things that play into my bias as an investor. I definitely don’t like to see people who are pushing the envelope too much on growth, particularly for financial companies. I think the root of all-
Jake: Yeah, that’s dangerous.
Zeke: -mystery with financial companies comes when banks try to grow too fast or insurance companies try to grow too fast. So, I definitely look for an acknowledgement that that’s a big risk. With commodity companies, what I’ve discovered is it’s so difficult to find management teams that truly understand that you want to be countercyclical, that you want to get aggressive at the bottom of the cycle, and therefore, you have to protect your capital base at the top. You can’t be doing acquisitions at the top of the market cycle. You can’t take on at the top of the market cycle. And so, these are things that I–
This is partly why I have a little bit of trouble with the, I’m going to call the really good long-term growth stories like Amazon. I owned Amazon a couple times during its incredible run, usually, when it had fallen back quite a bit. But I would say it was a blind spot a little bit in my approach that I didn’t see or didn’t give full credit to the fact that they were really– every year, they could have put out better numbers if they wanted to, particularly in profitability and cash flow.
Jake: I heard somebody at one point say that like, “You know, every once in a while, they’d show a little leg to Wall Street.”
[laughter]Zeke: Yeah. Exactly.
Jake Taylor: Just to keep them interested.
Zeke: I think part of the reason that I get fooled by that from time to time is that what I’ve seen is that Amazon’s the lottery ticket. Like, they’re the winning lottery ticket. Many, many companies that I’ve seen try to do a similar playbook. Ultimately, it doesn’t work out that well. And so, of course, we look for base rates and that sort of thing. But I think one of my goals this time around is to be more aware of when you get a really visionary management team and they literally– They understand the current financials that they’re putting up. But they do have a longer view in mind, and that’s a legitimate view and that’s the more important view, as opposed to a crutch for why they’re not generating cash now or why they’re not focused on profitability now. But I do think it takes a lot of discernment. Many times, you don’t really know until you’re done. But certainly, Warren Buffett is, of course, the true exemplar there of good corporate governance and management.
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So, talking about the opposite for a moment, I think one of the difficult things about all the tech companies today is that the amount of stock-based compensation is so big. And I think stock-based compensation has really underappreciated impacts on behavior at those companies. But I also think it’s really hard to interpret the financials. I think the gap income statement today for tech companies is pretty much useless. You have to back out stock-based comp, because it’s generally overstated on the income statement. But then you also have to make some adjustments for it on the cash flow statement, because its understated there. And so, we’ve had to come up with our own methods for adjusting for it.
But I do think that that’s a problem. I think having so much stock-based comp has really warped a little bit the incentives structures at a lot of tech companies. And so, we just try to be aware of it. Oftentimes, that’s one of those things that the market doesn’t seem to care about. But over the long run, that dilution can be very– It can creep up on you, for sure.
Tobias: 15% a year. It certainly catches up after a while.
[laughter]Zeke: Yeah, for sure.
Tobias: Zeke, I’ve got a great question here for you from Lotto Allocator. Great handle. “Zeke has a legendary reputation for investing in pro-forma merger entities. is this an especially dislocated area right now given FTC uncertainty? any big transformative mergers Zeke is tracking.”
Zeke: Well, I don’t actually know that this person has got me confused with somebody else. I don’t think of myself [Tobias laughs] as that way. I actually don’t play the merger arbitrage thing that frequently. Yeah. No, I can count on like maybe one hand the times that I’ve been involved in merger arb or that sort of thing. So, I’m not really sure what the questioner there is referring to.
Jake: Can I go back [crosstalk]? Yeah. [laughs]
Tobias: [crosstalk] good question.
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Decoding Executive Compensation: What to Look for in Proxy Statements
Jake: Zeke, what do you look for in the proxy statement to indicate a long-term orientation?
Zeke: Yeah. The first thing is, you want to see that compensation is tied to tangible things, where here’s how we pay our employees, here’s how we pay our management team. I also look to see what the board makes, just out of curiosity. If you’ve got a board of 10 people and they’re each making $250,000 a year just to show up to the board, that’s actually a lot of money. The other thing is, I will try to run a number of, what is the executive team’s take as a percentage of the actual company’s profits prior to that? It’s not an easy calculation to do. And then every once in a while, you can see some just really good examples.
A company that got bought by Berkshire a couple of years ago, Alleghany, they had a really good proxy where you could just tell they spent a lot of time thinking about it. One may or may not agree with everything they have in there, but you can tell that they have thought very carefully about how to align the compensation of the people who are driving the business with the outcomes that are important to the business and to a certain extent to shareholders.
And so, I think when you see an activist come in, somebody like ValueAct or Elliott, a lot of times, what they will do is they’ll try to align those incentives better. Sometimes it’s just fixing a strategy issue where management– What we hate to see is when management is totally incentivized for pure top line growth without any respect to whether that top line growth actually improves cash flow or earnings or customer sat– anything.
The other thing I think that’s very difficult is when the comp is tied too closely to the stock price, because then when you get a management, they become more concerned about managing the stock price. In my view is that if you do well with the business, eventually the stock will trade more or less where it should trade, obviously within a certain range. But getting credibility with the stock market is about delivering good results and appropriate results.
I guess the last thing I’ll say is I do have a preference for companies that don’t get caught up in the earnings guidance game. It’s very difficult. At this point, it’s nearly impossible for a big company CEO not to have to do the guidance thing. But I do think it’s good. I do prefer it when that’s not a big part of the thing or when they just give very conservative guidance that they know they can be, so that people get trained on thinking, “This is not real guidance. This is just something that they’re putting out.”
Jake: Ice holder.
Zeke: Yeah. Because I do feel like companies that put out guidance, if they have a choice to make during a quarter, and the choice is a tough choice and it’s the right thing for the business but it’s going to cause them to misguidance, I just think that it’s very difficult for them to make that call. I like to see companies make the right decisions for the right reasons.
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Yearly Option Grants vs. Retirement-Cliffed Options: Which is More Effective?
Jake: Have you looked at Watsco’s proxy before?
Zeke: No, I haven’t. Is that one I need to look at?
Jake: Well, it’s just super interesting. It’s air conditioning sales, basically. But they’re options for all the managers are cliffed at 65 in retirement. If you leave before that, you lose them.
Zeke: Wow. That’s pretty amazing.
Jake: That’s pretty long-term. [chuckles]
Zeke: Yeah. By the way, the other thing that I really don’t like is the yearly option grants, which when you think about it, actually rewards the managers for creating a volatile stock, so that if one year they get assigned a bunch of stock at a low price, and then the next year they have a good year and they can sell it, what’s in their advantage is to have the stock price go down again. I’m not saying they want to make the stock price go down, because I don’t think any CEO really does. What I’m saying is they’re not penalized for doing so. And they’re actually in a weird way, sometimes rewarded for it.
And so, I don’t know, I think whoever invented the whole option stock-based compensation scheme, I think it’s just gotten so out of control. I am glad that they’re forced to expense it now. But even that, it’s not quite capturing accurately what’s happening.
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Portfolio Management: Position Sizing and Risk Mitigation Techniques
Tobias: I’ve got a question from our unpaid producer, Tyler Pharris.
[laughter]Tobias: “How does Zeke handle portfolio weighting? Does he use Kelly sizing? Does he weight more towards certainty/loss avoidance or more towards potential return?”
Zeke: Oh, yeah, I don’t use Kelly formula really much at all in my position sizing. I’ve come to the belief that– I use the 20-stock model, which is basically, if I have a really great idea and I have 20 of them and they’re all 5%, and there’s not a lot of correlation between them, then that’s a pretty good portfolio. The problem is, in the real world, there’s almost always some correlation, not every idea is worthy of a 5% position. Every once in a while, you get an opportunity to get a 10% position in something that’s just really, really compelling and you want to take it.
So, in actual practice, we have position sizes typically 7%, 8% is the top size I’ll do. Oftentimes, I’ll go in with a 1% or 2% position, because I believe that familiarity is an important thing in evaluating stocks. I actually call it familiarity risk. The first year that you own a stock, you will learn a lot about it, even if you’ve been following it for a couple of years and you didn’t own it. And I don’t know why that is, but there’s a visceral sense of watching it trade and that sort of thing, and seeing how the management behaves and seeing how the market feels about it. Yeah. I definitely get to the point where I’m very comfortable with 25 to 40 long ideas in the portfolio with position sizes ranging from 7% at the top end to 1% to 2% even at the bottom.
Tobias: How about shorts?
Zeke: Yeah, shorts are harder. The one thing that has really changed since I’ve been doing it is the short game. Clearly, we’ve seen what happened with GameStop and how– It used to be that if company that you were short announced they were going to file for bankruptcy, that was good news.
Jake: Yeah.
[laughter]Tobias: Yeah.
Jake: That was like, time to go to the moon.
Zeke: That was like time to take the victory lap. Unfortunately, if that happens now, it may well be the worst news that could possibly happen, because you’re going to get the AMC theater reaction. So, we’ve definitely moved more to hedging with puts. We will go in the money quite a bit with puts. So, it very much acts like a stock. But if it goes against us, at some point, we don’t have to worry about it anymore. So, it’s quite often that we’ll buy a put that’s 10% or 15% in the money, so you’re really not paying much time value. The problem is you have to get the timing right or you have to be willing to roll those puts out into time.
So, we’ll use put spreads occasionally as well, where we’ll buy the put and then we’ll sell a lower put where there’s a lot of premium at that lower price put. There’s not a lot at the one we’re buying that’s in the money. And so, it’s the reverse of covered calls if you want to think about it that way. So, we’ll do that. I will say I’ll be shorting a little less or a little less aggressively unless we run into a period of time where you can just see the risks are really imminent.
I will say one last thing about shorting in, general is, I used to look at shorting as the photo negative of the long portfolio, like, what can I find that’s exactly what I don’t want to see? What I’ve discovered is that shorting is really a very different game than the long side. It’s not just finding anti-value and putting positions on. And so, what I really look for now is vulnerability. Vulnerability is the name of the game. What’s this stock vulnerable to, and are those factors getting more apparent to the market and getting closer, or are those factors receding? If we short something and what we think it’s vulnerable to starts to recede, then we will take down our short position. But if it starts to get more imminent, and we think the market’s ignoring it, then we’ll size up the short position a little bit more. And once I started thinking about shorts that way, I got better at avoiding just the crazy short squeezes.
The other thing is we started using that to our longs in terms of looking at risk to our long book. So, now we look at every long as a possible short before we put it on and say, “If I was a short seller, what would I be thinking about?” And of course, we love the long. We’re like, “Man, if I was a short seller, I’d really be scared of this.” But sometimes it’s just a very helpful exercise to look at every long, take a few minutes and look at it from the short perspective. And also from the short side, flip it around and go, “Okay, my bias is to short this. But what are the long seeing?” And it’s really nice if you can see somebody out there who actually has a good thesis that is the opposite side of the table, so that you can refute specific points.
Jake: It’s not as valuation driven then on the short side. It’s more events or catalysts.
Zeke: Yeah. It’s that whole thing about risk doesn’t matter until it’s the only thing that matters. So, we’re focused on what’s going to break this, what’s going to make the market see that there’s vulnerability. And then when the markets focused on that, obviously on the short side, you hope the market even overreacts. But we find that that leads us to less consensus shorts instead of just looking at something and going, “Wow, this is stupid. Trading at 20 times sales.”
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Just as an example of that, I think Salesforce was one of the all-time short beaters, because people just kept on being focused on the valuation with an overly strong emphasis on earnings, and the fact that Mark Benioff seemed to sell shares literally every day in the market.
Jake: [laughs]
Zeke: But you had to look at the business and look at how it was just taking over to let you know that it just– no matter how crazy expensive that thing was, as long as it had good business momentum, it was not wise to be in front of it.
Tobias: There’s a little symmetry in– Is it Muddy Waters has the short out right now on Fairfax?
Jake: They still did. I don’t know if they’re still–
Tobias: I thought they re-upped. I thought I saw something recently.
Jake: Oh, really?
Tobias: Yeah. Recently, over the last week or so.
Jake: Oh, okay.
Zeke: Yeah. I don’t own any Fairfax right now. About every 10 years, there’s a short selling thesis on Fairfax. So, I have not looked at the Muddy Waters piece in detail, so I cannot refute it or really even talk about it intelligently. What I will say is that, every short seller– I think, particularly when you are a dedicated short seller and that’s mostly what you do, you tend to find a lot of reasons to be short a lot of companies. [Jake laughs] It’s very hard to maintain a balanced view. I think that’s true of being long only too, which is one of the reasons-
Jake: Yeah. It might be worse actually.
Zeke: -why I still short from time to time, because I do think it gives me that full rounded view. Yeah, I have to say, I’ll always be an admirer of Prem Watsa. My general sense is that company tries to do the right things. But yes, I am aware that there has been short interest in Fairfax as long as I’ve pretty much been aware of Fairfax.
Tobias: Folks. It’s Jake’s birthday today. So, join me in wishing him a happy birthday before he flies off.
Jake: Yeah, thanks.
Zeke: Happy birthday.
Tobias: We’re coming up on time here, Zeke. So, if folks want to get in contact with you or follow along with what you’re doing, what’s the best way of doing that?
Zeke: Well, the best way is we actually have a website now. It’s ashtoncap.com. And if you go there and scroll down, there’s a contact us form. And if you just drop in your email address and some texts that actually indicates to us that you’re a real person, that is in [Jake laughs] a language, that is not cyrillic or in pictograph form that we can read it, then we will probably– First of all, we’d be grateful if anybody does contact us through that, and we will respond to every legitimate contact that we get.
Tobias: And are you doing any writing? Are you writing publicly?
Zeke: At this point, I’m putting out monthly letters, which is what I’ve always done. So, if anybody wants to get on that mailing list, again, go to the website, do the contact us, tell me who you are, and again, let me know you’re a legitimate person, and we’ll put you on the mailing list. You can read my letters, which are not as good as Jake’s veggies, but they’re the best I can do.
Tobias: Well, thanks very much for joining us today, Zeke. Zeke Ashton from Ashton Cap now.
Zeke: Yeah.
Tobias: I have to remember, it’s not Centaur.
Zeke: All right, guys. I really appreciate it.
Jake: Thanks, Zeke.
Zeke: Thank you.
Tobias: Thanks, everyone. We’ll be back next week.
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