In their latest episode of the VALUE: After Hours Podcast, Tobias Carlisle, Jake Taylor, and Bill Brewster discuss:
- Can Berkshire’s Investing Lieutenants Carry the Mantle?
- The Case for a “Small-Cap Summer”
- Is AI Worth the Environmental Cost?
- Does Making Money Excuse Bad Corporate Governance?
- From Isotopes to Investing: An Unconventional Analogy
- The Housing Shortage: Perspectives on Elizabeth Warren’s Strategy
- Roaring Kitty vs. Market Makers: Keith Gill’s Bold Move
- Jensen: From Millionaire to Billionaire: The Making of a Tech Titan
- Finding Value in Yield, REITs and Beaten Down Sectors
- Merger of AlphaSense and Tegus: Implications for Financial Research
You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:
Breaker
Overcast
RadioPublic
Stitcher
Transcript
Bill: Tab cleanup.
Jake: We are live.
Tobias: This meeting is being livestreamed. I’m Tobias Carlisle. This is Value: After Hours. We got the band back together. We’ve got Jake Taylor and Bill Brewster. What’s happening, fellas?
Jake: Let’s go.
Bill: Let’s go. The joys of investing in this world.
Jake: [laughs] Uh-oh.
Tobias: What’s new? What’s hard about it?
Bill: You tell me what’s easy and I’ll let you know whether or not I agree.
Tobias: Well, I don’t think it’s easy, but I don’t think anything’s changed either. I think it’s always been hard. It’s never easy.
Bill: Perhaps. I am increasingly worried of a government that’s completely decoupled from what I think economic reality should be and trying to manage what I think that means.
Jake: So, more specifically, what do you mean by that?
Bill: Well, which presidential candidate?
Jake: GDP– [crosstalk]
Bill: Confidence in reining in the deficit.
Tobias: Does it matter?
Bill: It hasn’t. I feel like it’s one of those things that won’t until it does.
Tobias: Krugman says, “It doesn’t matter.”
Jake: Well, there you go.
Tobias: Krugman says, “Public debt doesn’t matter.”
Jake: Case closed.
Bill: Yeah. Well, I think that–
Tobias: He’s got a Nobel prize. He’s got a big column in the New York Times.
Bill: Yeah. I think deficit– [crosstalk]
Tobias: [crosstalk] university as a professor.
Bill: Yeah. I think deficit hawks were too rigid. But I think that I’d rather favor their way of looking at the world than not, especially where we’ve gone.
Jake: Buffett said if it was just that easy and you could just print money, you think we would have figured that out 5,000 years ago. [laughs]
Bill: Yeah. I guess there’s some argument that it just goes into private hands, but I don’t know if that’s an argument.
Tobias: You need more of a closed system Here’s my question. Do you need a closed system for it? Is that why you need the–? You’ve got digital money, computers. Basically, cash has gone away post-COVID. So, now you really can’t control it.
Bill: I don’t know. We’ll all find out.
Tobias: I don’t subscribe to that view. I’m playing devil’s advocate. I’m just wondering where’s the lie, where’s the problem?
Jake and Bill: Well–
Tobias: Stock markets at all-time highs. We’ve got AI. [crosstalk]
Bill: Yeah.
Tobias: Here come the AI robots.
Bill: Yeah. AI is interesting.
Jake: [laughs]
Tobias: Apple intelligence.
Bill: Yeah.
Jake: Oh. Is that what’s stood for this whole time? I didn’t realize.
Tobias: [laughs] Let’s talk. I’ve got a topic.
Bill: All right. Let’s do it.
Jake: What? You showed up with– [laughs]
===
Roaring Kitty vs. Market Makers: Keith Gill’s Bold Move
Tobias: Carl Icahn’s got that right line about, “I don’t need to study artificial intelligence. I’m a student of human stupidity.” Let’s talk Roaring Kitty, let’s talk Keith Gill.
Bill: I don’t know.
Tobias: As I understand it, he’s got $69 million of calls. The strike is 20. He’s got 60 million bucks of calls, the strike is 20. At $69, he’s a billionaire. At 20 bucks, it’s a donut. And then he’s pumped up all the live streams and got it all going again. Can he sustain the pump to the end of the–? Is it a brilliant strategy? Can he sustain the pump until a two-week expiry on the options?
Jake: Either way. Open invitation to come on the show and chat about it.
Bill: Yeah. Look, is it a brilliant strategy to pump a stock that has arguably not much intrinsic value, and get a herd of people to follow you in and hopefully dump the bag–? [crosstalk]
Tobias: Is it market manipulation?
Bill: Yeah. I’d say in anybody else’s body, I’d call that immoral. I’m not sure I think he’s immoral. I’m not sure that I think he cares very much about the money.
Tobias: Mm-hmm.
Jake: It’s nice though.
Bill: But why didn’t he cash out a $500 million or $300 million?
Tobias: I don’t know if he can. It’s very thinly traded.
Bill: Yeah.
Tobias: He’s got 120,000 coals.
Jake: That’s what I wanted. Like, who’s on the other side of this that’s going to have to pay him?
Bill: Citadel.
Tobias: Market makers. He could have soaked it up over a period of time, I think.
Jake: Who, Toby?
Tobias: Well, I thought market makers, generally. Yeah, Bill said Citadel was the same thing.
Jake: Okay.
Tobias: I think he could have built that position over a period of time. But he’s got two weeks for it to– I don’t know exactly when that two weeks runs out. It could be like– [crosstalk]
Jake: Is he in the money right now?
Tobias: Depends on where it’s trading today. Like, it’s a little bit volatile. I confess I don’t check it every single day.
Jake: It’s a touch volatile.
Tobias: $25.81 today. I think someone said the calls were $5.75 apiece. So, he’s probably 6 cents in the money.
Bill: If I were talking to him, I’d say like, “How much do you actually have that’s banked away and then how much is this just a call option on being a billionaire?”
Jake: Ah. I’m guessing he’s got enough carved off the table to keep his family fed.
Bill: The livestream was interesting. I think that could have been a very effective way to get the SEC to think he’s an idiot.
Jake: Did you watch it? I didn’t watch it.
Bill: I watched three and a half minutes of it.
Jake: What was he saying?
Bill: Nothing that made sense to me.
Jake: Oh, okay. Is it just all like to the moon kind of stuff, or is it–?
Bill: Yeah, I don’t know. I didn’t watch enough. I just saw he was slaying and-
Tobias: He did do fun– [crosstalk]
Bill: -he was joking around and laughing. It seemed like nonsense to me. He’s got a lot of money now, and he did his thing, out everybody, the GameStop. So, I’m not sure that I’m seeing the full picture.
Tobias: As of today, it’s down 2% over the last five days. But it did have a pretty big ramp in the middle where it ran. It’s $25.79 right now. Yeah, it ran over 60 in the interim.
Jake: [laughs] And then right back down?
Tobias: But it’s below where it was five days ago.
Jake: My goodness.
===
Bill: RFK joining it.
Tobias: What did he do?
Bill: He tweeted out that he was joining the Apes. I think he bought Game and AMC. I’m not 100% sure. But it’s a podcast, so I can spread whatever fake news I want.
Jake: [laughs]
Bill: But yeah, he wrote a tweet. He was like, “I’m on the side of the Apes. Let’s do this.”
Tobias: Pandering.
Jake: Boy.
Bill: Yeah.
Tobias: Maybe AMC is fundamentally cheap?
Bill: It could be.
Tobias: They do have a billion-dollar popcorn business that’s going to come along and say, “Start selling that popcorn”?
Jake: Well, every time it runs up, it seems like all these guys are quick to be doing at the money issuance. So, who’s the–? [crosstalk]
Tobias: Yeah.
Bill: He’s very smart.
Jake: Who’s the dumb one here?
Tobias: Tesla showed how you do that reflects it. Like, that’s the reflexivity in action. If you run it up enough and you do enough capital raises, you turn that into a business.
Bill: Yeah.
Tobias: Tesla was a little bit further along than these guys. But that’s basically the Tesla plan. They took the donut off the table somewhere through 2020, 2021, and then they got the ramp.
Jake: Yeah. Raise a couple billion dollars, and fix your cash problems and stay in the game.
Tobias: Is that cash problem permanently fixed for Tesla? It is still torching cash last time I looked?
Jake: I don’t know, it’s been a little while since I’ve looked as well.
Bill: I guess if you thought that you could tweet a picture of you leaning forward in your chair and the stock would move, then you would want shorter-dated call options.
Tobias: It’s true.
Bill: You want as much delta and gamma that’s possible.
Tobias: Two weeks is too far out. He needed the zero-
Jake: Two minutes.
Tobias: -days to expiry. Yeah, he needed them on the day.
Bill: I don’t know, man. I’d love to have an honest conversation with the guy and know what he actually thought.
Tobias: Why would he be honest though? [crosstalk]
Bill: Well, I’m saying, like completely off camera, just like a conversation. I’d be interested, because there’s a non-zero possibility. He’s quite smart.
Tobias: Well, I’m sure he’s smart.
Bill: Yeah.
Tobias: I don’t think it’s idiocy. I think it’s genius.
Bill: I don’t know that doing it this publicly on social media is the smartest decision he’s ever made.
Tobias: But it’s a way to inject the volatility.
Jake: Yeah. How do you push it up without that?
Bill: No doubt. It’s also a way to inject the law in your life.
Tobias: I thought the SEC came out and said– I thought they had a release around that time where they said, “It’s not manipulation.” Without naming him personally, that looked like they were addressing the issue. Maybe I misunderstood it.
Bill: Well, that’s good. I’m glad that the SEC doesn’t mind potentially anonymous accounts manipulating the stock market.
Tobias: He’s not associated with them. He’s not paid by them.
Bill: Yeah, I know.
Tobias: He’s just saying that he owns it and letting everybody else interpolate everything else in between.
Bill: Yeah. I don’t know. I mean, look– crosstalk]
Jake: It can’t be worse than funding secured-
[laughter]Jake: -and no one cared about that.
Tobias: [unintelligible [00:09:40] give him Twitter [unintelligible [00:09:41]
Bill: Well, but there’s rumors that there was, like, I don’t know. There’s rumors there’s a reason he didn’t go down. Look, this is what I’ll say. If Roaring Kitty is truly a dude that did deep value investing and figured out some cheat code and ended up making a ton of money, I’m happy for him. I hope there’s nothing more nefarious going on. I trust life a little bit less than I once did. So, I’m curious to know all the facts behind it. But if it’s pure, do your thing, and I hope you don’t zero out. And if you do zero out, I hope you don’t care.
Tobias: When’s the statute of limitations run out on market manipulation? Three years?
Jake: No idea.
Bill: I don’t know.
Tobias: Get him on the pod, three years.
Jake: [laughs]
Bill: All right, man, let’s talk about what was really going down.
Jake: Yeah. Give us the real dirt.
Tobias: Well, what else have we got? What really is going down? What’s happening now?
===
Jensen: From Millionaire to Billionaire: The Making of a Tech Titan
Bill: Well, people seem a little bit upset about Jensen signing breasts. I like it. I’m glad that people are enthusiastic about a capitalist. That’s a good thing.
Jake: What inning is that one though?
Tobias: Oh, that’s right.
Bill: Well, you make enough people that much money, you should be able to sign a few boobs.
Tobias: He’s the man at the moment. He’s got a little bit of rock star.
Jake: Oh, he’s got the leather jacket.
Tobias and Bill: Yeah.
Tobias: With a vibe.
Jake: He’s talking about suffering. He’s checking every box.
Tobias: Give him credit. There are photos from, whatever, 20, 30 years ago of him in the lab in a white coat.
Jake: Yeah.
Tobias: He’s done it.
Jake: He’s legit.
Bill: Yeah, that’s what I’m saying. I think of all the people that women ask to sign their breasts, he is actually somebody that women should be asking to sign their breasts. Like, he’s done a lot for society. I’m actually okay with society revering this guy.
Tobias: It was the blouse. It wasn’t onto the skin.
Bill: Well, he should have asked for more. [Jake laughs] He should have said, “Lady, you know how much I’ve created.”
Jake: Rookier.
Bill: Yeah. I don’t sign blouses anymore. I did that back when I was $100 millionaire.
Jake: Yeah. How much does he still own of Nvidia? Do you guys have any sense?
Bill: No, I don’t know.
Jake: He’s got to be a billionaire, no matter what.
Tobias: He’s a billionaire. Yeah.
Bill: Oh, yeah. Those RSUs are nice. The options are nice. He’s going to be just fine. [Jake laughs] He should get another pay package approved.
Jake: Yeah, right now, while you’re hot.
===
Does Making Money Excuse Bad Corporate Governance?
Tobias: Speaking of big pay packages, what’s Musk’s chances of getting that across the line, do you think? What’s he got? Is it like $50 billion or something?
Bill: I think it’s quite high, actually.
Tobias: What do you guys think about that?
Bill: I don’t see why they didn’t let the first pay package stick. I didn’t do enough research on this, but assuming that people legitimately voted. The pay package is the pay package.
Tobias: Yeah, it was approved.
Jake: I think I agree. It’s not really the government’s job to abrogate contracts like that.
Bill: Yeah. And come out and be like, “You got paid too much.” Like, “What?” I don’t like that world.
Jake: No.
Bill: You don’t like it, you don’t have to participate. That’s always been our take on this pod, I think. We’ve never liked it,-
Tobias: That’s right.
Bill: -we haven’t participated.
Tobias: It’s a big dollar. That stocks done fairly well too.
Jake: Yeah. [chuckles]
Tobias: That’s what happens.
Bill: Yeah.
Tobias: It’s exponential.
Bill: Look, the stock price manipulation that I perceived to have gone on there is not—
Tobias: Well–
Bill: That’s where the government should get [crosstalk]
Tobias: Yeah. No one’s ever done anything about that. Nothing’s ever come of any of that.
Bill: Yeah.
Tobias: It does look like there’s some odd call buying. But I don’t know if that’s necessarily internal to the company as to-
Jake: If you’ll have time.
Tobias: -people who are excited about the prospects of the stock in the very short-term.
Bill: That’s where I think the government should look into things. If there’s nefarious things going on, then I understand clawing back the pay package or going after that. Just the facts as they are, at least on the surface, I don’t think warrant like clawing back someone’s pay. Gavin Baker just had a long Thread about why he supports it. I talked to my buddy who owns it. He put a huge portion of his net worth into Tesla six, seven years ago. He voted for it and he was like, “I want Elon to have the money.”
Jake: And now he doesn’t talk to you anymore. [laughs]
Bill: No, he actually does. He’s a nice guy. But he must not have any other friends.
Jake: [laughs]
Tobias: What about redirecting the chips from Tesla to the AI startup? You think that was a little threat?
Bill: Oh, I have no idea about Elon, and what he does, and what he says and how he’s thinking. I’ve long stopped thinking about it.
Tobias: I can’t believe that the CEO of a company has that much discretion over, whether the company that’s contracted for the chips gets them. That just doesn’t make any sense.
Bill: Well, to the best of my knowledge, it seems like we live in a world where if you make a lot of money for people, corporate governance doesn’t matter at all.
Tobias: You’re forgiven.
Bill: It’s the ones that don’t work out that people care about, I guess.
Jake: Yeah. It seems like they only show up after the horse as well, and gone out of the barn and the barns already burned down.
===
Finding Value in Yield, REITs and Beaten Down Sectors
Bill: We were having a conversation at—Like, Markel, somebody was talking about Kinsale and they were like, “What do you think gets stocks into the zeitgeist?” Everybody knows about this stock, which I didn’t know about Kinsale, so not everybody knows yet. But it’s this insurance company and their combined ratio is substantially lower than the rest and their expense ratio is incredibly good. It’s at least high level, reminds me of what people would say Geico was. I said I was like, “I think the biggest factor as to whether or not a stock becomes part of common lexicon is whether or not it works.” And that’s like–
Tobias: New stock price.
Bill: Yeah, that’s right.
Jake: Well, 100%.
Bill: As that gets higher, the people are more revered and then it will disappear if the stock doesn’t work. Thats how I think the world works.
Tobias: I think that’s right.
Jake: Absolutely. Sometimes they trade like an apartment complex, and sometimes they trade like a Rembrandt.
Tobias: Buffett’s round tripped a few times. As a guy, I’m pretty confident who has underlying skill. It’s funny the number of times that he’s lost it.
Bill: Oh, yeah. Or, how much smarter the S&P has gotten than him?
Jake: Yeah.
Bill: Look, you asked like what’s hard about it?
Tobias: Yeah. Let’s talk about that.
Bill: So, one, my view on the world has changed a lot, because my responsibilities have changed a lot. So, that sort of colors how I’m thinking about things. On the yieldy side of the world, I’ve been looking at– These are not early ideas. They’re probably late. They’re probably late cycle in the rollover and they’ll be crushed, so [Jake laughs] take that for what it’s worth.
Jake: Buyer beware.
Bill: Yeah. Something like energy transfer, something like enterprise products. I don’t think you’re going to get rich owning these things. But I do think they get some yield. If you like BDCs or whatever, that kind of group of companies has some yield. I think you have some yield in preferreds where arguably—Well, there are some tax advantages. So, maybe on an after-tax basis, that’s interesting.
Apartment REITs, Bill Chen has been hammering like pounding the table on generally with what’s going on with housing. It makes sense to me how that could be a somewhat low downside, somewhat reasonably high upside probably if you truly own them, maybe, I don’t know, 2% to 3% real or whatever. It makes some sense to me.
A lot of the other stuff in the world. You can get yourself into the casinos of the world and convince yourself that you got a mid teams free cash flow yield to equity and play that game if you want. You can go into gold miners if you want to get really juicy or you can buy Rembrandts. I don’t know the equity side of the world doesn’t get me super amped up on average relative to other things.
Jake: So, broken story fallen angel software companies too that have been not really been taken out to the woodshed a bit?
Bill: Yeah. The stuff that’s got any hair– There’s a lot of COVID shit that’s still going on I think that just longer cycle. Something I’m cracking open his office, bound to be early, bound to be dumb. But it reminds me a lot of the death of malls, it reminds me a lot of millennials who are not going to move out to the suburbs. That’s the thing sometimes these long cycle. Asset classes hit a cycle and it turns into secular talk, and I don’t think that’s reality, but I also don’t know what I’m talking about, don’t own any.
===
Tobias: Carvana had a stunning recovery this year, the stock, in any case.
Bill: Carvana?
Tobias: Yeah.
Bill: Yeah.
Tobias: The sustainable business. Is that a real business now?
Bill: Well, when the stock was down, people were saying no. When stock was up, people were saying it was destined to take over the world. So, probably it’s somewhere in between.
Jake: Yeah. Somewhere between us.
Tobias: Are we back to taking over the world?
Bill: I don’t know. I don’t have a sense. There’s smarter people to ask.
Jake: I’m not sure the union economics are there or not.
Tobias: That’s what I was wondering. Yeah.
Jake: Maybe.
Bill: Need a lot of units.
Jake: That’s a lot of units.
Tobias: Losing money on every car, making it up on volume?
Jake: [laughs] Yeah.
Tobias: Not quite that bad.
Bill: No, that’s Rivian from what I understand.
Tobias: Yeah. There’s a lot of Rivian’s where I am. It’s crazy. It’s replaced the Tesla. Like, the Tesla’s here, Toyota Corolla now.
Bill: People really like them.
Tobias: Yeah.
Bill: Those Rivians.
Tobias: Yes, over here.
Bill: Well, I would be nervous– I am nervous, because I’ve looked at some things. Though Volvo did me a real solid, so, I’m just going to drive this car until it’s the 30 years old. Like, if you buy a Rivian and the company goes under, who services it in the future?
Jake: Well Ford owns like a pretty decent chunk of it, so I think–
Bill: Amazon owns a decent chunk too.
Jake: It’s probably they come in and take over the brand and continue it, fold it into something else. I think that’s somewhat mitigated.
Bill: I hope it works. People rave about them.
Jake: They’re very fast.
Bill: Yeah. Electric’s fun as shit, man.
Jake: Yeah. It can definitely pin you back in your seat.
Bill: They’re faster than motorcycles.
Jake: Yeah. Like, 0 to 60 in three seconds.
Bill: I think the Hummer does that too. I was looking at it, I was like, “How do you stop that thing?”
Jake: That’s insane.
Bill: Well, there’d be no way I would ever get my kids that car.
Jake: What is that like? 10,000-pound missile basically that you’re driving around? [laughs]
Bill: Yeah. Nuts.
Tobias: Those EVs are missiles.
Jake: Yeah.
Bill: The thing is, if you drive them like that, your range is like 70 miles.
Jake: Yeah. [laughs] You probably keep your foot out of it a little–
Tobias: There are a lot of Cybertrucks driving too. I saw there’s only 3,000 or 4,000 sold, which I find– there’s so many over here.
Jake: And they’re all in your neighborhood?
Tobias: It feels like it, yeah.
Bill: What do you think about them?
Tobias: I think it’s a cool car. If I had the $80,000 in silly money, I’d probably drive one around. Somebody on the hill paid an extra 20 grand to get theirs early, so there was one that was driving around the hill early. You could get them–
Bill: There’s one around here. The side is all tarnished.
Jake: Already?
Bill: Yeah.
Tobias: It’s small on the inside. Have you seen the inside?
Bill: Ah-uh.
Tobias: I got in one. Like, it’s tiny on the inside. It’s a little claustrophobic. It really is a post-apocalyptic kind of. You get into your little bunker car.
Bill: That’s crazy, because it’s huge on the outside.
Tobias: Well, it’s all tray. It’s what we would call a ute in Australia. I forget what they’re call there. What’s the tray back called? American friends in the chat let me know. You guys know utes? We call it a ute in Australia.
Bill: Like a utility vehicle?
Tobias Yeah, utility. A ute.
Bill: Not like a pickup.
Tobias: Probably, that’s close. Something like a pickup. I thought it had another name.
Bill: I gather the real genius of that truck is how it was made on the inside. Elon always said it’s either going to be like a huge flop or a huge success. But what we learned developing it is where the real IP is. So, we’ll see if that’s true or not.
Jake: I love these unprovable hypotheses– [crosstalk] [laughter]
Bill: To be fair, if you’re going to sell the dream,-
Jake: Well, it doesn’t work though.
Bill: -you going to sell the dream, you dig?
Jake: If it doesn’t work, it’s because we didn’t want it to work, but we really just wanted to learn. [laughs]
Bill: Well, I don’t think that’s what he was saying. I think he’s saying–
Jake: How could you say he was wrong on anything though in that statement?
Bill: No, you can’t.
Jake: Yeah.
Bill: Yeah. But the guy does launch rockets and raise hundreds of billions of dollars, basically. So, he’s good at that kind of a game.
Jake: Yeah. No, he is. He’s maybe the best or one of the best.
Bill: Yeah. A lot of the other companies that big had to self-fund for the most part.
===
Merger of AlphaSense and Tegus: Implications for Financial Research
Jake: Do you guys see a little interesting news of AlphaSense acquiring Tegus, this morning?
Bill: I did just see that.
Jake: That’s interesting.
Tobias: I don’t follow either of those two. So, what’s the significance?
Jake: Well, there’s been a little bit of consolidation in the financial tools area. This is like a pretty sizable consolidation here where– Because Tegus had been doing their own acquiring. They bought BamSEC and Canalyst. And then AlphaSense had bought Sentieo earlier and now it’s all coming under one mothership.
Tobias: What do they do? Is it data?
Bill: Sort of transcript library.
Jake: Yeah, data expert calls. Yeah, SEC search models. Canalyst is like pre-built models.
Bill: Yeah. AlphaSense, I believe that their version of reality in the future is AI will be able to help you sift through all the calls and deliver the relevant information immediately. I think those customers of Sentieo that were acquired by AlphaSense might have a little bit of concern over the Tegus acquisition to the extent that their clients at Tegus. I’ve not heard positive things about that.
I do so some business with AlphaSense though. And I like the people over there, especially like my girl, Carrie. What’s up? But I don’t know, we’ll see.
===
Tobias: I got to do a shoutout. I’m getting chipped for not calling out everybody’s locations. Where are you calling in from, Billy?
Bill: I don’t announce that information. Florida.
Jake: [laughs]
Tobias: Florida. Santo Domingo, Dominican Republic. First in the house. Philly, Chuck Diezel. What’s up? Toronto. Valparaiso. Mac’s in Valparaiso. Turkey, Istanbul. Bangalore. Mendocino. Dubai. Halifax, Nova Scotia. I want to go to Nova Scotia. Camas. Durham. Oakville, Ontario. Scotland. What’s up? Vancity. Atlanta. Winter Park. Iceland.
Bill: Nice place. Winter Park is nice.
Tobias: London. Bunga Bunga, Italy, Ha-ha, very funny. [Jake laughs] Boulogne, France. Good. Got some frogs in the house. Brandon, Mississippi. Madeira island. Donut means zero. Tampa, Florida. Sorry, I missed it on the way through.
Bill: There’s usually Jupiter.
Tobias: Moscow, Russia. Aussie’s in Moscow, Russia. That sounds safe. Stay well. Woodlands, Texas. Helsinki, Finland. Sorry, folks. Sorry, if I missed you. I hear you. Bellevue. Rome, Italy. Cupertino. Limerick City. Limerick City, The Irish Riviera. That’s funny. Brooklyn, New York. All right, that’s a pretty good spread.
Bill: It’s amazing.
Tobias: Yeah, it’s great.
Jake: It’s borderline preposterous.
Tobias: [crosstalk]. Belfast, last in the house.
Jake: That’s good.
Bill: What about the dude that used to wake up at 03:00 AM? Is he in the house? I like that guy.
Tobias: This is the toughest part of the year, because its daylight saving here. It’s not daylight saving. It’s winter there. So, the spread’s too big. Our winter, their summer. The spread gets close. It’s makeable.
Bill: It’s a shame he’s not dedicated, but I do understand it.
Jake: [laughs]
Bill: He’s up at like 03:00 AM.
Jake: Whereas, I’ll barely wake up at 10:00 AM to do this. [laughs]
Bill: Finally, he’s calling where he’s crying mercy. He’s like, “This is too much.”
Jake: Yeah.
Tobias: I think when you said earlier, Billy, that it’s hard, I don’t necessarily disagree with that. I just don’t have any frame of reference, because I haven’t been around for long enough. I just assumed it’s always been hard.
I was bearish last year. I don’t think anything’s changed since last year, really, from what I look at. I’ve got to the point that I think I’ve been bearish since 2009 or something like that. So, I’ve taken the view that the market’s going to do a 50% header at some point, and that’s just what the market does. Other than that, you can’t really worry about it. I don’t really know what the trigger for it’s going to be. Clearly, if we’ve been in this inversion for, whatever, it is now a decade or something. [laughs]
Jake: New record, right?
Tobias: We’re setting a new record every day. It’s the longest inversion ever every single day.
Bill: Yeah.
Tobias: Clearly, the proximate thing to the actual recession happening is the un-inversion when the Fed panics, because they realize they’ve had their foot on the brake for too long, drop the rates really quickly. But it’s unpredictable, I think. I don’t think anything predicts recessions or crashes. I think I’ve got to that point now.
Bill: Yeah, I think that’s right. I’ve been bearish too.
Jake: Just had to be wrong for thousands of days to finally get to that point. [laughs]
Tobias: Me, personally, I’ve been wrong for 15 years. So, that’s enough. [crosstalk] side, I don’t know.
Bill: Interesting. This might actually be the top indicator right here.
Tobias: Yeah, there you go.
Bill: Yeah. I may go load up on puts.
Jake: Yeah.
Tobias: I still think a 50% crash is always possible. I think you just got to run as if a 50% crash is starting tomorrow.
Bill: Yeah. So, this is what I’ve been thinking about. The commonality, I think, between people that– I saw you tag Jason Zweig and I watched that–
Jake: He’s good, right?
Bill: Yeah, it was pretty good. I think he narrowly defined Mr. Market. I think he defined Mr. Public Market pretty well, but he missed Mr. Private Market, which is huge.
Jake: That’s interesting to think about.
Bill: I think the key is making sure, just like you would analyze a company. I think, for me, I’d like to have my balance sheet in shape that I can handle a real severe blow, and then I want to make sure that I have enough income coming in that the balance sheet is not jeopardized over time, and then to the extent that those things are covered, then there’s the growth part of the portfolio.
Jake: Zero-day expiry with the rest.
Bill: Yeah. Not exactly, but that’s what I’m trying to figure out is how to structure. This goes back Toby’s concept of really, truly building an antifragile life.
Jake: Oh, Toby invented that? Wow. Congrats, man.
Tobias: I did. Yeah, it’s in my book, the antifragile life.
Jake: Fair play. [chuckles]
Bill: Yeah. He’s going to start charging people a $1,000 for a call on Twitter. So, that’s most of what I’m thinking. I’m not thinking about what equities have the most upside. It’s just not where my head’s at right now.
Jake: Yes. Get towards invincible positioning and not so much trying to predict just position.
Bill: Yeah. I don’t know, how well does Berkshire do from here? What do I give a shit? I’m not going to sell it. So, it’s going to do well enough. If it draws down a ton, it’ll do better from then going forward. Unless it’s completely broken, in which case, like everything, that’s totally different conversation.
Tobias: Did you watch the meeting this year?
Bill: I did.
Tobias: What were your impressions of the meeting?
Bill: I don’t know, man. Buffett’s slow. I was really bummed that I wasn’t there for Charlie Munger, like that to honor Charlie with a bunch of people. That was maybe a mistake. But also, I had a fine time not there.
Jake: We missed you.
Bill: I missed you guys as well. I didn’t miss the chaos around it.
Jake: Yeah. It’s been of an exhausting weekend, for sure.
Bill: It’s a lot.
Jake: You got to come home and decompress for about a month.
Bill: Yeah. I was like in a bit of a rut going into it. I don’t know, I just wanted to be home and be with my family and stuff. I went on a golf trip instead. But that turned out to be a good thing.
Jake: It had nothing to do with family. [laughs]
Bill: No. Well, my wife was like, “You’d be walking around and I’m moping all the time, just invest on something-
Jake: Get the hell out of here.
Bill: -get out of the house.” So, I was like, “All right, that’s not a bad idea.” So, I said yes, and things got rosier.
Jake: Where’d you golf?
Bill: In Alabama at the– In Mobile, actually, at the Robert Trent Jones trail. It was fun. It was a good time. So, what’s veggies?
===
Jake: Are you guys ready-
Bill: Top of the hour.
Jake: -for serving? We have veggies. We can deliver. So, this week, it’s all about isotopes. I know that’s what you were hoping that it was going to be.
Bill: I was hoping I’d get animal thing, but isotopes works.
Tobias: Animal sex.
Bill: Yeah, just something sperm whale related or whatever.
Jake: Oh, I know. Sorry.
Bill: Immature.
Jake: Well, maybe you’ll find some lewd joke to make throughout this.
Tobias: No doubt.
Bill: I’ll do my best.
Tobias: We’ll be able to figure that one out. It’s hard not to, honestly.
Bill: Isotope? That’s like my pecker. Anyway.
Jake: [laughs]
Tobias: Half-life.
Bill: [laughs] Tiny? Right. I’m sorry.
===
From Isotopes to Investing: An Unconventional Analogy
Jake: An isotope is a variant of a chemical element that has the same number of protons but a different number of neutrons. So, we’re going all the way back to chemistry 101 class here. This ends up resulting in different atomic masses between elements that are otherwise very similar. So, that means that these similar chemical properties, but they can behave very differently in certain contexts due to their differing masses. There can really be big differences in the stability of different isotopes. This is for several reasons.
The first is that the ratio of neutrons to protons in the nucleus, for lighter elements, are roughly equal number of neutrons and protons will contribute to stability. But for heavier elements, a higher number of neutrons than protons is needed to offset the increasing electrostatic repulsion between the protons. So, just imagine, it’s like you can’t have a bunch of plus charges next to each other like, they want to push apart. So, that’s why heavier elements require more.
But what’s interesting is there’s also these certain magic numbers of protons and neutrons that are especially stable. It’s due to completely filling that nuclear shell. I don’t know if you guys remember that the outer shell of the basic elemental block. It’s like 2, 8, 20, 28, 50, 82 and 126.
Now, we use these elemental isotopes in all manners of industry. Cobalt-60 is used in a bunch of different things. It’s used in radiotherapy to treat cancer by targeting and destroying malignant cells. It’s used in radiography to inspect the integrity of welds and materials in manufacturing. It’s also used to irradiate food, killing bacteria and parasites. So, that’s a handy little isotope.
Nitrogen-15 is used to track the uptake of nitrogen fertilizers by plants, which helps us understand more efficiently fertilization methods, like what’s actually working. And then, of course, uranium-235, plutonium-239, those are used as fuel and nuclear reactors to generate electricity.
And then you have carbon-14, which is used for dating the age of archaeological finds and geological formations. And then closer to home, it’s called americium, but it’s spelled like its americium, but it’s 241. It’s used in smoke detectors to ionize air and detect the smoke particles which will give you an early warning sign of fires. Now, let’s see if we could take all this baloney and torture it into analogy beyond any comprehension.
Tobias: This is the best part. [laughs]
Jake: So, remember back that isotopes are– they’re elements that have similar chemical properties, but they behave differently in certain contexts due to their different masses. So, let’s think about like a tech company might release different models of a smartphone with variations in storage capacity, screen size, camera quality. So, the iPhone comes in the model SE, the 15, the 15 Pro. Each have different features and price points, and yet all of them share these core characteristics like iOS. So, Apple’s catering to different needs and preferences there. Maybe a software company would have basic premium and then enterprise versions of itself. Same core number of protons but a different number of neutrons to provide more atomic weight there.
And then how about investing? Some isotopes are much more stable and maybe that’s like blue chip stocks potentially, while others are more volatile, but maybe they offer higher returns, maybe that’s small caps historically. So, this is similar to certain isotopes are more stable than others. It just really depends on the environment that you’re in.
Companies can provide the same product or service to their customers, but be dramatically bigger or smaller in market cap size, so basically different atomic weights. Maybe if you’re a small or mid or micro-cap investor, you’re probably painfully aware that different sizes can perform wildly differently over longer periods than you’d probably care to admit. I’m sure everyone’s nodding at home painfully at this point if you’re in the smaller stuff. [laughs]
So, if you’re a professional investor, a lot of times, clients want to put you into a style box. But that may not be what’s in your best interest of producing your best returns. It might be smart to have more size diversification to balance out through different environments and help you survive. You can see where this principal agent problems can come in and really mismatching timelines.
So, remember back to those magic numbers that we talked about that provide more stability due to a completely filled shell. I can’t help but wonder if there are certain breakpoints in the size of a business that represent more stable operating levels.
So, you imagine like a small dedicated team could get a business to a certain level. But then you may need more specialization of like marketing and finance at HR, for instance, to fill up to that next size up of the shell and get back to stability. There’s a lot of instability while you’re in that transition phase of growing.
I’ve actually heard this described before that it takes completely different managerial skill set to manage an organization at the size of 3,10, 30, 100, 300, 1,000, 3,000. Each one of those is almost like you’re reinventing yourself as an organization at each stage, which feels a little bit to me like these potential magic numbers of stability for an isotope where if you got to that size, you would find stability. But then as you move to the next one, it’s going to be kind of rough. So, that isotopes, and business and investing, potentially.
Tobias: I like that. I’ve got three dot points out of that. The first one is, doesn’t Terrence Howard’s recent discovery override all of this? Noted physicist, a chemist, and actor, Terrence Howard.
Jake: What did he find?
Tobias: I don’t know. He’s invented some new physics. I don’t really understand it if I’m– [crosstalk]
Jake: Oh, really? I didn’t hear about this.
Tobias: On Rogan. You didn’t hear, on Rogan?
Jake: No. I’m intrigued though. So, if it’s Rogan, it’s got to be just pure hard fact.
Tobias: It’s hard facts.
Bill: I would need to go to Katt Williams to find out if this is true or not.
Tobias: That’s it.
Bill: That’s my answer.
Jake: [laughs]
Tobias: You need it peer reviewed.
Bill: Yes.
Jake: Peer reviewed by–
Bill: Katt Williams. That’s my only trusted source of anything.
Tobias: So, Berkshire.
Bill: No Diddy.
===
Can Berkshire’s Investing Lieutenants Carry the Mantle?
Tobias: Let’s go to Berkshire. Berkshire has this huge cash. Didn’t deploy any in the 2020 drawdown. Just now packed to the gills with cash.
Jake: It might be even over $200 billion at this point. If he sells as much Apple, he probably is selling.
Tobias: Should Berkshire pay a dividend?
Bill: Mm. Probably not. They cancel the British-American tobacco dividend crowd, I think is wrong for a number of reasons. But really one big reason is the shareholder base cares very much. Berkshire shareholder base doesn’t care. So, I don’t know why they would change that.
Jake: It’s been taken to vote multiple times over the years and they’ve always turned it down.
Bill: I do think an interesting question is, when Buffett is gone, given the size of the organization, does it–? I’m not saying to have a committee of 10, but can Ted, Todd and a third person. Do you need more than just one or two people to manage some of the capital allocation at that organization, just given your isotope conversation? I know it’s nice to say, “Well, you could change everything if you do it.” On the other hand, maybe institutionalizing it a little is not the worst optimal solution.
Tobias: Do you think that performance is problem?
Jake: I think Greg’s going to be the one who’s actually the primary–
Tobias: Yeah. [crosstalk] allocator.
Tobias and Jake: Yeah.
Tobias: Do you think the performance of those two guys is a problem? They’re obviously a very, very good investor, very smart guys, and it’s not been a very, very long period of time and an unusual period of time, but they’ve lagged the S&P 500. They did it with full grace of God.
Bill: I don’t know how free they feel to be them. So, I would need to ask them that.
Tobias: Run that again. You think they have some constraint?
Bill: No, I don’t even know that it’s a real– I have no idea. They’d probably listen to this and be like, “You’re an idiot.”
Tobias: They’re laughing. [crosstalk] at a board meeting.
Bill: But I just wonder when you’re in that– Buffett is like such a giant that I wonder if you feel as free as you would on your own. I don’t know what the answer is.
Tobias: One of them bought Amazon, that was pretty– I think it’s worked out. I think it was a good buy. I’m not criticizing. I’m just saying that was an off the run purchase.
Jake: I thought they have a little restricted list based on some stuff that they know they can’t buy, just what Buffett’s doing. But otherwise, I don’t think he knows what they’re doing until the end of the month, when he gets a statement of what’s in their Schwab account with $15 billion in it.
Bill: I would say this. If those two can’t do it, I don’t know that anybody can, which is what I’m saying. Like, that’s a-
Jake: Those are big shoes to fill.
Bill: -tall order to add a one person to walk into.
Jake: You got to be the CEO of Geico while you’re doing it?
Bill: Yeah, that’s– Some would argue you might be stretched thin if that was the mandate.
===
The Case for a “Small-Cap Summer”
Tobias: It took me a little bit of time to read my writing here, but smalls have been hosed. Smalls are back to the 2020 lows relative to the market, relative to the index. I tweeted this out-
Jake: Every day for the last– [laughs]
Tobias: -at least once a week.
Jake: Yeah. [laughs]
Tobias: I tweeted it out with the Simpsons principle saying “Pathetic.” That upset some people. As a person who exclusively holds smalls, I feel like I’m allowed to criticize the smalls.
Jake: Yeah.
[laughter]Bill: There has to be some value there.
Tobias: When I look at the universe and the cash flowing, the better part of the universe that you want to own, I think that the universe of smalls and micro has better forward returns than the universe of mid and large, even though the universe of mid and large, I think the cheapest is right at the very cheapest, smallest end of mid and large. So, I would say the smallest end of mid and the smallest of the smalls looks to me to be reasonable value at the moment, better returns, anyway. But I’ve said that a few times. Someone’s calling for a, “Small Cap Summer. Bacon. There we go, Small Cap Summer, let’s go.
Bill: I don’t know that I’d call for a small cap summer. That sounds risky.
Tobias: I’m not calling for it. I’m hoping for it.
Bill: All right. So, this came from the person that presented at Robotti’s thing at Markel was from Royce. I believe his name was Miles. Hopefully, that wasn’t his last name.
Tobias: How do they feel about the smalls?
Bill: Well, funny thing when you ask-
Jake: Strong to quite strong.
Bill: -a barber for a haircut. But he said that, even compliance would sign off on this. When the Russell has been negative for three years, forward returns are positive over the next three years, 100% of the time. He said he ran it by his compliance department and they said that that was okay because it’s actually factual. Now, whether or not it’s true going forward, good luck.
Tobias: Because it’s just a price action. Price action over the last three years has been bad. So, price action over the next three years should be good. I personally hope that’s true. It’s motivated reasoning, I hope it’s true. But it’s not a valuation fundamental discussion.
Bill: Yeah. Well, that’s facts.
Jake: It’s a bit of that gambler’s fallacy, really, like, “Oh, it’s been black three times in a row, it’s going to be red.”
Tobias: Yeah, go, get on the red.
Bill: Just got to keep doubling down. That’s how the math works.
Jake: Martingale it. Yeah.
Bill: Yeah. And then buy calls.
Jake: The math checks out.
Bill: Yeah.
Tobias: Buy calls and then we’ll start pumping it on this podcast, doesn’t it?
Jake: Imagine what we could do.
Bill: Here goes all my reputation. Fuck it. I’m retiring after this, no matter anyway.
Jake: There’s $300 worth of AUM listening to this.
[laughter]Bill: That’s a little–
Tobias: I’m already fully invested in, so there’s nothing I can do to give it a goose.
Bill: Yeah.
Jake: Well, leverage, Toby. Come on.
Tobias Well, that is true. That is true.
Jake: You could be a pod shop and just–
Tobias: As you say, we can martingale and go it all the way down. I don’t know how many times I can double up before I’m dusted. But it’s not many.
Bill: I might as well try.
Jake: Dusted before he even got the double. [laughs]
Tobias: We haven’t had a decent crash. So, there’s no point doing it here.
===
Bill: Yeah. Well, that’s the problem with– I don’t know. There was a guy that I just had on the pod, Charles, with the X is his last name? I don’t know. Anyways. If value works, it’ll come to me. His argument, he thinks we’re about to have a blow off top. I said, “Well, why do you think that?” And he said, “Well, if you study long market cycles, we just haven’t had a drawdown,” to which I said, “Well, what would you consider COVID?” And he said, “Well, if you just look on a long enough time horizon, that’s just a blip.”
Jake: It was [crosstalk]
Tobias: It was a flash crush.
Bill: Yeah, that’s right. On a long enough time horizon, even the huge drawdowns are blips. So, I don’t know. It goes back to the building yourself. Putting yourself in a scenario where it doesn’t matter if that happens, I think that’s the key.
Jake: Well, if you go far enough back, there are definite real non-blips. Like, call it 1000 AD to1700 ADor something like–
Tobias: This is real Davies right?
Jake: How often do you think about the Roman empire?
[laughter]Bill: I like it.
Jake: But seriously though, humanity has had time periods where we didn’t make progress and probably went backwards for a while.
Tobias: How did value do through that period? That’s what I want to know.
Jake: Crushed. Absolutely crushed. Yeah.
===
Is AI Worth the Environmental Cost?
Bill: Got through unscathed. You know what bothers me about this AI stuff, Jake? I called Jake to talk about this to get his take on it. We’re supposed to care about the environment. That’s what I’m told. I care about the environment. I live in the environment. I want it to be good.
Jake: You have kids.
Bill: Fucking AI, the amount of resources that we’re going to pour into this thing, that I think has a very uncertain benefit at best. Like, if the amount of resources that we’re going to put into the power grid to support peak usage at a time when inflation is hurting people. I just don’t understand what we’re doing. I think that like, as a species, we just need the next pump to look forward to. Maybe it all works out. Maybe we’re really going towards something that tech is truly going to change the world.
But the last time tech told me they were changing the world, they got social media. I’m not sure that was great. So, [Jake laughs] I just have some questions over like, what the real benefit is here. I think that calculator is fancy and I think that that’s cool. Man, we’re talking about a lot of real resources that have to come out of the ground in a lot of people’s time. I don’t know.
Tobias: I’m generally optimistic about AI. I think that every time I see one of those little– Somebody said it was like the steam power, while that was in and of itself was a big leap. It was all the little things that people could do with it. I think that’s what AI is going to be as well. Every little trick that people are going to be able to do with–
It looks really interesting to me. Every time I use it, I can’t quite get it to do what somebody on Twitter was able to get to do it. So, I need some prompt engineering help. I think that the stuff that people do with it does look very cool. I can see it would become incredibly– In the same way that you used to have to get a bit of mail to London, you had to send it by sailing ship. And now you get an email, you get a response in 10 seconds rather than waiting, whatever that is, four weeks or something for a response. AI is [crosstalk] like that.
Jake: There’s a pretty funny little cartoon about this where it shows the person typing in, they’re talking to somebody and they’re like, “I took these five bullet points and I turned this into a full email. I saved all this time.” And then it shows the [Tobias laughs] other person and they’re like, “I took this really long email and I turned it into five bullet points.”
[laughter]Bill: I use Perplexity. I like Perplexity, just fine. I don’t know that it’s life changing, but it’s interesting.
Tobias: But I think it takes away a lot of it. If you can teach the computer to do a lot of the shit work that you have to do– [crosstalk]
Jake and Bill: Yeah.
Tobias: That’s great.
Bill: Yeah, no doubt. I think to the extent that slicing and dicing data matters. I do think like an industry like life sciences could really benefit from figuring out how different things interact that maybe humans couldn’t put together. I think there are real use cases. I just question the amount of resources that we’re going have to put towards this and what we’re all working towards.
Jake: And to your point, Bill, when has there ever been a technological breakthrough where there was tons of just sweaty CapEx thrown at it that led to real good returns for an investor?
Tobias: Well, that’s a separate point. I do think that that’s true.
Bill: Well, and then–
Jake: We got lots of consumer surplus on the come. I’m not so sure about producers.
Tobias: It’s more like dotcom 1.0 than dotcom 2.0. Like, dotcom 1.0 was all of the hype with AI. You got a dotcom website, and you could do some stuff and you can connect it, but you weren’t really– Dotcom 2.0, all of the businesses that have grown up since the internet, like 20 something years later, are the ones that are really impressive ones. I think AI is the same. The stuff we’re seeing now is rudimentary bulletin board type stuff relative to where we’re going to be in 20-years’ time.
Bill: Yeah. I think that’s right.
Tobias: It’s still too hard. I think that has to get easier to use. You need an AI interface with your AI, so the interface can interpret what you’re saying.
Bill: Yeah. So, the AI can be like, “This guy is an idiot. This is what he actually needs.”
Tobias: Yeah. It’s– [crosstalk]
Jake: Explain it as if he was five years old.
Bill: Yeah. Let’s explain it if he actually understood how things work.
Tobias: This is what I want to have happen. Like, make it do this for me, write me a prompt that will do that.
Bill: Yeah. Well, that stuff, I think is very possible. I don’t know. We’ll see. The easiest conclusion for me is we’re going to use more natural gas. So, I don’t know exactly how to make money on the widow maker trade.
Tobias: Well, we could be–
Bill: That one’s interesting.
Tobias: It could be the tipping point for nuclear. So, we need to go nuclear.
Bill: Man, I don’t think we’re going to do it. I don’t have enough confidence in humanity to think that we’ll actually go to nuclear.
Tobias: Nuclear? Evs, AI, the future’s, right? Low emission.
Bill: It’s the most obvious answer and has been for years. So, I just don’t know what’s going to change–
Jake: Decades at this point, really.
Bill: Yeah.
Jake: Our hand hasn’t really been forced yet. Like, electricity consumption has been pretty flatlined for a long time. Now all of a sudden, you get this kink. When it’s, whatever, it’s $1 a kilowatt hour now, and everyone’s like, “Shit, we need to figure out something out here. This doesn’t work.” And then all of a sudden,-
Tobias: Yeah. Is that expensive or–?
Jake: -they’re like, “Oh, go ahead and approve that one.”
Tobias: Is $1 a kilowatt hour expensive, or is that–?
Jake: Yeah, you’re probably paying 20 cents or something. I don’t know about LA.
Bill: It depends where it’s coming from. If it’s from a solar farm, you’re good. No, in LA. Not anywhere else.
Tobias: I forgot to mention the bitcoin. Nuclear AI, EVs, and then I forgot to mention the bitcoin. Thanks, Samson.
Bill: So, what do you think it takes, Jake, that we’re forced? But then nuclear, we don’t have the actual human capital to get it done, so we got to build up how to actually build these things again or import that knowledge, then you got to actually get a permitted. We’re like five to six years away, right?
Tobias: I think we now have that but the permitting is the hard part.
Jake: No, when it’s super expensive and your hand is forced, then the government’s like, “Oh, we have to have this. Otherwise, we’re not going to get elected. Okay, we can just run rough shot on all these previous–” Who cares about the little frogs that we used to stop all these projects for–? We got to make progress here.
Bill: Yeah.
Jake: That’s been our history.
Bill: [crosstalk] going to go through the roof.
Jake: It’s usually been more of a war would force our hand that way, like, “Stop, we got to make tanks now.”
Bill: Yeah. So, energy costs will go through the roof. Berry’s will be $10 a pound, or a berry, rather, not a pound. Krugman will still tell me that inflation is not a problem.
Jake: Don’t be surprised. That 2% is what we’re still aiming for.
Tobias: I do think it’s funny the way– Everybody seems to have their own personal view that inflation is probably 100% over the last five years. I would say roughly, anecdotally, everything’s roughly doubled over the last five years. But then none of the official statistics pick that up. So, who are you going to believe? Your own anecdotal personal experience or all that government data that’s carefully collected?
Bill: Yeah, I’ll tell you what. My opinion has changed my view on this. I’m late and you guys were early. But when you get shelter and food exploding like they have, that’s different than, “Oh, my concert tickets went up.”
Jake: Yeah.
Bill: That’s the stuff that I actually need to live is going up. Like, that’s a problem. Now, it hasn’t been right because people would be like, “Well, wages are up too.”
Jake: Not anywhere at that rate though.
Bill: It doesn’t feel like it.
Tobias: I got a nail in a tire over the weekend, got a new tire. I’ll be working for another year at the end of my career.
Jake: $11,000.
Tobias: Yes.
[laughter]Tobias: I was like, “Oh, my God.” The guy told me the price and I just swore that– [crosstalk]
Jake: You were like, “That’s for four or is that–?” [laughs]
Tobias: That’s the set. No, that’s just for one. It’s like awesome. So, we can’t blame– [crosstalk]
===
The Housing Shortage: Perspectives on Elizabeth Warren’s Strategy
Bill: My buddy got one at Walmart the other day. It was pretty cheap. He got two tires at Walmart. Put him on his wife’s car though, so maybe he wants to kill her. I don’t know. I was like, “That’s risky, man.”
I found myself almost agreeing with Elizabeth Warren that we need more housing. But I’m not sure that I agreed with how we get there. I don’t know, it’s interesting.
Tobias: What’s the reason for not having it? Nimbyism?
Bill: Well, she says that we need to look– I think it’s from the people that I speak to in real estate, I think it is objectively true. We need lower rates in order for them to be incentivized to build the housing. Now, given that, there’s some possibility that some of these private equity owners are a little bit over levered or developers need to maybe exit. So, I’m not sure. I think we’re in a bit of an air pocket where the transactions don’t– It just doesn’t make sense to build right now. It may down the road, but then rents after go up and justify it.
Tobias: Buildings have been going bananas for years.
Bill: Yes. But peak deliveries are the next three quarters, and then they’re going to fall off by a lot. So, if rents are going up now, what do they do in two years? I actually think Elizabeth Warren is somewhat right.
Jake: The cure for high prices is high prices, if you let them. But we tend to mute a lot of these signals and then therefore stretch out the pain rather than just taking it acutely.
Bill: We should consider forgiving rent.
Jake: The rent’s too damn high. He was onto something.
Tobias: He is [crosstalk] time.
Jake: He was really early and really right.
Bill: We should forgive mortgage debt while we’re at it.
Tobias: He was in New York. He was telling the truth. The rent is too damn high.
Bill: When was that?
Jake: Oh, Christ, must have been, what?
Tobias: Pre-COVID.
Jake: I want to say it was like 2015 or something. I don’t know.
Tobias: Yeah, it could be.
Jake: It could have been– [crosstalk]
Tobias: There’s before COVID and there’s after COVID.
Jake: That’s all you have.
Tobias: That’s all I can remember.
===
Bill: Hey, what? I had COVID last week.
Jake: What?
Bill: That was no joke.
Tobias: That’s very unfashionable, Bill.
Bill: Yeah, man.
Jake: How do you even know? Did you test?
Bill: Yes. So, I went into the doctor, and I was like, “Look–”
Jake: They still have the test?
Bill: I said the last time I felt this bad was COVID.
Tobias: He’s like, “Good news.”
Bill: He walked back in the room and he’s like, “It turns out this time it’s COVID too.” But they gave me Paxlovid, and that stuff changed the game. So, if you’re feeling like you got the flu, go to the doctor as soon as you can, because Paxlovid had me feeling much better one day later. So, that’s my public service announcement.
Jake: Nice.
Tobias: [crosstalk]
Bill: Pfizer figured out a way to get it on the comeback.
Tobias: Rent was too damn high in 2012.
Jake: That’s what he said it?
Bill: Jeez.
Tobias: Yeah.
Jake: Yeah. My God, he was–
Tobias: Well, I was right. It was before COVID.
Jake: Yeah, you nailed it.
[laughter]Bill: Hey, before this ends, I do have to plug something for the CFA society in New York in two Tuesdays. By the time you’re listening to it, maybe it’s only one Tuesday. But there’s the Ben Graham conference. There’s a lot of people smarter than me that will be there, but I will also be hosting one of the panels. So, stop by. They would like to see you.
Tobias: And we are over time.
Bill: Bob Robotti will be there. He’s a sharp cat. We shouldn’t be out of time. Can’t we go a minute late?
Tobias: We going to go a minute late anyway. So, we’re off for the next four weeks. I’m traveling to Australia on vacation. And Jake’s taking his boys on a-
Jake: I just need a break. I’m worn out.
Tobias: -baseball tour of the US.
Jake: [laughs]
Bill: Are you going to go to Byron Bay?
Tobias: I likely. Yeah.
Bill: Nice.
Tobias: That’s where I proposed to my wife.
Jake: Oh.
Bill: Good for you.
Tobias: Yeah. Give us a reason to go back there. Water goes.
Bill: You ever been to Rainbow Beach?
Tobias: Of course. That’s where my parents live.
Jake: Lost his virginity.
Bill: Oh, really?
Tobias: Yeah.
Bill: Wow. I jumped out of a plane there once.
Jake: Did you, really?
Tobias: I watched people jumping out of planes.
Jake: Holy shit.
Bill: Yeah, it was cool.
Jake: How was that?
Tobias: Did you land on the beach?
Bill: I wrote my parents a goodbye letter and everything before I went on. But it’s wild because you jump out and the beach looks– It’s a lot of different colors. It was a really cool place to do it, so enjoy yourself.
Tobias: Thank you. We’ll be back with just–
Jake: Lots of people.
Tobias: Luca Dellanna? He’s ergodicity, which is–We met him at– I don’t know, Jake, you might have known him beforehand. But Jake said hello to him at Borsheim’s in Omaha. He was surprised to learn that so many people were interested in ergodicity from the finance world, because he approaches it from a different angle, which is going to make for a fun discussion. But thanks, Billy. We’ll have you back in the not-too-distant future. Always fun chatting.
Bill: Indeed. Shoutout to the 10.
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
