In their latest episode of the VALUE: After Hours Podcast, Tobias Carlisle, Jake Taylor, and Jason Buck discuss:
- The Risks of Shorting MSTR and Long Bitcoin
- Why Value Investing Struggles in Manias
- From FANG to BAATMANN: Mag8
- The Future of AI Assistants: Automation, Agency Bots, and Finance Implications
- The Tyranny of Averages: Navigating Benchmarks
- How Many Shitcoins Should You Own
- Focus on Fundamentals: Buffett, Munger, and Avoiding Market Noise
- A Unique Approach to Volatility: Offense + Defense in Investing
- Why Long Volatility Funds Faced Headwinds
- MicroStrategy’s Bitcoin Play: Understanding the Infinite Money Glitch
- The Passive Investing Debate: Global Diversification, Value, and Market Cycles
- Pairing Trend Following with Quality
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
Jason: I was reading Ackman once too.
Tobias: This meeting is being livestreamed. That means it’s Value: After Hours. I’m Tobias Carlisle. Joined as always by my cohost, Jake Taylor. Our special guest today is Jason Buck of the Mutiny Fund. He’s an expert in volatility hair care products. Very [unintelligible [00:00:17] [laughter]
Jake: Very handsome fellow.
Tobias: How are you, Jason?
Jason: I’m great. Apparently, I didn’t get the memo though on the Christmas, the Santa hats. So, I apologize. No Christmas sweaters, Santa hats. But unfortunately, traveling. In Chicago right now, on my way back from California. And got shoutout for Jeff Malec at RCM and The Derivatives Podcast. I’m using his office today. But otherwise, happy holidays, fellows. Happy to be on and talk end of the year festivities. Even though I’m not sure it’s exciting year for any of us, but we’ll try to keep it positive.
Tobias: It wan an exciting– [crosstalk]
Jake: A lot of people are having– [crosstalk]
Jason: Yeah.
Jake: [laughs]
===
A Unique Approach to Volatility: Offense + Defense in Investing
Tobias: I don’t know if it was a good year. Let’s talk a little bit about– So, your Mutiny Fund volatility, just for the folks who haven’t encountered you before, what is volatility and what is your unique take in Mutiny Fund?
Jason: Sure. The simple way to look at it is like our flagship fund is called the cockroach fund, and the idea there is–
Jake: Great name, by the way.
Jason: Yeah, thank you. The idea there is offense, plus defense wins investing championships. We find that most investors have a pie chart of diversification, they think but most of that’s just purely offensive assets that get hurt in liquidity crashes like March of 2020 or in protracted recessions or inflationary environments. So, we try to pair defensive strategies with that offense. So, on the defensive side, we specialize in long volatility and tail risk, and commodity trend following.
Long volatility and tail risk are usually option strategies that tend to have really convex profile payouts similar to insurance or like a portfolio insurance when markets crash. And then, commodity trend following tends to have a higher beta to inflation or recessionary environments, because it has a one, two punch. But it’s more of a little bit longer lag than you would get from the immediate convexity you get from long volatility and tail risks. So, we think those are the two– That pair really well as defensive assets to pair really well against your stock and bond portfolios.
And then, so, when markets are ripping higher and both stocks and bonds, the defense tends to be a little bit of a drag on the portfolio, but it’s there to hopefully jump you out from behind the curtain when you need it most. The way we think about it, the most importantly is that it’s reducing that volatility tax-year portfolio. Meaning, when drawdowns do happen in a stock or 60/40 portfolio, a lot of people panic right at the bottom as it tends to crystallize those losses and not get back in on the subsequent run ups. And that really tends to kill their compounding over their lifetime. And so, that’s what our focus is on is maybe by having some defense in your portfolio. You can have a little better peace of mind and make better decisions when markets are crashing and everybody’s panicking around you.
Jake: So, you always have something that’s not working in the portfolio?
Jason: Exactly.
[laughter]Jason: Yeah. What’s Brian Portnoy says, “True diversification means always having to say you’re sorry.” And so, yeah. It’s difficult to benchmark those things, all that sort of stuff, so it’s like, yeah, it’s just a lot of just– I get up in the morning and I run face first into a wall every day. It’s a joy.
===
How CTAs and Rebalancing Strategies Performed in 2022
Jake: Did CTAs in 2022 work? I know that the tail risk products didn’t, because it was too slow of a meltdown, but did CTAs capture that slow meltdown well?
Jason: Yeah, that’s a great point. So, your long volatility and tail risk is great for that sharp liquidity crash, like we were saying March 2020. But then, if you have a 2022 where you’re slowly dripping down and the real risk vol is not outperforming the implied volatility that you pay in the options, it’s a difficult environment for long volatility and tail risk in a 2022. Like, you absolutely nailed that. That’s why we like that one-two punch with the commodity trend followers, is that’s where they tend to do well is either in a protracted recession or an inflationary environment getting a little bit of both in 2022.
Yeah, most CTAs, I’m trying to think of what I could say in a podcast were up well into the double digits in 2022, so they’re a nice ballast to that drawdown that you got in stocks and bonds in 2022.
Jake: Then, how often is the rebalancing that you do to take advantage of the Shannon’s demon part of the equation?
Jason: The way we look at is we’re a modern interpretation of Harry Browne’s permanent portfolio. Harry Browne had rebalancing bands. It was like 25% each stocks, bonds, gold and cash. If any of those bands got out of whack by 10%, then he would rebalance. And that equaled about every once every 1.3 years, I think over like a 34-year period. So, I really like those rebalancing bands in general for these broad asset class diversification. But we offer our clients monthly liquidity, so we actually rebalance on a monthly basis. That’s great.
So, if you have a March 2020 scenario, stock sell off, you get this convex cash position with your tail risk puts, you’re rebalancing April 1st in a systematic way, which forces you to buy those stocks at a lower NAV point, which helps your compounding over time, but more importantly, who wanted to rebalance into stocks April 1st? [Jake chuckles] Emotionally, it’s very hard to do. So, we like that systematic rebalancing that we do on a monthly basis, even if it’s maybe suboptimal.
I’m sure you guys have looked at this as, like, anytime you look at rebalancing, whatever window you use will tell you the most optimal rebalance period. But then walking forward, it might–
Jake: Never worse going forward.
Jason: Yeah, it’ll flip. Yeah, it’ll flip.
Jake: Right.
===
Why Long Volatility Funds Faced Headwinds
Tobias: What happened in volatility this year?
Jason: Another year of headwinds for long volatility tail risk.
Jake: [laughs]
Jason: So, it’s been a really tough five years actually for long volatility tail risk funds. We’ve actually seen quite a bit go out of business in the last year or two. The good and bad news about long volatility tail risk is like Hyman Minsky, like Minsky moments is like stability breeds instability. So, as these markets continue to run up and we have a really low volume environment and we went well over 400 days without a 2% down move in the S&P until we had that August 5th that I’m sure we’ll get into. And so, during those environments, that’s a drag to have that long volatility tail risk. It has headwinds.
And then, as vol is calm down post 2020, post 2022, those are further headwinds. And then, around election cycles, you have an increase in implied volatility that you’re charged, hold those positions, so that when that runs off you have a volatility crash that we saw again, if nothing really happens with the elections. So, generally, slow or headwind-ish year for a long volatility tail risk.
I think it was post-election or even going into election in these last few months, we’ve been having intraday realized volatility in 4% to 5% range. So, it’s just like, without volume, there’s not a whole lot vol traders could do, especially on the long vol side. So, yeah, it’s been generally a headwind for long volatility tail risk.
And then, I’m sure your next question is going to be commodity trend following. It was a great Q1 for commodity trend following, especially with the cocoa trade that ripped higher. That’s where a lot of the classical trend followers made money in the cocoa trade. It’s great being commodity trend following, because you could pretend like-
Jake: Just some random tuff.
Jason: -you knew that was going to happen. Yeah, you just get total random stuff like rubbers ripping now too, so you just never know. And then, cocoa back again. So, it had a nice run up, then it drew back down throughout the rest of the year and then cocoa is back on the books again.
Tobias: Seasonal.
Jason: Yeah. [crosstalk]
Tobias: [crosstalk] consumed.
Jake: Hot chocolate.
Jason: Exactly. So, it’s always fun, yeah, looking at all those commodity inputs. So, after commodity trend following had a great Q1 and then, as Jake mentioned, they had a great 2022, but it’s a what have you done for me lately, is through Q2, Q3, Q4 commodity trend following had one of its worst drawdowns in 30, 40 years. So, that’s why it’s really hard to hold these asset classes. Yeah, some of the worst drawdowns we’ve seen across the entire space and you can see that the indexes are the individual shops.
So, yeah, that’s why I think, maybe also why we never see trillions of dollars in commodity trend following, because it typically has these MAR ratios of like 0.2, 0.3, so they tend to have– They produce returns when hopefully you need them most, but then the drawdowns can be pretty rough for people to manage.
===
Volatility in Perspective: Tail Risk and the Last Big Payoff in March 2020
Tobias: Yeah, it’s been– How long do you think since volatility is really like that– I don’t know, that blow up volatility like the Taleb-type volatility. When’s the last time that really paid off?
Jason: March 2020. So, yeah, that’s when you saw those ridiculous headlines of like 4,000 plus percent returns and everything. [crosstalk] Yeah, it’s March 2020. Yeah, that’s on your monthly premium. So, you would have lost 100% of your monthly premium for the last 10 years prior to that. So, that’s some great reporting there. But that’s when you saw the big [unintelligible [00:08:37]
Tobias: That’s Antoine Gara.
Jason: Yeah. So, that’s–
Tobias: He’s the reporter. Picks up on the goat. It’s all right. [crosstalk]
Jason: Most of those guys had like those kind– [crosstalk]
Jake: Criticized by category, Toby.
Jason: Yeah, exactly.
Tobias: All right.
Jason: Yeah. I didn’t know we were– Yeah, we’re attacking by name. Yeah. So, then–
Tobias: Somebody put some on the articles, so I just read the articles.
Jason: Yeah. So, it depends on what flavor too. If you’re talking about that pure tail risk, yeah, it’s mid-March 2020. When you’re talking relative value volatility or opportunistic long volatility, there’s been pops here and there for people to make some money. It just depends on what they’re doing. But otherwise, yeah, it’s been–
Besides that pop in March 2020, it’s been a rough period, because once again, actually, you would hope for this August 5th, when the Nikkei tanked over the weekend, you would expect it to pop in volatility there. It was all in the pre-market hours. And as soon as the market opened, it crushed back down. So, a way to think about this is in– As we read our [unintelligible 00:09:29] like volatility mean reverse or it clusters. When shit hits the fan, it tends to cluster, and you get these outsourced moves, but then volatility over time gets crushed back down as markets quiet down.
After the GFC in 2008, it took years for volatility to quiet back down or for vol to get crushed back down. It slowly took angle glide path for the next few years for it to come back down. And then, we had the Volmageddon, where maybe it came back down within a few months. And then, August 5th, we had volatility crash back in a-
Jake: An hour.
Jason: -day Yeah, an hour that day. By the end of the month, the S&P is back up, like to flat or positive by the end of the month. So, it’s just crazy living in this world to see vol crushes happen so quickly. But then knowing at any time, if that truly breaks the other way, that means people are not positioned for that and everybody’s positioned for buy the dip and can have all hell break loose if you get beyond a two-standard deviation on a sell off, and then those market makers truly step away and we have severe air pockets. I’m not a fear monger. It’s just like those things can happen, so we’re always positioned for that. But in the meantime when they don’t, it makes it a bit of a tough headwind.
===
MicroStrategy’s Bitcoin Play: Understanding the Infinite Money Glitch
Tobias: Let’s talk about some of the wild things that have happened this year. There’s a few stories going on at the moment, but we were talking just before we came on about MicroStrategy, MSTR. They’ve been buying bitcoin, and they use converts and various other debt and just straight equity issuance ATM at the market equity issuance to-
Jake: That was ATM like cash machine.
Jason: It’s both.
Tobias: It works the same way.
[laughter]Tobias: To buy bitcoin which has then gone up which then creates this virtuous circle which to my mind, there’s no way that you can lose in that trade. So, you looked inside. You know it a little bit better than we do.
Jake: What are people missing there?
Tobias: What’s going on?
Jason: Well, I’m not going to pretend I’m an expert, but I’m happy to talk about it. But yeah. I didn’t know– [crosstalk]
Jake: It’s a podcast. Don’t worry.
Jason: Exactly. [laughs] Nobody’s watching this. Yeah, I thought you know with the Santa hats and everything is just going to be a light hearted year in review we’re talking about vol CTAs and on MicroStrategy’s. It has been interesting, like we were talking about before we came on, is how– It was actually one of your last shows where I started coming up this idea of like– I studied comparative religions and how I’m agnostic to space, but how each unique investing strategy has their own religion and you don’t stray outside of that or you get smacked down by the herd, right?
Tobias: Yeah.
Jason: So, it has been interesting. The bitcoin maxis are obviously annoying cult, but they don’t understand what convert ARB is, and so they think it’s just like a long bitcoin fund. But then, people from more traditional finance, one, also probably I don’t understand convert ARB, and they just think it’s a proxy for a leveraged bitcoin fund. So, nobody’s really talking to each other or looking at what’s actually going on the nuts and bolts underneath.
And so, we were talking about before, like Corey Hoffstein and I were really digging in this stuff, trying to learn exactly what’s going on with us financialization. I think that what’s been really interesting is what MicroStrategy stumbled into. This was not on their path or their plan. But post the spot bitcoin ETFs coming on the market, you would have thought that they were done. They were a good proxy for people to invest in bitcoin that maybe didn’t have other vehicles and maybe that spot bitcoin would have killed them. But then they kept continuing on, so we had to look at like, what was really going on there.
It just got to the point where they were just big enough for these convert ARB funds to be able to start buying in. They started offering the convertible debt and the volatility was high enough to really entice these convert ARB funds in. And so, what happens was they were borrowing initially. I believe their initial tranche when they did just pure debt, it was at like 6%, 7% interest. But then, once they get these convert ARBs and they start buying them in size, it got down to 1%. Now, they’re down to like 0% on these convert ARB funds.
The convert ARB funds, that is always funny, because the bitcoin side, they go, “Oh, these convert ARB guys, they just love it because they love bitcoin. They’re trying to get a call option on bitcoin.” I was like, “These guys couldn’t give a shit less about bitcoin. They just want volatility.” Because they’re leveraging up a 50 vol asset, they’re getting in this 100 vol, 120 vol range. And so, that allows the convert ARB guys to delta hedge their positions, because at the same time, what needed to happen is you needed something the size of MSTR to have a liquid options market where these guys could hedge in as well. And so, nobody else really has that liquid options market.
And so, it’s just getting the size where convert ARB can participate. There’s a liquid option market where they can start hedging their deltas in their positions. They’re just looking for this high-volume asset, which that happens to be a leverage high volume asset. So, you had this perfect storm that converged. And so, every time they issue more convert debt, these convert ARB bonds just keep picking it off. They’ll take it all day long, and then they’re just hedging their positions and they just love this volatility.
So, to Toby’s point is like, you start getting to like, when does this end? Well, one, it can run a lot farther. There’s talks of whether it’s inclusion NASDAQ, or potential inclusion coming up soon maybe– Well, they’ll announce S&P 500 inclusion. Now, you get all those passive inflows. I was actually looking up the other day, you guys might know this, the smallest firm in the S&P 500 index right now is American Airlines. I want to say their value is just shy of $10 billion, but what I did look up is their passive inflows are $100 million a quarter by being the lowest rung on the S&P 500 indexes. So, then, you start thinking the passive inflows.
The other thing that may happen potentially shortly in the MSTR trade, is if they develop a CDS option– sorry, CDS market on that, because that allows to convert ARBs, even hedge more of their risk off. And so, that would just have an explosion probably in value. And so, you have all those things going on, and so now you have, for lack of a better term, an infinite money glitch. But two things solve this or how does it end.
One, as you guys are, you’re well aware of your history, is like the Hunt brothers tried to cordon the silver market. Well, there’s rules and that on the CFTC side against cornering commodity. And so, you can argue that bitcoin’s a commodity and this is cornering commodity, so you could have some sort of problems there as far as cornering that which could shut it down.
But then two, it’s like at a certain size, this vol will come down and then the convert ARB funds are no longer interested, and therefore they start pulling all the convert ARB liquidity. Not only that, over time, it converts to actual shares, which as you guys know all too well will dilute those shareholders. And then, like you said, those ATM purchases that more as retail is getting involved in, will that dry up over time. So, there’ll eventually be a bag holder.
I wouldn’t necessarily call it a Ponzi or a pyramid, but it’s something like that where it gets so big that it consumes itself, like it eats its own tail. And so, if that vol tends to collapse over time, that’s where you’re going to see that trade really shut down or turn off, at least from the participation on the institutional side with the convert ARB funds and everything.
What’s interesting now, you have and I’m blanking on it, but there’s a publicly trade equity in Japan that’s trying to mimic exactly what they’re doing. I think there’s upwards of 30 different companies around the world. They’re trying to mimic this in different stock markets around the world, because one of the reasons they’re doing Japan and other places is because you have such high taxes on just holding bitcoin in a cold storage wallet. But if you buy a publicly traded equity, you can reduce your taxes.
Similarly, why people love MSTR is you can borrow against it as a stock, like, you have all these other financializations you can use around it. But I’m just not certain that the other ones that are trying to mimic MSTR got lucky enough to be at the size they were at to be able to get institutional participation. I’m not sure if you’re running a $5 million to $50 million cap stock if you can run the same financialization playbook that MSTR has stumbled into.
Tobias: Can I ask a dumb question. What happens if bitcoin goes down?
Jason: The leverage amount, I had to look at it again, is so low, I don’t think it matters. So, the other thing is and I’m pulling these numbers top of my head, so I’m going to get lambasted in the comments, but let’s just say like, it’s $30 billion to $50 billion that they’re holding a bitcoin now. What if it tanks off 90%? Well, they’re still holding that in their treasury. And they use convert ARB. So, now, their cost of capital is essentially zero. So, all they have is dilution on the back end. So, really, is that a terrible trade for the board and for Saylor and MSTR, that’s debatable.
Tobias: No, I’m not worried so much about. I just think that the MSTR price will go down a lot if that happens.
Jason: Yeah. Well, that’s the other–
Tobias: [crosstalk]
===
The Risks of Shorting MSTR and Long Bitcoin
Jason: Well, the other thing we were talking about before, that I would caution everybody on and that’s what I’ve seen too much of on Twitter, X is like people saying this is a no brainer ARB. I’ll just short MSTR and be long bitcoin. They think that is just the delta of like it being leveraged bitcoin. But the things I talked about with the convert ARB and if they get CDS that they get inclusion, that can go from 3x to 4x to 10x to 12x immediately and you get your–
Jake: NAV of–
Jason: And you just get killed.
Jake: -of bitcoin basically.
Jason: Yeah. And so, that’s a really tough trade that I’ve been trying to caution people out of. But I don’t like to caution people on any trades, because what if it works, then I’m the idiot that talked them out of it. So, that would just be the caution, is like that multiple of bitcoin NAV can dramatically increase. Like to your point, Toby, it could also come back. It could also collapse back in. I don’t know the future, so I’m not predicting any of that.
Tobias: If it works, you recommend it. If it didn’t work, you didn’t recommend it.
Jason: Exactly.
Jake: 40% chance.
Jason: Yeah.
Tobias: 40% chance.
===
Tobias: Let me give a shoutout to everybody at home. Brandon, Mississippi. What’s up? Ballynamullan, Ireland. Great name. Petah Tikva, Israel. Cardiff, Wales, New Jersey. Land of the drones. Yeah. What’s happening out there?
[laughter]Tobias: Humpybong, Australia. That’s real. Georgia Strait. Jupiter, Florida. Good on you, Sam. You’ve already won. [Jason laughs] What are you doing on this? “Jason is so beautiful.” There you go.
Jake: Whoa.
Tobias: Finally got some eye candy on this.
Jake: It is an all-male audience though, Jason, so I don’t know if that’s your demographic, but– [chuckles]
Tobias: We have less than 1% females. So, it’s not zero. [Jake laughs] There is a chance. Well, I’ve been watching value stocks. I own a lot of them. But let’s talk about a bigger index.
Jake: How’s that going?
Jason: [chuckles] Yeah, now that you talked me through all my pain. Let’s talk about your guys’ pain.
Jake: Yeah. [crosstalk] -session.
===
Why Value Investing Struggles in Manias
Tobias: The S&P500 value has had this record setting nosedive while everything else has been taking off. I don’t understand. Why can’t value participate in one of these manias? That’s what I want.
Jake: Show us on the doll where the market touched you.
[laughter]Tobias: It’s been a long time since value worked. [unintelligible [00:20:15]
Jason: I’m curious how you guys think about a lot of this. Like, one, I saw– Ned did one of his great polls the other day. When it’s an up year for the stock market, what’s the average return in the up year? It had like 5% to 10%. 10% to 15%, like over 20%. Like, what would be your guys’ guess that to put you on the spot?
Tobias: The average return in an up year, so that’s taking away the down years.
Jake: It’s got to be like 15% or something.
Tobias: The average return is 9% across all years. Yeah, I wouldn’t say it’s fabulous. I’d say 15% or 16%, something like that.
Jason: I love right away though. You guys get it right away, is like the tyranny of averages, it’s actually 21%.
Tobias: Oh, wow. Okay.
Jason: Yeah, so to give you an idea. And then, we were talking about before, it was like, 2022 was a down 18% year, which got people nervous again, but it’s like, what have you done for the day? Everybody’s forgotten. Since the beginning of 2023, we’re up 58%, we’re up another 28% this year.
Jake: It’s never 9%. That’s the only answer. It’s not.
Jason: Exactly. It’s never the average. That’s why I bring that up. Related to that though, I think on value is like– I think we talked about before, like on another time or maybe privately, is like when you had those growth value rotations, I always wonder like, how much of those acute ones have been those pod shops just rotating out, and that’s why you see that quick cascade. And then, you guys are feeling my pain of the mean version of all, like that gets crushed back down and everybody’s like, “No, it’s finally the time. It’s finally the time.” Toby and all your cohort come out on X, Twitter saying, “it did.”
Tobias: I don’t celebrate. I don’t celebrate.
Jason: Yeah. I know you don’t. You’ve been in the game way too long. [Jake laughs] But that’s what happened– For that to come back, it doesn’t have to have a violent rotation. Bad has to happen for that to come back. So, it’s a weird thing, right?
Tobias: I think you get to work before we get to work.
Jason: Yeah. [laughs]
Tobias: When you throw a party, then I will come, because it’ll be the value parties just afterwards.
Jake: That is a good question though is, does value catch up or does everything else catch down?
Tobias: Yeah. Everything else catches down, I think.
===
The Passive Investing Debate: Global Diversification, Value, and Market Cycles
Jason: Well, how do you guys think about the whole passive debate and everything? We’ve been around this so many times, but I’ll give you an example where my other pain is. We use global diversification. So, being in global stocks, this has been a nightmare, obviously, for the last few years. But like how much of that is driven by just pure US target date passive flows? But at the same time, those arguments are always the most succinct at the peak. And so, it makes sense.
Like, as you’re seeing, everywhere the sentiment is like, do not buy global, do not even buy bonds, go 100% S&P as we’re seeing sentiment at all-time highs. But we’ve seen this game go around before. But do you feel it’s the same way as it’s because those passive flows, that’s why it’s going to take something truly cataclysmic to bring value back?
Tobias: I think it probably will take something cataclysmic to bring value back, because I think that it tends to work at the beginning of the cycle. I don’t know that I necessarily buy the passive flows argument. I think that argument works right up until the point that it doesn’t work. Like, that argument will be true until the collapse. And then, once we have the collapse, then it’s no longer true. I don’t like an argument that’s so long volatility. It’s terrible. The moment that goes the other way, the whole system is broken. I think passive flows always follow the market. They always follow what has been working.
Jason: They’re all performance chasers in the end is what you’re saying? So, when I see all of these charts for a 60/40 over the last 40 years, you’re telling me that’s just following the last 10 to 15, is that way?
Tobias: Yeah, I think you could get that from first principles. I think there’s some Shannon’s demon, there’s a good argument to have some bonds or some fixed income with your equity allocation for the reason that you do have those down years and you can then provided you’re rebalancing across those years. I think the rebalancing is the thing that makes it work, because they’re two uncorrelated assets.
Jake: Till 2022.
Tobias: Yeah.
Jake: Then, they got pretty correlated. [laughs]
Jason: Yeah.
Tobias: Yeah.
Jason: They’re typically correlated during a higher inflationary environment. So, that’s the other thing to watch out for. Because like you said, over the last 40 years, stocks and bonds have been negatively correlated. So, you had a positive carry put basically with the bonds, but then when those got down to zero and/or when you have an inflationary environment which if you look over 100-year cycles, they tend to be correlated more than they’re uncorrelated, but it tends to tie in tightly pretty much with inflationary environments. We just haven’t really seen an inflationary environment.
One could argue even if that post Covid, especially 2022, is that really an inflationary environment or is that just a supply chain shock from a global pandemic, it’s hard to argue. I don’t know the true answer to that.
Tobias: Yeah, that’s a good point. I don’t know [crosstalk] it’s either.
Jake: Probably it’s quite a bit both, I would imagine.
===
Pairing Trend Following with Quality
Jason: This maybe helped us another way of talking about it. I think man put out a letter in the last week or so that was interesting. It was pairing trend following with quality, but more AQR style quality like long quality, short junk. The way they look at it and they’re just showing how that’s like a good pairing. But I wasn’t so certain, because it was the idea of like your short junk would hopefully work during a liquidity cascade and also those the long quality doesn’t go down as much and I’m like, “Well, you probably want that–” Like, you guys think about. You want value post the crash, value before the crash as you is painful. [laughs]
Tobias: Value [crosstalk] crash too.
Jake: Pretty common refrain too, I think you hear today, that you don’t want to be long, junky stuff into a recession. Like, you want to own the best companies, because they’re theoretically positioned well, they’re strong franchises. Maybe even they come out of it stronger than they went into it. Like, the marginal player gets knocked out of the industry, etc. I can’t help, but wonder if that’s been a little bit already priced in a lot of these names. I don’t know Costco at 60 times or great company, obviously, going to be a bigger company in 10 years, but you got to get to some pretty herculean outcomes to even earn a market return from that starting at a 60. But we’ll see.
Jason: Do you think it’s one of those times where it’s like where Buffett say the world would take their ball and go home for a few years, because they just can’t find anything of value?
Jake: Didn’t he do that already? When he is at probably $400 billion of cash at the moment.
Jason: No, I was just thinking like from your perspective– I didn’t mean to even choose him. It was just obviously top of mind. Always easy to pull his name out of the hat. But you know as those times, when sometimes value investors write to their clients of like, I haven’t found anything for them– Like you said, the multiples are even too high on quality companies.
Tobias: The risk of doing that is that you run into an early–
Jake: Yes. We’re seeing that from some managers right now.
Tobias: But you run into the– The early 2000s type environment where the market was very, very expensive. It’s 44 times on a Shiller PE in 1999, 2000. And underlying that was a whole lot of really cheap value type stocks. Well, they probably weren’t even– Like, value’s probably unfair, because they had a higher return on equity than the rest of the market.
Jake: Cheapest decile had a higher return on equity than the highest decile.
Tobias: They were better companies.
===
The Tyranny of Averages: Navigating Benchmarks
Jason: Do you think part of that’s like the tyranny of averages? Like, you just said, in the 2000s, you had high Shiller PE ratio. Like, why are we using that? And/or I’m sure it’s been years. That sounds like benchmarking to an S&P or whatever, all of those things are irrelevant depending on your style, and averages over time. Like I said, that’s why I use maps thing is like, in up year, what’s the average for stock market 21%, because there’s massive down years. And so, there’s no average of a 9% return.
Tobias: Yeah. But I think it’s so hard to know that you probably need to be doing something like what you’re doing where you’re just exposed to everything all the time rather than– [crosstalk]
Jason: That means always happen to say you’re sorry? [laughs]
Tobias: Yeah. That also means that something’s working, and you’re taking away from the thing that’s working and putting into the thing that’s not working.
Jason: Right. But then, this is the problem– We live in a world of benchmarking to averages. That’s like you can’t benchmark what we do. So, it makes it really difficult when you’re dealing with clients. Similarly, that’s why I would argue with value. There’s nothing to really benchmark against, is there? Because if you have so many idiosyncratic names that you’re picking, you could say like, this is small cap value, but even that index is not going to be the same as your idiosyncratic. And then, this goes back to like what Meb’s always doing and I think what he had Ken French on, it’s like, how much time did you need to determine that this person’s lucky or good. It’s like four decades. Like, “Good luck to you.” No client sticking with you for that long.
Jake: That’s a real issue, for sure. When you’re more on, at best, probably a three-year shot clock.
Jason: It takes that. Yeah, quarterly shot clock, right?
Jake: Yeah.
Tobias: But then, if you had to construct these indexes from first principles, would you construct them the way that they have? Float adjusted market capitalization weighted. That’s a reasonable– Why not do it that way, I guess. But then, I wouldn’t want to invest my money that way either. The index makes perfect sense to me the way that it’s constructed, but that doesn’t mean that’s the way that I want to invest my money.
Jason: So, to me so far, this is a bad Santa. This is like more of like a commiseration circle. I’m like, “Is this the Santa’s that alcoholics anonymous? We’re all just commiserating with each other. How do we get out of this broken cycle?” Because yeah, like you said, always having to say you’re sorry or having the differences. If you take S&P500, this is fascinating to me, since 2010, so over the last 15 years, it’s a 10 bagger.
So, somebody’s asking me on podcast the other day, “What would I recommend?” I’m like, “Why would you listen to me at all? The S&P500 is a 10-bagger over the last 15 years. Think about as we know how much that changed, like boomer retiree’s portfolio, peak earning years. What are your savings 15 years ago? You get a 10 bagger since then.” So, it’s just like, who are we talking to? It’s hard to give any advice when you know that index. Obviously, we all know at some time it turns, but the market can stay irrational longer and can stay solvent.
And so, it’s a really weird position to be in, or we always say like people think that, because we’re long volatile risk, we’re permabears. We’re not at all. I’m an optimistic entrepreneur. We always even say, beware of the white moose. That’s when your expectation is the black swan is going to come. So, you get out of the market and then the market rips up for another three to five years. That’s the white moose. So, you missed out on all those gains. Like, hopefully, by pairing those, you end up in a bipolar schizophrenic portfolio that does fine in either of them. But yeah, it’s just a weird thing that we’re all dealing with constantly is how do you manage your savings for a world that we can’t predict the future.
===
Focus on Fundamentals: Buffett, Munger, and Avoiding Market Noise
Jake: Well, I think this is where Buffett and Munger– When they arrived at the eventual conclusion that you can’t tell what markets are going to do, you shouldn’t really listen to them, don’t follow them that closely, even focus on the business fundamentals, get that right. A lot of this stuff is just noise that over time will wash out. But use your CPU cycles on trying to understand businesses instead of trying to understand where markets might be going or why this is too expensive or– Because it can, it might last a whole career potentially.
Jason: Yeah. There’s so many things in there, Jake. Like you said, it could be– I always like to joke with my value friends. It’s like dozens of companies are going to pick over multiple decades. That’s not really statistically significant to know if you’re lucky or good. We’d all take lucky. So, like you said, you might spend your entire career doing something that’s maybe not as accretive as we’d hope.
But like you said, I’m sure you think about this stuff, Jake, is like, what do you do to do that, especially when you have clients and everything. It’s interesting if you’re Buffett, and you have a publicly traded equity where that money is basically locked up, you can say things like that and you’ve earned that reputation. But for you to have the equanimity is one thing, your clients is another, but then third, even outside of ourselves or our clients is– I mean, everybody I know checks their portfolio almost every day even in retirement. It’s a weird thing.
As you know, the Robinhood stats is eight plus times a day. So, is there a vehicle, is there a structure to what can we do to get people to stop looking at their portfolios as they have for the last few decades? I’m not sure it’s possible. You got an idea on that?
Jake: Lose that login.
[laughter]Jake: I’m being glib, but I actually–
Jason: No, it’s true.
Jake: It’s probably a little true.
===
From FANG to BAATMANN: Mag8
Tobias: There’s a new addition to faanmag, faatman. I don’t know what we’re going with. It’s now Baatmman.
Jason: Batman’s the newest?
Tobias: Broadcom has now crossed a trillion dollars in market cap, which means that it’s now Magnificent 8 and it’s Baatmman and it’s like B-A-A-T. There might be two Ms-A-N, something like that, Battmman.
Jason: Are we just getting too old and curmudgeonly? I’m just so tired. We’ve seen how many name changes over the decades. I’m just so tired of all this stuff.
Tobias: What did it start out as? Was it only four? I want to say maggot, but that’s not right.
Jake: No, we had FANG originally.
Tobias: That’s right.
Jason: Yeah. FANG. I think it was probably some before that actually.
Jake: One of the original. But yeah, sure, there was some oil related one back in the 1980s. I’m sure was–
Jason: Yeah. You want to go way back, we had Nifty50, and then everybody’s talking [unintelligible 00:33:31] again about the bricks. But as we know, these are made up by the investment banks or the ETF sellers just sell more product. They’re just trying to figure out acronyms. So, why are we participating in their acronyms to sell more product?
Tobias: I just think it’s funny. I think it’s that you just add the thing that’s working and you say, there we go. It’s part of a cohort. There’s a theme there. [crosstalk]
Jake: But it is also a shorthand thing for guys like us to bitch about. So, we could say like, “Well, of course, I don’t have Battmman in the portfolio right now.” We all know what we’re talking about together.
Jason: But could we just say, like, the top 10, I guess, or whatever, I don’t know. Yeah, so, we didn’t have to keep learning new acronyms every time.
===
Tobias: Isn’t it crazy that American airlines is at $10 billion? When we were right in the middle of the pandemic, and I can’t remember exactly, but when– I think when they all shut down, I went and had a look at the size of the airlines, and I was shocked at how small they all were. I forgot they were $30 million, $40 million, $50 million against. That’s what FANG earns in a quarter. Like, that’s what any one of FANG earns in a quarter. They could all have an airline if they wanted one.
Jason: Yeah, I think it was sub $10 billion. I want to say it was $8 billion, $8.5 billion market cap for– I’m not going to pull it up while we’re talking, but yeah, it was sub $10 billion.
Tobias: That’s crazy. What’s FightCoin? It’s probably bigger than American Airlines. [laughs]
Jake: Gosh.
Tobias: I saw somebody put out a stat that said that “FightCoin is now bigger than the entire Australian microcap market,” which– That was like $800 million or something. So, I thought that was– How much FightCoin have you got in the portfolio, Jason?
Jason: [laughs] Unfortunately, none. [crosstalk]
Tobias: How do you diversify it?
Jake: Yeah.
===
How Many Shitcoins Should You Own?
Jason: Yeah. [laughs] [unintelligible [00:35:12] How many Shitcoins do you own? What’s the adequate amount of exposure to shitcoins?
Tobias: Did you and Corey consider that? Did you go through all of the shitcoins and have a look at anything that was–
Jason: Yeah. Well, we were both trading some of those at that time. Also, what I find too is, most of the time, I tend to be early to things, which is another euphemism for wrong. Yeah, I was even looking up– Like, we did one of our first videos for Pirates of Finance, we did it on NFTs. I want to say the beginning of 2021. We created an NFT just to see what it was like and everything on Rarible. And so, yeah, we were part of that first hyper cycle.
But even before that, I owned a bunch of crypto kitties and was breeding those. That was a 2017. [Jake laughs] That was the first true– But then, you didn’t make any money off those. And then, in the next hype cycle, you had crypto punks and all this other stuff, and I’m like–
Jake: Board Apes. Yeah.
Jason: Yeah, Board Apes. I’m like, “What happened to the crypto kitties? That was the original.” Way too early. So yeah, it was during that last cycle, we were looking at all the, not only the altcoins and the shitcoins or whatever you want to call them, but all the different trading platforms too where you could try to do all sorts of ARBs and everything like that and try to do some shorting and look at the delta on the spread on what–
Sometimes it was 20% to 30% interest that they were looking out to try to raise capital for trading. So, there’s all sorts of fun things you could do back then. We call the cash and carry trade. I think the cash and carry trade actually is back. But yeah, I don’t know, I get pretty bored by it and it seems like everything’s just coming back around again. I don’t know. But I feel like it’s weird though. I like to stay on top of as much as we can. Just because like you don’t want to be get super old mentally and just be everything the kids are into is a waste of time, because you never know what’s going to come out of it.
I actually hate all my Australian economic style friends are always talk about malinvestment. And I’m like, “Is that true? Like, today’s malinvestment is like the future infrastructure. When we talked about– When we were running all those cables underwater and you had all those companies blow up in, what was it? the early 2000s, that was malinvestment. But all that fiber optic cable was our infrastructure for everything we’re doing now. All the malinvestment in crypto actually might go towards like– Now with AI and everything, and you can’t know if a video is real or not, well, thankfully, we have crypto there where we can figure it out via NFTs and KYC, AML, is that can all be automated in the background to tell if something’s real or not. They can tokenize all of that to have it as proof of reality.
And so, maybe that’s where that– I’m sure right now, everybody’s bitching about the mal investment from AI, the amount of energy and servers it’s going to take. But we don’t know 10 years from now what that’s going to be the infrastructure for.
Jake: I think it’s a great point. Typically, though, the owners, the people who put the money in the ground don’t do all that well-
Jason: Right.
Jake: -in these technological revolutions, just historically.
Jason: Early is wrong. Like you said. [chuckles]
Jake: Yeah.
==
Slow Productivity: Cal Newport’s Guide to Quality Over Busyness for 202
Tobias: JT, I just realized we’ve gone past your–
Jake: It’s fine.
Tobias: Someone better mark the market. It’s veggies time.
Jason: Veggies time.
Jake: All right. The end of the year here and I think it’s always useful to take a step back from everything, and zoom out and focus on what’s working, maybe what could be improved. Today, we’re going to take a look at a new book from Cal Newport, which might be helpful as we’re evaluating, going into 2025.
A bit about Cal before we get going. He’s a computer science professor at Georgetown and a bestselling author. He does these deep dives into focus, productivity and technology’s role in modern work. He earned a PhD in computer science from MIT, and really his work spans academia and practical advice. So, I actually quite like him. His newest book is called Slow Productivity: The Lost Art of Accomplishment Without Burnout.
So, let’s rewind the clock a little bit on productivity. So, during the agricultural revolution 10,000 years ago, you had a readily apparent crop yields that, like, how many bushels of wheat or rice or corn did you harvest per acre? We had 10,000 years of iteration, cause and effect, let’s see what works, do more of that. We found many efficiency gains like fertilizers, irrigation, the Norfolk four-course system of planting, which limits the amount of time that a field will lay fallow.
And then, a few hundred years ago, we entered the industrial revolution. And now, productivity was measured by the number of products or widgets that were produced in a factory. There was obvious tangible metrics like piece counts and quotas that you could keep track of. You were always measuring the output for a given level of input. Visible activity of the workers was a crude proxy for their productivity. So, if you look like you were busy when you were working in the factory, it meant you were probably doing something good for the company.
This was the time of Frederick Wilson Taylor or Winslow Taylor, sorry. He was very infamous for doing these efficiency consulting studies way back in the day. And so, one of the things like, take shoveling slag iron in a steel mill. He designed a better shovel that balanced the desire to move more iron per scoop while also avoiding overexertion of a long shift. So, in case you were wondering, the optimal shovel load is 21 pounds. That’s probably for real men back in the day. I don’t think we could do it.
[laughter]Jake: All right. So, then fast forward, and now comes the information revolution that we’re living through now. And so, organizing data and info for commercial activities. Yet, we’ve accidentally kept this old visible activity heuristic from our previous revolutions now in the information one.
So, basically, the hypothesis 50 years ago was like, if we all come into the office and we’re there for 40 hours a week and we look busy, we’re pushing paper around, we must be good employees in a productive organization, we’re good team players. We’re going to jump on calls, respond to emails, book meetings, crank out memos. We’re creating all of these really– you would almost call them artifacts of work.
If we’re being honest, a lot of it is performative busyness. Like, [chuckles] you’re just doing these things to hopefully the boss thinks that you’re doing a good job, and you want to be seen as a team player. We’re all playing this game. But many of these tasks, do they actually contribute to significant progress?
This is where Newport has a term for this busy work. He calls it pseudo productivity. He argues that this phenomenon is common in knowledge work, where workers often– they prioritize visible actions like checking off small tasks over deep, focused thinking that would actually drive results. So, technology really hasn’t been helping us that much in this front, putting computing in our pockets through our phones. Now, we’re crowding out time away from the office where we used to be home and focused. And now, we’re thinking about work and doing work.
Rory Sutherland, who I’m very fond of, has an interesting observation about technology. He says that “What starts as an option becomes an obligation.” So, take the clothes washer and dryer, for instance. This was supposed to save a ton of time for everyone who was hand washing their clothes before. But instead what happened was the standards for acceptable cleanliness in public just went up, and now there was no real time ever saved. So, an option then became an obligation.
There are lots of examples of this. Smartphones and laptops, they created this beautiful option where we could work from anywhere, and yet it also ratcheted up the obligation that we all feel to always be working. All this hustle porn isn’t helping, inbox zero. It’s a bunch of craziness right now, if we’re being honest.
So, the key takeaway here, is that real productivity doesn’t always have to look like you’re busy. Imagine an office full of people with their feet up pondering a vexing problem or reading a book that’s maybe barely tangentially related to their job, and the boss comes in and loses their mind, because it looks like it’s all a bunch of waste of time. Yet that deep thinking and problem solving might be or just going from an aimless walk that you might unlock something could be how we need to tackle modern complex challenges. So, yet I don’t know how many organizations are really allowing for that deep work.
So, Newport organizes this slow productivity into three principles. Number one, do fewer things. Two, work at a natural pace. And three, obsess over quality. I’ll just quickly tackle each real quick. First is, do fewer things. Newport suggests reducing your obligations to the point where you can easily imagine accomplishing them with time to spare, leaving this margin of safety for your time. What you want to do then is leverage your reduced workload to advance a small number of projects that will matter the most. Focus is the key to the world.
I’m fond of something that James Watson, the co-discoverer with Crick said once. He said “It’s necessary to be slightly underemployed if you’re to do something significant.” So, anyway, be mindful of projects which carry a lot of overhead tax. This is like the administrative burdens of like, you’re going to have a lot of back-and-forth emails, you’re going to have synchronizing meetings. Some projects have much more administrative burden than others.
The second is, to work at a more natural pace. Don’t rush your most important work. Let it unfold over a sustainable timeline, have variations of intensity, so do sprints on it and then find settings that are conducive to brilliance, so make sure your environment is dialed in. Newport cites these studies of hunter-gatherer tribes where even today like– and you have to realize that a lot of the hunter-gatherers from today have been pushed into marginal lands by agriculture societies. Even then, they’re still only working 20 hours a week to procure food and shelter. And here we are grinding 80 hours a week.
And then, the last principle is, obsess over quality. I’m not just saying put 50% of your wealth in Costco and 50% and 50% in a Visa, and then go read Pirsig Zen and the Art of Motorcycle Maintenance all day long. [laughs] That’s capital Q quality. I’m just teasing.
So, Newport says that even if you have to miss opportunities in the short run, leverage the value of your quality output to gain more freedom over your efforts in the long-term. So, the world always notices and appreciates quality, whatever the modality that it’s coming from.
So, anyway, these are just some things to think about as you head into 2025, start making New Year’s resolutions, perhaps actually try to achieve less but higher quality work might be just what the doctor ordered.
===
Balancing Quality, Productivity, and Reality
Tobias: That’s good stuff, JT. Jason, you’re an entrepreneur and business operator. How do you divide up your time? How do you think about that?
Jason: Poorly.
[laughter]Jason: There’s so many things in there that JT said. First of all, shoutout for extra bonus points for the Norfolk crop rotation system. Throwing that in there, I appreciate that. [Tobias laughs]
Jake: Yeah.
Jason: It did remind me of the great writer, Charles Bukowski always said, “I was a much better lover when I was unemployed.” So, yeah, it’s focused on quality. You guys have probably read David Graeber’s Bullshit Jobs too. That’s–
Jake: I haven’t. No.
Jason: Oh. That’s so good. When he wrote 5,000 Years of Debt, which is a great book as well. It was actually just an essay in a magazine, I think that turned into a book. But it was just basically he was showing how he believes 60% to 70% of jobs in America today are just bullshit jobs of you’re saying, like, people performative work and maybe working for a few hours a day. But it did make me think about– Let me see if I can always offend everybody on the podcast. It did make me think about, like, I always think about UBI. Whether UBI comes from the government and/or I always thought UBI eventually would become from selling our own data back to ourselves like through our attention.
If you think about that hyper advertising and everything, it could eventually get to a UBI price if they sold our own data oil back to us. But then, it dawned on me the other day, I was like, “Oh, shit, we already have UBI in the jobs.” That’s what it is. It’s like a bullshit job is essentially UBI for most Americans and our unemployment rates low. And you’re like, so at most corporations, you have all these layers of complexity where people are basically getting coffee and on TikTok all day. Maybe they’re overlapping with their responsibilities. But for the most part, they’re just planning birthday parties and/or team building. And so, maybe they UBI is already here.
Jake: I think it’s especially the tech companies. I’m not going to name names, but I think they run make work schemes to avoid antitrust. If you saw how much profit there actually was in these things, if you didn’t just have a bunch of people pretending to work like [chuckles] it would, the government would be coming quickly to their front door.
Jason: But it’s amazing. Per employee, when you look at that stuff, it’s anywhere from $1 million to $10 million in rev per employee these days. It used to be back in the day, you could use 3x to 5x your salary was like what you brought in for the company. Now, you’re sitting there just astronomical. Especially, if you look at like valve and some of these other ones, it’s truly impressive.
But going back to your question, Toby, is one of the things we do at our firm is we try to focus on quality. So, it was tied right into what JT was saying. But then, at the same time, I always can’t help that little bastard in the back of my head is like, “Yeah, but is that really true?” That’s when I try to say, “We’re going to slow down and focus on quality.” Meanwhile, it’s 10:00 PM and I’m texting my team like “Where is this at?” [chuckles]
You want to do those things. It’s aspirational to focus on quality and slow down. But I’m not sure with a smartphone and the communication we have these days is that possible. I just know I also don’t believe in balance, but it’s unfair for me to say that. I’m 46 years old, never been married, don’t have kids. Like, I work 24×7 and I enjoy that, having an unbalanced life. And so, maybe that’s what works for me. But it’s probably not going to work for somebody else.
And then, these days, whether it’s Cal Newport or others, it makes me laugh as Cliff Asness said it perfectly the other day, I asked him about his morning routine I think on access returns and he’s like, “Oh, yeah, I’d love to have more– But most of the day, first thing I do when I get up is I text my trainer, not today. And then, [Tobias laughs] I go on my phone and I start looking at our positions, and it gets out of control, then I’m late for my shower and then I just grab a cup of coffee and my cortisol’s through the roof.” And I’m like, “Yeah, that’s most people’s normal day.”
But all these other people that want like a two-hour morning routine, and if they don’t get it in the right order, then they’re fragile for the day and good luck if you’re traveling. And so, I aspire to all these things. I do read everything Cal puts out and everything. I just wonder how much self-delusion there is in our modern world that we have to deal with.
Jake: It’s very true.
Tobias: Yeah, I couldn’t agree more.
Jake: That advice was more for myself actually.
Jason: Exactly. [laughs]
Jake: Disconnect and spend family time that I may or may not be that good at. [laughs]
===
Tobias: I saw a good video over the weekend on– There’s an organization called Radiant. This is a total left term. But there’s an organization called Radiant. They’re building nuclear reactors that are the size of a shipping container. Are you familiar with these guys?
Jake: No.
Jason: Yeah, you probably– Did you watch– I think it was John Coogan was originally did some videos on that. Maybe that was what you’re– or something up. He’s doing a lot of those videos.
Tobias: It’s possible. Yeah. I don’t know who John is. What’s his channel called?
Jason: I think his channel on YouTube might just be John Coogan. So, John was one of the co-founders of, was it that Soylent Green or whatever like that shake and everything and he’s an entrepreneur in residence for Founders Fund now. But yeah, he started his own channel. He was doing a lot of these companies, and he also does Technology Brothers now with Jordi Hays which is another great podcast that just came out.
Toby, it’s actually right in your neck of the woods is the whole gundo now. Have you heard this term even yet?
Tobias: No.
Jason: The kids are calling it. So, you know how all this new defense tech started with all these 20-year-old entrepreneurs, and a lot of it was focused around El Segundo. Well, now obviously, it’s branched out with the Palantir’s went down in Orange county and everything. So, it’s that whole LA coast, they’re calling the gundo now.
Now, if we want to end on an optimistic note for this holiday year end specials, like that’s what’s been fascinating to me this year is getting to know a lot of these 20-year-old entrepreneurs. They’re actually, really conservative. They want to have more kids. They’re typically tend to be more Christian. And now, they’re all about American exceptionalism, bringing manufacturing back and defense technology in America. The cutting edge of defense tech or manufacturing and party of it is having these portable reactors and everything that could power cities. It’s like, one, how do we get better sources of energy, but then using advanced defense tech too, those go hand in hand with each other, because how do you power these things at remote locations.
===
Hadrian’s Cutting-Edge Aerospace Manufacturing
Tobias: Well, that Hadrian is the big manufacturing– They’re right down the hill from me. I went and drove around there just to see how big it is. I’ve been watching the videos on– Because Hadrian is this like aerospace manufacturing is where they’re focusing, but they’re an outsourced manufacturing. They have the factory floor and you can send them the wireframes and they will build–
Jake: Like the Foxconn.
Jason: Yeah. There’s some really interesting tiny things that really make a huge difference that Hadrian does that I found fascinating. One of them is like, they’ve automated the sizing of all the drill bits and everything on the machine, so they can interoperate them quickly. But more importantly, when they’re cutting metal or anything, they can see the friction time wearing down. So, they can easily switch back and forth between tools, so you don’t have that downtime. So, it’s really simple things like that are really making a cutting-edge difference in Hadrian’s manufacturing.
Tobias: The space that they have is huge. It’s really close to where I am. It’s just down in Torrance. It’s vast. The amount of space they have– I was driving, it’s like a five minute drive down the side of a block, and it’s all Hadrian space that they’re going to build into. They’ve only got a few warehouses there now, but it’s incredible. But that combination of the portable nuclear power from Radiant and Hadrian building those things, it makes me think that there is something very interesting going to happen over the next 10 or 20 years, plus with that the–
===
The Future of AI Assistants: Automation, Agency Bots, and Finance Implications
Tobias: I don’t think that the AI is quite there yet, but I think it’s getting pretty close. I don’t think anybody’s really figured out the killer app. I don’t think that ChatGPT is really it yet. Have you seen anything that’s– I need more automation. To have a true assistant or anything like that, you need to be able to tell us do stuff and have it go away and do it. None of them interact as far as I can see.
Jake: [crosstalk] hasn’t figured out how to buy stocks that go down?
[laughter]Tobias: I do that all by myself.
Jason: Yeah, exactly. We can automate the podcasting and the stocks that go down. Yeah, they can easily done yourself. Well, I got a good one for you then. Agency AI or it’s Agency.AI is done by Dharmesh from HubSpot. And the idea there was brilliant. He’s like, “Why wouldn’t we have a job board for AI bots?” And so, what you can do now is, previously, when you used to link all of your different flows and systems through like a Zapier and you’re trying to automate that whole process, well now you can use very specific Agency bots or AI bots to do very specific problems and then you can tie them all together in that automation process.
So, we’ve been playing around with all of this stuff. But to your point, it’s still not quite there, but it’s getting better and better, and so it’s just a matter of time. But now, yeah, you can use ones that are hyper focused, and then you can link them up and brick a large them all together to have your automated system. Yes, there’s not a true killer one stop shop for all that stuff, but it’s coming and I think we’ve been messing around with a lot of it. It’s just been very interesting, but it’ll work itself out over time.
The only other thing from a finance perspective that I also want to maybe hedge with is you have to be very careful about what’s actually in the code for a lot of these bots and everything. There’s going to be some backdoors, bugs and some nefarious things in the code. So, you got to be very careful running a financial firm on what you’re using in your back end, that’s more appropriate than people realize to really dive into.
===
Tobias: That’s good to bear in mind. What about quantum computing? Was it Google Willow?
Jason: Willow. I feel like all these questions just show how big of an idiot I am or I’ll just pontificate about anything– [crosstalk]
Tobias: I want to talk to someone who’s like–
Jason: I’d rather hear Jake’s take on it. So, one, I’m too dumb to know if what they came forth with Willow is actually amazing or not. It sounds like the proxies they’re using to show how great it is there’s no way of verifiability. So, I’m much more in the, what can I think, like for science has to be falsifiable. Why can’t I think of the name Jake? You got me on that. I’m putting you on the spot too.
Jake: Karl Popper.
Jason: Popper. Thank you. Popper. Yeah, Popper’s falsifiability. So, I’m not sure how falsifiable it is with the Willow chip. But what I think it does open the door up is now we know we’re maybe a few years away from having full on quantum computing, but it’s like how many qubits can you use.
One of the big things people said, “Well then bitcoin’s dead.” But bitcoin saw this even in the white paper with Satoshi. That was eventually going to be a problem. And so, they’d have to change the security around that. But I think it was something like it would take 10,000 qubits or 8,000 plus to be able to break bitcoin. And right now, the Willow chip I think was 106 qubits. So, it’s still a long ways to go.
I think things like bitcoin will adapt and everything. But I’m more as an entrepreneur and just a general optimist is like, you think about this stuff’s all cutting edge and you’re how tuned do I need to be to it. It’s like, eventually, it’s all going to be in the back end of our phones. And it’s just amazing, the world we live in. We’re able to do this right. You guys are in the neck of the woods, California last week. I’m in Chicago. We’re on Zoom. All of this stuff we still take for granted, it’s like the old bit like everything’s amazing and nobody’s happy. I just flew through the air on a magic carpet ride and if the Wi-Fi went down for five minutes, I’m pissed. [Tobias laughs] This shit’s amazing.
As you’re saying, the energy sources, if we improve those– Because I think that’s what– Jake would actually really know the history on this too is like, if you look from whale oil to wood burning to sources of energy to fossil fuels and then eventually, as we’re progressing along that, that’s what really builds human ingenuity, GDP and our welfare is like the energy sources and the cost of those energy sources. That is constantly improving too. And hopefully, the zeitgeist or is moving around that window back open to nuclear.
By the way, I very specifically have a hard time saying that and I’ve been trying to avoid it, because it’s one of those weird things about my idiocy is like, I cannot hear the difference between nuclear and nuclear. And my fiancé makes fun of all the time. All I say is, “All you’re proving is you’re an asshole.” [Jake laughs] But it’s just one of those things I can’t hear the difference, so I’m trying not to say it.
Tobias: Elemental energy is the–
Jason: There you go.
Jake: There you go. Yeah. That’s how you– [crosstalk]
Jason: It’s just the Josh Wolfe, trying to rename it as elemental energy.
Tobias: I think it’s a good idea.
Jake: It’s smart. Yeah, it’s clever.
Jason: I think it goes back Taleb too, is you just want to diversify your poisons. It doesn’t mean elemental, we should switch 100 to that. It’s just over time spreading it out a bit, because we don’t know what’s going to truly kill us, where it’s really easy to see through coal and everything, how that’s killing us. Or, it’s harder to see actually I think is like people don’t see over time how much that affects us, so it’s easier to see like a Fukushima disaster through my island. And then, over history, you’re like, “What was the actual death toll? What were the downside effects?” But it just sounds much more like dystopian, I guess.
Tobias: I just think the fact that you can have these portable– The portable nuclear generator in some ways solves the problem of Fukushima. You just drive it out of the way if it’s coming.
Jason: Yeah. They have shoebox sized ones that you could bury in your backyard and run a city of a 1,000 to 5,000 people. Our entire waste, if we just used all elemental energy would be the size of a coffee can– I mean a Coke can. So, yes, you do have the half-life effects and you know what does that radiation dissipate over a lifetime. But that’s pretty amazing to think about that. It’s the size of a Coca-Cola can for your entire energy needs over an 80-year life cycle.
Jake: I saw a funny– I don’t know if it was a comic or just an observation, but it was like– We’d burn down something we didn’t want to burn down twice when we had fire. And so, we’re like, “Oh no more fire. Never touch fire again.” [Tobias laughs] That’s basically what we did with nuclear.
Jason: Yes.
Tobias: Gents, on that note, we’ve made it to the full-time hooter. We’ve done it. Jason, if folks want to follow along with what you’re doing or get in contact, what’s the best way of doing.
Jason: On X, Twitter I’m @jasoncbuck. J-A-S-O-N-C-B-U-C-K. And then, you can find me and all our writings, podcasts, etc., at mutinyfund.com
Tobias: JT, any final words?
Jake: Looking forward to a little break. Happy holidays to everybody. I think we’ll be back in the New Year. Is that correct, Toby?
Tobias: We will be. Yeah, January 7th, we’ve already booked a guest and then we’ve booked a January 14th guest as well. They’re two bangers. We’ve got O’Shaughnessy and Rasmussen coming up.
Jake: Oh, let’s go. All right.
Jason: Where’s your Shaughnessy though?
Tobias: Jim. Jim with his new book.
Jason: Nice.
Jake: The Elder Statesman.
Jason: Great. Happy holidays, gentlemen. Thanks for having me on.
Jake: Yeah. Thanks, Jason. Thanks for coming on. Always fun.
Tobias: Merry Christmas, everybody. Happy holidays. Season’s greetings. Enjoy the break. Spend some time with your family. We’ll see everybody on the other side.
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:
