Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
Matt welcomes back Bill Brewster to the 7investing podcast to discuss Berkshire, Buffett, and the impact of AI.
May 23, 2023 – By JT Street
Matthew Cochrane welcomes back Bill Brewster, the host of The Business Brew podcast, for a wide-ranging conversation that touches on a variety of investment topics and companies. The pair begin their talk with Brewster sharing his recent experiences at the Markel (NYSE:MKL) and Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) annual investor conferences.
Markel’s primary business offers niche insurance underwriting services. The company then uses its float and profits from the insurance business to invest in private companies and public equities. Cochrane asks Brewster if the right way to think about Markel is to think of it as a mini-Berkshire.
“I think they have looked at what Berkshire has done and seen the power of it. I don’t know that you can sort of do the ‘This is a mini-Berkshire’ mental heuristic. I think that probably understates what Berkshire is.”
The conversation then naturally shifts to Berkshire Hathaway and its bull case after Warren Buffett and Charlie Munger are no longer there. Brewster believes Berkshire will prove resilient but is unsure if it can outperform the S&P 500 in the years ahead.
Brewster and Cochrane then discuss how AI will impact society and how it will affect Big Tech and the competition among them, primarily focusing on Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT).
Brewster and Cochrane then hit on:
To follow Bill Brewster check out his podcast The Business Brew on any major podcast platform.
Matt: Greetings fellow investors. I’m Matthew Cochrane, a lead advisor at 7Investing where it is our mission to empower you to invest in your future. We do that by providing monthly stock recommendations to our premium members and educational content that is freely available to everyone. Listeners, today I am very excited to welcome back Bill Brewster.
Matt: Bill is the host of the wonderful podcast, the Business Brew truly one of my favorite investing podcasts where he hosts guests for long form interviews. He is a C F A though he rarely talks about that, and he can be found on Twitter at Bill Brewster, t b b where he is a very entertaining and provocative follow.
Matt: But I think the traits that really draw people to him is his transparency and curiosity. I was gonna say some other things, but I think it’s best just to say Bill is a good friend and a very genuine and sincere person. He’s kind of what you see is what you get. Bill, welcome
Bill: to the show. Thank you for the kind words, sir.
Bill: I appreciate that. It’s good to talk to you [00:01:00] again, and it’s nice to be here. Yes. I appreciate you having me on.
Matt: I appreciate you coming on.
Bill: Yeah. Well this is nice. This is a good way to start a show,
Matt: a bunch of pleasantries
Bill: back and forth. That’s right. Keep keep the compliments coming. This will be fantastic for me, the listeners, I
Matt: hope you enjoy.
Matt: Bill you just got back from Markel. Yeah, why don’t you tell us about your experience there?
Bill: Well, I am involved a little bit, I don’t know about officially, but I have been since we started the whole thing for Robotic Securities has a morning handle session and three years ago they were looking for some people and Andrew Walker was kind enough to throw my name in the ring.
Bill: So I, I helped moderate, it was Bob, Andrew, and I, and then last year it was Andrew and I, and then this year it was myself and the managing director from Cove Street. So, so [00:02:00] anyway, I, I’ve become somewhat of a fixture in the morning session and I think I’m going to be back next year and I’m gonna start to do some events around the event.
Bill: So it’s kinda like a mini Berkshire. I think that’s what Tom wants. That’s definitely what I want. So, Tom Gainer, the c e o. So I’m I’m gonna, I’m gonna do my best to make it an event that, you know, if people don’t get to Berkshire, Omaha can be kind of a pain to get to, or, you know, eventually the inevitable is gonna happen to Charlie and, and Warren.
Bill: So, you know, we’re, I’m just kind of looking to start or help start another event that people want to go to a network. That’s one of my passions.
Matt: Sure. And so I think when you were, you said it was a meeting, Berkshire, I think you were talking about the event. Correct. But how, how do you think about Markel is the best way to think about it?
Matt: A admitting
Bill: Berkshire. Nah, I don’t think so. I don’t, I don’t know. I, I don’t wanna [00:03:00] say anything that’ll get me in trouble, but I kind of think of their equity portfolio as almost like a levered quality strategy that, that dollar cost average or averages. And then they have some specialized lines of insurance that I, I’m not, I, I don’t follow insurance nearly as well as some others do.
Bill: So I’m hesitant to have too many strong opinions on their insurance lines. I, I kind of wonder whether or not they’re gonna be able to remain as nichey as they get bigger. It seems like, size is the enemy of doing that, but they have a, they’ve got an equity ownership in Haggerty. They write some equestrian lines.
Bill: They do some, some interesting, you know, sort of off the beaten path type insurance. Activities, and then they’re, and then they’ve got their ventures. So, you know, I think that they have looked at what Berkshire has done and seen the power of it. [00:04:00] I, I don’t know that you can sort of do the, oh, this is a mini Berkshire sort of mental heuristic.
Bill: I’m not, I think that that probably understates what Berkshire is.
Matt: Okay. So, you, you’re talking about like, Markel has a number of niche insurance lines and like, I, I remember someone pitching in talking about like, you’re hosting a, a summer camp for 50 kids, you know, and they’re doing like water sports and all, you know, all these other activities and how do you ensure something like that?
Matt: And that’s where someone like Markel could come in and do like a very unique line. We’re talking about much more than just your, your typical, I own a 2020 Toyota Camry and I need it insured for these drivers kind of deal.
Bill: Yeah. They have like the Haggerty equity investment that they have, they.
Bill: Haggerty went public via spac and they participated in the SPAC with, I believe it was State Farm and, and them, and Haggerty ensures classic cars, right? So when you think about classic car insurance, it, it [00:05:00] tends, and I, I don’t know that that’s all Haggerty does, but that’s what they’re really known for.
Bill: You know, it tends to be people that, that treat their cars probably as well as they treat their children. So the probability that you’re gonna have massive insurance claims on, on that kind of a, of a asset, I think is kind of lower than average. And there, and there are not so many competitors that do it.
Bill: So your pricing is sort of maybe above where you might think the pricing would be if it were, if it were highly, highly competitive.
Matt: And you, you mentioned Markel Ventures, like what, what can you talk about, like, at least from a high level, like what they’re trying to do with that?
Bill: Yeah. So, I, I had mentioned I had Tom on my pod and he and I had talked about how I, I’m almost certain we talked about how long it takes to have some of these deals sort of come to fruition.
Bill: So they purchased a handbag company. They [00:06:00] have Costa Farms which does plants, you know, the outdoor plants. I’m pretty sure they’re the biggest supplier to Home Depot. They have a company that, that makes cranes and carries trucks. It appears they have a fire sprinkler company that does fly fire safety, which I guess the, the most analogous public comp would be apg, and that’s a ticker.
Bill: And, it’s kind of just one of those things that I think Tom is working on cultivating the lead gen so that he can buy. Privately owned businesses much in the way that Berkshire does. So that’s, that’s the playbook that they’re running. Fairfax runs the same similar playbook. I shouldn’t say the same, but I think Fairfax is, my perception of how they invest is closer to deeper value.
Bill: And my perception of how Markel invests is closer to quality, but everybody’s trying to get roughly to the same place, I think. Sure,
Matt: sure. [00:07:00] We talked about, you, you mentioned like trying to copy the event Berkshire does, I think you went to the meeting this year and I think you’ve been to several like how many Berkshire meetings have you been to and what are those Like for someone like me who’s never gone, but whenever I see it on Twitter every year, like people going, I always get a little jealous.
Matt: Like, how, how do you describe those
Bill: events? I think you should be jealous. It’s, I mean, it’s the single desk finance networking opportunity that I’ve, I’ve ever been a part of. So, to the extent that I am, Known or successful in what I’m doing or whatever. It all goes back to Berkshire. And, and specifically, it kind of goes back to one, one weekend when I, I asked Mario Gelli if I could buy him, you know, a beer after the Columbia dinner, and he sat down and he talked to me for like two hours.
Bill: And I met Toby Carlisle that weekend, and that’s, that’s kind of the catalyst that got me, or, you know, not the catalyst, but that’s how we knew each other. And then [00:08:00] subsequently, I was on value after hours for I think two and a half or three years and sort of started my own thing. So, you know, that it’s, it’s, I just, my, the, the story I tell myself about life is that it’s all about the relationships that you develop and not a hundred percent sure where.
Bill: Those relationships or whatever path I’m on is gonna lead. But I know that it’s been a fun experience of fulfilling experience. I’ve learned a lot and I tr I can trace it all directly back to Berkshire.
Matt: And you’re trying to mimic that type of event or trying to like I don’t know, mimic the right word, but you’re trying to create something similar to that experience like with, with Markel?
Bill: Yeah, I mean I, you know, I, I can only do so much, but you know, I, I hung out, I spent the, the week with Dan McMurry from Tyro Partners and you know, I think Dan is super sharp and he is from Richmond [00:09:00] and his family is a bunch of restaurateurs. So I think that, you know, should he return and I, I am fairly confident committing him to return next year.
Bill: You know, I think he and I have some ideas to show off Richmond around the event and. You know, it, it’s, look, it’s, it’s probably never gonna be Berkshire again, right? There’s only one sort of Woodstock of capitalism, for lack of a better term. But I, I’d like, yeah, I’d like to do my part to get allocators and managers and retail that’s really interested in investing.
Bill: You know, I think part of the beauty of Berkshire is the people that you bump into. There’s a lot of, of common ground, so conversation’s very easy to have, and I’d like to do my part to continue the tradition. I’m, I’m not, I’m not in any way gonna stop going to Berkshire, but, you know, I think it’s, it might [00:10:00] be a little bit easier if you have, like Tom Gainer is, is interested in creating that event.
Bill: So, you know, I think it’s, it’s very helpful to have a figurehead that. Is, has is buying into the vision as well. I’m, I’m sort of less clear on what Berkshire becomes down the road. Sure. Hopefully it stays the same and hopefully there’s two great events, but, well,
Matt: that’s what I was gonna ask you. Do you think the draw of Berkshire’s meeting anyway will end when Warren and Charlie are done, or do you think it will continue because it’s Berkshire?
Matt: Is it the company or, I
Bill: guess, I mean, oh, I think it’s Warren and Charlie, but I, I actually think the event could get a lot better because I, I think that it becomes a bit of a zoo when people just want to come for Warren and, and Charlie and they get away from the business. I, I think the quality of the meeting could go up a lot.
Bill: And one of the things that was very cool about Markel is the quality of person [00:11:00] that I bumped into. And I, I don’t, that almost sounds wrong coming out, but I mean, it it, it’s higher. It, it’s a higher. For what I’m looking for. I have a higher hit rate of people that are looking for something similar.
Bill: Berkshire, I think you get a lot of fan, fan boys and girls that are there to Sure say, oh, I was there when Buffet said whatever, and I got my life lesson and Right. I think for a lot of, I’m not that interested in, in that part of Berkshire,
Matt: for a lot of investors, it’s, it’s almost some sort of pilgrimage, right?
Matt: To pay your, like going wants, seeing Burg, seeing Charlie, seeing Warren you know, before they, before they pass on you know, kind of to, to pay your homage if you will. But it, it’s, it’s like, you know, for a lot of investors it, it is almost like a pilgrimage.
Bill: Yeah, I think it is. I, I think the investors that I I’m sure they’re great people, but, but the people that I don’t care to meet are the people that are there for the story of being there and not for.
Bill: What it represents to me. So [00:12:00] maybe that’s a little selfish to say that way, but, and I, and I guess I, I only went there cuz I wanted to, to say that I was there too. So maybe, maybe what I’m saying is really, maybe I’m the old man shouting at the people that are doing the stuff that I, I used to do, but, well, sometimes I think it’s a little bit like self promotional to be there.
Bill: And that’s, that’s not what it’s about to me or whatever.
Matt: Well, we we’re talking about the meeting, what about the investment case for Berkshire? What, what, what is the investment case, I guess, for Berkshire after Warren and Charlie
Bill: are gone? Oh, I don’t know. I mean, I, I think look, I don’t think that the probability that you get rich owning Berkshire
Bill: over time, it’s bound to happen. Does that perform? The s and p I think is a much harder question. And, you know, it’s, it’s I wouldn’t structure my equity portfolio like theirs is, but I mean, Buffett’s way smarter than I’ve ever been. So what do I know? I, I think that [00:13:00] the, the case is if you want to earn seven to 9% and you want protection against a number of potential adverse scenarios, and you don’t think the, you either don’t think the s and p offers similar protection or you’re one of these low cost based shareholders, I think that Berkshire makes a ton of sense.
Bill: You know, if I was young and I was starting out, I, I’d maybe look for something that is a little smaller and I had a more divergent opinion than the market I did the work to, to justify saying that. But, you know, for me it’s, it’s a decent portion of my net worth and. You know, to sell it and pay the tax and go into something else.
Bill: I’m just not, I’m not sure that that’s, I don’t know that the juice is worth the squeeze in that
Matt: decision. Sure, sure. That makes a lot of [00:14:00] sense. Let’s move on. We, we always, we always talk about a lot of big tech names. We’ve talked about Microsoft. No. Yeah, we do that, don’t we? And alphabet and meta an awful lot.
Matt: So, so let’s talk about this, like, Microsoft has publicly said, like, Satya Nadella has come out and said like, wait, we we’re, we’re going for search. We, we want to take market share in search. We’re we’re going for Google. And of course Google has come back announcing all their AI initiatives, you know, and how they’re gonna improve their products.
Matt: Like, like search, but like also Gmail and, and photos like all those things. How does that shake out?
Bill: I don’t know, man, I, it’s, it’s easier for me to see how AI can help office and that suite of products and improve office efficiency than it is for me to understand how AI is gonna meaningfully improve, certainly from [00:15:00] an economic standpoint, but maybe even just from a user standpoint, the search on the internet, I’m not, I’m not particularly optimistic about these chatbots and what they, what they do to the potential for Google’s revenues.
Bill: I, I’ve heard, you know, some, the, the common response when I mention that concern is, well, you’re gonna have sponsored chats and whatnot, but if that is the way the world goes, I, I fear that potentially you, you risk the trust factor. That, that Google represents to me at least. So I, I don’t really know. I don’t have a strong opinion.
Bill: I think in the past, my bias would probably be to say, I don’t know these answers, so I’m gonna sell and move on to something that’s easier. I think I have now defaulted to inaction more than action. So I’ve, [00:16:00] I’ve taken the opinion that I don’t have a strong take either way. So I’m going to sort of see where, see where the world goes.
Bill: But I am nervous that Google doesn’t have the kind of culture that maybe they need, should they, should their economics get attacked. I’m not, I’m not sure that there’s any meaningful evidence to say that they know how to respond to such a thing.
Matt: So, I agree with a lot of what you said, like I think the trust factor I is like a really big part of this.
Matt: You know, like it’s, it’s really cool to play around with chat. G P T and I, I just have the free version. I don’t, I don’t pay for the most updated version. It’s really cool. And, and to say something like, Hey, write a book report on the book Treasure Island from a seventh grade level, or, or something like that.
Matt: And I, I can obviously see like how that would’ve, I would’ve really liked something like that as I was going through middle school. That being said, like I would never trust it to like write a [00:17:00] stock report on Microsoft this week so I can publish it and say it’s mine. The, the, you know, especially,
Bill: I don’t know that it’s any worse than the average human though.
Bill: Maybe. Maybe. And this is still v1, right? Like I think in tech, the big mistake is looking at what’s currently out there and extrapolating that and not worrying. I mean, I, I, I’ve seen tech for long enough to know that the, the real question is how, how competent is this in. What year is it? 2023. You know, 2028 to 2033 is a more relevant question.
Bill: Very tough than how is it today? But
Matt: what I, what I was trying to go was saying like, I agree with you. It will definitely get better. You see where it’s going, it’s, you know, the potential is amazing. But to gain the trust of the consumer. Like there’s a, an example like where it says like, you know, you use one of these chat assistants to, to like book a flight to New York and book an Uber to pick you up from the airport and then [00:18:00] make reservations at the restaurant where your wife’s gonna meet you from her work and she, you’re gonna book her a taxi and say, just say that to the chat robot and does everything.
Matt: There’s a lot of trust that goes into that without double checking everything to make sure it didn’t make any mistakes or to get to the point where you do, you know, you don’t double check everything to see if it made any mistakes for something, for a task like that, I guess. Yeah.
Bill: But you know, Five to 10 years from now, who knows?
Bill: I mean, this is, this is where I think, this is where I can see a lot of the potential improvement for office users. And I think that if you can start to do professional things and, and chat G p T or whatever, I mean, it’s gonna be chat G p T, right? Microsoft’s not gonna do their own cuz they’ve got that investment in it.
Bill: But, you know, if that can start to meaningfully become a part of people’s work lives I have my, my societal concerns overall, [00:19:00] this, I think it could displace a lot of people and, you know, we’ll sort of see what happens if it comes for white collar jobs, but that’s sort of outside the scope of the current conversation.
Bill: Sure. I, I could, I mean, you know, I could see margins going up across the board. I could see Microsoft capturing some of those margins. I think that’s certainly how the stock is trading today or over the past couple months. So, We’ll see, we’ll see how it all turns out. Man, I, I have a fair amount of nervousness about it.
Matt: A fair amount of nervousness from a, like a big picture societal view or from view. Yeah.
Bill: Which I don’t think you can decouple, but, you know, we’ll see. Gotcha.
Matt: Le it, it is very difficult to decouple. Do you, so do you think this technology is, is bad for society overall, like in the next like 10 years?
Matt: Like is it, is it, or do the net negatives outweigh the net? Net positives?
Bill: I, I think that, [00:20:00] I think that maybe sometimes I have a potential worldview that sees the outcomes as too negative on these topics. I also think that, People that default to tech is great, have some real blind spots. And I think that I, I’m old enough to remember when people said how great social media would be for group, for everybody.
Bill: And I don’t think that we’ve, I, I, I think there’s been some fractures since the development of social media that make me a little bit nervous. And I don’t think that AI is gonna be that different. And I think we are, we’re playing with fire and out of fire. A lot of good things come and a lot of bad do too.
Matt: Yeah. You know, it’s easy to look back on like the Luddites or, or people have historically. Opposed technology and looked at like, Hey, look, [00:21:00] things like the, the, you know, like the cotton mill or factories and they displaced all these jobs, but look at all the progress that came from that. And that’s certainly true, however, for those people like living at that time, like it completely upended their lives, which is which is, it was horrible for them.
Matt: And it, you know, and you know, it’s easy again to just look back historically, be like, oh, well look, 10, 20 years later, everything was fine. And, you know, England was better off as the industrial revolution took off and the world was better off and all these progress came from it. But for those people living through that time, 10 to 20 years, that’s, that’s, you know, that, that, that’s a sizable chunk of your working career.
Matt: You know, like, your primes there, that that can be a really, you know, you have a family to feed, you have a family to support that, that that can be very scary going through that.
Bill: Yeah. Yeah. We’ll see, I, I think if you, if, if I could be guaranteed that these tools wouldn’t be used in politics, I’d be a lot more comfortable.
Matt: that’s a whole nother thing too, isn’t it? Yeah, yeah,
Bill: yeah. I mean, you know, I, I think with deep fakes and whatnot, the [00:22:00] complete, I don’t know how much trust exists now anyway, and I, I don’t know how many people actually seek out facts anyway, so may, maybe it doesn’t matter, but I think the, the chance to use people’s voices, I think the chance to have deep fakes, I think, I think there’s just a ton of, of risk of really destroying people’s lives and them not being able to, to come back to defend themselves.
Bill: I’m probably a little bit worried, cuz I think I’m a little at risk of that. But I’m not really nearly big enough to, to really matter. But, you know, it’s this, this could be some really bad shit, man. Yeah. So we’ll see.
Matt: For sure. So
Bill: let’s but I’ve been told by Silicon Valley not to worry, so I guess, I guess, it all work out.
Bill: It’s not like their valuations depend on me, not con not being concerned. Sure,
Matt: sure. Going back to more the investment case. How, how, like, you know, one of the ways I think about the Microsoft first Google is Microsoft, you know, or is Google gonna be disrupted? Like, one of the ways I think about that is like, I think we went [00:23:00] through this era where, you know, mark Zuckerberg started Facebook in his dorm room.
Matt: Steve Jobs and Steve Wazniak started Apple in a garage. I kind of think we’re past that. Like I don’t think the next big disruption’s gonna come from a, you know, a small person working in a, you know, a young college aspiring a college student working in a garage or dorm room or something like that. I think a big tech in general, it’s gonna be disrupted.
Matt: It’s gonna come from like, big tech. You know, I think the, the computing firepower it takes now is, is big and by holding competing positions like, or hedging positions almost in Microsoft and Google and Amazon, you know, like I, I feel like I’ve hedged myself against some of that. Disruption risk, maybe not all of it for sure.
Matt: Because there’s a, there, there’s a chance. This is just a race to the bottom or, you know, you know, Microsoft cannibalizes Google, but has to spend a lot of money. And maybe that doesn’t work out for shareholders, but I do feel like, you know, I’ve hedged a lot of risk [00:24:00] by taking positions in different big tech companies.
Matt: Do you think of that similarly, or, you know, how do you, how do you view that?
Bill: Yeah, I, I mean, I think that, that, I think that’s a rational way to look at things. I, you know, I’m, I’m more spending time wondering if, like, I, I talked to MEV Faber that that podcast came out today, and he does some, he does some angel things, right?
Bill: And one of the things that he said that he sees in the angel world that, that I don’t see in the public world is there is a lot of innovation in Venezuela and there’s innovation going on in Africa, and there’s, you know, what could come outta India and. I don’t know enough to have an opinion on that stuff.
Bill: What I do still believe is that valuations matter, and I, I think that Big Tech [00:25:00] probably works from here, but is not like demonstrably cheap. I think it’s probably gotta place in people’s portfolio, but I kind of, I’ve spent a lot of time wondering, you know, is is there a, a smarter place to play from a risk award standpoint?
Bill: And I’m, I’m not really sure what the answer is. It’s more just questions that I’ve asked myself. But, you know, small cap, foreign value, something like that. You know, I, I don’t know. Do they outperform that? Maybe, maybe not. And, and I’m not really sure how to handicap that stuff.
Matt: Sure. You know, we, I recently had a perf toll on.
Matt: From the, the freedom et t f and I think her approach is interesting, and I’ve been outsourcing more of my, like, exposure to emerging markets or just any international markets, more to ETFs. It, it’s seen, it’s, it feels like there’s probably more opportunities and foreign markets, but it’s harder too. And for someone like [00:26:00] me, like maybe who has a day job, like that’s pressed for time, like, I just find myself more outsourcing, more and more of my foreign investments to ETFs.
Matt: One of them is per toll, but others too, you know, and I, I, again, I, I think there’s op there’s real opportunities there, but it’s, it’s, it’s harder to figure out what those specific opportunities are. Yeah. I think without being on the ground and without being able to visit, you know?
Bill: Yeah, for sure. I, I, I couldn’t agree more.
Bill: And you know, like some that I think about, okay, so Spotify’s got all these users right? And. Okay, well how many of them, like what, what are you really selling these people? And maybe Spotify is not the right example. I apologize if anybody knows it really deeply and I’d say something that’s wrong. But, you know, to the extent that you’re selling advertising to people throughout the globe, I think there’s only a few geographies today that, that like that, that advertising’s really worth a ton.
Bill: Sure. To. So is there a [00:27:00] foreign ETF that trades at a reasonable multiple of earnings that gets me exposure to those people where I’m not paying 20 billion today for an enterprise that’s not generating any cash, and that those companies in that country or those countries are going to grow. And I’m gonna, I’m gonna get a lot of the benefit that I would get from having exposure to that consumer base.
Bill: Through those companies, and am I blind to that opportunity because Spotify is something that’s in front of my eyes and I’m not stretching my brain enough, is sort of what I’ve spent time trying to think about.
Matt: Sure. Yeah. No, I think that’s a, a smart way to look at it. And again, it just like when you read, you know, you, you read about people who have made like great investments or you know, you listen to people making investments in foreign countries and they’re always traveling there.
Matt: And I think that’s outside the reach of many retail investors. And I think that’s a smart way to do it, to make sure you have exposure. [00:28:00] You know, you talked about Fairfax before, you know, they have a Fairfax, India, which I had an investment in for a, a long time, and they also have Fairfax, Africa, and those are other ways, you know, to more of like, to have people vetting those investments for you on your behalf.
Bill: Yeah, I, I think the other, the other interesting thing, and I, I more have questions than answers at this stage of life, but the, the other thing that I, I try to think about sometimes when I see these things is, okay, so this, this person is a Fairfax, right? I mean, I, I, it doesn’t apply to them, but let’s say somebody’s pitching foreign stocks and they’re saying, I go here all the time and I do so much and this and that.
Bill: Well, like, I, I think, I think benchmark benchmarking a manager against what they’re doing. So if somebody’s telling you, I’m flying to Mexico all the time, and look at all the, all the investments that I’m, I’m making, I think, I think it makes sense to say, okay, well what are they investing in in Mexico, right?
Bill: So if they’re [00:29:00] investing in cheap and Mexican, then they should, they should be benchmarked against Mexican value stocks. And if they can generate alpha over that, then they may be worth. The fees, but I think a lot of people have a lot of incentives to tell you what they’re doing so that they accumulate assets.
Bill: And the investment business is different than investing. Sure. So
Matt: what do you mean? I know where you’re going, but explain that more. The investment business is different than investing.
Bill: Yeah. Well, I mean, if you can, if you can convince yourself or you can convince others that you’re doing something that others can’t do, and therefore you deserve 1% of assets under management and perhaps an incentive allocation above a hurdle rate, which in many cases is zero.
Bill: You know, I, I mean, just can an ETF do it better, I think is the question that I continue to come back to. And I, I think that there are plenty of people that [00:30:00] can outperform ETFs. I just think I, I’m just spending a lot of time thinking about, you know, the, the frog and boiling water. Doesn’t realize that they’re, the water’s getting hotter and hotter.
Bill: And I think as US investors, we have had a hell of a decade and two of the last three decades have been fantastic. And it’s kind of easy to say, well, it’s because our shit doesn’t stink. But historically this is a pretty big aberration and very few countries continue to outperform over extended periods of time.
Bill: So I’m just trying to figure out what do I need to do to navigate those waters? And it may, the answer may be to remain in the US but I’m, I, I, I have a premonition that it’s probably to diversify
Matt: globally. What do you say to people that you already get enough international exposure through this in P 500?[00:31:00]
Matt: Because so many of those companies make revenue elsewhere outside the
Bill: us. Yeah, I mean, I, I, I say that if that is, if somebody has given what I mean, not even what I’m saying, if, if somebody has sat down and they’ve figured out their own questions and they’ve got their own answers, then like, I, you know, good for them.
Bill: I, I think if that’s an okay answer for you, then that’s awesome. I’m just not sure it’s okay for me.
Matt: Is, is active investing worth it if you don’t beat the market?
Bill: Yeah. I, I think it can be, but I think you have to be honest about the fact that it’s closer to a hobby than a wealth creation scheme. If, if, and I, I, I don’t even think that, like the market as defined by the s and p is necessarily how you should benchmark yourself.
Bill: But I think I think it’s important to be honest about what you’re doing, how professionally you’re doing it, what you’re risking, [00:32:00] and what you want outta life. Would be the way that I would, I, I have thought about it. And, you know, I mean, for me, active investing has brought almost every source of joy that I have had.
Bill: You know, but I sh I should probably hedge. I, I mean, I spend so much time on the podcast and networking now that it’s, it’s very, very hard for me to argue to myself that I’m doing the work that justifies a fully active portfolio. So I, you know, these are probably some of the reasons that I’m asking myself these questions.
Bill: Sure. No,
Matt: I think those are any kind you can intro, intro, you know, any introspection for almost probably any endeavor in life is, is worth it. It’s something like, you know, like, especially as the market falls, I think a lot of individual investors are asking themselves You know, last time you were on this podcast, like almost three years ago now, and we,
Bill: oh, it’s a
Matt: long time.
Matt: It is a [00:33:00] long time. It is a long time. You know, we, when we talked about this subject then you mentioned, I was gonna pull up the exact quote, but I, I didn’t, but like you talked about, like, if it’s, it’s okay if you don’t beat the market, if it gives you enough conviction to know what you’re holding and not to sell it.
Bill: Yeah, yeah. I buy that. That’s, somebody smart
Matt: said that. All right. So that argument still holds Well,
Bill: I do, I think that the most important thing is know what you own. Sure. You know, and, and especially three years ago, I, I mean I probably, to my detriment, I have been very nervous about things that trade at mul revenue multiples.
Bill: Generally. I have started to understand some of the merit of why I should be less worried about that. But I think maybe these past. 18 months have taught people why that concern may have had some merit to it. So, you know, look, valuation matters, [00:34:00] and I, I think if you, if you were one of the people that, you know, spent $40 billion for a company that had a billion dollars in revenue in that billion dollars in revenue, had no free cash flow and any free cash flow it did have with stock-based compensation you know, then, then maybe you learned a good lesson.
Bill: And I, I hope that it didn’t cost you too much to learn it, but there’s, there’s also grains of truth that probably in what you believe. So I think, you know, this is a hard game and the, the styles have seasons and the seasons can go out for a very, very long time. And I think it’s very important for people to identify, you know, where am I in the season versus did I have the wrong ideas?
Bill: Versus you know, should I and, and should I change, right? Because I, the, the most detrimental thing that you can start doing is chasing the performance that’s working [00:35:00] today. I mean, that’s, it is one thing to, it’s one thing to switch because you change your beliefs cuz you thought about ’em and you’re like, okay, I was wrong.
Bill: It’s a totally other thing to say, you know, seven investing was hot back in the day and now this other newsletter’s hot. So I’m canceling seven, investing, I’m going to this other place. Like that is a great way to lose a ton of money over time. Continue. And I think it’s what most people do,
Matt: chasing returns is a, is a very popular thing.
Matt: I, and, and sentiment, I mean, you know, I was talking about like, I was, I was tweeting about this the other day, but just how sentiment, it’s funny like, even, even for us, so like last time, you know, six months ago or seven or eight months ago, I was on your podcast and we’re talking about meta. And at that time, meta, it was almost like, you know, it was under $100, you know?
Matt: Yeah. And and I believed in meta and I’ve talked about my thesis and I was still like, internally and like how I was expressing it, like a lot of doubts about like how Meta was gonna do going forward. It was, it was scary, you know? And well the
Bill: [00:36:00] financial results have not been like that. Good.
Matt: No, no.
Matt: You’re right. They haven’t,
Bill: A lot of people have changed their opinion, but
Matt: that, because now the price is up, so your sentiment changes, so now you feel a lot more better about it. But just funny how sentiment even with the financial results not being that different, it’s just how the sentiment has followed the stock price.
Matt: Right? Yeah. It’s now a lot easier to be bullish on meta than it was then, even though then it was at a much better valuation. And you had obviously, like, you know, you, you had a lot of potential upside Yeah. Which you might not have now.
Bill: Yeah. I think I think price drives narrative in a very big way and.
Bill: You know, it’s probably an argument to check price less. It’s definitely an argument to check what people say less, but you know, I, I do think to our credit I, I don’t think either of of us were too panicked about meta. I am, I’m concerned about Google that one and I’m not doing anything. But you know, I’m not adding, and [00:37:00] I, and I, I don’t think it’s screamingly cheap, but I hope I’m wrong, cuz if I am, then I’m, you know, I’ll participate in the upside of the stock.
Matt: Is that, I mean, we were already talking about Microsoft is, is most of that concern rooted in Microsoft or
Bill: they remind me of a family that’s always had too much money and now they have to figure out how to actually budget and you know, the, they’re, I’m worried that it’s the second generation of a family that has too much money.
Bill: There’s a,
Matt: sorry, I forget who, but somebody tweeted out the other day, like, you get the feeling Microsoft has run like a business and, and alphabets run like a university. Yeah. You know, where where money and profits have just always come so naturally and, you know, they haven’t had to worry. Like, to your point, they haven’t had to worry about like layoffs.
Matt: They haven’t had to worry about like, oh, I guess we’ll, we’ll fire the massage therapist now. Like,
Bill: yeah. And look [00:38:00] like, like people, first of all, cloud is turning right. So that, I mean, cloud is turning. YouTube’s an incredible asset. Kids watch YouTube a at least mind you as much as they watch as much as they watch tv.
Bill: You had 41% revenue growth through 2021. So you’re digesting some covid hangover margins should inflect up as cloud starts to get profitable. Like, I, I get it. On the other hand, you know, it’s It, it’s trading at a, at a, I have here on Stratosphere. I just pulled it up real quick. 2027 pe you know, a lot of people like to back out the cash.
Bill: I, I’m not sure that that makes a ton of sense because, I mean, Google has started to return some cash to shareholders, but historically tech companies tend to sort of keep that cash. But, you know, you’re paying 1.4 trillion that’s like, that used to be a lot of money and compounding off 1.4 trillion is not as easy as it is to compound off, you know, a billion or [00:39:00] two.
Bill: So it’s it’s a hell of a business. I think it’s probably priced like a okay business and I think it’s probably better than okay. But I, I don’t, I’m never more than 70% confident on anything, and I’m probably only 60% confident on Google.
Matt: Okay. All right. How where would you place Sacramento?
Bill: At these prices, probably around the same, but Meta’s, meta’s grown a lot.
Bill: I mean, I, I, I, I bought a good amount of meta right around, I don’t know, one 10 to, to somewhere I, I don’t know, call it one 10. Sure. But, you know, I owned it at three 15. So, when I say I bought, when I say I bought a good amount, I had a 3% position that became a small position and I, you know, quadrupled it to get back to normal allocation or whatever.
Bill: Right, right. But, you know, it’s, it’s it’s a meaningful position for me. I think reels is a very, very look, they’re very good at copying product [00:40:00] and I think that I think there’s gonna be a lot of pills and home healthcare. And high margin health services to sell on blue for a pretty long time.
Bill: So I think the prob, I think the probability that ne or that Netflix, that meta doesn’t do well here over the next 10 years is, is pretty low as a business
Matt: when, and so if you have alphabet in, in meta around 60% conviction rating by, by your own internal metrics,
Bill: I’m gonna pick meta. If, if I have to pick one of ’em, I’d pick meta.
Matt: What about Microsoft? Where do you give that?
Bill: I think, I think, I think Microsoft is certain to be a good business in 10 years. I, I don’t know how the stock does. Okay. All right.
Matt: Fair enough. I think one of the things, as I said in the introduction, to be
Bill: fair though, real quick. Yep. Should you outperform owning Microsoft? I don’t know. Right. Like if you make, if you can, if you can make [00:41:00] 7% on Microsoft and you can be fairly confident that it’s gonna be 3% real or whatever, like that’s a pretty good bet on a company like Microsoft.
Bill: You know, if I, again, if I was a young kid and I was like, I, I want to find a stock that’s gonna, like really, I wanna have a hyper divergent opinion. Microsoft’s not where I’d play, you know, I’m not a young kid. I’m a 40 year old guy with kids, so I, I, you know. Now again, does it outperform ETFs? I don’t know.
Bill: That’s a hard question. Sorry. I feel like
Matt: Microsoft might be the and, and let me explain what I mean when I say this, but like, I think Microsoft might be the version of a a, of a, of a tech, of a techy Berkshire, meaning they have like many different Diverse streams of revenue and it’s, it’s more a place to not lose money than to make money, you know?
Matt: You know, it’s not really That’s exactly to your point. You’re, [00:42:00] you’re, this is not a multibagger in the next year or two.
Bill: Yeah, yeah. No, I mean, and if it is, then, then I won’t be owning it. I recently sold half, I, I had a massive concentration in it, so, but you know, that was a mistake. It’s up probably 15% since I did so never sell.
Matt: There you go. I think one of the things as I said in my introduction, that like people like about you and how you’ve gained such a, a big following on your podcast and on Twitter is like just how you’re trans. You’ve been very transparent on how you’ve evolved and over the years and like following you on value after hours and following you now in your own podcast.
Matt: Just how, like, you, you, you started off as a, as a. I am not trying to put words in your mouth, but more as a value investor. And you evolved to the point where I think you saw the, the merits of growth investing. How, how would you, and you don’t have to use labels like value or growth, but how would [00:43:00] you describe your investment philosophy now?
Matt: Where are you?
Bill: I, I look for tax efficiency. So, you know, like, look, I think if value doesn’t work from here, then I, and, and by work I mean kind of materially outperform over the next, by call it 2029, then I think the value, the people that, that define value as the value factor and, and companies that they look for out of that factor are going to have to really answer some questions to themselves.
Bill: Now, if, if it is, if it occurs that. Every value company can just buy in 10% of their shares every year, and the market doesn’t reward them, and then they all end up with some huge special dividend at the, at the end of some tines. You know, then, then that, that will be fine for the people that [00:44:00] held, I don’t know that they’ll be in business anymore, but personally they’ll be fine.
Bill: You know, I, I think growth businesses that can reinvest their capital at high growth rates or moderate growth rates, but good returns on capital are objectively worth a lot more. I mean, you know, pick up the McKinsey book and look at what drives valuations or, or do any you know, study on justified PE ratios.
Bill: But your sustainable growth rate is the, the amount that you can reinvest in your business. Times you return, that you get on that. So, you know, business Greenblatt actually recently said, That he liked. I don’t know that he used Berkshire Hathaway energy, but I’m gonna steal, or I’m just gonna pretend he did, you know, a company or Berkshire Hathaway Energy.
Bill: One of the beautiful things about that is it, it can continually reinvest large sums of capital, maybe not relative to Berkshire, but it’s meaningful. It’s not nothing at 10% returns that are guaranteed. [00:45:00] So the probability that that’s not creating economic value, I think is, is almost zero. And, and you compare that to a company that needs almost no capital but is buying in shares instead.
Bill: You know, that, that I, I think you probably want the company that, that has real ability to deploy capital versus The capital light one. Then again, if you can find the capital light one trading at a multiple, that the one that, that is not capital light is trading at, you buy that all day. Cuz someday it should rerate.
Bill: So I don’t, I don’t know that that answered your question. I just, I’ve, I’ve talked to enough investors that classify themselves as growth guys. That, or, and, and, and women, though I wish I talked to more women. If there’s women that are listening that are professionals or whatever you wanna chat, hit me up.
Bill: But the you know, you look at a, at a firm, MD SAS is somebody I just talked to, right? They, they are not traditional [00:46:00] value. They own w w e, they own Formula One, they own a p, they own these higher multiple companies, but like they’re looking for companies that they have differentiated views on earnings.
Bill: My, my boy McMurtry, that’s very similar to my perception of what he does. You know, that that’s a, not only a valid strategy to me, I think that’s one that, that works. So, I, I don’t know, man, that’s a, it’s kind of ramly, but I just think that if you define yourself as a value or growth inve investor, the high probability that that definition does some pretty messed up stuff to your brain and your results.
Matt: No, I, I, I agree. Like, I, I, they’re, they’re probably, it’s very likely they’re more unhelpful than helpful. Like they’re, they’re, they’re, they’re, they’re way too short to describe something. I should probably be more complex than just narrowing it down to value or growth. Sometimes
Bill: I think of it like, if, if you were to say, do you wanna [00:47:00] own real estate?
Bill: Right? Like, let’s just talk about real estate, you know? Okay. So I, if, if I have to buy Class C real estate in the middle of Florida and I can get it at a 12% yield, But I gotta drive there and no one else wants to own it. I can’t buy that many properties. You know, is that, is that a better purchase than a plot of land that I can divide into three houses on the ocean that I, I’m spending an optically crazy price for, but I, I think in the future, I’m gonna be able to sell it for a really crazy price times four, right?
Bill: Like, one is not the, the classy real estate is not a, a value investment just because it yields more today. Right? The question is, what do both these yield plus how big of a pain in the ass is each to own? Right? And, and what’s the best bet?
Matt: I think that’s a, a good way to look at it. And, and to your point, like, [00:48:00] sometimes some companies, they’re, they’re probably not worth the pain.
Matt: Like they, you know, sometimes they just can’t get outta their own way. I think I’m, I’m learning that
Bill: Yeah. And then you’re constantly doing work. You’re like, am I wrong on this? Like, what’s going on? How, I mean, they end up taking up like all your time. Yeah. All your
Matt: bandwidth, right? Like you only have so much bandwidth for the companies in your portfolio and to look at new ideas and for everything else in life.
Matt: And if you’re always spending your time on this company to make sure you’re not wrong or you know, if you’re right or, or what’s going on. Like, it, it might, you know, sometimes you just gotta put in the two hard pile. And I think I’m coming around, I don’t even wanna say it because I’m just coming around, but to some companies I’ve owned for a long time that might be in that pile and I’ve been hesitant to put them there.
Matt: And but like I’m beginning to recognize like maybe they’re more complicated than I gave ’em credit for, and now I have to figure out some things that I think will take a long time and almost just like, I don’t know if this is worth it. I don’t know if I can know, even if I take a long time to work it out, I have no confidence [00:49:00] in my ability to say like, oh, I got it right then.
Matt: You know, just very hard questions out there like, Well, let’s just throw out like, like Disney and like trying to figure out like streaming economics and like, you know, is it better for them? Like was the older business model better
Bill: for them? Oh, it was a hundred percent. I don’t think that that’s a, that’s a doubt.
Bill: But I do think an interesting question is, can, can they, can legacy media companies figure out some partnerships to rebundle and recapture some of this? You know, that can, can Disney, this is a question that I posed in a, in a group chat. So say Disney’s offering is X and Warner Brothers is y Can Roku offer you that bundle at 90% of X plus Y and reduce turn for both and discount things to, to people.
Bill: In a way that reduces churn and drives economics again. Well, isn’t it? I don’t
Matt: know. Isn’t that what Hulu was supposed to do? I mean, like, Disney owned a [00:50:00] third and like, yeah, he owned a third, you know, they, they, there’s all these, and it, you, you just wonder like yes, I do believe at some point somebody’s gonna see the value in bundling them.
Matt: Again. I don’t know, maybe that Bundler is Netflix and I’ve never owned Netflix. Much, much to my chagrin.
Bill: Yeah, I mean, I, I think my version of the world is Netflix eventually is like a 35 to $40 product in today’s dollars. And you just have Aless bundle. Yeah. Which is ironically what, what David Zaslav always said he wanted when he owned Discovery.
Bill: But now that he has sports, he kind of has shifted his tune on that. But, you know, you gotta, you gotta sell the cards. You have, you gotta roll with the punches.
Matt: Yeah, that’s right. Yeah. You gotta adapt for sure. But yeah, I just wonder, so like a company like Disney, which I’ve owned since eight or nine years now, And I just was always like, well, the intellectual property, it, that’s the moat and that that IP is not going away.
Matt: And now I think it’s a much harder question [00:51:00] than how I’ve simplified it for that time, which, and by the way, in that time it’s, it’s barely moved, you know, it’s, it’s drastically lost to the market.
Bill: Well, I, I, so that’s one that I think you gotta look at, like, what do I think normalized free cash flow per share has done?
Bill: And, you know, over time, do I think it will grow? I, I have largely avoided the media carnage, but I found my own carnage, so I am, I am no better than anybody else. There’s
Matt: always carnage to
Bill: find somewhere. That’s right. Yes. I, I found mine in cable stock. So
Matt: There you go. There you go. Yeah. But yeah, so like Disney’s one I’ve been wondering about and just like, you know, and it makes it hard though because there was covid and that affected the parts, and now there’s been a rebound.
Matt: How much of that rebound is real versus how much of it is you know, just a bounce back from Covid. And then, you know, you, you, you still have the linear tv, and how fast is that gonna die off, and how fast is that gonna be replaced by streaming? And it’s just becoming a much, much harder company than I ever gave it credit for.
Matt: And I’m beginning to wonder if [00:52:00] if it’s worth one, if it’s worth the work to stay in it and to really be, to try to be confident. And two, I don’t know if I can be confident, even though I put in a lot of work there. I don’t know if I can be confident, confident if I reach any out, you know, in any outcomes I reach.
Bill: I thi I think the, the interesting thing for Disney, just like philosophically is. You know, yeah. The IP is, is great, but they’ve also needed some pretty big acquisitions to protect their, their cultural relevance. So I don’t think the IP is endowed with winning. I think, I think it’s objectively I think it’s objectively true.
Bill: I think people say Iger is a great c e o in part because of how he’s, what he’s done strategically for that entity. But he, I, I have just watched him for years, hollow out the C-suite below him and undermine any potential successor. And then when he handpicked a successor, undermine that person while his handpicked successor was there.
Bill: [00:53:00] And it’s just
Matt: very interesting. So wild. That story is so wild.
Bill: How, meanwhile, he is on a book tour, right? And everybody’s celebrating how great he is and, and he may be I’m, I’m just a guy, but when. It’s, it’s just an interesting set of facts, man. It’s objectively not a business that an idiot could run.
Bill: And I, I, I don’t know that, I mean, the nice thing is I don’t believe Iger is ever gonna leave. So, you know, you got however long he lives, right? So maybe, maybe he gets him through the next 10 years and then he hands the reins off and then he undermines that guy, but then he dies in the process and you can, beyond all this stuff, very tall ending.
Bill: Yeah. But like, I, I just, I, I don’t know. It’s, it’s super interesting. I think PayPal has, from what I understand, a little bit of a leadership void right now too. But that one, at least I think you have a more concrete end
Matt: to They do. You’re, that’s a, that’s a sore. That can be, PayPal can be a sore subject for me, but the CEO should be leaving by the end of the year, and I think that’ll be [00:54:00] very Good for PayPal.
Matt: You know, I, I really like some of their assets. 435 million you know, active users, 400 million consumers, 35 million merchants. Connecting those two I think can be very lucrative. I, I think it’s merchant solutions are vastly underrated. Like we, you know, people talk about addon or people will talk about like, Stripe, I, I think Braintree belongs in that conversation with any of them can be just as good.
Matt: And those, those companies don’t have the consumers to connect to them. So I think it’s like very interesting assets that has
Bill: been, why don’t they just break it out? Why don’t they show you what Braintree does? Well then
Matt: that’s one of the problems I have with management. It was my fault was I think, well, what I’ll say is I think the bull market before Covid hit The current management shortfalls and shortcomings because, you know, oh, they’re growing accounts.
Matt: They’re growing [00:55:00] transactions, they’re growing payment volume. Alright, good. Good, good, good. A lot of that was probably just being in the right place at the right time. And again, they had a nice bull market, you know, gave a great tailwind for them as the economy was digitizing. That being said, like management has made a number of mistakes.
Matt: One, not being transparent with investors for a lot of metrics. I don’t understand why we get Venmo metrics and that’s the only thing they’ve ever really broken out. They’re selling Zoom now, which I was, you know, it’s only like I forgotten about Zoom, but I was very bullish when they bought it. Going back to right around the time they got spun off from eBay and they, I don’t think they’ve mentioned it since, besides maybe a rare passing comment here or there where it was.
Matt: Among a list of other things they, they talked about you know, it, it just, and then they gave guidance at the height of the pandemic. That was just wild, wild guidance. And
Bill: then within 12, they weren’t alone on that. I mean,
Matt: I know, but [00:56:00] they were probably the most egregious of it. Yeah,
Bill: they were, but, I’m not trying to point the finger at you, but it is the analyst’s job to figure out if that guidance is crazy.
Matt: You’re right, you’re right. No, you’re right. I, I, I, I
Bill: got love for you. I’m not trying to, I’m not trying to say that it’s all said in love. I mean, here’s the crazy thing about it though. You know, I, I’m just doing the math. I mean, t t m they’re operating income is up 52% since 2019. Like, I mean, that’s pretty good growth for a company at like, what a 13 PE.
Matt: And they’re at a cheaper price now. Like, so
Bill: from here, I mean, now, now, now they’re on an earnings multiple. That’s, you know, you’ve gone down, down the optimiz. Well, so
Matt: they were always so I’ll, I’ll say look, I think they were always on an earnings multiple high earnings multiple. Yeah, but not like triple digits.
Matt: I mean, just high, you know, like 40, 50 pe now, well now you’re through the compression. I think you are. I think you are. I think you are. And new managers should be coming in. There’s a [00:57:00] lot of activist investors there. I think pushing them in the right direction. I think you do well from here. Is Elliot in that?
Matt: Yes. Yes he is.
Bill: Mm. It’s probably Jesse’s position. I say it like I know him. I don’t know Jesse Cohen, but Yeah. Huh. Interesting.
Matt: But like, my regret in, in you know, like. I didn’t, I, I knew, obviously knew it was overvalued during covid, you know, I think the stock price reached $300. And you’re like, wow, this is, this is really expensive for them as it as a already historically expensive company.
Matt: This is like double, I mean, this is like double, triple what they’re normally valued at
Bill: bubbles are hard. Man. Didn’t do anything about it, but I didn’t, bubbles are hard.
Matt: I just held it. And same,
Bill: same thing happened to me on charter. I mean, I’m looking at the stock at 800. I like a duos. I, I sold it and then traded into a lower quality version and then I got really hammered, but thank God I gotta add lts somewhere around 19 or something.
Bill: But I mean, that was after I bought it at like, I don’t know, 28, 29. It was, it was horrible.[00:58:00] But the, I think the, I think the thing that is hard about a bubble, and I realize that all bubbles pop historically and whatever, but when you’re looking at where things are trading… look, in retrospect, oil was super cheap and people were telling me oil was super cheap.
Bill: You know, I’ve talked to, I, I recently talked to a CEO that’s in that industry and I said, what, what keeps you up at night? And his response was, well, throughout history, oil has never been a rational industry. So why is it now? So I’m gonna sell a company that I really like to pay taxes to buy an industry that, you know, it look in retrospect, obviously, right?
Bill: The right call. I mean, no doubt, the right call. But I think the harder question now is if you’re long oil, do you start looking at something like PayPal? And do you wanna pay the taxes on oil to get into PayPal, which is arguably a mismanaged [00:59:00] situation, and you got some turnover. Or you can, people say oil’s cheap, could be.
Bill: You know, we’re not exactly trading at cheap valuations on it either, and somebody would be like, well, it’s five times cash flow. Well, I mean, look at 20 years of cash flow and normalize that and tell me what you’re actually capitalizing. Right? Sure. And then, well, they’re not gonna ever bring capacity on it.
Bill: Okay. I mean, that could be true and flies in the face of history.
Matt: Right, right. Well, this time it’s different bill.
Bill: Yeah. And look, that’s, I think, I think we’re all guilty of it. And I think Sure. I think the nice, the nice thing about living through a bubble and then a pop is if you are either young or survived relatively unscathed, you know, you reflect on it and you get better over time.
Bill: It, it’s my buddy says, so what now? What? Right. That’s I think that’s the thing to ask. Like, so what? All [01:00:00] right. Learn some lessons now. What Apply ’em. I think that’s,
Matt: that’s, that’s definitely good advice to, to learn your lessons, and that’s what I’m trying to do. Looking back at the mistakes I made during the covid bubble, for lack of a better term.
Matt: And hopefully, hopefully I learned ’em we’ll, we’ll see how that goes.
Bill: Well, and, and not to dominate the conversation here, but I’d encourage listeners, especially if you’re learning, you know, your mistakes are not made by price, nor were your nor were your good feats made by price, right? So, my buddy Jake’s got a, a free platform journal, lytic, if you want to use that.
Bill: If you don’t want to use that, use something else. But I think it makes sense to write down why you’re doing things and then go back and look back and say, okay, well what was a mistake and where in this was there a mistake and how can I change that going forward?
Matt: Journaling your thoughts as an investor, having a place to write ’em down so you can go back I think is so valuable.
Matt: You know, I’ve [01:01:00] been fortunate because I’ve, you know, I’ve written so much about stocks I follow and things like that. You know, but for most people, like, I think that journal, lytic app that Jake’s doing is great. We had him on, if you’re not familiar with that, go, go back and listen to the, the episode where I interviewed Jake Taylor a few months ago, earlier this year.
Matt: But like, yeah, writing down your thoughts somehow, some way in whatever form works for you, I think is a very valuable
Bill: exercise. Yeah, I think it’s, I think it’s somewhat what podcasting has done for me. And I listen to some of the stuff I say and it’s cringey, but that’s good. That means you’re growing.
Matt: Let me, let me, let me, let’s, let’s end on this then. You’re talking about your podcast you know, When you were on three years ago, your Twitter following was a lot smaller. You didn’t have your own podcast to, which I’m trying to say like being on my podcast is obviously what propelled your fame.
Bill: Yes, that is true. I appreciate that. [01:02:00] I don’t know that I’d call it fame, but Yes. Well, you have some kind, the small corner of the world. Some people know me,
Matt: some people know you. In a small corner of a world, more people know you than used to. How has that impacted your process? Do you think it’s helped or hurt
Bill: or, well, it’s objectively hurt me as an well, I, I, I actually don’t know that that’s true.
Bill: I have not, I, I, I don’t do enough to call myself a real investor. I, I know what people that are public market investors professionally, I have a better understanding of what they do. And I, I. I respect what they do too much to, to put myself in that camp. On the other hand, I have a different type of investment now, and I, you know, I, I don’t know where, where the business will go, but I know that I get a ton of enjoyment out of connecting people.
Bill: And I know I get a ton of enjoyment out [01:03:00] of, of doing the podcast, and I’m certain that people have raised capital off of the podcast, and I’m certain that listeners get a lot of value, and I’m certain that I need to figure out how to capture some of that value. But, you know, now is not the time and I’m, I’m still, I’m still trying to figure it out.
Bill: So my version of investing is trying to put out a good product and build my network. And, you know, like at Markel, I, I, anyone that I knew that I thought should talk to each other, I, I had made like a concerted effort to make that happen. And I think that’s, that’s probably my best role in this ecosystem.
Bill: And I suspect, I mean, my bet is that that will have a higher return on cost and time than doing the public market stuff as much as I used to. So to the extent that, you know, it’s, I, [01:04:00] man, I don’t know this, I’m rambling, but this is my brain. This is how it works. Imagine living in it. The other, the other thing is like, I get pitched a lot of stuff, and I think that you know, Olin and Pharaoh Globe right now are two things that people that I respect think are cheap.
Bill: They’re not, they’re definitely not high quality as traditionally defined businesses. Olin is a caustic Soda pro production producer. And Pharaoh Globe is like a mining company that has an inflation reduction act, PL Play to it. You know, look, are, are those, are those a worth the time? And b, if those are good ideas, how many ideas are like that?
Bill: And then do they screen in the value factor? And does the value factor outperform? That’s kinda like where my brain has started to go, right, is how many of these ideas look the same and are coming from the same basket. And I, I guess if anything, man, I’m starting to become more of a quant than, than than [01:05:00] anything else.
Bill: But I think trading factors is every bit as hard as trading stocks. So I, you know, I, I haven’t done much and I, and I actually think I’m probably a better investor now that I do a lot less. Have you read the Morningstar piece, how to outperform the s and p 500 where it said just buy market, like basically if you just created the s and p and then never touched it, you had outperformed the s and p.
Bill: Because you
Matt: don’t like re rebalance it or like, correct. Like right
Bill: in the s and p rebalancing, the s and p takes away from the performance. Now, you know, if I’m writing the, why is this article wrong? You say, well, that’s after some massive runs in the biggest companies. But I think it’s an interesting thing to think about.
Matt: No, I think that is very interesting to think about. That’s a probably a good place to end this Bill, I guess. Unless you wanna
Bill: keep talking, man. I’ll chat with
Matt: you all day. I’ll talk to you for a long time. [01:06:00] Yeah.
Bill: I, you know, I don’t know, it’s I hope, I hope people got something outta listening to me ramble.
Bill: But these are the thoughts of a tortured bind that talks to a lot of people.
Matt: No. Well, I think I speak for a lot of people when I say we always like hearing you ponder on these things because again your, your, your transparency of what you’re going through and how you think and your curiosity I think is very valuable because you don’t, you know, you’re not dogmatic about any style or any position.
Matt: I think that, and I think that helps. You know, I’ve tried to be better about kind of taking on that own tone when talking about investing and things like that. And I, it’s definitely helped me with that.
Bill: Well, something I’ve always enjoyed talking to you about is no matter how growthy you have gotten in the past, you’ve always respected valuation.
Bill: And we’ve always talked about valuation and we’ve always been like, okay, well can this company grow off of this? Well,
Matt: yeah. Yeah. We, we talked about like how like you kind of came from the value camp and I kind of came from the growth camp, but we always [01:07:00] were kind of attracted to and curious about like the other camp.
Matt: Yeah, I think that’s where we meet. Yeah.
Bill: I don’t identify as value or growth. I identify as someone who wants to make money. So, you know, I thi I, I I continue my hypothe You wanna
Matt: be right? Or do you wanna make money?
Bill: Yeah, my high, my hypothesis continues to be that probably big and cheap and small and expensive are, are, I’d, I’d like to see studies that are done over, over those things.
Bill: Cuz you know, I got a, I got a lot of respect for how, how David goes about his thing, David Gardner, but you know, his, he like I this goes the investments versus the investing or the investment business. Right. He has a subscription company and I think anybody that doesn’t recognize, and I, I don’t, I think I said this to him, anyone that doesn’t recognize that, that the product that is being sold is the subscription and.
Bill: [01:08:00] Think about how that, how that might color the incentives of the person that’s talking. Not e not even in a bad way. Like it, it could be these people, like if I, if I go to monetize what I’m doing, I’m going to ask people for money for telling them what I truly believe. But I think if people don’t then listen to me and think, well, he’s trying to get paid for this, then they’re not analyzing things correctly.
Bill: One of the things that I think is like nice about the current version of whatever I have going on is I, I don’t have any incentives other than to just be me and I, I think that that is played in my benefit.
Matt: No, for sure. For sure. Let’s, I don’t know,
Bill: it’s my last thought. I
Matt: guess. Let’s, let’s end there. No, that’s a great place to end it.
Matt: Like some good thoughts. Bill, thanks so much for coming on today. If people are interested in following you, where can they find you?
Bill: Oh, Twitter at, at Bill Brewster, T B b. And you know, if you, if you do listen to the [01:09:00] pod, leave it a review. I would be very, very appreciative. If you hate it, please gimme a five star and then leave a comment on why you hate it.
Bill: You know, the one star is you can, we can do without those folks, but that’s okay. If you don’t like me. I get it.
Matt: Well, bill, thanks for coming on. Again, I’m Matthew Cochrane, lead advisor with 7Investing, and we’re here to empower you to invest in your future. Have a great day, everyone.
Bill: Have a good one.
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
Anirban and Matthew were joined by Alex Morris, creator of the TSOH Investment Research Service, to look at seven former market darlings that have taken severe dives from...
On episode 5 of No Limit, Krzysztof won’t let politics stand in the way of a good discussion - among many other topics!