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Value Investing in a Down Stock Market with Tobias Carlisle

7investing lead advisor Matt Cochrane chats with Acquirers Fund managing director Tobias Carlisle about value investing opportunities.

April 6, 2023 – By JT Street

Without living in a cave, it is nearly impossible to avoid today’s negative headlines. Inflation persists and the Fed continues to raise interest rates. Russia is still at war with Ukraine and has openly talked about deploying tactical nuclear weapons. Many believe a recession is imminent. These negative events have taken their collective toll on the stock market as the S&P 500 is still off 15% from its all-time highs.  So what does this mean from a value investing perspective?

Tobias Carlisle joined 7investing Lead Advisor Matthew Cochrane this week to help us walk through these challenging questions. Carlisle, the founder and managing director of Acquirers Funds, believes that while the indices are still not “cheap”, valuations are down overall and there are plenty of opportunities within the stock market for both growth and value investors who are willing to dig. Carlisle said while he is fascinated by macroeconomics, he does not let it affect his investment process.  

Cochrane asks Carlisle about the high number of basic materials and energy companies currently inside the The Acquirers ETF (NYSE:ZIG). Carlisle notes this is not due to any love for these particular sectors, but that even after recovering from the absolute lows these industries feature some companies that are still trading at multiples of just 2-3 times earnings. Even after accounting for their inherent cyclicality and political headwinds, he believes their valuations provide enough of a margin of safety for investors to find decent bargains.  

Carlisle used Micron Technology (NASDAQ:MU) as an example of one company in his portfolio. Even as it reported bad earnings, the stock rallied because its low valuation had baked in very low expectations. Carlisle calls this the counterintuitive nature of deep value investing. Cochrane contrasts this with stocks that reported great numbers throughout 2022, yet continued to be punished by the market, mostly because their lofty valuations had baked in such fantastic expectations it was almost impossible for real life results to measure up.  

Carlisle and Cochrane then dive deep into Meta Platforms (NASDAQ:META) and Domino’s Pizza (NYSE:DPZ), two stocks in which they currently both hold long positions.  

Full Transcript:

Greetings fellow investors. I’m Matthew Cochrane, a lead advisor at Seven Investing, 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 Tobias Carlisle.

I think this makes his third appearance on our show. Mr. Carlisle is the founder and managing director of Acquirer’s Funds, where he serves as the portfolio manager of the firm’s deep value strategy. He’s the creator of the Acquirer’s multiple. He’s also the author of several books, including The Inquirer’s, multiple Concentrated Investing, deep Value and Quantitative Value.

Toby is also, of course the co-host of one of the best investment podcasts out there, value After Hours. I highly recommend it. I listen to it every week. Toby, welcome to the show.

Thanks for that very kind introduction, Matt. Good to see you

again. Good to see you too. Toby let’s just start here.

Like looking at the big picture of everything. I’m gonna just share my screen for a second, but the headlines almost write themselves right? With bad news. And it’s not like that it’s ever hard to find bad news in headlines. That is how the news gets clicks.

We have high inflation we have rising interest rates. We have bank failures. Of course. We still now have Russia’s still involved in a land war, and they’re talking about deploying tactical nuclear weapons. The bad news is everywhere. And as far as it, this relates to the stock market, oh.

We also. Inverted treasury yield, which I know you’ve tweeted about and you talk about at times which might suggest at least according to the historical record, that a recession might not be too far off. So we have all this bad news and as far as like it relates to the stock market, we’ve seen that now like over the last three years right now the s and p 500 is down 15% from its all-time highs.

And you’re a value guy, but value has outperformed during this downturn. It’s down 11% from its all-time highs, whereas the Russell growth is down about 22%. So almost double. What value is down? I don’t know about you, but people always ask me like how I invest during times like this.

And this probably best describes my strategy right now, or not my strategy, but my process. Like I’m just uh, whenever I think of sucks attractive, that means it’s probably about to drop 25%.

Totally. Yeah. I’ve got the same affliction, I’ve got the same ability to identify things that are just about to go down.

It’s a

gift. It’s a gift. Is how do these macro factors though, like weigh on your investment process? Like we have all these things going on. Do you tune that out completely? We’ve talked about your process before do these things. How do these things, I guess way?

So that’s a, I think that’s a good backdrop cuz I’m interested in some of those things too.

As you said, the inversion various other things. But in terms of my process is very simple and I think that the books that you would. The books that I have written that you mentioned earlier, pretty good. Overview of the way that I invest it is quantitative, it is concentrated deep value, and the primary metric that I like to use is the acquires multiple, which is the metric that private equity firms and activists use to get the most holistic kind of look into what a company earns versus what it costs to buy it.

And the reason that those guys like to use them as their capital structure agnostic, they don’t really care about the mix of debt and equity in the business because they can impact those things after they get in control. So it’s the best way of looking at what does this, what sort of operating income is this business generating and what are we paying for that operating income?

Because often we forget that there’s lots of potentially some debt out there, some debt like instruments, like a preferred. Stock, which has a has a coupon rather than a, an interest payment, but, or has a dividend rather than a coupon. But it’s still there’s an obligation to pay it as if it’s dead.

It’s just you don’t, you’re not punished as badly if you don’t, if you don’t pay it. And then there might be minority interests and various other things that you have to look through to determine what you’re actually paying for the business and then what you’re getting out of it. On the other side, I have often compared my own strategy to the magic formula just because I think that’s a one that people are familiar with, but that’s Joel Green Buttz and he looks at return on invested capital is the other metric that he looks at.

In addition to the acquirers multiple, I have found that using that tends to add this cyclicality into the portfolio rather than a counter cyclicality, which is probably more what you want. And what that means is that it tends to, when things look most attractive at the top of their cycle, that tends to be when.

The magic formula finds the most attractive, whereas the acquires multiple is just looking for things that are absolutely cheap. And so the risk is always that you buy something at the top of the cycle and it’s just, it’s had an unusually good period of earnings, but everybody knows that the earnings are gonna come down.

And so it’s trading cheaply. So it looks like it’s trading cheaply on a multiple basis, but it’s not actually cheap. I think it’s very hard to avoid those kind of stocks. I think that for the most part, buying something where that happens is okay, because that’s a little bit, that’s what value does.

It buys stuff where the, they’re depressed in a sense, and the market is right, that the earnings are gonna come down. But there’s multiple expansion as that happens cuz the mul market just tends to be too pessimistic about what the earnings will eventually do. And you can see that quantitatively.

There’s lots of analyses out there that will show that’s the case. And you could contrast that with growth where people. Think that the earnings growth is gonna be very good and they tend to be right, that the earnings growth is good, but it’s never quite as good as they expect it to be. And so they have multiple contraction with earnings growth.

Whereas value tends to have multiple expansion with per perhaps earnings decline. But that’s all investing, I think, is essentially handicapping. So you have to work out what you’re getting for what you’re paying. It’s not, when you go to the racetrack, it’s not the fastest horse that you want to bet on necessarily.

It’s the horse that you’re getting the best odds on for the likelihood of where it comes. And that’s true of investing, which is why you can make money buying ugly companies with bad businesses if they’re sufficiently cheap. Now that was heresy for a few years there, 19, 20 19 and 2020.

You weren’t allowed to say things like that, but that has been the case forever. So my process is I have I take all the stocks that are in the universe that are available. So my funds are a domestic US equity fund. That’s mid-cap and large cap, and then a domestic US equity fund that’s small and micro.

And it’s the same strategy. It’s just divided into two, two universes. So I can take each universe and then the first thing that we do, we eliminate anything that we can’t calculate an intrinsic value for, or there’s some massive downside risk. So we look at statistical measures of fraud, statistical measures of earnings manipulation and statistical measures of financial balance sheet, health comp, business health, how much of the earnings are actually turning into cashflow, cuz that’s lots of the big frauds.

The funny thing is you find, when you find. One of these metrics blowing up, you’ll find that they’re all blowing up at the same time. It just seems to be what happens. Nobody needs to, you don’t need to manipulate your earnings if you’re doing really well. Sure. And if you start manipulating your earnings, then it’s a very short step to outright fraud.

So they all tend to cluster together. For the most part. The sort of stuff that I buy doesn’t go anywhere near those kind of companies cause I’m already looking for lots of cash flows. So they’re different universes. But I do that exercise just to make sure that there’s nothing that slips through the cracks and gets into the portfolios.

And then I’m looking for the things that are absolutely cheap, generating free cash flows, and have the potential to be better businesses than they currently are down the road. Because I think that’s the, that’s a little bit of the trick is to find things that are closer to the bottom of their business cycle that will look a little bit better.

Over the next few years as the, as they come out of whatever trough they’re in and can survive. And I really think that’s my sort of primary focus is make sure that the company can survive and then hope to get lucky on the other side. If I’m digging that’s a very simple way of saying it, and it might sound a little bit flippant, but it’s actually entirely true that I think there’s so much randomness and luck in the market that you’re best focusing on the things that you can control, which are, you can go through and find these things that there’s things out there that are obviously dangerous.

They have business models that can collapse. They have balance sheets that can collapse. And as we’ve seen recently with some of these bank failures, it’s not so much insolvency itself. That is the issue. There are lots of insolvent companies out there. So insolvency is just an excessive debt over assets.

Most of the time it’s not a problem. And in really strong market, Insolvency is like a leverage buyout. Like it just pays itself off over time and you get a lot of your return just by paying down the debt. But you have these periods in time where there’s a catalyst and that’s a liquidity crisis, and it then you, then your insolvency becomes an issue.

And so that’s why I just try to avoid the insolvency insolvent companies. Like I prefer cash to debt. So the, but that’s the process. Look at the entire universe, eliminate the dangerous stuff, try to hold the stuff that’s generating the most kind of cash flow on its assets as well. And just rebalance on a regular basis with the objective of surviving and hoping that at some stage will get tailwinds for the strategy.

So you there’s a lot there like I, I kind of want to pick at, but let’s start with this. So when you’re when you’re looking out there now and for years you I’m being a little flipping here, but you of bemoaned the fact that the value stocks weren’t getting any love and like they were like for lack of a better term, like losing to growth, right?

Just underperforming growth by, by, by so much. When you look out there now, do you think this is a good time to buy stocks in general? Some, just speaking anecdotally retail investors, it seems like a lot more lately are that I talked to again, all anecdotal, just seemed very hesitant to buy right now.

Yeah, so there’s a little bit in that too. So I would say, I, the index itself looks to me to be. And so if you look at any of the longer term measures like the shi pe which is also known as the Cape or the cyclically adjusted pe, which takes a 10 year inflation adjusted average of earnings and compares it to the current price.

And the reason that you do that is you have events select 2008, where the bank earnings were. So banks made so many losses that it wiped out all of the earnings for the s and p 500. And so you had a no earnings for the year. And then you had this infinitely high PE as a result at one of the be very best times to buy stocks ever.

And so the single year PE is useless for that reason, whereas the SHPE, at least it’s said, Hey, this is like under the long term average, this would be a good term to buy. And it told you in 2000 right at the very top, this is, it’s never been more expensive. It’s imperfect for a variety of reasons. It’s not a very good timing metric, but it does tell you something about Ford returns for the index and the Ford returns for the index are better now than they were.

A little bit over a year ago, but still pretty low on a very long run basis. Now, there are plenty of criticisms of the Philippe which I won’t get into here, but one of them would be that the businesses that make up the bulk of the index these days, Facebook, Amazon, Microsoft, these are exceptionally good businesses that we’ve never seen anything like before.

They’re much, much bigger than anything we’ve ever seen before as a proportion of the economy. They earn so much more on assets. They seem to be pretty consistent growers. All of those things mean that it might be justified that the should appear is so high and you can use any other metric that is a.

Long run metric like that. So you could take Tobin’s queue, which is the replacement value of assets over the market, value of assets when the market will pay a lot for assets that you can find. Otherwise you’re paid to be an entrepreneur and to sell into that market. And vice versa. When the market won’t pay for trades below replacement assets, you should be an investor at that point, maybe a liquidation investor.

And then there’s other things like Buffet’s, favorite measure, which is total market capitalization. A gross national product, which is just gross national product cuz I can never remember it either. That’s all the companies that are situated in the US, resident in the US and what they earn globally. Okay.

And then you look at that. Relative to the total market capitalization. So what you’re paying for those companies, all of those measures tell us that we’re very stretched at an index level, but there may be reasons why the businesses are exceptional that it justifies that. So I don’t really draw too much from it other than the fact that I think that we’re pro probably stretching, probably because interest rates have been so low, just would make sense to me that would be the case on the same, at the same time, the value decile, which is the cheapest 10% of stocks, which are the ones that I’m most interested in, that’s the stocks that I’m trying to buy.

And I’m talking about cheap on, take your pick of multiples, but on my favorite multiple e operating income EBIT on total enterprise value. The price that you pay for. Average stock in the market or the median stock in the market versus what you pay for the cheapest of those stocks has never been more stretched, including in 2000 at the top.

And anybody who’s a student of the market knows that after 2000, there was this period of time where the value stocks did quite well, even though the rest of the market fell over and struggled for quite a few years. There, I suspect something like that is coming. And so I would say you can’t just go out and buy anything in the market.

You need to be a little bit careful about what you’re buying. It’s they say don’t just go and eat anything. Be careful about what you’re eating, but you’re hungry. You have to eat. So we, let’s be careful about what we buy. Let’s go look at the things that are more nutritious. Like I think the value stocks are more nutritious.

You get more income, you get more assets, you get more cash for as for what you pay. And they tend to be an unloved sectors. And just the nature of hu humans and business cycles is that we don’t wanna buy anything at the bottom of the business cycle cause it looks too boring. We wanna own everything at the top of the business cycle.

Cause it’s been so exciting and it’s been such a good run when realistically we should expect mean reversion, which is just this idea that things tend to go back to normal. And the best example is oil and gas and energy. A few years ago it was trading there. There was a day where it traded negatively, which doesn’t make any sense other than the fact that there was so much oil out there that we couldn’t store anymore of it.

And so it traded for negative, a negative price, right? The energy component of the index got down to 1.5%, and I think the long run average has been closer to 15 or something. So it was about one 10th of where it should have been. That would’ve been a very good time to buy energy, but most of us were scared by the fact that there was a negative price.

And there are also there’s there’s a little bit of a concerted effort at a political level to suppress energy investment and energy prices so that they tend to be very low, multiple, very not very many funds tend to hold them for e s G reasons, even though it’s an integral part of the economy and it’s gonna be a long time before we can take it out of the economy.

And it might be a very bad thing if it does get taken outta the economy. So I think that energy, which is something that I’ve been buying more and more of is a good example of something that. You’re not paying very much for it. We don’t really know what the future holds. But if it just goes back to where it was as a proportion of the economy for most of the time that we’ve been watching the stock market, then energy probably does fairly well.

I think from here. And at some stage they will have, they’ve got low multiples now at some stage they’ll have quite high multiples and they’ll be lo earning lots of money. They’ll look like tech stocks that have high returns and invested capital and healthy balance sheets and all that sort of stuff.

And that’s the time when you don’t wanna be in them anymore because you gotta remember that there’s still cyclical commodities. And I’ll go down the other side too. Sure.

So let’s I wanna return to energy in a minute, but let’s talk about like that fear in the market. You talked about I think it was 2020 when energy went negative and that was probably peak fear.

There’s a lot of factors at play there. If you had to find something now that like maybe match out, it might be banks, Like the bank ETFs have dropped precipitously just this past month. And obviously individual banks like Silicon Valley Bank and Signature Bank. I think Signature Bank was the third largest bank in, in US history failure.

You have First Republic, which was like a bank that I actually considered pretty good. Not that I was invested in it, but like they were renowned for their customer service and for, they seemed to have a great client base. But of course that came back to like almost bite ’em as like that high net worth client base had a lot of unsure deposits.

So we’re seeing a lot of fear in the banking sector. But you also mentioned Joel Greenblatt ear earlier and he excludes financials there’s probably a reason for that. What do you make of banks right now? Do you think that’s a, an opportunity or is that just something to stay away from?

I would never say that you wanna stay away from anything. I know that there’s a, there are, so when we wrote quantitative value, we excluded banks and f and utilities from the calculation because it’s not, you can’t use a, an acquire as multiple to analyze a bank. The banks, it’s a little bit more of a dark art to analyzing a bank.

It’s more balance sheet driven than you wanna see the nature of their deposits how much they’re earning on what they have in there and so on. I think that one of the best, one of the best examples I think is Terry Smith, the great British quality investor who was the top banking analyst in the UK for something like 12 years.

And then you look in his portfolio. And there’s not a single bank in his portfolio. And he says that’s not a coincidence, there’s probably no one who knows them better, and he doesn’t owe any of them. That doesn’t necessarily apply to the States. That’s the uk they’ve got that.

That’s that’s that might be peculiar to the uk. But I think the same logic holds in the States. They really, you have to really know what you’re doing when you’re investing in a bank because they are a little bit of a black box. You of want someone at the top who knows what they’re doing, and you want to be able to look through at the Cannel loans they’re making.

So right now, a lot of the banks hold a lot of this commercial real estate loans, which is office. And as we know with office, there’s some serious problems with office in that a lot of people wanna work from home. They just don’t need as many. They just don’t need as much floor space as they used to.

Longer term leases are rolling off the people who own these buildings are levered and they need those lease payments to pay back the debt on the buildings. And so there’s a little bit of distress out there in office. So they’ve got two problems. One of them is the secular change in the way that we work and where we work.

And the other one is the cyclical issue, which is we’re just closer to the end of a business cycle and liquidity tends to dry up. So I think if you can invest in them, but you really need some specialized expertise to do it, or you need to be talking to someone who you trust or you need to, I think Jamie Diamond there is a horse that you can ride, like you could back Jamie Diamond if you could figure out the value.

Of JP Morgan Chase and you could look at, you can look at, go back to see how they performed through 2008, nine. Some of those companies, some of those banks did very well. Some of ’em didn’t do very well and are gone. But I think banking can be treacherous. So I’m I’m always skeptical, very careful when I’m in banking land and I currently don’t hold any.

Sure. I, we were, I talked to John Maxfield last week, we had him on the show and he’s a banking expert and he said the same thing you’re not it’s probably a sector where you’re gonna have to trust the jockey more than the horse and and see how the bank did during the last crisis, which, the 2008, 2009 period.

And if that bank, if it did well, then does it still have the same management or at least the same connected, like the same family tree of management. But it is not like you can go to JP Morgan or Bank of America or any bank really and, and start looking through their loan book.

Like in the big short Michael, the Christian Bale is playing. Michael Burry, gives like one of his interns like a loan book, literally, or something like I think that’s pretty much out of the reach of most investors.

Yeah. I think that, I mean that, that approach is basically the one that I agree with.

I tend not to hold them just because I, I have, that’s not entirely true. When I first launched the funds, I did hold quite a, I had quite a heavy concentration in financials and I did hold a few banks, but I’ve just lightened up as we’ve gone along. Some of them have worked, some of them haven’t, and I just, right now, I don’t know enough.

To be waiting in to buy anything in there. So I just probably am gonna let that opportunity go by, just be one that I miss out on.

Sure. So let’s go back to energy. You talked about cyclical companies, you talked about energy. If you look at the current makeup of your fund and granted you’re like I realize you’re not holding onto these positions for like decades or even years, potentially.

Potentially. But there are a lot of natural resources and basic materials and energy, like companies. You have US Steel, Northern Oil and Gas Matador resources. You even have a coal company. So what is it about these sectors right now like that you find attractive? Because they do seem to have that yes, they look cheap, but they’re also probably overrunning a little bit.

So like how, you kind were getting into it, but like how do you weigh all those

factors? The. There’s a few in there. So I bought some of them things that have bought a little while ago and just continue to be in there because I tend to buy, I tend to try to buy things as cheap as I possibly can, but then I hold them while they continue to be sufficiently high quality while they continue to earn.

Sometimes even if the a lot of the discount has disappeared because I think that you get, part of your return is just the discount, the multiple, expanding a little bit, and then part of the return is also some business performance in there, and the multiple contraction 10 or expansion tends to come first, and then you get the business performance subsequent to that.

I still think energy is too. I think energy has gone from one and a half percent. I’m gonna get this wrong, but it’s, I thought it was five to 7% of stock market capitalization against the, not, against the long run average of about 15. That’s not why I’m holding it up. I’m trying, in many senses the way that the portfolio is constructed is it’s quantitative.

There’s no top down effort. It’s a bottom up quantitative construction. So I’m trying to buy a portfolio of cash flows and assets, and at the moment those are the cheapest cash flows and assets around some of those things. I was buying for one or two times enterprise multiples or acquires multiples, which is very cheap.

It’s entirely possible that nobody knows what the earnings gonna be if we go. Really nasty recession, oil and energy will get beaten up. The thing, energy was the thing that spiked the lot. The 2007 kicked off with a big energy spike and then energy fell off a cliff. So that’s entirely possible. That happens too this time around.

I still think that they’re too cheap relative to what they’re earning. And they’ve been a little bit neglected for a long period of time. They’re under own because of e s G mandates and just by virtue of the fact that they haven’t performed very well for a while, and I suspect that you get a little bit more multiple expansion in them if and a little bit better business performance.

Because they’ve cleaned up their balance sheets. They’ve had a very good period of time just recently and they’ve used that to pay down a lot of debt. So in some senses you’ve got this call option on energy going bananas that you don’t have to pay very much for. And I like, that’s, that they are gonna survive.

What happens on the other side is unknowable, but we’re close enough to them. They’re cheap enough that if something does happen that they should, the stock should do quite well. So that’s the thesis. It’s not, there’s no kind of macro view of it really. It’s this ad hoc construction of the portfolio that has I, I’ll bottom up pause that to happen in none of

it top down to your point So I’ve told you this before, but there, there’s usually overlap between like your portfolio and mine.

And so I I, I like looking on to see what you’ve added or taken off to to see like what you think is cheap now. And a lot of times like I said, I’ll find three or four positions of my own that are on there and I’m like, okay, Toby thinks these are cheap.

Maybe I like double down on my due diligence right now. But but like sometimes I’m just like, I’ve never heard of this doc in my life. So like one of those is to your point, like it’s graph tech and it’s like, I think it sells out a pe ratio of two or three. And I just write like a brief description of what it does.

And I still don’t understand what it does, but it builds like something for the electric furnaces for like steel mills or something like that. Steel input. Yeah. Yeah. But it has a PV ratio of three That is cheap. I don’t know, like what, I don’t know what the demand is for their product or anything, but they’re probably doesn’t have, they probably don’t have too much competition either.

Cyclical. It’s a cyclical and a cyclical. It’s really the end of the ball web, but it’s an input into steel and they have a processor of for making steel. And so when, and I’ve owned, I own u US Steel, and I’ve owned a few others along the way. There have been problems with graphic in the past, so it’s been a controlled entity and I just escaped my mind.

Now, whether it currently still is or whether they’ve resolved that, I think that was in the process. I think it’s been in the pro, I think it’s been solved down. And so it’s a little bit orphan, but I think it’s a pretty good little business in the good times. It should it’ll have, it’ll have these like software type returns on our invested capital peak cycle.

Okay. And We’re not there yet. I, I’m not married to any of these positions either. It’s just No, of course. It’s just the way that the portfolio construction gets me to this point. don’t really I don’t really like supporting a lot of them because I think that, I can see the problems with them too, but some I’ve learned enough to trust the process, the quantitative process, that it is quite good at finding these things that are primarily that they can survive and that they’re, another good example is Micron.

So Micron is something that you would know that Micron reported this week and reported missed Terrible outlook

has, but it, by all appearances it looked pretty dismal.

The stock has rallied, on that dismal outlook just because it’s been so cheap. And that’s the counterintuitive part of deep value that I I can I can understand it now that I’ve been doing it for long enough, but I still, I’m always a little bit surprised, but I saw those earnings too, and I thought, oh my God, this is not gonna be very good.

And then of course it’s rallied. And that’s, but that’s what deep value does, that you’re already buying these things, that every, the expectations for them are so bad that even a bad report is still bullish for these stocks. And I like that personally, because I’ve been in another lifetime, I was trying to be more like buffet, and I just found that every time I bought a buffet type stock, when they reported and the earnings were pretty good, they’d get cut to pieces.

So I’m I prefer to be on the side of the boat where bad reports are work out well. And I think that’s a lot of those, that nobody knows what a, what commodities are gonna. Sure. A one year in the future that the, I had a, I had an, my econometrics professor at university told me that the best guess for a commodity price 12 months time is the current price.

And I said, there’s no way that’s true. And he said no. You just, the, you think about the range, like the range is as far up as it is down, and the midpoint is the least has, that’s just the one that gives you the, there you go, fewest errors.

That, that, there’s actually some kind of logic there, but Yeah I, to, to your point, I in 2022 we saw a lot of in the last part of 2021, we saw a lot of the opposite of Micron, which is like a great company or, quote unquote great company, but report like what looks like great earnings, right?

Like high revenue growth, great gross margins at least. And and the stock would fall and then you would get people like, How can the stock be down after a report like that? it was because the expectations were, when it, when you’re selling out 50 times sales, you, the expectations that are baked into that stock price are pretty high.

Like I, I totally get your point. And I wasn’t trying to knock graph tech,

Oh no, not at all. I just don’t wanna be in a position where I’m supporting these things and people think, oh, this, that’s, that sounds like a really good stock. And it might, the sort of things that I like to buy are things that they’re not really great businesses.

I know that they’re not really great businesses. They don’t have great returns on invested capital. They don’t. Have businesses that are predictable and compounder type businesses, they are a little bit cyclical, but if you pay a low enough price for them, you’re on the right side of the the coin flip.

You’re on the right side of the luck where if you do catch some luck, because the market has so severely mis has so severely underestimated what they’re gonna do. The response is so big to those things. And I think we’re gonna talk about it at some point. But meta, I think is a great example of that, that if you looked at the balance, if you looked at the balance sheet, you would’ve absolutely spectacular, pristine balance sheet.

If you look at its revenue growth and its users, user growth, all of those things seem to be still pretty positive. It’s just that it got way too cheap and then it got then because people were scared of it and they thought this, they saw the stock price, then they really sold it off. So I bought it. I thought I paid half price, but I think I paid 150 bucks and I think it traded under a hundred.


But it always does, it always amazes me let’s talk about medicine too. Brought it up. But it always amazes me how when I think something is can’t get cheaper than this. It’s so cheap right now. And the market will continually. Prove me wrong in, in all those predictions.

When you look at mesh price point this, the price charts are wild, right? Because like over the last year it’s still down like seven and a half percent. If you look at the the five year chart, it’s up mildly not nearly as much as it was like a year and a half ago, obviously, but it over five years, cumulatively it’s up 32%, but like year to date it, it’s up 75%.

Just it really depends on your timeframe here. For all those charts, I’ve owned this stock much, to my chagrin until the last couple months. But let’s, so let’s talk about meta because this does, so this, I don’t know if this fits you’re necessarily like you’re.

Obviously meta has problems, right? So let’s, like we, we can talk about on like earnings and cash flows have fallen off a cliff because they’ve invested so much in into AI and, which requires like server infrastructure that they’ve invested in and like in their own chips.

And and then, obviously the Metaverse, right? Which is like this whole other thing like on, on top of that, which, which at least with ai, like you can see the tangible result or like why they’re doing it with Metaverse, I think that’s harder to see. So what do you like about meta?

My decisions are always made wholly on the financial statements. So I’m not, I don’t do too much speculating about the business because I think that it’s a little bit harder to predict than most people think. So I ignore the, what I think is gonna happen with the business and I ignore.

What management says they think is gonna happen with the business. And I do all of my analysis purely on the balance sheets. That’s what it means to be quantitative. To the extent that the future doesn’t look like the past. I’m gonna make some terrible mistakes doing that. But across a portfolio, on average, most of the time, the future looks a lot like the past.

And so you get this, eventually the stock market price catches up to the underlying performance. And I think meta is a very good example of that, where the sentiment was so bad when it traded under a hundred bucks. I remember looking on Twitter and people were like, is this gonna be a donut? Zucks lost his mind.

When is flying high? Zuck is a God. When Zuck is at his right trough, he’s a donkey. And neither of those two things are true. Sure. He’s somewhere in the middle there. I think he’s probably, he’s a pretty good operator. I think he’s a pretty good, he’s a bit of a shark. Evident. We, you can watch that.

Social network movie and see that he’s a bit of a shark. You can see the way that he’s he’s bought Instagram and he’s copied reels and done all these other things, right? There’s a shark. He’s not he has some ability to compete. So I like the fact that he, and he owns a lot of that stock.

So those are things that are, they’re not really part of my process, but they are important

and he’s still remarkably young, I think crazy a lot of times people like, forget that, like when they, they bring up stuff from the movie that happened in real life, why do you do this?

Or, and he was 24, know, he coach I like when I was 24, I made a lot of bad decisions and just me too. Nobody cares. But like he, he’s remarkably young and like you said He clearly, like obviously no one’s perfect when it comes to predicting the future, but he clearly has some sense of where the world’s going, like buying Instagram at a billion dollars.

And that decision was my, that was like right before the I p o and

he was mocked at the time too. It seemed like an for years, exceptionally high price to

pay. I I remember talking about the stock years after it had iPod, after all the initial trouble and after they made the mobile shift and people would still bring that up as a reason, like not to buy the stock.

Okay, they made the shift to mobile, but he still bought Instagram for $1 billion and now that looks like one of the greatest acquisitions of all time. But he saw that. And I think they’re finally making money on WhatsApp too, and.

Doesn’t mean he’s right about the metaverse by any stretch of the imagination. And I personally would rather that just go away to be honest with you. Just,

I thought I saw, I tweeted something out that said that he had quietly shelved it. No, I don’t know whether that was, it didn’t look like it came from a particularly official, it was like a computer magazine.


I would say so, but see, like you were saying, like he’s a competitor and and he has some of that shark in him. And like I think he, he doesn’t want the company to do bad. Like he doesn’t want the stock price to fall to $50. And his personal wealth is made.

It’s not he’s gonna be in poor house if that happens. But there’s like he sees. The, he’s weeding the tea leaves, and realizes like, all right, the market right now wants efficiency and we can run this company better. And I think you’ve seen like tremendous strides the last two quarters where they’re cutting cost and cutting a lot of fat.

And there was, I think, a lot of fat to cut. So I don’t think you shelved it, I don’t think that’s the right word, but I think he’s being,

not talking about it as much, still doing it, just not talking about it.

I was on bill show like maybe six months ago. When, and we were talking about meta, and this is when it’s falling.

I don’t think it was below a hundred yet, but it was well on its way to below a hundred. And the biggest fear I had at the time was like, is this like some kind of religious vision for Zuck? Is this no, it has to be the metaverse in what scared me? There was like a TechCrunch article or something that said from inside sources.

I knew it might not be true, but what scared me was like, there was inside sources at Facebook that said Zuckerberg seized the Metaverse as Steve, as his Steve Jobs iPhone moment. This was gonna be his legacy. And that terrified me. If he thought his, this is a guy who already founded a multi-billion dollar company, and if he thought his legacy was tied to this vision, that who knows what becomes a, I have no clue.

No idea. Y think there’s a small chance for success. I don’t wanna say there’s zero chance for success but it’s small. For at least for what they’ve invested in it, what you’d call a. If he saw that as his legacy and he saw that as I have to do whatever it takes to make this work, this is gonna make the world better kind of religious vision.

That’s what scared me. And so him making these strides the last couple quarters to, Hey, we’re cutting costs, we’re cutting our research team, we’re cutting our employees down. And not that I’m happy they’re, on about any layoffs, but as far as the company goes like realizing cash flows are important.

Realizing like efficient uses of capital is important and getting back to some sane vision some version of sanity there I has mattered a lot to me, and I think other shareholders too. And I think to the market, why it’s up, it was ridiculously. At $90 yet as a, as a seven year shareholder of it, I was terrified when it was under a hundred.

Like emotionally I was a wreck. I didn’t sell any shares, but I was like, whew. Like it was, it’s hard to defend your position when it’s down so much and I think at the time, over five years was showing no gains.

That’s agree with all of that. I agree with that analysis, but that’s one of the nice things about being largely quantitative as I was just watching the financials through that period of time.

And that’s my position. I have 30 positions in Zig, so positions are three and a quarter. I’m not three and a third. I’m not, I don’t want this to sound like I’m some kind of hero who’s got this 40% position on and just fearlessly buying us and went down. I’m not

Right. But same here.

It’s not like it’s size small,

I’m so small and I, and when I, so it allows me to be a little bit more aggressive cuz I’m sizing a little bit smaller. So I’m not so worried about any individual position. But with meta as it was going down, I was just buying more of it every time we were rebalanced.

And then since it’s bounced and it’s gone back up, I’ve been selling down as it’s gone up. And that’s one of the things I like about the process that I have. I like to go back to equal weight at each rebalance date. So we’re taking a little bit of those wins and allocating them to other stuff that’s not working as well.

And that’s the process. And I think that’s a good, healthy process. So I don’t short anymore, but I used to short, and that was one of the, th the thoughts that I always said. The thing that gets the thing that hurts the shorts is they get conviction about something. The same way that Zuck gets conviction about the metaverse.

People get con convict. They do so much work on something that they feel like they’ve got some special insight and sometimes they do. But often you don’t. And. Buying more and more of this thing and you’re just missing all of these other opportunities that are out there. And so I think it’s just keep it small as it goes against you.

Just take the medicine as you go or buy a little bit more, but keep that position small. But always be wary of the fact that I know lots of people who are in, I don’t wanna name the stock cause you’ll know who the people are. Investors who were in cyclical type stocks where they had, it was like a 4% position and it went down and they bought, they kept on buying more.

And so eventually the, although the position was small, it consumed in a very large chunk of the portfolio. Cuz it could be, cuz it, and it ended up being a zero. So that’s we’ve had such a good run in the stock market for so long and I’ve been around long enough that I’ve seen lots of different market cycles.

I’ve seen a late 1990s market cycle. I’ve seen a value cycle and now I’ve seen another tech type cycle. And now probably whatever we’re going into now, we’re seeing another little bear market that we’re going through. Thing that really, it’s not always gonna be your market. The last 10 years were definitely not my market and I’ve really got no basis to be standing here saying anything given the track record so far.

But I do think that the thing that I have learned over those periods of time is that another cycle is always coming. If this one’s not your cycle of it, the next one might be, and the thing that distinguishes the very best investors from everybody else is it’s the same guys in every single cycle doing well or doing badly, but they’re still there cuz theirs is coming.

And there are people who do really well and then you never hear from ’em again because they get blown up. And don’t mean to, I don’t mean I don’t wanna name any names this time, but sure. Every single boom has had the emblematic mutual fund manager who has got a very high profile and then you just don’t hear from them again because they’ve captured the zeitgeist at the time and that’s what’s allowed them to perform.

But they don’t have this sort of, Sufficiently rigorous process focused on the downside that allows them to survive. And in this undertaking, survival is key.

Let’s that’s I want to start naming names, but I guess we should probably reframe. I

do. Sometimes I, I don’t, but I just don’t wanna be, I, let’s, Kathy Wood, I quite admire what Kathy Wood has achieved.

I wanna say that I think that it’s a very tough business, particularly tough if you’re a woman. She’s done an exceptional job to create that business, and she captured the zeitgeist for a while. I don’t know what the future, I look at that portfolio. I’m more inclined to short a lot of the stuff in that portfolio.

Not that I short, but that’s how I feel about it. And I worry a little bit about what happens to that enterprise going forward from.

Sure. No they’ve definitely they had a Meteor York rise, and they certainly have had a pretty hard fall the last few years.

And it’s y it’s, I guess it’s a hard to, like the thing she says about her fund or like to have pro almost promising returns turns me off at times. But but she certainly had a great run and I, I like I admire a lot. I guess what I can say is, I’m trying to find a good way to say it, but I can say I admire a lot of what they did, and I admire a lot of what they do.

But I think that’s right. Instead of positioning themselves as a very extreme high growth fund that people. And search into their portfolio for exposure to that area. Almost just like the wild returns. Sometimes they promise or seemly talk about our bookcase for whatever stock is, 45000% or whatever.

It’s it just seems a little wild at times.

I don’t ever know what the bull case is. I figured that the bull case just takes care of itself. It’s the bear case that I’m most interested in cuz that’s how you live or die. You live or die on the bear case. And then the other side is kind of luck.

That’s actually probably a good do you think that’s what separates, ultimately, do you think that’s what separates growth from value per investors like growth investors are looking at the bull case more in and value investors more? Look at the downside.

I do, I think that for the most investors, that’s true.

I do think that, I think that the biggest mistake that I made was 2015 when my good friend Jake Taylor, wrote this article saying the differential, the spread between the most expensive market, the most expensive stocks in the market, and the cheapest stocks in the market is as tight as it has ever been.

You’re not getting any discount for buying value, and you’re not paying any premium for buying these much, much better companies. And he said, typically what’s happened he said, it’s the worst value opportunity set in 25 years in 2015. And he said likely the Ford returns to value aren’t very good from.

And I read that and I reposted it on my blog and I completely understood what he said and I did nothing about that. And I think that the next time I see that opportunity set, I would say that would be the time to be trying to buy the slightly better, to pay up a little bit and buy the slightly better company.

So I’ve now built that into my process. I don’t have to make any change that will just happen on an ad hoc basis as that occurs. But that was a clear mistake that being too deep value caused me to make at that time. So it’s not so much that we’re only thinking about the upside, cuz that’s a cri a fair criticism of value guys too, that we’re not sufficiently thinking about the things that could go right and only thinking about things that could go wrong.

There were growth guys. They’re in this position now where what they were doing in 2015 was they were buying very cheap call options. And many of them were cash flowing compounders that you weren’t paying anything for really, you weren’t paying at all for the opportunity. And then when the opportunity came and they’ve had this enormous run, and they’re looking back now and saying that’s what these things do.

Not realizing that the valuation was part of the reason why they’ve had such a spectacular run to this point. You really don’t wanna be paying too much for those call options. And if I look around now for the cheap call options, I see all the cheap call options in deep value land. I think there’s stuff that you just shouldn’t be paying one or two times for these businesses.

It doesn’t reflect the true value. I don’t know what they’re worth. They might only be worth four times, but at one or two times, they’re too cheap. I think we’ll go through a fundamental type cycle. Now. This is it. If you, if I look back and I look at what market cycles look like, they tend to be this sort of, you have this.

Techy growthy. It doesn’t have to be tech, it’s just, it tends to be tech. Sure. Because they’re more exciting, more interesting business and that’s an upside type run. And then you have a more fundamental run. So 2000, 2007, that was fundamentals. That was like a golden age of private equity.

Everybody wanted to be a private equity associate when they came out of business school and venture capital and tech was really uncool, cringey through that period of time. And then it reversed. You didn’t wanna be right. A fundamental guy that was really cringey. I suspect we’re about to go into a market where tech gets really cringey.

And then if you’re an investor, like you wanna be looking at the cringey stuff, that’s where you want to be, perversely. What we’re gonna go into is a period of time where it might be good to be a tech investor, but we’re not there yet. We get it. Needs to get, when you’re buying this stuff, you should be embarrassed.

That’s how you know that you’re buying the right stuff and you don’t wanna tell anybody about what you own. Don’t mention any of the names in the portfolio.

Let’s I don’t wanna take up too much of your time, but there is one more company I’d like to talk to you about. And it’s it’s domino.

So this is a, we talked about return on invested capital and we talked about PE ratio. When I like the, when I talk about Domino’s, I like to throw out D chart because it just shows like the incredible, like return on invested capital that dominoes gets, which I think a lot of people or a lot of investors don’t realize, at least intuitively, I, most of these, most of this is Domino’s peers, but I do on Microsoft and Alphabet to just for fun to show how even compares to them, apples like right around dominoes, it messes up the chart.

But it’s the only one that it’s it’s a little more expensive, but has like about as good of a return on invested capital as dominoes. What do you like about Domino? The nice thing about the fact that you can feed your family of of five pretty, pretty cheaply. I do.

That’s there’s two aspects to it. There’s the quant, just, there’s just the pure quantitative analysis that tell, tells you that it’s a very good business that is probably too cheap for how good it is. And it’s had this really great run over the last few years, although, sorry, it’s had a great run over about the last decade, but it’s not done so well over the last few years probably cuz it got too expensive and it might have been overrunning through Covid, through the Lockdowns people were,

I think a lot of that growth was pulled forward.

Yeah. Yeah.

Yeah. And possibly they’re maybe they’re getting close to saturation in the states, but I think they’ve got some good international growth or they’ve got some solid international growth in front of them. It’s the fact that, the, those, that model where that franchise model, they earn so much on know, the business itself is just, it’s very asset light.

They earn so much. It’s got a great, everybody, everybody knows what Dominoes is. Everybody in the states knows what Domino’s is. You say Domino’s know you’re talking about a pizza. So they’ve got that great mind share. It’s so easy to order from their, if you’ve got the app on your phone or Yeah.

And you’ve got, and you’ve got kids and you’ve got, and it happens all the time to us. You get back late from sport or whatever it is and you just can’t do it. Can’t cook Domino’s right there. And it’s it’s cheap. The app remembers you order, it’s done. I don’t know how they do it so quickly. I don’t know how it’s done so fast.

And then I saw a stat, I wish I could find it clear a chart, but it’s the cheapest way to feed a family of four, I think. In the States. My kids love it. There’s just, it’s just an easy, I find it an easy thing to own. I think that they’ve been very good at buying back stock. There’s the, it’s not anything that, it’s never gonna be a spec.

I don’t think it’s gonna be a spectacular performer. I don’t think it’s a kind of a huge compounder or anything like that, because there are competitors out there and it’s ferocious competition in that space. Their balance sheet is not as good as it once was. They’ve got a little bit of debt to undertake all those buybacks.

But I think on balance for the price that you pay, given those monster returns on invested capital, I think it’s a, I think it’s a good opportunity and it’s likely to be here. If I think about consumption patterns of humans and consumption patterns of Americans. Do I think that people will still be eating pizza in 10 years time?

Yeah. I did a good, very good chance. So I think it’s still gonna be here. So all of those things together, tell me that it’s worth taking a bet on.

Do you do you think like inflation, so like that’s been a hot topic, like for them because they have food inputs and labor inputs and gas inputs, right?

All the we’ve got expensive everything. Exactly. Like how do you think they’ll do you think they’ll be able to keep their margins up, like with inflation hitting ’em in so many different areas?

Yeah, that’s a good question. Probably likely to get squeezed through here.

It’s probably unavoidable, but we’ll see how much pricing power they’ve got. They do sell very cheaply, so it’s possible they’ve got some, a little bit more pricing power on the other side. But yeah, they’re certainly hurt by inflation. I think that’s what creates the opportunity. I don’t know what inflation does in the future.

I’ve, I, my, my two hats are, the future is completely unknowable and who knows? We could be going into seventies style. It could be just pain for a decade. And I think that’s, if I like what I know is that the future is unknowable. What I think is that we’re probably going into a painful period of time, and I suspect that dominoes will get hurt through there.

I still think that they’ll be okay because of the huge returns on invested capital and the margins that they’re earning. I think that they’re probably one of the companies that are gonna be able to survive. But I think that the inflation gives you the opportunity now, but it’s entirely possible.

We haven’t even seen how nasty this gets.

Sure. I, so like to your point, there’s two things. Like one it is an incredibly competitive industry, right? And so I’ve always shied away from it. And then the other day, Every once in a while, like I, I like to throw up like a chart on Twitter, like showing like total returns of companies in a search and sector and and to my like, surprise, like over a 10 year period, like almost all the quick service restaurants outperformed the market.

It was, like, it blew me away because I’m like, oh, that’s such a competitive arena. It’s gonna be really hard get good returns. But the vast majority beat the market over the last 10 years. And then two it’s just like when you go out to eat now, it’s so expensive.

Like we, yeah. Had this talk with my coworkers several times over the last months, several months, but just and I’m sure everybody’s noticed this if I take my family of six to Chick-fil-A or Wendy’s or whatever, that’s we’re coming up on 70, 80 bucks for Chick-fil-A.

And and you can go to Domino’s and I can feed ’em for 20 bucks. And so it’s just And it’s quicker and it’s more convenient. I don’t have to leave my house. It’s

and the kids think it’s a trait. The kids are so it excited every time I do

it. Kids, right? The kids love Chick-fil-A, but they love, they no, they don’t complain.

They’re getting pizza ever. Yeah.

What did you have for lunch, pizza? What do you want for dinner? Pizza. Or chicken

items. One of those. It’s always one of those, but it’s just it’s hard to beat that value. As far, yeah, like I know they just raised their prices and it’s still a compelling value and I think, if inflation continues I just think they can raise their prices more easily and retain market share than other competitors in that


Another way, just about running out of time here, but just before we go, let’s talk a little bit about the inversion, cuz it’s this, I wanna explain you, have you got time? Yeah. Lemme put

that chart up again

then. All right. I won’t. Talk about it for too

long. You can talk as much as you want.

I don’t want to take your time. So

I like, I like these little I’m a believer in these. There we go. I’m a beli. So the inversion is anytime it dips below the line, and this is comparing the 10 year. Yeah. You tweeted this,

I was just like I was going through your tweets to get conversation topics and I saw you had tweeted out this, so I grabbed this from Twitter, but yeah. Uh,

So the that’s, it’s the steepest it’s ever been, it’s the deepest it’s ever been.

Going back. This chart goes back to

explain. don’t you explain for listeners or viewers if they’re not familiar with in inverted like curve, explain what this means. So

when you can lend to the US government and you can lend for as short as three months. You can lend in, you can lend shorter than that, but on Sure.

On the You can lend from three months, which means that your principle is paid back in three months and you collect interest along the way and you can lend for as long as 30 years. And the, all of the points in between three months and 30 years trade relative to each other. Such that typically what happens is you don’t get very much interest for the shorter term stuff, right?

Because you’re gonna get the money back pretty quickly and you get a lot more interest for the longer term stuff because there’s some risk in holding it. You’ve got inflation risk and you’ve got, there’s some, they call it the risk free rate, but there’s still some risk of default. The US government’s defaulted before there are all these other things going on.

So typically what that means is that the curve from the shorter end, so the longest end goes. What we’re seeing at the moment is that there’s so much fear in the market that the short end trades higher than the long end. So you get more interest for lending for a short period of time. And that’s shown on that chart as as the dip below the line.

And what we’re seeing now is that the three month has never been higher relative to the 10 year than at any other point since they’ve been collecting the data. This, now I’ve got another chart that goes back to about 1970. It tells you the same answer. We’ve never been this inverted before. And

in case you’re listening and not watching, like every time the inversion dips below the breakeven line several months later, within a year, I’d say though, like the US enters into a recession, right?

So Cam Harvey he’s a professor at Duke. He wrote his PhD thesis on this in 1986, and he went back. He looked at the four recessions preceding the 1986 thesis, and he said each one of those was preceded by an inversion. And I think that what it’s forecasting is disinflation or it’s just forecasting lower prices, is basically what it’s saying.

And since he published his paper and it had no false positives, that’s the other important thing to note. When it inverts it, every single time it has been followed by a recession. The only thing to note is that there haven’t been very many examples. There are only four before he published and there have only been four inversions since he published.

And each inversion was also followed by a recession, funnily enough, including the 2020 which was most cl closely attributed to covid. But there was clearly some weakness in the system before we went into that. And now we’re in this very, Steep inversion. So that’s, there’s no research on what the steepness means.

That could be entirely irrelevant. All we know is that the fact of the inversion tends to precede these recessions and this inversion. And so the length of time is, it can be as short as seven months from the beginning of the inversion to the declaration of the recession. It has been as long as 15 months.

And on average it’s about 12 months. So we inverted in October 25th, 2022. If we roll forward six months, that gets us, sorry. If we roll forward seven months, that gets us to about June as the earliest it could be declared. The median gets you to sort of October, November, and then as late as February next year as a sort of range for the declaration of the of the recession.

I like these little metrics cuz I have. The fact that I’m quantitative I’ve looked at a lot of these. It’s this idea that simple statistical models tend to outperform experts. And what’s funny about this particular statistical model is that the person cam Harvey, he said in 2008, he didn’t think that the inversion would indicate a recession.

He thought it’d be maybe a little bit lower growth. And of course, we saw quite a deep recession in 2008. He’s come out this time and said the same thing. He don’t think the, he doesn’t think the inversion will lead to a recession. So I think it’s just funny as an example of, it’s a great example of that idea that these simple statistical models tend to outperform expert opinions.

That his own expert opinion about this model. He’s always trying to say why his model is wrong, but his model has tended to be right. I’m just, I’m just interested in it from the perspective of. It’s an example of a simple statistical model that we can look at in real time that’s giving us a very strong message that we’re going into a recession.

The person who came up with the model says, the model’s not right. So I’m just fascinated. I’m just interested to see if this model is predictive. If it ends up that this is wrong, then next time we’ll fade this model. We won’t follow it. But for the moment, the track record is pristine and I’m inclined I, my own personal view is that you should apply these simple statistical models and not try to override the output.

So I’m just interested to see, I’m eager to see that’s the point that I’m trying to make people. I don’t know what people think with me posting it on Twitter all the time, I’m just fascinated that it’s this steep. Sure. And its record is so good. And nobody pays attention to.

Do well. So first of all, let me just say I, I’m not gonna be shocked at all if we go into a recession, I think we’re probably in already, just has to be in the clip. 100%. But for argument’s sake could this also just be maybe a function that, the Fed has raised interest rates so quickly and so much we’ve already seen like basically the whole banking failures for how fast the Fed has raised rates.

Could this just be a function? It’s just like Covid has made everything for lack of a bit like funky, right? Yeah. Like growth was pulled forward and some gross slowed, but was like, yeah. And it’s just I wonder and I’m not trying to second. The government’s response or anything like that?

I’m just saying I wonder like the consequences of shutting down the economy for essentially, I don’t know whatever you want to call it, like six months to a year and a half. Like some, know, depending on your definition of shutting down the economy, but like some kind of like range like that, like the consequences of that.

I just don’t know. In 10 years we’re, I think we’re gonna look back and and just see all the consequences, right? And I think we’re still seeing consequences again, I’m not trying to, I’m not trying to, one, I’m not trying to get political. I’m not trying to like second guess any of the responses.

It’s just this crazy unprecedented thing that happened for modern

times. I agree. I don’t think any political party is, has covered themself in glory here. Or is it fault? No, that’s a safe thing to say. I often say that these things are like, they’re like natural disasters.

You, they’re, I think that the business cycle is a little bit outside. Human intervention. I think some of these things are just, it’s just a, you go back, you can go back to ancient Egypt and they had a business cycle. You can go back, take your pick of places around the world. Throughout history, there’s a business cycle and and humans have always tried to interfere with it and we’ve never really had any success with it.

I just, and I agree that even all of those interventions have even muddied the statistics, so you can’t really even look at it and get a good read, which is, that’s probably the best argument for. The yield curve inversion is meaningless because who really knows all the interest rates moving around fiscal and monetary policies.

All those things have interfered with it, and we can’t get a good bid. You got a

ton of, I mean, yeah, there’s a ton of stimulus now. There’s a ton of inflation. There’s, there, there’s interest rates like mo movement on both sides of that thing. And I, I don’t, I think it goes back, it’s better, probably better to put on that first hat and say, who knows?

It’s too hard. I think that’s what’s in my investment style. I can talk about all these things, but I don’t really, none of them really factor in. I’m just trying to buy the cheapest stuff in the market and not knowing what’s gonna happen. But I have a podcast every week and I, it’d be the same thing every week.

Yeah. We didn’t do anything different. We just kept on doing the same thing. Gotta talk about something, right?

No. It makes for if you are that. We could, that’s probably a good way to end it. Let’s you have a great podcast you’re on every week with your friend Jake Taylor, and I guess now it’s a rotating special guest.

And if you’re listening to this podcast, you should probably add it to your rotation value after hours. Where else can people find you? Toby?

I’m on Twitter greenback, G R E N B A C K D. It’s a funny spelling and I have it acquirers website where it has all of my books. I think you can just search my name in Amazon and you’ll find the books and the website has this free screener that gives you from drawn from the top thousand, which kind of matches the the etf, the Zig etf.

You can see often there’s a lot of overlap between the screener and what’s in my portfolio.

Sure. And yeah if you just Google Toby’s name, you can find more information on his fund or or his books. Toby, thanks so much for coming on, man. It was a great talk.

My pleasure, Matt.

Thanks so much for having me. Of


I’m Matthew Cochran. We’re seven investing and we’re here to empower you to invest in your future. Have a great day,

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