1 00:00:00,040 --> 00:00:02,200 Ladies and gentlemen, welcome to The Business Brew. 2 00:00:02,200 --> 00:00:06,560 I'm your host, Bill Brewster. This is Matthew Sweeney, intro 3 00:00:06,560 --> 00:00:09,240 V3 for those that know what I'm talking about. 4 00:00:09,240 --> 00:00:11,480 So I'm just going to rip this one out and we're going to see 5 00:00:11,480 --> 00:00:14,640 how it goes. This episode obviously features 6 00:00:14,640 --> 00:00:17,360 Matthew Sweeney of Laughing Water Capital. 7 00:00:18,080 --> 00:00:21,560 I really enjoyed a lot about this episode, but Matt pinged me 8 00:00:21,560 --> 00:00:24,640 after something I said on value After hours he said hey, we 9 00:00:24,640 --> 00:00:26,320 should talk. So I said yeah, we should. 10 00:00:26,440 --> 00:00:32,200 And I've known Matt for a few years, but mostly sort of casual 11 00:00:32,200 --> 00:00:35,040 knowing sense. And this was I think one of our 12 00:00:35,040 --> 00:00:40,000 first real solid conversations and I really enjoyed it. 13 00:00:40,360 --> 00:00:43,280 He's a good guy. I think one of my favorite parts 14 00:00:43,280 --> 00:00:45,560 of the conversation is he talks about how he got in the business 15 00:00:45,560 --> 00:00:48,600 and his early starts in finance. I love his philosophy. 16 00:00:48,600 --> 00:00:52,120 He's he's somebody that's definitely worth your time. 17 00:00:52,520 --> 00:00:54,880 Now I will say, and you're not supposed to point out some 18 00:00:54,880 --> 00:00:58,720 issues in in a recording, but I I care about you as a fan and I 19 00:00:58,720 --> 00:01:02,360 want you to know what happens. Matt and I talked about some 20 00:01:02,360 --> 00:01:04,680 fairly personal things throughout the conversation. 21 00:01:05,120 --> 00:01:08,920 He and I weren't 100% comfortable releasing all of it. 22 00:01:08,920 --> 00:01:11,680 So there are parts of the conversation that get a little 23 00:01:11,680 --> 00:01:16,160 choppy. And for that, we both hope that 24 00:01:16,160 --> 00:01:18,760 it doesn't detract from your audio experience. 25 00:01:18,760 --> 00:01:22,600 But frankly, our conversation was a little bit more important. 26 00:01:23,080 --> 00:01:24,960 It was nice. We were getting into the meat of 27 00:01:24,960 --> 00:01:28,840 life, and maybe someday that stuff will come out, but not 28 00:01:29,000 --> 00:01:31,080 today. That day is not today. 29 00:01:31,720 --> 00:01:34,680 Anyway. Standard disclaimers apply. 30 00:01:34,680 --> 00:01:39,880 Laughing Water may own a position in the securities 31 00:01:39,880 --> 00:01:42,840 discussed. Investing involves many risks, 32 00:01:42,840 --> 00:01:46,440 including the risk of the loss. Standard disclaimers apply. 33 00:01:46,440 --> 00:01:49,040 I don't know if I already said that I'm rambling, so I'm just 34 00:01:49,040 --> 00:01:51,960 going to get on to the episode and let that delupereed start 35 00:01:52,040 --> 00:01:55,560 and enjoy. This episode is sponsored by De 36 00:01:55,560 --> 00:01:58,360 Lupa. De Lupa is founded by a former 37 00:01:58,360 --> 00:02:01,440 hedge fund analyst to bring simplicity into the investment 38 00:02:01,440 --> 00:02:04,360 process. De Lupa offers an AI driven 39 00:02:04,360 --> 00:02:07,440 single source for all company reported data and allows for 40 00:02:07,440 --> 00:02:10,080 investment teams to make the most informed decisions in the 41 00:02:10,080 --> 00:02:13,280 shortest amount of time. 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Banks and major multi managers 53 00:02:48,360 --> 00:02:51,840 are trusting the loop of further use in initiating coverage, 54 00:02:52,160 --> 00:02:54,960 building and maintaining industry dashboards, and keeping 55 00:02:54,960 --> 00:02:58,880 their models up to date. Visit delupa.com/business Brew 56 00:02:58,880 --> 00:03:01,800 to create a free account and learn more about how de Lupa can 57 00:03:01,800 --> 00:03:04,680 increase your team's speed to differentiated insight. 58 00:03:05,760 --> 00:03:10,000 As always, nothing in the show is financial advice. 59 00:03:10,360 --> 00:03:13,000 Please consult an investment advisor before making investment 60 00:03:13,000 --> 00:03:15,000 decisions. Everything in the show is for 61 00:03:15,000 --> 00:03:18,720 entertainment purposes and educational purposes and do your 62 00:03:18,720 --> 00:03:41,040 own due diligence. Ladies and gentlemen, Matthew 63 00:03:41,040 --> 00:03:43,280 Sweeney here of Laughing Water Capital. 64 00:03:43,720 --> 00:03:46,360 We were talking offline, so we're just going to continue it. 65 00:03:46,640 --> 00:03:50,360 Matt said that he's generally suspicious of anything that is 66 00:03:50,360 --> 00:03:54,080 optically cheap and we were talking about just value as a 67 00:03:54,080 --> 00:03:55,920 factor. So that's where you're coming 68 00:03:55,920 --> 00:03:58,320 in. So you want to rehab the 69 00:03:58,320 --> 00:04:00,800 conversation about things that are optically cheap? 70 00:04:01,200 --> 00:04:03,360 Because I think that's interesting. 71 00:04:03,920 --> 00:04:07,080 Yeah. I guess what I mean when I say 72 00:04:07,080 --> 00:04:10,160 that I'm generally suspicious of things that are optically cheap 73 00:04:11,200 --> 00:04:13,800 is that in today's world, literally everybody with a 74 00:04:13,800 --> 00:04:17,200 smartphone or a computer can see it if it's optically cheap. 75 00:04:17,959 --> 00:04:21,839 And I always think of there was a piece from JP Morgan back in 76 00:04:21,839 --> 00:04:25,720 2019 that kind of laid it out. They said that by their 77 00:04:25,720 --> 00:04:30,840 estimation, 80% of the investing world is based on either 78 00:04:30,840 --> 00:04:34,440 quantitative strategies or index strategies or ETFs or something 79 00:04:34,440 --> 00:04:37,360 like that, where they're basing their entire investment decision 80 00:04:37,360 --> 00:04:43,480 process on observable inputs. And if you think about that and 81 00:04:43,480 --> 00:04:47,520 then think about what was cheap in Buffett's day, like profits 82 00:04:47,520 --> 00:04:48,960 early day, it's totally different. 83 00:04:48,960 --> 00:04:51,440 Like you could go read the Snowball, for example, and talk 84 00:04:51,440 --> 00:04:54,480 about him going like door to door and knocking on people's 85 00:04:54,480 --> 00:04:58,640 doors and literally telling them like, hey, you own a stock and 86 00:04:58,640 --> 00:05:00,360 it's cheap. And these people, they don't 87 00:05:00,360 --> 00:05:02,680 even know that it was cheap. I mean we, I don't remember this 88 00:05:02,680 --> 00:05:05,640 specific example, but it was something like, you know some 89 00:05:05,640 --> 00:05:08,480 company trading at $0.20 on the dollar and Buffett knocking on 90 00:05:08,480 --> 00:05:10,760 the door and being like I'll pay you $0.50 on the dollar. 91 00:05:11,120 --> 00:05:13,600 And that's a fantastic return for these people who didn't even 92 00:05:13,600 --> 00:05:16,640 know what they owned. And then there's today's world 93 00:05:16,640 --> 00:05:19,120 where if it's cheap, like literally everybody knows, if 94 00:05:19,120 --> 00:05:24,320 the numbers, if the numbers say it's trading at a whatever, PE 95 00:05:24,320 --> 00:05:27,160 of eight or whatever, the entire world knows. 96 00:05:27,160 --> 00:05:30,600 And if any sort of quant strategy, which is some huge 97 00:05:30,600 --> 00:05:34,120 percentage of the market, they see that it's cheap. 98 00:05:34,120 --> 00:05:36,520 And of course, there's all sorts of different quants and there's 99 00:05:36,520 --> 00:05:40,800 momentum quants and whatever. But just on a fundamental quant 100 00:05:40,800 --> 00:05:43,520 basis, like they're going to see that it's cheap and fundamental 101 00:05:43,520 --> 00:05:47,480 quants would typically have some sort of, you know, attribution 102 00:05:47,480 --> 00:05:49,400 to the value factor. So they would say, OK, this is 103 00:05:49,400 --> 00:05:50,800 cheap. I have to buy it. 104 00:05:51,360 --> 00:05:54,680 So if there's some huge portion of the market that has to buy it 105 00:05:55,320 --> 00:05:58,800 and it's still cheap, I don't know, maybe it's cheap for a 106 00:05:58,800 --> 00:06:00,400 reason, right? Like is it isn't that kind of 107 00:06:00,400 --> 00:06:04,280 where you have to wind up? So that's how I think about it. 108 00:06:04,720 --> 00:06:07,760 And when I look at my own portfolio and my own investments 109 00:06:07,760 --> 00:06:11,560 and I guess my own like view of the world we live in, I think 110 00:06:11,560 --> 00:06:13,520 maybe what you want to be looking for sometimes is things 111 00:06:13,520 --> 00:06:15,840 that are not optically cheap, right? 112 00:06:16,440 --> 00:06:19,720 If they're optically expensive, but an intelligent business 113 00:06:19,720 --> 00:06:22,360 person would look at it and say, oh wait, the numbers are 114 00:06:22,360 --> 00:06:24,960 misleading, the actual business is cheap. 115 00:06:26,080 --> 00:06:28,760 But that sounds more interesting to me at least. 116 00:06:29,200 --> 00:06:32,680 I think the problem you run into is that eventually you need that 117 00:06:32,680 --> 00:06:34,240 incremental buyer to come along, right? 118 00:06:34,240 --> 00:06:36,280 Like, so in a long enough timeline, the only thing that's 119 00:06:36,280 --> 00:06:38,240 going to matter is the quality of the business or the 120 00:06:38,240 --> 00:06:40,600 performance of the business, the fundamentals of the business. 121 00:06:40,600 --> 00:06:43,840 But day-to-day, month to month, quarter to quarter, even year to 122 00:06:43,840 --> 00:06:46,840 year, like what matters is the incremental buyer and 123 00:06:46,840 --> 00:06:49,040 opportunity cost is real. So you don't want to just own 124 00:06:49,040 --> 00:06:51,920 something forever saying like, oh, it's cheap and it's cheap 125 00:06:51,920 --> 00:06:54,480 forever, like that's called the value trap, right. 126 00:06:54,480 --> 00:06:55,880 And we don't want to be in value traps. 127 00:06:56,800 --> 00:06:59,600 So I don't know you have to weigh all these things and going 128 00:06:59,600 --> 00:07:03,520 back to that 80% of the market that is basing their investment 129 00:07:03,520 --> 00:07:05,040 decisions on the quantitative inputs. 130 00:07:05,040 --> 00:07:07,480 I think an interesting way to approach it is to look at things 131 00:07:07,480 --> 00:07:11,720 that are quantitatively not cheap today, understand what is 132 00:07:11,720 --> 00:07:15,400 going on internally with the business that makes it look not 133 00:07:15,400 --> 00:07:19,160 cheap, but it actually is cheap. And then have a view on how that 134 00:07:19,160 --> 00:07:21,040 is going to change over the next. 135 00:07:21,200 --> 00:07:23,760 I mean for me, I always think in three to five year blocks like 136 00:07:23,760 --> 00:07:27,080 over the next three to five years, how is the value going to 137 00:07:27,080 --> 00:07:30,720 surface so that it will be in the numbers and then the quants 138 00:07:30,720 --> 00:07:34,400 will see it and the quants will buy it and that's your 139 00:07:34,400 --> 00:07:36,720 incremental buyer and that's what makes the stock go up 140 00:07:37,200 --> 00:07:39,560 independent of the fundamentals. I mean you want the fundamentals 141 00:07:39,560 --> 00:07:42,920 improving all along also, but you don't want to be in a 142 00:07:42,920 --> 00:07:45,800 situation where the fundamentals are improving but nobody notices 143 00:07:45,800 --> 00:07:50,160 forever. And going back and we, we were 144 00:07:50,160 --> 00:07:52,960 emailing earlier about kind of David Einhorn and what he's been 145 00:07:52,960 --> 00:07:54,720 saying about the market being broken. 146 00:07:54,720 --> 00:07:57,640 Look, I am nobody to criticize David Einhorn. 147 00:07:57,640 --> 00:08:00,480 I just don't really agree with the view like the market is 148 00:08:00,480 --> 00:08:02,680 broken. It's kind of like saying I don't 149 00:08:02,680 --> 00:08:05,000 know like the earth is broken or like the world is broken. 150 00:08:05,000 --> 00:08:07,160 Like it is what it is. It's not, it's neither broken 151 00:08:07,160 --> 00:08:10,240 nor correct. It just it is the reality that 152 00:08:10,240 --> 00:08:12,240 we are living with. So you kind of have to adjust to 153 00:08:12,240 --> 00:08:15,920 it and Einhorn's approach has been to focus on return of 154 00:08:15,920 --> 00:08:18,120 capital stories, which is totally valid approach. 155 00:08:18,760 --> 00:08:21,040 But I think another valid approach is to kind of 156 00:08:21,040 --> 00:08:24,840 understand what the quants look for and how you're going to get 157 00:08:24,840 --> 00:08:28,480 in front of those quant buyers. And it's probably the most 158 00:08:28,480 --> 00:08:31,480 tortured analogy and certainly my most hated analogy in 159 00:08:31,480 --> 00:08:33,200 finance. But it's like, you know, where's 160 00:08:33,200 --> 00:08:34,679 the puck going? And it goes. 161 00:08:34,679 --> 00:08:36,039 Skate to where the puck is going. 162 00:08:36,720 --> 00:08:38,840 Just understand what the quants are looking for. 163 00:08:38,840 --> 00:08:40,919 But what is not in that bucket yet? 164 00:08:40,919 --> 00:08:42,600 And then how is it gonna get in that bucket? 165 00:08:42,640 --> 00:08:44,000 That's how I'm thinking about things. 166 00:08:44,039 --> 00:08:45,920 I get the other. I'm rambling but. 167 00:08:46,080 --> 00:08:48,920 No, no, you're not this. I'm smiling because this is like 168 00:08:48,920 --> 00:08:51,600 exactly what I said on value after hours when I was recently 169 00:08:51,600 --> 00:08:52,840 on. Yeah, well, I was. 170 00:08:53,440 --> 00:08:58,040 I was listening and. 'Cause I was like, 'cause I was 171 00:08:58,040 --> 00:09:03,240 kind of like, OK, I mean, one, I don't know how many businesses 172 00:09:03,240 --> 00:09:06,160 are out there truly trading at five times free cash flow that 173 00:09:06,160 --> 00:09:09,880 are buying in all their shares. But to your point, like, that is 174 00:09:09,880 --> 00:09:11,880 super valid. And if you can find them, I 175 00:09:11,880 --> 00:09:13,640 think owning those makes a lot of sense. 176 00:09:13,920 --> 00:09:15,960 Yeah. And the ones that are out there 177 00:09:16,040 --> 00:09:19,280 that like Einhorn for example, I think he's on some coal stocks 178 00:09:19,280 --> 00:09:21,560 and stuff like that and they're trading at, you know five times 179 00:09:21,560 --> 00:09:24,200 free cash flow and I think that's because the market is 180 00:09:24,200 --> 00:09:25,760 telling. Now. 181 00:09:26,120 --> 00:09:27,920 What's that? They're like 10:00-ish now. 182 00:09:27,920 --> 00:09:30,080 It's been a hell of a run. Yes, of course. 183 00:09:30,240 --> 00:09:32,840 But when they're trading at that five times level, they're saying 184 00:09:32,840 --> 00:09:35,080 like the markets like these earnings are not going to be 185 00:09:35,080 --> 00:09:37,800 here forever, right. So I think Einhorn's point is 186 00:09:38,280 --> 00:09:41,000 you're cheap, you're five times, so that's cheap. 187 00:09:41,320 --> 00:09:44,760 But if you're not, if the company is not acting on that, 188 00:09:44,760 --> 00:09:47,080 it's going to stay cheap because everyone thinks those earnings 189 00:09:47,080 --> 00:09:49,920 are going to fall off a Cliff. So if you're at the point then 190 00:09:49,920 --> 00:09:52,840 where you're either in a value trap or worse, you're in a 191 00:09:52,920 --> 00:09:55,160 company where you know you're at peak earnings or whatever it 192 00:09:55,160 --> 00:09:58,360 might be. So you need something to kind of 193 00:09:58,360 --> 00:10:02,480 close the gap and I think earlier in Einhorn's career, 194 00:10:03,320 --> 00:10:05,640 well, I mean it's a fact that I don't think it is a fact that 195 00:10:05,640 --> 00:10:08,160 earlier in Einhorn's career and you can look at the flows data, 196 00:10:08,400 --> 00:10:10,920 there was a lot more, you know, active investors out there, 197 00:10:10,920 --> 00:10:12,040 right. So much of the world has gone 198 00:10:12,040 --> 00:10:13,320 passive. You could look at the amount of 199 00:10:13,320 --> 00:10:16,440 money that has left active strategies have gone to passive 200 00:10:16,440 --> 00:10:18,600 strategies. And certainly in small cap, it's 201 00:10:18,600 --> 00:10:21,640 just been a complete extinction event in small cap active. 202 00:10:22,200 --> 00:10:24,280 So it used to be that there would be enough people out there 203 00:10:24,280 --> 00:10:27,280 to do the work, take the fundamental view, the 204 00:10:27,280 --> 00:10:30,200 intelligent business persons view and make a decision and 205 00:10:30,200 --> 00:10:32,640 possibly close the gap. But that incremental buyer, I 206 00:10:32,640 --> 00:10:34,400 don't want to say they've gone away completely, but it 207 00:10:34,400 --> 00:10:36,840 certainly seems like there's less of those fundamental 208 00:10:36,840 --> 00:10:40,440 incremental buyers and now it's just the quant incremental buyer 209 00:10:40,440 --> 00:10:43,600 or the Einhorn argument is you need the company to be the 210 00:10:43,600 --> 00:10:46,600 incremental buyer because otherwise it's just going to sit 211 00:10:46,600 --> 00:10:49,080 there. Yeah, I mean, you've been doing 212 00:10:49,080 --> 00:10:51,720 this for how long? Just past eight years on the 213 00:10:51,720 --> 00:10:55,720 track record. So do you find that the 214 00:10:55,720 --> 00:10:59,640 opportunity set today is like more attractive, less 215 00:10:59,640 --> 00:11:02,000 attractive? Do you have any sense of whether 216 00:11:02,000 --> 00:11:06,480 or not all those people leaving the market has created a more 217 00:11:06,760 --> 00:11:10,520 like a better opportunity set out there or have they left for 218 00:11:10,520 --> 00:11:11,400 a reason? It's. 219 00:11:11,640 --> 00:11:13,400 It's an interesting question to phrase it that way. 220 00:11:13,760 --> 00:11:16,160 The way I look at it, I think there are a ton of cheap stocks 221 00:11:16,160 --> 00:11:19,000 out there right now. But I think the other part of it 222 00:11:19,000 --> 00:11:22,240 is not just are they cheap, but again like how long are they 223 00:11:22,240 --> 00:11:24,800 going to be cheap or what is going to cause them to no longer 224 00:11:24,800 --> 00:11:28,160 be cheap. And looking at my own portfolio 225 00:11:28,160 --> 00:11:31,360 and I think I know another's of a pint on this, it's not enough 226 00:11:31,360 --> 00:11:34,400 to just execute as a business unless you have an infinite 227 00:11:34,400 --> 00:11:37,640 timeline and then at the end of that infinite timeline then you 228 00:11:37,640 --> 00:11:40,120 get your RE rating. Like I don't think you can only 229 00:11:40,120 --> 00:11:44,200 be betting on a RE rating which was kind of the the earlier 230 00:11:44,720 --> 00:11:47,240 earlier in Einhorn's career that was a big part of what I think 231 00:11:47,240 --> 00:11:48,840 he was doing. Like you get the RE rating, you 232 00:11:48,840 --> 00:11:51,080 get the next person to come along and like you can't bet on 233 00:11:51,080 --> 00:11:54,760 the RE rating anymore. So I think in general if RE 234 00:11:54,760 --> 00:11:57,240 rating is part of your thesis, you really have to stretch your 235 00:11:57,240 --> 00:11:58,840 timeline. Like you really have to be 236 00:11:58,840 --> 00:12:02,040 thinking not just like a mean reversion type RE rating, you 237 00:12:02,040 --> 00:12:05,240 have to think of a RE rating through the numbers, meaning 238 00:12:05,240 --> 00:12:09,480 that the the incremental buyer IE the Quan will take notice of 239 00:12:09,480 --> 00:12:13,000 what's happening. So and again I starting with me 240 00:12:13,000 --> 00:12:16,120 or my approach taking a three to five year view, it's feels like 241 00:12:16,120 --> 00:12:18,880 a really long time right now. It didn't used to feel like 242 00:12:19,120 --> 00:12:22,320 three to five years was so long because somewhere along that 243 00:12:22,320 --> 00:12:25,680 three to five year period if you were right that would kind of 244 00:12:25,680 --> 00:12:28,000 get pulled forward. And I don't know how much of 245 00:12:28,000 --> 00:12:30,960 that was, you know, the interest rate environment and just people 246 00:12:30,960 --> 00:12:32,920 being quicker to pull the trigger on things. 247 00:12:33,720 --> 00:12:35,240 I can't really explain that part of it. 248 00:12:35,240 --> 00:12:38,880 But in today's world or at least maybe the last two years call 249 00:12:38,880 --> 00:12:41,520 it, it feels like three to five years is very long. 250 00:12:41,520 --> 00:12:43,600 Because at least for me, when I'm starting with a three to 251 00:12:43,600 --> 00:12:46,320 five year thesis and the rest of the market is only thinking 252 00:12:46,320 --> 00:12:48,880 about what's going to happen next month with inflation or 253 00:12:48,880 --> 00:12:51,240 interest rates, you kind of have to sit there and say the 254 00:12:51,240 --> 00:12:53,560 market's going to care eventually about fundamental 255 00:12:53,560 --> 00:12:55,720 improvement. But right now the market is only 256 00:12:55,720 --> 00:12:58,360 caring about interest rates and inflation and fundamental 257 00:12:58,360 --> 00:13:01,680 improvement that is not showing up in the numbers yet. 258 00:13:02,080 --> 00:13:05,480 There's nobody to care. And yeah, yeah, it's frustrating 259 00:13:05,480 --> 00:13:08,040 when you own businesses that you feel like you can look at them 260 00:13:08,440 --> 00:13:11,120 and you can talk to the people, you can talk to the competitors, 261 00:13:11,120 --> 00:13:14,120 you can talk to the customers. You could start to see it in 262 00:13:14,120 --> 00:13:17,000 what they say that everything is going in the right direction. 263 00:13:17,640 --> 00:13:19,440 But maybe it's not in the numbers yet. 264 00:13:20,640 --> 00:13:22,600 You just you have to wait because there's not enough 265 00:13:22,600 --> 00:13:24,360 people. In theory there's not enough 266 00:13:24,360 --> 00:13:26,880 people that are looking past the numbers and taking the 267 00:13:26,880 --> 00:13:30,600 intelligent business persons approach, especially when 268 00:13:31,160 --> 00:13:34,520 everyone else knows that it's a short term game these days and 269 00:13:34,920 --> 00:13:37,720 you know everything from the interest rates and that sort of 270 00:13:37,720 --> 00:13:40,960 thing at the macro concerns. But also Bill and I were talking 271 00:13:40,960 --> 00:13:44,000 before we turn the camera on about pod shops and like if 272 00:13:44,000 --> 00:13:47,520 you're a pod shop, I mean you're playing the quarter to quarter 273 00:13:47,520 --> 00:13:50,040 game, that's all you're doing. I mean another one that's kind 274 00:13:50,040 --> 00:13:52,680 of mind blowing to think about. If you think of the guys at 275 00:13:52,680 --> 00:13:56,560 Renaissance, the best performing fund, I think it is it the 276 00:13:56,560 --> 00:13:59,000 medallion funded Renaissance. I believe so, yeah. 277 00:13:59,520 --> 00:14:01,840 Literally the best performing fund in the world over the 278 00:14:01,880 --> 00:14:05,840 however long it's been now and if you read the book, he says 279 00:14:05,840 --> 00:14:08,840 he's like he literally does not care what these businesses do. 280 00:14:09,400 --> 00:14:12,600 Like it's literally just short short term price movement and 281 00:14:12,600 --> 00:14:14,200 it's kind of hard to get your head around that. 282 00:14:14,200 --> 00:14:16,440 People like me who spend so much time thinking about the 283 00:14:16,440 --> 00:14:19,920 businesses and the people and the competition and and then 284 00:14:19,920 --> 00:14:21,880 there's a whole other group of people that just don't even 285 00:14:21,880 --> 00:14:26,240 care, does not even matter. And you know they're winning. 286 00:14:26,240 --> 00:14:28,880 They're doing a great job. So it's more and more people 287 00:14:28,880 --> 00:14:31,680 taking that view, or more and more computers taking that view. 288 00:14:32,520 --> 00:14:35,560 It's harder to understand how you get paid unless you're 289 00:14:35,560 --> 00:14:38,720 taking an even longer timeline than historically was necessary, 290 00:14:38,720 --> 00:14:41,960 I think. Yeah, I I looking at my phone 291 00:14:41,960 --> 00:14:45,960 because last night I was on the Twitter machine and somebody 292 00:14:46,160 --> 00:14:48,480 tweeted out, is it really tough for hedge funds to raise money 293 00:14:48,480 --> 00:14:51,600 right now? Ricky Sandler, a guy who has a 294 00:14:51,600 --> 00:14:54,880 fairly long track record in this industry, says for a single 295 00:14:54,880 --> 00:14:57,720 manager, non market neutral, it's as bad an environment for 296 00:14:57,720 --> 00:15:00,800 holding and raising assets as I can remember in my 29 years in 297 00:15:00,800 --> 00:15:02,880 the business. I think that's interesting, 298 00:15:03,480 --> 00:15:05,160 right? I don't know what to take from 299 00:15:05,160 --> 00:15:07,200 it. I've done a few episodes 300 00:15:07,200 --> 00:15:09,240 recently that will be coming out sort of. 301 00:15:09,240 --> 00:15:11,440 These conversations are not perfectly aligned with the 302 00:15:11,440 --> 00:15:14,600 editing process. But anyway that I espoused the 303 00:15:14,600 --> 00:15:17,360 merits of ETFs for their tax efficiency. 304 00:15:17,360 --> 00:15:22,000 And I've said like maybe I've in the past, I've said I'm I'm 305 00:15:22,000 --> 00:15:24,680 probably going to index. That's not precisely correct. 306 00:15:24,680 --> 00:15:28,920 I I may try to use more ETFs, but then there's the part of me 307 00:15:28,920 --> 00:15:31,880 that's like, dude, if everyone is going to one side of the 308 00:15:31,880 --> 00:15:34,800 boat, it is the wrong time to go to that side of the boat. 309 00:15:35,320 --> 00:15:37,680 And I I don't know how to hold those two thoughts in my head at 310 00:15:37,680 --> 00:15:40,560 the same time. Yeah, I mean it it's hard, I 311 00:15:40,560 --> 00:15:43,120 don't know that there is a perfect answer except to say 312 00:15:43,160 --> 00:15:45,840 that you can look historically the way these things work, you 313 00:15:45,840 --> 00:15:49,000 know, value invest in, which is a term that I I don't really 314 00:15:49,000 --> 00:15:51,640 love that term because it means certain things to some people 315 00:15:51,640 --> 00:15:53,040 and something else to other people. 316 00:15:53,440 --> 00:15:56,320 But historically with these things like you can go sideways 317 00:15:56,320 --> 00:15:59,480 for a long time and then have a huge rereading really quickly 318 00:15:59,560 --> 00:16:02,320 once it comes together and that that's kind of on the index 319 00:16:02,320 --> 00:16:05,000 level or you know, the factor levels, the small cap factor 320 00:16:05,000 --> 00:16:06,680 level. But even with individual 321 00:16:06,680 --> 00:16:09,520 companies, it has been my experience that if you're buying 322 00:16:09,520 --> 00:16:13,440 something that is truly cheap, I don't know, I want to take that 323 00:16:13,440 --> 00:16:15,600 back because I don't start with how cheap something is. 324 00:16:15,600 --> 00:16:18,200 I'd start with like, how can earnings power improve over 325 00:16:18,200 --> 00:16:20,600 time? And then if it's also cheap, 326 00:16:20,600 --> 00:16:22,520 well, then that's a winning combination. 327 00:16:22,920 --> 00:16:25,520 But if you have something that's truly going to increase its 328 00:16:25,520 --> 00:16:28,640 earnings power over time and you're not paying a crazy price 329 00:16:28,640 --> 00:16:32,160 going in like you're going to be, you're going to be rewarded 330 00:16:32,160 --> 00:16:35,040 eventually. We don't know when And what 331 00:16:35,080 --> 00:16:37,320 often happens, and what I feel like is happening with a lot of 332 00:16:37,320 --> 00:16:40,840 cheap names that do not appear cheap right now is they're doing 333 00:16:40,840 --> 00:16:44,080 all the right things. There are thousands of hundreds 334 00:16:44,080 --> 00:16:45,960 of thousands of people or whatever it is out there that 335 00:16:45,960 --> 00:16:48,920 are going to work every day at these businesses and moving the 336 00:16:48,920 --> 00:16:52,320 business forward and everything isn't going the right direction. 337 00:16:53,240 --> 00:16:54,840 Most things are going in the right direction. 338 00:16:54,840 --> 00:16:58,200 Of course they all have their own individual struggles, but if 339 00:16:58,200 --> 00:17:00,640 they are doing the right thing and if the thesis behind the 340 00:17:00,640 --> 00:17:03,320 business proves itself out over time, you're going to get paid. 341 00:17:03,800 --> 00:17:06,520 It's just possible that it goes sideways for like two or three 342 00:17:06,520 --> 00:17:08,920 years. And of course opportunity cost 343 00:17:08,920 --> 00:17:12,839 is real and I think that also contributes to more people kind 344 00:17:12,839 --> 00:17:15,800 of leaving small cap land is the opportunity cost is real. 345 00:17:15,800 --> 00:17:19,119 When you can look at the mega caps or whatever it might be and 346 00:17:19,119 --> 00:17:23,240 say why be patient on a small cap when I could just buy NVIDIA 347 00:17:23,240 --> 00:17:26,480 and it goes up 100% every six months or whatever it is like. 348 00:17:27,359 --> 00:17:29,480 Seems like it's a lot more fun to have something that goes up 349 00:17:29,480 --> 00:17:31,480 every six, 100% every six months. 350 00:17:31,960 --> 00:17:34,640 It definitely would be more fun. Yeah, rather than, you know, 351 00:17:34,640 --> 00:17:37,640 sitting in a corner by yourself saying no, the fundamentals are 352 00:17:37,640 --> 00:17:39,840 improving. It's frustrating, it's hard, but 353 00:17:40,160 --> 00:17:42,640 eventually you get paid. And that's I think the biggest 354 00:17:42,640 --> 00:17:46,120 thing is like having to stick with it, stick with the process 355 00:17:46,680 --> 00:17:49,520 for extended periods of time when so many others are 356 00:17:49,520 --> 00:17:53,000 abandoning the process, especially when the abandoning 357 00:17:53,000 --> 00:17:55,800 of the process is often happening at the agent level, 358 00:17:55,800 --> 00:17:59,040 the allocator level rather than the practitioner level. 359 00:17:59,640 --> 00:18:02,240 So you're not even, you don't even get to have a conversation 360 00:18:02,240 --> 00:18:03,800 with people about why that's happening. 361 00:18:03,800 --> 00:18:05,400 Like it's out of the practitioners hands. 362 00:18:05,400 --> 00:18:06,720 So you kind of just have to wait. 363 00:18:07,240 --> 00:18:09,840 But again, if you're buying things that are going to be at 5 364 00:18:09,840 --> 00:18:12,320 times free cash flow in two or three years and it's going to 365 00:18:12,320 --> 00:18:14,880 show up in the financial statements, you're going to get 366 00:18:14,880 --> 00:18:17,720 paid. Just so I understand what you're 367 00:18:17,720 --> 00:18:20,360 saying, when you say that it's happening at the agent level, 368 00:18:20,360 --> 00:18:23,520 you're saying that that the allocators generally, whether 369 00:18:23,520 --> 00:18:27,680 that's institution, retail, whatever are choosing to go to 370 00:18:27,680 --> 00:18:32,320 the products that are working or more SPY or whatever, right? 371 00:18:32,800 --> 00:18:36,240 Yeah, and to be clear, there's a lot of valid reason to do that. 372 00:18:36,240 --> 00:18:39,520 But among those valid reasons, valid at the individual level is 373 00:18:39,520 --> 00:18:42,520 like is job security, right? I mean, if you're an allocator 374 00:18:42,520 --> 00:18:46,160 and you're saying no, no, no, no, let's stick with this, even 375 00:18:46,160 --> 00:18:49,600 though it's not working, eventually you don't have your 376 00:18:49,600 --> 00:18:51,680 job anymore, right? Like, you have to go. 377 00:18:52,280 --> 00:18:56,080 You have to do what's working. And it's a hard problem to solve 378 00:18:56,080 --> 00:19:00,000 except to continue to believe that if you have businesses, 379 00:19:00,000 --> 00:19:03,200 good businesses run by good people that are generating a lot 380 00:19:03,200 --> 00:19:05,800 of cash, eventually someone, somewhere will care. 381 00:19:06,200 --> 00:19:08,760 I just think you have to wait a little bit longer to get to that 382 00:19:08,760 --> 00:19:13,320 point today because if that cash is completely apparent today, 383 00:19:13,520 --> 00:19:15,840 going back to where we started, if that cash is completely 384 00:19:15,840 --> 00:19:19,800 apparent today, well then it's not cheap because there's 80% of 385 00:19:19,800 --> 00:19:21,960 the market or whatever that is just focused on that. 386 00:19:22,480 --> 00:19:26,720 If that cash flow is 2 years from now or whatever it might 387 00:19:26,720 --> 00:19:30,120 be, that feels like 1,000,000 miles away in a market that 388 00:19:30,120 --> 00:19:32,160 right now is just month to month macro. 389 00:19:32,520 --> 00:19:34,960 And then there's been numerous articles lately about the rise 390 00:19:34,960 --> 00:19:37,840 of pod shops or multi manager platforms and how they're just 391 00:19:38,240 --> 00:19:40,960 market neutral quarter to quarter backdrop. 392 00:19:40,960 --> 00:19:44,920 Also with less and less people on the institutional research 393 00:19:44,920 --> 00:19:47,600 side spending time in small cap while spending time anywhere but 394 00:19:47,600 --> 00:19:51,240 especially spending time in small cap, you'd have to be more 395 00:19:51,240 --> 00:19:52,560 patient. And that's another thing to 396 00:19:52,560 --> 00:19:55,480 think about with the the sell side in small caps and going 397 00:19:55,480 --> 00:19:58,560 back to the idea that so much of the market is powered by quants 398 00:19:58,560 --> 00:20:01,440 now. So another way that I think 399 00:20:01,440 --> 00:20:03,560 about it. And to be clear, I'm quite 400 00:20:03,560 --> 00:20:06,000 certain that quants are infinitely more sophisticated 401 00:20:06,000 --> 00:20:09,320 than I will ever realize, but. If you really boil it down for 402 00:20:09,320 --> 00:20:12,960 fundamental type quants, they're only have two inputs, right? 403 00:20:13,320 --> 00:20:16,080 One is the rearview mirror and the other is the windshield. 404 00:20:16,640 --> 00:20:19,240 And we just talked about the rearview mirror and how if 405 00:20:19,240 --> 00:20:21,880 you're looking at things that in the rearview mirror look cheap, 406 00:20:21,880 --> 00:20:23,600 well, I think you should be suspicious. 407 00:20:24,000 --> 00:20:25,960 And if you're looking at things in the rearview mirror that are 408 00:20:25,960 --> 00:20:28,440 pretty ugly, maybe that's interesting, maybe not. 409 00:20:28,440 --> 00:20:31,800 I mean, you have to do the work, but looking through the 410 00:20:31,800 --> 00:20:36,000 windshield, there's not really many cell side firms that are 411 00:20:36,000 --> 00:20:39,440 doing a great job on small caps. And in many cases there's 412 00:20:39,440 --> 00:20:41,560 interesting small caps that have no research at all. 413 00:20:42,040 --> 00:20:44,960 So then if you take a company like in my like my kind of best 414 00:20:44,960 --> 00:20:47,880 case scenario for an idea that I think is interesting is the 415 00:20:47,880 --> 00:20:49,800 trailing financials are meaningless because the 416 00:20:49,800 --> 00:20:53,040 company's gone through some sort of fundamental change, business 417 00:20:53,040 --> 00:20:55,000 transition, whatever it means, whatever it might be. 418 00:20:55,000 --> 00:20:57,240 So looking backwards doesn't really tell you the truth about 419 00:20:57,240 --> 00:21:00,120 what's actually happening. And then looking forward, maybe 420 00:21:00,120 --> 00:21:02,760 there's nothing there for the quants to focus on because 421 00:21:02,760 --> 00:21:05,600 there's either no research coverage or you know, two or 422 00:21:05,600 --> 00:21:09,160 three small cap analysts that cover 40 names and they 423 00:21:09,160 --> 00:21:11,880 essentially regurgitate the press release and call it a a 424 00:21:12,040 --> 00:21:15,000 research report that should be an opportunity. 425 00:21:16,040 --> 00:21:18,720 But again, you need that incremental buyer, you need the, 426 00:21:18,800 --> 00:21:21,480 the in this case the theory is that the quant is the 427 00:21:21,480 --> 00:21:23,960 incremental buyer. So you're not going to get that 428 00:21:23,960 --> 00:21:26,400 incremental buyer though until it's in the trailing numbers. 429 00:21:26,400 --> 00:21:29,400 Like, there's no way to even look forward like the, the 430 00:21:29,400 --> 00:21:31,160 Druckenmiller quote of think of like what? 431 00:21:31,160 --> 00:21:32,680 Where you're going to be in 18 months. 432 00:21:32,960 --> 00:21:35,360 The quants have no idea where they're going to be in 18 months 433 00:21:35,360 --> 00:21:37,360 because they literally don't have forward inputs. 434 00:21:37,840 --> 00:21:41,320 So like, they're then talking about not 18 months, but add 12 435 00:21:41,320 --> 00:21:43,440 on to that called a year for it to get through with the 436 00:21:43,440 --> 00:21:45,640 financials before anyone might care. 437 00:21:45,640 --> 00:21:50,240 So you got 2 1/2 years, assuming that the business quickly gets 438 00:21:50,240 --> 00:21:53,120 to where it should be, where in reality it'll start to show up 439 00:21:53,120 --> 00:21:55,560 in the numbers a little bit, then a little bit more and then 440 00:21:55,560 --> 00:21:58,480 a little bit more, and it could take years. 441 00:21:58,840 --> 00:22:01,040 And it's frustrating time, I think, for a lot of active 442 00:22:01,040 --> 00:22:03,960 managers to own businesses and say, wow, like they are really 443 00:22:03,960 --> 00:22:06,560 executing. And in theory, if a business is 444 00:22:06,560 --> 00:22:08,440 executing, it is not a value trap. 445 00:22:09,280 --> 00:22:11,600 But it certainly feels like a value trap when the stock is 446 00:22:11,600 --> 00:22:14,720 just standing still. Yeah. 447 00:22:15,000 --> 00:22:17,040 Anyway, I was having a conversation with somebody 448 00:22:17,040 --> 00:22:21,480 that's got an SPV and I believe the company is executing. 449 00:22:21,480 --> 00:22:22,920 I'm not the one that runs the SPV. 450 00:22:22,920 --> 00:22:27,920 So, but the story is that it's executing, but the SPV investors 451 00:22:28,320 --> 00:22:30,760 are getting impatient, right, 'cause it's like taking a little 452 00:22:30,760 --> 00:22:33,400 bit longer. And to your point on opportunity 453 00:22:33,400 --> 00:22:38,800 cost, I do think it's very hard to say, OK, look, maybe on a 454 00:22:38,800 --> 00:22:42,200 spreadsheet it was supposed to take nine months and maybe now 455 00:22:42,200 --> 00:22:46,200 it's taken 15 months, but there is true development that's going 456 00:22:46,200 --> 00:22:50,680 in the right way here. Meanwhile, these stocks are 457 00:22:50,680 --> 00:22:54,840 flying all around you right up, and they're getting vacuumed up 458 00:22:54,840 --> 00:22:57,000 by the incremental flows and whatnot. 459 00:22:57,000 --> 00:22:59,960 Whether whoever that buyer is, it's just very hard to stay the 460 00:22:59,960 --> 00:23:02,040 course. Yeah, there's no question it's 461 00:23:02,040 --> 00:23:05,280 challenging and I kind of think of it as the biggest risk for 462 00:23:05,280 --> 00:23:08,920 people in my seat or LP's or allocators who are invest with 463 00:23:08,920 --> 00:23:11,160 people like me. The biggest risk is deciding 464 00:23:11,160 --> 00:23:14,080 it's time to chase performance and you know switch up a process 465 00:23:14,080 --> 00:23:18,800 that that works and assuming the process is executed properly, 466 00:23:18,800 --> 00:23:21,560 it's, I believe it's something that will always work right. 467 00:23:21,560 --> 00:23:24,400 If the general thesis is earnings power goes up over 468 00:23:24,400 --> 00:23:28,120 time, the stock will go up over time unless you way over pay 469 00:23:28,120 --> 00:23:30,840 going in like I think that is always going to be true. 470 00:23:31,400 --> 00:23:32,680 Sometimes it doesn't feel that way. 471 00:23:33,160 --> 00:23:37,080 Yeah, Well, yeah, that's right. I was just writing down as you 472 00:23:37,080 --> 00:23:38,560 were saying that. Do you mind it? 473 00:23:38,560 --> 00:23:40,880 Like, you know, I read your Grandma Doddsville interview. 474 00:23:41,120 --> 00:23:44,800 Do you mind talking a little bit about how you view LP selection 475 00:23:44,800 --> 00:23:48,160 and lock UPS 'cause I thought that that was a nice 476 00:23:48,160 --> 00:23:51,680 conversation on like looking at a lock up as an alignment 477 00:23:51,680 --> 00:23:55,040 function as opposed to a restrictive thing. 478 00:23:55,320 --> 00:23:56,480 Sure. Yeah. 479 00:23:56,480 --> 00:23:59,520 So I guess the way I always explain it to people, and I 480 00:23:59,680 --> 00:24:01,400 don't know what I'm allowed to say here, 'cause I don't want 481 00:24:01,400 --> 00:24:02,840 this to be a marketing thing for me. 482 00:24:02,840 --> 00:24:05,800 So like for funds in general, we're not talking about what my 483 00:24:05,800 --> 00:24:09,800 fund has, but for funds in general if they have a lock up, 484 00:24:09,800 --> 00:24:13,040 One way to look at it and the way that I look at it is the 485 00:24:13,040 --> 00:24:14,960 lock up is not meant to keep people in. 486 00:24:14,960 --> 00:24:17,120 The lock up is meant to keep the wrong people out. 487 00:24:17,960 --> 00:24:22,000 And that's how I think about it because central to my strategy 488 00:24:22,000 --> 00:24:24,280 which we kind of talked about already is a three to five year 489 00:24:24,280 --> 00:24:26,960 view. And there's nothing scarier to 490 00:24:26,960 --> 00:24:31,640 me than a potential LP who misses more on the the retail 491 00:24:31,640 --> 00:24:34,320 side than the institutional side, but like a potential LP 492 00:24:34,320 --> 00:24:37,520 who is maybe, you know, living in like a third tier city and is 493 00:24:37,520 --> 00:24:40,800 locally wealthy and therefore thinks he knows a lot about 494 00:24:40,800 --> 00:24:42,440 investing. And maybe he does, right? 495 00:24:42,440 --> 00:24:44,480 Like you could totally have a great LP like that. 496 00:24:44,800 --> 00:24:47,520 But there's nothing scary to me than taking money from an LP 497 00:24:47,520 --> 00:24:50,840 like that. And then, you know, it's a year 498 00:24:50,840 --> 00:24:52,480 or eighteen months later or whatever it might be. 499 00:24:52,480 --> 00:24:55,400 And they say where's the performance, what what's 500 00:24:55,400 --> 00:24:57,440 happening here? And then I have to explain to 501 00:24:57,440 --> 00:25:01,080 them, well look we've hit some bumps in the road or the 502 00:25:01,080 --> 00:25:03,800 businesses are executing, but the market is focused more on 503 00:25:03,800 --> 00:25:06,880 macro or whatever it might be. That's just a bad use of time 504 00:25:07,160 --> 00:25:10,000 from my perspective to deal with people that are going to get 505 00:25:10,000 --> 00:25:11,520 panicked. So like I think if you want to 506 00:25:11,520 --> 00:25:14,880 invest in a small cap concentrated portfolio, you need 507 00:25:14,880 --> 00:25:18,360 to take a multi year view or it's just not worth your time. 508 00:25:18,360 --> 00:25:20,880 You know you should be doing your indexing or whatever it 509 00:25:20,880 --> 00:25:23,120 might be. But if you want to get the 510 00:25:23,120 --> 00:25:26,400 potential upside that could come from a smaller cap focus, more 511 00:25:26,400 --> 00:25:29,520 concentrated portfolio, you have to understand these things don't 512 00:25:29,520 --> 00:25:31,800 come in a straight line and you have to be patient and wait for 513 00:25:31,800 --> 00:25:35,280 it. So I don't think I've ever 514 00:25:35,840 --> 00:25:39,600 talked to a potential LP that said that they were not super 515 00:25:39,600 --> 00:25:42,560 long term focused. All of them are when they say it 516 00:25:42,560 --> 00:25:44,440 right. I don't think I've ever submit 517 00:25:44,440 --> 00:25:47,320 an investor in any case has said like, Oh no, I'm only here for 518 00:25:47,320 --> 00:25:49,600 next quarter. That's crazy, right? 519 00:25:49,600 --> 00:25:51,720 That doesn't exist. So everybody says it. 520 00:25:51,720 --> 00:25:54,880 But if you really say it and you really mean it, you should be 521 00:25:54,880 --> 00:25:57,880 comfortable with taking a longer lock up period. 522 00:25:57,880 --> 00:26:00,960 Understanding that it's it's not to keep you in, it's to keep the 523 00:26:00,960 --> 00:26:03,240 wrong people out. Because some people will look at 524 00:26:03,240 --> 00:26:05,480 it right away and say, oh, I I can't do that. 525 00:26:05,480 --> 00:26:07,360 You know, three years is too long. 526 00:26:08,040 --> 00:26:10,840 And I'm saying, well, it's if you look at the history of 527 00:26:10,840 --> 00:26:13,840 public market investings, 3 years is not too long. 528 00:26:13,840 --> 00:26:18,160 And the data is very clear that if you, if you invest, I'm sure 529 00:26:18,160 --> 00:26:19,680 you've seen these tables where it's like the average 530 00:26:19,680 --> 00:26:21,240 performance. If you hold a stock for one 531 00:26:21,240 --> 00:26:23,880 year, it's kind of a coin flip and then if it's three years, 532 00:26:23,880 --> 00:26:25,720 it's like you win. I don't know I'm making these 533 00:26:25,720 --> 00:26:28,960 numbers up, but like 65% of the time and then five years it's 534 00:26:28,960 --> 00:26:32,520 75% of the time and then over any 10 year period you're like 535 00:26:32,560 --> 00:26:35,040 pretty much guaranteed to have a a decent result. 536 00:26:35,040 --> 00:26:38,200 That should temper the word. Guaranteed, guaranteed. 537 00:26:38,240 --> 00:26:39,760 But yes, I understand. What guarantees? 538 00:26:39,760 --> 00:26:43,000 But like, the odds swing more heavily in your favor the longer 539 00:26:43,000 --> 00:26:45,760 your timeline like that, I don't think. 540 00:26:46,440 --> 00:26:50,440 There's ever been a 20 year period where the S&P has lost 541 00:26:50,440 --> 00:26:51,920 money. Yeah, I don't. 542 00:26:52,280 --> 00:26:53,840 I I mean, I can't. Think that I don't think that 543 00:26:53,840 --> 00:26:59,880 that's true. I I might what would 2021 or the 544 00:26:59,880 --> 00:27:03,560 COVID crash I that would have had to be above 99 I think. 545 00:27:04,040 --> 00:27:06,440 Anyway, I'm almost certain that that's a fact. 546 00:27:08,240 --> 00:27:10,560 Yeah. So since I've since I've said 547 00:27:10,560 --> 00:27:12,840 that, I'm 70% certain when I say I'm certain. 548 00:27:13,680 --> 00:27:16,120 Take that for what it's worth. Perfect. 549 00:27:17,000 --> 00:27:18,480 Yeah. I think it just comes down to 550 00:27:18,480 --> 00:27:21,000 the, the idea that, like, if you're going to invest in 551 00:27:21,000 --> 00:27:24,040 anything public markets, I mean, start with Charlie Munger, like 552 00:27:24,040 --> 00:27:26,440 you need to be ready for that 50% drawdown. 553 00:27:26,960 --> 00:27:30,320 And the biggest determinant of success over time is like, are 554 00:27:30,320 --> 00:27:34,040 you able to stay invested? And the way I think about it 555 00:27:34,040 --> 00:27:37,200 from my own fund, which we're not really talking about, South 556 00:27:37,200 --> 00:27:40,320 funds, like mine will say, if you really believe it, then you 557 00:27:40,320 --> 00:27:43,600 should be comfortable committing to it and that's fine. 558 00:27:43,880 --> 00:27:46,320 If you're not, there's plenty of other options for you. 559 00:27:46,640 --> 00:27:51,240 But for me personally, like I am, I am almost 100% invested in 560 00:27:51,240 --> 00:27:53,200 my own fund. Like, I have very, very, very 561 00:27:53,200 --> 00:27:56,560 few, sparingly few assets that are not invested in the fund. 562 00:27:57,120 --> 00:27:59,120 So I take it seriously, like who the partners are. 563 00:27:59,120 --> 00:28:01,040 I wanted to be a true partnership, people who 564 00:28:01,040 --> 00:28:03,600 understand what we're doing and are here for the long term. 565 00:28:04,040 --> 00:28:06,760 And there's nothing more dangerous to me and my own 566 00:28:06,760 --> 00:28:09,480 personal performance. This is me being being straight 567 00:28:09,480 --> 00:28:11,560 up selfish. There's nothing more dangerous 568 00:28:11,560 --> 00:28:14,280 to my own personal performance than having partners that are 569 00:28:14,280 --> 00:28:18,720 going to panic at the wrong time or, you know, act responsibly at 570 00:28:18,720 --> 00:28:20,280 the wrong time, whatever it might be. 571 00:28:20,520 --> 00:28:24,960 So I'm happy to try to put something in place that I think 572 00:28:24,960 --> 00:28:27,960 is to the benefit of everybody, but not everybody views it that 573 00:28:27,960 --> 00:28:30,560 way that some people think, no, this is bad for me, and OK, 574 00:28:30,640 --> 00:28:31,440 that's all right. Yeah. 575 00:28:31,440 --> 00:28:34,200 Well, that's a very good screening mechanism. 576 00:28:35,280 --> 00:28:36,600 That's what I'm trying to do, yeah. 577 00:28:36,600 --> 00:28:38,840 It's I guess the way I always think about it is for most 578 00:28:38,840 --> 00:28:42,440 people, for most people, what you were talking about, like 579 00:28:42,440 --> 00:28:45,240 investing in ETFs or index funds or whatever it might be, it's 580 00:28:45,240 --> 00:28:47,120 it's probably best, right? And this is not. 581 00:28:47,720 --> 00:28:49,920 I'm not trying to put myself on a podium or anything like that. 582 00:28:49,920 --> 00:28:51,960 It's just a genetic biologic thing. 583 00:28:51,960 --> 00:28:54,720 Like, people are most comfortable in the herd for lots 584 00:28:54,720 --> 00:28:57,920 of evolutionary reasons, and there's absolutely nothing wrong 585 00:28:57,920 --> 00:29:00,080 with that. But the rewards are substantial. 586 00:29:00,080 --> 00:29:03,080 If you're able to step away from the herd, you just have to make 587 00:29:03,080 --> 00:29:05,600 sure you're really able to step away from the herd. 588 00:29:05,600 --> 00:29:07,760 And you don't just think you could step away from the herd. 589 00:29:07,760 --> 00:29:10,920 Because if you think you can and then all of a sudden you're not 590 00:29:10,920 --> 00:29:14,160 in the herd and you panic, well, you know, that's that's where 591 00:29:14,160 --> 00:29:15,760 you go to die sort of thing. Yeah. 592 00:29:16,800 --> 00:29:19,520 You know, the other thing is I'm just thinking about what you're 593 00:29:19,520 --> 00:29:23,840 saying and the hot money. I've been thinking a lot about. 594 00:29:24,080 --> 00:29:26,600 Like, I found Ackman's interview to be pretty good. 595 00:29:26,960 --> 00:29:29,880 Well, very good, at least the investing portion of it. 596 00:29:30,000 --> 00:29:33,760 And then I've been thinking about like, what made Buffett so 597 00:29:33,760 --> 00:29:37,440 resilient. And I I thought it was kind of 598 00:29:37,440 --> 00:29:39,200 interesting. Ackman said that he didn't think 599 00:29:39,200 --> 00:29:44,280 that he was born with the emotional I I'm gonna say 600 00:29:44,280 --> 00:29:45,840 apathy. I don't know if apathy is the 601 00:29:45,840 --> 00:29:50,160 right word, but like not getting impacted by volatility and he 602 00:29:50,160 --> 00:29:54,080 had to learn it and he talked about like you've got to have 603 00:29:54,080 --> 00:29:58,120 income coming in, right, or be like financially secure and then 604 00:29:58,120 --> 00:30:01,120 you've got to be able to be, you know, contrarian in spots, 605 00:30:01,120 --> 00:30:03,400 right. And if you run a fund and then 606 00:30:03,400 --> 00:30:06,000 you've got people that are coming in and out it, it kind of 607 00:30:06,000 --> 00:30:10,160 like I would imagine it impacts the income that's coming into 608 00:30:10,160 --> 00:30:12,520 you. It also takes away from the time 609 00:30:12,520 --> 00:30:14,840 that you should be spending doing other things. 610 00:30:15,240 --> 00:30:19,560 And it's probably not for the LP that you you want anyway, right? 611 00:30:19,560 --> 00:30:22,120 It's like a massive distraction in many different ways. 612 00:30:22,240 --> 00:30:24,640 Yeah, I have the Ackman, it could be in my queue. 613 00:30:24,640 --> 00:30:27,760 I haven't listened to it yet. But yes, it, I mean the way I 614 00:30:27,760 --> 00:30:30,320 think about it is just like let's say it's, I don't know, 615 00:30:30,360 --> 00:30:34,400 COVID lows or 2009 or whatever it is and like that is the whole 616 00:30:34,400 --> 00:30:37,160 world is panicking. That is the time as an investor 617 00:30:37,160 --> 00:30:39,960 you need to be most excited. You need to be trying to buy as 618 00:30:39,960 --> 00:30:42,640 much as you can or think the most clearly. 619 00:30:42,640 --> 00:30:45,280 And it's very hard with one hand to be saying like, oh, I want to 620 00:30:45,280 --> 00:30:47,600 be buying and researching, with the other hand saying I'm going 621 00:30:47,600 --> 00:30:49,880 to be selling to redeem somebody like you can't. 622 00:30:51,200 --> 00:30:53,520 At least my, I don't think my brain could handle that very 623 00:30:53,520 --> 00:30:56,040 well. I'd rather be solely focused on 624 00:30:56,400 --> 00:30:59,120 making the investments at that difficult period that are going 625 00:30:59,120 --> 00:31:02,040 to reward us for the next 3-5 or ten years or whatever it might 626 00:31:02,040 --> 00:31:05,360 be not worrying about, well let's buy some, but then we have 627 00:31:05,360 --> 00:31:08,240 to sell it because we have redemptions and I think very 628 00:31:08,240 --> 00:31:11,640 challenging both intellectually and emotionally to have to deal 629 00:31:11,640 --> 00:31:13,600 with that. So I think it's a much better 630 00:31:13,600 --> 00:31:16,440 structure and I think of it as a huge competitive advantage as an 631 00:31:16,440 --> 00:31:20,360 investor to have a sort of semi permanent capital base where you 632 00:31:20,360 --> 00:31:22,960 know that everyone who's one of your partners is truly a long 633 00:31:22,960 --> 00:31:26,440 term thinker and not only do they say it, they have put their 634 00:31:26,440 --> 00:31:28,280 name down and signed the line to prove. 635 00:31:28,280 --> 00:31:30,120 It, yeah. It's funny because you know in a 636 00:31:30,120 --> 00:31:33,800 private vehicle like a lock up is the expectation, right? 637 00:31:33,800 --> 00:31:37,080 Yeah, it's 1010 years or two years options that they have and 638 00:31:37,080 --> 00:31:39,640 then there's probably a continuation option at this 639 00:31:39,640 --> 00:31:42,480 point that that they can have and people don't give a shit, 640 00:31:42,480 --> 00:31:44,040 right? But you put it in a public 641 00:31:44,040 --> 00:31:45,560 wrapper and people start to care. 642 00:31:45,680 --> 00:31:46,760 Yeah. I mean, this is what Cliff 643 00:31:46,800 --> 00:31:49,760 Asness has talked about a lot of times over at AQR with, you 644 00:31:49,760 --> 00:31:52,080 know, basically volatility laundering is what he calls it. 645 00:31:52,080 --> 00:31:54,840 He's just put it in private and then it doesn't matter if it 646 00:31:54,840 --> 00:31:56,760 goes up or, you know, if the economy goes up or down or 647 00:31:56,760 --> 00:31:59,120 whatever, mysteriously, the marks do not appear. 648 00:31:59,520 --> 00:32:04,000 So you're fine. Yeah, yeah, it's interesting. 649 00:32:04,160 --> 00:32:07,840 I was able like it was like a lunch or whatever that Steve 650 00:32:07,840 --> 00:32:12,840 Schwarzman talked at yesterday and he was talking about there 651 00:32:12,840 --> 00:32:14,400 was a real estate deal that he did. 652 00:32:14,400 --> 00:32:16,560 I think it was the 90s. The government was selling a 653 00:32:16,560 --> 00:32:21,120 bunch of real real estate and banks weren't lending on it at 654 00:32:21,120 --> 00:32:24,320 the time. And he found out by talking to 655 00:32:24,320 --> 00:32:26,240 somebody in the government that this is happening. 656 00:32:26,680 --> 00:32:28,480 And he said, well, who's able to buy this? 657 00:32:28,600 --> 00:32:31,160 And the guy said it's basically dentists and doctors. 658 00:32:31,160 --> 00:32:35,080 It's people that have some cash flow outside of the property 659 00:32:35,360 --> 00:32:37,760 that they can lever and then they can buy the property 660 00:32:37,760 --> 00:32:40,120 because they can see through to the upswing. 661 00:32:40,680 --> 00:32:46,040 And the way he told the story is he he partnered with Goldman to 662 00:32:46,040 --> 00:32:50,640 bid on a portfolio of this stuff and he set the price at 16% 663 00:32:50,920 --> 00:32:54,440 entry, free cash flow yield. And Goldman was like, well, no 664 00:32:54,440 --> 00:32:56,120 one's bidding. Like you don't need to buy 665 00:32:56,120 --> 00:32:57,680 there. And he said, look, this is like 666 00:32:57,680 --> 00:33:00,360 good enough, right? We're going to do fine. 667 00:33:00,800 --> 00:33:05,080 And it was a massive win. And I asked him later, I said, 668 00:33:05,080 --> 00:33:07,600 you know, where did 16% come from? 669 00:33:07,600 --> 00:33:10,200 I don't think that's possibly just some random number. 670 00:33:10,640 --> 00:33:14,200 And and I said what, how are you thinking of opportunity cost to 671 00:33:14,200 --> 00:33:16,680 capital? And he said, I don't ever really 672 00:33:16,680 --> 00:33:18,080 think that way. And I said, well, I'm more mean 673 00:33:18,080 --> 00:33:20,000 it in like the Charlie Munger way, right. 674 00:33:20,000 --> 00:33:23,440 What was your next best idea? And he said, well look, this is 675 00:33:23,440 --> 00:33:26,040 how I see it. It was an asset that was going 676 00:33:26,040 --> 00:33:28,400 to be there. The earnings power was going to 677 00:33:28,400 --> 00:33:30,840 improve, right? They were going to get rents, 678 00:33:30,840 --> 00:33:32,760 were going to stabilize. It was a panic. 679 00:33:33,120 --> 00:33:35,760 And I paid 6 times EBITDA minus cash flow. 680 00:33:35,760 --> 00:33:38,560 And he's like, if you can get those three things together, 681 00:33:38,920 --> 00:33:41,480 you'll never go wrong. And I thought it was a really 682 00:33:41,480 --> 00:33:44,200 interesting story. And I I've just been trying to 683 00:33:44,200 --> 00:33:48,040 think about like those kind of bets and where I think you need 684 00:33:48,040 --> 00:33:50,640 to be personally to be able to go against the crowd in that 685 00:33:50,640 --> 00:33:52,720 kind of way. There's a lot that I've been 686 00:33:52,720 --> 00:33:55,640 noodling on. I I think a lazy personal 687 00:33:55,640 --> 00:33:59,200 balance sheet is important. I think the right partners is 688 00:33:59,200 --> 00:34:02,160 important, whatever that is, whether that's, you know, I 689 00:34:02,160 --> 00:34:04,680 mean, I'd even define like AETF as a partner, right? 690 00:34:04,680 --> 00:34:06,520 It's somebody that you've decided to give your money to. 691 00:34:06,520 --> 00:34:09,320 That hood should give back over time and then and then 692 00:34:09,320 --> 00:34:11,920 temperament. I don't know. 693 00:34:12,239 --> 00:34:14,199 It's it's interesting the way you phrase it though I think you 694 00:34:14,199 --> 00:34:17,679 said that that he described it as you know the 60% was good 695 00:34:17,679 --> 00:34:20,920 enough and good enough is something that I think about a 696 00:34:20,920 --> 00:34:22,000 lot. I've I've written about in a 697 00:34:22,000 --> 00:34:25,719 couple of my letters because in a in a crazy world with the 698 00:34:25,719 --> 00:34:27,719 macro and everything else, like you don't know what's going to 699 00:34:27,719 --> 00:34:29,920 happen. And a lot of people get scared 700 00:34:29,920 --> 00:34:33,280 away, I think from good investments that are good enough 701 00:34:33,280 --> 00:34:35,080 because they're waiting for them to be better. 702 00:34:36,040 --> 00:34:38,080 But what that really means is like they're scared of them 703 00:34:38,080 --> 00:34:40,600 because even though they're good, like what if they go down, 704 00:34:41,080 --> 00:34:43,040 you know, then they'll be better if they go down rights. 705 00:34:43,040 --> 00:34:46,840 But I try to frame it as if we're buying, I mean I'm almost 706 00:34:46,840 --> 00:34:49,760 never buying like you know a free cash flow yield today 707 00:34:49,760 --> 00:34:52,000 that's like a 20% free cash flow yield, but if you're looking. 708 00:34:52,000 --> 00:34:53,280 At it doesn't really exist, right? 709 00:34:53,760 --> 00:34:55,280 I mean, it does, it does. But. 710 00:34:55,320 --> 00:34:57,280 If it does, you need to be very suspicious of it, right? 711 00:34:57,600 --> 00:35:00,880 Like I often feel like I'm buying a 20% free cash flow 712 00:35:00,880 --> 00:35:02,840 that's maybe 2-3, four years away. 713 00:35:03,200 --> 00:35:07,040 And importantly, it's not like Herculean assumptions to get us 714 00:35:07,040 --> 00:35:09,000 there. If the management team pulls a 715 00:35:09,000 --> 00:35:13,640 couple like easily identifiable levers, we should get there and 716 00:35:13,640 --> 00:35:16,280 20% of free cash flow yield is very attractive. 717 00:35:16,640 --> 00:35:19,920 But what if it goes to like a 25% free cash flow yield? 718 00:35:19,920 --> 00:35:23,760 Should we be, should we be upset that the stock went down or just 719 00:35:23,760 --> 00:35:27,080 say it's OK like stocks go up and down if the business 720 00:35:27,080 --> 00:35:30,200 executes, if they get the earnings power to where I think 721 00:35:30,200 --> 00:35:32,360 it's going to go, it's going to be fine. 722 00:35:32,360 --> 00:35:36,520 It's not going to matter, and it's very much like not focusing 723 00:35:36,520 --> 00:35:39,160 on the bumps of the journey, but very much focusing on the 724 00:35:39,160 --> 00:35:40,720 destination. And if you're right about the 725 00:35:40,720 --> 00:35:42,800 destination, the bumps don't matter. 726 00:35:42,800 --> 00:35:44,320 You're going to get there and you're going to be fine. 727 00:35:44,320 --> 00:35:48,240 Yeah, that I mostly agree with, though I have to juxtapose it 728 00:35:48,240 --> 00:35:52,640 with the idea of and and I think the answer by the way is the 20% 729 00:35:52,640 --> 00:35:55,560 free cash flow yield. But sometimes I think like floor 730 00:35:55,560 --> 00:35:58,000 and decor is something that I've been racking my brain to try to 731 00:35:58,000 --> 00:36:02,480 understand the valuation on. And it's like, man, it could get 732 00:36:02,480 --> 00:36:04,600 good, it could work right. It probably will. 733 00:36:04,600 --> 00:36:06,560 I mean there's tons of smart people that like it, Charlie 734 00:36:06,560 --> 00:36:10,040 Munger included. But man, that thing just that 735 00:36:10,200 --> 00:36:12,720 appears rich to me. So I think, OK, well if you can 736 00:36:12,720 --> 00:36:18,440 get like even 10 or 15% from here, might you have a path that 737 00:36:18,440 --> 00:36:21,040 includes a fairly big drawdown along the way. 738 00:36:21,280 --> 00:36:24,480 That said, things trading here and housing has stopped. 739 00:36:24,480 --> 00:36:28,440 So this is probably a reasonable support, but I I don't know I'm. 740 00:36:28,880 --> 00:36:30,960 Yeah, but I think so. I mean I haven't done the work 741 00:36:30,960 --> 00:36:34,440 on Florin Decor personally, but I guess I think of it as 742 00:36:34,880 --> 00:36:37,760 analogous to maybe Walmart or Home Depot or something like 743 00:36:37,760 --> 00:36:40,840 that in like the 70s. And at the time you could look 744 00:36:40,840 --> 00:36:43,680 at those companies and say like there is a reason that these are 745 00:36:43,680 --> 00:36:46,240 going to take over America like they have real competitive 746 00:36:46,240 --> 00:36:49,240 advantages. And then you have inflation and 747 00:36:49,240 --> 00:36:51,680 you have recessions and you have whatever and the Walmart had I 748 00:36:51,960 --> 00:36:54,160 think a couple multi year periods where earnings went you 749 00:36:54,160 --> 00:36:57,760 know sideways to flat and people sold and like I've heard it said 750 00:36:57,760 --> 00:36:59,400 many times like the only people that didn't sell were the 751 00:36:59,400 --> 00:37:03,560 Waltons, right. So it's easy to get sucked into 752 00:37:03,560 --> 00:37:07,120 that because opportunity cost is real and you know it stinks to 753 00:37:07,120 --> 00:37:09,960 own a good business that is going nowhere where the stock is 754 00:37:09,960 --> 00:37:13,360 going nowhere for you know a more extended period of time. 755 00:37:13,360 --> 00:37:15,960 So something like floor and decor which I think is probably 756 00:37:15,960 --> 00:37:18,640 trading again, I don't follow, but you know what, is it 40 or 757 00:37:18,640 --> 00:37:20,560 50 times PE or something like that? 758 00:37:21,600 --> 00:37:23,560 Yeah, I think that's probably right. 759 00:37:23,560 --> 00:37:25,640 I think 60. Yeah, so I mean. 760 00:37:25,760 --> 00:37:28,720 But that's current, right? The a huge number and but this 761 00:37:28,720 --> 00:37:31,200 goes back to understanding like how is earnings power going to 762 00:37:31,200 --> 00:37:35,440 improve over time and you know this one the your only option 763 00:37:35,440 --> 00:37:38,880 here when it's that big of a PE to grow into it has to be growth 764 00:37:38,880 --> 00:37:41,080 obviously it's like they're going to cost cut their way down 765 00:37:41,080 --> 00:37:43,560 to a reasonable. I don't want to use the word 766 00:37:43,560 --> 00:37:47,360 reasonable to a more palatable multiple, like they have to 767 00:37:47,360 --> 00:37:48,240 grow. That's fine. 768 00:37:48,240 --> 00:37:50,720 Like that could be value, even though it looks like it's 50 769 00:37:50,720 --> 00:37:53,480 times or 60 times PE, whatever. Like it could certainly be value 770 00:37:53,480 --> 00:37:56,680 if you're that confident that they have a better mousetrap and 771 00:37:56,680 --> 00:37:59,000 that I don't know what their door count is right now or. 772 00:37:59,040 --> 00:38:01,360 But you know if you say, well they're going to easily put this 773 00:38:01,360 --> 00:38:05,240 many boxes out there and at that time they're going to be earning 774 00:38:05,240 --> 00:38:07,720 this well, like that's a totally valid approach. 775 00:38:08,080 --> 00:38:10,680 I think what's harder for me in situations like that and 776 00:38:10,680 --> 00:38:14,280 probably harder for most people that try to be more critical is 777 00:38:14,280 --> 00:38:15,840 are there competitive advantages? 778 00:38:15,960 --> 00:38:18,360 Truly something like that cannot be recreated. 779 00:38:18,400 --> 00:38:22,560 And I think in today's day and age where information flow is 780 00:38:22,560 --> 00:38:25,600 instantaneous, it's probably harder to be. 781 00:38:25,600 --> 00:38:28,800 I mean, go back to Home Depot, you know, like Lowe's figured it 782 00:38:28,800 --> 00:38:30,320 out, right. But at that time, I think it 783 00:38:30,320 --> 00:38:33,400 took longer to do it. And Walmart, other people have 784 00:38:33,400 --> 00:38:35,040 figured it out not to the same scale. 785 00:38:35,040 --> 00:38:37,800 I don't want to say definitively like, well Walmart's Edge is 786 00:38:37,800 --> 00:38:40,040 that they were first mover advantage, Like they got so much 787 00:38:40,040 --> 00:38:42,920 bigger that they got all the purchasing power, you know, able 788 00:38:42,920 --> 00:38:45,320 to pass on the savings to consumers and all that. 789 00:38:45,840 --> 00:38:49,080 Like I think they probably had arguably a couple decades where 790 00:38:49,080 --> 00:38:51,920 they were doing that and nobody else had, you know been able to 791 00:38:51,920 --> 00:38:54,120 do that. I think in today's day and age 792 00:38:54,120 --> 00:38:57,040 it's so much faster and access to capital is so much easier 793 00:38:57,040 --> 00:38:59,960 that new entrants could probably come a lot faster. 794 00:38:59,960 --> 00:39:02,560 They did in the past, which may be then makes it more difficult 795 00:39:02,560 --> 00:39:05,400 for foreign decor. And I think I don't know the 796 00:39:05,400 --> 00:39:07,360 answer to any of those things. I think those are harder 797 00:39:07,560 --> 00:39:11,200 problems to figure out. I'm looking for way, way simpler 798 00:39:11,200 --> 00:39:12,720 problems. Yeah. 799 00:39:13,040 --> 00:39:15,400 Well, I'll tell you what, John Huber did a podcast with the 800 00:39:15,400 --> 00:39:17,800 Andrew Walker and I I think he's got it. 801 00:39:18,000 --> 00:39:19,640 I I like the way he thinks about it. 802 00:39:19,720 --> 00:39:23,080 Basically it's a single focus and the amount of working 803 00:39:23,080 --> 00:39:25,560 capital that you'd have to invest in a concept like that in 804 00:39:25,560 --> 00:39:28,800 order to compete is substantial. Makes me a little nervous the 805 00:39:28,800 --> 00:39:30,800 amount of private equity money on the sidelines. 806 00:39:30,800 --> 00:39:33,120 But I think building it is probably harder than a 807 00:39:33,120 --> 00:39:36,280 spreadsheet might suggest. But it's really interesting, 808 00:39:36,280 --> 00:39:36,960 man. I don't know. 809 00:39:37,000 --> 00:39:40,280 As we were talking earlier, I said that that I feel like when 810 00:39:40,280 --> 00:39:43,280 I was on value after hours, people used to to comment that 811 00:39:43,280 --> 00:39:48,040 I'm not a value guy, but I tend to agree with you and the cheap 812 00:39:48,040 --> 00:39:51,000 stuff. This Adam Robinson quote keeps 813 00:39:51,000 --> 00:39:52,600 coming back to me. You got to look at things that 814 00:39:52,600 --> 00:39:54,720 make no sense or things that make perfect sense. 815 00:39:54,720 --> 00:39:59,680 And I think when I see an A multiple that appears very 816 00:39:59,680 --> 00:40:04,680 expensive, I I I benefited more from turning my brain into OK, 817 00:40:04,680 --> 00:40:07,280 this makes no sense. That probably means that I don't 818 00:40:07,280 --> 00:40:08,920 understand the way the world works. 819 00:40:09,280 --> 00:40:12,960 As opposed to I'm right and this actually makes no sense. 820 00:40:14,360 --> 00:40:17,320 Yeah, I mean it. Which is not to say it's cheap 821 00:40:17,320 --> 00:40:19,720 or whatever, I'm just it's just a comment on thinking, right? 822 00:40:19,960 --> 00:40:22,640 Yeah, no, of course. I mean, in terms of like, people 823 00:40:22,640 --> 00:40:24,640 criticizing you that you're not a value guy. 824 00:40:24,640 --> 00:40:28,000 And I think I said this earlier in the show, too. 825 00:40:28,000 --> 00:40:31,080 Like value just means different things to different people. 826 00:40:31,080 --> 00:40:33,320 I think the right way to think about it is getting more than 827 00:40:33,320 --> 00:40:37,160 what you pay for and you can get that value in a couple different 828 00:40:37,160 --> 00:40:39,560 ways. Like one way is like a super low 829 00:40:39,560 --> 00:40:42,320 multiple or discount to book value or whatever it is and 830 00:40:42,320 --> 00:40:46,080 another way is you're getting growth for and not paying for it 831 00:40:46,080 --> 00:40:49,200 all that much. The harder part on the the 832 00:40:49,200 --> 00:40:52,160 growthy side of value, I think is like knowing how much is too 833 00:40:52,160 --> 00:40:54,520 much to pay. Because again, like you going 834 00:40:54,520 --> 00:40:57,880 back to Walmart in the 70s, like I saw the analysis at one point, 835 00:40:57,880 --> 00:41:00,040 I didn't do it myself, but it was something like, you know, 836 00:41:00,040 --> 00:41:03,040 you could have paid 40 or 50 times earnings for Walmart in 837 00:41:03,040 --> 00:41:06,520 the 70s and then brought it forward to today and still got 838 00:41:06,520 --> 00:41:09,320 in like a 15 or 17% annualized return. 839 00:41:09,800 --> 00:41:12,000 You know, and there's nothing wrong with that. 840 00:41:12,000 --> 00:41:15,880 Like if I could sign up for a 15 or 17% return right now, for the 841 00:41:15,880 --> 00:41:19,000 next 5 decades, I would sign up right away. 842 00:41:19,720 --> 00:41:22,080 Yeah, especially if you end up with a dominant business at the 843 00:41:22,080 --> 00:41:23,360 end. That's not a bad problem to 844 00:41:23,360 --> 00:41:25,080 have. Exactly, exactly. 845 00:41:25,080 --> 00:41:27,800 But it's I think for a lot of people. 846 00:41:27,920 --> 00:41:31,280 I myself am am guilty of this to some extent, but a lot of people 847 00:41:31,280 --> 00:41:36,240 that view themselves as quote value investors started in the 848 00:41:36,360 --> 00:41:39,480 the traditional value investing like the Ben Graham value 849 00:41:39,480 --> 00:41:42,240 investing where it really was of all about how cheap it was. 850 00:41:42,800 --> 00:41:44,960 But I just don't think that's the way the world works anymore. 851 00:41:44,960 --> 00:41:47,080 And Ben Graham's day, like, you could find things that were 852 00:41:47,080 --> 00:41:50,160 crazy cheap, and you could look in the mirror and have an honest 853 00:41:50,160 --> 00:41:53,080 conversation with yourself and conclude, like, it's cheap. 854 00:41:53,120 --> 00:41:55,280 It's this cheap just because literally nobody even knows 855 00:41:55,280 --> 00:41:57,000 about it. And think of, you know, the 856 00:41:57,000 --> 00:42:00,120 stories of Buffett going down to the floor of the Stock Exchange 857 00:42:00,120 --> 00:42:03,320 or whatever and pulling the annual reports in paper form. 858 00:42:03,320 --> 00:42:05,240 And he was literally the only person doing that. 859 00:42:05,240 --> 00:42:07,840 Or maybe it was Standard and Poor's office and, like, pulling 860 00:42:07,840 --> 00:42:10,800 annual reports in paper form and nobody else was doing that. 861 00:42:10,800 --> 00:42:13,800 So he was finding these things. But today's world, it's not how 862 00:42:13,800 --> 00:42:16,520 it works if it's cheap. Literally everybody knows. 863 00:42:17,120 --> 00:42:18,760 So I think you have to be more suspicious. 864 00:42:18,760 --> 00:42:20,880 And that's when you have to get more comfortable paying for 865 00:42:20,880 --> 00:42:24,880 things that are more expensive. And then the job like the actual 866 00:42:24,880 --> 00:42:28,560 craft of the investment is figuring out like is it actually 867 00:42:28,560 --> 00:42:32,800 more expensive or does it just look more expensive and maybe it 868 00:42:32,800 --> 00:42:35,520 just looks more expensive because of future growth like 869 00:42:35,520 --> 00:42:38,360 the floor and decor example, like how many boxes can they put 870 00:42:38,360 --> 00:42:40,400 out there. I think of that as being a 871 00:42:40,400 --> 00:42:44,920 harder analysis, but maybe it's looks expensive because of some 872 00:42:44,920 --> 00:42:48,080 sort of, you know, internal project or something like that 873 00:42:48,080 --> 00:42:50,520 that is temporarily weighing on margins. 874 00:42:50,520 --> 00:42:53,280 But it then it becomes like, is this project going to last 875 00:42:53,280 --> 00:42:55,160 forever or is it really just temporary? 876 00:42:55,640 --> 00:42:58,200 And in the best cases you can answer those kind of questions 877 00:42:58,200 --> 00:43:01,960 by looking at incentives, right? And I mean it's the example I 878 00:43:01,960 --> 00:43:05,840 always think of and I feel like I've used this example and 879 00:43:05,840 --> 00:43:08,280 everyone I've ever talked to about investing is it's just 880 00:43:08,280 --> 00:43:10,680 good Co, bad Co. It's one business or, you know, 881 00:43:10,680 --> 00:43:13,360 one stock that has two business lines. 882 00:43:13,680 --> 00:43:16,560 And if one of them earns a dollar and one of them loses 883 00:43:16,560 --> 00:43:20,640 $0.50, on a net basis, the company makes $0.50 and then the 884 00:43:20,640 --> 00:43:24,080 market puts a multiple on that. And if you're thinking about it 885 00:43:24,080 --> 00:43:26,600 as like, oh, I need earnings power, future earnings power to 886 00:43:26,600 --> 00:43:30,120 go up, Well, one way to get future power, future earnings 887 00:43:30,120 --> 00:43:32,920 power to go up is just kill off that $0.50 losing business. 888 00:43:32,920 --> 00:43:34,480 Like literally just shut it down. 889 00:43:34,960 --> 00:43:36,640 It's not that clean. In the real world you have 890 00:43:36,640 --> 00:43:39,040 severance costs and runoff costs and everything else. 891 00:43:39,040 --> 00:43:43,440 But you can look at it and say if this is a business where the 892 00:43:43,440 --> 00:43:45,720 Board of directors or the management team, they have a lot 893 00:43:45,720 --> 00:43:48,600 of skin in the game. They are incentivized to not 894 00:43:48,600 --> 00:43:51,640 burn $0.50 a year forever. Well, then they're not going to 895 00:43:51,640 --> 00:43:54,640 burn $0.50 a year forever. And as soon as they shut it 896 00:43:54,640 --> 00:43:58,360 down, well then earnings power double S and you're going to do 897 00:43:58,360 --> 00:44:02,160 well in the stock of earnings power double S And in better 898 00:44:02,160 --> 00:44:04,600 case scenarios like they don't shut it down and better case 899 00:44:04,600 --> 00:44:06,960 scenario, you don't have to shut it down because the business 900 00:44:06,960 --> 00:44:08,320 hits some sort of inflection point. 901 00:44:08,320 --> 00:44:11,560 And then you have two business lines, one of which is earning a 902 00:44:11,560 --> 00:44:14,280 dollar and one of which is maybe now break even and then maybe 903 00:44:14,280 --> 00:44:17,000 it's earning $0.50. And then you go on from there 904 00:44:17,000 --> 00:44:19,680 and you start to get credit for that sort of thing over time. 905 00:44:20,200 --> 00:44:23,680 But I spend more of my time on those sort of situations where I 906 00:44:23,680 --> 00:44:27,200 think it's an easier analysis to just look at it and say are the 907 00:44:27,200 --> 00:44:30,720 people incentivized to pull the easily identifiable levers that 908 00:44:30,720 --> 00:44:33,880 will lead to higher earnings power over time rather than 909 00:44:33,880 --> 00:44:37,200 trying to do the whole growth analysis and competitive 910 00:44:37,200 --> 00:44:40,800 dynamics and real real things like that is, is more difficult. 911 00:44:40,840 --> 00:44:44,920 With Good Co, Bad Co, do you find that? 912 00:44:45,760 --> 00:44:49,360 How do I want to ask? This is bad Co when the 913 00:44:49,360 --> 00:44:53,880 situation works? Is bad Co more often like an 914 00:44:53,880 --> 00:44:57,000 internal project that they're working on that has momentum 915 00:44:57,000 --> 00:44:59,320 that's going to grow and then you're going to see it. 916 00:44:59,600 --> 00:45:02,520 So it's not really bad Co. It's more like earnings drain as 917 00:45:02,520 --> 00:45:05,680 opposed to a part of the business that's not working. 918 00:45:05,800 --> 00:45:09,040 You know what I'm saying? Yeah, that seems like a little 919 00:45:09,040 --> 00:45:11,840 bit more stable environment to live in. 920 00:45:12,120 --> 00:45:13,600 Yeah. I mean, there's no typical, 921 00:45:13,600 --> 00:45:14,640 right? They're all different. 922 00:45:14,680 --> 00:45:18,360 But in those best cases, like at some sort of temporary project 923 00:45:18,360 --> 00:45:21,680 that is maybe sucking up some capital and weighing on earnings 924 00:45:21,680 --> 00:45:25,120 and something like that. In the best case, it's because 925 00:45:25,120 --> 00:45:27,760 you have a founder with a vision that thinks like I'm going to 926 00:45:27,760 --> 00:45:30,160 make an investment over the next couple years and this is 927 00:45:30,320 --> 00:45:33,240 probably going to work and it's going to contribute to earnings 928 00:45:33,240 --> 00:45:35,560 power going forward. I've had other successful 929 00:45:35,560 --> 00:45:38,800 investments, though, where, I mean, there's one in particular. 930 00:45:38,800 --> 00:45:40,960 I didn't learn this till after the fact, but I learned after 931 00:45:40,960 --> 00:45:42,560 the fact. There was literally one guy on 932 00:45:42,560 --> 00:45:45,720 the board who had been there forever and held outsized 933 00:45:45,720 --> 00:45:49,120 influence, and he kind of had a pet project that was unrelated 934 00:45:49,120 --> 00:45:52,120 to the main business. And it wound up destroying a lot 935 00:45:52,120 --> 00:45:55,040 of capital over time. But eventually they killed it. 936 00:45:55,120 --> 00:45:57,880 You know, like, I don't think it at the time they started it, it 937 00:45:57,880 --> 00:45:59,120 made sense. Like when I was doing my 938 00:45:59,120 --> 00:46:01,640 analysis, I was like OK, it's a bit of a Lotto ticket, but I 939 00:46:01,640 --> 00:46:03,600 think this makes sense that you would divert some of your 940 00:46:03,600 --> 00:46:05,600 capital and some of your resources to this. 941 00:46:06,120 --> 00:46:09,080 And then over time as it became clear, it was more difficult, 942 00:46:09,360 --> 00:46:14,440 you know it it required some some nasty letters and some, 943 00:46:14,440 --> 00:46:16,920 some public letters and stuff. But eventually they killed it. 944 00:46:17,280 --> 00:46:19,680 And then you just have your, you know, the remain Co in that 945 00:46:19,680 --> 00:46:22,760 instance and that's fine, but it's never as clean as just good 946 00:46:22,760 --> 00:46:25,240 Co, bad Co. It's always what is it that is 947 00:46:25,240 --> 00:46:28,240 temporarily weighing on earnings and it could be anything from 948 00:46:29,440 --> 00:46:31,320 the government. This is, you know, years ago 949 00:46:31,320 --> 00:46:32,920 now. But the the greeting company, 950 00:46:32,920 --> 00:46:34,560 The greeting card company, what is it? 951 00:46:34,560 --> 00:46:38,160 American Greetings. Like at the time the earnings 952 00:46:38,160 --> 00:46:40,560 were all messed up. This is probably like 2010. 953 00:46:40,560 --> 00:46:42,280 I don't even remember. But there are a couple things 954 00:46:42,280 --> 00:46:44,360 that were happening but like e-mail and the Internet, like 955 00:46:44,360 --> 00:46:46,520 people were getting away from writing cards and that was a 956 00:46:46,520 --> 00:46:50,880 very easy to believe story. And then they also spent a lot 957 00:46:50,880 --> 00:46:54,640 of money building a glamorous headquarters, which I would not 958 00:46:54,640 --> 00:46:56,920 argue was a good a good use of capital. 959 00:46:56,920 --> 00:46:58,280 Like, it's kind of ridiculous and. 960 00:46:58,520 --> 00:47:00,920 We're a greeting card company, folks, Yeah. 961 00:47:01,440 --> 00:47:05,440 The story was that greeting cards are going away because of 962 00:47:05,440 --> 00:47:08,760 e-mail and the Internet and the financials look terrible. 963 00:47:08,760 --> 00:47:11,400 But the actual truth was the the business was OK. 964 00:47:11,400 --> 00:47:13,760 It was just margins were screwed up because they spent a ton of 965 00:47:13,760 --> 00:47:16,760 money on this I didn't remember I want. 966 00:47:16,760 --> 00:47:19,600 To say it was like beautiful HQ. Yeah, like it was something 967 00:47:19,600 --> 00:47:22,200 crazy like that. The global headquarters of 968 00:47:22,200 --> 00:47:24,080 American Greetings. Yeah. 969 00:47:24,080 --> 00:47:25,960 And and that introduces a different risk, right. 970 00:47:25,960 --> 00:47:28,560 Like then you're saying, do you really want to partner with 971 00:47:28,560 --> 00:47:31,280 these people that want to build this ridiculous headquarters 972 00:47:31,280 --> 00:47:33,800 building? Then the answer is maybe no, but 973 00:47:33,840 --> 00:47:35,680 maybe that can be solved by price. 974 00:47:36,160 --> 00:47:39,600 But the analysis really came came down to is it true that 975 00:47:39,600 --> 00:47:44,120 greeting cards are just going away or is it that the 976 00:47:44,120 --> 00:47:46,280 financials are temporarily screwed up because of some 977 00:47:46,280 --> 00:47:49,480 capital allocation decisions that will not last forever? 978 00:47:50,000 --> 00:47:53,560 And it turns out, I mean there's I read an article not long ago 979 00:47:53,560 --> 00:47:55,720 and to be clear, I not invested in this. 980 00:47:55,720 --> 00:47:57,320 It was. This is more than a decade ago, 981 00:47:57,720 --> 00:48:01,160 but millennials and even younger are actually huge on greeting 982 00:48:01,160 --> 00:48:04,440 cards, but not like Hallmark cards that are 599. 983 00:48:04,480 --> 00:48:07,880 They buy like $12.00 cards. Oh like dude, the card game has 984 00:48:07,880 --> 00:48:09,840 gotten out of control. Yeah, it's crazy, but it's 985 00:48:09,840 --> 00:48:10,600 hugely. Profitable. 986 00:48:10,600 --> 00:48:12,600 What is it, Papyrus or whatever? Oh my. 987 00:48:12,680 --> 00:48:14,280 Something like. That, yeah, yeah. 988 00:48:14,560 --> 00:48:16,800 But it actually my yeah, it's. Hugely. 989 00:48:16,840 --> 00:48:19,680 It's a hugely profitable business that at the I think if 990 00:48:19,680 --> 00:48:22,120 I remember correctly, American Greetings was bought by private 991 00:48:22,120 --> 00:48:25,000 equity. But the story, if you will, that 992 00:48:25,200 --> 00:48:27,120 greeting cards are going away was totally wrong. 993 00:48:27,800 --> 00:48:29,080 Yeah. Yeah. 994 00:48:29,080 --> 00:48:31,560 And believable, to your point, because of something in the 995 00:48:31,560 --> 00:48:34,400 financials that would be a tough situation for me to get my head 996 00:48:34,400 --> 00:48:37,040 around because I'd worry that it's kind of like Empire 997 00:48:37,040 --> 00:48:40,760 building and how can you trust the management team to not do 998 00:48:40,760 --> 00:48:42,960 the same thing again. I guess I could probably get 999 00:48:42,960 --> 00:48:45,720 over it if they would commit to like buybacks and return a 1000 00:48:45,720 --> 00:48:49,720 capital so that we get some parameters around how they 1001 00:48:49,720 --> 00:48:52,560 spend, what they spend. Yeah, I I was fortunate at the 1002 00:48:52,560 --> 00:48:55,320 time that I was on the sell side, so I was unable to make 1003 00:48:55,320 --> 00:48:56,840 the decision if I actually wanted to own it. 1004 00:48:56,840 --> 00:48:59,080 I just got the pitch at the people without have to putting 1005 00:48:59,080 --> 00:49:01,320 anything on the line but your. Experience on the sell side, do 1006 00:49:01,320 --> 00:49:03,800 you mind talking about how you got into the industry and what 1007 00:49:03,800 --> 00:49:05,320 that was like learning? Yeah. 1008 00:49:05,560 --> 00:49:09,360 So I have like the most backwards entry to the industry 1009 00:49:09,360 --> 00:49:10,920 ever. And it was completely 1010 00:49:10,920 --> 00:49:12,720 accidental. I didn't know anything about 1011 00:49:12,720 --> 00:49:15,280 stocks growing up, really. I never even thought about a 1012 00:49:15,280 --> 00:49:17,800 career in finance or anything like that. 1013 00:49:18,320 --> 00:49:21,080 But I grew up in a town that maybe 30 minutes outside of New 1014 00:49:21,080 --> 00:49:24,400 York City, and a lot of people in my town worked in Manhattan. 1015 00:49:24,880 --> 00:49:28,960 And I was basically out of college and spinning my wheels 1016 00:49:28,960 --> 00:49:32,040 for a year because I was going to go to law school but had 1017 00:49:32,040 --> 00:49:34,960 taken a year off, like a gap year kind of thing, which is a 1018 00:49:34,960 --> 00:49:37,920 whole different story. But in any case, when 911 1019 00:49:37,920 --> 00:49:41,120 happened, there were 26 people from my hometown killed, 1020 00:49:41,120 --> 00:49:43,800 including a couple people that worked at Cantor Fitzgerald. 1021 00:49:44,160 --> 00:49:46,760 Two of them. That's crazy that there was that 1022 00:49:46,760 --> 00:49:49,040 kind of concentration, I guess, I mean. 1023 00:49:49,240 --> 00:49:51,320 Well, I mean not in the. Northeast, but man. 1024 00:49:51,400 --> 00:49:52,160 It was. Think of it. 1025 00:49:52,160 --> 00:49:53,680 It was. I forget how many people, but 1026 00:49:53,680 --> 00:49:56,960 almost if it was a 2000 or 3000 people, but all of them within a 1027 00:49:56,960 --> 00:50:01,160 commutable distance, right. So yeah, in any case, two of 1028 00:50:01,160 --> 00:50:03,280 those people that died were people I knew from high school, 1029 00:50:03,280 --> 00:50:04,320 buddies of mine from high school. 1030 00:50:04,320 --> 00:50:05,720 They worked at Cantor Fitzgerald. 1031 00:50:06,040 --> 00:50:09,120 And then there was a third guy who survived and he kind of knew 1032 00:50:09,120 --> 00:50:12,280 that I was out of college, You know, smart guy, but not really 1033 00:50:12,280 --> 00:50:14,320 doing anything with my time. I was actually working in my 1034 00:50:14,320 --> 00:50:17,840 uncle's bar bartending and he kind of tracked me down and was 1035 00:50:17,840 --> 00:50:20,320 like, look, we need help. There's no easy way to say this, 1036 00:50:20,320 --> 00:50:23,480 but almost everybody can if it's child was killed and we need 1037 00:50:23,480 --> 00:50:26,160 help, can you help? And I said, yeah, of course. 1038 00:50:26,240 --> 00:50:29,200 I showed up at the disaster recovery zone in Connecticut 1039 00:50:29,200 --> 00:50:32,360 like a week later and got a job or my first job. 1040 00:50:32,360 --> 00:50:35,480 I had previously worked at a company called Pergamon, which 1041 00:50:35,480 --> 00:50:37,680 is kind of like a smaller version of Home Depot. 1042 00:50:38,120 --> 00:50:40,880 But at Perkin, one of my jobs was like building the desks for 1043 00:50:40,880 --> 00:50:43,160 the floor models. And like, I showed up and 1044 00:50:43,160 --> 00:50:44,520 they're like, do you know how to build desks? 1045 00:50:44,520 --> 00:50:48,240 I was like, actually, I. I'm very good at this. 1046 00:50:48,560 --> 00:50:51,960 So the interview process, it was for like AI don't. 1047 00:50:51,960 --> 00:50:53,560 It was for like a do everything job. 1048 00:50:53,560 --> 00:50:56,520 A part of it was like middle office type role and with the 1049 00:50:56,520 --> 00:50:59,960 middle office role like I didn't need experience in finance or 1050 00:50:59,960 --> 00:51:02,360 education and finance. What I did need at that time was 1051 00:51:02,360 --> 00:51:06,080 the ability to like build desks. So I literally built desks for 1052 00:51:06,080 --> 00:51:07,560 like the first week or whatever it was. 1053 00:51:08,120 --> 00:51:12,080 If I remember correctly, on September 10th, the Darien, 1054 00:51:12,360 --> 00:51:15,480 Darien office had like 20 people in it and then a week later 1055 00:51:15,480 --> 00:51:18,200 there were like 85 people on it. So it was like people on top of 1056 00:51:18,200 --> 00:51:20,360 each other. But in any case, like, you know, 1057 00:51:20,360 --> 00:51:22,880 the desks got built in a week or two and then I was like, all 1058 00:51:22,880 --> 00:51:25,600 right now what? And it was a middle office role 1059 00:51:25,960 --> 00:51:28,560 on the equity sales trading desk, institutional desk. 1060 00:51:29,160 --> 00:51:32,320 And then from there, yeah, I guess I've gotten comfortable 1061 00:51:32,320 --> 00:51:33,640 saying it over the last two decades. 1062 00:51:33,640 --> 00:51:35,560 But like, the reality is when everybody in front of you is 1063 00:51:35,560 --> 00:51:38,240 dead, you can climb the ladder pretty quickly. 1064 00:51:38,720 --> 00:51:41,240 So I just took the attitude of, like, all right, I'm going to be 1065 00:51:41,240 --> 00:51:43,000 the first one in and the last one to leave. 1066 00:51:43,000 --> 00:51:46,000 And when somebody asks me to do something, I'm never going to 1067 00:51:46,000 --> 00:51:48,640 tell them that I have no clue, even though I literally had no 1068 00:51:48,640 --> 00:51:50,640 clue. I'm going to tell them yes and 1069 00:51:50,640 --> 00:51:53,400 then I'm going to go figure it out And that that was kind of my 1070 00:51:53,400 --> 00:51:56,600 attitude and that led me to climb the the ladder pretty 1071 00:51:56,600 --> 00:52:00,280 quickly where I was on the sales desk, sales and trading desk 1072 00:52:00,360 --> 00:52:03,200 within like 6 months. And again like no idea what I 1073 00:52:03,200 --> 00:52:06,160 was doing except I passed the Series 7 which was the box 1074 00:52:06,160 --> 00:52:08,120 checking exercise. But in theory you learn 1075 00:52:08,120 --> 00:52:11,000 something from that and then it was just answering the phone and 1076 00:52:11,000 --> 00:52:12,360 trying to help out wherever I could. 1077 00:52:12,360 --> 00:52:14,920 But whenever people would ask me a question, just same attitude 1078 00:52:14,920 --> 00:52:16,840 like say yes and then figure it out. 1079 00:52:16,840 --> 00:52:19,520 And what that meant for me was, you know, finding the right 1080 00:52:19,520 --> 00:52:22,000 people to ask the question too. And then also spending a lot of 1081 00:52:22,000 --> 00:52:25,680 time on Investopedia, the website Investopedia, which is 1082 00:52:25,680 --> 00:52:28,000 all finance terms. And like I would hear a term, I 1083 00:52:28,000 --> 00:52:30,360 didn't know about it and I would click on Investopedia and read 1084 00:52:30,360 --> 00:52:31,880 about it. And then the way the articles on 1085 00:52:31,880 --> 00:52:35,000 Investopedia worked is there be whatever, seven more linked 1086 00:52:35,000 --> 00:52:37,480 articles and you just go down the rabbit hole just learning as 1087 00:52:37,480 --> 00:52:40,280 much as you can. And I put together enough of 1088 00:52:40,280 --> 00:52:43,880 the, I guess, the vocabulary to make it on the trading desk 1089 00:52:43,880 --> 00:52:46,680 where the job was calling institutional clients. 1090 00:52:46,680 --> 00:52:50,320 So hedge funds, mutual funds and very much a Commission 1091 00:52:50,320 --> 00:52:53,760 generating role. And Cantor at the time did. 1092 00:52:53,760 --> 00:52:56,120 We didn't have any sort of banking effort or research 1093 00:52:56,120 --> 00:52:58,160 effort. It was very much a third market 1094 00:52:58,160 --> 00:53:01,400 firm and this doesn't even really exist anymore. 1095 00:53:01,400 --> 00:53:04,800 But at the time the idea was if you have small cap stocks or you 1096 00:53:04,800 --> 00:53:07,600 know less liquid stocks, you need to trade it in the third 1097 00:53:07,600 --> 00:53:11,160 market, meaning I'm a natural buyer, call a broker. 1098 00:53:11,160 --> 00:53:14,200 The broker then calls all of the other holders and says hey do 1099 00:53:14,200 --> 00:53:17,400 you want to sell it and that was the business. 1100 00:53:17,400 --> 00:53:19,440 You wanted to trade a million share block of a stock that 1101 00:53:19,440 --> 00:53:21,440 rarely trades. You need that third party broker 1102 00:53:21,440 --> 00:53:24,400 to 3rd market broker rather to find the stock and cross it 1103 00:53:24,400 --> 00:53:26,000 another market. But the business model 1104 00:53:26,000 --> 00:53:29,160 day-to-day was very much, you know have an excuse to talk to 1105 00:53:29,160 --> 00:53:31,200 your client and then maybe they'll tell you that they're 1106 00:53:31,200 --> 00:53:35,480 looking to buy XYZ or sell XYZ. So The Morning Call was 1107 00:53:35,480 --> 00:53:38,440 typically like calling all your clients and saying, you know, 1108 00:53:38,440 --> 00:53:41,520 oh, did you see the so and so missed earnings by a penny or 1109 00:53:41,880 --> 00:53:45,640 did you see that Goldman Sachs downgraded XYZ or whatever it 1110 00:53:45,640 --> 00:53:48,400 might be and really just generating noise on the trading 1111 00:53:48,400 --> 00:53:51,440 side. And as a 22 year old or 23 year 1112 00:53:51,440 --> 00:53:54,280 old with no idea what was really going on, it was a lot of fun. 1113 00:53:54,280 --> 00:53:56,280 It was exciting. It was heavy on entertainment. 1114 00:53:56,280 --> 00:53:59,440 It was heavy on, you know, take the corporate card and floor 1115 00:53:59,440 --> 00:54:02,040 seats at the Knicks and then the steakhouse and everything else. 1116 00:54:02,040 --> 00:54:05,160 And I was pretty good at that, but I also was not great at 1117 00:54:05,160 --> 00:54:06,680 that. And there are guys that you meet 1118 00:54:06,680 --> 00:54:09,280 in that business that are just like unbelievable personalities, 1119 00:54:09,280 --> 00:54:11,840 just larger than life personalities. 1120 00:54:12,360 --> 00:54:15,040 And then there's also a lot of people you meet in that business 1121 00:54:15,040 --> 00:54:18,160 that it just so happens that, you know, their best friend from 1122 00:54:18,160 --> 00:54:21,520 college or whatever it is now, hedge trader at a hedge fund and 1123 00:54:21,520 --> 00:54:23,040 guess who they got all their business from. 1124 00:54:23,280 --> 00:54:25,440 And you know, it's a relationship business. 1125 00:54:25,440 --> 00:54:27,160 And that was never me. I never had those kind of 1126 00:54:27,160 --> 00:54:30,240 relationships. So I eventually grew pretty 1127 00:54:30,240 --> 00:54:33,880 disenchanted with the whole experience, just kind of 1128 00:54:33,880 --> 00:54:35,320 realized like, this is ridiculous. 1129 00:54:35,320 --> 00:54:38,240 I secretly know that I know nothing. 1130 00:54:38,800 --> 00:54:41,720 While on the outside I'm able to like, speak the language because 1131 00:54:41,720 --> 00:54:44,080 I've been reading Investopedia. Like I really don't know what's 1132 00:54:44,080 --> 00:54:46,240 going on here. I'm just making noise and going 1133 00:54:46,240 --> 00:54:50,440 to Knicks games and IA pined on that to somebody who was 1134 00:54:50,720 --> 00:54:54,000 actually my partner at the time. He covered the Royce Funds small 1135 00:54:54,000 --> 00:54:58,320 cap value mutual fund, a pine to somebody that worked at the 1136 00:54:58,320 --> 00:55:00,400 Royce Funds. Like, I don't really get it. 1137 00:55:00,400 --> 00:55:03,320 I'm 23 years old. I have no idea what's going on, 1138 00:55:03,840 --> 00:55:06,400 but I'm calling guys who are like twice my age, and they 1139 00:55:06,400 --> 00:55:09,320 manage a billion dollars. And I tell them that the company 1140 00:55:09,520 --> 00:55:12,480 missed earnings by a penny. And then they decide to sell up 1141 00:55:12,480 --> 00:55:16,160 500,000 shares of a stock. Like, how does that make any 1142 00:55:16,160 --> 00:55:17,400 sense? Like, who cares if they missed 1143 00:55:17,400 --> 00:55:20,320 earnings by a penny? And certainly don't care when 1144 00:55:20,320 --> 00:55:22,080 I'm the one telling you because I don't even know what that 1145 00:55:22,080 --> 00:55:24,760 means. And that guy basically told me 1146 00:55:24,760 --> 00:55:26,600 he's like, wow, I remember he said it in like a really 1147 00:55:26,600 --> 00:55:29,360 condescending way. He was like, wow, Like, I never 1148 00:55:29,360 --> 00:55:31,480 would have guessed this, but I think you actually might have a 1149 00:55:31,480 --> 00:55:34,520 brain in your head. And I was like, thanks. 1150 00:55:36,600 --> 00:55:38,880 I was like, thanks. But he said he's like, look, if 1151 00:55:38,880 --> 00:55:41,440 you have a brain in your head, go home and start reading. 1152 00:55:41,440 --> 00:55:43,240 Read everything Warren Buffett ever wrote. 1153 00:55:43,240 --> 00:55:46,440 Read Ben Graham, read Joel Greenblatt, Read, read, read, 1154 00:55:46,440 --> 00:55:49,120 read, read, read, read. And that's what I did. 1155 00:55:50,040 --> 00:55:53,560 And having not grown up around the stock market and having 1156 00:55:53,560 --> 00:55:56,640 never taken a finance class or an accounting class, I took one 1157 00:55:56,640 --> 00:55:59,360 microeconomics class in college. Like, I never took business. 1158 00:55:59,360 --> 00:56:01,720 I never did anything like that. It kind of blew my doors off 1159 00:56:01,720 --> 00:56:03,280 when I started reading all that stuff. 1160 00:56:03,280 --> 00:56:05,680 And it's kind of cheesy. But Buffett has said it's like 1161 00:56:05,680 --> 00:56:07,440 an inoculation. Like you either get it right 1162 00:56:07,440 --> 00:56:10,000 away or you never get it. But for me, I started reading 1163 00:56:10,000 --> 00:56:12,200 and I was like, Oh my God, I can't believe I've been missing 1164 00:56:12,200 --> 00:56:14,480 all this my whole life. It's just kind of like, you 1165 00:56:14,480 --> 00:56:18,720 know, problem solving combined with odds making and you can 1166 00:56:18,720 --> 00:56:21,920 also get paid on the way like this seems like a good fit for 1167 00:56:21,920 --> 00:56:24,040 me. So I pretty much like dedicated 1168 00:56:24,040 --> 00:56:27,520 myself entirely to getting up the learning curve which I was 1169 00:56:27,520 --> 00:56:30,000 way behind on. And that was everything from 1170 00:56:30,000 --> 00:56:32,400 going home after work and instead of going out 1171 00:56:32,400 --> 00:56:35,120 entertaining clients all night but cracking 10 KS. 1172 00:56:35,400 --> 00:56:38,440 But also like the CFA program and teaching myself accounting 1173 00:56:38,440 --> 00:56:41,520 and all that that sort of stuff where it eventually got to the 1174 00:56:41,520 --> 00:56:45,240 point I was doing my own write ups and instead of calling 1175 00:56:45,240 --> 00:56:48,640 clients in the morning and trying to you know squeeze 1176 00:56:48,640 --> 00:56:51,280 commissions out of them, I was trying to find people that would 1177 00:56:51,280 --> 00:56:54,320 maybe hire me on as an analyst. So if you think about it on the 1178 00:56:54,320 --> 00:56:57,240 Commission side, your best client is maybe they have a 1179 00:56:57,240 --> 00:56:59,520 billion dollars under management or a couple billion dollars 1180 00:56:59,520 --> 00:57:01,800 under management. Maybe they own 300 stocks and 1181 00:57:01,800 --> 00:57:04,160 they're trading all the time that that generates a whole lot 1182 00:57:04,160 --> 00:57:06,320 of commissions. But if you think about on the 1183 00:57:06,320 --> 00:57:10,040 making money as an investor side, that is not a great model 1184 00:57:10,040 --> 00:57:12,160 at all. That is a great model to collect 1185 00:57:12,160 --> 00:57:14,840 management fees, but it is not a great model to outperform. 1186 00:57:15,360 --> 00:57:19,240 So I started really focusing on potential Commission generating 1187 00:57:19,240 --> 00:57:22,440 clients that were smaller funds concentrated portfolio, did not 1188 00:57:22,440 --> 00:57:25,920 trade a lot terrible from a Commission generating basis. 1189 00:57:25,920 --> 00:57:28,840 But would be you know great for me with how I was thinking about 1190 00:57:28,840 --> 00:57:31,800 the world and thinking about investing and hopefully somebody 1191 00:57:31,800 --> 00:57:34,680 would eventually hire me. And that's where, you know, the 1192 00:57:34,680 --> 00:57:37,640 American Greetings pitch came in and I was doing the work on 1193 00:57:37,640 --> 00:57:40,840 American Greetings and then you know, shopping that whatever, 15 1194 00:57:40,840 --> 00:57:43,440 or 20 small funds that I thought might be interested in that sort 1195 00:57:43,440 --> 00:57:47,160 of quirky special situation type type investment. 1196 00:57:47,160 --> 00:57:49,040 And I did that for a number of years. 1197 00:57:49,040 --> 00:57:51,480 And for a number of years guys were telling me like this is 1198 00:57:51,480 --> 00:57:54,720 great, keep the ideas coming, you know, maybe someday I'll be 1199 00:57:54,720 --> 00:57:57,120 the right fit. But these are primarily like one 1200 00:57:57,120 --> 00:57:59,400 man and two man, maybe three man shops. 1201 00:57:59,960 --> 00:58:03,200 And if you're a small single operator or even a two person 1202 00:58:03,520 --> 00:58:06,040 investment shop, like the decision to bring on a third 1203 00:58:06,040 --> 00:58:08,480 person or even a second person, like that's a huge decision. 1204 00:58:08,480 --> 00:58:11,920 Like the economics of that model breakdown pretty quickly if 1205 00:58:11,920 --> 00:58:14,400 you're determined to stay small and give yourself every 1206 00:58:14,400 --> 00:58:16,160 advantage you could have in the investing world. 1207 00:58:16,600 --> 00:58:19,880 So it never really worked in terms of nobody ever said hey 1208 00:58:19,920 --> 00:58:21,920 you know, leave Cantor, come here. 1209 00:58:22,360 --> 00:58:25,000 But eventually Cantor came to me and said, hey, leave Cantor 1210 00:58:26,160 --> 00:58:29,880 because the reality. Is you're not generating any. 1211 00:58:30,280 --> 00:58:33,720 Look at the reality is when you're no longer, you're no 1212 00:58:33,720 --> 00:58:35,320 longer trying to generate commissions. 1213 00:58:35,320 --> 00:58:38,200 You're trying to enjoy the process of investing and get 1214 00:58:38,200 --> 00:58:41,400 into the investing side that that was not the business model. 1215 00:58:41,400 --> 00:58:44,680 I can or the business model was generate commissions, but I was 1216 00:58:44,680 --> 00:58:46,080 not trying to generate commissions. 1217 00:58:46,080 --> 00:58:48,800 I was trying to improve myself and build the relationships and 1218 00:58:48,800 --> 00:58:50,640 everything. So, yeah, I don't know the exact 1219 00:58:50,640 --> 00:58:53,960 number, but my commissions were down like approximately 70% like 1220 00:58:53,960 --> 00:58:58,120 I really it was like. Clearly, clearly had mailed it 1221 00:58:58,200 --> 00:58:59,880 in. There, well, to be fair, there 1222 00:58:59,880 --> 00:59:02,280 were a couple things happening in the background which also 1223 00:59:02,280 --> 00:59:06,080 accelerated my decision to try and get to the investing side 1224 00:59:06,080 --> 00:59:07,480 rather than the sales trading side. 1225 00:59:07,480 --> 00:59:10,320 And a lot of that was just the evolution of the world we live 1226 00:59:10,320 --> 00:59:12,800 in going back to where we started earlier, like quants 1227 00:59:12,800 --> 00:59:14,480 were coming up, ETFs were coming up. 1228 00:59:14,480 --> 00:59:17,840 So you could think about it. When I started in 2001, there 1229 00:59:17,840 --> 00:59:21,120 weren't really these niche ETFs. It's like if you decide you want 1230 00:59:21,120 --> 00:59:23,880 healthcare exposure and then you're going to go out and buy a 1231 00:59:23,880 --> 00:59:27,240 basket of 25 healthcare stocks and there's a lot of commissions 1232 00:59:27,240 --> 00:59:29,040 attached to that. And at the time, commissions 1233 00:59:29,040 --> 00:59:32,440 were still five and six cents a share because electronic trading 1234 00:59:32,440 --> 00:59:35,160 hadn't really started. Like my my first job, middle 1235 00:59:35,160 --> 00:59:38,960 office, or really my second job after building desks was taking 1236 00:59:38,960 --> 00:59:41,440 paper tickets and inputting the paper. 1237 00:59:41,440 --> 00:59:43,760 The trader would get a call from the floor of the New York Stock 1238 00:59:43,760 --> 00:59:46,760 Exchange and it would be like you bought 100 shares at $20, 1239 00:59:46,760 --> 00:59:51,000 you bought 100 shares at $20.01, you bought 200 shares at $20.02, 1240 00:59:51,400 --> 00:59:54,120 and you have to input each one of those into computer because 1241 00:59:54,120 --> 00:59:57,280 it was all paper ticket tickets still, which makes me feel like 1242 00:59:57,280 --> 00:59:59,800 I'm super old. But that's how it was. 1243 00:59:59,800 --> 01:00:04,200 It wasn't that long ago and electronic trading was like only 1244 01:00:04,200 --> 01:00:06,880 just beginning to be a thing, like it hadn't been there yet. 1245 01:00:06,880 --> 01:00:09,480 So commissions were still, you know, five and six cents a 1246 01:00:09,480 --> 01:00:11,680 share. So you're talking about a basket 1247 01:00:11,680 --> 01:00:15,320 of 25 stocks at $0.05 a share and moving to a world where 1248 01:00:15,320 --> 01:00:18,200 instead it's one ETF at a half a penny a share. 1249 01:00:18,600 --> 01:00:21,000 Like, you know, commissions were drying up really fast. 1250 01:00:21,440 --> 01:00:25,120 And I was aware of that and there were a number of guys, you 1251 01:00:25,120 --> 01:00:27,200 know, older guys, we've been there for a while and he's 1252 01:00:27,200 --> 01:00:29,640 incredible personalities, incredible entertainers. 1253 01:00:29,640 --> 01:00:32,680 And they always said we've been through cycles like this before 1254 01:00:32,680 --> 01:00:34,880 commissions go down and they always come back. 1255 01:00:35,360 --> 01:00:37,120 And I was like, I don't think so. 1256 01:00:37,120 --> 01:00:40,000 I think commissions maybe came down after the tech bubble crash 1257 01:00:40,000 --> 01:00:43,000 because volumes were down. But like the fundamental 1258 01:00:43,000 --> 01:00:47,200 structure of the market and the fundamental technology behind 1259 01:00:47,200 --> 01:00:50,200 paper tickets and electronic trading like that was not part 1260 01:00:50,200 --> 01:00:51,760 of it. That was just a macro thing. 1261 01:00:51,760 --> 01:00:54,960 Then the macro could swing back and forth, but we're now talking 1262 01:00:54,960 --> 01:00:58,440 about like a fundamental shift in the entire landscape of how 1263 01:00:58,680 --> 01:01:01,440 the the sales and trading brokerage business works. 1264 01:01:02,120 --> 01:01:04,360 So part of it was that fundamental shift driving 1265 01:01:04,360 --> 01:01:07,480 commissions down. And part of it was, you know, me 1266 01:01:07,480 --> 01:01:10,920 making an active decision, saying like the ship is sinking 1267 01:01:10,920 --> 01:01:12,640 here. And to be clear, there's still 1268 01:01:12,640 --> 01:01:14,520 guys that are in that business and do very well. 1269 01:01:14,520 --> 01:01:17,680 But like my personal ship I felt like was sinking and I felt like 1270 01:01:17,680 --> 01:01:19,960 I was young enough and hungry enough that I could recreate 1271 01:01:19,960 --> 01:01:24,440 myself in a way that would benefit me till to where I am 1272 01:01:24,520 --> 01:01:27,520 and now. So the reality though was I was 1273 01:01:27,520 --> 01:01:30,600 making the active decision to stop focusing on funds that I 1274 01:01:30,600 --> 01:01:33,320 would never want to work at because they generate a lot of 1275 01:01:33,320 --> 01:01:36,880 commissions and their returns stink like good. 1276 01:01:36,880 --> 01:01:39,520 The Commission side is great, but that's not what I care 1277 01:01:39,520 --> 01:01:40,720 about. I care about returns. 1278 01:01:40,720 --> 01:01:44,440 So I really just started focusing on, you know, potential 1279 01:01:44,440 --> 01:01:47,040 potential places that would maybe hire me one day that were 1280 01:01:47,040 --> 01:01:49,240 terrible customers on a Commission basis. 1281 01:01:49,240 --> 01:01:52,000 But they were knocking it out of the park because they own 10 or 1282 01:01:52,000 --> 01:01:55,560 12 or 15 stocks and they were doing quirky, weird Special 1283 01:01:55,560 --> 01:01:58,080 Situations. And they were not getting shaken 1284 01:01:58,080 --> 01:02:00,640 out by the guy who calls them up and says, Oh my God, they missed 1285 01:02:00,640 --> 01:02:02,800 earnings by a penny. Like, call them and say that 1286 01:02:02,800 --> 01:02:05,240 they'd slam the phone on me. Like, call them and say, hey, 1287 01:02:05,240 --> 01:02:07,600 did you see American Greetings? There's some really weird things 1288 01:02:07,600 --> 01:02:09,760 going on under the surface here. I think you should take a look. 1289 01:02:10,440 --> 01:02:13,720 They're interested. In any case, none of those guys 1290 01:02:13,720 --> 01:02:16,840 were ever able to hire me. I wound up leaving Cantor at 1291 01:02:16,840 --> 01:02:20,080 their suggestion, which I was very complicit. 1292 01:02:20,080 --> 01:02:23,320 And I was kind of waiting for it to happen because if I had quit, 1293 01:02:23,320 --> 01:02:26,080 I would not have gotten paid out on my partnership interest. 1294 01:02:26,480 --> 01:02:28,920 But because they kind of asked me to leave, I got paid out on 1295 01:02:28,920 --> 01:02:31,960 my partnership interest and that kind of gave me a little bit of 1296 01:02:31,960 --> 01:02:33,840 ground to build a business on top of. 1297 01:02:33,840 --> 01:02:36,840 I mean, there's multiple other steps in between there, but it 1298 01:02:36,840 --> 01:02:41,560 was just an active decision to pursue the craft of investing in 1299 01:02:41,600 --> 01:02:45,040 a concentrated small cap manner that I'm still doing today. 1300 01:02:45,680 --> 01:02:48,440 That's awesome. Did did the conversations that 1301 01:02:48,440 --> 01:02:52,320 you were having, I mean how much did that help your knowledge 1302 01:02:52,320 --> 01:02:53,480 acceleration? Huge. 1303 01:02:53,720 --> 01:02:55,080 Right. Because then you start to back 1304 01:02:55,080 --> 01:02:57,080 and forth ideas with people that you respect. 1305 01:02:57,080 --> 01:02:59,880 Yeah, it was huge and it also ties into what we talked about a 1306 01:02:59,880 --> 01:03:02,840 little while ago about what value investing actually means. 1307 01:03:02,840 --> 01:03:06,000 We're on one side, it's like low PE, low price, the book, 1308 01:03:06,000 --> 01:03:07,760 whatever it might be. And on the other side of the 1309 01:03:07,760 --> 01:03:10,120 spectrum, it's maybe underappreciated growth 1310 01:03:10,120 --> 01:03:12,480 potential. But I was doing write ups and 1311 01:03:12,480 --> 01:03:15,680 then sending them to 10 or 15 different PMS and some of those 1312 01:03:15,680 --> 01:03:18,320 guys were more traditional value and some of those guys were more 1313 01:03:18,320 --> 01:03:21,200 traditional growth And I was getting feedback from all of 1314 01:03:21,200 --> 01:03:24,440 them to trying to help me shape the way I was thinking because I 1315 01:03:24,440 --> 01:03:26,280 was literally starting from from nothing. 1316 01:03:26,320 --> 01:03:29,600 I cannot overstate how under informed I was to the point 1317 01:03:29,600 --> 01:03:31,920 where I don't think I'd ever seen a balance sheet in my life 1318 01:03:31,920 --> 01:03:34,840 until I was like 23 years old. I just didn't know I was not 1319 01:03:34,840 --> 01:03:37,240 exposed to it. So I was literally starting from 1320 01:03:37,240 --> 01:03:41,320 nothing and then I was able to get exposure to a lot of high 1321 01:03:41,320 --> 01:03:43,960 performing investors with a variety of styles. 1322 01:03:43,960 --> 01:03:47,000 And I was able to kind of you understand the nuances between 1323 01:03:47,000 --> 01:03:49,640 their different styles and see which parts of their style 1324 01:03:49,640 --> 01:03:52,000 worked for me. And take something from one guy 1325 01:03:52,000 --> 01:03:54,400 and take something from another guy and then come up with my own 1326 01:03:54,400 --> 01:03:58,080 style versus a lot of people who they maybe. 1327 01:03:58,440 --> 01:04:00,680 I guess the typical path is probably like Ivy League 1328 01:04:00,680 --> 01:04:03,120 undergrad. Then you work in a big bank for 1329 01:04:03,120 --> 01:04:06,120 two year training program and then if you go to a fund or you 1330 01:04:06,120 --> 01:04:08,640 go to Business School 1st and you go to a fund but then you 1331 01:04:08,640 --> 01:04:11,480 get molded in that the model of that one fund. 1332 01:04:11,480 --> 01:04:14,840 So you're kind of taught their process and then that can become 1333 01:04:14,840 --> 01:04:17,880 your process, of course. But that was different than my 1334 01:04:17,880 --> 01:04:21,000 experience where like I was able to develop my own process with a 1335 01:04:21,000 --> 01:04:23,960 lot of different inputs and it it truly is my process, which 1336 01:04:23,960 --> 01:04:26,960 means it's the right fit for my personality and you know, my 1337 01:04:26,960 --> 01:04:28,920 emotional makeup, however you want to think of it. 1338 01:04:28,920 --> 01:04:31,600 Then those things, those things are important in the investing 1339 01:04:31,600 --> 01:04:33,400 world, especially when things aren't going right. 1340 01:04:34,240 --> 01:04:37,560 It's I think it's the the fundamental key is sticking to a 1341 01:04:37,560 --> 01:04:39,760 process over time or even when it's not working. 1342 01:04:39,760 --> 01:04:42,720 As long as you're executing it properly, even if it's not 1343 01:04:42,720 --> 01:04:45,800 working, you should stick to it. But it's a lot easier to stick 1344 01:04:45,800 --> 01:04:49,040 to it when it actually is your process and not the process that 1345 01:04:49,040 --> 01:04:50,640 was beaten into you by your boss. 1346 01:04:52,440 --> 01:04:53,720 That's cool, man. Good for you. 1347 01:04:54,000 --> 01:04:58,400 That's a nice story I like. It was it was a bumpy road and I 1348 01:04:58,400 --> 01:05:01,320 get a lot of emails and questions from other emerging 1349 01:05:01,320 --> 01:05:04,080 managers, people that are trying to figure it out and you know, 1350 01:05:04,080 --> 01:05:06,520 how did you make it work? And in in the early days, I I 1351 01:05:06,520 --> 01:05:09,080 mean I was doing anything I could do to extend the runway. 1352 01:05:09,080 --> 01:05:12,280 That's what it's all about. Like I running the the business 1353 01:05:12,280 --> 01:05:15,400 where I didn't really have many outside investors at the time, 1354 01:05:15,800 --> 01:05:18,000 but I was, you know, working as much as I could on nights and 1355 01:05:18,000 --> 01:05:19,640 weekends. Because sometimes during the day 1356 01:05:19,640 --> 01:05:22,920 I would be taking like a random consulting gig that I like would 1357 01:05:22,920 --> 01:05:25,160 talk myself into. Or sometimes I was doing 1358 01:05:25,160 --> 01:05:27,480 contract analyst work for other managers. 1359 01:05:27,800 --> 01:05:29,800 You know, anything I could to just extend the runway. 1360 01:05:29,800 --> 01:05:31,880 We, Bill and I were talking about this when the camera was 1361 01:05:31,880 --> 01:05:34,600 up, but you know, including tempering expectations from my 1362 01:05:34,600 --> 01:05:36,440 now wife who at the time was my girlfriend. 1363 01:05:36,440 --> 01:05:39,200 I was like, but the the belt is going to be real tight around 1364 01:05:39,200 --> 01:05:41,520 here for a while because I'm taking a chance on myself. 1365 01:05:42,240 --> 01:05:44,480 This is a couple years ago now, but I remember on Twitter 1366 01:05:44,560 --> 01:05:48,040 somebody had posted like, I don't understand why an analyst 1367 01:05:48,040 --> 01:05:51,160 would leave a job where they make, you know what, I forget 1368 01:05:51,160 --> 01:05:53,000 the number. I think it was like $300,000. 1369 01:05:53,000 --> 01:05:54,920 Why an analyst would leave a job where they're getting paid 1370 01:05:54,920 --> 01:05:57,360 $300,000 and try and start their own fund. 1371 01:05:57,360 --> 01:05:59,040 It's like it just doesn't make any sense. 1372 01:05:59,760 --> 01:06:02,800 And I totally get that if you're only thinking about it in terms 1373 01:06:02,800 --> 01:06:05,200 of the money. But I was never thinking about 1374 01:06:05,200 --> 01:06:07,240 it in terms of the money. I was always thinking about it 1375 01:06:07,240 --> 01:06:10,120 like the risk is not walking away from the job you have. 1376 01:06:10,440 --> 01:06:13,080 The risk is waking up one day when you're 70 years old and 1377 01:06:13,080 --> 01:06:15,200 looking in the mirror and saying, I can't believe I never 1378 01:06:15,200 --> 01:06:17,920 took my shot. Like, that is the real risk. 1379 01:06:18,120 --> 01:06:20,320 So it's worked out for me. It doesn't work out for 1380 01:06:20,320 --> 01:06:21,880 everybody, but it's it's worked out for me. 1381 01:06:22,120 --> 01:06:26,200 Well said, well said. My buddy owns a Chick-fil-A 1382 01:06:26,200 --> 01:06:30,960 around here, and in order to get it, he had to take it was like a 1383 01:06:30,960 --> 01:06:34,760 mall location. And he was behind, you know, 1384 01:06:34,760 --> 01:06:37,000 he's the chief cook and bottle washer, whatever. 1385 01:06:37,000 --> 01:06:40,200 He's behind the cash register. And my other buddy who had grown 1386 01:06:40,200 --> 01:06:43,240 up with him but didn't talk to him for like, you know, 15 years 1387 01:06:43,240 --> 01:06:46,600 or whatever, was walking through the mall And he sees his 1388 01:06:46,600 --> 01:06:49,640 childhood friend behind the cash register at the Chick-fil-A. 1389 01:06:50,080 --> 01:06:52,760 And he turned to his wife and he's like, what should I do? 1390 01:06:52,760 --> 01:06:56,440 I should I go see him? Like, I feel so bad for the guy. 1391 01:06:56,800 --> 01:06:58,960 And he walked up and he asked him, he said, like, are you, are 1392 01:06:58,960 --> 01:07:03,000 you now like the cashier here? And he was going to give him 50 1393 01:07:03,000 --> 01:07:04,480 bucks to help him out or whatever. 1394 01:07:04,840 --> 01:07:06,720 And my buddy was like, no, I own the place. 1395 01:07:06,720 --> 01:07:09,360 And I got to come in and I basically had to fire everybody, 1396 01:07:09,360 --> 01:07:13,880 turn the culture around. And now he actually got his 1397 01:07:13,880 --> 01:07:16,040 second Chick-fil-A, which they don't do very often. 1398 01:07:16,040 --> 01:07:19,360 I mean, he's really built it into something pretty, pretty 1399 01:07:19,360 --> 01:07:21,400 incredible to watch. But I was talking to him about 1400 01:07:21,400 --> 01:07:25,120 that time of his life and just, you know, he had like, just had 1401 01:07:25,120 --> 01:07:27,760 a kid. He's at this, you know, shitty 1402 01:07:27,760 --> 01:07:31,120 mall location. He was like, man, I never want 1403 01:07:31,120 --> 01:07:32,800 to go back there. I mean, you know, he doesn't 1404 01:07:32,800 --> 01:07:34,560 have to, right? But he was talking about, to 1405 01:07:34,560 --> 01:07:37,280 your point on adjusting expectations, you know, his wife 1406 01:07:37,280 --> 01:07:40,880 was, I think at a couple times she questioned what the heck are 1407 01:07:40,880 --> 01:07:43,560 we doing here. But they have a strong faith and 1408 01:07:43,560 --> 01:07:44,600 I think that brought them through. 1409 01:07:44,600 --> 01:07:47,880 But it's I love those stories. Yeah, that's it, man. 1410 01:07:47,880 --> 01:07:50,160 You know, it's there's nothing better than being your own boss, 1411 01:07:50,160 --> 01:07:51,240 right? It's not easy, though. 1412 01:07:51,240 --> 01:07:54,040 Like, you have to you have to pay dues along the way. 1413 01:07:54,040 --> 01:07:55,760 You have to make sacrifices along the way. 1414 01:07:55,760 --> 01:07:57,840 But if you're able to make it work, I don't know if this is 1415 01:07:57,840 --> 01:07:58,960 true for your buddy. Maybe it is. 1416 01:07:58,960 --> 01:08:01,280 But like for me, I'm one of the few people in the world that is 1417 01:08:01,280 --> 01:08:04,400 able to make a career out of what they love doing. 1418 01:08:04,760 --> 01:08:07,600 So I always think it's like me and like rock stars and movie 1419 01:08:07,600 --> 01:08:09,880 stars and not many other people, right? 1420 01:08:09,880 --> 01:08:11,480 Like, maybe it's your Chick-fil-A buddy, too. 1421 01:08:11,480 --> 01:08:14,120 I don't know how passionate he is about, you know, washing the 1422 01:08:14,120 --> 01:08:17,240 bottles and cleaning the grease traps, but maybe he is 1423 01:08:17,240 --> 01:08:19,279 passionate. I think he likes building teams 1424 01:08:19,279 --> 01:08:21,760 and he gets to coach the kids that he hires and stuff. 1425 01:08:21,760 --> 01:08:22,880 I think. I think he quite likes. 1426 01:08:23,040 --> 01:08:25,359 Chip Play is obviously like the fantastic brand and they're 1427 01:08:25,359 --> 01:08:27,880 known for their values and known for incredible service, and I 1428 01:08:27,880 --> 01:08:29,720 totally see how you could be super proud of that. 1429 01:08:30,520 --> 01:08:33,080 Yeah, I I think it's cool. I'm trying to learn something 1430 01:08:33,080 --> 01:08:35,399 from him about motivating groups I had. 1431 01:08:35,399 --> 01:08:40,040 I coached a basketball team with him and it opened my eyes to how 1432 01:08:40,040 --> 01:08:41,960 much I need to work on my coaching. 1433 01:08:41,960 --> 01:08:47,160 Like the it's it's it was a fun experience 10 so they were they 1434 01:08:47,160 --> 01:08:49,399 were old enough to start to grasp concepts. 1435 01:08:49,399 --> 01:08:51,920 I've only coached like quite a bit younger, which is like 1436 01:08:51,920 --> 01:08:54,040 herding. Cats, I'm about to start. 1437 01:08:54,040 --> 01:08:57,040 I guess it's two weeks from now. Start as coaching 8 year old 1438 01:08:57,040 --> 01:09:00,359 lacrosse, which, yeah, we'll see how that goes. 1439 01:09:00,439 --> 01:09:03,600 It'll be interesting. I've got AUA team on the 1440 01:09:03,600 --> 01:09:06,000 assistant, but I didn't play growing up so I don't really 1441 01:09:06,000 --> 01:09:08,640 know what I'm doing. So I'm mostly the guy that I try 1442 01:09:08,640 --> 01:09:12,160 to make sure that when we're running a four on 4 drill, the 1443 01:09:12,160 --> 01:09:15,200 other kids are passing each other and improving their stick 1444 01:09:15,200 --> 01:09:18,920 skills and staying busy rather than hitting the each other in 1445 01:09:18,920 --> 01:09:21,319 the head because that's what boys like to do. 1446 01:09:21,640 --> 01:09:24,000 That's a big part of it for sure, yeah. 1447 01:09:24,640 --> 01:09:27,359 It makes no sense. I'm like, guys, stop. 1448 01:09:27,840 --> 01:09:29,800 But it's been one of the great joys in my life, man. 1449 01:09:29,800 --> 01:09:31,920 I hope you. I hope you like it, because it's 1450 01:09:31,920 --> 01:09:33,520 it's. Fun I'm I'm looking forward to 1451 01:09:33,520 --> 01:09:34,640 it. I'm I'm actually really excited. 1452 01:09:34,640 --> 01:09:35,840 I I. Don't know what else to talk 1453 01:09:35,840 --> 01:09:37,800 about, man. I've really enjoyed this part of 1454 01:09:37,800 --> 01:09:41,080 the the pod has grown to a point where sometimes it feels like 1455 01:09:41,080 --> 01:09:43,920 it's like almost a marketing platform, and it's so refreshing 1456 01:09:43,920 --> 01:09:47,439 to just talk to somebody. But like, I I feel like I've 1457 01:09:47,439 --> 01:09:49,160 heard you say things like that in the past, but you're not 1458 01:09:49,160 --> 01:09:50,520 selling anything. No, I know. 1459 01:09:50,520 --> 01:09:53,160 But sometimes I feel like I'm like, like like other people's 1460 01:09:53,160 --> 01:09:55,520 house. It's not totally fair because 1461 01:09:55,520 --> 01:09:58,120 they're all conversations that I want to have, but it's part of 1462 01:09:58,120 --> 01:10:01,160 why I have not, like, I mean, there's going to be a lot of 1463 01:10:01,160 --> 01:10:03,320 recurring guests. It's 'cause I I'm going to do it 1464 01:10:03,320 --> 01:10:06,280 with people that I like and if I get introduced to other people, 1465 01:10:06,280 --> 01:10:09,200 then I'll do that. But I I don't want to cold call 1466 01:10:09,200 --> 01:10:11,880 people and try to be like, hey, you know let's come on And then 1467 01:10:12,160 --> 01:10:15,360 the other issue and it's really fun to have, you know, like like 1468 01:10:15,360 --> 01:10:19,640 Sanjay Air was amazing from WCM. But once you start to get to 1469 01:10:19,640 --> 01:10:23,320 that level of firm, there's steps that you got to work with 1470 01:10:23,320 --> 01:10:25,560 within, like what they'll allow you to talk about. 1471 01:10:25,560 --> 01:10:29,560 Not WCM, they were not that way, but other people have been and 1472 01:10:29,560 --> 01:10:31,120 it it gets a little bit like, what are we doing? 1473 01:10:31,120 --> 01:10:33,120 Here. But yeah, well, the what are we 1474 01:10:33,120 --> 01:10:34,040 doing here? I get it. 1475 01:10:34,040 --> 01:10:36,800 But I guess my impression has been that you're doing this for 1476 01:10:36,840 --> 01:10:39,000 your own development, right? Your own enjoyment, right. 1477 01:10:39,000 --> 01:10:40,840 So that's what's better than that. 1478 01:10:40,880 --> 01:10:42,640 It's been great. I would argue the only thing 1479 01:10:42,640 --> 01:10:45,920 that might be better is having a job that was paying me while I 1480 01:10:45,920 --> 01:10:48,440 was doing my own research and talking to people and getting a 1481 01:10:48,440 --> 01:10:51,120 feedback right. But this is how I've been doing 1482 01:10:51,120 --> 01:10:54,240 sort of my version of what you did, and it's been hugely, 1483 01:10:54,240 --> 01:10:58,560 hugely rewarding and very fun. Like the ultimate outcome here 1484 01:10:58,560 --> 01:11:01,280 is that you lever this into a career somehow or? 1485 01:11:01,320 --> 01:11:03,000 Well, yeah, I got to do something. 1486 01:11:03,000 --> 01:11:06,560 I'm not going to open up a fund. I don't see any scenario where 1487 01:11:06,560 --> 01:11:09,520 that's the outcome. I could see a scenario where I 1488 01:11:09,520 --> 01:11:11,280 do some sort of financial advising. 1489 01:11:11,280 --> 01:11:13,960 I could see a scenario where I try to raise capital for people. 1490 01:11:13,960 --> 01:11:17,080 That is probably where my life goes. 1491 01:11:17,080 --> 01:11:20,080 But honestly, my my job was making sure that my grandma 1492 01:11:20,080 --> 01:11:22,120 could die in peace for a little while. 1493 01:11:22,600 --> 01:11:26,880 And now that that's kind of over, I'm at a bit of a midlife 1494 01:11:26,880 --> 01:11:29,560 crossroads. Well, it's interesting because, 1495 01:11:30,440 --> 01:11:32,760 you know, I don't think I ever missed an episode when you were 1496 01:11:32,760 --> 01:11:35,440 on Toby's show or whatever value after hours. 1497 01:11:35,920 --> 01:11:38,560 But like, I have not listened to all of your episodes. 1498 01:11:38,560 --> 01:11:42,400 So I feel like I've gotten like a good chunk of your your back 1499 01:11:42,400 --> 01:11:44,680 story and your life story, but not all the pieces. 1500 01:11:44,680 --> 01:11:48,480 So I mean, just right there what you just said, you're like, I 1501 01:11:48,480 --> 01:11:50,760 need to do something. Like I didn't know if that was 1502 01:11:50,760 --> 01:11:52,560 the case. I was like maybe you don't. 1503 01:11:52,600 --> 01:11:55,400 Maybe you have money and you're kind of kicking at. 1504 01:11:55,720 --> 01:11:58,080 Me, I wouldn't be happy not doing anything, man. 1505 01:11:58,440 --> 01:12:00,520 And I want to be a productive member of society. 1506 01:12:00,520 --> 01:12:04,600 I'm not trying and and frankly we I don't have enough to not do 1507 01:12:04,600 --> 01:12:06,360 anything nor do I want the pressure. 1508 01:12:06,360 --> 01:12:09,680 Like dude, I don't like living off of a balance sheet. 1509 01:12:09,680 --> 01:12:13,960 It's not something that I enjoy very much and I don't know what 1510 01:12:13,960 --> 01:12:16,080 am I going to do like play golf all the time. 1511 01:12:16,080 --> 01:12:17,760 Fuck that shit. I want to do stuff. 1512 01:12:18,240 --> 01:12:19,200 It's funny that, like, I do know. 1513 01:12:19,440 --> 01:12:21,520 I just want to do something I enjoy that's rewarding. 1514 01:12:21,520 --> 01:12:23,440 I do know guys that are totally happy. 1515 01:12:23,440 --> 01:12:27,200 The young guys, how old are you? I'm 45. 1516 01:12:27,200 --> 01:12:29,720 Guys that are like our age and like they're totally happy just 1517 01:12:29,720 --> 01:12:32,160 playing golf. And I would lose my mind. 1518 01:12:32,160 --> 01:12:34,160 I would absolutely. Lose my can't do it. 1519 01:12:34,360 --> 01:12:38,240 Yeah, I couldn't do it. The only the only time that I am 1520 01:12:38,280 --> 01:12:41,480 purely happy not doing something work related is when I'm with 1521 01:12:41,480 --> 01:12:45,000 the kids and and my wife. I mean I I really like my family 1522 01:12:45,000 --> 01:12:47,800 that that I'm building. But outside of that I I need to 1523 01:12:47,800 --> 01:12:50,400 do something. Idle hands are terrible. 1524 01:12:50,400 --> 01:12:53,720 You know, an interesting guy I talked to just last week who I 1525 01:12:53,720 --> 01:12:55,560 don't think he would ever come on the show because he's very 1526 01:12:55,560 --> 01:12:57,840 private, but just like an interesting guy to talk to and 1527 01:12:57,840 --> 01:13:00,800 maybe I could facilitate it. And we didn't talk specifics, 1528 01:13:00,800 --> 01:13:03,760 but I'm pretty sure he's like self-made, worth like 50 or 100 1529 01:13:03,760 --> 01:13:06,960 million bucks. And we didn't, he didn't want to 1530 01:13:06,960 --> 01:13:09,960 get into too many of the specifics, but he basically said 1531 01:13:10,280 --> 01:13:13,840 he's started by, you know, like a small business in high school. 1532 01:13:14,280 --> 01:13:17,160 And by the time he was done with high school, that was like Jet. 1533 01:13:17,160 --> 01:13:20,160 That business was generating like $1,000,000 a year in cash 1534 01:13:20,160 --> 01:13:24,080 flow. And his parents were like, this 1535 01:13:24,080 --> 01:13:27,360 is not a real career. You have to stop with this. 1536 01:13:27,720 --> 01:13:29,200 You have to stop. Maybe it was 100, maybe it was 1537 01:13:29,200 --> 01:13:31,160 $1,000,000 in revenue. It might have been $1,000,000 in 1538 01:13:31,160 --> 01:13:33,000 revenue, But either way like call it 10%. 1539 01:13:33,000 --> 01:13:35,120 Margins like. You know it's like a real thing 1540 01:13:35,520 --> 01:13:38,120 his practice like you have to get rid of this and go to 1541 01:13:38,120 --> 01:13:39,840 college. So you could be I think they 1542 01:13:39,840 --> 01:13:43,840 want him to be a doctor. So he wound up selling it and I 1543 01:13:43,840 --> 01:13:46,200 think he it must have been $1,000,000 business or 1544 01:13:46,200 --> 01:13:49,320 $1,000,000 like EBITDA line because he sold it for something 1545 01:13:49,320 --> 01:13:52,760 like 5 or 6,000,000 bucks. Then went to college and like 1546 01:13:52,760 --> 01:13:54,680 started Med school and just hated it. 1547 01:13:54,880 --> 01:13:57,480 But was investing in public markets at the time and wound up 1548 01:13:57,480 --> 01:14:00,120 like doubling or tripling his money over, you know, in a seven 1549 01:14:00,120 --> 01:14:02,240 or eight-year period like something not too hard to 1550 01:14:02,240 --> 01:14:04,560 believe. But then has done a couple other 1551 01:14:04,560 --> 01:14:06,520 things since then where it's basically like small business 1552 01:14:06,520 --> 01:14:09,800 roll ups, you know, like finding some weird niche small business. 1553 01:14:09,800 --> 01:14:12,760 And one of the ones you talked about, I think it's like a water 1554 01:14:12,760 --> 01:14:15,840 purification business. But there's like three of these 1555 01:14:15,840 --> 01:14:19,320 businesses in this one like not too large geographic area. 1556 01:14:19,640 --> 01:14:22,800 And you buy one, you learn the business and then you approach 1557 01:14:22,840 --> 01:14:25,360 the other guy and then you have two and you have three and you 1558 01:14:25,360 --> 01:14:29,280 just levy your costs and you get some scale and the increase in 1559 01:14:29,280 --> 01:14:32,920 multiple you get from buyers and just with just a little bit of 1560 01:14:32,920 --> 01:14:35,280 scale is huge. So you could buy it at like you 1561 01:14:35,280 --> 01:14:39,120 know, three or four times cash flow and sell it at 8 or 9 times 1562 01:14:39,120 --> 01:14:41,920 cash flow after it's two or three times bigger. 1563 01:14:41,920 --> 01:14:45,280 Like the returns are ridiculous. And he's just done it a couple 1564 01:14:45,280 --> 01:14:47,880 different Times Now with, you know, small businesses. 1565 01:14:47,880 --> 01:14:50,960 Just get a couple. He works very hard. 1566 01:14:50,960 --> 01:14:54,080 He described it as like 16 hours a day at times to when you're 1567 01:14:54,080 --> 01:14:56,200 getting your people up the curve, kind of like you know, 1568 01:14:56,200 --> 01:14:58,560 you're you're Chick-fil-A guy. Like you have to be in there 1569 01:14:58,560 --> 01:15:00,520 doing it. But then you get to the point 1570 01:15:00,520 --> 01:15:03,040 where you get the right managers and you kind of sit back and 1571 01:15:03,040 --> 01:15:05,600 watch the cash flow and start thinking about what you could 1572 01:15:05,600 --> 01:15:08,200 sell it for and then start looking for the next one and 1573 01:15:08,200 --> 01:15:10,840 that's it. Yeah, the so easy. 1574 01:15:10,840 --> 01:15:13,560 There was a guy why did? Everybody do it. 1575 01:15:14,720 --> 01:15:17,160 Yeah, that's exactly right. There was a kid at Capital camp 1576 01:15:17,160 --> 01:15:19,880 that I talked to. Kid, he's probably like 32, but 1577 01:15:19,880 --> 01:15:23,360 he's doing the same thing. And he said to me, he's like, 1578 01:15:23,360 --> 01:15:25,600 I'd never go on a podcast, 'cause I don't want other people 1579 01:15:25,600 --> 01:15:27,880 to learn what I do. But he does something similar. 1580 01:15:27,880 --> 01:15:33,280 He buys industrial companies and he was telling me like one, He 1581 01:15:33,280 --> 01:15:36,840 basically, you know, so the balance sheet was so lazy that 1582 01:15:36,840 --> 01:15:40,040 he basically bought it and then put a revolver in place and 1583 01:15:40,040 --> 01:15:42,680 sucked all his capital out within six months. 1584 01:15:42,680 --> 01:15:45,200 And he had this business, like basically free. 1585 01:15:45,200 --> 01:15:48,720 Unbelievable. Yeah, it's wild. 1586 01:15:49,440 --> 01:15:55,320 Are you going to always stay small cap and like if so why as 1587 01:15:55,320 --> 01:15:58,360 opposed to maybe going up to like 5 billion in market cap? 1588 01:15:58,360 --> 01:16:00,440 Yeah, It's an interesting question. 1589 01:16:00,720 --> 01:16:06,160 And the the way I think about it is as an investor, I want every 1590 01:16:06,160 --> 01:16:08,000 possible competitive advantage, right. 1591 01:16:08,400 --> 01:16:10,960 And like, look, I'm a reasonably smart guy, but I know that I'm 1592 01:16:10,960 --> 01:16:12,560 not the smartest guy in the world. 1593 01:16:12,600 --> 01:16:14,840 And I know that this is not a business where being the 1594 01:16:14,840 --> 01:16:17,960 smartest guy is what you need. And it's like Buffett 101. 1595 01:16:17,960 --> 01:16:20,560 It's not a game where the guy with the 150 IQ beats the guy 1596 01:16:20,560 --> 01:16:23,520 with the 1:30 IQ. But I do think the competitive 1597 01:16:23,520 --> 01:16:27,680 advantages matter. And there's just right now it 1598 01:16:27,680 --> 01:16:29,520 feels like a negative. But there's just not as much 1599 01:16:29,520 --> 01:16:33,160 competition in small cab, especially today, which I used 1600 01:16:33,160 --> 01:16:35,240 to think about that as a huge competitive advantage. 1601 01:16:35,240 --> 01:16:37,320 Now I think about as well, there's no incremental buyers. 1602 01:16:37,320 --> 01:16:40,600 It kind of stinks sometimes, but it's just more fun for me. 1603 01:16:40,640 --> 01:16:43,640 And I'm really looking for the one foot hurdle and it's harder 1604 01:16:43,640 --> 01:16:46,680 to find the one foot hurdle in for example Apple. 1605 01:16:46,680 --> 01:16:49,360 I think there's 50 full time sell side analysts that cover 1606 01:16:49,360 --> 01:16:53,600 Apple like I don't want to compete with those guys in small 1607 01:16:53,600 --> 01:16:55,040 cap in theory you can get some edge. 1608 01:16:55,040 --> 01:16:58,440 Now the way I've thought about it over time maybe it started to 1609 01:16:58,440 --> 01:17:02,040 evolve because even with so I've never done super small, I've 1610 01:17:02,040 --> 01:17:03,960 never really do anything like less than 100 million. 1611 01:17:03,960 --> 01:17:08,200 So I'm not doing like the $20 million market caps, but even 1612 01:17:08,200 --> 01:17:10,200 the difference between the quality of a management team 1613 01:17:10,200 --> 01:17:13,400 like a $500 million company and $100 million company is huge. 1614 01:17:13,760 --> 01:17:16,920 It's like I have moved on market a bit and I top of my head, I'd 1615 01:17:16,920 --> 01:17:20,800 say my average market cap right now is like a billion and that's 1616 01:17:20,800 --> 01:17:22,480 still very small. It doesn't scale for oh. 1617 01:17:22,480 --> 01:17:24,040 That makes sense. But it's a much better that 1618 01:17:24,040 --> 01:17:26,600 makes sense, much better quality experience. 1619 01:17:27,000 --> 01:17:30,720 The only time I think about going larger is based on the 1620 01:17:30,720 --> 01:17:34,400 opportunity set like what I like if large cap all of a sudden got 1621 01:17:34,400 --> 01:17:37,120 super cheap because we have a you know the pendulum swings 1622 01:17:37,120 --> 01:17:38,560 like well then maybe it makes sense. 1623 01:17:38,560 --> 01:17:41,120 I don't know. But for me, what I'm doing stuff 1624 01:17:41,120 --> 01:17:43,800 where there's not as many people competing with it and I don't 1625 01:17:43,840 --> 01:17:46,600 have to worry about that angle of it as much. 1626 01:17:46,920 --> 01:17:49,120 I don't know. It's kind of a lazy answer, but 1627 01:17:49,120 --> 01:17:50,240 that's just kind of where I wound up. 1628 01:17:50,640 --> 01:17:53,360 It's not lazy at all. That's that's actually the 1629 01:17:53,360 --> 01:17:56,960 professional management teams was a lot of what I was actually 1630 01:17:56,960 --> 01:17:58,920 getting at. I had a conversation with Jeff 1631 01:17:58,920 --> 01:18:03,240 Graham Once Upon a time and I asked him if he were me, what 1632 01:18:03,240 --> 01:18:06,320 would he focus on And he's like I would not go too much below 1633 01:18:06,320 --> 01:18:08,520 800 million for the exact reason that you said. 1634 01:18:08,520 --> 01:18:11,120 He's like, unless you really want to get your hands dirty and 1635 01:18:11,120 --> 01:18:14,480 like really get in there and whatnot, but he's like that 1636 01:18:15,360 --> 01:18:18,760 around that market cap. Now I'm gonna, I'm gonna butcher 1637 01:18:18,760 --> 01:18:21,000 what he said. So just consider it my words at 1638 01:18:21,000 --> 01:18:22,960 this point. But around that market cap is 1639 01:18:22,960 --> 01:18:27,240 inefficient enough that that you can find real pockets, but big 1640 01:18:27,240 --> 01:18:29,400 enough to demand professional management. 1641 01:18:29,520 --> 01:18:31,000 That makes sense. That's a good way to think about 1642 01:18:31,000 --> 01:18:33,120 it. I think and and the the other 1643 01:18:33,120 --> 01:18:36,560 piece of it too is like when you have that weaker management 1644 01:18:36,560 --> 01:18:38,680 team, you really have to be thinking like when am I gonna 1645 01:18:38,680 --> 01:18:42,520 sell this? And I have more evolved into 1646 01:18:42,520 --> 01:18:45,080 wanting to own better businesses with the potential to own them 1647 01:18:45,080 --> 01:18:47,080 for longer times. So like for me best case 1648 01:18:47,080 --> 01:18:49,440 scenario is like a special situation that could actually 1649 01:18:49,440 --> 01:18:52,440 turn into a compounder. Like it has a special situation 1650 01:18:52,440 --> 01:18:53,880 price. But this is a business you could 1651 01:18:53,880 --> 01:18:58,200 own for a long time. And I have found with the 1652 01:18:58,240 --> 01:19:00,600 smaller cap stuff, like you really don't, you don't want to 1653 01:19:00,600 --> 01:19:02,120 like the Super small. Like you don't want to own it 1654 01:19:02,120 --> 01:19:03,600 forever. Like there's a reason that 1655 01:19:03,600 --> 01:19:07,480 they're so small in public and meaning, like if they were a 1656 01:19:07,480 --> 01:19:09,320 great business and they were small, well then private equity 1657 01:19:09,320 --> 01:19:13,160 would scoop them up, right. And if they're still that small 1658 01:19:13,160 --> 01:19:15,960 and they've been public for a while, well, then, you know, 1659 01:19:15,960 --> 01:19:17,760 they're not getting the right returns on capital or they're 1660 01:19:17,760 --> 01:19:19,720 not compounding or whatever it might be. 1661 01:19:20,320 --> 01:19:21,520 So I don't know. I don't. 1662 01:19:22,080 --> 01:19:23,400 I don't think there's a right answer. 1663 01:19:23,400 --> 01:19:27,400 Yeah, that's that's the old no, no business aims to stay small, 1664 01:19:27,440 --> 01:19:29,800 right? Well, I mean, yes, except for 1665 01:19:29,800 --> 01:19:31,600 like my business aims to stay small. 1666 01:19:31,600 --> 01:19:34,640 I think so. It it's very, very hard for me 1667 01:19:34,640 --> 01:19:36,480 to think that. I I mean, you're sitting there 1668 01:19:36,480 --> 01:19:39,520 in a room full of people and like, look, Schwartzman's got a 1669 01:19:39,520 --> 01:19:41,280 great pitch for Blackstone products. 1670 01:19:41,280 --> 01:19:43,800 If they're levered and the economy grows, you're gonna do 1671 01:19:43,800 --> 01:19:47,880 better than the public markets. Like yeah, you know, probably 1672 01:19:47,880 --> 01:19:49,400 because you're using more leverage. 1673 01:19:49,480 --> 01:19:53,280 On the other hand, nobody in that room is thinking critically 1674 01:19:53,280 --> 01:19:55,640 about whether or not people are over allocating to private 1675 01:19:55,640 --> 01:19:57,960 equity right now. It's just like a given that it's 1676 01:19:57,960 --> 01:20:01,440 going to outperform and it's like this guy is fucking telling 1677 01:20:01,440 --> 01:20:07,800 you he got rich paying 16% free cash flow entry fee on real 1678 01:20:07,800 --> 01:20:11,160 estate. You guys are allocating to 1679 01:20:11,160 --> 01:20:13,760 private equity at the time where they're flipping stuff to each 1680 01:20:13,760 --> 01:20:17,200 other for 14 times EBITDA? Like. 1681 01:20:18,120 --> 01:20:19,600 I don't know. I don't get it either. 1682 01:20:19,600 --> 01:20:22,480 But again, the volatility laundering, right? 1683 01:20:22,760 --> 01:20:25,560 If you're in the allocator seat, you get to tell your boss or you 1684 01:20:25,560 --> 01:20:28,800 know your whatever, your institution, your hospital, your 1685 01:20:28,800 --> 01:20:31,280 college is down and you tell them like, Oh yeah, we're flat. 1686 01:20:32,880 --> 01:20:35,240 The S&P is down 30% and we're flat. 1687 01:20:35,440 --> 01:20:38,920 And you say with a straight face, oh, that's great, that's 1688 01:20:38,920 --> 01:20:40,360 great. Let's build that new building we 1689 01:20:40,360 --> 01:20:41,240 need to build. That's. 1690 01:20:41,800 --> 01:20:43,880 What else? What else was said yesterday? 1691 01:20:43,880 --> 01:20:47,240 Oh, somebody was like, well, they marked B REIT down like 8% 1692 01:20:47,240 --> 01:20:49,320 last year. I was like, they fucking should 1693 01:20:49,320 --> 01:20:50,640 have. It's real estate. 1694 01:20:51,040 --> 01:20:53,560 Yeah, of course they marked it down. 1695 01:20:53,560 --> 01:20:54,160 No. It's crazy. 1696 01:20:54,440 --> 01:20:57,280 It's crazy. It's just, you know, it reduces 1697 01:20:57,280 --> 01:20:59,440 career risk for people as they go private equity. 1698 01:21:01,240 --> 01:21:05,560 For now, but but I say that it can be another 10 years before 1699 01:21:05,560 --> 01:21:08,680 you even realize that that was the wrong idea, right? 1700 01:21:08,680 --> 01:21:12,000 To allocate. So I I think to your point, by 1701 01:21:12,000 --> 01:21:14,520 then you're gone. Your kids have already graduated 1702 01:21:14,520 --> 01:21:17,800 college and like, what the hell do you care, right, if you're an 1703 01:21:17,800 --> 01:21:18,800 allocator? So. 1704 01:21:19,640 --> 01:21:21,760 I don't know. Well, it sounds like we see the 1705 01:21:21,760 --> 01:21:23,840 world very similarly. Yeah, I think so. 1706 01:21:24,320 --> 01:21:26,240 I feel like. I feel like you just put your 1707 01:21:26,240 --> 01:21:29,280 radio voice back on. No, no, I didn't mean to. 1708 01:21:29,280 --> 01:21:32,360 I I just I do think that we see the world pretty similar. 1709 01:21:32,840 --> 01:21:35,280 I think so. I gotta learn what to look for 1710 01:21:35,280 --> 01:21:38,680 in some smaller stocks. I may bounce some ideas off if I 1711 01:21:38,680 --> 01:21:40,680 work harder than I have been lately. 1712 01:21:40,680 --> 01:21:42,040 I'm happy to. I do. 1713 01:21:42,080 --> 01:21:44,520 That's one thing I have to say that I know you've been big with 1714 01:21:44,520 --> 01:21:47,320 like the the cable names and stuff like that, and I get it. 1715 01:21:47,320 --> 01:21:49,520 But don't you feel like there's a million people looking at the 1716 01:21:49,520 --> 01:21:52,480 cable names? Yeah, I thankfully sidestep this 1717 01:21:52,480 --> 01:21:55,560 last leg down. Yes, I do think that way. 1718 01:21:55,800 --> 01:22:00,240 And now that I have sold them and look I got into like I think 1719 01:22:00,240 --> 01:22:03,360 I made a mistake that I hope I don't repeat. 1720 01:22:03,400 --> 01:22:07,280 I got into Charter when they had merger integration issues and 1721 01:22:07,280 --> 01:22:10,080 they were integration issues that I could really understand 1722 01:22:10,640 --> 01:22:14,280 and the business was on a side of free cash flow in our 1723 01:22:14,280 --> 01:22:16,080 inflection that I could understand. 1724 01:22:16,960 --> 01:22:21,520 And and it worked and it works so well that even when it was at 1725 01:22:21,520 --> 01:22:24,600 like 800 a share, I was like, I remember I was talking to my 1726 01:22:24,600 --> 01:22:27,920 friends, I was like we can't make more than like 4 or 5% on 1727 01:22:27,920 --> 01:22:29,720 this anymore. Like we just can't. 1728 01:22:30,360 --> 01:22:35,040 And I ended up trimming that. And then I went into Altice 1729 01:22:35,040 --> 01:22:40,200 which is lower quality. And I thank God I was watching 1730 01:22:40,200 --> 01:22:43,520 the conference call And when this the guy got on the Dexter, 1731 01:22:43,520 --> 01:22:45,840 when he got on that Goldman conference call, I texted my 1732 01:22:45,840 --> 01:22:47,200 friends. I was like this dude looks like 1733 01:22:47,200 --> 01:22:50,320 he just cheated on his wife and he's got to come out and tell us 1734 01:22:50,400 --> 01:22:52,320 all. And I was like, I'm out. 1735 01:22:52,440 --> 01:22:55,200 Like I I do not like this body language one bit. 1736 01:22:55,200 --> 01:22:59,080 And to be fair, I listened to what he said before I sold, but 1737 01:22:59,080 --> 01:23:02,720 I sidestepped a big drawdown in that and and I got hurt, don't 1738 01:23:02,720 --> 01:23:04,960 get me wrong. And then Charter was sitting 1739 01:23:04,960 --> 01:23:08,800 there and I think that it was an, you know, it was a business 1740 01:23:08,800 --> 01:23:14,640 that I had already made money on and knew pretty well. 1741 01:23:14,640 --> 01:23:17,920 And I just, I completely underestimated the CapEx cycle 1742 01:23:17,920 --> 01:23:19,680 and the threat from fixed wireless. 1743 01:23:19,680 --> 01:23:24,200 And I don't know if it was lazy thinking or what, but I I don't 1744 01:23:24,200 --> 01:23:27,360 have like this massive desire to go back into it at all. 1745 01:23:27,360 --> 01:23:30,160 Like I I kind of talk about it with my friends now 'cause I 1746 01:23:30,160 --> 01:23:34,800 still follow cable, but you know it, I think they probably do 1747 01:23:34,800 --> 01:23:37,120 well here. I mean just a simple Dan 1748 01:23:37,120 --> 01:23:39,920 Rasmussen, this is a levered, you know, just like a levered 1749 01:23:39,920 --> 01:23:41,360 equity. But at this point, I think you 1750 01:23:41,360 --> 01:23:44,720 put like a group of those on and the group probably does fine, 1751 01:23:45,400 --> 01:23:47,520 basically private equity in public markets. 1752 01:23:47,520 --> 01:23:49,600 But yes, I think I should be looking. 1753 01:23:49,800 --> 01:23:51,520 I should look at stuff like Thrive more. 1754 01:23:51,920 --> 01:23:54,080 Yeah. I mean, I guess the way I think 1755 01:23:54,080 --> 01:23:58,360 about it is, it's just a fact that how you get paid is, is 1756 01:23:58,360 --> 01:24:01,360 really three things, right? One is earnings power goes up, 1757 01:24:02,000 --> 01:24:04,600 two is multiple expansion. And then three is like return of 1758 01:24:04,600 --> 01:24:06,680 capital dividends, however you want to think about it. 1759 01:24:07,240 --> 01:24:11,280 But the earnings power part is out there and it's out there for 1760 01:24:11,280 --> 01:24:13,800 anybody to see whether or not the earnings power is going to 1761 01:24:13,800 --> 01:24:16,120 prove like you can do your work on that independent of the 1762 01:24:16,120 --> 01:24:18,680 multiple, independent of that multiple expansion. 1763 01:24:19,320 --> 01:24:22,240 But the multiple expansion piece, a big part of that is 1764 01:24:22,240 --> 01:24:24,200 just there's value in the discovery process. 1765 01:24:24,200 --> 01:24:26,040 Like if you're looking at something that nobody else is 1766 01:24:26,040 --> 01:24:28,960 looking at and then more people start looking at it, it pulls 1767 01:24:28,960 --> 01:24:30,880 forward returns. Like if you know that return 1768 01:24:30,880 --> 01:24:35,160 comes forward before the earnings power shows up and when 1769 01:24:35,160 --> 01:24:37,280 you have a stock that everybody's already looking at 1770 01:24:37,280 --> 01:24:39,440 that, that doesn't tend to happen unless it's already like 1771 01:24:39,440 --> 01:24:42,040 they are performing like they are executing and then you're 1772 01:24:42,040 --> 01:24:45,440 seeing it and that's fine too. But anytime you could pull 1773 01:24:45,440 --> 01:24:47,440 forward the multiple, I think it's a bonus. 1774 01:24:48,880 --> 01:24:52,800 Yeah, I think that that's a very, a very astute comment. 1775 01:24:53,080 --> 01:24:55,560 The problem again back to what we were saying earlier, I feel 1776 01:24:55,560 --> 01:24:59,480 like a couple years ago it would be like a small cap stock and 1777 01:24:59,480 --> 01:25:01,600 like a couple people start talking about it on Twitter or 1778 01:25:01,600 --> 01:25:03,960 it's written up on Victoria or whatever it re rates pretty 1779 01:25:03,960 --> 01:25:07,480 quickly. And now it's like I mean Thrive 1780 01:25:07,480 --> 01:25:11,240 is an example, the Thrive last year customer counted Thrive was 1781 01:25:11,240 --> 01:25:14,480 up 29%. If you do some work around what 1782 01:25:14,480 --> 01:25:17,120 is their runoff marketing business worth versus their 1783 01:25:17,120 --> 01:25:20,160 debt, you could kind of say that the debt is probably cancelled 1784 01:25:20,160 --> 01:25:22,920 out maybe a little bit more. And if you do that on an 1785 01:25:22,920 --> 01:25:25,840 enterprise value to revenue basis, it's trading at like I 1786 01:25:25,840 --> 01:25:29,720 don't know two times adjusted enterprise value backing out the 1787 01:25:30,400 --> 01:25:34,280 the debt and the runoff business and the average software company 1788 01:25:34,280 --> 01:25:37,200 at that size and that margin profile and that growth is 1789 01:25:37,200 --> 01:25:40,240 trading at like 6 times revenue. So you know it's super cheap, 1790 01:25:40,240 --> 01:25:42,000 right. And they're executing I I grew 1791 01:25:42,000 --> 01:25:44,440 customer account by 29 percent or something like that. 1792 01:25:45,080 --> 01:25:47,600 But then you look at it and they also have floating rate debt. 1793 01:25:48,920 --> 01:25:50,560 That is a death sentence in this market. 1794 01:25:50,560 --> 01:25:53,240 Oh, this is this is what you're saying that that people just 1795 01:25:53,240 --> 01:25:55,280 don't want to touch it because they're like, I don't know 1796 01:25:55,280 --> 01:25:56,960 where? It's going, I mean the trends 1797 01:25:56,960 --> 01:26:00,080 that are driving the business. So like the the, the major trend 1798 01:26:00,080 --> 01:26:03,400 there is the idea that small businesses are not yet running 1799 01:26:03,400 --> 01:26:06,600 their business in the cloud the way all big businesses are. 1800 01:26:06,600 --> 01:26:09,800 So your local plumber or whatever is probably running his 1801 01:26:09,800 --> 01:26:12,240 business right now on the spreadsheet and some sticky 1802 01:26:12,240 --> 01:26:15,240 notes and that's not going to be like that forever. 1803 01:26:15,240 --> 01:26:18,040 At some point all of that, you know, every small business like 1804 01:26:18,040 --> 01:26:20,320 that, they're also going to have some software that helps make 1805 01:26:20,320 --> 01:26:22,240 their lives better. And I don't think there's 1806 01:26:22,240 --> 01:26:24,560 anything that stops that trend now. 1807 01:26:24,680 --> 01:26:27,560 It doesn't mean that thrive wins that trend. 1808 01:26:27,800 --> 01:26:30,760 I do think they have a huge competitive advantage in that 1809 01:26:31,120 --> 01:26:35,320 they have this stack of, I think it's down to maybe 350 or 1810 01:26:35,320 --> 01:26:39,560 330,000 customers at this point that's still advertised like via 1811 01:26:39,560 --> 01:26:42,040 their old business, the Yellow Pages business essentially. 1812 01:26:43,120 --> 01:26:46,440 And I think it's probably hard for anyone who's like an analyst 1813 01:26:46,760 --> 01:26:48,720 to understand this. But if you're the person who's 1814 01:26:48,720 --> 01:26:51,720 running the firm like me or your friend of Chick-fil-A or 1815 01:26:51,720 --> 01:26:55,200 whatever, like the amount of inbound stuff I get from 1816 01:26:55,600 --> 01:26:59,760 compliance consultants and a new operating system for my trading. 1817 01:26:59,760 --> 01:27:03,160 And, you know, any legal advice? Like I get emails like that all 1818 01:27:03,160 --> 01:27:06,200 day long, every day, and I ignore all of them. 1819 01:27:06,720 --> 01:27:08,880 Now there are a lot of people out there that are trying to 1820 01:27:08,880 --> 01:27:11,880 make software for small and medium businesses and they're 1821 01:27:11,880 --> 01:27:14,400 all sending emails to these small and medium businesses 1822 01:27:14,400 --> 01:27:17,120 saying, look at me, look at me and all those emails are getting 1823 01:27:17,120 --> 01:27:19,640 ignored because nobody looks at those emails. 1824 01:27:20,120 --> 01:27:23,080 But then you have Thrive and they have 15 on average. 1825 01:27:23,080 --> 01:27:25,360 Their average customer has been with them for 15 years. 1826 01:27:25,720 --> 01:27:28,360 Their emails don't get ignored because for 15 years they've had 1827 01:27:28,360 --> 01:27:29,880 the relationship. They've been, you know, the 1828 01:27:30,080 --> 01:27:32,320 small business owner has been sending a check to Thrive. 1829 01:27:32,320 --> 01:27:35,160 So Thrive is contacting them. They say, oh wait, what's this? 1830 01:27:35,160 --> 01:27:37,960 I should pay attention. It is like a huge competitive 1831 01:27:37,960 --> 01:27:39,880 advantage when it comes to customer acquisition. 1832 01:27:40,680 --> 01:27:44,280 And if you look at their, their intermediate term plan and you 1833 01:27:44,280 --> 01:27:46,560 do the math around where they think they can get on revenue 1834 01:27:46,560 --> 01:27:48,920 and ARPU, they're basically suggesting that they could win 1835 01:27:48,920 --> 01:27:51,600 less than 2% of their addressable market. 1836 01:27:52,440 --> 01:27:53,880 That does not sound ambitious to me. 1837 01:27:53,880 --> 01:27:56,200 That is not a winner take all kind of situation. 1838 01:27:56,200 --> 01:27:58,640 It's like you could get there a couple different ways. 1839 01:27:58,640 --> 01:28:01,520 It's like if 50% or it's actually less than 50%, it's 1840 01:28:01,520 --> 01:28:04,720 probably like 40% of their existing marketing customers 1841 01:28:05,120 --> 01:28:09,080 transition to software side. Well, then they did it like that 1842 01:28:09,080 --> 01:28:11,880 shouldn't be that hard because they already have the customer 1843 01:28:11,880 --> 01:28:14,480 relationship, like they already have the emails that get opened. 1844 01:28:15,280 --> 01:28:19,440 Or another way to think about it is that if you're like in a 1845 01:28:19,440 --> 01:28:23,680 three plumber town and one plumber gets thrive and all of a 1846 01:28:23,680 --> 01:28:26,080 sudden you have 3 plumbers and one of them is going to tell 1847 01:28:26,080 --> 01:28:28,600 you, yeah, I'll be there on Tuesday between 8:00 and 4:00. 1848 01:28:29,080 --> 01:28:31,640 And the other one said is texting you every hour with an 1849 01:28:31,640 --> 01:28:34,400 update on when they're going to be there and then they text you 1850 01:28:34,440 --> 01:28:36,920 your invoice afterwards so you're not waiting in the mail 1851 01:28:36,920 --> 01:28:38,720 and you could pay them right through your phone. 1852 01:28:39,040 --> 01:28:41,240 That is such a better customer experience that the other two 1853 01:28:41,240 --> 01:28:44,040 plumbers now have a problem. And you can see this in their 1854 01:28:44,040 --> 01:28:46,000 numbers. It's like 40% of their new 1855 01:28:46,000 --> 01:28:49,200 customers come to a referral where it's like 1 plumber gets 1856 01:28:49,200 --> 01:28:51,760 thrive and the next plumber is like oh I got a problem, I need 1857 01:28:51,760 --> 01:28:53,600 to get it. So then they get it too. 1858 01:28:53,600 --> 01:28:55,960 So like none of this means it's going to work. 1859 01:28:56,520 --> 01:28:59,680 It just means that one quants can't see it because it's a 1860 01:28:59,680 --> 01:29:02,160 curve crowd cross story. You have a declining business 1861 01:29:02,640 --> 01:29:04,680 that's the old marketing business and that's polluting 1862 01:29:04,680 --> 01:29:06,520 the financials. Then you have the the new 1863 01:29:06,520 --> 01:29:10,640 business which is accelerating but until those curves cross the 1864 01:29:10,640 --> 01:29:13,840 gap financials are immense. And then it's you know trying to 1865 01:29:13,840 --> 01:29:16,160 think of they can succeed. Like I really think it's a true 1866 01:29:16,160 --> 01:29:18,960 competitive advantage to own the customer relationship rather 1867 01:29:18,960 --> 01:29:21,880 than cold calling. And then I really think it's a 1868 01:29:21,880 --> 01:29:24,320 true competitive advantage that they even this other, this other 1869 01:29:24,320 --> 01:29:26,840 business is in decline. It's spinning off a ton of cash. 1870 01:29:27,280 --> 01:29:30,160 So in a world where you know three years ago money was free, 1871 01:29:30,400 --> 01:29:33,040 every software company out there that was trying to get into this 1872 01:29:33,040 --> 01:29:35,440 market had access to free money but they don't have free money 1873 01:29:35,440 --> 01:29:37,080 anymore. So being able to internally 1874 01:29:37,080 --> 01:29:41,560 finance is a huge deal, but they have some floating rate debt and 1875 01:29:41,560 --> 01:29:45,040 IT rates went up last year and despite the fact that they're 1876 01:29:45,040 --> 01:29:47,080 executing, the stock was flat on the year. 1877 01:29:47,640 --> 01:29:49,360 But you have to look at it and say like all right, they have 1878 01:29:49,360 --> 01:29:51,720 floating rate debt. I think it's at like 350 million 1879 01:29:51,720 --> 01:29:53,240 right now. They just reported yesterday's, 1880 01:29:53,240 --> 01:29:56,040 I don't remember the updated number, I think it's 350 1881 01:29:56,040 --> 01:29:58,640 million, but that's down from a billion a couple years ago. 1882 01:29:58,640 --> 01:30:01,160 Like there is clear evidence they were paying that debt down. 1883 01:30:01,160 --> 01:30:03,520 They just paid off 120 million this last year. 1884 01:30:04,080 --> 01:30:06,640 You know, it's going to be gone in a couple years or if not, 1885 01:30:06,640 --> 01:30:09,640 gone down to a level where they could easily refinance it based 1886 01:30:09,640 --> 01:30:12,160 on the SAS business they're building and not based on the 1887 01:30:12,160 --> 01:30:14,960 declining Yellow Pages building. So they'll come out clean one 1888 01:30:14,960 --> 01:30:17,480 way or another. And I think when that happens, 1889 01:30:17,480 --> 01:30:19,600 then the market has to care. Like the market has to say, oh, 1890 01:30:19,600 --> 01:30:21,680 wait a second, the debt's not a problem anymore. 1891 01:30:21,960 --> 01:30:24,120 And the market has to say the curves have crossed. 1892 01:30:24,120 --> 01:30:26,360 So now everything is inflected in the right way. 1893 01:30:26,720 --> 01:30:29,200 And if you're a quant, it's Oh my God, wait a second. 1894 01:30:29,520 --> 01:30:31,840 Now it's looks like it's trading at two times sales and 1895 01:30:31,840 --> 01:30:33,840 everything else is trading at six times sales. 1896 01:30:33,840 --> 01:30:37,640 Not to mention that it's not even qualified as a SAS business 1897 01:30:37,640 --> 01:30:40,400 under the GIG system like the industry classification system, 1898 01:30:40,960 --> 01:30:42,840 it's classified as a marketing business. 1899 01:30:43,200 --> 01:30:46,120 So like when the curves cross, then it'll be reclassified as a 1900 01:30:46,120 --> 01:30:48,640 SAS business. And any computer out there that 1901 01:30:48,640 --> 01:30:51,280 is only following the rule set will say, wait a second, this is 1902 01:30:51,280 --> 01:30:54,640 now in my SAS bucket, wait a second, It's trading at two 1903 01:30:54,640 --> 01:30:56,240 times revenue. Everything else is trading at 1904 01:30:56,440 --> 01:30:59,040 six times revenue. Maybe we should buy this 'cause 1905 01:30:59,040 --> 01:31:01,040 that's what the rules say, I don't know. 1906 01:31:01,080 --> 01:31:02,680 And that's how the stock goes right now. 1907 01:31:02,680 --> 01:31:04,760 It's at like 19 or something. That's how the stock goes from 1908 01:31:04,760 --> 01:31:08,440 19 to 60. I think if I'm right, but yeah, 1909 01:31:08,600 --> 01:31:12,520 you know right now it has floating rate debt and that is a 1910 01:31:12,520 --> 01:31:13,320 no, no. Yeah. 1911 01:31:13,320 --> 01:31:15,000 And a declining business, to your point. 1912 01:31:15,080 --> 01:31:17,120 And like the Gap financials suck, right? 1913 01:31:17,240 --> 01:31:20,920 Or they don't suck, but you have to put time and effort into 1914 01:31:20,920 --> 01:31:21,520 actually. Yeah. 1915 01:31:21,560 --> 01:31:24,600 I mean the, the ick factor if you will is, is off the charts. 1916 01:31:24,600 --> 01:31:27,120 It's like, oh, they have the software business and this other 1917 01:31:27,120 --> 01:31:28,840 business, what's the other business? 1918 01:31:29,120 --> 01:31:35,640 It's the Yellow Pages. What who still has a phone book? 1919 01:31:36,040 --> 01:31:38,840 And the answer is, you know, people in area that live in area 1920 01:31:38,840 --> 01:31:41,480 maybe connecting back to Charter or Altis, but people who live in 1921 01:31:41,480 --> 01:31:43,800 areas where there's not good Wi-Fi connectivity or there's 1922 01:31:43,800 --> 01:31:47,720 not good Internet and it's, you know, those people in Appalachia 1923 01:31:47,720 --> 01:31:50,200 and places like that, like the phone book still is, is a thing 1924 01:31:50,200 --> 01:31:52,960 and it's a still totally valid customer acquisition tool for 1925 01:31:52,960 --> 01:31:53,920 them. It's not going to be there 1926 01:31:53,920 --> 01:31:57,240 forever, but I can't think of a management team that has been 1927 01:31:57,240 --> 01:32:00,480 more transparent when discussing the decline of that business and 1928 01:32:00,480 --> 01:32:01,840 how they're going to handle that decline. 1929 01:32:01,840 --> 01:32:05,400 They're totally open and it is dying and it is spitting off a 1930 01:32:05,400 --> 01:32:08,480 ton of cash as it dies. Huh. 1931 01:32:10,320 --> 01:32:13,280 That's what you want it. Whenever Jake and Toby and I 1932 01:32:13,280 --> 01:32:16,200 would talk about value and some of these like declining 1933 01:32:16,200 --> 01:32:18,240 businesses, I'd always be like, you just got to tell me what 1934 01:32:18,240 --> 01:32:20,160 they're going to do with the cash, right? 1935 01:32:20,160 --> 01:32:24,240 And investing in a growth business while also paying down 1936 01:32:24,240 --> 01:32:27,480 debt are two things that makes sense to me as to what they're 1937 01:32:27,480 --> 01:32:29,400 doing with. The return, the returns on them 1938 01:32:29,400 --> 01:32:33,720 are are very clear and not only that the CEO chairman like he's 1939 01:32:33,720 --> 01:32:35,000 putting his money where his mouth is. 1940 01:32:35,000 --> 01:32:38,400 He could do the math and on an after tax basis, he's investing 1941 01:32:38,400 --> 01:32:41,640 more than 100% of his salary into buying shares in the public 1942 01:32:41,640 --> 01:32:43,560 markets. Wow. 1943 01:32:44,440 --> 01:32:47,240 The after tax is like a little quirky like I happen to be able 1944 01:32:47,240 --> 01:32:50,280 to figure out the prop some of the real estate he owns and what 1945 01:32:50,280 --> 01:32:52,720 the taxes are on that. So it's like truly after tax 1946 01:32:52,720 --> 01:32:55,400 it's not just like what the government takes on the income 1947 01:32:56,000 --> 01:32:57,680 but still like he's out there in the market. 1948 01:32:57,680 --> 01:33:00,320 I we'll see, right. They reported yesterday so I'm 1949 01:33:00,320 --> 01:33:02,720 sure that the window is probably closed for him until Monday or 1950 01:33:02,720 --> 01:33:04,560 Tuesday. We'll we'll see if he buys again 1951 01:33:04,560 --> 01:33:06,960 because the stock got hit on on the earnings so. 1952 01:33:07,560 --> 01:33:09,520 Do you run background checks and stuff on people? 1953 01:33:09,800 --> 01:33:12,360 I wouldn't say I do that. I'm pretty good at finding 1954 01:33:12,360 --> 01:33:15,640 somebody who knows people and just kind of connecting the dots 1955 01:33:15,640 --> 01:33:16,920 on that. But like I've never hired the 1956 01:33:16,920 --> 01:33:19,480 background check firm. I tend to focus on the 1 foot 1957 01:33:19,480 --> 01:33:23,200 hurdles and what are the levers the management team pulls and 1958 01:33:23,200 --> 01:33:24,640 you know back to thrive. Like, I don't know. 1959 01:33:24,640 --> 01:33:28,000 I think less than 2% market share, when you own a customer 1960 01:33:28,000 --> 01:33:30,600 relationship like that doesn't strike, see strike me as super 1961 01:33:30,600 --> 01:33:32,240 crazy. It doesn't strike me as a 1962 01:33:32,240 --> 01:33:34,760 promotional, to your point, right? 1963 01:33:34,760 --> 01:33:36,960 It's not promotional. And if they're transparent on 1964 01:33:36,960 --> 01:33:39,960 the business, it's declining. Those are people that you could 1965 01:33:39,960 --> 01:33:42,560 probably trust. Whether or not the projection 1966 01:33:42,560 --> 01:33:44,840 becomes reality is sort of how life works, right? 1967 01:33:44,840 --> 01:33:48,040 But at least you're not, like, set up with a person that's 1968 01:33:48,040 --> 01:33:51,080 trying to, like, get you to buy into a story that's unrealistic. 1969 01:33:52,280 --> 01:33:54,200 That makes sense. That makes sense. 1970 01:33:54,200 --> 01:33:56,720 Interesting, huh? I'm going to listen to these 1971 01:33:56,720 --> 01:33:58,080 calls. That's what I'm going to do for 1972 01:33:58,080 --> 01:34:01,680 tonight. Put my kid down and go listen to 1973 01:34:01,680 --> 01:34:02,160 thrive. Yeah. 1974 01:34:02,200 --> 01:34:04,320 Well, it's so they reported yesterday. 1975 01:34:04,320 --> 01:34:07,200 I have a call with them actually in 45 minutes because there's 1976 01:34:07,200 --> 01:34:09,880 some things from the their report last night that were, I 1977 01:34:10,720 --> 01:34:12,640 don't know if they're concerned like it was a mixed, it was a 1978 01:34:12,640 --> 01:34:14,840 mixed bag and there's a couple things I was like, I don't know 1979 01:34:14,840 --> 01:34:17,200 if that makes sense. All right man, I'm going to let 1980 01:34:17,200 --> 01:34:18,800 you go. I really, I've enjoyed this, 1981 01:34:18,800 --> 01:34:20,360 thank you. The whole reason that I left 1982 01:34:20,360 --> 01:34:22,760 everything recording by the way, is so that when we do this 1983 01:34:22,760 --> 01:34:25,880 goodbye is because I didn't want to re record. 1984 01:34:25,880 --> 01:34:28,440 I've been thinking the whole time I'm like, do we have enough 1985 01:34:28,440 --> 01:34:30,680 to like just walk away or do we need to? 1986 01:34:32,760 --> 01:34:35,440 Yeah, no, I I just, I wanted to say thank you very much for 1987 01:34:35,440 --> 01:34:38,000 coming on and I look forward to the next time that we. 1988 01:34:38,000 --> 01:34:40,120 Can let me know if you want to go to Omaha and I'll do the same 1989 01:34:40,120 --> 01:34:42,600 and maybe we'll yeah, we'll shoot it over there for a 1990 01:34:42,600 --> 01:34:43,280 little. Bit all right. 1991 01:34:43,280 --> 01:34:44,120 Sounds good all. Right. 1992 01:34:44,160 --> 01:34:45,120 Take care, man. I appreciate it.