The Case for Value Investing with Tobias Carlisle

[00:00:00] Welcome to Excess Returns where we focus on what works over the long term in the markets. Join us as we talk about the strategies and tactics that can help you become a better long-term investor.

[00:00:30] Thank you for listening. Please enjoy this discussion with the choir of funds Toby Carlisle, the man who single-handedly got us into podcasting.

[00:01:00] Sorry about that.

[00:01:02] Look at the empire we built since then Toby. Very impressive.

[00:01:09] We always like to have you on top. We appreciate it. Check in on what's going on the value stock universe, sort of what you're seeing in the markets.

[00:01:18] What you're sensing with sort of the value growth stock spread and you know just have a conversation around a bunch of a bunch of different topical stuff that I think investors can always learn from where we thought we'd start.

[00:01:37] And I don't know if you saw the whole entire interview or quote, but I know you guys were you and Jake were talking about it with one of your recent guests on value after hours.

[00:01:49] John, I forgot his last name starts with an R value value. Yeah, yeah, but that was a great discussion by the way.

[00:01:58] This interview that David Einhoer did with Barry Rittholz in which he was basically saying that you know the markets are broken and paying less attention to fundamentals.

[00:02:14] And so the passive investing has kind of like broken the markets from a fundamental investing standpoint. So he's focused on strategies that are effectively returning cash to shareholders in some way, not waiting for mean reversion or multiple expansion because that wasn't happening with a lot of his names and then you know sort of looking for these companies that are returning cash.

[00:02:35] So just in general, I mean what do you what do you think about the idea of the market sort of cares less about fundamental these days.

[00:02:44] So Michael Green has this thesis that passive flows have reached a tipping point overwhelmed the active investment in the market such that the more space that accompany occupies in a big index like the spy or whatever.

[00:03:04] The more flows it gets and therefore the companies that aren't in the index or have only a little market capitalization. So everything's going to grow sort of according to its size, which is sort of anti value in a sense that value tends to be you know if you have two companies with the same $100 million of earnings and ones on a five times p it's got a $500 million market cap and the other ones on 20 times p it's got a two billion.

[00:03:33] It's getting four times the flows of the even though the earnings are the same like everything else is the same it's just the market cap so they see more flows to their stock price goes up more.

[00:03:45] The thesis that sort of turns on this the fact that it's like it's not reversible all the passive money's coming in from retirement money at some point the retirement money comes out and that causes a beforehand there's a crack up boom and then there's a complete collapse.

[00:04:02] I don't know about all of that stuff it's sort of a little bit beyond my pay grade i'm a fun at heart to believe honestly but i don't i don't really worry about it too much the objective is a value investor.

[00:04:16] I don't really care so much about the stock price performance even after i buy something because the returns for me when i buy are already baked in at the price that i pay whether it's quoted in the market or not so the returns that i get really there are two sources there's the dividend yield.

[00:04:35] And or the shareholder yield which is the buybacks and capital returns dividend and all that sort of stuff and then there's the portion of earnings that are reinvested in the business reinvested at the marginal return on invest capital.

[00:04:50] And you can find over time that that will give you an output you can sum that to the yield that's your expected return whatever happens to the stock price in the interim between when you hold it when you sell this kind of irrelevant like that's the compounding is going on you can be opportunistic can just sit in there and wait.

[00:05:11] The idea that you would focus more on the iron horns idea is that well we're not getting rewarded for the compounding portion we're not getting rewarded for the reinvestment at the marginal rate or we're getting rewarded for we're not seeing any margin multiple expansion so therefore let's look at the let's focus more on the yield portion let's make sure we're getting enough yield out and that's how we're going to get our return.

[00:05:41] Which that's what but has been doing for a very long period of time you know all of buffer acquisitions like you can look at bnsf as an example of like it's not a publicly listed company is private he's bought it owns it privately I don't know the exact figures I've sort of forgotten all these because it was so long ago now but he got most of his capital back pretty quickly when he bought bnsf it's true also with the purchase of oxy you know he bought oxy it's returning capital to the

[00:06:11] great concern with all of these oil and gas companies is that they tend to do most of their reinvestment at peak cycle like all the mergers and all the action goes on peak cycle.

[00:06:21] And he doesn't want that to happen he wants them it's a good business is not a lot of money reinvested in the business that throws up a lot of cash just return that's the shareholders will do very well.

[00:06:31] And he's he's so focused on it that he took a slide from one of their presentations and he put it in his own shareholder meeting presentation and he named the CEO the big goal of the con am is and he said here's what you guys have said publicly you're going to return capital I want you to keep on returning capital because you said that you're going to do that.

[00:06:53] And so he's sort of just kind of you know I'm fisting the velvet glove encouragement and the way that he does it like it's not there's no threat he's just saying you've made this public statement i'm investing on the base on a good faith base of this public state when I expect you to sort of adhere to this public state but that you can return capital.

[00:07:13] I think that that's a it's certainly a good approach there's nothing wrong with investing that way but it is only one source of the returns there is this other source of returns and it doesn't matter if you don't get the multiple re rating if you're getting that incremental reinvestment you can you can do a calculation that calculation out before you looking at marginal return on invested capital multiplied by the amount of money that's reinvested plus that the yield all the yield becomes that chair by that dividend yield.

[00:07:43] Capital return whatever all of that stuff that is your return whatever happens to the multiple you get that return.

[00:07:52] The multiple has to compress you know commensurate with your compounding for you to not get that return so when I think about this stuff I don't actually care what the market does I always invest on the basis that the multiples not going to re rate.

[00:08:04] I assume there's going to be no multiple re rating over the period of time that hold it and for some companies where they are doing a lot of buybacks i would prefer it if they don't re rate up because i'm going to make a lot more money ultimately.

[00:08:16] If they state cheap and buy back stock the monthly fully serons famous ad where they had his IBM which was always really really expensive at this massive multiple.

[00:08:25] And I this is what this is back when IBM was like that.

[00:08:29] IBM was the most served the best returning stock for a very long period of time was like IBM and Microsoft and Intel all that's kind of companies through the PC boom a long time ago.

[00:08:39] And they would say IBM has sort of rocketed earnings state is very high multiple and you would have got this return over like a 10 or 20 holding period and then they would compare to tootsie roll.

[00:08:51] You know which makes tootsie rolls and all the tootsie roll tootsie rolls control by family not a tech company makes a makes a candy that people like to eat not very many people but enough people.

[00:09:04] And they would take that cash and because nobody wanted to own the stock either because that's a really boring company was always trading at a really multiple they buy back stock all the time.

[00:09:14] And the Motley Fools ad would say look at the performance of tootsie roll over this long period of time massively out perform to IBM.

[00:09:22] So do I care if the market recognizes the value that I see and these things after I buy them no I don't because I'm already buying these things on the basis that I'm going to get this source of return from the reinvestment and the yield.

[00:09:37] I would prefer it if it doesn't get re-rated.

[00:09:41] If they're buying back stock that's that's the best case outcome that means it management is aware of the under valuation they have the free cash flow there to buy back stock or they have the cash there to buy back stock and thinking about shareholders rather than expanding their own domain which are all very strong signals for buying something.

[00:10:00] So when they buy back a whole stock with any luck somewhere down the line I'll be the last man standing they buy back all of the stock I'll still have my position will take that company private now that it's not quoted in the stock market anymore I'm not getting the multiple expansion anymore but am I not making any money of course I'm still making money I'm getting the reinvestment and I'm getting the dividend deal I'm still getting the return.

[00:10:24] So I think it's a silly argument from both sides I think it's a fundamental misunderstanding of the way that returns generated in the stock market and I think that it's largely a result of people who think like stock market operators rather than business owners.

[00:10:37] And so I think like a business owner I think like a stock market operator.

[00:10:41] So I love it.

[00:10:43] If I think about it at a high level so the idea is if I want to get a return I can get in a few different ways one is I can get paid dividends or they can buy back the stock I can get it directly from the company.

[00:10:51] To is the company's earnings can go up and I can maintain this game multiple so I'm getting a return even if there's no multiple expansion and then three is the multiple expansion and the idea is those first two are going to happen irrespective of the market cares about the multiple expansion anyways that is that kind of the idea.

[00:11:07] I don't think you can rule you know they would say that the criticism of the deep value goes and I'm a deep value guy the criticism the deep value goes used to be all you're relying on is this mean reversion in the multiple like you're buying it a cheap multiple expecting the multiple go up.

[00:11:21] It's a shitty business it's not going to grow so therefore your focused on price return and not business return.

[00:11:30] And I think that that's a big criticism but I think that you just don't don't rely on the multiple return like you can do a calculation where you're not relying on multiple expansion and you can still see what sort of return you can get if you're getting a satisfactory return what do you care whether there's multiple expansion.

[00:11:47] Yeah, and I think that was kind of you know to some degree I'm going to disagree with you because he's trying to find companies where he is getting that return even if nobody's paying attention because one of his points was in that small cap space right now he doesn't think near and I'll be agree with this you can let me know like.

[00:12:00] A lot there's a lot less investors paying attention in that small cap space than there used to be and so those people that would bid up the stock after good earnings like there aren't as many of them there so you don't see it like he was saying I get good results from my companies and no one seems to care.

[00:12:15] I don't know if there are more or less it would make sense that there are less because all of the action has been in big.

[00:12:21] Growth the tech mostly and so all of the young folks who I talk to you know when they hear them of value invest they're just like that's crazy like why would you kind of consign yourself to the dustbin of history like why would you go out and purposefully not make any money in this market and the reason is because I've been through a few cycles and I've seen what happens on the downside of a cycle and I'm not trying to

[00:12:44] I'm not trying to win every single year or every single rolling three or five or ten year period I'm trying to survive every single year rolling three five and ten year period my goal is to be here at the end of the race to win the race you must first finish the race and so that's my goal.

[00:13:00] I'm going to get all the way to the end with all of my chips still on the table so I'm focused on downside risk first and focused on cash flows sensible managements robust business models that don't do really well for six or seven years and then completely shit the bed in seven in year seven where you know like some credit card type companies where they they don't know how many right off they're going to get through the recession when the recession hits like there are some banks or like that there are lots of business models.

[00:13:30] I think that it's possible that it is that there are fewer people investing in the sector but isn't that like isn't that what we do this stuff isn't that what we're looking for we want there to be less competition.

[00:13:42] I would love it if everybody packed up and went and looked at large growthy tech don't I don't want the multiple expansion I'm going to be doing this for a long time I'll keep on buying the stuff until I'm the last guy owning all of it I don't mind doing that at all and I don't know what other vatica's don't want to do that too.

[00:13:59] You know sort of a hard left turn here but you know it's a good commercial when Toby can bring up tootsie roll and I still remember how many licks does it take to get to center that tootsie roll top.

[00:14:13] I'm still looking for it if they were leaving it up to you to figure it out right and said that was the commercial but going back to let's just go back to budget for a second you know it's interesting with

[00:14:30] that like you know he loves dividends he loves companies that are buying back stock actually in his shareholder to letter this year I thought it was interesting he was talking about how

[00:14:40] because Berkshire halfway owners own indirectly through Berkshire part of part of Apple part of coke part of American express that the buybacks that those companies do actually results in

[00:14:59] them indirectly owning more of the like the holding that buffet owns in the portfolio but also more Berkshire halfway stock so it's this like derivative amplifying most effect of these buybacks.

[00:15:15] Any of you he talks a lot about to like how much dividends to your point about burning to northern and I mean apples paying a dividend now and you know most of the stuff I think that he holds probably paying a dividend just how much.

[00:15:28] Profits are being generated at Berkshire cuz it's just such a massive company was such massive positions anyways just sort of an observation i think he would say that I think he says this in his letters that.

[00:15:40] The ideal business like the theoretical ideal business is a business that has this unlimited runway for reinvestment and takes all of its free cash flow and reinvest at a above market returner very very high rate I mean of return so he would say cease candy isn't an example of that like basically the top one growth in cease candy is absolutely minimal it might be two percent a year the global growth in chocolate is like two percent a year.

[00:16:07] And cease candy in particular has this problem that nobody would buy a box of cease candy for themselves everybody buys it as a gift and everybody loves to get it as a gift and everybody loves to eat them but no one go into a store and buy one for themselves so they have this like there's a psychological problem with the bar having said that you know California and now lots of places and states people will go in and they will buy.

[00:16:28] Box of cease candy and it's always nicely expensive it's so it's crazy expensive when you go to buy the margins on there.

[00:16:35] Astronomical but they still sell it all out every single year so the prices aren't high enough.

[00:16:41] They've really not grown the top line very much in that business but it's thrown off massive amounts of capital it's basically built Berkshire Hathaway you know for an investment of whatever it is.

[00:16:52] It was 27 up front and then they've thrown another 30 out of whatever the 30 something years that they've 50 years that they've held something like that whatever it is.

[00:17:02] And it's thrown off you know billions of dollars that they think like an ordinary investor could have reinvested those cash flows and been fabulously wealthy at the end but you take those cash flows and you give it to Buffett then it just he's gone and bought other cease candies that do the same thing.

[00:17:17] This had this compounding multiplicative effect so I think that's the ideal business one that doesn't require any reinvestment and probably doesn't pay a dip.

[00:17:27] Sorry cease can't reinvest but you know the idea is that you just takes the capital that you give it and just reinvest it forever not very many businesses can do that.

[00:17:37] It's often the businesses that you don't want to reinvest in that require the money like they're the ones that are so capable of the capital of the time but I think that when you can't find the ones that can absorb infinite capital on a very long runway then you want one that still maintains the very high returns and capital returns most of it to you so you can then go and find your own other high return or invested capital businesses.

[00:18:01] What do you just want to run the topic of a brochure what do you think happens to Berkshire beyond Buffett like I've been thinking about that a lot now that mongers gone like on just a lot of different levels like on levels of their investment strategy on the levels of like if I think back to 2008.

[00:18:14] You know when he was able to come in with his reputation and do what he did with Goldman Sachs and you're not only good return but like in still confidence back in the world like what do you think happens to that when he's not around.

[00:18:25] It won't be as good the thing is the thing that makes Berkshire unique is that it has this incredible culture and culture is instilled from the top down I've been in I've been in another business I've worked in other businesses where there were two entrepreneurs in it.

[00:18:43] And the culture started at the very top with them and it was like an elite business environment elite business culture because they were there but it's just so easy to take the easier route rather than like stick to the hard stuff that it's sort of it's inevitable there's nobody else who can maintain culture like Buffett does it won't be fast but it will of course it will deteriorate over time at some point it'll get too cheap I'm sure it will bust it up it'll probably happen in my lifetime but it's not easy to take the hard stuff.

[00:19:37] Drop off the first year he's not there and then it'll shrink every year after that.

[00:19:44] I would imagine a lot of his shareholder bases kind of older too yeah it's not you know there's like that transition you give it to the kids the kids the kids don't have the same sort of emotional attachment to it.

[00:19:56] Did you see just as we'll move on from this in a second but there was that gift given to it was a medical school in New York City.

[00:20:07] And it was.

[00:20:10] The largest film for a pick gift I think to any academic but the money came from the woman donated it.

[00:20:20] But it was from an investment in birch or halfway way back and this guy was like husband that passed away was one of Buffett's good friends anyways it's paying now full tuition for all medical school students for the rest of the world.

[00:20:37] The schools.

[00:20:39] Future I mean it's amazing yeah it's right yeah it's crazy by the way just I know I know some people who are like this like people who were in Omaha at that time like it's amazing how much wealth was created.

[00:20:50] Like people who were investing with him early and who were in Omaha like families that came from there like they've generated amazing amounts of wealth off of what he's done.

[00:20:58] Extraordinary yeah I mean even though the annual meeting every year that I still price this girl I'm sure that the hotels make a loss for.

[00:21:08] For 360 days of the year and then five days of the year they make their entire years profit.

[00:21:13] Kind of mind me and Microsoft to like how much wealth was created did you guys just another quick side note here this is nuts um.

[00:21:20] I read this morning was regional or go like open AI AI positions like million dollars comp.

[00:21:27] It's like like the base plus like the accelerated stock options and all that stuff it's like these top AI developers are getting like 900 two million dollars a year in terms of compensation which is crazy.

[00:21:43] That's big money that's real money does it does it rely on open AI having a hundred billion dollar market cat.

[00:21:48] I don't know it might be tied to that didn't get to that but then I was thinking they are but they are in California so basically 50% of it.

[00:21:55] Yeah not if you get it in not if you get it in the options and you can tell me it's a long time capital gains yeah yeah.

[00:22:01] What do you think about um I've been thinking a lot about inflation in terms of value um like do you think I mean obviously I don't know where inflation is going to go um you know that on the last person that should be predicting that but do you think there's any changes I mean if you thought anything about anything with your investment strategy like if we do get a prolonged period of inflation is there anything you do differently I mean value tens.

[00:22:20] You know at least in theory people think value is a good place to be in an inflationary environment but do you think about anything with your strategy in terms of inflation.

[00:22:28] I hate to just regurgitate by for all the time but he is the guy who you know I've got my de facto MBA by reading Berkshire halfway letters so this is sort of shapes that I think about everything and I read his explanations and I think that's probably right I mean it's not like um just regurgitating it because he said it I think through it too but he says that you know the 70s they had a similar problem where.

[00:22:50] Inflation was running hot and he says like even the Berkshire was had this stunning performance through the 70s someone pointed out that gold did as well as a share of Berkshire and gold didn't do anything there's a lot of work and effort and blood and sweat and tears in uh in Berkshire

[00:23:05] and he said the idea the mistake that everybody makes is that they think that you need to be in things that have you know lots of hard assets because the hard assets go up in value but he said what that misses is that if you have to replace those you got to maintain those hard assets you got to replace those hard assets you spend a million dollars in year zero and then you earn 100 200 whatever over the 10 years that you hold them and then you get to the end

[00:23:33] and you need instead of spending a million dollars now you got to spend two million dollars to replace those assets so all of those 10 years of profit are sort of eaten up by the reinvestment in uh in the hard assets at the end of it

[00:23:45] and so our hard assets that answer to that I don't know um maybe if you never have to re maybe if to mine you never have to reinvest in the mine maybe that sort of works well

[00:23:55] but I think that the higher return on invested capital businesses possibly do better and maybe that's why all of the techy companies have done it's the fear of inflation

[00:24:05] it's pushed up the valuations for those things I really don't know I think you want to be in you know it's gonna it's gonna be bad for anybody who doesn't hold a lot of investment assets

[00:24:16] so it's gonna hit the or a middle class much harder than it hits the wealthy the wealthy you're gonna notice at all the poor middle class it gets smashed pretty hard

[00:24:26] I don't think it's good for anybody um I think that after tax returns after tax after inflation returns are going to be real returns are going to be low for the whole period that we sort of we run this

[00:24:41] you know that the uh the era of financial repression which I think is what James Montier called and he wrote this article in 2010 something like that

[00:24:52] and he said the era of financial repression when they start these things take decades two or three decades

[00:24:58] and I remember reading that in 2010 or 2005 or something like that and thinking gee that's a long time and now here we are in 2024

[00:25:07] and really it's kicking off we're starting to see the impact of the inflation even though I think the seeds of it was sewn through from 2010 onwards really with Benayn keep penny interest rates at zero

[00:25:19] and flooding the market with uh with money which is seen you know stocks go to the moon crypto go to the moon real estate's gone to the moon

[00:25:28] maybe other things will catch up now I don't I don't think there's really any good way to I don't think there's any really really will wear a prosper from the inflation

[00:25:38] I think that all you can do is come just try to keep up after tax after inflation and the way to do that will be any assets which ones I don't know if it's the top question to answer

[00:25:50] yeah it's been challenging because you know people of stocks and bonds have worked so well for so long

[00:25:54] um and then you get into a situation where they don't for a little bit and then but then the challenge is predicting the future like we don't know

[00:26:01] um I mean you may have an opinion I don't know opinion that's anybody should listen to on where inflation is going to go in the future

[00:26:07] so we're just gonna go out and I but yeah what you do when it's here I don't know with anything

[00:26:12] yeah yeah because to some degree that for just under you that requires predicting what it's going to do in the future

[00:26:16] I mean obviously the investment strategy is gonna work if it's gonna go back to 2% is different than the one that's gonna work if it's gonna

[00:26:20] go to seven probably um you know we have a lot of guys on the podcast and I have come around to this a lot like

[00:26:25] a lot of guys like Corey Hofstein and a lot of guys that always run these types of strategies you know working all four quadrants

[00:26:32] um you know they never own just stocks and bonds they always owned other stuff

[00:26:36] you know to try to have like more of a total return strategy that does well regardless of the economic environment recognizing that inflation is something that has happened

[00:26:43] a good amount of time historically even if we haven't seen it recently so I've kind of come around to that idea um but yeah I don't know I don't really

[00:26:50] and I think the problem people get into is when they want to say all right I'm gonna go to that strategy because there is inflation and by that time

[00:26:55] inflation is dissipating you know you're when you're balancing back and forth this probably when you get in trouble

[00:26:59] yeah I think that's right I think I think trying to predict what's gonna happen is this very it's kind of a little bit of a

[00:27:07] fool's game you want to be playing whatever's gonna happen is is to be prepared for whatever happens rather than to predict what is going to happen

[00:27:14] because the problem with predicting is that you know I would have I would not have predicted any of the things that have happened over

[00:27:20] the last few years if you know interest rates have gone from zero to five five six percent pushing up in the in the short end of the

[00:27:29] the yield curve there and if you told me that stocks would rally like this while at the interest rates went up like that

[00:27:35] and I've said this just no chance and here we are stocks are up a lot show notes like the stock SPY this year you could it's a 45 degree line

[00:27:46] with hardly any pullbacks and interest rates have just gone up everybody thinks that interest rates are going to get cut

[00:27:53] and the Fed seems to be like encouraging that idea we're gonna cut at some point in the future but the start of the

[00:28:00] year like last year everybody said there's going to be a cut before the end of the year this year they say there's going

[00:28:03] to be six cuts here we are in March there would be no cuts now it's three cuts I can easily see that we just keep on going

[00:28:09] forward like this and when you look at the mandate of the Fed it's stable money supply and full employment employment

[00:28:15] is at all time was sorry you know unemployment at all time was stock markets at all time highs property market is

[00:28:24] more expensive relative to median incomes and it's been at almost any other point in time in history hard to imagine that

[00:28:32] that is the kind of market that you want to cut into but I don't know these are these are human beings making

[00:28:38] decisions not really based on data I think they've got other sort of considerations so impossible to predict what

[00:28:44] the Fed will do and then to work out what you're going to do based on what the Fed's going to do like fills

[00:28:51] game yeah well I think it is interesting you know usually the Fed is cutting once we're sort of already in a

[00:29:04] recession and here we're talking about like to your point things are looking pretty decent and the

[00:29:15] expectation of cutting it's almost like maybe they maybe we would be better off for them not to cut

[00:29:25] and to hold that ammunition for when they really need it historically they've cut

[00:29:32] when stock market has crashed like that's the same to be trying to prop the stock market up when they so when the cuts aren't

[00:29:39] the cuts are a good thing when it happens the cuts are panic to a crash and they don't stop the crash like you can look at how many times

[00:29:46] you can go back to 2009 you can go back to 2000 you never look or 2007

[00:29:51] and you can have a look at how many times they cut how fast they cut and it does nothing to the stock market because it's

[00:29:57] the cutting impacts the real economy and the lag is long the lag is 18 months two years two and a half years it takes a

[00:30:08] long time between cutting that to show up in the real economy and the stock market as well so you know that's one of

[00:30:17] a lot of other things that you can do is you don't know that you're going to have to pay for it.

[00:30:22] I've been focused on the yield curve inversion which is people who don't know but the yield curve is that all of the rates or the yields on every

[00:30:34] government issue debt starting from the short estate which is whatever it is one month two months three months all the way at 30

[00:30:42] out and there's a lot of risk having your money out for a long time this interest rate risk this inflation risk this just the

[00:30:49] some insolvency risk this you know anything happen over 30 years one month that's less fewer things that can happen so when the

[00:30:56] front end of the curve the short stuff one two three two year is yielding more than the 10 year or the back end of the curve

[00:31:06] that indicates that there's some short term fear or something in the market or it's the fed pulling up rates because they're trying to call the stock market cooler cool

[00:31:15] the market down which is where we are now we've been inverted the inversion started in October 2022 the median inversion is 12 months

[00:31:24] and then there's some sort of hiccup in the stock market that causes the fed to lower rates but we are well but this is the

[00:31:33] most inversion that we've ever had and at one point it was the steepest inversion that we've ever had there's no sort of correlation between the

[00:31:41] steepness of the curve and you know the depth of the recession that follows which is there's all this like eight for eight there's not very many instances but

[00:31:49] eight for eight instances where there's a recession following the yield curve inversion so this is the longest inversion but there is a

[00:31:56] correlation between the length of the inversion and the length of the recession and I think that's because there's such a long

[00:32:01] time between the interest rates going up and the effects knocking through to the real economy so we've got the longest

[00:32:07] inversion on record and at one point it was the steepest inversion on record so I don't know what happens subsequently but the

[00:32:16] the event that most closely precipitates the recession is often the normalization or the uninversion of the curve which is the

[00:32:23] dropping rates because it's seen the stock market crashing or it's seen banks filing or whatever the case may be and I thought that was where we were when SVB

[00:32:32] and there's other banks got into trouble about this time last year I thought well this is the this is what happened when you invert

[00:32:40] this is exactly what you would expect to see but somehow they just they opened that BT if he, whatever it was

[00:32:48] the bank facility that banks could access rather than going through the ordinary window which they had to report they could do

[00:32:55] use this thing and they didn't have to let anybody know that they were using it and that soaked up like a trillion dollars they sucked

[00:33:01] out a trillion dollars of that stuff and there was no kind of broader impact on the economy so I think that all of the old rules have

[00:33:11] really been thrown out I don't I can't follow it closely I try to understand what's happening but I don't really use it to predict

[00:33:19] anything I think the setting that you got to have in the stock market is the market can go down 50% at any given point

[00:33:26] when it goes down 50% if Ford returns a double and that's a great time to be fully invested rather than like trying to pull

[00:33:32] you money out which is what everybody's trying to do at that point so that's I just it's unpredictable what will happen

[00:33:39] will happen it will go down 50% at some time in the future when it happens you want to be fully invested that time

[00:33:44] you probably should be fully invested now you can't predict it so that's kind of I just ignore all the macro

[00:33:49] and all of the economy stuff and just try and buy cheap stocks that have got a lot of yield and sensible management

[00:33:55] team that's buying back stock and will buy back more when it goes down and that's how you become a little bit anti-fragile

[00:34:02] when the stock goes down management team buys back more you're getting richer faster even though it doesn't feel like it

[00:34:08] and ultimately if you survive and you get through to the other side it all works out.

[00:34:13] It's interesting like the macro is probably something that investors are like the most interested in paying attention to

[00:34:18] but it's probably like they least useful in terms of actually running an invested strategy

[00:34:22] like with our podcast like the YouTube algorithm loves the macro like whenever we put the macro guys up

[00:34:27] it's like the views are way up but every we're all happy over here and like but if not you know

[00:34:32] and I think it's very interesting like I like understanding what's going on behind the scenes

[00:34:37] and what triggers inflation and of past inflation cycles

[00:34:41] and I think all that's very interesting I just don't know what to do with it in terms of building an investment strategy.

[00:34:46] Yeah 100% that's where I'm to I think it's really interesting I think it's really fun to follow

[00:34:50] I think it gets a lot of clicks and a lot of views and I have a podcast to this so I you know

[00:34:55] I don't talk about it for that reason I talk about it because I can't really talk about the funds that I run

[00:35:00] I can't I don't really like to talk about individual positions because

[00:35:04] every single position that I put on you know there's some dispute about whether

[00:35:11] there's a reason why the stocks are down you know they're down because people don't like them

[00:35:16] and I think that there's a chance that people have over reacted or the markets over reacted which is why the prices down really so you know

[00:35:23] Facebook meta was a good example of that when it was down it was friendless nice to talk about it a little bit on the podcast

[00:35:30] because I talk about one or two stocks occasionally and I'd get all of these things all of these people pointing out

[00:35:36] all of the business problems with it you know reals is getting eaten by TikTok and so on and so on

[00:35:42] Zuck's locked a sealer into this when this death you had thing with Zachary is going to the metaverse and nobody really knows what that is

[00:35:50] and they're spending $12 billion a year and metaverse stuff and I like I can see that stuff too and it worried me too

[00:35:58] but it was also half price you know and it was a pretty good business throwing off a lot of cash

[00:36:03] if I listen to all those people who got scared out of it then you miss the run on the other side when it recovers too

[00:36:07] and then once it goes back to where it was and the opportunity's gone then everybody's like I knew that was going to happen

[00:36:12] it was too cheap everybody's driving in the rear view mirror so I just like to buy these things as cheaply as I possibly can

[00:36:20] and then try not to talk about them too much and then if you can't talk about the stocks that you own which is really the only thing that I do

[00:36:26] all that's left is macro on the economy which gets really good views on Twitter so and you know and YouTube

[00:36:32] so you can't have encouraged to talk about it even though that's not the right way to run an investment strategy.

[00:36:39] Just so you know, since we're all about the views over here like the title of this is going to be something like Tobias Carlaw predicts global collapse after a yield curve inversion

[00:36:45] I think with like a fire burning next to you probably in like a big chart going down to the right I think that's probably going to go with on YouTube.

[00:36:52] I've also said something like the market will be down 50% like that's my evergreen setting the market it's not a prediction

[00:36:58] that's just an observation and you can reap once the market's gone down 50% like wait a year and run it again and it will be me saying the market's going to go down 50%

[00:37:05] which will also be true the market will go down 50% multiple time it's going to go down 50% five or 10 times before I'm finished I think so I agree with you 100% but run it do it.

[00:37:18] We'll take the 50% part and we'll just cut that little part out and we'll run that as a clip too that's just you saying over and over again the market's going to go down 50%.

[00:37:26] I think they were pointing back to it saying hey I predicted it.

[00:37:30] Speaking of like macro and markets you know this year's kind of turning out to be I wasn't I wasn't quite sure at the end of last year

[00:37:38] I mean it was a good year for large cap growth coming off of a good year for value let's say in 2022.

[00:37:44] You know when you're looking at value and growth and what I'll perform or underperform didn't get as much didn't go down much yeah and that's the thing like you know okay

[00:37:55] I mean you could look at the numbers I mean yes value did better but it still wasn't like it wasn't like it was positive and growth was like down 15% you know it's still it was still down.

[00:38:05] But you know this year's turning up be interesting it's like it's kind of like back it's sort of like a continuation I guess of what we saw at the beginning of last year which is very narrow leadership

[00:38:14] I mean small cap value for the most part is flat for the year the F some piece going to end the quarter probably up 10% and it's like what is the catalyst like it does it does it just you know you hear people that small caps and maybe caps

[00:38:29] there's a catch up trade but then for that to happen you know I think you have to have higher growth.

[00:38:35] I mean maybe the fed maybe rate cuts would be enough of a catalyst to get some momentum in that area I don't know it's just an interesting market when you have.

[00:38:44] The small mid caps just flat and you know large caps by the S and B 500 up 10% I don't even know what the Nasdaq 100 is I haven't looked at the Nasdaq this year but I'm sure it's more.

[00:38:55] Yeah I couldn't agree more it's been such a bad you know there's this gentleman Macailless Salmon office written this 200 years of value where he's gone and stitched together three data sets

[00:39:07] It's the one we all use the French data which starts in about 1926 and then there's the Cal's commission data which is what Benjamin Graham used to say that he thought that value would do about 15% a year and that was like 1875 to 1925 something like that.

[00:39:22] And then somebody has gone and done this deep dive with a look at old.

[00:39:27] You know to the extent that you could get any published information about anything from like 1825 to 1875 now looking at dividend yields to determine value and then he's stitched those all together and you can see all these crashes that relative performance of growth and value over 200 years so value is having its worst drawdown through to 2020 I think.

[00:39:48] And typically where values had these worst drawdown and worst relative performance in like 200 years of data which is something and then he said you know typically when that's happened you get this catch up period afterwards and the catch up just hasn't happened it's done a little bit better at times and certainly not losing ground anymore on a consistent basis although it is sort of running up and then running back down and we've been running backwards probably since the start of the year or something like that I would say.

[00:40:17] So the value guys are suffering I would say that's probably why there's other that's why there's not very many value guys and small kept value is just it's just too hard to kind of live there.

[00:40:29] I think the market certainly feels like the profiest parts of the kind of free when everybody was locked in and everybody was day trading.

[00:40:45] We're not kind of at that level of froth but we are at like Bitcoin all-time highs.

[00:40:51] In video has had this monster run and it's a little bit self reflective because they sell the chips back into that AI.

[00:41:00] And you know everybody in like that all the other companies that are bigger buying their chips room and video so there is a lot of I think there's a little bit of double counting going on there too because you can.

[00:41:11] You don't expense the chips when you buy them you buy them and in video gets account that is revenue but all the other companies depreciate those over a series of years so there's no equivalent cost on the other side the cost has distributed over a few years so it looks like we're having this.

[00:41:27] Renaissance of like lots of earnings being made I'm not entirely sure if that's happening but I don't know I'm just sort of speculating about that.

[00:41:35] So there's a lot of froth on top and then there's all these other businesses on the bottom if you look at so Eddie are Danny publishes these great charts on his site they're all free I go and check them out again you can look at any number of different things but one of the interesting things that he puts up is large cap mid cap small cap P.E.s tracked back about 20 something years.

[00:41:57] And you can see that for most of the last 20 years the P.E.s on mid cap and small cap have been a premium to the P.E.s of large cap companies and in the pandemic 2020 drop in reversed and now the large cap P.E.s are higher than mid and small cap P.E.s.

[00:42:21] And I don't know if that's I don't know if I just don't know why one thing should be one way and the other thing should be the other way I don't know there's any like mean reversion I don't know if one thing should go back to be I don't know that mid and small should be at a premium to to be or the other way around I don't think that one of them is right and the other one's wrong.

[00:42:38] It's just interesting that it's flipped over and it could easily flip the other way again at some point in time given that there's no real reason for it to be one way or the other so I would much rather make a bet on small.

[00:42:50] And mid here even though I think those P.E.s are reasonably stretched relative to their long run averages even though it doesn't feel great in small and mid cap land we're getting paid pretty well for the earnings that we're getting in there we're getting pretty good multiples in there.

[00:43:10] It's just that why are just getting such massive multiples that it sort of dwarfs everything else underneath it.

[00:43:17] This is a bloody hard market to navigate this wall I would say.

[00:43:21] Yeah it's been challenging your good interest in your thoughts on this and hopefully I'm now putting you in a weird spot here but did you happen to see that Bloomberg piece highlighting the changes in the FOMA French data, the adjustments.

[00:43:37] Yeah, yeah.

[00:43:39] I'm just wondering if someone I mean you've done a lot of testing with the acquires multiple your other strategies that you've run so you have you know well you kind of get the quant testing thing and I just find it you know let me just read you this so so they're they do make adjustments and so one of the things

[00:43:58] that the article pointed out is that that data isn't actually coming from like FOMA French and like the crypt database is actually coming from dimensional is where those returns are being generated and and there was an academic paper that kind of looked at this difference so they looked at like two different

[00:44:17] images they looked at like the returns from 1926 to 2005 and then they looked at the same period so 1926 to 2005 they looked at like the value factor return of that period and then in 2022 they pulled that same vintage so they pulled 1926 to 2005

[00:44:42] and what they found was a point a four basis point monthly difference between the two ventures now that seems like maybe not a lot but the difference was pretty big so a $10,000 investment in 1926 in the first vintage would have resulted in about $250,000 ending portfolio balance whereas in the second vintage it were resulted in approximately a $400,000 portfolio value.

[00:45:12] So that's a big end number and i'm just wondering like how does that strike you i'm given someone that's done testing you've done back testing obviously you've looked at the FOMA French data like to me I was kind of like really taken back by that because I was like whoa this is like crazy that like these adjustments.

[00:45:30] You know, and again on the surface it doesn't seem like it would result in a big and number but when compounded over a very long period of time like four basis points is a lot at the end of the day i don't know what you think about that.

[00:45:42] Yeah, that i think the concern is that they've gone and back dated they've gone backwards in time and change the data.

[00:45:51] And I.

[00:45:54] I wasn't aware that that was going on i don't know if other people were aware that that was going on or the disclosure was sort of not right comprehensive like nobody understood that that was the case and somebody had to write an academic paper showing the extent of the change.

[00:46:08] And it seemed a little bit scandalous like they were changing the data now we all thought this was fixed we thought these were the actual returns and now we find out that the returns won't the returns and we're.

[00:46:20] Where um.

[00:46:22] You know what's so we're not going to go back and revise it again get a completely different answer again.

[00:46:27] And then they have responded to it with their own kind of academic paper.

[00:46:31] Um, explaining why they have done that they have done i'm sort of a little i didn't i didn't get dig right into it but i saw cliffassness responded to it and cliff said you know these guys are competitors at mine so in no way shape will form.

[00:46:46] You know there's no advantage to meet a cover for these guys but he's seen as he thought it was benign and he thought they've just improved the day do they haven't sort of they haven't changed it so i was sort of.

[00:46:57] Satisfied with a lift response to it because cliff is much much closer and better at this stuff and has much more resources at his disposal than i did so sort of i thought that was okay but having said that i might i've done a lot of testing and i have seen so many different results from all the testing that i have done it's so you know it's like that.

[00:47:24] You know use the telescope to look into the night sky and you bump the telescope by a fraction of an inch and it changes the galaxy again.

[00:47:35] So i just i've done so much testing that i really don't if someone comes along to me and says i've got this strategy that outperforms but i just you know maybe maybe maybe i've got i've tested so much that i just basically don't test don't don't trust any of the testing anyway i just sort of ask is there's no.

[00:47:53] This is this logical that.

[00:47:59] Does buying cheap cash flows work over time i think that it does does over paying for cash flows reduce your returns like logically yes it should.

[00:48:10] Like the actual down to the.

[00:48:15] You know number of positions after the after the dot i don't know so yeah i.

[00:48:21] It's a little bit frustrating that that's happened i've published plenty of stuff using that data so.

[00:48:27] I'll probably have to go back and revise it safe it's so.

[00:48:32] Revising your revisions what do you think like what's the you guys do a little testing to like what's your you use your own.

[00:48:39] To me like i just know we run models on validity we've been running them for 20 years they're not academic based but we never go back and.

[00:48:48] Maybe just answer and you know we're running portfolios in those portfolios are.

[00:48:53] Being tracked in a real live way so i sort of feel like once the data's alive once it's out there lied in the public domain and people are making decisions on it or building investment products on it.

[00:49:06] It just seems a little off that like the adjustments into your point about the disclosures like maybe it was.

[00:49:12] Disclosed somewhere in the fine printer behind the i've been saw someone which this is crazy to me when I read the Bloomberg piece it was like.

[00:49:22] Data provided by dimensional funded vivers.

[00:49:26] Was on the site and so then i and i've been on the phone for an i've been on the conference site a lot and so i'm like.

[00:49:33] I'm like where is that you had to click the source code.

[00:49:38] To find the disclosure so it's kind of like geez wasn't going on.

[00:49:44] So but i think you're i think that the way you're looking i think that's your response is excellent actually and and it kind of reminds me to remember like.

[00:49:53] You know barons try to replicate green life stuff they can come anywhere close to that and yeah it was like what data set are you using.

[00:50:01] You know what market kept cut off C is yeah what month of the year you rebalancing right what.

[00:50:09] What are you if you're a re like in quantitative value when we wrote quantitative value we rebalanced in June but we use the.

[00:50:19] Year end data to give six months for all of that because they go back and revise.

[00:50:24] Many many financial statements are revised after the fact to find some way to deal with look ahead bias there's no.

[00:50:33] Full proofway of doing it you just sort of the way i think about it you're just trying to get a.

[00:50:38] You're looking through a very very dirty lens trying to get some idea about what's going on so you gotta be careful but you don't have a great deal of precision if you find something that outperforms by four basis points over a very long period of time like.

[00:50:51] That could be trading costs there's any number of reasons why that's not implementable in the real world so I think that you know in some ways green green blots approach was the right one he just sort of said this is the way that I think that Buffett invest Buffett looks at this quality metric and he looks at this.

[00:51:07] Value metric and he combines them together and i'm going to go and do that.

[00:51:12] And then i'm going to test that and it works and then we replicated that in quantitative value we didn't get the same results we got different results but.

[00:51:19] We again like when will we rebalancing but we got different results in the sense that we got different yearly returns but we got.

[00:51:29] The same theme like it was true that what he was finding was out performing and it was probably beating the market and I think that it's funny that hasn't really worked in live implementation since but.

[00:51:40] That could just be because value hasn't really worked for the last 20 years or something like that.

[00:51:44] It's interesting while you were given that response I was actually before you mentioned cliff i was pulling up cliffs thing on twitter and you know I can't read all of the things on Twitter because it's a bit aggressive but.

[00:51:52] He did say value back test of indeed gotten better time is data has been improving not to make value better that suggestions have seen the uncalled for it's exactly what you expect it values real there were data errors as data errors or noise and make a strategy worse so.

[00:52:05] Clip has been like be it mainly defending this stuff and you know cliff is where I go for I mean clip is you know to me is like the person I probably look up to the most in this area so.

[00:52:14] Like I figure if he if he's standing behind this you know it's probably you know yeah it's probably not as big an issue as they were making it out to be.

[00:52:23] And the other thing I would say to is and I think it's really important for anybody any investor could I make a lot of these so I think it's really important like to for me as well as you always have to be incredibly skeptical of back tests.

[00:52:35] To your point before where you're talking about like what companies are you including or their micro caps in there there how is the data is the data clean you know are you data mining to just get the result you want like whenever anyone presents anyone with a back test I think you have to be incredibly skeptical of what you're seeing.

[00:52:50] Because there's just so many things that go into that and so many things that could be wrong with that and and also history doesn't always you know repeat itself the past doesn't always predict the future so to me that's a big lesson from all this is just be very very skeptical of any historical results you see just make sure you understand what you're seeing.

[00:53:07] It's just there's a broader theme than just it's not even just in finance it's sort of more broadly that there's this replication crisis where they find something's got a.

[00:53:16] P value that says that significant.

[00:53:18] In the cohort that they're looking for but there's a lot of motivated reasoning to people want their studies to succeed and they go back and they revisit them later and they can't find the same effect.

[00:53:28] And so it's no surprise to me that if you just it's trivial to back test any number of things and that's what I is basically doing it's just a it's just a curve fitted to a data set it's it's not quite a linear regression it's a little bit more sophisticated than that but it's pretty close.

[00:53:45] And then if you just if you if you haze the data for long and you just test every single thing you can find you're going to find the spurious correlations like that we I think in quantitative value we talked about spurious correlations and there's this website that you can go to where they just take to completely unrelated data sets.

[00:54:06] And it's like Bangladesh but a production and GDP in the US when they find that there's a statistically significant correlation between the two and is clearly there's no connection between the two and it be like the success of.

[00:54:20] Nick cage movies and drownings in backyard pools like all of these things are connected statistically but clearly not connected in the real world if you test one data set and you're looking for statistically significant connections you'll find one.

[00:54:35] And even if you're even if you say I'm going to test.

[00:54:38] You're breaking the two parts I'm going to test one part then you're going to get some things that will survive that first test and I'm going to test in the second half of the data some of those will survive the second half of the data even though they don't work at all.

[00:54:50] And then you've got all of the other little implementation errors I mean are you trading at the bid are you trading at the arske trading in between is there enough liquidity to absorb your strategy.

[00:55:01] You know the small cap you know the small minus large was like everybody kind of knew that small caps out performed large caps and that sort of seems to have gone away price to book symptom massively out perform cheap price to book out performed expensive price to book that's kind of gone away a little bit.

[00:55:19] Now that these things aren't immutable even though both of those things kind of makes sense to me like small caps maybe they are riskier so therefore maybe they should earn more in terms of returns cheap price to book maybe that's value you should earn a little bit more than expensive and a price to base but.

[00:55:37] You could make a pretty coherent argument the other way to.

[00:55:41] Big caps about a higher quality so therefore they they tend to perform expensive stuff is better cash flows and therefore it tends to perform something like that I don't know but it's.

[00:55:52] You have to be as you say extremely skeptical when you look at these things and I think.

[00:55:57] Even if you do all of that you're still going to find stuff it's not real never seen a bad back that that's right you've never seen a bad back because all the bad ones get strangled in the crib.

[00:56:06] Only the ones that look good make it into the wide world.

[00:56:10] Just shake out the AI thing a little bit because we've had Doug and I kind of agree with you I kind of think if if you're using AI to build investment strategies or say build portfolios you're effectively by default I think and correct me if I'm wrong here that like it's effectively using historical data to construct what it thinks is an optimized portfolio on Doug Clinton from deep walk.

[00:56:35] Who's a great guy and super smart guy we just had him on the podcast he would we talked about technology boom and bust bubbles and stuff but one of the side projects he has on going on is since June of last year.

[00:56:47] He launched he kind of uses a consensus AI engine system so he uses open AI.

[00:56:53] Quad and then Gemini think if I'm getting those three right to construct and he has all like maybe I don't know there might be like 30 different indices that he's running and however he's defined.

[00:57:06] Those strategies and he's been tracking the performance in real time and obviously it's.

[00:57:11] I mean that's going to be ultimately at the end of the day it's not he's not using it to like he's built portfolios and he you know he's starting on whatever June 1st of 2023 was starting with real time performance tracking so five years from now or 10 years from now or whenever the date is that investors can.

[00:57:31] Look at this thing maybe a full market cycle or two different market regimes I don't know but like he's tracking the effectiveness versus like market cap weighted indices which is interesting.

[00:57:42] I I on machine learning or however you want whatever you want to call it however they implemented the idea is basically the same they've got some dependent variable some independent very well they're looking at how the change in one.

[00:57:58] It impacts the change in the other in every single update and so it will it'll have it just fits a curve and it'll say when this thing moves this way when this variable moves like this we anticipate that this variable move like that so the computer makes a prediction and it gets its next.

[00:58:14] Later data and it says they didn't move that way we need to make a little adjustment and keeps on adjusting and for many many things it does seem to be a pretty good way.

[00:58:25] That's a that's a good way of predicting what will happen because there's a lot of things that the relationship is stable over time the problem with investing I think a little bit is that the relationship doesn't seem to be stable it seems to change all the time there's this law of ever changing cycles in horse racing betting and also in.

[00:58:44] In investing where when something gets successful and popular everybody seems to pile into it and that seems to stop it from working so the accruals is an excellent example of that this paper came out showing that accrual when you had an unusual when you have bigger cruelled it meant that there was an accounting profit being made that wasn't matched by an equivalent cash flow.

[00:59:14] So when the two get very wide it means that maybe you've got an en route where they're making there just pretending they're making these profits because they're writing up assets but the cash flows aren't there so it's not a real.

[00:59:25] It's a real profit it's purely an accounting profit and that has to be you have to capture that in double double entry bookkeeping it's captured somewhere it's captured in the balance sheet as an accrual so growing accruals are a bigger cruel it's a little bit of a red flag for auditors and for analysts I wrote this paper and it had been an incredibly robust way of finding frauds or finding companies that were going to want to perform.

[00:59:51] That had these accruals and of course once they published everybody started using it and the effect went away for a little period of time or for a long time but then somebody wrote the story up saying hey there's a cruel thing used to work and now it doesn't work anymore because it got so popular and then it sort of got abandoned a little bit and it's back to working again because people sort of stopped paying attention to it but it's a good idea like the theory of it is sound the implementation of it.

[01:00:21] It's difficult because it's competitive and we're all using the same signals and it is that's the criticism of value that.

[01:00:28] Such a simple thing so easy to go and calculate a price to fundamental ratio for anything why would that continue to work and the answer is in the implementation when you actually look at the portfolio stuff that you're going to buy with this.

[01:00:42] You just you look like a lunatic when you put in some of these portfolios because they're filled with stuff that's obviously going to go to zero it's obvious problems with all these companies which is kind of what keeps value evergreen having said that value does cycle clearly value cycles we've been through a big down cycle with we're debating whether it cycles back up the other side even I think it does I think it isn't evergreen cycle I think it is never evergreen idea and I do think it's a good idea by cheap cash flows and kind of.

[01:01:12] If you don't know what the future holds would you rather be getting more per dollar of earnings would you pay more per dollar earnings or less but of course you want to pay less if you have no idea it's the sort of the you know that

[01:01:28] outcomes razor is you prefer the theory that assumes the least and I think that paying less for your cash was assumes the least and so I think it's the.

[01:01:39] It's the most sort of I don't want to use the word humble but intellectually humble in it by modest in terms of what it assumes so I think that value should work but we've gone through a very long cycle where it hasn't so that's by no means guaranteed.

[01:01:56] Yeah speaking of Hawkins razor is that the.

[01:01:59] Method you're taking with the book simpler is better I think I just think that's a good approach to life basically it just makes it easier to understand when something blows up why blew up by something works yeah I think I'm sorry razor is always.

[01:02:13] It's slightly misquoted as the simple the better but really it's prefer the theory that assumes the least and I think that's a pretty good that's that's interesting yeah I learned something new for sure.

[01:02:26] I have I've quoted that correctly.

[01:02:30] Just in jack you have anything else before I asked sort of this last no that's on you go okay okay so.

[01:02:38] Sort of ending question here what what worries you the most but what also gives you the most amount of optimism you can go anywhere you want it.

[01:02:47] I think that there's this kind of creeping authoritarianism around the world and I don't think that authoritarianism is good and I think that the the tools we have to surveil and control people now just vastly greater than anything we've ever seen in the past like you can imagine.

[01:03:01] The Soviet Union with these awesome powers of surveillance or China kind of as an example of a country with awesome powers of surveillance implementing them and I think that there's this kind of.

[01:03:12] Hunger for it in the young people in the US but a lot of the Western world I think that a lot of the world got a lot of the Western world with a long way down this part like Canada and Australia as an Australian American but Australian originally born on raised.

[01:03:31] There's a lot more of an Australian much easier to implement in Australia.

[01:03:35] The thing that gives me the most optimism is that there is this I think there is a pushback in the US and I think that the US was really one of the few countries in the world push back hardest against the world of the code restrictions and what about silliness.

[01:03:49] And that kind of gives me some optimism that I do think the pendulum is swinging back a little bit I think it's a shame that we've had hundreds of years of this.

[01:03:58] Liberal Western democracy these ideas of free speech and we've kind of forgotten the reason why everybody fought so hard and so long for all of those things you know knocking off despotic kings and tyrants and you know regimes that kind of wanted to subjugate their people and here we are in the West with all of these our ancestors hot fought hard for all of these freedoms and we're trying to willingly give them up.

[01:04:26] I think that's a shame I think that's a risk but I do think that the pendulum swinging back the other way and I think that America is the ways that is pushing back harder so that's the thing that gives me the greatest deal of optimism.

[01:04:38] Awesome thank you.

[01:04:40] That was not an investment thing that's all right man love it thank you man appreciate it.

[01:04:44] Thanks for having me I always a pleasure love chatting to you guys thank you.

[01:04:48] This is Justin again thanks so much for tuning into this episode of excess returns you can follow Jack on Twitter at app practical quatt

[01:04:56] follow me on Twitter at JJ carbono if you found this discussion interesting and valuable please subscribe in either iTunes or on YouTube or leave a review or a comment we appreciate.