#1438 Chris Pavese | Wall Street Investor on Bitcoin, Zyn, and Great Stocks
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Whats up, everyone? This is that any pump piano, many of you know me, is pump. You are listening to the pump podcast, which is my effort to find the most interesting people in the world and sit with them for hours.

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Anthony y. Pump piano runs, pump investments. All views of him and the guests on his podcast are surely their opinions and do not reflect the opinions of pop investment.

You should not treat any opinion expressed by pop or his gas as a specific inducement to make a particular investment or follow a particular shade, but only as an expression of his personal opinion. This podcast is for informational purposes only. There are so many different ways to make money in the market, right? You've got guys that you've got microtron ors like we talked about.

You've got short sellers, you've got trend followers, you've got the high frequency traders, you've got venture. And not everything works for everybody and not everything has to work. And britain.

So there's an unlimited array of opportunities out there today. And this is just the opportunities said right now. A year from that, we will have a different opportunity sets hand to get everything right again.

IT just goes back to like picking our spots right, like making sure we're investing where we can explain that theses in one or two sentences. We feel really good about IT. And if we can do that, we published lbe involved. And so just knowing right where where your sweet spot is and where historically IT hasn't, I think is a major edge.

So of course, the place I want to start this conversation is you're very unique in that you have a strong philosophy of what I would consider kind of a traditional value investor. You think very long term, uh, all of your website, you talk about a margin of safety. Um I think that you have a uh very specific kind of outlook on investing a style.

But then if I go to your twitter feed, you'll be talking about felt more and A I and a number of things that are kind of more modern. A more I C A. People are focus on short term.

So there's this almost like dichotomy or a paradox to a degree of, uh, if you have these timeless investing styles and philosophes, you still get Operate in the modern world. sure. So how do you think about the baLance there? And like windy, you kind of put on your timeless investing. No strategy had verses. You say, hey, look, i've got a look at what's the lives only reporter, what's going on.

on television today? Yeah, that's a question. I think it's a constant baLance. Um I think first and foremost, the best rule of them i've come across, which is hard to stick with. But generally, if you're reading something, yeah, it's very easy to get caught up in a twitter domes grow, go down, rabbit holes on mine.

But I think the best thing to do is to step back and ask yourself, is what i'm spending time on going to be relevant in six months, one year, three years, five years you fed for example, um interest rate cuts twenty five vers fifty versus nothing, right? Not something we're going to be talking about a year or two from now um but it's a baLance to right the the short term stuff matters on occasion um particularly when you're thinking about entering a exit position. Um the way I think about IT is I think there's this massive sweet spot on the market right now where you've got, yes, a time of money chasing quarterly earnings and called quarters.

And then on the other end of the spectrum, you've got a tony money looking out private equity style and may be private equity in public very long term. Uh, more traditional mutual funds that are right by and hold um and I think the sweets t right now and probably the for stable future somewhere in the middle right. So if you can identify opportunities that are you further out than the pods, you know trading quarter, trading months um but inside of private equity, I think that sort of one to three year sweet spot right now is supermarket active.

When you think about investing capital, I think part of the history of boy hell is a setting you guys on a certain path which is IT used to be a family office. Now you all have a started to invest on on with that capital but obviously other capital as well. Um but IT is still you know capital preservation was kind of the first thing, which was the family office.

Then IT was how to we drive returns. And so um you're talking about structures and capital structures, I think play a lot into time horizons. Time horizons play a lot into are you trading a lot or you not? Are you preserving capital or trying to grow capital? There's so much of the way you set a firm up that I think sets the direction for what you're going to invest in, how long you're going to hold IT.

Um what is the goal that you have to talk a little bit about this transition from you A A fairly large family office to? Okay, now we're going to be standalone investment firm. Um and what is with the decisions that you made there that really kind of dictate today strategy, time horizons? Uh you may be a industries that you invest in the sea.

It's been a busy couple of years. We've had a lot of fun um obviously a lot of market volatility as well. So trying to build a firm um during the last couple of years of our connectivity has been interesting.

Um I say the philosophy and process hasn't changed, right? I was fortunately enough, as you mentioned, moved down the north Caroline and know five h to manage money for a single family office. We there's still our largest client today.

Um obviously the name of the firm we cut the name of the firm um to as a um sort of a thank you for the trust and faith that they put in us in may over the last twenty years um but yeah the firm today, as he said, is independent um were based in sharlet t north CarOlina. So we moved outside of family office, sort of yet foothills of the north CarOlina blue ridge mountains. The first step was moving a little bit closer back to civilization.

I like they sure lets a middle ground between new york and an apple echo. Um I think one of the things I think that made the firm unique is um just the blends of different backgrounds we've got at the organization. So myself, I went to school initially as an architecture major, have always been really big into both arts and science.

Um our directive researches A P H D N organic chemistry, so as literally worked in some of the largest pharmaceutical ABS um in the country. Um we've got an analyst on the team with a finance slash art background. Um and I think we just try to I think that range of backgrounds provides a different perspective than just hiring everybody off the street um or everybody of investment banking or out of the largest hedge funds.

Um we do that right? Um um yeah the teams growing where about eight now. So it's it's a mix, but I think that range of thinking and the range of viewpoints adds a different perspective and that result in a different portfolio, in a relatives, the market relatively to peers um and hopefully different performance over time .

when you are interviewing for a new role. Um what are some of the things that you are looking for? Obviously you want who smart, who works hard, kind of all the Normal, you know I would just say kind of be um starters for anybody. But what are the unique things that fit into your culture or maybe you help you see look, we don't have somebody with this type of background, but IT could be useful to us.

Um a good question. I think a couple things. One is and again, that depends on the role and IT depends on the spot you're trying to fill or the whole you're trying to fill.

But I say overall, we will hire for drive and motivation and hunger over skills. Skills can be taught. Although are there some rules right where that skill and experience and years of experience at some level have to be at the firm? I would say generally, we've got this underdog mentality um I forget the quote where is coming from but one of my favorite ite quotes and I wish I could attribute here, is um chips on shoulders, create chips and pockets um and it's just that right that underdog mentality, always fighting um always fighting the win, always trying to get Better, always try driving to improve um that I think is consistent across the team. The other thing I think is somewhat unique for a small shop like hours.

So i've worked with a performance coach for the last three years um that interesting when I first went out in the market looking for a coach my I think everybodys in the industry role model is windy roads from billions actually learned that Wendy roads the character is built off of a performance coach um live person here in new york. There's an interesting background story there um interviewed her, her firm um sentiment, read all of her books um but then figured out um what he was offering. While incredibly valuable, we were looking for something a little bit more broader than just how to put up Better numbers every year.

Uh, there's a lot more, as you know, that goes into building a firm building culture um and building an organization that's that's built to last until yeah we found someone I found someone um that was a little broader and scope um right I mean, this game is entirely one hundred percent mental and if you're not in the right heads, space is impossible right? Make the right decision. So I think having someone to help get you on the right head space is incredibly important.

Um after working her with her for a year to we essentially opened IT up to the entire teams. So now he works with every single person on the team. SHE runs quarterly strategy sessions for the team that SHE facilitate and then she's also inaugural to our hiring process.

Um so circling back to your question, um we do personality assessments for everyone on the firm. We do personalities assessment when we're getting to the later stages of an view with someone um and i've always really enjoyed those things. I'm very sort of introspective of sort of probably taken every personality type of test that you could individually just for my own curiosity.

Um the one who used as that was interesting is it's maybe three, four, five different characteristic traits all scored from zero to one hundred. So it's quantity. And so what super interesting is we can plot the team and their scores on every one of those metrics.

And then see kind of where people fit, right? And what you're looking for, for each row is different, right? So like a certain personality may be good in terms of climate relations and working with clients every day at a different type of personality and different set of skills.

Obviously that is in the weeds um pouring through hundreds of pages of filings or building up model. So I think that's that's been very helpful. And I think I would credit her and her work and I work together is um haven't made thankfully yet um we have I don't think we've made many, if at all mistakes on hiring process. When you're looking .

through this personality test. Um are you looking for here of the results we need from the test that suggests somebody is a good investor, a good researcher, a good or are you looking for red flags? I say, you know, oh, psychopath, red flags hire that person right?

All of for sure. And there's somewhere right like and and then sometimes there's most of them come back. There's rarely in all clear. There's always some flags. We just we're okay with the yellow. You want to avoid a red and we've had somewhere to come back and to yeah no way like no way here's why and was interesting about personality assessments is right IT tells us about sort of who we are natural and in our natural state but right we're all works in progress and so that doesn't necessarily translate into how we behaved every day if we're working on those things.

Um but who we are on a regular day is very different than who we are on a day like yesterday, which was a lot very stressful for some people and very exciting for others um and so it's really helpful to understand how people behave and how they act when they are on what he calls the dark side, right? So you've got some people that, like myself, just tend to you know over analyze and just continue to grinding grinding ground ground looking for right every detail and um for every we're trying answer, you've got others that just kind of back away. Um you've got others that are fighter flight um and so knowing how everyone on the team right Operates when they're under stress allows us to manage the team more effectively.

Ly, but it's both and it's also you know just knowing you know how I work with individuals, which I has been a learning process over the years, and knowing you where we've had rubs in the past or personality types that don't work, that doesn't necessarily mean right that that that I know of the bad, but it's something we know we need to work on and continued to work on. And a lot of IT is just communication up from right to its literally during the interview process for having these conversations. And it's like this is how I am.

This is probably going to be an issue or maybe an issue at sometime, right? We need to make sure that we're talking about IT. If you see me moving in this direction, right, you need to slow me down and highlight, okay, here's what's happening advice first.

So when you have different personalities, uh, every firm does but um you s are so intentional about IT, how do you make decisions on investment says you far on one person can make in the final down, up, down, down. I was like the take things you know hey we need majority, we need consensus yeah .

for the time being um and first long as i've been in the firm making the ultimate decision, what's going into the book and what is and and how it's being traded, but with input for the team. So team meets every morning. Um you talk about what's going on in the portfolio, what's going on in the market.

Prioritized our workflow for the day beginning of the week. We prioritize our workflow for the week. Um obviously, things changed the day. And the first question, sometimes there's short term news that's really important and drop everything and we need to look at this um but I would say the work in itself um IT depend its situation, a situation we have an we have ideas where most of the team is involved and sort of dividing up the work between one person looking into management BIOS and backgrounds, others looking into financials and competitive backdrop acta. And then there's other situations where there's just someone on the team that's Better equipped to run with the name than other and and they run with you.

And again, if you're a long term thinking, if you are covering that value approach, what you meet every day, like that's what fascinates about you guys, right? Um I think IT was a ty years ago. I talked about the study of many times where s died had the art performance um I don't think that i'm the type of person who could like look every day at a portfolio and be mature enough to not touch IT.

And how do you guys bounce that?

right? It's like you are trying to hold maybe it's not hold for thirty years, right? Maybe it's a couple of years, but you you're meeting your your you're getting that feedback loop day and day out. You're talking to the team heady .

bounds yeah a conversation we have often, right? Because we want we don't want to get into a habit of we're coming into that morning meeting and just talking about news from the prior day or that morning and not focused on individual names, right? So some of IT is making sure that, no, we've gone to agenda that meeting.

There's a cap on how quickly we're running down relevant news in terms of portfolio names or pipeline, but then also making sure we're spending the time digging deeper into an existing name or a new name. And I think, again, it's a baLance right to everything we're doing. We're generally looking for three to five year doubles with minimal downside risk, right? So it's easy it's easy enough to find something that could double in three to five years. Um more often than not, I think investors are taking a lot of risk when they're swinging for something that's going to double very quickly .

or of two x or three x or four X. I do you this rescue .

um everything comes down to probability, waited expected return rates of every name in the portfolio. Um we're coming up with multiple scenarios at at the most basic levels.

Best case, worse case in terms of downside is you know what could possibly go wrong? What's the probability of that happening and how much do we risk losing if that goes through, right? And if we can get comfortable with those things and still on the right of three to five year double, that's really interesting to us.

Um and so go and back to the question, right. So the daily the daily meetings are just constantly revisiting assumptions for every name in the book. It's a revisiting names we may have looked at six months, twelve months to twenty four months ago that um for some reason is back on the right are might be of interest again um and it's thinking about those probabilities.

So did this piece of news right? I guess we're a little bit cheating but not um you still being some images and you the action we would take on a piece of news won't necessarily and rarely translate into a transaction, but IT may shift right either our probabilities or fair value. So it's just keeping in mind that any piece of news that comes in needs to be viewed in the light of right.

Does this impact or thinking if so, how does this impact or thinking does IT shift our estimates of fair value? Or does a shift the probabilities that we're putting on any of these scenarios? Um obviously bright the yesterday's news shifted a lot of probabilities.

Do you feel like you're more accurate underwriting the double in three to five years or more accurate underwriting the downside and um accuracy could be like if we spend more time on the opposite vers downside or IT could just be there's more data available, right? So how do you think about like, you know, hey, when we go into this, we're trying to understand the upside and the downside, maybe someone actually confidence thing, right? Uh, are you more confident in upside or downside on the writing? And are there any structural things that give you more confidence? And or or have you got seen anything historically know in the accuracy of both of those?

Yeah um so teaching we use a tool. The tracks all of this data for us so we can pull up at any name in the portfolio, see our positions over time, the relative waiting in the portfolio um in addition to um the optimal waiting based on you expected our probability waited expected return. So this isn't .

like you guys are going into a room and you're like, you look my fingers sticking in the air. And hey, I think there's a percent. You guys, you're doing work, you're coming up the twenty percent. You're putting IT into a piece of software yeah and then be running calculation .

and spitting back out. And so software shows our historical accuracy and forecast. IT chose forecast relative to outcome. IT chose batting average IT. IT chose slugging percent. Right returns a function of how often you get something right and how much you make when you're right. Um and either one, some people are much Better number one than two others two one and I think again, it's I think it's a baLance yeah um the situations I would say depending upon the situation, we can be more or less accurate, right? So we've got, for example, a name in the portfolio today, a small cable company five hundred roughly five hundred million dollar market cap um forty percent owned by private equity.

Private equity offered to take the whole thing private at four dollars, eighty cents of share O K, um another fund stepped in, took roughly at ten percent position, basically said, you guys are stealing the company these things worth eight to ten bugs to share, laid out the math, which is pretty hard to argue with. Um we started buying the business between four eighty and five twenty. Five ten is share um thinking and even at five twenty, the way to think about that is we've got downside to four eighty and upside to a slightly higher bid to a largely very to a much higher bid.

O R.

Yeah, and that's probably you know that we're not expecting a double there, but we're expecting a really good outcome in a few months. So if you annualize that right, the I R R, we're still getting in a similar place um and there are is pretty clear about the downside is right because we know now sure there's it's a non zero probability that the deal could fall apart um but we think even if IT falls apart, IT falls apart to business is worth more than worth trading today and those in the types of situations where we like um and also is a good example to of what is important to baLance duration and portfolio.

IT was just having a conversation with a friend yesterday about how I feel like there's a lot of times um where will get the three to five year double. But we're treading water for the first year two and then it's a double in year three or four. And it's like, I wish we could just wait until you are three or four.

Um and sometimes that easier said than done um but that's why I think it's important to vary the duration in the portfolio, to have some things in the portfolio that are more adventure than that are going to force some sort of monetization in three, six, twelve months and others where we're not sure when that values we are going to be realized. But we know that we're being paid to wait and we know that we we're really comfortable with the downside risk. We're really comfortable that we're going to be right, and we're just waiting for the market to come around to have you.

Let's go to this cable company. This is interesting to me. Forget the individual company but just like the idea that, hey, we know there you know at least possibly a downside this four thousand and eighty cents to share you guys you're like to say five thousand thousand twenty seven, right? Um and you think that is a short duration potential return. You bet the farm.

Do you you know like how do you think about not just the batting average but the slugging percentage on that? And I was listened to a podcast that standing rock noted recently and his I I think i've heard maybe say one hundred times at this point on different interviews, raises series total. Not if you're write wrong, it's time you make you're right. So how do you think about something like that? You again has some unique characteristic to you probably go to your whole process you come up with, you know here's the probability of a certain outcome on the upside with in sizing .

now in equation. yeah. So there's a lot of factors that come in to play there. I would start by saying we probably again going back to a capital preservation downside protection, we probably flip flat what most focus on the street do.

So I think most managers, their biggest positions are going to be where they see the most upside, right and highest conviction, most potential upside. Um and that works great when IT works. Um but you wind up with write some really aggressive concentrated holdings and you see some returns like we saw right across the board and two people get run over.

Um we do rank the portfolio on probability, waited expected returns. So we've got an expectation of what we're going to generate on every name. But generally, our largest positions are where we think it's almost impossible to lose money.

We still see the upside, right? But like and so going back to this particular example, this is a small position. Um it's currently about three percent of portfolio um and that's because I don't consider IT right without the event on the horizon.

I don't consider IT a really high quality business, and we're not afraid to invest in blessed quality business businesses at the right Price. We're not always just saying that we just buy good businesses because sometimes bad businesses are great investment. So I can talk about a couple couple of those as well. Um but there are other situations where the best of both world is um 那 an example we have talked about a lot um which is closed um with microsoft activision um right microsoft feed by activision ninety five dollars share activation trade IT down towards seventy five at one point while that deal was in the works market。 Just assume they're zero, like literally less than at one point that was twenty to thirty forty percent probability to deal with close because because of our wonderful F I um right for the same reason that a handbags handbag merger was just turned down in the U S.

Don't know the ftc is the organization that has a lovely uh thumbs up, dumbs down, literally seizing uh these acquisitions. The bigger the acquisition, the less likely recently they have been excited about approving them. Yeah and so this traded down because although there was A A deal that would can be conserved if you to share, uh, the ftc had a lot of scrutiny and there were times for I look like they were actually let yeah get .

a proof and I think that was consensus opinion up until the final days that there is no way was gonna to go through part of IT also just blow blow back on big tech, right? And we thought that was interesting that one um microsoft probably in recent years stayed out of the headlines as much as some of the others were. If you go back to twenty years, microsoft was the one people talking about breaking up and were right cross hair. So we thought we felt a little bit Better than IT. Wasn't amazon or apple or alphabet trying .

to make the gates went from the kidney age. So like, you know, it's a live long enough and you become the king, right? And he became, like the big evil billionaire, a break up his company, the whole thing.

And he has like maybe isolated, like somewhere in the middle. He's still really rich, plenty of people who claim of his film rope c stuff, whatever. But from a business perspective is maybe it's because he now isn't as involved day to day.

maybe .

such. But IT is fascinating that you go from start up to monody to like we're call with .

you and and the business is something similar, right? So I would say twenty five. So IT wasn't much more than ten years ago where you couldn't give microsoft away for five times Operating profit like no one was interested in microsoft.

And IT was still the same exact business IT was today. Um and but today everybody is is jumping up and down and falling all over themselves to pay thirty five times earnings for IT. IT was literally trading right on A E V D ebit basis or enterprise rily Operating profit mid single digit multiples. And no one that we were being laughed throwing IT because IT was obviously a dinosaur. Google was gone to take over the world and nobody was going to use pcs anymore because you know the iphone and um it's .

amazing how sentiment comes for here thing so there's A A great book the man who beat the market um but bill military and you I think he was maybe the first a story of a i'm to consider the modern kind of a economy in investing late nineties, early two thousands and he was very much value investor and he did something similar with amazon where he started to buy amazon um he was basically prosecuted in the, you know, value investing community.

They said, what are you doing that sound of value investment to tech company? This is insane, but whatever and he essentially made an argument like forget the company for a second. Look at the valuation, look at the a business, look at the trends you tional value investor approach, he said just because IT is a fast growing company doesn't mean that you can't be buying IT for listen, it's worth um was that basically the thought of microsoft and taking a position that like microsoft is to end up an A I lead this.

This was so we haven't knowed IT in some time. We bought IT when a bomber or went at a bomber left and adela came in and we thought that was the catalyst and that's what they needed and more than um and so and and again, we owit coming out of the financial crisis and then so and about again came in pat on our pat ourselves on the back for selling at a fifty to one hundred percent gain and six four, eighteen months and then left who knows how many several hundred percent on the table um since then so I don't know um I would one hundred percent agree with what you just said in and bill Miller approach I think value investing has got a bad rap over the last ten, fifteen years because traditional value investing really hasn't worked right. Just buying low Price to book or low P E.

And just kind of what I would cause statistical value investing in in you know traditional sleepy industries is like energy, banking, commodity. Ora not has been a hard place to be. The way we think about value investing is is similar to what you just said.

It's we're looking for this Price assets. We're looking for miss bets that are missing in the market. Um sometimes that in a cable company that's being acquired by private equity firm, sometimes it's an israeli software provider that nobody wants to own because um it's going to be disrupted by AI.

Sometimes it's you an amusement park in the U S. And after backlash from um a number of different a number different items. So I mean, we've own things from yeah, we've probably owned most of the max seven at one point in time. We've on netflix, we've on murder, we've on alphabet, we've on apple with on microsoft um were probably just more sensitive to what we pay for those businesses.

So and a lot of IT is um you mention that I A lot of IT comes down to I think warm buffet put IT best in terms of yeah looking to clear one foot hurdles, right? There's no there's no style points in this industry, right? Like if we can cake at fifteen twenty percent annually by just buying buying and holding burger health way instead of trying to call the next winter and A I why wouldn't you do that? Um and so I think. I forget what I was.

so I. Ve got I Steve bomb is richer than more era than bill gates now, which is whole areas for those that the story basically get get tricked into doing like the stuff, a lot of good stuff. If you just held the microsoft stock and not done that, he'd have patrolling lion dollars, which he could get more film drop stuff with now like trade off bomb owned um I think hundred of employer something he somehow negotiates like eight percent of the business or ten percent some like small but meaningful presence of the business and just holds and ends up having more money gates now which on that on the faces of areas um but how much should you pay attention to you know bombers to CEO? He's not selling his stock or maybe he's buying more.

Is that a data point that you would look at in terms of, hey, we're actually going in and and seem like what are the executives doing which like that? All they do look a part of our screen is if the CEO buying hand over a fist, we're buying. If they are selling, we're selling .

yeah I think um right c insiders can sell for lot of reasons and they're not always related to their view on the stock when they buy. There's one reason um do you have to be careful though, right? Because there's a lot of like insiders know this and so there's a lot of games and some like there's I would say more often than than not, they're just what we call painting the pe. So small purchases. So you really have to look at how much they're buying relative to you, how much they're being paid on annual basis, what's overall net worth is and how much talk they are.

So some is worth a hundred million dollars. You paid ten million dollars. See a public company, hundred care.

but to five million dollars. A F insides board members. Ea, are buying that a stronger signal than just one out a point.

Got IT. Okay um where you get these ideas from. But one of the things that uh I always find fascinating is um in the private markets most investors is like especially uh venture capitalist. They play a kind of a game of like i'm trying to find smart people in the smart people time of the idea. So somebody may come to pitch me and say, hey, i'm looking at an ancient investor um maybe I talk to like my existing founders or I talk to other investors.

I say you who's interesting after whatever, but very few venture investors are sitting downplaying like I think x areas can be really big or I think that in a certain company doing why can be big go hunting. yeah. So how do you guys do a generations so you guys something going looking? Or do you have some sort of screener? Or you d like to guide the coffee shop you hear something in. You guys buy colombian b coffee company or something here, you know, listen, I wish I could .

tell you we've got the secret sauce for coming across the best ideas. There's no secret says we do everything everyone else does. Um I think the risk to the venture model, which you also see in in our universe and hedge funds like that, how you wind up with really crowded positions that works great, right when everybody's buying and pushing the stock up, but right one a piece of bad news hits or data point comes in lower than expected in the first person exits, next person hits the exit. Um that's also why you got a lot of crowding and a lot of volte in the market.

But in terms of idea generation, yeah I think that my favorite quote is from a john clues down their money python one of them and it's basically he was asked the same question. He said we're not sure where we get our ideas from. We just know they don't come from our laptops um and it's just sitting in from the screens all day.

Is not going to right? You're not thinking critically. You're not thinking you're not slowing down enough to kind of think through and recognize what's a good idea, what's not um but it's all the above is talking to other investors we respect.

It's attending conference is whether it's right investment related conference is or or industry related conferences. Um it's reading filings. It's looking at thirteen s it's looking at insider buying.

It's looking at insider selling. It's looking at corporate actions. Um I give you probably need to talk through a few examples right to um right now we're looking at a home builder in the U K. That called our attention because the stock lost like a third of its market value over a couple of weeks because they they basically said they would ve estimated costs on nine of their several hundred properties.

Doesn't seem like a big deal to us, right? But you know as well as we there's rarely one cocker roach, and that's what the markets worried about right now, right? And so the first thing look at there is can we get a how can we get confident? Can we get confidence that this is just a one off? Or is there something more um in that situation? We need to talk to as many people as we can, right? Talk to employees, former employees, competitors, people to know board members, people that know executives, right talking to management, talking to I are they are going to tell you what they tell everybody.

Um so just how can we get closer to the situation and and if we can't then bright, then we just have to pass um other times into piece of news. So um we've recently reinvested in the domestic theme park industry, um an industry also an example of not a great business but one that can be a good investment in file at the right Price. Um our first time around in the industry was coming out of the financial crisis.

Um six flags filed for bankrupcy ceder fair was teetering on bankrupcy. Apollo came in to make a kind of stocking horse bid for the company. They turned IT down, which got our attention because they basically said we don't we don't need to take a global bid.

We're going to make IT through um and that turned out to be the right call. We did really well on my investment over a number of years. Um we made one other investment in in the industry um after existing sitter fair.

Then more recently noticed that suter fair and six legs merged um which got our attention um and I think is equally interesting or even more interesting because ceder fair historically wasn't structured as a traditional secure um IT was structured as a partnership which limited a shareholder base. Are a lot of institutions are not to invest in IT because you'd literally get A K one from buying a stock. And who wants who wants that um when they bought six flags or when they emerged um they converted to A C core.

So automatically, i've opened up an entirely new investor base. Um and I think now you've got to Better management team running the combined business, and I think there's a lot of opportunity there. But that was that's an example of something where we were involved in the past. We followed the industry for a long time and just something comes along that sort of put put the back on a river when .

I think a hedged funds. Um i've watch T V shows, I watched the movies, I got a lot of friends that run them. Could they become to the office every once in a while like he's just just intelligence Operations masking as hedge funds, right?

I mean, in a very kind of elementary way, IT is all about information and now it's regulated to a certain information. You lot to have certain information, not it's such. But um I think the quin, a central examples that you people here is like the hedge funds, like getting satellite photos of warm mark parking lots right, using info measurements of oil containers or like whatever crazy thing people people are doing.

Um but there's also a lot of information that is not that crazy yeah but seems to be uh highly coveted by hedge funds to like G G information at ork. But then there's simple things like um i'm an invest have been for a long time, they just do cellphone data of foot traffic right and like hate way Better thing out on cars and they just say have to be worked and store that people didn't. You might not get an idea of other cells up or down.

So how did you guys think about, you know what information actually is high signal for you? How much of IT is like let's go get data that we can cro versus it's more the the qualitative ff of let's go talk to people we can just like clean and insights um and then uh, how do you know when you have enough go you go back to drugs? Just I did um he's like, yeah you know sorrow taught me to like invest and investigate and which .

you know works for him .

not everybody that like how what is your process like and how do you think about that .

information gathering? That's the really hard question in terms of what's enough, especially for imagine your process. Similarly, I want to thing because um and it's not possible, unfortunately.

maybe knowing what car the C E O drives might be data.

And so I think it's and and this is where I was going earlier with uh with the max seven and owning owning most of them them at one point in time. I think the way to think about IT is um what's enough varies with the Price, right? So the amount of questions that you need to answer, I would argue let's use metal for example.

And I don't know where metal trading the, but i'm guessing it's twenty five times earnings are somewhere around there. Um the number of questions I think we need to get right and have a answer to um and perhaps even a different answer than the consensus on meta today with all the uncertainty around A I and everything else, right? There's there's a lot more questions we need to understand and get right. Then we needed to answer when meta was trading at literally eight times earnings a couple years ago at that valuation. The only question we needed the answer was is this company going to be around in x amount of years because between now and then, they're going to generate this fetching cash flow.

And it's really a risk analysis is what you're saying. It's like, like at eight times earnings, there's just weight less risk and therefore, you don't have to mitigate as much. Is at twenty five times you get information from mitia.

right? Um and you have to um it's it's risk, but it's also just there's just a lot more margin of error, right? Margin for air at different Prices um and some things are unknowable, right? And so it's it's do we have to know that? Or can we be comfortable enough not knowing the answer to this one? And and I think a lot of IT tours in terms of you know knowing what's enough is, you know.

We always try to boil down whenever we come at a name, whether to new business or a new idea and existing them or something we're looking at, like try to boil IT down to this generally two or three things that are really going to drive value and make the investment right or wrong. And it's just constantly reminding yourself when you're taking in all this data, right? Like is any of this impacting X, Y, Z? And you know and so yeah I mean, it's generally trying to simplify the thesis is down to two or three levers where and you can you can run sensitive analysis are going back to all the data that's required, right?

We'll try to model those things out and get an understanding for right, like if we pull this lever, how much is our fair value shift versus this lever? Okay, this lever is not really matter oring that much. We don't need to spend as much time here.

But like this one is a maker break. If we get this wrong, we're wrong. If we get this right, we're right. And so then you just spend all your time focusing on that one.

And then in terms of the data, I think that goes back to what I had said earlier on and why there's opportunity in the middle. Like, no, we have access to a lot of those resources. We look at a lot of those things, but the reality is like we're not trading and and out of things throughout day, we're not trading quarters.

And I think for us, yeah, we're playing we're playing someone else's game and we're not going to win that game. We want to play. We want to play the game that we know we're good at, that we know we have odd to win.

And where there's right like today, there's just less competition. Everybody he's trying to play that right like the traffic in the store, satellite images, getting the next that point, credit or data. Everybody's playing that game today there. There are trillions of dollars literally chasing those data points. We're not going to move faster than those people.

And we know that I I always uh use the the example of like you can go and talk to a small business. We got a couple locations and there's like two different types. So um you go talk one and their like, well no commission of study, I count a high traffic.

It's to be a certain size lot whatever, like that's that's where we go and then you can go talk to like this kind of the old boys network, right? And you go to talk on those guys, hey, hey, pick the location he got, son, I find walmart and I set up shop ross street, right? And it's kind just like, yeah well, guess what? They didn't hold work right? They probably got an ideas, the what was traffic there and maybe are not write a hundred person of the time but for ninety ninety five percent accuracy, for zero percent work. Yeah pretty strategy. And so do you think kind of investing to degree is the high frequency guys, but um many of the best investors in the world IT is kind of the like let me IT just go find the walmart and set up shop across the street yeah and IT.

I took good point, right? Like I think one of the things we've been a good job and partly maybe from the family office background is um we've got a good investor base, a lot of richer entrepreneur s running running their own businesses, private industry that are great data point for us.

Um and so whether it's existing investors that um or talking to our perspective, investors that are treated is A A lot of our investors is to or other family officers that have history right Operating, but they may still Operate a business or did Operate a business leveraging those contacts and just talking to real people on the ground running private businesses. Um I think this is a kind of value there. Yeah um and it's more IT goes back to right, like just thinking more qualitatively about um you the positioning of the business, the structure of the industry like you're gonna get that out of you.

You're not gna get that modeling in excel. Um you just a really deep understanding of how the business works, how the economic business work, how businesses compete in, in the industry, right? What the competitive landscape is like. Um there's you talking to focus that are actually running those businesses is the best way to do IT. And you if you're talking to management of a popular traded company, you're just getting the corporate line.

Speaking of information, uh, a no decision you have to make. We've been talking about buying the stock. Sometimes you get to sell yeah you kind of doesn't count until you get the money in the bank. How do you know when to sell?

Yeah I would say um and that reminded me I think that was one of I think that line was a chapter out of your book wasn't .

IT I think I read as I ve got in the older I have a drastic cally shifted my thought process that I used to think buying was the hard part yes I actually think selling is twenty times harder yes, because things are going well.

Human nature like office is gone higher right? And then um um uh my friend mark, you school, he says that humans are great selling what they're about to need in buying what they should have bought him, right? It's like you want to buy one already gone up. The people say, oh, you look at this stock up you know forty percent there. Most people are not saying, look, the sock is down forty percent, right that's what they should be like.

Yeah right to so the three reasons to sell um one the best reason is we owned something. It's hit what we think is right, what we think it's worth. We don't see a lot of upside from there.

The thesis played out as we expected, we sell and we move on because there's something else that, yes, offering a Better expected return going forward. Um that's the best case scenario. Uh, worse case scenario is, yes, you're wrong.

Um a lot of times that's tRicky because you were wrong. Stock Price goes down, but your estimates come down a good bit, but stock crisis have fAllen more than that. So IT still looks attractive. Um and so that's where you get in the trouble where you holding on the things that you constantly you continue to look attractive, but your numbers are continually wrong. So being able to step aside and recognize when you're wrong like this business requires an incredible about a confident to be able to say like i'm right market wrong right like someone's always on the other side of a trade and anytime you're making a trade your saying I know more than the other person um but IT also requires an incredible amount of humility to recognize like know what we were away off the market.

the foot all. Being a bad holder actually in a market where the dollars devalued, stocks scope over the long run, like there are many stocks that people are wrong on. If you just years sure, you come back and now you can my clam Victory or I was the japanese stock market, right I think he took like twenty years or something in the all back above water love the last time in there yeah and so um do you have .

like were down seven percent a thing for us um right but sometimes there's a value in stepping aside, right? So um we've got a position in the portfolio that well, it's a name. Well, we've wed on and off for probably a decade.

We've gotten we've gotten crushed in IT over the last year. We're still known IT. Um there's value at times. And just saying, you know, we're going to take this loss. We're going to book the loss and just step aside for thirty days. One, harvest the loss, but two, like I think your reference point changes when you don't own IT relative to when you own IT, right? And so stepping away for thirty days, that will really find out how we feel about the name and be able to look at IT more adjectively.

Um if yeah we're dying to jump back in or we want nothing to do with IT, I think tear point in terms of being bailed out by the market over time to build the examples of a good one, right like amazon was down ninety percent, picked a dough right from march two thousand or two. If you held on since then, investors like if you ve bought at the peak and and ninety nine and held on through today, you've done well. You've cagr IT probably like a mittens type cagr, right? But that's market overall does ten percent annually, but that was like the single exception in history, like you're we're talking about like you bought one of the most dominant, perhaps the most dominant business in history.

And that turned out, all right, right? If you bought anything else at the peak and ninety nine that was in that bubble, you would be lucky to have outperformed cash over the last twenty years. And really like even the folks that held on to amazon from ninety nine through today.

And we're strong enough to hold on through a ninety percent to rot down like you could have learned Better returns by just buying what was out a favorite back then. And that goes to your point, right, of like looking at a really good at buying what's worked over the last five years. And rather than .

do you probably ended a uh, for that one in particular, I don't remember all the details, but I think the stock was trading at like just over one hundred box in one hundred two hundred thirty dollars. IT crashed to eight dollars. And um a huge reason why I think build IT so well in IT um from understanding is he started buying and maybe seventy eighty dollars as he fell um and he kept falling and he kept buying, right. He was essentially dollar cost averaging or kind of averaging down his cost um and for those of the story and one fifty percent, the company pretty good on their own. Um so in a weird way, like hit to your point, hit such conviction the market was wrong and he was right there that he was pouring more capital and as IT was falling and he was .

like happy to .

just be buying IT lower from A D to A A viewpoint on the world and everyone story like that. There's early a thousand yeah where you just want to zero, you lost all your money, whatever. So how do you guys think about entering these positions is something where you say, hey, we got a three percent target allocation was put one in a half percent in. If IT trade down a little, add to a heart, will you use?

No, I think both buying and selling, we've rarely do in one move, right? We're typically scaling on the way out because if we're updating our assumptions and markets and the names rating faster than our valuation is moving, our expected returns should be moving down, which means we should be trimming and redemption into something with higher expected returns.

Um and so we're we're typically scaling on the way out and scaling on the way in right like us as a value investor, more often than not, we're buying something where something is going wrong, something thing is broken. Hopefully its temporary and market thinks it's more than that. Um but that generally means we're buying on the way down and unfortunately generally means we're buying early.

So hopefully, we're not buying from ninety to eight um but we are buying on the way down. And that's a baLance to right. There are times where um IT depends on the investment right there.

There are industries and investments and setups where we are very familiar and very comfortable and can get up to speed really quickly. And so we'll go in and buy a decent size position and rap IT right pretty aggressively, pretty quickly as our work continues. There are other positions where we may be nor to the name.

And so i'm not i'd be less comfortable putting a position on in any size um before I felt like we had done enough work. Um and some of that two is just based on the number of names on the book. Like for us, we generally run with ten and twenty years.

Um if we're at ten names, I start losing sleep at night thinking were a little bit more over concentrated than i'd like. And so we we may be quicker to sort to add smaller positions to the book to get some word diversification. If we're at twenty names, putting a new name in the book is gonna really hard um so IT IT depends um we're generally doing work up front and sizing up um right as our work continue as conviction increases. And then just based on riders were firming up the numbers, what that expected .

return looks like for us. How do you think of benchMarks like at the end of the year, you say we did A D A good job. Most firms say, well here mark, we beat the um not fully fair because a hedged fun, the hedged part right um um people paying for the protection. But how do you pick bench barks and is IT literally just beat IT and that's a good ear or what?

Yeah, I think it's so I shared something with the team earlier this week that I thought was that was an example I came across that I thought was super interesting. So let's say we've got two managers.

Both have performed exactly in line with the market over the last five, ten years, but one's done so with half of volatility and half the downside risk as the other right, like looking at the alpha right to those managers generated neither from generated either of a any of a, but I think it's pretty clear that the manager that put up those returns right while minimizing downside volatility generated right, that's a lot more value strategy. Um and so we you know everybody in the U S. BenchMarks against the S M P um that's just the proxy, right? We run a global portfolio.

So I think no msi equity, which is a global equity index um is a Better benchmark for us. But over time, if you look at like the last hundred years, the difference from the S M P in global equities is they've both returned about ten percent year. They they just go in and out of favor, right? So we've just gone through a period where I think I think emerging markets made a new historic low relatives to the S M P.

S. Day on the U S rally um international markets of under perform U S. Markets for most of last ten, fifteen years, probably one of the most stream periods in history um for what it's work change yeah I mean, for what it's worth, the last time we saw this degree of us outperformance was in the late nineties and IT was very similar, right, similar large capital driving markets.

You had similar levels of concentration, A A lot of measures, markets more concentrated today than that was then. Um but generally, like in terms of benchMarks, again, we're looking for three to five year doubles. Um so we're doing our job round numbers read that pencils out to fifteen twenty five percent I R we're going to get some wrong.

Um everybody does. So you kind of move down from there. Um but generally if like over over time, we should be doing Better than equity markets, and we want to be doing that with less risk.

And I think despite having a tenure headwind for value to despite having a ten year, fifteen year headwind for anything international where we've got about half the portfolio outside of the U. S. Um to the fact that we've put up the return that we've had with those massive headwinds feels really good. Um and would tell me that right when and if any of those things turn from headwinds to tail winds, the next five, ten years should look even Better. Um and to maybe the venture, mark, maybe but maybe will pay more attention in the S M P.

Then I have a couple of things I want to talk about this kind of examples for you guys. Process start process that uh one of them is Philip felt more is something that ah I see you talked about A A lot of mine uni i've talked about yeah and there's important for more than which is this product that used by part of Young people.

Um I do nothing well then I know someone of an experts in because we have rush Young people who explain all stuff to be um there are some things that are really interesting about IT to me. So like when you have a large company but is a one product that's growing very quickly, the rest I think a lot of people saying, hey, that looks incredible. I want to exposure to that, but I gotto buy this other thing that maybe has more noise to IT, they just getting a pure exposure um in the second thing is uh is in an industry that has lots of external um kind of chAllenges or restrictions, you have regulation, you have a physical product office. Their supply changes is like all these things that aren't just of a traditional calendar APP or consumer software, whatever, how do you walk through something like that and try to say, hey, I see a trend that literally interesting is obviously quickly we think this value that could get created here, but we have to invest in different company and this got out kind of all these .

other things to evaluate yeah um so we've been invested in phillip moras for some time. Um I think our initial investment came down to what you're talking about um right like so it's one thing to think that a name or A A business is undervalued. Um right.

We we want to buy things that we think are under valued. We also want to understand why they're undervalued and why that might change. So we would fill up more is right.

It's the traditional tobacco business um that we had thought and still think was dragged down the valuation of the business, right? Go back a few years and the sentiment has changed quite a bit since then, especially given yesterday's result. But go back a few years, and you, the E S, the esg trend and the count of money that was pouring into E.

G. Funds was just off the charts you actually had in europe. I forget, I forget what the number is when we looked at this, I think IT was twelve or thirteen trillion in assets that had signed a tobacco free play that they would not invest in tobacco products or tobacco companies.

So you'd literally had trillions of dollars of companies. And then, of course, you've got off the big institutional investors and dominions that are saying, you know, we're not moving away from oil ea. Into the tobacco sector got completely crammed.

Some of IT was that senate. The other factor was waiting was completely destroying tobacco volumes, particularly in the U. S.

Historic U. S. Tobacco of volumes had been declining low ID single digits play for twenty, thirty, forty years.

Tobacco O S ban in decline um when jew came out of the scene um and then just waiting broadly in the U S. Tobacco of volumes are now declining double digits in the U S. Year over year.

So marbre right used to be able to two, three, four percent volume declines with pricing, which is why cigaret Prices have been increasing so much. Can I offset nine, ten, eleven, twelve percent volume declines harder? That's tRicky.

Um what we liked about phillip Morris was one when we first invested in IT. Theyd had zero exposure of the U. S.

Um and so there has zero exposure to the U. S. Volume declines that we're declining faster than anywhere else in the world.

Um and they had this was even before in they have and still have a product called echos. I I feel like so um I go isn't in the state yeah actually actually it's in Austin right now. We've got an analyst in Austin that was there sort of I goes coming out party recently.

我的 裤子 掉。

Um so I go is called a like it's a headed tobacco product, right? And so let's get back um tobacco in itself for nickey in itself um the chemical structure of nickel is almost identical in so by itself it's not really any worse free than cafe. It's extremely addictive but it's a stimulant like any other stimulant.

What does most of the damage from smoking is actually smoking. It's it's in healing that in or long it's all the other stuff that's in cigarettes and it's actually the combustion right on the car sense that that come in through the lungs. So by just heating tobacco, instead of actually lighting and on fire, I go to reduce something like ninety five percent of the risk to traditional smoking.

Unlike waving, I goes a super interesting, and that is really not that attractive to non smokers. Why I think the product is so successful is it's really close to the actual experience of smoking. So if you're smokers now, I know a lot of smokers well and is we have in the past, but most smokers that fake do both.

They haven't quit smoking necessarily. They just fake. Where is just a loud .

in certain places of the first .

it's like a compliment to smoking um where I goes most of the users of I goes like something like seventy five percent of them have quit smoking and that's all fill IT morus makes more money today selling egos than they do selling marbre that is wild IT took my bro good for society .

in general IT took .

marbre I forget how many decades to get like the first like five or ten points of share like I goes to IT like three, four or four, five years. So when we looked at IT, we saw eyeholes that was growing then that you know twenty five percent annually today, smoke free products that fit morus represent half their sales or i'm sorry, forty percent of their sales and that includes in um so we had, like he said, a growing portion of the business growing you that did not look anything like the tobacco industry except for the profitability by the way, I cos ends in or higher margin products.

Then combustible cigarettes and combustible cigarettes are one of the most profitable industry is in the history of the world um and both zin and echoes are growing faster and higher margin, right? So you've got to economics of the business improving. You've got the risk k profile of the business improving.

So we looked out of and said like or not sure when, but at some point, the markets going to start paying attention of this. Like in a few years, risky products will be two thirds to fill up mora sales. I don't think that business should be Priced like a tobacco company then and tend to be fair to not Priced like other tobacco companies today.

But we still think it's completely mess prised relative to its value. Um so he was just thinking about understanding why I was most valued and then thinking about, yeah, what could change that. And so there were two pots there, one going back to esg. We thought IT was a bull market mentality and more of a fat. And I think you're seeing that today with the number of S G funds closing down um and also for what it's worth, like at the peak of esg, there is one year or oil stocks for the top performing sector in the market and the number of esg funds that own oil socks like triple that year, but oil didn't get any environmentally friendly or during that year, they just found a reason to own them because .

the stocks were going up. I think on somebody was the like IT was ranked as the number one. The hg company .

tela wasn't on joke. I was just a complete joke. Like most of wall street products like the way we viewed IT, there was a great way for firms to charge more for the same product. Like if you look at esg index funds, like the top funds, we are like identical the s and five hundred. I was just all .

there is good companies having been really good for .

the environment. And so we thought when that reversed, you know, we would see more money flowing or or people would find that if the stock started working, people would find an excuse or making an excuse to buy, yes, year or not. And then the second thing was once once, and echoes really popped up on folks rate r and started moving the needle. Le phillimore ris, we thought the valuation would shift. And you've seen that dramatically in the last year.

And I also think that the story has gotten out now. They forget stock investing for second, just like parents see their kids with these intense you see a the chart and i've seen IT on two or a hundred times sales charted lord looks like you like the perfect graph. Know you're going to pitch venture capitals for your start up here we are gonna w at twenty eight percent cater for fifteen years, right? And so um if that's your thesis.

what are the things you .

pay attention to on a daily, weekly, monthly basis, whatever that would convince you guys? And maybe the thesis is a working as they just literally the like risk free product sales declining or slowing down or yeah something else. What can change, right?

So there's a couple things that make me nervous. Um one one you've said a couple of times already, we been talking about Philip Morris um of the Young people with intense. So if if you look at and this is federal data, but like the most recent youth tobacco survey came out and I think in you I know in usage was under age, in usage was still less than two percent of the population.

So the data were thing says that the average in user is like higher and so the top top cortile certainly top fifty percent in terms of um in terms of households, income, wealth, college educated, thirty five, forty years old also is popular among women. So you ve got max melt women. I don't know. I'm worried about like I don't know that, that under two percent youth usage number, when i'd look around like you said, that makes me nervous. I don't like.

as you think the regulars could come in and say, hey.

there's another people using push back. The problem was right, like the I mean, you've got a bad taste in their mouth from jail and jew, to be clear, was a aggressive marketing under I .

actually had an ppo and was right to go, the officers working, look at all data, whatever. And uh uh one of my partners, I came from the health care industry and he is very familiar with the regulatory environment that was going to stuff and he said we can do this during the data, whatever he was like, let me explain how this goes and he I an almost two A T predicted up the angle of attack for regulator. He's like, look at this data, whatever.

And remember there being like that, like that insane, right? Like that. Yeah business could go that fast and people destroyed and I told one hundred, I do you right? Like like he pretty much know that.

yeah. So that's what you know. You had humor a few months ago making noise and you've got you've got some noise. Um you've got some noise. And D C, about under a research there.

Um it's unfortunately because I think one, the product there is so good for folks quitting smoking, right? And the risk reduction is just it's like nothing else. So if you look at um so zin came out of a company called swedish match, which felt more sort a couple years ago.

And so nicking pouches and sweden are like they've been around for a while. If you look at smoking, the percentage of population that smokes across europe, sweden looks like it's on another content. Um it's like near zero smoking because they're all I just using nicking pouches and then you can look at the health related a tobacco related health risks and its near zero in sweden. So we know all right, like we've got good data that shows hay. The stuff works in helping people stop smoking and helping with major health benefits.

What about to these pouches? When I was grown up in north CarOlina, a they want a cigarette usage. There was a hell of ash tune. And first I don't know IT was still smoke lst tobacco but it's basically like a um but I was described IT is like a jees right to a degree of jeans like sure that tobacco right my high school is like littered with and and think like I was just like what people did right so whatever um and remember I tried one time um on the back of the high school ball oh my god you what you do is on the boss right I have two feet of the ground after that I like exactly what I um and so IT almost feels like you there were these data points previously of like smoke as tobacco a but this beco IT it's just synthetic nicking straight nickey .

so it's even healthier than that stuff which you've got a lot of mouth cancer right like that what he says like .

IT almost feels like the trend was there. But this is like a luxury product in the continuation of the trend, both terms of the quality, the product, the people who are using IT. The Price point, like all of that seems to not be an investors dream if you're looking product in the in a long term trend, right?

yeah. So I think the the biggest risk is, is just that right to the us. Is the largest tobacco market in the world that's like sixty billion dollars notional fill up more.

Us until recently had zero exposure in that market, and it's the largest right publicly traded tobacco company in the world. So they're coming like as opposed to other tobacco companies, altara japan tobacco, a bridge tobacco that are already Operating in the us. And are basically doing all these things to offset.

They are shrinking U. S. Tobacco business, fulfill IT more. The us.

Is one hundred percent upside, right? They have no legacy U S. business. And so well, even if the politicians mistakenly did something to limit or reduce the growth of them in the us, you still have phillimore is increasing distribution of that product globally because they've just got right so much more massive scale than swedish match had.

Um the other thing that worries me um and I went to worry because this again is all upside. I don't think it's markets expectations are very high. So echoes is launching in the U.

S. currently. The sort of rolling IT out in a few test market is very slowly and being very calculated about how they do IT. I go success has been in somewhat depending um the culture and the individual market thread.

So for example, in japan, micros has something like between thirty and forty percent market chair of the entire tobacco market um that because there was never a really a strong vapor culture in japan in markets where theyve gone in where people have already waiting to take up has has been slower and and IT has not got into those types of numbers. So it'll be interesting to see so film more saying they want to capture ten percent share of the U. S.

Market inside of right, the next several years over the world out. It'll be interesting to see how that shakes out. Just given right how big viking is here in the states. I think the different calculation you you're seeing IT literally the only thing that limit at their growth today is been capacity.

They can't make IT.

And what interesting is if you look at the data you ask you initially have asked about the data points are looking at um IT was in grew like eighty percent year over year. And q one, q two, q three IT fell down to like forty fifty percent. And you saw some competitors take share because they couldn't put products in in, in is enough and there's still and they're still struggling.

Um we went online just last week on a bunch of different online outlets and we or if they're not sold out, there's a limit and how much you'd buy. Um but zin pricing like the other like marbois has a bit has a product called on marber has been giving that away and they can't put a dead and like zs Priced at two or three x the competitors and still have is just an upsetting amount of market chair in that industry. And what you saw when they struggled to keep up with volume, um you actually saw overall volumes of nikon pouches decline.

So people literally, instead of going to a different brand, just said that we're going to wait and told things back in stock interest. Um even those like other brands, are half the Price and they're even pricing more aggressively now because they know they can take share. I want to convert people. I think all that hair comes back to them like as soon as that comes out.

my body john could run to Lucy. That's one of the competence. And as soon the shortages of all because they don't, there's some market is up for grabs. And so you go and because .

I love to check with I have another great example of yeah ah what was .

information right and and also unique that because the private company public company um I have two other questions for you then uh I will let you go um bitcoin there's lots of people they even watch yeah they got other access for the audience. They wanted know to think about bitcoin. Have you guys looked at IT? How do you think about IT in a portfolio? What about other things that we like? Ten gentle bitcoin gold. How do you think about that whole bucket?

Yeah interesting. No wind. Um always back. I think it's good perspective. So I left new york in o five, which about twenty years ago to go work for the family office.

Um my last couple years in new york, I had a large investor that was over the large trust for him um that ran one of the largest gold mutual funds in the states back in the seventies and eighties. And for the last few years I was in new york. He was in my ear every time we spoke, walking me through the thesis for gold and why we need to own IT. Unlike most people, a golbin IT to a literally bottom two hundred and fifty dollars announce, I think IT was between sort of three four hundred over that period in the early two thousands um he convinced me um I brought IT I literally had to bring IT to the investment committee at a large institutional bank and was basically told we were not allowed to buy incline account um at three four hundred dollars and outs when I joined the family office in oh five I spent the first five years I was there trying to convince the family to put ten percent other wealth and gold between four hundred dollars and out all the way up um patriot the family who unfortunately passed or uncovered um but was just brilliant brilliant man I learned to turn from him over the years but I always got the same response from him.

I'd tried to buy gold for twenty years and every time I bought I lost money miceli were buying in a twenty year bear market right from one thousand nine hundred eighty to two thousand literally all gold did went down like it's hard to make money in a twenty year bar market um and I told myself when he finally convert and is like all in I know like that self that's one working step side. Um so I think we we bought some for the family. I think IT was around.

I forget the level is around two thousand and outs um where we bus I based well there is a big draw um who's thirteen fourteen around that time um and I forget what I was but like IT just became cleared to me that I think we just got lucky and maybe didn't understand which arrives the Price. And I think that's why we've struggled with commodity products is that valuing them is really just a theoretical exercises. And it's really hard for me to have say and to full circle back to big coin. Um I remember sitting down here in new york, this would have been five years ago I guess um you know murray stall I do sitting down with murry and his partner Steve spending .

like two hours .

on their office they were full on is like two .

thousand and twenty two twenty three thousand IT was .

was long before OK um trying to convince you know and I .

listening to him and he was .

basically like just put half a percent I just put a half a percent in the point o and I thought the argument made sense to but like if. Unfortunately, we did not um and it's just because again, I don't know. Well here's another good example.

We invested with a in a large macropha n the family office invested a large macropha this back by sorrows and IT was like this was around the time of the financial crisis. Peter gory was phenomenal. The numbers were phenomenal, right?

Like spent one of the most brilliant thinkers i've ever talk to um got to know personally spent a ton of time with them, had a good run for a couple years and then just like had a year to wasn't even two, but you six months to a year where I was just completely ata sac. Lot of volatility all historically had a lot of volatility took big swings this far was all of the downside. I don't know how to.

So if i'm investing in in a business that's moving against me, I can look at this and say, okay, I understand why the market is selling this off or and maybe it's not even fundamental, right? We understand we know that such as such, who owns ten percent of the flow is is facing liquidations and redemptions. And so they're just blowing out of things.

Um or maybe it's not that maybe they reported a bad quarter at a road block. And we can say, okay, like we understand what's happening here. But like are confidence that this thing is ultimately worth x has not changed.

I didn't know how to do that when I underwrote a manager who's just you're making a bet on him being able to predict the wisdom of rowdy, I don't know. Right, right. And so when that goes against you, I don't know how the conviction I don't know how to gain the conviction to say we need to double down here.

And I feel like when we've invested in commodity businesses, we've gotten into the same we've gotten we've had the same struggles. And so effectively, that's why we haven't done anything with bitcoin is that I don't know theoretically how to tell you what we think it's worth. Um and maybe it's just we're not smart enough to figure that out. But um interesting because there's .

a lot there's different people who have different answers, which means there is no answer, right? Like like that is one of the things that um you cracked me up um is people want to make IT something that is model OK. I I get the thought process.

I see my revenue but ever OK fine. Um then I see people who come up with like we're going to take um of bit coin and what we think fair value is and like again, I get IT just try people making money trading on that stuff. yeah.

But I don't think that there is consensus from the market. And so you don't have consensus. It's kind of hard to then start to talk about like fair value. And in our people, thinking is more valuable.

less get the biggest opportunity is right when there's not consensus and you have a wide range of opinions if you get IT right.

that's for the biggest problem. Why did know little the reason why I got to the example of like the old boys tworog? I said, mark, like to me IT was just like, maybe IT works, maybe doesn't a murray stall hall, right? Like let to buy some and provide to keep per ten dollars yeah and I do think that there is the sounds horrible sense of times, but I do think that there is a competitive events sometimes to not being too smart, right? Like you can talk like give me the one sentence yeah I would I do this yeah that sounds pretty good.

I think investing for the most more requires average level of intelligence, average mathematical skills. And the great majority of what we do is behavioral. The other thing I I think is important. So right? Like there are so many different ways to make money in the market.

You've got because you've got macro traders like we talked about, you ve got short sellers, you've got trend followers, you've got right, the high frequency traders, you ve got venture and not everything works for everybody um and not everything has to work and bright. And so there's an unlimited array of opportunities out there today. And this is just the opportunities that right now, a year from now, will have a different opportunity said.

So have to get everything right again. IT just goes back to like picking our spots right, like making sure we're investing where we can explain the thesis in one or two sentences. We feel really good about IT um and if we can do that, we probably shouldn't involved and so just knowing right where where your sweet spot is and where historically IT hasn't I think is a major edge.

I I completely agree. Uh my last question for you without books, I know that you like to read, I like to read um you sent me a book um which was very good um how do you pick what to read? And do you have any suggestions for people who want to get Better at investing, in particular of books that you would suggest?

Um yeah, and funny, I gonna mention that too, because I noticed the book, we come in your book, which is how I went down the same path. So that's that's funny. And IT was just right. Like one year just came into the year and said i'm going .

to read a book a week this year and then i've done .

that every year. I need a forcing function.

When I first start, I got admit, you know you got to like the bookstore. You're like books around here or two hundred .

pages here do is that .

you almost like you create the love of doing IT by doing IT yeah right and then you like, really hey, I enjoy doing this. And so um thankfully for me at this like pretty quickly I was like not looking. I remember in what is easier to read a short of .

book in a longer book, and why I should say also, I love your wife's book. I've told you that before too.

But I .

clearly, clearly, I think. I don't know that i've got a good answer for that other right. It's just kind of and different books hit you differently at different times, which is so interesting. Um so it's just kind of what's got my attention of the um and then like one often times it's just it's down a rabbit hole, right? So i've read something and one or two books will be referenced in IT and that all and sometimes i'll ve been put down when i'm breathing to read one of those first and then go back to IT and then i'll go through, if I really enjoy IT, go, I read mostly non infection and then i'll go through the big biography, right, and sort of to pick up and just just keep going down the rabbit hole until you feel like, again, it's how do you know you ve got enough information?

Yeah, i'm laughing, by the way, because i've outlived fiction box in this place. I I feel fictions fake like I got real books, which obviously people do not appreciate a when I say that. But that's why I can't read fiction book for whatever reason this a couple of a couple I got IT .

but non fiction that reads like fiction. I'd rather read Michael Lewis um you just phenomenal storyteller um whether or not you agree with the stories and this viewpoint but like yeah that's when i'm reading for like peer pleasure. I like reading stories like that.

I like reading biography and business history like business biography. And that's actually one of the best ways, I think, to get up to speed on a company or industry. Just we have go on amazon by every related book on the industry or company that you can find. And some there's like so there's not many and others .

that just like you, you'll love this. So ed girl, Brown man, junior, he thought of you who that is. But he he was in the news reason because he was start by paramount, the whole whatever, right?

Yeah, I said the ego brothers. Junior, okay, well, is going to be a dad. You don't have the junior.

Get on the google machine, right? Start poking around. I oh, the c grams building, which happens to be close to our office.

Grams high. And so on where he is third um kind of generation of the seek ms. fortune.

He had this huge for ray that they should lost couple of billion dollars and ninety two thousands kind of built to back up and I I trying to buy this company, whatever. So I just go on the internet. I was like.

what's every book right? I thought you were to mention one that I had on history, which is unscripted.

is a family. I, I chose to read the Brown once. There is a lot that was in these books and um my biggest way was on business. So family dynamic stuff yeah right. Like the grandfather literally in that story in particular was like you know .

basically got we've right right.

Like so like you know, you started to read these stories in the years. Like I like it's the same story over, over, over yeah um the .

investing book question, I want to make a hit. That's a tough one, right? Because IT depends on the investor, the level of sophisticate like where they are. I think for a beginner interested H I mean everybody started the buffet, but um I think joe Green um the little book that beat the market so not even like the youtube, can be a stock market genius, which is probably one of the best books on special investing ever and more sophisticated but the little book, the way he boiled down to value investing, it's just like buying cheap companies with high return on capital and literally boil.

I think you wrote the book for a son that he was like a kindergarten the time and it's just I think that's one of the best starting books for investors to understand how to think about valuing businesses. I would say I think two of the most underrated I would put on my top five or top ten list investment books we're written by friend a chancellor ed. Ed was um financial in Price .

the time .

and then devil take the time most was the first which is like one of the best books like financial hist financial written i'd put IT up there with like kindness ger mag IT double .

takes the hand most OK I love prints of so ed vote um and he actually didn't .

he's more than editor here so there's two books that he compiled they were a compilation of investment letters from A U. K. Based investment manager and ed sort of compiled them in a fashion and sort of weaved in his commentary and perspective.

Um one is called capital account, and I think that is called capital cycle. I might be mixing up those names, but if you google 的 爸爸 um the first is their letters from the period， the midd nineties through the bust. And so it's like a real time look at how they were thinking about the markets then and how they were positioned.

And the second does the same thing, but IT goes through the the financial crisis and the housing crisis. And what's interesting to me is the lens, the and the firms marathon on asset management, again based based in london, the lens through which they view the world is basically called like supply side and dusting. And so if you think about both of those cycles, and I think there's analogies to AI today, for what it's worth, if you think about both those cycles, right, like what everybody missed in the nine was we were so excited about the all of the demand of this new thing called the internet was gonna create.

And all of the data that was gonna be pipe and I did ready created just massive amounts of data and are still creating massive amounts of data. Um and everybody was so focused on the demand side of equation. Nobody was looking at the supply. And all you had to do was look at the amount of money that these telecoms companies were spending, just dumping capeci into the ground to build out fibre cat cables um to say that there is no way like in no possible way was that demand going to be made because at the time, like broadband was not even a thing, right? And you needed broadband which didn't come along till ten years later, to push enough data through those pipes to even get close to sucking up that capacity.

And so they're just looking at and in hindside, I think that I think of the peek IT was like over two hundred and fifty billion in capex across telecom, just building out fibreoptic cables, which coincidently is about what the hyper scales are spending today. Training A I and data on cat is literally almost identical, which queensland is also almost identical goal to what we spent in the us. Building out rail in today's dollars.

So no views on where that goes in terms of eye. Again, I think IT comes down to the questions you need to ask at the Price. But those two books, and that was the same thing. And housing, right, like all you had to do was look at the amount of homes we were putting up over that time period to know that the math was not going to work. But just and i'm not giving them justice, but I think I think that lends applies to so many different um industries and also works the other way um which is something I think we're less good at, is that if you think about um our column, a growth investor, but it's not really I don't really differentiate between growth and value per commenter earlier. But like a quality investor, really high quality businesses are almost systematically under valued in the market because if you think about a standard D, C F, you we typically go out, I mean, most street is only going out one, two years in terms of effects.

Maybe D, C, F goes out five, seven, ten years, right? And then after that, you're basically assuming the company's competitive advantage period where their earning access returns on capital is fading and IT fades up until maturity and then that maturity they just grow at the to the economy and essentially create no more value, right? But we know really good companies to like amazon, like alphabet, right? Like like microsoft, their competitor advantage period didn't stop after year five or after year seven or even after year ten. And so if you're valuing that business using A D, C F and your competitive advances period is only here, you're missing like all of the value creation of D, C, F comes out here and most D C F cut that off. Now IT works most of the time because there's only a handful of .

companies .

that but when you do like the costco, costco other tics and there not all tech but um good businesses create value and earn higher returns on capital for longer than most than that gets systematically under prised.

Where where do we send people to find you on the internet or .

find more about brail? Yeah just a website. So set that come. Um I one of things about us, as we've always been or tried to be incredibly transparent and sharing thinking. And I think that's the best way to ensure that we ve find investors that are land with us so they know exactly what they are getting.

The first time you I ever talked, I told you this. So I repeat IT now, but um we were thinking about a building a website for AR, a management firm. And so I was a world things, people do whatever and um we set up a call. And so before you always make sure of care for the call and I go on the website now, I was like, this is the single greatest .

investor website of epa .

like I like IT mine here right now um but aesthetically, uh, you guys got all the writing there. Anything probably actually the thing that struck me the most is just like nobody goes to your website and walks away not knowing who you are. Yeah right. Here's the thing we do and I think so strongly what you do, you're basically thing what you don't do yes right. And and I think that most people um and probably even of our businesses, we fall with them to like uh we are you know and you have just like the most like corporate drone speak to a degree and you just like very clear, concise, just ban is what we do um and so ah for whatever reason I .

always appreciate IT I I would never do together future yeah thanks.