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Archive for January, 2020

During this week’s episode of VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discuss Bill Nygren’s $1,000 Comp Number For Netflix Subscribers:

Tobias Carlisle: Let’s start with what’s Bill Nygren’s take on Netflix?

Bill Brewster: He’s using HBO as the comp for the Netflix valuation where AT&T purchased, what is it a Warner, for approximately $1,000 a sub, right? No, our guy fell. That’s terrible. Oh well, so those on YouTube, at least Jake and I are in the Christmas spirits still.

Bill Brewster: Anyway, his whole thesis is the takeout value based on the AT&T transaction for Netflix is approximately $1,000 a sub. I just think it’s important for people to think for themselves on this. I sort of understand why in Barron’s, Mr. Nygren’s using that as an easy pitch. But if you look at the Recode conference that Michael Nathanson did, he talks about HBO and Disney having brands that create spend efficiency.

Bill Brewster: Matt Ball recently, I think he’s about to change the way that people talk about Netflix and he said, “I find it bizarre that people have criticized Disney pluses. One to two point billion original content budget is being laughable in today’s streaming wars. Putting aside the strength of Disney’s library, this 1 to 2 billion spend is probably several times more impactful per dollar than the 1 to 2 billion that would be spent by Netflix. And HBO is one and a half billion in original programming is modest compared to Netflix is 10 billion, but they generate equivalent Emmy nominations and I am the beep traffic.” I just think it’s sort of interesting. You read Barron’s and it’s a neatly packaged pitch, but you look a little bit deeper and AT&T history of acquisitions leaves a little bit to be desired and the efficiency that HBO and Disney have to acquire customers and put it out the distribution machine. There are different businesses. I don’t think that you can say that their comps.

Bill Brewster: Why are the different businesses?

Tobias Carlisle: Well, I think HBO traditionally, at least as I perceive what AT&T wants to do with that asset, you probably got a higher income base. They were traditionally distributed through a cable package. Now, AT&T can sort of bundle it with their wireless or total bundle offering and AT&T, it sort of makes AT&T’s distribution system more efficient. Right? As opposed to Netflix who has to produce content to keep people hooked to keep them watching. It’s just a very, in my mind, a different: a. Business model and b. Reason for owning the content. Plus, Netflix is global. HBO only really has the rights in the US so it’s just not, in my mind-

Tobias Carlisle: Don’t they converge over time?

Bill Brewster: Well, I think longterm, it’ll be interesting to see how HBO or HBO Max actually performs. I would not be shocked to see HBO distributed through Netflix in the very long term, but medium term, I could see it being a real problem.

Tobias Carlisle: I think it’s funny the way… I know that Netflix spends a lot of money, but I don’t see a lot of really great shows coming out of that money spend it. If I think about the amount of time that I spent, we would watch HBO much more often than we’d watch Netflix and Disney Plus like Disney’s got one show really. It’s got the Mandalorian, which that’s hitting south pretty quickly. I think Bill Burr dropping the alien was a big, was the highlight of like the last two weeks.

Bill Brewster: Well, I think that you could say that is sort of what Netflix is really good at. Right? Even if a lot of the content isn’t great per se, they are very good at continuing to release content. Now, it comes at the cost of free cash flow.

Jake Taylor: How? Yeah. I mean you could probably do a pretty good job if I wrote you a check for 15 billion a year to spend on just go make stuff. Right?

Tobias Carlisle: Would you make The Irishman if you hit that much money?

Bill Brewster: I did not like The Irishman.

Tobias Carlisle: No, not a at all.

Jake Taylor: I didn’t even bother watching it after hearing all the people can’t get that life back, those three hours.

Tobias Carlisle: I was prepared to watch it because I kind of like Scorsese. I like all those guys. I love Main Streets and Godfather and Casino, all that stuff. I’m the kind of person who would watch it and enjoy it. I just couldn’t… Like DeNiro, it’s just not believable even though they aged. He’s supposed to be 37. They aged him to 57. He still looked old.

Bill Brewster: His walk was still 70.

Tobias Carlisle: He still looked old. Like when he was stomping that guy, I felt bad for the kid. I felt bad for DeNiro. I thought he was going to throw a hip out.

Bill Brewster: Throw his back out. Yeah. It took me a long time to watch. I think I watched it over three nights. I don’t know. I wanted it to be Casino and it just wasn’t, which is probably unfair.

Tobias Carlisle: I saw somebody, it was Tony Greer actually, I’d feel bad calling him out. He said he loved the Irishman, but he hated Once Upon a Time on Wall Street, which I felt the reverse. I loved Once Upon a Time on Wall Street. Once Upon a Time in Hollywood. Sorry.

Bill Brewster: Yeah.

Tobias Carlisle: Freudian slip there. Have you seen it?

Bill Brewster: Yeah and I loved it. I like to think that I can appreciate a good film. Actually, I’ve used that as my example of like, no, I can appreciate film, but I don’t know, the Irishman just didn’t do it for me.

Tobias Carlisle: I didn’t know anything about Once Upon a Time. I watched it all. I was cheering at the end because I had no idea. I don’t want to ruin it for anybody who hasn’t seen it. But, I had this sick feeling the whole way through and I was literally like cheering out loud in the final scene. I loved it so much.

Media Streaming – What Metric Are People Using To Determine Return On Content Spend?

Jake Taylor: That’s an interesting, like what are people using now for different metrics for returns on content spend? You mentioned IMTP, you mentioned traffic. What are people using now instead of actual cash as the marker of success?

Tobias Carlisle: Well, they try to win the awards road. They’ve all tried to win Emmy’s and Oscar things.

Jake Taylor: That doesn’t correlate with actually what people want to watch. Right?

Tobias Carlisle: Maybe it makes you credible for future content.

Bill Brewster: Yeah, I think, I don’t know, we’ll see. AT&T’s probably doing it. They’ll probably measure it return reduction, Disney’s going to argue that it gets you in their ecosystem and create some revenue synergies, I guess.

Tobias Carlisle: Let’s just go back to Nygren’s $1,000-

Jake Taylor: Comp.

Tobias Carlisle: … comp. Yeah. What’s the average revenue per user for a Netflix? Do you have any idea what that is, Bill?

Bill Brewster: Oh, not off the top of my head. I’m not looking at my spreadsheet. You guys have seen the sheet though. It’s quite long.

Tobias Carlisle: What’s everybody paying for?

Jake Taylor: Well, you need it to be that long to get out to where they’re actually making money out into that distant future. It’s a big spreadsheet.

Bill Brewster: Yeah. I don’t know. I think that their cash spend and what they’re bringing in is pretty aligned on a forward user basis. Where I got super nervous at that is when they hit the user hiccup because it got me pretty worried that something in the little algorithm had changed and statistically speaking, it was a pretty big miss. I think there’s-

Jake Taylor: Can you, if I remember right, you said that is, you felt like as long as they were accurate about predicting sub changes, then you felt comfortable with it but then they swung and missed on what they said they were expecting.

Bill Brewster: Yeah. I thought that if they could keep their spend per projected user flat or within a range. Right? I felt like they had the algorithm figured out. That hiccup, my math might be a little wrong, but I thought it was south of two standard deviations. When you’re spending that much, that’s not a cheap stock, right? You don’t have a lot of room for error.

Tobias Carlisle: I got to say in full disclosure, I have been short, but we’re rolling out of the short literally today. I think that the reason, and I’ll just tell you why we’re taking it off, I still think that it’s overvalued and I still think it’s got a lot of trouble. It’s got a lot of issues like big, big negative, free cashflow, lots of debt, lots of competition. It’s just that there are better opportunities out there at the moment. I think it’s really, really beginning to look like a target rich environment for shorts.

Bill Brewster: You’ve been dreaming about this forever.

Tobias Carlisle: Well, I think it’s been-

Jake Taylor: Other than that though, how was the play [inaudible 00:00:11:03]?

Tobias Carlisle: I’ve heard there are lots of investors who I respect who are on the other side too. Lots of investors. Bill being one of them who have been long and I continued to believe in that total addressable market is massive. That SaaS business is going to scale easily. Need to bear some of that in mind that there are pretty good arguments on the other side too. I still think it’s probably kind of a no man’s land at the moment. I don’t want it to be long, but I definitely I don’t want to be short at the moment either.

Bill Brewster: I still think longterm they can win, but I think that there is going to be a lot of pain inflicted between all these streaming platforms. I remain fairly convinced that we’re probably going to see a situation where everybody’s just trying. I watched the Irishman, I turned off the Netflix. I don’t miss it right now. I’ll probably be back at some point.

Tobias Carlisle: Would you know if anything comes on?

Bill Brewster: Yeah. Well, that’s the thing, right? I’m going to watch Disney Plus for a little while and then I’ll go back to Netflix and then maybe I’ll check out HBO Max. I’m just going to turn off all these things.

Tobias Carlisle: Prime is very good. I watch a lot of Prime.

Bill Brewster: I do too. It is pretty good.

Tobias Carlisle: It feels like it’s free because you kind of paying them whatever it is annually so they can send you the packages over or not. All right.

Bill Brewster: The thing about Netflix that’s tough, I think, is they’re US streaming is where a lot of the money is, right? They’re going to try to scale into India with like $3 a month subscriptions. I don’t know how much you can make on $3 a month, but I just think-

Tobias Carlisle: If it’s all margin.

Bill Brewster: Yeah. Once you hit the point where-

Jake Taylor: But it’s not though. Isn’t there… Don’t they have to, aren’t they making content specific for different artists?

Tobias Carlisle: Actually, their local content, I’ve watched some of that Indian content, I think it’s excellent. I think it’s some of the better stuff that I have.

Bill Brewster: Well, what’s interesting that I don’t think maybe people here appreciate, their international competition, at least according to Matt Ball is really not very strong. The way that the rights are split up around the globe. Netflix is sort of the only one that owns all the rights to all their distribution. I think it can work. I just don’t think that you can say, well AT&T who almost objectively overpaid for direct TV and doesn’t have any good history of making great acquisitions is all of a sudden my comp for Netflix. That’s crazy to me. But I’m sure-

Jake Taylor: My condo in 2007 in Las Vegas comped at $1.2 million. So, it must be worth that, right?

Tobias Carlisle: I don’t think. I’m always a little bit skeptical of those kinds of analysis because it’s so hard to compare the two. $1,000 for per sub for Netflix like that’s bullish if you’re talking about $3 monthly gross revenue from some of the folks outside the US.

Bill Brewster: Yeah, well. And then, he said like they’re going to add so many subs and then you multiply it by a thousand so they going to gain like 25 billion of value this year. Well, I don’t know. That’s some funny to add.

Tobias Carlisle: It’s 7.2 billion people in the world with $1,000 per sub. That gets a $7 trillion.

Bill Brewster: That’s exactly right. Now, those guys are super smart, so I bet if you’re sitting in their office, it’s a much more detailed conversation, but-

Jake Taylor: We’re going intergalactic to get the real Tam.

Tobias Carlisle: Netflix is the company on that.

Bill Brewster: That’s right. Yeah.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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Summary

In this episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle chat about:

  • Bill Nygren’s $1,000 Comp Number For Netflix Subscribers – Legitimate Number Or Funny Math?
  • Michael Green’s Thesis On The Rise Of Passive Investing Causing A Melt-Down
  • The Investing Version Of Marry, F#&%, Kill –  Buy, Trade, Short
  • Does Michael Burry Still Have It, Or Not?
  • Why We Didn’t Like ‘The Irishman’
  • Media Streaming – What Metric Are People Using To Determine Return On Content Spend?
  • Aubrey McClendon, And That Crash
  • The Peloton Business Model

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

Apple Podcasts Logo Apple Podcasts

Breaker Logo Breaker

PodBean Logo PodBean

Overcast Logo Overcast

 Youtube

Pocket Casts Logo Pocket Casts

RadioPublic Logo RadioPublic

Anchor Logo Anchor

Spotify Logo Spotify

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Full Transcript

Tobias Carlisle: Welcome to Value: After Hours. I’m Tobias Carlisle, as always, I’m joined by Bill Brewster. Bill, what’s your topic this week?

Bill Brewster: We’re going to talk about whether or not the $1,000 comp number for Netflix subscribers is a legit comp or funny math.

Tobias Carlisle: And Jake Taylor, what are you talking about this week?

Jake Taylor: We’re going to be playing a game that’s an investment version of Marry, F, Kill that we call Buy, Trade, Short.

Tobias Carlisle: My topic is Michael Green’s thesis on The Rise of Passive Investing Causing a Melt-up, and then a 1929-style crash. This is a holiday special. We’ll see you right after this.

Jake Taylor: Merry Christmas.

Promo Ad: Tobias Carlisle is the founder of Principal of Acquirers Funds. For regulatory reasons, he will not discuss any of the Acquirers Funds on this podcast. All opinions expressed by podcast participants are solely their own and do not reflect the opinions of Acquirers Funds or affiliates. For more information, visit acquirersfunds.com.

Bill Brewster: It’s quite a way to introduce a holiday special.

Jake Taylor: Yeah, 1929-style crash.

Bill Brewster: And then, there’s going to be just carnage. Happy holidays.

Tobias Carlisle: Let’s start with what’s Bill Nygren’s take on Netflix?

Bill Brewster: He’s using HBO as the comp for the Netflix valuation where AT&T purchased, what is it a Warner, for approximately $1,000 a sub, right? No, our guy fell. That’s terrible. Oh well, so those on YouTube, at least Jake and I are in the Christmas spirits still.

Bill Brewster: Anyway, his whole thesis is the takeout value based on the AT&T transaction for Netflix is approximately $1,000 a sub. I just think it’s important for people to think for themselves on this. I sort of understand why in Barron’s, Mr. Nygren’s using that as an easy pitch. But if you look at the Recode conference that Michael Nathanson did, he talks about HBO and Disney having brands that create spend efficiency.

Bill Brewster: Matt Ball recently, I think he’s about to change the way that people talk about Netflix and he said, “I find it bizarre that people have criticized Disney pluses. One to two point billion original content budget is being laughable in today’s streaming wars. Putting aside the strength of Disney’s library, this 1 to 2 billion spend is probably several times more impactful per dollar than the 1 to 2 billion that would be spent by Netflix. And HBO is one and a half billion in original programming is modest compared to Netflix is 10 billion, but they generate equivalent Emmy nominations and I am the beep traffic.” I just think it’s sort of interesting. You read Barron’s and it’s a neatly packaged pitch, but you look a little bit deeper and AT&T history of acquisitions leaves a little bit to be desired and the efficiency that HBO and Disney have to acquire customers and put it out the distribution machine. There are different businesses. I don’t think that you can say that their comps.

Bill Brewster: Why are the different businesses?

Tobias Carlisle: Well, I think HBO traditionally, at least as I perceive what AT&T wants to do with that asset, you probably got a higher income base. They were traditionally distributed through a cable package. Now, AT&T can sort of bundle it with their wireless or total bundle offering and AT&T, it sort of makes AT&T’s distribution system more efficient. Right? As opposed to Netflix who has to produce content to keep people hooked to keep them watching. It’s just a very, in my mind, a different: a. Business model and b. Reason for owning the content. Plus, Netflix is global. HBO only really has the rights in the US so it’s just not, in my mind-

Tobias Carlisle: Don’t they converge over time?

Bill Brewster: Well, I think longterm, it’ll be interesting to see how HBO or HBO Max actually performs. I would not be shocked to see HBO distributed through Netflix in the very long term, but medium term, I could see it being a real problem.

Tobias Carlisle: I think it’s funny the way… I know that Netflix spends a lot of money, but I don’t see a lot of really great shows coming out of that money spend it. If I think about the amount of time that I spent, we would watch HBO much more often than we’d watch Netflix and Disney Plus like Disney’s got one show really. It’s got the Mandalorian, which that’s hitting south pretty quickly. I think Bill Burr dropping the alien was a big, was the highlight of like the last two weeks.

Bill Brewster: Well, I think that you could say that is sort of what Netflix is really good at. Right? Even if a lot of the content isn’t great per se, they are very good at continuing to release content. Now, it comes at the cost of free cash flow.

Jake Taylor: How? Yeah. I mean you could probably do a pretty good job if I wrote you a check for 15 billion a year to spend on just go make stuff. Right?

Tobias Carlisle: Would you make The Irishman if you hit that much money?

Bill Brewster: I did not like The Irishman.

Tobias Carlisle: No, not a at all.

Jake Taylor: I didn’t even bother watching it after hearing all the people can’t get that life back, those three hours.

Tobias Carlisle: I was prepared to watch it because I kind of like Scorsese. I like all those guys. I love Main Streets and Godfather and Casino, all that stuff. I’m the kind of person who would watch it and enjoy it. I just couldn’t… Like DeNiro, it’s just not believable even though they aged. He’s supposed to be 37. They aged him to 57. He still looked old.

Bill Brewster: His walk was still 70.

Tobias Carlisle: He still looked old. Like when he was stomping that guy, I felt bad for the kid. I felt bad for DeNiro. I thought he was going to throw a hip out.

Bill Brewster: Throw his back out. Yeah. It took me a long time to watch. I think I watched it over three nights. I don’t know. I wanted it to be Casino and it just wasn’t, which is probably unfair.

Tobias Carlisle: I saw somebody, it was Tony Greer actually, I’d feel bad calling him out. He said he loved the Irishman, but he hated Once Upon a Time on Wall Street, which I felt the reverse. I loved Once Upon a Time on Wall Street. Once Upon a Time in Hollywood. Sorry.

Bill Brewster: Yeah.

Tobias Carlisle: Freudian slip there. Have you seen it?

Bill Brewster: Yeah and I loved it. I like to think that I can appreciate a good film. Actually, I’ve used that as my example of like, no, I can appreciate film, but I don’t know, the Irishman just didn’t do it for me.

Tobias Carlisle: I didn’t know anything about Once Upon a Time. I watched it all. I was cheering at the end because I had no idea. I don’t want to ruin it for anybody who hasn’t seen it. But, I had this sick feeling the whole way through and I was literally like cheering out loud in the final scene. I loved it so much.

Jake Taylor: That’s an interesting, like what are people using now for different metrics for returns on content spend? [crosstalk 00:08:03] You mentioned IMTP, you mentioned traffic. What are people using now instead of actual cash as the marker of success?

Tobias Carlisle: Well, they try to win the awards road. They’ve all tried to win Emmy’s and Oscar things.

Jake Taylor: That doesn’t correlate with actually what people want to watch. Right?

Tobias Carlisle: Maybe it makes you credible for future content.

Bill Brewster: Yeah, I think, I don’t know, we’ll see. AT&T’s probably doing it. They’ll probably measure it return reduction, Disney’s going to argue that it gets you in their ecosystem and create some revenue synergies, I guess.

Tobias Carlisle: Let’s just go back to Nygren’s $1,000-

Jake Taylor: Comp.

Tobias Carlisle: … comp. Yeah. What’s the average revenue per user for a Netflix? Do you have any idea what that is, Bill?

Bill Brewster: Oh, not off the top of my head. I’m not looking at my spreadsheet. You guys have seen the sheet though. It’s quite long.

Tobias Carlisle: [crosstalk 00:09:07] What’s everybody paying for?

Jake Taylor: Well, you need it to be that long to get out to where they’re actually making money out into that distant future. It’s a big spreadsheet.

Bill Brewster: Yeah. I don’t know. I think that their cash spend and what they’re bringing in is pretty aligned on a forward user basis. Where I got super nervous at that is when they hit the user hiccup because it got me pretty worried that something in the little algorithm had changed and statistically speaking, it was a pretty big miss. I think there’s-

Jake Taylor: Can you, if I remember right, you said that is, you felt like as long as they were accurate about predicting sub changes, then you felt comfortable with it but then they swung and missed on what they said they were expecting.

Bill Brewster: Yeah. I thought that if they could keep their spend per projected user flat or within a range. Right? I felt like they had the algorithm figured out. That hiccup, my math might be a little wrong, but I thought it was south of two standard deviations. When you’re spending that much, that’s not a cheap stock, right? You don’t have a lot of room for error.

Tobias Carlisle: I got to say in full disclosure, I have been short, but we’re rolling out of the short literally today. I think that the reason, and I’ll just tell you why we’re taking it off, I still think that it’s overvalued and I still think it’s got a lot of trouble. It’s got a lot of issues like big, big negative, free cashflow, lots of debt, lots of competition. It’s just that there are better opportunities out there at the moment. I think it’s really, really beginning to look like a target rich environment for shorts.

Bill Brewster: You’ve been dreaming about this forever.

Tobias Carlisle: Well, I think it’s been-

Jake Taylor: Other than that though, how was the play [inaudible 00:00:11:03]?

Tobias Carlisle: I’ve heard there are lots of investors who I respect who are on the other side too. Lots of investors. Bill being one of them who have been long and I continued to believe in that total addressable market is massive. That SAS business is going to scale easily. Need to bear some of that in mind that there are pretty good arguments on the other side too. I still think it’s probably kind of a no man’s land at the moment. I don’t want it to be long, but I definitely I don’t want to be short at the moment either.

Bill Brewster: I still think longterm they can win, but I think that there is going to be a lot of pain inflicted between all these streaming platforms. I remain fairly convinced that we’re probably going to see a situation where everybody’s just trying. I watched the Irishman, I turned off the Netflix. I don’t miss it right now. I’ll probably be back at some point.

Tobias Carlisle: Would you know if anything comes on?

Bill Brewster: Yeah. Well, that’s the thing, right? I’m going to watch Disney Plus for a little while and then I’ll go back to Netflix and then maybe I’ll check out HBO Max. I’m just going to turn off all these things.

Tobias Carlisle: Prime is very good. I watch a lot of Prime.

Bill Brewster: I do too. It is pretty good.

Tobias Carlisle: It feels like it’s free because you kind of paying them whatever it is annually so they can send you the packages over or not. All right.

Bill Brewster: The thing about Netflix that’s tough, I think, is they’re US streaming is where a lot of the money is, right? They’re going to try to scale into India with like $3 a month subscriptions. I don’t know how much you can make on $3 a month, but I just think-

Tobias Carlisle: If it’s all margin.

Bill Brewster: Yeah. Once you hit the point where-

Jake Taylor: But it’s not though. Isn’t there… Don’t they have to, aren’t they making content specific for different artists?

Tobias Carlisle: Actually, their local content, I’ve watched some of that Indian content, I think it’s excellent. I think it’s some of the better stuff that I have.

Bill Brewster: Well, what’s interesting that I don’t think maybe people here appreciate, their international competition, at least according to Matt Ball is really not very strong. The way that the rights are split up around the globe. Netflix is sort of the only one that owns all the rights to all their distribution. I think it can work. I just don’t think that you can say, well AT&T who almost objectively overpaid for direct TV and doesn’t have any good history of making great acquisitions is all of a sudden my comp for Netflix. That’s crazy to me. But I’m sure-

Jake Taylor: My condo in 2007 in Las Vegas comped at $1.2 million. So, it must be worth that, right?

Tobias Carlisle: I don’t think. I’m always a little bit skeptical of those kinds of analysis because it’s so hard to compare the two. $1,000 for per sub for Netflix like that’s bullish if you’re talking about $3 monthly gross revenue from some of the folks outside the US.

Bill Brewster: Yeah, well. And then, he said like they’re going to add so many subs and then you multiply it by a thousand so they going to gain like 25 billion of value this year. Well, I don’t know. That’s some funny to add.

Tobias Carlisle: It’s 7.2 billion people in the world with $1,000 per sub. That gets a $7 trillion.

Bill Brewster: That’s exactly right. Now, those guys are super smart, so I bet if you’re sitting in their office, it’s a much more detailed conversation, but-

Jake Taylor: We’re going intergalactic to get the real Tam.

Tobias Carlisle: Netflix is the company on that.

Bill Brewster: That’s right. Yeah.

Tobias Carlisle: All right. Let’s do my topic, which is Michael Green who has previously been at Thiel Capital. I’m not sure where he is now. I think he might still be at Thiel, I’m just not sure. He’s one of the smartest guys. You can see him on Real Vision interviewing Josh Wolfe and Chris Cole and lots of other guys who are very intelligent. Michael is a very, very smart guy.

Tobias Carlisle: I have heard his thesis about passive investing, which is basically, and I think it’s on Real Vision now and he’s been sharing it for a little while. He has this idea that as passive investing takes up more and more of the market. The ability for active investors to course correct or to push companies that get away from their intrinsic value back to intrinsic value diminishes such that passive takes over and it’s just flows that go to the biggest companies. The big just keep on getting bigger and the companies that don’t receive the flows are left behind. The upshot of all of that is that eventually you get this point where passive takes over the market. I think the tipping point could be 50% and we could be, I think we’re almost there. I’ve seen a few different measures. It could be a little bit lower than that, but there’s some measures that say we could be at 50%.

Tobias Carlisle: At that tipping point, you have this melt-up followed by this 1929-style crash. So just throwing it out to you guys. What do you think of the thesis and what do you think of the likely outcome of that?

Jake Taylor: I find it to be very interesting in that part of the thesis is explained by older investors who are typically more inactive funds, who are selling for perhaps de-risk or even liquefy their portfolio to cover living expenses. They’re being replaced by younger investors. So, there’s a generational gap here that the younger investor is more prone to being a passive investor. We have a natural gradient between who’s selling and who’s buying and what are their styles. That only exacerbates this problem towards passive. I am very curious about how they do this modeling to figure out like where is the escape velocity, where are the singularity where all of a sudden there are no more people providing liquidity and all we have is buyers on the other side and no one, and that that buyer is now totally price insensitive because they’re an index and you end up with just that perfectly approaching full insanity mode. It’s rather shocking actually if you think through it as the way that Michael explained it.

Tobias Carlisle: Just the marginal buyer in order to get the next share that the price goes up. Yeah, the price goes up exponentially. You can look at, there’s some funny charts out there at the moment. If you look at the price at Ford price to earnings on the S&P 500 has gone vertical over the last three to six months in a material way. I don’t know if that’s evidence for what he’s saying, but it’s not disproving what he’s saying.

Jake Taylor: Yeah. Right.

Bill Brewster: I had tweeted out about Greenblatt saying that the S&P was in the top one percentile, or not the S&P, the Russell 2000 is in the top one percentile and the S&P’s in the top, what, 14? I got some pushback with some charts that say that that’s not true. I don’t know how he does his stuff but I have noticed, we’ve had a big re-rating obviously this year.

Bill Brewster: The Michael Green thing is really interesting. I found it fascinating to listen to. The thing I don’t fully understand is the flows go in a proportion to the existing allocation. Right? I don’t understand why active couldn’t set the price and move the proportion that the flows go in at. I could see a scenario, I guess, where if the price gets to a point where active just doesn’t want to take the risk but flows keep coming in because a bunch of people that are just doing passive to do it. I guess I could see a scenario where just flows take the market way out of whack, but I don’t know. Like Jake said, I need to see sort of model.

Jake Taylor: Isn’t it a Gresham’s law of logic though? Where as you drive out the next logical person who sees it getting disconnected from what it’s really worth, now there’s that next person that gets taken out that says, “Well, I don’t think it’s worth this. I’m going to sell to the index.” And then the next person, and eventually we run out of people who are logical and all we have left is the buyer.

Tobias Carlisle: [crosstalk 00:20:22] You run out of lesser fools.

Jake Taylor: There’s no liquidity left.

Tobias Carlisle: You run out of lesser fools.

Jake Taylor: We’ve run out of lesser fools and now there’s no one to provide liquidity because we’ve already driven them out. It’s now it’s all index and now the price can go [ASX methodic 00:20:36] because we don’t have any, there’s no liquidity to, there’s tons of bid, but no shares to be supplied.

Bill Brewster: You’ll see me on the [ASX 00:20:50]. I’ll be having really low [ASX 00:20:48] out there. Right?

Tobias Carlisle: I haven’t said this to-

Bill Brewster: Oh, wait. No, [BIDS 00:00:21:17], I guess. Not [ASX 00:20:54], my bad. Tilde market-maker. But yeah, my whole theory is if he is correct and he’s saying that there’s going to be no liquidity, then you might have to set yourself up as the liquidity provider and just throw out really low bids on these stocks. And if people want to sell, they got to sell to somebody so maybe that’s okay, I don’t know.

Tobias Carlisle: They’ve sold it to the index provider, don’t they? Because there’s a constant bid under these stocks and it’s going to go vertical.

Jake Taylor: Yeah. That’s the part that comes after the vertical and then, you want to be the really low when everyone wants to get out then at that point, that’s when you provide the bid. But in the meantime-

Bill Brewster: Get levered, get along.

Jake Taylor: How, yeah. In the meantime, YOLO, right?.

Bill Brewster: That’s right.

Jake Taylor: It really is a recipe. It’s very easy for me to imagine a scenario where we look back at this time period and go, “What were people thinking? That was so obviously stupid.” Everyone can’t index at the same time. It would never work. And yet, we just kind of do it.

Tobias Carlisle: Michael is going to come on my podcast. It’s a little way away. It’s a couple of months at the moment and so I haven’t said this to him. I sometimes think that finance guys forget that the market… Sorry, I’m just, he doesn’t get a chance to respond to this. He will in due course, but I think they forget that there are, the stock market is not the only thing out there. If undervalued stocks don’t catch a bid. From my perspective, that’s great because I’m going to go around and hoover all of those companies up. I’m relying on the fundamental performance dividends and growth in a book value and so on to generate my return. It’s kind of ideal for me if they don’t, if some of these good companies don’t catch a bid just by virtue of the fact that they’re smaller members of the index, that’s great. Isn’t it? Why is that bad for a fundamental guy?

Jake Taylor: No, it is. It’s setting up to be absolute premium time for a fundamental discretionary investor who can take the pain though of underperforming against an [ASX methodic 00:23:05] index. So really, I think my prescription would be to, if you are measuring yourself, don’t compare yourself to the index probably over the next couple of years and just focus on doing smart things, finding things that are undervalued by those, getting long patients and I think you’ll be rewarded for it. But if you’re trying to keep up with everyone else and that you have FOMO, I think you’re likely to really take it in the shorts.

Tobias Carlisle: There’s a chance that at some stage the dividends just get so material to the most undervalued stocks. There’s private equity and other guys out there. Private equity will take these companies private because they’ve got lots and lots of dry powder. That money’s really cheap. There’ll be able to take them private at a pretty significant premium. II think that would still be a good environment for a value guy.

Bill Brewster: Who might get screwed in that is the people that can’t invest in private equity though, right?

Tobias Carlisle: But, you can invest in a value fund.

Bill Brewster: That’s right, or Biglari Holdings. That’s somebody that doesn’t mind underperforming.

Jake Taylor: It’s a long time horizon.

Bill Brewster: That’s right. You do have to show up to the annual meeting if you do that though. No, I don’t know.

Tobias Carlisle: For those who don’t know, Jake’s a holder of Biglari. Have we discussed it on this podcast before?

Jake Taylor: No, we haven’t and I’m not sure we will. I don’t need that kind of confirmation bias.

Bill Brewster: To be fair, you’re in the green last time we talked about it though.

Jake Taylor: I’m not going to say one way or the other.

Tobias Carlisle: It bottomed around the idea, it’s currently about $115 so there’s a good chance Jake’s in the green.

Bill Brewster: Yeah. We might have to edit all this out.

Tobias Carlisle: I’m not. This stays.

Bill Brewster: Anyway, I think that within value, there’s a premium on capital returns and whether or not management. Like the GameStop thesis, right? Completely rests on whether or not management is going to do the right thing with that money. We’ll see. I think maybe you get more activists that come into these smaller companies that actually start putting management teams in place that care a lot about shareholder return. In that case, from a cashflow basis, yeah.

Jake Taylor: It’s a home run.

Bill Brewster: That’s right. Anyone that’s willing to do that work.

Tobias Carlisle: Or if Michael Burry or an activist can compel GameStop to do the right thing.

Bill Brewster: Yeah, that’s right.

Tobias Carlisle: We hadn’t read this so the topic, Michael Burry. I had at one one week of… A month ago, GameStop had its, it was the best perform stock in mind, little screener. And so I tweeted out, Michael Burry’s still got it and got corrected in the tweets underneath. There are countless responses saying this is a melting ice cube. And then, more recently, it’s fall and it was the biggest loser in the screener. And so I tweeted out, maybe Burry don’t got it no more. I got more responses to that one. I think that argument is still ongoing on Twitter. There are guys duking it out in the comments on that one.

Jake Taylor: In your comments?

Tobias Carlisle: Yeah.

Bill Brewster: I think the kids would say you got pwned on that, right? P-W-N-E-D or whatever. That was very funny to watch from afar.

Tobias Carlisle: [crosstalk 00:26:37] I got both ways.

Bill Brewster: Talkies get lit up on this.

Tobias Carlisle: It’s funny though. It’s so polarizing. Each tweet is like, if people are angry for each tweet, for what it’s worth, I believe that Burry hasn’t lost it. I think he’s still got it. I think that GameStop’s going to work out, but we’re well below water on that one.

Bill Brewster: Well, the question is, are they going to buy in all the shares? Are they going to at some point give a special dividend? In my mind, even their last earnings call to me was sort of like, “Okay, we’re using the working capital shrinkage to buy the shares and then we got one more good console cycle in us.” And it’s like okay, well, what then? Right? I don’t know. It’ll be interesting to see.

Tobias Carlisle: OJ Renick is the anchor on the TD Ameritrade show. He had this interesting take where he was like, they need to turn these things into like a Starbucks land party. Remember when you were a kid and everybody bring their computers and hook them all up and you can play games against each other. That’s actually a brilliant idea. I said to him that’s a blockbuster idea.

Jake Taylor: Solid.

Tobias Carlisle: Yeah. Thanks. But, I actually do think it’s a good idea. I think it’s kind of interesting, maybe people do want to go here. Maybe people want to go to a place and hang out and talk games and not buy drinks and things while they’re there. Not necessarily to buy games, just a meeting place.

Bill Brewster: I think that can work. You know, living the GameStop lifestyle, we’ll have the restoration hardware lifestyle, the Starbucks lifestyle, the GameStop lifestyle. But, I think you got to make the stores much bigger.

Tobias Carlisle: Yeah.

Bill Brewster: Like nobody, those GameStop stores suck. I don’t want to go in and hang out there. If you had huge TVs and a very cool setup, I could see wanting to go in and play a game with other people.

Jake Taylor: If Capital One wants to sell me a coffee while also trying to get me to open a credit card, like why not? Why not GameStop?

Bill Brewster: That’s right.

Tobias Carlisle: I do that in Omaha. We went and checked that one out in Omaha.

Bill Brewster: There’s one here in Chicago. I thought about opening a credit card. I didn’t-

Jake Taylor: [crosstalk 00:28:47] For a latte.

Bill Brewster: … but I thought about it. That’s right. Yeah.

Tobias Carlisle: You’re coming up on the cafe and you’re peaking on the cafe and everything looked good in the world.

Bill Brewster: That’s right. We’ll give you a $3 coffee and 21% APR. How’s that sound? I don’t know, I’m so tweaked.

Jake Taylor: That was one of Cialdini’s things was get people caffeinated, wasn’t it?

Tobias Carlisle: I don’t know, but it works on me.

Bill Brewster: It’s definitely, you got some reciprocity thing, right? You give me a small coffee, I’ll just run my balance up. You can’t lose.

Tobias Carlisle: Jake, what’s your topic?

Jake Taylor: Well, in the name of the holidays, I thought it’d be fun to play a game. There’s this kind of fun game that you can play that’s called Marry, F, Kill, the F being you know what you think it is.

Bill Brewster: Yeah, we get it.

Jake Taylor: Typically, you play it with celebrities. You’ll name three different celebrities and then you have to decide which one would you marry? Which one would you F and which one would you kill? We’re going to adapt it to be Buy, Trade, Short. You have to make a decision now on the first one is buy. This is a single security-

Bill Brewster: That’s marry, that’s marry.

Jake Taylor: That’s marry, yes. You have to buy it at today’s price and you have to hold it for 30 years. You also have to assign X percent of your net worth to it. Let’s start with that one.

Tobias Carlisle: Just before we do it. Can I give you my predictions for what everybody says?

Jake Taylor: Yeah.

Tobias Carlisle: I think buy, everybody says Berkshire.

Jake Taylor: Yeah.

Bill Brewster: [crosstalk 00:30:28] No, I’m not going to go there. I’m going to someplace.

Tobias Carlisle: I think so. Everybody says Tesla, I know that that one’s going to happen, but trade is kind of up in the air. GameStop.

Jake Taylor: It’s actually interesting. It’s actually very difficult. I’ll tell you the rules of the trade after we go through the buy first.

Tobias Carlisle: What’s your buy though?

Bill Brewster: I think I’m probably going to buy LVMH.

Jake Taylor: Interesting.

Bill Brewster: That might be really stupid. This might be peak luxury, peak quality, but they perform pretty strong through the downturn. You’ve got an emerging market that’s getting wealthier over time that got a lot of brands that people want to peacock with. I don’t see that going out of style. I think that might be where I go with this.

Jake Taylor: Is that like buying the cake manufacturer that makes the cake specially for other Royal family right before the French revolution?

Bill Brewster: Yeah, it could be. I was talking to my buddy, Tieso, the science of hitting investing and he was saying that. I was like, “Well, you know luxury, you just don’t have to invest a whole lot. You can push price mid single digits and you got EM.” And he said, “Yeah, that sounds a lot like CPG five years ago.”

Tobias Carlisle: Yeah.

Jake Taylor: Ouch.

Tobias Carlisle: That’s hard.

Bill Brewster: Yeah. That’s very true.

Tobias Carlisle: I’m going to say Berkshire just because I know you want to say Jake. Maybe not. I don’t know. Yeah, I think just because I think it’s… I don’t think you lose money in Berkshire. I think you get at least kind of S&P 500 better than S&P. I think you’re paying like S&P 500-ish multiple. I think it’s a slight premium on a multiple, on a PE basis at the moment. But, I do think the underlying businesses are better than that. It would make me a little bit nervous that the two Todd’s are going to be swinging at stuff like Amazon and [crosstalk 00:32:13].

Jake Taylor: Yeah, and restoration. Is that not in your-

Bill Brewster: Hey, he bought low.

Tobias Carlisle: But, I think that if the timeline is 30 years, I think for me, that risk becomes, the stock doesn’t make it to the 30 years. So, I think that you need something pretty diversified, financially strong where they’re thinking, at least they’re thinking about capital allocation, whether they’re doing it right or not. I think it’ll be there in 30 years.

Jake Taylor: I think it’s a great pick like one, most people, you would sleep easy with that one. I’ll be a little different and I’m actually going to say Fairfax. My logic is one, you already took Berkshire. Two, after going to the meeting now for several years in a row, I’ve come to appreciate the bench strength that’s behind Prem. I think it may be just as good as Berkshire is because Prem I think has been quicker to outsource more things than Warren has just based on my observation of both of them.

Jake Taylor: The businesses are not as good as Berkshire’s, but there’s a lot more international element to it as well then than Berkshire. They’re much more willing to go do other things outside and they always have been. They’ve been pretty good insurers. The investment results I’m hoping will revert to some kind of mean at some point because they have not been great the last few years. I think the company’s still around in 30 years and I think it’s still reasonable. And you’re paying probably about half as much as you are for Berkshire’s assets in the ballpark there.

Bill Brewster: You said that the investment results aren’t good or what they should be, this is probably small pennies in a bucket or whatever, but they bought Toys “R” Us, Canada out of bankruptcy, right? And then, they got Bower out of bankruptcy too, right? What, The Bat Company too?

Jake Taylor: Eastern-

Bill Brewster: Yeah. I did not appreciate what Prem was doing in the private distress market until I went to that meeting. And I said, “Oh, that’s pretty interesting.” If I trusted him from a macro basis, I think I’d be more willing to make that bet.

Tobias Carlisle: Do they also have Blackberry?

Bill Brewster: Yeah, but that’s public.

Tobias Carlisle: The good of big chunk, they’re the guys, they’re kind of Blackberry, aren’t they?

Bill Brewster: Yeah. This is a technical term. That’s a shit show right now.

Tobias Carlisle: Yeah. I think it’s been a short a few times in my screens. I don’t think I’ve actually pulled the trigger on it, but it’s been in there close by.

Bill Brewster: Even the way that he pitches it, he’s just like John Chen’s really smart. They had some IP. I hope he figures out what to do with it.

Jake Taylor: Yeah. Like I said, the investment results the last 10 years I would say have been not great. If you go the 10 years before that though, they’re pretty good. They made a lot of money in the downturn. They’ve, they’re run pretty conservative. They’re not as conservatively run as Berkshire, but-

Tobias Carlisle: The stock that they got before that though, they were also a global short, they were in a lot of trouble.

Jake Taylor: Right. That’d be my only real concern with them is that last, one of our previous episodes, we talked about how Berkshire’s always been kind of an N minus one acquisition company where they’re a little slower to… They’re always one deal behind with and have extra cash. Fairfax has not been that way. They’ve been more of an N plus one sometimes in my view. I’m a little overly aggressive, but hopefully they learn from that and get a little bit more. It’s been better the last few years I think is what I should say.

Tobias Carlisle: I’m trying to find the… There’s a fund that was established in the wake of the ’29-crash. Did you guys read about this this week? Basically, they wanted to take away. They gave it a permanent holding. I think they gave it 20 or 30 stocks and they said, “You’re not allowed to trade these stocks. You have to hold these stocks.” And it’s gone through five different owners and countless management teams since then. It’s still going though. I think a lot of the reason why, I think it’s outperformed the market, which is the most amazing thing. So-

Jake Taylor: What happens with a bankruptcy on M&A?

Tobias Carlisle: They don’t replace it. But in some instances, what happened is Berkshire bought one of the companies and did it for stock. So they picked up some Berkshire, which has helped them a lot. I just can’t, for the life of me, find the name of it.

Bill Brewster: This is very anticlimactic.

Jake Taylor: Let’s move on to F or AKA Trade. For this one are that you’re forced to day trade this and you have to pick at the beginning of every day, every session, are you long or short for that day? This is only for the next, let’s say five years. This is like dating the stock a little bit or effing it a few if you want to.

Tobias Carlisle: So I have to day trade it or can I hold it for three years? I can’t hold it for three.

Jake Taylor: Yeah. Well, you could just be long every day for three years. Yeah, you can.

Bill Brewster: Where you don’t miss the gaps. I don’t want to miss the gaps up because obviously what I’m trading is gaping hard.

Tobias Carlisle: We’re still talking about stocks here, right?

Bill Brewster: Yes. I’m going with the glasses for this one, going into classes.

Tobias Carlisle: That’s so good.

Jake Taylor: Can you see to the future with those?

Bill Brewster: I can and I might even be breaking some rules. Hello. I’m day trading American Airlines options.

Jake Taylor: Oh, all right.

Bill Brewster: I think that I don’t want the equity of that company at all. It’s got a lot of debt. The CEO is relying on his liquidity in a downturn. If that’s the case, you got more debt so you got a bigger interest burden, but they’ve invested a ton over the last five years. They say they’re of the, CapEx cycle. You’ve got three billion of debt being paid down over the next two years. If everything goes according to plan on a $12 billion market cap and the EV tends to hover around 40 billion. So, it usually trades debt and equity. Meanwhile, they’re buying in 10% of their shares. I could see that thing going a lot higher. The squiggly investor in me would note that it’s already formed to lower or higher lows. You got a bottoming position and the glasses say you got to buy. Also, this is not financial advice and position size as well because you could lose it all.

Jake Taylor: So that was a… Yeah, we didn’t say how long would you be your, what’s your percentage that you’re putting into Berkshire and LVMH?

Bill Brewster: Oh, well. I got to own this for what, 30 years?

Tobias Carlisle: Is that one stock for 30 years?

Bill Brewster: Yeah. I think that’s what it is. I’m going YOLO. I got to have 70%. I got to have some dry powder for all this American Airlines money I’m about to make.

Jake Taylor: Okay. How much are you going to allocate to your trading portfolio?

Bill Brewster: I probably like 10% but I’m expecting to lose, I’m not putting 10% down everyday.

Jake Taylor: Yeah.

Bill Brewster: I got to be able to take some draw downs in the trading account.

Jake Taylor: Right.

Tobias Carlisle: I’m going to interpret the trade as, this is potentially a zero, but it’s something that I think, I don’t know how long it’ll take to work out, but it kind of, it hasn’t worked out in three to five years. It’s not going to work out. So this is sort of more of the stuff that I do on a regular basis. I’m not going to talk about anything that I actually hold. This is a company that’s a little bit too small for me and I heard the pitch from an investor who I like and respect a lot. The tick is CRC, it’s California Resources Corporation. It’s a spin-out. It’s oil and gas play, $5.4 billion in debt, $400 million in market cap.

Bill Brewster: I love it.

Tobias Carlisle: It’s clearly, it’s highly levered and it’s highly levered to the oil price. I think-

Jake Taylor: You buy options on the equity.

Bill Brewster: That’s right. Leverage on leverage on leverage.

Tobias Carlisle: [crosstalk 00:41:03] Equity is the option in this one. Clearly, there’s a risk that this is a zero. Because oil volatile, they’ve got debt, you can blow up, you can lose all of your money in this thing, but it’s also one of those stocks that because it’s so heavily leave it and leave it to the oil price. If you get a reasonable move up, it’s one of those things that does go up 10 or 20 times, some silly amount like that. That’s my trade.

Bill Brewster: Then, you get the Momo buyers that come in after it’s up 10x. That’s awesome. I love it.

Jake Taylor: That’s a good segue because that was how I tackled the trade portion was I wanted to look for what has momentum persistence. Each day, is it more likely to just go up a little bit the next day or if it’s going down, to go down a little bit the next day? I did a little research on that and it really pulls up some strange names if you look it for recently. But, the one that I just picked out of the grab bag there, because I don’t think that you can actually like pick one that makes more sense than another, but was actually a Greek ETF.

Jake Taylor: It’s just basically owning Greece. I thought well, there’s going to be so much headline, probably problems because Greece is the redheaded stepchild of Europe. If Europe goes bad, you can just short this Greek thing as much as you want along the way every day. When things like when the news dies down, maybe you just go along a little bit everyday and it takes its way back up as people stop paying attention. It’s kind of the Canary in the coal mine approach to it.

Tobias Carlisle: Yeah, I like that one.

Bill Brewster: You’re pretty levered the Greece. You got a Greek bank that Prem owns too.

Jake Taylor: That’s right.

Bill Brewster: I like that. You looked through Greek exposure is quite high.

Tobias Carlisle: How did you asses that it has this persistence on a daily basis?

Jake Taylor: I just did actually a quick screen on like relative strength and that pulled up a basket of names that have over certain time periods have persistence.

Tobias Carlisle: It’s both directions. It just tends to be… Is it more volatile than the market or no?

Jake Taylor: I don’t know if you would call it more volatile, but it’s-

Tobias Carlisle: It’s persistence.

Jake Taylor: Yeah. Just the price persistence like tends to go up when it’s going up or down when it’s going down. But-

Tobias Carlisle: You may have just found the rent tick position there.

Jake Taylor: Yeah, it might be. Huh?

Tobias Carlisle: You just gave it away.

Jake Taylor: That’s what we’re good at here.

Bill Brewster: Give away the good stuff.

Jake Taylor: Yeah, so this one is kill and this would be a short that you have to be short it for let’s say five years.

Tobias Carlisle: Oh.

Jake Taylor: You got to start now.

Bill Brewster: I’d say Tesla, but it won’t be here.

Tobias Carlisle: That’s okay, right? You get to cover-

Jake Taylor: That’s a good answer, then yeah.

Tobias Carlisle: I think we’re all going Tesla, right?

Bill Brewster: I’d be fine shorting Peloton too. I’ll take whatever one you guys don’t want.

Jake Taylor: Okay. Well, what’s the reasoning for wanting to short Tesla then for you, Toby?

Tobias Carlisle: Lots and lots of debt. Metal bender. I’m about to see a huge amount of competition. I think that the whole space is still fairly volatile because there’s a transition to self driving cars coming. And despite what Musk says, I don’t think that they’re at the forefront of self-driving cars. I think there’s a pretty well known shot that does the rounds that’s got other companies, Google particularly, that have much better self-driving technology. I think the CEO’s a little bit of erratic. It’s run up a lot this quarter so it’s much, much more expensive, which doesn’t necessarily make it a better short. But, I think that it is a pretty good short, I think most people have kind of figured out that it’s a pretty good short. I have been short before and I am still short now.

Jake Taylor: With that price action, you’re still short?

Tobias Carlisle: Yeah.

Bill Brewster: Man, that hurts.

Tobias Carlisle: Yeah. I mean it’s small.

Bill Brewster: That’s been robbed. I just sold some call spreads in the old IRA today, but boy that thing is ripping.

Tobias Carlisle: Yeah, it’s moving-

Jake Taylor: What is the logic of, I guess that’s… We can’t really know what the logic of any of this stuff is, but it hasn’t been a lot of volume. That’s one thing. But why, it’s up over 70 billion now for the equity, who looks at that and says, yeah, that’s a $70 billion company with another, how much do they have in debt? Like 10 or 20 more billion or something like that. It’s like, okay.

Bill Brewster: Well, again, in the investment advice category, that’s how I look a little bit long dated on the call spreads and I say, “Okay, well, this thing would need to be like a $90 billion company in order for me to lose on this.” Maybe I’m risking 1% to 1.5% of the portfolio on it. It’s in my IRA. It’s tax advantage. I’ll take that bet.

Tobias Carlisle: Yeah, that’s a good bet.

Jake Taylor: But in the meantime, those are priced at zero now.

Tobias Carlisle: I would say that the interesting thing about Tesla, I think the current price section in it, I think it does illustrate the Soros line about a reflexivity being a real thing. When Tesla was down, I think it actually was a better short than where it is up. Even though it’s much, much more expensive now than you could theoretically expect more for the reason that it would have been much, much harder for them to raise money when they were down. Now, it’s 70 billion. If they go to raise money, there’s much less dilution.

Bill Brewster: [crosstalk 00:46:48] They get comfort that they can stock settle if it’s north to 330.

Jake Taylor: If you’re the 3D chess wizard that Musk is supposed to be, how are you not in this market environment? How are you not issuing all the equity you can get your hands on right now at this price?

Tobias Carlisle: It’s perplexing. I’ve said that counter. I’ve given this to a few people. The counterexample where instead of getting off the plane to Vegas, but buying it out at 420 funding secured, he says, “We’ve taken $5 billion in investment. It was a $60 billion market cap thing. We’ve taken $5 billion in investment.” That’s not much dilution. That’s a lot of fire power. That keeps him going for a few more years. It’s a totally different story for Tesla now, right? Instead now, he looks a little bit of erratic. It’s been a wild ride. Maybe they can still get it away though. Do you think there are many big investors who are going to stump up that kind of money or do you think they’ve got to do some sort of ride so far or something like that to get it from retail?

Jake Taylor: [crosstalk 00:47:49] Oh, I wouldn’t put anything past a sovereign wealth fund at this point.

Bill Brewster: You got Gerber Kawasaki, he’s going to take down some of it. ARCS going to take down some of it.

Tobias Carlisle: But 5 billion, that’s a big, I don’t know how much they’re going to do it.

Bill Brewster: [crosstalk 00:48:01] Barron’s probably take down a slug.

Tobias Carlisle: They need that amount. Right? They need a big, like they need a big chunk. That’s hard to, that’s not lying around any more now than SoftBank’s not doing it.

Bill Brewster: Have you seen the Cybertruck?

Jake Taylor: Have you driven one, bro?

Bill Brewster: Yes. The old working capital from the cluster fuck. Don’t worry about it.

Tobias Carlisle: I still haven’t delivered the Roadster. That was announced two years ago. Is there like-

Bill Brewster: Oh yeah.

Tobias Carlisle: Have they boot the factory to deliver the roads? Do you need a factory? How do you do these things?

Jake Taylor: Just some tents. You’re good to go.

Tobias Carlisle: Yeah. Just take a bit, take lose a bit of parking.

Bill Brewster: You got to tip your cap to him. I thought he was on the mat earlier this year and doesn’t look like it now.

Tobias Carlisle: Cybertruck turned around.

Jake Taylor: Did you guys happen to know? The other thing that I think is very interesting about that is the amount that he’s borrowed against his shares.

Bill Brewster: Yeah.

Jake Taylor: There has to be some price point that margin calls happen that are like, it’s the deathblow because he has to raise money, so he’s selling to cover his leverage.

Tobias Carlisle: TSLAQ’s all over it.

Bill Brewster: Yeah, TSLAQ is all over this.

Tobias Carlisle: I think TSLAQ said it was 150 or 160, it’s something like that.

Jake Taylor: So it didn’t get that far away from it. It was down at like what, two something earlier this year?

Tobias Carlisle: Yeah.

Bill Brewster: I think it was under that. I think it had a one handle on something.

Tobias Carlisle: I think they get it on to 200.

Bill Brewster: Sky, he’s got a SECURUS trade going on.

Tobias Carlisle: That’s the same thing that, who’s the gas guy who drive his car into an overpass?

Jake Taylor: Aubrey McClendon.

Tobias Carlisle: Yes. Thank you. Aubrey McClendon and it was it Chesapeake?

Bill Brewster: Yeah.

Jake Taylor: Chesapeake.

Bill Brewster: Great podcast series on that by Yahoo! Finance by the way. Shout-out to Yahoo! Finance for it. That’s fantastic. A three part series, it was great.

Tobias Carlisle: I haven’t heard it.

Jake Taylor: I did hear from someone and I don’t know, obviously this is like rumor upon rumor, but the idea that he committed suicide supposedly apparently doesn’t gel with anything that anyone who actually knows about it. Apparently, he liked to drive really fast and multitask two different phones and never wore seatbelts.

Bill Brewster: You hear that from me because that’s on the Yahoo! podcast and I listened to it when we were on our excursion.

Jake Taylor: Okay.

Bill Brewster: Yeah.

Tobias Carlisle: I thought you were going to say it was like a Jeffrey Epstein style suicide where he just gets the hyoid bones in his neck snapped and there’s no, that turn off all the cameras and the two security guards, it just conveniently checking Twitter on or something at the time, checking Instagram.

Bill Brewster: No, man. They were talking about them. They said he just wanted to drive a hundred miles an hour everywhere. Hated seatbelts and always who’s on a phone.

Tobias Carlisle: You should have to disclose that in your report. You should have to tell people that’s how you drive.

Bill Brewster: [crosstalk 00:51:08] That’s right.

Jake Taylor: Yeah.

Tobias Carlisle: Particularly in a gas explorer.

Bill Brewster: Yeah. This guy is super good at raising funds in oil and gas. You’re dependent on him, and by the way, he drives a hundred miles an hour everywhere and doesn’t wear a seatbelt. Okay.

Tobias Carlisle: So whose short haven’t we done? Both of you?

Jake Taylor: Well, yeah, I was going to do Tesla as well for all the same reasons. On top of the fact that when I think about automotive as an industry-

Tobias Carlisle: It’s a bad business. Yeah.

Jake Taylor: Oh, it’d be like being a clothing retailer, but it costs $1 billion for every line that you have to put out. Right? The swinging and miss potential on billions of dollars of allocation are so high.

Tobias Carlisle: Right.

Jake Taylor: It’s hard to dream up a worst business, honestly. Even when things are going great, what do you get for your multiple on that business typically? Everyone knows how sickly it is. They never pay up for it. And less, in this completely weird instance, people are paying up for it.

Tobias Carlisle: Right.

Jake Taylor: It boggles the mind.

Tobias Carlisle: Because it’s an iPad on wheels.

Jake Taylor: Yeah, it’s an iPad on wheels.

Bill Brewster: It’s a tech company.

Tobias Carlisle: Do you want the Peloton?

Bill Brewster: Yeah. I just think it’s a valuation short. I actually liked the product a lot. I think that, I chose my hotel in New York because they had Pelotons. I enjoyed it. It’s now are $7 billion. That’s the beginning of the end of my pitch. If it’s like at $1 billion valuation, maybe, I don’t know. How are you going to sell that many bikes?

Jake Taylor: Have you seen those ads, man?

Bill Brewster: Yeah, that’s right.

Tobias Carlisle: Do you think that someone has spends two and a half thousand dollars on a bike has that… How do they think about the ongoing? Do you break it if you don’t pay for the 30 whatever dollars a month for the live shows?

Jake Taylor: [crosstalk 00:53:13] It’s still pedals, doesn’t it?

Bill Brewster: I think most people pay. Yeah. If you’ve ever done it, the actual class is pretty fun and it’s more fun than a traditional spin class because you’re ranked among everybody. You can see your output, you can see how well you’re doing. It’s like me and a bunch of fat people and I’m trying to beat the other fats. There’s like the really fit people and I’m like, I’m never catching them, but whatever. That’s not my peer group anyway.

Jake Taylor: So, where back at comps again, huh?

Bill Brewster: That’s right. Yeah. It was just a relative value for me in the Peloton game, but I do think it’s a better mousetrap.

Tobias Carlisle: Yeah. I think it’s an interesting business model because it’s really a clever business and I think… I’m just trying to think through like spending the two and a half thousand dollars on the bike or whatever the bike costs. Does that then, do you factor and do you think, well, I’ve now got $400 a year as well in expense to access these shows? Does that make you more or less likely? Do you hang in there?

Jake Taylor: If you’re paying $2,500 for a bike that doesn’t go anywhere, I don’t think you care about the subscription costs that much.

Bill Brewster: But now the residual value is pretty good. Even finding used ones is pretty tough.

Tobias Carlisle: That’s fair. Do you switch off?

Bill Brewster: From what, the platform?

Tobias Carlisle: Can you just turn it off?

Bill Brewster: Yeah.

Jake Taylor: During the holiday season when you’re just eating and not really exercising, do you-

Tobias Carlisle: You’ll need it more often.

Jake Taylor: Yeah.

Bill Brewster: [crosstalk 00:54:54] I think about it a different way. I actually think that it’s pretty good value. Most of these gym classes that people pop into are like 20 bucks a pop, so 30 bucks a month and you can ride it eight times a month. That’s not that bad. I just think the valuation’s insane.

Tobias Carlisle: Do you own one?

Bill Brewster: No, I want to. If anybody out there wants to send me one, one of our three listeners, hook me up.

Tobias Carlisle: Well, I think that’s coming up on time.

Jake Taylor: Real quick though, we would like to hear other people’s Buy, Trade, Short ideas if you have something good. Maybe a hashtag for Twitter would be good. Maybe like V-A-H-B-T-S might be a good thing. That way we can find it and see who’s got the best one and maybe anything interesting, we’ll talk about on the next episode.

Tobias Carlisle: Sounds good.

Bill Brewster: Do we have any listener questions?

Tobias Carlisle: No, I don’t have one this week.

Bill Brewster: Yeah, I don’t think I do either. Send us one. Come on. The three of you, do your part.

Tobias Carlisle: There’s chaos in the background here. That’s my little man because it’s the holidays.

Bill Brewster: I like it.

Tobias Carlisle: Happy holidays, everybody. We’ll see you next week.

Bill Brewster: Merry Christmas. Happy holidays. Take care folks.

Tobias Carlisle: Bye.

Music: (singing)

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