In this episode, we delve into the world of value investing with Tobias Carlisle, the founder of The Acquirer's Multiple and author of the book 'The Acquirer's Multiple'. From his journey from a lawyer in Australia to a value funds manager in California, to his unique approach towards value investing, this conversation is a treasure trove of insights for anyone interested in the financial markets.

Topics Discussed

• Tobias Carlisle's journey from a lawyer in Australia to a value funds manager in California
• A discussion on the performance of Carlisle's ETF ZIG and its outperformance of S&P over the last three years
• The challenges and rewards of being a value investor in a market dominated by growth investing
• Insights into Carlisle's investment strategy, including his emphasis on fundamental performance over price action
• The role of patience and behavioral fortitude in value investing
• Carlisle's views on the future opportunities for value investing, particularly in the context of sector diversification
• Reflections on the recent Berkshire Hathaway annual meeting and the lessons learned from Warren Buffett and Charlie Munger
• Carlisle's personal investment mantra and his advice for navigating the ups and downs of the investing world

This episode is a must-listen for anyone interested in value investing. Tobias Carlisle's insights, drawn from his extensive experience and unique approach to investing, provide valuable strategies to navigate the financial markets. Whether you're a seasoned investor or just starting out, this conversation is sure to provide you with plenty of food for thought.

This is “ReSolve’s Riffs” – published on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.

*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.

As to the passives eating the world, I think at the

2

margin, I think that's probably

what happens in any bull market.

3

People go with what's been

working and the S& P 500 is

4

the best performed asset class.

5

Or asset, in the world over

that sort of period of time.

6

You can get it for nine basis points.

7

It's got Sortino ratio that

look like a hedge fund.

8

You know, it's, it's an incredible

run for that and it can soak up

9

a lot of assets, but I think that

this is true at every bull market.

10

People invest in what,

what has been working.

11

And the moment that that breaks down,

the money will go somewhere else.

12

Mike Philbrick: All right,

welcome to another Resolve Riffs.

13

Today we have an old friend with us,

Toby Carlisle from The Acquirer Funds

14

and from The Acquirer's podcast and

blog and, I know you call it Value After

15

Hours, your, your, uh, YouTube show.

16

I like to, I like to think

of it as Value After Hours.

17

Because your voice is just so calming

and, uh, and so value after dark.

18

Like I think you might, you know,

I, I would contemplate submit to

19

you for a name change to, value

after dark with Toby Carlisle

20

Tobias Carlisle: Yeah, we might do that.

21

Richard Laterman: has to be the accent.

22

Mike Philbrick: yeah, so, so

congratulations on a fantastic

23

year and last three years for

your ETF ZIG outperforming S&

24

P on both of those timeframes.

25

Fantastic work.

26

Still flying under the radar though, as

many assets and, and geographical regions,

27

whether it's gold, whether it's Argentina,

whether it's value, so many places are

28

actually doing well and outperforming

S& P providing great diversification.

29

Yet most people aren't, you know, really

allocating in any significant way there.

30

So I know, I know we're kind of early

on beating this drum and what we beat it

31

through all the way through the, the tough

times too, but, you know, hopefully people

32

can take away some insights here from you.

33

And, maybe before we get started, for

those of you who may not know you,

34

Toby, maybe give us a little bit of your

history, how you came to this point.

35

I mean, going from, uh, A

lawyer down in Aussie to a value

36

funds manager in California.

37

Maybe map it out for us and

bring everybody else up to

38

speed who might not know yet.

39

Tobias Carlisle: Yeah, I started out.

40

Thanks for that's very

kind introduction, Mike.

41

Thanks very much for that.

42

I always good chatting to you with a

big, the big lead in the big buildup.

43

Uh, yeah, I was a lawyer.

44

I was a mergers and acquisitions attorney.

45

I was corporate advisory

is what we call it.

46

So we did everything from capital

raising to acquisitions to board

47

papers to like just whatever was

needed for mostly publicly listed

48

companies, big, big private companies.

49

I started in April 2000, which

was the very top of the dot com 1.

50

0 boom and saw that all collapse,

and then saw the rise of activism and

51

private equity through those early 2000s.

52

And, at the same time as I was sort of,

you know, Papering these private equity

53

acquisitions, which is a lot of work,

you know, there's lots of different

54

layers of capital, debt, equity, prefs,

whatever might be in there, plus the

55

acquisition and just there's so much

contracting, you'd end up with a tower

56

of paper at the end of it and it would

cost millions of dollars of legal fees.

57

At the same time, you can buy

exactly the same business for

58

cheaper on the stock market.

59

And at the time it was 8 a trade.

60

I don't know what it is now, but it

was 8 for me to trade by the, by the

61

same business for half the price.

62

And then if you make a mistake

two days later, you can tip it

63

out for another 8 round trip.

64

And I had read enough sort of,

Buffett and Graham by that point

65

to know that these things happen.

66

You, you find, Pieces of businesses

that aren't trading for the full

67

negotiated price on the stock market,

even though they might be worth more.

68

And I just kind of fell in love with it.

69

It was fun.

70

And it was a good period for value.

71

It was easy to buy things

who were undervalued and they

72

just run almost immediately.

73

And so I spent the first sort of five

years or so of my investing career.

74

Doing pretty well with

deeply undervalued stuff.

75

And that all sort of collapsed in, in

76

and do it professionally at that point.

77

So I set up a little fund in

Australia, had some pretty good

78

returns out of the gate, but just

was never going to be a structure

79

that could raise money in the States.

80

My wife has, American we met when I was

working in San Francisco as a lawyer.

81

And so we moved back to have kids

and I started the business here.

82

And, it's been a tougher run for

value as everybody well knows.

83

Those starting in, depending on how

84

2015, somewhere in that period of time,

value really started underperforming.

85

And I've got a friend, Mikhail

Samonov, he's done this analysis.

86

He, he called it 200 years of value.

87

And he said, this was the, you

88

was the worst underperformance

of value in 200 years of value.

89

Clearly as you go back in time.

90

The, the data is not as good, but

what is pretty clear from it is that

91

you get these often associated with

some sort of technological boom.

92

So the telegraph, the invention

of the telegraph was a big one.

93

steamships was another big one and so

on over the last sort of 200 years where

94

every time there's been an electronics

boom in the 60s, the dot com 1.

95

0 boom, Whatever it

was that sort of com 2.

96

0 social kind of boom

97

And I guess now we've got a little

micro boom going on with the AI, but

98

whenever we have these things, it tends

to be the story stocks that don't have

99

a lot of fundamental value run and it

draws money away or it sort of leads

100

the rest of the market to underperform.

101

So that's, that's what

I've invested through.

102

And I know we're going to talk about

this a little bit, but I've definitely

103

had to adapt from a more traditional

value to sort of a A different sort of

104

style of value to that practice now.

105

Mike Philbrick: Well, even I think

that was interesting in the, in

106

the, I know you make the pilgrimage

to Omaha each year and, you know,

107

the Berkshire annual meeting.

108

And so we're looking forward

to get some tidbits from that.

109

But even in that, you know, I heard.

110

A lot of that, the evolution of

Warren's thinking, because they paid

111

so much time to Charlie, and you know,

Charlie's thinking was a little bit less

112

value oriented than Warren's thinking.

113

And, and, you know, maybe you're alluding

to that sort of thing in your own journey

114

as you have been, you know, managing

value assets in, in what has been a.

115

It's been, you know, obviously there's

lots of stuff around this value, but if

116

no one else is, is realizing that and kind

of beating a path to that door, it leaves

117

you with, you know, lots of value for a

period of time that is less comfortable

118

than having the realization right away.

119

Tobias Carlisle: Well, I actually

think that's an interesting point.

120

Cause I, I think that if you're relying

on, that was one of the big changes that

121

I made was that through through really

122

2020 out of that sort of COVID low.

123

Through until the end of 2020,

that was a very strange time.

124

Everybody was at home with nothing to

do speculating on the stock market.

125

And so I saw like lots of extra

hits on my websites podcast and my

126

social media grew really quickly,

even though I'm a value guy and I was

127

well out of all of those names, I'm

still involved in the stock market.

128

And so I was getting

attention for that reason.

129

And the stuff that I would just

wouldn't touch with a 10 foot pole

130

was the stuff that was running it.

131

The stuff that I was holding

was suffering as a result.

132

It wasn't clear, you know,

everybody knows these things are

133

cyclical, but it's hard to believe

that it's cyclical in the moment.

134

I thought, what if this

does go along forever?

135

And I was listening to some of the

other smarter value guys who are

136

a little bit more growthy than me,

listening to what they were saying.

137

One of the criticisms that they

have had of the very deep value.

138

So I would characterize myself as deep

value, which is I, I, tend to buy less

139

good businesses at a big discount.

140

That's sort of my, Objective rather

than a really great business at a fair

141

price, which would be the way that

Buffett characterizes what he does.

142

So I thought one of the criticisms that

was valid of what I did was that, aren't

143

you just really relying on price action?

144

To be the thing that bows you out.

145

'cause we all know that if you form

a value portfolio, the market expects

146

the earnings to fall or not perform

as well as the market earnings.

147

And that tends to be what happens.

148

It's just that they have overestimated,

how bad the returns are gonna be, and

149

then the stock price recovers as a result.

150

So it's this funny kind of behavior

where the, the earnings are actually

151

going down, but the stock price is

going up because of the, the little

152

window when you own the stock.

153

And the reverse is true

for the growthy stuff.

154

The market expects the earnings to

go up and they do on average go up.

155

It's just that they disappoint the

market and the multiple comes down.

156

But somebody said, you know, aren't

you just relying on price action here?

157

And that's not very, that's

not very value like, is it?

158

That's not very fundamental because

that's not what fundamental value guys do.

159

And I thought that was a fair point.

160

So I went back and I retooled what

I did and I looked at it and I made

161

this assumption, what if we had to.

162

Invest with no price performance.

163

What will we be doing then?

164

We're purely relying on

fundamental performance.

165

What, what would I construct then?

166

And so it made me, I leaned a

little bit more into quality.

167

I made sure that when we

bought something, we'd get some

168

compounding out of the reinvestment.

169

So you need a reasonable return on

reinvestment, reasonable prospects

170

for compounding reinvestment,

returns over a period of time.

171

And then also for some yield.

172

So some shareholder yield, which is.

173

Dividends, buybacks, you know, hopefully

buybacks for undervalued things, but

174

not not every management team does that.

175

And I, I feel like I, I now think

in 2 distinct terms of value sources

176

when I buy something, we're going

to get a return out of the yield.

177

We're going to get a return

out of the compounding.

178

I don't rely at all on the price action.

179

I assume that price action is

going to catch up to us over time.

180

And I think that's a pretty

safe assumption, but I

181

don't expect it to at all.

182

And I'd be quite happy for

my entry multiple and my

183

exit multiple to be the same.

184

And I'm purely rely on the

fundamental performance of

185

the business over that period.

186

So I think that that's a pretty

big change that I have built in.

187

and I think that it's sort of yielded

results and I expect it to over time.

188

So we, when the fund, when Zig first

launched, it was a long short fund.

189

It 130 percent long, 30 percent

short, 30 names long, 30 names short.

190

So a long name was 4%, short

name was 1%, rebalanced regularly

191

without fear or favor, because

the shorts can be a problem.

192

Shorts have got leverage in them.

193

They can run the wrong way.

194

You can get hurt.

195

I invested through that period

where Melvin Capital blew up.

196

I thought we did pretty well through

that period, but we were all, had, my

197

great fear was always that we were going

to get caught in something that ran.

198

So I'd make sure there was

no momentum in the stock.

199

And I think that that's sort of for

the really growthy names that is there.

200

That's their rocket fuel.

201

Their mojo is all of that momentum.

202

The moment the momentum gets out

of those stocks, the people aren't

203

interested in playing with them anymore.

204

It's like the toy just gets discarded.

205

So you can look at the charts as

soon as the momentum goes in beyond

206

or Peloton or any of those kinds

of names, they just disappear for

207

a variety of not very interesting

kind of technical custody reasons we

208

couldn't get as long as I want it to be.

209

And so we were sitting at a

hundred long 30 short through.

210

The beginning of 2020.

211

So that helped us on the way down

and protect us a little bit, hurt

212

us on the way back up in that mania.

213

So 2020 wasn't a great year for Zig.

214

And then in 2021 converted to

long only because I thought

215

that there's some existential.

216

Metaphysical risk with the shorts,

like even if they never actually blow

217

up, there's always a risk that they

do kind of hope that the fund gets

218

big enough one day that, you know,

it's, it's a big fund and then it's

219

harder to short at that kind of size.

220

So I thought, I'm going to take

this medicine at some point.

221

It doesn't really align

philosophically with the way I am.

222

So I'm going to change to long

223

So since 2021, 2021 was a good year,

cause that was sort of the end of

224

the, uh, The stock market run up 22

was the kind of, I thought it was

225

the beginning of a big bust, but

ultimately it didn't turn out that way.

226

And then 23, we had a really good year.

227

I would not have expected it at all.

228

I thought that the, all of the macro

economic indicators were terrible

229

and really the lesson that I've

learned is I know nothing about

230

macro and I'm just going to shut up

about macro and ignore macro forever.

231

I think the market can fall over 50

percent at any given point in time

232

and you should be able to survive it.

233

But aside from that, macro

is just a waste of time.

234

So I'm a long only value

investor, bottom up.

235

I'm about as plain vanilla

as they come these days.

236

Mike Philbrick: I love it.

237

You hit on, you've hit on just one last

thing, Richard, and I'll let you jump in.

238

But you hit a, you've hit on a point

that I have always kind of giggled at

239

as I've heard various value investors

like Warren or others, you know, say

240

market timing is not a thing you can do.

241

And at the same time, they use

value sort of fundamentally driven,

242

mechanisms in order to decide whether

to have cash on the sidelines or not.

243

Whether to have more cash in the

sidelines than one normally would

244

or not, or to invest more or

not, which is a form of timing.

245

It's just timing by a

slightly different nature.

246

So I'm glad you highlight that.

247

That's kind of an, it's always

kind of a funny thing that I

248

Tobias Carlisle: They might

say valuing rather than timing.

249

They're valuing the market,

250

Mike Philbrick: Fair enough,

which is a, an exposure mechanism

251

Tobias Carlisle: I don't do that, but,

252

but I'm just

253

Mike Philbrick: totally get it.

254

Totally.

255

And you've, you've, you've,

you've answered the question

256

too, for the, for the ZIG funds.

257

Now, Richard, you've been,

you've been waiting patiently.

258

You've got some things to say.

259

So let me shut up now and let you, uh,

260

Richard Laterman: I

have some things to ask.

261

No, I'm just very curious.

262

we hear about a lot about this

narrative that, you know, passive

263

is eating the world and that that

might be one of the main reasons

264

why there's been this incredible

bifurcation that's been lasting, guess,

265

a couple of decades now with this

underperformance of value versus growth.

266

So, I'm wondering, do you

subscribe to any of that?

267

Do you see other reasons,

for this underperformance?

268

Obviously, you've.

269

Morphed and you've been alluding

to some of the ways in which you've

270

adapted your style over the years to,

to sort of account for these changes.

271

But I'm wondering, does it

even matter to your style?

272

But have you gone down the rabbit hole

and trying to understand what are some of

273

the mechanisms, structural mechanisms that

have led to this underperformance and this

274

bifurcation and does it begin with this

passive eats the world sort of thesis?

275

Tobias Carlisle: I am not a subscriber

to the passive eats the world thesis.

276

And I will talk about that.

277

But the first, just let me say

that the reason that I think that

278

value has underperformed, you can

look at the relative value of value

279

and growth as another alternative.

280

So let's just say that quality

or growth, better businesses

281

should command a premium price.

282

Worst businesses should

command a discounted price.

283

If everything was fair, that

would be what would happen.

284

What tends to happen is there's

a little bit of mean reversion

285

in business performance as well,

that I think a lot of people miss.

286

Things just don't go to zero.

287

When oil was trading at a negative

number, that's not a, that's not

288

a signal to sell oil, if anything,

that's a signal to buy oil at that

289

Richard Laterman: Don't

extrapolate at the extremes.

290

Tobias Carlisle: That's right.

291

And there's, there's, that's the original

paper, the Le Connachic Schliefer and

292

Vishny paper from 1994, which is the

sort of alternative to the, efficient

293

market theory, Fama French paper,

which is that all value is risk.

294

The, behavioralist guys say,

no, no, no, it's not all risk.

295

There's a behavioral thing going on.

296

There's extrapolation.

297

They extrapolate at the top.

298

They extrapolate at the bottom and

mean reversion is a better bet.

299

So I just, I'm a I bet on mean

reversion, not extrapolation.

300

And I think that, if you looked in 2015

at value, the difference between the

301

best businesses and the worst businesses,

that was, that was so squashed together

302

because valued had such a great run

through the two thousands, everybody

303

was trying to buy the undervalued stuff.

304

And for a little bit of a premium,

you've got a much better business.

305

And I think that that's why from 2015

until sort of the Today or the last

306

few years, the better businesses, the

growthier stuff, the Nasdaq stuff has

307

all had a great run because they were

too cheap and value was too expensive.

308

And I think now the spread is very, very

wide and the spread has been closing, but

309

the spread is still very unusually wide.

310

It's still as wide as it was in

311

the bottom, both of which went

on to have very good value runs.

312

I think that That is really what has

driven the underperformance of value.

313

It got too expensive in 2015.

314

It's been working off

that being too expensive.

315

And now the trend, now that the

trend keeps on going all the

316

way to the point that value is

undervalued and growth is overvalued.

317

So I think that we probably see some

mean reversion over the next decade here.

318

That would be my bet.

319

As to the, passives eating the

world, I think, I think at the

320

margin, I think that's probably

what happens in any bull market.

321

People go with what's been

working and the S& P 500 is

322

the best performed asset class.

323

Or asset in the world over

that sort of period of time.

324

You can get it for nine basis points.

325

It's got Sortino ratio that

look like a hedge fund.

326

You know, it's an incredible run

for that and it can soak up a lot

327

of assets, but I think that this

is true at every bull market.

328

People invest in what,

what has been working.

329

And the moment that that breaks down,

the money will go somewhere else.

330

In any case, I don't care because I'm

not investing as we just, that discussion

331

that I had earlier about the, you know,

not, not relying on the price performance.

332

If I was an investor in the value stuff.

333

And they bought back shares

and they're all cheap.

334

They would, you know, axiomatically,

they must perform better.

335

Like the cheaper they get

with the buyback mechanism.

336

And I'll be the last person

with owning those stocks.

337

Like if there's no bid and I

own all of those stocks, I'm an

338

incredibly wealthy man, but there's

no longer any bid on the market.

339

And so passive is eating the world,

but I've made a whole lot of money.

340

It just doesn't like, it doesn't

logically, it can't work.

341

I'm picking the pocket of those big funds

if they're, if they're not doing the

342

fundamental diligence that I'm doing.

343

I'm picking the pocket of SPY.

344

Like anything they're leaving behind

is something that's worth owning.

345

So I don't believe in, I think.

346

Flows affected in the short term, but

ultimately in the long run, fundamentals

347

are the thing that drive the market.

348

Mike Philbrick: Money goes

where it's treated best.

349

Richard Laterman: Yeah.

350

Voting machine versus waiting

machine, I guess, is the, uh,

351

is ultimately where you fall on.

352

And so, yeah.

353

And

354

Mike Philbrick: just look, just

look at, look at oil, right?

355

Right.

356

Richard, just as a point, 2008 oil, the

energy sector of the S and P is 16%.

357

It then bottoms at 2 percent

358

So underneath the surface, and this

is what I was alluding to earlier,

359

there are changes going along.

360

If you look in the resource space,

if you look in the emerging market

361

space, look in the value space.

362

You know, gold breaking out to

all time highs, you know, the

363

materials world sort of again, you

know, highs not seen for 15 years.

364

And everyone is still myopically focused

on the market cap weighted stocks of

365

the United States, which are, you know,

obviously victims or, they also take

366

advantage of the extreme momentum that

comes from a market cap weighting system.

367

So I think under the surface, there's

still enough active managers Where money

368

is, flowing under the surface on a longer

term timeframe to where it's being treated

369

best on a return, whether it's cash

flow or some sort of more fundamentally

370

driven, higher probable event that,

treats the money better, if you will.

371

Tobias Carlisle: I think the

372

I think it's already happened.

373

I think people who are waiting for it to

happen are completely missing the boat.

374

The train is leaving

the station right now.

375

It's already left.

376

I mean, I think that's why I think

it's a little bit funny having these.

377

These conversations, because I've been

living in a world where value has been

378

up before for the last three years,

379

Mike Philbrick: Yeah,

380

Tobias Carlisle: know?

381

Mike Philbrick: it's okay.

382

I just, just to, to, you

know, put a point on that.

383

I don't think we should

suggests the train has left.

384

Usually these, these very large secular

movements are very large ships turning.

385

And so, you know, if we look at those

moments in your career that you outlined

386

earlier, Toby, and talking about 2000

387

a little harder times, You know, it

seems as though easier times are upon

388

us and, it's probably going to be, if

you zoom out and look at quarterly and

389

annual data, you're going to see it and

you're going to see the outperformance,

390

but over a day, a week, a month,

it's going to be shrouded in noise.

391

Tobias Carlisle: Or even since the start

of this year, you would say this year has

392

been more of a, that AI that kicked off

NVIDIA and AI has certainly reinvigorated

393

all of that, the growthy stuff.

394

And they've had a phenomenal year, many

of those guys and value has sucked wind

395

a little bit this year, to be fair.

396

Mike Philbrick: But that's what I mean.

397

On a longer basis, step back, look

at a few quarters, look at annual,

398

and you know, it's just there.

399

Try to talk to people about it.

400

My goodness, forget about it.

401

Japan, you know, Argentina, these, you

know, significant outperformance of U.

402

S.

403

equities and people are like, don't care.

404

and this is sort of indicative

405

This is not, this is not new

406

Tobias Carlisle: No, well

that's to be expected.

407

Mike Philbrick: from history,

408

Tobias Carlisle: People, people

tend to look through the rear vision

409

mirror when they're investing.

410

They look at things that have already

happened, extrapolate that forward.

411

Fundamental investors are just looking at

the underlying fundamental data and trying

412

to figure out what's going to happen.

413

Are we getting a good deal buying

now without really knowing,

414

expecting what, what can happen?

415

That's sort of the way I think about it.

416

I'm, I'm, whatever happens in

the market, I don't really mind.

417

I'm going to be happy owning

the things that I own.

418

Richard Laterman: so let's pull

on that thread a little bit.

419

You're, you're alluding

to the, the, fundamentals.

420

So you run a few, = stock

screening, processes.

421

I know that you have a

service that you offer that.

422

So I would imagine that does permeate

through your process, your investment

423

process for your, , actively

managed stuff to some degree.

424

What else goes into that process?

425

Is the stock screening an initial

filtering and then do you overlay

426

with some discretionary or are

there other elements to that

427

that you can tell us about?

428

Tobias Carlisle: So we look at the

domestic US equity market only.

429

we got North America, so we pulled some

Canadian data as well, but it's, it's,

430

well, the funds are only invested.

431

Uh, Canadian data is excellent.

432

And I think that value

really works well in Canada.

433

Mike Philbrick: it really does.

434

Tobias Carlisle: I don't know

why it works so well there.

435

And it works better in Canada

than it does in the States.

436

Mike Philbrick: Maybe all

the resource stocks that get

437

their, their value upside down.

438

Yeah.

439

Tobias Carlisle: or they're just, they're

just not as picked over, but the, The US

440

market is where I invest in for the funds.

441

So I don't, don't buy, I only buy

US listed companies for the funds.

442

And so I can scan all of the companies

for the amount of money that they're

443

making, you know, the amount of

money making that relative to what

444

they've got invested in the business.

445

and so I, I am purely focused

on the financial statements.

446

When I say I'm a quantum, I'm a lawyer.

447

I'm not a, I don't have a, PhD from

Booth or from Wharton or like, I'm not

448

a, I'm not a Chicago quant in that sense.

449

I'm just a quant in the sense that

I prefer the financial statements

450

to the story that people tell

themselves about these businesses.

451

So I think that all of the questions

that you have about a business or

452

about management can be answered in the

financial statements and so we look at a

453

series of financial statements for every

company and we try to figure out what's

454

happening, how much money are they making,

what are their prospects for growing,

455

what are their prospects for paying

out pretty good shareholder returns.

456

Try and find the best risk

adjusted opportunities from the

457

set that have no blow up risk.

458

So we're trying to take all the blow up

risk off and that's, that's a quite a

459

few tests, but that's like, you know,

looking at statistical tests of fraud

460

and earnings, manipulation and financial

distress and using all those sort of

461

standard tests and then looking at various

other things just to see how management

462

treats the financial statements.

463

So once we've narrowed it down to,

uh, an investable universe for both of

464

the funds, so ZIG is 30, DEEP is 100.

465

names.

466

Then among those names, we go into

a forensic diligence, which is just

467

does the financial statement match

the economic reality of the business?

468

Because there's a lot of discretion.

469

For managers to make decisions, two

perfectly reasonable people can come

470

to, can create two different financial

statements for the same business.

471

Over time, they should largely

balance out, but you look at accruals

472

of different assets and the way

that they depreciate and so on.

473

You know, if you're an owner operator

style manager, you're probably

474

running it to minimize tax when that

means minimizing reported earnings.

475

If you're a public company CEO,

whose compensation is based on stock

476

options and all of that sort of stuff,

you're trying to maximize earnings.

477

And they're Two different

styles of running a business.

478

My preference is that I want to be

with the owner operator type guy.

479

And so we, know, the system

is set up to try and find

480

investors and managers like that.

481

And then, I'm doing a diligence

where I'm actively looking at how

482

far away is what I would think that

the earnings should be from what

483

the actual reported earnings are.

484

And is there a trend in there?

485

Do they tend to be consistently and

growing over reporting of earnings?

486

Or is it the other way around?

487

Are they consistently

under reporting earnings?

488

Some of that is answered

in the cash flow statement.

489

And then we form a portfolio based on

what I think are the best risk adjusted

490

opportunities with no blow up risk.

491

And that's, that portfolio is then

rebalanced on a quarterly basis.

492

Mike Philbrick: How do you account for

the, you know, sectors and subsectors and,

493

and sort of the value, being all in one

sector or largely in a couple of sectors.

494

How do you go through that?

495

Tobias Carlisle: Yeah,

496

that's, that's,

497

Richard Laterman: sizing, if

you can add that, how do you

498

think about position sizing?

499

Is it conviction weighting?

500

How do you think about those?

501

How do you think about

502

Tobias Carlisle: yeah, so

that's a great question.

503

So the thing about value is that

sectors and industries all get cheap.

504

Everything in the industry

gets cheaper once.

505

And if you're just purely trying

to maximize returns, you want to

506

be fully invested as much as you

possibly can in that industry.

507

There is the problem though, that

every now and again, you get things

508

like for profit colleges where

for profit colleges all got cheap.

509

But, you know, ultimately that

was an act of the administration

510

to kind of wipe them out.

511

And so if you invest in the for

profit colleges, there was no

512

recovery from those investments.

513

So I'm always conscious of that

possibility being out there.

514

And I never know if I'm looking

at something is the reason, you

515

know, and that could be insurers.

516

When Obamacare was coming in,

you had United as the most as

517

the biggest and the other four,

we're trying to combine together.

518

How big a bet do you want to take in that?

519

How, what will be the impact of Obamacare?

520

I don't know at that point in time, but

I want some exposure to the industry.

521

Cause I thought they were cheap and I

also thought there were opportunities

522

in the merger arms going on there.

523

So I try to limit the exposure to any

industry to 20 percent of the book.

524

So we have a limit, which is six names

out of a 30 name portfolio and 20

525

names in a two in a 100 name portfolio.

526

So we're always limiting and then.

527

We are equal weighting

at each rebalance point.

528

So I've done a lot of research in

different ways of weighting using

529

Kelly or, you know, all of the

different things that you can do.

530

And I wrote a book called Concentrated

Investing, which is largely about that,

531

trying to figure out how concentrated

or otherwise you want to get.

532

I kind of found that for the ease

of calculation, 30 names is a good,

533

is sufficient diversification.

534

I think that the efficient

market guys come out at 30.

535

They're trying to create a portfolio

that matches the market portfolio

536

as cheaply as they possibly can.

537

Graham says 30 names, all of these, I

think when you do the work somewhere

538

between 20 and 30 names, you get rid

of all of your non diversifiable risk.

539

And it's just asymptotically

trending towards the market.

540

The question is, how can you outperform?

541

How can you deviate from the market?

542

So you're not randomly picking

names, you're picking them according

543

to some system value or whatever.

544

So 30 value names out of a universe of

1, 000 for Zig, and it's a universe of 2,

545

000 for Deep, because it's roughly Russell

2, 000, roughly Russell 1, 000 universes.

546

30 names for the Russell 1, 000,

100 names for the Russell 1, 000.

547

2000 is 3 percent of

names or, uh, sorry, 0.

548

3 percent of names or, or 0.

549

5 percent of names.

550

So I think that you're already

very concentrated, equal weight

551

in that group ease of calculation.

552

And I, I've found that, that,

that works perfectly well.

553

Mike Philbrick: And that's the

difference, just to, so ZIG is more

554

mid cap, large cap, and DEEP is

more maybe mid cap, small cap, or

555

Tobias Carlisle: So that,

556

Mike Philbrick: would you, is

that the main difference, or,

557

Tobias Carlisle: That's also quite

an interesting question, but it's,

558

it's Russell 1000 roughly for Zigg.

559

So it's the largest 1000, which is

mid and large, but at the moment

560

Morningstar has it as a small, that

the centroid is over the small.

561

And the reason is through no, like I

haven't directed the portfolio to do this.

562

It's just that as the market has got

more expensive, it seemed to get more.

563

I really think the last few years of

rather than being sort of a value, market.

564

It's really been a large over small

market rather than a sort of growth

565

over value or however you want to

characterize expensive and value.

566

It's been a large, not small market.

567

Smalls have been absolutely smoked.

568

And so the portfolio was, was a 40

million median about three years ago.

569

And it's something like

eight in Zig at the moment.

570

So that the market caps have come

in dramatically in Zig and also

571

in Deep, which is Russell 2000,

the Centroid sits right off the

572

bottom of the Morningstar Square.

573

Like you can look at that box.

574

it's in small and micro because, and

that's where I think the opportunities

575

are all small and value, but particularly

the size for whatever reason that

576

spiking interest rates sort of let

all of these smaller businesses,

577

cause they don't have the same.

578

They haven't termed out their debt as

well as the mid and large cap companies.

579

So they, their debt is all,

they've already started paying

580

the higher rates where the middle

large cap companies haven't had

581

to roll some of their debt yet.

582

They haven't had the bullets come through.

583

Whereas and micro have, so they're

paying like 10 percent rates to

584

borrow if they can get the debt.

585

And so I think that's why they've

really stumbled and you can see

586

it in their earnings reports.

587

You can see that large cap

earnings have largely recovered.

588

S& P 500 earnings have recovered

589

Whereas mid and large are still trading

590

are much compressed as a result.

591

S& P 400, S& P 600, which is

mid and small trading at about

592

15, 14 times depressed earnings.

593

Whereas the large caps are at like 20,

21, 22 times pretty extended earnings.

594

So to me, that says that if you

believe in mean reversion, the

595

opportunities in the small and mid,

and if you look back, small and mid

596

have traditionally traded at a small

Earnings, multiple, premium to large.

597

And now they're at a big discount.

598

So I think that'll flip

over the next few years.

599

And that's, that's where the opportunity

is small and value particularly.

600

Mike Philbrick: Yeah, when you hear

about the demise of the, uh, premium

601

for small caps in, in the research.

602

That takes a good solid, you know, decade

or more of, of underperformance to get

603

that headline that, Hey, the large cap

or small cap value premium is dead.

604

Or that market cap premium for

investing in smaller companies is dead.

605

I kind of always, when I hear those,

you know, the data is changing.

606

We have a hundred years of

data and it's now changing.

607

I'm like, is it?

608

Or are we just at one of those

extremes where it's going to revert

609

and, go back to where it was?

610

Tobias Carlisle: I agree with you that

there's highly likely to be a mean

611

reversion in there, but I think that even

if you just look at the, if you look at

612

the expected returns for the prices that

you're paying, the returns are higher in

613

small and And mid than they are in large,

that I think they're considerably higher.

614

So I think that my, my deep fund, because

it's cheaper, has a higher expected

615

return at this point than Zig, which

is, can only choose from a slightly

616

bigger universe, even though it's

exactly the same process in both funds.

617

They're just selecting

from different universes.

618

So I did really think that

the opportunities in small and

619

value than, and then the smaller

is better than the bigger.

620

Mike Philbrick: Now, how do you, how

do you trade some of that smaller

621

micro and small cap, those positions

is it's probably not an issue now as

622

the funds are sort of smaller and, and

they're, in their infancy and growing,

623

but is there, is there a point at

which, you know, you're going to reach

624

capacity in that, in that domain?

625

Tobias Carlisle: Certainly,

it's going to reach capacity.

626

I don't know where that level is.

627

That's going to be an ongoing thing,

but that's, that's why it's 100 names.

628

Um, so they're, they're

all fairly small positions.

629

There's also, you know, if you're

running an ETF, you have Liquidity

630

Risk Management Program and you also

have an NYSE market capitalization

631

cut off of about 75 million.

632

So it has to be a market cap

bigger than 75 and it has to be

633

sufficiently liquid to trade.

634

And so it has to qualify

on two different measures.

635

So all of the names that are in

the fund qualify on those measures.

636

And, you know, you're probably

leaving some return behind by

637

not being able to pick up the

really small, really liquid stuff.

638

But you know, there's a, there's

some risk being in that stuff

639

if you're in a publicly traded

640

Mike Philbrick: Oh yeah.

641

And there's costs where you've got, you've

got slippage in those that is, that is

642

not, yeah, it's, it's, it's significant.

643

The bid ask spreads are large and

acquiring and disposing of have

644

some significant slippage that

often will eat significantly into

645

what can be actually realized.

646

so you have to, you know,

it's a slower approach.

647

It's a, uh, it's a slightly

different game to think through.

648

and some

649

Tobias Carlisle: moves in

those little fellas are crazy.

650

I just, every now and again,

I check in just to see what

651

those hundred names have done.

652

And it'll be, you know, a few names that

are up 15 or 20 on the day and a few

653

names that are down 15 or 20 on the day.

654

And that's probably just, you know,

that's, that's not, there's no news.

655

There's no event.

656

That's just somebody trying to trade them.

657

Mike Philbrick: Bob wanted

a boat and he's selling

658

Tobias Carlisle: it.

659

Mike Philbrick: some shares.

660

Tobias Carlisle: it.

661

Richard Laterman: alluded to a moment

ago about, sectors often becoming cheap

662

altogether because of some sort of macro

catalysts or something along those lines.

663

but you also said that you're, you're,

you're done or you, you, you, you try

664

to shoot from, from making any macro

predictions because that's not your game.

665

How do you account for trying to

diversify within the portfolio and

666

not have overly, overly concentrated

positions on any single sector?

667

Do you impose any constraints,

uh, from a sector perspective?

668

How do you think about that problem?

669

Tobias Carlisle: Yeah.

670

There's a, there's a sector constraint.

671

There's a industry sector constraint,

which is, and it depends on how we're

672

defining industries and sectors,

but where it's no more than 20

673

percent of the book in any industry.

674

So that gives me enough exposure, I think.

675

But it also protects us in the, in

the instance that it's all for profit,

676

for profit colleges, for example,

which there's no recovery from.

677

And then we're updating

on a quarterly basis too.

678

So we're continuing to examine

either financial statements still

679

supporting us being in this position

or have, what's the market, right?

680

Because that's, that's

the way I think about it.

681

We're, we're not, You know, it's,

there's some arrogance in saying the

682

market is totally wrong about this

because of course the earnings and the

683

underlying business can deteriorate.

684

In which case, we've made a mistake.

685

We've paid too high a price for

a business that's deteriorating.

686

And that's what the market is often doing.

687

It's forward looking.

688

They know that these events are

coming and they're not yet reflected

689

in the financial statements.

690

So the way that I think about it is

we're either paying a price that reflects

691

those worse expectations, in which case

we're probably, you know, if it, if it

692

does manifest that they're getting worse

and now the opportunity doesn't look as

693

great, we just take the position off and

move on to something else or the market

694

has overestimated, it's over extrapolated

and there's a pretty big recovery when

695

the next print comes in and it's not

as bad as everybody was expecting.

696

And then, and then you're off

to the race and that's sort of

697

what we're trying to achieve.

698

but you know, I'm, I'm always,

I'm very aware there's a lot of

699

avenues for making mistakes and

for blowing up in this business.

700

And that's really the thing

that I'm most focused on.

701

I just want to survive because

there's always another cycle coming.

702

There's always a better cycle coming.

703

Mike Philbrick: a war of

704

Tobias Carlisle: is to, Yeah.

705

you've got to be there.

706

You've got to be there

for the good cycles.

707

I mean, at some point we're going to

have a value cycle like we had in the

708

early 2000s and it would just be a crying

shame to have missed out on it because

709

the growth cycle beforehand was so

brittle and you didn't make it through.

710

Right.

711

But I think we're getting

close to a big value cycle.

712

So I'm pretty excited.

713

Mike Philbrick: Is there, is there any,

I know you mentioned that, you know,

714

you're not really paying attention to

the global macro side of things, but

715

are there any potential sort of risks

or opportunities that you see the sort

716

of the pricing mechanisms where you're

like, okay, This group is really cheap

717

or, you know, my, my screens are focused

over here and you can sort of see the

718

macro overlay that would lead to that.

719

Tobias Carlisle: I think that value, when

things get very cheap, that's a good time

720

to be looking in that sector because it

says that the big macro event has happened

721

and everybody's aware of it right now.

722

Oil goes, oil goes negative.

723

All of the oil may just get smashed

to smithereens or, you know,

724

housing was another interesting one

before housing kind of took off.

725

The thesis, what lumber

got very expensive.

726

You know, when lumber had that crazy

run through, through COVID, all of the

727

housing builders got smashed to pieces.

728

And I, thought the housing

builders were way, way too cheap.

729

They were also in a market where

there was a lot of under building.

730

Because of the GFC, more than a

decade ago, we just haven't built

731

as many homes in the States.

732

And so there's going

to be demand for homes.

733

Housing bills are cheap,

lumber being too expensive.

734

That's clearly a short term problem

that's going to resolve itself over time.

735

And the home builders

went on a pretty good run.

736

I didn't foresee that sticking up

interest rates as rapidly as they did

737

would make the premium between new

homes and, you know, Existing homes so

738

much smaller, or in fact, it would flip

over where people would be, it would be

739

cheaper to buy a new home than it would

be to buy an existing home because the

740

homebuilders could give you the rate

buy downs and all that sort of stuff.

741

And so those homebuilders have had this

sort of generational little problem.

742

Period of trading.

743

But that's one of the

nice things about value.

744

I didn't see any of that happening.

745

I just thought, well, home builders

are too cheap, but then of course,

746

it's all of the macro that drives

all of the craziness that goes on.

747

And I just, I just don't think.

748

It's not that I'm ignoring it.

749

I'll I'll watch it and

I'm naturally bearish.

750

So I've.

751

You know, I can see that there's a

yield curve inversion out there and, you

752

know, there's a war going on in Russia

and there's some conflict in Gaza.

753

There's, there's always conflict

and there's lots of good reasons

754

to be nervous about stocks.

755

It's just that I can go back over

the last decade cause I have been

756

bearish over the last decade and I

can go through all the things that I

757

was bearish about, that none of which

manifested into, you know, anything

758

that happened in the stock market.

759

So I just think macro is so hard.

760

It's not that it's wrong and it's not

that it's worth paying attention to.

761

It's just that it's so important.

762

Impossible to predict the third or

fourth derivative knock on effect and

763

how that will impact the stock market

that the energy devoted to it is

764

just a little bit of a waste of time.

765

So I'm a beneficiary.

766

I think sometimes that something

gets cheap for a macro reason and

767

I'll buy it for the macro reason.

768

And I'm probably a beneficiary on the

other side, bailing me out of the position

769

and making it work, but I'm largely

just ignoring it and saying, well,

770

it's cheap now and now it's less cheap.

771

And I'm a buyer.

772

And now it's less cheap.

773

That's how I think about it.

774

Richard Laterman: It really does,

seem, I mean, historically, at

775

least in the last couple of years,

it has been really a patience game.

776

to be a value investor, which comes

with its own behavioral challenges.

777

I mean, you end up having these

lumpy returns at times, right?

778

You, you wait, for a long time until the

waiting mechanism of the stock market

779

finally leans in the direction and you

have whatever catalysts are going to

780

drive, the price up and you're going to

realize that value in the business that

781

you've, uh, or the businesses that you

have been, selecting in your portfolio,

782

which kind of jives a little bit with the

experience that CTAs and trend followers

783

have had, which is kind of our side of

the ledger here, where oftentimes you

784

do get these lumpy return profiles.

785

How do you think through that behavioral

challenge for yourself as a manager,

786

but also for some of your stakeholders

and your investors when you're talking

787

to Some of your, to your allocators

and you're, you're, you're pitching

788

them this fund, you account for that,

behavioral, difficulty and, and, and,

789

and sort of the, the, the fortitude

that one must have in order to stick

790

to, because, uh, I find that value.

791

is one of the more intuitive

things one can get behind on

792

from an investing standpoint.

793

You buy something that is below

its intrinsic value, and then you

794

wait for that value to realize.

795

But you know, a quarter goes by, a couple

years go by, and it's still not happening.

796

And, and with our attention spans

growing shorter and shorter with, with

797

all the social media and all these

apps, how do you think through all that?

798

Tobias Carlisle: I, I think that again,

that's, the single most important

799

question to answer as an investor.

800

I think the more time that you spend in

the market, the more you realize, and I

801

talk about this with Jake Taylor, who's

my co host on Value After Hours, it's

802

amazing how many of these little stock

market bubbles, these little things

803

occur and they're just, everything gets

so hot and everybody's so interested in

804

this one thing for about three months.

805

And then it's just, you

know, completely back.

806

Back page of the paper thereafter.

807

And if you can just not participate

in it for the first three

808

months, then it looks silly.

809

Like in the fourth month, you

look back and you think, how did

810

people get so, get into this.

811

And then I look at, I look at names

like, so Dillard's, Ted Weschler's

812

one of Warren Buffett's investing.

813

Lieutenants.

814

hasn't done, hasn't, he's underperformed

the stock market since he started

815

investing for, for Buffett.

816

But he, he's had a couple

of very good picks.

817

And one of them was Dillard's

DDS, which is still out there.

818

And it's one of the companies

that I hold now as well.

819

Dillard's is a retailer, retailer

got, all the retailers got smashed to

820

pieces over the last five or 10 years.

821

Dillard's was one of them.

822

Dillard's got way too cheap.

823

It was in all of my screens.

824

and I'd buy it and sell it.

825

And buy it again and sell it again.

826

Cause you know, just as it sort of

bounced around a little bit, but it didn't

827

really go anywhere for five or six years.

828

And then through COVID, whatever it was,

the stimulus, whatever it was, it took

829

off and it 10 bagged in about a year.

830

And now it's up about 18

times from where he put it.

831

I think he doesn't have it anymore, but

that 6 percent stake that he bought is

832

worth like 360 million and it's an 18

bagger since he put that position on.

833

And all of it happened in a

very short period of time.

834

So the compound annual growth rate for

the holding period or the IRR for the

835

holding period is like 36 percent plus.

836

Over the seven years, but it's

really like only a handful of years

837

that have delivered the return.

838

So I'm just, I see those things

and I think that's a good, that's

839

a good reminder just because the

market doesn't recognize this.

840

Initially, what we're focused

on is the fundamentals.

841

And I, at the, at the beginning

of this, I sort of started talking

842

about that a little bit, but

that's sort of what it means.

843

Like ignore the price action,

stay completely focused on the

844

underlying fundamental performance.

845

And if the fundamental performance

is trending in the right

846

direction, then everything's good.

847

Just.

848

Just.

849

stay cool.

850

And so I've definitely found

myself, I've, I've stepped back

851

from social media a fair bit.

852

There's not a lot of utility

in it for me because it's just

853

way too short term focused.

854

So I put the positions on, we

rebalanced in a quarter, which means

855

I'm going to get another quarters.

856

Financial statements, we'll update

all of our models, we'll form up our

857

ideal portfolio, and then at the end

of the quarter, we'll look at the

858

differences between the ideal portfolio

and what we're currently holding in

859

Zig, and we trade to make the Zig's

portfolio look like the ideal portfolio.

860

And that's the process.

861

So it's not a lot of, um, it's

not a lot of opportunity for me to

862

overtrade or anything like that.

863

I, I sort of just stick to the process

and I don't worry about it too much.

864

'cause now I, I, I trust it too.

865

I've been doing it for long enough

that I know that if we buy cheap and

866

good, it will work out over time.

867

Even though, you know, you can

have a look at the returns.

868

In 2021, it was like a,

it was a pretty big year.

869

It was like a 37% year, but then

870

and 23 is like an up 30% year.

871

And then this year's like up

six or something like that.

872

And we're underperforming a little

bit, but that's what happens.

873

It's, it's clumpy get.

874

Even though the portfolio is going forward

all the time, it's only reflecting the

875

stock price sort of in fits and starts.

876

That's okay.

877

Mike Philbrick: The, the idiosyncratic

lightning strikes a few spots

878

of the portfolio, creates some

returns or rebalancing happens.

879

Then, then, uh, you know, you're

waiting for For those, those

880

lightnings in a bottle again.

881

And, so when you're doing it though,

are you sort of at the end of each

882

month, looking back at the quarter,

whatever, whoever reported in that

883

particular quarter and updating

there, or is it just literally, you

884

know, four times a year type thing,

885

Tobias Carlisle: Now it's the, the

portfolio, the, there's a model

886

portfolio that's updated all the time.

887

It's pulling in all of the new reporting.

888

and at the end of the quarter,

the model portfolio will have

889

deviated from what it was.

890

Zig holds because there's some,

it's just turnover in the positions.

891

It's force ranking all the

positions all the time.

892

And so we'll trade to make the

Zig's portfolio or Deep's portfolio

893

look like the model portfolio.

894

Richard Laterman: Oh, so it

is a quarterly rebalancing.

895

So you are only rebalancing

896

Tobias Carlisle: yes, yeah, yeah.

897

And I tested that.

898

I've tested, you know, the more

you rebalance, you, you, you're

899

getting a lot more friction, you're

getting a lot more costs and you

900

find that there are things that they

just move in and out all the time.

901

So you buying and selling this

one thing over and over again,

902

that still happens on a quarterly

basis, just less, less regularly.

903

But you also got that, you know,

Corey Hofstein had that great, paper

904

where he identified all of that timing

luck, all of that rebalancing luck.

905

And I had been aware of that as a

You know, anybody who does a lot of

906

backtesting, you become aware that

if you start the portfolio in one

907

January and you rebalance yearly in one

January, you get much better returns.

908

And if you started in September and

you rebalance it in September without

909

sort of knowing why, and if you started

in March and you get a rebalance,

910

it's really close to that 2009 low,

the returns are like twice as good

911

as if you rebalance in September.

912

So there's clearly, I want to be able to.

913

eliminate as much of that timing

rebalance luck as I can without

914

incurring all of those additional

sort of frictional trading costs.

915

And I think quarterly, you know,

you probably don't need to trade

916

quarterly, probably yearly is

enough, but it just, it captures that

917

timing rebalance luck sufficiently

that I think quarterly is okay.

918

Quarterly is the number.

919

Richard Laterman: And stepping away

a little bit from the, the systematic

920

process and, and just kind of putting

your, your discretionary hat on a

921

little bit, what are some of the

things that are gotten you excited on

922

a, on a micro level or sector level?

923

What are some of the things that if

you were inclined to sin a little,

924

like as a value investor, looking

at all these companies and looking

925

at the opportunities from a cyclical

standpoint, you just, described yourself

926

as excited or growing the, becoming

more excited with the opportunities,

927

but the forthcoming opportunities for,

value as a whole, what are some of the

928

things that are getting you excited?

929

Tobias Carlisle: Well, one of the

things that I do is I track the book.

930

So I know what the book is.

931

You know, I know what the expected

return is across the book.

932

Cause I have a calculation for

each name where I know what the

933

fundamental expected return is.

934

So when the fundamental expected

returns going up, I feel better when

935

it's going down, I feel worse, but when

it's going down, it's outperforming.

936

And when it's going up,

it's underperforming.

937

So I have managed to kind of train myself

to feel better when returns are worse

938

because the forward returns are better.

939

And so I think the forward

returns are better now.

940

We've got to concentrate, you

know, we just tend to be buying

941

lots of We're deep value.

942

So it means we're always going to

be in, we're going to be in steel.

943

We're going to be in coal.

944

We're going to be in

oil and gas and energy.

945

Um, we buy little busted industrials

that I think can do a little bit better.

946

I have a little bit of trouble

distinguishing between them,

947

honestly, because they all

have idiosyncratic problems.

948

And the reason that they're in

the portfolio is because they

949

have idiosyncratic problems

and they work their way out.

950

If I was going to sin and be

discretionary, I'd be much more in

951

things like probably I'd look at

something like, um, Starbucks or

952

something that's, you know, had a

pretty big stumble, but ultimately, you

953

know, that's a pretty Good business.

954

I like businesses like Shopify.

955

I think Shopify is an incredible business.

956

I mean, I'd be out there buying all those

kinds of names, knowing that the way to

957

own these things is to buy a little bit

now and just, you just don't even worry.

958

That's like a 10 year position,

10 year plus position and you just

959

let them run and let the underlying

business kind of figure itself out.

960

But I would like, you know, really

good businesses after they stumble.

961

I don't, I'm not so much of a speculator

that I'd go in and, you know, I

962

wouldn't be trying to like, Time oil

or time coal or anything like that.

963

Mike Philbrick: it's a little bit

more opportune quality type stuff, a

964

little bit more in the direction of,

965

Tobias Carlisle: Probably Buffett.

966

Yeah.

967

More in the direction of Buffett.

968

Cause I do think that that's one

of the things that I just as I've

969

tested, you know, I just turned

off my sell rules and so just buy.

970

And just see what happens

over a full period of time.

971

And it's kind of, it's interesting the

way that these things, they get, you

972

start with 30 names and you can look

forward 25 years of these 30 names and

973

you end up with this portfolio at the end.

974

And it tends to be, it's heavily

concentrated in the things that are work.

975

But if you start with 30 names, heavily

concentrated might be a 5 to 8 percent

976

position, which I would think is a.

977

If a position has worked its way up to

that, it may have earned that right to

978

be that sort of size in the portfolio

and it'll all be stuff that's worked.

979

So your positions will, it'll

be Apple, Microsoft, Starbucks.

980

You have this portfolio that looks like a

Kelly betting value investors portfolio,

981

even though it's just completely, you

know, the system has selected these names

982

and it's just allowing time to work.

983

Means that the ones that compound

are the better businesses.

984

And the ones that don't

work just disappear.

985

You know, they're rounding areas,

rounding areas or they're trivial.

986

The interesting thing is how

much capital they throw off.

987

So buying on a free cash flow basis,

holding for five, you know, the

988

yield across the portfolio could

be 10 or 15 percent at inception.

989

You hold that for five years, half

of that comes back, half of it

990

Gets reinvested in the businesses.

991

You find that you've got like a

third of your portfolio capital

992

back after five years and you've

got to reinvest it anyway.

993

So I think that you end up being

quite it's a Buffett's you're kind

994

of imposing this Buffett's style,

cadence and, investment style on

995

yourself just by virtue of the

fact that you have this never sell

996

and own cheap quality stuff.

997

You,

998

Mike Philbrick: Beat your winners to

death, which is what you'd be doing here.

999

You'd be saying, well, I'm not going

to sell my losers either, but they are,

00:51:04,773 --> 00:51:10,243

asymptotically going to approach zero or

hit zero, leaving the successful pieces

00:51:10,243 --> 00:51:14,713

of the portfolio, which were just well

timed purchases of what happened to be

00:51:14,713 --> 00:51:17,973

successful companies because you bought

them with that, those characteristics.

00:51:18,238 --> 00:51:18,688

Tobias Carlisle: That's right.

00:51:19,123 --> 00:51:19,403

Mike Philbrick: Yeah.

00:51:19,403 --> 00:51:19,683

Yeah.

00:51:19,683 --> 00:51:21,853

Keep your winners people

beat the hell out of those.

00:51:22,843 --> 00:51:23,723

Sell your losers.

00:51:24,476 --> 00:51:24,686

Richard Laterman: When

00:51:24,721 --> 00:51:25,781

Tobias Carlisle: not

what Zigg does though.

00:51:25,781 --> 00:51:26,301

That's not what Zigg

00:51:26,396 --> 00:51:27,406

Mike Philbrick: No, I understand.

00:51:27,406 --> 00:51:27,646

Yeah.

00:51:28,021 --> 00:51:28,281

Tobias Carlisle: sorry,

00:51:28,406 --> 00:51:31,923

Richard Laterman: through, thinking

through on a sort of longer term hold

00:51:31,923 --> 00:51:37,229

and, and, your, two strategies in the

deep value space, do they comprise

00:51:37,239 --> 00:51:40,109

a hundred percent of what you're

investing for yourself personally?

00:51:40,329 --> 00:51:44,529

And the reason for why I ask is, how

do you think about dealing with like a

00:51:44,929 --> 00:51:49,689

are difficult for stocks as a whole,

00:51:49,689 --> 00:51:53,969

even though you might be, you might

have a large margin of safety for some

00:51:53,969 --> 00:51:55,099

of the businesses that you're holding.

00:51:55,099 --> 00:51:58,799

And so they might in relative terms

be outperforming the S& P or some of

00:51:58,799 --> 00:52:00,879

your other benchmarks in a downturn.

00:52:00,879 --> 00:52:04,609

But do you think about some

complementarity, on a style basis,

00:52:04,919 --> 00:52:07,909

you know, other diversifiers,

anything along those lines?

00:52:08,704 --> 00:52:10,234

Tobias Carlisle: I have a

lot of cash because I need a

00:52:10,234 --> 00:52:12,048

lot of, float in my business.

00:52:12,538 --> 00:52:16,251

And so I need, because I'm a small

business guy, no other source of income.

00:52:16,251 --> 00:52:19,331

I have float in the business and

I have float personally as well.

00:52:19,361 --> 00:52:19,831

So that's a lot.

00:52:19,861 --> 00:52:22,711

I have a lot of cash relative to

the assets that I have, but I have

00:52:22,711 --> 00:52:26,288

all of my investable assets in

Zigg and Deep because I just think

00:52:26,288 --> 00:52:27,748

that a manager should do that.

00:52:27,778 --> 00:52:29,903

And I think that, That

won't always be the case.

00:52:29,913 --> 00:52:33,393

I think if we got massive outperformance

for an extended period of time, then

00:52:33,393 --> 00:52:36,263

it would be okay to take some of

that off and, and mess around with

00:52:36,293 --> 00:52:38,883

some other things, just to try to

be a little bit more established

00:52:38,883 --> 00:52:40,043

and careful for my family.

00:52:40,043 --> 00:52:43,259

But at this point it's, I feel like

I should be eating the dog food.

00:52:43,259 --> 00:52:46,069

Not that I need any more focus on

it than I already have, but I just

00:52:46,069 --> 00:52:48,329

feel like I should be participating

along with everybody else.

00:52:49,398 --> 00:52:52,578

I think that the prospects for these

companies are always pretty good.

00:52:52,578 --> 00:52:57,671

I look back through, you know, we've,

00:52:57,791 --> 00:52:59,171

It's not forever.

00:52:59,231 --> 00:53:01,811

There's lots of other period things

that have happened outside of that, but

00:53:01,811 --> 00:53:07,531

even through the seventies these things

did okay because it's, this is the kind

00:53:07,536 --> 00:53:11,491

of strategy that does do well for, for

more inflationary period like that.

00:53:11,821 --> 00:53:15,151

That's not to say you can't have

some sickening drawdowns through

00:53:15,151 --> 00:53:17,221

that period of time, but I do

have some cash that I would.

00:53:17,993 --> 00:53:18,873

Opportunistically deploy.

00:53:19,143 --> 00:53:21,603

I'll just tell my wife that

we're, we're going to be

00:53:21,603 --> 00:53:23,053

investing in the, in the market.

00:53:23,053 --> 00:53:25,143

It's not a lot where we're going

to be buying something right now.

00:53:25,143 --> 00:53:27,023

So we can't do anything

else for a little while.

00:53:27,583 --> 00:53:28,463

She's all right with that.

00:53:28,553 --> 00:53:29,383

She understands.

00:53:29,803 --> 00:53:30,203

Mike Philbrick: Love it.

00:53:30,596 --> 00:53:33,766

The value investing life is a

critical component of investment

00:53:33,866 --> 00:53:34,806

Tobias Carlisle: she really is.

00:53:34,816 --> 00:53:35,686

She really is.

00:53:36,419 --> 00:53:37,379

She knows what she got into though.

00:53:37,499 --> 00:53:38,429

She, she understood.

00:53:38,789 --> 00:53:40,059

I was, I've been doing

this before I knew her.

00:53:40,816 --> 00:53:41,326

Mike Philbrick: I love it.

00:53:41,613 --> 00:53:44,533

I'm wondering now if we could, maybe

switch gears over to Omaha, but

00:53:44,563 --> 00:53:47,603

Richard, before we do that, do you

have any final thoughts of, cause

00:53:47,603 --> 00:53:48,673

you were pulling some threads there.

00:53:48,673 --> 00:53:49,403

So I want to make sure you've

00:53:49,563 --> 00:53:50,553

Richard Laterman: No, let's go forward.

00:53:50,943 --> 00:53:51,303

Let's go to

00:53:51,383 --> 00:53:51,973

Mike Philbrick: All right.

00:53:52,773 --> 00:53:53,103

Yeah.

00:53:53,103 --> 00:53:57,769

So you're, you usually go down

and attend the pilgrimage to

00:53:57,799 --> 00:54:00,096

the Berkshire annual meeting.

00:54:00,096 --> 00:54:02,206

And I understand you

did this year as well.

00:54:02,426 --> 00:54:03,596

How, how was it Toby?

00:54:03,596 --> 00:54:05,686

And what was, what's the

good, the bad and the ugly?

00:54:05,926 --> 00:54:07,609

Tobias Carlisle: Well, this

was the Charlie Munger passed

00:54:07,609 --> 00:54:08,429

away at the start of the year.

00:54:08,429 --> 00:54:09,889

So it was the first year without Charlie.

00:54:09,889 --> 00:54:11,079

So that was kind of poignant.

00:54:11,089 --> 00:54:11,469

He.

00:54:11,671 --> 00:54:14,521

Buffett did turn and say, you

know, he often gets Charlie

00:54:14,521 --> 00:54:15,491

to chime in on something.

00:54:15,491 --> 00:54:17,301

He said, he turned and he

said Charlie at one point.

00:54:17,311 --> 00:54:21,051

So he said, I've been, I've done, I've

gone to do that two or three times.

00:54:21,101 --> 00:54:22,541

But that's, you know,

it's kind of slipped out.

00:54:23,021 --> 00:54:26,621

And then he had Greg Abel, who's the

chief executive officer, who's also

00:54:26,691 --> 00:54:28,924

taken over the equity portfolios.

00:54:28,924 --> 00:54:32,144

And so it wasn't the two other

guys who had been sort of tagged

00:54:32,144 --> 00:54:32,904

at the moment, it looks like.

00:54:33,248 --> 00:54:37,358

The CEO of who he was Mid-American,

but now he's CEO of the whole thing.

00:54:37,358 --> 00:54:39,808

And he's also looking

after the equity portfolio.

00:54:40,258 --> 00:54:45,858

He seems to me like he's very smooth,

very controlled, very high EQ kind of guy.

00:54:45,858 --> 00:54:48,858

And he, he concluded one of the

things that he had said with, uh,

00:54:48,858 --> 00:54:51,498

nothing further to add, which was

a very famous Charlie Munger one.

00:54:51,503 --> 00:54:53,208

He always used to say that,

which the crowd loved.

00:54:53,738 --> 00:54:54,278

So I thought.

00:54:54,571 --> 00:54:55,981

I think they're doing the transition.

00:54:56,021 --> 00:54:59,381

I think there's probably a transition

going on now from Buffett to Abel.

00:54:59,461 --> 00:55:06,261

Buffett's, you know, phenomenally

articulate and thoughtful 93 year old man.

00:55:06,301 --> 00:55:10,821

But at 93, you can hear how fast

he used to talk when he was in

00:55:10,821 --> 00:55:12,221

his 60s and younger than that.

00:55:12,261 --> 00:55:14,661

You know, he sounds like you're

listening to a podcast on 1.

00:55:14,721 --> 00:55:15,691

5 times speed.

00:55:16,341 --> 00:55:18,401

And now he doesn't speak as

fast as that and it takes some

00:55:18,688 --> 00:55:20,584

diversions to make the point.

00:55:21,151 --> 00:55:24,281

So I thought from that perspective,

there's, there's a transition going on.

00:55:24,281 --> 00:55:25,081

That was what I took away.

00:55:25,081 --> 00:55:28,494

But the other, just outside of that,

I think that, there are principles of

00:55:28,554 --> 00:55:32,811

investing, that I learned from them that

I think I've only grown to appreciate

00:55:32,811 --> 00:55:34,081

why they're so important over time.

00:55:34,081 --> 00:55:37,201

And one of them is, and

I've, I've written a book.

00:55:37,201 --> 00:55:39,951

I've given this, it's with, uh,

it's with a publisher now to decide

00:55:39,951 --> 00:55:42,921

whether we do it or not, but it's

basically looking at some of the

00:55:43,216 --> 00:55:44,926

underappreciated aspects of what they do.

00:55:44,926 --> 00:55:47,996

And I think that one of them is this

idea of, you know, they, they'd look

00:55:47,996 --> 00:55:52,033

at character as one of the elements

of people who they do business with.

00:55:52,033 --> 00:55:55,069

It's hard to understand why as a

younger, or I just didn't really

00:55:55,069 --> 00:55:56,349

understand why it was so important.

00:55:56,349 --> 00:55:58,799

I mean, it's just, you're looking for

opportunities wherever you can get them

00:55:58,799 --> 00:56:01,049

when you, when you're young and hustling.

00:56:01,879 --> 00:56:02,489

And.

00:56:02,669 --> 00:56:05,489

It's only after you've been burned a

few times that I think that you realize

00:56:05,489 --> 00:56:08,639

how important character is in business

partners and other things like that.

00:56:08,659 --> 00:56:10,359

So that was a, that's an interesting one.

00:56:10,359 --> 00:56:12,533

And the other one is just

that you cannot blow up.

00:56:12,583 --> 00:56:17,686

You just have to be able to survive every

single market environment that you see,

00:56:17,696 --> 00:56:21,756

because you get, you know, Berkshire has

famously underperformed for long stretches

00:56:21,756 --> 00:56:23,716

of time and they haven't done very well.

00:56:24,286 --> 00:56:29,246

In others, there's always a magazine

cover that will let the world know

00:56:29,246 --> 00:56:30,646

at the time Buffett's lost it.

00:56:30,706 --> 00:56:32,756

And then it's often, you know,

it's close to their bottom.

00:56:33,316 --> 00:56:36,376

They're just about to go on a

really great run just after that.

00:56:36,386 --> 00:56:39,096

And I think that's true

of most strategies.

00:56:39,646 --> 00:56:45,234

A lot of the ways that my, fund works is

we're in a industry that's beaten up and

00:56:45,254 --> 00:56:48,894

some of the people in the industry leave

because it's just, they've either got too

00:56:48,894 --> 00:56:52,284

much leverage and they can't, they can't

make it or business is just too tough.

00:56:52,294 --> 00:56:55,654

There's easier money elsewhere and

they move away and then they get these

00:56:55,664 --> 00:56:57,244

super normal returns in the industry.

00:56:57,244 --> 00:56:59,584

And that's what I'm trying to

capture the super normal returns.

00:56:59,584 --> 00:57:00,644

It's true.

00:57:00,644 --> 00:57:04,014

Also, investing in a value

portfolio, you get these, you pay.

00:57:04,684 --> 00:57:06,774

You blow up, you miss the

bit that comes afterwards.

00:57:06,814 --> 00:57:10,834

So I think that that has been their

sort of underappreciated strength that

00:57:10,874 --> 00:57:14,834

they just muddle through in the bad

times, do really well in the good times.

00:57:14,844 --> 00:57:18,198

And I think for me, those are the, those

are the things that I really take away.

00:57:18,228 --> 00:57:21,341

Those two sort of principles,

do good, do, with good people

00:57:21,341 --> 00:57:23,261

and, and survive for a bad time.

00:57:23,261 --> 00:57:24,431

So you come out on the other side,

00:57:25,186 --> 00:57:27,836

Mike Philbrick: I'm interested as a lawyer

that you didn't pick up on that earlier.

00:57:27,836 --> 00:57:31,316

I mean, given that the other parts of

the firm may have been involved in,

00:57:31,346 --> 00:57:36,899

in the negotiations between those who

lack character in certain, uh, business

00:57:36,899 --> 00:57:37,319

dealings

00:57:37,544 --> 00:57:38,954

Tobias Carlisle: you might think

that you can paper over it.

00:57:39,014 --> 00:57:42,671

Like, I, I, I wouldn't have thought

you, some people regard the contract

00:57:42,671 --> 00:57:43,931

as like the ticket to the fight.

00:57:43,991 --> 00:57:45,911

You know, that's like, that's

where we're getting started.

00:57:45,911 --> 00:57:48,494

Some people are, are trying to find

their way through it as you're drafting

00:57:48,494 --> 00:57:50,504

and other people are like, well

that's the spirit of the agreement.

00:57:50,509 --> 00:57:52,844

We're gonna follow through

with it regardless of what the.

00:57:53,166 --> 00:57:57,046

The contract says, so you just, and those

assessments, I don't know how you make

00:57:57,046 --> 00:58:00,676

those assessments other than just dealing

with people a lot over an extended period

00:58:00,676 --> 00:58:01,916

of time and seeing how they operate.

00:58:02,536 --> 00:58:03,916

Getting older, I think probably helps.

00:58:04,604 --> 00:58:05,304

Mike Philbrick: Yeah, it is.

00:58:05,314 --> 00:58:10,251

It is a pretty consistent, theme, even

though they reiterated it this year.

00:58:10,321 --> 00:58:14,171

I, you know, I think that's been

a fairly consistent theme through

00:58:14,171 --> 00:58:18,031

the years, not only from them,

but, but from others who are.

00:58:18,526 --> 00:58:21,546

You know, sort of the, the

various lieutenants like Poorish.

00:58:21,556 --> 00:58:24,716

There's a, there's a, I think it's his

name, Poorish, the Indian guy who, you