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Value Investing is BACK - with Tobias Carlisle
Episode 20217th May 2024 • Resolve Riffs Investment Podcast • ReSolve Asset Management
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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.

Transcripts

Tobias Carlisle:

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.

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:

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.

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:

People invest in what,

what has been working.

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:

And the moment that that breaks down,

the money will go somewhere else.

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:

Mike Philbrick: All right,

welcome to another Resolve Riffs.

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:

Today we have an old friend with us,

Toby Carlisle from The Acquirer Funds

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:

and from The Acquirer's podcast and

blog and, I know you call it Value After

15

:

Hours, your, your, uh, YouTube show.

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:

I like to, I like to think

of it as Value After Hours.

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:

Because your voice is just so calming

and, uh, and so value after dark.

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:

Like I think you might, you know,

I, I would contemplate submit to

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:

you for a name change to, value

after dark with Toby Carlisle

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:

Tobias Carlisle: Yeah, we might do that.

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Richard Laterman: has to be the accent.

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:

Mike Philbrick: yeah, so, so

congratulations on a fantastic

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:

year and last three years for

your ETF ZIG outperforming S&

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:

P on both of those timeframes.

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:

Fantastic work.

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:

Still flying under the radar though, as

many assets and, and geographical regions,

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:

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

whether it's value, so many places are

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actually doing well and outperforming

S& P providing great diversification.

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Yet most people aren't, you know, really

allocating in any significant way there.

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:

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

on beating this drum and what we beat it

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through all the way through the, the tough

times too, but, you know, hopefully people

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can take away some insights here from you.

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:

And, maybe before we get started, for

those of you who may not know you,

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:

Toby, maybe give us a little bit of your

history, how you came to this point.

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I mean, going from, uh, A

lawyer down in Aussie to a value

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funds manager in California.

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:

Maybe map it out for us and

bring everybody else up to

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speed who might not know yet.

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Tobias Carlisle: Yeah, I started out.

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Thanks for that's very

kind introduction, Mike.

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Thanks very much for that.

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I always good chatting to you with a

big, the big lead in the big buildup.

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Uh, yeah, I was a lawyer.

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I was a mergers and acquisitions attorney.

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I was corporate advisory

is what we call it.

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So we did everything from capital

raising to acquisitions to board

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papers to like just whatever was

needed for mostly publicly listed

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companies, big, big private companies.

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I started in April 2000, which

was the very top of the dot com 1.

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0 boom and saw that all collapse,

and then saw the rise of activism and

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private equity through those early 2000s.

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

you know, Papering these private equity

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acquisitions, which is a lot of work,

you know, there's lots of different

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layers of capital, debt, equity, prefs,

whatever might be in there, plus the

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acquisition and just there's so much

contracting, you'd end up with a tower

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of paper at the end of it and it would

cost millions of dollars of legal fees.

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At the same time, you can buy

exactly the same business for

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cheaper on the stock market.

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And at the time it was 8 a trade.

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

was 8 for me to trade by the, by the

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same business for half the price.

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And then if you make a mistake

two days later, you can tip it

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out for another 8 round trip.

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And I had read enough sort of,

Buffett and Graham by that point

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to know that these things happen.

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You, you find, Pieces of businesses

that aren't trading for the full

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negotiated price on the stock market,

even though they might be worth more.

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And I just kind of fell in love with it.

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It was fun.

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And it was a good period for value.

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It was easy to buy things

who were undervalued and they

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just run almost immediately.

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And so I spent the first sort of five

years or so of my investing career.

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Doing pretty well with

deeply undervalued stuff.

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And that all sort of collapsed in, in

:

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and do it professionally at that point.

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So I set up a little fund in

Australia, had some pretty good

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returns out of the gate, but just

was never going to be a structure

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that could raise money in the States.

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My wife has, American we met when I was

working in San Francisco as a lawyer.

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And so we moved back to have kids

and I started the business here.

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And, it's been a tougher run for

value as everybody well knows.

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Those starting in, depending on how

you measure it, starting in:

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2015, somewhere in that period of time,

value really started underperforming.

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And I've got a friend, Mikhail

Samonov, he's done this analysis.

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He, he called it 200 years of value.

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And he said, this was the, you

know, that period through:

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was the worst underperformance

of value in 200 years of value.

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Clearly as you go back in time.

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The, the data is not as good, but

what is pretty clear from it is that

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you get these often associated with

some sort of technological boom.

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So the telegraph, the invention

of the telegraph was a big one.

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steamships was another big one and so

on over the last sort of 200 years where

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every time there's been an electronics

boom in the 60s, the dot com 1.

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0 boom, Whatever it

was that sort of com 2.

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0 social kind of boom

that we had through:

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And I guess now we've got a little

micro boom going on with the AI, but

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whenever we have these things, it tends

to be the story stocks that don't have

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a lot of fundamental value run and it

draws money away or it sort of leads

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the rest of the market to underperform.

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So that's, that's what

I've invested through.

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And I know we're going to talk about

this a little bit, but I've definitely

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had to adapt from a more traditional

value to sort of a A different sort of

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style of value to that practice now.

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Mike Philbrick: Well, even I think

that was interesting in the, in

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the, I know you make the pilgrimage

to Omaha each year and, you know,

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the Berkshire annual meeting.

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And so we're looking forward

to get some tidbits from that.

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But even in that, you know, I heard.

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A lot of that, the evolution of

Warren's thinking, because they paid

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so much time to Charlie, and you know,

Charlie's thinking was a little bit less

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value oriented than Warren's thinking.

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:

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

to that sort of thing in your own journey

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:

as you have been, you know, managing

value assets in, in what has been a.

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

lots of stuff around this value, but if

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no one else is, is realizing that and kind

of beating a path to that door, it leaves

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you with, you know, lots of value for a

period of time that is less comfortable

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than having the realization right away.

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Tobias Carlisle: Well, I actually

think that's an interesting point.

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Cause I, I think that if you're relying

on, that was one of the big changes that

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I made was that through through really

it was through:

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2020 out of that sort of COVID low.

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Through until the end of 2020,

that was a very strange time.

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Everybody was at home with nothing to

do speculating on the stock market.

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And so I saw like lots of extra

hits on my websites podcast and my

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social media grew really quickly,

even though I'm a value guy and I was

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well out of all of those names, I'm

still involved in the stock market.

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And so I was getting

attention for that reason.

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And the stuff that I would just

wouldn't touch with a 10 foot pole

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was the stuff that was running it.

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The stuff that I was holding

was suffering as a result.

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It wasn't clear, you know,

everybody knows these things are

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cyclical, but it's hard to believe

that it's cyclical in the moment.

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I thought, what if this

does go along forever?

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And I was listening to some of the

other smarter value guys who are

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:

a little bit more growthy than me,

listening to what they were saying.

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One of the criticisms that they

have had of the very deep value.

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So I would characterize myself as deep

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

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good businesses at a big discount.

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That's sort of my, Objective rather

than a really great business at a fair

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:

price, which would be the way that

Buffett characterizes what he does.

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So I thought one of the criticisms that

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

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you just really relying on price action?

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To be the thing that bows you out.

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'cause we all know that if you form

a value portfolio, the market expects

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the earnings to fall or not perform

as well as the market earnings.

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And that tends to be what happens.

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It's just that they have overestimated,

how bad the returns are gonna be, and

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then the stock price recovers as a result.

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So it's this funny kind of behavior

where the, the earnings are actually

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going down, but the stock price is

going up because of the, the little

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window when you own the stock.

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And the reverse is true

for the growthy stuff.

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The market expects the earnings to

go up and they do on average go up.

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It's just that they disappoint the

market and the multiple comes down.

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But somebody said, you know, aren't

you just relying on price action here?

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And that's not very, that's

not very value like, is it?

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That's not very fundamental because

that's not what fundamental value guys do.

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And I thought that was a fair point.

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So I went back and I retooled what

I did and I looked at it and I made

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this assumption, what if we had to.

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Invest with no price performance.

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What will we be doing then?

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We're purely relying on

fundamental performance.

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What, what would I construct then?

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And so it made me, I leaned a

little bit more into quality.

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I made sure that when we

bought something, we'd get some

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compounding out of the reinvestment.

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So you need a reasonable return on

reinvestment, reasonable prospects

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for compounding reinvestment,

returns over a period of time.

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And then also for some yield.

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So some shareholder yield, which is.

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Dividends, buybacks, you know, hopefully

buybacks for undervalued things, but

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not not every management team does that.

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And I, I feel like I, I now think

in 2 distinct terms of value sources

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when I buy something, we're going

to get a return out of the yield.

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We're going to get a return

out of the compounding.

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

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I assume that price action is

going to catch up to us over time.

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And I think that's a pretty

safe assumption, but I

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don't expect it to at all.

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And I'd be quite happy for

my entry multiple and my

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exit multiple to be the same.

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And I'm purely rely on the

fundamental performance of

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the business over that period.

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So I think that that's a pretty

big change that I have built in.

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and I think that it's sort of yielded

results and I expect it to over time.

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So we, when the fund, when Zig first

launched, it was a long short fund.

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It 130 percent long, 30 percent

short, 30 names long, 30 names short.

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So a long name was 4%, short

name was 1%, rebalanced regularly

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without fear or favor, because

the shorts can be a problem.

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Shorts have got leverage in them.

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They can run the wrong way.

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You can get hurt.

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I invested through that period

where Melvin Capital blew up.

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I thought we did pretty well through

that period, but we were all, had, my

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great fear was always that we were going

to get caught in something that ran.

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So I'd make sure there was

no momentum in the stock.

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And I think that that's sort of for

the really growthy names that is there.

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That's their rocket fuel.

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Their mojo is all of that momentum.

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The moment the momentum gets out

of those stocks, the people aren't

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interested in playing with them anymore.

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It's like the toy just gets discarded.

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So you can look at the charts as

soon as the momentum goes in beyond

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or Peloton or any of those kinds

of names, they just disappear for

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a variety of not very interesting

kind of technical custody reasons we

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

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And so we were sitting at a

hundred long 30 short through.

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The beginning of 2020.

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So that helped us on the way down

and protect us a little bit, hurt

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us on the way back up in that mania.

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So 2020 wasn't a great year for Zig.

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And then in 2021 converted to

long only because I thought

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that there's some existential.

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Metaphysical risk with the shorts,

like even if they never actually blow

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up, there's always a risk that they

do kind of hope that the fund gets

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big enough one day that, you know,

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

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harder to short at that kind of size.

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So I thought, I'm going to take

this medicine at some point.

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It doesn't really align

philosophically with the way I am.

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So I'm going to change to long

only, which happened in:

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So since 2021, 2021 was a good year,

cause that was sort of the end of

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the, uh, The stock market run up 22

was the kind of, I thought it was

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the beginning of a big bust, but

ultimately it didn't turn out that way.

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And then 23, we had a really good year.

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I would not have expected it at all.

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I thought that the, all of the macro

economic indicators were terrible

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and really the lesson that I've

learned is I know nothing about

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macro and I'm just going to shut up

about macro and ignore macro forever.

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I think the market can fall over 50

percent at any given point in time

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and you should be able to survive it.

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But aside from that, macro

is just a waste of time.

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So I'm a long only value

investor, bottom up.

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I'm about as plain vanilla

as they come these days.

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Mike Philbrick: I love it.

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

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

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

that I have always kind of giggled at

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as I've heard various value investors

like Warren or others, you know, say

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market timing is not a thing you can do.

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And at the same time, they use

value sort of fundamentally driven,

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mechanisms in order to decide whether

to have cash on the sidelines or not.

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Whether to have more cash in the

sidelines than one normally would

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or not, or to invest more or

not, which is a form of timing.

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It's just timing by a

slightly different nature.

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So I'm glad you highlight that.

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That's kind of an, it's always

kind of a funny thing that I

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Tobias Carlisle: They might

say valuing rather than timing.

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They're valuing the market,

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Mike Philbrick: Fair enough,

which is a, an exposure mechanism

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

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but I'm just

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Mike Philbrick: totally get it.

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Totally.

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

you've answered the question

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too, for the, for the ZIG funds.

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Now, Richard, you've been,

you've been waiting patiently.

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You've got some things to say.

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

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Richard Laterman: I

have some things to ask.

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No, I'm just very curious.

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we hear about a lot about this

narrative that, you know, passive

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is eating the world and that that

might be one of the main reasons

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why there's been this incredible

bifurcation that's been lasting, guess,

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a couple of decades now with this

underperformance of value versus growth.

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So, I'm wondering, do you

subscribe to any of that?

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Do you see other reasons,

for this underperformance?

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Obviously, you've.

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Morphed and you've been alluding

to some of the ways in which you've

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adapted your style over the years to,

to sort of account for these changes.

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But I'm wondering, does it

even matter to your style?

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But have you gone down the rabbit hole

and trying to understand what are some of

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the mechanisms, structural mechanisms that

have led to this underperformance and this

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bifurcation and does it begin with this

passive eats the world sort of thesis?

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Tobias Carlisle: I am not a subscriber

to the passive eats the world thesis.

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And I will talk about that.

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But the first, just let me say

that the reason that I think that

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value has underperformed, you can

look at the relative value of value

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and growth as another alternative.

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So let's just say that quality

or growth, better businesses

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should command a premium price.

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Worst businesses should

command a discounted price.

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If everything was fair, that

would be what would happen.

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What tends to happen is there's

a little bit of mean reversion

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in business performance as well,

that I think a lot of people miss.

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Things just don't go to zero.

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When oil was trading at a negative

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

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a signal to sell oil, if anything,

that's a signal to buy oil at that

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Richard Laterman: Don't

extrapolate at the extremes.

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Tobias Carlisle: That's right.

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

paper, the Le Connachic Schliefer and

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Vishny paper from 1994, which is the

sort of alternative to the, efficient

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market theory, Fama French paper,

which is that all value is risk.

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The, behavioralist guys say,

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

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There's a behavioral thing going on.

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There's extrapolation.

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They extrapolate at the top.

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They extrapolate at the bottom and

mean reversion is a better bet.

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

reversion, not extrapolation.

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And I think that, if you looked in 2015

at value, the difference between the

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best businesses and the worst businesses,

that was, that was so squashed together

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because valued had such a great run

through the two thousands, everybody

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was trying to buy the undervalued stuff.

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And for a little bit of a premium,

you've got a much better business.

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And I think that that's why from 2015

until sort of the Today or the last

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few years, the better businesses, the

growthier stuff, the Nasdaq stuff has

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all had a great run because they were

too cheap and value was too expensive.

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And I think now the spread is very, very

wide and the spread has been closing, but

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the spread is still very unusually wide.

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It's still as wide as it was in

:

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the bottom, both of which went

on to have very good value runs.

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I think that That is really what has

driven the underperformance of value.

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It got too expensive in 2015.

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It's been working off

that being too expensive.

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And now the trend, now that the

trend keeps on going all the

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way to the point that value is

undervalued and growth is overvalued.

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So I think that we probably see some

mean reversion over the next decade here.

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That would be my bet.

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As to the, passives eating the

world, I think, I think at the

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margin, I think that's probably

what happens in any bull market.

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People go with what's been

working and the S& P 500 is

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the best performed asset class.

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Or asset in the world over

that sort of period of time.

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:

You can get it for nine basis points.

325

:

It's got Sortino ratio that

look like a hedge fund.

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:

You know, it's an incredible run

for that and it can soak up a lot

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:

of assets, but I think that this

is true at every bull market.

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People invest in what,

what has been working.

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And the moment that that breaks down,

the money will go somewhere else.

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

not investing as we just, that discussion

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that I had earlier about the, you know,

not, not relying on the price performance.

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If I was an investor in the value stuff.

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And they bought back shares

and they're all cheap.

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They would, you know, axiomatically,

they must perform better.

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Like the cheaper they get

with the buyback mechanism.

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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

in:

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

of:

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

easy, easy times, you know,:

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

of that:

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

and have gone above their:

589

:

Whereas mid and large are still trading

below their:

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

in:

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,

an run this data back through:

:

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

:

00:58:24,716 --> 00:58:28,789

know, emulates a lot of the stuff he's,

you know, been on record as saying that

:

00:58:28,799 --> 00:58:32,057

being one of the more important factors

of, you know, you should fit it on one

:

00:58:32,057 --> 00:58:36,344

page because you, you can't contractually

obligate people away from bad behavior.

:

00:58:36,354 --> 00:58:38,004

If you have a bad actor,

you have a bad actor.

:

00:58:38,594 --> 00:58:40,624

Tobias Carlisle: mean, it's certainly

true in small cap world, right?

:

00:58:40,624 --> 00:58:44,594

There's a lot of small cap managers who

are, you know, owner operator is great

:

00:58:44,914 --> 00:58:49,679

unless the owner is sort of, Making

all of his returns through salary and,

:

00:58:49,749 --> 00:58:51,539

and option grants and things like that.

:

00:58:52,059 --> 00:58:54,389

Ideally you want, you know,

so Tesla is a good example.

:

00:58:54,389 --> 00:58:58,099

Like Musk's packages,

Musk's pay package is huge.

:

00:58:58,109 --> 00:59:02,462

That's like 50 billion kind of option

grant, which has been turned down.

:

00:59:02,852 --> 00:59:05,582

You know, you see that all the time in

the small and micro world where they

:

00:59:05,582 --> 00:59:09,082

get these big slugs of options and they

move all of the timing of it around.

:

00:59:09,802 --> 00:59:12,232

That behavior, you know, technically

it's legal, but don't want to

:

00:59:12,242 --> 00:59:13,352

be in business with a dude.

:

00:59:13,607 --> 00:59:14,477

Is someone who's doing that?

:

00:59:14,477 --> 00:59:15,067

Probably not.

:

00:59:15,837 --> 00:59:18,927

Now I want someone who wants to make

money with the shareholders as well.

:

00:59:18,927 --> 00:59:21,407

And that's sort of, that's, that's

where it's really important.

:

00:59:21,617 --> 00:59:25,327

Which I think you can, all of that is

observable in the financial statements

:

00:59:25,327 --> 00:59:26,607

and the proxies and things like that.

:

00:59:26,607 --> 00:59:30,077

I don't think you, you need to do any

like psychological analysis of the,

:

00:59:30,337 --> 00:59:31,757

the management or anything like that.

:

00:59:31,757 --> 00:59:35,117

I just think you look at the

financials and it tells you, you,

:

00:59:35,117 --> 00:59:36,287

don't have to listen to what they say.

:

00:59:36,944 --> 00:59:37,304

Mike Philbrick: Love it.

:

00:59:37,434 --> 00:59:40,962

So anything else from, uh, from, was

it, Noticeably different given that

:

00:59:40,962 --> 00:59:42,512

it was televised for the first time.

:

00:59:42,512 --> 00:59:44,572

Did you see any other, you know, sort of,

:

00:59:44,937 --> 00:59:45,997

Tobias Carlisle: it's

been televised before.

:

00:59:46,007 --> 00:59:47,967

It was very full, it was a very full year.

:

00:59:48,297 --> 00:59:49,437

Last year was less full.

:

00:59:50,107 --> 00:59:53,777

I like doing it because it's the one

place where if all the value guys who

:

00:59:53,777 --> 00:59:57,437

I know all gather together in one place

so we all catch up and Have dinner

:

00:59:57,437 --> 00:59:58,857

and drink and a few things like that.

:

00:59:58,857 --> 01:00:00,497

That's sort of the interesting one.

:

01:00:00,767 --> 01:00:02,437

My wife doesn't care

if I go to this thing.

:

01:00:02,667 --> 01:00:04,977

It's just, it's all

very, very nerdy dudes.

:

01:00:05,972 --> 01:00:07,502

Mike Philbrick: she went

once and she's like, never

:

01:00:07,527 --> 01:00:08,267

Tobias Carlisle: I should never go.

:

01:00:09,117 --> 01:00:09,867

No chance.

:

01:00:10,499 --> 01:00:12,059

Mike Philbrick: everyone

commiserating about, Oh, I

:

01:00:12,059 --> 01:00:14,409

bought my Berkshire back in:

:

01:00:14,419 --> 01:00:15,169

When did you buy

:

01:00:15,304 --> 01:00:15,894

Tobias Carlisle: a big part of it.

:

01:00:15,944 --> 01:00:16,894

That's a big part of it.

:

01:00:17,539 --> 01:00:18,119

Mike Philbrick: I love it.

:

01:00:18,659 --> 01:00:21,369

What a wonderful tribe created,

on that, you know, sort of.

:

01:00:21,969 --> 01:00:25,389

Buy and die type of, uh,

framework of, of ownership.

:

01:00:25,509 --> 01:00:25,839

It's,

:

01:00:26,114 --> 01:00:26,434

Tobias Carlisle: Yeah.

:

01:00:26,474 --> 01:00:27,754

it's it's a good, it's a good crew.

:

01:00:27,824 --> 01:00:28,804

It's a good group of people.

:

01:00:29,949 --> 01:00:32,049

Mike Philbrick: So you got, you,

you've, you've intimated you got a

:

01:00:32,049 --> 01:00:35,409

book maybe coming, so I don't know

if, if, if it doesn't go with the

:

01:00:35,414 --> 01:00:36,819

publisher, maybe you should self-publish.

:

01:00:36,819 --> 01:00:37,209

Man, it

:

01:00:37,294 --> 01:00:37,924

Tobias Carlisle: Well, I have self

:

01:00:37,934 --> 01:00:38,799

Mike Philbrick: a pretty neat book.

:

01:00:39,334 --> 01:00:40,564

Tobias Carlisle: I self

published the last one.

:

01:00:40,594 --> 01:00:41,894

I've got no problem self publishing.

:

01:00:41,894 --> 01:00:43,454

I just think this one

needs a little bit of help.

:

01:00:43,484 --> 01:00:47,067

So I'm trying to find a publisher who

can actually edit it a little bit.

:

01:00:47,077 --> 01:00:48,400

So it's with Harriman.

:

01:00:48,430 --> 01:00:51,180

Probably it's going to be with

Harriman, unless that falls over,

:

01:00:51,180 --> 01:00:52,480

in which case I'll self publish.

:

01:00:53,375 --> 01:00:53,915

Mike Philbrick: Nice.

:

01:00:53,980 --> 01:00:55,360

Richard Laterman: what's

the theme of the new book?

:

01:00:55,520 --> 01:00:56,650

What are you focused on?

:

01:00:57,240 --> 01:01:00,000

Tobias Carlisle: So it's, uh,

Sun Tzu and Warren Buffett.

:

01:01:00,565 --> 01:01:02,665

The overlap between the two philosophies.

:

01:01:02,945 --> 01:01:05,335

It sounds crazy, but I do think

there's a lot of overlap and

:

01:01:05,335 --> 01:01:05,795

Graham as

:

01:01:05,795 --> 01:01:06,055

well.

:

01:01:06,645 --> 01:01:07,615

There's a lot of overlap.

:

01:01:07,995 --> 01:01:10,205

I think Sun Tzu is a little

bit under appreciated.

:

01:01:10,205 --> 01:01:13,742

You know, Sun Tzu talks about following

the moral law, which is like an

:

01:01:13,752 --> 01:01:17,522

idea of like looking for character

and trying to do the right thing.

:

01:01:17,832 --> 01:01:20,572

And that's how you know, you're going to

succeed because you're doing the right

:

01:01:20,572 --> 01:01:23,202

thing and ultimately the bad guys fail.

:

01:01:23,242 --> 01:01:23,612

That's the.

:

01:01:25,325 --> 01:01:25,985

Mike Philbrick: love it.

:

01:01:26,070 --> 01:01:27,750

Richard Laterman: the battle

before it's even fought?

:

01:01:27,970 --> 01:01:28,800

Maybe there's a,

:

01:01:29,360 --> 01:01:29,510

an

:

01:01:29,600 --> 01:01:30,130

Tobias Carlisle: going to win it.

:

01:01:30,430 --> 01:01:30,700

Yeah,

:

01:01:30,720 --> 01:01:32,920

that's, I mean, that's, that's

such a big part of it, right?

:

01:01:32,960 --> 01:01:35,330

Like how many people buy stocks

because they've seen it going up.

:

01:01:35,547 --> 01:01:37,667

And then when it stops going up,

they don't know what they're doing.

:

01:01:37,667 --> 01:01:38,367

Like, that's the idea.

:

01:01:38,992 --> 01:01:42,412

You figured out how this thing's going

to play out before you buy it and you

:

01:01:42,412 --> 01:01:43,942

figure out how you can lose as well.

:

01:01:43,942 --> 01:01:46,512

And so when you start seeing the

signs of losing, then you get out.

:

01:01:47,225 --> 01:01:47,375

Mike Philbrick: Yeah.

:

01:01:47,430 --> 01:01:47,700

Richard Laterman: Oh, yeah.

:

01:01:47,700 --> 01:01:51,607

That's actually an interesting, sort

of portfolio construction question.

:

01:01:51,617 --> 01:01:54,467

Do you operate with any,

uh, level of stop losses?

:

01:01:54,657 --> 01:01:55,467

Uh,

:

01:01:55,615 --> 01:01:57,045

Tobias Carlisle: no, I would

buy them all the way down.

:

01:01:57,045 --> 01:01:58,405

And that happened with Meta as well.

:

01:01:58,405 --> 01:02:01,829

I started buying Meta at what I

thought was half value, and we

:

01:02:01,829 --> 01:02:03,219

were still buying at a third value.

:

01:02:03,539 --> 01:02:07,219

And I thought that the business itself,

you know, the, the business, again, it's

:

01:02:07,219 --> 01:02:10,389

one of those hard things where the stock

price was following the free cash flow

:

01:02:10,389 --> 01:02:13,659

generation, which was collapsing because

Musk was reinvesting in the Metaverse.

:

01:02:14,372 --> 01:02:18,482

And we're all sealed into that with

Musk as he flies it into the sun

:

01:02:18,482 --> 01:02:19,492

or whatever he was planning to do.

:

01:02:19,932 --> 01:02:23,952

But at some point he changed his mind and

decided that he's going to go turn it into

:

01:02:23,952 --> 01:02:25,842

cash flow generation and pay a dividend.

:

01:02:26,288 --> 01:02:27,269

it worked out okay.

:

01:02:27,804 --> 01:02:28,584

Richard Laterman: you're

talking about Meta

:

01:02:29,029 --> 01:02:29,819

Tobias Carlisle: yeah, meta.

:

01:02:30,030 --> 01:02:30,330

Richard Laterman: Zuckerberg,

:

01:02:30,855 --> 01:02:32,385

Tobias Carlisle: What did I say, Musk?

:

01:02:32,385 --> 01:02:32,655

Yeah, Zuckerberg, sorry.

:

01:02:32,655 --> 01:02:33,125

Zuck.

:

01:02:34,100 --> 01:02:34,520

Richard Laterman: exactly.

:

01:02:34,602 --> 01:02:37,872

Mike Philbrick: So outside of finance,

what any other hobbies that you're into?

:

01:02:38,157 --> 01:02:43,137

That would maybe surprise people, little,

little insight into this, Australian

:

01:02:43,147 --> 01:02:47,437

law, former lawyer, deep value investor

in the, in the heart of California.

:

01:02:47,902 --> 01:02:48,722

Tobias Carlisle: I play a lot of tennis.

:

01:02:48,982 --> 01:02:51,172

My wife's a former D1 tennis player.

:

01:02:51,172 --> 01:02:53,362

So, that's always humbling,

go and play some with her.

:

01:02:53,362 --> 01:02:55,102

And then, my kids play tennis as well.

:

01:02:55,112 --> 01:02:57,842

So we spend a lot of time at the

tennis courts, playing a lot of tennis.

:

01:02:58,372 --> 01:03:00,788

So that's, uh, I think

tennis is a great sport.

:

01:03:00,969 --> 01:03:03,709

Particularly for kids, because

it's, you know, the, to master

:

01:03:03,709 --> 01:03:05,199

the stroke is a difficult thing.

:

01:03:05,199 --> 01:03:07,089

Mechanically, to hit a

ball is a hard thing.

:

01:03:07,639 --> 01:03:10,009

But then it's hard to score.

:

01:03:10,009 --> 01:03:10,999

The scoring is crazy.

:

01:03:10,999 --> 01:03:15,459

15, 30, 40, deuce, add,

nuts, doesn't make any sense

:

01:03:15,544 --> 01:03:16,704

Mike Philbrick: Different tiebreakers.

:

01:03:17,249 --> 01:03:19,649

Tobias Carlisle: which side of the

court you stand on, who's serving,

:

01:03:19,669 --> 01:03:21,009

all that stuff is complicated.

:

01:03:21,019 --> 01:03:24,169

And then after you've mastered

the mechanical stuff and you've

:

01:03:24,169 --> 01:03:26,849

figured out where you've got to

stand, Then you have to work out

:

01:03:26,859 --> 01:03:28,169

how to beat somebody in a point.

:

01:03:28,179 --> 01:03:29,549

And that's the really hard stuff.

:

01:03:29,579 --> 01:03:30,949

And most people don't get to that point.

:

01:03:30,959 --> 01:03:31,159

So

:

01:03:31,913 --> 01:03:32,054

Richard Laterman: Have

:

01:03:32,059 --> 01:03:33,459

Tobias Carlisle: I want

my kids to master it.

:

01:03:34,163 --> 01:03:35,413

Richard Laterman: Have you

figured out how to beat her?

:

01:03:35,444 --> 01:03:39,384

Cause as a D1, former D1 player,

it sounds like she would, uh,

:

01:03:39,394 --> 01:03:40,924

she'd probably beat you most games.

:

01:03:40,924 --> 01:03:41,564

Is that

:

01:03:41,689 --> 01:03:43,509

Tobias Carlisle: you can't, you

can't rally with a D1 player.

:

01:03:43,519 --> 01:03:45,159

You're just going to get pissed up.

:

01:03:45,269 --> 01:03:49,519

So the only way to beat a D1 player as

a man is to serve and hit a hard serve.

:

01:03:49,879 --> 01:03:52,744

So I'm going to win the point

on the first point on the first.

:

01:03:53,044 --> 01:03:56,494

Stroke or on the third stroke when she

recovers or I'm not going to win it and

:

01:03:56,564 --> 01:03:57,044

Mike Philbrick: I love it.

:

01:03:57,334 --> 01:03:59,134

I serve, I return once and then I stop.

:

01:03:59,144 --> 01:04:00,194

Tobias Carlisle: that's it, that's it.

:

01:04:00,489 --> 01:04:01,319

Mike Philbrick: saved my energy.

:

01:04:01,329 --> 01:04:02,509

Otherwise they saved my energy.

:

01:04:03,124 --> 01:04:04,124

Tobias Carlisle: that's,

that's the only way.

:

01:04:04,194 --> 01:04:06,314

Cause once you get in there,

they, they love to rally.

:

01:04:06,334 --> 01:04:08,294

Like that's what they're, that's

what they're brought up on.

:

01:04:08,304 --> 01:04:09,274

They rally all the time.

:

01:04:09,284 --> 01:04:09,454

They

:

01:04:09,594 --> 01:04:10,344

hit these crazy

:

01:04:10,354 --> 01:04:10,634

Richard Laterman: Yeah.

:

01:04:10,874 --> 01:04:12,444

So you got to do the Pete Sampras thing.

:

01:04:12,874 --> 01:04:14,204

Tobias Carlisle: Serving, serving volley.

:

01:04:15,274 --> 01:04:15,544

Yeah.

:

01:04:15,544 --> 01:04:17,274

I'm a, I'm a, I say I'm a, I'm a Aussie.

:

01:04:17,274 --> 01:04:18,913

So I'm Pat Rafter serving volley

:

01:04:19,474 --> 01:04:19,913

style.

:

01:04:20,919 --> 01:04:21,709

Mike Philbrick: All right.

:

01:04:21,719 --> 01:04:23,219

So, I mean, that's awesome.

:

01:04:23,219 --> 01:04:23,829

Little tennis.

:

01:04:23,829 --> 01:04:26,038

I know you, uh, you were

at Indian, Indian Wells.

:

01:04:26,089 --> 01:04:27,079

My wife was there too.

:

01:04:27,079 --> 01:04:29,689

I'm surprised you guys didn't bump into

each other and you didn't know each other.

:

01:04:29,919 --> 01:04:32,559

Tobias Carlisle: it's a, it's a fun,

uh, it's, I recommend Indian Wells.

:

01:04:32,589 --> 01:04:34,459

It's a real party atmosphere.

:

01:04:34,459 --> 01:04:36,339

One of the, there are some

girls at the club, one of the

:

01:04:36,339 --> 01:04:37,469

girls at the club is a pro.

:

01:04:37,769 --> 01:04:39,949

Well, there's a few pros of the club,

but one of the pros was playing in the

:

01:04:39,949 --> 01:04:41,279

double too, and watched the doubles.

:

01:04:41,489 --> 01:04:42,599

Mike Philbrick: Oh, that, that's awesome.

:

01:04:42,609 --> 01:04:45,589

When you've got someone there that's,

uh, that, you know, that's even better.

:

01:04:45,788 --> 01:04:47,599

Tobias Carlisle: And doubles

is, doubles is exciting.

:

01:04:47,969 --> 01:04:50,679

So I don't know, it's like

less, I'm less worried for them.

:

01:04:50,679 --> 01:04:52,089

It's just the crowd's going bananas.

:

01:04:52,219 --> 01:04:54,538

It's more like a, any other

sort of sporting match.

:

01:04:54,538 --> 01:04:57,399

Whereas the, the singles is like, they

suck all the oxygen out of the room.

:

01:04:57,399 --> 01:05:00,099

Everybody's very stressed and

tense when the singles is going on.

:

01:05:00,329 --> 01:05:01,919

Mike Philbrick: No, one's

allowed to say anything.

:

01:05:01,949 --> 01:05:03,379

You can't even sneeze.

:

01:05:03,379 --> 01:05:06,259

Don't God, don't stand up and

change seats or something like that.

:

01:05:06,259 --> 01:05:06,489

You're going to

:

01:05:06,669 --> 01:05:08,159

Tobias Carlisle: There's a lot

of cheering in the doubles.

:

01:05:08,279 --> 01:05:08,749

It was cool.

:

01:05:08,874 --> 01:05:09,904

Mike Philbrick: Yeah, it is fun.

:

01:05:10,774 --> 01:05:11,334

That's awesome.

:

01:05:11,574 --> 01:05:16,564

Now, what about on the, uh, on the

personal side, any personal mantra

:

01:05:16,564 --> 01:05:21,009

or Last bit of investment advice

that you could share with everybody

:

01:05:21,009 --> 01:05:24,149

that's guided you through the ups

and downs of the investing world.

:

01:05:24,149 --> 01:05:25,639

Cause we're, we're about an hour.

:

01:05:25,639 --> 01:05:27,219

So we're, you know, starting to wrap.

:

01:05:27,399 --> 01:05:29,869

And, uh, what, what are the, you

know, you, and you, you, you've

:

01:05:29,869 --> 01:05:33,199

just, you know, penned a book

with Buffett and Sun Tzu in mind.

:

01:05:33,209 --> 01:05:37,904

So, I mean, there's gotta be some

fantastic, East Eastern wisdom

:

01:05:37,904 --> 01:05:40,145

coming out that you could, that

you could share with everybody

:

01:05:40,145 --> 01:05:41,275

that's going to change their lives.

:

01:05:42,089 --> 01:05:46,709

Tobias Carlisle: I really enjoyed, I, I

read Graham, uh, Intelligent Investor.

:

01:05:47,494 --> 01:05:48,404

years and years ago.

:

01:05:48,464 --> 01:05:52,954

And I read Sun Tzu many, many times over

the years, because I think it's very hard

:

01:05:52,964 --> 01:05:54,424

to understand the way that he writes.

:

01:05:55,144 --> 01:05:57,534

It's a translation from ancient

Chinese, and there are lots of

:

01:05:57,534 --> 01:06:00,934

different translations, and the

translators disagree in the best

:

01:06:00,934 --> 01:06:02,304

way to express some of these ideas.

:

01:06:02,304 --> 01:06:05,774

And they're vastly different between

the translations, the meaning.

:

01:06:06,134 --> 01:06:09,714

What I found is that there's

the original one, which was, um,

:

01:06:10,144 --> 01:06:13,554

written in:

one that most people have read.

:

01:06:13,594 --> 01:06:16,154

And I think that's probably

the best one, but there's also.

:

01:06:16,419 --> 01:06:20,509

One that came out in:

which is looking at the Taoist

:

01:06:20,549 --> 01:06:23,679

influence of the Art of War.

:

01:06:24,109 --> 01:06:26,959

And I think that, and I had never

really had any exposure to that so

:

01:06:26,969 --> 01:06:32,730

I went and read the Tao Te Ching

and the I Ching and the Zhuangzi

:

01:06:32,740 --> 01:06:33,870

and a few of those other things.

:

01:06:33,910 --> 01:06:37,110

And I was kind of blown away by

the, there's some interesting

:

01:06:37,120 --> 01:06:37,910

wisdom in those things.

:

01:06:37,910 --> 01:06:42,480

And a lot of it is about patience

and letting things sort of unfold

:

01:06:42,490 --> 01:06:43,540

the way that they should unfold.

:

01:06:43,540 --> 01:06:46,510

And I think that that's

very apt for investing.

:

01:06:47,290 --> 01:06:51,520

And one of them, one of them that stands

out for me that Richard sort of alluded

:

01:06:51,520 --> 01:06:53,300

to it earlier, but you should, you should.

:

01:06:54,150 --> 01:06:59,090

Have a good enough understanding of your

subject matter and what's going to happen

:

01:06:59,317 --> 01:07:03,067

in this sort of engagement when you're

putting these positions on that you should

:

01:07:03,077 --> 01:07:07,137

be able to read the signs of it going

badly or going well, which is distinct

:

01:07:07,147 --> 01:07:08,417

from what the stock price is doing.

:

01:07:08,827 --> 01:07:10,677

Cause the stock price is

a little bit misleading.

:

01:07:10,677 --> 01:07:12,667

I think that's how other

people feel about it.

:

01:07:13,067 --> 01:07:15,837

What's actually happening in the

business is revealed internally.

:

01:07:15,837 --> 01:07:19,277

And that's what the Dow and

Sun Tzu would say as well.

:

01:07:19,277 --> 01:07:21,977

You look internally, ignore the surface.

:

01:07:22,387 --> 01:07:26,562

I think that The Tao begins,

the Tao begins something like,

:

01:07:26,639 --> 01:07:28,679

caught in the, caught in desire.

:

01:07:28,679 --> 01:07:33,712

You, you see only the, you know, you

see only the surface, but if you can see

:

01:07:33,802 --> 01:07:38,102

the mystery and you, you sort of, if you

can see inside, you can see the mystery.

:

01:07:38,102 --> 01:07:39,502

And that's what I, that's what I want.

:

01:07:39,502 --> 01:07:41,882

I want to see the mystery, you

know, I want to see what's going on.

:

01:07:42,547 --> 01:07:43,407

Mike Philbrick: All the answers lie

:

01:07:43,432 --> 01:07:44,082

Tobias Carlisle: the surface.

:

01:07:44,342 --> 01:07:44,932

That's it.

:

01:07:45,487 --> 01:07:46,837

Richard Laterman: Very poetic way to end.

:

01:07:46,857 --> 01:07:47,857

I want to see the mystery.

:

01:07:47,857 --> 01:07:48,367

I like that.

:

01:07:48,417 --> 01:07:49,217

That's a great phrasing.

:

01:07:49,859 --> 01:07:50,569

Tobias Carlisle: I think it's reality.

:

01:07:50,579 --> 01:07:51,389

You want to see reality.

:

01:07:51,389 --> 01:07:52,319

You want to see the mystery.

:

01:07:52,667 --> 01:07:53,387

The generator.

:

01:07:54,214 --> 01:07:57,014

Mike Philbrick: Well, everyone,

that's another hour on ReSolve Riffs.

:

01:07:57,784 --> 01:08:01,364

Toby Carlisle, Acquires Funds, Zig Deep.

:

01:08:01,504 --> 01:08:02,484

Those are the tickers.

:

01:08:03,014 --> 01:08:04,074

They are smashing it.

:

01:08:04,204 --> 01:08:05,924

this hour went, flew by.

:

01:08:06,124 --> 01:08:08,894

Uh, Tobias, always a pleasure

catching up with you and, uh,

:

01:08:08,894 --> 01:08:10,194

and, and sitting and chatting.

:

01:08:10,194 --> 01:08:11,604

And, uh, thanks so much for taking

:

01:08:11,764 --> 01:08:12,204

the time.

:

01:08:12,694 --> 01:08:12,884

Tobias Carlisle: Yeah.

:

01:08:12,884 --> 01:08:13,704

thanks for having me, gents.

:

01:08:14,184 --> 01:08:14,734

Thanks, Richard.

:

01:08:14,734 --> 01:08:15,214

Thanks, Michael.

:

01:08:15,214 --> 01:08:17,163

It's really, it's always great

catching up with you guys.

:

01:08:17,234 --> 01:08:17,874

Good seeing you.

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