#1438 Chris Pavese | Wall Street Investor on Bitcoin, Zyn, and Great Stocks

Chris Pavese is the President & Chief Investment Officer at Broyhill Asset Management. In this conversation, we discuss investing strategy, time horizons, what makes his firm successful, evaluating stocks, reasons to sell, why he invested in Philip Morris, ZYN trend, book recommendations, and bitcoin. ======================= Buy book: https://www.amazon.com/Live-Extraordinary-Life-Anthony-Pompliano/dp/0857199927/ ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Speaker 00

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode.

• 0:30Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 0:54Speaker 00

  There are so many different ways to make money in the market, right? You've got guys that you've got macro traders like we talked about, you've got short sellers, you've got trend followers, you've got right, the high-frequency traders, you've got venture, and not everything works for everybody. And not everything has to work. And so there's an unlimited array of opportunities out there today, and this is just the opportunity set right now. A year from now, we'll have a different opportunity set. So we don't have to get everything right. Again, it just goes back to like picking our spots, right? Like making sure we're investing where we can explain the thesis in one or two sentences. We feel really good

• 1:37Speaker 00

  about it. And if we can't do that, we probably shouldn't be involved. And so just knowing right where where your sweet spot is and where historically it hasn't, I think is a major edge.

• 1:50Anthony Pompliano?

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

• 2:10Anthony Pompliano?

  But then if I go to your Twitter feed, you'll be talking about Philip Morris and AI and a number of things that are kind of more modern, more, I think people are focused on short term. And so there's this almost like dichotomy or paradox to a degree of if you have these timeless investing styles and philosophies, you've still got to operate in the modern world.

• 2:29Speaker 00

  Sure.

• 2:29Anthony Pompliano?

  And so how do you think about the balance there? And like, when do you kind of put on your timeless investing, you know, strategy hat versus you say, hey, look, I got to look at, you know, what's the latest earnings report or what's going on on, you know, television today?

• 2:40Speaker 00

  Yeah, that's a good question, Anthony. I think it's a constant balance. I think first and foremost, the best rule of thumb I've come across, which is hard to stick with, but, you know, generally, if you're reading something, you know, it's very easy to get caught up in a Twitter doom scroll or, you know, go down rabbit holes online. But I think the best thing to do is to step back and ask yourself, is what I'm spending time on going to be relevant in six months, one year, three years, five years? Yep. Fed, for example, interest rate cuts 25 versus 50 versus nothing, right? Not something we're

• 3:23Speaker 00

  going to be talking about a year or two from now. But it's a balance too, right? The short term stuff matters on occasion, particularly when you're thinking about entering or exiting a position. The way I like to think about it is, I think there's this massive sweet spot in the market right now where you've got, yep, a ton of money chasing quarterly earnings and calling quarters. And then on the other end of the spectrum, you've got a ton of money looking out, you know, private equity style and maybe private equity in public markets, very long term, more traditional mutual funds that are right by and hold. And I think the sweet spot right now and probably for the foreseeable future is somewhere

• 4:05Speaker 00

  in the middle, right? So if you can identify opportunities that are, you know, further out than the pods, you know, trading quarters, trading months, but inside of private equity, I think that sort of one to three year sweet spot right now is super attractive.

• 4:22Anthony Pompliano?

  When you think about investing capital, I think part of the history of Broihill is You know, kind of setting you guys on a certain path, which is it used to be a family office. Now you all have started to invest not only that capital, but but obviously other capital as well. But it is still, you know, capital preservation was kind of the first thing when it was the family office. Then it was how do we drive returns? And so you're talking about structures and capital structures, I think, play a lot into time horizons. Time horizons play a lot into are you trading a lot or are you not? Are you preserving capital? Are you trying to grow capital? There's so much of like the way you set a firm up that I think sets the direction for what you're going to invest in, how long you're going

• 5:07Anthony Pompliano?

  to hold it, what is the goal that you have? And so talk a little bit about this transition from, you know, a fairly large family office to, okay, now we're going to be a standalone investment firm. And what were some of the decisions that you made there that really kind of dictate today? Strategy, time horizons, you know, maybe industries that you invest in, etc.

• 5:28Speaker 00

  It's been a busy couple of years. We've had a lot of fun. Obviously, a lot of market volatility as well. So trying to build a firm during the last couple of years of market activity has been interesting. I'd say the philosophy and process hasn't changed, right? I was fortunate enough, as you mentioned, moved down to North Carolina in 05 to manage money for a single family office. We, you know, they're still our largest client today. Obviously, the name of the firm, we kept the name of the firm, you know, to as a, you know, sort of a thank you for the trust and faith that they put in us and me over the last 20 years. But, you know, the firm today, as you said, is independent. We're based

• 6:12Speaker 00

  in Charlotte, North Carolina. So we moved outside of family offices, sort of foothills of the North Carolina Blue Ridge Mountains. So first step was moving a little bit closer back to civilization. I like to say Charlotte's a good middle ground between New York and Appalachian.

• 6:32Speaker 00

  I think, you know, one of the things I think that's made the firm unique is just the blend of different backgrounds we've got at the organization. So myself, I went to school initially as an architecture major, have always been really big into both arts and science. Our director of research, PhD in organic chemistry. So has literally worked in, you know, some of the largest pharmaceutical labs in the country. You know, we've got an analyst on the team with a finance slash art background. And I think we just try to, I think that range of backgrounds provides a different perspective than just hiring everybody off

• 7:12Speaker 00

  the street, or everybody at a investment banking, or out of the largest hedge funds. We do that, right? You know, the team's growing, we're about eight now. So it's a, it's a mix. But I think that range of thinking and the range of viewpoints adds a different perspective, and that results in a different portfolio, you know, relative to the market, relative to peers, and hopefully different performance over time.

• 7:39Anthony Pompliano?

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

• 8:03Speaker 00

  Good question. I think a couple of things. One is, you know, and again, it depends on the role, and it depends on the spot you're trying to fill, or the hole you're trying to fill. But I'd say, overall, we will hire for drive and motivation and hunger over skills. Skills can be taught, although there's some roles, right, where that skill and experience and years of experience need, you know, at some level have to be at the firm. I would say generally, you know, we've got this underdog mentality. I forget the quote where it's coming from, but, you know, one of my favorite quotes. I wish I could attribute it here is, you know, chips on shoulders create chips and pockets.

• 8:48Speaker 00

  And it's just that, right, that underdog mentality, always fighting, always fighting to win, always trying to get better, always trying to improve. That I think is consistent across the team. The other thing I think is somewhat unique for a small shop like ours. So I've worked with a performance coach for the last three years. That interesting, when I first went out and in the market looking for a coach, you know, my, I think everybody's in the industry. Role model is Wendy Rhodes from Billions. Actually learned that Wendy Rhodes, the character is built off of a performance coach.

• 9:28Speaker 00

  Live person here in New York, there's an interesting background story there. Interviewed her, her firm. Essentially read all of her books, but then figured out, you know, what she was offering, while incredibly valuable. We were looking for something a little bit more broader than just how to put up better numbers every year. You know, there's a lot more, as you know, that goes into building a firm, building the culture. And building an organization that's, that's built to last. And so, you know, we found someone or I found someone. That was a little broader in scope, right? I mean, this game is entirely 100% mental.

• 10:09Speaker 00

  And if you're not in the right headspace, it's impossible, right? Make the right decision. So I think having someone to help get you in the right headspace is incredibly important. After working her, with her for a year or two, we essentially opened it up to the entire team. So now she works with every single person on the team. She runs quarterly strategy sessions for the team that she facilitates. And then she's also integral to our hiring process. So circling back to your question, we do personality assessments for everyone on the firm. We do personality assessments when we're getting to the later stages of an interview with someone. And I've always really enjoyed those things. I'm very sort of introspective of sort of

• 10:55Speaker 00

  probably taken every personality type of test that you could individually, just for, you know, my own curiosity. The one she uses though is interesting is it's. Maybe, you know, three, four, five different characteristic traits all scored from zero to 100. So it's quantifiable. And so what's super interesting is we can plot the team and their scores on every one of those metrics and then see kind of where people fit, right? And what you're looking for, for each role is different, right? So like a certain personality may be good in terms of client relations, right? Working with clients every day. It's a different type of personality and different set of skills, obviously, that is

• 11:39Speaker 00

  in the weeds, you know, pouring through hundreds of pages of filings or building out models. So I think that's, that's been very helpful. And I think I would credit her and her work and our work together is we've, we haven't made thankfully yet, we have, I don't think we've made many, if at all, mistakes in the hiring process.

• 12:02Anthony Pompliano?

  When you're looking through those personality tests, are you looking for, hey, these are the results we need from the test that suggests that somebody is a good investor, a good researcher, a good, you know, whatever? Or are you looking for red flags that say, you know, oh, psychopath red flags, let's not hire that person, right?

• 12:18Speaker 00

  All the above, for sure. And there's some where, right? Like, and then sometimes there's, most of them come back, like, there's rarely an all clear, there's always some flags. We just, you know, we're okay with yellow, you want to avoid red. And we've had some where she's come back and said, no way, like, no way, here's why. And what's interesting about personality assessments is, right? It tells us about sort of who we are naturally in our natural state, but, right? We're all works in progress. And so that doesn't necessarily translate into how we behave every day if we're working on those things. But who we are on a regular day is very different than who we are on a day like yesterday,

• 13:00Speaker 00

  which was a lot, very stressful for some, for some people and very exciting for others. And so it's really helpful to understand how people behave and how they act when they are on what she calls their dark side, right? So you've got some people that, like myself, just tend to, you know, Overanalyze and just continue to grind and grind and grind and grind, looking for every detail and for every question we're trying to answer. You've got others that just kind of back away. You've got others that are fight or flight. And so knowing how everyone on that team operates when they're under stress

• 13:44Speaker 00

  allows us to manage the team more effectively. But it's both. It's, you know, and it's also, you know, just knowing, you know, how I work with individuals, which, you know, has been a learning process over the years. And knowing, you know, where we've had rubs in the past or personality types that don't work. It doesn't necessarily mean, right, that that's a, that's a no off the bat, but it's something we know we need to work on and continue to work on. And a lot of it is just communication upfront, right? So it's literally during the interview process, we're having these conversations. And it's like, you know, this is how I am. This is probably going to be an issue or maybe an issue at some time, right? We need to make sure that we're talking about it.

• 14:30Speaker 00

  If you see me moving in this direction, right? You need to slow me down and highlight, okay, here's what's happening and vice versa.

• 14:37Anthony Pompliano?

  When you have different personalities, every firm does, but you guys are so intentional about it. How do you then make decisions on investments? Is it all, you know, fall on one person, kind of making the final thumbs up, thumbs down? I always think it's like the Caesar, you know, type thing? Or is it, you know, hey, we need majority, we need consensus?

• 14:55Speaker 00

  Yeah, for the time being, and for as long as I've been at the firm, I'm, I'm making the ultimate decision on what's going into the book and what size and how it's being traded, but with input for the team. So team meets every morning, you know, talk about what's going on in the portfolio, what's going on in the markets, prioritize our workflow for the day. Beginning of the week, we prioritize our workflow for the week. Obviously, things change day to day and, you know, per your first question, sometimes there's short-term news that's really important and it's drop everything and we need to look at this.

• 15:31Speaker 00

  But I would say the work in itself, it depends, it's situation to situation. We have, we have ideas where, you know, Most of the team is involved and sort of dividing up the work between one person looking into management bios and backgrounds, others looking into financials and competitive backdrop, et cetera. And then there's other situations where there's just someone on the team that's better equipped to run with a name than other folks on the team and they run with it.

• 16:02Anthony Pompliano?

  And again, if you're long-term thinking, if you are kind of take that value approach, but you meet every day, like that's what that's what fascinates me about you guys, right? I think it was fidelity years ago, I've talked about the study a million times where it's like, you know, people who lost their password or died had the best performance. I don't think that I'm the type of person who could like look every day at a portfolio and be mature enough to not touch it. I don't think it has anything to do with maturity. And so how do you guys balance that, right? It's like you are trying to hold, maybe it's not hold for 30 years, right? Maybe it's a couple of years, but you're meeting, you're getting that feedback loop day in, day out, you're talking to the team. How do you balance?

• 16:46Speaker 00

  Yeah, it's, it's a conversation we have often, right? Because we want to, we don't want to get into a habit of we're coming into that morning meeting and just talking about news from the prior day or that morning and not focused on individual names, right? So some of it is making sure that, you know, we've got an agenda in that meeting, there's a, you know, cap on how quickly we're running down, you know, relevant news in terms of portfolio names or pipeline, but then also making sure we're spending the time digging deeper into an existing name or a new name. And I think, again, it's a balance, right?

• 17:28Speaker 00

  So everything we're doing, we're generally looking for three to five year doubles with minimal downside risk, right? So it's easy to, it's easy enough to find something that could double in three to five years.

• 17:43Speaker 00

  More often than not, I think investors are taking a lot of risk when they're swinging for something that's going to double very quickly, or 2X, or 3X, or 4X, or 5X.

• 17:52Anthony Pompliano?

  How do you underwrite the risk? How do you identify, hey, this is riskier than something else?

• 17:57Speaker 00

  Everything comes down to probability weighted expected return. Right? So for every name in the portfolio, we're coming up with multiple scenarios. Right? At the most basic level, it's best case, worst case. In terms of downside, it's what could possibly go wrong? What's the probability of that happening? And how much do we risk losing if that goes through? Right? And if we can get comfortable with those things and still underwrite a three to five year double, that's really interesting to us. And so going back to the question, right? So the daily meetings are just constantly revisiting assumptions for every name in

• 18:42Speaker 00

  the book. It's revisiting names we may have looked at six months, 12 months, 24 months ago that for some reason is back on the radar or might be of interest again. And it's thinking about those probabilities. So did this piece of news, right? I guess we're a little bit cheating by not, you know, still being somewhat immature in, you know, the action we would take on a piece of news won't necessarily and will rarely translate into a transaction, but it may shift, right? Either our probabilities or fair value. So it's just keeping in mind that any piece of news that comes in needs to be viewed in the light of, right?

• 19:27Speaker 00

  Does this impact our thinking? If so, how does it impact our thinking? Does it shift our sort of estimates of fair value? Or does it shift the probabilities that we're putting on any of those scenarios? Obviously, right? Yesterday's news shifted a lot of probabilities.

• 19:45Anthony Pompliano?

  Do you feel like you're more accurate underwriting the double in three to five years, or more accurate in writing, underwriting the downside? And?

• 19:54Anthony Pompliano?

  Accuracy could be like, hey, we spend more time on the upside versus downside, or it could just be there's more data available, right? And so how do you think about like, you know, hey, when we go into this, we're trying to underwrite both the upside and the downside.

• 20:06Speaker 00

  Yeah.

• 20:08Anthony Pompliano?

  Maybe it's not an accuracy, it's a confidence thing, right? Uh, are you more confident in upside or downside underwriting? And are there any structural things that give you more confidence? And or have you guys seen anything historically, you know, in the accuracy of both of those?

• 20:23Speaker 00

  Yeah, um, so it's interesting. We use a tool that tracks all of this data for us. So we can pull up any name in the portfolio, see our positions over time, the relative weighting in the portfolio. In addition to the optimal weighting based on, you know, expected, our probability weighted expected return.

• 20:44Anthony Pompliano?

  So this isn't like you guys are going into a room and you're like, you know, lick my finger, stick it in the air and hey, I think there's a 20% shot. You guys are doing work, you're coming up with a 20%, you're putting it into a piece of software.

• 20:54Speaker 00

  Yeah.

• 20:54Anthony Pompliano?

  And then basically it's running some calculation and spitting back out.

• 20:58Speaker 00

  And so that software shows our historical accuracy and forecast. It shows forecast relative to outcome. It shows batting average. It shows slugging percent, right? So returns are a function of how often you get something right and how much you make when you're right. And either one, you know, some people are much better at number one than two, others are two, one, and I think, again, it's, I think it's a balance.

• 21:21Anthony Pompliano?

  Yeah.

• 21:22Speaker 00

  The situations, you know, I would say depending upon the situation, we can be more or less accurate, right? So we've got, for example, a name in the portfolio today. Small cable company, 500, roughly $500 million market cap, 40% owned by private equity. Private equity offered to take the whole thing private at $4.80 a share.

• 21:48Anthony Pompliano?

  Okay.

• 21:49Speaker 00

  Another fund stepped in, took roughly a 10% position. Basically said, you guys are stealing the company. This thing's worth eight to 10 bucks a share. Laid out the math, which is pretty hard to argue with. We started buying the business between 480 and 520, 510 a share. Thinking and even at 520, the way to think about that is right, we've got downside to 480 and upside to, you know, a slightly higher bid to a largely right to a much higher bid.

• 22:22Anthony Pompliano?

  Yeah.

• 22:23Speaker 00

  Now that's dollars that, yeah, and that's probably, you know, I that's, we're not expecting a double there, but we're expecting a really good outcome in a few months. So if you annualize that, right, the IRR, we're still getting to a similar place. And there it's pretty clear what the downside is, right? Because we know now sure there's, it's a non-zero probability that the deal could fall apart. But we think even if it fall apart, it falls apart, the business is worth more than where it's trading today. And those are the types of situations where we like. And also it's right, that's a good example too, of why it's important to balance duration in the portfolio. Was just having a conversation with a friend yesterday about how I feel like there's a lot of times where we'll get the three to

• 23:07Speaker 00

  five year double, but we're treading water for the first year or two, and then it's a double in year three or four. And it's like, I wish we could just wait until year three or four. And sometimes that's easier said than done. But that's why I think it's important to vary the duration in the portfolio, to have some things in the portfolio that are more event driven, that are going to force some sort of monetization in three, six, 12 months, and others where we're not sure when that value is going to be realized, but we know that we're being paid to wait. And we know that, you know, we, you know, we're really comfortable with the downside risk. We're really comfortable that we're going to be right. And we're just waiting for the market to come around to that view.

• 23:52Anthony Pompliano?

  Let's go back to this cable company. This is interesting to me. Forget the individual company, but just like the idea that, hey, we know that there's, you know, at least possibly a downside to this $4.80 a share, you guys are in, let's just say $5.20, right?

• 24:08Anthony Pompliano?

  And you think that it's a short duration, potential return. You bet the farm? Do you, you know, like, how do you think about not just the batting average, but the slugging percentage on that? And, um, you know, I was listening to a podcast that Stanley Druckenmiller did recently and he's, I think I've heard him maybe say it 100 times at this point on different interviews where he says Soros taught him, you know, it's not if you're right or wrong, it's how much you make when you're right.

• 24:30Speaker 00

  Yep.

• 24:31Anthony Pompliano?

  So how do you think about something like that, which, you know, again, has some unique characteristics to it? You probably go through your whole process. You come up with, you know, here's the probability of a certain outcome on the upside, but then sizing now enters into the equation.

• 24:44Speaker 00

  Yeah. So there's a lot of factors that come into play there. I would start by saying, we probably, again, going back to capital preservation downside protection, we probably flip flop what most folks on the street do. So I think most managers, their biggest positions are going to be where they see the most upside. Right. And highest conviction, most potential upside.

• 25:08Speaker 00

  And that works great when it works. But you wind up with, right, some really aggressive concentrated holdings and you see some returns like we saw right across the board in 2022, where people get run over. We do rank the portfolio on probability weighted expected return. So we've got an expectation of what we're going to generate on every name. But generally our largest positions are where we think it's almost impossible to lose money. We still see the upside, right? But like, and so going back to this particular example, this is a small position. It's currently about 3% of the portfolio. And that's because I don't consider it right without the event on the horizon.

• 25:54Speaker 00

  I don't consider it a really high quality business. And we're not afraid to invest in lesser quality businesses at the right price. We're not always just saying, we just buy good businesses because sometimes bad businesses are great investments. And I can talk about a couple of, a couple of those as well. But there are other situations where, you know, the best of both worlds is.

• 26:18Speaker 00

  An example we've talked about a lot, which is closed, was Microsoft Activision.

• 26:24Speaker 00

  All right, Microsoft offered to buy Activision $95 a share. Activision traded down towards 75 at one point while that deal was in the works.

• 26:33Anthony Pompliano?

  Why?

• 26:34Speaker 00

  The market just assumed there was zero, like literally less than, at one point, it was 20, 30, 40% probability the deal would close.

• 26:42Anthony Pompliano?

  Because of?

• 26:42Speaker 00

  Because of our wonderful FTC, yeah.

• 26:46Anthony Pompliano?

  We're gonna talk about the FTC.

• 26:47Speaker 00

  We can go there, but yeah, right, for the same reason that, you know, a Hamburg, Handbag merger was just turned down in the US.

• 26:55Anthony Pompliano?

  So for people who don't know, the FTC is the organization that has the lovely privilege of thumbs up, thumbs down, literally caesuring these acquisitions, the bigger the acquisition, the less likely recently they have been excited about approving them.

• 27:10Speaker 00

  Yeah.

• 27:10Anthony Pompliano?

  And so this traded down because although there was a, you know, a deal that was going to be conserved at $95 a share, the FTC had a lot of scrutiny.

• 27:19Speaker 00

  Yeah.

• 27:19Anthony Pompliano?

  And there was times where it looked like they were actually not going to let it.

• 27:23Speaker 00

  Yeah.

• 27:23Anthony Pompliano?

  Get approved.

• 27:23Speaker 00

  And I think that was consensus opinion up until the final day is that there was no way it was going to go through. Part of it also is just blowback, blowback on big tech, right? And we thought it was interesting that one, Microsoft is probably in recent years stayed out of the headlines as much as some of the others, where if you go back 20 years, you know, Microsoft was the one people were talking about breaking up and were right in the crosshairs. So we thought, we felt a little bit better that it wasn't, you know, Amazon or Apple or Alphabet trying to make this transition.

• 27:56Anthony Pompliano?

  Gates went from the kid in the garage to like, you know, it's a live long enough and you become the king, right? And he became like the big evil billionaire.

• 28:05Speaker 00

  Uh huh.

• 28:05Anthony Pompliano?

  Uh, break up his company, the whole thing. And he has like maybe oscillated like somewhere in the middle. He's still really rich. There's plenty of people who, you know, claim some of his philanthropic stuff or whatever, they critique him, all that. But from a business perspective, maybe it's because he now isn't as involved day to day.

• 28:23Speaker 00

  Could be.

• 28:23Anthony Pompliano?

  Maybe Satya has just done a great job of kind of positioning the business. I, I don't really know, I haven't spent enough time on it.

• 28:30Speaker 00

  Yep.

• 28:30Anthony Pompliano?

  But it is fascinating that you go from startup to monopoly to like.

• 28:35Speaker 00

  Well, we're cool with you. And, and the business did something similar, right? So I would say, let's see, 25, so it wasn't much more than 10 years ago.

• 28:45Speaker 00

  Where you couldn't give Microsoft away for five times operating profit. Like, no one was interested in Microsoft and it was still the same exact business it was today. And but today, everybody is jumping up and down and falling all over themselves to pay thirty, thirty-five times earnings for it. It was literally trading right on a EBIT basis or right enterprise value to operating profit mid-single-digit multiples. And no one that, you know, we were being laughed at for owning it because it was obviously a dinosaur and, you know, Google was going to take over the world and nobody was going to use PCs anymore because, you know, the iPhones and, it's just amazing how sentiment comes full circle.

• 29:23Anthony Pompliano?

  But here's the thing, so there's a great book, The Man Who Beat The Market. It's about Bill Miller and, you know, I think he was maybe the first story of a, I'm going to consider that still modern, you know, kind of economy and investing, late nineties, early two thousands. He was very much a value investor and he did something similar with Amazon where he started to buy Amazon. He was basically persecuted in the, you know, value investing community and they said, what are you doing? That's not a value investment. It's a tech company. This is insane, blah, blah, whatever. And he essentially made an argument, like, forget the company for a second. Look at the valuation, look at the business, look at the trends, you know, kind of a traditional value investor approach.

• 30:06Anthony Pompliano?

  And he said, just because it is a fast-growing company doesn't mean that you can't be buying it for less than it's worth.

• 30:11Speaker 00

  Yeah.

• 30:12Anthony Pompliano?

  Right? Was that basically the thought process with Microsoft? Was you guys weren't taking a position that like, Microsoft is going to end up being an AI leader or kind of any of that?

• 30:20Speaker 00

  No, we were.

• 30:21Anthony Pompliano?

  You're just looking at the finances?

• 30:21Speaker 00

  This was, this was, so we haven't owned it in some time. We bought it when Bomber went, Bomber left and Nadella came in and we thought that was the catalyst and that's what they needed.

• 30:34Anthony Pompliano?

  So it's more event-driven.

• 30:36Speaker 00

  And so, and again, you know, we owned it coming out of the financial crisis and then sold it and then bought it again when Nadella came in. You know, patted on our, patted ourselves on the back for selling at a fifty to a hundred percent gain in six, twelve, eighteen months. And then left who knows how many several hundred percent on the table since then. So I don't know. I would 100% agree with what you just said and Bill Miller's approach. I think value investing has gotten a bad rap over the last 10, 15 years because traditional value investing really hasn't worked, right? Just buying low price to book or low PE and just kind of what I would call statistical

• 31:17Speaker 00

  value investing in, you know, traditional sleepy industries like energy, banking, commodities, et cetera, has not, has been a hard place to be. The way we think about value investing is, is similar to what you just said. It's, we're looking for mispriced assets. We're looking for bets that are mispriced in the market. Sometimes that's in a cable company that's being acquired by a private equity firm. Sometimes it's an Israeli software provider that nobody wants to own because it's going to be disrupted by AI. Sometimes it's, you know, an amusement park in the US and, you know, after backlash from,

• 32:02Speaker 00

  you know, a number of different, a number of different items. So, I mean, we've owned things from, you know, we've probably owned most of the mag seven at one point in time. We've owned Netflix, we've owned Meta, we've owned Alphabet, we've owned Apple, we've owned Microsoft. We're probably just more sensitive to what we pay for those businesses.

• 32:20Anthony Pompliano?

  Mm hmm.

• 32:21Speaker 00

  So, and a lot of it is, you know, you mentioned AI. A lot of it comes down to, you know, I think Warren Buffett put it best in terms of, you know, looking to clear one foot hurdles, right? There's no, there's no style points in this industry, right? Like if we can keger at 15, 20% annually by just buying, you know, buying and holding Berkshire Hathaway instead of trying to call the next winner an AI, why wouldn't you do that? And so I think.

• 32:54Speaker 00

  I forget where I was.

• 32:55Anthony Pompliano?

  So I I've got, I got a million questions. So I'm just gonna start firing them. Ready? Steve Ballmer is richer than more than Bill Gates now, which is hilarious. For those that don't know the story, basically Gates got tricked into doing like the philanthropy stuff. He did a lot of good stuff, but if he just held the Microsoft stock and not done that, he'd have a trillion dollars, which he could do more philanthropic stuff with now. So there's always this like trade off, Ballmer owned, I think he was, I don't know, maybe the 100th employer or something. He somehow negotiates like 8% of the business or 10%. Some, some like small but meaningful percentage of the business. It just holds and ends up having more money than Gates now, which on that, on the face is hilarious.

• 33:35Anthony Pompliano?

  But how much do you pay attention to? You know, Ballmer's the CEO, he's not selling his stock or maybe he's buying more. Is that a data point that you would look at in terms of, hey, we're actually going in and seeing like, what are the executives doing? Which, you know, there's some funds that that's all they do. They just say, hey, look, a part of our screen is if the CEO is buying hand over fist, we're buying. If they're selling, we're selling.

• 33:58Speaker 00

  Yeah, I think, right, CEOs insiders can sell for lots of reasons. And they're not always related to their view on the stock. When they buy, there's one reason.

• 34:13Speaker 00

  You have to be careful though, right? Because there's a lot of like insiders know this. And so there's a lot of games and some like there's, I would say more often than not, they're just what we call painting the tape. So small purchases, so you really have to look at how much they're buying relative to, you know, how much they're being paid on an annual basis, what their overall net worth is and how much stock they already own.

• 34:35Anthony Pompliano?

  So somebody's worth a hundred million dollars, you're getting paid $10 million as the CEO of a public company, they're buying 100K. You're like, hey, we're not even, you don't care. But if they're buying $5 million now, hey, that that actually might be material.

• 34:45Speaker 00

  And then if you see a flurry, right, multiple insiders, board members, et cetera, buying, that's a stronger signal than just one data point.

• 34:52Anthony Pompliano?

  Got it. Okay. Um, where do you get these ideas from? Like, one of the things that I always find fascinating is in the private markets, most investors, especially venture capitalists, they play kind of a game of like, I'm trying to find smart people and the smart people tell me the idea. So somebody may come to pitch me and say, hey, you know, I'm looking for an angel investor. Maybe I talk to like my existing founders or I talk to other investors, I say, who, you know, who's interesting out there, whatever. But very few venture investors are sitting down saying like, I think X area is going to be really big, or I think that, you know, a certain company doing Y is going to be big and go hunting. Yeah. So how do you guys do idea generation? Is it more so you guys are generating this stuff and then going

• 35:37Anthony Pompliano?

  looking? Or do you have some sort of screener? Are you like the guy at the coffee shop? You hear something and, you know, next thing you know, you guys are buying Colombian bean, you know, coffee company or something?

• 35:47Speaker 00

  Yeah. You know, listen, I wish I could tell you, we've got the secret sauce for coming across the best ideas. There's no secret sauce. We do everything everyone else does. I think the risk to the venture model, which you also see in our universe and hedge funds is like, that's how you wind up with really crowded positions. That works great, right? When everybody's buying and pushing the stock up, but right when a piece of bad news hits or data point comes in lower than expected and the first person exits, next person hits the exit. That's also why you got a lot of crowding and a lot of volatility in the market. But in terms of idea generation, you know, I think that my favorite quote is from John Cleese, founder of MoneyPython, one of them. And it's basically, he was asked the same

• 36:32Speaker 00

  question. He said, we're not sure where we get our ideas from. We just know they don't come from our laptops. And it's just like, sitting in front of the screens all day is not going to, right? You're not thinking critically, you're not thinking, you're not slowing down enough to kind of think through and recognize what's a good idea and what's not. But it's all the above. It's talking to other investors we respect. It's attending conferences, whether it's right, investment related conferences or industry related conferences. You know, it's reading filings, it's looking at 13Fs, it's looking at insider buying, it's looking at insider selling, it's looking at corporate actions. You know, I'll give you Probably easier to talk through a few examples, right?

• 37:16Speaker 00

  So right now, we're looking at a home builder in the UK that caught our attention because, you know, stock lost like a third of its market value over a couple of weeks because they basically said they've overestimated costs on nine of their several hundred properties. That doesn't seem like a big deal to us, right? But you know as well as we, there's rarely one cockroach and that's what the market's worried about right now, right? And so, you know, the first thing to look at there is can we get a, you know, how can we get confidence? Can we get confidence that this is just a one-off? Or is there something, you know? So what do you do? More trouble? In that situation, we just need to talk to as many people as we can, right?

• 38:00Speaker 00

  Talk to employees, former employees, competitors, people that know board members, people that know executives, right? Talking to management, talking to IR, they're going to tell you what they tell everybody. So it's just, you know, how can we get closer to the situation? And if we can't, then, right, then we just, that's a pass. Other times, it's a piece of news. So we've recently reinvested in the domestic theme park industry. It's an industry, also an example of not a great business, but one that can be a good investment if bought at the right price. Our first time around in the industry was coming out of the financial crisis. Six Flags filed for bankruptcy.

• 38:43Speaker 00

  Cedar Fair was teetering on bankruptcy. Apollo came in to made a kind of stalking horse bid for the company. They turned it down, which got our attention because they basically said, we don't, you know, we're, we don't need to take a low wall bid, we're going to make it through. And that turned out to be the right call and we did really well on that investment over a number of years. We made one other investment in the, in the industry after exiting Cedar Fair. And then more recently noticed that Cedar Fair and Six Flags merged, which got our attention. And I think is equally interesting or even more interesting because Cedar Fair historically wasn't Structured as a traditional C corp.

• 39:27Speaker 00

  It was structured as a partnership, which limited its shareholder base. Right? A lot of institutions are not going to invest in it because you know, you literally get a K1 from buying a stock and who wants, who wants that? When they bought Six Flags or when they merged, they converted to a C corp. So automatically you've opened up an entirely new investor base. And I think now you've got the better management team running the combined business. And I think there's a lot of opportunity there. But that was, that's an example of something where we were involved in the past. We followed the industry for a long time and just something comes along that sort of puts it, puts it back on our radar.

• 40:05Anthony Pompliano?

  When I think of hedge funds, I've watched TV shows, I've watched the movies. I got a lot of friends that run them, they let me come to their office every once in a while. Like these are just intelligence operations masquerading as hedge funds, right? I mean, in a very kind of elementary way, it is all about information. And now it's regulated, so there's certain information you're allowed to have, certain information you're not, et cetera. But I think the quintessential examples that, you know, people hear is like the hedge funds, like getting satellite photos of Walmart parking lots. Right? Or, you know, using infrared measurements of oil, you know, containers or like whatever crazy thing people, people are doing. But there's also a lot of information that is not that crazy.

• 40:45Speaker 00

  Yeah.

• 40:45Anthony Pompliano?

  But seems to be highly coveted by hedge funds. There's obviously like the GLG, you know, kind of information networks. But then there's simple things like, I'm an investor and I've been for a long time. They just do cell phone data of foot traffic. Right? And like, hey, it's way better than counting cars.

• 41:03Speaker 00

  Yeah.

• 41:04Anthony Pompliano?

  They just say, how many people walked in the store, how many people didn't? You might, you know, get an idea of whether sales are up or down.

• 41:09Speaker 00

  Yeah.

• 41:09Anthony Pompliano?

  And so how do you guys think about, you know, what information actually is high signal for you? How much of it is like, let's go get data that we can crunch versus it's more the qualitative stuff of let's go talk to people. And maybe we can just like glean some insights. And then how do you know when you have enough? Right? Like, like there's always more you can go get. But, um, you know, going back to Druck's, I just listened to his podcast he did. He's like, yeah, you know, Soros taught me the like invest then investigate.

• 41:36Speaker 00

  Yep.

• 41:37Anthony Pompliano?

  Which, you know, works for him, not for everybody. But like, what is your guys' process like? And how do you think about that information gathering?

• 41:43Speaker 00

  Yeah. That's the really hard question in terms of what's enough, especially for, I imagine you're probably programmed similarly, like, I want to know everything about everything. And it's that's not possible, unfortunately.

• 42:00Anthony Pompliano?

  Maybe knowing what car the CEO drives might be this one data point that's going to give you an edge, right?

• 42:05Speaker 00

  And so I think it's, you know, and this is where I was going earlier with with the Mag7 and owning owning most of them at one point in time. I think the way to think about it is, what's enough varies with the price, right? So the amount of questions that you need to answer, I would argue, let's use Meta, for example, and I don't know where Meta is trading today, but I'm guessing it's 25 times earnings or somewhere around there. The number of questions I think we need to get right and have a answer to, and perhaps even a different answer than the consensus on Meta today with all the uncertainty around

• 42:50Speaker 00

  AI and everything else, right? There's a, there's a lot more questions we need to understand and get right than we needed to answer when Meta was trading at literally eight times earnings a couple of years ago. Like, at that valuation, the only question we needed to answer was, is this company going to be around in X amount of years? Because between now and then, they're going to generate this much in cash flow.

• 43:14Anthony Pompliano?

  And it's really a risk analysis, is what you're saying. It's like, like, at eight times earnings, there's just way less risk, and therefore you don't have to mitigate as much versus at 25 times, you got to get more information for mitigation.

• 43:27Speaker 00

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

• 43:56Speaker 00

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

• 44:38Speaker 00

  and get an understanding for, right? Like, if we pull this lever, how much does our fair value shift versus this lever? Okay, this lever is not really mattering that much. We don't need to spend as much time here, but like, this one is make or break. If we get this wrong, we're wrong, right? If we get this right, we're right. And so then you just spend all your time focusing on that one. And then in terms of the data, I think that goes back to, right, what I had said earlier on, and why there's opportunity in the middle. Like, you know, we have access to a lot of those resources. We look at a lot of those things. But the reality is like, we're not trading in and out of things throughout the day. We're not trading quarters. And I think for us, you know, we're playing,

• 45:22Speaker 00

  we're playing someone else's game, and we're not going to win that game, right? We want to play, we want to play the game that we know we're good at, that we know we have odds to win. And where there's, right, like today, there's just less competition. Everybody's trying to play that, right? Like, you know, traffic in the stores, satellite images, getting the next data point, credit card data, like, everybody's playing that game today. There's, there are trillions of dollars, literally, you know, chasing those data points. We're not going to move faster than those people. And we know that.

• 45:53Anthony Pompliano?

  I always use the, the example of like, you can go and talk to a small business owner who's got a couple of locations, and there's like, two different types. So you can go talk to one, and they're like, well, I, you know, commissioned a study, I count cars, I do all stuff, whatever. We like, find the highest traffic place, and it's got to be a certain size lot, blah, blah, whatever. And like, that's, that's where we go. And then you can go talk to like, it's kind of like the old boys network, right? And you go and you talk to one of those guys, and you're like, hey, I picked the location. He goes, Son, I find Walmart and I set up shop across the street. Right. And it's kind of just like, yeah, well, guess what? They did all the work, right? They probably got an idea as to why there's so much traffic there. And maybe you're not right 100% of the time, but for 95% accuracy for 0% of the work.

• 46:38Speaker 00

  Yeah.

• 46:39Anthony Pompliano?

  Pretty good strategy.

• 46:40Speaker 00

  Yeah.

• 46:40Anthony Pompliano?

  And so I do think kind of investing to a degree is, uh, yes, there are the high frequency guys and you know, kind of all that stuff. But, um, many of the best investors in the world, it is kind of the like, let me just go find the Walmart and set up shop across the street.

• 46:53Speaker 00

  Yep. And it's, that's a good point, right? Like I think one of the things we've done a good job and partly maybe from the family office background is, you know, we've got a good investor base, a lot of which are entrepreneurs running, running their own businesses, private industry, that are great data points for us. Um, and so whether it's, you know, existing investors that, um, we're talking to, or prospective investors that are entrepreneurs, a lot of our, a lot of our investor bases, you know, falls in that category. Or other family offices that have history, right? Operating, but they may still operate a business or did operate a business. Leveraging those contacts and just talking to real people on the ground, running private businesses. I think there's a ton of value there.

• 47:38Anthony Pompliano?

  Yeah.

• 47:39Speaker 00

  Um, and it's more, it goes back to, right? Like just thinking more qualitatively about, um,

• 47:46Speaker 00

  you know, the positioning of the business, the structure of the industry, like you're not going to get that out of, you know, you're not going to get that modeling in Excel. Um, you know, just a really deep understanding of how the business works, how the economics of business work, how businesses compete in the industry, right? What the competitive landscape is like. Um, there's, yeah, talking to folks that are actually running those businesses is the best way to do it. And, you know, if you're talking to management of a publicly traded company, you're just getting the corporate line.

• 48:17Anthony Pompliano?

  Speaking of information, another decision you have to make, we've been talking about buying the stock. At some point you gotta sell, right? Like it kind of doesn't count until you got the money in the bank.

• 48:27Speaker 00

  Yeah.

• 48:29Anthony Pompliano?

  How do you know when to sell?

• 48:31Speaker 00

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

• 48:39Anthony Pompliano?

  I think I

• 48:40Speaker 00

  Reminding the kids.

• 48:41Anthony Pompliano?

  As I've gotten older, I have drastically shifted my thought process that I used to think buying was the hard part.

• 48:49Speaker 00

  Yeah.

• 48:49Anthony Pompliano?

  I actually think selling

• 48:51Speaker 00

  Hundred percent.

• 48:51Anthony Pompliano?

  Is 20 times harder.

• 48:53Speaker 00

  Yeah.

• 48:53Anthony Pompliano?

  Because when things are going well, human nature is like, obviously it's going higher. Right? And then my friend Mark Yusko always says that humans are great at selling what they're about to need and buying what they should have bought.

• 49:09Speaker 00

  Uh huh.

• 49:10Anthony Pompliano?

  Right? It's like you want to buy one, it's already gone up, right? Think about it, people will say, oh, you look at this stock, it's up, you know, 40%.

• 49:16Speaker 00

  Yep.

• 49:17Anthony Pompliano?

  Most people are not saying, look at this stock, it's down 40%.

• 49:21Speaker 00

  Right.

• 49:21Anthony Pompliano?

  That's what they should be doing.

• 49:23Speaker 00

  Yeah, right, the, so there's three reasons to sell. One, the best reason is we own something, it's hit what we think it's right, what we think it's worth, we don't see a lot of upside from there, the thesis has played out as we expected, we sell and we move on because there's something else that, you know, is offering a better expected return going forward.

• 49:49Speaker 00

  That's the best case scenario. Worst case scenario is, you know, you were wrong. A lot of times that's tricky because you were wrong, stock price goes down, but, you know, your estimates come down a good bit, but stock price may have fallen more than that, so it still looks attractive. And so that's where you get into trouble, where you're holding on to things that, you know, constantly, you know, continue to look attractive, but your numbers are continually wrong. So being able to step aside and recognize when you're wrong, like this business requires An incredible amount of confidence to be able to say like, I'm right, market's wrong,

• 50:30Speaker 00

  right? Like, someone's always on the other side of a trade. And anytime you're making a trade, you're saying, I know more than that other person. But it also requires an incredible amount of humility to recognize, like, you know what, we were way off the mark here.

• 50:44Anthony Pompliano?

  The football coach will just be like, oh, we didn't lose, we just ran out of time. Right? Like, you know, if you hold it for long enough, you know, being a bag holder, actually, in a market where the dollar's devalued and stocks go up over the long run, like, there are many stocks that people were wrong on. And if you just held it for 20 years, yeah, sure, you come back and now you can like, claim victory, or was it the Japanese stock market? Yep. Right? I think it took like 20 years or something. And then all of a sudden, everyone's back above water. Yep. But there's a lot of lost time in there.

• 51:11Speaker 00

  Yeah.

• 51:12Anthony Pompliano?

  And so, um, do you have like, you know, trigger points where you're like, hey, we're down 7%? Sell it or?

• 51:18Speaker 00

  No, we don't. I've never. So stop losses. I've never, it's never been a thing for us. Um, right. And sometimes there's value in stepping aside, right? So, um, we've got a position in the portfolio today that is well, it's a name we know well, we've owned on and off for probably a decade. And we've gotten, we've gotten crushed in it over the last year. We still own it. Um, the, there's value at times in just saying, you know what, we're going to take this loss, we're going to book the loss, um, and just step aside for 30 days. One, to harvest the loss. But two, like, I think your reference point changes when you don't own it, relative to when you own it. Right? And so stepping away for 30

• 52:01Speaker 00

  days, that will really find out how we feel about the name and be able to look at it more objectively. Um, if, you know, we're dying to jump back in, or we want nothing to do with it. I think, um, to your point in terms of

• 52:18Speaker 00

  You know, being bailed out by the market over time. The Bill Miller example is a good one, right? Like, Amazon was down 90% peak to trough, right? From March 2002.

• 52:30Speaker 00

  If you held on since then, investors, like if you bought at the peak in 99 and held on through today, you've done well. You've cagered it probably like a mid teens type cager, right? But that's, you know, market overall does 10% annually. But that was like the single exception in history. Like you're, we're talking about like, you bought one of the most dominant, perhaps the most dominant business in history, and that turned out all right, right? If you bought anything else at the peak in 99 that was in that bubble, you would be lucky to have outperformed cash over the last 20 years. And really,

• 53:15Speaker 00

  like even the folks that held on to Amazon from 99 through today, and were strong enough to hold on through a 90% drawdown, like, you could have earned better returns by just buying what was out of favor back then. And that goes to your point, right of like, looking at, you know, really good at buying what's worked over the last five years and, and rather than buying what you probably should have, and that's what's gotten creamed.

• 53:41Anthony Pompliano?

  What about like, um, entering a position though, right? So for, uh, for that one in particular, I don't remember all the details, but I think the stock was trading at like just over a hundred bucks, maybe a hundred and twenty, a hundred and thirty dollars. It crashed to eight dollars. And a huge reason why I think Bill did so well in it, uh, from my understanding is like, he started buying and maybe it was seventy, eighty dollars as it fell. Um, and it kept falling, and he kept buying, right? So he was essentially dollar cost averaging, or kind of averaging down his cost. Um, and for those that don't know the story, he ended up owning like 15% of the company, a pretty good one to own. Um, and so in a weird way, like he, to your point, he had such conviction the market was wrong and he was right.

• 54:21Speaker 00

  Yep.

• 54:22Anthony Pompliano?

  That he was pouring more capital in as it was falling and he was like, happy to just be buying it lower? But going from 80 to 8.

• 54:30Speaker 00

  You know, it's hard.

• 54:31Anthony Pompliano?

  I mean, you frankly, let's call it, you got balls of steel, right? Like, I mean, you really got to have a viewpoint on the world. And for every one story like that, there's literally a thousand.

• 54:40Speaker 00

  Yeah.

• 54:40Anthony Pompliano?

  Where you just went to zero, you lost all your money, whatever. And so how do you guys think about entering these positions? Is something where you say, hey, we got a 3% target allocation. Let's put 1 and 1/2% in. If it trades down a little, we'll add to it. Or are there any kind of hard fast rules you use?

• 54:53Speaker 00

  No, I think both buying and selling, we rarely do in one move. Right? We're typically scaling on the way out, right? Because if we're updating our assumptions and markets and the names rallying faster than our valuation is moving, our expected return should be moving down, which means we should be trimming and redeploying into something with higher expected returns. And so we're typically scaling on the way out and scaling on the way in, right? Like as, as a value investor, more often than not, we're buying something where something is going wrong. Something's broken. Hopefully it's temporary and market thinks it's more than that. But that generally means we're buying on the way down. And unfortunately generally means we're buying early.

• 55:38Speaker 00

  So hopefully we're not buying from 90 to 8. But we are buying on the way down and that's a balance too, right? There are times where it just depends on the investment. Like there, there are industries and investments and setups where we are very familiar and very comfortable and can get up to speed really quickly. And so we'll go in and buy a decent sized position and ramp it, right? Pretty aggressively, pretty quickly as our work continues. There are other positions where we may be newer to the name. And so I'm not, you know, I'd be less comfortable putting a position on at any size

• 56:21Speaker 00

  before I felt like we had done enough work. And some of that too is just based on the number of names on the book. Like for us, we generally run with 10 to 20 names. If we're at 10 names. I start losing sleep at night thinking, you know, we're a little bit more over concentrated than I'd like. And so we may be quicker to sort of add smaller positions to the book to get some more diversification. If we're at 20 names, putting a new name in the book is going to be really hard. So it depends. We're generally doing work upfront and sizing up. Right. As our work continues, as conviction increases, and then just based on, right, as we're firming up the numbers, what that expected return looks like for us.

• 57:07Anthony Pompliano?

  How do you think of benchmarks? Like, at the end of the year, you say, we did a good job. We did do a good job. Most firms will just say, well, here's our benchmark. We beat it or we didn't. It's not fully fair because a hedge fund, the hedge part, right, is people are paying for some of that protection. But how do you pick benchmarks? And is it literally just beat it and that's a good year or what?

• 57:30Speaker 00

  Yeah, I think it's, so I shared something with the team earlier this week that I thought was, it was an example I came across that I thought was super interesting. So let's say we've got two managers. Both have performed exactly in line with the market over the last five, 10 years. But one's done so with half the volatility and half the downside risk as the other. Right. Like, looking at the alpha, right, that those managers generated, neither of them generated either alpha, any alpha. But I think it's pretty clear that the manager that put up those returns, right, while minimizing downside volatility, generated, right, that's a lot more valuable strategy.

• 58:16Speaker 00

  And so we, you know, everybody in the US benchmarks against the S and P, that's just the proxy, right? We run a global portfolio, so I think, you know, MSCI Acqui, which is a global equity index, is a better benchmark for us. But over time, if you look at like the last 100 years, the difference from the S and P and global equities is they've both returned about 10% a year. They just, they just go in and out of favor, right? So we've just gone through a period where, you know, I think, I think emerging markets made a new, you know, historic low relative to the S and P yesterday on the US rally. You know, international markets have underperformed US markets for most of the last 10, 15 years. Probably one of the most extreme periods in history.

• 59:03Speaker 00

  For what it's worth.

• 59:04Anthony Pompliano?

  Change?

• 59:04Speaker 00

  Yeah, I mean, for what it's worth, the last time we saw this degree of US outperformance was in the late 90s and it was very similar, right? Similar large cap tech driving markets, you had similar levels of concentration on a lot of measures, markets more concentrated today than it was then. But generally, like in terms of benchmarks, again, we're looking for three to five year doubles. So if we're doing our job, round numbers, right? That pencils out to 15 to 25% IRR, we're going to get some wrong. Everybody does. So you kind of move down from there. But generally, if we're like over, over time, we should be doing better than equity markets and we want to be doing that with less risk.

• 59:48Speaker 00

  And I think despite having, you know, a 10-year headwind for value, despite having a 10-year, 15-year headwind for anything international, where we've got about half the portfolio outside of the US. You know, the fact that we've put up the returns that we've had with those massive headwinds feels really good and would tell me that, right? When and if any of those things turn from headwinds to tailwinds, the next five, 10 years should look even better. And so maybe the benchmark, right? Maybe, maybe, maybe we'll pay more attention to the S and P then.

• 1:00:26Anthony Pompliano?

  I have a couple of other things I want to talk about as kind of examples for you guys' process, thought process, et cetera. One of them is Philip Morris. Philip Morris is something that I've seen you talk about a lot online, you and I have talked about.

• 1:00:39Speaker 00

  Yeah.

• 1:00:40Anthony Pompliano?

  And there's a part of Philip Morris, Zen, which is this product that's used by a ton of young people. I knew nothing about Zen. I now am somewhat of an expert in Zen because we've got a bunch of young people who are explaining all this stuff to me.

• 1:00:55Anthony Pompliano?

  And there's some things that are really interesting about it to me. So like one, you have a large company, but it's a one product that's growing very quickly. The rest of the business obviously has value as well. But like, I think there's a lot of people are saying, hey, that Zen chart of like Zen sales looks incredible. I want exposure to that, but I gotta buy this other thing that maybe has more noise to it than just getting, you know, pure exposure. And the second thing is, uh, it's in an industry that has lots of external kind of challenges or friction. So you have regulation, you have a physical product. So obviously there's supply chains. There's like all these things that aren't just kind of a traditional calendar app or consumer,

• 1:01:36Anthony Pompliano?

  you know, software or whatever. How do you look through something like that and try to say, hey, I see a trend that looks really interesting. It's obviously growing quickly. We think there's value that could get created here, but we gotta invest in a different company and this got kind of all these other things to evaluate.

• 1:01:51Speaker 00

  Yeah. Um, so we've been invested in Philip Morris for some time. Um, I think our initial investment came down to what you're talking about, right? Like, so it's one thing to think that a name or a business is undervalued, right? We want to buy things that we think are undervalued. We also want to understand why they're undervalued and why that might change. So with Philip Morris, right, it's the traditional tobacco business that we had thought and still think was dragging down the valuation of the business, right? Go back a few years and I think

• 1:02:32Speaker 00

  sentiment has changed quite a bit since then, especially given yesterday's results. But go back a few years and, you know, the ES, you know, the ESG trend and the amount of money that was pouring into ESG funds was just off the charts. You actually had in Europe, I forget, I forget what the number is when we looked at this. I think it was 12 or 13 trillion in assets that had signed a tobacco free pledge that they would not invest in tobacco products or tobacco companies. So you've literally had trillions of dollars of companies. And then of course, you've got all of the big institutional investors, endowments and pensions that are saying, you know, we're not moving away from oil, et cetera. And so the tobacco sector got completely creamed.

• 1:03:19Speaker 00

  Some of it was that sentiment. The other factor was vaping was completely destroying tobacco volumes, particularly in the US. Historically, US tobacco volumes had been declining low, mid-single digits, really for 20, 30, 40 years tobacco's been in decline. When Juul came on to the scene and then just vaping broadly in the US, tobacco volumes are now declining double digits in the US year over year. So Marlboro, right, used to be able to offset 2%, 3%, 4% volume declines with pricing, which is why cigarette prices have been increasing so much. Can they offset 9%, 10%, 11%, 12% volume declines? Harder.

• 1:04:04Speaker 00

  That's tricky. What we liked about Philip Morris was, one, when we first invested in it, they'd had zero exposure to the US. And so they had zero exposure to the US volume declines that were declining faster than anywhere else in the world. And they had, this was even before ZYN, they have and still have a product called IQOS. Are you familiar with IQOS? I know what it is. So IQOS isn't in the States yet. Actually, it's in Austin right now. We've got an analyst in Austin that was at their sort of IQOS coming out party recently. What a cool job.

• 1:04:39Speaker 00

  So IQOS is called, like, it's a heated tobacco product, right? And so let's step back. Tobacco in itself, or nicotine in itself, the chemical structure of nicotine is almost identical to caffeine. So by itself, it's not really any worse for you than caffeine. It's extremely addictive, but it's a stimulant like any other stimulant.

• 1:05:15Speaker 00

  What does most of the damage from smoking is actually smoking. It's inhaling that in their lungs. It's all the other stuff that's in cigarettes. And it's actually the combustion, right? And the carcinogens that come in through the lungs. So by just heating tobacco, instead of actually lighting it on fire, Icos has reduced something like 95% of the risk to traditional smoking. Unlike vaping, Icos is super interesting in that it's really not that attractive to non-smokers. Why I think the product is so successful is it's really close to the actual experience of smoking. So if you're a smoker, you know, I know a lot of smokers, well, not as many as, you know,

• 1:05:58Speaker 00

  we have in the past, but most smokers that vape do both. They haven't quit smoking necessarily. They just vape where they- Vape is just allowed in certain places where smoking is not- Right, it's like a compliment to smoking. Whereas Icos, most of the users of Icos, like something like 75% of them have quit smoking. And that's all they do. Philip Morris makes more money today selling Icos than they do selling Marlboro. Wow. That is wild. It took Marlboro- And probably good for society in general. It took Marlboro, I forget how many decades to get like the first like five or 10 points of share. Like Icos did it in like three or four, four or five years.

• 1:06:40Speaker 00

  So when we looked at it, we saw Icos that was growing then at, you know, 25% annually. Today, smoke-free products at Philip Morris represent half their sales. Or I'm sorry, 40% of their sales. And that includes Zyn. So we had, like you said, a growing portion of the business, growing, you know, that did not look anything like the tobacco industry, except for the profitability. By the way, Icos and Zyn are higher margin products than combustible cigarettes. And combustible cigarettes are one of the most profitable industries in the history of the world. Right, it's like literally like- Tobacco and paper. It's like software-like margins. And both Zyn and Icos-

• 1:07:24Speaker 00

  Are growing faster and higher margin, right? So you've got the economics of the business improving. You've got the risk profile of the business improving. So we looked at it and said, like, we're not sure when, but at some point, the market's going to start paying attention to this. Like in a few years, risk-free products will be two thirds of Philip Morris sales. I don't think that business should be priced like a tobacco company then. And to be fair, it's not priced like other tobacco companies today, but we still think it's completely mispriced relative to its value. So it was just thinking about, you know, understanding why it was misvalued and then thinking about, you know, what could change that? And so there were, you know, two points there. One, going back to ESG,

• 1:08:10Speaker 00

  we thought it was a bull market mentality and more of a fad. And I think you're seeing that today with the number of ESG funds closing down. And also for what it's worth, like at the peak of ESG, there was one year where oil stocks were the top performing sector in the market. And the number of ESG funds that own oil stocks like tripled that year. Oil didn't get any environmentally friendlier during that year. They just found a reason to own them because the stocks were going up.

• 1:08:40Anthony Pompliano?

  Well, I think Chevron or somebody was in the like, was ranked as the number one ESG company.

• 1:08:46Speaker 00

  I mean, it's just.

• 1:08:46Anthony Pompliano?

  Tesla, Tesla wasn't on the list.

• 1:08:48Speaker 00

  I mean, it's just a joke. That was just a complete joke. Like most of Wall Street products, like the way we viewed it was, was it was a great way for firms to charge more for the same product.

• 1:09:02Speaker 00

  Like if you look at ESG index funds, like the top funds were like identical to the S and P 500.

• 1:09:06Anthony Pompliano?

  Yep.

• 1:09:07Speaker 00

  Like it was just.

• 1:09:08Anthony Pompliano?

  They just, well, they're just good companies, right? So they just happen to be really good for the environment too.

• 1:09:11Speaker 00

  And so, you know, we thought when that reversed, you know, we would see more money flowing, you know, or, or people would find it. If the stock started working, people would find an excuse or make an excuse to buy it, ESG or not. And then the second thing was, you know, once. You know, once Zen and Icos really popped up on folks radar and started moving the needle at Philip Morris, we thought the valuation would shift and you've seen that dramatically in the last year.

• 1:09:39Anthony Pompliano?

  And I also think that the story has gotten out now, like forget stock investing for a second, just like parents see their kids with the Zintens. They see the chart, I mean, I've seen it on Twitter a hundred times, the, you know, sales chart, it literally looks like you drew like the perfect graph, you know, when you're going to pitch venture capitalists for your startup and you're like, we are going to grow at 28% CAGR for 15 years, right? This is nice thing. And so, um, if that's your thesis, what are the things that you pay attention to on a daily, weekly, monthly basis, whatever, that would convince you guys, hey, maybe the thesis isn't working? Is it just literally the like risk-free products, sales declining or slowing down or something

• 1:10:24Anthony Pompliano?

  else? What could change your mind?

• 1:10:26Speaker 00

  So there's a couple of things that make me nervous. One, one you've said a couple of times already since we've been talking about Philip Morris, all the young people with Zintens. So if, if you look at, and this is federal data, but like the most recent youth tobacco survey came out and I think Zen use, I know Zen usage was underage Zen usage was still less than 2% of the population. So the data we're seeing says that the average Zen user is like, you know, you know, higher end sort of top, you know, top quartile, certainly top 50% in terms of, in terms of

• 1:11:09Speaker 00

  household income, wealth, college educated, 35, 40 years old. Also, it's popular among women, so you've got mixed male and women. I don't know. I'm worried about like, I don't know that that under 2% youth usage number. When I look around, like you said, that makes me nervous. I don't like

• 1:11:30Anthony Pompliano?

  You think that regulators could come in and say, hey, there's underage people using it?

• 1:11:33Speaker 00

  I mean, they are. You're already getting pushed back, right? And the, and the problem was right, like, I mean, they've got a bad taste in their mouth from Juul. And Juul, to be clear, was aggressively marketing to underage users, like

• 1:11:47Anthony Pompliano?

  I actually had an opportunity to invest in Juul and was ready to go. Obviously, this is working. Look at all the data, whatever. And one of my partners came from the healthcare industry. And so he was very familiar with the regulatory environment and all this kind of stuff. And he said, we can't do this. And I'd be like, what are you talking about? Look at the data, whatever. And he was like, let me explain how this goes. And he, I mean, almost to a T predicted

• 1:12:11Speaker 00

  Yeah.

• 1:12:11Anthony Pompliano?

  the angle of attack for regulators. He's like, look at this data, whatever. And I remember just being like, that, like, that's insane, right? Like, that a business could go that fast and pretty much get destroyed. And I told him 100 times, like, dude, you're right. Like, he pretty much nailed it.

• 1:12:25Speaker 00

  Yeah. So that's what, you know, you had, I think it was Schumer, a few months ago, making noise. And you've got, you've got some noise. You've got some noise in DC about underage usage there.

• 1:12:38Speaker 00

  It's unfortunate because I think, one, the product there is so good for folks quitting smoking, right? And the risk reduction is just, it's like nothing else. So if you look at, so ZYN came out of a company called Swedish Match, which Philip Morris bought a couple of years ago. And so nicotine pouches in Sweden are like, they've been around for a while. If you look at smoking, the percentage of population that smokes across Europe, Sweden looks like it's on another continent. It's like near zero smoking because they're all just using nicotine pouches. And then you can look at the health of related, you know, tobacco-related health risks, and it's near zero in Sweden. So we know, right? Like, we've got good data that shows,

• 1:13:21Speaker 00

  hey, this stuff works in helping people stop smoking and helping, you know, with major health benefits.

• 1:13:27Anthony Pompliano?

  What about?

• 1:13:31Anthony Pompliano?

  So these are pouches. Um, when I was growing up in North Carolina, uh, there wasn't a lot of cigarette usage. There was a hell of a lot of guys chewing, right? And, um, for those that don't know, it was still smokeless tobacco, but it's basically like a, um, I would describe it as like, uh, you know, shredded cheese. Right to a degree instead of shredded cheese, like shredded tobacco almost, right? They're putting their mouth or spitting around the bottle. Oh, my God. My high school was like littered with, right? And, um, and, but we didn't think anything like that was just like what people did, right? So whatever. Um, and I remember I tried one time, uh, on the back of the high school baseball bus home from a game.

• 1:14:11Speaker 00

  Sick as a dog.

• 1:14:11Anthony Pompliano?

  Oh, my God. I was like, dude, you know, in hindsight, like, dude, what are you doing on the bus? Or like, at least like have two feet on the ground.

• 1:14:18Speaker 00

  Yeah.

• 1:14:18Anthony Pompliano?

  Um, but after that, I was like, oh, I get exactly why all these guys are doing this. Um, and so it almost feels like, you know, there were these data points previously of like smokeless tobacco stuff. But this is almost taking it to the extreme, right? And saying, hey, look, we're going to put it in a pouch. We're going to make it almost like a luxury product.

• 1:14:34Speaker 00

  And it's not even tobacco, right? So Zen, there's no tobacco in it. It's just synthetic nicotine, straight nicotine. So it's even healthier than that stuff, which he got a lot of mouth cancer, right? Like.

• 1:14:44Anthony Pompliano?

  That's what I was gonna say is like, it almost feels like the trend was there, but this is like a luxury product in that continuation of the trend, both in terms of the quality of the product, the, the people who are using it, the price point, like all of that seems to kind of be an investor's dream. If you're looking for a product in, in like a long-term trend, right?

• 1:15:02Speaker 00

  Yeah. So I think the, the biggest risk is, is just that, right? So the U S is the largest tobacco market in the world. It's like $60 billion notional. Philip Morris, until recently, had zero exposure to that market and it's the largest, right? Publicly traded tobacco company in the world. So they're coming like, as opposed to other tobacco companies, Altria, Japan Tobacco, British Tobacco, that are already operating in the U S and are basically doing all these things to offset their shrinking U S tobacco business. For Philip Morris, the U S is 100% upside, right? They have no legacy U S business.

• 1:15:43Speaker 00

  And so while even if the politicians mistakenly did something to limit or reduce the growth of Zen in the U S.

• 1:15:55Speaker 00

  You still have Philip Morris increasing distribution of that product globally because they've just got, right, so much more massive scale than Swedish Match had. The other thing that worries me, and I wouldn't say worry because this again is all upside. I don't think it's markets expectations are very high. So IQOS is launching in the US currently. It's they're sort of rolling it out in a few test markets very slowly and being very calculated about how they do it. IQOS success has been in somewhat dependent upon the culture and the individual market they're in.

• 1:16:34Speaker 00

  So for example, in Japan, IQOS has something like between 30 and 40% market share of the entire tobacco market. That's because there was never really a strong vaping culture in Japan. In markets where they've gone in where people have already vaping, the take up has been slower and and it has not gotten to those types of numbers. So it'll be interesting to see. So Philip Morris is saying they want to capture 10% share of the US market inside of right the next several years over the rollout. It'll be interesting to see how that shakes out, just given right how big vaping is here

• 1:17:18Speaker 00

  in the States. I think Zen's a different calculation. You're you're seeing it literally. The only thing that's limited their growth to date has been capacity. They can't make it fast enough.

• 1:17:27Anthony Pompliano?

  That was the thing, they have supply chain issues, right?

• 1:17:28Speaker 00

  And what's interesting is if you look at the data, so you asked, you know, initially I've asked about the data points we're looking at. So Zen grew like 80% year over year in Q1. Q2, Q3, it fell down to like 40, 50%. And you saw some competitors take share because they couldn't put products in in in stores fast enough. And they're still and they're still struggling. We went online just last week on a bunch of different online outlets and we, you know, sold out, sold out, sold out. Or and if they're not sold out, there's a limit on how much you can buy. But Zen pricing, like the other, like Marlboro's has a has a product called ON.

• 1:18:09Speaker 00

  Marlboro's been giving that away and they can't put a dent in it. Like Zen's priced at two or three X the competitors and still have it just an obscene amount of market share in that industry. And what you saw when They struggled to keep up with volume. You actually saw overall volumes of nicotine pouches decline. So people literally, instead of going to a different brand, just said, we're going to wait until Zyn's back in stock.

• 1:18:40Anthony Pompliano?

  Oh, interesting.

• 1:18:41Speaker 00

  Even those like other brands are half the price and they're even pricing more aggressively now because they know they can take share and want to convert people. I think all that share comes back to them like as soon as that comes out.

• 1:18:53Anthony Pompliano?

  Yeah, my buddy, John Coogan runs a company called Lucy. That is one of the competitors and as soon as the shortages.

• 1:18:59Speaker 00

  He's probably crushing it.

• 1:19:00Anthony Pompliano?

  Well, he just foot on the gas, right? You have product they don't, there's some market share that's up for grabs. And so you go and then the question is, can you keep it?

• 1:19:07Speaker 00

  I'd love to chat with him offline, by the way. Another great example of.

• 1:19:11Anthony Pompliano?

  Yeah, well, it's information, right? And, and it's also unique that because as a private company versus a public company, where you could share, etc. I have two other questions for you and then I will let you go. Bitcoin, there's lots of people, they've been watching this whole time. They're like, it was.

• 1:19:26Speaker 00

  I knew that one was coming.

• 1:19:29Anthony Pompliano?

  Yeah, they got other assets, but the audience, they want to know what you think about Bitcoin. Have you guys looked at it? How do you think about it in a portfolio? What about other things that maybe are like, I'll call them tangential Bitcoin, gold or other assets? Like, how do you think about that whole bucket and then Bitcoin specifically?

• 1:19:43Speaker 00

  Yeah, it was interesting. I'm going to rewind a ways back because I think it's good perspective. So I left New York in 05, which is about 20 years ago to go work for the family office. My last couple of years in New York, I had a large investor that was, you know, I ran a large trust for him that ran one of the largest gold mutual funds in the States back in the seventies and eighties. And for the last few years I was in New York, he was in my ear every time we spoke, walking me through the thesis for gold and why we needed to own it.

• 1:20:25Speaker 00

  You know, unlike most people, you know, gold was trading at two, I literally bottomed $250 an ounce. I think it was between sort of 3, 400 over that period in the early 2000s. He convinced me. I brought it, I literally had to bring it to the investment committee at a large institutional bank and was basically told we were not allowed to buy it in client accounts at three, $400 an ounce. When I joined the family office in oh five, I spent the first five years I was there trying to convince the family to put 10% of their wealth in gold between $400 an ounce, all the way up. The patriarch of the family,

• 1:21:10Speaker 00

  who unfortunately passed during COVID, but was just, you know, brilliant, brilliant man. I learned a ton from him over the years, but you know, I always got the same response from him. I tried to buy gold for 20 years and every time I bought it, I lost money. And I'm like, well, Paul, you were buying in a 20 year bear market, right? From 1980 to 2000, literally all gold did went down. Like it's hard to make money in a 20 year bear market. And I told myself, when he finally converts and is like all in, I know like that's that's, that's when we're, we're going to step aside. So I think we, you know, we bought some for the family. I think it was around, I forget the level. It was around 2000 an

• 1:21:54Speaker 00

  ounce where we basically, you know, I basically, well, there was a big drop. It was 13, 14 or around that time. And I forget what it was, but like, it just became clear to me that I think we just got lucky and maybe didn't understand what drives the price. And I think that's why we've struggled with commodity products is that valuing them is really just a theoretical exercise. And it's really hard for me to say, and so full circle back to Bitcoin. I remember sitting down here in New York.

• 1:22:35Speaker 00

  This would have been five years ago, I guess. Do you know Murray Stahl?

• 1:22:41Anthony Pompliano?

  I do.

• 1:22:41Speaker 00

  Sitting down with Murray and his partner, Steve, spending like two hours in their office.

• 1:22:48Anthony Pompliano?

  Oh, they were probably full on Bitcoin.

• 1:22:49Speaker 00

  Try and Bitcoin was, I think, under a thousand then?

• 1:22:52Anthony Pompliano?

  Yeah, it's probably like $2,000.

• 1:22:54Speaker 00

  Okay.

• 1:22:55Anthony Pompliano?

  Or so 2020, 2019, it was like probably $3,000.

• 1:22:58Speaker 00

  It was before, it was long before COVID.

• 1:23:03Anthony Pompliano?

  Yep, yeah, yeah, that bear market, I think it bottomed around $3,000.

• 1:23:06Speaker 00

  Okay.

• 1:23:08Speaker 00

  Trying to convince, you know, and I listened to him and it was basically like, just put half a percent.

• 1:23:13Anthony Pompliano?

  Of course.

• 1:23:14Speaker 00

  Just put half a percent in the portfolio. And I thought the argument made sense, but like if

• 1:23:24Speaker 00

  unfortunately, we did not. And it's just because, again, I don't know. Well, here's another good example. We invested with a, in a large macro fund, the family office invested in a large macro fund that was backed by Soros. And it was like, you know, this was around the time of the financial crisis. Pedigree was phenomenal. The numbers were phenomenal, right? Like spent, you know, one of the most brilliant thinkers I've ever talked to. Got to know him personally, spent a ton of time with him.

• 1:23:57Speaker 00

  Had a good run for a couple of years and then just like, you know, had a year or two, it wasn't even two, but you know, six months to a year where it was just completely out of sync. Lot of volatility, all the, you know, historically had a lot of volatility because he took big swings. This all was all to the downside. I don't know how to, so if I'm investing in a, you know, in a business that's moving against me, I can look at it and say, okay, I understand why the market is selling this off. Or, and maybe it's not even fundamental, right? We understand, we know that such and such who owns 10% of the float

• 1:24:37Speaker 00

  is, you know, is facing liquidations and redeem redemptions. And so they're just blowing out of things. Or maybe it's not that. Maybe they reported a bad quarter or hit a roadblock and we can say, okay, like, we understand what's happening here. But like, our confidence that this thing is ultimately worth X has not changed.

• 1:24:58Speaker 00

  I didn't know how to do that when I underwrote a manager who's just, you're making a bet on him being able to predict the wisdom of crowds.

• 1:25:07Anthony Pompliano?

  Yeah, wizardly. Yeah, you're trying to pick wizards.

• 1:25:09Speaker 00

  I don't know how to write like, and so when that goes against you, I don't know have the conviction. I don't know how to gain the conviction to say, we need to double down here. And, and I feel like when we've invested in commodity businesses, we've gotten into the same, we've gotten, we've had the same struggles. And so effectively, that's why we haven't done anything with Bitcoin is that I don't know theoretically, you know, how to tell you what we think it's worth. And maybe it's just, we're not smart enough to figure it out, but.

• 1:25:40Anthony Pompliano?

  Well, it's interesting because there's a lot, there's different people who have different answers, which means that there is no answer. Right? Like, like that is one of the things that always cracks me up.

• 1:25:51Anthony Pompliano?

  Is people want to make it something that it's not like, they're like, oh, well, if you take a discounted cash flow model, like, okay, I get the thought process. I see how you're getting that you collect all the, you know, minor revenue, but whatever. Okay, fine. Then I see people who come up with like, uh, we're going to take all the Bitcoin and this, we're going to come up with like, what we think fair value is. And like, again, I get it. And there's probably people making money trading on that stuff. Yeah. But I don't think that there's consensus from the market. And so when you don't have consensus, it's kind of hard to then start to talk about like fair value and, and are people thinking it's more valuable or less valuable?

• 1:26:25Speaker 00

  That's also when you get the biggest opportunities, right? When there's not consensus and you have a wide range of opinions, if you get it right, that's where the biggest rewards are.

• 1:26:32Anthony Pompliano?

  Well, I did, you know, literally the reason why I bought it was the, remember the example of like the old boys network or the guy who said, I find the Walmart. Like to me, it was just like, maybe it works, maybe it doesn't have a Murray stall, right? Like, right. Let's buy some and they're probably going to keep printing dollars. And I do think that there's, this sounds horrible to say sometimes, but I do think that there is a competitive advantage sometimes to not being too smart. Right? Like, you could talk yourself out of stuff. Listen, it's like, what's like, give me the one sentence. Why would somebody do this?

• 1:27:04Speaker 00

  Yeah.

• 1:27:05Anthony Pompliano?

  That sounds pretty good.

• 1:27:06Speaker 00

  I think investing for the most smart requires average level of intelligence, average mathematical skills. And the great majority of what we do is behavioral. The other thing I think is important to say, right? Like. There are so many different ways to make money in the market, right? You've got guys that you've got macro traders like we talked about. You've got short sellers, you've got trend followers, you've got right? The high frequency traders, you've got venture and not everything works for everybody. And not everything has to work and right? And so there's an unlimited array of opportunities out there today. And this is just the opportunity set right now. A year from now, we'll have a different opportunity set.

• 1:27:51Speaker 00

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

• 1:28:15Anthony Pompliano?

  I, I completely agree. My last question for you is about books. I know that you like to read, I like to read. You sent me a book, uh, which was very good.

• 1:28:27Anthony Pompliano?

  How do you pick what to read? And do you have any suggestions for people who want to get better at investing in particular of books that you would suggest?

• 1:28:37Speaker 00

  Yeah. And it's funny, I was gonna mention that to you because I noticed the book a week comment and your book, which is how I went down the same path. So that's, that's funny. And it was just right, like one year just came into the year and said, I'm going to read a book a week this year. And then I've done it every year since.

• 1:28:52Anthony Pompliano?

  I need a forcing function.

• 1:28:53Speaker 00

  Yeah.

• 1:28:53Anthony Pompliano?

  And I like imposed it on myself was can I, can I do this?

• 1:28:56Speaker 00

  You just gotta check the box every week, right? Like need to see that.

• 1:29:00Anthony Pompliano?

  When I, when I first started, I gotta admit, you know, you go to like the bookstore and you're like, eh, any books around here with 200 pages? No, like 300, right? And then like you're like.

• 1:29:08Speaker 00

  You gotta pad the stats a little bit.

• 1:29:10Anthony Pompliano?

  What you kind of do is like, it's like anything where you almost like, you create the love of doing it by doing it.

• 1:29:17Speaker 00

  Yeah.

• 1:29:17Anthony Pompliano?

  Right? And then you like realize, hey, I enjoy doing this. And so thankfully for me at least, like pretty quickly, I was like not looking for the shortest book, but I do remember a couple of times being in the bookstore being like, what is easier to read a shorter book than a longer book?

• 1:29:29Speaker 00

  Yep. And by the way, I should say also, I love your wife's book. I've told you that before too, but that was, that was, I really enjoyed that.

• 1:29:35Anthony Pompliano?

  She's the better writer, obviously.

• 1:29:37Speaker 00

  Clearly, clearly.

• 1:29:41Speaker 00

  I think. I don't know that I've got a good answer for that either, right? It's just kind of, and different books hit you differently at different times, which is so interesting to me.

• 1:29:53Speaker 00

  So it's just kind of what's got my attention of late. And then like one, oftentimes it just leads down a rabbit hole, right? So I'll read something and one or two books will be referenced in it. And that'll lead, and sometimes I'll even put down what I'm reading to read one of those first and then go back to it. And then I'll go through, if I really enjoy it, go, I read mostly nonfiction. And then I'll go through the bibliography, right? And sort of pick out and just, just keep going down the rabbit hole until you feel like, again, it's how do you know you've got enough information?

• 1:30:23Anthony Pompliano?

  Yeah, I'm laughing, by the way, because I've outlawed fiction books in this place. I tell people fiction's fake, like, like those aren't real books, which obviously people do not appreciate when I say that. But that's how, that's how I am. I can't read fiction books for whatever reason. Yeah, there's a couple that I've read over the years, you know, that I'm like, okay, I got it. But um.

• 1:30:43Speaker 00

  There's a couple. And there's a lot of good nonfiction that reads like fiction, right? So like, I'd rather read Michael Lewis. You know, just phenomenal storyteller, whether or not, you know, you agree with his stories and his viewpoint, but like, I, yeah, that's when I'm reading for like pure pleasure. I like reading stories like that. I like reading biographies and business history and like business biographies. And that's actually one of the best ways, I think, to get up to speed on a company or industry. Just, you know, go on Amazon, buy every related book on the industry or company that you can find. And some there's like, some there's not many and others that's just like.

• 1:31:22Anthony Pompliano?

  You'll love this. So um. Edgar Bronfman Jr. I don't know if you know who that is, but he, um, he was in the news recently because he was trying to buy Paramount. So there's the whole thing I was trying to figure it out, whatever, right? Yeah. And so I said, Edgar Bronfman Jr. Okay. Well, there's gotta be a dad, like you don't have the junior or whatever. So get on the Google machine, right? Start poking around like, oh, the C grams building, which happens to be close to our office. C grams, I was a high school, college kid, right? Drink shitty alcohol, right? Like, you know, they, right? And so started on this rebel and all of a sudden I realized he's

• 1:32:02Anthony Pompliano?

  third kind of generation of the secret's fortune. He had this huge foray that they actually lost a couple billion dollars in like late 90s, early 2000s. He kind of built it back up. Now he's trying to buy his company, whatever. So I just go on the internet and I was like, what's every book?

• 1:32:19Speaker 00

  Right? I thought you were going to mention another one that I've read on the paramount history, which is like

• 1:32:24Anthony Pompliano?

  Which one?

• 1:32:25Speaker 00

  It was unscripted.

• 1:32:26Anthony Pompliano?

  Is that the Redstone family? Yeah, yeah. I have. I've actually not read that yet, but I chose to read the Bronfman ones because I was more interested in him. Like, I don't, I don't really care as much about the parent thing.

• 1:32:36Speaker 00

  Yeah.

• 1:32:37Anthony Pompliano?

  Um, but, uh, I mean, there's a lot that was in these books and my biggest takeaway was not business. It's all family dynamic stuff.

• 1:32:46Speaker 00

  Yep.

• 1:32:47Anthony Pompliano?

  Right? Like the grandfather, literally in that story in particular was like, you know, basically my third generation is going to be gone.

• 1:32:53Speaker 00

  Same thing with Redstone, right? Like

• 1:32:55Anthony Pompliano?

  So like, you know, you start to read these stories and then you're just like, oh, like it's the same story over and over and over again.

• 1:32:59Speaker 00

  Yeah. The investing book question, I want to make sure that's a tough one, right? Because it, it depends on the investor, their level of sophisticated, like where they are. I think for a beginner interested, I mean, everybody starts with Buffett, but I think Joel Greenblatt's,

• 1:33:19Speaker 00

  The Little Book That Beat The Market. So not even like the you too can be a stock market genius, which is probably one of the best books on special sit investing ever. And it's more sophisticated, but the little book, the way he boils down to value investing, it's just like buying cheap companies with high returns on capital. And, you know, literally boil, I think he wrote the book for his son who was like in kindergarten at the time. And it's just, I think that's one of the best starting books for investors to understand how to think about valuing businesses. I would say

• 1:33:50Speaker 00

  I think two of the most underrated, I would put on my top five or top 10 list, investment books were written by a friend, Ed Chancellor. So Ed was financial. He, yeah, Price of Time and then Devil Take the Hindmost was his first, which is like one of the best books on like financial histories.

• 1:34:12Anthony Pompliano?

  What is it called?

• 1:34:13Speaker 00

  Financial manias ever written. I'd put it up there with like Kindle Burger, Mackie. It's Devil Takes the Hindmost.

• 1:34:19Anthony Pompliano?

  Okay. I love Prince of Time or Price of Time.

• 1:34:22Speaker 00

  Yep.

• 1:34:23Anthony Pompliano?

  So I would probably like this one. Yeah.

• 1:34:25Speaker 00

  So Ed wrote, and he actually didn't, he was more of an editor here. So there's two books that he compiled. They were a compilation of investment letters from a UK-based investment manager. And Ed sort of compiled them in a fashion and sort of weaved in his commentary and perspective. One is called Capital Account, and I think the other is called Capital Cycle. I might be mixing up those names, but if you Google, you'll, they'll pop up.

• 1:34:54Speaker 00

  The first is their letters from the period, the mid 90s through the bust. And so it's like a real time look at how they were thinking about the markets then and how they were positioned. And the second does the same thing, but it goes through the, the financial crisis and the housing crisis. And what's interesting to me is the lens that, and so the name of the firm is Marathon Asset Management, again, based, based in London. The lens through which they view the world is basically called like supply side investing. And so if you think about both of those cycles, and I think there's analogies to AI today, for what it's worth.

• 1:35:34Speaker 00

  If you think about both those cycles, right? Like what everybody missed in the 90s was we were so excited about. The all the demand, the, and this new thing called the internet was going to create. And all of the data that was going to be piped, and it did, right? It created just massive amounts of data and are still creating massive amounts of data. And everybody was so focused on the demand side of the equation. Nobody was looking at the supply. And all you had to do was look at the amount of money that these telecoms companies were spending just dumping CapEx into the ground to build out fiber optic cables. To say that there's no way, like in no possible way was that demand going to be met.

• 1:36:18Speaker 00

  Because at the time, like broadband wasn't even a thing. Right? And you needed broadband, which didn't come along till 10 years later, to push enough data through those pipes to even get close to sucking up that capacity. And so they're just looking at, and in hindsight, I think it was, I think at the peak, it was like over 250 billion in CapEx across telecom, just building out fiber optic cables, which, you know, coincidentally is about what the hyperscalers are spending today on, you know, training AI and data centers, et cetera. It's literally almost identical, which coincidentally is also almost identical

• 1:36:59Speaker 00

  to what we spent in the US building out rail in today's dollars. So, you know, no views on where that goes in terms of AI. Again, I think it comes down to the questions you need to ask at the price. But those two books, and it was the same thing in housing, right? Like, you know, all you had to do was look at the amount of homes we were putting up over that time period to know that the math was not going to work. But just, and I'm not giving them justice, but I think, I think that lens applies to so many different industries. And also works the other way, which is something I think we're less good at, is that.

• 1:37:39Speaker 00

  If you think about, I'll call them a growth investor, but it's not really, I don't really differentiate between growth and value per comments earlier. But like a quality investor, really high quality businesses are almost systematically undervalued in the market. Because if you think about a standard DCF, you know, we typically go out. I mean, Wall Street is only going out one or two years in terms of estimates. Maybe a DCF goes out five, seven, 10 years, right? And then after that, you're basically assuming the company's competitive advantage period where they're earning excess returns on capital is fading.

• 1:38:19Speaker 00

  And it fades up until maturity and then at maturity, they just grow at the rate of the economy and essentially create no more value. Right. But we know really good companies to like Amazon, like Alphabet, right? Like, like Microsoft, their competitive advantage period didn't stop after year five or after year seven, or even after year 10. And so if you're valuing that business using a DCF and your competitive advantage period is only here. You're missing like all of the value creation of DCF comes out here and most DCFs cut that off. Now, it works most of the time because there's only a handful of companies that there's only

• 1:39:01Anthony Pompliano?

  Seven of them.

• 1:39:04Speaker 00

  But when you do like the Costcos of the, Costco is another great example, like there's, and they're not all tech, but good businesses create value and earn higher returns on capital for longer than most. And that gets systematically underpriced.

• 1:39:20Anthony Pompliano?

  Where, um, where can we send people to find you on the internet or find more about Broy Hill?

• 1:39:25Speaker 00

  Yeah, just go to the website. So broylehasset.com. And one of the things about us is we've always been or tried to be incredibly transparent in sharing our thinking. And I think that's the best way to ensure that we find investors that are aligned with us so they know exactly what they're getting.

• 1:39:40Anthony Pompliano?

  The first time you and I ever talked, I told you this, so I'm going to repeat it now, but we were thinking about building a website for our asset management firm. And so I was being a weirdo and everybody else's website, like, you know, what do I like? What do I not like? What are the things people do? Whatever. And

• 1:39:58Anthony Pompliano?

  We set up a call and so before, you know, I was making sure I was prepared for the call and I go on the website and I was like, this is the single greatest investor website I've ever seen. I appreciate it. Definitely in website mode when we talk. I was like, this weird thing to compliment somebody on, but like, you know, it's like mind share right now. But just aesthetically, you guys got all the writing there and I think probably actually the thing that struck me the most is just like, nobody goes to your website and walks away not knowing who you are. Yeah. Right. It's very clear. Like, here's the thing we do. And by saying so strongly what you do, you're basically saying what you don't do. Yep. Right. And I think that most people, and probably even some of our businesses, we fall victim to like,

• 1:40:41Anthony Pompliano?

  we are, you know, and you have this like, almost like corporate drone speak to a degree and you guys are just like very clear, concise, just bam is what we do. And so for whatever reason, it always stuck with me. Yeah, appreciate it. All right. We'll definitely do it again in the future. Yeah. Thanks, man.