Ladies and gentlemen, welcome to The Business Brew.

I'm your host, Bill Brewster.

This is Matthew Sweeney, intro V3 for those that know what I'm talking about.

So I'm just going to rip this one out and we're going to see how it goes.

This episode obviously features Matthew Sweeney of Laughing Water Capital.

I really enjoyed a lot about this episode, but Matt pinged me after something I said on value After hours he said hey, we should talk.

So I said yeah, we should.

And I've known Matt for a few years, but mostly sort of casual knowing sense.

And this was I think one of our first real solid conversations and I really enjoyed it.

He's a good guy.

I think one of my favorite parts of the conversation is he talks about how he got in the business and his early starts in finance.

I love his philosophy.

He's he's somebody that's definitely worth your time.

Now I will say, and you're not supposed to point out some issues in in a recording, but I I care about you as a fan and I want you to know what happens.

Matt and I talked about some fairly personal things throughout the conversation.

He and I weren't 100% comfortable releasing all of it.

So there are parts of the conversation that get a little choppy.

And for that, we both hope that it doesn't detract from your audio experience.

But frankly, our conversation was a little bit more important.

It was nice.

We were getting into the meat of life, and maybe someday that stuff will come out, but not today.

That day is not today.

Anyway.

Standard disclaimers apply.

Laughing Water may own a position in the securities discussed.

Investing involves many risks, including the risk of the loss.

Standard disclaimers apply.

I don't know if I already said that I'm rambling, so I'm just going to get on to the episode and let that delupereed start and enjoy.

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Ladies and gentlemen, Matthew Sweeney here of Laughing Water Capital.

We were talking offline, so we're just going to continue it.

Matt said that he's generally suspicious of anything that is optically cheap and we were talking about just value as a factor.

So that's where you're coming in.

So you want to rehab the conversation about things that are optically cheap?

Because I think that's interesting.

Yeah.

I guess what I mean when I say that I'm generally suspicious of things that are optically cheap is that in today's world, literally everybody with a smartphone or a computer can see it if it's optically cheap.

And I always think of there was a piece from JP Morgan back in 2019 that kind of laid it out.

They said that by their estimation, 80% of the investing world is based on either quantitative strategies or index strategies or ETFs or something like that, where they're basing their entire investment decision process on observable inputs.

And if you think about that and then think about what was cheap in Buffett's day, like profits early day, it's totally different.

Like you could go read the Snowball, for example, and talk about him going like door to door and knocking on people's doors and literally telling them like, hey, you own a stock and it's cheap.

And these people, they don't even know that it was cheap.

I mean we, I don't remember this specific example, but it was something like, you know some company trading at $0.20 on the dollar and Buffett knocking on the door and being like I'll pay you $0.50 on the dollar.

And that's a fantastic return for these people who didn't even know what they owned.

And then there's today's world where if it's cheap, like literally everybody knows, if the numbers, if the numbers say it's trading at a whatever, PE of eight or whatever, the entire world knows.

And if any sort of quant strategy, which is some huge percentage of the market, they see that it's cheap.

And of course, there's all sorts of different quants and there's momentum quants and whatever.

But just on a fundamental quant basis, like they're going to see that it's cheap and fundamental quants would typically have some sort of, you know, attribution to the value factor.

So they would say, OK, this is cheap.

I have to buy it.

So if there's some huge portion of the market that has to buy it and it's still cheap, I don't know, maybe it's cheap for a reason, right?

Like is it isn't that kind of where you have to wind up?

So that's how I think about it.

And when I look at my own portfolio and my own investments and I guess my own like view of the world we live in, I think maybe what you want to be looking for sometimes is things that are not optically cheap, right?

If they're optically expensive, but an intelligent business person would look at it and say, oh wait, the numbers are misleading, the actual business is cheap.

But that sounds more interesting to me at least.

I think the problem you run into is that eventually you need that incremental buyer to come along, right?

Like, so in a long enough timeline, the only thing that's going to matter is the quality of the business or the performance of the business, the fundamentals of the business.

But day-to-day, month to month, quarter to quarter, even year to year, like what matters is the incremental buyer and opportunity cost is real.

So you don't want to just own something forever saying like, oh, it's cheap and it's cheap forever, like that's called the value trap, right.

And we don't want to be in value traps.

So I don't know you have to weigh all these things and going back to that 80% of the market that is basing their investment decisions on the quantitative inputs.

I think an interesting way to approach it is to look at things that are quantitatively not cheap today, understand what is going on internally with the business that makes it look not cheap, but it actually is cheap.

And then have a view on how that is going to change over the next.

I mean for me, I always think in three to five year blocks like over the next three to five years, how is the value going to surface so that it will be in the numbers and then the quants will see it and the quants will buy it and that's your incremental buyer and that's what makes the stock go up independent of the fundamentals.

I mean you want the fundamentals improving all along also, but you don't want to be in a situation where the fundamentals are improving but nobody notices forever.

And going back and we, we were emailing earlier about kind of David Einhorn and what he's been saying about the market being broken.

Look, I am nobody to criticize David Einhorn.

I just don't really agree with the view like the market is broken.

It's kind of like saying I don't know like the earth is broken or like the world is broken.

Like it is what it is.

It's not, it's neither broken nor correct.

It just it is the reality that we are living with.

So you kind of have to adjust to it and Einhorn's approach has been to focus on return of capital stories, which is totally valid approach.

But I think another valid approach is to kind of understand what the quants look for and how you're going to get in front of those quant buyers.

And it's probably the most tortured analogy and certainly my most hated analogy in finance.

But it's like, you know, where's the puck going?

And it goes.

Skate to where the puck is going.

Just understand what the quants are looking for.

But what is not in that bucket yet?

And then how is it gonna get in that bucket?

That's how I'm thinking about things.

I get the other.

I'm rambling but.

No, no, you're not this.

I'm smiling because this is like exactly what I said on value after hours when I was recently on.

Yeah, well, I was.

I was listening and.

'Cause I was like, 'cause I was kind of like, OK, I mean, one, I don't know how many businesses are out there truly trading at five times free cash flow that are buying in all their shares.

But to your point, like, that is super valid.

And if you can find them, I think owning those makes a lot of sense.

Yeah.

And the ones that are out there that like Einhorn for example, I think he's on some coal stocks and stuff like that and they're trading at, you know five times free cash flow and I think that's because the market is telling.

Now.

What's that?

They're like 10:00-ish now.

It's been a hell of a run.

Yes, of course.

But when they're trading at that five times level, they're saying like the markets like these earnings are not going to be here forever, right.

So I think Einhorn's point is you're cheap, you're five times, so that's cheap.

But if you're not, if the company is not acting on that, it's going to stay cheap because everyone thinks those earnings are going to fall off a Cliff.

So if you're at the point then where you're either in a value trap or worse, you're in a company where you know you're at peak earnings or whatever it might be.

So you need something to kind of close the gap and I think earlier in Einhorn's career, well, I mean it's a fact that I don't think it is a fact that earlier in Einhorn's career and you can look at the flows data, there was a lot more, you know, active investors out there, right.

So much of the world has gone passive.

You could look at the amount of money that has left active strategies have gone to passive strategies.

And certainly in small cap, it's just been a complete extinction event in small cap active.

So it used to be that there would be enough people out there to do the work, take the fundamental view, the intelligent business persons view and make a decision and possibly close the gap.

But that incremental buyer, I don't want to say they've gone away completely, but it certainly seems like there's less of those fundamental incremental buyers and now it's just the quant incremental buyer or the Einhorn argument is you need the company to be the incremental buyer because otherwise it's just going to sit there.

Yeah, I mean, you've been doing this for how long?

Just past eight years on the track record.

So do you find that the opportunity set today is like more attractive, less attractive?

Do you have any sense of whether or not all those people leaving the market has created a more like a better opportunity set out there or have they left for a reason?

It's.

It's an interesting question to phrase it that way.

The way I look at it, I think there are a ton of cheap stocks out there right now.

But I think the other part of it is not just are they cheap, but again like how long are they going to be cheap or what is going to cause them to no longer be cheap.

And looking at my own portfolio and I think I know another's of a pint on this, it's not enough to just execute as a business unless you have an infinite timeline and then at the end of that infinite timeline then you get your RE rating.

Like I don't think you can only be betting on a RE rating which was kind of the the earlier earlier in Einhorn's career that was a big part of what I think he was doing.

Like you get the RE rating, you get the next person to come along and like you can't bet on the RE rating anymore.

So I think in general if RE rating is part of your thesis, you really have to stretch your timeline.

Like you really have to be thinking not just like a mean reversion type RE rating, you have to think of a RE rating through the numbers, meaning that the the incremental buyer IE the Quan will take notice of what's happening.

So and again I starting with me or my approach taking a three to five year view, it's feels like a really long time right now.

It didn't used to feel like three to five years was so long because somewhere along that three to five year period if you were right that would kind of get pulled forward.

And I don't know how much of that was, you know, the interest rate environment and just people being quicker to pull the trigger on things.

I can't really explain that part of it.

But in today's world or at least maybe the last two years call it, it feels like three to five years is very long.

Because at least for me, when I'm starting with a three to five year thesis and the rest of the market is only thinking about what's going to happen next month with inflation or interest rates, you kind of have to sit there and say the market's going to care eventually about fundamental improvement.

But right now the market is only caring about interest rates and inflation and fundamental improvement that is not showing up in the numbers yet.

There's nobody to care.

And yeah, yeah, it's frustrating when you own businesses that you feel like you can look at them and you can talk to the people, you can talk to the competitors, you can talk to the customers.

You could start to see it in what they say that everything is going in the right direction.

But maybe it's not in the numbers yet.

You just you have to wait because there's not enough people.

In theory there's not enough people that are looking past the numbers and taking the intelligent business persons approach, especially when everyone else knows that it's a short term game these days and you know everything from the interest rates and that sort of thing at the macro concerns.

But also Bill and I were talking before we turn the camera on about pod shops and like if you're a pod shop, I mean you're playing the quarter to quarter game, that's all you're doing.

I mean another one that's kind of mind blowing to think about.

If you think of the guys at Renaissance, the best performing fund, I think it is it the medallion funded Renaissance.

I believe so, yeah.

Literally the best performing fund in the world over the however long it's been now and if you read the book, he says he's like he literally does not care what these businesses do.

Like it's literally just short short term price movement and it's kind of hard to get your head around that.

People like me who spend so much time thinking about the businesses and the people and the competition and and then there's a whole other group of people that just don't even care, does not even matter.

And you know they're winning.

They're doing a great job.

So it's more and more people taking that view, or more and more computers taking that view.

It's harder to understand how you get paid unless you're taking an even longer timeline than historically was necessary, I think.

Yeah, I I looking at my phone because last night I was on the Twitter machine and somebody tweeted out, is it really tough for hedge funds to raise money right now?

Ricky Sandler, a guy who has a fairly long track record in this industry, says for a single manager, non market neutral, it's as bad an environment for holding and raising assets as I can remember in my 29 years in the business.

I think that's interesting, right?

I don't know what to take from it.

I've done a few episodes recently that will be coming out sort of.

These conversations are not perfectly aligned with the editing process.

But anyway that I espoused the merits of ETFs for their tax efficiency.

And I've said like maybe I've in the past, I've said I'm I'm probably going to index.

That's not precisely correct.

I I may try to use more ETFs, but then there's the part of me that's like, dude, if everyone is going to one side of the boat, it is the wrong time to go to that side of the boat.

And I I don't know how to hold those two thoughts in my head at the same time.

Yeah, I mean it it's hard, I don't know that there is a perfect answer except to say that you can look historically the way these things work, you know, value invest in, which is a term that I I don't really love that term because it means certain things to some people and something else to other people.

But historically with these things like you can go sideways for a long time and then have a huge rereading really quickly once it comes together and that that's kind of on the index level or you know, the factor levels, the small cap factor level.

But even with individual companies, it has been my experience that if you're buying something that is truly cheap, I don't know, I want to take that back because I don't start with how cheap something is.

I'd start with like, how can earnings power improve over time?

And then if it's also cheap, well, then that's a winning combination.

But if you have something that's truly going to increase its earnings power over time and you're not paying a crazy price going in like you're going to be, you're going to be rewarded eventually.

We don't know when And what often happens, and what I feel like is happening with a lot of cheap names that do not appear cheap right now is they're doing all the right things.

There are thousands of hundreds of thousands of people or whatever it is out there that are going to work every day at these businesses and moving the business forward and everything isn't going the right direction.

Most things are going in the right direction.

Of course they all have their own individual struggles, but if they are doing the right thing and if the thesis behind the business proves itself out over time, you're going to get paid.

It's just possible that it goes sideways for like two or three years.

And of course opportunity cost is real and I think that also contributes to more people kind of leaving small cap land is the opportunity cost is real.

When you can look at the mega caps or whatever it might be and say why be patient on a small cap when I could just buy NVIDIA and it goes up 100% every six months or whatever it is like.

Seems like it's a lot more fun to have something that goes up every six, 100% every six months.

It definitely would be more fun.

Yeah, rather than, you know, sitting in a corner by yourself saying no, the fundamentals are improving.

It's frustrating, it's hard, but eventually you get paid.

And that's I think the biggest thing is like having to stick with it, stick with the process for extended periods of time when so many others are abandoning the process, especially when the abandoning of the process is often happening at the agent level, the allocator level rather than the practitioner level.

So you're not even, you don't even get to have a conversation with people about why that's happening.

Like it's out of the practitioners hands.

So you kind of just have to wait.

But again, if you're buying things that are going to be at 5 times free cash flow in two or three years and it's going to show up in the financial statements, you're going to get paid.

Just so I understand what you're saying, when you say that it's happening at the agent level, you're saying that that the allocators generally, whether that's institution, retail, whatever are choosing to go to the products that are working or more SPY or whatever, right?

Yeah, and to be clear, there's a lot of valid reason to do that.

But among those valid reasons, valid at the individual level is like is job security, right?

I mean, if you're an allocator and you're saying no, no, no, no, let's stick with this, even though it's not working, eventually you don't have your job anymore, right?

Like, you have to go.

You have to do what's working.

And it's a hard problem to solve except to continue to believe that if you have businesses, good businesses run by good people that are generating a lot of cash, eventually someone, somewhere will care.

I just think you have to wait a little bit longer to get to that point today because if that cash is completely apparent today, going back to where we started, if that cash is completely apparent today, well then it's not cheap because there's 80% of the market or whatever that is just focused on that.

If that cash flow is 2 years from now or whatever it might be, that feels like 1,000,000 miles away in a market that right now is just month to month macro.

And then there's been numerous articles lately about the rise of pod shops or multi manager platforms and how they're just market neutral quarter to quarter backdrop.

Also with less and less people on the institutional research side spending time in small cap while spending time anywhere but especially spending time in small cap, you'd have to be more patient.

And that's another thing to think about with the the sell side in small caps and going back to the idea that so much of the market is powered by quants now.

So another way that I think about it.

And to be clear, I'm quite certain that quants are infinitely more sophisticated than I will ever realize, but.

If you really boil it down for fundamental type quants, they're only have two inputs, right?

One is the rearview mirror and the other is the windshield.

And we just talked about the rearview mirror and how if you're looking at things that in the rearview mirror look cheap, well, I think you should be suspicious.

And if you're looking at things in the rearview mirror that are pretty ugly, maybe that's interesting, maybe not.

I mean, you have to do the work, but looking through the windshield, there's not really many cell side firms that are doing a great job on small caps.

And in many cases there's interesting small caps that have no research at all.

So then if you take a company like in my like my kind of best case scenario for an idea that I think is interesting is the trailing financials are meaningless because the company's gone through some sort of fundamental change, business transition, whatever it means, whatever it might be.

So looking backwards doesn't really tell you the truth about what's actually happening.

And then looking forward, maybe there's nothing there for the quants to focus on because there's either no research coverage or you know, two or three small cap analysts that cover 40 names and they essentially regurgitate the press release and call it a a research report that should be an opportunity.

But again, you need that incremental buyer, you need the, the in this case the theory is that the quant is the incremental buyer.

So you're not going to get that incremental buyer though until it's in the trailing numbers.

Like, there's no way to even look forward like the, the Druckenmiller quote of think of like what?

Where you're going to be in 18 months.

The quants have no idea where they're going to be in 18 months because they literally don't have forward inputs.

So like, they're then talking about not 18 months, but add 12 on to that called a year for it to get through with the financials before anyone might care.

So you got 2 1/2 years, assuming that the business quickly gets to where it should be, where in reality it'll start to show up in the numbers a little bit, then a little bit more and then a little bit more, and it could take years.

And it's frustrating time, I think, for a lot of active managers to own businesses and say, wow, like they are really executing.

And in theory, if a business is executing, it is not a value trap.

But it certainly feels like a value trap when the stock is just standing still.

Yeah.

Anyway, I was having a conversation with somebody that's got an SPV and I believe the company is executing.

I'm not the one that runs the SPV.

So, but the story is that it's executing, but the SPV investors are getting impatient, right, 'cause it's like taking a little bit longer.

And to your point on opportunity cost, I do think it's very hard to say, OK, look, maybe on a spreadsheet it was supposed to take nine months and maybe now it's taken 15 months, but there is true development that's going in the right way here.

Meanwhile, these stocks are flying all around you right up, and they're getting vacuumed up by the incremental flows and whatnot.

Whether whoever that buyer is, it's just very hard to stay the course.

Yeah, there's no question it's challenging and I kind of think of it as the biggest risk for people in my seat or LP's or allocators who are invest with people like me.

The biggest risk is deciding it's time to chase performance and you know switch up a process that that works and assuming the process is executed properly, it's, I believe it's something that will always work right.

If the general thesis is earnings power goes up over time, the stock will go up over time unless you way over pay going in like I think that is always going to be true.

Sometimes it doesn't feel that way.

Yeah, Well, yeah, that's right.

I was just writing down as you were saying that.

Do you mind it?

Like, you know, I read your Grandma Doddsville interview.

Do you mind talking a little bit about how you view LP selection and lock UPS 'cause I thought that that was a nice conversation on like looking at a lock up as an alignment function as opposed to a restrictive thing.

Sure.

Yeah.

So I guess the way I always explain it to people, and I don't know what I'm allowed to say here, 'cause I don't want this to be a marketing thing for me.

So like for funds in general, we're not talking about what my fund has, but for funds in general if they have a lock up, One way to look at it and the way that I look at it is the lock up is not meant to keep people in.

The lock up is meant to keep the wrong people out.

And that's how I think about it because central to my strategy which we kind of talked about already is a three to five year view.

And there's nothing scarier to me than a potential LP who misses more on the the retail side than the institutional side, but like a potential LP who is maybe, you know, living in like a third tier city and is locally wealthy and therefore thinks he knows a lot about investing.

And maybe he does, right?

Like you could totally have a great LP like that.

But there's nothing scary to me than taking money from an LP like that.

And then, you know, it's a year or eighteen months later or whatever it might be.

And they say where's the performance, what what's happening here?

And then I have to explain to them, well look we've hit some bumps in the road or the businesses are executing, but the market is focused more on macro or whatever it might be.

That's just a bad use of time from my perspective to deal with people that are going to get panicked.

So like I think if you want to invest in a small cap concentrated portfolio, you need to take a multi year view or it's just not worth your time.

You know you should be doing your indexing or whatever it might be.

But if you want to get the potential upside that could come from a smaller cap focus, more concentrated portfolio, you have to understand these things don't come in a straight line and you have to be patient and wait for it.

So I don't think I've ever talked to a potential LP that said that they were not super long term focused.

All of them are when they say it right.

I don't think I've ever submit an investor in any case has said like, Oh no, I'm only here for next quarter.

That's crazy, right?

That doesn't exist.

So everybody says it.

But if you really say it and you really mean it, you should be comfortable with taking a longer lock up period.

Understanding that it's it's not to keep you in, it's to keep the wrong people out.

Because some people will look at it right away and say, oh, I I can't do that.

You know, three years is too long.

And I'm saying, well, it's if you look at the history of public market investings, 3 years is not too long.

And the data is very clear that if you, if you invest, I'm sure you've seen these tables where it's like the average performance.

If you hold a stock for one year, it's kind of a coin flip and then if it's three years, it's like you win.

I don't know I'm making these numbers up, but like 65% of the time and then five years it's 75% of the time and then over any 10 year period you're like pretty much guaranteed to have a a decent result.

That should temper the word.

Guaranteed, guaranteed.

But yes, I understand.

What guarantees?

But like, the odds swing more heavily in your favor the longer your timeline like that, I don't think.

There's ever been a 20 year period where the S&P has lost money.

Yeah, I don't.

I I mean, I can't.

Think that I don't think that that's true.

I I might what would 2021 or the COVID crash I that would have had to be above 99 I think.

Anyway, I'm almost certain that that's a fact.

Yeah.

So since I've since I've said that, I'm 70% certain when I say I'm certain.

Take that for what it's worth.

Perfect.

Yeah.

I think it just comes down to the, the idea that, like, if you're going to invest in anything public markets, I mean, start with Charlie Munger, like you need to be ready for that 50% drawdown.

And the biggest determinant of success over time is like, are you able to stay invested?

And the way I think about it from my own fund, which we're not really talking about, South funds, like mine will say, if you really believe it, then you should be comfortable committing to it and that's fine.

If you're not, there's plenty of other options for you.

But for me personally, like I am, I am almost 100% invested in my own fund.

Like, I have very, very, very few, sparingly few assets that are not invested in the fund.

So I take it seriously, like who the partners are.

I wanted to be a true partnership, people who understand what we're doing and are here for the long term.

And there's nothing more dangerous to me and my own personal performance.

This is me being being straight up selfish.

There's nothing more dangerous to my own personal performance than having partners that are going to panic at the wrong time or, you know, act responsibly at the wrong time, whatever it might be.

So I'm happy to try to put something in place that I think is to the benefit of everybody, but not everybody views it that way that some people think, no, this is bad for me, and OK, that's all right.

Yeah.

Well, that's a very good screening mechanism.

That's what I'm trying to do, yeah.

It's I guess the way I always think about it is for most people, for most people, what you were talking about, like investing in ETFs or index funds or whatever it might be, it's it's probably best, right?

And this is not.

I'm not trying to put myself on a podium or anything like that.

It's just a genetic biologic thing.

Like, people are most comfortable in the herd for lots of evolutionary reasons, and there's absolutely nothing wrong with that.

But the rewards are substantial.

If you're able to step away from the herd, you just have to make sure you're really able to step away from the herd.

And you don't just think you could step away from the herd.

Because if you think you can and then all of a sudden you're not in the herd and you panic, well, you know, that's that's where you go to die sort of thing.

Yeah.

You know, the other thing is I'm just thinking about what you're saying and the hot money.

I've been thinking a lot about.

Like, I found Ackman's interview to be pretty good.

Well, very good, at least the investing portion of it.

And then I've been thinking about like, what made Buffett so resilient.

And I I thought it was kind of interesting.

Ackman said that he didn't think that he was born with the emotional I I'm gonna say apathy.

I don't know if apathy is the right word, but like not getting impacted by volatility and he had to learn it and he talked about like you've got to have income coming in, right, or be like financially secure and then you've got to be able to be, you know, contrarian in spots, right.

And if you run a fund and then you've got people that are coming in and out it, it kind of like I would imagine it impacts the income that's coming into you.

It also takes away from the time that you should be spending doing other things.

And it's probably not for the LP that you you want anyway, right?

It's like a massive distraction in many different ways.

Yeah, I have the Ackman, it could be in my queue.

I haven't listened to it yet.

But yes, it, I mean the way I think about it is just like let's say it's, I don't know, COVID lows or 2009 or whatever it is and like that is the whole world is panicking.

That is the time as an investor you need to be most excited.

You need to be trying to buy as much as you can or think the most clearly.

And it's very hard with one hand to be saying like, oh, I want to be buying and researching, with the other hand saying I'm going to be selling to redeem somebody like you can't.

At least my, I don't think my brain could handle that very well.

I'd rather be solely focused on making the investments at that difficult period that are going to reward us for the next 3-5 or ten years or whatever it might be not worrying about, well let's buy some, but then we have to sell it because we have redemptions and I think very challenging both intellectually and emotionally to have to deal with that.

So I think it's a much better structure and I think of it as a huge competitive advantage as an investor to have a sort of semi permanent capital base where you know that everyone who's one of your partners is truly a long term thinker and not only do they say it, they have put their name down and signed the line to prove.

It, yeah.

It's funny because you know in a private vehicle like a lock up is the expectation, right?

Yeah, it's 1010 years or two years options that they have and then there's probably a continuation option at this point that that they can have and people don't give a shit, right?

But you put it in a public wrapper and people start to care.

Yeah.

I mean, this is what Cliff Asness has talked about a lot of times over at AQR with, you know, basically volatility laundering is what he calls it.

He's just put it in private and then it doesn't matter if it goes up or, you know, if the economy goes up or down or whatever, mysteriously, the marks do not appear.

So you're fine.

Yeah, yeah, it's interesting.

I was able like it was like a lunch or whatever that Steve Schwarzman talked at yesterday and he was talking about there was a real estate deal that he did.

I think it was the 90s.

The government was selling a bunch of real real estate and banks weren't lending on it at the time.

And he found out by talking to somebody in the government that this is happening.

And he said, well, who's able to buy this?

And the guy said it's basically dentists and doctors.

It's people that have some cash flow outside of the property that they can lever and then they can buy the property because they can see through to the upswing.

And the way he told the story is he he partnered with Goldman to bid on a portfolio of this stuff and he set the price at 16% entry, free cash flow yield.

And Goldman was like, well, no one's bidding.

Like you don't need to buy there.

And he said, look, this is like good enough, right?

We're going to do fine.

And it was a massive win.

And I asked him later, I said, you know, where did 16% come from?

I don't think that's possibly just some random number.

And and I said what, how are you thinking of opportunity cost to capital?

And he said, I don't ever really think that way.

And I said, well, I'm more mean it in like the Charlie Munger way, right.

What was your next best idea?

And he said, well look, this is how I see it.

It was an asset that was going to be there.

The earnings power was going to improve, right?

They were going to get rents, were going to stabilize.

It was a panic.

And I paid 6 times EBITDA minus cash flow.

And he's like, if you can get those three things together, you'll never go wrong.

And I thought it was a really interesting story.

And I I've just been trying to think about like those kind of bets and where I think you need to be personally to be able to go against the crowd in that kind of way.

There's a lot that I've been noodling on.

I I think a lazy personal balance sheet is important.

I think the right partners is important, whatever that is, whether that's, you know, I mean, I'd even define like AETF as a partner, right?

It's somebody that you've decided to give your money to.

That hood should give back over time and then and then temperament.

I don't know.

It's it's interesting the way you phrase it though I think you said that that he described it as you know the 60% was good enough and good enough is something that I think about a lot.

I've I've written about in a couple of my letters because in a in a crazy world with the macro and everything else, like you don't know what's going to happen.

And a lot of people get scared away, I think from good investments that are good enough because they're waiting for them to be better.

But what that really means is like they're scared of them because even though they're good, like what if they go down, you know, then they'll be better if they go down rights.

But I try to frame it as if we're buying, I mean I'm almost never buying like you know a free cash flow yield today that's like a 20% free cash flow yield, but if you're looking.

At it doesn't really exist, right?

I mean, it does, it does.

But.

If it does, you need to be very suspicious of it, right?

Like I often feel like I'm buying a 20% free cash flow that's maybe 2-3, four years away.

And importantly, it's not like Herculean assumptions to get us there.

If the management team pulls a couple like easily identifiable levers, we should get there and 20% of free cash flow yield is very attractive.

But what if it goes to like a 25% free cash flow yield?

Should we be, should we be upset that the stock went down or just say it's OK like stocks go up and down if the business executes, if they get the earnings power to where I think it's going to go, it's going to be fine.

It's not going to matter, and it's very much like not focusing on the bumps of the journey, but very much focusing on the destination.

And if you're right about the destination, the bumps don't matter.

You're going to get there and you're going to be fine.

Yeah, that I mostly agree with, though I have to juxtapose it with the idea of and and I think the answer by the way is the 20% free cash flow yield.

But sometimes I think like floor and decor is something that I've been racking my brain to try to understand the valuation on.

And it's like, man, it could get good, it could work right.

It probably will.

I mean there's tons of smart people that like it, Charlie Munger included.

But man, that thing just that appears rich to me.

So I think, OK, well if you can get like even 10 or 15% from here, might you have a path that includes a fairly big drawdown along the way.

That said, things trading here and housing has stopped.

So this is probably a reasonable support, but I I don't know I'm.

Yeah, but I think so.

I mean I haven't done the work on Florin Decor personally, but I guess I think of it as analogous to maybe Walmart or Home Depot or something like that in like the 70s.

And at the time you could look at those companies and say like there is a reason that these are going to take over America like they have real competitive advantages.

And then you have inflation and you have recessions and you have whatever and the Walmart had I think a couple multi year periods where earnings went you know sideways to flat and people sold and like I've heard it said many times like the only people that didn't sell were the Waltons, right.

So it's easy to get sucked into that because opportunity cost is real and you know it stinks to own a good business that is going nowhere where the stock is going nowhere for you know a more extended period of time.

So something like floor and decor which I think is probably trading again, I don't follow, but you know what, is it 40 or 50 times PE or something like that?

Yeah, I think that's probably right.

I think 60.

Yeah, so I mean.

But that's current, right?

The a huge number and but this goes back to understanding like how is earnings power going to improve over time and you know this one the your only option here when it's that big of a PE to grow into it has to be growth obviously it's like they're going to cost cut their way down to a reasonable.

I don't want to use the word reasonable to a more palatable multiple, like they have to grow.

That's fine.

Like that could be value, even though it looks like it's 50 times or 60 times PE, whatever.

Like it could certainly be value if you're that confident that they have a better mousetrap and that I don't know what their door count is right now or.

But you know if you say, well they're going to easily put this many boxes out there and at that time they're going to be earning this well, like that's a totally valid approach.

I think what's harder for me in situations like that and probably harder for most people that try to be more critical is are there competitive advantages?

Truly something like that cannot be recreated.

And I think in today's day and age where information flow is instantaneous, it's probably harder to be.

I mean, go back to Home Depot, you know, like Lowe's figured it out, right.

But at that time, I think it took longer to do it.

And Walmart, other people have figured it out not to the same scale.

I don't want to say definitively like, well Walmart's Edge is that they were first mover advantage, Like they got so much bigger that they got all the purchasing power, you know, able to pass on the savings to consumers and all that.

Like I think they probably had arguably a couple decades where they were doing that and nobody else had, you know been able to do that.

I think in today's day and age it's so much faster and access to capital is so much easier that new entrants could probably come a lot faster.

They did in the past, which may be then makes it more difficult for foreign decor.

And I think I don't know the answer to any of those things.

I think those are harder problems to figure out.

I'm looking for way, way simpler problems.

Yeah.

Well, I'll tell you what, John Huber did a podcast with the Andrew Walker and I I think he's got it.

I I like the way he thinks about it.

Basically it's a single focus and the amount of working capital that you'd have to invest in a concept like that in order to compete is substantial.

Makes me a little nervous the amount of private equity money on the sidelines.

But I think building it is probably harder than a spreadsheet might suggest.

But it's really interesting, man.

I don't know.

As we were talking earlier, I said that that I feel like when I was on value after hours, people used to to comment that I'm not a value guy, but I tend to agree with you and the cheap stuff.

This Adam Robinson quote keeps coming back to me.

You got to look at things that make no sense or things that make perfect sense.

And I think when I see an A multiple that appears very expensive, I I I benefited more from turning my brain into OK, this makes no sense.

That probably means that I don't understand the way the world works.

As opposed to I'm right and this actually makes no sense.

Yeah, I mean it.

Which is not to say it's cheap or whatever, I'm just it's just a comment on thinking, right?

Yeah, no, of course.

I mean, in terms of like, people criticizing you that you're not a value guy.

And I think I said this earlier in the show, too.

Like value just means different things to different people.

I think the right way to think about it is getting more than what you pay for and you can get that value in a couple different ways.

Like one way is like a super low multiple or discount to book value or whatever it is and another way is you're getting growth for and not paying for it all that much.

The harder part on the the growthy side of value, I think is like knowing how much is too much to pay.

Because again, like you going back to Walmart in the 70s, like I saw the analysis at one point, I didn't do it myself, but it was something like, you know, you could have paid 40 or 50 times earnings for Walmart in the 70s and then brought it forward to today and still got in like a 15 or 17% annualized return.

You know, and there's nothing wrong with that.

Like if I could sign up for a 15 or 17% return right now, for the next 5 decades, I would sign up right away.

Yeah, especially if you end up with a dominant business at the end.

That's not a bad problem to have.

Exactly, exactly.

But it's I think for a lot of people.

I myself am am guilty of this to some extent, but a lot of people that view themselves as quote value investors started in the the traditional value investing like the Ben Graham value investing where it really was of all about how cheap it was.

But I just don't think that's the way the world works anymore.

And Ben Graham's day, like, you could find things that were crazy cheap, and you could look in the mirror and have an honest conversation with yourself and conclude, like, it's cheap.

It's this cheap just because literally nobody even knows about it.

And think of, you know, the stories of Buffett going down to the floor of the Stock Exchange or whatever and pulling the annual reports in paper form.

And he was literally the only person doing that.

Or maybe it was Standard and Poor's office and, like, pulling annual reports in paper form and nobody else was doing that.

So he was finding these things.

But today's world, it's not how it works if it's cheap.

Literally everybody knows.

So I think you have to be more suspicious.

And that's when you have to get more comfortable paying for things that are more expensive.

And then the job like the actual craft of the investment is figuring out like is it actually more expensive or does it just look more expensive and maybe it just looks more expensive because of future growth like the floor and decor example, like how many boxes can they put out there.

I think of that as being a harder analysis, but maybe it's looks expensive because of some sort of, you know, internal project or something like that that is temporarily weighing on margins.

But it then it becomes like, is this project going to last forever or is it really just temporary?

And in the best cases you can answer those kind of questions by looking at incentives, right?

And I mean it's the example I always think of and I feel like I've used this example and everyone I've ever talked to about investing is it's just good Co, bad Co.

It's one business or, you know, one stock that has two business lines.

And if one of them earns a dollar and one of them loses $0.50, on a net basis, the company makes $0.50 and then the market puts a multiple on that.

And if you're thinking about it as like, oh, I need earnings power, future earnings power to go up, Well, one way to get future power, future earnings power to go up is just kill off that $0.50 losing business.

Like literally just shut it down.

It's not that clean.

In the real world you have severance costs and runoff costs and everything else.

But you can look at it and say if this is a business where the Board of directors or the management team, they have a lot of skin in the game.

They are incentivized to not burn $0.50 a year forever.

Well, then they're not going to burn $0.50 a year forever.

And as soon as they shut it down, well then earnings power double S and you're going to do well in the stock of earnings power double S And in better case scenarios like they don't shut it down and better case scenario, you don't have to shut it down because the business hits some sort of inflection point.

And then you have two business lines, one of which is earning a dollar and one of which is maybe now break even and then maybe it's earning $0.50.

And then you go on from there and you start to get credit for that sort of thing over time.

But I spend more of my time on those sort of situations where I think it's an easier analysis to just look at it and say are the people incentivized to pull the easily identifiable levers that will lead to higher earnings power over time rather than trying to do the whole growth analysis and competitive dynamics and real real things like that is, is more difficult.

With Good Co, Bad Co, do you find that?

How do I want to ask?

This is bad Co when the situation works?

Is bad Co more often like an internal project that they're working on that has momentum that's going to grow and then you're going to see it.

So it's not really bad Co.

It's more like earnings drain as opposed to a part of the business that's not working.

You know what I'm saying?

Yeah, that seems like a little bit more stable environment to live in.

Yeah.

I mean, there's no typical, right?

They're all different.

But in those best cases, like at some sort of temporary project that is maybe sucking up some capital and weighing on earnings and something like that.

In the best case, it's because you have a founder with a vision that thinks like I'm going to make an investment over the next couple years and this is probably going to work and it's going to contribute to earnings power going forward.

I've had other successful investments, though, where, I mean, there's one in particular.

I didn't learn this till after the fact, but I learned after the fact.

There was literally one guy on the board who had been there forever and held outsized influence, and he kind of had a pet project that was unrelated to the main business.

And it wound up destroying a lot of capital over time.

But eventually they killed it.

You know, like, I don't think it at the time they started it, it made sense.

Like when I was doing my analysis, I was like OK, it's a bit of a Lotto ticket, but I think this makes sense that you would divert some of your capital and some of your resources to this.

And then over time as it became clear, it was more difficult, you know it it required some some nasty letters and some, some public letters and stuff.

But eventually they killed it.

And then you just have your, you know, the remain Co in that instance and that's fine, but it's never as clean as just good Co, bad Co.

It's always what is it that is temporarily weighing on earnings and it could be anything from the government.

This is, you know, years ago now.

But the the greeting company, The greeting card company, what is it?

American Greetings.

Like at the time the earnings were all messed up.

This is probably like 2010.

I don't even remember.

But there are a couple things that were happening but like e-mail and the Internet, like people were getting away from writing cards and that was a very easy to believe story.

And then they also spent a lot of money building a glamorous headquarters, which I would not argue was a good a good use of capital.

Like, it's kind of ridiculous and.

We're a greeting card company, folks, Yeah.

The story was that greeting cards are going away because of e-mail and the Internet and the financials look terrible.

But the actual truth was the the business was OK.

It was just margins were screwed up because they spent a ton of money on this I didn't remember I want.

To say it was like beautiful HQ.

Yeah, like it was something crazy like that.

The global headquarters of American Greetings.

Yeah.

And and that introduces a different risk, right.

Like then you're saying, do you really want to partner with these people that want to build this ridiculous headquarters building?

Then the answer is maybe no, but maybe that can be solved by price.

But the analysis really came came down to is it true that greeting cards are just going away or is it that the financials are temporarily screwed up because of some capital allocation decisions that will not last forever?

And it turns out, I mean there's I read an article not long ago and to be clear, I not invested in this.

It was.

This is more than a decade ago, but millennials and even younger are actually huge on greeting cards, but not like Hallmark cards that are 599.

They buy like $12.00 cards.

Oh like dude, the card game has gotten out of control.

Yeah, it's crazy, but it's hugely.

Profitable.

What is it, Papyrus or whatever?

Oh my.

Something like.

That, yeah, yeah.

But it actually my yeah, it's.

Hugely.

It's a hugely profitable business that at the I think if I remember correctly, American Greetings was bought by private equity.

But the story, if you will, that greeting cards are going away was totally wrong.

Yeah.

Yeah.

And believable, to your point, because of something in the financials that would be a tough situation for me to get my head around because I'd worry that it's kind of like Empire building and how can you trust the management team to not do the same thing again.

I guess I could probably get over it if they would commit to like buybacks and return a capital so that we get some parameters around how they spend, what they spend.

Yeah, I I was fortunate at the time that I was on the sell side, so I was unable to make the decision if I actually wanted to own it.

I just got the pitch at the people without have to putting anything on the line but your.

Experience on the sell side, do you mind talking about how you got into the industry and what that was like learning?

Yeah.

So I have like the most backwards entry to the industry ever.

And it was completely accidental.

I didn't know anything about stocks growing up, really.

I never even thought about a career in finance or anything like that.

But I grew up in a town that maybe 30 minutes outside of New York City, and a lot of people in my town worked in Manhattan.

And I was basically out of college and spinning my wheels for a year because I was going to go to law school but had taken a year off, like a gap year kind of thing, which is a whole different story.

But in any case, when 911 happened, there were 26 people from my hometown killed, including a couple people that worked at Cantor Fitzgerald.

Two of them.

That's crazy that there was that kind of concentration, I guess, I mean.

Well, I mean not in the.

Northeast, but man.

It was.

Think of it.

It was.

I forget how many people, but almost if it was a 2000 or 3000 people, but all of them within a commutable distance, right.

So yeah, in any case, two of those people that died were people I knew from high school, buddies of mine from high school.

They worked at Cantor Fitzgerald.

And then there was a third guy who survived and he kind of knew that I was out of college, You know, smart guy, but not really doing anything with my time.

I was actually working in my uncle's bar bartending and he kind of tracked me down and was like, look, we need help.

There's no easy way to say this, but almost everybody can if it's child was killed and we need help, can you help?

And I said, yeah, of course.

I showed up at the disaster recovery zone in Connecticut like a week later and got a job or my first job.

I had previously worked at a company called Pergamon, which is kind of like a smaller version of Home Depot.

But at Perkin, one of my jobs was like building the desks for the floor models.

And like, I showed up and they're like, do you know how to build desks?

I was like, actually, I.

I'm very good at this.

So the interview process, it was for like AI don't.

It was for like a do everything job.

A part of it was like middle office type role and with the middle office role like I didn't need experience in finance or education and finance.

What I did need at that time was the ability to like build desks.

So I literally built desks for like the first week or whatever it was.

If I remember correctly, on September 10th, the Darien, Darien office had like 20 people in it and then a week later there were like 85 people on it.

So it was like people on top of each other.

But in any case, like, you know, the desks got built in a week or two and then I was like, all right now what?

And it was a middle office role on the equity sales trading desk, institutional desk.

And then from there, yeah, I guess I've gotten comfortable saying it over the last two decades.

But like, the reality is when everybody in front of you is dead, you can climb the ladder pretty quickly.

So I just took the attitude of, like, all right, I'm going to be the first one in and the last one to leave.

And when somebody asks me to do something, I'm never going to tell them that I have no clue, even though I literally had no clue.

I'm going to tell them yes and then I'm going to go figure it out And that that was kind of my attitude and that led me to climb the the ladder pretty quickly where I was on the sales desk, sales and trading desk within like 6 months.

And again like no idea what I was doing except I passed the Series 7 which was the box checking exercise.

But in theory you learn something from that and then it was just answering the phone and trying to help out wherever I could.

But whenever people would ask me a question, just same attitude like say yes and then figure it out.

And what that meant for me was, you know, finding the right people to ask the question too.

And then also spending a lot of time on Investopedia, the website Investopedia, which is all finance terms.

And like I would hear a term, I didn't know about it and I would click on Investopedia and read about it.

And then the way the articles on Investopedia worked is there be whatever, seven more linked articles and you just go down the rabbit hole just learning as much as you can.

And I put together enough of the, I guess, the vocabulary to make it on the trading desk where the job was calling institutional clients.

So hedge funds, mutual funds and very much a Commission generating role.

And Cantor at the time did.

We didn't have any sort of banking effort or research effort.

It was very much a third market firm and this doesn't even really exist anymore.

But at the time the idea was if you have small cap stocks or you know less liquid stocks, you need to trade it in the third market, meaning I'm a natural buyer, call a broker.

The broker then calls all of the other holders and says hey do you want to sell it and that was the business.

You wanted to trade a million share block of a stock that rarely trades.

You need that third party broker to 3rd market broker rather to find the stock and cross it another market.

But the business model day-to-day was very much, you know have an excuse to talk to your client and then maybe they'll tell you that they're looking to buy XYZ or sell XYZ.

So The Morning Call was typically like calling all your clients and saying, you know, oh, did you see the so and so missed earnings by a penny or did you see that Goldman Sachs downgraded XYZ or whatever it might be and really just generating noise on the trading side.

And as a 22 year old or 23 year old with no idea what was really going on, it was a lot of fun.

It was exciting.

It was heavy on entertainment.

It was heavy on, you know, take the corporate card and floor seats at the Knicks and then the steakhouse and everything else.

And I was pretty good at that, but I also was not great at that.

And there are guys that you meet in that business that are just like unbelievable personalities, just larger than life personalities.

And then there's also a lot of people you meet in that business that it just so happens that, you know, their best friend from college or whatever it is now, hedge trader at a hedge fund and guess who they got all their business from.

And you know, it's a relationship business.

And that was never me.

I never had those kind of relationships.

So I eventually grew pretty disenchanted with the whole experience, just kind of realized like, this is ridiculous.

I secretly know that I know nothing.

While on the outside I'm able to like, speak the language because I've been reading Investopedia.

Like I really don't know what's going on here.

I'm just making noise and going to Knicks games and IA pined on that to somebody who was actually my partner at the time.

He covered the Royce Funds small cap value mutual fund, a pine to somebody that worked at the Royce Funds.

Like, I don't really get it.

I'm 23 years old.

I have no idea what's going on, but I'm calling guys who are like twice my age, and they manage a billion dollars.

And I tell them that the company missed earnings by a penny.

And then they decide to sell up 500,000 shares of a stock.

Like, how does that make any sense?

Like, who cares if they missed earnings by a penny?

And certainly don't care when I'm the one telling you because I don't even know what that means.

And that guy basically told me he's like, wow, I remember he said it in like a really condescending way.

He was like, wow, Like, I never would have guessed this, but I think you actually might have a brain in your head.

And I was like, thanks.

I was like, thanks.

But he said he's like, look, if you have a brain in your head, go home and start reading.

Read everything Warren Buffett ever wrote.

Read Ben Graham, read Joel Greenblatt, Read, read, read, read, read, read, read.

And that's what I did.

And having not grown up around the stock market and having never taken a finance class or an accounting class, I took one microeconomics class in college.

Like, I never took business.

I never did anything like that.

It kind of blew my doors off when I started reading all that stuff.

And it's kind of cheesy.

But Buffett has said it's like an inoculation.

Like you either get it right away or you never get it.

But for me, I started reading and I was like, Oh my God, I can't believe I've been missing all this my whole life.

It's just kind of like, you know, problem solving combined with odds making and you can also get paid on the way like this seems like a good fit for me.

So I pretty much like dedicated myself entirely to getting up the learning curve which I was way behind on.

And that was everything from going home after work and instead of going out entertaining clients all night but cracking 10 KS.

But also like the CFA program and teaching myself accounting and all that that sort of stuff where it eventually got to the point I was doing my own write ups and instead of calling clients in the morning and trying to you know squeeze commissions out of them, I was trying to find people that would maybe hire me on as an analyst.

So if you think about it on the Commission side, your best client is maybe they have a billion dollars under management or a couple billion dollars under management.

Maybe they own 300 stocks and they're trading all the time that that generates a whole lot of commissions.

But if you think about on the making money as an investor side, that is not a great model at all.

That is a great model to collect management fees, but it is not a great model to outperform.

So I started really focusing on potential Commission generating clients that were smaller funds concentrated portfolio, did not trade a lot terrible from a Commission generating basis.

But would be you know great for me with how I was thinking about the world and thinking about investing and hopefully somebody would eventually hire me.

And that's where, you know, the American Greetings pitch came in and I was doing the work on American Greetings and then you know, shopping that whatever, 15 or 20 small funds that I thought might be interested in that sort of quirky special situation type type investment.

And I did that for a number of years.

And for a number of years guys were telling me like this is great, keep the ideas coming, you know, maybe someday I'll be the right fit.

But these are primarily like one man and two man, maybe three man shops.

And if you're a small single operator or even a two person investment shop, like the decision to bring on a third person or even a second person, like that's a huge decision.

Like the economics of that model breakdown pretty quickly if you're determined to stay small and give yourself every advantage you could have in the investing world.

So it never really worked in terms of nobody ever said hey you know, leave Cantor, come here.

But eventually Cantor came to me and said, hey, leave Cantor because the reality.

Is you're not generating any.

Look at the reality is when you're no longer, you're no longer trying to generate commissions.

You're trying to enjoy the process of investing and get into the investing side that that was not the business model.

I can or the business model was generate commissions, but I was not trying to generate commissions.

I was trying to improve myself and build the relationships and everything.

So, yeah, I don't know the exact number, but my commissions were down like approximately 70% like I really it was like.

Clearly, clearly had mailed it in.

There, well, to be fair, there were a couple things happening in the background which also accelerated my decision to try and get to the investing side rather than the sales trading side.

And a lot of that was just the evolution of the world we live in going back to where we started earlier, like quants were coming up, ETFs were coming up.

So you could think about it.

When I started in 2001, there weren't really these niche ETFs.

It's like if you decide you want healthcare exposure and then you're going to go out and buy a basket of 25 healthcare stocks and there's a lot of commissions attached to that.

And at the time, commissions were still five and six cents a share because electronic trading hadn't really started.

Like my my first job, middle office, or really my second job after building desks was taking paper tickets and inputting the paper.

The trader would get a call from the floor of the New York Stock Exchange and it would be like you bought 100 shares at $20, you bought 100 shares at $20.01, you bought 200 shares at $20.02, and you have to input each one of those into computer because it was all paper ticket tickets still, which makes me feel like I'm super old.

But that's how it was.

It wasn't that long ago and electronic trading was like only just beginning to be a thing, like it hadn't been there yet.

So commissions were still, you know, five and six cents a share.

So you're talking about a basket of 25 stocks at $0.05 a share and moving to a world where instead it's one ETF at a half a penny a share.

Like, you know, commissions were drying up really fast.

And I was aware of that and there were a number of guys, you know, older guys, we've been there for a while and he's incredible personalities, incredible entertainers.

And they always said we've been through cycles like this before commissions go down and they always come back.

And I was like, I don't think so.

I think commissions maybe came down after the tech bubble crash because volumes were down.

But like the fundamental structure of the market and the fundamental technology behind paper tickets and electronic trading like that was not part of it.

That was just a macro thing.

Then the macro could swing back and forth, but we're now talking about like a fundamental shift in the entire landscape of how the the sales and trading brokerage business works.

So part of it was that fundamental shift driving commissions down.

And part of it was, you know, me making an active decision, saying like the ship is sinking here.

And to be clear, there's still guys that are in that business and do very well.

But like my personal ship I felt like was sinking and I felt like I was young enough and hungry enough that I could recreate myself in a way that would benefit me till to where I am and now.

So the reality though was I was making the active decision to stop focusing on funds that I would never want to work at because they generate a lot of commissions and their returns stink like good.

The Commission side is great, but that's not what I care about.

I care about returns.

So I really just started focusing on, you know, potential potential places that would maybe hire me one day that were terrible customers on a Commission basis.

But they were knocking it out of the park because they own 10 or 12 or 15 stocks and they were doing quirky, weird Special Situations.

And they were not getting shaken out by the guy who calls them up and says, Oh my God, they missed earnings by a penny.

Like, call them and say that they'd slam the phone on me.

Like, call them and say, hey, did you see American Greetings?

There's some really weird things going on under the surface here.

I think you should take a look.

They're interested.

In any case, none of those guys were ever able to hire me.

I wound up leaving Cantor at their suggestion, which I was very complicit.

And I was kind of waiting for it to happen because if I had quit, I would not have gotten paid out on my partnership interest.

But because they kind of asked me to leave, I got paid out on my partnership interest and that kind of gave me a little bit of ground to build a business on top of.

I mean, there's multiple other steps in between there, but it was just an active decision to pursue the craft of investing in a concentrated small cap manner that I'm still doing today.

That's awesome.

Did did the conversations that you were having, I mean how much did that help your knowledge acceleration?

Huge.

Right.

Because then you start to back and forth ideas with people that you respect.

Yeah, it was huge and it also ties into what we talked about a little while ago about what value investing actually means.

We're on one side, it's like low PE, low price, the book, whatever it might be.

And on the other side of the spectrum, it's maybe underappreciated growth potential.

But I was doing write ups and then sending them to 10 or 15 different PMS and some of those guys were more traditional value and some of those guys were more traditional growth And I was getting feedback from all of them to trying to help me shape the way I was thinking because I was literally starting from from nothing.

I cannot overstate how under informed I was to the point where I don't think I'd ever seen a balance sheet in my life until I was like 23 years old.

I just didn't know I was not exposed to it.

So I was literally starting from nothing and then I was able to get exposure to a lot of high performing investors with a variety of styles.

And I was able to kind of you understand the nuances between their different styles and see which parts of their style worked for me.

And take something from one guy and take something from another guy and then come up with my own style versus a lot of people who they maybe.

I guess the typical path is probably like Ivy League undergrad.

Then you work in a big bank for two year training program and then if you go to a fund or you go to Business School 1st and you go to a fund but then you get molded in that the model of that one fund.

So you're kind of taught their process and then that can become your process, of course.

But that was different than my experience where like I was able to develop my own process with a lot of different inputs and it it truly is my process, which means it's the right fit for my personality and you know, my emotional makeup, however you want to think of it.

Then those things, those things are important in the investing world, especially when things aren't going right.

It's I think it's the the fundamental key is sticking to a process over time or even when it's not working.

As long as you're executing it properly, even if it's not working, you should stick to it.

But it's a lot easier to stick to it when it actually is your process and not the process that was beaten into you by your boss.

That's cool, man.

Good for you.

That's a nice story I like.

It was it was a bumpy road and I get a lot of emails and questions from other emerging managers, people that are trying to figure it out and you know, how did you make it work?

And in in the early days, I I mean I was doing anything I could do to extend the runway.

That's what it's all about.

Like I running the the business where I didn't really have many outside investors at the time, but I was, you know, working as much as I could on nights and weekends.

Because sometimes during the day I would be taking like a random consulting gig that I like would talk myself into.

Or sometimes I was doing contract analyst work for other managers.

You know, anything I could to just extend the runway.

We, Bill and I were talking about this when the camera was up, but you know, including tempering expectations from my now wife who at the time was my girlfriend.

I was like, but the the belt is going to be real tight around here for a while because I'm taking a chance on myself.

This is a couple years ago now, but I remember on Twitter somebody had posted like, I don't understand why an analyst would leave a job where they make, you know what, I forget the number.

I think it was like $300,000.

Why an analyst would leave a job where they're getting paid $300,000 and try and start their own fund.

It's like it just doesn't make any sense.

And I totally get that if you're only thinking about it in terms of the money.

But I was never thinking about it in terms of the money.

I was always thinking about it like the risk is not walking away from the job you have.

The risk is waking up one day when you're 70 years old and looking in the mirror and saying, I can't believe I never took my shot.

Like, that is the real risk.

So it's worked out for me.

It doesn't work out for everybody, but it's it's worked out for me.

Well said, well said.

My buddy owns a Chick-fil-A around here, and in order to get it, he had to take it was like a mall location.

And he was behind, you know, he's the chief cook and bottle washer, whatever.

He's behind the cash register.

And my other buddy who had grown up with him but didn't talk to him for like, you know, 15 years or whatever, was walking through the mall And he sees his childhood friend behind the cash register at the Chick-fil-A.

And he turned to his wife and he's like, what should I do?

I should I go see him?

Like, I feel so bad for the guy.

And he walked up and he asked him, he said, like, are you, are you now like the cashier here?

And he was going to give him 50 bucks to help him out or whatever.

And my buddy was like, no, I own the place.

And I got to come in and I basically had to fire everybody, turn the culture around.

And now he actually got his second Chick-fil-A, which they don't do very often.

I mean, he's really built it into something pretty, pretty incredible to watch.

But I was talking to him about that time of his life and just, you know, he had like, just had a kid.

He's at this, you know, shitty mall location.

He was like, man, I never want to go back there.

I mean, you know, he doesn't have to, right?

But he was talking about, to your point on adjusting expectations, you know, his wife was, I think at a couple times she questioned what the heck are we doing here.

But they have a strong faith and I think that brought them through.

But it's I love those stories.

Yeah, that's it, man.

You know, it's there's nothing better than being your own boss, right?

It's not easy, though.

Like, you have to you have to pay dues along the way.

You have to make sacrifices along the way.

But if you're able to make it work, I don't know if this is true for your buddy.

Maybe it is.

But like for me, I'm one of the few people in the world that is able to make a career out of what they love doing.

So I always think it's like me and like rock stars and movie stars and not many other people, right?

Like, maybe it's your Chick-fil-A buddy, too.

I don't know how passionate he is about, you know, washing the bottles and cleaning the grease traps, but maybe he is passionate.

I think he likes building teams and he gets to coach the kids that he hires and stuff.

I think.

I think he quite likes.

Chip Play is obviously like the fantastic brand and they're known for their values and known for incredible service, and I totally see how you could be super proud of that.

Yeah, I I think it's cool.

I'm trying to learn something from him about motivating groups I had.

I coached a basketball team with him and it opened my eyes to how much I need to work on my coaching.

Like the it's it's it was a fun experience 10 so they were they were old enough to start to grasp concepts.

I've only coached like quite a bit younger, which is like herding.

Cats, I'm about to start.

I guess it's two weeks from now.

Start as coaching 8 year old lacrosse, which, yeah, we'll see how that goes.

It'll be interesting.

I've got AUA team on the assistant, but I didn't play growing up so I don't really know what I'm doing.

So I'm mostly the guy that I try to make sure that when we're running a four on 4 drill, the other kids are passing each other and improving their stick skills and staying busy rather than hitting the each other in the head because that's what boys like to do.

That's a big part of it for sure, yeah.

It makes no sense.

I'm like, guys, stop.

But it's been one of the great joys in my life, man.

I hope you.

I hope you like it, because it's it's.

Fun I'm I'm looking forward to it.

I'm I'm actually really excited.

I I.

Don't know what else to talk about, man.

I've really enjoyed this part of the the pod has grown to a point where sometimes it feels like it's like almost a marketing platform, and it's so refreshing to just talk to somebody.

But like, I I feel like I've heard you say things like that in the past, but you're not selling anything.

No, I know.

But sometimes I feel like I'm like, like like other people's house.

It's not totally fair because they're all conversations that I want to have, but it's part of why I have not, like, I mean, there's going to be a lot of recurring guests.

It's 'cause I I'm going to do it with people that I like and if I get introduced to other people, then I'll do that.

But I I don't want to cold call people and try to be like, hey, you know let's come on And then the other issue and it's really fun to have, you know, like like Sanjay Air was amazing from WCM.

But once you start to get to that level of firm, there's steps that you got to work with within, like what they'll allow you to talk about.

Not WCM, they were not that way, but other people have been and it it gets a little bit like, what are we doing?

Here.

But yeah, well, the what are we doing here?

I get it.

But I guess my impression has been that you're doing this for your own development, right?

Your own enjoyment, right.

So that's what's better than that.

It's been great.

I would argue the only thing that might be better is having a job that was paying me while I was doing my own research and talking to people and getting a feedback right.

But this is how I've been doing sort of my version of what you did, and it's been hugely, hugely rewarding and very fun.

Like the ultimate outcome here is that you lever this into a career somehow or?

Well, yeah, I got to do something.

I'm not going to open up a fund.

I don't see any scenario where that's the outcome.

I could see a scenario where I do some sort of financial advising.

I could see a scenario where I try to raise capital for people.

That is probably where my life goes.

But honestly, my my job was making sure that my grandma could die in peace for a little while.

And now that that's kind of over, I'm at a bit of a midlife crossroads.

Well, it's interesting because, you know, I don't think I ever missed an episode when you were on Toby's show or whatever value after hours.

But like, I have not listened to all of your episodes.

So I feel like I've gotten like a good chunk of your your back story and your life story, but not all the pieces.

So I mean, just right there what you just said, you're like, I need to do something.

Like I didn't know if that was the case.

I was like maybe you don't.

Maybe you have money and you're kind of kicking at.

Me, I wouldn't be happy not doing anything, man.

And I want to be a productive member of society.

I'm not trying and and frankly we I don't have enough to not do anything nor do I want the pressure.

Like dude, I don't like living off of a balance sheet.

It's not something that I enjoy very much and I don't know what am I going to do like play golf all the time.

Fuck that shit.

I want to do stuff.

It's funny that, like, I do know.

I just want to do something I enjoy that's rewarding.

I do know guys that are totally happy.

The young guys, how old are you?

I'm 45.

Guys that are like our age and like they're totally happy just playing golf.

And I would lose my mind.

I would absolutely.

Lose my can't do it.

Yeah, I couldn't do it.

The only the only time that I am purely happy not doing something work related is when I'm with the kids and and my wife.

I mean I I really like my family that that I'm building.

But outside of that I I need to do something.

Idle hands are terrible.

You know, an interesting guy I talked to just last week who I don't think he would ever come on the show because he's very private, but just like an interesting guy to talk to and maybe I could facilitate it.

And we didn't talk specifics, but I'm pretty sure he's like self-made, worth like 50 or 100 million bucks.

And we didn't, he didn't want to get into too many of the specifics, but he basically said he's started by, you know, like a small business in high school.

And by the time he was done with high school, that was like Jet.

That business was generating like $1,000,000 a year in cash flow.

And his parents were like, this is not a real career.

You have to stop with this.

You have to stop.

Maybe it was 100, maybe it was $1,000,000 in revenue.

It might have been $1,000,000 in revenue, But either way like call it 10%.

Margins like.

You know it's like a real thing his practice like you have to get rid of this and go to college.

So you could be I think they want him to be a doctor.

So he wound up selling it and I think he it must have been $1,000,000 business or $1,000,000 like EBITDA line because he sold it for something like 5 or 6,000,000 bucks.

Then went to college and like started Med school and just hated it.

But was investing in public markets at the time and wound up like doubling or tripling his money over, you know, in a seven or eight-year period like something not too hard to believe.

But then has done a couple other things since then where it's basically like small business roll ups, you know, like finding some weird niche small business.

And one of the ones you talked about, I think it's like a water purification business.

But there's like three of these businesses in this one like not too large geographic area.

And you buy one, you learn the business and then you approach the other guy and then you have two and you have three and you just levy your costs and you get some scale and the increase in multiple you get from buyers and just with just a little bit of scale is huge.

So you could buy it at like you know, three or four times cash flow and sell it at 8 or 9 times cash flow after it's two or three times bigger.

Like the returns are ridiculous.

And he's just done it a couple different Times Now with, you know, small businesses.

Just get a couple.

He works very hard.

He described it as like 16 hours a day at times to when you're getting your people up the curve, kind of like you know, you're you're Chick-fil-A guy.

Like you have to be in there doing it.

But then you get to the point where you get the right managers and you kind of sit back and watch the cash flow and start thinking about what you could sell it for and then start looking for the next one and that's it.

Yeah, the so easy.

There was a guy why did?

Everybody do it.

Yeah, that's exactly right.

There was a kid at Capital camp that I talked to.

Kid, he's probably like 32, but he's doing the same thing.

And he said to me, he's like, I'd never go on a podcast, 'cause I don't want other people to learn what I do.

But he does something similar.

He buys industrial companies and he was telling me like one, He basically, you know, so the balance sheet was so lazy that he basically bought it and then put a revolver in place and sucked all his capital out within six months.

And he had this business, like basically free.

Unbelievable.

Yeah, it's wild.

Are you going to always stay small cap and like if so why as opposed to maybe going up to like 5 billion in market cap?

Yeah, It's an interesting question.

And the the way I think about it is as an investor, I want every possible competitive advantage, right.

And like, look, I'm a reasonably smart guy, but I know that I'm not the smartest guy in the world.

And I know that this is not a business where being the smartest guy is what you need.

And it's like Buffett 101.

It's not a game where the guy with the 150 IQ beats the guy

with the 1:30 IQ.

But I do think the competitive advantages matter.

And there's just right now it feels like a negative.

But there's just not as much competition in small cab, especially today, which I used to think about that as a huge competitive advantage.

Now I think about as well, there's no incremental buyers.

It kind of stinks sometimes, but it's just more fun for me.

And I'm really looking for the one foot hurdle and it's harder to find the one foot hurdle in for example Apple.

I think there's 50 full time sell side analysts that cover Apple like I don't want to compete with those guys in small cap in theory you can get some edge.

Now the way I've thought about it over time maybe it started to evolve because even with so I've never done super small, I've never really do anything like less than 100 million.

So I'm not doing like the $20 million market caps, but even the difference between the quality of a management team like a $500 million company and $100 million company is huge.

It's like I have moved on market a bit and I top of my head, I'd say my average market cap right now is like a billion and that's still very small.

It doesn't scale for oh.

That makes sense.

But it's a much better that makes sense, much better quality experience.

The only time I think about going larger is based on the opportunity set like what I like if large cap all of a sudden got super cheap because we have a you know the pendulum swings like well then maybe it makes sense.

I don't know.

But for me, what I'm doing stuff where there's not as many people competing with it and I don't have to worry about that angle of it as much.

I don't know.

It's kind of a lazy answer, but that's just kind of where I wound up.

It's not lazy at all.

That's that's actually the professional management teams was a lot of what I was actually getting at.

I had a conversation with Jeff Graham Once Upon a time and I asked him if he were me, what would he focus on And he's like I would not go too much below 800 million for the exact reason that you said.

He's like, unless you really want to get your hands dirty and like really get in there and whatnot, but he's like that around that market cap.

Now I'm gonna, I'm gonna butcher what he said.

So just consider it my words at this point.

But around that market cap is inefficient enough that that you can find real pockets, but big enough to demand professional management.

That makes sense.

That's a good way to think about it.

I think and and the the other piece of it too is like when you have that weaker management team, you really have to be thinking like when am I gonna sell this?

And I have more evolved into wanting to own better businesses with the potential to own them for longer times.

So like for me best case scenario is like a special situation that could actually turn into a compounder.

Like it has a special situation price.

But this is a business you could own for a long time.

And I have found with the smaller cap stuff, like you really don't, you don't want to like the Super small.

Like you don't want to own it forever.

Like there's a reason that they're so small in public and meaning, like if they were a great business and they were small, well then private equity would scoop them up, right.

And if they're still that small and they've been public for a while, well, then, you know, they're not getting the right returns on capital or they're not compounding or whatever it might be.

So I don't know.

I don't.

I don't think there's a right answer.

Yeah, that's that's the old no, no business aims to stay small, right?

Well, I mean, yes, except for like my business aims to stay small.

I think so.

It it's very, very hard for me to think that.

I I mean, you're sitting there in a room full of people and like, look, Schwartzman's got a great pitch for Blackstone products.

If they're levered and the economy grows, you're gonna do better than the public markets.

Like yeah, you know, probably because you're using more leverage.

On the other hand, nobody in that room is thinking critically about whether or not people are over allocating to private equity right now.

It's just like a given that it's going to outperform and it's like this guy is fucking telling you he got rich paying 16% free cash flow entry fee on real estate.

You guys are allocating to private equity at the time where they're flipping stuff to each other for 14 times EBITDA?

Like.

I don't know.

I don't get it either.

But again, the volatility laundering, right?

If you're in the allocator seat, you get to tell your boss or you know your whatever, your institution, your hospital, your college is down and you tell them like, Oh yeah, we're flat.

The S&P is down 30% and we're flat.

And you say with a straight face, oh, that's great, that's great.

Let's build that new building we need to build.

That's.

What else?

What else was said yesterday?

Oh, somebody was like, well, they marked B REIT down like 8% last year.

I was like, they fucking should have.

It's real estate.

Yeah, of course they marked it down.

No.

It's crazy.

It's crazy.

It's just, you know, it reduces career risk for people as they go private equity.

For now, but but I say that it can be another 10 years before you even realize that that was the wrong idea, right?

To allocate.

So I I think to your point, by then you're gone.

Your kids have already graduated college and like, what the hell do you care, right, if you're an allocator?

So.

I don't know.

Well, it sounds like we see the world very similarly.

Yeah, I think so.

I feel like.

I feel like you just put your radio voice back on.

No, no, I didn't mean to.

I I just I do think that we see the world pretty similar.

I think so.

I gotta learn what to look for in some smaller stocks.

I may bounce some ideas off if I work harder than I have been lately.

I'm happy to.

I do.

That's one thing I have to say that I know you've been big with like the the cable names and stuff like that, and I get it.

But don't you feel like there's a million people looking at the cable names?

Yeah, I thankfully sidestep this last leg down.

Yes, I do think that way.

And now that I have sold them and look I got into like I think I made a mistake that I hope I don't repeat.

I got into Charter when they had merger integration issues and they were integration issues that I could really understand and the business was on a side of free cash flow in our inflection that I could understand.

And and it worked and it works so well that even when it was at like 800 a share, I was like, I remember I was talking to my friends, I was like we can't make more than like 4 or 5% on this anymore.

Like we just can't.

And I ended up trimming that.

And then I went into Altice which is lower quality.

And I thank God I was watching the conference call And when this the guy got on the Dexter, when he got on that Goldman conference call, I texted my friends.

I was like this dude looks like he just cheated on his wife and he's got to come out and tell us all.

And I was like, I'm out.

Like I I do not like this body language one bit.

And to be fair, I listened to what he said before I sold, but I sidestepped a big drawdown in that and and I got hurt, don't get me wrong.

And then Charter was sitting there and I think that it was an, you know, it was a business that I had already made money on and knew pretty well.

And I just, I completely underestimated the CapEx cycle and the threat from fixed wireless.

And I don't know if it was lazy thinking or what, but I I don't have like this massive desire to go back into it at all.

Like I I kind of talk about it with my friends now 'cause I still follow cable, but you know it, I think they probably do well here.

I mean just a simple Dan Rasmussen, this is a levered, you know, just like a levered equity.

But at this point, I think you put like a group of those on and the group probably does fine, basically private equity in public markets.

But yes, I think I should be looking.

I should look at stuff like Thrive more.

Yeah.

I mean, I guess the way I think about it is, it's just a fact that how you get paid is, is really three things, right?

One is earnings power goes up, two is multiple expansion.

And then three is like return of capital dividends, however you want to think about it.

But the earnings power part is out there and it's out there for anybody to see whether or not the earnings power is going to prove like you can do your work on that independent of the multiple, independent of that multiple expansion.

But the multiple expansion piece, a big part of that is just there's value in the discovery process.

Like if you're looking at something that nobody else is looking at and then more people start looking at it, it pulls forward returns.

Like if you know that return comes forward before the earnings power shows up and when you have a stock that everybody's already looking at that, that doesn't tend to happen unless it's already like they are performing like they are executing and then you're seeing it and that's fine too.

But anytime you could pull forward the multiple, I think it's a bonus.

Yeah, I think that that's a very, a very astute comment.

The problem again back to what we were saying earlier, I feel like a couple years ago it would be like a small cap stock and like a couple people start talking about it on Twitter or it's written up on Victoria or whatever it re rates pretty quickly.

And now it's like I mean Thrive is an example, the Thrive last year customer counted Thrive was up 29%.

If you do some work around what is their runoff marketing business worth versus their debt, you could kind of say that the debt is probably cancelled out maybe a little bit more.

And if you do that on an enterprise value to revenue basis, it's trading at like I don't know two times adjusted enterprise value backing out the the debt and the runoff business and the average software company at that size and that margin profile and that growth is trading at like 6 times revenue.

So you know it's super cheap, right.

And they're executing I I grew customer account by 29 percent or something like that.

But then you look at it and they also have floating rate debt.

That is a death sentence in this market.

Oh, this is this is what you're saying that that people just don't want to touch it because they're like, I don't know where?

It's going, I mean the trends that are driving the business.

So like the the, the major trend there is the idea that small businesses are not yet running their business in the cloud the way all big businesses are.

So your local plumber or whatever is probably running his business right now on the spreadsheet and some sticky notes and that's not going to be like that forever.

At some point all of that, you know, every small business like that, they're also going to have some software that helps make their lives better.

And I don't think there's anything that stops that trend now.

It doesn't mean that thrive wins that trend.

I do think they have a huge competitive advantage in that they have this stack of, I think it's down to maybe 350 or 330,000 customers at this point that's still advertised like via their old business, the Yellow Pages business essentially.

And I think it's probably hard for anyone who's like an analyst to understand this.

But if you're the person who's running the firm like me or your friend of Chick-fil-A or whatever, like the amount of inbound stuff I get from compliance consultants and a new operating system for my trading.

And, you know, any legal advice?

Like I get emails like that all day long, every day, and I ignore all of them.

Now there are a lot of people out there that are trying to make software for small and medium businesses and they're all sending emails to these small and medium businesses saying, look at me, look at me and all those emails are getting ignored because nobody looks at those emails.

But then you have Thrive and they have 15 on average.

Their average customer has been with them for 15 years.

Their emails don't get ignored because for 15 years they've had the relationship.

They've been, you know, the small business owner has been sending a check to Thrive.

So Thrive is contacting them.

They say, oh wait, what's this?

I should pay attention.

It is like a huge competitive advantage when it comes to customer acquisition.

And if you look at their, their intermediate term plan and you do the math around where they think they can get on revenue and ARPU, they're basically suggesting that they could win less than 2% of their addressable market.

That does not sound ambitious to me.

That is not a winner take all kind of situation.

It's like you could get there a couple different ways.

It's like if 50% or it's actually less than 50%, it's probably like 40% of their existing marketing customers transition to software side.

Well, then they did it like that shouldn't be that hard because they already have the customer relationship, like they already have the emails that get opened.

Or another way to think about it is that if you're like in a three plumber town and one plumber gets thrive and all of a sudden you have 3 plumbers and one of them is going to tell you, yeah, I'll be there on Tuesday between 8:00 and 4:00.

And the other one said is texting you every hour with an update on when they're going to be there and then they text you your invoice afterwards so you're not waiting in the mail and you could pay them right through your phone.

That is such a better customer experience that the other two plumbers now have a problem.

And you can see this in their numbers.

It's like 40% of their new customers come to a referral where it's like 1 plumber gets thrive and the next plumber is like oh I got a problem, I need to get it.

So then they get it too.

So like none of this means it's going to work.

It just means that one quants can't see it because it's a curve crowd cross story.

You have a declining business that's the old marketing business and that's polluting the financials.

Then you have the the new business which is accelerating but until those curves cross the gap financials are immense.

And then it's you know trying to think of they can succeed.

Like I really think it's a true competitive advantage to own the customer relationship rather than cold calling.

And then I really think it's a true competitive advantage that they even this other, this other business is in decline.

It's spinning off a ton of cash.

So in a world where you know three years ago money was free, every software company out there that was trying to get into this market had access to free money but they don't have free money anymore.

So being able to internally finance is a huge deal, but they have some floating rate debt and IT rates went up last year and despite the fact that they're executing, the stock was flat on the year.

But you have to look at it and say like all right, they have floating rate debt.

I think it's at like 350 million right now.

They just reported yesterday's, I don't remember the updated number, I think it's 350 million, but that's down from a billion a couple years ago.

Like there is clear evidence they were paying that debt down.

They just paid off 120 million this last year.

You know, it's going to be gone in a couple years or if not, gone down to a level where they could easily refinance it based on the SAS business they're building and not based on the declining Yellow Pages building.

So they'll come out clean one way or another.

And I think when that happens, then the market has to care.

Like the market has to say, oh, wait a second, the debt's not a problem anymore.

And the market has to say the curves have crossed.

So now everything is inflected in the right way.

And if you're a quant, it's Oh my God, wait a second.

Now it's looks like it's trading at two times sales and everything else is trading at six times sales.

Not to mention that it's not even qualified as a SAS business under the GIG system like the industry classification system, it's classified as a marketing business.

So like when the curves cross, then it'll be reclassified as a SAS business.

And any computer out there that is only following the rule set will say, wait a second, this is now in my SAS bucket, wait a second, It's trading at two times revenue.

Everything else is trading at six times revenue.

Maybe we should buy this 'cause that's what the rules say, I don't know.

And that's how the stock goes right now.

It's at like 19 or something.

That's how the stock goes from 19 to 60.

I think if I'm right, but yeah, you know right now it has floating rate debt and that is a no, no.

Yeah.

And a declining business, to your point.

And like the Gap financials suck, right?

Or they don't suck, but you have to put time and effort into actually.

Yeah.

I mean the, the ick factor if you will is, is off the charts.

It's like, oh, they have the software business and this other business, what's the other business?

It's the Yellow Pages.

What who still has a phone book?

And the answer is, you know, people in area that live in area maybe connecting back to Charter or Altis, but people who live in areas where there's not good Wi-Fi connectivity or there's not good Internet and it's, you know, those people in Appalachia and places like that, like the phone book still is, is a thing and it's a still totally valid customer acquisition tool for them.

It's not going to be there forever, but I can't think of a management team that has been more transparent when discussing the decline of that business and how they're going to handle that decline.

They're totally open and it is dying and it is spitting off a ton of cash as it dies.

Huh.

That's what you want it.

Whenever Jake and Toby and I would talk about value and some of these like declining businesses, I'd always be like, you just got to tell me what they're going to do with the cash, right?

And investing in a growth business while also paying down debt are two things that makes sense to me as to what they're doing with.

The return, the returns on them are are very clear and not only that the CEO chairman like he's putting his money where his mouth is.

He could do the math and on an after tax basis, he's investing more than 100% of his salary into buying shares in the public markets.

Wow.

The after tax is like a little quirky like I happen to be able to figure out the prop some of the real estate he owns and what the taxes are on that.

So it's like truly after tax it's not just like what the government takes on the income but still like he's out there in the market.

I we'll see, right.

They reported yesterday so I'm sure that the window is probably closed for him until Monday or Tuesday.

We'll we'll see if he buys again because the stock got hit on on the earnings so.

Do you run background checks and stuff on people?

I wouldn't say I do that.

I'm pretty good at finding somebody who knows people and just kind of connecting the dots on that.

But like I've never hired the background check firm.

I tend to focus on the 1 foot hurdles and what are the levers the management team pulls and you know back to thrive.

Like, I don't know.

I think less than 2% market share, when you own a customer relationship like that doesn't strike, see strike me as super crazy.

It doesn't strike me as a promotional, to your point, right?

It's not promotional.

And if they're transparent on the business, it's declining.

Those are people that you could probably trust.

Whether or not the projection becomes reality is sort of how life works, right?

But at least you're not, like, set up with a person that's trying to, like, get you to buy into a story that's unrealistic.

That makes sense.

That makes sense.

Interesting, huh?

I'm going to listen to these calls.

That's what I'm going to do for tonight.

Put my kid down and go listen to thrive.

Yeah.

Well, it's so they reported yesterday.

I have a call with them actually in 45 minutes because there's some things from the their report last night that were, I don't know if they're concerned like it was a mixed, it was a mixed bag and there's a couple things I was like, I don't know if that makes sense.

All right man, I'm going to let you go.

I really, I've enjoyed this, thank you.

The whole reason that I left everything recording by the way, is so that when we do this goodbye is because I didn't want to re record.

I've been thinking the whole time I'm like, do we have enough to like just walk away or do we need to?

Yeah, no, I I just, I wanted to say thank you very much for coming on and I look forward to the next time that we.

Can let me know if you want to go to Omaha and I'll do the same and maybe we'll yeah, we'll shoot it over there for a little.

Bit all right.

Sounds good all.

Right.

Take care, man.

I appreciate it.