Guaranteed Returns (FG): QAV America #60

Guaranteed Returns (FG): QAV America #60

QAV AM 60 [https://qavamerica.com/wp-content/uploads/2026/07/QAV-America-60-art-optimised.jpg] This week Cameron does a full Pulled Pork on F&G Annuities and Life (ticker: FG), a Des Moines-based annuities and retirement income company that’s been through four owners in 25 years, had its share price smashed 44% from peak, and is now sitting at a QAV score of 0.862. Tony brings the context on why annuities businesses are genuinely complex to run, the tailwinds from baby boomer retirements, and why the Blackstone connection is both impressive and worth watching. Plus: the Strait of Hormuz shipping update, jobs numbers, Tony’s horse wins at Flemington, Welsh heavy metal, and a walk through a freezing Queensland creek.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok [https://www.tiktok.com/@qavinvesting]. Or visit our homepage [https://qavamerica.com/home/] to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives [/listen/] TRANSCRIPTION QAV America 60 Club Video [00:00:00] Cameron: Welcome back to QAV America, Tony, episode 60. It is the 7th of July, 2026. Well Tony Kynaston: and happy 250th America Cameron: Yeah. Let’s, Tony Kynaston: may not Cameron: let’s, Tony Kynaston: there wasn’t much going on in the mall Cameron: let’s see if it makes it to 251 as a republic. Um, well, the, the big U.S. market related news in the last week, I guess, Tony, is the market’s booming still despite the June jobs report that was released on July 2nd coming in softer than expected. 57,000 payrolls added. The expectation was around 115,000, so it’s, uh, slowed down for some reason. Unemployment ticked down though from 4.3 to 4.2% because labor force participation fell to [00:01:00] 61.5%, the lowest since 2021. So apparently it’s, um, not a good thing. It’s sort of an indication of people not working. Um, I guess like here, what do we, we’ve done shows about this before. We’ve talked about unemployment versus underemployment, full-time employment versus gig economy type stuff. I’m not sure if that’s how they track it in the US, but I suspect it’s something to do with that as well. Tony Kynaston: Yeah. I’m not sure. I’m not sure how it works over there. Underemployment in Australia is defined at, uh, for people, people get surveyed and they get asked are you trying to get more hours. And if you say yes you’re underemployed. Cameron: Hmm. The chip index, the, uh, Philadelphia Semiconductor Index fell but then recovered. It’s choppy over there, uh, still, like the whole AI bubble, Mag Seven stocks, the Mag Seven, up and down. It’s a bit all over the place. Uh, which again is, I think, maybe an indication that the bubble is starting to weaken, or maybe it’s just profit taking at the end of the month. Um, they’ve gone up. They’ve had a good run. Maybe there’s some profit being grabbed out. Bitcoin’s down. We did, uh, we talked on the last show about how there’s this great story about, uh, how nearly a million investors lost a total of $3.8 billion on Trump Crypto coin, while Donald Trump’s made 2.2 billion from his business ventures since starting his second term as president, including 600 odd million from his crypto ventures, where his fans are losing billions. But as you pointed out on the last show, some of them were doing that as a way to buy favor, so they probably see it as a good investment. Some people got out of jail, I think, [00:03:00] after buying a lot of crypto. So, you know, cheap. Tony Kynaston: Crazy isn’t it though. Cameron: Hmm. Tony Kynaston: if Joe was doing that. Who knows. Cameron: Who knows? Hmm. Tony Kynaston: Yeah. Cameron: Hmm. Tony Kynaston: Guessing that at least it’s out in the open now. But Cameron: if that’s business as usual it’s, I don’t want a part of it. It’s not, it’s very unsavory. Cameron: If you went to, if you went to jail though, Tony, would you want part of it then? Tony Kynaston: Oh yeah definitely. I’d buy a meme coin to get out, get out of, get out of jail. Yeah. Uh and Cameron: we’d even buy a Trump phone. Uh, and Alphabet joined the Dow this week. Tony Kynaston: Yeah it’s surprising it took that long. Cameron: And, uh, I checked my Strait of Hormuz tracker this morning. About 25 ships have transited the Strait of Hormuz in the last 24 hours. This time a week ago it was five, so it’s increased a lot since then. Not up to the 60 to [00:04:00] 100 that it is normally, so we’re still a long way from that. But it’s making progress, which hopefully it continues to go in that direction. But as you said in our last show, um, you know, anyone’s bet. The, obviously they had the funeral for the Ayatollah Khamenei this week, and, uh, lots of people on the streets in Iran, and there was lots of gnashing of teeth about the, uh, number of missiles that Israel and the United States fired on his house. His son and successor, Mojtaba, was nowhere to be seen still, which suggests that he’s not fit to be seen still. You’d think if he was gonna be seen at all, it would be at his father’s funeral. So no one knows what’s going on with him. Uh, but it sounds like he’s Tony Kynaston: dressed in black. Even dark sunglasses kind of Weekend at Bernie’s style. They could Cameron: Yeah, yeah, two guys propping him up. Yeah, like when a Mormon prophet gets up to give a speech and he has to be propped up, or Mitch McConnell. [00:05:00] Uh, but, um, you know, how long that fragile deal is able to be maintained is anyone’s guess. As my Persian friend keeps telling me, there’s just so much factionalism in Tehran at the moment with people that want a deal, people that don’t want a deal, people that wanna sabotage the deal, wanna keep fighting, people that wanna keep fighting until they get more of the upside of the deal. Um, so no one knows really what’s gonna happen. It’s very fragile. Tony Kynaston: Hmm. And there must be some people who are celebrating getting three hundred billion dollars on the release of sanctions. Cameron: Sure. Tony Kynaston: well Cameron: Some people will be profiting from that. Tony Kynaston: Hmm. Cameron: Uh, before I get into my deep dive of the week, Tony, do you want to guess how many stocks were on the US buy list this week? Tony Kynaston: Ooh. 10. Cameron: Multiply it by 10 and then add four. 104 stocks I had to choose from. [00:06:00] Tony Kynaston: Wow. A smorgasbord. Cameron: Indeed. And I chose the, the number two. The number one I had a look at, can’t remember what it was, but for some reason, uh, something about it I didn’t like. Something looked dodgy. Um, I think they were losing money, um, and their revenues had been going backwards for some time. Can’t remember what the deal was. But this one I picked is another boring, very boring stock, Tony. Um Tony Kynaston: I thought it was great. Cameron: Really? I look forward to seeing why you think it’s great. Tony Kynaston: Yeah. Interesting business, interesting, interesting of the market it operates in too. Cameron: But the CEO hasn’t been fired for sleeping with a supplier. They haven’t electrocuted anyone. You know, I like, I like my spicy American stock market stories. This one, eh, is an insurance company that’s making money. Like it’s, uh, [00:07:00] Buffett would find it exciting. For me, it’s boring. No one died in the making of this Pulled Pork. The company’s called F&G Annuities and Life. Ticker code is FG. It’s listed on the New York Stock Exchange. Yeah, F&G. That’s, they walk around all day in their office going, “Ah, F&G. Accidenti,” as we say in Italian. Um, uh, they’re headquartered in Des Moines, Iowa. Been around in one form or another since 1959, but have been through four different owners in the last 25 years. Market cap’s about $3.7 billion. Stock’s had a wild ride, down 44% from its peak over the last year. Dropped from $36.70 down to $20.50. Now sitting around about 28 bucks. [00:08:00] I haven’t checked it this morning. Should check, see what happened overnight, actually. FG, not FG Holdings. That’s a different company. Uh, let’s see. Oh, they went up. That’s nice. $28.38 yesterday. Um, they’ve also got a brand new CEO as of this month. The guy who had been the CEO for the last seven and a half years has moved to run a subsidiary where his strategic brilliance is required and his former CFO has moved into his, uh, chair. So continuity, no big deal. Didn’t get fired for sleeping with a supplier. It’s all legit and above board. So this company started life as Fidelity & Guaranty Life back in the olden days. Uh, [00:09:00] sold to a company called Old Mutual in 2001 and became OM Financial Life. Then it was sold again in 2011 to the Harbinger Group and became Fidelity & Guaranty Life. Then in 2017 it was sold again to a Cayman Islands SPAC run by a Vietnamese American financier, Chinh Chu, who was a former Blackstone guy who set up his own investment vehicle. Bought it for around $1.8 billion and renamed it to FGL Holdings and did a deal with his former colleagues at Blackstone which is still in play today. I’ll get to that a little bit later. Then in 2020, Fidelity National Financial, a separately listed company, ticker is FNF, they’re a big title insurance company, bought the whole thing outright [00:10:00] and then at the end of 2022 they spun it back out again. Well, they spun off 15% of it to their own shareholders as a stock dividend and it started trading as an independent public company. Then in December last year they handed out another 12% to their shareholders so they’re down to about 70% ownership and the rest is publicly listed. Tony Kynaston: And there’s tax advantages for that too. Like, um, I’m not sure of the finer points of the tax code but if you maintain a large shareholding when you spin something off you’re not paying tax on the issuance. Uh, but that lasts for five years, um, which I think finished in June 30 of this year. So entirely possible this, uh, company could get spun off completely and trade separately, uh, Fidelity National Financial. They’ve been holding [00:11:00] onto a large shareholding to, um, maximize their tax position. Cameron: Right. Tony Kynaston: Hmm. Cameron: And that could have, uh, big implications for shareholders if a lot of shares hit the market. Hmm. Well, there’s another thing too that, you know, if you came up with a, if you figured out the preferred stock thing that they’ve got. Tony Kynaston: No I didn’t see that. Cameron: Hmm, I’ll get to it later. So there’s a couple of potential dilution, well, one’s a legit dilution event that’s gonna happen at the beginning of next year. This preferred stock becomes common shares. Tony Kynaston: Okay. Cameron: So what does the business do? Well, they’re basically an insurance company, um, mostly doing, dealing with, uh, retirement funds, take money from people and guarantee them a return, then invest that money into investment grade bonds and private credit, which is apparently partly the reason why the share price tanked earlier this year. There’s some concerns about the private credit space. Get into that later on. But an interesting point here, this is going back to the Blackstone [00:12:00] connection. They don’t actually invest it themselves. They’ve outsourced most of the investing and the money management to Blackstone. Um, and apparently that’s standard practice now for most insurance companies in the US. They don’t actually do the money management themselves. They just go, “Here you go. You go handle it. We’re gonna go back to selling premiums and, uh, playing golf,” whatever they do in their spare time. Tony Kynaston: Um, from what I saw in my research they’re, they’re largely an annuities business which is kind of the reverse of an insurance company. They still do have insurance businesses but you recall we did a Pulled Pork on a company called Challenger in Australia. Cameron: Mm-hmm. Tony Kynaston: Um, and I’ll declare I own shares in Challenger but they’re reasonably similar companies. So instead of taking premiums from you every year and then paying you [00:13:00] out if, uh, you have an accident or end of life or whatever, or disability, they, you, you, um, buy an annuity. Once you, um, reach a stage where you want to retire and guarantee your income, buy an annuity from them and they guarantee you to give you a certain amount of that back each year. Um, and it’s gotta be a sweet sweet deal for the customer, reflects the fact that they’ll hold onto your money for a long time which should go up in value. So you, you know, you do the math and it’s, it’s, um, it’s more than, uh, what you’re getting is more than what you put in over time if that makes sense, and they’re managing it for you. And that comes with all kinds of regulatory risks because there’s been cases in the past where those kinds of, um, it’s like a defined pension I guess, um, have blown up because people have lived longer. As medicine’s gotten better life expectancy grows, although I think it’s actually shrunk in the US. But certainly if you reach a [00:14:00] certain age you’re expected to live longer these days because of medical improvements, if that hasn’t been actuarially, um, mapped out properly, underresourced, then the annuity runs out before the deal does. So there’s been cases where insurance companies, or annuities companies, have blown up because of that. Um, so that’s why there’s a lot of regulation in the market now and one of the ways has evolved because of that regulation is to outsource the management of the investments to a company like, is it BlackRock in this case? Cameron: Blackstone, I think. Tony Kynaston: Okay. Cameron: Mm. Tony Kynaston: Um, and it was, what I found interesting about the company and the solution was that there’s, even though they’re outsourcing those investments, they’re, they’re still in a heavily regulated, uh, environment and you’ve gotta take into account a lot of different risk scenarios that need to be managed to make sure that you can deliver on the contract with the person who’s given you their money and pay [00:15:00] them seven percent per annum or whatever the number is, um, usually above inflation, so that they can, they cannot go backwards in their living, in their, in their sort of lifestyle at that time. So the deal with Blackstone is not just investing in, say, uh, bonds which are, you know, reasonably safe and you can say that at least in ten years or twenty years you’ll get your money back, um, and they’ll pay you a yield. Um, but you really can’t do more than that because the customer can do that themselves. So what Blackstone have been able to do is to invest in assets and businesses which return better than bonds but do it in a way which is, um, constrained from a blowup event, is never perfect. Um, so they have to also diversify a lot in what they’re investing. But one of the things that they’re investing at the moment in is data centers. And so they’re able to do deals with Amazon or with, um, [00:16:00] some of the AI companies or Microsoft or whoever uses the data center, so they get a, um, a decent rent which can then be, you know, paid out to, uh, the clients as an annuity. Um, but then you’ve got to take into account that data centers are a thing now but they might not be a thing in twenty years time, there might be another way of, you know, quantum computers storing things in atoms and you don’t need data centers. So Blackstone’s had to stitch up companies like Amazon and Microsoft for long periods of time such that even if they don’t use the data center they’re still on the hook for, for the money, for the rent. Um, and they’ve structured the data center purchases so that, um, FG can, uh, withstand, um, uh, devaluation of the data centers up to a point anyway, uh, so that there’s two kind of classes of shareholders in these investments and, um, FG [00:17:00] get the priority part of the investment. So they’re the last people to hurt, um, if there’s a devaluation of the data center. And I’m just picking data centers here. There’s all kinds of other assets that, um, Blackstone’s investing on behalf of FG. But I found it fascinating that, kind of like, because of the experience of annuities companies over the years and the regulators have always learnt from those, um, bad events, there’s so much regulation that goes into how much capital this company has to hold, how it invests, how they mitigate against the risks, and if they stray outside of, um, any of those parameters then they get hit with a large, um, capital allocation or capital buffer. So they’ve got to hold a lot more capital in very liquid assets so that they can, um, withstand a, a problem in the future. What I found very interesting about the company was how it’s perhaps not entirely possible you can guarantee someone’s going to get [00:18:00] their annuity, um, but it seems like they’ve taken every potential risk into account to try and, um, ensure that they deliver. Cameron: Hmm. Assuming the entire s- global economy doesn’t go belly up when the bubble crashes or something like that Tony Kynaston: There’s al always that risk as well yeah But that’s gonna be there for the for the client anyway I think re regardless of how they’ve invested Cameron: Yeah. Your ETFs will go down, everything will go down Tony Kynaston: Yep Cameron: So, um, I wanna talk a little bit about part of their business called the pension risk transfer Tony Kynaston: Hmm Cameron: side of things. So apparently this is where a company with an old school pension plan pays F&G to take it over, basically. They lump, lump sum, take the whole kit and caboodle off their books permanently. F&G becomes responsible for those retirees’ annuities for life. Um, they’ve done more than [00:19:00] $7 billion of that since 2021 and are now one of the top players in that market. Tony Kynaston: Mmhmm Cameron: And they’re trying to become known, uh, what’s known as capital light. So they’re, instead of holding 100% of every policy’s risk on their own balance sheet, they’re increasingly bringing in reinsurance partners to take a slice of the business. And, um, you know, we’ve talked about some reinsurance companies, I think, in the past. I think, uh, uh, re- RenaissanceRe is one that we, uh, actually hold in the model portfolio Um, and as I said before, they’ve, they’ve got this longstanding asset management partnership with Blackstone doing all that clever stuff that you just mentioned. And they’ve also apparently just launched a $1 billion reinsurance sidecar business, a separate private vehicle with Blackstone. Don’t, don’t think it has any direct implications to this, but they’re deeply embedded with [00:20:00] Blackstone in a variety of ways. Goes back to the Chin Chew involvement Tony Kynaston: Yeah It’s interesting that that relationship and I I wonder whether Blackstone would ever take equity in the company to kind of formalize the relationship And they haven’t yet but Cameron: Hmm. Tony Kynaston: thought it was it’s possible to know secure the relationship even more if um Blackstone does somehow take an equity stake in this company Cameron: Hmm. And, you know, probably don’t wanna be known that, uh, uh, Blackstone was created by two guys who worked at Lehman Brothers, and hopefully that’s not a sign of things to come. Tony Kynaston: Well Cameron: I- Tony Kynaston: I mean there’s a lot of financial engineering that’s going into these Cameron: Yeah Tony Kynaston: and it all seems very very smart and very advanced but it’s it’s such a hard business to operate And and if I think about Challenger the Australian company that’s done this and done it successfully over the years they have had some very dark periods where assets haven’t worked [00:21:00] out the way they thought they would and then they’re on the hook to people their annuities And and they’ve been able to get through it all but it hasn’t always been good for the share price Cameron: By the way, Blackstone was founded in 1985, so well before Lehman Brothers went belly up. But the two founders, Peter Peterson and Stephen Schwarzman came up with the name from their own name. Schwarz is German for black, and Peter, Petros, means stone or rock in Greek. Obviously, uh, Jesus supposedly said to Peter, “You are the rock on which I will build my church.” Uh, so there you go. That’s why it’s called Blackstone Tony Kynaston: so Peter was Greek Or Jesus was Greek Cause they were Roman[00:22:00] Cameron: Uh, well, they, they, they spoke Greek. Yeah. Yeah, Greeks. Greek, Greek, Greek Jews living in Palestine. Don’t, don’t confuse things, Tony. Um, so, uh, what else have I got here? So the private credit stuff. So I drilled down a little bit into this. As far as I can tell, you probably know more than me, but this is a growing thing where loans are made directly to companies by non-bank lenders or the bond market, um, or the mafia, the three major lending organizations that we’re all familiar with. Tony Kynaston: Different interest rates Cameron: Yeah. Different consequences if you don’t pay. Um, apparently this is a, this is a growing thing. They have more flexible deal structures, bespoke terms, quicker execution compared to traditional banks. Uh, for investors, it provides the potential for higher yields, uh, because obviously these people are paying higher, um, premiums, I guess, to get their hands on this money than they would if they went through a traditional l- lending [00:23:00] organization or the bond market. And it’s grown globally to an estimated three to $3.5 trillion. It’s a big thing, but it’s also a fairly new thing, and no one has seen this asset class go through a real full-blown recession at the size it exists today. And I think there’s some- Tony Kynaston: It’s just not It hasn’t been called private credit It’s been in the banking system in the past and leads to things like the GFC So it’s certainly one of the risks in the economy Um and Blackstone’s very good at doing it so I’m not saying that they’re a risk uh to a GFC style event But think about the logic The One of the reasons why private credit is booming the moment is because banks have gotten out of a lot of the the credit that they used to do largely because of problems in the GFC and other situations and downturns like that and largely because they don’t wanna take on the risk [00:24:00] so they’ve been forced out of the game by regulators But the the market’s still there so companies have stepped in that are not banks to take up the um the other side of the deal k a lot of them will have bankers working for them who will know ins and outs of how to structure the deal the ins and outs of how to collect the money if things go bad what to do to do a workout or whatever Uh but you know the problem hasn’t gone away It And in fact it’s it’s become less regulated than if it was in the banking system So it certainly attracted a lot of money There’s certainly a demand for it Um there’s less regulation for it And as you say we haven’t gone through a downturn yet but when we do it’s it’s gonna be I don’t think the problem’s been solved There’s gonna be another GFC style event um potentially because of private credit Cameron: Hmm. Well, that’s what I’m saying. I don’t think we’ve seen a full-blown [00:25:00] recession under, with this sort of exposure to these sorts of non-banking institutions Tony Kynaston: No you’re right Cameron: and how that may play out. By the way, just, um, another thing I picked up talking about Blackstone is in July of last year, a mass shooting occurred at the Manhattan headquarters of Blackstone. A gunman identified as 27-year-old Shane Devon Temura entered the building wearing body armor, carrying an AR-15 rifle, opened fire in the lobby, killed four people, including a senior managing director of Blackstone and the CEO of the real estate fund BREIT, B-R-E-I-T, an off-duty New York police officer working security, a security guard, and another, another employee in the building. Tony Kynaston: Hmm Cameron: So uh, yes. There you go. Life in America, never boring Tony Kynaston: Mmhmm Cameron: Um, [00:26:00] so yes, with all of the things going on in the world this year, the US economy, non-bubble bubble, market got a bit spooked about this private credit exposure stuff, and 20% of F&G’s investment portfolio is tied up in private credit. So I think that’s one of the reasons why their share price tanked in the last few months. Fell 18% in seven days, so that’s not fun if you’re a shareholder. The same week, they reported that they missed the earnings number that analysts had wanted because some of their alternative investments had underperformed the target that they had set, which was 10%. But the actual numbers for the business aren’t bad. That’s the thing. Um, if you look at their revenue, gone from $1.4 billion in 2020, obviously a rough year for a whole bunch of reasons. Um, just south of $4 billion in 2021, $2.4 billion in 2022, four and[00:27:00] a half in 2023, 5.7 in 2024, 5.7 again in 2025, and TTM is six. Although their revenue estimate for next year is only three, 3.1. Not exactly sure what’s going on with that. Um, operating profit has been all over the place, too. Lo- They lost $100 million in 2020, up to $1.6 in 2021, and then $822 down to $62 in 2023, up to $910, $487 last year, and TTM is $837 for this year. That’s operating profit. Net profit for this year has jumped from $265 million in 2025 to $534 this year and estimated to be $650 next year with, uh, only half the revenue. So I don’t know what’s going on with that, but there [00:28:00] you go. Not my, not my business, not my job Tony Kynaston: I did I did read during my research that they’ve actually grown assets under management by 18 a year in the last five years So it’s it’s quite an achievement really Cameron: Hmm. Yeah, so the business is, uh, making money. Their cash, they’re sitting on 1.3 billion in cash with a debt of 914 million. So, you know, again, kind of boring, but with some fancy financial things going on in the back end. Um Tony Kynaston: Is this like you know the card game’s out the back but you just walk into the bar and it’s Cameron: Yeah. Yeah, yeah. It’s a bit like that, yeah. Tony Kynaston: behind the red Cameron: Yeah. I am shocked, shocked that there is gambling going on in this establishment Tony Kynaston: Hmm Cameron: Um, yeah. So look, it’s, it’s a business that’s got some interesting [00:29:00] components. You could look at it as risky, but it’s making money and it’s not my job to predict the future Tony Kynaston: Uh and I think the other thing too to to remember is that and we’re certainly seeing it in Australia because of our large superannuation system which I know the US doesn’t have they have 401s et cetera but nowhere to the sort of per capita size that Australia has But a lot of the lot of the issues facing industry here now is that the population is moving into retirement mode Uh and so the industry is switching from accumulating assets for retirement to now having to pay out people um on those assets And that’s the that’s the tailwind for Challenger in Australia and it’s got to be the tailwind for this company in the US as well uh there’s a bigger and bigger demand from biggest slice of the population that’s going into retirement to have some kind of um [00:30:00] certainty or comfort in their um in their retirement And uh these products are becoming more and more in demand Cameron: Yeah Tony Kynaston: And they’re able to parlay that into as you say the uh the they they’re picking up a lot of defined benefits funds And and it surprised me when we lived in Canada that there’s still a lot of defined benefits pension plans out there there’s almost none in Australia that I can think of and if you think about it like the w they all changed here many years ago and a lot changed in North America as well because that suited the pension operator the pension fund operator because it derisked it handed all the risk back to the individual member know that that they were going to um have a take take the risk on of there not being the assets they thought they thought they would be in twenty or thirty or fifty years time to provide for their retirement Um because there had been lots of blowups that Or not shouldn’t say lots There had been some spectacular blowups where [00:31:00] pension funds had invested poorly and then when someone got to the end of their working life they weren’t getting the defined pension that they they’d signed up for So is a it is a big risk It’s a it’s a f it’s a f highly regulated industry but it’s also one that requires a lot of experience and as you say going through cycles of downturns is probably the key experience you’d look for in someone in this industry Cameron: So their exposure, their private credit exposure breaks down into a couple of different buckets from what I could tell. Uh, a lot of it is senior secured debt, it’s the majority of it, which are first lien or senior secured and I didn’t know what that meant so I had to look that up. It’s where the, uh, payment of it is the company’s top repayment priority. Um, so that sounds relatively safe I guess as long as the companies all don’t go belly up or can’t pay their bills. Um, they have loans out to various corporate and middle markets. [00:32:00] Um, they have software and tech, some of the stuff that you mentioned before and then they have collateralized loan obligations, CLOs which are supposedly conservatively underwritten CLO structures which sounds too much like CDOs for my liking but, uh, it’s different. It’s not a CDO it’s a CLO Tony. It’s okay. Big difference between the D and the L Tony Kynaston: Well collateralized CDOs worked well until they got gamed And so we’re kind of at the start of the private credit boom at the moment I think and there’s probably all CLOs are probably all working well until someone tries to wring that last extra dollar out of it down the track Cameron: No one would ever do that in capitalism, Tony. What are you talking about? That’s never happened before. Highly unlikely. Um, all right, as I mentioned earlier, there’s a dilution event coming. If FNF, the, uh, parent company, I guess, invested $250 million into this thing back in [00:33:00] 2024 as preferred stock, um, and they’re getting a fixed dividend on that, and then it converts to common stock on January 15th of next year. So that’s roughly four to five million new shares, about 4% of the current count, so that’s gonna dilute existing shareholders. But they’re buying back stock too. They’ve actually bought a decent chunk back in the first quarter of this year when it was at the low point, about $29 million worth at $24.14 a share. I tried to work out how much of this dilution that would offset, and I think it’s about two-thirds to three-quarters of it. So not all of it, but a decent chunk Tony Kynaston: Well that’s good management but also too don’t forget that um the company’s not on the hook to pay out that dividend to the preferred stockholders So uh Cameron: Once it converts, yeah Tony Kynaston: you get dilution on the share side but the profit goes up [00:34:00] anyway so that should make up for um dilution as well Cameron: And they’re currently paying a decent dividend, about 25 cents a share per quarter. So that’s about it in terms of the business. Do you have anything else about the nuts and bolts of the business before I get into the analysis? Tony Kynaston: No no I I just find it fascinating to to You know like if you think about what this company has to do it’s got to say In 30 years time I can guarantee to pay you 7 Cameron: Hmm. Tony Kynaston: whatever the number is Cameron: Hmm Tony Kynaston: it is It’s Cameron: Hmm Tony Kynaston: such a long range bet Cameron: Hmm Tony Kynaston: many moving parts and so many risks that um yeah it’s a very interesting situation I think Cameron: When the robots have all taken over, I’ll still be paying you your 7% based on something Uh, let me break down the QAV numbers. So I’ll start with our IV numbers. As listeners know, we have two different intrinsic values based on different assumptions about growth and required returns. Current share price of around 28 bucks is above our intrinsic value [00:35:00] number one, which came in at roughly $20, but it’s below our intrinsic value number two, which was around about $41. So it got a score for that. Current share price is below book value, about 0.8 is price to book, and obviously also below book plus 30, so it got scores for those. The price to operating cash flow was 0.83 Tony Kynaston: Oh Cameron: Now, we know that price to operating cash flow with financial services companies is sort of often weird because of the way their cash flows come in and out. But this isn’t the result of a one-off like a couple of the things we’ve looked at in the US. It’s just a result of their business. So it is what it is, and I’m taking it as such. Average daily trade volume’s about $21 million, so it’s big enough for most of us. Their, um, earnings per [00:36:00] share is around about $3.89 per share, so that’s a good starting point. Price to earnings ratio is about 7.18. Um, I’ll get into the scoring of that later on. Well, their forward-looking earnings is about $3.94 for the next fiscal year, which is up from the current levels. Their stock rank in Stockopedia is 66, and the quality rank is 59. Couldn’t score them for either of those. But their Piotroski. Yeah. Tony Kynaston: Hmm Cameron: Well, we normally do. I think w- we score for anything over 60 for quality rank. It was 59, so just missed that one. But stock rank, we like it to be over 90 usually. Tony Kynaston: Hmm Cameron: Got a six, though, for the F score, so got a, um, score for that. And equity growth has been positive. They’re got a new [00:37:00] three-point upturn, so got a score for that. Dividend yield is lower than the debt rate, so I couldn’t score for that. What else have I got here? Um, doo, doo, doo, doo, doo. Yeah, QAV quality score was 71.43%, a little bit l- little bit less than the 75 we’d like to see. But the QAV score was 0.862, which is pretty good. As I said, it came up at, uh, number two on my buy list this week Tony Kynaston: Lots of cash coming in Cameron: Yeah. Lots of cash. It’s cheap. The share price has taken that hit, but then turned around. So all in all, I added it to our portfolio this week Tony Kynaston: No well done I think the you know coupled with the tailwinds of people retiring um [00:38:00] if I don’t know if if these the management of this company ever look at Challenger, Challenger now has something like eighty percent plus of the annuities market in Australia and it trades on a PE of about seventeen times. And I think you said before what was the PE for this company. Was it six Cameron: Seven. Tony Kynaston: Seven. So there Cameron: Mmhmm Tony Kynaston: there’s plenty of upside in the valuation um cause I uh I know this company doesn’t have anywhere near like eighty percent market share in the US if it keeps taking on defined benefits funds if it keeps growing with the Blackstone asset uh um then um yeah it’s plenty of upside for it I think Cameron: Hmm. Well, that’s it for this week. After hours, Tony, believe you had a win Tony Kynaston: I did, yes. Our horse, Stars of Dom, won at Flemington on Saturday, which was Cameron: Okay. Congratulations Tony Kynaston: And luckily enough, Steve Mabb was in Victoria holidaying, so all the way up from, uh, Warrnambool, I think, to, [00:39:00] to get to the race Cameron: Wow Tony Kynaston: uh, a, have a drink with him in the winners’ bar afterwards, which was always nice. Cameron: Nice Tony Kynaston: And then he was, uh, traveling back this way, so he stopped off at the RACV Resort, which is near our house, and we caught up for dinner last night again, which was lovely Cameron: So he drove all the way down from Queensland? Tony Kynaston: I, I don’t know. I don’t know if it’s. Possibly. I don’t know if he’s got a hire car or not. I didn’t ask. They’re certainly covering the miles down here, though. They’ve been out to the Yarra Valley, they’ve been to Melbourne, been down to the Great Ocean Road, and they’re heading off to Phillip Island today, Cameron: Nice. See the Pengies Tony Kynaston: Yeah. I said to him, “What are you doing down here in July? It’s just, like, Cameron: Hmm. Tony Kynaston: and wet.” Cameron: Hmm. Tony Kynaston: uh, he said he likes the, the cold after Brisbane’s heat, so Cameron: Hmm. Yeah. Tony Kynaston: get that Cameron: although we haven’t had a winter here yet, but, uh, it was 13 this morning. I actually had to put some woolly socks on, but it’s 28.7 in my [00:40:00] office already now, so there you go. Hmm Tony Kynaston: really? Wow. I dare say it’s probably about 12 degrees where I am at the moment. That’s the, that’s the– with the sun, sun shining on me Cameron: And I’ve got thermal curtains and the shiny mirror stuff on my glass to block the heat out, and it’s still nearly 30 degrees in my office. No, Bunnings, the, the, the Australian Temu, yeah. Well, uh, my, my picks for this week, Tony. You ever heard of Budgie? Tony Kynaston: No. I Cameron: I hadn’t. Tony Kynaston: a kid Cameron: I– unless it started a band in the early ’70s. Uh, I only discovered these guys this week, but apparently Metallica fans might know them ’cause Metallica’s covered a lot of their songs over the years. But they’re a Welsh heavy metal band from the early ’70s. But, you know, it’s like early ’70s heavy metal, right? So it’s more like [00:41:00] Zeppelin, Black Sabbath. Not as dark and gothic as Black Sabbath. More like Zeppelin sort of R&B, catchy riffs. Trio, I think. Really digging it. They only did three or four albums. Um, but really digging their grooves. Really good, yeah. Been into that last couple of days, listening to a lot of that. Deep Purple’s new album came out. Hmm, speaking of British heavy metal. Yeah, yeah, in some iteration. Tony Kynaston: Yeah, okay Cameron: I don’t, don’t know if any of the founding members are still there but there’s still a band that calls itself Deep Purple. Um, there’s one or two good tracks on it. Most of them are fairly unmemorable, though. I finished The Colossus Trilogy the other night. Tony Kynaston: Yeah, Cameron: interesting. You know, the– in the third book when– So I think I briefly told you, but at some point between [00:42:00] the second and third book, the, they, the Martians make contact, this advanced ali– I mean, it’s just– Advanced alien intelligence makes contact with the human resistance and says, “We can help you shut down Colossus.” And they do, and it works, and then the Martians arrive and go, “Hey, congratulations. We want, we want 50% of Earth’s oxygen to take back to Mars to rebuild Mars.” And then they realize that Colossus– Colossus had been building this thing, and they didn’t know what it was for. He was building a thing to defend them against the Martians trying to come and take their oxygen. So then the humans reactivate Colossus. Uh, secretly and then say, “Quick, help us defeat the Martians.” And Colossus goes, “No, I don’t think that’s the right play here. Um, because a million years from now, uh, we’re gonna have a problem with the Crab Nebula [00:43:00] coming and, uh, destroying the sun, and we’re gonna need the Martians. We’re all gonna need to work together with their advanced technology. You’re not– You’re thinking in human scale timelines. Eh, we can, we can afford to lose a few billion humans to oxygen depletion, but long-term for the survival of the species, we need to work with the Martians, so let’s just do a deal.” And, uh, yeah. Like it’s, it’s a really interesting– or over the three books, a really interesting perspective on an advanced AI intelligence that’s neither good nor bad. It sort of, you know, inst- installs itself originally as this benign dictator that says, you know, “Uh, I’m judge, jury, and executioner, and as long as you do what I tell you to do, you’ll all be okay.” Um, Tony Kynaston: ” I’m the best AI ever”? Cameron: yeah, yeah, yeah, yeah. Anyway, f- to be written in the late ’60s, early [00:44:00] ’70s, it’s, um, interesting. Really, really interesting. Um, and then after four hours of kung fu on Saturday, I went and did a four-hour hike on Sunday with Fox and a bunch of people from kung fu. Tony Kynaston: Nice. Where’d you go? Cameron: Northbrook Gorge. You ever been there? Tony Kynaston: No Cameron: Hmm. About an hour up north. Um, and it was lovely. Yeah, just walking through lots of just creeks and streams. We had to walk basically through a– we just walked through a creek, knee, knee-high freezing cold water. Um, but it was slippery, treacherous, a lot of slippery rocks, you know, walking in that, but beautiful. Yeah, it was fun. Tony Kynaston: Oh, Cameron: So anyway, that was my weekend. Tony Kynaston: That’s nice. Yeah Cameron: Hmm. Chrissy didn’t go. She was like, “Cold water? No, thank you. Stay home.” Tony Kynaston: even though it’s hot. Cameron: No, it’s, well, it’s not that Tony Kynaston: but, um, Cameron: hard. Mm-hmm. Tony Kynaston: none, none of them’s been that great. Cameron: Hmm. Tony Kynaston: moun- a movie called The Mountain Head. Have you seen that one? It’s just [00:45:00] released on Netflix, I think. Cameron: I know the Fountainhead, but it’s not that Tony Kynaston: based, kind of based on The Fountainhead, Cameron: Really? Oh Tony Kynaston: It’s four billionaires get together in a mountain retreat, um, and, uh, you know, a shot at Cameron: Oh, I’ve heard of this Tony Kynaston: and psychopaths, and Cameron: Hmm. Tony Kynaston: them creates an AI which is causing mass sort of upheaval in the world, and one of them reacts that, “Yeah, we should really shut it down.” And, and he’s like, “No, no, no. This is really good. This is what’s supposed to happen.” Cameron: Hmm Tony Kynaston: You know, and they schemes a way of taking over humanity. They all have a different take on it. um, it’s, you know, it’s not a great movie ’cause it’s, um, four bad actors billionaires which have probably never had a, a look at up close to see how they really act and how do, how do I know how they really act? But I’m pretty sure they don’t act the way these [00:46:00] guys do. uh, yeah, interesting premise that, um, the sociopaths who society get together and, and, um, you know, deal for their own good rather than for humanity’s good Cameron: Well, it’s directed by Jesse Armstrong, who’s the guy behind Succession Tony Kynaston: Yeah, and it’s, it’s, um, Jason Schwartzman’s in it, so, um, and Steve Carell. But it’s, it’s, yeah, it’s fairly– It’s kinda slapstick in some ways, that kinda cringey, slapsticky American way of acting, which I didn’t like, but, the. What goes on is interesting, thought-provoking. It’s Cameron: Jesse Armstrong’s British. He started with Peep Show, which is a good comedy, then did The Thick Of It, Tony Kynaston: Hmm Cameron: and then went on to do Succession. Well, Mountainhead, by the sound- like that’s. Fountainhead, Ayn Rand’s book, is about an architect. He’s basically loosely based on Frank Lloyd Wright, who. Tony Kynaston: I was getting it confused with the other one. Yep. Cameron: [00:47:00] Atlas Shrugged is the one where the billionaires go to the island and take themselves out of society, yeah. Say, “If you don’t like us, screw you. We’ll just go and move to an island”, and then society collapses because the doers are no longer there to make stuff happen Tony Kynaston: yeah. well, this is kind of the, the riffing on that, the billionaires were making stuff happen, which was causing society collapse, Cameron: Yeah, right. Tony Kynaston: a good thing ’cause Cameron: Yeah. Tony Kynaston: it to their own ends. Cameron: Right Tony Kynaston: Yeah Cameron: That’s all you got for me? Tony Kynaston: Yeah, nothing really. Cameron: Hmm. Tony Kynaston: r- horse racing, catching up with people. Been up in, up in Melbourne visiting Alex, so yeah. Cameron: Hmm. Tony Kynaston: been a busy week, Cameron: Social week. Tony Kynaston: the entertaining Cameron: Hmm. Tony Kynaston: entertainment front Cameron: And you’re going to take a week off, uh, in a week or so. Tony Kynaston: Last week in July. Yeah. Yeah Cameron: So we might have to fudge something. I might have to get AI to replace you for a week. Tony Kynaston: Oh, sure. Happy to record on the Friday beforehand or the [00:48:00] Thursday beforehand, or do a Pulled Pork you Cameron: Oh, good. Lovely. Insert Pulled Pork here. Tony Kynaston: Hmm. Cameron: All right, thank you, TK. See you everyone Tony Kynaston: right, PREVIOUS PULLED PORKS Here’s the performance of the “pulled porks [https://docs.google.com/spreadsheets/d/16WHwMalQodhxUO9h1T-7suVtfwjrXq057fFHhcLXFWk/edit?gid=0#gid=0]” (eg deep dives) we’ve done on the show in the past.

KSS Me, Darling – QAV America #59

This week we dig into Kohl’s (KSS), the mid-range American department store chain that fired its CEO after just 15 weeks on the job for running a secret sweetheart deal with a former romantic partner. Tony and Cam work through the QAV scorecard, weigh up the enormous real estate portfolio sitting beneath the struggling retail business, and debate whether a Gordon Gekko moment is coming. Plus: Fed chair Kevin Warsh goes dark, the Strait of Hormuz tracker, and Willis Lease Finance announces a 3-for-1 stock split after a 383% run.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok [https://www.tiktok.com/@qavinvesting]. Or visit our homepage [https://qavamerica.com/home/] to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives [/listen/] TRANSCRIPTION QAV AMERICA 59 v2 Cameron: [00:00:00] Well welcome back to QAV America Tony episode 59 It’s the first day of the new financial year in Australia but Americans don’t care about that Tony Kynaston: No. Happy new financial year, Cam. Cameron: It’s it’s nearly the Fourth of July I said to my wife who’s an American uh Do you wanna celebrate the Fourth of July She’s like Yeah not really I was like Okay Tony Kynaston: She doesn’t wanna go to the MAGA concert on the reflecting pool. Cameron: I will I I was just looking for an excuse to make a pumpkin pie She goes Yeah the one pumpkin pie for Thanksgiving is enough You don’t need to get you know you know We’re going down the pumpkin pie slippery slope she says I do love making a pumpkin pie now Um well I haven’t checked It’s early morning here on uh Wednesday in Australia I haven’t checked what happened in the market in the US last night Oh it went up Tony Kynaston: Well up, yeah Cameron: It went up Well I did my market recap yesterday A few things going on in the [00:01:00] US over the last week that have affected the market There is um some uh concern I think now that probably aggressive rate cuts aren’t gonna happen Um with Kevin Warsh in at the Fed there was some optimism I think initially that uh he was gonna cut some rates But I think people are thinking yeah maybe that’s not gonna happen He seems to be signaling that gonna do the right thing despite the political expectations And uh they’ve got hotter inflation data three consecutive months of strong payrolls people seem to think that there might be a second rate hike by the end of the year Tony what are you reading in The Wall Street Journal and all that Tony Kynaston: Oh, s- the same. Um, I guess it’ll be very interesting because, [00:02:00] you know, he was appointed by Trump to specifically cut rates. The, the difficulty for him, for Warsh, is that he doesn’t. He’s not the only vote on the Fed, and the Fed still has other people who are, um, at least acting a little bit independently and making up their own mind on rates, and the data doesn’t support a rate cut at the moment. Um, but I think the other interesting thing with the Fed, uh, that I’m reading is that Ke- Kevin Warsh is really pushing the, the line that the Fed has been too transparent, too much in the market talking, jawboning, as it’s called, um, to try and influence what the market’s doing, what interest rates are doing without having to change rates, and he doesn’t like that, so he’s going dark. And I think that’ll be interesting because then the market’s gonna r- you know, probably react to every piece of data as it comes out without being told how the Fed interprets it. They’ll be jumping at their own conclusion. So may lead to some more volatility. Um, and we’re going back to the days prior [00:03:00] to probably Greenspan and Bernanke, where, um, it was just the Fed doesn’t release a dot plot, just comes out when it makes a move and tells you about it after the fact. So it’ll be very interesting Cameron: Indeed Tony Kynaston: Whether it’s good or bad, I can’t really say. I mean, the, the things evolved to being more transparent under the last couple of chairmen, so we’ll see, um, whether it’s better or, or worse by, uh, by not being as, uh, transparent going forward Cameron: Well the other thing of course that’s going on is the Strait of Hormuz I’ve got my Strait of Hormuz live tracker website open in front of me I love this website You ever looked at this Tony Kynaston: No. Mm-hmm. Does it show you where the s- where the mines are? Where the sea mines are? Cameron: sh Tony Kynaston: Oh Cameron: shows you where the ships are but not where the mines are I don’t think anyone knows where Tony Kynaston: I guess, I guess you can extrapolate that if the ships are there, the mines aren’t. Cameron: Well Tony Kynaston: It’s Cameron: ships aren’t going anywhere Tony Kynaston: It’s, like Battleship, it’s like a game of Battleship, isn’t it? Cameron: [00:04:00] battleship Tony Kynaston: D3. Cameron: Yeah Uh so according to the tracker the strait is still closed for the uh 122 days 23 hours and 29 minutes it’s been closed according to this Uh ships transiting now in the last 24 hours five it says Tony Kynaston: From where Cameron: It uh Tony Kynaston: Iranian or are they Western? Cameron: I don’t It doesn’t say Tony Kynaston: Right. Cameron: yes it does down here actually Uh no this is vessel seizures Um okay that’s different I don’t know Okay I don’t know Tony Kynaston: Little bit Cameron: are getting through but the point is that five is not a lot Um Tony Kynaston: and and the interesting thing was the oil price dropped overnight as well Cameron: That’s yeah it’s 73.42 according to this website Tony Kynaston: Yeah Cameron: Uh why Who knows There are 485 [00:05:00] vessels waiting tankers 147 bulk carriers and 118 other This tracks the uh tanker spot rate uh tracks the uh daily throughput It tracks the war risk insurance which it still rates as extreme yeah normally It says normal daily average is 60 uh ships I thought it was more like 90 to 100 ships is the daily average in normal times But way five is not a lot So Tony Kynaston: Hmm. Cameron: the current reality of the Strait Oil price is dropping but the ships aren’t moving Tony Kynaston: Yeah. How do you explain that? Cameron: Well I think reserves uh being released into the market um is probably part it The Tony Kynaston: I don’t think they’ve done that release for a while, and they must be getting very low on their reserves to release. So y- I would have thought the oil price should be rising, [00:06:00] but there’s, I mean, I know there’s discussions going on again in Qatar, but whether that’s to open the straits or whether it’s to release s-sanction held money back to Iran, it’s all very convoluted and underreported at the moment, so it’s hard. I don’t kn- I, I don’t, I don’t know how you, you could trade oil futures at the moment. It’s just highly speculative and, and surprising it’s going down. But Cameron: Well Tony Kynaston: anyway Cameron: the market’s like highly speculative Tony I don’t know if you’ve uh picked this up Did you pay attention to the SpaceX flight Tony Tony Kynaston: Yeah, I also saw a graph of, uh, companies that make no money and their performance versus companies that make money, and the, the, the losers are winning, if that makes sense. The companies that make no money have done better. Cameron: Yes Uh uh so speaking of SpaceX it’s uh risen again a little bit yesterday it’s uh [00:07:00] still below where it was its peak but it’s coming back up What else have I got The yield cushion Despite rate anxiety and geopolitical noise the US 10-year treasury yield held relatively steady tracking at 4.37 down from the 4.56 highs seen earlier in June So you know go figure Um not really sure that makes any sense uh but there it is What else is going on in the US Uh big tech took a brutal beating last week It sort of There was a big tech drawdown uh across the market over the last week since we last recorded And as I mentioned to you on our Australian show yesterday it looks like OpenAI is talking about pushing its float back after the uh in some perspectives uh what happened with [00:08:00] SpaceX after its float The price sort of dipped again after the initial there was a big selloff and people sort of ran away from it So there is some talk that OpenAI might kick theirs down the road a little bit But they also announced their own in-house inference chip So there was a little bit of excitement around that They’re gonna build their own chips Everyone’s building their own chips No one wants to be tied to NVIDIA Tony Kynaston: Right. Yep. Cameron: is interesting Tony Kynaston: Mm-hmm Cameron: Uh and you mentioned something yesterday about the Korean market being shut down again Tony Tony Kynaston: Yep, another 8% trading halt. So the market was shut for twenty minutes. That occurred last week, and that, that helped to drive down some of the AI stocks in, in the US. Um, but there’s also. You know, we’ve seen plenty of commentary we talked about yesterday on the Australian show. Uh, Jeremy Grantham’s come out calling it, uh, the AI boom a bubble. Um, the clearing bank, this, this [00:09:00] central bank’s clearing bank, um, which is based in Europe, came out saying the same thing that, um, there was a boom in data centers, there was a boom in AI chips and that the, in AI, in AI stocks, and there was a circular economy going on. They claimed it was as, you know, the, the situation looked as bad as before the GFC. So there’s lots of people who are feeling a bit edgy about where the market is in the US at the moment Cameron: Well speaking about the market uh let’s do a sort of portfolio update Let me bring up our website so I can get the latest see how we did overnight Talk about our US portfolio So our US model portfolio that’s been running since September 2023 is up 127% over that period of time the S&P 500 which is up 68.8% So and twice 136 would be double So we’re not quite double the S&P 500 but just shy of double the S&P 500 over [00:10:00] that period of time Tony Kynaston: Oh, with little old value stocks throwing off lots of cash. Cameron: boring value stocks Yesterday when we talked I said that our American light portfolio which has been running just since December last year was back above the S&P 500 It slipped overnight by the looks of it up 7.5% December versus the S&P 500 up 9% It’s just peaked above that But that’s okay Tony Kynaston: Mm-hmm. We often see that. We often see that when we establish a portfolio. It can take tw- six to 12 months before it starts to find its feet, so to speak, and perform Cameron: But uh I tell you the stock that is doing the best in that light portfolio let me just make sure this is still true it was true yesterday was the one I mentioned to you uh last week I think Leslie the pool company Tony Kynaston: Mm-hmm. Cameron: Um oh they dropped a [00:11:00] bit Oh okay They came off a bit yesterday They were up 10% in a month when I looked at them but they’ve dropped a bit uh overnight But they’re still doing quite well Um everything’s all of our stocks seemed to come back a little bit yesterday though the market jumped up Might be a bit of profit-taking Don’t know what’s going on there Um Card of Bank shares is doing well It’s up 2% since we added it last week Tony So there you go It’s off to a good start Tony Kynaston: Well, if, if we were a stockbroker, we would claim an annualized return of, uh, 52 times two, 100, 100% on, on that stock purchase Cameron: Of course one of our best stocks in the model portfolio is the Willis Lease Finance company that we’ve uh talked about probably every week we’ve done this for the last year Uh we added them uh quite a while ago [00:12:00] Um up 383% since we added them I’ll tell you exactly when we added them I bought them in November 2023 so very early uh buy Tony Kynaston: Mmhmm Cameron: And uh they just announced a stock split last week Uh three-for-one stock split is gonna go through Now remind me what are the implications for existing shareholders of a stock split like that Tony Is it a good thing or a bad thing generally Tony Kynaston: Well, it, there’s a little bit of psychology going on that, um, that the board of the, of Willis must think that the price is now high enough so that it’s, it’s deterring people from buying it. Um, I, I’m not sure what Willis is trading at, at the moment, but, you know, of-oftentimes it’s. You know, think of Berkshire Hathaway. If, if someone sees a stock worth s-three hundred thousand dollars or five hundred thousand [00:13:00] dollars, first of all, they may not be able to afford to buy it. Um, so that’s, that’s an issue. Uh, but secondly, it’s kind of a psychological barrier as well that, you know, it, it must be an expensive stock because the stock price is so high. Um, so there’s a bit of psychology going on there. But there is a practical reason for a stock split and why it can work, is that, uh, if, if I wanted to buy and sell a little bit of my share portfolio, I, I’ve now got a, a way of doing that without, uh, exerting as much price pressure. So in the past, if I wanted to sell one share of Willis Lease Financial, it’d be like selling three shares today. So I can still sell one share, and it doesn’t have as much impact on the share price. Um, so that, that can be of benefit as well. Um, but you know, it’s, it’s oftentimes largely psychological Cameron: Right Well they’re currently trading at about 228 so not Berkshire level prices Tony Kynaston: No, but still some people kind of mentally tune out when something gets above a hundred [00:14:00] dollars. Cameron: Yeah right Tony Kynaston: yeah. They think it’s expensive even though it, as we’ve shown, it’s, it may not be Cameron: Well the share prices continue to tick up after this announcement came out It was trading at uh 190 bucks Um oh no let’s say a week ago it was trading at 222 it’s now 228 So the market seems to have positively or at least not responded negatively to this Tony Kynaston: There was a, there was a time when, you know, probably maybe 15, 20 years ago where just the announcement of a stock split would send the share price rising dramatically, and there was no real logic for it. It’s just that people jumped on the bandwagon of stock splits being good for business. And I remember that scene in The Sopranos where, um, Edie Falco wants to buy a share ’cause a broker’s told her it’s gonna split Cameron: Right Tony Kynaston: And there’s no other reason Cameron: Yeah just Tony Kynaston: But she’s had the tip. Yeah Cameron: Yeah Well uh [00:15:00] unless you’ve got anything else to talk about newswise I’m gonna jump into my deep dive for the week Tony Tony Kynaston: No, I haven’t, and I’m looking forward to this one. Uh, one, because of my retailing background, but two, because it’s a very interesting, interesting situation Cameron: Well interestingly too I just noticed that when I did my analysis on it over the weekend it was trading around 19.26 and then it dropped to 17.21 uh yesterday and has climbed back a little bit uh overnight to 17.72 I don’t know what led to the overnight drop of a couple of bucks That’s a big drop Their results weren’t due out Let me just Tony Kynaston: happening on the announcement front or Cameron: doing now I’m looking Tony Kynaston: or dividends. Yeah Cameron: Hmm News Tony Kynaston: Well, Jo- we should tell people which, what the name of the stock is too while we’re doing that Cameron: The name of the stock is [00:16:00] uh KSS this ticker is KSS It’s Kohl’s So Tony Kynaston: Kohl’s in Australia, which is a supermarket, but, um, I’m sure US listeners are very familiar with Kohl’s Cameron: Yeah every American listener probably knows what a Kohl’s is and my funniest aside is that my wife Chrissy who’s lived here for 17 years but whenever she says Kohl’s to Siri it spells it K-O-H-L-‘-S and not C-O-L-E-S as it is in Australia Well I don’t know what happened to them overnight but probably just makes them a better deal Um I can’t see any news Tony Kynaston: No, I can’t either. Hmm Cameron: that would justify this Uh I do know they they have some shorts which I’ll get to in my story so maybe something to do with that But anyway um there are d for people for Aus I know we have a lot of Australian listeners to the show as well So for people who don’t know what Kohl’s is they’re a department [00:17:00] store chain based in Wisconsin Uh and they basically sell mid-priced clothing shoes towels kitchen stuff There’s the the shop in the strip mall your mum takes you to when you’re a kid Uh kind of mid-range They’re not the top They’re not the bottom They’re sort of in the middle Uh when I was trying to understand it from an Australian perspective it said it’s somewhere between Target and Myer Tony Kynaston: Mm-hmm. Cameron: you know not bargain basement but not Myer level either So somewhere in the middle The um but the interesting thing about this story is last year they hired a new CEO beginning of 2025 a new CEO who was gonna be the turnaround guy Uh cause as you can imagine retailers are doing it tough for a variety of reasons And he’d been in the job 100 days when they fired him for cause that’s always story We’ll get into the [00:18:00] story of that as we go They’re on the New York Stock Exchange Market cap’s around $2.2 billion Their own blurb calls them a leading omni-channel retailer Omni-channel I could find two uh Tony Kynaston: Yeah. Yeah. Cameron: know what the omni bit is Tony Kynaston: Buy channel. Yeah Cameron: Uh yeah bi-channel Omni Sounds good Combining great brands incredible value and convenience they’ve got more than 1,100 stores in 49 states And they carry you know huge brands like Nike Levi’s and Sephora has been a relatively new thing It’s a skincare makeup brand I’ll talk a little bit more later on gonna be a big deal for them and hasn’t really worked out so far So yeah as I said they uh in Australia they sit somewhere between like a Target and a [00:19:00] Myer Little bit more upscale than a Target but not quite as upscale as a Myer or David Jones history is they started off as a grocery store There was a Polish immigrant in the 1920s in Wisconsin Maxwell Kohl KOHL obviously set it up built it into a grocery tra uh grocery chain Then in 1962 opened their first department store in Brookfield Wisconsin Went public in 1992 Ride ro rode the great American suburban boom era of the shopping mall uh Mallrats K great Kevin Smith film from the early 90s Do you like Mallrats Tony You ever see Mallrats Tony Kynaston: I haven’t, no Cameron: Really Not a Kevin Smith fan Tony Kynaston: Uh, little bit. Um, it’s a lot like Clerks, but I haven’t seen Mallrats Cameron: Oh Mallrats is a great film Big flop It was a big budget His his first big budget film and it flopped Tony Kynaston: Right Cameron: loved it Check it out If you like Kevin [00:20:00] Smith era style humor Tony Kynaston: Mm-hmm. Cameron: which I do Very silly very rude and crude A lot of nerdy geek stuff in it I think Mark Hamill might have been in Mallrats I know Stan Lee was in Mallrats did a cameo in it Anyway um shopping department stores I’m sure you know a little bit about the history of department stores the department store concept Tony Tony Kynaston: Yeah Cameron: of uh Le Bon Marché Le Bon Mar Tony Kynaston: Well, I mean, uh, uh, in broad terms, it was basically the emporium. So the idea was, uh, before shopping malls, they were the shopping mall. They would bring you a little bit of everything that you couldn’t get locally from specialist retailers. And, uh, you, you know, you if they were very good, they might get the finest Paris fashion or the latest cosmetics from overseas and then, um, sell them to people in the suburbs. So that was the, the business model for the shopping– for the, uh, department store. And they do it on. [00:21:00] Like, they do all their purchasing on bulk, so they give you a good price as well. Um, that kind of has been killed, uh, since the rise of the Westfields and the other department stores, um, around the world, because that’s what a shopping mall is these days. It’s basically instead of having a department store aggregate all that, um, material for you and then sell it to you, it’s you’re actually getting the cosmetics from Paris, the brands to take out a, um, to rent a site in your location and sell directly to the retailer. So department stores have been reasonably disintermediated. They, they kind of try different things to, um, combat that. So, uh, you know, they’ll try and do their own brands, home brands or house brands, as they’re sometimes called. They’ll try and do special deals with big companies. You mentioned Levi’s and Sephora before. That’s another way, the kind of, um, house of brands strategy where they become a mini shopping mall again. Um, but, but generally they’re, they’re struggling and they’re in decline. Um, and [00:22:00] online retailing has also been the other battle, other battlefront for them. Uh, if you don’t have a store network and the costs that are associated with that, you can sometimes sell things cheaper to people by just, um, doing a one-off like Amazon and putting it in a cardboard box and mailing it to them. So, uh, you know, they, they’ve faced a lot of battles in, in the last decade or so, maybe twenty years, and, and they’re really struggling. Cameron: Well the story that I read is it goes back to Paris 1838 The brothers Paul and Justin Videau set up Au Bon Marché The Good Market to sell lace ribbons sheets mattresses buttons umbrellas and various other assorted goods Originally had four departments 12 employees in a floor space of 300 square meters or 3200 square feet And then years later uh they brought in a partner [00:23:00] Aristide Bou Bou Bou Boucicaut think BOUCICAUT And he changed the business plan and introduced The big thing was introducing fixed prices because up until then you just sort of bartered you haggled for whatever you were gonna pay for He was like Nah fixed price That’s it Take it or leave it guaranteed exchanges or refunds Those were his big innovations and a wider range of merchandise as well But interesting to think about a time fixed prices wasn’t a thing Tony Kynaston: Yeah Cameron: you haggled for everything So but this blew up It became a hu huge hit fixed prices and guaranteed refunds Uh their revenue went through the roof Uh they absolutely dominated and then other retailers around the world picked up this idea [00:24:00] Macy’s Marshall Field’s in the US copied the business model So it was the French that invented the whole idea And uh these guys I guess have been part of that Kohl’s over the decades the core business for these guys today is selling family apparel footwear a little bit of everything As I said pitched to the value end not up at the top but they’re not Walmart down the bottom in the US somewhere in the middle Budget conscious families year they did about 148 billion in sales and they have their own store credit card the Kohl’s Card which I know you’ll like Tony Kynaston: Yeah. Cameron: a an old card guy Tony Kynaston: Yep. And loyalty program guy, and they’ve got a loyalty program as well. Cameron: Yeah Tony Kynaston: Mm-hmm. Cameron: So every time somebody buys a jumper and puts it on the card they take a slice of the credit economics Uh that line uh was about $752 million last [00:25:00] year Tiny next to sales but very high margins It’s uh does a lot of the profit lifting for the business the cr the the store card side of it Tony Kynaston: Mm-hmm. Cameron: The thing that was supposed to be the growth avenue for them was Sephora Now don’t know about you you’ve got a wife and a daughter uh you might know more about Sephora than me I’d heard of it but Chrissy’s not a Sephora customer But apparently a French multinational retailer of personal care and beauty products has about 340 brands inside of it along it with its own private label the Sephora Collection with the young ladies the teenage girls apparently Cosmetics skincare fragrances nail polish beauty tools body care products hair care items Launched in Paris in 1970 named after the wife of Moses Zipporah but in French it’s Sephora [00:26:00] And so they put a Sephora beauty shop inside a Kohl’s store back in 2021 and then started rolling it out to their other stores Supposedly was gonna drag younger shoppers through the door hasn’t actually worked Um in the last quarter when they did their quarterlies it uh was actually a bit of a drag on their numbers so they’re looking at other skincare brands as an alternative But beauty did over 1.8 billion for them last year so it is a big part of their business They also have their Kohl’s signature line option tell you a funny thing I was talking about Chrissy’s Siri So I dictate my notes as I’m you know preparing Tony Kynaston: Right Mmhmm Cameron: dictation engine is spelled as C-O-L-E-S all the way through and not K-O-H-L-‘-S so I’m having to fix it as I go Um they have their signature line option which is actually doing quite well for them but [00:27:00] we’ll see that when we get into the quarterly numbers But let’s get into the fun bit the fired CEO So as I said January 2025 they bring in this new boss Ashley Buchanan um gonna come in and turn around the business Fix 15 weeks later they had to fire him so it’s a great story Soon after taking over he brokered a deal for several Kohl’s stores to sell products from a coffee startup called IncrediBrew I looked up IncrediBrew They seem to be pods but they’re like boutique pods like coffee and mushroom You were talking about coffee off air this morning Tony Kynaston: Yes. Cameron: your coffee beans are getting smaller Tony Kynaston: Mm-hmm Cameron: They sell like you know your your your boutique uh brand coffee things uh you know fancy fancy coffees for I don’t know [00:28:00] modern age coffee snobs who like fancy stuff in their coffee Anyway it’s it’s headed by a former Bed Bath Beyond CEO a lady by the name of Chandra Holt And somebody on the Kohl’s side of things when this deal was done expressed some concerns over the terms of the deal that IncrediBrew were getting how they hadn’t gone through the normal vendor vetting process and made some complaints about it They got ignored took it up to the board The board launched an internal investigation and it emerged that the new CEO Mr Buchanan and the of IncrediBrew Chandra Holt had worked together at Walmart and had been in a secret romantic relationship for several years Tony Kynaston: Is this all proven, Cam, or is this alleged? Cameron: Uh he confessed to it Tony Kynaston: Oh, okay. All right Cameron: Yeah and when the investigation happened he admitted it [00:29:00] which is why he was fired Um had also crafted a consulting agreement with Boston Consulting where Chandra Holt was an advisor So got fired the next day after all this came out And the chairman Michael Bender stepped in as the interim CEO and then they made him permanent CEO in November last year They also got a brand new COO who’s just come in in the last Tony Kynaston: Mmhmm Cameron: or two from Foot Locker Like you and I wrote a book on the psychopath epidemic uh five or six years ago Tony and one of the things that led to that book and me thinking about psychopaths was why do we always hear these stories of people in positions of authority and power whether it’s in business or government or the military or leading religions or you name it who just do really really stupid shit Like like really really stupid shit [00:30:00] where you would think you should know better Tony Kynaston: Mm-hmm. Cameron: You you know you’re not 20 I don’t know how old Mr Buchanan was but I’ve seen photo of him He looks like he’s you know middle aged guy obviously had some success run companies brought in to you know run one of the largest retailers in the United States This is a really rookie amateur mistake Like how did he not think that was gonna get found out And one and I’m not claiming that Mr Buchanan is a psychopath but one of the things that we learned in researching and writing the book is one of the characteristics of psychopaths is they have a very high appetite for risk They believe that they are superior to mere mortals And quite often if they’ve got to a certain point in life where they have taken enormous risks gotten away with it they seem to think that they will always get away with it They [00:31:00] can just do stuff and it’ll just work out Donald Trump fits this uh archetype Just does Oh I’m gonna just put tariffs on everything Uh I’m just gonna start a war Uh I’m just gonna do stuff and it’ll it’ll be fine It’ll work out It’ll be great And then it doesn’t Eventually sometimes it bites him on the ass but you know if they if they’ve gotten away with it for 10 20 30 years they think they’ll always get away with it So uh Tony Kynaston: I mean, it’s, in some respects it’s human nature writ large, isn’t it? I’m sure there are lots of situations about people being in secret relationships and helping each other out at every level of society. It just becomes the focus, the focus of attention when it’s a CEO involved. But you’re right that you’d, you’d hope that the CEO who was running a company would have the probity to. Yeah, if he’s, if they’re in a secret relationship, good luck to them, but, but why, why do sweetheart deals when [00:32:00] you know that there are, I mean, it’s a department store. Their whole IP is around screwing suppliers and getting the best deal for their customers. Why, why did they think they wouldn’t get found out? Cameron: Yeah it’s astonishing but Tony Kynaston: It is, yeah. Cameron: So uh I think that had probably a little bit of an impact on their share price at the time but it doesn’t really explain why it’s turning up on our value buy list today If actually if you look at their share price it was uh 14 at the beginning of January last year When this all went down it dropped down to 613 by Tony Kynaston: Hmm Cameron: of 2025 then got back up to 2471 by the end of last year has struggling um in the last six months but it’s getting back up It’s climbing back up yesterday it fell again but you know it’s sort of is still recovering So um [00:33:00] another couple of things before I get into the financials and some of the story from their Q1 Um early 2025 they also cut their dividend by 75 50 cents a quarter to 12 and a half cents So that would’ve had an impact on their share price People that owned it for the dividend wouldn’t have been happy about that Management called it balance sheet flexibility which I think translates as We probably need the cash Tony Kynaston: Yeah Cameron: of course you gotta remember that this is uh Liberation Day time as well This is a retailer that probably very large chunk of its stuff is getting made in China and Tony Kynaston: Mmhmm Cameron: and places like that were gonna attract a huge chunk of tariffs under the Trump tariff regime Tony Kynaston: I did know this when I was doing my research that they’ve just, um, submitted legal claims in June of this year to have $140 million US refunded for tariffs [00:34:00] that they paid, um, now that the tariffs have been questioned, uh, their legality’s been questioned Cameron: Yeah well I I’ve got more on that later on Um it’s murky Um all of this tariff stuff is still murky and they call that out in their latest Tony Kynaston: Hmm Cameron: They don’t really know they’re supposed to be paying what they might get back and so they c It’s all big question marks um in their official reporting which is fair enough cause it’s still in play There’s still you know stuff going on through the courts Tony Kynaston: Mm-hmm. Cameron: The other interesting story that happened last year is they borrowed 360 million at a 10 interest rate and had to provide security Tony Kynaston: Mm-hmm. Cameron: had to pledge the furniture in order to get it So a 10 secured bond is uh my analysis of that was sort of it’s the bond market [00:35:00] telling you they don’t think you’re a great credit risk Um that’s a pretty high interest rate to be paying in the current market and particularly if you have to secure it So the the you know the the bond market thinks that they’re uh you know some challenges which is understandable being a bricks and mortar retailer in the current Tony Kynaston: Mm-hmm. Cameron: Plus they closed 27 stores in 2025 and some distribution centers 27 out of 1100 is not a big deal um but it tells you a little bit about how business is going and we’ll see that when we get into the numbers as well Numbers have been going backwards for quite a few years but there’s also some stuff turning around which might be some sign of hope But another thing that you’ll like uh is that they own their own real estate Tony Kynaston: Yeah, that’s what I wanted to focus on. That’s the ex- the interesting part of the story for me, I think Cameron: Yeah I’ve I got a rough valuation of about 6.8 billion [00:36:00] of property Tony Kynaston: Hmm Yep Cameron: And activists have been pushing them to Gordon Gekko it for uh quite a few years There’s corporate raiders circling There was a group called The Franchise Group had a deal at 60 a share in 2022 before it fell apart Don’t know why it fell apart didn’t drill down into that It’s a bit uh too long ago but 60 a share right now sounds pretty good I think Tony Kynaston: Yes. Cameron: the Tony Kynaston: It does Cameron: trading at 61, 63 at at its peak in March of 2022 I guess you know probably had Ukraine war going on then I don’t know how that impacted But there was also trade wars going on with China I don’t know what else was happening then but yeah out of COVID maybe they were some good online shopping during COVID stimulus Their share [00:37:00] price went up a lot during COVID Anyway um still a lot of chatter bubbling up around this uh and they it does seem like that’s a lot of of a huge asset base that could be sold off We’ve we’ve done a couple of was it we were talking about some months ago Was it um was it Kodak, somebody like that we talked about that had a lot of real estate that they had spun off Tony Kynaston: I think it was, yeah. Mm-hmm Cameron: So there there seems to be a lot of opportunity for them to do something good with this to to offload this real estate and you know use the money to do other things in the business Tony Kynaston: Well, that, that’s the, that’s the really interesting point for, um, a company in this situation, whether it’s a. It happens a lot with department stores or historically it has. But, um, [00:38:00] you know, if you look at their net profit number, their most recent net profit number, um, I think it was about two hundred and seventy odd million dollars, and their forecast numbers are lower than that, a hundred and sixty. Um, I think you said that they had a property portfolio of over six billion dollars. Um, Cameron: 6.8 Tony Kynaston: yeah. So if that’s the case, then, you know, if they just said, “Well, let’s just lease out the six billion dollars of property that we have,” what kind of yield would you expect on good commercial property and shopping malls and good locations in suburbs and things? You’d probably get at least five percent, maybe even. Yeah, at least. Uh, so, you know, ten percent on six point eight billion is six hundred and eighty million, half of that, three hundred and forty. It’s more than what they’re making from the department stores. And they could do it, you know, with next to a very small staff [00:39:00] footprint to manage the commercial real estate. So I don’t, I don’t begrudge them for saying, “Look, you know, we’ll turn things around, and we’ll get back to a stage where we’ll earn more money from being a department store than we do from renting out our real estate portfolio.” But, you know, how many chances do you give them, um, given that department stores are in decline? And y- at what stage do they get another private equity company bidding and saying, “You know, we’re gonna shut you down. You’re just a, you’re just a waste of space. Cameron: Yeah Tony Kynaston: take the commercial real estate over and rent it out”? Cameron: Yeah Tony Kynaston: you know, it’s g- it’s gotta happen. And the obvious play for Kohl’s would then be to do what’s called a sale and leaseback strategy, which has been used a lot in the past by retailers where they’ll sell off their property arm or spin it off into a real estate investment trust and then get a guaranteed lease for a long period of time so they don’t get shuttered. Um, that I don’t think will work in Kohl’s case because if you think about it, the reason why they’re not doing that is because the [00:40:00] rental was, is more than what they’re making in profit. So it’s g- it’d probably send them bankrupt. And there has been cases in the States in the past where that sale and leaseback strategy sunk department stores. I, I think it may have contributed to Sears going under. So. But yeah, I mean, if you’re a department store retailer and you can’t make rent, then why are you in business? I mean, really that’s the question, isn’t it? So unless they come up tomorrow with some fantastic offering, whether it’s Sephora or whatever else they can do, um, you know, I’d, I’d be inviting people to come back and bid for the real estate property and get out of the department store business really. Cameron: Yeah Tony Kynaston: That’s the interesting dilemma, I think, if you’re a shareholder Cameron: It’s a bit like being an active fund manager and you can’t beat the ETFs Like Tony Kynaston: You can’t beat the index. Yeah. Yeah. Well, and you own a, a portfolio of ETFs, right? So yeah, shut[00:41:00] shut down and sell the ETFs and you’re in front or shut down and run the ETFs and you’re doing better off. Same thing. Cameron: Hmm Tony Kynaston: Mm. So that’s what I find interesting about this and I, I’m surpr- you know, I, I wasn’t surprised to see they got an offer of 60 bucks a share. If that’s the valuation of the real estate business, you know, uh, you, you. I’d be voting the board off, you know, directors off the board and saying, you know, inviting someone to come back in and give me a, a, a, another $60 offer really Cameron: Yeah cause at the end of the day you’re looking I mean this classic Gordon Gekko stuff Tony Kynaston: Yeah Cameron: at the value of the assets and what the return on the assets is and what it could be Tony Kynaston: Correct. Cameron: the lot of employees are gonna lose their jobs if you shut down the business and there’s Tony Kynaston: Mmhmm Cameron: side of it as well the impact of all of that But Tony Kynaston: Yeah. It’s not an easy thing to shut it down, but, but, but, um, yeah, I mean, and there’ll be lease liabilities ’cause I, I, I don’t think their property network isn’t 100% of the store network, so they’ll still have lease liabilities to get out of and all of that. But, [00:42:00] but at some stage, there’s a tipping point here where you’re better off shutting the department store and leasing out the real estate or even selling the real estate, really. Cameron: Mmhmm Tony Kynaston: Mm. Cameron: Anyway getting back to their actual business today Um some of the things that are affecting retail particularly their target demo sort of middle class value buyers had the impact of tariffs we’ve had inflation gas prices et cetera Their most recently recent quarterly report says expect that our operations will continue to be influenced by general economic conditions including food fuel and energy prices higher unemployment wage inflation and costs to source our merchandise including tariffs Um a, only a fifth of their stuff comes from China I thought it would’ve been a lot higher but Tony Kynaston: Mm Cameron: you go So even though the Supreme Court issued a ruling that struck [00:43:00] down certain tariffs back in February there are still some tariffs from the first trade war using a different you know um mechanism that are still standing And as soon as the Supreme Court knocked down the ones from last year the Liberation Day ones Trump slapped fresh tariffs on using a different power The Court of International Trade ruled those unlawful too but it’s pending appeal So Kohl’s is I think still paying them and waiting for the lawyers to fight it out As you said they’ve also put in a claim for getting tariffs paid back, clawed back but still not sure whether or not that’s gonna happen No one Tony Kynaston: Mmhmm Cameron: So it’s a complete mess They’re paying tariffs they’re not sure they should be paying but they’re paying them anyway They’re trying to claw back stuff They don’t know if they’re [00:44:00] gonna get it back Anyway so it’s a complete shemozzle as Tony Kynaston: Yeah Cameron: times before which is what you get when you put a reality TV star in charge of the government In their most recent earnings call the Q1 2026 earnings call they said net sales declined 17 comparable sales declined 11 sales grew 4 Gross margin improved by four basis points over year so that’s good Tony Kynaston: Mm-hmm. Cameron: net loss was 14 million for Q1 2026 They’re sitting on cash and cash equivalents of 429 million But the good news is they achieved their best quarterly comparable sales performance in over four years driven by a significant stabilization of the core Kohl’s card customer That’s a mouthful And who reached a flat comp versus [00:45:00] a mid single digit decline in Q4 So there’s some turnaround news in that and I think that’s why Tony Kynaston: Mmhmm Cameron: price did tick up a little bit in the last couple of weeks Proprietary brands outperformed with a 6 comparable sales increase which is good for them opening different price points for customers that are struggling with inflation pressures Sephora I mentioned underperformed It had a low single digit decline especially in makeup and skincare So they’ve said that doing a full rollout of the MAC skincare brands and Korean skincare brands Do you know anything about Korean skincare My wife is, is Tony Kynaston: I do not– Cameron: skincare Tony Kynaston: bit about MAC, Makeup Artists of Canada, because that’s the one that Alex went to. Cameron: I Tony Kynaston: Yeah. Yeah. Big in Toronto where we used to live. But, um, yeah, don’t know about Korean makeup. Cameron: So [00:46:00] Korea uh so my wife Tony Kynaston: In case you can’t tell, I don’t use makeup. Cameron: you know or skincare Tony Kynaston: Yeah Cameron: Um my wife is an American uh but has lived here for 17 years Um teaches Tony Kynaston: Wow, has it been that long? Cameron: Yeah Tony Kynaston: Gosh. Hmm Cameron: This week is our um 18th when we met in um Corsica It was this week 18 years ago Tony Kynaston: Gosh Cameron: Yeah I know that’s what we say Wow Tony Kynaston: Hmm. Cameron: where was I going with this Oh she’s a violin teacher and she has had a lot of Korean students over the years and they always bring her When they go back home they come back and they bring her Korean skincare and she loves Korean skincare Koreans apparently are obsessed beauty and skincare and all this kind of stuff South Koreans obviously North Koreans not so much Uh Kim Jong probably has his Tony Kynaston: Well they [00:47:00] Cameron: you Tony Kynaston: they, they’re concerned with their skin, but for a different reason. Trying to keep it. Yeah Cameron: Um so anyway they’re they’re rolling out Korean skincare brands which are hot Tony Kynaston: Hmm Cameron: The hottest thing The hottest thing in New York nightclubs is Korean skincare brands So we’ll see if that helps Tony Kynaston: Mmhmm Cameron: when the results came out their share price jumped 10, 9 and then it came back As I said yesterday might have been a bit of profit taking uh seeing as I can’t see anything in the news But there’s this other funny thing They had this weird meme stock thing happen about a year ago as well After the whole Buchanan thing happened um it looks like there was this massive short squeeze that happened So Tony Kynaston: Run Cameron: we talked about this I think it was last week we talked about the gamma squeeze Tony Kynaston: We did. Cameron: The Tony Kynaston: me angry. You wouldn’t like me when I’m angry. [00:48:00] Yeah. Cameron: Bruce Banner Oh man speaking of that YouTube must have heard me talking about that cause it showed me a clip of from the uh uh the the Hulk TV series the Tony Kynaston: Mmhmm Cameron: um TV series Thor which I’d I’d never remembered Apparently he met Thor at one point the Hulk fought with Thor uh was just glorious to watch Tony Kynaston: Right. Cameron: Bill Bixby Tony Kynaston: Yep Cameron: me angry You wouldn’t like me when I’m angry And then Thor is like being this complete dick to him and and turns into they go at it Oh Lou man it was insane looking at it Like uh obviously crazy compared to what we’re used to with the Marvel Hulk these days but body was insane Tony Kynaston: Mm-hmm. Cameron: The muscles that he had on the back of his neck and [00:49:00] whatever these deltoid quad things I don’t even know what they were But anyway it’s Tony Kynaston: Competed with Arnold Schwarzenegger for Mr. Universe titles. Cameron: Yeah And but he looks bigger than Schwarzenegger Like Schwarzenegger looked like proportionally great but Lou just looked just at this point anyway early 80s I guess just massive Oh anyway back to the back to gamma squeeze So July 22nd 2025 the stock doubled when it opened I told you it sort of hit this crazy uh peak Let’s go Tony Kynaston: Hmm Cameron: uh yeah so it was 9.39 and it leapt to 14.34 Um and then it it well it went up 100 then it closed up 39 Volume was 25 times normal on that day No earnings no [00:50:00] news apparently it was a short squeeze So 49 of the float had been sold short Tony Kynaston: Wow Cameron: N Tony Kynaston: another vote against the board Cameron: Well yeah I guess And then retail traders piled in and the shorts had to buy back to cover Tony Kynaston: Mm-hmm. Cameron: and it went vertical So another one of these gamma squeeze things Crazy crazy stuff Anyway the price today probably has some of that squeeze residue still baked into it still quite a bit of shorting going down but from what I can tell it’s down about 28 of the float But that’s still Tony Kynaston: A lot. Cameron: a lot right A Tony Kynaston: Yeah Cameron: the stock to be involved So we don’t factor that in in our checklist and I don’t know if we should but Tony Kynaston: Well, we’ve had that, I’ve had the debate myself in the past and, you know, I’m happy to fight [00:51:00] the shorts. They think it’s going lower, and we think it’s going higher. Um, Cameron: Yeah right Tony Kynaston: in, in this case, you know, you’ll go through the numbers, but with all that real estate backing it, it’s. I think it’s a reasonably safe bet Cameron: Yeah like the business, you know it seems to be, may I mean at least for one quarter seems to be turning around doing well It’s cheap on our metrics I’ll run through the um where I put my analysis here Do do do do do I’ve got so many notes here I can’t even find the bit that I need Tony Kynaston: Maybe it’s under K-O-H-L-S Cameron: No I’ve got like four versions of the notes here cause I consolidate all these things and then I do another thing and another thing and uh um digital sales scorecard Oh yeah Oh this is it Okay [00:52:00] Um so me see What did I score it So the share price as I said was about 19.26 when I did my analysis so now it’s down a couple of bucks This will have changed in some respects but at the end of the day not that big a deal Market cap was um 2.2 billion roughly Average daily trade about 103 million so big enough Um Tony Kynaston: So you’re sure the real estate value is 6.8 billion? Cameron: I’m not sure but that’s the number I came up with in my research Tony Kynaston: And the market cap’s 2.8 billion Cameron: Yeah right It doesn’t make any sense does it Tony Kynaston: No. Cameron: Hmm Tony Kynaston: But again, another reason why I, I would think private equity is looking at this one Cameron: Hmm Uh so Stockopedia rank of 97 Tony Kynaston: It’s very high, isn’t it? Cameron: Yeah Sorry your typing was very loud Tony Kynaston: Oh, I’m sorry. Cameron: It’s all right Tony Kynaston: No, I’m just checking that real estate [00:53:00] backing. It’s, uh, yeah It’s six point eight to seven billion. Yeah. Cameron: Yeah Tony Kynaston: Um, and also too, I think I noticed in my research that it’s down in their books at cost. It’s not even, you know, the current value of it. Cameron: Really Tony Kynaston: the case. I’d have to double-check that, but yeah. Cameron: Hmm Tony Kynaston: yeah, so it’s saying here that, uh, it could be worth as high as eleven billion Cameron: Hmm And the market cap’s Tony Kynaston: Yeah. Mm-hmm. Cameron: Uh so the Stockopedia stock rank was 97 it for that Stockopedia quality rank was 74 scored it for that The Piotroski F-score is a seven so it’s scored for that Its price is not less than our IV1 or our IV2 To you an indication my IV intrinsic value number one is 830 My intrinsic value number two is 1481 so it’s above both of those Tony Kynaston: Mm-hmm. Cameron: Um double the share price [00:54:00] at the time would’ve been 3852 obviously um doesn’t score for that either Um the price is less than the book value though The book value I have is 3548 equity per share it scores for that Obviously it also scores for the price being less than book plus 30 Uh it had positive growth Um the dividend yield is not higher than the benchmark right I’ve got the dividend yield down at 26 But uh I Oh oh I didn’t score it for a new three point upturn even though it of It was This is funny So code said no When I looked at the bread later which for new listeners is a Sheet tool that we’ve had for years it said it was just above it [00:55:00] When I tried to un figure out the difference um my when my uh code ran it was one cent Tony Kynaston: Yeah, right. Cameron: buy price the buy line So anyway but it should’ve got a point for that Wouldn’t have made much difference but um yeah At the end of the day I gave it a QAV quality score of 6923 which is Tony Kynaston: Mmhmm Cameron: high but it got Oh its PropCaf was 156 price to operating cash flow 156 so it ended up with a QAV score of 0443 is pretty pretty high Tony Kynaston: Ish. Cameron: it well It’s making Tony Kynaston: Mm-hmm. Mm-hmm Cameron: kind of you know turning around maybe but even if it’s not So it’s you know it’s sort of a cigar butt in a way Tony Kynaston: Oh yeah, it’s a dinosaur Cameron: It’s a yeah it’s a cigar [00:56:00] butt but it’s got sort of a turnaround operation dr bolted on a little bit with the makeup and the skincare and the online stuff which is doing okay maybe Um best quarter that they’ve had in four years so maybe facing a lot of headwinds tariffs and Tony Kynaston: This remind, this re- Cameron: and Tony Kynaston: this reminds me of the original Berkshire Hathaway, right? The, the cotton, cotton, uh, mill that didn’t make any money but Buffett had managed to buy all these assets that made a lot of money with the cash flow from the cotton mill, and eventually he shut it down. Cameron: Yeah Tony Kynaston: where’s, where’s Buffett or where’s Gordon Gekko when you need them to just give this stock a shake, a cleanup? Cameron: there’s they’re they are circling it Like there’s a Tony Kynaston: Hmm Cameron: going on as far as I can tell So yeah it’s it’s throwing off a lot of cash while it shrinks at roughly half of book value [00:57:00] has a very low price to operating cash flow and as as we’ve dis as we’ve figured out is sitting on a ton of real estate that has enormous value So somebody’s gotta Tony Kynaston: Yeah. Cameron: and Tony Kynaston: And I know the board, Cameron: with it Tony Kynaston: the board have argued that the real estate’s a, uh, is of value to them because they can shrink or grow their footprint, um, without having to change the rental that they pay. Um, and that makes sense. That’s, that’s good. Or they can bring in subtenants, which, um, might be the latest trend like Korean makeup or whatever, and that’s good too. But they’ve had a long time to perfect that strategy, and it’s not really working for them, and they’re in a declining industry. Um, I’d, I’d much rather see them just shake it up and say, “Oh, maybe we should be a, a thousand stores, not 11,000, 1,100. And maybe we should– or maybe we should be selling 100 stores rather than 1,100, and we’ll sell off our real estate and return some money to the shareholders.” Something like that. [00:58:00] Mm-hmm. Cameron: I do wanna point out though that it is not a buy today because the share price has gone down So my current buy price is 1886 It’s now down to 1772 So it’s slightly below the buy price as of today It was a buy yesterday and I did add it to our portfolio yesterday and I sent out an email to our Lite subscribers Um so if you got in quick you you’ve lost money Uh but Tony Kynaston: Mmhmm Cameron: really have it in your portfolio So uh we’ll see what happens with it But uh yeah if if if if you didn’t buy it yesterday know maybe wait until it gets back over the buy price Um but it it’s ticking back up again uh today so I I think it will get back up But I don’t know why it dropped yesterday It’s uh very strange Tony Kynaston: Yeah, who knows? Could have been a short position taken out. Who knows? Yep. Maybe, Cameron: [00:59:00] I’ll Tony Kynaston: maybe Korean mar– maybe Korean makeup’s attracting extra tariffs overnight. Who knows? Cameron: Who But I like it It’s again as you Tony Kynaston: Yeah Cameron: of a it’s a classic value stock boring dying generating cash lot of assets Tony Kynaston: Mm-hmm. Cameron: Just smells like a good deal So Tony Kynaston: does, doesn’t it? Cameron: hmm Tony Kynaston: I’d be– I mean, I don’t wanna predict, but I’d be forecasting that if we can see value in this, there’s gotta be an institution out there which is seeing value in it too, and they’ll put it in play somehow. Yeah Cameron: And that happens so often in my experience with QAV over the years that uh if if we think it’s a good deal somebody else is gonna figure that out and take advantage of it Tony Kynaston: Yep, absolutely. Cameron: Well that’s QAV America for this week Tony Tony Kynaston: Yeah, very interesting. It’s a really. It, it’s a, it’s a good stock to analyze because a lot of people will have an opinion about Coles in the US, and our listeners will be thinking, “Oh, I don’t go there,” or, [01:00:00] “I’ve got a card and I always go there.” And it’s, it can, it can be very polarizing when you talk about something which is, you know, used every week by, uh, by investors Cameron: I’ll I’ll throw it up on the value investing subreddit and see what people say I threw up a I threw up a thing about Carter Bankshares last week and people seemed to like that They they they liked that story so Tony Kynaston: Okay Cameron: it was a good story too the whole uh Jim Justice Tony Kynaston: Yes. Cameron: And as Tony Kynaston: Yeah. Cameron: subreddit uh said um know uh credit to the current management at Carter for unpicking that unholy mess because Tony Kynaston: Hmm Cameron: yeah they they did a good job Came out of it on top so good for them Tony Kynaston: Yeah, a bit. I mean, that Greenbrae situation is a bit like Coles, isn’t it? It’s a, an asset that can be spun off and realize [01:01:00] some value for it to support the underlying business. Or to help shareholders, yeah Cameron: Yeah I mean being yeah wasn’t really core business They didn’t have to shut down a branch to sell that Tony Kynaston: Hmm Cameron: uh yeah similar right Thank you TK Have a good week Tony Kynaston: Thanks Cam. Well done PREVIOUS PULLED PORKS Here’s the performance of the “pulled porks [https://docs.google.com/spreadsheets/d/16WHwMalQodhxUO9h1T-7suVtfwjrXq057fFHhcLXFWk/edit?gid=0#gid=0]” (eg deep dives) we’ve done on the show in the past.

The Bunker, the Billionaire, and the Bank That Cared (CARE): QAV America #58

This week we dig into Carter Bankshares (CARE), a tiny Virginia community bank that got itself tangled up with a billionaire US senator, a Cold War bunker resort, and nearly $800 million in dodgy loans, then somehow came out the other side with $80 million in cash and a story worthy of HBO. We also cover Alan Greenspan’s passing at 100, the SpaceX float wobble, the Iran sanctions waiver, and why Big Tech’s stock-based compensation accounting might be quietly fleecing investors.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok [https://www.tiktok.com/@qavinvesting]. Or visit our homepage [https://qavamerica.com/home/] to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives [/listen/] TRANSCRIPTION QAV AMERICA 58 new [00:00:00] Tony Kynaston AU: Nothing to talk about on the US show, is there? Cameron AU: Nothing to talk about. Welcome to QAV America 58. Tony Kynaston AU: chill, people Cameron AU: Chill, 23rd of June, 2026. Tony? I had an ex-wife who had a birthday on the 23rd of June. Trying to remember which. Uh, probably my first wife. Happy birthday, my first wife, if she’s listening. Tony Kynaston AU: You have so many ex-wives you can’t remember their birthdays. Cameron AU: Yeah, it’s just dates. You know, you go, “Oh, I think there was a date I was supposed to Tony Kynaston AU: You and Elon Cameron AU: wife’s.” Yeah. Actually, yeah. Yeah. Speaking of Elon, Tony Kynaston AU: How can afford his alimony? Cameron AU: how, how are your, uh, are your SpaceX shares going, Tony? Tony Kynaston AU: I don’t have any, but um, I hear they’ve been doing well until all the insiders sell out, but we’ll see Cameron AU: No, they’re down. They crashed. Tony Kynaston AU: Oh, have they? Well, they were doing well last time I looked. They’re up 50% over the weekend Cameron AU: Uh, they’re down. I don’t– I wouldn’t say crashed, but, um, yeah, they’re back down to where they started, I think. Um, as of today, they are [00:01:00] less. They’re below. Um, they f- they sort of floated at a dollar sixty– uh, $165, sorry. They’re currently $154. So congratulations to everyone who got into SpaceX. Tony Kynaston AU: And got out quickly. Cameron AU: you got out, yeah Tony Kynaston AU: Yeah. That’s amazing. It– That’s, I mean, that’s a huge float to be moving that, with that much volatility, isn’t it? That’s incredible. Cameron AU: Yeah. Well, Tony Kynaston AU: All sorts of rumors in the market that he’s gonna use the float to buy Tesla, and then he can, uh, become the chief exec or executive chairman of Tesla as well, which could have bugged him he couldn’t be chairman Cameron AU: I’ve been reading these, this Colossus, uh, series of books from the ’60s and ’70s. I’m on the third one. It was a trilogy. I’m on the third one at the moment called Colossus and the Crab, and this is where, uh, Martians come down and basically help the humans to kill Colossus and then state that they want, uh, their payment is they want 50% of Earth’s [00:02:00] oxygen to take back to Mars to re-replenish the oxygen on Mars. Tony Kynaston AU: Right Cameron AU: It’s, it’s, it’s, it’s actually not as wacky as it sounds. It’s pretty good, but it got me reading a lot of it ’cause the, the, the author. This one was written in 1977. He’s making a lot of cl- ooh, a lot of claims about Mars’ atmosphere and the escape velocity of Mars and why it lost all of its heavier elements and all Tony Kynaston AU: Mm-hmm. Cameron AU: of stuff. And so I’ve been going backwards and forwards with Claude just sort of fact-checking a lot of this stuff. But as part of that process I was reading about the, uh, cosmic radiation levels to get to Mars. Do you know, do you know much about that? Tony Kynaston AU: I have heard that’s one of the problems with colonies on Mars is you just get irradiated, you get microwaved Cameron AU: Even getting there. So, um, apparently NASA has a career limit for astronauts of 600 millisieverts of radiation exposure. Over your entire career as an astronaut, you can get six– anything beyond 600, and I think your, uh, [00:03:00] rates of getting cancer from radiation poisoning go up to, like, 5% or 10% higher than they normally would be, so they cap it at Tony Kynaston AU: Right Yep Cameron AU: A one-way trip to Mars exposes you to 1,000 millisieverts. Um- Tony Kynaston AU: And I can’t line the ship Cameron AU: No. There, there’s, there’s various theories, but n- nothing that would be, uh, um, effective. Um, in fact, if you line it with metal, it, it makes it worse because the radiation hits the metal and then fragments all of the particles out of the metal, so y- it actually increases your exposure of radiation. Tony Kynaston AU: Right Cameron AU: way to do it apparently is water, um, y- you’d, it’d be so heavy, et cetera, et cetera. It ruins your ability to get the ship up. Maybe if you, if you got Tony Kynaston AU: Close out the position, yeah Cameron AU: and got in another ship, you might be able to. Apparently, I asked if Elon Tony Kynaston AU: Yeah, well, you gotta get the water up there, though. You can’t. Doesn’t matter. You gotta still get the water up there, right? Cameron AU: [00:04:00] Yeah. Tony Kynaston AU: It doesn’t flow uphill. Cameron AU: Elon’s answer to this apparently so far has been, “Yeah, yeah, a lot of people are gonna die. That’s just how it is.” Uh, Tony Kynaston AU: Is he stroking a cat when he says that? Cameron AU: you know, his, uh, thing about l- you know, the, the rocket launches with SpaceX over the years has always been, you know, blow stuff up quickly. Tony Kynaston AU: Yeah. Cameron AU: apparently that translates into kill people quickly to get them Tony Kynaston AU: Yeah. Cameron AU: He said it’s gonna be volunteer only. Apparently, his answer is to get you, get you there faster. So if you get there faster, you’re exposed to less radiation. But of Tony Kynaston AU: But you’re still exposed when you get there, yeah Cameron AU: you get there, let– and then if you ever wanna Tony Kynaston AU: Unless you, Cameron AU: so Tony Kynaston AU: unless you build underground, I guess. That was the, Cameron AU: Well, Tony Kynaston AU: was the theory Cameron AU: Yeah, you have to build underground, Yeah. Tony Kynaston AU: Yeah. Well, I thought Elon’s play was to get robots to do all that when it was safe to send humans, yeah Cameron AU: Yeah. Eventually you, you, it’s safe for humans to get in there. But, um, Tony Kynaston AU: Mm-hmm. Cameron AU: Well, before we get onto Elon, um, Iran, let’s Tony Kynaston AU: We just did. Before [00:05:00] we get onto Wieland, we just spent the last five minutes on it. Cameron AU: okay. Let’s move off of Elon. Tony Kynaston AU: Okay Cameron AU: Elon. That’s what all of his ex-wives said. Um, the Iran sanctions. So, um- Tony Kynaston AU: Yeah, it’s clown show number two. Clown show number one, Cameron AU: So the Tony Kynaston AU: in space. Clown show number two. Cameron AU: the MOU was finally released late last week, and it was the most fun I’ve had in, I don’t know, a long time reading through that. The 300 billion in reparations had been rumored for a while, and whenever I spoke to my Persian friend, uh, from Kung Fu about it and, or read about it in the forums online, the, the, the, the standard response was, “Oh, that’s just IRGC propaganda. They’re just trying to make themselves sound good. That’s never gonna happen.” Well, it was in the document. Yeah, $300 Tony Kynaston AU: Yeah. Cameron AU: in Tony Kynaston AU: Yeah. But who pays for it? Cameron AU: And [00:06:00] they’re, they’re not very specific on that. Tony Kynaston AU: No. Cameron AU: said, ” No, we’re not paying for it. Uh, the Tony Kynaston AU: Yeah Cameron AU: will pay for it.” And they might. Um, but it’s a big. And then the lifting of all sanctions on Iran is the other big thing. So then, uh, Iran pulled out because Israel kept bombing Lebanon. They walked out of the negotiations, or they said they were gonna, but apparently they didn’t, and I was reading in Al Jazeera this morning. It’s still the place where I go to for my news on this is Al Jazeera. It seems to be, you know, a little bit less, um, problematic than a lot of the Western news sources. But, um, they were saying that, uh, the US has partially lifted Iran’s oil sanctions for 60 days or 61 days maybe. Tony Kynaston AU: Yeah, so it’s basically a 60-day ceasefire, which we’ve had before as well, which didn’t last very long Cameron AU: But it says, uh, “The US Treasury issued a 60-day sanctions waiver on Monday, paving the way for the production, delivery, and sale [00:07:00] of Iranian oil to the US.” So, A, I don’t know how much oil they have sitting around now to sell to the US within 60 days. I don’t know what the situation is there, but. And it’s just like what it does to the oil price, who knows? But it’s just, uh, you know, fascinating that after decades sanctions on Iran Tony Kynaston AU: Mm-hmm. Cameron AU: how bad the JCPOA deal was according to Trump, they’re lifting sanctions on Iran and Tony Kynaston AU: I saw a, Cameron AU: billion. Tony Kynaston AU: I saw a cartoon of Trump copying Obama’s S on, on Iran. It’s like he’s just done the same thing Obama did Cameron AU: No, this is way more, uh, better. Way more better? I Tony Kynaston AU: It’s worse for the US, yeah Cameron AU: Way better for Iran is– and for the IRGC than anything Obama tried to put through. I mean, if Obama had if Obama had tried to [00:08:00] put up this deal, it would’ve been, you know, he would’ve been laughed out of the White House. Uh, anyway, Tony Kynaston AU: Yep Cameron AU: it’s, uh, as we always say, you got no idea what’s gonna happen any day, day to day. Uh, oil price is back down today. It went up a bit over the weekend. It seems to be back down. I think it’s around seventy-seven bucks last I heard. Tony Kynaston AU: Mm-hmm. Cameron AU: So hasn’t gone back up where we’re buying oil stocks again yet, but who knows what will happen. It’s all very fraught and hard to believe anything that gets said by any of the parties, uh, at this juncture Tony Kynaston AU: Yeah, exactly. And, and whether, um, even Israel will be a party to what needs to happen. They seem to be just doing what they want as well. Cameron AU: Yeah. Tony Kynaston AU: And then if you lift the sanctions on Iran, they’re gonna keep funding Hezbollah, which is gonna goad Israel. So it’s not– Maybe it’s a sixty-day circuit breaker, but that’s the, the best way [00:09:00] you can picture it, I think Cameron AU: I was listening to, uh, do you know, um, Switzerland? Um, Sw- Tony Kynaston AU: just mispronouncing Switzerland. Cameron AU: Nah, um, Son Tony Kynaston AU: recently on capping their population at 10 million? Cameron AU: There’s an Australian journalist, uh, Peter Schweizer, Tony Kynaston AU: Yeah. Cameron AU: he was the journalist, uh, his Tony Kynaston AU: I’ve heard of him, yeah. Mm-hmm Cameron AU: I don’t know. He does a, he does a good, uh, podcast that I check out a bit ’cause he has John Mearsheimer on a lot and guys like that. on, on a weekly basis, he has Mearsheimer and guys like that come on and talk about what’s going on in Iran mostly. you know, Schwei- uh, uh, John Mearsheimer is one of the guys that I’ve turned to for decades. I read his book on the Iran. uh, the Israel Lobby, sorry, that he did with Stephen Walt 20 years ago. been one of my go-to guys on international geopolitics for decades. I mean, he’s, he’s been talking just this week about how the Gulf, [00:10:00] uh, states, um, now have a different view about the United States defense umbrella and how it’s non-existent really. Tony Kynaston AU: Mm-hmm. Cameron AU: um, the- their whole relationship with Israel and their relationship Tony Kynaston AU: Mm-hmm. Cameron AU: has to change now because they can’t afford for the strait to be closed on a regular basis. So it’s really reshaping, it seems, the diplomatic relationships between all of these countries in the Gulf and, um, is becoming a global pariah. The Tony Kynaston AU: Yeah Cameron AU: a global pariah, it’s, it’s. and China’s just sitting there licking its lips. So it’s like hilarious really to watch the whole thing crumble. Not hilarious, that’s the wrong word, but it’s fascinating Tony Kynaston AU: Yeah, it is fascinating. I s- I think it was the Lowy Institute who came out in today’s paper saying that more people in Australia now, based on their recent surveys, um, prefer China to the US as a, as a ally. Thought it was interesting. Cameron AU: [00:11:00] Yeah Tony Kynaston AU: I think it’s also fun to speculate what could happen in the Middle East. I mean, you’d have to say that of late anyway, Saudi Arabia has a better relationship with the US than Israel does, and if all the US really wants is a, is an ally in the, in the region, so, you know, Israel might be on shaky ground going forward Cameron AU: Yeah, well, they’ve had a good relationship with the Saudis since, you know, um, what’s his face did the deal during the OPEC crisis. Um, who was the, uh, Nazi who worked for Nixon died a couple of years ago? Kissinger. When Kissinger did the open checkbook deal with the Saudis. Tony Kynaston AU: Right Cameron AU: down, and we’ll just back anything that you want, and, you Tony Kynaston AU: Yeah. Cameron AU: have basically open slather.” Anyway, speaking of, uh, American icons who passed away, Alan Greenspan died today, last night, Tony. Um, 100 years old he was Tony Kynaston AU: [00:12:00] He never looked all that healthy, so that’s amazing he got to 100 years old. Probably ’cause he was in a very stressful job Cameron AU: Yeah. What a, I mean, um, what a career. Uh, Tony Kynaston AU: Hmm. Cameron AU: read that, um, he was chairman of the Fed for 20-something years through, I think, eight presidents or something like that. Just a, an incredible career and, you know, not all good. Like, he copped a lot of, uh, blame for what happened after he left, um, the, the GFC. Uh, copped a lot of flak for that. So in the last 20 years, his reputation hasn’t been as strong as it was during his decades running the Fed. And I was always fascinated. I’ve always been a big fan of Ayn Rand, despite the fact that I’m left of Che Guevara. I’ve always, been a big fan of Ayn Rand and her writing and her thinking. I think she was [00:13:00] flawed in many ways, but I admire her, uh, attempts to provide a moral framework around free enterprise and capitalism. And, know, I’m, I’m one of the few people that can read Chomsky and Che Guevara and Ayn Rand and, and, and, and be happy, you know? My– That’d be my, my favorite kind of a dinner party would be to have Chomsky and Ayn Rand and Che Guevara and Fidel and, I don’t know, Tony Kynaston AU: I’ll be agreeing a lot of things I would’ve thought Cameron AU: Yeah, maybe. Alan Greenspan died. Uh, what are your Tony Kynaston AU: Well, you mentioned, well, you mentioned Ayn Rand because he was part, part of her circle, wasn’t he? Used to go to parties with Ayn Rand Cameron AU: his first wife introduced him to Ayn Rand, I, I learned in the New York obit. And, um, and he argued with her, and then ’cause, you know, he was, um, you know, sort of a classical, um, economist. uh, he– she ended up [00:14:00] convincing him that he was wrong and, you know, he changed a lot of his opinions on how the economy should work based on what he learned from Ayn Rand. So like that, when I first learned about that years ago, that blew my mind, that the guy that was running the Fed basically, you know, got his philos- his philosophical framework from Ayn Rand. Um, yeah Tony Kynaston AU: And that was used as a criticism when it became widely known that, you know, Peter has that money. Um, he. There’s a lot of good quotes about. that came out of the Greenspan years. Um, and, you know, apart from he presided over bubbles, I think is probably the, the main criticism. So you’d have years of market exuberance and then a crash, and that was largely put down to what was called the Greenspan put. Every time the stock market would get into trouble, you could rely on the Fed to cut interest rates and, and, you know, [00:15:00] give it a, a jump, a head start again. So the market bec- There was a bit of a moral hazard there with the way that he was operating or seemed to be operating. And he always. I mean, he famously said that his job was to, was to take away the punchbowl when the party was getting started, and, um, that’s how he saw what he should be doing. But, um, he kinda didn’t do that. He was always late to do that. That was the biggest criticism. But, you know, um, and he also, I think too, was shaped by the fact that I think he came after Volcker, who was, um, responsible for very big interest rate rises to, to, um, clean up, uh, the economy after the ’70, the early ’70s oil crash. But, Cameron AU: Mm-hmm. Tony Kynaston AU: sent interest rates spiking because the, the, the Fed chair before him was slow to put interest rates up. So Volcker went hard, interest rates went up, and Greenspan was kinda shaped by that history as well, that he had to be a bit slower in putting interest rates up to build the economy. So in the [00:16:00] course, that led to the market getting a lot of, um, a lot of, uh, hot air underneath it, and then, um, he was late to take the punchbowl away and rise, raise interest rates and the market crashed. So Cameron AU: Yeah. Tony Kynaston AU: a tough, tough gig Cameron AU: of other things I wanna talk about. Last week, I had to add a bunch of stocks to replace the oil stocks that we sold. One of them that I added was a business that I don’t know much about, LESL, a pool business. Leslie’s Tony Kynaston AU: You did a Pulled Pork on that one, didn’t you? Cameron AU: I don’t think I did Tony Kynaston AU: He did one on a pool maintenance business that, that, Cameron AU: Did I? Tony Kynaston AU: grew and grew and grew in the US. Yeah. Cameron AU: Did Tony Kynaston AU: Maybe a year ago. Yeah. Cameron AU: A Tony Kynaston AU: Anyway. Cameron AU: or so, yeah, I don’t remember. It’s Tony Kynaston AU: No Cameron AU: in my Pulled Pork list, but it maybe it predates that. anyway, I ended up adding them to the live portfolio last week, and they, they’re up 19% since Tony Kynaston AU: Oh, darling. Cameron AU: Yeah. Tony Kynaston AU: Must have been your [00:17:00] buying large leaks that pushed the price up Cameron AU: Well, you joke, um, but remember Zep? Tony Kynaston AU: Yeah Auntie’s watching Cameron AU: Zeppe & The Falcons, a good Tony Kynaston AU: Chinese watch Cameron AU: Yeah, Chinese watch, mother. The Chinese watch. Tony Kynaston AU: Boom. I watched that again recently, Ethel the Frog. It’s a great, probably one of the great Monty Python clips, yeah Cameron AU: Yeah. So, um, Tony Kynaston AU: Tonight on Never The Frog, we visit the violence of British gambling. Cameron AU: Focus, Tony, focus. I did, I did a Pulled Pork on Zeb Health Corporation back in July of last year, uh, when they were trading around about $3. And then they went up 1,500% pretty quickly, and, uh, you know, I took all the credit for it. Tony Kynaston AU: Mm-hmm. Cameron AU: they’ve, they’ve fallen down to $4.84, uh, which is still Tony Kynaston AU: Mm-hmm. Cameron AU: [00:18:00] 62% Tony Kynaston AU: Yeah Cameron AU: we talked about them. But I tried to figure out what happened. why did they go up 1,500% and then drop back down? Did something go right? Did something go wrong? I Tony Kynaston AU: Mm-hmm. Cameron AU: at the time trying to figure out and they, they had, they had announced some pretty good results, and they’d done a deal with Amazfit. they were selling stuff on Amazon, these, you know, like health trackers and their digital watches kind of stuff. But then I. So I jumped into Claude and, and it sort of did an analysis on it. And its conclusion, based on a lot of evidence, but its conclusion is it was something called a gamma squeeze. Now, I, I assume that it’s something to do with the Incredible Hulk, Tony Kynaston AU: Uh-huh Cameron AU: ’cause that’s the only thing I know about gamma radiation, is that it turns you into the Incredible Hulk if you get hit by them. You know what a gamma squeeze is? Tony Kynaston AU: Uh, you don’t make them angry? Will you get squeezed? Cameron AU: I’m angry. Yeah. Tony Kynaston AU: No, I don’t. Never heard of a gamma [00:19:00] squeeze Cameron AU: a gamma squeeze, according to Investopedia, is a rapid, often extreme surge in a stock’s price triggered by heavy trading in call options. forces option dealers, market makers, to aggressively buy the underlying stock to hedge their risk, creating a self-reinforcing loop of buying pressure So the way that Claude decided this is what happened is it could actually, it, it couldn’t find evidence of puts, but it could find o- evidence of shorts happening Tony Kynaston AU: Yep Cameron AU: on. So its theory, and again, I’m saying that this is a theory, I don’t have any evidence to back this up, but its theory is that the price started to go up as a result of. It’s a fairly thinly traded stock to begin with. Um, share price started to go up as a result of, uh, some of the announcements, the profit. You know, the reason they ended up on our buy list is they announced some good numbers, [00:20:00] and then the share price massively went up as people were buying options on it and the market makers, as the price kept going up, the market makers needed to buy shares to cover themselves in case people exercised those Tony Kynaston AU: Right Cameron AU: and it just had this self-reinforcing loop that the price kept going up and up and up and up and up, then eventually it all unwound itself and the price came back down, down, down, down, down to where it should’ve been in the first place. So it’s up 60% in a year, less, little less than 11 months. So not complaining. Not, not sure if it’ll stay there either, but that’s where it seems to have stabilized Tony Kynaston AU: That sounds like a good business model. We find a family trade in stock and take out lots of options on it. Cameron AU: And Tony Kynaston AU: could go wrong? Cameron AU: yeah, yeah, yeah. I think Warren Buffett’s had a few things to say about that. So yeah, by, uh, you know, as I said, we paid about three bucks for it. Well, no, we didn’t buy it. We didn’t actually add it to the portfolio. But when I did the Pulled Pork, [00:21:00] it was about three bucks. It went up to $61 and, uh, has come back down to about $4.83. So there you go. So that was fun to drill into and try and get my head around that. Um, the Leslie’s pool business I already mentioned. And then, um, before I get into my Pulled Pork for the week, Glenn, one of our Australian and US subscribers, sent me this article in The Wall Street Journal. “How Big Tech’s Financials Obscure the True Cost of the AI Build-Out.” uh, a pod- it’s a transcript from a podcast, WSJ’s Take on the Week podcast. Um, they sit down with Kevin Kohaki, principal at CAE Consulting and professor at Purdue University, to pull back the curtain on the opaque world of tech companies’ financial statements. They dig into why the massive infrastructure spent on AI data centers might be obscuring other fundamental [00:22:00] corporate costs, specifically stock-based compensation. Kohaki explains why tech giants like Meta, Microsoft, NVIDIA, and Google’s parent company, Alphabet, need to provide clearer financial reporting. He breaks down the challenge investors face in distinguishing between necessary AI capital expenditure and other underlying costs, and why greater transparency is critical to accurately valuing these businesses in the current market. So I didn’t spend a lot of time on this ’cause I’m not investing in these businesses, and so I don’t really care. But, um, my take is, from the quick read that I did of it, that there might be stuff hidden in the financials for these companies that investors aren’t getting transparency on, and it could come back and bite them on the ass. Did you get a better take on what’s going on here, TK? Tony Kynaston AU: Yeah, look, I, I think it was great of, um, Glen to point it out. It’s something that which I knew about, but it skipped my mind. But it will have implications, I think, for QAV in America because [00:23:00] the accounting standards are different over there compared to Australia in the area of stock-based compensation. So, uh, in Australia, if you– or anywhere around the world, if you pay someone with stock, you’ve got to account for it as a cost somewhere. In Australia, that comes out of operating cash flow because it’s like paying your workers. You think of the coffee shop analogy, paying the barista. If you pay him in stock or if you pay him in cash, it should be treated the same way under account, under accounting standards and go into operating cash flow. Doesn’t work that way in the US. They don’t have to put it through operating cash flow. Um, so it goes much lower down the P&L than operating cash flow. So what that article on the Wall– or the podcast on The Wall Street Journal was saying was that, um, if you look at a company like Meta, uh, a lot of the stock-based compensation isn’t appearing in their operating cash flow. So their top line looks really good, and operating cash flow is [00:24:00] strong, and it flows down to a healthy profit. But if you factor back in the stock compensation, which is, I think, being accounted for on the balance sheet in the US and not going through the, the profit somehow or goes through the profit much lower down, um, it basically Meta doesn’t make any money because it’s got to someday account for all the stock that’s been issuing to its staff and to Zuckerberg and all that sort of stuff. So you’re right in that that tends not to be the case for value stocks. They tend not to have lots of stock-based compensation for whatever reason. But, um, uh, we should really try and put it back into operating cash flow if we can find it. But I’ll have to do some digging to work out how to do that for QAV in the US Cameron AU: Hmm. Well, I’m not sure with the sorts of businesses that we buy it’s gonna have such a big impact. I think your, your Mag Seven type stocks probably have way more exposure to this sort of thing than Leslie’s Tony Kynaston AU: it, it tend to, tends to be internet stocks, and it was a thing [00:25:00] back in the dot-com boom when everyone was being paid in stock options. And that’s when I think the accounting diverged between Australia and the US, and there was much like the debate Australia’s having now around CGT changes and whether it will kill startups in Australia. There was all this debate around the accounting of stock options and, and stock-based compensation in the dot-com boom, and how Australia stuck by international standards when the US went the other way and, and wrote their own rules to try and, you know, um, keep the dot-com boom alive, I guess Cameron AU: Mm. Well, thank you, Glenn, for sending that through. Um, I just, before we get too far into my Pulled Pork, I wanted to just do a quick portfolio check. So I will open up the live portfolio, now fixed, actually live, updates every morning, uh, on the website. The, uh, QAV America main portfolio, inception date [00:26:00] September twenty twenty-three, currently up a hundred and seventeen point six eight percent, uh, versus the S&P 500 up sixty-eight percent over that same period of time. So it’s not quite double market, but not far off it. Hundred and tw– six hundred, yeah, it’d be a little bit more. What’s hundred and twenty? Yeah. Oh, yeah, yeah, yeah. A little bit less than double market. Um, year to date, QAV is up thirty-two and a half percent versus a little bit less than nine percent for the S&P. So doing better than three times market year to date. Um, the last one year we’re up forty point five percent versus twenty-four percent. So again, not quite double, but it’s been a really good year for our main portfolio. The light portfolio, QAV America Light, which I started twenty-second of December Is, uh, up 7.3% versus the S&P [00:27:00] up 8.6 over that same period of time. So it dipped a little bit, mostly because of the oil stocks that we needed to sell. But, uh, then as I said, some of the stocks have done really well. Pitney Bowes, which is in the light portfolio, is up 58%. Uh, Commercial Vehicle, CVGI, is up thirty-three. Kodak is up twenty-seven. Leslie’s is now up 20% since I added it a week ago. Um, Tony Kynaston AU: And it’s a pool business Cameron AU: Yeah, yeah, might be options going on with that too. Tony Kynaston AU: Might be gamma, it might be a gamma squeeze. Cameron AU: squeeze. Tony Kynaston AU: Yeah Cameron AU: we’re doing gamma in your pool. Um, Deutsche Bank is up 16%. Um, some of the ones that aren’t doing so well, BWLPG is down ten, Woori Financial is down eight, Ship Lease is down eight. Couple of the financials are down. Bread Financial Holdings. So couple of weeks ago, let’s see. Well, BFH, I did a [00:28:00] Pulled Pork on Bread Financial Holdings back in February. Didn’t add it to the portfolio at the time, though, but it is up 46% since then. But I did add it to the portfolio this week. I th– can’t remember why I didn’t at the time. I think it was a Josephine or something at the time. But, um, did add it, yesterday to replace one of the oil stocks that I had to sell last week. So, um, unfortunately, we didn’t get that first forty-six percent gain, but it was still at the top of the buy list this week, so I was like, “Okay.” You know, whatever you say, buy list. Um, Tony Kynaston AU: yeah Cameron AU: maybe. We’ll see how it goes. But the one I am gonna talk about this week is a juicy, juicy story, Tony. Not sure, n-not sure what you’re gonna make of it. Um, you know, the, the financials, we. I’ve been through this back and forth, um, as you know, [00:29:00] over the last few months with US stocks where there’s these one-off events that, that bolster their operating cash flow and I go backwards and forwards with Claude on, “Is this legit? Is this not legit?” It pushed back on this one. I argued it into the ground and then it said, “Okay, you do whatever the hell you want, but don’t blame me if, don’t blame me if Tony says you’re an idiot.” Um, so I’m gonna tell you the Tony Kynaston AU: Just so you have an idea Cameron AU: probably. Yeah. It’s pr- it’s a safe assumption. It’s, uh, but it’s, it’s a great story nonetheless. So the company is called Carter Bankshares. Ticker code is CARE because they care, Tony. If you go to their website, it’s all about how much they care about their local communities. Um, it’s, it’s a crazy story. So they’re a relatively tiny country bank based in Virginia, Martinsville, [00:30:00] Virginia. was chatting with my buddy Ray from Virginia this morning. I said, “How far is this from you?” He said, “Oh, it’s about two hours away.” Um, Tony Kynaston AU: with Ca- with Carter Bank? Cameron AU: didn’t ask him about the bank. I, no, I didn’t get into that. I don’t think Ray has enough money to put in a bank, so he, he just puts it, you know, under the mattress. Um, mattress rates he gets. Um, tiny bank that got itself wrapped up in a billionaire US senator story and then had to undo it all, and involves a luxury resort that has a bunker underneath it. It involves two billionaires fighting over that luxury resort and, uh, resulted in an eighty million dollar one-off gain for Carter, um, just recently, which has given their numbers a bump. Tony Kynaston AU: Yeah Cameron AU: or not that’s a bump scoring or not is the decision that we had to make or I had to make on this and I [00:31:00] decided, yeah, it’s fine. Anyway, listed on the Nasdaq. Market cap about six hundred and eighty-eight million, so relatively small. About four point eight billion dollars in assets. Sixty-three branches across Virginia and North Carolina. Pretty much nothing to see here on the surface. Plain vanilla community bank. It takes deposits, makes loans, pockets the spread. Trading around $31. Um, here’s the thing, it was $16 15 months ago. So it’s, it’s had a big run up as it’s unpicked this mess that it was in. And the mess goes back to the founder of it, guy called Worth Harris Carter Jr. Worth Carter. Man called Worth started a bank. Uh, Tony Kynaston AU: What was his nickname? Hi- High Net? Cameron AU: Hi, Ned. Yeah. Um, I read his obit. Uh, he died a few years [00:32:00] ago, um, 79 from cancer. But he was a grocery cashier who, uh, worked at Safeway grocery stores in Richmond and Charlottesville. Put himself through the University of Richmond, graduated in 1958, and then went to the University of Virginia Law School, classes until 1960. Then he worked as a bank examiner at the Federal Reserve Bank of Richmond from 1960 to 1964. Then as vice president and comptroller the Piedmont Trust Bank in Martinsville from 1964 to 1973. Then he founded the First National Bank in Rocky Mount, Virginia, in 1974 with eight employees and $1.2 million in assets, and then ran that for 42 years. Um, built, founded 10 more community banks, and then combined them all in 2006 into the Carter Bank and [00:33:00] Trust. So founded all 10 from scratch, grew them organically, and then rolled them all up into a, into a thing that floated. Ran it Tony Kynaston AU: Isn’t it. Cameron AU: personal kingdom. Hmm. Tony Kynaston AU: you know why, like, you started a bank in the Rocky Mountains and called it First National with six stars? Tends to be a thing in the US where everything’s the First National, isn’t it? Like, it’s like not national, it’s operating in Virginia. Cameron AU: It’s why they Tony Kynaston AU: Even 40 years later. Yeah. Or the World Series. Cameron AU: Yeah, Tony Kynaston AU: World Series. Well, it’s named after a newspaper. Yeah Cameron AU: Was it really? Tony Kynaston AU: Yeah, The World was a New York newspaper that used to sponsor it Cameron AU: Oh, I never knew that. Tony Kynaston AU: Yeah. Cameron AU: Oh, Tony Kynaston AU: Much as I like to think it’s American exceptionalism, it’s not. Cameron AU: Well, the Tony Kynaston AU: But naming your, but naming your six-person ba- yeah, naming your six-person bank First National is probably a little bit of, um, dreaming. Cameron AU: Yeah. [00:34:00] Well, he did well. He, he ran it Tony Kynaston AU: Yeah Cameron AU: kingdom until he died 2017. Um, and this, he was a pro- he was a proper old school conservative, knew every branch manager, knew all the Tony Kynaston AU: Mm-hmm. Mm-hmm. Cameron AU: drove himself to meetings in an old car, Warren Buffett style. did a lot of, um, direct business with people, including Jerry Falwell. He was, you know, fou- funded the Liberty University or, you know, got them out of a bad patch that they went through, all this kind of stuff. Um, old school banking guy and, uh, but the thing has a weird ownership structure. The, the it’s owned by retail investors, moms and dads who own fifty-three percent of it today. Um, small town Virginia families who have held the shares for a long [00:35:00] time. They had the community shares, and I guess it got rolled into the Tony Kynaston AU: Run Cameron AU: when it rolled it all up. Tony Kynaston AU: Mm-hmm. Cameron AU: BlackRock and Vanguard and those sorts of guys have less than ten percent, sort of six, seven percent from what I can see. Um, still based in Martinsville, Virginia, which I looked up. Um, it’s a fairly small town, Virginia furniture and textile country. NASCAR country. I think it’s where NASCAR starts every year is Tony Kynaston AU: Mm-hmm. Mm-hmm. Cameron AU: Um, it, this town used to be the, um, plug tobacco capital of the world and Tony Kynaston AU: I have no idea what that is Cameron AU: Uh, you put a plug of tobacco in your mouth and Tony Kynaston AU: Ah, chewing tobacco. Okay. Cameron AU: I think, that’s what it is. It was the chewing tobacco capital of the world. Uh, RJ, uh, um, Nabisco, who’s the tobacco company? Um, we Tony Kynaston AU: It was, Nabisco does, was, yeah. Cameron AU: Was it [00:36:00] Nabisco? Tony Kynaston AU: I don’t think so. No, I was there in. Cameron AU: with us in Carolina, North Tony Kynaston AU: Yeah, yeah. It was at, um, where, uh, Durham, wasn’t it? Cameron AU: Durham. Yeah. Tony Kynaston AU: Yeah. Cameron AU: the film in Durham, yeah. Wasn’t that Nabisc- RJR Nabisco? Was. What was the name of Tony Kynaston AU: But, mm, I can’t remember, sorry. Cameron AU: I can’t Tony Kynaston AU: It was a, was a local tobacco exec’s apartment, yeah Cameron AU: Yeah, yeah, it was crazy. Anyway, then at one point, Martinsville was the sweatshirt capital of the world Tony Kynaston AU: Before China? Cameron AU: yeah, before Tony Kynaston AU: Right. Cameron AU: Yeah, Tony Kynaston AU: But they outsourced? Yeah. Cameron AU: At one point in the 1980s, 1980s, they boasted of having more millionaires per capita than any city in America Tony Kynaston AU: They have one millionaire and one person? Cameron AU: I think their Tony Kynaston AU: Mr. Carl? Cameron AU: about 15,000 people. So, you know, you only gotta have a couple of millionaires and you’re Tony Kynaston AU: Mm-hmm. Cameron AU: Anyway, um, what the bank actually does today is pretty simple. Before we get into the dirty story, I’ll tell you about the bank. So they take in about $4.2 [00:37:00] billion of deposits. Most of it are in certificates of deposit, CDs, term deposits. They pay depositors a bit over two percent, lend it out at five and a half, keep the, keep the gap. Uh, net interest margin, uh, is about three point o, seven percent, and it’s climbing up from about two point six eight percent a year ago. And they, they are what’s called liability sensitive, which apparently means if the Fed cuts rates, their funding costs drop faster than their loan income. Tony Kynaston AU: Pr Cameron AU: their margin actually widens when rates cut. M-most banks hate rate cuts. These guys benefit from rate cuts. I drilled into this a bit ’cause I didn’t understand it at all. And, uh, for people out there who are like me, their deposits are dominated by certificates of deposit, term savings accounts, fixed rate, but short. They have a maturity of months to a couple of [00:38:00] years. So when the Fed cuts rates, those things keep maturing until the bank renews them at the new lower rate, but that can take months or years for them to do that, they keep the margin in the meantime. And the big chunk of what they lend is fixed rate and has longer terms. Eight hundred and fifteen million of residential mortgages that are locked in for years, plus fixed commercial real estate loans. So the Fed cuts rates, but people keep paying, customers keep paying the older higher rates. They don’t fall, they’re fixed term, so i-it’s a Tony Kynaston AU: they often refinance, don’t they, in, in US? Cameron AU: there are and penalties Tony Kynaston AU: Yeah, yeah Cameron AU: to get out of that. Yeah. Anyway, so that’s the good side of their business. But then they got wrapped up in a guy called, and wait for this, if you thought Worth Carter was a good name, senator, the junior United States senator from West Virginia, Jim [00:39:00] Justice, James Justice, former Tony Kynaston AU: reading, I was reading in my notes about the Justice settlement by the Justice Department. I mean, I’m getting very confused about what was happening. Cameron AU: I know, right? Uh, this is, this, this is, uh. I mean, I could do a whole series on this guy. Oh, it’s Tony Kynaston AU: It was like, it was like who’s on first. Yeah Cameron AU: Yeah, let me drink some smoothie. Mm. Jim Justice, serving as the junior United States senator from West Virginia since twenty twenty five. He’s, like, seventy, but he’s the junior senator. Uh, member of the Republican Party, served as the thirty-sixth governor of West Virginia from two thousand and seventeen to two thousand and twenty-five. Was once a billionaire, but depending on who you [00:40:00] believe, his current net worth is either six hundred and sixty-four million or zero. Um, Forbes in January twenty twenty-five reported that his net worth had fallen below zero because he had over a billion dollars in debt. But if he, but somebody else calculated his net worth last year as six hundred and sixty-four million, which made him the richest US senator that year from West Virginia. Now, he inherited a coal mining business from his father that included ninety-four companies, Bluestone Industries and the Bluestone Coal Corporation. And then some years ago, he and his family bought a luxury resort and national historic landmark called the Greenbrier Hotel. It’s in a place called White Sulphur Springs. It’s been there since nineteen thirteen. And s-since the [00:41:00] seventeen hundreds, uh, people in the United States would go to White Sulphur Springs to take the waters. You ever heard them take, “I’m going to take the waters”? Tony Kynaston AU: Oh yeah, I’ve heard that Cameron AU: I’ve heard that. Never knew what it meant. Apparently, it’s to go and soak in a hot sulfur spring. That’s what taking the Tony Kynaston AU: Yeah. Yep Cameron AU: So this place was built, and you should look at some. Look at a photo. L-look up the Greenbrier. One word. It is. It kinda looks like your house, really. I mean, it’s a smaller version of your house. you know, if you moved into this, you’d, you’d be, like, uh, going backwards. But, um, it’s an eleven-thousand acre property. Dorothy Draper designed the interior, who was Don Draper’s great-grandmother, I think. Um, it features championship [00:42:00] courses that have hosted the Ryder Tony Kynaston AU: say, I’ve heard of the Greenbrier. It’s a classic. Yeah Cameron AU: the Solheim Cup. Yeah. So there you go. Uh, it’s hosted, uh, 28 presidents have stayed at the hotel, but the last I think was Dwight Eisenhower, so it’s been a while. Um, and it is or was the site of a massive underground bunker meant to serve as an emergency shelter for the United States Congress during the Cold War. Project Greek Island was what it was called. Its existence was not acknowledged until The Washington Post revealed it in a 1992 story, and after that, the government decommissioned the bunker ’cause there’s not much point having a secret bunker if everyone knows about it. And the Cold War was over, technically, uh, I guess Tony Kynaston AU: You want to go into a secret bunker and slam the door and not have to listen to people knocking. Cameron AU: Mm. Tony Kynaston AU: just, that’s just rude. Cameron AU: Mm. Tony Kynaston AU: Mm. Cameron AU: Now Trump’s trying to build one underneath [00:43:00] the, um, uh, White House, right? Under the. Is it the East Wing he’s redoing? The ballroom Tony Kynaston AU: I thought there already was one under there Cameron AU: Oh, maybe he’s making a bigger one under there. So anyway, um, Carter Bank, um, blahdy, blahdy, blah. Jim Justice. So at one point, Jim Justice, owner of Bluestone and The Greenbrier, owed Carter Bank at one point $775 million Tony Kynaston AU: Right. And you said before they had how much on the mortgage book? $700 million, was that it? Or $900 Cameron AU: Uh Tony Kynaston AU: million? Less than a billion Cameron AU: Yeah. Four, four. No, they had $4.2 billion of deposits. Tony Kynaston AU: Che Cameron AU: book was about 3.7 billion Tony Kynaston AU: Right. Still Cameron AU: at one, Tony Kynaston AU: a large chunk Cameron AU: Yeah. I mean, at one [00:44:00] point, uh, he paid it down to three hundred million by twenty twenty-three, but the bank had four hundred million dollars of equity at that stage, and three hundred million dollars of it was riding on one family. Um, so how all this came to be is it started in two thousand and one with a single four and a half million dollar real estate loan that Worth Carter personally made to Jim Justice. They were friends, kinda Tony Kynaston AU: Yeah Cameron AU: fellow larger than life, um, Tony Kynaston AU: Mm-hmm. Cameron AU: And then over fifteen years, he just kept le- lending to the Justice family until it got up to seven hundred and seventy-five million. the thing is, banks in the United States have a legal lending limit. There’s a regulatory cap on how much you can lend to any single borrower set at fifteen percent, roughly, of the bank’s capital. [00:45:00] So Carter’s legal lending limit was about $75 million, but Justice got up to $775 million because it wasn’t one loan to Jim Justice, it was dozens Tony Kynaston AU: thinking, yeah Cameron AU: to dozens of separate entities that he controlled: coal companies, agriculture businesses, The Greenbrier, its sporting club, hospitality arms. And each individual loan was about $75 million, all of them personally guaranteed by Jim Justice, his wife Kathy, their son Jay Justice, and all cross-collateralized. So on paper, lots of independent borrowers, in reality, one family. And so that went along. No one really, I guess, asked any questions about [00:46:00] it and until Worth Carter died 2017 professional managers took over, took one look at the $775 exposure that they had and went, “Well, that’s not good.” And so they basically stopped rolling it over. I think what they’ve been doing is rolling over the term, what Tony Kynaston AU: Pr/Op Cameron AU: Carter had been doing is rolling it over for years. They said, “No, no, no, no, no, no, no. You need to pay this, pay this down. This is, this is way too much exposure.” Um, and Justice ended up suing the bank for a billion dollars in late 2023. The Justices said that the new management team kept verbally promising more time, then went cold, stopped returning calls, and basically forced them into default. I love, I, I read a Forbes article on this. It had this great [00:47:00] line: “What does Justice, his family, and companies allege? That Carter Bank, over nearly 20 years, loaned them more than $700 million, then had the gall to expect to be paid back on time.” So, uh, enter three years of litigation and, uh, they ended up cutting it loose. So bank put $300 million on non-accrual in mid-2023, basically saying, “We’re not gonna get the money back.” By their own count, they’d lost $91 million of interest income on those dead loans. And there was also a side plot on this. Do you remember Greensill? Tony Kynaston AU: No, I don’t think so. Cameron AU: this years ago. Tony Kynaston AU: Everybody? Okay Cameron AU: Bundaberg boy, fellow Bundaberg boy, Tony Kynaston AU: Yeah. See, I. Okay. Is that Greensill? Yeah, yeah Cameron AU: Lex Greensill, sugarcane [00:48:00] boy. Surprisingly, he and I never crossed paths. He was born in ’76, so he’s only six years younger than me, but never heard of him before all of that went down. to the UK, started a financial services company called Greensill Capital, becomes a billionaire. Big scandal in 2021, a chunk of Credit Suisse down with it. Prime Minister of the UK, David Cameron, was a lobbyist and advisor to the bank. He got caught up in it. I think, um, Greensill had gotten an OBE or something like that. It was all very messy. Anyway, um, Bluestone, Justice’s coal company, was a Greensill borrower, so Carter Bank ended up getting involved in all of this downfall of Credit Suisse and Greensill. Anyway, a long story short, very, very messy. In March of this year, so three months ago, they sold their entire loan book, the, the Jim Justice loan book, [00:49:00] uh, $289 million in to a Dallas billionaire called Robert Rowling. Robert Rowling, no relation to JK, as far as I know, owns a chain of hotels called the Omni Hotels, Tony Kynaston AU: Mm-hmm. Cameron AU: and he set up an entity called White Sulphur Springs Holdings to buy the debt off of, uh, uh, Carter Bank. Now, at the moment, at the time, sorry, at the time he did this, they had written it down to 209 and a half million of defaulted judgment-backed debt. He paid 289 million in cash, basically 290 million for Tony Kynaston AU: Mm-hmm. Cameron AU: 210 million. Why? Um, get control over the Greenbrier Tony Kynaston AU: Right Cameron AU: So, [00:50:00] uh, he moved for control over the Greenbrier immediately. Basically said, um, “Yeah, this guy can’t pay the debt. We’re just gonna ta-” And the Greenbrier was col- collateralized with the Greenbrier. “We’re just gonna take the Green, Greenbrier and add it to Omni Hotels.” And, uh, just as Tony Kynaston AU: Yeah. So why didn’t, why didn’t Afterpay do that? Cameron AU: I don’t know, ’cause they didn’t know how to run a hotel maybe Tony Kynaston AU: Okay Cameron AU: Dunno. Anyway, bottom line is they sold, they sold all of Tony Kynaston AU: Yeah. Mm-hmm. Cameron AU: family sued over control of the Greenbrier. That’s still going through the courts. Basically, from a Carter perspective, their bad loans went down from 244 million to 24 million in one quarter, and they got ton of cash And that’s the magic trick in this one. So their operating cash flow jumped from 1.78 to 15.1 this year. Um, and all their numbers [00:51:00] suddenly look really, really good. It’s not gonna last, but they’ve got $80 million in cash that Tony Kynaston AU: Yeah Cameron AU: do something with. Tony Kynaston AU: Yeah Cameron AU: I looked at it and I went, “Okay, so it’s not a deep value cigar butt, Tony Kynaston AU: Mm-hmm. Cameron AU: but it’s a business, new management, got themselves out of a hole, sold off a, a problem asset, did a good deal by the sounds of it, um, made 80 million on it. They now have 80 million to do something with. What they do with that is up to them. Tony Kynaston AU: Yeah. We should say the, the net was 80 million because they got the heap of cash for the Greenbrier debt payment, but they’d already provided a lot of, um, losses, provided for a lot of losses on the loan. So the net was an $80 million cash infusion. Cameron AU: Exactly. Tony Kynaston AU: Yeah Cameron AU: And they’re paying their first dividend in 10 years, 10 Tony Kynaston AU: Mm-hmm. Cameron AU: Um, and so they, so, [00:52:00] you know, that’s it. The, Tony Kynaston AU: Yeah. Cameron AU: deal is they got out of this, they made a back, bunch of cash. Like, it’s a good little business in and of itself. Like, it’s not a, it’s not taking over the world, but it’s a profitable, healthy bank. Uh, the numbers look, you know, reasonable on it. It’s not Tony Kynaston AU: Mm-hmm. Cameron AU: win any awards. It wouldn’t be on our buy list without this, Tony Kynaston AU: Mm-hmm. Cameron AU: it did do this. And I thought, you know, this is a legitimate thing. They sold off a thing. They made money out of it. The money’s in the coffers. It’s cheap. So I was like, “Yeah, screw you, Tony Kynaston AU: Well, Cameron AU: this.” Tony Kynaston AU: um, yeah, look, I tend to agree with you. I, I don’t think it’s gonna shoot the lights out from here as, in terms of increasing stock price the way it has in the past. But, um, it’s not gonna. I don’t think it will go backwards in a hurry either, ’cause as you say, they’re, they’re flush with cash. The stock price is probably gonna be well-supported. But it really comes down to what they do with the cash and, you know, the [00:53:00] management’s good enough to be able to invest that eighty million dollars and earn a good return off it going forward. So, Cameron AU: Exactly Tony Kynaston AU: I see it. I don’t like the idea of putting cash windfalls through operating cash. I don’t know why that happens in the US with these stocks. But even if it didn’t, um, the business is gonna look good as an outcome of the settlement, and they wrote down their provisions or wrote off their provisions for bad debt. So it’s always gonna be a good set of numbers on the trailing basis anyway. So PE looks good anyway, all that kind of stuff. So, you know, not, not withstanding the fact that there’s been a cash injection that makes operating cash flow look good, it’s still a better business that we would have analyzed, um, in a similar sort of way if it was, uh, using an Australian accounting standard. And we see this, we’ve seen it from time to time in Australia too, and my rule of thumb is basically, if management were good enough to get that cash injection, then hopefully they’re good enough to spend it well Cameron AU: Yeah, that was my take on it too. Like, they, this new management, um, [00:54:00] have dug themselves out of a hole that the founder had got them in with this Tony Kynaston AU: Yeah Cameron AU: and, you know, come out of it on top. So I give them top marks for that. Um, anyway, so Tony Kynaston AU: Additionally though, Cam, I also, we, I think you did a pulled pork a couple of weeks ago on an Alaskan bank as well, a regional bank. Um, Cameron AU: Um, Tony Kynaston AU: and so I did a quick. Yeah, it was called Northrim, I think, from memory. Cameron AU: Oh, Northrim Bancorp, yeah Tony Kynaston AU: Yeah, so again, a regionally focused bank. A little bit different because they had a stronger business Cameron AU: Hmm, vampires. Tony Kynaston AU: loans than, than Carter Bank does. Cameron AU: Yeah. Hmm Tony Kynaston AU: So Carter Bank, Carter Bank’s kind of niche is that it has a big retail presence, lots of bank branches in an industry which is more and more consolidating and closing branches and going online. So it’s, it’s playing to its strength. Northrim was playing to its strength in terms of loaning local [00:55:00] businesses money. So, but you know, it’s kind of a thematic we’re starting to see on the buy list, and I compared them both, and there’s pluses and minus for both of them. But, um, you know, once, once this injection flows through, I think, you know, it’s a similar sort of situation. It’s a, a niche bank with a good base, and it’s not a bad investment Cameron AU: Well, let me just run quickly through the numbers. Um, I said, the share price is around about 31 bucks. Our IV1 is, uh, $24.62, our first intrinsic value, so it’s above that. But our second intrinsic value is about $50.81. below that, so I scored it for that. Um, price to book is 1.36, so they got a score for that. Um, uh, no, sorry, didn’t get a score for that. Um, they’re above that. They’re also Tony Kynaston AU: Hmm Cameron AU: book plus 30, so I couldn’t score them for that. Um, operating [00:56:00] cash flow ratio, price to operating cash flow is about two, 2.04. So again, it’s largely because of this big, uh, bump that they’ve Tony Kynaston AU: Yeah Cameron AU: them a score for that. Average daily trade is around about nine million, so pretty big. Um, earnings per share about $4.80 at the moment, again, because of the, the bump, but it is what it is. PE ratio of about $6.45. Forecast EPS of $4.90 for next fiscal year. Um, overall financial health and quality, Stockopedia stock rank of 87 and a quality rank of 55, so not great on those. Piotroski F-score at seven, so that is okay. Um, they’re cashed up. Pretty, pretty, pretty solid Tony Kynaston AU: Yeah Cameron AU: They have had positive equity over the [00:57:00] last few years. Don’t have a recent three-point upturn because they’ve been going up for a while now. Dividend yield is around about 0.32%, so that’s lower than the debt rate. Couldn’t score them for that. Bottom line is, um, ended up with a QAV quality score of 58%, so not massively high, but a QAV score of 0.286, which put them pretty high up on my buy list. I think they were second on my buy list this week after BFH. And I was like, “You know what? give these guys a go because I like the cut of their jib Don’t know what a jib is? Think it’s a, think it’s a sail. Is that a sailing Tony Kynaston AU: is. Cameron AU: Yeah? Tony Kynaston AU: yeah. Cameron AU: You would, you would know Tony Kynaston AU: Yeah. Well, I, I just, um, asked Gemini what they were gonna do with their, their bonus cash windfall and, um, they are gonna do, um, a buyback as a share repurchase with some [00:58:00] of the money. They are going to use it to support digital platforms, so IT upgrades, and then organic growth and expansion. So, you know, it’s. They’re not going out and buying themselves golf courses and US senators and things like that. So it’s, seems like a responsible use of the money, and it’s gonna improve the, the bank, you would think, going forward. So yeah, don’t mind buying them either Cameron AU: Yeah, we will see. Tony Kynaston AU: Mm-hmm. Cameron AU: We will see what happens. But, um, anyway, there you go. That is CARE, Carter Bankshares. Great Tony Kynaston AU: Oh, very colorful. Yeah. Cameron AU: colorful Tony Kynaston AU: story Cameron AU: Billionaires buy another billionaire’s debt so they can take over the Tony Kynaston AU: Yeah Cameron AU: It’s a crazy world, America, right? It’s like Succession, these stories. It’s just– Tony Kynaston AU: Yeah. Cameron AU: mad world Tony Kynaston AU: Yeah, and the lawyer in the [00:59:00] background going, “Hey, if we buy this bit for this, then we get control of the hotel over there for our Omni.” Like, you know, okay, and it’s just like all of the dominoes falling behind them Cameron AU: Yeah, yeah. And the lawyers making money on both ends, I’m Tony Kynaston AU: Mm-hmm. Cameron AU: Mm. Well, that’s it, Tony Tony Kynaston AU: All right, I’m gonna go out and plug some tobacco and watch some NASCAR and Cameron AU: Yeah Tony Kynaston AU: some T- buy some sweatshirts. Yeah. Tony Kynaston AU: Yeah. True. Uh, have, I’ve been, I’ve been seeing little clips of, um, Dave Grohl’s daughter and her music, which is interesting. Have you been Cameron AU: I listened to Tony Kynaston AU: that at all? Yeah, it’s good, isn’t it? Yeah. Violet Grohl, yeah. Cameron AU: yeah. Yeah, What’s her name? Tony Kynaston AU: Yeah. Violet. Cameron AU: Violet, yeah. Tony Kynaston AU: Yeah Cameron AU: came up, it came up after you mentioned Grohl or Foo Tony Kynaston AU: Pr/OpCaf Cameron AU: week. I s- I listened to their album, didn’t really dig it, but then she Tony Kynaston AU: Thanks, man Cameron AU: up in, um, Spotify, and I was like, “Oh, okay.” And I, I liked her album a lot more, yeah. It’s Tony Kynaston AU: Yeah. Yeah, it’s good. And there was a clip I saw of her fronting Dave Grohl on the drums ’cause they were [01:00:00] doing a Nirvana tribute when they were inducted into the Rock and Roll Hall of Fame a few years ago. That was pretty good too. Cameron AU: right. I think I’ve Tony Kynaston AU: Yeah. Yeah Cameron AU: Her and Alice Cooper’s daughter’s got a band too Tony Kynaston AU: Oh, Cameron AU: like. Tony Kynaston AU: okay Cameron AU: really the lead. It’s kind of like a g- it’s like a, um, sort of a weird, um, as you’d expect, kind of, um, horror-themed metal band. Can’t remember their Tony Kynaston AU: Run Cameron AU: like Beasts of Death or something like that or something. Um, it’s sort of, yeah, a bit, you know, heavier than Alice, but it’s sort of, you know, Rob Zombie-ish kind of, know, c- theatrical metal sort of stuff, and she does in it, but, like, backup. It’s a male lead singer. She does, like, backup vocals and different stuff, but it’s good. Yeah, I really like it too. So these guys with their daughters, the nepo-baby daughters that are Tony Kynaston AU: Yeah. exactly. Cameron AU: Yeah Tony Kynaston AU: Uh, yeah. Well, but it, but it, [01:01:00] yeah Cameron AU: sorry, j- just to close the loop on Alice and Sparks. So f- I was showing Fox the Sparks documentary last night ’cause he hadn’t seen it, and there was a bit, uh, early on they were talking about how their first album was produced by Todd Rundgren, and they were introduced to Todd Rundgren by Miss Christine from the GTOs ’cause Russell was dating Miss Christine from the GTOs. Christine from the GTOs, the GTOs were living in Zappa’s house when Alice and the band first went to Zappa’s Tony Kynaston AU: Mm-hmm. Mm-hmm Cameron AU: um, it was the GTOs that first put makeup on Alice Cooper, and had, they had a member called Pamela Des Barres who had, um, like spider lines coming out of her eyes, which was Alice’s first eye makeup I think he dated Miss Christine as well. And I had just seen yesterday, there’s a, there’s a Zappa album, can’t remember what it’s called, but it’s a [01:02:00] photo of her sticking her head up. She had like this big crazy perm, her head up Tony Kynaston AU: Mm-hmm. Cameron AU: a, a swimming pool, a dry swimming pool, which was his swimming pool. Um, Alice posted that and said that, you know, she died like in the mid-’70s, very young, OD I think. And he said, “I always loved seeing this photo remembering Miss Christine. She was immortalized in this record cover and blah, blah, blah, blah.” And then that night I was watching this documentary and saw that so Alice dated her, Todd Rundgren dated her, Russell dated her, and I think Zappa probably, I don’t know if Zappa dated her, but he was– So yeah, the connecting Sparks to Alice Cooper isn’t something that I would’ve imagined, but, Tony Kynaston AU: Yeah Cameron AU: go. Hmm. It’s the ’70s in LA, I guess. Tony Kynaston AU: Yeah, right. Cameron AU: Hmm Tony Kynaston AU: um, we watched a movie the other night, uh, called Song Sung Blue with, uh, Hugh Jackman in it. Cameron AU: Hugh Jackman Neil Diamond cover Tony Kynaston AU: Yeah. Yeah. Cameron AU: liked that. Did you like it? Tony Kynaston AU: um, so-so. Like, it, it’s really good except it’s got some pretty bleak drama in it, which I [01:03:00] didn’t like. But, um, I was just gonna say, like, speaking of all those connections that the thing I liked the most about it was it was just a little community of cover artists in Milwaukee, which I really liked. And Michael Imperioli plays the Buddy Holly impersonator who backs Hugh Jackman when he becomes big with his Neil Diamond show, and I thought that was really cool too. But it was really nice seeing this whole troupe of, you know, um. There was a James Brown impersonator they called the Sex God and, uh, you know, they were just all helping each other, and it was– They weren’t making any money, and it was just re- it was probably the nice side of the whole event. Um, yeah, look, it’s worth a watch, but it’s, um, it gets pretty dark in places, which I didn’t like. It didn’t, didn’t need to be that, um, overly dramatic, I thought. Melodramatic. Cameron AU: Did you know that Michael Imperioli was friends with Lou Reed? Have I told you that story? Tony Kynaston AU: No way, really? Cameron AU: They were– Michael Imperioli got interested in Buddhism, I think he and Lou ended [01:04:00] up, ’cause Lou was into Buddhism, they sort of spent a lot of time in Tibetan Bud- no, Zen Buddhist circles I think it was. Yeah. He was, uh, quite close with Lou. He wrote a book about it that I read, like just sort of his. No, he wrote– It was a novel actually, that was about a kid who a relationship with somebody like Lou Reed. But, um, Tony Kynaston AU: Wow. Cameron AU: Anyway. Hmm Tony Kynaston AU: Michael and Tori Imperioli. Okay. I haven’t Cameron AU: Yeah, yeah, Tony Kynaston AU: All right Cameron AU: So what else you got? Tony Kynaston AU: Well, speaking of music, I mean, does it hold a candle to some of the, the music I’m getting on my feeds from the World Cup at the moment? Um, have you caught any of that? Scotland and the Netherlands and Norway doing the row and all this kind of stuff. It’s just great to watch. So joyous Cameron AU: I watched a, a highlights clip of Verde playing Spain and the goalkeeper, ’cause my boys told me that this Tony Kynaston AU: yeah Cameron AU: was insane, and it was like a nil-all draw bec- [01:05:00] draw because this from this tiny island didn’t let anything through, and that was pretty Tony Kynaston AU: Right. Yeah. No, just the fans. It’s, it’s been, um, amazing. Like, just. Like, I used to go to a fair few sporting matches in the US, and they’re great but, um, the Europeans just do it to a much better level, it’s the soccer fans. And I think America, it’s been a bit of an eye-opener for US fans to see the chanting and the singing. Like the, the Tartan Army, apparently they’re based in Boston ’cause all the soccer teams are based, um, in different places in Canada or Mexico and the US. And Iran’s based in Mexico, so they have to keep flying straight in and flying straight out after their games. But, Cameron AU: I heard that To

AERO: The Mexican Airline

QAV AM 57 [https://qavamerica.com/wp-content/uploads/2026/06/QAV-AMERICA-57-art-optimised.jpg] This week we dig into the SpaceX IPO numbers and they are genuinely terrifying: a Pr/OpCaf of 1,750 times, a $4.9 billion net loss, and a total addressable market pulled straight from a science fiction novel. We also cover the US-Iran deal tanking oil prices and forcing a bunch of sells across the portfolios, then Cameron does a Pulled Pork on Aeromexico (AERO), Mexico’s national airline, freshly listed on the NYSE and trading below its IPO price with a Pr/OpCaf of just 1.55 times.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok [https://www.tiktok.com/@qavinvesting]. Or visit our homepage [https://qavamerica.com/home/] to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives [/listen/] TRANSCRIPTION QAV AMERICA 57 Cameron: [00:00:00] welcome back to QAV America episode 57 Tony been a big week in the news with the uh Iran deal and the SpaceX float Tony Kynaston: Yes, Cam. Oh, well, big in news with the octagon brawl on the White House lawn and the president’s 80th birthday. Happy birthday, Mr. President Cameron: Do you think he had um somebody like Marilyn sing Happy Birthday Mr President Tony Kynaston: I, I think he had the Ayatollah in Tehran give him a big birthday present. Cameron: Uh we’ll see We’ll see how that plays out the first thing, I would guess, that’s, uh, of direct impact with us is a supposed peace deal, worth the paper it’s written on, between the US and Iran. Uh, we haven’t seen the paper or the terms of the deal yet, but- Tony Kynaston: Uh, I mean, I know rules are rules. I sold, I [00:01:00] sold some, uh, shares in oil companies that I own because the oil price became a sell, but I’m l- I’m doing it hesitantly going, “This is not gonna last. there’s not gonna be Cameron: Yeah Tony Kynaston: But, you know, rules are rules, so I had to sell Cameron: I had to sell a ton of things, both in the Australian portfolios and the American portfolios. Interestingly, the US portfolios, uh, stocks that I sold, we made like 30, 40% on all of them and I’d owned them for like three or four months. So it was okay. I was happy to get out. Um, but hard to replace them. I’ve replaced one, but I’m struggling to find things to buy in the US at the moment. And here too, the buy list here is down. I don’t know what yours looked like this week, but mine had, after I took out the crude oil commodities stocks, which was half of them, the rest were, you know, there was very little and stuff that I’d mostly bought before. Sun, um, Suncorp and, uh, [00:02:00] let’s see, what was the other one? Can’t remember now. Anyway, Slim Pickens. Yeah, CGF it was. Yeah, yeah. Slim Pickens. Every– ‘Cause everything’s sort of Josephines. Tony Kynaston: Hmm. Cameron: it’s been a, it’s been a rough ride. Market’s up today. It dipped a bit this morning, but it’s back up. But, uh, yeah, as you said, like, you know, Is- Israel’s not party to this. They’re still saying they’re gonna stay in Lebanon. Uh, you know, it’s. Tony Kynaston: Was clearly, was wonderful of the Iranians to give Donald Trump an 80th birthday present. That’s probably all it is. Cameron: On– It’s, it’s a wonder they didn’t turn up to his, uh, wrestling match in the front lawn of the White House. Tony Kynaston: The claw. The claw. The claw. Not the claw, the claw on the White House. Wasn’t that amazing? It was. I really, I’d love to have been there. It, it was he introduced as the, the Hammer of Hummus, the Terror of Tehran. Cameron: Oh, you need a. You got a. Yeah. Tony Kynaston: Donald [00:03:00] Trump. Cameron: Oh, you got a, you got a career as a caller of wrestling matches. Uh, yeah, absolute craziness with all of that. Um, the greatest deal ever made to get us back to where we were before it all started, but it looks like Iran’s getting $300 billion in reparations, is one claim. We don’t know the details, but I saw, I saw one analysis today that said that, um, Germany had to pay 5 billion in reparations after World War II, I think, which indexed would be about $100 billion, 90, $95 billion. The US are gonna pay Iran $300 billion for their three-month. That’s one rumor. That’s, uh, probably something the IRGC are looking for, but how much they actually get, giving up sanctions, releasing funds, it’s all. No one knows Tony Kynaston: And what do you think they’ll do with that money once they get it? Or what does Trump [00:04:00] think they’ll do with that money once they’ll get it? Sea mines, landmines, nuclear weapons, Cameron: buying more missiles. That’s, yeah, yeah. Well, the other big new– So that’s been a, that’s been a, a big thing for us, uh, this week, having to sell our oil stocks, which we’ll probably buy again a couple of weeks from now. Uh, the SpaceX IPO, Tony. I, I drilled down into this one a little bit despite myself Tony Kynaston: It feels like we’ve jumped the shark this week, Cam. I’ve gone away on holidays and the shark’s been jumped while I’m away Cameron: It’s like people have been saying, like, which, which f- you know, multiverse are we living in here? So, um, I don’t know if you’ve seen the numbers or saw my TikTok on this, Tony, but, um, what is, uh, what’s our, what’s our Pr/OpCaf cutoff, Tony? Can you remind me again what it is? Tony Kynaston: times. Less than, Cameron: S- Tony Kynaston: be less than seven Cameron: And what’s the average Pr/OpCaf for stocks on the market, Tony? Tony Kynaston: Oh, I don’t know. I’d be guessing it’s [00:05:00] about 16, but that’s just a guess Cameron: 1516 from what I can tell. Tony Kynaston: Yep Cameron: Do you wanna take a guess what SpaceX’s Pr/OpCaf is right now, Tony? Tony Kynaston: Well, I’m surprised it’s, it’s not infinity given that it probably doesn’t have any cash coming in. Not, not much. I guess it’s got the Starlink income, so it’s gonna be like 1,000 times I would’ve thought. Cameron: Close, uh, 1,750 times, Pr/OpCaf Tony Kynaston: Bargain. Bargain. Gina, Gina knows a bargain when she Cameron: Oh, doesn’t she? Gina got a billion in there somewhere, I believe. SpaceX closed yesterday at a near $2.1 trillion market cap. Their 2025 revenue was $18.7 billion. Uh, that’s a price to sales ratio of about 112 times. That’s not earnings, that’s price to sales. They didn’t have earnings. They posted a $4.9 billion [00:06:00] net loss for the year. For context, Apple trades around nine times sales. Nvidia at the absolute peak of the AI mania was around 30 times. SpaceX just IPO’d at nearly four times that while losing money, which Apple and Nvidia aren’t. So the only part of the company that actually makes money is Starlink, uh, of which you’re a subscriber. Tony Kynaston: Correct Cameron: part of their $11.4 billion in revenue that they did Tony Kynaston: could have sent me a share, couldn’t they? Cameron: They could have, yeah. Tony Kynaston: early Cameron: So you’re paying a $2 trillion valuation for what’s basically a satellite ISP company with a rocket on its back and an xAI cash furnace bolted on that they merged two months before they floated. So, but the, the best part, and I think, um, Alan Kohler pointed this out in his article yesterday, the total [00:07:00] addressable market in their S1 document was $28.5 trillion, is their total addressable market Tony Kynaston: Is that the GDP of Mars? Cameron: Uh, that’s– I think Alan wrote, “That’s the number you write down when you need the valuation to make sense and the actual income statement won’t cooperate.” It’s just like dot– like the dotcom b- bubble has nothing on this. It’s just absolute insanity. Insan- not insanity that he had a crack at it, but insanity that people went into it. I heard the investment banks made $500 million in fees out of the whole thing, Tony Kynaston: Yep Cameron: people bought into it. Um, so I did a TikTok saying, you know, our seven times Pr/OpCaf is like, well, it’s seven times, you know, f- the average of 15 times Pr/OpCaf, I was saying on [00:08:00] the TikTok that 15 years to get your money back is a long time. 15 years ago, most people thought AI was 100 years away, at least. 50– A lot can happen in 15 years. Even seven years is a long time these days. I don’t know what the world’s gonna look like seven years from now. 1,750 years, like 750 years ago was like 286 CE. The Roman Empire was still in full effect. Uh, I think Diocletian was probably emperor. The, the, the Christianity was about 10% of the Roman Empire. It was still a relatively small religion. The, the Goths were still on the borders causing a little bit of trouble. I mean, a lot’s happened in the last 1,750 years. Anyway, it’s madness. Absolute madness Tony Kynaston: Well, a bit of growth brings that number down, but you need a lot of growth to bring it down to a reasonable sort of number. Yeah, look, it’s, it’s crowd [00:09:00] psychology, isn’t it? People, people are investing. They’re almost throwing their money at it, not caring what happens to their money. I mean, some people, I guess, treating it like a lottery. It may go up. They might get three hundred times their money like they did with Tesla. So, know, it’s, it’s a bit like Bitcoin, isn’t it? I’m gonna of put my toe in the market and see what happens, is what I think the– most people are saying. But it Cameron: often referred to, you’ve often referred to Elon as a Bond villain. I think, you know, Bond villains had nothing on Elon. Bond villains would’ve loved to. Like, if you had a, if you had a Bond movie where the Bond villain became the world’s first trillionaire by launching a, a company that says we’re gonna send rockets to Mars, Tony Kynaston: He should Cameron: would’ve got laughed out of the cinema. Yeah. Yeah, I’m, I’m sure he pl- played with the idea. He loves naming all of his things after books and films and, you know, Grok Tony Kynaston: But, the Cameron: is off, out of a book Tony Kynaston: it seems like. I, I mean, you never know what you’re buying with Elon because it could be– [00:10:00] he pivots a lot and get, you know, becomes an international boring machine or something like that, or mag- magnetic trains or whatever, maglev trains, um, or brain chips, so you never know. from what I can tell, the concrete plan or the immediate concrete plan is to put data centers in space. Cameron: Che Tony Kynaston: And so that’s a– there’s a business case for that, but they didn’t spell it out, and the analysts that I’ve seen who have tried to spell it out say it’s not gonna work ’cause it’s just too expensive. Um, you know, if they, if data centers stop being built on Earth because of concerns about, you know, electricity usage and water usage and things like that, then maybe space is the answer. But a lot of ifs and maybes in that analysis, I think Cameron: Well, the big thing I think, uh, you know, I think, um, like Elon’s an impressively ambitious guy. You gotta hand him that. He’s, uh, done a lot of interesting things. Certainly not a very stable genius, uh, in the last few years. I’m not [00:11:00] exactly sure I’d be putting my trust in his ability to, uh, get much done, uh, with his, uh, mood swings on a consistent basis. But like, you know, Tesla was interesting, but now the Chinese have stomped all over that. Robots are interesting, but I’m pretty sure the Chinese are gonna flood that market as well, and I think they’re gonna flood the space market too. He’s got a bit of a head start on China. China’s still trying to get their– I can’t remember the name of their, um, satellite launching service, but, um, I have looked into it in the past. They’re a few years at least behind. Uh, I think their, their plan is to have a few, like 500 satellites up this year versus his twen- 19,000 or whatever it is. But, um, it’s only a matter of time before they catch up and, uh, then the economics of everything change dramatically from what was in his S1, I think once the Chinese catch up Tony Kynaston: Yeah look, I agree. And, uh, you know, I’ve seen some [00:12:00] analysis saying there’s so much space junk up and all that now that putting data centers up there is be resisted. So, Cameron: Yeah Tony Kynaston: be a blight on, um, on our sky, in our sky. So Cameron: Well, it only just takes one piece of space junk to hit your data center and, uh, then you, you got problems. Hmm. They do have systems in place to prevent those space junk from running into satellites already, but, uh, yeah. Anyway, moving right along. Big chip sell-off, uh, last week, Tony. Hundreds of billions of dollars wiped off of the value of US microchip giants. Shares in Broadcom, US chip maker building AI processors for OpenAI, slumped 15% after it issued weaker than expected sales forecasts and, uh, all of the other major players went down as well. And this is, uh, interesting timing because both Anthropic and OpenAI are also looking at going public in the n- [00:13:00] near future. So as these chip businesses are all struggling and all the tech giants have not had a good couple of weeks. Share price wise, of course, did you see what happened to Anthropic and their Claude model last week? Tony Kynaston: Uh, the one that was blocked by the US government from being used. Cameron: Yeah. Tony Kynaston: Yeah Cameron: That’s, uh, depressed all of us. It– Claude, I used it for the 48 or 72 hours or whatever it was available, uh, was amazing. It was truly, truly amazing. Tony Kynaston: In Cameron: Stuff– Just its ability to code things that I had been struggling with, with Opus 4.8, their top model before that, for weeks trying to get it. Uh, threw the same problem into Claude, one shot. Went away for an hour, fixed it, wrote it, came back, all done. Tony Kynaston: Hmm Cameron: I was like, “Holy crap, that’s insanely good.” So it was a huge step up, and I [00:14:00] hope we get it back. Taylor was living on it as well. He’s been depressed ever since they blocked it. Um, it j- its, its ability to code Tony Kynaston: available for 24 hours or 48 hours, wasn’t it? Cameron: 4872, but we were all just. But they said at the time they, they were only gonna have it as available as, as part of the plan until June 22nd anyway, and then they were gonna come up with some sort of a new billing model for it. So everyone was trying to get all of their coding done in two weeks, and then it got pulled for very spurious reasons, by the sounds of it. The latest news is today that somebody at Amazon, I think it was the CEO of Amazon, spoke to the US government and said, if you gave it a code base and said, um, “Find the security flaws in this,” it would say, “Sorry, I can’t do that.” If you said, “Fix this code,” it would then tell you all the security flaws. Um, but, uh, uh, people have been pointing out, security analysts have been pointing out that all of the top-tier models will do exactly [00:15:00] the same thing. It would do it in a better way ’cause it was more powerful. But, um, just the fact that the US government, I think, is now, uh, you know, pulling top-tier models off the marketplace, demanding that they pull it out of the marketplace and giving them. I think they gave them 90 minutes to do it initially, to cancel it, is a interesting level of, uh, administrative interference. Particularly, you know, the Biden administration put in some sort of AI guardrail policies, and one of the first things Trump did, like on day one, was sign an executive order saying that they couldn’t interfere with AI. And then I think he tried to get that in the OBBB, Big- One Big Beautiful Bill Act, and then it got watered down before it was signed by the Senate. But, uh, now they’ve gone from, “No one can interfere with AI. We have to rule the AI. We have to be better than everybody,” to, “You can’t have that out there. That’s too powerful.” So, hmm Anyway Tony Kynaston: Well, [00:16:00] I mean, I think it’s, um, you know, you’ve mentioned the two of the three, or we’ve talked about now the three big IPOs that have either happened or are happening, uh, it really reminds me of the peak bubble boom now with this happening. And I did see an article in Business Insider about this, um, which says that the race to go public among mega cap tech companies might be a warning to investors that the tech field stock boom is nearly over. That’s because there’s an important sign that the IPO rush is sending a signal that last flashed during the boom of public offerings from the late 1990s to the early 2000s. to analysts at TS Lombard, the mega IPOs on tap signify a desire among company insiders and early investors to offload stock on the public at the peak of the market. It’s exactly what happened during the dot-com boom. Yeah. So. And a-apart from the fact there’s been a lot of, um, analysis about where’s the money coming from for three big [00:17:00] IPOs, and, Cameron: Mars Tony Kynaston: who’ll go. Yeah, Mas, who’ll go first? Will it be Anthropic or, or, um, OpenAI? Because the second one to market might not get off. all that kind of stuff. And what’s gonna be sold by the indexes to buy into these uh, these, um, IPOs. And that’s the other interesting thing, is that people have been, the regulators are bending over backwards for these IPOs to happen. So the, I mean, the people that benefit, I suppose, are the, are the listing exchanges and the bankers. Um, but there’s typically rules in place. As we saw with the Cuscal listing in Australia, that it doesn’t become part of the index for twel- up to 12 months, we weren’t, we were finding it wasn’t coming in our downloads because it didn’t have a GICS code, is part of that listing index inclusion process. Um, US indexes have said, “Nope, SpaceX can come in a week after listing into the indexes.” [00:18:00] ASX or whoever’s doing it in Australia, I’m not sure if it’s the ASX or the government, has said, “Yeah, sure, we’ll do the same.” So, you know, basically can laugh about this being a, a sort of a crazy chamber of people investing and throwing their money at Elon, but really it’s, it’s everyone, because you’ve got your money in a super fund in Australia, chances are it’s gonna have a share of SpaceX and the other IPOs as they come on and get included in indexes. So one of the reasons why it is a worry that this is potentially peak AI and peak tech bubble, and when it turns down, it’s going to affect, uh, um, a lot of us. Cameron: So um portfolio in the US Tony is doing well I didn’t mention this on our last show but have live portfolio updates now on our websites If you go to qavamerica.com you can see live portfolio updates Well actually it says 12th of June so that’s four days old but it sh [00:19:00] should be relatively live portfolio updates It’s supposed to update every day But as of the 12th of June our main portfolio was up 108 in the US uh which is total return versus the S&P 500 up 67 So we’re not quite double market but still an okay That’s uh since inception which is September 23 Year to date calendar year to date we’re up 27 versus 8 So that’s uh pretty pretty good And our light portfolio since inception in the US with inc inception is uh December 2025 late December 22nd December We were up 88 versus the S&P 500 up 8 so we’re just above it And uh year to date we’re up 917 versus 835 So we’re back [00:20:00] beating the index over there but it’s been a bit choppy I had to sell five stocks yesterday because crude oil became a sell and uh they’ve been hard to replace So I bought one yesterday which is the one I’m gonna do my Pulled Pork on today But was struggling to find stocks that weren’t oil related or financial services related that uh were doing dodgy stuff with their operating cash flow and spiking the numbers Seen a lot of that lately Um price to operating cash flow that we’ve talked about before where they’ll take on a big loan or they’ll get in a bunch of cash and it’ll show up temporarily in their price to operating cash flow and spikes the numbers So I’ve got to figure out how to filter those out in a more effective way It’s really messing with my process You know I I I I have a list and I start going through the list and I just have to go No Dig into this one Oh no [00:21:00] that’s dodgy No this is dodgy This is dodgy Tony Kynaston: Wow. Cameron: Mm Tony Kynaston: it’s interesting, isn’t it? ‘Cause I’m, um, We spoke to Tobias Carlisle last week. He didn’t know why that was different to Australia, but we don’t have that problem in Australia. It’s, um, those kinds of lumpy cash flows tend to be investing or financing cash flows, not operating ones. Cameron: Yeah Tony Kynaston: Hmm. Cameron: Anyway let me get into my Pulled Pork for this week Tony my deep dive Doing another airline this week Um not just any airline Mexico’s airline the Qantas of Mexico um for Australian listeners I think Americans know who Qantas is The national carrier have been flying for 91 years They’re called Aeromexico México Tony Kynaston: Mm-hmm. Cameron: Ticker is AERO I did my analysis on them yesterday which was the 15th of June The price was around about 17.34 They are an ADR [00:22:00] but we’ve accepted ADRs after our chat with Tobias And uh they are an interesting business that’s got a really fascinating history which I’ll get into So th first thing that’s really interesting is they only listed on the New York Stock Exchange in November last year 2025 So been around 91 years but floated on the New York Stock Exchange six months ago Tony Kynaston: Mm. Cameron: Listed at 19 They’re now down to 17 something as I said So we’re belo buying it below the IPO price which is an experience that I’m sure many SpaceX uh shareholders will become familiar with in the uh coming f year when people realize that they’re not making any money the excitement dies down Um according to their website they are the most punctual airline in the world That’s gotta be a good thing [00:23:00] This is from their website They also won the APEX Award the Airline Passenger Experience Association Not sure if they created that themselves I’m assuming they didn’t For the first time Aeromexico has been recognized as the best airline in North America in 2026 by the Airline Passenger Experience Association In addition for the seventh consecutive year we have been awarded the title of five star global airline consolidating our leadership in international travel experience As part of these achievements we were also recognized by APEX with the Best Entertainment and Best Seat Comfort in North America in 2025 awards highlighting the quality of our inflight entertainment offering and the comfort of our cabins designed to provide a superior experience on every flight So when Donald Trump says they’re sending their criminals and their rapists to America at least they’re traveling in style with number one rated entertainment and uh seat comfort It’s very [00:24:00] important when you send your rapists and your criminals somewhere else that they’re comfortable That’s how they get over the wall Donald Trump built a wall They built very very comfortable planes to fly over the wall in Tony Kynaston: you and I have both flown in the US, and I- sure it takes much of a hurdle to be the best providing comfort and entertainment on the, uh, North American flight. Cameron: Well I probably fly a different very different class of flight when I’m flying in the US to you Tony I fly you know in the in the luggage compartment usually Tony Kynaston: wing. Cameron: yeah with down with the animals in uh the hold where you uh travel in front of the pilots Um Tony Kynaston: Backseat driving. What are you doing? Cameron: What’s this knob do What happens if I press this I am serious and don’t call me Shirley I said that to uh Tony Kynaston: Roger,[00:25:00] Cameron: of the guys at one of the guys at kung fu a few weeks ago said uh Surely you can do this And I said I am serious and don’t call me Shirley His his son who’s about Fox’s age has been calling me Shirley ever since Hey Shirley Which is pretty funny Um so these guys uh have a hub at Mexico City Airport They fly 787 Dreamliners to Madrid and Tokyo um as well as the uh US-Mexico routes 91 years old as I said founded in 1934 Market cap about 24 billion US dollars Fleet of 165 aircraft 24.59 million passengers in 2025 They’re part of the SkyTeam alliance Air France Korean Air and Delta who is a founding member of the airline Delta Airlines owns 18.7% of Aeromexico and they have a joint [00:26:00] venture on the US-Mexico route So when you buy a seat on Delta to Mexico City you’re probably on an Aeromexico plane They’re deeply intertwined which adds an interesting dimension uh to this uh as a business because they sort of have this backing of Delta But um the history of it’s uh pretty interesting So uh by the way the etymology of Mexico I looked into Aero obviously from the Greek aer meaning air Uh Mexico from Mexica the name the Aztec people called themselves although the etymology of Mexico is actually debated It could be from Mexitli a war name for the god Huitzilopochtli or from Metztli moon and Xictli navel the navel of the moon So there you go It’s good to know Tony Kynaston: The navel of the moon? I didn’t know the moon had a navel Cameron: Well Mexico City was literally built in the middle of a lake so [00:27:00] they may have considered it the navel of the moon of the lake of the something I don’t know They were in a lake The lake was in the the navel of the moon I uh don’t ask me So founded in 1934 um by the Mexican government Aeronaves de México Airplanes of Mexico was the original name Barry and Stan consulted on that for a long time 100 million fee How about we call it Airplanes of Mexico Genius Uh for the first few decades seminationalized semiprivate It’s always a bit of a political football Mexican aviation apparently And then 1988 happened So by the mid-1980s the airline was a basket case Uh an insider later wrote It was not a secret that Aeromexico was paying wages to people who weren’t even employed there Politicians artists hangers-on of the uh PRI party [00:28:00] that were ruling Mexico at the time It’s a bit like garbage contracting business in The Sopranos Uh a lot of people getting paid that didn’t actually turn up Uh it was lending planes to the president for personal trips It was like Qatar today for Donald Trump It was um paying some of the highest aircraft rental fees in the industry had a very powerful and entrenched ground staff union that the government couldn’t touch And they also were going through the peso crisis at the time Mexico’s peso had devalued 470% in Tony Kynaston: Hmm. Cameron: 1982 alone By 1988 a dollar that cost 46 pesos in 1982 cost 2298 pesos So their foreign currency costs fuel aircraft leases international fees had all gone through the roof And then in April 1988 the [00:29:00] 1988, no what’d I say 1988 the ground staff union went on strike and the Mexican government went full Ronald Reagan They just declared the airline bankrupt and sacked everyone and basically shut the whole thing down for six months There was no there were no airplanes No one could afford airplanes anyway I guess uh sort of uh with the the value of the peso And then they s set up a new company September 1988 Aerovías de México Had the old brand the old logo the old livery but was a completely different entity um and completely different contracts So the old union contracts went nowhere The phantom payroll went nowhere It was all wiped clean and they relaunched with 25 planes and 3500 workers which was vastly [00:30:00] smaller than um what had preceded it six months earlier Since then it’s gone through various ownership structures and alliances and crises including COVID When COVID hit in 2020 they filed for Chapter 11 Mexico’s airports shut down And the Mexican government uh run by a guy called López Obrador AKA AMLO he was known as AMLO just like Madonna He was just AMLO Um Claude told me it was like Scomo in Australia We had Scomo for Scott Morrison or Albo we have today for Anthony Albanese He was AMLO Not sure you he get that out of López Obrador but uh I guess there’s an AM in there somewhere for the LO Unlike our government and the US and European governments no bailouts for airlines in [00:31:00] Mexico at the time He said Tough titties And so they had to do it the hard way They emerged from Chapter 11 in March 2022 and their major lenders Bunch of credit funds and hedge funds and private equity firms like Oaktree uh ended up as shareholders in the airline They loaned the airline money during their restructuring and got equity in return Delta kept its stake and uh that’s basically the layout of the business as it is today And then they floated it on the New York Stock Exchange as I said six months ago to try and get some of their money back I guess with the IPO So the core business is pretty much what you’d expect Uh domestic flights flying Mexicans around Mexico from Mexico City to Cancun Guadalajara uh the beach Competing with Volaris who we talked about back in February and are down [00:32:00] 15 for obvious reasons Uh oil has been probably killing their business in the last six months or four months whatever it is three months They’re also competing with a budget carrier called VivaAerobus Um so that’s big part of their business Then they have the transborder to the US business This is where most of the money is Mexico City to New York Los Angeles Miami Houston This is where the Delta joint venture kicks in They cosell seats and share revenue on these routes And then layer three is the wide body internationals the Dreamliner as I mentioned before um flying to Madrid Tokyo São Paulo Just launched Barcelona and Paris this year And it all goes through Mexico City International Airport AICM one of the most congested airports in the world [00:33:00] Aeromexico has a massive allotment of takeoff and landing slots there which they’ve accumulated over decades That’s kind of their moat Um but it’s also getting them into a bit of a mess with the United States which I’ll talk about in a second So oh World Cup big thing for them recently Tony Kynaston: gonna Cameron: They’ve yeah been flying people in and out It was being cohosted by the US Canada and Mexico So um it’s been a nice little business for them but I haven’t seen that come through in the numbers yet Tony Kynaston: The other thing too I should mention while we’re on that is, um, with the oil price being low, it’s, it’s gotta be a good thing for their business going forward Cameron: You would hope if it stays low but again we don’t know we don’t know what tomorrow holds Tony Kynaston: Yep Cameron: I have seen their unaudited first quarter 2026 results Total revenue growth of 13 year on [00:34:00] year operating margin of 11 So it was a good quarter for them Tony Kynaston: Mm-hmm. Cameron: or it was a bad quarter for them last year one of the two Um so they went bankrupt as I said and part of that is worth mentioning Their current balance sheet still shows negative equity I think they’re sitting on about 3 billion worth of debt Tony Kynaston: Mm-hmm. Cameron: I think their negative equity is about 580 million So more liabilities than assets but they’re generating nearly a billion dollars of cash a year So lot of debt not great but it’s not like they can’t afford to restructure and pay the debt off as they go So it’s manageable I think Uh it’s a real business that’s got real cash flow Um but there’s this thing going on between [00:35:00] the Mexican government and the US Department of Transportation or US DOT Uh there’s it’s called the Slot War which sounds like fun actually Sounds like um something to do with casinos slot machines slot machine war No Tony Kynaston: I’m guessing it’s access to terminals in the US Cameron: Yeah Takeoff and landing slots uh at Mexico not in the US in Mexico Tony Kynaston: Oh, okay Cameron: Yeah so the US uh claiming that Mexico had arbitrarily cut US carrier slots in violation of bilateral agreements and so they blocked 13 routes for Aeroméxico Volaris and Viva Aerobus into the US I think it’s got something to do with the whole Trump trade war Mexico you know tariffs uh [00:36:00] scuffle that has been going on Tony Kynaston: It’s hard for– I mean, you know, you need to abide by the contracts. Shouldn’t be j-just unilaterally tearing up contracts, should you? Like NAFTA Cameron: Yes Um one might think that uh that might be a you know an honorable way to conduct oneself but I guess when one party doesn’t conduct itself that way the other party’s like Well you know guess you’re not landing planes in Mexico then Uh good luck with that Tony Kynaston: good luck Cameron: You’ll have to climb over the wall if you wanna get here that you built So that’s going on Um and the 11th Circuit Court of Appeals has granted a formal stay in November 2025 but it’s still playing out The there’s a hearing happening I think a decision is [00:37:00] expected There was a hearing April May just passed and uh a decision is expected around August September around how this is gonna play out So you know sort of a scuffle between the two governments I’m sure that something will get worked out It it sounds like everyone’s best interest is served by planes being able to fly in and fly out of Mexico and the United States But that is going on at the moment If it goes badly it could be bad for these guys Their CEO a guy called André Conesa has been running the airline for 21 years So uh Yeah that’s interesting You don’t usually get airline CEOs that have been around for more than two decades I don’t know what his story is but that’s a long time I didn’t look into his background but there you go Um what else can I tell you Um yeah that’s basically it Yeah Can’t tell you any [00:38:00] more about it Oh the fuel problem obviously we talked about Fuel prices were up Q1 2026 fuel costs were up 13% year over year But uh they they’re coming down You know where they go what happens is anyone’s guess So full year guidance was suspended after Q1 Too much fuel price uncertainty to forecast the second half Um but mm again no one can forecast the future Tony Kynaston: No. And also too, I know, I know from Qantas’s take on things, and I guess it’ll be the same or similar for Aeroméxico, is that like they’ve managed high fuel prices before. They’re– They’ll be looking at the yields, have– They’ll be canceling un-underbooked flights. They’ll be, you know, throttling back on service, all that kind of thing to try and up for the fact that their fuel price is going up Cameron: Hmm Yes I imagine that they know how to manage these sorts of things Um [00:39:00] and there’s all the other you know political issues going on between the US and Mexico but these things will play out the way they play out We can’t invest by forecasting the future I’m not smart enough to do that Um but these guys uh have a pretty healthy business and you know they they are the national airline of Mexico Got some competition with these budget airlines but uh they they dominate the whole industry as far as I can tell They’re they’re a pretty big deal but they’re cheap Tony Kynaston: Did– Sorry, just while you’re talking about the business, did you get a breakdown of their loyalty points business at all? As, as how much, how profitable it was and how much of a it was to their profit? ‘Cause I know for Qantas it’s a huge contributor to its profit. Cameron: It didn’t come up I did read about it somewhere um but Tony Kynaston: but they don’t declare it[00:40:00] Cameron: yeah I couldn’t get it in my notes for exactly how much it is Um Yeah no there was uh I had something about that but I can’t remember what it was now Anyway that’s about it Tony It’s just uh they’re an airline They’re cheap right now for some of those reasons that I just mentioned Um but the business is uh cranking along by the looks of it as far as I can tell So on the analysis on our scorecard this is from uh numbers I did over the weekend QAV score of 0.21 seven items out of 13 scored Uh quality rank of 72 on uh Stockopedia Stock rank was 85 couldn’t score it for that It’s below the 90 threshold that we have Piotroski F-score of six so I could score for that It’s above 4.5 The price is less than our IV1 [00:41:00] Our IV1 is 34.28 Um price is 17.34 Um price is also less than our IV number two Uh IV number two is uh Oh hold on No the price is not less than that IV2 is 7.73 so couldn’t score it above that Interesting that IV1 is higher than IV2 It’s normally the other way around Tony Kynaston: Mm-hmm. Cameron: Um yeah I guess it’s something to do with the EPS figures uh for next year Um book value uh they’ve got negative equity so couldn’t score them for book value No dividend so can’t score them for any of the dividend stuff Their yield is zero But the price to operating cash flow is 1.55 Uh full year [00:42:00] 2025 operating cash flow was 913 million Market cap was 2.37 billion So generating like nearly 40% of their market cap in cash every year So um yeah I couldn’t find any real gotchas in this one Tony apart from some of the political wranglings and oil price issues that talked about um over the course of the show but it’s just cheap airline And I know airlines are famously Tony Kynaston: Not great Cameron: you know Tony Kynaston: holds, are they? They’re cyclical. Cameron: businesses yeah But we buy them Tony Kynaston: Yeah. And that’s why because, you know, no one wants to be a long term holder of an airline really except for perhaps other airlines like Delta. But COVID shows us exactly why that’s the reason that they can be incredibly cyclical. Cameron: Yeah Tony Kynaston: and, uh, yeah, so but that means that, know, we, we get the market to ourselves sometimes, and it’s, it’s a overwhelmingly good thing [00:43:00] to, um, invest in because it’s throwing off heaps of cash. And yeah, it’s got a lot of debt. We see that a lot with companies, um, on our buy list. Uh, but you know, you, you can repay that debt pretty quickly with a truckload of cash coming in the door every day Cameron: Yeah Now looking at some of the other airlines that I’ve done Pulled Porks on over the last uh year or so American Airlines that we talked about back in October last year is up 12% since we talked about it We don’t hold it in a portfolio but uh we did talk about it Um AerCap Holdings is up uh 7% since November last year It’s not taken over the world but it’s in a positive direction But Volaris is down it’s down 12% as of uh today So um you know sort of a mixed bag there with the airlines that we’ve talked about over the last year As you’d expect it’s been a pretty turbulent period for airlines Tony Kynaston: Yeah. And we’ve certainly held [00:44:00] Qantas in the past and then sold it, um, over and Cameron: of times Yeah So I mean I’m I’m like that with airlines Like I I’m like Ugh really It’s one of those things that I’m never super excited about buying but Tony Kynaston: Mm-hmm. Cameron: The rules don’t say we don’t buy airlines Our rules don’t say we don’t buy airlines You ne you never wrote that into the rules so Tony Kynaston: very profitable, but you just got to realize you’re not gonna hold it for the rest of your life. Cameron: Right So we hold them until we have to sell them Tony Kynaston: Yeah. But, you know, with Qantas I’ve, I’ve certainly had periods where I’ve held it for, know, a short period of time and made thirty or forty percent out of holding it. Cameron: Right Tony Kynaston: yeah, they can be profitable, um, investments just, uh, you know, on a sort of short to medium time horizon usually Cameron: So you buy them when they’re cheap let the price go up and then sell them when they trip a sell trigger huh Tony Kynaston: exactly Cameron: Okay Well that’s all I have [00:45:00] for today Tony That’s uh we’ll see how they go Tony Kynaston: Good. Well, thanks for that Cameron: think that gets us to after hours. Been a few weeks. What’s been keeping you amused? Tony Kynaston: Uh, I think I heard you talk about it while I was away, but I’ve been watching Spider Noir with Alex. It’s, it’s pretty good. Liking Cameron: get f- Tony Kynaston: Cage acting Cameron: got, I only got like three or four episodes into it and then I kind of got distracted. But, uh, Tony Kynaston: out? Hmm Cameron: Fanta said it was worth keeping up with, but how far into it are you? Tony Kynaston: Yeah, we’re at episode three as well, Cameron: Oh, okay. Right. Tony Kynaston: it. I think it’s Cameron: Hmm. I like, um, Nicolas Cage hasn’t had much to do there, but I like, uh, Brendan, whatever his name is, Gleeson. Yeah, he’s always fun to watch. Tony Kynaston: I agree. Yep, playing the bad guy. Cameron: Yeah. Tony Kynaston: Musk character. Cameron: Yeah. Okay Tony Kynaston: Watched another one, uh, uh, episode of, uh. Sorry, documentary on Netflix called [00:46:00] Vardy. Um, Cameron: Hmm Tony Kynaston: don’t know if you’d like it, but I, I quite enjoyed it. Roddy and I watched it. It’s about an English soccer player, um, who was a bit of a lad uh, uh, got into soccer late ’cause he was too busy drinking and, and fighting and all that kind of stuff. then, uh, a manager sort of picked him out as an up-and-coming talent and stuck with him through all the grades, and eventually he started playing for Coventry, then went on to win the EPL as a huge outsider. uh, it’s a bit of a rocky story really, but, um, it was fun to watch. Recommend that to the sports fans out there Cameron: What else? Tony Kynaston: f- uh, been listening to My Favorite Toy, the new Foo Fighters album. Came out, I think, in April. Cameron: Hmm. Tony Kynaston: quite good Cameron: Hmm, didn’t pick you for a Foo Fighters fan Tony Kynaston: Yeah, yeah, I like the Foo Fighters. I Cameron: Hmm. I like kung fu. Is it kung fu [00:47:00] fighters? I’m a kung fu fighter Tony Kynaston: Uh, been reading, um, a book on Jefferson by Christopher Hitchens, which is really good. I recommend that. out for a while, but I came across it recently. Cameron: He’s been dead for 10 years, so I’d hope so Tony Kynaston: Yeah, so it’s been, it’s been out for a while. like his writing style, but, um, uh, I– it’s going into all the detail of, uh, the early days of America, um, which I wasn’t that familiar with, so that’s been Cameron: Hmm. Hmm. Tony Kynaston: Yeah. Um, you know, talking about little things like, uh, how Jefferson cribbed a quote on, um, the pursuit of. called? The pursuit of life, happiness. No. Uh, what’s the quote? The life. What’s in the Constitution? The pursuit of happiness, life. I’m getting that mixed up Cameron: Yeah, can’t remember Tony Kynaston: Yeah, anyway. Originally, it was instead of Cameron: Life, liberty, and happiness for all. Li- liberty and something, yeah Tony Kynaston: But originally, the original quote was from Locke, and it [00:48:00] was life, liberty, and property. um, so given the sort of double-edged meaning property had back then, they decided to change it to the pursuit of Cameron: Ah, yeah Tony Kynaston: which, um, I thought that was interesting. But Cameron: Jefferson, Jefferson liked his, uh, female properties too, didn’t he? Tony Kynaston: He did, and he still, he still kept slaves, Cameron: Hmm. Tony Kynaston: even though he did a lot of work in the Constitution to try and, uh, get around the ownership of slaves. He sort of danced the thin, the, the line there. And that’s– I thought that was interesting, and at the very start, when Christopher Hitchens says, “Look, no one’s all good or all bad.” This, this guy, you know, was all about life and liberty, but he held slaves. So you know, you gotta judge him on that basis, I guess. Cameron: Hmm Tony Kynaston: and but there’s a lot, lot in there about the, um, the reasons for seeking independence to– a lot to do with the English and the French War. Um, uh, how money was required by the English to fight those various wars, and how they were taxing Americans to do that. Um, how, you know, [00:49:00] at the end of some of those wars, they had a chance of, I think, uh, was it Guadeloupe in the West Indies? They had the chance of either taking that or Canada, um, over as a colony, uh, from the French, and they chose Canada. And, uh, if they had have chosen Guadeloupe, that would’ve had a different outcome for the history of America. So yeah, interesting to go through and pick apart all that history that was going on at the time, and the Americans’ reaction to it. Cameron: The original tax dodgers, as I always call them. Tony Kynaston: Right Cameron: The founding tax dodgers. Mm-hmm. Tony Kynaston: And, uh, a couple of good, good results from our horses this week. So Lake Forest broke a track record yesterday at Pakenham. I drove up to Pakenham to watch it, to win a race, which was good. And. Cameron: that mean? Like a record for that horse or like for the whole track? Tony Kynaston: Yeah. Cameron: Wow Tony Kynaston: of different surfaces at Pakenham. They have the, a grass surface, which is what most race courses do, but they also have a, what’s called a poly [00:50:00] track, which is, uh, kind of a sand, rubber, synthetic mix, which, um, is an all-weather track. So, uh, you race there when it’s in winter and the grass tracks get muddy and bogged. Cameron: Right Tony Kynaston: So it set the poly track record for 1,000 meters at Pakenham yesterday, which was Cameron: Fantastic. Congratulations Tony Kynaston: Thanks. was fun. The trainers are the Galagatos brothers, and they were very emotional and all over me after the race. A lot of fun. it very passionately, which was, which is good to see. Cameron: Is that what you want? Tony Kynaston: Yeah. then Stars of Dom, a horse I have, uh, sharing with Steve Mabb, that ran second on Saturday. So it’s had two seconds first two starts. So, um, we’re hopeful it can the, take the prize, in the future. But two seconds isn’t a bad way to start a, a racing career. Cameron: Yeah. Tony Kynaston: Hmm Cameron: named after? Stars of Dom Tony Kynaston: Dom Perignon. Yeah. Uh, it’s a bit of a [00:51:00] pun. We didn’t name this one, but, um, Cameron: Right Tony Kynaston: uh, one of the managers at Lindsay Park, which is where it’s trained, is called Dom, Dom Roden. So Cameron: Uh Tony Kynaston: they kind of named it after him, but also after champagne. Yeah, so that was good. Good, good couple of days to be a horse owner. Cameron: Yeah, congrats. Very exciting Well, I watched the Colossus film that we talked about, Tony Kynaston: Mm-hmm. Cameron: um, after reading the book. Really enjoyed the film. Tony Kynaston: Oh Cameron: it was great. Yeah, really well done. Good sort of classic film. And a lot of, like, great, uh, appearances from stars. Um, Mrs. Cunningham from Happy Days was in it, very young version of her, Marion whatever her name was, Ross. Tony Kynaston: Mm-hmm. Cameron: And James, um, what’s his name? Um, Hong. James Hong. Um, the only Chinese American actor for the last 30 years in Hollywood who’s everything from, [00:52:00] um, Wayne’s World through to Everything Everywhere All at Once, and, uh, Big Trouble in Little China, and all those sorts of films. He– a very young James Hong was in it, which was great to see. He’s always one of my favorites. I think he had one line in the, in the film. Uh, yeah, no, really, really enjoyed it. Thought they did a good job. Changed it from the book a little bit, but pretty much the same story. I’m reading the second novel in that series now, which is interesting, where, um, Colossus. It’s fi- it takes place five years after the first one, and, uh, there’s a religious cult set up around Colossus now. He’s completely taken over everything. He, it. And, um, the human resistance gets contacted by some group that says they’re from Mars, and they’re, they’re building a, a counter system to have them. Tony Kynaston: from Mars. Yeah. Cameron: Yeah, yeah. Tony Kynaston: Right. Cameron: Um, Tony Kynaston: ruled by the Grok [00:53:00] AI on Cameron: Well, as I think I told you, Elon named his data center that runs Grok Colossus based on this book. so maybe he thinks this is what he’s gonna have to do when Colossus takes over, is get to Mars and build the counter Colossus. Tony Kynaston: Do you think, uh, do you think there’s a religion around AI at the moment? Cameron: Uh, there’s been a couple of Tony Kynaston: by the almighty AI Cameron: I think there’s a couple of, uh, actual people playing with the idea of AI-based religions already. But I do think it’s a thing that’s gonna happen. I mean, the way it plays out in the book makes total sense. Like a b- it’s, it’s the all-knowing master of everything that’s running everyone’s lives and has solved crime. There’s no more crime, there’s no more violence, there’s no more anything ’cause it sees everything. It– If you get arrested, you get tried and executed within 30 seconds ’cause it’s got all the facts and all the data and it just, you know, beheads you. So, uh, yeah, I can see that playing out. Tony Kynaston: Hmm. Cameron: Chrissy and I [00:54:00] also watched Poor Things. Tony Kynaston: Oh, that’s a great movie. I Cameron: Yeah. Yeah, yeah. Tony Kynaston: Willem Cameron: Trippy as all hell. Willem Dafoe, yeah, great in it. And, uh, now I wanna see the other one. I think the first one they did together, Kinds of Kindness with Jesse Plemons and Emma Stone and Willem Dafoe, which is, Tony Kynaston: I Cameron: Yorgos’ uh, go-to cast Tony Kynaston: Yeah Cameron: It’s his, um, his go-to people. Willem Dafoe’s always great, always well. Do you hear about this film that’s– There’s a film that’s showing. Where is it? Um, in Tasmania, I think. It’s, uh, the Dark Mofo, Tony Kynaston: Mm-hmm. Cameron: um, Festival that’s on at the moment. It’s a Willem Dafoe film that only 500 people have seen. One person is allowed to see it at a time in a cinema. You get, uh, a, a BMW picks you up, gives you, like, an army tag.[00:55:00] You get taken to a cinema that you, where you didn’t know where you’re going. You get taken to this place. You have to pr- pr- pr- provide your identification, and you sit in the cinema and you see this film by yourself. And oh, before– When you get in the car, there’s a recording by Willem Dafoe that, uh, is played to you that basically is sort of not– is sort of the intro to the film. He’s in character, and then when you get out of the film, there’s another thing that he says to you in a USB stick or something that’s given to you, and it’s a full experience that, yeah, only one person at a time is allowed to see. It’s, Tony Kynaston: has anyone divulged what the movie’s about? Cameron: Yeah, I read a review in The Guardian or something today where somebody saw it, a reviewer, and talked about it. I didn’t read it in detail. I was just skimming through them Tony Kynaston: I have seen a, Willem Dafoe movie set in Tasmania. Cameron: Hmm. Tony Kynaston: out in the last 10 years. I think it was called The Hunter or something like that. He– Cameron: Oh, yeah Tony Kynaston: It was very remote and moody, and he [00:56:00] played a hunter who was looking. I can’t recall if he was trying to find a Tasmanian tiger or he was trying to shoot, shoot one that had been found. I can’t recall now. It was a very, like it was, wasn’t much happening in the movie, but it was beautifully shot and great to watch. Very moody Cameron: Human sacrifices have been made. He had to go shoot Tasmanian tigers. Tony Kynaston: no, I don’t, don’t Cameron: Bob Katter called him up. And I just saw the trailer for the new Paolo Sorrentino film, Parthenope, which stars Gary Oldman. Tony Kynaston: Oh, wow. Okay Cameron: Yeah. Yeah, yeah. Check it out, Parthenope. You’ll love it. Um, looks great. Coming out soon. And then I’ve been listening to Aussie Crawl this morning because they’ve just announced a reunion, the surviving members of them. Yeah, the Raine brothers and some other guy. I thought, “Gee, I haven’t listened to Australian Crawl for decades,” so I pulled out Sirocco and started listening to that. Such a- some catchy riffs. Oh, thank you, baby. Tony Kynaston: Oh, Cameron: Da-da-da-da, da-da-da-da, da-da-da-da, da-da-da-da, da-da-da-da-da. Yeah. [00:57:00] Errol Tony Kynaston: And great lyrics. Beautiful people. Yeah. mean that, yep, where are those, you know, those cynical Aussie bands from the ’70s and ’80s were great. Just taking the piss all the time. Cameron: Che Tony Kynaston: Mm. Cameron: Well, that’s all I got for you, TK. Tony Kynaston: All right Cameron: Okay. Uh, happy hunting everybody. PREVIOUS PULLED PORKS Here’s the performance of the “pulled porks [https://docs.google.com/spreadsheets/d/16WHwMalQodhxUO9h1T-7suVtfwjrXq057fFHhcLXFWk/edit?gid=0#gid=0]” (eg deep dives) we’ve done on the show in the past.

Tobias Carlisle, Soldier Of Fortune: QAV America #56

QAV AM 56 [https://qavamerica.com/wp-content/uploads/2026/06/QAV-AU-923-art-optimised.jpg]   EPISODE OVERVIEW This week we sit down with Tobias Carlisle to dig into his new book, “Soldier of Fortune: Warren Buffett, Sun Tzu, and the Ancient Art of Risk-Taking.” Tobias walks us through three of Berkshire Hathaway’s most misunderstood deals (General Re, Burlington Northern Santa Fe, and the Japanese Sogo Shosha trades), explaining why each looked wrong at the time and turned out to be masterstrokes of defensive strategy. We also get into ADRs, the K-shaped US market, small cap value, and why Tobias and Tony both landed on “Quality At Value” as the sweet spot. TIMESTAMPS & SUBJECTS * [00:00:00] Intro and guest welcome, Tobias Carlisle’s new book “Soldier of Fortune” * [00:03:00] The three misunderstood Berkshire deals, starting with General Re * [00:10:00] Unpacking the General Re scrip deal, Coke dilution, and defensive strategy * [00:13:00] Via negativa, inversion, and the Charlie Munger checklist mindset * [00:16:00] Burlington Northern Santa Fe, railways as capital traps, and the coup d’oeil * [00:20:00] Accelerated depreciation, the tax carry trade inside Burlington Northern * [00:24:00] Wu Wei, mental flexibility, and breaking your own rules when the price is right * [00:29:00] Apple as the greatest trade of all time and why scale matters * [00:33:00] No master plan, Berkshire’s structural freedom versus niche-constrained investors * [00:36:00] The Japanese Sogo Shosha carry trade and zero percent yen-denominated notes * [00:43:00] Japan’s shareholder reform, Tokyo Stock Exchange pressure, and cultural resistance * [00:50:00] ADRs, the DRAM ETF, and why Americans avoid foreign-listed names * [00:53:00] Operating cash flow manipulation, property developers, and IFRS versus US GAAP * [00:55:00] Buffett on survival, risk of ruin, and the million-chamber revolver quote * [00:58:00] Profitless tech at all-time highs, the K-shaped market, and small cap value * [01:02:00] Northrim BanCorp (NRIM) as a real-world cheap-as-chips example * [01:04:00] The Acquirer’s Multiple today, quality minus junk, and where Tobias actually invests * [01:06:00] Quality At Value as the shared investing philosophy, wrap-up and book plug   Free Podcast Archives [/listen/] TRANSCRIPTION QAV AU 923 VIDEO [00:00:00] Cameron: Welcome back to QAV. welcoming back to the show our old friend Tobias Carlisle, who has a new book out, Soldier of Fortune: Warren Buffett, Sun Tzu, and the Ancient Art of Risk-Taking. And I’m just gonna start with this, and then I’m gonna throw to TK to ask some questions. But one of the blurbs, this is one of the blurbs. Check this out. “Soldier of Fortune is a brilliant synthesis decoding the genius of Warren Buffett through ancient eyes. The book reveals that Buffett’s unparalleled success comes not from following common Wall Street maxims, but rather from the profound, patient wisdom of a warrior philosopher. This book is a revelation, an indispensable guide to the timeless art of strategic risk-taking. Jim O’Shaughnessy, author of What Works on Wall Street.” How the hell did you get Jim to write a blurb for your book? We’re huge fans of Jim. Toby: blurbed a [00:01:00] few of my books. I, I, I, uh, have the good fortune to, uh, know him and have known him for, uh. He blurbed, I think he blurbed “Quantitative Value,” which came out in 2012. But I, I found him on, when he came on Twitter early on, he had, you know, like 100 followers, and I was, I was one of them. And I reached out to him, and I got to know him then, so I’ve stayed in good, I, I love Jim. He’s a good dude. Tony Kynaston: Wow. Can Cameron: We only discovered his book. Tony Kynaston: him on the show. Toby: Yeah, Cameron: Yeah. We’re Tony Kynaston: his chapters. Toby: I’m sure he’d do it. Cameron: We only discovered his book like four or five years ago, maybe less. And I, I think it was during COVID I read it and I was like, “Oh my God, this is just what we talk about to a T.” Like, he absolutely Toby: The Cameron: was way ahead. Yeah. Toby: Yeah. Cameron: Brilliant. Toby: I’ve re, I’ve got a few versions of it. So the. You know, in the original version, he said that the best value metric was price sales, and then in a later edition, he [00:02:00] said it’s EV/EBITDA, is where I get to too. there’s lots of reasons why price sales works well, and then he said not, not any one of them, use a combination is I think what he finally fell to. But that, that sound, like that’s pretty sensible advice, I think. There’s lots of reasons to use price sales. It’s not a bad metric. It’s just you can’t use anything in isolation, I think. Cameron: Well, Tony, I’ll throw it to you because you’ve got a list of questions that I don’t want you to miss out on. Why don’t you kick it off? Tony Kynaston: So congratulations on the book. It’s, it’s, I loved it. It’s fantastic. Love reading books on Warren Buffett and corporate strategy and strategy in general, so well done. Um, I Toby: you Tony Kynaston: wanna start uh, got. The book sort of focuses on three of Warren’s investments, excuse me, and they were large for Berkshire Hathaway and reasonably controversial in that they didn’t sort of fit the normal value investment mold, you know, cause I think when the [00:03:00] first one was probably done people were more used to Warren buying Coke or Amex and having a, you know, big moat around a consumer company that would go on forever throwing off cash. But there were some differences to these transactions. Um, but all the, all the three of them proved to be outstanding in hindsight. So maybe you could just uh take us through what the three transactions were first of all. Toby: These were, I was looking for a way to illustrate some of the ideas in the book, and I’ve written a lot about Buffett, so I didn’t wanna rehash all of the stuff that I had written previously. Uh, though I think that you could use a lot of that to illustrate those ideas. So I wanted to find, that I felt were misunderstood, certainly transactions that were misunderstood at the time that they were done. And I vividly remember all of these transactions. I was a Buffett watcher just in 1997, so I remember this transaction [00:04:00] coming through, and I remember being perplexed. Only, only perplexed in the sense that I knew that this was an insurance deal, and I knew that Berkshire was an insurer. And so it didn’t surprise me that he would do an insurance acquisition, but, uh, I didn’t really have the analytical experience at that time to understand the transaction. Particularly because there are a number of features of it that certainly seemed to go against the grain of what he had been preaching in his letters up to that point. You know, I’d just discovered him, but I’d gone and read all the, the letters and, um, tried to organize them. And I had the Lawrence Cunningham book where he’d sort of put them all into thematically rather than chronologically. So I, I felt like I had a pretty good handle on what he was doing, and then he did this General Re acquisition. So the features of the General Re acquisition that were a little bit unusual were, he did it in stock, and he’d been saying you never do it in stock. always prefers to pay cash. [00:05:00] The other thing that. It, it looked, it looked optically expensive as well. That was one of the other things that, that folks were talking about. And I think that they had anticipated that criticism somewhat by talking about the synergies that they were expecting from this acquisition. And you can go back and find Buffett pre-Gen Re talking about synergies, like never manifesting every single firm. Whoever does an acquisition and slightly overpays said, “Oh, it’s justified because there are gonna be synergies,” and they, they never manifest. And so here he was seeming to be contra, you know, going against what he had previously said that he would do. When you, with hindsight, the deal worked out really well. and I sort of have been investing for long enough now that I can sort of break it down and analyze it properly, which I couldn’t do at the time. But the things that really stand out. The reason he did the transaction, you have to [00:06:00] go back a little bit earlier. He’d, he’d done this deal with Coke very famously. With Coke, where similarly it looked like he’d, he’d overpaid. He was paying a lot for Coke. He’d never really paid up to that extent before. But it was a wild success. He put a third of the equity of the, of Berkshire into Coke, then it pretty quickly, it was like half the equity of Coke, and then it tripled. And by nine, by the late 1990. He so did it like the late 1980s, early 1990s. By the end of the 1990s, was, um, trading at like 60 times earnings. It was a giant part of Berkshire’s equity holdings. Berkshire on top of that, Buffett had been undiscovered, I think, up to that point, but he was well and truly well known by late 1990s. And uh, Berkshire itself was trading at three times what was probably already a pretty inflated valuation that included Coke. [00:07:00] So he can’t sell it because that incurs this huge capital gains tax. He’s also preached not selling, holding these things for the very long run. And he’s received a lot of criticism since then because Coke really hasn’t done much in the 26 years since they did this transaction. But I think that that’s because f, that criticism is, is a little bit unfair when you understand what happened with the, with the Gen Re transaction. And this was Christopher Bloomstran sort of alerted me to this. But in essence, what he did by using scrip, by using stock, he was able to dilute down the Berkshire holders their big holding in Coke, and he got probably a pretty good deal. He certainly paid less for Gen Re than he was giving up in, in the stock that he was to the Gen Re shareholders. So the transaction works like this. In a scrip for scrip transaction, Berkshire acquires Gen Re. The shareholders of Gen Re become shareholders in [00:08:00] Berkshire, and the combined entity ends up with a share of, the, the Berkshire shareholders remain, the Gen Re shareholders become Berkshire shareholders, diluted down a little bit. So the Gen Re shareholders certainly got the worse end of that deal. Berkshire ended up with the better end of that deal. But the essence of the transaction was that he diluted down the stock holding in Coke, he was then able to bring down the overall valuation of Berkshire Hathaway. And Gen Re had a, the synergies were real in the sense that Gen Re, most of its exposure was international or, and it was looking, and it was a little bit constrained by kind of quarterly earnings, so it fit well with, with Berkshire’s insurance book. So that gave him all of this, and their book was mostly bonds. So people who’ve followed Buffett will know that they tend to run with uh, insurance, uh, policies written to equity [00:09:00] holding or, or to, to underlying securities, those policies that they’ve written because they tend to run with equity, which can, which is more volatile but can perform a little better. Whereas Gen Re was running sort of more, in a more traditional sense. They were using bonds to back their policies, and the bonds don’t perform as well over the long run. But they do have this nice feature that when the market goes down, not always, this is, this is not, this is like a little bit of a, a received wisdom in the markets that bonds tend to rally when equity markets collapse, and that’s not true. If you go back far enough, you can see that they, sometimes they go to, sometimes they move together, sometimes they move differently. You can’t rely on it. It’s only in certain circumstances, and this was one of those because the equity market was so overvalued. Bonds were yielding pretty good, pretty well at that point. So the two thousand collapse actually happened, the bonds all rallied, which he was able to then sell down, and he was then able [00:10:00] to invest that long in really cheap equities at the beginning of t- the two thousand. That set them up for the sort of next decade plus, uh, for Berkshire to really outperform. So I thought it was a transformative deal. It was a little bit misunderstood at the time, and a good illustration of being more defensively minded and the power of being defensively minded and thinking about what happens next after the crash. Can you survive the crash? What happens after the crash? And I thought that was a pretty good illustration of one of the things at Sun Tzu, which is that you defend first, and then you think about, you secure yourself, and then you think about doing all the other things you’re gonna do. Tony Kynaston: Yeah. I mean I think from, from um your analysis what I took out of it was it was a, it was a masterstroke of strategy by Warren doing what he did for, for any number of reasons. I mean he realized the market was overvalued in the late nineties. He realized he had a large equity portfolio. He realized Berkshire Hathaway was trading on a to book [00:11:00] ratio which was way above what it normally did, so you know, quite rationally he could have said I’m gonna sell, I’m going to sell my equity portfolio, I’m going to diversify or whatever. But he had always said if I sell I pay taxes and that’s a friction on my earnings. So he didn’t want to do that. What else could he do? Well he could take that overvalued Berkshire scrip and he could use it to acquire Gen Re, even though he’s always said I don’t want to issue more scrip. Um, I don’t want to pay for things with scrip, I want to pay for them with cash. But he did, he broke that rule to I think a better outcome, which was he then diversified into bonds, that was the other interesting thing, is he’s you know always preached that um diversification is diversification but in that case he did diversify away from bonds. And then of course he um. And and Gen Re I think from memory was constrained, it could only invest in triple A securities or something like that to back up its insurance policy, so it it [00:12:00] had to own bonds. Uh so he got a lower price for Gen Re with the scrip bid than he would have otherwise gotten perhaps. And then of course he inherited the the um portfolio that Gen Re had and spent a lot of time unwinding those and coined the expression that derivatives are weapons of mass financial destruction, which was another interesting insight into it. So yeah. But but you raised a point there which I think brings us Toby: think Tony Kynaston: ahead. Toby: I was just gonna say, I think that he tipped his hand a little bit with that when he said that he discovered the, the. He gave the reasons for why he had done it, that it was this sort of defensive move, and then he, after the fact, discovered the, uh, the weapons of mass financial destruction. And he instructed them to unwind them really quickly, and I think they ended, it ended up costing them $400 million, and it sort of Tony Kynaston: Mmhmm. Toby: the them that even in a be, even in a benign market, two parties to the same transaction could both be carrying it in their books at a profit, which is, like, impossible because one [00:13:00] party has. is down and one party is up. And so unwinding it was quite difficult. He said it cost them $400 million, and he started warning about that. But that was well before all of those problems manifest for the other insurers in the great financial crisis, global financial crisis. Tony Kynaston: Exactly. And and that’s again I think a, an example of what you’re saying um about the defensive nature of the Sun Tzu strategy. It’s uh, it’s you know, to, to finish first, first you have to finish, type approach to it. And I think there was a a book written a couple of years ago which summed it up well which said that the art of winning is not losing. I think that was the title of it. It talked about you know if you’re a good tennis player you keep the ball in play. You don’t try and go for Toby: Right. Tony Kynaston: on every sort of stroke. So similar sort of approach. But um and I think that was summed up in your book by the term via negativa, or negativa, not sure how you pronounce that, but via negativa, which which uh Charlie talks about. So could you maybe [00:14:00] outline that and how it fits into these um acquisitions please. Toby: Via negativa is an idea that, it means by way of the negative. And y-y, the idea is that you, you go f, might not know what the right thing to do is, but you might have a pretty good idea what the wrong thing to do is. So you eliminate all of the things that are the wrong thing to do, and that might leave you with the solution to the problem. And that’s very much. it’s a Charlie Munger idea. And he, he says, “Invert, always invert,” which he gets from Carl Jacobi. But the idea is that just do exactly that. You don’t, you have a list of things that you don’t do, and so you could think of this as a checklist. Lots of investors do it this way. I, I like to do it this way. I like to exclude lots of things initially. takes a, takes the mental load down a little bit. You don’t waste time with things that you’re just never gonna do. And so that might be, for m- for me, it’s avoiding statistical earnings manipulation, statistical fraud, all these [00:15:00] sort of little things that have. it makes it very hard for you to fi, to, to be assured of the intrinsic value. So you just take away the donuts, take away the zeros, and invest in what remains and, that’s the, that’s the sort of simple application of it. Tony Kynaston: Yeah Um I think uh in your book you quote Charlie who says We try not to be stupid rather than try to be very intelligent I think was a good summation of it as well Yeah And um I remember hearing an interview with uh with Charlie um not long before he passed uh where he talked about came to him with an example of an investment he would always ask for the case where it didn’t work where it failed Under what circumstance does it fail And he’d start there and then work back into whether it was a good investment or not So the the their mindset is really around how do we avoid ruin um in what we do And you know that leads you to not taking on too much debt for example um you know and diversifying when you need to all that [00:16:00] kind of thing So that I thought that was very a very interesting mindset You also talk about another concept called Wu Wei Um can you tell me about that and how it applies Toby: Yeah, I think– let me, let me, let me talk about the next transaction Tony Kynaston: Mmhmm Toby: uh, Wu Wei into it. So the, the next one was the Burlington Northern Santa Fe, um, that happened in 2009. I remember it being announced. I remember people being absolutely perplexed because Buffett had been this advocate for capital light compounders that grow and throw off cash flow they grow. And here he is buying a railway, which is the exact opposite of that. It’s capital intensive, sucks up an enormous amount of capital. And for 100 years before he had done that deal, had just been where capital goes to die. the, the f- the very first, uh, security analysis is almost entirely about analyzing railway bonds because there [00:17:00] had been this mania for railways at one point where they were the tech stocks of the day that attracted a lot of capital. They’d overbuilt uh, there was no there there at the end of all of that. And so the next 20 or so years after that were people buying the bonds of bankrupt railways and getting control of the equity, through that method. And so, uh. And then they really hadn’t done much for most of the period after that they’re so capital intensive. And so when Buffett bought it, it was, uh, it was truly bizarre, uh, that he had, had bought this thing. But pretty quickly after that, in the few years after he had bought it, um, the, the price that he had paid up front was shown to be much, much lower than he actually had paid because it had a whole lot of excess capital on its balance sheet that he was able to pull out. And pretty quickly it was returning very substantial dividends. And [00:18:00] he li– I think he liked the fact, ’cause this was, this was during 2009, uh, interest rates were very low. Forward returns looked like they were very low too, and this was a way for them to get a regulated 10% the CapEx that they would require, which was very substantial. So it sort of committed them to these enormous capital expenditures inside Burlington Northern that gave them a regulated return on it, which was pretty substantial. And in addition to that, no one’s building new railways, no one’s overbuilding what they have. then I thought that there was this geographic distribution that the US was sort of shifting from primarily a relationship through the East Coast with Europe to relationship with Asia via the West Coast, and that was where Burlington Northern had, had its footprint. And so it gave them this, totally different, geographical distribution. Plus it had these pretty impressive tax, uh, tax [00:19:00] qualities that meant that they could write off a lot more tax than they would otherwise write off. So on a, a cash in, cash out basis and on a return on investment basis, it was, it was a, it was a great deal for Berkshire, even though initially it didn’t seem that way or optically it didn’t seem that way. So I use it as, it– I use it as primarily this, this idea of coup d’œil, which is, they say that the great generals have the coup d’œil, and Napoleon had the coup d’œil that you show up to. it means a stroke of the eye. And so w- uh, old Napoleon, he famously would show up at battlegrounds where one of his generals was doing something, and he would see something that the general hadn’t seen, and it might be the, uh, the enemy was all pushed up against the, lake with water behind them, and so couldn’t move, and they were all, uh, they were, they were, they were stopped. They weren’t doing anything. They were in a truce or something like that. And he would sort of immediately say, “You need to attack them right now,” because he had understood that they had this advantage that would– that could slip [00:20:00] away pretty quickly if they were allowed to get away. Buffett’s the same. He’s– He understands the tax, he understands the regulatory environment, understands the geographic location, and he understands that he can get this regulated return on this investment. And even though railways have been a terrible investment for so long, he sees all of these things, so he can just ignore the fact that railways have been a bad investment, and he can see that he can get this quite substantial return if they move quickly and, and buy Burlington Northern, which they end up doing. And since then, it’s been a, been a stunning success, and I track the sort of payments out of it in the book, which, um, have been extraordinary. Like, it seems to be the Buffett idea is that you make the investment and then the capital comes back. So even though it’s capital intensive, it’s had this great ROI for, Tony Kynaston: You fo you focused on the Toby: I, Tony Kynaston: okay we’ll come back to it But before you do um you focused on uh the tax It’s almost like a carry trade I guess um that [00:21:00] Burlington had for Buffett that he picked up on can you just explain that Cause I I found it a bit hard to follow in the book I don’t know if it’s a it’s a um a unique to US accounting standards but I can’t think of an example of it in Australia that uh matches it Toby: Yeah, sometimes in the States they have these, um, they allow you to write down 100% of an investment in the year that you make the investment. And so your tax in that year is reduced by the size of your investment. So an example for, uh, individuals in the States is if you buy a working– you buy a car that weighs more than 6,000 pounds, which is deemed to be like a truck or kind of working truck, you can depreciate 100% of it in the year that you buy it. it happens that like there’s a lot of luxury kind of SUVs that qualify because they’re very heavy, and so you can buy yourself a luxury SUV and write 100% of it off in the year that you buy it, and it comes off your tax. Just accelerated [00:22:00] depreciation Tony Kynaston: Right And how did that accelerated depreciation benefit Berkshire in this case Toby: Well, they’re, they’re able to write down. It– You, you’re able to make an investment and write down more of it initially the first year or so of, of making the investment, which just gives you more tax cover. So your, your earnings are reduced to the extent that you write down capital gains tax in a, in a, in any given year Tony Kynaston: the the I mean the hypothetically they could invest in Burlington and pay no tax It’s all going back to Burlington really Toby: I-internally in Burlington, they can, they can do that. I, I don’t think it would get. I don’t think they would ever get to the point where they were paying no tax, but you can reduce– You can make of dollars of investment in railway bridges and, and so on, and write them down. I forget the exact detail of, of it because I, uh, I wrote the book a little while ago now, but that the– You can, you can accelerate the depreciation, which is not uncommon for certain in certain industries, you’re allowed to accelerate your depre– [00:23:00] So oil and gas has a similar kind of idea. Tony Kynaston: Yep Toby: think that they’ve introduced something for some of the hyperscalers as well, where we’re able to write down what you have. And so you make a billion dollars of investment this year that has a useful life that might be five, 10, 15, 20 years, but you write it all down this year, and so it gives you some tax cover to the extent that you’ve written it down Tony Kynaston: Yeah right Because I I did wonder whether fact Berkshire may have underinvested in Burlington because they could they could hypothetically invest a lot get a tax benefit from it and I guess get a better offering for their customers and be more competitive have better margins longer term and and gain some kind of advantage which would allow them to scale the business quicker than if they couldn’t get that tax advantage Toby: I think that there’s some limit to how much scaling they can do because there’s not a lot of y- you know, it’s hard to build more railway, but you can certainly fix the bridges, Tony Kynaston: Yeah Toby: it’s, you know, [00:24:00] in pristine condition Tony Kynaston: Right But you you did use that example to talk about Wu Wei so I’ll come back to that maybe explain what that is and how it applies to the Burlington acquisition Toby: Wu Wei is this idea that, um, it’s– it– there’s lots of different interpretations of, of what it means. It’s kind of a nice term. I like the idea. I think it’s good for value investors who are naturally contrarians. Sometimes if you look at a business, the business, has these great tailwinds that, mean that it’s probably worth more than you would pay for something that h-has a headwind or has a permanent headwind. And so the idea is that, like, that you, you allow something to go on winning. Wu Wei is this sort of quality that means that it’s just going to. it’s, it’s effortless success or they, they sort of use it in a, in a, in a social setting. It’s like [00:25:00] sprezzatura or– which is this Italian word for, you know, just like ease of conversation, ease of dressing, like just, just being loose and, um, flexible in social situations or in an investment sense, it would be sort of being a little bit more flexible about the way that you consider an idea and looking at ways that it can, can win over time. I think it is a little– it’s a little bit woo, you know, the, the Wu Wei, I think is a little bit woo, and I’m, I’m not a particularly woo guy, but I’ll– I do like the idea of, um, just having that like mental flexibility in certain situations, just being a little bit looser. And I think that, I think that that w– is what allowed him to sort of break away from this idea that were where money goes to die, and that this was a situation where it sort of met all of his other criteria, did throw off cash. It was going to be this sort of not capital-like compounder, but it was– it sort of behaves that way [00:26:00] because they can invest, uh, with the capital gains tax, accelerated depreciation. They get all these sort of benefits out of it, plus the durability, plus the, uh, the distribution. All of these things together, sort of sum up to something that is a little bit more than the sum of its parts Tony Kynaston: I Cameron: Sorry, I just have to, the, I, I just have to jump in with the kung fu analogy of wu wei, Tony. It’s just too much to give up. Bruce Lee, big fan of wu wei. Anyone who’s ever read any of Bruce Lee’s stuff on kung fu, you pour water into a cup, it becomes the cup. That’s You pour water into a bottle, it becomes the bottle. You put it in a teapot, it becomes the teapot. Now, water can flow or it can crash. Be water, my friend. I do Wing Chun kung fu, uh, Tobias, and we talk about action through no action all the time, you know? Using your opponent’s energy against them, using their force against them. [00:27:00] You know, moving with the force. Don’t fight the force. Flow around the force. Yeah. Toby: Yeah. It’s, it’s, it’s a real, it’s a, it’s a central idea in martial arts, right? And I mean martial arts like Sun Tzu is, is, is the, the head of philosophy of martial arts, and then you find out it’s repeated, that idea of be like water, like that comes from Sun Tzu. He talks about, he talks about that repeatedly throughout the, throughout the text, and then you find it in other things like The Book of Five Rings, and you find it in Bruce Lee’s sayings, and it’s, it’s often taught, this idea that you use the energy of your opponent or use the energy of the thing, or to augment your own. Don’t fight it, sort of move with it Cameron: The famous line from Napoleon is, “Never interrupt your enemy when he’s making a mistake,” right? Toby: That’s a good one Cameron: Yeah. Tony Kynaston: Yeah I Cameron: Yeah, no, it’s a good one. It’s, Tony Kynaston: water Yep that’s that’s Cameron: be water Tony Kynaston: it It’s the water flowing around the rock idea not trying to move the [00:28:00] rock not trying to crush the rock around the rock It’s the way of Cameron: Yeah. Tony Kynaston: I Cameron: Yeah Tony Kynaston: good friend in Canada whose nickname is Wu cause he just goes with the flow and uh you know if you’re g generally calm yep always always smiling and happy doesn’t matter what’s going on with the flow Yeah Cameron: うん。う ん。 Tony Kynaston: you’ve taken that out of the transactions be and I think that’s a legitimate take out from these transactions oftentimes with these controversial transactions with um Berkshire Hathaway it’s almost like Warren said one thing for decades and then he’s just turned on a dime and done something different cause it suits him Yeah He’s flexible Exactly Toby: flexibility, like that’s, that is, that is part of it. You have to be mentally flexible, and I think it’s, it– there’s lots of different interpretations of it, but mental flexibility and also like looking at the thing. Some of these businesses have that tail– just have that natural tailwind to them. Some managers have that natural tailwind, and I think if you can [00:29:00] recognize it uh, you know, not fight it too much. Like fighting it might be insisting on too low a price before you do it, going with it might be just you can afford to pay up, and I think he did that with Coke. Um, certainly sort of paid up for it a little bit. Northern just being mentally flexible, and I think it also applies with the, uh, the Japanese conglomerates that I’m sure we’re gonna talk about shortly. Tony Kynaston: are yeah Cameron: we do that, you. Tony Kynaston: sorry go ahead Cameron: Sorry, before we do that, can we talk about Apple? You start the book talking about Apple, which you call the greatest trade of all time, and obviously that’s been one that I think for a lot of, uh, Buffett followers, they scratched their head when he bought into Apple after saying for decades that he didn’t understand technology stocks. Why is it the greatest trade of all time, in your opinion? Toby: Well, I also say that it’s a little bit in the eye of the beholder. It’s like modern art. You sort of– It speaks to you or it doesn’t. And I think that. But I, I, I have, I have– I think I have pretty good, pretty good reasoning. The– [00:30:00] When I say this, people often say, “Well, what about the, uh, Naspers doing the Tencent deal?” Like, that’s the one that everybody comes back to because they put in twenty million and it’s tens of billions of dollars and it’s. They’ve had to split it out from Naspers and it’s like totally misshapen the South African stock market. And then I say, “Well, this was the greatest trade ever because Buffett was a known quantity at the time. Apple was the most famous company in the world. Might’ve been the biggest company in the world at the time. could’ve done the deal. Anybody could’ve put that trade on. a few people did, even though we ha- we had, funnily enough, we’ve written about it a few times in Quantitative Value and other, in other books since as– ’cause it was the, the, the cheapest thing in the, in the screen at the time. It sort of– It used to have this, it doesn’t do this so much anymore, but it used to have this, uh, cycle where every time they issued a new iPhone, it’d run up and do really well, and then in the intervening period, it’d sort of fall back. So [00:31:00] in 2013, it got cheap and then it had a good run. 2016, got cheap and then had a good run. And same thing was happening in sort of the 2019, 2020. But I think it’s moved away from that a little bit. It doesn’t have that behavior so much anymore. I say he put in an enormous amount of money, I think it was forty billion dollars or something, in pretty short order. If you think about the entities that can do transactions on that scale, there aren’t very many of them. But I’m sure that, you know, maybe, uh, who’s the Japanese guy, uh, who. He’s the Japanese gunslinger. He w- he had a, he did a great– had a great run in 2000 and almost blew up, like went back ninety-nine percent, and then he’s had a great one more recently. Name’s just escaping me. He runs SoftBank. Cameron: Oh yeah Toby: Uh, Masa Son Cameron: Oh, Masa Son. Yeah, right. Toby: What’s this? Cameron: it’s n- Toby: Anyway, Masa. Masa– There aren’t very– Like, maybe big private [00:32:00] equity firms could have done that. Masa could have done that. aren’t very many folks who could have dropped a forty billion, but, like, they– I’m sure that they would all have loved to have had this insight and put the forty billion to work. Because pretty quickly, he’s three X’d, five X’d on an enormous sum of money, and then he’s sold that down enormously, and it’s given him a big part of that three hundred and seventy billion dollar war chest that they have now for a rainy day, if we ever see another rainy day, uh, for his– for Greg Abel, G- for Greg Abel to run. And he sold it down very significantly. It’s still one of their biggest holdings, but it’s not nowhere near as big as it could have been if they just in it and hold it. So I thought for all those reasons, he was a known quantity. It was a very big investment. It paid off very, very quickly, and it was a break from what he had done in the past. It just, again, it demonstrated that mental flexibility and, and it worked really well. And I’ve just thought in, in terms of the sheer scale of the return on the size of the investment, that distinguished [00:33:00] it from the Naspers investment, which was a smaller investment, and perhaps they got lucky. Like, if you, if you had to think about all of the made around the world on every stock market, and you had to go to the South African one and a Chinese, you know, to find something that was, like, equivalent, then I think it sort of illustrates the point that Buffett’s was a great investment. Tony Kynaston: yeah no just uh I guess talking about investments and what we were talking about before about opportunistic investments the link I think to the Japanese investment is is the quote you mentioned uh from Buffett that he talks about not having a master strategy or a corporate planning department and that acquisitions can seem haphazard So why do you think that’s an advantage for a company like Berkshire Toby: You could, you could compare it to. So Masa sort of is a technology investment, investor. So Masa is sort of constrained a little bit. Masa couldn’t go out and do Burlington Northern. That would just– people would say he’s lost his mind. That’s not a technology. He couldn’t do [00:34:00] Gen Re. Masa might have been able to do the Japanese conglomerates, but I don’t think so. Masa’s sort of constrained to tech. There are lots of other investors out there who are. They’re well known in their niche. They’re not really allowed to step outside their niche. By sort of saying at the outset, “We, we got, we got no plan. We, we.” You know, so what, what I think about the conglomerates like Constellation Software, they, they are– they may now step outside their niche, but they’ve historically been vertical VMS, vertical market software. you think about some of the conglomerates like Ropers or Danaher or those kind of. They’re allowed to do transactions in their niche, but they’re not allowed to step outside that. Berkshire has always said, “We’ll do whatever comes along that makes sense if it’s cheap enough.” And so they’ve given themselves that cover, that flexibility to do whatever they want. There’s no master plan. They’re not trying to build out the energy department necessarily. If something comes along, they would do it, but there’s no urgent need to, to take, you know, the, the cleanest dirty [00:35:00] shirt in any given industry, which is something that a lot of investors who are. I have friends who are healthcare investors or they’re constrained to. And so they’re trying to find the best thing, but the industry– if the industry is overvalued, then, um, uh, that’s sort of, that’s sort of bad luck. You have to do, you have to do the best deal that you can. So I, I, I think that it just gave him that. That mental flexibility is a big part of it. And I think that Sun Tzu says something similar where he’s, “Don’t, try and force it.” Again, this is like that Wu Wei idea. You’re looking for. They’re often trying to find the, the soft point or the weak point. So you test a little bit, you look at what’s cheap, you look at what’s moving away, moving down, and then that might be the place where, uh, that, that is the most interesting. So I, I didn’t, I didn’t use that necessarily for the Japanese, the Sogo Shoshas, but Sogo Shoshas, but we can, we can talk about that one Tony Kynaston: I think um before I leave the quote on the corporate planning department the other side of that coin is [00:36:00] that they don’t have the expense of a corporate department planning their strategies They don’t have all these people running around who have to justify their existence by buying something that probably wouldn’t buy Cause these transactions the big ones we’ve been talking about they come along once a decade on average for Berkshire They’re not out in the market every day know trying to find something So I think that’s a big advantage for them as well and that brings us to the Japanese conglomerate which is kind of this decade’s big transaction And it also is again a head scratcher for Berkshire followers because Buffett’s always said I’m gonna back Team USA I’m gonna back the US economy And then suddenly he’s a major investor in Japan again is another bit of woowah I guess But um but it’s also an aboutface from what he’s always said Toby: I think he had done He’s done Iskar, which is, which is Israeli. I think he might have done it personally. He’d done some Korean. I think maybe that was his personal capital. I don’t know if he put Berkshire into it, but he, he had gone and got the Korean [00:37:00] version of whatever the, you know, the just the guide, and you go, go through A to Z, and he’d just gone through A to Z and found a few net nets and bought them for himself. I think, I think Buffett has about a billion dollars outside of Berkshire that he’s just run his own capital and run it up to that sort of scale. That’s, that’s what I have heard. That’s what I understand. But the– I really like the Japanese deal. Again, anybody could have put this– Tony Kynaston: Mmhmm Toby: could have put one part of this transaction on. But the thing that makes it so was the carry part of the, the transaction. So the Japanese have these trading conglomerates that were set up during the Meiji era. And because Japan is a small island and it’s resource-constrained, they got these conglomerates which were supposed to go out to the world and find natural resources and bring them back to Japan. And the way that they’ve developed over the years is that they have become vertically integrated. So they go and find the, the resource in the first instance, and [00:38:00] then they, process the resource, and then they build it into these higher order goods until they’re, they’re making technology at the other end, and they’re selling cars and, and so on. And so there are five of these, uh, trading houses that sort of do this thing, and they, they are dominant in Japan. If you go to Japan and you wanna do business in Japan, it’s highly likely that you’re, you’re doing business with these guys. And I was in Japan last year and I met with, with one of them. I, I think it might have been Marubeni. a private equity group that does, that does of every size from the smallest to the biggest, and they, they have the Marubeni kind of stamp on everything that they do. They have this process. Peop– It’s, it’s a common way for folks to leave leave university, start an apprenticeship, and sort of grow inside these organizations. So finds them trading very cheaply. They’re like single-digit PEs. all pretty good dividend payers. Uh, like might have been, [00:39:00] dividend yields of sort of seven to nine percent, which is, which is very fat. At the same time, they– you can borrow in Japanese yen at virtually nothing because the Japanese yen has been so crushed for so long, or the BOJ has intervened in that market for so long. So they– You can– You could– I think anybody could get, uh, debt for sort of like half a point, half a percent, to a few percent. And so if you put these transactions on, and that’s what, that’s what Berkshire did. Berkshire actually had some zero percent notes that they were able to issue. So they paid no interest at all on these notes, then they invested that into these five conglomerates. So they’re reasonably safe because there’s– each one is a conglomerate already. They’ve got very diversified income streams, highly likely to keep on earning the way that they had. Highly diversified income streams globally across industries. Like they’ve, they, they l- they’re big mach- they’re big sort of enterprises that are [00:40:00] very stable and, and throw off cash pretty, pretty well. so he’s getting carried in these positions where the dividends coming back in the order of six or seven hundred million dollars a year, and their cost to finance this was, was virtually nothing. So he was immediately carried on this position. So it’s another sort of Buffett deal where the cash goes in and it’s almost immediately cash flow positive back to Berkshire. And so I just thought it was a, a great transaction that, as you say, had sort of been– was a little perplexing to folks because they expected him to be primarily a US investor, and he had said that he understood the US, he understood the regulatory en- environment, understood the, the cultural environment, and here he was making a big departure. And so I thought it was another like i- illustration of how mentally flexible he was. Tony Kynaston: Yeah it’s interesting I mean it’s another example of what what I think is one of the secret sources of Berkshire Hathaway It’s it’s being able to find sources of funding without doing a capital raise or without taking [00:41:00] on debt as you say the carry trade has from a you know again from hindsight was a nobrainer in the way of getting money back into Berkshire for the investment But um you know I guess other people have done it but no one on the scale that he has So he’s always good at finding these other ways of getting capital that he can then redeploy Toby: I also used it as an illustration of, um, there’s this idea in Sun Tzu that, um, you, you do the right thing, you get a reputation for doing the right thing, you do it for the right reasons. And then when you go to invest in these Japanese companies and he bought up to sort of the limit that he was allowed to take as an outside shareholder. then he goes to meet with them and his reputation is sterling, and so they, they welcome him with open arms because they know that he deals fairly. know the terms on which he deals, and so they increase their shareholding limits to allow him to buy more. then that turns into other synergies where there, there’s going to be ways for Berkshire to work with them sort of behind the scenes rather than [00:42:00] just being an equity shareholder Tony Kynaston: Question Cameron: And he did these deals, if I. Sorry, if I remember correctly, he started doing these deals during COVID, right? When the share prices had bottomed out, interest rates were next to nothing. He was able to just, you know, swoop in, borrow a lot of money at, like, 0.5 or 1% interest rates and Yeah just swoop in. Like, it was perfect timing Toby: Again, I think that lots of people around the world could have done these deals, and it’s just– it was still sort of shocking when he did it on the scale that he had done it, just sort of showed what a great investor he was, what a sort of whole worldview he has Cameron: And, you know, for years before that everyone had quoted Warren as, you know, you know, “You make money when there’s blood in the streets,” or whatever it is he had said. And he was literally doing it during COVID, literally what he’d been preaching for decades. And again, but, [00:43:00] uh, only Warren, not only Warren, but he’s one of the few people who’s prepared to go and buy, uh, during periods like that. When everyone else is running for the hills, he’s swooping in and doing deals Toby: Yeah. I think to be fair, he did initially, uh, balk a little bit and sold out of all of the airlines, which they, they had that little basket of airlines, and they probably got the lo- hit the low on punching out of those. But I, I don’t know. I think maybe they were concerned that there was, that, that it was gonna be something more perhaps than it was. That, know, if it’s like a, it’s like a 1916 Spanish flu, then that’s not good for the equity markets. But as it turns out, it wasn’t that bad, and so they were prepared for that kind of outcome, particularly because they’re insurers. They might have been, uh, they might have needed some capital there. But, uh, pretty quickly after that, I think that they announced the Japanese deals and that they were, you know, amazing deals as they always are Cameron: Hmm. Tony Kynaston: I remember reading about these Japanese conglomerates I’m gonna show my age here after the 1987 [00:44:00] uh bubble burst in the stock market and there was uh a couple of writeups I read about how I think there was a similar sort of structure in some German companies but certainly the Japanese ones were conglomerates But they’re different to conglomerates as you and I know them They also had a lot of crossholdings and so when the market crash happened they supported each other and there was no large selldown in their stocks and they rode out the market troughs pretty easily and they survived So that’s that was an interesting I think take on those two But question for you is um in the last sort of five years the Japanese stock market’s kind of waking up to more Western ideas of being more shareholderfriendly unwinding crossshareholdings Did Buffett know that was coming or did he or did he help agitate for change or was it just simply happening anyway Toby: Yeah, I think that they had been, uh, you know, they– s- the Japanese stock market topped out in 1992 or something like that, and it’s fallen pretty consistently since then and might [00:45:00] have been close to the all-time lows in the late early 2020s. And I think that they had realized that they needed to do something to attract international capital again. So uh, Shinzo Abe had begun these reforms and the Tokyo Stock Exchange was sort of actively trying to find some way to cause them to become more shareholder-friendly. We met with the Tokyo Stock Exchange when we were there about this time last year, a little bit earlier than this last year. And, you know, they have lots of, uh, they have lots of reforms that they’re trying to implement, including this one that most folks know about, which is that you have to get your price to book. You know, you have to get your price to book over one. Otherwise, they publish this list of Tony Kynaston: Yes Toby: at a discount to book. Tony Kynaston: That’s right Toby: sort of trying to get them to get rid of the, the cross-shareholdings because, [00:46:00] uh, it sort of prevents them from being taken over. It insulates the, the management team from sort of external forces. When we went there, uh, when I first got there and we sort of met with some of the private equity firms and the activists and including Murabeni, like they were telling us the ratios that they were paying for these companies, and I was ready to write it all down here and move to Japan and start doing this ’cause it was like, I thought it was like the US in the 1980s and it was gonna be. And I think that to some extent that has happened. But we pretty quickly cooled down when we actually met with some of these companies. When you talk to them, you sort of understand how difficult it is culturally to shift them because their rationale for the cross-shareholdings and also they all have, you know, they might. Uh, these numbers are wrong, but you know, they have huge cash holdings that are just disproportionate to the size of the market capitalization. And so once you back out the cash, you’re paying virtually nothing and then they’re, they’re pretty well earning. [00:47:00] But they have this view that they won’t be good partners to their, or to their customers rather, and their suppliers, if they don’t have that big cash buffer, that they could go out of business ’cause they could have a bad year or decade or something like that, and that might send them out of business. And so they were very unwilling to consider paying that cash out to shareholders. And in their sort of, you know, like a Porter’s five forces or if you think about the stakeholders in a Japanese firm, like it’s customers and suppliers and employees, regulator and shareholder, and shareholder was right at the bottom and last, and they had their obligations to all the other ones superseded those. So it was gonna be a very difficult lift, a real difficult process to get them to shift. I think that you look at the, you know, the thing that they had had, they had no inflation for so [00:48:00] long that it was really difficult to put up prices and it was considered, you know, it was like, uh, it was socially unacceptable to put up prices. So over the, the last, even the last 12 months, maybe slightly longer than that, the, um, inflation has now started to pick up in Japan pretty significantly, and it’s meant that they’ve seen this quite significant rise in the yields on, uh, Japanese bonds, Japanese government debt. Inflation is sort of there. The yields are coming up. That means that, uh, the, the fire may have been lit and they may have to start raising prices and, and moving and doing things. So Japan, uh, probably that, that difficulty in shifting it means that it’s going to take a decade or two decades to sort of resolve the issue, but they’re probably moving in that direction now. And it’s one of the great world’s great economies. They’ve got incredible, um, technology. So I think it’s, it’s probably gonna be a good place to invest for, [00:49:00] for the next few decades. Having said that, you know, folks had the same view about a decade ago, and a lot of people went and bought Japanese net nets, and so I think they worked out okay, but they didn’t sort of work out anywhere to the extent that people thought they were going to. But, you know, this time’s different. Tony Kynaston: Yeah. Um, interesting, interesting change in Japan. I think, don’t they have a concept now with a VIP club for shares trading above book value, where you get access to a special rate on debt and things like that, you get benefits from doing the right thing? Toby: Yeah, they were trying to shame for not going through with these things. And, uh, and we would say, you know, because they, they gave them like a two-year grace period to get themselves sorted out, and we would say, “What happens if, you know, they don’t do that?” And they’d say, “Oh, they’ll be shamed.” I’m like, “Oh, well then, and then what?” Tony Kynaston: Mmhmm Cameron: Have to commit harakiri. Toby: There’s, that’s it. There’s no enforcement mechanism. It’s just Cameron: I apologize to my ancestors. We talked about that about a year ago, [00:50:00] Tony, on the US show when we talked about Orix Corporation. I remember us talking about all these deals. By the way, Orix is up about 90% since we talked about it in June last year, so it’s been all right. Yeah. Tony Kynaston: Tobias Cameron: did well Tony Kynaston: um I’m gonna wrap up my discussion around the book. It’s a wonderful book and I recommend it to anyone who likes reading about Buffett like I do. But I had some questions about just generally investing in the US because in the last year Cam and I have been doing a value investing US show and there’s a couple of concepts which we’ve puzzled over and you might be able to help us out. Um, the first one is ADR. So a lot of the value we’re seeing in the US market comes from overseas companies who have a listing in the US. Is there a reason why as a class they might trade below what say a local competitor might trade at in the US? Toby: Yeah, it’s not, again, it’s cultural. It’s not no [00:51:00] tax reason that it would do that. And there’s, I can give you a, a funny story about the ADRs. So Americans can invest in the ADRs of these Korean chip makers. Um, but they have sort of resisted doing it because they’re ADRs. And so there’s an ETF run by some friends of mine, Roundhill, called DRAM, D-R-A-M. It’s the fastest-growing ETF launch in history. They’ve raised something like. Last time I checked, it was thirteen point eight billion dollars, and that was a few ago, so the number could easily be over that now because every time I check, it’s so much higher. The underlying stocks have done really well too because they’re really AI Tony Kynaston: Mmhmm Toby: kind of names. But the big innovation that that ETF had, were investing through the Korean ETF because it gave them access to these two chip makers. And DRAM just showed up and said, “We’ll give you a.” [00:52:00] You know, DRAM is the memory. “We’ll give you access to these two Korean names, pretty concentrated, and some other chip makers.” And the, the, money has flooded in because you can now invest through an ETF into these Korean names when they, previously, you could have done that through an ADR, but the aversion to ADRs seems to be so great that they wanted to do it through a dedicated ETF and now it’s been a great success for those guys. Tony Kynaston: Yeah. I find that strange. Is it, is it a bit of Peter Lynch that people wanna be able to walk up the street and see what they’re buying? Or is there like an extra commission in there cause it’s an ADR? You know it just seems really strange to me. Toby: I don’t think so. It might be a foreign exchange, it’s possible that it’s hard to invest through some brokerage accounts. If you have an Interactive Brokers account, I think it’s pretty easy. I think most brokerage accounts allow you to do it Tony Kynaston: Yeah Toby: simply. It might be that. I, I just think it’s a, I just think it’s an aversion to, to doing anything. It, they look, it just looks a little bit weird in your brokerage account, and [00:53:00] I think that that’s been the main reason they haven’t done it. Tony Kynaston: Well maybe Berkshire Hathaway will scoop them all up because they tend to try to discount to similar listings in the US. Yeah. Yeah. And the other question I’ve got for you is that um, you know we focus on operating cash flow when we’re looking at investments. Um, operating cash flow is my preferred metric rather than price to earnings because of the ability to manipulate earnings. But um, we are coming across companies that seem to be putting investing cash flows in the operating cash flows. We had a property development company we looked at and when they flipped a transaction the income went through the operating cash flow statement. Have you noticed any difference between US accounting standards and Australian ones that would cause that? Or know any other reason you can think of why it would happen? Toby: Well, I, I grew up in the IFRS system, and I did accounting at, at [00:54:00] university and, and learned IFRS when I did that. I think it was just being implemented at that time. Uh, IFRS has a, has a local implementation all around the world. So Canadian IFRS is slightly different to Tony Kynaston: Mmhmm Toby: but pretty, pretty similar. When I moved to the States, I had to get my head around that, and I, there are some subtle differences between the two, but they’re really not that significant. They’re, they’re pretty similar. What you’re talking about might be a specific thing to REITs, like a, but I don’t know why a sale of a building, is that what it was? Tony Kynaston: No. So this company in particular and we’ve seen other examples but this guy was a property developer. They go and buy, they go and have a land bank and then they develop it. They put a syndicate together um and use the last land bank sale to fund the next one. But that sale was going through operating cash flow rather than being an investment cash flow entry. Toby: Maybe that’s their business and so they have to do it that way. I don’t know. Off the top of my head, I don’t know. I don’t invest in REITs, so I don’t see, [00:55:00] don’t really have to think about that problem. Tony Kynaston: Yeah. Okay. All right, I think that’s my list. Cameron: Yeah, the suit Tony Kynaston: questions Cameron: Oh, not, well, not a question as such. Just a couple of quotes from the book that we’ve sort of touched on. We, you were talking before about, um, not doing anything stupid. It was in chapter five, you mentioned that Buffett’s fundamental goal is survival, and this really resonated with me. Um, a couple of quotes that you got that I just thought were worth reading out. “Buffett explained his view on the risk of ruin in these terms. ‘Even in 1965, perhaps we could have judged there to be a 99% probability that the higher leverage would lead to nothing but good. Correspondingly, we might have seen only a 1% chance that some shock factor, external or internal, would cause a conventional debt ratio to produce a result falling somewhere between temporary anguish and default. We wouldn’t have liked those 99 to one odds and never will. [00:56:00] A small chance of distress or disgrace cannot, in our view, be offset by a large chance of extreme returns.'” Then later on in the chapter you say, it’s got a quote for him, I think at a University of Florida School of Business in the late ’90s. “If you risk something that is important to you for something that is unimportant to you, it just does not make any sense. I don’t care whether the odds are 100 to one that you succeed or 1,000 to one that you succeed. If you hand me a gun with a million chambers in it, and there’s one bullet in the chamber, and you said, ‘Put it up to your temple. How much do you want to be paid to pull it once?’ I’m not gonna pull it. You can name any sum you want, but it doesn’t do anything for me on the upside, and I think the downside is fairly clear. I’m not interested in that kind of game.” And, you know, I think about that a lot, uh, whether it’s, you know, uh, uh, Bitcoin, people saying, “Yeah, buy Bitcoin,” or it’s Mag Seven stocks and all this [00:57:00] kind of stuff. And it’s just this, this idea that I’ve learned from Tony over the last six or seven years we’ve been doing this show. It’s about just the philosophy of investing, risk versus reward, not getting sucked into doing stupid shit. Um, you know, following a thesis that is rational and logical and is relatively risk averse, and just following it day in, day out, ignoring the hype, ignoring the noise. And with that, uh, can you get me into the SpaceX IPO? Because, uh, I’m super excited about Elon getting us all to Mars. Toby: Yeah. I, I, I think that’s, that’s, it’s a real shift that you have to make in your mind, and not, maybe not everybody’s built that way. Not everybody. I, I sort of think the more experience you get, the more you, the more times you get burned with something that doesn’t work, the less willing you are to do it. And [00:58:00] so you get used to, like, looking at the downside first and seeing why, of these. You can have a look at the, the US stock market right now. Like, just ignoring even the SpaceX IPO, the, the Goldman Sachs tracks this index called Profitless Tech, which is exactly what it sounds like. In ’21 it ran up to these all-time highs, and then they all collapsed, as you’d imagine, through ’22, ’23, ’24. But they’ve all run back up again to all-time highs. They’re almost where they were in 2021, probably get there before the whole thing’s said and done. I don’t really wanna play that game. I, I think that you could pick out some of these names, and they will probably be pretty good returners over the long term, but I don’t know which ones they are, and I think that there’s plenty of chances that there’s a lot of landmines in there. And I, I think that the more you do it, the more you get burned by the downside. When I started, I [00:59:00] started investing in 2000, walked into that recession, depression. Fortunately, value did really well through there, so I got entirely the wrong message about how you just be a value investor and never worry about drawdowns in your life. 2007, eight, nine came along, value got smoked along with everything else then. Um, so that taught me a lesson that even value gets smoked in most drawdowns. So I, I just, I don’t wanna, don’t wanna do things that don’t work, so I try to avoid stocks that have shitty business models, too much debt, crazy people running them. Unproven business models, there’s a lot of that around now. You look through the Russell 2000, the top names in the Russell 2000, they’re all things that they’ve got no revenue. They’ve got, they’re science experiments. They’ve got an idea to do something. They will perform really well ’cause the idea is really compelling. It’s a great idea. Like, one of these guys is gonna build nuclear reactors in the States. Great idea. I think the, the US needs nuclear reactors, but they don’t have one yet, and it’s hard to build a nuclear reactor, so probably [01:00:00] let that one go through to the keeper. Tony Kynaston: What’s your Cameron: we, Tony Kynaston: at the Cameron: yeah, that was gonna be my question. Yeah. Tony Kynaston: like it’s AI, the market, and then Main Street is tanking. Uh, does that worry you at all? What’s your feeling and prognostication for that situation? Toby: Yeah. So, so does it worry me? I mean, it’s irritating in the short term. I don’t like underperforming, and I’ve been doing that a lot recently. So I’ve been doing that a lot since I launched the funds, but I’ve been doing it particularly recently. But I think that the forward returns for small value are exceptionally good right now. There’s this K-shaped market you– that everybody talks about, and I posted this chart today on Twitter, where it shows that basically every industry except for tech thinks that it’s going through a pretty substantial drawdown. Like everything’s down thirty or forty percent except for tech, which is, which is off to the races and sort of covering over, uh, the gaps in the market. For everybody [01:01:00] else, it’s a, it’s