QAV AU 822 — Huawei to Hell: Investing When the World’s Upside Down

[00:00:00]

Cameron: Joined by the best look­ing man in val­ue invest­ing, the George Clooney of Val­ue

Toby: Oh, keep it com­ing.

Tony Kynas­ton: Oh, the youngest, the youngest val­ue investor. I know

Toby: Oh,

Tony Kynas­ton: we’re usu­al­ly all old guys.

Toby: there’s, there’s no one left. How are you,

Cameron: Wel­come.

Toby: Thanks. That’s a very

Cameron: Yeah. Good. Oh man, every time I see you, I’m like, how does he get to be so good look­ing? That’s not fair.

Toby: an app.

Cameron: sport­ing a lit­tle bit, a lit­tle bit more gray, a lit­tle bit more gray than the last time we talked, which was a cou­ple of years ago, I think,

Toby: a, it’s that

Cameron: is

Toby: We’ll do it to you.

Cameron: I thought it was Trump’s tar­iffs that were doing it to you.

Um,

Toby: the news any­more. I switched it all off. So.

Cameron: So, uh, Tobias Carlisle from the Acquir­er’s Fund, uh, the Acquir­er’s Dilem­ma? No. What was the name of your book,

Toby: Yeah, the, the, uh, the last book was the [00:01:00] Acquir­ers mul­ti­ple that came out in 2017, and the

Cameron: right.

Toby: Funds. I’ve got two they’re both ETFs list­ed on the NYC Zig, which is mid and large deep val­ue domes­tic US, and Deep, which is small and micro deep val­ue domes­tic

Cameron: they? Weren’t they zig and zag? No. Just

Toby: I, I’ve got some­body to put their foot on zag for me, but I don’t, I don’t have a zag fund. I prob­a­bly would like to do an inter­na­tion­al or a glob­al fund, uh, I

Cameron: right.

Toby: the two that I have. I need a lit­tle bit of, I need a lit­tle bit of a tail­wind, I think, before I real­ly launch anoth­er fund.

Cameron: So how’s the, how’s the funds going?

Toby: Um, they’re doing fine in their cat­e­go­ry, but the cat­e­go­ry is, is get­ting smashed. It’s the, it’s the curse of the deep val­ue. It’s like all, all of these, all val­ue, all strate­gies have their cycles, and this has been a very long one against val­ue. Depend­ing on how you mea­sure it starts in [00:02:00] like 2010 or 11 or 15 and looked like there was a lit­tle bit of a bounce after 2020, but that AI.

News, you know, just cru­ci­fied us since like the begin­ning of 24. And it’s been a lit­tle bit mis­er­able since then. But I think that the val­ues con­tin­ue. It’s fun­ny because the, it’s just mul­ti­ple com­pres­sion because the val­ues tend to be quite good. I think the, the com­pa­nies are get­ting health­i­er and health­i­er and look­ing bet­ter and bet­ter.

It feels to me like the ear­ly ni uh, the ear­ly two thou­sands, like, uh, after fol­low­ing the late. 1990s, which was a very growthy, large cap mar­ket, and it real­ly left all of the small val­ue stuff behind and the rest of the world behind. And then at some point that cycle’s changed. I think prob­a­bly needs a crash to turn around, but, um, I’d be, you know, I’d be hap­py for it to hap­pen with­out a crash.

I can tell you.

Tony Kynas­ton: Feels like the late nineties to me. All the AI stocks and the Mag sev­en stocks have been going up. [00:03:00] On, on fore­cast and pre­dic­tions basi­cal­ly.

Toby: And that, um, you know, the, uh, what do they call it, the quan­tum com­put­ing, like there’s no, the, the, the mar­ket caps on those things are like sev­en or $8 bil­lion they don’t do any­thing. They don’t even have a prod­uct. It’s pret­ty impres­sive.

I saw, you know, that open ai, it’s got like a hun­dred open AI’s a real busi­ness, like I think they’re prob­a­bly still los­ing mon­ey, but it is a real busi­ness. Peo­ple pay for that. You know, that lit­tle win­dow that chat, GPT and you know, whether it can jus­ti­fy a hun­dred bil­lion dol­lar val­u­a­tion or not, I don’t know, but it’s good news for John­ny.

Ive, who was the bloke who, you know, he made the, the iPhone for, one of those, I think he was the iPhone of design­er for Apple. And then he spun out and he’s cre­at­ed this con­sul­tan­cy. Like they don’t have a prod­uct or any­thing like that, they just con­sult. And Ope­nAI has picked them up for six and a half bil­lion dol­lars, which is.

work if you can get it.

Cameron: It was [00:04:00] start­ed Love, love from his con­sul­tan­cy. Was start­ed last year. Start­ed last year, just got it picked up. And John­ny was­n’t part of the deal. He, no, he’s, he’s gonna work for io, the new com­pa­ny that’s come out of the, the. Merg­ing of open AI and love from as a con­sul­tant, con­sult­ing advi­sor or some­thing.

But yeah, from zero to six and a half bil­lion dol­lars in a year, not just the iPhone. I mean John­ny was the guy, sor­ry, apple fan­boy here. John­ny was the guy behind the iPod, the iPhone, the iPad, the max, the orig­i­nal lol­ly Max, and when Steve came back and then the Mac books and every­thing. Cool that Apple. Did in that peri­od when Steve was alive, was John­ny as lead­ing the design team? So he is, uh, I mean, he, he stole it all from but, uh, all of the ideas from Braun but mod­ern­ized it. So like he’s uh, he’s a genuine[00:05:00]

Toby: Cred­it where it’s due.

Tony Kynas­ton: From Bauhaus.

Cameron: guru.

Toby: he’s, good at

Cameron: Yeah. Yeah.

Toby: but I, I, I like the fact that their first pro­duc­t’s, like this hock­ey puck, no scream. And, and it’s basi­cal­ly Alexa, I don’t get it.

Cameron: Well, they haven’t, they haven’t actu­al­ly said exact­ly what it is. They all, all they’ve said so far is what? It’s not Won’t have a screen. Yeah, it’s not a phone. But I think the, the, the assump­tion is, ’cause the rumors for the last cou­ple years since he and Sam Alt­man have been work­ing togeth­er is they’re gonna come out with a AI native phone to go up against the iPhone.

But, um, any­way, yes.

Tony Kynas­ton: edges, was his con­tri­bu­tion to the iPhone. Yeah. I’m just mark­ing off my bin­go, my AI bin­go card here. Uh, Tobias, it,

Toby: I’ve, I’ve

Tony Kynas­ton: the quick was a quick, uh,

Toby: This, uh, this

Tony Kynas­ton: it was a, well, well, cam does the futur­is­tic pod­cast and we last about five min­utes when we start talk­ing about shares before AI comes up.

So, uh, well done.[00:06:00]

Toby: I’m a big fan of ai. I mean, I, I, I was a lit­tle bit skep­ti­cal ini­tial­ly because it was pret­ty mid­dling, but I think that. got bet­ter at using it and it’s prob­a­bly got bet­ter along the way as well. And I think that it’s, I can see, you know, it does replace like hav­ing, it’s gonna be tough for peo­ple to get a foothold in any indus­try because it’s like hav­ing a pret­ty com­pe­tent MBA doing your research.

It’s not all, you know, you have to check it and you have to make sure that it’s right, but it’s often a pret­ty good it point for, for what­ev­er project you’re work­ing on. So I think it’s good stuff.

Tony Kynas­ton: Does it get to replace all of us? What’s your pre­dic­tion?

Toby: I still think that like any­thing you need ulti­mate­ly some­one on, at the, at the very top of the out­put, mak­ing sure that it makes sense it’s, uh, it does some­times it’s just, it’s 180 degrees wrong. It does­n’t know what it’s talk­ing about. And, and, and it also has this, I think that the prob­lem with using it for writ­ing, I think it, I think I can rec­og­nize AI writ­ing when I see it.

It has this par­tic­u­lar, it’s almost like. It’s a lit­tle bit like poet­ry, like [00:07:00] it does­n’t quite make sense, but if you just let it wash over you, you kind of get the gen­er­al gist of what they’re

Tony Kynas­ton: Right.

Toby: like read­ing some

Tony Kynas­ton: the vibe.

Toby: Elliott, or some­thing like that. Yeah, it, it gives you the vibe rather than any sort of detail.

Tony Kynas­ton: I had a, I had an inter­est­ing dis­cus­sion yes­ter­day with a vet­er­an fund man­ag­er and uh, we were talk­ing about. Quant fil­ters and, and he said his expe­ri­ence was they need at least one expe­ri­enced per­son as the over­lay, as a qual over­lay, because some­times the fig­ures just need ques­tion­ing.

They don’t make sense. And if you’re an AI or you’re a fil­ter, you don’t pick up the fact that this, this could be fraud or some­thing fun­ny’s going on here.

Toby: I.

think that, I think that there’s a real prob­lem with the data. The data is, you know, it miss­es, it can be up by a fac­tor ’cause it’s some­times the data’s just entered in in mil­lions or thou­sands and it’s just, it’s just total­ly wrong from that per­spec­tive. So it’s just find­ing some­thing that I. Oh, it’s one 100th of the price.

But if you get the dec­i­mal point in the right place, then it’s, you know, it’s over­val­ued by a [00:08:00] fac­tor of 10 or some­thing like that. That hap­pens a lot. I do think that if you get good data and have a more sophis­ti­cat­ed pro­gram that’s look­ing at a few dif­fer­ent things, they’re pret­ty com­pe­tent and I think they’re pull up some inter­est­ing ideas.

But there is always that risk of an out­lier that makes no sense that any com­pe­tent human being would look at it and rec­og­nize it imme­di­ate­ly.

Tony Kynas­ton: Well, I think also too, even­tu­al­ly you’re gonna have an AI for A CFO who’s gonna try and gain the, the quant AI who are check­ing the, the bal­ance sheet, right?

Toby: that cer­tain­ly

Tony Kynas­ton: Yeah. Right.

Toby: I think if you read Ama­zon’s let­ters or Ama­zon stuff, I think that they’re, putting that through a quant fil­ter because I’m aware there are, I’m aware of some firms that. Look at the tone of the let­ters and the tone of, uh, earn­ings calls, and they, there’s some real­ly inter­est­ing stuff out there.

One guy was telling me that they can, they can detect, uh, depres­sion in, in A CEO by the num­ber of times that they [00:09:00] use. I. In a, and it’s unde­tectable to the human ear because the dif­fer­ence is like 4% in ordi­nary con­ver­sa­tion or 6% in like, for it to become patho­log­i­cal, which is tiny and you can’t hear it.

where it starts trend­ing up like that, sort of sets off all these alarms that there might be some­thing going on that they haven’t sort of real­ly dis­closed yet, or does­n’t need to be dis­closed when an actu­al fact that there is some­thing there. But the, com­pa­nies them­selves are, are now aware of this and they’re putting it through the reverse fil­ter to make sure that.

They’re not get­ting

Tony Kynas­ton: The CEO’s? Yeah, CEO’s trained. Yeah, they do. They do make­up, they do pre­sen­ta­tion skills, and then they do eye con­tact skills.

Toby: a, it’s a long way from that, um, Enron where I mean, I think that’s, I think that’s still a, a red flag if they’re swear­ing on the, on the, uh, so you know, that might rule out a lot of Aus­tralian com­pa­nies, I

Tony Kynas­ton: Yeah. Hey, I want­ed to just pick up some­thing you said about the cycles of deep val­ue because [00:10:00] might be, I dun­no if it’s dif­fer­ent in the Amer­i­can mar­ket or the Aus­tralian mar­ket, but, um, there’s cer­tain­ly cycles in the stuff we do, but you know, we tend to still do well through all kinds of cycles, so, um. It might be a def­i­n­i­tion­al thing. I mean, our, our big dri­ver is price to oper­ate in cash flow less than sev­en. Um, that’s prob­a­bly how we define val­ue. Um, but it, it kind of, it does­n’t always per­form even­ly, but it kind of per­forms all the way through cycles. Is that, do you have a diff do you have a dif­fer­ent expe­ri­ence in the states?

Toby: I think that I’m talk­ing about rel­a­tive per­for­mance. Um, the, I think the thing that dis­tin­guish­es the US mar­ket from real­ly the rest of the world is they do have those very big, you know, fan mag, bag­man, Fang fan, what­ev­er the, what­ev­er the cur­rent. Um, you know, bag of let­ters is for, for describ­ing them those com­pa­nies real­ly do dri­ve the index [00:11:00] they are very big com­pa­nies, but they’re also very good com­pa­nies.

They’ve got excel­lent returns on invest­ed cap­i­tal, but they tend to be pret­ty expen­sive. They’re often nose­bleed val­u­a­tions for those things. So they’re, they’re very rarely through my fil­ters, although they have on occa­sion popped up. So meta popped up. You know, when they were hav­ing the prob­lems with, when Zuck had decid­ed that every­body was gonna be weld­ed into the meta­verse with him, and we were all gonna crash in the vol­cano, and it was like $12 bil­lion a year in spend­ing on servers or some­thing like that.

They even, I mean, they changed the name from Face­book to Meta­verse. That’s how com­mit­ted it was to this thing. And I think every­body just got scared because free cash flow fell off a cliff. then. It’s still qual­i­fied as cheap because I was, I use, I use the acquir­ers mul­ti­ple, which is, um, enter­prise val­ue to oper­at­ing income.

It’s just the account­ing vari­a­tion of, of cash flow that you are iden­ti­fy­ing. And then I have var­i­ous oth­er fil­ters to look for. I wan­na see ca, you know, earn­ings con­vert­ing into cash flow. I wan­na see man­age­ment doing [00:12:00] some­thing sen­si­ble with it, rein­vest­ing in the busi­ness at pret­ty good rates of return or buy­ing back stock, or even doing acqui­si­tions if that’s.

if they make sense. And I just mea­sure the per­for­mance of all of that rein­vest­ment over an extend­ed peri­od of time. And if those things are good, it’s a good posi­tion. It’s just that on a rel­a­tive basis, it’s hard against some of those stocks like Nvidia. So, you know, Fang, Net­flix qui­et­ly got dropped as the n and Nvidia became the N in, uh, in some of those def­i­n­i­tions.

And NVIDI­A’s had a pret­ty good run over the last few years. Um. And, and, and just by on a rel­a­tive basis, it has­n’t been as strong. Uh, I think that I tend to invest in, in, you know, heavy met­al, heav­ier indus­tries. So that cur­rent­ly I’ve got a big expo­sure to oil and gas, um, a lot of val­ue guys, these days, more mod­ern val­ue guys avoid because oil is a com­mod­i­ty.

total­ly [00:13:00] unpre­dictable. It could be up or down next year. And the atti­tude towards oil and all the oil con­fer­ences. And all the reports that I see are incred­i­bly bear­ish oil, even though it is at 60 bucks for WTI. that sup­ply destruc­tion, which hon­est­ly I was a lit­tle bit sur­prised about.

’cause in my mind from about five years ago, I. 60 bucks was a pret­ty good price. Like 60, 65 bucks was, a lot of them were mak­ing mon­ey at that lev­el. But there’s just been this infla­tion that every­body’s seen every­where and that’s impact­ed the oil and gas com­pa­nies in the states as well. So breakeven is now like 90 bucks, which is an extra­or­di­nar­i­ly high price.

So it’s 60 bucks. They can’t make any mon­ey and all of the high cost guys are burn­ing cash or leav­ing. So I’m, there’s a por­tion of my fund depend­ed on oil and gas, which think it’s a good bet ’cause they’re cheap. And they’re, and I favor the ones that are cur­rent­ly cash flow­ing and doing some­thing about, you know, with good acreage, but there’s a lit­tle bit of, it’s sub­ject to what the oil [00:14:00] price does over the next 12 months or, or few years.

Tony Kynas­ton: Yeah, we, I, I came out of the oil indus­try back in the, um, eight­ies and nineties, and so I keep an eye on it and I mean, very high lev­el mod­el for the oil. Mar­ket that to work for the last 10 years or so since Rus­sia got involved with OPEC Plus. Is that, that as the oil price rise, it’s like a hold­ing a sponge between two fin­gers.

Right. The oil price ris­es. The shale oil guys in the states go, beau­ty, we can make mon­ey. They come back on stream and then and OPEC close the PIs on the sponge again, and then they all go into dor­man­cy for a while. So it kind of, it’s real­ly con­trolled by Rus­sia. At the moment with the all guys in the States hav­ing their day in the sun when the, when the bar­rel price ris­es for a while, but it’s very cycli­cal in that, in that tight range.

Toby: In 2021, we had $150 oil and we’ve come back pret­ty con­sid­er­ably since then in 2025. And it’s been just down­hill [00:15:00] basi­cal­ly since then. So we’re at the low­er end of the range here. And I think sup­ply destruc­tion is a good thing. If, and I have a

Tony Kynas­ton: I.

Toby: to get to get to 20% of the fund, I have a bas­ket

Cameron: Hmm.

Toby: So some of them are. flow­ing real­ly well at this lev­el, and some of them are a lit­tle bit more mar­gin­al for the rea­son that if the price goes up, the mar­gin­al ones move a lit­tle bit more than ones that are doing well at this lev­el. But there’s always a risk that the mar­gin­al ones can’t sur­vive.

So I, I favor the ones that have got a health­i­er bal­ance sheet and so on. There’s a lit­tle bit of spec­u­la­tion in it. I think it’s a, I think it’s an intel­li­gent spec­u­la­tion, but it’s, you know, it remains to be seen.

Tony Kynas­ton: Yeah, fair enough. I guess of adja­cent to the oil indus­try, we did a show last week on Ford we’re see­ing, we’re see­ing some val­ue in some parts of the car indus­try. Is that some­thing you are see­ing as well? I.

Toby: cars are tough. So I I, a few, about a month ago I was in Shang­hai [00:16:00] and I was look­ing at some of the tech shang­hai’s kind of inter­est­ing because the Chi­nese have got high tech. So we vis­it­ed some high tech VCs, hard tech, as they call it, and the hard tech VCs are walk­ing, work­ing on autonomous dri­ving robot­ics and ai, which I was sort of a lit­tle bit sur­prised about that.

I would’ve thought maybe Fusion or some­thing like that was hard tech. But stuff that they’re work­ing on is prob­a­bly what you’d expect that they’re work­ing on and. While they said that they’re, they’re not quite where Amer­i­ca is. They still think that Tes­la is ahead in robot­ics, which I was a lit­tle bit sur­prised by.

And, um, open AI is ahead in ai, but they say that, you know, open AI is expen­sive, where­as their tech­nol­o­gy, which was deep seek, I think is 95% of the way there, but like 5% of the cost. And I think that where that real­ly shows up is in the con­sumer tech where they, they have cars there. So Huawei is a mak­er of cars there.

Huawei make TVs and phones and every­thing. went into one of their [00:17:00] dis­play areas and had a look at a cou­ple of their cars. They’ve got these gor­geous look­ing cars, like leather, inte­ri­or screens, all through the entire thing. They’re they charge, i, I, I think I said charge in five min­utes on my pod­cast, but I think it might be charge in 15 min­utes with, with the tech com­ing to charge in five and then the.

Um, the cost of those is $35,000. Us, like, there’s noth­ing in the states for $35,000. Us. only thing that’s gonna save Tes­la and oth­er com­pa­nies like that in the US is if they can’t import them, which, you know, that’s cur­rent­ly the case. They’re not able to get into the states. But I think that there’s, I think what that means for some of the auto OEMs in Europe and the US is that they have to.

They’re gonna have to do some­thing pret­ty unusu­al here to kind of, I, I, I don’t under­stand why they, you know, they’re, they’ve, they’ve got two choic­es real­ly. They either them­selves and do it, or they just go out­ta busi­ness. So I, I think [00:18:00] auto OEMs are tough. What are you, what are you see­ing?

Tony Kynas­ton: Well, when, when we did our, did a deep dive on Ford and they’re basi­cal­ly, I mean, they spent $5 bil­lion on their EVs and they’re basi­cal­ly try­ing to shut them down. Now they’re lob­by­ing the gov­ern­ment to change the incen­tives and they’re going back to. you know, the, the, what do they call it?

The skate­board, the F‑150 chas­sis that they put every­thing else onto is, is their busi­ness mod­el going for­ward. And that, you know, that might work as long as you, uh, the US has cheap oil. that’s kind of work. ’cause I mean, that’s the biggest thing that hits me when they go to the states is that is you can fill your car up for about a quar­ter of what you can in Aus­tralia.

So

Toby: Mm.

Tony Kynas­ton: a com­plete­ly dif­fer­ent mar­ket real­ly.

Toby: that, is that includ­ing in Cal­i­for­nia? Cal­i­for­nia feels expen­sive to me when I trav­el around the

Tony Kynas­ton: Yeah. Okay. Yeah, true. No, I’m think­ing about Flori­da and the, East coast.

Toby: I just think even more than the

Cameron: I think that,

Toby: Sor­ry, Kim.[00:19:00]

Cameron: oh, I was gonna say that the, our approach to ana­lyz­ing these sorts of busi­ness­es is we don’t tend to get bogged down in future fore­cast­ing, pre­dict­ing the future with these things. We look at where they’re at today and Ford’s divi­sion is gen­er­at­ing. of cash still. They’re blow­ing it all on the EVs. They’re bleed­ing with the EV divi­sion. but they’re, as Tony said, they’re sort of pulling back from that. Uh, quite a bit at the moment, but they’re still gen­er­at­ing tons of cash and the price to oper­at­ing cash flow met­ric is real­ly quite low. So we, we tend to look at, you know, what’s their cash flow like, what can we get the at. uh, we let the future sort of wor­ry about itself. You know, we, we aren’t buy and hold for­ev­er val­ue investors. If some­thing breach­es one of our sell trig­gers a year from [00:20:00] now, we’re hap­py to sell it and replace it with some­thing else. So we just look at what we can get today. That seems to be a good busi­ness. The core fun­da­men­tals of it, with­out try­ing to, you know. Look­ing at, look into a crys­tal ball. What’s that line? Those who by the crys­tal ball will eat shat­tered glass. I think

Toby: That’s a.

Cameron: Ray Ray or one of those guys, one of those old, old time guys said that, um, and that’s what Tony’s drilled into me over the last five or six years we’ve been doing the show, is that don’t try and pre­dict the future.

Just look at what’s real­ly gen­er­at­ing cash today. It has a track record of gen­er­at­ing cash, you know, over a lit­tle while.

Tony Kynas­ton: you put a qual­i­ty over­lay on it to make sure the busi­ness is gonna be around like a low of debt. It’s been around for a long time, throw­ing off cash, it’s got good man­age­ment, all that kind of thing. You ques­tion mark, I guess on fours man­age­ment, it’s been a bit rocky over the years, but um, you know, it’s been around for a long time too, so about to go broke.

Toby: I don’t think the [00:21:00] US can let com­pa­nies go out­ta busi­ness either. I think they need them for defense and just for, for oth­er rea­sons. But I think they, they, it’s, it’s a tough com­pet­i­tive land­scape glob­al­ly. But I do, I, I’m with you on the, I, I look at the cur­rent per­for­mance of the busi­ness­es and tend to buy them on that basis too.

I don’t look too far into the future for the rea­son. I don’t think you can tell, you dun­no what’s gonna hap­pen.

Cameron: Can I ask you about Chi­na before we move on? Um, I read Thomas Fried­man’s arti­cle in the New York Times a few weeks ago. He went to Huawei’s Tech­nol­o­gy Park. Uh, did you go to that? He said it’s like the size of 10 Dis­ney­lands, and it’s just lab after lab, after fac­to­ry, after fac­to­ry of the way he sold it.

It was like. Future land. Did you get to see any of that?

Toby: No, that’s, that’s not what we had. We just. We just rode a bike, rode bikes down the riv­er, and we had a local guy there who would just say, you know, three months ago this was a cement fac­to­ry and now it’s [00:22:00] this like gor­geous kind of shop­ping cen­ter precinct with, you know, lots of high-end shops inside. And we walked into Won­der, have din­ner, and then as we were walk­ing out on the ground floor, there was.

A big, uh, Huawei show­room, and it was, the show­room was like half a foot­ball field, but it was just, I think it’s just the ordi­nary. It was just one of them. There. There could have been a few oth­ers near­by.

Cameron: Right. And so what’s your take on Chi­na after your trip and where they’re at, where they’re going? We, we often laugh. Uh, the Aus­tralian media is con­stant­ly talk­ing about how Chi­na’s about to implode. Chi­na’s econ­o­my is screwed, Chi­na’s. Mas­sive debt cri­sis or real estate cri­sis, or this cri­sis or that cri­sis, and it just seems to be the nev­er end­ing.

Chi­na’s about to fall over nar­ra­tive. Uh, what’s your take on it after being there?

Toby: You know, some of those glob­al macro type things are a lit­tle bit beyond my. [00:23:00] Pay grade. But I can tell you that just walk­ing around it looks very wealthy. It, it looks very pros­per­ous and speak­ing to peo­ple. And this is in Shang­hai, which is like their New

Tony Kynas­ton: Yep.

Toby: Man­hat­tan. So it’s a con­cen­tra­tion of wealthy.

I.

Tony Kynas­ton: Yep.

Toby: peo­ple, but are very, very ambi­tious. They talk about 6, 6 9, which is, they work six days a week from six to nine, and they’re gonna grind real­ly hard and, and make a lot of mon­ey and improve their lives and, and every­thing there is like pret­ty rea­son­ably priced. You can get an apart­ment not that far from down­town for like a mil­lion bucks and it’s brand new, which is, you know.

That that’s unimag­in­able in, in New York for for sure. And you can buy, you know, pret­ty good. You know, the prob­lem with cof­fee in the states for a long time was that it was just garbage. Like it was all that Star­bucks

Tony Kynas­ton: Absolute­ly.

Toby: there, there has been an improve­ment. I could find some good cof­fee places here now, and Chi­na’s sim­i­lar­ly, there were lots of good cof­fee places, but the cof­fee’s like two bucks where I’m, it’s like six to eight and it was great cof­fee [00:24:00] and then knock­ing them out real­ly quick­ly, I just, I felt like, um, I.

Every­thing was a lit­tle bit bet­ter than in the States and con­sid­er­ably cheap­er, and that was, you know, the, the cars are just the best exam­ple of that. I think they are a lit­tle bit bet­ter and they’re like half the price.

Tony Kynas­ton: Mm,

Cameron: Yeah.

Tony Kynas­ton: but not about to go broke.

Toby: Hard to, I mean at hard to tell at, you know, if the, if maybe there’s mas­sive stim­u­lus going on and I can’t, I don’t, I’m just not aware of that, but I don’t see them going broke. They look to me. I think there’s a rea­son­able chance that it’s like the US at the turn of the cen­tu­ry or some­thing like that, where every­body was like, you know, busi­ness mind­ed and ambi­tious and pre­pared to work hard to.

Improve their lot, and I think that’s what they’re doing and I think they’ll prob­a­bly suc­ceed. They’re smart, they work hard, like those things help.

Cameron: Your com­ment about the Mabb not under­stand­ing the macro side of it, reminds me of that inter­view you did with Rich Zen­ner

Toby: Oh

Cameron: recent­ly, which I thought was ter­rif­ic inter­view. [00:25:00] Um, we, we stole a cou­ple of quotes from it and talked about it on our show, um, I. Like, I think at one point towards the end of it, he said, I don’t under­stand macro­eco­nom­ics.

Don’t try to, you know, it’s nev­er been my thing. Uh, peo­ple ask me about Bit­coin, I say I don’t under­stand it. Um, that. It was great to hear a guy with that sort of pedi­gree. Just say, yeah, you don’t need, or he does­n’t even try to under­stand things that are beyond his remit. He just focus­es on the busi­ness­es and looks at spe­cif­ic instances, you know.

Toby: real­ly does. He likes invest­ing. And so he start­ed, the fir­m’s got his name on it, he start­ed it and he ran it for a very long time. he’s decid­ed that he does­n’t wan­na do any of the stuff that he does­n’t wan­na do any­more. So he is hand­ed over man­age­ment and mar­ket­ing, all that oth­er stuff to every­body else.

And all he does now pick stocks. Because that’s what he wants to

Cameron: mm-hmm.

Toby: And yeah,

Cameron: That’s what he loves.

Toby: knows,

Cameron: Yeah.

Toby: the macro. What do they say? Ignore the macro and just find the, the best bis­cuit mak­er in Bemid­ji or what­ev­er it is. Like [00:26:00] that’s all you need to do,

Cameron: Yeah, that’s very much our focus as well, isn’t it, Tony? That’s what Tony drills into us is just ignore the, ignore the noise and look for busi­ness­es that seem to be well run that you can buy at a dis­count for some rea­son.

Tony Kynas­ton: Well, there aren’t, I mean,

Cameron: Mm-hmm.

Tony Kynas­ton: my expe­ri­ence, sor­ry Tobias, is that there aren’t that many macro econ­o­mists who are bil­lion­aires, right. Maybe George Soros. Um, it, you know, if they were,

Toby: right once,

Tony Kynas­ton: yeah, if they were that good, rule the world, but they don’t. So they might be good at rear win­dow telling you why it hap­pened, but they’re ter­ri­ble at pre­dict­ing what comes next.

Toby: and I, I sim­i­lar­ly like Druck­en­miller, uh, who was a pro­tege of so, and was the one who came up with the idea for the for, for the. The trade that broke the Bank of Eng­land and so’s com­mit. Uh, you know, part of that was just mak­ing him make it big­ger. If you this Sure, sure, let’s make it 10 times big­ger.

Tony Kynas­ton: Yeah. Right.

Toby: And, but I like, I like lis­ten­ing to Druck.

’cause Druck says all this stuff that I agree with. then, you know, he says he’s got these [00:27:00] trades on and then he, they, they talk to him a year lat­er and he says, yeah, I just, I changed my mind. I reversed all those trades. I went and I made mon­ey. So don’t

Tony Kynas­ton: Yeah. No, that’s good. And, and like you just said, some­thing impor­tant that you lis­ten to some macro econ­o­mist guy because you agree with him, and that’s what it is. It’s almost like pol­i­tics these days. You’ve got Free­man on one side and some­one on the right, on the oth­er side, and peo­ple just lis­ten to the They want to hear and believe in.

Toby: a lot of that. There’s a lot of that. And you’ve also got guys out there like Tepa. Like Tepa got that boss of the wall trade, right. Uh, like 2012 or some­thing like that. He said, the feds told you what they’re gonna do, they’re gonna print, so just get max long. And that worked out real­ly well for him.

And then he did it again recent­ly where he said he was max Long Chi­na. And then he was sell­ing in the after­math of that, where every­body took him at his word, I guess, and was, you know, maybe that were get­ting longer, but he was dis­trib­ut­ing it out to them as, as they bought long. So I don’t know if you can nec­es­sar­i­ly lis­ten to.

There are very few peo­ple who are investors who I would lis­ten [00:28:00] to, and I mean, I would not trade on what any­body said nec­es­sar­i­ly, but you know, maybe Buf­fett would be the only one who he gets along. But even then, if you look at Buf­fet­t’s, if you look at Berk­shire Hath­away’s trades that come out in their 13 F, they have lots of posi­tions that they trade in and out of which maybe that’s the boys trad­ing through the insur­ance com­pa­nies or some­thing like that.

But even Berk­shire is not as buy and hold as

Tony Kynas­ton: No,

Toby: like on the label.

Tony Kynas­ton: no, they’ve, they’ve held onto the things which have done well, and they’ve got­ten e either the, either the, the bad trades have qui­et­ly gone to zero, or they’ve got­ten out of them.

Toby: That’s the trick I think, isn’t it? You just

Tony Kynas­ton: Yeah.

Toby: for­ev­er and qui­et­ly. So

Cameron: Mm-hmm.

Tony Kynas­ton: and then peo­ple say, oh, you’re buy­ing whole, but like

Toby: you

Tony Kynas­ton: they, they’ve held about four. They’ve held about four posi­tions.

Toby: That’s it.

Cameron: Do you wan­na, do you wan­na talk a lit­tle bit about War­ren’s retire­ment and you know, what War­ren means to val­ue invest­ing from your per­spec­tive?

Toby: Yeah, I’m, I’m a fan of War­ren’s. [00:29:00] I start­ed invest­ing because a friend of mine in uni­ver­si­ty said to me. There’s a bloke who runs an insur, well, the rich­est bloke in the world runs an insur­ance com­pa­ny. So I just tuned out as soon as he said that. then he said, but he writes these that explain what he does as an investor.

So I thought, oh, that’s inter­est­ing. I’ll go and read them. And it made sense when I read them. I think talk about that. Either they make sense or they don’t. Plen­ty of peo­ple who just like, I don’t want to take this long to get rich. peo­ple are like, well, at least this is like a, this kind of, there’s some sci­en­tif­ic process to this that you can apply.

Tony Kynas­ton: It’s why Bit­coin exists, right? The peo­ple who don’t get buffer, they don’t wan­na take time to get rich.

Toby: that’s right.

Cameron: The anti Buf­fett. Yeah.

Toby: it’s worked well for those guys too. So I should­n’t

Tony Kynas­ton: Yeah. Yeah.

Toby: be too, crit­i­cal of those guys. And then I think some­one said, you know, there’s some­thing about drink­ing, I, I for­get the anal­o­gy that they made, but they were like, they equat­ed it to drink­ing scotch where peo­ple start out drink­ing, you know, what­ev­er.

Some pret­ty. Ordi­nary blend and then they become more into it and they drink these more [00:30:00] exot­ic things like Isle of His Israel or the F FRAs and all the real­ly Petey ones. Then they go back to things that are just more easy to drink and they call it this like U‑Shape appre­ci­a­tion. And I think it’s the same thing with buf­fet.

Like every­body knows that buf­fet’s wealthy and a good invest­ment. So they start with buf­fet and then they just kind of describe, dis­card those ideas over the as they think they know bet­ter. And then after you’ve been doing it for a while and you’ve had some hide tak­en off and you’ve got some scars, then you go, I’ve done this plen­ty of times, thought that I’ve come up with some­thing new and gone back and red buf­fet from 1983 and real­ized he’d already come up with that idea.

And then he explains the three rea­sons why it does­n’t work. Like, oh, okay, that’s good. In 1983, I saved myself the, the trou­ble. So the things that I like, he’s, he’s very, he has this kind of sci­en­tif­ic approach. rec­og­nizes that you pr real­ly your own worst ene­my. You know, it’s so easy to fol­low a hot trend or to get scared out of some­thing.

’cause the very next [00:31:00] print or the stock price direc­tion isn’t the one that you want. if you’ve done enough work and noth­ing’s changed and you real­ly should­n’t be chang­ing your mind that quick­ly. And the final thing that he does that I love, which is uh, I think he, he gen­uine­ly is hon­est. Like he’s try­ing to do it the right way.

And I remem­ber read­ing the, the. That Lowen­stein book, the Mak­ing It of An Amer­i­can Cap­i­tal­ist, when I was like, when I was just in ear­ly uni­ver­si­ty and it made me feel pos­i­tive that you prob­a­bly could do it in a pret­ty hon­est, you did­n’t have to be kind of cut­throat to suc­ceed. And I thought that was a, so I thought those things were good.

And I think the fact that he’s as influ­en­tial as he has and he’s sort of pro­mot­ed those val­ues has been good for soci­ety, good for busi­ness in gen­er­al. Very sad to see him stand down, but that’s a pret­ty good knock.

Tony Kynas­ton: Yeah.

Toby: 60 years in the seat is a

Tony Kynas­ton: Yeah. Yeah, I mean, I, I agree with every­thing you said. He’s, he and Char­lie are my heroes. prob­a­bly add a cou­ple of oth­er things. I, I’d add that [00:32:00] he’s a very good mar­keter. think that’s prob­a­bly his, his, apart from his invest­ing skills, that’s his next biggest skill. so he always comes out in his annu­al reports and tells you what he did wrong that year, right off the bat.

So, which is real­ly good, you.

Toby: There,

Tony Kynas­ton: Very,

Toby: don’t do that

Tony Kynas­ton: they spin.

Toby: a good mar­keter, just like say­ing that you’re,

Tony Kynas­ton: Oh, I think it is. Yeah. I mean, mar­ket­ing 1 0 1 is you take your worst that take your worst thing and mar­ket it, mar­ket the hell out of it, Because it’s gonna be attacked. Every­thing else sells itself.

Toby: I see.

Tony Kynas­ton: So

Toby: sense. That might be

Tony Kynas­ton: yeah. So you look at any polit­i­cal par­ty, they’ll, um, they’ll spend most of their time talk­ing about the most con­tro­ver­sial thing, right? ’cause every­thing else. Their fol­low­ers are gonna believe. So that’s, but he is also, he also says things like, well, you know, tune out the noise. And I live in Oma­ha to keep away from Wall Street. And then you read about him, he’s on the Wash­ing­ton Post Board, he’s in Wall Street, he’s in New York with this guy and that per­son, he’s, he’s the [00:33:00] biggest net­work­er under the sun.

Toby: he is

Tony Kynas­ton: So, um.

Toby: very, very sophis­ti­cat­ed when he talks about. Yeah, when he talks about, like the deriv­a­tives one is one that always, every­body says, well, he wrote all of this stuff about deriv­a­tives being weapons of mass destruc­tion. And then he turns around and sells this giant put uh, the index.

You know, how is that any dif­fer­ent? But dif­fer­ent because he got the cash up front and he got to hold onto of the cash. And then,

Tony Kynas­ton: Yeah.

Toby: he had this. about where the index was gonna be in 10 years time. And it was a very mod­est hur­dle for him to get over and he could invest that cash at the same time.

And if he can out­per­form, then it makes total sense to do it as it hap­pens. He, he did­n’t have to pay out on it any­way, so he just got free of the cash. Pret­ty clever.

Tony Kynas­ton: Yeah, I mean, he makes the point that if he had, um, against Berk­shire Hath­away shares along the way, he would’ve been broke twice. So, it’s a pret­ty strong argu­ment against deriv­a­tives too.

Toby: do. you think, do you think that Musk has some pret­ty sig­nif­i­cant bor­row­ings against. shares

Tony Kynas­ton: Uh, I, I could­n’t say, um, [00:34:00] I don’t, I don’t fol­low. It’s, uh, like the antithe­sis of what, what War­ren teach­es. So,

Toby: it

Tony Kynas­ton: I don’t, don’t go near it.

Toby: me it’s, I, I fi I’m sort of, I’m sort of about Tes­la. I, I watch Tes­la from a dis­tance and I just, I, I, you know, it’s, it’s, I. Very well known. Musk is very well known. It’s, it’s in the news all the time, so it’s hard to avoid, but it’s one of those stocks that just seem to me, it just com­plete­ly defies every­thing that I’ve ever learned invest­ing and the fact that it has remained so resilient for so long.

And you can talk to peo­ple who are devo­tees and they have the sim­i­lar atti­tude. To Musk and Tes­la is prob­a­bly, as I did to, we do, to Buf­fet and to Berk­shire. So it’s, it’s just a curi­ous thing and I think that, I think that he does have some bor­row­ings against his, his share­hold­ing. And I, I’ve always thought there’s a rea­son­able chance that there’s a smok­ing crater at the end of the, the Tes­la, but not yet.

Tony Kynas­ton: Well, I think, I think his, um, big [00:35:00] advan­tage is Robin, what’s the name? Robin Den­im. The, uh, chair of the com­pa­ny. When­ev­er he needs mon­ey, he just his options, his, uh, remu­ner­a­tion.

Toby: Well.

I thought, I thought anoth­er sneaky way of doing it might be if he sells X AI or X, what­ev­er the whole, what­ev­er that con­glom­er­ate is now called into into Tes­la, which I think the Tes­la share­hold­ers are quite will­ing to enter­tain that propo­si­tion, and he’s valu­ing that at like a hun­dred bil­lion or some­thing like that.

So he’ll do well there too, if that hap­pens.

Tony Kynas­ton: I, I went past a, a Tes­la in a car park recent­ly and I had a stick­er on it say­ing, bought before Doge.

Toby: Yeah, I have

Cameron: I see he came, he came out today and was mak­ing some, uh, dis­parag­ing com­ments about the one big, beau­ti­ful bill and how it was go. was sup­posed to be help­ing reduce deficits and it’s gonna increase the deficit by 4 tril­lion or what­ev­er. It is so to see where his rela­tion­ship with the pres­i­dent is, uh, gonna go [00:36:00] in the next few months.

Toby: think he’s stepped back, has­n’t he? I think that’s the, I think it’s already hap­pened.

Cameron: Well, he says he has, but it’s his team that is still run­ning Doge, all of the guys that he put in there. So I’m not sure exact­ly to what degree his involve­ment, his, uh, out, I think he had to say some­thing to sort of stop the bleed­ing from Tes­la share price.

Tony Kynas­ton: he’s cer­tain­ly got

Cameron: But, um.

Tony Kynas­ton: the White House giv­en the recep­tion the South African Pres­i­dent had there in the last week, the

Toby: Yeah.

Tony Kynas­ton: white geno­cide

Toby: Yeah. I,

Tony Kynas­ton: issue.

Toby: the, I saw the, I saw the, um, I saw the pre­sen­ta­tion. Yeah. I, I saw what hap­pened.

Cameron: So, um, Tobias, we, know, we’ve, um, start­ed pay­ing more atten­tion to the US mar­ket now. I start­ed a US port­fo­lio 18 months ago. It’s doing quite well. It was doing a lot bet­ter before Trump’s tar­iffs, but, um, it’s still doing okay, it’s two things I [00:37:00] want­ed to ask you about. One is about your. Prog­nos­ti­ca­tions on where the US econ­o­my is going, if you have any. And sec­ond­ly, you talk about bench­mark­ing your fund, you seem to be com­par­ing it to the fangs or the AI stocks or what­ev­er instead of against some­thing like the s and p 500. Is that right? Is that, how do you mea­sure your respec­tive per­for­mance?

Is it against the top end of town or, or just the medi­an?

Toby: Yeah, so I would mea­sured prop­er­ly against a bas­ket of stocks that is more com­pa­ra­ble to the uni­verse that I’m invest­ing from, which would be Rus­sell 1000 for Zig 2000 for deep. And then real­ly, Rus­sell 1000 val­ue is the appro­pri­ate bench­mark on Rus­sell 2000 val­ue. But it’s, and that, that’s like intel­lec­tu­al­ly, that’s, that’s the truth.

That’s a, that’s what I should be [00:38:00] mea­sured against and that’s the, the place to be. That’s what I should be com­pared to. But real­is­ti­cal­ly, s and p 500 is an option for peo­ple. And so are, you know, uh, an even fur­ther con­cen­tra­tion in their end of the mag sev­en or some­thing like that. So you can’t ignore those things com­plete­ly.

And, but I, I am. I’m real­ly, I don’t care too much about either of those things because I’m try­ing to, ulti­mate­ly, I wan­na find things that are gonna sur­vive what­ev­er hap­pens over the next, you know, few years. And I don’t have any par­tic­u­lar view about the US econ­o­my’s strengths or oth­er­wise. I, I think that there’s lots of things that you could point to and say, these are scary, you know, got huge debt.

Um. That’s a prob­lem at some point, although it does­n’t seem to have been a prob­lem yet and so may maybe it nev­er is a prob­lem and there are all of these lit­tle like macro­eco­nom­ic indi­ca­tors that are var­i­ous­ly up or down or I think that the pic­ture is, you could make an argu­ment either way that the US is a very [00:39:00] strong econ­o­my, mar­kets very expen­sive.

Jus­ti­fi­ably so, it’s weak­en­ing and it’s turn­ing and it’s over. It’s too expen­sive and it should come down quite a lot. I don’t know which one of those play out. I think that what­ev­er hap­pens, I just wan­na be in things that are cash flow­ing pret­ty well, pret­ty healthy bal­ance sheets, doing some­thing with those cash flows.

So if we go into some­thing like if we are in fact in the ear­ly two thou­sands and the index goes side­ways, I think folks. Might’ve for­got­ten this, but the index went side­ways from 2000 to 2015 and there were two pret­ty big drops through that peri­od of time. So it’s entire­ly pos­si­ble that that hap­pens again, if you are in that kind of mar­ket, you want to be in deep val­ue because the deep val­ue stuff val­ue has tra­di­tion­al­ly worked by you buy some­thing that’s a lit­tle bit that’s under­val­ued.

And you get a lit­tle bit of mean rever­sion. So it tends to go back to val­u­a­tion or, or clos­er to what its aver­age val­u­a­tion should be as [00:40:00] what­ev­er bad thing sort of pass­es on. And then you’re sell­ing out of that more expen­sive stock now and rebuy­ing some­thing cheap­er. And that sort of ratch­et effect of buy­ing and sell­ing from to cheap and so on can gen­er­ate per­for­mance when the stock mar­ket is drift­ing side­ways, which is what I think hap­pened in the two thou­sands.

It’s hap­pened repeat­ed­ly since the stock mar­ket, you know, 1850 or 1825, wher­ev­er you can get the data going back to, not uncom­mon. And there’s the, the equal­ly, the, the, the growthy techie cycles have been, um, they’ve hap­pened many times too. They’ve been at least six. You know, the orig­i­nal one was, the first infor­ma­tion boom was the tele­graph, my lat­est sub­sea cable from Lon­don to New York, so they could do.

Gold arbi­trage between the two. And the first trans­porta­tion rev­o­lu­tion was the steam ships, so they could move goods and things around a lit­tle bit faster [00:41:00] than they had pre­vi­ous­ly. Every­thing was, you know, infor­ma­tion and prod­ucts trav­eled as fast as the wind blew from Lon­don to New York and, and back again.

And every sin­gle time that that’s hap­pened, it’s been bad for val­ue and, and great for growth. But then once the mar­ket sort of that infor­ma­tion once. a.com is not mere­ly enough to like pump your stock price up, and you need to, actu­al­ly, a.com is table stakes Now every com­pa­ny’s got a.com.

So I think that same thing hap­pens. Ai, there’s a lit­tle bit of excite­ment, even­tu­al­ly every com­pa­ny’s gonna have an AI strat­e­gy, whether deal­ing with cus­tomers or in their prod­uct. And that hap­pens, the, the mar­ket will just assim­i­late that infor­ma­tion. We’ll go back to nor­mal, we’ll go back to buy­ing on fi on a finan­cial basis so it becomes more of a finan­cial cycle.

that’s when you see the reemer­gence of the pri­vate equi­ty guys and that sort of stuff. I think that we’re prob­a­bly get­ting close to some­thing like that hap­pen­ing. And that’s a good place. That’s, that’s good thing for deep val­ue because that’s exact­ly [00:42:00] what deep val­ue is. Just buy­ing on the finan­cials rather than the sto­ry that attach­es to the stock.

Tony Kynas­ton: Yeah, I think you’ve made a lot of good points there, and the least of which was the mar­ket can go up, it can come down, it can go side­ways. And as long as you pro have a frame­work for deal­ing with each of those, it does­n’t mat­ter which way it goes And I think the val­ue is the, or val­ue is the frame­work. For that. it always has been the frame­work for that. and I, the only oth­er thing I’d throw into the mix that you did­n’t men­tion is, uh, pas­sive invest­ing. So we’re see­ing it on the ASX in stocks, or par­tic­u­lar­ly Com­mon­wealth Bank, which is now the world’s most expen­sive bank on, you know, most met­rics. Um, but it’s, you know, good old pri­vate, uh, good old, uh, you know, pub­licly owned, ex South Wales gov­ern­ment owned. Pret­ty basic vanil­la bank, sell­ing mort­gages and tak­ing deposits, and yet it’s, [00:43:00] it’s, you know, and they nor­mal­ly trade on low dou­ble dig­it PEs. It’s like dou­ble that now at least. Um, and it’s all because index funds, I. It, becomes a ham­ster wheel index funds by Com­mon­wealth Bank ’cause it’s the biggest share in the mar­ket, which dri­ves up the price, which means insect funds by Com­mon­wealth Bank ’cause it’s the biggest share in the mar­ket. A lot of that’s going on in the US now. I mean, I’ve seen seen analy­sis which says it’s some­thing like I. I for­get now what it is, the US is well over half of the index is now well over half of the inter­na­tion­al­ly focused hold­ings for pas­sive invest­ing, and then the mag sev­en share of that is like 30 or 40%. So it’s soon as the speed bump gets hit and those pas­sive funds flow out, that’s in the ham­ster wheel stops.

That’s when it’s gonna be a prob­lem, I think.

Toby: There’s a the­o­ry that floats around here, pro­mot­ed by Michael Green, who he, he, that’s his, basi­cal­ly, his the­o­ry that this pas­sive investors are price insen­si­tive because they. [00:44:00] pure­ly based on Mabb float adjust­ed mar­ket cap­i­tal­iza­tion. And so the biggest com­pa­nies with the most float out there attract the lion’s share of the flows and every­thing else is kind of left behind.

And he says that the end result of that is that all of the price sen­si­tive buy­ers leave the mar­ket. so you’ve only got these pas­sive funds com­pet­ing with each oth­er, and even­tu­al­ly prices go to Infin­i­ty and then col­lapse to zero. I don’t know if we quite get to that point, but I, I think that this, we’ve seen this before though.

I think that every sin­gle mar­ket top looks like this. Every sin­gle mar­ket is

Tony Kynas­ton: Hmm.

Toby: good for big growthy. Com­pa­nies, and this is, that’s exact­ly what hap­pened in the late 1990s. It was every­body thinks of it as a.com boom, because that was sort of the, that was the new fla­vor at the time. But real­ly it was com­pa­nies like Wal­mart was very, very big.

GE was too big. Microsoft. Um, was mas­sive and they, they were remained very, very good busi­ness­es from 2000 to 2015, but the stock [00:45:00] prices went nowhere because, um, they were just too expen­sive at the begin­ning, even though under the hood they were sort of still grow­ing earn­ings at like 15 or 20% a year. They were com­pound­ing away as busi­ness­es, but the stock prices were going nowhere.

And that was a, a bet­ter mar­ket for val­ue. I don’t know, um, that it’s a, that. is this pas­sive flow that will always dic­tate it. It seems to me that if they, if these pas­sive flows are up one part of the mar­ket and pulling down anoth­er part, or these, this oth­er part isn’t par­tic­i­pat­ing, should­n’t that mean that there are bar­gains there for val­ue investors to pick up?

And if you are, you know, if

Tony Kynas­ton: Absolute­ly.

Toby: you don’t need nec­es­sar­i­ly mul­ti­ple expan­sion to make mon­ey in a busi­ness. If the busi­ness is buy­ing back stock, the mul­ti­ple can stay flat and the under­ly­ing busi­ness can do quite well. On a per share basis, and that’s how your per­for­mance is mea­sured. So I, I think that there’s lots of, and I, I, I par­tic­u­lar­ly like those kind of com­pa­nies where they’re real­ly good cash flows busi­ness, the man­age­ment [00:46:00] is smart, and they buy back stock at oppor­tune times.

And I, my port­fo­lio tends to be filled up with com­pa­nies that pret­ty good repur­chas­es of stock. And that’s been a very, like, if you look at some­thing like Auto­Zone or O’Reil­ly, those are com­pa­nies that there’s been this, you know, they, they sell, um. Goods for cars. Basi­cal­ly, they sell like parts for cars, for peo­ple who are DIY.

Like you wan­na clean, you get some armor all or you, you know, change your own bits and pieces in your car. And the the­sis has been, well, EVs are gonna come in, nobody’s gonna need these pieces any­more. All these busi­ness­es are gonna die. But they’ve, they’re still open­ing up hun­dreds of loca­tions. These busi­ness­es, they’re still cash flow­ing real­ly well, and because they’re cheap, they buy back stock.

And the stocks have per­formed phe­nom­e­nal­ly well for peri­ods of time. And so I like that mod­el where an under­stand­able mod­el. It’s a pret­ty sim­ple busi­ness. There are lots of these lit­tle sim­ple busi­ness­es around that do that, and I think they’ll do well, even if they don’t get the mul­ti­ple expan­sion, sim­ply because you’re just get­ting that [00:47:00] val­ue con­cen­trat­ed in a, in what­ev­er stock remains.

So I, I think that there are ways to out­per­form, even though there’s a lit­tle bit of mul­ti­ple com­pres­sion sort of going against you until the mar­ket turns. And when it turns, then you know, val­ue will have a good. or 15 years, hope­ful­ly as it has in the past.

Tony Kynas­ton: Yeah. When the, when the tide goes out, we see he’s swim­ming naked. But, um, que ques­tion for you about buy­backs because, uh, uh, you know, there’s is the, one of the dif­fer­ences between the Aus­tralian mar­ket and the US mar­ket as we have frank­ing cred­it, so is a, is a com­pa­ny buy­ing back shares equiv­a­lent to a com­pa­ny pay­ing a good div­i­dend yield in Aus­tralia? Or you’ve had expe­ri­ence in both.

Toby: Yeah, that’s a good ques­tion. Um, I. You would pre­fer prob­a­bly just to get the div­i­dends. you can get, if the, the, the Aus­tralian sys­tem is great because it, that frank­ing cred­its make you, you’re, you’re total­ly, you, you’re, uh. I was gonna say ambiva­lent, but you don’t real­ly care which way. You know, if you get the flows as div­i­dends, not [00:48:00] dou­ble taxed.

Here, it’s a dif­fer­ent

Tony Kynas­ton: Hmm.

Toby: are dou­ble taxed so all else being equal, you prob­a­bly want the com­pa­ny buy­ing back stock. prob­lem here is that they have intro­duced this 1%, like it’s not, that’s not real­ly much. That’s basi­cal­ly bro­ker­age on, is a 1% tax on buy­backs, which is either the thin end of the wedge, so they can jack that up over time.

Or it’s, it’s a lit­tle, it’s a lit­tle irri­tant. I think. It’s not a, it’s not the end of the world, but it’s def­i­nite­ly, you know, have to pay that. It is, it is a, it’s bro­ker­age, I guess, but it’s, it’s, it’s an irri­tant. No, I would pre­fer that it was­n’t there.

Tony Kynas­ton: Uh, uh, you know, there, apart from the size and liq­uid­i­ty of the mar­ket, what oth­er dif­fer­ences do you encounter run­ning a fund in the US com­pared to how it might hap­pen in Aus­tralia? I mean, I’m talk­ing about quar­ter­ly report­ing, reg­u­la­to­ries, dif­fer­ent class­es of shares. What, what else do you need to take, take a, be aware of.

Toby: hate those dif­fer­ent class­es of shares. That’s some­thing you encounter pret­ty fre­quent­ly over here. Like Google is owned by three blokes. That’s Ser­gio Brynn, [00:49:00] Lar­ry Page, and uh, Eric Schmidt. And every­body else has got non-vot­ing stock. Even. There’s two class­es of stock that are pub­licly trad­ed that nei­ther of them vote.

so you’re just par­tic­i­pat­ing with what­ev­er those guys do, which, You know, that’s sub­op­ti­mal. It’d prob­a­bly be bet­ter to have a lit­tle bit more exter­nal pres­sure, par­tic­u­lar­ly giv­en the nature of that busi­ness, which is like infor­ma­tion heavy. And every­body’s got a Gmail account, so they prob­a­bly know every­thing that every­body’s doing.

not sub­ject to, you know, any over­sight. And they’ve got who­ev­er their CEO is, uh, is it Son­der?

Cameron: Stu.

Toby: He’s out there, he is a human shield and he gets, you got a few hun­dred mil­lion to be a human shield. It’s prob­a­bly a job I do wan­na sleep at. You know, it’s not, it’s not a real, it’s not that same you have in Aus­tralia where there’s only ordi­nary shares.

There’s no sec­ond class of shares, which I think is a good thing. I, the report­ing inter­est­ing because I’ve worked in a com­pa­ny that had to report in Aus­tralia and it’s, there’s a [00:50:00] lot of work in report­ing, even, even half year­ly. I don’t know how they do it in the states. I mean, it would take you a quar­ter to put togeth­er your reports, so you.

Just spend the entire quar­ter putting togeth­er your report, report and then, so your entire busi­ness is just report­ing. You don’t actu­al­ly ever get around to run­ning the busi­ness. But as an investor, I like hav­ing quar­ter­ly reports so I can see what’s hap­pen­ing. that’s a, that is a, is a lit­tle bit of a dif­fer­ence.

The oth­er thing is there’s mar­ket mak­ers here. There’s no mar­ket mak­ers in Aus­tralia, so you just, you stick your trade in the screen and it gets, some­body on the oth­er side picks it up, or they don’t. Here the mar­ket mak­er can enter in. And, you know, cause the trades to occur, which is a strange kind of, um, hang­over from a, from a pre­vi­ous time I think.

I don’t think you would nec­es­sar­i­ly need a mar­ket mak­er. I don’t know if it, I don’t know how that impacts the mar­ket, but it’s some­thing that I’m always aware of. And also the prime bro­ker­age is much more that prime bro­ker­age is stan­dard here. that used to be, nobody ever knew what that was [00:51:00] until A GFC came along.

And, you know, they had all those com­pa­nies that had the reation of that they’d lent out to some­body else who. They did­n’t, they did­n’t own them. And then when they col­lapsed, you go to the com­pa­ny, you go to the bro­ker ask­ing for your stock, and they’ve already lent that out and it’s some­body else has got that stock.

That’s the stan­dard here in Aus­tralia. You hold this, tend to hold the stock your­self, and it’s unusu­al to find prime bro­ker­age. I don’t know that they real­ly make much dif­fer­ence. Any of that stuff makes much dif­fer­ence to the way that the, the mar­ket runs. Like there’s plen­ty of tiny, tiny com­pa­nies here that just nev­er, ever trade.

Trade by appoint­ment, just as there are in Aus­tralia. There’s plen­ty of big com­pa­nies that, plen­ty of liq­uid­i­ty in their trade all the time. I always think it’s fun­ny look­ing at, you know, some days Tes­la trades more than spy, which I find just bizarre.

Tony Kynas­ton: Yeah. Right. And, um, what about, uh, reg­u­la­to­ry, require­ments? So for your pod­cast, for exam­ple, do you have to hold the equiv­a­lent of an A FSL [00:52:00] license to, to talk about shares?

Toby: So I have, I have a license. I have a Series 65, series sev­en, some­thing like that. I for­get, which I might have both or one or the oth­er. I for­get which one I have, and I have to, I have that to man­age the funds, but I’m very care­ful not to men­tion funds on my pod­cast. And as long as I do that, I’m okay.

But if I start talk­ing about my funds and I, then I have to put all of my pod­casts through com­pli­ance, which would be, which would be a night­mare, which would mean that I would have to, I would have to approve an hour of me talk­ing about them every week. Yeah. So you don’t need the A FSL for the pod­cast, but I do need it for the funds, the

Tony Kynas­ton: Right.

Toby: FSL.

Tony Kynas­ton: Yeah, yeah. Okay. Yeah. Inter­est­ing. Yeah. Yeah. I, I think that was my ques­tions. Cam, do you have any­thing more to go through?

Cameron: No, I think we’re com­ing up on an hour. Any­way, we’ve tak­en [00:53:00] enough of your time Toby, so thanks for shar­ing that. And um, guess my last ques­tion real­ly is, uh, do you have an exit plan if the US ends up in a civ­il war? How are you get­ting out? ’cause one of my, one of my sons moved to LA a cou­ple of months ago, and it’s what he and I spent a lot of time talk­ing about is if shit goes down, how do you get out? Do you have a sub­ma­rine or some­thing like that ready to

Toby: like that. I think that, I think that, you know, it’s like a lit­tle bit like being in Chi­na rel­a­tive to what the rest of the world reports on. It’s real­ly, you know, I, I go out­side the sun’s shin­ing. I walk the kids to school. It’s, it’s, it’s not a bad life where I live, and I, I don’t real­ly encounter any­body who’s.

You know, know the, there, there’s a, the polit­i­cal view in Cal­i­for­nia is one thing. Go to Texas. It’s a, it’s a dif­fer­ent way, but don’t think that the fight­ing will be state by state or any­thing like that. Like it, it would break along very fun­ny lines. [00:54:00] I don’t think a civ­il war is a real pos­si­bil­i­ty.

Um,

Tony Kynas­ton: inter­est­ing, isn’t it? time I go to Amer­i­ca, the peo­ple are real­ly friend­ly and I get on well with them and I, you know, per trip I might encounter one or two idiots. But, um, they’re eas­i­ly man­aged. But like in Aus­tralia, you get, I get in the car and they encounter one or two on the first street I dri­ve down.

So it’s a pret­ty civ­il place in the us.

Toby: Amer­i­cans, um, I think that Amer­i­cans are great busi­ness­men because they have this atti­tude that you, they real­ly, they, they real­ly do assume pos­i­tive intent in most things that peo­ple say. And I. I think Aus­tralians, um, like we, we like to joke around a lit­tle bit. We’re sort of teas­ing, you know, that’s kind of the Aus­tralian per­son­al­i­ty.

Like nev­er real­ly give a straight answer to any­thing. And I think Amer­i­cans are very earnest, you know, they take that what we, they take out teas­ing a lit­tle bit, lit­er­al­ly some­times. So I think that could cre­ate a lit­tle bit of ten­sion. But now that I’m sort of aware of that, I just, I’m, I have few­er of [00:55:00] my lit­tle aus­tralian­ism than I try to just.

Answer the ques­tion direct­ly for the

Tony Kynas­ton: Yeah,

Toby: And, uh, it’s been fine.

Tony Kynas­ton: they don’t get satire, do they? Very, ’cause they take it all lit­er­al­ly.

Toby: I

Cameron: My wife.

Toby: uh, to give

Cameron: My wife,

Toby: it, there is a, it is a pos­i­tive thing. It’s not, it’s not that they don’t

Tony Kynas­ton: Oh no, you’re right. Yeah.

Toby: pos­i­tive intent.

Tony Kynas­ton: Yeah. Good

Toby: you.

Cameron: my wife’s Amer­i­can. No, that’s what I was gonna say. My wife’s Amer­i­can and it, it took her, I think, 10 years liv­ing here before she got, I. Uh, accus­tomed to peo­ple tak­ing the piss and that it was a sign that they like you, you know, they, they would­n’t take the piss if they did­n’t like you. It’s, it’s, it’s a sign of affec­tion, not a, not a sign of aggres­sion.

Toby: trust you to

Cameron: Took a long time.

Toby: Oh, I trust

Cameron: Yes.

Toby: and,

Tony Kynas­ton: Right.

Cameron: Yeah.

Toby: me at face val­ue, then we’re all then that it’s reveal­ing some­thing about the way that you think that I think, which is, yeah, I’ve, I’ve had a lot of time to think about this stuff ’cause I’ve had to nav­i­gate it both ways.

Tony Kynas­ton: Yeah. Right.

Cameron: Yeah.

Tony Kynas­ton: Well, I, I’m glad to hear your accent has­n’t changed. I’ve been lis­ten­ing to your, your pod­cast [00:56:00] in prepa­ra­tion for this, this dis­cus­sion. uh, after about five min­utes of the first one I lis­tened to, I thought this is like a, this is like a car­toon, like a Dis­ney car­toon, all these dif­fer­ent Amer­i­can accents, but then it’s con­trast­ed against.

What I would call a nor­mal accent, an Aus­tralian accent. You sound like the adult in the room talk­ing to Daffy Duck and Picky Mouse when you’re on the pod­cast. Yeah.

Toby: nev­er, I don’t, I don’t con­scious­ly do any­thing, but I have, I have heard coun­tries say in Aus­tralia that I’m eas­i­er to under­stand in Aus­tralia than oth­er Aus­tralians, but it’s not any­thing con­scious that I’m doing oth­er than can’t, you can’t walk up to some­one and say, gday like that.

You can’t open the con­ver­sa­tion with gday ’cause that they’re not look­ing for that. They’re look­ing for

Tony Kynas­ton: Yeah. Right.

Toby: or hel­lo or some­thing like that.

Tony Kynas­ton: Yeah.

Toby: things. It’s just weird lit­tle cul­tur­al things like that.

Tony Kynas­ton: Very good.

Cameron: All right. Thanks for chat­ting with us, Tobias. Appre­ci­ate

Toby: it’s,

Cameron: Oh, before you [00:57:00] go, for our Amer­i­can lis­ten­ers, if they wan­na check out the fund, they go?

Toby: Zig and Deep. Go to your bro­ker­age account. Type in Zig, type in deep. Check out acquir­ers multiple.com. Check out acquir­ers mul­ti­ple in Ama­zon, I’m work­ing on a new book. I’ve almost got the first draft fin­ished, so that’ll be out hope­ful­ly some­time in the next few months, I think. Um, I haven’t, I, I’ve, I’ve just fin­ished the first draft.

I’ve got­ta go back and read it and make sure I haven’t gone insane, that it sort of makes sense, but I feel pret­ty good about this as it stands at the moment.

Cameron: Is this an invest­ing book or is it about um, how to, how to be good look­ing. Oh, okay. So it’s, uh,

Toby: I’ve got a fil­ter. That’s how, that’s how you get a, get a good fil­ter.

Tony Kynas­ton: An

Cameron: you can’t trust I, you could be ai. As for all I know, what’s the, what’s the premise of the new book? Can you tell us a bit about it?

Toby: So I’ve called it Sol­dier of For­tune at the moment [00:58:00] and it is, um, the ancient art of risk tak­ing. Using Sun Sue and War­ren Buf­fet. Uh, it’s a, it’s a, it’s a gam­ble. Peo­ple are either gonna think that I’m nuts or hope­ful­ly they’ll, they’ll get it and they’ll enjoy it. It should be, it’s sup­posed to be a pret­ty light­heart­ed read.

I’ve used three of buf­fet’s, known, but trans­for­ma­tive deals and some of the moti­va­tions that he has for doing these things that were a lit­tle bit of a depar­ture from what he has tra­di­tion­al­ly done. And then I just try to dis­cuss what that reveals about. His strat­e­gy beyond sort of just try­ing to buy things that are under­val­ued or things that are like the won­der­ful com­pa­nies at a fair price.

They’re just try­ing to reveal a lit­tle bit more of the strat­e­gy. That’s the idea.

Cameron: Ter­rif­ic. Well, when it uh, comes out, you’ll have to come back on and we can talk about the

Tony Kynas­ton: And you have to

Cameron: Sounds great.

Tony Kynas­ton: be a sol­dier of for­tune

Cameron: I.

Tony Kynas­ton: patch.

Toby: yeah, that’s the, that’s the only con­cern. I’m no sol­dier, I’m no [00:59:00] war­rior. a lover, not a fight­er.

Cameron: All right, well, uh, thanks again and, and look for­ward to hav­ing you on in a few months when the book comes out and we can get our head around it. That’d be great. Love, love a good War­ren Buf­fett sto­ry.

Toby: I appre­ci­ate it.

Cameron: Thomas.

Toby: for hav­ing me

Cameron: Cheers, mate.

Tony Kynas­ton: bye.

[01:00:00]