We Study Billionaires - The Investor’s Podcast Network - TIP286: Mastermind Discussion 1Q 2020 (Business Podcast)

Episode Date: March 8, 2020

On today's show, we have the mastermind discussion for the 1st Quarter of 2020. The group talks about various investing ideas and the crazy dynamics currently playing out in the stock market.   IN THIS EPISODE YOU’LL LEARN: What the Intrinsic value is of ExxonMobil and Etsy. Why Exxonmobil’s plan for 2025 may indicate a 16% annualized return for you as a stock investor. If ExxonMobil’s 7% dividend is sustainable. Why Preston thinks that Bitcoin could go to $20,000 by the end of 2020 and $200,000 by the end of 2021. Ask The Investors: How do you pay yourself when your holding period is forever? BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Preston and Stig’s FREE resource, Intrinsic Value Index. Subscribe to Preston and Stig’s FREE Intrinsic Value Assessments. Preston and Stig’s tool for stock selection and determining the momentum, TIP Finance. Join the Mastermind Group and the TIP Community for the Berkshire Hathaway Annual Shareholder’s Meeting. Warren Buffett’s letters to shareholders. Tobias Carlisle’s podcast, The Acquires Podcast. Tobias Carlisle's book, The Acquirer's Multiple - read reviews of this book. Tobias Carlisle's ETF, ZIG. Tobias Carlisle's Acquirer's Multiple stock screener. Tweet Directly to Tobias Carlisle. The Investor's Podcast Network interview w/ Jason Moser from Motley Fool about Etsy. Preston's discussion of Bitcoin's Stock to Flow metric and article by Plan B. NEW TO THE SHOW? Check out our We Study Billionaires Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts.  SPONSORS Support our free podcast by supporting our sponsors: Bluehost Fintool PrizePicks Vanta Onramp SimpleMining Fundrise TurboTax HELP US OUT! Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. On today's show, we're having our mastermind discussion for the first quarter of 2020. Normally, we're accompanied by our good friend, Hari Ramachandra, but he was out of town for this quarter's recording. With that said, we do have the thoughtful Tobias Carlisle from the Acquires Fund with us. During the show, we talk about a commodities pick, a short sale, and a controversial currency. Like all other mastermind discussions, the value of the episode is more on the challenging questions, the critical thinking, and the counter-opoe opinions that cover hot topics and hot picks. So without further delay, here's our chat. You are listening to The Investors Podcast, where we study the financial markets and read the

books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Hey, everyone, welcome to the Investors Podcast. I'm your host, Preston Pish, and as always, I'm accompanied by my co-host Stig Broderson. And we have our mastermind group. here, Toby Carlisle. Welcome to the show. Always great to have you back on here. Hey, thanks so much for having me. It's good to see you guys. Good to see Stig again since we met for the first time in the flesh in Los Angeles. Yeah, it was good fun and fun having Preston calling in over Skype too to say hi to everyone. And the community was so surprised that we haven't met

in person before Toby, even though we talk all the time. We do. We talk a lot. We just don't meet because we're in different countries. Good event. Well, guys, it's cut right to the chase. So Who wants to go first with a discussion on a specific company or investment? Well, I've got a name for you. I've got to say, I'm a little nervous about this one. It's a short, as always, I've been doing lots of shorting over the last year or so, I guess, since we've been talking about doing the last year of these masterminds. So the short that I want to discuss is Etsy.

Just so you know, in the fund, we do short. We short position small, so they're 66 basis points, which is 0.660. of 8% so they're very small on the fund. And the reason we do, we have shorts on them in there and we short small is because shorts can move around very violently. In the ordinary course, they're going to lose a little bit of money. But if we get a big crash like we're kind of going through now, what the shorts do for our book is that they stand up a little bit more than the market going down. So they do a little bit better than their weight in the portfolio, which is what they're doing for hours at the moment in the funders, the market's going down. So Etsy, everybody's

probably heard of Etsy. It's a niche online, e-commerce business. If you make something by hand and you sell it online, you're probably selling it through Etsy. So there's a lot of handmade stuff in there. They've basically had no competition for an extended period of time. And they've been doing pretty well. They do generate free cash flow. They're currently trading on 35 times cash flow, enterprise multiples more like 50 times, PEs like 70 times. So it's extremely expensive. It's a six plus billion dollar market cap.

I've got a little bit of debt in there, but they've got some cash balancing out the debt too. So they're basically a wash on an enterprise multiple basis. The issue for them has been twofold. One, their users are increasingly upset about the amount of money that they take and the way that they change the algorithm for these guys to be discovered because some of these people, that's their livelihood and they're running businesses through these sites. And now there's a lot of competition coming up from probably most concerning the one is Amazon handmade.

So if you go through any of the online forums looking at what Etsy sellers say, particularly, funnily enough, even on, if you go onto Seeking Alpha and you look at the comments under some of the bull cases on Seeking Alpha, users of the site go on. and comment on those stock picks, which I always think is funny. I think that's kind of telling if they're so upset that they're prepared to talk about it on a stock pick site. The issue for them is that when they change the algorithm and they change the way that they charge, it makes it harder for these guys to work out how to get their stuff to the front page

and stuff. Etsy's changing it all the time, trying to figure out what the best mix is. So basically they've got this reputation now for really annoying their creators. At the same time, it's supposed to be all of this handmade stuff. it's increasingly, there are a lot of these mass-produced factory stuff that's kind of a fake. It appears to be handmade, but it's not really. It's ripped off. And so they copy each other and they copy what's working and they do it on a mass scale,

which, again, upsets the users. So I've seen some commentary that folks think that the profitability and the number of people who are prepared to use Etsy may have peaked. Now that was my thesis coming into this podcast. This week, just before, just before we recorded this, so I told you guys the pick about a week ago. In the course of this week, they've released some earnings, they've had a blockbuster earnings quarter. The stock has jumped pretty substantially over the course of the week. I'm not sure how much it's up, but it's 20 or 30% over the course of the week.

And that would be something that would make me very nervous about a short that I was about to put on. and that would probably mean that I would hold off a little bit because it's not a good idea to be trying to short into companies that are racing ahead like that. So one of the things that we look for is broken momentum. If you look at Etsy, it's down over the last year pretty substantially and it's been falling all year long. But it's had a little bit of strength over the last month or so. So I think that, while I do think that Etsy has a lot of problems and it's extremely expensive, this would be one that I would just watch a little bit longer. even though we already hold it because we just don't rebalance. We're likely to rebalance, well, we do rebalance at the end of the quarter,

which is early, sorry, late March. And I don't know at that stage whether it will be included in the next portfolio or not. At the moment, it looks like it will be. But I just, it would depend a little bit on where the stock price goes from here. It's really interesting that you bring up the Amazon thing. I'm kind of curious how much growth they've seen. Are you able to find that number, how much growth they're seeing for their handmade Amazon stuff? stuff, Toby? No, it's fairly new. The offering seems to be. So Etsy says that they charge

it's 20 cents to list and then there's 5% transaction fee, then there's another 3% processing fee and so on. So Etsy's headline number is like 5%. They take 5% of sales. And Amazon takes 15%. But some of the folks inside Etsy say it's not right that they take 5. Once you add in all these other fees, it comes to 17. So, even though Amazon seems to be on a headline level, more expensive, at practical level, it looks like they're a couple of percent cheaper. And just because they're such a huge site and they can share the stuff so broadly, not that Etsy's not, but it's a much bigger site.

I think it's likely that they take some share. And there are some smaller competitors that are more niche coming through. And I'm looking at the top line. And so it looks like they are, is that right, 818 million for 2019. and the year before that it was $604 million for their top line. So how is it looking quarterly? Is it look like it's slowing down and you're not getting that same growth rate or something?

They've been growing very strongly. What we were trying to do here was to find that tipping point where that's seen that that growth slowed and peaked. But I think that what the most recent quarter shows that they're still growing very substantially and they're still making a lot of money. So I'm just giving you the thought process of looking at one of these things in real time.

And I would say that where I was more confident before the last earnings came out, the most recent earnings make me probably need to go back and have a look at this a little bit more closely. So I would revisit it closer to the end of the quarter. It's a tricky thing. We sent our picks to each other a week ago, and we were recording this the first of Mars. And as people who are following a financial markets would know, a lot of things has happened. At the lowest point, we were down like 15.5%, I think, which December 2018 was closer to 20. If we specifically look at that Q4 earnings that came out here last Thursday and the stock popped

14%, which is quite a lot, especially the way the market behaved. I see revenue rose 35% for the quarter to 270 million, quite substantial. They had an earnings beat. And it's not so much that it beat estimates by 9 cents. It's just more that in the day and age where it seems like as long as you just lose billions, and billions of dollars, as long as you have a grown top line, we can still value a company for hundreds of billions of dollars. If we look at the revenue growth rates here with the past three years, or even over the past five years, we're looking at something in excess of 30%.

It's rough. And another thing I would like to mention here before to throw it over to you is one thing I noticed reading up on Etsy is the offside ad strategy that they offer, where they pay the upfront cost to promote sales listing on multiple internet platforms. I'm not saying, that this is a viable strategy. I mean, this makes me think of whenever PayPal paid people to refer their friends and actually just deposited money in their account just to get that networking effect going. But both active buyers and sellers has been growing in the 20% range. And yes, they might be burying a lot of cash and yes, it might not be profitable to do that. But if the market just looks at that growing top line and just whatever kind of sminch they can see

of profits and then value that to be worth twice as much or whatnot. I think this is a stock that's really tricky to short, to say the least. Yeah, no disagreement for me there. I was looking at this pre-the-earnings release, hoping that the earnings release was going to be what I expected it to be, and then I'd be talking to you about a post a successful earnings release from my perspective, but I think the thesis is a little bit broken at the moment. I think that there's some evidence there that they are struggling for growth a little bit by the fact that they're going off platform and prepared to pay other platform fees. And the users of the site don't seem particularly happy about it because those fees are

ultimately passed through to the people who sell on the site. If a sale occurs offsite, they are charged the additional amount. Etsy doesn't pay that amount. From what I could read, people seem to be pretty upset about that. But the point remains that it is growing at a very high rate. And the most recent earnings sort of seem to reinforce that view rather than show an end to it. So I'm going to wait until we say. the next round again. But I still think that it's extremely expensive and it's got some problems. So

I wouldn't necessarily be buying it long here either. Yeah, and I agree with that last statement. I don't think I would be shorting it, but I definitely don't think I'd be going long at either. You know, one person who did go along Etsy and who did actually bring that on to our network, that's Jason Mosa for the Monday Fool. And on episode 15, he came on millennial investing, a new show, and he actually pitched Etsy as a long position, which I found very, very interesting. So for everyone who is very interested in the long side of that, they can go to a new show. Mellin investing, we'll make sure to link to that in the show notes. What day?

Did he pitch it? How recently? In all of fairness, I can't remember when it was recorded, but it was published 20th of November. Probably a pretty good pick there. All right, Stig. Let's hear your pick. Right, so guys, I sent you this pick here a week ago, like I mentioned before, and that was ExxonMobil, StockTicka X-O-M. And at the time, I sent that to you guys, it was trading for around $59.

Now it's trading around 51. Don't even get started on the price of oil since then. Right now, at the time of the recording, the price of a barrel oil has plummeted to $45. But let me pitch ExxonMobil here. I think most of our listeners know the company and what they do, but it's the largest direct descending of John D. Rockefeller Standard Oil. And the company was formed in the current structure back November 1999 by the merger of Exxon and Mobile.

And it was previously the largest corporation measured in MyCAP of a public trade company, but that is many years ago. But today, it is still one of the largest integrated oil companies in the world. And there were a few reasons why Exxon was on my radar. It was one of the most bought stocks by super investors on Dataroma. Keep in mind that if you do use Debt Aroma, that I'll definitely encourage everyone to do, it's a completely free site where you can see what fantastic investors are investing in. Whenever you see the companies that invest in the most, since they manage for at least

$100 million, it is very, very often larger companies that will show up there. But it was something that piqued my interest. It's trading at a 52-week low. It's absolutely hated by more or less everyone, which also caught my interest. And there was a little inside of buying. It wasn't super significant, but from the CEO and chairman, he bought back here in February around $60 a share. So I was thinking for around that price, it might be worth looking closer at the stock.

Now, if we do look at the performance over the past 10 years, as most of our listeners would know, I'm the opposite of a momentum investor, which is also why I'm pitching ExxonMobil. Annualized return over the past 10 years was 1.9%. Integrated all companies in general or more less flat over the past 10 years. And in this meantime, SPI, the major ETF for the S&P 500, has performed 12.5% in annualized return. So it's not your most popular pick that I'm pitching here. Now, the company has three different segments, given that it's an integrated oil company. You have the upstream, and you can think about that as the drilling. They have the downstream, mean, the refining, and going down to the end customer, and they had chemicals division two. And they basically

just do everything you can think of whenever it comes to oil and natural gas. They make everything from specialty chemicals to jet fuels, gasoline, you name it. So it's a very different pick than a pick like Conacher Phillips, that's a heavy bet on drilling. As an example, it's not an upstream downstream bet. Depending on where the oil price goes, it is more sensitive to the upstream segment. So if oil prices go down is typically not good for the company, but the downstream segment actually make more money in that case. So you don't get the same fluctuation, everything else equal. It's the first time in several years that the company reported a year-of-year increase in production, and it's slowly ramping up right now. If you look at the mode, I wouldn't say

that it has a wide mode. You have other integrated companies like Royal Dutch Shell and Severon, and one may have a little more exposure to national gas than the other, but it's not a wide mode franchise like we like to see for many companies. If anything, the reason why I did pick XMobil compared to some of the others are more that it comes at a very appealing valuation. So you might be asking, so what should go well? Like, if you look at the company and the price just seems to slide on and on and on, so what would the catalyst for the business to do better? Now, keep in mind whenever you look at some of the financial statements for ExaMobil, that it has purposeful a bit declining production due to the lower price of oil. And in 2018,

it made a major shift with a new strategic plan. And for what it's worth, this, was all in the plan. They will phase out a lot of projects, which is also why you have seen less production. But now there was to be stopped to ramping up their production. I don't think that the current oil price of $45 was the plan at all. They used a generic price of $60 for a barrel oil, and they have a sensitivity analysis in terms of how that would look. And it's expected to be fully implemented in 2015. In that case, at that time, the capitalized expenditures would have been $35 billion. They would look at something like $60 billion in operating cash flows.

So if you look at the valuation, I want to be quite conservative. I also do know that a lot of energy is needed for the world to continue to grow. And if you look at the past 55 years, 51% of those years, we actually had a positive GDP growth. If you look at the projections of what we've done in the past, we're looking at something like 4% growth. So this is more or less my growth rate. And then I've just added a little more.

if this plan is realized in 2025. And with that, I get a return around 10%. And I think that it's a 10% return that comes with an interesting proposition. I don't think the downside is that big. It has almost close to a 7% dividend yield right now. And I do think that the upside is there too. But it is a value play. It's not your most exciting play.

I think it's a solid value play. and it's a cash flow play. How sustainable do you think that dividend is? I think that's a great question. And if we look at the payout ratio right now, it's just about 100%. And it's easy to say, well, if it's about 100%, then it's not sustainable.

And I think that's the wrong way to look at dividends. If we look at Ex-Mobile, it has hiked dividends for 37 consecutive years. It has close to no debt, at least no meaningful debt. And if you look at the plans for how much money they're going to spend and the expected future cash flows, you look more importantly in the history, how it's been with ExaMobil through all the different crisis that we have and how the weathered the 2008 crisis, I don't see the dividend be caught. I can be completely wrong. I don't see that as the

issue. And so if you are a dividend investor, I think that's interesting enough play in itself. but I actually do think that there's a little upside too on top of that dividend. Because as a dividend investor, you don't look for the payout ratio today. You look at what is a normalized payout ratio for that business. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord.

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Back to the show. So, Stig, the issue I have with this one, and normally I absolutely love your picks. I'm just going to start off by saying that. But this quarter, I do not like this pick. Nice. At all. Like, I really dislike this pick. Now, why?

So when I look at commodity companies, in particularly oil, I look at it almost like a, I guess I got a really simplified version of how I view investing in a company, like an oil company. And it's almost like hitting a ever-play pool and you're hitting your ball into another one of your balls in order to knock it into the pocket. I always miss that shot. And it's because you not only have to get one of the angles right, you've got to get two of the angles right. And I kind of see an investment in an oil company in a similar light. So the two balls on the pool table for the oil industry. One, you have to have an advantageous price based on your cost to produce, right?

So I got it. This coronavirus is wrecking havoc on commodities. We're at $45 oil. That is not good. My personal opinion is that we're going to see that trend continue into the coming months. How long that persists? I have no idea. Could oil like we saw, I think it was back in 2015, we got down to like, what was it,

$25 a barrel or $30 a barrel? It was something crazy, right? And this was back in 2015 without even remotely. the supply and demand shock that I think we're about to see with this coronavirus. So my expectation moving forward on the price of the commodity, the underlying commodity, is that it's going to go down and it's going to go down in a major way. And I would not be surprised to see a drastic rip to the upside when the demand starts coming back online and all these producers are cutting their supply as fast as they can do it

right now because of this virus and the demand shock that they all know is on the horizon. horizon. So I think what you're going to see on the price of the commodity is you're going to continue to see a lot of pain. And then whenever we start to see like we're turning a new leaf on this coronavirus, that you're going to see the exact opposite play out as far as the commodity price. And I think there's going to be a huge long call play there just on the underlying commodity. But that's a whole other conversation. So pool ball number one, you got to have an advantageous price. Pool ball number two, you have to have expanding consumption, right? So not only do you need to have a great price margin from how much it costs for you to pull it

out of the ground and how much you can put it on the market for. So when I think great price today, you're talking like $70, $80 a barrel versus how much a cost for them to pull it out of the ground. But you also have to have an economy that is expanding and growing in consumption in order to boost that top line revenue and continue to boost that top line revenue because you could have the most advantageous price in the world, but if no one's out there driving their car, and consuming oil and gas and all these things, your top line revenue is not going to go up. So that's where it kind of makes it tricky.

And so when I'm looking at where we're at today, I see a negative in both of those categories. I see that the price is going down and I expect it to continue going down until we have a change with the coronavirus. As far as the consumption, I think the consumption is going to contract in the coming years because I think we're in a really bad situation in the global economy right now. The velocity of money, you just look at simple metric like that. I mean, there's only so many boat tours that these billionaires can go on. The rest of the people are just trying to make it paycheck to paycheck right now.

So I guess when I'm looking at those two metrics, the consumption is not expanding. It's contracting. The price is contracting. I'm just looking at this as being probably a bad call at this point in time. I was just talking to a person the other day that when oil hits $25 a barrel and you're reading the headline on the Wall Street Journal that oil is going to go to $15 a barrel, I'm going to buy a two-year call option on the underlying oil contracts, right? Because that thing is going to rip and it's going to rip in a drastic way in the other

direction once a lot of the coronavirus stuff starts to shake out. But are we there? We're not even close to being there right now. Toby, I'm kind of curious to hear your thoughts. I like energy as a sector because I think it's been so beaten up for so long. And I never hear any bullish arguments about energy anymore. The arguments are always climate change. So it means decarbonization. So oil and gas is going to go away. The fracking means that you're never going to get those really expensive oil prices again because they, as soon as the oil price gets up a little bit,

the frack has become, they can make money so they go and start fracking. And these companies companies, mostly they're shrinking. They're sort of trying to buy back stock, pay out cash flows, and they're not doing a whole lot of exploration. With all of that backdrop, when you look at Exxon, it is now as cheap. And I think on some measures, it's cheaper than it was at the 2009 bottom, or it's cheaper than it has been. So on a yield basis, the time to be buying, the last time you got a really good opportunity to buy oil and gas companies was the early 1990s. And that was when I can't took a run at a few of these and Boone Pickens was harassing these companies. When I look at that landscape, I think that landscape looks a lot like this landscape.

And I think that even though the macro is terrible, these companies do look really, really cheap. And I think that there aren't a lot of options out there for the economy at the moment. We still are going to be using oil and gas for at least a few more cycles. When I look at analogies in other industries, so Twisted Peck, coaxial cable was supposed to go away with the introduction of fiber optics, but the equipment is so good. The equipment keeps them getting better and better that twisted pair coaxial is still in almost every building in the developed world. I think the same thing happens with oil and gas. We will eventually transition away, but we're generations from doing that yet. So I don't think

that carbonization issue is a real one. It's still, it's hard to get real flows out of the shale. So I still think that the majors are really the only game in town. So I don't mind it as a position. I've got some energy in the fund. I don't mind Exxon as a position. Thanks for the feedback. I would like to address this with renewables. I guess I might have a slightly different perspective on the coronavirus than most people.

Of course, as a person, I'm horrified of the thing that's happening. As an investor, I'm of course more pleased with the more attractive options. But if I look at the long-term impact, I would say that the long-term impact on something like renewables, obviously, especially for a company like Examobil, is significant. Coronavirus, I think this is a shock to the market now, and I think it would go away like we have with other pandemics in the past. But I would like to address the renewables, because I think it's important to talk about that, because we can't be blind to what's going to happen with all, given that we have more and more renewables. And I think that we have ingrained in us, we have an availability bias. You know, there's this famous example, like, do you think that there are more words starting with K than having K as the third letter in that word?

And, you know, everyone, I mean, I'm going to tell you what the point is, but everyone would say, yes, I think there is more words starting K because that is what we can think of. But actually, there is multiple more words with K's the second or third letter, whatever that is. And I think it's sort of like the same thing, renewables. Now, we talk about the coronavirus because it captures all the new cycles. Had we done this a few months ago, where X-a-Mobile might be had less attractive level, but still not as expensive as it could have been. Everyone we're talking about renewables, renewables. Like, how can you withstand that?

And that's the availability bias kicking in there. So let's look at a country like the US, super, super-developed, extremely rich, a lot of focus on renewables, a lot of subsidies. more than anyone, there must be more or less not using oil, right? No, 11% of the energy in the US comes from renewables. Okay. So now we talked about renewables. Toby said before there are a lot of things that, where you just need oil, at least for the next few cycles, perhaps even longer, because it has some chemical properties that you just can't replace. And so if you look at electricity, which is a part of energy, if you look at specifically electricity that in theory, we should be able to get more or less from renewables.

How much of that in the U.S.? That's 17%. Hopefully, we will be in a place where we don't need fossil fuels. I think it would be great for everyone on the planet, but I think it will take a long time. And we have a lot of emerging economies who need a lot of oil

to get at just a fraction of the same standard of living as we have in the West, and that would need oil, which is also why if you look at any projections of oil consumption, it will go up and go up for a long time. And what's going to happen is a lot of that will be shifted to natural gas. It won't necessarily be shifted to the conventional renewables because that's not the energy

that we need necessarily, at least not for everything. And natural gas is something like the integrated oil companies are huge on and it's a part of what they already do. So to your point, Preston, about both a low oil price and a lower demand in the future, I don't know where the price of oil is going. It doesn't need to go to $70 a barrel before Exomobile yields a good return for you. as an investor. If it goes to $60 a barrel and it may be a stretch, even though I definitely think it's possible by 2025, we would get a 16% annualized return on today's share price in $51.

The reason why I came up with a 10% return was because I was much more conservative with growth in my projections. Now then, when I look at the demand all the way back to the mid-80s, there's only been two years, two years where crude oil demand has slowed year or year, and there was in 2008 and 2009, and already in 2010, it was higher than 2007. The sad truth is to increase the standard of living, both for the developed world and for the emerging world, and also for the people who haven't been born yet. Unfortunately, for the environment, we need all for decades to come, and it just hasn't changed. So that's what response to that. Keep on bashing, guys, keep on bashing.

All right. You guys want to hear my pick? Yeah, let's do it. Let's do it. All right. So here is my pick for the first quarter of 2020. I am recommending Bitcoin. What are your questions?

All right. So here's my thesis for this one. And Stig, we've been talking about Bitcoin since 2015 on this show. And I just think that you were at a point in the global economy where reality is starting to separate from fantasy. And what I mean by that is today, 23% of all bonds in the entire world, which you could roughly say the bond market is nearly $100 trillion. It makes the stock market look like a pimple, right? So 23% of all bonds in the market are negative yielding. So when I explain a negative yielding bond to somebody, I say it's the same thing as a contract.

So Toby, will you sign a contract with me that you give me $100 and I guarantee next year I will give back $97. That's what a negative yielding bond is, right? and there's, I think, around $15 trillion worth of negative yielding bonds. So when you think about how insane that is that people are literally signing contracts that guarantee them to lose money, guaranteed, you're signing a contract to lose money. To me, that just does not make any sense whatsoever. I think that this problem is not necessarily in the bond market, it's in the currency market that's driving this. I think that there is a deep, systematic problem with fiat currencies

that go back clear to the 1970s when a gold standard was, I'll even go back further than that. You go 1944 to Bretton Woods, right? This is when the U.S. says, we're going to peg the dollar to gold, and then all these other nations say, well, that's great. We'll peg our currency to the dollar, and boom, we'll have sound money, and we can all conduct international exchange and a fair, manner. And if you spend more than you raise through your tax revenues, well, then you're going to pay the price for that because we're all dealing with sound money. So this all worked. The U.S. manipulated their money multiplier up into the 70s, and then we couldn't make good on the gold promises. The promissory, you know, you bring in paper money and we'll swap it for gold. So that all

fell apart. And so when the U.S. came off the gold standard, interest rates were extremely high. They continued to go higher into the early 1980s, 1981, the 10-year treasury peaked at 16%. And so this was the point where even though you come off of a gold standard, you can continue to make your economy progress forward without any incident as long as you have positive interest rates. Well, what happens around the globe? Everyone starts manipulating their, they debase their currency in order to create growth inside of their domestic currency.

And long story short, you have that progress for 40 years. until all interest rates start approaching zero, and now they're even going negative. And there's an incentive now for people to take their cash and stick it in a safety deposit box because they'll get a higher return than actually negative yielding percent. That's why I think we have a major systematic failure of fiat currency, not just in the U.S., but globally. And so whenever I look at how is that going to be solved and are countries incentivized to solve it. And I think the game theory on countries solving this is there isn't any. They have no

incentive to solve this. They have an incentive to manipulate their currency even stronger than the country standing next to them. So when I look at that game theory that everyone's incentivized to devalue their currency so they can manipulate and create growth inside of their own domestic country, I say, okay, is there something that is decentralized that could potentially fix this or peg this? And so for me, that's Bitcoin. It'd be really really hard for me to get into all the technical arguments from how the technology works for a discussion like this. But for me, I've done a lot of homework on that and how it works and the network effects that take place and how it will ensure that there's 21 million

bitcoins in the future because of game theory and all the participants wanting to keep that number fixed because they're incentivized to keep it fixed. So what you effectively have is digital gold through Bitcoin. The reason I think that it's really advantageous to own it right now opposed to any other point in time. I think right now you're at a very unique time where you're two months from the next four-year halving cycle, which happens inside of the Bitcoin protocol. Once that halving events takes place,

the miners that mine Bitcoin, it becomes twice as hard for them in order to mine the same amount of Bitcoin. They get half as much Bitcoin for the same amount of work that they were doing. This drives the price up. The two other four-year halving events that have happened, in the past, one back in 2016, another one back in 2012, has driven the price like wildfire post-having, typically taken about a month or two after the four-year halving event for the price

to start going crazy. After the halving event, it typically goes crazy for, call it another 460-odd days. So with that on the horizon, with that coming up, with everything that's happened globally with the economy right now, with all the negative interest rate bonds and they're really being no incentive, the holds such a security, I think that Bitcoin is going to have a meteoric rise by the end of 2020. And I think it's going to have an even bigger rise in 2021. So that's my narrative. I'm really curious to hear your arguments or your questions or whatever you got. I've got two quick questions. One, why Bitcoin and not something else like Ethereum? Because I understand that there are a lot of other things being built on the top of Ethereum. The second question

is if you know that there's going to be such a huge run in the future, and presumably this is pretty well known in the market, why isn't that information already cooked into the price? And so, because when I look at the chart, it looks like it's had a pretty, I think it got down to 6,000, 5,500, now it's 8,000 and a half thousand. So if I look at the chart, it's had a pretty good run recently, I just wonder whether if everybody knows that's what happens, if they're already baking that into the price and front running it. So what a lot of people don't understand about Bitcoin is not only do you have the four-year having event, which is what most people talk about, but you also have a thing called a two-week

difficulty adjustment. My opinion is a lot of people think that these are two separate things. But in the way that the protocol functions, these two functions inside of the protocol work in harmony. So after the four-year-having event happens, the difficulty throughout the rest of the next four-year cycle continues to get harder and harder and harder and harder and harder throughout that four-year period. At the very end of that four-year period, you could make the argument that the difficulty is at its extreme level from the start of the four-year halving. And so when you pull up a price chart, I'm talking more about the last four-year cycle. You're talking more about the last four-year

cycle, right? What you saw was the price in 2017 hit fever pitch at like 20,000. But what happened is, is you had all these miners that were buying capital expenditures to put more mining rigs online and over the next year because the speculators basically peaked out. You couldn't get your neighbor to start buying it because they're like, hey, that's crazy. It's going to go to zero. So you can only grab so many more speculators on to drive the price during the four-year cycle. But what happens is, with that two-week difficulty continuing to ramp up, it gets harder and harder and harder for those miners to capture that spread from their electrical costs to the price that it was trading at when it was 20,000. So they keep buying and buying, trying to capture that huge margin. But what they do is they actually drive the price down to what I would call, and I'm sure many people would roll their eyes at hearing this, is an intrinsic value that's being calculated through, I don't know if you've ever seen this Plan B article.

No. So I can send you an article and we'll have it in the show notes where there's a calculated value of where the price is basically swinging to. It's almost like you're pulling a string in a direction during this four-year cycle where it swings really abruptly and it swings back the other way and then it comes to this equilibrium intrinsic value price. And for today in the four-year cycle that we're currently experiencing, that's around $8,600. And that's exactly where it's trading today is $8,600.

If you want to try to pull that price higher, let's say you had to be a four-year cycle. a billionaire come in and buy a billion dollars worth of Bitcoin, the price is obviously going to get bid. But then you have so much mining power that's sitting there that's going to mine the living heck out of that as fast as they can. And because of the competition, it drives, and because they have to sell their treasury of Bitcoin, they have to sell that back down into this equilibrium price until the next four-year having event. How do you arrive at that intrinsic value? Well, so it's kind of interesting. So he has, and he has

an entire article on it. I'm not going to do it any kind of justice on how he's actually determining this. But just to give people a heads up, after the next four you're having, the intrinsic value bumps to 100,000. It goes from where we're at today at 8600. It bumps up to 100,000 after May. I know this sounds crazy, but this model has a 95% R squared value over the last a decade and it's co-integrated, which means that it's statistically proven that the price based on the stock-to-flow model that he's coming up with the intrinsic value with, is a co-integrated model, meaning that it doesn't step outside of a certain range. And that has been statistically proven over the last decade with 95% R-squared value. It's not the cost to mine.

It's not some derivation. What the stock-to-flow model is a derivation that comes out of the gold market, and commodity markets, and what it's doing is it's looking at how much stock is there in complete existence today, right? And then how much flow is being dropped into the market on whatever rate you want to use, whether it's minutely, hourly, yearly, whatever, that stock to the flow rate drives the price to a certain intrinsic value point. So whenever it goes through these four-year halving events, that stock to flow tightens like a noose to a much higher level, which then drives the intrinsic value of it higher and higher and higher. I think that this was done on purpose for these long four-year periods, and the reason that I

think that they were done on purpose was in order to allow entrenchment into the existing financial rails in order for this to become global money. Toby had another question here. So the question about Ethereum, what I would tell you, one of the reasons that Bitcoin has not had any hacks since the protocol has gone live. Now, you've had exchanges that have been hacked, which are completely different, that'd be like, if I was going to use an analogy, that'd be like saying, oh, Amazon was hacked, but the person would say the internet was hacked, right? Those are two very different things. Bitcoin has never been hacked. Exchanges have been hacked. With Ethereum, you have a protocol that is that, first of all, does not have a proof of work mechanism to it,

where the energy cost is driving the valuation. They have what's called a proof of stake. I think this is a severe limitation that prevents it from having the network effect and the price that you have with Bitcoin. The other thing that I think is kind of an issue for Ethereum is they have gone through many forks historically because there's a lot more attack vectors inside the protocol because it's a lot more complex. Bitcoin has tried to keep the fundamental layer one protocol extremely simple in that any type of expansion is built on a second layer, call it Segwit, which happened in the summer of 2017 timeframe, which allowed layer two transactions and basically a layer two network to ride on top of the Bitcoin protocol. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect

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Back to the show. I remember whenever Preston Knight started covering Bitcoin, and I think we already did that back in 2014. It was pretty early. And I remember I reading a book about it. I was very fascinated about it. And Preston, as you know, much smarter than me, took a position. And I said something like, it's the stupidest thing I ever heard.

And then at a little point in time, Preston more or less forced me to buy Bitcoin. And that's whenever you know you have a good friend. So take it for what it is, whenever hear what I have to say now. But I remember back then whenever we look at Bitcoin, and everyone were talking about McCab's law at the time. And there was originally presented back in 1980. And it was all about how to measure the value of telecommunications network and how that's proportional to the square number of connected users.

And since then, Facebook and Tencent have shown this progression using Metcalf's law. And so until then, yeah, there were some deviations from the long-term trend, but it was quite evident what it was. Now, Metcalf's law would say that here, beginning of 2020, we would have a price more than 41,000, actually just from 2019 to 2020. It would go from the beginning of the year from 21,000 to 41,000. So now we're looking at the end of 2020 to $74,000. So whenever I'm looking at that, I'm thinking, hmm, I'm thinking back at my statistics classes

many, many years ago, and I'm thinking, is it so that someone would have an incentive to say, how can we come up with a model with a high eye square so I can quote unquote sell my product, whatever that product may be? And I'm looking at it. I'm like, I don't hear a lot of people talking about Metcalf's Law right now because it seems to be broken since the end of 2017, where the price should be $10,000. But I hear a lot of people talking about the stock to flow ratio because the stock to flow ratio model explains that it will go up now. And now the R. Square for that is higher. So is that

what we're looking for? And then specifically to what Toby would be saying about the halving. I speak to a lot of people and I know I might be biased in terms of the people I speak to. Everyone talks about the price has to go up because of that halving. And I'm thinking, how is that price set? Yeah, we know that a price is set with demand and supply. And that's true. And if you say, well, it's going to be half things, there's going to be a less supply. It's like the two-second analysis would say, okay, then price would have to go up. That is true. But consider this. The price we're looking at right now is those people who are willing to make that trade. So you have someone who's willing to buy and you have someone who's willing to sell. Okay. So how many people, despite that the

supply might be half, how many people are willing to sell now that everyone expects that it may go up twofold, tenfold, whatever. For me, that's something that I'm missing in that conversation. I don't know if we are at a state where we have to acknowledge that Bitcoin can coexist with the conventional financial system. It may not be a part of conventional system. There's always in need for something like Bitcoin because of the properties that it does hold, but perhaps that utility is not higher than what more or less is right now with some fluctuations. Perhaps despite of what the stock to flow ratio model would tell you about what happens to the supply and then what should happen with demand and the price should go up, perhaps that's

just not valid for Bitcoin, despite of what the model says because the model are just trying to measure what we've seen and not the reality. I know there was a very long argumentation for my concerns about Bitcoin. Because the model's looking at historical information, it might not be valid moving forward. Is that the argument? Yeah. That's in short, that's my argument. It's sort of like all the bar models you had of subprimes in 2008.

They said there was zero chance of default because more or less no one defaulted. But there was like a mistake in the model. There was a mistake in the model that said, okay, so since no one defaults, it doesn't really entail any rest. That was just because it didn't occur until that. So that was my argument with, yeah, it makes a lot of sense why you have something there's utility in something like Bitcoin, there's utility and not having it regulated, there's utility to have something outside of the conventional financial financial system. Perhaps the utility for that is not more than $200 billion.

Perhaps it's not even comparable to the major currencies. Perhaps it's not comparable to what you see in the bond market, the price of gold. Perhaps it's just a very different asset where you can still explain what happened historically. but it's just not valid moving forward. I guess that's some of the things I would like to hear your thoughts on. The reason I think that it's very valid is because right now, if I compare it to another currency, and that's how I'm looking at it as it's a currency, there is no fixed monetary baseline of any currency. In fact, you're seeing the baseline of every fiat currency getting to base at probably the fastest pace you've ever seen it in history in our lifetimes.

With Bitcoin, the numbers fixed at 21 million coins. So no matter what you do, that has to be fixed. I think that there's going to be a lot more people in the next two years that are going to start demanding money that has a fixed monetary baseline based on the printing. I mean, look at what's just happened with the coronavirus. In the U.S., they're really not even talking about a cure. They're talking about what can the Fed do in order to cure the coronavirus. To me, it's nuts.

It's absolutely somewhat unfathomable. And so when I think of people that are holding their money in Fiat versus something that has a fixed monetary baseline, I think that the fixed monetary baseline is going to win all day long. I get two quick questions. One is how has Bitcoin performed in this recent route as the market's getting beaten up because of coronavirus? The arguments for Bitcoin, I find them all very compelling. The problem escaping from fiat currency, being short all of the world's money printing, and so on. There are other ways that you can do that. You can do that with gold, but I think that Bitcoin does a similar job to gold. I think there's a good argument for it. The issue that I have,

and this is where I'm always struggling, is I don't know if it's, I don't know if $8,600 is the right price or if $860 is the right price. And I don't want to be getting long Bitcoin at $8,600 thinking that we're going to go through all this money printing and be like the people who bought gold at the very top in 2009, thinking that they were about to get a whole, or whenever the exact peak was thinking that there's going to be a whole lot of printing, that's going to be what's bales this out. So whenever I look at the comparison of Bitcoin and gold, the first thing that stands out to me is if you received a gold bar, how would you know that it's actually gold?

How would you know that the whole gold bar is gold? You have to melt it down. You have to do all sorts of a whole process in order to know that it's 100% solid gold. With Bitcoin, you just run a full note and you can actually do the exact same thing to know that you received 100% real Bitcoin. And I know that that sounds really goofy for people that are looking at this as being literally a digital unit on a network. Like how can you compare those two? You could send somebody what looks like Bitcoin, right, to their hardware wallet or to their address. But you can quickly see is it running on the version of Bitcoin that everyone values, the network of Bitcoin.

Bitcoin that everyone values? Or are they running it on some Bitcoin gold network that is not the same thing, right? So you got that. If you're housing gold, you're storing it. If you are buying an ETF, you are trusting that an agent is actually holding the gold that they say that they're holding. With this, I can just take physical possession of it and I can know that I absolutely positively have that purchasing power in my hand, you can't go to Starbucks and spend an ounce of gold. What if Wooflu knocks out all of the telecommunications infrastructure? Does that prevent you from spending it? Or what happens in that scenario? So if you get in a situation, let's say your internet service provider, say the government wants to step in and stop the

internet service provider in the United States, right? You can still sync to a Bitcoin satellite that a company called Blockstream has actually put into orbit. And you can still mine, you can still conduct transactions. There's people with high frequency HF antenna radios that are able, they've already coded, that you can transmit over a high frequency radio frequency, your Bitcoin transactions. And I think the bigger piece to all this is if a country would do that, not every other country is going to do that. You have to have global one-on-a-one-on-a- 100% participation across every single country to try to block this. And you've already got countries like Germany. And I just saw something on Australia literally this morning that are

actually going out of their way to pass Bitcoin cryptocurrency laws that incentivize industry to come to their countries in order to set up shop. So you actually almost have the exact opposite thing actually playing out right now. Because, I mean, think about it, if this would become a global currency, the person who has the most of it is going to have the most influence moving forward. And so I think that you're actually going to see maybe the exact opposite things start to play out with some countries. Ray Dalia is real famous for saying, hey, show me a security that has zero correlation that

has a high sharp ratio because that's the holy grail of an investment. When you look at Bitcoin, over the last 10 years, there has not been. a single security that has outperformed it on the sharp ratio, not a single one for 10 years. When you look at the correlation, the correlation to the S&P 500. And so when you look at correlations, negative 1.0 means it moves an exact opposite lockstep. A 1.0 means they literally move hand in hand together. Bitcoin to the S&P 500, 0.00. Let's go through a couple.

Gold, 0.06 correlation. Silver, negative, 0.05 correlation. U.S. bonds, negative, 0.05. Oil, 0.12.12. Russell, 2000, 0.01. It's correlated to nothing. Like, literally nothing it is correlated to. I would argue that the reason it doesn't have any correlation is because what's driving the price is the stock the flow, the four-year halving cycle in harmony with the two-week difficulty adjustment is absolutely driving the price action to date. Now, whether that's going to continue to happen moving forward to Stig's point, no idea, but I can tell you I'm not going to sit back and watch something with that kind of, literally the best performing asset in the last 10 years. I'm not going to just sit back and have no exposure to that. In fact, I would argue that a fiduciary, if they have no exposure to it, should maybe be questioning how they're a fiduciary, because you're at the point now where it's made so much money in the last 10 years. If somebody would continue to sit back with zero correlation to anything, with the highest sharp ratio that we've seen in 10 years, to have zero exposure to something like this is maybe negligent. So risk-wise, you're looking at this thing. The volatility on it is insane. I think the annual

volatility on it is something like 66% on our momentum tool. That's insane. So how do you manage volatility risk with your exposure size, right? You could have had in the last four years, if you took the last four-year period, and you had 1% exposure to Bitcoin and 99% in cash, 1% in Bitcoin, in 99% in cash, you would have matched the performance of the S&P 500. Now we mentioned Redali before. He was asked about Bitcoin at the day of us meeting in January 21. And at the time, he said that he warned about holding Bitcoin because it's not a medium of exchange nor a store of value, which I found very interesting in itself. The other thing is, I 100% buy your argument, Preston, whenever you say you get a bar of gold,

How do you know if it's real? And then you compare it to Bitcoin and say, you know, that's real. That's the purpose of the blockchain. We can validate that, which we can do not just through Bitcoin with so many other things now. And I'm thinking, hmm, going back to Metcalf's law that was so excited about because I understand the rationale behind the stock to flow a month. And perhaps that is the driver going forward. I'm thinking, do we have enough people who believe in this?

And that's why I was so concerned when I saw that breakpoint in terms of price still following that line. Like, do we have enough people? Is it expanding enough? Do enough people believe that this is truly the value of Bitcoin? Is that truly the utility of Bitcoin? Because without that, what is the driver moving forward? The thing that's driving it is actually greed.

And I think that human nature is actually driving the abrupt price jumps. So after the four year having happens, what you're really is. really doing is you're limiting the number of sellers that we're driving the price near the tail end of the four-year cycle. So as soon as that four-year having event happens, it's basically nudging the price in a very abrupt way based on the electrical costs and these miners and what they're going to demand for their electrical costs that they have. It's going to drive the price up in that I expect to see this at the end of 2020 where the price starts to run away. And then what I think you get is you get speculators that come in and they see, oh my God,

Bitcoin's up 300% this year and then they pile into it. And I think that that's what drives it through that last part where it passes through this stock to flow intrinsic value. When it passes through that, those are the speculators that are driving it. And then I think the reason that you don't see sellers in it is because you have people, I mean, when I talked about this in 2015, it was $220. I took a position, right? Now it's at $8,000. So that position, and there's many of other people that have taken positions in 2012, 2013, 2014, and they've locked in such massive, unprecedented gains

that if the price goes to $15,000 back down to $8,000, they're so far in the money from where they initiated their position that it's somewhat laughable to even think that they would be sellers at that point. So what I think you have, and there's some charts out there, I don't, I can't remember where I saw these charts, but what it does is it shows the number of people that purchased and it shows how far in the money they are based on the movement of the Bitcoins on the network. And all this can be calculated because you can look at every single public address, right? And so you can see Bitcoins that haven't moved since 2013, 2014, 2015, they're stagnant. So if you're removing those sellers out of the market because they're so far in the money,

that lack of seller, that lack of person selling is driving the price higher in the next four-year cycle is why I guess I think that that's why you're seeing the dynamic play out. But the real answer is nobody knows. There's something that has driven it in the past. I expect to see something similar play out because there's been literally no change to the protocol. So I kind of expect to see that dynamic just continue to play out through the future having cycles until I guess it becomes global. money. I think it's a fascinating thing. I think that it's one of those things that if you are a naysayer and you'd think that it's crazy talk, well, then just ignore it. I mean, you don't have to have

exposure to it. If you think that some of the arguments make sense, I would tell you, give yourself 0.01% exposure if you think that the volatility is just so much risk just so you can have fun watching the crazy wild ride. But I'm at the point now where I think that this is going global. I think this is a mainstream thing. I think that when you turn on CNBC and you see people talking about it, literally almost on a daily basis, I think it's actually becoming a real thing. And I think it's something that people should really do their homework on. With 60-odd percent volatility, if you don't understand it, you're going to lack the conviction to stay through the wild ride because you might have a 20 percent swing in a day. So if you don't have any type of conviction

or understanding of why it would potentially become a global currency, you're going to sell the position. It's not going to work out well for you. So I really encourage people to do your own homework, challenge everything that I said, don't believe anything that I said, just try to do your own homework and understand it. And then maybe that will allow you to look into it more. Maybe you do take a position. Preston is usually right. I think last time he paid Stamps.com and since then it went up from 46 to, I just checked, $141.41. I think that should be like the norm moving forward. We would expect at least triple moving forward with your picks from quarter to quarter.

You want to hear my price prediction because I'm saying it's a buy right now. I'm expecting, this is how much I think this thing's going to move. I'm expecting 20,000 at the end of this year 2020. I'm expecting 200,000 at the end within the end of 2021 is my price prediction on Bitcoin. So we'll see what the heck happens. I know that's a very absurdly bold. call. I hope I'm right. Wish me luck. And if I'm wrong, make sure you throw as many stones as possible to my Twitter account. All right. And if you're right, it definitely pays off to have a good friend

like you, Preston, who would force your friends to buy Bitcoin. But if you want to have our stockpits sent directly to your inbox, you can do that completely for free and you can just sign up at tipemail.com. That is tipemel.com. And we also do a short. write-up of the current mine conditions. If you are interested in hearing more stock pages, of course you can go back and listen to the previous mine discussions. I also recently recorded an episode with Toby where we talked about Southwest Airlines. Since then, the price has only gone down. So it might even be a chance to buy into an even more lucrative position right now. So really briefly here, Toby, I don't want to put you too much on the spot.

How do you feel about Southwest Airlines trading at $46 right now? Yeah, I like it. I think it's very cheap here. It's a travel-related stock and coronavirus has made everybody throw the baby out with the bathwater, but they're mostly domestic U.S. So I like Southwest. I think it's the best managed airway out there, and I think all the airlines are cheap. Fantastic. And guys, you can listen to Toby's pitch at DMSPodcast.com slash extra. So the amsterspodcast.com slash extra. We also got to have a link in the show notes. You can do a seven-day free trial and listen to all our new extra content that we'll be. We pump out. Toby, I know I get so many comments from people just saying they love when you come on the show. You've got your own podcast. You've got a bunch of things going on. Tell people more about yourself.

My day job is running a fund called the Acquirers Fund. It's an ETF ticker ZIG. It's long short US deep value equities. It's been getting beaten up in this last little route, but we're not doing too badly. We're outperforming on the downside at the moment, which is what the fund is designed to do. I also run a website Acquiris Multiple. I've got a series of books out there. You can find them in Amazon if you search my name, Tobias Carlisle.

And I do a podcast, different to you guys, but definitely inspired by being on this podcast quite a few times, called The Acquirist Podcast. We're growing pretty quickly. I wish I had started it earlier, so check it out. I have a lot of fun doing and talking to friends of mine who are value fund managers. We just talk about whatever the topic of the day is, so check it out. Thank you, Toby, for coming on the show once again. All right, guys, at this segment of the show, it's time to play a question from the audience, and this question comes from Usman.

Hi, good afternoon. My name is Osman. I'm from the United Kingdom. I'm only 37 at the moment, so I'd like to think I've got a long time left, you know, to really sort of sink my teeth into this, were to follow Warren Buffett's philosophy, which is stick money in the market and don't touch it. And how exactly do you pay yourself and how do you maintain your own personal cash position in terms of your bills, your rent, your mortgage, car pay?

payments, et cetera, without having to pull down bits of your position or drawdown from the market, almost sort of profile yourself in a way where you can start to pay yourself on a monthly or quarterly basis to maintain your own personal bills whilst you're seeing your portfolio grow in value. Thank you. That's a great question. Warren Buffett has a different approach to why he's investing. Aside from just enjoying the process and providing for his family, he wanted to compound his wealth and have his wife Susan Buffett give it all.

back to charity. Now, sadly, Susan Buffett passed away back in 2004, and Warren Buffett later decided to pledge more than 99% of his net worth to charity, primarily to the Bill and Melinda Gates Foundation. Now, you might be saying then for good reason that you're not a multibillionaire, so how does this principle of holding a stock forever apply to the rest of us? Now, here I would say it's more than mindset, more than anything else that I suggest you take away from that quote. You want to invest in a company that have such a substantial competitive advantage that you could hold it forever. That is how you should start your investment process. You don't want to invest in a pharmaceutical company and plan for them to have a drug approved,

then the price of the stock would pop and then planning on selling it off. That's typically not how to think about value. investing. Now, value investing is for the long term and you would want to create a portfolio that won't be fundamentally changed if the company has a bad quarter or if the company is tanking, which you might argue could be happening right now. Then you mentioned that you are 37. I don't recommend that you spend any of your investment income to pay for household expenses or similar, as you mentioned, before you retired at the earliest. Rather, I suggest that you'll spend less than you make to have a standard of living you want, and invest the rest in the spec

not to touch it for 30 years or more. It's really the compounding effect that kicks in here if you decide to wait. Now, we all have different approaches of how to do this depending on our skill set and personality types. Try to make it as easy as possible for you as you can, which is another way of me of saying, do not consider your investment income as money you have access to before you retire. Now, if you are set on having an investment income before you retire, one solution is to invest in a dividend income portfolio, where perhaps 50 to 80% of the earnings are paid out in dividend and live over that.

And this is good, especially if you're okay with knowing that you might have gotten a better return if you selected compounding stocks that didn't pay out a dividend. The other solution is similar to sell a fixed percentage of your portfolio every year, 2% and treat it as your income. Knowing that the stock market in real terms have yielded 7 to 8%, you're still an average compound your portfolio and have a steady stream of cash flows from your portfolio. So, Osman, I really like the idea that you're touching on here

with Buffett's quote about holding something as long as you possibly can. And like Stig said, you're trying to buy a company that has just this enduring competitive advantage. If you follow anything Buffett-related, He talks about this idea a lot. I'm going to read something from the start of the intelligent investor. Warren Buffett wrote the preface to the intelligent investor, at least the more modern publications of the intelligent investor.

And one of the things that he writes here, he says, whether you achieve outstanding results will depend on the effort and intellect you apply to your investments, as well as the amplitudes of stock market folly that prevail during your investment career. And then he goes on the right. the market behaves, the greater the opportunity for the business-like investors. And so what he's talking about there is not only do you have to lock in these companies that have these enduring competitive advantages, but you have to seize the opportunity when the market comes along and it doesn't come along often where it gives you these

really juicy prices. And so when you look at, let's just take his investment in Coca-Cola, he locked in such a juicy price whenever he purchased Coca-Cola that the dividends that he collects on that investment from way back when he's owned it for decades at this point, the dividends that he's receiving on that principle are absolutely massive if you looked at it as a percentage. When you're looking at the dividends at today's prices, it doesn't look like that. But when you look at the price that he purchased it for, that principle compared to the dividends he's getting now, they're massive.

And if he had sell that position, his capital gains would be massive. So he was able to lock in these really amazing prices because of the market folly, the way that he described, that's his verbiage, because of the market folly that he was exposed to at that particular time, he was able to lock those prices in. So I would tell you that it's both of those things. It's buying at these really odd, advantageous times where the prices are just absolutely great, combined with a business that has this enduring competitive advantage like the Coca-Cola brand. So just some thoughts to think about, I think that's what he's really addressing. If you find that you have a company that you didn't really get a great price on it,

the competitive advantage was an average, you really don't have big capital gains, and you feel like you can plow that money that's currently maybe sitting in some type of security that represents all those ideas, and you could turn it and put it into something else that does have all those advantages of a great price in a long-term competitive advantage. I think Buffett would tell you, sell the position and move it into the other pick. But I think those are some important things for people to think about. And I think that's the essence of what he's getting at with the quote. So, Osmond, for asking such a great question, we're going to give you free access to our intrinsic value course for anyone wanting to check out the course. Go to tipintrinsicvalue.com.

That's tip intrinsic value.com. The course also comes with access to our TIP finance tool, which helps you find and filter undervalued stock picks. If anyone else wants to get a question played on the show, go to AsktheInvesters.com and you can record your question there. If it gets played on the show, you get a bunch of free and valuable stuff. All right, guys, that was all the press that I had for this week's episode of The Amherstas Podcast. We see each other again next week. Thank you for listening to TIP. To access our show notes, courses, or forums, go to theinvestorspodcast.com.

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