Yet Another Value Podcast - Random Ramblings December 2024: YAV Empire, Parallels between Athletics and Investing + Incentives

Episode Date: December 27, 2024

Welcome to the December 2024 edition of Andrew's Random Ramblings on the Yet Another Value Podcast. Once a month, Andrew will share thoughts on a few topics - this episode includes: Yet Another Value Empire, reflecting on investing focus for 2025, Parallels between Athletics and Investing and Incentives. Chapters: [0:00] Introduction to Andrew's Random Ramblings + Episode sponsor: Fintool [2:34] Yet Another Value empire and reflecting on investing focus for 2025 [11:32] Parallels between athletics and investing [18:16] Incentives Today's sponsor: Fintool Fintool is ChatGPT for SEC Filings and earnings calls. Are you still doing keyword searches and going to the individual filing and using control F? That’s the old way of doing things before AI. With Fintool, you can ask any question and it’s going to automatically generate the best answer. So they may pull from a portion of an earnings call, or a 10k, whatever it may be and then answer your question. The best part- every portion of the answer is cited with the source document. Now- if you’ve tried to do any of this in ChatGPT you may know that the answers are often wrong or hallucinations. The way Fintool is able to outperform ChatGPT is their focus on the SEC filings. If you’re an analyst or a portfolio manager at a hedge fund, check them out at https://fintool.com?utm_source=substack&utm_campaign=yavb&utm_content=podcast280

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So look, if you're an analyst or a portfolio manager, try FinTool today at finTool.com and take your research to the next level. That's fintool.com. All right. Hello and welcome to yet another value podcast. I'm your host, Andrew Walker. I'm falling apart over here. I'm your host, Andrew Walker. If you like this podcast, we mean a lot if you could rate, subscribe, review wherever you're watching or listening to it. With me today, I'm happy to have on my guest myself for my monthly random ramblings. I'll get to that in a second, but I'll just remind everyone to start. Same way I start every podcast. Nothing on this podcast is investing advice. Please consult to find financial advisor, do your own diligence, all that type of stuff. That's always true, but particularly true today. I mean, look, the name of this podcast is random ramblings. I'm just going to ramble on about some topics for about 20 minutes here. I don't think I'm mentioning any stocks or anything, but you know, still, consults financial advisor, remember all of that. Okay, it is December 23rd.

This is my last podcast of the year. I have one or two posts that I'm wrapping up that I'm finishing one or two companies. I'm finishing researching, but I'm getting ready to pack it all in for the year, head out to the brother-in-laws in Jersey, head to Miami, all that type of stuff. So getting ready to pack it on. But I wanted to do this rambling to end the year. I want to hit on three topics today. First, I want to start by talking about just some thoughts I have as I'm heading into the year for my yet another value empire and how I'm thinking about it and how you can help me think about it. Then I want to talk about a little bit more about athletes for the past couple podcasts. I've been mentioning just things about athletes, particularly,

you know, there's this famous story about people on the 2008 Olympic team, seeing how hard Kobe Bryant worked and that really inspired the next generation of NBA people. And I've had some thoughts on that. So I want to talk a little bit more about athletes and how it relates to investing. And then the last thing I want to talk about is a little bit about incentives on the heels of a post I did this month that I think got a lot of trapping a lot of people like. So let's start. Preving for the New Year. I consider, I consider. yet another value podcast and blog, my empire. I call it my yet another value empire. We have somewhere between dozens and baker's dozens of subjects. But I consider my empire. I really

enjoy it. It's one of my favorite things to do. I mainly do it because I absolutely love it. I have so much fun. I get so much out of it. But I am always thinking of ways to improve the empire and the podcast. Make it more fun for me. Make it more enjoyable for you. Make it more, make it a better you as a reader, me as a writer, all the way around, all that type of stuff. So I'm always thinking about that. I'm thinking about what I want to do for 2025. And I'll mention a few other places, but I just want to let you know, if you've got ideas, thoughts, improvements, all that, you know, I don't have a lot of rules. I don't have a lot of structure to what this podcast, what the blog needs look like. I'd love to hear from you. Really, the only requirement is it has

to be legal and compliant. That's the most important one. And then it has to be fun for everyone. and I have to think it's good use of my time. If you have an idea and it fits all three of those, then boom, done. We'll, I'll implement it. I'll try it. I'm willing to experiment a lot with things. So always looking for that. I will say, again, fun and worth my time because a lot of the requests I get,

you would be surprised the amount of time. I think people think I just have unlimited amounts of time. I can't, you know, put together detailed academic studies on everything you want or anything or, you know, frequent requests. Hey, why don't you have Warren Buffett on the podcast? Guess what? I'd love to have Warren Buffett on the podcast, man. but we've got to go from dozens of empire,

a dozen of empire subjects to hundreds of thousands of dozens of empire subjects before Warren Buffett would come on the podcast. But, you know, if it's reasonable, I'd love to hear. The one thing I personally am really thinking about how to improve the empire, how to improve as an investor, all this sort of stuff, is I tend to be, you can probably notice this on the podcast questions, everything. I tend to, I love to research, I love to research frantically. I'm worried, I'm always worried that I am not focused enough.

So the one thing I am really focused on for 2025, and this is in all aspects of life, is going to be, I think, I don't know, I think though, is less is more. So, you know, I want to maybe do fewer podcasts, but be able to do more work and more prep for them in advance. I want to do fewer posts, but maybe spend more time crafting them. One thing I've really been thinking about is, hey, in investing, most of my research tends to be on things that I think could be. actionable right now. And maybe that drives me to be over-trady, over-invested, all this type of stuff. Less is more does not mean I spend less time researching, but maybe I spend less time researching things that I think are going to be actionable now and just spend more time researching something. You know, researching a company that, hey, I would not buy this right

now. There's no chance. There's no opportunity. I don't think there's a research out of it. But let's get ready. Let's look at it. Let's learn from it. Because in six months, maybe it has a blow-up. And maybe that's the chance. And it's something I've thought a lot about, like, when I look historically, I think my best investments, not always, but a lot of time, have come from, you know, I owned this company five years ago, maybe successfully, maybe not, who knows? I owned it five years ago. I sold it three years ago, and I've just kind of kept following it.

And then boom, a meteor hits their headquarters, and the stock is down 80%. And I say, oh, well, you know, I guess in this example, since I'm running with it, their headquarters wasn't that important, right? They only had four employees there. Unfortunately, no one was killed. And they leased their headquarters. So actually, it might be good for them. They're going to get out of their lease.

And the stock's down 80%, but it should be flat, right? And that's obviously a huge, huge hypothetical extreme sample. But the investments I've made that have been the best have been things where I, you know, I'm kind of ready. I'm prepared. I'm ready to make an investment. I could be back fully up to speed on the company in 30 minutes, an hour, a day, something like that.

But I'm ready. And the stock falls off and everyone's panicking. and I can be a person there who's like kind of calm, cool, collected, who can see through that. That's been a lot of my historical example. So one of the things I'm thinking about on the investing side is, hey, let's stop researching all the time, things that you think are actual now, and maybe just research and have a bigger like kind of catalog of companies that you're ready to invest in. So, and look, one of the things about investing is just about everything's been tried

before. I think a lot of people talk about this, right? Like, especially a lot of quality investors. You'll hear them say, hey, I've got a. list of 50 companies that I'm always up to speed on, and I just wait and wait and once a year or once every other year or once every three years, one of them gets hit by something, and that might be my chance to buy it, right? So they're just always waiting. I don't think a lot of event investors play that, but I try to be a blend of value in event. And that's just one thing

I'm thinking of for me on the personal side, on the investing side. I've mentioned less is more podcast. Look, I love the podcast. I almost never say no to a guest to my detriment. So I think I'm just going to try to high grade the podcast a little bit, right? Like a little bit higher quality guests, a little bit of, hey, you're great, but you're not a great fit for me. I don't want to do that. And just like, you know, if I was doing six podcasts a month before, maybe take it down to four and be a little bit more focused because I love the podcast. And the ones where I've really been able to dig in and have a really quality conversation with the guests, I think that's what I'm. So anyway, those are parts of my plans for 2025.

I'll be posting more or podcasting more about it. But again, I'd love to hear from you if you have any thoughts on that. You know, just one more thing as I'm thinking about thoughts, as I'm thinking about that. You know, one question, one question I've kind of started to like. And a lot of the rambles I do, I don't think it's crazy to say. One of my favorite people to talk to, one of the people's favorite guests is Art and Poken. He's probably listening to this over here. But one question I remember, one time him and I were talking, and he said, look, I think my superpower in investing is finding a situation that

fit XYZ and I won't say the XYZ because I don't want to disclose what his superpower is without I don't want to you know unmasked arcant but he he said that and I remembered that because I thought it was so good it was such an air focus and then a couple weeks later we're talking about another company said hey I think this company's interesting and the first thing that jumped out to me was hey that company is not within your superpower it is the complete opposite of your superpower you know let's say I'll say this because it's definitely not if his superpower was I'm the best analyst at coal companies in the entire world, that the company that we were talking about, it was the exact opposite of a coal company.

You know, it was a, it was Google, it was Google, the exact opposite of a coal company. And the pushback is, hey, why are you looking at things that are outside your superpower, right? I have another friend who they are very, very good at real estate, and they will show me their track record when it comes to investing in publicly traded real estate, and it is quite enviable. And then when we talk, the only things we ever talk about are companies that are not real estate focused. And I kind of, you know, sometimes like, hey, why are you looking at things outside of real estate?

Like you're here telling everyone your circle of competence is real estate. You're saying you've got a great track record and real estate, but 75% of your portfolio is outside of real estate, you know? So you're saying this is your superpower, but it's not. That's just something, you know, as I think about 2025, I'm thinking about applying And it, A, to myself, hey, where I mentioned earlier, having done work on companies, following them for a while and waiting for a blowup, if that's where your best returns are, maybe that's the only thing you should do.

Now, that is a tough model because it relies on companies having blowups, and there aren't that many of them every year. So you might be carrying a bigger cash, but there's all sorts of things. But investing, I would just want to be harder on, what is your superpower? Where are the areas where you are most advantaged against the market, where you have the most differentiated views? And then on the podcast and blog, I want to say, hey, what is your superpower when it comes to the blog?

If I was over here writing hypothetically, if I wrote two articles a week, and one of them was talking about Fibonacci sequences and retraces and stuff, and the other was talking about generic value concepts, right? And let's go crazy. Let's say the Fibonacci ones, people were email and being like, this is the best content I've ever seen. This is the greatest tech of class. And those posts were getting 100,000 views. And then the value ones were getting 1,000 views and no one was commenting on them. You know, maybe you didn't have to say, hey, I need to look at my superpower. and it might be writing about Bipinashi sequences or something.

I don't know. So that's just something that's always in my head. Let's stick with Superpower. You know, I think this is a nice little transition. The past few months of the ramblings, I've mentioned the parallels between athletics and investing several times, you know. And the one I keep coming back to is Kobe Bryant on the 2000-Alympics, LeBron James, Dway, all these guys saw how hard he worked.

And it changed all of their mindsets, all of their prep and everything. And you saw the next generation of Superstars like absolutely blossom on the heels of that when they saw like kind of what it took to be one of not just the greats, but one of the all-time grades. And I've mentioned that mainly in the context of, you know, it's nice when I get on a Zoom and I do a podcast with another investor or talk to another investor or go out to lunch and coffee with another investor. But there is something about if you get 10 good investors in a room and just lock the doors

and have them drink a coffee or drink a beer or share a meal for two hours. You lock the door and have, it tends to, I personally have always found everyone emerges better, everyone emerges a little bit more motivated, and everyone emerges with that one thing where you say, oh, Andrew had this really interesting trick when he's looking at companies or, you know, Artem, since I said his name or I'll use again, Artem has this really interesting trick when he's talking about management teams to get them to kind of, you know, if you ask me, hey, Andrew, what is your vision for, why do you do yet another value podcast? I can click word, tell you that. But there's a a way to reframe that question that would make me stop the click word, the automatic response that I've given a hundred times, stop think and give a more insightful answer. And I know some people who have ways to get management, you know, they ask, if you ask management, how is the quarter going? They've got the click were response. But there's a way to reframe that question or questions like it where management has to stop, think, and give you a new answer. So that's just some of that stuff. But why do I mention that? So I've mentioned that. So I've mentioned that

a lot. I mentioned athletics for two reasons. A, the year's getting ready to turn, and my goals are not just related to the yet another value podcast empire, the investor, everything. I've got personal goals, too. I've noticed the face is getting a little chunky on the podcast. So I've got some athletic goals. If you want to join me, if you've got ideas, you're welcome to join me. If you're in New York City, turn out is my favorite gym. I tried to go there a couple times a week. I haven't been, it is a little bit of a track for me, so it's tough, but I've committed. I'm going twice a week at least for the first three months. I hit the gym normally all the time,

got diet plans, all that. You want to join me? Hit me up. I'm happy to. But the other reason I was interested, I was thinking about it is, you know, to go back to basketball. LeBron James has famously said,

I spend $1 million per year on maintenance on my body. Derek Henry, who is a running back, who might still be the best running back in the NFL at the ripe old age of 31, when every other running back is 24, 25, 26. he says he spends about $500,000 a year on body. So athletes are learning their bodies are investments that they need to take care of them so that they can perform at a maximum level.

I was kind of thinking about that with investing. What do investors do that they invest in themselves so that they perform at a maximum level, whether that's are there research tools, you know, some of some really good research tools are the sponsor this podcast, but are there other research tools? Is it paying for meditative retreats? Or is it diet, you know, diet is a really interesting one because I know some investors who are just like super strict, you know, I am a vegetarian, I eat nothing, my body is a temple, I work out, I personally work out pretty hard, but I work out even

harder than Andrew. I wake up at 4 a.m. every day. I work out for two hours, like all this. My body's a temple. That's the only way to perform at my max as an investor. And then you look at Warren Buffett, literally the goat, he's 93 and he survives on a diet of what peanut brittle, dairy queen and Coca-Cola. But it was just one thing I was thinking of like do investors, if you want operate at your peak as an investor, a person, whatever. Is it diet? Are there other things? Something I've been really curious about thinking about, you know, I know I personally think I think a little clearer, especially when I eliminate sugar for my diet, but I also know I love sugar. I know I need to get it out. But that's just one of the things like, hey, if LaBronji

is investing a million dollars per year into his body, maybe I need to be investing in like a meal service to get my diet improved or, you know, there's a lot of things. The other thing that I was thinking about when it comes to that, I mentioned how being in the same room with other investors can help you improve as an investor. You know, if you've ever played a sport and you go up against a pro, you're not even playing the same sport anymore, right? Like if I win and did, sometimes I'll go run at the track, right? And I'll run a quarter mile in pick your time, a minute 30, a minute 15, a minute 45, whatever.

I'd be like, oh, that's pretty good. You know, I'm on pace for a minute 15. I'm on pace for a five-minute mile. I cannot run a five-minute mile, but maybe I can do it for a quarter mile. And then I'll think I'll be like, oh, my God. The world's best marathoners basically do four-minute miles for a full marathon. Like this pace that I was pushing myself as hard as possible for a quarter mile, they would hold it for more than a hundred times this length, right?

You go play basketball with a pro, and it's not, I mean, I'm going to get my face sunk on in half a second, right? I'm never going to be able to get a shot up. Whereas, probably not anymore, but I could compete with OK people when I was in high school or something, you know. You play tennis, you're not going to get a serve return. You go play golf, you know, they're going to be putting, they're going to be putting while you're still in the middle of the fairway approaching the green. It's interesting because in investing, I don't really know, like, you know, I've talked to, I've been fortunate enough to talk to some of the world's

top investors. I've been fortunate enough to talk to some good investors. I don't find when I talk to them that there's, I'm like, oh my God, this person is, there are people who I think when I talk to them, they're like very, very far beyond. But I can't think of like the top five investors I've talked to versus the middle 50% investors when I talk to them. It's not like the conversation is dramatically difference. And I was just thinking like, what are the marks of the tippy top, the Warren Buffett, the Charlie Munger? What is it the sign? What is it when that they do that just like so separates them from? forget your retail day trader or something. You know, like the average investors, it's hard to think of.

And I was sure, is it differentiated research? Is it, I can't think it's like willing to research harder because I and most of the people I talk to work really goddamn hard. So I don't know. It was just something I was thinking about. How do you set those apart? Okay. Anyway, this is called the random ramblings. And man, I feel like I really rambled there.

But I do think it all connected kind of on a weird string or something. do think around. Last thing I wanted to talk about here. I put up a post early this month. I'll include a link in the show notes if you missed them. It was called not now, not then, probably not in the future. Something along those lines. And the theory was, the basis was, look, I know a lot of people when they see boards and CEOs who don't own a lot of stock. And they, I know I personally, I look at a proxy and SEO, the CEO owns $10,000 worth stock and gets a million dollars per year. I'll be like, oh, this is an incompetent CEO. And 98% of the time, I actually don't think that's right.

I don't think the management or boards are incompetent. I think they are misaligned. And the way they are misaligned is this. Let's say it's obvious the company should be for sale, right? Well, if the company sells for a big premium today, and in my hypothetical, the CEO in $10,000 worth of stock, he's going to get $15,000, right? But he's going to lose his $1 million per year paycheck. And yes, there are ways to structure a change of control and everything to incentivize him to do this.

But it always is tough because the CEO can always say, oh, and he can rightly say, his incentive is if I just push the sale off by a year, I'll clip my million dollar check for one more year. I'll get some options and everything, so I'll be more equity incentivized. And then next year is a better time to sell. But guess what? Next year comes along and the exact same thing. And I don't think, I'll never hear a CEO be like, hey, next year I'm going to own more options and it'll be a better time from yourself. But, you know, I gave an example of a company I followed where for four years in a row, every time I talk to CEO, be like, we know we need to sell. But now's the right, not the right time for X, Y, Z reason.

You know, in 2021, we're still stabilizing off of COVID. In 2022, interest rates are going up so nobody can lock in finance. In 2023, oh, inflation's higher or so people are scared. In 2024, we've got the election coming. People don't want to buy in front of a versus. It's like, hey, individually each of these, I hear what you're saying. But now it's been four years and it's so clear the company should have sold. The fact is he's just not incentivized to have the urgency to maximize value because every

year he collects more salary, he collects more options. So that was the gist of the post. One interesting thing I've been thinking of is every now and then, you know, to the point earlier of doing work on a company before a blowup and then having the blow up and being ready, every now and then you'll have a company and the stock will go down by 50, 70, 80%, right? I'll sit there for six months and then the stock will recover. And sometimes it was the market just puked. Sometimes it was there was this big overhang that came and then the overhang resolved so

the stock can go back up, all different reasons. But when that happens, let's say it happened for a year. And now all of a sudden you have the CEO who before the before might not have owned a lot of equity. But if the stock went from 10 to 2 and then he got his normal options package and then the stock goes back to 10, all of a sudden that CEO might have a lot of equity, right? those options are very in the money. They're extraordinarily valuable.

And he might have gone from, it's not unheard of from a CEO to go from owning like 0.1% of a company to, I know a CEO who went from owning, I'm doing it rough because I'm trying to remember, 0.1% of a company to over 2% of the company in like 15 months, not because their pay package went crazy, but just because the stock went down so hard and they just kept awarding normal options. And all of a sudden the options, you know, if they were getting $500,000 worth of options and the stock was worth 500 million, that's one thing, but then the stock goes to 100 million, all of a sudden that's half a percent of the company coming to them. They get two of those.

That's meaningful. So my question was, everyone likes to see a CEO with big ownership. Is there a difference between a CEO who has big ownership and it's come through, you know, they founded the company, they never sold a share and they own 30% of the company versus a CEO who, you know, kind of gets this one time accidental. big grant because the stocks in the tank for a while and then it recovers and now, I guess 30% of this company would be a lot. But I think you can see where I'm going with that. Is there a different in terms of incentives? I could see both answer, right? Like the purely rational answer is no. The both of them own the same amount. So both of them should be about the same

incentivize. Now, I think there would be a caveat where the founder has probably exhibited more skill, right? They own 30% because they've grown this company from the ground up and they own it and they might treat it better because, you know, there is a little bit of a, this is my baby, I'm the founder mindset versus a CEO who was just like gifted 30% of the company. But, you know, I think that would be a difference of talent, not a difference of incentives. So I've been wondering, like when I look at a proxy and I see a CEO and they own 5% of the company and it's They own 5% because they accrued 5% working for the company over 25 years versus they own 5% because they've been with this company for three years.

There was, you know, COVID happened right at the start of their tenure. They got a big RSU package that got struck at the COVID lows and now they own 5% that is there a difference in the incentives there? Is there a difference between a CEO who gets, who's a founder and who, you know, grows it versus someone who had grants to them? I think the classic economic thing is no. incentives are the incentives and then you should separate this out the skill person but in the back of my head i am kind of looking at that and i just feel like if you've owned if you work for the

company for 25 years and you grew up an ownership position through that i think you're maybe just like a little you feel like it's less found money and more like you grew it and this is your wealth and uh you need to maximize it that way so i don't know okay anyway those are the ramblings i have no clue how long i went on i you know the i blacked out there for a second i don't know But I have no clue how long I went on. I hope you enjoyed it. I hope you've enjoyed the ramblings. As I said, if you have thoughts for, if you have ways that can improve this podcast,

the ramblings, the blog, anything going to 2025, DM's email is always open. I would love to hear it. It is December 23rd. I am wrapping up the podcast for the last time this year. I hope you have a great holidays. I hope you have a great New Year's. I know the next podcast will be dropping January 1 or January 2. It's going to be what I'm calling my Yavby IOT, the yet another value podcast.

blog's idea of the year for 2025. I've already recorded it. I rambled a lot. But I think I am personally obsessed with the idea. I hope you will find it very interesting. I look forward to talking to you then. Again, happy holidays, happy New Year's, talk to you with the YOD and a lot in January. Can't wait to talk to you then. Bye. A reminder that today's podcast is sponsored by fintool.com. The chat GPT for SEC filings and earnings transcripts. Just ask your question and FinTool will pull the best answer from the relevant documents. Whether it's a snippet from an earner. call or a key point from a filing. If you're an analyst or portfolio manager, try FinTool today

at fintool.com and take your research to the next level. That's fintool.com. A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.