Yet Another Value Podcast - Random Ramblings NOV 2024: Post-Election, how top investors stay on their game, existential risks

Episode Date: November 20, 2024

Welcome to the November 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: Quick thoughts on the election, polymarket, what investors do to stay on top of their game, Investing blind spots: financial engineering and existential risks. Chapters: [0:00] Introduction to Andrew's Random Ramblings + Episode sponsor: Daloopa [1:57] Quick thoughts on the election, market reactions [6:35] Polymarket [9:48] What do top investors do that mirrors NBA players that spend millions on their body management to stay at the top of their games [13:20] Investing blind spots: financial engineering, existential risks Today's sponsor: Daloopa Hey there, fundamental analysts - Are you tired of the endless grind of updating financial models, scrubbing documents, and hard coding? Let’s talk about something that could transform your workflow—Daloopa. Daloopa delivers perfect historicals for thousands of public companies. That means every KPI, operating data, financial metric, adjustment, and guidance—all at your fingertips. And here’s the best part: Daloopa updates your models in near real-time, which is especially important during earnings season, tailored to your modeling format and style. Imagine never having to update your models again. With Daloopa, you can reclaim your time and focus on what really matters—analysis and research. Want to learn more? Create a FREE account at Daloopa.com/YAV

Are you tired of the endless grind of updating financial models, scrubbing documents, and hard coding? Let's talk about something that could transform your workflow, Delupa. Delupa delivers perfect historicals for thousands of public companies. That means every KPI, operating data, financial metric, adjustment, and guidance, all at your fingertips. And here's the best part. Delupa updates your models in near real time, which is especially important during earnings season, and it's tailored to your modeling format and style. Imagine never having to update your models again.

With DeLUPA, you can re-clean your time and focus on what really matters, analysis and research. Want to learn more? Create a free account at dilupa.com slash Y-A-V. That's Delupa, D-A-L-O-O-O-P-A- dot com slash Y-A-V. All right, hello and welcome to the yet another about you podcast. I'm your host, Andrew Walker. If you like this podcast, would mean a lot if you could follow, rate, subscribe, review, wherever you're watching or listening to it.

With me today, I'm happy to have on myself for my monthly ramblings. You know, we'll hot to the ramblings in a second. But before we get there, a quick disclaimer to remind everyone that nothing on this podcast is investing in advice. That's always true, but particularly true today because, look, I'm rambling. I could be, I'll ramble about a ton of stuff. I don't think there's any stocks I own that I'm going to mention. If I do, I'll try to disclose that. But, you know, just please, none of this is investing advice. Please consults financial advisor. All of that stuff through your own work. And remember, I'm the guy who I've told the story before, but I bought my wife some

who-per-ee when we moved in together. And for six months, I was spraying it in the air because I thought the poopery was like an air freshener and my wife saw me and eventually was like, what the hell are you doing? It's like, I'm using the poopery before I go to the restroom. She's like, no, it goes in the toilet. I was wondering why the floors have been so oily for the past six months. So I don't even know how to use poopery. So just keep that in mind when you're listening to this whole podcast.

Okay, it is November 17th, 2024. This is the monthly ramblings for November. And I wanted to mention that specific date, November 17th, for three, reasons. First, I went to lunch with a friend of mine yesterday who just got some great baby news. Congratulations. I think he listens to these on and all. He told me he listened to the October ramblings, and he said it a little more aggressive than this, but he said that I sounded like I had chugged roughly 15 cups of coffee before I did the last ramblings. I can get very excitable. I know I can be difficult to listen to on any type of, you know, improve playback speed.

If you set your podcast to 2x, I'd probably come out sounding like a chipmunk. But I'm going to take that's hard. I'm going to try to speak slower and not be so excitable. Second reason I mentioned November 17th. My anniversary was yesterday. Five years, happy anniversary, Alicia. I don't know if she listens to these or not. We'll see. We'll see if she's given me the anniversary president of listening to these. But the third and most important reason for you, the listener, is I mentioned this. We're almost two weeks post-election day. And, you know, still, all anyone's talking about is election day. If you go to CNBC.com for the past two weeks, basically it's been, here's what Donald Trump is doing, here's what the appointments mean, here's what his election

means for the past two weeks. So I just wanted to lob in some quick thoughts on election. And look, I put a weekend thoughts on the blog about the election, the weekend after the election. I'll link to that. But, you know, I think the first order effects, right, Russell screams higher the morning after Trump is elected and it becomes pretty clear that it's going to be a Republican's feet. Bitcoin is probably, it's gone from probably 65,000 to 90,000. So Bitcoin plus, let's roughly, let's roughly call it plus 30 to 50 percent since Trump's gotten elected, you know, private prison stocks, a lot of things that benefit from the GOP have screened higher, some solar stocks, some green stuff, some stuff that benefits from the IRS have gone lower.

I think that's all first order thinking. I think it's going to be tough. Banks have screen tire. I think if you're buying a bank today and you say, I think banks are going to do great under Donald Trump, hey, you're probably right. But, you know, I think the first order stuff has been played out. If you're buying a bank today, you need to think I think the banks are going to do better than the market as priced in under Donald Trump for some reason or something like that.

You know, so I am really interested in second order thinking on what will benefit from a Trump administration. And, you know, the one I keep circling back to, it is, there is nothing crazy unique or anything in this, but I do think people forget how volatile things were, you put aside COVID, how volatile things were under the Trump administration the first term. You know, he's tweeting at random companies and the stock prices are moving up and down 5% in a day. Or, you know, a well-established policy that his administration seemingly has been working on for a year is just tossed out the window through by virtue of tweet, you know, overnight.

So I think people are underestimating how volatile a Trump administration is going to be. And I think you probably can see that through some of his appointments. I don't have a specific way to play that or trade that. There's no company. I mean, there are companies that benefit from volatility. But I guess what I'm just saying is, look, I think the next four years are going to be really volatile. You can see that in Elon Musk. I think he tweets out he supports someone for secretary of treasury because he thinks they're going to shake the system up.

When you shake the system up, I think things are volatile. So, you know, the way, what I'm really thinking of are things that are going long, things that benefit from volatility are being long volatility in one way, shape, or form, I think is really interesting. Being ready to put cash to work when a company gets targeted or tweeted or something, I think, is really interesting. You know, the other thing I think is interesting is Varma, this week has been hammered, hammered on RFK getting nominated for HHS. And look, if he gets in, it's probably not going to be great for COVID manufacturers or something,

you know, I guess, but I do wonder if there is something like a lot of the pharma sector, biotech, all this, are trading at multi-year lows. I know a lot of package goods companies have gotten hit really hard on the nomination. And I think that's the first place where I look and I say, hey, you know, he needs to get approved. He only has four years. He's going to be working with an administration, with a agency that is very much against a lot of these proposals. I think there might have been a little bit of a knee-jerk overreaction.

But again, this is just me rambling and talking off the cough. I don't have, like, deep thoughts or anything there. That's just my initial thing. So that's it on volatility. The other thing I wanted to rant about a little bit is last month I mentioned, definitely on the blog, maybe on the podcast as well, there was this Trump whale. This was the whale on the, on polymarket who had bet like $50 million on Donald Trump to win the election, right?

And if you listened to the press, they would say. say the polls show it's 50-50 and you need to ignore polymarket or all these betting sites that say it's 60 or 65 percent for Donald Trump, you need to ignore them because they're getting skewed by this one whale who is just leaning on this market, right? And now, I'd say it's 20-20. It's completely possible it was a 50-50 election, though I think Donald Trump's margin of victory in both the swing states and the popular vote suggest that the polls were off here, right? So I don't want to like just completely resolve. But before the election, you would just hear, oh, it's just this guy who, you know, he's a traitor. He's got

50 million lying around and he's just, he's a Trump mega fan and he's just skewing all these markets, right? That's all you would hear. And I was pretty skeptical. I was pretty skeptical. I was pretty skeptical. I was pretty skeptical. I was pretty skeptical. One market was as liquid as people would have me believe, but I was pretty skeptical one man could lean on a market for that long, a market that visible. It was skeptical, but, you know, you just kept hearing it. And then Trump wins the election and he wins it, you know, pretty convincingly. I don't think it's as big a landslide as some people would have you believe, but it's probably going to win the popular vote by about 2%.

He wins. He wins. And then he wins. And then you see all this press coming out and saying, hey, the Trump Whale, you know, the Trump whale, he had hired his own pollsters. And he had a different view because instead of having his pollsters ask, who are you likely to vote for? He'd have his pollsters ask, who are you likely to, who do you think your neighbor's likely to vote for?

And he saw a huge skew between the two of those, and that's why he was so confident. You know, he had a different interpretation. He had a reason to believe there was the shy Trump voter. And I just look at that. I'm like, how was the press, you know, a month ago, they were saying don't believe the betting markets. It's just this one rogue trader. And then the rogue trader who, again, he spent $50 million on this. Got to be a pretty damn good trader to have $50 million.

But you spent $50 million on this. And then he wins. And the president is like, oh, yeah, of course. He had an alternative theory. I was like, where was that a month before the election? Like, how is this just coming out? I'm just really surprised by that. And look, I know a lot of people don't trust the mainstream media.

I think they probably deserve a little bit more credit than give for. But when you have all these pollsters, all these supposed experts just dumping on somebody who, you know, these experts have six, seven-figure consulting gigs to go on TV and talk for an hour a day. And you have this one man who's bet $50 million and they're all just dismissing it. And they don't even realize what this guy has. or if they did, it feels like they kind of buried that he had all this information. At least they could report he's done as an polling. It's just really frustrating to me as somebody who really believes in these betting markets and

free markets. And it's really frustrating that the media hasn't gone back and like, oh, you know, are bad. We were completely dismissing this one great data point that was completely differentiated, but we were just relying on these polls. So just find that very frustrating and want to put it out there. Okay. Let's go to the next thing. Last month, I talked about being in the room with good investors and how I find, you know,

it's always great to go grab lunch with a friend or two who is also an investor, who's a good investor that's always going to spark the curiosity a little bit. That's always going to be good. But when you get like 10 good investors in the room and have them talking ideas and maybe one investor does a pitch, that really just, I find it really gets the mind flowing. It really makes you want to be a better investor. Think about ways to improve your process, all that. So I mentioned that last month.

I think I should have dove harder into it. And I should have a harder into it. Let's say, one of the analogies I did was in 2008, the Olympic team got together and famously Kobe Bryant, who was, you know, kind of not past his prime, but he was no longer a young up-and-comer. He was kind of in his early 30s. He was on the downhill decline, but the young upstarts, LeBron James Shaneway, they would talk about how they saw how hard Kobe worked and how much time and effort he put into his craft. and that really influenced them and spurred the next generation, and you continue to see that with the Olympics. And I was kind of thinking about that

and making loose analogies to being in the room with other investors. But the way I was thinking about it was this. LeBron James has famously said he spends $1 million per year taking care of his body, keeping his body in just absolute prime elite shape. He's 40 and he's still one of the best players at the NBA. You know, it takes a lot of care.

Derek Henry, who is over 30 and might still be the best running back in the NFL despite, you know, running back in the NFL being a very young man's game. He spends, I think, he said, 500,000 per year on his body. And I was kind of thinking, like, when you get in a room with all these great investors, one of the interesting things to think about and hear them talk about is all the ways they are trying to get a legal edge these days, right? And I was wondering, what do top investors do that kind of mirrors that? Are the top investors across the board? Are they spending millions of dollars of year on

analytics? Are they spending millions of dollars a year on expert calls? Are there other things in the same way LeBron James spends a million dollars per year on his body to stay at the top of his game? Are there data or insights or anything that top investors spend? I don't know the answer. You know, I do think it's interesting when you go, I'll talk to one investor I think is really sharp, and they are just all over the alt data when it comes to their positions. But they're not doing it in a, I mean, maybe they're using it straight quarters, but they're not using it so much in a way to trade orders as a way to track their thesis.

You know, if it's a restaurant stock, they want to track everything and they want to see like, hey, make sure the restaurants are ramping up kind of towards their target for a long term purposes, not to trade a quarter on or off, but for long term purposes or just that type of stuff. You know, another way you get a bunch of investors room and it'll be interested here, are there unique markets, unique corners of the market that they're really focused on? You know, you get 10 in the room and sometimes I'll hear three investors at the same time, be like, look, the, and I'm just choosing this kind of. like throwing a dart at the map. The Swedish market is really interesting right now because of X, Y, and Z reason. I just find that interesting. Anyway, I was just thinking, you know, Brown James spends a million dollars a year on his body. Are there things that investors can do that they're spending time and research on whether it's expert calls data to ramp up or are there specific nooks and crannies? You know, the Euro step in basketball comes 15 years ago and now every player

is doing Euro steps because it's a big advantage on a fast break. Is there that type of thing? unique corners, unique plays, unique events that people are looking out. Just something I've been thinking out. Okay, last thing I want to rant on, I was talking to a friend this week, and it jumped out to me, and this is investing blind spots, and it's something I think about a lot. So I will use myself as an example. I was talking with friends, I'll give that story as old. I have an investing blind spot for financial engineering stories, and I think this is pretty

common among more mathematical-focused value investors, right? A financial engineering story is, hey, this company trades at 10 times free cash flow, I think it's traded at 15 times free cash flow, all that cash flow is going to go to buying back stock, and the company's going to grow, so you get this great almost double play, right? You get this huge yield. It all comes to buying back stock at a discount. The earnings grow over time, and by the way, they're going to keep their leverage rate constant. So as the earnings grow, they actually increase the, nominal amount of debt while keeping their leverage constant. So shareholders enjoy this wonderful trio of you should get a great free cash flow yield. The stock is undervalued. As you buy back

more stock, unless the stock is up, it gets more and more undervalue because the remaining shares enjoy a bigger piece of the pie. Earnings are going to grow. Leverage is going to go up. So they're going to spin off even more cash flow as they kind of keep that leverage basis. That has been probably my worst investments overall. And I think it's a blind spot for me, right? I see a financial engineering story and my brain can short circuit in a way that maybe I ignore some risks because I say, hey, these insiders, they have a view of what their business worth. They know better than me. I'm worried about XYZ, but they're clearly not because they're buying back shares. So, you know, love the financial industry. It just can be, it can create a lot of blind

spots for me. So I have had to like literally physically, physically over the past few years, when I see a stock that's a financial engineering story, I need to stop myself and I need to research it hard, maybe not research it harder, but I need to like really think about the risk and say, hey, Andrew, are you just excited because this is financial engineering story or is this really a company you want to invest in? You know, what risk are you maybe askewing because you see this financial engineering story? Is it kind of, you know, the same way if you're addicted to something, it lights up pleasure centers and ignores all of the danger centers. is the financial industry story just lighting up your pleasure center to such an extent

you're ignoring everything else. So that's one thing I've really had to work on. With my friend, we were talking and we talked about maybe four companies and we mentioned they had some type of existential risk. And he mentioned, look, I evaluated these existential risks and a lot of people do premortems. You know, if this investment goes wrong, here's the reason it went wrong. he noted these existential risks in his premortem, but thought they were very, very tail risky. And, you know, if we talked about four to five stocks, two to three of them had this type

of existential risk and came out to play, and I kind of mentioned, hey, it's great you identified them, but if you're identifying these existential risk and giving them very low probabilities, because you can't buy a company with a big existential risk and without it being low probability unless you're getting real, real, like, kind of skewed returns. And two of them came out to play. I think my question to you would be, are you, are you underestimating these ex-essential risk? Are you going and buying companies that have this type of existential risks? And you're, you know, if you're generating alpha, it's because you're maybe you think you're

generating alpha, but actually what you're doing is you're getting paid for taking on this existential risk that is bigger than what you're forecasting. I don't know, but I thought it was interesting. And the reason I mentioned that, A, I'm thinking about investing in blind spots, always trying to evolve, giving that. But the other thing I was interested in was when we were talking, you know, it's kind of like, look, you've identified these and it sucks that they've gone against you. But as I was like wrapping this up, I was kind of thinking, well, you know, every company does have existential risk, right? Like Berkshire Hathaway, people have to say, oh, this is the greatest, they will be around cockroaches, come rain or shine, post-nuclear war. Probably, but, you know, they're a giant reinsurer.

You could imagine the Isle of Manhattan falls into the sea. Like, I don't think that's going to be great for giant reinsurers. You could imagine. Like, there are just different ways that any investment could break. You know, I was mentioning one to a friend, a different investment. And he said, oh, you know, it's a small cap company. And they basically have two major assets, right? Let's say it's small cap company.

Let's say it's an industrial. they've got two major manufacturing assets or, you know, an oil well. That actually is a better one. It's an oil well, and they've got two major oil wells. And, you know, one of them is in, let's say, Montana and one of them is in Florida. And the friend says, oh, okay, well, you know, that's great, but this is an ExxonMobil. So you're really exposed to single risk here, right? If the company's worth 100 and you think, in 50s from the Montana, it's in 50s from the Florida. Your big risk here is one of these assets falls into a sinkhole or, you know, obviously, in this case, it's oil that goes dry early or something happens.

I was thinking about that and I was like, yeah, yeah, you're absolutely right. But, you know, I was kind of thinking about it, and oil might not have been the best example. Let's use casinos, right? If you're invested in one casino company, you are very much exposed to that casino falling into a sinkhole, the town fire, explosion, all that sort of stuff. Absolutely. But it's kind of thinking about that after and it's like, look, you know, it's not like there's that many casinos in America.

If you invested in Caesars, you would probably be surprised. You're basically exposed to the same single risk, right? Like how much of Caesar's value is in Caesar's Palace and two or three other properties on the Las Vegas Strip? I would suggest it's a lot. So I guess I was just kind of thinking about this. And again, I'm rambling. That's what these November ramblers are for. But it's kind of thinking about this and be like existential risk.

And when people see one, now there are one product companies that can be exposed. very much distribution risk, but I think people see a company with one casino, one well, now one well is probably risky at the one casino, one casino, one well, one manufacturing plant, and they say, oh, huge sinkhole risk. And I do kind of suspect you underestimate for a lot of big companies, not all, you know, obviously Apple has no single risk, but there are a lot of very large companies. Tesla, what happens if the gigafactory is exposed to a single? You know, I think a lot of people would say Tesla is so large. That's a trillion-dollar company. They don't really have single risk. I kind of think they have quite a good deal of single risk on top of probably

Keman risk as well. So, anyway, that's a lot. It started with financial engineering, went to existential risk. But you know, I do think about those existential risks. And I think on one hand, I don't know. My friend and I discussed the extra risk of the companies that have gone for him against him. I don't know if he under over properly estimated them. You know, you could have, you could say, hey, I'm taking this and there's a 1% chance of it happening and make the investment two times in a row and the 1% chance comes up both times, right? You don't know, but you can't hindsight it. Now, if you had done it 20 times and 18 of the 20 times, the extra risk that happened to say, hey, you underestimate it. But, you know, I just wanted to

mention that existential risk and mention, you know, I do think there are companies that are smaller that have single assets where people say, oh, this has some type of existential, single risk. And I actually think it's probably not that far off of what a lot of larger companies have as a risk. And, you know, just to go back to existential risk, you know, I do think one of the things that happens every cycle in investing is there's a group of managers who come up and have great returns and they come down. And I do think sometimes what happens is you have a group of investors who they have ridden some type of existential risk without knowing it. And they are getting paid by the market for taking this existential risk on. And as long as it doesn't happen, they get paid very well. And then it happens and it kind of all goes to zero.

And you know, I think about there were a lot of financials investors in the early to mid 2000s who were doing great. You know, the world was their oyster. Nothing could stop them. And then the financial crisis happened and turned out, hey, you weren't this brilliant guy. You were maybe taking on excessive leverage or you were betting on these products and you didn't realize how much you were getting paid for the. zero risk of these products. Or, you know, right now, I think this is a little bit different, but big tech. I do, I have always thought big tech is exposed to some type of government regulation or government pushback risk. And as long as the governments don't use that, I think

the big tech companies continue to make a fortune in supernova and profits. And these are businesses, the likes of which the world has never seen before. But, you know, I look at Google getting sued by the DOJ, or I think just on Friday or Thursday, the FTC announced a investigation to Microsoft, it would not surprise me if it turned out that part, part, not all, part of the reason these big tech companies have done so well is because investors in them have been writing, hey, the government does not crack down on these things at risk, and maybe like five years from now, you do get some type of crack down, and these things generate 10 years of underperformance and we look and say, oh, like, even when these were huge, they were not getting

regulated enough or not getting regulated by the government. I don't know the exact answer, but that's why investors were doing so well in them. And if they start getting a little bit more pushback from the government, maybe things slow down there. No, you could say, look at Europe. They're already getting regulated pretty well. The government's definitely turning closer eye to them, but it's one thing to think out. Anyway, I have probably rambled on long enough.

you know, the funny thing about these is, I write these and I say, oh, I'm not going to be able to talk. And then I start talking. And I also say, I'm going to slow down. And then I start talking and my voice gets faster. And I just keep talking and talking until say, oh, gosh, Andrew, what have you done? What have you said? That is it for my November ramblings. I will be back sometime in December for my December ramblings. I am plotting out my vision and how I want my empire to evolve, change everything into 2025. I've got a lot of thoughts on that. But if you have anything, you know, you think, hey, Andrew, the ramblings are the worst thing in the world. Get rid of them. I don't know. I think enough people like them and I like them enough that

they're worth time. But, you know, if you said, hey, Andrew, we should only do ramblings. Maybe I'll spend off a different podcast feed. Probably not that either. But if you have suggestions, you know, I know one thing a lot of people always want is they want follow-up guests, right? I stock does greater terrible. It was pitched six months ago on the podcast. People say, I want follow-up guests. Look, I love to do follow-up guests. I could try to do it harder. But the thing is, a stock goes up 2x. I don't know if there's a need to have a guest come back on the podcast and be like, yes, the stock went up to X, right?

Stock goes down 80%. I know people would love to have the person who pitched it come on and talk about it, but the fact is, like, these are serious people. I'm not going to reach out and be like, hey, hold yourself to the fire. Come on the podcast, explain yourself. If the person wants to, I'd love to come on and discuss, like, what went wrong? Is it an opportunity? Is it risk?

Was there something missed? But I can't do that. If you want to reach out to guests and encourage them, I'd love to have them. But I guess I mentioned that because I know a lot of the advice would be, hey, have guests on follow-up. Probably, I'm probably doing enough of that. But if there are other advice for the podcast, for the blog or anything, you know, Andrew, you read a lot of fantasy books. Start a fantasy book spin off. I'm down.

Let's go. I'm ready. But there are any other advice always opens hearing them. All right, rampled enough. I will see you all in December. Are you tired of the endless grind? of updating financial models, scrubbing documents, and hard coding. Let's talk about something that could transform your workflow, Delupa. Delupa delivers perfect historicals for thousands of public

companies. That means every KPI, operating data, financial metric, adjustment, and guidance, all at your fingertips. And here's the best part. Delupa updates your models in near real time, which is especially important during earnings season, and it's tailored to your modeling format and style. Imagine never having to update your models again. With Delupa, you can reclaim your time and focus on what really matters, analysis and research. Want to learn more? Create a free account at dilupa.com slash y-A-V. That's the l-O-O-O-O-P-A dot com slash y-A-V.

A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.