Yet Another Value Podcast - Random Ramblings October 2024: networking with good investors, geopolitical risks, energy, probabilities

Episode Date: October 25, 2024

Welcome to the October 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: being in the room with good investors, geopolitical risks, oil & energy shortages and follow up to September 2024 ramblings on probabilities. Chapters: [0:00] Introduction to Andrew's Random Ramblings + Episode sponsor: Tegus [2:29] Being in the room with good investors [6:35] Geopolitical risks [11:16] Oil/energy shortage [15:06] Follow up to September 2024 ramblings on probabilities Episode sponsor: Tegus If you’ve been reading my newsletters, you know how often I rely on Tegus for my research. It’s truly revolutionized how I get up to speed on new industries and companies. Tegus has the largest transcript library in the world, with over 75% of private market transcripts. Whether you’re curious about AI, biotech, or any niche market, Tegus has the insights you need. What sets Tegus apart is its all-in-one platform. It’s packed with expert call transcripts, management checks, panel calls, and in-depth financial data. No more jumping between different services or piecing together fragmented data. With Tegus, everything is right at your fingertips.The best part? The insights you get are from the very people shaping the industries you’re interested in. You’ll find perspectives from insiders and executives that you simply can’t get anywhere else. To see Tegus in action and understand why it’s my go-to resource, visit Tegus.com/value – that’s T-E-G-U-S dot com slash value. Trust me, once you try Tegus, you’ll never look back.

This episode is brought to you by Teegas, the future of investment research. If you follow my newsletters, you know that Teegas is one of the things I use most often. Almost every post I have has some clip from an expert call or some quote from a management transcript that I've got off BMSEC that, you know, it's because of Teegas that I've got access to all of that. It's revolutionized how I get up to speed on new industries and companies. I've been a happy subscriber of it for over three years now. And I tell you, I use probably every day I'm logging on to Tegas to look at an expert call transcript.

And I certainly know, I mean, my BMSCC, I'm glad that it's unlimited because I am looking at BMSEC all the time. I'm looking at my Google Chrome right now and I have 30 tabs open and I'd say 18 of them are from BMSEC. So between Tegas and BAMSCC, I am a very devoted user here. Look, it's one platform where you can dive into expert call transcripts, management checks, panel calls, and detailed financial data. No more fragmented data sources or endless searching. Tegas brings everything together, giving you a crystal clear view of the industries and companies that matter most. If you're ready to supercharge your research, visit tigis.com slash value.

That's Tegus.com slash value. Trust me, once you've experienced Tegis, you won't go back to your old way of doing research. All right, hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, it would 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 myself. It's time for my annual monthly random ramblings.

We're coming around to the end of October. So I wanted to get on here and ramble for a little bit. So before I get to the ramblings, I'll just, the same way I start every podcast, remind everyone, nothing on this podcast is financial advice. Please consult a financial advisor. You know, that's always true, but probably particularly true today because as in the title, I'm going to be rambling. And when I rambling, I might talk about a bunch of different things.

And clearly not financial advice. You know, please consult financial advisor. So today I wanted to talk about four different things. I'll probably go in depth on two and quickly touch on two others. And the four things are, first, I just want to talk about being in the room with good investors. Then I wanted to talk about geopolitical risks and how they don't seem to impact the stock market too much over the long term. And then quickly wanted to talk about why oil didn't go to 200.

and then a little bit of an update on my thinking and numbers rant from last year. So let me start with being in the room with good investors. And I want to start there by telling a story. You know, I am a big basketball fan. Actually, the NBA season, I am taping this. It is October 22nd and the NBA season tips off tonight. Nick Celtics is the first game. I'm very excited for it.

I'm going to try and go see a few Knicks games this season. I'm a Pelicans fan. I'm going to try and go see a few Pelicans games this season. But I mentioned this because, you know, Back in 2008, they had what was called the redeemed team, and they got all of the, you know, the U.S., I think we didn't even meddle in the 2004 Olympics and basketball. Maybe we got the bronze, either didn't meddle or got the bronze. And they had the redeem team, and they got all the best superstars, LeBron, Kobe, Dwayne Wade, all the best superstars are on this team, right? And everything I hear is all these superstars went, and I believe Jason Kidd was also on the team, too.

And this is, Jason Kidd is at the tail-tail end of his career. Kobe is still great, but you know, he's now been in the league for, I think he's drafted in 96, so he's been in the league for about 12 years. You know, he's older at this point. So, LeBron, Dwayne Wade, all these young guns come. And the one, the redeemed training crushes everyone. Actually, I think the game was kind of close versus Spain, if I remember. But the one thing you will hear is LeBron, Dwayne, all these guys, they learn from Jason

Kitt, and especially Kobe, they learn the power of work ethic. And they all come back, and LeBron, you know, he torches the league in 2009. He's clearly the best player in the league. Wade is one of the three best players in the league. They really take away and they learn stuff. And you hear all these things and now you'll hear it when people go on the Olympic team, you know, especially younger players, they go on and they learn from this absolute peak people and they're coming back and they're having breakout years because

they learn what it takes. They learn how to get better. They get motivated. They push themselves. So why do I mention that? This month I've been to two and I think I'm going to another one later where, you know, you kind of semi-conferences where you get 10, 15 investors, good investors in the same room. And there's just something about being in the room. Like, you know, if you go talk one-on-one

with a good investor, you will learn something. It will be fun. I like to think I talk to them all the time on this podcast. It'll be fun. You will learn something. But there's just something when you get, you know, a critical mass, about 10 investors in a good room. You go, you talk to them, you listen, it really pushes you. At least for me, whenever I'm in the room with a bunch of good investors, I leave and I always think, oh, I've got so much more to work on. There's so many new ideas to work on. There's so much more I can do to hone my craft. And there's just really something to that. So, you know, I think a younger me when I was 20, 25, would have said, oh, you know, these conferences, I'm an extroverted person, but I can be a little in my show when it

comes. And I want these conferences, how silly? Like, how silly everyone goes and sits in a room and listens to one person present on stage. And as you get older, you kind of realize, hey, you know, a Liberty Media Day, the point is not to go listen to Greg Maffa talk one more time about how Q-Rate is going to turn around or how TripAdvisor is going to be great and, you know, it's in a better place than Expedia and listen to them and say that for the, you know, 10th time in 10 years as the stocks inevitably go down. It's to be in the room with really good investors who are really focused in telecom, we're

really focused on value investing, who are really focused on media, and to talk to them. It's the breakout session, it's all that. It's not just that you're having fun and you're talking to people. It's that actually really does push you to be a much better investor. And to me, that's where the real fun and that's where the real value of those are. So that's just me, but I kind of, I was there and I was thinking like every time I leave those, I'm just like, there's nothing else I want to do, but get back to my computer screen and start doing work and start looking at these ideas, people pitch, and start applying some of the things that people have talked to about there and just become a better investor.

So look, that's long, but it's a rambling, but that's kind of how I've thought about those conferences. And look, I've said it a few times on these ramblings. Next year, there's a few conferences I'm going to. I want to go to and everything. I'd love to see people there, and I'd love to continue to kind of build that type of stuff. So second thing I want to talk about, you know, I, and this will all, it's geopolitical risks when I talk about, and then I want to talk about oil, but they're obviously interconnected. But if you and I were sitting here.

in kind of early 2022 when Russia invades Ukraine, that would be pretty much the only thing we're talking about, right? Every commodity sector is ripping. You've got, oh my God, you've got literally a nuclear power invading somebody who is on the

border of NATO. You've got fears of, is Russia going to use a nuke in Ukraine? You've got all these fears, all these worries, hey, is this the start of World War III? I think the stock market takes a leg down, and 2022 is pretty brutal for stocks for a bunch of different reason. But, you know, today I think it would be, we're sitting here two and a half years later,

Russian Ukraine are still fighting, but I don't think there's anybody who's like, oh, there's a lot of geopolitical risk in stocks right now because of Russia, Ukraine. Like, the stock market has done just fine despite that. And similarly, you know, October 7th last year, absolute tragedy, October 7th happens. And we get a Middle East that is perpetually on the brink of all out war, like literally Israel and Iran are sending rockets at each other. And what happens, you You know, October 7th, the markets go down over the past months when Iran sends a rocket at Israel. Like, yeah, oil prices might be kind of volatile. But again, it's hard for me to sit here and say, right now, there's a lot of geopolitical risk in the stock market.

And again, that's despite pretty much a hot war going on in the Middle East. And you can look historically, you know, America invades Afghanistan, America invades Iraq, wherever you want to go. these geopolitical moves, you tend to get a spike, you know, right when they happen, markets go down or you tend to get a spike. But then six months later, like, nobody cares. And that's despite, in a lot of these cases, ongoing wars that are very costly, that are very devastating. So I guess my question is, you know, I've heard a few people mentioned to me recently.

They're like, look, when you get geopolitical risk, you just buy the debt, right? In six months, nobody's going to care about the geopolitical risk. And they would point to all of these examples. And on the one sense, they would be right. Historically, the geopolitical risk has been a buying opportunity. But then in the other sense, I kind of wonder if this is, you know, the Turkey before Thanksgiving problem where for the thousand days before Thanksgiving, the Turkey thinks the farmer is his best friend.

And then on Thanksgiving Day, the Turkey learns otherwise. And I wonder if these geopolitical risks, these dips have been, hey, the market is down because they're worried about contagion. They're worried about the war spreading. And then you kind of recover from that dip as the war does not spread over the next six months. And kind of what I wonder there is, yes, they've all been buying opportunities, but it only takes one to be proven wrong and to spread. And, you know, I wonder financial markets are still pretty immature.

You know, the wars that I mentioned were really only wars that, modern wars, I guess we could go back to the Cold War, you know, a Cuban missile crisis. I believe stocks were down quite a bit on that day, but they recover. but they're still pretty modern. I do wonder if this buy every dip, you know, if I went even further back, I think buying the dip on the eve of World War I or Evil World War II probably would have worked out for a really long time and you could go even further back. You know, if you're in the French Empire and the 1800s, if you're in the Roman Empire,

you know, right before the collapse, buying the dip there, it turns out to be really bad because the empire's a ruin. So I do wonder if this is Turkey with its head. cutoff problem or if geopolitical dips are actually an opportunity to buy, if they really don't matter. You know, the human ingenuity machine moves ever onward. And I guess the counter to that counter argument would be, hey, you know, you buy the dips because there's the famous saying of a guy who it's reported there are Russian missiles in the air during the Cold War and he sells everything and runs to his boss said, I sold everything before. And his boss says, you know, are you crazy?

as much as you can because if you buy and you're right and the missiles aren't in the air, then the stocks go up and you make money. And if you buy and you're wrong, well, the missiles are in the air and it's not going to be your problem if the stocks are going down because there's not going to be a market. So I wonder if you buy geopolitical risk because it's a one way bet, right? Either the war is contained. There's no contagion. There's no World War III or the world's not contained. And we go to World War III, but we're in a nuclear World War III. So it kind of doesn't matter for you because there's no more financial markets at that point. So that's my rent there. My other brand is, and it is somewhat related. Back in 2021, 2022, there were lots of, you'd see

the WTI $250 oil bowls, right? And you had people who partly correctly were saying, hey, the US and a lot of Western economies, their energy policies have been so insane. They have limited supply so much, there is a oil and energy shortage. And these things are going to go crazy. And you'd hear people calling for oil 250. And look, again, I'm not knocking the thesis. I think a lot of the energy policy has been extremely misguided. And, you know, you could apply the same logic to coal or a lot of other things. But you would hear these huge energy oil bowls calling for 250. And if I was talking to someone from, we're October 24, right? If I went to October 2020 and I went to someone and said, hey, over the next three years, you're going to have Russia invade Ukraine, and Russia oil

is going to get huge sanctions, right? And a lot of their oil industry, whether the sanctions work or not, you know, a lot of the oil industry is going to have a difficult time because just Russia's sanction and they're going to have trouble getting people in. They're going to be cut off from financial markets. They're going to have trouble getting equipment in. So you have that. And then you also have, you know, in October 2024, as you and I are speaking, you're going have Iran and Israel literally shooting missiles out of each other, so you're going to have war in the Middle East. You know, if I had told you that, I think you would have said, oh, yeah, oil 250 is absolutely in play, right? And instead, we've got that and we've got that. And as I'm

speaking, U.S. oil is trading low 70s per barrel. You know, I think if I just am looking at my price shot, right, oil in October of 2021 was in the high, it was touching 80, right? So oil is actually down 10% despite all of these geopolitical risks. And in my mind, somewhat continued misguided energy policy from a lot of the West. And I would just ask, what was wrong? Why didn't oil go to 200? And again, I'm not trying to dunk on anyone. I'm asking, I ask these questions earnestly, not critically. I do think one thing that was missed is markets are very responsive, right? Like, yes, the U.S. energy policy might be misguided, but A, as oil prices went up in 2022 in the wake of Russia, they did dial back some of that misguided policy.

And, you know, oil is ultimately a commodity. There's plenty of it. And people get very good at figuring out ways to retap wells and deliver oil and everything. So I'm sure there's a lot more to it. But it's just one thing that's been on my mind because I knew a lot of convincing cases that oil was headed a lot higher. And I think geopolitically, you've gotten basically the best of all worlds for that. And oils actually headed lower over the past three years.

And I think there's a lesson. I think there's some learnings there. I don't quite know. I have suspicions. I think you heard them. I don't quite know what they are. But it's one thing that I've been thinking about and is really interesting. And look, I subscribe.

Bob Robotti is a friend. He came on the podcast. I thought his pitch was great. The Revenge of the Old Economy pitch. it's not just oil and gas where we've under-invested in, right? There's a lot of old-world, old economy stuff because of NIMBY, because of a lot of different reasons that aren't getting built, and you catch the cycle correctly,

they make incredible super normal profits, and a lot of these stocks have done very well, but a lot of them also have not done very well, and a lot of them cycle still hasn't turned, and the supply demand of balance still hasn't swung. So it's just something I think about, because I increasingly find myself attracted to hard assets. I think there's a lot of places where they've been underinvested,

but that type of supply demand and balance and financial markets always find a way or human markets always find a way, commodity markets always find a way, something I think about there. Last thing I wanted to talk on, last month in the September ramblings, I kind of did a mention of probabilities. And one of the things I said was, look, if somebody comes on the podcast and they say, I think there's a 60% possibility of XYZ, happening, people are willing to give it value. If someone comes on the way of, if someone comes

on the podcast and say, I think there's a 40% chance of X, Y, Z happening, I just find people are unwilling to give it value. They kind of want it described as a free option, right? Like, hey, I think there's a 40% chance this company gets a $200 million per year windfall, then they want to pay a fair price for the company and get that 40% chance, which, you know, 200 times 40% is what, 80 million? They want that just as a free call option. They're not willing to pay anything. for that. But if it was, hey, you know, the company 60% chance they get 200 million, so 120 million of excess value, a lot of investors I think would be like, well, look, I'm paying a fair price for the company, and I'm paying $60 million for this free call option. So for this call option,

so I get the call option underpriced by 60 million, right? I just find a lot of people work and think that way. I'm, again, not accusing. I completely understand it. I find myself thinking that way sometimes. But numerically, it's incorrect. So I mentioned that. And what I realized was, I have this great example that I didn't give. So I'll give you the example. And the example is Fannie Mae prefers. These are, I'll disclose, very small, long position, very small long positions in there. Okay.

But these are a very popular pitch. I guarantee you if you go on Value Investors Club, you Bill Atman's pitch to them in the past. Like, you can find plenty of pitches. So go find them if you want. But I'm a friend who, so anyway, right now, the fan. Fannie Mae Prefords are a very popular play on Donald Trump winning the presidency. And the reason is because he has said, I wish I had privatized Fannie Mae during my presidency. And there's a lot of other stuff thing it, but his head of, I can't remember the office, but the office that oversaw it said, I wanted to, he wanted to, there was a appointee in office who Donald Trump couldn't get out of office and replace with his own person in time.

because of that, he couldn't do it during his first term. But a lot of people think he gets back in there. And one of the first things he's going to do is privatized Fannie Mae. And if he does, these preferreds, they could be worth par. They could be worth 50% of the par. Who knows? But, you know, as I'm speaking, I'm looking at one, it trades for about 20% of face value of par. So a lot of people believe Donald Trump gets elected and the prefers have a shot at par. And, you know, so I've got this friend and Joe Biden has a terrible debate. And he calls me up. And they, The Fannie Mae prefers go from about $4 to about $5 per share on that debate, right? And my friend is a fuse, if he's like Donald, I'm not bringing politics in this, just to be clear.

He says, Joe Biden was a disaster. There's no chance. Donald Trump's going to win. Look at the, you know, look at Polly Market, look wherever you want. Donald Trump is 60% to win. I think the preferreds are going, let's just make the numbers really easy. I think the preferreds are going to 10 if he wins. So they're trading at 5.

There's a 60% chance he wins. They're worth $6. Just the Trump winning piece is worth 10 times 60%, $6. And then there's some sub value if Trump doesn't win. So these are way undervalued, way undervalued. And actually, the math he was saying was much better than what I just described. I believe his fair value was actually in the like weighted scenarios that he did, his fair value was approaching 10. right? So they were at 5, screaming by. And then a month later, him and I are catching up, right? And Joe Biden

has dropped out with the race. And Kamala Harris has joined, and she's got momentum. The polls are kind of leaning her way a little bit. And I think she's slightly, like just ever so slightly. It's basically a coin flip rate is, right? So let's just say Trump's gone from 60% to 50% or 65% to 50%, right? My friend and I were talking, and I mentioned that Fannie Mae prefers to him, and I say, oh, look, you know, they've traded from 5 to 4. You must be, obviously, shorts are Marks, but you've got to love this trade right now, right? Actually, as I'm looking to trade it from 5 to 350, you've got to love this trade because I've got your, we walk through all your different scenarios, and even if I adjust, it looks interesting. And he's like, oh, no,

can't touch this. Kamala's going to win, these things, they're headed to two, right? Camalo wins. These are heading to one or two. Absolutely not. And I was just kind of like, what are you talking about, man? Like you and I walk through this probability tree. Yeah, Trump's gone from 60 to 50 percent. But if I update your fair values, you know, the fair value. I said his fair value was 10 at the time. If I kind of update Trump from 60 to 50, your fair value might go from 10 to 8 to 850. You know, that was kind of the rough math. I was looking at like, yeah, fair value is down, but the stock's down as much or more, like on your probabilities. It's like, no, no, no, no, come on.

And that was the type of thing, right? Like, it went from more likely than not that Trump won to kind of a coin flip, maybe slightly likely than less. And all of a sudden, the probabilities changed, but the price had changed more. And using my friend's probabilities, I thought they looked like a better idea than at the time. Now, look, maybe his fair values had changed. There's lots of other stuff. I don't think they had based on our conversation.

But it was just one conversation I had with a friend that really jumped out to me where it's like, hey, hey, the probabilities have changed, the prices changed more, but just because it went from more likely than not to slightly less likely, you're not invested. And the footnotes, the story is, you know, as I am talking October 22nd, Trump is like about 60% to win on polymarket. And I caught up with my friend, was it yesterday or Friday? I can't remember, but he was like, oh, Fannie Mae's $5 per share, Trump's winning, it's happening. I was like, man, you are really, you know, these 10% swings on Polly Market are really changing what you're doing here. Last thing on Polly Market, there is an interesting story. I can include a link in the show notes or you can Google it.

It's the Polly Market has gone, despite the polls saying this is a coin toss race, polymarket has Trump ahead by 60%. And some people have said that's because there's a $30 million whale who's best. betting on Donald Trump. And I think there's a quote in the Wall Street Journal article that says, hey, my model says Trump's 70% to win. I'm going to buy until he's at 70%. And there's other people, like there was a rumor that Elon Musk was doing this to get

better media coverage for Trump and all this sort of stuff. And it's interesting. It is interesting. Like, look, I mentioned my friend who's a sophisticated financial person who is basing a lot of his probabilities, his legal event-driven situations on these polymarket things. I think financial-minded people, market-driven people like me, look at these and say, oh, yeah, like the betting markets are more reliable than polls and everything. So it is interesting, but the one thing that jumped out to me was I'm a little surprised.

Like, there's over a billion dollars that's been bet on polymarket. I just have some trouble, and there are other sites as well, I have some trouble believing that $30 million is obviously a lot of money, but just one way with $30 million betting over the course of weeks could drive probability markets as much as people are saying, like, if the fair probability is 50, I have trouble leaving $30 million bet in that market over a couple of weeks would drive it to 60. Look, $30 million, if you did it in five seconds, yeah, that fat finger that could drive it. But I'm a little skeptical that markets are so, these markets are so illiquid and inefficient

that a check that small could really drive this thing. And, you know, I would say, like, I'm a U.S. citizen. I have not been on polymarket. I don't know, but there's enough capital and international markets are deep enough. Like, if it was really 50%, I do think, like, you'd see some clever traders coming and taking the other side of me, like, we got a whale, like, we can do it, we can orbit elsewhere, we can just rely on models. I'm a little suspicious.

So I'm just surprised by how much people are taking the story that one wheel is driving it. I'd love to learn more. I don't know. I'm not an expert, but I read that Wall Street Journal or kind of was like, I'm a little skeptical. But I wanted to relay my friend's probabilities, my thoughts and probabilities. these. It's something I'm always thinking about. Okay. Anyway, so end of October, I've had a lot of fun

rambling. Today's ramblings were, what was it? It was good investors in my Olympics analogy, geopolitical risk, oil not going to 200 and thinking of numbers. I am looking forward to talking to everyone and rambling a little bit more in November. I am starting to think about my, I do a yearly state of my entire piece, my podcast, my blog, my green site, all that. I'm starting to think about how I want the podcast, the blog, and everything to evolve in 2025 in a way where it makes sense for me. I'm getting the best use on my time. Your time that you spend reading and listening, these are valuable in the way that makes the most sense to you. So, you know, I'm always open to feedback. So if you've got constructive criticism, feedback, anything, any ways I can

improve, change, all that, I'm very open to it. So all of that out the way. Looking forward to chat in November, I think we've got a great podcast lineup then, and we will go from there. This episode is brought to you by Tegas, The Future of Investment Research. Look, if you've been reading my newsletters, you know how often I rely on Tegas for my research. I probably read one or two expert calls a day, you know, probably average seven a week off of Tegis. They've got the largest transcript library in the world with over 75% of the private market transcripts.

Whether you're curious about AI, biotech, or any niche market, TIGAS has the insights you need. What sets TIGUS apart is its all-in-one-pack platform. It's packed with expert call transcripts, management checks, and you need. panel calls, and in-depth financial data. No more jumping between different services or piecing together fragmented data. With TIGAS, everything is right at your fingertips. The best part? The insights you get

are from the very people-shaping the industries you're interested in. You'll find perspective from insiders and executives that you can't get anywhere else. To see TIGUS in action and understand why it's one of my go-to resources, visit tigis.com slash value. That's T-E-G-U-S dot com slash value. Trust me, once you try T-G-S, you'll never look back. 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.