ReSolve’s Riffs on Value Investing

This is “ReSolve Riffs” – live on Youtube every Friday afternoon to debate the most relevant investment topics of the day.

We were joined this week by our friends Wes Gray (Alpha Architect) and Tobias Carlisle (Acquirers Funds) to discuss value investing, its prolonged winter and how it has fared in the current environment. This broad conversation includes:

  • How value has historically outperformed growth, despite appearing to lag most of the time
  • The mental – and emotional – fortitude required to stick with it during tough periods
  • Active share – disaggregating value from broad equity beta
  • Difference between harvesting Value in Long-Only vs Long-Short strategies
  • Raw yields vs Excess yields
  • Separating Value from Quality

The group also compared different value metrics against portfolio turnover and capacity, their relative cheapness with respect to the market as well as versus themselves over time.

Please enjoy this episode and join us live next week!

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Mike Philbrick:           00:00:06           Welcome to Gestalt University. Hosted by the team of ReSolve Asset Management, where evidence inspires confidence, this podcast will dig deep to uncover investment truths and life hacks you won’t find in the mainstream media. Covering topics that appeal to left-brained robots, right-brained poets, and everyone in between. All with the goal of helping you reach excellence. Welcome to the journey.

Mike Philbrick, Adam Butler, Rodrigo Gordillo, and Jason Russell are principals at ReSolve Asset Management. Due to industry regulations, they will not discuss any of ReSolve’s funds on this podcast. All opinions expressed by the principals are solely their own opinion and do not express the opinion of ReSolve Asset Management. This podcast is for information purposes only and should not be relied upon as a basis for investment decisions. For more information, visit

Adam Butler:              00:00:55           I do think I’ve now got more familiar with this paper.

Wes Gray:                   00:01:01           Let’s get Mike on the …

Mike Philbrick:           00:01:01           Yeah, we’ll get him on here.

Wes Gray:                   00:01:02           Yeah, that’d be…

Mike Philbrick:           00:01:02           So we are live. We are live.

Adam Butler:              00:01:06           Okay, well, cheers! So, first thing I wanted to chat about was who’s got… And I’m going to throw this out to the audience, because now we’ve turned on comments, but I want to know who you thinks got the better hair. Is it Toby or Corey? Or Wes?

Rodrigo Gordill…:     00:01:21           Or Wes?

Adam Butler:              00:01:22           I’m going to throw Wes in there, too. You got the statement.

Tobias Carlisle:          00:01:25           Wes has got the smartest hair for coronavirus shutdown.

Wes Gray:                   00:01:28           Yeah. I got efficient haircut.

Adam Butler:              00:01:30           That is true.

Mike Philbrick:           00:01:32           Always about the efficiency.

Tobias Carlisle:          00:01:33           I just let it go, man. I just started… You got to shave it every day.

Adam Butler:              00:01:34           Look at the density and luster of that hair. It’s got the same kind of waviness as Corey’s. Think you’ve got better beard density than Corey.

Tobias Carlisle:          00:01:45           Oh, it’s a bit patchy.

Mike Philbrick:           00:01:48           That’s man bun-esque, there. You could do a bun on the top, in the mid-back.

Adam Butler:              00:01:51           Yeah. No, it’s true.

Mike Philbrick:           00:01:52           You’re solid.

Tobias Carlisle:          00:01:55           Never. Never.

Mike Philbrick:           00:01:56           The ladies are going to like that.

Tobias Carlisle:          00:01:56           I can’t fight well enough to put a man bun on. I can.

Mike Philbrick:           00:02:00           We’ll get you a sword. We’ll get you a broadsword.

Adam Butler:              00:02:01           …a man bun.

Mike Philbrick:           00:02:02           Get you a broadsword and a shield and away you go. You’re good to go.

Adam Butler:              00:02:05           Some spiked leather armor.

Mike Philbrick:           00:02:07           This is what happy hour’s like. Cheers, gentlemen, it’s been too long.

Tobias Carlisle:          00:02:10           Yeah, cheers.

Mike Philbrick:           00:02:13           I’m going with a margarita today, with the Tequila Tromba.

Wes Gray:                   00:02:17           Nice.

Mike Philbrick:           00:02:18           And what else we got on the call here?

Rodrigo Gordill…:     00:02:22           A Moscow mule, next to my…

Adam Butler:              00:02:24           In the proper…

Rodrigo Gordill…:     00:02:25           Mint on top.

Adam Butler:              00:02:26           Proper mug, too.

Rodrigo Gordill…:     00:02:28           In a copper mug. And I got some mint, on your suggestion, Butler.

Mike Philbrick:           00:02:32           I’m in my little bar in the background, so it sounds like we’re at the ….

Wes Gray:                   00:02:36           I have a G&T made by my mother-in-law.

Adam Butler:              00:02:40           Classic. Classic.

Wes Gray:                   00:02:42           There might be cyanide in here, you never know.

Mike Philbrick:           00:02:45           Yeah.

Rodrigo Gordill…:     00:02:46           Are you in your mother-in-law’s basement, right now?

Wes Gray:                   00:02:49           I’m in my father-in-law’s workroom, right now.

Rodrigo Gordill…:     00:02:53           What brought you there?

Wes Gray:                   00:02:55           What brought me here was 100 mile an hour winds and oak trees that destroyed everything around my house, including the power, so… I got to hang out in Jersey, now.

Rodrigo Gordill…:     00:03:04           As if you don’t have enough going on down there.

Adam Butler:              00:03:06           Guys, before we go any further, we forgot…

Mike Philbrick:           00:03:09           Yeah, we got to record.

Adam Butler:              00:03:09           We have to record this, locally. Now we forgot, and so we’re going to have to start…

Mike Philbrick:           00:03:13           Everyone press record on some sort of local…

Tobias Carlisle:          00:03:18           I’m recording.

Wes Gray:                   00:03:18           Yeah, I’ve been recording.

Mike Philbrick:           00:03:19           Ah, see the pros! Look at you, guys.

Adam Butler:              00:03:21           Oh, that’s weak.

Rodrigo Gordill…:     00:03:22           We got distracted.

Adam Butler:              00:03:24           So weak.

Mike Philbrick:           00:03:24           I didn’t record any of the drinking stuff at the beginning.

Adam Butler:              00:03:27           I’m starting now.

Rodrigo Gordill…:     00:03:28           I blame the fact that I’ve been drinking for an hour.

Adam Butler:              00:03:34           So, you guys listening later have missed the hair debate, so… which is probably going to be the best part of this discussion. So, that’s a lesson, you guys need to tune in live next time, or you miss the best parts.

Rodrigo Gordill…:     00:03:50           Missed the hair, though. We’ve been talking about hair for a bit.

Adam Butler:              00:03:53           I’m drinking a local brew Flying Monkeys 12 Minutes to Destiny. It’s a raspberry hibiscus lager that my wife bought and it’s actually fantastic. It’s a bit of a departure from my usual.

Mike Philbrick:           00:04:06           Wow.

Adam Butler:              00:04:06           But it’s good. It’s light.

Mike Philbrick:           00:04:07           It’s admirable. It’s 12 Monkeys.

Tobias Carlisle:          00:04:10           I’m impressed you were prepared to say that out loud. Say that publicly.

Adam Butler:              00:04:14           Publicly did it.

Tobias Carlisle:          00:04:17           I got an even worse one, this is a virgin gunfire, which means that it’s just coffee. It’s literally… There’s no alcohol in it.

Wes Gray:                   00:04:25           Virgin gunfire, huh?

Tobias Carlisle:          00:04:27           You guys know gunfire?

Wes Gray:                   00:04:28           No.

Tobias Carlisle:          00:04:29           It’s what they used to drink at Gallipoli. It’s just rum in coffee. They drink it every year in celebration.

Adam Butler:              00:04:40           Sounds very civilized.

Tobias Carlisle:          00:04:40           But I got no rum in mine.

Wes Gray:                   00:04:40           Dude, Adam, that painting back there. On your bottom shelf, I have that… I think, the same painting. My late grandmother had that. What is that?

Adam Butler:              00:04:51           That is a Thai rubbing…

Wes Gray:                   00:04:53           Okay.

Adam Butler:              00:04:54           No pun intended.

Wes Gray:                   00:04:55           Yeah.

Adam Butler:              00:04:56           So it’s…

Tobias Carlisle:          00:04:57           I bet you were shocked when you got a painting.

Adam Butler:              00:05:04           So, yeah. So the monks rub this on a special kind of paper with charcoal…

Wes Gray:                   00:05:07           Okay.

Adam Butler:              00:05:08           …and creates the design. And I don’t know if you knew this, but my wife and I lived in Thailand for a couple years, and so we brought back a bunch of this stuff, but… This actually isn’t for me, it’s… My father-in-law got this on his pilgrimage to Thailand when he was a younger man and didn’t have room for it, so gave it to me and… Nice reminder of time spent in Asia which was a really great time in my life, so… Yours was… Do you have it? Did you inherit it, or is it still your grandmother’s?

Wes Gray:                   00:05:37           Yeah. That painting is my inheritance, hanging in my house. And I’m going to take a picture of it and send it to you. I’m not in my house right now, but I’m thinking like, “Wow! Did Adam steal that when he was sleeping here last time or what?” Because I’ve seen that…

Adam Butler:              00:05:50           I think it’s a pretty common Thai rubbing design. I’ll tell you what would really blow your mind…

Rodrigo Gordill…:     00:05:56           Everybody that made it to Thailand and got one of those.

Wes Gray:                   00:05:57           Yeah, yeah.

Adam Butler:              00:05:57           Exactly, yeah. I’ll tell you what would really blow your mind is that, in my living room, I’ve got a painting… And I learned later that this is like animal cruelty on steroids, so now I’m all ashamed of it, but…

Wes Gray:                   00:06:10           Yeah.

Adam Butler:              00:06:11           Notwithstanding that, in my living room I’ve got a painting that was done by an elephant.

Wes Gray:                   00:06:17           Wow.

Adam Butler:              00:06:17           And it’s a painting of an elephant in the sunset. And this elephant actually painted this from this Thai elephant shelter in northern Thailand.

Rodrigo Gordill…:     00:06:28           How much did you pay for that?

Adam Butler:              00:06:30           Oh, I don’t know, 400 baht which is like 50 bucks or something. Not a lot, but…

Rodrigo Gordill…:     00:06:37           Some dude dressed up as an elephant.

Adam Butler:              00:06:39           No, I watched him paint it! I literally watched the elephant paint it. It was… I’ve never seen anything like it. It was crazy. But, anyways, apparently their elephants are really not treated well and so… Now I need to be ashamed of that.

Rodrigo Gordill…:     00:06:51           Speaking of deep value purchases, why don’t we get to the topic?

Adam Butler:              00:06:58           I thought this was the topic.

Rodrigo Gordill…:     00:07:00           No, I’m…

Mike Philbrick:           00:07:01           Well, actually, I want to make sure we start with, while we’re sort of off-topic a little bit, I want to make sure we get the March of the Fallen update.

Wes Gray:                   00:07:08           Sure.

Mike Philbrick:           00:07:08           Because I do not want to miss that or have that delayed. So what do you got for us, Wes? What’s happening in that realm?

Wes Gray:                   00:07:15           Yeah, so I talked to the General the other day, General Grotsky, who is actually going to be on Jocko’s podcast, if you guys know who Jocko is.

Mike Philbrick:           00:07:22           Of course.

Rodrigo Gordill…:     00:07:23           I love him. Who doesn’t?

Wes Gray:                   00:07:25           Yeah. And he’s going to promote, obviously, the March for us, as well.

Rodrigo Gordill…:     00:07:29           Awesome.

Wes Gray:                   00:07:29           So this thing could get big. So that’s good news. The bad news is it’s pretty likely that, obviously, we’re going to have to figure out a virtual version of the March this year, unless something dramatic happens. That’s my… It’s not 100%, but I’d say that’s probably likely, because it’s in late September. Arguably, if this thing is real at all, it’ll come back in a little bit and if I don’t want a thousand people hanging out together, so… I would like everybody to do it live, but… We’re scheming on some other ideas on how to make it a virtual event. And I’ll… Once we get some things fleshed out, I’ll ask you guys what you think.

Rodrigo Gordill…:     00:07:29           Awesome.

Wes Gray:                   00:08:12           So, it’s going. There’s no excuse to not stay in shape. But you may not have to do it in the middle of nowhere in Pennsylvania.

Adam Butler:              00:08:20           Well, it’s a good event. It’s a great excuse to get together and we look forward to it every year and… So that’s a shame, we’ll have to figure out how to make the most of the remote experience.

Rodrigo Gordill…:     00:08:32           You should randomize. Every half an hour, you randomize four people to do FaceTime with, with each other. While they’re hiking locally.

Wes Gray:                   00:08:40           Yeah. Yeah, I like it.

Rodrigo Gordill…:     00:08:40           You guys are good at building apps in Alpha Architect, go and build that app, that’d be awesome.

Wes Gray:                   00:08:45           Yeah, yeah. No, we’re going to have to get a tech solution rocking, but… There is a chance it could go, but like I said, it’s not looking great at this point.

Adam Butler:              00:08:45           Well, look, it’s…

Wes Gray:                   00:08:54           But that’s all I got for now.

Adam Butler:              00:08:56           We’re march-shaming Toby here. I mean, I can see him. He’s just waiting.

Tobias Carlisle:          00:09:01           I’ll do it this year. If I don’t need to travel, I’ll do it.

Rodrigo Gordill…:     00:09:03           He lives in California, he doesn’t come to the northeast for anything, any of this stuff.

Adam Butler:              00:09:06           We can get Meb to come.

Wes Gray:                   00:09:10           Yeah. We’ll get Toby out here.

Rodrigo Gordill…:     00:09:10           Oh, that’s right. Meb Faber was there last year.

Tobias Carlisle:          00:09:15           I saw Hoffstein did David Goggins’, I think it was four by four by 24. He had to do four miles every four hours, for 24 hours, which meant… I asked him afterwards, “How did it go?” And he said, “Well, you got to do a lot of laundry,” because he just ran out of marching… ran out of clothes. But he got through it. What an animal.

Wes Gray:                   00:09:34           Yeah.

Adam Butler:              00:09:35           And God forbid he’d have to wear the same piece of clothing twice. Corey, too, right?

Rodrigo Gordill…:     00:09:38           Totally.

Mike Philbrick:           00:09:40           Not something I would… Working out and sleeping, same clothes, all the way through.

Tobias Carlisle:          00:09:45           Yeah, no doubt.

Mike Philbrick:           00:09:47           Just throw them away at the end.

Adam Butler:              00:09:49           So, value Renaissance, guys. Honestly, you guys have got to be…

Mike Philbrick:           00:09:55           The timing. The timing doesn’t even matter. The bottom’s in, boys.

Tobias Carlisle:          00:09:58           God, I hope so.

Mike Philbrick:           00:09:59           There is nowhere but up from here. I’m so proud of you guys for making it through.

Tobias Carlisle:          00:10:03           Well, I hope so.

Adam Butler:              00:10:04           Contrast how you’re feeling today to how you were feeling even two weeks ago.

Tobias Carlisle:          00:10:08           Yeah. Much, much better.

Rodrigo Gordill…:     00:10:10           Somebody’s typing, “Is this the Value Anonymous support group?”

Tobias Carlisle:          00:10:14           Yeah. Well, there have been a few.

Mike Philbrick:           00:10:15           Yeah. For walk-ins, come on in.

Wes Gray:                   00:10:20           So the beatdown has been so long and so painful at this point, I’m just kind of numb to anything. So this is exciting, I guess, in theory, but… I just know it’s got to be fake.

Tobias Carlisle:          00:10:36           It’s two weeks, right?

Wes Gray:                   00:10:37           I just gave up on value, but I’m still stick with it, because at this point, I’m all in. So, it’s good…

Tobias Carlisle:          00:10:42           There was one that was… Last year, we ran from August 27. There was that big move where it was the six standard deviation, it’s not normally distributed, so it’s not… I know. Don’t tell me that afterwards. There was that gigantic move to value, gigantic move away from momentum, August 27 followed up… Sorry, August 27 was the bottom, it was September 9th. September 10 was like a five standard deviation day. Ran like a scalded cat all the way through to December 17, just hit a brick wall. Just drifted sideways and down, which I think was the selloff pre-the COVID shutdown. And then shat the bed through… Everybody knows that it got shot first. And then didn’t recover at the other side. So, anybody who’s been trading value for the last decade has got scar tissue all over them, so there’s no way in the world you’d trust two weeks of a little bit of a run. That’s noise.

Rodrigo Gordill…:     00:11:38           I don’t know, a couple of weeks ago…

Adam Butler:              00:11:39           Doesn’t it have that kind of …?

Rodrigo Gordill…:     00:11:40           I’m not a value guy. And a couple of weeks ago, I decided to buy some value stocks. I bought JETS? I don’t know if you’ve heard it.

Wes Gray:                   00:11:40           Sure.

Rodrigo Gordill…:     00:11:47           But, deep, deep value stuff, like almost broke type of value. It’s paying out quite nicely.

Tobias Carlisle:          00:11:52           Is it like 80% or something, in two weeks?

Rodrigo Gordill…:     00:11:55           I think Robinhood owns, basically, the whole thing. Like all the Robinhood kids.

Tobias Carlisle:          00:12:01           You’ve got to give it to the Robinhood guys, bro. Because they have… They’re either… I’ve been seeing this a few times. There’s very little difference… If you’re a dip buyer, you’re either a value guy or a bag holder, and you don’t really know until about a year after the event. But those Robinhood guys, they’re good dip buyers, at least.

Rodrigo Gordill…:     00:12:19           Yeah, it was astounding.

Mike Philbrick:           00:12:20           Well, now they are.

Tobias Carlisle:          00:12:21           I mean, they’re doing better than Buffett.

Mike Philbrick:           00:12:23           Oh, I’m interested in that. What do you think… because I know, Toby, you’ve been kind of the Berkshire bandwagon a little bit, it showed up in some of your screens, you were excited about sort of getting allocation to that. And then, so all the Warren wannabes leaping ahead of Warren saying, “Hey, this has got to be the buying opportunity of a lifetime,” by the time he reports he’s sold some banks, sold all his airlines, and…

Tobias Carlisle:          00:12:55           Not bought any stock.

Mike Philbrick:           00:12:55           Not bought a single… Yeah, not bought a single…

Tobias Carlisle:          00:12:57           He bought a few billion, but that’s not that much.

Mike Philbrick:           00:12:59           Net net, a net seller, and so what are your thoughts on there? How do you sort of encourage the value zeitgeist to continue to stay true, but… What’s Warren doing? How do you handle that whole discussion?

Tobias Carlisle:          00:13:15           Yeah, so on March 23rd, which was the bottom for the market, but March 23rd… That sort of week beforehand, on a prior queue basis, the price to book value for Berkshire was as cheap as it was March 5th, 2009. And then you got to go way back, I don’t know that it was ever that cheap on a book value basis before that, so… Very rare opportunity to buy it. And it got down to I think $162, $163. And it’s $180 something, so it’s not much higher, it rallied a little bit and then it kind of fell over. I think part of it was that Buffett’s always very, very optimistic. And then he had that annual meeting which was spooky as hell, because it was in the gigantic auditorium with nobody there. And he was somber. And probably appropriately so, because it was right in the middle of the coronavirus shutdown, you don’t want him coming out and celebrating.

Adam Butler:              00:14:07           No, but he looked pale and sick and not well. And…

Tobias Carlisle:          00:14:10           He just had long hair. He’s 90.

Wes Gray:                   00:14:10           Yeah.

Adam Butler:              00:14:13           Yeah, well, fair enough.

Mike Philbrick:           00:14:13           He looked 90.

Tobias Carlisle:          00:14:13           Listen –  do some deadlifts.

Mike Philbrick:           00:14:19           Him and Naseem should work out together maybe, I don’t know.

Tobias Carlisle:          00:14:23           But I just… Yeah, I think having this… He’s sold into it, and then I think that there had been a little bit of a meme beforehand that maybe Berkshire had lost its value investings over Buffett’s too old, didn’t pull the trigger. All of that seemed to reinforce it. There’s really been no signs of light yet out of it. I kind of like, probably for sentimental reasons, it did come… I’m not buying it for sentimental reasons, it’s in my screen because I think it’s cheap. And good. But for sentimental reasons I would like to see the best whoever do it go in one more time with cashed-up to kind of do something big. And I hope he gets another opportunity. I just don’t know, I’m not a market predictor guy. But I hope he does.

Mike Philbrick:           00:15:14           To me, it was reminiscent, this whole sort of vitriol from the general public, was very reminiscent of 2000. Of ’99, 2000, Warren’s lost it. He is 80% behind, Berkshire down 35, S&P up 50. That dispersion in performance. And he, again, this is what value… And Warren Buffett, maybe is a type of value. So, obviously, there are different types of value investing, so a little bit more quality in moats and what not.

But, at the end of the day, he was willing to stay the course, keep his discipline. And from ’98 to 2003, he gains it all back and then goes on to outperform by spectacular amount over the general market. Which just goes to the fact that value is tough. It’s tough. The value of value is tough, and if you’re going to garner any return from any factor, it means when it’s tough, you got to absorb this risk, you got to absorb these periods because there will be brighter days.

Tobias Carlisle:          00:16:22           You got to sin a little, is that what you’re saying?

Adam Butler:              00:16:27           I was going to ask you guys, what is the character of value? I know that, for example, trend following which, obviously, we’ve spent a lot time on, has this character where the simpler versions of it have a lot more losing trades, losing weeks, losing months, than positive months. The positive months are so much larger than the losing months that it’s profitable over the long-term. Value seems to me to have that… A similar kind of profile, obviously for a different reason, there are different times, but you’ve got…

If you miss those periods where value runs, it runs for a few weeks or a few months, but if you miss them, then it’s game over. You’ve missed all of the potential returns from missing that narrow window, so it has to be one of those things, unless you’ve got extremely high accuracy in your ability to forecast when value is going to do well, I’ve never seen anything that does a good job with that, but if not, then you’ve just really just got to stick with it, which is painful and it… Like Wes always says, ” Embrace the suck.” But it’s got this character, right? So if you’re not there when it runs, then you’re out of luck.

Rodrigo Gordill…:     00:17:39           So is that the character of value? Is it… I always wonder whether it’s… You got to be there at the worst time, that’s when you make all the money. Is that true?

Tobias Carlisle:          00:17:48           I reckon I can refute… I went and just grabbed all of the French library data and just had a look at how those, the value decile of each of those metrics, just how… relative to growth, how often are they underperforming? And by how far behind do they get at any given time? Just because I was like this is crazy how far behind we’ve got so far. And I summed all of the times that it’s underperformed. So with that dataset, they’ve underperformed 70 to 80% of the time. But the outperformance is massive over the full dataset.

It’s really hard to get your head around why it works the way that it does. If anything, it confused me more. It just made me realize that you can’t predict it, you just got to stay in it. It’s going to rip sometimes, and it’s going to lag sometimes, and just… You just got to ignore it, even though… And the times when it’s underperforming the most, like now, it’s really… It’s the best opportunity in it, but it doesn’t have very many friends. There aren’t many people out there who believe in it, right now. You got to be pretty bloody-minded to stay in it.

Rodrigo Gordill…:     00:18:49           Probably what you wanted, right? I mean, Wes, when you… Just going back to your roots when you first started looking at this stuff, there was so many areas that you could have explored. And this is true for almost anybody that I talk to that likes the markets. Everybody starts off as a value investor. If it’s so painful, why is it the most loved factor on the planet? What was it that attracted you to it initially?

Wes Gray:                   00:19:17           I mean, for me, it was just intuitive. And I got schooled up… My grandmother was a huge Warren Buffett, Ben Graham fan forever. And I grew up on a cattle ranch and used to buck hay and was broke as shit, and so I wanted to get rich. So I talked to my grandma. And, I don’t know, it just made sense to me. Hey, if I can buy stuff that everyone hates and it’s cheap, and I’m willing to sit there and deal with the pain, I’m just naturally that like, well, that makes sense to me. So I don’t know.

It was Ben Graham… Toby probably knows better, but I think Ben Graham said it’s like inoculation. You either get it or you don’t. And for me, I was sort of like this is common sense, dude! Why wouldn’t you do this? So my system one was definitely just, I was in tune with the force of value. And then for me, because that became my religion, it actually took deliberate thinking to move into momentum and trend and stuff you guys talk about, because that was not intuitive or a good idea at all in my monkey brain sense. But I don’t know, man. Just bad genes, I guess. I just…

Adam Butler:              00:20:30           It raises a good question, though… To what extent should personality or just sort of natural inclination, just how you’re wired, inform how you should invest? To what extent, is it more about just investing in alignment with your faith and with your personality and with your belief systems, relative to investing in alignment with where there’s maximum evidence? There’s got to be a Venn diagram there, but how do you weight those attributes?

Wes Gray:                   00:21:05           I mean, honestly, more and more, as I deal with more and more people, I think it’s… The wonderful thing about Warren Buffett has nothing to do with the fact that he’s underperformed for the past 15 years. It’s the fact that the people that own that stock stick with it through thick and thin, no matter what. So in many respects, he’s done such a great service to people, not because he underperformed or outperformed or whatever. It’s just, he made people stick to the program, no matter what. So I’m just a huge fan where I don’t give a shit what you do. You what to do Ouija board investing, whatever your process is, I frankly don’t care. I just want to know what is your ability to stick to that process and I will gauge your capability to be a good, successful investor.

Adam Butler:              00:21:56           What are the optimal parameters for the Ouija board strategy? Has anyone tested that?

Mike Philbrick:           00:22:01           Are you kidding me? I wrote that up. I’ll send you the code.

Adam Butler:              00:22:05           I was wondering. Okay. That’s what you’ve been doing.

Rodrigo Gordill…:     00:22:08           Do you remember, Mike does not know how to code, so this is going to be interesting.

Wes Gray:                   00:22:10           Yeah, you already have the evidence-based Ouija board is my favorite one.

Adam Butler:              00:22:14           That’s right.

Wes Gray:                   00:22:15           But, hey, if you stick to the evidence-based Ouija board, you’ll probably show all right, because if anything, that Ouija board will randomly hit different risk premia. Then you’ll get a capture and enjoy over long haul. Even if you didn’t know that.

Adam Butler:              00:22:29           One thing that I always find it to be a mystery… Actually, maybe you guys can answer this, because when you look at the data, it seems like the value premium is really strong in small cap, and also, and really weak in large cap, but… You don’t… Obviously, just from a market capacity standpoint, everyone can’t be a small cap value investor. What do you guys see as a cross-section of where actual capital is allocated? Do people still allocate to large cap values? Is that a thing?

Tobias Carlisle:          00:23:00           Depends on how you’re measuring it a little bit, right? If you’re using price-

PART 1 OF 4 ENDS [00:23:04]

Toby:                             00:23:00           Depends on how you’re measuring it a little bit, right? If you’re using price-to-book, then basically 94% of the market it doesn’t work for. The 6% of the market that it does work for is probably a bid-ask spread measuring problem. And you can’t allocate any capital to it anyway. But if you use those flow metrics, if you’re using EV/EBITDA, EV/EBIT, price-to-cash, or EV cashflow, price-to-earnings. Any of those, I think they scale pretty well. If you divide a bigger universe by decile of those things, you definitely get some out performance by long short, or just long the undervalued stuff.

I think it does work in that stuff. The reasons why… I mean, I think that intuitively buying something for less than it’s worth. As Wes says, the inoculation comment by Buffet, I think it was. I think that there’s two kind of mindsets of people who I’ve come across in the market. There are people who, “Yeah, I want to buy a bargain.” And there are people who are like, “That’s ridiculous. You buy stuff that’s going up.” There are guys who are just congenitally trend momentum kind of guys. And they should be momentum guys. But if you want to buy bargains you should be a value guy, if that makes sense to you.

And, Wes, I can read the data on momentum. I fully believe that it’s a more robust strategy than value. But just personality wise, it doesn’t appeal to me. Whereas value does.

Rodrigo:                       00:24:24           Well, I’ve never met an advisor that doesn’t, when you tell them the value story, they’re like, “Yeah, but have you seen the chart? There’s no way I’m a chartist. Everybody’s a chartist, which basically ends up being some sort of trend momentum manager. Right?

Toby:                             00:24:39           Right.

Rodrigo:                       00:24:41           It’s the do no homework approach for a lot of people.

Wes:                              00:24:45           And to answer Adam’s question on the mega cap versus micro cap and value. Kind of to Toby’s point, it’s highly depending on what metric you use. Right? Because book to market kind of sucks, but it sucks in a Sharpe ratio sense. Right? If you buy just mega cap cheap stocks, they earn higher expected returns. It’s just their volatile as shit. So if you believe you can eat Sharpe ratios, maybe it’s a bad idea.

But if you’re just got a 30 year horizon, you want to compound your face off. If I have the option between large cap cheap versus S&P, and I don’t really care about the Sharpe ratio kind of… Well, that’s not a bad bet. Right? So it kind of depends on what you’re trying to achieve there. And then to Toby’s point, if you use like EBIT yields, or earnings yields, or anything else, that’s a little bit more high frequency measure, it’s going to work better in large cap. But I don’t know if you guys listen to Ken French, he was recently on a podcast with Ben Felix and those guys. And he just admitted that book to market is not the best value metric, but it’s the metric that has the lowest turnover. I.e. hint hint, wink wink, we can jam $500 billion into it. Right?

If I’m thinking about a scale asset management firm, I’m not going for the best value metric-

Adam:                           00:26:10           Not naming any names here.

Wes:                              00:26:11           Yeah, yeah. Not naming any names here. And god bless people that start with …. You have to make a trade off in the capital markets. You go for scale, or do you go for boutique?

Mike:                            00:26:27           I think That’s a massively underappreciated point that allocators, investors, financial intermediaries overlook. And I think you’ve got some great tools on your site, Wes, that sort of show that. What are you going for? Are you going for scale as an asset company? Or are you going for pure factor exposure as maybe a mid tier or a boutique? I mean, even some of the large guys are lining up and starting to offer them more sort of a factor concentrated portfolios. Which then begs the question of, okay, so once you do get massive pools of capital chasing that, does that carve that away? But a solid under-performance like we’ve had recently, well, certainly ….

Adam:                           00:27:18           It does seem like there’s a steady flow of large sources of capital into those portfolios. Well, there’s been not much evidence of that. …There is now, over the last few days.

Mike:                            00:27:29           For a moment. Yeah. I think also the thing that you point out is Buffet’s ability. Just talking about Buffet, let’s say as an example, to educate investor/consumers on the concept of vol. Right? The idea that, what’s the quote? In the short term the market is a voting machine, in the long term it’s a weighing machine. Which is a very sort of folksy way to say, “Hey, listen it’s not the Sharpe ratio, it’s actually the excess return. And you should ignore or use the short term volatility as an opportunity, not as a measurement as to what your long term outcomes might be.”

Adam:                           00:28:12           Okay. You’re in the metaphor penalty box Philbrick.

Mike:                            00:28:15           Okay. What did I do? Is it totally backwards? Did I dyslexic that?

Adam:                           00:28:23           No, I just think that the weighting voting machine is just like… It’s more of a sentiment engine in the short term, but it’s a equilibrium engine in the long term. Right? And so if you’re legitimately buying dollars for, as we’d say loonies, for 50 cents or dollars for 50 cents, then eventually the market’s going to recognize the value and trade to equilibrium. Buffet’s been really great at making that clear point. I mean, is there anyone who wouldn’t want to buy a strategy where you’re buying companies for 50 cents that are worth a dollar? I mean, isn’t that the easiest pitch in the world?

Mike                              00:29:01           Well, the point is though, it’s the downside vol. It’s the vol of the strategy that creates the dispersion of outcomes in value. Which allows you to take advantage of Mr. Market in the short term, to reach equilibrium in the long term. So I will push back on your judgment of my-

Adam:                           00:29:21           I see. So you’re saying that by virtue of volatility, that randomness, eventually you can push the push prices lower and give opportunities to buyers at lower prices. Gotcha.

Mike:                            00:29:30           Correct. In the short term, but in the long term that volatility is dampened by the nature of the long term versus the short term.

Rodrigo:                       00:29:37           Actually brings up a question from… Brian Moriarty says, “Why don’t you talk about how value is suddenly too expensive, maybe? Especially after being touted as cheap just a few weeks, months ago.” Also, “Hey guys.”-

Toby:                             00:29:51           No, it’s not too expensive yet. It’ll get there, hopefully. With any luck, it’ll get too expensive. But I think that’s like 2027, 2030 is the time that it’s going to get there. The other thing worth pointing out is that nobody’s just buying on price ratios. Right? Wes doesn’t buy in price ratios. I don’t buy on price ratios. AQR doesn’t buy on price ratios. There’s not a single…

There’s this pervasive view among the discretionary value guys that what quantitative value you guys are doing is like buying on price-to-book value. And that’s it. Like you just run a screen, find all the cheapest stuff on price-to-book value and head to the beach. Nobody’s doing that. Everybody’s trying to mimic what discretionary value guys do, which is dig into the book. Like, how high quality is that balance sheet? How good’s that business? How fat are those margins? What’s the chance this thing goes into bankruptcy? What’s the chance that this is a fraud, there’s earnings manipulation? Everybody’s throwing every single thing they can think of at it. Looking at what the discretionary guys are doing. That binding that back into the model, working at all the time to try and recreate.

But what we’re trying to avoid is just all the systematic errors that people tend to make when they’re discretionary, because they get scared out on March 23, which is the best time. Or you look at the rally from the bottom and you say, “Well, value’s not doing it. Value’s dead. I’m getting out.” I can see it in the volume in my funds. The volume dries up. Then the fund goes on a little run. All the volume comes back in and then it quietens out and the volume stays. You can see it in the underlying shares. You can see it in the fund. You can see it everywhere. It’s just the only way you can take advantage of it is just to ignore it, and just to stay in it, and think about it like once every year or so.

Adam:                           00:31:34           So what does that look like in terms of systematizing, like you said, the process of how would a discretionary manager look at it? But you want to systematize it, what does that look like? I know, Wes, you guys have a bit of a… I don’t want to put words in your mouth. I think it’s a quality screen, before you sort on valuation metrics. I don’t know if it’s the same.

Toby:                             00:31:56           Got a great book here that-

Adam:                           00:32:00           Yeah. I think I’ve got that book on my shelf somewhere.

Wes:                              00:32:03           Yeah. Well, we get the Ouiji board out, see. Anything you can find. But actually, before we go there, Brian actually has a great question there. Because we’ve noticed there’s a lot of confusion. Because Cliff has his piece on like, “Oh my God value is so cheap. It is mind blowing!” But what people always forget is he’s talking about long short value. Like people that long stocks that are cheap and short stocks that are expensive. And no shit, that is the biggest spread that you could drive a truck through. But when you’re a long only value investor, which most of us actually are, you have an embedded beta bet.

So right now, I can’t say with a straight face, that value as a long only investor is super cheap. Because there’s … of 10. But hey, historically that’s actually not so cheap, because all stocks are expensive. And because you have the embedded beta bet in there, you might relatively outperform the S&P. But if you’re down 50 and the market’s down 55, okay, that’s still sucks, right? Whereas the long short bet, I would argue, is probably pretty compelling right now. But that doesn’t mean that long only funds are like some magical sauce. Because there’s such a big beta bet that one needs to consider as well.

Toby:                             00:33:33           I’d slightly disagree with that. I pulled the data of Alpha Architect’s site, off your things. And I put together this-

Adam:                           00:33:41           That shit’s not reliable.

Toby:                             00:33:44           You can use the French data too. It doesn’t matter. You get the same answer.

Adam:                           00:33:44           I’m just kidding.

Toby:                             00:33:47           And so all I do is I run back the yield of each of those price ratios against their own average, over the full data set. Make it roll, so it’s updated on it. They’re all fat to their long term. They’re all rich to their long term mean, to varying degrees. So price-to-cashflow’s only about 5% rich. But it’s still better than it is two thirds of the time. It’s the worst. If you look at something like book-to-market, it’s been cheaper on like three other occasions. And these a month end tests, so the three other occasions are like March this year. So there’s unbalanced across all of them. I think they’re cheap. It’s in a handful of occasions.

Wes:                              00:34:30           Yeah. So let me be clear. I don’t actually disagree with you on that point. Ryan actually wrote a blog post about that. Relative to the market, value’s cheap as shit. Relative to expensive stocks, it’s really cheap as shit. But value, when you have embedded beta bet in there… If you just look at just the raw EBIT yield, or QV index, right. It’s like 10%. But historically you’ve been able to buy that at 20. So just the absolute value on what’s the earnings yield or EVE yield, or whatever, on a portfolio. That right now is just not cheap, because overall the market’s not cheap.

Toby:                             00:35:06           Right. What’s the data on your site? Is it excess yields or is it absolutely yields?

Wes:                              00:35:11           No. So, on our stuff, we put everything. We put the ratio of the value portfolio relative to market. We do the raw yields on value and glamor, or growth. If you look, there’s a table below that where it’s all in the eyes of the beholder. But the argument right now is value as a factor is cheap, but beta as a factor’s expensive-

Toby:                             00:35:36           I believe that.

Wes:                              00:35:37           Value, unfortunately you have the cheap bet on value. The expensive bet on beta. So on net, it’s kind of like-

Toby:                             00:35:46           But that data on your site, those are absolute yields. And if you just run those absolute yields back, it’s as cheap… The rebuttal to that might be, “Well, that data only goes back to 1992.” So go and pull the French data, which is price-to-cashflow or price-to-earnings.” You can run that back to 52 or three. I think 51, two, three, something like that. In any case it’s absolutely cheap. It’s absolutely higher than its long run. Meaning if you believe that the yield in the value portfolio eventually drives your returns, which I do. It takes a little while. But when the yields are fatty, you get better returns. When the yields are thin, you get worse returns.

I think it’s a good time to be making a bet. That’s not to say that the yields can’t get high. Which is you’re underperforming while that’s happening. But I think that now’s a pretty good time. I’ve got a little long short component to my book. But I like the long side of that bet too. And that’s something that Cliff looked at. He looked at the long side versus the middle. And the middle versus the other stuff. And he said, “Is this being driven by expensive stocks relative to the middle? Or is this being driven by short stocks relative to the middle?” And he said, “It’s actually not just expensive stuff on the short side. It’s actually cheap stuff on the long side as well, that’s driving it.” The spread is unusually wide. I like the bet either way here.

Adam:                           00:37:06           Toby, you’re short book is a-

Wes:                              00:37:07           …. I’m playing full advocate against it. There are angles you can look at it where it’s marginally compelling. But it’s not like the pitch that …  gave that’s like, “Holy cow, this is incredible!” Because they’re selling market neutral value, which I agree is pretty damn compelling. But god bless you for being able to stick to that one.

Rodrigo:                       00:37:31           Well, the other thing ….

Wes:                              00:37:31           I’m in.

Rodrigo:                       00:37:39           I think, can you guys hear me okay?

Adam:                           00:37:40           Yeah, we hear you.

Rodrigo:                       00:37:41           About a year ago, I think, I looked at your site and looked at your index and found that there is… Because this is important for the audience to understand, right? You have a S&P 500 beta, which is around one. And then you have the value beta, which is 0.6. Right? So in essence, you’re getting a levered portfolio at 60%. In essence, Levered portfolio of pure value. But you do have that underlying 100% beta exposure, that you’re saying is expensive right now. While the beta aspect of your index may be cheap, the beta of the S&P itself is expensive. And that’s where, when you’re a long only manager, you got to take into account that bigger part of the pie. That make sense? Is that what you’re saying?

Wes:                              00:38:25           Yeah, that’s what I’m saying. For sure. There’s two bets you’re taking their. Well, there’s a lot of them. There’s smalls. But just take the simple bets of value and then the beta bet. When you just do a long only value portfolio, Toby’s stuff’s obviously a little bit more compelling, because it’s value long, beta bet and a short bet on glamour. So he’s got another element, which is arguably more compelling based on Cliff’s argument. But yeah, you’ve got it. Just you want to think that you’re also in the beta bet. So in a vacuum, assuming… You want to think about that as well, when you buy a long only value fund.

Toby:                             00:39:03           The only thing I’d say to that is when you look at… There are different analogs for this market, right? There are lots of different analogs. But one of them is 2000, where you had a very expensive market with very beaten down value stocks. And then you went through a period of time where the market did mean revert back down towards its mean. I don’t think it really ever got there, but it kind of… It’s been trending down. Back up again recently on sort of cyclical measures, which I realize that they don’t work that well. But they are predictive of your returns over extended timeframes, 10, 20, 30 years.

So probably the market’s expensive at the moment. The forward returns are a little bit lower. But value I think is absolutely cheap. And I think it’s cheap based on the data on your website. Maybe I’m misunderstanding that data on your website. But I’m just running it back against, if the yields are fatter now than they have been through most of the data. And in some instances they’re close to as fat as they have ever been.

Adam:                           00:39:59           I look at the same data, and it’s cheap, but it’s not like it’s… I think, Wes, correct me if I’m wrong. I think you’re sort of saying, … said you’re at the hundredth percentile, in terms of historical data. And I think Wes, you’re sort of saying it’s more like the 60, 65th, 75th percentile-

Toby:                             00:40:19           It’s true for free cashflow.

Wes:                              00:40:21           Yeah. What I’m just saying is that if you’re long cheap, short expensive on any metric, that’s in the 100 percentiles across the board]. If you’re looking at things like value against the market, maybe what Toby’s talking about here, it’s also pretty damn cheap across the board. Some are ranged from 80 percentile to 100 percentile. But what I’m talking about is if you just look at… Literally let’s just not do EBIT yields, let’s do earning yields. Right. Just earnings over price on the cheap 10% decile against itself. Let’s say it’s 10% right now. That 10% measure, i.e. Basically a 10 PE on the cheapest 10% decile. That is not that cheap relative to its history. The top decile … stock portfolio, it usually fluctuates tens. Like, “Okay.” But it’s can get up to 20, 25. That’s what I’m saying. Just on an absolute … to use that one. It’s not like 100 percentile.

Toby:                             00:41:29           Maybe I’m misunderstanding the data on your website. But Ryan Cohen wrote a nice article using that data. Where he showed they’re all pretty… They were rich to their means. And then I went and checked it using the same data, just pulled it down. I took a rolling average of each metric, updated each day, starting 1992 up to… I think I did it. I had March or April data when I did it. All of those metrics are currently rich to their long run, to their own means, over that period of data since 1992. The one that is the least rich is price-to-free cashflow, which is still in the 65th. It’s still cheaper than it has been two thirds of the time. Book-to-market, price-to-earnings. And something else in it, they are extremely cheap. Price-to-earnings is getting close to the hundredth decile. Sorry, hundredth percentile. It’s like 97, something like that.

Wes:                              00:42:23           Yeah, relative to the market, for sure.

Toby:                             00:42:28           Are they absolute or are they relative?

Wes:                              00:42:30           No. So, maybe I’m just being too confusing, because I’m an idiot. Right. So relative to the market. For example, let’s say the earnings-to-price yield, right? I’m just making this up because I kind of memorized data, but not totally. But let’s say right now it’s like 10, right? So it’s 10% earnings yield right now. They have S&P is five, right? So if you’ve got a two times, that’s a big ass spread. That is compelling, relative to history. And that might be what you’re looking at. But what I’m talking about is just let’s say an earnings yield of 10, that on a standalone basis is not that compelling relative to how the earnings yield of the cheap stock bucket throughout time. Right. And that’s mainly driven by the fact that the problem is that just the market’s so damn expensive right now. Right. So the whole ceiling has been dropped. Where in the old days… Yeah. I mean, I don’t know which one you’re looking at here.

Adam:                           00:43:31           Yeah. So this is just something from Wolf Research that I got this week. Right. So trailing earnings yield, this goes back to sort of ’85. All of these go back to ’85. The cyclically adjusted PE ratio. But just to give a sort of example, this one I thought was… I think this is sort of what you’re referring to, maybe, Toby? Right? The EBITDA enterprise value.

Rodrigo:                       00:43:54           Oh, show it full screen Adam.

Adam:                           00:43:55           Yeah. If I make it full screen, it may not.

Philbrick:                      00:44:00           No, that’s better.

Adam:                           00:44:03           Okay.

Wes:                              00:44:03           Yeah. I can actually pull up the data. I don’t know if I can shared stuff with you guys, but-

Rodrigo:                       00:44:08           Of course you can. Yeah.

Wes:                              00:44:09           Okay. Can he. Yeah. Cool. Maybe I’ll share….

Philbrick:                      00:44:13           There’s that share screen button in the bottom. So, when you’re ready, pop it up. And, Adam, please describe what you’re talking about as well, for the listener.

Adam:                           00:44:22           Well, yeah. I mean, these are just where the current… I think this is the long portfolio, relative to its historical yields. So it does look like we’re sort of in the middle of the range on some of these guys. But maybe they sort of skew… A few of them skew cheap, skew expensive. I don’t know. I mean, I do think it’s interesting. I find all the time that the most heated debates and discussions are between people who agree on 99% of the things. And then-

Rodrigo:                       00:45:08           Yeah. On the same team.

Adam:                           00:45:09           And then on this most nuanced point are disagreeing.

Wes:                              00:45:13           Yeah. So what I’ll do is, let me just show you my screen real quick guys.

Adam:                           00:45:16           Yeah. So there’s a share screen thing.

Wes:                              00:45:18           Because it’s almost certainly the case that Toby and I will not disagree on anything, if we know that we’re talking about the same thing.

Adam:                           00:45:25           Same data, exactly.

Wes:                              00:45:27           Yeah. We’re just having a miscommunication here.

Toby:                             00:45:30           I thought I was using your data, that’s why I’m confused.

Wes:                              00:45:32           Yeah. That’s what I’m saying. Toby’s just the smarter version of me and I try to act like him. So if there’s any disagreement here, it’s not like we’re disagreeing on ideas. I think there’s probably just miscommunication on data here. I don’t know. Can you guys see-

Philbrick:                      00:45:49           Did you press share screen? There’s a little button in the bottom.

Wes:                              00:45:55           Okay. So can you see this thing?

Adam:                           00:45:57           Yeah. It’s coming up. Yep.

Wes:                              00:45:59           Okay, cool. So, let’s just move away from the charts. You guys see this data ta-

PART 2 OF 4 ENDS [00:46:04]

Wes:                              00:46:00           So let’s just move away from the charts. And so you guys see this data table down here?

Mike:                            00:46:05           Yeah.

Wes:                              00:46:06           Okay, cool. So what we do is, and we actually just added Canada recently, if you click on columns.

Rodrigo:                       00:46:12           Is this for the call? Did you do that for the call?

Wes:                              00:46:15           No, no just in general. I’m going to start adding it for all the… Yeah, I love Canada so I’m trying to hook you guys up, but this was just something that I’m trying to implement throughout the system. But long story short, right now we’ve got US market, developed market international. And then now I just recently added Canada specifically on EBIT yields and I’ll do the other ones over time.

But in this table, what you’ll see is there’s, obviously the period. And then what this is, is US value. This is the EBIT yield. So there’s a 15% operating income to EV ratio for the cheapest decile of value stocks. And then Glamor is zero.

So this is the 10% decile, 15% EBIT yield, the 10% is most expensive, flat. And there’s the spread between… This is actually between the US value in the market, the universe. So this would be like the S&P 500. And then same thing with EFEE. It’s got the EFEE. What’s the yield on the actual decile portfolio? What’s the yield on the decile Glamor portfolio? And then what is the spread where the spread is going to be equal to the EFEE value in the universe? Okay.

Rodrigo:                       00:47:38           That’s at 8% at EFEE input.

Wes:                              00:47:43           Yeah and then these over here on the right, these are the ratios. So US value ratio is the EBIT yield on US value relative to the US universe. The EFEE value ratio is obviously the EFEE value relative to the EFEE universe. And if you look up…

Rodrigo:                       00:47:59           So let’s say those verbally for those listening only. So that’s a 1.5 for US and 1 point…

Wes:                              00:48:06           Sure. So the EFEE value ratio is … decile value portfolio.

Rodrigo:                       00:48:22           Wes, we lost you there for a bit. You were about to tell us the numbers here. So the EFEE valuation was what?

Wes:                              00:48:28           Oh, sorry. I was going to try to re-explain slowly for the readers of what the ratios represent, but can you guys see this chart right here?

Rodrigo:                       00:48:37           Mm-hmm (affirmative) yep.

Wes:                              00:48:38           Okay, cool. And we can do these for all of these, but we can just quickly visualize this. So we’ll just do international value first. So what this shows, this is the historical time series of the valuation of the top decile, cheapest securities relative to the EFEE universe. And if you see here, it’s definitely cheap. There’s only two other periods where it’s been cheaper and that’s why you would get the argument that, “Hey, right now value’s cheap.” Which is what everyone’s saying, great. Same thing US, so if you look at US, US is generally a rung down overall, but the US cheap decile portfolio relative to the market, that spread kind of argument, is that it’s pretty damn cheap.

It’s not the cheapest, but it’s pretty compelling. Canada we won’t talk about unless you guys want to but Canada is not that compelling right now, but you guys also have, we’re just using 150 stock universe here. So the data’s pretty noisy, which is why this is experimental.

Adam:                           00:49:47           Well, that’s probably 95% of market cap.

Wes:                              00:49:50           Yeah, yeah. Well, that’s true. It’s just, it’s noisy because it’s just portfolios or concentrated… To think I’m telling you, it’s not a great deal in Canada right now, but I always caveat that with the fact that it’s a smaller, more concentrated marketplace. So you take it for what it’s worth,

Toby:                             00:50:16           Do you have the averages for each of those.

Wes:                              00:50:20           I’m sorry, say again?

Toby:                             00:50:22           Do you have the averages for those? And is that absolute EULAR or is that spread over the market?

Wes:                              00:50:27           This is literally the ratio of the yield. So it’s like taking, let’s do it right here.

Toby:                             00:50:33           So is this the average of the bucket?

Wes:                              00:50:36           Yeah it’s like, 15% is literally, it’s actually the median to keep it cleaner. It’s the median EBIT yield on securities in the top decile cheapest bucket against the median EBIT yield on the universe, the US universe, 7.8. So if you take 15.01 divided by 7. 8, you get 1.92. So it’s just like the ratio kind of. So you kind of visualize, how are cheap stocks looking relative to the universe? And to your point on all of these different ways we calculate that it’s pretty damn compelling. What I’m highlighting though, is that if you look over here on US value, let’s just rank these on just absolute cheapness. This is like a huge data table unfortunately. If you guys got a big audience, people go in here and frank my server if everyone starts doing this at the same time.

Mike:                            00:51:41           Well, there’s 36 people watching at the moment.

Rodrigo:                       00:51:45           Trying to grow the audience, 38 might be correct.

Wes:                              00:51:49           So, let me just sort this, I just did it on min, but I’ll sort it on max. And right now it’s probably like 10% is like the EBIT yield or operating income over EV. And you’ll see here once I sort this damn thing, if it ever works, sorry, it’s slow. But long story short, that’s not cheap. There’s plenty of times, that might even be lower than the average where usually you can buy just a straight up EBIT yield of maybe like 15% on the cheapest dirt ball stocks. And so yes, it’s true that US, their value is definitely cheap relative to the market. It’s not an absolute just, you put a gun to my head because you got the beta bed in there and that’s really expensive. It’s kind of smushing down that absolute kind of yield you can achieve even amongst the cheapest securities out there.

Toby:                             00:52:49           So just to clarify, is that yield, the median yield of the stock in that cheap decile basket?

Wes:                              00:52:59           Yeah okay.

Toby:                             00:53:00           And if you take the average of that column, I’ll bet you that that is richer than it is most of the time.

Wes:                              00:53:13           That’s possible, but I don’t think it’s likely because I’ll just show, because see how I got it sorted here on max to min. So for example, in the depths of hell in 2008, that decile portfolio, you could …

Rodrigo:                       00:53:31           Lost him.

Toby:                             00:53:32           Back into the matrix.

Rodrigo:                       00:53:35           What he was saying is that in 2009 we’re looking at here, February of 2009, the US value metric was 31%.

Wes:                              00:53:42           That’s why I’m saying, I don’t have that off hand. I’m going to build this in our studio so it has all these stats a lot easier. But right now, a 10% EBIT yield relative to the history of what traditional you can usually get, because usually equity markets aren’t so expensive, is not that cheap. I’m scrolling here.

Toby:                             00:54:03           It’s 15, mate it’s 15. You should have a look at that. You should go through that data. I get the feeling that maybe we’re talking about different things because I’m talking about on the number of occasions that are in there, there are like only a handful of occasions that are richer than now. Maybe you’re talking about the spread. So you’re saying 30% is really, really rich, 15% is not really rich. but I’m saying, if you look at the numbers. Can you just go back up again? Scroll to the top.

Wes:                              00:54:28           Yeah. So we’re 12 six right now as of April 30. Yeah.

Toby:                             00:54:35           Yeah. Okay. So it’s bounced from where it was in March at the end of March. It was like 15, something like that.

Wes:                              00:54:39           Yeah. Oh yeah. In March it was definitely good, which is why I did a dumb decision of blown out trend falling. But for right now it’s yeah. That’s the argument here, at least playing devil’s advocate because it’s easy for me to say, go buy value shit right now. That’d be great if everyone did that, but I’m just trying to create a discussion here.

Mike:                            00:55:04           Keep it real.

Wes:                              00:55:06           Yeah. So, there you go. See how I sorted it back? So we’re 12 six right now and yeah, you’re right. I guess you’re talking about more like cyclical periods. Is that what you’re going for? Because like 08 has a bunch of these totally crazy observations.

Toby:                             00:55:21           I think you’ll find that there aren’t very many observations that, I haven’t seen the data updated as of the end of April. I think the last data that I had was March, it was the end of March, which was very, very… No, no, I think it was the April data that I used. Many of these, if you look at that peak, there are only a handful of data points that are above that line.

Wes:                              00:55:43           Yeah. I mean, you know what? I could buy your argument because a lot of these things are overlapping. When you look at rolling returns, it seems like you’ve got a hundred observations but you really got three. So if you thought in that sense, like now versus the 2000 or 2008 versus 2000’s, I could actually buy that then, if you think…

Adam:                           00:56:06           I also think, if you think about it slightly differently which is, you want to be an equity investor, you want to be long stocks. When is it most advantageous to skew towards being long value stocks while the value premium over the market in terms of EBIT yield is pretty good. Right?

Wes:                              00:56:26           Yeah.

Adam:                           00:56:27           That’s what the chart shows. Relative to the market, it’s the value portfolio is relatively attractive on a historical basis relative to its own history. There’s some more ambiguity.

Toby:                             00:56:39           I actually disagree with that. That’s the point that I disagree with. I think if you pull that data and you ran it against itself, you’d find that it’s cheap now on any of those metrics, but particularly on price to earnings, book to market. The worst one is price to cashflow, which is about 5% rich in it. And it’s still cheaper than it is on two thirds of occasions there. And the other ones, you really have to go and find. You find there are a handful of months right at the very depths of the 2000 valued under performance and like maybe 2009, March, 2009. Other than that, this is about as good as the opportunity gets.

Rodrigo:                       00:57:19           It is clear that it is the third cheapest, however far back that went. And there were just momentary glimpses of that.

Wes:                              00:57:19           Regime.

Rodrigo:                       00:57:28           Regime, that’s right.

Toby:                             00:57:30           Which is not to say they can’t keep on getting cheaper, but if you’re going to make the bet, you got to start putting the bet on at a time like this because it doesn’t necessarily have to get cheaper either. It can turn around here too.

Mike:                            00:57:39           And there’s a question, how do you suggest retail investors implement a factor if you like this, which I think is relevant to, are you supposed to wait for the cheapest moment? Are you supposed to allocate…

Toby:                             00:57:53           The cheapest moment is always just preceded by one moment hat gets a little bit cheaper.

Mike:                            00:57:59           Agreed. So I think this is the point of the question. So knowing that this was one of your tweets Wes, of course pick the bottom and then buy small cap value. In retrospect, I didn’t get that second page of the note on how to know in fact how it was the bottom. I spilled coffee on it. My dog ate it.

Adam:                           00:58:20           That’s what Wes was saying when his mic went down. I thought that was the second … spelling out the second page there.

Adam:                           00:58:26           Damn you Wes.

Adam:                           00:58:29           Newman timed the bottom.

Mike:                            00:58:30           Newman. So how should we do that? How should we help, go ahead.

Wes:                              00:58:34           So it depends. You just think about it, so what you’re trying to bet on is value and beta, and you could buy this in market neutral form. That’d be the pure play bet. If you want to do that, then you know go use some of your excess leverage or whatever to go buy some AQR stuff. But most people can’t do that because they don’t understand how to deal with all this stuff.

Mike:                            00:58:55           It’s a retail question.

Wes:                              00:58:59           Normal dude, who’s just, Joe Blow, hooking and jabbing, they’re not going to deal with all the AQR shit. I would say, ‘Hey, you probably own beta in your portfolio anyways. Instead of owning the S&P, replace it with some value fund because you’re going to basically get S&P …

Mike:                            00:59:17           You can’t say it. I can.

Wes:                              00:59:19           Yeah, exactly.

Mike:                            00:59:20           QVAL, IVAL, ZIG. These are letters that you can look up.

Toby:                             00:59:27           Yeah I got a long shot portfolio you can jump into.

Mike:                            00:59:29           These are letters that you, if you type them into a Google search, they will lead you somewhere that will have something to do with the names on this call.

Wes:                              00:59:35           Yeah. So that’s how retail got it. You just got to shift from your equity bucket to the value bucket, and then you’re going to get the equity beta bet still. But now you’re going to get more of this value bet where if you really think of S&P what is that? It’s just mega cap kind of high quality US beta bet. So if you kind of peel away the lens then there’s just assets and everything is a factor portfolio, which they are. Then you’re just thinking, “Okay, what bets am I actually taking? And let’s place the bets we want.”

Mike:                            01:00:09           I think this is a good jumping off point to understand from the retail perspective, what the tracking error tolerance is for the individual investor? So it’s a very tailored question and one where we made fun a little bit earlier about the larger providers who provide a big beta bet with a small value tilt. And so you got to think about, as a retail investor or serving retail investors, or even institutional investors who have to report to a board that doesn’t necessarily understand these nuances, that that decision is a very important decision. Do you want to go long, short, true factor? Do you want to do concentrated long only factor exposure? Or do you want to do beta portfolio with factor tilt?

Rodrigo:                       01:00:52           Yeah that’s a massive pet peeve of mine. And it’s just brutal because it’s so easy to say my factor ETF is cheaper than your factor ETF. But the question is what your active share is in that ETF, how much actual value are you providing for the dollar that you are asking the investor to put in?

Mike:                            01:00:52           The fee.

Rodrigo:                       01:01:14           And so if you’re charging 10 basis points, I don’t even know what these ETS that are basically 95% beta and 5% value are charging, but they’re charging the right amount, they’re super cheap because they shouldn’t be charging anything. Beta is basically free. The more thoughtful you are, the more active share you have, the more concentrated you are and you’re buying really deep value stocks like I know you guys do, you’re getting a better portfolio because you’re getting the exposure from the market and you’re getting the value exposure. Now that’s a double edged sword.

Because it means that when value is on, when your long value is on, you are making a return above the market. And you’re basically getting a, I’m just using this number because I remember it from a couple of years ago, but I think it’s like 160% exposure, a hundred percent to beta and 60% to value. And you’re only paying for the value part. The problem is that value could be negative. And therefore the tracking error we’re talking about Mike, which is, there are times when S&P, I thought it was 160%, well value can be negative for a year where beta is positive and it means that your value long only ETF that has a lot of active share will have a negative return or a negative delta to that beta. So this important. You’re paid for what you get for.

Mike:                            01:02:41           Well, here’s the thing, it’s about the process. So the process of receiving beta plus factor and understanding the factor could be from time to time, negative. That’s not, as hard as it is, that’s not relevant. What’s relevant is you paid for the manager to deliver the factor over long periods of time. Over short periods of time that factor performance is going to vary between positive and negative. And what you want to see is your beta plus your factor. And if it’s negative and the factor performance is negative, you give Toby and Wes high fives, you’re like, “Yeah, you nailed it. You did exactly what you were supposed to do.” So, if you ask me personally, I’m going to want in my portfolios, I’m going to want the factor exposure.

And I want it to the purest extent that I can possibly tolerate. And if I think about that on a fee basis of how much I’m paying for that, I find that when I break down the fees of the products you guys offer, it’s a bargain, it’s an absolute bargain for the factor exposure. And even on the AQR, if you’re willing to do as Wes says, the brain damage to get behind the long, short side of it, even that is actually pretty reasonable. I think for retail investors it’s not even on the table. It’s not something they can handle. It’s not something they can buy. So for retail investors, my thinking is, you’re going to want to go in, you’re going to want to have that factor exposure really as pure as you can get it, plus or minus the beta, educate your clients, and then save the money and go buy the S&P at two basis points and save that, to pay 25 basis points on a hundred percent of the capital to get market beta plus a tiny 5% sliver of value is not as good as saying, “I’m going to buy one of your products for 25% of my portfolio, pay the extra fee and then the other 75% pays zero, pays one basis point.”

Cumulative I’m saving money. And so we get caught on this treadmill of lower fees and whatnot, which are, they’re nuanced.

Adam:                           01:04:59           There’s some good tools on your website, Wes, for investors to sort of wrap their head around some of this stuff. Just how concentrated it’s in the target characteristics or the different ETFs. And then you can kind of measure that against the basis points you’re paying per unit of factor exposure. There’s probably a paper in that somewhere, or at least an article but there’s good tools.

Wes:                              01:05:23           I got done today. It’s now on version 85. We started with Jen Choi back in the day, but yeah, we’ve got a software package we’re about to launch out here, that’s going to just blow people’s brains out because they’re going to be like, “Oh my God, dude. Wow.” You guys are going to like it. It’s coming to a theater near you. It’s like the ultra transparency, you can’t hide behind shit tool. And it’s very interesting. There’s no more hiding for closet index routes basically. So it’ll be an interesting dynamic in addition to the conversations out there on, what you’re buying, what you’re paying for it.

Rodrigo:                       01:06:06           Yeah you know what we have an article, I just forgot about this one, but we wrote an article called stop paying for active management beta. And we lay it all out. So if anybody’s confused by what we just discussed and want to dig a little deeper, go to Wes’ site and wait for what he’s putting out. But in the meantime, we have this very short article that kind of lays it out for you. If you’re getting added value that you can’t get anywhere else. And on top of that, you’re getting the cheap beta. You should do both because you’re getting capital efficiency. If you decide you want to have 10% of your portfolio in value but you also like your beta, well you can either choose to be in beta with these kind of very cheap, not really value ETFs, or you can have an ETF for that 10%, that’s giving you a hundred or 16% exposure on average. So you’re getting the 10% of the beta and on top of that, 60% of the value. Again, … it’s been a couple of years

Wes:                              01:07:08           Another thing that’s interesting and you guys I know have written about it very eloquently, and I found this pretty useful because we’re in CTA world too, but the concept of vol buying is like a no shitter for CK. It’s like, “Oh, so I get 20 vol, I pay 1%. I do 10 vol, I pay 1%? That’s not fair.”

Adam:                           01:07:32           Don’t get Rodrigo started.

Wes:                              01:07:36           Because a lot of people don’t buy managed futures that often because that’s kind of an uber geek thing. But I’ve actually had some success explaining to people who don’t even know what managed futures are, but you outline the vol buying per unit fee paid concept and it’s not totally analogous to what we’re talking about, but it kinda is.

Rodrigo:                       01:07:57           It’s a cost per unit. Cost per unit of risk that you take. For our SMA’s, we charge 12, this is how I talk to clients. We charge 12 basis points per unit of risk you want to take because we give investors the opportunity to choose anywhere between six and 25. So what are your fees? They are uniform across the board. They are 13 basis points per unit of risk. And then do them all. You want eight? All right, well you’re going to set them like 95 basis points. You want 12, you’re getting a hundred. You want 25, well you’re going to have to pay almost 3%. They’re all the same. You’re just paying for the exposure.

Mike:                            01:08:37           There’s a question too. Can you suggest how to apply long value, short glamor besides ZIG? Short answer, no. Given that the S&P is almost always glamor anyway, can you buy a short ETF like SH or is this too arbitrary of a scheme? So my first answer is no you can’t, but if we had to maybe we’ll talk about it. And I think you were just.

PART 3 OF 4 ENDS [01:09:04]

Mike:                            01:09:00           You can’t but if we had to maybe we’ll talk about it. I think you were just touching on that just a little bit, Wes, on some of the trend following. Maybe you want to just tie that knot back to the question.

Wes:                              01:09:12           Well yeah, so obviously WIZ would be first choice if anyone was ever going to do a long, short value trade, but let’s say-

Adam:                           01:09:21           WIZ? What’s WIZ?

Adam:                           01:09:22           WIZ or ZIG?

Wes:                              01:09:24           ZIG, sorry, ZIG, Sorry my bad.

Rodrigo:                       01:09:27           That was good. I like that.

Mike:                            01:09:27           That’s a freudean slip right there people.

Toby:                             01:09:30           Somebody get a WIZ ticket really quick.

Rodrigo:                       01:09:30           Somebody do a screenshot of Toby’s Face.

Wes:                              01:09:30           Sorry Toby.

Mike:                            01:09:35           I love happy hour.

Wes:                              01:09:40           Yeah. I’m totally gone on my gin and tonic. ZIG and then you’re going to buy ZAG for usually 49.99%. But for the other two bips, you’re going to allocate to, yeah, you could buy some value thing and then short, you know, S&P future or S&P cash, that’s not hard, but we know people that actually did that because we have clients that actually do that. Because we deal with some pretty complicated folks and maybe do that going into March. Well, they got their fucking ass handed to them. And so yes, you can do it, but if you got standby.

Mike:                            01:10:23           I think you’ve got to have a real well Toby you, you click in here. Cause I think you, you look like you wanted to say something.

Toby:                             01:10:30           The problem with, I would love to set up a short only ETF. The problem is that the way that they treat the expenses in a short only ETF, is that any dividends paid on the shorts get charged against me as if it’s my expense ratio, which is ridiculous because I don’t get any credit on the long side for the dividends that get paid. So all of the short ETFs look like they’ve got these really high fee ratios, like 2.75, that’s not what the manager’s getting paid. The manager could be getting 50 bips or 25 bips out of that.

Adam:                           01:10:57           It is negative carry though on the portfolio.

Toby:                             01:10:59           Yeah, but you’ve got to look at, so look at the way someone like Jim Chanos executes it, right? So you go to Jim Chanos and you ask for his, you want some short exposure from him. So what he’s going to give you is 190% long the index, 90% short his strategy. So you’re a 100% beta and you’re 90% is hedged out and what he’s going to say, we’re going to go up less in the market because we’re in all of this junk that doesn’t deserve to be there. When the market goes down, this stuff’s going to fall like a rock. And when you look at what his portfolios has done, that’s exactly what they do. They’re really good portfolios. They kind of, he’s very good at finding these, these high quality shorts, shorts that stuff that’s kind of junkie. And I think that’s slightly the key and something we kind of skated over it a little bit here. We’re only talking about really the value ratios and that was one thing that I think Cliff dealt with really nicely in that paper. He says, when you bind in all the quality elements that Wes and I talk about it in quantitative value. There’s a lot of elements in there that aren’t technically value they’re technically quality, but I think it’s very hard to separate the two. And if you actually use those things and you look at the spread, like that’s kind of, what’s driving the spread, there’s a lot of really junky stuff on the expensive side at the moment, once you bind in stuff like share-based compensation, that they’re just spewing out all these expensive stocks, negative free cash flow, tons of debt on the balance sheet, questionable business, a business plan at all and you can get short this stuff. The problem is it goes up 30% a year. So you need like some sort of momentum overlay on top of it so you’re not standing in front of a truck every time you do it. It’s hard to do, which is why I stuck it in with long stuff as well and as you say, it’s negative drag.

Mike:                            01:12:42           That’s key, it is really hard to do because when you’re short, the S and P 500, you’re short a basket of well-diversified market cap related stocks that-

Adam:                           01:12:54           Momentum stocks.

Speaker 8:                   01:12:56           And when that momentum comes back, AKA March 09, AKA March 2020, AKA, what was the bottom in 2003, they rip your face off. I mean, that short tears you a new asshole like no other. And I’ve watched it many times so that performance that you had in the year before is often given back in more the next year. And thus you have this other investor behavioral aspect that you have to deal with. The person feels great and that they didn’t take the draw down in the next year when the recovery is a 100% and they’re negative 10, they’re not feeling so great so there’s obviously some trend following filters that you can throw on top of that, that might help, but there is no panacea here. There is just pick your poison and try and work with it.

Toby:                             01:13:49           Yeah you got to press it.

Rodrigo:                       01:13:52           Attract that kind of massacres in Wes right? That type of client that loves the pain, oh you like pain Wes?

Toby:                             01:14:00           That’s how you outperform. It’s the only way to outperform take the pain, just get used to it. I think as a value guy, as a retail investor into value, what you got to know is that 70 to 80% of the time you’re going to underperform, but over the full dataset, you’re going to outperform just get that into your head. Think in terms of decades like decades, plural, one decade, it turns out it’s not enough. And then just know that it’s going to suck for most of it, but over the full thing you’re going outperform.

Mike:                            01:14:28           It comes back to being religious about it, right?

Toby:                             01:14:29           It is. A little bit of faith in it

Mike:                            01:14:29           Becomes back to being sort of a cellular belief, or you’re going to buy, you’re going to buy dollar $2.00 For a dollar. You can look for that all day long. You’re going to ignore a lot of the volatility that, that comes along with that. However, whatever analogy that you want to use, that’s better than the analogies I use.

Toby:                             01:14:48           You need weird monkish blogs for the value guys.

Adam:                           01:14:49           I’m going to pay for that. For that comment.

Rodrigo:                       01:14:51           Oh my god you are. We’re going to hear about this every day for   the rest of our lives.

Mike:                            01:14:55           I feel like you don’t get mad. I don’t understand.

Rodrigo:                       01:14:59           If it’s not him I might not be defending him.

Adam:                           01:15:02           That’s true.

Adam:                           01:15:03           Well, look I’ve still got two thirds of a drink left, but we’ve been on here for about an hour and a quarter. I was going to ask.

Mike:                            01:15:09           We’ve got to get on this Michael Green thing. I’m like, listen, I want to hear this conversation. I’m not going. Because I know Adam, you had a conversation with him. He revealed some new charts. Toby has got some interesting … in this on a high point. Everyone who stuck around this far, lets give them a high point.

Adam:                           01:15:25           I don’t know, is this a high point for the value conversation?

Toby:                             01:15:30           Michael’s got the two arguments. He’s got one that he says that the flows into indexes are so relentless and they’re not price sensitive. And they drive out the price sensitive plot, the fundamental investors get driven out. And so that drives the index sort of asymptotically parabolically to infinity and then it crashes. So that’s a longer term trend. That’s, that’s a longer term argument that he’s been making on my podcast and other ones. I don’t really know. It feels wrong to me, but I can’t kind of articulate exactly why I don’t think it’s going to play out like that. He has another one that’s more recent where he’s, and he’s only two thirds of the way through. So we’re sort of commentating before we get to the end. But the argument is that there’s a problem with value. And I fully don’t understand. I need to see the final part of it before I kind of comment. I was coming to you guys to see if you could tell me what the what the argument was.

Adam:                           01:16:31           I’m not sure he exposed a problem with value other than he exposed a problem with price to book. But I think his decomposition was interesting and I think he leaned pretty heavily into some of the research that Research Affiliates has been doing, where they demonstrate that the vast majority, I want to say like North of 90% of the returns for value comes from stocks that migrate from the small value bucket into the large growth bucket, or even from the small value bucket into the small growth bucket. And there’s a very narrow segment of stocks that if you buy, if you just randomly buy the stocks in this small value bucket, there’s a small percentage of stocks. I want to say maybe 4% of stocks that migrate from small value to small growth in any given period, call it a year.

But those stocks rise at such a huge rate. They’d give like a 84% average return or something that the probability weighted return on owning that stocks outweighs the essentially zero excess return on the rest of the small value basket. And then you can then probability weight the potential for stocks to move from one basket to the other. And then small value investors are selling a call because when they move, when the stocks move from the small value bucket to the small growth bucket, they will sell those stocks, right? So they’re selling any further upside. So you’re earning a premium on the migration from small value to small, mid and small value to small growth, small value to, to large values. So there’s, if you’re a small value investor, you’ve got all of these different options premia that you’re buying large growth, or sorry that you’re selling large growth has a bunch of premia that you’re buying and there should be a negative premium.

And it’s just, I think it’s a logic, a way of thinking about the problem as you’re selling and buying different optionality and getting paid based on the relative sum of those different optionalities. So I think that’s just that paper, there’s a huge amount of other dimensionality to their thesis, but I don’t know. I thought it was an interesting framework.

Mike:                            01:18:50           So I just want to add Adam that we have that podcast that you had with Green, it’s up and live. So after you guys finish,

Adam:                           01:19:00           It’s up now? Oh, it’s already up. Oh great.

Mike:                            01:19:00           It’s already up it’s published one minute ago. One minute ago, it was published. And so Toby and Wes, we’ll have you back next week and we’ll talk about it.

Wes:                              01:19:16           Okay.

Adam:                           01:19:16           I don’t want to talk about the shorts burden.

Wes:                              01:19:18           We’ll listen to it.

Rodrigo:                       01:19:19           Yeah he covers some of what you were questioning in this podcast.

Adam:                           01:19:22           He covers a huge amount.

Mike:                            01:19:24           Yeah. So I kind of liked the idea of, I mean I’m not sure of this, I haven’t listened to it yet. But it seems to me that if the central banks are going to take out all of the sort of the moral hazard of risk taking, it would seem to me that that would mean that the risk premium for equity markets would disappear, would become like a fixed income investment because you know you’re going to get this excess return because you don’t have this hazard of risk taking, it’s been removed for you and thus the indexes would then rule and would crowd out all of their financing, which then, well, how do you finance anything else?

Rod:                               01:20:02           How does that work for Japan? I actually don’t know.

Toby:                             01:20:06           Values work really well in Japan.

Rodrigo:                       01:20:08           Yeah. I mean, that’s the counter argument there, right?

Toby:                             01:20:11           2011 study that I stuck up on Greenbacks way back in 2011. And just looking at simple price ratios, that’s been the only place to be in Japan. They’ve compounded their faces off of that full period.

Mike:                            01:20:24           Peter Kendall you’re going to hear that today.

Mike:                            01:20:26           Peter Kendall made his career with value stocks out of Japan through the nineties. I mean crushed it, made a built a whole firm on it. So it’s interesting. I look forward to listening.

Wes:                              01:20:43           Probably about Japan and just thinking about Green’s argument is that you don’t need to have stocks move at a small value to make money. Like Phillip Morris has been a value stock classified for God knows how long. And it’s probably one of the best performing stocks of all time. So you don’t need to move and transition buckets. That’s just like a nice to have, but if you buy with a higher carry in the form of higher dividend yield, or what have you, you still can outperform and you may not move anywhere. You could stay small value for a million years. So I just think like anything, it’s just very complicated and if I can’t explain on a napkin or I just don’t believe it, because I don’t think anyone can really understand it. So I need to have, I need to have a napkin drone up and I don’t believe it. Otherwise I’m out.

Adam:                           01:21:36           That’s all right. We’ve had this conversation lots of times

Toby:                             01:21:42           I understand his argument that it’s short volatility. So he’s saying you’re selling it. I get that part of it. That part feels right to me. It’s it’s the next part that I don’t fully understand the implications of that. And then he says that the returns to value have been mischaracterized. I’m waiting for part three before I kind of.

Rodrigo:                       01:22:06           Well lets all go and read it and then come back and chat about it.

Toby:                             01:22:09           Perfect.

Mike:                            01:22:09           I love it. Nice one gents.

Mike:                            01:22:13           Well gentlemen, that seems like a nice moment of pause. And now we can talk about sports. All right, Rod, Adam,…

Adam:                           01:22:22           They’re back.

Rod:                               01:22:22           Baseball, football is back.

Mike:                            01:22:24           Rod, Adam, Toby go ahead and Wes I can talk about football and stuff.

Toby:                             01:22:29           What are Wes and I talking about? I’ve been watching MMA. That’s been really good. I’ve been going back and watching all the old

Rod:                               01:22:34           Is it back?

Toby:                             01:22:35           Well I’ve been watching all the old fights on YouTube. That’s the only kind of sport you can get these days.

Rod:                               01:22:41           Yeah, me too.

Mike:                            01:22:42           Have you heard about the NBA with the Disney shortened season? Eight games, they’re all going to camp 22 teams make it in. Yep. They’re all Disney tickets. They’re all playing at Disney. There’ll be sort of sequestered to the ESPN park at Disney and five games a day. They have to play one game back to back. It’s pretty neat. The NHL is going to come up with something interesting as well. So on the last note, we’ll wrap up. What are you guys finding in, in this era of COVID? What are you finding that has been a pleasant surprise as you’ve been kind of navigating this. For me it’s been the idea of we get together on the ReSolve team. We played a little poker together in the evening and not a big game or anything, but we talk about all the topics of the day. And then also we’ve got a little D and D game going with some folks out there. So a bit of a fantasy role player kind of guy. And as weird as that may sound probably fits my personality. So those are the things that I’ve kind of come across that have been really interesting and novel and new that I’ve reengaged in. What about you guys?

Toby:                             01:23:56           Yeah, I’ve been catching up with friends from Australia. It’s been great. Like, I don’t know why I wasn’t doing it beforehand. Just I know that everybody’s home. So I’ve been doing Skype beers similar to this one. I’ve got one in about an hour. So I’ll finally be able to have a beer, finish the work day off and have a beer that’s been great. And having the kids around actually been really fun too.

Mike:                            01:24:16           Yeah, that’s amazing. And everyone’s healthy. All the kids are healthy and the families are healthy I’m assuming?

Toby:                             01:24:25           Yeah. No coronavirus here.

Mike:                            01:24:25           Perfect. How about you Wes?

Wes:                              01:24:25           You know, for me, honestly this kind of sounds cheeseball, but I actually just we came in more in love with my wife, because like we have to hang out all the time and she’s managing the kids and hang out with my cave and work.

Mike:                            01:24:43           She’s actually texted me about that. That’s why we’re not talking as much. … I was just wondering if you knew about that?

Wes:                              01:24:48           Yeah, I just became much more appreciative of, I was all obviously already appreciative, but I just really came to, I got even more tribal, man. I just thought I love my family even more than I liked them before, which is, I think it’s great thing from the event.

Mike:                            01:25:05           Adam, isn’t that great when they’re like this pre teenage years? Enjoy it. I have 20 somethings now. Yeah have fun with that.

Wes:                              01:25:15           I’m in a sweet spot man. Mine are five to eleven.

Mike:                            01:25:21           You’re in a place. Don’t worry, it’ll change.

Rod:                               01:25:25           By the way, honey. I know you’re listening live. I feel the exact same way that Wes does.

Wes:                              01:25:33           Fortunately 95% of the people listening to this are men.

Mike:                            01:25:36           So, … , … and the other 5% are not women. They’re in the other five groups.

Toby:                             01:25:46           Have you seen the YouTube breakdowns of these are always pretty great. Like mine’s about the same. It’s like 95% blokes, like 3% female, 2% non binder. Non-gender binary, non binary gender. I was like, that’s great. I’ve got a really diverse podcast, I’m happy with that.

Adam:                           01:26:03           It’s nice to be targeted.

Toby:                             01:26:06           I know. I know a couple of guys who’ve transitioned over to, to girls, so that’s great. That’s quite like the value community has a few. I’m proud of the value community.

Rodrigo:                       01:26:14           Diversity I like it.

Rodrigo:                       01:26:17           I’m 25 minutes late to my college buddies poker game right now. So we got wrap this up now.

Mike:                            01:26:29           To come to any new Butler besides the stuff we covered last way.

Adam:                           01:26:32           We got our D and D campaign tonight at 8:30, I got to settle in, I got to cook some lamb burgers and then check into the game.

Mike:                            01:26:44           Everyone should text us. And guess what character Butler is and what class and race that I am, really funny.

Toby:                             01:26:44           I kind of want to know.

Wes:                              01:26:44           We can’t disclose.

Mike:                            01:26:59           Well Toby give us your guess.

Toby:                             01:27:01           I’d say a full brick slug. Like you’re a major, something like that. And I’m going to say Butler say barbarian.

Adam:                           01:27:08           What?

Adam:                           01:27:09           He knows.

Toby:                             01:27:12           Is that true?

Adam:                           01:27:14           100%.

Mike:                            01:27:14           I’m a warlock. I’m a celestial warlock. You were awesome. You were right.

Wes:                              01:27:19           There’s no way.

Toby:                             01:27:22           I didn’t know. I 100% did not.

Adam:                           01:27:23           That’s inside baseball.

Rod:                               01:27:25           That’s spectacular.

Toby:                             01:27:25           Because I think that in real life, Philbrick is a barbarian and you’re a wizard. So of course you’re playing against type when you’re playing the game.

Adam:                           01:27:35           I love it.

Adam:                           01:27:36           See that is two drink minimum.

Mike:                            01:27:41           That’s why we have you guys though.

Wes:                              01:27:42           That’s a good war pact though. [crosstalk 01:27:42]

Adam:                           01:27:43           I’m sticking with Cory though To make sure that you guys haven’t already been on this.

Toby:                             01:27:45           Nope, have not.

Mike:                            01:27:48           All right gentlemen, that was a real pleasure. I got to tell you I really enjoyed catching up and the chin wag. I miss you guys and I can’t wait to see you in three 3D at some point in the future.

Toby:                             01:27:56           That’s fun. Thanks guys.

Adam:                           01:27:59           Thanks guys.

Rodrigo:                       01:28:03           Thank you for listening to the Gestalt university podcast, you will find all the information we highlighted in this episode, in the show notes at you can also learn more about ReSolve’s approach to investing in by going to our website and research blog  at, where you will find over 200 articles that cover a wide array of important topics in the area of investing. We also encourage you to engage with the whole team on Twitter, by searching the handle @investresolve, and hitting the follow button. If you’re enjoying the series, please take the time to share us with your friends through email and social media. And if you really learned something new and believe that our podcast would be helpful to others, we would be incredibly grateful. If you could leave us a review on iTunes. Thanks again. And see you