Expert: Andrew Walker shares two surprising value investing opportunities

Bryce: [00:00:15] Welcome back to another episode of Equity Mates. It's a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. Now, if you've just joined us for the first time, a massive welcome. Congratulations on starting your investing journey. If you feel like you're just getting up to speed, then we have a podcast called Get Started Investing that will really get you get started. Yeah, that'll get you started. That's it. Right? And you've said it'll get you started to go and check it out. Get started investing. Now my name is Bryce and as always, I'm joined by my equity buddy Ren. How you go? 

Alec: [00:00:49] I'm very good, Bryce. Good to be here with. 

Bryce: [00:00:52] Thanks for saving me there.

Alec: [00:00:53] No, that's all right. We've just come off a great interview with Andrew Walker. If people aren't familiar with that name, they may be familiar with his blog, which definitely is big in the Fin Twit community. Yet another value plug. 

Bryce: [00:01:08] Yeah, it's one that we've been tracking for a while now, and this was a great interview. Andrew's deep into value investing and it's always good to get the views of a value investor in times like we are, and particularly coming off the back of decades of we're not decades, but at least a big decade of incredible growth.

Alec: [00:01:27] For growth Stocks. Yeah. 

Alec: [00:01:29] Course not. Not incredible growth for value.

Bryce: [00:01:32] No, not for growth stocks. 

Alec: [00:01:34] And he mentions the we speak about the change that value investing has undergone over the past few years, so the past few decades. And I feel like a lot of investors start their investing journeys being told to read the intelligent investor or security analysis if they're really brave by Benjamin Graham. And that leads itself to a certain type of value investing, you know the net net or Warren Buffett cigar butts. But that strategy isn't as effective as it was back in the day. And Andrew talks about how he approaches value investing today. And we spoke about some of the industries and some of the companies he's investing in. Some surprisingly contrarian takes cable companies, cable companies. You would have thought that Netflix was disrupting that and people were cutting the cord of cable over in the US of Foxtel here in Australia. But Andrew has a contrarian take. So that was a particularly fascinating part of that conversation. 

Bryce: [00:02:30] Yeah, it was a great discussion. Now before we jump into it, it's worth mentioning that tomorrow is the end of the financial year and we currently have a sale on our Value Investor program that we've done in collaboration with Owen Raszkiewicz at Rask Australia. It is all about value investing and gets you into the nitty gritty of analysing and valuing companies. Now it's an incredibly detailed and resource rich online course with plenty of downloadable resources, videos, podcasts, plenty of written content checklists, you name it. Currently there's $100 off. It does end tomorrow 30th of June. You just need to use the code EOFY checkout. We'll put the link in the show notes equitymates.com/online-courses, but the link will be in the show notes. And remember the code is EOFY for $100 off. By the end of the course you'll have a great grip on how to analyse and value a company. 

Alec: [00:03:26] Now let's get to this conversation with Andrew. But before we do a reminder that while we are licensed, we're not aware of your personal financial circumstances. Any advice is general and any information is for education and information purposes only. But with that price, let's get to this conversation with Andrew Walker, portfolio manager at Rangeley Capital and publisher of Yet another Value blog. 

Bryce: [00:03:51] Well, Andrew, welcome to Equity Mates. 

Andrew: [00:03:53] Hey, thanks for having me, guys. 

Bryce: [00:03:54] Now, as we said off air, we always like to kick off our interviews with equity mates. Daily business guessing game, Business noodle. Are you ready to play? 

Andrew: [00:04:02] I'm excited. I told you guys I love. I love games. 

Bryce: [00:04:04] Okay, great. Today's quiz starts with clue number one. Now we're all playing this together on the world's largest food and beverage company. 

Alec: [00:04:14] Okay.

Bryce: [00:04:15] I'm so. You've got Coke. They're pretty massive. 

Alec: [00:04:19] Yeah. Coke and Pepsi in the U.S.. I feel like it'll be Nestlé. 

Andrew: [00:04:26] Nestlé is kind of where I was thinking, too. In food and beverage. Unless you go like, Hey, you know, you've got one of those things where. Who's the biggest companies in the world by revenue? It's the grocery stores or something, you know, unless you got. Well food producers but yeah, Nestlé's where I'm going, no one. 

Alec: [00:04:42] Would sell more food than Walmart, but you'd have to ask. I reckon Nestlé 

Bryce: [00:04:48] Let's see how we go. Topping in Nestlé 3 to 1. We have absolutely nailed it. 

Andrew: [00:04:54] Is it six letters? We also didn't know if it was six letters. 

Bryce: [00:04:57] No. No. So there's no, unable to count. You just type. It is okay. It's absolutely anything. But now that you're across it, I expects that the streak for biznerdle will kick off for you today. Andrew, you're on one. If all you need to do is go to equitymates.com/biznerdle. And You can play every day. 

Andrew: [00:05:14] Oh, man. You know, you added to nerdle And then for a while I was in talk Turtle. I just didn't know. 

Bryce: [00:05:22] I feel be quite good at this one. Anyway, yes. Nestlé, headquartered in Switzerland, one of their famous brands is Kit Kat and one of the more popular brands at the moment is Nespresso. The ticker is NSRGY There you go. 

Alec: [00:05:37] There you go. 

Bryce: [00:05:38] All right. Well, Andrew, we're going to kick off with a little bit about yourself and if you can, we'd love to hear about. 

Alec: [00:05:45] The Nestlé ticker is also NESN. 

Bryce: [00:05:48] And so. Yes, and so it is it. 

Alec: [00:05:51] Will need to take that up with the question writer here. 

Bryce: [00:05:57] Must be. So anyway, Andrew, to kick off, are you able to tell us and help our audience understand what your journey to date has been in finance. [00:06:05][8.2]

Andrew: [00:06:06] Food? That's a broad one. Are you looking for like background or I'm kind of, do you want me to just walk through my resume or what? 

Alec: [00:06:15] This is a job. Interview, you know? 

Andrew: [00:06:17] Cool. Okay, so I am a portfolio manager and the head of research at Rangeley Capital, which is a fund that was launched by my kind of partner, Chris the Muse, in 2008. I joined in late 2015. And then, you know, we are a small, scrappy shop and a part of our marketing and just, you know, I one of the nice things about running a small shop is you can do only things that you really enjoy doing. For the most part, you've got a lot less compliance burden than if you're at a really large shop. And I love it. It's part marketing, part love. I also write right and run what I like to call the yet another value empire. So I've got yet another value Buy.com where, you know, I write, comes and goes, but I try to get at least one post a week out and then I host a competitor. Do you guys do yet another value podcast where about again, once a week I try to have a very sharp investor on and it's much different than what you guys do where all we do. I don't care about their background, I don't care about ads, but I don't care about anything except, hey, did they do really good work on idea? And we're just going to dive deeply into one stock idea. And, you know, my thesis there is, hey, this is a sharp person. Most of them are small hedge fund managers or people writing stuff. Okay. Substack is a really smart person. They've put their money into this idea. I'd love to hear them explain it to me and do my research for me. So those are kind of the two things people might have heard me on, or maybe they'll subscribe to you going forward.

Alec: [00:07:51] I have been familiar with yet another value blog for a number of years. When we were first introduced. I didn't know that you wrote it because yeah, I guess I didn't put two and two together. So I'm excited to have this conversation.

Andrew: [00:08:06] Even if they're video I've even got, I've got brand merchandise yet another value. This is a podcast.

Bryce: [00:08:12] Three we'll give it to our audience. 

Alec: [00:08:14] We also have branded merch. Maybe we'll have to swap some after this. 

Andrew: [00:08:19] You guys are international. Get out Of here. Last Time you're in New York, we'll. 

Alec: [00:08:23] Yes. Yeah. You mentioned that, you know, there's a marketing element to it, getting your name, getting your ideas out there. But I'd love to get your thoughts on why why you started yet another value blog, what the value of it has been for you as you build your career and I guess build you a name in finance, you know, Bryce and I big believers in learning in public and there's real value in making the mistakes and asking the dumb questions. So I guess, how's it been for you being so public with your investing journey? 

Andrew: [00:08:52] Yeah, look, it can be hard because when you're wrong, there will and inevitably be a thousand people who will come on and say you're wrong. You're the stupidest person in the world and you've really got to worry about him. We'll talk about this later, maybe, but you've really got to worry about, come on, this bias, right? Like commitment bias, where you go and you write something and you plug into something. And I have certainly had this issue before where you're very publicly buying something and maybe your thoughts are changing on and you don't want to sell because you feel committed to it, because you've been so public on it, or you can't incorporate new information because internally and externally you felt the pressure. Where I am, maybe something was like later, I am a capable. I'm starting to get a little bit more nervous on cable for X, Y and Z reasons, but you kind of can't fully incorporate it because you've just been so publicly incapable. Or maybe you just start ignoring it. You know, I guess a lot of people who rode some of the great tech growth names from 2000 22, 21, up 5100 times in the never sold. I think a lot of them would say with the benefit of hindsight, hey, I just got to publicly attached to it. I couldn't look at and say, Hey, risks are coming, it's overvalued, all that type of stuff. But it is marketing. You know, a lot of times now, like I go to if I go to a conference, something like, you know, the value investing community is small, a lot of people have read it and know me. It's it's always nice to be known and like, I have that going. But look, the big benefit to me is I go and I put out. An article or a piece. And I say, Hey, here's what I'm thinking. And, you know, smart people read it and they'll respond and they'll say, Hey, you're completely missing this. You're completely wrong because of X, Y, Z reason. And I can go look that up and say, No, I still think I'm right or, Oh, I am missing that. Or, you know, sometimes I'll put a piece out, but I'll say, Hey, I'm bullish on this. And somebody respond, Yeah, you're bullish, but you're not bullish enough because of ABC reason. And I'll be like, Oh my God, I'm so. So it's been fantastic. Just in terms of the feedback and the community and, you know, especially with the podcast, there's so many people I've met through the podcast and the blog, so many people I've met who I'd never would have met for, and I've made a lot of friends. You know, value investing is a very lonely game. You know, you are reading, you're spending most of your time reading ten days and listening to earnings calls like there's not a lot of communal building. And the blog has really help me network and find people. And yeah, I've really enjoyed it. 

Bryce: [00:11:07] Nice. So you've obviously been in markets for a while, writing a lot about it, thinking through it, how have you, how would you define your investment philosophy and the area of particular focus for you? 

Andrew: [00:11:22] Oh man, you know, I feel like it truly changes all the time. I am at heart. I am a valuable asset, right? I want to buy a dollar for $0.50. That's what everybody says and that's what I want to do. Right. But, you know, I do think a lot of value investors and this was me for a long time to write, like when I first started, I wanted to buy micro caps, I wanted to buy net nets. And maybe it's because they didn't work for a long time. But I do think there is something to, hey, in the sixties you could just go buy things quantitatively and do really well, right? You could go. A lot of people didn't even know what price earnings was, right? You could you could beat it on that in the eighties and nineties. You could beat things with pure speed, pure interpretation, speed. Right. Like I think those in the 2000 2000 times, I think those are days right. Like I don't think you can buy net nets anymore because computers buy net nets and anything that trades for net net it's be doing it for a reason. Like you're applying a quantitative screening. There's something that's better at quantitative then. Now I'm generally trying to buy a dollar for $0.50 and I'm trying to do it because there's something. But I'm seeing that the market's missing and it can be pure panic. You know, in March and April and the banking sector, it was absolute pure panic. People were selling these things down like crazy, some rightly, and I think some write wrongly. So that's a very topical one that's recent. It can be because the accounting is really quirky. Like some of my best investments have been, Oh my God, like the financials look like an absolute disaster. But guess what? All of the debt is non-recourse. So when you zero out all the recourse that like the holding company is actually going to be okay and the stock's down 95%. And sure, the company lost 50% of its value, but 50% still there because a lot of the debt is non-recourse. That's a popular one. Another one that I've seen, and these are tougher. But like one big win I had was, are you all familiar with Bob Evans? You're from show. You're probably not. You'd have to be probably Midwest U.S. but Bob Evans was a restaurant chain, Right. And it's just like a down home restaurant chain, kind of like Cracker Barrel. Maybe not Cracker Barrel fans will probably get mad at me for saying it, But, you know, they serve good, hearty Midwestern food. And this was a brand that dated back to, I think, like the thirties or forties. So they've been around for a long time. They had about 200, 300 mainly Midwestern focus chains. Every sell side analysts you cover them was a restaurant sell side analysts. The CEO was a restauranteur. All of the board of directors had restaurant background. Well, Bob Evans launched this line of mashed potatoes ready to eat mashed potatoes. Right. And they were very popular. They were sold in Walmart. They were sold in a lot of a lot of restaurants and ready to eat. Mashed potatoes are actually kind of difficult to first, you need a brand, but they're also kind of difficult to make because they expire, right? It's not like you're selling like a pack of dried mashed potatoes that can lost on the shelf, like they have an expiration date. They need to stay refrigerated. So as they went, they had like the largest thing and it was a pretty nice niche. They had a good distribution, they had build everything out. You had to mash millions of potatoes every year. They had a good brand. It was a really good business. So it was a consumer packaged business with a moat. Guess what? A consumer packaged business with a moat trades for like 15 times better and a restaurant business that's, you know, it's fine. It's been around for a while, but it's a restaurant business trade for like five times to keep it up. And the CPG business had grown to the point where its earnings were more than the restaurant business. So you had this company that was run by a restaurant person. Everyone who followed it thought of it as a restaurant company, but when you looked at it, you'd be like, Hey, not only are you earning more from the CPG side, the CPG sites like three X are more valuable than the restaurant side. You're a CPG company, not a restaurant company. So everyone valued it as a restaurant company, But you would go look at it and say, Hey, it's a CPG company and all. This is a very long winded way to say like one of the nice things is when you look at a. Company and everybody else thinks it's kind of a duck. And you look at it and say, No, it's not a duck, it's a golden goose. And that's a place where you can find a lot of value as well. Oh, and then one more and we might talk about this later. Cable You know, when I got into cable in 2017, this kind of goes back to the panic thing. Everyone looked at cable as a video distributor and cord cutting was rampant. I'm sure everybody's very familiar with the dynamics around the legacy pay-TV bundle. And if you looked at it and there was actually a proof point and we can talk about this later with cable, there is a proof point. That video actually didn't matter. Guess what? ESPN, Disney, ABC, all these guys, who is it in the I'll show you the big sports, is the Big ten in my room doing that correctly.

Alec: [00:15:50] So we've got Fox Sports which is owned by Rupert Murdoch as well. So similar. 

Andrew: [00:15:55] I thought there was a Fox Australian Big Ten or so, but it's like those guys actually make so much profit that by the time cable covers like paying those guys plus the marketing plus the technical overhead and everything, they don't make a lot of money on video. So everyone was terrified of the video, but it turned out the video didn't really matter. All the Met, all the revenue, not all the revenue, all the profit was actually in the broadband business. So everybody was terrified of this video thing and the broadband business was growing. They were pricing everything so you could get a business that was price is a declining, dead dying business. But actually what was happening was the revenue was shrinking, but it was profitless revenue that was shrinking while the other side was actually growing. So that's another one where people were panicking about one thing. But if you really did the work, you could have kind of a variant view. So again, I've rambled there, I got a podcast, I like to talk. 

Alec: [00:16:48] It's fascinating. Let's let some keep talking about cable and then we can jump back into value investing and markets today a bit later because it's a really interesting conversation. And you mentioned before we started recording that you have some holdings in the cable sector, which surprised me because the narrative that, you know, as you sort of explained, the narrative of the last decade has been Netflix has disrupted and there's a lot of cord cutting. And we're at a point now where if you sign up to all the streaming services, you probably pay more than you would have for cable back in the day. So as consumers, I don't know if we're any better off, you know, pricing I would just in the US and a big thing that I noticed was that these streaming services are coming for linear TV and for sport. Yeah, let. 

Andrew: [00:17:37] Me let me just say that all you've talked about is the streaming services video. Doesn't matter there. There's not any of the cable. Let me. 

Alec: [00:17:45] Let me Because, so Amazon is now pushing into sport. They've got Thursday night football. We saw YouTube TV is now pushing into linear TV and broadcast and stuff like that. So I'm interested to know like where you see the future of cable now that they're pushing beyond video into some of these other areas. 

Andrew: [00:18:05] Well so everything that you mentioned again video for the cable companies doesn't really matter. Everything you mentioned is actually interesting on the future of media and especially sports media. Right. Like who's going to be a writers strike in the US. You mentioned Netflix. What happens to the legacy cable bundle? How do people get movies going forward? What happens with the sporting rights, All of that, all that's interesting. Here's the question: How does that get delivered to the consumer? How it gets delivered is broadband. And what all of these cable companies have realise is, hey, the video business is extremely, extremely cost intensive and difficult. We don't really have a moat over it anymore. But what they've realised is, hey, let's just the people can, you know, they can, we can partner with YouTube TV, we can partner with all these people, let's just deliver them broadband, which is very profitable. The first one to realise this and this is kind of how I got my start in cable was there's a company spun out of Grand Holdings, which was the Washington Post. You know, Warren Buffett famously was with The Washington Post when they sold The Washington Post. It became Graham Holdings. Graham being the family that was kind of the controlling shareholder of the Graham Holdings in about 2015, spun off Cable one, which is a rural cable provider in America. And Cable one said, Hey, we don't think video matters at all. And you can go look through the old cable one decks. And they had these things where they said, Hey, video, you know, people look at and say it's 33% gross margin after you pay ESPN and ABC, all these guys. But what actually happens is, you know, after you factor in the customer acquisition costs, sending them to set top box, the only thing people really call the cable, not the only thing, but most of our troubleshooting calls to the cable company deals with, hey, this channel dropping all that type stuff after you factor all that out, video isn't profitable. We're not going to worry about video anymore. We're just going to focus on broadband and cable. One, you know, it spun off at like $400 per share. And in 2021, it was trading for like $2,000 per share. So it was a four or five x over five or six years. It was a fantastic story. So that was the one that a lot of a lot of cable investors looked at and said, Oh, all these cable companies were saying, Oh, I don't know about cord cutting. It doesn't matter for the cable companies. And you know, John Malone, who formed the biggest cable company in America, TCI, he's a absolute legend in media and telecom investing. When he one of his tracking stocks, he named Liberty Broadband. That's the tracking stock that owns about 25% of Charter, which is the second largest cable company. He didn't name name it, Liberty TV. You named it Liberty Broadband, because all that matters is broadband. So, you know, I think when you talk about all these Amazon, it's all very interesting. I'm happy to talk about the future of media, but we're not talking cable. We're talking about the future of media when we're talking about. 

Alec: [00:20:44] Yeah, that's that's fascinating. And I guess one thing that has already become a theme in this conversation, both with the mashed potatoes and now with the cable stocks, is like they control like a divergent view on from consensus being like a key part of being a value investor today. So I guess then the question is, if we're just looking at as these cable companies, as broadband providers, then really I guess the competitive threat is from other ways to deliver Internet. So then how do you think about, you know, you can't have an investing conversation without finding a way to get Elon Musk in there. So how do you think about the threat from StarLink and, you know, new ways to deliver Internet 5G? Like, is that a competitive threat? How do you think about all of that? 

Andrew: [00:21:29] So that is the that is the most cable investors today, not all, but most. Like five years ago, everyone was worried about cord cutting. And I think there were a lot of us who said cord cutting didn't matter and it worked out really well. And today everyone is worried about alternatives, alternative forms of competition coming into the market. And SpaceX, Space X and StarLink are one. But I think most people are pretty okay with that. You know, there was an article that really made its way around in early 2021. They had a quote from a Canadian consumer who said, I got StarLink and I'm the happiest I've ever been with Internet. It's so great, all this sort of stuff. And people said, Oh my God, Starlink's satellite Internet, all that satellite Internet has been around for a long time. It can work really well, rural, but in terms of delivering suburban and urban like you just can't get the bandwidth. And that's going to come back to right now, the big worry for cable is fixed wireless, which is 5G, basically Internet getting delivered. T-Mobile and Verizon have taken a decent bit of market share where with actually it's still very small in terms of market share, but in terms of the growth, like basically every Internet broadband ad that's been in America over the past year pretty much has gone to a fixed wireless player. So, you know, growth of the cable sector is down because the fixed wireless is taking just about every incremental sub out. So there's a big question mark there. A lot of people, myself included, like I just come back to first principles. And look, the Sox have done poorly over the past 18 months. So in the short term, I've been pretty wrong on this. I think in the long term will be borne out. But I come back to first principles. The best way, the most consistent, fastest, cheapest way to deliver something is always going to be with physical infrastructure, literally with fibre into your home light signals going from your home, from the router, your home across the light signals to wherever their plant is. Cable is basically at this point fibre. It's not fully fibre, but one. The end game for a cable is fibre, like cable is literally fibre from their plant to about 100 feet away from your home. And then there's a coax cable that runs 100 feet from there too. So that's cable. It's pretty much fibre to the home, you know, I just think that's the fastest, cheapest way. And one of the things I looked at, I did a piece a long time ago, like you can go back to 1999 and you can find advertisements from AT&T that said, Hey, 2G is coming, it's going to be great. Ditch your dial up Internet, Come join the 2G revolution. It's the fastest speeds you'll ever need. Guess what? It wasn't. You can find it for 3G, you can find it for 4G. Like this has always been there. This threat's always been there. And it's never really taken share. This is the first time it's actually taken. I think part of why it's taken share is because T-Mobile in the US bought Sprint. They bought the third and fourth largest player merge. And right now T-Mobile has a ton of excess access spectrum. And what they're doing is they're filling up, they're using fixed wireless to fill up all this excess spectrum. But the consumer's demand for data is basically limitless. It grows 20 or 25% every year, and eventually that excess spectrum is going to be filled up. And then once that happens, what's the cheapest way to get extra capacity? It's to be the person who's got literally fibre to the home in there. And I think you see a lot of acknowledgements both from T-Mobile, the cable players, all that, that, hey, eventually that's going to fill up and once that happens, they're going to have to start turning players off. Oh, and then the last thing I guess I would mention, sorry again, I can ramble, but, you know, if you look a broadband person, if you have cable broadband, you probably pay 50 to $65 per month to get your cable broadband. In America, that's 500 megs, 200 max, something like that. If you. Wireless, you probably pay about $65 per line. That is a slower line with less speed and less reliability. A bet you probably have both. About 80 to 90% of your data is actually going to go over the cable line, not the wireless line. So if you just think in terms of POS. 90% of your data is going over the cable line for about the same cost as the 10% of your wireless data. If you think about a wireless player saying, hey, let's go grab that wireless, put it on our spectrum, like what's the best use of their incremental spectrum? Is it to go grab one cable player or for the same economics, kind of go grab nine mobile players? It's probably the mobile phone in the long run. So, yeah, I just think in the long run, physics wins.

Bryce: [00:25:53] Love it. Well, Andrew, are there any particular stocks that we can go away and have a look at or research in the cable space? 

Andrew: [00:26:01] So my favourite has always been Charter. Charter is 25% of it is owned by John Malone, the Legend of Cable investing. It is the second largest. It is the second largest cable player. They have a very in my opinion, they have a very shareholder focussed mindset. You know, the best cable company, America is probably Comcast, but Comcast unfortunately has NBCU. It's controlled by Brian Roberts, who is a little divisive. You know, he bought Sky, which might have got him some I don't think that got him any Australia but he bought Sky like I think he has a little bit of a empire building mindset he wants to play in the media space like charter is just pure play, focus on cable as you are talking charter trades for about $330 per share. And you know, one of the things with Charter is they they incentivise their management teams to be shareholder friendly. So when they did Charter it, let me back up. Charter was formed when they bought Time Warner Cable Charter and Brighthouse Networks merged them all together to form the second largest cable company in America. This about 2016 at the time, their CEO, Tom Rutledge, they gave them pay package. Charter stock was about 100 and it said, Hey, if over the next five years, charter hits three, four or $500 per share, we're granting you all of your options for the next five years upfront. They only vested the stock at three, four or $500 per share over five years. Right? So that was the stock has about 444 entities. Now, if they hit them, guess what? You're going to be worth a lot because options that have a strike price three X out of the money, they don't cost a lot. And once you hit them, you would kind of be about a billionaire is kind of the the thing I came out to and guess what he ended up hitting hitting all of them, I think the highest highest here like he kind of hit and kind of didn't. Anyway, so that was 2016. Rutledge retires at the end of 2022, becomes the executive chairman of Charter. His CFO takes his places as CEO in February. They grant the CEO, Tom Rutledge and the CFO, they grant them another what I call the All in five years equity grant package. Right? And in order I'm looking at the data table. The lowest end of these is by 2026 the stock has hit $507 per share. So from today the stock has to appreciate at a 17% annualised IRR to hit the lowest end. If he does not hit that end, he gave up five years worth of equity for nothing. Right. My my thing would be, hey, I think the board and him looked at this and said, these are very hittable targets for you because I don't think you give up five years of things of equity grants. Just you hit a you know, I have to do everything perfectly. Just hit the low end of that. That's the low. And the high end is $1,000 per share. And that would best if by 2028 the stock would have to do 26% annualised at the high end. So I look at a company where I say, Hey, they've got all these competitive advantages, they're super shareholder friendly, they have a history of granting aggressive equity prices and hitting those targets. They've done it again here. They're by their but they've dialled back their share buybacks a little bit for reasons we can talk about, but they do buyback shares pretty aggressively. You know, they bought back about a third of their shares since they did the big merger. I think they've got a really nice wireless business, which you can talk about the wireless business. But I just look at all of these things and I say, hey, you know, as we're talking $330 per share, I think this is a spectacular multi year opportunity to compound wealth. 

Bryce: [00:29:32] Well, we are going to take a very quick break, Andrew. And then on the other side, we're going to get your views on value investing today and then also current market conditions. So we're going to take a quick break. We'll be right back. 

Alec: [00:29:47] So, Andrew, before the break, we were speaking about the cable industry and it's a fascinating look at the industry and and way of looking at it that I hadn't really thought of. And I think, you know, as I said earlier, you mentioned with the Bob Evans story as well. Today, value investors really shine when they have a differentiated view to what the market consensus is. If it's cable, if it's mashed potatoes, whatever industry it is, it's sometimes hard as an investor to differentiate when you have a contrarian view and when you're just wrong. And so how do you manage that with the positions you take, the theses you build, how do you test them, and then how do you, I guess, monitor them and get out of a position? If you realise I was just completely wrong about this. 

Andrew: [00:30:41] Man, that is a really good one. You know, I could have saved myself a lot of a lot of pain and a lot of red numbers if I knew. I know. You know one thing I tried to be pretty religious about, so I do a lot of that driven investing and I'm trying to get better. Like I think a lot of my biggest losses, especially over the past couple of years, have been you buy a company, you know, the stock goes from you buy a company at 15 and they're undergoing strategic alternatives. And you think this is a really strategic company, right? You think it's cheap, you think there's going to be a lot of buyers, all this sort of stuff. And then they announce and they say, hey, we're you know, we're not going to sell ourselves. We think we can realise more value as a standalone company and the stock goes from 15 to 12, right? And you you look at it, you say, oh well I, I thought it was cheap at 15. I still think it's cheap at 12 and now I'm just here like I've got this great undervalued company. I thought, Oh, it's even cheaper now. And I think that's one where I have traditionally, like, had a lot of losses, right? Like, sometimes it can work out, sometimes everything works out. But in general, once you've done that, hey, I was here for the event, I was here for a sale and it's morphed into a long term like, No, would you have been in it? Would you have been in it as a long term investment without that sale? Probably not. You probably weren't in it before they announced. You probably have companies you like. Like, like for me, I probably like cable better as a long term cofounder with less risk, more growth, all that. So I think that's one. Like I never let a trade become an investment is one thing I think people said. I think that's one. You know, the other is if you follow a company, you talk to, talk to management, or don't talk to me and just follow a company. A lot of times if you go back and you read like when I'm doing research on a company, I'll read probably their last six or earnings calls. And when you do that, it's really interesting to see how the company talks, because if you talk to the management, then they'll lay out the story, what they're doing. But if you go back and read the last six, you can see how the story has changed over time. And I guess for me, what I'm trying to say is like if you're you buy a position, they announce bad earnings or something. The stock's down 20%. A lot of times, if you really hold yourself to the fire, you'll see like, hey, I was here because I thought this company was going to build new stores really creatively and that was going to create a lot of value. And now the company is missing numbers. They're not going to build new stores. They're having inventory problems, like, I guess just like holding yourself to the fire that way. But it is tough, right? Because for every store you've got like that, it's like, hey, I it stock goes from 10 to 5, you double down at five and your thesis ends up being right. It was just the market's been scared. It goes 25 like that. That can be how legends are made, right? So it's very difficult. 

Bryce: [00:33:12] So we obviously going through a bit of a market rally at the moment and it's hard to tell which side to kind of sway away. Is is the worst yet to come or is it is it behind us keeping and taking that contrarian angle? Do you have any contrarian views on the current market rally that we're going in or how you thinking about markets at the moment? 

Andrew: [00:33:33] Market's probably overall neutral or maybe a little bullish. Like I hear you, we're having a bullish rally, but if you look at like the Russell 2000, so I kind of benchmark myself to that, which is for the I'll show you in listeners, it's the Russell 3000 or the 3000 largest companies in America, the Russell 2000 or the 2000 smallest of those 3000. So that's generally the lowest market cap would be, I think about a hundred million and the highest market cap, and that would be like 4 billion. So you're not talking about the apples, but you are talking about like a broad swath of small to midsize American businesses. You know, as we're talking today, I think it's still down about 20% from its peak in November 2021. So even though you've had a rally, it's mainly been concentrated in the largest cap companies. I still think there is a lot of value out there, like aside from Charter, which is about a $100 billion company like most of the companies I look at are on the smaller side, and I still think you can find a lot of value there. And then, you know, from a contrarian angle, I think the most interesting things that I've been looking at recently are the banks on the heels of Silicon Valley and First Republic going down. You know, there are a lot of banks that are trading at or under tangible book. I think a lot of banks got shot with the. Oh, you know, help some maturity issues. What Silicon Valley and First Republic had were very rare. There are very few banks that have that much held to maturity issues where they were actually negative equity. I mean, there are some that their equity levels are a lot lower than I think the regulators would like, but there aren't a lot that are just like instant zeros. There are also very few banks that could survive like a complete run on the bank. You know, it doesn't matter how much equity you have, if all of your deposits are gone and you have to sell everything. But I think banks at at or below tangible book are really interesting. You know, a lot of them trade at approaching global financial crisis level or valuations. The index has really underperformed. You know, had a post a few weeks ago. It was down like 40% on the year while the Russell was flat at the global financial crisis, the regional bank index was down 50%. So you were kind of like 80% of the way through a global financial crisis. Valuation there. Yeah, And you know, it's interesting because you've got equity mates setting new highs. When you look at these regional banks, a lot of people are worried, what if we have a recession, all this sort of stuff. It's like, well, the equity mates certainly are worried about a recession right now. The banks are pricing in recession plus crisis. So I think that's one really interesting area right now. 

Alec: [00:35:54] The number of small banks in America, you know, we had read about it, but when we went over to the US, especially walking around New York, you just see all of these shop fronts for banks that you've just never heard of before. And it's very different to Australia where we do have smaller banks, but our market is dominated by four major banks in a lot of ways. We're quite similar to Canada in that it's just like big banks dominate the market. There was a lot of fear obviously, and then it feels like very quickly it's just fallen out of the news. That story, at least sitting here in Australia, we're not really hearing anything about smaller US banks. Has the fear subsided or has the media just lost interest? Like what is it? What is it looking like in that industry and on the ground?

Andrew: [00:36:39] So for banks, I think the fear has largely subsided. You know, I actually think the real panic in the banks was when Silicon Valley went under. And you can go read like all these banks earnings calls, all the a lot of the banks have been at conferences since then. The week I think it was March 12th was the week all these banks saw, like anyone who had uninsured deposits, was pulling pretty quickly or making sure they had insurance coverage. But since then, I've actually been surprised at how quickly things have stabilised. And, you know, a lot of times when I'll talk to investors, they'll be like, Oh, well, what if we have another run on the banks yourself? I'll be like, Hey, if you didn't pull after Silicon Valley failed, like, are you really going to pull now? What's going to make you feel like the banks have kind of survived that? Look, I think a lot of the crisis has passed. For most of them, there's still a lot of uncertainty. Again, you're buying banks at tangible book or under tangible book. So that's generally a pretty good time to buy. It does speak to there's fear in it. There is a lot of uncertainty, right. Like there are going to be regulatory reforms on the back of what happened to Silicon Valley. There's no doubt about that. Capital requirements probably going out. There's going to be liquidity like I do think Silicon Valley taught investors, hey, in 2008, 2009, if you had a run on the bank, it took weeks, right? Because you had to go literally queue up outside of a bank, wait for a teller to get you your policies and all that sort of stuff. Silicon Valley lost billions of dollars in deposits in 24 hours. I think banks do have questions around liquidity that they have to answer going forward. Returns will probably be a little lower. But, you know, you're buying these banks at tangible book value or less. All of them have reserved for a mild recession. So you've already got these banks have been positioned for recession. They've seen the commercial real estate issues coming for a year, for the most part, like what banks really need to sell stuff is time. And these banks about a lot of time to prepare for a lot of issues. So I think you're getting a wide swath of banks at pretty attractive levels today. May I? 

Bryce: [00:38:26] Andrew? We can't go past the fact that we're in the midst of a huge air bubble and there's hype everywhere about it. We'd love to get your thoughts on how you're approaching the AI hype. I guess with your value cap on, is it a avoid completely or are you finding opportunities? What? How are you thinking about it? 

Andrew: [00:38:44] Just crying myself to sleep at night that I'm not going, Oh no. You know, buying stocks in, that is not really my game. If there was something I thought that had an interesting angle, I certainly would take a look at it. You know, I do think myself there was this company that I still have a small position in, but it largely sold out of called opera. I'm not sure if you guys are familiar with that. The browser company? 

Alec: [00:39:08] No, I haven't heard of it. 

Andrew: [00:39:10] I bought it a while ago on the thesis that a browser could be really interesting. They're the small company. They had all these dynamics around it and the stock performed really well. The business performed really well. It had some interesting hidden assets in there. They they monetised the hidden assets for less than I thought, but the business performed better than I thought. So the stock did really well. It's hard for me to see if I saw, but I think in like March or April they put out a press release that said We're introducing the world's first day AI browser, and the stock kind of hit my price target. And I was like, All right, I'm out there. And somebody was like, Hey, this could catch a real I did. And I was like, No, it's a browser. A company. I follow this for a long time. There's no way. And sure enough, the stock's like, doubled. Just like, straight line up since then, which are kicking myself. But yeah, look, I do playing the games. Not really. For me, one thing I have thought a lot about and I'm trying to is how to use AI to get better as an investor. And I don't mean like in terms of client, you know, I think like Renaissance technology to all those guys, they're they're the ones you're going to win in terms of they've been doing that for years, but you can use AI to read a 10-K better or could you put your top ten stocks in your portfolio into an AI and it could say, hey, based on these like here's four more stocks that you might want to research as, as a good idea that have similar characteristics that you might not be thinking about or, hey, you know, like your top stock is charter and your second top stock is Jp morgan. Jp morgan shares X, Y, and Z qualities with stocks that you've historically performed really poorly with and Charter Zero is ABD qualities with stocks that you've historically performed really well with that type of stuff. And I haven't honestly, I haven't found anything that's like really great. Most of the investors I've talked to who like kind of like me, are like one or two man shops, really fundamental value focussed. The most I've heard is they use AI for like an improved Google or an alternative to Google, which is nice. It's predictive, it improves productivity, but I haven't heard anything like that. Really blows my mind in terms of AIU.

Alec: [00:41:09] Yeah, yeah, no need. Like we've been playing around with it. From a media point of view.

Andrew: [00:41:15] Am I even talking to you guys or. 

Alec: [00:41:18] I did actually try and train an AOA to replicate my voice, but it just sounded like a computer voice. 

Andrew: [00:41:24] You can steal this idea from me if you want. One thing I thought about doing, I just thought it was kind of creepy maybe to tell you which thing, but, like, you could create a war. You know how you can create, like, a bank robot or an Obama bot or something? That response, You can create a Warren Buffett bot, and then you could do a podcast where you interview Warren Buffett and you guys actually might be uniquely suited because you're two Oh, so one of you could be the interviewer and one of you could be Warren Buffett. I thought that would be interesting, like an I Warren Buffett interview, but eventually just kind of not my game. But yeah. 

Alec: [00:41:57] It's a, it's a dystopian idea when you really go down that rabbit hole too deeply and then it's like. 

Andrew: [00:42:03] But no one's done it. And like, hopefully the three of us are good guys. We do it in like a nice, respectful way. But you could do it, I'm sure would get a lot of interest and it would kind of teach you how you could use AI. And mainly the interesting is what you could use it for. You als. 

Alec: [00:42:17] I don't. Now, maybe we could slide to Warren Buffett so much that he feels compelled to come on the podcast and refute the allegations. 

Andrew: [00:42:25] You've got to watch Out. So for, for my April Fools post, I put up an activist letter to Berkshire, and if you read it, it was extremely clear it was joking. So first I misspelled Buffett. Throughout the letter. I used one T instead of two, and like one of my top recommendations was, Hey, Warren, you keep all of your money in cash. That's so stupid. Look at Silicon Valley Bank. Silicon Valley Bank was one of the best performing stocks of the 20 tens for banks. And they kept all their money like they took all their cash and they put it in long term treasuries. Go get that yield, buddy. And I intentionally clipped it because, like Silicon Valley Bank was one of the best performing stocks from 2100. So I like Silicon Valley Bank had just gone to zero. There was no chance I was being serious about this. And I got some really hateful emails from people like one guy had to respond to be like, Hey, you got to look yourself in the mirror, buddy. You like. But the Warren Buffett fans will come for you if you slander Warren Buffett. 

Alec: [00:43:21] Well, we were at the Burke Shire conference this year and it was 45,000 glowing fans just in love with these two nine year olds. So yeah, let's, let's not piss them on. 

Andrew: [00:43:34] Hey, I love them too. But you know, you've also got to be aware of your hero's shortcomings then you have. 

Bryce: [00:43:40] Absolutely. 

Alec: [00:43:41] I mean, those two have made a lot of people millionaires, maybe even a couple of people billionaires. So, you know, there's no surprises. 

Andrew: [00:43:48] A couple people. Billionaires. 

Andrew: [00:43:50] Both of you. I mean, well, like four years ago, the first Berkshire buybacks that they'd done maybe ever or in a long time was they bought from the estate of one person who had just like he owned $2.1 billion worth of Berkshire. I think there's like three or four others. 

Alec: [00:44:06] Must be nice. 

Bryce: [00:44:08] Anyway. Andrew, we have reached the end. It's been great to chat. We do have a final question. Each year we do the Equity Mates Awards, which is an opportunity for our community to vote on the best expert or their favourite expert interview of the year. And by virtue of you coming on the show today, you automatically entered into the award. It's an opportunity for them to just, you know, give some feedback and let us know who they really appreciated coming on the show to help them out with the award. We'd love to know if you were to win the trophy, this beautiful glass thing here. 

Andrew: [00:44:41] Oh, there's a Trophy 

Bryce: [00:44:44] We would love to know where. Where would you put the trophy? If you want it. 

Andrew: [00:44:50] Oh. Does this influence the voting. 

Bryce: [00:44:54] It depends how good your answer is. It can really sway. 

Andrew: [00:44:58] Here's what I would do. I would. You guys give me the trophy. I'm going to bring it to Berkshire next year. We're going to go on stage and I'm going to run the stage with the trophy and I'm going to put it right in front of Charlie and Warren and say, I am the Equity Mate's expert. Interviewer of the year. Bow down to me. That's what I'm doing. 

Andrew: [00:45:16] It’s on international television.

Alec: [00:45:19] Love that. 

Bryce: [00:45:20] Love that this is really going to are really going to help with your voting at the end of the year. We really wish. 

Andrew: [00:45:26] That was not a legally binding problem. 

Alec: [00:45:30] You do it, then Warren and Charlie will be aware of Equity Mates and then maybe they'll hear our interview with them. So it'll all fit together. 

Bryce: [00:45:38] Love it. Well, Andrew, thank you so much. It's been great to have you on today. I know that our audience would have taken a lot from the show, so we really do appreciate it will include all the links through to your blog and podcasts in the show notes as well. So if anyone in the equity rights community want to check out what you're doing, then we will provide them with those links. But again, thank you so much. We do really appreciate the time. 

Andrew: [00:46:00] Thanks for having me, guys. 

Alec: [00:46:01] It's a lot of fun. Thanks, Andrew.