Hello everyone and welcome to the new

episode of Senzel Insights. Uh today I

have my special guest for the third

time. Uh David Or welcome David.

>> Well, thanks for having me. Uh there's a

reason why I'm uh having him for the

third time because in my opinion he's

probably once in generation uh hedge

fund manager of his generation he's

probably the best in the world or or in

1% of 1%. And that's not just uh me

talking. Basically,

you outperformed the Buffett partnership

in its early years, which is a

remarkable achievement.

Can you can you tell us something about

that?

>> Yeah. Well, I want to say up front, too,

that included a few years there of a

personal account track record. So, you

know, that you could say you shouldn't

include that or not, but if you do, you

know, I I Yeah, I just it performed way

better than he did. I you know I don't

really know what to make of it because

you know the first few years I thought

oh I'm getting must be getting really

lucky and then the next few years it

keeps happening I think okay and then

but I still thinking like a little bit

maybe you know maybe it'll slow down but

then now after like this year is going

really well so you know it's kind of

like damn this is uh kind of surprising

to the upside so

>> and even this year that it's a positive

it's a good year for Most of investors

you are like uh doing uh few times over

S&P and you you maybe even approach a

triple digit returns gross this year

which is crazy considering that uh you

are not running a small hedge fund like

you I mean like you did like three or

four years ago. Now you passed the 200

million threshold which is I mean in a

sense it's still a small hedge fund but

I mean you could be half a billion in

two or three years. So it's completely

different game and the two um two

podcasts ago we even spoke about that

that you said uh it's a different game

when you manage 20 million and now that

you are managing 10 times more what

changed?

Yeah. Well, part part of the hack that

I'm using is we have these other

portfolio managers. So, that that's

actually slowing down the scale impact

which I think is helping the edge a lot.

But yeah, just even at this my my

partition today is about 100 million.

And yeah, so today just getting in and

out of things takes a lot longer. Um

now, uh a lot of times I'm like wanting

to bet bigger on things, but I just

can't. I just oh I can only bet you know

30 basis points on this micro cap and in

the past that would have given the

asymmetry on this specific one or

whatever I'd have liked to do more like

0.5 or 6. So I'm running into that kind

of thing now with a decent amount of the

portfolio.

Um and there's definitely just a cost to

that. Uh that's especially true for the

catalyst ones where you know something

horrible is about to happen in a micro

cap and you just can't get yourself

stuck there. Especially in a micro cap

short where if you're wrong about the

catalyst or some unexpected great news

happens, you really don't want to be

stuck. So yeah, I just have to bet

smaller on everything like that.

>> And what what is what in your universe

is a a small bet and what is a large bet

from percentage point? It just it

depends on like the company because for

example I'm short some consumer staple

large cap stocks and in that case 2% is

not big right that's just who who cares

if the consumer staple somehow runs 20%

even it's not a big deal

um so it's really hard to say what is a

big and small bet it's

>> yeah it basically comes down to

volatility right

>> yeah and like the real risk of it yeah

>> and uh uh you you spoke a lot about the

last quarter. Last quarter is specific

in a sense that uh it was uh really bad

for short short sellers. Uh I mean it

was horrible. uh I it was like the like

on the level of 2021 when it comes to uh

in some sense it was even crazier

because the basically the leading factor

that outperformed was unprofitable

uh high highly shorted companies.

>> Yeah, as far as I know it was the second

worst period in the last at least 25

years probably longer. Um, so and the

January 2021 was worse. That was that

was um maybe 30% worse or something if

you had to quantify it, but that's

that's getting pretty close to that

level of a tough market for short

sellers.

>> How did you deal deal with it?

>> I mean, definitely felt some pain.

>> Yeah, I just avoided all the the right

factors early this year. So I I even

warned um the other portfolio managers.

I even warned other short sellers who

didn't listen. I I said look these like

fake electricity type companies any any

company related to power generation

um any of these kind of like science

project vague just nonsense you know

like the the super micro uh nuclear

reactor kind of thing. you know, it's

all most likely nonsense, but if you're

short this stuff and there's going to be

an electricity bottleneck for artificial

general intelligence, doesn't even

matter if you think it's true or not.

It's just that's the narrative and

that's just the wrong one to be short.

And that was probably the most brutal

factor last quarter. So, just avoiding

all of that helped a lot. Um,

>> you

completely and then like the arcike

stocks. Um, you know, my my beta to ARC

this year was like minus.2 or minus.25

at the fund level and I think a bit

lower at my own partition.

Um, but that wasn't too bad because if

you look at the individual stocks that I

was short, they weren't like the really

nasty ones individually within ARC. Um,

so

so that's why this this year has been

going so well. I just avoided the I

thought they were kind of obvious to be

honest. This electricity one was super

obvious. Let's just don't be short that

stuff.

>> Yeah. And uh especially the ones with

the high with potential of short squeeze

basically because everything was just I

mean outperformance was uh crazy and as

you said probably second largest or the

largest in this century alone and when

we uh we actually in a way predicted it

in the I don't know if it was the last

or the first podcast we spoke about

quality factor and you told uh you told

us that it's overcrowded and uh now we

have the largest underperformance

of quality factor since uh since in this

century in this century in last 26 or 27

years.

>> Yeah, I'm kind of regretting I didn't

short much or more of it. That's just a

hard factor to be short I think. But it

would would have been the good one. Um,

>> yeah, you know, but it's always hard to

say when that would sort of collapse

like it did. And even though it dropped

a lot, it wasn't like, you know, that

good of a short. I alpha wise it was,

but you know, so that's just a tricky

thing to actually short, which I guess

is what makes it such an appealing long,

too. But that's why the valuations got

so absurd.

>> Um, yeah.

>> And I know so many quality guys, they

just don't want to sell.

And it's such a big mistake, you know,

it's like, man, you gotta you got to

look at the valuation,

>> especially if they're ones that aren't

even growing,

>> not growing much.

>> And and we even have a Terry Smith of

Funmith. He's basically underperforming

now for five years.

>> And he's his outperformance basically

came from betting on that single factor.

>> Yeah, he was just a factor bet. I mean,

there's a lot of these um,

you know, single trick pony kind of

investors who get sort of famous and

raise big on AUM or

um, and I've been really critical of

many of different ones on Twitter and

definitely uh, he's just as much of a

an idologue, I'd say, as Kathy Wood was

or as the value investors from 2000

were. Um, it's all the same idea.

>> So,

I mean it's basically marketing. I mean

you even spoke about that that uh

investing is a lot about marketing not a

lot about uh true edge and true

performance. I mean there's a guys I

mean they are still managing billions or

tens of billions some of them and uh Ray

Dalio I mean I have a really negative

view on him and I mean but he is like

Bridgewater is managing more than 100

billion so

>> yeah he's a genius marketer

>> yeah genius marketer so but um you also

uh spoke about um active versus passive

and how uh in funds need to evolve to be

truly attractive again because active

investing is mainly closet in closet

indexing or marketing. There's a a rare

percentage of fund managers like you

that actually deliver alpha and uh how

how do you uh dissect let's say those

those funds? uh h how how how do you

know if someone's

like

has the potential or is worthy of

investing with?

>> Yeah, you you can just look at someone's

track record and you need to not just

look at the the raw percent. You need to

figure out like what their real

benchmark is for example. Um,

so and that's important because let's

say you had like a long only oil guy for

example and then but you know obviously

that's been a really tough um

like uh industry to be investing in

after 2010

when fracking sort of switched things up

and really changed things a lot. And in

that case, you know, if their benchmark

is truly long oil stocks, uh, and they

performed really well versus that

benchmark, then that that actually means

a lot. Um, but you know, a lot of guys

are saying, well, my benchmark is like a

really junky one. It's like say the

Russell 2000 or something. And it's

like, that's not that shouldn't be

anyone's benchmark. That's just a joke

of an index.

>> Yeah,

>> I think that's true. It's like lowkey

also true for like the global uh ETFs

because people don't actually look

through like what say the large cap

European ETF owns. It's just a bunch of

these really expensive

just uh stagnant companies

a ton of them. And it's like okay your

benchmark is again just full of junk.

It's not like Russell 2000 bad but it's

pretty damn bad. And you know that's not

even a reasonable benchmark to look at

either. So you know you're looking at

this like I'm saying two ways. You one

if they do have like an honest benchmark

how are they performing versus that? And

two don't get tricked by this sort of

fake kind of BS benchmark.

Um and then yeah if you if you can

figure out like what factor they're

actually betting on. So ARC is the you

know that sort of speculative technology

companies.

guy like Michael Bur is just the

hardcore value factor

uh and so on, you know, and then you can

actually test what their alpha is versus

the real benchmark.

And if if they just consistently put up

alpha, it doesn't have to be every

quarter for sure, but every if you even

look over a few quarters versus their

specific benchmark, um they really

shouldn't be having too much negative

alpha there almost ever over that time

frame. Um there's this really good book

by I think Joe Petta something, I forgot

his exact name. uh really good book he

wrote uh where he brought up the point

of dispersion within the factor. So

there are some years that are just

conducive

uh environments for generating a lot of

alpha in certain factors because like

the range of uh outcomes for the stocks

is really wide, right? But if you have a

really narrow range of outcomes, you

have sometimes have years like this for

some factors and there's really nothing

you can do. it doesn't matter what stock

you pick over that few quarters. Uh it's

just going to move with the index pretty

much no matter what in a year like that.

So I think uh being aware of that uh is

good. Um

but but I've also noticed like the

single factor or single industry type of

investor, they basically never seem to

have an edge. Um at least I don't know

of any. It might look like it for a few

years, but then they really drop the

ball. Um, so I think it's better to

typically look for guys who can at least

play a few different factors at the same

time. And then with that, let's say that

now you could see, oh, he's generating

alpha to like five different factors all

at the same time. And you've isolated

>> then then that's really gets interesting

really fast. You don't need like super

long sample size or anything.

>> Um, yeah. You know, if you if you see

that in two years, it's like, oh, okay,

his daily sharp is like 1.6 and he's got

he's not really riding any factor.

That's really good.

>> Yeah. And uh do you ride any factor? I

mean, I know that you have a lot of

financials if I'm if I'm correct in your

portfolio.

>> Yeah, we're we we have some beta to some

factors. So, I think the financials is

like maybe positive. 2 or three. the

energy uh because we have the pipelines

uh that's also positive

>> versus like my beta to the S&P 500 this

year is like I think it's minus.4 or

something. So there's a bit of a factor

mismatch there but it's not like a

totally extreme thing. It's not like my

beta to oil stocks is like 1.5

uh and never was like that in 2022. It

was like I think it was maybe 04.5

positive which was a really nice

tailwind cuz energy stocks were so

strong that year but I wasn't betting

the farm on it. So

um

yeah I just try to bet on every factor

and I'm not really trying to

intentionally make a factor bet even.

It's just more like I've noticed

financial stocks seem unloved and cheap.

>> Yeah.

>> So I've long more of them. Um the

pipelines for some reason they're cheap

so I'm just long more of them for only

that reason but as soon as they stopped

being cheaper than the market relatively

I would just dump it and you know

someday that could be who knows what it

could be these speculative technology

stocks even who knows I don't really

care I'm not going to be an idologue

about it you know someday it will

totally change

>> yeah and you also uh we also spoke about

being ideological about uh investing and

how it's important to let's say be

flexible. So as you said, I mean from

technology companies and let's say those

with AI exposure, I know of that you

only long the Taiwan semiconductor and

Google if I'm if I'm correct and Amazon

of course as like let's say third wheel

but uh you passed on uh did you pass on

Nvidia on companies like that when they

were like much lower? Well, I w I played

the Nvidia bet because I made that post

in 23. I said Nvidia had become the most

valuable company in the world, which at

the time was a pretty bold call. Um,

>> yeah,

>> it was 2023 as well. Yeah.

>> But I I just played that by shorting the

uh inverse like semiconductor three

times ETF. That was a pretty good bet

that way.

>> I remember.

>> Yeah.

And then I also did some other weird

things. I was like I thought IBM could

become hyped up. So actually uh I bought

IBM deep out of the money call options

going out a couple years

>> really.

>> And that because the implied volatility

on that was like 11%.

So that that was like a 50 bagger or

something. But I didn't stick around the

whole time, you know. I sort of waited

for the asymmetry to go away there and

then I quit early. But

Would you say that at the same time on

the long side and uh on the order and on

the short side you bet on a lot of

different factors?

Yep. I do it on purpose. I don't want to

have too much correlation to any one

thing and I'm trying to juggle I I skip

some sectors almost entirely. So biotech

or like junior mining companies or bunch

of type of commodity companies. Not all.

I'm in a couple commodityish companies.

But that that's not like a pure just

like iron mining company or something. I

don't you know who really knows? But um

but besides that I try to play nearly

every factor. Um I'm not in software

either. That one's too studied. So

people have really really studied

software stocks a lot. I'm just like not

going to compete with that. Too many

eyes were on it.

>> Yeah. I mean you you're I mean I I

completely get your point. Uh but uh

what to come back quickly to a quality

factor. I mean he's underperforming

heavily right now. Is it uh how far are

we from actually being attractive again?

I mean

>> I don't know

>> like like Nike or something,

you know, maybe it's getting kind of

beaten down here. But also, you know,

the earnings have been pretty weak. So,

is that going to reverse? I don't really

know. Um,

you know, something like CocaCola, I

don't think he's long that one, but

um something like that is very uh

stagnant. They keep having to do these

acquisitions simply not to lose earnings

even. So, that doesn't even seem that

great. Pepsi's the same idea. Maybe

Pepsi's a little bit better now. I don't

know. Um, some of the consumer staples

are we'd call it a quality stock like

um,

uh, Dagio, the company that owns Kenis

and some other I like them. I'm lung

that. Uh, I have the Kiko man. I'd call

both of those pretty high quality

companies even though the return on

capital today isn't super high, but

so I don't even know if they're

technically in the quality factor. Um,

yeah, I mean Microsoft was in the

quality factor. I guess that that sort

of has been working, but is that um

does it seem cheap? No. Uh I don't So

when I look through a lot of the quality

stocks, I just don't get it. You know,

even today the earnings multiple seems

pretty high for often the earnings

aren't even going up. That's what really

blows my mind about it all. It'd be one

thing if these things were just year

after year earnings are going up 5% a

year. You know, that's, you know, you

could say, well, you could pay pretty

high multiple there.

You know, if you get that plus a few

percent dividend and you have this, in

theory pretty safe 8% yield even at a

say 30 times earnings or whatever. It's

a little aggressive, but you could sort

of get it. But these stocks aren't even

doing that a lot of the time. Often

they're like like I'm short Starbucks. I

think that's probably considered a

quality stock and uh it's beaten down a

lot. But when I sort of see what's going

on in the real world, it's like there's

already like four Starbucks within a

3minut walk from me and then they're

already really, you know, reasonably

crowded, but then when I like look in

between each one, there's like these

upand cominging really better just their

better coffee places. So if Starbucks is

one already everywhere and two, the

competition just seems better, that's a

pretty dangerous mix. I think McDonald's

is the same idea. Uh McDonald's has to

be considered a quality stock, right? Or

um so that one again

um you know, Shake Shack just makes a

better product, right? I guess they're a

bit different price points. Maybe

McDonald's for the price points like

pretty good. I guess maybe that one's a

more iffy example and they do have some

room to expand internationally still. Uh

maybe not as much in a c country like

Japan, but in poorer countries

definitely. Um

let's think

trying to think of more examples. Um

yeah, I mean like Costco is just a

bubble, isn't it? I mean it's just

>> Yeah, that just popped in my mind. So, I

mean,

so when I look at that, but that's the

thing. When I looked at Terry Smith's

holdings, I swear that's like a lot of

his holdings are they just look like

Costco to me. I guess at least Costco

does grow and you can sort of

it's like actually a pretty good

company.

>> Yeah, but they're really expensive for

it growth.

>> Yeah, that one I actually believe in

more than a lot of Fundsmith's holdings.

You know, Fundsmith's holdings are just

these companies that really have sucked

for a long time. And sure the return on

capital numbers attractive but what the

hell does that actually mean? I don't

think it means much.

>> Yeah, especially because mostly it's a

backwardlooking. If we look at the

return on invested capital, I mean it's

history. It doesn't mean that it's going

to be high as it used to be or

especially if they are operating in

highly competitive markets like

Starbucks. We now have uh Dutch Bros if

I'm not mistaken in US. In China we have

a lucky coffee. I mean they they are

getting competition all from all over

the world basically and uh there's a

trend in like small smaller coffee shops

that that as you said they they're

basically serving better coffee coffee

and uh but what's also interesting when

it comes to Starbucks is that a lot of

Starbucks customers are like it's

Starbucks so I think that basically the

valuation and any premium that comes

with it it's tied to that intangibles

uh part

and if it's shaken in a way everyone

knows that that coffee is really

expensive but uh if it's shaken I mean

the brand needs to suffer uh in a way

for it to truly I mean go go lower and

probably now I I don't know if you agree

I think now the main problem is probably

the unions uh when it comes to Starbucks

they they get I mean people expect of

Starbucks to be like I mean it's like

McDonald's it's mainly for students to

work there when they are studying for

college and it's not something uh where

you work if you want to raise uh uh debt

to buy apartment or or something

something like that so I think they are

getting pressure from that side as well

that might be interesting I I don't know

>> if you're following that situation right

now, especially New York.

>> Yeah, I think the

Yeah, I think that that's um

that's true. Another um headwind for

Starbucks is the GLP1s because

>> yeah,

>> they sort of people think Starbucks and

they think, oh, it's like a coffee

company, but when you actually break

down um what products they're selling,

>> Yeah. I think it was like 80% it's some

really high percent is not just coffee

or not just you know the low calorie

option. It's just these sort of super

sugary uh syrupy

or like the you know it's like a donut

but it's not you know donut has sort of

a negative connotation to some groups of

people but it's basically just a

doughnut shop at this point. It's like

okay you go and you get your sugary

drink and your scone and a scone is just

a donut right? So, uh, or like a cookie.

Um, so yeah, I think that's another

pretty nasty headwind. That's part of

why I'm short anyway. I just I think

that company's in a lot of trouble. Um,

>> yeah, from m multiple angles basically

>> and I mean it's low barriers to entry

basically. anyone can open a coffee shop

in in your neighborhood and uh they did

a good job so far, but are they going to

continue exe to execute? Uh I I mean I

agree with you and

>> yeah, I mean I'm I just thought of

another quality company like Marriott. I

think maybe that's good. Maybe that's a

fine long I'm trying to think of other

quality companies. Um

because I've been long Marriott in the

past and that's just like a you know

franchise business so it's just pure

profit. Um,

they own a lot of really, really good

brands. They have a lot of really unique

locations that are pretty much never

going to get replaced,

at least at the high end. Maybe at the

medium end, it's more commodity-like.

It's not as good. But the loyalty

program seems pretty sticky. You know, I

know a few different people who love

their Marriott points. Even it's not

rational. It's just like a,

you know, they're gonna stay at the

hotel they don't even want to stay in to

get the points. That's That's got pretty

good value, right?

>> Yeah.

Did not know did not know that to to be

honest. And uh uh when it comes to uh

you're currently living in Japan, it's

been like more than a year, two years

now.

>> It's been one year here.

>> One year there. How do you like it

there?

>> I love it here. It's great. Um,

I mean the thing is I'm working like all

the time, but uh but yeah, whenever I go

out there's never a problem. The food is

delicious and healthy. I can It's not

just the Japanese food that's good. You

can get like any cuisine. Um, it's easy

to go on a trip with my wife, you know,

go on vacation for a day or whatever.

Um, I really like the onens.

Um,

>> and uh,

>> sorry man. And uh, how how do you like

Sai Taki, new Japanese prime minister?

The stock market popped up when she won.

>> Basically, um, she's going to do a lot

of stimulus. And it also seems like

she's fine with letting the, you know,

monetary policy be loose.

So, she's just basically saying, "We're

going to devalue the yen even more." She

seems completely fine with this.

Um,

and I think it's all good for stocks,

especially, you know, these like any

kind of like lever real estate play, any

kind of company that's going to export

their product.

Um, it's good for tourism.

I can see why she's doing it. You know,

it's probably annoying for the Japanese

people. I feel kind of bad for them,

>> but overall maybe it's a good strategy

for their economy. I don't really know.

>> Um,

>> and then, you know, she's kind of tough

on immigration laws, which I actually

sort of like it even though I'm here. I

sort of want them to stay really picky

about who they get to live here. Uh,

even if like now just today they're

coming out with the news that they're

going to change the naturalization. So,

if you wanted to become a Japanese

citizen, that's going to change from 5

to 10 years apparently. And that's on my

radar as being a possibility in the

future. I'm not, you know, that

confident I would do it, but, you know,

so maybe you could say that's kind of

annoying that way. But overall, I

actually like the plan of making it more

difficult to stay here. Um,

and then I I I love her hardline stance

on China. I love that she parked those

missiles uh just east of Taiwan just

sort of uh doing the face saving thing.

No, no, that's our territory. It's just

for our own defenses or whatever. And

it's just this got to be super

aggravating to to Shei. So, I love that.

>> And how do you see that situation with

with Taiwan? And I mean, I I I've seen

the recent Trump post. He basically

didn't touch that part at all. But I

read some analysis really interesting

ones that this is the for in a long time

that Chinese actually were the ones to

call first because Cinping requested to

have a call with Trump and it was

basically about Sai and her stance on uh

on Taiwan.

>> Mhm. How do you see that unfolding?

>> My my theory is just um that posted

about it.

I think that she really wants to take

over Taiwan, of course, but the

and the fact that yeah, he's taking it

so seriously this Japan thing. I mean,

they're flooding China with the

propaganda, too. and the fact that yeah,

that's like a strong tell because I

think that that they that like in the

last 25 years, China's only ever called

America twice first or something and

this is now number three. So yeah, it's

um

>> yeah, maybe it's bigger news than I I

realized, but after studying the uh

technology of the submarines more,

there's so much uncertainty there. I

don't really see how the Chinese could

feel comfortable invading Taiwan unless

the president said like privately and

explicitly in a phone call, we will not

intervene,

right? Because if there's just that

uncertainty there, if you just refuse to

answer one way or another, you know that

that's how you lose power. That's how

the Chinese Communist Party could

actually lose power because um I think

the kill to death ratio uh from what I'm

studying it would take a crazy amount of

lives just to sink like 5 to 10 American

submarines. And I think in the meantime

America would sink like half of China's

entire fleet or something absurd. Uh

because basically the thing to realize

is that um China's good at like mass

manufacturing things. So they have a big

volume advantage but they don't have the

technology advantage especially for um

this kind of super important top secret

technology where nobody actually knows

the exact capabilities of these

submarines. That's like very very

confidential information.

Um but we know that the Chinese

technology is way way behind. We know

that really confidently.

um it's at least 20 years behind or

something. And so,

you know, if if you're just thinking

this through and you say, "Okay, is

China really going to risk basically

losing this war in the matter of weeks

with extremely one-sided losses?"

And they'd be like the moral

too, while it happened, right? Then the

whole world would be angry at China for

even trying to do this to Taiwan at the

same time. It would just be a complete

disaster.

Um, so when I look at it that way, the

invasion seems insanely unlikely.

But it's also weird that

China took it so seriously that Japan

just parked some missiles, you know,

east of Taiwan, too. So, it's like two

conflicting signals here.

>> Yeah. And uh I I I I think that uh uh

China is uh slowly catching up with us.

I think the main problem is of course

the semiconductors

that technology is still far far behind

uh especially when it comes I mean to

nanometers of of the of the chips and uh

but yeah it's China has a long-term goal

of that one China policy that Taiwan is

a part of China and I mean if you look

at the Those

are technically the Chinese people. They

are living in Taiwan. They are basically

democrats that were anti-communists

and that's how they basically u escaped

to to to Taiwan. And it's interesting

that Sigin Ping is like uh let's honor

the sacrifices and deals after the

second world war because China was on

the right side of the of the of the

world and on the on the other side Japan

was on the side of the axis powers which

is really interesting. So they are

trying like to to switch that narrative

in a way that Japan was evil 80 years

ago but we were we were good guys. So,

you know, you should be on our side, not

Japan's side. But, uh,

>> there's a really large American

influence in Japan. And I see Japan as

a, let's say, a proxy, someone that's

going to provocate, uh, China on the US

behalf. And, uh, on but on the other

hand, I don't see the probability of uh,

going to war.

uh when it comes to Japan and uh when it

comes to China and US I think it's uh

really low because uh I I don't think it

would be like it could escalate I mean

two nuclear powers basically so it's

completely different world we currently

live in and uh but also

as we can see now in uh Europe uh Ukra

European Union and US are basically

waging a against Russia through Ukraine.

And uh I I I think it's possible to have

some kind of scenario like that. And I

even read some analysis that claimed

that China gave up on aggressive

approach towards Taiwan and they focused

more on soft power and influencing uh uh

Taiwanese in that way and uh giving them

good deals, showering them with money

and uh stuff like that. I don't know how

if that's true, but uh it's definitely

something to at least do a research on.

I I I don't follow that uh that part of

the of the geopolitics. And uh how do

you see the uh current uh Trump term so

far?

I I like what Trump's doing. Um I'm a

fan. Um, like one of my worries was that

he would actually I know he made a

campaign promise so his base is kind of

pissed off that he didn't live up to it

and just like leave Ukraine to fail

essentially. So I didn't want that to

happen. So I'm I'm pleased that that

would have been like the worst part

about Trump to me. And instead it was

what I was saying in I think our first

call where I said I don't think Trump's

this kind of crazy person who

you know doesn't care at all. I think he

was just trying to play a political

stance, a way to end the war

politically. It didn't work. I thought

it was worth trying. Nothing was really

lost for having tried. It might have

worked. You know, it's easy to say now,

"Oh, well, that was a stupid story arc

where he was kind of at the time he's

like being straight up friendly with

Russia."

>> Yeah.

>> Um but it didn't work and whatever, you

know? I think it was Yeah, it was

totally worth trying that. And um and

now it sounds like he might actually

negotiate a peace deal. And that's what

I was telling my friend was like, well,

if you sort of looked at what Trump ran

on, the idea that Ukraine would even be

Ukraine at all still is just nonsense.

Like that there's no way that they would

continue fighting back the Russians

without the American help. Um

and then instead, what with the Russia

got the huge sanctions, which was like a

huge blow. Um,

and so,

so basically I I see it like if Trump

can pull off a peace deal where, yeah,

sure, they'll have to give up some

territory. I don't even care at all

about that. This whole argument that

that's terrible and wrong, it's like

actually the eastern half of Ukraine was

already pretty pro-Russia anyway. If you

like looked at the polls before the

conflict, it's like, okay, well, they

wanted to be part of Russia. Maybe this

is just sort of the natural way things

should go is like they should actually

be. Of course, it's far from perfect and

everything, but you know, I think if you

say, "Okay, we're going to give up the

borders and then you give time for

people to leave, right? Sure, they'd

lose their house and things and that

sucks, but it's not that bad." And then

they could decide which presumably which

place to live. And yeah, I think if the

peace deal can happen that way, that's a

good thing. Um, people have to be

realistic and say that the war is, you

know, Russia's slowly grinding away and

getting territory. That's just been

happening all year. Um,

so yeah, I think just hopefully the war

ends that way. Hopefully Trump's peace

deal works.

>> Sorry, man. I need to answer my call.

Uh, it's it's my calling is probably

something really important.

>> Yeah, no worries.

again. Just re restart it once.

I'm back. Sorry, man. My my CEO sends

his regards

>> and uh he it was not something really

important, but uh I know where where uh

where we uh where you finished. So I I

mean I have the follow-up question.

>> Okay, I'm ready.

So from the point of um uh ending the

war in uh Ukraine, I mean do you do you

look at the possible uh investments over

there? For example, uh I I was recently

looking at uh some Polish companies,

even Austrian or even Romanian, but I

think that Romania is too small for you

when it comes to volume because there

there are going to be some some of them

that that are going to uh reap the huge

benefits of uh rebuilding of uh Ukraine.

>> Yeah. I just don't look at Eastern

Europe because like you're saying, it's

so illquid.

Um,

I wish I could. Um, otherwise I would

be, you know, it's just, uh, one of

these things where you ask me about size

and how that gets you. So, this is just

another way.

>> If I had $30 million account today, I

would do it.

>> Even Poland is too small for you right

now. Yeah, that's a shame. Yeah, I have

I have some of the Polish stock exchange

like a small bet on the hedge fund,

>> but that one's not even that cheap or

anything. So, you know, I only have

still I think for tax reasons or

whatever, you know, it's not even that

one's not even high conviction. But when

I look at a couple times I'll get linked

like a really really interesting Polish

stock, I'm like, damn. But then I'll go

look at the the the daily volume. And

it's like this 40,000 bucks, you know,

this is

>> Oh my god.

>> That's nothing. That that's crazy. And

um what's your stance on military

companies uh on US and uh for example,

we have Trans Dime that went down a lot

from the high. They do have a really

strong competitive advantage. They do

have uh investor oriented management.

Let's let's put it that way. And uh I

mean on the other part of the of the

ocean, we do have Europe and some of the

European companies are in correction

right now from mainly from expectations

of uh war ending soon. But if we look at

the bigger picture, they are still

committed to raise the spending the to

towards the 5% of the of the GDP and

they are going to build I mean uh

Germany is rearming, Europe is rearming

uh uh is this do you do you look look at

them at all and if you do do you look at

this correction as a possible

opportunity?

The thing about military is um I feel

like the Ukraine war showed us that um

what's obsolete and you know a lot of

the old large defense companies a lot of

their business I would just say is

obsolete

you know that maybe the government does

or doesn't actually order it anyway

government can kind of be that way at

least sometimes but say some of the

times the government doesn't make the

mistake so you could say that they sort

of actually have this headwind another

way. So even though they've got the

tailwind of uh Europe European company

uh countries spending more,

you know, maybe a quarter of their

business is totally obsolete. So that's

like a pretty big problem.

Um

and then another problem is I don't

really I think I have very little faith

in the European leadership. So I think

if there was a peace deal, I think those

5% targets they just

you know once the virtue signal is done

after people not thought about it for

six months.

>> Exactly.

>> Um and then now what you know now now

you have a huge problem if you've

combined now you have a two headwinds.

So maybe you could even say it's maybe a

short especially the European ones like

I don't I don't even look at a long time

rin things like that. I mean, that could

be an interesting short here, but I I

haven't looked at it. Maybe it already

dropped a lot. Is that RHM? Look real

fast.

>> Yeah, it basically went down double

digits like 15 20% from from the high

in.

>> Yeah.

>> So, yeah, maybe this could be a good

short. Actually, I don't really see it

as a long here. Um, yeah. Not to sh

this

shortening this.

>> Uh,

>> yes. This is a no-brainer.

>> We found one.

>> Well, let me see. So, the

Yeah. So, basically earnings were bad

for a long time. Not even that bad,

right? This that's I was long this

before the war even broke out and then I

sold way too soon. But what now? The

multiple is probably really high. Yeah.

And this is like this is a 100 times

earnings almost or something like Yeah.

>> This is a short.

This isn't like a buy the dip.

>> Amazing. This is not financial advice.

Of course.

>> Yeah. No. To be my opinion might change

tomorrow and everything. Who knows?

>> Yeah. Yeah. So, you need to make your

own decision, guys. Uh this is just like

a live discussion and I love it. that

that's my that's my research process

sometimes. That's not an exaggeration.

That's how I

>> to it.

>> And and that's my point because when we

when we spoke before you were like uh

guys you you told me it doesn't not need

to be complicated. You need to have like

if you can write it in like five

sentences

>> that's it. It's need to be short and it

need to hit the point to hit the what's

the catalyst basically. And such a

beautiful chart, too. When I look at the

chart, I just like shorting charts like

that.

>> Uh maybe maybe this one could somehow go

to like 2,200 or something and you lose

50% on the short. That's not even that

bad for a short, right? Like shorts lose

50% all the time and you don't even

think about it too much. But man, if

Europe pulls back on the defense

spending because the war ends, this

thing's going to drop 80% from here

>> easily.

>> Easily.

>> Easily. And if they are rearming,

what are they rearming for?

I mean, are are they I mean, they'll

have to do something about that. I mean,

they have fiscal deficits that are

really hard.

>> Well, especially Did you see part of uh

Trump's deal apparently is that the uh

Ukraine will be able to join the EU? If

that part goes through, they won't rearm

for sure because then for sure uh I

don't think there's any threat that this

would happen again really, right?

Maybe not not any but you know it

becomes way way less likely.

>> Yeah. and uh your Russian uh Russian um

focus will switch to other nations like

Molda where they are already present and

those let's say noneu and they are

successfully pushing Russia out of the

uh what's actually interesting right now

and a lot of people don't know about it

but uh our largest oil oil company in

Serbia uh it is under s sanctions from

America right now because uh like 56% of

it is gas from ownership. So I think

that the part of the deal is and Russia

had a presence here for basically

centuries. So, I think that that part of

the deal between Trump and uh and Putin

is that they want to okay, they they're

probably going to go like, "Okay, here's

those parts of Ukraine, but uh you are

going out of Europe. Your influence is

going to zero." So I I think that

they're going behind the doors they are

probably going to make a deal deal like

that because th those this is company

this company is under sections and it it

was actually a company that was operated

uh well which you wouldn't expect

probably from from Russians but it it

was operated really well and now they

they forced us uh basically to to

nationalize it or sell it to some

western partner or something like this

because it's it's basically the leverage

for Russian politicians to uh influence

politics politics here and they do want

to kick it out. I mean Americans and

Trump administration and they are really

hard on that not only in Serbia of

course but in pretty much uh they are

squeezing Russian influence out of the

any country. They did successfully in

Bulgaria a few years ago and they are

doing it pretty much anywhere. So I

think that they are like basically

kicking out Russia completely out of out

of

>> I think that that that part I strongly

agree with. I think this idea that um

basically Europe got put into a nasty

recession because of their mistake

relying on Russia. So I I think that I

would strongly believe that they're not

going to do that again. Um so that's a

smart call. So in this case with um the

Serbian oil company

um

yeah it seems quite likely that Russia

will be forced to divest.

Maybe as part of the peace deal they'll

actually be given a fair price

um for their share. But I don't maybe

maybe they'll even be allowed to

continue owning like a minority stake. I

could see that too. But

but yeah, this idea that we're going to

like live with uh Russian ownership of

energy assets in Europe, I don't see it.

Even though it makes no economic sense

because uh gas it's I mean um you have a

a southern pipeline that goes through

Turkey. I mean it's really important.

There was a project for the northern

pipeline that that got blown up. I mean

u and when it got blown up I mean it was

basically for everyone to realize what's

actually going on and what is going to

happen and that is that uh Russian

energy Russia gets the influence through

energy and uh even though that energy is

cheap and that's the complicated

position right now because if you get

the cheap energy you get Russian

influence and uh if you but if you want

to uh not have Russian influence then

you

to pressure your citizens with higher

costs of energy, which is like a really

complicated situation for European

politicians and with being it uh and

with with them being this slow and uh

the which is a craziest thing in in um

my opinion is that in this situation

you're going towards net zero. I mean it

makes no sense. I mean and Trump was

spot on when it when he said to Kier

Stmer that I mean you do have a lot of

uh energy reserves. Go and drill baby

drill as he put it. I mean

>> UK is in complicated situation. I mean

you have a way out. You have a way out.

And uh if you look the like the carbon

uh output Europe is uh I mean

not a large percentage of the total

world and developing n developing

nations are way way higher. Sorry we we

drifted from the

we went into into something completely

different. What I wanted to ask you uh

you said that you went through every

single one of Russell 2000 companies

and uh how did what did that teach you?

Because I started studying for CFA and

uh I realized that there's a lot of

things that I really don't care about

and that are like not really useful and

I was like okay maybe I should just go

through uh NASDAQ. I went to I'm going

through NASDAQ still because it's like

3.7K

uh companies which is I mean a lot. And

h how did that process look like for

you? I mean because 2,000 companies is

2,000 companies. And uh how did that uh

what did it teach you?

>> Yeah. So my my process was it's as

simple as you like

there there are a bunch of different

websites. you can get a list of all of

the like the stocks in one of these

broad indexes. Um, I got it in a Google

sheet and then I would just copy like

the ticker into something like a ticker

or any of the the company uh websites

out there that will give you the about

the company section and the financials

section.

And so in my opinion, you're just sort

of um it's like um learning a language

almost where it's just about a number of

reps, a number of time spent. And so

after you like read about enough

different companies and the type of

earnings characteristics of those

companies,

you learn like what quality management

actually does to a company over the

years, for example. And you learn what

like bad management does to a company or

mediocre management does to a company

over the years. And I think to actually

see it, yeah, you can like build some

lame uh

model, which is what the CFA sort of way

of doing it is. Think about it in terms

of modeling and everything. I think it's

nonsense. Just go look at what happens

in the real world. You don't need a

model. So,

so yeah, and you're just sort of going

through and you say, "Okay, this is like

a company that produces this kind of a

steel component, right? And then you can

go look at the financials." And then if

you've like looked through a ton of

other steel companies, you sort of know

which years are weak and which ones are

strong already. You don't even after

enough reps, you don't even spend time

like figuring out why this is so lumpy.

you just sort of know, oh, it's lumpy

and they had a bad year, but that there

was no reason that it was actually bad.

It's just a tough year for steel or

whatever. And then, yeah, and then over

time you start start understanding like

what it means when a company is um

stagnant, their products are becoming

more competitive, they're not

innovative. How does that actually play

out in a number of different industries,

right? Because that it's very different.

You know, you could say like a Coca-Cola

type thing has been stagnant, but that's

basically fine, right? But then a other

other company, you know, like they make

um pagers or whatever, you know, or

something that, you know, is just not

going to exist anymore.

>> Oh, which one?

>> Exxon.

>> Exxon.

>> Yeah.

>> The oil company.

>> Uh no, no, no. Uh I I don't know how to

pronounce it correctly. the they are

making Axon or I don't know how to

pronounce it. Uh

>> uh Xerox.

>> No, no, no. It's they are basically

making Axon Enterprise.

>> I don't know this one.

>> Axon or let me and you'll tell me how to

pronounce it correctly.

Uh

this one.

Oh, I I don't know this company. I've

seen it before. I just don't know what

they do. Is it probably some kind of

technology company?

>> I I think they are making pagers, too.

Uh that that's why I if I understood you

correctly. Uh

>> two segments.

>> They are popular retail.

>> Oh, I see. I skipped this one just

because I saw that word software. So, I

don't Yeah, cloud-based software

solutions.

Uh

>> I mean they do a lot of stuff for police

for example.

>> Yeah. But yeah so if you have some

product that's like stagnant

um and you actually want to understand

how this plays out and you know if you

get enough

industries and different mixes of like

let's say you have a stagnant product

but it's like a great management team

and how does that play out? And then

what if it's like a better kind of

industry that doesn't matter as much if

it's stagnant but it's got like a bad

management team. And I think over time

if you just look at enough companies

especially when you've like looked

through say because you're going to

repeat a lot of them or you're going to

start looking in other markets once you

start getting into like the 10 to 20,000

company range you're just going to your

brain is going to like notice things.

That that's what I think. or if you have

a talent, you'll just start noticing

things. And it's those things that you

notice that you can't really mush into a

formula because there's enough like if

you let's say that

you know you have like an industry, you

have a quality within the industry, you

have a subjective view about what the

management is, you have like another

couple variables. This is so many

different inputs that there's like a

zillion you can't like build a model for

this thing, right? It's um

Yeah. and you're just hoping to notice

things over time. That that's all it is

to me is your brain's going to notice

these sort of unusual patterns or um

things that just pop out to you. That's

the best when something pops out to you

and you can describe it in just a few

minutes or a minute or two or whatever.

And that's what I'm trying to do when

I'm looking through stocks. Um

and I don't spend too much time on any

one stock, you know? It's more like,

okay, I've read the description. I've

looked the financials. Maybe I've like

looked up the inside ownership or read

something about management. In some

cases, sometimes I don't even go that

far, right? It's more like in a minute

or two I'm done. And then some companies

I'm skipping entirely. I'll like pop it

up like, "Oh, software company, skip

that one." You know, you pop it up and

it's like a small bank. It's like, I

don't care about this. Skip that one.

Um,

and then yeah, and then I think once you

start like getting those reps in

because when I was first starting, I

would just do this. I'd wake up, I'd do

it for 15 hours, I'd go to sleep, and

the first thing I wanted to do when I

woke up again was just do it again. And

I did this for months, just non-stop.

Uh, so that's where I feel like I really

learned the most about investing. And

nowadays, I don't think I'm really

learning that much more when I do it. So

there's not really a a need to do it

now. Things just sort of uh yeah, I

review not as many companies every day.

>> And how much did you pass uh how much

time uh did you spend per company?

>> Yeah, on average it's like probably a

minute or two and then it's got a a

right tail though because a lot of them

I'm done in less than a minute or 30

seconds but then you know once in a

while you're spending like a lot more.

So maybe with that a lot more it's more

like a few minutes I don't know exactly

but it's not a lot on average

>> and and what we say are the main green

flags and what are the main red flags

when you are looking let's say for a

minute so yeah it's if it's biotech if

it's software yeah we exclude them

completely but what are the like

quantitative

things I suppose high debt

>> well I'm looking for both longs and

shorts. So there's not really a red

flag. I'm more trying to like cut out

things that

>> Yeah.

>> You know, you're like, "Okay, this thing

is a medium quality business.

It's kind of stagnantish. Management has

no skin in the game. It's trading for

like 12 times earnings."

You know, is that really that

interesting of a long or a short, you

know, because it's not really shrinking.

It's just sort of nothing's happening.

If return on capital is really low, I

think it could be a pretty good short.

Um, but otherwise, that's not

interesting at all on the long side to

me. Or even if it's eight times earning,

it's not interesting as a long to me.

It's just junk. But it's not good enough

to short either. Weird things happen.

These things can squeeze. I already have

enough sort of factor exposure to that

kind of thing anyway. I don't need the

the better, you know, better middle

portion of that kind of stuff. So, I

just try to skip that quickly.

Um but if I can find a company where

revenue is kind of going up over time or

revenue is kind of going down over time

pretty steadily and then I try to think

about well why right and then multiple

doesn't matter as much uh in those cases

right I mean it matters of course some

but you know if you can figure out oh

this company's revenue is going up and

it trades for like 14 times earnings and

they're pretty nice payout and business

quality seems seems pretty decent, you

know, that then I try to figure out why

can I understand this industry more on

the long side. Longs are way harder

because longs um longs are harder

because you have to like spend more time

figuring them out. Uh but they're easier

because once you've figured out a long

you can like I've had some of my longs

for five years now and you know I don't

have to replace them too often because

if you if you get it right they just

sort of keep on winning.

For me, for example, it's the opposite.

For me, because I was mainly the the

long investor and uh for me, it's uh I I

know I know why I have the company. So,

it's easy for me to to have them. And on

the other hand, when uh the short pop

pops up like 10 20% without a reason,

I'm like paper hands, let's use that

word. And it's complicated for me. Even

though nothing changed, I'm like okay,

maybe we are having a I mean look at the

last few days for example uh really bad

uh rates really a lot of real bad

companies went up in the last few days

10 20% uh I don't know if that's the

case but rates specifically also a lot

of consumer discretionary went up went

up without a single reason and for me I

I find it uh challenging in a way. And

how do you deal with that?

>> Well, in this case, it was just because

the odds of the rate cut is changing so

fast, right? That's why we got the nice

drop and that's why we got the sharp

rebound.

Um, so yeah, obviously my short book

went poorly the last few days, too, but

overall I was, you know, decently

balanced. So, I think I only maybe lost

slightly through it or maybe we're flat

even.

So, I'm just trying to position it

before you even go in. I think I've

mentioned So, I think the best example

for the rates uh specific

is um rate factor is just real estate.

So, I'm short a bunch of these crappy

office buildings and those went up like

a lot.

>> Yeah.

>> Right. But but you can balance that with

some more rate sensitive kind of shorts

too or sorry longs.

Um and you don't want to have too much

exposure like I think crappy offices are

just this wonderful short here and I'

I'd like to do even more but I know that

if in this kind of a move you can get

slaughtered if you have too much of it.

So, I just keep my gross exposure

reasonable and then I'm aware of like

what other types of things I have that

have the same kind of uh rates exposure,

especially hard that's that one's like

hardcore rates exposure. Like if you're

short real estate stuff, you're going to

lose badly when this is happening.

That's just a fact.

>> Yeah.

>> Um so, so you you know, you just want to

be aware of like what your sensitivity

to the rates factor is. I think I

mentioned in a previous interview, you

have these correlation buckets.

And so I have offices in their own

bucket, but I know like out of all my

different buckets, which ones are

actually going to be correlated to

rates. So I'm like this one, that one,

and this one are probably pretty damn

correlated to rates, right? And my total

short exposure to these things is like

12% or whatever, right? And then but

I've got a fair bit of good longs to

pair with it that'll protect me. Uh and

so overall, you know, it's not you maybe

you're going to lose some money during

this period, but it's not that bad if

you're balancing it right to begin with.

>> And uh how are you preparing? I mean,

maybe we don't get the next cut uh in

December, but uh I mean, it's certain

that Trump is going to put uh someone uh

he agrees with in the May as a new Fed

chair. I mean I think it's a high

probability of probably being a

Christopher Waller or someone like that

and I mean the the the reality is is

that probably rates are going down and

how and with rates going down in let's

say in next two to three years how do

you uh prepare for for that scenario

because in that scenario a lot of that

junk rates are probably going to go up

50 100%.

>> Yeah. So to be clear, what what's going

to happen is when those expectations are

changing rapidly, that's when the damage

happens, right? So besides that, it it

almost has to happen, right? I mean, if

if you're saying, oh, well, rates are

going to drop a percent and a half,

then, you know, real estate basically as

a whole, it has to move.

>> Yeah.

>> That that way. But you're not shorting

real estate as a whole. You're shorting

like the insolvent crappy office, right?

>> Yeah.

>> So during that move, you're you're

you're probably going to like lose even

more on average during that sharp move.

But these moves don't happen that often.

You sort of remember them because

they're so painful and horrible when

they do happen.

>> You're right.

>> You got to you got to block that crap

out, man. It's just like, okay, I

position myself to survive this. We lost

a percent or two of nav because of this.

That sucks, but it's not the end of the

world. And then it's really annoying

when like 3 weeks later they the thing

happens again against you like damn we

just lost another 2% this way. It's

really lousy, right? Especially if it

happens rarely three in a row. It's

really really crappy. Um

you know and that'd be a pretty extreme

outlier. But then yeah, so if you're

positioned to lose a couple percent each

time, now you're down six 8% or

whatever, it's not the end of the world,

right? And then now you're pretty set up

now. Most likely it's not going to

happen four in a row, right? and rates

can only actually go to zero. Uh and

then after that you're insolvent crappy

office, it's going to trend to zero most

likely. I mean, if you're right

fundamentally,

um

so that's

yeah, you position yourself to defend

it. You don't change what you're doing

just because the sort of unlucky thing

happened. I don't think anyone can

really predict which way rates are going

to go from here.

>> Yeah. or if they can predict it. I don't

know think they can know how much it's

priced in, you know, because you know,

even though it'll move some, it just if

it's really obvious to the market what

you're saying because people think about

rates so damn much. Like that's all they

do. They just sit there and try to guess

what rates are going to be in a year.

Um,

so

yeah, it's pointless in a way to to

guess something. I mean, it's completely

unpredictable. Only thing you can do is

that you can from time to time bet on

rates uh with futures and basically look

for a symmetry somewhere. And uh

>> that's the only time I bet on them.

>> What?

>> I I only bet on them once cuz in 2020.

>> Yeah.

>> Everyone was saying they they can't go

up.

>> Like they can't? What do you mean they

can't?

>> Yeah.

>> So I look at the odds. I'm like, "Oh,

okay. Well, they're saying 200 to one."

Like, "All right, let's go.

>> I'll play that." But no, no one's saying

anything like that today. If you look at

I've look I sort of have them on the

screen. I look at them once a month

briefly just to see what people are

thinking. It's it's all like very

competitive and people are actually

looking at the variable a lot today. You

know, if someone has an edge today, it's

not that big. It's not that 200 to one

nonsense anymore.

>> Yeah. Yeah. And uh the the also really

interesting thing you said is that uh

you could easily short I think you said

like 25% of the US stock market.

uh you said like that like a month ago

and it's really interesting especially I

recently looked into a data I I don't

remember who published it but uh the

point is that only like 3% of the

companies uh were like 95 97 something

like that uh uh percentage of the total

return above risk-free rate which is I

mean it's crazy I mean your your goal is

basically

to

avoid shorting those companies and by

excluding tech companies I mean it's a

really low probability that you are

going to stumble on on any kind of those

and uh on the other hand there's a fine

probability that you are going to long

at least one of those those companies

for example like TSM or Google or

>> Yeah.

Yeah. the the trick is you don't want to

get run over too bad and everyone

they're always trying to short like

this really uh because like if like just

forgetting about the whole thing I said

about the um rate sensitive shorts which

you're going to get killed on but if

you're short like the worst two 3% of

companies

all of that's going to be correlated too

and it's going to be correlated in a

really really bad way. Uh, so, you know,

I've said in a previous conversation, I

don't short any of that stuff. I really

mean it. I would just try to avoid it.

Um, or at least wait for some blowoff

top kind of move and then short some.

But, uh, to me, shorting it today seems

like crazy. I wouldn't short that. And

that screws you up. But if you can sort

of cut out that worst uh 3 5% of stocks,

really even three, it's, you know, if

you can just avoid that, and they're

really obvious. They totally suck. And

sure, in 10 years they'll probably all

be down 99% and everything. And you

know, it doesn't matter. Who cares about

that? What matters is path dependency.

And you know, again, I had to learn this

lesson a million times. I still screw it

up sometimes. But um yeah, if you just

avoid those and yeah, if you can short

the next 25% of stocks that all suck,

and there's like 800 things you could

short that will do this, they're going

to sit there and grind alpha for you

like double digits or something. And

it's going to be amazing.

Uh we also spoke about that you you you

you were considering uh longing some of

the junk companies

>> uh because uh yeah

>> I couldn't bring myself to do it. I

should have I said I should get long arc

in that conversation at

>> I didn't do it I should have it would

have worked.

Do you do you still consider it I mean

not I mean it does not need to be like

junk but let's say something like uh

hipper growth companies look uh like

applovin for example or you know

>> luckily the other portfolio managers buy

that kind of crap sometimes so

>> okay

>> get exposure that way now

>> okay that's amazing that's amazing and

uh how do you see the current situation

with the I I mean I have to ask you that

it's the most important topic right now

uh with AI and with Oracle bonds and uh

uh I mean capex in general everything

that's going on with Google and Nvidia.

>> Mhm. Yeah. So um I posted about that. I

basically liked Google because they have

those TPUs.

Um, which might end up being like better

than Nvidia's technology even. It's

totally possible.

Um,

so yeah, I've been long Google on that

thesis.

Also, their Gemini is like the number

two player in AI probably and that the

rate of change it's sort of implied it

could be the best one in a year. And so

if both of those thesis work at the same

time, then this thing's still going to

go up another 50 or 100% I'd say. Um, if

only one works, it's hard to lose that

much money. Um,

unless of course the whole AI bubbleish

kind, you don't even know if it's a

bubble. Let's say it is. If that bubble

pops, of course you're going to lose.

Um, Nvidia, I've thought it seems

precarious here for quite a long time.

Um, it was way too cheap in 2023. I quit

this year finally because it became

apparent to me that their remote might

not be that strong, plus the TPU threat.

So,

um, that one's not that interesting. I

still think companies like Microsoft and

Apple are very threatened by AI. I don't

really see any good opportunities for

them. It just seems pure negative. uh

Oracle. It's just sort of like an old

man who, you know,

I mean, it makes sense.

>> Young like

>> Exactly. I I think I think AI could be

used as a way to to do medical research.

I think that's by far the most

>> Yeah.

>> real reason to even do AI and he's a

really smart guy. Maybe he sees the same

thing. So, if I was

>> in his shoes and I wanted to live

forever, then I would be going all in on

AI because actually, who gives a damn if

you go bankrupt in 10 years? It doesn't

matter at all to you. you just you're

going to like

>> Yeah, he's like years old.

>> Yeah, he's in he needs to race to get

this done and so I think there's a good

chance he's even quietly thinking about

it that way. I don't think he's talked

about it, but you know, if I was him, I

wouldn't talk about He's a smart

businessman. You don't want to tell

people what you're doing. Um I don't

think any of them would say what they're

doing. Um that's the thing though, like

m like Apple is not even run by an

innovative guy. is just sort of this guy

who's good at squeezing out dollars from

somebody else's great product.

>> The Apple's really a bad one.

Microsoft's maybe a little bit better,

but they seem very by the book and

cookie cutter and very systematic.

>> Are they really going to like go start

doing really groundbreaking new things

like medical research? I don't really

see it. It's not the same maverick kind

of thing as Oracle.

Oracle itself, you know, it's just

basically an all-in bet on uh how AI

hardware is going to turn out. And if it

turns out that was money poorly spent,

the company could easily go bankrupt.

Um

because they I mean their profits aren't

really that good, right? It's just sort

of okay.

>> Yeah.

>> Plus I'm saying that AI could be a

threat to their kind of business, too. I

don't I don't know that much about

Oracle, but

um Zuckerberg, I'd say he's more of a

maverick. Maybe he'll go down paths to

make a good AI product. Um, I don't even

know if he's trying to compete in the

LLM stuff. I think the LLM stuff itself

is just sort of a dist not a

distraction, but like, you know, there's

a lot of other ways to play AI, and

Zuckerberg is probably smart enough to

realize that,

>> but he again, he's just going to he's

not going to tell people what he's

doing. He's a very um shrewd business

person.

>> Um, he's made it very abstract. We're

just betting huge on AI. What do we have

to lose? Blah blah blah. But he's not

going to tell people like, "Yeah, we're

going to start diving into medical

research."

He's not going to tell people that

honestly.

>> Uh I also have the problem in

understanding Alphabet. I think that's

the company I maybe I even lost some

money on. Uh if we take everything uh

last I don't know how many years. For

example, I was longing meta when it was

like 100 110. I was buying meta. I was

buying Google on this correction right

now. I was before that I was buying in

the '90s. But Alphab uh I mean uh Apple

I I don't get that company. I mean it's

uh No, it's at all time high. I mean

how

>> you mean Google or Apple?

>> Sometimes it's I'm sorry. Sometimes it's

like a riskoff company. It it behaves

like a riskoff company. I mean it's it's

wild.

>> Well, sorry. Are you talking about Apple

or Google?

>> Uh, Apple. Apple right now.

>> I thought you were. I thought so. Okay.

Yeah. So, yeah, I think Apple is um

It's a weird It's a weird company,

right? Because it's part technology, but

not super. Especially, I've learned a

lot about their culture from people

working there. Uh, they describe the

company culture as like very um

what's the word? Like uh practical. Like

they just want to get it done. They

don't care how elegant or wonderful it

is. that just sort of like what's a very

efficient way we can do this pretty well

and that doesn't really like make me

think that they're going to make some

wonderful thing with AI. Again, all

they're doing is sort of it's like part

luxury brand. You're paying way more for

a phone than you should be. And it's

part like kind of technology. I mean,

they're processors I guess a bit, but

otherwise it's just they're assembling

other people's technology and then they

have the OS as a mode. So,

you know,

yeah, I think Apple here is is not good.

>> And I I have few more questions. I'm not

going to ask many more. Uh first, uh

what do you think of I forgot to ask you

regarding the situation in Japan? What

do you think about the yen carrier

trade? Uh, I think that people are much

more aware now than they were when was

the last problem like a year ago

of of that unfolding. I mean, even you

have a large exposure to Japanese yen.

>> Yeah, I I've been in the yen carry trade

since 2023.

Um, I'm owning stocks that earn in yen,

though, so it's not exactly a one for

one, but I was, yeah, I was 100% hedged

on the yen until August 2024 event.

After that, I think I switched to 50 to

75% somewhere in that range on average.

And um,

yeah, actually when like I think like

David Einhorn's a contra, so when he was

talking about being long the yen, I was

like, "Oh, awesome. I'll I'll short more

yen here.

>> Oh my god.

>> You know, and that guy sucks. Uh

but yeah, and and so basically it's this

trade like I mentioned in a past

conversation. This trade has been

working for 15 years. Nobody ever talks

about it. That Jason Chapyro uh he

recently did an episode on the uh yen

carry trade. Um

and his read was the same as mine. like

he's been in the investing world this

whole time. He knows a lot of people in

investing

in all sorts of different types of

investing and everything. He's never

actually met a person who's in the yen

carry trade.

Think about that. And I'm the same way.

I've never heard of another investor

talking about, oh, we should be in the

yen carry trade. So

that makes me think it's extremely

uncrowded. It's probably more likely to

work. It's still probably pretty

asymmetric and everything. That's

especially true with Japan's political

situation where she's just saying,

"Well, we're going to run it hot and

we're going to

>> Yeah.

>> You know, fiscally and monetary and

>> yeah, you should delever. I mean, it's

obvious. It's there's no place for

surprises.

>> Yeah. The only weird thing, I guess, is

that the long rates are going up so

much.

>> Yeah, that's a problem.

Uh

but that that just sort of makes

fundamental sense too, right? Because if

the government saying we're going to