Jonathan Boyar - Intrinsic Value Opportunities
Jonathan Boyar stops by The Business Brew to discuss his investing philosophy. Jonathan is the President of Boyar's Intrinsic Value Research LLC., an independent research boutique established in 1975 that counts some of the world’s largest sovereign wealth funds, hedge funds, mutual funds and family offices as subscribers. He is also a Principal of Boyar Asset Management, which has been managing money utilizing a value oriented strategy since 1983.
He has been interviewed by Barron’s, Welling on Wall Street and GuruFocus. He spoke at the 2017 London Value Investor Conference, the 2017 GuruFocus Value Conference and the 2017 International Value Investing Conference. He is also a contributor to the latest edition of Harriman’s Book of Investing Rules: The Do’s & Don’ts of the World’s Best Investors. He is a senior contributor to Forbes as well as the host of The World According to Boyar podcast.
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+ Transcript
Bill: Jonathan, how you doing man?
Jonathan: Yes, I apologize in advance for any background noise, etc., young children screaming, but comes with the territory.
Bill: You may hear one running above me right now. He's home, actually spent the night in the ER last night, which wasn't great. But it wasn't nearly as bad as it may sound either. So, that is the life of having kids.
Jonathan: He's okay now, though?
Bill: Yeah, he was fine. It was an issue, but we don't need to get into exactly what it was.
Jonathan: Yeah, got it.
Bill: A little bit of medicine and he's all good. Anyway, man, first of all, thank you very much for coming on the show. I want to give you an opportunity to tell people who you are, where you're from, and all that? But first, I'm going to give a major shoutout to your podcast. Your guestlist is incredible. I was actually just listening to you and Zaslav yesterday. The guestlist is very impressive, and it's very well done, and I find your research very well done too. So, with that pitch out of the way, why don't you tell people who you are, where you're from, and what you do a little bit, and then we'll get into it?
Jonathan: Yeah, no, absolutely. First, thank you for having me and second, thank you for the kind words regarding the podcast. It's the best part of my job that I don't get paid for, love it, and it's just a lot of fun, and I learn a lot, and I get to meet really cool people which is awesome. Yeah, I'll give you a really brief background. I help run the Boyar Value Group. We've been around since 1975. Clearly, I'm not the founder.
Bill: [laughs]
Jonathan: The founder was my dad.
Bill: You aged very well, sir. You found the fountain of youth.
Jonathan: Yeah. Value investors do live for a very long period of time, but it doesn't necessarily mean they age well. But yeah, it was started in 1975 by my father, Mark, who's still very much involved in the company especially in the idea generation part of it, and started really simply as a boutique-- as a Wall Street Research Boutique selling independent research to hedge funds, mutual funds, family offices, whatnot, insurance companies and over time my dad developed a pretty good reputation in the value investing community and people started asking him to manage money which he did. In 1983, we formed Boyar Asset Management, which manages money for both institutions and high net worth individuals and we have a couple of other vehicles.
To this day, we really have two businesses. We have a research business where we still sell our research on a subscription basis and we manage money, but I think the unique thing that we do is how we do it. We're really long term. We take what we like to call a business person's approach to stock market investing where we look at every company through the lens of an acquirer, what would a knowledgeable business person pay for an entire business? That's the framework structure that we look at each and every company. It could be a micro-cap company, it could be Home Depot, it doesn't matter to us. But we think it's a great way of looking at things. Through the years, it's worked pretty well and we're not a big marketing shop. We just love what we do. We love producing research, we love managing money, and we think we have a unique long-term approach to it.
Bill: Did I hear correctly? Did you work for Gabelli at one point?
Jonathan: Yeah. Mario was my first boss out of college. He is a fantastic investor. I've learned a ton from him and I'm still in contact with him. He was actually a guest on my podcast who was generous enough to appear. I know you have met him as well, I think, in Omaha if I remember correctly.
Bill: Yeah.
Jonathan: Yeah. I really hope this year, we're all back in Omaha and he can have his, I guess, Friday night conference there with [crosstalk].
Bill: Yeah. That's a fun night.
Jonathan: It is a fun night and it's just nice to think that I'm not going to be stuck in my house-
Bill: [laughs]
Jonathan: -in the future.
Bill: Yeah. It'll be interesting to see if those guys, those guys meaning, Buffett and Munger really want to do it just given their age, but I agree with you. I hope that we go back to Omaha because it's a great weekend, it's one of my favorite networking weekends in the world, and if Omaha's over then we're all going to need to find somewhere else to go. Who knows? Maybe, it'll be some events that I put on or somebody else puts on, or you put on I don't know. But Markel's got a decent shot at building something. So, we'll kind of see how that all shakes out.
Jonathan: Well, it's interesting. There'll never be-- There could be something that's just as good but what that is, is just such a unique circumstance that grew and grew over time and it's just the whole Berkshire empire and that's something that's not going to ever be replicated in that weekend is just really, really special where you have relatively like-minded people there, and as you said the networking and just seeing the same people, year in and year out, it's just a really nice thing.
Bill: Yeah, I think, the thing that's really cool about it is since everybody is like-minded, if you approach people and you're genuinely interested in what they do, it doesn't matter who they are. When I met Mario, I just said, "Mr. Gabelli--" I had actually asked him a question about, I think, it was MSG and James Dolan, when we were in the room, and what did he say to me, he was like, "You're from Chicago. You don't understand New York real estate. You don't need to make money with him if you don't like it, I like him, you don't need to like him. Let's move on." So, I was like, "Okay."
Then later on that night, I said, "I'm the one that asked you this question. Do you mind if I buy you beer?" Two hours later, we're still chatting and it's just incredible for a guy, especially like me at the time, I don't have access to somebody like Mario Gabelli. So, it's very cool and that's representative of everybody that I think goes there. It's a fun event.
Jonathan: No, absolutely.
Bill: Somebody is listening. Do you all specialize in a coverage area in your research or you pretty broad? What is Boyar focused on these days?
Jonathan: Yeah, I think, that's another thing that separates us apart and makes us unique. Right now, generally, research is divided into the two camps. You have the traditional sell side research at JPMorgan where you just get a lot of stuff. Some of it good, some of it not as good or you have industry specific analysts who hung up with shingle over the last couple of years, and if you want to telecom research, you go to X, or Y, or whoever on media research. We think one of our advantages is being a generalist. So, we'll look at anything that's kind of US based. Any market cap, we actually, one of our favorite areas to look is micro-caps, but a lot of firms can look at it. So, we started a separate service a few years ago called-- or more than a few years ago, about a decade called Boyar's Micro Cap Focus.
We'll look at any industry as long as we think it's cheap and as long as we think we can add value. With that said, there are areas that we tend to gravitate towards and there are areas that we tend to shy away from. We've never for better, for worse, this year for worse, we don't really look at energy names. But last year when they were down 37%, that helped us, I guess. So, you won't see much in the way of energy, or heavy technology, or kind of any situation that has a binary outcome because it doesn't have that margin of safety put in there. So, you'll see a lot of media names, communications, consumer, we love branded goods, we think those are very great, and you'll see financials, industrials.
Anything you can really value and analyze, the reason we don't like energy names is, you have to have a view and be able to predict what a given commodity like oil is going to go for, which I think is almost impossible to do and if we're looking at everything the way an acquirer would, I would never want to own a business in its entirety that profitability is entirely dependent on a commodity that is totally outside your control.
Bill: Yeah, that makes sense.
Jonathan: So, we'll look really as long-winded way of saying, we'll look at anything. But I think also, the other thing that makes us a little bit different is while value is in our name, Boyar Value Group, we're not necessarily your traditional Graham-and-Dodd Investors. While, I've great respect that was one of the first investment books I've ever read. We're more of a quality bent, we like looking for more higher quality businesses, while we will look at some lower quality businesses, the vast majority are in the higher quality camp. But we'll also look at some "non-traditional value," where maybe there's something there that's not necessarily cheap traditionally, but for example, I'll just give you a brief-- [crosstalk]
Bill: Yeah. I was going to ask what's an example.
Jonathan: Not to take a victory lap on something but you know, one of the names that one of our analysts came up with, I guess, it was last year in May was Twitter. It's trading around $30, $35 a share. It was basically pretty close to its IPO price. To us it wasn't crazily expensive, but to us one was underearning relative to what we think it could do. The second thing is to build up a network and a brand over its existence that is unbelievably valuable and would be almost impossible for someone to replicate quickly. So, to us, it's not just looking at the financial statements. It's looking at other things like that. We did the same thing maybe it was I think 2016 or so with PayPal, wasn't statistically cheap but the network it had was we thought unbelievably valuable. So, we're not your traditional value investors. That's not how we started with this. When my father started the business, it was more of a Graham-and-Dodd low quality approach, not in terms of the research but in terms of company.
Bill: Yeah, the businesses. Yeah.
Jonathan: That was because and it's-- To me it's amazing. This calculator was like the modern technology then.
Bill: Yeah.
Jonathan: That was your edge. There were very few people doing the work to find these situations and you could find companies that are trading below their net working capital, those types of things, today that's kind of arbitraged out. You have plenty of hedge funds who are finding these things. So, we're looking at those type of situations. If there's a best way to describe us, it would be eclectic.
Bill: Yeah. I've heard you pitch IAC and a number of different things. We'll get into some of that. But when you're looking at micro-caps has the landscape changed at all and the real question that I'm asking is, how do you find quality micro-caps that haven't had a takeover bid by private equity or maybe haven't been acquired? What is the reason if a listener out there is saying, "Well, I don't want to step into micro-caps, it's a bunch of junk," what's the reason that like a quality business would still remain public and be a micro-cap?
Jonathan: Through the years, we've just seen through our service just great businesses that you would have known a lot of them. Winnebago was a micro-cap, still $500 million, whatever it was then it's still a decently large business. There are a Martha Stewart Living for example was another one that we've done. So, these are great businesses that are just small. We really look at or we look for founder lead or someone who's running it, who has a big controlling stake in the business, because maybe they're not just selling out to the immediate highest bidder, they're trying to build long-term sustainable value.
There're many reasons why someone would choose to stay public. Over time, a lot of the names have been eventually acquired. But if you find these great businesses that just aren't well covered by anyone on Wall Street that are majority owned by founders, generally good things could happen. Like everyone would have blowups. But for the most part, these have been pretty good investments and we have a track record that I'm extremely proud of, our team has done a great job. But you have to be really selective. You can't have a service that does 30 names in a given year. That's just not going to work. There're just not that many quality ideas out there. One we recently did that I believe the CEO was on your podcast, I think, sorry, if I got that incorrect was Diamond Hill.
Bill: Oh, he wasn't but maybe he should be or she.
Jonathan: She? Oh, she wasn't on your-- [crosstalk]
Bill: Oh, yeah. No, I'm sorry. Yes, absolutely. Heather Brilliant. Yes, my apologies. Yes, she was. For some reason, you said Diamond Hill and my head went to energy. But you'd recently said that you don't do energies.
Jonathan: She's fantastic. She's the first professional CEO they brought in. It's an employee led, employee-owned company that's in it for the long term. They just issued a very large special dividend a couple of days ago. It's been a really big success for us. But this was kind of things that we look at these kinds-- Not the most exciting business, but a unique boutique money manager that has a good long-term track record, that is very shareholder friendly, and pays a nice regular dividend, and has history of paying special dividends that I think at the right time, probably, will be acquired. I'm not saying it will, but you're seeing all these-- [crosstalk]
Bill: Yeah, sort of the natural progression of asset management, it seems.
Jonathan: Yeah, and maybe not in this case, but when we look at businesses are in the same way as an acquirer would, so it happens that a lot of the companies that we research end up being taken over and as I said, I'm not saying Diamond Hill will. One of the things that's kind of unique about them is they limit their capacity, which is very rare in money management these days and that served them well.
Bill: Yeah, I think that that's a smart idea, too, because you've got the old CEO. Heather wouldn't say this, but I'll say it. If you follow when the old CEO was told to maybe go into retirement or not, and now, you bring in somebody that sees. Something I like about Heather is, she sees value in not the traditional value way. So, the possibility of them pivoting plus new management, I've heard from a couple of people that work there that they really, really like her. That's a good setup.
Jonathan: Yeah. It's something that's really--
Bill: Sealed value with a catalyst.
Jonathan: Yeah, it's definitely-- that's 100%. One thing that my father really has instilled in me and instills in the team is you can find the greatest company in the world, it's not going to go up in price. It's not going to do you any good. There are still companies that are still around that were cheap in 1975 that are still cheap now. There has to be a reason for the stock to go up. I'm not saying it has to go up tomorrow. We're patient. I think our average turnover is 10% in our money management account. So, we'll just like watching paint dry sometimes, but it works. But you have to have a reason for the stock to go up, otherwise, you fall into these value traps. So, you look for a catalyst and in almost every name that we buy, there is a catalyst. Value can be its own catalyst, but it can get you caught in a lot of statistically cheap, inaccurate businesses.
Bill: Yeah, I think, we're morphing more and more to, is if value as a catalyst is framed as like a growing cash flow stream that may turn into buybacks or something that creates upward pressure on the flows in the stock that I kind of understand as a catalyst. I think they should trade higher and it doesn't trade that high. I am not very interested in those ideas on average,
Jonathan: Yeah. You're going to end up with like a tootsie roll or something like that [crosstalk]
Bill: Yeah.
Jonathan: Yeah. I think it might have gone up recently but it was cheap for like decades [crosstalk]
Bill: Yeah.
Jonathan: Those are the things you want to avoid. I think generally value managers, their biggest problem is running into value traps. Obviously, you do have in some cases permanent loss of capital, that happens to everyone. But a lot of the mistakes I think value managers do make are dead money, which is a legitimate mistake and that's something you have to really try and avoid.
Bill: Yeah, that's interesting. I have wondered if some of the mistakes have been related to this idea of and I don't know how everybody runs a value book, so it's not really fair of me to say, but the Buffett idea of waiting and waiting and waiting and then swinging, I think makes a lot of sense. I have sort of started to gravitate and flirt with the idea of smaller positions in companies that can grow a ton following them and averaging up over time. I don't think it necessarily needs to be a binary answer. But as somebody that was not formally trained in the hedge fund world or at a real value shop, a little bit more that Motley Fool approaches has-- I found it interesting to at least think about.
Jonathan: I think it's whatever works for you and what feels comfortable to you. Some people can go all in on a stock at one time. That's not my style. I kind of either try to average up or average down depending on obviously the circumstances. But you also don't want to-- two things. You don't want to be caught just blindly buying something because it goes down. You have to really-- The market might be telling you something, is there a reason why it's going down, is this market sentiment, or is there something you're missing? But I think the other mistakes and this is another thing that I've learned a lot from my dad is selling too early is a huge mistake. And it's something that I'm trying to get better and better at. I look at what has been the greatest sources of our gains over the last 15, 20 years or whatnot, it's in holding on to some of these securities, two examples--. I'm not saying every company is like this. These are obviously the outlier results. But like buying Home Depot and Microsoft in I think the low 30s, and basically, just sitting there and holding it, even though, they've gotten a little bit more expensive. But if you have a great business and it's compounding nicely, just to sell something for the sake of selling it or to "manage" the portfolio and have these neat weights.
I think it's not in the client's best interest. To find a great business, especially, in taxable accounts, you should hold on to it until it gets dramatically overvalued where it makes sense to sell it. That's one of the things that I've really-- have gravitated to and I've learned a lot over the years. Those are the two big examples and it's the magic of tax-free compounding.
Bill: Yeah, well, it's the old letting the right tail do the work. I think as I've pondered this idea, I've determined that the key is to define a great business in the right way. So, you got to be pretty critical of the definition. But I do think that there are objectively some of these businesses that a younger me would have sold now. I was actually looking at Microsoft today given their results and it's like, even here, it's trading around. I don't know what I saw, like a 2.8% free cash flow yield or something like that.
If somebody wants to tell me that it's going to underperform the average basket of value companies, I guess, I can understand that argument. Just on a multiple basis, I'd probably fade the argument, but I know I'd rather own at the bonds and I think it probably has less risk than your average value company. So, if it underperforms, I'm not even sure that's an inefficient outcome where a younger me would have been like, "Ah, I don't think that you can hold anything at that multiple." But that younger me was dumber than I think the current me is.
Jonathan: Wait, one, you're supposed to learn and that's the idea.
Bill: [laughs] Yeah, it would be a shame if I thought exactly the way that I did when I was younger. That wouldn't be much growth.
Jonathan: No, it wouldn't be much growth. What to me is also the amazing thing is the sentiment, maybe not as much with Home Depot, but Microsoft 2007 was just hated. Whenever I pitched that people just said, "Wow, what a terrible, terrible idea." For years, it was. Four or five years, it was somewhat dead money, I think, went from 20, to 40, or 50 and back. But at the time, it was just unbelievably cheap, you got a good dividend, and clearly you can never have guess what they would have done. But it's also amazing how a value stock can become a growth stock. But if you're able to buy that great franchise and have not listened to other people, you could have some winners.
Bill: Yeah. I'm about to say something that people should not listen to because I have no idea what I'm talking about in this and semis is super freaking hard. But Intel, when I saw that announcement that they were going to spend a bunch of money, there was a part of me that said and the stock traded down like 10% on the last earnings call. There's a part of me that wondered like, "Okay, are the government supporting them, is this like one of these geopolitical strategic assets, and is this Microsoft from back in the day?"
If they can start to turn it, is this one of those that in 10 years people look back and they say, "Well, of course, Intel, that was when it changed or whatever." I think that where I've kind of gotten on ideas like that is rather than saying, "Yes, I know--" First of all, I don't know semis as I just said. But second of all, if I have that premonition that that's a possible outcome, I think, I'm more patient and waiting to prove the thesis rather than trying to like bottom ticket.
Jonathan: Yeah.
Bill: That's how the real big gains-- Well, some of the real big gains come, right?
Jonathan: And trying to buying tickets, it sucks.
Bill: Sucker's game. [laughs]
Jonathan: It's impossible. Everyone has their own way of buying things. I like to buy things slowly over time, other people maybe or a little bit more aggressive than I am, that's just what you're comfortable with. But they don't ring a bell at the top, they don't ring a bell at the bottom. That's why I like to average into things.
Bill: That makes sense to me. How many ideas in your research do you try to put out per year? I know that I'm not trying to hammer you down but the real question that I'm asking is, we live in this Substack world that's two articles a week and all this and it sounds like you're much more selective. When I've seen you write up an idea, it's very detailed. I have an immense amount of respect for the research that you guys do. But is there a tension between putting out more content versus being right, or is it not even really an internal discussion?
Jonathan: Less is more.
Bill: Yeah.
Jonathan: We have a fantastic team that produces the research. They do a great job. Everyone has their own strengths and gravitates to their own thing, and it's-- I'm really proud of the work we do. We just basically have a publication schedule where essentially in a given year you get X amount of reports, I think, it's roughly 25 full length reports and then we have something that comes out in December which is really cool. It's called the Forgotten 40.
Bill: Yeah, I like the Forgotten 40.
Jonathan: Yeah, no, I'm glad you do. I'll send you a copy this year when it comes out. We actually do mail things in hardcopy. We're one of the few supporting the post office. But the Forgotten 40 is our 40 best ideas for the year ahead and what we do is, we take a look at our universe. Anything that we publish since 1975, obviously, we don't go back that far but it's fair game, but we've had to publish it and we say, "What's going to go up we think the most in the year ahead and why?"
What we do is, we just do these one-page snapshots and give our investment thesis for each company. In today's ADD world having these one-page snapshots that are backed by really deep research and it comes out when people are rebalancing their portfolios is something that people really enjoy. So, we do less, I think we do it better, we have our style of doing it and we don't want to dilute it. I think 25 full length reports in a given years is a lot of-- If you can come up with three or four really great ideas in a given year, I think you've done your job.
Bill: Oh, for sure. That's why I was wondering, is there an internal goal? I think 25 is really hard to do. Of those I assume some are not actionable and this is on the watch list, maybe interesting and then like three or four real table pounders, I like this idea right now. Is that fair?
Jonathan: Well, our subscriber base is relatively diverse. We have some more of a deep value camp. So, we have different type of ideas. We don't say to buy anything. We just say, this is selling at X percent of discount to our intrinsic value, you make your own decisions, and everyone has their own reasons for doing things and our subscribers are fairly sophisticated, and they use us as a starting off point. We just try and really get people to think. Everything we write about we truly believe it's undervalued, but whether it's the right time to buy, it is a different question.
Bill: Yeah, issue.
Jonathan: For us, we manage money as well and we believe in relatively concentrated portfolios. As I said, our turnover is roughly 10% a year. Clearly, we're not buying every company that we write up. Portfolios would come way too large but we have conviction in everything we write. But some ideas obviously were more table pounding. For example, we recently did Scotts Miracle-Gro, which I think is an unbelievably interesting company that's gone down from $254 a share to about $150. It has Coca-Cola like market share, it's a great business, huge pandemic beneficiary.
Bill: It's got a little bit of a cannabis angle to it.
Jonathan: That was the other thing it has-- the other thing it has is cannabis. It is the biggest distributor of hydroponics in the country. Right now, the way we look at it is, you're buying the traditional business at these prices and getting a cannabis business for free. One of the reasons-- three of really two reasons why the stock has gone down is, one, their gross margins are going down because their cannabis business is growing pretty quickly and has lower margins but those will improve. They're also investing in the business because it's growing so much, which is causing margins to temporarily go down. So, that's one reason the stock we think has been impacted. But two, if you look at cannabis stocks since April, when Scotts started to go down, they're down--
Bill: Yeah, everything's been crushed. Crushed.
Jonathan: And that's giving you an opportunity to buy a great business. We've been following Scotts since 2011 when it was, I don't know $50, $60 a share. It's now what $140, $150 or so down from $240 in April-- or $250 in April, and we think it's probably worth $240 a share at current levels. But if there are catalysts that can make our estimate of intrinsic value really, really conservative.
Bill: Yeah. I tend to follow a turning point as a derivative cannabis play but yeah, I like those ideas. You sort of have a standard product that you can bank on the economics of and then you've got a growth engine that is like a free option for lack of better term.
Jonathan: Yeah, and you also have a great capital allocator. You have-- you're having your own family. Jim runs the business. His family owns I think 27%, 30% of the company. They buy back stock, when it's cheap and when it's expensive, they pay special dividends. They do that because it's their money. I think they haven't dismissed the idea that at some point in time they could split the business in two and it wouldn't shock me.
Bill: Yeah. Well, you get different investors potentially, right?
Jonathan: Yeah, very different. Different growth profiles. I don't know how active Berkshire is right now but the traditional Scotts business--
Bill: Yeah, that would fit nicely. That's like a Buffett business, isn't it?
Jonathan: It's a great business and it's really aided by the pandemic where a lot-- I think they brought in I think 20 million new customers who have gotten into gardening, millennials love gardening, and the shift from the city to the suburbs has been a big tailwind for them and they should--
Bill: What kind of dog do you have?
Jonathan: You hear Newman? He's my goldendoodle [crosstalk].
Bill: Oh, yeah? We're getting a golden--
Jonathan: [crosstalk] Maybe, we give him two seconds for him to calm down.
Bill: Yeah, no, it's all good. We'll get back to it. We actually just signed up to get a golden.
Jonathan: Great dog.
Bill: So, the children are very excited. I grew up with labs. So, I figure most retrievers are sort of similar, right?
Jonathan: They're just fantastic dogs. Times like this is less good.
Bill: Nah, it's fine, man. It's a nice moment. This is a work from home moment right here.
Jonathan: This is absolute work from home moment. When are you getting your dog?
Bill: Well, I think that we are going to get it on Christmas. We'll see. The kids don't know that it's coming.
Jonathan: It's a nice surprise.
Bill: Yeah, that's right. Put a bow on it and see how it goes. So, I don't know.
Jonathan: Yeah. First couple of months are top but it's like having a little kid-- it's like having another kid.
Bill: Yeah. Well, my agreement with my wife after the youngest, once he became two or three or whatever, I was like, "I'm never doing diapers, again." I actually took care of the ability to procreate. Anyway, I digress.
Jonathan: [laughs]
Bill: But I have no desire to have another child. So, puppies going to be the substitute.
Jonathan: They're fantastic, they're great for kids, great for the family, and as I said except for situations like this, I love having them.
Bill: Yeah, well, I think it's happy, man. Does a goldendoodle smile like a golden does?
Jonathan: Yeah. He just always happy.
Bill: That's awesome.
Jonathan: [crosstalk] happy. Yeah, sounds great and I'm a big Seinfeld fan. So, my first dog was Cosmo, my next dog was Newman.
Bill: Oh, nice. Newman. Did Newman behave himself or did he try to sabotage you?
Jonathan: Yeah, exactly. That's Newman. [laughs]
Bill: Yeah. I'll tell you what, man. I'm pretty interested to see the Seinfeld numbers on Netflix. I think they're going to be crazy.
Jonathan: I'm looking forward to having the time to actually watch it again. It used to be on ER Channel 11. Now, I haven't had my Seinfeld fix in a long time but yeah, it's awesome.
Bill: Did you never watch them with the DVDs?
Jonathan: No. It was always I would just watch it when it was on linear TV.
Bill: Yeah.
Jonathan: It was great. I never got the DVDs now. I don't need them. I have-- [laughs]
Bill: So, you have never watched it just like streamed episode after episode?
Jonathan: No. I'm not.
Bill: It is such a treat, man.
Jonathan: Oh, great.
Bill: The first season, I don't know, I'd be interested to hear your take, but I remember there was a part of it where I could just see the chemistry click between all of them, and then it was just off to the races. Watching them in order, all the jokes that refer back to previous episodes, all made sense to me. Because like you, I would watch it in syndication or whatever, and the episodes were all chopped up, and I didn't understand. But watching it chronologically is just amazing. I'm looking forward to doing it again too.
Jonathan: I definitely will be watching it. I'm a big fan of that. I don't get to watch as much TV as I would like. But this is definitely worth it.
Bill: Isn't that-- It's an NBC property, right?
Jonathan: Yeah. Who knows? NBC and have some NBC references with some of the people there. But yeah, it was NBC and God it's just one of the best shows of all time and I'm a fan of Curb too.
Bill: Yeah, [crosstalk]
Jonathan: [crosstalk] something on.
Bill: Awesome, generally.
Jonathan: Yeah. I think that's coming on soon too on HBO.
Bill: It's just wild to me that NBC would license that content to Netflix. I understand why, right? You want the cash in the door today. But it's like, that's such good filler content for Netflix that you're just giving them retention in a time when I would think if you're really trying to lean into Peacock, which I would argue maybe they're not. But you need stuff like that on the platform. You can't have that go off platform if you're serious about competing, I don't think.
Jonathan: Yeah. I don't know when the deal was made. I didn't really follow it closely. But yeah, if they want people to go to Peacock, that would be a good thing to do. It'll be interesting to see what their strategy or what they do with Peacock. There's that whole streaming ecosystem. We're fans of Discovery, I had Zaslav-- As you mentioned, I had Zaslav on our podcast and seeing how that's going to turn out is really interesting as well. How many different streaming services there eventually are, they're doing the CNN+ whatever they call it, but we're not going to have 15 apps, streaming services. So, it'll be interesting to also see how that ends up shaking out.
Bill: Yeah. I need my beloved Qurate to get QVC in a bunch of different bundles. So, we'll see how that all shakes out as you said. I liked your Zaslav interview a lot. I find myself always intrigued by Discovery. But you talk about a stock that's dead money, like just hasn't done anything for years and years and years, but the business, I mean that scripts acquisition I think was smart and I don't know, whenever I hear Zaslav speak I think this guy may-- like we may see the world very similarly. But for some reason, I don't know, I just haven't gotten there on that business because I am not 100% sure what--
He said to you, "If you could watch anything in the world, why would you watch our content?" I know he's got an answer. I'm not sure I buy in, but with HBO Max, that is some serious content that they're about to acquire.
Jonathan: Yeah.
Bill: So, that could be the reason.
Jonathan: No, it's serious content that's been neglected for three or four years as well, so are they able to resurrect a lot of it? They've been in true corporate ownership. They're owned by a telecom company for the past couple of years, and they got rid of all the real talent, and I think Zaslav hopefully will be able to rejuvenate it and I think it's telling that Malone gave up his voting control for this. I think this will work out in the end. It's obviously been disappointing, the reaction to this, but we were patient I wish during the whole Archegos why it sold more and we sold I think--
Bill: Yeah, that was crazy.
Jonathan: Yeah. I think I sold about a quarter of our position. I wish I'd in hindsight sold more, but we took some money off the table and now you have a chance to buy some of them back, I think, at reasonable valuations, and if they're able to execute, they should do quite well.
Bill: Yeah. It seems to me that as of today, if I were going to handicap it, that put them in a legitimate discussion as the second or third major player depending on how you view Disney+ whether or not its core like the premiere subscription, I don't know. But I think most people would probably subscribe to two at a time, and I think HBO Max has a legit shot at being one of those many months of the year if nothing else.
Jonathan: Yeah, we're huge fans of Disney. I think Iger over the years did an unbelievable job. I think they have the best content out there by a mile. They're number one, I think at least in my book and then let Netflix and Discovery duke it out and see what happens. But he's buying some fantastic content. He has differentiated content. He has a history of making content. So, we shall see and you're certainly getting at a much cheaper price than you are at Netflix.
Bill: Yeah. I think the interesting thing that will-- There's a lot of integration issues that they have to work through. If they can figure out a way to keep that HBO tile separate, I think, that can be a nice competitive advantage. Because there's something really nice about going to the HBO tile and knowing, "I'm going to have legitimate quality content." The thing I still don't understand about Netflix and I have a lot of respect for them. But I still don't understand why it's so hard to search.
Jonathan: Yeah.
Bill: I just feel like, I'm in the sea of stuff. It's like, how is it-- I know, people tell me, "Well, just rate stuff and the recommendation algorithm will get better." I just don't find it happening. That may be by design, I may be unique, I don't know what it is. But I'm just like, "Why is it so hard to find what I want to watch on this thing?"
Jonathan: Well, I think, the worst one by far is Apple.
Bill: Yeah.
Jonathan: That is painful. Disney+, I think, they did a fantastic job on-- I like Discovery+ a lot. Even Netflix is fine, but Apple TV is just for technology company. They really did a mediocre job especially when everything else that they do is super easy to use.
Bill: Except for podcasts, they kind of ruin that. Their podcast app is terrible now which is bizarre because it's where I used to listen to everything and they made it so bad that I no longer listen on Apple.
Jonathan: Yeah. No, I think it's fair too.
Bill: But oddly, the stats on this pod, I don't know. It depends how you break up. So, there's like Apple podcast and then Apple core media. The sum of those two-line items is almost 3x however many people listen on Spotify. But Spotify, you know that somebody's streaming, it's not download and I don't know. It's hard to dig into the Apple stats and figure out exactly what's going on. But they definitely have the reach among this audience.
Jonathan: Yeah. No, I know for mine the vast majority by far are Apple devices. I haven't digged in too much into the data on that, I probably should. But yeah, Spotify seems to be obviously taking a big interest in podcasting and we'll see what happens with that.
Bill: Do you consider yourself part of the creator economy?
Jonathan: I don't make any money on it.
Bill: I don't make much either. So, that makes two of us. I think the beauty of the company is that enable the creators.
Jonathan: Yeah. It is a very struggling creator, but it's not necessarily my effort, my intention behind the podcast, I just do it beside I like it. I think it's gets me out there and I get to meet really cool people. Otherwise, why would Ken Langone ever talk to me or whoever, it is just-- or Zaslav and it's just-- it's a lot of fun and I think very few podcasters make any real money. I think Joe Rogan is the-- [crosstalk]
Bill: Outlier. Yeah, no doubt.
Jonathan: Yeah, he is the outlier.
Bill: No doubt. When you had Ryan on, I was like, "Man, Jonathan is doing some cool stuff here." How'd you get the idea to have Serhant on?
Jonathan: Well, I guess to go back [unintelligible [00:44:29] someone else. We weren't on--
Bill: Oh, was he not on yours?
Jonathan: Yeah.
Bill: Well, I guess he was on Southeastern's then, my bad.
Jonathan: Yeah, no. We'll [unintelligible [00:44:40] [laughs]
Jonathan: Yeah, well, I think Zaslav was amazing. I really like your guestlist. I apologize for mixing that up.
Jonathan: No, no, no. I didn't want it to look bad later on. But I think we're going to have Hagedorn on soon too from Scotts which I'm excited about-- [crosstalk]
Bill: Yeah, You're right. My bad.
Jonathan: No.
Bill: All right, so, anyway, I was jealous of you when you talk to Serhant and that's nerdy of me to say, but I'd be lying if I didn't tell you the Million Dollar Listing wasn't in my family lineup.
Jonathan: Yeah, I mean, that's one of the shows that my wife and I watch together. I enjoy it. We own stock in a company called Trinity Place Holdings, which is a Micro-Cap name. They basically have a property in New York that they're selling. It's basically a one-- They have more than one asset, but it's the primary asset of the company and Ryan Serhant is selling the building. So, I emailed the guy running Trinity Place, Mike Messenger and said, "Can you make an introduction?" He did. Serhant agreed to go on the show. He basically broadcast it from a building that was under construction in a side room with an iPhone. Basically, there it was very odd, plus he's a fantastic salesman.
Bill: Yes.
Jonathan: He could sell anything and I give him all the credit in the world. There are a lot of people who've been on that show who didn't become nearly as successful as he has. He has taken every opportunity and just run with it and done a fantastic job and he started his own company and though I admire it but he is a fantastic salesperson. As a shareholder of Trinity Place Holdings, I hope he sells out the building very, very quickly so I can get my money out.
Bill: It's a good sign when he is the person that's selling the building that you're tied to.
Jonathan: Yeah. No, the fact that he's willing to take it. He has only certain hours in a day and hopefully, he does a good job. A year ago, New York real estate was, I mean, no one wanted to touch it but it's actually at least on the residential side is showing some signs of life. So, we shall see.
Bill: So, on an idea like that, when you've got one substantial asset and it's in the process of being monetized, how do you think about the cash shell that you're going to own at the end of the monetization process?
Jonathan: Yeah. This one wasn't one of our better investments. So, I think we should get some money back. This actually used to be part of [unintelligible [00:47:29] which went into bankruptcy, and the reason Michael Price is the largest I believe, shareholder of this, and it was always a real estate story, and well it could have gone wrong, kind of went wrong with it, pandemic, etc. But they're coming to market soon. Hopefully, they sell it and what they do with the company, and he just put some more money into it recently.
Bill: Michael Price did?
Jonathan: Yeah. They just had a REITs offering because they needed to pay on a loan. New York real estate market is tough and investing in microcap can be challenging. As I said, a lot had worked out some, not so much.
Bill: Yeah. Well, I guess more than specific result in this case. I'm just curious when you have a singular asset like that and then you've got a cash shell at the end of it all, and maybe you're a minority shareholder, how do you think through that? It sounds like having Michael Price involved as maybe part of having eyes that are aligned, that have a seat at the table.
Bill: Yeah, you had some really good shareholders in there. Third Avenue is a major shareholder, the Kahn Brothers, Kahn Asset Management, they're some really good value investors and some good traditional real estate investors are there and I think something like that you just size your position accordingly. This was never a big position of ours for the reason it's a one asset company. While I like the building, this is not like owning Madison Square Garden, where you're owning an iconic property, and I don't use the word iconic lightly. That's where I would put more money to where you have just fantastic assets that have the potential of being monetized. There's only one Madison Square Garden, there's only Knicks, there's only one Rangers. So, that's where I kind of prefer to place our bets.
Bill: Yeah. Well, that's what Mario said to me when he said that, "You're from Chicago and you don't understand the asset," which I guess the other thing that I didn't understand fully is how Isaiah Thomas was still around. But the Knicks, it doesn't matter. People will go no matter what. That's what I have determined after watching the Knicks for almost a decade.
Jonathan: Well, they finally have turned the corner a little bit. I think, they made the playoffs last year for the first time in eight years if that's turning the corner. But to us and the theory behind Madison Square Garden, basically now you have two entities. You have Madison Square Garden Sports, MSGS and MSGE, which owns the arena, it owns the air rights about the arena, it on something called the sphere that they're building in Las Vegas. They have some very interesting assets. The Beacon Theater, Radio City Music Hall. So, they're separated into two.
Bill: Don’t they own the Chicago Theater, too?
Jonathan: Yeah. They either own it or have a long-term lease-- [crosstalk]
Bill: And they got something iconic in LA too, don’t they and Philly also? They got some good properties.
Jonathan: They had the forum.
Bill: Yeah, that's right. That's what I was thinking of.
Jonathan: They said they recently sold it for a lot of money. They did a really good job there. They're much better capital allocators than people give them credit for and what's really to me interesting is, you take any activist investor or anyone for that matter and they'd say, 10 years ago, 15 years ago, you got to sell the Knicks. Listen, any Knick fan would say that.
Bill: [laughs] Yeah, that's different. It was like the Cubs.
Jonathan: You got to tell it. But as we were talking about before sometimes doing nothing is the best thing. And the asset is appreciated, the Forbes and believe it or not, people actually pay attention to these Forbes values. I'm not really sure why but they do. They're often the starting point in negotiations. They raised-- I think it came out two weeks ago. It's now $5.8 billion for just the Knicks.
Bill: [whistles] Oh, my, that's a lot of money or at least it used to be.
Jonathan: Yeah, that's real money.
Bill: It's like $2 billion in 2019 dollars according to Twitter. [laughs]
Jonathan: Yeah. No, it's insane. But then again, the last time, Madison Square Garden was up for sale was in the 1990s. So, these things don't happen very often. So, it's scarcity value in its most extreme, and there'll be a line of billionaires, I can't be that big of a line that but around the block, if they ever put that up for sale, NBA did something interesting recently in that they're allowing private equity to take stakes in. So, two things really could happen.
One, they could sell both the Knicks and/or the Rangers in their entirety, or sell the entire company or to help put a marker on the team, they could sell a minority stake in either the Knicks or the Rangers, and help prove the value out there. Just as sports media writes has helped propel the valuation over the past 10 years or so, online sports, gambling is going to really--, both for MSGS and MSGE really be a big deal. I don't think we're appreciating it. There could be a sports book at the garden. They own the RSN, The Regional Sports Network. They could change the name of that sports network to the DraftKings of Madison Square Garden Regional Sports Network.
There's a lot of potential advertising things that could be done there. So, these are the type of businesses we prefer to be involved in and I think this gets back to some of your non-traditional value. Because if you look at MSGS from a cash flow perspective, you wouldn't get particularly excited. But if you look at from an asset perspective, you could be a lot more excited.
Bill: Yeah. One of the guys that really got me thinking about assets and whatnot and what you can do with them was listening to Ron Baron talk about Vail. I like how he was saying that he was sitting around and just thinking about, "Okay, well, we've got these mountains," and maybe to your point, the cash flow statement doesn't show great management today, but how can we flex these assets? Is this management team, the type of management team that also thinks about this? It's enabled me to see the possibility of value in these kinds of situations?
Jonathan: Yeah, it's not just screening. If it was screening for value statistics or great growth statistics, and Ron Barron's very interesting in that. He's a growth investor, but he's a very, very long-term patient investor.
Bill: Yeah.
Jonathan: He's got some management teams. Yeah, I have a lot of respect for some of the things that he's done. He's super interesting.
Bill: Yeah, I think the only thing that-- I don't know. What do I want to say? The dumbest thing that I see investing base is doing is talking past each other rather than trying to learn from each other. So, a guy like Ron Baron, a lot of value guys be like, "Well, he's kind of pie in the sky, and you got Tesla, and this and that." It's like, okay, but also, he's got Tesla, he's got Vail, and if you look at the valuation that he bought it at, optically, that may have looked like a high price then, but look at what it's done now, and then I get well multiple expansion and it's okay that's fair but also look at how the asset base has grown in Vail and how they've really developed that. He's a true investor, right? He's not playing a stock trading game. So, I respect that.
Jonathan: Yeah. It's not this style that I would necessarily do or comfortable with but it works. So, I said before you have to do what's comfortable for you and that has worked for him. He's not fly by night. It's been around since the 70s and 80s. It's work over time and there's a lot of different ways to invest. I think the important thing is to find a way that works for you and stick with it. Don't style chase, don't buy Tesla because everyone's buying Tesla. Probably pick something that you think that works and don't abandon it just because it's not temporarily not worked.
Bill: How are managing clients on the asset management side and managing research clients? Are they similar to manage or do they have, I guess, behaviorally do they exhibit some of the same issues?
Jonathan: Yeah, I think it's somewhat self-selecting, we are really fortunate in both of our client bases. In that they talk to us if there's an issue, obviously, but they let us do our thing. They'll ask questions if something goes wrong or whatnot. But these are someone who wants instant gratification is not going to come to us or if they do, it'll be a very short relationship because we're long term and I tell people that, "If you're going to give us money or you're going to be a research client, it might take a couple years for things to work, but I think it'll work."
People who stick with us for a year or two will generally stay with us for a long period of time because they see that there's a process that has a pretty decent end game in the money management because we have some high net worth clients who are not necessarily-- They're sophisticated in what they do, whether it be real estate, dentistry, doctor, whatever, but they're not stock market people. You might see-- I heard this on CNBC, when we think of crypto, that type of stuff, you get that left from the research side, but that's because of the media, and Twitter, and all these other things. I think it'd be silly if they didn't ask.
Bill: Yeah, no, I know, I wondered whether or not both groups exhibited somewhat similar, I don't know, biases [crosstalk] for lack of a better term. I'm sure they're different. But I've noticed-- [crosstalk]
Jonathan: Everyone--
Bill: People are people.
Jonathan: No one likes to lose money. No one likes that your style isn't working, and things are going against you, and I think it's natural to be jealous of other people's success. So, we're in the value camp, and we see these people investing in Tesla, Bitcoin, whatever making or the Trump's SPAC making-- [crosstalk]
Bill: Yeah, that was crazy.
Jonathan: --yeah, making hundreds of percents overnight. Of course, you're going to be upset about it and I feel it's human nature. So, there are similarities and that there are definitely differences.
Bill: Is it a lot of value guys that I know that are actually like upset with themselves for missing the Trump's SPAC. I guess I can understand saying to yourself, there's so much gamble out there, how did I miss this? But every time I've had that conversation, I'm just like, "I don't want the asset. So, I don't care about missing the memefication of it." But it's funny how many value guys I've talked to that are like, "Oh, I should have seen that."
Jonathan: But when do you notice sell?
Bill: I don’t know.
Jonathan: That's the thing like-- It's up 100%, why is it going to go up 200%? I would be a horrible trader. I have friends who do that and they just do things differently and that's fine. They look at fund flows and they look at other things. That's just not what I'm comfortable doing and hindsight is 2020. So, I think it's unreasonable to be upset with yourself if you miss the Trump's SPAC. [laughs]
Bill: I tend to agree. I think I would sell that if I was playing that, it would have to be on some short-term moving average crossover. It would be a momentum break.
Jonathan: But the moving average of what two days? It's like a two-day moving average. [crosstalk]
Bill: Probably. Yes, it would be really, really short [laughs] which is not my game. But that's I think what I would do.
Jonathan: It's such a harder game.
Bill: Oh, yeah.
Jonathan: To me, I really think investing in the long term is so much easier than this short-term stuff. That is, one you got to be glued to your screen all day and then you have the tax issue as well. There're so many reasons to be a longer-term investor but I digress. I think I'm probably preaching to the choir here.
Bill: Well, I like talking about it and actually there was a thought that came up when you said that, I think that part of the disease that I suffered from is when I didn't understand what investing really was. I thought I knew what value investing was is you know, I'd look at a multiple and I'd say, "Oh, well, this is a nine times EBITDA multiple. It should be 12. I'll buy it and then I'll flip it at 12." What I've learned over time, and it may sound really obvious to people that have done this professionally for a long time, but the growth of the underlying business, people ask about what will rates do to some of these long-duration Peloton-type assets.
The fact of the matter is, I do think that rates could hurt the valuation. I do think that people that are asking that question also have to acknowledge, however, that the valuation implies a lot of growth that is going to exceed the tick up in rates in all likelihood. I don't think if you've got any reasonable risk premium on a given security, it's not as if most of these securities are trading. I guess what I'm saying is, I think, the growth can bail you out of a lot of headwinds that even if you're hiding in a lower multiple stock thinking that you're going to avoid the headwind, I think that that's a flawed way of thinking. I think focusing on long term intrinsic value growth and what you're paying today is my version of margin of safety now.
Jonathan: Yeah, and it's interesting. You had mentioned earlier, Qurate, which is a name that we like, [unintelligible [01:01:09] three times earnings.
Bill: It's pretty cheap. [laughs]
Jonathan: Yeah. It's really cheap. What you're betting on right now is, you're not going to go back to 2019 levels that some of these customers are going to stay here. If you believe that, in three times earnings is ridiculous. It's just stupidly-- [crosstalk]
Bill: It seems it to me, but you're preaching to the choir on this one, man.
Jonathan: Yeah. To me, my Qurate score I think is crazy. I forgot when it actually occurred. But when the preferred came out, when he did a dividend I think it was the fall of last year.
Bill: Yeah, it's almost 12 months ago.
Jonathan: I could be wrong but for those who don't or aren’t following it, John Malone and his way, he distributed, he did some special dividends last year, and then he did something called QRTEP, he distributed that to shareholders, gave you a preferred that I think yielded 8% or 9% and in our analysis it seemed like it was money good and in zero-rate world. I'll take 8% or 9% and when it came out, it was $97. I'm like, "Well, you got a pretty good bargain." Then it went to $95, $94, $92, $89, $87. I think it ended at $87, I think, but it was-- you look at yourself and you say, "What did I miss? What are other people seeing?" It's really-- this is the epitome of, this is not an efficient market.
Bill: Yeah.
Jonathan: You can get these situations where you can get, I think in almost money good security and preferred and get it at a ridiculously low rate. Now, after things stabilized and I guess the forced selling ended, now, trading at 108.
Bill: Yeah. 109 today, actually.
Jonathan: 109.
Bill: 108.95, but who's counting?
Jonathan: [laughs] Yeah. Yeah, that kind of stuff is just to me mind boggle.
Bill: Well, this is famous last words here. But the question I can't ever get myself to answer is, if it is true that QRTEP is money good, and it is true that there's nine more years on that asset from a duration standpoint, then how is QRTEA, a bad bet? That's what I just can't get to. Because to your point, we're talking about somewhere between, I don't know, three and five times cash flow, which to me implies the duration shorter than 10 years. So, we'll see how it all turns out. I don't know, people tell me that I'm hammering confirmation bias into my head. But with that business, I just look at it like, if I own the whole thing, I'd be super happy. The hardest thing about owning that business to me is just the constant quotational-- Some days, it just gets puked. So, if I don't look, I'm probably going to do much better as a shareholder.
Jonathan: Yeah, that's the thing. It's also one of the things with clients, money management side, some of our worst clients historically have been real estate with exceptions. Some have been very good clients. But real estate investors who are not used to having a [crosstalk]
Bill: Yeah, Mark.
Jonathan: That's why you can't look at your screen every hour. You'll drive yourself absolutely nuts. Think about it, if you're a real estate investor and you had-- what were your properties worth in March of 2020? They were down just as much as the stock market was during that time. You just didn't even have the option to sell it.
Bill: Yeah, that's right. It's my buddy Mike. He likes to say my mark to model is much better than my mark to market.
Jonathan: Yeah.
Bill: [laughs] Unfortunately, you can't market your mark to model, right?
Jonathan: [laughs]
Bill: It's funny So, when you entered investing, how did you come in and you mind sharing big mistakes? I like to talk about these. What formed who you are today and why you invest the way you do?
Jonathan: Yeah, I would for sure it would be my father and work with him now, I grew up hearing this at the kitchen table. I love investing and he's always made it a story. Since I was younger, I've heard that Tiffany story where in 1975, people at Tiffany & Company where you could have bought the whole company for $24 million, but the real estate on the 57th Street in 5th Avenue is worth more than the market cap of the company. A few years later, Avon products bought it.
When you grew up hearing those stories like, I don't get not to say, I don't agree with what Ron Baron is doing. He's obviously been enormously successful. To me, there's just really no other way that I would feel comfortable investing, and that's because of how I grew up, and what I was taught and obviously, I don't agree 100% with everything, and that's how my father pitches, where we're actually very different people. But the framework I learned was certainly from him and then I worked from Mario for a while as well, but there's a lot of obviously overlap there and just-- you learn through--
Yeah, everyone makes mistakes. I still make mistakes. No one's perfect in this. I think my biggest mistakes were my averaging down on stocks that I probably shouldn't have and selling too early in a lot in other names. I think those are the probably the two biggest mistakes that you really have to reevaluate your thesis. You're not smarter than the market in a lot of ways, in a lot of instances. If a stock goes down 20%, 30%, 40%, it could be a great opportunity. But you should also really look at it extremely critically before you buy it. If it goes down 30% or 40% because the whole sector is down or whatever, that's one thing. But if it's a company specific issue and it keeps getting hammered, you should really reevaluate your thesis before committing more capital to it and I think that's something that I've learned and will continue to learn. I'm certainly not perfect, and this is a business where you continually learn throughout your whole life. If you don't, you're doing something wrong.
Bill: I like that you said that I had a conversation with my wife about something that is down a decent amount. She said, "The old you would have said the stocks cheap." I said, "Yeah, well, the new me has learned something." Like the new me is not selling, but I acknowledge that maybe there's something I don't see and that I should allow more data to come out before I go jumping into more pain.
Jonathan: Yeah, maybe you just keep your existing position and hope you're right. But also, there could be times where this is a fantastic buying opportunity. I think, for example, a Scotts Miracle-Gro going down from $250 to $150 in four or five months. I don't think I'm catching a falling knife here. I think there are real reasons why the stock has gone down some fundamental, some not. I think that the cannabis flows probably do have something to do with it in sentiment. But you have to really think about it and what's your downside, what's your upside, and not just rely on the research you did five months ago?
Bill: Yeah. I think in a name like that and some of the other names that I look at, I do think the market got ahead of itself generally coming out of 2020 and we had a little bit of a blow off top. When I say top, I don't mean like making a market call. I'm just saying, I think things got a little bit heated and now when I look at my portfolio on a fundamental basis, I'm more comfortable with where things are trading after giving up a bunch now. Why I didn't sell back then? I don't know.
Some of the answer is, I've given some more merit to this never sell idea. I think that not cutting things short is probably a better idea than I used to think. Because to your point I made some mistakes like selling Apple when it crossed a trillion or whatever. Pretty stupid idea. Especially, when simple math could've helped me, but I digress. Those are different issues. I don't need to confess every sin. [laughs]
Jonathan: No, these are things you learn. The problem with selling is when you buy back like that's the other thing is, psychologically very, very difficult to do that.
Bill: Yep.
Jonathan: If the market clearly got ahead of itself and there's been a stealth bear market. There's a lot to-- [crosstalk]
Bill: That's what I tell people. I'm telling people, it's a bear market. Some people just don't realize it yet.
Jonathan: Yeah. [laughs] It really is. I forgot what the percentage is, but there's a significant amount of companies that are selling 20%, 30% below their highs and yeah you have 10 stocks that are popping up the averages. Now is a good time to be investing in some of these things.
Bill: Does this remind you of anything that you've seen in the past like these market conditions or is it fairly standard or none of the above? How do you think about where we are, do not even pay attention to it?
Jonathan: I think [crosstalk]
Bill: Everybody pays attention.
Jonathan: Yeah, I can't be lying because I'm not paying attention to it. It's whether just do I let it bother me and I do things.
Bill: Yeah.
Jonathan: Because of it, I think what is really interesting is how quickly the corrections are and how quickly we recovered. I'm not talking about the technical definition of a correction. But I get all these dip buyers that are coming in from the Robinhood crowd or wherever they're coming from, you have like a four-day correction and things kind of settle back up, but they're buying a select number of stocks. It's a very weird time. I think it has to do a lot with where interest rates are. There really is no other alternative to invest. We have a really weird setup, but I imagine people investing in the 1980s thought something similar. This is a very strange time to invest in 1970s with stagflation or whatever. This is what you get paid for, this is what the payoff is, is try to study what you think is going to come. I'm not saying, next, but it going to happen in two, three, four years from now.
Bill: Yeah. I have not studied too much of market history. I acknowledge that's probably a dumb blind spot that I have. But I'm more focused on trying to figure out where we're going and where we've been because I feel like and this is potentially a dangerous statement to make. But I do feel like some people that I've watched their careers more, the lower their returns drift, the more they start writing about how the market is, and what rhymes with before, and why this time is not different, and I just don't want to even go down that path, because I think it's a more efficient use of time to just try to figure out where things are going instead.
Jonathan: Yeah. I think it's a healthy to do a little bit of a both. Yeah, you can't focus on the past and try, but it's healthy to study, it's to see what happens. But today is very different than it was 50, 60 years ago, and you're not making policy, you're making investments. So, it's not like you have to study what happened coming out of the Great Depression, you're the Fed governor or whatnot. You're trying to figure out different businesses and how you think you're going to be a few years from now.
Not to get too bogged down, but I think it is important to know, I think, especially, how cheap things can get. Like how ridiculously cheap things got in the 1970s to say that something that's selling 10 times earning can't go to five times earnings, you have to look to back, they certainly have and I think that's the valuable lesson.
Bill: I try to tell my mom now, when she talks to me, and she's like, "Well, this stock has gone down or whatever." And I just tell her, mentally think it can get cut in half again. Then if it happens, then you won't be shocked. She's like, "Why? Why would that happen?" I said, "I don't know. I don't know why it's down now, I don't know why it would go-- Why would it go?" I have no idea. There're impossible things to predict.
Jonathan: Exactly. 100% agree on that.
Bill: Do you have anything that you want to chat about? What's on your mind? Anything, a burning desire to get out that I haven't asked you about?
Jonathan: I think we've said a lot. No, I've enjoyed being on. As I said, we're long-term patient investors, whether it's on the research or money management side, it's the same thing. As I said, I've enjoyed being on the podcast and I hope you got an idea of the type of names that we look at, and our philosophy, and how we come up with stocks, and really the importance of patience and sticking to a style that you think works well is to me critically important.
Bill: I have a question for you. How as a firm have you all--? There's something I admire about having a research arm that you've done is you're putting out your proprietary work and you do charge for it. But a lot of people would hoard that work and say, "Well, this is more of the asset management work." I think that you've led in sharing research and also, I think your podcasts are great. I'm wondering if that has created a reciprocal flow of information back to you that you think is made the firm stronger.
Jonathan: Oh, I 100% think publishing research has made us better investors. Getting critical feedback from what I think are some of the world's top investors. They're not afraid to tell us when we're wrong. They're also complimentary and let us know when we think we have a good idea. That's really helpful. When I see that something's really resonating with certain investors and they're really digging in deep, that's helpful. I realize they're pitching their own book, and they realize that we have a decent size audience, and we maybe will potentially write up the name if we think it's undervalued. We hear their ideas as well. So, it's definitely a two-way street in terms of idea generation. It's quite helpful.
I think a lot of money managers recycle their ideas, were in the idea generation business for at least on the research side. So, having to continuously come up with ideas to a very sophisticated audience, so, you can't call it in not that we would ever, phone it in really helps us. Yes, we're giving away the "secret sauce," but we're giving away 25 ideas a year. But I think we get back much more than we give in terms of the feedback and the process of actually putting pen to paper and organizing your thoughts. I think that's extremely valuable as well.
Bill: Yeah, I love that answer. I don't know. Many people that have sent research out into the world that have said that was a bad decision. Like for me, I sent out a tweet, I don't know, a little while ago, but I said one of the things about doing the podcast is that it's made me much better because I get to talk to people like you, I don't want you to think I'm a fraud. It's like I got a work, so that I'm prepared for these things. And that if a name like MSG comes up, I have a sense of what's going on because it's not scripted. I would really encourage people generally to try to share. I think as long as it's thoughtful and it's done well, the benefits outweigh any costs.
Jonathan: Yeah, absolutely. We're not moving markets. Our investors are very sophisticated people. They're not buying something blindly because we wrote about it and it's not like we're disadvantaging our own investors. So, yeah, I think it's a real positive thing. It takes a lot of time, but we have to get paid for it. So, that's good. The money management business is a better business, but I'll never give up the research or I don't think I ever would be because I think it really helps us.
Bill: Yeah. Where can people find you by the way?
Jonathan: We're at boyarvaluegroup.com. That's Boyar with A-R, no one ever spells it correctly. Or, just follow us on Twitter @boyarvalue and you can reach us that way. If you have any questions, I'd love to chat with your audience and talk ideas.
Bill: Yeah, we'll drop some links in the show notes and I think you were on Andrew Walker's pod, right? We'll link to that.
Jonathan: Yeah.
Bill: Whatever you want me to put in there, just let me know. So, I look forward to speaking to you again and thank you for stopping by The Business Brew and here's to the beginning of a long relationship.
Jonathan: Absolutely. Thank you very much for having me. It was fantastic. Thanks for having me on the show.
Bill: Anytime, man. Have a good one.
Jonathan: You too.
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