July 12, 2024 • 47 mins
James van Geelen, founder of Citrini Research, scored big when he made his weight loss drug-related investments last year. He was also early into artificial intelligence investments, making bets on picks and shovels plays, like Nvidia. So what's interesting him right now? And how does a thematic investor grapple with uncertainty from things like the upcoming US election? We talk about the next stage of AI investing, constructing election-related portfolios, going long water, and more.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:20):
Hello and welcome to another episode of the All Thoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:24):
And I'm Joe. Why isn't thal Joe?
Speaker 2 (00:26):
Do you think it's fair to say that things seem
a little uncertain at the moment?
Speaker 4 (00:31):
Well?
Speaker 3 (00:32):
Yes, Well what do you have in mind?
Speaker 4 (00:34):
Okay?
Speaker 3 (00:35):
Well, of course yes, and big things going on.
Speaker 2 (00:38):
So I was thinking particularly of three things. So number
one is obviously US presidential elections, and things seem very
uncertain on that front. We're not sure who's going to
win in November. And more than that, at this point,
I think we're not entirely sure who the Democratic candidate
is going to be. There's uncertainty there. But then secondly,
(01:02):
there's uncertainty about the direction of the stock market in
a number of ways. So we have seen some of
the error kicked out of the tires of big outperformers
from earlier in the year. I'm thinking specifically of Nvidia
and some of those big tech companies. They've come down recently.
There are people talking about how AI is the future
(01:23):
of industry, but there are also people talking about how
AI is a massive bubble, and I think Goldman Sachs
had that analysis out earlier this week talking about how
there was no actual use case for AI, which seems
to be the polar opposite of some of the enthusiasm
in the market. And then thirdly, we still have that
underlying economic tension where it seems like there are some
(01:46):
signs of a slowdown, but the Fed so far is
kind of resisting any pressure to cut interest rates. So
lots of things up in the air at the moment.
Speaker 5 (01:56):
Yeah, I mean, like you said, uncertainty is always with
in the market, but there are some really big questions.
Speaker 3 (02:03):
About things that are going on. The AI one in.
Speaker 5 (02:06):
Particular, because a lot of people, as you notice, like wow,
they're really spending a lot of money on all this
chips and electricity, and the payoff is ambiguous, and.
Speaker 3 (02:14):
So there are a lot of questions about that.
Speaker 5 (02:16):
Clearly, the political landscape, although you know, on questions related
to the market. Look, the stock market's done really well
under Joe Biden, it did really well under President Trump,
seems to mostly go up over time. But yes, the
age of uncertainty, I would not disagree with you.
Speaker 2 (02:31):
So all of this had me thinking, you know, if
you're an investor, and particularly a thematic investor. At the moment,
I think you're facing some tough choices because it's not
just a range of uncertainties. In some respects, it's like
polar opposite outcomes. You know, either you get Trump and
everything that comes with it, or you get Biden and
(02:51):
everything that comes with that, and some of that is
very different totally.
Speaker 5 (02:56):
Well, the other thing that I've been thinking about in
the AI conversation really has driven this home, which is
that if you're a discretionary investor, now me, I'm just
spy and die all the way. So I don't have
to think about all this stuff because I own Nvidia
and through my S and P five hundred index fund.
Speaker 4 (03:13):
But if in.
Speaker 5 (03:14):
Nvidia falls out of favor and something else rises, well
I'll have that too, So I'm spy and die. But
I understand that some people have to like beat the
benchmark or beat the index, or justify why someone else
would pay them fees to invest money on their behalf.
Then of course you really have to get the call correct,
because the only way that you beat the market over
this year or last year is if you got the
(03:35):
AI call, and if you weren't heavy on Nvidia or
some of these other names. You almost certainly did not
justify someone giving paying you money to invest, and so
these are really tough questions for investors who have to
like do well so to speak relatively to answer yes.
Speaker 2 (03:52):
So I'm very pleased to say that we have the
perfect guest we are going to bring back on, James
van Gielan. He is, of course the fault owner of
Satrini Research. We spoke to him last year about one
of his big investment themes, which at the time was
ozembic and the associated GLP one weight loss drugs. That
was a huge winner in the months since. We're going
(04:13):
to get a handle on what he's looking at now
and also his thought process for developing new investment themes
at a time when a lot of things seem to
be very uncertain. So James, thanks so much for coming
back on all thoughts.
Speaker 4 (04:25):
Thanks for having me back.
Speaker 2 (04:27):
What are you looking at nowadays? To start with the
easy question, Yeah.
Speaker 4 (04:32):
Well, you know, AI obviously is a huge theme in
the market, and I think part of it, Yeah, have
you really Yeah, it's this little thing. But I think
that the most important way to basically track this theme
is it's one of those technologically innovation driven kind of themes.
(04:53):
And the way that I viewed thematic investing is along
this spectrum of you have disruption or continuation, and then
you have macro drivers or micro drivers. And I'm not
talking about necessarily macro and the sense of macroeconomics, but
you know, demographic shifts, even like consumer attitudes, the overton
windows shifting, just big things changing versus big things staying
(05:17):
the same. So over the past twelve months, you know,
there have been probably ten or twelve themes that I
think have really made themselves down in the market and
the way that's as it's moved, and right now, there
have been a few that I've probably overstayed my welcoming.
I think that some of them are getting a little
(05:38):
bit frothy.
Speaker 2 (05:39):
And you were early to AI, yeah.
Speaker 4 (05:42):
Yeah, and that's one of the risks of doing this
kind of investing. You know, there's a great quote from
Robert Schiller. Nobody has ever made a decision based on
a number. They always need a story. I don't know
if that's the exact quote, but another one of my
favorites is Kyle Harrison said that price is a number
(06:03):
today multiplied by a story tomorrow. And the way that
I ve be investing is it's always going to prioritize
a good story and a good narrative. And that's what
has the making of a theme, because you need people
to make the decision to execute a trade and move price,
and then you also need on the other side something
to actually happen in the real economy. And as far
(06:26):
as artificial intelligence, this kind of fast moving innovative theme
that we don't really you know, you can say what
is AI going to look like five years out and
you'll get five different answers from five different people. And
I started from a place of you know, which became
consensus very quickly with the picks and shovels, right, and
(06:48):
then the picks and shovels of the picks and shovels,
and then you get this thing where you know, during
the gold Rush, it wasn't just everyone showing up to
sell picks and shovels, just everyone waiting there. So we
have to kind of look now for this controversial thing
of does AI have use cases? And I think it's
(07:08):
pretty clear that it does if you're looking for it.
But in terms of like monitoring the way that it's
going to progress. I think the biggest component here is
going to be going from B to B to B
two C. And what I said about two months ago
was that the company that was going to make this
(07:29):
really happen, it's not going to be Microsoft, you know
with Chat, GBT and open AI. I think it's going
to be Apple. And you know, if any company can
get it done, it's going to be Apple. And you
have this kind of dynamic where you need something to
happen that forces people to use it. Right. It's kind
(07:53):
of like like Facebook, right, or social media in general,
where you know there was only so long you could
go without being connected to everything and everyone. And Apple
is you know, have you ever texted someone like, Hey,
I'm coming over and then you get in the car
and if it connects the car play, it'll give you
(08:16):
a notification that says, like, you know, directions to Joe's house.
Speaker 3 (08:19):
Yeah.
Speaker 4 (08:21):
Your phone knows everything about you, right, And your phone
knows who you are, it knows what you're doing, it
knows what you want to do, it knows who your
mom is. And that information combined with Apple's trust in
the consumer, trust and the idea that they place of
(08:41):
a high premium on privacy. You can't have this AI
assistant that knows everything about you if you think that
it's going to be stored on a server in Kubertino.
It needs to be on your phone. So the next
thing is how do we start having these big models
that you know that are in these very big data
(09:02):
centers and you know all this CAPEX that's spent on that.
Now we have to just like every other technological trend,
we have to miniaturize it, right, and we have to
basically have your phone doing inference, you know, sending to
those models, but also these smaller models.
Speaker 5 (09:15):
Can I push back on that real quickly because I've
given up every piece of information about my entire life
already to the internet at all. Yeah, of course I
have just by existing in the world, right and I'm
not and it all exists on servers somewhere in either
Kupertino or Amazon servers or whatever. What is it about
AI specifically that changes that need? Because like I said,
(09:39):
I've given I didn't I don't want to. But just
the reality of life in the world is my information
is already out there.
Speaker 4 (09:45):
So AI has two sides, training and inference, right, And
you can train on. You know, all this data that
you've already given up to the faceless kind of entity
that controls the world. But what AI brings about is
in real time drawing conclusions from that data. And it's
(10:09):
two sided. There's convenience and then there's privacy concerns. And
I agree with you that convenience definitely outweighs privacy concerns
when it comes to the consumer. But when you have
this ecosystem that Apple has created with this walled garden,
and then you kind of alleviate the privacy concerns and
you have this constant inference that's going on, and there
will come a time where you know, you'll be walking
(10:32):
down the street and you'll say, I just called Tracy,
you know a week ago. What did we talk about
and when did we say we're going to meet?
Speaker 1 (10:40):
Oh?
Speaker 4 (10:40):
Okay, can you text Tracy and tell her, actually, I
have a thesis that just got destroyed, so I don't
really want to talk about that one. And you know,
can you text Joe and let him know too, And
then can you look at my calendar when am my velvement?
You can be walking down the street. Yeah, And the
productivity gains from your phone doing inference and inferring what
it knows about you from that data.
Speaker 3 (11:03):
That's huge, real quickly.
Speaker 5 (11:05):
So you mentioned the picks and shovels and video, than
the picks and shovels who provide the picks and shovels
and people got to tell you about super micro and
the racks and maybe Dell super Micro.
Speaker 4 (11:16):
I never heard of it.
Speaker 3 (11:16):
I've heard of it, just so we're clear your long Apple.
Speaker 4 (11:20):
Yeah, I'm any name that I mentioned inherently, I'm automatically
going to be longer shot.
Speaker 2 (11:26):
Yeah, you mentioned the privacy concerns, and I just thought
back to this moment. My husband and I were in
our kitchen and we were talking about something really innocuous,
like corn or something, and suddenly Alexa started telling us
a joke about corn, and like we hadn't said Alexa
or anything like that, it just started talking like clearly
(11:48):
had been recording everything that we were saying. And I
will admit that that was that was kind of a
jarring experience. I would be less surprised if my Apple
phone did that versus my Alexa that I use to
turn on the lights and things like that.
Speaker 4 (12:03):
Yeah, it turns out that large language models are really
good at language.
Speaker 2 (12:07):
Yeah, surprising.
Speaker 4 (12:09):
I think that the next kind of picks and shovels idea.
The thing is everyone's always well, what are we going
to invest in that's doing the use cases? And then
those same people will come around and say, why are
you know these five stocks driving the entire market? And
the thing is the latency between a company starting and
becoming successful and doing an IPO has gotten a lot
(12:33):
longer in the past, like two decades, So if you're
a public equity investor, you might not really get to
the use cases that you can invest in are those
five stocks and combine that with you know, everything else,
and like you said, the uncertainty. When there's uncertainty, people
tend to crowd into things that they know are going
to work. I think that really the picks and shovels
(12:54):
thing will probably play out again. But when it comes
to EDJI and doing inference onto and kind of I
mean this is probably a controversial statement, but I think
that we might see the first real true replacement cycle,
like real replacement cycle where Apple comes out with the
(13:14):
new phone and it has all these productivity gains, and
it has all this new hardware, and you know, it
can do these things, and if you don't have that phone,
you can't do it, and it becomes kind of like
that sci fi movie Gatica, where you know, yeah, if
you're left out, you're you're just you're just left behind.
Speaker 5 (13:32):
I've been wondering about this because at some point in
my life it's stopped being important to upgrade. I mean,
at some point in my life it's stopped being important
or interesting to even tune into, like the new Apple events,
and those used to be big events online, and then
people stopped. And then at one point, if someone asked me,
what iPhone do you have, I would have told them
the anti Zycle. I have the iPhone five for whatever.
(13:53):
I have no idea which one I have right now.
I got a couple of years ago. It does everything
I need. I have zero idea which one it is.
So I've been sort of wondering. Yeah, So you think
that there's the potential, at least for some unlock of
new capabilities where the people who don't have that new
phone actually feel, oh, I really just can't interact with
the same way that people who have it do.
Speaker 4 (14:14):
Yeah, and that kind of replacement cycle drives that new
picks and shovels thesis where you're looking at all these
kind of you know, system on chip names, and that's
where I see this theme that you know, everyone is
talking about going But the thing about thematic equity is
that if you let it, it just becomes momentum investing,
(14:35):
because themes are stories, and stories translate into momentum very easily.
And when people do an association with momentum, they're always
thinking about kind of momentum inable market like what we've
been seeing. And you know that's not the case at all.
There was plenty of themes in twenty twenty two when
(14:56):
everything else was going down. I mean, tech going down
was a theme. You know, the interest rate hikes, the
inflation for the first time that you know, that's a theme.
That's a story that grabs people's attention and makes them
go to their terminal and execute a trade. And same
thing with energy, and you know, the war in Ukraine.
And so I try my hardest to it's super cliche,
(15:19):
but think a few months ahead at least.
Speaker 2 (15:39):
So for something like the US presidential elections. You know,
again things are currently up in the air, and you
can look at the polls and have a sense of
who might have a lead, but overall it's pretty difficult
to tell who's going to be in office come next year.
How do you start preparing for something like that from
(15:59):
an perspective.
Speaker 4 (16:01):
So if the question how do you start preparing the
answer early early, you start preparing early. Right. No, I
don't think that, you know, was anyone surprised that we
have an election this year? Yeah?
Speaker 3 (16:14):
Some people, Yeah, you know, some people really are because
of how few people have been paying attention.
Speaker 4 (16:19):
I mean, that's It's one of those things where I
think it's like when you're a kid and you touch
the stove and you get burned, and you're well, I'm
not doing that again. That's how I think the twenty
twenty election was for me. So as soon as I
saw that the year was an election year, I started
kind of preparing for this. This was back in January
(16:39):
when the odds of Trump even being a nominee, right,
or like being the Republican nominee, were like twenty percent.
It was relatively easy back then to look at these
very kind of exposed equities and say, this is a
swap I guess on Trump being a nominee.
Speaker 5 (16:59):
So I've ied some cell side research about who would
be exposed. One clever one the company five below. He
sells a bunch of cheap stuff, which you can't sell
cheap stuff if there's a massive tariffs on cheap stuff.
And that stock has been Oh that's a total dog.
That stock was over two hundred back in March and
now it's at one hundred and two. Of the time
we're talking about this, what stands out to you is.
Speaker 4 (17:21):
Being exposed depending on what the theme is there, I
create either a long short basket to kind of gain exposure,
because I don't ever want that kind of idiosyncratic like
single name equity risk where a company ends up doing
really well and has nothing to do with my actual thesis.
So I constructed a basket that kind of played on
(17:42):
a few different themes. Tariffs was a big one of them. Right,
So you look at how much comes from China. First,
you look at Trump's what he says, right, one hundred
percent tariffs, sixty percent tariffs that you know, and the
thing is protectionism from China. Trade that's not that's not
a part is an issue anymore. Right, There are no
(18:03):
China doves in the government. But Trump is certainly a
unique brand of that when it comes to the trade policy.
So that seemed like the most asymmetric way to kind
of capture that. So you look at five below for example, restoration, hardware,
floor and decor, you know, best Buy, these companies that
really do a lot of business when it comes to China,
(18:27):
and that's a lot of their impacosts and tariffs really
would affect them. And that's your short side. And then
you say, okay, well who is going to be all
right here? And that comes down to pricing power. You know,
if consumers start consolidating their spending because of tariff's, who
can kind of keep that pricing power regardless? And like Costco, Walmart,
(18:48):
some of the automotive parts like O'Reilly, that's your longside.
So that makes up one component of the basket and
then move on. Okay, And the thing is, for the
past three three years, one of my exposures to a
theme has been bidnomics. So you know, that was big
on electrification and infrastructure spending and generally fading the idea
(19:12):
that we could have a recession when fiscal policy is
spending like a drunken sailor. And we said, okay, well,
now we need some kind of offsetting beta. Here, we
need some Trump beta. And there are these orphan equities
like Fannie May and Freddie Mack. And you know, I
looked at the story and I said, I don't think
that that's going to happen. He didn't do it the
(19:33):
first time, but it doesn't matter because it's a story.
So people are going to take action based on that story.
Then looking at things like private prisons and law enforcement.
Speaker 2 (19:44):
I remember that from twenty sixteen that was like a
big Trump winner.
Speaker 4 (19:48):
Yeah, and that but that was when I was kind
of looking at this. That I think was the first
place that I start is basically sell side research is
to see what is being said. And there were a
lot of kind of well, here's how you know, these
equities performed when Trump was president, and here's how they
performed when Biden was president. And if you go into
(20:10):
anything like that with that kind of thinking where you're
just overfitting to like two periods of time, I mean
when Biden was elected, if you had that kind of thinking,
you would have went long clean energy right in short
and short oil, and you would have gotten destroyed because like,
no matter who's the president, there are going to be
bear of force as at work, so you really have
to try to specify and get rid of as much
(20:33):
incongruous kind of correlation. So names like Axin or GEO
Group or you know, Corcivic, those will probably benefit. I
had kind of a fun one that was a company
that makes the storefront glass for retail stores, because I figured,
no matter who wins this election, there's going to be
people that are angry.
Speaker 5 (20:54):
It's funny you mentioned fan you may equity because it
still exists there. It's like a cockroach. But I've always
though it's like the Boomer's crypto.
Speaker 4 (21:02):
It's like that.
Speaker 3 (21:02):
It's like if you look at like there is.
Speaker 5 (21:04):
A Fanny and Freddy Twitter, Yeah, and it's like they
talk the same way that people are talking about the
random token.
Speaker 4 (21:10):
But their money spends just as well, right, and it
moves the bid up. Yeah. So I think that I
came into this year all prepared, Right, here's how the
basket is going to look. The thing that really made
me the most satisfied about this, I mean, the basket
has done quite well because Trump odds went from twenty
percent of being the nominee to you know, sixty three
(21:32):
percent of being the president.
Speaker 3 (21:33):
Uh huh.
Speaker 4 (21:33):
And the performances tracked that pretty well. And there are
a few other aspects of that basket, but the thing
that obviously didn't make me happy because something that I
owned went down. But right after that debate, which I think,
you know, there were a lot of people that were
surprised by that, And I guess you could if you
(21:53):
were drawing a chart of like should I be concerned
about Biden's performance in a debate after the State of
the Union, and you you know, maybe you had some
moments where like he's talking about you know, where's that
lady that and the lady died three weeks ago or something,
or or you know.
Speaker 3 (22:08):
That there were signs, there were.
Speaker 4 (22:10):
Signs, but you know, I wasn't necessarily surprised by that.
And when that happened, the Bidenomics basket, you know, goes
down by five percent, and then the Trump basket goes
up by ten, and you know, that's kind of reinforcing
where it shows you that you know, you're not just
riding beta, You've been allocated to the right thing.
Speaker 2 (22:31):
I was going to ask, how you wait those respective baskets,
like a Biden long short basket versus a Trump long
short basket, but maybe maybe you equal weight it and
then the returns are asymmetric as you just mentioned.
Speaker 4 (22:44):
Yeah, there's some discretionary aspect where I think that you know,
something matters more than or that investors are paying more attention,
you know, don't. I didn't think back in March that
this tariff aspect was getting as much attention. I figured
that would kind of progress and get more attention as
the year went on, as Trump said more about trade policy,
whereas something that's you know, as first order thinking, as
(23:06):
you know, if Trump's president, We're going to need more
you know, border prisons or you know that. So the
waiting kind of changes throughout the course of the narrative progressing.
Speaker 5 (23:17):
It's kind of weird, like going back to if we
had a one hundred percent teariff on imported goods, and
this is a little bit of a sidetrack. I feel
like that would be incredibly disruptive to the way we
do economics in this country. And I don't have any
opinion on whether it be good or bad. I'll leave
that to others. It is sort of funny to think
we're going to have this big teariff, this big change
(23:38):
and how we interact with the world, and so we're
just going to take it all out on you know,
five billion dollar company five below. Like, I just have
a feeling that if we did have this wholesale orientation
of how we trade, like, they're not going to be
the only company that no effects.
Speaker 4 (23:54):
And I think when people kind of look at when
I share my portfolio with people, which you know, I
know some people are kind of neurotic about that, but
I'm not big enough to where I think that someone's
going to, you know, attack me. But when I show
my portfolio to people, they are kind of taken aback
by how many securities are in there. But the way
that I view it is, you know, I have diversification
at the security level, but I'm very concentrated in.
Speaker 3 (24:17):
These themes in the somatic level.
Speaker 4 (24:18):
Yeah, so like GLP ones might make up fifteen to
twenty percent of the portfolio, but it's not just Lily
and it's not just Novo Nordisk. It's also you know,
something like Torrid, which is a woman's kind of fashion
for plus size clothing.
Speaker 2 (24:34):
Oh, you would be short that one.
Speaker 4 (24:36):
No, So well think about it, right, you don't teleport
your weight if you're three hundred pounds and you go
down six sizes. First off, you're happy that you're losing weight, right,
so you want to show off, show that off, but
you're still plus sized.
Speaker 2 (24:52):
Oh I see, Okay, so you're.
Speaker 4 (24:53):
Buying clothes the whole way down.
Speaker 2 (24:55):
Ah.
Speaker 4 (24:56):
And then there is in fact, you know, like this
is like well documented, there is a re bound effect
from GLP one drugs. If you stop them, you regain
a portion of the weight.
Speaker 2 (25:07):
Oh so it's actually like the weight fluctuation that matters here.
Speaker 4 (25:10):
Okay. I mean, if you know anyone that's overweight that
struggled with their weight, they have these closets full of
just you know, various sizes of clothes. So you know
that the general idea is applying second order thinking to
capture a theme in not just the most obvious way,
because that's going to be the most crowded way. And
(25:31):
that's that's like I said before, you really want to
try to not just have this be story based trend
of following.
Speaker 2 (25:41):
Wait, I love talking about second order effects and I
have a bunch of favorite examples that I have probably
said on this podcast before. So I'll spare all our
listeners from repeating those. But do you have a favorite
sort of second order play.
Speaker 4 (25:55):
I want to hear yours first.
Speaker 2 (25:56):
Well, the one I always think about, Well, there's the
gummy Bear one, and then there's also like the Sawdust one,
Gummy Bear. Hold on, I'm gonna have to look this up.
Speaker 3 (26:06):
No, I remember what it was.
Speaker 2 (26:08):
Do you remember the gummy bear one? Do you remember
both of them?
Speaker 1 (26:10):
Yeah?
Speaker 3 (26:11):
Okay, well I don't remember the sawdust one. I'll look
up the chickens or something like that. And there wasn't
cows in milk, right, So after the.
Speaker 5 (26:18):
Housing bus, then there wasn't enough wood and there wasn't
enough sawdust, and that wasn't good for cows. And then
that was so there was less milk.
Speaker 2 (26:25):
So no one would have expected as a result of
the two thousand and eight housing collapse that you would
see milk prices go up because there was less milk.
But apparently that's what happened. Because the cows didn't have
as much sawdust, they weren't as comfortable, they weren't as productive,
and so there was less milk. And then what was
the gummy bear.
Speaker 3 (26:42):
Gummy Bear one?
Speaker 5 (26:43):
Was that this is what someone told us that due
to the collapse an auto production during the pandemic, that
there wasn't as much demand for leather for the seating,
and that a lot of the I guess gelatine that
was needed for gummy bears came out of that supply
chain or something like that, so it affected gummy bear
production when the chip stopped coming.
Speaker 4 (27:04):
I mean, I would love to meet the person that
predicted that. Yeah, right, right, if you. And so when
it comes to what I do, there is kind of
like a you get kind of deferred in your ability
to be like, yeah, called it, you know, because I
don't forego security analysis entirely. I don't, you know, I
make sure that if I'm shorting a company that it's
(27:25):
a bad company, or if I'm buying a company, that
it's mispriced and you know that it has upside. So
you never really know for sure. And sometimes even you know,
they'll get on the earnings call, especially if it's like
a short and you know what or you think you
know why it went down. You know, this is like
the last time I was on, we talked about the
Titan Stabler. Oh yeah, right, And obviously they eventually started saying, well,
(27:50):
this probably has to do with those weight loss drugs.
But you know, in the beginning, when it's going down
and when the company's you know, seeing decreased revenue, sometimes
it takes them a little bit to like realize what's
going on, and sometimes they never do.
Speaker 1 (28:01):
You know.
Speaker 2 (28:01):
Well, I remember that about restoration hardware too, because it
started going down like a year or two ago, and
people were worried about like, oh, this is a recessionary signal.
And I remember seeing this online and basically saying like, well,
maybe it has more to do about with restoration hardware
specific things and issues there rather than macroeconomic conditions. And
(28:23):
people went nuts. But that's exactly what it was, right,
Like the renovation boom and the furniture boom continued for
some time after that.
Speaker 4 (28:30):
Restoration hardware, Yeah, it wasn't a recessionary signal, but there
is a great signal to be had in the story
of restoration hardware, which is if you own a company
and the CEO starts coming on and spends half the
earnings call talking about macroeconomics, Oh yeah, sell that.
Speaker 2 (28:43):
God, that's a bad sign.
Speaker 5 (28:45):
That's a good yeah that It was like a famous
conference call, and it was right in twenty twenty one,
and it was sort of like an equivalent of although
one of the best moments on TV. Ever, like the
Kramer they are nuts or whatever, They're blind at the
FED in two thousand and six or seven about Bear
Stearns and he went on, He's like, they have no.
Speaker 3 (29:01):
Idea what's coming on recession. Recession.
Speaker 5 (29:03):
A bunch of people took that seriously, but it seemed
like a restoration hardware story, and then the rest of
the economy just kept chugging along.
Speaker 2 (29:11):
Wait, there are times when uncertainty kind of rears its
ugly head and does wreck some investment theses. Maybe wreck
is a strong word, but I know you were, for instance,
looking into how to play water and water shortages in
the future. But lo and behold, a couple of weeks ago,
the Supreme Court made a decision having to do with
(29:34):
something called the Chevron deference that seems to have caused
additional uncertainty for that particular thesis. Can you walk us
through what happened there?
Speaker 4 (29:44):
Well? First off, water in the realm of thematic equity,
water is waterloo kind of it's this battle that it's
always a good idea to be long water. If you
think the GDP is going to go up, unless you're
in China, where water use has actually declined as VP
has gone up because they've been really serious about efficiency.
But the idea is, if you buy water, you're never
(30:06):
really going to blow up, you know, unless like really,
unless it's like global financial crisis. You'll be pretty safe.
You can. There's always going to be some doom and
gloom about water. So if you get on the phone
with an investor, you can say, well, we own water
because of you know, here's this big report from whatever.
You know. The end it says that you know, water
scarcity and this then and the other thing, and you
(30:28):
ever see well, you guys, obviously have you've seen the
movie The Big Short? Correct? Yes, so you know how
that movie ends the last scene less?
Speaker 5 (30:35):
Oh yeah, And I didn't understand it. It was like
these like title cards and they're like next Water and
then it faced them like I was like yeah, and
then he's like oh and he's buying Almond Firms and
I was like they like left it hanging. I was like, yeah,
what's the I didn't get it. That was Michael Burry
Michael and now Next Water Firms and then they fade
to black we're just ending to a movie.
Speaker 4 (30:56):
Ever, so yeah, I think like when the levee breaks
is playing in the background, and you know, but it's
really dramatic, right, Michael Burry that you know, our protagonist
is only investing in one thing, ellipses water. Yeah, And
you know that's the way that this thesis has kind
of been presented for decades, where it's this kind of
(31:17):
apocalyptic you have. You have this idea in your head
where I mean everybody has this, and it's like an
evolutionary fear. The water has to be okay, the water
quality has to be okay, and there has to be
enough of it or else we can't do anything. So
it's always been that kind of thing. And I really
(31:37):
didn't want to just write about water because it's like, well,
you know, here's what's going on with water. So I
wanted to focus on the non apocalyptic parts. And I
don't want to buy anything because of pessimism. I want
to you know. And what had happened was these microplastics,
these forever chemicals. The EPA handed down a law that
(32:00):
mandated that you have to control the level of microplastics
serve as their you know, p fas, right, so I
spoke with people in the industry, and everyone is really
really excite. If you are in the business of you know,
remediation or you know, making sure that the water is clean,
you were really excited about this and probably still are.
(32:23):
But the thing about thematic investing is that uncertainty is
kind of anathema to it. Where people want to buy
on a story. You know that drugn Miller quote. I
made one hundred and twenty percent of my money on
the simple obvious ideas and lost twenty percent on everything else.
And that's kind of the way that I viewed these
(32:46):
themes where you want this cultural touchstone. You want everyone
to realize that, oh, this is going to be big,
this is a big deal. And whether that's you know,
in a niche area or in a wide ranging area,
that is less important. But it has to have that moment.
And when you have something that adds uncertainty, even if
you disagree. Right when it comes to what happened with
(33:07):
the Chevron deference, in the simplest possible terms, basically the
stated policy has been for the judiciary to defer to experts.
So if you have you know, yes, exactly, and obviously
the campus small government doesn't love this because they view
this as you know, unelected technocrats that are kind of
(33:29):
driving policy. And what happened with Chevron defference was for
a long time, if you have the EPA saying no,
this is bad, they would say, okay, yeah, probably you know,
you know more than I do. Now with this ruling,
that is not the case anymore, right, and that has
wide ranging impacts that I don't know because I am
(33:51):
not an attorney.
Speaker 5 (33:53):
And so the basic gist with water here is that, okay,
there was a theme, not the apocalypse and of water,
but this assistant demand for water cleaning due to microplastics.
Speaker 3 (34:03):
The EPA had put down this.
Speaker 5 (34:04):
Rule, and the Chevron ruling by the Supreme Court raises
ambiguity about the teeth of that, or the enforceability or
the persistence of that. And this is the kind of
thing that's toxic to a thematic investor.
Speaker 4 (34:17):
Yeah, and you know, I still believe that that thesis
is fine. I mean, I look at it, and I've
spoken to attorneys and they say, well, you have these
two existing appeals, but this happened before the Chevron deference ruling,
so you have to track those appeals. But that's the
only thing that matters. This isn't going to change. You know,
whatever was going to happen before this ruling, that's what's
(34:38):
going to happen now. If those appeals are you know,
overturned or upheld, that's what matters. And I think that
it's still going to work. But the thing is, I
was playing this story and I'm playing the fact that
you know, like a week after I wrote about it
started becoming this like cultural thing. You see these memes
(34:58):
on Twitter about like microplastics and.
Speaker 2 (35:02):
In certain parts of the Male anatomy, Yeah, this goes
on the radio. So I think we can't say yeah, I.
Speaker 4 (35:08):
Mean, I stop myself. You're the one that said it.
But you know, it's the idea where nobody can be
okay with the water. And there's always been an issue
of payers like to see things. They like to pay
for things that they can see, so they like to
pay for the roads being fixed, or they like to
pay for like new things being built, but you don't
(35:30):
really see the water. But with social media and the
idea that you can make everyone aware of like microplastics,
and there's so many emerging contaminants out there just from
you know, the on a bashed capitalists, progress and industry.
So I still think that there will be companies that
(35:50):
will make a lot more money because of pfas. But
for now I have to say, well, I don't know
if the risk is worth the reward here. Maybe I'll
just wait until these appeals are decided and then the
story can progress.
Speaker 5 (36:19):
I want to talk a little bit more about the
AI story where we started, and so, first of all,
Druck and Miller, there were two instances in the last year.
I was just like, so he said something about like
Chad GPT came out. He knew that they were training
on in video chips and he went long in video
and killed it. And then there was the story of
Javier Mila having won in Argentina and claims that he
(36:39):
went on perplexity AI and should I invest with Argentina
and it gave him some ETFs and he bought them
and he did well. So much admiration for this sort
of simplistic thinking, and well done to him. But here, okay,
the sort of Chad GPT AI and video thing very
well known, and now there are all these questions about, Okay,
(37:00):
a lot of money is being spent on chips and electricity,
and is there going to be this payoff or will
who will get the payoff from that? How do you
think about that specific question outside of Apple and I
understand your argument about why they're in the position to
actually deliver valuable services in the broader world, businesses feeling
(37:21):
like they need an AI strategy or needing it to
like complement their software, how do you sort of begin
to answer that question.
Speaker 4 (37:28):
Well, it seems like the question that you're asking really
is is it a bubble?
Speaker 5 (37:33):
Well, there's two ways that it could be a bubble, right.
There could be people who are just overpaying for the
stock because they feel like I want to ride this wave,
or businesses overpaying for the capex because they think that
they need to do something with AI to be in
the game, and it turns out that maybe they don't.
So I'm actually kind of interested in the second one
of not whether there's an equity market bubble in AI,
(37:55):
but the question of whether the business investment which is
pouring into AI related things will materialize as results in
revenues for the company spend.
Speaker 2 (38:05):
It's sort of the idea that Okay, everyone has to
develop their own in house AI offering to compete, but like, actually,
maybe in five years time we find that everyone just
buys an off the shelf AI thing and plugs it
in like they do Microsoft Word or whatever, rather than
spend billions like on their own thing.
Speaker 5 (38:23):
And whether the sort of quality of the services that
an AIOD could produce for the companies, whether it's a
software company like Salesforce or whatever it else, actually turns
out to be something valuable that they can resell and
get capture value from their end customers.
Speaker 4 (38:39):
So I think the answer to your question, or at
least some color on that question, is I don't think
that there's ever been a truly revolutionary technology that has
not been accompanied by some excess capex that we look
back and we say, well, that was wasteful, right, because
(39:01):
when we look back, we also have the benefit of
seeing which areas get commoditized, and we look at how
cheap you know, whether it's broadband or you know, you
can go all the way back to the railwayman roads, Yeah, yeah,
you can. You know. The thing is, you know, without
steam engines, we wouldn't have trains, and without trains we
wouldn't have planes, and without you know, and there was
(39:23):
this progress that was made and it catapulted forward the
human race. But that doesn't necessarily mean that they were
responsible about it, right, that they built too much, they
built too fast, they financed capital projects through equity sales
at extremely elevated prices, and you know, I mean, but
(39:46):
that doesn't change the fact that during the railway Mania
the total route mileage of railways in the UK went
from you know, like eighteen hundred miles in eighteen forty
three to six thousand miles in eighteen fifty, so two
hundred increase in seven years. And you know, maybe we
have to ask ourselves sometimes, do you need this CAPEX
(40:07):
bubble in order to progress the technology?
Speaker 3 (40:11):
Sure?
Speaker 4 (40:11):
And I think that yeah, there are certainly areas, and
I don't think that we'll know exactly where we say
well that was irresponsible or where we say well that
was a great business decision because you look at you know,
it obviously is intertwined. You can say, well, I care
about the CABEC side, but I don't care about the
stock market side. But you know, the companies can sell
(40:33):
equity and fund cabex with that. And you look at
some of the cell side estimates on electricity for example,
and I have a great screenshot or actually it might
just be an actual picture because I think this was
in nineteen ninety eight or and it's of a cell
side report that is talking about the info electric revolution
(40:58):
and the fact that if everyone is going to have
a personal computer, and every personal computer is going to
be connected to the internet, well, you know, that's going
to be a billion dollars or a trillion dollars of
spending on computers, and then there's going to be a
trillion dollars of spending on the electric grid, and the
electricity demand is going to grow at a thirteen percent
keger for the next two days.
Speaker 2 (41:18):
It sounds very familiar.
Speaker 4 (41:19):
Yeah, yeah, it sounds super familiar. And then you look
at electricity demand over the last twenty years and it's flat.
And I think that that's just a natural progression of
a new technology. That's something that almost has to happen
where you have you know, if you want to deliver
the promise in certain places, it's going to be overstated.
(41:39):
And do we need a better electric grid? Yeah, we
really need better electric grid. It's it's terrible, especially in
some places, it's just terrible. Maybe what we need is
for data centers to get built in areas where they
can just revise the electric grid. But I do think
that there are areas where we'll look back and say
that was arissible cap E spending.
Speaker 2 (42:02):
What would you need to see to take money off
the table from some of your AI plays or have
you done that already?
Speaker 4 (42:08):
I'm always taking money off the table. It's not even
a question of like, I mean, my job is to invest,
not to not invest, and it takes a lot for
me to sell something and go to cash like a lot.
You know. I'm a strong believer that there's always an
opportunity somewhere. That got put to the test in twenty
twenty two, and there were there were opportunities in planning
(42:29):
places on the long side of the short side. And
I think that when I make that decision, I'm not
saying do I think that this has reached a peak.
I'm saying, do I think that there are better opportunities elsewhere?
And sometimes that is just the natural progression of some
a narrative in the market or just real things happening.
(42:52):
I mean, in Nvidia has pretty much priced in the
idea that we need to build out these data centers
and now we have to say, Okay, well what else
are we gonna do? And you know, I mean, it
doesn't matter if I'm a believer or non believer. It
only matters if the market is all right.
Speaker 2 (43:10):
James Vanguila and from Succrini Research, thank you so much
for coming back on all lots.
Speaker 4 (43:14):
Thank you.
Speaker 2 (43:14):
That's fun. Yeah, Joe, I enjoyed that conversation. I like
just thinking through investment ideas.
Speaker 5 (43:32):
No, I like that one, just getting to like think
about you know. So, actually what really struck me was
his comment actually in.
Speaker 3 (43:41):
The water part of it.
Speaker 5 (43:42):
Yeah, well, what becomes the fly and the ointment of
a thesis? And why when does it become like, Okay,
here's a theme, but it's just not going to take hold,
yes hard enough, so to speak, such that it becomes
a real investing theme. And so the idea is like, yeah,
there probably is going to be a lot more demand
for filtration in the future to clean the water. But
(44:04):
with a little bit of a regulatory ambiguity now in
the wake of the Chevron decision, then suddenly like this
is just not going to take hold the way it
might have in a different decision, and therefore it's not
going to be quite as powerful as an investing theme is,
Like it.
Speaker 3 (44:19):
Was very useful.
Speaker 1 (44:20):
Well.
Speaker 2 (44:20):
I thought the framing of price and story mattering to
thematic investment was important because there is a situation where
you can be a little bit too smart and you
see something that no one else possibly sees, and then
you know that something just never gets reflected in the price,
like there happened instance of that, instances of that throughout history,
(44:44):
and so you really need both the I guess the
underpricing or you know, at least the price to be
like relatively attractive, plus the momentum provided by that story
to make really compelling investment. And then if you get
something like in video where you know, at least up
until maybe the beginning of last year, it was underpriced
(45:04):
certainly relative to where it is right now, plus all
that attention from investors, then you got this massive winner.
Speaker 5 (45:10):
I'm so impressed by those drunken Miller comments where he's like, oh, yeah,
they used in video chips for chat GBTAI seems like
a big deal.
Speaker 3 (45:17):
I'm gonna go along, and whereas me, I'm like, oh,
they already know.
Speaker 5 (45:21):
Everyone knew that they were like using in video chips
so it's all priced into the market.
Speaker 2 (45:26):
But that's why there are a lot of people saying,
like a year ago, that it was all priced in.
Speaker 4 (45:31):
Right.
Speaker 2 (45:32):
Yeah, I hadn't seen that five below chart either.
Speaker 5 (45:35):
That's no, so I hadn't looked at the chart in
a while. But it really look if you.
Speaker 2 (45:41):
Have a one hundred percent over two hundred to like one hundred,
if you a few months, lety.
Speaker 5 (45:46):
Just put that there is not much you could sell
for five dollars in below in the world, in a
world of one hundred percent tariffs.
Speaker 2 (45:53):
Yes, I'm sure there's a pun you could do then
about the stock price being below. Oh yeah something, But okay,
shall we leave it there.
Speaker 3 (46:01):
Let's leave it there.
Speaker 2 (46:01):
This has been another episode of the All Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 5 (46:07):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow Ergust James van Gielan, He's at Saitrini seven. Follow
our producers Kerman Rodriguez at Carman Ermann dash Ol Bennett
at Dashbot and Kilbrooks at Kilbrooks. Thank you to our
producer Moses Ondam for more Odd Lots content. Go to
Bloomberg dot com slash odd lots, where we have transcripts,
a blog, and a newsletter, and you can chat about
(46:29):
all of these topics twenty four to seven in our
discord discord dot gg slash.
Speaker 2 (46:33):
Od lots And if you enjoy all thoughts, if you
like it when we talk thematic investing, then please leave
us a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
all of our episodes absolutely ad free. All you need
to do is connect your Bloomberg account with Apple Podcasts.
In order to do that, just find the Bloomberg channel
(46:54):
on the platform and follow the instructions there. Thanks for
listening in
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:20):
Hello and welcome to another episode of the All Thoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:24):
And I'm Joe. Why isn't thal Joe?
Speaker 2 (00:26):
Do you think it's fair to say that things seem
a little uncertain at the moment?
Speaker 4 (00:31):
Well?
Speaker 3 (00:32):
Yes, Well what do you have in mind?
Speaker 4 (00:34):
Okay?
Speaker 3 (00:35):
Well, of course yes, and big things going on.
Speaker 2 (00:38):
So I was thinking particularly of three things. So number
one is obviously US presidential elections, and things seem very
uncertain on that front. We're not sure who's going to
win in November. And more than that, at this point,
I think we're not entirely sure who the Democratic candidate
is going to be. There's uncertainty there. But then secondly,
(01:02):
there's uncertainty about the direction of the stock market in
a number of ways. So we have seen some of
the error kicked out of the tires of big outperformers
from earlier in the year. I'm thinking specifically of Nvidia
and some of those big tech companies. They've come down recently.
There are people talking about how AI is the future
(01:23):
of industry, but there are also people talking about how
AI is a massive bubble, and I think Goldman Sachs
had that analysis out earlier this week talking about how
there was no actual use case for AI, which seems
to be the polar opposite of some of the enthusiasm
in the market. And then thirdly, we still have that
underlying economic tension where it seems like there are some
(01:46):
signs of a slowdown, but the Fed so far is
kind of resisting any pressure to cut interest rates. So
lots of things up in the air at the moment.
Speaker 5 (01:56):
Yeah, I mean, like you said, uncertainty is always with
in the market, but there are some really big questions.
Speaker 3 (02:03):
About things that are going on. The AI one in.
Speaker 5 (02:06):
Particular, because a lot of people, as you notice, like wow,
they're really spending a lot of money on all this
chips and electricity, and the payoff is ambiguous, and.
Speaker 3 (02:14):
So there are a lot of questions about that.
Speaker 5 (02:16):
Clearly, the political landscape, although you know, on questions related
to the market. Look, the stock market's done really well
under Joe Biden, it did really well under President Trump,
seems to mostly go up over time. But yes, the
age of uncertainty, I would not disagree with you.
Speaker 2 (02:31):
So all of this had me thinking, you know, if
you're an investor, and particularly a thematic investor. At the moment,
I think you're facing some tough choices because it's not
just a range of uncertainties. In some respects, it's like
polar opposite outcomes. You know, either you get Trump and
everything that comes with it, or you get Biden and
(02:51):
everything that comes with that, and some of that is
very different totally.
Speaker 5 (02:56):
Well, the other thing that I've been thinking about in
the AI conversation really has driven this home, which is
that if you're a discretionary investor, now me, I'm just
spy and die all the way. So I don't have
to think about all this stuff because I own Nvidia
and through my S and P five hundred index fund.
Speaker 4 (03:13):
But if in.
Speaker 5 (03:14):
Nvidia falls out of favor and something else rises, well
I'll have that too, So I'm spy and die. But
I understand that some people have to like beat the
benchmark or beat the index, or justify why someone else
would pay them fees to invest money on their behalf.
Then of course you really have to get the call correct,
because the only way that you beat the market over
this year or last year is if you got the
(03:35):
AI call, and if you weren't heavy on Nvidia or
some of these other names. You almost certainly did not
justify someone giving paying you money to invest, and so
these are really tough questions for investors who have to
like do well so to speak relatively to answer yes.
Speaker 2 (03:52):
So I'm very pleased to say that we have the
perfect guest we are going to bring back on, James
van Gielan. He is, of course the fault owner of
Satrini Research. We spoke to him last year about one
of his big investment themes, which at the time was
ozembic and the associated GLP one weight loss drugs. That
was a huge winner in the months since. We're going
(04:13):
to get a handle on what he's looking at now
and also his thought process for developing new investment themes
at a time when a lot of things seem to
be very uncertain. So James, thanks so much for coming
back on all thoughts.
Speaker 4 (04:25):
Thanks for having me back.
Speaker 2 (04:27):
What are you looking at nowadays? To start with the
easy question, Yeah.
Speaker 4 (04:32):
Well, you know, AI obviously is a huge theme in
the market, and I think part of it, Yeah, have
you really Yeah, it's this little thing. But I think
that the most important way to basically track this theme
is it's one of those technologically innovation driven kind of themes.
(04:53):
And the way that I viewed thematic investing is along
this spectrum of you have disruption or continuation, and then
you have macro drivers or micro drivers. And I'm not
talking about necessarily macro and the sense of macroeconomics, but
you know, demographic shifts, even like consumer attitudes, the overton
windows shifting, just big things changing versus big things staying
(05:17):
the same. So over the past twelve months, you know,
there have been probably ten or twelve themes that I
think have really made themselves down in the market and
the way that's as it's moved, and right now, there
have been a few that I've probably overstayed my welcoming.
I think that some of them are getting a little
(05:38):
bit frothy.
Speaker 2 (05:39):
And you were early to AI, yeah.
Speaker 4 (05:42):
Yeah, and that's one of the risks of doing this
kind of investing. You know, there's a great quote from
Robert Schiller. Nobody has ever made a decision based on
a number. They always need a story. I don't know
if that's the exact quote, but another one of my
favorites is Kyle Harrison said that price is a number
(06:03):
today multiplied by a story tomorrow. And the way that
I ve be investing is it's always going to prioritize
a good story and a good narrative. And that's what
has the making of a theme, because you need people
to make the decision to execute a trade and move price,
and then you also need on the other side something
to actually happen in the real economy. And as far
(06:26):
as artificial intelligence, this kind of fast moving innovative theme
that we don't really you know, you can say what
is AI going to look like five years out and
you'll get five different answers from five different people. And
I started from a place of you know, which became
consensus very quickly with the picks and shovels, right, and
(06:48):
then the picks and shovels of the picks and shovels,
and then you get this thing where you know, during
the gold Rush, it wasn't just everyone showing up to
sell picks and shovels, just everyone waiting there. So we
have to kind of look now for this controversial thing
of does AI have use cases? And I think it's
(07:08):
pretty clear that it does if you're looking for it.
But in terms of like monitoring the way that it's
going to progress. I think the biggest component here is
going to be going from B to B to B
two C. And what I said about two months ago
was that the company that was going to make this
(07:29):
really happen, it's not going to be Microsoft, you know
with Chat, GBT and open AI. I think it's going
to be Apple. And you know, if any company can
get it done, it's going to be Apple. And you
have this kind of dynamic where you need something to
happen that forces people to use it. Right. It's kind
(07:53):
of like like Facebook, right, or social media in general,
where you know there was only so long you could
go without being connected to everything and everyone. And Apple
is you know, have you ever texted someone like, Hey,
I'm coming over and then you get in the car
and if it connects the car play, it'll give you
(08:16):
a notification that says, like, you know, directions to Joe's house.
Speaker 3 (08:19):
Yeah.
Speaker 4 (08:21):
Your phone knows everything about you, right, And your phone
knows who you are, it knows what you're doing, it
knows what you want to do, it knows who your
mom is. And that information combined with Apple's trust in
the consumer, trust and the idea that they place of
(08:41):
a high premium on privacy. You can't have this AI
assistant that knows everything about you if you think that
it's going to be stored on a server in Kubertino.
It needs to be on your phone. So the next
thing is how do we start having these big models
that you know that are in these very big data
(09:02):
centers and you know all this CAPEX that's spent on that.
Now we have to just like every other technological trend,
we have to miniaturize it, right, and we have to
basically have your phone doing inference, you know, sending to
those models, but also these smaller models.
Speaker 5 (09:15):
Can I push back on that real quickly because I've
given up every piece of information about my entire life
already to the internet at all. Yeah, of course I
have just by existing in the world, right and I'm
not and it all exists on servers somewhere in either
Kupertino or Amazon servers or whatever. What is it about
AI specifically that changes that need? Because like I said,
(09:39):
I've given I didn't I don't want to. But just
the reality of life in the world is my information
is already out there.
Speaker 4 (09:45):
So AI has two sides, training and inference, right, And
you can train on. You know, all this data that
you've already given up to the faceless kind of entity
that controls the world. But what AI brings about is
in real time drawing conclusions from that data. And it's
(10:09):
two sided. There's convenience and then there's privacy concerns. And
I agree with you that convenience definitely outweighs privacy concerns
when it comes to the consumer. But when you have
this ecosystem that Apple has created with this walled garden,
and then you kind of alleviate the privacy concerns and
you have this constant inference that's going on, and there
will come a time where you know, you'll be walking
(10:32):
down the street and you'll say, I just called Tracy,
you know a week ago. What did we talk about
and when did we say we're going to meet?
Speaker 1 (10:40):
Oh?
Speaker 4 (10:40):
Okay, can you text Tracy and tell her, actually, I
have a thesis that just got destroyed, so I don't
really want to talk about that one. And you know,
can you text Joe and let him know too, And
then can you look at my calendar when am my velvement?
You can be walking down the street. Yeah, And the
productivity gains from your phone doing inference and inferring what
it knows about you from that data.
Speaker 3 (11:03):
That's huge, real quickly.
Speaker 5 (11:05):
So you mentioned the picks and shovels and video, than
the picks and shovels who provide the picks and shovels
and people got to tell you about super micro and
the racks and maybe Dell super Micro.
Speaker 4 (11:16):
I never heard of it.
Speaker 3 (11:16):
I've heard of it, just so we're clear your long Apple.
Speaker 4 (11:20):
Yeah, I'm any name that I mentioned inherently, I'm automatically
going to be longer shot.
Speaker 2 (11:26):
Yeah, you mentioned the privacy concerns, and I just thought
back to this moment. My husband and I were in
our kitchen and we were talking about something really innocuous,
like corn or something, and suddenly Alexa started telling us
a joke about corn, and like we hadn't said Alexa
or anything like that, it just started talking like clearly
(11:48):
had been recording everything that we were saying. And I
will admit that that was that was kind of a
jarring experience. I would be less surprised if my Apple
phone did that versus my Alexa that I use to
turn on the lights and things like that.
Speaker 4 (12:03):
Yeah, it turns out that large language models are really
good at language.
Speaker 2 (12:07):
Yeah, surprising.
Speaker 4 (12:09):
I think that the next kind of picks and shovels idea.
The thing is everyone's always well, what are we going
to invest in that's doing the use cases? And then
those same people will come around and say, why are
you know these five stocks driving the entire market? And
the thing is the latency between a company starting and
becoming successful and doing an IPO has gotten a lot
(12:33):
longer in the past, like two decades, So if you're
a public equity investor, you might not really get to
the use cases that you can invest in are those
five stocks and combine that with you know, everything else,
and like you said, the uncertainty. When there's uncertainty, people
tend to crowd into things that they know are going
to work. I think that really the picks and shovels
(12:54):
thing will probably play out again. But when it comes
to EDJI and doing inference onto and kind of I
mean this is probably a controversial statement, but I think
that we might see the first real true replacement cycle,
like real replacement cycle where Apple comes out with the
(13:14):
new phone and it has all these productivity gains, and
it has all this new hardware, and you know, it
can do these things, and if you don't have that phone,
you can't do it, and it becomes kind of like
that sci fi movie Gatica, where you know, yeah, if
you're left out, you're you're just you're just left behind.
Speaker 5 (13:32):
I've been wondering about this because at some point in
my life it's stopped being important to upgrade. I mean,
at some point in my life it's stopped being important
or interesting to even tune into, like the new Apple events,
and those used to be big events online, and then
people stopped. And then at one point, if someone asked me,
what iPhone do you have, I would have told them
the anti Zycle. I have the iPhone five for whatever.
(13:53):
I have no idea which one I have right now.
I got a couple of years ago. It does everything
I need. I have zero idea which one it is.
So I've been sort of wondering. Yeah, So you think
that there's the potential, at least for some unlock of
new capabilities where the people who don't have that new
phone actually feel, oh, I really just can't interact with
the same way that people who have it do.
Speaker 4 (14:14):
Yeah, and that kind of replacement cycle drives that new
picks and shovels thesis where you're looking at all these
kind of you know, system on chip names, and that's
where I see this theme that you know, everyone is
talking about going But the thing about thematic equity is
that if you let it, it just becomes momentum investing,
(14:35):
because themes are stories, and stories translate into momentum very easily.
And when people do an association with momentum, they're always
thinking about kind of momentum inable market like what we've
been seeing. And you know that's not the case at all.
There was plenty of themes in twenty twenty two when
(14:56):
everything else was going down. I mean, tech going down
was a theme. You know, the interest rate hikes, the
inflation for the first time that you know, that's a theme.
That's a story that grabs people's attention and makes them
go to their terminal and execute a trade. And same
thing with energy, and you know, the war in Ukraine.
And so I try my hardest to it's super cliche,
(15:19):
but think a few months ahead at least.
Speaker 2 (15:39):
So for something like the US presidential elections. You know,
again things are currently up in the air, and you
can look at the polls and have a sense of
who might have a lead, but overall it's pretty difficult
to tell who's going to be in office come next year.
How do you start preparing for something like that from
(15:59):
an perspective.
Speaker 4 (16:01):
So if the question how do you start preparing the
answer early early, you start preparing early. Right. No, I
don't think that, you know, was anyone surprised that we
have an election this year? Yeah?
Speaker 3 (16:14):
Some people, Yeah, you know, some people really are because
of how few people have been paying attention.
Speaker 4 (16:19):
I mean, that's It's one of those things where I
think it's like when you're a kid and you touch
the stove and you get burned, and you're well, I'm
not doing that again. That's how I think the twenty
twenty election was for me. So as soon as I
saw that the year was an election year, I started
kind of preparing for this. This was back in January
(16:39):
when the odds of Trump even being a nominee, right,
or like being the Republican nominee, were like twenty percent.
It was relatively easy back then to look at these
very kind of exposed equities and say, this is a
swap I guess on Trump being a nominee.
Speaker 5 (16:59):
So I've ied some cell side research about who would
be exposed. One clever one the company five below. He
sells a bunch of cheap stuff, which you can't sell
cheap stuff if there's a massive tariffs on cheap stuff.
And that stock has been Oh that's a total dog.
That stock was over two hundred back in March and
now it's at one hundred and two. Of the time
we're talking about this, what stands out to you is.
Speaker 4 (17:21):
Being exposed depending on what the theme is there, I
create either a long short basket to kind of gain exposure,
because I don't ever want that kind of idiosyncratic like
single name equity risk where a company ends up doing
really well and has nothing to do with my actual thesis.
So I constructed a basket that kind of played on
(17:42):
a few different themes. Tariffs was a big one of them. Right,
So you look at how much comes from China. First,
you look at Trump's what he says, right, one hundred
percent tariffs, sixty percent tariffs that you know, and the
thing is protectionism from China. Trade that's not that's not
a part is an issue anymore. Right, There are no
(18:03):
China doves in the government. But Trump is certainly a
unique brand of that when it comes to the trade policy.
So that seemed like the most asymmetric way to kind
of capture that. So you look at five below for example, restoration, hardware,
floor and decor, you know, best Buy, these companies that
really do a lot of business when it comes to China,
(18:27):
and that's a lot of their impacosts and tariffs really
would affect them. And that's your short side. And then
you say, okay, well who is going to be all
right here? And that comes down to pricing power. You know,
if consumers start consolidating their spending because of tariff's, who
can kind of keep that pricing power regardless? And like Costco, Walmart,
(18:48):
some of the automotive parts like O'Reilly, that's your longside.
So that makes up one component of the basket and
then move on. Okay, And the thing is, for the
past three three years, one of my exposures to a
theme has been bidnomics. So you know, that was big
on electrification and infrastructure spending and generally fading the idea
(19:12):
that we could have a recession when fiscal policy is
spending like a drunken sailor. And we said, okay, well,
now we need some kind of offsetting beta. Here, we
need some Trump beta. And there are these orphan equities
like Fannie May and Freddie Mack. And you know, I
looked at the story and I said, I don't think
that that's going to happen. He didn't do it the
(19:33):
first time, but it doesn't matter because it's a story.
So people are going to take action based on that story.
Then looking at things like private prisons and law enforcement.
Speaker 2 (19:44):
I remember that from twenty sixteen that was like a
big Trump winner.
Speaker 4 (19:48):
Yeah, and that but that was when I was kind
of looking at this. That I think was the first
place that I start is basically sell side research is
to see what is being said. And there were a
lot of kind of well, here's how you know, these
equities performed when Trump was president, and here's how they
performed when Biden was president. And if you go into
(20:10):
anything like that with that kind of thinking where you're
just overfitting to like two periods of time, I mean
when Biden was elected, if you had that kind of thinking,
you would have went long clean energy right in short
and short oil, and you would have gotten destroyed because like,
no matter who's the president, there are going to be
bear of force as at work, so you really have
to try to specify and get rid of as much
(20:33):
incongruous kind of correlation. So names like Axin or GEO
Group or you know, Corcivic, those will probably benefit. I
had kind of a fun one that was a company
that makes the storefront glass for retail stores, because I figured,
no matter who wins this election, there's going to be
people that are angry.
Speaker 5 (20:54):
It's funny you mentioned fan you may equity because it
still exists there. It's like a cockroach. But I've always
though it's like the Boomer's crypto.
Speaker 4 (21:02):
It's like that.
Speaker 3 (21:02):
It's like if you look at like there is.
Speaker 5 (21:04):
A Fanny and Freddy Twitter, Yeah, and it's like they
talk the same way that people are talking about the
random token.
Speaker 4 (21:10):
But their money spends just as well, right, and it
moves the bid up. Yeah. So I think that I
came into this year all prepared, Right, here's how the
basket is going to look. The thing that really made
me the most satisfied about this, I mean, the basket
has done quite well because Trump odds went from twenty
percent of being the nominee to you know, sixty three
(21:32):
percent of being the president.
Speaker 3 (21:33):
Uh huh.
Speaker 4 (21:33):
And the performances tracked that pretty well. And there are
a few other aspects of that basket, but the thing
that obviously didn't make me happy because something that I
owned went down. But right after that debate, which I think,
you know, there were a lot of people that were
surprised by that, And I guess you could if you
(21:53):
were drawing a chart of like should I be concerned
about Biden's performance in a debate after the State of
the Union, and you you know, maybe you had some
moments where like he's talking about you know, where's that
lady that and the lady died three weeks ago or something,
or or you know.
Speaker 3 (22:08):
That there were signs, there were.
Speaker 4 (22:10):
Signs, but you know, I wasn't necessarily surprised by that.
And when that happened, the Bidenomics basket, you know, goes
down by five percent, and then the Trump basket goes
up by ten, and you know, that's kind of reinforcing
where it shows you that you know, you're not just
riding beta, You've been allocated to the right thing.
Speaker 2 (22:31):
I was going to ask, how you wait those respective baskets,
like a Biden long short basket versus a Trump long
short basket, but maybe maybe you equal weight it and
then the returns are asymmetric as you just mentioned.
Speaker 4 (22:44):
Yeah, there's some discretionary aspect where I think that you know,
something matters more than or that investors are paying more attention,
you know, don't. I didn't think back in March that
this tariff aspect was getting as much attention. I figured
that would kind of progress and get more attention as
the year went on, as Trump said more about trade policy,
whereas something that's you know, as first order thinking, as
(23:06):
you know, if Trump's president, We're going to need more
you know, border prisons or you know that. So the
waiting kind of changes throughout the course of the narrative progressing.
Speaker 5 (23:17):
It's kind of weird, like going back to if we
had a one hundred percent teariff on imported goods, and
this is a little bit of a sidetrack. I feel
like that would be incredibly disruptive to the way we
do economics in this country. And I don't have any
opinion on whether it be good or bad. I'll leave
that to others. It is sort of funny to think
we're going to have this big teariff, this big change
(23:38):
and how we interact with the world, and so we're
just going to take it all out on you know,
five billion dollar company five below. Like, I just have
a feeling that if we did have this wholesale orientation
of how we trade, like, they're not going to be
the only company that no effects.
Speaker 4 (23:54):
And I think when people kind of look at when
I share my portfolio with people, which you know, I
know some people are kind of neurotic about that, but
I'm not big enough to where I think that someone's
going to, you know, attack me. But when I show
my portfolio to people, they are kind of taken aback
by how many securities are in there. But the way
that I view it is, you know, I have diversification
at the security level, but I'm very concentrated in.
Speaker 3 (24:17):
These themes in the somatic level.
Speaker 4 (24:18):
Yeah, so like GLP ones might make up fifteen to
twenty percent of the portfolio, but it's not just Lily
and it's not just Novo Nordisk. It's also you know,
something like Torrid, which is a woman's kind of fashion
for plus size clothing.
Speaker 2 (24:34):
Oh, you would be short that one.
Speaker 4 (24:36):
No, So well think about it, right, you don't teleport
your weight if you're three hundred pounds and you go
down six sizes. First off, you're happy that you're losing weight, right,
so you want to show off, show that off, but
you're still plus sized.
Speaker 2 (24:52):
Oh I see, Okay, so you're.
Speaker 4 (24:53):
Buying clothes the whole way down.
Speaker 2 (24:55):
Ah.
Speaker 4 (24:56):
And then there is in fact, you know, like this
is like well documented, there is a re bound effect
from GLP one drugs. If you stop them, you regain
a portion of the weight.
Speaker 2 (25:07):
Oh so it's actually like the weight fluctuation that matters here.
Speaker 4 (25:10):
Okay. I mean, if you know anyone that's overweight that
struggled with their weight, they have these closets full of
just you know, various sizes of clothes. So you know
that the general idea is applying second order thinking to
capture a theme in not just the most obvious way,
because that's going to be the most crowded way. And
(25:31):
that's that's like I said before, you really want to
try to not just have this be story based trend
of following.
Speaker 2 (25:41):
Wait, I love talking about second order effects and I
have a bunch of favorite examples that I have probably
said on this podcast before. So I'll spare all our
listeners from repeating those. But do you have a favorite
sort of second order play.
Speaker 4 (25:55):
I want to hear yours first.
Speaker 2 (25:56):
Well, the one I always think about, Well, there's the
gummy Bear one, and then there's also like the Sawdust one,
Gummy Bear. Hold on, I'm gonna have to look this up.
Speaker 3 (26:06):
No, I remember what it was.
Speaker 2 (26:08):
Do you remember the gummy bear one? Do you remember
both of them?
Speaker 1 (26:10):
Yeah?
Speaker 3 (26:11):
Okay, well I don't remember the sawdust one. I'll look
up the chickens or something like that. And there wasn't
cows in milk, right, So after the.
Speaker 5 (26:18):
Housing bus, then there wasn't enough wood and there wasn't
enough sawdust, and that wasn't good for cows. And then
that was so there was less milk.
Speaker 2 (26:25):
So no one would have expected as a result of
the two thousand and eight housing collapse that you would
see milk prices go up because there was less milk.
But apparently that's what happened. Because the cows didn't have
as much sawdust, they weren't as comfortable, they weren't as productive,
and so there was less milk. And then what was
the gummy bear.
Speaker 3 (26:42):
Gummy Bear one?
Speaker 5 (26:43):
Was that this is what someone told us that due
to the collapse an auto production during the pandemic, that
there wasn't as much demand for leather for the seating,
and that a lot of the I guess gelatine that
was needed for gummy bears came out of that supply
chain or something like that, so it affected gummy bear
production when the chip stopped coming.
Speaker 4 (27:04):
I mean, I would love to meet the person that
predicted that. Yeah, right, right, if you. And so when
it comes to what I do, there is kind of
like a you get kind of deferred in your ability
to be like, yeah, called it, you know, because I
don't forego security analysis entirely. I don't, you know, I
make sure that if I'm shorting a company that it's
(27:25):
a bad company, or if I'm buying a company, that
it's mispriced and you know that it has upside. So
you never really know for sure. And sometimes even you know,
they'll get on the earnings call, especially if it's like
a short and you know what or you think you
know why it went down. You know, this is like
the last time I was on, we talked about the
Titan Stabler. Oh yeah, right, And obviously they eventually started saying, well,
(27:50):
this probably has to do with those weight loss drugs.
But you know, in the beginning, when it's going down
and when the company's you know, seeing decreased revenue, sometimes
it takes them a little bit to like realize what's
going on, and sometimes they never do.
Speaker 1 (28:01):
You know.
Speaker 2 (28:01):
Well, I remember that about restoration hardware too, because it
started going down like a year or two ago, and
people were worried about like, oh, this is a recessionary signal.
And I remember seeing this online and basically saying like, well,
maybe it has more to do about with restoration hardware
specific things and issues there rather than macroeconomic conditions. And
(28:23):
people went nuts. But that's exactly what it was, right,
Like the renovation boom and the furniture boom continued for
some time after that.
Speaker 4 (28:30):
Restoration hardware, Yeah, it wasn't a recessionary signal, but there
is a great signal to be had in the story
of restoration hardware, which is if you own a company
and the CEO starts coming on and spends half the
earnings call talking about macroeconomics, Oh yeah, sell that.
Speaker 2 (28:43):
God, that's a bad sign.
Speaker 5 (28:45):
That's a good yeah that It was like a famous
conference call, and it was right in twenty twenty one,
and it was sort of like an equivalent of although
one of the best moments on TV. Ever, like the
Kramer they are nuts or whatever, They're blind at the
FED in two thousand and six or seven about Bear
Stearns and he went on, He's like, they have no.
Speaker 3 (29:01):
Idea what's coming on recession. Recession.
Speaker 5 (29:03):
A bunch of people took that seriously, but it seemed
like a restoration hardware story, and then the rest of
the economy just kept chugging along.
Speaker 2 (29:11):
Wait, there are times when uncertainty kind of rears its
ugly head and does wreck some investment theses. Maybe wreck
is a strong word, but I know you were, for instance,
looking into how to play water and water shortages in
the future. But lo and behold, a couple of weeks ago,
the Supreme Court made a decision having to do with
(29:34):
something called the Chevron deference that seems to have caused
additional uncertainty for that particular thesis. Can you walk us
through what happened there?
Speaker 4 (29:44):
Well? First off, water in the realm of thematic equity,
water is waterloo kind of it's this battle that it's
always a good idea to be long water. If you
think the GDP is going to go up, unless you're
in China, where water use has actually declined as VP
has gone up because they've been really serious about efficiency.
But the idea is, if you buy water, you're never
(30:06):
really going to blow up, you know, unless like really,
unless it's like global financial crisis. You'll be pretty safe.
You can. There's always going to be some doom and
gloom about water. So if you get on the phone
with an investor, you can say, well, we own water
because of you know, here's this big report from whatever.
You know. The end it says that you know, water
scarcity and this then and the other thing, and you
(30:28):
ever see well, you guys, obviously have you've seen the
movie The Big Short? Correct? Yes, so you know how
that movie ends the last scene less?
Speaker 5 (30:35):
Oh yeah, And I didn't understand it. It was like
these like title cards and they're like next Water and
then it faced them like I was like yeah, and
then he's like oh and he's buying Almond Firms and
I was like they like left it hanging. I was like, yeah,
what's the I didn't get it. That was Michael Burry
Michael and now Next Water Firms and then they fade
to black we're just ending to a movie.
Speaker 4 (30:56):
Ever, so yeah, I think like when the levee breaks
is playing in the background, and you know, but it's
really dramatic, right, Michael Burry that you know, our protagonist
is only investing in one thing, ellipses water. Yeah, And
you know that's the way that this thesis has kind
of been presented for decades, where it's this kind of
(31:17):
apocalyptic you have. You have this idea in your head
where I mean everybody has this, and it's like an
evolutionary fear. The water has to be okay, the water
quality has to be okay, and there has to be
enough of it or else we can't do anything. So
it's always been that kind of thing. And I really
(31:37):
didn't want to just write about water because it's like, well,
you know, here's what's going on with water. So I
wanted to focus on the non apocalyptic parts. And I
don't want to buy anything because of pessimism. I want
to you know. And what had happened was these microplastics,
these forever chemicals. The EPA handed down a law that
(32:00):
mandated that you have to control the level of microplastics
serve as their you know, p fas, right, so I
spoke with people in the industry, and everyone is really
really excite. If you are in the business of you know,
remediation or you know, making sure that the water is clean,
you were really excited about this and probably still are.
(32:23):
But the thing about thematic investing is that uncertainty is
kind of anathema to it. Where people want to buy
on a story. You know that drugn Miller quote. I
made one hundred and twenty percent of my money on
the simple obvious ideas and lost twenty percent on everything else.
And that's kind of the way that I viewed these
(32:46):
themes where you want this cultural touchstone. You want everyone
to realize that, oh, this is going to be big,
this is a big deal. And whether that's you know,
in a niche area or in a wide ranging area,
that is less important. But it has to have that moment.
And when you have something that adds uncertainty, even if
you disagree. Right when it comes to what happened with
(33:07):
the Chevron deference, in the simplest possible terms, basically the
stated policy has been for the judiciary to defer to experts.
So if you have you know, yes, exactly, and obviously
the campus small government doesn't love this because they view
this as you know, unelected technocrats that are kind of
(33:29):
driving policy. And what happened with Chevron defference was for
a long time, if you have the EPA saying no,
this is bad, they would say, okay, yeah, probably you know,
you know more than I do. Now with this ruling,
that is not the case anymore, right, and that has
wide ranging impacts that I don't know because I am
(33:51):
not an attorney.
Speaker 5 (33:53):
And so the basic gist with water here is that, okay,
there was a theme, not the apocalypse and of water,
but this assistant demand for water cleaning due to microplastics.
Speaker 3 (34:03):
The EPA had put down this.
Speaker 5 (34:04):
Rule, and the Chevron ruling by the Supreme Court raises
ambiguity about the teeth of that, or the enforceability or
the persistence of that. And this is the kind of
thing that's toxic to a thematic investor.
Speaker 4 (34:17):
Yeah, and you know, I still believe that that thesis
is fine. I mean, I look at it, and I've
spoken to attorneys and they say, well, you have these
two existing appeals, but this happened before the Chevron deference ruling,
so you have to track those appeals. But that's the
only thing that matters. This isn't going to change. You know,
whatever was going to happen before this ruling, that's what's
(34:38):
going to happen now. If those appeals are you know,
overturned or upheld, that's what matters. And I think that
it's still going to work. But the thing is, I
was playing this story and I'm playing the fact that
you know, like a week after I wrote about it
started becoming this like cultural thing. You see these memes
(34:58):
on Twitter about like microplastics and.
Speaker 2 (35:02):
In certain parts of the Male anatomy, Yeah, this goes
on the radio. So I think we can't say yeah, I.
Speaker 4 (35:08):
Mean, I stop myself. You're the one that said it.
But you know, it's the idea where nobody can be
okay with the water. And there's always been an issue
of payers like to see things. They like to pay
for things that they can see, so they like to
pay for the roads being fixed, or they like to
pay for like new things being built, but you don't
(35:30):
really see the water. But with social media and the
idea that you can make everyone aware of like microplastics,
and there's so many emerging contaminants out there just from
you know, the on a bashed capitalists, progress and industry.
So I still think that there will be companies that
(35:50):
will make a lot more money because of pfas. But
for now I have to say, well, I don't know
if the risk is worth the reward here. Maybe I'll
just wait until these appeals are decided and then the
story can progress.
Speaker 5 (36:19):
I want to talk a little bit more about the
AI story where we started, and so, first of all,
Druck and Miller, there were two instances in the last year.
I was just like, so he said something about like
Chad GPT came out. He knew that they were training
on in video chips and he went long in video
and killed it. And then there was the story of
Javier Mila having won in Argentina and claims that he
(36:39):
went on perplexity AI and should I invest with Argentina
and it gave him some ETFs and he bought them
and he did well. So much admiration for this sort
of simplistic thinking, and well done to him. But here, okay,
the sort of Chad GPT AI and video thing very
well known, and now there are all these questions about, Okay,
(37:00):
a lot of money is being spent on chips and electricity,
and is there going to be this payoff or will
who will get the payoff from that? How do you
think about that specific question outside of Apple and I
understand your argument about why they're in the position to
actually deliver valuable services in the broader world, businesses feeling
(37:21):
like they need an AI strategy or needing it to
like complement their software, how do you sort of begin
to answer that question.
Speaker 4 (37:28):
Well, it seems like the question that you're asking really
is is it a bubble?
Speaker 5 (37:33):
Well, there's two ways that it could be a bubble, right.
There could be people who are just overpaying for the
stock because they feel like I want to ride this wave,
or businesses overpaying for the capex because they think that
they need to do something with AI to be in
the game, and it turns out that maybe they don't.
So I'm actually kind of interested in the second one
of not whether there's an equity market bubble in AI,
(37:55):
but the question of whether the business investment which is
pouring into AI related things will materialize as results in
revenues for the company spend.
Speaker 2 (38:05):
It's sort of the idea that Okay, everyone has to
develop their own in house AI offering to compete, but like, actually,
maybe in five years time we find that everyone just
buys an off the shelf AI thing and plugs it
in like they do Microsoft Word or whatever, rather than
spend billions like on their own thing.
Speaker 5 (38:23):
And whether the sort of quality of the services that
an AIOD could produce for the companies, whether it's a
software company like Salesforce or whatever it else, actually turns
out to be something valuable that they can resell and
get capture value from their end customers.
Speaker 4 (38:39):
So I think the answer to your question, or at
least some color on that question, is I don't think
that there's ever been a truly revolutionary technology that has
not been accompanied by some excess capex that we look
back and we say, well, that was wasteful, right, because
(39:01):
when we look back, we also have the benefit of
seeing which areas get commoditized, and we look at how
cheap you know, whether it's broadband or you know, you
can go all the way back to the railwayman roads, Yeah, yeah,
you can. You know. The thing is, you know, without
steam engines, we wouldn't have trains, and without trains we
wouldn't have planes, and without you know, and there was
(39:23):
this progress that was made and it catapulted forward the
human race. But that doesn't necessarily mean that they were
responsible about it, right, that they built too much, they
built too fast, they financed capital projects through equity sales
at extremely elevated prices, and you know, I mean, but
(39:46):
that doesn't change the fact that during the railway Mania
the total route mileage of railways in the UK went
from you know, like eighteen hundred miles in eighteen forty
three to six thousand miles in eighteen fifty, so two
hundred increase in seven years. And you know, maybe we
have to ask ourselves sometimes, do you need this CAPEX
(40:07):
bubble in order to progress the technology?
Speaker 3 (40:11):
Sure?
Speaker 4 (40:11):
And I think that yeah, there are certainly areas, and
I don't think that we'll know exactly where we say
well that was irresponsible or where we say well that
was a great business decision because you look at you know,
it obviously is intertwined. You can say, well, I care
about the CABEC side, but I don't care about the
stock market side. But you know, the companies can sell
(40:33):
equity and fund cabex with that. And you look at
some of the cell side estimates on electricity for example,
and I have a great screenshot or actually it might
just be an actual picture because I think this was
in nineteen ninety eight or and it's of a cell
side report that is talking about the info electric revolution
(40:58):
and the fact that if everyone is going to have
a personal computer, and every personal computer is going to
be connected to the internet, well, you know, that's going
to be a billion dollars or a trillion dollars of
spending on computers, and then there's going to be a
trillion dollars of spending on the electric grid, and the
electricity demand is going to grow at a thirteen percent
keger for the next two days.
Speaker 2 (41:18):
It sounds very familiar.
Speaker 4 (41:19):
Yeah, yeah, it sounds super familiar. And then you look
at electricity demand over the last twenty years and it's flat.
And I think that that's just a natural progression of
a new technology. That's something that almost has to happen
where you have you know, if you want to deliver
the promise in certain places, it's going to be overstated.
(41:39):
And do we need a better electric grid? Yeah, we
really need better electric grid. It's it's terrible, especially in
some places, it's just terrible. Maybe what we need is
for data centers to get built in areas where they
can just revise the electric grid. But I do think
that there are areas where we'll look back and say
that was arissible cap E spending.
Speaker 2 (42:02):
What would you need to see to take money off
the table from some of your AI plays or have
you done that already?
Speaker 4 (42:08):
I'm always taking money off the table. It's not even
a question of like, I mean, my job is to invest,
not to not invest, and it takes a lot for
me to sell something and go to cash like a lot.
You know. I'm a strong believer that there's always an
opportunity somewhere. That got put to the test in twenty
twenty two, and there were there were opportunities in planning
(42:29):
places on the long side of the short side. And
I think that when I make that decision, I'm not
saying do I think that this has reached a peak.
I'm saying, do I think that there are better opportunities elsewhere?
And sometimes that is just the natural progression of some
a narrative in the market or just real things happening.
(42:52):
I mean, in Nvidia has pretty much priced in the
idea that we need to build out these data centers
and now we have to say, Okay, well what else
are we gonna do? And you know, I mean, it
doesn't matter if I'm a believer or non believer. It
only matters if the market is all right.
Speaker 2 (43:10):
James Vanguila and from Succrini Research, thank you so much
for coming back on all lots.
Speaker 4 (43:14):
Thank you.
Speaker 2 (43:14):
That's fun. Yeah, Joe, I enjoyed that conversation. I like
just thinking through investment ideas.
Speaker 5 (43:32):
No, I like that one, just getting to like think
about you know. So, actually what really struck me was
his comment actually in.
Speaker 3 (43:41):
The water part of it.
Speaker 5 (43:42):
Yeah, well, what becomes the fly and the ointment of
a thesis? And why when does it become like, Okay,
here's a theme, but it's just not going to take hold,
yes hard enough, so to speak, such that it becomes
a real investing theme. And so the idea is like, yeah,
there probably is going to be a lot more demand
for filtration in the future to clean the water. But
(44:04):
with a little bit of a regulatory ambiguity now in
the wake of the Chevron decision, then suddenly like this
is just not going to take hold the way it
might have in a different decision, and therefore it's not
going to be quite as powerful as an investing theme is,
Like it.
Speaker 3 (44:19):
Was very useful.
Speaker 1 (44:20):
Well.
Speaker 2 (44:20):
I thought the framing of price and story mattering to
thematic investment was important because there is a situation where
you can be a little bit too smart and you
see something that no one else possibly sees, and then
you know that something just never gets reflected in the price,
like there happened instance of that, instances of that throughout history,
(44:44):
and so you really need both the I guess the
underpricing or you know, at least the price to be
like relatively attractive, plus the momentum provided by that story
to make really compelling investment. And then if you get
something like in video where you know, at least up
until maybe the beginning of last year, it was underpriced
(45:04):
certainly relative to where it is right now, plus all
that attention from investors, then you got this massive winner.
Speaker 5 (45:10):
I'm so impressed by those drunken Miller comments where he's like, oh, yeah,
they used in video chips for chat GBTAI seems like
a big deal.
Speaker 3 (45:17):
I'm gonna go along, and whereas me, I'm like, oh,
they already know.
Speaker 5 (45:21):
Everyone knew that they were like using in video chips
so it's all priced into the market.
Speaker 2 (45:26):
But that's why there are a lot of people saying,
like a year ago, that it was all priced in.
Speaker 4 (45:31):
Right.
Speaker 2 (45:32):
Yeah, I hadn't seen that five below chart either.
Speaker 5 (45:35):
That's no, so I hadn't looked at the chart in
a while. But it really look if you.
Speaker 2 (45:41):
Have a one hundred percent over two hundred to like one hundred,
if you a few months, lety.
Speaker 5 (45:46):
Just put that there is not much you could sell
for five dollars in below in the world, in a
world of one hundred percent tariffs.
Speaker 2 (45:53):
Yes, I'm sure there's a pun you could do then
about the stock price being below. Oh yeah something, But okay,
shall we leave it there.
Speaker 3 (46:01):
Let's leave it there.
Speaker 2 (46:01):
This has been another episode of the All Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 5 (46:07):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow Ergust James van Gielan, He's at Saitrini seven. Follow
our producers Kerman Rodriguez at Carman Ermann dash Ol Bennett
at Dashbot and Kilbrooks at Kilbrooks. Thank you to our
producer Moses Ondam for more Odd Lots content. Go to
Bloomberg dot com slash odd lots, where we have transcripts,
a blog, and a newsletter, and you can chat about
(46:29):
all of these topics twenty four to seven in our
discord discord dot gg slash.
Speaker 2 (46:33):
Od lots And if you enjoy all thoughts, if you
like it when we talk thematic investing, then please leave
us a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
all of our episodes absolutely ad free. All you need
to do is connect your Bloomberg account with Apple Podcasts.
In order to do that, just find the Bloomberg channel
(46:54):
on the platform and follow the instructions there. Thanks for
listening in
Hosts And Creators
Joe Weisenthal
Tracy Alloway
Popular Podcasts
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com