Regulated to Unleashed: Finding Inflections in Deregulation

Summary

• Deregulation: The conversation centers on how deregulation creates inflection points across industries, often leading to consolidation and higher long-term returns for surviving leaders.
• Airlines & Railroads: Extensive discussion of airline deregulation (1978) and the winner-take-all dynamics that benefited Southwest (LUV), with parallels to railroads’ efficiency gains and consolidated market structures.
• Banks & Insurance: Banking deregulation in the 1980s–1990s spurred M&A and efficiency but also riskier leverage; insurance (e.g., auto P&C) illustrates how regulation can entrench incumbents like GEICO within standardized products.
• Gambling & Cannabis: Legalization and advertising freedoms in sports betting and cannabis can unlock growth, but also intensify competition; interstate commerce, taxation, and licensing are key profit drivers.
• Utilities & Energy: Regulated utilities with ROE caps (e.g., Berkshire Hathaway Energy under BRK.B) and natural gas deregulation highlight trade-offs between stability and boom-bust pricing cycles.
• AI & Tech Policy: AI’s rapid adoption may outpace rulemaking, creating opportunities and regulatory risk, with potential downstream impacts on insurers and platforms like Google.
• Company Deep Dives: Crocs (CROX) earnings and guidance reset raise value-trap vs. value-opportunity questions; FICO (FICO) faces monopoly/price scrutiny; Apple (AAPL) exemplifies political signaling as a strategic business cost.
• Investment Approach: Favor durable low-cost operators in post-deregulation shakeouts (e.g., LUV), watch for advertising/licensing advantages, and be cautious of monopoly-like firms drawing regulatory focus.

Transcript

Welcome, welcome, welcome. How's everybody doing? Hope you are doing well. My name is Andrew with Focus Compounding on Air Live with Jeff Ganon. Jeff, how's it going today? >> It's going very well, Andrew. How's it going with you? >> It's going great. We hope it's going great with everybody else as well. If this is the first time you're tuning in with us, thank you so much for joining us. Be sure to check out all of our content that we push out to the investing universe. The best way to do that is to follow me on X at Focuscompound. Uh, go to focuscompound.com to get access to investment rights from Jeff going all the way back to 2005. Uh, and of course, make sure you hit the subscribe button wherever you are listening or watching us here today to be notified whenever we upload a podcast. Uh, so Jeeoff, I'm going to switch over to my screen right now. Let's look up a company that we spoke about last week. >> Crocs. >> Talked a little bit about this on our gross profit and gross margin podcast. It's down 25% right now. Uh they reported earnings and um I guess they guided lower and I think this is probably what spooked the market. I think so. Topline grew 3.4%. Uh but in the CEO's remarks he said while we are pleased by this performance the current operating environment is uncertain and challenging to predict. Against this, we have chosen to focus on managing expenses, including the 50 million in cost savings we have already implemented, reducing our inventory receipts and pulling back on promotional activity to protect brand health in the marketplace. Although those actions will impact the top line of our business in the short term, they will position our business to win, drive margin dollars, and support continued cash flow generation longer term. >> It's interesting at the beginning, they also say it's the highest gross profit that the company's ever had. So their problem is operating expenses below that which could be selling expenses too which are not part of gross profit but you know that's the promotional part they're talking about. >> Yeah. And then you could see what's funny is so they break out the brands right Crocs grew 5% year-over-year but the Hey Dude brand uh fell about 4%. Um and then I highlighted this. So third quarter 2025. Given the continued uncertainty from evolving global trade policy and related pressures around the consumer, we will only be providing third quarter guidance for the third quarter of 2025. We expect revenues to be down approximately 11% to 9% compared to the third quarter of 2024 >> at currency rates as of August 4th, 2025. Yeah, I don't remember if they get if they do everything from um China or China and Vietnam or Vietnam. I don't really remember with the company where they source it from, but so the tariffs obviously what's China at 30% or something and Vietnam would be lower than that. But that's >> kind of weird that they said 11% to 9% instead of like 9 to 11%. >> Well, because they're saying revenues will be down. So they didn't put it in parenthesis, but I think what they're saying is 11% is worse than 9%. You know what I mean? >> One thing that was interesting, too, so they took an impairment. >> Okay. >> And they ran it through their SGNA line, >> which you don't typically see. I mean, isn't I mean, it's it's it's you you can do that obviously, but yeah, >> I don't see that I don't see that often that they run it through SGNA. Usually you'll see like impairment, right? And they break it out. But I just thought that was interesting. caught my eye, >> right? They didn't put in like other income net and those things. They put it in an actual category which is an extremely conservative way of doing it. So either they want to take a big bath on it, you know, to say this quarter was bad and put it in there with everything else or they're, you know, I don't know the management and stuff. That's very conservative way of doing it. It avoids having to report next year, okay, we did an impairment this time but not this one that we did through that. You know, it would complicate the the uh statement a lot if you do that. And once you start doing it, it's hard to stop. So, I mean, Bergkshire, I think, would do something like that. >> Yeah. >> Yeah. >> Funny. You never You don't see too often uh companies have like the green accounting or or like uh I don't know what you want to call these little lines right here. The only company that I remember would do that is Green Brick Partners, which I thought was funny because like their name was Green Brick, you know, and I'm like, "Oh, they're keeping everything green." Um but yeah, kind of just a random observation. No, I like that because uh the biggest problem when talking to people is they read across the wrong line. You know, when someone gives you a bad number, you can tell that the reason why is they can't tell which row is which row. So, that's good. >> Mhm. So, down 25%. Obviously, uh company was trading at a low multiple to begin with. So, um you know, that's going to be down um to even a cheaper multiple. you're gonna see growth slow down a bit, but yeah, I don't know. I mean, it's What is this? Is this a value trap or is this a value investment? What are your thoughts? >> Well, it's cheaper versus sales and gross profit than before. Yeah. Um, it's a very competitive market, probably more for Hey Dude, for Crocs. Um, but just because it's like a lot less differentiated probably, but we kind of talked about that before. There's a lot of these um uh brands, right? um that are all spending a lot on on advertising and things like that. Um so >> yeah, interesting. Anyway, so in today's podcast, Jeeoff, we're going to be talking about investing in regulated industries and perhaps the the opportunity that comes from investing when deregulation comes to specific industries. We could talk about Buffett, his experience doing it. we could talk about current themes of deregulation that we currently see and then also just uh companies that we've come across in the past where they do operate in a regulated industry. Right? So, but before we jump into that, maybe it'd be good to sort of give like a uh a backdrop of, you know, how you typically think about, you know, regulation, how you think about when you see a particular industry go through deregulation. And you know really it's something that investors should pay attention to because especially on the deregulation side that could be like an inflection point in the industry in the business where perhaps maybe uh the company wasn't able to advertise in the past. We could walk through a bunch of different you know things there. Um or perhaps maybe they were taxed more and now they're not going to be taxed more or you know a common theme that people are familiar with could be like gambling. Now they're able to do it. They're out of prohibition. So let's start from the beginning and and talk about how you think about regulation and and maybe more importantly deregulation. >> Yeah. So all company a lot of companies will say we operate in a highly regulated industry. The question is what do they mean by that? So some of the regulations for things are just um regulations for safety things how they operate um whatever that don't have big economic impacts. some do uh some that you said actually like um regulation of some kinds um can be beneficial to incumbents that are large specifically people listening to this podcast know financial services type stuff so a lot of additional regulation that usually benefits the biggest companies I mean that's one of the biggest issues when we talked about like um um your uh western unions and things like that the biggest barriers to getting into that is just how much do you want to be sued go to prison etc if you put in place any um rules about you know so that you're just not wiring money for cartels and things is what you do. So the bigger companies can obviously have much bigger compliance things and stuff like that. So sometimes regulation can you know reduce competition and improve things for for a com some of the companies and then deregulation like you said is a question of what is being deregulated. So the ones that you gave examples for like providing a product or um promoting it or something could be really big. But on the other hand, you have ones where there was price regulation and then that was removed and you know most airlines are out of business, most brokers are out of business where they lived in a world of fixed prices that were set in part with government approval and then you know you can just charge whatever you want and then it's a race to the bottom and a lot of them that were less efficient went out of business. So it could increase like extinction rates for a lot of companies too. Um and then have winner take all type things for that. So >> I think it depends on which one we're talking about that way like what kind of regulation. But the problem what I was saying is that you look it up and in 10Ks 10 Q's they're not going to make big distinctions between ones that are really seriously regulated and ones that aren't. You know they all kind of have the same sort of language in them. Mhm. So we could talk about we group together five common regulations that you see um and you have price controls, you have advertising, you have product bans, quotas like specific quotas and then tariffs, right? It could be like a form of regulation. So let let's go through that, right? And we could talk about different examples of uh each specific thing. So like price controls for example. Mhm. So formerly in the United States going way back uh insurance generally was price heavily price controlled to not give the best price to um insurance buyers but to ensure the safety of the insurers that and then not long after like not that long after that Bergkshire when they started going and everything that was changing um banks having you know until you had SNL stuff where they were allowed different rules and whatever a lot of them were not allowed to pay as much interest as they might want to again to avoid that kind of thing where they could be failures. Um so sometimes you're not allowed to compete as heavily on price for that reason. Um you could have price controls going the opposite way too. Um that causes a scarcity issue and that happens sometimes too which then you can't when you have price controls the other way then you can't necessarily supply the quantity that you want. So, I mean, when you have a control from a government or anyone, you can usually pick either the quantity that can be provided or the price. But if you set one, then it's going to set the other one out of whack with what would normally be what you know people want. So, if you say you can't charge more than X for gasoline, you'll have lines for people to fill up with gas because you'll run out. If you say there's no limit to that, then you can supply on quantity freely, but then price is going to be at a level that governments wouldn't want to see. So um so it works both ways on that >> um advertising. So I mean you have even certain cannabis companies right now they can't advertise um that at least the way that they would want. You can think about like tobacco and liquor at once upon a time they couldn't advertise um you know and and sometimes if you get deregulation right now you can advertise now you could do all these things that could be that inflection point that happens at the company right um can you think of any other >> yes the are there examples of US companies and other companies but especially US that continued advertising their product when they couldn't provide in a foreign country with the assumption that eventually the rules would be changed back so that they'd be able to get their product in and then they'd be able to make money off of it. And that was very successful versus stopping your advertising completely because then if you have a product that you can advertise but people can't get then when that changes you're able to um uh be the leader in that right and then the other one is dual use stuff. So that's other way that some got huge advantages. So like uh I think we've talked about Turning Point brands before. The Zigzag brand is because dual use. Um certain other things like that are the same because it's allowed to be able to do whatever it wants because theoretically it's roll your own cigarettes and so it was able to be >> installed that way. Yeah. And so it's free to do that whereas others who were starting out from scratch wouldn't be able to do that. Right. So you can get in with that. There's plenty of that. I mean you know big one for that is drugs, right? They advertise the drug is advertised in only one way for what it's good for. But if you do talk to your doctor about it and everything, then there might be other uses for it that are further off label from what it was originally tested on. >> And sometimes those are bigger than what actually was originally. Um, you know, so being able to do some advertising and stuff can help that way too because the big thing with the deregulation regulation that we're talking about is having an advantage versus others at the time that the big, you know, bang happens in terms of either regulation slimming things down or deregulation allowing things to be open. Do you have a kind of first mover advantage, something there already? >> Um, that that's kind of the big thing. Mhm. So like being maybe like the lowcost producer or having the business in place where you've been waiting for that deregulation and now it's like go time basically. >> Yeah. So gambling things is to just already have any other form of gambling even it's really small in a state so that when it changes to allow other things >> mind share. >> Yeah. So uh horse racing tracks getting sports betting you know I mean they got the sports books and things first. Uh we talked about some other racing things where they let them put in slot machines and everything. So you know there's a tendency to not once you have that now that's a little bit like permitting too. So licensing or permitting is a really really big one. It's the same thing which is that once one is granted um it's much more like it almost always is the case that that's gets expanded instead of granting a new one almost always. So, even if you can get permission to have a small operation, that's something that people don't really want, small strip club, small uh disposal of, you know, landfill type stuff, small junkyard things, whatever. Um, we talk about lime things, you know, anything that pollutes or is dirty or whatever. Once you can get that, then of course you could just, it's usually easier to get permissions to expand that than to have local governments and things agree to put another one in. So you might overpay to get in that first time so that you can be part of it when you do expect that to change so you could have something more profitable. >> I mean the big thing like local ones is there's towns where the liquor license is worth more than the the entire operation of the restaurant because that's all that someone wants to buy. >> Sure. Why do regulations get implemented and then I guess like why do they get implemented in the first place and then eventually get rolled back? like what happens from point A to point B there? >> That's a good question. Uh it's totally different in different countries. I mean we're thinking of p mostly from a US perspective which I think is pretty different from most countries. So um there's a few reasons. uh one sometimes that we could talk about is which are the ones we tend to think of as the regulated industries are that they want a monopoly type outcome or it's natural for a monopoly type outcome but they want to not have excess profits to that. So they want something which would dominate and earn really high returns on capital to earn only normal returns on capital that would be the present in a competitive industry right so that's you can think of utility water things whatever things like that other kinds of regulations can be much more complicated they want to kind of pick the winners and losers there's things about fairness popularity there could be all sorts of different reasons um and sometimes the regulation might not necessarily I mean a lot of times the regulation will be because of something sens ational in terms of news things sort of like popular crime kind of causes the same thing where something about it gets people's attention and stuff so you know the obvious one recently is the United Health and stuff right so that kind of thing then can lead to just regulation because there's just a focus on the industry for whatever reason uh you saw that with financial crisis and all that it could be reasons to fix those things and Ron Sarbain Oxley to fix those things but it also could be that it's just people are paying attention to that for for the first time you know if if 60 Minutes doesn't run something about Luxodica or something, no one's going to pay attention to how much money you're making in eyewear things, right? So, it has to be something like that. Um, and actually a really big reason tends to be it's picked as a popular thing for either an individual person to get a lot of attention as a politician or a party. So, there's a push. Um, yeah. So like you talk about prohibition and that was huge and prohibition was pushed by a different kind of party system in the United States than otherwise. It was a huge political movement that got a lot of votes and everything. So it was a really big deal. Um and so it was a big political type movement. Um more so than the the people who had already been elected and everything weren't likely to support it, but people who could get elected on that platform really changed things. >> It was basically a feminist movement. >> Yeah. It was a femin so progressivism means something different today than it did back then and stuff. But it was a progressive movement. Um which has to do with a bunch of things that were considered liberal things but liberal means something different today in the United States than it did then too. But yeah, it was a reform movement for a lot of change from what it had been before. Yeah. >> I could tell you who did not want um you know alcohol to become legal. Probably the mob, right? >> Yes. Uh so that so that is the other side of it which is this has huge implications for organized crime and stuff like we're talking you know like you were saying and and the same thing happened with um a lot of the drug things that people don't want to think about. So even drugs that are pretty soft, drugs that people, you know, are like the well, you know, who cares that it's being used and it's illegal, but we're not really enforcing it makes a lot of money for um organized crime and then goes into a lot of other things. Whereas then it shifts to more acceptable economy. Who makes the profits completely shifts, right? So someone's going to make profits if there is some gambling, some drinking, some whatever. But if it shifts over into more legitimate things, then who makes that changes, right? So I mean you can look at Las Vegas for that. You can look at anywhere shifted who there was profits before but who is making those profits has shifted. Yeah. >> Yeah. Like I mean pre uh gambling coming legalized in you know pretty much all states right? Um I mean who was the bookie before? I mean that whoever that was obviously is is out of business today. I think with cannabis, you can make a case as well, like if you want to go against the cartel, what better way to do that than to legalize cannabis. >> Yeah. Well, they have lots of profits and and it it dropped a lot now. They make money from other things now. Things that basically function like heroin but aren't heroin. That's their big profit center, I think, now >> imports of those kinds of drugs that are technically legal drugs, but they control. Yeah. >> So, uh product bans slashrestriction. So, cannabis, gambling, crypto. I mean, even think about since even doing the podcast, how much the tone has changed as it relates to crypto and like tokenization and the blockchain and the SEC and most people like Brian Armstrong, Coinbase, they're like, "We want to be regulated. Just regulate us and tell us what we should do." And oftentimes there's sort of uh blue sky between you know waiting for that to actually happen because you you know you look at like I think about when we were talking about first movers look at what Airbnb and Uber did. So they were this new concept first mover and they sort of made the regulations or or the regulations were made around them because Airbnb for example in some cities couldn't operate. Uber was the same thing. they fought them and and you know >> it's exactly so what you said is kind of true but also from them is kind of disingenuous. They need to be the first ones to move and to do that and then once they're in a position where they're leading when there's questions about whether it'll be banned or anything then they need to have the regulations come in. So it's very very similar to the history of Southwest Airlines. So Southwest Airlines was deregulation which was allowed similar to like crypto and these things through a loophole which was intrastate travel. So, the United States because the Constitution, the way it works, federal government doesn't um basically doesn't have it. It's changed a little bit for some things, but it doesn't have uh the ability to really regulate commerce that occurs only within a single state that has no effect in other states, but as soon as it crosses state lines, then it's able to have the federal government do that. And all the regulations for airlines was federal government stuff. There's a company in California that operated just in California. And then they realized that there was another state that would be even better for an airline to operate in because it's the size of a country with the population of a country and economy of a country which is Texas. So you could then compete without the regulations there. But it took them years to be able to um actually take off, right? Because they were sued by every incumbent airline there. Uh there was a lot of political support for those things and not for them. And then they basically had to just go ahead and do it and violate rules. I mean, you can listen to what was it I think uh how I was it called how I built this. One of those podcasts that that had Herb Keller on it, but that's if you want a really simple example of that. And so they had to violate all sorts of things. There was a rule that caused them a problem with um being able to discount and stuff. And so they gave people free alcohol because that was allowed with it with the pricing on it because they didn't want to change their price when other people came in to price underneath that. And there are other things where they're just like, I don't care what the court says. if if there's a sheriff out there trying to stop us, just take off. So, um, that you have to get going and then once you have it, then people won't want to take it away. And I think that's what it's much harder to roll back something either whether you put in a new government program or something or a regulation than the reverse. So, it's much harder to get it going in the first place. Once you have it going, taking it back is really, really hard to do. >> So, all these companies, they just need to get the service up there and going at the risk that they'll be sued a lot and stuff. Um, and and then they just are betting that once everyone is using Uber or something, it won't then get banned. Tik Tok, you know, >> you can see what happens. If you try to ban something afterwards, people would get upset about it. But if you try to ban it before they use it, no one will care. So, you got to get everyone using it first, even though it's not legal. >> Yeah. Yeah. I mean, so let's say you you can now do like interstate commerce. That could be a great way for a lot of these companies to make money. I mean, even cannabis companies, right? That's sort of a topic right now because people are like, well, is Trump going to change it from schedule one to schedule 3 because schedule one is is your like heroins and and and those sort of drugs for schedule 3 is more like for medical use like um Tylenol, for example. And uh people think he could reschedule it which would then allow safe banking which then will would allow uh interstate commerce and um you know ultimately hopefully change because a lot of those companies in the cannabis industry they're taxed on gross profits. So you you talk about that restriction, right? They can't really deduct they can't deduct I mean everything below the gross profit line in most cases. I think there's ways around it but the effective tax rates of a lot of these companies are like 70%. So >> yeah, you look at you look at their earnings are very high, very very high. So the it depends on how they report them, but honestly in things the government controls that they want. It's both oil around the world and also um gambling, cigarettes, alcohol in many cases is really taxed at extremely high rates either as a consumption tax um with or as taxing the company after they've actually collected it. either way, you know, but the effective rate of like what you pay versus what the company gets is huge in those things. That's tends to be how governments deal with things that they want to collect revenue on and allow but actually don't approve of. >> Yeah, people are hopeful that Trump will um reschedu or declassify and that could change things for uh cannabis that way. Um but no advertising I mean any other like so like advertising restrictions, right? Obviously that that could be a huge impediment to a company. You have any thoughts? >> Well, advertising is so critical. So, you were talking about like Coinbase. So, Coinbase is the one that did the um uh Super Bowl ad, right? That was the QR code. Was that Coinbase? Who did that? >> I'm I'm not sure, but it sounds like something. >> Yeah. Yeah. So, being able to advertise even if no one can use your product. So, like that's a good example. So, >> what did they do? Just put up a code? >> No, there was a QR code that bounced around the screen. I don't remember if that was Coinbase, but someone in crypto did that. Um, so that's a good example though because you so years ago this one happened, but like the NFL, the networks, etc. would allow advertising. They've allowed now political advert like uh issue advocacy type advertising and stuff which used to be rejected. Um, it is possible in the United States to basically advertise things vaguely that the public can't yet buy in many of the states that the advertising is going out to. Not everywhere. Um, we basically can't. Um, there's SEC rules about about things like that for like money managers and stuff, but there's a lot of industries where that's not the case. So, you could advertise something and just be like not available in the following states. And that gives you a huge advantage to pump that in. I mean, when GEICO wasn't was not permitted to write insurance when I was growing up in New Jersey, Massachusetts, and maybe the District of Columbia, but a few places where they pulled out and they just say it, but they kept running the ads. And so once they came back into those states, they could sign up 10% of the people. It's huge. So that's allowed in a lot of cases that you could keep pumping in advertising. And so having big scale and being able to advertise helps. The same thing would be true with apps. There's lots of apps for things that in some states you can't really use the the product the way it's supposed to be, right? but people know about it and there's workarounds for it and everything and so the fact that you are very aware of it nationally would help you a lot. Um, >> another one we could talk about in the um around the 90s expansion limits, right? So like M&A restrictions in the banking industry. >> Yeah. >> So M&A restrictions. Yeah, there's M&A restrictions on all sorts of companies and they have different effects for it. The the biggest one that we've talked about before on the podcast because of the unit banking rules was um in Illinois, other states had it too. A lot >> bank. >> Yeah. So, Berkshire bought a bank that had tons of deposits per um branch because it only had to operate one branch and could operate very effectively because it was limited in that state that the same bank couldn't open multiple branches. Now, there was at least one person that I know of who, assuming that one day it would be deregulated, was involved himself in funding and being a big owner of many different banks all around the state with the idea that he could then put them all together once deregulation happened, and he did. Um, and so there are ways to kind of get around that, but they certainly couldn't merge with something outside of the state or something like that. And actually, there are other ones where you could open multiple branches in the state, but not merge with ones outside the state. Um and there's complexities with that too. There's also most banks, most it's a small difference now, but most public company banks are um bank holding companies because there's a bank holding company act and everything which is different from individual banks although we actually have invested in banks which are just the bank which is very rare for a big public company now but we've done that. So so they be have slightly different rules. Um and actually that's why Bergkshire got into insurance and not banking. they had to get out of banking because of the rules that that basically made it pretty impossible for a company to own both banks and insurers that time. >> Mhm. Quotas. So you could talk about like wartime and and like defense companies. I mean you could even look at uh GEO is a a prison company that owns um like tracking devices and they have contracts with ICE and stuff like that. Um things that just come up periodically that affect the companies, right? like if you have contracts with the government or or stuff like that. >> Yeah, there's um so you have outright wartime rationing and things like that. Um so the United States basically durable consumer goods stopped being produced so you couldn't really buy cars and refrigerators and things like that. TVs were new, but you weren't going to be able to buy those either. Um and then there was pent-up demand for it after that ended. Obviously in other countries it last even longer. Um but then you also can have that in terms of caps on things. Also there's related to that is you can have mandatory requirements for effectively for certain kinds of things that are theoretically private but actually everyone has to have. So we've talked about that in most specifically with car insurance. Well, title insurance is pretty much the same way in the United States. But car insurance, you're basically that's a unique industry because everyone is kind of legal pretty much legally required to have a certain amount of it at least the liability side and then um but is not required to have more than that in many states and uh has no need for having a lot of it. So it becomes this very kind of standardized product where literally you can advertise to everyone because everyone needs it. But you can't advertise to some like super users who say, "Oh no, I want 10 car insurance policies." Everyone wants the same amount, you know. So it's very unique industry that way. And that's part of Geico and Progressive and why they've been successful in that. Um it's very different than other industries because in other industries, you know, some people have hamburgers all the time and some twice a year. In insurance, everyone's kind of buying the same volume. Mhm. >> And then regulation on returns on capital or return on equity, right? I mean, Buffett's experienced it being in the utility industry. >> Yep. Yeah. Those are very common in in certain countries and for certain industries, mainly utility type industries. Mhm. So sometimes when uh deregulation comes to specific industries, what it does is it actually frees these companies up to go from like declining returns on equity or like low returns on equity uh to pricing freedom and to the ability or to have the ability to be more efficient, right? And that can affect the industry, that could affect obviously the the stocks of the companies in the industry. Um, so we can look at a few different ones on the screen. So there was deregulation. Um, you know, that obviously came in, um, uh, Union Pacific, right? Um, I think what's that what was that book with Hunter Harrison? Uh, I forget what it was, but they talked about deregulation in in the railroad industry. Um, that but you could even look I mean look at the the stock. I mean maybe we could look at like returns on equity. I mean so many of these railroad companies over time it just becomes so efficient. Um yeah well the interesting thing about the railroads the same as other ones what we talked about which is that it kind of fossilized the industry with a few leaders in it that was there weren't going to be new entry and stuff and then you can make money off of the fact that it's deregulated stuff. We should also talk about that with regulation of um because so examples are you talked about like gambling and and some of those sin things. Um there's usually really high demand for that for um the customer for the product and it's can be made at a huge gross profit to you if you're the only one doing it. It's kind of like Buffett has a quote about it where they were talking to him about some um Bergkshire actually didn't consider buying a cigarette company. They considered buying a smuggler tobacco company, but he was referring to a cigarette company and saying, "Yeah, I know that it's a good thing. You you it cost you a cent to make. You sell it for a dollar and the people are addicted to it." Um but the problem in that is that cigarettes were not an amazing business always a hundred and some years ago when everyone was in it and could enter it. Once there started being restrictions for people coming in, then that's what changed it. Railroads were not in good business when there were a lot of new railroads being started. Airlines were not in good business in the period we looked at. Remember when we looked at the number of airlines going up in the United States? That was a bad time. Uh so initially the deregulation was not good there. But then deregulation is something you want if you're one of the leaders at the at the end of the process. you're a lot more likely to want a lot of deregulation when uh when you're one of the big leaders after 20 years of it being mature than the first phases where you just want to grow it. >> Yeah. You think about like the life cycle, right? So deregulation comes it's it's sort of a a um market share land grab bunch of competition comes in everyone's competing on price people go out of business consolidation comes and then ultimately you know 20 30 40 years later you're left with three or four main big players right that's typically like the the life cycle of an industry and then it's much more about you know consistency consistency in in in revenue revenue growth, returns on equity, consistency of pricing, stuff like that. Much more cooperative. >> Yeah. And the other issue that comes up sometimes is the safety of the companies and whether they survive. So often they may want deregulation thinking that we could raise prices or we could become more efficient in these different ways of being able to sell more stuff. But it could introduce serious price competition that will leave only a few with um being able to to um survive to make to make money and everything. So, they're usually going to want to have a lot of freedom to set higher prices and a lot of freedom when dealing with, you know, their suppliers, their vendors, their their employees and customers. The one thing they'll be afraid of is that people can charge any price. Um, and to some extent it helps you if also you can honestly it helps you a lot if you can stop advertising, if you can limit what's allowed to be advertised. That's hard to do in the United States, but that's a big benefit to incumbent. anything they can do to make it so that it's harder to have new advertising and new launch new things. That's what happened in cigarettes. It just became impossible to launch a new cigarette brand. [Music] >> Uh we can hit on um we talked about it, we did a podcast on it, but 1978 deregulation act in the airline industry. Uh that was a huge opportunity for Southwest as a lowcost disruptor, right? And um Buffett obviously invested in US Air preferred stock and he's invested in airlines a few different times. Um but yeah, do you have any thoughts on deregulation that came to airlines and >> Yeah, that's why Charlie wasn't much of a fan of that. I mean, it's a preferred stock, so it was supposed to be safer. They liked the guy running it, but they had a high cost per seat mile basically versus the new ones coming in just in general. And so anytime um companies came in, it became a problem. The other thing that was even bigger issue there and this happens sometimes which is different from what I said about insurance is that you can grow demand significantly in those years uh by cutting prices. So Southwest actually wasn't really competing so much with other airlines. That wasn't their intent. Their intent was who takes buses and things like that and let's get them all flying. And so the market's way bigger than people think it is. And uh you can't do that in insurance or something. you can steal from someone else but you can't grow the market but so by growing the market then uh so that's the you know the Amazon type approach the Costco type approach where you are willing to cut prices to stimulate uh additional volume even and so price reducing your price even further than you might think prudent right now actually will leave you in a better position next year won't be as big a deal because volume will go up more than you think um when it's a mature industry that doesn't happen but that really can lead to a race to the bottom quickly when that happens when you can grow the industry that you you know that you'll get more volume for the entire industry by cutting price by making more affordable. >> Yeah. And look at so I have 1978 up here on the chart and obviously the the Southwest returns at least in the early days were just extraordinary. >> Yeah. Uh their their returns from probably their founding till like 1999 or something were probably pretty good. I don't know the exact year actually the I don't know the exact years but certainly when I mentioned Herb Keller when he was in charge that entire run was probably very good as we saw the their cost advantage shrank over time um you know versus other airlines when we looked at how profitable they were versus how profitable other airlines were. Mhm. Um, banking, we hit on it a little bit, but in the 1980s and 1990s, we could look at the stock charts. Um, deregulation came, you had an M&A wave, um, regional bank growth, stuff like that. Uh, I have Croup up here on the screen right now. Looks like the oldest the charts going back is to 86 and you can see it in the decade following the deregulation. >> Yeah. The Sandy Wild period looks good, right? Yeah. Yeah. >> Uh the Chuck Prince period looks less good. Um >> yeah, Bank >> of America, too. >> Yeah. So, there's there's two phases there. >> Being able to merge with everything and combine and kind of horizontally to do like I'm sorry um vertic well actually it was really more to offer different options to the same customers I guess. So, it's kind of neither. But um being able to offer a lot going into a lot of different products and stuff um was desirable M&A for those banks. They also became a lot more efficient with some technology things. The bad part is the part that people are probably very familiar with from the financial crisis. There's also serious loosening of um leverage >> type rules. Yeah. So what it really is is the regulations. So regulation both in terms of the actual laws and rules of it and then how they were supervised and what they were doing themselves. So that's all part of regulation how it all works together. But basically allowing companies to have a lot more leverage which is why those banks in the United States I wouldn't be surprised if big banks are never as good a business as they were then is because I don't think they'd be allowed to operate with that much leverage again. Um so which is interesting and and some smaller banks might it might be easier for them medium and smaller sized banks than for very very big banks um because of that. So it's a little different because it's not because what they kind of compete on is their return on their assets not really their margins and stuff. So it's a little different than other other industries that we're talking about where they control kind of what the amount of leverage that they're going to use is. But yeah, um that's what kind of happened there. And so that became dangerous, you said. Whereas like airlines, there was no rules about that. So Southwest kind of bought their planes outright, others leased them, but that if the government didn't have a rule, they had to do one or the other. But they did for bank safety. >> What about when regulation comes and they break up a company? So obviously the most famous one, Standard Oil. A lot of the US-based oil companies are descendants of that today. Uh AT&T, right? >> I can't think of bad. It seems to me like it's pretty good. Um because they're always afraid of I mean they're afraid of that now, right? Like you know Google or other companies that they might be broken up. I I don't know if it's highly integrated in some way and they can't work together in the future. I guess you could say that breaking them up is bad. But um most of the time breaking them up that way is is a benefit for the company, but the company should just broken themselves up, you know. What about uh natural gas deregulation? >> Same thing that we talked about. >> Yeah. So that's a case where there's just freedom to just price freely, which means that made it a super boom and bust thing in the United States, much like oil >> 1978. >> Yeah. Actually, kind of worse than oil because we've talked about this before. Natural gas can be a sort of unintentional byproduct when you're looking for oil and so that makes it even worse. It's kind of like ethanol with with corn and stuff. corn production isn't being designed based on ethanol and so sometimes you have over supply and stuff and you don't want it. Um yeah, so it would have been a better uh safer industry for people to be in before then and then it would have been a better industry in terms of making money when prices are high but it also probably led to lower prices than ever before in real terms sometimes. >> 1971 uh gold price was unpegged >> y >> the US dollar. >> Yep. And that's been a good investment for that. Uh not as good as the stock market, but better than holding other sorts of things. Probably if you had owned gold on the the time that it it was um no longer the dollar was no longer um the gold price was no longer set at a specific dollar price. I mean, you could think of it the purpose of that was to set the dollar at a specific gold price, but you get the idea. Um yeah, so it became a non-convertible that way. um the dollars and then since then in real terms it's probably been a better investment than a lot of income producing things although not as good as stocks. Yeah. So that freed up the money supply to basically go wherever it needed to. Yeah. uh energy policy act of 1992 um in the utility industry it shifted things from a single monopoly provider to independent power producers. >> So is this when Buffett got involved got interested? >> Good question. So he got involved somewhat after then he got involved in the regulated side but I had never thought about that about the extent to which that would cause that. Yeah, because you know when you think about it, there was a company that was basically built out of the parts that Enron wanted to get rid of that used to be the good regulated parts or very stable parts. Um, so it might have been that some companies were more inclined to the the unregulated parts and that benefited Buffett in the early years because I mean he didn't start in those exact years, but you might be right within 10 years that that's why he was doing that. Would you rather invest in you sort of the the change going from regulated to something getting deregulated or would you rather invest in let's say an industry that's heavily regulated where you have some main players within that industry so like Amoody's um you know companies like that >> so the kinds >> yeah it's really complicated so I'd be worried about ones that are considered great businesses and are monopoly type things that either could be regulated in some way. You've seen that like just people talking in the government about FICO at all has caused that stock to go down by a third and like instantly. And so that's because it's really really high price. And so if someone starts talking about that, that happens. We've talked before about title insurance things, other things like that where if if there's any um fears about that, then you know the stocks will drop a lot. that that's um I actually did buy into a company uh because of it's a little more complicated but because of that probably some people were afraid of things for kind of Obamacare type things and stuff like there were two senators that talked about the company a little bit and so um that kind of negative press can be an issue but you don't necessarily think that they're actually going to do something or you think that the regulation they're going to do is not really going to change things. Um the bigger issue with the FICO thing which you're mentioning is so like there's things in their filings and stuff which suggest that they kind of jacked up prices too fast um recently which was concerning to me and that probably contributed to getting attention for this and stuff. you're, you know, the more you are a monopoly and uh subject of being harmed by the government, the more that you have to kind of um get along with regulators and do things yourself to self-regulate in certain ways to avoid even worse outcomes. And so you would have to be more careful about price increases and things in that case. If there's a thousand farmers and they all charge more for a product that's in short supply or something, no one is going to complain too much that they're being ripped off by that. But if it's like, you know, one company that has something in short demand and they jack up the price, then people are going to be really upset about that, right? So why are they doing that? you know, um >> Mhm. >> you know, people don't normally blame the gas station operators and stuff for the price of oil being too high, but they blame a small number of oil companies. Um, so you have to be very very careful and I think that you know Buffett is aware of that and regulated ones and that's why he's talked about those things a lot and you now see that with a lot of companies you know with the Trump years that different from other presidents is you now have a lot of big companies trying to directly curry favor with the government in terms of like actually having their CEO say things and show up and do things which is not normally how you do that. >> So that's obviously Cook see that yesterday? >> No, I did not see that. >> He gave him So Tim Cook was at the White House and he gave him like a a plaque for Apple. They announced they're going to invest, you know, 600 billion or whatever it is in in the United States, Kentucky or something. And uh he brought a uh an Apple plaque and the holder of the plaque was 24 karat gold which is somebody did the math was like probably a million bucks. Small price to pay I guess to be on. >> That's just the cost of doing business. Jeff. Yeah. So, historically, companies just kind of do that pretty randomly in the United States. So, like they make they say like, "Oh, they contribute to the inauguration fund or whatever." If you look probably there's companies that probably contributed to every single uh both parties, every single whatever just to check a box that yes, we gave you money when you want to have an appointment, you know. >> So, it was so funny when when Trump was elected, it was like, "Oh, Jeff Bezos donates a million. Tim Cook donates a million." It was like all the the CEOs, they're all donating a million dollars. I'm like, "Yeah, got to got to do it, I guess. Check that box." >> But what has changed is cons so like for instance, Amazon quickly went out with the thing that was like, "Oh, we're not going to show the effects of the tariffs versus not the thing and whatever like that is because that's messaging from the government and stuff that we want to be in line with that, which is very normal in tons of other countries, like lots and lots of countries around the world. It's very normal for large companies to be on brand for the country consistent with the messaging of the country of their government. The United States not that common for a lot of reasons. One is that you expect the other party is as likely or more likely to be in power in four years. So you're cycle back and forth and they don't like each other. So you don't go too far in supporting one thing or another thing because you expect the policies like that to to be reversed a lot, right? So they're more concerned with like the civil service type stuff of how they're doing it. They don't really care if what NASA or EPA's policy or something is. They just uh, you know, because it's Democrat or Republican that they care more about the non-political appointees below them and how they're enforcing things and stuff, you know, because that's the stuff that will stay the same for a long time. Um, so like the example, there was a company that was public for a long time, done in Brad Street. It's been public a couple times and it benefited from the government putting in forms to use the the DUN. So the the D burners number as an identification thing for certain contracting things and stuff. So they'd be super concerned about that. Please keep putting us asking for us on the forms as a way of filling things out because then we become like uh standard, you know. Um but they're not like do we care if a Republican or a Democrat's in office, you know? >> Sure. >> Yeah. It's funny you go down the list of some of Buffett's investments. Geico, right? Obviously insurance state required. US Air um Highost Airline operated pre and post deregulation. Moody's mandated by regulators. Burkshire Hathway Energy um there's a regulation on return on equity. >> Mhm. >> Would you ever be interested in a company like that where there's like a cap like that? >> Yeah. So this is why I think Bergkshire hasn't done as well for you know the peak for Bergkshire was really from like 1965 to like 1997 or something. you know, I think that the stocks kept going up and stuff after that a little bit, but that was kind of the peak capital allocation period was about 30 years there. He had too much capital to invest and so those are alternatives to like what do other insurers do? Buy these long-term bonds and things. Yes, I think they're better investments than that. Now, I don't think they worked out as well as you hoped decades later, but investing in hard assets, more protected from inflation because even though those are return on equity generate, there's there's complications, but they're more protected over time to be able to fix the uh issues with inflation stuff than literally going out and buying a 30-year bond or something. And um stocks became more expensive. But I don't think he ever said that like he wouldn't I mean, is CES a better company than uh Bergkshire Hathaway Energy or something? Yeah. And I don't think he'd say otherwise. And so you should probably learn more from the seas example than the Birkshire Hathway Energy example. But he's been involved in that even in other things. I mean, the media is not thought of as like a super regulated industry in the United States and everything. But consider that two of the biggest investments, very biggest investments for Bergkshire in media stuff. Well, actually there there's another one too, but um we're Buffalo Evening News where there's a huge fight which would determine whether the company would go out of business or survive and it was all about a court case in that case um about whether there'd be one newspaper or two in that town and Washington Post remember that literally they were um uh although all media things were down he made that investment literally when the government was targeting the Washington Post. post for uh their TV licenses and stuff. So they were because they were very not welll liked at that time the Nixon administration with with Washington Post because of uh some things that they had done. If you haven't seen you can watch the movie The Post I think it's called. You could also read the her um autobiography and everything but the the post is specifically I think about publishing the the decision to publish the Pentagon papers or not. And that's kind of related to the um TV license thing. So, you know, um they were literally like, "We're going to take away some things that you have and whatever." They were clearly a target of it and that and he invested at that time. Um lots of other papers are down too, though. But it's interesting that that was happening. >> Mhm. Blue Chip Stamps was basically born out of DOJ consent decree, right? >> And when he invested, he didn't know the outcome. they were just kind of betting on the outcome of that court case and everything which in theory was super bad for blue chip but was so much more priced into the stock than what it ended up being. So basically had to give away lots of pieces of itself to um people who were harmed to to retailers and stuff that were harmed by the their uh anti- competitive practices. they were became the dominant um stamp trading uh stamp company in basically one state. The the other um was bigger in the rest of the country. So it was kind of a one state leader in that. >> Mhm. What are your thoughts on how to spot and I guess invest in sort of this regulatory change or inflection in the business? Is it just you know if something's super bipartisan? Um I mean what are your thoughts on on that? Is it is it lobbying spend? I mean what is there a way to spot it? >> So there are interesting aspects to it. So one is >> is it like with sports gambling? Well, everyone's just doing it through like bravvada which was an overseas overseas website. So it just you know eventually I mean what do you think >> is it bo? Well so the skills right >> the skills are different right? So for instance um what do you look for in terms of a leader in those kinds of things? Probably a very different person in a regulated to deregulated industry. Um and what kind of things do you look for in terms of a company and its advantages versus others that are happening at that time? So I mentioned Southwest. was a lawyer who ran Southwest um and very determined uh and so um that's probably someone else uh you know that versus uh you were mentioning Tim Cook and stuff that could be someone who is safer for people than Elon Musk right now if if being out of favor with the government is more of an issue Tim Cook is probably a much better person for being able to get along with anyone in you know any situation that So if it's based more on the personalities than like the policies of those things in the past then who is running the company does matter a lot. Um and you see that a lot in countries that have um in less democratic countries in countries where one party or one individual you know has a lot longer political longevity. um you see that more as an issue about who they're connected to and whether they can get along with things and the biggest risk being that they have a falling out over other things, right? So you tend to in certain countries avoid people who also have a political side to it. I'll give an example. Many years ago, there was a company that was quite cheap that was in uh the west in like the United States and stuff sort of in terms of where it's was doiciled and all this stuff, but its asset that it owned was a um general entertainment type asset that avoided doing anything political in Russia as a TV station. And so the question always was, will this eventually be the last thing that is seized in some way by Putin and stuff? And if you believe no, it'll just like show game shows and soap operas and things and it'll be fine. Um, then it's very cheap and uh, you know, you can get your money out of the country and uh, it's not actually a Russian company exactly the asset is, but you know, where it was set up and everything versus um, you believe that that will will um, be taken away and stuff. And so um, that was kind of the the difference there. But Buffett had even talked about that where he was more comfortable or maybe actually it was probably Munger that said it. I'd be more comfortable in China than Russia, which is a good insight about the political things that way. Whereas on the other hand, there's lots of ones that are monopoly type things. We talked about um it's now called ATN International, but which grew out of a basically one um monopoly service in a very tiny country in Central America. And the fear was always that it that it monopoly would be out. You could probably go back. I don't know if value investors club. Do they still have writeups from like the very beginning or do they phase them out at some point? You can find somehow go back further than 10 years. >> Yeah, >> I think Yeah, further than 10 years for sure. Yeah. >> Okay. So, you go back the fear always year after year is that that would be taken and like 30 years later it was never taken. So, uh and so that's why >> the Russian TV station was though, right? >> Oh, yeah. Yeah. Of course. >> Yeah. Because he was going to take out every Yeah. Everything overtime in that country. Yeah. It's a totally different setup. I mean, it it's just Yeah. Um, so it's a different risk of whether you're a monopoly in one place or another that way. Um, and then just how the regulations change and how they could benefit you. So like as an example, we talked about movie theaters and stuff, Paramount decision and all that. Banks a lot of times the advantage in that is you are less efficient, less strong position, but now someone can finally buy you and they weren't able to before and merge with you and everything. And so those could be the ones that are a big advantage that way, right? So like that parent decision stuff happened um where basically the rules in the US were changed by a court from what it had been before because it had never been uh a law set up that way. And uh we saw like Sony buy an Alamo Draft House right away and there there were some other ones too. Um >> that's what I think happens if if if cannabis does get descheduled or rescheduled or whatever. I I would imagine these other sin companies just go and buy them like the low cost producers or the people with the biggest market share. >> Yeah. So the question though is okay do you invest in the one you think is going to be um Standard Oil and the Rockefeller company or do you invest in all the little ones that he's going to buy up that otherwise would be losing lots of money everything but now get to get stock in the new uh uh bigger company. There are some because I've looked at the industry recently that are doing they're surviving even being in basically prohibition. >> Yes. But here's the thing. Everyone thinks that like when you free up we can now meet all the demand there is all the rules are off that that will be good. That will not be good. Uh that would that that depends. Uh but there'll be fewer winners. So like the more regulations are oh we can't meet this demand we'd be selling so much more whatever. Absolutely true. But also, you're being protected significantly from what competition will really feel like when it's just all out. I mean, if you could just every ad on the buy cannabis ad, you're there's going to be a bigger brand that's preferred and distribution for those. And like we could get I mean, it's usually on the distribution side and everything, but more could be closed to you because someone else has better deals on those things and can figure out how to do that. And your best option is probably to sell out, you know, at that point. So then the question is like do you bet on a certain operator who you think is good that way? >> Do you bet on industry strategy? Yeah. >> And that's another possibility with some that have really really big winners. I've talked about that before. You could do that and most things you buy will not work out but the few that do will be big hits. I mean, if you bought internet retail 25 years ago, u or a little 24 years ago or whatever when it kind of came down, most everything you bought would end in total failure, but you would have gotten some Amazon stock as part of that and stuff. And at the time, you might not have been able to tell that Amazon would be better off than eBay or whatever. That wasn't deregulation, but that was a situation in which we had a massive extinction of a lot of the companies. So, it had much the same effect. The growth was just so fast that it feels a lot like deregulation. No, I think I think you buy the the the southwest of the industry. You buy the lowcost producer. >> But but here's the thing. So that makes sense. But is being the lowcost producer particularly important in say cannabis or something? >> It is super important in airlines. It's super important in in cruise ships. It's super important in money transfer and in if you're Walmart. Yeah. But is it the most important thing if you're a cigarette? I mean, so like take cereal, cigarette companies, things like that is important, but what actually turned out to be really important is who could do the best advertising nationally the fastest to get known everywhere, to get on the shelves everywhere and to to be able to launch brands that way because it wasn't deregulation, but it was the invention of national media, whereas it used to be local before then. So, it just allowed for all that advertising that way. Um, so is that the way is it distribution? We talked about like Celsius, you could see that people where it was available were buying it, but it wasn't widely distributed at first and then it was just a question getting more doors. >> So, is it which place can get in the most states? >> Um, you know. >> Mhm. Uh, we could talk about there's two books that I've read that are great sort of backdrops of this. The first one and one of my favorite books honestly, The King of Oil, Secret Lives of Martin. Yeah. I mean, if your cover photo or your your title or what your cover cover art is this, smoking a cigar, I mean, come on. That's going to be a badass book. And it was a badass book. They should make a movie about it. But obviously, his career was um born out of deregulation of commodities, right? What's the cover? >> Yeah. So, >> we should talk about Mark Rich because I don't know, you've read the book. I don't know that many honestly my guess is that most people listening to this podcast know him most for being pardoned um at one time and didn't know about his actual business life and stuff that much. Um it's literally probably the thing that he's became most famous for. Um so I just think that yeah that if people read that book that would be the yeah he was f pardoned by part but >> yeah but at the time he was pardoned I would guess that most people had not heard of him most of the the public. Yeah. >> Yeah. He moved to Switzerland, I believe. So he they like >> he did that obviously extradition purposes. Yeah. I mean there's complicated extradition things in different ones, but yeah. >> Yeah. I mean that it was alleged that there was fraud or something like that and I don't I can't recite it. I read this book in 2021. But basically he I do remember him referencing in the book that there was I don't know three or four like accounting professors or experts in the field that looked at the case and basically everyone sided with him. It was something to do with like the gross profits I believe on how it was accounted for or something like that and it was the tune of obviously a ton of money and he was indicted by Rudy Giuliani for tax fraud and he was Rico was uh used against him. That was a big deal. Yeah. Yeah. So that's a big deal in the United States. So RICO which is theoretically mostly what is it? Raketering events raketeering influence corrupt organization something like that. Um I mean it's a backronym they admit they intentionally use RICO is a name of a famous thing for a mob thing. So they intentionally designed it to spell Rico >> or the mob. Yeah. >> Yeah. So but the some of the design of it was always intended to be used against companies too. Yes, its purpose was basically to try to bust up mafia families and stuff in the United States and it's been used since then against companies in some cases and Giuliani was involved in that in the in New York cases against uh New York City cases against like five families type stuff. So um >> then using those same things. So yeah um but my memory is so yeah so in that case there was a lot of um deregulation well globalization and deregulation around trading of different things that you're talking about commodity trading in general and stuff. Yeah >> it's a good book. Uh and then the other one which is you know back to the Russia example Bill Browder's book Red Notice right privatizations um and uh the oligarchs right so a lot of the oligarchs came out of this era and uh Bill Brder set up a hedge fund that invested in Russia >> and was very successful doing it and then of course he has a fight with Putin and this and that. It reads like a good spy novel which we've talked about before on the podcast but do you want to explain the voucher system and and kind of how the oligarchs um were born out of this era? >> Well yeah that's all very complicated. So the biller thing in f first is that he started investing with like basically like they were effectively like netnetss and stuff in the first countries in Eastern Europe and even some that like East Germany and stuff like that that were some of the first ones to open up. So the order in which it happened is like Poland opened up a lot before the Warsaw pack kind of was breaking down and stuff. So those countries opened up first to this and then Russia was the former Soviet Union was kind of the last one. Um and then like you said with the voucher thing that's basically like a shadow economy to try to it's very complicated but by that stage in the Soviet Union um the the economy wasn't functioning very well and so they had to adopt certain capitalist like things alongside a communist country's operations to ensure that they would actually supply certain things and stuff. like they got really bad with like food distribution in the cities and stuff. It's it's covered a little bit in the corpion of it in the TV show The Americans, which is a fictional thing, but it does go into that actual thing in the 1980s, which is when this was happening. And so, yeah. So, but basically through all that, people who were very close and knew all the operations of the businesses and and all that kind of had an idea of how valuable these would be if oper or not if operated as actual for-profit businesses and that they were going to become for-profit businesses. So, they would know if this car factory or whatever was actually something a really valuable asset or something. And then through this process, they then did this whole auctioning thing and stuff which allowed basically insiders to to know that something had a lot of value that had been hidden before. And then you know other people did not know that at all. Um >> yeah, things were selling for literally or being basically given away for I mean pennies on the dollar and >> super market and then insiders are the ones buying. But, you know, like the same thing could happen in our markets if we didn't put out any statements about a company and then we just let insiders bid for it. You know, I mean, you wouldn't know what to bid. Yeah. >> Yeah. In Russia's uh I don't know what you want to call it, but let's say the country's morale was at, you know, all-time low. So you'd have there are stories in the book where they talk about somebody would could sell like their vouchers for like a bottle of vodka or food or toilet paper and and that ultimately could be worth a ton of money if you didn't know what you were selling. >> Mhm. Yeah. Yeah. It's like the um some of those really complicated spin-offs of the Joel Greenblat stuff um you know uh where they you know now we feel like when we have spin-offs and things that are so common but when they say here's a contingent um rights thing here's a um you know here's this and that and so people are just like I just don't want this get rid of this warrant for whatever and it actually turns out to be very valuable. Yeah. >> Yep. Like a John Malone deal or something. Yeah. >> Yeah. Very complicated. >> Yep. And then really >> and of course the other thing I have to say is like why he was doing this is because he understood the country a little bit and understood capitalism. The people in these other countries did not understand market things at all. So even when they had even well-intentioned things about the program where they actually thought at first that they were going to basically sell some of these things in part give some of these things in part to the public in a sense to people regular citizens and different ways of doing that. They did not have I mean the Soviet Union had no modern capitalist history at all. So we're talking about it had started at that point it started 80 years ago as a communist country. And before that it was a fairly agrarian type thing outside of like the country the cities and stuff. So there was just no history of anyone and there have been all these wars that had just eliminated so much of the population just no memory of people to know things about business and there have been very small parts of industries that interacted with the outside world. Some did though like um some of the ways that they sourced their food things some heavy manufacturing. So those people would have known about how the rest of the world worked and understood what was likely to happen. Yeah. Then the weird thing about that though is they do understand that they make a lot of money and in just a matter of less than a decade or something then the country pivots in a direction with with Putin and everything where it closes down again from that and most of those people end up you know with with nothing or in prison or dead or whatever. >> Yeah. Uh the oligarchs is is a great book to read on that and then of course Bill Browder's book as well. So what are some modern day uh versions of all of this? Well, there's lots of ones we don't know what's going to happen, right? So, the ones that are fascinating to me recently that we talked about are the like I read a book on DraftKings, right? And so, I am stressing a little bit the things like uh your Airbnbs, your Ubers, your DraftKings, whatever, where it seems like you could say there's a gray area. I don't know how great it is sometimes, but there's clearly very high demand for the product, but the product is basically kind of banned or not welcome here. So, how do we get into those markets and get a presence as fast as we can and assume that rules are going to change about it later? You know what I mean? Um and you know the big one uh right now in that is like though it's complicated is many of the things around AI obviously um where you have that because because you take an example of that. So, how different really is like AI stuff versus self-driving cars or something? But AI is likely to move a lot faster um in social acceptance and rejection and new regulations and stuff than like self-driving cars because it's something that's incorporated into all this stuff that is not regulated that way. Whereas the problem with the self-driving car thing is it's heavily heavily regulated in the United States in all these different ways. People always ask like, oh, you know, um I mean it hasn't even moved as fast as I expected when I wrote a report on progressive over like a decade ago or something, but I we laid out in there, okay, here's how long it is before new safety things and stuff get adopted. Here's how long until most cars have them because then it's like most new cars have them, then most cars have them. This goes so slow like we were saying like, you know, yeah, we'll expect some different like this. you're asking about an issue that we need to worry about in 15 years or something in the 2010s about self-driving cars, even if all that technology is great because of just the regulations that have to go through and stuff, you know. Um, giving people free things, tools that they can use online and then just having them incorporate into their work and you don't know if it was generated by AI or something is just such a fast viral way of spreading it around and is so different from like a car or something like that. So it it just will is such a faster pace of what that is. It's so much more like when the it's most similar to the internet. That's the one that it's most similar to in which it was like early on it was like what rules will there be on the internet? What can you I mean it when the internet first started companies weren't clear that can we just like show anything cuz like on broadcastings and stuff they can't are we just free to do that you know um but it was growing so fast and that's the kind of situation here whereas the other things you have a clear idea of what governments want and what the regulations are they're almost ahead of you on that what are you planning to put into this and do with this car and do this and get approvals for that and AI things they don't know what you're doing until a while after. So I would guess that that's kind of the area that's most uh will be most interesting that way and it'll have effects on some things. I mean the ones that are big to that that I think about are mainly like insurance type things and stuff about what that industry will develop into based on how much insurance will be sold related to AI activity and stuff like that. So that is an interesting thing for that industry long term. >> So how do you how do you express it make money from it? >> That's a very good question. Uh it's a very very good question. It's experimentation early on and stuff. Um so I don't know like one of the things with the AI stuff that I don't know is which will be the winners and everything. So um I don't I've tried different things but I haven't tried the paid whatever things for it. I I don't find you know radically different things about how good they are. Um and so that does make you wonder about why they'll be a winner takes all type thing for it. Um, but in other cases it doesn't particularly matter if there's a reason why people are using that standard. Um, so like when I talked about Google or something, for a long time it hasn't mattered if they're any good at search um, better than other ones. Why would you say, "Oh, I'm going to find a better search engine than Google. It's good enough and everyone uses it, so no one's ever looking anymore." Um, we can guess that, you know, I mean, yeah. So it'll be interesting. Like Google's a really good example as a company, right? Because on the one hand, they're pursuing all the AI stuff, but it's very likely to harm them severely. And so it might be better for them to uh have super restrictive policies on AI uh than that, but it may be too late for them to be able to get that. >> That's already out of the bag. Yeah. >> Yeah. Um so, you know, we'll see. But of course, you know, I mean, alcohol was banned and it had been um something that people were drinking copious amounts of for a very long time. And it has an effect afterwards. I mean, to be fair about the prohibition stuff, it it like although drinking resumed after that, in countries that adopted that stuff, it had a permanent effect in more people not drinking and and all sorts of things. I mean, it did change society in terms of volumes of what people were drinking and attitudes. They don't have to worry about the bath bathtub gin and potentially dying, going blind or, you know, whatever. >> Yeah. Yeah. Um, but I just mean like the fact that it was banned for a period of time also had an effect on things too. Um, I mean that's look that's not to get um really unappealing here, but that is true for wartime things. uh countries that eat very strange things that we don't find appealing is generally because they uh it was available in wartime and was banned at other times. So like parts of animals that never became popular in the United States were usually because those were the only parts that were allowed to be sold during the war or something and people got ded for it. So um you know patterns change that way. We've talked about that with with um COVID and everything. There was a period where you couldn't do certain things that led to faster adoption of other things during that time. Um yeah and then the other ones are things that we talked about which are further along I guess like you mentioned about cannabis things gambling things are very obvious that way um that's very obvious and then we don't know about longer term things about societal attitudes changing there's some places in which societal attitudes are out of line with laws sometimes so um those are tend to be the most likely that eventually there'll be a change too. >> Mhm. Got it. Cool. Well, I want to thank everybody so much for tuning in with you both of us on the Focus Compind podcast. If this is the first time you're joining us, be sure to hit that subscribe button wherever you're listening or watching us here today. That way, you will be notified every time we upload a new podcast every Friday, every week. 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