Interest Rates, Recessions, Customer Behavior, and Themes vs. Individual Ideas

Summary

• Berkshire/Chubb Angle: Speculation that Berkshire Hathaway (BRK.B) could pursue a transformative acquisition of Chubb (CB), with discussion of scale, fit, and leadership succession implications in P&C insurance.
• Rates and Recession: Yield curve normalization and imminent Fed cuts frame a debate on short-term funding conditions driving valuations, with recession risk still elevated.
• Banks Positioning: Contrast between less economically sensitive lenders like Hingham (HIFS) and more cyclical names like America’s Car-Mart (CRMT), with Cullen/Frost (CFR) as a middle ground reflecting mixed macro signals.
• Insurance Pricing Tailwinds: Insurance renewals have seen double-digit increases since COVID, creating strong near-term fundamentals for P&C insurers, though momentum may slow.
• Celsius Reset: Celsius (CELH) selloff tied to channel inventory and demand concerns amid fierce competition; valuation near 5x sales could be reasonable if sell-through normalizes.
• Seltzer Boom-Bust: Boston Beer (SAM) exemplifies the dangers of fad-driven growth, with post-COVID normalization compressing multiples and highlighting category volatility.
• Movie Theater Flows: Thematic capital prefers liquid box-office plays like Cinemark (CNK) over less liquid Marcus (MCS), underscoring how liquidity drives near-term industry exposure.
• Portfolio Takeaway: Favor resilient banks and P&C insurers into falling rates, while treating crowded consumer fads (energy drinks, seltzers) with caution on durability and inventory risks.

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 gon 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 follow me on Twitter or ask at Focus compound to get access to everything that we push out into the investing universe if you want to learn about our Money Management Services you can reach out to me at Andre Focus compounding docomo a new podcast so in today's podcast Mr Jeff we're going to be talking about some news that came out uh late last night uh or yesterday that AET Jane if I can move over my screen here AET Jane had sold something like 40% of his Berkshire hathway Holdings and uh worth 139 is that what it is 55% 55% yeah okay 55% of his birkway Holdings 139 million a lot of people were surprised to see this people were saying like on Twitter that perhaps this was a a charity driven thing other people are saying well if this was charity why wouldn't he just give them the shares so I want to get your take why do you think Mr AET Jane uh sold a huge chunk of his stock that's probably pretty surprising right I mean he is older 73 years old I think the actual form four said it was uh what it say something with aate planning right um but yeah want to get your take on that I so I didn't read the filing and although I can see it here I don't think I can read it fast enough to understand what it's saying I'm sure other people looked at it to understand that um it could be age related it could be um tax related um you know if you thought that taxes would be different in the future than they are now um it could be um price but I don't think that's a major factor probably and then it could be um you know if things are changing at Berkshire and stuff changing how well if he's not going to be there very long uhhuh yeah so I mean Tire well so Burkshire owns some stocks in chub right and I have no reason to believe that Berkshire plans to acquire all of chub but I think Burkshire would probably be very interested in acquiring Olive chub right and that might be like a 150 $160 billion dollar deal or something if that was possibly to happen it's likely that they would have someone else to take over a jeet's job if they did that but you know I don't know I you know if there's one deal that Buffett might do before he leaves it would probably be a giant Insurance deal like that and I can't think of anything other than chub mhm as Buffett ever hinted towards chub or thinking saying anything about it being a good business why do you think chub is it just the scale of it the size of it of what they could do it it's very similar to certain parts of Berkshire that are much smaller and I think they'd be interested in owning just looking at the two companies and they did buy some and I'm sure that I'm not sure but I think that it's very possible that was a buffet purchase and not a um a uh Todd purchase but it could have been a Todd purchase I don't know they ask for special treatment on it and everything and there's also connection with the family and everything Buffett knows people involved with chub but they through other people that he's known for a long time and stuff so it just it would be the most natural one of all the giant things that you could acquire that would be the most natural I have no reason to believe that they will do that but if they ever going to do a Transformer type of thing I have thought about that as possibly how they replace je but they could just have someone internally that will replace him or it won't be replaced in exactly the same way in the future M you make a good point when you say perhaps it's because he thinks tax rates are going higher in the future and it just with age and stuff like that I actually did have it down on my notes to see if you uh watched the debate I'm sure you did not did not no did you get any of the clips or see anything about it okay smart man but want to just get your your thoughts on how much you think about policy and how much it could change for example it's like so going back to uh when Trump was first elected you wrote up a blog post about how his tax cuts were not priced in to the market that was a pretty obvious sign and then ultimately you know the market ripped um when you have two parties in this situation where it's like their thoughts on tax rates are very different I'm just curious if you think about that sort of stuff when thinking about like crafting a portfolio or anything like that it's too hard to predict I mean in the United States you need to get it through the B pretty much you need to have it get through the house and the Senate and the president approving it um while it's theoretically possible Democrats could win a senate for like one twoyear period or something and also control other things and then they could get something through in the long run it would be hard for the Democrats to have a workable majority in the Senate ever and then it's not that hard for them to win a presidency or to win in the house so you're it's it's very hard for either party to have large workable majorities across all three um parts of the the government that they need and then on some things you have the Supreme Court being relevant it wouldn't be on those tax things but you know that obviously has a large conservative majority that's not going to change anytime soon so am I hearing it's just too hard to predict and I guess the whole Trump thing was Trump was already in office and you didn't think that it was being priced into the market right oh yeah and also I think corporate tax uh cut from whatever 35 to 21 or something like that is not a hard sell there's certain things that I think are very very hard policy things to change and then there's others that aren't that difficult want to come in with a whole different attitude about defense spending or something it would be highly significant to defense stocks because you could get a majority on that kind of thing but if you came in saying I have this attitude about abortion one way or the other guns no it doesn't matter I mean you could be the president but there's there's strong opinions in both houses there strong opinions in courts there's all sorts of things so it's not going to get you anywhere based on you know highly controversial issues like that but on some other ones yeah like if someone came in and said I'm going to land on Mars yeah I mean there it's not like there's huge opposition I to doing that so that should cause space stocks to go crazy or something if there was like that kind of support the the president does get to determine the you know the the topics that are discussed and sort of the focus of the country on things they have a big um you know they call it the bully pulpit but they have a big megaphone to talk about those things and to take up a lot of oxygen in the room because it's the one position whether it's the most important or not you know it is the one position which there's only one of you right there's there's everyone else there's a large number of people in the the body even the Supreme Court even the FED um and so it's one of the few things where you have one person who controls all the discussion even though they may not have that much actual real power they control the conversation so let's talk about interest rates a lot of interesting things going on want to get your thoughts the yield curve finally is no longer inverted it has to be one of the longest in history if you're looking at the screen right now it looks like uh is basically flat right um want to get your thoughts though on interest rates um you know where you think they're headed uh in the future um the FED is going to supposedly cut interest rates next week if you're watching here on the screen September 18th it's currently pricing in a 57% chance of just a 25 basis point cut uh but a 43% chance of a 50 basis point cut uh the 10year which I could pull up somewhere uh right here 10 year is at 3.65% thirdd year is just under 4% at 3.98 7 and then the two years at 3.59 uh percent so rates have been coming down fear of uh recession is uh seems to be talked about every single day um so I want to get your thoughts on interest rates and how you're sort of thinking through all of this sure so first of all yeah the 210 is not inverted or was for part of the day not inverted so that would normally be the sign if you're using that that that triggers the re uh that that's a trigger for like recession and stuff that basically that's a good estimate of want a start dat for recession might be it's not perfect but that's a pretty good estimate and then it' be over pretty fast in modern era 6 months 11 months something like that not long like it used to be um the actual statistically better one is 3 months and 10 years there's no reason to use two but the reason why people would do that is because we kind of can know faster because it's already pricing in you know things like we just talked about with the FED otherwise it's a slower signal if you use three Monon I remember jpw had talked about that one time that they look more at the three-month one oh and I yeah I agree because I studied um you know the when I went to school to college and everything my plan was to do um Financial history of uh pre- capitalist studied societies like the ancient um Greece and Rome and things like that and um and I think that's one thing I actually have never asked you before about what you were going to study at school yeah because a lot of the things in those history things are interesting from an economic perspective but they're mostly people aren't trained in economics and then economists have very poor understanding of pre like they know almost nothing about things before the 1500s maybe 1600 they might know a little bit about they really occasionally you get an economist who will mention the black death um Ben beran's book did mention the Tiberian credit crisis in Rome so he knows it exists and stuff but most people don't go back to earlier periods there and study other eras but if you go back across all periods of time it's more helpful to understand some things about yield curve like why would it be the way it is people talk about as if this is natural this is probably more a feature the the slope to the yield curve that it's normally um that you normally have a a yield curve that's not inverted um is a modern thing due to having uh printed money that causes inflation and everything so at other times it would be much more natural a very flat yield curve but the thing I'm pointing out that's important is that um although lots of people use long-term bonds to judge where stock should be and everything the much better number to look at across all of history has always been very short-term money and it's much more predictive of what's happening so it isn't so accurate to say people are discounting Stocks by the fact that there's this rate 10 years 30 years whatever that's at a certain level but rather just the amount of oxygen that there is in the very shortest term how easy is it to get your hands on money this week and everything what's the very shortest call Money type thing if that gets tight then valuations collapse so if people are no longer willing to roll over a loan or something that's when you have dramatic drops in things the other side of it is much weaker even when I did things with P ratios and stuff I'm not sure I buy into it economic theory says it makes sense but I'm not sure I think it makes much more sense to say that short-term um borrowing rates so when we're talking about this three months and last which is kind of like cash equivalence that makes much more sense to look at that and the way they do that now is the financial conditions Index right and so a financial conditions index I think is an accurate way of trying to do that but basically Val valuations collapse when there's when credit is too tight and then valuations expand a lot when credit is too loose and that's kind of the thing you see throughout history the yield curve and all that I think is something that we shouldn't assume I mean you have about 90 years postwar um 80 years of um data on that and then you really only have about 50 or so that's truly pure in terms of being after the US um you know no longer had any standard really and so that's probably all the data we have for this kind of thing because the possibility of very very high inflation is a lot higher in this modern era than it was in previous eras so it's a lot more dangerous to lend long term and and there's a lot more reluctance to do that and so the curve takes on a different sort of um there's different reasons why you would have preference for short-term versus longterm I think than in societies that thought that there wouldn't be inflation normally so I I just think that the steepness thing is something that is more predictive when we talk about recessions everything we really only we're really only talking about the postwar period so that's not a huge data it's not a huge pool of data be to be drawing from especially when recessions are now so rare so it's a really small number of occurrences so why do they why are they so rare is that because of government intervention yeah so generally economic growth is slower in real terms per person than it used to be before the war um and but but still very very fast compared to all periods of human history before the Industrial Revolution which is when almost all the growth is um and then you have longer periods of Boom shorter periods of bust and very shallow and there's a few different possibilities for why that is could be involving government intervention financialization of things that's probably big factors but the most theoretical sort of thing is simply look it should be based on the form that Capital takes and how long live that form is and so if you have an economy that's let's say you have an economy that's driven mostly by textiles or something let's say the UK hundreds of years ago right versus one that's driven a lot by housing like the US 15 years ago well the cycle is going to be much harder to come out of that and to recover it's going to be a much shallower recession and it's going to be much slower recovery if you're if the capital that we're talking about in your economy is all a bunch of people invest in houses as opposed to everyone invest in textiles which they can quickly liquidate working capital right but that's going to cause a brutal short recession if you have very short-term stuff and so it's just a question of across the whole economy like in the fashion industry they have brutal short-term recessions and it's over semiconductors a recession could be six months but they'll be down 50% yeah you know um but then ship building recession could be years and years um and it could take a long time to recover so it's just a question of like what your economy really looks like and that is the thing about how if the FED is as effective as before in controlling inflation and and I think they know that they can't be so like the vulker they can't if they raise rates as much as vulker did they wouldn't be as effective in lowering inflation because the economy no longer depends as much on the the sorts of things that that would have a big factor on they can't control services stuff that's same way they can control durable goods and things they can stop you from buying a washing machine easier than than stop you going to Starbucks or something you know what do you uh I mean do you think we are headed towards a recession I mean it's it's it's such a bizarre market right so I don't know if you caught Alli Financial um the stock was down like 20% after they reported earnings and after they had their conference call uh Ali Financial shares dropped 19% Tuesday after its CFO warned of weaker Financial Health among borrowers High inflation and a shaky job market have weighed on Ally customers ability to repay loans Alli Financial a major Auto lender expects Rising delinquency rates going forward and it's like you look at the price of a lot of different Commodities as well like coal steel I mean oil was was getting hit as well um I don't know but but then you go to like it's a weird Market though because because then I see a uh a headline come out of uh cruise lines and like Airlines and it's like they're busier than ever you know so it's is it is it just the lower half that's really you know dying and hurting right now I mean and you've heard those buzzword like oh it's the lower half that's that's rotting and it's working its way up um real estate has stopped interest rates are going down so I don't know it's such a bifurcated market right to use that that term that everybody uses uh to talk about but it's there's so many conflicting signals I mean it's like the most fascinating period ever in my opinion I I mean personally I think all the traditional signals point to recession and pretty much like now but want to ignore those and say that how do you explain the cruise the cruise lines like being busier than ever how do you explain I mean you go to the airport and it's like every seat is full yeah and that I mean uh I mean I did just fly on a flight that was half full but um so that was nice where they said this is going to be a light flight um and boy was it cheap um but that was during in the middle of the week it's very expensive on on weekends um I I think the market though already anticipates many of the things that we're talking about in terms of what matters like if you look at Hingham and Kmart which are both sensitive to interest rates they both are they both have to to pay Market type prices for their liabilities basically to fund themselves so different kinds Kmart's more expensive that way because hangam is a bank using deposits and Carmart is is um borrowing you know a third or whatever their balance sheet to be able to make these high interest rate loans but you'll see that the market sees this and says okay something that benefits from lower rates like Hingham and is not very sensitive to recession conditions uh because it's say apartment buildings and things like that can be up a lot and then something like Kmart which also benefits from lower rates can be down um because of the recession issue so this is a very pure comparison of two things they would both benefit from lower rates and like if you had something like frost which is a neutral example it's probably Falls right in the middle and um because Frost does cni lending so it's somewhat exposed to that and then it isn't better off if it goes down right down the middle yeah for people listening Ham's up 24% year to date Kmart's down 21% year to date and frost is up 3% uh year to date yeah so I think the market knows that interest rates are coming down but it doesn't know if there's going to be a really bad recession a somewhat bad recession no recession whatever rates are coming down but they're worried about some things and so Frost they're saying okay this might be fine that's a business type thing where there there would be higher losses there than normal hang on there there there was a lot of apartment buildings bu bu and stuff so it's not great for the owners of these things since Co probably but for the banks doing this kind of lending you know it's uh it's a very safe category we just broke down like three the the least economically sensitive is up the most the in between economically sensitive is in the middle and the Very economically sensitive is down a lot and when we talked about it at the beginning of the year or whatever I said if you want to bet on a soft Landing Kmart's a stock that will do the best well so clearly I don't think the market is betting on a soft Landing when you look at that it's saying rates will come down but it's because they needed to come down faster there won't be really as they're not sure of that soft Landing thing so and that's usually why rates go down it's because something happens yeah yeah it's they're cutting interest rates everyone's excited about that but the bad part is is because there's a recession coming or we're already in one right and then the the big thing on the inflation stuff is really tricky because that's the sign that I think is the strongest that you have you know the Jamie Diamond stag flation type fears is that the sticky portion is now like up 4% year-over-year and the not sticky is down like 2% or something so what that's telling you is the not sticky portion is usually the economically sensitive portion so that tells you that you're in a period of probably high average inflation but at a low point in the cycle and I think people believe that even if they don't believe in a recession they believe that this is one of the worst times in the cycle they expect in other words they expect things to get better from here both people probably do so either you have some people who are bearish or whatever and saying we're basically in a recession now we're going to figure that out in a little bit but then we'll start to recover from that in like I said what is that six to 18 months and then other people saying well we'll just recover from here it'll start to growth will start to accelerate again from here once uh inflation has come down but no one is saying this is the boom part of the the cycle yeah and that could be a lot of China probably I the the the flexible component of CPI is heavily China based you know or import based and you know Goods based and all that as compared to the uh the sticky portion it's been a tough year to be a farmer as well price of wheat corn everything not having a good year um a lot of things are I mean I guess Financial assets are doing okay we're up a lot in the stock market that's for sure MH um but you know most Commodities are falling in real terms lately I would say yeah I mean I'm not even sure that like for a lot of people their house is up in real terms in the last you know year or two may not be down in nominal terms at all but it's it's probably pretty flat can you talk about hurdle rates and how you think about them uh during changes in interest rates I don't know if we ever changed the way that we think about them but I do know that other investors do um as it relates to like investing in stocks and like your portfolio and everything like that how do you think investors should think about uh hurdle rates and how do you think investors think wrongly about them um I mean I think it's fine as long as you're comparing things that are truly similar in duration that you're looking at the is is more when you're looking at oh I can make money in this short-term Thing versus I'm investing in a stock which is actually very long-term right and so there's a significant component of risk there that you don't have with let's say three months you're getting you're saying okay I could get 5% or something and it matures in three months or I could invest in a stock that has a 5 per yield a lot of people would say oh that's better than cash I should do that that's might be true but most of the value of the stock that we're looking at is over a long period of time because you're not getting paid back at the end the year in anyway um so I think that that's the most important thing is pairing those two things off but like if people want to use long-term corporate bond rates and compare them to stocks or something I don't have a problem with that I think that's always made sense but I think what a lot of people do is like compare the dividend yield on a stock with with the short-term money what about from managing a portfolio and picking stocks and running your own irss does that change at all or is it just based on what you've done in the past for what you think you could do or what you think you could get in the S&P 500 I don't think you're going to get really good returns in the S&P 500 so I I would be very happy in in three-month money or something just like Buffett is but the problem with that is what's the stock market up so far this year high 15% or something yeah right so that you'd have missed out on that you know in six months were okay okay so S&P is up and this is just the price index so not even total return about 18% NASDAQ up about uh and then we have the Russell up about 8 and a half% yeah so you don't want to miss out on that yeah but I mean in terms of like when we talk about Sher P or any of those things no it's it's at a level that any calculation I'm sure that websites do would tell you that you're better off in in cash than you are in those things right now I mean if rates come down a bunch then that might not be true but the 15-year forward return expect or something I don't know if gur Focus does some other places do it it can't be better than 5% MH with the yield curve starting to flatten and hopefully steepen in in in the near future I mean are there any banks or any interesting situations you think people should look at or we kind of going to go back to it won't be as extreme clearly as 2020 when the yield curve was so steep um but do you start to think okay maybe it's going to be be a good time for banks over the next you know one to two to three years assuming that their lending holds up through a recession yeah not economically sensitive Banks but some banks aren't very economically sensitive and they would benefit a lot yep what are some examples of ones that priv Banks multif family Banks yeah I mean you could figure out what you know cni has some of that there's other things that are specific to I mean it depends on what kind of bank but you can go down the list to ones that are higher and higher risk and then if you really want to get technical about you could say okay well what are the ones that are taking commercial type risks and what are the ones that are taking more consumer type risks and what you am I more worried about consumer numbers are bad already so they would suggest that that you know those numbers could be really bad um in a recession for consumers and lower end and everything so that is ones like lenders for cars Carmart that's why it's down a lot probably um anything that does subprime type stuff all that it's possible but it's also possible that it develops from that and spreads into businesses you know the place where the first crack show up doesn't necessarily mean that that's just where the most damage will end up being and everything and some of these things are well positioned in terms of capital or just that they're they already assume very large losses on those things whereas others don't people would have assumed in that housing crisis is that AIG and the gsse were like some of the worst positioned but it's because they were reserving like nothing you know I mean like AIG was taking a lot of risk people didn't know about and reserving almost nothing for it something like Kmart or whatever is assuming already that there things won't go that well so it depends on how far up it goes it turned out with housing that it went much further up from subart than people thought how would you think about judging A bank's lending standards and just their Lending in general take take Harmon out because we know that they're doing subprime but let's say a bank that does maybe a bunch of different type of lending I mean honestly it's asset growth since Co right now because it's so different so you can look at what the period was before but if stuff is going to go really wrong it's it's that they grew categories since covid and those have something strange about them so there's a lot of different ways it could be but like um it could be I mean it could be all sorts of different things but let's say that you grew assets related to like bu now pay leader stuff right that's basically same thing since that period um even other things converting something to be a you know Airbnb thing to being this to being that you know like different risks that you've taken since covid it would be the area that would be the most concerning um crypto type stuff that we talked about before certain Venture type things certain things tied to very specific locations in the country that have had unusual booms or busts since then you know so like um towns that have grown dramatically in the time since Co um things like that I would say if there hasn't been very high asset growth since Co it would be hard to imagine how you would not know that the bank is taking high risks and yet it is taking it you know what I mean the thing that would surprise you is if it's things that haven't had a long process of being seasoned of you having experienced being able to judge that kind of loan and so I think that has to be something since Co basically isn't it still crazy to think about First Republic Bank what happened there and how quickly in the speed of that it's insane I mean how long was that was that bank around for very long time yeah and then boom gradually and then suddenly right I don't even know if that was gradually it was just suddenly is what it seemed like at least in the stock crazy yeah and Buffett talked about life you know snaps you at your weakest link and so in that case they had something that was not good in terms of asset and liability match that's rarely the reason why a bank fails but you know usually it's a bank that's doing something unusual in whatever way it does fail so you're taking an unusual amount of credit risk an unusual amount of concentration something and usual amount of mismatching your balance sheet that way or whatever else um I mean I thought their lending standards my personal experience so we had a relationship a business relationship with them I don't know if I ever told you this and I was looking for a mortgage and I thought okay well it's it's difficult like with fund income and like getting a mortgage and stuff like that with car interest like it's not you're not going to a rocket mortgage to get that so I thought okay First Republic Bank they we have a relationship ship with them this is basically what they do maybe they'll take me on so they were willing to take me on I talked to a loan specialist and she's like oh this house is outside of our territory because of that we're going to need like 70% loan to value and I'm just like okay no that's that's not what I was looking for but my takeaway was wow pretty strict lending standards right especially when you at the time I would hear like certain VCS with a different bank that people used in California everyone the other one that failed uh I guess it fails I guess Silicon Valley Bank where they were talking about wow like they were giving VC's like record low interest rates and like 100e mortgage just crazy stuff right and um so I was like oh First Republic they're they keep everything pretty tight they're pretty strict and I actually did not end up getting a a loan through them it was um outside of their territory territory or whatever but I was like wow that's that's pretty strict you know so I don't know that's why I was my my personal experience our business relationship with them and everything it was a shocker yeah but it it's like is that Overkill is is it really desirable to get your losses down from 0.9% to 0.09% or something you know in one category or is it you're more likely that you're going to fail from some other reason that you don't understand you know is what I mean so there are some banks that have very low losses and some things that's not you don't have to spend a lot of time worrying about whether that will cause them to fail I mean there are banks um let's see there are banks there only a handful of them they're small but I can tell you there are banks that have existed for a little over 15 years and have to say we use methods to estimate our loan losses that don't involve our historical losses because we have almost no historical losses so they've been they've been lending for for 16 to 18 years and they don't have sufficient data because they have almost no losses and why is that well some of it is that they do one kind of loan and it hasn't gone bad um and interest rates help with that but it also is like then if it goes bad do they all go bad together I mean that was the issue with the mortgage things as opposed to some of the like with the cni thing even in different parts of the cycle as an example um I think Frost had writeoffs or had problems at least with some things that are Kmart type companies that it was lending to not Kmart but but other companies like that and it happened at a time where they didn't have losses on other loans because you're lending to a bunch of different Industries and so someone might have loans on something related to travel during covid they had restaurant things whatever things okay but it doesn't affect everything that they were doing whereas First Republic had basically one model of what they were doing and also then how they were funding themselves um and expenses and things too it's very easy if you're generating a lot of money if you're making a lot of money each year um by having very low expenses relative to the amount of like net interest income you should normally be bringing in so um same with an insurance thing with with Burkshire the same sort of ideas um you know I I don't I mean I most most fail through credit issues I would say that is the most common but whether it's nine out of 10 fail that way 19 out of 20 I don't know exactly but that doesn't mean that's the only way they'll fail in the future and over time people are more and more aware of that and not other things the FED wasn't very aware of the risks to those other banks by doing that and they were very aware of credit risks so you're kind of looking at last year's um last times um failures and stuff and not updating it to today what are your thoughts on insurance premiums they're through the roof and insurance companies in general yeah they'll slow down but but yeah it's it's been very good for them MH I mean what are they up year-over year Insurance uh depends on what category but it's up a huge amount yeah there's a lot 15 16% or something like that categories where it's up that much now that's talking about renewal that probably they would have known that six months ago or something so um I don't think that that's still what's happening but yeah mhh yeah but I mean there was a lot of I mean the things they were insuring have probably gone up almost 30% cumulatively since since Co in fact maybe they has with a inflation so [Music] mhm yeah let's talk about something that is not up our old friend okay a regular on the Pod going all the way back to the old days Jeff Celsius what's going on with this company if you're looking oh you're not looking at the screen sorry not at screen let me let me putot you in really quick if you're looking on the screen right now it's been a blood bath we got a high of $82 we're at $3 32.93 year to date uh let's see what we're at year to date do the math for me we are down 42% year-to date um pretty crazy uh price movement anyway is crazy we can look at it on quick FS uh price s were five times price of sales which has to be the cheapest in a very long time let's go to price of sales yeah I mean at one point there is this annual let's go quarter see what we look like price of sales yeah I mean always more than 10 right even 13 14 times that's what it looks like uh we are currently at five times okay EV to free cash flow 27 times EV iida 20 times um want to get your thoughts on our old friend Celsius and see is your recovery from here I mean it's interesting we talked about the stock when it was a I don't know 300 or $400 million market cap naturally I've done the calculation once or twice on what our carried interest would have been if we made that a normal size position and had you know the were fall to hold it all the way through which who knows I mean there it would I it's funny like when you think about those sort of things I'm like well Jeff always says you know you could go your entire life without owning something north of you know 10 times sales it's like would we have held it you know we like the product we talked about the product a lot I don't know we wouldn't even invested obviously because we didn't because there were other things that you didn't like but um yeah want to get your thoughts at uh well Sal it's come down a good amount right I say in a fund we would not have held because what would have happened was it it would grow to if you made it something like that a meaningful position would grow to be too much of the fund too fast and you'd end up selling a bunch because you don't want most of your fund to be in something that's more than 10 times sales the question is more like if it was an individual I had different attitudes on that I'd be more willing to if no one knew I owned a stock I just bought it and hid it away and kept it for years I'm more open to that um yeah well it's a very high competition space and so the question is what's been happening lately right and the stock although it's I mean it was once a huge stock and everything we're talking only a billion what in sales a something I think in sales 1.3 billion last year and at like 50% margin so at retail we're probably talking about less than3 billion dollars of units sold um so you know not huge it's not like when we compare that to monster or something um yeah but she got to be a Celsius to become a monster one day Jeff yeah I don't I don't know what's happened recently so I don't know the only thing that worries me is every time you know I go into any place where it's sold there's a ton of other things that look just like it stacked next to it you know that's always been my worry with this it was something to do with uh this uh Celsius CFO I believe and Pepsi I think he said something about [Music] um yeah I don't know he said something basically about Pepsi's not order they order too many C is or something like that and that like really spooked everybody demand has slown down is what people's uh impression was of that but it also could be maybe they just bought too much in the beginning I don't know but they're going International let's see okay so all right let's go to balance sheet then if we do quarterly by balance sheet yeah okay quarterly balance sheet there you go okay so they're afraid that the channel that they're selling into is stuffed with their customers are holding too much basically I believe so yeah okay yeah well there's no way I can tell you if that's true or not without having sell through data I mean that's the most important thing to have whenever you do any of these things I talked about that once when I wrote up Boston beer and everything and stressed that to people you need to know what it's selling through at the stores and bars and everything you you know how many how much how much is being consumed as best you can estimate that all the time you want to know how much liquid is being consumed each week and compare that more so than what they're selling in case you know someone does get too excited and it's full of inventory that then takes a long time to to deal with yeah so I guess if you're looking at this and you were not an investor in the company what would you be looking at is a five time sales for a business like this still too expensive nope that's fine okay so it's in that uh range of where you could see yourself buying so what would you for don't have problem the price things yeah no problem let's talk about the business then what would you be thinking about personally I don't even drink Celsius anymore okay I like Alani I feel like after I drink a Celsius I'm more tired and I've also other people have told me the same thing I don't know if they changed their formula maybe my tolerance to caffeine is a little different but I like drinking Alanis that's what I'll drink nowadays so there you go uh competition see and I don't think they are uh they are still a private business but these are the ones I like to drink okay yep so when you talk about competition yeah but people still love Celsius it was the same things that we talked about when we talked about um uh you know when you order meals at home what did we talk about with that specifically what brands I forget all ones we talked about we do we to talk about Factor um because that was owned by the one that someone asked questions about hell fresh yeah hellofresh y y MH um yeah and I talked a little bit about that with other things I would feel more comfortable if it was you know Celsius cigarettes than Celsius you know supposed to be doing something healthy for you I do worry about that part of it like I said okay so that's interesting so well I mean when we talked about before you said you had tried the meals at home thing and switch right and then we just said you tried Celsius and switch you know yeah I'm not saying that no one switches and now is not drinking Bud after they started that way or something but I just think it's less likely I don't think everyone's looking for the newest best cigarette every week yeah it's probably true yeah or or or soda if you don't say it has health things you know what I mean or candy bars if you say it you know I'm more skeptical that that the top protein bar in the country will be top protein bar 20 years from now than the top candy bar will be the top candy bar but you know that's just why is that that's that's a no that's a good observation though I've never I don't think I've ever heard anyone say that but I do believe that try to articulate that for us why is that well look health things have a signific it's almost like if it's bad I just give me if I know what I'm getting you know like that's what I'm getting but if it's good things their version or their view of good changes so often you know bad changes also with like society and stuff but I don't know that's that's interesting but very slowly it's a very long time it drops like yeah like smokers drop off or something but they might drop off 2% a year for 30 years it's not like everyone was drinking um one thing last year and then we all switched to something else you know it takes a while um yeah I mean with health things there's significant like snake oil aspect to it right there's a lot of how does it feel how does it make me feel does it do good things for society it's it's very feelings based that way I'm not saying that people sto taking Advil or something if they took that at a at a uh for a long time whenever they had a headache or something but that's very different it's an effective drug that they can feel the effects of immediately that way this is honestly they're taking a drug caffeine and there's all different ways of mixing it with other things how do I get that drug but I mean if you feel a certain way after having something it's probably because you're taking a drug called caffeine that's in it and not the exact way in packaging and stuff of what it's in and how it's flavored and everything but it could be mhm why is that though so who knows where celsus will be 10 20 30 40 years from now but people most likely if I was a betting man I was going to stake my life on it you know is a rees's and a Snickers are those going to be around you know 10 15 20 years from now verse Celsius yeah yeah it's interesting but I I would obviously bet on the candy but like Reese's for instance has a specific flavor of peanut butter that people are eating that does not taste like other peanut butter I'm not sure it's better or worse um I think people get used to worse things and like them better sometimes um but it's the acquired taste of whatever it is that they liked at a certain age and then they can go back to that in that Nostalgia and have that same thing um I do worry about anything that's functional like you know but that's true with other things electronic things whatever anything that's telling you the benefits and here's what it does for you I think that's a harder business anything that is too difficult to explain what it is you know I think is usually going to be better for the long term you know um and it's not just look it's not just a um like sin thing or something like that I would have higher faith in even [Music] certain you know um even certain things that are a questionable like what does it really do for them but it gives them a feeling of something that is not functional and is known not to be functional so okay if someone is drinking a Celsius and has a Coach handbag which do I have more faith in that they'll still be using in 10 years or something it's more handbag and it's not really because the quality of it or whatever is comparable to some other thing but because it's not sold on the benefits that it gives to you you know what I mean luxury products are similar to what we talked about with snack foods and other things like that where they're not selling it on some of the benefits that same way so and that's why I said electronics and stuff I don't like businesses with electronics where it's like you know you're selling a small appliance or something and you're like it has this function and that function and but compare it to this other thing you know mhm so we'll see uh Celsius is also pretty high caffeine level is it 20 milligrams 250 yeah it's like 250 or something which is uh I mean if you were if I was designing a product to be addictively used all the time I would use a lower caffeine count I'm just going to be honest I see so more like a Coca-Cola or 607 yeah yeah you want around 100 I don't think you want to exceed that mhm yeah I mean it's pretty it's a pretty strong drink and then it has to have a pretty strong flavor to make it palatable too um because you're also going for you don't want people don't want calories and they do want a lot of caffeine and they want it right now I don't know it's just you know I've seen people online talking about Starbucks and Celsius and where they both can exist together or if one is taking share from the other I personally think they could both exist it's funny at Starbucks you and I were just talking about this you walk in and they have their own energy drink right that's what I thought this was related to when you were saying the stock was down I thought it was because of Panera and Starbucks and um Dutch Brothers and uh you know the McDonald's one was it MC Cosmic Cosmic whatever it is and all those which are drinks based um places to go and drive through and everything and then they have a large energy component I do try some of those just out of curiosity from a business perspective and stuff which one you try uh are you talking about the lemonade at Panera things instead now the Starbucks things yeah were they good they're not as bad as I thought they would be but I wouldn't drink them yeah I don't yeah are they fruity flavor they're they all have the same thing which is it's basically a fragrance I mean let's be honest if you're giving a zero calorie thing you're basically creating a perfume that you're shoving into a carbonated thing and that you know so so it's not it's it's honestly when they're selling you like an orange flavored thing what they're doing is taking the component that is an orange smell that is already being added to things like orange juice for Tropicana or something to help them have it smell and taste like fresh orange juice all the time year round and they're just taking that kind of thing and putting it into your zero calorie thing and yeah it's it you know so I yes they they have a taste smell whatever that's fine and would be fine if it was added to other things but there's no substance to it beyond that there can't be because you're trying to make a zero calorie or close I forget what those are maybe 10 or I don't know but you know anytime you're trying to make these things that are 20 calories or less or something you know I mean gum that's almost no calories I guess would work that's about it for actual thing things but you know caffeine gum it seems like that has never really took off the way that people thought it would have yeah I mean I think it is interesting the the changes I mean because we are talking about something where people are now what tripling the caffeine intake in a single serving and I don't think it's because people want to be so much more caffeinated than they were before part of it is the huge drop off in in just like cheap black coffee drinking over time in the United States which was just a constant all the time thing and so um Teddy Roosevelt used to drink a gallon a day a lot of people drank a lot of it yeah um I don't know I guess people want it faster and everything now it's hard to say there there's swings and things alcohol consumptions same way where there swings from higher to lower alcohol by volume and mixing it and making it palatable to people and everything so you know there's some societal swings the same way here I guess um yeah no the price is fine and everything I don't have any problem with that um it's a very competitive space I feel like in terms of every fast food place seems like they're going to do some sort of energy drink thing it's a category they want to get into I don't know it's hard to tell because when I talked about the inventory thing I don't know if you remember but the um spiked Seltzer type stuff so a couple years ago I was in a supermarket where it was like it went I mean it went from being massively overstocked with it to basically eliminating the category being just empty like you know and put everything on sale just to let's get rid of this but like you had half an aisle of stuff that they had done really since covid and within 18 months or something it was like let's get that out of our store um and it exploded so fast where you probably had a couple competitors initially and then so many people started doing it so um and I don't know enough about the success of things like monster and Red Bull and stuff in terms of their marketing and how much that led to their durability over time versus other things you know I do feel like we're generationally a different category where all these energy things are promoted not all of them but don't you feel like a lot of them are promoted as being healthy as opposed to the opposite yeah yeah and I feel like some of the early ones were not so so I'm also skeptical of that on the demographics I always felt like if it was people playing video games I'd be more comfortable the idea they're going to keep buying it and using it then then people you know I'm more of a search for wellness all the time isn't that what happened with Boston Beer Company the spike Seltzer and when that stock was trading at crazy valuation and then it fell out bit right you know they've had that in their history a few times before it just hasn't always caused the stock to go crazy um and sometimes that category was big enough that it caused him lots of problems that grew so much right was that during the time too I mean that was during like covid right yeah where everything was going crazy look at that look at that chart 2020 361 bucks is up to 1,200 within like a year or two yeah that's crazy so long-term Revenue they might grow volume you know 5 six% a year and then grow price three or 4% a year or something in their history and then with what you're talking about if we do 2018 2019 2020 2021 they grew 15% 25 39 19 that's you know really wildly high growth for a consumer Products Company like that in a category that's that you know the beer part of the category wasn't growing at all down to 1.6 times price of sales let's see what they trade to and yeah it's G was pretty high wow you're at the same is that true that you're at about the same market price that you were your stock basically has you've round tripped I would think let's see all of Co yeah you're back to9 level do you know if they bought back stock let's see I guess I could have gone an income statement and see share count yeah not since that boom happened they were buying before the boom basically yeah wow you know this actually ties into the topic that I want to speak about today with you um and it's this idea of like an individual stock idea versus a theme in what you think is more powerful and just your thoughts on that in general going back to 2020 I would have said like a theme could have been owning Financial stocks right Bank stocks 202 2021 with the yield curve I personally think a theme is probably I don't know two three four times more powerful than an individual idea because there's so many different ways to make money and there's a lot of momentum and everything like that but want to just get your thoughts on like themes so industry themes uh versus individual stocks I mean so here we are talking about Boston beer company and of course Hind 2020 and we're just picking and choosing but seltzers and Celsius all these companies back in that era it was a theme you just had to own it it didn't matter what it was right and the stock just went to the moon so want to get your thoughts on themes in general versus individual stock ideas in the medium term I think that themes are the most important in the long term they're not very important there is some difference between industry but in general which IND Industries you're allocating to is not very important for super long-term like building a fortune and stuff what company you're in is important um it would be helpful 100 years ago to be in tobacco and not coal no doubt about that but even the gap between those is not necessarily bigger than the gap between some stocks within the same categories and stuff so you know it's more important to be something that's going to last for the very long term so if you're putting money away to be what's around for Next Generation really good business really good management team that kind of thing that's what really matters more so than a theme but yeah in shorter periods of time like you're talking about of course the theme is much much bigger and even when I we talk about talk about things like um cinear and Marcus I do even wonder about that is that people want to participate in investing on a certain kind of thing and it's easier to do sometimes now through one thing versus another I don't know if you read the um what was it the uh was it aqr the um you know whether the Market's gotten less efficient over time is that a recent piece yeah let me see less efficient market hypothesis September 3rd 2024 no I have not read that okay yeah yeah what was the uh conclusion what were his thoughts uh I will we we can discuss it some other time actually it would be fine to do as a longer term thing sometime probably because it's a question we get all the time and his career in some ways in terms of stuff matches some of the time that I was investing in the market and so some of the same ideas are true I think for both people when people ask like so he covers some of the topics of like speed and yeah there's no doubt things have gone faster but that's not a very big factor usually in uh how good returns are like he you know he's a some Factor driven person short-term quantitative but you know is honest about the fact that look if it prices something in in the first day or the first week that shouldn't matter that much of a strategy that's holding for 9 to 12 months otherwise the strategy should be to hold for a week you know um that wouldn't make sense so like we shouldn't pay too much attention to the fact that these things can happen really fast versus how right they are about it so Marcus and Cinemark I do wonder about something like that look they're different you could be more exposed to hotels look hotels are sensitive to recession in a way that movies are not although hotels are somewhat helped by lower interest rates if they go down and State down for a while like the value of the hotels and everything um which is not such a factor in the in the movie side um but it's just like is it easier for money to flow into cinemar than it is to Marcus for people to find it and to make that bet are they making a top down sort of bet you know yeah it even including IMAX so just having exposure to the box office and movie theaters anything right like let's say it just checks that industry box it's a much more liquid stock so you have Cinemark liquid you have IMAX liquid and then you have Marcus not liquid or less liquid and I wonder if you just don't get those flows right it seems like momentum flows move everything nowadays at least in the short term and all the people invest have never been to a Marcus Theater because it's a Midwest and cinarc has cinema right in the name of it so I don't know but that's always a question I mean I do think you could make your for theming purposes you could have your stock go up more if you Chang its name and stuff yeah uhhuh it's kind of like that related hedge right yes no it's totally yeah which works over time explain that why don't you explain that for people that don't remember that it was just an idea that I suggested for something which you know was not accepted as a but uh there's two stocks one had a history of being in a different industry and so had a totally different name and one did not but what both of them were doing is acquiring things ethanol pretty much putting all their money into that and so one would eventually change his name and say it was an ethanol companies the other one and their so their book values were different one was at like half a book and other was two three actually was probably three times book at that time um yeah so that is an Arbitrage kind of thing of like okay well if if um movie theater things are so hot or whatever why don't you change your name to that you know but they're trying to do that with AMC the opposite way like let's adopt things that are are not movie theater you know a few years ago let's stop things that are not movie theater related and kind of make us sound like we're something else you know it's a lot easier to change the idea of what the stock is than to change you know the underlying um reality usually but sometimes you can do it in other ways I mean GE basically grew you know 90s 2000 basically grew a lot in terms of um finance and presented itself as an industrial company as like a diversified company and so was more able to get people to kind of think of it that way and we've talked about that with with other things where sometimes you see companies that are financials and grow quite well and they're not valued as highly by the market as if they had the same growth but were a non-financial company but it doesn't last forever I mean I think Pro Progressive is pretty has had pretty good multiples lately for instance I think it eventually got valued like a growth stock um yeah it's valued like a growth stock now but for years it grew it's not you know for years it grew like a moderate growth stock but was priced like a value stock because it was a financial company let's hop over to questions that people had sent in if I could find them let's see so for whatever reason I can't pull them up on my screen so I will just uh read them out loud I don't know why they're not pulling up but um couple good questions in here if you want to send in some and have them pulled for the podcast email them to me at Android Focus compound.com someone said Jeff had said in the past if you were to recommend someone to start investing to just going through to just start going through annual reports and that he has learned a lot about business reading them which company's annual reports has he read that helped him learn the most question mark has any particular company's reports given him any particular insight into an industry so I have an answer that is not really going to answer his question but it's just more advice in general I would say just pick a company you're familiar with if you want to learn about business something that you use daily you understand the product the customers or you think understand the customers why people use it and just read that start there and that I would say that's a good way to keep you interested and uh be able to go through like that so if you drink Starbucks daily go read Starbucks's annual report if you use Apple products go read Apple um you know if you're interested in I don't know um Celsius you drink Celsius daily go there I would say that's the best way to to do it I don't know if there's anything that gives you an example or I'm sorry gives you any sort of insight to an industry other than just reading two or three or four different ones listening to Ernie's calls reading them um and just going through one by one that's the best way to do it in my opinion yeah there's we haven't I don't think we've talked about this podcast before but there's an excellent podcast Founders podcast Founders podcast I did not think would be a podcast I would enjoy but you suggested something and he covers many more obscure um biographies older biographies and things instead of just all being you know like Steve Jobs and and things like that but uh one that's not so obscure for Valley investors but they covered was leelo and so basically what he was talking about is the leelo um talk at Colombia where he yells at the students you know the one that I'm talking about yeah yeah so it may not like I'm sure the quality if you can find that video is not great you know the audio whatever and then the students aren't that helpful so he kind of just yells at them whatever but that is like the best what lelu is talking about in that lecture is really the best way of how to invest and how you learn things from annual reports and everything so he's basically talking about Timberland and he's like here's how I figured it out and then I looked into this and looked into that you know and uh I had to learn about the people I had to learn about the the dad and the son and I had to learn about why it was the way it was and you know he just goes through the whole thing and he basically gets annoyed at them for not you know doing the work and putting it in to figure these things out he's like you have to have curiosity and try to figure these things out so that's what the annual reports are really useful for and like you said having different ones that you can compare can be really helpful um something that you have some experience the product and everything is really helpful um occasionally there's things in annual reports that are incredibly helpful that I don't even know if they intended to put in there to make helpful but you know much more common with small companies that they don't remove certain stuff and so they just uh you get so much more it's surprising if you go to like a Microsoft annual report or something how uninformative it would be if you didn't understand what Microsoft's products were and everything and then you have some tiny thing that has one product sort of business and there's so much information about it so um I would probably start with the simp smallest simplest one that you know in an industry or something um a lot of buffet companies are good examples for annual reports because he tends to invest even in giant companies that are giant in a single industry a single product line or something so like apple right is probably one of the simplest big tech companies to understand because it has so much from such few product categories and everything right one thing I've come to appreciate just through our own investing and experience is how much a lot of these reports especially 10K are written by lawyers I mean it's all written by lawyers but one thing that I've learned whatever experience it's easier for me to see when something was written by a lawyer when it was written by management and when it was probably written or suggested by an auditor and being able to sort of filter that out just from our own uh experience and filings and all that other stuff and I would strongly strongly encourage people to read all past transcripts I like to read theual report and all the past transcripts and highlight them and everything it's not an issue it most of the questions are really stupid and there's no reason to listen to an Ernie's call for this quarter to learn about this quarter or next quarter that's not important what's important is to have all of the past earnings called transcripts together to understand management doesn't always know exactly what they're going to ask and even if they do know what they're going to ask they'll ask for clarification on something or whatever and they'll just blurt out something actually useful about it you know and trying to answer the question um and so that's much th those are really really good and I've always felt that you get a much better feeling for management from reading all past durings called transcripts than you do from say the annual report go from the past and work your way up correct yeah back up somebody told me sorry go ahead I was gonna say which is pretty much also I do annual reports so annual reports oldest and newest I read first and then I go from the back up but I'll read the newest annual report and the oldest annual report first to get an idea of how big the change has been and all that and then would read the anual reports in order but I always try to read the very newest and very oldest annual reports mhm somebody told me and they worked in uh investor relations and he was talking about how all these companies they know they try to know who their shareholders are their fund style do they do activism do they don't are they long short whatever the uh situation is and for their earnings calls they'll put their favorite investors the positive people in the queue right and because they don't want to start it off with like negativities sometimes they'll Loop in somebody that they know has like a cell rating on them and answer their questions and then they'll end it with they someone that's a shareholder that they know is gonna ask a positive questions because they don't want to end a call like that uh so yeah it just I guess playing the game we're just seeing how some of these companies do it is something that is just I don't know maybe eye opening to me maybe that's because a lot of the world we focus in people don't really do earnings calls too much so it's been a while since I would sit in on them and stuff like that although I was on AOS pretty much every quarter but um just interesting to hear like the other side of it is what I should say yeah and when someone is really close to the operations the earnings call is usually a lot more helpful yeah as as good or whatever it is listen to a Disney ears call you know um Bob iger's like the Ambassador the face of Disney or whatever I mean like there's these different units and you're not getting earnings call with each of them and what youd really want is an earnings call of the parks or an earnings call of the studio those people would really be able to tell you something that would help you understand those Industries and everything and so it's not going to help you so much when you have a conglomerate like that honestly like a lion's gate thing would be more helpful to understand the industry or Thunderbird or whatever that what was the other one you remember the Thunder yeah things like that that you might not be interested in them as stocks but you actually could learn more about the industry from learning about that so same thing with you know Cedar Fair would be a more useful one for Parks than um Disney would be M somebody else s Us in another question about that but we did just answer it um one thing we've never talked about on the podcast is rsus and grants and how you think about them so someone said how do you guys look at management compensation especially all the rsus and grants and then he has another question which we could go over any thoughts on rsus and grants in general no I'm just skeptical I don't know I'm skeptical about being able to tweak these things in different ways to improve you know incentives I mean look there's a few different things but the the big one is obviously look you want someone to own a lot of stock versus uh their salary right and then you also want to consider which is a problem in some cases and that's a private Equity problem and stuff you want to bring people in and everything who don't own a stock so what do you do how do you get them to think like an owner and this is kind of the different ways of doing that but making elaborate ways of doing it other than just we need them to own a lot of stock and to be paid a low amount of money you also don't want them to be generally very rich so you could you it's Everyone likes when you bring in someone who made a ton of money someplace else but actually it's better if they have a lot tied up in this particular company and don't have a lot of money outside of it or they have potential for a big bonus but they don't have a lot of money outside of it or something um and then you also want to consider what incentives they have that are non financial and I think that's one of the really big ones the incentives they might have that are not Financial um and people tend to underestimate the non-financial ones and overestimate the financial ones so if their name is on the business or something they have big incentives regardless of what they're paid and everything for it if they've been there forever if they kind easily get a job anywhere else with it or if they can't you know if they're at a job that they're never going to get that kind of job somewhere else then that's going to affect their incentives even in ways that don't show up in the financial numbers but generally just say owning a lot of stock versus having a small amount of guaranteed money coming in and being younger helps for being honest it you can't incentivize extremely old people yeah it just can't be done I mean there are ones who will do great things for you but basically that's cuz they were doing them before and then they got older and they just kept doing them but you can't find someone who's old now and say oh I'm going to incentivize you people typically think the other way they think about the age being a benefit of all the experience that they have well you get experience yeah I'm just saying do you incentivize I mean so usually the people with the most experience are the hardest to get to take some of the actions that you want to have happen right those two don't normally match up that's always the issue with the Charlie Munger the Warren Buffett those things it's not just they're very smart but they also carry out those actions at the times that they have to there's lots of people who are great at understanding what to do but don't do it and there are other people who are great at hustling and doing everything and half the things they do are are dumb um you need to have the combination of those two and you can find people who are great at hustling but are doing no you know their hit percentage is not amazing you can find people who are amazing analysts who wouldn't necessarily be great investors or great operators or you know of a business or something but might be great if brought into analyze a particular problem or something so is you know um I mean the other thing that's tricky with the incentive stuff is it really depends on what position the person's in so um the reason anything that isn't stock gets tricky for the very top people really tricky anything that isn't a lot of their wealth is permanently kind of tied up and something it's very hard to try to duplicate that for people at other levels in the organization there are ways to do it and it's possible right so at Berkshire it's possible for someone who's running Seas candy to be incentivized in more elaborate ways that looks more like what a compensation uh consultant would say or something for people at the very top it's really really hard um because ultimately it's building the business in a way that is the best for realizing value at some future point and that Future Point could be six months from now or it could be 60 years from now but it's kind of like a present value thing and so I think that you know It's Tricky they're weird incentives and I mean like a lot of these schemes they come up with they inadvertently cause I don't know that people realize them but they cause weird optionality in terms of what would happen like you're incentivizing them potentially to say okay you wouldn't you wouldn't be harmed that much if things went really badly really fast but you benefit a lot if this business gets sold in three to five years or something at a high price so try to you know Gussy it up and get it sold or something is often what you're incentivizing them for even if it means not necessarily having the safest situation in the short term and I don't think that causes necessarily a lot of problems but I just think that that happens when you do anything much more elaborate than basically just giving people stock well cool well I want to thank everybody so much for tuning in with the both of us on the focus compounding podcast if this is the first time you are joining us be sure to hit that subscribe button wherever you are listening or watching us here today and of course if you want to learn about our Money Management Services you could reach out to me at Andrew Focus compounding domcom I thank everybody so much for all the support and we will see you in the next podcast take care