All-Time Highs, Passive Distortions, and Thoughts on BRK Post-Buffett
Summary
Berkshire Hathaway: Post-Buffett transition to Greg Abel discussed alongside capital allocation, with Berkshire viewed as reasonably priced versus the market and potential for dividends and continued buybacks.
Valuation Approach: A sum-of-parts lens highlighted for Berkshire, comparing major holdings and operating units (insurance, railroad, energy) to public comps to justify fair value.
Apple Context: Apple’s outsized role in Berkshire’s returns underscored how multiple expansion can drive long-term outcomes even for quality compounders.
Movie Theaters: Exhibitors appear more efficient and profitable post-COVID, but supply from studios is the key constraint; Cinemark was reviewed on multiples, margins, and cash flow.
IMAX Opportunity: Long runway for PLF screen expansion and strong brand leverage present a structural tailwind, tempered by a mixed history of monetizing growth and a not-cheap current valuation.
Ad Agencies: Traditional agencies like Omnicom offer bond-like dividend yields and steady buybacks, providing potential total-return appeal despite modest growth prospects.
Studios vs. Streaming: Ongoing studio prioritization of streaming over theatrical releases depresses box office breadth, posing risk to content supply but creating upside if release slates normalize.
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. Gosh, it's been so long since I've said that intro that I have forgotten what the intro is. 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 on the internet, uh, going all the way back to goodness 2018 I believe 2017 2018 for this podcast and even further back um through investment writeups and blogs that Jeff had wrote which is on focuscompounding.com uh been doing this for a long time Jeff um so there's a you know bunch of uh content online focus.com that if you want to go and read you definitely should you could go to our website if you're watching on the screen right now and type in anything that's on your mind and I guarantee you you will find a write up on it. I mean, let's just talk about what's going on here today. Um, you know, people keep talking about uh interest rates. Type in interest rates and oh wow, you can see a lot of stuff that Jeff had written through the years. First, the most recent one was 2016, the possibility of negative interest rates in the United States. Do you think that's still a is that I mean is that still a possibility or what? >> Um so go to focuscupine.com to be able to do that. So uh Jeff, it's been a minute since the last time that we >> uh recorded. I think the last time we recorded we were in the midst of the tariff tantrum is what the Cartoon Network aka CNBC was calling it. And um we've since roared back since then. I think last time we actually had spoken. I was saying it's probably a good time to buy because it seemed like all the bad news was out. Um countries were coming coming to the table. At least that's what was being communicated. You were getting news from the White House that they were putting going to put a a greater or a more extreme tariff on said country and the market was just kind of shrugging it off. You know, that's the funny thing about the markets is market hates uncertainty and they hate uh you know, the things that just ain't so, as that quote goes, right? But when the market starts to be able to digest and it's been telegraphed, it's almost like it just shugs it off is what this modern market uh does. You know, kind of the best case of that, I guess, was the Iran uh bombing, right? They kept talking about it in the market for a long time. >> Um and I think this is actually done purposely by the Trump administration. They'll talk about it. They'll say, you know, come to the table, otherwise we're going to do this. Okay, no, actually come to the table, otherwise we're actually going to do this. And then they do something and it's not a surprise to anybody. It's like the markets just kind of shrug it off, right? >> I think there was some volatility in oil. But, uh, that's sort of the Trump MO because they obviously care a lot about markets. But, so, um, last time we recorded, um, the market was down a good bunch from those tariffs. We've since rode back. The S&P 500 right now. The price index is up 8.49%. So, of course, if you want to add in the dividend, um the Russell is about flat. Gosh, what a horrible index that Russell uh 2000 is. Uh NASDAQ up almost 11% on the year. I think the NASDAQ's up like 30% off of the lows. Pretty crazy. Um and then oil is down 8%. Love to track oil, obviously. You know, it's almost like Trump said recently that he loved uh oil at $65. So I was like, "Oh, okay. So 65 is the new 50. Um that's the new floor, right? Anything above, you know, too much above that, he'll just start to tweet and complain and blah blah blah." But uh so wanted just to to give your thought get your thoughts on everything. I think last time we we had spoken the you know the Doge committee was >> front and center and the talk of the town in DC and how we're going to cut the deficit. But then we transition to the big beautiful bill and it's come apparent that they're going to have to run this baby hot which is kind of what I always thought would happen. Um Trump and Elon had a very public breakup which was uh interesting. Um, and yeah, they're going to run this economy hot is what their plan is is what it seems like. So, yeah, want to get your thoughts on just everything that's happened since we've last recorded. People want to know, Jeff. >> Yeah, most of those things are not good and the market keeps going up with them. So, I think that's generally the reaction. Yeah. >> There you go. That's it. Are you surprised by where things are in the market or? >> No. I just feel like we're get a a melt your face just just a melt up higher. Like that's the pain trade, right? Is markets will just continue to go higher over time. It just seems like it that's you know I don't know. It almost is like mag seven's become a national security that they just have to continue higher. He wants Powell to cut interest rates. What do you think that's going to do to like financials >> if the if the Fed cut interest rates? >> Yeah. Um, I I don't know. Uh, it's a complicated issue. Um, I'm not sure how effective interest rate changes are necessarily if concerns about inflation and stuff are due to fiscal policy. So, um, it's hard to say, but the inflation sticky type price inflation is high and, uh, highly variable prices are low. So economy is kind of globally kind of weak and yet there's kind of a high amount of sticky inflation. So that's not necessarily uh that effective to be able to like raise rates or something to cause that to come down. Um probably so what do you consider high like 3%. >> First yeah the I mean the the sticky price inflation is probably running something like that. Um, yeah, it's probably been around 3 or 4% in in last most of the last year and the variable portion has been probably negative 1% to zero or something. So, they've netted out to be pretty um much the same, but they're very different in terms of what is causing the inflation. >> What are your thoughts on the dollar? Do you have any? I mean, like Trump wants a lower dollar. >> Mhm. Yeah. Yeah, I don't know. I mean, obviously that complicates things for tariffs is the same thing is that you have tariffs. You have both the complication of what tariffs are and what currencies are for affecting trade between countries. So, >> Mhm. Yeah. Well, we'll see. I I do wonder um you know what will happen from here. Um but you know, it's just so interesting. I feel like because twothirds of the market now is passive, you're just going to get these these extreme moves like we had u back in April, you know, then it's just then you just have this consistent bid when everyone like piles back in. Um >> it's just it's it's it's definitely different that way. You know, now as individual investors, when you're going to get these violent swings, assuming you don't have leverage and blow up or you have cash or or the ability to to put money to work, that could be an amazing buying opportunity. >> Mhm. Yeah. >> I think that things that are grouped together by category have been moving more together and less for individual stocks lately. um kind of what you were saying with that about picking out things specifically. So I think that is a bit of an issue. Um you know so we talked about Dollar General before, United Health, they're these stocks that should be very efficiently priced. Tesla should be very efficiently priced. There's a lot of focus on and yet they have trouble predicting you know things shortly uh that are about to happen with stocks. So I just it's interesting certainly market's very optimistic. I don't know if it's like a change in terms of efficiency from the indexing things that we've talked about. I historically would say that I haven't seen much of a difference in how efficiently priced individual stocks are just from um indexes, but it could be causing overall higher prices across the the market. That's possible. >> You think that's due to like factors and and quants and whatnot? >> I don't know. I think that there this it's I mean it's very psychologically driven in certain things about even what prices should be in that at you know when I wrote about now it's almost 20 years ago about stock prices what they've been in the past what they should be in the future one thing I said is that they were too low in the past so there might be greater acceptance of people having a higher amount of their net worth in stocks. Um, but the other thing is it's very US-driven. So, it's not necessarily a thing that across the world they're all incredibly expensive versus what they were in the past. There's plenty of countries that are not the most expensive they've been um, historically. I mean, I could think of lots of countries that were had a phase that was a lot more expensive than now. And whereas with the US, that's not really the case. So, it could be outperformance over a long period of time. It could be something unique to the US that people are willing to put a lot of money into stocks as opposed to what they kind of used money for in the past. I don't know. But obviously if that changes as a society over time, then you know that will change the average level of prices. I don't know if it should change what one stock is relative to another. But like you said with indexes, some things might be in or out for other reasons. So >> yeah. Yeah. I mean two I was reading a report. It said like twothirds of of markets are passive now. So it's almost like you have this buyer that you know back you could even say like 15 20 years ago you had a lot of people that were going out to set the price right and find different you know securities and and buy up at certain prices and now it just it seems like it's all on autopilot based on flows and all that other stuff positioning. >> Yeah. And so it's it's an interesting question. I mean my feeling on that's the same as we didn't we never um published it but we had kind of talking about AI stuff and I was more skeptical about AI things if it gets to a point where AI is being trained effectively on things that have already had AI input into them over time and the internet would just get less useful and that's kind of my feeling on um indexing. I mean there's no reason that you can't be 80% passive and 20% active and have a really efficient market because as long as that 80% isn't biased in some way in what it's doing. Okay, you don't need that many people. You could have a huge number of people actively investing in it and everyone else piggybacking on that or a really small number. Um, but when you start talking about things like factors and stuff. Yeah. And then are people betting on things that have been going on for 10 or 15 years or things that have worked forever, you know, then you start to is it are you having more and more things being uh not actively done that are tied to it? The biggest issue I think honestly is active investing being influenced by passive. So that's what we talk about. So you were saying like the indexes and things those are used not just as a method for passive investing but also as a benchmark that other people might be compared to. If those were two separate things it wouldn't be such an issue. But if they're using much the same baskets of things and then that could be a really big concern because active investors will, you know, active money managers who are managing the largest amounts of money will look to more mimic like the S&P um for that very reason. And the S&P will be used for passive investing. And so you have this problem from that. >> So they're they're not kind of protected from each other that way. But in theory, I don't see a problem with there being huge amounts of passive as long as sort of the active investors are blind to it. It's it's the fact that the active investors are aware of the passive decisions that I think causes the contamination in the information that they have and that can make things trickier. >> What are your thoughts on AI? So we did, so Jeff's referencing, we did a podcast one time, which I don't know if we had to scrap it because the audio or something, but I basically did like AI verse Jeff and I had asked the chat GPT what Jeff Ganon would say about like 10 different topics and and I I can't remember, but it did get a few of them correct on what you would say. Now you're like the best person to there's so much material of like how you think and you've written about so many different topics and there's transcripts online about stuff that we've spoken about so you know >> keep that in mind. Um but I can't remember if they got like five of the 10 right or ority of it right. Yeah. and did really well. And where it had issues is just a general focus on getting confused about value investing things in particular confused about like Ben Graham type stuff versus like Warren Buffett or whatever, you know, because it's heavily based on the concept of the idea that I'm I'm a value investor and all that. So, occasionally there'd be weird things thrown in there because of that kind of stuff, you know, because there's different camps to value investing and so it could become confused about that. But yeah, it was good. Mhm. What are your thoughts on AI like Grock and I mean Grock is Elon's AI, right? X AI and and he says it it should the new Gro 4 basically should do exactly what you should not do exactly what you were just worried about basically that it's just spitting out answers that it's used before in the past or has seen other you know AI things say uh to sort of propagate like disinformation. I mean, he claims that Grock could actually think and understand and, you know, solve engineering type problems. >> Well, that's true. That's very impressive. That's not what I've seen for the things that AI generally does. It doesn't seem to have awareness of its own um what it's doing. Uh so, and then kind of rationalizing things after the fact. So, it leads to weird things that way. as an example like um store hours. I had a looked up a store and so I wasn't intending to use AI but it just randomly generates it >> um as preference >> like at Google >> in a search engine. Yeah. >> And um it decided that the hours on Wednesdays were different than the other seven days. Now I know that the stores hours are the same all seven days. But then it went on for paragraphs about what that means about them being different, why they might be different, what that means for the Thursday through Tuesday and what and it's just wrong. the Wednesday hours are the same as every other. So that kind of problem does happen obviously and you see some of that, you know, and like you said, you see things where there's problems where there's insufficient information. So there's very little about something that gets confused. So, you know, I asked it a a question again trying to do a search or something just to see who was playing some part and it was had no information on it and the character's name was Carl and so it started talking about Karl Marx. >> Wow. >> Yeah. >> Mhm. >> Oh boy. because there's a lot more information about Karl Marx than there is about a character and something it doesn't know much about named Carl. Whereas previously searching that is effective because I can just say IMDb this and I just didn't do that. I typed it right in and so it pulled that. So >> it elaborates on nonsense and stuff like that. But um it I think you know >> it's uh it's it's it summarizes some things fine. Yeah. >> Yeah. Yeah, that's definitely scary. >> I mean, >> the hallucinations. >> I personally think it's going to be I mean, it's I mean, clearly I mean, there's something like what what are the stats like 10% of the population is is on like chat GPT or something crazy like that. >> Um I don't necessarily like the way that it's that it's going because I think it's going to make people like really stupid, but um yeah, it's it's definitely like a breakthrough. I would liken it to like the internet in in a major way for sure. >> I think it's more like smartphones than the internet. But I get your point. Um just because I think of how people will use it and what will be done with it. My feeling is mostly people are using it for from what I've seen to vomit up something that's good enough that they can then fix. Um and so to get over the initial thing of like like people don't like to write themselves get started on a blank page. People don't like to make a a speech. They don't like to have to do something with a resume. They don't like first reaching out in a dating app. They don't like answering um customer complaints. So, it can obviously do all those things. It can even do things with with programming stuff, which I've seen people use it the same way, which is basically to get it to do a bad version that they then fix, but they feel a lot better getting started with it. So, so I think it helps people get over their anxieties and things about that by making it seem like there's a legitimate answer that they can then build a template off of, you know? But I think people have always done that to some extent. They've been like, "Can someone show me a sample of this?" Right? People have always wanted, "Oh, I want how do you write resume?" They really just want a sample and then I copied as much as possible. So >> yeah, as somebody that you that used to write with hyphens a lot in my writing and like to replace commas, I can't do that anymore because that's how the AI does it. That's how you spot it, you know. >> And uh so I I I had to change I have to use more commas and less hyphens. >> Yeah. I don't know how it does with grammar. Um, so that's a big issue. The using hyphens and and and things with um, uh, commas and hyphens and translations into other languages is a big thing. I write that way to make the clauses shorter and not rely on other clauses because people get very confused with it. You know, people don't have high enough reading level or experience with things or sentences that just go on too long or very confusing. And so simpler writing is usually very short clauses. And so that helps in in making it understood to both the reader, but it also helps a lot. The shorter sentences are and clauses are helps a ton for the writer, which also might be true for AI. Um it's much easier to get confused writing a 30word sentence that's using, you know, um all sorts of grammatical things that aren't common in English versus um basically writing a series of shorter sentences or sentences that are formed from very short clauses. Um, translations have the same thing. Translations into other languages have problems with grammar severely. Um, when logic and grammar mix are mixed up together and the AI things I've seen in English that are weird are the same as what used to happen when I would ask for a translation from English to French or French to English or whatever, you know, same thing. As long as the clauses were really short and what it was saying was clear, it's the connections between it that it had weird problems with where it would put things in the reverse of what they should be. They put the non-essential information in the wrong place and the essential stuff in a different place, stuff like that. Not knowing what to emphasize and how to do it for clarity. Mhm. >> You know, >> I saw a tweet, I don't know if it's true, that Value Investors Club, they've temporarily stopped uh submissions because it's been there's been so many submissions from people that are using AI to write like a write a pitch. So, they've temporarily like halted um you know, people to be able to do that. I don't know if that's like been solved or whatever, but I was just like that's that's pretty funny. Not surprising. Yeah, there's lots of things already where I was saying, you know, I don't know how big the difference is. If the if it was AI stuff from, you know, when the internet started, if there was AI stuff in the age when people who were writing had been writing for print newspapers and stuff, I think it would have been really big. But if you look at certain websites that are already like real SEO driven and everything, they were already being written by humans in ways that are much more similar to how AI does it. I mean they were stitching together a lot of stuff without a very clear viewpoint of what they themselves are bringing to it but that's very effective in bringing a lot of traffic and everything and also kind of being able to get articles up really fast is another thing you know >> so we got to go back and talk about uh in May uh our Omaha experience we were in Omaha for the Bergkshire Hathway meeting we had an investor today there for parks Um, but what the magical thing that came out of that weekend weekend weekend was Buffett announced that he's stepping down as CEO of Bergkshire Hathway. Was it at the end of the year? I believe >> um in typical Buffett fashion, >> supposedly uh uh Greg didn't even know um that Buffett was going to uh make that announcement. So, he did it completely on his own terms and surprised him. Um, and yeah, want to get your thoughts on that. I mean, they cut to it. I remember they cut at the end of the meeting and Becky Quick ran back there and spoke with them and Greg was shocked by the whole ordeal, so he had no idea about it. Um, but not a surprise, I don't think, to anyone. I mean, the guy is 94 years old. Uh, but want to get your thoughts on it. I mean, what a career. Uh, pretty amazing. And uh you know a year and a half after Charlie Mer passes away, Buffett announces that he's going to step down. Now he's still going to be chairman of the board. Um but stepping down as CEO of Burk. What are your thoughts? >> I think there was a feeling in the air being there that oh this might be the year but you know who knows if it was or not but that we were getting to that point obviously. Um, so yeah, I'd say from the people there, it probably wasn't a huge surprise that way. But, um, it's a good way of doing it. Um, surprising people with it and then gets all the big applause and stuff by doing it that way instead of how it's normally done by companies, right? So, where they announce like over the next few years there'll be transitions and this and that will happen and then sometimes they don't even really leave. So, um, I think that it worked out well that way for him. I think actually even said, "Well, I'll take that applause as there's a couple ways you could read that applause, but I'm gonna take it." >> I like when he I like when he smacked he went like doo and then like, you know, smacked my proper send off. It It was pretty cool. Um, you know, I mean, for for Birkshire, it's been pretty clear over the past couple years that Greg has been very busy uh with the company and basically doing CEO type stuff. I mean, Buffett's kind of said that and he says, you know, Greg gets a lot more done than he ever could at this point uh in a day just from like an energy perspective, right? Energy expenditure. And when you're 94 years old, it's harder. And Buffet talks about it's, you know, even reading the newspapers now, it's kind of blurriier and takes him longer and >> Yeah. >> Yeah. 94 is uh, you know, almost 30 years after when people used to retire as CEOs of things. So, >> yeah. >> Yeah. probably kept him alive longer honestly though. >> Oh yeah. Yeah. >> So now Bergkshire posts Buffett. What's going to happen? Are we going to get a more efficient type of uh you know operation? Greg seems we've talked about on this uh podcast before. He seems more of like a meat and potatoes type of guy. Kind of more of a driver probably than Buffett would have been like with the managers and whatnot. So want to get your thoughts on that. Yeah, that's possible. And some of the things that we heard afterwards like um I don't know afterwards, but around the same time like that they might consider doing something with their real um real estate brokerage business and you know and the company's rarely ever considered selling things and there had been some news maybe about what would happen with Craft Hind and and involvement of Bergkshire and that over time. Now there's also been false reports. I think they they said that they were um thinking about merging the railroad and stuff and I think Buffett said that's not true but um yeah there could be less longevity for the managers in the businesses that they have and you know shaking things up there. I don't know how great the managers have been for the ones that weren't there when Buffett first bought the company. You know, there have been some companies they've owned for so long that they've turned over to new cos over time. And uh I don't know that those people will necessarily have uh as much of a handsoff and um job security as they had in the past probably. Yeah. I don't know if it would affect big time like a purchase of some founder company or something though. That's where I think I wouldn't be surprised if it's more similar to how Buffett used to do it. Mhm. Mhm. You know, the great debate is how what's capital allocation going to be like um you know, going forward. I mean, could you ever see a scenario where Bergkshire pays a dividend or anything like that? >> Yeah, I think they'll have to do that. >> Yeah. You look at the balance sheet, right? Securities and investments 612 billion. Cash and cash equivalents 42 billion. And just look how much it's I mean, look at compare it, you know, to 2022. I mean, securities and investments 423 billion. I mean just continuing to pile it up and at what do you do? >> They even sold some stocks. I mean because here's the thing Berkshire if they're almost neutral like say I mean they're different than other kinds of investment things a little bit more like other insurance companies but even more dramatic that way. Um that they have so much cash coming in would be like having a fund with constant inflows you know funding it all the time. And so even if you're um or they don't intend to look like they're super bearish on something, they'll pile up and then if they are bearish, it'll happen really fast. Um so that's kind of the problem that they've had. They most of that buildup in the past 10 years or so that people made a big point of wasn't really due to conscious efforts to sell stocks and things. It was just not finding enough big things to actually buy. Um, so it's only in the last couple years that we've seen anything where like, you know, when they say that he's bearish and everything that there's actual evidence for that, that he's like, "Okay, we shouldn't own so much of this stock or the price is too high or let me I'd rather have cash." The other ones are basically just not adding new things until real recently. >> So, you could probably expect them to I I honestly wouldn't be surprised. You see them become more of an efficient operation. They start to pay a dividend, continue to buy back stock. Um, you know, it's kind of hard to could you make an investment case for it at these levels? I mean, price to book 1.6 times. Uh, price to earnings about 13 times. But, you know, you probably want I don't know how you'd value it. What your thoughts are >> compared to other compared to other companies? Yeah. Yeah. I mean, I don't think it's amazingly cheap, but I think compared to stocks in general, it's it's quite reasonably priced right now. Yeah. you just I mean just take their biggest stock positions and their biggest um businesses that they have and kind of try to put a valuation on each of them. You don't have to do some 100page report on it. I just mean like you know what are the top usually you don't need to for doing a calculation for the entire company. It's rare you would even need to think about more than about three stocks and you know maybe an equal number. You could do anywhere from the top three stocks, three businesses to top five stocks, five businesses, and that captures almost all the value, I would say, depending on the the uh exact date of it and everything. I mean, Apple before they started selling that down accounted for a huge part of the portfolio, right? So, you only have to go down a few stocks to to get to that. You don't have to go 10 deep in in um those to kind of put a value on it. And then you have things like, okay, Geico and stuff. Well, Progressive is a public company. You have railroads, there's public companies compare that to. You have energy, public companies compare that to. So, it's not hard to kind of look at and say how reasonable is it if you put similar valuations to what those things are priced at by others. You know, now you could argue it's not the best railroad, it's not the best insurance company, etc. That might be true, but also that probably means it has the most room for improvement. And uh you know like when we did the report on progressive it was a low multiple stock and now it's a popular stock. So those things can change you know it doesn't it doesn't mean that it's forever that gap can close. The same with the particular railroad you know of the big railroads. One railroad improves versus another sometimes. So, it's not the worst thing in the world to to look at it when it doesn't have the best metrics in the industry because it just has to kind of get to the same levels as the best companies there um to cause a big improvement in the value. So, >> Mhm. Interesting. >> Yeah, I found a company recently like that. Um let's see. You familiar with MEX Group? You can see the company offers execution and clearing services and metals, agricultural products, energy, financial futures and options. So, think about it like that. And they went public a few years ago. But you look at other companies that are in their same business like ICE, CME, and they all trade at just extreme valuations. And then there's this company >> that, you know, trades at 12 times earnings and is growing like crazy. >> These businesses are really hard to figure out, though. I mean, you look at like their their financials and it's just it's complicated, right? Um, trades in the UK, uh, business is in the UK, which I thought that could probably be why. Um, but yeah, you compare it to like a CME or an ICE and, uh, the valuation is so different. >> Yeah, they're a lot smaller. I mean, that with really high quality companies that usually happen. That's kind of what I was talking about before of um the efficiency question of like okay so are smaller companies companies in less the markets that less likely to be in an index whatever will there be a discount for them between others now in the long run the business result drives a lot of your returns but people want to make money fast betting on what's going to happen with the multiple is what matters yeah >> yeah I mean we'll look at Apple though right okay so business returns been um good. They've been they've been okay. But when did Buffett I mean so we could compare this is from 2015 on quick FS and you could look at the the stock price since 2015 and it's up you know almost 10 times >> and a huge bulk of that has come from multiple expansion. Now EPS has gone from $2.31 to $6, right? But the bulk of Buffett's return he bought around that time frame, right? 2016 maybe 2017 or was it a little bit later? I can't remember. >> Yeah. >> Came from multiple expansion. >> Mhm. A lot comes from multiple expansion even on pretty long-term investments. I mean I've I'd been a value in personal investing. I've been a value investor and um longer term holding than the average of the market by you know a couple times at least. And um I would estimate that a third of my return came from multiple expansion. Um and only two/3s came from the combination of uh growth in the business and uh dividends/byback type stuff, you know. So actual growth in the cash you were getting and going up if it was like a company that was quoted at the same price. So what you're carrying it at, what the public views it at did contribute about a third. Um, which by the way, for like a really good performance versus meeting a benchmark, a third is like the difference. So someone that you think has this amazing record over 10 years or something could be due entirely to multiple expansion, whether it worked for them or against them in that versus someone who's down a little bit. It you don't you normally have a breakdown of that by investor, but that can definitely for up to a decade. I mean, you can use the rule of 72 and stuff and think about that. you could literally make good decisions for a decade. Buffett did because he was a long-term investor. You can see that it's easy to track what things he was in. Some uh decades, the '9s or something, he might have particularly good results um just because of multiple expansion. And then some other decade, 2010s or something, he might have worse because his what he owned didn't expand as fast as other things. I mean, if you look at ad agencies, um, media stocks and things like that that he owned, a lot of it was, for a long time, a lot of it was due to, um, uh, multiple expansion. >> Mhm. >> Do you think advertising companies are cheap? >> It's tough. the advertising companies that are best positioned are incredibly expensive, you know, in terms of ad tech stuff and all those sorts of things and the traditional things that have the lowest um type future growth probably um are really cheap. Now, they could just buy back their stock and pay dividends. So, if you look at something like this, do I think that like Omnicom or something could be cheap and some of these things are merging and everything, but um yeah, can you look at um let's see where does it have dividend for this? because that's what I was going to point out for these is um yeah and so the dividend was 280 last year or something and what the stock what's the stock out stocks at um yeah so and many of these companies Omnicon's probably one of them probably do as much in buybacks as dividends so just a raw dividend you're getting a yield that looks like a bunch of bonds and then you're getting a buyback so I I mean you're taking a risk it is equity and everything but it hasn't had a lot of down years. So, if you're asking, do I think they have a good future? Not really. But I think that they yield almost as much as bonds in cash at this point. And they also then buy back, which is effectively like giving you payment in kind of like more bonds, you know, um a similar amount. So, if you're asking like, would I like to own something that yields 3, four, 5% and gives me 3, four, 5% more bonds every year and it could go up, right? I mean, the multiple is the multiple more likely to go to five than 20 or something. I don't know. Probably equally. I wouldn't say it's at this point more likely to go to 20 than five, but um yeah. >> So, Buffett's been selling down Apple, which I think is a a great move. I mean, it was a huge chunk of their equity portfolio. Can you think of another time in his career where he was super concentrated like the most concentrated? I mean, let's take out you know when he was when he owned 100% of Geico, right? >> Can you think of any other times when you know his portfolio >> super concentrated >> around 1987? I don't know the exact date and the time of that, but it would have been really really close. Um, now he might have owned some bonds at that time, like junk bonds and things at that time that I'm not remembering, but in terms of it was just marking common stocks. It had been really low then around the time of the crash and stuff. Um, and then actually in one of his first letters is I think the first letter that's published under his name is the 77 letter or something in that neighborhood. So there's a period in the 70s, but that is like you said that's due to like Geico is heavily influencing that. the one I'm thinking of in the later 80s before they then got in big into he made a couple big purchases did convertibles and things like that. Before that they were big into like just a couple stocks. It would have been like Cap Cities, ABC. Um basically around the ones that he talked about being their permanent ones. Yeah. So if you add up all the the Geico ones, you see that's big. Um and then you see uh so that's very big. Then he was in cap cities, but he sold it really fast. Um, and then the other ones are different stocks, but they're exactly in the same industry. Uh, we can kind of ignore Kaiser because that was like a thing that split out. The other ones are straight up newspaper companies that are like exact duplicates of each other and add things that are the same. So, Interpublic and and Oglev are like the same kind of company. Washington Post and Night Ritter are like the same kind of company, too. So he was and that and I think I don't remember when they owned affiliated but that that's Boston Globe that was also around the same time. So some of the other holdings might also be that he basically bought like every ad company every ad agency he could find that was publicly traded and every uh newspaper he could find that was publicly traded. So >> why does that take us back to that for people that aren't familiar with that environment then? >> Uh because they're good businesses but Bergkshire was already even then too big. So like they had some of them were family controlled and stuff but they wouldn't want him to own more than like 5% things like that. So he seemed to have bought like 4% or something of a lot of things. Um to give an idea on Oggov you know David Oggov would introduce him as the man who made more money on Oggov and Mather than than I did. Uh cuz cuz David Oggovie would sell his stock all the time to support his lifestyle and stuff whereas Buffett didn't sell his until you know I don't know how long but let's say a decade or more. um because I don't know if we know exactly when he bought it because it was before you know it just shows up in these letters. I don't know if there's been much talk about when in the 70s he bought some of these things but um so again though some of those are the multiple things. So for instance in public not a huge position initially for him but because it quadrupled almost in price it could get big. What happened with Apple is it's a rare one where he took a really big position and then it went up a ton which is kind of what happened with Geico but Geico then eventually became a intern you know they own the entire company but the the thing is on a lot of those he took the maximum position size that he felt he could. We know that because Geico we know he was backstopping it and so he got fewer shares than he wanted because the deal with Solomon for that and everything to do it. So we know that story. So he had put in for more shares than he got. And then um and then very quickly with that the stock went up a lot from where he was buying with the the preferred convertible there. And then um Washington Post, we know that story because he told um he he told Kathn Graham that I won't you know I won't buy anymore. And so that was that was the level that he stayed at. Um and some of the others we know a little bit of even the one I mentioned affiliated I think he got that in the IPO. So that also would just be trying to buy everything he could in those industries. Um, yeah, he kind of I mean he reversed himself on it, but he kind of did that with the airlines. He bought some of every airline that was possibly big enough to matter to Bergkshire at that point in the US. He just didn't feel like he knew airlines outside the US, and he didn't bother buying airlines that were too small, right, Freddy and Fanny. I mean, they basically took I mean, you know, they've talked they said, "Well, we could have done some things to get even more. We should have just like, you know, opened up a banking thing to get this uh opportunity to get in on it or whatever." But basically, legally, they they were buying as much as they could in some of those uh GSSE type stuff, too. So, he's gone with the literal maximum position size in a few companies that he felt he could have. Yeah. So you think the most concentrated that we know of Bergkshire has been you you resort to 1977? >> No, I think in the 80s around when I said I don't remember the exact year when in the report would have been but around 1987 he would have had the fewest number of stocks probably although I think he owned other stuff. Let's see. Yeah, there you go. Well, that's permanent holdings. That's where he breaks out their permanent holdings. Yeah, that's uh Cap City's GEICO. But he definitely started talking about permanent holdings in around that time. And some of it was I think to like um be willing to sell whatever else they had. Um but then shortly after, not shortly afterward, but within a couple years, he's buying Coke. He's uh American Express. There's there's other things that started happening, but I don't know the exact date, but sometime between when he owned these um common stocks he liked a lot that he's calling the permanent holdings here, Cap Cities, ABC, that was a special deal, but it's basically just common stock. Geico and Washington Post. Then he started doing all the things that you know about with like Solomon and and uh what was it? Champion, Gillette, uh US Air. So those special deals and then also um buying like Coke was the next big really big investment. So he did do Coke. But in some of those years if you take out any preferred deals and any arbitrage, it's highly concentrated. The question is just whether what do you want to count arbitrage and special deals and things that aren't common stock as a different category or not? Um you know he was doing a lot of other he wasn't buying a lot of long-term investments in common stocks at that time. So >> yeah, it'd be interesting to run a study on that and kind of, you know, go more in depth on it. Market conditions, what the multiples were, the multiples were of all the companies that he owned, what the balance sheet was, like uh from how it was invested in securities and whatnot. I'd like to see that. >> Yeah. And there's there's you can also see like the um there's been some things where people compare what percentage the the big thing early on is that the amount invested in common stocks relative to the equity sort of because of the insurance part of it. It was more highly levered to his stock portfolio performance and the insurance business providing that float. Now the insurance business honestly had worse underwriting results during those years but that's when people used to say it's a close-end fund and all that stuff. Now they most people I think wouldn't say that kind of thing because so much of it is businesses you know um and even the insurance stuff is is um you know I think people view like Geico and stuff differently as kind of insurance thing with the franchise um but in the early days it had a whatever kind of insurance business and a lot of his stock picks but it was providing a lot of the leverage there. So I think the most lever to common stock portfolio performance is probably like we just covered in the 70s and 80s. Mhm. Mhm. Interesting. Uh wanted to hit on uh the box office since we talk a lot about movie theaters here. Get your thoughts on where we currently are. Um and then we could look at um CNK and and MCS as well. Just, you know, I viewed this podcast since it's our first time recording. Really just kind of hit off right right where we left off. Yeah. And then we have a lot of topics planned going forward. Uh so we don't want this, you know, we don't want the podcast to be more like news stuff all the time. We are going to do more topics, but I just wanted to catch up since last time we recorded was in April. So, uh, thoughts on, uh, the box office this year? Disappointed? Kind of in line with what you thought? What are your thoughts? >> It's very mixed. Um, it's similar to uh, what I thought in terms of maybe overall results so far through this part of the year, but the way it's gotten there has been very mixed. What's happened is that some some they're not really very original ideas necessarily. I don't mean that in some creative sense, but original movie things like Minecraft is totally untested as a movie, so it comes out as big. Um, things like that have hit bigger and then especially Superhero, but just in general kind of things that are on their they've had a lot of these um have not done as well. So um and that is more in keeping with the long-term past history of how movies used to do but not in keeping with movies in the last sometime in the 2000s. I don't know 15 years 20 years since the start of the MCU certainly um which is like about 17 years ago or something but maybe even before then. So, you know, in the 80s and '90s, you'd expect that sequels would make less money. Um, and then they started to expect them to make more money and um, you know, Marvel's done like 30 movies or something. So, uh, it had a very long run. I don't know if it was 15 movies or something that was really successful and then since then it's been more in the pattern of what it used to be. So, we've had good performance from things like in the US at least from something like Sinners original type idea from Minecraft, not a franchise movie thing and all that and less good from things that are on their seventh, eighth installment or whatever. They've performed, you know, relatively worse and the other things have performed better and it's come out as a mix um to look a lot so far like this year's box office looks a lot like last year's um up to this point. Mhm. I'm uh I'm sort of excited to see this movie, Happy Gilmore 2, but also very nervous because the first movie was like my favorite movie growing up, right? And you know how sometimes they they bring a movie out of retirement, they do a sequel and you're like, they just should have never done that, you know? >> Yeah. >> So, I'm kind of I'm going to watch it. Came it comes out today. Um but happy Gilmore 2 for those that aren't watching. Um, but I'm kind of nervous, not going to lie. Kind of nervous. >> So, uh, yeah. Uh, they have a whole category in the numbers, delayed sequels or like long gaps between an original movie and a sequel, you know, which is usually when the star or something like needs it now, you know, in terms of their career or something. So, or not always a star, some director, something like the the Matrix or something. Um, so I won't do it. I won't do it. And then they finally do it. And it's a very mixed bag. A couple of them have been hugely successful and then a lot of them have failed terribly. So, this is a Netflix thing though. But yeah. Um, so it's a that's kind of the most mixed in terms of like something that was huge having no success at all versus you get on the other side something that happened like um Maverick, The Phantom Menace, Force Awaken, you know, things that have big gaps and then bring back a series that, you know, um those are sometimes maybe some of the biggest movies ever. So >> Cinear, it's up on the screen right now. It's currently trading about 14 times earnings EBIT to sales 1.5 10ear median margin on EBIT uh 12.3 20 times EV to free cash flow. Look at their gross margins. Uh it's improved over the years. Um what are your thoughts on where movie theaters currently are trading? Um, I think you can see in the earnings and stuff that they're more efficient. Like they could probably make more money on lower box office than in the past. Uh, but I also think that um the biggest issue is supply. Um, and this is a big big issue for movie theaters as compared to um studios. So you could look and like based on past trends of what it was before COVID and then you adjust for inflation or you use attendance date or whatever. We're down a lot of weekends, a lot of months, a lot of whatever like 40% from what movies used to be, but like 30% of that is the amount of movies being released by major studios. It's not uncommon for there to be one uh only one major release in theaters. you know, they're the independent movies and small things releasing at the same time, but you don't have a choice of a couple new things coming in and uh that used to not be the case. So cuz you just like mentioned Happy Gilmore there, you can look there's almost no straightup comedies released by major studios at all and that used to be a genre that would bring in you know a 5 10% of the box office all the time and then now just all superheroes her superhero movies nowadays >> which have that as the sub genre for some of them. Right. So is Deadpool and Wolverine a comedy a superhero movie? both. Uh so maybe because it incorporates so much more of that, they don't have those genres. But isn't that's not I mean there was this time when musicals were a big thing and then there's been years where they're nothing. So the genres that people watch do change. You know 25 years ago superhero movies were probably 5% of the box office and now they've been 25 or something. Um so I just mean movie theaters and movie studios have different interests. I think movie theaters are more profitable right now and better set up right now, but I think movie studios, you know, that's kind of self-inflicted damage. They could stop doing that. What the theaters need them to do is to put out more stuff. And I've been surprised that's the part that's been the biggest surprise since co is how many are not putting out more movies in theaters, big movies in theaters. Um, so I mean an interesting one like so this wasn't the biggest movie of the year or something but F1 is a um is a uh you want to call it co-production co-released thing where um it's an Apple movie, right? So this could have gone just to Apple or they could have released it like some other things. I forget what they did with some of theirs wolves and some of the other ones. They they said they were going to release them and then they never released them or they did almost no release. But this one they actually released with Warner Brothers. So huge movie because of that. If it had just been Apple doing this, it would not have been a huge movie. But there was a choice to actually have the two studios working together on that. Um but it gives you some idea that they could like not do that. And the same thing when we saw what was it? Um Moana was one of the biggest movies. Uh, and that uh both Moana and Leo and Stitch, I think, were originally planned to be Disney Plus shows or movies or something of some kind in their first phase of development. And they're two of the biggest movies the last few years. So, a studio could accidentally have, you know, not brought in $400 million or something because they could have just put it up on a network that probably isn't going to grow a lot more just because it has that. So that's the part that's kind of shocking is the economics of it have been so much in favor of movies that are released in studios still do in theaters still do better on streaming than ones that are just straight as streaming and all that but they're they're definitely still favoring their um streaming things. So, but there is a shift in some of them. Like I saw that the um what is it? The Wheel of Time series has been cancelled. And so that's a good example. Amazon, which owns um MGM, could probably do two uh two medium-sized and one big movie a year for what they were paying for that show. And I don't think that show did anything huge for them. But they probably spent I would be surprised if they spent less than $150 million a year on that show and it's not 30 episodes, it's like eight or something, you know what I mean? So, it's the value of what do you have from that? It Game of Thrones probably in its later season was worth more um to own that to produce that than a movie, but it's rare for these these series to be worth as much as putting it out as as much as spending the same amount on a movie is. And yet, they've pursued it. But there's a lag. So like Amazon and others might Disney's been up front. I mean certainly Marvel part of Disney has been upfront that they plan to completely change how they do everything that way. They put a bunch of shows on Disney Plus and they said they're not going to do that anymore. They're going to cut the number of movies they're making. It takes a couple years before you see the effects of it. I've just been surprised by how much is spent on streaming content and how little is spent on putting things into theaters given that the results for the studios look not good in terms of current earnings. So, I guess they're still anticipating that it's important for the growth of their streaming uh businesses online. Maybe um you know, I don't think the market rewards it anymore. In the early days, you know, Netflix and Disney Plus and HBO and all that were how many subscribers do you have? They wanted to know that more than how much money did you make in theaters. I think that's gone though. Like, I don't think that's the focus on the market anymore. So, it's interesting that it keeps happening that we're under supplied on things. So, so what does that mean long term? I don't know cuz I don't know the answer to it. It's not econ, it doesn't make any economic sense and they keep doing it now movie studios and things like this. I mean, Sky Dance Paramount will be a different situation, but you know, the managers own almost >> approved, right? >> Yeah. Yeah. >> Yesterday. So like the managers own almost none of the company uh who are the CEOs and stuff making certain decisions and how much is being allocated to one part of the business versus another you know I don't know um something like Disney it's a big decision should they put a lot more money into like theme parks and um uh movies for theaters and things and less into some other things probably but I don't know if that's like necessarily the only decision that a big um CEO of a company like that makes you know so um cuz those are kind of bigger like the people who are making the decisions that the studios say Warner Brothers or something who are actually saying let's make sinners or let's make this or that are not the CEOs um those are totally different people but how many you get to make and what your budgets will look like and all that is kind of a decision higher up in the organization and I think that's the part that surprised me is how little is put into the um making movies and releasing them still in theaters. So, yeah. So, I'm less optimistic on like the studio side of things right now as on like the uh theater side, but theaters would be helped a lot if they could get more um supply. There's entire portions of the year where there's not a lot for not a lot of choice. There might be one thing for one group of people, but there's just not things that appeal to everyone or a variety of movies there, which means you could go long periods without people going there. People don't go there, they don't see what's coming out next. If they don't see what's coming out next or get in the habit of going all the time, then you've got problems, you know. >> Are there any upcoming movies that you're optimistic about? >> Yeah, not really. Um, >> Freakier Friday. >> Freakier Friday. That's an, you know, uh, >> bringing a movie back like that. Yeah. >> Yeah. From from um, Disney. But uh but that's a good example of what I mean. So like um if you look at what comes out at the same time there there's weapons and Frier Friday. Those are like um I don't know great details on weapons, but those are appealing to completely different groups of people. Figure Friday being it has a nostalgia play to it, but it's very kitty from what I could tell from the trailers. And weapons will play exactly the opposite way. And so neither of them will be ones that are like for general audiences um appealing to everybody. Then you have other movies that kind of appeal to everybody. Um, and there's just fewer of them or, you know, but August isn't a big month for releasing things generally. They they've they've done it sometimes, but usually you've already released your big movies by then. >> So, do you think movie theaters are cheap right now? You're kind of making a case for for not being cheap. >> I don't think they're as cheap as they were. No. I mean, what was Cinemark and and Marcus at, you know, I don't know. Um, couple years ago. >> Yeah. I mean, they haven't, I guess, haven't done great this year. The last calendar year, how their stocks do, I think, pretty well in the last calendar year, probably. >> They did. Yeah, they did do well. >> Yeah. So, I just think they're another highly IMAX, which is also public. And >> IMAX is interesting. Yeah. >> Why you think it's >> Well, I just mean the company's very very interesting. So, on the one hand, it doesn't make a lot of money. If you go to Quick Up, you'll see that historically it hasn't actually turned its business into a lot of profits and free cash flow and stuff. Um, but it's like we're severely severely uh need more IMAX theaters. Like if you're going to build new theaters, you would have wanted lots and lots of IMAX screens. You want less and less of the smaller screens. It brings in so much money on uh opening weekend if you look the share that comes from IMAX is so big. Um, and so it has a big runway in terms of what will be built out and then it makes it money from different things kind of the systems of that, but it'll have a bigger installed base basically. And so you can know that 5 years from now, 10 years from now, now there'll be more IMAX screens. And if they can turn that into a lot of um profit through the different ways that the deals work on the screens and then the technology and you'd have to read the 10K, but it breaks down the four or five different ways they make the money. It's kind of like a little ecosystem that they have that way. So, it's not necessarily the case that just because someone's going to put in a new screen that's suddenly going to show a lot of profit, but over time having a lot of IMAX's around the world. Um, uh, you know, but the US is the one that I'm thinking of in terms of what they really need. Um, is better for the company. And the business has changed over time because all these things now are for commercial theaters basically. Whereas, you know, you probably remember IMAX was mostly like museums and attractions and things in the early days. You know, it was special one-off type projects and things. And now it's just become very um regular for the the movie theaters um chains, the big chains. And I just think the IMAX brand has an advantage um that we can see in terms of that versus what they because in the industry they call them PLFS um because they don't want to say the brand name, but that's kind of like saying smartphones versus uh iPhones or something. I mean it's become almost a generic thing to the average person that an IMAX means a big screen that way. And they might know what a Dolby is, what this is, what that is, but um IMAX is the first thing that they're going to look for, you know. [Music] >> Yes. This is a long runway for that company to convert over screens to the IMAX screens and >> there's a tailwind that way. >> Big tailwind in terms of demand for like there'll be a lot of projects and it'll grow a lot. Downsides are historically not strong profitability of like actually converting growth into a lot of money for the shareholders. And then also like I said, just because you're putting things in there doesn't mean you're immediately going to make a lot of money off of it. And the other thing is it's not super cheap on a current basis. But if you want to hear that they're expanding year after year, then I think that's good, you know, and you want the like >> I think they would like expanding like actual earnings and things too, you know, right? Not not just like we're put not just a lot of news articles saying we're putting in more and more theaters, you know, but >> Yeah. where there's some good business momentum if anyone's looking for that. >> Yeah, absolutely. >> Got it. Cool. Well, I want to thank everybody so much for tuning in with the both of us on the Pocus Compounding podcast. Uh we're going to be back to posting podcasts weekly. Uh so make sure you hit the subscribe button either on YouTube or the podcast side of things. Uh I think our release date is going to be Fridays. I always like Fridays for the release date just because the you know I don't want the news to get stale or just stuff that happens, you know, stock prices and whatnot. Not like it really matters. Um but uh Fridays is when I expect to release our podcast every single week. Uh so be on the lookout for that. I want to thank every so much for tuning in with the both of us on the Focus Compounding podcast. If you're interested in our money management services, reach out to me at andrew focuscompounding.com. Have a great day. Take care.
All-Time Highs, Passive Distortions, and Thoughts on BRK Post-Buffett
Summary
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. Gosh, it's been so long since I've said that intro that I have forgotten what the intro is. 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 on the internet, uh, going all the way back to goodness 2018 I believe 2017 2018 for this podcast and even further back um through investment writeups and blogs that Jeff had wrote which is on focuscompounding.com uh been doing this for a long time Jeff um so there's a you know bunch of uh content online focus.com that if you want to go and read you definitely should you could go to our website if you're watching on the screen right now and type in anything that's on your mind and I guarantee you you will find a write up on it. I mean, let's just talk about what's going on here today. Um, you know, people keep talking about uh interest rates. Type in interest rates and oh wow, you can see a lot of stuff that Jeff had written through the years. First, the most recent one was 2016, the possibility of negative interest rates in the United States. Do you think that's still a is that I mean is that still a possibility or what? >> Um so go to focuscupine.com to be able to do that. So uh Jeff, it's been a minute since the last time that we >> uh recorded. I think the last time we recorded we were in the midst of the tariff tantrum is what the Cartoon Network aka CNBC was calling it. And um we've since roared back since then. I think last time we actually had spoken. I was saying it's probably a good time to buy because it seemed like all the bad news was out. Um countries were coming coming to the table. At least that's what was being communicated. You were getting news from the White House that they were putting going to put a a greater or a more extreme tariff on said country and the market was just kind of shrugging it off. You know, that's the funny thing about the markets is market hates uncertainty and they hate uh you know, the things that just ain't so, as that quote goes, right? But when the market starts to be able to digest and it's been telegraphed, it's almost like it just shugs it off is what this modern market uh does. You know, kind of the best case of that, I guess, was the Iran uh bombing, right? They kept talking about it in the market for a long time. >> Um and I think this is actually done purposely by the Trump administration. They'll talk about it. They'll say, you know, come to the table, otherwise we're going to do this. Okay, no, actually come to the table, otherwise we're actually going to do this. And then they do something and it's not a surprise to anybody. It's like the markets just kind of shrug it off, right? >> I think there was some volatility in oil. But, uh, that's sort of the Trump MO because they obviously care a lot about markets. But, so, um, last time we recorded, um, the market was down a good bunch from those tariffs. We've since rode back. The S&P 500 right now. The price index is up 8.49%. So, of course, if you want to add in the dividend, um the Russell is about flat. Gosh, what a horrible index that Russell uh 2000 is. Uh NASDAQ up almost 11% on the year. I think the NASDAQ's up like 30% off of the lows. Pretty crazy. Um and then oil is down 8%. Love to track oil, obviously. You know, it's almost like Trump said recently that he loved uh oil at $65. So I was like, "Oh, okay. So 65 is the new 50. Um that's the new floor, right? Anything above, you know, too much above that, he'll just start to tweet and complain and blah blah blah." But uh so wanted just to to give your thought get your thoughts on everything. I think last time we we had spoken the you know the Doge committee was >> front and center and the talk of the town in DC and how we're going to cut the deficit. But then we transition to the big beautiful bill and it's come apparent that they're going to have to run this baby hot which is kind of what I always thought would happen. Um Trump and Elon had a very public breakup which was uh interesting. Um, and yeah, they're going to run this economy hot is what their plan is is what it seems like. So, yeah, want to get your thoughts on just everything that's happened since we've last recorded. People want to know, Jeff. >> Yeah, most of those things are not good and the market keeps going up with them. So, I think that's generally the reaction. Yeah. >> There you go. That's it. Are you surprised by where things are in the market or? >> No. I just feel like we're get a a melt your face just just a melt up higher. Like that's the pain trade, right? Is markets will just continue to go higher over time. It just seems like it that's you know I don't know. It almost is like mag seven's become a national security that they just have to continue higher. He wants Powell to cut interest rates. What do you think that's going to do to like financials >> if the if the Fed cut interest rates? >> Yeah. Um, I I don't know. Uh, it's a complicated issue. Um, I'm not sure how effective interest rate changes are necessarily if concerns about inflation and stuff are due to fiscal policy. So, um, it's hard to say, but the inflation sticky type price inflation is high and, uh, highly variable prices are low. So economy is kind of globally kind of weak and yet there's kind of a high amount of sticky inflation. So that's not necessarily uh that effective to be able to like raise rates or something to cause that to come down. Um probably so what do you consider high like 3%. >> First yeah the I mean the the sticky price inflation is probably running something like that. Um, yeah, it's probably been around 3 or 4% in in last most of the last year and the variable portion has been probably negative 1% to zero or something. So, they've netted out to be pretty um much the same, but they're very different in terms of what is causing the inflation. >> What are your thoughts on the dollar? Do you have any? I mean, like Trump wants a lower dollar. >> Mhm. Yeah. Yeah, I don't know. I mean, obviously that complicates things for tariffs is the same thing is that you have tariffs. You have both the complication of what tariffs are and what currencies are for affecting trade between countries. So, >> Mhm. Yeah. Well, we'll see. I I do wonder um you know what will happen from here. Um but you know, it's just so interesting. I feel like because twothirds of the market now is passive, you're just going to get these these extreme moves like we had u back in April, you know, then it's just then you just have this consistent bid when everyone like piles back in. Um >> it's just it's it's it's definitely different that way. You know, now as individual investors, when you're going to get these violent swings, assuming you don't have leverage and blow up or you have cash or or the ability to to put money to work, that could be an amazing buying opportunity. >> Mhm. Yeah. >> I think that things that are grouped together by category have been moving more together and less for individual stocks lately. um kind of what you were saying with that about picking out things specifically. So I think that is a bit of an issue. Um you know so we talked about Dollar General before, United Health, they're these stocks that should be very efficiently priced. Tesla should be very efficiently priced. There's a lot of focus on and yet they have trouble predicting you know things shortly uh that are about to happen with stocks. So I just it's interesting certainly market's very optimistic. I don't know if it's like a change in terms of efficiency from the indexing things that we've talked about. I historically would say that I haven't seen much of a difference in how efficiently priced individual stocks are just from um indexes, but it could be causing overall higher prices across the the market. That's possible. >> You think that's due to like factors and and quants and whatnot? >> I don't know. I think that there this it's I mean it's very psychologically driven in certain things about even what prices should be in that at you know when I wrote about now it's almost 20 years ago about stock prices what they've been in the past what they should be in the future one thing I said is that they were too low in the past so there might be greater acceptance of people having a higher amount of their net worth in stocks. Um, but the other thing is it's very US-driven. So, it's not necessarily a thing that across the world they're all incredibly expensive versus what they were in the past. There's plenty of countries that are not the most expensive they've been um, historically. I mean, I could think of lots of countries that were had a phase that was a lot more expensive than now. And whereas with the US, that's not really the case. So, it could be outperformance over a long period of time. It could be something unique to the US that people are willing to put a lot of money into stocks as opposed to what they kind of used money for in the past. I don't know. But obviously if that changes as a society over time, then you know that will change the average level of prices. I don't know if it should change what one stock is relative to another. But like you said with indexes, some things might be in or out for other reasons. So >> yeah. Yeah. I mean two I was reading a report. It said like twothirds of of markets are passive now. So it's almost like you have this buyer that you know back you could even say like 15 20 years ago you had a lot of people that were going out to set the price right and find different you know securities and and buy up at certain prices and now it just it seems like it's all on autopilot based on flows and all that other stuff positioning. >> Yeah. And so it's it's an interesting question. I mean my feeling on that's the same as we didn't we never um published it but we had kind of talking about AI stuff and I was more skeptical about AI things if it gets to a point where AI is being trained effectively on things that have already had AI input into them over time and the internet would just get less useful and that's kind of my feeling on um indexing. I mean there's no reason that you can't be 80% passive and 20% active and have a really efficient market because as long as that 80% isn't biased in some way in what it's doing. Okay, you don't need that many people. You could have a huge number of people actively investing in it and everyone else piggybacking on that or a really small number. Um, but when you start talking about things like factors and stuff. Yeah. And then are people betting on things that have been going on for 10 or 15 years or things that have worked forever, you know, then you start to is it are you having more and more things being uh not actively done that are tied to it? The biggest issue I think honestly is active investing being influenced by passive. So that's what we talk about. So you were saying like the indexes and things those are used not just as a method for passive investing but also as a benchmark that other people might be compared to. If those were two separate things it wouldn't be such an issue. But if they're using much the same baskets of things and then that could be a really big concern because active investors will, you know, active money managers who are managing the largest amounts of money will look to more mimic like the S&P um for that very reason. And the S&P will be used for passive investing. And so you have this problem from that. >> So they're they're not kind of protected from each other that way. But in theory, I don't see a problem with there being huge amounts of passive as long as sort of the active investors are blind to it. It's it's the fact that the active investors are aware of the passive decisions that I think causes the contamination in the information that they have and that can make things trickier. >> What are your thoughts on AI? So we did, so Jeff's referencing, we did a podcast one time, which I don't know if we had to scrap it because the audio or something, but I basically did like AI verse Jeff and I had asked the chat GPT what Jeff Ganon would say about like 10 different topics and and I I can't remember, but it did get a few of them correct on what you would say. Now you're like the best person to there's so much material of like how you think and you've written about so many different topics and there's transcripts online about stuff that we've spoken about so you know >> keep that in mind. Um but I can't remember if they got like five of the 10 right or ority of it right. Yeah. and did really well. And where it had issues is just a general focus on getting confused about value investing things in particular confused about like Ben Graham type stuff versus like Warren Buffett or whatever, you know, because it's heavily based on the concept of the idea that I'm I'm a value investor and all that. So, occasionally there'd be weird things thrown in there because of that kind of stuff, you know, because there's different camps to value investing and so it could become confused about that. But yeah, it was good. Mhm. What are your thoughts on AI like Grock and I mean Grock is Elon's AI, right? X AI and and he says it it should the new Gro 4 basically should do exactly what you should not do exactly what you were just worried about basically that it's just spitting out answers that it's used before in the past or has seen other you know AI things say uh to sort of propagate like disinformation. I mean, he claims that Grock could actually think and understand and, you know, solve engineering type problems. >> Well, that's true. That's very impressive. That's not what I've seen for the things that AI generally does. It doesn't seem to have awareness of its own um what it's doing. Uh so, and then kind of rationalizing things after the fact. So, it leads to weird things that way. as an example like um store hours. I had a looked up a store and so I wasn't intending to use AI but it just randomly generates it >> um as preference >> like at Google >> in a search engine. Yeah. >> And um it decided that the hours on Wednesdays were different than the other seven days. Now I know that the stores hours are the same all seven days. But then it went on for paragraphs about what that means about them being different, why they might be different, what that means for the Thursday through Tuesday and what and it's just wrong. the Wednesday hours are the same as every other. So that kind of problem does happen obviously and you see some of that, you know, and like you said, you see things where there's problems where there's insufficient information. So there's very little about something that gets confused. So, you know, I asked it a a question again trying to do a search or something just to see who was playing some part and it was had no information on it and the character's name was Carl and so it started talking about Karl Marx. >> Wow. >> Yeah. >> Mhm. >> Oh boy. because there's a lot more information about Karl Marx than there is about a character and something it doesn't know much about named Carl. Whereas previously searching that is effective because I can just say IMDb this and I just didn't do that. I typed it right in and so it pulled that. So >> it elaborates on nonsense and stuff like that. But um it I think you know >> it's uh it's it's it summarizes some things fine. Yeah. >> Yeah. Yeah, that's definitely scary. >> I mean, >> the hallucinations. >> I personally think it's going to be I mean, it's I mean, clearly I mean, there's something like what what are the stats like 10% of the population is is on like chat GPT or something crazy like that. >> Um I don't necessarily like the way that it's that it's going because I think it's going to make people like really stupid, but um yeah, it's it's definitely like a breakthrough. I would liken it to like the internet in in a major way for sure. >> I think it's more like smartphones than the internet. But I get your point. Um just because I think of how people will use it and what will be done with it. My feeling is mostly people are using it for from what I've seen to vomit up something that's good enough that they can then fix. Um and so to get over the initial thing of like like people don't like to write themselves get started on a blank page. People don't like to make a a speech. They don't like to have to do something with a resume. They don't like first reaching out in a dating app. They don't like answering um customer complaints. So, it can obviously do all those things. It can even do things with with programming stuff, which I've seen people use it the same way, which is basically to get it to do a bad version that they then fix, but they feel a lot better getting started with it. So, so I think it helps people get over their anxieties and things about that by making it seem like there's a legitimate answer that they can then build a template off of, you know? But I think people have always done that to some extent. They've been like, "Can someone show me a sample of this?" Right? People have always wanted, "Oh, I want how do you write resume?" They really just want a sample and then I copied as much as possible. So >> yeah, as somebody that you that used to write with hyphens a lot in my writing and like to replace commas, I can't do that anymore because that's how the AI does it. That's how you spot it, you know. >> And uh so I I I had to change I have to use more commas and less hyphens. >> Yeah. I don't know how it does with grammar. Um, so that's a big issue. The using hyphens and and and things with um, uh, commas and hyphens and translations into other languages is a big thing. I write that way to make the clauses shorter and not rely on other clauses because people get very confused with it. You know, people don't have high enough reading level or experience with things or sentences that just go on too long or very confusing. And so simpler writing is usually very short clauses. And so that helps in in making it understood to both the reader, but it also helps a lot. The shorter sentences are and clauses are helps a ton for the writer, which also might be true for AI. Um it's much easier to get confused writing a 30word sentence that's using, you know, um all sorts of grammatical things that aren't common in English versus um basically writing a series of shorter sentences or sentences that are formed from very short clauses. Um, translations have the same thing. Translations into other languages have problems with grammar severely. Um, when logic and grammar mix are mixed up together and the AI things I've seen in English that are weird are the same as what used to happen when I would ask for a translation from English to French or French to English or whatever, you know, same thing. As long as the clauses were really short and what it was saying was clear, it's the connections between it that it had weird problems with where it would put things in the reverse of what they should be. They put the non-essential information in the wrong place and the essential stuff in a different place, stuff like that. Not knowing what to emphasize and how to do it for clarity. Mhm. >> You know, >> I saw a tweet, I don't know if it's true, that Value Investors Club, they've temporarily stopped uh submissions because it's been there's been so many submissions from people that are using AI to write like a write a pitch. So, they've temporarily like halted um you know, people to be able to do that. I don't know if that's like been solved or whatever, but I was just like that's that's pretty funny. Not surprising. Yeah, there's lots of things already where I was saying, you know, I don't know how big the difference is. If the if it was AI stuff from, you know, when the internet started, if there was AI stuff in the age when people who were writing had been writing for print newspapers and stuff, I think it would have been really big. But if you look at certain websites that are already like real SEO driven and everything, they were already being written by humans in ways that are much more similar to how AI does it. I mean they were stitching together a lot of stuff without a very clear viewpoint of what they themselves are bringing to it but that's very effective in bringing a lot of traffic and everything and also kind of being able to get articles up really fast is another thing you know >> so we got to go back and talk about uh in May uh our Omaha experience we were in Omaha for the Bergkshire Hathway meeting we had an investor today there for parks Um, but what the magical thing that came out of that weekend weekend weekend was Buffett announced that he's stepping down as CEO of Bergkshire Hathway. Was it at the end of the year? I believe >> um in typical Buffett fashion, >> supposedly uh uh Greg didn't even know um that Buffett was going to uh make that announcement. So, he did it completely on his own terms and surprised him. Um, and yeah, want to get your thoughts on that. I mean, they cut to it. I remember they cut at the end of the meeting and Becky Quick ran back there and spoke with them and Greg was shocked by the whole ordeal, so he had no idea about it. Um, but not a surprise, I don't think, to anyone. I mean, the guy is 94 years old. Uh, but want to get your thoughts on it. I mean, what a career. Uh, pretty amazing. And uh you know a year and a half after Charlie Mer passes away, Buffett announces that he's going to step down. Now he's still going to be chairman of the board. Um but stepping down as CEO of Burk. What are your thoughts? >> I think there was a feeling in the air being there that oh this might be the year but you know who knows if it was or not but that we were getting to that point obviously. Um, so yeah, I'd say from the people there, it probably wasn't a huge surprise that way. But, um, it's a good way of doing it. Um, surprising people with it and then gets all the big applause and stuff by doing it that way instead of how it's normally done by companies, right? So, where they announce like over the next few years there'll be transitions and this and that will happen and then sometimes they don't even really leave. So, um, I think that it worked out well that way for him. I think actually even said, "Well, I'll take that applause as there's a couple ways you could read that applause, but I'm gonna take it." >> I like when he I like when he smacked he went like doo and then like, you know, smacked my proper send off. It It was pretty cool. Um, you know, I mean, for for Birkshire, it's been pretty clear over the past couple years that Greg has been very busy uh with the company and basically doing CEO type stuff. I mean, Buffett's kind of said that and he says, you know, Greg gets a lot more done than he ever could at this point uh in a day just from like an energy perspective, right? Energy expenditure. And when you're 94 years old, it's harder. And Buffet talks about it's, you know, even reading the newspapers now, it's kind of blurriier and takes him longer and >> Yeah. >> Yeah. 94 is uh, you know, almost 30 years after when people used to retire as CEOs of things. So, >> yeah. >> Yeah. probably kept him alive longer honestly though. >> Oh yeah. Yeah. >> So now Bergkshire posts Buffett. What's going to happen? Are we going to get a more efficient type of uh you know operation? Greg seems we've talked about on this uh podcast before. He seems more of like a meat and potatoes type of guy. Kind of more of a driver probably than Buffett would have been like with the managers and whatnot. So want to get your thoughts on that. Yeah, that's possible. And some of the things that we heard afterwards like um I don't know afterwards, but around the same time like that they might consider doing something with their real um real estate brokerage business and you know and the company's rarely ever considered selling things and there had been some news maybe about what would happen with Craft Hind and and involvement of Bergkshire and that over time. Now there's also been false reports. I think they they said that they were um thinking about merging the railroad and stuff and I think Buffett said that's not true but um yeah there could be less longevity for the managers in the businesses that they have and you know shaking things up there. I don't know how great the managers have been for the ones that weren't there when Buffett first bought the company. You know, there have been some companies they've owned for so long that they've turned over to new cos over time. And uh I don't know that those people will necessarily have uh as much of a handsoff and um job security as they had in the past probably. Yeah. I don't know if it would affect big time like a purchase of some founder company or something though. That's where I think I wouldn't be surprised if it's more similar to how Buffett used to do it. Mhm. Mhm. You know, the great debate is how what's capital allocation going to be like um you know, going forward. I mean, could you ever see a scenario where Bergkshire pays a dividend or anything like that? >> Yeah, I think they'll have to do that. >> Yeah. You look at the balance sheet, right? Securities and investments 612 billion. Cash and cash equivalents 42 billion. And just look how much it's I mean, look at compare it, you know, to 2022. I mean, securities and investments 423 billion. I mean just continuing to pile it up and at what do you do? >> They even sold some stocks. I mean because here's the thing Berkshire if they're almost neutral like say I mean they're different than other kinds of investment things a little bit more like other insurance companies but even more dramatic that way. Um that they have so much cash coming in would be like having a fund with constant inflows you know funding it all the time. And so even if you're um or they don't intend to look like they're super bearish on something, they'll pile up and then if they are bearish, it'll happen really fast. Um so that's kind of the problem that they've had. They most of that buildup in the past 10 years or so that people made a big point of wasn't really due to conscious efforts to sell stocks and things. It was just not finding enough big things to actually buy. Um, so it's only in the last couple years that we've seen anything where like, you know, when they say that he's bearish and everything that there's actual evidence for that, that he's like, "Okay, we shouldn't own so much of this stock or the price is too high or let me I'd rather have cash." The other ones are basically just not adding new things until real recently. >> So, you could probably expect them to I I honestly wouldn't be surprised. You see them become more of an efficient operation. They start to pay a dividend, continue to buy back stock. Um, you know, it's kind of hard to could you make an investment case for it at these levels? I mean, price to book 1.6 times. Uh, price to earnings about 13 times. But, you know, you probably want I don't know how you'd value it. What your thoughts are >> compared to other compared to other companies? Yeah. Yeah. I mean, I don't think it's amazingly cheap, but I think compared to stocks in general, it's it's quite reasonably priced right now. Yeah. you just I mean just take their biggest stock positions and their biggest um businesses that they have and kind of try to put a valuation on each of them. You don't have to do some 100page report on it. I just mean like you know what are the top usually you don't need to for doing a calculation for the entire company. It's rare you would even need to think about more than about three stocks and you know maybe an equal number. You could do anywhere from the top three stocks, three businesses to top five stocks, five businesses, and that captures almost all the value, I would say, depending on the the uh exact date of it and everything. I mean, Apple before they started selling that down accounted for a huge part of the portfolio, right? So, you only have to go down a few stocks to to get to that. You don't have to go 10 deep in in um those to kind of put a value on it. And then you have things like, okay, Geico and stuff. Well, Progressive is a public company. You have railroads, there's public companies compare that to. You have energy, public companies compare that to. So, it's not hard to kind of look at and say how reasonable is it if you put similar valuations to what those things are priced at by others. You know, now you could argue it's not the best railroad, it's not the best insurance company, etc. That might be true, but also that probably means it has the most room for improvement. And uh you know like when we did the report on progressive it was a low multiple stock and now it's a popular stock. So those things can change you know it doesn't it doesn't mean that it's forever that gap can close. The same with the particular railroad you know of the big railroads. One railroad improves versus another sometimes. So, it's not the worst thing in the world to to look at it when it doesn't have the best metrics in the industry because it just has to kind of get to the same levels as the best companies there um to cause a big improvement in the value. So, >> Mhm. Interesting. >> Yeah, I found a company recently like that. Um let's see. You familiar with MEX Group? You can see the company offers execution and clearing services and metals, agricultural products, energy, financial futures and options. So, think about it like that. And they went public a few years ago. But you look at other companies that are in their same business like ICE, CME, and they all trade at just extreme valuations. And then there's this company >> that, you know, trades at 12 times earnings and is growing like crazy. >> These businesses are really hard to figure out, though. I mean, you look at like their their financials and it's just it's complicated, right? Um, trades in the UK, uh, business is in the UK, which I thought that could probably be why. Um, but yeah, you compare it to like a CME or an ICE and, uh, the valuation is so different. >> Yeah, they're a lot smaller. I mean, that with really high quality companies that usually happen. That's kind of what I was talking about before of um the efficiency question of like okay so are smaller companies companies in less the markets that less likely to be in an index whatever will there be a discount for them between others now in the long run the business result drives a lot of your returns but people want to make money fast betting on what's going to happen with the multiple is what matters yeah >> yeah I mean we'll look at Apple though right okay so business returns been um good. They've been they've been okay. But when did Buffett I mean so we could compare this is from 2015 on quick FS and you could look at the the stock price since 2015 and it's up you know almost 10 times >> and a huge bulk of that has come from multiple expansion. Now EPS has gone from $2.31 to $6, right? But the bulk of Buffett's return he bought around that time frame, right? 2016 maybe 2017 or was it a little bit later? I can't remember. >> Yeah. >> Came from multiple expansion. >> Mhm. A lot comes from multiple expansion even on pretty long-term investments. I mean I've I'd been a value in personal investing. I've been a value investor and um longer term holding than the average of the market by you know a couple times at least. And um I would estimate that a third of my return came from multiple expansion. Um and only two/3s came from the combination of uh growth in the business and uh dividends/byback type stuff, you know. So actual growth in the cash you were getting and going up if it was like a company that was quoted at the same price. So what you're carrying it at, what the public views it at did contribute about a third. Um, which by the way, for like a really good performance versus meeting a benchmark, a third is like the difference. So someone that you think has this amazing record over 10 years or something could be due entirely to multiple expansion, whether it worked for them or against them in that versus someone who's down a little bit. It you don't you normally have a breakdown of that by investor, but that can definitely for up to a decade. I mean, you can use the rule of 72 and stuff and think about that. you could literally make good decisions for a decade. Buffett did because he was a long-term investor. You can see that it's easy to track what things he was in. Some uh decades, the '9s or something, he might have particularly good results um just because of multiple expansion. And then some other decade, 2010s or something, he might have worse because his what he owned didn't expand as fast as other things. I mean, if you look at ad agencies, um, media stocks and things like that that he owned, a lot of it was, for a long time, a lot of it was due to, um, uh, multiple expansion. >> Mhm. >> Do you think advertising companies are cheap? >> It's tough. the advertising companies that are best positioned are incredibly expensive, you know, in terms of ad tech stuff and all those sorts of things and the traditional things that have the lowest um type future growth probably um are really cheap. Now, they could just buy back their stock and pay dividends. So, if you look at something like this, do I think that like Omnicom or something could be cheap and some of these things are merging and everything, but um yeah, can you look at um let's see where does it have dividend for this? because that's what I was going to point out for these is um yeah and so the dividend was 280 last year or something and what the stock what's the stock out stocks at um yeah so and many of these companies Omnicon's probably one of them probably do as much in buybacks as dividends so just a raw dividend you're getting a yield that looks like a bunch of bonds and then you're getting a buyback so I I mean you're taking a risk it is equity and everything but it hasn't had a lot of down years. So, if you're asking, do I think they have a good future? Not really. But I think that they yield almost as much as bonds in cash at this point. And they also then buy back, which is effectively like giving you payment in kind of like more bonds, you know, um a similar amount. So, if you're asking like, would I like to own something that yields 3, four, 5% and gives me 3, four, 5% more bonds every year and it could go up, right? I mean, the multiple is the multiple more likely to go to five than 20 or something. I don't know. Probably equally. I wouldn't say it's at this point more likely to go to 20 than five, but um yeah. >> So, Buffett's been selling down Apple, which I think is a a great move. I mean, it was a huge chunk of their equity portfolio. Can you think of another time in his career where he was super concentrated like the most concentrated? I mean, let's take out you know when he was when he owned 100% of Geico, right? >> Can you think of any other times when you know his portfolio >> super concentrated >> around 1987? I don't know the exact date and the time of that, but it would have been really really close. Um, now he might have owned some bonds at that time, like junk bonds and things at that time that I'm not remembering, but in terms of it was just marking common stocks. It had been really low then around the time of the crash and stuff. Um, and then actually in one of his first letters is I think the first letter that's published under his name is the 77 letter or something in that neighborhood. So there's a period in the 70s, but that is like you said that's due to like Geico is heavily influencing that. the one I'm thinking of in the later 80s before they then got in big into he made a couple big purchases did convertibles and things like that. Before that they were big into like just a couple stocks. It would have been like Cap Cities, ABC. Um basically around the ones that he talked about being their permanent ones. Yeah. So if you add up all the the Geico ones, you see that's big. Um and then you see uh so that's very big. Then he was in cap cities, but he sold it really fast. Um, and then the other ones are different stocks, but they're exactly in the same industry. Uh, we can kind of ignore Kaiser because that was like a thing that split out. The other ones are straight up newspaper companies that are like exact duplicates of each other and add things that are the same. So, Interpublic and and Oglev are like the same kind of company. Washington Post and Night Ritter are like the same kind of company, too. So he was and that and I think I don't remember when they owned affiliated but that that's Boston Globe that was also around the same time. So some of the other holdings might also be that he basically bought like every ad company every ad agency he could find that was publicly traded and every uh newspaper he could find that was publicly traded. So >> why does that take us back to that for people that aren't familiar with that environment then? >> Uh because they're good businesses but Bergkshire was already even then too big. So like they had some of them were family controlled and stuff but they wouldn't want him to own more than like 5% things like that. So he seemed to have bought like 4% or something of a lot of things. Um to give an idea on Oggov you know David Oggov would introduce him as the man who made more money on Oggov and Mather than than I did. Uh cuz cuz David Oggovie would sell his stock all the time to support his lifestyle and stuff whereas Buffett didn't sell his until you know I don't know how long but let's say a decade or more. um because I don't know if we know exactly when he bought it because it was before you know it just shows up in these letters. I don't know if there's been much talk about when in the 70s he bought some of these things but um so again though some of those are the multiple things. So for instance in public not a huge position initially for him but because it quadrupled almost in price it could get big. What happened with Apple is it's a rare one where he took a really big position and then it went up a ton which is kind of what happened with Geico but Geico then eventually became a intern you know they own the entire company but the the thing is on a lot of those he took the maximum position size that he felt he could. We know that because Geico we know he was backstopping it and so he got fewer shares than he wanted because the deal with Solomon for that and everything to do it. So we know that story. So he had put in for more shares than he got. And then um and then very quickly with that the stock went up a lot from where he was buying with the the preferred convertible there. And then um Washington Post, we know that story because he told um he he told Kathn Graham that I won't you know I won't buy anymore. And so that was that was the level that he stayed at. Um and some of the others we know a little bit of even the one I mentioned affiliated I think he got that in the IPO. So that also would just be trying to buy everything he could in those industries. Um, yeah, he kind of I mean he reversed himself on it, but he kind of did that with the airlines. He bought some of every airline that was possibly big enough to matter to Bergkshire at that point in the US. He just didn't feel like he knew airlines outside the US, and he didn't bother buying airlines that were too small, right, Freddy and Fanny. I mean, they basically took I mean, you know, they've talked they said, "Well, we could have done some things to get even more. We should have just like, you know, opened up a banking thing to get this uh opportunity to get in on it or whatever." But basically, legally, they they were buying as much as they could in some of those uh GSSE type stuff, too. So, he's gone with the literal maximum position size in a few companies that he felt he could have. Yeah. So you think the most concentrated that we know of Bergkshire has been you you resort to 1977? >> No, I think in the 80s around when I said I don't remember the exact year when in the report would have been but around 1987 he would have had the fewest number of stocks probably although I think he owned other stuff. Let's see. Yeah, there you go. Well, that's permanent holdings. That's where he breaks out their permanent holdings. Yeah, that's uh Cap City's GEICO. But he definitely started talking about permanent holdings in around that time. And some of it was I think to like um be willing to sell whatever else they had. Um but then shortly after, not shortly afterward, but within a couple years, he's buying Coke. He's uh American Express. There's there's other things that started happening, but I don't know the exact date, but sometime between when he owned these um common stocks he liked a lot that he's calling the permanent holdings here, Cap Cities, ABC, that was a special deal, but it's basically just common stock. Geico and Washington Post. Then he started doing all the things that you know about with like Solomon and and uh what was it? Champion, Gillette, uh US Air. So those special deals and then also um buying like Coke was the next big really big investment. So he did do Coke. But in some of those years if you take out any preferred deals and any arbitrage, it's highly concentrated. The question is just whether what do you want to count arbitrage and special deals and things that aren't common stock as a different category or not? Um you know he was doing a lot of other he wasn't buying a lot of long-term investments in common stocks at that time. So >> yeah, it'd be interesting to run a study on that and kind of, you know, go more in depth on it. Market conditions, what the multiples were, the multiples were of all the companies that he owned, what the balance sheet was, like uh from how it was invested in securities and whatnot. I'd like to see that. >> Yeah. And there's there's you can also see like the um there's been some things where people compare what percentage the the big thing early on is that the amount invested in common stocks relative to the equity sort of because of the insurance part of it. It was more highly levered to his stock portfolio performance and the insurance business providing that float. Now the insurance business honestly had worse underwriting results during those years but that's when people used to say it's a close-end fund and all that stuff. Now they most people I think wouldn't say that kind of thing because so much of it is businesses you know um and even the insurance stuff is is um you know I think people view like Geico and stuff differently as kind of insurance thing with the franchise um but in the early days it had a whatever kind of insurance business and a lot of his stock picks but it was providing a lot of the leverage there. So I think the most lever to common stock portfolio performance is probably like we just covered in the 70s and 80s. Mhm. Mhm. Interesting. Uh wanted to hit on uh the box office since we talk a lot about movie theaters here. Get your thoughts on where we currently are. Um and then we could look at um CNK and and MCS as well. Just, you know, I viewed this podcast since it's our first time recording. Really just kind of hit off right right where we left off. Yeah. And then we have a lot of topics planned going forward. Uh so we don't want this, you know, we don't want the podcast to be more like news stuff all the time. We are going to do more topics, but I just wanted to catch up since last time we recorded was in April. So, uh, thoughts on, uh, the box office this year? Disappointed? Kind of in line with what you thought? What are your thoughts? >> It's very mixed. Um, it's similar to uh, what I thought in terms of maybe overall results so far through this part of the year, but the way it's gotten there has been very mixed. What's happened is that some some they're not really very original ideas necessarily. I don't mean that in some creative sense, but original movie things like Minecraft is totally untested as a movie, so it comes out as big. Um, things like that have hit bigger and then especially Superhero, but just in general kind of things that are on their they've had a lot of these um have not done as well. So um and that is more in keeping with the long-term past history of how movies used to do but not in keeping with movies in the last sometime in the 2000s. I don't know 15 years 20 years since the start of the MCU certainly um which is like about 17 years ago or something but maybe even before then. So, you know, in the 80s and '90s, you'd expect that sequels would make less money. Um, and then they started to expect them to make more money and um, you know, Marvel's done like 30 movies or something. So, uh, it had a very long run. I don't know if it was 15 movies or something that was really successful and then since then it's been more in the pattern of what it used to be. So, we've had good performance from things like in the US at least from something like Sinners original type idea from Minecraft, not a franchise movie thing and all that and less good from things that are on their seventh, eighth installment or whatever. They've performed, you know, relatively worse and the other things have performed better and it's come out as a mix um to look a lot so far like this year's box office looks a lot like last year's um up to this point. Mhm. I'm uh I'm sort of excited to see this movie, Happy Gilmore 2, but also very nervous because the first movie was like my favorite movie growing up, right? And you know how sometimes they they bring a movie out of retirement, they do a sequel and you're like, they just should have never done that, you know? >> Yeah. >> So, I'm kind of I'm going to watch it. Came it comes out today. Um but happy Gilmore 2 for those that aren't watching. Um, but I'm kind of nervous, not going to lie. Kind of nervous. >> So, uh, yeah. Uh, they have a whole category in the numbers, delayed sequels or like long gaps between an original movie and a sequel, you know, which is usually when the star or something like needs it now, you know, in terms of their career or something. So, or not always a star, some director, something like the the Matrix or something. Um, so I won't do it. I won't do it. And then they finally do it. And it's a very mixed bag. A couple of them have been hugely successful and then a lot of them have failed terribly. So, this is a Netflix thing though. But yeah. Um, so it's a that's kind of the most mixed in terms of like something that was huge having no success at all versus you get on the other side something that happened like um Maverick, The Phantom Menace, Force Awaken, you know, things that have big gaps and then bring back a series that, you know, um those are sometimes maybe some of the biggest movies ever. So >> Cinear, it's up on the screen right now. It's currently trading about 14 times earnings EBIT to sales 1.5 10ear median margin on EBIT uh 12.3 20 times EV to free cash flow. Look at their gross margins. Uh it's improved over the years. Um what are your thoughts on where movie theaters currently are trading? Um, I think you can see in the earnings and stuff that they're more efficient. Like they could probably make more money on lower box office than in the past. Uh, but I also think that um the biggest issue is supply. Um, and this is a big big issue for movie theaters as compared to um studios. So you could look and like based on past trends of what it was before COVID and then you adjust for inflation or you use attendance date or whatever. We're down a lot of weekends, a lot of months, a lot of whatever like 40% from what movies used to be, but like 30% of that is the amount of movies being released by major studios. It's not uncommon for there to be one uh only one major release in theaters. you know, they're the independent movies and small things releasing at the same time, but you don't have a choice of a couple new things coming in and uh that used to not be the case. So cuz you just like mentioned Happy Gilmore there, you can look there's almost no straightup comedies released by major studios at all and that used to be a genre that would bring in you know a 5 10% of the box office all the time and then now just all superheroes her superhero movies nowadays >> which have that as the sub genre for some of them. Right. So is Deadpool and Wolverine a comedy a superhero movie? both. Uh so maybe because it incorporates so much more of that, they don't have those genres. But isn't that's not I mean there was this time when musicals were a big thing and then there's been years where they're nothing. So the genres that people watch do change. You know 25 years ago superhero movies were probably 5% of the box office and now they've been 25 or something. Um so I just mean movie theaters and movie studios have different interests. I think movie theaters are more profitable right now and better set up right now, but I think movie studios, you know, that's kind of self-inflicted damage. They could stop doing that. What the theaters need them to do is to put out more stuff. And I've been surprised that's the part that's been the biggest surprise since co is how many are not putting out more movies in theaters, big movies in theaters. Um, so I mean an interesting one like so this wasn't the biggest movie of the year or something but F1 is a um is a uh you want to call it co-production co-released thing where um it's an Apple movie, right? So this could have gone just to Apple or they could have released it like some other things. I forget what they did with some of theirs wolves and some of the other ones. They they said they were going to release them and then they never released them or they did almost no release. But this one they actually released with Warner Brothers. So huge movie because of that. If it had just been Apple doing this, it would not have been a huge movie. But there was a choice to actually have the two studios working together on that. Um but it gives you some idea that they could like not do that. And the same thing when we saw what was it? Um Moana was one of the biggest movies. Uh, and that uh both Moana and Leo and Stitch, I think, were originally planned to be Disney Plus shows or movies or something of some kind in their first phase of development. And they're two of the biggest movies the last few years. So, a studio could accidentally have, you know, not brought in $400 million or something because they could have just put it up on a network that probably isn't going to grow a lot more just because it has that. So that's the part that's kind of shocking is the economics of it have been so much in favor of movies that are released in studios still do in theaters still do better on streaming than ones that are just straight as streaming and all that but they're they're definitely still favoring their um streaming things. So, but there is a shift in some of them. Like I saw that the um what is it? The Wheel of Time series has been cancelled. And so that's a good example. Amazon, which owns um MGM, could probably do two uh two medium-sized and one big movie a year for what they were paying for that show. And I don't think that show did anything huge for them. But they probably spent I would be surprised if they spent less than $150 million a year on that show and it's not 30 episodes, it's like eight or something, you know what I mean? So, it's the value of what do you have from that? It Game of Thrones probably in its later season was worth more um to own that to produce that than a movie, but it's rare for these these series to be worth as much as putting it out as as much as spending the same amount on a movie is. And yet, they've pursued it. But there's a lag. So like Amazon and others might Disney's been up front. I mean certainly Marvel part of Disney has been upfront that they plan to completely change how they do everything that way. They put a bunch of shows on Disney Plus and they said they're not going to do that anymore. They're going to cut the number of movies they're making. It takes a couple years before you see the effects of it. I've just been surprised by how much is spent on streaming content and how little is spent on putting things into theaters given that the results for the studios look not good in terms of current earnings. So, I guess they're still anticipating that it's important for the growth of their streaming uh businesses online. Maybe um you know, I don't think the market rewards it anymore. In the early days, you know, Netflix and Disney Plus and HBO and all that were how many subscribers do you have? They wanted to know that more than how much money did you make in theaters. I think that's gone though. Like, I don't think that's the focus on the market anymore. So, it's interesting that it keeps happening that we're under supplied on things. So, so what does that mean long term? I don't know cuz I don't know the answer to it. It's not econ, it doesn't make any economic sense and they keep doing it now movie studios and things like this. I mean, Sky Dance Paramount will be a different situation, but you know, the managers own almost >> approved, right? >> Yeah. Yeah. >> Yesterday. So like the managers own almost none of the company uh who are the CEOs and stuff making certain decisions and how much is being allocated to one part of the business versus another you know I don't know um something like Disney it's a big decision should they put a lot more money into like theme parks and um uh movies for theaters and things and less into some other things probably but I don't know if that's like necessarily the only decision that a big um CEO of a company like that makes you know so um cuz those are kind of bigger like the people who are making the decisions that the studios say Warner Brothers or something who are actually saying let's make sinners or let's make this or that are not the CEOs um those are totally different people but how many you get to make and what your budgets will look like and all that is kind of a decision higher up in the organization and I think that's the part that surprised me is how little is put into the um making movies and releasing them still in theaters. So, yeah. So, I'm less optimistic on like the studio side of things right now as on like the uh theater side, but theaters would be helped a lot if they could get more um supply. There's entire portions of the year where there's not a lot for not a lot of choice. There might be one thing for one group of people, but there's just not things that appeal to everyone or a variety of movies there, which means you could go long periods without people going there. People don't go there, they don't see what's coming out next. If they don't see what's coming out next or get in the habit of going all the time, then you've got problems, you know. >> Are there any upcoming movies that you're optimistic about? >> Yeah, not really. Um, >> Freakier Friday. >> Freakier Friday. That's an, you know, uh, >> bringing a movie back like that. Yeah. >> Yeah. From from um, Disney. But uh but that's a good example of what I mean. So like um if you look at what comes out at the same time there there's weapons and Frier Friday. Those are like um I don't know great details on weapons, but those are appealing to completely different groups of people. Figure Friday being it has a nostalgia play to it, but it's very kitty from what I could tell from the trailers. And weapons will play exactly the opposite way. And so neither of them will be ones that are like for general audiences um appealing to everybody. Then you have other movies that kind of appeal to everybody. Um, and there's just fewer of them or, you know, but August isn't a big month for releasing things generally. They they've they've done it sometimes, but usually you've already released your big movies by then. >> So, do you think movie theaters are cheap right now? You're kind of making a case for for not being cheap. >> I don't think they're as cheap as they were. No. I mean, what was Cinemark and and Marcus at, you know, I don't know. Um, couple years ago. >> Yeah. I mean, they haven't, I guess, haven't done great this year. The last calendar year, how their stocks do, I think, pretty well in the last calendar year, probably. >> They did. Yeah, they did do well. >> Yeah. So, I just think they're another highly IMAX, which is also public. And >> IMAX is interesting. Yeah. >> Why you think it's >> Well, I just mean the company's very very interesting. So, on the one hand, it doesn't make a lot of money. If you go to Quick Up, you'll see that historically it hasn't actually turned its business into a lot of profits and free cash flow and stuff. Um, but it's like we're severely severely uh need more IMAX theaters. Like if you're going to build new theaters, you would have wanted lots and lots of IMAX screens. You want less and less of the smaller screens. It brings in so much money on uh opening weekend if you look the share that comes from IMAX is so big. Um, and so it has a big runway in terms of what will be built out and then it makes it money from different things kind of the systems of that, but it'll have a bigger installed base basically. And so you can know that 5 years from now, 10 years from now, now there'll be more IMAX screens. And if they can turn that into a lot of um profit through the different ways that the deals work on the screens and then the technology and you'd have to read the 10K, but it breaks down the four or five different ways they make the money. It's kind of like a little ecosystem that they have that way. So, it's not necessarily the case that just because someone's going to put in a new screen that's suddenly going to show a lot of profit, but over time having a lot of IMAX's around the world. Um, uh, you know, but the US is the one that I'm thinking of in terms of what they really need. Um, is better for the company. And the business has changed over time because all these things now are for commercial theaters basically. Whereas, you know, you probably remember IMAX was mostly like museums and attractions and things in the early days. You know, it was special one-off type projects and things. And now it's just become very um regular for the the movie theaters um chains, the big chains. And I just think the IMAX brand has an advantage um that we can see in terms of that versus what they because in the industry they call them PLFS um because they don't want to say the brand name, but that's kind of like saying smartphones versus uh iPhones or something. I mean it's become almost a generic thing to the average person that an IMAX means a big screen that way. And they might know what a Dolby is, what this is, what that is, but um IMAX is the first thing that they're going to look for, you know. [Music] >> Yes. This is a long runway for that company to convert over screens to the IMAX screens and >> there's a tailwind that way. >> Big tailwind in terms of demand for like there'll be a lot of projects and it'll grow a lot. Downsides are historically not strong profitability of like actually converting growth into a lot of money for the shareholders. And then also like I said, just because you're putting things in there doesn't mean you're immediately going to make a lot of money off of it. And the other thing is it's not super cheap on a current basis. But if you want to hear that they're expanding year after year, then I think that's good, you know, and you want the like >> I think they would like expanding like actual earnings and things too, you know, right? Not not just like we're put not just a lot of news articles saying we're putting in more and more theaters, you know, but >> Yeah. where there's some good business momentum if anyone's looking for that. >> Yeah, absolutely. >> Got it. Cool. Well, I want to thank everybody so much for tuning in with the both of us on the Pocus Compounding podcast. Uh we're going to be back to posting podcasts weekly. Uh so make sure you hit the subscribe button either on YouTube or the podcast side of things. Uh I think our release date is going to be Fridays. I always like Fridays for the release date just because the you know I don't want the news to get stale or just stuff that happens, you know, stock prices and whatnot. Not like it really matters. Um but uh Fridays is when I expect to release our podcast every single week. Uh so be on the lookout for that. I want to thank every so much for tuning in with the both of us on the Focus Compounding podcast. If you're interested in our money management services, reach out to me at andrew focuscompounding.com. Have a great day. Take care.