WEBVTT - Ariel Investments' John Rogers on How You Can Still Win With Value Investing 0:00:03.120 --> 0:00:17.880 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:21.040 --> 0:00:24.799 Hello and welcome to another episode of the Odd Lags podcast. 0:00:24.880 --> 0:00:27.160 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:27.200 --> 0:00:30.120 Today you're going to be listening to a special episode 0:00:30.240 --> 0:00:33.640 that we did recorded live on the beach in Huntington Beach, California. 0:00:33.920 --> 0:00:37.480 That's right, we are back at the future Proof Festival. 0:00:37.600 --> 0:00:41.040 It is a very special event that gathers a lot 0:00:41.040 --> 0:00:45.840 of investment professionals to talk about markets and how they're 0:00:45.880 --> 0:00:49.560 actually investing through these very interesting times. And one of 0:00:49.600 --> 0:00:52.640 the most interesting investors out there, I think has to 0:00:52.680 --> 0:00:54.960 be our guest for this episode totally. 0:00:55.160 --> 0:00:57.280 So you know, these days, I feel like when you 0:00:57.360 --> 0:01:00.000 talk to investors, we talked to people about the market, 0:01:00.040 --> 0:01:02.760 it's very binary. It's like, what do you think about 0:01:02.800 --> 0:01:06.759 the mag seven, what's your view guy, what's your view 0:01:06.840 --> 0:01:10.080 on KPEX spending, what's your view on the FED, etcetera. 0:01:10.440 --> 0:01:13.600 And you don't really hear many of those fashions, like 0:01:13.840 --> 0:01:17.800 good old fashioned stock picking, security selection. 0:01:18.080 --> 0:01:19.319 And I miss that. 0:01:19.480 --> 0:01:21.880 I think, you know, it's interesting back in the days 0:01:21.920 --> 0:01:23.959 when like you know, there's sort of like Buffett and 0:01:24.040 --> 0:01:26.959 Graham Dodd's style of investing We're like, yeah, here's an 0:01:26.959 --> 0:01:29.759 interesting company. A lot of people don't know about it, 0:01:29.920 --> 0:01:32.320 but I found it. I like this stock, I like 0:01:32.400 --> 0:01:35.839 this company, and I think it going to grow bigger. 0:01:35.880 --> 0:01:38.280 You just don't really get much of that discourse these days. 0:01:38.319 --> 0:01:42.360 This also dovetails with my favorite ever style of analysis, 0:01:42.400 --> 0:01:45.120 which is just when an investor or an analyst just 0:01:45.200 --> 0:01:48.760 goes to one of the like companies or locations of 0:01:48.800 --> 0:01:52.320 the potential investment and just like observes how everything is 0:01:52.360 --> 0:01:55.440 working and talks to potential customers and things like that. 0:01:55.760 --> 0:01:58.200 I love that style of investment. And we are actually 0:01:58.280 --> 0:02:01.160 speaking to one of the most famous stock pickers of 0:02:01.200 --> 0:02:01.640 all time. 0:02:01.880 --> 0:02:02.320 That's right. 0:02:02.360 --> 0:02:05.640 You're going to be hearing our interview with John Rodgers. 0:02:05.720 --> 0:02:09.399 He's the founder and co CEO of Aerial Investment Management, 0:02:09.840 --> 0:02:12.960 and he's very different. It's truly old school. It's all 0:02:13.080 --> 0:02:15.640 mid cap and small cap stocks. He's been running this 0:02:15.800 --> 0:02:20.680 mutual fund for decades now, and he's like this old school, 0:02:21.080 --> 0:02:24.240 classic style stock picker. And you're going to hear our 0:02:24.320 --> 0:02:28.040 conversation about how he goes out and finds companies and 0:02:28.080 --> 0:02:31.359 talks to management and tries to uncover these diamonds in 0:02:31.360 --> 0:02:32.200 the rough shows. 0:02:32.560 --> 0:02:34.880 So take a listen. As a reminder, this was recorded 0:02:35.080 --> 0:02:37.920 live on stage at Huntington Beach as part of the 0:02:38.080 --> 0:02:41.480 future Proof conference. You might hear some background noise. It 0:02:41.520 --> 0:02:43.680 was very windy that day. There was also a drone 0:02:43.880 --> 0:02:47.520 which was an interesting experience, but we hope you enjoy it. 0:02:47.639 --> 0:02:50.120 Here is our conversation with John Rogers. 0:02:50.400 --> 0:02:52.800 It's great to be here. Never been to an event 0:02:52.919 --> 0:02:53.640 like this before. 0:02:54.200 --> 0:02:56.799 I know, it's such an extraordinary event. I don't even 0:02:56.800 --> 0:02:59.240 know what would be like an equivalent thing that anyone 0:02:59.280 --> 0:03:02.000 could have been to before, But very excited to be here. 0:03:02.240 --> 0:03:05.400 So in investing right now, you know, there's a couple 0:03:05.520 --> 0:03:08.520 big themes that come up over and over again. There's 0:03:08.880 --> 0:03:12.120 the rise of passive investing in various flavors of that. 0:03:12.400 --> 0:03:15.760 There's just the incredible dominance over the last several years 0:03:15.800 --> 0:03:19.040 of the MAG seven and big tech and their momentum 0:03:19.080 --> 0:03:20.600 and the sector specific stuff. 0:03:21.000 --> 0:03:24.640 You are a stock picker and you buy us do. 0:03:24.800 --> 0:03:27.200 That you're not just one of these people riding the 0:03:27.600 --> 0:03:30.200 MAG seven wave. And you buy a lot of mid 0:03:30.240 --> 0:03:33.240 cap and small cap stocks that are in fields that 0:03:33.280 --> 0:03:36.120 maybe people don't think about. What's your pitch when you've 0:03:36.160 --> 0:03:38.520 been people look at the rise of the mag seven 0:03:38.640 --> 0:03:42.600 or indexing. What's your pitch for security selection in other 0:03:42.680 --> 0:03:43.520 realms of the market. 0:03:43.840 --> 0:03:46.640 Well, I think it starts with the fact that aerial 0:03:46.760 --> 0:03:49.640 investments is almost forty two years old. So we've been 0:03:49.680 --> 0:03:52.840 through a lot of markets. Of course, we've studied market 0:03:52.880 --> 0:03:56.360 history and read about what happened in all the great 0:03:56.400 --> 0:03:58.760 bubbles that have happened throughout the world, and all the 0:03:58.800 --> 0:04:02.960 great corrections and all the big booms that happen, and 0:04:03.040 --> 0:04:05.760 we have these massive ups and downs in the market, 0:04:06.360 --> 0:04:09.960 but ultimately it is very cyclical. So I was just 0:04:10.000 --> 0:04:13.360 reading Chuck Royce, who's been managing small cap stocks for 0:04:13.400 --> 0:04:18.000 over fifty years, the legendary investors. He's finally retiring, and 0:04:18.080 --> 0:04:21.520 he talks about how these waves come and go, and 0:04:21.680 --> 0:04:23.800 this one in particularly reminds him of the nifty to 0:04:23.839 --> 0:04:27.520 fifty when Polaroid and Xerox and Johnson and Johnson and 0:04:27.560 --> 0:04:31.479 IBM all sold at extraordinary multiples. People thought it was 0:04:31.800 --> 0:04:34.840 going to last forever. They were called one decision stocks. 0:04:35.000 --> 0:04:37.279 You'd buy them and you own them, But of course 0:04:37.560 --> 0:04:39.840 that changed seventy seven to seventy three, seventy four of 0:04:39.839 --> 0:04:43.000 the market's collapsed, and we've all seen the ups and downs. 0:04:43.040 --> 0:04:45.279 So for us, what we tell people is when you 0:04:45.320 --> 0:04:47.960 get these extremes and everyone's buying a stock because it's 0:04:47.960 --> 0:04:50.640 gone up a lot yesterday, it's part of an index. 0:04:50.920 --> 0:04:54.000 You're getting toward the top. And the multiples show that 0:04:54.040 --> 0:04:57.520 the valuation differences between large cab growth and small cap 0:04:57.640 --> 0:05:00.520 value it's one of the largest in history. So we 0:05:00.560 --> 0:05:02.800 feel highly confident it's going to be a better time 0:05:03.400 --> 0:05:05.440 for the smaller undervalued securities. 0:05:06.120 --> 0:05:09.760 You mentioned waves of investments kind of coming and going. 0:05:09.839 --> 0:05:12.240 I feel like I have to ask the obvious question, 0:05:12.440 --> 0:05:14.679 since we're here with one of the most famous stock 0:05:14.720 --> 0:05:18.880 pickers of all time, but is value investing dead? 0:05:19.640 --> 0:05:22.400 You're still here, you're still going. You seem very much alive. 0:05:22.720 --> 0:05:23.960 Why do people think it's dead. 0:05:25.120 --> 0:05:27.720 I think they think it's dead because this period of 0:05:28.040 --> 0:05:32.120 growth stocks outperforming value stocks has lasted so much longer 0:05:32.160 --> 0:05:35.200 than normal history. But again, if you go and read 0:05:35.240 --> 0:05:37.960 the famous book by Burton Alkil or Random Walk down 0:05:38.000 --> 0:05:41.200 Wall Street, he always explains and shows you these bubbles 0:05:41.200 --> 0:05:43.640 and how they burst. And when you, of course you 0:05:43.680 --> 0:05:47.320 study Warren Buffett, and he always reminds you that you 0:05:47.360 --> 0:05:50.240 want to be greedy when others are fearful, and be 0:05:50.520 --> 0:05:53.440 fearful when others are greedy. He's always so consistent about 0:05:53.480 --> 0:05:57.120 that because he realizes things get out of hand when 0:05:57.120 --> 0:05:59.800 everyone chases the hot dot of the moment. Those securities 0:05:59.800 --> 0:06:02.800 get overvalued, and the ones that are left over I 0:06:02.839 --> 0:06:06.160 call them the orphans. They're selling at very, very cheap prices, 0:06:06.600 --> 0:06:08.839 and eventually companies are going to sell at the discounted 0:06:08.839 --> 0:06:11.760 present values of their cash flows, and if you can 0:06:11.760 --> 0:06:14.200 get them at bargain prices, it's a really great, great thing. 0:06:14.240 --> 0:06:18.040 And these cycles always end, and they always end when 0:06:18.080 --> 0:06:19.760 everyone's convinced that they can't end. 0:06:21.040 --> 0:06:23.159 You know, you use the word orphans, and I think 0:06:23.200 --> 0:06:25.760 that actually leads to something that I was thinking about 0:06:25.800 --> 0:06:27.760 as I was preparing for this interview. You know, like 0:06:27.800 --> 0:06:30.320 on a day to day basis, sometimes you'll see like 0:06:30.800 --> 0:06:34.159 small caps outperforming, the russell outperforming. 0:06:33.680 --> 0:06:34.279 And so forth. 0:06:34.560 --> 0:06:37.600 But it seems to me that one of the reasons 0:06:37.640 --> 0:06:40.960 one might go into smaller stocks is not necessarily because 0:06:40.960 --> 0:06:43.960 they're small, but because they are literally orphaned. They don't 0:06:44.000 --> 0:06:46.400 have the analyst coverage. People aren't familiar with the names, 0:06:46.440 --> 0:06:49.720 people aren't familiar with the industries. If someone is interested 0:06:50.040 --> 0:06:53.480 in small caps, does it make sense that, like, it 0:06:53.520 --> 0:06:55.880 really doesn't make sense to do it on an index level, 0:06:56.000 --> 0:06:59.400 but rather do it on a find those orphan stocks 0:06:59.400 --> 0:07:01.520 that nobody knows level well. 0:07:01.600 --> 0:07:06.760 I do believe strongly that the opportunity to take advantage 0:07:06.800 --> 0:07:10.080 of the very rare inefficiencies in the market are in 0:07:10.120 --> 0:07:14.440 the small cap sector because there's less well, well qualified 0:07:14.440 --> 0:07:16.880 and thought where research being done in the smaller socks. 0:07:17.280 --> 0:07:20.280 You know, investment banks can't get paid as much working 0:07:20.280 --> 0:07:22.880 in the small cap sector, and so at my forty 0:07:22.920 --> 0:07:25.320 one years, I've seen the number of small cap analysts 0:07:25.520 --> 0:07:28.920 decline significantly. The ones that are out there are sort 0:07:28.960 --> 0:07:31.920 of following lots and lots of companies sort of a 0:07:31.960 --> 0:07:34.440 mile wide and inch deep. They don't know their company's 0:07:34.480 --> 0:07:37.320 in depth. So it creates this opportunity to these orphans 0:07:37.320 --> 0:07:39.960 to be able to find some inefficiencies in the marketplace 0:07:40.280 --> 0:07:42.920 where the research isn't being very well done, and you 0:07:42.920 --> 0:07:46.000 can just find some magical hidden nuggets out there in 0:07:46.040 --> 0:07:49.040 the marketplace. And these things happen from time to time, 0:07:49.080 --> 0:07:50.600 and I do feel we're in a period now where 0:07:50.600 --> 0:07:52.840 there's a lot of opportunity there. 0:07:53.120 --> 0:07:56.400 How do you come across those types of orphan stocks, 0:07:56.440 --> 0:07:59.760 because as Joe just mentioned, these are often smaller companies 0:08:00.080 --> 0:08:03.120 that don't actually have analysts coverage. There are still a 0:08:03.160 --> 0:08:05.080 lot of them out there, So how do they come 0:08:05.120 --> 0:08:06.040 across your desk? 0:08:06.200 --> 0:08:08.920 I guess well, it's a couple of ways. Of course. 0:08:09.120 --> 0:08:11.800 At AERIL now we have you one hundred and thirty people, 0:08:12.360 --> 0:08:14.960 a lot of people helping us do the research, and 0:08:15.040 --> 0:08:17.440 we have the industries that are in our circle of 0:08:17.480 --> 0:08:20.000 competence that we follow, So we have a lot of 0:08:20.040 --> 0:08:24.680 people looking and searching for ideas and understanding all the 0:08:24.920 --> 0:08:28.120 cheapest stocks in their sector, the most expensive stocks in 0:08:28.160 --> 0:08:31.480 their sector, and becoming true experts over the years in 0:08:31.520 --> 0:08:34.840 their sectors. So I think that's first and foremost. You know, 0:08:34.880 --> 0:08:37.640 we're working to, you know, focus on those areas that 0:08:37.679 --> 0:08:39.439 we know really really well, so we know where the 0:08:39.480 --> 0:08:42.280 bargains are, we know where the expensive stocks are. The 0:08:42.320 --> 0:08:44.920 second thing though, in case we miss something, we use 0:08:44.960 --> 0:08:48.200 the computer and screen for cheap stocks, and we think 0:08:48.240 --> 0:08:52.480 that's really really important. I noticed the morning Star banner here. 0:08:52.640 --> 0:08:55.480 We love to read and study what other small cap 0:08:55.559 --> 0:08:58.440 value managers own, and as the years go on, you 0:08:58.480 --> 0:09:00.680 get to know who are the people you respect, because 0:09:00.720 --> 0:09:03.360 as we touched on earlier, there's not as many active 0:09:03.360 --> 0:09:06.680 small cab value managers left, but those that are out there, 0:09:06.679 --> 0:09:10.160 we just love to see their list of top thirty holdings, 0:09:10.559 --> 0:09:13.520 get their quarterly reports, and get all their holdings and 0:09:13.559 --> 0:09:15.960 see where there are some creative ideas that maybe you 0:09:16.040 --> 0:09:17.800 haven't thought about it or hadn't thought about it in 0:09:17.880 --> 0:09:21.360 a long time. And then finally, of course, just reading extensively, 0:09:21.760 --> 0:09:25.559 you know, reading every publication you can. On the plane here, 0:09:25.679 --> 0:09:28.080 you know you're reading Barons, You're reading Business Week, You're 0:09:28.120 --> 0:09:28.880 reading Bloomberg. 0:09:29.600 --> 0:09:30.640 Thank you for the plug. 0:09:31.000 --> 0:09:35.560 Appreciate that you know you were getting the research reports 0:09:35.559 --> 0:09:38.840 from all the major brokerage firms. Just reading and reading 0:09:38.840 --> 0:09:41.560 and reading and reading, searching for ideas, seeing ideas that 0:09:41.640 --> 0:09:44.440 you might have missed. I think there's no substitute for 0:09:44.520 --> 0:09:45.280 doing that work. 0:09:46.040 --> 0:09:49.040 And what counts as a cheap stock in your book, 0:09:49.120 --> 0:09:52.439 and has that perhaps changed over time? Is a stock 0:09:52.480 --> 0:09:56.080 that was considered cheap in the nineteen eighties perhaps different 0:09:56.160 --> 0:09:58.760 or measured differently to a stock that might be considered 0:09:58.840 --> 0:09:59.520 cheap nowadays. 0:10:00.920 --> 0:10:03.920 I think the basic principles of value investing is still 0:10:03.960 --> 0:10:06.320 the same. You want to buy stocks that are selling 0:10:06.360 --> 0:10:09.280 at low multiples. Now, maybe a generation ago, we talk 0:10:09.400 --> 0:10:12.480 more about price earnings ratios. Now you're looking at price 0:10:12.520 --> 0:10:17.040 to ebadah ratios and understanding whether the stock's undervalued. But 0:10:17.080 --> 0:10:21.600 that's really really important to look for cheap companies. Second 0:10:21.600 --> 0:10:23.400 thing you're looking for is we want to make sure 0:10:23.440 --> 0:10:26.040 the company is selling it a forty percent discount to 0:10:26.200 --> 0:10:29.240 private market value. So we do the discount of cash 0:10:29.240 --> 0:10:32.440 flow analysis that they teach you in business school. You 0:10:32.520 --> 0:10:34.680 get the idea of looking at those future cash flows 0:10:34.679 --> 0:10:36.960 and discounting them back and finding out the true value 0:10:37.000 --> 0:10:40.280 of a business. And that's an inexact science. But we 0:10:40.320 --> 0:10:42.360 want to buy those stocks at a forty percent or 0:10:42.360 --> 0:10:45.200 more discount, and that's the way that we define what 0:10:45.240 --> 0:10:59.800 a bargain is. 0:11:01.320 --> 0:11:03.520 To anyway, I'm a really big span a fan of 0:11:03.559 --> 0:11:05.920 the Sphere. I went there, I saw it earlier. 0:11:06.520 --> 0:11:07.120 That's a good word. 0:11:07.960 --> 0:11:08.800 But it's one of your. 0:11:08.720 --> 0:11:11.080 Bigger holdings of your portfolio. And I don't know if 0:11:11.080 --> 0:11:13.840 a lot of everyone knows that the Sphere in Las Vegas, 0:11:13.880 --> 0:11:17.680 this extraordinary venue is publicly traded. But just because you know, 0:11:17.760 --> 0:11:20.920 I mean, we're interested in the art of stock picking. 0:11:21.559 --> 0:11:22.160 Can you talk to. 0:11:22.200 --> 0:11:24.360 Us a little bit about the thinking of how you 0:11:24.400 --> 0:11:26.600 wind up with you know, a few percent of your 0:11:26.600 --> 0:11:27.559 portfolio in the sphere. 0:11:28.200 --> 0:11:32.520 Yeah, ended up kind of by accident. I have to say, Okay, 0:11:32.679 --> 0:11:36.160 you know we own Madison Square Garden Entertainment, which in 0:11:36.200 --> 0:11:39.440 the old days was one You own the Garden, which 0:11:39.440 --> 0:11:43.280 is an extraordinary event, you know, extraordinary company, extraordinary event place, 0:11:43.320 --> 0:11:47.120 of course, the world's greatest arena. And you know, Warren 0:11:47.120 --> 0:11:48.839 Buffett always says, you want to buy a company that 0:11:48.840 --> 0:11:51.040 where it's hard to replicate it. You know, there's a 0:11:51.080 --> 0:11:54.080 true moat around it. Yeah, there's only one Garden, you know, 0:11:54.120 --> 0:11:57.000 it's something really special. And they own the Knicks and 0:11:57.040 --> 0:12:01.080 they own the Rangers. They owned the Regional Sports Network. 0:12:01.559 --> 0:12:04.640 They had everything under one roof. Over time they all 0:12:04.679 --> 0:12:07.800 split up into separate companies. Sports Company is a separate 0:12:07.800 --> 0:12:10.560 public company. That's the Knicks and the Rangers. The Garden 0:12:10.640 --> 0:12:13.520 is separate. They owned the Beacon Theater and the Chicago 0:12:13.600 --> 0:12:16.880 Theater and Radio City Music Hall. They control and the 0:12:17.080 --> 0:12:21.240 Rockets and the Christmas Show, and then they spun off 0:12:21.640 --> 0:12:25.120 the Sphere. Jim Dolan started the Sphere when it was 0:12:25.320 --> 0:12:29.680 under the umbrella of Madison Square Garden, and so we 0:12:29.760 --> 0:12:32.520 got it and spin off, never dreaming we would have 0:12:32.600 --> 0:12:36.160 assets in one, you know, new business like this. But 0:12:36.200 --> 0:12:39.360 the stock seemed extremely, extremely cheap. It seemed like it 0:12:39.400 --> 0:12:42.200 was being given away. As we did our homework, we 0:12:42.280 --> 0:12:44.600 got quite excited about it. You know. We went out 0:12:44.640 --> 0:12:47.000 and took the hard Hat tour. While the sphere is 0:12:47.040 --> 0:12:51.200 being built. We went to southern California and outside of 0:12:51.320 --> 0:12:53.800 La It went to visit in Burbank. We went to 0:12:53.800 --> 0:12:56.559 see their sort of mini sphere where you could see. 0:12:56.440 --> 0:12:57.679 I didn't know there was a minisphere. 0:12:58.040 --> 0:12:59.679 Yeah, it's a place where they can show you how 0:12:59.679 --> 0:13:01.679 the sound was good, look how the visual was going 0:13:01.760 --> 0:13:05.000 to look. Everything was right there at that mini sphere 0:13:05.320 --> 0:13:07.559 and it was magical. You walked in and said, they 0:13:07.559 --> 0:13:10.800 are transforming the way you're going to be able to 0:13:10.880 --> 0:13:14.319 experience entertainment. And I was talking to the general counsel 0:13:14.360 --> 0:13:17.640 of the garden. He remembered sitting down for dinner once 0:13:17.720 --> 0:13:20.560 with Jim Dolan and Jim Dolan sort writing it on 0:13:20.600 --> 0:13:23.840 a napkin, just drawing the sphere and saying there would 0:13:23.840 --> 0:13:26.240 be nothing like it in the world and he's actually 0:13:26.280 --> 0:13:29.320 accomplished it. You know, it's this huge globe most of 0:13:29.360 --> 0:13:31.800 you know, out right in the middle of Las Vegas, 0:13:32.120 --> 0:13:35.920 not far from the wind Theater, and it seats twenty 0:13:35.960 --> 0:13:40.800 thousand people, and it has it's like virtual reality on steroids, 0:13:41.240 --> 0:13:44.319 on double steroids. You know, everywhere you look, you see 0:13:44.360 --> 0:13:48.000 these magical images whenever you're in the Sphere. And they 0:13:48.040 --> 0:13:50.720 have great video. You know they have right now the 0:13:50.760 --> 0:13:54.160 Postcards from Earth. The rumors are the next big video 0:13:54.280 --> 0:13:57.280 is going to be The Wizard of Oz using that 0:13:57.400 --> 0:14:01.000 content in a magical way. And of course they have 0:14:01.080 --> 0:14:04.480 concerts and you two is opening night. They got the 0:14:04.480 --> 0:14:08.560 Eagles coming, They've had the Dead there and people everybody 0:14:08.640 --> 0:14:10.840 you talk to, anyone who's gone to one of the concerts, 0:14:10.840 --> 0:14:12.679 they just say they've never seen anything like it. 0:14:13.000 --> 0:14:15.839 I can confirm, I can confirm. 0:14:15.920 --> 0:14:18.959 Go into the Sphere earlier this year and wouldn't stop 0:14:19.000 --> 0:14:19.720 talking about it. 0:14:19.800 --> 0:14:20.280 That's right. 0:14:21.640 --> 0:14:24.480 But I guess one thing, I'm sorry, jump in one thing. 0:14:24.640 --> 0:14:26.760 Looking forward, You've got to believe that they're going to 0:14:26.840 --> 0:14:30.880 come up with more interesting and exciting content outside. They'll 0:14:30.880 --> 0:14:32.880 be able to advertise on the outside of what they 0:14:32.880 --> 0:14:36.440 call the Exosphere you have to also believe that eventually 0:14:36.480 --> 0:14:39.160 more countries will want to have their own sphere, you know, 0:14:39.200 --> 0:14:43.640 South Korea, Middle East Asia, wherever you think about it. 0:14:43.800 --> 0:14:46.680 That'll be what is the catalyst that can really create 0:14:46.720 --> 0:14:47.520 a lot of value. 0:14:47.880 --> 0:14:50.280 So one thing I was curious about, and you know 0:14:50.440 --> 0:14:52.520 you kind of touched on this, but one thing about 0:14:52.520 --> 0:14:55.280 the sphere is it is very unusual, right like, there 0:14:55.280 --> 0:14:59.200 hasn't been anything like it before. How do you evaluate 0:14:59.360 --> 0:15:02.760 the compare for that business model? Like, what are the 0:15:02.840 --> 0:15:05.800 comps for a giant sphere in Las Vegas. 0:15:06.680 --> 0:15:09.800 There really is nothing like it in the world, So 0:15:09.840 --> 0:15:13.160 there really are no comps because it's never been done before, 0:15:13.720 --> 0:15:16.480 and it's not typically an aerial stock, you know, because 0:15:16.480 --> 0:15:18.520 we like to find companies that have a long history 0:15:18.520 --> 0:15:21.560 of success where you can have comparables. It's a really 0:15:21.600 --> 0:15:25.640 excellent point. But there's just everything's being done for the 0:15:25.680 --> 0:15:29.200 first time, and kind of the idea is that as 0:15:29.600 --> 0:15:32.760 they experiment, the technology will get better, the sound will 0:15:32.800 --> 0:15:35.920 get better, they'll learn new ways to use the content. 0:15:36.480 --> 0:15:38.640 Right now, they have a movie playing that is a 0:15:38.680 --> 0:15:41.520 concert video of you two playing there. They don't even 0:15:41.560 --> 0:15:43.600 know how to describe it because they've never been anything 0:15:43.840 --> 0:15:47.520 like it, so you've got to believe corporations are using 0:15:47.560 --> 0:15:50.360 it for the first time for big events. Elett Packard 0:15:50.440 --> 0:15:53.240 used it for a strategy session for all their most 0:15:53.280 --> 0:15:58.480 important clients and employees. QVCS used it. But it's all 0:15:59.040 --> 0:16:01.400 it's all new, all fresh. You got to believe in 0:16:01.480 --> 0:16:04.680 Jim Dolan, who is a very controversial person, that they'll 0:16:04.680 --> 0:16:07.320 be able to pull this off in a spectacular way. 0:16:08.280 --> 0:16:09.760 You know, one thing that struck me when you were 0:16:09.800 --> 0:16:13.680 telling this Sphear story there is getting to see it 0:16:13.800 --> 0:16:17.000 with construction and that relationship that you can build with management. 0:16:17.240 --> 0:16:20.240 And I have to imagine that again when we're talking 0:16:20.240 --> 0:16:24.080 about opportunities in smaller name stocks that that can be 0:16:24.200 --> 0:16:27.600 you know, part of the opportunity to find alpha can 0:16:27.640 --> 0:16:30.480 be getting to really know management teams in a way 0:16:30.480 --> 0:16:35.320 that I imagine is not as easy or is more commodified. 0:16:35.320 --> 0:16:36.960 Perhaps with the megacap companies. 0:16:37.120 --> 0:16:39.400 Can you talk a little bit more about your communication 0:16:39.480 --> 0:16:42.520 with companies and getting to really know who's running them 0:16:42.640 --> 0:16:44.120 as part of your investment process. 0:16:44.920 --> 0:16:47.320 I think it's a very important point. I think part 0:16:47.320 --> 0:16:50.480 of the benefit of being around almost forty two years 0:16:50.520 --> 0:16:53.720 now and having a reputation of being a long term 0:16:53.880 --> 0:16:57.040 patient investor. You know, we have a turtle as a logo, 0:16:57.840 --> 0:17:00.000 and then people can see that we buy stocks while 0:17:00.040 --> 0:17:02.360 they're out of favor and hold them for the long run. 0:17:02.600 --> 0:17:05.280 So you can imagine companies love having us as shareholders, 0:17:05.560 --> 0:17:07.520 people who are going to show up when everybody else 0:17:07.600 --> 0:17:10.240 is selling. And the fact that there's a group of 0:17:10.280 --> 0:17:13.280 us grizzly veterans I call us who've been together, most 0:17:13.280 --> 0:17:15.600 of us for more than twenty of the forty two years, 0:17:16.119 --> 0:17:19.879 been through the financial crisis together, the USA downgrade together, 0:17:20.359 --> 0:17:25.040 COVID together. I think the management likes talking to experienced analysts, 0:17:25.200 --> 0:17:29.360 experience portfolio managers, and so we talk to our companies 0:17:29.359 --> 0:17:33.680 every single quarter. We're all on the line together. We 0:17:33.800 --> 0:17:37.160 build those relationships in time, and then we go visit companies. 0:17:37.200 --> 0:17:40.159 We just were down somewhere not far from here. We 0:17:40.200 --> 0:17:43.720 went to visit in Vista, which is a large dental company. 0:17:43.920 --> 0:17:47.520 It's really cheap. They do dental products and helping people 0:17:47.640 --> 0:17:52.520 with implants and alignment and many many other products. They're 0:17:52.560 --> 0:17:56.840 one of three or four major dental products companies in 0:17:56.840 --> 0:18:00.600 the United States. It's a worldwide company also. But you 0:18:00.600 --> 0:18:03.320 know there's a new CEO. He took his time to 0:18:03.359 --> 0:18:06.600 be with us today, and he had his top at 0:18:06.680 --> 0:18:08.760 least a dozen in his top management there to visit 0:18:08.800 --> 0:18:11.240 with us. You know that, I think that happens because 0:18:11.280 --> 0:18:14.000 of the reputation that we've built over time. But we 0:18:14.240 --> 0:18:16.439 like that one on one opportunity to look people in 0:18:16.440 --> 0:18:19.239 the eye and determine whether we believe in them or not. 0:18:19.760 --> 0:18:21.000 You know, a couple of weeks ago, we were in 0:18:21.040 --> 0:18:25.200 Florida to visit ADT, the security company. We just think 0:18:25.240 --> 0:18:27.119 we're going to constantly be in front of these people 0:18:27.160 --> 0:18:29.840 face to face, and of course invite them to Chicago 0:18:29.960 --> 0:18:32.280 or to our New York office and visit with him 0:18:32.680 --> 0:18:35.520 also in those face to face opportunities. 0:18:36.080 --> 0:18:40.320 So you mentioned the long investing time frame that your 0:18:40.400 --> 0:18:43.320 company has or the patient capital idea, And I guess 0:18:43.320 --> 0:18:46.120 one question I always have when it comes to value 0:18:46.320 --> 0:18:50.160 investing is what is the time frame in which an 0:18:50.200 --> 0:18:53.960 investment counts as successful? Because if I was being facetious, 0:18:54.000 --> 0:18:56.720 I could say, well, on a long enough timeline, everyone 0:18:56.800 --> 0:19:01.720 is a successful value investor, But like, when do you decide, okay, 0:19:02.080 --> 0:19:04.000 this has been really successful for us? 0:19:04.400 --> 0:19:06.159 Well for us, if we're buying a stock at a 0:19:06.359 --> 0:19:10.800 forty percent discount private market value and load multiples to 0:19:10.880 --> 0:19:15.399 ebadah and earnings and cash flow. It's when the stock 0:19:15.480 --> 0:19:18.400 no longer sells a discount to private market value, when 0:19:18.400 --> 0:19:22.320 we think the market is recognizing all the underlying fundamentals 0:19:22.359 --> 0:19:25.920 of the business. People understand the story. There's a lot 0:19:25.960 --> 0:19:29.040 of bullish analysts on the company, everyone sort of piling 0:19:29.080 --> 0:19:32.000 into the stock. You start to realize then that maybe 0:19:32.040 --> 0:19:34.280 you don't have an insight that the market doesn't have, 0:19:34.680 --> 0:19:38.119 and it's no longer that undiscovered orphan. It's a company 0:19:38.200 --> 0:19:40.320 that's got lots and lots of friends talking it up 0:19:40.320 --> 0:19:43.000 and enjoying it. That's the time we'll start to lighten 0:19:43.080 --> 0:19:46.679 up under security wins on the good news, and of 0:19:46.680 --> 0:19:48.479 course we have to always work like all of us 0:19:48.520 --> 0:19:51.120 do and getting away from the bad hands. When you've 0:19:51.160 --> 0:19:54.119 made a mistake learning how to sell a company that 0:19:54.200 --> 0:19:56.160 maybe doesn't have the future that you thought it had. 0:19:56.480 --> 0:19:57.840 It's not going to be able to grow the way 0:19:57.840 --> 0:19:59.840 you thought it had. It's hard to get away from 0:19:59.840 --> 0:20:02.840 the stocks, so inevitably they get to be very, very cheap. 0:20:03.040 --> 0:20:06.359 But that's something we're constantly working on with our learning 0:20:06.359 --> 0:20:10.399 about our own behavioral biases, studying behavioral finance, trying to 0:20:10.440 --> 0:20:12.720 make sure that again you don't fall in love on 0:20:12.760 --> 0:20:15.520 the upside and you have the courage to sell and 0:20:15.560 --> 0:20:17.200 get away from the company when it's not going to 0:20:17.280 --> 0:20:19.399 achieve the goals that you originally thought. 0:20:19.880 --> 0:20:21.320 You know, it's something that occurred to me. 0:20:21.560 --> 0:20:24.200 You know, you mentioned a dental company and a security company, 0:20:24.240 --> 0:20:26.640 and I think I was looking at your portfolio earlier 0:20:26.640 --> 0:20:30.399 and there was a manufacturer of equipment for food companies 0:20:30.600 --> 0:20:33.000 in there. If I recall, do companies that are in 0:20:33.080 --> 0:20:36.080 industries that aren't hot have a moat by virtue of 0:20:36.080 --> 0:20:37.680