WEBVTT - Tweedy, Browne’s Spears and Hill on Insider Value 0:00:15.160 --> 0:00:18.159 Welcome to Inside Active, a podcast about active managers that 0:00:18.200 --> 0:00:20.959 goes beyond sound bites and headlines and looks deeper into 0:00:21.000 --> 0:00:25.400 their processes, challenges and philosophies and security selection. I'm David 0:00:25.440 --> 0:00:28.680 cone I, lead mutual fund and active research at Bloomberg Intelligence. 0:00:29.120 --> 0:00:32.040 Over the last decade, value investing has gone through long 0:00:32.080 --> 0:00:35.280 stretches of underperformance, while markets have been dominated by a 0:00:35.360 --> 0:00:38.600 narrow group of large cap growth stocks. At the same time, 0:00:38.800 --> 0:00:43.080 one signal that's constantly drawn attention, especially during periods of volatility, 0:00:43.479 --> 0:00:47.040 is insider buying. Today, we're going to explore what happens 0:00:47.040 --> 0:00:50.199 when you combine those two ideas, value investing and insider 0:00:50.280 --> 0:00:54.520 behavior into a systematic investment approach. Joining me as my 0:00:54.560 --> 0:00:57.120 guest today are John Spears and Jay Hill, who are 0:00:57.120 --> 0:01:01.640 both managing directors at tweety Brown Company and portfolio managers 0:01:01.960 --> 0:01:05.759 for the Insider Value ETF ticker COPY and the International 0:01:05.800 --> 0:01:10.240 Insider Plus Value ETF ticker ICPY. John, Jay, thank you 0:01:10.280 --> 0:01:11.119 for joining me today. 0:01:11.640 --> 0:01:13.480 Thank you for having the opportunity to be with you. 0:01:13.560 --> 0:01:15.440 David, Thank you very much for having us. 0:01:15.480 --> 0:01:16.679 David, appreciate your interest. 0:01:17.400 --> 0:01:20.160 So to start tweety Brown, you know as a long 0:01:20.240 --> 0:01:23.800 lineage rooted in Benjamin Graham. How is your definition of 0:01:23.880 --> 0:01:26.520 value evolved in today's market environment? 0:01:26.800 --> 0:01:31.400 Well, Benjamin Graham defines in security analysis and in The 0:01:31.440 --> 0:01:36.920 Intelligent Investor he defines basically defines the intrinsic value is 0:01:36.920 --> 0:01:39.119 the value of the business. If all three of us 0:01:39.160 --> 0:01:44.200 owned a company and we hired Goldman Sachs to sell it, 0:01:44.200 --> 0:01:48.800 it'd be that estimated intrinsic value what we'd receive for 0:01:48.920 --> 0:01:52.200 if we sold the business. And there's another way of 0:01:52.280 --> 0:01:57.240 looking at value or undervaluation, and that is yield. J 0:01:57.480 --> 0:02:00.760 Hill at our firm, I think coined the phrase owner 0:02:00.800 --> 0:02:04.440 earnings yield. So it'd be if you own the whole company, 0:02:04.880 --> 0:02:07.080 what kind of return do you get on your investment? 0:02:07.120 --> 0:02:09.680 How much cash could you take out of the business 0:02:09.720 --> 0:02:14.720 every year? So, and you can compare yields on all 0:02:14.720 --> 0:02:18.160 different kinds of things. That higher dividend yield is often 0:02:18.800 --> 0:02:23.680 considered to be a sign of undervaluation. Earnings yield of 0:02:23.720 --> 0:02:27.880 course you can compare of course to treasury bills. But 0:02:27.960 --> 0:02:30.560 that's those are the two I think the two big 0:02:30.639 --> 0:02:33.000 ideas when they add anything to that jay. 0:02:33.040 --> 0:02:35.640 Yeah, just owner earnings yield. It's a term You're probably 0:02:35.639 --> 0:02:37.440 not going to find it in textbooks, but it's one 0:02:37.440 --> 0:02:42.320 that we use. And the numerator is what I guess 0:02:42.400 --> 0:02:47.600 the financial literature would call NOPAD. So after tax ebit Okay, 0:02:47.680 --> 0:02:50.440 so ebit times one minus the tax rate, and the 0:02:50.520 --> 0:02:54.800 denominator is the enterprise value right the market cap plus 0:02:54.840 --> 0:02:57.200 the net debt is the simple definition. And the basic 0:02:57.240 --> 0:02:59.920 idea is if you bought the whole company and paid 0:03:00.080 --> 0:03:03.440 off all of the debt and then therefore you have 0:03:03.600 --> 0:03:07.000 ebit and no interest expense on an after tax basis, 0:03:07.080 --> 0:03:09.359 if you owned the whole company, how much money could 0:03:09.400 --> 0:03:13.160 you put in your pocket? And generally we're looking for 0:03:13.240 --> 0:03:16.160 owner earnings yields of eight percent or higher. 0:03:17.680 --> 0:03:20.240 Okay, Now, if we go step further, you know what 0:03:20.400 --> 0:03:23.239 led you to combine inside of buying with value investing? 0:03:23.320 --> 0:03:25.160 And you know why do you think that combination is 0:03:25.200 --> 0:03:25.919 so powerful? 0:03:26.639 --> 0:03:29.960 Well, the key thing I think is is self interest. 0:03:30.280 --> 0:03:32.600 And we. 0:03:34.080 --> 0:03:39.160 Have done a lot of empirical research and it examined 0:03:39.160 --> 0:03:42.840 a lot of empirical research, mostly from academia, and a 0:03:42.880 --> 0:03:49.680 big influence on our process in our empirical research was 0:03:49.720 --> 0:03:53.960 a book written by Nahat Seihan, who's a professor of finance. 0:03:54.360 --> 0:03:57.880 He's chair of the Finance Department at the University of Michigan, 0:03:58.440 --> 0:04:01.600 and he wrote a book called Investment, An Intelligence from 0:04:01.640 --> 0:04:08.000 Insider Trading, And in that book there is a long, 0:04:08.360 --> 0:04:15.040 a long, turned back historical study that he describes. Initially, 0:04:15.360 --> 0:04:20.240 the study began in nineteen seventy eight and ended nineteen 0:04:20.920 --> 0:04:26.560 ninety three. And the fascinating thing is that he had 0:04:27.160 --> 0:04:30.640 a schedule in it where he took all the insider 0:04:30.680 --> 0:04:35.800 transactions and he looked at the stock price in relation 0:04:35.880 --> 0:04:39.320 to book value and earnings, and you rank the stocks 0:04:39.920 --> 0:04:44.160 from cheapest to most expensive. And he found that the 0:04:44.200 --> 0:04:48.560 insiders who were opening up their own wallets and buying 0:04:48.600 --> 0:04:52.200 the stock when the stock was at the cheapest twenty 0:04:52.279 --> 0:04:54.760 percent of stocks ranked on price to book value, the 0:04:54.839 --> 0:05:00.360 cheapest twenty percent of stocks ranked on price earnings again 0:05:00.400 --> 0:05:04.039 from cheapest to dearest, that the excess return using an 0:05:04.080 --> 0:05:06.920 equal weighted index was a little bit more. It was 0:05:06.960 --> 0:05:10.719 around ten to eleven percent in both of those long 0:05:10.800 --> 0:05:13.960 run studies. And that just made our eyes pop out. 0:05:15.080 --> 0:05:18.600 That's as you know, it's tough as the dickens to 0:05:18.640 --> 0:05:23.279 beat the market. The odds are against active management. Long 0:05:23.360 --> 0:05:28.200 run index funds tend to beat most active managers who 0:05:28.200 --> 0:05:32.640 are smart and working hard, et cetera. But here was this, 0:05:33.200 --> 0:05:38.599 here was this great study. So we've had separate individual 0:05:38.680 --> 0:05:45.159 experience of getting ideas from watching insider trades. We've used 0:05:45.160 --> 0:05:50.279 this technique on a one off basis for fifty years, 0:05:50.800 --> 0:05:54.240 and so we thought we see if we could study 0:05:54.279 --> 0:06:00.800 this ourselves and think about looking at other investment carearacteristics 0:06:01.000 --> 0:06:06.960 beyond just price to book value and PE. And our 0:06:07.000 --> 0:06:11.880 studies began in nineteen ninety six and ended in twenty 0:06:12.000 --> 0:06:16.599 twenty two, and we found similar results the results that 0:06:16.680 --> 0:06:22.000 are described in that booklet called Insider Investment Factor. But 0:06:22.080 --> 0:06:24.599 I think we sent to you. I think Conrad sent 0:06:24.640 --> 0:06:30.400 that to you has some tables, not only professor seance table, 0:06:30.680 --> 0:06:36.560 but our own research. The results were just as good 0:06:36.600 --> 0:06:42.520 as what he found, So that that just motivated us 0:06:42.560 --> 0:06:47.880 to got the idea that if we could package this 0:06:48.120 --> 0:06:50.479 and if it worked as well as the empirical data, 0:06:50.600 --> 0:06:54.279 if we put it in a portfolio and had the 0:06:54.600 --> 0:06:58.039 tax advantages of an ETF, it'd be an attractive thing 0:06:58.520 --> 0:07:02.359 both for our own money and for our outside clients money. 0:07:02.440 --> 0:07:05.520 I don't know if you know this but we were 0:07:05.600 --> 0:07:09.039 fortunate to have about fifty million of our principles and 0:07:09.120 --> 0:07:14.920 employee wealth invested in in copy and in a little 0:07:14.920 --> 0:07:18.040 bit less or less so an I coopy combining, and 0:07:18.080 --> 0:07:19.680 it's at least fifty million. 0:07:20.080 --> 0:07:23.440 So that's David. What I would add to that is 0:07:23.480 --> 0:07:29.880 we found that when you combine quantitative cheapness with material 0:07:30.040 --> 0:07:35.440 free will insider buying, that that combination be both just 0:07:35.600 --> 0:07:39.360 cheap stocks on a standalone basis or just looking at 0:07:39.680 --> 0:07:45.480 insider buying in isolation, it's the combination that created the outperformance. 0:07:45.520 --> 0:07:48.680 And that's really what excites us. We think that the 0:07:49.440 --> 0:07:51.960 if you own enough of these that the law of 0:07:52.080 --> 0:07:56.640 large numbers the group averages tend to outperform. There will 0:07:56.680 --> 0:08:01.080 be several individual instances of individual companies where it doesn't work, 0:08:01.560 --> 0:08:05.400 but a large group of these held in a portfolio 0:08:06.120 --> 0:08:11.880 we think provides the opportunity for significant outperformance. 0:08:12.400 --> 0:08:15.240 If we single out just the inside apart. Though, what 0:08:15.280 --> 0:08:17.840 do you think is you know, you mentioned, you know, 0:08:18.120 --> 0:08:20.680 you've seen all this research that shows it works, But 0:08:20.680 --> 0:08:22.560 what do you think it's you know, where's the edge 0:08:22.600 --> 0:08:25.560 coming from? Is it just people want to follow what 0:08:25.600 --> 0:08:26.640 the insiders are doing? 0:08:27.560 --> 0:08:30.360 Yeah, I mean, I think it's undeniable. No one can 0:08:30.400 --> 0:08:33.640 dispute this that insiders know the business better than anyone else. 0:08:33.760 --> 0:08:36.000 They know it better than their investment bankers. They know 0:08:36.440 --> 0:08:39.160 it better than sell side research analysts, they know it 0:08:39.200 --> 0:08:43.959 better than buyside analysts. And insiders have the unique ability 0:08:44.120 --> 0:08:48.680 to influence outcomes. They can create their own catalysts, right, so, 0:08:48.800 --> 0:08:53.360 insiders have the ability to implement a new cost cutting program, 0:08:53.880 --> 0:08:58.840 or introduce new products, or have insight into when industry 0:09:00.400 --> 0:09:04.400 fundamentals maybe bodding them out and might be set to improve. 0:09:05.120 --> 0:09:08.400 They also have the ability to, you know, spin off 0:09:08.440 --> 0:09:12.240 of a business that they think is undervalued. And they 0:09:12.320 --> 0:09:15.480 also have the ability in some cases to put the 0:09:15.480 --> 0:09:18.559 whole company up for sale and sell one hundred percent 0:09:18.559 --> 0:09:21.280 of the business to a to a knowledgeable buyer. 0:09:22.160 --> 0:09:26.520 They can also initiate a dividend increase, and they can 0:09:26.559 --> 0:09:31.120 initiate a share buyback program. In many instances, we see 0:09:31.360 --> 0:09:38.200 share buybacks and insider purchases, and we've done studies that 0:09:38.200 --> 0:09:43.360 we've done empirical studies on share buybacks, which seem to 0:09:43.440 --> 0:09:48.200 us to be an extension of the idea of insiders 0:09:48.240 --> 0:09:55.320 having insight information and taking advantage if the evaluation is 0:09:55.400 --> 0:10:01.480 low enough to enhance the value per for the remaining 0:10:01.520 --> 0:10:05.520 shareholders after the purchases are made and the share account 0:10:05.600 --> 0:10:06.200 is reduced. 0:10:07.040 --> 0:10:09.720 Yeah, I was gonna ask about buybacks in a little bit, 0:10:09.800 --> 0:10:12.080 but I still want to kind of say on the 0:10:12.080 --> 0:10:15.120 theme of the insider activity and how do you kind 0:10:15.120 --> 0:10:19.199 of separate, you know, meaningful insider activity from any potential 0:10:19.240 --> 0:10:23.000 noise because there are a lot of insider transactions. 0:10:22.840 --> 0:10:25.720 There are, indeed, it's a blizzard of information. Well, one 0:10:25.760 --> 0:10:28.880 of the first things is the size of the transaction. 0:10:29.000 --> 0:10:32.520 We just thought that a transaction size of at least 0:10:32.520 --> 0:10:37.559 one hundred thousand dollars would show some conviction. And again 0:10:37.640 --> 0:10:42.520 going back to delving into whether or not the insiders 0:10:43.200 --> 0:10:46.880 are required to buy their own shares, having you know, 0:10:47.000 --> 0:10:49.640 have a certain amount in relation to their salary. That's 0:10:49.960 --> 0:10:52.640 that's common at companies. But we look into that, we'll 0:10:52.640 --> 0:10:55.960 go into the public documents and see if the if 0:10:56.000 --> 0:11:02.120 the purchase is voluntary free will they don't have to 0:11:02.160 --> 0:11:06.160 do it, so they're taking advantage of the price they see, 0:11:06.200 --> 0:11:09.520 they like the investment. There's only one reason why insiders 0:11:09.559 --> 0:11:12.559 by by their own stock. It's it's just to make 0:11:12.600 --> 0:11:18.040 money they think it'll go up. So that's that that 0:11:18.160 --> 0:11:23.959 reduces the the quantity of of of things that are 0:11:24.040 --> 0:11:25.120 of interest to us. 0:11:25.760 --> 0:11:28.160 Another way to say that, David, is if we find 0:11:28.160 --> 0:11:32.079 that the insider by is not free will, meaning it 0:11:32.160 --> 0:11:36.560 was required to meet a minimum ownership guideline, that doesn't 0:11:36.600 --> 0:11:37.520 count the field. 0:11:37.640 --> 0:11:44.600 Is the field is reduced by requiring voluntary or not 0:11:44.840 --> 0:11:48.000 requiring that they be free will purchases and that we 0:11:48.120 --> 0:11:49.480 have cheap valuation. 0:11:50.000 --> 0:11:53.040 So there's part of kind of a behavioral process in this, 0:11:53.280 --> 0:11:56.920 or I should say behavioral factors. Do you see, you know, 0:11:57.000 --> 0:12:01.960 insiders effectively acting as contrariancs during periods of market stress. 0:12:02.000 --> 0:12:03.880 Does that kind of show up in your process? 0:12:04.360 --> 0:12:12.280 Absolutely? Absolutely. Insiders often buy after a bad earnings call. 0:12:12.440 --> 0:12:17.480 You'll see sometimes these You'll look at HP and Bloomberg 0:12:17.520 --> 0:12:20.400 and you'll see that, you know, the stock was trading 0:12:20.400 --> 0:12:22.839 at ten the day before the earnings announcements, now it's 0:12:22.840 --> 0:12:28.440 at eight, and there is often a behavioral contrarian reaction 0:12:29.080 --> 0:12:31.400 to that sort of thing. There. Many of the many 0:12:31.400 --> 0:12:34.160 of the purchases are after the end of a quarter. 0:12:34.559 --> 0:12:38.439 In addition, just general market moves when the market as 0:12:38.480 --> 0:12:44.040 a whole is going down. Our experiences that insider transactions 0:12:44.080 --> 0:12:44.520 go up. 0:12:45.480 --> 0:12:47.960 David, We have a great recent example of this. There's 0:12:47.960 --> 0:12:53.440 a company called ak LKQ that distributes after market and 0:12:53.520 --> 0:12:57.240 collision auto parts. And this is a company that in 0:12:57.280 --> 0:13:01.840 twenty twenty five had a bad quarter, stock collapsed. Three 0:13:01.880 --> 0:13:05.600 insider stepped up purchased about eight hundred thousand dollars worth 0:13:05.600 --> 0:13:08.520 of stock at an average price of thirty two. This 0:13:08.679 --> 0:13:11.440 was in August of twenty twenty five, and then in 0:13:11.559 --> 0:13:14.760 January of twenty twenty six, company put out a press 0:13:14.800 --> 0:13:18.360 release saying that the board is conducting a strategic review 0:13:19.040 --> 0:13:25.800 of the company and looking to potentially sell the whole business. 0:13:27.080 --> 0:13:30.160 Now, this is a you know, mainly quantitative process. Can 0:13:30.200 --> 0:13:32.960 you walk us through what you screen for? You know, 0:13:33.000 --> 0:13:35.079 what has to be true for a stock to get 0:13:35.120 --> 0:13:35.679 on your radar? 0:13:36.440 --> 0:13:41.479 Well, sure, Well, first it has to be a transaction 0:13:41.600 --> 0:13:44.760 of at least one hundred thousand dollars, and second, it 0:13:44.800 --> 0:13:48.199 has to be a free will you know, voluntary purchase. 0:13:48.240 --> 0:13:52.160 They have to be opportunistically buying the stock. And then 0:13:52.280 --> 0:13:57.080 third we have a proprietary score, we call it the 0:13:57.160 --> 0:14:00.000 value score, and it has to be above a certain level. 0:14:00.480 --> 0:14:03.680 So that that narrows the field and when it is 0:14:04.400 --> 0:14:08.240 when the value score is above a certain level, those 0:14:08.280 --> 0:14:10.839 are the ones we focus on and we will do 0:14:10.960 --> 0:14:15.840 an in person tweety Brown analysts review. Tweety Brown analysts 0:14:15.880 --> 0:14:19.480 are generalists, a great deal of experience. I don't know 0:14:19.480 --> 0:14:23.080 anyone who knows more about the uniform rental businesses than 0:14:23.520 --> 0:14:29.000 Jay Hill and has had insights about how you buy. 0:14:29.320 --> 0:14:32.640 You buy a uniform rental company and and you can 0:14:32.640 --> 0:14:34.800 get rid of all the sgn A because you just 0:14:34.920 --> 0:14:39.520 moved that capacity into an existing plant. Anyway that there 0:14:39.560 --> 0:14:43.200 will be an experienced analyst take a quick look. Typically 0:14:43.240 --> 0:14:45.880 it doesn't take more than a day or two at 0:14:45.920 --> 0:14:50.240 at the particular business and with a lot of diverse 0:14:50.320 --> 0:14:54.240 knowledge of you know, we've studied banks, We've studied oil 0:14:54.280 --> 0:14:58.680 and gas pipelines, oil and gas companies. UH. One one 0:14:58.800 --> 0:15:03.200 of our analysts is experienced and looking at pharmaceutical companies 0:15:03.200 --> 0:15:06.160 and getting ideas that get sort of assessing where they 0:15:06.200 --> 0:15:10.240 are and in UH trials with with the Food and 0:15:10.360 --> 0:15:15.040 Fruit and Drug Drug Administration, so things like that will 0:15:15.080 --> 0:15:18.240 look will look for instances in the in the in 0:15:18.320 --> 0:15:23.080 the pharmaceutical business where they're spending UH as a percentage 0:15:23.080 --> 0:15:25.080 of sales, a lot of money on R and D, 0:15:25.240 --> 0:15:27.040 and we could think of some of that as being 0:15:27.960 --> 0:15:33.040 investment types spending that reduces reported profits but does not 0:15:33.120 --> 0:15:36.400 necessarily reduce the value of the company if it we're sold. 0:15:37.960 --> 0:15:39.600 The only other thing I would add to that, David, 0:15:39.640 --> 0:15:44.160 is we're looking at least that inception when we're thinking 0:15:44.160 --> 0:15:46.480 about putting a new portfolio into one of these two 0:15:46.520 --> 0:15:49.400 ETFs that we want to pay roughly the same price 0:15:49.440 --> 0:15:50.600 that the insiders paid. 0:15:52.000 --> 0:15:54.560 Interesting, yeah, yeah, that's very important. Yeah. 0:15:54.880 --> 0:15:57.320 Yeah, So there is a you know, once the stock 0:15:57.400 --> 0:16:00.520 passes that quantitative screen that there is sounds like there 0:16:00.560 --> 0:16:04.160 is a fundamental qualitative aspect of this where you know, 0:16:04.400 --> 0:16:07.720 it's not just a pure quant portfolio. There needs to 0:16:07.760 --> 0:16:10.880 be an analyst actually kind of digging into the stock 0:16:10.960 --> 0:16:12.680 once it gets past that screen. 0:16:12.520 --> 0:16:16.080 Right right, Bob Wykov calls it quantamental. 0:16:17.800 --> 0:16:18.960 That's good. I like that. 0:16:19.000 --> 0:16:22.080 So yeah, and the machine when we get we get 0:16:22.080 --> 0:16:27.680 this feed of insider purchases from countries around the world 0:16:27.320 --> 0:16:31.440 and obviously including the United States, but UK companies in 0:16:31.480 --> 0:16:35.280 Europe who shares trade in the Euro, other companies in 0:16:35.360 --> 0:16:42.720 Europe that have their own own currency, Switzerland, Canada, South Korea, 0:16:43.680 --> 0:16:51.520 We've done some in Philippines, Taiwan, Singapore, Australia, We'll wait 0:16:51.600 --> 0:16:54.520 to look at a Mexican company, South Africa, so a 0:16:54.520 --> 0:16:57.480 lot of a lot of different places. And then once 0:16:57.520 --> 0:17:02.720 we get that information about the insider purchase, we put 0:17:02.720 --> 0:17:05.399 it in, We put it in the meat grinder in 0:17:05.480 --> 0:17:10.000 the and and the meat grinder does a lot of calculations, 0:17:10.160 --> 0:17:13.679 that's more than thirty different calculations and comes up with 0:17:13.800 --> 0:17:17.560 its value score. And that's that's where we focus. The 0:17:17.640 --> 0:17:20.280 human human part human research. 0:17:20.400 --> 0:17:23.400 Port of the judgment involved here is that the analyst 0:17:23.520 --> 0:17:26.719 goes back and make sure is that our proprietary scoring 0:17:26.760 --> 0:17:29.399 system is working with good data to making sure that 0:17:29.440 --> 0:17:32.960 the data is solid, that it's not garbage in, garbage out, 0:17:33.000 --> 0:17:35.720 so verify the data, verify that the stock. 0:17:35.560 --> 0:17:36.520 Is truly cheap. 0:17:37.680 --> 0:17:39.000 And then when we have that. 0:17:39.000 --> 0:17:42.440 Material free will purchase in excess of one hundred thousand 0:17:42.880 --> 0:17:46.760 with a minimum value score, then that's a candidate to 0:17:46.800 --> 0:17:48.800 go into copy or eye copy. 0:17:49.720 --> 0:17:55.840 And really the rebuttable presumption is that unless we see something, 0:17:55.880 --> 0:18:01.600 you know that the data is wrong or in some 0:18:01.680 --> 0:18:06.080 instances we'll do will delve further into the if the 0:18:06.119 --> 0:18:11.680 company has above average leverage, will delve into the the 0:18:11.720 --> 0:18:16.560 covenants and UH and depending on the particular business, the 0:18:16.560 --> 0:18:21.960 particular industry, will will look at different kinds of disclosures 0:18:21.960 --> 0:18:26.040 in public documents that pertain to an analysis of a 0:18:27.040 --> 0:18:29.720 bank or an oil and gas company or whatever. 0:18:30.400 --> 0:18:32.720 The other thing, David were human judgment I think played 0:18:32.760 --> 0:18:35.080 some role is sometimes there's a company that meets all 0:18:35.119 --> 0:18:39.760 the criteria, but there's a conflicting signal. A common conflicting 0:18:39.800 --> 0:18:42.520 signal would be, hey, there's insider buying, but there's also 0:18:42.560 --> 0:18:44.320 been material insiders selling. 0:18:45.280 --> 0:18:48.639 Yeah, mixed, a mixed signal. It doesn't hit you in 0:18:48.640 --> 0:18:54.240 the face. Now, some with some companies in the United States, 0:18:56.600 --> 0:19:01.800 you will some of the data serves as we'll report sales, 0:19:01.840 --> 0:19:07.280 but we have a we we can investigate sales pertaining 0:19:07.280 --> 0:19:11.760 the option exercise. So sometimes we'll we'll overlook the sale 0:19:11.840 --> 0:19:16.879 if the if the insider is exercising the stock option 0:19:18.080 --> 0:19:22.320 way earlier, way way before, way before it the end 0:19:22.359 --> 0:19:27.600 of the option period, and and this is increasing ownership, 0:19:27.680 --> 0:19:30.240 so they're really in a way buying it by exercising 0:19:30.280 --> 0:19:35.000 the stock might have to sell some shares to beat Yeah, 0:19:35.160 --> 0:19:37.680 So we'll we'll delve into things like that. 0:19:38.880 --> 0:19:41.679 And you and earlier touched upon share buybacks, and so 0:19:42.760 --> 0:19:45.600 I'm just curious of how you distinguish between, you know, 0:19:45.800 --> 0:19:49.679 value creating buybacks or just pure financial engineering. 0:19:50.359 --> 0:19:54.040 Yeah, that's that's it's the value score has to be cheap, 0:19:54.480 --> 0:20:00.240 has to be cheap. I think most share buybacks are 0:20:02.200 --> 0:20:05.159 in companies that really are not super cheap. They're not 0:20:06.640 --> 0:20:10.520 high score, high value score type companies. And of course many, 0:20:10.960 --> 0:20:14.000 many big companies will buy back their own own stock 0:20:14.640 --> 0:20:20.360 to offset dilution from exercise of options. Anything to add 0:20:20.400 --> 0:20:21.240 to that, Jay. 0:20:21.800 --> 0:20:24.960 Yeah, just in other words, by definition, what we believe 0:20:25.080 --> 0:20:28.320 share repurchase makes the most sense when you're buying backstock 0:20:28.520 --> 0:20:32.800 when when the company is inexpenser and by definition a 0:20:32.840 --> 0:20:35.600 company that has a high value score looking at those 0:20:35.640 --> 0:20:39.800 thirty metrics, it's cheap. It's likely in the bottom two 0:20:39.840 --> 0:20:43.480 death sisles ranked against all companies in terms of cheapness. 0:20:44.359 --> 0:20:47.919 So the odds are that are a significant share repurchase 0:20:48.520 --> 0:20:51.760 with a company that has a high value score, that's value, 0:20:51.800 --> 0:20:54.600 a creative share repurchase, that's the type of share repurchase 0:20:54.960 --> 0:20:58.960 we think makes a lot of sense and adds value 0:20:59.040 --> 0:21:01.720 per share to the non selling shareholders. 0:21:02.200 --> 0:21:04.359 Yeah, I mean if you've got if you've got a 0:21:05.640 --> 0:21:09.840 company that let's let's make the mass simple. It earns 0:21:09.840 --> 0:21:13.480 one hundred dollars and it's got one hundred shares, so 0:21:13.560 --> 0:21:17.600 it's it's earning a dollar a share. Now, leaving aside 0:21:18.640 --> 0:21:22.199 financing costs or loss of interest. If the company buys 0:21:22.240 --> 0:21:25.760 back ten percent of its shares, Let's say, if I've none, 0:21:25.960 --> 0:21:28.240 doesn't have to borrow any money. They just do that. 0:21:30.200 --> 0:21:33.640 You'll have ninety shares divided into one hundred in earnings, 0:21:33.680 --> 0:21:36.240 so your your your earnings per share are going to 0:21:36.240 --> 0:21:39.280 go up about eleven percent just by doing that. So 0:21:40.840 --> 0:21:43.080 it can it can really make a huge difference if 0:21:43.440 --> 0:21:46.560 if the company is cheap. And there's one that we 0:21:46.840 --> 0:21:53.240 recently went in the portfolio company called Verssan Media, VS 0:21:53.680 --> 0:21:58.600 and Tea, and it came across the insider buy a 0:21:58.640 --> 0:22:03.719 wire when director and a nine year director of Comcast, 0:22:03.800 --> 0:22:07.439 his name is David Novak, who had been previously the 0:22:07.480 --> 0:22:10.119 founder of Young Brands. He bought he opened up his 0:22:10.160 --> 0:22:13.320 wall and bought about five point two million dollars worth 0:22:13.359 --> 0:22:17.440 of stock. And I think that their buyback program is 0:22:19.160 --> 0:22:23.080 twenty percent of the outstanding shares. I don't know over 0:22:23.160 --> 0:22:26.520 what period, but that's a very significant amount. And the 0:22:26.520 --> 0:22:28.800 stock is at five and a half times earning, so 0:22:28.960 --> 0:22:33.359 call it a twenty percent earnings yield. So, assuming the 0:22:33.359 --> 0:22:38.360 business doesn't fall apart, it's in broadcasting, the own cnpc ms. 0:22:38.400 --> 0:22:42.959 Now they own rotten Apples and what's the fan Dango 0:22:43.080 --> 0:22:46.520 and they own a bunch of stuff. Yeah, the golf channel, 0:22:46.640 --> 0:22:52.520 right right, yeah, sports channels exactly. So if the business doesn't, 0:22:52.560 --> 0:22:56.919 if the earning power doesn't fall apart, that those buybacks 0:22:57.119 --> 0:22:59.680 at such a low valuation could be very accreative. 0:23:00.000 --> 0:23:03.439 I mean, okay, okay, I do want to ask you about, 0:23:03.520 --> 0:23:05.560 you know, the portfolio, and you know, if we just 0:23:05.600 --> 0:23:09.240 look at copy, you know, it's really diversified, about maybe 0:23:09.240 --> 0:23:12.560 one hundred and seventy holding somewhere around. Then how do 0:23:12.600 --> 0:23:15.120 you balance diversification with conviction? 0:23:17.520 --> 0:23:22.639 I would say we don't have that much conviction in 0:23:22.640 --> 0:23:26.640 individual names. I mean, I'm saying I'm saying that myself. Jay, 0:23:27.520 --> 0:23:30.959 there's certainly stocks that each of us like more than 0:23:31.000 --> 0:23:34.560 others that are in the portfolio. But the whole big 0:23:35.040 --> 0:23:39.800 strategy idea is to try to mimic the studies which 0:23:39.840 --> 0:23:45.160 we're all equal weighted studies, and the averages that are 0:23:45.440 --> 0:23:49.800 reported for those studies are all equal weighted, and at 0:23:49.880 --> 0:23:54.520 least in a Seihun study they used they used an 0:23:54.520 --> 0:23:59.840 equal weighted index to measure out performance. But again it's 0:23:59.880 --> 0:24:02.520 a law of the Irige numbers idea that hopefully if 0:24:02.520 --> 0:24:05.720 we have a big sample of these, we'll get we'll 0:24:05.720 --> 0:24:10.320 get it'd be great if we'd get anything near what 0:24:12.520 --> 0:24:15.240 the studies have shown. In the studies, of course, are 0:24:15.400 --> 0:24:20.640 just they're factor studies. The studies are not portfolios. They're 0:24:20.800 --> 0:24:25.680 just how this stock with this characteristic and you've got 0:24:25.720 --> 0:24:30.040 a lot of how that did on average, So. 0:24:29.080 --> 0:24:32.000 It's the portfolio in terms of you know, position sizing, 0:24:32.040 --> 0:24:33.199 it's equal weighted. 0:24:34.040 --> 0:24:36.919 It's equal weighted. So in copy there's roughly, you know, 0:24:37.119 --> 0:24:38.800 like you said, one hundred and eighty to one hundred 0:24:38.800 --> 0:24:42.080 and ninety nains, each new position comes in at roughly 0:24:42.119 --> 0:24:46.919 fifty basis points. And then in eye copy, which is 0:24:46.960 --> 0:24:51.760 the international component of copy, so non US stocks and 0:24:51.920 --> 0:24:55.320 I copy, that's about one hundred and twenty stocks. So 0:24:55.400 --> 0:24:59.840 each new position is roughly a seventy five basis point position. 0:25:00.640 --> 0:25:04.320 You talked about, you know, diversification. We don't have any 0:25:04.400 --> 0:25:07.119 set in stone rules, but I think in general we 0:25:07.160 --> 0:25:10.440 don't want any more than twenty to twenty five percent 0:25:10.640 --> 0:25:15.520 in any one particular industry. And also we don't outside 0:25:15.520 --> 0:25:18.080 of the United States, So the United States is a 0:25:18.119 --> 0:25:20.760 separate category. It's the largest capital market in the world. 0:25:20.800 --> 0:25:23.280 But in other countries, we want no more than twenty 0:25:23.320 --> 0:25:26.640 percent in any particular country. And again that's not set 0:25:26.720 --> 0:25:31.480 in stone, but those there's parameters that we've set in 0:25:31.520 --> 0:25:34.919 place that we think add to diversification. 0:25:35.680 --> 0:25:40.320 So do you do rebalancing to keep the portfolio equal weighted, 0:25:40.520 --> 0:25:43.399 you know, over a certain time periods. 0:25:44.200 --> 0:25:47.760 Well, no, I would, I would say we're doing we're 0:25:47.800 --> 0:25:55.880 doing valuation improvement. Well, well we'll a stock that has 0:25:56.680 --> 0:26:00.520 a higher value score can get a higher values score 0:26:03.760 --> 0:26:06.399 excuse me exactly, as a lower value score gets a 0:26:06.440 --> 0:26:09.359 lower value score as a result of increase in the 0:26:09.560 --> 0:26:11.840 in the price of the stock goes up, so the 0:26:12.840 --> 0:26:19.560 valuation is not as cheap or the earnings the fundamentals 0:26:19.680 --> 0:26:23.920 fall apart. So those and we're always trying to get 0:26:24.040 --> 0:26:28.439 new cheaper stuff into the portfolio, stuff with higher value 0:26:28.480 --> 0:26:34.280 scores in and we will sometimes replace it. Well, but 0:26:34.800 --> 0:26:38.440 if something as a high value score goes in and 0:26:38.640 --> 0:26:44.280 a lower value score goes out, so we're opportunistically refreshing 0:26:44.320 --> 0:26:45.880