New Constructs' Friday Webinar: Intelligent Capital Allocation 12 May 2023

I know folks are still coming in, but I do like to start on time because it's respectful of everybody else's time. Happy Friday. Thanks for joining us here at Intelligent Capital Allocation, hosted by myself, David Trainer, and Kyle Deske II. We're so happy that you were able to spend a little bit of extra time with us today on your Friday. Thank you. For joining us, Berkshire Hathaway's annual meeting was last weekend. I know we had some folks attend. I know some of our customers attended, and there's an interesting discussion about it on society that we'll get to later. But this was an interesting quote that stuck out to multiple people about the short-term focus of the world. I'm not a finance person, so it's hard for me to comment on this financially, but I can tell you. As a worker, it is incredibly painful to be inside of a company that is short-term focused. It's hard when you could add value in the long term, but the company doesn't care because what they care about is their key results. And so this resonated with me. Being able to take the time to be long-term focused adds value in many different ways, also financially. Disclosures and disclaimers, everybody's favorite slide. Please do familiarize yourself with them. I'm going to go through a few announcements, and then David's going to jump into an interesting discussion about what's going on with Disney. Kyle's going to review our latest research. David's going to talk about the parsing stats as we get closer to the end of the first quarter's filing season. I know our analysts are very happy about that. And then we'll go over some of the most interesting topics from Society this week. I'm really looking forward to that conversation, and we'll round it out with some stock picks with Kyle and David, most likely as well. Hopefully we'll all be jumping in there. I did want to mention a few things. You can always get the replays from these Friday webinars on Society. Please ask questions throughout. We often don't have time at the end, and we really want to get to your questions as we're discussing the topic. Even if it's not topical, dive in, ask your question. We want to get to it. Your questions are really important to us. Privacy. There is a note about privacy out on Society. Since we are discussing your comments on Society while we're here. I wanted to make sure that that is something that you are aware of and something that you are comfortable with. So please check that out. Please contact me. You can DM me, you can email me, and we can talk through and make sure that you're comfortable with our usage of your comments. We do want to hit 45 minutes this week. An hour is a long time. I know you guys all have a lot of things to do. I know this is the lunch hour for a lot of you folks, so we're gonna work on hitting 45 minutes today. If you have opinions about that or anything else, don't hesitate to hit us up in the survey. We really do want your feedback. This is for you. And so any way that we can make it better or more relevant or more interesting or funnier, if you want more puns, Let us know. And I'm going to go ahead and hand it over to David to talk about Disney. And I actually wanted to kick this off with a question because I listened to David's interview on Bloomberg yesterday where he was talking about Disney. And one of his co-interviewees used an aphorism that I hadn't heard before. He said, buy products, not stock. And so David, my question to you is, how is that similar or different than I hear you say, which is good company, bad stock?

Yeah, I think it's totally different. Way back in the day, a famous investor, Peter Lynch, made that kind of comment famous, and he was one of the all-time best portfolio managers at Fidelity, which used to be the heavyweight champion of the world in asset management. And I think it's a bit misguided. In the same way a good company is not always a good stock, a good product may not make a good company, and it certainly doesn't necessarily make a good stock. So I disagreed with the fellow interviewee, I think his name was Mark, on that part of the analysis, but I agreed and we agreed that streaming is around to stay. And I think the part of my thesis on Disney that was unique Is that we don't think streaming was ever designed to make money. Well, may have been designed in some people's venture capital back rooms with the hope of making money, but we don't think that that's a realistic expectation. We think that streaming is a loss leader or will probably end up as a loss leader for businesses that are more profitable. And Disney, that's exactly what's going on, right? They want to get more people into the funnel to sell them merchandise and tickets and hotel. Stays at their parks and resorts and to get them to buy more merchandise. And that's what I think makes a profitable media enterprise. And as another comparison with Netflix, Disney's actually generating free cash flow over $1 billion a year over the last 5 years, excluding the Fox acquisition, and a lot more before COVID It was like $4 or $5 billion a year. Netflix is burning $3 to $5 billion a year. It's never been a profitable business, despite what the analysts on Wall Street tell you. It's never been a free cash flow positive business. They've been able to make their margins and earnings look good because they capitalize their content costs. They take out that money they spend on creating content, and they take it off the income statement because they don't want you to see that. Because, by the way, creating content is extremely expensive, especially if you want it to be high quality. Low-quality content, not that expensive. But if you want to be able to grow users, you're going to have to spend a lot on content. And we've shown, Kyle's shown in reports, if they're not spending a lot on content, they're losing customers. That's just the sad truth for that business. And I think unfortunately, being a one-trick pony streaming business, whether you're selling ads or not, is just a bad business to be in. And when bigger content firms like WarnerMedia, Walt Disney, etc., can just add streaming to their already existing businesses, that's always a bad thing. That's a Michael Porter's Competitive Advantage 101. If you're ever competing against businesses who can replicate what you have as almost a free byproduct of what they already have, you're in big trouble. Sure, streaming isn't free, but the content is what's of value. Adding the ability to stream it over the internet is not hard. I mean, there's millions of YouTubers out there. Anyone can stream content. So Netflix, we think, is meaningfully competitively advantaged. That has hurt Disney over the years. We think it's caused the share price to be understated for years because Netflix could compete with Disney. Capital is a weapon. which meant they had enormous amounts of money just to burn and price their product irrationally. As that comes to an end, we think more capital will flow back to Disney. But importantly, I wanted to speak to something that we get a lot of questions about. And again, I'm going to remind everyone to go ahead and ask their questions now because we're going to be a little shorter on time today. And I think it's more fun to talk about these things as we go through them. But we get a lot of questions sometimes on society and in these webinars about, hey, How can you have a company on your focus list long that gets a very unattractive rating? And that's going to get back to the core of what we believe investing is about, what Michael Mauboussin calls expectations investing. And that's that the key criteria that investors need to have in place before you make an investment decision is that you have materially different expectations for future cash flows than what's baked into the stock price. So 2 things really important there in order to engage in that strategy. One, you really need to understand what the real cash flows of the business are today for sure, because whatever you know about the future doesn't matter if you can't compare them to the past. And secondly, you need to have a reverse DCF model to understand what the expectations implied by the current stock price are. So with Disney, what we're seeing is a business that's— it's been a rough few years, man. You had Netflix coming at you and just burning billions as an irrational competitor in your business. And all of the hoopla that went with how Netflix was going to kill Disney. I think we all know that's not going to happen now. I think we'll be lucky to see Netflix survive at all. And then you got COVID, right? So shutting down all the parks, setting back the parks, which is their huge cash cow. Disney generated a ton of cash flow from the parks in the last quarter. And then even worse on top of that, they just got done with a big Fox acquisition, like a $75 billion, $70 billion acquisition of Fox during all that. Like, I mean, talk about hitting a company when it's down. So what did that do? I mean, it killed returns on capital. I mean, it just really dropped pre-COVID, during COVID And the good news that we see is that this is coming back. And we believe that it's going to continue to come back because we think the person, Bob Iger, who got it up to these levels to begin with is back in charge. He cares about creating shareholder value, and we believe that that's going to continue to happen. So with that backdrop, the business is bad. It's been looking bad for a while. Returns on capital are terrible. Economic earnings, not so good either. The only way we can justify this being on the focus list long is if we have a different view of the future or we think the market's view is understated. And so that's where the reverse DCF model comes in. So I've put together a couple of scenarios here. We've got the default scenario, which is going to effectively extrapolate historical performance. So if you go with the default and assume that returns on capital will never actually really improve from where they currently are, you get the best-case scenario being around $40 a share. Not so good, right? And by the way, this number is based on a 100-year model, so it's going to be gradually improving. So this number is sort of overstated when you look at the DCF review page, and we'll do that. In my other more optimistic perspective, right, I'm showing that margins and returns will get back not to where they were, but close to where they were, about 2/3 of the way back. And that shows that the current stock is relatively cheap. You only need 4 years of growth at consensus rates and still have a return on capital versus cost of capital that's negative. So not anywhere near where it was before. But I believe that for around $130, and that's what I mentioned in a lot of news interviews this week, that I think Disney can get back to $130 easily. If expectations become a little more normal. And what we're looking at is around 15 to 20 years of improvements in margins and consensus-level growth.

I was just wondering, as you and Kyle and the rest of the analyst team are thinking about this, how much do you take into account news? I mean, I'm thinking about Disney these days because of their headline news because of their arguments with Florida. And so I'm wondering, how do you take that into account?

It's a great question. Most news is noise. We don't pay attention to a lot of it unless we think it's something that's going to meaningfully affect the underlying operations economics of the business, or if it's affecting expectations. There's a ton of narrative around zombie stocks out there, right? Like positive narrative, like, oh, it's gonna— Sweetgreen's gonna be the next, I don't know, Subway. I don't think they even say that, but that's what's implied by the stock price. They say other crazy things. And they said a lot of crazy things about how Netflix was going to destroy Disney. Most of that's noise. We like to focus on what we have here on this page and understanding the expectations baked into the stock prices and operate from there.

Okay.

A question on ESPN. I'm going to go ahead and jump into some of these scenarios real fast so we can kind of talk through what's different about our view so you can see that specifically. So when we're looking at the default scenario, you can see that we've got consensus numbers in here for revenue growth, and those have changed a little bit. And I didn't update my scenario to be exactly like that, my neutral and optimistic, but they're not that far off, like a percentage point here or there. But you got pretty low expectations for revenue growth, for especially coming off of what was a really good year this year. And if you go back over the past, It's really high single digits is what you're seeing for Disney in terms of revenue growth is a fair expectation. The real issue is margins, what they're going to come back to. The default assumes 8.1%. Really, it's kind of a 3-year weighted average with the most recent year being weighted more than the prior 2 that gets put into our default scenario here. And, you know, that's a low expectation that assumes effectively the business never really rebounds. My optimistic scenario shows a gradual rebound to around 24% pretax profit margin, and that 24% is not as high as it's been, right? It's still well below the 15 and 16 years, but it's, it's higher than it's been in other years. So you got to believe that they're going to get back to that 24% pretax profit margin. And then in terms of return on invested capital, The optimistic scenario is not implying that kind of crazy numbers. I mean, they're up into the mid-teens here, and we're showing that they, they don't get up into the mid-teens until 20 years out. So that's what's driving the differences in the implied values per share and what we see in the DCF review, where we can just break down exactly the implied values over a particular timeframe. And in the optimistic scenario, we get to $130 in about 16 years. And that's where we see 4.5% CAGR in revenue, which— that's right at where consensus is. And your economic earnings margin on average over that time is 4.4%. And your return on invested capital gets back to the 16%, 17% range. And you got a whack of 7.7%. But you got to believe that that's what'll happen over the next 16 years to believe that Disney is worth $130 a share. And we think that that's very achievable. We think if anything, the streaming wars are over for the most part, or people are recognizing how shareholder value destructive they've been, and they're going to get more rational, and that's going to play directly into Disney's hand. And look, Netflix has capitulated on the one thing they said they would never capitulate on, and that was that they're going to sell ads. So they're just like everybody else, except they spend a whole lot more on content and burn a lot more capital. And as that irrational competitor fades from the marketplace, that's just going to help Disney, their position with the parks and merchandising and their ability, I think, to create proprietary unique and valuable content at lower cost than everyone else is unmatched. The library of content they have is amazing. I think I just saw an advertisement recently for a new version of Little Mermaid. I mean, they can just roll out new versions of these old products, like these legacy products. I mean, they just keep doing that. It's amazing. And that's not something Netflix can do. And the cost to replicate that is huge. So let me get to this ESPN question. Talk about ESPN going forward. Used to be Disney's cash cow. Now it seems like some very big players are vying for this business. Yeah, I think Disney's been smart to cut costs here and maybe wind it down. I mean, ESPN has some assets, but that has become an increasingly competitive space. And this is part of what I like about Bob Iger, right? You know, they lost subscribers. and Disney Plus, but they were smart about losing subscribers because they were cutting off international subscribers, which are highly unprofitable. So part of running a good business is to say we're not going to chase unprofitable endeavors. And that's what they're doing. I think ESPN is a similar deal. Fox is spending a ton of money. So is the SEC Network. So is the Big Ten Network. Live sports and live, live content in general, sort of the last frontier of really unique Engaging content, and a lot of people are throwing a lot of money at it. Look at Amazon, what they're paid for Thursday Night Football, right? So there's a lot of money being thrown at this, and a lot of it's irrational. People are chasing it, and I think it's smart for Disney to wind that down a little bit. I do think ESPN made some good money for a while. Those days are over. It's become a crowded space. When ESPN was the lone best player, they were king of the mountain. You make more money. As competition enters, your margins go down by definition. So we think that that's going to wind down. Here's a, here's a question in the chat. On a related note about Netflix, I noticed an article this morning in the Wall Street Journal. Netflix, Netflix plans to cut spending by $300 million in 2023. Streamers looking for fresh savings, partly because of impact of delayed password sharing crackdown. Good for them, but they are feeling the pressure of their announcement of higher cash flow. Yes. Yeah, Roger, I saw this one too. And this was to my point earlier when I mentioned how Kyle has pointed out that when they cut spending on content, they lose customers. Customer growth slows. I think they went negative at one point when they cut a lot of spending on customer growth. So that's been the catch-22. In fact, we even wrote a report on Netflix with Catch-22 in the title. Either you're burning a ton of money and you're growing users, Or you're more rational and you're losing losers. They don't get both. I think Netflix mentioned that they are cutting the spending, which they have to. They're burning so much cash. And again, as they become more rational and they get more pressure, as Roger said, feel the pressure to actually generate cash flow, that just helps Disney. One less irrational competitor is super helpful. I think that's it on Disney, Tam.

Awesome.

Great.

Well, I'm going to go ahead and hand it over to Kyle to talk about the latest research. As we make that transition, Kyle, we do have a couple of questions on coverage in the Q&A. So I was hoping that you could talk a little bit about when folks request something to be covered in the website, what happens next. You can always email me, guys, for that too. That's totally reasonable. And also, how do you figure out, how do we decide whether stocks are eligible for coverage? Must they file something with the SEC?

Yeah. So when you enter, see that request to add to coverage note, when you type in something, the tickers, we do get a note on our internal side, but it doesn't hurt to reach out to Tam and say, hey, this is something I'm truly interested in because it goes into a list of any coverage requests we get if you just type it into the ratings box. And then on the foreign stocks, or any stock in general, they have to file with the SEC. We have to have at least 2 years of filings to build a model to begin with. So on that foreign side, it would need a 20-F or a 40-F with some data and history there as well to build a model. But the, the key is filing with the SEC. We've got to be able to get SEC filings that we can get into our system and parse. To be able to even start building a model.

And that's 2 years minimum?

Yes. And you need 2 years to be able to calculate free cash flow because you got to look at year-over-year change in invested capital and compare that to the current NOPAT. And so you have to have at least 2 years of history. In fact, our rating system— I got a question about this last week, I think— why don't we use a 2-year average free cash flow yield as opposed to 1 year? Because free cash flow is noisy. And the answer is, well, we'd have to drop a lot of companies from coverage because we couldn't have a rating if we look at 2 years because a lot of companies don't have a full 2 years of annual data for us.

Thank you. Thank you guys. That's helpful.

We did publish the latest Exec Comp Align with ROIC Model Portfolio. This comes out monthly, generally second week of the month. Had, I think, 6 new stocks this month. There's a little bit due to some ratings changes, but these are companies that specifically tie executive pay to ROIC in some manner, whether it's a lot of connection to executive pay or even just as a modifier. And we classify those in different groups in the model portfolio just to have a little bit of delineation between the level of tying it to ROIC. Companies new for this month: Boise Cascade, Builders FirstSource, CVR Energy, Humana, Insteel Industries, Polaris. Again, these are all companies that incentivize executives with ROIC, which is— we've written many reports in the past— the driver of shareholder value. And we look at return metrics: ROIC, ROE, ROI, all those different kinds of return metrics. ROIC is the one that has the biggest correlation with valuation of the S&P 500. It is the driver of valuation, and it's also the best measure of return on money being put into the business. And so when companies say, hey, we're actually going to make our executives and CEO accountable to creating value, it's always a good thing. And it's something that the market rewards long-term. And so we've put together this model portfolios The best-in-class corporate governance on the executive compensation side.

Kyle, will you talk a little bit about how we break this portfolio into 3 different groups and explain a little bit more about how we have different levels of alignment?

Yeah, so we break it into— we've got here accurate ROIC calculation, strong alignment. The next group is flawed ROIC calculation is what we call it, and strong alignment. And so essentially what we're looking at, the differences here is these are companies that have 30% or more of performance pay tied to ROIC. So there's that strong alignment. And then the difference is disclosure around their calculation. We'll go in and look at the calculation of their ROIC metric and see what kind of adjustments they're making. Some companies make very few. They just take a very easy approach to ROIC. Other ones will actually dig in and actually make some adjustments similar to what we're doing. I know Builders FirstSource made the list this month and they actually go in and adjust for operating leases to add them back into their calculation for ROIC. And so it's a good sign of a quality calculation. And then the third group is what we call weak alignment. Most of these have less than 30% performance pay tied to ROIC. Sometimes it could just be a modifier. They've got to reach total shareholder return, adjusted EBITDA, and oh, we'll modify it with ROIC as well. And so they're less alignment to pay with ROIC, but still better than none. And so we put them in a third group there with quality pay, but not as good as the others.

A lot of companies will make adjustments in their ROIC calculation that are wrong, like they make it look better. And we've actually seen this be a big mistake for some companies. UPS, for example, was a big proponent of tying to ROIC, but they had a pretty flawed calculation. It was adjusted by their CFO. And to make things look better than it should. And so when that company announced that they were actually going to cut their dividend and buybacks in order to plow more capital into their high return on capital business, they saw a multi-billion dollar decline in market cap that day because the market said, BS, that's actually not as good an ROIC. You're cooking the books there a little bit. So yeah, Kyle, I think we're running over a little bit, so I think that's good. Anyway, I think it's important that that's why we have to make this distinction between good and bad ROIC calculations, because a lot of people can pay lip service to the measurement of ROIC and not really do it that well. Awesome. Filing season. Yeah, Tam, go to the next slide. So we talked last week, how much value does filing season and the work we're doing during filing season deliver to you? as clients, and especially for those of you that are pros and you're thinking about what kind of staff you might need in order to replicate what you get from new constructs. I'm doing the math for you here. We're assuming it takes about 9 hours per filing to do it right. That's including updating the model, having the technology in place to, to let you do the screening and all that kind of work and a rating. And if, if that's the case, and we're talking about $100 an hour type person, We have saved you $652,808 in just this— in just this filing season. And you can see the numbers there in terms of the number of full-time employees to replace NC in that first column, the number of filings parsed and models updated on each day, and what the cost for those level of FTEs per day would be. And by the way, the beautiful thing about this analysis is how much it understates what it would cost for you to employ these people all year, because you're not going to bring them in just for a couple of weeks and expect them to be any good at doing what they do. So we are really just specifying how much value we create for you in this quarter and this quarterly set of Qs and Ks that come in. And we think it's— I think that's an important number. And I highly recommend that if you haven't tried reading a K and building a model and replicating what we do and compare your results and your model to our model, if you haven't tried that yet, please do. If you, especially if you don't think that's a real number, because I think it's at least that high. Are we ready for the next section, Tam?

Alrighty. I am switching over and I would love to jump into some of the society questions that we got this week, because I just think there was a number of really interesting things. So some of the things that I wanted to hit, David and Kyle, one is a new question. We got a new member out on Society who had a question about WireMet Coal, or HCC. How does a company like WireMet Coal end up with a ticker HCC?

Probably By virtue of an acquisition, maybe it was acquired and they kept the ticker of another company or something like that. It's a good question.

So this is another energy company, which you guys have been pretty happy about lately. Is this also a company that you think is doing well in general because it's energy, or?

I looked this up and yeah, there's some concern I think naturally around why is it so cheap? Because it gets a very attractive rating and it has a price-to-economic book value of 0.2, which means the stock price is implying a permanent 80% decline in profits. And so that looks a little bit weird because pre-COVID, the margins are at the same level that they are now. So it doesn't look like it's so super cyclical. Pre-2020, right? So it had a huge decline in margins and returns on capital in 2020, and it's really bounced back. And so if you look at even a— on the free cash flow basis, it stayed positive all through the years. A really useful metric to look at on HCC is this 3-year economic book value per share. Because that's going to really kind of help you take into account the cyclicality of the business. And we've— we in our models will— can even have 5-year economic book value per share that we can give you, give folks. And you could calculate that on your own with access to this information. And so you see, though, that the current economic book value or no growth value of the business is $193. The 3-year average is still at 108, right? So, and if you look at the 3-year average over the whole timeframe, even taking into account the worst years of economic book value, you're still looking at $64 or twice the current stock price. So this looks like one of those stocks that the market is either just getting really wrong with such a low price to economic book value. Or maybe it could be one of those stocks that sort of perpetually trades below its economic book value, but it's still got a lot of upside from 0.2 to 0.5 price to economic book value. Maybe returns on capital don't stay at 65%, but even at 30%, you're still talking about a stock with a lot of upside.

It sounds pretty good.

And, and I think selling coal has probably got a lot of greenwashing negativity pushing the stock down too. But too much.

We have another specific stock question about CVS economic earnings greater than reported earnings, which is always a very exciting thing to hear.

Yeah, we love that one. That was our friend Kent Seymour. I think that was in Questions for Webinars.

Yep.

Yep. Always a good thing when economic earnings are greater than accounting earnings. It's rare. Economic earnings take into account a great deal more cost, most notably the cost of equity. And that does not come out of accounting earnings at all. And for any stock, if there's equity there, so there's going to be some cost that you're not going to get in, in GAAP earnings or accounting earnings, but that we do deduct from economic earnings. So it's pretty rare. It's a good thing, very good thing when economic earnings are greater than reported earnings.

There's another conversation a little bit further down that Jerry brought up about institutional ownership, and I think he was talking about TruePanyon. And the question is, why are these folks still buying TruePanyon, like BlackRock and folks? And I guess I had the same question. This seems unreasonable. So what are they What does it mean that they're required to buy a stock?

There's some funds that own entire market, like they're representative of the entire market, so they maybe have to own it for that reason. And it's a great question. One of the things that I noticed here in Jerry's comment, which was very interesting, was the quant funds really increasing exposure. To TruePanyon by a lot. Marshall Waste is a quant fund. Two Sigma, Citadel. Some of these are actually clients of ours. Cough cough. I don't know what they're doing, but they know something. Oftentimes they know something we don't. They've got access to order flow. They've got access to information that we don't always have. So I don't have a great answer as to why, but I do think that if you're looking at TruePanyon.

I was going to jump in and say they bought at the wrong time because they're down 38% in the last week.

So, oh yeah, it's not a good, not a good thing. I think, Kyle, you'll get to this later. It's probably one of our slides. But yeah, it's been tough. I mean, it's not, it's not, it's not a real business. So I would, I would guess that they're buying for technical reasons, not fundamental reasons.

And just 2 more things on the society before we move on to stock picks. One of our new members had a great question about resources that folks used, particularly for— I think he was looking for qualitative information. I believe it was Roy Maddy. There, right there. And people had some great responses to this, so I just wanted to point it out to the larger group that as a librarian, this was a question after my own heart, and I really, really enjoyed All of the answers that folks brought to this. So thank you, everybody who jumped in. The last thing to point out on the left, the reverse DCF case studies now have their own home down there on the bottom a little bit more. So I'll be putting clips of the DCF case studies that we do here on our Friday webinars. They are going to be a little abrupt. They are just clips, but I figure it's better to get the information out there faster. And you guys will forgive us that it's not as professionally produced as it theoretically could be. Faster is better, I think, sometimes in finance. I'm going to go ahead and move over to stock picks unless there is anything else that you guys wanted to talk about for society.

Yep. Time to get your questions in. We've only got a few minutes left.

Awesome. And red is good sometimes, Kyle.

Red is good on the short side.

Yes, the short side.

When you short it, it's not just me being short, something else.

It's a different short.

Exactly. When you're short and stock goes down, it's a good thing for you.

You're— yay. Okay, good. Yeah, sometimes the red is good. Excellent.

Yeah, red good.

And then the next one, green is good. So But we'll point out, if you go back one on the short ideas, wanted to round up some of the biggest movers the past week, put in their month performance, and we've got a few slides below on the year-to-date performance as well. TruePannion, as I just noted, down 38% last week as of close yesterday. Um, we've got other big movers on that zombie stock and focusless short side: Peloton, Beyond Meat, Blue Apron. And interesting on these, when you look at those year to date, you see they all followed a similar track. There was a big bump early in the year when I think investors, whether they wanted to believe something or the stock market went a little wild, but as time has gone on, those fundamentals have come back, fundamentals have deteriorated. People realize, hey, there's actually no great business model here. The hype around it is dying down and we've seen them Consistently move lower. And you can see, you know, those year-to-date numbers moving up further down.

I can jump in here real fast. I think these patterns are important because we've seen them before. We saw them during the IPO craze. Things went way up and they came way back down. And also often the narrative from the speculative investing crowd, the short-term investing crowd is like, scoreboard, bro. Scoreboard, stock's been going up. I'm right, you're wrong. And I think this is an excellent example of no, not necessarily. It can go up for a while, but it can still come way back down. And just because it's going up now doesn't mean it's not going to come back down. And I do think that we're going to see this kind of volatility going forward. This crazy bull market we've seen over the last 20 years is not going to just go to sleep overnight and end. It's going to fight back and we're going to see blips where some of these zombie stocks are actually going up for a little while. But we believe they're all going to come back down. And that's what we've seen in the last month or so for sure. The beginning, like January, February, it was like, what's going on? These things are like, it's nuts. And they're down a lot, a whole lot, especially from the highs.

Maybe everybody got money from the grandparents for the holidays.

Let's put it in. Let's put it into Lyft.

Bought their favorite stuff.

Yeah, they should have bought a subscription to New Constructs. That's what they should have bought. That would have been a lot better move.

That is what probably the holiday presents ought to be for children in the future. I agree.

For their own good.

Then you can go to the flip side. Got companies like Google or Alphabet, O'Reilly, D.R. Horton, Valvoline. These are all companies, long ideas, focus list long ideas as well, that have had not only good weeks, good months, but year-to-date performance as well. And you'll see almost the flip side trend here. A lot of these have followed a similar path. They kind of got beaten down in the middle March, April time. They've started moving up in the recent weeks as some of those zombie stocks have moved down. We see a kind of transition from speculative to back real cash flows, real business models. We talked about, you know, good products, good companies, bad stocks type thing. These are companies that are good companies, good stocks, good products all combined into one. And so we've seen, you know, some of these long ideas, focusless stocks moving up, and we think we'll see more of this as the return to fundamentals continues.

I think these charts are great examples of where, you know, Warren Buffett's statement about the error of short-term focused people presents opportunities for those with superior analysis and a longer-term view. Certainly some of these stocks look cheap and didn't have good trends, but they do well in the long term. And the only way you can be sure that you're going to do well in the long term is to understand risk reward, unless you've got the ability to predict the future, in which case we can have a separate call for those folks. But if you don't, you can't predict the future. You need to understand risk reward. And understanding risk reward is understanding existing profitability and the market's expectations for future profitability. and identifying disconnects between the two, and particularly disconnects between your own expectations of what you think is reasonable versus what the market has out there. And if you can do that, we believe you can outperform over the long term. And so do some of the biggest businesses in the world like Bloomberg, who are launching a family of passive ETFs for us. So it is the methodology, the approach for the long term. And that's what we hope people will focus on the long term.

Any last questions, folks, before we wrap up? All right. Well, I really appreciate the integrity of that last statement, David. I'm always thrilled to be working in new constructs when I hear things like that. So thank you.

Thank you, Tam.

Thanks to everybody for joining us this Friday. I hope you have a great weekend. I hope you fill out the survey and let us know what you're thinking about. We want to make sure that this is useful for you.

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