원문 보기
I also want to ask you, Bill, while we have you, of course, about your your portfolio. Um, the fund is down this year in an up market. So, what what do what do you tell shareholders about why that is and what you think of the valuation and why they should [clears throat] stick with it? Yeah. So, you know, our goal is not to find stocks that are going to go up in the next 90 days.
you know, the market is increasingly moved to a very short-term dynamic. You know, index funds are forever holders, but effectively taking, you know, stocks out of the float uh and then, you know, very short-term investors trying to, you know, estimate whether a company's going to make or miss earnings or guidance.
And that it led to massive market volatility and you know the focus this year has been on AI adjacent you know sort of hardware energy you know very narrow market and that's really created what we think is a great opportunity for us over a multi-year period of time to buy some of the great franchise durable growth companies we've you know loved always wanted to own but they were at kind of going in earnings yields or PE multiples that made them you know the kind of go forward return less attractive for us and we've been able to buy businesses, you know, Visa, Mastercard, you know, Netflix, uh, and others at, you know, uh, prices that we, you know, pencil out to well north of 20% IRRs over, you know, three, four, five year holding period.
So, it's a great setup for us. Um, you know, of course, would love to finish the year strong. Every investment manager wants to have a positive year. uh we do have some you know if if if our money could leave every day or every month or at the end of the year we would probably try to position the portfolio differently but I think that would
uh lead to suboptimal longerterm returns. We we feel you know we're down uh modestly uh you know single digits um for our largest fund and for our new vehicle. were actually uh well before I got to Israel, we were up slightly from from from launch over you know a small period of time but most importantly we deployed
5 billion of capital of Persian Square USA in some very high quality long-term durable compounders that are less I would say sexy uh for you know for people trying to make money next month but I think will you know the they will continue to compound their their earnings and and grow at you know very high you know rates over time.
Well, since you mentioned Netflix, that was one that I wanted to ask you about because the company reported yesterday and and it was pretty disappointing. Um, capping off a kind of ugly performance for Netflix with some real questions about how long it could take to revive their content slate, you know, what the competition looks like, engagement, why I think you added it back as of the August filing.
What's the what's your what's your expectation there? So, so I was on the plane when the when the earnings kind of came out. I had a brief opportunity to get an update from the team. We actually viewed the quarter very favorably. Uh we thought uh you know uh well in excess of estimates um you know a little bit you know uh I my understanding is you know advertising uh wasn't quite what management hoped but they I thought had good a good explanation.
You know, I would say Netflix is a high growth utility. And if you're concerned, you know, the the the mix of content that people are watching is, you know, different than it was a year, 5 years ago, and that's calculated, you know, you know, time, you know, engagement, if you will. But you know what matters for Netflix is you know kind of the the growth rate of subscribers, the persistency uh their ability to price for the enormous value they offer the consumer.
We think all those things are extremely strong. You can buy the stock today at one of the lowest valuations in history. And you know importantly I think the stock today is something like 18 times earnings. you know, we think the the earnings growth here is going to be, you know, 20%, you know, to mid to high teens for the foreseeable future.
Uh, in a really a utility like to get someone to cancel their Netflix subscription. They've won the streaming wars. I don't know who displaces uh Netflix and yeah, they I think they would like to have some, you know, big hits like Squid Game and otherwise. And they're they're making adjustments to the team to make sure that happens.
But this is an excellent management team. I'll point out that 18 times earnings today is a similar multiple of cash flow whereas four years ago there was a large gap between earnings uh and the cash flow of the business. You know as the business has matured um you know it's become enormously cash flow positive.
I think they bought in something like 3% of the outstanding share count if I got that correct uh in in the most recent quarter. you know, this is sort of another example of a stock where we'll make more money over time if the stock is cheaper in the short to intermediate term because they're going to cancel a lot more shares as a result.
So, I think another good example of a super high quality business where a short-term investor, you know, is looking for something to be disappointed about in the in the quarter outcome, but we're, you know, we expect our go forward IR to be well north of, you know, well into the 20s. Speaking of disappointment in the short term, Fanny and Freddy have been a drag and I know you've had high hopes that the that the government that the Trump administration is going to finally make a move here to privatize.
It's it's taken longer than expected. Did get some comments from Secretary Besson in a podcast this week saying I think he said 27 or 28 issue that you know they still want to go forward. I would imagine next year or the year after we would be tackling the ownership structure. Do you still have high conviction that this is going to happen?
Are you still bullish? Yes, very bullish. And uh actually to point out uh our our relative underperformance this year in large part is driven by Fanny Freddy. These are stocks that went from 3 to 15 or so last year and went from 15 to three this year. Uh you know, they became fairly sizable positions.
You know, we own over well north of 200 million shares of combined uh company. So this was a very big uh sort of headwind for us. Now, why didn't we sell it at uh when the stock was up 5x? because we again believe our our view what's going to happen here. Um actually what's not talked about it's actually absolutely politically critical for Fanny and Freddy to be released from conservatorship before the end of the Trump administration.
Why is that the case? Because this is you know an enormously cash flow generative asset that in the hands for example of a Democratic administration could be used in a in a a manner that is politically very threatening to Republican party. uh you know the control of who gets access to mortgages uh you know and uh you know there were obviously there were issues during the Biden administration where there were mortgages being granted to people on favorable terms because of skin color and other such uh initiatives
and uh you know it's a it's a tool that can be used in a very political manner. So I I you know having met with the administration about this topic I think they view it as absolutely mission critical. It's released you know they're both released from conservatorship. We've put forth a very straightforward plan that will get it done more efficiently.
Actually, it's really important that the stock is in the hands of institutional investors and is privatized to protect this from becoming a politically uh controlled asset. That is well understood at the highest levels of of the Trump administration. Um I think uh you know the administration toyed with some other alternative approaches to taking these companies public.
There was an initiative I understand where Fanny and Freddy would be combined under a new holding company. I I don't know if you saw the tweet from the president where there's something called the great American mortgage company where the Fanny Freddy would stay in conservatorship and there would be this new holding company put on top.
You know, it is not a viable structure. M um the simplest outcome here that creates the most value for the American taxpayer is just simply accounting for the 300 billion of payments that have been made to uh by Fanny and Freddy to uh the Treasury fully repaying the 191 billion that was advanced uh during the financial crisis and then an uplifting uh to uh a major exchange like the New York Stock Exchange.
Um and uh the president rings the bell uh announces a major you know hundreds of billions of value creation for the American people and then he ts tasks uh the treasury secretary and and director py with resolving the conservatorship which is a process you know finalizing the capital rules but what's fascinating to me is these stocks were $23 a share 14 years ago when they had no capital and they had no real earnings uh and Obama had just basically with the net worth sweep taken away 100% of their profits forever.
Well, since uh President Trump was first elected, Minutuchin was treasury secretary. He stopped uh the net worth sweep. These entities have fully rebuilt their capital. What's not, I think, well understood is Fanny and Freddy today have five times the capital they had uh historically, you know, 250 basis points or so of capital.
They will get to the extraordinary high levels of capital that were initially proposed for Fanny and Freddy by 2030. But we believe the two and a half percentage points of capital they have today is more than sufficient. It's what Jamie Gman would call a fortress level balance sheet. I completely understand the Treasury Secretary when he says that the first and foremost the north star here is we can't let uh the uh change in ownership of Fanny and Freddy in any way affect mortgage rates.
And there's no reason why it should. And even the release from conservatorship, you know, the the proper process here is get them to a uh fortress balance sheet which is where they are already. you want to add more capital to that. It's just happening sort of naturally. Uh keep in place the 450 billion of the government back stop in the form of senior preferred.
Make that backs stop something that's paid for. The company should pay a kind of commitment fee for the backs stop and then you're going to have you know almost I would say a stupid amount of capital. There's no scenario in which these entities would be a threat to the market. I I would argue mortgage spreads tighten in that world because the fear would be in a if it's a Democratic administration that wins the next uh presidential election.
Uh I think that creates uncertainty about how Fanny and Freddy are going to use, you know, what what's going to happen with their capital. Are they going to take steps that is going to reduce uh the underlying mortgage quality? I think all of that can be clarified and resolved. I I think it's great that the Treasury Secretary said, you know, 27 or 28 if I were they, I would get busy on this right after the turn of the year and and and get it done in a 2027 time frame.
Now, what's you know, why do I like these stocks at why have I held them from 3 to 15 and and back to three? Because in the scenario I've outlined, these are well into the high 40s, $50 stock. You know, the president has even higher estimates of of value. And I think we can get there. uh you know what we're saying is just a accounting for the repayment of the preferred a relisting on the New York Stock Exchange and these are these stocks will go up 10fold and that's a you know that's the most asymmetric investment I'm aware of uh in the stock market
well they're they're spiking now on your comments by what is a incredibly yeah incredibly high quality these are incredibly high quality uh businesses that are trading at like you know one times earnings it's it's yeah well they've been in conservatorship for 18 years which is which is actually hard to believe.
You know, Bill, while while we have you, I just wanted to ask you one one other point I would make here. One other point I would make here with respect to uh midterms. You know, if midterms go against the president, if go against the Republicans, that is really going to limit uh some of you know what the president can do in terms of things that require approval from the Congress.
I mean, the beauty here is in that world, this is, you know, the Fanny Freddy release uh is one of the few things the president can do simply by executive order. Uh we saw I saw the tweet from uh director PY agreeing with uh you know the Treasury Secretary on the timing here is we got the you know the people that are relevant all in line.
This would be a huge victory for the president um and a big economic value creation for the taxpayer. So you know we remain very bullish here. Yes. Clearly. I I I want to ask you about Meta too because you're a big shareholder of Meta and it's down sharply today. It had great earnings but concerns I guess just about how much they're spending.
They they sort of raised the low end of the capex outlook for the year to 135 billion to 145. They're also issuing this, you know, they have this two for one split to issue more shares to raise more money, non- voting shares. I wonder if you have any any problems with any of this. You look, I I I I briefly had a chance again on my way uh on the flight uh to to read the news.
You know, look, California has made um you know, is really heading in the wrong direction. uh and there in the process of I would argue certainly economically destroying the state. You know the the wealth tax that's been proposed there's already been a massive flight of people that would be exposed to the wealth tax.
So there's no way that we'll actually generate the revenues that were originally intended. Um, but literally every startup entrepreneur, you know, had a meeting yesterday with a startup entrepreneur in the kind of uh brain computer interface space and they're already making plans to open a New York office and you know, potentially for the senior management team to uh, you know, leave California because of this um, you know, this tax policy.
You know what the the meta news, you know, the the what at least what was stated in the the the materials I read is that if Mark Zuckerberg, if the tax is put in place, he's going to have to sell, you know, a large amount of stock in order to to pay the tax. And uh you know, I guess Mark and the board, you know, want Mark to remain in control of the company.
And by creating a sort of a lower voting or non- voting class, you know, this this will enable him to do so. you know, this is uh you know, I I don't Meta has an incredibly strong balance sheet. They've got 80 billion of cash on the balance sheet. They they're you know, they have no net uh leverage.
They could finance uh whatever they want to do uh with a very, you know, a turn or two of financial leverage and remain a very strong investment grade company. So, this is not a company that's going to have to, you know, run out. And uh look, I I think we're in a world in which you cannot look at the day one trading of a stock after earnings because of how levered market participants are and how short-term they are.
And they're they're in a like the stock was up when I went to sleep uh on the flight uh it was up something like 5%. Okay. And I and when I checked in before this uh interview, it was down six and a half%. Um you know, these are short-term traders moving the stock around. I mean, you know, this is a business that is accelerating.
Uh, you know, Muse is very clearly becoming, you know, there's a brilliantly designed uh, you know, there's some other competitors in the space, but, you know, obviously Meta is extremely well positioned in democratizing, you know, the use of agents, you know, um, with with with this product. Um, they've proven that the AI is helping them accelerate their business, and this remains an incredibly undervalued stock, and that's why we own it.
It spaced a little bit and I'll just ask one finally about what's what's been the problem lately with the AI trade which is all the borrowing that's happening. It's it's continuing to be debt and we have this rising interest rates both market rates and the Federal Reserve rising rates. There's concerns about the Neoclouds and their business models because of how highly levered they are.
I mean, do you do you share some of these concerns about the I know you're you're exposed through some of these hyperscalers, Amazon, Microsoft, Meta about just how expensive it's going to be in in an environment of rising rising credit costs. Yeah. So, I would say the following um you know, why are people spending so much money?
uh because intelligence is is one of the most if not the most valuable asset in the world and we're asmtoically approaching super intelligence and you know the the uh access to compute is critically important for every uh you know business model every company uh and I wouldn't question the demand and why are we playing that demand owning you know a Microsoft or an Amazon or you know even a even a Meta um the answer is these are well capitalized incredibly dominant franchis rises that uh have the balance sheets to make these investments.
You know the neocloud play is a is a bit like investing in a real estate developer uh you know in a highly levered format and if you know you get it right um you know the the levered equity returns are enormous. If you get it wrong you can you can get wiped out. It's a very different kind of bet and it's also a bet where they're very sensitive to their uh to their cost of capital and they don't have the market power or the ability to use the compute in the event the demand isn't there.
You know Microsoft and Amazon are going to and Meta will be able to use every incremental uh watt if you will of compute. Um and that's why we like their business models uh you know versus the Neoclouds. But there I there is no question that the demand for compute is enormous. And by the way, yes, you know, just I if you look at the SpaceX uh, you know, earnings call,
Elon's talking about potentially spending hundreds of billions of dollars on, you know, gigawatts of of of compute. Clearly, the demand's there. But yes, the the impact here is you now have companies like um SpaceX and and the and the Mag 7 that are competing with the US government uh to issue debt and that's, you know, kind of bearish uh for rates.
All that being said, historically speaking, we uh 5% 10 year is is still relatively low cost of capital. Um you you think rates are going higher from here? It's a cost of capital. I I don't see a world well if we can resolve uh you know Iran and Russia Ukraine. I think rates are coming down, inflation's coming down and that and again that that is we're off to the races for the economy and the market and everything else.
But the, you know, since intelligence is so valuable, um, you know, you can earn an attractive return, uh, even with a a risk-free rate of of 5%. Well, Bill, uh, we certainly appreciate you taking the time today after a long day uh, in Tel Aviv to talk about the world and your investments and, of course, what you're doing in Israel. So, thank you very much.
Comments 0