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Hello and welcome to another episode of the All Thoughts podcast. I'm Tracy Alloway.
And I'm Joe. Why isn't thal Joe?
Do you think it's fair to say that things seem a little uncertain at the moment?
Well?
Yes, Well what do you have in mind?
Okay?
Well, of course yes, and big things going on.
So I was thinking particularly of three things. So number one is obviously US presidential elections, and things seem very uncertain on that front. We're not sure who's going to win in November. And more than that, at this point, I think we're not entirely sure who the Democratic candidate is going to be. There's uncertainty there. But then secondly, there's uncertainty about the direction of the stock market in
a number of ways. So we have seen some of the error kicked out of the tires of big outperformers from earlier in the year. I'm thinking specifically of Nvidia and some of those big tech companies. They've come down recently.
There are people talking about how AI is the future of industry, but there are also people talking about how AI is a massive bubble, and I think Goldman Sachs had that analysis out earlier this week talking about how there was no actual use case for AI, which seems to be the polar opposite of some of the enthusiasm in the market. And then thirdly, we still have that underlying economic tension where it seems like there are some signs of a slowdown, but the Fed so far is
kind of resisting any pressure to cut interest rates. So lots of things up in the air at the moment.
Yeah, I mean, like you said, uncertainty is always with in the market, but there are some really big questions.
About things that are going on. The AI one in.
Particular, because a lot of people, as you notice, like wow, they're really spending a lot of money on all this chips and electricity, and the payoff is ambiguous, and.
So there are a lot of questions about that.
Clearly, the political landscape, although you know, on questions related to the market. Look, the stock market's done really well under Joe Biden, it did really well under President Trump, seems to mostly go up over time. But yes, the age of uncertainty, I would not disagree with you.
So all of this had me thinking, you know, if you're an investor, and particularly a thematic investor. At the moment, I think you're facing some tough choices because it's not just a range of uncertainties. In some respects, it's like polar opposite outcomes. You know, either you get Trump and everything that comes with it, or you get Biden and everything that comes with that, and some of that is very different totally.
Well, the other thing that I've been thinking about in the AI conversation really has driven this home, which is that if you're a discretionary investor, now me, I'm just spy and die all the way. So I don't have to think about all this stuff because I own Nvidia and through my S and P five hundred index fund.
But if in.
Nvidia falls out of favor and something else rises, well I'll have that too, So I'm spy and die. But I understand that some people have to like beat the benchmark or beat the index, or justify why someone else would pay them fees to invest money on their behalf. Then of course you really have to get the call correct, because the only way that you beat the market over this year or last year is if you got the AI call, and if you weren't heavy on Nvidia or
some of these other names. You almost certainly did not justify someone giving paying you money to invest, and so these are really tough questions for investors who have to like do well so to speak relatively to answer yes.
So I'm very pleased to say that we have the perfect guest we are going to bring back on, James van Gielan. He is, of course the fault owner of Satrini Research. We spoke to him last year about one of his big investment themes, which at the time was ozembic and the associated GLP one weight loss drugs. That
was a huge winner in the months since. We're going to get a handle on what he's looking at now and also his thought process for developing new investment themes at a time when a lot of things seem to be very uncertain. So James, thanks so much for coming back on all thoughts.
Thanks for having me back.
What are you looking at nowadays? To start with the easy question, Yeah.
Well, you know, AI obviously is a huge theme in the market, and I think part of it, Yeah, have you really Yeah, it's this little thing. But I think that the most important way to basically track this theme is it's one of those technologically innovation driven kind of themes. And the way that I viewed thematic investing is along this spectrum of you have disruption or continuation, and then
you have macro drivers or micro drivers. And I'm not talking about necessarily macro and the sense of macroeconomics, but you know, demographic shifts, even like consumer attitudes, the overton windows shifting, just big things changing versus big things staying
the same. So over the past twelve months, you know, there have been probably ten or twelve themes that I think have really made themselves down in the market and the way that's as it's moved, and right now, there have been a few that I've probably overstayed my welcoming. I think that some of them are getting a little bit frothy.
And you were early to AI, yeah.
Yeah, and that's one of the risks of doing this kind of investing. You know, there's a great quote from Robert Schiller. Nobody has ever made a decision based on a number. They always need a story. I don't know if that's the exact quote, but another one of my favorites is Kyle Harrison said that price is a number today multiplied by a story tomorrow. And the way that I ve be investing is it's always going to prioritize
a good story and a good narrative. And that's what has the making of a theme, because you need people to make the decision to execute a trade and move price, and then you also need on the other side something to actually happen in the real economy. And as far as artificial intelligence, this kind of fast moving innovative theme that we don't really you know, you can say what is AI going to look like five years out and
you'll get five different answers from five different people. And I started from a place of you know, which became consensus very quickly with the picks and shovels, right, and then the picks and shovels of the picks and shovels, and then you get this thing where you know, during the gold Rush, it wasn't just everyone showing up to sell picks and shovels, just everyone waiting there. So we have to kind of look now for this controversial thing
of does AI have use cases? And I think it's pretty clear that it does if you're looking for it. But in terms of like monitoring the way that it's going to progress. I think the biggest component here is going to be going from B to B to B two C. And what I said about two months ago was that the company that was going to make this really happen, it's not going to be Microsoft, you know with Chat, GBT and open AI. I think it's going to be Apple. And you know, if any company can
get it done, it's going to be Apple. And you have this kind of dynamic where you need something to happen that forces people to use it. Right. It's kind of like like Facebook, right, or social media in general, where you know there was only so long you could
go without being connected to everything and everyone. And Apple is you know, have you ever texted someone like, Hey, I'm coming over and then you get in the car and if it connects the car play, it'll give you a notification that says, like, you know, directions to Joe's house.
Yeah.
Your phone knows everything about you, right, And your phone knows who you are, it knows what you're doing, it knows what you want to do, it knows who your mom is. And that information combined with Apple's trust in the consumer, trust and the idea that they place of a high premium on privacy. You can't have this AI assistant that knows everything about you if you think that it's going to be stored on a server in Kubertino.
It needs to be on your phone. So the next thing is how do we start having these big models that you know that are in these very big data centers and you know all this CAPEX that's spent on that. Now we have to just like every other technological trend, we have to miniaturize it, right, and we have to basically have your phone doing inference, you know, sending to those models, but also these smaller models.
Can I push back on that real quickly because I've given up every piece of information about my entire life already to the internet at all. Yeah, of course I have just by existing in the world, right and I'm not and it all exists on servers somewhere in either Kupertino or Amazon servers or whatever. What is it about AI specifically that changes that need? Because like I said, I've given I didn't I don't want to. But just the reality of life in the world is my information is already out there.
So AI has two sides, training and inference, right, And you can train on. You know, all this data that you've already given up to the faceless kind of entity that controls the world. But what AI brings about is in real time drawing conclusions from that data. And it's two sided. There's convenience and then there's privacy concerns. And I agree with you that convenience definitely outweighs privacy concerns
when it comes to the consumer. But when you have this ecosystem that Apple has created with this walled garden, and then you kind of alleviate the privacy concerns and you have this constant inference that's going on, and there will come a time where you know, you'll be walking down the street and you'll say, I just called Tracy, you know a week ago. What did we talk about and when did we say we're going to meet?
Oh?
Okay, can you text Tracy and tell her, actually, I have a thesis that just got destroyed, so I don't really want to talk about that one. And you know, can you text Joe and let him know too, And then can you look at my calendar when am my velvement? You can be walking down the street. Yeah, And the productivity gains from your phone doing inference and inferring what it knows about you from that data.
That's huge, real quickly.
So you mentioned the picks and shovels and video, than the picks and shovels who provide the picks and shovels and people got to tell you about super micro and the racks and maybe Dell super Micro.
I never heard of it.
I've heard of it, just so we're clear your long Apple.
Yeah, I'm any name that I mentioned inherently, I'm automatically going to be longer shot.
Yeah, you mentioned the privacy concerns, and I just thought back to this moment. My husband and I were in our kitchen and we were talking about something really innocuous, like corn or something, and suddenly Alexa started telling us a joke about corn, and like we hadn't said Alexa or anything like that, it just started talking like clearly had been recording everything that we were saying. And I will admit that that was that was kind of a
jarring experience. I would be less surprised if my Apple phone did that versus my Alexa that I use to turn on the lights and things like that.
Yeah, it turns out that large language models are really good at language.
Yeah, surprising.
I think that the next kind of picks and shovels idea. The thing is everyone's always well, what are we going to invest in that's doing the use cases? And then those same people will come around and say, why are
you know these five stocks driving the entire market? And the thing is the latency between a company starting and becoming successful and doing an IPO has gotten a lot longer in the past, like two decades, So if you're a public equity investor, you might not really get to the use cases that you can invest in are those five stocks and combine that with you know, everything else, and like you said, the uncertainty. When there's uncertainty, people tend to crowd into things that they know are going
to work. I think that really the picks and shovels
thing will probably play out again. But when it comes to EDJI and doing inference onto and kind of I mean this is probably a controversial statement, but I think that we might see the first real true replacement cycle, like real replacement cycle where Apple comes out with the new phone and it has all these productivity gains, and it has all this new hardware, and you know, it can do these things, and if you don't have that phone, you can't do it, and it becomes kind of like
that sci fi movie Gatica, where you know, yeah, if you're left out, you're you're just you're just left behind.
I've been wondering about this because at some point in my life it's stopped being important to upgrade. I mean, at some point in my life it's stopped being important or interesting to even tune into, like the new Apple events, and those used to be big events online, and then people stopped. And then at one point, if someone asked me, what iPhone do you have, I would have told them the anti Zycle. I have the iPhone five for whatever. I have no idea which one I have right now.
I got a couple of years ago. It does everything I need. I have zero idea which one it is. So I've been sort of wondering. Yeah, So you think that there's the potential, at least for some unlock of new capabilities where the people who don't have that new phone actually feel, oh, I really just can't interact with the same way that people who have it do.
Yeah, and that kind of replacement cycle drives that new picks and shovels thesis where you're looking at all these kind of you know, system on chip names, and that's where I see this theme that you know, everyone is talking about going But the thing about thematic equity is that if you let it, it just becomes momentum investing, because themes are stories, and stories translate into momentum very easily.
And when people do an association with momentum, they're always thinking about kind of momentum inable market like what we've been seeing. And you know that's not the case at all. There was plenty of themes in twenty twenty two when everything else was going down. I mean, tech going down was a theme. You know, the interest rate hikes, the inflation for the first time that you know, that's a theme. That's a story that grabs people's attention and makes them
go to their terminal and execute a trade. And same thing with energy, and you know, the war in Ukraine. And so I try my hardest to it's super cliche, but think a few months ahead at least.
So for something like the US presidential elections. You know, again things are currently up in the air, and you can look at the polls and have a sense of who might have a lead, but overall it's pretty difficult to tell who's going to be in office come next year. How do you start preparing for something like that from an perspective.
So if the question how do you start preparing the answer early early, you start preparing early. Right. No, I don't think that, you know, was anyone surprised that we have an election this year? Yeah?
Some people, Yeah, you know, some people really are because of how few people have been paying attention.
I mean, that's It's one of those things where I think it's like when you're a kid and you touch the stove and you get burned, and you're well, I'm not doing that again. That's how I think the twenty twenty election was for me. So as soon as I saw that the year was an election year, I started kind of preparing for this. This was back in January when the odds of Trump even being a nominee, right, or like being the Republican nominee, were like twenty percent.
It was relatively easy back then to look at these very kind of exposed equities and say, this is a swap I guess on Trump being a nominee.
So I've ied some cell side research about who would be exposed. One clever one the company five below. He sells a bunch of cheap stuff, which you can't sell cheap stuff if there's a massive tariffs on cheap stuff. And that stock has been Oh that's a total dog. That stock was over two hundred back in March and now it's at one hundred and two. Of the time we're talking about this, what stands out to you is.
Being exposed depending on what the theme is there, I create either a long short basket to kind of gain exposure, because I don't ever want that kind of idiosyncratic like single name equity risk where a company ends up doing really well and has nothing to do with my actual thesis. So I constructed a basket that kind of played on a few different themes. Tariffs was a big one of them. Right,
So you look at how much comes from China. First, you look at Trump's what he says, right, one hundred percent tariffs, sixty percent tariffs that you know, and the thing is protectionism from China. Trade that's not that's not a part is an issue anymore. Right, There are no China doves in the government. But Trump is certainly a unique brand of that when it comes to the trade policy. So that seemed like the most asymmetric way to kind
of capture that. So you look at five below for example, restoration, hardware, floor and decor, you know, best Buy, these companies that really do a lot of business when it comes to China, and that's a lot of their impacosts and tariffs really would affect them. And that's your short side. And then you say, okay, well who is going to be all right here? And that comes down to pricing power. You know, if consumers start consolidating their spending because of tariff's, who
can kind of keep that pricing power regardless? And like Costco, Walmart, some of the automotive parts like O'Reilly, that's your longside. So that makes up one component of the basket and then move on. Okay, And the thing is, for the past three three years, one of my exposures to a theme has been bidnomics. So you know, that was big on electrification and infrastructure spending and generally fading the idea that we could have a recession when fiscal policy is
spending like a drunken sailor. And we said, okay, well, now we need some kind of offsetting beta. Here, we need some Trump beta. And there are these orphan equities like Fannie May and Freddie Mack. And you know, I looked at the story and I said, I don't think that that's going to happen. He didn't do it the first time, but it doesn't matter because it's a story. So people are going to take action based on that story. Then looking at things like private prisons and law enforcement.
I remember that from twenty sixteen that was like a big Trump winner.
Yeah, and that but that was when I was kind of looking at this. That I think was the first place that I start is basically sell side research is to see what is being said. And there were a lot of kind of well, here's how you know, these equities performed when Trump was president, and here's how they
performed when Biden was president. And if you go into anything like that with that kind of thinking where you're just overfitting to like two periods of time, I mean when Biden was elected, if you had that kind of thinking, you would have went long clean energy right in short and short oil, and you would have gotten destroyed because like, no matter who's the president, there are going to be bear of force as at work, so you really have to try to specify and get rid of as much
incongruous kind of correlation. So names like Axin or GEO Group or you know, Corcivic, those will probably benefit. I had kind of a fun one that was a company that makes the storefront glass for retail stores, because I figured, no matter who wins this election, there's going to be people that are angry.
It's funny you mentioned fan you may equity because it still exists there. It's like a cockroach. But I've always though it's like the Boomer's crypto.
It's like that.
It's like if you look at like there is.
A Fanny and Freddy Twitter, Yeah, and it's like they talk the same way that people are talking about the random token.
But their money spends just as well, right, and it moves the bid up. Yeah. So I think that I came into this year all prepared, Right, here's how the basket is going to look. The thing that really made me the most satisfied about this, I mean, the basket has done quite well because Trump odds went from twenty percent of being the nominee to you know, sixty three percent of being the president.
Uh huh.
And the performances tracked that pretty well. And there are a few other aspects of that basket, but the thing that obviously didn't make me happy because something that I
owned went down. But right after that debate, which I think, you know, there were a lot of people that were surprised by that, And I guess you could if you were drawing a chart of like should I be concerned about Biden's performance in a debate after the State of the Union, and you you know, maybe you had some moments where like he's talking about you know, where's that lady that and the lady died three weeks ago or something, or or you know.
That there were signs, there were.
Signs, but you know, I wasn't necessarily surprised by that. And when that happened, the Bidenomics basket, you know, goes down by five percent, and then the Trump basket goes up by ten, and you know, that's kind of reinforcing where it shows you that you know, you're not just riding beta, You've been allocated to the right thing.
I was going to ask, how you wait those respective baskets, like a Biden long short basket versus a Trump long short basket, but maybe maybe you equal weight it and then the returns are asymmetric as you just mentioned.
Yeah, there's some discretionary aspect where I think that you know, something matters more than or that investors are paying more attention, you know, don't. I didn't think back in March that this tariff aspect was getting as much attention. I figured that would kind of progress and get more attention as the year went on, as Trump said more about trade policy, whereas something that's you know, as first order thinking, as you know, if Trump's president, We're going to need more
you know, border prisons or you know that. So the waiting kind of changes throughout the course of the narrative progressing.
It's kind of weird, like going back to if we had a one hundred percent teariff on imported goods, and this is a little bit of a sidetrack. I feel like that would be incredibly disruptive to the way we do economics in this country. And I don't have any opinion on whether it be good or bad. I'll leave that to others. It is sort of funny to think we're going to have this big teariff, this big change and how we interact with the world, and so we're just going to take it all out on you know,
five billion dollar company five below. Like, I just have a feeling that if we did have this wholesale orientation of how we trade, like, they're not going to be the only company that no effects.
And I think when people kind of look at when I share my portfolio with people, which you know, I know some people are kind of neurotic about that, but I'm not big enough to where I think that someone's going to, you know, attack me. But when I show my portfolio to people, they are kind of taken aback by how many securities are in there. But the way that I view it is, you know, I have diversification at the security level, but I'm very concentrated in.
These themes in the somatic level.
Yeah, so like GLP ones might make up fifteen to twenty percent of the portfolio, but it's not just Lily and it's not just Novo Nordisk. It's also you know, something like Torrid, which is a woman's kind of fashion for plus size clothing.
Oh, you would be short that one.
No, So well think about it, right, you don't teleport your weight if you're three hundred pounds and you go down six sizes. First off, you're happy that you're losing weight, right, so you want to show off, show that off, but you're still plus sized.
Oh I see, Okay, so you're.
Buying clothes the whole way down.
Ah.
And then there is in fact, you know, like this is like well documented, there is a re bound effect from GLP one drugs. If you stop them, you regain a portion of the weight.
Oh so it's actually like the weight fluctuation that matters here.
Okay. I mean, if you know anyone that's overweight that struggled with their weight, they have these closets full of just you know, various sizes of clothes. So you know that the general idea is applying second order thinking to capture a theme in not just the most obvious way, because that's going to be the most crowded way. And that's that's like I said before, you really want to try to not just have this be story based trend of following.
Wait, I love talking about second order effects and I have a bunch of favorite examples that I have probably said on this podcast before. So I'll spare all our listeners from repeating those. But do you have a favorite sort of second order play.
I want to hear yours first.
Well, the one I always think about, Well, there's the gummy Bear one, and then there's also like the Sawdust one, Gummy Bear. Hold on, I'm gonna have to look this up.
No, I remember what it was.
Do you remember the gummy bear one? Do you remember both of them?
Yeah?
Okay, well I don't remember the sawdust one. I'll look up the chickens or something like that. And there wasn't cows in milk, right, So after the.
Housing bus, then there wasn't enough wood and there wasn't enough sawdust, and that wasn't good for cows. And then that was so there was less milk.
So no one would have expected as a result of the two thousand and eight housing collapse that you would see milk prices go up because there was less milk. But apparently that's what happened. Because the cows didn't have as much sawdust, they weren't as comfortable, they weren't as productive, and so there was less milk. And then what was the gummy bear.
Gummy Bear one?
Was that this is what someone told us that due to the collapse an auto production during the pandemic, that there wasn't as much demand for leather for the seating, and that a lot of the I guess gelatine that was needed for gummy bears came out of that supply chain or something like that, so it affected gummy bear production when the chip stopped coming.
I mean, I would love to meet the person that predicted that. Yeah, right, right, if you. And so when it comes to what I do, there is kind of like a you get kind of deferred in your ability to be like, yeah, called it, you know, because I don't forego security analysis entirely. I don't, you know, I make sure that if I'm shorting a company that it's a bad company, or if I'm buying a company, that it's mispriced and you know that it has upside. So
you never really know for sure. And sometimes even you know, they'll get on the earnings call, especially if it's like a short and you know what or you think you know why it went down. You know, this is like the last time I was on, we talked about the Titan Stabler. Oh yeah, right, And obviously they eventually started saying, well, this probably has to do with those weight loss drugs.
But you know, in the beginning, when it's going down and when the company's you know, seeing decreased revenue, sometimes it takes them a little bit to like realize what's going on, and sometimes they never do.
You know.
Well, I remember that about restoration hardware too, because it started going down like a year or two ago, and people were worried about like, oh, this is a recessionary signal. And I remember seeing this online and basically saying like, well, maybe it has more to do about with restoration hardware specific things and issues there rather than macroeconomic conditions. And
people went nuts. But that's exactly what it was, right, Like the renovation boom and the furniture boom continued for some time after that.
Restoration hardware, Yeah, it wasn't a recessionary signal, but there is a great signal to be had in the story of restoration hardware, which is if you own a company and the CEO starts coming on and spends half the earnings call talking about macroeconomics, Oh yeah, sell that.
God, that's a bad sign.
That's a good yeah that It was like a famous conference call, and it was right in twenty twenty one, and it was sort of like an equivalent of although one of the best moments on TV. Ever, like the Kramer they are nuts or whatever, They're blind at the FED in two thousand and six or seven about Bear Stearns and he went on, He's like, they have no.
Idea what's coming on recession. Recession.
A bunch of people took that seriously, but it seemed like a restoration hardware story, and then the rest of the economy just kept chugging along.
Wait, there are times when uncertainty kind of rears its ugly head and does wreck some investment theses. Maybe wreck is a strong word, but I know you were, for instance, looking into how to play water and water shortages in the future. But lo and behold, a couple of weeks ago, the Supreme Court made a decision having to do with something called the Chevron deference that seems to have caused additional uncertainty for that particular thesis. Can you walk us through what happened there?
Well? First off, water in the realm of thematic equity, water is waterloo kind of it's this battle that it's always a good idea to be long water. If you think the GDP is going to go up, unless you're in China, where water use has actually declined as VP has gone up because they've been really serious about efficiency. But the idea is, if you buy water, you're never really going to blow up, you know, unless like really, unless it's like global financial crisis. You'll be pretty safe.
You can. There's always going to be some doom and gloom about water. So if you get on the phone with an investor, you can say, well, we own water because of you know, here's this big report from whatever. You know. The end it says that you know, water scarcity and this then and the other thing, and you ever see well, you guys, obviously have you've seen the movie The Big Short? Correct? Yes, so you know how that movie ends the last scene less?
Oh yeah, And I didn't understand it. It was like these like title cards and they're like next Water and then it faced them like I was like yeah, and then he's like oh and he's buying Almond Firms and I was like they like left it hanging. I was like, yeah, what's the I didn't get it. That was Michael Burry Michael and now Next Water Firms and then they fade to black we're just ending to a movie.
Ever, so yeah, I think like when the levee breaks is playing in the background, and you know, but it's really dramatic, right, Michael Burry that you know, our protagonist is only investing in one thing, ellipses water. Yeah, And you know that's the way that this thesis has kind of been presented for decades, where it's this kind of apocalyptic you have. You have this idea in your head where I mean everybody has this, and it's like an
evolutionary fear. The water has to be okay, the water quality has to be okay, and there has to be enough of it or else we can't do anything. So it's always been that kind of thing. And I really didn't want to just write about water because it's like, well, you know, here's what's going on with water. So I wanted to focus on the non apocalyptic parts. And I don't want to buy anything because of pessimism. I want to you know. And what had happened was these microplastics,
these forever chemicals. The EPA handed down a law that mandated that you have to control the level of microplastics serve as their you know, p fas, right, so I spoke with people in the industry, and everyone is really really excite. If you are in the business of you know, remediation or you know, making sure that the water is clean, you were really excited about this and probably still are. But the thing about thematic investing is that uncertainty is
kind of anathema to it. Where people want to buy on a story. You know that drugn Miller quote. I made one hundred and twenty percent of my money on the simple obvious ideas and lost twenty percent on everything else. And that's kind of the way that I viewed these themes where you want this cultural touchstone. You want everyone to realize that, oh, this is going to be big, this is a big deal. And whether that's you know, in a niche area or in a wide ranging area,
that is less important. But it has to have that moment. And when you have something that adds uncertainty, even if you disagree. Right when it comes to what happened with the Chevron deference, in the simplest possible terms, basically the stated policy has been for the judiciary to defer to experts. So if you have you know, yes, exactly, and obviously the campus small government doesn't love this because they view this as you know, unelected technocrats that are kind of
driving policy. And what happened with Chevron defference was for a long time, if you have the EPA saying no, this is bad, they would say, okay, yeah, probably you know, you know more than I do. Now with this ruling, that is not the case anymore, right, and that has wide ranging impacts that I don't know because I am not an attorney.
And so the basic gist with water here is that, okay, there was a theme, not the apocalypse and of water, but this assistant demand for water cleaning due to microplastics.
The EPA had put down this.
Rule, and the Chevron ruling by the Supreme Court raises ambiguity about the teeth of that, or the enforceability or the persistence of that. And this is the kind of thing that's toxic to a thematic investor.
Yeah, and you know, I still believe that that thesis is fine. I mean, I look at it, and I've spoken to attorneys and they say, well, you have these two existing appeals, but this happened before the Chevron deference ruling, so you have to track those appeals. But that's the only thing that matters. This isn't going to change. You know, whatever was going to happen before this ruling, that's what's going to happen now. If those appeals are you know,
overturned or upheld, that's what matters. And I think that it's still going to work. But the thing is, I was playing this story and I'm playing the fact that you know, like a week after I wrote about it started becoming this like cultural thing. You see these memes on Twitter about like microplastics and.
In certain parts of the Male anatomy, Yeah, this goes on the radio. So I think we can't say yeah, I.
Mean, I stop myself. You're the one that said it. But you know, it's the idea where nobody can be okay with the water. And there's always been an issue of payers like to see things. They like to pay for things that they can see, so they like to pay for the roads being fixed, or they like to pay for like new things being built, but you don't
really see the water. But with social media and the idea that you can make everyone aware of like microplastics, and there's so many emerging contaminants out there just from you know, the on a bashed capitalists, progress and industry. So I still think that there will be companies that will make a lot more money because of pfas. But for now I have to say, well, I don't know
if the risk is worth the reward here. Maybe I'll just wait until these appeals are decided and then the story can progress.
I want to talk a little bit more about the AI story where we started, and so, first of all, Druck and Miller, there were two instances in the last year. I was just like, so he said something about like Chad GPT came out. He knew that they were training on in video chips and he went long in video and killed it. And then there was the story of Javier Mila having won in Argentina and claims that he went on perplexity AI and should I invest with Argentina and it gave him some ETFs and he bought them
and he did well. So much admiration for this sort of simplistic thinking, and well done to him. But here, okay, the sort of Chad GPT AI and video thing very well known, and now there are all these questions about, Okay, a lot of money is being spent on chips and electricity, and is there going to be this payoff or will
who will get the payoff from that? How do you think about that specific question outside of Apple and I understand your argument about why they're in the position to actually deliver valuable services in the broader world, businesses feeling like they need an AI strategy or needing it to like complement their software, how do you sort of begin to answer that question.
Well, it seems like the question that you're asking really is is it a bubble?
Well, there's two ways that it could be a bubble, right. There could be people who are just overpaying for the stock because they feel like I want to ride this wave, or businesses overpaying for the capex because they think that they need to do something with AI to be in the game, and it turns out that maybe they don't.
So I'm actually kind of interested in the second one of not whether there's an equity market bubble in AI, but the question of whether the business investment which is pouring into AI related things will materialize as results in revenues for the company spend.
It's sort of the idea that Okay, everyone has to develop their own in house AI offering to compete, but like, actually, maybe in five years time we find that everyone just buys an off the shelf AI thing and plugs it in like they do Microsoft Word or whatever, rather than spend billions like on their own thing.
And whether the sort of quality of the services that an AIOD could produce for the companies, whether it's a software company like Salesforce or whatever it else, actually turns out to be something valuable that they can resell and get capture value from their end customers.
So I think the answer to your question, or at least some color on that question, is I don't think that there's ever been a truly revolutionary technology that has not been accompanied by some excess capex that we look back and we say, well, that was wasteful, right, because when we look back, we also have the benefit of seeing which areas get commoditized, and we look at how cheap you know, whether it's broadband or you know, you can go all the way back to the railwayman roads, Yeah, yeah,
you can. You know. The thing is, you know, without steam engines, we wouldn't have trains, and without trains we wouldn't have planes, and without you know, and there was this progress that was made and it catapulted forward the
human race. But that doesn't necessarily mean that they were responsible about it, right, that they built too much, they built too fast, they financed capital projects through equity sales at extremely elevated prices, and you know, I mean, but that doesn't change the fact that during the railway Mania the total route mileage of railways in the UK went from you know, like eighteen hundred miles in eighteen forty three to six thousand miles in eighteen fifty, so two
hundred increase in seven years. And you know, maybe we have to ask ourselves sometimes, do you need this CAPEX bubble in order to progress the technology?
Sure?
And I think that yeah, there are certainly areas, and I don't think that we'll know exactly where we say well that was irresponsible or where we say well that was a great business decision because you look at you know, it obviously is intertwined. You can say, well, I care about the CABEC side, but I don't care about the stock market side. But you know, the companies can sell
equity and fund cabex with that. And you look at some of the cell side estimates on electricity for example, and I have a great screenshot or actually it might just be an actual picture because I think this was in nineteen ninety eight or and it's of a cell side report that is talking about the info electric revolution and the fact that if everyone is going to have a personal computer, and every personal computer is going to be connected to the internet, well, you know, that's going
to be a billion dollars or a trillion dollars of spending on computers, and then there's going to be a trillion dollars of spending on the electric grid, and the electricity demand is going to grow at a thirteen percent keger for the next two days.
It sounds very familiar.
Yeah, yeah, it sounds super familiar. And then you look at electricity demand over the last twenty years and it's flat. And I think that that's just a natural progression of a new technology. That's something that almost has to happen where you have you know, if you want to deliver the promise in certain places, it's going to be overstated. And do we need a better electric grid? Yeah, we really need better electric grid. It's it's terrible, especially in
some places, it's just terrible. Maybe what we need is for data centers to get built in areas where they can just revise the electric grid. But I do think that there are areas where we'll look back and say that was arissible cap E spending.
What would you need to see to take money off the table from some of your AI plays or have you done that already?
I'm always taking money off the table. It's not even a question of like, I mean, my job is to invest, not to not invest, and it takes a lot for me to sell something and go to cash like a lot. You know. I'm a strong believer that there's always an opportunity somewhere. That got put to the test in twenty twenty two, and there were there were opportunities in planning
places on the long side of the short side. And I think that when I make that decision, I'm not saying do I think that this has reached a peak. I'm saying, do I think that there are better opportunities elsewhere? And sometimes that is just the natural progression of some a narrative in the market or just real things happening. I mean, in Nvidia has pretty much priced in the idea that we need to build out these data centers and now we have to say, Okay, well what else
are we gonna do? And you know, I mean, it doesn't matter if I'm a believer or non believer. It only matters if the market is all right.
James Vanguila and from Succrini Research, thank you so much for coming back on all lots.
Thank you.
That's fun. Yeah, Joe, I enjoyed that conversation. I like just thinking through investment ideas.
No, I like that one, just getting to like think about you know. So, actually what really struck me was his comment actually in.
The water part of it.
Yeah, well, what becomes the fly and the ointment of a thesis? And why when does it become like, Okay, here's a theme, but it's just not going to take hold, yes hard enough, so to speak, such that it becomes a real investing theme. And so the idea is like, yeah, there probably is going to be a lot more demand
for filtration in the future to clean the water. But with a little bit of a regulatory ambiguity now in the wake of the Chevron decision, then suddenly like this is just not going to take hold the way it might have in a different decision, and therefore it's not going to be quite as powerful as an investing theme is, Like it.
Was very useful.
Well.
I thought the framing of price and story mattering to thematic investment was important because there is a situation where you can be a little bit too smart and you see something that no one else possibly sees, and then you know that something just never gets reflected in the price, like there happened instance of that, instances of that throughout history, and so you really need both the I guess the underpricing or you know, at least the price to be
like relatively attractive, plus the momentum provided by that story to make really compelling investment. And then if you get something like in video where you know, at least up until maybe the beginning of last year, it was underpriced certainly relative to where it is right now, plus all that attention from investors, then you got this massive winner.
I'm so impressed by those drunken Miller comments where he's like, oh, yeah, they used in video chips for chat GBTAI seems like a big deal.
I'm gonna go along, and whereas me, I'm like, oh, they already know.
Everyone knew that they were like using in video chips so it's all priced into the market.
But that's why there are a lot of people saying, like a year ago, that it was all priced in.
Right.
Yeah, I hadn't seen that five below chart either.
That's no, so I hadn't looked at the chart in a while. But it really look if you.
Have a one hundred percent over two hundred to like one hundred, if you a few months, lety.
Just put that there is not much you could sell for five dollars in below in the world, in a world of one hundred percent tariffs.
Yes, I'm sure there's a pun you could do then about the stock price being below. Oh yeah something, But okay, shall we leave it there.
Let's leave it there.
This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
And I'm Jill Wisenthal. You can follow me at the Stalwart. Follow Ergust James van Gielan, He's at Saitrini seven. Follow our producers Kerman Rodriguez at Carman Ermann dash Ol Bennett at Dashbot and Kilbrooks at Kilbrooks. Thank you to our producer Moses Ondam for more Odd Lots content. Go to Bloomberg dot com slash odd lots, where we have transcripts, a blog, and a newsletter, and you can chat about all of these topics twenty four to seven in our discord discord dot gg slash.
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