Dylan Marrello - Raging Bull

Ladies and gentlemen, welcome to the Business Brew. I am your host, Bill Brewster. As always, this episode features Dylan Morello. I found Dylan through the Twitter machine. He was posting a lot of interesting ideas. And when I say interesting, I mean things that I don't see people talking about all the

time. This particular conversation is going to talk about a lot of companies that I do not follow and don't have any expertise in. But what I liked about Dylan's approach is when they said, hey, Mr. Buffett, if you had to generate 50% returns or whatever. What would you? Be focused on and he said the nooks and crannies of the market. I think Dylan is focused on the nooks and crannies of the market. I have not seen his returns. I don't know if he has any audited returns.

I just think he's an interesting guy to talk to. So should you find this conversation interesting, feel free to follow him at ragingbullinvestments.substack.com. I think that could be something interesting to take a look into some of his ideas. These are micro caps, These are small. These are my perception of the riskiest thing possible for a naive investor to get into. So do not listen to this conversation and go out and make

any dumb financial decisions. Also, we talk a little bit about Seaport Entertainment Group. It's a spin off of Howard Hughes. We talk about why Bill Ackman may have backstopped the rights offering. A subsequent conversation with my man Francisco brought out the point that I should have thought of at the time that backstopping the rights offering increases the probability that the rights offering gets done because it gives people confidence that the

money will be there. So that's obviously a component to this. I didn't mention that and mention it now. Anyway, this intro has gone long enough. As always, none of this is financial advice. Do your own due diligence. Please consult your financial advisor before making investment decisions. All of this. Is for entertainment purposes only and enjoy the episode. Before this music drops, I do want to give a shout out to my editing team at Speech Docs. You can find them on Twitter at

Speech and Docs's docs. Dax and his team is are fantastic. I moved from the podcast consultant to Speech Docs and the transition has been, I would argue, seamless. All I can say is that Dax and his team offer incredibly good value and they're very responsive and I very much appreciate what they do on the back end of this show. So if you are somebody who is thinking about starting a podcast, please consider Dax and his team at Speech Docs. That's SPEECHDOCS,

ladies and gentlemen. Welcome to the business Brew. I am thrilled to be joined by Dylan Morello this episode. I found Dylan through his pseudonym on Twitter. He is on on the Twitter machine and found him throwing out a lot of ideas that I don't typically see on Twitter. You see a lot of tech focused compoundary type ideas and Dylan, you see him a little bit more special sit slash asset

based. I guess if I were to summarize what I've seen you come up with over the last call it seven months or eight months or so. So anyway, thank you for saying yes to coming on. Well, thanks for having me Ando, Appreciate it. You want to give people a little bit of your background. Yeah, sure.

So I somewhat of an unconventional background for who I've arrived at, although perhaps less conventional these days, but with the law school route and about as purely as one could do it. So I did undergrad law school, then I clerked at a Court of Appeal and I got a job at a New York law firm as a commercial litigator and pretty quickly thereafter realized that was never going to offer me the lifestyle that I wanted. And by quickly I mean like on

day one and. You didn't like the the lifestyle of constantly being on call and having them work all the time? Exactly. And like you're not fully passionate about the work it entails, then all you see that's not manageable. They, the nature of the profession is that so you kind of get trapped, right? Like you've, you've done all this work, you're incurring debt, then you get a pretty nice paycheck. And so it does take a little bit, it's a bit of a challenge to get out, I would say.

So pretty much early on in my litigation career, I already kind of pivoted my mind to being like, well, what is my best exit front of us? And I had always, I had had an investing interest dating well back before that. Like I did do some Business School classes and I had an economics degree in my other grad and whatnot. And so, like, my mind had already been on the subject of investing a little bit kind of in the decade that passed while

I was an attorney. But kind of in the latter years, I really started to pick it up and get deep into it and then put myself in a position where I was able to quit the legal profession entirely, which actually was a recent decision. That was January of this year. On my phone was that. Honestly, I had no regrets at all about it. Honestly, I wasn't fully sure what was going to happen. And it's, it's snowballed. I mean, on into being on this

podcast 8 months later, right? But there's been a lot in between. There was an exit in January and I had had some investing success on my own for the years that preceded it, which was kind of what enabled me to leave. But sort of at the tail end of that, I'd started the sub stack, which I've been working on and that got traction relatively quickly kind of through Twitter. And that has just kind of

compounded into this, right. And so now I'm actually at the at the sort of back end of starting a small fund which is launching it within the next six weeks probably. And so, yeah, it's happened really quick. And as I was kind of saying to you before we hit go on, on the recording here, like I launched everything with anonymity largely for the purposes of kind of having enough confidence and also letting the ideas sort of speak for themselves, right.

And so Wet launched a Twitter account with the pseudonym. And I think because my background was completely in the dark, it really, like, led the ideas to getting a lot of attention because no one knew who the author really was. I mean, a lot of people obviously do that on Twitter. That kind of helped me position myself to get to where I am now. Yeah. And now it's just completely full time, although it's sort of been like this for a couple of

years, I'll say. And by that, I mean, just constantly looking at ideas, doing investment research, running my own account. And obviously the funds going to be pretty small at launch. So I'm not expecting all that much of A lifestyle change from the last year or so. And we'll see where it takes us. And obviously there's definitely another angle when there's some other people's money involved.

Yeah. But given, given the mandate and the size of the fund, I don't think it's going to be that much of A change at this point. Is there a market cap you like to play in or are you pretty agnostic? Definitely smaller, but I'm I'm definitely not one of these guys who's like only the must go liquid tiny thing possible. Although there are things in my book that are some 50 mil and quite a liquid, but there's also some 1 to 5 billion market caps.

Not really anything bigger than that, although maybe like a cafe will grow into something big. Yeah, so you on Spotify, but that was that was a one off. That was, yeah, I mean, when I was buying Spotify, which has actually turned out to be a pretty big home run, but it was trading down at like 75 and I think the market cap was maybe 15 billion. So and it just kind of had a a quirky angle to it, but it's not

usually where I'm looking. The thing that's enabled me to kind of get to where I am, because this seems like pretty trite, but there are a lot of undiscovered and overlooked things when you go small. And for someone who's willing to put the time in and turn over the rocks and beyond can probably spend way too much time on the computer, frankly. But if you're willing to do that, there are certainly things out there where you can actually get an edge.

And given that the size of the account I'm running is not prohibitive, it makes sense for me to fish there right now. I guess when I hear market caps that are that small, one of the things that I like to say or that I like that you said is you said I'm not one of those guys that'll only fish in that pond. There's sometimes I'll read a pitch on a micro cap and I'll be like, does this person like this because they like it or do they like it because it's a micro cap?

And I think sometimes the micro cap mind can see things that are not there simply because things are small. And it's like I, you know, I don't know that there's really any better value than something large.

I kind of simply agree with that and you also get into a situation where you might just not have any incremental buyers for it. So it do you think there is a sweet spot when you start getting from the 500 mil up range where there's more liquidity and there's just kind of there's more of an angle in which you can get some momentum in the stock. Although if you do get that in something very small, it can obviously go parabolic, right.

So yeah, it's a trade off, but I don't really orientate myself with those kinds of parameters when I'm looking at ideas, right? Like it's not so much like size or liquidity, it's more of like a mental model that I have, which is and you're learning to invest and like studying value

investing. There is this sort of dichotomy, if not contradiction between like the sort of Ben Grahamy net net early Buffett stuff and then the stuff that Buffett kind of did post monger, which I think is it, it creates some tension for value investors. And some guys are like I'm deep value and other guys kind of as you said at the at the outset here, kind of looking more at compoundary sort of things.

And what I try to look for in the ideas are things that perhaps can offer some harmony between that tension, right? So if there is deep value and some kind of qualitative aspect, which is really interesting, for example, like some competitive advantages, a big runway. Now, the only time you really ever find that bridge between those two ideas is where there is like some profound misunderstanding as to what's going on with the business, which is kind of why I end up.

In the small stuff. Because you're just more likely to find the qualitative aspect of the investment being overlooked, right? Like anyone in for the most part can look at the financials and tell you this looks cheap, right? But then the question becomes like, what's the insight? And so you get a lot of that either in small stuff or that the other angle. But she said at the beginning is sort of hard assets.

And I don't know if it's so much that I'm looking for hard assets as much as hard assets maybe have somewhat gone out of fashion. Yeah. I. Think there's some truth to that? That's maybe what's leading me to investing down that road, right. It's not like I'm necessarily after hard asseting, but like I do have some super asset light things.

But I think just because of the the dynamic in markets, right, when you get that real negative sentiment is where you can sort of find that opportunity where there is D value with quality, right? And and I know like we've talked about this before, but some of the real estate names, right? And I know you had a a series of podcasts about that, but you know there are some. Real estate, well, that was multifamily. That's kind of easy to get your

head around. I mean, then you get into office and like, well, the value guy and me loves office. The part that recognizes that I don't do office is a specialty tempers my bias towards liking things that are hated. But like fundamentally and and I don't, I don't think this is a unique thought to me, But like, I just I remember millennials are not going to move to the suburbs and I remember malls are

dead and now office is dead. And I just, I've, I've seen too many narratives on real estate be wrong to be like, Oh yeah. For sure. I think that's right. And so you're fading like when I think there's a raw consensus, but there's also, I am three, I am 3 publicly traded real estate companies. And all of them, I think what makes them particularly interesting is that they have an office component, but they're also not just office real estate

companies. And I think just a touch of the exposure to office is enough to put people completely off the idea. Yeah. I do too. And so there's been an opportunity in some names, I think to buy some really high quality multifamily offices or some multifamily real estate with kind of a call option on the office portfolio working out. And that seems to be working really well so far. But it's early in the game.

And maybe I'm wrong, but I mean, I like what you say about there's always this kind of narrative around an asset class that turns out to not work out, right. And so I think. Yeah, I think that's. Right as we get some insufficient office probably does all right, right, Especially if rates are coming down. Yeah, I just, I mean like there's clearly crappy office and there's clearly oversupplied

office. But I guess my bias would be that I've seen enough people say things like, yeah, I like this idea, I like this stock, but I can't own it because if it goes down, my clients are going to call me and I can't, I can't say I lost money owning office today. I'd rather just wait for it to turn. And and I think there's some merit in that, right? Like the the pro side of that is you're not buying falling knives

that, you know, kill you. The upside is or, or the downside is I, I, I do think it distorts behavior in, in ways that are not right business like yeah. And I've like up to this date pre launching the fund, I've not had to deal with any incentives like that right. And even once this vehicle gets going, I hope that I've established the right narrative with the LP's that like we are going to be trying to do things differently and not have a the kind of compulsion to follow the masses, right?

Like if we lose money on office, So what? Hopefully on net, those contrarian bets will end up paying off, which I think they tend to do. And as you say, you can't just go and buy every office out there. Some of them are not good. But that's kind of the point of stock picking, right? Like if you're going to go identify something where there is a broad negative sentiment around the entire asset class, but inevitably there are going to be some.

They're really strong, right. So in each of the three companies, I I think there's just a broad base disregard for those kinds of companies, which causes people to not actually look very closely. Yeah, two of those, the companies are not micro caps, right? I mean, they're more in the small cap range. They're they're liquid. People know about them, but I just don't think people are willing to look at them.

And also, it's funny, I spoke to Bill Chen recently, who I know has been on the pod, and he said something which struck me, which I think is definitely correct, which is that it's a lot easier to see the value in these names when you weren't watching them go down precipitously, right? I never lost money on these names on the way down. I was up looking at Reit's post 2020 when they started collapsing. And so I think when you can come at it with fresh eyes, it can be

a little bit of an edge there. Whereas I think if you were looking at these names, not even necessarily involved, but just watching them fall, you might be thinking, well, I thought that was attractive then and look what happened, right? And so you can get in your head a little bit. So yeah, I think I think that's kind of helped me maybe get ultra bullish on this kind of stuff. And who knows, I could be wrong, right?

But I do find that a lot of the kinds of guys closer to the real estate industry tend to be more skeptical, and I think that's because of what's happened recently, right? Yeah. And I think there's a few guys that I follow and I think they've been through O eight O 9. And I think maybe one of the better pushbacks that I've heard is that this is really just a

rates play. I don't know how much of that is reality in any given circumstance, probably the asset class as a whole is, but there's some guys I think that have some valid pushback. But I think the general consensus I I'm not sure I I buy into yeah, yeah, which to your point goes to the hopefully to goes to the stock picking ability, right? Try to try to not open Class C office. In over supplied markets for

sure. Yeah, there's supply constrained markets with quality assets and there's buildings that are pretty clearly trading at a big, you know, companies trading at a pretty big discount to their asset value. But the baby's just been thrown out with the backlogger, right. So I've, I've spent a lot of time there and that's, that's

just the realistic side. But it is kind of a, a broader thing that I'm trying to do when I'm looking for ideas, which is honestly pulling up the stock charts of the sectors and being like, this looks ugly. What's happened and figuring out if that makes sense, right? Like another sector that I spent a lot of time writing about and have a decent chunk of My Portfolio invested in is actually cannabis, which is

probably the most hated. Those companies, if I even bring them up, people start laughing like they don't, they don't even want to hear it, which gets me interested, right? Because when people, I, I own one cannabis company that trades at net cash and it just grew its revenues 40% year over year and it's cash flow positive. And these are Canadian based companies. And there's this really interesting dynamic there, which is that there's an excise tax

that gets charged on revenue. So on the top line, you're paying a tax and when that tax was initially contemplated at the legalization of cannabis in Canada, so going kind of back to like 20/17/2018, they priced it with the idea that cannabis would go for about $10 a gram. And so basically the tax is the lesser of $1.00 or 10%. What's happened is cannabis prices have collapsed because of a flooding of the market, right?

That's a capital cycle. And so you've had what people expected to be $10 a gram go down like 5-6 dollars a gram. And the problem is, is you're paying a dollar of tax on maybe a 5 or $6 sale. And so it's eating up a huge chunk of the top line of these companies. And notwithstanding that, really punitive.

Tax that they have to deal with they're starting to make money and so you kind of start thinking these are pretty robust companies that are able to you know still eke out a little bit of a profit when they're losing 1/3 of the revenue to the government before expenses. And what happens if and when the government gets some reason and reforms that tax, right?

Like if they, which has already been tabled before the Parliament in Canada. And so I would say it's a ripe fruit for a new Parliament to reform, in which case these companies will immediately start gushing cash, right? And so, but you look at these things and like, I think they're pretty quality businesses. Like they've established a big

brand power. What's kind of interesting about some of the like there's actually 2 specific, it's called organic Ram and Crass Group. And both of them have major shareholdings by the big tobacco companies. Yep. And so that gives them a huge competitive advantage, right? They have a much, much lower cost of capital because if you're a cannabis company without that, you're not really able to raise in the capital markets and you've got the existing distribution networks.

So I think they're pretty good businesses, but you know, they traded cash and so I think that's another example of sort of what I'm looking at. You had said that the tax was the low. I think you said. I don't mean to put words in your mouth, but I think you said the lower of a dollar or 10%. I think you meant the higher, right? Yeah, yeah, yeah. So anything below $10, you're paying a dollar. Yeah, I think something you're paying, yeah. Yeah, I don't know. I mean, I, I dabbled in the

cannabis stocks. I, I owned a lot of the collapse, which was super fun, but thankfully it wasn't a big position. But yeah, I, I guess the thing that has made it tough for me in the States is I used to think that the retail distribution would be a, a durable advantage. And I'm not sure. I still believe that. I'm not sure. I don't, but I'm not sure I do. So it's one of those things that's kind of tough.

I just kind of wonder if it should have been in my too hard pile because I still can't quite answer that question.

I've sort of taken the opposite approach, if I understand what you mean, which is that in Canada be retail distribution and production are held by different companies, right, Somewhat alcohol industry in the US And I do think that specialization is actually a competitive advantage rather than having a manufacturing segment, a retail segment, a distribution segment, I think particularly in the US, right, because as if you were dabbling in the sector, you're not able

to really expense yourself at this point, you know, spend there's nothing, right. And so you're really constricted and you can't operate across Interstate lines. And so I think it's created and this is part of kind of the larger thesis with the with the large Canadian producers is that I think the American cannabis companies have been sort of artificially constricted in the way that they've developed.

It's just not a business doesn't organically develop such that they can't touch another state and that they kind of integration like that. And so I think when the time comes, right, because these Canadian producers can't operate in America right now and the reason that BTI and Altria have taken the position in the Canadian companies is because it would jeopardize their US listing and I think have a full

host of other legal issues. And So what I think happens is when the time comes in the US where there's rescheduling or legalization, I think the big tobacco players are going to try to position themselves in cannabis through these Canadian

own entities. And because there's already a pre-existing infrastructure by the tobacco companies in the US that might just instantly give them a competitive advantage vis a vis the Msos, which are operating within single state lines and don't have that infrastructure built out. Isn't. So that's kind of like the larger picture thinking there and that might never happen and

could be down the road. But I do think that's sort of the mega bull case with these companies is that they get positioned through the big tobacco companies in the US and take the market. And they still have a sense that over time and, and this is I think where the bulls and bears and Canada's really differ, which is I guess it's a commodity. And so maybe you're going to have this sort of inherent cyclicality. But in another sense, like you don't get that with tobacco and

beer, for example. You have what is more an oligopolistic structure dominated by brands, even though the underlying product is somewhat of a commodity, right? Like, does it really matter if you're drinking Budweiser or Miller, right? Like, maybe maybe marginally, but at the end of the day, it's just kind of an OK beer. And I think people are sort of paying for the brands.

And so you might get a situation where there's price lapse and realization just cuz there's maybe four or five players doing all the cannabis in the country. Yeah. And who better to do that than the tobacco guys? Well, certainly to the extent that you want C store distribution. Yeah, like, yeah, I mean, like the branding in Florida is non existent because it's all medical. So everything has to be in like

a white container. Although they've started to kind of brand some edibles but nothing like out West. Right. Yeah. I'm based in New York and I don't think I've said it on the recording, but I'm initially from Canada. And so I've seen the dispensaries in Canada versus what's on offer in New York. And what I will say and what I find really interesting is that Canada wide you will see domination by certain brands already within the dispensaries.

Whereas I walk into a dispensary in New York and there is just a multitude of products that don't really stand out to anyone and there is constant turnover of inventory. Do you have something else in there next week? And so I don't think at least in New York and I, I would assume it's kind of true throughout the country as I don't think there's really been much development of real brand power.

Yeah, I think that's right. Until the extent you want actually economic profits in this industry, I think you're going to need to establish brand power. And that's, and that's more easy to do through edibles. Like the example I sort of give people is, and I have spoken to to some older folks in Canada about this, right, who maybe they didn't grow up consuming cannabis at now that it's been

legal in the last five years. I sort of opened their mind up to it. And there's this underlying fear that maybe I'm going to get too high or get the spins or I don't know what it's going to do to me. And so there's an apprehension about consumption. And what I found that happens is they try a certain brand of edibles and they say, this one makes me feel actually pretty good. And because they've now gotten comfortable with that specific brand, they just keep getting

the same one every time, right? Because they don't want to take the risk that another product is going to give them the spins or whatever. And so interesting by nature, it kind of has that inherent tendency towards a brand, at least in the edible space, because you are sort of at the whim of the producer, right? Nobody wants to get sickly high, no? And edibles are a train that once it starts, you can't. Hop. Off exactly right. It's not one that you.

Just say, OK, I've done. Yeah, exactly. Yeah, I don't know. It's very interesting. I think that the people that own Glass House would argue that in the US this brand stuff is too hard. So just go with the lowest cost producer that can do it at a decent price. I think they've done pretty well off the bottom. Certainly not off the top, but but nothing did in that particular space. That may be another one where people are so hurt they don't

even want to look. I think that's for sure, right? Like so so turned off by it, right? I mean. I'd suspect that actually did OK. Glass House. Interesting. Some of those, some of these companies are like, if you look at the financials, they don't look that bad. Yeah. But the stocks are just so blown out, right?

And there's another element to this, which I think if you're running institutional capital, not only do you have that like fear of what are you doing, you just lost money on cannabis, like obviously, but you also have a sector right now that is particularly prone to meme like movements, right? Like you'll just be 50% runs in a day and that moves in the other direction based on virtually nothing, like a little bit of signaling from the government.

Oh, interesting. And so I think until that subsides, it might be untouchable for most people. And I mean, yeah, there was when rescheduling was given the go ahead by the Dai think it was maybe in May or something. And you can look at the charts of all these things. Yeah, I saw everything ripped. Went flying and they retraced the entire game, right? And nothing's really changed other than things tend to move slower than investors expect, I think. And so all the games were just

getting back, right? So that's frustrating. And he's somewhat uninvestal. Yeah, that's, that's like Will Thompson's been on this program a couple times and he talks

about mining. There's a thing called the Alessanda Curve. I, I hope that I said it correctly, but it's basically like when there's a discovery in a mine, the stocks rips and then it takes a while to develop And it's like people just get bored of the time between the news and when it actually develops and they just sell the stock. And it's kind of like a, it's not like a through of disillusionment as much as it is just kind of people get bored.

If I find that dynamic fascinating, lack of patience, I don't know how pervasive that has always been historically or if that's magnified more now than it has been in the past. But I don't know if that's limited to mining. Like I, I see this in all kinds of things where you get excitement. And then one thing that I've been pretty heavily invested in for a while is offshore and that sector has ripped. It's been a huge success.

But there have been some comments from the company's this quarter suggesting not that there is a slowdown in day rates, but that these projects have been kind of pushed out a few months. And so you might get some weakness in the next quarter. And then at least what they're saying when we don't know if this will actually pan out, but the guide has been that nothing's really changed. We're just kind of moving things out three or four months and the

stocks have collapsed, right? And so it's like, it's like, does that three months really make that much difference in the grand scheme of your IRR owning this thing? And perhaps if you have quarterly performance mandates, it makes a difference. But if you don't, presumably that's an opportunity to just hold your breath for three or ten months, right? Like what what really doesn't matter. But I do find that dynamic

fascinating. And I think that's another edge for, you know, someone without those mandates or someone running APA. It's just like simple time of a drage, like just waiting it out a little longer than people are willing to because there is a lot of patience inpatience. Cannabis is for sure the worst of those. But I mean, it's, I think it says a lot about the people owning cannabis stocks, right? Yeah, they should be more chill, man. You'd think they would be.

Yeah, just let them play out, see how it goes. Yes, No, I, I mean, I, I hope, I don't know, I hope the Canada Spark, it continues to develop and I, and I hope that the government gets out of the way 'cause I, I haven't talked about it in a while, 'cause I didn't want to be known as like a weed podcast necessarily. But I do, I do think, I mean, look, it's a lot, it's a lot better for society than a lot of the things that are allowed to exist today.

So the idea that it shouldn't be allowed to exist, I think is asinine. I'm OK with people that say none of it should exist. That's like logically, you know, that's consistent to me. Sure. But once you let alcohol out of the bag, I think the idea of not letting marijuana out of the bag is silly. I think I saw a statistic. I might be butchering this, too, but I think it was that. And there are more people smoking cannabis daily in America now than drinking.

Oh yeah. And there are some slides if you go through some of the MSO decks, like looking at the size of the market in five years, right? And we're looking at something that's it's on parallel with tobacco and like a little bit smaller than beer, for example, right. Like there is huge demand here. If the government does get out of the way, you'll get an

organic consolidation, I'm sure. And if they don't, it's kind of a win win because, and I'll just put it back to the Canadian environment here, but that excise tax is essentially just killing all that we can. Yeah, you can't be small and compete, right? So you're forcing. Consolidation, they're almost accelerating it. And that's what I really think about the setup, right, is you almost have a capital cycle that works out either way.

Like either you cut the tax and these guys can start making a profit really quickly, or you don't and there's only going to be two companies left. Because like if you can look at the statistics, but like the Canadian bankruptcy fireways are dominated by cannabis companies because they they simply can't survive. And I was writing about this last week, but it is it has, this is purely anecdotal, but it

has to be true. It must be the cheapest product in Canada for what you get like is cheaper than it was 20 years ago. Oh yeah, right. And so if you just think about what that means to the upside, right, Like if you start getting real price rationalization because the the high cost guys are exiting the market pretty quickly, everyone's you know, everyone's heading to the exits and you start getting price tick up and there's a lot of reef for

that price to run. I don't think you see any volume declines. And so these companies I think and they also kind of have embedded operating leverage. I think these companies can have financial profiles that people are completely asleep at the wheel on right now. And then again, if you get the the loss of the government intervention with silly things like this excise tax, you might be looking at some like really large cash flow producing companies that are trading at net cash, right?

I don't know. But on the downside and then kind of what I find interesting and why it's asymmetric is like, I really know how you lose money with. So Kronos Group, for example, which is my largest cannabis clay is an $850 million market cap and it has $800 million of cash. I ended up burning cash. And so you have a huge downside protection even if this doesn't work out. Yeah, unless they go out and

spend the cash somehow, right. Like if management gets bought, I guess the thing that gives me confidence layer is the sector evaluation is so depressed that they can basically go out and buy anything. Like you obviously take a risk of incinerating cash anytime there's cash on the balance sheet. But like yeah, but given where some of these. Do you worry about management just paying themselves a ton? I feel like screw it.

Like do you ever worry that the management's just like I'm, I'm just, we're not going to make like the stock isn't ever going to work. We're just going to pay ourselves a bunch. That'd be a whole lot. 840 million to just extract. From an entity would be a whole lot. The history of that money is from Ultra, who own 42% of the company. So I'm stealing from the mob. And have half the board and it's best. It's been a complete loss for Altria, right? Like I think they implied

valuation. I think they bought in at an 18 dollar share price and stocks at what 240 now. So I think they gave Chronos Group maybe 2 1/2 billion dollars and now it's down to 800 mil. But I don't think being a Long story short is I don't think that there's much appetite for them to go just light the cash on fire and start paying themselves like they have to do something with it by mandate because I think, but for Altria having provided that cash, I get that casters is there

organically. The thing that would make most sense to me is just a huge tender for shares, right? You're trading at cash, you have so much excess cash buying just buy back all the stock. But I just think it's earmarked for other reasons, right? And what you might start seeing and what I hope we start seeing is kind of start rolling up some of the smaller producers, right? And again, just accelerate the consolidation because you do have a ton of subscale players

that are still left. Interesting. So it looks like what's going on here is they're making up their SG and A. So gross profit minus SG and A is being made-up in interest income. Is it Yeah, cuz they're, yeah, exactly. They're in so much interest in the cash balance. But I mean, so if you pick all the financials, you can see how long there's there, I don't know where you're looking at this, but there's, there's a gross revenue line and a net revenue

line, right? Yep. France between those two is the excise tax. Yep, 33 million on 1/20. That's a huge chunk of money, right? So, yeah, if you look at Organogram OGI, which is I think the closest company you'll find to Cronos Group, they actually produced a GAAP profit last quarter. And you have I think something that would be close to a 50% EBITDA margin if you got rid of that tax, OK. So I think ahead and I just say, is there like, is this tax sustainable, right?

Because yes, it generates a fair bit of revenue for the government, but at a certain point, if you keep it going, you're just going to kill the entire industry and lose that tax revenue. So it doesn't seem to me like that can be sustainable. Maybe it goes for a few more years, but at some point you're just going to kill the revenue at the source. I extinguish the entire

industry. And so the government, even if they don't like do us a favor, are going to have to just do that out of, you know, purely selfish reasons at some point. And if you own a company like Crown Ass or Anagram who can survive for years with their current cash balances, you're kind of waiting that out, right? Like.

There's no assuming interest rates continue, but but to your point, even if interest income was off the balance sheet, if the income statement you still have 10 years, well call it 8 years a runway on, on. Crown US and just, you know, to go back to the pricing thing, right, like prices are. All time depressed, right? Like this is like a commodity, like you think like an oil company sell a, a barrel at like

40, right? And still kind of eating out of profit, like not losing money at least, right. And so I don't and things can always go lower, but it is absolutely ridiculous the price of cannabis, right? Like you can got you can, you can get like poor quality ounces of wheeze at a dispensary in Canada for like 50-60 dollars, right? So yeah, we're talking oh, for an ounce. Yeah, that's a. That's a whole lot. Quantities that didn't punch people for a couple months, right?

It like, yeah, it's not not sustainable and they're still doing OK. So I just see a ton of levers to pull on the upside. And then the worst case scenario is, yeah, maybe they start burning cash and like it doesn't work out, but they trade at cash. And so the downside is minimized, right? Like I've, I've learned to be extra careful with the idea that you have as strong of a margin of safety as you think you do

sometimes. But in a context like this, I mean, it's not the kind of thing where you're going to lose half your money buying at these valuations. Yeah, right. So whereas the upside could be multiples. Yeah, well, and I guess in theory, even if you can lose half your money, if the upside really can be multiples, you can, if it's position sized, you have confidence then then it can work, right. Exactly. I don't have a good answer for why I haven't followed along for it going on recently.

Yeah, but. I mean, it might just be that. I mean, you're not allowed enough following it, right? Like almost no one is. Yeah, yeah. Although. People will learn I'm pitch less, right? Like they actually just roll their eyes and like. Yeah, I would. I would not roll my eyes that that I know is foolish, but I also I don't know, it's weird. Like I said, I got to the point where I was like, why isn't this sold in C stores?

I is the retail, I guess I'm maybe part of my problem is I'm looking at it from A to US centric and maybe even East Coast centric problem. I mean, maybe the people out West have a much better feel, yeah. Yeah, the US landscape is more complicated at the time, Yeah. You got a whole lot of states that really need to rely on the revenue. Florida's still trying to keep it be like prescription based. And then I don't know.

I've had my license lapsed twice and the last time I did it, I was like, I don't even know if I want to go like mess around with the doctor anymore. Like doctors quack. They're going to charge me 200 bucks. I don't know. It's almost not worth it. Sure, it's annoying. I have to like look at this person and try to take them seriously. And I'm like, you're an idiot, right?

Sorry if you're listening. As as the demographics of the country as the millennials get older and Gen. Z gets older, I just, it's hard to envision there not being an appetite for this legal at a national scale. Maybe I'm long about that assessment, but I just, I can't see such a convoluted regulatory landscape persisting for that much longer. You either just you either just legalize it or you don't. But like the way it's operating right now is completely insane, right?

Like you can't navigate the infrastructure of this. It's terrible for the companies, it's terrible for investors. Capital markets largely closed to these companies, right? Like there's just it doesn't need to be this way. And I think that there is more than sufficient political will to get rid of these barriers. I don't know.

It's interesting because and not to talk politics, right, but like, it's, it's not really a favorable environment for either party because you have, on one hand, Democrats kind of being increasingly focused on regulation and the administrative state. And then for the Republican side, it's just kind of like a sin, right?

There's still that evangelical taint which is evangelical wing of the Republican Party, which is really not interesting as in see what's happening in Florida which is not even really evangelical. All right. But you have kind of both sides that make this way locator than it needs to be, but hopefully one day. Yeah, but it's kind of why play the Canadian ones, right? It's another reason for it, which is that it's already legal in Canada and there's no way we're going back on that.

Is that why you guys can't? Build enough housing. Everybody's always Stoned is moving too slowly. Yeah, they're like, come on, man. I don't want to build stuff though. So when you're messing around and I shouldn't say it that way,

I shouldn't say messing around. When you are researching these smaller cap companies, how do you get around the public company costs that that is necessarily associated with being smaller and how do you think about some of the incentives and some of these smaller names? Yeah, it's it's a good question and it really depends.

Sometimes you do see, sometimes the lack of scale can make it interesting for more of like an event driven setup where you think, hey, this thing is going to get taken out right. Like if you have a company where there's a real product there and it's pretty good and the underlying economics look attractive, but then you have this bloated like corporate SGNA expense, which is kind of what's even bloated, but it looks bloated because it's so large in relation to the rest of the

company. That might kind of be a signal actually where you're like, hey, maybe this is going to take in private. And I've had that happen before and I do own a couple names right now. Or like, I think that's kind of the base case of how it plays out because it's interesting when you go really small, you do see a lot of companies where you wonder, how did this even end up public, right? Like, why are you public? There's always some kind of interesting story there, right?

Maybe it's a maybe it's just a fall from grace and it's now tiny. Yep. Or it, the law like kind of SPAC, the dynamic stuff like that where you're like, how the hell and or sometimes it's like really, really old companies that went public for whatever reason. It's not even that easy to ascertain, right. And that can create an interesting way of looking at things where you do kind of look at the incentives and you say, why are you here? And sometimes it's a problem, right?

Sometimes it is just someone paying themselves an egregious salary and there's nothing you can really do about it because like have control of the company like that. Yeah, but then you just passed. Then there then there are these opportunities. I mean, to talk about things that have fallen from grace, right?

Like that my largest position right now and it's really turned into a big winner is this Canadian company called Cypher Pharmaceuticals. And if you look at the stock chart on that, it went like, I think it felt like 90%. And it's actually kind of it's starting to come all the way back up. You just see this U-shaped chart and, you know, basically what happened was a series of poor acquisitions and a paddock Cliff for one of its products.

And then you had the founder son step in as CEO kind of at the bottom. He's completely turned the company around. And so there you had a setup where this is a tiny company, but only because of a bunch of things that have gone wrong here and it's actually rather good

business. And so you're kind of you're starting to see it now like I think it's maybe the market caps 300 mil or so. It's just getting bigger and those concerns about like public company costs start to get a sway and obviously the larger the market cap gets. And so sometimes you do just see like this should this is only a micro account because it's fallen from being a larger company and we can get back there.

And therefore you're willing to kind of just not, it's not a deal breaker that they're burning some cash on on corporate costs, right? Another situation makes absolutely no sense, but you can get sometimes the economics like the unit economics are just good enough to justify those expenses, right? Like that happens to you sometimes. But you how do you find cipher? How did I find it? I actually found it.

There was a. There was an right up on the Valley Investors Club on it. I think it was pitched in like the $2.00 range, right? And but what happened there was the stories it, it's been a really, I mean, it's a worthwhile kind of case study because the setup has continued to kind of morph into something new.

And each step along the way has offered like basically say at $16.00 today, I don't think it's that much more expensive than it was at three like things that just keep captain proving right. And so when it was initially pitched on Victoria, it was sort of this really little multiple asset light, like kind of like a coupon, like a bond coupon yielder, which is sold like a legacy pharma product. And it had a ton of cash on the

balance sheet. And it was like, hey, you can get like a pretty nice free cash flow yield on this and you get a free call option on this drug that they have in the pipeline. So then that's kind of when I started looking at it. And then the stock goes from like 2:00 to 5:00. And then they filed a prospectus for a substantial issue or bid, which is basically a tender in Canada, like a large buyback. And you have to file accompanying that is like attached to the valuation report.

And so I'm looking through this prospectus on the buyback, which in and of itself is pretty interesting because they have too much cash and they're cheap. But you go into the valuation reports and there are these projections for the company's operating income based on the pipeline assets getting approved. And you can see it goes from like, I want to say, 10 billion of operating income to like 35

in the course of a few years. And so you're looking at this and saying, well, the stock 5 bucks is at like 2 times operating profit in a few years if they're right about this. Now in the micro cap space, how many people rent that prospectus? Like very few, surely. Like I'd be shocked if more than a couple 100 people read that. That's probably even too high, like at the time, right? Yeah. And so then it kind of leads to, well, what is this pipeline product and is it going to get

approved? And I'm certainly not a biotech expert, but in this case, it turns out that this product is already approved in 13 European countries, right? And so that lends a ton of credibility. And one thing leads to the other. And I mean, it still doesn't have any other American approval. But it turns out that doesn't really even matter, probably because of all the groundwork that's been laid in Europe. And so that kind of starts picking and starting to become more popular online.

That starts getting traction. Stock goes from like 5 to, you know, 8. And then last month they took that massive pile of cash that they've been building up on the balance sheet and they bought asset which double S their operating profits and really transforms the business strategically in many ways. But kind of the most predominant way is it turns it into a growth stock because this asset that bought has a ton of upside growth potential.

And so we've gone from this like basically no growth cash shell with one product that just kind of spits out a nice coupon to gross the asset. I think that's probably going to grow at like 35% a year for the next several years. And so it deserves that higher multiple it has now, but it's also like not only have you had very big multiple expansion that you've had the earnings number grow a ton, right?

Like it's I, I think conservatively even now we're looking at like 5 times growth and operating income by 2027. And so it's a worthwhile story to I think review because kind of shows you what can happen when, well, a, you have a really good manager at the helmet of micro cap, right? Like ACEO owns 40% of the company came back incentivized to turn this thing around. So it's a really good capital allocation like very timely buybacks. So we're getting kind of see the importance of that.

You can see the importance of an asset light company that doesn't need capital to run its current business, right, because what you've had here is so much cash flow generation. Cash with this. Enabled this transition, right, like they're this is this company is so asset light that there is no cash flow from investing section on the cashless statement, right? Like there's zero cap and very little working capital requirements.

And so basically you have this cash generative legacy product and then what are you going to do with that cash? If you buy that at a low multiple and you get good capital allocation, you might get a situation like this, right? Like obviously it's not going to happen that option or something goes paramolic like that. But if you spend enough time looking at micro caps, you will find that that's not an outlier. Like there are examples of that happening with pretty decent regularity.

So I think if you develop some good pattern recognition there and I think really importantly have the discipline to say no to honest everything, there's definitely opportunities like that for real outsized returns, right. And you're not, it's not something that's on, off or as much as you move out them market caps, obviously. Yeah, I don't know. When I was on value after Hours, but I said something like small and expensive might work well.

And I was thinking about some of these Med tech companies that have gotten like that whole sector and not just Med tech. I mean, I realize Cypher is pharmaceuticals, but yeah, I do I kind of understand why small caps are naturally a place where that type of business would go, especially if they have R&D components, right? Because they do kind of need access to capital markets to continue to spend. And I can totally see why going back to our conversation about

investors get really tired. I wouldn't follow on offering after follow on offering like can get really tedious. And then sometimes something can hit or the OR the time they put in since 1998 finally has the technology of today, right? It's actually becoming the vision that is the reason the company went public, right? And like I do, you got to sift through a lot of trash to find some gold, but I don't know any situation. In life where that's not true,

that's exactly right. And, and I think actually that that point about sometimes the technology takes a long time is super applicable. And even more so just like the function that this business is attempting to fulfill might just be really delayed, right. And there's another one which is back earlier than, well, it's actually, I mean, if you look at it's, I think it's a 10X in the last five years. But I just got involved kind of recently.

And I think there's a lot of upside in it has some similarities to Cipher, which is a company called BTE Water. And what they do is water treatment from mines. So basically you have a regulatory landscape that is becoming increasingly stringent. Yeah, I would think mining water and mining runoff, I would think would be highly, highly regulated. Much every mine you're going to come across has some kind of water runoff concern, right.

And huge amount of regulation. So this is one of these companies where the service is mandated by regulation. There's nothing you can do about it. Historically not a bad place to play. Yeah, and the miners are not cost sensitive because they have to do a small fraction of what they're paying for at the mine, right? Like they just they just want it in their regular on in their filings with the regulators, right, So they can get the mine approved.

But. Is this one of these scenarios where BQE has demonstrated that there is sufficient a good? Like a good enough? What's this? What's the word? I'm trying to think of Steward of the Water that like once they're proven that they can do it at this mine, all of a sudden the next mine just says, well, we're just gonna use BQE cause like why mess around? With anybody. Else. You know, I think we're getting there, right? Like it's still early, but for example, they've worked with

Glencore for 20 years. That's not a small firm. No. And what's interesting about this business is that every mine is unique. I like you're kind of building an ad hoc solution for water treatment at every mine that exists because the kind of contamination could be selenium, it could be something else will require its own method of treatment.

And So what what they've done and what has then this is kind of getting back to what started to be honest, which is the transformation of the company, right. So you've had on one part of that is just these guys have existed for a long time, but it's only now that these regulations have become so extreme that like they're, they're, they've become more integral in the mining process. Two, you have kind of the cyclicality of mining back on

the upswing. But three, what makes it super attractive is that they have changed the operating model in a way that makes it far more attractive. And So what they do now is they come in and they provide what is essentially consulting services to the minors during like the permitting and development stage of the mine, which they just

charge a consulting fee for. And then once the mine is ready to go, the miner actually pays the CapEx to build out the water treatment facility and BQE charges was essentially a toll on the volume of water treated. And that could be for 20 years because it generally by regulation is just going to have to run for the life of the mine and in some circumstances, even after the mine shuts because there's continued runoff.

And So what you actually have is an asset light kind of full booth and a lot of white space because obviously there's a lot of mining development and this is the tiny company like they don't need to, they don't need to penetrate more than 1% of this market to be a multi beggar.

But they are kind of at the leading edge of certain technological aspects of this, particularly selenium treatment, which has become a particularly pressing concern due to some environmental disasters in the last 20 years. And so you basically have these guys coming in, investing nothing in the project and then just clipping recurring revenue potentially for years, right. So you kind of.

Again, you get that like quasi bond coupon structure, super asset light, very high margin, which then frees up all the capital for a shareholder returns in one day, right? Like that's kind of the that's the hope it's. Wild. The gross, gross profit in this thing went nowhere forever and then started to go somewhere. What they were doing before this is actually. First of all, this is. Tiny for anyone listening, this is very tiny. Really do your own work. This is This is high octane stuff.

Yeah. It's 7 million in gross profit, Yeah, but it was, it was, it was like 1.5 million for, I don't know from 2013 or I don't know, maybe even 2008. When they have a project that I believe is going to become an online stream, which could just double their recurring revenue. Like what's what's happened is the way that they've charged for the services is that their largest project a few years back before this transition was a joint venture in China where

they did water treatment. But how they got paid for that, and this is still on the books and it's still a small part of the business, but they'd actually get paid because when you treat the water, you extract the minerals that have been caught in it, right? And so you would. Get tell me they sold the minerals. They sold the copper that. That's a bad business. Terrible business. It was in very bad business.

They're actually carrying the facilities on their balance sheet, paying the cost to build them out and then getting paid with commodity pricing, right? So it led to a complete disaster. They brought in you CEO and about 10 years ago, Glue, I think is sort of the one who came up with this model for the industry. And it seems to benefit both the miners and the service providers. What if you think of this more as a service provider now than like well before was a provider

of inventory, right? Like that kind of like they built these plants for the mines. And so it's been a radical transformation. And it's one of these things where, yeah, you're right, it's tiny. It's a liquid, but the runway is very big and given the nature of the model that growth can be captured without really any capital reinvestment. And so you're not kind of you're not relying on your balance

sheet to capture the market. And so this is a kind of setup where I think you could see if something really turned into a larger company if they execute well. Interesting. It's funny, it's not everyday that I see a a shareholder list that is looks like it's all people. Yeah, yeah. The three largest shareholders are all individual people. Yeah, yeah. And all of that 240,000 shares is at 65 bucks a share Canadian and it's not nothing.

Well, yeah, I mean, and this is again what make it almost, it's like a quasi private investment, right? Because there are 1.3 million shares outstanding and more than half of those are controlled by those 3 shareholders and then the CEO and a couple board members. So really you've got to float somewhere in the neighborhood of 600,000 shares at 6 plus Canadian. That's not a lot of stock ain't like no so, but you know is that. Part of why it's tripled, you

think? Well, I think it's tripled because their earnings power is kind of starting to manifest itself here, right? Like you have finally you've had that inflection, which is not unique to micro caps, but where you do have the recurring revenue part of the business now take over from what was previously that joint venture copper part of the business. And so you're you're starting to

get higher quality earnings. You've had you've had the kind of legacy code declining and the and the new model increasing. And so people are trying to put a higher multiple on it because the way that they have laid out their projections, which I think is definitely feasible, you can sort of see like they did four and a half million of EBITDA last year. They might be tacking on a million or two every year just based on getting one or two new projects, which is not a

Herculean feed by any means. So you have a really easy way to 50 to 100% growth in recurring revenue for several more years here. So I mean, if you look at the multiple, it doesn't seem cheap for a small business like this. Yeah, no. But if you look ahead 20 times EBITDA or so, yeah, but it's growing at 100% a year, right, so. That old EBITDA to growth.

Right, Yeah, yeah, yeah. And at least the, the Azona, what they call company maker projects, which they haven't really disclosed much of the details on, but if you're willing to do scuttlebutt, you can kind of figure it out. And so I've written about one of them on my blog, but it's, it's obvious that this is their project. Cause the mining company has to file a document and it's a Canadian mine have to file a document with regulators explaining how they're going to treat the water.

And you can see these name all over it. And but what you can also see is what the miner expects to pay for the water treatment services. So you can sort of like backdoor that into what they're going to generate from this project which is clearly going online. It appears to me that I think they're doing $8 million of recurring revenue today company wide. I think this project will contribute a further 8 million

of recurring revenue. And so that double s the recurring revenue and it's 50 plus percent margins with some operating laboratory because you've got fixed cost GNA, it's really yeah, Icarus margin, Yeah, interesting. How the hell do you come across this thing? Honestly, this one somebody dropped into my DMS on Twitter and said you might want to take a look at this. It's better than some X-rated thing I'd rather have people drop good good ideas in. Yeah.

Well, I think I might have. I think I tweeted something. To the to the effect of. Like what's a Canadian micro cap that could become the next Cipher Pharmaceuticals or something? And somebody messaged me and I looked at it and it didn't hit at all. At first I was like, I don't, I don't understand this. Like 3 segments like this copper business looks terrible. It just didn't click for whatever reason. Then I got asked to pitch a stock on like a Twitter Spaces

forum. Oh, and you were on that. Yeah, and it. Was like the micro cap forum right? Yeah, yeah. Well, I think there's been a few of them, but I was on one and it's very, very micro cap focused. And it was like, OK, well, no, the audience like some of the things that I don't aren't going to work here. So I kind of started like thinking about it and then that

got me looking at this. And upon closer exam, like the stock was at 40 at the time and upon closer examination, I was like this actually super interesting. So I did a write up and I pitched it on the spaces. But before that, I mean, there was very, very little attention on that. There still is. And like it remains to be seen if this one's going to work out as well. But I mean, it's worked out very well for the guys who bought it five years ago.

You don't know how you would have discovered it at that point or even gone liquidity. Like I think that was it. I think that was a private placement raise, like if you wanted to buy stock back then. Yeah. Yeah, it's up what I'm looking at the chart here, five years, it's up to 800%. So those legacies shareholders you're seeing in there, I think have done super well. But yeah, I mean, it's a big position for me.

And it was kind of probably the idea that I've been most associated with like since I, like launched the public persona. Oh, interesting. Yeah. I think of you for Howard Hughes. Well, it's one of my favourites. Because I was like, I don't know, you're just hammering it. And I was like, this dude makes a lot of sense. And then I got a buddy that owns it that I've known for a while. He bought it. I think he bought it from the General Growth. So it was like. Wow. And so, yeah.

Yeah, he's owned it for a long time. And looks like Ackman might try to take it away from us here, but. Yeah, Yeah. Well, you know, we'll see. Yeah. That was kind of always the risk, it seemed. Well, I mean, yeah, if you it's hard to complain if you got a big enough premium, but I'm skeptical. Yeah. I don't think that people that are going to be selling are going to be totally thrilled.

It's not a. Counterparty that I think people get like screaming deals from I I'm not even saying anything like negative about the guy. He he owes his clients a fiduciary news. He's assured guy. I mean, I don't blame him, but it's it's unfortunate timing because it looks like the business is about to really in

fact, of course, right. The part of the Seaport spin and Bill Chen may have put this in my head, but that I didn't understand is I understand wanting to separate the entertainment assets and like sort of the housing and the office assets. That minority, the minor league team, I think should have stayed with Howard Hughes because I think it's like part of the community. Yeah, right. I don't know that you want a separate public entity trying to raise ticket prices on minor

league games. For your community, Yeah, it's interesting. I kind of my view of the like I, I own a good amount of Seaport as well. I think it's actually, I think it's pretty interesting. And I have sort of thought that the baseball assets went with Seaport for two reasons. 1 is that it just, it's not really, it's not an MPC and I think they're really trying to just be like we are clean real estate development kind of NPC company. But I also think it doesn't fit with Seaport either.

And it's possible that that might be an asset that they try to shop pretty quickly because you have a lot of funding needs for some of the Seaport assets, like the actual New York Seaport assets and they're burning a ton of cash. But the break up value, like, I don't know, hopefully see what did Seaport spin. But like, I think the breakup value is like pretty clearly like 100 bucks a share versus 25. But nobody believes in the

story, right? And you have you've got Ackman with the potential to take like up to 70% of the company on the rights off, right, If no one subscribes and it's cash burning. But and kind of going full circle to how we started this, like my bad, is a hated collection of assets, right? Like if you want to, if you want to look somewhere where people have kind of lost the ability to think straight, I think that's a pretty good place to look.

Not saying that. Why do you think they've lost the the ability to think straight? It's it's always been on the comma, hasn't it? It's just been like problem after problem. Such a disaster for Howard Hughes, right? Like I think they sunk a billion into it and but they took a $700 million impairment last year and it was like advertised as being their crown jewel. And I think a lot of like vanity

went into it, right. You had kind of just like, let's buy the slug of Manhattan and put some luxury restaurants in there. And it just it, I clearly spent way too much money on it. It never worked. And Howard Hughes itself as a result of this and due to some other issues, is also really hated. So interesting to get a dynamic where the parent company of the spin is already something that people probably don't like thinking about very much. It's not a particularly popular

stock. And then you have just spinning out like the piece of that that's hated even more. But the way I kind of look at it is it's like it's a piece of Manhattan. Like it must be worth something, you know? Unless, unless it's completely misused and you got to tear it down and rebuild it. But I I mean. Yeah, I just and then there's everyone has their theories and and playing the game.

The game theory with Bill Ackman is always doesn't really get you anywhere, but I do kind of first of all, why is he willing to spend 175,000,000 to backstop this thing and have his LP's? Presumably it's it's within the Pershing structure. So you're going to own this like micro cap in a much larger fund

doesn't fit the mandate at all. But then the thing that makes it even stranger from an incentives perspective is to flush Seaport out, put yourself in a situation where you might have to end up owning most of it anyways through a backstop and then putting a bid in on Howard Hughes, right? Like you might just end up in a situation where Ackman owns both these assets again, separated. So I've spent a lot of time trying to figure out what his incentives are here.

I'm not sure if there's I've heard so many different ideas. It's possible he just got frustrated with the Persian US debacle and then has just pivoted back to wanting to buy our cues. There's a ton of interesting theories out there. I don't think anyone knows but it is kind of odd to spin it to spend all this money on the spin off right? Like a power to use I think spent like 30 mil. Kind of like getting the whole thing spun out to then have Ackman buy both the companies

separately. Yeah, that would be a little odd. It's a little odd, right? But I don't think anyone knows what he's thinking. I like both the assets and like. My guess is he's thinking he's going to make money. That's my guess.

After that is true. And but when you see that like the break up value of the Seaporn assets is probably a billion and you can buy it for like, like it's, it's, it's incredibly cheap here because pro forma this rights offering they're doing the enterprise values like 230 million at 25

bucks. And then there's a bunch of data on that which is not a recourse and you could probably exclude for your calculus and at which point you have like a enterprise value that's like in the 100,000,000 and the baseball assets like the baseball stadium itself cost 130 million to build five years. Ago. I'd assume you want to replace it. Sure. Yeah, I mean like. It could just be a complete misallocation of capital haircut that in half. Right.

Like call it sound, that's still a good chunk of the enterprise value. And like non core asset, you get all these buildings in Manhattan, I know that they're cash burning like there's there's a lot of hair on it. But my kind of Occam's razor for Ackman's incentives here is that he thinks that it's worth a lot more. Yeah, I mean, look, I, I think, I think people can have opinions of Ackman. A lot of them can be driven by

how he uses Twitter or whatever. But I, I don't think that anything that I don't think it's valid to think he's not in it to make money. His, I mean his track record would suggest he is I. Agree, but people and like I don't necessarily subscribe to this view. Whether or not you get taken under is sort of a different issue. That's the. You're not on the same side of the table necessarily.

But she has to buy per the rights offering backstop, what could be a majority of the company at $25 a share, right? And it's basically at 25 right now. I think it's gone surging today, but it's in and around that range. And so it's not like like the take under thing. Maybe he can maybe he can grab an extra 30% of this for a really low ball price. But he's already having to pay what we're paying at 25, right?

So I just, I feel like he just thinks this is really cheap and something that could happen here. And as it goes up 4X, he's got a billion dollar market cap in Pershing, which makes a lot more sense. But I don't know, it's hard, I think. I think because of the distrust that a lot of investors have for him, they're distorting movie incentives. But I could be wrong too. Maybe he is up to something. But I just think he probably thinks it's cheap, right? I don't know. I don't know.

He's been doing a lot of things, whether or not it's the spark in PSTH. Yeah. Whatever you think about him, I think he, I think you can't not give him credit for always trying. You think, right, like he is. He's a very resilient guy, seemingly, yeah. And he seems quite talented at real estate. So yeah, absolutely. I mean, yeah, he's got his big failures, but he never keep,

never stops trying. So I don't know what he's going to do with these two companies, but I do think it's about Howard Hughes and Seaport are really interesting entities to look at whether from an investment perspective or just like trying to curiosity. Yeah, very it's a very curious case of of very kind of end of one situation and see where those go, I have no idea. But I do think that what kind of

prices are pretty interesting. The thing that still confuses me about like the REIT series, I mean it doesn't confuse me. But I guess the question I cannot answer is it would have been nice to see if rates had continued to go up with the stocks have worked. Because you know, the question that I said to Bill the last time he was on, is it, is it really just a rates trade? And I think these sort of fall into that same question, right? Is it, is it rates or is it

really cheap and. Yeah. Maybe the answer doesn't have to be 1 or the other. Maybe they can occur at the same time. Think. That it's both and what I mean by that is I don't know if the stock works if rates were to go. Up but like. Does the business work and will them market eventually just like give it its worth, I think are different questions, right? Like I always found the Howard Hughes in the last couple of years, like trading on rates to

be a little bit ridiculous. Like obviously that's impacting the cap rates, but like you have like what is a pretty like decent capital stack and so and a company that's just like, but yeah, rates are higher, it's puts pressure on cap rates, but also NOI is growing a lot, right. And so those two things are are fighting against each other.

But I do think that like there is just this general flow of funds going in and out of these names based on the anticipation of war rates head, which I can kind of like the cannabis thing, I think sort of makes people pass, right. Like if you have a quarterly mandate, well, it's like, there's nothing I can do about these. Like flow of funds based on like some of your rate expectation is nothing to do with the company really. But maybe it's better just to avoid this because it could get

money. And that's what happened. I mean, it was when I first started tweeting about Howard Hughes, it was in April and I think it had dropped that had dropped below 60. And I was a company that I'd watched for a long time. And I just kind of thought like, this doesn't make a ton of sense, but it was at a point where people were pretty preoccupied about the direction of interest rates, right? And so it created an

opportunity. But I think I think you're right to say that like if rates just kept going up, this probably wouldn't work. Yeah. And look, I mean, I what 6 months is not working or or not working and that that's only been four months. So that's like short term stuff. But I I agree with you. The private marker, from a private market owners perspective, I don't think the rates really matter that much.

But from public ownership perspective, yeah, it is kind of the thesis, which is a frustrating thing sometimes about public equities, right, is they may just not trade on fundamentals. Well, you know, Ed Castle said something about smaller names that I thought was pretty sharp, he said. A lot of people don't like to to own them because if you go into like let's say it's the 30th of of some quarter end and somebody just decides to puke it like your mark, you're kind of screwed.

Yeah, for the quarter. Yeah, right. Or I mean, if you have monthly marks or whatever. So you really need, you really need to have like that intestinal fortitude to just. Not. You often have some kind of alignment with your LP's, right where and perhaps some kind of compensation structure that's not based on that because it does make it difficult, right? Like if you have someone just decide they need out of the

stock drops 20%. Yeah. That can ruin your compensation for the year, right, depending on on how your fund is structured. So yeah, I I get that. But at the same time that volatility can hugely be your friend. And I think if you keep at it and stay disciplined, then perhaps over a longer periods of time it can actually help your returns. Yeah, like few following a stock flows here and said, oh, this is actually BQE though when I was talking about it just it, it dumped a couple months ago.

There was a director who had been, it's not really like a core person in the business, but was starting to exit and it put a lot of pressure on the stuff it's out. Yeah, who the hell are they selling to? Like no one, right? No one right, So I was buying them, but like you did have and then they they released earnings, Q1 earnings, which were like fine.

But then this is something you also get with these micro caps is sometimes the investor base might be a lot of retail people who saw me tweet about it or something and don't fully grasp the idea maybe. You. See Q1 results and they see revenue down and they start dumping without realizing that Q1 is a seasonally weak quarter. And therefore like it, it's not surprising that it's down,

right? Or that there are just kind of like there are maybe the cadence of revenue is just a little bit different than a quarterly thing, which I think is what's going on. But it was the stock went from like 67 to 53 and then back up to like 62 within the day, right? And so you could have been a buyer at 53, you know, been up double digit percent on the basis of nothing out there though. Although as I'm saying this, I'm thinking about what happens to

mega cap tax during earnings. And it's yeah, you need different, right? Like sometimes you'll just see like Amazon's down 7% and then. After the call, it's up 5%. Yeah, I'm not really sure that's much different there to be honest. Like, well the micro cap stuff is a little different. I mean, I'm watching one right now and it just won't go down. And it's like the the probability that the incremental money, I mean, I don't know. I may know most of the people that are buying it, but it seems

like it's probably new people. And the idea that they're going to be there for the long term, I think is we'll see, right? It's up to them to do their own work. You know what they own. Yeah.

If you're, I mean it is, I think if you think about these things as quasi private investments and maybe you have them in APA, look at it that often and you like kind of get to know the operators and believe in the business, you can, you can sort of mitigate the psychological costs of yeah, some of that. I said that just Sweeney. I was like, it's almost as if you're paid not to look at these things. Yeah. Yeah, exactly. And you obviously it magnifies the importance of doing work,

right? Like you really need to, you need to understand this business and what you're doing here because you're paying a premium, like an illiquidity premium on the way in and then a discount on the way out. And it's just like an like a high implied cost of equity, right? Like you're just kind of, and, and I mean that also psychologically. So it's not the kind of thing that you should. I mean, you really can't do it, but it's not meant for trading. Yeah, that's right. I like that.

I don't do that anyways, so it's fine with me, but it really does. Like I can't stress it enough when I talk to people about it. Like you really need to like be comfortable with what this business is doing because if they have a bad quarter or something, you're getting out for really low, right? Yeah, you're everybody else is getting out and then if you want to get out, you're probably moving it lower as you get out. So have fun with.

That exactly like you almost just, you know, just kind of think about it like once I put this money and I'm not getting it out, I'm in this business, it's like investing in a in a private vehicle, like we have a five year exit strategy or something and like who knows what the mark is, yeah. Right. Yeah. I think that's. I think that's. The right way to go about it, yeah. And if nothing else, it puts you in the right frame of mind.

For sure, which and I think it's advantageous frame of mind for public market investing broadly. Yeah. We just kind of thinking about things like you're an owner in a private business and not getting too bogged down in the minutiae of like daily and quarterly movements and focusing more on

what the business is doing. Now the of course, the issue with that is that if no one else is thinking about markets that way, you might not get the value you think you're going to get right, which is. Yes, but if you trust management and you believe that it's going to. Be cash generative. You haven't heard? The episode yet because it drops tomorrow.

But one of the things that Richard Cook was saying is like he's invested with people that understand buybacks on average and like, eventually we'll get that money out. That can be a real bag holder thing to say. And I understand why, like short term people would laugh at it. But I do. I think it's closer to reality.

Yeah. What I don't know that I believe anymore is that I have the ability and or willingness to take like these concentrated bets for a number of reasons, which is not to say that people should or should not everybody has their own goals. But for me, I've kind of been like, all right, I could be wrong on the people. I could be a little bit more wrong on the business than I thought. Like my risk tolerance has gone

down. When you say concentrated, what do you mean by that like 5% positions 10% or? Oh, yeah, I, yeah, I mean, I would say, look, I'm not going to ever run like A6 stock portfolio. That's just a function of what I'm trying to accomplish and where I'm at I don't think many people can can handle. That yeah, yeah. So, you know, I don't know, like I I'd, I'd like to hover around 15 to 20. And I think for some people that's concentrated like I think

some people, right. I mean, particularly if you, if you allow, which is kind of the way that I approach it. I, I think I own a little bit more companies than I would like to actually I know that I do. But the problem is Betty just having a really interesting opportunity set recently. But if you have 15 stocks, right, and then you kind of allow for them to run, you kind of end up getting some kind of organic concentration. Yeah, right.

Where it's like from me now, Cypher Pharmaceuticals is almost a 20% position. Oh my. But certainly to start there, right, It's just I didn't sell any of it. But now it's like I feel concentrated. But I do own like 15 socks. Yeah, we. But because one of them is just, it's just gone so bloated. I mean, maybe that's one way of approaching it, but then you just now have the same problem or it's like a lot of money in one company even though, but the other one's just becoming significant.

Honest. Yeah. Which sort of like reminds me of that sad thing about that hat in his letter a couple years ago about whatever the 10 or 12 decisions that Berkshires may have like made all the difference, Right? Where And that you can kind of see that in portfolios if you're not, if you don't have too much

turnover. What you kind of, I think pretty quickly realize is you can actually afford to make quite a few mistakes if you have a decent slugging percentage on a couple of the ideas because the stinkers will just like fade into nothing and winners will come to dominate your portfolio, right? Yeah, you just can't swing like super hard and strike out. No, I agree, But I tend to kind of, I size them not, you know, I don't think I've ever taken more

than a 10% position on sizing. Yeah, Well, then that stock double S and you still like it Maybe. I don't know. I think it's slightly, I don't not even sure that makes sense rationally speaking. But psychologically it feels different, right? It feels like a different kind of concentration. Yes, it's funny because some of the things that I say, like I wonder how it sounds or I think like, Oh well, somebody that's a pro at like .72 would clearly think this is stupid or

whatever. But there's just a lot of value. Like when when Berkowitz said financial, that cash is financial value. I mean, I would argue there's a level of diversification that's financial value and too and the ability to just be like, this isn't going to kill me and then take my time to figure out what I actually think and do not have like the monkey brain of or lizard brain or whatever of like I'm being attacked. I need to figure out something

right now goes a long way. And and you know, hopefully on the concentrated stuff, you have a sense of what you're looking for before it. So it went when it happens. You can be done quick, right? Yeah. I think that's why I say psychologically it's different. I think if you had and this, this could actually be a totally foolish thing, obviously, and it could be a sense of like

survivorship bias. But I, I, I think when something's worked for you and you, you've had time to really start to understand the business and trust the people running it, perhaps there's a sense of comfort in that, even though it's become large. And of course I can be a trap, right? Because you might just, you might just be early and, and end up being raw later on.

But I just, for whatever reason, feel the longer I own stock, the more I'm kind of involved with the company, the more I feel comfortable holding it in larger size. When I initiate a position, I'm generally like, I don't know. I'm more skeptical about the work I've put in. Yeah, as you probably should be, right? You don't. You don't know what you don't know. I mean, I said it the other day, like, I I wish, I wish I could learn from other people's

mistakes. I wish I could learn as well as I otherwise would learn without money on the line. Like I just don't. Yeah. So the dumbest possible thing is to be like, it doesn't matter. I can still go big in the beginning, but, you know, it's, I don't know. Yeah. The more the more I do it, the more I realize it's there's a lot of art to this. It's it is such a craft, right? Like it's there's a lot of ways of doing it.

But the contradiction I was talking about the headset of this kind of also applies to, so the idea of concentration versus diversification, right? Like as you and you imagine you, you find something like I did with Cyber Pharmaceuticals when it's 3 bucks and you just go all the way, right? The fin you're done for your career, right? Yeah. Yeah, yeah, it's just like you spin a zero yourself if you're wrong, right?

But yeah, you could, you could long run save yourself so much brain damage and psychological torment by just finding a big winner early on in life that you concentrated on and letting that ride, right. And then, and then there's the calculus of like, well, do you have dependents? Are you really gone? How much money is really at stake? I do think these variables are always changing through a time, right?

But there's something to be sad about taking those slings early on in life, I think, or at least when you can afford to lose that capital. It's so for sure. It's like the poker analogies, right? Like you've never wanna, you never want to go all in and you always want chips on the table. But when the odds are stacked in your favor, I think makes a ton of sense to swing. But you know that calculus is impacted so much by your circumstances in life, right? Like I don't I don't have

dependents of in my early 30s. So I have, I think, more of a stomach for this kind of stuff, right, than one who has five kids and, you know, has worked their whole life to build the savings. Yeah, that's right. That's right. Just make sure your LP's understand that and and don't over allocate. I got myself in a problem once where I over allocated to

somebody. Yeah, I still am mad about how it all went down, but I do. I blame myself more now right than I used to. I still think it's like 7030 on them, but the 30 was on me. Yeah. I think, I mean, it's, it's part of what I said, I think before we start recording, which is just the portfolio management aspect of it just has to change regardless. It doesn't matter like how big the fund is or the instructions you get the LP's or like what the purported understanding is

like. I just think like there's a, there's a kind of required respect for this kind of thing where it just like even if you tell them like this can be really concentrating the volatility is going to be pretty wild. I just, I think a lot of people can sign off on that in the apps, but then when it happens, they can't, right? And that's you just, you know, you just have to be cognizant of that. Like, yeah, it's fine. Like I don't mind being down 20%

of the day. It's like, I can guarantee you, you will really mind. I'll tell you when you mind is if the market's only down 10, yeah. Or if, like if there's a prolonged period where the market's up. Because a lot of these stocks, at least from people that I'm learning from there, there's one that, you know, I'm involved in. And it's kind of in the Lassonda Curve part, right? And people are really getting

frustrated. And a number of people have been like, look, some of my biggest winners went nowhere for three years and then they popped, right? And it's like, OK, well, if you have a big position that goes nowhere for three years and the market's going up in a straight right line, it's just hard to tell people you're underperforming, even if even if the business is getting better. And it's like, no, it's gotta work out.

It's like. It, it is the really difficult thing about value investing within a fund structure, right? And I think it's, it is where this this lost foreclosed capital comes from, you know, just like permit capital structures really lend itself to the ability to be like, hey, this is we're looking three years out and like there's some time arbitrage here. I'm like, I'm pretty confident

that this will work. But like if you have the risk of redemptions, like you said, it gets really hard to do that. But I think this from my experience, like my big winners have almost all taken time to play out, right? Like. As it should. Like Cypher Pharmaceuticals when I was buying a three, I think sat there for a year and a half. Right. Oh, really? Yeah. I think it was just like it was like like not much happening, but it was like that's kind of looking at it and being like,

what am I missing here? Yeah. And then it does often take a catalyst and and this goes back to the buyback thing, right, which you know Einhorn was talking about in his letter I think a couple quarters ago where you might not get the incremental buyer. And so like having that return of capital is increasingly important. And I think what happened there was they announced a buyback and that started getting people

involved, right? And it's, it's something that capital return variable is something I've been prioritizing a lot more recently. Yeah, there would be dividends or buybacks. I just think it helps you deal with the kind of like the schizophrenia of the market in the short term sometimes, right? Like just if no one cares, like it can be very frustrating to just sit on that money and be like, this is a really good idea, but it's not going

anywhere. At least if you know you're getting some yield out of it, it helps, right? Even if it's a lock back and you don't see that today, it just it quells your anxiety that like one day this will work, right? Like if you buy some three times free cash flow and they're buying back stock, it's very hard for that to not work if that cash was sustainable, right? Like, yeah, there's just going to be enough shares to buy at some point. And so. Yeah, that's right. Yeah, I've been.

And if there aren't, you do a big special and then everybody parties. Maybe like management tools, maybe I might be, maybe it's just the sectors that I, I'm spending time and I feel like they're becoming more sensitive to this need as well. Maybe that's pressure from

shareholders, right? Or, or just certain capital cycle dynamics, like if you're investing in commodities and stuff and you've watched governments kind of shut your business down and what on you're like, right, I own a lot of pool companies and like that's one sector where it's like, hey, we have low multiples. The the future of the industry is really in jeopardy. Probably never going to like we're going to, we're going to be shuttered pretty soon.

So let's just start buying back the stock. And in a large respects, they have it free rated like Peabody Energy trades at some ridiculously low free cash flow multiple. And they just had an activist actually file A13D today with some proposals, right. But and almost all of those are like, let's get the buyback going really hard here because, you know, if you're at four times free cash flow and you start like just hammering the

bid on your own stock. And anyone who isn't, I think flagged by sort of environmentalist ideology can understand that coal isn't just going to disappear in five years, right? Like, sure, it's declining, but so is the supply. And, you know, if you just can somewhat sustain this cash flow and buy back your stock, like it's going to go out. Yeah. But the question becomes how I did to wait.

But I don't know. I think I think time arbitrage and stuff like that is a really nice place to be looking. I quite agree. You always have the risk in like coal in theory, the terminal value 0, but I would argue that terminal when that zero may come as a very it's it's much longer than probably most people might think, right? I mean, all you have to do is look at any forecast. Certainly further out than it's being priced in, right, Like, yeah, so. You don't want to.

You don't want to buy in to when that terminal value occurs. But if you can do it when the market implies a shorter duration than is reality, you can get some really nice returns. Right. Yeah. We'll see. Dude, I've enjoyed this. I, you know, I, I'm going to get you out of here on time. And also the editing does goes by the minute. So I like to keep them under 2 hours, but I appreciate you stopping by then.

It's been a fun conversation. One of the things that I really liked about this podcast when it was small and I didn't think anybody listened because I got to feature a lot of guys like yourself and have conversations that I was not like as, as concerned about, I guess like people listening. And I, I'm glad that you went where you went with it.

I hope anyone that heard any micro Cab names understands the risk and, you know, should they buy and sell and liquidate, they're probably liquidating to you. So beware of the beware of the risks. But it's been nice to have one of these kinds of conversations again, and I'm glad that I did it with you. Thank you for what you contributed. Well, thank you for having you, Bill. This is yeah, man, Great time, great conversation. Maybe we'll do a space sometime. Yeah, that'd be awesome.

Cool. Thanks again and have a good day. Cheers. Thank you.