YouSaid · the spoken record

Josh Young

lines on the record: 98
first: 2022-05-30
most recent: 2022-05-30
sittings or episodes: 1
sources: podcast

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“You mentioned Russia. How has Russia's invasion of Ukraine changed the game when it comes to oil and natural gas? You had a huge spike up shortly after the invasion. And it was quite speculative with implied volatility of the oil contracts themselves, extremely high. Then they pulled back, but they've been steadily marching higher. And in particular, Europe maybe can secure its own oil, but when it comes to natural gas, Europe really has been very reliant on”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“A higher price this summer and then pull back 30% from there. So maybe you get to 130 WTI or 140 WTI at some point this summer and then maybe it pulls back to 90 or 100 as the economy really suffers and people point to this huge percent drop. Again, from elevated levels from here, so still not, I think, so scary from an oil perspective. And who knows what happens, but just sort of laying out how I'm thinking about it as a potential scenario. and then easing and stimulus and seeing oil potentially go to all-time highs on an inflation adjusted basis on the back of this sort of failed contraction similar to what we saw in 2008.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Fields is sufficient to dramatically reduce oil production there, so the supply situation is so extreme that even in a quite negative demand scenario that I've just laid out, you still may end up with very high oil prices. And then when there's stimulus and when there is monetary easing again, we may end up with much higher oil prices. So think about housing. There was a housing bubble in the US through 2006. There was monetary easing, or sorry, monetary contraction that helped drive a housing crash in 2007 and 2008. And then there was easing again and 10 years later you ended up with housing prices much higher than their prior all-time highs. I think there is a similar dynamic at work right now for oil where, yeah, you might end up seeing oil go to, let's say,”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“From a price perspective and a demand perspective for oil short term, medium term supply is so disappointing relative to demand that even if demand stopped growing for some period or paused growing through China, through other issues, let's say China's reopening takes longer, we're still in a situation where the world is materially undersupplied. And even with lower than 2019 demand levels for oil worldwide, we're still needing to release almost a million barrels a day from the Strategic Petroleum Reserve, and we're not growing world production much at all, and Russian production seems to be falling off as there's underinvestment in those assets and under maintenance in those assets. So ignoring the sanctions just purely the sanctions on capital and talent going into Russia to be able to sustain production from their”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Type scenario or in a real economic shock, you can see consumption fall. We are seeing that to some extent despite this services increase. And so I think the likely next step after substantial fiscal intervention is monetary intervention where we see the Fed sort of blink and other central banks blink and start to print money again. It's just a question to me of, hey, does this take a month or does it take six months? And it helps that there is an election in the US this fall. And so, or yeah, fall, leave fall. So it'll be interesting to see kind of how politicians navigate through this. I think my base case at this point is substantial additional stimulus and maybe even actual checks getting mailed to people in addition to student loan forgiveness or other sorts of things that are being discussed. And so that should be really helpful.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Prolonged period of time, that over the next, let's say, six months, and we're already seeing this with energy stimuluses, there's one announced every week, maybe even more at this point in various countries in the world, various subsidies and tax cuts. So on the fiscal side, we're already seeing accommodation and we may see substantial additional accommodation. They're talking about forgiving student loans in the US, they're talking about various other things. These are all very fiscally inflationary through government spending to prop up economies. So that should help a lot because oil is very price inelastic from a demand perspective. So it takes a lot to destroy oil demand and oil demand rebounds the fastest or among the fastest of the different consumer categories. And so oil demand is very durable, but also obviously in a sort of depression.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“And even though we have this reopening trade going on right now where goods, purchases are falling and services consumption is increasing, it appears that the services consumption increase is insufficient relative to the goods consumption decrease. So it does appear that we're in an economic slowdown already and that may get exacerbated to the extent that monetary and fiscal policies continue. I guess the good news from an economic perspective and for oil is that it is highly unlikely that this continues for any”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“In the short run, there are significant economic risks to oil over the medium to longer term. I'm not worried at all. And so in the short run, right now, I mean, the Fed has been running along with world central banks. They've been running a radical experiment in money printing and hyperinflation and trying to rapidly transition from double digit inflation rates that are probably understated when you look at the actual inflation versus the CPIs or equivalents. So they're running this experiment that they can hyperinflate and then mute it down to slow inflation and not hit rapid disinflation or deflation. And it appears that they've already sort of proven themselves wrong and they just don't really know it yet. And so we do have this deflationary pulse like you're mentioning in China. We may be experiencing that right now in the U.S.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, I think I would argue that the base case is kind of neutral to down for a commodity as a equity investor. And then so you kind of, I have my oil hat back there with the $250 WTI, which may happen and may not. And then, you know, I have my stock selection books and I don't really mean them. I guess the oil hat's kind of a prop, but these are books I spend a decent amount of time thinking about looking at. And from a security selection perspective, I think it's really important to underwrite to the downside and let the upside take care of itself. And so it's always just underwriting where is the best value, where are the most interesting catalysts, where are the levers of available to make money in case I'm wrong on X, Y, or Z thing that I think I'm betting on. And so, yeah, I think it's more about what the businesses and assets are. And then secondarily, if there's an upcycle or a further upcycle.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Many of them are actually not expensive. They're still below the average market multiple on a free cash flow in EBITDA basis relative to that much, much lower oil and natural gas price. And so that's like what gets me so excited about it, as well as why I think it's just categorically untrue among small cap public companies that it's a commodity price bet versus a stock picking security selection sort of bet.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Helps protect your downside. And so even though Exxon might have a lower break even, they still have a much higher valuation. And so as the price comes down, there's more room, there's less room for their multiple to expand than sandwiches. And sandwiches multiple could expand significantly and still just get to the multiple that Exxon has. So it's not something I spend a lot of time thinking about in terms of oil getting to 50 and staying there given the supply demand environment. I think the downside case here for oil is maybe $70 and no one knows the future, but again, just looking at the supply demand dynamic now and the potential sort of downside cases that would get to a bear market in oil from the current bull market. If you look at 70 or so, maybe even 60, that seems like maybe a more reasonable situation. And if you look at the valuations for Sandridge and other sort of smaller cap producers that I'm focusing on,”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“They have a focused deployment plan for capital. And so, sure, their cash flow would be down a lot, but their breake-evens are probably down a lot too if you reset services costs back down to where they would likely be if oil went back to 50. If you look at Exxon and then you look at the relative valuations, so sandwich is at about two times eBIT dot today, plus or minus a little bit. Exxon is at last I checked five or six times eBit dot today. It might be even a little higher than that. And so as both of them see their cash flows fall from much lower oil to the extent that that happened, there's much more room for sandbridge's current valuation to absorb a fall in cash flow, whereas at a higher multiple, and we're seeing this with tech stocks now, right? The ones that were at 100 times sales, it was very easy for them to fall to 10 times sales because there's no real valuation support. Having cash flow”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“So, I think it's a little complicated, but one way to think about it is the balance sheet transformation. So I don't know about $30 oil, but let's say oil went back to $50, right? And again, I think there's a reasonable case that the floors in commodity cycles rise in each down cycle. So you end up with higher lows. And again, like during COVID, oil went below zero for a moment and floors were reset for a little while, but that was also the world being shut down forcibly by world governments for 18 months. And so if we exclude that as our left tail case, if we just look at normal sort of recessions and depressions, there is the history besides COVID was higher lows. And so in a $50 environment, Sandridge is very different today than it was the last time oil was at $50. They have cash instead of debt. They have a cleaned up asset structure.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“So that explosive convexity to the upside for Sandridge when the price of oil and natural gas goes higher, there's also that in reverse is if oil goes back to $30, ExxonMobil will not do well, but it will do okay. But Sandridge, it will be losing money. So to some people, that would seem risky. But you and I were speaking yesterday and you said that in many ways ExxonMobil is more risky than a company like Sandridge. Do you disagree that Sandridge would be a quote risky company? And why do you say that Exxon could be more risky?”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Running hundreds of millions of dollars as a 40 year old going and pursuing special situations. There are amazing opportunities right now to be a buffet style investor from the buffet partnerships rather than Berkshire Hathaway and the returns for the Buffett partnerships were phenomenal relative to the returns for Berkshire Hathaway. And so I think the opportunity, ironically now we're kind of in an environment that's very similar to the environment that Buffett operated in. And so I think it's really a great contrast and it's a great quote to think about because Buffett today is not Buffett when he put up 50% compounded for 10 years.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Adding, I mean, at current prices, it's even more ridiculous, right? Like at $9 gas, I mean, it's just astronomical. And I think I put out some sandbag numbers, but maybe it's $2 a share a quarter or something, just very, very high from a free cash flow perspective. And so, you know, that's obviously transformative. And so if you own a stock at a good price and you own it at a price where it makes a lot of sense in that current commodity price environment, and frankly, even if prices had fallen a little from where we published that thesis in late 2020, or prices had stayed flat, it still could have worked really well. It might not have been a 20 bagger, but it was probably going to earn a multiple times return. And so getting back to your question about the Buffett comment, I think that's Buffett managing hundreds of billions of dollars in a giant public entity. That's not”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so they went from having net debt, and again, they liquidated assets to be able to cover most of their debt, but they went from essentially net debt in a position where below $40 oil, they were not sort of net cash flow positive to a situation where now, you know, again, we wrote up and shared our investment thesis publicly at the end of October of 2020 and the stock was $1.70 at the time. Right now, they're generating a little over a dollar per share in free cash flow, keeping production roughly flat per quarter. So just the transformation from their balance sheet perspective, like you mentioned earlier, has been phenomenal, right? They went from generating almost no free cash flow, having some debt looked a little iffy to now they've generated, I think they have almost $5 of net cash, so net of their short-term liabilities, a net of any debt, and they're there.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Likely price in a downcycle in the future as you reset that floor higher, too, you end up dramatically resetting sort of the likely liquidation value in a mid-cycle liquidation of the assets. And so when I was looking at Sandridge and saying, okay, well, hey, what is this thing worth at $4 natural gas? At the time, gas was $2. Natural gas was $2. And I think people thought it was a little crazy to even think that you might want to underwrite an asset to four dollars in MCF and here we are at almost $9 in MCF within the timeframe of that investment thesis. And so again, it like sounds crazy and looks crazy, but it was in writing as a, I mean, again, we didn't even say nine. It was just, hey, at $4 plus, here's how the value in flex. And by the way, we're getting that for free. I think at the time the stock was $1.70 and it was, hey, on a sum of the parts basis, it's worth at least five kind of under those.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Like big misconception around commodities where you can't know perfectly, but you can't know a lot of things perfectly. And I think you can know well enough that it's reasonable to assess that. So getting back to the break-even question. So $40 versus $25. At $40, you think, hey, the sandwich asset not worth very much, Exxon asset pretty interesting. We get to 50, you think, okay, sandwich asset, well, it's making $10 a barrel. That's fine. Wow, Exxon, they're making $35 a barrel. Look at those great margins. They're so good. Well, you fast forward to $100 oil and life is very different because whether you're break-even is whether your margin is 60 or your margin is 75, that looks pretty similar. And as you go up more, it doesn't even matter, right? It's all kind of in the rearview mirror. And so as you reset prices higher in a commodity up cycle, as well as reset the floor,”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Time to go by when the rent price is close to the price that it costs to operate that building. So same for oil and gas. If you have a view, and again, I think oil price views and commodity price views are often viewed as very speculative, and like Bill Ackman said that the other day, and I think it's just a misconception. He underwrites Netflix margins, which from my perspective might be very speculative too, but who knows what Netflix is going to be able to charge on a monthly subscription basis, but you kind of know what the break-even is for oil production and to bring on marginal oil production. And then you kind of know where demand destruction levels are for various oil products. And so maybe you can tell as well or better what the price of oil is going to be five years from now than what Netflix margins or Netflix price for a subscription per month is going to be. And again, not to pick on him or Netflix, I just think there's this.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Over time, you can come up with, and there's various other sort of complicated supply demand models and other views, but if you take just sort of a basic view, I mean, it's kind of similar to looking at an apartment building, right? If you take an apartment building in LA where I'm from originally, I'm in Houston now, but from LA, valuations for apartments are very high. And they're high because rents are very high. But if you come in and say, hey, instead of it being $4,000 a month for this very high cost to operate apartment in an apartment complex, if it's a thousand dollars a month that you're going to get in rent, Of course these apartment buildings that are worth $100 million are going to be worth zero or not zero, but like something very low. So what you want to do isn't to say, oh, is rent going to be $1,000 or $1,100? You want to say, okay, like, what's the trajectory for rent? Is it going to go down? Is it going to go up? And then, excuse me, if it's going to go up over time, but the rent is really low right now for some temporary reason and there's no rent control, then maybe it's a great...”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“So if oil is at 40, a company with a $40 break even, which is just, you know, they're paying, that's the cost for their electricity and their pumps and the gathering of the oil and the processing it and then getting it to a point where they're able to sell it, that's what they mean by operating cost. Exxon might be earning a $15 profit per barrel profit. And again, acknowledging they have refining other stuff, but just excluding that for this purpose. Exxon might be earning $15 a barrel for their production and Sandridge might be earning $0 a barrel for their production net of operating costs. So you look at it at $40 oil and you say, man, this sandwich field is worthless and this exon field is worth a fortune because they're making money at these low oil prices. Well, maybe, but if you look at the long-term price for oil and the long-term trajectory for the oil price and how it's performed versus inflation.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think Exxon is really hard to tell what their actual break even is because they have refining operations and chemicals and midstream and other stuff. They're an integrated producer. But sure, let's use them just because it's simple enough and you mentioned them. So let's say that Exxons break even on their production is about $25 a barrel. So below $25 a barrel, they're losing money from an operating cash flow perspective, just net of their direct costs to the production. And so let's take Sandridge where below $40 a barrel, assuming proportionately lower natural gas prices to below $40 a barrel, Sandridge might not make money on an operating basis. So what that means is, and it's actually, it's funny, I was talking to an investment banker about this the other day and couldn't understand it for a Canadian company, but pretty similar. And it's a very powerful concept.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“So, what I try to do is do better, and I have so far than how one would do if one blindly just owned a sort of passive investment in ETF. And, you know, it is interesting because Buffett's bought two companies that are very exposed to the price of oil but are not necessarily like they're not known for earning above oil market returns, if anything, maybe the contrary. And so it is interesting, I guess like his investments are reflective of that view. My investments are reflective of a different view, which is I can find companies because they exist. And I think, I don't think Buffett really would disagree with me. And if anything, I've only been to the Berkshire meeting a couple of times, but the first time I went, he talked about how much better he would do if he was managing 50 million dollars, which conveniently is around kind of where I'm running right now and where we did really well last year.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Lower in the overall private equity world, it's just that institutions don't have to mark the volatility, so it looks better on a risk adjusted basis, but it's just because they're measuring risk as volatility. So risk wasn't volatility with Sandbridge. It wasn't intrinsically risky because it had these non-core assets that it could sell and did sell in a downside case. And here we are with the downside having been preserved equity value way above where it was even at our inflated entry point pre-COVID and then way above our sort of average cost. So anyway, that's like kind of how we thought about it. There's a lot of specifics, but kind of high level. It's a heads I win and tails I don't lose too much sort of approach.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Business and there's a lot of operating leverage because they had relatively high break evens for natural gas. And on the oil side, it was actually okay. It was more that there was this sort of optionality towards recovering natural gas prices, which was something I wanted exposure to and was actually quite hard to find exposure to on a cost-effective basis. And so there was that on the sort of right tail, and then the left tail was protected by these non-core assets, which again, it didn't mute the share price volatility. And again, I think this is why private equity is still so popular outside of oil and gas and was popular in oil and gas, the stocks are very volatile, but the private equity funds are just kind of like not mark stuff. They were just return capital as they sold assets, but just kind of keep everything marked at par until there was some sort of event in either direction. So there was a big article recently, I think, in the Wall Street Journal about this, about private equity and how the returns net of fees are actually”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Building, which was basically a liability, and they were able to sell that for tens of millions of dollars, and then they owned an oil field that was highly problematic and had been a place where they had put a lot of money and not gotten a lot of money out. And they sold that also, I can't remember the exact price, but it was also for tens of millions of dollars. It's called North Park. And so they were able to liquidate low performing or negative cash flow assets, pay off all of their debt, and position themselves to be able to sort of ramp back up after a period of very low oil prices. So that was what I saw at 10, and that made it compelling to go buy a lot more of it at lower prices. And here we are. As low as I think 50 cents or 40 cents or something, and we were able to buy a bunch more kind of in that dollar, two dollar range went public with our investment thesis at $1.70. And here it is. But again, it was about the, there's the business and the intrinsic value that”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“At $10 initially, or something like that, I started to buy the stock around then. It was cheap, it was cheap on cash flow, it was cheap relative to the borrowing base that was available through the banks that were lending to the company at the time. And it was an interesting bet on potentially higher natural gas prices over time. And so that was pre-COVID. During COVID, the stock crashed. Oh, and there were, I always look for sort of hidden assets. I look for other stuff there that could end up being worth a lot of money in a liquidation. And so unfortunately the team involved did not liquidate assets at a good time, but it turned out that when oil prices crashed, there was still an opportunity to liquidate some of these non-core assets. And they were able to, I think the market gave them no credit, which was similar to how the market had not given them credit prior to COVID. But they were able to sell, they owned an office.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Someone today pitched me on this other stock. And it's the same people that have been there for a while, and it's restructured twice, and the operating results, they always have promising well results, but the actual performance and cash flow never seems to add up. It was easy, right? Like supposedly it's cheap, but it's the same people, it's the same assets, the same balance sheet. That's an easy pass, right? But in this case, it's different on almost all of those factors. And so I think it's important to be able to separate your cold analysis of the opportunity from emotions, from background, and really to be able to just not, it's not personal, it's money and it's expected value calculation, essentially. And so with Sandridge, and again, like I own the stock, I'm not recommending it, but just sharing for your request. So when we looked at it, and frankly, like, I owned the stock.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“That's right. Yeah, and it's interesting. I mean, I think people had a maybe extreme negative experience with sandwich. And again, partly, I think it might have been that they retained much of the management team and the board from free bankruptcy to post. It might have been the activism after bankruptcy. It might have been that the first management team that the activists brought in after was value destructive. So there was this kind of like trajectory that was negative. And so if you weren't paying that much attention to it and you just sort of looked and you checked up on it after the bankruptcy, hey, is this interesting? No. So at some point you just sort of say, okay, well, this thing is bad. And again, that's not necessarily true. And you kind of want to, in my experience, I found it's helpful to sort of refresh these things and try to understand what's actually happening and then what the value proposition is. And, you know, if it's people so actually.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, if I can. So it went bankrupt. A lot of other companies that were very active in 2012, 2013, 2014 in buying up properties, borrowing money, they also went bankrupt. So that's still an investor's minds. Although I have the balance sheet in front of me, Sandwich has more cash on its balance sheet than all of the liabilities combined almost by a factor of two, whereas there are a lot of oil companies that would have a negative book value if it weren't for their reserve. So Sandridge is not relying on its reserves to have a positive book value.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Why am I so lucky? Why can I get this opportunity for so cheap? And in this case, I was so lucky and maybe still am so lucky because there is this thing that is unrelated, it appears to the financial or operating or even valuation prospect of the business. There's just hatred and sort of dislike, and frankly it's carried over from that company to me, which is kind of wild. I'm a passive minority investor.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Associated with it by the time we got interested and started to accumulate stock, that had changed Carl Icon came in and changed the board and sort of refocused the company. And it wasn't perfect. That was a process and it took a few iterations in terms of finding the right team and figuring out the right approach. But that's an important thing to not forget. I mean there are still people that are very loud. I don't know kind of what their capital markets involvement is, but very loud, very negative on it and very odd, right? It's just like when you look at the thing as it is today and you look at the financial performance and the operating performance, it's very dissonant with people's view even today, even after sort of multiple years of this turnaround that's been very successful. So that's important because an old boss many years ago my first sort of public equity investing job used to ask me when I'd pitch an investment idea.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Well, there's an aspect of it that should be addressed before the economics, which is the psychology. So Samridge is a post-bankruptcy company, and they chose to not change their name, I guess, because they were well known. Maybe it was a mistake, maybe not, but post-bankruptcy sort of reorg equities often trade at large discounts after emergence from bankruptcy because people associate them with the negative activities that happen prior to bankruptcy. And in Sandridge's case, when they emerged, they unfortunately retained some of the management that had managed the company prior to bankruptcy making a number of different mistakes and causing a number of different problems. And so they not only didn't change the name, they also didn't change some of their governance and management methodologies. And so there is this sort of negative association and negative psychology.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Do before at prior entities, or have had a lot of success in their current entity accomplishing what they're saying they're trying to accomplish, and then balance sheets that are survivable. So not necessarily zero debt or whatever, but just set up in a way where along with the management and the assets, they're a fit and they offer sort of all three of those together in a package that's heavily discounted, often at a discount to the going rate for the liquidation if they just went and sold all those assets today.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Assets. And if you look at those returns that those funds generated, I mean, they were good enough that those private fund managers, private equity fund managers were able to go from $25 or $50 million funds to $5 billion vintage funds where they'd go raise $2 or $5 or something billion every time. And I think what I'm trying to do that's a little different than that is not ever get necessarily to $5 billion funds and to just stay focused on where the best opportunities are kind of regardless of size and to invest entirely as if it's up my own money, which a lot of it is. And so I think that we're looking for good companies so that assets have to be high quality and able to generate substantial cash flow at current commodity prices and then management teams that typically have either done what they're attempting to do.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so sometimes I'll participate if a company is raising money to go ramp up development of an asset or to fund an acquisition or something along those lines all participate. And again, that's a very rare thing, but it's happening more often right now than it has for a number of years. And again, in many cases, that's not actually capital net going into the industry because many times or many cases that money is just going to a seller who is then returning the capital to investors that had put money in many years ago. So it's kind of recycling capital out, not necessarily net adding substantial new capital into the industry to use for development. So I'll participate in both primary offerings as well as buying stock in a secondary market. And so I think what I'm doing is pretty similar and what we're doing at Bison is pretty similar to what people did in the private fund space 20 years ago with private.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I think I'm doing what's similar to what the private equity funds did in 2001, where they found sort of unique off the run assets and off the run opportunities that were undercapitalized, structurally undercapitalized because of the nature of the industry and the nature of the capital markets. And I diligence them significantly similar to private equity. I get to know the people. I get to know the assets. I understand the capital structure. And then I guess the big difference is in some cases I'm actually participating in offerings to get positions, so I'm helping smaller companies sort of fund their development. In other cases, I'm buying stock from exiting shareholders, both of which are similar to how private equity gets exposure. And again, it's not, I think, similar at all to what...”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Well, I mean, the money that companies have available now is not direct investment. There's almost no direct investment coming into the companies or going into assets. Again, there's like net divestment still, both on the public and private side. I guess on the public side where there is money coming in, it's typically long, short money, or it's big funds coming into big companies that, again, aren't really raising equity. So the money that these companies have is from their cash flow from their assets that were delineated explored.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“There were a lot of equity issuances from 2001 to 2014. And frankly, even through, I'd say that bubble really ended, the funding bubble really ended kind of in 2018. And so when you look at the funding, I mean, there was a huge amount of money raised and deployed and lost mostly from 2014 after the crash to 2018. And to our credit, we managed to survive through that. And not destroy capital. And there was this sort of big almost 20 year investment bubble. And so here we are in the back side of it. And the world is very different. There's much less capital available and it gets awarded with a much higher return because of that scarcity.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“I have to explain to people what it means to professionally invest in publicly traded oil and gas companies. They're just so used to private equity because there was just this, you know, if it was like public equity was big and private equity was little when that sort of bull market started in 2001, private equity was almost unknown. At this point, public equity investments as a sort of seck or specialist, which is what these private equity funds are too, public equity, oil and gas is basically almost unknown and the private firms are kind of that's like the whole market and everyone kind of knows them and understands them so I think that's kind of the biggest difference is there's there were huge inflows some of which were through the public markets but a lot of it was private capital and that private capital you know the inflows were necessary to ramp up the industry especially here in the US as much as it has ramped up and it's just not there and then on the public side as well”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“That's a great question. I actually would say that the oil bull market started in 2001. It didn't start in 2009. And that's important because what we saw with that bull market was the ramp up of oil and gas private equity. And so we saw firms that were running, let's say, $50 million or raising $50 million funds go to running $5 billion funds deploying that into private companies and really rapidly growing development, delineating new resource. And that was necessary for the world. And there would have been material undersupply of oil and natural gas had they not gone and done that. And so they fill the need and there was this kind of private credit bubble and private equity bubble that went from there being amazing opportunities and it was very rare to the point where now when I go to conferences just oil and gas industry conferences”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“It's kind of coming into the sector but expecting to get significant cash back really fast rather than coming in to fund development. So no, I think private equity has been hit pretty hard in general, but particularly in oil and gas. And so it doesn't seem like there are substantial new allocations or new institutional money coming in. And there's still net money leaving through private equity through old funds and old positions selling now that prices are higher. they're able to actually sell some of their assets and then the returning capital to allocators who are not turning around and putting it back in the industry.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so a lot of the money that we've seen come back into the space has been through large hedge funds that aren't really telling their clients what they're doing. So think of like the biggest ones or the ones that have been in the news a lot, not for closing down, but for doing well and whatever. So those guys, they'll typically be structured with a bunch of different pods where they allocate like a billion dollars or half a billion dollars per pod and they lever up five or ten times. So a lot of those are doing relative value trades. And so there's a significant amount of capital that's come in through that. And then there's some value capital that's come in through let's say Berkshire Hathaway buying stock, which was in the news. But none of that capital really is coming in to fund additional drilling of wells. If anything, a lot of it is chasing companies that have already announced and started paying very large dividends. And so”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“That analogy, there's almost no shrimping boats. There's not a lot out there in terms of competition. And now people are starting to come back into the space, but it's been really, really rich waters to go in and find really promising catch.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, to some extent it's vindicating in terms of this is something that we saw years ago and expected, and then we're told many times that we were wrong about. And then first it was there was this oil and gas private equity bubble going on when we launched in 2015 and there was tons of money going into that and energy credit, tons of money going into that. And then people just decided, oh, well, oil and gas in general are bad. And almost all of our competitors closed. So, you know, it's pretty interesting. I like to talk about how it's similar to Forrest Gump, where, you know, maybe it wasn't the brightest idea in 2015 to go launch a oil and gas investment firm wasn't the best timing and our forward crystal ball was broken, but we stuck through it. And by sticking through it, we were able to benefit from a period where there's almost no use.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, we definitely are in an oil bull market. It's quite a journey from April of 2020 when oil was negative $38. Now we're at something like $115 on WTI. What's that journey been like where you're going from you're literally switching from negative to positive and then you have highs that we haven't seen in close to 10 years, right?”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT
“Sure, absolutely happy to. So I'm the portfolio manager for bison interests. Bison are the only four-legged animals that when there's a storm, they face into the storm and they get through it safer and faster. The other animals turn and run from the storm. And so we invest in publicly traded oil and gas companies. We launched the fund in 2015 after the crash and oil in 2014 and the thought was that there were a number of companies that were undervalued and very attractively positioned. And that unfortunately continued to be even more the case for the next number of years. And here we are now finally in an oil bull market having faced through the storm for many years.”
2022-05-30 · Forward Guidance · Energy Stocks Remain Undervalued, Says World’s Best Performing Hedge Fund Manager | Josh Young · IDENTIFIED FROM THE TRANSCRIPT