YouSaid · the spoken record

Matthew McLennan

lines on the record: 108
first: 2022-10-02
most recent: 2022-10-02
sittings or episodes: 1
sources: podcast

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“Likewise, William, your questions always give me plenty of food for thought. And it's the French have this expression les Frida Scalier, the spirit of the staircase. Usually it's when the husband and wife are having an argument in the kitchen and they turn around and they think about what they should have said as they were going up the staircase. I'm sure I will reflect deeply on your questions and perhaps have better answers next time we meet in person. But thank you for getting me thinking with these questions and for your friendship as well.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Level of excitement that one sort of sees in exploring the universe and travel and new ideas and interesting people. And then there's also I think a balancing consideration that as extraordinary the experiences may be that you have in your life, you're going to get humbled. You're going to make mistakes. You're going to be double crossed by individuals sometimes. You're going to be, you know, you're going to do things that are silly. And I think just the recognition that we're all sort of Groping in the dark a little bit, I think it's in some ways liberating to do your best work.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“It is very important because acknowledging that you can't control an external environment, you need to have a centered sort of internal locus. It's almost like the Stoics, right? And you can have some influence. You can invest in a way that you could endure a lot of different states of the world. That's an important starting point. But the other thing is a lot about knowing yourself. You don't want to be forced to be in a moment of anxiety at the bottom of the market and therefore you have to sell and convert a temporary impairment of capital to a permanent impairment of capital. You don't want to have so much margin debt that you're forced to convert temporary to permanent impairment of capital. So there's certain exogenous things that you can do, but then on the internal side, I think there's a kind of a”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“By virtue of their incumbency and likely to be more persistent by virtue of management teams that act as stewards. So it's not a hopeless message. It's just sort of recognizing that the world and the ecosystem we inhabit have fundamental unpredictability. And so you can build a structure that's resilient in the face of that. And if you happen to find something that's simple and predictable, well then go at it, get concentrated, take leverage, create a lot of wealth. But for many of us, we may not be fortunate enough to have that blinding insight in a lifetime. And so it's more a question of structuring oneself to endure and to participate in the march of humankind.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“It makes a lot of sense. I think there are some investors who've done a great job seeing the world as more of a machine. And I'm thinking of like Ray Dalio at Bridgewater, for example. I'm more inclined to view it as an ecosystem than a machine. So there's a lot of nonlinearity to the way in which I look at the world and a lot of self-referencing feedback loops that create complexity that ultimately compromise your ability to predict things with certainty. But it's not a hopeless cause. If you study Wolfram and you take the way the conclusion that a lot of life is unpredictable, there's something you can actually do about that. You can structure your affairs to endure. looking for businesses that are likely to have lower fade rates.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“The probability that some part of our mental model is true. And by definition, that will be correlated with other people who are exploring the same truths. And we're spending less time on the stuff that's noise, that's uncorrelated, the aggregate effect of having 7 million people do that on the planet is that obviously the system gets to a higher and better and more perfect level, but from a kind of a universal standpoint, if life is a form of kind of self-referencing experiment, then that experiment reaches its highest and best actualization if the different forms of life spend their time trying to be excellent at something. And so it was that through long. Which is probably totally BS to most people, but nonetheless it helped me make the decision to commit to excellence in a few dimensions.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Security, if you have enough people trading it. And I got to think about this more broadly and thinking about what are we here for? And if the universe is this grand experiment that's unfolding, in a sense it's trying to perceive itself. Like you're looking at a cellular automata stream and unfold, even though there was a starting formula to the outside person, it looks random, but to someone who knows the formula, it's very ordered. And it's my belief that if individuals commit themselves to excellence in a certain dimension, if they're trying to appreciate beauty, whether it's in art or whether it's in athletics or whether it's in the world of investing or any other field, what's happening is that we're increasing”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Unless you know the formula because it would take you more steps to observe it than to figure it out. And so the reason I mention this up front is that number one, there's a realization that there's a lot that we can't know unless you actually know. And secondly, I start to think about the price mechanism. And sometimes the stock price is a lot smarter than the weighted average IQ of the people trading it because if you think about it, you and I are trading a stock and we each have a mental model for how the world works. Some of my model is truth and some of it's noise, you know, back to the different patterns we were talking about before. But by definition, the noise in my mental model on average the uncorrelated with the noise in your mental model and the truth should be correlated. Sometimes the price is a more powerful reflector of the truth than any one person who's trading that.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Sort of nested cyclicality to the pattern, but not 100% neat. So think like the business cycle. We know there's an ebb and flow, but we can't call it precisely. And then the vast majority of the patterns of these cellular automata and these spreadsheets, they look like they were random, but they were driven by a given formula. And what's interesting is if something is linear, you can predict it in the future with a small number of observations. If something has a nested cyclicality with more observations, you can kind of predict the skew in it, but not necessarily exactly where it will be. But if something's truly complex, it would take you more observations than actually exist in reality playing out to backwards induce the formula. And he came up with this notion of the computational irreducibility that basically even though there's a formula behind the pattern, it's effectively random.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Well, you know, I guess I sort of come at this from the simple perspective. If we go back to Wolfram and complexity theory, something that was just like a blinding revelation to me when I read that his book, A New Kind of Science, was that, you know, he was studying deterministic systems. So what do I mean by that? Think of an Excel spreadsheet where a cell could be different colors based on the behavior of cells around it. But there's an underlying formula. And he did thousands and thousands of simulations of what the patterns would be for different formulas. And what he found was really interesting, which was that only a small fraction of the formulas produced linearity, and most of science is built on regression and looking for linear relationships. But this is the minority of reality. And then there was a bigger subset, but still small where there was some”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Now, these are all kind of big picture observations for want of a better word, but then sometimes it's tempered with smaller, more practical revelations. We talked about the cash audit in a business. And sometimes you do something a lot and you don't step back to really reflect on why it's so powerful. And that's been something that I've been going back to with a number of our holdings and sort of thinking about that. And so there's a whole host of little things. There's no one big game changer. And I think that's often the way it is. It's kind of messy entangled. And you're trying to incrementally improve in a lot of different dimensions.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I mean, I'd say a couple of thoughts there. When I made the comment before that, And fade, that's been a big source of intellectual inquiry for me over the last decade. But the first law of thermodynamics is about the conservation of energy and matter. That's a little different because that implies something very different. It implies sort of deep symmetries. And like one of the thoughts that's been occurring to me lately is this sort of this notion of symmetries that exist in financial markets that have to kind of coexist for the whole to make sense. And so I've been spending some time thinking about deep symmetries. For example, a negative relationship between real interest rates and risk premium expenditure growth and financial asset valuation, thinking about symmetries that have to obtain for the whole thing to make sense. That's an interesting area of inquiry.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“I've been at this for decades now and I feel like I'm just beginning and I feel like I'm so far behind in so many dimensions that it's humbling.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Gamma gets the computer from time to time. And sometimes it takes doing something different. A friend of mine, Josh Wiskin, said, sometimes the Ember needs to withdraw before the flame comes back up. And so I think it's a combination of all those things. Prioritization of reflection, realizing that it's not just about the reading, but equal measure must be spent to synthesis and making sense. And then the final thing, recognizing that it's a kind of a step function process where you need time to step outside. And Lord Denning, one of the great English judges, said, let not our vision be clouded by the dust of the arena. Sometimes you're just too much in the thick of something to make sense of it all. And sometimes you've got to leave the snow globe, let it settle, and then come back. And so, you know, those are the ways I try to do it. And it feels rather imperfect.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Part that's equally important is to synthesize, you know, and it's the same notion if you're going to visit a company that you're going to Tokyo and visiting a bunch of companies, you have to spend the time preparing for it and the time to make sense of what you've learned after the fact. And so it's not enough just to read a lot. You have to try and think about it and distill it. And it's both of those things. And then sometimes you just get stuck. You feel like you're not necessarily making a leap forward in your understanding. I don't know if you've gone through the process of learning another language often it feels like you get this window of stasis and then all of a sudden in a nonlinear way you take a stair step step function up and you're seeing things in a new light and so i think often when you're feeling stuck it makes sense to do something different you know to travel somewhere um you know to do something physical you know i like to play back”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“That context, so I might go through some years where I'm reading voraciously, I read many books in a year, and then I go through other years where I get into four or five books, but I don't complete any, and I'm actually spending most of my time to your point before raking the Zengard and trying to order my thoughts. And I do keep many notes that essential attempts to sort of distill what I've learned from different works. tying it together in a philosophy that makes sense. And sometimes I wake up at 5 o'clock in the morning and I'll just spend two hours trying to refine one element of a mental model. And so, you know, part of it is creating time to absorb new ideas, many of which have come from great people that you never got the chance to meet, but you can at least read their books.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“So, I think the first thing is you have to create time to reflect. And that's easier said than done. We all have busy schedules. We could all spend all of our time doing a subset of our jobs. And so, first of all, you just have to, in the mental hierarchy of things, acknowledge that some time spent on reflection is important. And in fact, as I think about it, if I were a client, what would I want Matt or any of the team members to be spending their time on? And I'd want them to be spending some meaningful amount of their time on reflection so that they're seeing the world through a different prism. The second thing is that it doesn't happen linearly, even though I try to religiously schedule some time for reflection on certain days of the week or certain times of the day. Reality intervenes frequently. And so you have to squeeze it in while you can, and it's not even linear.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Especially when you have two competing regimes, and I certainly hope we don't see that emerge, but Nancy Pelosi's visit to Taiwan and the response is clearly flashing some warning signs here that I think we can't ignore in totality”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think if you read Thucydides, I think what's compelling about it is that it was written before 400 BC, and a lot's changed since then. Obviously, technology is dramatically different today from what it was back then. On the other hand, human behavior and human wiring hasn't changed that much. And I get the analysts and our team to read the book because it shows you the common mistakes that people make hubris dogma acting with haste. And I use that as a template to get people to think about doing the opposite with their temperament, having the humility to accept uncertainty, being a patient investor, being flexible, not dogmatic about just investing in one particular part of the world or one particular industry. And so I think there's a lot we can learn from Thucydides. And I think what he sort of showed us is that the fear of war is often the cause of war.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“If China goes through a tough adjustment here, I think the world will feel it, just as if the United States goes through a recession or Europe as a whole goes through a recession. And so I would say that we've been cautious on China. And bottom up, many of the companies we've looked at just haven't had the free cash flow conversion or the management discipline that we've looked at. But we're open-minded. But you're right to say it's been a very small part of our portfolio.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“They had a clampdown on the entrepreneurial class, which has really led to sort of a dereading of that sector. Now, it doesn't mean that we won't find select opportunities. You know, we do have some investments in Hong Kong property holding companies that trade at less than 50% of the underlying private market value of their real estate. And where Hong Kong may not be as vibrant as it was before it came under the influence of the Chinese Communist Party, but it's likely to still have some relevance rather than to say Shanghai and Beijing as a capital export center for China. Likewise, we've made some small investments in some of the internet platform companies in China that have very entrenched market position and where we were able to deploy capital at a single digit multiple. Of EBIT, and where we have a lot of latency.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Historically, at least, if you haven't had that, it's been difficult to sustain growth, to develop market levels. And ultimately, if you have some form of authoritarian regime, it's impeding to the very notion of creative destruction. Because if there's a rent-seeking regime, it has to retard at some point in time creative destruction to preserve its own existence. And so I think if you were to ask if Hayek still lived, and you were to ask him, will China become and sustain its position as the world's largest economy, I think he'd be very wary of making that prediction. And so I think that China is beset with quite a few problems right now, despite the fact that there are opportunities. There's this self-inflicted wound with the COVID policy response and the lockdowns. There is dramatic adjustment going on in the real estate sector, and that market is very overbuilt.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“It's not clear to me that China will become, and even if it does sustain its position as the world's largest economy. And I think a lot of people are presuming that will happen, but it's not clear to me that that happens. One of the things that's interesting is if you look at a list of emerging markets 50 years ago and look at a list today, very few emerging markets actually emerge. There's a whole host of reasons for this and there's in fact there was an interesting book on this called Why Nations Fail by Robinson and I think Asimoglu, MIT economist. And one of the tales of a country that's managed to sort of grow and benefit from capitalism and the spread of property rights and all those sorts of things is an inherent pluralism and a political process that gives voice to multiple constituencies.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Just because we see relative value internationally doesn't mean it will manifest itself in positive absolute returns in the short term. But what we can say is if we own a business like the ones we talked about with a reasonable mid-single digit free cash flow yield that's got a track record of growing at a mid-single digit clip and that's returning capital to shareholders and that doesn't have balance sheet contingency held for long enough will get decent arithmetic relative to owning a bond with a low single digit return.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“And arguably a little bit more favorable climatic readings, you know, the valuation of markets was already resonant with what you'd expect in a recession, not a soft landing. And currencies are at generational lows. And valuation of the MSCIFA hadn't gone anywhere for a decade. Stocks have gone through a lost decade and derated relative to gold. You're not just getting a bad weather day, but from a more secular standpoint, the risk-reward starting to stack up a little bit better. And it's not to say if we have a global crisis, there's real problems in China. Europe's got to make it through this winter with potential gas shortage. And the US has to absorb a recession, in my opinion. All of those things playing out may lead all risk assets to lower valuations at some point. Our crystal ball is foggy at best. It's hard to predict these things.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“It's an interesting one because if we go back to the weather and the climate analogies a little bit, we actually deployed some capital in the United States a couple of months ago because the weather was bad. And what do I mean by that? Well, trading breadth was very narrow in the markets. Risk perception was very high, implied volatility and options have gone up. Credit spreads have gone up a lot. And there are a certain number of individual companies where the arithmetic made sense. But the climate still didn't remain that attractive, so we didn't get fully deployed. And by the climate, I'm thinking of more structural measures evaluation. Where are PE ratios relative to inflation? Where's the price of the equity market relative to an objective marker such as the price of gold? And after this recent rally in stocks, valuations still look reasonably full. And so while sentiment was bad from a secular standpoint, the risk reward doesn't look that great. Internationally, on the other hand, you had both bad weather.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Is something that a lot of people do. But if we go back to the gardening analogy, it'd be almost the same as trying to predict the weather every day. And I think predicting the weather is much more difficult than understanding the climate. And so I think that if you're creating the garden, you want things that can work across a range of different weather expressions given your climate, rather than just be geared to one particular type of weather. And so sentiment to me is kind of like weather. And when it changes, it can change pretty abruptly. And I think when you focus on the arithmetic and you focus on doing what's right for the long term, it's basically saying we're trying to adjust to the climate that we live in and get that right.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Almost increases the probability that you will deploy capital for the long term rather than sort of waiting for the pipe dream in one local area. And your question as well on sentiment is a good one. And I have no easy answer for that. It almost goes back to our discussion about value being out of favor in the late 1990s. And it's very difficult to predict exactly.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“And one doesn't even have to go so far as saying overweight the rest of the world and underweight the United States. I think it's just an open-mindedness to maybe owning some businesses internationally. Think about if you're a property investor, most of us spend our time thinking about the dreamhouse we'd like to own in the city in which we live that's within our budget criteria. But imagine that you were geographically flexible and you could figure out your dream property in the 100 best cities of the world within your budget constraint. Invariably something would be happening somewhere in the world that would let you find that dream property at the right price. Whereas if you just focus on your one city, you might wake up in 15 years time and say, gosh, I never got the property I wanted at the price I wanted. And then the values have drifted up over time. And so I think just opening yourself up to the possibility of investing with a broader universe.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“For incumbency and uniqueness and the metaphysics of quality, as it were, there are going to be manifestations of quality that exist in different parts of the world. To give you an analogy, if you're an Exxon, drilling in the United States may be attractive, but there's going to be pockets of oil elsewhere around the world. And there may be windows of time in the United States where from a regulatory standpoint, it's not that attractive to drill. And so the simple fact that the US doesn't have a monopoly on good businesses coupled with the reality that foreign currencies are pretty depressed and foreign markets have lower valuations means that I think one should be open-minded to having some amount of their assets invented internationally just out of sheer prudence. And I think that gives us the peace of mind to be looking around the world at different opportunities.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“To really do a lot better than the rest of the world to make up for that valuation differential. And so not only is the currency multiple expensive, but you're getting a much lower earnings yield in the United States than you are getting internationally. And I would just make the third point that as great a market as the United States is, and I think it's a wonderful market and one that I'm personally grateful to be a part of, it doesn't have a monopoly on good businesses. If you think about the businesses that we were kicking around before William, they're all outside the United States. There are certain industries where the leaders, the incumbents outside the United States. And that's okay. There's some great artists in the United States, but some of the greatest art came from Italy. There's some great wine on the West Coast of the United States, but Burgundy has some pretty nice wine too. And so like anything where you're looking for...”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“I think it's prudent to consider diversification from a couple of different angles. I mean, we just talked about currencies. If the dollars at a generational high, knowing nothing else, it makes some sense to use this window of uncertainty in foreign markets to plant some seeds internationally just because one doesn't know for sure what's going to be the dominant currency in 20 or 30 years time. Odds are it could be the United States, but it may not be for one reason or another that we can't even imagine right now. And a time where the currency is expensive is a decent time to be looking overseas. Secondly, I mentioned that US equities in general terms were trading at a premium. The S&P trades at just under 20 times the trailing 12 months of earnings, whereas the stocks in the EFA are more in the 12 to 13 range. Now, that's a pretty big valuation differential. If you invert those and think about them as yields, an 8% yield versus a 5% yield, there's a big spread.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Those other areas. And so, in real terms, the interest rate carrier is not that attractive. And so I have a fundamental question in my mind over the next five to ten years about the equilibrium value of the dollar. I think if you're not offering real rate carry, if you're mid-cycle fiscal deficits are larger than most of your trading partners, if your current account deficit is large and growing while theirs is in surplus and the currency is expensive and you're already 60% of the reserve mix, one should be open-minded just from a position of prudence that the relative rating of the dollar may adjust downwards over time. And I think this is irrespective of concerns that people might have about the evolving political equilibrium in the United States. But I think it's just an obvious statement in some ways that the dollar has been preeminent, but it may be more than adequately reflected in relative prices.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“So, if I'm China today, am I as incentivized to accumulate dollar reserves as I was before if they were sanctioning? Perhaps the Chinese might be more inclined to buy a real asset like gold. Secondly, the US, for all of its advantages, runs a trade deficit in excess of 4% to GDP, which is expanding. All of the major currency crosses, the Eurozone, Japan, China and current account surplus. Over time, currencies with large trade deficits tend to be on a depreciating trajectory, not an appreciating trajectory. And so you might ask, well, if the currency is expensive in real terms and has a trade deficit, why has it been strong? And I think what explains that in the short term other than risk perception going up is that the US has offered some interest rate carry to some of these other regions of the world. But what's important to note is that we have far higher wage growth in the United States than we do in most of the”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“The sort of risk off currency of choice, particularly in his last crisis because our energy independence is manifest relative to say Europe or parts of Asia. But what that means is in real terms, the dollar is pretty much at a generational high versus key currency crosses, whether it's euro or sterling or the yen or the Chinese currency. So the US dollar doesn't offer much value. It's already fully stocked in the reserve mix of international monetary authorities.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“We're 5% of the world's population. So at some point, the relative merits of US equities ought to be recognized, but are they being over-recognized as a fundamental question? The market trades at a premium to the rest of the world. Margin structures have been higher than the rest of the world here, arguably benefiting from the easiest policy. And so when you come back to investing, it's like going to the races. You're not betting on the best horse necessarily. It's the horse that's better than other people think it is. And if you look at the world of equities, people think the US is the best and they're really reflecting that in valuations. But it's not just equities, it's the current currency. The US dollar makes up nearly 60% of world's currency reserves. And that's just not a sustainable equilibrium long term. And the dollar has been”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Let me start out by saying that having grown up in Papua New Guinea and Australia, I'm enormously grateful to be able to live and work in America. I mean, it's the ultimate sort of pluralistic melting pot of different ideas and markets and property rights. And I think there's no question in my mind that the US is going to be an important economy for decades to come. And I want to be part of this and I want my children and their children to be part of this narrative. Having said that, There are windows of time where there's a difference between a good economy and a good currency. And one of the challenges we face is that all of the characteristics of made up for the inherent resilience of the United States may be pretty fully priced right now. When we look at the world of equity markets, US equities are nearly 70% of the world equity index.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Could look for other forms of private money such as gold. And so if I were just a Bitcoin holder, I'd want to own some gold as a potential hedge, Bitcoin's existence. But I could also understand if you held a lot of gold, why you might want to own a small amount of Bitcoin as insurance against it actually working and taking away some of the monetary market cap of gold. Final thing I'll say is that gold will always have some value, its base layer of value for jewelry and as a perpetual item of adornment, which Bitcoin won't have if it doesn't have value as a monetary medium.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Which were essentially the crypto of the time. They were virtual claims, the original companies were beneficial claims of trusts on underlying assets. And so this was kind of arcane and abstract at the time. But financial assets came to coexist alongside real assets. They didn't disrupt totally. They coexisted. And if digital assets are another concentric circle around financial assets and real assets, it doesn't mean that real assets will disappear. And it doesn't mean that all financial assets will disappear. I think what we're going to see is the emergent coexistence. And I think what Bitcoin might have done is increase the demand for private money. I think people have questioned the quality of the monetary architecture after COVID with inflation, with low real interest rates, with big fiscal deficits.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Well, it cannot be dominated by a pool of over 51% of miners for Bitcoin to exist. The fact that it has to survive unknown challenges, there may be a state that plants malware in the ASICs chip for Bitcoin. We just don't know. It has to survive what is going to be the test of quantum computing, which is going to change the efficacy of the underlying hash protocols for Bitcoin. So there are a range of different challenges that Bitcoin has to endure, and we're just going to have to let time play out. But until it does, it should trade at a discount to the aggregate market cap of gold. Having said that, two things can coexist at once. Ovens and microwaves coexist. When most wealth before the Industrial Revolution was stored in real assets, land, art, precious metals, livestock. And then we created all these financial assets.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Bitcoin, if gold is a perpetual option on being money, Bitcoin is an option and an option, right? It's an option on being digital gold. But right now, because of the early stage of its adoption, it doesn't trade like gold. Gold has a very tight inverse correlation with real interest rates. When stocks have had lost decades, gold has tended to have its best decades. So it has a demonstrated track record as a potential hedge asset. Bitcoin, because it's younger and it's been in an adoptive phase, has traded much more like a growth equity. Now, if it succeeds in its destination, its trading character should become far more mundane over time and much more like gold. But right now it trades like a growth equity. So the fact that it faces unknown risks, you know, agency risks, as we discussed before, like the minor community has to continue to exist.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Than any competing cryptocurrency. So being first matters. And Peter Thiel has this great expression. He said, every moment in business happens only once. And so the fact that it was first and is at scale means that it is the most secure distributed blockchain. And really what you're buying is titled to that digital asset as a service, right? And so I think one has to take it seriously. Having said that, even if it's on a path to being as important as goal long term, right now, I think it's rational that it trades at a discount to gold. It's young. It's only 13 years old. It hasn't been around for thousands of years. So I'd say the fact that it exists doesn't mean it will definitely exist. But it's the leading contender to potentially exist in the crypto space. And so”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Like all that exists, and I think it should be taken seriously because it is the largest compute network in the world. It dominates even the scale of the Google Server network by order of magnitude. And so Bitcoin is an interesting, you know, as a man-made creation, but it's kind of had some sort of emergent reality to it, if you will. And there's a vibrant ecosystem that's formed around it. Its incumbency is valuable. The fact that it was first”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Gold has compounded out at around 8%. So, what's happened is that even though it doesn't offer a yield because it's in scarce supply, it's met the rising tide of money supply and it's in fact accreted a little bit because the quality of human-made money, the alternative, has gone down. We have larger mid-cycle fiscal deficits and lower mid-cycle real interest rates. And so gold from a very long-term standpoint has served a powerful hedge role in our portfolios. And the question is, has gold met its match in Bitcoin? Is gold like everything else subject to a different form of substitution? It may be dominant in the context of the periodic table, but is there this new invention that renders it useless? Well, the simple answer is we don't know. What I will say is that Bitcoin is 13 years old.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Well, if we go back to the discussion on incumbency and old masters and vineyards that have been around for a thousand years, gold has survived the test of time. It does exist. It has a unique incumbency on the periodic table in terms of real assets. It's got unique chemical attributes, and it will exist. So inherently there's a duration to gold that is longer than most things that we would look at. You know, the second thing I would say is that gold is not legal tender today, but it's a perpetual call option on being money. And as such, you'd expect it to be at its most valuable when the quality of human-made money is at its weakest. And what we've seen since the Bretton Woods Agreement broke down in the early 70s is that while T-bills have compounded out at 5%, money supply in the US has grown at 6%.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Gold has outperformed T-Bells. And so most stocks, crazy as it would seem, on average, underperform gold. And that's a kind of counterintuitive thing to get your mind around. But if you see that as a kind of paradoxical truth, it forces you to ask basic questions about whether you're getting satisfactory factory compensation for the fade risk, the beta risk, and the agency risk of an individual company.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“That are truly accretive in nature. And so there's a reason businesses need 5% free cash flow yields. It's to compensate you for fade risk, beta risk, and management dilution risk. And otherwise, if you had none of those risks, you could just own a business and it would pace with nominal GDP. But the fact that it has shortfall risk is why you need a free cash flow yield. And so I think looking at something relative to the image of something else can be useful. And there was a final paper I'll mention on this, William, is that there's a professor by the name of Bessenbinder who did a study of all stocks in the CRISP database since 1926 and found that the average stock had actually underperformed T-Bills and that most of the risk premium and the stock market had come from a small number of stocks, thus the importance of some element of diversification. But the irony is that”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“It hasn't suffered from management dilution risk. And it hasn't suffered from entropy. It's still in the periodic table occupies its position of incumbency. And the reason I go through this whole digression on gold and Tim's vermere is that it's useful to think about how a business stacks up relative to a lump of gold. And it's interesting to me that most businesses have some fade risk. They have a generational half-life. Secondly, most businesses have beta risk. There's a risk that you'll buy them and then you'll find yourself at the bottom of an economic cycle and you might be a forced seller at the worst time. And most businesses have some form of agency risk. Management's on average make decisions that are dilutive. I think there's only a small number of managers.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“And it's also what gives it its low beta characteristic because it's not primarily used in the industrial cycle like copper or oil or iron ore. And so it has an innately low correlation to the business cycle and a long duration. And that's what's made it nature's hedge asset, if you will. And the reason I mention gold is that people say, well, gold is useless because it doesn't have a yield. Well, I just pointed out that it is useful as a hedge. And even though it doesn't have a yield, because it's in scarce supply, coming back to incumbency and scarcity as a theme today, there's less than one ounce of it per capita in the world that as the supply of money has gone up over the last 50 years after the breakdown of the Bretton Woods Agreement, gold hasn't offered a yield, but it has accreted enlightened with world money supply. And so it has offered a return. It hasn't suffered from beta risk.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT
“Of gold is its utility is and its uselessness. If you were to look at a periodic table, it is the equivalent of the best block of land because it has this unique combination of inertness and density on the periodic table. And the inertness, which makes it useless in some ways, is also what makes it a natural perpetuity. It doesn't chemically react. It's what gives it permanence.”
2022-10-02 · We Study Billionaires · RWH014: The Resilient Investor w/ Matthew McLennan · IDENTIFIED FROM THE TRANSCRIPT