YouSaid · the spoken record

Will Thomson

lines on the record
61
first
2022-12-16
most recent
2022-12-16
sittings or episodes
1
sources
podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

  1. “For simplicity's sake, we may not run a DCF and we may go a different route knowing that the DCF, so for instance, we're investing in a company called AES, which is utility. AES has got utility operations in the United States. They've got some in Europe. They've got some in South America. They're all over the place. They've got a lot of assets, a lot of things going on. That's a very hard, very messy DCF in any level of detail. And so our DCF for that is a pretty simplistic sort of starts at EBIT basically and goes from there. And one can envision how complicated a DCF that starts at EBIT actually is. It's not that difficult. But it doesn't tell us very much. Modeling it out in great detail would be very time consuming and wouldn't help us with the strike zone. It would help us with precision. And so that's not value added in our mind because the precision doesn't, once you've got the strike zone, it doesn't add much value. So I think DC.”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT

  2. “Means that all that comes above earnings has also been assumed, which is going to include various different margin assumptions, various different CapEx assumptions and return on investment assumptions. So all these valuations, I mean, in theory should produce not only A, the same answer. They don't, but that's a separate issue. But they can all be sort of backed up into alternate methods. And we often do that. So we may run a DCF and then say, oh, well, geez, that DCF means that this company trades at 24 times earnings in three years from now. Is that particularly likely? Maybe not. Maybe it is. It depends. But what I would say is that we make all the same assumptions. The question is just whether we're making them explicit or not. We tend to favor making them explicit so that we can interrogate them. But there are absolutely times when”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT

  3. “So we always, and I think Michael Muboson, who I know you've had on your show or who's been on the channel a couple of times, and I think this comes from him, but he talks about the importance of triangulation, basically, you know, multiple approaches. And then trying to actually figure out why some of these multiple approaches tell you different answers. We do do that quite a bit. And it's more because, you know, look, we're always looking for mispricing and how and why a multiples evaluation or relative pricing of a stock tells you a different answer than the DCF. Like there's something that is revealed in that difference. But what I would say, and I think, again, Muboson would say this, or I got it from him unless I misinterpreted, any approach you take, you can then back into any other approach. So all the assumptions that, for instance, someone doesn't want to make in a DCF, well, if you assume some PE ratio in the future, you've assumed some earnings, which by definition.”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT

  4. “I mean, we usually apply again, it usually gets applied at the end into that subjective probability if we just don't really buy management's claims, the bad scenarios, if you will, are going to end up with a higher weight. But I think internal to the DCF, if you will, usually we don't sort of wait it a first and then a second time because those multiple weightings are compounding things and confusing ways. We're trying very hard. We always try very hard to be quite clear about what questions we're asking in each stage of the investment process, how we're answering them and what's implied or baked into those answers. And so I think applying it at multiple points outside of a discount rate, which we tend to use a whack or a cost of equity, depending on what we're doing, that's more calculated. We don't tend to apply internal weightings to the scenarios.”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT

  5. “Want to do this after you've done the free cash flow. So you do your free cash flow and you assume that they fail some steel company, they want to build a steel mill. The steel mill is going to be done in 2025, they say. You say, no, it's going to be done in 2026. So you take their plan, what they propose, it's going to do, and you back it up a year. You figure out what that DCF value is, and now you take that single number and you apply a 25% weighting to it, and you take whatever your other scenario, you apply 50% weighting. And so now you've got, and then you do another with 25%. So now you've got three MPVs, and you've weighted each one, multiplied and added, and you've come up with a singular net present value for the entire sort of scenario or portfolio, if you will, of scenarios.”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT

  6. “Least from our perspective, that sort of approach works quite nicely, obviously, with commodity producers. It works exceedingly well with any project-based company. I can't speak to say, probably, I can envision it working well with biotech only because biotech happens to have a lot of similarities to mining, which is sort of interesting when people don't think about that. But I don't know how well or how to execute it in the case of, say, a Facebook. But usually if you can run a DCF, you can come up with scenarios. And then you can probabilistically weight those scenarios. It's a subjective probability built from your mosaic of information. But again, in terms of trying to capture”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT

  7. “So, all the cash flows now get backed up a year. And we think there's 25% chance that they fail to execute properly. Or you can start folding into your scenarios political risk. Maybe they lose a license and now they need to go back to a government, negotiate new permits. And so again, cash flows get backed up. Maybe cash flows get pulled forward. There are all kinds of scenarios to sit down and creatively think about and build into your DCF and then wait. And then in that waiting, you capture a much broader spread of the potential of the firm than say picking a single discount rate, a single gold price, or in the case of a project, just sort of assuming management successfully executes. You want to build in sort of an outlook that takes into account all possible futures or at least a representative selection of possible futures.”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT

  8. “Answer. The goal is not increased precision. It's more a value that captures the entire strike zone of possibilities as opposed to pinpointing a single point. Now, when you go beyond a mining firm, it starts to get a little more complicated. But in some regards, it becomes even more valuable. If we think about a company that is planning to do a bunch of CapEx and expand their business, whatever the business may be, there are questions. Are they going to successfully execute? Will management successfully execute the project? Maybe yes, maybe no. Will they come in under budget or over budget? Maybe yes, maybe no. Are they going to finance this with debt? You know, there are all these questions. And so when you build out your DCF, for example, you can build out scenarios where you make those changes. No, they're not going to be on time. It's going to be a year delay.”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT

  9. “And so the thought process would be something like this. We don't know where copper is going to be in five years, but we believe there's a 50% chance subjective probability, 50% chance it's going to be above $5, 25% chance it's going to be $250, and there's a 25% chance it's going to be whatever, $8. We can run our DCF at each of those different price points. And then we can sum that those probability weighted values up to a final value. Now, what's nice about that is that we can sit down and we know that we don't know what copper is going to be. We also know that there's a spread of possibilities, a spread of futures. And so in that one value now, we've captured a spread of futures that could occur. And so our bet is on that sort of spread of outcome as opposed to a singular.”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT

  10. “What happens is a management team gives you the entire plan for the next 10, 15, 20 years in a formal document. And so they give you all the capital allocation, everything. So you can run this beautiful DCF with all the detail you could ever possibly imagine. The challenge, of course, is that who the heck knows what the commodity price is going to be. You also don't know if management is going to successfully execute on the plan. So of course we have two big questions. Are they going to successfully execute? What is the price of the commodity going to be? But we do have this beautiful sort of net present value equation, if you will, that just sums to a perfect value. The way we like to approach thinking probabilistically, and we apply this across the board to every company in the portfolio, is by weighting scenarios within a DCF structure and then summing sort of a product sum, if you will, in Excel those to a single product.”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT

  11. “You mentioned Danny Duke's book Thinking in Bats. I can't claim to think in bets as well as she does. I ran into her, I mean, she doesn't know who I am, but I actually was playing at a poker tournament for fun at Foxwoods once and sat down at a table with her. And she proceeded to wipe out a whole bunch of people at the table. I escaped with my like $5 left, but she wiped out a whole bunch of people at that table. But in terms of thinking probabilistically, I mean, as you said, we hear from Charlie Munger, we hear from Warren Buffett, we hear from all the great investors that you should think probabilistically. But how do you actually execute that? And so from our perspective, a lot of our valuation and our approach to investing starts with mining firms. And the reason it starts with mining firms is because that's been the bread and butter of my fund, Massive Capital sort of invested. And mining firms are kind of nice to approach and value because basically”

    2022-12-16 · We Study Billionaires · TIP 504: Opportunities in Energy, Metals and Mines w/ Will Thomson · IDENTIFIED FROM THE TRANSCRIPT