The Endless Hunt for Value

Published on
September 13th, 2019
Duration
64 minutes

The Endless Hunt for Value

The Interview ·
Featuring Whitney Tilson

Published on: September 13th, 2019 • Duration: 64 minutes

Value investor Whitney Tilson, founder and CEO of Empire Financial Research and the former managing partner of hedge fund Kase Capital, details his transformation from momentum trader to an investor living by Warren Buffett’s dictum that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” In this conversation with Ed Harrison, Tilson explains why he sees WeWork pulling its IPO and eventually going bankrupt, lays out the case for Amazon and Fannie Mae, and speaks to the outlook for beaten-up European financials. Filmed on September 9, 2019 in New York. Learn more about Macro Insiders here: http://www.realvision.com/macro-insiders

Comments

Transcript

  • GB
    Gary B.
    18 September 2019 @ 02:05
    The siren song of Tilson. Guys like this are great at telling a story and terrible with their judgment. The fact he has this many thumbs up goes to show there is always a bull market in lemmings.
  • KA
    KC A.
    16 September 2019 @ 22:14
    Tilson is such a putz
    • KA
      Kevin A.
      17 September 2019 @ 04:06
      Did you lose money? Thought it was a good interview. He went over a lot of his mistakes, which I found helpful (and consoling).
  • LT
    LYALL T.
    16 September 2019 @ 02:33
    I guess Tilson doesn't feel compelled to check the facts on some of his longs. On AWS, the actual truth is that operating margins fell from 31% to 26% YoY in 2Q19, and earnings were flat despite robust (but decelerating) revenue growth of 37%. Competition is heating up from Google & MSFT in particular, both of whom are now growing faster than AWS and represent formidable competitors. AWS is a great business and it will continue to prosper, but it's going to be incrementally harder moving forward. In addition, retail operating margins also dropped sharply in 2Q19, and a significant step-up in competition is coming. WMT has got it's act together and is growing online fast, and is now planning to offer logistics/fulfillment services to 3rd party players. B&M are all taking Amazon threat seriously and investing hard. Shopify etc are offering alternative platform for B&M to fight back. AMZN might yet still win, but it's going to get a lot tougher and it's more likely margins fall than rise. WMT has to win this fight - their long term survival depends on it - and they have enormous financial resources to duke it out. With retail margins only about 2%, AMZN actually doesn't have that much margin to play with. The idea spinning out AWS would be value accretive is flawed. AWS's value is a huge part of the reason AMZN is a $1tr company and it's valuation is well recognised, and the reality is that Amazon is going to need AWS earnings to help subsidise growing losses in it's retail business as competition intensifies from AMZN. Without an AWS subsidy, AMZN runs the very real risk of losing the retail fight, as they have significantly less margin to play with. What AMZN has really done over the past two decades is buy a lot of market share. WMT is going to do the same moving forward. It still remains to be seen how profitable this is going to be - especially with online losing sales tax & US post cost advantages, and competition heating up. $80 in EPS in a few years time - US$40-50bn in profits including stock dilution - is fanciful imo. I'd be surprised if they were making a lot more than they are now given that margin & competitive headwinds are emerging in all their operations at present, and offshore retail expansion losses in particular are likely to significantly increase. On Freddie & Fannie, good discussion & mostly agree, but only a spin doctor could try to argue that the taxpayers are better off with only 80% of the profits instead of 100%. I agree with the illegality of the net worth sweep, but it's just flat wrong to say it's in taxpayer interests to relinquish 20% of profits to minority investors instead of 0%. It shows how even smart people can make very obviously bad arguments where there financial incentives tilt that way.
    • NR
      Nelson R.
      16 September 2019 @ 17:04
      Taxpayers have a huge incentive to let these companies go. Or else they are opening the door for socialism to take root in the U.S. The government should never be in business, that is not its role.
  • KD
    Kaj D.
    16 September 2019 @ 02:29
    Love Ed’s interviews. As well as being very open about his interesting journey, I though Whitney was a great story teller – time flew past. Talk about encyclopaedic knowledge too. Thank you. Rick Bensignor mentioned a few times about how losses hurt your psyche – so true. It struck me that that was Whitney’s experience as well (and mine). Obviously it caused Whitney’s whole career direction to change. So I thought it would be worth Real Vision doing an interview dedicated to rebuilding confidence, performance & enthusiasm after big / damaging losses. Everyone talks about it, i.e. trade small, go back to basics etc, but actually I think it’s a much bigger subject. May be a series of short interviews, say “how did you get back on the bus”. FWIW
  • PC
    Paul C.
    15 September 2019 @ 19:14
    Yet another class interview from Ed Harrison - his questions are focused & cut straight through the noise. Also so much wisdom & honesty from Whitney - one to bookmark for me.
  • SS
    Sam S.
    15 September 2019 @ 15:50
    Extremely well spoken. Owning his mistakes, working hard creates opportunity (luck), riding the big wave, then confessing the big wave crashed, is the mark of the person with strong character traits. School of hard knocks. I love it. Not a fan of these nut ball Democrats (their narrative is insane) taking offices just to profit on the potential of splitting up certain companies. Love this interview.
  • NR
    Nelson R.
    15 September 2019 @ 01:33
    FANTASTIC interview, candid and filled with nuggets. A successful person has my admiration, a successful person who publicly recognizes both some of his/her success is due to luck and also that he/she has fucked up along the way has my respect. 👍🏻
  • cs
    claire s.
    15 September 2019 @ 00:19
    Props to Whitney Tilson for being honest and open about his success and especially failure.
  • KW
    K W.
    14 September 2019 @ 21:52
    I didn't know he is the foremost expert in value investing. How can you blow up funds if you are buying it at "value"?
    • lc
      ludovic c.
      19 September 2019 @ 21:24
      He explained it in the beginning...shorting too heavy
  • MH
    Michael H.
    14 September 2019 @ 19:47
    Long FNMA & FNMAS. But any additional ideas on how to play a restructuring of the GSEs (ie any mortgage LPs, banks, REITS or fixed income securities to play?)
  • BE
    Benjamin E.
    14 September 2019 @ 17:47
    Ed Harrison is a genius interviewer. He comes armed with expert knowledge and intriguing questions, that elucidate unexpected and supremely useful avenues of discussion. He also has the intuitive gifts of allowing for a perfect flow of conversation rhythmically. And when a topic is well-explored he makes great, clear, pivots in a fresh direction. He could have his own channel.
    • SB
      Stephen B.
      15 September 2019 @ 19:15
      Agreed - the Larry King of financial interviewing :)
  • SS
    Stephen S.
    14 September 2019 @ 12:33
    Very interesting comments on GSEs, WeWork and FAANGs. Ed did a great job as the interviewer. I hope Whitney comes back soon.
  • NS
    Nakul S.
    14 September 2019 @ 06:05
    Hedge fund structure and buffet type mentality hasn't worked for many. BRK underperformed index for 10 year sequentially, and survives. Hedge funds cant.
  • MK
    Mike K.
    14 September 2019 @ 03:02
    I wish he told us what he really thought of WEWORK. ...Now do TESLA!
  • DR
    David R.
    14 September 2019 @ 01:33
    This was amazing! Thank you!
  • DP
    Daniel P.
    14 September 2019 @ 01:33
    Great interview but can't take the stock-picking of Amazon seriously without a better macro analysis than 'we might have a recession'. We're highly likely at the turn of a business cycle here where even a great company like Amazon will get hammered.
  • GT
    Greg T.
    13 September 2019 @ 21:15
    I just watched this and I don't think he really understands how to value businesses based on his comments about Amazon. He didn't understand how to value it until basically today. He only knows old school valuation based on PE multiple etc....he doesn't understand the value creation reinvestment model. He blew up his hedge fund badly, twice I think. Now he wants to sell you an expensive newsletter/research service. This is typically the last stop of these guys who couldn't perform in the business. Keep that in mind. There are lots of them floating around.
    • ET
      Eduard T.
      14 September 2019 @ 01:33
      Agree..."The Last Days of Whitney Tilson's Kase Capital" (https://www.institutionalinvestor.com/article/b17f19gwp3595r/the-last-days-of-whitney-tilson's-kase-capital) To quote..."After 18 years in the hedge fund business, his firm — Kase Capital Management — was losing money, and Tilson found himself dipping into his savings to keep it afloat.... Since 2010, Tilson says, he trailed the Standard & Poor's 500 stock index, and in 2017 he had lost almost 9 percent on the year by the time he shut down his fund."
    • ET
      Eduard T.
      14 September 2019 @ 01:36
      He is no Jim Simmons, DE Shaw, Ken Griffen or David Siegel of Two Sigma. Once his traditional "Dodd & Graham" valuation techniques became ineffective post 2008, he could not adapt.
  • GT
    Greg T.
    13 September 2019 @ 20:12
    I am debating whether to spend an hour watching this? His track record is not good.
  • CM
    Chris M.
    13 September 2019 @ 19:07
    Can anyone rate his newsletter? Has a 30 day trial but pricing on high end unless you are an institution.
  • SG
    Sven G.
    13 September 2019 @ 17:39
    Whitney was great, very open and honest. Didn't try to blame anyone for his underperformance. Refreshing to see that from money manager.
  • SB
    Stephen B.
    13 September 2019 @ 15:31
    Excellent!
  • RE
    Ryan E.
    13 September 2019 @ 13:54
    Will Value ever work again? I'd love to see heated debate between Mike Green and Whitney (or another value guy).
    • MR
      Mitchell R.
      13 September 2019 @ 17:13
      Value is dead until prices correct and millennials get better income/debt ratios
  • Mv
    Matthias v.
    13 September 2019 @ 13:31
    Thanks RV, Ed and Whitney! Last year I had the privilege to sit in on Whitney’s Kase learning classes. Really appreciate the down to earth way he shares the incredible knowledge, learnings and network he’s built up over the years. Everyone can just subscribe to his (free) newsletters at Empire Financial Daily if you want to read/know more.
  • DG
    David G.
    13 September 2019 @ 11:30
    The story and transparency makes me believe in him! Loved the interview
  • PB
    Pieter B.
    13 September 2019 @ 06:27
    Superb conversation Ed & Whitney! Thanks!
    • GF
      Guangle F.
      13 September 2019 @ 08:45
      Appreciate the courage to be true and let us learn from it.
    • AR
      Anthony R.
      15 September 2019 @ 00:37
      He owned it, is moving forward. That's all anyone can do. This life thing is an iterative game. He's still iterating as we all are if we're honest with ourselves. A worthwhile discussion with content to at least consider.