The Outlook for Value Investing
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Enterprises have an opportunity to position cyber resiliency as a catalyst for innovation and growth. But how is it done? What type of leadership and skills are required? Learn more on the fifth episode of Tech Fluential, a podcast from Deloitte and custom content from WSJ. This is Barron's Live. Each week, we bring you live conversations from our newsrooms about what's moving the market right now.

On this podcast, we take you inside those conversations, the stories, the ideas, and the stocks to watch so you can invest smarter. Now, let's dial in. Hello, everyone, and welcome to Barron's Live, our weekly webcast and podcast. I'm Lauren Rublin, Senior Managing Editor of Barron's. Excuse me. Thanks for joining us today.

to learn more about investing and stocks in the news. I have two great guests on today's call. Barron's Deputy Editor, Ben Levison, and Matthew Fine, a Portfolio Manager at Third Avenue Management and Manager of the Third Avenue Value Fund. The ticker is TVFVX, and we put that in the chat box for you.

The fund, which currently earns four stars from Morningstar, has returned more than 6% year to date. So much for the death of value investing. I am eager to learn where Matt is finding value, and I'm sure our listeners are too. So welcome, Ben and Matt, and thanks for joining me. Thanks, Lauren. Thank you, Lauren.

So, Matt, I spoke to you last week in advance of this call, and you called yourself a maligned dinosaur of the value community. But honestly, value investing looks like it's where it's at these days. So tell us a bit about your approach to value investing, specifically what you look for in stocks, and why you think value investing is working right now.

Right. So at Third Avenue Management, we are a fundamental value investing firm. And what that means to us is essentially that we're trying to buy companies at a substantial discount to what we think a conservative estimate is of the underlying value of the business.

So how do we do that? That sounds nice. But usually in order to produce a substantial discount, there has to be something wrong going wrong, some kind of headwind or dark cloud hanging around the business or the industry or even the geography.

that makes other investors excessively pessimistic and start to extrapolate the recent headwinds long into the future that gives us an opportunity to buy at a big discount. So you can hear in that, that inherently we, a lot of what we do looks contrarian.

And then generally we're taking a three to five year investment horizon and limiting our investment activities to companies with great balance sheets where they can ride out whatever the headwinds or dark clouds are and hopefully build a lot of value in the downturn and get to the other side. So that's essentially what we're doing, which is

Used to be much more common than it is today, but you know today seem seems pretty rare You know, I am NOT I think equity markets in general look incredibly expensive today, and I'm not at all optimistic frankly about the performance of broad equity market indices, which is what most people mean when they ask about the market and

I think most of that is by virtue of the US influence over global indices, but that belies a little bit the prospects for value because what is lost in that is that there are many, many cheap companies that have been ignored

in recent years. And in fact, cheap companies have even gotten cheaper in spite of equity markets in total having become much more expensive, say, over the last decade or so. So I used the word when we spoke maligned dinosaur. I was sort of tongue in cheek. We know you're not a stegosaurus. It's OK.

We're not maligned by Third Avenue's shareholders who are generally pretty pleased. And, you know, there are value strategies that have really performed quite well in recent years, and we're pleased to be among them. How do you avoid the value traps and getting stuck in something that just keeps going down for a long period of time?

Yeah, I mean, there's two pieces of that. One is the stock price. And, you know, we are not in control of what the stock prices do after we purchase the company. Where we do have an influence is trying to limit our activities and trying to limit our investments to opportunities and companies where management teams are doing a lot of things to create value and are really active and front footed.

trying to grow the value of the business and thinking about that in a holistic way. Maybe it's through the operations of the business. Maybe it's through consolidating their industries in a difficult time. Maybe it's through big buybacks or shareholder distributions and trying to grow the value of the business. And generally, when we're good at picking those companies and the management teams are good at growing the value, the stock prices really take care of themselves.

So you're a bottom-up stock picker, but I know you pay some attention to the macro and the market backdrop. And I'm curious how the economy and the stock market look to you. You've indicated you think that the markets are fairly overvalued around the world from an index perspective, but how does the economy look to you and how do the markets broadly look to you? So when I look at an individual business and think about the macro economy, what I'm really looking at is

is trying to understand whether the company at the moment I'm looking at it has been positively influenced, has had some kind of tailwind or whether the macro economy or, you know, whether it's interest rates or whether it's government policy has created some sort of headwind. So what I'm trying, in other words, what I'm trying to do is avoid buying a business that looks cheap, but it only looks cheap because it's had these great tailwinds that may or may not

persist. But to the other part of your question, so how does the economy look? I really don't know. I want to be very clear about that. Macroeconomic fundamentals in the US and most of the developed world look pretty good. Employment looks pretty strong. Inflation has come down. I see the same things that everybody else has seen, but I would offer one thought, which is that

a recession is coming. And I don't know whether it's next year or five years from now, but a recession is always coming. And you should operate with that in the back of your mind, meaning invest with that in the back of your mind, because the timing is incredibly surprising and unpredictable. And that's just the nature of the world that we live in. So yeah, prepare all the time.

So you're invested heavily in Europe and Latin America and most recently in Japan. I wanted to go through some of those areas and talk about what the opportunities are. Europe is in transition. Governments seem to be spending again, particularly Germany. What is the economic and investment outlook in Europe and why does it look attractive to you? Yeah, look, I mean, just as a starting point, I'm a global investor.

value manager. Global indices today have never been more exposed to the United States at something like 75%. And in the MSCI world, for example, the US weight. And at the same time, US equity markets have never looked more expensive relative to the rest of the world. So the

US mega cap growth stocks have just captured the global investing zeitgeist and they've captured all of the capital and left huge parts of the global equity market basically ignored and neglected, sort of a benign neglect and everything looks cheaper than the US. And it's not, my view is not a macroeconomic

or a market view on Germany or the UK or Japan, it's that I can buy, you know, 25% of our portfolio today roughly is in continental European companies. I can buy European companies that are super well financed, well run, incredibly well capitalized,

in trading at five or six times earnings. And if that's the case, and by the way, doing all of those things I said earlier about avoiding the value traps where

They're trying to create value. They're making large distributions to shareholders with all of this excess capital that they're generating. And that seems to me to be super attractive, particularly relative to other opportunities like US larger cap companies. And we've built an entire portfolio that fits that description, whether it's in the UK, Europe, or Japan. We're going to talk about some of your holdings later in the call. Go ahead, Ben. You wanted to ask something?

I'm not sure if we have Ben on the line. Matt, you there? I'm here. Yep. Okay. So let's talk about Japan for a moment, understanding everything you just said about Europe. It's been a significant area of investment for you for several quarters. What's the attraction there? Again, is it just how cheap things are?

Yeah, it's that I can buy fantastic businesses and I mean very good quality businesses. In fact, I've said to my colleagues a couple of times recently that if I was to point to a part of the portfolio where the highest quality businesses exist, it might be in Japan. And some of them, many of them in fact are very, very well run. They're super well financed and they are very, very cheap. That backdrop with that, that,

Those traits that I've just described have actually persisted for quite a while in Japan. To me, what's different now is the enormous amount of pressure being inflicted upon Japanese C-suites and boards to reform corporate governance and shareholder policies that have really

We are having technical trouble, Matt. I cannot hear you. Ah, you're back, Ben. Oh, I never left. I was just accidentally muted when I sneezed. Oh, all right. I'm glad you did that. What a strange. Sources of pressure this time around are internal and they're coming from the Tokyo stock exchange. They're coming from the Japanese pension system. They're coming from securities regulators, um,

And the world does appear to be changing there. It's not as fast as I would change it if I had my wishes, but things are changing and you've got some great businesses at great valuations.

We're going to talk about one later. So I want to switch over to Ben now, now that we've established you're both on the call, and talk about a couple of companies in the U.S. that are reporting this week. One of them is Chewy, the pet products company. It reports on Wednesday. It's not a huge company and we might not talk about it much, but the stock is up 104% over the past 12 months.

Ben, can this sort of momentum continue? Well, it's definitely not a value stock. It trades for about 64 and a half times 12 month forward earnings. The one thing that stock has going from it on a trading basis is that it really hasn't gone anywhere for the last three months. It is basically unchanged over that period. So that doubling really happened in the previous nine months.

You know, you have sales that are supposed to increase, even though earnings are not translating. Those sales aren't going to translate into actually higher earnings than the previous year. But you do have some people who are very bullish on it. Zuhal upped their estimates. They see revenue growth growing 13% to 14%. They're very positive because they think that the company is –

You know that they often give conservative guidance that won't surprise people and I think they'll be able to beat it. So they're pretty excited about it. Another firm, this is Seaport, came out and initiated it last week and they put a neutral rating on the stock. They offered that, you know, they think that the pet market is large.

They think that Chewy is really the one company that really engages with that pet market. They have a strong brand. They keep their customers. And they should be able to keep taking market share from other places. But they're also concerned just about the pet market overall, whether it can keep growing the way that it

has, especially since the pandemic, things are slowing down. People are spending less on their pets as consumer confidence weakens. They're worried about that. And they're also worried that people are just not going to be getting new pets. And so with they call the shares trading at fair value. It's at basically one point one times their twenty twenty six estimate for enterprise value to revenue.

But they just think that that's where it should be trading. And right now, I mean, I think you can get a nice momentum play out of this if the earnings can come in and beat. But it is a very expensive stock. You know, I've never thought of the pet market as being cyclical. It seems to be just growing perpetually. Yeah, maybe not so perpetually anymore. It's an interesting story in there.

So let's shift gears and take a look at the dollar stores. Dollar General was a recent Barron stock pick. It's up about 9% so far this year. Dollar Tree, a competitor, is down about 9%. Dollar Tree reports earnings on Wednesday. What is expected from the company and why is it that conditions that are thought to favor the dollar stores are helping Dollar General but not Dollar Tree?

Well, I think both these companies have had a really tough time until recently where, you know, Dollar General has made some changes that have really helped it kind of turn things around. Andrew Barry did a great job of laying that all out when he picked the stock kind of late last year. Dollar Tree is still having a tough time with Family Dollar.

And that's been a big problem for it. It's made it harder to really turn things around for the company as a whole. And it also has a slightly different business than the Dollar General. Oppenheimer, though, they're feeling a little bit better about it. They call this a pivotal report. They see the company being able to at least meet street expectations of $2.20, if not beat street

Um, and, uh, they, they think that they're going to be able to give more details about what they're going to do with family dollar and that should help things too. Um, and so they seem pretty, um, you know, they, they seem to feel that, uh, ahead of the, uh, the, that the company is actually going to be able to start doing the things it needs to, to turn around and perhaps catch up with a dollar general, or if not catch up, at least join that kind of, uh,

uptrend that Dollar General has. The stock trades for 11 times 12-month forward earnings, and it's been kind of range-bound actually over the last, oh, I don't know, let's call it six months or so, but closer to the bottom of that range. So a good number could actually do a decent job of sending the stock higher. That's for sure. All right. I've got one more company to discuss this week.

lulu lemon the company reports on thursday this is a one-time market darling but not anymore the stock is down 15 over the past three months it's down 20 over 12 months i guess you could call it a downward dog to invoke a yoga expression so what is ailing lulu and what will we learn when the company reports on thursday

Yeah, I mean, Lulu, I don't know, it's one of these companies, you know, it's the daughter of a teenage girl. You know, she sees all her friends or, you know, sees her classmates, you know, coming to school and their Lululemon sweats that cost way too much money.

More than you want to spend. Exactly. And they also have lost some of the tailwinds they had from some of their other products. They had a, I guess it was a fanny pack. They don't call it that, but that was very popular and that kind of tailed off. So you had a really tough 2024 for Lululemon. It had been up at near a 52-week high. Yeah.

in the early part of the year and then it peaked and just pulled back pretty hard. You know, if you're optimistic about it, what you're looking at is, you know, you have people like the analysts at Truist. They're looking at places like TikTok to see how Lululemon is doing. And they came away feeling pretty good. They think that they have a lot of momentum on social media.

that the company has been adding new products and those new products are getting people excited. And that they also, because last year was a pretty bad year for them numbers wise, that it should make the year of a year beating those numbers significantly.

less challenging. And so, you know, it's really that combination of things that they are getting more traction online. Plus they're getting, they don't have, they're coming off of that, those tough times that could push the stock higher. You know, for everybody,

Everyone else, I mean, it's like I look at these stocks and I always wonder, okay, so they have their moment in the sun and how do they get it back? We've seen so many of these companies that I think of something like an Under Armour that was so popular and just has not been able to recapture that magic. And recapturing that magic is very tough. I think for Lululemon, that's what it has to prove and it still isn't quite there yet. One more thing I'd like to add is that the stock has really –

been almost range bound since 2020. It's very volatile in that range. It goes up, it goes down, but it really has to get those numbers growing again in a way to sort of match this valuation that it has of about 21 and a half times earnings. It's an interesting one to watch. Very much so. I think there's one right down the street from the office. We should do a field report. ADP imagines a world of work where smart machines become too smart. Copier, I need 15 copies of this. Printing.

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So I want to go back now to Matt and talk about some of those stocks that you like, Matt. I thought we might start with the auto industry, which has been in the news quite a lot. You own BMW and you own Subaru. So is there a link between them? What's the attraction? The link between them is that they are both very, very inexpensive and very well financed. And the

negative story or the pessimism that surrounds them seems to be overblown in our minds and probably relatively short to medium term in nature. So, you know, BMW is a global luxury auto manufacturer. So that's one distinction when you start thinking about comparisons to things like Volkswagen or Stellantis, which make mass market automobiles.

And luxury tends to be much more resilient to economic fluctuations than mass market does. And BMW has, as we think about tariffs, BMW has a global manufacturing footprint. And one of the things that we put into LinkedIn recently was that BMW is actually the largest exporter of cars from the United States by value. And that is a statistic that is not very well appreciated by people. So, yeah.

Look, the tariff situation is incredibly fluid. It's like mercury today. And we don't know where it's going to end up because the administration itself does not know where it's going to end up. We'll probably learn more in the next week or 10 days. But

I'm first of all, I'm very confident that BMW by virtue of its global manufacturing footprint and enormously overcapitalized balance sheet can make adjustments to the way it operates.

And secondly, one thing I don't want to get lost is that today the U.S. consumes just really rough numbers, about 16 million cars a year, call it something like that, 16 million passenger vehicles and imports somewhere between 40 and 50 percent of those. So the idea that the U.S. is going to build it here and build 8 million cars worth of production in the next three and a half years is insane.

incredibly unlikely in my personal view. And there are lots of other industries like the cement industry where that exists too. And we're going to talk about copper, I suspect, in a little while, which was one of the most curious announcements about tariffs. But anyway, at five or six times earnings for BMW, double digit free cash flows, lots of cash being returned to shareholders.

In an auto business, when you strip out the balance sheet and the financial services company valuation, an auto company that's trading about two times operating cash flows looks like great value to me. And we're happy to hold it through this period of uncertainty. Subaru, you asked about also, is a very different animal.

It's a Japanese headquartered company, not German. But what's interesting about Subaru is that about 70% of its volumes are sold in North America, the vast majority of those in the United States, and then only about 20% in its home market of Japan. So you have basically 90% of its volumes being sold in North America and Japan and everything else in the entire world is about 10%, sort of an afterthought.

but in the midst of japanese yen volatility in the middle of 2024 so this is a very recent investment for us only a couple of quarters ago um the yen strengthened

for a short period of time, even though it had only strengthened to a level that was still weaker than management was forecasting in its operating results, the company got to a point where it was trading at a negative enterprise value, which is a way of saying that its cash and investments, aside from the auto business, were worth more than the entire market cap of the company. That's extraordinary. Extraordinary.

And it's a very profitable business, right? This is not some cigar butt operating company. It's a $13 billion market cap. It's got a very profitable operating business that has produced very good returns on capital over very long periods of time and has a lot of great things about it. But, you know, again, adjusting to things like tariffs,

They manufacture a big piece of their North American volumes in Indiana, and they even prior to tariff fears had started making plans to expand that, you know, and match production with consumption. Geographically speaking, again, you know, perfectly navigable challenges for the company and very, very cheap. Do the U.S. automakers appeal to you at all?

I would say less so. And, you know, prior to the middle of 2024,

- The two automakers that we owned were BMW and Mercedes, and the luxury element combined with the way that those two companies are financed is very, very attractive to us. That distinguishes them from many other global auto OEMs. - Filling in the blanks there. Okay, let's go to look at another of your companies, Tidewater. This is an offshore energy services company.

What's the appeal? When did you buy it? Why do you like it? So we've owned Tidewater for a long time. And I want to say that they emerged, and forgive me if this is not the right year, but 2018, I think, is the year that they emerged from bankruptcy. And that is when we first bought it. So part of our process, by the way,

I should note is, you know, Marty Whitman himself was a distressed and restructuring expert, distressed investor. He was the founder of Third Avenue. Sorry, the founder of Third Avenue. Yes, exactly. And the person whose investment philosophy we continue to practice to this day. I worked with Marty for the better part of 18 years. And just that distressed investor.

contrarian mentality still runs through everything we do and buying post bankruptcy securities that are now perfectly liquid trading public equities with all of their debt having been converted into equity. So net, you know, net cash companies coming out of bankruptcy very often has been an important part of what we do and Tidewater fits that description.

What's interesting about Tidewater today, they have the largest fleet of offshore service vessels in the world. They have been one of those companies that has this great balance sheet in a difficult environment, and they've been able to consolidate large parts of the service vessel industry by doing a couple of significant transactions to grow their fleet and to make it younger and more modern. And they have done that.

And the thesis underpinning the investment over these years has been that there has been an unsustainably low level of spending in offshore oil and gas production. And we continue to believe that very, very firmly. The market for these vessels has tightened substantially.

dare I say, radically in recent years until the second half of 2024. And there has been a pause in that progression for a couple of reasons. One is that the UK has put in place an energy profits levy, which is essentially a windfall profits tax, even though they're not earning windfall profits anymore, that has driven assets out of the UK North Sea.

West Africa has slowed a bit and Aramco in Saudi Arabia has changed its spending plans in the near term too, which has created a temporary lull in activity and Tidewater share price has come down quite a bit and in our view, overreacted substantially and

Yeah, it has become an opportunity. In fact, quite a good one once again in our minds. We had a question from a listener, Lee, who wants to know if oil stocks in general qualify as value stocks in your view.

Well, I would say that we went through a period, a long period, again, with this mega cap growth stock investment zeitgeist that has taken over the world. The mirror image of that was that everything in the physical world changed.

hard assets, commodities were neglected significantly. And that definitely applies to lots of energy companies, upstream energy companies, which I think the listener is asking about. And I do think that there is a lot of cheapness in upstream energy production

Whether you look at it on a cash flow yield basis or on a price to reserves basis, I would say that there does seem to be quite a bit of cheapness. We have purchased a company and own a company called Harbor Energy, which has the added albatross of being listed in the UK when the UK is implementing all of these policies that make it

Very difficult to do business there, even though the company has now done a transaction that makes the UK a relatively smaller minority piece of their business. So I think there's a lot of cheapness, but you can layer on other negativity on top of the forms that I've just talked about.

Okay, fair enough. Let's talk about two material stocks. Then we'll go to some more questions. One is Capstone, the copper company, and the other is a Japanese cement company, Tehio. If you can give us the tickers of both and explain your bullish stance on them, that would be great. We'll start with copper. I have to...

I'm going to... You talk, I'll look up the tickers. Okay, yeah, no, I was trying to find a U.S. ticker for Taiheo, but that could have taken me a minute, so I'll let you do your work while I talk. But Capstone is a Canadian-listed, Canadian-headquartered copper mining company, and I will tell you or I will confess that I am an unabashed copper bull.

And when I look at the commodity landscape, and you heard what I just said about basically all commodities having been maligned for a period of years, but when I look at the commodity landscape,

Um, copper looks different to me and special in a particular way, which is that the supply side of the equation is just fundamentally constrained and we don't have great new copper assets to develop. At least not many of them. We don't have very significant, uh, Brownfield expansion product projects as I'm talking about globally as a society that, um,

that can fill this inexorably growing demand for copper. And you have to take a step back and understand on the demand side that whenever a country, whether it's Sub-Saharan Africa, whether it's India,

whether it's China over the last 30 years, is whenever it's economically developing, that translates directly without fail into greater and greater amounts of copper consumption. So you have something like, I've seen statistics that say you have 1.4 billion people today still living without reliable access to electricity. And that means copper. So copper demand has grown incredibly reliably over 100 plus years and copper supply is fundamentally challenged. Now, when we want to,

invest in that for long periods of time. For us, what we really want to focus on is long life assets in politically safe jurisdictions, housed in a company that's really well financed and well run. And now you're down to a very limited set of companies. For us, Capstone has fit that description. It's been a terrific investment for us and I intend to continue to hold it for a long period of time as they create value.

Although, and as the copper market continues to get tighter and tighter and fall into deficit, which looks incredibly probable, I will say that it continues to be my belief that over the medium term, I view it as very likely that this company will become part of a much larger market.

mining company, because when you look at BHP and Anglo and Rio and Glencore, the one common narrative from all of the management teams is we want to be bigger in copper and there are not copper projects out there. Um,

you know, except for very, very few. One really interesting copper project exists in another company we own called Lundin Mining, where they're trying to build a collection of assets called, at the top of the Andes, called the Vicuna District, where BHP has come in and offered a huge amount of money to participate in that. So there's, the major global mining companies are clamoring for more copper and for a really healthy, strong mid-cap copper company. I

There must be many, many people banging on the door. - How long do you think it'll be before say somebody takes them out? - I would tell you honestly, I'm surprised it hasn't happened already, but I can't tell you how long into the future. - All right, let's move on to Tijio Cement. I hope I've gotten that right this time. - Yup, Tijio. - Tijio, okay. The ticker is T-H-Y-C-Y.

Okay, so Taiheio is a Japanese cement company. The two largest geographies of the company by far are the United States and Japan in that order. So like a number of foreign cement companies, we also own Buzzi, for example, which is listed in Italy, where the largest exposure is in the US also.

The US cement industry, in my view, is extremely underrated and in the sense that it's structurally undersupplied. So in a normal year,

In order to meet cement demand, we import something like 25% of all of the tonnage that we consume in the United States. And it's a product that does not travel well. It's low value, extremely heavy. So it doesn't ship very well, but we are structurally undersupplied. So we have to import it. So those are expensive tons coming into this country and they push prices up.

and then the domestic production capacity benefits from the prices being pushed up. So volumes climb slowly year after year, prices climb slowly year after year. And for the companies that are closely associated with this market, the US market, they get very big prices because they've been exceptionally good businesses for long periods of time and think aggregates business like Martin Marietta and all of these European companies that are in the process.

of listing or spinning off their US assets to get the benefit of those valuations. But within Taiheo, where the bulk or call it half of its operating profitability comes from the US, if you were to value that business as a standalone, it would be worth about the equivalent of the entire market cap of the company.

And then we get everything else for free. And everything else is one of Japan's two largest cement companies, plus the whole portfolio of building products and aggregates in Japan.

that are really nice businesses too. And in fact, improving because Japan went through a pretty significant period of oversupply that is being rectified by assets being dismantled in supply coming out of the market. So there's an adjustment in place. And instead of paying between 10 and 12 times EBITDA,

For a business like this and its association with the U.S., we're paying, call it five times. We have questions about some other cement companies, not surprisingly. Mark wants to know whether you follow Cemex and Dirk wants to know if you have thoughts on Wholesome and its planned U.S. spinoff.

On the latter case, I don't want to get into the companies that we don't own. Fair enough. I don't want to misspeak, but the latter whole scheme is one of the phenomena that I was talking about where there are many large global cement companies that have large U.S. exposure that recognize exactly what I just said, which is that their stocks are

because they're listed in Europe or Argos in Colombia or Titan, which is a Greek cement company that first tried Belgium and is now relisting its US assets. They're all coming to the US to take advantage of the valuations that are available to them in the US for those assets that don't exist anywhere else. And by the way, we're talking specifically about cement right now.

but it relates to and mirrors very closely what I said earlier about U.S. equity markets having valuations and offering valuations that are leaps and bounds

higher than similar businesses elsewhere in the world. And, you know, look, when you look at U.S. valuations relative to the rest of the world, even from a 35,000 foot view top down, you're at historical highs. When you look at U.S. large caps relative to small caps, historical highs. When you look at expensive companies in the U.S., meaning top quartile PEs versus bottom quartile PEs, historical highs. So you have this whole world of

a handful of mega cap haves and everything else, or at least lots of the rest of the world is the have nots. So we talk about value being maligned, but this has actually been a fantastic time to be a value investor, right? This is the environment that we need to build portfolios of companies that are just really healthy, really well financed, operating well, well managed, but sort of weirdly cheap.

It's your moment. You know, Lee has a question about this that I think is really interesting, Matt. He notes that the young people he talks to, and I'll say it's the same with the young people I talk to, they have no interest in value stocks. They like tech stocks that are selling at 30 and 40 times earnings. They like to talk about crypto. They like Tesla and so forth. And he asks, as they become a bigger part of the market volume each year, is it possible that value stocks won't ever be popular again?

How do you see this playing out when you have an investing cohort that grew up on growth and seems to love the energy of the growth stock market?

Okay. So I, I, I guess I have to be a little bit of an optimist, um, just to say that I have a lot of faith in the capitalist system and, um, companies that are too cheap, cannot stay too cheap forever. And they won't because they will take themselves private, uh, private equity buyers will buy them. Larger companies will consolidate them at cheap valuations and they won't, they just don't and won't stay cheap forever. And that's just sort of a

informed, but maybe a little blind faith in capitalism.

More personally, I graduated college in 1999 at the peak of the dot-com bubble. Actually, not quite the peak, about six or nine months. - Ahead of the peak. - Ahead of the peak. And I started trading stocks when I was in college, and the stock tickers and the names were different. I started buying companies like JDS, Uniphase, and Cisco Systems in 1999.

And I was making, you know, this is this tiny bit of graduation money I had, by the way, that wasn't significant in any real way. But in percentage terms, it was ridiculous what was going on. And I thought I was a genius. And I was sitting in my parents' basement on a, probably on a gateway computer, right, on those existing computers.

And I thought I was the next Warren Buffett because I was, you know, my record over three months was terrific. And that goes on until it doesn't. And people get taught very hard lessons that way. And, you know, for the young people,

You know, the damage is not that great because generally, you know, they're dealing with less money and they've got more time to recover and all of those sorts of things. But the damage for people whose retirement savings are, you know, wrapped up in these things and they're depending on them to live in the future, the damage can be absolutely enormous. And I just I see so much risk there.

in the degree of concentration and the degree of valuation in US large cap indices. And it's not just me, right? This is just statistically true. There are very unusual phenomena going on today that only occur once every 20, 30 or 40 years. And the historical record from valuations like these

are awful, is awful. And it's not predictive in the next one year, but over the next five and 10 years, it's incredibly predictive. 38 CAPE ratio, 28 times earnings, whatever the number is, three times sales, right? Those are statistics from which the prospective returns have been absolutely awful, historically speaking. And my baseline expectation is that will be the case again

And people will be taught hard lessons and then they will become interested in value. And some people will become very, very sophisticated about it.

it'll take three four five years just like it did from 2002 to 2006 and four or five years from whenever that happens and whenever you know people get that kind of religion my life will become much harder because i'll be dealing with a whole very robust community of very sophisticated value investors competing for these ideas but today that's just that's not what's going on at all okay lee tell that to the kids you know

All right. I think that's a good place to end the call. Also, we're out of time, but Matt, we'll have to have you back. We've had a lot of questions today that we didn't get to, and it's been a fascinating conversation.

I would love to come back. Thank you for having me. Oh, a pleasure. Thank you for joining us. And thank you, Ben, as well. Thank you to our listeners. And next week on Barron's Life, Ben and I will be speaking with our colleague Avi Salzman, who covers the energy markets for Barron's. A half tip to our loyal listener, Lee, for that excellent suggestion. Avi has a lot of thoughts about the oil patch. He has a lot of thoughts about energy stocks. And in our humble opinion, he's one of the best reporters in the business. So, thank you.

So please join us again next Monday for what is likely to be an energizing call. Until then, everyone, stay well and have a good week. Okay, business leaders, are you here to play or are you playing to win? If you're in it to win, meet your next MVP. NetSuite by Oracle. NetSuite is your full business management system in one convenient suite. With NetSuite, you're running your accounting, your finance, your HR, your e-commerce, and more all from your online dashboard.

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