Random Ramblings 2025年3月：市场抛售、与管理层的关系、公司治理

Today is March 15. It is a Saturday, and I am here to do my random ramblings for the month of March. Yesterday was March 14, Pi Day, one of my favorite days of the year normally. Unfortunately, I’m on a diet, so I couldn’t dive into pies as heavily as I normally would like to.

Before I get into that, let me start with a disclaimer: nothing on this podcast is investing advice. That is always true, but particularly true today. I’m going to ramble on for 20 to 30 minutes, so just remember, I’m literally just rambling. Please consult a financial advisor, do all your homework, and all that sort of stuff.

It is Saturday, March 15, and there are 4 different topics I want to talk about: the market selloff; relationships with management teams, including the pros and cons; 2 quick discussions on activism and corporate governance; and an ending thought on where to live.

Let’s start with the market selloff. It is Saturday, March 15, and the markets have been absolutely brutal over the past 6 weeks. They’ve just gone straight down. The Russell 2000, especially, has been straight down. I think somebody sent me something that said that, since late November, over perhaps 15 weeks, the Russell has been down for all 15, or maybe 14 of 15.

None of that sounds like much. As I’m taping this, I think the Russell is down 10% over the past month, and the S&P is down 6% or 7%. That doesn’t sound like a lot, but underneath the headlines—especially in the S&P—I don’t know what’s going on with the indices, but I feel like there’s absolute carnage in a lot of the things I’m looking at, and it isn’t reflected in the indices. Like some of these smaller names have just been brutalized for, in my opinion, no particular reasons.

A lot of the S&P 500 at this point is Apple, the FAANGs, the Magnificent 7, or whatever. They’re so big and take up so much of the indices that they really drive them. But even in the Russell, which is down 10% over the past month, if you asked me, gun to my head, I would have guessed at least 20%, based on some of the moves I’ve seen in stocks that reported good earnings and saw their stocks go down 15% or 20%. Some stocks haven’t even reported earnings and have seen their stocks go down 20% or more. I’m surprised.

Cyclicals—I’ve been saying for 6 months that if you invest in something with cyclicality, it is forecasting an absolute imminent recession. Over the past 6 weeks, that has gone from an imminent recession to an absolute depression. I wanted to start with a few thoughts about the market selloff.

I’ll note that I put up a post over the week called “Markets in turmoil: Tariffs and rebalancing your portfolio.” I say that somewhat tongue-in-cheek because things can always get worse. Think back to COVID. Think back to the global financial crisis. But sentiment feels pretty bad right now. It could certainly get worse. We could slap tariffs up to 500% or something, but it feels pretty bad right now.

Here are the things I wanted to talk about. First, as an investor, it is your job to remain cool when things are getting crazy. That is not to say that if you own something that is levered to the gills and is going to be really exposed to tariffs or a recession, you shouldn’t reassess and sell if something is clearly materially affected.

But we all know stories like, “Hey, during the dot-com bubble, the stocks went down and my grandparents sold all their stock,” or, “During the savings and loan crisis of the ’90s, they sold all their stock, stuffed it in their mattress as cash, and never made money because of that.” Your job as a general investor is to stay the course. You don’t want to be wildly fluctuating into cash because things seem scary.

That’s just general personal finance stuff. People are always talking about dollar-cost averaging and not taking your cash exposure to 100% because the market seems like it’s going down. Now is probably the time to be pretty aggressive, based on how bad sentiment is and everything.

That’s just 1 general investing theme I wanted to talk about. I mentioned that the dislocation feels much worse than what I’m seeing in the overall indices, and that’s something I want to dive into here. I’m not sure why the indices don’t appear to be reflecting it.

The S&P 500 is driven by some of those huge companies, but even the Russell is down 10% over the past month. If you asked me, I would have guessed at least 20%, just based on some of the moves in stocks I’ve seen. Some of them have reported good earnings and seen their stocks go down 15% or 20%. Others haven’t reported earnings and have seen their stocks go down 20% or more. I’m just surprised.

I think there’s a decent amount of dislocation out there. One thing I’m pushing myself to do—and I think you need to do it, too—is to look at your portfolio really dispassionately right now. You need to look at all your names and say, “I should do this all the time, but I think it’s particularly true during periods of dislocation and market turmoil. I bought this stock for $100. Let’s say it’s at $95 right now. It might have been my best idea last month, but it’s gone down 5%, while a lot of other stocks I follow have gone down 20%, 30%, or 40%.”

You need to look really dispassionately and ask, “Is this really my best idea right now?” You can’t anchor to, “I bought this at $100, and I need to make money.” It’s better to swap into the things that are more dislocated now.

You have to balance this against everything. There are trading costs, and if you’ve got a really low tax basis or something, you’ve got to consult a financial advisor. You have to consider taxes and everything. I’m not saying to do this willy-nilly. If you like a stock you follow really closely and bought at $100, and it goes from $100 to $95, while a stock you don’t follow at all goes from $100 to $10, I’m not saying to swap into that $10 stock.

Most investors I know have a group of, call it, 20 to 50 names that they have a lot of knowledge on—a lot of institutional knowledge. There are probably 40 or 50 companies I’ve followed long enough that I’m close to them, and if I think there’s an opportunity, I could probably be ready to do something on it in 24 hours or perhaps a week.

I think of companies where, 2 years ago, I did 4 expert calls, read every conference call, read multiple transcripts, built out a model, and studied some of the competitors. Unless things have really gone crazy, I could probably be up to speed on that company with 48 to 72 hours of focused work. I think most investors have something like that.

If there’s a company in your wheelhouse that you’ve done a lot of work on, you need to be looking at your portfolio against all those companies. Let’s talk about dislocation. Again, the indices are down 10%, and the Russell is down 10% over the past month. I just pulled up some random companies that I’ve followed for a long time.

Shift4 is one I’m going to mention that I have not followed, but I have so many friends who love that company. As I’m talking about this, it’s down 30%. If you were long, had done a lot of work on Shift4, and thought it was a great company—they almost sold themselves last year, I know that—down 30% is a big move. That’s an opportunity.

Xponential Fitness is a very controversial stock. I’ve had it. I’ve had people on the podcast talk about it before. In full disclosure, I might own 100 shares that I put into a tracking account at some point. It’s down 57% over the past week. You want to talk about dislocation? Have a controversial, somewhat levered company report bad earnings into a down 10% tape. I’ll tell you, I have a model built out there.

I could probably be up to speed on that, and you can go listen to the podcast I did. I have some questions on the sustainability of some aspects of that business, but that is a company that is trading very cheaply on the diminished forward expectations. I would say, down 57%: report bad earnings, be controversial, and have a down market. That’s one way to get really dislocated quickly.

If you like coal, most of the coal stocks I follow were already pretty cheap. They’re down 20%, 30%, 40% over the past few months. The coal markets have been weak, but I think there are a lot of signs that coal demand might actually be somewhat improving. Obviously, you’ve got to differentiate between metallurgical and thermal, but I think there’s interest in there.

Sphere, SPHR—that’s the one; they own the Sphere out in Vegas. That’s one I mentioned in the article. That’s down about 30% in a month. If I was saying, “Hey, what is a business that’s not going to be impacted by tariffs, where the near-term outlook shouldn’t matter that much?” Sphere is probably one I would list.

It’s a big, giant sphere that’s built out in the middle of Las Vegas. It’s going to be there whether tariffs are 100% or 700%. Now, advertising revenues might change the ability to license the Sphere, which they’ve always talked about, and build Sphere 2 and 3. That might change, but I think you’re probably buying the Sphere below replacement cost. You do have concerns about corporate governance, but that’s one that’s probably dislocated.

Forward Air—the ticker there is FWRD—I mean, that has a who’s who of activists in there. They did one of the worst deals of all time. I think, the last time I checked, they were trading below what they did the deal for. There should be a lot of acquirers there. That looks pretty cheap versus the assets. Obviously, it reported kind of poor earnings, and I think there are questions around corporate governance and all that sort of stuff, but that stock is down 35% over the past month or so.

I’m just listing some things that are dislocated that could be really interesting. Some of them I’ve done quite a bit of work on, and some of them I’ve done little work on. I don’t believe I really own any of those, but they’re just some things that could be interesting. I’m always happy to swap thoughts with people.

But, look, again, just to wrap this up, there’s a lot of dislocation out there. I just listed 6 stocks that could be quite interesting, all down somewhere between 20% and 50%—most of them around 35%, with some approaching 50%. I think if you’ve got a portfolio and it’s held up well—or even if it hasn’t held up well—if you’re not looking around and saying, “Hey, are there better opportunities out there? Can I swap into better things?” your job as an investor is always to weigh opportunity costs. In particular, during dislocations, swapping into things that have been beaten down is one of the ways you can really outperform. There are a thousand other things to consider, but I think that should be top of mind right now.

In terms of the market environment, tariffs suck. I’ll refrain from commenting politically, but market sentiment feels really, really bad right now. The one thing, just to come back to the dislocation and the cyclical thing, is that post-COVID, with the COVID boom, most of these companies had this huge gusher of cash flow. I think one of the things that’s different today versus 10 years ago is that, if we’re heading into a recession or whatever, most companies used the post-COVID boom and the cash-flow gush that they got to reshape their balance sheets.

I used to point to U.S. Steel heading into COVID. In the prior recessions, they had a decent bit of leverage. They had this huge cash gusher, and they basically paid down all their leverage and went net cash. In prior recessions, you’d say, “Oh, my God, U.S. Steel’s leverage goes from 2 times EBITDA to basically infinity because they’re not earning anything.” All of a sudden, you’re like, “Look, if this recession lasts 18 months instead of 6 months or something, U.S. Steel might have bankruptcy risk or restructuring risk.”

Today—and I haven’t looked at U.S. Steel in a month, but I believe their balance sheet is just completely transformed—the last time I looked, they had basically no net debt. They are still in a weird deal with Nippon, if I remember correctly, but today, if they went into a recession, I would say, “Oh, there’s no doubt that U.S. Steel is going to come out on the other side.” They might burn cash for the next 1, 2, or 3 years if things were terrible, but they’re going to be able to come out because they have no debt, right? Maybe they’ll have debt at the end of it if they’re burning cash, but I just think these things are completely transformed.

People say, “Oh, U.S. Steel drops by 50% in a recession.” I’d say, “Oh, well, yeah, but they were 2-times levered then, so their stock would drop because people are starting to adjust for bankruptcy risk.” If they had $800 million of equity and $200 million of debt, the stock would drop 50%, but on an EV basis, that was $1 billion. Their EV is only dropping 40%, if I’m doing that math in my head roughly correctly—or 33%.

If they have no net debt now and their market cap is $800 million, if the stock drops 50%, then their EV is actually dropping 50%. It’s like, hey, they should drop less just because they don’t have any debt. So you don’t have those bankruptcy risks, and the EV is all equity-supported. I think a lot of companies are in a much different place today than they were historically, and I think that sets all of them up well to weather any short- or medium-term storm.

Things could get way worse than what I’m talking about, but a garden-variety recession—a one-time hit caused by tariffs and stuff—just about every company I follow would be able to weather it. I’m sure you could point to a few different one-offs where they have a lot of leverage for one reason or another, but most companies I follow have dramatically better balance sheets than I’ve ever seen them have before. So I think that’s one other kind of margin of safety, or one other thing pointing in that direction.

Okay. Anyway, speaking of dislocations, one thing I’ve been thinking about a lot recently—and this is me personally—is developing relationships with management teams. Let me back up. I think my biggest flaw as an investor is that I am slow to rip the Band-Aid off and cut the cord when a thesis goes against me. I’m really working to improve on that.

I buy a stock at 10 and say, “Hey, this company is going to be growing. Earnings are going to be growing, cash flow is going to be great, and it has a great balance sheet.” Then they report a bad quarter, and the stock goes to 8. I say, “Well, earnings aren’t going to be growing anymore, but now it’s trading for a really cheap multiple. So now, instead of having this growth story, I’m here for a cheap-multiple story,” and on and on and on. I call that thumb-sucking, and I think that’s my worst trait as an investor: just not being willing to cut the cord.

I talked about it a little bit in my book club on Advanced Portfolio Management that I did with Byrne Hobart, where I used to laugh at people who used stop-losses. A stop-loss is, “Hey, if the stock goes down 20%, I’m out.” Increasingly, I see the logic in that. A stop-loss is a way to keep you from thumb-sucking. The stock goes down 20%—and you probably want to adjust it for market moves and everything—but the stock going down 20% is a way to say, “Okay, my thesis has broken. I’m going to sell.”

Then, if I want to be invested in this company, I need to actively rewrite and re-underwrite it, actively buy the stock, and reassess my opportunity costs. Why did I mention this? I’ve noted that my track record, when I form good working—almost friendship—relationships with publicly traded management teams, has been worse than when I’m just dispassionately reading the calls, reading the transcripts, reading the filings, building my model, and maybe thinking for myself.

The type of relationships where I talk to them, you know, obviously after every quarter, but, you know, we have each other's phone numbers. We might text about the industry or something. I'm not saying I'm best friends with them. I can't think of any publicly traded companies where I've become like that close of friends. But, you know, the management team, they come to dinner. They come to New York once or twice a year and we're going to go grab dinner or we're going to go grab a coffee or something. We're talking a lot, and, you know, when I call them, say, “Oh, hey, like I remember you said this in Q2 of 2023. How's that changed?” It’s a very small sample size, but I’ve been wondering—and I’ve been talking to other investors about this—when you form a relationship with a management team, how have your investments gone? Have they gone better or worse for you? I’m wondering if forming relationships with management teams, for me, is something that can contribute to my thumb-sucking tendencies, right?

The company reports a bad quarter, the stock is down, and I can rewrite my thesis—and I obviously try to—but I can also say, “Oh, well, I talked to the CEO, and, yeah, it was a tough quarter, but this is industrywide for XYZ reason, and they replaced the head of sales,” and all this sort of stuff. It’s very easy to start sucking your thumb.

You know, I think the most famous example of this is in Valeant. When all the fraud allegations come out against Valeant, Ackman sends Mike Pearson, the CEO of Valeant, that famous email: “Mike, is there any fraud going on here?” You can’t email a CEO and ask if there’s any fraud going on. If there’s fraud going on, the CEO is never going to tell you. And if there’s not fraud going on, well, cool—then he’s telling you the truth. But it’s kind of a loaded question.

It’s the type of thing where you become very good friends with them, and I think it’s very easy to outsource your judgment and your due diligence to that friendship and the person, versus doing your own. One other thing I say is that CEOs—even founder CEOs, but CEOs generally—become CEOs because they are very good salespeople. I don’t necessarily mean that in terms of closing deals on the dotted line, but you become a CEO because you build the internal political capital, in some way, shape, or form, to get promoted to CEO.

I have found, especially with CEOs who I have come to know quite well, that sometimes they understand how to play investors and how to play boards and stuff. They’re very good at it, and they’re very good at telling you what you want to hear. There’s a reason they got promoted to that position, right? As an investor, your job is both quantitative and qualitative, but most investors are running small funds. They’re working with a handful of analysts, they’re working by themselves, or they’re individual investors.

Maybe they’re at Fidelity, but even if you’re at a big firm, you’re working with a handful of investors. If you’re a CEO, you’re working with dozens and dozens of people, 5 to 10 board members, 3 to 7 direct reports, and maybe hundreds of people underneath them. They’re probably much better at getting political buy-in and selling than you are. I think you’re—there’s the famous quote, “How do you beat Michael Jordan?” You do it by not playing him at basketball. If you’re playing a game of salesmanship and friendship against CEOs, I think they’re probably going to be able to win that game.

It’s just something I’ve been debating. Do I stop trying to form— not that I can’t have a good working relationship or discuss companies with CEOs—but I wonder if even that is better. Walter Schloss famously just invested from a room, like a cold room. I wonder if that is better, and you just kind of say, “Hey, I will judge the CEO and the company on the actions that they take and the numbers they report. I don’t need to get chatter and commentary from them, because chatter and commentary can be lies. It can be skewed. What they put on paper could be lies as well, but that’s going to be a lot less biased, and you’re going to have to make the interpretation for yourself versus having them spoon-feed it to you in a way that’s probably positive for them.”

Okay, I’ve been rambling for a while. So, look, my hope is that going from market dislocation to talking about some thumb-sucking relationship with management teams is a smooth transition. Speaking of relationships with management teams, hopefully a smooth transition here is just a quick thing on activism and corporate governance.

I was talking to a friend the other day, and when you start getting into corporate governance, it can get a little bit addicting in a few ways. First, there’s Mike from Non-GAAP. There’s the famous thing: once you start seeing the dark arts of corporate governance—how corporations and boards can spring-load grants to enrich themselves before good news comes out and everything—once you start seeing the dark arts, it’s kind of hard to stop. I would also say that once you start seeing the dark arts behind boardroom politics and how these companies manage to entrench their directors and stay in control, it’s kind of hard to stop seeing that as well. We were talking about how, once you start looking at these, it starts to get hard not to look for them.

Anyway, I mention this because last month I published a podcast on Sage Therapeutics—I disclose that I’m quite long the stock—talking about, “Hey, here are the reasons I think this company needs to engage in a sales process.” I believe in good active ownership. If you own the stock and you agree, you should send a letter to the board. Or, if you don’t agree, send a letter to the board and tell them that, too. I tried to lay down my rationale.

One of my goals for this podcast, I just want to note, is that I increasingly want to do stuff like that. If you are long a company and there is a clear corporate governance problem in some way, shape, or form, I want to use this podcast to shine a light on that. I’m not saying I want to start driving hard activism at every company in the S&P 500, but especially with smaller-cap companies, when you start doing this work, they get away with a lot of crazy stuff.

These boards of directors often have no stock ownership. They pay themselves crazy amounts of money for disastrous work. For many of these companies, as an outsider, I could point to multiple things that I think could be changed or improved that would improve economics, improve the share price, and all this sort of stuff.

But you know what it might do? It might make the directors’ lives slightly, slightly more uncomfortable, and they’re not willing to do that because that slight discomfort outweighs the millions, tens of millions, or hundreds of millions of dollars of value they create. Again, I’m not saying that all of these companies need to sell or do a huge cost-cutting round—though for many of them, they should. For some of these companies, there are many simple operational things that, if you spend 2 days researching the company, it’s clear they are behind in one operational thing or another that they could improve.

Because the management team is lazy and unmotivated, and because the board isn’t willing to look into that, those operational improvements take much longer—or never happen—than they should. So increasingly, I want to use the very small platform and the dozens of listeners I have to shine a light on these situations. Generally, I mean boards that don’t own stock and companies that need to do one thing or the other. Sometimes it’s a sale, sometimes it’s just cutting costs, and maybe it’s reducing the hugely inflated pay of some of these boards and management teams. I’m not saying all, but many in the small-cap world have it.

I want to shine a light on those situations. If you are an informed shareholder and you’ve got a company that fits that bill, reach out. I’d love to chat and find a way to make that work. It would be nice if this podcast were one way to slightly, slightly improve corporate governance outcomes. Keep that in mind if you’re interested or if you have anything else.

Okay, last thing to ramble on about: my wife and I are thinking about moving from New York for a variety of reasons, taxes and cost of living being a massive one. My friend Ardam Folken[?] is always trying to drag me out to California, and I know he listens to this. I don’t think California is on the list, because you move from New York for taxes and cost of living and you go to California—it’s kind of like, hey, you went from tomato to tomahto. But I mention that just to see if Ardam’s listening.

One thing I have thought about is: Where would a young Warren Buffett live? Warren Buffett obviously lives out in Omaha and loves it there. I think family ties—he grew up there—and all that sort of stuff explain that. But if Buffett were 21 and just starting his career, I wonder where he would live. I doubt it would be Omaha, for tax reasons and all sorts of other reasons. I doubt it would be New York.

I mean, maybe the financial network in New York is so powerful that there’s a reason a lot of hedge fund managers and everyone else are there. But I wonder if a young Warren Buffett would say, “Hey, there are so many inefficiently priced small caps in Asia. I’m going to go live in Singapore. I’m going to go live in Thailand.” Something like that. I’m going to really have my boots on the ground, and that’s where I’m going to develop my network.

Those are the fast-growing economies, so I’m going to develop my network over there and really, really have my finger on the pulse of the economies and markets that will be growing the fastest in the future. I don’t know.

But again, I don’t know. I don’t know where I’m at on it, but it’s just something I’ve thought a lot about. For me, wherever we move, I want it to be optimal for work. It’s got to have access to airports, financial markets, all that type of stuff. Low taxes and cost of living would obviously be a consideration.

But if you were young and single and just infinitely hungry, I don’t know if the answer would be to live domestically. I wonder if there would be more opportunity to go and live in Asia, get boots on the ground in a really unique way, invest in unique markets, and build a more unique network. No, I’m just rambling.

Anyway, I think I’ve actually been rambling for 25 or 30 minutes. Maybe my ramblings are getting longer in my older age. So again, March 15, 2025. I will wrap it up there. Oh, with one last note.

I will try to do a rambling before that, but I’m going to Planet MicroCap in Las Vegas from April—let’s call it April 21 to April 24. I have been two years in a row. It is one of the highlights of my year, and I have so much fun. It is a really unique group of people because there aren’t a lot of people who invest in micro-caps.

If you are going, you should reach out and let me know. I’m going to plan some fun dinners and all that type of stuff. Just come say hello, and I can include you in that. If you are on the fence about going, I’ve been trying to push everyone I know to go because that’s one of the fun things about events: the more people who go, the better the network, the more fun it is, and the better the cycle spins.

If you’re on the fence, reach out to me and I’ll chat with you. We can talk. I think it’s going to be a lot of fun. Obviously, you need to have some interest in micro-cap investing or value investing. I’d say both, because even if you say, “Hey, I don’t invest in micro-caps,” I think if you come and meet 50 value investors who have an interest in micro-caps—but maybe you’re interested in other stuff—I think you will have a lot of fun.

I’ll try to make sure of it, but I have a great time every year. I just wanted to mention that. Reach out to me if you want to chat or if you’re going, so I can include you. I think that’s going to be a ton of fun, and I mentioned that because I’m not sure if I’m going to do a random rambling before or after that conference.

But there you go. That’s my random ramblings for March. It is March 15. I’m logging off, and I will talk to you guys before next month because we’ve got some great podcasts coming up this week. But I will talk to you soon. Bye.