Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Eisenthal and I'm Tracy all Away. So, Tracy, obviously, we've had this extraordinary stock market comeback this year, not even really just a comeback, because, um, we've were so far ahead of where we started the year despite the pandemic, and a lot of different sectors have rallied. But there's no question that tech sort of new economy type stuff, however you define it, has really led the way. I mean, the nasdack is just having a sort of ridiculous year. Yeah, We've talked about this before, but to some extent, it feels like the coronavirus crisis that we've seen this year has accelerated long running trends in a bunch of things. So you for instance, the dominance of online retail, but also the out performance of the thing stocks UM and tech in general. It feels like the big just get bigger. Stocks that were considered expensive, you know, five years ago, are even more expensive now. Yeah, and I'm glad to use that word expensive because you know, it sort of does have a um an implied judgment expensive like people are overpaying and you know, people talk about value stocks, which has had this implied idea that you're getting a good value, you're getting a good deal, it's cheap. But we have had this phenomenon where stocks with high multiples continue to do extremely well, and the stocks that on paper appear to be cheap just seemed to get cheaper and cheaper, which is, you know, not great if you own them. Yeah, and of course this goes back to the whole value versus growth debate. Right, why has value been under performing as a strategy for so long? Uh? And there is an argument that a lot of this comes down to accounting and the notion that maybe we have outdated accounting rules that don't actually do a very good job of reflecting the world as it is today. And you know, we started out this conversation by talking about twenty You could certainly argue that accounting rules that were, you know, imposed back in the nineties seventies probably aren't doing a very good job of reflecting what's going on in in the midst of a global pandemic. Yeah, it seems like if you're a value investor, if you if you're self characterized value investor, there's corner. There's sort of two approaches that you can take. One is to sort of say, okay, we must be at some turning point. There's gonna be some catalyst, maybe some economic regime change, and then value stocks will do better. And then the other approaches just to redefine value and say value has done well if you define value this way and you sort of change your screens so that you could sort of fit more stocks into the value bucket. Yeah, there's a really um there's a kind of funny article from one of our Bloomberg colleagues out recently about a I think it was a South Korean plant firm or asset manager or something that created a new value driven e t F. But it, as you said, redefined what value actually was. And on that basis, I think it's base holdings ended up being Amazon, Alphabet and Facebook. So yeah, it's all about the definition, isn't it. Yeah, that's a very easy way for value investing to do well, just say we're allowed to buy Amazon and but but even still like it does raise the question and you know, one of the sort of classic screens, one of the classic tests for what counts as of value stock is to look at price to books, So how much you're paying for the company relative to its assets. But if you only have a conception of assets as being factories and land and other things like that, you are missing sort of, you know, other extremely valuable assets, such as, say, the network of connections that Facebook has built that is hard to replicate anywhere else. It's not an asset in the traditional sense like a piece of equipment is, but no one would actually dispute that it is an asset, right, And this is where the accounting rules come in, Right, why do we put certain things in certain places on an income statement versus somewhere else? Like why does a factory statement go here but research and development someplace else? Entirely, Yes, so we we we've we've talked about this a couple of times in the past, but it continues to sort of gain urgency again, I think in light of what we've seen in the market it um this year. So we're gonna talk about this topic somewhere. I'm really excited about our guests. We've had him on the show I think at least once before. Michael Mobrison. He is a managing director at Morgan Stanley, but a longtime career in finance, having worked in Blue Mountain Capital, leg Mason and so forth. His title, um at his current job is the head of Concilient Research on Counterpoint Global at Morgan Stanley Investment Management. So I'm going to uh introduce Michael, but first I'm going to ask him what is U concilient Research at Counterpoint Global. Man, Well, first of all, Joe and Tracy. Great to be with you guys again, always lots of fun. It is an unusual name. By the way, It's probably not a good idea to have a title that people have to look up in the dictionary, but that is the case here. Um. There's a there's a book I read in very influnch for me called Concilience by E. O. Wilson, famous biologist, and the argument very simply was that while science has made a major advances over over the last few centuries by reductionism, he argued that many of the vaccine important problems in our world were at the intersection of discipline. Concealing itself is the idea of the unification of knowledge and taking ideas from disparate areas and having them using them to solve problems. So when I was a credit SUI many years ago, I started newsletter called The Concilient Observer, and it was the idea was right, these short essays trying to bring ideas from various areas together to try to shed some light on a particular topic. Um So Dennis Lynch, who runs Counterpoint Global where I am was, was a reader of that, and so when when he invited me to join Counterpoint Global, which is part of More Fails in Best Management, he said, hey, why don't we call this concilient research? You know. So so that's where we look back that. But is this idea that we need to cast a wide net, by the way, which is a really good even introduction to the topic. As you guys were talking about as we think about the world, Uh, you know, are we thinking about things as expansively as we should to try to understand to make sense of the world. And um, so that that's where that comes from. Thank you for that explanation. Um it is a very interesting job title, I gotta say, but and it is quite wide ranging. Um I guess just to begin with why, well, you recently published a topic on intangible assets and Joe and I sort of set the scene for why this comes up nowadays in the debate between value versus growth, but maybe just to give us a little bit much more color, how much does this crop up in conversations with investors, how worrying or how much of a debate is this at the moment? Well, Tracy, I think it is a big one. And you know, to state the obvious, this idea that intangible to become more prominent is not new, and I think many people have pointed this out over time. The reason, you know, we try to rule up our sleeves a bit and and discuss this was sort of three big reasons. One is can we do a better job of measuring this? And the I think to me the centerpiece of that piece of research we can talk more about. It is an attempt to bring some of the measurement issues up to date and to get a really good sense of how big these intangible investments are relative to things we are more familiar with, like CAPAX and R and D and so forth. The second is, and I think Joe touched on I think you guys talked talked about this in your intro is what are the characteristics of knowledge goods versus intangible goods versus tangible goods? And just I want to underscore very strongly that there's nothing Economists of understood all these concepts for a very long time, but it's probably take on taking on more prominence and understanding of things like you know, scalability and so forth. And then the last thing is exactly what you guys are talking about, which is what is the implication? So you know, if I look at a company and it loses money, is that necessarily bad? Or how do I think about that with more subtlety? So you know, again, that's why I called the report. One job, which was your job as an investors and analysts hasn't changed. It's figuring out how much company is investing and what returns on the investment being what that means for future cash flows. But as you pointed out, Tracy, even in your observation about where things are getting recorded, your your job's got a little bit more challenging because you have to go you have to track down where the investments are, and they're not where they used to be. It talked to us about that a little bit further. There's a line in your in your report that caught my eye and I'll just read it says it used to be that earnings were on the income statement, and investments were recorded mostly on the balance sheet. The rise of intangible investments means that the bottom line is now a mix of earnings and investment sort of like break that down. That really jumped out at me. And this idea that looking that, uh, sort of things that were on one part of the income or financial statement moved to another. Why is this important? Why is this interesting? Yeah? And so you know, I think Joe. The answer is that historically, the kinds of things we thought of as investments, so think about factories and machines and inventory and so and so forth, those were classically recorded on the balance sheet, so they didn't show they showed up an income statement through things like depreciation, but they were essentially recorded on the balance sheet and had relatively modest influence on on the income statement. And and again those rules were laid out, by the way, incredibly valuable, right, Dual dual entry accounting very valuable, um, but in a in an ear that was very different than what we live in today. UM. So increasingly, the kinds of investments the company makes that are valuable, things like brand building or research and development or customer acquisition costs these are all just classically defined. They are also investments, right, These are things they're outlays today and the hope and expectation for future cash flows, but now those are being recorded on the income statement. And you know, I think Tracy mentioned at the in the opening about sort of these accounting rules. There's a very there's obviously a very interesting one from nineteen seventy four where the Financial Accounting Standards Boards was debate eating about how to treat research and development, right, which is sort of this classic in between thing, and you know, they actually looked at, you know, should we capitalize this, should there be rules for how to think about capitalizing it, or should we expense it? So court and then they ended up saying we're going to expend it, right, And the name it was in the name of being conservative, which is, we just don't know what the returns are gonna be, so we're just gonna plunk it all in here. And as you know, like you think about a young biotechnology company or even historically pig pharmaceutical companies, companies spending substantial percentage of the revenues on R and D to state the obvious, that's an investment right there. Doing that in a in a hope for future returns, but that's obviously wiping out sort of, it's hitting their earnings, um you know, a hundred cents on the dollar. So that that that's really the issue. And so over time we've we've seen this morphing from investments going from primarily balance sheet related to now income statement related. And so now we have all these ideas about capital life businesses and so forth. Well, in a sense they're capital life because there's not a lot of stuff recorded on the balance sheet. But it's not like they're not investing. They are investing, um. So, so that just where it shows up is different. Not the concepts behind investing doesn't change, but where it shows up. It is quite amazing that because of an accounting rule change, the way investors can think about a whole bunch of companies automatically changes because the investors are trying to gauge future profitability, I guess, and all of that comes down to the numbers that are presented on the earnings statement. Can you maybe elaborate a little bit on on how you see those accounting quirks changing or affecting investor behavior. So it's a great question tracing. And the first thing, and there's obviously a lot of chatter about this and the accounting community and so forth. The first thing I'll just say is just to keep our eye on the ball here, is that, notwithstanding all the adjustments you want to make, free cash flow, which is sort of the lifeblood of corporate valuation, which is really ultimately the cash in versus the cash out, free cash flows perturbed by these adjustments, so that doesn't really make any difference. And one of the reasons, you know, I opened the report with sort of this uh, you know, choice between two different investments. Of course it was the same company and one it was Walmart. But one showed you know, sort of the steady profitability and and and actually growing a very nice clip and so forth, and the other showing you know, rising dead and dwindling cash balances and so forth. And the key to Walmart was that it was this is from the early nineteen seventies through the mid nineteen eighties at Walmart was profitable but had negative free cash flow rights. And all that means is they were investing more than they earned. And since their investments were really high return, you know, you want them to do that you knock yourself out. That's fantastic. So now you say, a very similar company with also negative free cash flow, but investing on the income state would show losses on the right, they would show losses on the income statement, and we all sudden say that that doesn't look good. So um, so I think that there already there are sort of all this ongoing discussion about are there things we should do to change the nature of our accounting. The one, you know, the obvious one is research and development. Um. By the way, the other thing is interesting is this does happen in mergers and acquisitions. Right, So if you built a great company that has a wonderful brand and a great customer list and so forth, and my company acquires yours, all of a sudden those that there will be some good will, but the intangibles will reflected on my balance sheet and then I'm gonna admortise them over some period time, so they get acknowledged, but only in mergers and acquisitions, and they just don't get acknowledged and sort of day to day. So that's the ongoing discussion. Now I'm not going to wait around for accountants to change the rules. There it's a very conservative bunch, and I think I'm sympathetic to them being conservative. And my argument is the that that investors need to get on this without whether or without the accountants. The other thing that and you guys mentioned this in the opening as well, and I'm not going to sort of justified evaluations, but I think that the market understands these things, so this is not being lost on the market. So in a sense, as an investor, making thinking about this whole issue in a clearer fashion, I think get you more in step with how the markets already operating versus you know, putting you ahead of everybody else. Right, So, so the market I think has already sniffed this out in a major way. So you know, again there are things like you know, customer lifetime value calculations and research and development and branding. There's there have been for long decades discussions about how to treat those from an accounting point of view. And again this weird thing about if you're your own company versus if you get acquired to get treated differently and so forth. So um, yeah, it's an ongoing discussion, but I'm saying, like, don't wait around for the accounts to make your try to quotes, make your life easier, figure it out yourself, right, And that's why I called it one job. I'm like, look, this is what you have to do. This is that these are the cards that have been dealt and play them. So it's like, if we look at some software company and it's trading at thirty x revenue're like and they're like, that's crazy, it's a bubble. And the idea of basically what you're saying is not that this approach will necessarily tell you whether the stock is a buyer or sell or over valued or not, but that at least we can appreciate how the market is valuing the company and then from there make further do further analysis to say whether it's a buyers though. That's right, Joe, and you know that. Um. About twenty years ago I published a book called Expectations Investing My call through our wrap Board, and the argument we made there was, you know what you should do is start start with a stock price and the market value, and then reverse engineer what has to happen for that to make sense. Right, So you might ask the question, you know, if it's a software company with sales, be in retention so on and so forth, and I still think that's a very sensible way. So again, I'm not here to defend any valuations for any company, but by the same token, and this you're you're exactly right. You you in other words, a very high percentage of companies of companies listen, companies United States lose money. And if you just said to yourself, ge, losing money is bad, you maybe throw all those things out and you're not acknowledging, And that would be like saying free cash flow negative, free cash flow is bad. No, that's not true. It's a much more subtle issue. You have to understand that the magnitude and return on investments, and only with that additional insight will you be able to make a sort of measure judgment. I know you just you literally just said that you're not here to um to make judgments on any particular companies valuation, But could you could you maybe give us your opinion on on one of the thing stocks or what would the thing stocks look like through the framework that you've just um explained to us, Like how different does something like an Amazon or an alphabet look once you start to factor in things like intangibles and research and development. Um So, Tracy, I think that the one I feel most comfortable with its Microsoft, So that's in the same neighborhood probably, And that's the example we used in the report. I'll just underscore again this is not an investment. There's no one investment of lolagent going on what to suggest. But what we did is we went through and made these adjustments. And again there's a lot of um A judgment as to how to make these adjustments in terms of what items should be intangible versus version of regular expense, and what is the amortization period and so forth. But we there was there's a professor named Charles Holton who had done a paper on Microsoft who laid out of frameworks, and we just said we're gonna follow the Holton framework. Um So, to answer your question more directly, what happened was the the UH. The technical term is net opcording profit after two tax But basically, think the cash rings of the company after these adjustments went up by about fifteen percent and the invested capital, so the amount of money invested in the business went up by about eight percent. Right. So again, when you're make when you reverse these UH expenses and put them on the bouncy Two things happen to take The obvious one is at earnings go up, and second is the amount of capital invested goes up. So for my Microsoft, and again MICROSOFT'SFT is a very big, very profitable, very successful company, and that was a fifteen percent lift to their earnings and about it again, increase in their capital. You might imagine quite easily that for much smaller company and younger companies and earlier in their in their development though, the impact would be even more profound. So that gives you some sense. So automatically you start to say, well people use historical pe multiples or so forth, you know you're just getting you're comparing apples to oranges if you start to do those kinds of things or take them too seriously. So, just on the example of Microsoft, and going back to research and development, you mentioned that, you know, Fast by the US Accounting UM Standards Center back in the ninet seventies made this decision to expense R and D because they wanted to be conservative. When you look at research and development today, is it all about generating future profits or when it comes to a company like Microsoft in a very competitive industry, is some of it just about I guess like keeping up and maintenance rather than betting on the future. Yeah, suddenly make two points. First of all, we talked about this directly in the report Tracy. It's a very good question. Um. One way to think about if you just want to say, I want a rough way to sort this in my own mind is exactly what you said, which is like, how do I think about what's an investment versus what is necessary to run? It's precisely that, so say to yourself, and you might you know, this would be a great question for executives, right, you say, all right, what's spending on our income statement and specifically selling general administrative costs? What spending do we need just to keep this thing going? Right, We'll call that maintenance. And then what spending is truly discretionary, that is in pursuit of growth, and that we'll call it value creating growth. Right, So that segregation is really just a simple way to think about this. And um, as I mentioned in the Holton and usually people talk about this for R and D, they often will make it intangible and you know, for like a young pharmaceutical company or biotakers, and that's probably that's probably reasonable, but very much to your point with the argument, and we draw this out in the report. But for large, older, more established digital companies, it makes sense that a chunk and maybe even a meaningful chunk of R and D is just in quotes maintenance, right. So you know, when you get your automatic Windows updates on your computer, a lot of that spending to support that was in R and D. That's not that's not you know, discretionary, that's something they have to do just to maintain the current business. So so you're exactly right. So again lots of judgment required here. Um, it's more relevant for older and more established companies than the younger ones, but you're exactly right, that's that you have to And so that the big broad defining differential is probably this what do I need to spend to maintain versus what am I spending that discretionary to grow in the future. So I want to just get back to for people who maybe aren't as familiar with accounting terminology, just some of the words and ideas that we're discussing, including the idea of expensing investments. So just to help people can acceptualize it, let's say company builds one billion dollar factory, uh, and it's expected to be in production for twenty or thirty years. And so they spend a billion dollars, but that becomes a one billion dollar asset that they have on their balance sheet, and then over time that depreciates and they get some sort of that affects their income and taxes and so forth. Two questions that come to mind, So, hey, just is that the right framework? B How is it different? Um if they if a company, say, spends one billion dollars on building a brand, how does that look? And how in the accounting framework do you adjust for the fact that, Look, if you build a one billion dollar factory, that factory is probably never gonna be worth more than one billion too. But if you spend a billion dollars over time, say building up a brand, that could become a ten billion dollar brand over time if it catches fire. Let's just be methodical about this. So the factory, as you said, you spend a billion dollars, that goes on your your balance sheet it and it's gonna be net property, plant equipment, and then you're going to depreciate that over time and so usually and that would be twenty years and what investors would see a straight lined appreciation, so literally it would then be reflected as an expense on the income statements. A would flow through the income statement, but again a relatively small five percent, right, it's a twenty years of life five percent shows up on your concert each year and predominantly shows up the bounty. And by the way, in the bounty, you're also reducing the value by that appreciate depreciation amount. Now that value that asset could be worth more. I mean, presumably if you build this billion dollar asset and does INCREDI incredibly profitable, and you sold it to somebody else, they would they would pay for that profitability. So it could be worth more than a billion dollars. But as you point out, you know, it's hard to it's often not gonna be five or ten times that amount. Um. If you're building a brand and you're spending a billion dollars, and usually you wouldn't do it all in one fell swoop, right, you do it over time. But those let's just use things like marketing, right or advertising, those are going to be expensed, and so the of the cost of that that particular period well bill reflected on the income statement and it just goes away, right, you never see, there's no recorded value for it, and so you might imagine, you know, like crazy, you know, you spend your your young company to spend you blow your whole advertising budget on December thirty one of a year, right, and what the accounts that say is that value that things worth nothing? But of course the next day hopefully you get some positive benefits from that. So just you can see the absurdity of it from that from that particular point of view. And as you said, as you now again where you know, sort of the litmus test for the virtues of doing this is in mergers and acquisitions. So if you build you know, Joe Ink, and you build this great brand, and my company tries to take over your company, I'm gonna pay you for those benefits that you've built where you've accrued, and that will show up then on my balance sheet. Right, so in the sense if there's a transaction, it will show up. But in the normal course of business, in terms of how you built the business, it would not. So that's and again you know, if we keep our eyes on the cash flows, we're gonna be fine. But this these are really these can be very significant. And obviously the reason we're having this conversation today is because you go back in time. I mean in nine in nine seventies, for example, tangible investments were doubled those of intangible investments, and today intangible investments are one and a half times tangible investments. So we've seen in a couple of generations a real flip in the significance of these particular items, and that and that distortion again is has to be reversed essentially as we think about things as investors. So here's something that I'm curious about in this conversation more broadly, which is that is there any way to think about the value of intangible assets x anti. I mean, we can obviously see that a great brand like say Lululemon or Adidas or something that's a brand that's an those assets throw off incredible amounts of money. Is there any way to not just sort of figure out the value of intangible assets and red prospect or is it inherently something that has to be done only once we sort of get a feel for how profitable they are. Well, I mean, Joe, I'll try to go to a kind of convenient example of this um, but it's it's a big one, which is things like um uh, subscription based business godnesses. Right, so you think about you know, whatever it is, your Netflix subscription or your Verizon or whatever it is. Right, And so the classic model to understand that is the company has uh they call customer acquisition costs, but an acquisition costs today, say we want Joe as one of our customers, and we're gonna spend to get him more tracy, and we're gonna, you know, to advertising or marketing or some sort of promotion, right, so that they're gonna absorb an expense to get you onto their get you and then over time, you're gonna spend x per month and you'll stick around for a period of time. And there's right, So that that that's a class example is that there are there are big frameworks thinking about customer acquisition and lifetime customer lifetime value and companies are obviously making estimates of those values as a think about how much they're willing to spend to acquire new customers. So there's a there's a fairly concrete example where again it's still a judgment. You don't really know the answer, but people are making those kinds of calls, and so I mean that, and you just go right down the line of some of the stock today, they're you know, things like the Pelotons the World, the Netflix is of the world. These are these are really sort of the hot issues as investors look at these things is to think about how many customers can they sign up with? The economics for customer and so forth. That's all this kind of stuff that we're talking about. I have a slightly weird question, but just going back to the different treatment of intangibles when a company does M and A versus when it develops them itself. Do you think that that that different treatment encourages companies to do more A or to to grow via acquisition nowadays given the importance of intangibles on to many companies. Um, it's an intriging question, Tracy. I actually don't think so. It was not they don't think about it at all, But I don't think so. I do think that probably most of the M and A that relates to these kinds of things is to acquire, whether you know, capabilities or particular business lines, um, rather than than thinking about the accounting treatment per se. But sort of an add on thought though, is that one of the the arguments that accountants make as to why they can't or shouldn't be thinking about these intangible assets differently than they are today expensing them is that they don't really know how to treat them. As that I mentioned. Even in my little Microsoft example, there's a lot of debate as to what Even in your question about r D, there's a lot of debate about how much should be considered intangible versus investment, versus maintenance and so forth, and then hamortization periods. These are all up debate. But it turns out that when there's an M and a deal, those things happen. Right There are intangible assets that are put onto the balance sheet of the acquirers and those are amortized over some period of time. So those judgments are being carried out by somebody now. So that's the other instring point. But I don't I don't think it's a motivator for him and a per se. There are a lot of other things that are interesting that would be that that that come into play there. But um, but it does show you that at least uh in that setting, those judgments are being made by accountants right now. So in the in the intro, we talked about this idea of can a rethinking of accounting sort of rescue value investing And so in other words, instead of value investors sort of waiting around for maybe bank stocks or energy stocks to catch fire, that the sort of the whole field can sort of be salvage by just rethinking the screens. What counts is value? Where do you stand on that? And is that cheating? Is that a legitimate thing? Like? How significant is this? And if sort of more people appreciated this point, would sort of would there be a role for people who come at investing from a quote value mentality to thrive even in this environment? You know, And Joe, you put your finger on just another very hot topic. Um I should mention one of you know, one of my UH side things is I'm an adjunct professor at Columbia Business School and I'm part of the power and Center for Grandma Dot Investing, so very much part of that value investing tradition. And I think that one of the things just to keep our eye on is to think about is to pose the question what is value investing? And I think you said this even Joe in the introduction there are two ways to think about it. One is buying something for less than what it's worked, and then the second is um and this was I think very much popularized in with with Gene Common and con French paper. Is a statistical factor, that's right, so the low price to book, low price to hurtings and so forth. So the first definition of value investing hasn't gone away at all. Find something for listening to worth that you know, and we could have a conversation ten years from our hundred years from now, and and I'm hopeful that we still have the same definition. The statistical factors, though, is the one I think that's been under prunture to some degree, and so there has been a slew of research. By the way, there are people counter this, but there's been I think the balance of the research would suggest that with adjustments as we've described, and obviously when you're talking about lots and lots of companies, you have to use fairly blunt instruments. But even with those blunt instruments, those adjustments allow you to get better signals. So I will draw your attention to a very astream paper about value investing by Brooke lev and a Nucro Bostava and it made the rounds, you know, came on the fall last year, and they revised in the spring of this year, and they made a couple of points that we're really interesting. One is, if you make these adjustments, the companies that fall into those categories of glamour, which is high high valuation versus value, which is low valuation, the companies in those categories shuffle all around, right, so like a substantial percentage fall out of those those bins. And the second is the signal you get from this value factor buying cheap things actually improves, they believe improved quite markedly when you introduce these kinds of adjustment. So this this debate, and again again there may be there's there may be a more overarching themes about value that the value factor, as we know, all factors, by the way, tend to be epistodic. Can value investing coexist with the efficient market hypothesis? This is something I've always wondered. But if you assume that the market does a reasonably good job of allocating capital to um companies that show good potential, then like, what is value investing actually doing? Isn't it just cast like basically saying that the market is wrong at any point in time. Well, definitely, um, you know, so just to take a step back, there's no you know, the markets can't be perfectly efficient, right, because there's a cost of gathering information every flec. The crisis is a consequence. There always has to be some sort of access return. Las Peterson calls this. You know, markets are efficiently inefficient, right, so there has to be enough to keep people trying to do this thing now, value investing. If you go to sort of the academic community, there's a debate about what is at the court here, and there's sort of two different camps. The first camp is ge this is just you know, value. The value factor is just compensation for risk. So our traditional models for measuring risk, which is usually based on the capitalistic pricing models, the measure of volatility, we're just not capturing something that's important, and by introducing the value factor, we're now more completely capturing risk. The second camp, where I think the balance of the evidence lies by the way I think it's here, is that there are behavioral factors and so as human beings, we tend to go to we over extrapolate, and we tend to go to accesses, both on the greed and fear side. There's a consequence from time to time things become inefficiently priced in the sense that they're you know, they're they're fundamentals are not as strong as are off versus of their expectations. So that, I mean, I'm not sure that that debate has resolve, but the premise of that at least. So so you have to put yourself in one of those two camps. And maybe it's a blend of the two. But if you believe in the behavioral thing. Now I'll just say my own personal view is of that, Uh, you know, one thing that has not changed, we could, of all the accounting stuff, we want one thing that has not changed, just the nature of human behavior, right, So, and I think that's a very hard thing for us to change. And so I suspect many of the kinds of patterns we've seen in markets, and which by the way, are not novel today. They've been around for literary centuries. Um I would anticipate would continue to be the kinds of patterns we see, at least for the foreseeable future. No one serious has ever claimed that they have are perfectly efficient because they can't be um. But but I think that would be how I would think about value, the value piece of that. I have one more questions. So I know we've been thinking a lot about the big text stocks in this conversation, but I guess I have two questions actually, So one does the emphasis on intangible assets, you know, things that we can't see or feel, things like brand value where you really have to put a lot of forecasting and estimates into figuring out how much something like that is worth. Does that make it even trickier to value a company nowadays? Is there is there a likely more of a likelihood that we get it wrong? And secondly, when it comes to something like the textocks, what should investors be looking out for to see whether or not prices have truly overshot the future value of the company, even when including things like intangibles? Right, so on the on the first discussion is you know, is it trickier to do this what I always like to do as an investors break things down to what I would call the basic unit of analysis, which is how does this company basically make money? And thinking about that as carefully as possible. Now, you know, you sort of mentioned some of these things seem like they're more abstract to some degree, but look, a lot of intangibles. You know, your pharma super company develop a new uh, it's not you know, that's and it's got a patent for example, that's not that's not abstract, Like that's pretty clear and that's got value and that you can model those things pretty accurately, or customer lifetime value calculations. You know, we can debate about the details, but the basic framework seems to make a lot of sense. So can they be more difficult? Perhaps? Um? I think the bigger issue that comes up is this idea and Nen do me. They call it sunkenness, which is if you develop intangible assets for your own company, they may be less transferable, so the harder value in that way. But no, for the most part, I think that it's the same basic story. And then on the tech stocks or you know, just in general, like how do we know that we're overpaying? That's where I would go back to this expectations approach. And again I have no answers about a specific company or even the market today, but I would just say that it is important to say what has what what do I have to believe for this thing to makes sense, right, Michael, that was that was great. I really appreciate you joining us. Always a pleasure and fascinating stuff. Really helpful to sort of think through what these things mean in a concrete way. My pleasure guy thinks as always loved the questions and I love the conversation. Thanks, Michael. I found that really helpful, Tracy. I mean, you know, I I this idea that intangible assets has grown in importance. It's sort of obvious. Everyone can figure it out. You look at, you know, the companies that are really valuable, and you sort of recognize that they're not the sort of factory heavy companies of your But how that actually fits into a sort of valuations framework, I thought Michael explained really well. Yeah. I also liked his idea of looking at a basic unit of analysis, so how does the company actually make money and sort of zero in all that um to determine how important or how much of a return you would get on investment for a particular company. So, you know, I guess if you're if you're operating like a retailer, then your investment from creating a new store is going to be very different from if you're operating a big tech company, for instance, and you develop new software, and what your investment is, what your return on that particular investment is. Yeah, you know, one of the things that I sort of as a journalist and thinking about markets is obviously markets can be wrong, assets can be overpriced or underpriced, and our bubbles and manias and peaks of pessimism. But by and large, I think it's a valuable, valuable practice to get into the habit of at least trying to justify a market value for anything at any given points. So you look at something like the pricing on Netflix or Tesla or some of these crazy names, and it's very easy to just say, like, that's a bubble that's overvalued. And they may be, and you know, it's like bubbles really do happen. But I really do think that you should one should always sort of attempt to sort of I guess I would say, see it from the market's perspective, even though the market is not a person. And I do think that this is a way to get there, at least to some extent. With some of these names. Again, it's it's not to say that the markets priced or Riot or that they're not overvalued, that they're not going to fall, but at least it can sort of you can start building a framework of your in your head about how some of these valuations might make sense. Now, I agree, and I think it's sort of that aspect of it is even more important for the undervalued companies or you know, this is where I start to think that value investing is actually quite arrogant, because is you basically think you're smarter than the market and you're sort of rooting out companies that the markets view of is wrong. Um, I don't know, Like I just I don't want to say the market is always right, but like it does seem like you're setting yourself up for disappointment if you're just sort of like running counter to it all the time. Yeah. No, I mean I agree that. You know, another thing I was wondering about is like, Okay, so as we established that there's sort of two ways to think about value investing, there's like the sort of statistical factor, um, which is the sort of part that hasn't done so well in recent years because if you just look at traditional metrics like price to earnings or price to book, companies with low multiples they haven't really done well, and I just like wonder if, like there will ever be a day where everyone sort of froze in the towel, where no one's sort of left arguing that it's a good idea to buy a stock because it's sort of cheap on the traditional metrics, and everyone who considers themselves a value investor eventually capitulate and starts coming up with reasons why actually Facebook and Netflix and Alphabet are actually value stocks. I feel like at some point that's gonna happen. Maybe that'll be a major turning point in the market. Yeah, I think you're right. I keep thinking the last value Investors Standing would be a really good title for a book or or some sort of like short fiction story or something like that. We should write it. Basically, everyone is just going to own software and one person is going to own all the banks in oil companies that there's a last one to do it, they'll probably do well, that's right, and they're like camping out on a hill somewhere. Um, alright, yeah, I like that. We should make a short film about it. Okay, so we leave it there, Yeah, I say it there. Alright. This has been another episode of The All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway, and I'm Joe Why Isn't Thal? You can follow me on Twitter at the All work and you should follow our guest Michael Mobison on Twitter. His handle is m J Mobison. Follow our producer Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levi at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcast. Thanks for listening.