VALUE: After Hours (S08 E08): Derek Pilecki On Long/short Financials Investing, Regional Banks, Non-banks And Insurance

TRANSCRIPT

[Tobias] And we’re live. This is Value After Hours. I’m Tobias Carlisle, joined as always by my co-host Jake Taylor.

Our special guest today is Derek Pilecki from Gator Capital. He is a small cap bank specialist. Welcome, Derek.

How are you?

[Jake] Are bank’s just synonymous with value these days.

[Derek] Hey, thanks for having me on.

[Tobias] Are banks synonymous with value these days?

Why Small Cap Banks Are So Cheap Right Now

[Derek] I think so, yeah. I mean, I think you think about the normal valuation range for banks. It’s, you know, 10 to 14 times GE, and they seem to be trading eight or nine times earnings.

So it’s like below the bottom end of the range. I think banks are cheap. I think it’s, we’re still living through the post-Silicon Valley, first republic environment.

And so banks are just, you know, they’re trading cheap still. And I think there’s some reason, you know, people really haven’t figured out that the yield curve is, has more juice in it. So the banks can earn higher returns and M&A environment’s improving and deregulation is happening.

So, you know, I can see a scenario where they get back to their normal valuation range, but they’re, they’re cheap now. Small cap banks are cheap.

[Tobias] I actually thought you were going to say you thought it was a hangover from the GFC, but you, you short circuited me there. But what do you think about the, it’s my impression that banks have still suffered a little bit from that GFC, you know, that sort of underscore undiscoverable risk in the balance sheets.

The Lost Decade for Regional Banks (2018–2023)

[Derek] Yeah, I, I, I agree with that, but you know, the, the small mid-cap banks really hit peak valuations in 2018. So there was a time period, 2014 to 2018, where they traded at quite high multiples. And, and so, you know, if you think about a lost decade, I think small mid-cap regional banks just had a lost decade from 2018 to, you know, 2013, 2000 to 2028.

Yeah. Maybe we are two years away from it actually happening, but in the last couple of years, they’ve, they’ve acted a little bit better, but like you go 2018 to 2023, it was flat to down.

[Jake] So why are there so many banks in the U S it feels like relative to the rest of the world that there’s a lot of banks.

Why the U.S. Has Thousands of Banks

[Derek] Yeah, I think it’s a artefact of the interstate branching laws. Like you couldn’t open up banks across state lines and even in like in Texas, you couldn’t open up a bank branch across county lines. And so every little geography had its own bank.

And so, you know, those interstate branching laws were taken down in the, during the nineties. And that’s when we really started seeing consolidation. So it’s just, that’s the artefact of, you know, they were pretty, every state protected their banks from getting acquired by other states banks.

[Jake] And that trend line is just down into the right, right. The numbers like this consolidation wave, do you think it’s just going to keep going?

[Derek] It will, you know, we, we’re not going to be as consolidated as Canada or Australia. You know, we’re not going to get down to five banks, but we’re at 4,000 banks, you know, we’ll get to 400 banks or something that, you know, it was 13,000 when I, the year I graduated from college. So we’re from 13,000 to 4,030 years, 35 years.

So, you know, we’re trend lines down.

[Jake] What does that mean for our manifestment perspective then?

[Derek] You know, it’s hard. I don’t think we’re in an M&A environment where there’s a lot of excess returns from M&A. Like it’s not 1996 where we have Nations Bank and First Union overpaying for banks to get market share.

Like the, you know, the market’s been very disciplined. If an acquirer overpays for a bank, they’re in the penalty box. So, you know, I feel like, I feel like bank acquirers are pretty, pretty stingy with what they’re willing to pay.

So like, if you’re going to invest in banks, just because of M&A, you end up owning a lot of mediocre franchises for a pop at some time. So I prefer to invest in the banks that are more organic growers or, or after looking at what their acquisitions have been, if they’ve made particularly good acquisitions, like a First Citizens, you know, when they bought Silicon Valley, like that’s a, that’s an opportunity to participate in M&A. But I don’t think it’s really great to just sit around in a bunch of mediocre banks and wait for them to get taken out.

[Tobias] Derek, can you explain your strategy to us, please?

Derek Pilecki’s Deep Value Strategy in Financial Stocks

[Derek] Yeah, I think it’s a deep value strategy. I only focus on the financial services sector. So it’s non-bank financials, like brokers, insurance, non-bank lenders.

And, you know, I’m looking for names that have cheap valuation and for some reason why the valuation I think is going to change. And so I have a little rule of thumb. If I, if I can come up with a, an investment case, the stock will double in three years, I’ll probably own it.

So, you know, that could be something that’s trading six times earnings, they’re going to grow earnings 12% for three years, and the multiple is going to re-rate the 10 times and that gets me a double. And so just do that over and over. I think, you know, I think there’s particular businesses in financials that are, are attractive, that are either balance sheet light or grow attractively.

There’s some good growth banks. I think one very interesting thing in financials right now is there’s a lot of franchises that have good organic growth that you don’t have to pay a premium for that growth. And I think, you know, there’s some reasons for that.

I think people aren’t normally thinking about financials and growth. I think some of the banks that used to have growth multiples, those growth multiples went away after first Republican Silicon Valley failed. So, you know, I think you can find some interesting businesses right now and not that are growing, you know, low double digits that you don’t have to pay up for that growth multiple.

And but I think of it as a deep value strategy.

[Jake] How do you think about the potential left tail of, you know, I mean, it’s GFC obviously was sort of brought a lot of things to bear, but, you know, when there’s so much that you’re depending upon, how good is the asset side? And there’s that joke that, you know, there, there are less bankers than there are banks. How do you, how do you assess that?

And then try to chop off that left tail, I would imagine.

[Derek] Well, I mean, I think I’m pretty positive about the environment as far as, you know, where we are in the economy. I mean, I think after the GFC and then especially Dodd-Frank, the banks have a lot more capital and a lot more liquidity than they did 2006. And so I think we’re, you know, we’re not going to, we’re 18 years away since the great financial crisis.

If you think we have a financial crisis every 20 years, it should be happening, right? And, and I think that’s what makes private, the private credit talk right now scary because it’s, you know, about the right timing. I don’t think we’re going to have a systemic problem with private credit.

They run with a lot less leverage. And, you know, they’re, they don’t have to fire sale assets when they go bad. Like, you know, banks, as soon as they have a bad loan, the regulators are on top of them of like sell the note, foreclose the property and liquidate.

And so that kind of drives prices down and it’s not the best outcome where private credit can manage to the best economic outcome and manage through that. There’s not the same deposit funding that they, that forces them to be sellers. But, you know, so I generally think the banks, the banks are in pretty good shape.

And, you know, I think about recessions, the deep recessions we’ve had recently have been the savings loan crisis and the great financial crisis. And they’ve been because the banks stopped lending the main street in 0-1-0-2 in 2020. We had recessions that were pretty mild.

The banks continue to lend, you know, credit was available to main street. So I think, you know, if we have a pullback or a slowdown in the economy, the banks are pretty far away from turning off the spigot to main street. So I think we, we kind of would kind of muddle through any slowdown.

So I feel, I feel good. I think the, you know, the obvious fallacy in my positive outlook for banks is, you know, Silicon Valley and First Republic’s failures. I mean, I, but I think that was just interest rate mismanagement 101.

Like we learned during the 80s, you can’t lend long and fund short. And that’s exactly what they did. And so I think, you know, of course you can have individual institutions fail.

I think, you know, systemically, I don’t, I think we’re pretty far away from this, the system failing. But, you know, I’m, I try to be open minded about that positive view, but I think that that keeps me positive generally.

[Jake] One of the arguments that we’ve heard about AI potentially lowering switching costs for all businesses. Like if AI can go and like, I can see there’s a better rate at another bank and it can go like, do the application for me, close my account. And like, I wake up the next day and my, my accounts moved, all of which is to say, if you do have lower barriers to exit, does the funding then become a lot less sticky?

And now all of a sudden you’re, everyone is, looks a little bit more like SVB might have been where a tweet, you know, like cause people to try to yank their money out. How do you think about that? And, or is that something that’s come up recently?

[Derek] I think, you know, I think there’s some aspects of banks that make them mediocre businesses, right? They’re, they’re commodity like, like what you just described, and they’re becoming more commodity like, like that there’s not as much loyalty and it’s the switching costs are coming down. There’s threats from fintechs.

I think AI is just another one of those threats. And so I think money’s getting hotter over time. We’ve had, you know, you can bank through Schwab and Fidelity, right.

Or Merrill Lynch or Morgan Stanley. So I think that is just increasing the competitive intensity of banking through time. So I don’t think it’s going to be like a switch, like all of a sudden they’re unstable.

I just think at the margin, the competitive intensity is increasing. You know, JP Morgan is a monster, right? I mean, they have branches off 50 States.

They entered Boston, Philadelphia, and DC. They didn’t buy any banks to enter those three cities. They just opened up 20 branches in each of those cities.

And everybody already had a Chase card or a Chase auto loan and started opening checking accounts there. And that’s, I mean, that that’s not a fintech, that’s one of their own, just ramping up the competitive intensity. I also think about it in terms of consumers really bank at the big banks, you know, because of the branch networks and the ATM networks, like small, medium businesses are who bank at small and mid cap banks.

And I think small mid cap businesses very much depend on the credit provided by their banks. And, you know, if I don’t think they’re moving to the big banks or switching that easily because the credit is sticky, and that’s the value, the lifeblood for these small mid cap businesses. So that’s how there’s some ways I think about it.

But, you know, banks are okay businesses. Like there’s some very, very good bankers. There’s some very, some banks that run very efficiently and grow their organic loans and earn high REs and then reinvest that capital and loan growth.

And, you know, I think you think about banks, the best performing bank stocks are the same banks that grow tangible book value at the highest rates. So if you did a screen and said, show me all the banks that have compounded tangible book value the fastest over the past 20 years, and then looked at the stock returns, that those two lists would be almost identical. So you think that’s how I think about, you know, how to find banks and the long-term high ROEs, reinvest in loan growth, don’t do dilutive acquisitions.

[Tobias] How do you think about portfolio construction, Derek?

[Derek] Yeah, so I use a little bit of leverage. So like I, you know, it’s a hedge fund. I run at 130% gross long and 80% gross short.

So the net’s 50. I think of, you know, I think of a new position, you know, I own about, I own more names on the long side than I used to. I used to run 25 names.

Now I run about 40 names. So, you know, average position is about 3%. I let positions get up to 10% if they outperform the, you know, so a new position usually goes in three or 4%.

And I tend not to add to positions once I’ve owned them. Either they get bigger because they outperform or they get smaller because they underperform. I’m not, I had a, you know, before I started Gator, I worked at GCM and I had this old PM who used to tell clients, we want our stocks to go down so we can buy more cheaper.

And that’s garbage. Like that does not work. Sounds good.

It sounds good. It does not work. Because you end up buying all the wrong ideas, right?

And the ones that are outperforming, you’re not adding to. So I, it’s not to say I never add to names when they’re down for my initial purchase price, but the bar is pretty high for me. Like I need to re-underwrite and say, okay, these are the reasons it’s down.

And, you know, generally I don’t, I don’t have an automatic buy. And I think that’s a way to really destroy capital, right? To keep adding the names that aren’t working.

And I wouldn’t say that I’m super good about taking stop losses and exiting names, but I don’t compound the problem. Um, and then, you know, I use a little bit of leverage because I’ve added a lot of value on the long side. So my shorts have, I’ve added marginal value on the short side, but the, I, my longs have, uh, way outperformed the index.

And so I want to have more money into my long ideas. So that little bit of leverage allows me to own more of my longs. And then the shorts allow me to stay in the game when, you know, we go through a period like the last few weeks where the market’s down, like I’m not getting crushed and it dampens my volatility a little bit.

How do you think about shorting? I mean, I think there’s a lot of mediocre banks or a lot of mediocre financial companies. So, you know, companies that are going through, um, mergers that I think are not well-priced or that I think are very complex or, you know, companies that have had mediocre ROEs for a long period of time.

Um, I think about those as, you know, just, I’m not going to get hurt from them ripping higher and they’re just going to, it’s almost like they’re funding shorts. Um, you know, it’s hard, it’s, it’s, it’s hard to do valuation shorts. I think, you know, valuation shorts tend to run in my face.

I, I try to find names that have some headwind to them. So like I’m short mortgage insurers right now. And I just think there’s home price volatility.

There’s, um, with interest rates high, there’s some COVID boom, real estate towns that are inventories are rising. And I think that’s just going to be a headwind for the mortgage insurers. Mortgage insurers, it’s not 2006.

I mean, they’re not zeros or they’re not, you know, have a bunch of subprime. I just think there’s a headwind there. And so, you know, it just, I don’t think they’re going to be up in line with the market.

So, but shorting, shorting is very difficult.

[Tobias] I had a question here. Um, sorry, it just slipped. Uh, the risk of loan modification, manipulation of loan quality were raised by Bill Morland of bank reg data.

Are you aware of Bill’s arguments and do you have any thoughts on them?

[Derek] I’m not aware of Bill’s arguments, but okay. Yeah. So I, I, my interpretation is that is the extend and pretend.

[Tobias] Yes.

[Derek] Right. And so like, you know, bankers, when they, when the loan’s not paid off in contractual terms, they have to add that to non-performers, you know, you know, if they give some waiver of extend the maturity date or, and, and, or waive payments. And so, I mean, I think it shows up in the, in the, in the, in the data, the regulatory data, as far as non-performing assets.

And so, I mean, I think that the credit quality in the banking system the last few years has been, you know, all time, all time, best credit. And so, you know, I met with 10 banks last week at a conference, nobody’s concerned about credit. So it just, and, you know, I had another bank tell me like these when they did MNA, they used to go in and one out of every three banks would have underwriting quality that they would find acceptable that they would be willing to bid on.

And now they said today, any bank they go into, they all have credit quality that meets their minimum standards. And so, I think there’s just been a huge improvement since the financial crisis of loan administration, loan files are all standardised, you know, the consultant industry has made a bunch of money by getting all the, the, the bank’s loan portfolios, like their credit administration up to snuff and the underwriting quality is, you know, pretty consistent across the board. So I, I don’t worry about the bank’s underwriting, like the, the credit numbers have been very good.

We have seen a few bumps in, you know, the last six months, you know, tricolour, first brands, you know, they tend to be bigger deals. But, you know, small mid-cap businesses or small, medium-sized businesses, like the credit quality has been very good. And even in, in, in office, like it hasn’t been, hasn’t been terrible in the small mid-cap banks.

You know, some of the large regionals have had some office towers in Midwest cities that have presented some problems, but, you know, they, they have relatively small percentage of the loans in, in office. So I don’t have a huge concern about credit. Who holds all the office?

I think it’s a lot of CNBS, it’s securitised. And so I think those towers, you know, those towers are, are pretty big tickets. And so I think a lot of it gets securitised.

[Jake] So it’s sitting in your pension fund right now? Is that right?

[Derek] Oh, great.

[Jake] Does the private credit world, what has that done in the last 10 years as it seems like it’s become a bigger thing?

Is Private Credit a Threat to Banks?

[Derek] Yeah, I mean, I think it’s, I think it’s been both good and bad for banks, right? So the private credit grew because the banks shrunk their credit underwriting box, like they, after Dodd-Frank.

[Jake] So all the adverse selection went off to private credit land, or is that what? Yeah.

[Derek] I mean, they’re, they’re probably getting enough rate to, to offset it. Right. So like, it’s, you know, and that’s real, like, I mean, there was a real reason why private credit grew.

Has it gone too far? Like, is there too much private credit? Maybe, maybe there’s some not great operators, but generally there was a good reason.

And I think it makes the banking system safer. Like I’d rather the banks provide wholesale leverage to those portfolios than own those portfolios directly.

[Jake] Until we have to bail out some of these private credit guys.

[Derek] I don’t know. Do they get private? I don’t know either.

Like, I mean, I, I guess one of the things that was concerning, one of the things I’m concerned about with banks is, you know, they’re providing this wholesale leverage. How often do they reject private credit loans from entering the warehouse? And so that’s a consistent question I asked the bankers.

So if like, you know, you have this private credit fund that you’re, you’re providing the wholesale leverage to tell me about how often you review the credit quality of those loans. So what’s the answer that they usually say for something like that? You know, usually they say, you know, we review it as it enters the, you know, we have a day or two to review the loan file before we provide that funding on it.

So.

[Jake] That’s not a lot of time to do a lot of DD.

[Tobias] If you go to Derek’s Twitter account, you’ll see his pinned tweet is calling out SVB. Asking how it was still Silicon Valley Bank, asking how it was still solvent four months before all hell broke loose.

[Derek] Yeah.

[Tobias] Walk us through what you saw there, Derek.

[Derek] Yeah. So, I mean, I had owned Silicon Valley and, you know, I had owned it when I worked for Goldman and then I, um, I owned it at Gator. I owned it in 2019, 2020.

And, you know, I missed the run up in 21. Like I had a, you know, the venture market during COVID was just boomed. Silicon Valley went from 200 to 700.

I missed that run. So I didn’t have a position in the, in the stock, but I was reading the, the earnings releases during 2022 is, you know, I think it was third quarter. And I looked at it and they had had massive deposit growth during COVID, like just venture, you know, venture market boomed, all these companies, um, had raised venture capital and put it on deposit at Silicon Valley.

And they took all that cash and bought MBS. And, and then rates have gone up by then. And I looked at the balance sheet and the earnings release, and I was like, Whoa, this is, you do mark to market.

They had all the numbers in the press release available for sale, held the maturity and what their losses were. And just did the calculation. I put it on Twitter, like tangible equity minus preferred minus these two sources of losses market markets, negative 4 billion.

And I was just like, wow, like I’m shocked the stocks where it is. Like it was above book value. And so then I put that tweet out and it was, you know, it was out there and, you know, people push back and like, Oh, like deposits are staying in the regulators.

We’ll look through the losses. And then, you know, one of my, one of my friends slash competitors who runs a bank fund on, you know, when they tried to raise money in March, he, he quote tweeted me and was like, yep, today’s the day Silicon, they figure out Silicon Valley’s been insolvent. So it was, it was interesting, interesting time.

[Tobias] So to what extent is that the fault of Silicon Valley banks management and to what extent was that sort of systemic throughout all of the banks? Because they, to me from the outside, it sort of looked like they’re doing the right thing. They’re putting a lot of it in the treasuries.

And then we’ve had this 40 year falling interest rates. There’s a chart doing the rounds that says that they’ve been falling for 6,000 years or something like that. And we just hit the inflexion at the bottom.

20% of the world has negative yielding rates. And so it’s not unreasonable to think, well, maybe rates are going to go negative in the States. Maybe you are safe putting it on the two year.

I don’t think that’s such an unreasonable loss.

Why Silicon Valley Bank Failed

[Derek] I think it’s, you know, they bought 30 year mortgage-backed securities with a one and a half percent coupon. Like, I think even if the rates do go negative, they can always go positive in a big way at some time over those 30 years. So like this, the safest thing, and it was in checking accounts, like the money, the funding came in through checking accounts that are demand deposits.

So you should really just be in treasuries, very short-term treasuries, or, and they had swept a lot of the deposits off balance sheet into money market accounts. And they could have done that too. So, I mean, I think it’s entirely Silicon Valley management fault.

I think the shocking thing is like, same thing happened at Schwab and the same thing happened at Bank of America. And, you know, Bank of America had a trillion dollars of MBS at one and a half percent coupon. I mean, that’s shocking.

And it just, you know, Buffett carried a lot of cash during that time too. He didn’t put it in MBS, right? He got it in charity bills.

Like that’s, that’s the right thing to do. So I think it’s completely on management’s fault.

[Tobias] Yeah. I think Jamie Dimon had a similar.

[Derek] Yeah, right. Dimon had very, it was all underation cash at the Fed, right? And that’s, that’s what you’re supposed to do.

[Jake] So what about, but I got to make my earnings numbers, Derek, what am I going to do with this? What is this yield for ants? It’s so frustrating.

[Derek] I mean, as a former long owner of Silicon Valley, like it was a great franchise, like, and it just, and I was very angry that they destroyed that green franchise. Right. Then.

So just, it’s, it’s super sad.

[Jake] And kind of a silly way too, because like, my understanding was that they had some interesting option, like characteristics to early stage companies that they would get. And like you had, you sort of had like a decent bank stapled with this interesting call options and then you blow it up on like the most mundane, stupid banking one-on-one thing. Right.

[Derek] Completely agree. I mean, they had a 60% market share of venture capital funded companies. Like they had this near monopoly.

Like it was this ecosystem in Silicon Valley ran through Silicon Valley bank. Like they, they connected people and just, it was a really sweet heart mortgages or whatever. Exactly.

[Tobias] What about Blue Owl? That’s in the news a little bit at the moment. Are you familiar with what’s going on with Blue Owl?

Can you perhaps explain that to us?

[Jake] I’ve never seen a Blue Owl in the wild. What’s happening there?

[Derek] Yeah. I mean, I think, I mean, I think it’s, they’ve been aggressive in their lending. Right.

And so they’re, people are, they’ve raised a bunch of money, put it to work and you know, that they have a non-traded REIT where they, they need to provide some liquidity to it. So they’ve done a few things to try to prove that they have liquidity and that the loans are marked correctly and the market’s not believing it. Right.

So that’s, that’s the issue. Where are we? Like have they, have they been too aggressive in their, in their extension of credit?

And that’s what the market’s telling you. Like, and they haven’t been able to disprove it. Like the, you know, this transaction recently where they sold loans at 99.7% of par, like, you know, there’s machinations underneath it. Like, was it a true sale? Was it to a real third party? Like people don’t believe it.

So that’s, until they answer those questions, I think it’s going to be, there’s going to be a cloud hanging over it.

[Jake] Well, how else are you going to buy the Tampa Bay Lightning if you’re, you know, that’s what you’re really getting after it.

[Tobias] What about the BDCs? Do you follow BDCs at all?

[Derek] I don’t, I don’t love the, the risk reward ratio. Like if, if everything’s fine, you make 12% and everything’s not fine, you’re down 40%. So I just don’t love that setup.

Like that’s, and it seems like they degrade book value through time, through losses. And so I don’t love BDCs. I think it’s our, you know, I think it’s a retail product, right.

For people who hunt for yield. And I just, I think it’s prone to blow ups. I mean, I think Aries runs a good BDC, right.

So it’s the blue chip, but I mean, I just, there’s other, there’s a lot of other things to do in financials. I don’t need to participate there.

[Tobias] Do you, you, you obviously you keep an eye on the large banks, but you don’t tend to participate much in the, in the larger banks because they’re just too, too, too well known to expose every single portfolio fully valued.

Why Big Banks Are Expensive and Small Banks Are Cheap

[Derek] I’m short a bunch of, the valuation is, is high, right. Yeah. So, so I mean, you know, JP Morgan’s a great business 15 times in three times tangible value is not a good value.

Right. And so I think, you know, we’re at a weird thing where the small banks are trading at eight times earnings and the large banks are at 12 times earnings. And so that it’s nor, that’s usually backwards, like because they have M&A premium in the small banks and they can grow faster.

And so I think part of the reason why the large banks are trading at high multiples is they’ve had some improvement in their capital rules. And so there’s been expectation of, of more buybacks and, you know, they’re also been deemed too big to fail. So like they’re, they’re very stable businesses.

They have very low loan deposit ratios. And so I think, but I also think we’ve had this move from active management to passive management and, you know, we, we talk about the market being expensive, right. And because of that, and every, all the flows into the spy or going into the large cap companies, if you look just at financial sector, the highest valuations, the largest cap financials, you know, Berkshire, JP Morgan, Visa, MasterCard, Progressive, American Express, Morgan Stanley, those are the most expensive financials.

And they also happen to be the biggest. So, I mean, I’ve owned JP Morgan in the past when it was one time as tangible book value and, you know, Jamie Dimon’s the best banker in the world. Right.

So there’s no reason not to own it at the right price, but today is not the right price. I mean, Jamie sold a lot of stock himself, personally, they complain having to buy back their stock with their excess capital. Like they’re telling you their stock is not attractive.

Right. So, so, you know, we’re just at a weird time where the largest cap companies are the most expensive.

[Tobias] Yeah. That’s something I’ve been talking about a little bit on Twitter, that since the pandemic, the large caps are more expensive than mid caps and small caps, which is historically unusual. If you go back over the last, the last time that it happened was the late 1990s and the run up to the dot com.

And then clearly in the early 2000s, that reversed pretty violently through to 2015 or so. And it’s been trending back the other way since then. But that’s a historical for the most part, for the reasons that you identify that small medium tend to grow faster than large.

And as a result, they tend to trade at a higher multiple.

[Derek] Right. I mean, I thought that when we got out of zero interest rates, that small mid caps would outperform. Like I think there’s some historical correlation between interest rates and, and small caps outperforming, but that didn’t really happen.

Or, you know, it happened episodically, but it had, you know, we still have this persistent overvaluation of the large caps.

[Jake] I think what happened, small or large at the end of the tail end of the Roman Empire, which, what was that?

[Tobias] Well, that’s the interest rates are much higher and interest rates have been so it’s been, when does that chart go back to the old city of Uruk and like Gilgamesh or something like that? 6000 BC. There’s first brands in tricolour.

Is that sort of indicating some sort of, is there some cultural underwriting? Is that just a, what do you make of the, of the issues that they have?

[Jake] The Bear Stearns hedge fund failure in early 2008, that was a harbinger.

[Derek] Yeah. I mean, if we had this conversation last September, I would have been a lot more scared. We, and then we went through four months with no new issues.

And then we had one last week, right. Where similar to first brands. And so is there a systemic problem in collateral management and are the big institutions not doing their work on collateral management?

Three pieces of evidence saying that there has to be more work to be done there. So it’s, I don’t know.

[Jake] But we need the answer. Right.

[Derek] I mean, that’s the great thing about investing. You have to have this uncertainty, right?

[Jake] It’s a podcast. Just guess.

[Derek] Yeah. I mean, I think investing under uncertainty is where you can really make a lot of money. Like pattern recognition and mosaic, like you don’t have all the answers and when you have all the answers, it’s too late.

So you kind of have to make that guess and use that experience.

[Tobias] One of the topics that I beat to it, beat to death on this podcast is the yield curve. The, the inversion started in 22, the deepest inversion we’ve got like in the Fed data, Alfred data, which goes back to 1960 or something like that. I understand that it’s not the deepest inversion ever, but it’s the deepest one I can find in the data.

And then we’ve had this very, very long inversion and we’ve sort of really started coming out of it as it’s normalised. It was basically flat for a year or so. And we’ve had this very recent where it’s sort of normalising now, and then maybe even that it’s sort of rapidly closed recently.

So I don’t know what to make of all of that, but how does that, I mean, do you subscribe to Cam Harvey’s thesis that that inversion or the normalisation sort of tends to precede a recession or how do you think about that in terms of banks? Does that impact that? Cause clearly they’re, they’re playing parts of those yield curves.

So when that inverts, that’s, that must hurt their earnings or just the direction of the rates.

[Derek] Yeah. 23 and 24, that headwind really hurt the banks. Like the, you know, the Fed just kept jacking up the Fed funds rate to five and a quarter and, you know, the 10-year stayed low.

So that there was a real headwind there. You know, the banks had very much had to pay up to keep deposits after Silicon Valley and first Republic failed. And so like they had, we’re paying a premium and then they had the headwind of the inverted yield curve.

And so with rate cuts in 24 and 25, the bank’s been able to push back on, they’re no longer paying that premium, that Silicon Valley, first Republic premium, and the, you know, the more normalizations helping them. When I think about what’s the shape of the yield curve, what spots on the yield curve, I think of the five-year to the three-month is the ratio that the banks focus on the most. So a lot of their loans are based off the five-year, you know, five-year plus 200 or whatever.

And then their funding is three, you know, around the three-month or related to what three-month rate is. You know, I think, I don’t know that it portends a recession just because we had this artificial Fed move at the high, at the, at the short end. Right.

And so was that real or was that just fake, you know, the Fed trying to recover its reputation from not fighting inflation hard enough. And so I don’t know that the, if we get normalised here, that is a predictor of recession. Yeah.

I mean, I guess the things that I work, watch most on recession watch is a continuing unemployment claims. And, you know, that’s contemporaneous with, when that starts spiking, I think that’s contemporaneous with a recession. And so that’s the number of that, you know, every Thursday morning, looking at that, how many continuing claims there are, and is that moving higher?

[Tobias] I, I track a few of those series. I’m not sure if I tracked that series exactly, but one of them is it’s, it’s definitely up year on year, but it’s not spiking the way it has pre other recessions.

[Derek] I agree with that.

[Tobias] Yeah. What do you make of that?

[Derek] I mean, I think, I think it’s a little bit of overhiring during COVID. And so companies are working off that, you know, working off that excess workforce that they acquired during, during COVID is my, what I tell myself, I don’t know if that’s right, but that’s how I explain it to myself.

[Tobias] I think that sort of that COVID bump is visible. You pick a, pick a cocoa crisis, beef, lumber, like take your pick of whatever. It all seems to have come through.

And then since 22, we’ve been working our way out of that sort of excess capacity or all that pulled forward demand. And it does seem to be, it’s screwing up a lot of different data series and ratios that, that I track. I don’t know whether the signals are good or not, but I continue to track them.

I don’t, I don’t know if you feel the same way. Yeah.

[Derek] Yeah. I mean, just the society has gone through a lot of change in a short period of time, like yeah. Change of habits and the way you live.

Right. So.

[Tobias] What about European macro? I don’t know if you want to discuss individual names or not, but just in terms of what’s happening in Europe, what are your thoughts there? Because some of those banks have struggled for an extended period of time.

[Derek] They sure have. I own a few nowadays. So I own a couple of the French banks and I own, you know, I’ve owned Barclays for a while.

So, so, I mean, I think, you know, GFC to 2023, the European banks were just flat to down and the valuations got extremely cheap. And, and, you know, there was also a change, you know, we went away from negative interest rates. So we started getting a little bit of yield curve.

And then there was also a change in a lot of the management teams started getting shareholder value religion of, we need to have a higher ROE. We need to not build empires. We need to be more focused on creating value for shareholders.

And so I think, you know, I bought, I owned Barclays for a while. It was, I owned it for a long time. Like I was classic value investor way too early, owned it for five years.

And finally in 2024, the stock worked. And so, and it worked because it was trading at 45% of tangible book value. And they said, ROE is going to go from 10% to 12% and we’re going to buy back a third of the market cap over the next three years.

And so, you know, market finally woke up to that statement and said, okay, you know, this shouldn’t trade at 45% of tangible. And so at the end of 24, I looked around, I was like, okay, Barclays, it took six years, but Barclays finally worked. Like, is there any other names that look similar to Barclays?

And I looked, came across the French banks and, you know, BNP looked like very similar to Barclays. You know, I would say the French banks were classic empire builders. Like they had outposts around the globe, didn’t care about ROE, just like get bigger, bigger, bigger.

And, you know, but the BNP CEO was, he sold Bank of the West in the U.S., brought the capital back to France, bought back a bunch of stock, bought an asset management business, which is a higher ROE business. He said, ROE is going to go from eight to 11. So I bought BNP and then, you know, as, you know, talking to people in my network about ideas, I talked to one friend and said, I’ve just bought BNP.

And he’s like, how’d you pick BNP? And I told him that story. And he’s like, well, that I agree with that, but you should also look at Societe Generale.

And it was like crazy. It was like 35% intangible book value. CEO at the time was 50 years old.

He had been in place for two years and he was selling units in Africa and bringing the capital back to France and talking about ROE is going to go from five to eight to 11. And so for 35% intangible and they had beaten earnings like three out of the last four quarters. And so like the stock was already, you could already see the stock was starting to understand what he was doing.

So like I bought BNP and Societe Generale. So that is not a macro column on Europe. Like I don’t really, you know, I understand like I have one of my LPs is a long time hedge fund manager.

And every time I talk to him about the French banks, he can’t get past that it’s French. Like, no, no. And so I’m like, ignore that.

Ignore that they’re in France. The ROE is going the right direction. They’re not building empires anymore.

And so I don’t have a view on Europe’s GDP. Like I think the bank’s underperformed for 15 years. There’s a catalyst change in how management teams are thinking about shareholder value.

And, you know, there’s more to go on that. So and maybe I got lucky that the dollar started falling at the exact same time I bought the French bank. So that was not forecast by me.

That was just kind of gravy. But that’s kind of how I, you know, I probably should have bought more European banks. I probably should have bought a few Japanese banks.

But, you know, that’s what I did.

[Tobias] I’ve been enjoying chatting so much. I’ve missed out a deadline for JT does his vegetables at the top of the hour. Sorry, folks.

It’s 11.09 on the Pacific, on the West Coast. JT, take it away. Veggies.

The Orangutan, AI, and Clear Thinking in Investing

[Jake] All right. Sure. So picture this.

You’re 70 feet up in the jungle canopy of Borneo and this 200 pound orangutan crosses branches that that you and I would fall if we were on it. And he pauses and tests the limb and shifts his weight. He’s conserving his energy as he moves around.

And so we’re going to talk about orangutans today and hopefully we can stick some landing on making it make sense. But a few little fun facts about orangutans as we get going. So they build a fresh sleeping nest basically every night.

They weave these branches and leaves together. And then it’s like they reset their home on a daily basis, which to me seems wildly inefficient. But and their reproduction is famously slow.

Like mothers can go many years, like even almost a decade between births, which is not common for primates. And the whole species is kind of really paced for patients. So Charlie Bunger used to have he had this saying of he talked about like it was a joke basically about an orangutan eating a banana.

And it was kind of tangentially related to intelligence. So he’d say that a smart person could have a productive conversation with an orangutan and the orangutan just sitting there leisurely eating his banana and the human is talking and the orangutan is obviously contributing nothing to the conversation. And yet the human walks away with a much clearer understanding than when he started.

And it’s because the talking is forcing kind of structure to it. Like it’s hard to hide your own gaps when you have to actually put it into sentences for someone else. And so you start to understand where your argument is soft, where there are clear like counter contradictions of what you’re saying.

And talking it out can really help. And so Bunger was he was poking fun at himself at this. He was implying that he was the orangutan and that quietly letting Bunger talk his way to the right answer probably most of the time that answer was no.

But if you go on Charlie’s record. But the real point is that under that joke is this idea that it doesn’t necessarily require a shared understanding between both parties to have this kind of improvement. It requires exploration and kind of the right constraints.

So humans already know a lot of what they should do. Right. Like and yet we still don’t do it.

They smoke when they know that there are risks to that. They chase bubbles when they know that the odds are not in their favour, but they’re going to be special for some reason. You know, Bunger’s rule of thumb was always that that persuasion is a very weak force and incentives and guardrails are much stronger.

And so if you want to want better outcomes, you redesign the environment so that the good move is the easier than the stupid move to do. And this actually maps pretty neatly to to A.I. and because A.I. is really almost following this kind of banana logic a lot. So it doesn’t understand meaning like a human does.

It doesn’t have beliefs or any real stakes. It’s got no skin in the game. It optimises patterns against some objective.

It’s a banana kind of as a reward function. And it’s still useful, though. And exactly in Bunger’s orangutan sense, like it can improve outcomes without some internal profound enlightenment.

You know, in this whole talk of A.G.I., I might be kind of missing the point. If you put an A.I. model in your loop and suddenly like you have a lot of sloppy thinking that maybe gets punished with a sloppy output. And if you want that quality back, you’re forced to define your terms better, specify constraints, name your assumptions, decide what good actually means that you can’t hide anymore.

And so that interaction is kind of a form of leverage. It’s acting like these kind of cognitive guardrails. It’s keeping you moving in the right direction and help you understand both like what potential outcomes are available and then also help you narrow that search space down even.

So that forcing of an articulation of your problem surfaces contradictions and then it’s actually quite adept at red teaming whatever you’re saying. So it just needs to sit there consistently enough that your own reasoning becomes sort of audible to you and coherent to you. But you have to be really careful because coherence is not the same thing as comprehension.

Coherence is not truth. Elegant language is not reliability. It can be right for the wrong reasons, wrong with perfect confidence.

It suffers no consequences for a bad call. So you kind of have to let the A.I. help you explore but never conclude. Use it to tighten your reasoning and not outsource your thinking.

And since Munger, you know, this is a Munger related segment, of course we have to do the obligatory inversion. And in this original explanation that we just had, A.I. is the primate who’s mindlessly optimising tokens for that banana treat while we’re talking to it. And it’s helping us get somewhere.

But humans might actually be the more banana-driven organism here, at least most of the time. We optimise for status and ego, group approval, avoiding embarrassment, defending our own sunk costs, being seen as consistent even when it conflicts with accuracy. Like we’re predictably irrational, to use Dan O’Reilly’s term.

And in plenty of real interactions, the machine is calmer than we are. It doesn’t get defensive. It doesn’t need to win.

It will rewrite and restate and recheck without any emotional friction, which good luck trying to do that with a human. And perhaps the better analogy is actually that we humans are the orangutans in this thing. And by interacting with humans, the A.I. is getting better. Not because our, you know, your single conversation is magically rewires the model in real time, but because the ecosystem as we’re all interacting with it is a form of selection pressure. The prompts, the corrections, the preference signals, usage patterns, those become the training and evaluation signal for the future versions of A.I. So we’re shaping what’s getting reinforced and how it could be improving, which means there’s kind of an uncomfortable question here, which is what are we training A.I. to become at this point? If we’re rewarding like speed and flattery and confidence sounding pros, we’re training these systems to optimise exactly for that.

And we’re creating really like a perfect machine to produce insane amounts of overconfidence bias in all of our decision making. So, but if we’re rewarding rigour, explicit assumptions, sourcing, uncertainty when warranted, error correction, now we’re training to get those behaviours. So A.I. doesn’t need to understand your business or your portfolio or your strategy. It just needs to expose weakness in your assumptions and force you to think a little bit clearer. And, you know, and likewise, humans don’t need to become enlightened to use A.I. Well, like they need the system that makes the right behaviour easier over the stupid one. And so wrapping this all up, make sure you’re aware of who is the banana eating primate here.

Is it you or the A.I.? And my aim is to use A.I. as the orangutan, make it the constraint that forces me to articulate, quantify, stress test, but keep the skin in the game on the human side. The model can’t pay for being wrong. So you’re the one who has to be on the hook for it.

So treat the outputs like drafts and that earn their way into reality through verification and keeping that human in the loop.

[Tobias] Good one, JT.

[Jake] Thanks.

[Tobias] Derek, all that CapEx spend on data centres, is that found its way onto any bank balance sheets anywhere?

[Derek] Not in the small midcap banks. It’s it’s on it’s in some it’s in some I think some large banks and they’ve securitised some of those loans. And then I think, you know, in the shared national credit market, like the big loans get chopped up and banks that invest in them as they would bonds.

And so I think that’s it’s in that market some.

[Tobias] It’s not a risk that you’re tracking or what?

[Derek] No, it’s it’s it’s not. I mean, I do think there’s reason to be concerned about those loans like that is not putting that risk on their own balance sheet. They’re happy to have somebody take that risk down.

So they must know like the like Blue Owl. Right. They might not want to have that residual risk.

And it’s better to be on somebody else’s balance sheet. I think, you know, it’s it’s right to be.

[Jake] From an accounting perspective, how do you feel about that off balance sheet, you know, SPVs that they do? Like, obviously, OK, it’s if Facebook is 25 percent owner of this SPV and Blue Owls, the other 75 percent, it goes on to Blue Owls balance sheet. But yet Meta is signing things to effect saying like it’s all that’s a money good loan for this entire entity.

And therefore they’re really on the hook at the end of the day. Like where is our accounting kind of a little bit sus right now around this?

[Derek] I don’t know if it’s the accounting. I mean, I think it gives Meta some optionality down the road of, you know, do those facilities have some residual value in the future or if they don’t, they’ll be the ones with the cash to be able to resolve it in a cheap way. Like, will they be able to buy back the the debt at pennies on the dollar or, you know, some for some discount bid?

[Jake] So I think the master plan, he’s going to it’s I mean, I think it’s an option, right?

[Derek] Like it’s like, all right.

[Jake] When Blue Owl goes bust and he can buy off the other 75 percent for Blue Owl, need liquidity at some point, maybe.

[Derek] I don’t know.

[Jake] What is this like, mafia or.

[Derek] You know, just he’s given himself options.

[Tobias] What are the big levers for small and for small and mid cap regional banks in terms of rates? Is that the absolute level of rates or the shape of the yield curve or the direction of rates? Do you concern yourself with any of those or you’re purely bottom up?

It doesn’t matter.

[Derek] I mean, I think every bank’s a little bit different. So, like, I think generally lower short term rates, like if the Fed funds has two or three cuts this year, I think that’s generally very bullish across the board for regional banks. There’s some some banks that are asset sensitive, so they would prefer to have higher for longer.

So it’s it’s a mix. But I think, you know, the median or the, you know, the average small mid cap bank wants a 3 percent Fed funds. But, you know, I think it also matters what the repricing is like.

So one of the things that I like most about small mid cap banks right now is both sides of the balance sheet or margins are getting better. So on the asset side, the a lot of loans they made in twenty twenty one or five years. And so in twenty twenty six, they’re going to reprice from four and a half to six and a quarter.

Right. So they get repricing on the asset side and then the liability side rates have been coming down. So you get both the margins widening on both sides of the balance sheet.

So I think that’s really the driver for a lot of small mid cap banks. And then to the extent that some banks are are in able to grow their loans, that that compounding of loan growth is is very valuable. You know, putting that that earnings to work into the new, you know, it’s almost like capex, right?

Like it balance sheet growth is banks capex to expand their their earnings power.

[Jake] And then on the like the insurance side of things, any concerns about the the big private equity firms that have bought life insurance companies for cheap source of funding and then put them into their own funds? And if things go a little south, they’re like, who’s who’s paying mom’s mom’s annuity payment that was promised?

[Derek] Yeah. So, I mean, Apollo is a fascinating stock on that standpoint. Like when they first had their relationship with the theme, I was like, OK, that makes sense.

Apollo is going to stuff a theme with all their garbage. And then they went a couple of years later, they bought a theme. I was like, oh, I thought they were.

Why are they buying their garbage? Like that didn’t make sense to me.

[Jake] Yeah.

[Derek] And and so maybe they weren’t stuffing it with garbage, but, you know, but I don’t know. Like you just don’t know. So like it’s it’s a it’s helped me from the standpoint of I’ve owned some life insurance companies that had big variable annuity businesses that had very low valuations and private equity wanting to bid on life insurance companies has increased the valuations of across the board of of life insurance companies.

And so it’s been helpful from that standpoint. But it’s hard to own those those businesses. You just don’t know how much balance you risk there.

Like a theme is a five or six multiple business. Like I’m not going to put a private equity multiple on all of Apollo when a theme is a big percentage of their earnings. And so I think, you know, I think Apollo’s multiples higher than I am comfortable with because of that.

So but I think you’re right to be sceptical. I guess I own shares of Jackson National, which was a spinoff from Prudential UK about four or five years ago, and it came out super cheap. Like you had a U.K. listed life insurance company spun off a variable annuity writer in the U.S. And it was like I think like one and a half or two percent of the U.K., the Prudential U.K. value. So all these U.K. shareholders got the stub position, this terrible life insurance business. And it was trading for like 18 percent of tangible book value. And so, you know, bought it.

It’s worked. It still trades it, you know, two thirds of tangible book value. They had not done a deal and they just announced a deal with TPG.

And so it’s like, oh, OK, like now am I the one holding Jackson National? They’re about to get a bunch of TPG’s stuff. And so I don’t I don’t know.

Like I have to monitor that and ask those questions.

[Tobias] Do you track the sort of Berkshire clones like Markel or Fairfax? Do you have any views on those two?

[Derek] I mean, I think Fairfax is a great business. I think Gremwalt’s is super smart. I think the valuation is starting to reflect it.

I mean, the stocks had a good run, but I think he’s created a lot of value. I think Markel has been more difficult from the insurance underwriting standpoint, like the casualty insurance or casualty reinsurance has been a tough business the last few years. I think there’s, you know, universal questioning about reserves and casually books from 2015 to 2020, I think, are the years that it looks like business is underpriced.

And so I think Markel is harder. I mean, like Tom Gainer’s super smart, a great investor. It just Markel has just been harder on the insurance side, like a great stock portfolio, like understands businesses emotes.

And, you know, if I had to own one of those two, I’d own Fairfax.

[Tobias] What happened in the casualty markets between 15 and 20 that caused that underpricing?

[Derek] I think, you know, I think some lost costs, inflation. So like the, you know, litigation costs went up and health, you know, healthcare costs went up, you know, in casualty, like there’s usually some loss health, health related loss. So I think it’s just lost cost inflation mostly was higher than what the pricing anticipated.

[Tobias] So across, we’ve discussed regional banks and insurers, what are the parts of your investment universe? Have we not really discussed?

The Most Underrated Financial Stocks: Financial Advisor Platforms

[Derek] I mean, I wanted to talk about financial advisors. So, so Merit Prize, Raymond James, Stiefel, LPL. So you just use that Merit Prize as an example.

I think it’s a super interesting stock. It’s, you know, it’s spun off from American Express in 2005. And then in the last 20 years, it’s the best performing financial stock since they spun off.

It’s, you know, it’s a financial advisor business. They, you know, over the last 10 years, they’ve compounded earnings growth at 17%. It trades for less than 11 times earnings.

They buy back a tonne of stock. If you look at their share count over time, they’re accountable. They’ve bought back.

I think it’s like 60% of their shares since they came public. So, you know, you compare that to some, you know, a generic regional bank like Truist or PNC that traded 12 times earnings. You know, they don’t really grow loans.

Like it just, Merit Prize is not priced correctly given the big character of the business. I could say the same thing about Raymond James. Raymond James came public in 1986.

It’s compounded for 40 years at like 17%. You know, so like people don’t really think about that. Like the compounding of the Raymond James stock has been unbelievable.

It’s like life-changing for people if you bought the IPO, right? So it’s, you know, they’re just good businesses. And the valuations right now are very inexpensive.

[Jake] Has it been mostly inorganic, like acquiring other bigger RIAs and wrapping them together?

[Derek] No, I think it’s been, I mean, that has added some to Raymond, you know, they bought Morgan Keegan. That was a great deal. I think it’s, you know, the compounding of the financial advisors, like financial, they add financial advisors, financial advisors grow their books of business over time.

I think it’s just that compounding and, you know, what they do with the capital, you know, they don’t really need the capital to grow. So they put it to work in other places, either through acquisitions or buying back stock. And so I think those are just, you know, if you describe those businesses, you would think, okay, maybe it’s a mid to high teens, multiple business, but they’re sitting here like 11 times earnings.

And just think, you know, Morgan Stanley is the same business with an investment bank, which is volatile and lower multiple. And Morgan Stanley trades at 14 and a half times.

[Jake] So just maybe Mr. Markets haircutting today’s current market valuation, because if you’re paid based on AUM, then and you reduce the market by 30%, all of a sudden the top line shrunk.

[Derek] Totally fair. Yeah. Yeah.

I mean, but you think about it, like, also the, you think about the moat, you know, the traditional asset managers valuations have come way down because they’re not growing. They don’t control their custom. They don’t, they have to go through these intermediaries to get to the end customer where these intermediaries are customer facing and they can’t get, you know, their, that customer relationship is what’s sticky and what creates the franchise.

And so, you know, to the extent that asset managers used to have high teens, multiples, you know, these financial advisors shouldn’t have those high teen multiples.

[Jake] Is there a, the generational change happening there where our kids take their parents financial advisor?

[Derek] No, they do not.

[Jake] Okay. So you’ve got a bit of a melting ice cube potentially there with.

[Derek] Maybe, but you know, they’re all constantly adding, you know, I think people have Schwab accounts and then they come into a liquidity event and they’re like, okay, I need to talk to somebody.

[Jake] Yeah.

[Derek] I need a real, I need somebody I can trust that somebody I can call when the market’s doing what it did this morning. Right. Like I just need somebody, I need to, I need a guy, right.

I need somebody who can give me advice and talk me off the ledge. And so I think that those businesses were on the door, you know, whether it’s, you know, Merrill’s embedded in Bank of America, Morgan Stanley, like the, all those businesses will endure.

[Jake] It has been surprising how, I don’t want to say a little penetration, but like, remember when robo advisors were like, everyone was talking about them all the time. I feel like you don’t hear about that anymore at all, but maybe I’m missing something.

[Derek] I think Betterment’s going to try to go public. Like, I think it’s, so I think you’re going to hear, you’re going to hear more about it, but it’s, you know, the revenue, they, I think it’s a decent business. Like, I think it’s an okay business.

It scales pretty, pretty good. They’ve gotten big.

[Tobias] What about Virtus investment partners? Yeah, I don’t know.

[Derek] It’s tough. Their biggest franchise is Kane Anderson, which is small mid-cap quality growth. And that’s, that sector has just been out of favour.

And so they’ve had a lot of outflows out of Kane Anderson. So that’s been tough. And, you know, super cheap stock, super cheap stock, right?

So it’s six times, or it’s like four times EBITDA. Like it’s, you know, because they have cash on the balance sheet, they have no debt. And then they have a big investment in their own funds for seed investments.

So like you, you theoretically could buy back a third of the shares and still have a zero debt. So it’s super cheap, but the flow picture is really ugly.

[Tobias] So full disclosure, that’s one that I own in through funds that I control.

[Derek] Yeah.

[Tobias] Derek, we’re coming up on time. Thanks so much for spending time with us today. If folks want to follow along with what you’re doing or get in contact with you, what’s the best way to do that?

[Derek] Yeah. So, you know, you can follow me on Twitter or Gator Capital is my handle or come to gator capital.com and sign up for, you know, we have a, we send out our quarterly letter. So four times a year, no spam, just investment ideas.

[Tobias] Yeah. Great letter. I’m a new subscriber to that.

JT, any final words?

[Jake] No, just keep your wits about you while others are losing theirs.

[Tobias] And folks, we’ll be back next week. Same time, same channel. Thanks very much, Derek Pawlicki, Gator Capital.

See you folks.

[Jake] Thanks.

[Derek] Bye.

VALUE: After Hours (S08 E08): Derek Pilecki On Long/short Financials Investing, Regional Banks, Non-banks And Insurance

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