Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: Hello, Acquired LPs. David and I are very excited to welcome Brad Slingerland and Jon Bathgate from NZS Capital today. Welcome, Brad and Jon.

Jon: Hey, guys. Thanks for having us back on.

Brad: Yeah, thanks for having us.

Ben: Maybe before we dive into our conversation, just do some quick intros so background on you a little bit. Brad, do I have it right? You cofounded NZS with Brinton who was previously on the show with Jon.

Brad: That's right. We started NZS Capital in 2019.

Ben: Great, and you seemed to be the writer of the group. You publish a ton of content on top of the white papers that we talked about both on the show and on Twitter. Do you do your newsletter once a week?

Brad: Yeah. In terms of writing, everybody in the group writes a lot. We're sort of a writing organization. I think Brinton and I have produced a lot of the white papers over the years going back to 10 years ago and all of those we made public whenever we write something and put it up on the website, and those are all available. I spend most of my writing time on the weekly newsletter, which goes out Sunday mornings which is sort of just a rambling look at a lot of things. It's called Stuff I Thought About Last Week and that's sort of the accurate description of what goes into it.

David: Such a great name.

Ben: I love it. For folks who didn't hear our previous episode, what is NZS and how would you describe it?

Brad: NZS Capital, we are a public stock market investor. Brinton and I worked together since 2003 at our prior firm that was a company I started at in 1998 as a summer intern. I was there for 20 years. Brinton and I subsequently left, formed NZS Capital, and had a couple of our favorite team members, Jon and Joe as well, join us at the beginning of 2020. We launched our public market investment strategies at the very end of 2019, beginning of 2020, and those are targeted mostly at institutional investors. Big insurance companies, endowments, pension plans, sovereign wealth funds, and then also for outside of the US investors, we have a fund for retail investors as well.

Ben: That's great. The last thing on your background, I saw you did your undergrad in astrophysics, how did you end up doing this after studying astrophysics?

Brad: Astrophysics is certainly a hobby and something I'm not smart enough to proceed professionally, to go to get a Ph.D., or anything like that. I do really enjoy it. My education was in economics and astrophysics, but I was always mostly passionate about the stock market going all the way back to middle school and started working, interning during college with a large investment firm in Denver.

What I like about just having two different analytical frameworks to use is you've got this very scientific, rigorous, scientific method to test the hypothesis, try and disprove it, and then just try to marry that with other mental models around the world. The benefit it brings to this looking at investing in businesses, but it's mostly just a hobby.

David: Charlie Munger would be proud of you.

Ben: Jon, switching over to you, were you a math undergrad?

Jon: Yeah. I was math. I actually went into undergrad, studying economics—similar mindset as Brad. I knew I wanted to go into investing. I have just been obsessed with markets since I was in fifth grade. Then I got to undergrad and got into econ and honestly just sucked at it. I was just terrible. I was taking math on the side and just stuck with it, which was fine.

David: You were better at math than econ? Econ is like easy math.

Jon: Yeah, it's kind of counterintuitive, right? But I just loved it. It was just kind of like second nature to me. There were kind business school classes. I went to Boston College and there's an undergraduate business school there, and so I did take financial accounting and some basics, but I basically came out of undergrad not really knowing how to analyze a stock and things like that.

Then when I interviewed at our previous firm in 2007, I had to learn on the fly, which honestly, the kind of building spreadsheets and stuff like that’s the easy part, the business analysis is the fun part and the hard part. That was kind of how I got into the industry.

Then just kind of a fun fact. I started at our previous firm in March of 2008. My first day in the industry was the day that Bear Stearns announced that they were going to sell for $2 a share to J.P. Morgan, which was kind of the holy smokes moment of the financial crisis. Then I've only switched jobs once in my career, which was to come over to NZS in early March of 2020, the week before the pandemic really took hold. I started NZS and like a crazy bear market also. Hopefully, I can stay in NZS for a long time because [...].

David: You got to let the whole Acquired community know whenever you're switching careers next because that is when we short, not now.

Jon: That's how it feels.

David: Speaking of, we were talking before the episode, the reason we wanted to do this with you guys is from the first episode we did with NZS, your whole way of using complexity theory to think about investing in companies and markets is fascinating. I love it. So many of our listeners loved it and we thought because it's so different from everything else we've heard. Let's talk to you guys about what is going on right now here in late January 2022 as markets are different than they were a month ago.

Ben: Let me tee up with what David means by right now. We're recording this at 9:00 AM Pacific on January 27. Right now, the S&P year to date is down about 9.5%, probably rebounded a little bit this morning, and the NASDAQ, which everyone knows is more tech-focused, down about 15%. Quite a start to 2022 after a hell of a run in 2020 and 2021.

By the time you hear this, who knows because it seems like every cycle in every part of the business has gotten shorter and shorter, but that is where we are today. Brad, maybe let's start with you. This is an enormous question so you can choose to answer however you'd like, but what is going on and how did we get here?

Brad: I want to go all the way back a million years in time, but we probably couldn't.

David: This is Acquired.

Brad: Around the evolution of human psychology. Just to not go quite back that far. I mean, obviously, we had the pandemic started, we're coming up on two years on that. There was this initial fear that Jon references, I think everybody probably remembers, it does feel like a lifetime ago. Then this just unleashing of incredible coordinated global economic stimulus, both fiscal and monetary in form of low rates here in the US, literally checks being sent to people.

There is this period of uncertainty in 2020 that just exploded into this period of spending in 2021. You look at consumer spending 2021 over 2019 and it's like probably 18% more I think is the recent Commerce Department data for the US. That's [...] 2020 but versus pre-pandemic levels, there's just all this money. The way we're spending it, where we’ve spent it as consumers has been in different places. Instead of going on vacation, we've been fixing up our houses, so it's caused all this sort of acute demand for a lot of things and then not demand for these other things.

The economy just can't turn. We are so global. We've been on the sort of 30-year globalization trend where the supply chain is getting more spread out, and in a lot of ways more fragile and you just can't get your hands on things. This huge burst in demand last year caused this big pickup in inflation. I think one of the latest numbers is 6% or 7%, and some of it is transitory, some of it is maybe a little bit structural and we can come back to that.

Now the governments are saying, okay, well, we gave everybody way too much money. We gave way too much stimulus out there in the economy, and we're going to reel it back in. The main tool they have to do that is to raise interest rates. They've signaled raising interest rates—depending on how you want to read the tea leaves—maybe four times.

Ben: When they're raising interest rates, I think I haven't seen, obviously they've been taking on more and more on their balance sheet every month. They've been buying hundreds of billions of dollars in assets and I think that's tapering. Have they ever announced any plan to start shrinking the balance sheet of the Fed along with these interest rate raises?

Brad: I think that ultimately, the Fed would like to stop the experiment of running a massive balance sheet. Suddenly, there are a lot of questions on certainty around how that plays out. You end up with this scenario where no rates are going up and then there's this tension in the stock market between people who think this is appropriate, inflation is the root of all evil, it's structural, and it's here to last and we've got to just kill it.

The people who think well, actually, the economy's quite fragile. We're still in a pandemic, people are still sick. There's a lot of things going on. If we all of a sudden just hoover all of the money back out as quickly as possible, then that's probably as bad as what the situation was, to begin with. The market always wants to find some level of homeostasis.

One of the things we learned from complex adaptive systems is to really think biologically rather than computationally, which is the way a lot of market participants think. If we think about homeostasis, here in our body, we're trying to constantly maintain our temperature right around 98.6 degrees, we're trying to make sure we're not hungry, and then we get enough sleep at night. All these things that our bodies regulate often without us knowing.

The market's also trying to do this. It's trying to come to a consensus on what do we think interest rates are going to be a year from now, 5 years from now, or 10 years from now? What do we think inflation is going to be? What do we think profit margins are going to be? What do we think is going to happen in emerging market growth versus developed market growth?

Most of the time, you can never reach equilibrium or homeostasis in a complex adaptive system. You can in a biological closed system like a human body, but most of the time, it's constantly being perturbed. This idea of disequilibrium is the equilibrium is a concept from Brian Arthur, who sort of wrote a lot of the great texts, complexity economics, and wrote the original paper on compounding and network effects.

David: Increasing returns, right?

Brad: Sorry, increasing returns not network effects. The market, in particular right now, is struggling to find this homeostasis point, these extreme bouts of volatility up and down. The one thing the market needs to come to some sort of agreement on is what is the discount rate? What are interest rates? What should people use as their hurdle rate for the next 1, 3, 5, 10 years? Right now, there are two camps that are disagreeing on it. I think this creates tension, this sort of bouncing back and forth between these two equilibriums in the market.

That started in March of 2021, actually. It was the first time rates started to go up, growth stock started to come down. You can just see this sort of anti-correlation over the last 10 months now of rates going up, growth stocks coming down, and then we're in this extreme phase right now.

It's interesting if you look back, I've been through a few rate hike cycles in the market over the last 24 years now, I guess. There does tend to be this initial difficulty in finding an equilibrium fear over high growth, high multiple stocks, stocks that may not have current earnings, but people are banking on earnings in the future.

Then what happens is people tend to gravitate back towards the growth assets because they are the assets that are going to create the most value long term. We're in this initial period of finding equilibrium or something as close to equilibrium as we can get, and then I would expect this to be no different from prior cycles where unless there's something structural that we're not aware of yet, people would be gravitating back towards growth assets.

Ben: As another way to put that—just to make sure I'm understanding it—for these companies without earnings but have high growth that got tremendous multiple expansion by public market investors over the last several years, that was the first place where investors got scared and were selling and created all this downward compression on the multiples so these prices dropped like crazy if this high growth, currently unprofitable, or currently not cash generating tech companies.

Those get sort of whacked the hardest first, but you're saying ultimately if that's where the growth is in terms of the companies that will become large and profitable in the future, then that's a place also where there's flight back there after the exhale of, okay, we're safe.

Brad: Yeah, that tends to be what happens. One of the things we learned from complex adaptive systems is we can't predict the future. I'm always sort of on thin ice when I say this happened in the past and so it might happen in the future. I don't see any particular reason why at the right equilibrium point, these growth assets aren't, again, more attractive.

Everybody should have their own sort of way of managing a portfolio of investments, whether it's in public markets, real estate, or whatever you do. What we do is we balance two types of investments we call resilience and optionality and we're able to shift back and forth. In times of volatility like today, we like to say, and I’m quoting Brinton here but we don't see volatility as risk, we view it as an opportunity.

Come back to whatever the basics of your own investment strategy are, it’s a very personal thing for everybody and say, what are the two different types of businesses that I own and where should I be shifting the portfolio today? For us that would be, as the market is volatile, moving out are more resilient growth businesses into our more optional growth businesses.

Jon: Maybe just to add a few quick points to that. One thing I was thinking about is Brinton and I came on and recorded with you guys I think in mid-September, and even then you guys asked us point-blank every asset class is historically expensive at this point, obviously, just because of the accommodative monetary policy that we've been in for 18 months at that point.

I guess that's about a month and a half before the market really peaked. Optionality was very, very expensive at that point. I kind of ran some math and went back and looked in the NASDAQ. The NASDAQ peaked in early November, I think November 8, and it had compounded at 35% annualized for three years going from November 2018 to November 2021, which is like 10–12 years of normal compounding, especially in an index rate.

The chronology from there, there was a big CPI reading, I think November 9th, which kind of surprised people. It's kind of one of the first big inflation surprises to the upside. That's when you really saw the more, I don't want to call them speculative, but definitely higher priced growth assets.

Then also, crypto coincided with this also peaking at that point partly because just mathematically, if you're discounting back a company where do you think they're going to start generating cash flow in 2032 at a higher discount rate, just the impact on the value of the asset is very different than if you're discounting a company, it's going to generate a lot of cash between now and the end of the decade.

I think what's really thrown people off with the way the market has acted is actually the NASDAQ was relatively strong through the end of last year, but under the covers, there was all this carnage from growth stocks really getting taken to the woodshed, and there's a lot of stats on this. The latest I could find was as of January 14, 36% of the stocks in the NASDAQ were down more than 50%, which is like a full-on crash, right? I mean, that's not too far in the realm of the dot-com bust.

Ben: In some ways, this is like a hidden crash.

Jon: At that point, the index was only 15% and so it was propping up the index. Companies with the mega-caps like Apple, Microsoft, and Google that we’re holding in relatively well. In the world of network effects and these platforms just getting bigger and bigger, the large platforms make up a larger percentage of the index, so you can have this weird disconnect where actually people look at the NASDAQ, and they're like even at this point when the NASDAQ is down 15% from the peak in November, that doesn't feel nearly as bad as when you look at stocks that are down 60% to 80% in a handful of months. The reaction has been pretty severe, and so I think that's why some people are scratching their heads kind of saying to your broader question, Ben, what is going on here?

David: I'm curious, I would love your take on—there are two things that are going on now that don't quite make sense to me and I'd love your thoughts on that, maybe you particularly, Jon, because I think they both relate to semis in a lot of ways. One that I think is more broadly is there's this assumption that seems to be baked in—Ben, you said it I think without thinking about it a minute ago—that the situation with growth tech stocks feels like it was back in the bubble crash era. You said these companies are unprofitable, not generating cash flow. That's just simply not true for many of these companies. They are profitable, they are generating strong cash flow. I look at Zoom, Zoom is like a cash flow monster.

Ben: Look at Coinbase.

David: Coinbase is trading at 4X the last 12 months free cash flow, that's insane. That's a cigar buttstock in Ben Graham terms. Obviously, there's the Rivians and stuff of the world where yeah, there's no cash flow in sight, but there are plenty of these companies that are lumped into growth that also are producing cash flow. What do you guys think about that?

Jon: It's actually funny that we were talking about this. This is like the first big downturn especially in NASDAQ and in tech that I can remember where semis haven't led the market down.

Usually, when volatility is elevated and people are uncertain about the economy, semis are one of the first asset classes to get sold, and they've actually held in relatively well, and we talked about this a little bit when Brinton and I were on but there were amazing companies in the semiconductor land trading at 20 times earnings or even lower than market multiples last year. I do think you have to separate those from more optionality where companies are further out on the profitability or further from being profitable, I would say.

I do think there's also a little bit like a baby with the bathwater dynamic, just when growth starts selling off, maybe some investors are discerning what's hyper profitable or what's not in growth software land. I think this just spawned a general rotation in the market where investors are saying if interest rates are going up, I don't want to own growth software at all. I want to own energy, I want to own financials, and be exposed to interest-rate-sensitive asset classes.

I think that's part of the reason the turmoil is also felt disorienting is the S&P is only down 9% also because some of these other pockets of the economy and of the market are working relatively well.

I should just say just the precursor for all this or the disclaimer for Brad and I is we're not like market technicians and not macro experts. This is just what we see day-to-day, and we do send out a lot of data points just because this is a really unique time for the market. We spend 99% of our time analyzing stocks and businesses, kind of a similar approach that you guys take. But we do, obviously, live this stuff every day, and so it's interesting that every market cycle is a little different. It's certainly a complex adaptive system.

David: That's perfect tee up for my second question of something that's not adding up for me right now is—I think this is particularly evident in semis—if it truly is inflation fears and remodeling discount rates that are whacking growth stocks and so much of what we look at right now, another assumption baked into that is that these companies aren't going to raise prices as much as inflation, and yet we've seen with TSMC, obviously semiconductors, but I think plenty of tech companies like Zoom, Tesla.

Tesla could raise prices by $20,000. They have been raising prices $10,000, $20,000 on all their models and it won't affect demand a bit. There's a lot of pricing power I think baked into these companies, latent pricing power that they haven't exploited yet. Do you guys think about that when you're looking at companies?

Jon: Having pricing power is a sign of relatively healthy industry dynamics, I would say. Semis are a great example because in years past or decades past, they basically had to just sell whatever they could sell at whatever price the market was willing to take at that point. Now with the industry being consolidated, I think that the industry overall is providing more value, they have plenty of ability to pass on price. We don't want to own companies that are obscuring their customers on price, but if their input costs are going up, we've seen that over the last two cycles actually, they can raise the price.

I think what you have to be the offset a little bit, just keep in mind is at some point, the price of the consumer is increasing and you do have some element of demand destruction. It's hard to know if the price of an iPhone goes from $1000 to $1050 or do people trade down? Maybe they buy last year's model or they buy less memory. I do think there is some state of end demand destruction whenever you have increases in input costs, but it's a good point. I think whenever the industry is relatively healthy, then you should be able to pass on price increases, and that's something that we would look for.

Brad: Pricing is interesting, just to add maybe some examples to it because it can cut both ways. To take two examples for the last couple of years. Two companies whose businesses got stronger as a result of the pandemic would be Amazon and Netflix. Although it turns out, we're still on about the same trajectory for ecommerce as we would have been had there not been a pandemic, which is a little bit counterintuitive, but it's one of those things which went up and actually came back down. Amazon's gotten much stronger. I'm going to get this stat off a little bit, I think they spent more on CapEx in the last couple of years than it's been in the prior decade or two decades.

David: Jeff wrote that amazing letter at the beginning of the pandemic, right? Buckle up I think is what he said.

Brad: Yeah, here's something crazy that's happening, let's take advantage of it. They are facing extreme inflation in their supply chain and their own logistics, but I don't believe they've raised the price on Prime membership. As soon as I say that, they'll probably come out and push a price increase through. They've done increases in the past, but it's not terribly steady. Here's somebody who's using price as a weapon to basically say, we're going to get stronger, we're not going to raise prices because that actually puts more pressure on our competition.

Netflix, on the other hand, is raising prices. They tend to do it every couple of years and they just announced a pretty big price increase right as their subscribers were slowing down. You might say, well, that's a little bit strange. I think you've got to say, well, what is the price of the service relative to its value?

If the price of Netflix is well below its value to the consumer, I don't know that it is and I would speculate that’s their thinking. That they're facing inflation—the scarcity of talent in Hollywood is fairly extreme right now, the rising costs of getting production done. And so as the industry from the US studio goes from $100 billion to $115 billion in spending this year on content. A big chunk of that's just purely inflation. It's not necessarily making a lot more shows.

Netflix is saying we think our service is worth more, we're underpricing it—I suspect this is their framework—and so we're going to raise the price. This is a different way of thinking about price.

We think about price and aggregate from—our firm is called NZS, which stands for Non-Zero Sum, and we want to make sure that if a company's raising price that they're providing more value than the amount of price that they've raised. If they raise prices by $1, the consumers are getting, hopefully, more than $1 in value or their ecosystem is getting more than $1 in value.

That's where pricing can cut both ways in terms of a sign of strength or creating this. I might argue both sides of the Netflix price increase, which is they're creating this big umbrella, which makes all their competition look more attractive, or allows their competition to also raise prices, which is going to make their competition stronger and have more money to spend on content. Now Disney+ can raise prices and HBO Max can raise prices, and they can take that price increase and go pay more to directors, writers, and actors.

Ben: As you think about big tech, where did these companies fall? To be more specific, Meta, Amazon, Apple, Google, and Microsoft, where do they fall at this point in their trajectory as a resilience bet or an optionality bet? Let's think about the companies that aren't quite at that level, but are these high growth, high cash flow, high market cap tech companies that are nearing that realm? Where do you guys draw the line on what's resilience and what's optionality?

Brad: Maybe I can start with this. Jon can do a couple of these and you can jump out on a couple of other ones. Although they're sort of lumped together, for us, they're very different situations. Microsoft, largely driven by its strength of growing IT wallet share and the enterprise is just a strong network effect business that seems to get stronger as every day that goes by.

Alphabet is in a similar position in terms of the strength of its business. We look at sort of the non-zero-sum offering from Microsoft and Alphabet, we think it's really high. We think their users are getting a lot more value than what they're charging for those services, even though it might be a little counterintuitive. Microsoft products aren't exactly cheap, but if you look at what you're spending as an enterprise and what the enterprise is getting for those, I think the value proposition is very high, and of course Google, most of the products are free to consumers.

I think our biggest angle that we like to look for is this concept of non-zero-sum and to what extent is the management team in the business adaptable to whatever crazy changes are going to happen in the world. Then I think it gets a little bit different when we branch out, go beyond those two, in terms of these mega-caps.

Facebook, we don't need to rehash what are the potential negatives around social networking, but it's not totally clear that they're creating more value than they're taking for themselves, so that's one. It's a stock we haven't owned in a long time. We look at these individually. Jon, I don't know if you want to touch on Apple or any of the other ones in that.

Jon: Yeah, I would just generally say, most companies, especially when you get over the $1.5 trillion thresholds, I think they've gotten to the point where they are resilient. I guess the two things that we are thinking about, one is do they have power-law economics? We talked about this when we were on in September. Apple's obviously the canonical example. They have (whatever it is) 25% unit share of the smartphone market, but they've got 98% share of the profits in the market.

I would say at that point, it's a resilient business. They built the ecosystem around it. The argument from five years ago that they're going to be the next Nokia, Samsung, Blackberry, or whatever it is I think obviously had cold water thrown on it.

We do think about the range of outcomes. Tesla is a different example because they're approaching a trillion dollars in market cap, or at least they were. I would say where Tesla is both in transportation and other businesses in 5–10 years, the range of outcomes on that is still relatively wide. That's one where that would still be like pure optionality for us and then another one, just that one you didn't ask about, but I think is interesting. It's something like Nvidia where we actually owned it as a resilient position for a long time.

Last fall, just with the stretch in valuations, we're seeing a lot of growth in tech, and Nvidia was a candidate for this when it got to a $100 billion market cap. Basically, we were playing to get to a trillion-dollar market cap. I think they have $25 billion in sales. I think if they get to $50 to $75 billion in sales, maybe they deserve to be a trillion-dollar company, but it just seems like they're pulling in that trillion-dollar threshold by five years. That's when we actually moved it over to optionality.

Ben: Yeah. It seems like at that point you could say the business has resilience in it, but where the price is, your investment doesn't feel resilient anymore.

Jon: Exactly. I think for a resilient position we need both. We need valuation to be relatively resilient. We need the business to be resilient and have an ecosystem. That's a rare example where we actually took something down for resilience to optionality based on valuation levels alone.

Brad: One of the things we'd like to think about on valuation is that valuation is telling you what the prediction is and whether it has to be right. A very highly valued business is telling you the prediction has to be this and it has to be right. Oftentimes, it's like a parlay bet. It's like you have to get this, this, this, and this. All have to happen in sequence in order for this valuation to work. We view that more as purely gambling and we try to avoid those.

Ben: It’s a very low margin of safety in the kind of [...].

Brad: Yeah. We have this white paper called Redefining Margin of Safety that's out there on our website. Sometimes I don't have to be right about anything. I only have to be right about this very safe thing. One of the safest predictions we have at our firm is that electronics are going to push deeper into the world. It's like the most basic thing I think I could hopefully get everybody to agree with that Jon talks about all the time.

If you believe that to be true, then you look at the valuation of some of these companies that are enabling that. You're not being forced to say this company is going to win this whole market, the market has to grow, and I have to get all the timing right. We're always looking for things where the valuation is not forcing us to make these very precise predictions about the future, which we know we're going to have a very low hit rate on.

Ben: Yeah. Fascinating. It's interesting thinking about how something—because it gets so overbought, can become an optionality position—even if you bought it originally because it was resilient.

Jon: Yeah, I think those are relatively rare for us. Sometimes we would just sell the position and be fine. We would revisit that down the road. But Nvidia is a really special company that we feel like we want to own for 10 years. There's still a ton of optionality in the stock. I mean, thank God the Metaverse conversation had not started when we recorded in September. Whether you layer on Metaverse as to how much it’s driving, there's a lot of amazing optionality with, I would say, the most creative leader in semiconductors and probably one of the most creative leaders in all of tech at Nvidia.

At the same time, to Brad's point on the predictions, you have to have cloud spending sustained for the next few years and have zero digestion. You have to have gaming demand be off the charts, and you have to have zero semiconductor cycles with no inventory issues, which is very possible even at a growth company like Nvidia. That's why I thought that the prediction had gotten pretty narrow so we made a decision to bring it down.

Brad: I think it's worth making a point overall on why we have all these trillion-dollar companies or these companies that could be trillion-dollar companies? I think it comes back to a lot of the things we see and learn from complex adaptive systems around power laws, around increasing returns, and around network effects. I think one of the things when the market is panicking and trying to find a point of stability, the thing you want to keep in mind is we're still very early in this analog to digital transition of the global economy.

As we see industries go from analog to digital, there are certain characteristics that lend themselves towards these power laws and these network effects. Tesla is an interesting example of that, where automotive is one of the most fragmented complicated global industries that I can think of. The cars are becoming much more about software and data than about everything else that historically was about and in software data and the way that it's distributed and the way it’s service and part of it is becoming a subscription.

You could speculate that as that happens, we might see a power law around data network effects or software network effects in cars where we won't have 40 companies around the world all with a small amount of share, or we won't have 4 or 5 companies that dominate. There might only be one, two, or three if it were to follow this pattern we have seen in other industries that have gone from analog to digital.

That's where this potential comes in for these big businesses. Then, of course, the tension that pushes back on that is government and regulatory. The governments around the world are really, really not finding their footing in terms of how they want to treat these information age monopolies. They're using these industrial age playbooks to try and regulate an information-based business. We just have no real view of how that's going to play out, whether they're going to be successful or take the right strategy on it.

David: Could you tell us what are your few big tent theses ideas? Brad, like you mentioned, electronics continuing to push deeper into the world feels something that the proverbial all sides of the aisle can probably agree on. Do you have others?

Brad: Yeah. The most basic one is we're going through an analog to digital transition in the economy. You can pick a number, but it's probably less than 10% in terms of how we transition, whether it's in digital payments as part of that. We think more payments are going to be done digitally than with cash, checks, or however you want, just the old way of doing it. We talked about semiconductors really being the foundation of this, pushing electronics deeper into the world. We think some of the most important companies in the world to accomplish that.

Of course, on top of semiconductors is software and cloud. You would think more things are going to go from running on-premises to running in the cloud. Connectivity is going to increase more things. If it can be connected, it will be connected. That's around the rollout of wireless networks, wireless capacity, spectrum, and everything around the world. Then you take those foundational concepts and then you say, okay, well then what's happening in industrial companies? How are they leveraging this digitalization? What's happening in healthcare and financials?

Healthcare and financials are the toughest ones to go digital because they're so highly regulated. Part of that's for good reason and part of it is just bureaucratic. We look at healthcare and financials and we say, gosh, we wish we were so much further ahead in the digitalization of these two industries, but the government, the industrial regulatory bodies just keep pushing back. That whole complex is just pushing back on progress there.

In the industrial sector, we're seeing a lot of stuff. Tesla is a great example of classic analog industrial businesses becoming very, very digital. Then we look for what happens when things go digital and get transformed and they tend to become more vertically integrated, data tends to become more important. You see these patterns that emerge as a business goes digital. It's really just this idea of what’s an analog behavior that's becoming digital. Chipotle is an example here in the US, the burrito chain.

Here's a company that was doing well in terms of transitioning to digital ordering before the pandemic but took the pandemic as an opportunity to lean really heavily into digitally transforming their business, all the way to the point where the value’s in—

Ben: It’s a great experience.

Brad: It really is, right?

Ben: I do this multiple times a week. It’s the same way that Starbucks is now a nearly completely digital experience for me, absent the eight seconds I spend in the store. Chipotle has become exactly the same thing.

Brad: Yeah, so these are great examples of companies adapting to digital technology early, which gives them this advantage over everyone else they compete with who's not doing that. The bigger and the better they get at doing that, the more it affords them to run their business better and take more share. Chipotle is going all the way to installing machine vision cameras with AI and algorithms to monitor whether they need more or less guacamole at different times a day at each store level at each day of the week.

Maybe won't end up being that useful in terms of avocado waste over time. It's something that is this idea of taking, what goes into that? A lot—image sensors, semiconductors, software, cloud, then the feedback loop down to the stores, how you communicate that, then how that rolls into your supply chain, and all of that. That's why when the market gets scared about interest rates going up a little bit, we start to get excited because we're just so early in some of these really incredible trends.

Ben: It's Buffett tap dancing to work in down markets.

David: Whether Chipotle wins, doesn't win, or what have you, whether Chipotle is a position for you guys or not, I'm pretty sure TSMC, TI, Sony, and Nvidia—Chipotle may or may not win or McDonald's may or may not win, but they’re going to do well.

Ben: David, you’re teeing up a question that I've been noodling on ever since our NZS special earlier this year. Jon, a question for you. I have had a strong, strong desire to just probably not liquidate everything in my portfolio, but take all net new cash and exclusively allocate it to the semiconductor ecosystem. So this would be everything from the EDA companies, the chip design software, the fabless actual chip design companies like Nvidias, those types of companies. Equipment manufacturers like ASML, foundries like TSMC.

I'm so convinced that in the next 50 years, a lot of the value creation comes from those companies. I mean, it's going to underpin basically all value creation in the world is going to come from advances in semiconductors and things people build on top of them or an enormous amount of it. Where does this fall down in terms of how sure of a thing it is that they'll be able to capture a proportionate share of that value?

Jon: I'm excited that you are so excited to invest your personal capital in the semi industry. There are a few things. One is that there are amazing companies outside of semiconductors. It's a big part of our portfolio, but actually, the majority of what we own is non-semi, even though we talk about semis a lot. I guess the scenarios where semis break down for whatever reason over the next 10 years is honestly harder on a 10-year horizon, I would say.

If we either hit the wall with Moore's law or we just literally, despite all the thousands of Ph.D. in physics, material science, and optics, and everyone putting their heads together to solve one of the most important economic drivers in human history. If we get to a scenario where we really just have hit the wall, then that will be a problem. Obviously, companies that are exposed to leading-edge like TSMC or ASML will suffer.

One scenario that we actually contemplated a lot more five or six years ago is there was an idea of what are we going to use all these chips for. We're talking about seven-nanometer and five-nanometer six or seven years ago with ASML. It really was not obvious. We’re like Qualcomm and Apple will design really amazing silicon for smartphones and Intel will make amazing PC chips.

At some point, PCs kind of got good enough. No one really cares about their performance on their PC anymore. You care about battery life, the display honestly, the form factor, and other things. Or maybe if it's a gaming rig, you care about performance a little more. Now I feel like with the data center, with everything being connected, with Chipotle putting machine vision in their stores, or like John Deere putting machine vision on tractors for precision agriculture, it just seems like a no-brainer that the secular trend is there.

There is just push and pull in the near term. We're coming off of an incredibly strong recovery out of the COVID downturn. This parallels a little bit with the recovery from the GFC. When you have times of shortages, generally, customers of semiconductors will eventually over-order. It's like the way people buy toilet paper in shortages. It's like a psychological thing. No matter how sophisticated people are, they will always buy more than they need.

There's definitely some risk in the next 18 months that we have some inventory correction because things have been running really hot. We're building a lot of fabs. Customers can't get their hands on certain components. I do feel like people that are focused on the 12–18 month potential for correction are missing the forest for the trees, especially given the business models and semiconductors are so amazing that these companies aren't going to lose money. Even if we have a substantial downturn, no one's going to lose money at the top of the food chain. They'll just buy back stock and they'll get through it.

The amazing thing about semiconductors is the world needs them. You're not going to have a five-year downturn in semis. You could have a seven-quarter downturn which would tie the longest downturn in the history of the industry. It's not like material, it's not like copper pricing or oil and gas where you just have no idea when it's going to recover. There's a trend line demand for semis. That trend line is probably going up. So that's the way I would think about it.

I do appreciate your point, especially the way the industry is consolidated. Semiconductors, we think, are as well-positioned as any part of the economy to capture a lot of value as the economy goes digital.

Ben: Just to underscore so I don't sound like a raving lunatic. There’s the obvious stuff that's going to benefit from semis like the next smartphone generation. Every tech trend people talk about is predicated on semiconductor advances. People talk about autonomous driving. That's really semiconductor development and machine learning development on top of it.

Machine learning development is semis getting better so that it can process data in this way. All of crypto, the whole Metaverse, that's just a whole bunch of really sophisticated and specialized chips. Then the incredible amount of software that needs to be built on top, and of course, all the new stuff with vision.

By the way, all this new stuff with vision and screens for the Metaverse as it arrives, also going to be semis. Brad, your point about Chipotle, all these edge devices that are monitoring the guacamole and making sure that we officially create the amount of guacamole that we consume out here in consumer land are also semis.

David: You’d never have too much guacamole.

Ben: It’s just probably larger nanometer versions of them. Everything I can think about that is big waves of net new value creation in the world does seem to be built on top of that.

Jon: You're obviously preaching the choir. I think just like what you're seeing in the market right now is just this push and pull of having the secular trend has really actually gotten better post-COVID just with the acceleration of digitization of the economy. Also, just with shortages and everyone is realizing that you can't build anything without semiconductors. It's so critical to the automotive industry, to industrials, to the cloud guys, and to smartphone companies, obviously, down the chain.

I think the cuteness that you're seeing in the market is people are like, I love the 10-year, but I'm worried about the 18 months. I think that creates a lot of opportunity for individual investors or for people with a longer time horizon because there are a lot of amazing companies, especially building blocks of the digital economy and building blocks of semiconductors. They're trading at 18 times earnings in a market where growth investing is still relatively expensive. To me, that just seems like a mismatch. We could be very wrong over 18 months or three years, but we never know.

It certainly just seems like the industry is well set up to capture a significant amount of value. I keep harping on this point but I think the business models in semiconductors are still not appreciated that if you go from EDA software from Cadence and Synopsys to semiconductor capital equipment like Lamb Research, KLA Corp, ASML, to TSMC, obviously, is one of the best business models in the world. Analog companies like Texas Instruments, all these companies are phenomenally profitable and profitable through the cycle.

Now I just feel like your grandfather's semiconductor industry where there were these crazy boom bus and companies were losing money at the bottom of the cycle and had to raise capital and things like that. I mean, outside of memory, which is different because it's still a pure commodity, everywhere else, you're just going to see companies making a lot of money for a long time. Maybe it's one year they're down 7% and have 35% operating margins instead of 40% operating margins, but the trend is definitely in our favor.

Brad: I think it's interesting to get some historical perspective, and we think about these engines of growth for the economy. It's always good when markets are volatile to try and broaden out and get as much perspective as you can. We think about going back to the last few hundred years of capitalism. We've had these engines of economic growth and productivity increases, whether it's the early industrial automation, coal, railroads, the creation in the modern banking system, and oil.

Then we move into the 20th century and they have the semiconductors, and then the information age I think gets going in earnest around 40 years ago as the PC became this more practical tool that could have a lot more users, and then we went to smartphones. So we just step back and we look at this technology as this engine of economic growth and productivity. Obviously, we think semiconductors and software are at the base of that. This fear in the market right now around inflation is legitimate. Some of these factors are going to possibly be structural, most are transitory around this excess capital.

We talked about being put into the system, but the thing that is always deflationary over the last 300 years of modern capitalism has been technology. That whole list that I just went through is all different forms of technology. We know the best cure for inflation, to the extent, it is structural if there's a structural labor shortage or something else that happens. There's structural food inflation because of drought, because of global warming, whatever it is that's coming at us, we know the way humans will solve it because we're super innovative as a species. That's why we're still here is through technology.

That's what we're always looking for is what are these engines of growth? And in this case, I think really engines of productivity and engines of deflationary pressure over time.

David: Can you actually speak a little more about deflationary aspects of technology in tech companies? I've heard a lot of people talking about this. I think I know what it means, but I'd love to hear your perspective. How do you define a technology company as being deflationary and what it does?

Brad: If you think about just constantly getting more for less, what does your phone do today that it didn't do a year ago or 10 years ago? Ten years ago or a little over 10 years ago, we didn't have smartphones. We had dumb phones that we could just text or maybe do rudimentary email on. You just think about this, what was doing that function before?

In some cases, it's a new function and this is something we couldn't do before that we can do now. In some cases, it's displacing something that was done usually in a less automated, more manual, more expensive way. I think this is basic coming back to Moore's Law, but to use it not just as the technical semiconductor way, but as the broader sort of looser analogy to the economy overall is being able to get more for less as time progresses. You see this technology as this really deflationary but certainly disinflationary or this anti-inflationary force pushing back on where we might otherwise have these pockets of inflation.

We look at energy right now, which has been actually a good segment of the market as the high growth stocks have pulled back. We've had these energy shortages and as a global society, mismanaging the transition to green energy by not investing enough in fossil fuels to smooth that over. You've got energy prices are up a lot and we think about it because we have this inflation from energy.

How are we going to solve that? We can solve it technologically by maybe finding fossil fuels more cheaply or the preferred method would be to go green energy globally, and who knows how long that'll take? But let's say it's 50 years into the future, we're probably largely transitioning to a completely green energy economy. We've got storage for that energy as well to handle the fluctuations that we get from sources of green energy.

This is an example of what I think will be a very deflationary trend. Energy is a large input cost in the economy. Over time, we're essentially not going to free energy, but we're going to this much more efficient, cheaper, and more renewable form of energy. That's really deflationary over time to a big input and into pricing.

Jon: You also have labor automation as a big tailwind. The huge examples, obviously, are bank tellers, travel agents, and these categories of employment just don't exist anymore because they've been digitized. In the past, honestly, there's been so much focus on automation over the last 10 years. It felt a little bit low NZS. I don't think it's great to just be trying to get rid of people like for Uber to get rid of the guy in the front seat because you want to automate his job out of the process just to boost your profitability.

Now that we're in a situation where we have pretty severe labor shortages in the US, this becomes the obvious solution and I think it is a higher NZS solution. Automated ordering at McDonald's using AI is a good example. But even we were reviewing a software company yesterday and the software platform costs $30,000 a year for SMBs and smaller enterprises. It can allow them to eliminate, eventually, one or two CPAs and the FP&A department that probably cost the company $400,000 a year.

I just feel like there are so many examples, whether it's software automation where you can remove a little bit of the burden that labor imposes on companies, and that's a huge driver of deflation also.

Ben: It seems like it's kind of that fundamental definition of technology where technology enables a person to be more productive so you can get more value out of less labor. Of course, that has all sorts of negative implications if that transition happens too fast, if it happens on a micro basis where you automate yourself out of a job, or anything like that. But if the definition of inflation is that it costs more to get the same value, then technology seems deflationary to allow you to get more value for less input cost. Is all technology investing deflationary?

Brad: I want to say yes, but I don't want to say that because as soon as we're done talking, I'll think of examples where that's not true. I think that's right. When we think about structurally, I'm sort of like a nut on demographics and so I'm always looking at how wrong the global population models are. If you take actual current fertility and birth rates, you look at the movement of people around the world, which is slowing down. There's a lot less immigration from developing markets to developed countries.

You look at it and you look actually very close to seeing developed market population in aggregate certainly not growing anymore and in a lot of cases declining. But we still want the economy to grow because we know that capitalism and economic growth is the best way to lift everybody up. This whole can of worms around how that's also creating a lot of inequalities. I'm not saying that that's okay. I'm just saying we know that the bottom goes up and the top is going up even faster, but everybody's lifting up faster.

We want to keep growth going because we don't want to have too much growth or hyper-growth, but we want to have some amount of growth. If you're not doing it through the growth in the number of people who are consuming, the growth in population to reduce the human down to a unit of consumption in the economy, then you've got to do it through other ways, so productivity gains are a great way to do that.

You can even see, right now we're in this labor shortage, which we think is actually fairly structural. It was probably accentuated by the pandemic but had started before the pandemic. It has a lot to do with immigration and birth rates. Birth rates being down 20 years ago, which is not something we can go back and fix without a time machine. Immigration being down starting around four years ago, certainly for the US, also true for some other developed markets.

Now we have to solve this with technology. We're sort of faced with we would like to, but now we actually have to if we want to keep that engine of productivity and that engine of growth going. I think, technology, we don't have humanoid robots yet. It'd be a long time before we have that sort of concept out of sci-fi.

David: Ultimately, in the long run, this feels like a good thing. Again, Ben, to your point, there are negative consequences when these things move too fast. Lots of people have better alternatives than taking labor-intensive jobs at Chipotle that they would rather do instead. It feels like a good thing, right?

Brad: Yeah, I don't want to generalize because I know a lot of people also did lose a job that they can't get back because of the pandemic. Each individual's scenario is different, but I do think in aggregate, that's right. What is it? What do we think about? Well, 10 or 20 years from now, maybe it means working three or four days a week as a full time job because we have these enhancements or productivity offsets. There are a lot of different ways it can play out. But this is sort of an interesting one because I think population growth and labor availability is a really important input into the overall economy for everything we look at.

Ben: Let me switch gears for this segment of the conversation. I'm curious, given the volatility and corrections going on in the last month. What is hard about your work right now? What are the really difficult decisions and difficult things to carry out, and what are the easy things?

Jon: What's hard is, honestly, just the outcomes are unknowable in terms of how long this correction can last. Is this a year? Is it six weeks? There's really no way you can go back and say, oh, well, the correction in the NASDAQ in Q4 of 2018 ib the last taper tantrum was only one quarter, so we should be off to the races in six weeks. That, I would say, is the most difficult. I think the easiest thing for us to do is just to focus on the companies and our research. Just think about companies you want to own for 5–10 years, we have a reasonable starting point.

I think the benefit that we have from having worked together for a long time and having executed this playbook is it is kind of like a muscle memory for us that we had a lot. Originally, it was in the portfolio at the end of last year, I think, intentionally set up for this kind of scenario. The muscle memory of selling is resilient positions, even though they're businesses we love and they're down, at least to some extent with the market.

To add back to optionality, I think that is just like a team muscle memory thing we've built that has been relatively easy. Who knows? We also might be wrong. We could be wrong just to qualify that statement.

Ben: This sounds obvious but absent selling your resilient positions. You couldn't add to optionality positions unless you had net new capital coming in in a big way where you could just keep your resilient positions the same and allocate to optionality.

David: But still, effectively, that would be selling because you're changing the balance sheet portfolio.

Jon: Yeah. We're long only so we don't have shorts on. We can't just go to cash. We do have to say, we're fully invested in. The way we execute our playbook is by beefing up resilience when optionality is very, very expensive, and then we harvest that when the opportunities and optionality land presents themselves.

Brad: It is, I think, these psychological factors that are the hardest to overcome for all investors and, I think, for everyone making business decisions as well. A couple of things that we say. One is we're never as smart as we look when stocks are going up, and we're never as dumb as we feel when stocks are going down. Another way to think about that is when stocks are going up, you want to have humility, and when stocks are going down, you want to have confidence in your process. Yet another way of saying the same thing is that you want to have some skepticism when things are going well and some real optimism when things are going badly.

That's what I think is this tension a lot of investors and decision-makers have. They're looking at the stock market. They're reading the headlines. We're just bombarded with how bad things could be or are. But we know that's not how it works. We know over time that the optimists are always right, the cynics are always wrong.

That can be flipped over the short term, but it's always true in the long term. It comes back to, I think, really just the ingenuity, innovation of humans, and knowing that we'll solve these problems. It's sort of watching as bad as things are and going like this makes me optimistic. That's a really hard thing to get your brain to hold on to.

David: I think you said it a minute ago, so much of this comes back to your time horizon. I can't remember if we talked about it, Jon, on the last episode about time horizon. But whether we did or didn't, I'll ask it here. How do you guys think about time horizon in the portfolio, and I guess maybe even a level up above that for NZS as a firm itself and you guys as its principals?

Jon: I guess I'll start on the portfolio part and Brad can maybe talk about the millennium that we want NZS to last for. But on the portfolio, it's interesting. It's actually in our turnover numbers. Our turnover in the resilient part of the portfolio is 10%, so implied in that is we basically own stocks for 10 years, give or take.

I think our time horizon there is infinite. We basically buy businesses we think we want to own for our entire investment careers. Then in optionality, the turnover is 50%. We're not really playing for a two-year time horizon there. We're just wrong a lot more, so we do sell stocks more quickly, and we try to fail fast versus just hold on to something and have it drag us down.

I would say we generally have a little bit of a shorter time horizon in optionality lands because we have stocks on a shorter leash. There's just a wider range of outcomes and we are wrong more. But I would say, everything we buy, we want to own for at least the next 10 years. Things are more likely to play out that way in resilience, but the asymmetry is much higher if we are right in optionality.

Brad: Yeah, and there's this fractal degree to resilience and optionality. We build the portfolio as resilient optionality. We want to invest in companies that we think have a resilient and optional element to them. We want to run NZS capital, having both resilient elements and optionality elements. We know this works best from all of the examples. The most enduring systems and biological ecosystems are those that are able to balance this concept of resilience and optionality, which you guys talked about on the last podcast with us.

When Brent and I started NZS, we said, how do we build a resilient business, but also maintain optionality for the long term? How do we attract great talent who want to come work for us? How do we attract great investors who want to trust us with their capital? We tried to structure our business so that from the start—if it turns out three months after we started our fund we went into a global pandemic coincidentally—we would still be here.

That can mean a lot of different things to a lot of different businesses. It can mean keeping a certain number of years of operating expenses on your balance sheet. It can mean partnering with somebody who will be there if you need something to get you through a difficult period. It can be structuring your product, which in our case, is an investment portfolio in such a way that it is also resilient or acts potentially more resilient than the market, yet still maintains the upside that we're looking for as investors, and we know our clients are looking for it. We think it's a universal framework that applies to a lot of things, but in particular, the way businesses and investment portfolios are structured.

David: I'm curious, actually, you mentioned some of them and maybe that is the full answer. But I'm curious, what were the things in setting up NZS that you specifically did to try and maximize to be resilient? I'm sure you guys have had long careers before NZS in the investment ecosystem and seeing plenty of firms blow up spectacularly or otherwise. I'm curious how you thought about that.

Brad: Actually, I'll give an answer, then I'll be interested in John's answer because he and Joe took a risk, as did some other folks, to come over and work for us. I think where it starts is just the people. If you have people who can work together, trust each other, are also long-term focused and talented, and also internalize the concept of resilience and optionality, that culture is going to get you, hopefully, very far. That's sort of on the more and maybe intangible side.

More tangibly, we made sure the business was well-capitalized. We made sure that the product was structured in a way that we were comfortable with and that we had experience running. We sought an outside distribution partner to help us. What we know is we're good at a few things and then who knows if we're good at anything else? The things we don't know if we're good at, Brent and I, we've never run a company, so we don't just assume that we're going to be good at that.

We hired a great president, who we worked with in the past for a long period of time. We have new people we brought on in operations that are really helpful. We said, well, we don't know anything about selling, we're just investors. We don't know anything about sales and marketing. We don't particularly want to spend all of our time building that out, so we went and found this partner to do the distribution for us.

It's just about making sure that things you're good at, which in our case, is investment team culture putting a portfolio together, partnering with our clients, and giving them the attention that they need, make sure that we set it up so that that's where we're spending almost 100% of our time. We're not distracted by these other things. I think that's just really important to build a business.

David: No matter what, whether it's an investing business or any business.

Ben: Or a podcast business.

David: One specific question to that, was the decision not to short and to be long only, was that the major motivation for it being resilient?

Brad: No. Shorting stocks is great for people who do that, are good at it, and believe in it, but we're optimists. If you're shorting stocks, you fundamentally have to take on a pessimistic mentality. You have to believe something's going to fail. Things do fail, so that's why that's totally viable. But I don't believe you can be both an optimist and a pessimist.

I know the data bears out over time that optimism is the right side of that coin to be on. I don't feel like we can effectively do both well. I know there are investors out there who do both of those things well, but it's not something I think that we were good at. Brinton, myself, Jon, Joe, and our DNA’s investors didn't train us to be good at that. I think none of the four of us are inherently pessimistic. I think we're generally optimistic about things.

Jon: To be a little bit blunt, I think the only reason for us to start a fund that was long, short, and you'd be shorting stocks would be just to get higher fees and be able to charge clients more money. For us, that just seemed like kind of a low NZS way to approach the business. We're out to build an amazing business and have everyone, all constituencies do well. But we're not out to build an empire with crazy fees or anything. At least for the way we invest, it's the highest NZS way that we can offer something to clients that we think is reasonable.

Ben: I love it. That's a great place to close unless you have other closing thoughts. Why don't I just ask you both? Where can people find you on the internet?

Jon: You can find me on Twitter @jbathgate. Then my email is jon@nzscapital.com or you can visit our website, nzscapital.com. There's a lot of content there.

David: And you're at the intersection of two of the most vibrant we have learned through Acquired aspects of communities of Twitter.

Ben: Fintwit and Semiconductor.

David: Fintwit and semiconductor Twitter.

Jon: I think you guys actually contributed to that with the TSMC episode. There are a lot more new semiconductor fanboys since August of last year, whenever that episode came out. It was a lot of fun, actually. I've met some amazing people. It's a fun thing about actually doing something like NZS. We still follow compliance guidelines, but we do have a little bit more runway to interact through social media with other individual investors, professional investors, engineers at companies that are all talking about semis and other things on Twitter, which is a lot of fun.

Brad: Yeah. Jon mentioned the website, nzscapital.com. We keep all of our white papers there and archive of the weekly newsletter, SITALWeek. You can sign up for it through the website. I'm on Twitter with varying degrees of activity here and there, @bradsling.

We love to interact with folks. It's a little bit selfish. We actually get a lot of value, probably more value than we give out maybe, but we do try and publish everything. We're very transparent. We're trying to educate folks. I think the work that Jon and Briton have done bringing the semiconductor industry more into the front of people's minds and educating them on that is an example of how we try and run our business, and try and share as much as we can.

Ben: I guess, patently false that you get more value than you put. I've read half of your white papers and every single one I'm like, well, that's a brand new paradigm that's changed my thinking. You absolutely do not capture more value than you create with content. Anyway, Brad, Jon, thank you so much for the time.

Brad: Thanks, guys.

Jon: Thanks for having us. It was really fun. It's good to talk to you guys.

David: It's so awesome.

Ben: David, I suppose with that, thank you to our friends at Tegus. Go check them out, tegus.com, some of the best research in the world. All sorts of searchable, shareable, great transcripts. You can listen to them. We love it. Thanks, Tegus.

David: Deflationary technology, if ever there was one.

Ben: We will see you next time.

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