JACK OTTER: INTEREST RATES
RISING AND MANY ANALYSTS
PREDICT THE RECESSION.
WE ARE ASKING THE DEAN OF
VALUATION TO EXPLAIN WHAT IS
GOING ON.
THANKS FOR COMING ON THE SHOW,
GREAT TO HAVE YOU BACK.
LET’S START WITH THE BROADER
MARKET.
FOR YEARS, JUSTIFYING HIGHER
THAN AVERAGE STOCK VALUATIONS,
BOND YIELDS ARE SO LOW.
SOME SAY EARNINGS MAY BE GOING
DOWN, NOT UP.
18 TIMES EARNINGS MAKES IT.
>> THE START OF THIS YEAR,
THERE WERE 2 FORCES DRIVE THIS
YEAR, ONE WAS INFLATION AND A
PATHWAY IT TAKES.
THEY ARE STAYING MALIGNANT AND
WHAT HAPPENS TO THE ECONOMY.
WHETHER WE PAY 18 TIMES
EARNINGS ARE 15 TIMES EARNINGS
OR 12 TIMES EARNINGS LARGELY
DETERMINED BY WHETHER INFLATION
STAYS AT 5% DROPS 50%.
JACK OTTER: A COMPANY THAT IS
SORT OF IN THE MIDDLE IS TESLA,
IT PLUMMETED NICELY OVER THE
PAST FEW MONTHS.
HOW DO YOU GO ABOUT VALUING A
COMPANY LIKE HAZLETT?
>> IT IS AN HONOR BAIL COMPANY
THAT HAS ANOTHER COMPONENT.
GOT TO GIVE TESLA CREDIT, GOT
TO GET EVERYBODY ELSE TO PLAY
THE GAME THAT THEY PLAY AND IN
THE PROCESS THEY ARE CREATING A
NEW STORY FOR AN AUTOMOBILE
COMPANY, AUTOMATED DRIVING CAN
DOUBLE THE PRICE.
I DON’T SEE THE MARKET FOR
THAT.
JACK OTTER: YOU THINK THE
AUTOMATION VALUE IS HIGH.
>> I OVERSHOOT OR UNDER SHOOT.
I AM WILLING TO PURCHASE
CHESLER AT THE RIGHT PRICE.
IT IS A SPECIAL COMPANY, I
DON’T THINK IT’S THE GREATEST
COMPANY TO WALK THE FACE OF THE
EARTH.
SOME OF ITS TRUE BELIEVERS
THINK IT IS.
EVALUATION OF $400 BILLION.
THE WAY THE COMPANY IS PRICED,
IT IS PRICED EVEN HIGHER.
MARKETS SEE SOMETHING I DON’T AND TO GET SOME CLARITY ON WHAT
AND TO GET SOME CLARITY ON WHAT
ADDITIONAL STUFF IS.
JACK OTTER: KATHY WOULD SEEMS
TO THINK INNOVATION WILL
JUSTIFY ANY VALUATION.
HOW DO YOU MAKE SENSE OF WHAT
SHE’S BUYING?
>> INNOVATION IS NOT A
BUSINESS.
INNOVATION IS CHANGE.
I HAVE SEEN BUSINESSES BE
INNOVATIVE IN A TERRIBLE
BUSINESS MARCH.
PCs WERE THE INNOVATION OF
TODAY.
OUT OF EVERY TEN PC COMPANIES,
8 WENT OUT OF BUSINESS.
WE OFTEN MISTAKE INNOVATION AND
GROWTH FOR PROFITS AND VALUE
AND WHAT I FIND LACKING IN
KATHY’S STORY IS SHE HAS A GOOD
SENSE FOR TRENDS AND THE MACRO.
GRASP OF THE MICRO, AND THAT IS
CONNECTING THE MICRO TO THE MACRO, AND I’M WILLING TO GO
MACRO, AND I’M WILLING TO GO
ALONG.
AND WE HAVE AN 80% MARKET SHARE
ON ALL ELECTRIC CARS SOLD.
YOU’VE GOT TO WORK TO ESTABLISH
80% MARKET SHARE.
THEY ARE ALL MACRO STORIES,
MAKING MACRO BEDS WITHOUT DOING
THE WORK OF CONNECTING THE
MICRO, THE COMPANY, TO THE
MACRO STORY.
JACK OTTER: IT IS HELPFUL TO
BREAK IT DOWN THAT WAY.
TALKING ABOUT GROWTH, THE STORY
FOR A DOZEN YEARS BUT VALUE IS
HAVING ITS DAY.
VALUATIONS OF VALUE STOCKS BEING MORE ATTRACTIVE NOW?
BEING MORE ATTRACTIVE NOW?
>> THERE IS A BIGGER STORY, SO
MUCH RISK, NOT JUST SLOW
INTEREST RATES BUT RISK CAPITAL
WAS EASY AND ACCESSIBLE.
WE OVER CAPITALIZED TO THESE
YOUNGER COMPANIES BY PROVIDING
ENDLESS SOURCES OF CAPITAL TO
YOUNG COMPANIES WITH TERRIBLE
BUSINESS MODELS WHICH WE CALL
THEM DISRUPTORS.
THAT SOMEHOW BECAME A MAGICALLY
GOOD WORD, DISRUPTION IS GOING
TO SAVE US BUT DISRUPTION IS A
GODSEND.
TAKE GOOD BUSINESS MODELS,
ENDLESS AMOUNTS OF CAPITAL,
THEY ARE GOING TO DESTROY THE
STATUS QUO, THEY WON’T REPLACE
IT.
LOOK AT RIDESHARE.
RIDESHARING HAS DISRUPTED THE
BUSINESS.
TAXICABS ARE DEAD AS A
BUSINESS.
RIDESHARING AS A BUSINESS
HASN’T FIGURED OUT HOW TO MAKE
MONEY.
IT IS NOT JUST GROWTH, BUT
GROWTH WITH BUSINESS MODELS AND
THAT IS DANGEROUS.
JACK OTTER: HOW DO YOU APPLY
YOUR METRICS TO CHINA WHERE
THERE ARE BUNCH OF UNKNOWNS AND
POLITICAL RISKS WE DON’T HAVE
HERE?
>> WHEN I VALUE A COMPANY I
DON’T THINK OF SPREADSHEETS BUT
A VALUATION STORY.
I TOLD YOU MY VALUATION STORY
WITH TESLA AND IN CHINA, ANY
COMPANY YOU PICK, BIG OR SMALL,
BUT AS A PLAYER IN THE ROOM OR
THAT STORY, YOU DON’T CONTROL,
WHICH IS THE GOVERNMENT HAVING
THE GOVERNMENT BE SUCH A LARGE
PLAYER AS AN INVESTOR.