Value After Hours S05 E40: Broyhill's Chris Pavese on Nintendo, and Ant Mills
Nov 6, 2023
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Chris Pavese from Broyhill discusses Nintendo and Ant Mills. They delve into investing in mid-cap equity stocks, discuss the gaming industry, and explore the self-serving bias. The speakers analyze return decomposition and share issuances, and discuss prospects for the distress market and challenges for small cap companies.
The self-serving bias and ant mills highlight the human tendency to protect our self-image and perpetuate unproductive behaviors.
The analysis of S&P 500 returns reveals interesting dynamics between value and growth stocks, suggesting potential opportunities amid ongoing market trends.
Deep dives
The Self-Serving Bias and Ant Mills
The self-serving bias is a tendency for individuals to evaluate things in ways that protect their own self-image. This bias leads us to attribute success to our own abilities and efforts, but blame failures on external factors. It often prevents us from acknowledging when our ideas or assumptions are wrong. Similarly, ant mills, or death spirals, occur in army ants when they get separated from the main foraging party and start following each other in a continuous rotating circle. This behavior is driven by the ants' limited neural functionality and a failure to adjust their path. This phenomenon parallels our own tendencies to get stuck in repetitive behaviors without questioning or adjusting our thinking. To break free from these patterns, we need to make our thinking visible and be willing to challenge our assumptions and beliefs.
Decomposition of S&P 500 Returns
An analysis of S&P 500 returns from 2007 to 2021 revealed some interesting insights. Multiple expansion and compression played a significant role in both value and growth returns. For value, multiple expansion contributed 1.6% to the total return, while for growth, it was 3.6%. EPS growth was healthier for growth stocks, with a margin of 5.2% for value and 5.9% for growth. The biggest surprise was that value stocks experienced net share issuance, while growth stocks had share repurchases, contributing to EPS differences of 8 and 3.3%, respectively.
Prospects for the Rest of the Year
The prospects for the rest of the year indicate a strong setup, with the potential for attractive opportunities. Although credit markets have not shown signs of panic yet, distress is expected to emerge over the coming years. Defaults are projected to rise, especially in small-cap and micro-cap companies. The inversion of the yield curve and various recession indicators, such as declining commercial loan demand and freight activity, suggest an economic slowdown. It is important to pay attention to leading indicators and be prepared for a potential broad market correction.
Recurring Themes: Self-Serving Bias and Ant Mills
The recurring themes of the self-serving bias and ant mills highlight the human tendency to protect our self-image and perpetuate unproductive behaviors. Challenging our assumptions and beliefs is essential to break free from these patterns. The analysis of S&P 500 returns reveals interesting dynamics between value and growth stocks, suggesting potential opportunities amid ongoing market trends. Looking ahead, economic indicators and market signals should be monitored closely for potential shifts and investment implications.
Value: After Hours is a podcast about value investing, Fintwit, and all things finance and investment by investors Tobias Carlisle, and Jake Taylor. See our latest episodes at https://acquirersmultiple.com/podcast
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Hi, I'm Tobias Carlisle. I launched The Acquirers Podcast to discuss the process of finding undervalued stocks, deep value investing, hedge funds, activism, buyouts, and special situations.
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Tobias Carlisle is the founder of The Acquirer’s Multiple®, and Acquirers Funds®.
He is best known as the author of the #1 new release in Amazon’s Business and Finance The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market, the Amazon best-sellers Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014) (https://amzn.to/2VwvAGF), Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012) (https://amzn.to/2SDDxrN), and Concentrated Investing: Strategies of the World’s Greatest Concentrated Value Investors (2016) (https://amzn.to/2SEEjVn). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law.
Prior to founding the forerunner to Acquirers Funds in 2010, Tobias was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions he has advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam.
He is a graduate of the University of Queensland in Australia with degrees in Law (2001) and Business (Management) (1999).
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