In one sentence: Danielle asks how you let yourself write convincing reasons not to buy a company you like; Phil's answer is to list the arguments the sellers are making, starting with the DOJ's antitrust suit and European limits on ad targeting, even when you can't tell how they would play out.
Key ideas
- Ray Dalio's China exit. Reports said Bridgewater sold Chinese holdings. Phil reads it as getting ahead of possible rules barring US holdings, as with Russian stocks after Ukraine, and Danielle insists on separating what Dalio did from Phil's guesses. [01:00–07:00]
- Occam's razor. Hearing hoofbeats in Colorado, think horses, not zebras: weigh the simplest reasons first, but list the others. [07:00–08:00]
- Michael Burry's portfolio. Burry reportedly sold nearly everything, Google included, and kept one prison company he regarded as cheap despite legislative risk. Phil's three reasons for a big exit: expect a drop and rebuy, expect a drop and short, or buy elsewhere without disclosure. He leans to the first two. [08:00–14:00]
- Holdings tell you little. Filings show buys and positions, not shorts or cash, and Phil says he will skip what isn't obvious to him. His own result with half in cash was roughly flat with the Dow. [14:00–18:00]
- "Why are they selling?" Buffett's reminder: when you buy, someone sells. This is the way into the inversion. [18:00–19:00]
- How to invert something you like. Danielle asks how to avoid being talked out of a good company while staying open. Phil admits it sounded like a pitch, and the answer is to examine the cases others make, not only those that convince you. [19:00–25:30]
- Regulatory risk 1: antitrust. Google has about 90% of US search and 95% on mobile; the DOJ and states say it acted illegally to hold search. The claim is that it has the power to charge more, not that it does. How a remedy would work is unclear to Phil. [20:00–28:00]
- Regulatory risk 2: ad targeting. Europe may force opening of algorithms and limit targeting. Targeting is what makes Google ads valuable, so weaker results could cut ad spend, though rivals face the same limits. [28:00–36:00]
- Confirmation bias. Phil flags that he may be blinded by it when he can't see how regulators would hurt Google. Recession and data security are the next items on the list. [24:30–37:30]
How it maps to RuleOne
- Radar is the natural home for "who is selling and why": 13F changes, big holders' exits and news on legal cases.
- Keep a written inversion with each position, on the stock page or in notes, and revisit it when the news changes.
Buffett, Munger and Graham links
- Munger on inversion and confirmation bias: Poor Charlie's Almanack (his talk on the psychology of human misjudgment).
- Burry is the central figure of Michael Lewis's The Big Short, also recommended in the show notes.
Words to know
- Inversion: asking how an investment could fail before deciding it won't.
- Regulatory (legislative) risk: government action that changes a business's economics.
- Confirmation bias: favouring evidence that fits what you already believe.
Try this
For a company on your watchlist (/stocks/), write three reasons a smart seller might have, rank them by how much they would change the company's earnings in ten years, and note which you can't assess.
Check yourself
- Why can't you copy a fund's exit or entry?
Answer
You don't see shorts or cash, and the reasons may have nothing to do with the company. - What is the standard for an inversion worth examining?
Answer
The arguments others are making against it, not only the ones that convince you. - What did Phil admit he couldn't judge about Google's regulatory risk?
Answer
How a remedy would work, and what the outcome would be.
Short quotes
"Whenever you're buying a company, somebody's selling. So why are they selling?" (Danielle, ~18:45, auto-transcribed)