Podcast Transcript: Jim Leitner On Growth vs Value, Digital Options And Bitcoin

This is a transcript of our podcast episode with one of our most popular returning guests, star investor Jim Leitner. He gives his take on the big picture themes of the day, how best to implement trades and much more. While we have tried to make the transcript as accurate as possible, if you do notice any errors, let me know by email

Bilal Hafeez: Hello, Jim. It’s great to have you on the podcast once again. I have to say that we’ve had many, many podcasts over this year and you’re the person that is the most requested person to come back on our podcast show.

Jim Leitner: Very nice to hear.

Why the Rotation to Value (From Growth) Theme May Not Work

Bilal Hafeez (00:02:12):Yeah. So it’s great to have you back on, and many people were actually asking that they wanted you on just towards the end of the year to kind of get your views for 2021. And I guess the good sort of starting point would be one of the big themes in markets at the moment is this idea of a rotation from growth stocks back to value.

So it seems obviously for a while now values underperformed, but many outlooks. If you look through all the major banks outlooks, people are saying, “This is the trade. Value is going to outperform growth once again.” So maybe we can start with that. You can give us your take and then we can kind of continue our conversation from there.

Jim Leitner: Sure. No. Happy to talk about that. I think it might very well be a good trade. It’s really a question of timeframe. I don’t think I have an edge on a short timeframe. I think JP Morgan’s Kolanovic has done a great job and he’s calling for more value versus growth out-performance and I can’t say that that’s not going to happen over the next month, two months. Who knows?

I don’t take bets unless I think I have an edge. So let me talk about value versus growth a little bit. I mean, clearly value is cheaper than growth. Look at the PE ratios, S&P value is at 22 PE, S&P growth is at 36 PE. But really, I believe you need to dig deeper into what industries are you actually buying and selling value versus growth, right?

So, if you compare the two indices, the value index has about 20% in financials and the growth index has four and a half percent in financials. You have about 15% overweight in what I would call the XLF as a ticker and the value index has about 8% in technology and the growth index has 40% in technology. So let’s call it the 30% overweight or underweight one way or the other in technology.

Now, why don’t we just dig a little bit deeper into that idea? It’s kind of a question of momentum versus mean reversion. Do you have to necessarily have mean reversion? Over small timeframes you’re clearly always going to have mean inversion. Nothing goes up or down in a straight line.

But let’s just take a look at something like the ratio of the fintech index to the bank index, right? Because the value stocks, the value index is not long fintech, it’s long Bank of America, Citi Bank, JP Morgan, it’s long the old line traditional bank stocks, right? Whereas the growth index has some of these fintech’s buried in their technology overweight.

So it’s not under financials, but really what you should be looking at is when you’re buying growth or selling growth and investing in value, what are you going to be long and short? So if you take FINX, which is a fintech ETF, over XLF, and you do a ratio chart on Bloomberg and you go back five years or five years ago, that ratio was at 0.62.

So fintech shares costs less than XLF shares, right? Now, what happened pre-COVID, because we want to talk about how’s COVID changed things, improved things. Okay. So pre-COVID, from 2016 through February 2020, that ratio went from 0.62 to 1.16.

So fintech outperformed by about 87% over those, say, four years. Call that a compounded 18% brand. Okay. That had nothing to do with COVID, that had just to do with the fact that technology is attacking traditional industries and being what they’re supposed to be doing, disruptive.

Bilal Hafeez: Yeah. It’s a structural change in the whole industry.

Jim Leitner: Exactly. You have technology companies, fintech’s in this case, who are going after the profitable parts of the banking industry while staying away from the costs. So what happened during COVID? Well, that ratio went from 1.16 in February, so we’ll say it was Feb 28, 2020, up to 1.61 November 6th. So there was a 38% outperformance during those, call it nine months.

Now 38% outperformance is great, but it’s not crazy compared to a normal 18 to 20% annual average of outperformance over the last five years pre-COVID. Yes. It accelerated. There was money flowing in technology. People were waking up to the fact that, “Oh, I can do my banking from home on the internet.”

I mean, I had never actually used my Bank of America internet banking ability before COVID. I would just drive over to the bank branch and get money. However, now I actually know my password. It’s amazing. I can go in there. I can transfer money. I can do things. So I think when 60 year plus people are starting to learn that, that has an effect on the traditional banking industry and it opens up the world of fintech.

So what happened since November 6th when that ratio was 1.61? Now it’s at… Yesterday it was at 1.51. So it’s dropped 6%. So that outperformance since February has gone from 38% to 32%. Could it go another 10% and get back to the 20% average? Yeah, it could. I mean, is there any magic to any of these numbers? No. But think about it in the kind of a multi-year framework, would you really want to be short, PayPal, Square, Argent, in order to be long Bank of America or Citibank?

I look at this problem, take the two, PayPal and Bank of America. They both have a market cap of $250 billion. Interesting, right? So they’re pretty similar. Bank of America has 171,000 employees, Paypal has 22,000. I mean, I see a lot of legacy costs. I see a branch network that you don’t need anymore. And I think COVID has actually changed the perception that people have of the necessity of a branch network.

Bilal Hafeez: Yeah. And just an anecdote, Jim, I worked for some of the big banks, JP Morgan, Deutsche and Nomura and when we used to have these management meetings about costs, what we actually found was that often it was more expensive to re-engineer the existing business than to start the business from scratch, yet the challenge was how do you start a business from scratch?

So basically you just up building layers of complexity on top of each other to upgrade the system and the cost just spiralled. All the incentives are such for you to do that. There’s no incentive to say let’s just mothball the existing operation and start something from scratch, which tends to be much more cheaper. So there’s all these kinds of strange incentive structures that just lead to cost upon cost even if the intentions are transformation.

Jim Leitner: Yeah. No. I totally agree. I mean, I think that the fintech industry just has an edge on the traditional banking industry. They don’t have any legacy. They can just attack a problem from scratch, new and go after the really profitable parts of banking. So for example, take Square. Square, all the local merchants now use Square for me to pay with my credit card.

Now, Square is obviously a payment system, but they’re also becoming a bank. I mean, they know exactly what kind of sales that business has and they will send to that business a statement every day that says, “Right now you’re eligible for a $12,000 loan. It’s for 18 months and the way you’re going to pay it back is we’re going to take 12% of your revenues every day.”

Banks can’t do it. Banks don’t even know exactly how much your revenues are day by day. They don’t have a model, how they can then attach those revenues because Square can just say, “Okay, we’re just going to subtract 12% of all your revenues.” Their loans come at 12%. They’re expensive, but they’re still way cheaper than credit card loans, which run at 20%, right?

So clearly better for the merchants if you do need cash and they’re a whole bunch of kind of fees associated with it, which actually jack up the interest rate if you do really well. So the Christmas season is coming. Let’s say you just decided you’re going to take this $12,000 loan and you end up selling a lot more because we’re going into Christmas and people are coming to your soccer store and they’re buying balls and shoes and shirts and jackets.

And so now that you’ve paid this loan off in two months because sales were just fabulous. And even though it was an 18 month loan, it only took you two months because your sales exploded. Well, to make that $12,000 loan, you actually have to agree to pay back 13,200 or 13,000. There’s a $1,000 fee associated with it. Well, if you pay this back over two months, your actual interest cost is sky high, right?

If you have to distribute it over 18 months, it has an effect on the interest rate too. But Square has done a brilliant job at helping merchants get credit quickly, efficiently when they need it. You don’t have to take this loan, but you know it’s right there and every day it’s updated because they have the ability to look exactly at the sales you’ve generated.

They can look at seasonality in your sales. They have models that tell them exactly how much to offer you and what the terms are. And I think over time, would I rather be an investor in fintech or would I rather be an investor in banks? I don’t think banks are all going bankrupt. JP Morgan is not going away. And smart banks are acquiring fintech.

I mean, JP Morgan a couple of weeks ago bought a company called 55ip, which is a private fintech company. We don’t know what they paid for them, it was private, but JP Morgan is not stupid. They know. They can see the future and they know that fintech is coming after it.

And it kind of makes me think back to the beginning of last century, would you rather be long with buggy companies or the car companies. Was there ever mean reversion on the buggy companies? Yeah. Maybe in between they went up a little bit, they went down a little bit, but the big picture that just kind of went away.

Bilal Hafeez: Yeah. And valuations went lower, lower and lower obviously for those buggy companies. They went to zero.

Jim Leitner (00:12:48): Exactly. I think that value versus growth, you’re probably okay for a trade. And I think Kolanovic has a great track record and he has a trade. I don’t think it’s an investment. I would not stand in front of the train of technology that’s changing the world and that COVID has just empowered even more.

Now before COVID it was happening, post-COVID it is just accelerating because people are become more and more comfortable with technology and using technology. So the other kind of long shorts in the value versus growth portfolio if you look at the industries, are things like energy.

The value stocks have 5% energy and the growth has basically zero, so a half a percent is in energy. That’s sort of like a 5% difference. And you really want to be long XLE old fashioned energy, which is what the value index is long. They’re long Chevron, they’re long Exxon. Or if you really want to be in the energy space, would you rather be long?

The S&P Green Energy Index, the ICLN, which is up almost 100% this year, or TAN, which is the ETF for solar, or FAN, which is the ETF for the wind generated energy, right? Those are not the things that are in the value index. You will find some of that in the tech part of the growth index. And again I think in the big picture, being long energy is not a great bet. Old-Fashioned energy is slowly, slowly going away. At some point you’re going to have stranded assets.

Are We in A Tech Bubble?

Bilal Hafeez (00:14:28): Actually. Well, one question that comes to mind, Jim, is that underlying this whole there’s this thought that technology is seriously disrupting lot’s these different industries and there’s the shift in the environment and so on.

One of the things that people come back with on the value issue is back in the dot-com period there was this whole optimism about technology disrupting everything and in the end there was a major stock sort of crash. I mean, what do you think is different today in terms of the technology story versus the 2000s.

Jim Leitner: I think there’s been just much more adoption and actually people learn from the 2000 dot-com bubble. The 2000 dot-com bubble, I think was the last mania that we had in the stock market. And I can talk about that a little bit more in a minute, but I think that at that time you could slap a dot-com on any kind of business. And the price of the stock would suddenly go up by 50%.

It was exact same company as before, but they just changed name. And I think that is just not happening. I think in the last 20 years we’ve developed a much better infrastructure. I think that we have made a phenomenal technological leap in broadband. So going from 3G to 4G to now 5G, I think makes a significant difference.

An Uber or a Lyft could not have happened in that world because the technology just wasn’t advanced yet. And I think we were scratching the beginnings of technology at that time. The iPhone introduction has just changed the world. What year was the iPhone introduced?

Bilal Hafeez:I think that was 2007, ’06 or ’07.

Jim Leitner: Yeah. Makes all the difference. So it came after the dot-com bubble and I think the dot-com bubble was just a mania and it came too early whereas the technological disruption that we have today is based on many more in-depth changes in the economy. It has also relevance to demographics and that in 20 years, lots of those people became technologically savvy.

All my kids are amazing with computers. They can do all kinds of stuff that I can never do, and they’re becoming more and more savvy. To them, AI is just going to be an interesting phenomenon. They’ll just feel totally comfortable using natural language to ask questions and really, really still something totally edgy but I think for them it’s not.

Bilal Hafeez:And I guess, another difference, I suppose, today is many of the big technology companies have really impressive balance sheets and cash flows compared to the dot-com period where the cashflow situations for many of those companies were really quite terrible.

Jim Leitner: Yeah. Definitely true. And I think it ties in with the network effect and smart phones and the ability to have global networks. Before there was the growth of the internet and everybody being on the internet and everybody having social media accounts. You weren’t able to actually activate the network effect. And the network effect I think from 2010 through 2020 has been phenomenal.

I mean, just looking at the growth of panels like Facebook kind of platforms, or Amazon, or the Amazon lookalike, say MELI in Latin America, the MercadoLibre or SEP in Asia. Now those kinds of are making a huge difference and network effects have been way underappreciated, but that’s starting to show up in stock prices.

Future of 60:40 Portfolio

Bilal Hafeez (00:17:57):: And what do you think about the more traditional 60-40 portfolio? Because if you look at mandates and existing mandates pension funds insurance companies, there’s still quite a significant amount of money in 60-40, or some variation of the 60-40.

Jim Leitner: Well, I think that the 60-40 portfolio is kind of dead for today because on the 40% allocated to fixed income, you really shouldn’t expect more than the coupon. And with 1% coupons and negative real yields of whatever, minus a half to minus 1%, depending on what you’re looking at, what maturity and what currency you’re in, there’s really no reason for anybody with a longer term timeframe to hold fixed income.

So then the question is, okay, you have the 60% allocation to equities, you’ve got 40% that you don’t know what to do with. What are you going to do with it? In the endowment world, I am on several endowment committees. We’re clearly increasing equity allocations. I’m on the investment committee of a small private school here in New Jersey, and several years ago, we upped our equity allocation from 60% to 75%.

And we just said with interest rates having gone down, there’s just no… I mean, the bond market has already revised. We made capital gains on bonds that we owned. We sold those bonds and we switched today. That was a good choice. But then we still have 25% in fixed income, which is still a lot of money. So we continue to diversify into private equity and that’s happening all over the place.

We are looking at real estate because I think real estate, and I want to talk about that a little bit more, is another place that is great for long-term savings and is starting to really move again now. I can talk about that in a minute. So I think what we’re starting to see is that 40% is just slowly, slowly getting eroded. And someday if rates are back up at three, 4% and we have a 2% inflation and 2% real yields, okay, then people will start reallocating again.

But who knows when that will happen or if that will happen. There’s just no reason to be long fixed income with 1% coupons or even worse with 17 trillion or 18 trillion negative coupons around the world. That’s just silly. And I think all of the European pension funds are also realizing that, and there’s regulatory pushback to having to match maturity, assets and liabilities, and therefore being forced into buying bonds that are just way too expensive.

Importance of Real Estate

Jim Leitner (00:20:40): But let’s talk about real estate a little tiny bit more because I think it ties in with some big picture changes. We were saying that people in the 60-40 world are now moving towards, say 75-25 or just upping the equity allocation. But I look at the millennials and the millennials, I have three kids who are already working and I have two who are not working.

So my three kids who are working, in their 401k plans are 100% long. They’re not at 75%, they’re at 100%. And I remember my son calling in early this year pre-COVID and saying, “Okay, I’m 100% in equities and I just upped my contributions and then COVID hit.” And he called me in a little bit of an annoyed mood and said, “Was that wrong or not?”

And I said, “Look, just don’t touch it. You’re 34 years old and by the time you want to retire 30 years from now, you won’t even be able to tell on the chart I didn’t realize it was only going to take nine months,” but the millennials are realizing that for security they need to have some savings, some money, some cash.

They have come into the world into the great financial crisis and had a really hard time, then they hit COVID. Many of them are living at home. They can’t afford to do anything with their student loans. So lots of things have changed with the millennials. I think the whole Robin Hood phenomenon is here to stay. I think the 100% allocation to 401ks is here to stay.

And the next thing to look at is real estate. And if you look at real estate, the millennials are clearly buyers in this market and let’s look through some of the numbers. So the average house in America costs about $280,000. Average rent is $1,400 a month. So let’s take the average American with 33 years old, like my son, 34 years old, and hasn’t bought a house yet and he’s actually being transferred from Chicago to New Jersey and he tells me he’s now going to buy a house.

How come? Well, because mortgage rates at two and a half percent take the average American, right? If you had to borrow 250,000 and your parents lend you 30,000 for the down payment on this average $280,000 house, well, two and a half percent on the third year mortgage, you’re paying about $1,000 a month compared to $1,400 a month in rent.

So you just save $400 that you could put towards insurance, towards taxes, towards fixing up your house. And you’re creating an asset. You’re creating value in something. You’re saving that money. You’re not giving it away as a renter to some landlord. This is showing up in your equity every month as you’re paying that $1,000 mortgage. And millennials look back and they say, “Well, how do houses do? What have house prices done?”

Well, since 2000 over the last 20 years house prices, if you look at Bloomberg, have gone up 0.3% per month, and that includes the great financial crisis. So how have they done in the last five years? Well, they’ve gone up 0.5 per month. They’ve gone up about six to 7% per annum on average. If you look this year at this Case Shiller US Core House Price Index is up about 6.8% year over year.

It’s not bad, especially when you have leverage because you have to take a mortgage for 85% of the house, right? So we all actually want something that swings down dramatically and swings up dramatically. Okay. That’s a happy day in your life. But if that meant that you also had to face 50% draw downs, you probably don’t want it. But house prices are just slowly, slowly, slowly, marching higher, and millennials are not stupid.

And that leads me to another reason why you might want to be in the equity market in terms of industry. If you look at Homebuilders, the Homebuilders index is up 25% this year. It’s not as much as the NASDAQ and technology, which is up say 37, 38%, but it’s more than the S&P, which is up 13%, right? This is the kind of sector that’s going to support the entire economy.

It leads to new house construction, it leads to renovations, it leads to people buying furniture for the new house. It leads to people just changing their behaviour and moving. Is it going to happen in all the big metropolises? Maybe not. One thing COVID has changed is that it’s become much easier to work from home. I mean, all the tech companies are looking very seriously at how much office space do they really need.

I mean, I know of a tech company in New York that’s kind of just doing a strategic plan on how much space do we need over the next three, four years given that half of our employees could easily work from home, come in once in a while, while other employees are working from home. Could we set up a kind of schedule where people have to kind of reserve themselves a desk on next Wednesday?

Or we give some priority to a little group that wants to get together and do something special. Sure. But when I talk about housing, I’m not talking about commercial real estate, I’m talking about just residential. People moving and having a nice little Zoom room in their house and being able to have a job.

I think the housing market is well supported. It’s going to support the economy and it’s going to support the equity market.

How to Value Stocks

Jim Leitner (00:26:21): So let’s talk a little bit more about equities because people think, “Oh my God, they’re so expensive.” CAPE index wherever it is, 33, 34. Shiller did a great job popularizing it, looking at the secretly adjusted PE ratio over the last 10 years.

Markets are expensive on it. But even Schiller has started thinking about more of a fed model because in the world, interest rates have really, really dropped. It’s really important to kind of say, “Well, what’s your alternative, right?” There is no alternative. I mean, the bond market is just not an alternative. I might as well keep my money in cash. Whether I get zero or one is not going to make any difference, right?

So what he did was he created a new index using the CAPE. So what he did is he took the CAPE, inverted it and created a CAPE yield. Then he subtracts the ten-year real yield from that to get the new valuation metric that includes real rates. And it kind of makes sense because real rates drive the net present value factor.

I mean your discount models you need to have some rate at which you’re going to discount the future. So he looks at that and he says, “Oh, okay. So the inverse CAPE minus real rates in the US is at 4%. Okay. Well, I’m not sure I have enough knowledge to know if that’s high or low.” In the next paragraph, he says, “That’s back at the same level that it was in the 1980s.”

Yeah. Stock markets did pretty fine in 1980s to 2000. So if we have another period like that, I wouldn’t cry. He also says that if he looks at that same ratio for Japan, it’s at historic highs. That’s pretty amazing. The European one is not expensive. It’s at 6% adjusted by real rates yield.

So he, at the end of that article then says that, “Basically, if you use this kind of valuation method that we’re not expensive,” and it gets me back to my idea of mania, that markets don’t just at some point, decide, “Oh, we’re not going up anymore. We’re going to start going down.” You get people to really, really keep buying and buying and buying and suddenly there’s a mania like we had the dot-com, right?

So let’s take that as the last real mania that we had but it really went crazy. And let’s not look at PEs because those are all kind of like self-referential. Let’s look at some outside indicator. So what I look at is, take the S&P divided by M2. If the fed is out there encouraging riskier investments and encouraging the economy to grow, they are lowering interest rates, they’re increasing M2.

The question is, does that lead to inflation? Or how do you measure inflation? Where does the M2 go? Is it inflation when stocks go up? So if you look at the ratio of the S&P index to M2, in March of 2000, that ratio was about 0.32. You can do it on Bloomberg, SPX index, M2 index, GR M for monthly and you go back in history and you can see that that index peaked during that bubble.

Well, today that index is a 0.195. So to get back to that mania, the stock market would have to go up 63%. If the stock market today went up 63%, that ratio would be the same dot-com bubblicious level as it was in March of 2000. Now, that gives me some kind of a target.

I define the mania as people just grabbing for things and saying, “I got to be long. I don’t know anything about what this company does, but I just want it because my friend bought it and I know he’s making money and I don’t want to have to go out and have a beer and tell them that I’m not making money.” So when it gets to that point, I would not be surprised to see equities 63% higher than today.

Bilal Hafeez: Yeah. It’s interesting you mentioned that ratio because the people who look at ratios against money supply tend to be economists or fixed income type people who use it as a justification for inflation to go up. Whereas equity people tend not to look at that ratio so much, but it kind of goes to the point where if central banks are expanding, their balance sheets are increasing money supply.

It can lead to different types of inflation. It doesn’t have to be inflation of consumer prices. It could be inflation of equities. It could be inflation of real estate. And that’s really the key question, where is that money going to go?

Jim Leitner: Yeah. I think this is clear case between this adjusted CAPE measure, which tells me that given where interest rates are, the market is not super expensive and trying to figure out how far up you can go in the mania. What do I really want to do?

Using Digital Options to Get VC Payoffs

Jim Leitner (00:30:36):That gets me to really implementation. How do you actually take advantage of this? Do you feel comfortable just going out and buying a lot of equities today?

I personally keep a lot of cash around because I always feel safe with cash. But what I do is I tend to buy long call options on things, because I figure I’ll let somebody else do the risk management. So let’s talk about what I consider the biggest and most important risk arbitrage in the market. And it’s not this kind of risk arbitrage where you’re long and convertible and short are in equity.

It’s really an arbitrage between two different ways of thinking about the world and that’s risky. So take this idea that the equity market could be 63% higher at some point in the next three to five years, right? We’re not at mania yet, but as things happen, as Square is taking away banks business, as the alternative energy industry starts expanding under Biden, suddenly you get more and more money flowing into these kind of sectors and stocks start moving faster and faster and faster, and suddenly they go parabolic.

So if I take 63% on top of say 3,700, that gets me to about 5,600 for an S&P target. But that implies that M2 hasn’t grown. That’s today, right? So if you really think about the next two, three years, yeah. Recently M2 grew at 20% per annum. In the past, pre-COVID, it was 5% per annum.

Let’s say it grows at 10% for the next year, right? So then you’re getting into a 6,000 equity target market. Well, I asked one of the investment banks yesterday for some prices on digitals. Now, why do I like digitals? Because digitals give me the odds of a bet. What is the probability that the equity market in five years will be above 6,000? Right? So I can just ask for a 6,000 strike digital and see what I will charge.

Bilal Hafeez: And just a point of clarification, Jim, I mean, for our listeners who don’t know what digital is, do you want to give a-

Jim Leitner: Digital option pays out 100% of whatever you contracted for if it ends up in the money and you pay some fraction of that today. So if the S&P goes to 6,000 or 6,001 at maturity, you get 100% of your contract. If it goes to 8,000, you still only get 100% of your contract. So you don’t actually get extra because it’s not like a call option that gives you infinite upside. Your upside is totally truncated to the amount of your contract.

On the other hand, the downside is what do you pay for this option? And it’s quoted as a percent of the 100% that they’ll pay you. So yesterday I was pricing up some five-year 6,000 digital call options on the S&P and I was quoted 7.8%. So I can pay 7.8% today and get 100% if five years from now we’re above 6,000.

So effectively that says 100 divided by 7.8, that’s about 12 and a half, 13. So the market’s giving me a one in 13 chance that that will actually go up, whether it’s about 65% between now and five years in the stock market. When you think about that, that’s 10% compounded rate or so over five years or 11% compounded rate.

Is that hard to imagine? No. I think it’s, it’s way higher philosophically than 7.8%. I think probability in the world ranges rates are close to zero and real rates are negative too me means more money goes into equities. I think that the market makers are happy to sell these equities because they priced them based on implied volatility, which they think is higher than the volatility at which they will be able to delta hedge themselves on a daily basis or continuously.

So the interesting risk arbitrage part here is that we have two different ways of thinking about options. The market maker is selling an option that he or she intends to continuously delta hedge, and if they’re correct that the volatility is actually lower than the volatility they used to model the option, they will make money. And the option buyer, myself, has no interest in delta hedging. I’m not going to do any delta hedging.

I am approaching this as a bet on, is the probability that we’re above 6,000 five years from now larger than 7.8%. And all the research I do tells me that I wouldn’t want to sell that option to somebody. I would not want to take the other side of that bet to give somebody 100 if we end up over 6,000 and they only give me $7.80 today.

Bilal Hafeez: Yeah. So actually you’re actually trading different things. The market maker is trading kind of daily ranges or daily volatility. That’s what they’re taking the view on relative to the price. And what you’re doing is you’re taking a view on the direction or the path of the markets over some given periods. So you’re actually trading different things. So there’s no reason for it to necessarily be a win-loss or zero sum. You both can win in that situation strangely.

Jim Leitner : That’s what’s very exciting about this. You can both be winners because I am betting on the drift and the options market maker couldn’t care less about the drift. I mean, if it goes down or if it goes up, it really doesn’t matter as long as the volatility used in the modelling is higher than the volatility which the hedging actually takes place.

And for me, given that I’m not looking at daily volatility, I’m just looking at a bet and drift, I believe the drift will get me towards 6,000. Now, do I have to actually wait until it gets to 6,000? No. I mean it’s a liquid instrument. If we trade tomorrow to 4,200, I can probably sell it for 10% and make a 40% return on the premium.

But the other thing is I like these digital kind of options because when we get to our strike, it is worth 50%, right? Because if you buy an option that is at the money, there’s a 50-50 chance that you’ll be higher or lower. I mean if the market knew you would be higher that wouldn’t be the price anymore. The market adjusts the place it trades such that an upward downmarket is about equally likely over the next short period of time.

And so the option if we get to 6,000 in a year is going to be worth 50% and I can make a second choice now. Do I still think I want to hold it to make an additional 100%? Because it goes from 50 to 100? Or I’ve just made seven times my money or six and a half times my money, it’s gone from 7.8 to 50, do I want to just sell it and say, “That was a pretty good run. I just made 650% return on my investment. That’s interesting enough for me. And maybe I just want to sell it.”

And I think this idea of this risk arbitrage between options make price setters and market makers, and the longer dated option buyers the long you buy the option from them the more chance you have of the drift to actually work in your favour. Right?

I mean, over one month markets, don’t have that much drift. I mean, there’s momentum but if you want to do something over one month, you’re doing it because you think you are really good at forecasting over the next month something’s going to happen. The key is going to be softer and then people expect it, so the Euro might sell off and therefore you’re going to buy this one week put. That’s a different kind of thing.

What I’m talking about here is capturing a drift on something over a year. And in my portfolio, most of my options are staggered six months, one year, two years and I think that’s where you can really excel. So we together wrote a piece about three months ago, four months ago on Chinese currency, on the renminbi. That is today our largest position.

Being long renminbi is our largest position. And how do we structure it? Well we were buying downside dollar put digitals calls on the renminbi. So when we wrote the piece it was trading around 680 ish, I think I was buying three years 610s for 3.8%. Like, I don’t know where we’re going to be in three years, but could we be at six? Why not? Three year’s a long time. The Chinese currency has outperformed for the last 10 years. When you look at… Bloomberg has a ranking WC-

Bilal Hafeez: WCRS, I think. Yeah.

Jim Leitner: Correct. And you look back for 10 years at all countries, you have the renminbi way up there. Same for five years, same for three years. China is trying very hard to internationalize its currency and one aspect of that is, have a strong currency and the other aspect of the economy is a whole dual circulation idea, which means have a stronger local economy, which means don’t rely only on exports.

Which again helps when your currency continuously strengthens a little bit. It keeps your exporters becoming more and more competitive. It’s kind of the pressure to perform, knowing that your currency is going to be appreciating keeps the exporters’ working hard to become more and more competitive.

So I think there’s a mismatch in time horizons where the market maker is looking at daily volatility and the buyer of the longer-dated option is thinking about drift. It’s just a risk arbitrage and equities that works especially well because equities are real assets. Currencies are kind of relational, right? I mean, they’re long renminbi, but you got to be short something else.

You can decide. I’m going be short the dollar, I’m going to be short Japanese yen. I’m going to be short the South African Rand, right? They all are different. Whereas with equities, they’re real assets. It’s not that people think about, “Oh, I’m long equities and short cash.” They think, “I’m long equities.” And therefore the kind of put call risk reversals skew very heavily towards the puts.

People pay up for puts because they want to protect themselves. Your greatest fear is that you’re going to lose a lot of money. You’re not that nervous about having made too much money because the market went up. That just feels good. That’s a high level problem. And people are willing to sell away some of the upside for income. So they’re constantly selling calls and buying puts.

And so when you look at a graph of the skew, the puts are way more expensive than the calls. So given that I’m a believer in equities going up over time, it’s a double arbitrage in that I don’t really care that much about the volatility. I just look at the actual digital cost of the option and then I say, “Is the probability of me being above a certain price higher or lower than that? And am I willing to accept that if I’m wrong, I’ll just lose my premium?”

It will go to zero. I was wrong. That is totally fine, right? But I’m not taking a huge bet. I know exactly how much I’ve invested and that’s the risk management part of it. The other nice thing with these longer-dated options is because somebody else is doing the risk management, you don’t get stopped out.

Example of Recent Equity Trades Using Digital Options

Jim Leitner (00:43:26): So I had bought these exact same options to mature in December, now, 2020. I bought them in September of 2019. When the S&P broke 3000, I said, “Oh, I’m going to buy 15 month digitals for 3,500, 3,600, 3,700, all the way up to 4,000.” I said to myself, “At that point, the economy is fine. We’re going to have this presidential race.” We didn’t know yet who was going to run against whom, but I figured whether…

So on the Republican side, it was clearly Trump, who was business-friendly and was happy to have a higher stock market, on the democratic side, could there have been a populist or could there have been a centrist? So I figured it was a 50-50 chance it would be a populist or a centrist. So when I added up all the possibilities, it was a 75% chance we’d have a centrist kind of person who’d be okay for the stock market.

And it was a 25% chance that Elizabeth Warren would become the candidate and that she would win. So having those kinds of probabilities made me say, “Well, I want to buy equity upsides.” And I did. And I bought these exact same digitals. I paid 16% for the 3500s and then 11% for the 3600s and all the way down to, I think I paid 1.8% for 4000s which was 50:1 leverage.

I mean, it was crazy, but people were willing to sell it. And then we traded it up to 3,400 and I’m thinking, “Wow, this is great.” This was sometime in February of this year, and then COVID hits. And we collapsed without, it went down 30%. My options premium just evaporated. I mean, it was probably gone for 90% of it. I mean, I can’t even remember how much I lost.

But of course I wasn’t going to sell them. I mean, what was the point? And then I sat back and the market started rallying and the market rallied more and the options volatility stayed relatively high because we just had this huge move and a short while ago, I sold them all at 3X because I just wanted to make a point that I think the future of macro longer-term investing is really understanding the optionality of your portfolio and allocating a fraction to longer-dated options that allow you to capture a minimum of 2X per annum.

Limiting Number of Trades Each Year

Jim Leitner (00:46:07): So I think of it like this, three, four times a year, I ought to feel strongly about an idea that market is going to be higher over the next six months or whatever it is, whatever that idea might be. The Chinese currency is going to be stronger, it could be in any kind of asset. It could be in an individual equity. It could be Microsoft is going to do something great.

And if I can buy a digital option on that idea, it would be 50-50, right? I mean that today the price of the market is X and I’m convinced we’re going to be higher in six months. Well, I ought to be able to make 100%. If I’m right, three, four times a year, I will be able to buy this option for 50 cents on the dollar and then it settles at 100 cents on the dollar.

Now, I might be wrong once in a while too. So how do I think about that? Well, I think that when I look at these kind of big picture ideas, I am right 75% of the time. Three out of four times I kind of get it right and then once out of the four times I’m just, “Oh, something happened. I didn’t see something.”

But if you basically buy options that you think are going to pay 20% for, and you’re selling them on average for 3X, as we get towards 50%, 60%, then you can afford once in a while to have one of these options go to zero. And I kind of think that as macro investors, we need to learn a little bit from the venture cap business, where we tend to do too many trades.

We tend to jump onto too many ideas for small amounts and feel that we need to be involved in the markets continuously. The venture cap business, when I talked to a friend, basically they look at 120 proposals a year and invest in five or six. And suddenly that made sense to me. That made the idea of using options on five to six ideas a year very palatable and just rejected 110 ideas.

So when I get emails about, “Oh, I think this will happen. I think your services are going to do bad. I think the long bond is going to sell off.” Most of the time the arguments make sense, but I don’t know. I just don’t feel strongly enough to bet on it. And like Jesse Livermore said, the hardest thing is sitting on your hands. I think in our business, we have been trained not to sit on our hands.

We tend to overtrade dramatically and when we do, we actually start underperforming versus our best ideas, because I think by forcing ourselves to trade less, take larger positions, do it in option form, so you know exactly how much you can lose.

If you were absolutely wrong and you lost all the options, you know exactly how much you had invested. If you’re taking 10% of your net asset value and saying, “I’m going to buy option with that.” Or you can lose 10%, and if they double you’ll make 10%, and then you still have the other 90% to do other things with.

Bilal Hafeez:

Yeah, Actually, I mean, what I’m taking away from what you’re saying is that there’s something in the structure of the options market, whether it’s an FX or equities, which allows you to gain significant leverage to express a view but at the same time it allows you to define your downside.

It’s not like the leverage works equally both sides. So you actually know your downside. So if you go back to your example of being long equities during the COVID draw down, if you just had a margined large leverage position long equities, where you had a margin and you’re 10X your margin, you would have just been wiped out and you’d get wiped out during the draw down and you’d lose your exposure during the rebound, which is typically what happens. You’re identifying the skew in the market that allows you to get this favourable risk return characteristics.

Jim Leitner: Yeah. Definitely true. I mean, I have a friend who was wiped out in Singapore. He was low in the market, had done a very nice job for years, wasn’t even that leveraged, but basically just couldn’t take the pain as we dropped from 3,400 down to what was the low, 2300 or something like that.

I mean, yeah. The nice thing with these options positions was that I really didn’t worry about. I mean, if we went to zero yeah, would have had a great year. No, I wouldn’t have a good year, but I think on my part there were still nine months to go to figure out what else you could do. And then the market stopped going down and suddenly these options started coming back and I started thinking, “Well, what strike should you really want?”

And I bought some call options on other things and suddenly back in the game whereas there are plenty of people who got knocked out of the game. And I think there’s an interesting book called The Infinite Game. And it’s worth reading because what we ought to try and be is winners in the infinite game. And infinite game basically means just staying alive, just still existing.

You don’t compare yourself to anybody else all the time. You don’t need to win against the competition. You just need to stay in the game. And the object of your participating in the game is to still be there five years from now, 10 years from now, 20 years from now, 30 years from now, and using optionality allows you to do that. And I think people are just not aware enough about the power of this and of the approach of using this idea of turning the world into digital bets.

And to just thinking about what is the probability that something will happen? What is the probability that the S&P goes to 6,000 over the next five years? Really only 7.8%? Seems low. Like, “Why would I want to make that stronger statement when most things in the world at the money spot are 50-50?”

How to Stop Overtrading

Bilal Hafeez (00:52:12): Yeah. So Jim, the other thing you mentioned was the issue about overtrading and many of us have kind of grown up on trading floors where we’re kind of almost, whether overtly or not, trained to respond to price action every day, always have to trade. If we don’t have to trade we’re missing out. The screen is everywhere. There’s people kind of always throwing ideas at you. I mean, how do you avoid that? Because it’s part of the culture of the financial community we’re in.

Jim Leitner: Right. It’s part of the culture. And it’s also dopamine. As you do good things, you’re buying things, you’re excited, you get these little dopamine rewards and they make you feel excited. And I think it’s very hard to actually sit on your hands, so I don’t do it. I don’t sit on my hands.

What I did was I set up a tiny, tiny trading account at a place called ATFX in London, and they gave me 100:1 leverage. And I just put in a minuscule amount, $100,000 just so I could play around. And when I feel the urge of actually having to do something, because my fingers are itchy and I’ve been sitting here looking at the Bloomberg screens and thinking about the world, but you can’t think about the big picture all the time. And you’re seeing that something is moving and you do a little chart on the Euro or something or other.

I just go there and I click, click, click. I trade, I buy, I sell tiny amounts. Tiny amounts. So my 100,000 has turned into 138,000 in six months, which is 38% return, but much more importantly, it’s stopped me from doing really stupid things with my real account. It allows me to just kind of get rid of that itch without triggering any nasty repercussions.

Bilal Hafeez :Yeah. I like that. Yeah. I thought you were going to say you meditate or something and that prevents you from doing that, but this sounds much more practical.

Jim Leitner:That’s worked out really well. I mean, I didn’t really realize it. I mean, I had been talking to friends about what do they do to sit on their hands and meditation comes up and people say that, “You just have to do other things and go for a walk.” But I like looking at the screens.

I kind of feel that I get the ideas partially transmitted through seeing different currencies move differently. Like, why is Brazil starting to appreciate while Mexico has stopped appreciating? I mean, what’s going on in Peru? Why is Peru just sitting there while Brazil is strengthening? Or I start doing some research on what’s happening in the government. And I enjoy that and I don’t want to go for a walk. I enjoy that.

So if I need to get out of my system, I just go to my ATFX account and I just play around and just click, click, click. And it’s a game. It’s just like what the kids do for their computer games. It’s like a one person shooter game and you’re the shooter and there’s somebody there who’s making incredibly tight prices for tiny amounts for fun. And it’s worked out really, really well. It’s kept me sane.

Why Japanese Stocks Are Attractive

Bilal Hafeez (00:55:22): Yeah. I was going to ask. I mean, if we can kind of go back to the big picture. One of the things we’ve talked about in some of our weekly conversations that we have is Japan. And I know you have kind of alternative view to Japan. I mean, a lot of people seem to just ignore Japan these days. It’s more about China or if it’s not about China, maybe it’s about Korea or Taiwan or something, but everyone seems to have given up on Japan, but you actually think there’s something more compelling going on there.

Jim Leitner: I think there’s something really interesting going on in Japan. Number one, clearly the world is underinvested in Japanese equities. All the research shows that people have given up on Japan, it’s boring, nobody wants to be there. Demographics must be terrible. People are getting older and people are… The workforce is actually getting smaller every year.

Who’d want to be an investor there. But in 1999 there was a interesting paper written by a Yale economics professor Geanakoplos. It was called Demography and the Valuation of the Stock Market or something like that, Demography and The Stock Market Valuation, and what he did was he did a life cycle model of the stock market.

He basically said, “People in their middle ages are going to be investors and saving towards their retirement and people on the outside ages, the really old, are starting to dissave because they’ve saved their life so that they could spend it as they have retired. And the really young ones are just a cost.” So if you do a ratio of middle aged people over young plus old, that should kind of give you some idea.

And when he did that for the US it showed a very nice correlation between the PE or the actual stock market and this demographic ratio. And so we had an intern redo that research and for the US that MY plus O ratio is dropping. So in a big, big picture, really, there is no demographic dividend in the US at this point.

On the other hand, it doesn’t take immigration into account. It just takes normal mortality and birth rates in this country, the UN database that looks at demographics. So I think given that we are somewhat more open to immigration than many, I think we’re going to get back there once we’re post-Trump. And I think pre-Trump, we were willing to accept more people.

Immigration has had a very positive effect long-term, but no one had done this for Japan. And we looked at this ratio for Japan and strangely enough, from about 2010 on through 2025, that ratio was going up, indicating higher PE rates, indicating a higher stock market until it starts dropping again.

So there’s this bump in the demographics in Japan that tells you that for another five years, this M2Y plus olders is going higher and if you correlate that with actual the Nikkei price, it basically says that you should right now be at close to 35,000. And we’re right now at 26 and a half thousand. So, again that leads me to buy longer-dated Nikkei call options.

Bilal Hafeez : Yeah. I mean that’s an interesting point in the demographics as it kind of goes against the popular perception. So I mean, that’s kind of a useful insight there.

Jim Leitner:Yeah. I’ll send you the chart so you can just post it and have… I mean, we did it internally and maybe somebody else could redo it and see if they come up with some other way. I mean, our intern will be happy to talk to anybody else to play with it.

And I think it’s interesting. I mean, we did it for India where the chart shows that really a strong uptrend in that ratio as the middle-class and the middle aged start investing more and saving for their retirement.

There must be an underlying positive effect in India. I was looking at the Japanese call option. So the DECK 2022 30,000 to 35,000 call spread costs about 850 Yen. And if you’re above 35,000, at maturity at DECK 2022, you could be making 5,000. That’s about a 6:1-

Bilal Hafeez: Yeah. 6:1 pay out. Yeah.

Jim Leitner :Not bad for a bet that’s two years. I mean, how many of us make 600% in two years? Right? So to me, that’s kind of like PE type of returns.

COVID and Smart Manufacturing

Bilal Hafeez (01:00:01):And in terms of the sectors, you kind of talked about the robotics and smart manufacturing, how Japan is part of that, and that this is one of your other big sort of thesis about smart manufacturing.

Jim Leitner: So I think that’s a COVID theme. I think COVID has helped with the whole idea of resourcing global supply chains. A part of national security is now to have everything that’s important close enough by that you know you can get it. When Americans realized they couldn’t get N95 masks because we weren’t making them in this country anymore, there was panic. They had to buy them in China and it was China selling them to us and then we got defective products and then…

There’s a big push to resource the global supply chain closer to home. And that involves building new factories. And no one’s going to build a 1960s factory in 2020. You’re going to do smart manufacturing. You’re going to look at the most cutting edge ways to build efficient plants. And the people who have done a great job at that are Japanese.

The manufacturing industry in Japan is highly technologically advanced. They have huge databases. They track things. They have great robotics and expensive stock. Well, the best robotics companies in the world. So the other thing that I like about this idea of a smart manufacturing resurgence is that it really hasn’t caught on. There’s no ETF.

You can buy a 5G ETF, you can buy a Homebuilder ETF, but show me a good, smart manufacturing ETF, and it doesn’t exist yet. And what that means is that we need to find and cherry pick the companies that will be involved in this area. So number one, Japan as a country, I think is a good place to be because there’s a strong manufacturing ethic and sector.

And then across Europe, there are lots of interesting companies like Schneider Electric in France or Siemens in Germany. These companies are exceptionally good at helping set up factory floors in a way that is technologically advanced on how to use 5G on the manufacturing floor. So we have a little portfolio of those kinds of names.

In the US there’s a company, CGNX, which does the optical systems for robots. Robots are going to have to see what they’re doing. We own something called ISRG, which is Intuitive Surgical, which is not smart manufacturing, but has a dominant position in medical robotics and surgery robotics.

So I think this whole idea of smart manufacturing ties in with this industry 4.0, which you can Google and you’ll find a lot of interesting ideas on how smart manufacturing industry 4.0 is going to evolve in the next four to five years. The advent of 5G is going to make a difference. Internet of things, IOT, is going to make a difference.

I think it’s an investible theme. And a lot of those companies have options on them. They’re not too expensive. People haven’t yet decided to really buy smart manufacturing companies. So I think you can build an interesting little portfolio.

Future of Bitcoin

Bilal Hafeez (01:03:30): The other thing I have to ask you about is Bitcoin, of course, those kind of crypto markets. It’s kind of a divisive topic at the moment, polarizing.

Jim Leitner:I must admit I kind of missed it at the beginning. Not because I wasn’t interested. I actually wanted to buy it when it was around 90 or 100, but I never did because I was afraid that I’d get hacked. I didn’t know how to do it. The mechanics were difficult. Then we had these kind of hacking occurrences at exchanges like Mt. Gox. Bitcoins disappeared and I just didn’t want to take that kind of risk.

I didn’t mind the price risk, but I just couldn’t figure out a way to actually own them. And in the last year or two years, that has changed dramatically. So there is now a very easy way to actually participate and not have to be afraid. And when we were trading at 8,500, I took 4% of my net worth and just said, “It’s like a digital option.” It could be worth zero.

The nice thing is it doesn’t have a majority. So I don’t have to worry about the timeframe and then it could be worth a lot more. Let’s say it could be worth 100,000. Well, they’re not paying eight and a half percent for an option, but I think this is something kind of special. It’s the only thing that I know of that’s kind of like money, but it’s not fiat money.

And I realized that for savers, this might be something interesting because savers ought to have a lower timeframe. So they shouldn’t really care about the volatility. So it’s something that moves around a lot. Well, might seem risky, but if you’re going to hold it for a long time and it’s going to compound at ridiculous rates and be worth 100,000, 500,000, why not? Why not allocate some money to it?

The other thing that happened was that I got a note from my PayPal account that you can buy Bitcoin now through PayPal. And I said, “Well, that seems pretty interesting. Let me see how easy or difficult it is.” Took me two minutes to open a separate PayPal cash account. They just wanted to know my social security number and my address and they already had a lot of information because I have a PayPal relationship. I use it to send money to friends that need money. And it took me two minutes to buy Bitcoin.

And I said, “If I can do it that easily, there are thousands of people, millions of people who are going to now say, ‘Oh, if it’s that easy and my credit risk is PayPal, I’m happy to do it.'” And I think there’s an underlying long-term savings bet here where we’re going to see significantly higher prices or it’s going to zero. But I think the probability of it going to zero is actually small ish.

I think the probability of it going much higher is larger. And I think the fact that many central banks are looking at digital currency is actually increasing the probability that Bitcoin gets adopted even more. And the most recent run-up really had to do with institutional support. I mean, Square announced that they bought $50 million worth of Bitcoin and other large investors were buying Bitcoin for their treasuries.

And I would not be surprised to see it double again next year. There’s no magic. Whether you’re at 18,000 or 36,000. I now have 8% of my net worth in Bitcoin. That’s only because it doubled not because I added it.

Advice for Early Career Investors

Bilal Hafeez (01:07:00): Great. Well, I’ve kind of had you all on this conversation fairly long. We did ask our Macro Hives members and listeners for questions, and I think you’ve answered actually most of them, but there was one question I thought was quite a nice one for us to kind of end on where it came from somebody who is early on in their financial career and they were asking what advice would you give them?

Jim Leitner:I think that’s a really good question. I mean, having done this for 42 years, I look back at my life and I think, what did I do wrong that I could have done better? So there are two things that I think this person or anybody in his or her position should do. They should read two books.

The first one is by Atul Gawande, who is a doctor and he wrote something called The Checklist Manifesto. And it was a book he wrote on how to improve medical outcomes in hospitals. And the easiest answer was to have a checklist. Was the patient given antibiotics within two minutes before the surgery? Check. Did you make sure that you’re operating on the correct limb? Check.

And once you had the checklist, outcomes improved dramatically, and I think we need the same thing in investing. Just have a checklist for the things that you are thinking about investing in. What is the probability distribution of the future that I envisage? Why do I think this trait has positive expected value? What do I think the maximum drawdown is? Have I done the analysis on how big my position should be?

Have I done a Kelly Criterion Analysis, for example. And you should develop your own checklist. It will be different for different people at different timeframes, different assets. But I think checklist is really important and ties in with medicine being very similar to investing. You’re always making decisions under uncertainty and how you do that well, you can learn from doctors. And so this is a great book to read and it’s really short.

And the other book is something called Superforecasting by Philip Tetlock, which basically talks about how you need to continuously adjust your digital forecast with new information. So as new information comes in, you should say, “Well I used to think it was a 70% chance that the Chinese renminbi would appreciate by the state, now, I think it’s a 73% chance because this and this and this changed.

And if you keep doing that, you become better at actually forecasting because at some point it becomes digital. At that time, you have to make sure that you’re forecasting for a certain timeframe. You’ll either be right or you’ll be wrong, right? So you actually have a track record. So read those two books, really important.

And the second thing is keep a journal. If you keep a journal starting now about all the trades that you’re doing, considering doing, why you’re doing them, have the checklist filled out, someday you’ll be able to look back and write a book about your life. About what was successful, why you bought certain things, how you were thinking about them.

Did your thinking change two or three years later as you’re looking through your booklet and saying, “Oh two years ago I was interested in Homebuilders. What happened? Did I own them? Did what I thought would happen or not?” I never did that and I think that’s one of my things I really feel badly about because I wish I could go back.

I mean, I often think about all the trades I’ve done in my life and people ask me about them and then I can’t really remember why exactly did I do that trade? What was going on in the world that was driving that idea and why did I structure it a certain way? And if you can’t look back, you can’t learn and you also just don’t get the enjoyment of having that journal and being able to someday just look back over your trading life and say, “This worked well, this didn’t work well. And having ideas about it and learning from it.”

Jim’s Experience with Macro Hive

Bilal Hafeez (01:10:52): Yeah. Well, I mean, that’s been an excellent conversation as always. I’ve learned huge amount also. I just wanted to thank you, Jim, because when we started Macro Hive we had our professional offering which is for smart investors and you were the first client we got.

And so that really gave us a lot of confidence in terms of developing our kind of more high-end research and trade ideas and all of those sorts of things. And I always enjoy our weekly conversations that we have. And it’s been a great sort of pleasure and honour to be working with you over this period.

Jim Leitner : Likewise, I think it’s been fabulous. And I think you have a great future. I think it’s wonderful that you probably will find ways to improve the service, which I think will just be fun and I feel that the people on the Slack channel are all partners. They’re friends. They’re partners and there is no kind of competition trying to outperform the other.

It’s more about, let’s share ideas. Let’s make sure that we all learn something new and I think the Slack channel has been kind of interesting bringing in things that I would have never seen before. It’s this idea of duration that’s really worked very, very well. And it’s been a super pleasure to be involved with you guys.

Bilal Hafeez :I have to say you kind of set the example in terms of a successful investor who’s generous with sharing their ideas. I mean, a lot of very smart investors are very secretive and you kind of are the opposite way of sharing and I think that that’s a really good example for all of us. So, thanks for that. Okay, then take care.

Jim Leitner: Take care. Thank you very much for doing this.