00:00It's an interesting week because we are going to start to get some earnings out of some of these
00:03software companies that have been beaten down, Salesforce, Workday, a few others that I'm
00:07forgetting here. And it gets to this idea as to whether, I guess, the sell-off that we've seen
00:12effectively, a bear market that we've seen in a lot of these software names, is warranted,
00:16or are people just kind of getting maybe a little bit too ahead of themselves with the pessimism?
00:20Well, I mean, I think we have to start with a baseline that maybe some of these software
00:23companies did have very high multiples around 30 PEs. That's got trimmed back down to around 15.
00:28So I think there's been a reasonable sell-off in the overall space. But I think the way the market
00:33is looking at this is they're thinking about this as something that could become a systemic event or
00:38something like that. I don't see it that way. So effectively, whenever I see an event like this
00:44is one sector in the market that's moving, I always ask the question, is there a contagion or is there
00:49a dispersion, in which case I can diversify the risk? So is this sell-off in the software sector,
00:55is that infecting the credit markets? Is it infecting liquidity? Is this going to become
00:59a leverage issue across a broad swath of sectors in the markets? We're not seeing that. In fact,
01:04we're seeing the publicly traded credit markets are trading just fine. Liquidity is just fine.
01:09So I do think that there has been a setback from high valuations, but I don't see the contagion.
01:15So I don't really see this as a broad-based sell-off with a long gestation period that could bring
01:22down the market substantially further. What do you think people are looking for,
01:25though? I mean, I understand valuation is part of it, but there's something more there.
01:28So look, I mean, I think people are really trying to evaluate the creative destruction that's coming
01:33out of all of the various different large language models and what have you. And what people
01:43are, I think, are misunderstanding in this whole thing is that there's also an opportunity set that
01:48comes out of this too, right? So there's probably a lot of future jobs that we can't even think of
01:51today that are going to be there for us. But this whole idea of this halo trade, this heavy asset,
01:57low obsolescence. Well, yeah, I would like to invest in things that have low obsolescence,
02:02but I also want things with a high growth rate. So how do I get something with low obsolescence
02:07and a high growth rate? Well, yes, if you have a very unique product, fine, but there aren't a lot
02:12of
02:12those. So in general, if you invest in a lot of things that are not subject to creative destruction,
02:18then you're probably not going to have a very high return on your capital either, right? Because
02:23the growth rate just isn't going to be there. So I think people have to understand that creative
02:27destruction and with all this AI stuff that's going on, effectively get used to it. It's going
02:33to disrupt a lot of things. The question we have to ask ourselves is, is it disrupting areas that have
02:37a lot of leverage that will then create contagion across markets? If not, then we have to figure
02:43out ways to construct our portfolios and manage around it.
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