Chris Bloomstran - An Update on Public Markets

**Patrick O'Shaughnessy** (0:00)
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**Patrick O'Shaughnessy** (0:36)
Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (0:56)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:21)
My guest today for a flash update is Chris Bloomstran, the founder and CIO of Semper Augustus and a popular past guest on the show. We talk about his view on the state of the public equity market, why it will be hard for the market to deliver great returns for the next decade relative to the last decade and where opportunities may lie. Please enjoy our conversation.
Talk to me a little bit about how you are thinking about or actually making adjustments to your portfolio in light of what has to be the most bizarre and challenging macro backdrop that we've ever faced as investors in our collective careers.

**Chris Bloomstran** (1:58)
Well, there's no doubt. Nobody's seen anything like this. You can draw parallels to periods like the Great Depression or the World War II period, but I don't think you've ever seen the enormity of entire broad swaths of the global economy just stopping on a dime. Going into this, and one of the themes of my letters in the last few years has been that we've really built up inordinate levels of debt in society at all levels, household debt, corporate debt, government debt.
And for that, we think that the debt stock relative to the size of the economy is unsustainable. I think given where we are, trying to work out of an overlevered capital stock comes with deflation over time.
And because of the dangers of leverage, we've intentionally really pivoted the other way in the last handful of years, you know, even prior to the crisis, we've gone out of our way to ensure that we own businesses that if they don't have net cash in the balance sheet, to the extent they're using any material levels of debt that it was taken on with purpose, say for an acquisition that makes sense, but with an eye toward running the overall capital level, leverage wise, at a reasonable level over time. And so we had pivoted. But I tell you, you get these kinds of periods where you get enormous down drafts on a daily basis. And investors can do two things with that. We sat there at the market lows really, and late fall of 8 and into March of 9 Looked at the portfolio and said, you know, we could flip out of a number of these businesses that we own that we think are really well run with great balance sheets and good managements.
If we're right, and we're at a market low, we would make a hell of a lot more money liquidating a whole big chunk of this portfolio and buying more levered businesses because you're going to capture a lot more at the upside when you flip into things that wind up surviving the worst part of the downdraft don't fail and come out and we refuse to do so. And so the opposite way to approach that is you get a decline like this or at least like what we had up until a couple of weeks ago.
And we run around with a working list of businesses that we don't own but that we'd like to own. And I think the world has caught on to the notion that durable returns on equity make a lot of sense. Owning businesses with price and power makes a lot of sense. And so there are some genuinely very outstanding good businesses that just typically are very expensive and expensive enough to take a lot of the expected return out of the equation.