The $2 Trillion Question | Tobias Carlisle on SpaceX, the AI Buildout, and the Rotation No One Sees

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**Tobias Carlisle** (1:00)
It's entirely conceivable that all of this work goes into creating these incredible AI models and all of the value accrues to the consumer and not to the people who create these models. Maybe there's unlimited demand for compute, but it's more the stock market that's demanding it rather than consumers demanding it. Ultimately, those multiples do mean revert, growth rates mean revert. If you believe in mean reversion, then the smart bet is small in micro value, mid cap value.

**Justin** (1:32)
Toby, welcome back to Excess Returns.

**Tobias Carlisle** (1:35)
Thanks so much for having me, Justin. I'm excited to be on the premier financial podcast currently on YouTube.

**SPEAKER_2** (1:43)
It's our goal.

**Justin** (1:44)
Hopefully we'll get there at some point now. We might be top 50 maybe.

**SPEAKER_2** (1:47)
I don't know, Justin. We're doing our best.

**Justin** (1:48)
Well, I've been trying to convince Jack to lean into the most bearish covers and titles as possible, and he just won't do it.

**Tobias Carlisle** (1:56)
I mean, they certainly attract attention. I've noticed that they all sort of trend towards the same stuff burning down in the background, red color. My AI suggests it all the time as the one that you should use.

**Justin** (2:11)
Yeah, we don't use them either. But by the way, Toby, your YouTube thumbnail game has gone up a lot recently. I've been noticing that. I'm out there checking out everybody.
I'm always looking at what all the competitors are doing. You're doing some great work over there.

**Tobias Carlisle** (2:23)
Yeah, I get the AI to suggest some names and then I run an A-B test. It's been good.

**Justin** (2:29)
Toby, we always like having you on at least once or twice a year to get your thoughts on the value investing landscape, sort of how you're thinking about developments in the market, and just a wide range of topics that I think we're going to cover today. You've been a long-term guest, a friend of the podcast, and I think one of the things that Jack and I always have appreciated about you is you have stayed in your wheelhouse. The message has been consistent ever since we know you and ever since you started running the funds. We're looking forward to the conversation with you today to talk that value and a whole bunch of things. You are founder and portfolio manager of Acquire Funds and the firm offers two ETFs, the Acquire Fund, Ticker Symbol ZIG, and also the Acquire Small and Micro Cap Deep Value ETF, Ticker Symbol D. You can learn more about these funds on their respective fund websites, acquiresfund.com and acquiresdeep.com.
To start, I think Toby, I wanted to just kind of get at high level overall sort of market valuation. I think if you look at the market today based on almost every measure, things look either expensive or very expensive. But I think when you hear these things about where the market's at, whether you're looking at the Schiller PE or Tobin's Q or whatever metric you're looking at, you can't just say get out of the market. That's not the read on this stuff. So how do you think about what these valuation, these market valuations, what do they tell you, what do they don't, and how are they useful for the investor, do you think?

**Tobias Carlisle** (4:18)
Yeah, I think it's tempting to look at those market valuations and get scared out of the market. That's a mistake, I think.
The market overvaluation is really well documented.
The Advisor Perspectives website has, they track like six or seven different market level valuation metrics. There's ShillaPE, Tobin's Q, the trend of the market against the long-term trend, a few other single year PE metrics and things like that. Every single one of them is, and collectively, they're most overvalued in the dataset. The ShillaPE is one that slightly understates the level of overvaluation. The others seem to suggest that we're in this uniquely expensive time in the market, which if you're a bull on AI and the singularity, AI being so completely transformative that it completely changes the way we do business, such that these companies are going to earn super normal returns on capital, and they'll never ever be headed by any other business, then maybe these multiples are reasonable. If you're in the camp that we have these long-term returns to, we mean revert back to long-term means, which honestly seems like a quaint idea these days because it really hasn't happened for an extended period of time. But that used to be the case. In 100 plus years of data, we've always gone back to the average. Then it looks expensive and you look like the forward returns. The corollary to overvaluation is just reduced forward returns and they're often accompanied by a lot of volatility, a lot of crashes and things like that. So on a comparable basis where something like the peak of the.com boom or the very last few months of the.com boom, if you like, the Shilla PE, because it's not quite the all-time high. And there's no reason why the all-time high is the ceiling. China got to 100 times. Japan got to 100 times. The US getting to 44 times. That's not a magic number. It could easily go through that number.