Chris DeMuth Jr. Shares Some Stock Picks (undefined:WLFC)

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Sifting the World’s Chris DeMuth Jr. discusses value investing and his top thoughts for the new year (0:25). 2 stocks: Willis Lease and FTAI Aviation (3:00). Relevant risks and metrics (6:50). California First Leasing possibly misunderstood (9:15). Gambling and activist investing (12:20). Healthcare and AI (35:50).

Transcript

Rena Sherbill: Chris Demuth Jr., who funnily enough, it’s been exactly two years since we’ve had you on Investing Experts. Welcome back to the show.

Chris DeMuth Jr: It’s good to be here. Thanks for having me again.

Rena Sherbill: It’s great to have you. I’m sorry that we’ve waited so long to have you back. For a refresher, those that didn’t know in the first place, you run an investing group on Seeking Alpha called Sifting the World to rave reviews for many years.

If you would share with those listeners that may not be familiar with you or your work, what exactly you focus on, your lane in the market.

Chris DeMuth Jr: Sure. I come from the value tradition. I’m a value investor, but more specifically, I look at special situations and event-driven opportunity, usually with some kind of policy bent.

So my first job was doing government risk analysis in DC. So some kind of regulatory issue and mostly focused in the US and mostly focused on equity, although that’s not a hard mandate. It’s just kind of where I spent a lot of my time.

Rena Sherbill: So as we enter this new year, what would you say you’re particularly focused on, if anything, and what you’re thinking about these days?

Chris DeMuth Jr: I would say that the US equity market is quite fully priced compared to a lot of international markets. So I kind of have residual inventory kind of topics tied to the US. And a lot of the things I think about are here. I live in the US, but equities are pretty fully valued, especially mega cap tech.

I’m shy about saying that because they looked kind of expensive to me and then more expensive and more expensive and have done really, really well through today.

But I’m not eager for lots of kind of long US equity exposure. Interested internationally where we find opportunities in Latin America, in Asia, and interested in smaller caps that hasn’t kind of participated with the AI tech boom.

Although at least in one case we have kind of some exposure that’s is there. And then looking for kind of esoteric opportunities either through kind of litigation or some kind of corporate change where the kind of historical way of looking at a business and the stock might not apply as much in the future.

Rena Sherbill: Well, that dovetails really nicely with what you were saying about the valuation conversation and how hard it is to ascertain the proper valuation. And are we at the end of a bubble? Are we at the beginning of a huge bubble? where exactly are we?

What would you say are the names that you’re most interested in and the things that you’re thinking about maybe differently that led you to them?

Chris DeMuth Jr: The two of the ones that I’m working on literally today, but two positions that I think are the kind of thing that I’ve written about a little bit in the past. People might have seen things that we’ve done.

One that I’d mentioned is Willis Lease, ticker is (WLFC). Disclosure: I long have been involved in this one for decades for a very long period of time. And it is an airplane aerospace leasing company that mostly lease jet engines. They have a very, very valuable portfolio of engines.

They have been run as almost like semi-private company. Their management’s not very shareholder facing. The kind of family that controls it runs it. The Willis family has been kind of founder-led, then founder-son-led since the beginning. It’s a very impressive, very good company. Its market cap’s right about a billion dollars.

It has been a beneficiary of a really, really tight kind of supply of their engines. So the business is doing extremely well. The NAV had gotten kind of really, really high, especially kind of corrected for the actual market value of their engines.

But the thing that I would point out is, a company that was and is very shareholder facing, well regarded and I’d say well understood by the market is FTAI Aviation. (FTAI), no position in it, but I’ve followed it really carefully. And it has a 24, 25 billion dollar market cap. Much, much bigger than Willis.

But I think Willis’s model, they’re really changing. They’ve announced a number of JVs in the past month that I don’t think the markets realized how much this could transform their business.

It could grow much, much faster and become kind of an asset manager of this airplane, jet engine portfolio. But long term, I think these partnerships are going to massively increase earnings.

And I think their billion dollar market cap will really converge meaningfully on FTAI’s 24, 25 billion dollar market cap. But even before the kind of medium or long term kind of growth story, I think they could just buy the engines that the company itself owns in these new partnerships and realize gains that will really make it obvious to the market how valuable these engines are. know, we’re talking a billion dollar market cap.

They could end up just monetizing, you know, $800 million of that billion dollars in transactions from these partnerships and casting a light on how valuable their inventory is.

So Willis is one, I’ve mentioned it and written about in the past. It kind of had a terrible last year is down, I mean, just roughly looking at it down the kind of high 20s percent this past year might have some tax loss selling going into the end of the year that might kind of now that we’re in January could allow the stock to pop a little bit. And then looking at what’s very substantively similar business.

But I think will become optically clearer this year. FTI was up 43, 44, just up massively this past year and then up again this year. So it’s just FTI is properly understood by the market.

And I think Willis is more similar than it’s been given credit for. And I think this year it will reveal itself to be a lot more valuable than it’s been given credit for.

Rena Sherbill: What would you say are the metrics that you use and are they sector specific? Are they stock specific? How do you look at the metrics? What do you pay more attention to? And what would you say about the risks present with these stocks?

Chris DeMuth Jr: On my way in, and this is something I’ve owned for a very long time at this point, I’m very focused on assets. I’m very focused on paying a big, at the time, discount to NAV, especially where it’s a plausible business, it’s earning okay, and I’m just looking at an NAV that uses historical appraisals.

In a market where the market value had raced way ahead and the market value is really transparent. This isn’t something that is just my opinion. I can look at transactions day to day for the kinds of engines that they lease. And then whenever there’s a backlog, thinking about economics and a backlog in new plane production, that kind of midlife planes that they serve, it becomes more and more valuable to keep them online.

The net asset value is hugely important and then kind of having an idea about the changes in earnings – you can look at historical earnings, but then you say, okay, what is the impact going to be on earnings?

And what’s interesting about Willis and their new partnerships is sure, you’re going to have leasing, but you have all the maintenance and all of the other, you’re kind of brought into their kind of ecosystem of asset management and you’re going to get paid in like four or five different ways. So what could look like $25 million of earnings can very quickly become 50 by the time you’ve done the maintenance work and everything else.

Earnings change from new endeavors that are not properly priced in the market medium to long term short term the kind of huge reveal on the asset value, especially if they take the step of buying of having the partnerships take out the company’s inventory, which I think they should and will do.

Rena Sherbill: What other stocks are you looking at? What other names would you add to the list?

Chris DeMuth Jr: So I wasn’t even thinking that it would be two leasing companies. It’s kind of just coincidence. California First Leasing, one I’ve written about a little bit, (CFNB).

This is a really interesting one to me in that it is a owner of a largely large cap U.S. equity portfolio, a 1940 Act company in California and until recently has been trading at a huge NAV discount. It’s kind of a quirky little name and it’s one that I think is really interesting. The management has a plan to do a not for a premium tender, a self tender to take out smallholders.

So if you want to hold on to this it’s important to have at least 100 shares or they could take out the smallholders. But they’re doing it explicitly because they’re trying to do an end run around the 1940 Act kind of compliance in terms of transparency.

I don’t think this move is particularly shareholder friendly. I think that it’s possible that it’s defeated simply by if there are too many shareholders anyways, they’re trying to get beneath threshold so that they don’t have to comply anymore.

I think that they should simply cash out everybody at NAV, which is currently kind of $33, $34 per share. It’s trading at still at a discount to that. It’s $27, $28 per share right now. And I track the portfolio and the NAV value.

It’s in a lot of things that I don’t think otherwise would be in. I mean, you can just buy the stocks yourself. There’s no skill or edge in the kind of things that they own. But until recently, it was a huge discount, still at some discount.

And if this end run around 1940 out compliance fails, that’s when I think there could be a real pop of five or $6 a share to the portfolio value. If they simply, if they can’t cash people out without a premium, I think they would just pay an AV for a going private. It’s mostly privately insider held. You’re talking about a tiny little float outside of what they own.

And they presumably like their own management. They presumably like their own asset allocation, they can have it. And if they can’t get out of 1940 Act compliance, I think that the overall burden and expense, I mean, the costs are ludicrous relative to the assets under management that are unaffiliated, right?

If you say a $30 million float shouldn’t cost all these kind of regulatory compliance costs and others to get it done. And so I think that in terms of things that could happen this year and things that are possibly misunderstood, under followed by the market, California First Leasing CFNB, I think has been extremely interesting and is still pretty interesting here.

Rena Sherbill: And is gambling a theme that you like these days? It’s certainly a lot to like if you don’t not like it, that is.

Chris DeMuth Jr: It’s something that I’m very interested in, something as a father of teenagers, I’m kind of wary about. Love it as a shareholder, not that excited about it as a human is the kind of gamification of everything, how much apps are commingling, investing and trading and predicting and gambling.

I open up any kind of trading app these days, and you almost always have kind of yapping about whatever the game is that night and because it’s all tied to the same balance, you could put an immense amount of money on just games, on just the dopamine hit, and so I think you’re farther and farther away from thinking about investing as ownership and long-term and businesses. So that’s too bad. But boy is it popular.

We have had a number of, and I always recoil from calling it activist, kind of high engagement situations this past year where we had a strong view, we had a shareholder position, we both bought the stock and unseated the view. And when there was a vote, tried to get something improved or abandoned that we thought was not in our interests.

So Core Scientific (CORZ) was one of those in their deal with Core (CRWV). We vocally opposed it. We voted against it. That deal was voted down. We thought there was a chance that there was a good deal to be had in that and we simply didn’t reach one, but we’re very happy with that as a standalone versus the value in that deal.

More recently, the gaming one that requires a vote that we think is very interesting is Golden Entertainment (GDEN). We’ve written about this publicly, including our opposition to the deal as structured. It’s a complicated one, and it’s one that they might get away with, but shouldn’t. They are selling, they’re doing a deal with (VICI), a sale lease back deal for their real estate in Vegas.

And that deal’s fine. It’s an equity for equity deal, a stock for stock deal. And I don’t have a strong view on it. It’s perfectly fine. At the same time, management’s slipping the entire operating company to themselves for about one times earnings.

The derivation of this that a colleague caught and that is going to become just like such a constant check that we do that I thought was kind of amusing and dark was that they deleted on their IR site all their historical presentation materials about how great their operating co was because they want to take it for themselves at an absurdly low price.

Now, how they’re getting away with this is they’re commingling these two deals, right? So they’re saying like, we have this value, you’re going to get this because this other company is paying a premium for real estate and we’re taking off your hands at a tiny price, the actual business.

So that is one that I think is very interesting. TBD, whether they get away with it, but I think an arm’s length serious process that was compliant, that lived up their fiduciary duty that was really kind of shops in a way designed to get the best highest price would be for the business, for the operating business, you know, a multiple of the price that they’re getting.

So if they get away with it, fine. I don’t think you really lose much the current price, you know, just to give you a sense $27.27 last I saw the market price and you’re getting a little over 20 bucks in value for the deal. So if it goes through like, tie, but shareholders should absolutely vote this down over the relatively small operating business.

Now, the problem is passive money, shareholder, proxy advisors aren’t going to be that excited by the topic because the mispriced part of it’s a relatively small part of it.

The larger part, which is also hedgeable, you can short the ICI against it, is kind of neutral. But within it is something that is worth many times what is being paid for it.

So I think that on the activist side, Core is interesting. I think Golden is interesting.

And that’s the kind of thing where we’re looking for where there’s just something anomalous about how the deal was done in the process that leads to a pretty bad mispricing.

The weakness of this one was we weren’t quite sure we were going to be able to vote down the Core Scientific deal. This one’s a little bit more of a brainer since the value is decently hidden within the overall transaction.

Rena Sherbill: What would you say as an activist investor, what would you say that you’ve learned along the way? And if anything’s changed in your approach or I guess your strategy around that.

And then also in terms of the mispricings, what you’ve learned around that.

Chris DeMuth Jr: Yeah, it’s a good question. And I would say quite a lot this past year. I’d say what we’ve learned is if we need to take a very active position to make an investment work, we should also always have another option, which is just sell the whole position, forget about it move on.

It’s hard having control of a board and having control of management day to day makes a big difference. you have a outside minority shareholder activism is a crude tool. It’s kind of a baseball bat, not a scalpel.

And if you can use the baseball bat to bludgeon them into just selling to the highest bidder, that’s fine. If it’s very subtle, I like and admire the person who did this, the kind of they need to salt their pasta activism is the kind of thing I’m like, okay, if it’s that subtle, I’m going to be cautious about my involvement. If that’s needed, maybe I should just also not do it.

I would say that one of the things that I’ve learned is how much smallness is a corporate defense and smallness is a corporate defense because my expenses as a shareholder don’t scale down that well.

I normally get my money back if I win. But the problem or situation is lawyers, advisors and so forth. There is a kind of unitary cost to that that if I can make a hundred million dollars isn’t that different than if I can make a million dollars. And so once you get down to make a million dollars, you very quickly are in the hopeless situation. so smallness, you dealing with the kind of quirky micro cap or small cap names that I tend to be really interested in, they can really get away with murder because it’s just such an expensive hassle.

And I kind of joke with my lawyers on how small we can make the bills in some tiny situation. But I’m the only one that thinks it’s funny. They want to get paid.

And the cost associated with fixing tiny companies is really hard, even down to not just hard in terms of running a campaign, but if there are malefactor individuals, I’ve had situations where this wasn’t me, but this is people I’ve been actively working with, get on the board, fix management. And something was discovered that was a real individual liability from the people who were replaced and were like, we’re right there wrong.

We could prove it in court, but there’s no point in suing them because they’re not that rich. There’s not like the dollars involved. There’s just no, there’s a lot of ways to defend yourself when there’s a billion dollar wrong. And it’s a lot fewer ways to defend yourself when it’s a million dollar wrong, because you can’t just scale down. And at some point you just like kind of move on. So smallness is a corporate defense.

There’s a lot of ways the regulators could improve this. If we could do electronic only, mean, one of the obvious reforms would be for all the people who have electronic only apps, don’t have any connection to paper information. One should be able to do counted as full disclosure by simply email and not paper mailings. And also on the, since I look at a lot of banks and thrifts, the Fed limit on shareholding that makes it pretty difficult to have to get separate approval to go over 10%. That makes it really hard because it’s million dollar bank. I can only have $10 million.

That makes it a lot harder than if I can have 20 or 30. So there’s a lot of things regulators could do, but small assist events.

And then also we’ve been very involved this past year on broken biotech. So one of the areas that primarily a colleague of mine, but my portfolio was involved in too is looking at biotech companies with failed research and huge discounts to NAV. So coming in for 50 cents on the dollar of cash, where it’s blindingly obvious what they should do and it’s their duty.

I think what we discovered one is in at least some cases, people are kind of more awful than your low end expectations of how much or little they could care about shareholders.

And two, when we’re coming in fresh to a situation where maybe the value of the company’s gone from, call it $10 billion down to $100 million and the market cap, the share price is trading as if it was worth 50.

So this is a super exciting, interesting situation to me. It’s what I do. It’s what I like to do. But like, I’m the only one who loves the topic. So you’re talking to the board, you’re talking to the management, you’re even talking to other shareholders, especially kind of long only and shareholders in that in that industry. And like nobody’s that happy about the stock.

The board management wishes you leave them alone and the shareholders in many cases, especially if you’re like a big prominent shareholder, the stocks got so eviscerated, you can just forget about it if it wasn’t for me calling and wanting to get them to liquidate. So it was kind of lucrative.

But things that I thought were going be easy were really hard. Things that I thought were going be fast were really slow and lots and lots of friction based on people who got themselves into that situation and industry specialists whose whole lives are really revolving around that industry, maybe even more than what happens to that one specific company.

So if a project is 99% doomed, I’m very happy to round that down to a hundred percent doomed. save the remaining money. And they really want to spend every last penny on science experiments because it’s kind of what they do.

I think what it taught me overall is a new found respect for how little people change, how much human nature from individual to individual people are mostly one thing. And you really need to hire and fire for specific times and places and roles.

Even if it just seems to be blindingly obvious what should be done people mostly just do whatever it is that they did getting them there even if it’s been a disaster.

Rena Sherbill: Did you get into activist investing like because it interested you because you feel like you’re geared towards it because you felt like that was the most you could get like return on your investment. How did you get into it?

Chris DeMuth Jr: I would say that we are optimizers. We’re always looking for, what’s the best high seas of capital or our own capital of the company’s capital. We always invest with a thesis. So it’s a fluid category for me.

We always invest with a thesis of what should they do? In many cases they’re doing that exact thing. In many cases, we have companies where we see a discount and a difficulty.

And I am an active, engaged investor, 100% aligned with how management’s handling whatever the difficulty we see that is going to become unwound over time.

I guess on the drug side, Liquidia (LQDA) and Roivant (ROIV) are two of the most old positions long, long both and positions companies I’ve cared a lot about for a very long time. You could say I’m active and engaged. I just like everything the boards and managements are doing.

They have complicated, hard litigation roots in both cases. If they and I disagreed, I would speak up. It just happens to be that they’re run by the right people who are doing the right things. So, is that activist? I’m just a cheerleader.

I have very little to add to what Liquidia has to say, including this next week on how their YUTREPIA rollout is going. I have very little say on their, from time to time actually do have quite a bit to say, but it’ll be aligned and cheerful thoughts on the litigation and regulatory process and how to deal with, in the case of Liquidia, an incumbent that has just done everything possible to prevent them from getting to the market.

And now we’ll do everything possible to pull them off of the market. And so if I put my money in something, I act like I own the place because I do and they can agree or they can disagree. The process of kind of going through an actual battle is usually something that I’d love if there were other shareholders involved leading the charge on like I’m just not big enough and concentrated enough to want to pick fights that I have to win individually.

But something like Core Scientific, we had a strong view. We had votes, had chairs, we had been involved at for us a significant scale. But we also had a case that was pretty easy to make to other shareholders. So there’s a lot of leverage if you can be persuasive and there’s leverage on Seeking Alpha.

I made my case on Seeking Alpha amongst other places. And so you can kind of get situations where you can punch above your weight by saying things that you think are true at a time you think they’re strategic to say them to other people who have self-interested reasons to be persuaded by the ways to unlock value.

You can buy CFNB for 28 bucks and I think you’ll get 33 or 34 in short order as long as enough people, it’s a self-fulfilling aspect of these things always require something.

Sometimes they require a successful go-shop period, not that frequently. Go-shop periods don’t normally work. Sometimes they require a second bidder. Sometimes they require negotiating with the buyer, but sometimes they require shareholders to nudge them.

And so I think we’re part of that. Or we’re part of the conversation and we’re part of the conversation in a way that’s intuitive to me because I’m always thinking about like, what should this company do? What’s the plan for unlocking whatever part of the value I see as mispriced or hidden or discounted and maybe discounted for the completely benign way.

If you’re not going to spend all your time thinking about this, the second best bet might be spending many years time thinking about this. So if there’s some big merger or spinoff or contingent value, right?

They’re all reasonable things to not want to have to do. But you just don’t want to kind of stumble around, overpay for them or take on some huge risks you didn’t know about. And so I’m thinking about all these issues anyways. And if it simply takes me speaking up, I’ll speak up.

Rena Sherbill: Do you think parenting teenagers is a lot like being an activist investor?

Chris DeMuth Jr: Parenting teenagers can be.

I’m in the doubly humiliating situations that they crush my returns to their brokerage accounts just being kind of levered long mega cap US tech. It’s only six country companies they’ve ever heard of. And they have multi bagger year after year after year. They think, why is my dad focused on these like obscure, you make it look so hard. And it’s so easy.

Rena Sherbill: Why are you working so hard?

Chris DeMuth Jr: The model I have for what I’m trying to do is like, I’m very interested and there has to be some kind of aesthetic interest and philosophical interest.

I’m very curious in the markets and outside the markets and situations where something is at first glance superficially ugly or unremarkable, but beneath the surface, if you really understood it, there’s something beautiful and amazing and valuable there or something that like is superficially really impressive.

But actually once you understand it, you’re like, no, that’s terrible. That’s the story of everything I’ve ever cared about in fiction, nonfiction, in literature, in art, in markets and so forth. Now, recently of all the countries you could be in my country, of all the centuries you could be in this century and all the things you could know easily conveniently about has done unbelievably well, right?

Maybe I’d be the last one to discover hidden in plain view, you know, mega cap American equities if you’d like the most well-known things have done. Now, partly this was free trades and retail mania and partly you could go back a hundred years and there’s always some sector that gets to be this huge percentage of the market.

And it’s been one of the clearest, easiest mean reversion opportunities anywhere. know, something becomes 30% of the overall market cap, it then goes back to 10. And when it’s at 30%, there’s always somebody who’s going to explain to you why it should be 30% or 40% or 50% and why it’ll be like that forever. And then like clockwork at mean reverts.

We’ve never had market leaders that were this big either in terms of their market cap and percentage of the market cap and then exacerbated by the feedback reaction of more and more money that’s passive and market cap weighted.

But they’re also really good businesses. I’m slow and tepid to be convinced by this, but I wonder if at the time every other market leader justification rationale right before it mean reverted felt as convincing as this one, but these really are the best businesses. you can go back a century and I don’t think there was anything like the most superficial first level thinking trite lines you could say about network effects and economies of scale on businesses where it really just, there’s almost no marginal cost of growing some of these businesses actually until big asterisk until AI where there’s actually some very high costs associated with it.

But until recently, it was so trite, but it was so true and correct and right and lucrative to just know that one thing. so I’m always kind of waiting to not be contrarian for the sake of contrarian, but kind of debunk the kind of obvious thing that in the press and the price.

But the stuff in the press and the price on huge American equities have been pretty dang right for the century so far.

Rena Sherbill: You mentioned the broken biotechs. I’m curious, hosting The Cannabis Investing Podcast, if any of those involve, and you mentioned copious amounts of research, if any of those were psychedelic companies?

Chris DeMuth Jr: No is the specific answer. I’m very interested in psychedelics.

My friend Chris Irons, who writes under Quoth the Raven is very on the top of those this year. I think I think he owns kind of that index of them. I haven’t heard I don’t let him speak for himself in terms of specific names. But we’ve I’ve heard him, we’ve talked about it a bit and I’ve heard him present in those. I think it’s a super interesting area. think that this current administration’s health care efforts are evolving and so it’ll be interesting to see how they do on this.

I have never taken psychedelics. I probably never will. I think it’s a very promising area and I would say if you ranked psychedelics versus marijuana versus alcohol. I think society has largely had it backwards on health risks. I think the least interesting drug is alcohol. think it’s social acceptance is just to have a cultural historical edifice relative to the downside.

I think hangovers have to be one of the common most underrated symptoms of a serious health thing, right? Like if you walked up to somebody and you punched him in the face with the precise force equaling to a bad hangover the next day, you’d go to jail and anybody would say like, of course you would be like, you ruined a whole day of something, but people routinely drink alcohol to poison themselves for the subsequent day. that’s it’s just because it’s common that it’s not a rated a serious thing.

I think that marijuana is much more promising from a health medicinal perspective. And I think that psychedelics are even more so. I would throw out that if you listen to the best psychedelic experiences from people who really needed them or really rely on them, I think that at least some of those things are things that one can gravitate towards without chemical intervention, especially if you don’t have, you know, massive trauma you’re recovering from and so forth.

But of the people who are kind of post-traumatic stress combat veterans and people who are really kind of lives are incapacitated with mental health issues. think psychedelics hold out a huge promise. I’m not that interested in the risks that a lot of people I hugely admire are. And so I’m kind of free riding both on their experiences, but also trying to replicate like, what did you get out of the psychedelic experience and like saying like, okay, that that kind of connection, that kind of experience is worthy.

But we can all kind of nudge yourself towards some of those things without chemicals. Especially if you don’t have like if you have, if you’re higher functioning and happy enough with how things are going, that the risks become more salient than if you’re just incapacitated. And this could be a way to turn your life around.

Rena Sherbill: Anything that you would say about AI and healthcare, biotech and that overlap?

Chris DeMuth Jr: Good question. I would say by far in a way, the biggest thought I’ve ever had an AI was really kind of going through the Core Scientific experience of they came out of bankruptcy. They were a Bitcoin miner. The securities were really cheap. Crypto mining is a terrible business.

But they just walked into, I mean, tripped over and stumbled on a gold mine of having the perfect facilities and assets and business relative to data centers. So the enormous amount of energy and compute necessary for AI, I loved the opportunity to transition that business.

There were number of other really good ones. were a little bit more, everything’s this way, but this opportunity was a little bit more fact specific around the original businesses than the market gave credit for. They kind of all raced and some of them deserved it more than others.

But Core Scientific was our big kind of AI adjacent thought. I like a number of the private, still private AI businesses.

I don’t have a big AI play outside of an additional Core Scientific. I would just say I personally am fascinated to follow it all the time, hope that there’s huge upside. Yet again, I’m kind of quite held back by in the press and the price.

I can’t think of any time where I’ve been the right one to read something that was kind of above the fold in the newspaper, if you can still call it that, that that was the start line. That’s more of what I think of as the finish line for something that I would be interested in.

So just time and time again, financial innovation and kind of the hot new thing gets overstated. I rather suspect AI is the hot new thing that’s understated kind of like I think is big American companies equities that are this huge market leader. Like this actually is the time where it’s justified.

I’m certainly that way with AI. I’m not a cynic. I am not a tepid. I’m not the right one to be kind of the lead investor in any of these things. It’s not a traditional value investment in any way right now. But I use it extensively. I love AI. I think it’s miraculous and just endlessly important.

Rena Sherbill: Yeah, like all these technologies that can be used for very good and very bad things. Let’s hope we get to the very good side more.

Chris DeMuth Jr: Yeah, I mean, we’re still responsible for asking the right questions. I think it could be at its best quite pro-human in that we’re left with much more interesting things to think about if it solves a lot of our mundane tasks. I think that there’s a lot of nostalgia and sentimentality towards prior generations of work.

That wasn’t really great work. What was great was to have meaning in doing the things that needed to get done But if a computer can quickly and easily do it, I think that it simply Raises the bar and changes the nature of meaningful work So we want meaning.

I don’t think we want tasks and I think we’re going to Re-evaluate how valuable some of those tasks are that can be done for free instantly. And I think very few people will recreationally do with any of these things once they have no market value.

Rena Sherbill: I think also introducing AI into so many components of life also, it also introduces or reintroduces the concept of how important humanity is in life. I think also as easy or as convenient as AI can make our lives, which it very much can, I think also the human element is as essential as it ever was, perhaps even more so, I would say.

Chris DeMuth Jr: Yeah. So, the chess world is a good example of something that has been, defeated by computers, right? That it’s, that no human is anywhere close to as good at chess as the, best computers.

And nobody cares. The chess world is thriving because humans aren’t interested in the computer beating the humans anymore. It would be as if I showed up at the Tour de France with a motorcycle and said, hey guys, I’m faster than you. Nobody would care. It would be utterly missing the point. And so something with that kind of human element, think we still are the ones asking the questions.

We’re still the ones relating to one another. So anything that involves eye contact, physical touch, actual interaction, of IRL human stuff, I think will become more and more dear and valued and important kind of live entertainment, live interaction, live community is what’s going to be left. I hope and expect 10 years from now, 100 years from now, a thousand years from now, we survive a thousand years. And, and I don’t think that that’s going to be replicated.

Now you put AI in humanoid robots. you think how, especially with, I think one of the big kind of qualms I have is the obsequiousness of a lot of AI and how much people like it. And so it’s like, if you could have really good humanoids that are like other people, except they’re much smarter and they’re much more impressed by you. I think that that could be a dark, future.

And so we’ll see how we relate to one another, whether community and relationships can withstand that, you know, not kind of evil oppressive robot, but the impressed robot that gives you exactly, that can get inside your mind and like giving you exactly the answer that you want compared to another person.

If you look at broken marriages amongst the very tippy top of kind of the world’s, you know, Forbes 400 list. There’s something I don’t, I’m not going to get the stat right. But if you look at the top 25 people there, there are many more marriages than people at the very top. And I think one of the things this represents is if you have this huge family office and you have dozens of people who are kind of their full time job is to tell you, you’re great. You asked the perfect question and now I’m going to give you the perfect answer.

Thanks boss, fly you to wherever you want to. You have one person who talks back to you and that’s your spouse. You’re like this one person. Why won’t they just do exactly what I want the second I want it like everybody else in my life? And that becomes intolerable. Well, eight billion people are about to be that multi-billionaire with a family office, at least on information. They won’t fly you to Mallorca this weekend, but they’ll talk to you about the thing you want to talk about in the tone that you want.

And that kind of obsequious impressed tone is I think one of the darker sides of AI, not because I hate it, but because I love it. And then you look at actual people who actually have a pot perhaps far more reasonable view of how great your idea was not being told to like chat GPT thought it was a great idea. So I think that that could be a huge problem.

Rena Sherbill: You think you’re smarter than chat GPT, I doubt it.

Yeah, man. Chris, I really always enjoy talking to you. I think anybody that has listened to this show knows that I like a thoughtful analyst and you’re at the top of the list. So really appreciate you taking the time and sharing with us.

Again, your company is Rangeley Capital. Your investing group is Sifting the World. You can find some free articles on Seeking Alpha.

Any final words that you want to leave or any way that people can get in touch with you?

Chris DeMuth Jr: Available on Seeking Alpha. think I’ve at least mentioned here or there. and, we’ll certainly be following up this year on each of the specific ones, that I mentioned, Willis Lease, California First Leasing, Golden Entertainment.

And I have a kind of new best idea for 2026, recently revealed right at the end of December within Sifting the World. And that’s going to be something that I kind of come out probably right at the end of this month. So we can circle back, or readers listeners can circle back in late January for my best idea for 2026 that is exclusive for this first month to within Sifting the World.

But it’s a big investment of mine at Rangeley. It’s going to have a very active month this month and very active quarter. So not a value trap.

I will be aggressively humiliated and embarrassed and impoverished or hopefully triumphantly enriched by this being either a dumb idea or a smart idea, consequences to be known shortly.

Rena Sherbill: Binary outcomes only.

Chris DeMuth Jr: Very binary.

Rena Sherbill: You are welcome back anytime to discuss that idea or any other idea. Open invitation. So thank you, Chris.

Chris DeMuth Jr: Great. Thank you.

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